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Note 5 - Loans and the Allowance for Credit Losses
 6 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
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 June 30, 2024 and December 31, 2023:

 

  June 30, 2024  December 31, 2023 
  

(dollars in thousands)

 

Commercial

 $1,501,732  $1,578,730 

Commercial real estate

  5,763,869   5,895,545 

Commercial construction

  639,168   620,496 

Residential real estate

  256,786   256,041 

Consumer

  945   1,029 

Gross loans

  8,162,500   8,351,841 

Net deferred loan fees

  (4,597)  (6,696)

Total loans receivable

 $8,157,903  $8,345,145 

 

As of  June 30, 2024 and December 31, 2023, loans totaling approximately $5.7 billion and $5.8 billion, respectively, were pledged to secure borrowings from the FHLB of New York and the Federal Reserve Bank of New York.

 

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale as of June 30, 2024 and December 31, 2023:

 

  

June 30, 2024

  

December 31, 2023

 
  

(dollars in thousands)

 

Residential real estate

 $435  $- 

Total loans held-for-sale

 $435  $- 

 

 

Loans Receivable on Nonaccrual Status - The following tables present the carrying value of nonaccrual loans with an ACL and the carrying value of nonaccrual loans without an ACL as of June 30, 2024 and December 31, 2023:

 

  

June 30, 2024

 
  

Nonaccrual loans with ACL

  

Nonaccrual loans without ACL

  

Total nonaccrual loans

 
  

(dollars in thousands)

 

Commercial

 $1,928  $10,850  $12,778 

Commercial real estate

  -   29,585   29,585 

Commercial construction

  409   1,795   2,204 

Residential real estate

  237   1,222   1,459 

Total

 $2,574  $43,452  $46,026 

 

 

  

December 31, 2023

 
  Nonaccrual loans with ACL  Nonaccrual loans without ACL  Total nonaccrual loans 
  

(dollars in thousands)

 

Commercial

 $1,763  $11,064  $12,827 

Commercial real estate

  8,013   28,179   36,192 

Residential real estate

  1,033   2,472   3,505 

Total

 $10,809  $41,715  $52,524 

 

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 credit 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 purposes of the table below. The following table presents loans by origination, risk designation and gross charge-offs as of and during the six months ended June 30, 2024 (dollars in thousands):

 

  

Term loans amortized cost basis by origination year

       
  

2024

  

2023

  

2022

  

2021

  

2020

  

Prior

  

Revolving Loans

  

Total Gross Loans

 

Commercial

                                

Pass

 $16,275  $148,282  $195,059  $283,478  $32,453  $122,418  $652,444  $1,450,409 

Special mention

  -   -   11,090   2,810   1,634   9,920   11,150   36,604 

Substandard

  -   250   739   230   -   12,773   727   14,719 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial

 $16,275  $148,532  $206,888  $286,518  $34,087  $145,111  $664,321  $1,501,732 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $-  $300  $300 
                                 

Commercial Real Estate

                                

Pass

 $100,404  $273,253  $1,534,768  $1,562,051  $357,702  $1,509,393  $371,401  $5,708,972 

Special mention

  -   -   -   -   -   15,072   -   15,072 

Substandard

  -   -   -   1,867   -   37,958   -   39,825 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial real estate

 $100,404  $273,253  $1,534,768  $1,563,918  $357,702  $1,562,423  $371,401  $5,763,869 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $6,481  $-  $6,481 
                                 

Commercial Construction

                                

Pass

 $9,500  $582  $2,124  $9,071  $6,236  $10,500  $590,251  $628,264 

Special mention

  -   -   -   -   -   -   8,700   8,700 

Substandard

  -   -   -   -   -   -   2,204   2,204 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial construction

 $9,500  $582  $2,124  $9,071  $6,236  $10,500  $601,155  $639,168 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Residential

                                

Pass

 $11,222  $15,126  $41,597  $21,675  $21,004  $104,637  $36,626  $251,887 

Special mention

  -   -   -   -   -   643   2,797   3,440 

Substandard

  -   -   -   536   -   686   237   1,459 

Doubtful

  -   -   -   -   -   -   -   - 

Total residential real estate

 $11,222  $15,126  $41,597  $22,211  $21,004  $105,966  $39,660  $256,786 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Consumer

                                

Pass

 $809  $27  $10  $-  $-  $-  $99  $945 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total consumer

 $809  $27  $10  $-  $-  $-  $99  $945 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Total

                                

Pass

 $138,210  $437,270  $1,773,558  $1,876,275  $417,395  $1,746,948  $1,650,821  $8,040,477 

Special mention

  -   -   11,090   2,810   1,634   25,635   22,647   63,816 

Substandard

  -   250   739   2,633   -   51,417   3,168   58,207 

Doubtful

  -   -   -   -   -   -   -   - 

Grand total

 $138,210  $437,520  $1,785,387  $1,881,718  $419,029  $1,824,000  $1,676,636  $8,162,500 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $6,481  $300  $6,781 

 

 

The following table presents loans by origination, risk designation and gross charge-offs as of and for the year ended December 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

 $178,582  $252,151  $265,705  $38,909  $13,726  $112,145  $684,779  $1,545,997 

Special mention

  -   10,620   -   -   562   3,417   3,199   17,798 

Substandard

  250   439   241   1   612   11,695   1,697   14,935 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial

 $178,832  $263,210  $265,946  $38,910  $14,900  $127,257  $689,675  $1,578,730 

YTD gross charge-offs

 $54  $3,397  $-  $-  $280  $11,094  $63  $14,888 
                                 

Commercial real estate

                                

Pass

 $248,660  $1,561,841  $1,585,109  $352,445  $353,391  $1,232,240  $497,588  $5,831,274 

Special mention

  -   -   -   -   -   24,202   -   24,202 

Substandard

  -   -   1,888   -   1,255   20,141   16,785   40,069 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial real estate

 $248,660  $1,561,841  $1,586,997  $352,445  $354,646  $1,276,583  $514,373  $5,895,545 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $2,142  $-  $2,142 
                                 

Commercial construction

                                

Pass

 $582  $5,463  $15,645  $6,236  $-  $-  $583,870  $611,796 

Special mention

  -   -   -   -   -   -   8,700   8,700 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total commercial construction

 $582  $5,463  $15,645  $6,236  $-  $-  $592,570  $620,496 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Residential real estate

                                

Pass

 $15,455  $42,830  $21,987  $21,704  $19,896  $91,114  $36,082  $249,068 

Special mention

  -   -   -   -   -   651   2,817   3,468 

Substandard

  -   -   555   -   -   2,144   806   3,505 

Doubtful

  -   -   -   -   -   -   -   - 

Total residential real estate

 $15,455  $42,830  $22,542  $21,704  $19,896  $93,909  $39,705  $256,041 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $-  $18  $18 
                                 

Consumer

                                

Pass

 $849  $83  $-  $5  $-  $-  $92  $1,029 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total consumer

 $849  $83  $-  $5  $-  $-  $92  $1,029 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $-  $1  $1 
                                 

Total

                                

Pass

 $444,128  $1,862,368  $1,888,446  $419,299  $387,013  $1,435,499  $1,802,411  $8,239,164 

Special mention

  -   10,620   -   -   562   28,270   14,716   54,168 

Substandard

  250   439   2,684   1   1,867   33,980   19,288   58,509 

Doubtful

  -   -   -   -   -   -   -   - 

Grand total

 $444,378  $1,873,427  $1,891,130  $419,300  $389,442  $1,497,749  $1,836,415  $8,351,841 

YTD gross charge-offs

 $54  $3,397  $-  $-  $280  $13,236  $82  $17,049 

  

 

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 June 30, 2024 and December 31, 2023:

 

  

June 30, 2024

 
  Real Estate  

Other

  

Total

 
  

(dollars in thousands)

 

Commercial

 $1,677  $10,174  $11,851 

Commercial real estate

  29,585   -   29,585 

Commercial construction

  2,204   -   2,204 

Residential real estate

  813   -   813 

Total

 $34,279  $10,174  $44,453 

 

  

December 31, 2023

 
  Real Estate  

Other

  

Total

 
  

(dollars in thousands)

 

Commercial

 $4,949  $10,387  $15,336 

Commercial real estate

  39,986   -   39,986 

Commercial construction

  8,700   -   8,700 

Residential real estate

  5,941   -   5,941 

Total

 $59,576  $10,387  $69,963 

 

 

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 June 30, 2024 and December 31, 2023:

 

  

June 30, 2024

 
  

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

 $1,667  $427  $-  $12,778  $14,872  $1,486,860  $1,501,732 

Commercial real estate

  -   4,876   -   29,585   34,461   5,729,408   5,763,869 

Commercial construction

  -   -   -   2,204   2,204   636,964   639,168 

Residential real estate

  -   1,813   -   1,459   3,272   253,514   256,786 

Consumer

  -   -   -   -   -   945   945 

Total

 $1,667  $7,116  $-  $46,026  $54,809  $8,107,691  $8,162,500 

 

 

  

December 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

 $555  $-  $-  $12,827  $13,382  $1,565,348  $1,578,730 

Commercial real estate

  527   -   -   36,192   36,719   5,858,826   5,895,545 

Commercial construction

  -   23,600   -   -   23,600   596,896   620,496 

Residential real estate

  275   226   -   3,505   4,006   252,035   256,041 

Consumer

  -   -   -   -   -   1,029   1,029 

Total

 $1,357  $23,826  $-  $52,524  $77,707  $8,274,134  $8,351,841 

 

 

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:

 

  

June 30, 2024

 
  

Commercial

  Commercial real estate  

Commercial construction

  Residential real estate  

Consumer

  

Total

 
  

(dollars in thousands)

 

Allowance for credit losses - loans

                        

Individually analyzed

 $337  $-  $-  $-  $-  $337 

Collectively evaluated

  19,458   53,098   4,472   4,484   3   81,515 

Acquired with deteriorated credit quality

  225   -   -   -   -   225 

Total

 $20,020  $53,098  $4,472  $4,484  $3  $82,077 
                         

Gross loans

                        

Individually analyzed

 $12,188  $29,585  $2,204  $813  $-  $44,790 

Collectively evaluated

  1,489,083   5,734,284   636,964   255,973   945   8,117,249 

Acquired with deteriorated credit quality

  461   -   -   -   -   461 

Total

 $1,501,732  $5,763,869  $639,168  $256,786  $945  $8,162,500 

 

  

December 31, 2023

 
  

Commercial

  

Commercial real estate

  

Commercial construction

  

Residential real estate

  

Consumer

  

Total

 
  

(dollars in thousands)

 

Allowance for credit losses - loans

                        

Individually analyzed

 $-  $941  $-  $-  $-  $941 

Collectively evaluated

  20,215   51,337   4,739   4,320   5   80,616 

Acquired with deteriorated credit quality

  417   -   -   -   -   417 

Total

 $20,632  $52,278  $4,739  $4,320  $5  $81,974 
                         

Gross loans

                        

Individually analyzed

 $15,336  $39,986  $8,700  $5,941  $-  $69,963 

Collectively evaluated

  1,562,910   5,855,559   611,796   250,100   1,029   8,281,394 

Acquired with deteriorated credit quality

  484   -   -   -   -   484 

Total

 $1,578,730  $5,895,545  $620,496  $256,041  $1,029  $8,351,841 

 

 

Activity in the Company’s ACL for loans for the three and six months ended June 30, 2024 is summarized in the tables below.

 

  

Three Months Ended June 30, 2024

 
  

Commercial

  

Commercial real estate

  

Commercial construction

  

Residential real estate

  

Consumer

  

Total

 
  

(dollars in thousands)

 

Balance as of March 31, 2024

 $20,735  $52,794  $5,011  $4,326  $3  $82,869 

Charge-offs

  -   (3,595)  -   -   -   (3,595)

Recoveries

  324   -   -   -   -   324 

(Reversal of) provision for credit losses - loans

  (1,039)  3,899   (539)  158   -   2,479 
                         

Balance as of June 30, 2024

 $20,020  $53,098  $4,472  $4,484  $3  $82,077 

 

  

Six Months Ended June 30, 2024

 
  

Commercial

  

Commercial real estate

  

Commercial construction

  

Residential real estate

  

Consumer

  

Total

 
  

(dollars in thousands)

 

Balance as of December 31, 2023

 $20,632  $52,278  $4,739  $4,320  $5  $81,974 

Charge-offs

  (300)  (6,480)  -   -   -   (6,780)

Recoveries

  347   -   -   -   -   347 

(Reversal of) provision for credit losses - loans

  (659)  7,300   (267)  164   (2)  6,536 
                         

Balance as of June 30, 2024

 $20,020  $53,098  $4,472  $4,484  $3  $82,077 

 

 

Activity in the Company’s ACL for loans for the three and six months ended June 30, 2023 is summarized in the table below.

 

  

Three Months Ended June 30, 2023

 
  

Commercial

  

Commercial real estate

  

Commercial construction

  

Residential real estate

  

Consumer

  

Total

 
  

(dollars in thousands)

 

Balance as of March 31, 2023

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

Charge-offs

  (1,100)  -   -   (18)  -   (1,118)

Recoveries

  9   -   -   67   -   76 

Provision for (reversal of) credit losses - loans

  4,255   (491)  (420)  (98)  (1)  3,245 
                         

Balance as of June 30, 2023

 $29,326  $52,509  $3,546  $3,819  $5  $89,205 

 

  

Six Months Ended June 30, 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

  (3,867)  (1,717)  -   (18)  -   (5,602)

Recoveries

  9   -   -   68   -   77 

Provision for (reversal of) credit losses - loans

  4,281   484   (172)  (374)  (2)  4,217 
                         

Balance as of June 30, 2023

 $29,326  $52,509  $3,546  $3,819  $5  $89,205 

 

 

Loan Modifications to Borrowers Experiencing Financial Difficulty:

 

The following tables presents the amortized cost basis at the end of the reporting period of the loan modifications to borrowers experiencing financial difficulty and the percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the gross loans of the relevant loan segment. The total percentage represents the total modified loans as compared to the total gross loans balance.

 

  

Three Months Ended

 
  

June 30, 2024

 
  

Term Extension

  

Payment Deferral

  

Interest Rate Reduction

  

Total

  

% of Portfolio Loan Segment

 
  

(dollars in thousands)

     

Commercial

 $11,150  $-  $-  $11,150   0.75%

Residential real estate

  1,417   -   -   1,417   0.01 

 

  

Six Months Ended

 
  

June 30, 2024

 
  

Term Extension

  

Payment Deferral

  

Interest Rate Reduction

  

Total

  

% of Portfolio Loan Segment

 
  

(dollars in thousands)

     

Commercial

 $11,150  $126  $-  $11,276   0.75%

Residential real estate

  1,417   -   -   1,417   0.01 

 

The above table consists of two commercial loans and one residential real estate loan that were modified during the six months ended June 30, 2024 where the borrower was experiencing financial difficulty. An $11.1 million commercial loan was a six-month term extension, while a $0.1 million commercial loan was a three-month payment deferral. The $1.4 million residential real estate loan involved the freezing of a loan commitment, combined with a 10-year term extension.

 

 

  

Three Months Ended

 
  

June 30, 2023

 
  

Term Extension

  

Payment Deferral

  

Interest Rate Reduction

  

Total

  

% of Portfolio Loan Segment

 
  

(dollars in thousands)

     

Commercial

 $-  $-  $-  $-   0.00%

Commercial real estate

  213         213   0.00%

 

  

Six Months Ended

 
  

June 30, 2023

 
  

Term Extension

  

Payment Deferral

  

Interest Rate Reduction

  

Total

  

% of Portfolio Loan Segment

 
  

(dollars in thousands)

     

Commercial

 $53  $-  $-  $53   0.00%

Commercial real estate

  213         213   0.00%

 

The above table consists of one commercial loan and one commercial real estate loan that were modified during the six months ended June 30, 2023 where the borrower was experiencing financial difficulty. The $50 thousand commercial loan was a 3-year term extension, while the $213 thousand commercial real estate loan was a 15-year term extension.

 

The Company closely monitors the performance of loans that are modified to borrower’s experiencing financial difficulty to understand the effectiveness of its modification efforts. The following tables present the payment status of loans that have been modified in the last twelve months.

 

  

June 30, 2024

 
  

Current

  

30-89 Days Past Due

  

90 Days or Greater Past Due and Still Accruing

 
  

(dollars in thousands)

 

Commercial

 $21,559  $-  $- 

Commercial real estate

  7,272   -   - 

Residential real estate

  1,417   -   - 

 

  Loan Modifications to Borrowers Experiencing Financial Difficulty:

 

During the six months ended June 30, 2024 and June 30, 2023, the Company had no commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company modified the terms of the loans in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension during the current period.

 

    There were no loans to borrowers experiencing financial difficulty that had a payment default during the six months ended June 30, 2024 and 2023 and 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.

 

 

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 and six months ended June 30, 2024 and 2023:

 

  

Three Months Ended

  

Three Months Ended

 
  

June 30,

  

June 30,

 
  

2024

  

2023

 
  

(dollars in thousands)

 

Balance at beginning of period

 $2,754  $3,064 

Provision for (reversal of) credit losses - unfunded commitments

  21   (245)

Balance at end of period

 $2,775  $2,819 

 

  

Six Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2024

  

2023

 
  

(dollars in thousands)

 

Balance at beginning of period

 $2,811  $3,036 

Reversal of credit losses - unfunded commitments

  (36)  (217)

Balance at end of period

 $2,775  $2,819 

 

 

Components of Provision for Credit Losses

 

The following table summarizes the provision for (reversal of) credit losses for the three and six months ended June 30, 2024 and 2023:

 

  

Three Months Ended

  

Three Months Ended

 
  

June 30,

  

June 30,

 
  

2024

  

2023

 
  

(dollars in thousands)

 

Provision for credit losses – loans

 $2,479  $3,245 

Provision for (reversal of) credit losses - unfunded commitments

  21   (245)

Provision for credit losses

 $2,500  $3,000 

 

  

Six Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2024

  

2023

 
  

(dollars in thousands)

 

Provision for credit losses – loans

 $6,536  $4,217 

Reversal of credit losses - unfunded commitments

  (36)  (217)

Provision for credit losses

 $6,500  $4,000