Loans And The Allowance For Loan Losses

9 Months Ended

Sep. 30, 2022

Loans And The Allowance For Loan Losses [Abstract]

Loans And The Allowance For Loan Losses

3. LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Loan Portfolio Composition

The following table presents selected information on the composition of the Company’s loan portfolio as of the dates indicated:

	September 30, 2022		December 31, 2021
Mortgage loans on real estate:	(in thousands)
Residential mortgages	$	433,102	$	411,060
Commercial and multi-family		765,136		739,761
Construction-Residential		3,136		5,109
Construction-Commercial		103,763		98,012
Home equities		83,334		81,238
Total real estate loans		1,388,471		1,335,180
Commercial and industrial loans		238,093		237,077
Consumer and other loans		427		719
Unaccreted yield adjustments*		(534)		(1,071)
Total gross loans		1,626,457		1,571,905
Allowance for loan losses		(18,630)		(18,438)
Loans, net	$	1,607,827	$	1,553,467

* Includes net premiums and discounts on acquired loans and net deferred fees and costs on loans originated.

At September 30, 2022, the outstanding principal balance and the carrying amount of acquired credit-impaired loans totaled $0.8 million and $0.7 million, respectively. At December 31, 2021, the outstanding principal balance and carrying amount of acquired credit-impaired loans totaled $0.8 million. There were no valuation allowances for specifically identified impairment attributable to acquired credit-impaired loans at September 30, 2022 or December 31, 2021. The Company is not recording interest on the acquired credit-impaired loans due to the uncertainty of the cash flows relating to such loans.

There were $508 million and $619 million in residential and commercial mortgage loans pledged to FHLBNY to serve as collateral for potential borrowings as of September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022, the Company’s FHLMC loan serving portfolio had $61 million in principal balances of residential real estate loans that were sold to FHLMC and the servicing rights are retained by the Company. No loans were sold to FHLMC by the Company during the three month or nine month periods ending September 30, 2022 and 2021.

The Company may also sell certain fixed rate residential mortgages to FNMA while maintaining the servicing rights for those mortgages. At September 30, 2022, the Company’s FNMA loan servicing portfolio was $59 million in principal balances. In the three month and nine month periods ended September 30, 2022, the Company sold $1.3 million and $4.8 million, respectively, of residential mortgages to FNMA. The Company did not sell any mortgages to FNMA in the three and nine month periods ended September 30, 2021.

At September 30, 2022 and December 31, 2021, the Company had loan servicing portfolio principal balances of $120 million and $131 million, respectively, upon which it earned servicing fees. The fair value of the mortgage servicing rights for that portfolio was $1.2 million and $0.9 million at September 30, 2022 and December 31, 2021, respectively.

‎

At September 30, 2022 no residential mortgages were held for sale. At December 31, 2021 there were $0.1 million of residential mortgages held for sale.

Credit Quality Indicators

The Company monitors the credit risk in its loan portfolio by reviewing certain credit quality indicators (“CQI”). The primary CQI for the commercial mortgage and commercial and industrial portfolios is the individual loan’s credit risk rating. The following list provides a description of the credit risk ratings that are used internally by the Bank when assessing the adequacy of its allowance for loan losses:

Acceptable or better

Watch

Special Mention

Substandard

Doubtful

Loss

“Special mention” and “substandard” loans are weaker credits with a higher risk of loss and are categorized as “criticized” assets.

The Company’s consumer loans, including residential mortgages and home equities, are not individually risk rated or reviewed in the Company’s loan review process. Unlike commercial customers, consumer loan customers are not required to provide the Company with updated financial information. Consumer loans also carry smaller balances. Given the lack of updated information after the initial underwriting of the loan and small size of individual loans, the Company uses delinquency status as the primary credit quality indicator for consumer loans. However, once a consumer loan is identified as impaired, it is individually evaluated for impairment.

The following tables provide data, at the class level, of credit quality indicators of certain loans for the dates specified:

	September 30, 2022
	(in thousands)
Corporate Credit Exposure – By Credit Rating	Commercial Real Estate Construction		Commercial and Multi-Family Mortgages		Total Commercial Real Estate		Commercial and Industrial
Acceptable or better	$	64,746	$	547,332	$	612,078	$	175,101
Watch		19,505		165,144		184,649		46,557
Special Mention		6,943		21,453		28,396		9,555
Substandard		12,569		31,207		43,776		6,880
Doubtful/Loss		-		-		-		-
Total	$	103,763	$	765,136	$	868,899	$	238,093
	December 31, 2021
	(in thousands)
Corporate Credit Exposure – By Credit Rating	Commercial Real Estate Construction		Commercial and Multi-Family Mortgages		Total Commercial Real Estate		Commercial and Industrial
Acceptable or better	$	65,211	$	480,159	$	545,370	$	152,675
Watch		19,108		182,502		201,610		64,406
Special Mention		7,045		33,219		40,264		10,200
Substandard		6,648		43,881		50,529		9,796
Doubtful/Loss		-		-		-		-
Total	$	98,012	$	739,761	$	837,773	$	237,077

The Company continues to evaluate its portfolio of loans to clients within the hotel industry for residual impacts from the COVID-19 pandemic. The Company classified $81 million of loans to clients within the hotel industry as criticized in 2020. Subsequently, more than half of this portfolio has been upgraded or paid off. Currently, $38 million of the hotel portfolio remains in criticized status at the end of the 2022 third quarter. Total criticized assets were $89 and $111 million at September 30, 2022 and at the end of the 2021, respectively.

Past Due Loans

The following tables provide an analysis of the age of the recorded investment in loans that are past due as of the dates indicated:

	September 30, 2022
	(in thousands)
		Current							Non-accruing		Total
		Balance	30-59 days		60-89 days		90+ days		Loans		Balance
Commercial and industrial	$	229,785	$	5,375	$	30	$	64	$	2,839	$	238,093
Residential real estate:
Residential		428,009		-		1,371		-		3,722		433,102
Construction		3,136		-		-		-		-		3,136
Commercial real estate:
Commercial		754,993		750		203		-		9,190		765,136
Construction		87,302		5,958		875		774		8,854		103,763
Home equities		81,512		1,144		160		-		518		83,334
Consumer and other		414		8		4		1		-		427
Total Loans	$	1,585,151	$	13,235	$	2,643	$	839	$	25,123	$	1,626,991

Note: Loan balances do not include $(0.5) million of unaccreted yield adjustments as of September 30, 2022.

	December 31, 2021
	(in thousands)
		Current							Non-accruing		Total
		Balance	30-59 days		60-89 days		90+ days		Loans		Balance
Commercial and industrial	$	229,724	$	1,336	$	568	$	548	$	4,901	$	237,077
Residential real estate:
Residential		402,992		3,466		1,563		-		3,039		411,060
Construction		5,109		-		-		-		-		5,109
Commercial real estate:
Commercial		711,481		16,451		6,073		-		5,756		739,761
Construction		93,842		757		-		480		2,933		98,012
Home equities		79,644		627		209		-		758		81,238
Consumer and other		706		9		4		-		-		719
Total Loans	$	1,523,498	$	22,646	$	8,417	$	1,028	$	17,387	$	1,572,976

Note: Loan balances do not include $(1.1) million of unaccreted yield adjustments as of December 31, 2021.
‎

Allowance for loan losses

The following tables present the activity in the allowance for loan losses according to portfolio segment for the three month periods ended September 30, 2022 and 2021.

	Three months ended September 30, 2022
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan	(in thousands)
losses:
Beginning balance	$	3,714	$	12,305	$	70	$	2,164	$	566	$	18,819
Charge-offs		(1,515)		-		(45)		-		-		(1,560)
Recoveries		40		-		3		-		-		43
Provision		1,805		(603)		13		47		66		1,328
Ending balance	$	4,044	$	11,702	$	41	$	2,211	$	632	$	18,630

*Includes construction loans

	Three months ended September 30, 2021
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan	(in thousands)
losses:
Beginning balance	$	3,790	$	13,925	$	58	$	1,694	$	475	$	19,942
Charge-offs		(424)		-		(29)		-		-		(453)
Recoveries		15		-		4		-		2		21
Provision		(228)		(1,555)		(12)		259		77		(1,459)
Ending balance	$	3,153	$	12,370	$	21	$	1,953	$	554	$	18,051

* Includes construction loans

‎

The following tables present the activity in the allowance for loan losses according to portfolio segment for the nine month periods ended September 30, 2022 and 2021.

	Nine months ended September 30, 2022
	(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan
losses:
Beginning balance	$	3,309	$	12,367	$	54	$	2,127	$	581	$	18,438
Charge-offs		(1,546)		-		(112)		(55)		-		(1,713)
Recoveries		76		-		13		-		-		89
Provision (Credit)		2,205		(665)		86		139		51		1,816
Ending balance	$	4,044	$	11,702	$	41	$	2,211	$	632	$	18,630

‎*Includes construction loans

	Nine months ended September 30, 2021
	(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan
losses:
Beginning balance	$	4,882	$	13,249	$	45	$	1,658	$	581	$	20,415
Charge-offs		(424)		-		(120)		-		-		(544)
Recoveries		58		-		26		-		2		86
Provision (Credit)		(1,363)		(879)		70		295		(29)		(1,906)
Ending balance	$	3,153	$	12,370	$	21	$	1,953	$	554	$	18,051

*Includes construction loans

‎

The following table presents the allocation of the allowance for loan losses according to portfolio segment summarized on the basis of the Company’s impairment methodology as of September 30, 2022 and December 31, 2021:

	September 30, 2022
	(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan
losses:
Ending balance:
Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-
Individually evaluated for impairment		2		2		-		66		39		109
Collectively evaluated for impairment		4,042		11,700		41		2,145		593		18,521
Total	$	4,044	$	11,702	$	41	$	2,211	$	632	$	18,630
Loans:
Ending balance:
Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	703	$	-	$	703
Individually evaluated for impairment		2,929		20,839		-		3,367		903		28,038
Collectively evaluated for impairment		235,164		848,060		427		432,168		82,431		1,598,250
Total	$	238,093	$	868,899	$	427	$	436,238	$	83,334	$	1,626,991

Note: Loan balances do not include $(0.5) million of unaccreted yield adjustments as of September 30, 2022.

* Includes construction loans

	December 31, 2021
	(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan
losses:
Ending balance:
Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-
Individually evaluated for impairment		100		345		-		9		41		495
Collectively evaluated for impairment		3,209		12,022		54		2,118		540		17,943
Total	$	3,309	$	12,367	$	54	$	2,127	$	581	$	18,438
Loans:
Ending balance:
Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	803	$	-	$	803
Individually evaluated for impairment		5,028		11,925		-		2,598		1,236		20,787
Collectively evaluated for impairment		232,049		825,848		719		412,768		80,002		1,551,386
Total	$	237,077	$	837,773	$	719	$	416,169	$	81,238	$	1,572,976

Note: Loan balances do not include $(1.1) million of unaccreted yield adjustments as of December 31, 2021.

* Includes construction loans

Impaired Loans

The following tables provide data, at the class level, for impaired loans as of the dates indicated:

	At September 30, 2022						At December 31, 2021
(in thousands)		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	2,926	$	3,551	$	-	$	4,874	$	5,712	$	-
Residential real estate:
Residential		3,784		4,253		-		3,297		3,654		-
Construction		-		-		-		-		-		-
Commercial real estate:
Commercial		11,814		12,150		-		8,821		9,338		-
Construction		8,854		8,998		-		1,395		1,499		-
Home equities		864		1,024		-		1,127		1,324		-
Consumer and other		-		-		-		-		-		-
Total impaired loans	$	28,242	$	29,976	$	-	$	19,514	$	21,527	$	-

	At September 30, 2022							At December 31, 2021
(in thousands)		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With a related allowance recorded:
Commercial and industrial	$	3	$	3	$	2	$	154	$	158	$	100
Residential real estate:
Residential		245		245		66		60		60		9
Construction		-		-		-		-		-		-
Commercial real estate:
Commercial		171		197		2		171		717		16
Construction		-		-		-		1,538		1,555		329
Home equities		39		66		39		109		109		41
Consumer and other		-		-		-		-		-		-
Total impaired loans	$	458	$	511	$	109	$	2,032	$	2,599	$	495

‎

		At September 30, 2022					At December 31, 2021
(in thousands)		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Total:
Commercial and industrial	$	2,929	$	3,554	$	2	$	5,028	$	5,870	$	100
Residential real estate:
Residential		4,029		4,498		66		3,357		3,714		9
Construction		-		-		-		-		-		-
Commercial real estate:
Commercial		11,985		12,347		2		8,992		10,055		16
Construction		8,854		8,998		-		2,933		3,054		329
Home equities		903		1,090		39		1,236		1,433		41
Consumer and other		-		-		-		-		-		-
Total impaired loans	$	28,700	$	30,487	$	109	$	21,546	$	24,126	$	495

			Three months ended September 30, 2022				Three months ended September 30, 2021
	(in thousands)		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial		$	3,681	$	2	$	5,755	$	-
Residential real estate:
Residential			3,972		-		3,894		5
Construction			-		-		-		-
Commercial real estate:
Commercial			12,533		6		15,044		165
Construction			5,113		-		3,331		-
Home equities			932		4		1,440		3
Consumer and other			-		-		-		-
Total impaired loans		$	26,231	$	12	$	29,464	$	173

			Nine months ended September 30, 2022				Nine months ended September 30, 2021
	(in thousands)		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial		$	4,251	$	6	$	5,657	$	29
Residential real estate:
Residential			3,735		12		4,756		22
Construction			-		-		-		-
Commercial real estate:
Commercial			10,785		183		15,014		228
Construction			3,881		-		3,305		2
Home equities			999		14		1,669		7
Consumer and other			-		-		-		-
Total impaired loans		$	23,651	$	215	$	30,401	$	288

Troubled debt restructurings

The following tables summarize the loans that were classified as troubled debt restructurings (“TDRs”) as of the dates indicated:

		September 30, 2022
		(in thousands)
		Total		Nonaccruing		Accruing		Related Allowance
Commercial and industrial	$	1,254	$	1,164	$	90	$	-
Residential real estate:
Residential		889		541		348		-
Construction		-		-		-		-
Commercial real estate:
Commercial and multi-family		2,795		-		2,795		-
Construction		-		-		-		-
Home equities		390		5		385		-
Consumer and other		-		-		-		-
Total TDR loans	$	5,328	$	1,710	$	3,618	$	-

		December 31, 2021
		(in thousands)
		Total		Nonaccruing		Accruing		Related Allowance
Commercial and industrial	$	1,003	$	876	$	127	$	-
Residential real estate:
Residential		989		627		362		-
Construction		-		-		-		-
Commercial real estate:
Commercial and multi-family		3,236		-		3,236		-
Construction		-		-		-		-
Home equities		490		12		478		-
Consumer and other		-		-		-		-
Total TDR loans	$	5,718	$	1,515	$	4,203	$	-

Any TDR that is placed on non-accrual status is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable. All of the Company’s restructurings were allowed in an effort to maximize its ability to collect on loans where borrowers were experiencing financial difficulty.

The reserve for a TDR is based upon the present value of the future expected cash flows discounted at the loan’s original effective interest rate or upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent. This reserve methodology is used because all TDR loans are considered impaired.

The Company’s TDRs have various agreements that involve deferral of principal payments, or interest-only payments, for a period (usually 12 months or less) to allow the borrower time to improve cash flow or sell the property. Other common concessions leading to the designation of a TDR are lines of credit that are termed-out and/or extensions of maturities at rates that are less than the prevailing market rates given the risk profile of the borrower.

During 2020, federal banking regulators issued guidance that modifications made to a borrower affected by the COVID-19 pandemic and governmental shutdown orders do not need to be identified as a TDR if the loan was current at the time a modification plan was implemented.

‎

The following tables present TDR activity by the type of concession granted to the borrower for the nine month periods ended September 30, 2022 and 2021. There were no new TDR loans during the three month periods ended September 30, 2022 and 2021.

	Nine months ended September 30, 2022					Nine months ended September 30, 2021
	(Recorded Investment in thousands)					(Recorded Investment in thousands)
Troubled Debt Restructurings by Type of Concession	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial and Industrial:	-	$	-	$	-	-	$	-	$	-
Extension of maturity	1		461		461	-		-		-
Residential Real Estate & Construction:
Commercial Real Estate & Construction	-		-		-	-		-		-
Home Equities:
Extension of maturity and
interest rate reduction	1		38		38	-		-		-
Consumer and other loans	-		-		-	-		-		-

The general practice of the Bank is to work with borrowers so that they are able to repay their loan in full. If a borrower continues to be delinquent or cannot meet the terms of a TDR and the loan is determined to be uncollectible, the loan will be charged-off to its collateral value. A loan is considered in default when the loan is 90 days past due. Loans which were classified as TDRs during the previous 12 months which defaulted during the three month and nine month periods ended September 30, 2022 and 2021 were not material.

‎