ALLOWANCE FOR CREDIT LOSSES

3 Months Ended

Mar. 31, 2023

ALLOWANCE FOR CREDIT LOSSES

ALLOWANCE FOR CREDIT LOSSES

NOTE 5: ALLOWANCE FOR CREDIT LOSSES

The following is a rollforward of the allowance for credit losses related to loans for the following periods:

			Provision for
	Beginning		(Reduction of)						Ending
(dollars in thousands)	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three Months Ended March 31, 2023:
Real estate loans:
Residential properties	$	8,306	$	(43)	$	—	$	—	$	8,263
Commercial properties		8,714		(2,732)		(249)		—		5,733
Land and construction		164		152		—		—		316
Commercial and industrial loans		16,521		1,685		(1,752)		306		16,760
Consumer loans		26		(1)		(2)		—		23
Total	$	33,731	$	(939)	$	(2,003)	$	306	$	31,095
Three Months Ended March 31, 2022:
Real estate loans:
Residential properties	$	2,637	$	561	$	—	$	—	$	3,198
Commercial properties		17,049		(1,413)		—		—		15,636
Land and construction		1,995		(227)		—		—		1,768
Commercial and industrial loans		11,992		149		(145)		134		12,130
Consumer loans		103		(13)		—		—		90
Total	$	33,776	$	(943)	$	(145)	$	134	$	32,822
Year Ended December 31, 2022:
Real estate loans:
Residential properties	$	2,637	$	5,674	$	(5)	$	—	$	8,306
Commercial properties		17,049		(8,335)		—		—		8,714
Land and construction		1,995		(1,831)		—		—		164
Commercial and industrial loans		11,992		4,804		(711)		436		16,521
Consumer loans		103		(73)		(4)		—		26
Total	$	33,776	$	239	$	(720)	$	436	$	33,731

The following table presents the balance in the allowance for credit losses and the recorded investment in loans by impairment method as of:

	Allowance for Credit Losses
	Loans Evaluated
(dollars in thousands)	Individually		Collectively		Total
March 31, 2023:
Allowance for credit losses:
Real estate loans:
Residential properties	$	62	$	8,201	$	8,263
Commercial properties		1,044		4,689		5,733
Land and construction		—		316		316
Commercial and industrial loans		1,144		15,616		16,760
Consumer loans		—		23		23
Total	$	2,250	$	28,845	$	31,095
Loans:
Real estate loans:
Residential properties	$	3,428	$	6,357,383	$	6,360,811
Commercial properties		28,197		1,126,322		1,154,519
Land and construction		—		165,216		165,216
Commercial and industrial loans		5,875		2,979,492		2,985,367
Consumer loans		—		3,890		3,890
Total	$	37,500	$	10,632,303	$	10,669,803
December 31, 2022:
Allowance for credit losses:
Real estate loans:
Residential properties	$	87	$	8,219	$	8,306
Commercial properties		1,834		6,880		8,714
Land and construction		—		164		164
Commercial and industrial loans		3,122		13,399		16,521
Consumer loans		—		26		26
Total	$	5,043	$	28,688	$	33,731
Loans:
Real estate loans:
Residential properties	$	3,479	$	6,373,745	$	6,377,224
Commercial properties		34,278		1,167,785		1,202,063
Land and construction		—		157,630		157,630
Commercial and industrial loans		9,397		2,975,361		2,984,758
Consumer loans		—		4,518		4,518
Total	$	47,154	$	10,679,039	$	10,726,193

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as loans secured

by multifamily or commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass: Loans classified as pass are strong credits with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of 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 institution will sustain some loss if the deficiencies are not corrected.

A loan is considered impaired, when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Additionally, all loans classified as TDRs are considered impaired. Purchased credit deteriorated loans are not considered impaired loans for these purposes.

Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions above and smaller, homogeneous loans not assessed on an individual basis.

The following tables present risk categories of loans based on year of origination, as of the periods shown.  In accordance with the adoption of ASU 2022-02 in January 2023, gross charge-off information is disclosed by vintage year (year of origination) on a prospective basis beginning in 2023:

													Revolving
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Loans		Total
March 31, 2023:
Loans secured by real estate:
Residential
Multifamily
Pass	$	16,080	$	2,398,706	$	1,547,733	$	793,127	$	297,324	$	278,675	$	—	$	5,331,645
Special mention		—		—		—		—		5,637		11,248		—		16,885
Substandard		—		—		—		—		—		—		—		—
Total	$	16,080	$	2,398,706	$	1,547,733	$	793,127	$	302,961	$	289,923	$	—	$	5,348,530
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Single family
Pass	$	9,505	$	269,712	$	274,013	$	95,026	$	39,831	$	253,304	$	67,462	$	1,008,853
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		3,398		30		3,428
Total	$	9,505	$	269,712	$	274,013	$	95,026	$	39,831	$	256,702	$	67,492	$	1,012,281
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate
Pass	$	13,589	$	221,479	$	157,009	$	134,635	$	85,223	$	477,039	$	—	$	1,088,974
Special mention		—		—		—		2,324		7,040		19,138		—		28,502
Substandard		—		5,864		9,418		698		10,558		10,505		—		37,043
Total	$	13,589	$	227,343	$	166,427	$	137,657	$	102,821	$	506,682	$	—	$	1,154,519
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	249	$	—	$	249
Land and construction
Pass	$	4,205	$	41,435	$	62,677	$	48,764	$	842	$	7,293	$	—	$	165,216
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	4,205	$	41,435	$	62,677	$	48,764	$	842	$	7,293	$	—	$	165,216
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial
Pass	$	52,358	$	1,171,201	$	317,465	$	148,594	$	39,128	$	31,893	$	1,182,534	$	2,943,173
Special mention		—		—		20,671		4,739		192		—		4,824		30,426
Substandard		—		—		365		1,900		1,423		1,023		7,057		11,768
Total	$	52,358	$	1,171,201	$	338,501	$	155,233	$	40,743	$	32,916	$	1,194,415	$	2,985,367
Gross charge-offs	$	—	$	375	$	193	$	86	$	51	$	—	$	1,047	$	1,752
Consumer
Pass	$	10	$	7	$	1,069	$	—	$	332	$	173	$	2,299	$	3,890
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	10	$	7	$	1,069	$	—	$	332	$	173	$	2,299	$	3,890
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	2	$	2
Total loans
Pass	$	95,747	$	4,102,540	$	2,359,966	$	1,220,146	$	462,680	$	1,048,377	$	1,252,295	$	10,541,751
Special mention		—		—		20,671		7,063		12,869		30,386		4,824		75,813
Substandard		—		5,864		9,783		2,598		11,981		14,926		7,087		52,239
Total	$	95,747	$	4,108,404	$	2,390,420	$	1,229,807	$	487,530	$	1,093,689	$	1,264,206	$	10,669,803
Gross charge-offs	$	—	$	375	$	193	$	86	$	51	$	249	$	1,049	$	2,003

													Revolving
(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Loans		Total
December 31, 2022:
Loans secured by real estate:
Residential
Multifamily
Pass	$	2,399,360	$	1,552,311	$	795,263	$	301,025	$	145,675	$	146,622	$	—	$	5,340,256
Special mention		—		—		—		5,666		9,767		1,545		—		16,978
Substandard		—		—		—		—		—		—		—		—
Total	$	2,399,360	$	1,552,311	$	795,263	$	306,691	$	155,442	$	148,167	$	—	$	5,357,234
Single family
Pass	$	270,589	$	276,244	$	96,183	$	40,010	$	49,676	$	215,209	$	68,575	$	1,016,486
Special mention		—		—		—		—		—		—		25		25
Substandard		—		—		—		—		—		3,434		45		3,479
Total	$	270,589	$	276,244	$	96,183	$	40,010	$	49,676	$	218,643	$	68,645	$	1,019,990
Commercial real estate
Pass	$	223,503	$	158,363	$	144,105	$	93,960	$	171,460	$	325,048	$	—	$	1,116,439
Special mention		—		13,425		2,340		7,088		11,734		7,905		—		42,492
Substandard		5,919		14,376		742		10,661		—		11,434		—		43,132
Total	$	229,422	$	186,164	$	147,187	$	111,709	$	183,194	$	344,387	$	—	$	1,202,063
Land and construction
Pass	$	43,846	$	58,268	$	47,212	$	854	$	5,044	$	2,406	$	—	$	157,630
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	43,846	$	58,268	$	47,212	$	854	$	5,044	$	2,406	$	—	$	157,630
Commercial
Pass	$	1,176,851	$	369,775	$	182,889	$	62,767	$	16,306	$	17,558	$	1,133,998	$	2,960,144
Special mention		—		542		1,212		383		—		—		5,573		7,710
Substandard		—		380		2,125		1,810		—		2,736		9,853		16,904
Total	$	1,176,851	$	370,697	$	186,226	$	64,960	$	16,306	$	20,294	$	1,149,424	$	2,984,758
Consumer
Pass	$	456	$	1,092	$	—	$	471	$	133	$	69	$	2,297	$	4,518
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	456	$	1,092	$	—	$	471	$	133	$	69	$	2,297	$	4,518
Total loans
Pass	$	4,114,605	$	2,416,053	$	1,265,652	$	499,087	$	388,294	$	706,912	$	1,204,870	$	10,595,473
Special mention		—		13,967		3,552		13,137		21,501		9,450		5,598		67,205
Substandard		5,919		14,756		2,867		12,471		—		17,604		9,898		63,515
Total	$	4,120,524	$	2,444,776	$	1,272,071	$	524,695	$	409,795	$	733,966	$	1,220,366	$	10,726,193

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral.  Collateral dependent loans are evaluated individually to determine expected credit losses and any allowance for credit losses (“ACL”) allocation is determined based upon the amount by which amortized costs exceed the estimated fair value of the collateral, adjusted

for estimated selling costs (if applicable).  The following table presents the amortized cost basis of collateral dependent loans and the related ACL allocated to these loans as of the dates indicated:

					Equipment/					ACL
(dollars in thousands)	Real Estate		Cash		Receivables		Total			Allocation
March 31, 2023:
Loans secured by real estate:
Residential properties
Single family	$	2,415	$	—	$	—	$	2,415	$	—
Commercial real estate loans		2,637		—		—		2,637		—
Commercial loans		—		250		—		250		—
Total	$	5,052	$	250	$	—	$	5,302	$	—
December 31, 2022:
Loans secured by real estate:
Residential properties
Single family	$	2,435	$	—	$	—	$	2,435	$	—
Commercial real estate loans		3,171		—		—		3,171		—
Commercial loans		—		250		638		888		630
Total	$	5,606	$	250	$	638	$	6,494	$	630