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Note 5 - Loans and the Allowance for Credit Losses

6 Months Ended

Jun. 30, 2022

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 fees, as of June 30, 2022 and December 31, 2021:

	June 30, 2022			December 31, 2021
	(dollars in thousands)
Commercial ⁽¹⁾	$	1,354,625		$	1,299,428
Commercial real estate		5,107,382			4,741,590
Commercial construction		569,789			540,178
Residential real estate		249,379			255,269
Consumer		1,248			1,886
Gross loans		7,282,423			6,838,351
Net deferred loan fees		(7,850	)		(9,729	)
Total loans receivable	$	7,274,573		$	6,828,622

⁽¹⁾

Included in commercial loans as of June 30, 2022 and December 31, 2021 are PPP loans of $18.0 million and $93.1 million, respectively.

As of June 30, 2022 and December 31, 2021, loan balances of approximately $2.5 billion, were pledged to secure borrowings from the FHLB of New York.

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale portfolio as of June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Commercial real estate	$	3,182	$	-
Residential real estate		-		250
Total carrying amount	$	3,182	$	250

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an ACL and nonaccrual loans without an ACL as of June 30, 2022 and December 31, 2021:

	June 30, 2022
	Nonaccrual loans with ACL		Nonaccrual loans without ACL		Total Nonaccrual loans
	(dollars in thousands)
Commercial	$	27,875	$	1,263	$	29,138
Commercial real estate		10,162		19,021		29,183
Commercial construction		-		-		-
Residential real estate		895		1,540		2,435
Consumer		-		-		-
Total	$	38,932	$	21,824	$	60,756

December 31, 2021

Nonaccrual loans with ACL Nonaccrual loans without ACL Total Nonaccrual loans

(dollars in thousands)

Commercial
$ 28,746 $ 1,316 $ 30,062

Commercial real estate
15,362 10,031 25,393

Commercial construction
- 3,150 3,150

Residential real estate
1,239 1,856 3,095

Consumer
- - -

Total
$ 45,347 $ 16,353 $ 61,700

Nonaccrual loans and loans 90 days or greater past due and still accruing include both smaller balance homogeneous loans that are collectively evaluated for impairment and loans individually evaluated for impairment.

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 loan 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 June 30, 2022 (dollars in thousands):

Term loans amortized cost basis by origination year

Revolving

Total

2022

2021

2020

2019

2018

Prior

Loans

Gross Loans

Commercial

Pass
$ 168,961 $ 345,319 $ 52,681 $ 32,103 $ 51,661 $ 167,147 $ 470,129 $ 1,288,001

Special mention
- - - - - 9,618 3,317 12,935

Substandard
7,429 158 - 2,176 11,595 18,347 13,984 53,689

Doubtful
- - - - - - - -

Total Commercial
$ 176,390 $ 345,477 $ 52,681 $ 34,279 $ 63,256 $ 195,112 $ 487,430 $ 1,354,625

Commercial Real Estate

Pass
$ 885,508 $ 1,619,792 $ 426,907 $ 373,166 $ 404,284 $ 1,099,266 $ 165,421 $ 4,974,344

Special mention
- - - 3,328 - 50,384 15,463 69,175

Substandard
- 1,949 4,500 10,520 20,274 18,411 8,209 63,863

Doubtful
- - - - - - - -

Total Commercial Real Estate
$ 885,508 $ 1,621,741 $ 431,407 $ 387,014 $ 424,558 $ 1,168,061 $ 189,093 $ 5,107,382

Commercial Construction

Pass
$ 2,454 $ 7,914 $ 5,246 $ 6,508 $ 2,600 $ - $ 537,890 $ 562,612

Special mention
- - - - - - - -

Substandard
- - - - - - 7,177 7,177

Doubtful
- - - - - - - -

Total Commercial Construction
$ 2,454 $ 7,914 $ 5,246 $ 6,508 $ 2,600 $ - $ 545,067 $ 569,789

Residential Real Estate

Pass
$ 20,431 $ 25,646 $ 26,598 $ 21,895 $ 20,702 $ 84,422 $ 42,760 $ 242,454

Special mention
- - - - - - - -

Substandard
- - - - - 3,501 3,424 6,925

Doubtful
- - - - - - - -

Total Residential Real Estate
$ 20,431 $ 25,646 $ 26,598 $ 21,895 $ 20,702 $ 87,923 $ 46,184 $ 249,379

Consumer

Pass
$ 1,109 $ - $ 14 $ 1 $ 10 $ 2 $ 112 $ 1,248

Special mention
- - - - - - - -

Substandard
- - - - - - - -

Doubtful
- - - - - - - -

Total Consumer
$ 1,109 $ - $ 14 $ 1 $ 10 $ 2 $ 112 $ 1,248

Total

Pass
$ 1,078,463 $ 1,998,671 $ 511,446 $ 433,673 $ 479,257 $ 1,350,837 $ 1,216,312 $ 7,068,659

Special mention
- - - 3,328 - 60,002 18,780 82,110

Substandard
7,429 2,107 4,500 12,696 31,869 40,259 32,794 131,654

Doubtful
- - - - - - - -

Grand Total
$ 1,085,892 $ 2,000,778 $ 515,946 $ 449,697 $ 511,126 $ 1,451,098 $ 1,267,886 $ 7,282,423

The following table presents loans by origination and risk designation as of December 31, 2021 (dollars in thousands):

Term loans amortized cost basis by origination year

Revolving
Total

2021

2020

2019

2018
8.5
Prior

Loans

Gross Loans

Commercial

Pass
$ 403,203 $ 58,534 $ 54,485 $ 60,409 $ 95,727 $ 86,556 $ 471,588 $ 1,230,502

Special mention
- - - - 1 4,045 4,266 8,312

Substandard
170 - 1,842 13,298 9,740 21,024 14,540 60,614

Doubtful
- - - - - - - -

Total Commercial
$ 403,373 $ 58,534 $ 56,327 $ 73,707 $ 105,468 $ 111,625 $ 490,394 $ 1,299,428

Commercial Real Estate

Pass
$ 1,692,098 $ 533,315 $ 420,995 $ 452,262 $ 497,065 $ 842,244 $ 170,721 $ 4,608,700

Special mention
- - - - 5,142 50,438 6,601 62,181

Substandard
1,968 9,039 4,006 20,624 - 26,108 8,964 70,709

Doubtful
- - - - - - - -

Total Commercial Real Estate
$ 1,694,066 $ 542,354 $ 425,001 $ 472,886 $ 502,207 $ 918,790 $ 186,286 $ 4,741,590

Commercial Construction

Pass
$ 8,018 $ 7,370 $ 12,625 $ 2,600 $ 2,339 $ - $ 490,119 $ 523,071

Special mention
- - - - 350 - 1,443 1,793

Substandard
- - - - - - 15,314 15,314

Doubtful
- - - - - - - -

Total Commercial Construction
$ 8,018 $ 7,370 $ 12,625 $ 2,600 $ 2,689 $ - $ 506,876 $ 540,178

Residential Real Estate

Pass
$ 27,081 $ 29,539 $ 23,611 $ 25,070 $ 28,701 $ 66,249 $ 44,221 $ 244,472

Special mention
- - - - - - - -

Substandard
- - - - - 7,262 3,535 10,797

Doubtful
- - - - - - - -

Total Residential Real Estate
$ 27,081 $ 29,539 $ 23,611 $ 25,070 $ 28,701 $ 73,511 $ 47,756 $ 255,269

Consumer

Pass
$ 1,590 $ 85 $ 39 $ 21 $ 28 $ - $ 123 $ 1,886

Special mention
- - - - - - - -

Substandard
- - - - - - - -

Doubtful
- - - - - - - -

Total Consumer
$ 1,590 $ 85 $ 39 $ 21 $ 28 $ - $ 123 $ 1,886

Total

Pass
$ 2,131,990 $ 628,843 $ 511,755 $ 540,362 $ 623,860 $ 995,049 $ 1,176,772 $ 6,608,631

Special mention
- - - - 5,493 54,483 12,310 72,286

Substandard
2,138 9,039 5,848 33,922 9,740 54,394 42,353 157,434

Doubtful
- - - - - - - -

Grand Total
$ 2,134,128 $ 637,882 $ 517,603 $ 574,284 $ 639,093 $ 1,103,926 $ 1,231,435 $ 6,838,351

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 June 30, 2022 and December 31, 2021:

June 30, 2022

Real Estate
Other

Total

(dollars in thousands)

Commercial
$ 6,333 $ 24,995 $ 31,328

Commercial real estate
65,507 - 65,507

Commercial construction
7,176 - 7,176

Residential real estate
5,364 - 5,364

Consumer
- - -

Total
$ 84,380 $ 24,995 $ 109,375

December 31, 2021

Real Estate
Other

Total

(dollars in thousands)

Commercial
$ 6,385 $ 26,182 $ 32,567

Commercial real estate
55,244 - 55,244

Commercial construction
13,196 - 13,196

Residential real estate
8,856 - 8,856

Consumer
- - -

Total
$ 83,681 $ 26,182 $ 109,863

Aging Analysis - The following table provides an analysis of the aging of the loans by class, excluding net deferred fees, that are past due as of June 30, 2022 and December 31, 2021:

June 30, 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
$ 16 $ 358 $ 4,403 $ 29,138 $ 33,915 $ 1,320,710 $ 1,354,625

Commercial real estate
- 2,894 5,761 29,183 37,838 5,069,544 5,107,382

Commercial construction
- - - - - 569,789 569,789

Residential real estate
674 - - 2,435 3,109 246,270 249,379

Consumer
- - - - - 1,248 1,248

Total
$ 690 $ 3,252 $ 10,164 $ 60,756 $ 74,862 $ 7,207,561 $ 7,282,423

December 31, 2021

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
$ 4,305 $ 729 $ 4,457 $ 30,062 $ 39,553 $ 1,259,875 $ 1,299,428

Commercial real estate
1,622 1,009 5,935 25,393 33,959 4,707,631 4,741,590

Commercial construction
- - - 3,150 3,150 537,028 540,178

Residential real estate
1,437 292 3,139 3,095 7,963 247,306 255,269

Consumer
- - - - - 1,886 1,886

Total
$ 7,364 $ 2,030 $ 13,531 $ 61,700 $ 84,625 $ 6,753,726 $ 6,838,351

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:

June 30, 2022

Commercial
Commercial real estate
Commercial construction
Residential real estate
Consumer

Total

(dollars in thousands)

Allowance for credit losses - loans

Individually evaluated impairment
$ 13,671 $ 2,505 $ - $ 88 $ - $ 16,264

Collectively evaluated impairment
12,187 43,136 3,413 3,537 4 62,277

Acquired with deteriorated credit quality individually analyzed
2,277 1,921 - - - 4,198

Total
$ 28,135 $ 47,562 $ 3,413 $ 3,625 $ 4 $ 82,739

Gross loans

Individually evaluated impairment
$ 32,163 $ 59,746 $ 7,177 $ 5,364 $ - $ 104,450

Collectively evaluated impairment
1,317,400 5,041,875 562,612 244,015 1,248 7,167,150

Acquired with deteriorated credit quality individually analyzed
5,062 5,761 - - - 10,823

Total
$ 1,354,625 $ 5,107,382 $ 569,789 $ 249,379 $ 1,248 $ 7,282,423

December 31, 2021

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Total

(dollars in thousands)

Allowance for credit losses - loans

Individually evaluated impairment
$ 15,131 $ 955 $ - $ 131 $ - $ 16,217

Collectively evaluated impairment
8,561 42,713 3,580 3,497 7 58,358

Acquired with deteriorated credit quality individually analyzed
2,277 1,921 - - - 4,198

Total
$ 25,969 $ 45,589 $ 3,580 $ 3,628 $ 7 $ 78,773

Gross loans

Individually evaluated impairment
$ 33,726 $ 49,310 $ 13,196 $ 5,717 $ - $ 101,949

Collectively evaluated impairment
1,260,537 4,686,346 526,982 246,413 1,886 6,722,164

Acquired with deteriorated credit quality individually analyzed
5,165 5,934 - 3,139 - 14,238

Total
$ 1,299,428 $ 4,741,590 $ 540,178 $ 255,269 $ 1,886 $ 6,838,351

Activity in the Company’s ACL for loans for the three and six months ended June 30, 2022 is summarized in the tables below.

Three Months Ended June 30, 2022

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Unallocated

Total

(dollars in thousands)

Balance as of March 31, 2022
$ 25,459 $ 47,868 $ 3,281 $ 3,455 $ 7 $ - $ 80,070

Charge-offs
(292 ) (1 ) - (9 ) - - (302 )

Recoveries
- - - 32 - - 32

(Reversal of) provision for credit losses (loans)
2,968 (305 ) 132 147 (3 ) - 2,939

Balance as of June 30, 2022
$ 28,135 $ 47,562 $ 3,413 $ 3,625 $ 4 $ - $ 82,739

Six Months Ended June 30, 2022

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Unallocated

Total

(dollars in thousands)

Balance as of December 31, 2021
$ 25,969 $ 45,589 $ 3,580 $ 3,628 $ 7 $ - $ 78,773

Charge-offs
(341 ) (226 ) - (9 ) - - (576 )

Recoveries
1 - - 63 - - 64

(Reversal of) provision for credit losses (loans)
2,506 2,199 (167 ) (57 ) (3 ) - 4,478

Balance as of June 30, 2022
$ 28,135 $ 47,562 $ 3,413 $ 3,625 $ 4 $ - $ 82,739

Activity in the Company’s ACL for loans for the six months ended June 30, 2021 is summarized in the table below. The CECL Day 1 row presents adjustments recorded through retained earnings to adopt the CECL standard and the increase to the ACL for loans associated with nonaccretable purchase accounting marks on loans that were classified as PCI as of December 31, 2020.

Three Months Ended June 30, 2021

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Unallocated

Total

(dollars in thousands)

Balance as of March 31, 2021
$ 26,435 $ 43,897 $ 5,521 $ 4,704 $ 11 $ - $ 80,568

Charge-offs
(50 ) (155 ) - (7 ) - - (212 )

Recoveries
13 - - - 1 - 14

(Reversal of) provision for credit losses - loans
(831 ) 73 (594 ) (331 ) (3 ) - (1,686 )

Balance as of June 30, 2021
$ 25,567 $ 43,815 $ 4,927 $ 4,366 $ 9 $ - $ 78,684

Six Months Ended June 30, 2021

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Unallocated

Total

(dollars in thousands)

Balance as of December 31, 2020
$ 28,443 $ 39,330 $ 8,194 $ 2,687 $ 4 $ 568 $ 79,226

Day 1 effect of CECL
(4,225 ) 9,605 (961 ) 2,697 9 (568 ) 6,557

Balance as of January 1, 2021 as adjusted for changes in accounting principle
24,218 48,935 7,233 5,384 13 - 85,783

Charge-offs
(50 ) (155 ) - (7 ) - - (212 )

Recoveries
73 - - - 2 - 75

(Reversal of) provision for credit losses - loans
1,326 (4,965 ) (2,306 ) (1,011 ) (6 ) - (6,962 )

Balance as of June 30, 2021
$ 25,567 $ 43,815 $ 4,927 $ 4,366 $ 9 $ - $ 78,684

Troubled Debt Restructurings

Loans are considered to have been modified in a troubled debt restructuring (“TDRs”) when, except as discussed below, due to a borrower’s financial difficulties, the Company makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a nonaccrual loan that has been modified in a troubled debt restructuring remains on nonaccrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual status.

As of June 30, 2022, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due 90 days or greater and still accruing interest, or whose terms have been modified in troubled debt restructurings.

As of June 30, 2022, TDRs totaled $73.9 million, of which $27.5 million were on nonaccrual status and $46.4 million were performing under their restructured terms. As of December 31, 2021, TDRs totaled $79.5 million, of which $35.9 million were on nonaccrual status and $43.6 million were performing under their restructured terms. The Company has allocated $9.1 million and $10.4 million of specific allowance related to TDRs as of June 30, 2022 and December 31, 2021, respectively.

The following table presents loans by class modified as TDRs that occurred during the six months ended June 30, 2022:

Pre-Modification

Post-Modification

Outstanding

Outstanding

Number of

Recorded

Recorded

Loans

Investment

Investment

(dollars in thousands)

Troubled debt restructurings:

Commercial
1 $ 98 $ 98

Commercial real estate
1 8,751 8,251

Total
2 $ 8,849 $ 8,349

The commercial loan modified as a TDR during the six months ended June 30, 2022 was a maturity extension, while the commercial real estate loan modified as a TDR during the six months ended June 30, 2022 was an interest rate reduction, that was commensurate with a one-time $500,000 principal paydown.

There were no TDRs for which there was a payment default within twelve months following the modification during the three and six months ended June 30, 2022 and June 30, 2021.

The following table presents loans by class modified as TDRs that occurred during the six months ended June 30, 2021:

Pre-Modification

Post-Modification

Outstanding

Outstanding

Number of

Recorded

Recorded

Loans

Investment

Investment

(dollars in thousands)

Troubled debt restructurings:

Commercial
3 $ 631 $ 631

Commercial real estate
3 8,603 8,603

Commercial construction
1 1,641 1,641

Residential real estate
3 1,758 1,758

Total
10 $ 12,633 $ 12,633

The ten loans modified as TDRs during the six months ended June 30, 2021 included nine maturity extensions and, one commercial real estate loan which was a recast of a nonaccrual credit.

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 (reversal of) provision for credit losses on the Company’s income statement. The following table presents a rollforward of the allowance for credit losses for unfunded commitments for the three and six months ended June 30, 2022 and 2021 :

Three Months Ended

Three Months Ended

June 30,

June 30,

2022

2021

(dollars in thousands)

Balance at beginning of period
$ 2,262 $ 2,343

Provision for credit losses - unfunded commitments
61 37

Balance at end of period
$ 2,323 $ 2,380

Six Months Ended

Six Months Ended

June 30,

June 30,

2022

2021

(dollars in thousands)

Balance at beginning of period
$ 2,351 $ -

Day 1 Effect of CECL
- 2,833

Reversal of credit losses - unfunded commitments
(28 ) (453 )

Balance at end of period
$ 2,323 $ 2,380

Components of (Reversal of) Provision for Credit Losses

The following table summarizes the (reversal of) provision for credit losses for the three and six months ended June 30, 2022 and 2021 :

Three Months Ended

Three Months Ended

June 30,

June 30,

2022

2021

(dollars in thousands)

Provision for (reversal of) credit losses (loans)
$ 2,939 $ (1,686 )

(Reversal of) provision for credit losses - unfunded commitments
61 37

Provision for (Reversal of) credit losses
$ 3,000 $ (1,649 )

Six Months Ended

Six Months Ended

June 30,

June 30,

2022

2021

(dollars in thousands)

Provision for (reversal of) credit losses (loans)
$ 4,478 $ (6,962 )

Reversal of credit losses - unfunded commitments
(28 ) (453 )

Provision for (reversal of) credit losses
$ 4,450 $ (7,415 )