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LOANS AND ALLOWANCE FOR CREDIT LOSSES

3 Months Ended

Mar. 31, 2025

LOANS AND ALLOWANCE FOR CREDIT LOSSES

LOANS AND ALLOWANCE FOR CREDIT LOSSES

4.LOANS AND ALLOWANCE FOR CREDIT LOSSES

A summary of the balances of loans follows:


		March 31,			December 31,
		2025			2024

		(in thousands)
Commercial:
Commercial real estate		$	2,272,480		$	2,280,309
Commercial construction			216,013			252,691
Commercial and industrial			627,480			594,453
Total commercial loans			3,115,973			3,127,453

Residential real estate:
One- to four-family			1,487,942			1,506,571
Second mortgages and equity lines of credit			190,621			189,598
Residential real estate construction			10,551			11,307
Total residential real estate loans			1,689,114			1,707,476

Consumer loans:
Auto			7,672			8,550
Personal			7,707			8,940
Total consumer loans			15,379			17,490

Total loans before basis adjustment			4,820,466			4,852,419
Basis adjustment associated with fair value hedge ⁽¹⁾			567			80
Total loans			4,821,033			4,852,499
Allowance for credit losses on loans			(49,323)			(56,101)
Loans, net		$	4,771,710		$	4,796,398

⁽¹⁾ Represents the basis adjustment associated with the application of hedge accounting on certain loans. Refer to Note 10 - Derivatives.

The net unamortized deferred loan origination fees and costs included in total loans and leases were $8.9 million and $8.8 million as of March 31, 2025 and December 31, 2024, respectively.

The Company has transferred a portion of its originated commercial loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying unaudited interim Consolidated Balance Sheets. The Company and participating lenders share ratably in cash flows and any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments to participating lenders, and disburses required escrow funds to relevant parties. At March 31, 2025 and December 31, 2024, the Company was servicing loans for participants in the aggregate amounts of $438.5 million and $431.4 million, respectively.

The following table presents the activity in the ACL on loans for the three months ended March 31, 2025 and 2024:


														Second
														Mortgages
								Commercial						and			Residential
		Commercial			Commercial			and			One- to Four-			Equity Lines			Real Estate
		Real Estate			Construction			Industrial			Family			of Credit			Construction			Consumer			Total

		(in thousands)

Balance at December 31, 2024		$	30,764		$	4,257		$	10,700		$	8,720		$	1,348		$	186		$	126		$	56,101

Charge-offs			(8,304)						(384)												(28)			(8,716)
Recoveries			4						22						10						11			47
Provision			2,360			(800)			628			(130)			(155)			(18)			6			1,891
Balance at March 31, 2025		$	24,824		$	3,457		$	10,966		$	8,590		$	1,203		$	168		$	115		$	49,323


														Second
														Mortgages
								Commercial						and			Residential
		Commercial			Commercial			and			One- to Four-			Equity Lines			Real Estate
		Real Estate			Construction			Industrial			Family			of Credit			Construction			Consumer			Total

		(in thousands)

Balance at December 31, 2023		$	21,288		$	4,824		$	8,107		$	12,101		$	964		$	418		$	270		$	47,972

Charge-offs			—			—			(228)			—			—			—			(49)			(277)
Recoveries			100			—			46			—			3			—			3			152
Provision			(125)			498			138			(66)			(25)			(87)			5			338
Balance at March 31, 2024		$	21,263		$	5,322		$	8,063		$	12,035		$	942		$	331		$	229		$	48,185

Individually analyzed loans include non-accrual loans and certain other loans based on the underlying risk characteristics and the discretion of Management to individually analyze such loans. As of March 31, 2025, the carrying value of individually analyzed loans amounted to $78.7 million, with a related allowance of $2.3 million, and $59.3 million of individually analyzed loans were considered collateral-dependent. As of December 31, 2024, the carrying value of individually analyzed loans amounted to $87.2 million, with a related allowance of $7.8 million, and $67.2 million of individually analyzed loans were considered collateral-dependent.

For collateral-dependent loans where Management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date.

The following table presents the carrying value of collateral-dependent individually analyzed loans as of March 31, 2025 and December 31, 2024:


		March 31, 2025						December 31, 2024
		Carrying			Related			Carrying			Related
		Value			Allowance			Value			Allowance

		(in thousands)
Commercial:
Commercial real estate ⁽¹⁾		$	36,261		$	457		$	44,983		$	5,426
Commercial and industrial ⁽²⁾			11,378			87			11,935			560
Commercial construction			—			—			—			—
Total Commercial			47,639			544			56,918			5,986
Residential real estate ⁽¹⁾			11,704			90			10,321			—
Total		$	59,343		$	634		$	67,239		$	5,986

⁽¹⁾ The collateral type is real estate.

⁽²⁾ The collateral type is business enterprise value and business assets.

The following is a summary of past due and non-accrual loans at March 31, 2025 and December 31, 2024:


								90 Days						Non-accrual Loans
		30-59 Days			60-89 Days			or More			Total			With			Without
		Past Due			Past Due			Past Due			Past Due			an ACL			an ACL

		(in thousands)
March 31, 2025
Commercial real estate		$	30		$	8,610		$	—		$	8,640		$	—		$	8,610
Commercial construction			—			—			—			—			—			—
Commercial and industrial			3,039			3			1,461			4,503			152			10,386
Residential real estate:
One- to four-family			8,688			1,131			5,937			15,756			306			10,458
Second mortgages and equity lines of credit			221			137			450			808			—			941
Consumer:
Auto			26			—			8			34			9			—
Personal			33			16			31			80			40			—
Total		$	12,037		$	9,897		$	7,887		$	29,821		$	507		$	30,395

December 31, 2024
Commercial real estate		$	3,803		$	40		$	—		$	3,843		$	16,836		$	—
Commercial construction			—			—			—			—			—			—
Commercial and industrial			8,273			684			1,269			10,226			665			1,539
Residential real estate:
One- to four-family			8,589			7,014			6,670			22,273			—			9,545
Second mortgages and equity lines of credit			466			312			183			961			89			775
Consumer:
Auto			52			10			—			62			—			—
Personal			42			16			4			62			14			—
Total		$	21,225		$	8,076		$	8,126		$	37,427		$	17,604		$	11,859

At March 31, 2025 and December 31, 2024, there were no loans past due 90 days or more and still accruing.

Loan Modifications to Borrowers Experiencing Financial Difficulty

The Bank will modify the contractual terms of loans to a borrower experiencing financial difficulties as a way to mitigate loss and to comply with regulations regarding bankruptcy and discharge situations. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

The following table presents the amortized cost basis of loans at March 31, 2025 that were both experiencing financial difficulty and modified during the three months ended March 31, 2025 by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:


		Three Months Ended March 31, 2025
								Combination Term			Total Class
		Term			Interest Rate			Extension Interest Rate			of Financing
		Extension			Reduction			Reduction			Receivable

		(in thousands)

Residential real estate		$	—		$	—		$	429			0.03	%

Total		$	—		$	—		$	429

The financial effect of the modifications to the loan in the residential real estate category was a reduced weighted-average contractual rate from 6.63% to 5.0%, and an additional 11.4 years to the life of the loan. There were no material loan modifications based on borrower financial difficulty during the three months ended March 31, 2024.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. As of March 31, 2025, modified loans to borrowers experiencing financial difficulty had a current payment status. During the three months ended March 31, 2025 and 2024, there were no loans to borrowers experiencing financial difficulty that had a payment default and were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off, and the allowance for credit losses is adjusted accordingly.

Credit Quality Indicators

Commercial

The Company uses a ten-grade internal loan rating system for commercial real estate, commercial construction and commercial loans, as follows:

Loans rated 1 – 6 are considered “pass”-rated loans with low to average risk.

Loans rated 7 are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by Management.

Loans rated 8 are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 9 are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 10 are considered “uncollectible” (loss), and of such little value that their continuance as loans is not warranted.

Loans not rated consist primarily of certain smaller balance commercial real estate and commercial loans that are managed by exception.

On an annual basis, or more often if needed, the Company formally reviews, on a risk-adjusted basis, the ratings on substantially all commercial real estate, construction and commercial loans. Semi-annually, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process.

Residential and Consumer

On a monthly basis, the Company reviews the residential construction, residential real estate, and consumer installment portfolios for credit quality primarily through the use of delinquency reports.

The following table summarizes the Company’s loan portfolio by credit quality indicator and loan portfolio segment as of March 31, 2025:


																							Revolving
																				Revolving			Loans
																				Loans			Converted
		Term Loans at Amortized Cost by Origination Year																		Amortized			to Term
		2025			2024			2023			2022			2021			Prior			Cost			Loans			Total

		(in thousands)
Balance at March 31, 2025

Commercial real estate
Pass		$	10,814		$	83,643		$	160,911		$	733,666		$	465,523		$	670,876		$	—		$	—		$	2,125,433
Special mention			—			—			7,064			49,623			10,967			24,136			—			—			91,790
Substandard			—			—			5,921			27,018			—			13,708			—			—			46,647
Doubtful			—			—			—			8,610			—			—			—			—			8,610
Total commercial real estate			10,814			83,643			173,896			818,917			476,490			708,720			—			—			2,272,480
YTD gross charge-offs			—			—			—			8,298			—			6			—			—			8,304

Commercial and industrial
Pass			28,905			85,922			71,157			78,126			80,540			150,752			107,456			—			602,858
Special mention			—			4			6,222			1,650			—			1,283			—			—			9,159
Substandard			—			—			61			2,798			3,767			3,593			3,750			—			13,969
Doubtful			—			—			—			—			—			1,320			174			—			1,494
Total commercial and industrial			28,905			85,926			77,440			82,574			84,307			156,948			111,380			—			627,480
YTD gross charge-offs			—			180			48			—			—			156			—			—			384

Commercial construction
Pass			860			33,898			49,671			78,517			35,835			—			1,827			—			200,608
Special mention			—			—			—			15,405			—			—			—			—			15,405
Substandard			—			—			—			—			—			—			—			—			—
Doubtful			—			—			—			—			—			—			—			—			—
Total commercial construction			860			33,898			49,671			93,922			35,835			—			1,827			—			216,013
YTD gross charge-offs			—			—			—			—			—			—			—			—			—

Residential real estate
Accrual			6,924			83,455			123,742			406,850			447,088			426,244			180,689			2,417			1,677,409
Non-accrual			—			—			—			852			664			9,601			570			18			11,705
Total residential real estate			6,924			83,455			123,742			407,702			447,752			435,845			181,259			2,435			1,689,114
YTD gross charge-offs			—			—			—			—			—			—			—			—			—

Consumer
Accrual			2,174			4,306			3,521			2,772			900			744			913			—			15,330
Non-accrual			—			—			27			4			—			—			18			—			49
Total Consumer			2,174			4,306			3,548			2,776			900			744			931			—			15,379
YTD gross charge-offs			—			17			3			—			—			8			—			—			28

Total loans before basis adjustment		$	49,677		$	291,228		$	428,297		$	1,405,891		$	1,045,284		$	1,302,257		$	295,397		$	2,435		$	4,820,466
Total YTD gross charge-offs		$	—		$	197		$	51		$	8,298		$	—		$	170		$	—		$	—		$	8,716

The following table summarizes the Company’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2024:


																							Revolving
																				Revolving			Loans
																				Loans			Converted
		Term Loans at Amortized Cost by Origination Year																		Amortized			to Term
		2024			2023			2022			2021			2020			Prior			Cost			Loans			Total

		(in thousands)
Balance at December 31, 2024

Commercial real estate
Pass		$	82,833		$	162,401		$	743,173		$	433,482		$	190,543		$	525,120		$	-		$	-		$	2,137,552
Special mention			-			6,872			39,614			7,539			12,077			12,149			-			-			78,251
Substandard			-			6,598			44,191			-			-			13,717			-			-			64,506
Doubtful			-			-			-			-			-			-			-			-			—
Total commercial real estate			82,833			175,871			826,978			441,021			202,620			550,986			-			-			2,280,309
YTD gross charge-offs			-			-			-			-			-			-			-			-			—

Commercial and industrial
Pass			80,926			78,767			72,636			82,638			63,043			93,493			104,897			-			576,400
Special mention			5			-			1,703			-			-			1,279			2,783			-			5,770
Substandard			-			178			2,874			3,844			-			3,841			260			-			10,997
Doubtful			-			-			-			-			-			1,237			49			-			1,286
Total commercial and industrial			80,931			78,945			77,213			86,482			63,043			99,850			107,989			-			594,453
YTD gross charge-offs			69			26			303			122			74			34			-			-			628

Commercial construction
Pass			31,074			45,739			82,447			73,657			-			-			1,972			-			234,889
Special mention			-			-			17,802			-			-			-			-			-			17,802
Substandard			-			-			-			-			-			-			-			-			—
Doubtful			-			-			-			-			-			-			-			-			—
Total commercial construction			31,074			45,739			100,249			73,657			-			-			1,972			-			252,691
YTD gross charge-offs			-			-			-			-			-			-			-			-			—

Residential real estate
Accrual			85,268			125,741			413,118			452,081			192,734			246,206			179,516			2,403			1,697,067
Non-accrual			-			-			469			673			113			8,572			577			5			10,409
Total residential real estate			85,268			125,741			413,587			452,754			192,847			254,778			180,093			2,408			1,707,476
YTD gross charge-offs			-			-			-			-			-			-			-			-			—

Consumer
Accrual			7,134			4,040			3,186			1,113			279			720			1,004			-			17,476
Non-accrual			3			-			11			-			-			-			-			-			14
Total Consumer			7,137			4,040			3,197			1,113			279			720			1,004			-			17,490
YTD gross charge-offs			-			63			35			25			10			21			-			-			154

Total loans before basis adjustment		$	287,243		$	430,336		$	1,421,224		$	1,055,027		$	458,789		$	906,334		$	291,058		$	2,408		$	4,852,419
Total YTD gross charge-offs		$	69		$	89		$	338		$	147		$	84		$	55		$	—		$	—		$	782