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Note 5 - Loans and the Allowance for Credit Losses

3 Months Ended

Mar. 31, 2023

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 5. Loans and the Allowance for Credit Losses

Loans Receivable – The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred loan fees, as of March 31, 2023 and December 31, 2022:

	March 31, 2023			December 31, 2022
	(dollars in thousands)
Commercial	$	1,414,226		$	1,472,734
Commercial real estate		5,835,880			5,795,228
Commercial construction		630,469			574,139
Residential real estate		259,166			264,748
Consumer		1,435			2,312
Gross loans		8,141,176			8,109,161
Net deferred loan fees		(9,057	)		(9,472	)
Total loans receivable	$	8,132,119		$	8,099,689

As of both March 31, 2023 and December 31, 2022, loans totaling approximately $2.7 billion were pledged to secure borrowings from the FHLB of New York. During April 2023 the Bank increased its unpaid principal balances of loans pledged to $5.4 billion, as a result of increasing unutilized borrowing capacity at both the Federal Reserve Bank of New York and the FHLB of New York.

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale as of March 31, 2023 and December 31, 2022:

	March 31, 2023		December 31, 2022
	(dollars in thousands)
Commercial real estate	$	11,197	$	13,473
Residential real estate		-		299
Total carrying amount	$	11,197	$	13,772

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an ACL and nonaccrual loans without an ACL as of March 31, 2023 and December 31, 2022:

	March 31, 2023
	Nonaccrual loans with ACL		Nonaccrual loans without ACL		Total nonaccrual loans
	(dollars in thousands)
Commercial	$	18,766	$	555	$	19,321
Commercial real estate		3,348		22,138		25,486
Residential real estate		815		2,045		2,860
Total	$	22,929	$	24,738	$	47,667

December 31, 2022

Nonaccrual loans with ACL Nonaccrual loans without ACL Total nonaccrual loans

(dollars in thousands)

Commercial
$ 23,512 $ 1,745 $ 25,257

Commercial real estate
10,220 6,597 16,817

Residential real estate
604 1,776 2,380

Total
$ 34,336 $ 10,118 $ 44,454

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated and individually evaluated.

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.

We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP. Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the table below. The following table presents loans by origination and risk designation as of March 31, 2023 (dollars in thousands):

Term loans amortized cost basis by origination year

2023

2022

2021

2020

2019

Prior

Revolving Loans

Total Gross Loans

Commercial

Pass
$ 88,764 $ 287,784 $ 275,151 $ 44,118 $ 18,468 $ 135,355 $ 525,263 $ 1,374,903

Special mention
- - - - 578 8,468 3,312 12,358

Substandard
- 802 140 12 1,748 21,867 2,396 26,965

Doubtful
- - - - - - - -

Total Commercial
$ 88,764 $ 288,586 $ 275,291 $ 44,130 $ 20,794 $ 165,690 $ 530,971 $ 1,414,226

Commercial Real Estate

Pass
$ 58,920 $ 1,586,883 $ 1,593,747 $ 374,873 $ 364,428 $ 1,335,482 $ 434,426 $ 5,748,759

Special mention
- - - - - 37,007 - 37,007

Substandard
- - 1,919 - 5,013 26,265 16,917 50,114

Doubtful
- - - - - - - -

Total Commercial Real Estate
$ 58,920 $ 1,586,883 $ 1,595,666 $ 374,873 $ 369,441 $ 1,398,754 $ 451,343 $ 5,835,880

Commercial Construction

Pass
$ - $ 4,263 $ 7,340 $ 6,721 $ - $ - $ 603,779 $ 622,103

Special mention
- - - - - - - -

Substandard
- - - - - - 8,366 8,366

Doubtful
- - - - - - - -

Total Commercial Construction
$ - $ 4,263 $ 7,340 $ 6,721 $ - $ - $ 612,145 $ 630,469

Residential

Pass
$ 2,768 $ 44,461 $ 25,141 $ 24,036 $ 21,394 $ 96,458 $ 37,979 $ 252,237

Special mention
- - - - - 662 3,407 4,069

Substandard
- - - - - 2,635 225 2,860

Doubtful
- - - - - - - -

Total Residential Real Estate
$ 2,768 $ 44,461 $ 25,141 $ 24,036 $ 21,394 $ 99,755 $ 41,611 $ 259,166

Consumer

Pass
$ 1,182 $ 157 $ - $ 7 $ - $ 1 $ 88 $ 1,435

Special mention
- - - - - - - -

Substandard
- - - - - - - -

Doubtful
- - - - - - - -

Total Consumer
$ 1,182 $ 157 $ - $ 7 $ - $ 1 $ 88 $ 1,435

Total

Pass
$ 151,634 $ 1,923,548 $ 1,901,379 $ 449,755 $ 404,290 $ 1,567,296 $ 1,601,535 $ 7,999,437

Special mention
- - - - 578 46,137 6,719 53,434

Substandard
- 802 2,059 12 6,761 50,767 27,904 88,305

Doubtful
- - - - - - - -

Grand Total
$ 151,634 $ 1,924,350 $ 1,903,438 $ 449,767 $ 411,629 $ 1,664,200 $ 1,636,158 $ 8,141,176

The following table presents loans by origination and risk designation as of December 31, 2022 (dollars in thousands):

Term loans amortized cost basis by origination year

2022

2021

2020

2019
2018
Prior

Revolving Loans

Total Gross Loans

Commercial

Pass
$ 301,636 $ 305,721 $ 47,952 $ 28,177 $ 52,950 $ 127,739 $ 550,483 $ 1,414,658

Special mention
- - - 583 26 8,551 3,292 12,452

Substandard
7,615 146 15 1,769 11,214 22,596 2,269 45,624

Doubtful
- - - - - - - -

Total Commercial
$ 309,251 $ 305,867 $ 47,967 $ 30,529 $ 64,190 $ 158,886 $ 556,044 $ 1,472,734

Commercial Real Estate

Pass
$ 1,571,751 $ 1,608,023 $ 382,987 $ 358,578 $ 375,886 $ 987,982 $ 401,365 $ 5,686,572

Special mention
3,040 - - - - 37,774 8,839 49,653

Substandard
- 1,929 - 6,526 19,138 23,287 8,123 59,003

Doubtful
- - - - - - - -

Total Commercial Real Estate
$ 1,574,791 $ 1,609,952 $ 382,987 $ 365,104 $ 395,024 $ 1,049,043 $ 418,327 $ 5,795,228

Commercial Construction

Pass
$ 8,615 $ 7,605 $ 6,720 $ 508 $ - $ - $ 542,460 $ 565,908

Special mention
- - - - - - - -

Substandard
- - - - - - 8,231 8,231

Doubtful
- - - - - - - -

Total Commercial Construction
$ 8,615 $ 7,605 $ 6,720 $ 508 $ - $ - $ 550,691 $ 574,139

Residential Real Estate

Pass
$ 45,926 $ 25,318 $ 24,409 $ 21,557 $ 20,284 $ 78,314 $ 41,468 $ 257,276

Special mention
- - - - - - - -

Substandard
- - - - - 3,379 4,093 7,472

Doubtful
- - - - - - - -

Total Residential Real Estate
$ 45,926 $ 25,318 $ 24,409 $ 21,557 $ 20,284 $ 81,693 $ 45,561 $ 264,748

Consumer

Pass
$ 2,219 $ - $ 9 $ - $ - $ 2 $ 82 $ 2,312

Special mention
- - - - - - - -

Substandard
- - - - - - - -

Doubtful
- - - - - - - -

Total Consumer
$ 2,219 $ - $ 9 $ - $ - $ 2 $ 82 $ 2,312

Total

Pass
$ 1,930,147 $ 1,946,667 $ 462,077 $ 408,820 $ 449,120 $ 1,194,037 $ 1,535,858 $ 7,926,726

Special mention
3,040 - - 583 26 46,325 12,131 62,105

Substandard
7,615 2,075 15 8,295 30,352 49,262 22,716 120,330

Doubtful
- - - - - - - -

Grand Total
$ 1,940,802 $ 1,948,742 $ 462,092 $ 417,698 $ 479,498 $ 1,289,624 $ 1,570,705 $ 8,109,161

Collateral Dependent Loans: Loans which meet certain criteria are individually evaluated as part of the process of calculating the allowance for credit losses. The evaluation is determined on an individual basis using the fair value of the collateral as of the reporting date. The following table presents collateral dependent loans that were individually evaluated for impairment as of March 31, 2023 and December 31, 2022:

March 31, 2023

Real Estate
Other

Total

(dollars in thousands)

Commercial
$ 4,950 $ 16,650 $ 21,600

Commercial real estate
49,529 - 49,529

Commercial construction
8,366 - 8,366

Residential real estate
6,114 - 6,114

Total
$ 68,959 $ 16,650 $ 85,609

December 31, 2022

Real Estate
Other

Total

(dollars in thousands)

Commercial
$ 5,352 $ 22,517 $ 27,869

Commercial real estate
52,477 - 52,477

Commercial construction
8,232 - 8,232

Residential real estate
5,864 - 5,864

Total
$ 71,925 $ 22,517 $ 94,442

Aging Analysis - The following table provides an analysis of the aging of the loans by class, excluding the effect of net deferred fees, which are past due as of March 31, 2023 and December 31, 2022:

March 31, 2023

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

Gross Loans

(dollars in thousands)

Commercial
$ 1,929 $ - $ - $ 19,321 $ 21,250 $ 1,392,976 $ 1,414,226

Commercial real estate
5,740 810 - 25,486 32,036 5,803,844 5,835,880

Commercial construction
4,707 - - - 4,707 625,762 630,469

Residential real estate
703 - - 2,860 3,563 255,603 259,166

Consumer
- - - - - 1,435 1,435

Total
$ 13,079 $ 810 $ - $ 47,667 $ 61,556 $ 8,079,620 $ 8,141,176

December 31, 2022

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

Gross Loans

(dollars in thousands)

Commercial
$ 306 $ - $ - $ 25,257 $ 25,563 $ 1,447,171 $ 1,472,734

Commercial real estate
90 - 5,591 16,817 22,498 5,772,730 5,795,228

Commercial construction
- - - - - 574,139 574,139

Residential real estate
1,569 - - 2,380 3,949 260,799 264,748

Consumer
- - - - - 2,312 2,312

Total
$ 1,965 $ - $ 5,591 $ 44,454 $ 52,010 $ 8,057,151 $ 8,109,161

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 credit losses that are allocated to each loan portfolio segment:

March 31, 2023

Commercial
Commercial real estate
Commercial construction
Residential real estate
Consumer

Total

(dollars in thousands)

Allowance for credit losses - loans

Individually evaluated impairment
$ 5,861 $ 924 $ - $ 72 $ - $ 6,857

Collectively evaluated impairment
19,568 52,076 3,966 3,796 6 79,412

Acquired with deteriorated credit quality individually analyzed
733 - - - - 733

Total
$ 26,162 $ 53,000 $ 3,966 $ 3,868 $ 6 $ 87,002

Gross loans

Individually evaluated impairment
$ 24,204 $ 49,529 $ 8,366 $ 6,115 $ - $ 88,214

Collectively evaluated impairment
1,387,738 5,786,351 622,103 253,051 1,435 8,050,678

Acquired with deteriorated credit quality individually analyzed
2,284 - - - - 2,284

Total
$ 1,414,226 $ 5,835,880 $ 630,469 $ 259,166 $ 1,435 $ 8,141,176

December 31, 2022

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Total

(dollars in thousands)

Allowance for credit losses - loans

Individually evaluated impairment
$ 7,426 $ 1,003 $ - $ 50 $ - $ 8,479

Collectively evaluated impairment
19,319 50,818 3,718 4,093 7 77,955

Acquired with deteriorated credit quality individually analyzed
2,158 1,921 - - - 4,079

Total
$ 28,903 $ 53,742 $ 3,718 $ 4,143 $ 7 $ 90,513

Gross loans

Individually evaluated impairment
$ 30,994 $ 46,886 $ 8,232 $ 5,864 $ - $ 91,976

Collectively evaluated impairment
1,436,866 5,742,751 565,907 258,884 2,312 8,006,720

Acquired with deteriorated credit quality individually analyzed
4,874 5,591 - - - 10,465

Total
$ 1,472,734 $ 5,795,228 $ 574,139 $ 264,748 $ 2,312 $ 8,109,161

Activity in the Company’s ACL for loans for the three months ended March 31, 2023 is summarized in the tables below.

Three Months Ended March 31, 2023

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Total

(dollars in thousands)

Balance as of December 31, 2022
$ 28,903 $ 53,742 $ 3,718 $ 4,143 $ 7 $ 90,513

Charge-offs
(2,767 ) (1,717 ) - - - (4,484 )

Recoveries
- - - 1 - 1

Provision for (reversal of) credit losses - loans
26 975 248 (276 ) (1 ) 972

Balance as of March 31, 2023
$ 26,162 $ 53,000 $ 3,966 $ 3,868 $ 6 $ 87,002

Activity in the Company’s ACL for loans for the three months ended March 31, 2022 is summarized in the table below.

Three Months Ended March 31, 2022

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Total

(dollars in thousands)

Balance as of December 31, 2021
$ 25,969 $ 45,589 $ 3,580 $ 3,628 $ 7 $ 78,773

Charge-offs
(49 ) (225 ) - - - (274 )

Recoveries
1 - - 31 - 32

(Reversal of) provision for credit losses - loans
(462 ) 2,504 (299 ) (204 ) - 1,539

Balance as of March 31, 2022
$ 25,459 $ 47,868 $ 3,281 $ 3,455 $ 7 $ 80,070

Loan Modifications to Borrowers Experiencing Financial Difficulty:

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The following table presents the amortized cost basis at the end of the reporting period of the loan modifications to borrowers experiencing financial difficulty:

Three Months Ended

March 31, 2023

Term Extension

% of Portfolio

(dollars in thousands)

Commercial
$ 63 0.01 %

The above table consists of one commercial loan on which 3.0 years was added to the life of the modified loan, which did not have a material effect on the cash flows.

The following table presents the performance of loans that have been modified in the last twelve months:

March 31, 2023

Current

Past Due 30-89 Days

Past Due 90 Days or More

(dollars in thousands)

Commercial
$ 63 $ - $ -

There were no loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2023 and which were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly.

Troubled debt restructurings:

Information on loan modifications prior to the adoption of ASU 2022-02 on January 1, 2023 is presented in accordance with the applicable accounting standards in effect at that time. During the three months ended March 31, 2022, the Company modified two loans that were determined to be troubled debt restructuring, a commercial loan and a commercial real estate loan, with outstanding balances of $98 thousand and $8.3 million, respectively. The commercial loan modified as a TDR during the three months ended March 31, 2022 was a maturity extension, while the commercial real estate loan modified as a TDR during the three months ended March 31, 2022 was an interest rate reduction, that was commensurate with a one-time, $500,000, principal paydown.

Allowance for Credit Losses for Unfunded Commitments

The Company has recorded an ACL for unfunded credit commitments, which was recorded in other liabilities. The provision is recorded within the provision for (reversal of) credit losses on the Company’s income statement. The following table presents a roll forward of the allowance for credit losses for unfunded commitments for the three months ended March 31, 2023 and 2022:

Three Months Ended

Three Months Ended

March 31,

March 31,

2023

2022

(dollars in thousands)

Balance at beginning of period
$ 3,036 $ 2,351

Provision for (reversal of) credit losses - unfunded commitments
28 (89 )

Balance at end of period
$ 3,064 $ 2,262

Components of (Reversal of) Provision for Credit Losses

The following table summarizes the provision for (reversal of) credit losses for the three months ended March 31, 2023 and 2022 :

Three Months Ended

Three Months Ended

March 31,

March 31,

2023

2022

(dollars in thousands)

Provision for credit losses - loans
$ 972 $ 1,539

Provision for (reversal of) credit losses - unfunded commitments
28 (89 )

Provision for credit losses
$ 1,000 $ 1,450