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. September 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 $ 73 $ 105,353 $ 105,426 $ 36 $ 1,333 $ 1,369 Commercial mortgages: Multifamily — 798,289 798,289 — 6,819 6,819 Other — 435,105 435,105 — 3,389 3,389 Owner-occupied 506 118,018 118,524 — 1,058 1,058 Residential mortgages: Closed end 1,368 1,673,171 1,674,539 14 16,687 16,701 Revolving home equity — 62,875 62,875 — 506 506 Consumer and other 278 2,098 2,376 — 14 14 $ 2,225 $ 3,194,909 $ 3,197,134 $ 50 $ 29,806 $ 29,856 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 9/30/19 Commercial and industrial $ 1,158 $ 492 $ 18 $ 685 $ 1,369 Commercial mortgages: Multifamily 5,851 — — 968 6,819 Other 3,783 — — ( 394 ) 3,389 Owner-occupied 743 — — 315 1,058 Residential mortgages: Closed end 18,844 433 1 ( 1,711 ) 16,701 Revolving home equity 410 358 — 454 506 Consumer and other 49 1 4 ( 38 ) 14 $ 30,838 $ 1,284 $ 23 $ 279 $ 29,856 Balance at 7/1/19 Chargeoffs Recoveries Provision for Loan Losses (Credit) Balance at 9/30/19 Commercial and industrial $ 1,201 $ 127 $ 10 $ 285 $ 1,369 Commercial mortgages: Multifamily 6,730 — — 89 6,819 Other 3,440 — — ( 51 ) 3,389 Owner-occupied 828 — — 230 1,058 Residential mortgages: Closed end 17,148 — — ( 447 ) 16,701 Revolving home equity 397 109 — 218 506 Consumer and other 24 1 1 ( 10 ) 14 $ 29,768 $ 237 $ 11 $ 314 $ 29,856 (in thousands) Balance at 1/1/18 Chargeoffs Recoveries Provision for Loan Losses (Credit) Balance at 9/30/18 Commercial and industrial $ 1,441 $ 482 $ 6 $ 187 $ 1,152 Commercial mortgages: Multifamily 6,423 — — 74 6,497 Other 4,734 — — ( 538 ) 4,196 Owner-occupied 1,076 — — ( 250 ) 826 Residential mortgages: Closed end 19,347 413 101 1,276 20,311 Revolving home equity 689 138 150 ( 194 ) 507 Consumer and other 74 4 — ( 8 ) 62 $ 33,784 $ 1,037 $ 257 $ 547 $ 33,551 Balance at 7/1/18 Chargeoffs Recoveries Provision for Loan Losses (Credit) Balance at 9/30/18 Commercial and industrial $ 1,298 $ 178 $ — $ 32 $ 1,152 Commercial mortgages: Multifamily 7,048 — — ( 551 ) 6,497 Other 4,768 — — ( 572 ) 4,196 Owner-occupied 911 — — ( 85 ) 826 Residential mortgages: Closed end 20,953 393 1 ( 250 ) 20,311 Revolving home equity 775 89 150 ( 329 ) 507 Consumer and other 79 4 — ( 13 ) 62 $ 35,832 $ 664 $ 151 $ ( 1,768 ) $ 33,551 For individually impaired loans, the following tables set forth by class of loans at September 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 nine and three months ended September 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. Nine Months Ended Three Months Ended September 30, 2019 September 30, 2019 September 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 $ 2 $ 2 $ — $ 11 $ 1 $ 5 $ — Commercial mortgages - owner-occupied 506 589 — 513 23 508 8 Residential mortgages - closed end 1,216 1,236 — 1,241 4 1,223 2 Consumer and other 278 278 — 295 — 282 — With an allowance recorded: Commercial and industrial 71 71 36 72 — 74 — Residential mortgages - closed end 152 152 14 153 5 153 1 Total: Commercial and industrial 73 73 36 83 1 79 — Commercial mortgages - owner-occupied 506 589 — 513 23 508 8 Residential mortgages - closed end 1,368 1,388 14 1,394 9 1,376 3 Consumer and other 278 278 — 295 — 282 — $ 2,225 $ 2,328 $ 50 $ 2,285 $ 33 $ 2,245 $ 11 Nine Months Ended Three Months Ended December 31, 2018 September 30, 2018 September 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 $ — $ 82 $ 2 $ 55 $ — Commercial mortgages: Other — — — 2,800 — 2,777 — Owner-occupied 520 604 — 534 18 523 6 Residential mortgages: Closed end 1,561 1,573 — 751 4 718 1 Revolving home equity 743 747 — 757 — 756 — Consumer and other 324 324 — 266 12 336 6 With an allowance recorded: Residential mortgages - closed end 253 253 16 270 9 259 3 Total: Commercial and industrial 22 22 — 82 2 55 — Commercial mortgages: Other — — — 2,800 — 2,777 — Owner-occupied 520 604 — 534 18 523 6 Residential mortgages: Closed end 1,814 1,826 16 1,021 13 977 4 Revolving home equity 743 747 — 757 — 756 — Consumer and other 324 324 — 266 12 336 6 $ 3,423 $ 3,523 $ 16 $ 5,460 $ 45 $ 5,424 $ 16 Aging of Loans . The following tables present the aging of the recorded investment in loans by class of loans. September 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 $ 1 $ 207 $ — $ 71 $ 279 $ 105,147 $ 105,426 Commercial mortgages: Multifamily — — — — — 798,289 798,289 Other — — — — — 435,105 435,105 Owner-occupied — — — — — 118,524 118,524 Residential mortgages: Closed end 367 — — 1,061 1,428 1,673,111 1,674,539 Revolving home equity — — — — — 62,875 62,875 Consumer and other 2 — — — 2 2,374 2,376 $ 370 $ 207 $ — $ 1,132 $ 1,709 $ 3,195,425 $ 3,197,134 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 no r did the Bank hold any foreclosed residential real estate property at September 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 no t modify any loans in troubled debt restructurings during the first nine months of 2019. During the nine months ended September 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 September 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 nine months ended September 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. 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. September 30, 2019 Internally Assigned Risk Rating Special (in thousands) Pass Watch Mention Substandard Doubtful Total Commercial and industrial $ 104,531 $ — $ 500 $ 395 $ — $ 105,426 Commercial mortgages: Multifamily 795,953 — 2,336 — — 798,289 Other 435,105 — — — — 435,105 Owner-occupied 113,458 1,053 3,507 506 — 118,524 $ 1,449,047 $ 1,053 $ 6,343 $ 901 $ — $ 1,457,344 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. September 30, 2019 Internally Assigned Risk Rating Special (in thousands) Pass Watch Mention Substandard Doubtful Total Residential mortgages: Closed end $ 1,671,967 $ 308 $ 896 $ 1,368 $ — $ 1,674,539 Revolving home equity 62,220 416 239 — — 62,875 Consumer and other 1,091 — — 278 — 1,369 $ 1,735,278 $ 724 $ 1,135 $ 1,646 $ — $ 1,738,783 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 $ 1,007,000 and $ 676,000 at September 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. |