LOANS AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2022

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 5 — LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans, net of deferred costs and fees, consist of the following (in thousands):

	June 30,		December 31,
	2022		2021
Real estate
Commercial	$	2,922,190	$	2,488,382
Construction		185,661		151,791
Multi-family		418,726		355,290
One-to-four family		51,190		57,163
Total real estate loans		3,577,767		3,052,626
Commercial and industrial		780,677		654,535
Consumer		27,657		32,366
Total loans		4,386,101		3,739,527
Deferred fees, net of origination costs		(10,936)		(7,598)
Loans, net of deferred fees and costs		4,375,165		3,731,929
Allowance for loan losses		(40,534)		(34,729)
Net loans	$	4,334,631	$	3,697,200

Included in C&I loans at June 30, 2022 and December 31, 2021 were $125,000 and $561,000, respectively, of PPP loans. Also included in C&I loans at June 30, 2022 and December 31, 2021 were $10.0 million and $4.1 million, respectively, of loans held for sale, measured at the lower of cost or fair value.

The following tables present the activity in the ALLL by segment. The portfolio segments represent the categories that the Company uses to determine its ALLL (in thousands):

	Commercial		Commercial				Multi		One-to-four
Three months ended June 30, 2022	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	24,720	$	8,488	$	2,329	$	2,256	$	104	$	237	$	38,134
Provision/(credit) for loan losses		1,225		656		258		283		(2)		(20)		2,400
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	25,945	$	9,144	$	2,587	$	2,539	$	102	$	217	$	40,534

	Commercial		Commercial				Multi		One-to-four
Three months ended June 30, 2021	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	18,341	$	10,827	$	1,707	$	2,732	$	178	$	1,717	$	35,502
Provision/(credit) for loan losses		1,958		(282)		265		(114)		(9)		57		1,875
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	20,299	$	10,545	$	1,972	$	2,618	$	169	$	1,774	$	37,377

	Commercial		Commercial						One-to-four
Six months ended June 30, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729
Provision (credit) for loan losses		3,729		1,436		482		383		(38)		(192)		5,800
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		5		5
Total ending allowance balance	$	25,945	$	9,144	$	2,587	$	2,539	$	102	$	217	$	40,534

	Commercial		Commercial						One-to-four
Six months ended June 30, 2021	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	17,243	$	12,123	$	1,593	$	2,661	$	206	$	1,581	$	35,407
Provision (credit) for loan losses		3,056		(723)		379		(43)		(37)		193		2,825
Loans charged-off		—		(855)		—		—		—		—		(855)
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	20,299	$	10,545	$	1,972	$	2,618	$	169	$	1,774	$	37,377

There were no charge-offs and recoveries for the three months ended June 30, 2022 and 2021. Net recoveries for the six months ended June 30, 2022 were $5,000. Net charge-offs for the six months ended June 30, 2021 were $855,000.  

The following tables present the balance in the ALLL and the recorded investment in loans by portfolio segment based on impairment method (in thousands):

	Commercial		Commercial						One-to-four
At June 30, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	24	$	24
Collectively evaluated for impairment		25,945		9,144		2,587		2,539		102		193		40,510
Total ending allowance balance	$	25,945	$	9,144	$	2,587	$	2,539	$	102	$	217	$	40,534
Loans:
Individually evaluated for impairment	$	28,549	$	—	$	—	$	—	$	921	$	24	$	29,494
Collectively evaluated for impairment		2,893,641		780,677		185,661		418,726		50,269		27,633		4,356,607
Total ending loan balance	$	2,922,190	$	780,677	$	185,661	$	418,726	$	51,190	$	27,657	$	4,386,101

	Commercial		Commercial						One-to-four
At December 31, 2021	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	26	$	170	$	196
Collectively evaluated for impairment		22,216		7,708		2,105		2,156		114		234		34,533
Total ending allowance balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729
Loans:
Individually evaluated for impairment	$	38,518	$	—	$	—	$	—	$	946	$	302	$	39,766
Collectively evaluated for impairment		2,449,864		654,535		151,791		355,290		56,217		32,064		3,699,761
Total ending loan balance	$	2,488,382	$	654,535	$	151,791	$	355,290	$	57,163	$	32,366	$	3,739,527

The following tables present loans individually evaluated for impairment recognized (in thousands):

					Allowance
	Unpaid				for Loan
	Principal		Recorded		Losses
At June 30, 2022	Balance		Investment		Allocated
With an allowance recorded:
Consumer	$	24	$	24	$	24
Total	$	24	$	24	$	24
Without an allowance recorded:
One-to-four family	$	1,197	$	921	$	—
CRE		28,550		28,549		—
Total	$	29,747	$	29,470	$	—

					Allowance
	Unpaid				for Loan
	Principal		Recorded		Losses
At December 31, 2021	Balance		Investment		Allocated
With an allowance recorded:
One-to-four family	$	577	$	447	$	26
Consumer		302		302		170
Total	$	879	$	749	$	196
Without an allowance recorded:
One-to-four family	$	646	$	499	$	—
CRE		38,518		38,518		—
Total	$	39,164	$	39,017	$	—

	Average		Interest
	Recorded		Income
Three months ended June 30, 2022	Investment		Recognized
With an allowance recorded:
Consumer	$	24	$	—
Total	$	24	$	—
Without an allowance recorded:
One-to-four family	$	927	$	9
CRE		28,514		266
Total	$	29,441	$	275
Three months ended June 30, 2021
With an allowance recorded:
One-to-four family	$	465	$	4
Consumer		2,140		29
C&I		3,145		—
Total	$	5,750	$	33
Without an allowance recorded:
One-to-four family	$	511	$	7
CRE		10,339		37
C&I		192		—
Total	$	11,042	$	44

	Average		Interest
	Recorded		Income
Six months ended June 30, 2022	Investment		Recognized
With an allowance recorded:
Consumer	$	117	$	—
Total	$	117	$	—
Without an allowance recorded:
One-to-four family	$	784	$	18
CRE		31,849		496
Total	$	32,633	$	514
Six months ended June 30, 2021
With an allowance recorded:
One-to-four family	$	470	$	12
Consumer		2,159		58
C&I		3,494		—
Total	$	6,123	$	70
Without an allowance recorded:
One-to-four family	$	514	$	13
CRE		10,341		204
C&I		128		—
Total	$	10,983	$	217

The recorded investment in loans excludes accrued interest receivable and loan origination fees.

For a loan to be considered impaired, management determines whether it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified non-accrual loans and TDRs. Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required.

For discussion on modification of loans to borrowers impacted by COVID-19, refer to the “COVID-19 Loan Modifications” section herein.

The following tables present the recorded investment in non-accrual loans and loans past due over 90 days and still accruing, by class of loans (in thousands):

			Loans Past Due
			Over 90 Days
At June 30, 2022	Nonaccrual		Still Accruing
Consumer	$	24	$	—
Total	$	24	$	—

			Loans Past Due
			Over 90 Days
At December 31, 2021		Nonaccrual	Still Accruing
Commercial real estate	$	9,984	$	—
Consumer		37		265
Total	$	10,021	$	265

Interest income that would have been recorded for the three and six months ended June 30, 2022 and 2021 had non-accrual loans been current according to their original terms was immaterial.

The following tables present the aging of the recorded investment in past due loans by class of loans (in thousands):

					90
	30-59		60-89		Days and		Total past		Current
At June 30, 2022	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	2,922,190	$	2,922,190
Commercial & industrial		95		—		—		95		780,582		780,677
Construction		—		—		—		—		185,661		185,661
Multi-family		—		—		—		—		418,726		418,726
One-to-four family		—		—		—		—		51,190		51,190
Consumer		48		15		24		87		27,570		27,657
Total	$	143	$	15	$	24	$	182	$	4,385,919	$	4,386,101

					90
	30-59		60-89		Days and		Total past		Current
At December 31, 2021	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	—	$	9,984	$	9,984	$	2,478,398	$	2,488,382
Commercial & industrial		151		—		—		151		654,384		654,535
Construction		—		—		—		—		151,791		151,791
Multi-family		—		—		—		—		355,290		355,290
One-to-four family		—		—		—		—		57,163		57,163
Consumer		93		94		302		489		31,877		32,366
Total	$	244	$	94	$	10,286	$	10,624	$	3,728,903	$	3,739,527

Troubled Debt Restructurings

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired.

Included in impaired loans at both June 30, 2022 and December 31, 2021 were $1.3 million of loans modified as TDRs. There were no loans modified as a TDR during the three and six months ended June 30, 2022 and 2021. As of June 30, 2022, the Company has not committed to lend additional amounts to customers with outstanding loans that are classified as TDRs. During the three and six months ended June 30, 2022 and 2021, there were no payment defaults on any loans previously identified as TDRs. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. 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. This evaluation is performed pursuant to the Company’s internal underwriting policy.

The following tables present the recorded investment in TDRs by class of loans (in thousands):

	June 30,		December 31,
	2022		2021
Commercial real estate	$	334	$	342
One-to-four family		921		946
Total	$	1,255	$	1,288

All TDRs at June 30, 2022 and December 31, 2021 were performing in accordance with their restructured terms.

Credit Quality Indicators

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, credit documentation, public information, and current economic trends, among other factors. Except for one-to-four family loans and consumer loans, the Company analyzes loans individually by classifying the loans as to credit risk at least annually. For one-to-four family loans and consumer loans, the Company evaluates credit quality based on the aging status of the loan, which was previously presented. An analysis is performed on a quarterly basis for loans classified as special mention, substandard or doubtful. The Company uses the following definitions for risk ratings:

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’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 Company will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values highly questionable and improbable.

Loans not meeting the criteria above are considered to be pass-rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

			Special
At June 30, 2022	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	2,893,641	$	334	$	28,215	$	—	$	2,922,190
Commercial & industrial		776,790		3,887		—		—		780,677
Construction		185,661		—		—		—		185,661
Multi-family		418,726		—		—		—		418,726
Total	$	4,274,818	$	4,221	$	28,215	$	—	$	4,307,254

			Special
At December 31, 2021	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	2,449,864	$	342	$	38,176	$	—	$	2,488,382
Commercial & industrial		646,251		4,177		4,107		—		654,535
Construction		151,791		—		—		—		151,791
Multi-family		355,290		—		—		—		355,290
Total	$	3,603,196	$	4,519	$	42,283	$	—	$	3,649,998

COVID-19 Loan Modifications

As of June 30, 2022, the Company had six loans amounting to $47.0 million, or 1.07% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of June 30, 2022, principal payment deferrals were $47.1 million, or 1.07% of total loans, while none were full payment deferrals.

As of December 31, 2021, the Company had eight loans amounting to $48.9 million, or 1.31% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of December 31, 2021, principal payment deferrals were $39.1 million, or 1.05% of total loans, while full payment deferrals were $9.9 million, or 0.26% of total loans.