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Loans Receivable

9 Months Ended

Sep. 30, 2023

Note 5 – Loans Receivable

Loans receivable, net at September 30, 2022 and December 31, 2022 were comprised of the following:


	September 30, 2023			December 31, 2022

	(In thousands)
Commercial real estate	$	1,080,288		$	873,573
Commercial and industrial		52,157			28,859
Construction		320,824			417,538
Residential first-lien mortgage		39,682			43,125
Home equity/consumer		7,860			9,729

Total loans		1,500,811			1,372,824
Deferred fees and costs		(2,311	)		(2,456	)

Loans, net	$	1,498,500		$	1,370,368

Except as discussed in Note 2 regarding the Noah Bank acquisition, the Company did not purchase any loans during the three and nine months ended September 30, 2023 and 2022, respectively.

Upon adoption of CECL the Company elected to use the discounted cash flow methodology in determining the appropriate quantitative adjustments, which projects future losses, based on historical loss data, as part of the allowance for credit losses (“ACL”) reserve. Qualitative adjustments include and consider changes in national, regional and local economic and business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality.

The following table presents the components of the allowance for credit losses:


	September 30, 2023			December 31, 2022

	(In thousands)
Allowance for credit losses—loans	$	(17,992	)	$	(16,461	)
Allowance for credit losses—off balance sheet		(517	)		(332	)

	$	(18,509	)	$	(16,793	)

The following table presents nonaccrual loans by segment of the loan portfolio as of September 30, 2023 and December 31, 2022:


	September 30, 2023				December 31, 2022
	With a Related Allowance		Without a Related Allowance		With a Related Allowance		Without a Related Allowance

	(In thousands)
Commercial real estate	$	—	$	4,485	$	—	$	—
Commercial and industrial		—		2,159		—		—
Construction		—		—		148		—
Residential first-lien mortgage		—		109		—		118

Total nonaccrual loans	$	—	$	6,753	$	148	$	118

The calculation of the allowance for credit losses does not include any accrued interest receivable. The Company’s policy is to write off any interest not collected after 90 days. During the nine-month period ending September 30, 2023, the Company wrote off $366 thousand in accrued interest receivable for loans. The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loan receivables by the length of time a recorded payment is past due. The following table presents the segments of the loan portfolio, summarized by the past due status as of September 30, 2023:


	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing

	(In thousands)
Commercial real estate	$	152	$	1,844	$	4,485	$	7,896	$	1,072,392	$	1,080,288	$	—
Commercial and industrial		34		873		2,159		1,651		50,506		52,157		—
Construction		—		—		—		—		320,824		320,824		—
Residential first-lien mortgage		—		31		109		140		39,542		39,682		—
Home equity/consumer		—		47		—		47		7,813		7,860		—

Total	$	186	$	2,795	$	6,753	$	9,734	$	1,491,077	$	1,500,811	$	—

The following table presents the segments of the loan portfolio summarized by the past due status as of December 31, 2022:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 days		Total Past Due		Current		Total Loans Receivable		Receivable >90 Days and Accruing
							(In thousands)
Commercial real estate	$	—	$	6,193	$	—	$	6,193	$	867,380	$	873,573	$	—
Commercial and industrial		—		—		—		—		28,859		28,859		—
Construction		—		—		148		148		417,390		417,538		—
Residential first-lien mortgage		1,292		—		118		1,410		41,715		43,125		—
Home equity/consumer		255		—		184		439		9,290		9,729		184
Total	$	1,547	$	6,193	$	450	$	8,190	$	1,364,634	$	1,372,824	$	184

The Company categorizes all 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 and current economic trends, among other factors. The Company evaluates risk ratings on an ongoing basis and assigns one of the following ratings: pass, special mention, substandard and doubtful. The Company engages a third party to review its assessment on a semiannual basis. The Company classifies residential and consumer loans as either performing or nonperforming based on payment status.

The following table summarizes total loans by year of origination, internally assigned credit grades and risk characteristics as of September 30, 2023.


	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
							(Dollars in thousands)
Commercial real estate
Pass	$	47,531	$	235,341	$	119,682	$	54,153	$	173,138	$	428,018	$	15,164	$	1,073,027
Special mention		—		—		—		—		—		2,776		—		2,776
Substandard		—		—		—		—		—		4,485		—		4,485

Total commercial real estate		47,531		235,341		119,682		54,153		173,138		435,279		15,164		1,080,288

Current-period gross charge-offs		—		—		—		—		—		1,718		—		1,718
Commercial and industrial
Pass		1,749		6,041		1,143		1,987		8,019		23,809		6,564		49,312
Special mention		—		—		—		—		—		686		—		686
Substandard		—		—		—		—		—		2,159		—		2,159

Total commercial and industrial		1,749		6,041		1,143		1,987		8,019		26,654		6,564		52,157

Current-period gross charge-offs		—		—		—		—		—		2		—		2
Construction
Pass		792		4,409		89,500		14,682		5,000		4,414		202,027		320,824
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—

Total construction		792		4,409		89,500		14,682		5,000		4,414		202,027		320,824

Current-period gross charge-offs		—		—		—		—		—		148		—		148
Residential first-lien mortgage
Performing		—		993		5,635		2,863		1,562		28,520		—		39,573
Nonperforming		—		—		—		—		—		109		—		109

Total residential first-lien mortgage		—		993		5,635		2,863		1,562		28,629		—		39,682

Home equity/consumer
Performing		1,045		38		319		4		—		3,548		2,906		7,860
Nonperforming		—		—		—		—		—		—		—		—

Total home equity/consumer		1,045		38		319		4		—		3,548		2,906		7,860

Total loans receivable
Pass		51,117		246,822		216,279		73,689		187,719		488,309		226,661		1,490,596
Special mention		—		—		—		—		—		3,462		—		3,462
Substandard		—		—		—		—		—		6,753		—		6,753

Total loans receivable	$	51,117	$	246,822	$	216,279	$	73,689	$	187,719	$	498,524	$	226,661	$	1,500,811

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of December 31, 2022:


	Pass		Special Mention		Substandard		Doubtful		Total
					(In thousands)
Commercial real estate	$	864,497	$	2,883	$	6,193	$	—	$	873,573
Commercial and industrial		28,350		509		—		—		28,859
Construction		417,390		—		148		—		417,538
Residential first-lien mortgage		43,007		—		118		—		43,125
Home equity/consumer		9,729		—		—		—		9,729

Total with no related allowance	$	1,362,973	$	3,392	$	6,459	$	—	$	1,372,824

The following table presents the allowance for credit losses on loans receivable at and for the three months ended September 30, 2023:


	Commercial real estate		Commercial and industrial			Construction			Residential first-lien mortgage		Home equity/ consumer			Unallocated		Total
									(In thousands)
Allowance for credit losses:
Beginning balance	$	12,123	$	407		$	4,529		$	661	$	250		$	—	$	17,970
Provision 1		3,301		(81	)		(3,219	)		160		(161	)		—		—
Charge-offs		—		—			—			—		—			—		—
Recoveries		4		18			—			—		—			—		22

Total	$	15,428	$	344		$	1,310		$	821	$	89		$	—	$	17,992

Ending Balance:
Individually evaluated	$	—	$	—		$	—		$	—	$	—		$	—	$	—
Collectively evaluated		15,428		344			1,310			821		89			—		17,992

	$	15,428	$	344		$	1,310		$	821	$	89		$	—	$	17,992

1	The credit provision for credit losses on the Consolidated Statement of Income is a credit of $182 thousand comprising a $182 thousand reduction to the reserve for unfunded liabilities.

The following table presents the recorded investment in loans receivable at September 30, 2023:


	Commercial real estate		Commercial and industrial		Construction		Residential first-lien mortgage		Home equity/ consumer		Unallocated		Total
							(In thousands)
Loans:
Ending balance:
Individually evaluated	$	4,485	$	2,232	$	2,925	$	111	$	—	$	—	$	9,753
Collectively evaluated		1,075,803		49,925		317,899		39,571		7,860		—		1,491,058

Ending balance	$	1,080,288	$	52,157	$	320,824	$	39,682	$	7,860	$	—	$	1,500,811

The following table presents the allowance for loan losses on loans receivables at and for the three months ended September 30, 2022:


	Commercial real estate			Commercial and industrial		Construction			Residential first-lien mortgage			Home equity/ consumer			Unallocated		Total
									(In thousands)
Allowance for loan losses:
Beginning balance	$	8,683		$	279	$	6,430		$	259		$	50		$	965	$	16,666
Provision		413			11		(304	)		(8	)		(5	)		93		200
Charge-offs		(200	)		—		—			—			—			—		(200	)
Recoveries		—			—		—			—			—			—		—

Total	$	8,896		$	290	$	6,126		$	251		$	45		$	1,058	$	16,666

The following table presents the allowance for credit losses on loans receivable at and for the nine months ended September 30, 2023:


	Commercial real estate			Commercial and industrial			Construction			Residential first-lien mortgage			Home equity/ consumer			Unallocated			Total
										(In thousands)
Allowance for credit losses:
Beginning balance	$	8,654		$	271		$	6,289		$	236		$	45		$	966		$	16,461
CECL adoption		1,384			(73	)		(1,269	)		428			195			(966	)		(301	)
CECL day 1 provision		1,586			105			—			16			—			—			1,707
Purchased credit deteriorated loans		499			102			—			—			—			—			601
Provision 1		4,994			(84	)		(3,562	)		143			(151	)		—			1,340
Charge-offs		(1,718	)		—			(148	)		(2	)		—			—			(1,868	)
Recoveries		29			23			—			—			—			—			52

Total	$	15,428		$	344		$	1,310		$	821		$	89		$	—		$	17,992

1	The provision for credit losses on the Consolidated Statement of Income is $2.5 million comprising $1.7 million related to non-PCD loans acquired, a $1.3 million increase to the allowance for credit losses on loans and a $501 thousand reduction to the reserve for unfunded liabilities.

The following table presents the allowance for credit losses on loans receivable at and for the nine months ended September 30, 2022:


	Commercial real estate			Commercial and industrial			Construction			Residential first-lien mortgage			Home equity/ consumer			Unallocated		Total

										(In thousands)
Allowance for loan losses:
Beginning balance	$	7,458		$	713		$	7,228		$	267		$	48		$	906	$	16,620
Provision		1,592			(423	)		(1,102	)		(16	)		(3	)		152		200
Charge-offs		(400	)		—			—			—			—			—		(400	)
Recoveries		246			—			—			—			—			—		246

Total	$	8,896		$	290		$	6,126		$	251		$	45		$	1,058	$	16,666

The following table presents the recorded investment of loans receivables and allowance for loan losses at December 31, 2022:


	Commercial real estate		Commercial and industrial		Construction		Residential first-lien mortgage		Home equity/ consumer		Unallocated		Total

							(In thousands)
Loans:
Ending Balance:
Individually evaluated for impairment	$	12,030	$	10	$	148	$	118	$	71	$	—	$	12,377
Collectively evaluated for impairment		861,543		28,849		417,390		43,007		9,658		—		1,360,447

Ending balance	$	873,573	$	28,859	$	417,538	$	43,125	$	9,729	$	—	$	1,372,824

Allowance for loan losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	—	$	118	$	—	$	—	$	—	$	118
Collectively evaluated for impairment		8,654		271		6,171		236		45		966		16,343

	$	8,654	$	271	$	6,289	$	236	$	45	$	966	$	16,461

With the adoption of CECL, performing TDRs are no longer reported for the current period. At December 31, 2022 there were three loans classified as TDR loans totaling $5.9 million and each of these loans was performing in accordance with the agreed-upon terms. There were no loans modified during the nine months ended September 30, 2023.