| Loans | 4 - LOANS The following table sets forth the loans outstanding by class of loans at the dates indicated. (in thousands) March 31, 2022 December 31, 2021 Commercial and industrial $ 103,870 $ 90,386 SBA PPP 12,377 30,534 Commercial mortgages: Multifamily 942,880 864,207 Other 734,259 700,872 Owner-occupied 193,407 171,533 Residential mortgages: Closed end 1,191,691 1,202,374 Revolving home equity 45,820 44,139 Consumer and other 2,021 991 $ 3,226,325 $ 3,105,036 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 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 loss data available, management selected the vintage approach to measure the historical loss component of credit losses for most of its loan pools. For the revolving home equity and small business credit scored pools, the PD/LGD (probability of default/loss given default) method is used to measure historical losses. No historical loss method was applied to the SBA PPP loan pool which 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 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, gross domestic product (“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. Growth in commercial mortgages and commercial and industrial loans was the main driver of the provision recorded in the first quarter of 2022, partially offset by declines in historical loss rates, improvements in economic conditions and other portfolio metrics. The following tables present the activity in the ACL for the periods indicated. (in thousands) Balance at 1/1/2022 Chargeoffs Recoveries Provision (Credit) for Credit Losses Balance at 3/31/22 Commercial and industrial $ 888 $ 4 $ 27 $ 131 $ 1,042 SBA PPP 46 — — ( 27 ) 19 Commercial mortgages: Multifamily 8,154 — — 230 8,384 Other 6,478 — — 237 6,715 Owner-occupied 2,515 — — 207 2,722 Residential mortgages: Closed end 11,298 — — ( 282 ) 11,016 Revolving home equity 449 — — ( 73 ) 376 Consumer and other 3 — — 10 13 $ 29,831 $ 4 $ 27 $ 433 $ 30,287 (in thousands) Balance at 1/1/2021 Chargeoffs Recoveries Provision (Credit) for Credit Losses Balance at 3/31/21 Commercial and industrial $ 1,416 $ 135 $ 12 $ ( 150 ) $ 1,143 SBA PPP 209 — — 60 269 Commercial mortgages: Multifamily 9,474 250 — ( 150 ) 9,074 Other 4,913 — — 54 4,967 Owner-occupied 1,905 165 91 80 1,911 Residential mortgages: Closed end 14,706 — — ( 1,070 ) 13,636 Revolving home equity 407 — — 192 599 Consumer and other 7 — — ( 2 ) 5 $ 33,037 $ 550 $ 103 $ ( 986 ) $ 31,604 Aging of Loans . The following tables present the aging of loans past due and loans on nonaccrual status by class of loans. March 31, 2022 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 Loans Commercial and industrial $ 3 $ — $ — $ — $ — $ 3 $ 103,867 $ 103,870 SBA PPP 209 — — — — 209 12,168 12,377 Commercial mortgages: Multifamily — — — — — — 942,880 942,880 Other — — — — — — 734,259 734,259 Owner-occupied — — — — — — 193,407 193,407 Residential mortgages: Closed end 899 — — — 1,235 2,134 1,189,557 1,191,691 Revolving home equity — 2 — — — 2 45,818 45,820 Consumer and other — — — — — — 2,021 2,021 $ 1,111 $ 2 $ — $ — $ 1,235 $ 2,348 $ 3,223,977 $ 3,226,325 December 31, 2021 Commercial and industrial $ 128 $ — $ — $ — $ — $ 128 $ 90,258 $ 90,386 SBA PPP 259 — — — — 259 30,275 30,534 Commercial mortgages: Multifamily — — — — — — 864,207 864,207 Other — — — — — — 700,872 700,872 Owner-occupied — — — — — — 171,533 171,533 Residential mortgages: Closed end — — — — 1,235 1,235 1,201,139 1,202,374 Revolving home equity — — — — — — 44,139 44,139 Consumer and other 73 — — — — 73 918 991 $ 460 $ — $ — $ — $ 1,235 $ 1,695 $ 3,103,341 $ 3,105,036 There were no loans in the process of foreclosure no r did the Bank hold any foreclosed residential real estate property at March 31, 2022 or December 31, 2021. Accrued interest receivable from loans totaled $ 8.6 million and $ 8.0 million at March 31, 2022 and December 31, 2021, 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 no t modify any loans in a TDR during the first three months of 2022 or 2021. At March 31, 2022 and December 31, 2021, 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 March 31, 2022 and 2021 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. The Bank reviews at least 80 % of its commercial real estate portfolio on an annual basis. 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 table presents the amortized cost basis of loans by class of loans, vintage and risk rating. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful. March 31, 2022 Term Loans by Origination Year Revolving (in thousands) 2022 2021 2020 2019 2018 Prior Loans (1) Total Commercial and industrial: Pass $ 7,746 $ 36,360 $ 17,281 $ 7,339 $ 12,620 $ 4,529 $ 17,731 $ 103,606 Watch — — 264 — — — — 264 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — $ 7,746 $ 36,360 $ 17,545 $ 7,339 $ 12,620 $ 4,529 $ 17,731 $ 103,870 SBA PPP: Pass $ — $ 12,165 $ 212 $ — $ — $ — $ — $ 12,377 Watch — — — — — — — — Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — $ — $ 12,165 $ 212 $ — $ — $ — $ — $ 12,377 Commercial mortgages – multifamily: Pass $ 116,834 $ 183,343 $ 40,310 $ 143,804 $ 143,884 $ 305,607 $ 307 $ 934,089 Watch — — — — 2,389 — — 2,389 Special Mention — — — — — — — — Substandard — — — — — 6,402 — 6,402 Doubtful — — — — — — — — $ 116,834 $ 183,343 $ 40,310 $ 143,804 $ 146,273 $ 312,009 $ 307 $ 942,880 Commercial mortgages – other: Pass $ 60,606 $ 231,887 $ 116,826 $ 38,371 $ 45,999 $ 232,584 $ 72 $ 726,345 Watch — — — — 947 1,170 — 2,117 Special Mention — — — — — — — — Substandard — — — — — 5,797 — 5,797 Doubtful — — — — — — — — $ 60,606 $ 231,887 $ 116,826 $ 38,371 $ 46,946 $ 239,551 $ 72 $ 734,259 Commercial mortgages – owner-occupied: Pass $ 20,699 $ 63,248 $ 23,710 $ 42,385 $ 2,928 $ 40,095 $ 342 $ 193,407 Watch — — — — — — — — Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — $ 20,699 $ 63,248 $ 23,710 $ 42,385 $ 2,928 $ 40,095 $ 342 $ 193,407 Residential mortgages: Pass $ 54,443 $ 177,591 $ 38,212 $ 17,584 $ 196,498 $ 705,005 $ 45,820 $ 1,235,153 Watch — — — — — 483 — 483 Special Mention — — — — — — — — Substandard — — — — 917 958 — 1,875 Doubtful — — — — — — — — $ 54,443 $ 177,591 $ 38,212 $ 17,584 $ 197,415 $ 706,446 $ 45,820 $ 1,237,511 Consumer and other: Pass $ 375 $ — $ — $ 108 $ — $ 136 $ 467 $ 1,086 Watch — — — — — — — — Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Not Rated — — — — — — 935 935 $ 375 $ — $ — $ 108 $ — $ 136 $ 1,402 $ 2,021 Total Loans $ 260,703 $ 704,594 $ 236,815 $ 249,591 $ 406,182 $ 1,302,766 $ 65,674 $ 3,226,325 (1) Includes commercial and industrial and residential mortgage lines converted to term of $ 5.9 million and $ 8.8 million, respectively. |
