LOANS AND LEASES

3 Months Ended

Mar. 31, 2022

3. LOANS AND LEASES

Loans outstanding, excluding those held for sale, by general ledger classification, as of March 31, 2022 and December 31, 2021, consisted of the following:

			% of					% of
	March 31,		Totals			December 31,		Total
(Dollars in thousands)	2022		Loans			2021		Loans
Residential mortgage	$	512,684		10.01	%	$	498,300		10.37	%
Multifamily mortgage		1,850,097		36.12			1,595,866		33.20
Commercial mortgage		669,899		13.09			662,626		13.78
Commercial loans (including equipment financing) (1)		1,997,798		39.00			1,955,157		40.67
Commercial construction		17,572		0.34			20,044		0.42
Home equity lines of credit		38,604		0.75			40,803		0.85
Consumer loans, including fixed rate home equity loans		35,322		0.69			33,687		0.70
Other loans		226		0.00			238		0.01
Total loans	$	5,122,202		100.00	%	$	4,806,721		100.00	%

(1)

Includes PPP loans of $9.6 million at March 31, 2022 and $13.8 million at December 31, 2021.

In determining an appropriate amount for the allowance, the Bank segments and aggregated the loan portfolio based on common characteristics. The following pool segments identified as of March 31, 2022 are based on the CECL methodology:

			% of
	March 31,		Totals
(Dollars in thousands)	2022		Loans
Primary residential mortgage	$	516,350		10.09	%
Junior lien loan on residence		41,747		0.81
Multifamily property		1,850,097		36.15
Owner-occupied commercial real estate		256,345		5.01
Investment commercial real estate		1,056,755		20.65
Commercial and industrial (1)		1,019,501		19.92
Lease financing		312,133		6.10
Construction		22,826		0.45
Consumer and other		41,853		0.82
Total loans		5,117,607		100.00	%
Net deferred costs		4,595
Total loans including net deferred costs	$	5,122,202

(1) Includes PPP loans of $9.6 million at March 31, 2022.

The portfolio classes identified as of December 31, 2021 are based on the incurred loss methodology and are segmented by federal Call Report codes:

			% of
	December 31,		Total
(Dollars in thousands)	2021		Loans
Primary residential mortgage	$	500,243		10.42	%
Home equity lines of credit		40,803		0.85
Junior lien loan on residence		3,191		0.07
Multifamily property		1,595,866		33.23
Owner-occupied commercial real estate		252,603		5.26
Investment commercial real estate		1,003,979		20.90
Commercial and industrial (1)		992,332		20.66
Lease financing		345,868		7.20
Farmland/agricultural production		6,871		0.14
Commercial construction loans		20,174		0.42
Consumer and other loans		40,828		0.85
Total loans		4,802,758		100.00	%
Net deferred costs		3,963
Total loans including net deferred costs	$	4,806,721

(1)

Includes PPP loans of $13.8 million at December 31, 2021.

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2022 and December 31, 2021:

	March 31, 2022
			Loans Past Due
			90 Days or Over
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	2,385	$	—
Junior lien loan on residence		17		—
Owner-occupied commercial real estate		420		—
Investment commercial real estate		12,500		—
Commercial and industrial		562		—
Total	$	15,884	$	—

	December 31, 2021
			Loans Past Due
			90 Days or Over
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	1,851	$	—
Junior lien loan on residence		18		—
Owner-occupied commercial real estate		458		—
Investment commercial real estate		12,750		—
Commercial and industrial		496		—
Total	$	15,573	$	—

The following tables present the aging of the recorded investment in past due loans as of March 31, 2022 and December 31, 2021 by class of loans, excluding nonaccrual loans:

	March 31, 2022
	30-59		60-89		90 Days or
	Days		Days		Greater		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	332	$	—	$	—	$	332
Commercial and industrial		274		—		—		274
Total	$	606	$	—	$	—	$	606

	December 31, 2021
	30-59		60-89		90 Days or
	Days		Days		Greater		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	639	$	—	$	—	$	639
Commercial and industrial		7,825		142		—		7,967
Total	$	8,464	$	142	$	—	$	8,606

Credit Quality Indicators:

The Company places all commercial loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt. The assessment considers numerous factors including, but not limited to, current financial information on the borrower, historical payment experience, strength of any guarantor, nature of and value of any collateral, acceptability of the loan structure and documentation, relevant public information and current economic trends. This credit risk rating analysis is performed when the loan is initially underwritten and then annually based on set criteria in the loan policy.

In addition, the Bank has engaged an independent loan review firm to validate risk ratings and to ensure compliance with our policies and procedures. This review of the following types of loans is performed quarterly:

•

A large sample of relationships or new lending to existing relationships greater than $1,000,000 booked since the prior review;

•

All criticized and classified rated borrowers with relationship exposure of more than $500,000;

•

A large sample of Pass-rated (including Pass Watch) borrowers with total relationships in excess of $1,000,000 and a small sample of Pass related relationships less than $1,000,000;

•

All leveraged loans of $1,000,000 or greater;

•

At least two borrowing relationships managed by each commercial banker;

•

Any new Regulation “O” loan commitments over $1,000,000; and

•

Any other credits requested by Bank senior management or a member of the Board of Directors and any borrower for which the reviewer determines a review is warranted based upon knowledge of the portfolio, local events, industry stresses, etc.

The review excludes borrowers with commitments of less than $500,000.

The Company uses the following regulatory definitions for criticized and classified risk ratings:

Special Mention: These loans have a potential weakness that deserves Management’s close attention. If left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

Substandard: These loans 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 institution will sustain some loss if the deficiencies are not corrected.

Doubtful: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

With the adoption of CECL, loans that are in the process of or expected to be in foreclosure are deemed to be collateral dependent with respect to measuring potential loss and allowance adequacy and are individually evaluated by Management. Loans that do not share common risk characteristics are also evaluated on an individual basis. All other loans are evaluated using a non-linear discounted cashflow methodology for measuring potential loss and allowance adequacy.

The following is a summary of the credit risk profile of loans by internally assigned grade as of the periods indicated, the years represent the year of origination for non-revolving loans:

	March 31, 2022
											2017				Revolving-
(In thousands)	2022		2021		2020		2019		2018		and Prior		Revolving		Term		Total
Primary residential mortgage:
Pass	$	38,233	$	102,596	$	68,550	$	45,913	$	29,968	$	227,138	$	700	$	375	$	513,473
Special mention		—		—		—		—		—		319		—		—		319
Substandard		—		—		469		215		287		1,587		—		—		2,558
Doubtful		—		—		—		—		—		—		—		—		—
Total primary residential mortgages		38,233		102,596		69,019		46,128		30,255		229,044		700		375		516,350

Junior lien loan on residence:
Pass		441		208		53		721		422		1,281		—		38,081		41,207
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		17		—		523		540
Doubtful		—		—		—		—		—		—		—		—		—
Total junior lien loan on residence		441		208		53		721		422		1,298		—		38,604		41,747

Multifamily property:
Pass		312,564		688,845		120,104		285,468		59,972		358,853		7,578		1,949		1,835,333
Special mention		—		—		—		2,888		—		3,564		—		—		6,452
Substandard		—		—		—		—		—		8,312		—		—		8,312
Doubtful		—		—		—		—		—		—		—		—		—
Total multifamily property		312,564		688,845		120,104		288,356		59,972		370,729		7,578		1,949		1,850,097

Owner-occupied commercial real estate:
Pass		1,731		44,926		21,276		12,587		25,860		146,302		2,112		884		255,678
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		420		247		—		667
Doubtful		—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate		1,731		44,926		21,276		12,587		25,860		146,722		2,359		884		256,345

Investment commercial real estate:
Pass		59,535		164,327		65,408		160,095		116,607		340,366		36,005		13,130		955,473
Special mention		—		—		—		36,220		7,852		40,257		—		2,411		86,740
Substandard		—		—		—		2,042		12,500		—		—		—		14,542
Doubtful		—		—		—		—		—		—		—		—		—
Total investment commercial real estate		59,535		164,327		65,408		198,357		136,959		380,623		36,005		15,541		1,056,755

Commercial and industrial:
Pass		77,506		315,130		135,158		113,694		40,005		15,034		13,445		272,328		982,300
Special mention		—		—		—		5,291		196		—		6,345		4,602		16,434
Substandard		—		—		13		—		20,488		230		—		36		20,767
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial		77,506		315,130		135,171		118,985		60,689		15,264		19,790		276,966		1,019,501

Lease financing:
Pass		5,630		106,238		70,994		66,563		39,897		22,811		—		—		312,133
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total lease financing		5,630		106,238		70,994		66,563		39,897		22,811		—		—		312,133

Construction loans:
Pass		—		—		—		1,462		—		8		10,195		11,088		22,753
Special mention		—		—		—		—		—		73		—		—		73
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction loans		—		—		—		1,462		—		81		10,195		11,088		22,826

Consumer and other loans:
Pass		—		437		270		20		—		6,197		3,331		31,598		41,853
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer and other loans		—		437		270		20		—		6,197		3,331		31,598		41,853

Total:
Pass		495,640		1,422,707		481,813		686,523		312,731		1,117,990		73,366		369,433		4,960,203
Special mention		—		—		—		44,399		8,048		44,213		6,345		7,013		110,018
Substandard		—		—		482		2,257		33,275		10,566		247		559		47,386
Doubtful		—		—		—		—		—		—		—		—		—
Total Loans	$	495,640	$	1,422,707	$	482,295	$	733,179	$	354,054	$	1,172,769	$	79,958	$	377,005	$	5,117,607

As of December 31, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
(In thousands)	Pass		Mention		Substandard		Doubtful
Primary residential mortgage	$	494,444	$	557	$	5,242	$	—
Home equity lines of credit		40,274		—		529		—
Junior lien loan on residence		3,173		—		18		—
Multifamily property		1,579,776		7,720		8,370		—
Owner-occupied commercial real estate		251,229		663		711		—
Investment commercial real estate		901,877		87,297		14,805		—
Commercial and industrial		951,127		20,178		21,027		—
Lease financing		345,868		—		—		—
Farmland/agricultural production		6,871		—		—		—
Commercial construction loans		20,099		75		—		—
Consumer and other loans		40,828		—		—		—
Total	$	4,635,566	$	116,490	$	50,702	$	—

At March 31, 2022, $15.9 million of substandard loans were also considered individually evaluated, compared to $15.7 million at December 31, 2021.

Loan Modifications:

The CARES Act allows financial institutions to suspend application of certain current TDR accounting guidance under ASC 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 national emergency, provided certain criteria are met. The revised CARES Act extended TDR relief to loan modifications through January 1, 2022. This relief can be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan modifications that defer or delay the payment of principal or interest or change the interest rate on the loan. In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (e.g., six months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty under ASC 310-40.

As of March 31, 2022, the Bank had modified 542 loans with a balance of $947.0 million resulting in the deferral of principal and/or interest. The table below summarizes the outstanding deferrals as of March 31, 2022. All of these loans were performing in accordance with their terms prior to modification and are in conformance with the CARES Act. Details with respect to loan modifications are as follows:

			Post-Modification
			Outstanding
	Number of		Recorded
(Dollars in thousands)	Loans		Investment
Commercial and industrial		4	$	12,656
Total		4	$	12,656

Troubled Debt Restructurings:

The Company has allocated $2.5 million of specific reserves on TDRs as of March 31, 2022. The Company did not allocate specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of December 31, 2021. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.

The following table presents loans by class modified as TDRs during the three-month period ended March 31, 2022:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Loans		Investment		Investment
Investment commercial real estate		1	$	12,500	$	12,500
Total		1	$	12,500	$	12,500

There were no loans modified as TDRs during the three-month period ended March 31, 2021.

The identification of the TDRs did not have a significant impact on the allowance for credit losses.

The following table presents loans by class modified as TDRs that failed to comply with the modified terms in the twelve months following modification and resulted in a payment default at March 31, 2022:

	Number of		Recorded
(Dollars in thousands)	Loans		Investment
Primary residential mortgage		1	$	215
Total		1	$	215

	Number of		Recorded
(Dollars in thousands)	Loans		Investment
Primary residential mortgage		1	$	132
Total		1	$	132

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 under the Company’s internal underwriting policy. The modification of the terms of such loans may include one or more of the following: (1) a reduction of the stated interest rate of the loan to a rate that is lower than the current market rate for new debt with similar risk; (2) an extension of an interest only period for a predetermined period of time; (3) an extension of the maturity date; or (4) an extension of the amortization period over which future payments will be computed. At the time a loan is restructured, the Bank performs a full underwriting analysis, which includes, at a minimum, obtaining current financial statements and tax returns, copies of all leases, and an updated independent appraisal of the property. A loan will continue to accrue interest if it can be reasonably determined that the borrower should be able to perform under the modified terms, that the loan has not been chronically delinquent (both to debt service and real estate taxes) or in nonaccrual status since its inception, and that there have been no charge-offs on the loan. Restructured loans with previous charge-offs would not accrue interest at the time of the TDR. At a minimum, six consecutive months of contractual payments would need to be made on a restructured loan before returning it to accrual status. Once a loan is classified as a TDR, the loan is reported as a TDR until the loan is paid in full, sold or charged-off. In rare circumstances, a loan may be removed from TDR status if it meets the requirements of ASC 310-40-50-2.