| Loans | 4 - LOANS The following table sets forth the loans outstanding by class of loans at the dates indicated. (in thousands) September 30, 2021 December 31, 2020Commercial and industrial $ 67,379 $ 100,015 SBA PPP 65,505 139,487 Commercial mortgages: Multifamily 771,801 776,976 Other 584,199 513,176 Owner-occupied 150,382 130,919 Residential mortgages: Closed end 1,215,395 1,316,727 Revolving home equity 46,072 54,005 Consumer and other 680 2,149 $ 2,901,413 $ 3,033,454 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 judgements. 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 eleven 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; (10) municipal loans; and (11) Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) 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 allowance for credit losses (“ACL” or “allowance”). 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. Finally, no historical loss method was applied to the SBA PPP loan pool which is a new pool with no loss experience and is 100% guaranteed by the federal government. 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, GDP, vacancies, average growth in pools of loans, delinquencies or other factors associated with the financial assets. The allowance for SBA PPP loans represents an estimate of potential loss due to documentation and processing deficiencies. 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 following risks reflected in the Bank’s Q-factors showed improvement in the third quarter of 2021 and, together with a decline in historical loss rates, were the key drivers in estimating the ACL at September 30, 2021: average growth rates in the residential mortgage and commercial and industrial loan pools,past due and problem loans, andcurrent and forecasted economic conditions. The following tables present the activity in the ACL for the periods indicated. (in thousands) Balance at 1/1/2021 Chargeoffs Recoveries Provision (Credit) for Credit Losses Balance at 9/30/2021Commercial and industrial $ 1,416 $ 227 $ 188 $ (519) $ 858SBA PPP 209 — — (111) 98Commercial mortgages: Multifamily 9,474 544 — (1,103) 7,827Other 4,913 — — 859 5,772Owner-occupied 1,905 165 91 180 2,011Residential mortgages: Closed end 14,706 79 19 (2,205) 12,441Revolving home equity 407 — 254 (156) 505Consumer and other 7 1 1 (3) 4 $ 33,037 $ 1,016 $ 553 $ (3,058) $ 29,516 (in thousands) Balance at 7/1/2021 Chargeoffs Recoveries Provision (Credit) for Credit Losses Balance at 9/30/2021Commercial and industrial $ 1,008 $ — $ 20 $ (170) $ 858SBA PPP 141 — — (43) 98Commercial mortgages: Multifamily 8,613 292 — (494) 7,827Other 5,363 — — 409 5,772Owner-occupied 1,895 — — 116 2,011Residential mortgages: Closed end 13,316 — 16 (891) 12,441Revolving home equity 628 — 254 (377) 505Consumer and other 4 1 — 1 4 $ 30,968 $ 293 $ 290 $ (1,449) $ 29,516 (in thousands) Balance at 1/1/2020 Impact ofASC 326Adoption Chargeoffs Recoveries Provision (Credit) for Credit Losses Balance at 9/30/2020Commercial and industrial $ 1,493 $ (244) $ 1,124 $ 295 $ 995 $ 1,415SBA PPP — — — — 250 250Commercial mortgages: Multifamily 7,151 1,059 298 — 778 8,690Other 3,498 (47) 502 1 993 3,943Owner-occupied 921 778 — — (77) 1,622Residential mortgages: Closed end 15,698 1,356 175 2 (566) 16,315Revolving home equity 515 (6) 33 — 78 554Consumer and other 13 (8) 3 2 (1) 3 $ 29,289 $ 2,888 $ 2,135 $ 300 $ 2,450 $ 32,792 (in thousands) Balance at 7/1/2020 Chargeoffs Recoveries Provision (Credit) for Credit Losses Balance at 9/30/2020Commercial and industrial $ 1,593 $ 309 $ 38 $ 93 $ 1,415SBA PPP 249 — — 1 250Commercial mortgages: Multifamily 8,856 298 — 132 8,690Other 3,860 502 1 584 3,943Owner-occupied 1,622 — — — 1,622Residential mortgages: Closed end 17,384 156 — (913) 16,315Revolving home equity 482 33 — 105 554Consumer and other 5 — — (2) 3 $ 34,051 $ 1,298 $ 39 $ — $ 32,792 Aging of Loans. The following tables present the aging of loans past due and loans on nonaccrual status by class of loans. September 30, 2021 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 LoansCommercial and industrial $ 87 $ — $ — $ — $ — $ 87 $ 67,292 $ 67,379 SBA PPP 379 26 — — — 405 65,100 65,505 Commercial mortgages: Multifamily 951 — — — — 951 770,850 771,801 Other — — — — — — 584,199 584,199 Owner-occupied — — — — — — 150,382 150,382 Residential mortgages: Closed end 130 — — — 1,235 1,365 1,214,030 1,215,395 Revolving home equity — — — — — — 46,072 46,072 Consumer and other 8 — — — — 8 672 680 $ 1,555 $ 26 $ — $ — $ 1,235 $ 2,816 $ 2,898,597 $ 2,901,413 December 31, 2020Commercial and industrial $ 65 $ — $ — $ — $ — $ 65 $ 99,950 $ 100,015 SBA PPP — — — — — — 139,487 139,487 Commercial mortgages: Multifamily — — — — — — 776,976 776,976 Other — — — — — — 513,176 513,176 Owner-occupied — — — — 494 494 130,425 130,919 Residential mortgages: Closed end 1,357 — — — 261 1,618 1,315,109 1,316,727 Revolving home equity — — — — 367 367 53,638 54,005 Consumer and other — — — — — — 2,149 2,149 $ 1,422 $ — $ — $ — $ 1,122 $ 2,544 $ 3,030,910 $ 3,033,454 There were no loans in the process of foreclosure nor did the Bank hold any foreclosed residential real estate property at September 30, 2021 or December 31, 2020. Accrued interest receivable from loans totaled $8.0 million and $9.7 million at September 30, 2021 and December 31, 2020, 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 (“TDR”) 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 a TDR during the first nine months of 2021 or 2020. At September 30, 2021 and December 31, 2020, the Bank had no allowance allocated to TDRs and no commitments to lend additional amounts in connection with loans that were classified as TDRs. There were no TDRs for which there was a payment default during the three months ended September 30, 2021 and 2020 that were modified during the 12-month period prior to default. A loan is 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 including those arising from the pandemic, 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. 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 risk rating matrices consistent with regulatory guidance as follows. 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, based on 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. 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, vintage 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. September 30, 2021 Term Loans by Origination Year Revolving (in thousands) 2021 2020 2019 2018 2017 Prior Loans (1) TotalCommercial and industrial: Pass $ 16,160 $ 12,721 $ 7,332 $ 1,637 $ 3,405 $ 7,364 $ 17,111 $ 65,730 Watch — 249 1,400 — — — — 1,649 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — $ 16,160 $ 12,970 $ 8,732 $ 1,637 $ 3,405 $ 7,364 $ 17,111 $ 67,379 SBA PPP: Pass $ 64,993 $ 512 $ — $ — $ — $ — $ — $ 65,505 Watch — — — — — — — — Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — $ 64,993 $ 512 $ — $ — $ — $ — $ — $ 65,505 Commercial mortgages – multifamily: Pass $ 78,833 $ 40,740 $ 149,303 $ 153,626 $ 137,240 $ 204,319 $ — $ 764,061 Watch — — — — — 1,269 — 1,269 Special Mention — — — — — — — — Substandard — — — — 6,471 — — 6,471 Doubtful — — — — — — — — $ 78,833 $ 40,740 $ 149,303 $ 153,626 $ 143,711 $ 205,588 $ — $ 771,801 Commercial mortgages – other: Pass $ 100,522 $ 116,587 $ 43,777 $ 47,474 $ 45,351 $ 219,239 $ — $ 572,950 Watch — — — — — 5,383 — 5,383 Special Mention — — — — — — — — Substandard — — — — — 5,866 — 5,866 Doubtful — — — — — — — — $ 100,522 $ 116,587 $ 43,777 $ 47,474 $ 45,351 $ 230,488 $ — $ 584,199 Commercial mortgages – owner-occupied: Pass $ 38,943 $ 20,687 $ 36,895 $ 3,100 $ 8,778 $ 35,986 $ — $ 144,389 Watch — — 5,993 — — — — 5,993 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — $ 38,943 $ 20,687 $ 42,888 $ 3,100 $ 8,778 $ 35,986 $ — $ 150,382 Residential mortgages: Pass $ 131,938 $ 40,995 $ 19,122 $ 223,983 $ 284,136 $ 513,030 $ 46,072 $ 1,259,276 Watch — — — — — 291 — 291 Special Mention — — — — — — — — Substandard — — — 922 — 978 — 1,900 Doubtful — — — — — — — — $ 131,938 $ 40,995 $ 19,122 $ 224,905 $ 284,136 $ 514,299 $ 46,072 $ 1,261,467 Consumer and other: Pass $ 78 $ 2 $ 124 $ 12 $ 16 $ 327 $ — $ 559 Watch — — — — — — — — Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Not Rated — — — — — — 121 121 $ 78 $ 2 $ 124 $ 12 $ 16 $ 327 $ 121 $ 680 Total Loans $ 431,467 $ 232,493 $ 263,946 $ 430,754 $ 485,397 $ 994,052 $ 63,304 $ 2,901,413 (1) Includes commercial and industrial and residential mortgage lines converted to term of $5.1 million and $9.5 million, respectively. December 31, 2020 Term Loans by Origination Year Revolving (in thousands) 2020 2019 2018 2017 2016 Prior Loans (1) TotalCommercial and industrial: Pass $ 22,848 $ 8,789 $ 7,542 $ 6,033 $ 5,505 $ 19,086 $ 20,473 $ 90,276 Watch — 1,508 — 4,000 — 1,842 — 7,350 Special Mention 48 — 65 115 — 301 — 529 Substandard 1,298 400 — — — 162 — 1,860 Doubtful — — — — — — — — $ 24,194 $ 10,697 $ 7,607 $ 10,148 $ 5,505 $ 21,391 $ 20,473 $ 100,015 SBA PPP: Pass $ 139,487 $ — $ — $ — $ — $ — $ — $ 139,487 Watch — — — — — — — — Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — $ 139,487 $ — $ — $ — $ — $ — $ — $ 139,487 Commercial mortgages – multifamily: Pass $ 25,719 $ 152,142 $ 160,998 $ 152,648 $ 30,342 $ 242,527 $ — $ 764,376 Watch — — — 3,772 2,267 — — 6,039 Special Mention — — — — — — — — Substandard — — — 6,561 — — — 6,561 Doubtful — — — — — — — — $ 25,719 $ 152,142 $ 160,998 $ 162,981 $ 32,609 $ 242,527 $ — $ 776,976 Commercial mortgages – other: Pass $ 117,602 $ 44,398 $ 49,873 $ 50,547 $ 105,512 $ 137,960 $ — $ 505,892 Watch — — — — — 1,403 — 1,403 Special Mention — — — — — — — — Substandard — — — — — 5,881 — 5,881 Doubtful — — — — — — — — $ 117,602 $ 44,398 $ 49,873 $ 50,547 $ 105,512 $ 145,244 $ — $ 513,176 Commercial mortgages – owner-occupied: Pass $ 11,444 $ 37,406 $ 8,751 $ 9,493 $ 12,388 $ 43,009 $ — $ 122,491 Watch — 6,094 — — — — — 6,094 Special Mention — — — — — — — — Substandard — — — 1,840 — 494 — 2,334 Doubtful — — — — — — — — $ 11,444 $ 43,500 $ 8,751 $ 11,333 $ 12,388 $ 43,503 $ — $ 130,919 Residential mortgages: Pass $ 38,759 $ 21,964 $ 279,329 $ 339,700 $ 253,873 $ 381,842 $ 53,223 $ 1,368,690 Watch — — — — — 298 414 712 Special Mention — — — — — — — — Substandard — — 457 — — 505 368 1,330 Doubtful — — — — — — — — $ 38,759 $ 21,964 $ 279,786 $ 339,700 $ 253,873 $ 382,645 $ 54,005 $ 1,370,732 Consumer and other: Pass $ 106 $ 198 $ 3 $ 25 $ 236 $ 296 $ — $ 864 Watch — — — — — — — — Special Mention — — — — — — — — Substandard — 229 — — — — — 229 Doubtful — — — — — — — — Not Rated — — — — — — 1,056 1,056 $ 106 $ 427 $ 3 $ 25 $ 236 $ 296 $ 1,056 $ 2,149 Total Loans $ 357,311 $ 273,128 $ 507,018 $ 574,734 $ 410,123 $ 835,606 $ 75,534 $ 3,033,454 (1)Includes commercial and industrial and residential mortgage lines converted to term of $2.9 million and $10.5 million, respectively. |
