| Loans | Note 5: Loans
The following table sets forth the composition of the loan
portfolio at March 31, 2017 and December 31, 2016:
March 31, 2017 December 31, 2016
Amount Percent of Non-Covered Amount Percent of Non-Covered
(dollars in thousands)
Non-Covered
Mortgage Loans:
Multi-family $ 27,036,909 72.47 % $ 26,945,052 72.13 %
Commercial real estate 7,533,380 20.19 7,724,362 20.68
One-to-four 416,983 1.12 381,081 1.02
Acquisition, development, and construction 383,001 1.03 381,194 1.02
Total mortgage loans held for investment $ 35,370,273 94.81 $ 35,431,689 94.85
Other Loans:
Commercial and industrial 1,348,391 3.61 1,341,216 3.59
Lease financing, net of unearned income of $57,365 and $60,278,
respectively
563,244
1.51
559,229
1.50
Total commercial and industrial loans (1) 1,911,635 5.12 1,900,445 5.09
Purchased credit-impaired loans 5,840 0.02 5,762 0.01
Other 17,105 0.05 18,305 0.05
Total other loans held for investment 1,934,580 5.19 1,924,512 5.15
Total non-covered $ 37,304,853 100.00 % $ 37,356,201 100.00 %
Net deferred loan origination costs 25,636 26,521
Allowance for losses on non-covered
(154,450)
(158,290)
Non-covered $ 37,176,039 $ 37,224,432
Covered loans 1,599,101 1,698,133
Allowance for losses on covered loans (17,906 ) (23,701 )
Covered loans, net $ 1,581,195 $ 1,674,432
Loans held for sale 215,981 409,152
Total loans, net $ 38,973,215 $ 39,308,016
(1) Includes specialty finance loans of
$1.3 billion at both March 31, 2017 and December 31,
2016, and other commercial and industrial loans of
$629.6 million and $632.9 million, respectively, at
March 31, 2017 and December 31, 2016.
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
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
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 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
Non-covered non-covered 310-30 310-30,
Loans Held for Sale
The Community Bank’s mortgage banking operation originates,
aggregates, sells, 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-Accrual (1) Loans 90 Days or Total Past Due Current Total Loans
Multi-family $ 8 $ 11,555 $
— $ 11,563 $ 27,025,346 $ 27,036,909
Commercial real estate 1,202 3,327
— 4,529 7,528,851 7,533,380
One-to-four 792 10,093
— 10,885 406,098 416,983
Acquisition, development, and construction
— 6,200
— 6,200 376,801 383,001
Commercial and industrial (2) (3) 14,379 27,652
— 42,031 1,869,604 1,911,635
Other 86 1,317
— 1,403 15,702 17,105
Total $ 16,467 $ 60,144 $
— $ 76,611 $ 37,222,402 $ 37,299,013
(1) Excludes $4 thousand and
$863 thousand of non-covered
(2) Includes lease financing receivables,
all of which were current.
(3) Includes $13.3 million and
$24.4 million of taxi medallion loans or taxi
medallion-related loans that were 30 to 89 days past due and 90
days or more past due, respectively.
The following table presents information regarding the quality of
the Company’s non-covered
(in thousands) Loans 30-89 (1) Non-Accrual (1) Loans 90 Days or Total Past Due 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) (3) 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 thousand and
$869 thousand of non-covered
(2) Includes lease financing receivables,
all of which were current.
(3) Includes $6.8 million and
$15.2 million of taxi medallion loans that were 30 to 89 days
past due and 90 days or more past due, respectively.
The following table summarizes the Company’s portfolio
of non-covered non-covered
Mortgage Loans Other Loans
(in thousands) Multi-Family Commercial One-to-Four Acquisition, Total Commercial (1) Other Total Other
Credit Quality Indicator:
Pass $ 26,865,172 $ 7,516,823 $ 406,669 $ 334,112 $ 35,122,776 $ 1,785,111 $ 15,788 $ 1,800,899
Special mention 160,329 12,550
— 42,689 215,568 41,573
— 41,573
Substandard 11,408 4,007 10,314 6,200 31,929 84,951 1,317 86,268
Doubtful
—
—
—
—
—
—
—
Total $ 27,036,909 $ 7,533,380 $ 416,983 $ 383,001 $ 35,370,273 $ 1,911,635 $ 17,105 $ 1,928,740
(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-Family 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 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 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
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 March 31, 2017, loans on which concessions
were made with respect to rate reductions and/or extension of
maturity dates amounted to $21.0 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 March 31, 2017 and
December 31, 2016:
March 31, 2017 December 31, 2016
(in thousands) Accruing Non-Accrual Total Accruing Non-Accrual Total
Loan Category:
Multi-family $ 1,971 $ 8,245 $ 10,216 $ 1,981 $ 8,755 $ 10,736
Commercial real estate
— 921 921
— 1,861 1,861
One-to-four 221 2,508 2,729 222 1,749 1,971
Commercial and industrial 1,434 8,320 9,754 1,263 3,887 5,150
Other
— 202 202
— 202 202
Total $ 3,626 $ 20,196 $ 23,822 $ 3,466 $ 16,454 $ 19,920
The eligibility of a borrower for work-out
The financial effects of the Company’s TDRs for the three
months ended March 31, 2017 and 2016 are summarized as
follows:
For the Three Months Ended
March 31, 2017
(dollars in thousands) Weighted Average
Number Pre-Modification Post-Modification Pre-Modification Post- Charge-off Capitalized
Loan Category:
One-to-four 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
For the Three Months Ended
March 31, 2016
(dollars in thousands) Weighted Average
Number Pre-Modification Post-Modification Pre-Modification Post- Charge-off Capitalized
Loan Category:
Multi-family 2 $ 10,592 $ 10,366 4.63 % 4.08 % $
— $
—
One-to-four 2 476 533 3.52 3.29
— 4
Commercial and industrial 1 745 695 3.30 3.10 47
—
Total 5 $ 11,813 $ 11,594 $ 47 $ 4
At March 31, 2017, one non-covered one-to-four non-covered
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 acquisitions of AmTrust Bank
(“AmTrust”) and Desert Hills Bank (“Desert
Hills”) as of March 31, 2017:
(dollars in thousands) Amount Percent of
Loan Category:
One-to-four $ 1,531,872 95.8 %
Other loans 67,229 4.2
Total covered loans $ 1,599,101 100.0 %
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 March 31, 2017 and December 31, 2016, the unpaid
principal balance of covered loans was $2.0 billion and
$2.1 billion, respectively. The carrying value of such loans
was $1.6 billion and $1.7 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 three months ended March 31, 2017, changes in the
accretable yield for covered loans were as follows:
(in thousands) Accretable Yield
Balance at beginning of period $ 647,470
Reclassification from non-accretable 15,858
Accretion (31,615 )
Balance at end of period $ 631,713
In the preceding table, the line item “Reclassification
from non-accretable
Reflecting the foreclosure of certain loans acquired in the AmTrust
and Desert Hills acquisitions, the Company owns certain other real
estate owned (“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 March 31, 2017 and December 31, 2016, respectively,
the Company held residential mortgage loans of $71.4 million
and $78.6 million that 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
March 31, 2017 and December 31, 2016:
(in thousands) March 31, 2017 December 31, 2016
Covered Loans 90 Days or More Past Due:
One-to-four $ 120,841 $ 124,820
Other loans 6,626 6,645
Total covered loans 90 days or more past due
$ 127,467
$ 131,465
The following table presents information regarding the
Company’s covered loans that were 30 to 89 days past due at
March 31, 2017 and December 31, 2016:
(in thousands) March 31, December 31,
Covered Loans 30-89
One-to-four $ 22,287 $ 21,112
Other loans 2,349 1,536
Total covered loans 30-89
$ 24,636
$ 22,648
At March 31, 2017, the Company had $24.6 million of
covered loans that were 30 to 89 days past due, and covered loans
of $127.5 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 three months ended
March 31, 2017, the Company recorded recoveries of losses on
covered loans of $5.8 million. The recoveries were largely due
to an increase in expected cash flows in the acquired portfolios
of one-to-four “Non-interest
The Company recorded recoveries of losses on covered loans of
$2.9 million during the three months ended March 31,
2016. The recoveries were largely due to an increase in expected
cash flows in the acquired portfolios of one-to-four “Non-interest |
