| Loans | NOTE 5: LOANS
The following table sets forth the composition of the loan
portfolio at December 31, 2016 and 2015:
December 31,
2016 2015
(dollars in
thousands) Amount Percent of Non-Covered Amount Percent of Non-Covered
Non-Covered
Mortgage Loans:
Multi-family $ 26,945,052 72.13 % $ 25,971,629 72.67 %
Commercial real estate 7,724,362 20.68 7,857,204 21.98
One-to-four 381,081 1.02 116,841 0.33
Acquisition, development, and construction 381,194 1.02 311,676 0.87
Total mortgage loans held for investment $ 35,431,689 94.85 $ 34,257,350 95.85
Other Loans:
Commercial and industrial 1,341,216 3.59 1,085,529 3.04
Lease financing, net of unearned income of $60,278 and $43,553,
respectively 559,229 1.50 365,027 1.02
Total commercial and industrial loans (1) 1,900,445 5.09 1,450,556 4.06
Purchased credit-impaired loans 5,762 0.01 8,344 0.02
Other 18,305 0.05 24,239 0.07
Total other loans held for investment 1,924,512 5.15 1,483,139 4.15
Total non-covered $ 37,356,201 100.00 % $ 35,740,489 100.00 %
Net deferred loan origination costs 26,521 22,715
Allowance for losses on non-covered (158,290 ) (147,124 )
Non-covered $ 37,224,432 $ 35,616,080
Covered loans 1,698,133 2,060,089
Allowance for losses on covered loans (23,701 ) (31,395 )
Covered loans, net $ 1,674,432 $ 2,028,694
Loans held for sale 409,152 367,221
Total loans, net $ 39,308,016 $ 38,011,995
(1) Includes specialty finance loans
of $1.3 billion and $880.7 million, and other C&I
loans of $632.9 million and $569.9 million, respectively,
at December 31, 2016 and 2015.
Non-Covered
Non-Covered
The majority of the loans the Company originates for investment are
multi-family loans, most of which are collateralized by
non-luxury mixed-use
To a lesser extent, the Company also originates one-to-four One-to-four mid-size
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 and
CRE properties are inspected as a prerequisite to approval, and
independent appraisers, whose appraisals are carefully reviewed by
the Company’s in-house loan-to-value
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
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 re-underwritten.
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 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
Non-covered non-covered 310-30 310-30,
Loans Held for Sale
The Community Bank’s mortgage banking operation originates,
aggregates, and services one-to-four web-accessible one-to-four held-for-sale
In addition, the Community Bank services mortgage loans for various
third parties, primarily including GSEs.
Asset Quality
The following table presents information regarding the quality of
the Company’s non-covered non-covered
(in thousands) Loans 30-89 Days (1) Non- (1) Loans Total Current Total Loans
Multi-family $ 28 $ 13,558 $
— $ 13,586 $ 26,931,466 $ 26,945,052
Commercial real estate
— 9,297
— 9,297 7,715,065 7,724,362
One-to-four 2,844 9,679
— 12,523 368,558 381,081
Acquisition, development, and construction
— 6,200
— 6,200 374,994 381,194
Commercial and industrial (2) 7,263 16,422
— 23,685 1,876,760 1,900,445
Other 248 1,313
— 1,561 16,744 18,305
Total $ 10,383 $ 56,469 $
— $ 66,852 $ 37,283,587 $ 37,350,439
( 1) Excludes $6,000 and $869,000 of
non-covered
(2) Includes lease financing
receivables, all of which were current.
The following table presents information regarding the quality of
the Company’s non-covered
(in thousands) Loans 30-89 Days Non- (1) Loans Total Current Total Loans
Multi-family $ 4,818 $ 13,904 $
— $ 18,722 $ 25,952,907 $ 25,971,629
Commercial real estate 178 14,920
— 15,098 7,842,106 7,857,204
One-to-four 1,117 12,259
— 13,376 103,465 116,841
Acquisition, development, and construction
— 27
— 27 311,649 311,676
Commercial and industrial (2)
— 4,473
— 4,473 1,446,083 1,450,556
Other 492 1,242
— 1,734 22,505 24,239
Total $ 6,605 $ 46,825 $
— $ 53,430 $ 35,678,715 $ 35,732,145
(1) Excludes $969,000 of non-covered
(2) Includes lease financing
receivables, all of which were current.
The following table summarizes the Company’s portfolio of
non-covered non-covered
Mortgage Loans Other Loans
(in thousands) Multi- Commercial One-to-Four Acquisition, Total Commercial (1) Other Total Other
Credit Quality Indicator:
Pass $ 26,754,622 $ 7,701,773 $ 371,179 $ 341,784 $ 35,169,358 $ 1,771,975 $ 16,992 $ 1,788,967
Special mention 164,325 12,604
— 33,210 210,139 54,979
— 54,979
Substandard 26,105 9,985 9,902 6,200 52,192 73,491 1,313 74,804
Doubtful
—
—
—
—
—
—
—
—
Total $ 26,945,052 $ 7,724,362 $ 381,081 $ 381,194 $ 35,431,689 $ 1,900,445 $ 18,305 $ 1,918,750
(1) Includes lease financing
receivables, all of which were classified as
“pass.”
The following table summarizes the Company’s portfolio of
non-covered non-covered
Mortgage Loans Other Loans
(in thousands) Multi- Commercial One-to-Four Acquisition, Total Commercial (1) Other Total Other
Credit Quality Indicator:
Pass $ 25,936,423 $ 7,839,127 $ 104,582 $ 309,039 $ 34,189,171 $ 1,433,778 $ 22,996 $ 1,456,774
Special mention 6,305 3,883
—
— 10,188 11,771
— 11,771
Substandard 28,901 14,194 12,259 2,637 57,991 5,007 1,243 6,250
Doubtful
—
—
—
—
—
—
—
—
Total $ 25,971,629 $ 7,857,204 $ 116,841 $ 311,676 $ 34,257,350 $ 1,450,556 $ 24,239 $ 1,474,795
(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 a potential weakness or risk that may
result in the deterioration of future repayment; 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 distinct 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
The interest income that would have been recorded under the
original terms of non-accrual
December 31,
(in thousands) 2016 2015 2014
Interest income that would have been recorded $ 3,128 $ 2,288 $ 3,997
Interest income actually recorded (1,708 ) (1,574 ) (3,017 )
Interest income foregone $ 1,420 $ 714 $ 980
Troubled Debt Restructurings
The Company is required to account for certain held-for-investment non-accrual
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 December 31, 2016, loans on which
concessions were made with respect to rate reductions and/or
extension of maturity dates amounted to $17.1 million; loans
on which forbearance agreements were reached amounted to
$2.8 million.
The following table presents information regarding the
Company’s TDRs as of December 31, 2016 and 2015:
December 31,
2016 2015
(in thousands) Accruing Non- Total Accruing Non- Total
Loan Category:
Multi-family $ 1,981 $ 8,755 $ 10,736 $ 2,017 $ 635 $ 2,652
Commercial real estate
— 1,861 1,861 115 6,255 6,370
One-to-four 222 1,749 1,971
— 987 987
Acquisition, development, and construction
—
—
—
— 27 27
Commercial and industrial 1,263 3,887 5,150 627 1,279 1,906
Other
— 202 202
— 213 213
Total $ 3,466 $ 16,454 $ 19,920 $ 2,759 $ 9,396 $ 12,155
The eligibility of a borrower for work-out
The financial effects of the Company’s TDRs for the twelve
months ended December 31, 2016, 2015, and 2014 are summarized
as follows:
For the Twelve Months Ended
December 31, 2016
(dollars in thousands) Weighted Average Interest Rate
Number Pre- Post- Charge- Capitalized
Loan Category:
Multi-family 1 4.63 % 4.00 % $
— $
—
One-to-four 5 4.26 2.65
— 11
Commercial and industrial 7 3.22 3.19 170
—
Total 13 $ 170 $ 11
For the Twelve Months Ended December 31, 2015
(dollars in thousands) Weighted Average Interest Rate
Number Pre- Post- Charge- Capitalized
Loan Category:
One-to-four 4 4.02 % 2.72 % $
— $ 6
Commercial and industrial 2 3.40 3.52 33
—
Other 2 4.58 2.00
— 2
Total 8 $ 33 $ 8
For the Twelve Months Ended
December 31, 2014
(dollars in thousands) Weighted Average Interest Rate
Number Pre- Post- Charge- Capitalized
Loan Category:
Multi-family 2 5.61 % 5.61 % $
— $
—
Commercial real estate 2 6.71 5.54 334
—
One-to-four 1 5.75 4.27 18 22
Acquisition, development, and construction 2 7.00 7.00
—
—
Commercial and industrial 1 5.00 5.00
—
—
Total 8 $ 352 $ 22
At December 31, 2016, none of the loans that had been modified
as a TDR during the twelve months ended at that date were in
payment default. At December 31, 2015, one home equity loan in
the amount of $143,000 that had been modified as a TDR during the
twelve months ended at that date was in payment default. A loan is
considered to be in payment default once it is 30 days
contractually past due under the modified terms.
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.
Covered Loans
The following table presents the carrying value of covered loans
acquired in the AmTrust and Desert Hills acquisitions as of
December 31, 2016:
(dollars in thousands) Amount Percent of
Loan Category:
One-to-four $ 1,609,635 94.8 %
Other loans 88,498 5.2
Total covered loans $ 1,698,133 100.0 %
The Company refers to certain loans acquired in the AmTrust and
Desert Hills transactions as “covered loans” because
the Company is being reimbursed for a substantial portion of losses
on these loans under the terms of the FDIC loss sharing agreements.
Covered loans are accounted for under ASC 310-30 310-30,
At December 31, 2016 and 2015, the unpaid principal balance of
covered loans was $2.1 billion and $2.5 billion,
respectively. The carrying value of such loans was
$1.7 billion and $2.1 billion at the corresponding
dates.
At the respective acquisition dates, the Company estimated the fair
values of the AmTrust and Desert Hills loan portfolios, which
represented the expected cash flows from the portfolios, discounted
at market-based rates. In estimating such fair values, the Company:
(a) calculated the contractual amount and timing of
undiscounted principal and interest payments (the
“undiscounted contractual cash flows”); and
(b) estimated the expected amount and timing of undiscounted
principal and interest payments (the “undiscounted expected
cash flows”). The amount by which the undiscounted expected
cash flows exceed the estimated fair value (the “accretable
yield”) is accreted into interest income over the lives of
the loans. The amount by which the undiscounted contractual cash
flows exceed the undiscounted expected cash flows is referred to as
the “non-accretable non-accretable
The accretable yield is affected by changes in interest rate
indices for variable rate loans, changes in prepayment assumptions,
and changes in expected principal and interest payments over the
estimated lives of the loans. Changes in interest rate indices for
variable rate loans increase or decrease the amount of interest
income expected to be collected, depending on the direction of
interest rates. Prepayments affect the estimated lives of covered
loans and could change the amount of interest income and principal
expected to be collected. Changes in expected principal and
interest payments over the estimated lives of covered loans are
driven by the credit outlook and by actions that may be taken with
borrowers.
On a quarterly basis, the Company evaluates the estimates of the
cash flows it expects to collect. Expected future cash flows from
interest payments are based on variable rates at the time of the
quarterly evaluation. Estimates of expected cash flows that are
impacted by changes in interest rate indices for variable rate
loans and prepayment assumptions are treated as prospective yield
adjustments and included in interest income.
In the twelve months ended December 31, 2016, changes in the
accretable yield for covered loans were as follows:
(in thousands) Accretable Yield
Balance at beginning of period $ 803,145
Reclassification to non-accretable (24,396 )
Accretion (131,279 )
Balance at end of period $ 647,470
In the preceding table, the line item “Reclassification to
non-accretable
Reflecting the foreclosure of certain loans acquired in the AmTrust
and Desert Hills acquisitions, the Company owns certain OREO that
is covered under its loss sharing agreements with the FDIC
(“covered OREO”). Covered OREO was initially recorded
at its estimated fair value on the respective dates of acquisition,
based on independent appraisals, less the estimated selling costs.
Any subsequent write-downs due to declines in fair value have been
charged to non-interest non-interest
The FDIC loss share receivable represents the present value of the
estimated losses to be reimbursed by the FDIC. The estimated losses
were based on the same cash flow estimates used in determining the
fair value of the covered loans. The FDIC loss share receivable is
reduced as losses on covered loans are recognized and as loss
sharing payments are received from the FDIC. Realized losses in
excess of acquisition-date estimates result in an increase in the
FDIC loss share receivable. Conversely, if realized losses are
lower than the acquisition-date estimates, the FDIC loss share
receivable is reduced by amortization to interest income.
At December 31, 2016 and 2015, respectively, the Company held
residential mortgage loans of $78.6 million and $102.9
millionthat were in the process of foreclosure. The vast majority
of such loans were covered loans.
The following table presents information regarding the
Company’s covered loans that were 90 days or more past due at
December 31, 2016 and 2015:
December 31,
(in thousands) 2016 2015
Covered Loans 90 Days or More Past Due:
One-to-four $ 124,820 $ 130,626
Other loans 6,645 6,556
Total covered loans 90 days or more past
due $ 131,465 $ 137,182
The following table presents information regarding the
Company’s covered loans that were 30 to 89 days past due at
December 31, 2016 and 2015:
December 31,
(in thousands) 2016 2015
Covered Loans 30-89
One-to-four $ 21,112 $ 30,455
Other loans 1,536 2,369
Total covered loans 30-89 $ 22,648 $ 32,824
At December 31, 2016, the Company had $22.6 million of
covered loans that were 30 to 89 days past due, and covered loans
of $131.5 million that were 90 days or more past due but
considered to be performing due to the application of the yield
accretion method under ASC 310-30.
Loans that may have been classified as non-performing non-performing non-accretable 310-30
The primary credit quality indicator for covered loans is the
expectation of underlying cash flows. In the twelve months ended
December 31, 2016 and 2015, the Company recovered losses on
covered loans of $7.7 million and $11.7 million,
respectively. The respective recoveries were largely due to an
increase in expected cash flows in the acquired portfolios of
one-to-four “Non-interest |
