Loans Receivable and Allowance for Loan Losses | Loans Receivable and Allowance for Loan Losses Loans receivable at December 31, 2015 and 2014 are summarized as follows (in thousands): 2015 2014 Mortgage loans: Residential $ 1,254,036 1,251,445 Commercial 1,714,923 1,694,359 Multi-family 1,233,792 1,041,582 Construction 331,649 221,102 Total mortgage loans 4,534,400 4,208,488 Commercial loans 1,433,447 1,262,422 Consumer loans 566,175 611,467 Total gross loans 6,534,022 6,082,377 Purchased credit-impaired ("PCI") loans 3,435 4,510 Premiums on purchased loans 5,740 5,307 Unearned discounts (41 ) (53 ) Net deferred fees (5,482 ) (6,636 ) $ 6,537,674 6,085,505 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, 2015 , 2014 and 2013 , $ $1,100,000 , $694,000 and $1,286,000 , respectively, decreased interest income as a result of prepayments and normal amortization. The following table summarizes the aging of loans receivable by portfolio segment and class of loans, excluding PCI loans (in thousands): At December 31, 2015 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 $ 8,983 5,434 12,031 — 26,448 1,227,588 1,254,036 Commercial 1,732 543 1,263 — 3,538 1,711,385 1,714,923 Multi-family 763 506 742 — 2,011 1,231,781 1,233,792 Construction — — 2,351 — 2,351 329,298 331,649 Total mortgage loans 11,478 6,483 16,387 — 34,348 4,500,052 4,534,400 Commercial loans 632 801 23,875 165 25,473 1,407,974 1,433,447 Consumer loans 3,603 1,194 4,109 — 8,906 557,269 566,175 Total gross loans $ 15,713 8,478 44,371 165 68,727 6,465,295 6,534,022 At December 31, 2014 30-59 Days 60-89 Days Non-accrual 90 days or more past due and Total Past Due Current Total Loans Receivable Mortgage loans: Residential $ 10,121 4,331 17,222 — 31,674 1,219,771 1,251,445 Commercial 146 30 20,026 — 20,202 1,674,157 1,694,359 Multi-family — — 321 — 321 1,041,261 1,041,582 Construction — — — — — 221,102 221,102 Total mortgage loans 10,267 4,361 37,569 — 52,197 4,156,291 4,208,488 Commercial loans 1,000 371 12,342 — 13,713 1,248,709 1,262,422 Consumer loans 2,398 2,509 3,944 — 8,851 602,616 611,467 Total gross loans $ 13,665 7,241 53,855 — 74,761 6,007,616 6,082,377 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 $44.4 million and $53.9 million at December 31, 2015 and 2014 , respectively. At December 31, 2015 , there was one commercial loan for $ 165,000 which was ninety days or greater past due and still accruing interest. This loan was past maturity and well secured at December 31, 2015, which subsequent to the end of the year was refinanced by the Company. There were no loans ninety days or greater past due and still accruing interest in 2014 . If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $1,200,000 , $1,877,000 and $1,913,000 , for the years ended December 31, 2015 , 2014 and 2013 , respectively. The amount of cash basis interest income that was recognized on impaired loans during the years ended December 31, 2015 , 2014 and 2013 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 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, 2015 , there were 148 impaired loans totaling $50.9 million , of which 143 loans totaling $43.9 million were TDRs. Included in this total were 122 TDRs related to 120 borrowers totaling $26.0 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2015 . At December 31, 2014 , there were 147 impaired loans totaling $85.4 million , of which 143 loans totaling $81.7 million were TDRs. Included in this total were 123 TDRs related to 120 borrowers totaling $54.8 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2014 . Loans receivable summarized by portfolio segment and impairment method, excluding PCI loans are as follows (in thousands): At December 31, 2015 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Individually evaluated for impairment $ 26,743 21,756 2,368 50,867 Collectively evaluated for impairment 4,507,657 1,411,691 563,807 6,483,155 Total gross loans $ 4,534,400 1,433,447 566,175 6,534,022 At December 31, 2014 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Individually evaluated for impairment $ 66,548 16,463 2,384 85,395 Collectively evaluated for impairment 4,141,940 1,245,959 609,083 5,996,982 Total gross loans $ 4,208,488 1,262,422 611,467 6,082,377 The allowance for loan losses is summarized by portfolio segment and impairment classification, excluding PCI loans as follows (in thousands): At December 31, 2015 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Unallocated (1) Total Individually evaluated for impairment $ 2,086 91 94 2,271 — 2,271 Collectively evaluated for impairment 30,008 25,738 3,407 59,153 — 59,153 Total $ 32,094 25,829 3,501 61,424 — 61,424 (1) For the year ended December 31, 2015, the Company enhanced its allowance for loan losses process and allocated the previously unallocated allowance using both qualitative and quantitative factors. At December 31, 2014 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Unallocated Total Individually evaluated for impairment $ 4,696 2,318 113 7,127 — 7,127 Collectively evaluated for impairment 27,281 22,063 4,768 54,112 495 54,607 Total $ 31,977 24,381 4,881 61,239 495 61,734 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. The following tables present the number of loans modified as TDRs during the years ended December 31, 2015 and 2014 and their balances immediately prior to the modification date and post-modification as of December 31, 2015 and 2014 . Year Ended December 31, 2015 Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment ($ in thousands) Mortgage loans: Residential 6 $ 2,192 2,179 Construction 1 2,600 2,351 Total mortgage loans 7 4,792 4,530 Commercial loans 4 6,659 6,822 Consumer loans 2 123 112 Total restructured loans 13 $ 11,574 11,464 Year Ended December 31, 2014 Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment ($ in thousands) Mortgage loans: Residential 14 $ 3,034 2,725 Commercial 1 865 861 Total mortgage loans 15 3,899 3,586 Consumer loans 2 394 156 Total restructured loans 17 $ 4,293 3,742 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, 2015 and 2014 exceeded the carrying amounts of such loans. As a result, there were $465,000 of charge-offs recorded on collateral dependent impaired loans for the year ended December 31, 2015 . There were no charge-offs recorded on collateral dependent impaired loans for the year ended December 31, 2014 . The allowance for loan losses associated with the TDRs presented in the preceding tables totaled $99,000 and $419,000 at December 31, 2015 and 2014 , respectively and were included in the allowance for loan losses for loans individually evaluated for impairment. The TDRs presented in the preceding tables had a weighted average modified interest rate of approximately 5.25% and 4.58% , compared to a yield of 5.71% and 5.69% prior to modification for the years ended December 31, 2015 and 2014 , respectively. The following table presents loans modified as TDRs within the previous 12 months from December 31, 2015 and 2014 , and for which there was a payment default (90 days or more past due) during the years ended December 31, 2015 and 2014 : Year Ended December 31, 2015 Year Ended December 31, 2014 Troubled Debt Restructurings Subsequently Defaulted Number of Loans Outstanding Recorded Investment Number of Loans Outstanding Recorded Investment ($ in thousands) ($ in thousands) Mortgage loans: Construction 1 $ 2,351 — $ — Total mortgage loans 1 2,351 — — Commercial loans 4 6,822 — — Total restructured loans 5 $ 9,173 — $ — 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. As part of the Team Capital acquisition, $5.2 million of the loans purchased at May 30, 2014 were determined to be PCI loans. PCI loans are accounted for at fair value, based upon the present value of expected future cash flows, with no related allowance for loan losses. The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected and the estimated fair value of the PCI loans acquired from Team Capital at May 30, 2014 (in thousands): May 30, 2014 Contractually required principal and interest $ 12,505 Contractual cash flows not expected to be collected (non-accretable discount) (6,475 ) Expected cash flows to be collected at acquisition 6,030 Interest component of expected cash flows (accretable yield) (810 ) Fair value of acquired loans $ 5,220 PCI loans totaled $3.4 million at December 31, 2015 , compared to $4.5 million at December 31, 2014 and $5.2 million at acquisition from Team Capital on May 30, 2014. The $1.1 million and $1.8 million decrease from December 31, 2014 and the May 31, 2014 acquisition date was largely due to the full repayment and greater than projected cash flows on certain PCI loans. This resulted in a $230,000 and a $348,000 increase in interest income for the years ended December 31, 2015 and 2014, respectively, due to the acceleration of accretable and non-accretable discount on these loans. The following table summarizes the changes in the accretable yield for PCI loans for the years ended December 31, 2015 and 2014 (in thousands): Year ended December 31, 2015 2014 Beginning balance $ 695 $ — Acquisition — 810 Accretion (810 ) (592 ) Reclassification from non-accretable difference 791 477 Ending balance $ 676 $ 695 The activity in the allowance for loan losses for the years ended December 31, 2015 , 2014 and 2013 is as follows (in thousands): Years Ended December 31, 2015 2014 2013 Balance at beginning of period $ 61,734 64,664 70,348 Provision charged to operations 4,350 4,650 5,500 Recoveries of loans previously charged off 4,168 3,292 3,222 Loans charged off (8,828 ) (10,872 ) (14,406 ) Balance at end of period $ 61,424 61,734 64,664 The activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2015 and 2014 are as follows (in thousands): For the Year Ended December 31, 2015 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Unallocated Total Balance at beginning of period $ 31,977 24,381 4,881 61,239 495 61,734 Provision charged to operations 2,357 1,898 590 4,845 (495 ) 4,350 Recoveries of loans previously charged off 247 2,413 1,508 4,168 — 4,168 Loans charged off (2,487 ) (2,863 ) (3,478 ) (8,828 ) — (8,828 ) Balance at end of period $ 32,094 25,829 3,501 61,424 — 61,424 For the Year ended December 31, 2014 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Unallocated Total Balance at beginning of period $ 34,144 24,107 4,929 63,180 1,484 64,664 Provision charged to operations 1,455 2,947 1,237 5,639 (989 ) 4,650 Recoveries of loans previously charged off 286 1,776 1,230 3,292 — 3,292 Loans charged off (3,908 ) (4,449 ) (2,515 ) (10,872 ) — (10,872 ) Balance at end of period $ 31,977 24,381 4,881 61,239 495 61,734 Impaired loans receivable by class, excluding PCI loans are summarized as follows (in thousands): At December 31, 2015 At December 31, 2014 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 $ 12,144 8,799 — 9,079 451 $ 14,942 10,629 — 11,138 357 Commercial — — — — — 4,971 4,708 — 4,713 — Multi-family — — — — — — — — — — Construction 2,358 2,351 — 1,170 16 — — — — — Total 14,502 11,150 — 10,249 467 19,913 15,337 — 15,851 357 Commercial loans 23,754 21,144 — 21,875 747 2,718 2,179 — 1,823 4 Consumer loans 1,560 1,082 — 1,121 48 1,250 830 — 870 28 Total loans $ 39,816 33,376 — 33,245 1,262 $ 23,881 18,346 — 18,544 389 Loans with an allow-ance recorded Mortgage loans: Residential $ 14,997 14,353 1,901 14,500 505 $ 15,523 14,906 2,367 15,106 555 Commercial 1,240 1,240 185 1,361 63 37,555 36,306 2,329 36,674 914 Multi-family — — — — — — — — — — Construction — — — — — — — — — — Total 16,237 15,593 2,086 15,861 568 53,078 51,212 4,696 51,780 1,469 Commercial loans 612 612 91 807 52 15,990 14,283 2,318 15,967 390 Consumer loans 1,297 1,286 94 1,312 67 1,565 1,554 113 1,578 80 Total loans $ 18,146 17,491 2,271 17,980 687 $ 70,633 67,049 7,127 69,325 1,939 Total Mortgage loans: Residential $ 27,141 23,152 1,901 23,579 956 $ 30,465 25,535 2,367 26,244 912 Commercial 1,240 1,240 185 1,361 63 42,526 41,014 2,329 41,387 914 Multi-family — — — — — — — — — — Construction 2,358 2,351 — 1,170 16 — — — — — Total 30,739 26,743 2,086 26,110 1,035 72,991 66,549 4,696 67,631 1,826 Commercial loans 24,366 21,756 91 22,682 799 18,708 16,462 2,318 17,790 394 Consumer loans 2,857 2,368 94 2,433 115 2,815 2,384 113 2,448 108 Total loans $ 57,962 50,867 2,271 51,225 1,949 $ 94,514 85,395 7,127 87,869 2,328 At December 31, 2015 , impaired loans consisted of 148 residential, commercial and commercial mortgage loans totaling $50,867,000 , of which 26 loans totaling $24,894,000 were included in nonaccrual loans. At December 31, 2014 , impaired loans consisted of 147 residential, commercial and commercial mortgage loans totaling $85,395,000 , of which 24 loans totaling $30,619,000 were included in nonaccrual loans. Specific allocations of the allowance for loan losses attributable to impaired loans totaled $2,271,000 and $7,127,000 at December 31, 2015 and 2014 , respectively. At December 31, 2015 and 2014 , impaired loans for which there was no related allowance for loan losses totaled $33,376,000 and $18,346,000 , respectively. The average balances of impaired loans during the years ended December 31, 2015 and 2014 were $51,225,000 and $87,869,000 , 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 $866,403,000 and $908,581,000 , at December 31, 2015 and 2014 , respectively, and undisbursed home equity and personal credit lines of $287,942,000 and $300,029,000 , at December 31, 2015 and 2014 , 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, excluding PCI loans are as follows (in thousands): At December 31, 2015 Residential Commercial mortgages Multi- family Construction Total mortgages Commercial loans Consumer loans Total loans Special mention $ 5,434 29,363 1,080 — 35,877 76,464 1,194 113,535 Substandard 12,031 19,451 1,248 2,351 35,081 38,654 4,054 77,789 Doubtful — — — — — 8 — 8 Loss — — — — — — — — Total classified and criticized 17,465 48,814 2,328 2,351 70,958 115,126 5,248 191,332 Acceptable/watch 1,236,571 1,666,109 1,231,464 329,298 4,463,442 1,318,321 560,927 6,342,690 Total outstanding loans $ 1,254,036 1,714,923 1,233,792 331,649 4,534,400 1,433,447 566,175 6,534,022 At December 31, 2014 Residential Commercial mortgages Multi- family Construction Total mortgages Commercial loans Consumer loans Total loans Special mention $ 4,331 18,414 851 — 23,596 45,599 2,509 71,704 Substandard 17,222 53,454 322 2,600 73,598 32,828 3,938 110,364 Doubtful — 1,063 — — 1,063 29 — 1,092 Loss — — — — — — — — Total classified and criticized 21,553 72,931 1,173 2,600 98,257 78,456 6,447 183,160 Acceptable/watch 1,229,892 1,621,428 1,040,409 218,502 4,110,231 1,183,966 605,020 5,899,217 Total outstanding loans $ 1,251,445 1,694,359 1,041,582 221,102 4,208,488 1,262,422 611,467 6,082,377 |