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LOANS AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2022

NOTE 5 — LOANS AND ALLOWANCE FOR LOAN LOSSES

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


	September 30,		December 31,
	2022		2021
Real estate
Commercial	$	3,061,089	$	2,488,382
Construction		183,379		151,791
Multi-family		438,766		355,290
One-to-four family		50,272		57,163
Total real estate loans		3,733,506		3,052,626
Commercial and industrial		869,215		654,535
Consumer		26,106		32,366
Total loans		4,628,827		3,739,527
Deferred fees, net of origination costs		(11,523)		(7,598)
Loans, net of deferred fees and costs		4,617,304		3,731,929
Allowance for loan losses		(42,541)		(34,729)
Net loans	$	4,574,763	$	3,697,200

Included in C&I loans at September 30, 2022 and December 31, 2021 were $111,000 and $561,000, respectively, of PPP loans. Also included in C&I loans at September 30, 2022 and December 31, 2021 were $0.0 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 September 30, 2022	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	25,945	$	9,144	$	2,587	$	2,539	$	102	$	217	$	40,534
Provision/(credit) for loan losses		1,019		954		(55)		103		(3)		(11)		2,007
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	26,964	$	10,098	$	2,532	$	2,642	$	99	$	206	$	42,541


	Commercial		Commercial				Multi		One-to-four
Three months ended September 30, 2021	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	20,299	$	10,545	$	1,972	$	2,618	$	169	$	1,774	$	37,377
Provision/(credit) for loan losses		1,169		(440)		129		(331)		(13)		(24)		490
Loans charged-off		—		—		—		—		—		(54)		(54)
Recoveries		—		308		—		—		—		—		308
Total ending allowance balance	$	21,468	$	10,413	$	2,101	$	2,287	$	156	$	1,696	$	38,121


	Commercial		Commercial						One-to-four
Nine months ended September 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		4,748		2,390		427		486		(41)		(203)		7,807
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		5		5
Total ending allowance balance	$	26,964	$	10,098	$	2,532	$	2,642	$	99	$	206	$	42,541


	Commercial		Commercial						One-to-four
Nine months ended September 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		4,225		(1,163)		508		(374)		(50)		169		3,315
Loans charged-off		—		(855)		—		—		—		(54)		(909)
Recoveries		—		308		—		—		—		—		308
Total ending allowance balance	$	21,468	$	10,413	$	2,101	$	2,287	$	156	$	1,696	$	38,121

There were no charge-offs and recoveries for the three months ended September 30, 2022. Net recoveries for the three months ended September 30, 2021 were $254,000. Net recoveries for the nine months ended September 30, 2022 were $5,000. Net charge-offs for the nine months ended September 30, 2021 were $601,000.

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 September 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		26,964		10,098		2,532		2,642		99		182		42,517
Total ending allowance balance	$	26,964	$	10,098	$	2,532	$	2,642	$	99	$	206	$	42,541
Loans:
Individually evaluated for impairment	$	28,422	$	—	$	—	$	—	$	911	$	24	$	29,357
Collectively evaluated for impairment		3,032,667		869,215		183,379		438,766		49,361		26,082		4,599,470
Total ending loan balance	$	3,061,089	$	869,215	$	183,379	$	438,766	$	50,272	$	26,106	$	4,628,827


	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 September 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	$	1,187	$	911	$	—
CRE		28,422		28,422		—
Total	$	29,609	$	29,333	$	—


					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 September 30, 2022	Investment		Recognized
With an allowance recorded:
Consumer	$	24	$	—
Total	$	24	$	—

Without an allowance recorded:
One-to-four family	$	916	$	9
CRE		28,486		273
Total	$	29,402	$	282

Three months ended September 30, 2021
With an allowance recorded:
One-to-four family	$	458	$	4
Consumer		2,103		26
C&I		3,145		—
Total	$	5,706	$	30

Without an allowance recorded:
One-to-four family	$	506	$	7
CRE		10,335		2
C&I		96		—
Total	$	10,937	$	9


	Average		Interest
	Recorded		Income
Nine months ended September 30, 2022	Investment		Recognized
With an allowance recorded:
One-to-four family	$	—	$	—
Consumer	$	93	$	—
Total	$	93	$	—

Without an allowance recorded:
One-to-four family	$	816	$	26
CRE		30,992		769
Total	$	31,808	$	795

Nine months ended September 30, 2021
With an allowance recorded:
One-to-four family	$	466	$	16
Consumer		2,132		84
C&I		3,407		—
Total	$	6,005	$	100

Without an allowance recorded:
One-to-four family	$	511	$	20
CRE		10,339		207
C&I		96		—
Total	$	10,946	$	227

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 September 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 nine months ended September 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 September 30, 2022	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	3,061,089	$	3,061,089
Commercial & industrial		160		—		—		160		869,055		869,215
Construction		—		—		—		—		183,379		183,379
Multi-family		—		—		—		—		438,766		438,766
One-to-four family		—		—		—		—		50,272		50,272
Consumer		27		5		24		56		26,050		26,106
Total	$	187	$	5	$	24	$	216	$	4,628,611	$	4,628,827


					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 September 30, 2022 and December 31, 2021, were $1.2 million and $1.3 million, respectively, of loans modified as TDRs. There were no loans modified as a TDR during the three and nine months ended September 30, 2022 and 2021. As of September 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 nine months ended September 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):


	September 30,		December 31,
	2022		2021
Commercial real estate	$	330	$	342
One-to-four family		911		946
Total	$	1,241	$	1,288

All TDRs at September 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 September 30, 2022	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	3,032,666	$	330	$	28,093	$	—	$	3,061,089
Commercial & industrial		861,216		7,999		—		—		869,215
Construction		183,379		—		—		—		183,379
Multi-family		438,766		—		—		—		438,766
Total	$	4,516,027	$	8,329	$	28,093	$	—	$	4,552,449


			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 September 30, 2022, the Company had one principal payment deferred loan of $20.8 million, or 0.45% of total loans, that was modified in accordance with the COVID-19 Guidance and the CARES Act. As of September 30, 2022, there were no loans with 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.