ISBC 2017 Form 10-K & 2018 Proxy Statement

FORM 10-K The ratio of non-accrual loans to total loans increased to 0.68% at December 31, 2017 from 0.50% at December 31, 2016. Our ratio of non-performing assets to total assets increased to 0.61% at December 31, 2017 from 0.47% at December 31, 2016. The allowance for loan losses as a percentage of total non-accrual loans decreased to 170.17% at December 31, 2017 from 242.24% at December 31, 2016. For further discussion of our non-performing assets and non-performing loans and the allowance for loan losses, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The table below sets forth the amounts and categories of our non-performing assets excluding PCI loans at the dates indicated. December 31, 2017 2016 2015 2014 2013 (Dollars in thousands) Non-accrual loans: Multi-family loans $ 14,978 $ 482 $ 3,467 $ 2,989 $ 5,905 Commercial real estate loans 34,043 9,205 10,820 13,940 2,711 Commercial and industrial loans 9,989 4,659 9,225 2,903 1,281 Construction loans 295 — 792 4,345 16,181 Total commercial loans 59,305 14,346 24,304 24,177 26,078 Residential mortgage loans 70,220 72,593 81,816 79,971 72,309 Consumer and other loans 6,202 7,335 9,306 4,211 1,973 Total non-accrual loans 135,727 94,274 115,426 108,359 100,360 Real estate owned 5,830 4,492 6,283 7,839 8,516 Performing troubled debt restructurings 10,957 9,445 22,489 35,624 39,570 Total non-performing assets $152,514 $108,211 $144,198 $151,822 $148,446 Total non-accrual loans to total loans 0.68% 0.50% 0.68% 0.72% 0.77% Total non-performing assets to total assets 0.61% 0.47% 0.69% 0.81% 0.95% At December 31, 2017, there were $43.9 million of loans deemed troubled debt restructured loans, of which $11.0 million were classified as accruing and $32.9 million were classified as non-accrual. For the year ended December 31, 2017, interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms amounted to $4.8 million. We recognized interest income of $1.4 million on such loans for the year ended December 31, 2017. Other Real Estate Owned. Real estate we acquire as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned (“REO”) until sold. When property is acquired it is recorded at fair value at the date of foreclosure less estimated costs to sell the property. Holding costs and declines in fair value result in charges to expense after acquisition. At December 31, 2017, we had REO of $5.8 million consisting of 32 residential properties and 7 commercial properties. Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value their continuance as assets without the establishment of a specific loss reserve is not warranted. We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention. While such assets are not impaired or classified assets, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment of the asset. 12