Loans Receivable and Allowance for Loan Losses

Loans receivable at June 30, 2018 and December 31, 2017 are summarized as follows (in thousands):



	June 30, 2018			December 31, 2017
Mortgage loans:
Residential	$	1,118,140		1,142,347
Commercial	2,185,339			2,171,056
Multi-family	1,405,805			1,403,885
Construction	406,893			392,580
Total mortgage loans	5,116,177			5,109,868
Commercial loans	1,688,477			1,745,138
Consumer loans	451,920			473,957
Total gross loans	7,256,574			7,328,963
Purchased credit-impaired ("PCI") loans	928			969
Premiums on purchased loans	3,668			4,029
Unearned discounts	(35		)	(36	)
Net deferred fees	(7,893		)	(8,207	)
Total loans	$	7,253,242		7,325,718

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



	June 30, 2018
	30-59 Days		60-89 Days	Non-accrual	Recorded Investment > 90 days accruing	Total Past Due	Current	Total Loans Receivable
Mortgage loans:
Residential	$	4,696	2,924	8,984	—	16,604	1,101,536	1,118,140
Commercial	1,116		59	4,149	—	5,324	2,180,015	2,185,339
Multi-family	—		400	—	—	400	1,405,405	1,405,805
Construction	—		—	—	—	—	406,893	406,893
Total mortgage loans	5,812		3,383	13,133	—	22,328	5,093,849	5,116,177
Commercial loans	2,589		28	17,517	—	20,134	1,668,343	1,688,477
Consumer loans	2,113		368	1,960	—	4,441	447,479	451,920
Total gross loans	$	10,514	3,779	32,610	—	46,903	7,209,671	7,256,574



	December 31, 2017
	30-59 Days		60-89 Days	Non-accrual	Recorded Investment > 90 days accruing	Total Past Due	Current	Total Loans Receivable
Mortgage loans:
Residential	$	7,809	4,325	8,105	—	20,239	1,122,108	1,142,347
Commercial	1,486		—	7,090	—	8,576	2,162,480	2,171,056
Multi-family	—		—	—	—	—	1,403,885	1,403,885
Construction	—		—	—	—	—	392,580	392,580
Total mortgage loans	9,295		4,325	15,195	—	28,815	5,081,053	5,109,868
Commercial loans	551		406	17,243	—	18,200	1,726,938	1,745,138
Consumer loans	2,465		487	2,491	—	5,443	468,514	473,957
Total gross loans	$	12,311	5,218	34,929	—	52,458	7,276,505	7,328,963

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 amounts of these non-accrual loans were $32.6 million and $34.9 million at June 30, 2018 and December 31, 2017, respectively. Included in non-accrual loans were $8.7 million and $11.5 million of loans which were less than 90 days past due at June 30, 2018 and December 31, 2017, respectively. There were no loans 90 days or greater past due and still accruing interest at June 30, 2018 or December 31, 2017.

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, all amounts due under the contractual terms of the loan agreement will not be collected. 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 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 losses 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; (2) if a loan is collateral dependent, the fair value of collateral; or (3) the fair value 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 is generally updated annually or more frequently, if required.

A specific allocation of the allowance for loan losses is established for each collateral dependent 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 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 in the recognition of changes in collateral values as a result of this process.

At June 30, 2018, there were 152 impaired loans totaling $55.5 million. Included in this total were 128 TDRs related to 124 borrowers totaling $38.0 million that were performing in accordance with their restructured terms and which continued to accrue interest at June 30, 2018. At December 31, 2017, there were 149 impaired loans totaling $52.0 million. Included in this total were 125 TDRs to 121 borrowers totaling $31.7 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2017.

The following table summarizes loans receivable by portfolio segment and impairment method, excluding PCI loans (in thousands):



	June 30, 2018
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	24,737	28,509	2,263	55,509
Collectively evaluated for impairment	5,091,440		1,659,968	449,657	7,201,065
Total gross loans	$	5,116,177	1,688,477	451,920	7,256,574



	December 31, 2017
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	28,459	21,223	2,359	52,041
Collectively evaluated for impairment	5,081,409		1,723,915	471,598	7,276,922
Total gross loans	$	5,109,868	1,745,138	473,957	7,328,963

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



	June 30, 2018
	Mortgage loans		Commercial loans	Consumer loans	Total
Individually evaluated for impairment	$	1,200	874	66	2,140
Collectively evaluated for impairment	25,961		28,620	2,098	56,679
Total gross loans	$	27,161	29,494	2,164	58,819



	December 31, 2017
	Mortgage loans		Commercial loans	Consumer loans	Total
Individually evaluated for impairment	$	1,486	1,134	70	2,690
Collectively evaluated for impairment	26,566		28,680	2,259	57,505
Total gross loans	$	28,052	29,814	2,329	60,195

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 three and six months ended June 30, 2018 and 2017, along with their balances immediately prior to the modification date and post-modification as of June 30, 2018 and 2017.



	For the three months ended
	June 30, 2018				June 30, 2017
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Mortgage loans:
Residential	1	$	118	103	3	$	1,836	$	1,796
Total mortgage loans	1	118		103	3	1,836		1,796
Total restructured loans	1	$	118	103	3	$	1,836	$	1,796



	For the six months ended
	June 30, 2018					June 30, 2017
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Mortgage loans:
Residential	1	$	118	103		6	$	2,838	$	2,774
Total mortgage loans	1	118		103		6	2,838		2,774
Commercial loans	5	8,126		9,179		1	1,300		1,240
Consumer loans	—	—		—		2	240		232
Total restructured loans	6	$	8,244	$	9,282	9	$	4,378	$	4,246

All TDRs are impaired loans, which are individually evaluated for impairment, as previously discussed. During the three and six months ended June 30, 2018, $428,000 and $2.0 million of charge-offs were recorded on collateral dependent impaired loans. There were no charge-offs recorded on collateral dependent impaired loans during the three months ended June 30, 2017. For the six months ended June 30, 2017, $1.2 million of charge-offs were recorded on collateral dependent impaired loans. For the three and six months ended June 30, 2018, the allowance for loan losses associated with the TDRs presented in the preceding tables totaled $0 and $706,650, respectively, and were included in the allowance for loan losses for loans individually evaluated for impairment.

For the three and six months ended June 30, 2018, the TDRs presented in the preceding tables had a weighted average modified interest rate of approximately 6.13% and 5.62%, respectively, compared to a weighted average rate of 6.13% and 5.18% prior to modification, respectively.

The following table presents loans modified as TDRs within the previous 12 months from June 30, 2018 and 2017, and for which there was a payment default (90 days or more past due) at the quarter ended June 30, 2018 and 2017.



	June 30, 2018			June 30, 2017
Troubled Debt Restructurings Subsequently Defaulted	Number of Loans	Outstanding Recorded Investment		Number of Loans	Outstanding Recorded Investment
	($ in thousands)
Mortgage loans:
Total mortgage loans	—	—		—	—
Commercial loans	3	1,344		—	$	—
Consumer loans	—	—		—	—
Total restructured loans	3	$	1,344	—	$	—

There were three payment defaults on one borrower (90 days or more past due) for loans modified as TDRs within the 12 month period ending June 30, 2018. There were no payment defaults (90 days or more past due) for loans modified as TDRs within the 12 month period ending June 30, 2017. 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. PCI loans totaled $928,000 at June 30, 2018 and $969,000 at December 31, 2017.

The following table summarizes the changes in the accretable yield for PCI loans during the three and six months ended June 30, 2018 and 2017 (in thousands):



	Three months ended June 30,					Six months ended June 30,
	2018			2017		2018		2017
Beginning balance	$	112		172		101		200
Accretion	(9		)	(96	)	(29	)	(145	)
Reclassification from non-accretable discount	13			82		44		103
Ending balance	$	116		158		116		158

The activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2018 and 2017 was as follows (in thousands):



Three months ended June 30,	Mortgage loans			Commercial loans		Consumer loans		Total
2018
Balance at beginning of period	$	28,001		32,326		2,194		62,521
Provision (credited) charged to operations	(782		)	16,436		(154	)	15,500
Recoveries of loans previously charged-off	44			105		213		362
Loans charged-off	(102		)	(19,373	)	(89	)	(19,564	)
Balance at end of period	$	27,161		29,494		2,164		58,819

2017
Balance at beginning of period	$	29,318		29,786		3,051		62,155
Provision (credited) charged to operations	(292		)	1,777		215		1,700
Recoveries of loans previously charged-off	7			73		225		305
Loans charged-off	(207		)	(551	)	(540	)	(1,298	)
Balance at end of period	$	28,826		31,085		2,951		62,862



Six months ended June 30,	Mortgage loans			Commercial loans		Consumer loans		Total
2018
Balance at beginning of period	$	28,052		29,814		2,329		60,195
Provision (credited) charged to operations	(804		)	21,825		(121	)	20,900
Recoveries of loans previously charged-off	132			232		392		756
Loans charged-off	(219		)	(22,377	)	(436	)	(23,032	)
Balance at end of period	$	27,161		29,494		2,164		58,819

2017
Balance at beginning of period	$	29,626		29,143		3,114		61,883
Provision (credited) charged to operations	(423		)	3,394		229		3,200
Recoveries of loans previously charged-off	61			531		401		993
Loans charged-off	(438		)	(1,983	)	(793	)	(3,214	)
Balance at end of period	$	28,826		31,085		2,951		62,862

The following table presents loans individually evaluated for impairment by class and loan category, excluding PCI loans (in thousands):



	June 30, 2018						December 31, 2017
	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	$	14,083	11,325	—	11,405	282	13,239	10,477	—	10,552	479
Commercial	1,550		1,546	—	1,546	—	5,037	4,908	—	5,022	12
Total	15,633		12,871	—	12,951	282	18,276	15,385	—	15,574	491
Commercial loans	42,720		17,761	—	37,064	209	19,196	14,984	—	15,428	395
Consumer loans	1,536		985	—	1,019	37	1,582	1,041	—	1,150	69
Total impaired loans	$	59,889	31,617	—	51,034	528	39,054	31,410	—	32,152	955

Loans with an allowance recorded
Mortgage loans:
Residential	$	11,851	10,814	1,123	10,880	221	13,052	12,010	1,351	12,150	475
Commercial	1,052		1,052	77	1,064	26	1,064	1,064	135	1,076	54
Total	12,903		11,866	1,200	11,944	247	14,116	13,074	1,486	13,226	529
Commercial loans	12,035		10,748	874	10,159	170	7,097	6,239	1,134	7,318	208
Consumer loans	1,289		1,278	66	1,305	36	1,329	1,318	70	1,349	64
Total impaired loans	$	26,227	23,892	2,140	23,408	453	22,542	20,631	2,690	21,893	801

Total impaired loans
Mortgage loans:
Residential	$	25,934	22,139	1,123	22,285	503	26,291	22,487	1,351	22,702	954
Commercial	2,602		2,598	77	2,610	26	6,101	5,972	135	6,098	66
Total	28,536		24,737	1,200	24,895	529	32,392	28,459	1,486	28,800	1,020
Commercial loans	54,755		28,509	874	47,223	379	26,293	21,223	1,134	22,746	603
Consumer loans	2,825		2,263	66	2,324	73	2,911	2,359	70	2,499	133
Total impaired loans	$	86,116	55,509	2,140	74,442	981	61,596	52,041	2,690	54,045	1,756

Specific allocations of the allowance for loan losses attributable to impaired loans totaled $2.1 million at June 30, 2018 and $2.7 million at December 31, 2017. At June 30, 2018 and December 31, 2017, impaired loans for which there was no related allowance for loan losses totaled $31.6 million and $31.4 million, respectively. The average balance of impaired loans for the six months ended June 30, 2018 and December 31, 2017 was $74.4 million and $54.0 million.

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 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 June 30, 2018
	Residential		Commercial mortgage	Multi- family	Construction	Total mortgages	Commercial	Consumer	Total loans
Special mention	$	2,924	15,556	—	—	18,480	22,614	368	41,462
Substandard	8,984		15,268	236	—	24,488	48,615	1,959	75,062
Doubtful	—		—	—	—	—	480	—	480
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	11,908		30,824	236	—	42,968	71,709	2,327	117,004
Pass/Watch	1,106,232		2,154,515	1,405,569	406,893	5,073,209	1,616,768	449,593	7,139,570
Total	$	1,118,140	2,185,339	1,405,805	406,893	5,116,177	1,688,477	451,920	7,256,574


	At December 31, 2017
	Residential		Commercial mortgage	Multi- family	Construction	Total mortgages	Commercial	Consumer	Total loans
Special mention	$	4,325	19,172	15	—	23,512	20,738	486	44,736
Substandard	8,105		25,069	—	—	33,174	29,734	2,491	65,399
Doubtful	—		—	—	—	—	428	—	428
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	12,430		44,241	15	—	56,686	50,900	2,977	110,563
Pass/Watch	1,129,917		2,126,815	1,403,870	392,580	5,053,182	1,694,238	470,980	7,218,400
Total	$	1,142,347	2,171,056	1,403,885	392,580	5,109,868	1,745,138	473,957	7,328,963