LOANS AND LEASES

3 Months Ended

Mar. 31, 2023

3. LOANS AND LEASES

Loans outstanding, excluding those held for sale, by general ledger classification, as of March 31, 2023 and December 31, 2022, consisted of the following:


			% of					% of
	March 31,		Totals			December 31,		Total
(Dollars in thousands)	2023		Loans			2022		Loans
Residential mortgage	$	544,655		10.15	%	$	525,756		9.95	%
Multifamily mortgage		1,871,387		34.88			1,863,915		35.27
Commercial mortgage		613,911		11.44			624,625		11.82
Commercial loans (including equipment financing)		2,246,899		41.87			2,194,094		41.51
Commercial construction		6,138		0.12			4,042		0.07
Home equity lines of credit		33,294		0.62			34,496		0.65
Consumer loans, including fixed rate home equity loans		49,002		0.91			38,014		0.72
Other loans		443		0.01			304		0.01
Total loans	$	5,365,729		100.00	%	$	5,285,246		100.00	%

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, 2023 and December 31, 2022 are based on the CECL methodology:


			% of					% of
	March 31,		Totals			December 31,		Total
(Dollars in thousands)	2023		Loans			2022		Loans
Primary residential mortgage	$	546,133		10.18	%	$	527,784		9.99	%
Junior lien loan on residence		36,986		0.69			38,265		0.73
Multifamily property		1,871,387		34.90			1,863,915		35.29
Owner-occupied commercial real estate		274,923		5.13			272,009		5.15
Investment commercial real estate		1,016,725		18.96			1,044,125		19.77
Commercial and industrial		1,268,350		23.65			1,194,662		22.62
Lease financing		282,906		5.28			288,566		5.46
Construction		12,593		0.23			9,936		0.19
Consumer and other		52,249		0.98			42,319		0.80
Total loans		5,362,252		100.00	%		5,281,581		100.00	%
Net deferred costs		3,477					3,665
Total loans including net deferred costs	$	5,365,729				$	5,285,246

The following tables present the recorded investment in nonaccrual and loans past due 90 days or over still on accrual by class of loans as of March 31, 2023 and December 31, 2022:


	March 31, 2023
			Loans Past Due
			90 Days or Over
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	1,227	$	—
Multifamily property		11,235		—
Investment commercial real estate		11,166		—
Commercial and industrial		3,539		—
Lease financing		1,492		—
Total	$	28,659	$	—


	December 31, 2022
			Loans Past Due
			90 Days or Over
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	2,339	$	—
Investment commercial real estate		11,208		—
Commercial and industrial		3,662		—
Lease financing		1,765		—
Total	$	18,974	$	—

The following tables present the aging of the recorded investment in past due loans as of March 31, 2023 and December 31, 2022 by class of loans, excluding nonaccrual loans:


	March 31, 2023
	30-59		60-89		90 Days or
	Days		Days		Greater		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	411	$	—	$	—	$	411
Multifamily property		876		—		—		876
Commercial and industrial		1,475		—		—		1,475
Total	$	2,762	$	—	$	—	$	2,762


	December 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	$	1,145	$	—	$	—	$	1,145
Multifamily property		882		—		—		882
Commercial and industrial		4,884		681		—		5,565
Total	$	6,911	$	681	$	—	$	7,592

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 March 31, 2023 and December 31, 2022 based on originations for the periods indicated; the years represent the year of origination for non-revolving loans:


	Grade as of March 31, 2023 for Loans Originated During
											2018				Revolving-
(In thousands)	2023		2022		2021		2020		2019		and Prior		Revolving		Term		Total
Primary residential mortgage:
Pass	$	30,590	$	117,702	$	84,130	$	61,330	$	36,638	$	212,680	$	—	$	688	$	543,758
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		546		1,008		821		—		—		2,375
Doubtful		—		—		—		—		—		—		—		—		—
Total primary residential mortgages		30,590		117,702		84,130		61,876		37,646		213,501		—		688		546,133
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Junior lien loan on residence:
Pass		128		1,632		167		38		614		1,113		33,231		—		36,923
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		63		—		63
Doubtful		—		—		—		—		—		—		—		—		—
Total junior lien loan on residence		128		1,632		167		38		614		1,113		33,294		—		36,986
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Multifamily property:
Pass		20,408		483,221		665,340		117,591		222,731		335,842		748		2,126		1,848,007
Special mention		—		—		—		—		—		1,685		—		—		1,685
Substandard		—		1,565		9,671		—		2,832		7,627		—		—		21,695
Doubtful		—		—		—		—		—		—		—		—		—
Total multifamily property		20,408		484,786		675,011		117,591		225,563		345,154		748		2,126		1,871,387
Current period gross charge-offs		—		—		—		—		—		—		—		—		—


	Grade as of March 31, 2023 for Loans Originated During
											2018				Revolving-
(In thousands)	2023		2022		2021		2020		2019		and Prior		Revolving		Term		Total
Owner-occupied commercial real estate:
Pass		859		24,037		43,474		20,518		12,110		146,130		324		26,275		273,727
Special mention		—		1,065		—		—		—		—		131		—		1,196
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate		859		25,102		43,474		20,518		12,110		146,130		455		26,275		274,923
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Investment commercial real estate:
Pass		30,893		176,245		153,109		58,969		155,031		348,474		11,874		26,984		961,579
Special mention		—		—		—		—		12,902		13,203		—		14,426		40,531
Substandard		—		11,166		—		—		3,449		—		—		—		14,615
Doubtful		—		—		—		—		—		—		—		—		—
Total investment commercial real estate		30,893		187,411		153,109		58,969		171,382		361,677		11,874		41,410		1,016,725
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Commercial and industrial:
Pass		93,226		396,905		215,264		67,721		65,802		27,924		366,019		16,445		1,249,306
Special mention		—		—		—		825		—		192		257		—		1,274
Substandard		—		1,441		1,858		1,972		3,516		285		8,698		—		17,770
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial		93,226		398,346		217,122		70,518		69,318		28,401		374,974		16,445		1,268,350
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Lease financing:
Pass		10,218		70,676		69,305		54,747		44,848		29,740		—		—		279,534
Special mention		—		1,880		—		—		—		—		—		—		1,880
Substandard		—		—		—		—		1,492		—		—		—		1,492
Doubtful		—		—		—		—		—		—		—		—		—
Total lease financing		10,218		72,556		69,305		54,747		46,340		29,740		—		—		282,906
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Construction:
Pass		—		—		—		—		1,420		—		2,107		9,066		12,593
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction loans		—		—		—		—		1,420		—		2,107		9,066		12,593
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Consumer and other loans:
Pass		—		—		356		182		—		5,186		31,121		15,404		52,249
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer and other loans		—		—		356		182		—		5,186		31,121		15,404		52,249
Current period gross charge-offs		—		—		—		—		—		—		46		—		46


	Grade as of March 31, 2023 for Loans Originated During
											2018				Revolving-
(In thousands)	2023		2022		2021		2020		2019		and Prior		Revolving		Term		Total
Total:
Pass		186,322		1,270,418		1,231,145		381,096		539,194		1,107,089		445,424		96,988		5,257,676
Special mention		—		2,945		—		825		12,902		15,080		388		14,426		46,566
Substandard		—		14,172		11,529		2,518		12,297		8,733		8,761		—		58,010
Doubtful		—		—		—		—		—		—		—		—		—
Total Loans	$	186,322	$	1,287,535	$	1,242,674	$	384,439	$	564,393	$	1,130,902	$	454,573	$	111,414	$	5,362,252
Total Current Period Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	46	$	—	$	46


	Grade as of December 31, 2022 for Loans Originated During
											2017				Revolving-
(In thousands)	2022		2021		2020		2019		2018		and Prior		Revolving		Term		Total
Primary residential mortgage:
Pass	$	118,864	$	87,312	$	62,540	$	37,902	$	27,209	$	190,834	$	—	$	691	$	525,352
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		547		1,044		141		700		—		—		2,432
Doubtful		—		—		—		—		—		—		—		—		—
Total primary residential mortgages		118,864		87,312		63,087		38,946		27,350		191,534		—		691		527,784

Junior lien loan on residence:
Pass		1,631		177		42		639		326		953		33,996		—		37,764
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		501		—		501
Doubtful		—		—		—		—		—		—		—		—		—
Total junior lien loan on residence		1,631		177		42		639		326		953		34,497		—		38,265

Multifamily property:
Pass		488,657		678,507		118,220		224,129		33,884		305,628		1,246		1,425		1,851,696
Special mention		—		—		—		—		—		1,696		—		—		1,696
Substandard		—		—		—		2,846		—		7,677		—		—		10,523
Doubtful		—		—		—		—		—		—		—		—		—
Total multifamily property		488,657		678,507		118,220		226,975		33,884		315,001		1,246		1,425		1,863,915

Owner-occupied commercial real estate:
Pass		25,315		43,916		20,679		12,244		22,422		126,237		608		20,588		272,009
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate		25,315		43,916		20,679		12,244		22,422		126,237		608		20,588		272,009

Investment commercial real estate:
Pass		189,829		154,715		59,444		155,995		93,330		305,219		6,590		23,487		988,609
Special mention		—		—		—		13,015		—		13,309		—		14,507		40,831
Substandard		11,208		—		—		3,477		—		—		—		—		14,685
Doubtful		—		—		—		—		—		—		—		—		—
Total investment commercial real estate		201,037		154,715		59,444		172,487		93,330		318,528		6,590		37,994		1,044,125

Commercial and industrial:
Pass		421,072		217,887		76,307		80,359		26,792		5,559		303,526		29,750		1,161,252
Special mention		14,405		—		826		—		193		—		258		—		15,682
Substandard		1,553		1,892		2,148		3,894		277		71		7,893		—		17,728
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial		437,030		219,779		79,281		84,253		27,262		5,630		311,677		29,750		1,194,662

Lease financing:
Pass		73,155		71,925		58,262		48,942		24,408		8,125		—		—		284,817
Special mention		1,984		—		—		—		—		—		—		—		1,984
Substandard		—		—		—		1,765		—		—		—		—		1,765
Doubtful		—		—		—		—		—		—		—		—		—
Total lease financing		75,139		71,925		58,262		50,707		24,408		8,125		—		—		288,566


	Grade as of December 31, 2022 for Loans Originated During
											2017				Revolving-
(In thousands)	2022		2021		2020		2019		2018		and Prior		Revolving		Term		Total
Construction:
Pass		—		—		—		1,439		—		—		4,064		4,433		9,936
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction loans		—		—		—		1,439		—		—		4,064		4,433		9,936

Consumer and other loans:
Pass		—		381		194		—		—		5,753		31,287		4,704		42,319
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer and other loans		—		381		194		—		—		5,753		31,287		4,704		42,319

Total:
Pass		1,318,523		1,254,820		395,688		561,649		228,371		948,308		381,317		85,078		5,173,754
Special mention		16,389		—		826		13,015		193		15,005		258		14,507		60,193
Substandard		12,761		1,892		2,695		13,026		418		8,448		8,394		—		47,634
Doubtful		—		—		—		—		—		—		—		—		—
Total Loans	$	1,347,673	$	1,256,712	$	399,209	$	587,690	$	228,982	$	971,761	$	389,969	$	99,585	$	5,281,581

At March 31, 2023, $27.6 million of substandard loans were also considered individually evaluated, compared to $14.7 million at December 31, 2022.

Loan Modifications:

On January 1, 2023, the Company adopted Accounting Standards Update 2022-02, which replaced the accounting and recognition of TDRs. The Company will provide modifications, which may include other than insignificant delays in payment of amounts due, extension of the terms of the notes or reduction in the interest rates on the notes. In certain instances, the Company may grant more than one type of modification. The granting of the modification for the three months ended March 31, 2023 did not have a material impact on the ACL. The following table provides information related to the modification during the three months ended March 31, 2023 by pool segment and type of concession granted:


	Interest Only Period Extension
	Three Months Ended March 31, 2023
			% of Total
	Amortized		Class of
	Cost Basis		Financing
(Dollars in thousands)	at Period End		Receivable
Commercial and industrial	$	248		0.02	%
Total	$	248		0.02	%

The following table depicts the payment status of the loan that was modified to a borrower experiencing financial difficulties on or after January 1, 2023, the date we adopted ASU 2022-02, through March 31, 2023:


	Payment Status at March 31, 2023
			30-89 Days		90+ Days
(Dollars in thousands)	Current		Past Due		Past Due
Commercial and industrial	$	248	$	—	$	—
Total	$	248	$	—	$	—

There were no loans that failed to comply with their modified terms in the twelve months following modification and resulted in a payment default at March 31, 2023.

Troubled Debt Restructurings:

Prior to the adoption of ASU 2022-02 on January 1, 2023, the Company classified certain loans as troubled debt restructuring (“TDR”) loans when credit terms to a borrower in financial difficulty were modified, in accordance with ASC 310-40. With the adoption of ASU 2022-02 as of January 1, 2023, the Company has ceased to recognize or measure new TDRs but those existing at December 31, 2022 will remain until settled.

The Company has allocated $1.2 million of specific reserves on TDRs as of December 31, 2022. 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

The identification of the TDRs did not have a material 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

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.