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Note 4 - Loans and the Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

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

Note 4 – Loans and the Allowance for Credit Losses

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

	2023			2022
	(dollars in thousands)
Commercial ⁽¹⁾	$	1,578,730		$	1,472,734
Commercial real estate		5,895,545			5,795,228
Commercial construction		620,496			574,139
Residential real estate		256,041			264,748
Consumer		1,029			2,312
Gross loans		8,351,841			8,109,161
Net deferred fees		(6,696	)		(9,472	)
Loans receivable	$	8,345,145		$	8,099,689

⁽¹⁾Includes PPP loans of $9 million and $11 million as of December 31, 2023 and December 31, 2022, respectively.

As of December 31, 2023, and 2022, loan balances of approximately $5.8 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. During 2023, the Company took actions to increase its secured borrowing access and increase levels of off-balance sheet liquidity and as such increased the amount of loans pledged to each of these borrowing facilities.

	•	The repayment of commercial loans is generally dependent on the creditworthiness and cash flow of borrowers, and if applicable, guarantors, which may be negatively impacted by adverse economic conditions. While the majority of these loans are secured, collateral type, marketing, coverage, valuation and monitoring is not as uniform as in other portfolio classes and recovery from liquidation of such collateral may be subject to greater variability.

	•	Payment on commercial real estate is driven principally by operating results of the managed properties or underlying business and secondarily by the sale or refinance of such properties. Both primary and secondary sources of repayment, and value of the properties in liquidation, may be affected to a greater extent by adverse conditions in the real estate market or the economy in general.

	•	Properties underlying construction, land and land development loans often do not generate sufficient cash flows to service debt and thus repayment is subject to the ability of the borrower and, if applicable, guarantors, to complete development or construction of the property and carry the project, often for extended periods of time. As a result, the performance of these loans is contingent upon future events whose probability at the time of origination is uncertain.

	•	The ability of borrowers to service debt in the residential and consumer loan portfolios is generally subject to personal income which may be impacted by general economic conditions, such as increased unemployment levels. These loans are predominately collateralized by first and/or second liens on single family properties. If a borrower cannot maintain the loan, the Company’s ability to recover against the collateral in sufficient amount and in a timely manner may be significantly influenced by market, legal and regulatory conditions.

	•	The Company considers loan classes and loan segments to be one and the same.

Loans Held-For-Sale: The following table presents loans held-for-sale by loan segment as of December 31, 2023 and December 31, 2022:

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

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an allowance for credit loss (“ACL”) as of December 31, 2023 and December 31, 2022 and nonaccrual loans without an ACL as of December 31, 2023 and December 31, 2022:

	December 31, 2023
	Nonaccrual loans with ACL		Nonaccrual loans without ACL		Total Nonaccrual loans
	(dollars in thousands)
Commercial	$	1,763	$	11,064	$	12,827
Commercial real estate		8,013		28,179		36,192
Residential real estate		1,033		2,472		3,505
Total	$	10,809	$	41,715	$	52,524

	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 loans that are collectively evaluated and individually analyzed.

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 as “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 loan quality or inadequately protect the Company’s credit position at some future date. Assets are classified as “Substandard” if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified as 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.

As of December 31, 2023, our loans based on year of origination and risk designation are as follows (dollars in thousands):

	Term loans amortized cost basis by origination year
													Revolving		Total
	2023		2022		2021		2020		2019		Prior		Loans		Gross Loans
Commercial
Pass	$	178,582	$	252,151	$	265,705	$	38,909	$	13,726	$	112,145	$	684,779	$	1,545,997
Special mention		-		10,620		-		-		562		3,417		3,199		17,798
Substandard		250		439		241		1		612		11,695		1,697		14,935
Doubtful		-		-		-		-		-		-		-		-
Total Commercial	$	178,832	$	263,210	$	265,946	$	38,910	$	14,900	$	127,257	$	689,675	$	1,578,730

Commercial real estate
Pass	$	248,660	$	1,561,841	$	1,585,109	$	352,445	$	353,391	$	1,232,240	$	497,588	$	5,831,274
Special mention		-		-		-		-		-		24,202		-		24,202
Substandard		-		-		1,888		-		1,255		20,141		16,785		40,069
Doubtful		-		-		-		-		-		-		-		-
Total Commercial real estate	$	248,660	$	1,561,841	$	1,586,997	$	352,445	$	354,646	$	1,276,583	$	514,373	$	5,895,545

Commercial construction
Pass	$	582	$	5,463	$	15,645	$	6,236	$	-	$	-	$	583,870	$	611,796
Special mention		-		-		-		-		-		-		8,700		8,700
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Commercial construction	$	582	$	5,463	$	15,645	$	6,236	$	-	$	-	$	592,570	$	620,496

Residential real estate
Pass	$	15,455	$	42,830	$	21,987	$	21,704	$	19,896	$	91,114	$	36,082	$	249,068
Special mention		-		-		-		-		-		651		2,817		3,468
Substandard		-		-		555		-		-		2,144		806		3,505
Doubtful		-		-		-		-		-		-		-		-
Total Residential real estate	$	15,455	$	42,830	$	22,542	$	21,704	$	19,896	$	93,909	$	39,705	$	256,041

Consumer
Pass	$	849	$	83	$	-	$	5	$	-	$	-	$	92	$	1,029
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Consumer	$	849	$	83	$	-	$	5	$	-	$	-	$	92	$	1,029

Total
Pass	$	444,128	$	1,862,368	$	1,888,446	$	419,299	$	387,013	$	1,435,499	$	1,802,411	$	8,239,164
Special mention		-		10,620		-		-		562		28,270		14,716		54,168
Substandard		250		439		2,684		1		1,867		33,980		19,288		58,509
Doubtful		-		-		-		-		-		-		-		-
Grand Total	$	444,378	$	1,873,427	$	1,891,130	$	419,300	$	389,442	$	1,497,749	$	1,836,415	$	8,351,841

As of December 31, 2022, our loans based on year of origination and risk designation are as follows (dollars in thousands):

	Term loans amortized cost basis by origination year												Revolving		Total
	2022		2021		2020		2019		2018		Prior		Loans		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

As of December 31, 2023, our gross write-offs based on year of origination are as follows (dollars in thousands).

	Term Loans
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Commercial
Current period gross write-off	$	54	$	3,397	$	-	$	-	$	280	$	11,094	$	63	$	14,888

Commercial real estate
Current period gross write-off	$	-	$	-	$	-	$	-	$	-	$	2,142	$	-	$	2,142

Commercial construction
Current period gross write-off	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential real estate
Current period gross write-off	$	-	$	-	$	-	$	-	$	-	$	-	$	18	$	18

Consumer
Current period gross write-off	$	-	$	-	$	-	$	-	$	-	$	-	$	1	$	1

Total
Current period gross write-off	$	54	$	3,397	$	-	$	-	$	280	$	13,236	$	82	$	17,049

Collateral Dependent Loans: Loans which meet certain criteria are individually analyzed 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 analyzed as of December 31, 2023 and 2022:

	December 31, 2023
	Real Estate		Other		Total
	(dollars in thousands)
Commercial	$	4,949	$	10,387	$	15,336
Commercial real estate		39,986		-		39,986
Commercial construction		8,700		-		8,700
Residential real estate		5,941		-		5,941
Total	$	59,576	$	10,387	$	69,963

	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 December 31, 2023 and December 31, 2022 (dollars in thousands):

	December 31, 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
Commercial	$	555	$	-	$	-	$	12,827	$	13,382	$	1,565,348	$	1,578,730
Commercial real estate		527		-		-		36,192		36,719		5,858,826		5,895,545
Commercial construction		-		23,600		-		-		23,600		596,896		620,496
Residential real estate		275		226		-		3,505		4,006		252,035		256,041
Consumer		-		-		-		-		-		1,029		1,029
Total	$	1,357	$	23,826	$	-	$	52,524	$	77,707	$	8,274,134	$	8,351,841

	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		Total Loans Receivable
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 90 days or greater past due and still accruing category reflects purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

The following tables detail the amount of gross loans that are individually analyzed, collectively evaluated, and loans acquired with deteriorated quality, and the related portion of the allowance for credit losses for loans that are allocated to each loan portfolio segment.

	December 31, 2023
	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Total
	(dollars in thousands)
Allowance for credit losses - loans
Individually analyzed	$	-	$	941	$	-	$	-	$	-	$	941
Collectively evaluated		20,215		51,337		4,739		4,320		5		80,616
Acquired with deteriorated credit quality		417		-		-		-		-		417
Total	$	20,632	$	52,278	$	4,739	$	4,320	$	5	$	81,974
Gross loans
Individually analyzed	$	15,336	$	39,986	$	8,700	$	5,941	$	-	$	69,963
Collectively evaluated		1,562,910		5,855,559		611,796		250,100		1,029		8,281,394
Acquired with deteriorated credit quality		484		-		-		-		-		484
Total	$	1,578,730	$	5,895,545	$	620,496	$	256,041	$	1,029	$	8,351,841

	December 31, 2022
	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Total
	(dollars in thousands)
Allowance for credit losses - loans
Individually analyzed	$	7,426	$	1,003	$	-	$	50	$	-	$	8,479
Collectively evaluated		19,319		50,818		3,718		4,093		7		77,955
Acquired with deteriorated credit quality		2,158		1,921		-		-		-		4,079
Total	$	28,903	$	53,742	$	3,718	$	4,143	$	7	$	90,513
Gross loans
Individually analyzed	$	30,994	$	46,886	$	8,232	$	5,864	$	-	$	91,976
Collectively evaluated		1,436,866		5,742,751		565,907		258,884		2,312		8,006,720
Acquired with deteriorated credit quality		4,874		5,591		-		-		-		10,465
Total	$	1,472,734	$	5,795,228	$	574,139	$	264,748	$	2,312	$	8,109,161

A summary of the activity in the allowance for credit losses for loans by loan segment is as follows:

	Commercial			Commercial real estate			Commercial construction		Residential real estate			Consumer			Total
	(dollars in thousands)
Balance as of January 1, 2023	$	28,903		$	53,742		$	3,718	$	4,143		$	7		$	90,513
Charge-offs		(14,888	)		(2,142	)		-		(18	)		(1	)		(17,049	)
Recoveries		10			-			-		68			8			86
Provision for (reversal) of credit losses		6,607			678			1,021		127			(9	)		8,424
Balance as of December 31, 2023	$	20,632		$	52,278		$	4,739	$	4,320		$	5		$	81,974

	Commercial			Commercial real estate			Commercial construction		Residential real estate			Consumer			Total
	(dollars in thousands)
Balance as of January 1, 2022	$	25,969		$	45,589		$	3,580	$	3,628		$	7		$	78,773
Charge-offs		(2,612	)		(2,819	)		-		(9	)		(3	)		(5,443	)
Recoveries		54			-			-		63			-			117
Provision for credit losses		5,492			10,972			138		461			3			17,066
Balance as of December 31, 2022	$	28,903		$	53,742		$	3,718	$	4,143		$	7		$	90,513

On January 1, 2021, the Company adopted CECL, which replaced the incurred loss method we used in prior periods for determining the provision for credit losses and the allowance for credit losses. Under CECL, we record an expected loss of all cash flows we do not expect to collect at the inception of the loan. The adoption of CECL resulted in an increase in our allowance for credit losses for loans of $6.6 million, which did not impact our consolidated income statement.

	Commercial			Commercial real estate			Commercial construction			Residential real estate			Consumer			Unallocated			Total
	(dollars in thousands)
Balance as of January 1, 2021	$	28,443		$	39,330		$	8,194		$	2,687		$	4		$	568		$	79,226
Day 1 Adjustment CECL		(4,225	)		9,605			(961	)		2,697			9			(568	)		6,557
Balance as of January 1, 2021		24,218			48,935			7,233			5,384			13			-			85,783
Charge-offs		(382	)		(1,780	)		-			(235	)		-			-			(2,397	)
Recoveries		289			85			-			20			11			-			405
Provision for (reversal of) credit losses		1,844			(1,651	)		(3,653	)		(1,541	)		(17	)		-			(5,018	)
Balance as of December 31, 2021	$	25,969		$	45,589		$	3,580		$	3,628		$	7		$	-		$	78,773

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 and the percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the gross loans of the relevant loan segment. The total percentage represents the total modified loans as compared to the total gross loans balance as of December 31, 2023.

	Twelve Months Ended
	December 31, 2023
	Term Extension		Payment Deferral		Interest Rate Reduction		Total		% of Portfolio Loan Segment
	(dollars in thousands)
Commercial	$	34	$	10,283	$	-	$	10,317		0.65	%
Commercial real estate		209		-		7,272		7,481		0.13
Total	$	243	$	10,283	$	7,272	$	17,798		0.21	%

The above table consists of loans that added a weighted average of 13 years to the maturity of the modified loans with term extensions, which did not have a material effect on the cash flows. For loans that had payment deferrals, the weighted average deferral period was six months. For loans that had interest rate reduction modifications, the weighted average interest rate reduction was 1.9%.

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

	December 31, 2023
	Current		Past Due 30-89 Days		Past Due 90 Days or More
	(dollars in thousands)
Commercial	$	10,317	$	-	$	-
Commercial real estate		7,481		-		-

There were no loans to borrowers experiencing financial difficulty that had a payment default during the twelve months ended December 31, 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 analyzed 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.

Allowance for Credit Losses for Unfunded Commitments

The Company has recorded an ACL for unfunded credit commitments, which is recorded in other liabilities. The provision is recorded within the (reversal of) provision for credit losses on the Company’s income statement. The following table presents the allowance for credit losses for unfunded commitments for the year ended December 31, 2023 and 2022 (dollars in thousands):

	2023			2022
Balance as of beginning of period	$	3,035		$	2,351
(Reversal of) provision for credit losses - unfunded commitments		(224	)		684
Balance as of end of period	$	2,811		$	3,035

Components of (Reversal of) Provision for Credit Losses

The following table summarizes the provision for (reversal of) provision for credit losses for the year ended December 31, 2023 and 2022 (dollars in thousands):


	2023			2022
Provision for credit losses – loans	$	8,424		$	17,066
(Reversal of) provision for credit losses - unfunded commitments		(224	)		684
Provision for credit losses	$	8,200		$	17,750