Note 5 - Loans and the Allowance for Loan and Lease Losses

Loans held-for-sale

The following table presents loans held-for-sale by loan segment:

As of December 31, 2016, the commercial loans held-for-sale segment included the Company’s entire taxi medallion portfolio, with a carrying value of $65.6 million.  As of December 31, 2016 the majority of the taxi medallion portfolio ($63.0 million, or 96%) was designated as nonaccrual.

Loans Receivable

The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred fees at December 31, 2016 and 2015, respectively:

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

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 at December 31, 2016 and December 31, 2015.

For those purchased loans disclosed above, the Company did not increase the allowance for loan and lease losses for the year ended December 31, 2016. No allowances for loan and lease losses were reversed during 2016.

The accretable yield, or income expected to be collected, on the purchased credit impaired loans above is as follows at December 31, 2016 and December 31, 2015.

Loans Receivable on Nonaccrual Status

The following table presents nonaccrual loans included in loans receivable by loan segment as of the periods presented.

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 individually evaluated for impairment.

At December 31, 2016 and 2015, loan balances of approximately $1.7 billion and $1.6 billion, respectively, were pledged to secure borrowings from the Federal Home Loan Bank.

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 simple 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 segment at December 31, 2016 and 2015:

Credit Quality Indicators

The following table provides an analysis of the impaired loans by segment at December 31, 2016, 2015 and 2014:

Included in the impaired loans table are $13.3 million, $85.9 million and $1.8 million of performing TDRs as of December 31, 2016, 2015 and 2014, respectively. Cash basis interest and interest income recognized on accrual basis approximate each other.

The following table provides an analysis of the aging of the loans by segment, excluding net deferred fees that are past due at December 31, 2016 and December 31, 2015 by class:

Aging Analysis:

 Included in the 90 days or greater and still accruing are PCI loans, net of their fair value marks, which are accreting income per their 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 quality, and the related portion of the allowance for loan and lease losses that are allocated to each loan portfolio segment: 

The Company’s allowance for loan and lease 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 and lease losses is as follows:

For the year ended, 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 and a $1.1 million charge related to a lease financing receivable of the former Union Center operations building.

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, 2016, 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.

The following table presents loans by segment modified as troubled debt restructurings and the related changes to the allowance for loan and leases losses that occurred during the year ended December 31, 2016 and December 31, 2015 (dollars in thousands):

Loans modified in troubled debt restructurings totaled $13.8 million at December 31, 2016, of which $0.5 million were on nonaccrual status, $13.3 million were performing under restructured terms. At December 31, 2015, loans modified in troubled debt restructurings totaled $86.6 million, of which $0.7 million were on nonaccrual status and $85.9 million were performing under restructured terms.

During the year, approximately $96.5 million of taxi medallion loans were transferred to the loans held-for-sale category and, concurrently, were made nonaccrual. Prior to the transfer, the taxi medallion loans modified in a troubled debt restructuring had a specific reserve of $12.5 million, which was charged-off as part of the transfer of the entire taxi medallion loan portfolio to loans held-for-sale.

The following table presents loans by segment modified as troubled debt restructurings that occurred during the year ended December 31, 2016 (dollars in thousands):

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.

The following table presents loans by segment modified as troubled debt restructurings that occurred during the year ended December 31, 2015 (dollars in thousands):

The increase in TDRs was due to loans secured by New York City taxi medallions that were modified during the second quarter of 2015. The modifications consisted of a deferral of principal amortization from approximately 25-30 year amortization to interest-only. There was no extension of the loans’ contractual maturity dates, there was no forgiveness of principal, and the interest rates on these loans were increased from approximately 3%-3.25% to 3.75%. These loans were accruing prior to modification and remained in accrual status post-modification.

There were no charge-offs in connection with a loan modification at the time of modification during the year ended December 31, 2015. 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, 2015.

The following table presents loans by segment modified as troubled debt restructurings that occurred during the year ended December 31, 2014 (dollars in thousands):

The TDRs presented as of December 31, 2014 did not increase the allowance for loan and lease losses and resulted in charge-offs of $333,000 during the year ended December 31, 2014. 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, 2014.