ISBC 2017 Form 10-K & 2018 Proxy Statement

FORM 10-K Total non-accrual loans increased to $135.7 million at December 31, 2017 compared to $94.3 million at December 31, 2016. Included in the increase were $13.9 million of multi family loans, $5.6 million of commercial real estate loans and $6.4 million of commercial and industrial loans that were classified as non- accrual which were performing in accordance with their contractual terms. For the year ended December 31, 2017, the Company sold $48.1 million of non-performing commercial real estate and multi-family loans, resulting in no charge-off recorded through the allowance. There were no sales of non-performing loans during 2016. Classified loans as a percentage of total loans increased to 2.17% at December 31, 2017 from 1.00% at December 31, 2016. We continue to proactively and diligently work to resolve our troubled loans. At December 31, 2017, our allowance for loan losses as a percent of total loans was 1.15%. At December 31, 2017, there were $43.9 million of loans deemed as TDRs, of which $27.3 million were residential and consumer loans, $14.5 million were commercial real estate loans, $1.3 million were commercial and industrial loans and $918,000 were multi-family loans. TDRs of $11.0 million were classified as accruing and $32.9 million were classified as non-accrual at December 31, 2017. In addition to non-accrual loans, we continue to monitor our portfolio for potential problem loans. Potential problem loans are defined as loans about which we have concerns as to the ability of the borrower to comply with the current loan repayment terms and which may cause the loan to be placed on non-accrual status. As of December 31, 2017, the Company has deemed potential problem loans, excluding PCI loans, totaling $25.4 million, which is comprised of 8 commercial real estate loans totaling $6.8 million, 12 commercial and industrial loans totaling $4.6 million and 7 multi-family loans totaling $14.0 million. Management is actively monitoring all of these loans. The allowance for loan losses increased by $2.6 million to $231.0 million at December 31, 2017 from $228.4 million at December 31, 2016. The increase in our allowance for loan losses from December 31, 2016 is due to the inherent credit risk in our overall portfolio, the growth and composition of the loan portfolio, and the level of non-accrual loans and charge-offs. Future increases in the allowance for loan losses may be necessary based on the growth and composition of the loan portfolio, the level of loan delinquency and the economic conditions in our lending area. At December 31, 2017, our allowance for loan losses as a percent of total loans was 1.15%. Securities. Securities are held primarily for liquidity, interest rate risk management and yield enhancement. Our Investment Policy requires that investment transactions conform to Federal and New Jersey State investment regulations. Our investments purchased may include, but are not limited to, U.S. Treasury obligations, securities issued by various Federal Agencies, State and Municipal subdivisions, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, investment grade corporate debt instruments, and mutual funds. In addition, the Company may invest in equity securities subject to certain limitations. Purchase decisions are based upon a thorough analysis of each security to determine if it conforms to our overall asset/liability management objectives. The analysis must consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation and other risk factors. Securities are classified as held-to-maturity or available-for-sale when purchased. At December 31, 2017, our securities portfolio represented 15.1% of our total assets. Securities, in the aggregate, increased by $368.4 million, or 10.8%, to $3.78 billion at December 31, 2017 from $3.42 billion at December 31, 2016. This increase was a result of purchases partially offset by paydowns and sales. Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets. The amount of stock we own in the FHLB decreased by $6.3 million, or 2.7% to $231.5 million at December 31, 2017 from $237.9 million at December 31, 2016. The amount of stock we own in the FHLB is primarily related to the balance of our outstanding borrowings from the FHLB. Bank owned life insurance was $155.6 million at December 31, 2017 and $161.9 million at December 31, 2016. Other assets were $3.8 million at December 31, 2017 and $14.5 million at December 31, 2016. 59