| Loans | NOTE 5: LOANS
The following table sets forth the composition of the loan
portfolio at December 31, 2017 and 2016:
December 31,
2017 2016
(dollars in thousands) Amount Percent of Non-Covered Amount Percent of Non-Covered
Non-Covered
Mortgage Loans:
Multi-family $ 28,074,709 73.19 % $ 26,945,052 72.13 %
Commercial real estate 7,322,226 19.09 7,724,362 20.68
One-to-four 477,228 1.24 381,081 1.02
Acquisition, development, and construction 435,825 1.14 381,194 1.02
Total mortgage loans held for investment $ 36,309,988 94.66 $ 35,431,689 94.85
Other Loans:
Commercial and industrial 1,377,964 3.59 1,341,216 3.59
Lease financing, net of unearned income of $65,041 and $60,278,
respectively 662,610 1.73 559,229 1.50
Total commercial and industrial loans (1) 2,040,574 5.32 1,900,445 5.09
Purchased credit-impaired loans
—
— 5,762 0.01
Other 8,460 0.02 18,305 0.05
Total other loans held for investment 2,049,034 5.34 1,924,512 5.15
Total non-covered $ 38,359,022 100.00 % $ 37,356,201 100.00 %
Net deferred loan origination costs 28,949 26,521
Allowance for losses on non-covered (158,046 ) (158,290 )
Non-covered $ 38,229,925 $ 37,224,432
Covered loans
— 1,698,133
Allowance for losses on covered loans
— (23,701 )
Covered loans, net $
— $ 1,674,432
Loans held for sale 35,258 409,152
Total loans, net $ 38,265,183 $ 39,308,016
(1) Includes specialty finance loans
of $1.5 billion and $1.3 billion, and other C&I loans
of $500.8 million and $632.9 million, respectively, at
December 31, 2017 and 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
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
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
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
At December 31, 2016, the Company
had non-covered non-covered 310-30 310-30, 310-30
Loans Held for Sale
At December 31, 2017 the Company had loans held for sale of
$35.3 million as compared to $409.2 million at
December 31, 2016. The decline reflects the sale of its
mortgage banking business, which was acquired as part of its 2009
FDIC-assisted acquisition of AmTrust and was reported under the
Company’s Residential Mortgage Banking segment, to Freedom.
Accordingly, on September 29, 2017, the sale was completed
with proceeds received in the amount of $226.6 million,
resulting in a gain of $7.4 million, which is included in
“Non-Interest Income” in the accompanying Consolidated
Statements of Operations and Comprehensive Income (Loss). Freedom
acquired both the Company’s origination and servicing
platforms, as well as its mortgage servicing loan portfolio of
$20.5 billion and related MSR asset of
$208.8 million.
The Community Bank’s mortgage banking operations originated,
aggregated, sold, and serviced one-to-four web-accessible one-to-four
Asset Quality
The following table presents information regarding the quality of
the Company’s non-covered
(in thousands) Loans 30-89 Days (1) Non- (1) Loans Total Current Loans Total Loans
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 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 presents information regarding the quality of
the Company’s non-covered non-covered
(in thousands) Loans 30-89 Days (1) Non-Accrual (1) Loans Total Current Loans 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 (1) (2) 7,263 16,422
— 23,685 1,876,760 1,900,445
Other (3) 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
Mortgage Loans Other Loans
(in thousands) Multi-Family Commercial One-to-Four Acquisition, Total Mortgage Commercial (1) Other Total Other
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 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 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) 2017 2016 2015
Interest income that would have been recorded $ 4,974 $ 3,128 $ 2,288
Interest income actually recorded (2,904 ) (1,708 ) (1,574 )
Interest income foregone $ 2,070 $ 1,420 $ 714
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, 2017, 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
$1.0 million.
The following table presents information regarding the
Company’s TDRs as of December 31, 2017 and 2016:
December 31,
2017 2016
(in thousands) Accruing Non- Total Accruing Non- Total
Loan Category:
Multi-family $ 824 $ 8,061 $ 8,885 $ 1,981 $ 8,755 $ 10,736
Commercial real estate
— 368 368
— 1,861 1,861
One-to-four
— 1,066 1,066 222 1,749 1,971
Acquisition, development, and construction 8,652
— 8,652
—
—
—
Commercial and industrial 177 26,408 26,585 1,263 3,887 5,150
Other
—
—
—
— 202 202
Total $ 9,653 $ 35,903 $ 45,556 $ 3,466 $ 16,454 $ 19,920
The eligibility of a borrower for work-out
The financial effects of the Company’s TDRs for the twelve
months ended December 31, 2017, 2016, and 2015 are summarized
as follows:
For the Twelve Months Ended
December 31, 2017
Weighted Average
(dollars in thousands) Number Pre-Modification Post-Modification Pre- Post- Charge-off Capitalized
Loan Category:
One-to-four 4 $ 810 $ 986 5.93 % 2.21 % $
— $ 12
Acquisition, development, and construction 2 8,652 8,652 5.50 5.50
—
—
Commercial and industrial 65 52,179 26,409 3.36 3.26 14,273
—
Total 71 $ 61,641 $ 36,047 $ 14,273 $ 12
For the Twelve Months Ended
December 31, 2016
Weighted Average
(dollars in thousands) Number Pre-Modification Post-Modification Pre- Post- Charge-off Capitalized
Loan Category:
Multi-family 1 $ 9,340 $ 8,129 4.63 % 4.00 % $
— $
—
One-to-four 5 900 1,036 4.26 2.65
— 11
Commercial and industrial 7 4,697 3,935 3.22 3.19 170
—
Total 13 $ 14,937 $ 13,100 $ 170 $ 11
For the Twelve Months Ended
December 31, 2015
Weighted Average
(dollars in thousands) Number Pre-Modification Post-Modification Pre- Post- Charge-off Capitalized
Loan Category:
One-to-four 4 $ 568 $ 619 4.02 % 2.72 % $
— $ 6
Commercial and industrial 2 1,345 1,312 3.40 3.52 33
—
Other 2 193 213 4.58 2.00
— 2
Total 8 $ 2,106 $ 2,144 $ 33 $ 8
At December 31, 2017, seven C&I loans, in the amount of
$1.6 million that had been modified as a TDR during the twelve
months ended at that date was in payment default. 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 Company sold its covered loan portfolio during the third
quarter of 2017; therefore, the Company did not have any covered
loans outstanding as of December 31, 2017.
The Company referred to certain loans acquired in the AmTrust and
Desert Hills transactions as “covered loans” because
the Company was being reimbursed for a substantial portion of
losses on these loans under the terms of the LSA. Covered loans
were accounted for under ASC 310-30 310-30,
The following table presents the carrying value of covered loans
which were acquired in the acquisitions of AmTrust and Desert Hills
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 %
At December 31, 2016, the unpaid principal balance of covered
loans was $2.1 billion and the carrying value of such loans
was $1.7 billion.
At December 31, 2016, 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”) was 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 was 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 increased or decreased the amount of interest
income expected to be collected, depending on the direction of
interest rates. Prepayments affected the estimated lives of covered
loans and could have changed 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
were driven by the credit outlook and by actions that may be taken
with borrowers. As of the date of the sale, the accretable yield
was reduced to zero.
On a quarterly basis, the Company had evaluated the estimates of
the cash flows it expected to collect. Expected future cash flows
from interest payments were based on variable rates at the time of
the quarterly evaluation. Estimates of expected cash flows that
were impacted by changes in interest rate indices for variable rate
loans and prepayment assumptions were treated as prospective yield
adjustments and included in interest income. In the twelve months
ended December 31, 2017, changes in the accretable yield for
covered loans were as follows:
(in thousands) Accretable Yield
Balance at beginning of period $ 647,470
Accretion (72,842 )
Reclassification to non-accretable (11,381 )
Changes in expected cash flows due to the sale of the covered loan
portfolio (563,247 )
Balance at end of period $
—
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 owned certain OREO that
was covered under its LSA (“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 were charged
to non-interest non-interest
The FDIC loss share receivable represented 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 was
reduced as losses on covered loans were recognized and as loss
sharing payments were received from the FDIC. Realized losses in
excess of acquisition-date estimates resulted in an increase in the
FDIC loss share receivable. Conversely, if realized losses were
lower than the acquisition-date estimates, the FDIC loss share
receivable was reduced by amortization to interest income.
Effective October 31, 2017, the Company and the FDIC completed
termination of the LSA.
At December 31, 2017, the Company had no residential mortgage
loans in the process of foreclosure. At December 31, 2016, the
Company held residential mortgage loans of $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 at December 31, 2016 that were
90 days or more past due:
(in thousands)
Covered Loans 90 Days or More Past Due:
One-to-four $ 124,820
Other loans 6,645
Total covered loans 90 days or more past due $ 131,465
The following table presents information regarding the
Company’s covered loans at December 31, 2016 that were
30 to 89 days past due:
(in thousands)
Covered Loans 30-89
One-to-four $ 21,112
Other loans 1,536
Total covered loans 30-89 $ 22,648
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, the Company recorded recoveries of losses
on covered loans of $23.7 million. The recoveries were largely
due to an increase in expected cash flows in the acquired
portfolios of one-to-four “Non-interest |
