Note 5: Loans

The following table sets forth the composition of the loan portfolio at the dates indicated:


	March 31, 2018						December 31, 2017
(dollars in thousands)	Amount			Percent of Loans Held for Investment			Amount			Percent of Loans Held for Investment
Loans Held for Investment:
Mortgage Loans:
Multi-family	$	28,656,234			73.74	%	$	28,074,709			73.19	%
Commercial real estate		7,252,889			18.66			7,322,226			19.09
One-to-four family		465,704			1.20			477,228			1.24
Acquisition, development, and construction		441,767			1.14			435,825			1.14

Total mortgage loans held for investment	$	36,816,594			94.74		$	36,309,988			94.66

Other Loans:
Commercial and industrial		1,377,766			3.55			1,377,964			3.59
Lease financing, net of unearned income of $61,251 and $65,041, respectively		657,264			1.69			662,610			1.73

Total commercial and industrial loans ⁽¹⁾		2,035,030			5.24			2,040,574			5.32
Other		8,230			0.02			8,460			0.02

Total other loans held for investment		2,043,260			5.26			2,049,034			5.34

Total loans held for investment	$	38,859,854			100.00	%	$	38,359,022			100.00	%

Net deferred loan origination costs		29,569						28,949
Allowance for losses on non-covered loans		(161,140	)					(158,046	)

Loans held for investment, net	$	38,728,283					$	38,229,925

Loans held for sale		31,402						35,258

Total loans, net	$	38,759,685					$	38,265,183

(1)	Includes specialty finance loans of $1.5 billion at March 31, 2018 and December 31, 2017, and other C&I loans of $522.0 million and $500.8 million, respectively, at March 31, 2018 and December 31, 2017.

Loans

Loans Held for Investment

The majority of the loans the Company originates for investment are multi-family loans, most of which are collateralized by non-luxury apartment buildings in New York City with rent-regulated units and below-market rents. In addition, the Company originates CRE loans, most of which are collateralized by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties that are located in New York City and on Long Island.

To a lesser extent, the Company also originates one-to-four family loans, ADC loans, and C&I loans, for investment. One-to-four family loans held for investment were originated through the Company’s mortgage banking operation and primarily consisted of jumbo prime adjustable rate mortgages made to borrowers with a solid credit history.

ADC loans are primarily originated for multi-family and residential tract projects in New York City and on Long Island. C&I loans consist of asset-based loans, equipment loans and leases, and dealer floor-plan loans (together, specialty finance loans and leases) that generally are made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide; and other C&I loans that primarily are made to small and mid-size businesses in Metro New York. Other C&I loans are typically made for working capital, business expansion, and the purchase of machinery and equipment.

The repayment of multi-family and CRE loans generally depends on the income produced by the underlying properties which, in turn, depends on their successful operation and management. To mitigate the potential for credit losses, the Company underwrites its loans in accordance with credit standards it considers to be prudent, looking first at the consistency of the cash flows being produced by the underlying property. In addition, multi-family buildings, CRE properties, and ADC projects are inspected as a prerequisite to approval, and independent appraisers, whose appraisals are carefully reviewed by the Company’s in-house appraisers, perform appraisals on the collateral properties. In many cases, a second independent appraisal review is performed.

To further manage its credit risk, the Company’s lending policies limit the amount of credit granted to any one borrower and typically require conservative debt service coverage ratios and loan-to-value ratios. Nonetheless, the ability of the Company’s borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy. Accordingly, there can be no assurance that its underwriting policies will protect the Company from credit-related losses or delinquencies.

ADC loans typically involve a higher degree of credit risk than loans secured by improved or owner-occupied real estate. Accordingly, borrowers are required to provide a guarantee of repayment and completion, and loan proceeds are disbursed as construction progresses, as certified by in-house inspectors or third-party engineers. The Company seeks to minimize the credit risk on ADC loans by maintaining conservative lending policies and rigorous underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater than expected, or the length of time to complete and/or sell or lease the collateral property is greater than anticipated, the property could have a value upon completion that is insufficient to assure full repayment of the loan. This could have a material adverse effect on the quality of the ADC loan portfolio, and could result in losses or delinquencies. In addition, the Company utilizes the same stringent appraisal process for ADC loans as it does for its multi-family and CRE loans.

To minimize the risk involved in specialty finance lending and leasing, the Company participates in syndicated loans that are brought to it, and equipment loans and leases that are assigned to it, by a select group of nationally recognized sources who have had long-term relationships with its experienced lending officers. Each of these credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as a non-cancelable lease. To further minimize the risk involved in specialty finance lending and leasing, each transaction is re-underwritten. In addition, outside counsel is retained to conduct a further review of the underlying documentation.

To minimize the risks involved in other C&I lending, the Company underwrites such loans on the basis of the cash flows produced by the business; requires that such loans be collateralized by various business assets, including inventory, equipment, and accounts receivable, among others; and typically requires personal guarantees. However, the capacity of a borrower to repay such a C&I loan is substantially dependent on the degree to which the business is successful. In addition, the collateral underlying such loans may depreciate over time, may not be conducive to appraisal, or may fluctuate in value, based upon the results of operations of the business.

Included in non-covered loans held for investment at March 31, 2018 were loans of $56.8 million to officers, directors, and their related interests and parties. There were no loans to principal shareholders at that date.

Loans Held for Sale

At March 31, 2018 the Company had loans held for sale of $31.4 million as compared to $35.3 million at December 31, 2017. At March 31, 2018, loans held for sale consisted of $21.9 million of one-to-four family loans and a $9.5 million CRE loan. At December 31, 2017, all loans held for sale were one-to-four family loans.

Asset Quality

The following table presents information regarding the quality of the Company’s loans held for investment at March 31, 2018:


(in thousands)	Loans 30-89 Days Past Due⁽¹⁾		Non- Accrual Loans ⁽¹⁾		Loans 90 Days or More Delinquent and Still Accruing Interest		Total Past Due Loans		Current Loans		Total Loans Receivable
Multi-family	$	—	$	11,881	$	—	$	11,881	$	28,644,353	$	28,656,234
Commercial real estate		3,191		13,611		—		16,802		7,236,087		7,252,889
One-to-four family		397		1,949		—		2,346		463,358		465,704
Acquisition, development, and construction		—		—		—		—		441,767		441,767
Commercial and industrial⁽¹⁾ ⁽²⁾		6,736		45,941		—		52,677		1,982,353		2,035,030
Other		27		4		—		31		8,199		8,230

Total	$	10,351	$	73,386	$	—	$	83,737	$	38,776,117	$	38,859,854

(1)	Includes $6.7 million and $44.8 million of taxi medallion-related loans that were 30 to 89 days past due and 90 days or more past due, respectively.

(2)	Includes lease financing receivables, all of which were current.

The following table presents information regarding the quality of the Company’s loans held for investment at December 31, 2017:


(in thousands)	Loans 30-89 Days Past Due⁽¹⁾		Non- Accrual Loans ⁽¹⁾		Loans 90 Days or More Delinquent and Still Accruing Interest		Total Past Due Loans		Current Loans		Total Loans Receivable
Multi-family	$	1,258	$	11,078	$	—	$	12,336	$	28,062,373	$	28,074,709
Commercial real estate		13,227		6,659		—		19,886		7,302,340		7,322,226
One-to-four family		585		1,966		—		2,551		474,677		477,228
Acquisition, development, and construction		—		6,200		—		6,200		429,625		435,825
Commercial and industrial⁽¹⁾ ⁽²⁾		2,711		47,768		—		50,479		1,990,095		2,040,574
Other		8		11		—		19		8,441		8,460

Total	$	17,789	$	73,682	$	—	$	91,471	$	38,267,551	$	38,359,022

(1)	Includes $2.7 million and $46.7 million of taxi medallion-related loans that were 30 to 89 days past due and 90 days or more past due, respectively.

(2)	Includes lease financing receivables, all of which were current.

The following table summarizes the Company’s portfolio of loans held for investment by credit quality indicator at March 31, 2018:


	Mortgage Loans										Other Loans
(in thousands)	Multi-Family		Commercial Real Estate		One-to- Four Family		Acquisition, Development, and Construction		Total Mortgage Loans		Commercial and Industrial⁽¹⁾		Other		Total Other Loans
Credit Quality Indicator:
Pass	$	28,409,201	$	7,193,256	$	460,080	$	357,174	$	36,419,711	$	1,923,271	$	8,226	$	1,931,497
Special mention		190,762		45,379		3,675		75,041		314,857		20,358		—		20,358
Substandard		56,271		14,254		1,949		9,552		82,026		91,401		4		91,405
Doubtful		—		—		—		—		—		—		—		—

Total	$	28,656,234	$	7,252,889	$	465,704	$	441,767	$	36,816,594	$	2,035,030	$	8,230	$	2,043,260

(1)	Includes lease financing receivables, all of which were classified as Pass.

The following table summarizes the Company’s portfolio of loans held for investment by credit quality indicator at December 31, 2017:


	Mortgage Loans										Other Loans
(in thousands)	Multi-Family		Commercial Real Estate		One-to- Four Family		Acquisition, Development, and Construction		Total Mortgage Loans		Commercial and Industrial⁽¹⁾		Other		Total Other Loans
Credit Quality Indicator:
Pass	$	27,874,330	$	7,255,100	$	471,571	$	344,040	$	35,945,041	$	1,925,527	$	8,449	$	1,933,976
Special mention		125,752		47,123		3,691		76,033		252,599		20,883		—		20,883
Substandard		74,627		20,003		1,966		15,752		112,348		94,164		11		94,175
Doubtful		—		—		—		—		—		—		—		—

Total	$	28,074,709	$	7,322,226	$	477,228	$	435,825	$	36,309,988	$	2,040,574	$	8,460	$	2,049,034

(1)	Includes lease financing receivables, all of which were classified as Pass.

The preceding classifications are the most current ones available and generally have been updated within the last twelve months. In addition, they follow regulatory guidelines and can generally be described as follows: pass loans are of satisfactory quality; special mention loans have potential weaknesses that deserve management’s close attention; substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged (these loans have a well-defined weakness and there is a possibility that the Company will sustain some loss); and doubtful loans, based on existing circumstances, have weaknesses that make collection or liquidation in full highly questionable and improbable. In addition, one-to-four family loans are classified based on the duration of the delinquency.

Troubled Debt Restructurings

The Company is required to account for certain held-for-investment loan modifications and restructurings as TDRs. In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to a borrower experiencing financial difficulty. A loan modified as a TDR generally is placed on non-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which requires, among other things, that the borrower demonstrate performance according to the restructured terms for a period of at least six consecutive months.

In an effort to proactively manage delinquent loans, the Company has selectively extended to certain borrowers concessions such as rate reductions, extension of maturity dates, and forbearance agreements. As of March 31, 2018, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $44.6 million; loans on which forbearance agreements were reached amounted to $1.8 million.

The following table presents information regarding the Company’s TDRs as of March 31, 2018 and December 31, 2017:


	March 31, 2018						December 31, 2017
(in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Loan Category:
Multi-family	$	820	$	7,607	$	8,427	$	824	$	8,061	$	8,885
Commercial real estate		—		365		365		—		368		368
One-to-four family		—		1,053		1,053		—		1,066		1,066
Acquisition, development, and construction		9,552		—		9,552		8,652		—		8,652
Commercial and industrial		—		26,992		26,992		177		26,408		26,585

Total	$	10,372	$	36,017	$	46,389	$	9,653	$	35,903	$	45,556

The eligibility of a borrower for work-out concessions of any nature depends upon the facts and circumstances of each loan, which may change from period to period, and involves judgment by Company personnel regarding the likelihood that the concession will result in the maximum recovery for the Company.

The financial effects of the Company’s TDRs for the three months ended March 31, 2018 and 2017 are summarized as follows:


	For the Three Months Ended March 31, 2018
							Weighted Average Interest Rate
(dollars in thousands)	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre- Modification			Post- Modification			Charge-off Amount		Capitalized Interest
Loan Category:
Acquisition, development, and construction		1	$	900	$	900		4.50	%		4.50	%	$	—	$	—
Commercial and industrial		6		3,166		1,754		3.28			3.21			1,318		—

Total		7	$	4,066	$	2,654							$	1,318	$	—


	For the Three Months Ended March 31, 2017
							Weighted Average Interest Rate
(dollars in thousands)	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre- Modification			Post- Modification			Charge-off Amount		Capitalized Interest
Loan Category:
One-to-four family		1	$	264	$	339		6.00	%		2.63	%	$	—	$	5
Commercial and industrial		17		7,998		4,745		3.30			3.46			3,280		—

Total		18	$	8,262	$	5,084							$	3,280	$	5

At March 31, 2018, eleven C&I loans, in the amount of $2.9 million that had been modified as a TDR during the twelve months ended at that date were in payment default.

The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted a delay of payment, when the agreement to forebear or allow a delay of payment is part of a modification.

Subsequent to the modification, the loan is not considered to be in default until payment is contractually past due in accordance with the modified terms. However, the Company does consider a loan with multiple modifications or forbearance periods to be in default, and would also consider a loan to be in default if the borrower were in bankruptcy or if the loan were partially charged off subsequent to modification.