LOANS AND LEASES

6 Months Ended

Jun. 30, 2023

3. LOANS AND LEASES

Loans outstanding, excluding those held for sale, by general ledger classification, as of June 30, 2023 and December 31, 2022, consisted of the following:


			% of					% of
	June 30,		Totals			December 31,		Total
(Dollars in thousands)	2023		Loans			2022		Loans
Residential mortgage	$	575,238		10.58	%	$	525,756		9.95	%
Multifamily mortgage		1,884,369		34.67			1,863,915		35.27
Commercial mortgage		624,710		11.49			624,625		11.82
Commercial loans (including equipment financing)		2,254,232		41.48			2,194,094		41.51
Commercial construction		9,703		0.18			4,042		0.07
Home equity lines of credit		34,397		0.63			34,496		0.65
Consumer loans, including fixed rate home equity loans		52,098		0.96			38,014		0.72
Other loans		269		0.01			304		0.01
Total loans	$	5,435,016		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 June 30, 2023 and December 31, 2022 are based on the CECL methodology:


			% of					% of
	June 30,		Totals			December 31,		Total
(Dollars in thousands)	2023		Loans			2022		Loans
Primary residential mortgage	$	576,104		10.61	%	$	527,784		9.99	%
Junior lien loan on residence		37,780		0.70			38,265		0.73
Multifamily property		1,884,369		34.69			1,863,915		35.29
Owner-occupied commercial real estate		258,909		4.77			272,009		5.15
Investment commercial real estate		1,041,189		19.17			1,044,125		19.77
Commercial and industrial		1,282,058		23.60			1,194,662		22.62
Lease financing		279,518		5.14			288,566		5.46
Construction		16,251		0.30			9,936		0.19
Consumer and other		55,476		1.02			42,319		0.80
Total loans		5,431,654		100.00	%		5,281,581		100.00	%
Net deferred costs		3,362					3,665
Total loans including net deferred costs	$	5,435,016				$	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 June 30, 2023 and December 31, 2022:


	June 30, 2023
			Loans Past Due
			90 Days or Over
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	1,001	$	—
Multifamily property		18,868		—
Investment commercial real estate		9,935		—
Commercial and industrial		3,373		—
Lease financing		1,328		—
Total	$	34,505	$	—


	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 June 30, 2023 and December 31, 2022 by class of loans, excluding nonaccrual loans:


	June 30, 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	$	1,463	$	—	$	—	$	1,463
Commercial and industrial		3,968		—		—		3,968
Lease financing		7,447		—		—		7,447
Consumer and other		—		3		—		3
Total	$	12,878	$	3	$	—	$	12,881


	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 Federal Reserve Board 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 June 30, 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 June 30, 2023 for Loans Originated During
											2018				Revolving-
(In thousands)	2023		2022		2021		2020		2019		and Prior		Revolving		Term		Total
Primary residential mortgage:
Pass	$	69,713	$	116,537	$	82,789	$	60,707	$	36,329	$	207,223	$	—	$	685	$	573,983
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		489		981		651		—		—		2,121
Doubtful		—		—		—		—		—		—		—		—		—
Total primary residential mortgages		69,713		116,537		82,789		61,196		37,310		207,874		—		685		576,104
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Junior lien loan on residence:
Pass		160		1,490		156		35		590		951		34,335		—		37,717
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		63		—		63
Doubtful		—		—		—		—		—		—		—		—		—
Total junior lien loan on residence		160		1,490		156		35		590		951		34,398		—		37,780
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Multifamily property:
Pass		43,495		481,160		659,346		121,200		213,938		326,509		748		7,037		1,853,433
Special mention		—		—		—		—		—		1,673		—		—		1,673
Substandard		—		1,572		9,714		—		10,399		7,578		—		—		29,263
Doubtful		—		—		—		—		—		—		—		—		—
Total multifamily property		43,495		482,732		669,060		121,200		224,337		335,760		748		7,037		1,884,369
Current period gross charge-offs		—		—		—		—		—		—		—		—		—


	Grade as of June 30, 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		1,515		23,878		43,125		20,395		11,996		130,336		305		26,983		258,533
Special mention		—		—		—		—		—		—		376		—		376
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate		1,515		23,878		43,125		20,395		11,996		130,336		681		26,983		258,909
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Investment commercial real estate:
Pass		82,974		175,500		152,000		58,567		153,896		328,176		8,231		42,542		1,001,886
Special mention		—		—		—		—		12,817		13,125		—		—		25,942
Substandard		—		9,935		—		—		3,426		—		—		—		13,361
Doubtful		—		—		—		—		—		—		—		—		—
Total investment commercial real estate		82,974		185,435		152,000		58,567		170,139		341,301		8,231		42,542		1,041,189
Current period gross charge-offs		—		1,199		—		—		—		—		—		—		1,199

Commercial and industrial:
Pass		126,562		303,336		196,525		59,775		59,585		24,167		469,571		27,576		1,267,097
Special mention		—		—		—		825		1,170		191		256		—		2,442
Substandard		—		—		1,698		845		1,003		280		8,693		—		12,519
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial		126,562		303,336		198,223		61,445		61,758		24,638		478,520		27,576		1,282,058
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Lease financing:
Pass		25,805		46,099		66,439		51,345		39,709		25,620		—		—		255,017
Special mention		1,410		18,225		569		—		1,508		1,461		—		—		23,173
Substandard		—		—		—		—		1,328		—		—		—		1,328
Doubtful		—		—		—		—		—		—		—		—		—
Total lease financing		27,215		64,324		67,008		51,345		42,545		27,081		—		—		279,518
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Construction:
Pass		—		—		—		—		1,404		—		—		14,847		16,251
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction loans		—		—		—		—		1,404		—		—		14,847		16,251
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Consumer and other loans:
Pass		80		—		336		173		—		4,924		31,449		18,514		55,476
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer and other loans		80		—		336		173		—		4,924		31,449		18,514		55,476
Current period gross charge-offs		—		—		—		—		—		—		61		—		61


	Grade as of June 30, 2023 for Loans Originated During
											2018				Revolving-
(In thousands)	2023		2022		2021		2020		2019		and Prior		Revolving		Term		Total
Total:
Pass		350,304		1,148,000		1,200,716		372,197		517,447		1,047,906		544,639		138,184		5,319,393
Special mention		1,410		18,225		569		825		15,495		16,450		632		—		53,606
Substandard		—		11,507		11,412		1,334		17,137		8,509		8,756		—		58,655
Doubtful		—		—		—		—		—		—		—		—		—
Total Loans	$	351,714	$	1,177,732	$	1,212,697	$	374,356	$	550,079	$	1,072,865	$	554,027	$	138,184	$	5,431,654
Total Current Period Gross Charge-offs	$	—	$	1,199	$	—	$	—	$	—	$	—	$	61	$	—	$	1,260


	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 June 30, 2023, $33.7 million of substandard loans were also considered individually evaluated, compared to $14.7 million at December 31, 2022. The increase in individually evaluated substandard loans is primarily due to three multifamily loans with a balance of $18.9 million that were graded as substandard during the first six months of 2023.

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 following tables provides information related to the modifications during the six months ended June 30, 2023 by pool segment and type of concession granted:


	Interest Only Period Extension
	Six Months Ended June 30, 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	%


	Interest Rate Reduction
	Six Months Ended June 30, 2023
			% of Total
	Amortized		Class of
	Cost Basis		Financing
(Dollars in thousands)	at Period End		Receivable
Commercial and industrial	$	777		0.06	%
Total	$	777		0.06	%

The following table depicts the payment status of the loans that were modified to a borrower experiencing financial difficulties on or after January 1, 2023, the date we adopted ASU 2022-02, through June 30, 2023:


	Payment Status at June 30, 2023
			30-89 Days		90+ Days
(Dollars in thousands)	Current		Past Due		Past Due
Commercial and industrial	$	248	$	—	$	777
Total	$	248	$	—	$	777

The following table presents loans by class modified that failed to comply with the modified terms in the twelve months following modification and resulted in a payment default at June 30, 2023:


	Amortized Cost Basis of Modified Loans
	That Subsequently Defaulted
	Six Months Ended June 30, 2023
	Interest Only		Interest
(Dollars in thousands)	Period Extension		Rate Reduction
Commercial and industrial	$	248	$	—
Total	$	248	$	—

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 had allocated $2.5 million of specific reserves on TDRs as of June 30, 2022. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.

There were no loans modified as TDRs during the three-month period ended June 30, 2022.

The following table presents loans by class modified as TDRs during the six-month period ended June 30, 2022:


			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Loans		Investment		Investment
Investment commercial real estate		1	$	12,471	$	12,471
Total		1	$	12,471	$	12,471

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 June 30, 2022:


	Number of		Recorded
(Dollars in thousands)	Loans		Investment
Primary residential mortgage		2	$	359
Total		2	$	359

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.