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Loans
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
Loans Loans
 
The following table summarizes the Company’s loans held-for-investment (in thousands):

 September 30,December 31,
 20232022
Real estate loans: 
Multifamily$2,782,141 $2,824,579 
Commercial mortgage932,987 899,249 
One-to-four family residential mortgage164,525 173,946 
Home equity and lines of credit160,798 152,555 
Construction and land32,290 24,932 
Total real estate loans4,072,741 4,075,261 
Commercial and industrial loans (1)
144,788 154,700 
Other loans2,074 2,230 
Total commercial and industrial and other loans146,862 156,930 
Loans held-for-investment (excluding purchased credit-deteriorated (“PCD”) loans)
4,219,603 4,232,191 
PCD loans10,371 11,502 
Total loans held-for-investment4,229,974 4,243,693 
Allowance for credit losses(38,480)(42,617)
Net loans held-for-investment$4,191,494 $4,201,076 
(1) Included in commercial and industrial loans at September 30, 2023 and December 31, 2022 are Payment Protection Program ("PPP") loans totaling $325,000 and $5.1 million, respectively.

The Company had $950,000 of loans held-for-sale at September 30, 2023 and no loans held-for-sale at December 31, 2022.

In addition to originating loans, the Company may acquire loans through portfolio purchases or acquisitions of other companies. Purchased loans that have evidence of more than insignificant credit deterioration since origination are deemed PCD loans. For PCD loans, each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. PCD loans totaled $10.4 million at September 30, 2023, as compared to $11.5 million at December 31, 2022. The majority of the PCD loan balances were acquired as part of a Federal Deposit Insurance Corporation-assisted transaction. At September 30, 2023, PCD loans consisted of approximately 10% home equity loans, 27% commercial real estate loans, 55% commercial and industrial loans, and 8% in one-to-four family residential loans. At December 31, 2022, PCD loans consisted of approximately 9% one-to-four family residential loans, 28% commercial real estate loans, 53% commercial and industrial loans, and 10% in home equity loans.
Credit Quality Indicators

The Company monitors the credit quality of its loan portfolio on a regular basis. Credit quality is monitored by reviewing certain credit quality indicators. Management has determined that loan-to-value (“LTV”) ratios (at period end) and internally assigned credit risk ratings by loan type are the key credit quality indicators that best measure the credit quality of the Company’s loan receivables. LTV ratios used by management in monitoring credit quality are based on current period loan balances and original appraised values at the time of origination (unless a current appraisal has been obtained as a result of the loan being deemed impaired). 
 
The Company maintains a credit risk rating system as part of the risk assessment of its loan portfolio. The Company’s lending officers are required to assign a credit risk rating to each loan in their portfolio at origination. This risk rating is reviewed periodically and adjusted if necessary. Monthly, management presents monitored assets to the loan committee. In addition, the Company engages a third-party independent loan reviewer that performs semi-annual reviews of a sample of loans, validating the credit risk ratings assigned to such loans. The credit risk ratings play an important role in the establishment of the provision for credit losses on loans and the allowance for credit losses for loans held-for-investment. After determining the loss factor for each portfolio segment held-for-investment, the collectively evaluated for impairment balance of the held-for-investment portfolio is multiplied by the collectively evaluated for impairment loss factor for the respective portfolio segment in order to determine the allowance for loans collectively evaluated for impairment.

When assigning a credit risk rating to a loan, management utilizes the Bank’s internal nine-point credit risk rating system. 

1.Strong
2.Good
3.Acceptable
4.Adequate
5.Watch
6.Special Mention
7.Substandard
8.Doubtful
9.Loss
 
Loans rated 1 to 5 are considered pass ratings. An asset is classified substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable based on current circumstances. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets which do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses, are required to be designated special mention.
The following table presents the Company’s loans held-for-investment and current period gross charge-offs, excluding PCD loans, by loan class, credit risk ratings and year of origination, at September 30, 2023 (in thousands):

 September 30, 2023
 20232022202120202019PriorRevolving LoansTotal
Real Estate:   
Multifamily   
Pass$86,526 $617,861 $652,903 $470,913 $250,844 $693,124 $601 $2,772,772 
Special mention— — — — — 331 — 331 
Substandard— — — — — 9,038 — 9,038 
Total multifamily86,526 617,861 652,903 470,913 250,844 702,493 601 2,782,141 
Commercial   
Pass84,267 209,944 156,104 66,719 88,529 310,461 2,143 918,167 
Special mention— — — — — 722 — 722 
Substandard— 2,851 — — — 10,947 300 14,098 
Total commercial84,267 212,795 156,104 66,719 88,529 322,130 2,443 932,987 
One-to-four family residential   
Pass6,226 27,036 12,115 8,435 9,138 99,554 952 163,456 
Special mention— — — — — 352 — 352 
Substandard— — — — — 717 — 717 
Total one-to-four family residential6,226 27,036 12,115 8,435 9,138 100,623 952 164,525 
Home equity and lines of credit
Pass18,647 34,510 15,648 7,357 5,512 14,314 64,478 160,466 
Special mention— — — — — 68 — 68 
Substandard— — 22 — 90 152 — 264 
Total home equity and lines of credit18,647 34,510 15,670 7,357 5,602 14,534 64,478 160,798 
Construction and land
Pass753 8,319 1,725 10,251 1,213 7,378 2,651 32,290 
Total construction and land753 8,319 1,725 10,251 1,213 7,378 2,651 32,290 
Total real estate loans196,419 900,521 838,517 563,675 355,326 1,147,158 71,125 4,072,741 
Commercial and industrial
Pass7,025 27,846 18,348 2,932 2,818 8,032 61,651 128,652 
Special mention— 250 — 61 — 106 — 417 
Substandard5 941 14,196 116 96 365 — 15,719 
Total commercial and industrial7,030 29,037 32,544 3,109 2,914 8,503 61,651 144,788 
Current period gross charge-offs1,488 2,164 1,101 437 12 113 — 5,315 
Other
Pass1,950 — — 56 — 14 44 2,064 
Substandard— — — — — — 10 10 
Total other1,950 — — 56 — 14 54 2,074 
Total loans held-for-investment$205,399 $929,558 $871,061 $566,840 $358,240 $1,155,675 $132,830 $4,219,603 
Total current-period gross charge-offs$1,488 $2,164 $1,101 $437 $12 $113 $— $5,315 
The following table presents the Company’s loans held-for-investment, excluding PCD loans, by loan class, credit risk ratings and year of origination, at December 31, 2022 (in thousands):

 December 31, 2022
 20222021202020192018PriorRevolving LoansTotal
Real Estate:   
Multifamily   
Pass$632,613 $676,370 $500,069 $255,374 $204,810 $545,335 $521 $2,815,092 
Substandard— — — — 3,525 5,962 — 9,487 
Total multifamily632,613 676,370 500,069 255,374 208,335 551,297 521 2,824,579 
Commercial   
Pass213,621 147,419 68,215 90,644 72,512 275,606 1,664 869,681 
Special mention— — — — — 4,852 — 4,852 
Substandard2,889 10,574 — — — 11,253 — 24,716 
Total commercial216,510 157,993 68,215 90,644 72,512 291,711 1,664 899,249 
One-to-four family residential   
Pass26,432 12,340 8,623 10,057 7,227 105,787 1,006 171,472 
Special mention— — — — — 1,716 — 1,716 
Substandard— — — — — 758 — 758 
Total one-to-four family residential26,432 12,340 8,623 10,057 7,227 108,261 1,006 173,946 
Home equity and lines of credit
Pass36,513 16,053 8,198 5,948 4,484 11,315 69,539 152,050 
Special mention— — — — — 70 — 70 
Substandard— — — 92 48 295 — 435 
Total home equity and lines of credit36,513 16,053 8,198 6,040 4,532 11,680 69,539 152,555 
Construction and land
Pass8,121 1,145 6,335 1,276 1,427 3,905 653 22,862 
Substandard— — — — 2,070 — — 2,070 
Total construction and land8,121 1,145 6,335 1,276 3,497 3,905 653 24,932 
Total real estate loans920,189 863,901 591,440 363,391 296,103 966,854 73,383 4,075,261 
Commercial and industrial
Pass16,941 14,805 7,754 3,754 1,460 8,172 98,969 151,855 
Special mention— — 48 — — 124 214 386 
Substandard291 482 96 50 200 217 1,123 2,459 
Total commercial and industrial17,232 15,287 7,898 3,804 1,660 8,513 100,306 154,700 
Other
Pass2,010 — 114 5 6 21 74 2,230 
Total other2,010 — 114 5 6 21 74 2,230 
Total loans held-for-investment$939,431 $879,188 $599,452 $367,200 $297,769 $975,388 $173,763 $4,232,191 
Past Due and Non-Accrual Loans

Included in loans receivable held-for-investment are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment of these non-accrual loans was $9.6 million and $9.8 million at September 30, 2023 and December 31, 2022, respectively. Generally, originated loans are placed on non-accrual status when they become 90 days or more delinquent, or sooner if considered appropriate by management, and remain on non-accrual status until they are brought current, have six consecutive months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. 
Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing status.    

When an individual loan no longer demonstrates the similar credit risk characteristics as other loans within its current segment, the Company evaluates each for expected credit losses on an individual basis. All non-accrual loans $500,000 and above and all loans designated as TDRs prior to the adoption of ASU 2022-02 are individually evaluated. The non-accrual amounts included in loans individually evaluated for impairment were $5.0 million and $5.2 million at September 30, 2023, and December 31, 2022, respectively. Loans on non-accrual status with principal balances less than $500,000, and therefore not meeting the Company's definition of an impaired loan, amounted to $4.6 million at both September 30, 2023 and December 31, 2022, respectively. Loans past due 90 days or more and still accruing interest were $592,000 and $425,000 at September 30, 2023 and December 31, 2022, respectively, and consisted of loans that are well-secured and in the process of collection.
The following tables set forth the detail, and delinquency status, of non-performing loans (non-accrual loans and loans past due 90 days or more and still accruing), net of deferred fees and costs, at September 30, 2023, and December 31, 2022, excluding PCD loans (in thousands):

 September 30, 2023
 Total Non-Performing Loans
 Non-Accruing Loans  
 Current30-89 Days Past Due90 Days or More Past DueTotal90 Days or More Past Due and AccruingTotal Non-Performing Loans
Loans held-for-investment:      
Real estate loans:      
Multifamily      
Substandard$2,248 $— $825 $3,073 $209 $3,282 
Total multifamily2,248 — 825 3,073 209 3,282 
Commercial
Substandard2,875 — 2,560 5,435 114 5,549 
Total commercial2,875 — 2,560 5,435 114 5,549 
One-to-four family residential      
Substandard79 — 27 106 139 245 
Total one-to-four family residential79 — 27 106 139 245 
Home equity and lines of credit      
Pass— — — — 39 39 
Substandard22 — 76 98 76 174 
Total home equity and lines of credit22 — 76 98 115 213 
Total real estate 5,224 — 3,488 8,712 577 9,289 
Commercial and industrial loans      
Pass— — — — 15 15 
Substandard97 — 751 848 — 848 
Total commercial and industrial loans97 — 751 848 15 863 
Other loans      
Substandard— — 10 10 — 10 
Total other — — 10 10 — 10 
Total non-performing loans $5,321 $— $4,249 $9,570 $592 $10,162 
 December 31, 2022
 Total Non-Performing Loans
 Non-Accruing Loans  
 Current30-89 Days Past Due90 Days or More Past DueTotal90 Days or More Past Due and AccruingTotal Non-Performing Loans
Loans held-for-investment:      
Real estate loans:      
Multifamily      
Substandard$1,923 $— $1,362 $3,285 $233 $3,518 
Total multifamily1,923 — 1,362 3,285 233 3,518 
Commercial
Substandard2,806 431 1,947 5,184 8 5,192 
Total commercial2,806 431 1,947 5,184 8 5,192 
One-to-four family residential      
Substandard— — 118 118 155 273 
Total one-to-four family residential— — 118 118 155 273 
Home equity and lines of credit
Substandard186 — 76 262 — 262 
Total home equity and lines of credit186 — 76 262 — 262 
Total real estate4,915 431 3,503 8,849 396 9,245 
Commercial and industrial loans      
Substandard— 26 938 964 24 988 
Total commercial and industrial loans— 26 938 964 24 988 
Other loans
Pass— — — — 5 5 
Total other— — — — 5 5 
Total non-performing loans$4,915 $457 $4,441 $9,813 $425 $10,238 
The following tables set forth the detail and delinquency status of loans held-for-investment, excluding PCD loans, net of deferred fees and costs, at September 30, 2023, and December 31, 2022 (in thousands):

 September 30, 2023
 Past Due Loans 
 30-89 Days Past Due90 Days or More Past Due90 Days or More Past Due and AccruingTotal Past DueCurrentTotal Loans Receivable, net
Loans held-for-investment:  
Real estate loans:  
Multifamily
Pass$178 $— $— $178 $2,772,594 $2,772,772 
Special mention— — — — 331 331 
Substandard— 825 209 1,034 8,004 9,038 
Total multifamily178 825 209 1,212 2,780,929 2,782,141 
Commercial  
Pass716 — — 716 917,451 918,167 
Special mention— — — — 722 722 
Substandard1,176 2,560 114 3,850 10,248 14,098 
Total commercial1,892 2,560 114 4,566 928,421 932,987 
One-to-four family residential  
Pass2,643 — — 2,643 160,813 163,456 
Special mention65 — — 65 287 352 
Substandard— 27 139 166 551 717 
Total one-to-four family residential2,708 27 139 2,874 161,651 164,525 
Home equity and lines of credit
Pass1,116 — 39 1,155 159,311 160,466 
Special mention— — — — 68 68 
Substandard90 76 76 242 22 264 
Total home equity and lines of credit1,206 76 115 1,397 159,401 160,798 
Construction and land  
Pass— — — — 32,290 32,290 
Total construction and land— — — — 32,290 32,290 
Total real estate5,984 3,488 577 10,049 4,062,692 4,072,741 
Commercial and industrial   
Pass1,574 — 15 1,589 127,063 128,652 
Special mention293 — — 293 124 417 
Substandard250 751 — 1,001 14,718 15,719 
Total commercial and industrial 2,117 751 15 2,883 141,905 144,788 
Other loans  
Pass4 — — 4 2,060 2,064 
Substandard— 10 — 10 — 10 
Total other loans4 10 — 14 2,060 2,074 
Total loans held-for-investment$8,105 $4,249 $592 $12,946 $4,206,657 $4,219,603 
 December 31, 2022
 Past Due Loans 
 30-89 Days Past Due90 Days or More Past Due90 Days or More Past Due and AccruingTotal Past DueCurrentTotal Loans Receivable, net
Loans held-for-investment:
Real estate loans:
Multifamily
Pass$189 $— $— $189 $2,814,903 $2,815,092 
Substandard— 1,362 233 1,595 7,892 9,487 
Total multifamily189 1,362 233 1,784 2,822,795 2,824,579 
Commercial
Pass726 — — 726 868,955 869,681 
Special mention— — — — 4,852 4,852 
Substandard605 1,947 8 2,560 22,156 24,716 
Total commercial1,331 1,947 8 3,286 895,963 899,249 
One-to-four family residential
Pass603 — — 603 170,869 171,472 
Special mention69 — — 69 1,647 1,716 
Substandard— 118 155 273 485 758 
Total one-to-four family residential672 118 155 945 173,001 173,946 
Home equity and lines of credit
Pass657 — — 657 151,393 152,050 
Special mention— — — — 70 70 
Substandard173 76 — 249 186 435 
Total home equity and lines of credit830 76 — 906 151,649 152,555 
Construction and land
Pass— — — — 22,862 22,862 
Substandard— — — — 2,070 2,070 
Total construction and land— — — — 24,932 24,932 
Total real estate3,022 3,503 396 6,921 4,068,340 4,075,261 
Commercial and industrial
Pass573 — — 573 151,282 151,855 
Special mention— — — — 386 386 
Substandard498 938 24 1,460 999 2,459 
Total commercial and industrial1,071 938 24 2,033 152,667 154,700 
Other loans
Pass5 — 5 10 2,220 2,230 
Total other loans5 — 5 10 2,220 2,230 
Total loans held-for-investment$4,098 $4,441 $425 $8,964 $4,223,227 $4,232,191 
The following tables summarize information on non-accrual loans, excluding PCD loans, as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023
Recorded InvestmentUnpaid Principal BalanceWith No Related Allowance
Real estate loans:
Multifamily$3,073 $3,360 $1,917 
Commercial5,435 5,890 3,019 
One-to-four family residential106 106 — 
Home equity and lines of credit98 348 — 
Commercial and industrial848 4,468 80 
Other10 9 — 
Total non-accrual loans$9,570 $14,181 $5,016 

December 31, 2022
Recorded InvestmentUnpaid Principal BalanceWith No Related Allowance
Real estate loans:
Multifamily$3,285 $3,294 $2,050 
Commercial5,184 5,639 3,069 
One-to-four family residential118 118 — 
Home equity and lines of credit262 512 — 
Commercial and industrial964 1,288 67 
Total non-accrual loans$9,813 $10,851 $5,186 

The following table summarizes interest income on non-accrual loans, excluding PCD loans, during the three and nine months ended September 30, 2023 and September 30, 2022 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Real estate loans:
Multifamily$41 $25 $144 $73 
Commercial63 26 183 108 
One-to-four family residential1 — 6 10 
Home equity and lines of credit— 5 1 16 
Commercial and industrial48 6 77 14 
Total interest income on non-accrual loans$153 $62 $411 $221 
Collateral-Dependent Loans

Loans for which the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral are considered to be collateral-dependent loans. Collateral can have a significant financial effect in mitigating exposure to credit risk and, where there is sufficient collateral, an allowance for credit losses is not recognized or is minimal. For collateral-dependent loans, the allowance for credit losses is individually assessed based on the fair value of the collateral less estimated costs of sale. The Company's collateral-dependent loans are secured by real estate. Collateral values are generally based on appraisals which are adjusted for changes in market indices. As of September 30, 2023 and December 31, 2022, the Company had $7.0 million and $7.4 million of collateral-dependent impaired loans, respectively. The collateral-dependent loans at September 30, 2023 consisted of $4.7 million of commercial real estate loans, $1.9 million of multifamily loans, and $309,000 of one-to-four family residential loans. For the nine months ended September 30, 2023, there was no significant deterioration or changes in the collateral securing these loans.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, the Company adopted ASU 2022-02, which eliminated the accounting for TDRs while expanding loan modification and vintage disclosure requirements. See Note 1 to the consolidated financial statements for further information.

The following tables present the amortized cost basis at September 30, 2023 of loan modifications made to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2023 by class and by type of modification (dollars in thousands):
Three Months Ended September 30, 2023
Payment Delay
Term Extension(1)
Payment Delay and Interest Rate ReductionPayment Delay, Term Extension, and Interest Rate ReductionsTotalPercentage of Total Class of Financing Receivable
Commercial mortgage$171 $— $— $— $171 0.02 %
Commercial and industrial96 13,379 — 390 13,865 9.58 %
Total loans$267 $13,379 $— $390 $14,036 

Nine Months Ended September 30, 2023
Payment Delay
Term Extension(1)
Payment Delay and Interest Rate ReductionPayment Delay, Term Extension, and Interest Rate ReductionsTotalPercentage of Total Class of Financing Receivable
Commercial mortgage$236 $— $— $— $236 0.03 %
Commercial and industrial96 13,379 208 636 14,319 9.89 %
Total loans$332 $13,379 $208 $636 $14,555 
(1) Represents one loan that was risk rated substandard and was modified during the three months ended September 30, 2023, to receive a maturity extension of 90-days through November 1, 2023. This loan previously had multiple extensions. The loan was originally downgraded to substandard due to operating losses, however the current debt service coverage ratio is 1.84x and the loan is adequately secured by receivables in excess of $18 million. The loan is current as of September 30, 2023.
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023 (in thousands):
Weighted-Average Term Extension (in months)Weighted-Average Interest Rate Reduction
Three Months Ended September 30, 2023
Commercial and industrial3.42.87 %
Nine Months Ended September 30, 2023
Commercial and industrial3.53.75 %
No modifications involved forgiveness of principal. There were no commitments to lend additional funds to borrowers experiencing financial difficulty whose terms have been restructured at September 30, 2023.
For restructured loans, a subsequent payment default is defined in terms of delinquency, when a principal or interest payment is 90 days past due or classified into non-accrual status during the reporting period. Of the loans restructured during the three and nine months ended September 30, 2023 (since adoption of ASU 2022-02), there was one commercial and industrial loan with a balance of approximately $76,000 that subsequently defaulted and was charged-off during the quarter ended September 30, 2023.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of the modification efforts. The following tables present the aging analysis of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023 (in thousands):
Three Months Ended September 30, 2023
Current30-89 Days Past Due90 Days or More Past DueNon-AccrualTotal
Commercial mortgage$— $— $— $171 $171 
Commercial and industrial13,865 — — — 13,865 
Total loans$13,865 $— $— $171 $14,036 
Nine Months Ended September 30, 2023
Current30-89 Days Past Due90 Days or More Past DueNon-AccrualTotal
Commercial mortgage$— $65 $— $171 $236 
Commercial and industrial14,319 — — — 14,319 
Total loans$14,319 $65 $— $171 $14,555 

Troubled Debt Restructured Loans prior to the adoption of ASU 2022-02
Prior to the adoption of ASU 2022-02, the Company classified certain loans as TDRs when credit terms to a borrower in financial difficulty were modified, in accordance with ASC 310-40. With the adoption of ASU 2022-02 the Company has ceased to recognize or measure for new TDRs, but those existing at December 31, 2022 will remain until settled.
    
There were no loans modified as a TDR during the three or nine months ended September 30, 2022.
At December 31, 2022 the Company had TDRs of $7.0 million.
Management classifies all TDRs as loans individually evaluated for impairment. Loans individually evaluated for impairment are assessed to determine that the loan’s carrying value is not in excess of the estimated fair value of the collateral less cost to sell, if the loan is collateral-dependent, or the present value of the expected future cash flows, if the loan is not collateral-dependent. Management performs an evaluation of each impaired loan and generally obtains updated appraisals as part of the evaluation. In addition, management adjusts estimated fair values down to appropriately consider recent market conditions, our willingness to accept a lower sales price to effect a quick sale, and costs to dispose of any supporting collateral. Determining the estimated fair value of underlying collateral (and related costs to sell) can be difficult in illiquid real estate markets and is subject to significant assumptions and estimates. Management employs an independent third-party management firm that specializes in appraisal preparation and review to ascertain the reasonableness of updated appraisals. Projecting the expected cash flows under TDRs which are not collateral-dependent is inherently subjective and requires, among other things, an evaluation of the borrower’s current and projected financial condition. Actual results may be significantly different than our projections and our established allowance for credit losses on these loans, which could have a material effect on our financial results.

At September 30, 2022, there were no restructured TDRs during the preceding twelve months that subsequently defaulted.