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Loans Receivable and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2019

Loans Receivable and Allowance for Loan Losses

Loans receivable at December 31, 2019 and 2018 are summarized as follows (in thousands):


	2019		2018
Mortgage loans:
Residential	$	1,077,689	1,099,464
Commercial	2,578,393		2,299,313
Multi-family	1,225,551		1,339,677
Construction	429,812		388,999
Total mortgage loans	5,311,445		5,127,453
Commercial loans	1,634,759		1,695,021
Consumer loans	391,360		431,428
Total gross loans	7,337,564		7,253,902
Purchased credit-impaired ("PCI") loans	746		899
Premiums on purchased loans	2,474		3,243
Unearned discounts	(26)		(33)
Net deferred fees	(7,873)		(7,423)
Total loans	$	7,332,885	7,250,588

Premiums and discounts on purchased loans are amortized over the lives of the loans as an adjustment to yield. Required reductions due to loan prepayments are charged against interest income. For the years ended December 31, 2019, 2018 and 2017, $845,000, $894,000 and $1.0 million decreased interest income, respectively, as a result of prepayments and normal amortization.

The following tables summarize the aging of loans receivable by portfolio segment and class of loans, excluding PCI loans (in thousands):


	At December 31, 2019
	30-59 Days		60-89 Days	Non-accrual	90 days or more past due and accruing	Total Past Due	Current	Total Loans Receivable
Mortgage loans:
Residential	$	5,905	2,579	8,543	—	17,027	1,060,662	1,077,689
Commercial	—		—	5,270	—	5,270	2,573,123	2,578,393
Multi-family	—		—	—	—	—	1,225,551	1,225,551
Construction	—		—	—	—	—	429,812	429,812
Total mortgage loans	5,905		2,579	13,813	—	22,297	5,289,148	5,311,445
Commercial loans	2,383		95	25,160	—	27,638	1,607,121	1,634,759
Consumer loans	1,276		337	1,221	—	2,834	388,526	391,360
Total gross loans	$	9,564	3,011	40,194	—	52,769	7,284,795	7,337,564


	At December 31, 2018
	30-59 Days		60-89 Days	Non-accrual	90 days or more past due and accruing	Total Past Due	Current	Total Loans Receivable
Mortgage loans:
Residential	$	4,188	5,557	5,853	—	15,598	1,083,866	1,099,464
Commercial	—		—	3,180	—	3,180	2,296,133	2,299,313
Multi-family	—		—	—	—	—	1,339,677	1,339,677
Construction	—		—	—	—	—	388,999	388,999
Total mortgage loans	4,188		5,557	9,033	—	18,778	5,108,675	5,127,453
Commercial loans	425		13565	15,391	—	29,381	1,665,640	1,695,021
Consumer loans	1,238		610	1,266	—	3,114	428,314	431,428
Total gross loans	$	5,851	19,732	25,690	—	51,273	7,202,629	7,253,902

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amount of these nonaccrual loans was $40.2 million and $25.7 million at December 31, 2019 and 2018, respectively. There were no loans ninety days or greater past due and still accruing interest at December 31, 2019 and 2018.

If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $1.7 million, $1.4 million and $1.9 million, for the years ended December 31, 2019, 2018 and 2017, respectively. The amount of cash basis interest income that was recognized on impaired loans during the years ended December 31, 2019, 2018 and 2017 was $2.1 million, $2.0 million and $1.8 million respectively.

The Company defines an impaired loan as a non-homogeneous loan greater than $1.0 million for which it is probable, based on current information, that the Bank will not collect all amounts due under the contractual terms of the loan agreement. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). A loan is deemed to be a TDR when a loan modification resulting in a concession is made by the Bank in an effort to mitigate potential loss arising from a borrower’s financial difficulty. Smaller balance homogeneous loans including residential mortgages and other consumer loans are evaluated collectively for impairment and are excluded from the definition of impaired loans, unless modified as TDRs. The Company separately calculates the reserve for loan loss on impaired loans. The Company may recognize impairment of a loan based upon: (1) the present value of expected cash flows discounted at the effective interest rate; or (2) if a loan is collateral dependent, the fair value of collateral; or (3) the market price of the loan. Additionally, if impaired loans have risk

characteristics in common, those loans may be aggregated and historical statistics may be used as a means of measuring those impaired loans.

The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral dependent impaired loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral dependent impaired loan and updated annually, or more frequently if required.

A specific allocation of the allowance for loan losses is established for each impaired loan with a carrying balance greater than the collateral’s fair value, less estimated costs to sell. Charge-offs are generally taken for the amount of the specific allocation when operations associated with the respective property cease and it is determined that collection of amounts due will be derived primarily from the disposition of the collateral. At each fiscal quarter end, if a loan is designated as a collateral dependent impaired loan and the third-party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value. The Company believes there have been no significant time lapses as a result of this process.

At December 31, 2019, there were 158 impaired loans totaling $70.6 million, of which 147 loans totaling $48.3 million were TDRs. Included in this total were 133 TDRs related to 128 borrowers totaling $42.7 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2019. At December 31, 2018, there were 152 impaired loans totaling $50.7 million, of which 148 loans totaling $46.8 million were TDRs. Included in this total were 129 TDRs related to 124 borrowers totaling $35.6 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2018.

Loans receivable summarized by portfolio segment and impairment method, excluding PCI loans are as follows (in thousands):


	At December 31, 2019
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	39,910	28,357	2,374	70,641
Collectively evaluated for impairment	5,271,535		1,606,402	388,986	7,266,923
Total gross loans	$	5,311,445	1,634,759	391,360	7,337,564


	At December 31, 2018
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	24,680	23,747	2,257	50,684
Collectively evaluated for impairment	5,102,773		1,671,274	429,171	7,203,218
Total gross loans	$	5,127,453	1,695,021	431,428	7,253,902

The allowance for loan losses is summarized by portfolio segment and impairment classification, excluding PCI loans as follows (in thousands):


	At December 31, 2019
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	1,580	3,462	25	5,067
Collectively evaluated for impairment	23,931		24,801	1,726	50,458
Total allowance for loan losses	$	25,511	28,263	1,751	55,525


	At December 31, 2018
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	1,026	92	47	1,165
Collectively evaluated for impairment	26,652		25,601	2,144	54,397
Total allowance for loan losses	$	27,678	25,693	2,191	55,562

Loan modifications to borrowers experiencing financial difficulties that are considered TDRs primarily involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. These modifications generally do not result in the forgiveness of principal or accrued interest. In addition, the Company attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

The following tables present the number of loans modified as TDRs during the years ended December 31, 2019 and 2018 and their balances immediately prior to the modification date and post-modification as of December 31, 2019 and 2018.


	Year Ended December 31, 2019
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Mortgage loans:
Residential	3	$	1,617	1,584
Commercial	1	14,010		14,010

Total mortgage loans	4	15,627		15,594
Commercial loans	6	1,996		1,888
Consumer loans	4	421		402
Total restructured loans	14	$	18,044	17,884


	Year Ended December 31, 2018
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
		($ in thousands)
Mortgage loans:
Residential	6	$	981	945

Total mortgage loans	6	981		945
Commercial loans	8	9,192		7,888
Consumer loans	1	336		332
Total restructured loans	15	$	10,509	9,165

All TDRs are impaired loans, which are individually evaluated for impairment, as previously discussed. Estimated collateral values of collateral dependent impaired loans modified during the years ended December 31, 2019 and 2018 exceeded the carrying amounts of such loans. During the year ended December 31, 2019, there were $11.6 million of charge-offs recorded on collateral dependent impaired loans. There were $8.3 million of charge-offs recorded on collateral dependent impaired loans for the year ended December 31, 2018. The allowance for loan losses associated with the TDRs presented in the

preceding tables totaled $177,130 and $119,000 at December 31, 2019 and 2018, respectively, and were included in the allowance for loan losses for loans individually evaluated for impairment.

The TDRs presented in the preceding tables had a weighted average modified interest rate of approximately 3.83% and 5.41%, compared to a yield of 3.82% and 5.46% prior to modification for the years ended December 31, 2019 and 2018, respectively.

The following table presents loans modified as TDRs within the previous 12 months from December 31, 2019 and 2018, and for which there was a payment default (90 days or more past due) at the quarter ended December 31, 2019 and 2018.


	December 31, 2019				December 31, 2018
Troubled Debt Restructurings Subsequently Defaulted	Number of Loans	Outstanding Recorded Investment		Number of Loans	Outstanding Recorded Investment
		($ in thousands)			($ in thousands)
Mortgage loans:
Residential	1	$	578	—	$	—



Total mortgage loans	1	578		—	—
Commercial Loans	—	—		3	1,344

Total restructured loans	1	$	578	3	$	1,344

There was one loan to one borrower which had a payment default (90 days or more past due) for loans modified as TDRs within the 12 month period ending December 31, 2019. There were three payment defaults (90 days or more past due) for loans modified as TDRs within the 12 month period ending December 31, 2018.

TDRs that subsequently default are considered collateral dependent impaired loans and are evaluated for impairment based on the estimated fair value of the underlying collateral less expected selling costs.

PCI loans are loans acquired at a discount primarily due to deteriorated credit quality. These loans are accounted for at fair value, based upon the present value of expected future cash flows, with no related allowance for loan losses. At December 31, 2019, PCI loans totaled $746,000, compared to $899,000 at December 31, 2018. The $153,000 decrease from December 31, 2018 was largely due to the full repayment and greater than projected cash flows on certain PCI loans.

The activity in the allowance for loan losses for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):


	Years Ended December 31,
	2019		2018	2017
Balance at beginning of period	$	55,562	60,195	61,883
Provision charged to operations	13,100		23,700	5,600
Recoveries of loans previously charged off	1,895		1,685	1,653
Loans charged off	(15,032)		(30,018)	(8,941)
Balance at end of period	$	55,525	55,562	60,195

The activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2019 and 2018 are as follows (in thousands):


	For the Year Ended December 31, 2019
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Balance at beginning of period	$	27,678	25,693	2,191	55,562
Provision charged to operations	(2,323)		15,928	(505)	13,100
Recoveries of loans previously charged off	422		665	808	1,895
Loans charged off	(266)		(14,023)	(743)	(15,032)
Balance at end of period	$	25,511	28,263	1,751	55,525


	For the Year Ended December 31, 2018
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Balance at beginning of period	$	28,052	29,814	2,329	60,195
Provision charged to operations	(586)		24,437	(151)	23,700
Recoveries of loans previously charged off	489		428	768	1,685
Loans charged off	(277)		(28,986)	(755)	(30,018)
Balance at end of period	$	27,678	25,693	2,191	55,562

Impaired loans receivable by class, excluding PCI loans are summarized as follows (in thousands):


	At December 31, 2019											At December 31, 2018
	Unpaid Principal Balance		Recorded Investment	Related Allowance	Average Recorded Investment	Interest Income Recognized	Unpaid Principal Balance		Recorded Investment	Related Allowance	Average Recorded Investment	Interest Income Recognized
Loans with no related allowance
Mortgage loans:
Residential	$	13,478	10,739	—	10,910	533	$	15,013	12,005	—	12,141	594
Commercial	—		—	—	—	—	1,550		1,546	—	1,546	—
Multi-family	—		—	—	—	—	—		—	—	—	—
Construction	—		—	—	—	—	—		—	—	—	—
Total	13,478		10,739	—	10,910	533	16,563		13,551	—	13,687	594
Commercial loans	3,927		3,696	—	4,015	17	21,746		16,254	—	17,083	328
Consumer loans	2,086		1,517	—	1,491	86	1,871		1,313	—	1,386	90
Total loans	$	19,491	15,952	—	16,416	636	$	40,180	31,118	—	32,156	1,012
Loans with an allowance recorded
Mortgage loans:
Residential	$	10,860	10,326	829	10,454	428	$	10,573	10,090	954	10,186	425
Commercial	18,845		18,845	751	18,862	569	1,039		1,039	72	1,052	53
Multi-family	—		—	—	—	—	—		—	—	—	—
Construction	—		—	—	—	—	—		—	—	—	—
Total	29,705		29,171	1,580	29,316	997	11,612		11,129	1,026	11,238	478
Commercial loans	27,762		24,661	3,462	27,527	444	7,493		7,493	92	9,512	435
Consumer loans	868		857	25	878	46	954		944	47	962	40
Total loans	$	58,335	54,689	5,067	57,721	1487	$	20,059	19,566	1,165	21,712	953
Total
Mortgage loans:
Residential	$	24,338	21,065	829	21,364	961	$	25,586	22,095	954	22,327	1,019
Commercial	18,845		18,845	751	18,862	569	2,589		2,585	72	2,598	53
Multi-family	—		—	—	—	—	—		—	—	—	—
Construction	—		—	—	—	—	—		—	—	—	—
Total	43,183		39,910	1,580	40,226	1,530	28,175		24,680	1,026	24,925	1,072
Commercial loans	31,689		28,357	3,462	31,542	461	29,239		23,747	92	26,595	763
Consumer loans	2,954		2,374	25	2,369	132	2,825		2,257	47	2,348	130
Total loans	$	77,826	70,641	5,067	74,137	2,123	$	60,239	50,684	1,165	53,868	1,965

At December 31, 2019, impaired loans consisted of 158 residential, commercial and commercial mortgage loans totaling $70.6 million, of which 25 loans totaling $27.9 million were included in nonaccrual loans. At December 31, 2018, impaired loans consisted of 152 residential, commercial and commercial mortgage loans totaling $50.7 million, of which 23 loans totaling $15.1 million were included in nonaccrual loans. Specific allocations of the allowance for loan losses attributable to impaired loans totaled $5.1 million and $1.2 million at December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, impaired loans for which there was no related allowance for loan losses totaled $16.0 million and $31.1 million, respectively. The average balances of impaired loans during the years ended December 31, 2019 and 2018 were $74.1 million and $53.9 million, respectively.

In the normal course of conducting its business, the Bank extends credit to meet the financing needs of its customers through commitments. Commitments and contingent liabilities, such as commitments to extend credit (including loan commitments of $1.26 billion, at both December 31, 2019 and 2018, respectively, and undisbursed home equity and personal credit lines of $212.4 million and $233.9 million, at December 31, 2019 and 2018, respectively, are not reflected in the accompanying consolidated financial statements. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. The Bank uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance sheet loans. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower.

The Bank grants residential real estate loans on single- and multi-family dwellings to borrowers primarily in New Jersey. Its borrowers’ abilities to repay their obligations are dependent upon various factors, including the borrowers’ income and net worth, cash flows generated by the underlying collateral, value of the underlying collateral, and priority of the Bank’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Bank’s control; the Bank is therefore subject to risk of loss. The Bank believes that its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks. Collateral and/or guarantees are required for virtually all loans.

Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also confirmed through periodic loan review examinations which are currently performed by an independent third-party. Reports by the independent third-party are presented directly to the Audit Committee of the Board of Directors.

Loans receivable by credit quality risk rating indicator, excluding PCI loans are as follows (in thousands):


	At December 31, 2019
	Residential		Commercial mortgages	Multi- family	Construction	Total mortgages	Commercial loans	Consumer loans	Total loans
Special mention	$	2,402	46,758	—	—	49,160	79,248	286	128,694
Substandard	10,204		13,458	—	6,181	29,843	57,015	1,668	88,526
Doubtful	—		—	—	—	—	836	—	836
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	12,606		60,216	—	6,181	79,003	137,099	1,954	218,056
Acceptable/watch	1,065,083		2,518,177	1,225,551	423,631	5,232,442	1,497,660	389,406	7,119,508
Total outstanding loans	$	1,077,689	2,578,393	1,225,551	429,812	5,311,445	1,634,759	391,360	7,337,564


	At December 31, 2018
	Residential		Commercial mortgages	Multi- family	Construction	Total mortgages	Commercial loans	Consumer loans	Total loans
Special mention	$	5,071	14,496	228	—	19,795	67,396	610	87,801
Substandard	7,878		13,292	—	6,181	27,351	45,180	1,711	74,242
Doubtful	—		—	—	—	—	923	—	923
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	12,949		27,788	228	6,181	47,146	113,499	2,321	162,966
Acceptable/watch	1,086,515		2,271,525	1,339,449	382,818	5,080,307	1,581,522	429,107	7,090,936
Total outstanding loans	$	1,099,464	2,299,313	1,339,677	388,999	5,127,453	1,695,021	431,428	7,253,902