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Loans and the Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2017
Receivables [Abstract]  
Loans, Notes, Trade and Other Receivables Disclosure

Note 5 - Loans and the Allowance for Loan Losses

 

Loans Receivable: The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred fees, as of December 31, 2017 and December 31, 2016:

 

   2017   2016 
   (dollars in thousands) 
Commercial  $824,082   $553,576 
Commercial real estate   2,592,909    2,204,710 
Commercial construction   483,216    486,228 
Residential real estate   271,795    232,547 
Consumer   2,808    2,380 
Gross loans   4,174,810    3,479,441 
Net deferred fees   (3,354)   (3,609)
Loans receivable  $4,171,456   $3,475,832 

 

At December 31, 2017 and 2016, loan balances of approximately $1.9 billion and $1.7 billion, respectively, were pledged to secure borrowings from the Federal Home Loan Bank.

 

The loan segments in the above table have unique risk characteristics with respect to credit quality:

 

·The repayment of commercial loans is generally dependent on the creditworthiness and cash flow of borrowers, and if applicable, guarantors, which may be negatively impacted by adverse economic conditions. While the majority of these loans are secured, collateral type, marketing, coverage, valuation and monitoring is not as uniform as in other portfolio classes and recovery from liquidation of such collateral may be subject to greater variability.

 

·Payment on commercial mortgages is driven principally by operating results of the managed properties or underlying business and secondarily by the sale or refinance of such properties. Both primary and secondary sources of repayment, and value of the properties in liquidation, may be affected to a greater extent by adverse conditions in the real estate market or the economy in general.

 

·Properties underlying construction, land and land development loans often do not generate sufficient cash flows to service debt and thus repayment is subject to ability of the borrower and, if applicable, guarantors, to complete development or construction of the property and carry the project, often for extended periods of time. As a result, the performance of these loans is contingent upon future events whose probability at the time of origination is uncertain.

 

·The ability of borrowers to service debt in the residential and consumer loan portfolios is generally subject to personal income which may be impacted by general economic conditions, such as increased unemployment levels. These loans are predominately collateralized by first and/or second liens on single family properties. If a borrower cannot maintain the loan, the Company’s ability to recover against the collateral in sufficient amount and in a timely manner may be significantly influenced by market, legal and regulatory conditions.

 

Loans Held-For-Sale: The following table presents loans held-for-sale by loan segment as of December 31, 2017 and December 31, 2016:

 

   2017   2016 
   (dollars in thousands) 
Commercial  $-   $70,105 
Commercial real estate   24,475    7,712 
Residential mortgage loans   370    188 
Total carrying amount  $24,845   $78,005 

 

As of December 31, 2016, the commercial loans held-for-sale segment included the Company’s entire taxi medallion portfolio, with a carrying value of $65.6 million (with an unpaid principal balance of $102.1 million).  During the fourth quarter of 2017, the Bank’s entire taxi medallion loan portfolio was transferred back to loans held-for-investment from the held-for-sale designation. As of December 31, 2017, the loans secured by NYC taxi medallions, predominantly corporate medallions, had a carrying value of $46.8 million, compared to $65.6 million as of December 31, 2016.

 

Purchased Credit-Impaired Loans: The Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected.  The carrying amount of those loans is as follows as of December 31, 2017 and December 31, 2016.

 

   2017   2016 
   (dollars in thousands) 
Commercial  $2,683   $7,098 
Commercial real estate   -    982 
Total carrying amount  $2,683   $8,080 

 

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the year ended December 31, 2017 and 2016. No allowances for loan losses were reversed during 2017 and 2016.

 

The accretable yield, or income expected to be collected, on the purchased credit-impaired loans above is as follows as of December 31, 2017 and December 31, 2016.

 

   2017   2016 
   (dollars in thousands) 
Balance at January 1,  $2,860   $3,599 
Accretion of income   (1,473)   (739)
Balance at December 31,  $1,387   $2,860 

 

Loans Receivable on Nonaccrual Status: The following tables present nonaccrual loans included in loans receivable by loan segment as of December 31, 2017 and December 31, 2016:

 

   2017   2016 
   (dollars in thousands) 
Commercial  $47,363   $1,460 
Commercial real estate   12,757    1,081 
Commercial construction   -    - 
Residential real estate   5,493    3,193 
Total loans receivable on nonaccrual status  $65,613   $5,734 

 

The increase in nonaccrual loans is primarily attributable to the entire taxi medallion portfolio (approximately $46.8 million, or 1.1% of loans receivable) moving back to the loans held-for-investment category from the loans held-for-sale category.

 

Nonaccrual loans and loans 90 days or greater past due and still accruing include both smaller balance homogeneous loans that are collectively evaluated for impairment and loans individually evaluated for impairment.

 

Credit Quality Indicators: The Company continuously monitors the credit quality of its loans receivable. In addition to its internal monitoring, the Company utilizes the services of a third-party loan review firm to periodically validate the credit quality of its loans receivable on a sample basis. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified “Pass” are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as “Special Mention” have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the loan quality or inadequately protect the Company’s credit position at some future date. Assets are classified “Substandard” if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements. An asset is classified as “Doubtful” if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a “distinct possibility” that a degree of loss will occur if the inadequacies are not corrected. All loans past due 90 days or greater and all impaired loans are included in the appropriate category below. The following table presents information about the loan credit quality by loan segment of gross loans (which exclude net deferred fees) at December 31, 2017 and 2016:

 

   December 31, 2017 
   Pass   Special Mention   Substandard   Doubtful   Total 
   (dollars in thousands) 
Commercial  $767,020   $3,764   $53,298   $-   $824,082 
Commercial real estate   2,534,973    34,335    23,601    -    2,592,909 
Commercial construction   475,066    5,521    2,629    -    483,216 
Residential real estate   266,163    -    5,632    -    271,795 
Consumer   2,767    -    41    -    2,808 
Gross loans  $4,045,989   $43,620   $85,201   $-   $4,174,810 

 

   December 31, 2016 
   Pass   Special Mention   Substandard   Doubtful   Total 
   (dollars in thousands) 
Commercial  $539,961   $3,255   $10,360   $-   $553,576 
Commercial real estate   2,154,343    31,173    19,194    -    2,204,710 
Commercial construction   480,319    3,388    2,521    -    486,228 
Residential real estate   228,990    -    3,557    -    232,547 
Consumer   2,318    -    62    -    2,380 
Gross loans  $3,405,931   $37,816   $35,694   $-   $3,479,441 

 

The increase in the Substandard classification is primarily attributable to the entire taxi medallion portfolio (approximately $46.8 million, or 1.1% of loans receivable) moving back to the loans held-for-investment category from the loans held-for-sale category.

 

The following table provides an analysis of the impaired loans by segment at December 31, 2017, 2016 and

 

   December 31, 2017 
No Related Allowance Recorded  Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		   Interest
Income
Recognized		 
   (dollars in thousands)
Commercial  $49,761   $101,066        $10,552   $161 
Commercial real estate   23,905    23,976         24,099    585 
Commercial construction   6,662    6,662         5,509    322 
Residential real estate   3,203    3,442         3,255    - 
Consumer   -    -         -    - 
Total  $83,531   $135,146        $43,415   $1,068 
                          
With An Allowance Recorded                    
Commercial real estate  $1,133   $1,133   $39   $1,152   $51 
                          
Total                         
Commercial  $49,761   $101,066   $-   $10,765   $161 
Commercial real estate   25,038    25,109    39    25,251    636 
Commercial construction   6,662    6,662    -    5,509    322 
Residential real estate   3,203    3,442    -    3,255    - 
Consumer   -    -    -    -    - 
Total (including related allowance)  $84,664   $136,279   $39   $44,567   $1,119 

 

   December 31, 2016 
No Related Allowance Recorded  Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		   Interest
Income
Recognized		 
   (dollars in thousands) 
Commercial  $3,637   $4,063       $4,052   $64 
Commercial real estate   18,288    18,288         18,532    250 
Commercial construction   5,909    5,909         5,308    79 
Residential real estate   1,851    2,055         1,908    19 
Consumer   62    62         72    4 
Total  $29,747   $30,377        $29,872   $416 
                          
With An Allowance Recorded                    
Commercial real estate  $1,244   $1,244   $145   $1,274   $- 
                          
Total                         
Commercial  $3,637   $4,063   $-   $4,052   $64 
Commercial real estate   19,532    19,532    145    19,806    250 
Commercial construction   5,909    5,909    -    5,308    79 
Residential real estate   1,851    2,055    -    1,908    19 
Consumer   62    62    -    72    4 
Total (including related allowance)  $30,991   $31,621   $145   $31,146   $416 

 

   December 31, 2015 
No Related Allowance Recorded  Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		   Interest
Income
Recognized		 
   (dollars in thousands) 
Commercial  $610   $645       $686   $- 
Commercial real estate   15,517    16,512         6,363    60 
Commercial construction   2,149    2,141         1,535    - 
Residential real estate   3,954    4,329         3,322    10 
Consumer   87    86         96    5 
Total  $22,317   $23,713        $12,002   $75 
                          
With An Allowance Recorded                    
Commercial  $84,787   $84,449   $6,725   $55,445   $1,895 
                          
Total                         
Commercial  $85,397   $85,094   $6,725   $56,131   $1,895 
Commercial real estate   15,517    16,512    -    6,363    60 
Commercial construction   2,149    2,141    -    1,535    - 
Residential real estate   3,954    4,329    -    3,322    10 
Consumer   87    86    -    96    5 
Total  $107,104   $108,162   $6,725   $67,447   $1,970 

 

The increase in recorded investment of impaired loans is primarily attributable to the entire taxi medallion portfolio (approximately $46.8 million, or 1.1% of loans receivable) moving back to the loans held-for-investment category from the loans held-for-sale category.

 

Included in the impaired loans table are $14.9 million, $13.3 million and $85.9 million of performing TDRs as of December 31, 2017, 2016 and 2015, respectively. Cash basis interest and interest income recognized on accrual basis approximate each other.

 

Aging Analysis: The following table provides an analysis of the aging of the loans by segment, excluding net deferred fees that are past due at December 31, 2017 and December 31, 2016 by class (dollars in thousands):

 

   December 31, 2017 
     
   30-59 Days
Past Due		   60-89 Days
Past Due		   90 Days or
Greater Past
Due and Still
Accruing		   Nonaccrual   Total Past
Due and
Nonaccrual		   Current   Total Loans
Receivable		 
Commercial  $1,708   $183   $1,664   $47,363   $50,918   $773,164   $824,082 
Commercial real estate   545    1,475    -    12,757    14,777    2,578,132    2,592,909 
Commercial construction   -    -    -    -    -    483,216    483,216 
Residential real estate   1,578    -    -    5,493    7,071    264,724    271,795 
Consumer   18    -    -    -    18    2,790    2,808 
Total  $3,849   $1,658   $1,664   $65,613   $72,784   $4,102,026   $4,174,810 

 

The amount reported 90 days or greater past due and still accruing as of December 31, 2017 are comprised of PCI loans, net of their fair value marks, which are accreting income per their valuation at date of acquisition. There were no non-PCI loans 90 days or greater past due and still accruing as of December 31, 2017.

 

   December 31, 2016 
     
   30-59 Days
Past Due		   60-89 Days
Past Due		   90 Days or
Greater Past
Due and Still
Accruing		   Nonaccrual   Total Past
Due and
Nonaccrual		   Current   Total Loans
Receivable		 
Commercial  $475   $18   $4,630   $1,460   $6,583   $546,993   $553,576 
Commercial real estate   4,928    1,584    663    1,081    8,256    2,196,454    2,204,710 
Commercial construction   -    -    -    -    -    486,228    486,228 
Residential real estate   2,131    388    -    3,193    5,712    226,835    232,547 
Consumer   -    -    -    -    -    2,380    2,380 
Total  $7,534   $1,990   $5,293   $5,734   $20,551   $3,458,890   $3,479,441 

 

The amount reported 90 days or greater past due and still accruing as of December 31, 2016 are comprised of PCI loans, net of their fair value marks, which are accreting income per their valuation at date of acquisition. There were no non-PCI loans 90 days or greater past due and still accruing as of December 31, 2016.

 

The following tables detail, at the period-end presented, the amount of gross loans (excluding loans held-for-sale) that are evaluated individually, and collectively, for impairment, those acquired with deteriorated quality, and the related portion of the allowance for loan losses that are allocated to each loan portfolio segment:

 

   December 31, 2017
   Commercial   Commercial real estate   Commercial construction   Residential real estate   Consumer   Unallocated   Total 
   (dollars in thousands)
Allowance for loan losses                            
Individually evaluated for impairment  $-   $39   $-   $-   $-   $-   $39 
Collectively evaluated for impairment   8,032    15,472    4,747    1,051    2    605    29,909 
Acquired portfolio   200    1,600    -    -    -    -    1,800 
Acquired with deteriorated credit quality   -    -    -    -    -    -    - 
Total  $8,232   $17,111   $4,747   $1,051   $2   $605   $31,748 
                                    
Gross loans                                   
Individually evaluated for impairment  $49,761   $25,038   $6,662   $3,203   $-        $84,664 
Collectively evaluated for impairment   757,923    2,190,686    476,554    212,350    2,338         3,639,851 
Acquired portfolio   13,715    377,185    -    56,242    470         447,612 
Acquired with deteriorated credit quality   2,683    -    -    -    -         2,683 
Total  $824,082   $2,592,909   $483,216   $271,795   $2,808        $4,174,810 

 

   December 31, 2016
   Commercial   Commercial
real estate		   Commercial
construction		   Residential
real estate		   Consumer   Unallocated   Total 
   (dollars in thousands)
Allowance for loan losses                            
Individually evaluated for impairment  $-   $145   $-   $-   $-   $-   $145 
Collectively evaluated for impairment   6,632    12,438    4,789    958    3    779    25,599 
Acquired portfolio   -    -    -    -    -    -    - 
Acquired with deteriorated credit quality   -    -    -    -    -    -    - 
Total  $6,632   $12,583   $4,789   $958   $3   $779   $25,744 
                                    
Gross loans                                   
Individually evaluated for impairment  $3,637   $19,532   $5,909   $1,851   $62        $30,991 
Collectively evaluated for impairment   517,869    1,621,745    478,865    163,686    1,757         2,783,922 
Acquired portfolio   24,972    562,451    1,454    67,010    561         656,448 
Acquired with deteriorated credit quality   7,098    982    -    -    -         8,080 
Total  $553,576   $2,204,710   $486,228   $232,547   $2,380        $3,479,441 

 

The Company’s allowance for loan losses is analyzed quarterly. Many factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other factors inherent in the extension of credit.

 

A summary of the activity in the allowance for loan losses is as follows:

 

   Commercial   Commercial
real estate		   Commercial
construction		   Residential
real estate		   Consumer   Unallocated   Total 
   (dollars in thousands) 
Balance at January 1, 2017
  $6,632   $12,583   $4,789   $958   $3   $779   $25,744 
Loan charge-offs   (70)   (155)   -    -    (14)   -    (239)
Recoveries   178    51    -    12    2    -    243 
Provision for loan losses   1,493    4,633    (42)   80    10    (174)   6,000 
Balance at December 31, 2017  $8,233   $17,112   $4,747   $1,050   $1   $605   $31,748 

 

   Commercial   Commercial
real estate		   Commercial
construction		   Residential
real estate		   Consumer   Unallocated   Total 
   (dollars in thousands) 
Balance at January 1, 2016  $10,949   $10,926   $3,253   $976   $4   $464   $26,572 
Loan charge-offs   (39,343)   (107)   -    (94)   (29)   -    (39,573)
Recoveries   4    35    -    3    3    -    45 
Provision for loan losses   35,022    1,729    1,536    73    25    315    38,700 
Balance at December 31, 2016  $6,632   $12,583   $4,789   $958   $3   $779   $25,744 

 

   Commercial   Commercial
real estate		   Commercial
construction		   Residential
real estate		   Consumer   Unallocated   Total 
   (dollars in thousands) 
Balance at January 1, 2015  $3,083   $7,799   $1,239   $1,113   $7   $919   $14,160 
Loans charge-offs   (101)   (406)   -    -    (31)   -    (538)
Recoveries   13    327    -    2    3    -    345 
Provision for loan losses   7,954    3,206    2,014    (139)   25    (455)   12,605 
Balance at December 31, 2015  $10,949   $10,926   $3,253   $976   $4   $464   $26,572 

 

For the year ended December 31, 2016, the loan charge-offs within the commercial loan segment were primarily made up of $36.7 million in charge-offs related to the taxi medallion portfolio and a $1.1 million charge related to a lease financing receivable of the former Union Center operations building.

 

The $36.7 million charge on the taxi medallion portfolio occurred in conjunction with the transfer of the taxi medallion loans to loans held-for-sale. The amount transferred to loans held-for-sale as of December 31, 2016 had a carrying value of $65.6 million following the charge-off.

 

Troubled Debt Restructurings

 

Loans are considered to have been modified in a troubled debt restructuring (“TDRs”) when due to a borrower’s financial difficulties, the Company makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a nonaccrual loan that has been modified in a troubled debt restructuring remains on nonaccrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual status.

 

At December 31, 2017, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due 90 days or greater and still accruing interest, or whose terms have been modified in troubled debt restructurings.

 

The following table presents loans by segment modified as troubled debt restructurings and the related changes to the allowance for loan and leases losses that occurred during the year ended December 31, 2017 and December 31, 2016:

 

   December 31, 2017   December 31, 2016
   (dollars in thousands) 
   Recorded Investment    ALLL    Recorded Investment    ALLL  
Troubled debt restructurings                    
Balance January 1,  $13,818   $-   $86,629   $4,500 
Additions   10,378    -    26,325    8,250 
Payoffs/paydowns   (3,098)         (2,616)      
Transfers   (580)    -    (96,520)    - 
Other   -    -    -    (12,750) 
Balance December 31,  $20,518   $-   $13,818   $- 

 

TDRs totaled $20.5 million at December 31, 2017, of which $5.6 million were on nonaccrual status and $14.9 million were performing under restructured terms. At December 31, 2016, TDRs totaled $13.8 million, of which $0.5 million were on nonaccrual status and $13.3 million were performing under restructured terms. As of December 31, 2017, the taxi medallion loans that were modified in a troubled debt restructuring in 2016 and 2015 were transferred back to the loans held-for-investment category from the loans held-for-sale category. As of December 31, 2017, all taxi medallion loans remain on nonaccrual status.

 

The following table presents loans by segment modified as troubled debt restructurings that occurred during the year ended December 31, 2017 (dollars in thousands):

 

       Pre-Modification   Post-Modification 
       Outstanding   Outstanding 
   Number of   Recorded   Recorded 
   Loans   Investment   Investment 
   (dollars in thousands) 
Troubled debt restructurings:               
Commercial   1   $692   $692 
Commercial real estate   2    3,007    3,007 
Commercial construction   2    6,662    6,662 
Residential real estate   1    17    17 
Consumer   -    -    - 
                
Total   6   $10,378   $10,378 

 

TDRs as of December 31, 2017 did not increase the ALLL during the year ended December 31, 2017. There were no charge-offs in connection with a loan modification at the time of modification during the year ended December 31, 2017. There were no TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2017.

 

The following table presents loans by segment modified as troubled debt restructurings that occurred during the year ended December 31, 2016:

 

       Pre-Modification   Post-Modification 
       Outstanding   Outstanding 
   Number of   Recorded   Recorded 
   Loans   Investment   Investment 
   (dollars in thousands) 
Troubled debt restructurings:               
Commercial   19   $22,420   $22,420 
Commercial real estate   3    2,155    2,155 
Commercial construction   1    1,750    1,750 
Residential real estate   -    -    - 
Consumer   -    -    - 
                
Total   23   $26,325   $26,325 

 

Included in the above troubled debt restructurings were 15 loans secured by 27 New York City taxi medallions totaling $18.5 million as of the date of the respective modifications.  These loan modifications included interest rate reductions and maturity extensions.  All 15 loans were accruing prior to modification, while 14 remained in accrual status post-modification. As of December 31, 2016, the taxi medallion loans that were modified in a troubled debt restructuring in 2016 were transferred to the loans held-for-sale category (along with the 2015 taxi medallion modified troubled debt restructurings) and, concurrently, were put on nonaccrual.

 

There were no charge-offs in connection with a loan modification at the time of modification during the year ended December 31, 2016. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ended December 31, 2016.

 

The following table presents loans by segment modified as troubled debt restructurings that occurred during the year ended December 31, 2015:

 

       Pre-Modification   Post-Modification 
       Outstanding   Outstanding 
   Number of   Recorded   Recorded 
   Loans   Investment   Investment 
   (dollars in thousands) 
Troubled debt restructurings:               
Commercial   48   $78,466   $78,466 
Commercial real estate   3    5,049    5,049 
Commercial construction   1    661    661 
Residential real estate   1    110    110 
Consumer   1    4    4 
                
Total   54   $84,290   $84,290 

 

The increase in TDRs was due to loans secured by New York City taxi medallions that were modified during the second quarter of 2015. The modifications consisted of a deferral of principal amortization from approximately 25-30 year amortization to interest-only. There was no extension of the loans’ contractual maturity dates, there was no forgiveness of principal, and the interest rates on these loans were increased from approximately 3%-3.25% to 3.75%. These loans were accruing prior to modification and remained in accrual status post-modification.

 

There were no charge-offs in connection with a loan modification at the time of modification during the year ended December 31, 2015. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ended December 31, 2015.