Loans | 5 - LOANS The following tables set forth by class of loans the amount of loans individually and collectively evaluated for impairment and the portion of the allowance for loan losses allocable to such loans. June 30, 2019 Loans Allowance for Loan Losses (in thousands) Individually Evaluated for Impairment Collectively Evaluated for Impairment Ending Balance Individually Evaluated for Impairment Collectively Evaluated for Impairment Ending Balance Commercial and industrial $ 133 $ 108,021 $ 108,154 $ 62 $ 1,139 $ 1,201 Commercial mortgages: Multifamily — 780,563 780,563 — 6,730 6,730 Other — 424,416 424,416 — 3,440 3,440 Owner-occupied 510 106,148 106,658 — 828 828 Residential mortgages: Closed end 1,834 1,730,467 1,732,301 15 17,133 17,148 Revolving home equity 1,084 64,934 66,018 — 397 397 Consumer and other 287 3,190 3,477 — 24 24 $ 3,848 $ 3,217,739 $ 3,221,587 $ 77 $ 29,691 $ 29,768 December 31, 2018 Commercial and industrial $ 22 $ 98,763 $ 98,785 $ — $ 1,158 $ 1,158 Commercial mortgages: Multifamily — 756,714 756,714 — 5,851 5,851 Other — 433,330 433,330 — 3,783 3,783 Owner-occupied 520 90,731 91,251 — 743 743 Residential mortgages: Closed end 1,814 1,807,837 1,809,651 16 18,828 18,844 Revolving home equity 743 66,967 67,710 — 410 410 Consumer and other 324 5,634 5,958 — 49 49 $ 3,423 $ 3,259,976 $ 3,263,399 $ 16 $ 30,822 $ 30,838 The following tables present the activity in the allowance for loan losses for the periods indicated. (in thousands) Balance at 1/1/19 Chargeoffs Recoveries Provision for Loan Losses (Credit) Balance at 6/30/19 Commercial and industrial $ 1,158 $ 365 $ 8 $ 400 $ 1,201 Commercial mortgages: Multifamily 5,851 — — 879 6,730 Other 3,783 — — ( 343 ) 3,440 Owner-occupied 743 — — 85 828 Residential mortgages: Closed end 18,844 433 1 ( 1,264 ) 17,148 Revolving home equity 410 249 — 236 397 Consumer and other 49 — 3 ( 28 ) 24 $ 30,838 $ 1,047 $ 12 $ ( 35 ) $ 29,768 Balance at 4/1/19 Chargeoffs Recoveries Provision for Loan Losses (Credit) Balance at 6/30/19 Commercial and industrial $ 1,047 $ 311 $ 4 $ 461 $ 1,201 Commercial mortgages: Multifamily 6,435 — — 295 6,730 Other 3,517 — — ( 77 ) 3,440 Owner-occupied 685 — — 143 828 Residential mortgages: Closed end 18,071 299 — ( 624 ) 17,148 Revolving home equity 402 249 — 244 397 Consumer and other 42 — 2 ( 20 ) 24 $ 30,199 $ 859 $ 6 $ 422 $ 29,768 (in thousands) Balance at 1/1/18 Chargeoffs Recoveries Provision for Loan Losses (Credit) Balance at 6/30/18 Commercial and industrial $ 1,441 $ 304 $ 6 $ 155 $ 1,298 Commercial mortgages: Multifamily 6,423 — — 625 7,048 Other 4,734 — — 34 4,768 Owner-occupied 1,076 — — ( 165 ) 911 Residential mortgages: Closed end 19,347 20 100 1,526 20,953 Revolving home equity 689 49 — 135 775 Consumer and other 74 — — 5 79 $ 33,784 $ 373 $ 106 $ 2,315 $ 35,832 Balance at 4/1/18 Chargeoffs Recoveries Provision for Loan Losses (Credit) Balance at 6/30/18 Commercial and industrial $ 1,264 $ 230 $ 6 $ 258 $ 1,298 Commercial mortgages: Multifamily 6,769 — — 279 7,048 Other 4,780 — — ( 12 ) 4,768 Owner-occupied 918 — — ( 7 ) 911 Residential mortgages: Closed end 20,666 — 99 188 20,953 Revolving home equity 682 — — 93 775 Consumer and other 75 — — 4 79 $ 35,154 $ 230 $ 105 $ 803 $ 35,832 For individually impaired loans, the following tables set forth by class of loans at June 30, 2019 and December 31, 2018 the recorded investment, unpaid principal balance and related allowance. The tables also set forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the six and three months ended June 30, 2019 and 2018. The recorded investment is the unpaid principal balance of the loans less any interest payments applied to principal and any direct chargeoffs plus or minus net deferred loan costs and fees. Any principal and interest payments received on nonaccrual impaired loans are applied to the recorded investment in the loans. The Bank recognizes interest income on other impaired loans using the accrual method of accounting. Six Months Ended Three Months Ended June 30, 2019 June 30, 2019 June 30, 2019 Unpaid Average Interest Average Interest Recorded Principal Related Recorded Income Recorded Income (in thousands) Investment Balance Allowance Investment Recognized Investment Recognized With no related allowance recorded: Commercial and industrial $ 9 $ 9 $ — $ 14 $ 1 $ 11 $ 1 Commercial mortgages - owner-occupied 510 594 — 515 15 512 7 Residential mortgages: Closed end 1,681 1,707 — 1,705 2 1,690 1 Revolving home equity 1,084 1,113 — 1,101 — 1,089 — Consumer and other 287 287 — 301 — 290 — With an allowance recorded: Commercial and industrial 124 124 62 131 — 127 — Residential mortgages - closed end 153 153 15 154 4 153 2 Total: Commercial and industrial 133 133 62 145 1 138 1 Commercial mortgages - owner-occupied 510 594 — 515 15 512 7 Residential mortgages: Closed end 1,834 1,860 15 1,859 6 1,843 3 Revolving home equity 1,084 1,113 — 1,101 — 1,089 — Consumer and other 287 287 — 301 — 290 — $ 3,848 $ 3,987 $ 77 $ 3,921 $ 22 $ 3,872 $ 11 Six Months Ended Three Months Ended December 31, 2018 June 30, 2018 June 30, 2018 Unpaid Average Interest Average Interest Recorded Principal Related Recorded Income Recorded Income (in thousands) Investment Balance Allowance Investment Recognized Investment Recognized With no related allowance recorded: Commercial and industrial $ 22 $ 22 $ — $ 68 $ 2 $ 37 $ 1 Commercial mortgages - owner-occupied 520 604 — 539 12 526 6 Residential mortgages: Closed end 1,561 1,573 — 1,929 3 1,894 2 Revolving home equity 743 747 — — — — — Consumer and other 324 324 — 231 6 344 5 With an allowance recorded: Residential mortgages - closed end 253 253 16 276 6 264 3 Total: Commercial and industrial 22 22 — 68 2 37 1 Commercial mortgages - owner-occupied 520 604 — 539 12 526 6 Residential mortgages: Closed end 1,814 1,826 16 2,205 9 2,158 5 Revolving home equity 743 747 — — — — — Consumer and other 324 324 — 231 6 344 5 $ 3,423 $ 3,523 $ 16 $ 3,043 $ 29 $ 3,065 $ 17 Aging of Loans . The following tables present the aging of the recorded investment in loans by class of loans. June 30, 2019 Past Due Total Past 90 Days or Due Loans & 30-59 Days 60-89 Days More and Nonaccrual Nonaccrual Total (in thousands) Past Due Past Due Still Accruing Loans Loans Current Loans Commercial and industrial $ — $ — $ — $ 124 $ 124 $ 108,030 $ 108,154 Commercial mortgages: Multifamily — — — — — 780,563 780,563 Other — — — — — 424,416 424,416 Owner-occupied — — — — — 106,658 106,658 Residential mortgages: Closed end — — — 1,521 1,521 1,730,780 1,732,301 Revolving home equity 122 — — 1,084 1,206 64,812 66,018 Consumer and other — — — — — 3,477 3,477 $ 122 $ — $ — $ 2,729 $ 2,851 $ 3,218,736 $ 3,221,587 December 31, 2018 Commercial and industrial $ — $ 43 $ — $ — $ 43 $ 98,742 $ 98,785 Commercial mortgages: Multifamily — — — — — 756,714 756,714 Other — — — — — 433,330 433,330 Owner-occupied — — — — — 91,251 91,251 Residential mortgages: Closed end 864 — — 1,392 2,256 1,807,395 1,809,651 Revolving home equity — — — 743 743 66,967 67,710 Consumer and other 2 — — — 2 5,956 5,958 $ 866 $ 43 $ — $ 2,135 $ 3,044 $ 3,260,355 $ 3,263,399 There were no loans in the process of foreclosure nor did the Bank hold any foreclosed residential real estate property at June 30, 2019 or December 31, 2018. 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 six months of 2019. During the six months ended June 30, 2018, the Bank modified two consumer loans to a single borrower into one loan in a troubled debt restructuring amounting to $ 350,000 . The term of the restructured loan was extended for 12 months and the post-modification interest rate was lower than the current market rate for new debt with similar risk . At June 30, 2019 and December 31, 2018, the Bank had an allowance for loan losses of $ 15,000 and $ 16,000 , respectively, 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 six months ended June 30, 2019 and 2018 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 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 (See “Item 1A. Risk Factors” in Part II of this Form 10-Q for information regarding recent legislation in New York State (“NYS”)). These sources of repayment are dependent on, among other things, the strength of the local economy. Credit Quality Indicators. The Corporation 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. Commercial and industrial loans and commercial mortgage loans are risk rated utilizing a ten point rating system. The ten point risk rating system is described hereinafter. Internally Assigned Risk Rating 1 – 2 Cash flow is of high quality and stable. Borrower has very good liquidity and ready access to traditional sources of credit. This category also includes loans to borrowers secured by cash and/or marketable securities within approved margin requirements. 3 – 4 Cash flow quality is strong, but shows some variability. Borrower has good liquidity and asset quality. Borrower has access to traditional sources of credit with minimal restrictions. 5 – 6 Cash flow quality is acceptable but shows some variability. Liquidity varies with operating cycle and assets provide an adequate margin of protection. Borrower has access to traditional sources of credit, but generally on a secured basis. 7 Watch - 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. 8 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. 9 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. 10 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 the Bank’s ongoing assessments of the borrower’s condition. Residential mortgage loans, revolving home equity lines and other consumer loans are risk rated utilizing a three point rating system. In most cases, the borrower’s credit score dictates the risk rating. However, regardless of credit score, loans that are on management’s watch list or have been criticized or classified by management are assigned a risk rating of 3. 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. The risk ratings along with their definitions are as follows: Internally Assigned Risk Rating 1 Credit score is equal to or greater than 680. 2 Credit score is 635 to 679. 3 Credit score is below 635 or, regardless of credit score, the loan has been classified, criticized or placed on watch by management. The following tables present the recorded investment in commercial and industrial loans and commercial mortgage loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful. June 30, 2019 Internally Assigned Risk Rating Special (in thousands) Pass Watch Mention Substandard Doubtful Total Commercial and industrial $ 107,068 $ — $ 601 $ 485 $ — $ 108,154 Commercial mortgages: Multifamily 773,758 — 6,805 — — 780,563 Other 424,416 — — — — 424,416 Owner-occupied 101,439 1,066 3,643 510 — 106,658 $ 1,406,681 $ 1,066 $ 11,049 $ 995 $ — $ 1,419,791 December 31, 2018 Commercial and industrial $ 97,684 $ — $ 667 $ 434 $ — $ 98,785 Commercial mortgages: Multifamily 756,714 — — — — 756,714 Other 417,838 14,194 1,298 — — 433,330 Owner-occupied 85,710 1,090 3,911 540 — 91,251 $ 1,357,946 $ 15,284 $ 5,876 $ 974 $ — $ 1,380,080 The following tables present the recorded investment in residential mortgage loans, home equity lines and other consumer loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated by management as Watch, Special Mention, Substandard or Doubtful. June 30, 2019 Internally Assigned Risk Rating Special (in thousands) Pass Watch Mention Substandard Doubtful Total Residential mortgages: Closed end $ 1,730,158 $ 309 $ — $ 1,834 $ — $ 1,732,301 Revolving home equity 64,691 — 243 1,084 — 66,018 Consumer and other 2,799 — — 287 — 3,086 $ 1,797,648 $ 309 $ 243 $ 3,205 $ — $ 1,801,405 December 31, 2018 Residential mortgages: Closed end $ 1,807,525 $ 312 $ — $ 1,814 $ — $ 1,809,651 Revolving home equity 66,718 — 249 743 — 67,710 Consumer and other 4,958 — — 324 — 5,282 $ 1,879,201 $ 312 $ 249 $ 2,881 $ — $ 1,882,643 Deposit account overdrafts were $ 391,000 and $ 676,000 at June 30, 2019 and December 31, 2018, respectively. Overdrafts are not assigned a risk rating and are therefore excluded from consumer loans in the tables above. |