LOANS

12 Months Ended

Dec. 31, 2016

LOANS

LOANS

3. LOANS

The following table sets forth the major classifications of loans:

	December 31,
(In thousands)	2016			2015
Commercial real estate mortgage loans	$	1,016,983		$	999,474
Multi-family mortgage loans		518,146			350,793
Residential real estate mortgage loans		439,653			446,740
Commercial, industrial and agricultural loans		524,450			501,766
Real estate construction and land loans		80,605			91,153
Installment/consumer loans		16,368			17,596
Total loans		2,596,205			2,407,522
Net deferred loan costs and fees		4,235			3,252
Total loans held for investment		2,600,440			2,410,774
Allowance for loan losses		(25,904	)		(20,744	)
Net loans	$	2,574,536		$	2,390,030

On June 19, 2015, the Company completed the acquisition of Community National Bank (“CNB”) resulting in the addition of $729.4 million of acquired loans recorded at their fair value. There were approximately $464.2 million and $659.7 million of acquired CNB loans remaining as of December 31, 2016 and 2015, respectively.

On February 14, 2014, the Company completed the acquisition of FNBNY Bancorp, Inc. and its wholly owned subsidiary First National Bank of New York (collectively “FNBNY”) resulting in the addition of $89.7 million of acquired loans recorded at their fair value. There were approximately $26.5 million and $37.7 million of acquired FNBNY loans remaining as of December 31, 2016 and 2015, respectively.

Lending Risk

The principal business of the Bank is lending in commercial real estate mortgage loans, multi-family mortgage loans, residential real estate mortgage loans, construction loans, home equity loans, commercial, industrial and agricultural loans, land loans and consumer loans. The Bank considers its primary lending area to be Nassau and Suffolk Counties located on Long Island and the New York City boroughs. A substantial portion of the Bank’s loans are secured by real estate in these areas. Accordingly, the ultimate collectibility of the loan portfolio is susceptible to changes in market and economic conditions in this region.

Commercial Real Estate Mortgages

Loans in this classification include income producing investment properties and owner occupied real estate used for business purposes. The underlying properties are located largely in the Bank’s primary market area. The cash flows of the income producing investment properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on credit quality. Generally, management seeks to obtain annual financial information for borrowers with loans in excess of $0.25 million in this category. In the case of owner-occupied real estate used for business purposes, a weakened economy and resultant decreased consumer and/or business spending will have an adverse effect on credit quality.

Multi-Family Mortgages

Loans in this classification include income producing residential investment properties of five or more families. The loans are usually made in areas with limited single family residences generating high demand for these facilities.  Loans are made to established owners with a proven and demonstrable record of strong performance. Loans are secured by a first mortgage lien on the subject property with a loan to value ratio generally not exceeding 75%. Repayment is derived generally from the rental income generated from the property and may be supplemented by the owners’ personal cash flow. Credit risk arises with an increase in vacancy rates, property mismanagement and the predominance of non-recourse loans that are customary in the industry. 

Residential Real Estate Mortgages and Home Equity Loans

Loans in these classifications are generally secured by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, can have an effect on the credit quality in this loan class. The Bank generally does not originate loans with a loan-to-value ratio greater than 80% and does not grant subprime loans.

Commercial, Industrial and Agricultural Loans

Loans in this classification are made to businesses and include term loans, lines of credit, senior secured loans to corporations, equipment financing and taxi medallion loans. Generally these loans are secured by assets of the business and repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer and/or business spending will have an effect on the credit quality in this loan class.

Real Estate Construction and Land Loans

Loans in this classification primarily include land loans to local individuals, contractors and developers for developing the land for sale or for the purpose of making improvements thereon. Repayment is derived primarily from sale of the lots/units including any pre-sold units. Credit risk is affected by market conditions, time to sell at an adequate price and cost overruns. To a lesser extent this class includes commercial development projects that the Company finances, which in most cases require interest only during construction, and then convert to permanent financing. Construction delays, cost overruns, market conditions and the availability of permanent financing, to the extent such permanent financing is not being provided by the Bank, all affect the credit risk in this loan class.

Installment and Consumer Loans

Loans in this classification may be either secured or unsecured. Repayment is dependent on the credit quality of the individual borrower and, if applicable, sale of the collateral securing the loan such as automobiles. Therefore, the overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this loan class.

Allowance for Loan Losses

The following tables represent the changes in the allowance for loan losses for the years ended December 31, 2016, 2015 and 2014, by portfolio segment, as defined under FASB ASC 310-10. The portfolio segments represent the categories that the Bank uses to determine its allowance for loan losses.

	Year Ended December 31, 2016
(In thousands)	Commercial  Real Estate Mortgage Loans			Multi-family  Loans		Residential Real Estate Mortgage Loans			Commercial, Industrial and Agricultural Loans			Real Estate Construction and Land Loans			Installment/ Consumer Loans			Total
Allowance for loan losses:
Beginning balance	$	7,850		$	4,208	$	2,115		$	5,405		$	1,030		$	136		$	20,744
Charge-offs		—			—		(56	)		(930	)		—			(1	)		(987	)
Recoveries		109			—		96			386			—			6			597
Provision		800			2,056		(194	)		2,976			(75	)		(13	)		5,550
Ending balance	$	8,759		$	6,264	$	1,961		$	7,837		$	955		$	128		$	25,904
	Year Ended December 31, 2015
(In thousands)	Commercial Real Estate Mortgage Loans			Multi-family  Loans		Residential Real Estate Mortgage Loans			Commercial, Industrial and Agricultural Loans			Real Estate Construction and Land Loans			Installment/ Consumer Loans			Total
Allowance for loan losses:
Beginning balance	$	6,994		$	2,670	$	2,208		$	4,526		$	1,104		$	135		$	17,637
Charge-offs		(50	)		—		(249	)		(827	)		—			(2	)		(1,128	)
Recoveries		—			—		79			149			—			7			235
Provision		906			1,538		77			1,557			(74	)		(4	)		4,000
Ending balance	$	7,850		$	4,208	$	2,115		$	5,405		$	1,030		$	136		$	20,744
	Year Ended December 31, 2014
(In thousands)	Commercial  Real Estate Mortgage Loans			Multi-family  Loans		Residential Real Estate Mortgage Loans			Commercial, Industrial and Agricultural Loans			Real Estate Construction and Land Loans			Installment/ Consumer Loans			Total
Allowance for loan losses:
Beginning balance	$	6,279		$	1,597	$	2,712		$	4,006		$	1,206		$	201		$	16,001
Charge-offs		(461	)		—		(257	)		(104	)		—			(2	)		(824	)
Recoveries		—			—		170			87			—			3			260
Provision		1,176			1,073		(417	)		537			(102	)		(67	)		2,200
Ending balance	$	6,994		$	2,670	$	2,208		$	4,526		$	1,104		$	135		$	17,637

The following tables represent the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment, as defined under FASB ASC 310-10, and based on impairment method as of December 31, 2016 and 2015. The tables include loans acquired on June 19, 2015 from CNB and February 14, 2014 from FNBNY.

	December 31, 2016
(In thousands)	Commercial Real Estate Mortgage Loans		Multi-family Loans		Residential Real Estate Mortgage Loans		Commercial, Industrial and Agricultural Loans		Real Estate Construction and Land Loans		Installment/ Consumer Loans		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Collectively evaluated for impairment		8,759		6,264		1,961		7,836		955		128		25,903
Loans acquired with deteriorated   credit quality		—		—		—		—		—		—		—
Total allowance for loan losses	$	8,759	$	6,264	$	1,961	$	7,837	$	955	$	128	$	25,904
Loans:
Individually evaluated for impairment	$	1,539	$	—	$	784	$	1,030	$	—	$	—	$	3,353
Collectively evaluated for impairment		1,013,563		514,853		437,999		519,686		80,605		16,368		2,583,074
Loans acquired with deteriorated credit quality		1,881		3,293		870		3,734		—		—		9,778
Total loans	$	1,016,983	$	518,146	$	439,653	$	524,450	$	80,605	$	16,368	$	2,596,205
	December 31, 2015
(In thousands)	Commercial Real Estate Mortgage Loans		Multi-family  Loans		Residential Real Estate Mortgage Loans		Commercial, Industrial and Agricultural Loans		Real Estate Construction and Land Loans		Installment/ Consumer Loans		Total
Allowance for loan losses:
Individually evaluated for impairment	$	20	$	—	$	—	$	9	$	—	$	—	$	29
Collectively evaluated for impairment		7,830		4,208		2,115		5,396		1,030		136		20,715
Loans acquired with deteriorated   credit quality		—		—		—		—		—		—		—
Total allowance for loan losses	$	7,850	$	4,208	$	2,115	$	5,405	$	1,030	$	136	$	20,744
Loans:
Individually evaluated for impairment	$	1,629	$	—	$	672	$	290	$	—	$	—	$	2,591
Collectively evaluated for impairment		992,137		347,054		444,801		495,074		91,153		17,596		2,387,815
Loans acquired with deteriorated credit quality		5,708		3,739		1,267		6,402		—		—		17,116
Total loans	$	999,474	$	350,793	$	446,740	$	501,766	$	91,153	$	17,596	$	2,407,522

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

Credit Quality Indicators

The Company categorizes loans into risk categories of pass, special mention, substandard and doubtful based on relevant information about the ability of borrowers to service their debt including repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of credit. Assigned risk rating grades are continuously updated as new information is obtained. Loans risk rated special mention, substandard and doubtful are reviewed on a quarterly basis. The Company uses the following definitions for risk rating grades:

Pass: Loans classified as pass include current loans performing in accordance with contractual terms, pools of homogenous residential real estate and installment/consumer loans that are not individually risk rated and loans which do not exhibit certain risk factors that require greater than usual monitoring by management.

Special mention: Loans classified as special mention, while generally not delinquent, have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank's credit position at some future date.

Substandard: Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in a substandard loan, and may also be in delinquency status and have defined weaknesses based on currently existing facts, conditions and values making collection or liquidation in full highly questionable and improbable.

The following tables represent loans categorized by class and internally assigned risk grades:

	December 31, 2016
(In thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial real estate:
Owner occupied	$	404,584	$	18,909	$	722	$	—	$	424,215
Non-owner occupied		569,870		20,035		2,863		—		592,768
Multi-family		518,146		—		—		—		518,146
Residential real estate:
Residential mortgage		372,853		82		1,583		—		374,518
Home equity		64,195		563		377		—		65,135
Commercial and industrial:
Secured		75,837		31,143		2,254		—		109,234
Unsecured		409,879		2,493		2,844		—		415,216
Real estate construction and land loans		80,272		—		333		—		80,605
Installment/consumer loans		16,268		—		100		—		16,368
Total loans	$	2,511,904	$	73,225	$	11,076	$	—	$	2,596,205

At December 31, 2016 there were $0.01 million and $1.5 million of acquired CNB loans included in the special mention and substandard grades, respectively, and $0.2 million and $0.2 million of acquired FNBNY loans included in the special mention and substandard grades, respectively.

	December 31, 2015
(In thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial real estate:
Owner occupied	$	465,967	$	3,239	$	2,115	$	—	$	471,321
Non-owner occupied		519,124		542		8,487		—		528,153
Multi-family		350,785		—		8		—		350,793
Residential real estate:
Residential mortgage		377,482		87		845		—		378,414
Home equity		66,910		523		893		—		68,326
Commercial and industrial:
Secured		121,037		151		2,549		—		123,737
Unsecured		370,642		3,191		4,196		—		378,029
Real estate construction and land loans		91,153		—		—		—		91,153
Installment/consumer loans		17,496		—		100		—		17,596
Total loans	$	2,380,596	$	7,733	$	19,193	$	—	$	2,407,522

At December 31, 2015 there were $0.02 million and $9.6 million of acquired CNB loans included in the special mention and substandard grades, respectively, and $0.1 million and $0.2 million of acquired FNBNY loans included in the special mention and substandard grades, respectively.

Past Due and Nonaccrual Loans

The following tables represent the aging of the recorded investment in past due loans as of December 31, 2016 and 2015 by class of loans, as defined by FASB ASC 310-10:

	December 31, 2016
(In thousands)	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due And Accruing		Nonaccrual Including 90 Days or More Past Due		Total Past Due and Nonaccrual		Current		Total Loans
Commercial real estate:
Owner occupied	$	222	$	—	$	467	$	184	$	873	$	423,342	$	424,215
Non-owner occupied		—		—		—		—		—		592,768		592,768
Multi-family		—		—		—		—		—		518,146		518,146
Residential real estate:
Residential mortgages		1,232		—		—		770		2,002		372,516		374,518
Home equity		532		—		238		265		1,035		64,100		65,135
Commercial and industrial:
Secured		27		—		204		—		231		109,003		109,234
Unsecured		115		—		118		22		255		414,961		415,216
Real estate construction and land loans		—		—		—		—		—		80,605		80,605
Installment/consumer loans		28		—		—		—		28		16,340		16,368
Total loans	$	2,156	$	—	$	1,027	$	1,241	$	4,424	$	2,591,781	$	2,596,205
	December 31, 2015
(In thousands)	30-59 Days Past Due		60-89 Days Past Due		>90 Days  Past Due  And  Accruing		Nonaccrual Including 90 Days or More Past Due		Total Past Due and Nonaccrual		Current		Total Loans
Commercial real estate:
Owner occupied	$	—	$	—	$	435	$	631	$	1,066	$	470,255	$	471,321
Non-owner occupied		—		—		—		—		—		528,153		528,153
Multi-family		—		—		—		—		—		350,793		350,793
Residential real estate:
Residential mortgages		939		245		—		62		1,246		377,168		378,414
Home equity		69		100		188		610		967		67,359		68,326
Commercial and industrial:
Secured		—		—		341		—		341		123,396		123,737
Unsecured		128		24		—		44		196		377,833		378,029
Real estate construction and land loans		—		—		—		—		—		91,153		91,153
Installment/consumer loans		—		—		—		3		3		17,593		17,596
Total loans	$	1,136	$	369	$	964	$	1,350	$	3,819	$	2,403,703	$	2,407,522

There were no FNBNY acquired loans 30-89 days past due at December 31, 2016 and 2015. There were $1.0 million and $1.2 million of CNB acquired loans that were 30-89 days past due at December 31, 2016 and 2015, respectively. All loans 90 days or more past due that are still accruing interest represent loans acquired from CNB, FNBNY and Hamptons State Bank (“HSB”) which were recorded at fair value upon acquisition. These loans are considered to be accruing as management can reasonably estimate future cash flows and expects to fully collect the carrying value of these acquired loans. Therefore, the difference between the carrying value of these loans and their expected cash flows is being accreted into income.

Impaired Loans

At December 31, 2016 and 2015, the Company had individually impaired loans as defined by FASB ASC No. 310, “Receivables” of $3.4 million and $2.6 million, respectively. For a loan to be considered impaired, management determines after review whether it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified nonaccrual loans and troubled debt restructurings (“TDRs”). For impaired loans, the Bank evaluates the impairment of the loan in accordance with FASB ASC 310-10-35-22. Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required.

The following tables set forth the recorded investment, unpaid principal balance and related allowance by class of loans at December 31, 2016, 2015 and 2014 for individually impaired loans. The tables also set forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the years ended December 31, 2016, 2015 and 2014:

	December 31, 2016						Year Ended December 31, 2016
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allocated Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	326	$	538	$	—	$	176	$	10
Non-owner occupied		1,213		1,213		—		614		75
Residential real estate:
Residential mortgages		520		558		—		276		—
Home equity		264		285		—		328		—
Commercial and industrial:
Secured		556		556		—		274		12
Unsecured		408		408		—		227		19
Total with no related allowance recorded		3,287		3,558		—		1,895		116
With an allowance recorded:
Commercial real estate:
Owner occupied		—		—		—		—		—
Non-owner occupied		—		—		—		—		—
Residential real estate:
Residential mortgages		—		—		—		—		—
Home equity		—		—		—		—		—
Commercial and industrial:
Secured		—		—		—		—		—
Unsecured		66		66		1		43		7
Total with an allowance recorded		66		66		1		43		7
Total:
Commercial real estate:
Owner occupied		326		538		—		176		10
Non-owner occupied		1,213		1,213		—		614		75
Residential real estate:
Residential mortgages		520		558		—		276		—
Home equity		264		285		—		328		—
Commercial and industrial:
Secured		556		556		—		274		12
Unsecured		474		474		1		270		26
Total	$	3,353	$	3,624	$	1	$	1,938	$	123

	December 31, 2015						Year Ended December 31, 2015
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allocated Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	384	$	564	$	—	$	412	$	10
Non-owner occupied		927		928		—		938		62
Residential real estate:
Residential mortgages		62		73		—		66		—
Home equity		610		700		—		631		—
Commercial and industrial:
Secured		96		96		—		93		6
Unsecured		—		—		—		—		—
Total with no related allowance recorded		2,079		2,361		—		2,140		78
With an allowance recorded:
Commercial real estate:
Owner occupied		—		—		—		—		—
Non-owner occupied		318		318		20		320		15
Residential real estate:
Residential mortgages		—		—		—		—		—
Home equity		—		—		—		—		—
Commercial and industrial:
Secured		—		—		—		—		—
Unsecured		194		194		9		223		17
Total with an allowance recorded		512		512		29		543		32
Total:
Commercial real estate:
Owner occupied		384		564		—		412		10
Non-owner occupied		1,245		1,246		20		1,258		77
Residential real estate:
Residential mortgages		62		73		—		66		—
Home equity		610		700		—		631		—
Commercial and industrial:
Secured		96		96		—		93		6
Unsecured		194		194		9		223		17
Total	$	2,591	$	2,873	$	29	$	2,683	$	110

	December 31, 2014						Year Ended December 31, 2014
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allocated Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	3,562	$	3,707	$	—	$	3,974	$	113
Non-owner occupied		1,251		1,568		—		961		63
Residential real estate:
Residential mortgages		143		231		—		199		—
Home equity		169		377		—		229		—
Commercial and industrial:
Secured		345		345		—		354		25
Unsecured		—		—		—		—		—
Total with no related allowance recorded		5,470		6,228		—		5,717		201
With an allowance recorded:
Commercial real estate:
Owner occupied		—		—		—		—		—
Non-owner occupied		323		323		23		27		—
Residential real estate:
Residential mortgages		—		—		—		—		—
Home equity		71		89		72		75		13
Commercial and industrial:
Secured		—		—		—		—		—
Unsecured		337		339		79		206		—
Total with an allowance recorded		731		751		174		308		13
Total:
Commercial real estate:
Owner occupied		3,562		3,707		—		3,974		113
Non-owner occupied		1,574		1,891		23		988		63
Residential real estate:
Residential mortgages		143		231		—		199		—
Home equity		240		466		72		304		13
Commercial and industrial:
Secured		345		345		—		354		25
Unsecured		337		339		79		206		—
Total	$	6,201	$	6,979	$	174	$	6,025	$	214

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

The Bank had no other real estate owned at December 31, 2016 compared to $250,000 at December 31, 2015.

Troubled Debt Restructurings

The terms of certain loans were modified and are considered TDRs. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. The modification of these loans involved loans to borrowers who were experiencing financial difficulties.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed to determine if that borrower is currently in payment default under any of its obligations or whether there is a probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.

The following table presents loans by class modified as troubled debt restructurings during the years indicated:

	Modifications During the Years Ended December 31,
	2016						2015						2014
(Dollars in thousands)	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate:
Owner occupied		—	$	—	$	—		—	$	—	$	—		—	$	—	$	—
Non-owner occupied		—		—		—		—		—		—		1		323		323
Residential real estate:
Residential mortgages		1		252		252		—		—		—		—		—		—
Home equity		1		69		69		—		—		—		1		127		127
Commercial and industrial:
Secured		3		459		459		—		—		—		—		—		—
Unsecured		1		525		525		3		160		160		1		127		127
Installment/consumer loans		—		—		—		—		—		—		1		5		5
Total		6	$	1,305	$	1,305		3	$	160	$	160		4	$	582	$	582

The TDRs described above did not increase the allowance for loan losses during the years ended December 31, 2016, 2015 and 2014.

There were $0.1 million, $0.7 million and $0.5 million of charge-offs related to TDRs during the years ended December 31, 2016, 2015 and 2014, respectively. There was one loan modified as a TDR during 2016 where there was a payment default. This loan has since been brought current. There were no loans modified as TDRs during 2015 and 2014 for which there was a payment default within twelve months following the modification. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

At December 31, 2016 and 2015, the Company had $0.3 million and $0.1 million, respectively, of nonaccrual TDRs and $2.4 million and $1.7 million, respectively, of performing TDRs. At December 31, 2016 and 2015, total nonaccrual TDRs are secured with collateral that has an appraised value of $1.3 million and $0.3 million, respectively. The Bank has no commitment to lend additional funds to these debtors.

The terms of certain other loans were modified during the year ended December 31, 2016 that did not meet the definition of a TDR. These loans have a total recorded investment at December 31, 2016 of $38.9 million. These loans were to borrowers who were not experiencing financial difficulties.

Acquired Loans

Loans acquired in a business combination are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.

In determining the acquisition date fair value of purchased loans, acquired loans are aggregated into pools of loans with common characteristics. Each loan is reviewed at acquisition to determine if it should be accounted for as a loan that has experienced credit deterioration and it is probable that at acquisition, the Company will not be able to collect all the contractual principal and interest due from the borrower. All loans with evidence of deterioration in credit quality are considered purchased credit impaired (“PCI”) loans unless the loan type is specifically excluded from the scope of FASB ASC 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” such as loans with active revolver features or because management has minimal doubt about the collection of the loan.

The Bank makes an estimate of the loans’ contractual principal and contractual interest payments as well as the expected total cash flows from the pools of loans, which includes undiscounted expected principal and interest. The excess of contractual amounts over the total cash flows expected to be collected from the loans is referred to as non-accretable difference, which is not accreted into income. The excess of the expected undiscounted cash flows over the fair value of the loans is referred to as accretable discount. Accretable discount is recognized as interest income on a level-yield basis over the life of the loans. Management has not included prepayment assumptions in its modeling of contractual or expected cash flows. The Bank continues to estimate cash flows expected to be collected over the life of the loans. Subsequent increases in total cash flows expected to be collected are recognized as an adjustment to the accretable yield with the amount of periodic accretion adjusted over the remaining life of the loans. Subsequent decreases in cash flows expected to be collected over the life of the loans are recognized as impairment in the current period through the allowance for loan losses.

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. When a loan accounted for in a pool is resolved, it is removed from the pool at its carrying amount. Any differences between the amounts received and the outstanding balance are absorbed by the non-accretable difference of the pool. For loans not accounted for in pools, a gain or loss on resolution would be recognized based on the difference between the proceeds received and the carrying amount of the loan.

Payments received earlier than expected or in excess of expected cash flows from sales or other resolutions may result in the carrying value of a pool being reduced to zero even though outstanding contractual balances and expected cash flows remain related to loans in the pool. Once the carrying value of a pool is reduced to zero, any future proceeds from the remaining loans, representing further realization of accretable yield, are recognized as interest income upon receipt. These proceeds may include cash or real estate acquired in foreclosure.

At the acquisition date, the PCI loans acquired as part of the FNBNY acquisition had contractually required principal and interest payments receivable of $40.3 million; expected cash flows of $28.4 million; and a fair value (initial carrying amount) of $21.8 million. The difference between the contractually required principal and interest payments receivable and the expected cash flows of $11.9 million represented the non-accretable difference. The difference between the expected cash flows and fair value of $6.6 million represented the initial accretable yield. At December 31, 2016, the contractually required principal and interest payments receivable and carrying amount of the purchased credit impaired loans was $12.2 million and $7.0 million, respectively, with a remaining non-accretable difference of $1.3 million. At December 31, 2015, the contractually required principal and interest payments receivable and carrying amount of the purchased credit impaired loans was $16.7 million and $8.3 million, respectively, with a remaining non-accretable difference of $1.5 million.

At the acquisition date, the PCI loans acquired as part of the CNB acquisition had contractually required principal and interest payments receivable of $23.4 million, expected cash flows of $10.1 million, and a fair value (initial carrying amount) of $8.7 million. The difference between the contractually required principal and interest payments receivable and the expected cash flows of $13.3 million represented the non-accretable difference. The difference between the expected cash flows and fair value of $1.4 million represented the initial accretable yield. At December 31, 2016, the contractually required principal and interest payments receivable and carrying amount of the purchased credit impaired loans was $12.2 million and $2.3 million, respectively, with a remaining non-accretable difference of $6.9 million. At December 31, 2015, the contractually required principal and interest payments receivable and carrying amount of the purchased credit impaired loans was $22.5 million and $8.2 million, respectively, with a remaining non-accretable difference of $13.3 million.

The following table summarizes the activity in the accretable yield for the purchased credit impaired loans:

	Year Ended December 31,
(In thousands)	2016			2015
Balance at beginning of period	$	7,113		$	8,432
Accretable discount arising from acquisition of PCI loans		—			259
Accretion		(4,924	)		(3,570	)
Reclassification from nonaccretable difference during the period		4,492			1,992
Other		234			—
Accretable discount at end of period	$	6,915		$	7,113

The allowance for loan losses was not increased during the years ended December 31, 2016 and 2015 for those purchased credit impaired loans disclosed above. In addition, no allowances for loan losses were reversed during 2016.

Related Party Loans

Certain directors, executive officers, and their related parties, including their immediate families and companies in which they are principal owners, were loan customers of the Bank during 2016 and 2015.

The following table sets forth selected information about related party loans for the year ended December 31, 2016:

(In thousands)	Balance Outstanding
Balance at January 1, 2016	$	22,789
New loans		1,901
Repayments		(2,574	)
Balance at December 31, 2016	$	22,116