Allowance for Losses on Loans

9 Months Ended

Jun. 30, 2020

For a detailed discussion of loans and credit quality, including accounting policies and the CECL methodology used to estimate the allowance for credit losses, see Note A, Summary of Significant Accounting Policies.

As a result of the adoption of ASC 326 in the third fiscal quarter, with an effective date of October 1, 2019, there is a lack of comparability in both the allowance and provisions for credit losses for the periods presented. Results for reporting periods beginning after October 1, 2019 are presented using the CECL methodology, while comparative period information continues to be reported in accordance with the incurred loss methodology in effect for prior fiscal years. See Note B, "New Accounting Pronouncements", for details regarding the adoption of ASC 326.


	October 1, 2019		December 31, 2019		March 31, 2020		June 30, 2020
(In thousands)
Allowance for credit losses:
Commercial loans
Multi-family	$	10,404	$	10,506	$	11,742	$	12,088
Commercial real estate	13,024		13,067		14,639		15,807
Commercial & industrial	32,235		33,676		38,576		42,179
Construction	22,768		21,919		23,348		25,693
Land - acquisition & development	10,904		10,413		10,399		10,641
Total commercial loans	89,335		89,581		98,704		106,408
Consumer loans
Single-family residential	47,771		46,356		46,817		47,149
Construction - custom	2,880		2,930		3,175		3,336
Land - consumer lot loans	2,635		2,567		2,578		2,671
HELOC	2,048		2,034		2,246		2,588
Consumer	4,615		4,045		3,581		3,197
Total consumer loans	59,949		57,932		58,397		58,941
Total allowance for loan losses	149,284		147,513		157,101		165,349
Reserve for unfunded commitments	17,650		18,250		18,650		19,500
Total allowance for credit losses	$	166,934	$	165,763	$	175,751	$	184,849

Beginning balance			$	166,934	$	165,763	$	175,751
Net (charge-offs) recoveries			2,579		1,788		(1,702)
Net provision (release)			(3,750)		8,200		10,800
Ending balance			$	165,763	$	175,751	$	184,849

The following tables summarize the activity in the allowance for loan losses by loan portfolio segment and class.


Three Months Ended June 30, 2020	Beginning Allowance (After ASC 326 Adoption)		Charge-offs		Recoveries		Provision & Transfers		Ending Allowance (After ASC 326 Adoption)
	(In thousands)
Commercial loans
Multi-family	$	11,742	$	—	$	—	$	346	$	12,088
Commercial real estate	14,639		—		193		975		15,807
Commercial & industrial	38,576		(3,034)		174		6,463		42,179
Construction	23,348		—		—		2,345		25,693
Land - acquisition & development	10,399		—		433		(191)		10,641
Total commercial loans	98,704		(3,034)		800		9,938		106,408
Consumer loans
Single-family residential	46,817		(60)		437		(45)		47,149
Construction - custom	3,175		—		—		161		3,336
Land - consumer lot loans	2,578		—		17		76		2,671
HELOC	2,246		—		1		341		2,588
Consumer	3,581		(233)		370		(521)		3,197
Total consumer loans	58,397		(293)		825		12		58,941
Total loans	$	157,101	$	(3,327)	$	1,625	$	9,950	$	165,349


Three Months Ended June 30, 2019	Beginning Allowance (Before ASC 326 Adoption)		Charge-offs		Recoveries		Provision & Transfers		Ending Allowance (Before ASC 326 Adoption)
	(In thousands)
Commercial loans
Multi-family	$	7,394	$	—	$	—	$	(111)	$	7,283
Commercial real estate	12,448		—		90		466		13,004
Commercial & industrial	30,574		(4,034)		3,218		1,313		31,071
Construction	33,396		—		—		661		34,057
Land - acquisition & development	9,734		(65)		2,025		(2,306)		9,388
Total commercial loans	93,546		(4,099)		5,333		23		94,803
Consumer loans
Single-family residential	31,476		(65)		47		56		31,514
Construction - custom	1,976		(339)		—		247		1,884
Land - consumer lot loans	2,076		(215)		—		171		2,032
HELOC	1,082		—		1		4		1,087
Consumer	2,930		(34)		307		(501)		2,702
Total consumer loans	39,540		(653)		355		(23)		39,219
Total loans	$	133,086	$	(4,752)	$	5,688	$	—	$	134,022


Nine Months Ended June 30, 2020	Beginning Allowance (Before ASC 326 Adoption)		Impact of ASC 326 Adoption		Charge-offs		Recoveries		Provision & Transfers		Ending Allowance (After ASC 326 Adoption)
	(In thousands)
Commercial loans
Multi-family	$	7,391	$	3,013	$	—	$	498	$	1,186	$	12,088
Commercial real estate	13,170		(146)		(111)		1,581		1,313		15,807
Commercial & industrial	31,450		785		(3,213)		375		12,782		42,179
Construction	32,304		(9,536)		—		59		2,866		25,693
Land - acquisition & development	9,155		1,749		(11)		2,019		(2,271)		10,641
Total commercial loans	93,470		(4,135)		(3,335)		4,532		15,876		106,408
Consumer loans
Single-family residential	30,988		16,783		(75)		891		(1,438)		47,149
Construction - custom	1,369		1,511		—		—		456		3,336
Land - consumer lot loans	2,143		492		(147)		503		(320)		2,671
HELOC	1,103		945		—		95		445		2,588
Consumer	2,461		2,154		(838)		1,039		(1,619)		3,197
Total consumer loans	38,064		21,885		(1,060)		2,528		(2,476)		58,941
Total loans	$	131,534	$	17,750	$	(4,395)	$	7,060	$	13,400	$	165,349


Nine Months Ended June 30, 2019	Beginning Allowance (Before ASC 326 Adoption)		Charge-offs		Recoveries		Provision & Transfers		Ending Allowance (Before ASC 326 Adoption)
	(In thousands)
Commercial loans
Multi-family	$	8,329	$	—	$	—	$	(1,046)	$	7,283
Commercial real estate	11,852		(339)		860		631		13,004
Commercial & industrial	28,702		(4,499)		3,276		3,592		31,071
Construction	31,317		—		—		2,740		34,057
Land - acquisition & development	7,978		(65)		5,107		(3,632)		9,388
Total commercial loans	88,178		(4,903)		9,243		2,285		94,803
Consumer loans
Single-family residential	33,033		(238)		586		(1,867)		31,514
Construction - custom	1,842		(339)		—		381		1,884
Land - consumer lot loans	2,164		(336)		265		(61)		2,032
HELOC	781		(1,086)		45		1,347		1,087
Consumer	3,259		(506)		784		(835)		2,702
Total consumer loans	41,079		(2,505)		1,680		(1,035)		39,219
Total loans	$	129,257	$	(7,408)	$	10,923	$	1,250	$	134,022

Primarily due to the continued economic distress caused by the COVID-19 pandemic, the Company recorded a $10,800,000 provision for credit losses for the three months ended June 30, 2020, compared with no provision being recorded for the three months ended June 30, 2019. A provision for credit losses of $15,250,000 and $250,000 was recorded during the nine months ended June 30, 2020 and June 30, 2019, respectively. The relatively significant credit loss provisions for the three months ended and nine months ended June 30, 2020 are due to COVID-19 related factors including estimated impacts to the energy, hospitality, restaurant and senior living industries. Charge-offs, net of recoveries, totaled $1,702,000 for the three months ended June 30, 2020, compared to net recoveries of $936,000 during the three months ended June 30, 2019. Recoveries, net of charge-offs, totaled $2,665,000 for the nine months ended June 30, 2020, compared to net recoveries of $3,515,000 during the nine months ended June 30, 2019. No allowance was recorded as of June 30, 2020 for the $758,955,000 of PPP loans, which are included in the commercial & industrial loan category, due to the government guarantee.

Non-performing assets were $44,630,000, or 0.25% of total assets, at June 30, 2020, compared to $43,826,000, or 0.27% of total assets, at September 30, 2019. Non-accrual loans were $35,001,000 at June 30, 2020, compared to $33,731,000 at September 30, 2019. Delinquencies, as a percent of total loans, were 0.32% at June 30, 2020, compared to 0.29% at September 30, 2019.

The following table shows loans collectively and individually evaluated for impairment and the related allocation of general and specific reserves.


September 30, 2019	Loans Collectively Evaluated for Impairment										Loans Individually Evaluated for Impairment
	Allowance Allocation		Recorded Investment of Loans		Ratio		Allowance Allocation		Recorded Investment of Loans		Ratio
	(In thousands, except ratio data)										(In thousands, except ratio data)
Commercial loans
Multi-family	$	7,387	$	1,422,266	0.5	%	$	4	$	385	1.0	%
Commercial real estate	12,847		1,618,406		0.8		323		12,765		2.5
Commercial & industrial	31,358		1,266,913		2.5		92		1,805		5.1
Construction	32,304		1,164,889		2.8		—		—		—
Land - acquisition & development	9,135		160,964		5.7		20		230		8.7
Total commercial loans	93,031		5,633,438		1.7		439		15,185		2.9
Consumer loans
Single-family residential	30,988		5,822,200		0.5		—		17,978		—
Construction - custom	1,369		255,505		0.5		—		—		—
Land - consumer lot loans	2,143		95,574		2.2		—		375		—
HELOC	1,103		140,378		0.8		—		837		0.0
Consumer	2,461		129,527		1.9		—		50		0.0
Total consumer loans	38,064		6,443,184		0.6		—		19,240		—
Total loans	$	131,095	$	12,076,622	1.1	%	$	439	$	34,425	1.3	%

The Company has an asset quality review function that analyzes its loan portfolio and reports the results of the review to its Board of Directors on a quarterly basis. The single-family residential, HELOC and consumer portfolios are evaluated based on their performance as a pool of loans, since no single loan is individually significant or judged by its risk rating, size or potential risk of loss. The construction, land, multi-family, commercial real estate and commercial and industrial loans are risk rated on a loan by loan basis to determine the relative risk inherent in specific borrowers or loans. Based on that risk rating, the loans are assigned a grade and classified as described in Note D "Loans Receivable."

The following table provides the amortized cost of loans receivable based on risk rating categories as previously defined.


June 30, 2020	Internally Assigned Grade
	Pass			Special mention			Substandard			Doubtful			Loss			Total
	(In thousands, except ratio data)
Loan type
Commercial loans
Multi-family	$	1,478,551		$	13,749		$	17,537		$	—		$	—		$	1,509,837
Commercial real estate	1,513,394			117,753			69,421			—			—			1,700,568
Commercial & industrial	1,941,389			59,747			136,344			982			—			2,138,462
Construction	1,217,628			91,519			25,801			—			—			1,334,948
Land - acquisition & development	134,243			15,573			2,418			—			—			152,234
Total commercial loans	6,285,205			298,341			251,521			982			—			6,836,049
Consumer loans
Single-family residential	5,426,365			—			26,059			—			—			5,452,424
Construction - custom	278,182			—			—			—			—			278,182
Land - consumer lot loans	98,976			—			279			—			—			99,255
HELOC	138,695			—			2,470			—			—			141,165
Consumer	91,685			—			15			—			—			91,700
Total consumer loans	6,033,903			—			28,823			—			—			6,062,726
Total	$	12,319,108		$	298,341		$	280,344		$	982		$	—		$	12,898,775

Total grade as a % of total loans	95.51		%	2.31		%	2.17		%	0.01		%	—		%

The following table provides gross loans receivable based on risk rating categories as previously defined.


September 30, 2019	Internally Assigned Grade
	Pass			Special mention			Substandard			Doubtful			Loss			Total Gross Loans
	(In thousands, except ratio data)
Loan type
Commercial loans
Multi-family	$	1,418,837		$	—		$	3,837		$	—		$	—		$	1,422,674
Commercial real estate	1,602,634			2,754			25,782			—			—			1,631,170
Commercial & industrial	1,229,891			18,125			20,679			—			—			1,268,695
Construction	2,038,052			—			—			—			—			2,038,052
Land - acquisition & development	200,283			—			3,824			—			—			204,107
Total commercial loans	6,489,697			20,879			54,122			—			—			6,564,698
Consumer loans
Single-family residential	5,808,444			—			26,750			—			—			5,835,194
Construction - custom	540,741			—			—			—			—			540,741
Land - consumer lot loans	98,828			—			866			—			—			99,694
HELOC	141,271			—			907			—			—			142,178
Consumer	129,872			—			11			—			—			129,883
Total consumer loans	6,719,156			—			28,534			—			—			6,747,690
Total gross loans	$	13,208,853		$	20,879		$	82,656		$	—		$	—		$	13,312,388

Total grade as a % of total gross loans	99.22		%	0.16		%	0.62		%	—		%	—		%

The following table provides information on amortized cost of loans receivable based on borrower payment activity.


June 30, 2020	Performing Loans						Non-Performing Loans
	Amount		% of Total Loans		Amount		% of Total Loans
	(In thousands, except ratio data)
Commercial loans
Multi-family	$	1,509,613	100.0	%	$	224	—	%
Commercial real estate	1,697,152		99.8		3,416		0.2
Commercial & industrial	2,136,615		99.9		1,847		0.1
Construction	1,331,595		99.7		3,353		0.3
Land - acquisition & development	152,156		99.9		78		0.1
Total commercial loans	6,827,131		99.9		8,918		0.1
Consumer loans
Single-family residential	5,427,548		99.5		24,876		0.5
Construction - custom	278,182		100.0		—		—
Land - consumer lot loans	98,978		99.7		277		0.3
HELOC	140,299		99.4		866		0.6
Consumer	91,636		99.9		64		0.1
Total consumer loans	6,036,643		99.6		26,083		0.4
Total loans	$	12,863,774	99.7	%	$	35,001	0.3	%

The following table provides information on gross loans based on borrower payment activity.


September 30, 2019	Performing Loans						Non-Performing Loans
	Amount		% of Total Gross Loans		Amount		% of Total Gross Loans
	(In thousands, except ratio data)

Multi-family	$	1,422,674	100.0	%	$	—	—	%
Commercial real estate	1,625,335		99.6		5,835		0.4
Commercial & industrial	1,267,403		99.9		1,292		0.1
Construction	2,038,052		100.0		—		—
Land - acquisition & development	203,938		99.9		169		0.1


Single-family residential	5,809,923		99.6		25,271		0.4
Construction - custom	540,741		100.0		—		—
Land - consumer lot loans	99,448		99.8		246		0.2
HELOC	141,271		99.4		907		0.6
Consumer	129,872		100.0		11		0.0

Total loans	$	13,278,657	99.7	%	$	33,731	0.3	%

The following table provide information on impaired loan balances and the related allowances by loan types.


September 30, 2019	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment (Year-To-Date)
	(In thousands)
Impaired loans with no related allowance recorded:

Multi-family	$	—	$	—	$	—		$	286
Commercial real estate	7,467		11,881		—			8,890
Commercial & industrial	1,114		5,312		—			7,168
Construction	—		—		—			1,172
Land - acquisition & development	78		143		—			290


Single-family residential	17,979		19,252		—			16,685
Construction - custom	—		—		—			251
Land - consumer lot loans	344		848		—			287
HELOC	837		931		—			597
Consumer	50		119		—			23

Total loans with no related allowance	27,869		38,486		—			35,649

Impaired loans with an allowance recorded:

Multi-family	385		385		4			418
Commercial real estate	4,168		5,298		323			5,160
Commercial & industrial	426		691		92			2,535
Construction	—		—		—			—
Land - acquisition & development	91		152		—			99


Single-family residential	112,042		114,609		2,208			125,976
Construction - custom	—		—		—			—
Land - consumer lot loans	3,556		3,695		20			4,324
HELOC	949		963		—			961
Consumer	60		282		—			65

Total loans with an allowance	121,677		126,075		2,647		(1)	139,538

Total impaired loans:

Multi-family	385		385		4			704
Commercial real estate	11,635		17,179		323			14,050
Commercial & industrial	1,540		6,003		92			9,703
Construction	—		—		—			1,172
Land - acquisition & development	169		295		—			389


Single-family residential	130,021		133,861		2,208			142,661
Construction - custom	—		—		—			251
Land - consumer lot loans	3,900		4,543		20			4,611
HELOC	1,786		1,894		—			1,558
Consumer	110		401		—			88

Total impaired loans	$	149,546	$	164,561	$	2,647	(1)	$	175,187

(1)Includes $439,000 of specific reserves and $2,208,000 included in the general reserves.