Loans

3 Months Ended

Mar. 31, 2020

Loans [Abstract]

Loans

4 - LOANS

The following table sets forth the loans outstanding by class of loans at the dates indicated.

	March 31,		December 31, 2019
	2020		Loans						Allowance for Loan Losses
(in thousands)	Loans ‎Outstanding		Individually ‎Evaluated		Collectively ‎Evaluated		Ending ‎Balance		Individually ‎Evaluated		Collectively ‎Evaluated		Ending ‎Balance
Commercial and industrial	$	126,073	$	—	$	103,879	$	103,879	$	—	$	1,493	$	1,493
Commercial mortgages:
Multifamily		813,859		—		835,013		835,013		—		7,151		7,151
Other		442,181		—		447,484		447,484		—		3,498		3,498
Owner-occupied		120,217		501		118,291		118,792		—		921		921
Residential mortgages:
Closed end		1,558,401		1,189		1,620,230		1,621,419		14		15,684		15,698
Revolving home equity		60,296		—		59,231		59,231		—		515		515
Consumer and other		2,274		268		2,163		2,431		—		13		13
	$	3,123,301	$	1,958	$	3,186,291	$	3,188,249	$	14	$	29,275	$	29,289

Management identifies loans in the Bank’s portfolio that must be individually evaluated for loss due to disparate risk characteristics or information suggesting that the Bank will be unable to collect all the principal and interest due. For loans individually evaluated, a specific reserve is estimated based on either the fair value of collateral or the discounted value of expected future cash flows. In estimating the fair value of real estate collateral, management utilizes appraisals or evaluations adjusted for costs to dispose and a distressed sale adjustment, if needed. Estimating the fair value of collateral other than real estate is also subjective in nature and sometimes requires difficult and complex judgments. Determining expected future cash flows can be more subjective than determining fair values. Expected future cash flows could differ significantly, both in timing and amount, from the cash flows actually received over the loan’s remaining life. Individually evaluated loans are excluded from the estimation of credit losses for the pooled portfolio.

For loans collectively evaluated for credit loss, management segregates its loan portfolio into ten distinct pools, certain of which are combined in reporting loans outstanding by class of loans: (1) commercial and industrial; (2) small business credit scored; (3) multifamily; (4) owner-occupied; (5) other commercial real estate; (6) construction and land development; (7) closed end residential mortgage; (8) revolving home equity; (9) consumer; and (10) municipal loans. Historical loss information from the Bank’s own loan portfolio from December 31, 2007 to present provides a basis for management’s assessment of expected credit losses. The choice of a historical look-back period that begins in 2007 covers an entire economic cycle and impacts the average historical loss rates used to calculate the final ACL. Due to the extensive historical loss data available, management has determined that the vintage approach is the most appropriate method of measuring the historical loss component of credit losses inherent in its portfolio for most of its loan pools. For the revolving home equity and small business credit scored pools, the migration approach was selected to measure historical losses since contractual lives are not readily discernable and balances can fluctuate throughout the life of the lines. Management believes that the methods selected fairly reflect the historical loss component of expected losses inherent in the Bank’s loan portfolio. However, since future losses could vary significantly from those experienced in the past, on a quarterly basis management adjusts its historical loss experience to reflect current and forecasted conditions. In doing so, management considers a variety of general qualitative and quantitative factors (“Q-factors”) and then subjectively determines the weight to assign to each in estimating losses. Qualitative characteristics include, among others, differences in underwriting standards, policies, lending staff and environmental risks. Management also considers whether further adjustments to historical loss information are needed to reflect the extent to which current conditions and reasonable and supportable forecasts over a one year to two year forecasting horizon differ from the conditions that existed during the historical loss period. These quantitative adjustments reflect changes to relevant data such as changes in unemployment rates, vacancies, average growth in pools of loans, delinquencies or other factors associated with the financial assets. The immediate reversion method is applied for periods beyond the forecasting horizon. The Bank’s ACL allocable to pools of loans that are collectively evaluated for credit loss results primarily from these qualitative and quantitative adjustments to historical loss experience. Because of the nature of the Q-factors and the degree of judgement involved in assessing their impact, management’s resulting estimate of losses may not accurately reflect current and future losses in the portfolio.

The COVID-19 pandemic has caused significant uncertainty in the current and forecasted economic environment and was the key influence, considered through the Q-factors discussed above, in estimating the ACL required at March 31, 2020.

The following tables present the activity in the ACL for the periods indicated.

(in thousands)	Balance at ‎ 1/1/20 After Implementation ‎of ASC 326		Chargeoffs		Recoveries		Provision (Credit) for Credit Losses		Balance at ‎3/31/20
Commercial and industrial	$	1,249	$	618	$	187	$	1,113	$	1,931
Commercial mortgages:
Multifamily		8,210		—		—		437		8,647
Other		3,451		—		—		341		3,792
Owner-occupied		1,699		—		—		83		1,782
Residential mortgages:
Closed end		17,054		—		—		405		17,459
Revolving home equity		509		—		—		(22)		487
Consumer and other		5		1		2		1		7
	$	32,177	$	619	$	189	$	2,358	$	34,105

(in thousands)	Balance at ‎1/1/19		Chargeoffs		Recoveries		Provision (Credit) for Loan Losses		Balance at ‎3/31/19
Commercial and industrial	$	1,158	$	54	$	4	$	(61)	$	1,047
Commercial mortgages:
Multifamily		5,851		—		—		584		6,435
Other		3,783		—		—		(266)		3,517
Owner-occupied		743		—		—		(58)		685
Residential mortgages:
Closed end		18,844		134		1		(640)		18,071
Revolving home equity		410		—		—		(8)		402
Consumer and other		49		—		1		(8)		42
	$	30,838	$	188	$	6	$	(457)	$	30,199

Aging of Loans. The following tables present the aging of loans past due and loans on nonaccrual status by class of loans.

	March 31, 2020
	Past Due						Nonaccrual
							With an		With No		Total Past
					90 Days or		Allowance		Allowance		Due Loans &
					More and		for Credit		for Credit		Nonaccrual				Total
(in thousands)	30-59 Days		60-89 Days		Still Accruing		Loss		Loss		Loans		Current		Loans
Commercial and industrial	$	415	$	—	$	—	$	—	$	—	$	415	$	125,658	$	126,073
Commercial mortgages:
Multifamily		—		—		—		—		1,325		1,325		812,534		813,859
Other		683		—		—		—		872		1,555		440,626		442,181
Owner-occupied		—		—		—		—		—		—		120,217		120,217
Residential mortgages:
Closed end		362		—		—		—		2,254		2,616		1,555,785		1,558,401
Revolving home equity		265		—		—		—		390		655		59,641		60,296
Consumer and other		—		—		—		—		—		—		2,274		2,274
	$	1,725	$	—	$	—	$	—	$	4,841	$	6,566	$	3,116,735	$	3,123,301
	December 31, 2019
Commercial and industrial	$	196	$	—	$	—	$	—	$	—	$	196	$	103,683	$	103,879
Commercial mortgages:
Multifamily		—		—		—		—		—		—		835,013		835,013
Other		—		—		—		—		—		—		447,484		447,484
Owner-occupied		—		—		—		—		—		—		118,792		118,792
Residential mortgages:
Closed end		2,316		—		—		—		888		3,204		1,618,215		1,621,419
Revolving home equity		—		414		—		—		—		414		58,817		59,231
Consumer and other		2		—		—		—		—		2		2,429		2,431
	$	2,514	$	414	$	—	$	—	$	888	$	3,816	$	3,184,433	$	3,188,249

There were no loans in the process of foreclosure nor did the Bank hold any foreclosed residential real estate property at March 31, 2020 or December 31, 2019.

Accrued interest receivable from loans totaled $8,656,000 and $8,409,000 at March 31, 2020 and December 31, 2019, respectively, and is included in the line item “Other assets” on the consolidated balance sheets.

Troubled Debt Restructurings. A restructuring constitutes a troubled debt restructuring when it includes a concession by the Bank and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Bank performs the evaluation under its internal underwriting policy.

The Bank did not modify any loans in troubled debt restructurings during the first quarter of 2020 or 2019.

At March 31, 2020, the Bank had no allowance allocated to troubled debt restructurings. At December 31, 2019, the Bank had an allowance of $14,000 allocated to specific troubled debt restructurings. The Bank had no commitments to lend additional amounts in connection with loans that were classified as troubled debt restructurings.

There were no troubled debt restructurings for which there was a payment default during the three months ended March 31, 2020 and 2019 that were modified during the 12-month period prior to default. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Risk Characteristics. Credit risk within the Bank’s loan portfolio primarily stems from factors such as changes in the borrower’s financial condition, credit concentrations, changes in collateral values, economic conditions, rent regulation and environmental contamination of properties securing mortgage loans. The Bank’s commercial loans, including those secured by real estate mortgages, are primarily made to small and medium-sized businesses. Such loans sometimes involve a higher degree of risk than those to larger companies because such businesses may have shorter operating histories, higher debt-to-equity ratios and may lack sophistication in internal record keeping and financial and operational controls. In addition, most of the Bank’s loans are made to businesses and consumers on Long Island and in the boroughs of New York City (“NYC”), and a large percentage of these loans are mortgage loans secured by properties located in those areas. The primary sources of repayment for residential and commercial mortgage loans include

employment and other income of the borrowers, the businesses of the borrowers and cash flows from the underlying properties. In the case of multifamily mortgage loans, a substantial portion of the underlying properties are rent stabilized or rent controlled. These sources of repayment are dependent on, among other things, the strength of the local economy.

The COVID-19 pandemic creates substantial challenges for the Bank and its customers. Normal business activity and commerce have been significantly disrupted across the country including in the NYC metropolitan area which is the main market that the Bank serves. During these challenging times, many of the Bank’s customers, which include small and medium-sized businesses, professionals, consumers, municipalities and other organizations, may experience a significant decline in, or complete discontinuance of, business activity, earnings and cash flow. For some this may be temporary, but for other customers it could be longer-lasting and may lead to permanent business closure or job loss. These challenges may result in higher drawdowns by customers on the Bank’s lending commitments and higher past due and nonaccrual loans, troubled debt restructurings and credit losses. In addition, the value of collateral supporting mortgage loans may be negatively impacted leading to a deterioration in the Bank’s loan-to-value ratios and increased risk of loss.

Credit Quality Indicators. The Bank categorizes loans into risk categories based on relevant information about the borrower’s ability to service their debt including, but not limited to, current financial information for the borrower and any guarantors, payment experience, credit underwriting documentation, public records, due diligence checks and current economic trends. Management analyzes loans individually and classifies them using the following definitions for risk rating.

Watch: The borrower’s cash flow has a high degree of variability and subject to economic downturns. Liquidity is strained and the ability of the borrower to access traditional sources of credit is diminished.

Special Mention: The borrower has 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. Special mention assets are not adversely classified and do not expose the Bank to risk sufficient to warrant adverse classification.

Substandard: Loans are inadequately protected by the current sound worth and paying capacity of the borrower or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans have all the inherent weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Risk ratings on commercial and industrial loans and commercial mortgages are initially assigned during the underwriting process and affirmed as part of the approval process. The ratings are periodically reviewed and evaluated based on borrower contact, credit department review or independent loan review.

The Bank's loan risk rating and review policy establishes requirements for the annual review of commercial real estate and commercial and industrial loans. The requirements include details of the scope of coverage and selection process based on loan-type and risk rating. Among other things, at least 80% of the recorded investment of commercial real estate loans as of December 31 of the prior year must be reviewed annually. Lines of credit are also reviewed annually at each proposed reaffirmation. The frequency of the review of other loans is determined by minimum principal balance thresholds and the Bank’s ongoing assessments of the borrower’s condition.

Residential mortgage loans, revolving home equity lines and other consumer loans are initially evaluated utilizing the borrower’s credit score. A credit score is a tool used in the Bank’s loan approval process, and a minimum score of 680 is generally required for new loans. Credit scores for each borrower are updated at least annually. However, regardless of credit score, loans may be classified, criticized or placed on management’s watch list if relevant information comes to light.

‎

The following tables present the amortized cost basis of loans by class of loans and risk rating for the periods indicated. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful.

	March 31, 2020
	Term Loans by Origination Year
													Revolving
(in thousands)	2020		2019		2018		2017		2016		Prior		Loans		Total
Commercial and industrial:
Pass	$	15,540	$	16,774	$	12,124	$	14,783	$	8,182	$	27,208	$	27,274	$	121,885
Watch		—		—		—		—		—		2,408		—		2,408
Special Mention		—		—		—		—		—		750		—		750
Substandard		—		771		—		—		—		259		—		1,030
Doubtful		—		—		—		—		—		—		—		—
	$	15,540	$	17,545	$	12,124	$	14,783	$	8,182	$	30,625	$	27,274	$	126,073
Commercial mortgages – multifamily:
Pass	$	10,809	$	155,469	$	166,365	$	163,857	$	33,366	$	279,037	$	—	$	808,903
Watch		—		—		—		1,322		—		—		—		1,322
Special Mention		—		—		—		—		2,309		—		—		2,309
Substandard		—		—		—		—		1,325		—		—		1,325
Doubtful		—		—		—		—		—		—		—		—
	$	10,809	$	155,469	$	166,365	$	165,179	$	37,000	$	279,037	$	—	$	813,859
Commercial mortgages – other:
Pass	$	22,871	$	43,516	$	52,786	$	56,937	$	101,642	$	153,781	$	—	$	431,533
Watch		—		—		—		—		9,776		—		—		9,776
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		872		—		872
Doubtful		—		—		—		—		—		—		—		—
	$	22,871	$	43,516	$	52,786	$	56,937	$	111,418	$	154,653	$	—	$	442,181
Commercial mortgages – owner-occupied:
Pass	$	3,550	$	44,014	$	9,285	$	10,267	$	12,831	$	35,163	$	—	$	115,110
Watch		—		—		—		—		—		2,515		—		2,515
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		1,881		—		711		—		2,592
Doubtful		—		—		—		—		—		—		—		—
	$	3,550	$	44,014	$	9,285	$	12,148	$	12,831	$	38,389	$	—	$	120,217
Residential mortgages – closed end:
Pass	$	412	$	30,094	$	356,704	$	404,019	$	292,070	$	472,400	$	—	$	1,555,699
Watch		—		—		—		—		—		304		—		304
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		463		—		—		1,935		—		2,398
Doubtful		—		—		—		—		—		—		—		—
	$	412	$	30,094	$	357,167	$	404,019	$	292,070	$	474,639	$	—	$	1,558,401
Residential mortgages – revolving home equity:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	59,491	$	59,491
Watch		—		—		—		—		—		—		415		415
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		390		390
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—	$	60,296	$	60,296
Consumer and other (1):
Pass	$	253	$	226	$	85	$	40	$	801	$	408	$	—	$	1,813
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		259		—		—		—		—		—		259
Doubtful		—		—		—		—		—		—		—		—
	$	253	$	485	$	85	$	40	$	801	$	408	$	—	$	2,072

	December 31, 2019
	Internally Assigned Risk Rating
					Special
(in thousands)	Pass		Watch		Mention		Substandard		Doubtful		Total
Commercial and industrial	$	100,095	$	—	$	3,493	$	291	$	—	$	103,879
Commercial mortgages:
Multifamily		831,360		—		3,653		—		—		835,013
Other		437,655		—		9,829		—		—		447,484
Owner-occupied		113,534		—		4,757		501		—		118,792
Residential mortgages:
Closed end		1,619,034		306		890		1,189		—		1,621,419
Revolving home equity		58,816		415		—		—		—		59,231
Consumer and other (1)		1,644		—		—		268		—		1,912
	$	3,162,138	$	721	$	22,622	$	2,249	$	—	$	3,187,730

(1) Deposit account overdrafts were $202,000 and $519,000 at March 31, 2020 and December 31, 2019, respectively. Overdrafts are not assigned a risk rating and are therefore excluded from consumer loans in the tables above.