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Note 5 - Loans and the Allowance for Credit Losses

9 Months Ended

Sep. 30, 2023

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 5. Loans and the Allowance for Credit Losses

Loans Receivable – The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred loan fees, as of September 30, 2023 and December 31, 2022:

	September 30, 2023			December 31, 2022
	(dollars in thousands)
Commercial	$	1,475,571		$	1,472,734
Commercial real estate		5,837,539			5,795,228
Commercial construction		622,748			574,139
Residential real estate		251,416			264,748
Consumer		936			2,312
Gross loans		8,188,210			8,109,161
Net deferred loan fees		(7,101	)		(9,472	)
Total loans receivable	$	8,181,109		$	8,099,689

As of September 30, 2023 and December 31, 2022, loans totaling approximately $5.7 billion and $2.7 billion, respectively, were pledged to secure borrowings from the FHLB of New York and the Federal Reserve Bank of New York.

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale as of September 30, 2023 and December 31, 2022:

	September 30, 2023		December 31, 2022
	(dollars in thousands)
Commercial real estate	$	-	$	13,473
Residential real estate		-		299
Total carrying amount	$	-	$	13,772

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an ACL and nonaccrual loans without an ACL as of September 30, 2023 and December 31, 2022:

	September 30, 2023
	Nonaccrual loans with ACL		Nonaccrual loans without ACL		Total nonaccrual loans
	(dollars in thousands)
Commercial	$	21,604	$	555	$	22,159
Commercial real estate		70		29,754		29,824
Residential real estate		806		3,270		4,076
Total	$	22,480	$	33,579	$	56,059

	December 31, 2022
	Nonaccrual loans with ACL		Nonaccrual loans without ACL		Total nonaccrual loans
	(dollars in thousands)
Commercial	$	23,512	$	1,745	$	25,257
Commercial real estate		10,220		6,597		16,817
Residential real estate		604		1,776		2,380
Total	$	34,336	$	10,118	$	44,454

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated and individually evaluated.

Credit Quality Indicators - The Company continuously monitors the credit quality of its loans receivable. In addition to its internal monitoring, the Company utilizes the services of a third-party loan review firm to periodically validate the credit quality of its loans receivable on a sample basis. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified “Pass” are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as “Special Mention” have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the credit quality or inadequately protect the Company’s credit position at some future date. Assets are classified “Substandard” if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements. An asset is classified as “Doubtful” if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a “distinct possibility” that a degree of loss will occur if the inadequacies are not corrected.

We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP. Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the table below. The following table presents loans by origination and risk designation as of September 30, 2023 (dollars in thousands):

	*Term loans amortized cost basis by origination year*
	*2023*		*2022*		*2021*		*2020*		*2019*		*Prior*		*Revolving Loans*		*Total Gross Loans*
Commercial
Pass	$	146,241	$	259,603	$	271,580	$	41,459	$	13,749	$	119,592	$	590,667	$	1,442,891
Special mention		-		337		86		-		567		3,445		3,989		8,424
Substandard		304		1,316		163		4		1,551		19,559		1,359		24,256
Doubtful		-		-		-		-		-		-		-		-
Total Commercial	$	146,545	$	261,256	$	271,829	$	41,463	$	15,867	$	142,596	$	596,015	$	1,475,571

Commercial Real Estate
Pass	$	170,541	$	1,572,880	$	1,581,212	$	356,251	$	355,665	$	1,269,678	$	462,573	$	5,768,800
Special mention		-		-		-		-		-		26,421		-		26,421
Substandard		-		-		1,899		-		2,625		20,964		16,830		42,318
Doubtful		-		-		-		-		-		-		-		-
Total Commercial Real Estate	$	170,541	$	1,572,880	$	1,583,111	$	356,251	$	358,290	$	1,317,063	$	479,403	$	5,837,539

Commercial Construction
Pass	$	582	$	5,693	$	15,682	$	6,236	$	-	$	-	$	585,855	$	614,048
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		8,700		8,700
Doubtful		-		-		-		-		-		-		-		-
Total Commercial Construction	$	582	$	5,693	$	15,682	$	6,236	$	-	$	-	$	594,555	$	622,748

Residential
Pass	$	8,009	$	43,048	$	23,247	$	21,863	$	20,059	$	92,966	$	34,663	$	243,855
Special mention		-		-		-		-		-		655		2,830		3,485
Substandard		-		-		563		438		-		2,520		555		4,076
Doubtful		-		-		-		-		-		-		-		-
Total Residential Real Estate	$	8,009	$	43,048	$	23,810	$	22,301	$	20,059	$	96,141	$	38,048	$	251,416

Consumer
Pass	$	747	$	96	$	-	$	6	$	-	$	-	$	87	$	936
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Consumer	$	747	$	96	$	-	$	6	$	-	$	-	$	87	$	936

Total
Pass	$	326,120	$	1,881,320	$	1,891,721	$	425,815	$	389,473	$	1,482,236	$	1,673,845	$	8,070,530
Special mention		-		337		86		-		567		30,521		6,819		38,330
Substandard		304		1,316		2,625		442		4,176		43,043		27,444		79,350
Doubtful		-		-		-		-		-		-		-		-
Grand Total	$	326,424	$	1,882,973	$	1,894,432	$	426,257	$	394,216	$	1,555,800	$	1,708,108	$	8,188,210

The following table presents loans by origination and risk designation as of December 31, 2022 (dollars in thousands):

	*Term loans amortized cost basis by origination year*
	*2022*		*2021*		*2020*		*2019*		*2018*		*Prior*		*Revolving Loans*		*Total Gross Loans*
Commercial
Pass	$	301,636	$	305,721	$	47,952	$	28,177	$	52,950	$	127,739	$	550,483	$	1,414,658
Special mention		-		-		-		583		26		8,551		3,292		12,452
Substandard		7,615		146		15		1,769		11,214		22,596		2,269		45,624
Doubtful		-		-		-		-		-		-		-		-
Total Commercial	$	309,251	$	305,867	$	47,967	$	30,529	$	64,190	$	158,886	$	556,044	$	1,472,734

Commercial Real Estate
Pass	$	1,571,751	$	1,608,023	$	382,987	$	358,578	$	375,886	$	987,982	$	401,365	$	5,686,572
Special mention		3,040		-		-		-		-		37,774		8,839		49,653
Substandard		-		1,929		-		6,526		19,138		23,287		8,123		59,003
Doubtful		-		-		-		-		-		-		-		-
Total Commercial Real Estate	$	1,574,791	$	1,609,952	$	382,987	$	365,104	$	395,024	$	1,049,043	$	418,327	$	5,795,228

Commercial Construction
Pass	$	8,615	$	7,605	$	6,720	$	508	$	-	$	-	$	542,460	$	565,908
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		8,231		8,231
Doubtful		-		-		-		-		-		-		-		-
Total Commercial Construction	$	8,615	$	7,605	$	6,720	$	508	$	-	$	-	$	550,691	$	574,139

Residential Real Estate
Pass	$	45,926	$	25,318	$	24,409	$	21,557	$	20,284	$	78,314	$	41,468	$	257,276
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		3,379		4,093		7,472
Doubtful		-		-		-		-		-		-		-		-
Total Residential Real Estate	$	45,926	$	25,318	$	24,409	$	21,557	$	20,284	$	81,693	$	45,561	$	264,748

Consumer
Pass	$	2,219	$	-	$	9	$	-	$	-	$	2	$	82	$	2,312
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Consumer	$	2,219	$	-	$	9	$	-	$	-	$	2	$	82	$	2,312

Total
Pass	$	1,930,147	$	1,946,667	$	462,077	$	408,820	$	449,120	$	1,194,037	$	1,535,858	$	7,926,726
Special mention		3,040		-		-		583		26		46,325		12,131		62,105
Substandard		7,615		2,075		15		8,295		30,352		49,262		22,716		120,330
Doubtful		-		-		-		-		-		-		-		-
Grand Total	$	1,940,802	$	1,948,742	$	462,092	$	417,698	$	479,498	$	1,289,624	$	1,570,705	$	8,109,161

Collateral Dependent Loans: Loans which meet certain criteria are individually evaluated as part of the process of calculating the allowance for credit losses. The evaluation is determined on an individual basis using the fair value of the collateral as of the reporting date. The following table presents collateral dependent loans that were individually evaluated for impairment as of September 30, 2023 and December 31, 2022:

	September 30, 2023
	Real Estate		Other		Total
	(dollars in thousands)
Commercial	$	4,891	$	14,719	$	19,610
Commercial real estate		41,636		-		41,636
Commercial construction		8,700		-		8,700
Residential real estate		6,755		-		6,755
Total	$	61,982	$	14,719	$	76,701

	December 31, 2022
	Real Estate		Other		Total
	(dollars in thousands)
Commercial	$	5,352	$	22,517	$	27,869
Commercial real estate		52,477		-		52,477
Commercial construction		8,232		-		8,232
Residential real estate		5,864		-		5,864
Total	$	71,925	$	22,517	$	94,442

Aging Analysis - The following table provides an analysis of the aging of the loans by class, excluding the effect of net deferred fees, which are past due as of September 30, 2023 and December 31, 2022:

	September 30, 2023
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Gross Loans
	(dollars in thousands)
Commercial	$	433	$	1,979	$	-	$	22,159	$	24,571	$	1,451,000	$	1,475,571
Commercial real estate		-		597		-		29,824		30,421		5,807,118		5,837,539
Commercial construction		-		-		-		-		-		622,748		622,748
Residential real estate		227		-		-		4,076		4,303		247,113		251,416
Consumer		-		254		-		-		254		682		936
Total	$	660	$	2,830	$	-	$	56,059	$	59,549	$	8,128,661	$	8,188,210

	December 31, 2022
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Gross Loans
	(dollars in thousands)
Commercial	$	306	$	-	$	-	$	25,257	$	25,563	$	1,447,171	$	1,472,734
Commercial real estate		90		-		5,591		16,817		22,498		5,772,730		5,795,228
Commercial construction		-		-		-		-		-		574,139		574,139
Residential real estate		1,569		-		-		2,380		3,949		260,799		264,748
Consumer		-		-		-		-		-		2,312		2,312
Total	$	1,965	$	-	$	5,591	$	44,454	$	52,010	$	8,057,151	$	8,109,161

The following tables detail, at the period-end presented, the amount of gross loans (excluding loans held-for-sale) that are evaluated individually, and collectively, for impairment, those acquired with deteriorated quality, and the related portion of the allowance for credit losses that are allocated to each loan portfolio segment:

	September 30, 2023
	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Total
	(dollars in thousands)
Allowance for credit losses - loans
Individually evaluated impairment	$	7,685	$	661	$	-	$	-	$	-	$	8,346
Collectively evaluated impairment		19,433		52,072		3,909		3,732		5		79,151
Acquired with deteriorated credit quality individually analyzed		733		-		-		-		-		733
Total	$	27,851	$	52,733	$	3,909	$	3,732	$	5	$	88,230

Gross loans
Individually evaluated impairment	$	24,676	$	41,636	$	8,700	$	6,755	$	-	$	81,767
Collectively evaluated impairment		1,450,405		5,795,903		614,048		244,661		936		8,105,953
Acquired with deteriorated credit quality individually analyzed		490		-		-		-		-		490
Total	$	1,475,571	$	5,837,539	$	622,748	$	251,416	$	936	$	8,188,210

	December 31, 2022
	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Total
	(dollars in thousands)
Allowance for credit losses - loans
Individually evaluated impairment	$	7,426	$	1,003	$	-	$	50	$	-	$	8,479
Collectively evaluated impairment		19,319		50,818		3,718		4,093		7		77,955
Acquired with deteriorated credit quality individually analyzed		2,158		1,921		-		-		-		4,079
Total	$	28,903	$	53,742	$	3,718	$	4,143	$	7	$	90,513

Gross loans
Individually evaluated impairment	$	30,994	$	46,886	$	8,232	$	5,864	$	-	$	91,976
Collectively evaluated impairment		1,436,866		5,742,751		565,907		258,884		2,312		8,006,720
Acquired with deteriorated credit quality individually analyzed		4,874		5,591		-		-		-		10,465
Total	$	1,472,734	$	5,795,228	$	574,139	$	264,748	$	2,312	$	8,109,161

Activity in the Company’s ACL for loans for the three and nine months ended September 30, 2023 is summarized in the tables below.

	Three Months Ended September 30, 2023
	Commercial			Commercial real estate			Commercial construction		Residential real estate			Consumer			Total
	(dollars in thousands)
Balance as of June 30, 2023	$	29,326		$	52,509		$	3,546	$	3,819		$	5		$	89,205
Charge-offs		(2,250	)		(237	)		-		-			-			(2,487	)
Recoveries		-			-			-		1			7			8
Provision for (reversal of) credit losses - loans		775			461			363		(88	)		(7	)		1,504

Balance as of September 30, 2023	$	27,851		$	52,733		$	3,909	$	3,732		$	5		$	88,230

	Nine Months Ended September 30, 2023
	Commercial			Commercial real estate			Commercial construction		Residential real estate			Consumer			Total
	(dollars in thousands)
Balance as of December 31, 2022	$	28,903		$	53,742		$	3,718	$	4,143		$	7		$	90,513
Charge-offs		(6,117	)		(1,954	)		-		(18	)		-			(8,089	)
Recoveries		9			-			-		69			7			85
Provision for (reversal of) credit losses - loans		5,056			945			191		(462	)		(9	)		5,721

Balance as of September 30, 2023	$	27,851		$	52,733		$	3,909	$	3,732		$	5		$	88,230

	Three Months Ended September 30, 2022
	Commercial			Commercial real estate		Commercial construction		Residential real estate		Consumer			Total
	(dollars in thousands)
Balance as of June 30, 2022	$	28,135		$	47,562	$	3,413	$	3,625	$	4		$	82,739
Charge-offs		(410	)		-		-		-		(3	)		(413	)
Recoveries		53			-		-		-		-			53
Provision for credit losses - loans		1,911			6,964		31		428		4			9,338

Balance as of September 30, 2022	$	29,689		$	54,526	$	3,444	$	4,053	$	5		$	91,717

	Nine Months Ended September 30, 2022
	Commercial			Commercial real estate			Commercial construction			Residential real estate			Consumer			Total
	(dollars in thousands)
Balance as of December 31, 2021	$	25,969		$	45,589		$	3,580		$	3,628		$	7		$	78,773
Charge-offs		(751	)		(226	)		-			(9	)		(3	)		(989	)
Recoveries		54			-			-			63			-			117
Provision for (reversal of) credit losses - loans		4,417			9,163			(136	)		371			1			13,816

Balance as of September 30, 2022	$	29,689		$	54,526		$	3,444		$	4,053		$	5		$	91,717

Loan 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.

The following table presents the amortized cost basis at the end of the reporting period of the loan modifications to borrowers experiencing financial difficulty:

	Nine Months Ended
	September 30, 2023
	Term Extension		% of Portfolio
	(dollars in thousands)
Commercial	$	44		0.00	%
Commercial real estate		211		0.00	%

The above table consists of loans that added a weighted average of 13 years to the maturity of the modified loans, which did not have a material effect on the cash flows.

The following table presents the performance of loans that have been modified in the last twelve months:

	September 30, 2023
	Current		Past Due 30-89 Days		Past Due 90 Days or More
	(dollars in thousands)
Commercial	$	44	$	-	$	-
Commercial real estate		211		-		-

There were no loans to borrowers experiencing financial difficulty that had a payment default during the nine months ended September 30, 2023 and which were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly.

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 nine months ended September 30, 2022, the Company modified five loans with maturity extensions and one loan interest rate reduction. The one loan that was an interest rate reduction was a commercial real estate loan that included a one-time $500,000 principal paydown.

Allowance for Credit Losses for Unfunded Commitments

The Company has recorded an ACL for unfunded credit commitments, which was recorded in other liabilities. The provision is recorded within the provision for (reversal of) credit losses on the Company’s income statement. The following table presents a roll forward of the allowance for credit losses for unfunded commitments for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended			Three Months Ended
	September 30,			September 30,
	2023			2022
	(dollars in thousands)
Balance at beginning of period	$	2,819		$	2,324
(Reversal of) provision for credit losses - unfunded commitments		(4	)		662
Balance at end of period	$	2,815		$	2,986

	Nine Months Ended			Nine Months Ended
	September 30,			September 30,
	2023			2022
	(dollars in thousands)
Balance at beginning of period	$	3,036		$	2,352
(Reversal of) provision for credit losses - unfunded commitments		(221	)		634
Balance at end of period	$	2,815		$	2,986

Components of (Reversal of) Provision for Credit Losses

The following table summarizes the provision for (reversal of) credit losses for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended			Three Months Ended
	September 30,			September 30,
	2023			2022
	(dollars in thousands)
Provision for credit losses – loans	$	1,504		$	9,338
(Reversal of) provision for credit losses - unfunded commitments		(4	)		662
Provision for credit losses	$	1,500		$	10,000

	Nine Months Ended			Nine Months Ended
	September 30,			September 30,
	2023			2022
	(dollars in thousands)
Provision for credit losses – loans	$	5,721		$	13,816
(Reversal of) provision for credit losses - unfunded commitments		(221	)		634
Provision for credit losses	$	5,500		$	14,450