NYCB 2017 Annual Report

105 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 and were initially measured at fair value, which included estimated future credit losses expected to be incurred over the lives of the loans. Under ASC 310-30, purchasers are permitted to aggregate acquired loans into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. 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 Covered Loans Loan Category: One-to-four family $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 difference.” The non -accretable difference represented an estimate of the credit risk in the loan portfolios at the respective acquisition dates. 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.