Loans And The Allowance For Credit Losses

12 Months Ended

Dec. 31, 2023

Loans And The Allowance For Credit Losses [Abstract]

Loans And The Allowance For Credit Losses

4.LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

Major categories of loans at December 31, 2023 and 2022 are summarized as follows:

	December 31, 2023		December 31, 2022
Mortgage loans on real estate:	(in thousands)
Residential mortgages	$	443,788	$	440,123
Commercial and multi-family		854,565		778,714
Construction-Residential		3,255		3,626
Construction-Commercial		114,623		117,403
Home equities		81,412		82,414
Total real estate loans		1,497,643		1,422,280
Commercial and industrial loans		223,100		250,069
Consumer and other loans		1,066		572
Unaccreted yield adjustments*		(863)		(552)
Total gross loans		1,720,946		1,672,369
Allowance for credit losses		(22,114)		(19,438)
Loans, net	$	1,698,832	$	1,652,931

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

The outstanding principal balance and the carrying amount of acquired credit-impaired loans totaled $0.8 million and $0.7 million at December 31, 2023 and December 31, 2022, respectively. There were no valuation allowances for specifically identified impairment attributable to acquired credit-impaired loans at December 31, 2023 or 2022.

There were $566 million and $495 million in residential and commercial mortgage loans pledged to FHLBNY to serve as collateral for potential borrowings as of December 31, 2023 and 2022, respectively.

Residential Mortgages: The Company originates adjustable-rate and fixed-rate, one-to-four-family residential real estate loans for the construction, purchase, or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in the Company’s market area and are amortized over a period of 10 to 30 years. Loans on one-to-four-family residential real estate are mostly originated in amounts of no more than 80% of the property’s appraised value or have private mortgage insurance. Mortgage title insurance and hazard insurance are normally required. Construction loans have a unique risk, because they are secured by an incomplete dwelling.

The Company, in its normal course of business, sells certain residential mortgages which it originates and sells to FNMA and FHLB while maintaining the servicing rights for those mortgages. The Bank determines with each origination of residential real estate loans which desired maturities, within the context of overall maturities in the loan portfolio, provide the appropriate mix to optimize the Bank’s ability to absorb the corresponding interest rate risk within the Company’s tolerance ranges. This practice allows the Company to manage interest rate risk, liquidity risk, and credit risk. At December 31, 2023 and 2022, the Company’s loan servicing portfolio principal balances was $113 million and $116 million, respectively, upon which it earned servicing fees. For the years ended December 31, 2023 and 2022, the Company sold $8.3 million and $4.5 million, respectively, in loans to FNMA and FHLB and realized gains on those sales of $0.2 million and $0.1 million, respectively. Gains or losses recognized upon the sale of loans are determined on a specific identification basis. No loans were sold to FHLMC by the Company during the years 2023 and 2022.

The Company had a related asset carried at fair value of approximately $1.1 million for the servicing portfolio rights at December 31, 2023 and 2022. There were no residential mortgages held for sale at December 31, 2023 and December 31, 2022.

Commercial and Multi-Family Mortgages and Commercial Construction Loans: Commercial real estate loans are made to finance the purchases of real estate with completed structures or in the midst of being constructed. These commercial real estate loans are secured by first liens on the real estate, which may include apartments, hotels, retail stores or plazas, healthcare facilities, and other non-owner-occupied facilities. These loans are generally less risky than commercial and industrial loans since they are secured by real estate and buildings. The Company offers commercial mortgage loans with up to an 80% LTV ratio for up to 20 years on a variable and fixed rate basis. Many of these mortgage loans either mature or are subject to a rate call after three to five years. The Company’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower's financial condition, and the underlying cash flows. Construction loans have a unique risk, because they are secured by an incomplete dwelling.

Home Equities: The Company originates home equity lines of credit and second mortgage loans (loans secured by a second lien position on one-to-four-family residential real estate). These loans carry a higher risk than first mortgage residential loans because they are in a second position with respect to collateral. Risk is reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate.

Commercial and Industrial Loans: These loans generally include term loans and lines of credit. Such loans are made available to businesses for working capital (including inventory and receivables), business expansion (including acquisition of real estate, expansion, and improvements) and equipment purchases. As a general practice, a collateral lien is placed on equipment or other assets owned by the borrower. These loans generally carry a higher risk than commercial real estate loans based on the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable. To reduce the risk, management also attempts to secure real estate as collateral and obtain personal guarantees of the borrowers. To further reduce risk and enhance liquidity, these loans generally carry variable rates of interest, re-pricing in three- to five-year periods, and have a maturity of five years or less. Lines of credit generally carry floating rates of interest (e.g. prime plus a margin).

Consumer Loans: The Company funds a variety of consumer loans, including direct automobile loans, recreational vehicle loans, boat loans, home improvement loans, and personal loans (collateralized and uncollateralized). Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging up to five years, based upon the nature of the collateral and the size of the loan. The majority of consumer loans are underwritten on a secured basis using the underlying collateral being financed. A minimal amount of loans are unsecured, which carry a higher risk of loss. These loans included overdrawn deposit accounts classified as loans of $0.1 million at December 31, 2023 and 2022.

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 credit 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.

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The following tables summarize the amortized cost of loans by year of origination and internally assigned credit grades:

(in thousands)	Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial loans
Risk rating
Pass	$	24,338	$	42,967	$	21,614	$	12,174	$	5,686	$	6,539	$	86,459	$	199,777
Special Mention		10		1,955		2,739		510		268		1,867		11,705		19,054
Substandard		-		2		3		460		-		838		2,955		4,258
Doubtful/Loss		-		-		-		-		-		-		-		-
Total	$	24,348	$	44,924	$	24,356	$	13,144	$	5,954	$	9,244	$	101,119	$	223,089
Current period gross writeoffs	$	-	$	-	$	-	$	-	$	4	$	3	$	-	$	7
Commercial real estate mortgages
Risk rating
Pass	$	132,525	$	194,197	$	169,943	$	95,264	$	66,243	$	263,628	$	-	$	921,800
Special Mention		-		6,634		397		861		9,988		8,094		-		25,974
Substandard		-		-		11,737		-		6,733		3,617		-		22,087
Doubtful/Loss		-		-		-		-		-		-		-		-
Total	$	132,525	$	200,831	$	182,077	$	96,125	$	82,964	$	275,339	$	-	$	969,861
Current period gross writeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Consumer and other
Payment performance
Performing	$	597	$	176	$	27	$	12	$	13	$	20	$	144	$	989
Nonperforming		-		-		-		-		-		-		-		-
Total	$	597	$	176	$	27	$	12	$	13	$	20	$	144	$	989
Current period gross writeoffs	$	145	$	18	$	1	$	-	$	-	$	1	$	-	$	165
Residential mortgages
Payment performance
Performing	$	37,536	$	72,624	$	100,308	$	69,454	$	17,829	$	144,499	$	-	$	442,250
Nonperforming		156		270		576		351		204		3,044		-		4,601
Total	$	37,692	$	72,894	$	100,884	$	69,805	$	18,033	$	147,543	$	-	$	446,851
Current period gross writeoffs	$	-	$	-	$	-	$	1	$	-	$	-	$	-	$	1
Home equities
Payment performance
Performing	$	7,833	$	2,768	$	590	$	588	$	571	$	2,126	$	65,165	$	79,641
Nonperforming		-		-		-		-		-		1		514		515
Total	$	7,833	$	2,768	$	590	$	588	$	571	$	2,127	$	65,679	$	80,156
Current period gross writeoffs	$	-	$	-	$	-	$	-	$	-	$	25	$	-	$	25

The amortized cost of criticized assets of $72 million included $19 million of loans in the Company’s hotel loan portfolio at December 31, 2023. At December 31, 2022 the amortized cost of criticized assets was $93 million including $29 million of loans in the Company’s hotel loan portfolio. The following table provides data as of December 31, 2022, at the class level, of credit quality of certain loans, to be comparative to prior year’s disclosures on the Company’s Annual Report on Form 10K.

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	$	77,378	$	567,112	$	644,490	$	177,278
Watch		22,639		168,626		191,265		40,603
Special Mention		4,979		17,965		22,944		25,316
Substandard		12,407		25,011		37,418		6,872
Doubtful/Loss		-		-		-		-
Total	$	117,403	$	778,714	$	896,117	$	250,069

The following tables provide an analysis of the age of the amortized cost of loans that are past due and nonaccrual as of the dates indicated:

2023
(in thousands)
		Current							Non-accruing		Total
		Balance	30-59 days		60-89 days		90+ days		Loans		Balance
Commercial and industrial	$	220,602	$	518	$	130	$	-	$	1,839	$	223,089
Residential real estate:
Residential		437,471		1,173		341		-		4,602		443,587
Construction		3,264		-		-		-		-		3,264
Commercial real estate:
Commercial		831,375		4,360		-		134		19,000		854,869
Construction		110,727		2,326		671		-		1,268		114,992
Home equities		77,080		1,906		655		-		515		80,156
Consumer and other		959		27		3		-		-		989
Total Loans	$	1,681,478	$	10,310	$	1,800	$	134	$	27,224	$	1,720,946

2022
(in thousands)
		Current							Non-accruing		Total
		Balance	30-59 days		60-89 days		90+ days		Loans		Balance
Commercial and industrial	$	246,412	$	235	$	684	$	139	$	2,625	$	250,095
Residential real estate:
Residential		434,393		1,105		-		472		3,738		439,708
Construction		3,502		-		-		-		-		502
Commercial real estate:										-
Commercial		771,871		1,083		-		75		6,648		779,677
Construction		107,369		-		-		1,648		8,765		117,782
Home equities		79,320		759		206		100		563		80,948
Consumer and other		652		3		1		1		-		657
Total Loans	$	1,643,519	$	3,185	$	891	$	2,435	$	22,339	$	1,672,369

Allowance for Credit Losses

Effective January 1, 2023 the Company adopted ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which requires an allowance for credit losses be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset. In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company utilizes discounted cash flow models considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount to project principal balances over the remaining contractual lives of the loan portfolios and to determine estimated credit losses through a reasonable and supportable forecast period. The models have been statistically developed based on historical correlations of credit losses with prevailing economic metrics, including unemployment and gross domestic product. The Company utilizes a reasonable and supportable forecast period of one year. Subsequent to this forecast

period the Company reverts, on a straight-line basis over a one-year period, to historical loss experience to inform its estimate of losses for the remaining contractual life of each portfolio. Model forecasts may be adjusted for inherent limitations of biases that have been identified through independent validation and back-testing of model performance to actual realized results. The Company also considered the impact of qualitative factors, including portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, geopolitical conditions and other risk factors that might influence its loss estimation process.

The Company also estimates losses attributable to specific troubled credits identified through both normal and targeted credit review processes and includes all loans on nonaccrual status. The amounts of individually analyzed losses are determined through a loan-by-loan analysis. Such loss estimates are typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. To the extent that those loans are collateral-dependent, they are evaluated based on recent estimations of the fair value of the loan’s collateral. In those cases where current appraisals may not yet be available, prior appraisals are utilized with adjustments, as deemed necessary, for estimates of subsequent declines in values as determined by line of business and/or loan workout personnel. Those adjustments are reviewed and assessed for reasonableness by the Company’s credit risk personnel. Accordingly, for real estate collateral securing larger nonaccrual commercial loans and commercial real estate loans, estimated collateral values are based on current appraisals and estimates of value. For non-real estate loans, collateral is assigned a discounted estimated liquidation value and, depending on the nature of the collateral, is verified through field exams or other procedures. In assessing collateral, real estate and non-real estate values are reduced by an estimate of selling costs. Charge-offs are based on recent indications of value from external parties that are generally obtained shortly after a loan becomes nonaccrual. Loans to consumers that file for bankruptcy are generally charged-off to estimated net collateral value shortly after the Company is notified of such filings. When evaluating individual home equity loans and lines of credit for charge off and for purposes of estimating losses in determining the allowance for credit losses, the Company considers the required repayment of any first lien positions related to collateral property.

Prior to 2023, the allowance for credit losses represented the amount that in management’s judgement reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date. A description of the methodologies used by the Company to estimate its allowance for credit losses prior to January 1, 2023 is included in Note 4 of Notes to Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The following tables present the activity in the allowance for credit losses according to portfolio segment for the periods ended December 31, 2023 and 2022.

2023
(in thousands)	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for credit losses:
Beginning balance	$	4,980	$	11,595	$	153	$	2,102	$	608	$	19,438
Adoption of new accounting
standard		324		1,145		(147)		1,618		(205)		2,735
Beginning balance after
cumulative effect adjustment	$	5,304	$	12,740	$	6	$	3,720	$	403	$	22,173
Charge-offs		(7)		-		(165)		(1)		(25)		(198)
Recoveries		83		-		26		7		5		121
Provision (Credit)		(139)		(192)		141		157		51		18
Ending balance	$	5,241	$	12,548	$	8	$	3,883	$	434	$	22,114
Allowance for credit
losses:
Ending balance:
Individually evaluated
for impairment		36		719		-		-		-		755
Collectively evaluated
for impairment		5,205		11,829		8		3,883		434		21,359
Total	$	5,241	$	12,548	$	8	$	3,883	$	434	$	22,114
Loans:
Ending balance:
Individually evaluated
for impairment		1,869		23,044		-		5,146		761		30,820
Collectively evaluated
for impairment		221,231		946,144		1,066		441,897		80,651		1,690,989
Total	$	223,100	$	969,188	$	1,066	$	447,043	$	81,412	$	1,721,809

2022
(in thousands)	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for credit
losses:
Beginning balance	$	3,309	$	12,367	$	54	$	2,127	$	581	$	18,438
Charge-offs		(1,546)		-		(170)		(125)		(30)		(1,871)
Recoveries		114		-		18		-		-		132
Provision (Credit)		3,103		(772)		251		100		57		2,739
Ending balance	$	4,980	$	11,595	$	153	$	2,102	$	608	$	19,438
Allowance for credit
losses:
Ending balance:
Loans acquired with
deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-
Individually evaluated
for impairment	$	-		251		-		28		77		356
Collectively evaluated
for impairment		4,980		11,344		153		2,074		531		19,082
Total	$	4,980	$	11,595	$	153	$	2,102	$	608	$	19,438
Loans:
Ending balance:
Loans acquired with
deteriorated credit quality	$	-	$	-	$	-	$	687	$	-	$	687
Individually evaluated
for impairment	$	2,697		18,144		-		4,020		949		25,810
Collectively evaluated
for impairment		247,372		877,973		572		439,042		81,465		1,646,424
Total	$	250,069	$	896,117	$	572	$	443,749	$	82,414	$	1,672,921

* includes construction loans

The Company’s reserve for off-balance sheet credit exposures was not material at December 31, 2023 and upon adoption of ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.

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Nonaccrual Loans

The following tables provide amortized costs, at the class level, for nonaccrual loans as of the dates indicated:

									Year Ended
	December 31, 2023						January 1, 2023		December 31, 2023
	Amortized Cost with Allowance		Amortized Cost without Allowance		Total		Amortized Cost		Interest Income Recognized
	(in thousands)
Commercial and industrial	$	73	$	1,766	$	1,839	$	2,625	$	17
Residential real estate:
Residential		-		4,602		4,602		3,738		49
Construction		-		-		-		-		-
Commercial real estate:
Commercial		6,568		12,432		19,000		6,648		219
Construction		1,268		-		1,268		8,765		-
Home equities		-		515		515		563		11
Consumer and other		-		-		-		-		-
Total nonaccrual loans	$	7,909	$	19,315	$	27,224	$	22,339	$	296

									Year Ended
	December 31, 2022						January 1, 2022			December 31, 2022
	Amortized Cost with Allowance		Amortized Cost without Allowance		Total		Amortized Cost		Interest Income Recognized
	(in thousands)
Commercial and industrial	$	-	$	2,625	$	2,625	$	4,919	$		82
Residential real estate:
Residential		57		3,681		3,738		3,020			57
Construction		-		-		-		-			-
Commercial real estate:
Commercial		-		6,648		6,648		5,758			288
Construction		1,340		7,425		8,765		2,942			282
Home equities		134		429		563		755			26
Consumer and other		-		-		-		-			-
Total nonaccrual loans	$	1,531	$	20,808	$	22,339	$	17,394	$		735

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.

	(in thousands)	Term Extension		Total Class of Receivable
Commercial and industrial		$	451	0.20	%
Residential real estate:
Residential			686	0.15
Construction			-	-
Commercial real estate:
Commercial			6,817	0.70
Construction			-	-
Home equities			-	-
Consumer and other			-	-	-
Total nonaccrual loans		$	7,954	0.46	%

The financial impacts of the commercial and industrial modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2023 was a maturity extension of six months. Residential mortgage loan modifications made to borrowers experiencing financial difficulty during that same period were maturity extensions ranging from six months to 164 months. Commercial real estate loan modifications made to borrowers experiencing financial difficulty, included in the table above, were maturity extensions ranging from six months and seven months. In addition, a payment modification was made to a commercial real estate borrower experiencing financial difficulty to restructure the payment schedule without extending the term of the loan. The amortized cost of this loan, not included in the table above, was $5.2 million at December 31, 2023.

The company has not committed to lend any additional amounts to the borrowers included in the previous table.

As of December 31, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during 2023 that subsequently defaulted. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

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 twelve months ended December 31, 2022, the Company modified two loans that were determined to be troubled debt restructurings, a home equity loan with an outstanding balance of $38 thousand that included extension of maturity and interest rate reduction concessions and a commercial and industrial loan with an outstanding balance of $461 thousand that included an extension of maturity.