Loans and the Allowance for Loan Losses

12 Months Ended

Dec. 31, 2018

Receivables [Abstract]

Loans and the Allowance for Loan Losses

Note 5 - Loans and the Allowance for Loan Losses

Loans Receivable: The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred fees, as of December 31, 2018 and December 31, 2017:

	2018		2017
	(dollars in thousands)
Commercial	$	988,758	$	824,082
Commercial real estate		2,778,167		2,592,909
Commercial construction		465,389		483,216
Residential real estate		309,991		271,795
Consumer		2,594		2,808
Gross loans		4,544,899		4,174,810
Net deferred fees		(3,807)		(3,354)
Loans receivable	$	4,541,092	$	4,171,456

At December 31, 2018 and 2017, loan balances of approximately $2.3 billion and $1.9 billion, respectively, were pledged to secure borrowings from the Federal Home Loan Bank.

The loan segments in the above table have unique risk characteristics with respect to credit quality:

· The repayment of commercial loans is generally dependent on the creditworthiness and cash flow of borrowers, and if applicable, guarantors, which may be negatively impacted by adverse economic conditions. While the majority of these loans are secured, collateral type, marketing, coverage, valuation and monitoring is not as uniform as in other portfolio classes and recovery from liquidation of such collateral may be subject to greater variability.

· Payment on commercial mortgages is driven principally by operating results of the managed properties or underlying business and secondarily by the sale or refinance of such properties. Both primary and secondary sources of repayment, and value of the properties in liquidation, may be affected to a greater extent by adverse conditions in the real estate market or the economy in general.

· Properties underlying construction, land and land development loans often do not generate sufficient cash flows to service debt and thus repayment is subject to ability of the borrower and, if applicable, guarantors, to complete development or construction of the property and carry the project, often for extended periods of time. As a result, the performance of these loans is contingent upon future events whose probability at the time of origination is uncertain.

· The ability of borrowers to service debt in the residential and consumer loan portfolios is generally subject to personal income which may be impacted by general economic conditions, such as increased unemployment levels. These loans are predominately collateralized by first and/or second liens on single family properties. If a borrower cannot maintain the loan, the Company’s ability to recover against the collateral in sufficient amount and in a timely manner may be significantly influenced by market, legal and regulatory conditions.

· The Company considers loan classes and loan segments to be one and the same.

Loans Held-For-Sale: The following table presents loans held-for-sale by loan segment as of December 31, 2018 and December 31, 2017:

	2018		2017
	(dollars in thousands)
Commercial real estate		-		24,475
Residential mortgage loans		-		370
Total carrying amount	$	-	$	24,845

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 carrying amount of those loans is as follows as of December 31, 2018 and December 31, 2017.

	2018		2017
	(dollars in thousands)
Commercial	$	2,509	$	2,683

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the year ended December 31, 2018 and 2017. No allowances for loan losses were reversed during 2018 and 2017.

The accretable yield, or income expected to be collected, on the purchased credit-impaired loans above is as follows as of December 31, 2018 and December 31, 2017.

	2018		2017
	(dollars in thousands)
Balance at January 1,	$	1,387	$	2,860
Accretion of income		(253)		(1,473)
Balance at December 31,	$	1,134	$	1,387

Loans Receivable on Nonaccrual Status: The following tables present nonaccrual loans included in loans receivable by loan class as of December 31, 2018 and December 31, 2017:

	2018		2017
	(dollars in thousands)
Commercial	$	29,340	$	47,363
Commercial real estate		15,135		12,757
Commercial construction		2,934		-
Residential real estate		4,446		5,493
Total loans receivable on nonaccrual status	$	51,855	$	65,613

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.

Credit Quality Indicators: 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. The following table presents information about the loan credit quality by loan class of gross loans (which exclude net deferred fees) at December 31, 2018 and 2017:

	December 31, 2018
	Pass		Special Mention		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial	$	951,610	$	3,371	$	33,777	$	-	$	988,758
Commercial real estate		2,742,989		12,574		22,604		-		2,778,167
Commercial construction		453,598		5,515		6,276		-		465,389
Residential real estate		305,414		-		4,577		-		309,991
Consumer		2,576		-		18		-		2,594
Gross loans	$	4,456,187	$	21,460	$	67,252	$	-	$	4,544,899
	December 31, 2017
	Pass		Special Mention		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial	$	767,020	$	3,764	$	53,298	$	-	$	824,082
Commercial real estate		2,534,973		34,335		23,601		-		2,592,909
Commercial construction		475,066		5,521		2,629		-		483,216
Residential real estate		266,163		-		5,632		-		271,795
Consumer		2,767		-		41		-		2,808
Gross loans	$	4,045,989	$	43,620	$	85,201	$	-	$	4,174,810

The following table provides an analysis of the impaired loans by class as of and for the years ended at December 31, 2018, 2017 and 2016.

	December 31, 2018
No Related Allowance Recorded	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Commercial	$	29,896	$	83,596			$	31,721	$	66
Commercial real estate		16,839		17,935				17,676		149
Commercial construction		9,240		9,240				11,215		493
Residential real estate		2,209		2,521				2,284		-
Consumer		-		-				-		-
Total	$	58,184	$	113,292			$	62,896	$	708
With An Allowance Recorded
Commercial real estate	$	1,488		1,488		7		1,511		46
Residential real estate		260		266		29		265		-
Total	$	1,748	$	1,754		36	$	1,776	$	46
Total
Commercial	$	29,896	$	83,596	$	-	$	31,721	$	66
Commercial real estate		18,327		19,423		7		19,187		195
Commercial construction		9,240		9,240		-		11,215		493
Residential real estate		2,469		2,787		29		2,549		-
Consumer		-		-		-		-		-
Total (including related allowance)	$	59,932	$	115,046	$	36	$	64,672	$	754

	December 31, 2017
No Related Allowance Recorded	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Commercial	$	49,761	$	101,066			$	10,552	$	161
Commercial real estate		23,905		23,976				24,099		585
Commercial construction		6,662		6,662				5,509		322
Residential real estate		3,203		3,442				3,255		-
Consumer		-		-				-		-
Total	$	83,531	$	135,146			$	43,415	$	1,068
With An Allowance Recorded
Commercial real estate	$	1,133	$	1,133	$	39	$	1,152	$	51
Total
Commercial	$	49,761	$	101,066	$	-	$	10,765	$	161
Commercial real estate		25,038		25,109		39		25,251		636
Commercial construction		6,662		6,662		-		5,509		322
Residential real estate		3,203		3,442		-		3,255		-
Consumer		-		-		-		-		-
Total (including related allowance)	$	84,664	$	136,279	$	39	$	44,567	$	1,119

	December 31, 2016
No Related Allowance Recorded	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Commercial	$	3,637	$	4,063			$	4,052	$	64
Commercial real estate		18,288		18,288				18,532		250
Commercial construction		5,909		5,909				5,308		79
Residential real estate		1,851		2,055				1,908		19
Consumer		62		62				72		4
Total	$	29,747	$	30,377			$	29,872	$	416
With An Allowance Recorded
Commercial real estate	$	1,244	$	1,244	$	145	$	1,274	$	-
Total
Commercial	$	3,637	$	4,063	$	-	$	4,052	$	64
Commercial real estate		19,532		19,532		145		19,806		250
Commercial construction		5,909		5,909		-		5,308		79
Residential real estate		1,851		2,055		-		1,908		19
Consumer		62		62		-		72		4
Total (including related allowance)	$	30,991	$	31,621	$	145	$	31,146	$	416

Included in the impaired loans table are $11.2 million, $14.9 million and $13.3 million of performing TDRs as of December 31, 2018, 2017 and 2016, respectively. Cash basis interest and interest income recognized on accrual basis approximate each other.

Aging Analysis: The following table provides an analysis of the aging of the loans by class, excluding net deferred fees, that are past due at December 31, 2018 and December 31, 2017 (dollars in thousands):

	December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total Loans Receivable
Commercial	$	1,673	$	-	$	1,647	$	29,340	$	32,660	$	956,098	$	988,758
Commercial real estate		6,162		1,840		-		15,135		23,137		2,755,030		2,778,167
Commercial construction		2,496		564		-		2,934		5,994		459,395		465,389
Residential real estate		3,455		119		-		4,446		8,020		301,971		309,991
Consumer		-		-		-		-		-		2,594		2,594
Total	$	13,786	$	2,523	$	1,647	$	51,855	$	69,811	$	4,475,088	$	4,544,899

The amount reported 90 days or greater past due and still accruing as of December 31, 2018 are comprised of PCI loans, net of their fair value marks, which are accreting income per their valuation at date of acquisition. There were no non-PCI loans 90 days or greater past due and still accruing as of December 31, 2018.

	December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total Loans Receivable
Commercial	$	1,708	$	183	$	1,664	$	47,363	$	50,918	$	773,164	$	824,082
Commercial real estate		545		1,475		-		12,757		14,777		2,578,132		2,592,909
Commercial construction		-		-		-		-		-		483,216		483,216
Residential real estate		1,578		-		-		5,493		7,071		264,724		271,795
Consumer		18		-		-		-		18		2,790		2,808
Total	$	3,849	$	1,658	$	1,664	$	65,613	$	72,784	$	4,102,026	$	4,174,810

The amount reported 90 days or greater past due and still accruing as of December 31, 2017 are comprised of PCI loans, net of their fair value marks, which are accreting income per their valuation at date of acquisition. There were no non-PCI loans 90 days or greater past due and still accruing as of December 31, 2017.

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 quality, and the related portion of the allowance for loan losses that are allocated to each loan portfolio segment:

	December 31, 2018
	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	-	$	7	$	-	$	29	$	-	$	-	$	36
Collectively evaluated for impairment		9,675		17,840		4,519		1,237		2		445		33,718
Acquired portfolio		200		1,000		-		-		-		-		1,200
Acquired with deteriorated credit quality		-		-		-		-		-		-		-
Total	$	9,875	$	18,847	$	4,519	$	1,266	$	2	$	445	$	34,954
Gross loans
Individually evaluated for impairment	$	29,896	$	18,327	$	9,240	$	2,469	$	-			$	59,932
Collectively evaluated for impairment		949,129		2,500,132		456,149		263,449		2,484				4,171,343
Acquired portfolio		7,224		259,708		-		44,073		110				311,115
Acquired with deteriorated credit quality		2,509		-		-		-		-				2,509
Total	$	988,758	$	2,778,167	$	465,389	$	309,991	$	2,594			$	4,544,899

	December 31, 2017
	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	-	$	39	$	-	$	-	$	-	$	-	$	39
Collectively evaluated for impairment		8,032		15,472		4,747		1,051		2		605		29,909
Acquired portfolio		200		1,600		-		-		-		-		1,800
Acquired with deteriorated credit quality		-		-		-		-		-		-		-
Total	$	8,232	$	17,111	$	4,747	$	1,051	$	2	$	605	$	31,748
Gross loans
Individually evaluated for impairment	$	49,761	$	25,038	$	6,662	$	3,203	$	-			$	84,664
Collectively evaluated for impairment		757,923		2,190,686		476,554		212,350		2,338				3,639,851
Acquired portfolio		13,715		377,185		-		56,242		470				447,612
Acquired with deteriorated credit quality		2,683		-		-		-		-				2,683
Total	$	824,082	$	2,592,909	$	483,216	$	271,795	$	2,808			$	4,174,810

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.

A summary of the activity in the allowance for loan losses by loan segment is as follows:

	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Balance at January 1, 2018	$	8,233	$	17,112	$	4,747	$	1,050	$	1	$	605	$	31,748
Loan charge-offs		(17,066)		(915)		-		(23)		(7)		-		(18,011)
Recoveries		109		-		-		2		6		-		117
Provision for loan losses		18,599		2,650		(228)		237		2		(160)		21,100
Balance at December 31, 2018	$	9,875	$	18,847	$	4,519	$	1,266	$	2	$	445	$	34,954

	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Balance at January 1, 2017	$	6,632	$	12,583	$	4,789	$	958	$	3	$	779	$	25,744
Loan charge-offs		(70)		(155)		-		-		(14)		-		(239)
Recoveries		178		51		-		12		2		-		243
Provision for loan losses		1,493		4,633		(42)		80		10		(174)		6,000
Balance at December 31, 2017	$	8,233	$	17,112	$	4,747	$	1,050	$	1	$	605	$	31,748

	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Balance at January 1, 2016	$	10,949	$	10,926	$	3,253	$	976	$	4	$	464	$	26,572
Loan charge-offs		(39,343)		(107)		-		(94)		(29)		-		(39,573)
Recoveries		4		35		-		3		3		-		45
Provision for loan losses		35,022		1,729		1,536		73		25		315		38,700
Balance at December 31, 2016	$	6,632	$	12,583	$	4,789	$	958	$	3	$	779	$	25,744

For the year ended December 31, 2018, the loan charge-offs within the commercial loan segment were primarily made up of $17.0 million in charge-offs related to the taxi medallion portfolio.

For the year ended December 31, 2016, the loan charge-offs within the commercial loan segment were primarily made up of $36.7 million in charge-offs related to the taxi medallion portfolio. The $36.7 million charge on the taxi medallion portfolio occurred in conjunction with the transfer of the taxi medallion loans to loans held-for-sale. The amount transferred to loans held-for-sale as of December 31, 2016 had a carrying value of $65.6 million following the charge-off.

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 troubled debt restructuring remains on nonaccrual status for a period of six 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.

At December 31, 2018, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due 90 days or greater and still accruing interest, or whose terms have been modified in troubled debt restructurings.

As of December 31, 2018 TDRs totaled $34.5 million, of which $23.3 million were on nonaccrual status and $11.2 million were performing under their restructured terms. As of December 31, 2017 TDRs totaled $20.5 million, of which $5.6 million were on nonaccrual status and $14.9 million were performing under their restructured terms. The Company has allocated $3 thousand and $39 thousand of specific allowance for those loans at December 31, 2018 and 2017, respectively.

The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2018:

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)
TDRs
Commercial		32	$	16,017	$	16,017
Commercial real estate		3		1,422		1,422
Commercial construction		3		4,773		4,773
Residential real estate		2		454		454
Total		40	$	22,666	$	22,666

Included in the commercial loan segment of the troubled debt restructurings are 27 taxi medallion loans totaling $11.2 million. All 27 taxi medallion loans included above were on nonaccrual status prior to modification, and remain on nonaccrual status post-modification. All loan modifications during the year ended December 31, 2018 included interest rate reductions or maturity extensions.

There were no charge-offs in connection with a loan modification at the time of modification during the year ended December 31, 2018. There were no TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2018.

The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2017:

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)
TDRs
Commercial		1	$	692	$	692
Commercial real estate		2		3,007		3,007
Commercial construction		2		6,662		6,662
Residential real estate		1		17		17
Consumer		-		-		-
Total		6	$	10,378	$	10,378

There were no charge-offs in connection with a loan modification at the time of modification during the year ended December 31, 2017. There were no TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2017.

The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2016:

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)
TDRs
Commercial		19	$	22,420	$	22,420
Commercial real estate		3		2,155		2,155
Commercial construction		1		1,750		1,750
Residential real estate		-		-		-
Consumer		-		-		-
Total		23	$	26,325	$	26,325

Included in the above troubled debt restructurings were 15 loans secured by 27 New York City taxi medallions totaling $18.5 million as of the date of the respective modifications. These loan modifications included interest rate reductions and maturity extensions. All 15 loans were accruing prior to modification, while 14 remained in accrual status post-modification. As of December 31, 2016, the taxi medallion loans that were modified in a troubled debt restructuring in 2016 were transferred to the loans held-for-sale category (along with the 2015 taxi medallion modified troubled debt restructurings) and, concurrently, were put on nonaccrual.

There were no charge-offs in connection with a loan modification at the time of modification during the year ended December 31, 2016. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ended December 31, 2016.