Loans Receivable and Allowance for Loan Losses | 6. Loans Receivable and Allowance for Loan Losses Loans acquired in connection with The Wilton acquisition in November 2013 and The Quinnipiac acquisition in October 2014 are referred to as “acquired” loans as a result of the manner in which they are accounted for. All other loans are referred to as “originated” loans. Accordingly, selected credit quality disclosures that follow are presented separately for the originated loan portfolio and the acquired loan portfolio. The following table sets forth a summary of the loan portfolio at December 31, 2016 and 2015: December 31, 2016 December 31, 2015 Originated Acquired Total Originated Acquired Total (In thousands) Real estate loans: Residential $ 178,549 $ 2,761 $ 181,310 $ 174,311 $ 2,873 $ 177,184 Commercial 802,156 43,166 845,322 643,524 54,018 697,542 Construction 107,329 112 107,441 81,242 1,031 82,273 Home equity 8,549 5,870 14,419 9,146 6,780 15,926 1,096,583 51,909 1,148,492 908,223 64,702 972,925 Commercial business 198,456 17,458 215,914 150,479 22,374 172,853 Consumer 672 861 1,533 117 1,618 1,735 Total loans 1,295,711 70,228 1,365,939 1,058,819 88,694 1,147,513 Allowance for loan losses (17,883 ) (99 ) (17,982 ) (14,128 ) (41 ) (14,169 ) Deferred loan origination fees, net (4,071 ) — (4,071 ) (3,605 ) — (3,605 ) Unamortized loan premiums 9 — 9 9 — 9 Loans receivable, net $ 1,273,766 $ 70,129 $ 1,343,895 $ 1,041,095 $ 88,653 $ 1,129,748 Lending activities are conducted principally in the New York metropolitan area, including the Fairfield and New Haven County regions of Connecticut, and consist of residential and commercial real estate loans, commercial business loans and a variety of consumer loans. Loans may also be granted for the construction of residential homes and commercial properties. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The following table summarizes activity in the accretable yields for the acquired loan portfolio for the years ended December 31, 2016 and 2015: 2016 2015 (In thousands) Balance at beginning of period $ 871 $ 1,382 Acquisition — — Accretion (154 ) (157 ) Other (a) (51 ) (354 ) Balance at end of period $ 666 $ 871 (a) Represents changes in cash flows expected to be collected due to loan sales or payoffs. Risk management The Company has established credit policies applicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each customer and extends credit of up to 80% of the market value of the collateral, depending on the borrowers’ creditworthiness and the type of collateral. The borrower’s ability to service the debt is monitored on an ongoing basis. Real estate is the primary form of collateral. Other important forms of collateral are business assets, time deposits and marketable securities. While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment to be based on the borrower’s ability to generate continuing cash flows. The Company’s policy for residential lending allows that, generally, the amount of the loan may not exceed 80% of the original appraised value of the property. In certain situations, the amount may exceed 80% LTV either with private mortgage insurance being required for that portion of the residential loan in excess of 80% of the appraised value of the property or where secondary financing is provided by a housing authority program second mortgage, a community’s low/moderate income housing program, a religious or civic organization. Private mortgage insurance may be required for that portion of the residential first mortgage loan in excess of 80% of the appraised value of the property. Credit quality of loans and the allowance for loan losses Management segregates the loan portfolio into portfolio segments which is defined as the level at which the Company develops and documents a systematic method for determining its allowance for loan losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate. The Company’s loan portfolio is segregated into the following portfolio segments: Residential Real Estate: Commercial Real Estate: Construction: Home Equity: Commercial Business: Consumer: Allowance for loan losses The following tables set forth the activity in the Company’s allowance for loan losses for the years ended December 31, 2016, 2015 and 2014, by portfolio segment: Residential Commercial Construction Home Equity Commercial Consumer Total (In thousands) December 31, 2016 Originated Beginning balance $ 1,444 $ 7,693 $ 1,504 $ 174 $ 3,310 $ 3 $ 14,128 Charge-offs — — — — (59 ) (10 ) (69 ) Recoveries — — — — — 8 8 Provisions 202 1,693 601 (18 ) 989 349 3,816 Ending balance $ 1,646 $ 9,386 $ 2,105 $ 156 $ 4,240 $ 350 $ 17,883 Acquired Beginning balance $ — $ 12 $ — $ — $ 24 $ 5 $ 41 Charge-offs — — (7 ) — (10 ) (25 ) (42 ) Recoveries — — — — — 2 2 Provisions — 17 7 — 29 45 98 Ending balance $ — $ 29 $ — $ — $ 43 $ 27 $ 99 Total Beginning balance $ 1,444 $ 7,705 $ 1,504 $ 174 $ 3,334 $ 8 $ 14,169 Charge-offs — — (7 ) — (69 ) (35 ) (111 ) Recoveries — — — — — 10 10 Provisions 202 1,710 608 (18 ) 1,018 394 3,914 Ending balance $ 1,646 $ 9,415 $ 2,105 $ 156 $ 4,283 $ 377 $ 17,982 Residential Commercial Construction Home Equity Commercial Consumer Total (In thousands) December 31, 2015 Originated Beginning balance $ 1,431 $ 5,480 $ 1,102 $ 205 $ 2,638 $ 4 $ 10,860 Charge-offs — — — — — (6 ) (6 ) Recoveries — — — — — 7 7 Provisions 13 2,213 402 (31 ) 672 (2 ) 3,267 Ending balance $ 1,444 $ 7,693 $ 1,504 $ 174 $ 3,310 $ 3 $ 14,128 Acquired Beginning balance $ — $ — $ — $ — $ — $ — $ — Charge-offs — — — — (15 ) (9 ) (24 ) Recoveries — — — — 100 2 102 Provisions — 12 — — (61 ) 12 (37 ) Ending balance $ — $ 12 $ — $ — $ 24 $ 5 $ 41 Total Beginning balance $ 1,431 $ 5,480 $ 1,102 $ 205 $ 2,638 $ 4 $ 10,860 Charge-offs — — — — (15 ) (15 ) (30 ) Recoveries — — — — 100 9 109 Provisions 13 2,225 402 (31 ) 611 10 3,230 Ending balance $ 1,444 $ 7,705 $ 1,504 $ 174 $ 3,334 $ 8 $ 14,169 Residential Commercial Construction Home Equity Commercial Consumer Total (In thousands) December 31, 2014 Originated Beginning balance $ 1,310 $ 3,616 $ 1,032 $ 190 $ 2,225 $ 9 $ 8,382 Charge-offs — — — — — (3 ) (3 ) Recoveries — — — — 4 425 429 Provisions 121 1,864 70 15 409 (427 ) 2,052 Ending balance $ 1,431 $ 5,480 $ 1,102 $ 205 $ 2,638 $ 4 $ 10,860 Acquired Beginning balance $ — $ — $ — $ — $ — $ — $ — Charge-offs — — (100 ) — — — (100 ) Recoveries — — — — — — — Provisions — — 100 — — — 100 Ending balance $ — $ — $ — $ — $ — $ — $ — Total Beginning balance $ 1,310 $ 3,616 $ 1,032 $ 190 $ 2,225 $ 9 $ 8,382 Charge-offs — — (100 ) — — (3 ) (103 ) Recoveries — — — — 4 425 429 Provisions 121 1,864 170 15 409 (427 ) 2,152 Ending balance $ 1,431 $ 5,480 $ 1,102 $ 205 $ 2,638 $ 4 $ 10,860 Loans evaluated for impairment and the related allowance for loan losses as of December 31, 2016 and 2015 were as follows: Originated Loans Acquired Loans Total Portfolio Allowance Portfolio Allowance Portfolio Allowance (In thousands) December 31, 2016 Loans individually evaluated for impairment: Residential real estate $ 969 $ — $ — $ — $ 969 $ — Commercial real estate 774 1 144 7 918 8 Home equity 259 — 453 — 712 — Commercial business 920 5 962 37 1,882 42 Consumer 341 341 27 27 368 368 Subtotal 3,263 347 1,586 71 4,849 418 Loans collectively evaluated for impairment: Residential real estate 177,580 1,646 2,761 — 180,341 1,646 Commercial real estate 801,382 9,385 43,022 22 844,404 9,407 Construction 107,329 2,105 112 — 107,441 2,105 Home equity 8,290 156 5,417 — 13,707 156 Commercial business 197,536 4,235 16,496 6 214,032 4,241 Consumer 331 9 834 — 1,165 9 Subtotal 1,292,448 17,536 68,642 28 1,361,090 17,564 Total $ 1,295,711 $ 17,883 $ 70,228 $ 99 $ 1,365,939 $ 17,982 Originated Loans Acquired Loans Total Portfolio Allowance Portfolio Allowance Portfolio Allowance (In thousands) December 31, 2015 Loans individually evaluated for impairment: Residential real estate $ 1,833 $ 2 $ — $ — $ 1,833 $ 2 Commercial real estate 4,291 — 762 12 5,053 12 Home equity 422 — 197 — 619 — Commercial business 1,977 71 1,433 21 3,410 92 Consumer — — 7 5 7 5 Subtotal 8,523 73 2,399 38 10,922 111 Loans collectively evaluated for impairment: Residential real estate 172,478 1,442 2,873 — 175,351 1,442 Commercial real estate 639,233 7,692 53,256 — 692,489 7,692 Construction 81,242 1,504 1,031 — 82,273 1,504 Home equity 8,724 174 6,583 — 15,307 174 Commercial business 148,502 3,239 20,941 3 169,443 3,242 Consumer 117 4 1,611 — 1,728 4 Subtotal 1,050,296 14,055 86,295 3 1,136,591 14,058 Total $ 1,058,819 $ 14,128 $ 88,694 $ 41 $ 1,147,513 $ 14,169 Credit quality indicators The Company’s policies provide for the classification of loans into the following categories: pass, special mention, substandard, doubtful and loss. Consistent with regulatory guidelines, loans that are considered to be of lesser quality are classified as substandard, doubtful, or loss assets. A loan 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 loans include those loans characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans classified as loss are those considered uncollectible and of such little value that their continuance as loans is not warranted. Loans that do not expose the Company to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are designated as special mention. Loans that are considered to be impaired are analyzed to determine whether a loss is probable and if so, a calculation is performed to determine the possible loss amount. If it is determined that the loss amount is $0, no reserve is held against the asset. If a loss is calculated, then a specific reserve for that asset is determined. The following tables are a summary of the loan portfolio quality indicators by portfolio segment at December 31, 2016 and 2015: Commercial Credit Quality Indicators At December 31, 2016 At December 31, 2015 Commercial Construction Commercial Total Commercial Construction Commercial Total (In thousands) Originated loans: Pass $ 797,249 $ 107,329 $ 196,436 $ 1,101,014 $ 638,709 $ 81,242 $ 148,748 $ 868,699 Special mention 4,605 — 115 4,720 1,595 — 1,118 2,713 Substandard 302 — 1,905 2,207 3,220 — 549 3,769 Doubtful — — — — — — — — Loss — — — — — — 64 64 Total originated loans 802,156 107,329 198,456 1,107,941 643,524 81,242 150,479 875,245 Acquired loans: Pass 41,582 112 16,836 58,530 52,427 230 20,794 73,451 Special mention 1,584 — 86 1,670 — — 598 598 Substandard — — 536 536 1,591 801 982 3,374 Doubtful — — — — — — — — Loss — — — — — — — — Total acquired loans 43,166 112 17,458 60,736 54,018 1,031 22,374 77,423 Total loans: Pass 838,831 107,441 213,272 1,159,544 691,136 81,472 169,542 942,150 Special mention 6,189 — 201 6,390 1,595 — 1,716 3,311 Substandard 302 — 2,441 2,743 4,811 801 1,531 7,143 Doubtful — — — — — — — — Loss — — — — — — 64 64 Total loans $ 845,322 $ 107,441 $ 215,914 $ 1,168,677 $ 697,542 $ 82,273 $ 172,853 $ 952,668 Residential and Consumer Credit Quality Indicators At December 31, 2016 At December 31, 2015 Residential Home Equity Consumer Total Residential Home Equity Consumer Total (In thousands) Originated loans: Pass $ 176,961 $ 8,291 $ 331 $ 185,583 $ 172,478 $ 8,725 $ 117 $ 181,320 Special mention 147 69 — 216 864 80 — 944 Substandard 1,441 189 — 1,630 969 341 — 1,310 Doubtful — — — — — — — — Loss — — 341 341 — — — — Total originated loans 178,549 8,549 672 187,770 174,311 9,146 117 183,574 Acquired loans: Pass 2,229 5,417 835 8,481 2,873 6,545 1,539 10,957 Special mention 49 — — 49 — — — — Substandard 483 453 2 938 — 235 79 314 Doubtful — — — — — — — — Loss — — 24 24 — — — — Total acquired loans 2,761 5,870 861 9,492 2,873 6,780 1,618 11,271 Total loans: Pass 179,190 13,708 1,166 194,064 175,351 15,270 1,656 192,277 Special mention 196 69 — 265 864 80 — 944 Substandard 1,924 642 2 2,568 969 576 79 1,624 Doubtful — — — — — — — — Loss — — 365 365 — — — — Total loans $ 181,310 $ 14,419 $ 1,533 $ 197,262 $ 177,184 $ 15,926 $ 1,735 $ 194,845 Loan portfolio aging analysis The following tables set forth certain information with respect to our loan portfolio delinquencies by portfolio segment and amount as of December 31, 2016 and December 31, 2015: As of December 31, 2016 31 – 60 Days 61 – 90 Days Greater Than Total Past Current Total Loans (In thousands) Originated Loans Real estate loans: Residential real estate $ — $ — $ 969 $ 969 $ 177,580 $ 178,549 Commercial real estate 147 1,848 302 2,297 799,859 802,156 Construction — — — — 107,329 107,329 Home equity — 173 — 173 8,376 8,549 Commercial business — — 378 378 198,078 198,456 Consumer — — — — 672 672 Total originated loans 147 2,021 1,649 3,817 1,291,894 1,295,711 Acquired Loans Real estate loans: Residential real estate — — — — 2,761 2,761 Commercial real estate 866 722 143 1,731 41,435 43,166 Construction — — — — 112 112 Home equity — — 453 453 5,417 5,870 Commercial business 99 249 — 348 17,110 17,458 Consumer 6 — — 6 855 861 Total acquired loans 971 971 596 2,538 67,690 70,228 Total loans $ 1,118 $ 2,992 $ 2,245 $ 6,355 $ 1,359,584 $ 1,365,939 As of December 31, 2015 31 – 60 Days 61 – 90 Days Greater Than Total Past Current Total Loans (In thousands) Originated Loans Real estate loans: Residential real estate $ — $ — $ 969 $ 969 $ 173,342 $ 174,311 Commercial real estate — 311 — 311 643,213 643,524 Construction — — — — 81,242 81,242 Home equity 198 — — 198 8,948 9,146 Commercial business 1,078 100 343 1,521 148,958 150,479 Consumer — — — — 117 117 Total originated loans 1,276 411 1,312 2,999 1,055,820 1,058,819 Acquired Loans Real estate loans: Residential real estate — — — — 2,873 2,873 Commercial real estate 333 — 762 1,095 52,923 54,018 Construction — — 801 801 230 1,031 Home equity 100 162 191 453 6,327 6,780 Commercial business 262 71 101 434 21,940 22,374 Consumer 17 — — 17 1,601 1,618 Total acquired loans 712 233 1,855 2,800 85,894 88,694 Total loans $ 1,988 $ 644 $ 3,167 $ 5,799 $ 1,141,714 $ 1,147,513 There were no loans delinquent greater than 90 days and still accruing as of December 31, 2016 and there were $1.1 million of loans delinquent greater than 90 days and still accruing as of December 31, 2015. Loans on nonaccrual status The following is a summary of nonaccrual loans by portfolio segment as of December 31, 2016 and 2015: December 31, 2016 2015 (In thousands) Residential real estate $ 969 $ 970 Commercial real estate 446 1,264 Home equity 643 395 Commercial business 538 1,160 Consumer 341 2 Total $ 2,937 $ 3,791 The amount of income that was contractually due but not recognized on originated nonaccrual loans totaled $17 thousand, $25 thousand and $8 thousand for the years ended December 31, 2016, 2015 and 2014, respectively. The amount of actual interest income recognized on these loans was $74 thousand, $43 thousand and $190 thousand for the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016 and 2015, there were $0 and $169 thousand in commitments to lend additional funds to borrowers on nonaccrual status, respectively. Impaired loans An impaired loan generally is one for which it is probable, based on current information, the Company will not collect all the amounts due under the contractual terms of the loan. Loans are individually evaluated for impairment. When the Company classifies a problem loan as impaired, it provides a specific valuation allowance for that portion of the asset that is deemed uncollectible. The following table summarizes impaired loans by portfolio segment and the average carrying amount and interest income recognized on impaired loans by portfolio segment as of December 31, 2016, 2015 and 2014: As of and for the Year Ended December 31, 2016 Carrying Unpaid Associated Average Interest (In thousands) Originated Impaired loans without a valuation allowance: Residential real estate $ 969 $ 969 $ — $ 969 $ — Commercial real estate 651 651 — 668 29 Home equity 259 269 — 267 10 Commercial business 551 584 — 987 76 Total impaired loans without a valuation allowance $ 2,430 $ 2,473 $ — $ 2,891 $ 115 Impaired loans with a valuation allowance: Residential real estate $ — $ — $ — $ — $ — Commercial real estate 123 123 1 128 6 Commercial business 369 369 5 417 22 Consumer 341 341 341 341 — Total impaired loans with a valuation allowance 833 833 347 886 28 Total originated impaired loans $ 3,263 $ 3,306 $ 347 $ 3,777 $ 143 Acquired Impaired loans without a valuation allowance: Home Equity $ 453 $ 462 $ — $ 456 $ 9 Commercial Business 572 593 — 629 36 Total impaired loans without a valuation allowance $ 1,025 $ 1,055 $ — $ 1,085 $ 45 Impaired loans with a valuation allowance: Commercial real estate $ 144 $ 144 $ 7 $ 144 $ — Commercial business 390 390 37 406 19 Consumer 27 27 27 27 — Total impaired loans with a valuation allowance 561 561 71 577 19 Total acquired impaired loans $ 1,586 $ 1,616 $ 71 $ 1,662 $ 64 As of and for the Year Ended December 31, 2015 Carrying Unpaid Associated Average Interest (In thousands) Originated Impaired loans without a valuation allowance: Residential real estate $ 969 $ 969 $ — $ 973 $ 27 Commercial real estate 4,291 4,291 — 4,308 124 Home equity 422 424 — 429 10 Commercial business 1,351 1,372 — 1,374 49 Total impaired loans without a valuation allowance $ 7,033 $ 7,056 $ — $ 7,084 $ 210 Impaired loans with a valuation allowance: Residential real estate $ 864 $ 864 $ 2 $ 864 $ 28 Commercial business 626 690 71 673 34 Total impaired loans with a valuation allowance 1,490 1,554 73 1,537 62 Total originated impaired loans $ 8,523 $ 8,610 $ 73 $ 8,621 $ 272 Acquired Impaired loans without a valuation allowance: Commercial real estate $ 611 $ 678 $ — $ 602 $ 6 Home Equity 197 200 — 198 2 Commercial Business 963 963 — 999 54 Total impaired loans without a valuation allowance $ 1,771 $ 1,841 $ — $ 1,799 $ 62 Impaired loans with a valuation allowance: Commercial real estate $ 151 $ 151 $ 12 $ 151 $ 3 Commercial business 470 480 21 506 14 Consumer 7 7 5 7 1 Total impaired loans with a valuation allowance 628 638 38 664 18 Total acquired impaired loans $ 2,399 $ 2,479 $ 38 $ 2,463 $ 80 As of and for the Year Ended December 31, 2014 Carrying Unpaid Associated Average Interest (In thousands) Originated Impaired loans without a valuation allowance: Residential real estate $ 864 $ 864 $ — $ 864 $ 28 Commercial real estate 4,543 4,544 — 4,034 223 Home equity 91 91 — 95 3 Commercial business 1,145 1,153 — 1,226 52 Total impaired loans without a valuation allowance $ 6,643 $ 6,652 $ — $ 6,219 $ 306 Impaired loans with a valuation allowance: Commercial real estate $ 453 $ 453 $ 23 $ 457 $ 29 Commercial business 556 556 10 596 32 Total impaired loans with a valuation allowance $ 1,009 $ 1,009 $ 33 $ 1,053 $ 61 Total originated impaired loans $ 7,652 $ 7,661 $ 33 $ 7,272 $ 367 Acquired Impaired loans without a valuation allowance: Commercial business $ 629 $ 629 $ — $ 607 $ 28 Total impaired loans without a valuation allowance $ 629 $ 629 $ — $ 607 $ 28 Impaired loans with a valuation allowance: Total impaired loans with a valuation allowance $ — $ — $ — $ — $ — Total acquired impaired loans $ 629 $ 629 $ — $ 607 $ 28 Troubled debt restructurings (TDRs) Modifications to a loan are considered to be a troubled debt restructuring when one or both of the following conditions is met: 1) the borrower is experiencing financial difficulties and/or 2) the modification constitutes a concession that is not in line with market rates and/or terms. Modified terms are dependent upon the financial position and needs of the individual borrower. Troubled debt restructurings are classified as impaired loans. If a performing loan is restructured into a TDR it remains in performing status. If a nonperforming loan is restructured into a TDR, it continues to be carried in nonaccrual status. Nonaccrual classification may be removed if the borrower demonstrates compliance with the modified terms for a minimum of six months. Troubled debt restructured loans are reported as such for at least one year from the date of restructuring. In years after the restructuring, troubled debt restructured loans are removed from this classification if the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring and the loan is not deemed to be impaired based on the modified terms. The recorded investment in TDRs was $1.4 million at December 31, 2016 and $7.3 million at December 31, 2015. The following table presents loans whose terms were modified as TDRs during the periods presented: Outstanding Recorded Investment Number of Loans Pre-Modification Post-Modification 2016 2015 2014 2016 2015 2014 2016 2015 2014 (Dollars in thousands) Years ended December 31, Commercial real estate 1 3 2 $ 62 $ 4,044 $ 1,317 $ 62 $ 4,044 $ 1,317 Commercial business 2 1 4 237 39 782 237 39 782 Total 3 4 6 $ 299 $ 4,083 $ 2,099 $ 299 $ 4,083 $ 2,099 All TDRs at December 31, 2016 and December 31, 2015 were performing in compliance with their modified terms, except for one non-accrual loans totaling $66 thousand at December 31, 2016 and two non-accrual loans totaling $1.1 million at December 31, 2015. The following table provides information on how loans were modified as a TDR for the years ended December 31, 2016 and 2015. December 31, 2016 2015 2014 (In thousands) Maturity Concession $ 299 $ — $ — Maturity/amortization concession — 825 946 Maturity and payment concession — 3,258 — Payment concession — — 1,153 Total $ 299 $ 4,083 $ 2,099 There was no loans modified in a troubled debt restructuring, for which there was a payment default during the years ended December 31, 2016, 2015 and 2014, respectively. |