Loans Receivable: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, premiums and discounts related to purchase accounting, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Loan segments are defined as a group of loans, which share similar initial measurement attributes, risk characteristics, and methods for monitoring and assessing credit risk. Management has determined that the Company has five segments of loans: commercial, commercial real estate, commercial construction, residential real estate (including home equity) and consumer.

The recognition of interest income on commercial, commercial real estate, commercial construction and residential loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance with the Company’s policy, typically after 90 days of non-payment.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The policy of the Company is to generally grant commercial, residential and consumer loans to residents and businesses within our market area. The borrowers’ abilities to repay their obligations are dependent upon various factors including the borrowers’ income and net worth, cash flows generated by the borrowers’ underlying collateral, value of the underlying collateral, and priority of the lender’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Company. The Company is therefore subject to risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for a large majority of the Company’s loans.

Loans Held-for-Sale: Residential mortgage loans, originated and intended for sale in the secondary market, are carried at the lower of aggregate cost or estimated fair value as determined by outstanding commitments from investors. For these loans originated and intended for sale, gains and losses on loan sales (sale proceeds minus carrying value) are recorded in other income and direct loan origination costs and fees are deferred at origination of the loan and are recognized in other income upon sale of the loan.

Other loans held-for-sale are carried at the lower of aggregate cost or estimated fair value. Fair value of these loans is determined based on the terms of the loan, such as interest rate, maturity date, reset term, as well as sales of similar assets.

Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired. As part of the evaluation of impaired loans, the Company individually reviews for impairment all non-homogeneous loans internally classified as substandard or below. Generally, smaller impaired non-homogeneous loans and impaired homogeneous loans are collectively evaluated for impairment.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience, the primary factor, is determined by loan class and is based on the actual loss history experienced by the Bank over an actual three-year rolling calculation. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment and with the exogenous factor adjustments based on the risks present for each loan category. These exogenous factors include consideration of the following: concentrations of credit; delinquency & nonaccrual trends; economic & business conditions including evaluation of the national and regional economies and industries with significant loan concentrations; external factors including legal, regulatory or competitive pressures that may impact the loan portfolio; changes in the experience, ability, or size of the lending staff, management, or board of directors that may impact the loan portfolio; changes in underwriting standards, collection procedures, charge-off practices, or other changes in lending policies and procedures that may impact the loan portfolio; loss and recovery trends; changes in portfolio size and mix; and trends in problem loans.

Purchased Credit-Impaired Loans: The Company acquires groups of loans in conjunction with mergers, some of which have shown evidence of credit deterioration since origination. These purchased credit-impaired loans are recorded at their estimated fair value, such that there is no carryover of the seller’s allowance for loan losses (“ALLL”). After acquisition, probable incurred credit losses are recognized by an increase in the ALLL.

Such purchased credit-impaired loans (“PCI”) are identified on an individual basis. The Company estimates the amount and timing of expected cash flows for each loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

A PCI loan may be resolved either through a sale of the loan, by working with the customer and obtaining partial or full repayment, by short sale of the collateral, or by foreclosure. A gain or loss on resolution would be recognized based on the difference between the proceeds received and the carrying amount of the loan.

PCI loans that met the criteria for nonaccrual may be considered performing, regardless of whether the customer is contractually delinquent, if management can reasonably estimate the timing and amount of the expected cash flows on such loans and if management expects to fully collect the new carrying value of the loans. As such, management may no longer consider the loans to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount.

Loans receivable - The following table sets forth the composition of the Company’s loan portfolio, including net deferred loan fees, at March 31, 2018 and December 31, 2017:

	March 31,			December 31,
	2018			2017
	(dollars in thousands)
Commercial	$	811,859		$	824,082
Commercial real estate		2,632,965			2,592,909
Commercial construction		479,190			483,216
Residential real estate		278,985			271,795
Consumer		2,461			2,808
Gross loans		4,205,460			4,174,810
Net deferred loan fees		(2,781	)		(3,354	)
Total loans receivable	$	4,202,679		$	4,171,456

At March 31, 2018 and December 31, 2017, loan balances of approximately $2.0 billion and $1.9 billion, respectively, were pledged to secure borrowings from the FHLB of New York.

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale portfolio at March 31, 2018 and December 31, 2017:

Valuation allowance - The following table sets forth the composition of the Company’s valuation allowance within the loans held-for-sale portfolio during the three months ended March 31, 2018 and March 31, 2017:

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 recorded investment of those loans is as follows at March 31, 2018 and December 31, 2017.

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during both the three months ended March 31, 2018 and March 31 2017. There were no reversals from the allowance for loan losses during the three months ended March 31, 2018 and March 31, 2017.

The following table presents the accretable yield, or income expected to be collected, on the purchased credit-impaired loans for three months ended March 31, 2018 and March 31, 2017:

Loans Receivable on Nonaccrual Status - The following table sets forth the composition of the Company’s nonaccrual loans as of March 31, 2018 and December 31, 2017:

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.

The decrease in nonaccruals from the year-end 2017 was mainly attributable to a $17.0 million charge-off, related to the taxi medallion loan portfolio (which is included in the Commercial loan segment). The taxi medallion loan portfolio was classified as substandard and impaired as of March 31, 2018 and December 31, 2017.

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.

Credit Quality Indicators - The following table presents information, excluding loans held-for-sale and net deferred loan fees, about the Company’s loan credit quality at March 31, 2018 and December 31, 2017:

The following table provides an analysis of the impaired loans by segment as of March 31, 2018 and December 31, 2017:

	March 31, 2018
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
No related allowance recorded	(dollars in thousands)
Commercial	$	32,100	$	92,584
Commercial real estate		34,911		35,008
Commercial construction		6,134		6,134
Residential real estate		2,603		2,857
Consumer		-		-
Total	$	75,748	$	136,583

With an allowance recorded
Commercial real estate	$	1,124	$	1,124	$	32
Commercial construction		2,669		2,669		115
Total (including allowance)	$	3,793	$	3,793	$	147

Total
Commercial	$	32,100	$	92,584	$	-
Commercial real estate		36,035		36,132		32
Commercial construction		8,803		8,803		115
Residential real estate		2,603		2,857		-
Consumer		-		-		-
Total (including allowance)	$	79,541	$	140,376	$	147

	December 31, 2017
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
No related allowance recorded	(dollars in thousands)
Commercial	$	49,761	$	101,066
Commercial real estate		23,905		23,976
Commercial construction		6,662		6,662
Residential real estate		3,203		3,442
Consumer		-		-
Total	$	83,531	$	135,146

With an allowance recorded
Commercial real estate	$	1,133	$	1,133	$	39

Total
Commercial	$	49,761	$	101,066	$	-
Commercial real estate		25,038		25,109		39
Commercial construction		6,662		6,662		-
Residential real estate		3,203		3,442		-
Consumer		-		-		-
Total (including allowance)	$	84,664	$	136,279	$	39

The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by segment as of and for the three months ended March 31, 2018 and 2017:

	Three Months Ended March 31,
	2018				2017
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with no related allowance recorded

Commercial	$	45,607	$	31	$	2,884	$	39
Commercial real estate		35,010		243		16,450		106
Commercial construction		6,083		77		4,269		50
Residential real estate		2,613		-		986		2
Consumer		-		-		59		1

Total	$	89,313	$	351	$	24,648	$	198

Impaired loans with an allowance recorded

Commercial real estate	$	1,129	$	12	$	-	$	-
Commercial construction		2,649		42		783		5

Total	$	3,778	$	54	$	783	$	5

Total impaired loans

Commercial	$	45,607	$	31	$	2,884	$	39
Commercial real estate		36,139		255		17,233		111
Commercial construction		8,732		119		4,269		50
Residential real estate		2,613		-		986		2
Consumer		-		-		59		1

Total	$	93,091	$	405	$	25,431	$	203

Included in impaired loans at March 31, 2018 and December 31, 2017 are loans that are deemed troubled debt restructurings. The recorded investment in loans include accrued interest receivable and other capitalized costs such as real estate taxes paid on behalf of the borrower and loan origination fees, net, when applicable. Cash basis interest and interest income recognized on accrual basis approximate each other.

The following table provides an analysis of the aging of gross loans (excluding loans held-for-sale) that are past due at March 31, 2018 and December 31, 2017 by segment:

Included in the 90 days or greater past due and still accruing category as of both March 31, 2018 and December 31, 2017 is one purchased credit-impaired loan, net of its fair value marks, which accretes income per its valuation at date of acquisition.

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 credit quality, and the related portion of the allowance for loan losses (“ALLL”) that are allocated to each loan portfolio segment:

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. There have been no material changes to the allowance for loan losses (“ALLL”) methodology as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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 TDR remains on nonaccrual status for a period of nine 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.

The following table presents a rollforward of TDRs and the related changes to the allowance for loan losses (“ALLL”) that occurred for the periods presented:

	Three Months Ended					Year Ended
	March 31, 2018					December 31, 2017
	(dollars in thousands)
	Recorded					Recorded
	Investment			ALLL		Investment			ALLL
Troubled Debt Restructurings

Beginning balance	$	20,518		$	-	$	13,818		$	-
Additions		3,976			147		10,378			-
Payoffs/paydowns		(103	)		-		(3,098	)		-
Transfers		-			-		(580	)		-
Note increases		302			-		-			-
Ending balance	$	24,693		$	147	$	20,518		$	-

TDRs totaled $24.7 million at March 31, 2018, of which $10.4 million were on nonaccrual status and $14.3 million were performing under restructured terms. At December 31, 2017, TDRs totaled $20.5 million, of which $5.6 million were on nonaccrual status and $14.9 million were performing under restructured terms. TDRs as of March 31, 2018 increased the ALLL during the three months ended March 31, 2018 by $147 thousand. There were no charge-offs in connection with a loan modification at the time of modification during the three months ended March 31, 2018. There were no TDRs for which there was a payment default within twelve months following the modification during the three months ended March 31, 2018.

The following table presents loans by class modified as TDRs that occurred during the three months ended March 31, 2018 (dollars in thousands):

These six loan modifications included interest rate reductions and maturity extensions.

TDRs totaled $14.9 million at March 31, 2017, of which $4.9 million were on nonaccrual status and $10.0 million were performing under restructured terms. TDRs as of March 31, 2017 did not increase the ALLL during the three months ended March 31, 2017. There were no charge-offs in connection with a loan modification at the time of modification during the three months ended March 31, 2017. There were no TDRs for which there was a payment default within twelve months following the modification during the three months ended March 31, 2017.

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

These two loan modifications included interest rate reductions and maturity extensions.