Loans Receivable and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2012

Loans Receivable and Allowance for Loan Losses

(6) Loans Receivable and Allowance for Loan Losses

Loans receivable at December 31, 2012 and 2011 are summarized as follows (in thousands):

	2012			2011
Mortgage loans:
Residential	$	1,265,015			1,308,635
Commercial		1,349,950			1,253,542
Multi-family		723,958			564,147
Construction		120,133			114,817
Total mortgage loans		3,459,056			3,241,141
Commercial loans		866,395			849,009
Consumer loans		579,166			560,970
Total gross loans		4,904,617			4,651,120
Premiums on purchased loans		4,964			5,823
Unearned discounts		(78	)		(100	)
Net deferred fees		(4,804	)		(3,334	)
	$	4,904,699			4,653,509

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, 2012, 2011 and 2010, $1,694,000, $1,902,000 and $2,038,000, respectively, was charged to interest income as a result of prepayments and normal amortization.

The following table summarizes the aging of loans receivable by portfolio segment and class as follows (in thousands):

	At December 31, 2012
	30-59 Days		60-89 Days		Non-accrual		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 days accruing
Mortgage loans
Residential	$	15,752		11,986		29,293		57,031		1,207,984		1,265,015		—
Commercial		535		12,194		29,072		41,801		1,308,149		1,349,950		—
Multi-family		—		—		412		412		723,546		723,958		—
Construction		—		—		8,896		8,896		111,237		120,133		—
Total mortgage loans		16,287		24,180		67,673		108,140		3,350,916		3,459,056		—
Commercial loans		1,840		70		25,467		27,377		839,018		866,395		—
Consumer loans		4,144		1,808		5,850		11,802		567,364		579,166		—
Total gross loans	$	22,271		26,058		98,990		147,319		4,757,298		4,904,617		—

	At December 31, 2011
	30-59 Days		60-89 Days		Non-accrual		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 days accruing
Mortgage loans
Residential	$	16,034		7,936		40,386		64,356		1,244,279		1,308,635		—
Commercial		939		1,155		29,522		31,616		1,221,926		1,253,542		—
Multi-family		—		—		997		997		563,150		564,147		—
Construction		—		—		11,018		11,018		103,799		114,817		—
Total mortgage loans		16,973		9,091		81,923		107,987		3,133,154		3,241,141		—
Commercial loans		2,472		526		32,093		35,091		813,918		849,009		—
Consumer loans		5,276		1,908		8,533		15,717		545,253		560,970		—
Total gross loans	$	24,721		11,525		122,549		158,795		4,492,325		4,651,120		—

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 $98,990,000 and $122,549,000 at December 31, 2012 and 2011, respectively. There were no loans ninety days or greater past due and still accruing interest at December 31, 2012, or 2011.

If the nonaccrual loans had performed in accordance with their original terms, interest income would have increased by $3,022,000, $3,496,000 and $4,114,000, for the years ended December 31, 2012, 2011 and 2010, respectively. The amount of cash basis interest income that was recognized on impaired loans during the years ended December 31, 2012, 2011 and 2010 was not material for the periods presented.

The Company defines an impaired loan as a non-homogenous 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 analyses 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, 2012, there were 108 impaired loans totaling $109.6 million. Included in this total were 80 TDRs related to 70 borrowers totaling $58.4 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2012. At December 31, 2011, there were 65 impaired loans totaling $103.2 million, of which 48 loans totaling $63.1 million were TDRs. Included in this total were 38 TDRs related to 36 borrowers totaling $38.9 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2011.

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

	At December 31, 2012
	Mortgage loans		Commercial loans		Consumer loans		Total Portfolio Segments
Individually evaluated for impairment	$	78,525		29,807		1,298		109,630
Collectively evaluated for impairment		3,380,531		836,588		577,868		4,794,987
Total gross loans	$	3,459,056		866,395		579,166		4,904,617

	At December 31, 2011
	Mortgage loans		Commercial loans		Consumer loans		Total Portfolio Segments
Individually evaluated for impairment	$	76,275		26,974		—		103,249
Collectively evaluated for impairment		3,164,866		822,035		560,970		4,547,871
Total gross loans	$	3,241,141		849,009		560,970		4,651,120

The allowance for loan losses is summarized by portfolio segment and impairment classification as follows (in thousands)

	At December 31, 2012
	Mortgage loans		Commercial loans		Consumer loans		Total Portfolio Segments		Unallocated		Total
Individually evaluated for impairment	$	5,172		1,949		90		7,211		—		7,211
Collectively evaluated for impairment		32,790		18,366		5,134		56,290		6,847		63,137
Total	$	37,962		20,315		5,224		63,501		6,847		70,348

	At December 31, 2011
	Mortgage loans		Commercial loans		Consumer loans		Total Portfolio Segments		Unallocated		Total
Individually evaluated for impairment	$	5,360		3,966		—		9,326		—		9,326
Collectively evaluated for impairment		34,083		21,415		5,515		61,013		4,012		65,025
Total	$	39,443		25,381		5,515		70,339		4,012		74,351

Loan modifications to customers 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.

In the third quarter of 2011, the Company adopted new accounting guidance issued by the FASB, and reassessed all restructurings that occurred between January 1, 2011 and September 30, 2011 for identification as TDRs. As a result of this reassessment, the Company identified an additional five loan relationships totaling $10.8 million as TDRs, $9.2 million of which had been previously identified as non-accrual impaired loans.

The following tables present the number of loans modified as TDRs during the years ended December 31, 2012 and 2011 and their balances immediately prior to the modification date and post-modification as of December 31, 2012 and 2011.

	Year Ended December 31, 2012
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Mortgage loans:
Residential		35	$	11,469		10,110
Commercial		1		276		276
Total mortgage loans		36		11,745		10,386
Commercial loans		10		14,474		13,542
Consumer loans		5		879		793
Total restructured loans		51	$	27,098		24,721

	Year Ended December 31, 2011
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
			($ in thousands)
Mortgage loans:
Residential		28	$	10,652		10,351
Commercial		4		41,379		41,464
Total mortgage loans		32		52,031		51,815
Commercial loans		7		9,677		9,570
Consumer loans		4		571		575
Total restructured loans		43	$	62,279		61,960

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, 2012 and 2011 exceeded the carrying amounts of such loans. As a result, there were no charge-offs recorded on collateral dependent impaired loans presented in the preceding tables for the year ended December 31, 2012. There was one subsequent charge-off of $748,000 recorded in 2012 on a collateral dependent impaired loan presented in the preceding tables for the year ended December 31, 2011. The allowance for loan losses associated with the TDRs presented in the preceding tables totaled $2.0 million and $5.5 million at December 31, 2012 and 2011, 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 4.81% and 4.58%, compared to a yield of 5.89% and 5.65% prior to modification for the years ended December 31, 2012 and 2011, respectively.

The following table presents loans modified as TDRs within the previous 12 months from December 31, 2012 and 2011, and for which there was a payment default (90 days or more past due) during the years ended December 31, 2012 and 2011:

	Year Ended December 31, 2012				Year Ended December 31, 2011
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	$	121		4	$	795
Commercial		—		—		—		—
Multi-family		—		—		—		—
Construction		—		—		—		—
Total mortgage loans		1		121		4		795
Commercial loans		—		—		—		—
Consumer loans		1		52		—		—
Total restructured loans		2		173		4		795

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.

The activity in the allowance for loan losses for the years ended December 31, 2012, 2011 and 2010 is as follows (in thousands):

	Years Ended December 31,
	2012			2011			2010
Balance at beginning of period	$	74,351			68,722			60,744
Provision charged to operations		16,000			28,900			35,500
Recoveries of loans previously charged off		3,904			1,782			1,945
Loans charged off		(23,907	)		(25,053	)		(29,467	)
Balance at end of period	$	70,348			74,351			68,722

The activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2012 and 2011 are as follows (in thousands):

	For the Year Ended December 31, 2012
	Mortgage loans			Commercial loans			Consumer loans			Total Portfolio Segments			Unallocated		Total
Balance at beginning of period	$	39,443			25,381			5,515			70,339			4,012		74,351
Provision charged to operations		6,489			4,422			2,254			13,165			2,835		16,000
Recoveries of loans previously charged off		162			2,771			971			3,904			—		3,904
Loans charged off		(8,132	)		(12,259	)		(3,516	)		(23,907	)		—		(23,907	)
Balance at end of period	$	37,962			20,315			5,224			63,501			6,847		70,348

	Year ended December 31, 2011
	Mortgage loans			Commercial loans			Consumer loans			Total Portfolio Segments			Unallocated		Total
Balance at beginning of period	$	38,416			22,210			5,616			66,242			2,480		68,722
Provision charged to operations		9,571			10,786			7,011			27,368			1,532		28,900
Recoveries of loans previously charged off		216			1,019			547			1,782			—		1,782
Loans charged off		(8,760	)		(8,634	)		(7,659	)		(25,053	)		—		(25,053	)
Balance at end of period	$	39,443			25,381			5,515			70,339			4,012		74,351

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

	At December 31, 2012										At December 31, 2011
	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	$	7,241		5,309		—		5,395		155	$	3,341		2,793		—		3,285		51
Commercial		17,656		14,104		—		16,579		82		8,432		7,521		—		7,915		146
Multi-family		—		—		—		—		—		—		—		—		—		—
Construction		9,810		8,896		—		9,738		—		11,410		11,018		—		11,254		258
Total		34,707		28,309		—		31,712		237		23,183		21,332		—		22,454		455
Commercial loans		7,252		6,117		—		7,064		53		4,982		4,651		—		6,222		259
Consumer loans		84		58		—		71		2		—		—		—		—		—
Total loans	$	42,043		34,484		—		38,847		292	$	28,165		25,983		—		28,676		714
Loans with an allowance recorded
Mortgage loans:
Residential	$	14,139		13,133		1,805		13,206		378	$	7,681		7,442		1,056		7,644		187
Commercial		37,739		37,083		3,367		37,490		990		47,531		47,501		4,304		48,102		1,067
Multi-family		—		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—		—
Total		51,878		50,216		5,172		50,696		1,368		55,212		54,943		5,360		55,746		1,254
Commercial loans		24,545		23,690		1,949		24,777		689		26,504		22,323		3,966		23,637		37
Consumer loans		1,277		1,240		90		1,291		46		—		—		—		—		—
Total loans	$	77,700		75,146		7,211		76,764		2,103	$	81,716		77,266		9,326		79,383		1,291
Total
Mortgage loans:
Residential	$	21,380		18,442		1,805		18,601		533	$	11,022		10,235		1,056		10,929		238
Commercial		55,395		51,187		3,367		54,069		1,072		55,963		55,022		4,304		56,017		1,213
Multi-family		—		—		—		—		—		—		—		—		—		—
Construction		9,810		8,896		—		9,738		—		11,410		11,018		—		11,254		258
Total		86,585		78,525		5,172		82,408		1,605		78,395		76,275		5,360		78,200		1,709
Commercial loans		31,797		29,807		1,949		31,841		742		31,486		26,974		3,966		29,859		296
Consumer loans		1,361		1,298		90		1,362		48		—		—		—		—		—
Total loans	$	119,743		109,630		7,211		115,611		2,395	$	109,881		103,249		9,326		108,059		2,005

At December 31, 2012, impaired loans consisted of 108 residential, commercial and commercial mortgage loans totaling $109,630,000, of which 14 loans totaling $25,674,000, were included in nonaccrual loans. At December 31, 2011, impaired loans consisted of 65 residential, commercial and commercial mortgage loans totaling $103,249,000, of which 10 loans totaling $24,262,000, were included in nonaccrual loans. Specific allocations of the allowance for loan losses attributable to impaired loans totaled $7,211,000 and $9,326,000 at December 31, 2012 and 2011, respectively. At December 31, 2012 and 2011, impaired loans for which there was no related allowance for loan losses totaled $34,484,000 and $25,983,000, respectively. The average balances of impaired loans during the years ended December 31, 2012, 2011 and 2010 were $115,611,000, $108,059,000 and $42,654,000, 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 $601,914,000 and $497,219,000, at December 31, 2012 and 2011, respectively, and undisbursed home equity and personal credit lines of $267,078,000 and $273,170,000, at December 31, 2012 and 2011, respectively), exist, which 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.

The Company 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 his or her portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Administration 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 are as follows (in thousands):

	At December 31, 2012
	Residential		Commercial mortgages		Multi- family		Construction		Total mortgages		Commercial loans		Consumer loans		Total loans
Special mention	$	11,986		14,816		—		—		26,802		17,076		1,808		45,686
Substandard		29,293		79,235		412		13,642		122,582		54,200		5,666		182,448
Doubtful		—		—		—		—		—		464		—		464
Loss		—		—		—		—		—		—		—		—
Total classified and criticized		41,279		94,051		412		13,642		149,384		71,740		7,474		228,598
Acceptable/watch		1,223,736		1,255,899		723,546		106,491		3,309,672		794,655		571,692		4,676,019
Total outstanding loans	$	1,265,015		1,349,950		723,958		120,133		3,459,056		866,395		579,166		4,904,617

	At December 31, 2011
	Residential		Commercial mortgages		Multi- family		Construction		Total mortgages		Commercial loans		Consumer loans		Total loans
Special mention	$	7,980		27,773		12,193		10,699		58,645		14,498		1,908		75,051
Substandard		40,386		82,428		8,534		18,643		149,991		73,793		8,533		232,317
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—
Total classified and criticized		48,366		110,201		20,727		29,342		208,636		88,291		10,441		307,368
Acceptable/watch		1,260,269		1,143,341		543,420		85,475		3,032,505		760,718		550,529		4,343,752
Total outstanding loans	$	1,308,635		1,253,542		564,147		114,817		3,241,141		849,009		560,970		4,651,120