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LOANS

3 Months Ended

Mar. 31, 2024

4. LOANS

The following table sets forth the classification of the Company’s loans by loan portfolio segment for the periods presented.


(in thousands)	March 31, 2024		December 31, 2023
Residential real estate	$	756,896	$	714,843
Multi-family		568,043		572,849
Commercial real estate		546,572		548,012
Commercial and industrial		123,419		107,912
Construction and land development		10,136		13,170
Consumer		449		413
Total loans		2,005,515		1,957,199
Allowance for credit losses		(19,873)		(19,658)
Total loans, net	$	1,985,642	$	1,937,541

The Company’s Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans outstanding, included in commercial and industrial loans in the table above, totaled $2.4 million and $2.9 million at March 31, 2024 and December 31, 2023, respectively.

At March 31, 2024 and December 31, 2023, the Company was servicing approximately $282.2 million and $262.8 million, respectively, of loans for others. The Company had $7.6 million and $8.9 million of SBA loans held for sale at March 31, 2024 and December 31, 2023, respectively.

For the three months ended March 31, 2024 and 2023, the Company sold loans totaling approximately $26.7 million and $12.8 million, respectively, recognizing net gains of $2.5 million and $1.0 million, respectively.

The following tables summarize the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2024 and the allowance for loan losses for the three months ended March 31, 2023:


	Three Months Ended March 31, 2024
							Commercial		Construction
	Residential		Multi-		Commercial		and		and Land
	Real Estate		Family		Real Estate		Industrial		Development		Consumer
	Loans		Loans		Loans		Loans		Loans		Loans		Total
(in thousands)
Allowance for credit losses:
Beginning balance	$	5,001	$	4,671	$	8,390	$	1,419	$	122	$	55	$	19,658
Charge-offs		—		—		(30)		(60)		—		—		(90)
Recoveries		—		—		—		5		—		—		5
Provision for credit losses		276		(454)		219		279		(25)		5		300
Ending balance	$	5,277	$	4,217	$	8,579	$	1,643	$	97	$	60	$	19,873


	Three Months Ended March 31, 2023
							Commercial		Construction
	Residential		Multi-		Commercial		and		and Land
	Real Estate		Family		Real Estate		Industrial		Development		Consumer
	Loans		Loans		Loans		Loans		Loans		Loans		Total
(in thousands)
Allowance for loan losses:
Beginning balance	$	4,508	$	5,697	$	3,234	$	852	$	104	$	9	$	14,404
Charge-offs		—		—		—		(457)		—		—		(457)
Recoveries		—		—		—		—		—		—		—
Provision for loan losses		156		(382)		10		1,130		9		9		932
Ending balance	$	4,664	$	5,315	$	3,244	$	1,525	$	113	$	18	$	14,879

Allowance for Credit Losses on Unfunded Commitments

The Company has recorded an ACL for unfunded credit commitments, which is recorded in other liabilities. The provision for credit losses on unfunded commitments is recorded within the other expenses on the Company’s income statement. The following table presents the allowance for credit losses for unfunded commitments for the three months ended March 31, 2024 and 2023:


	Three Months Ended March 31,
(in thousands)	2024		2023
Balance at beginning of period	$	124	$	170
Provision for credit losses on unfunded commitments		140		—
Balance at end of period	$	264	$	170

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of March 31, 2024 and December 31, 2023:


	March 31, 2024
	Nonaccrual				Loans Past
	With No				Due Over
	Allowance				89 Days
(in thousands)	for Credit Loss		Nonaccrual		Still Accruing
Residential real estate	$	4,385	$	4,385	$	—
Multi-family		3,383		3,383		—
Commercial real estate		6,086		6,110		3,010
Commercial and industrial		1,000		1,000		—
Construction and land development		—		—		—
Consumer		—		—		—
Total	$	14,854	$	14,878	$	3,010


	December 31, 2023
	Nonaccrual				Loans Past
	With No				Due Over
	Allowance				89 Days
(in thousands)	for Credit Loss		Nonaccrual		Still Accruing
Residential real estate	$	4,369	$	4,369	$	—
Multi-family		1,794		3,374		—
Commercial real estate		5,976		6,000		—
Commercial and industrial		708		708		—
Construction and land development		—		—		—
Consumer		—		—		—
Total	$	12,847	$	14,451	$	—

The Company recognized $228 thousand and $29 thousand of interest income on nonaccrual loans during the three months ended March 31, 2024 and 2023, respectively.

Individually Analyzed Loans

Effective October 1, 2023, the Company began analyzing loans on an individual basis when management determined that the loan no longer exhibited risk characteristics consistent with the risk characteristics existing in its designed pool of loans, under the Company’s CECL methodology. Loans individually analyzed include certain nonaccrual loans.

As of March 31, 2024, the amortized cost basis of individually analyzed loans amounted to $14.1 million, of which $14.0 million were considered collateral dependent. For collateral dependent loans where the borrower is experiencing financial difficulty and repayment is likely to be substantially provided through the sale or operation of the collateral, the ACL is measured based on the difference between the fair value of the collateral adjusted for sales costs and the amortized cost basis of the loan, at measurement date. Certain assets held as collateral may be exposed to future deterioration in fair value, particularly due to changes in real estate markets or usage.

The following tables present the amortized cost basis and related allowance for credit loss of individually analyzed loans considered to be collateral dependent as of March 31, 2024 and December 31, 2023.


	March 31, 2024
(in thousands)	Amortized Cost Basis		Related Allowance

Residential real estate ⁽¹⁾	$	4,222	$	—
Multi-family⁽²⁾		3,358		—
Commercial real estate ⁽²⁾		6,071		24
Commercial and industrial ^{(1) (2)}		388		—
Total	$	14,039	$	24

(1)	Secured by residential real estate

(2)	Secured by commercial real estate


	December 31, 2023
(in thousands)	Amortized Cost Basis		Related Allowance

Residential real estate ⁽¹⁾	$	4,226	$	—
Multi-family⁽²⁾		3,356		397
Commercial real estate ⁽²⁾		5,986		24
Commercial and industrial ⁽¹⁾		272		—
Total	$	13,840	$	421

(1)	Secured by residential real estate

(2)	Secured by commercial real estate

The following tables present the aging of the amortized cost basis in past due loans as of March 31, 2024 and December 31, 2023 by class of loans:


(in thousands)	30 - 59		60 - 89		Greater than
	Days		Days		89 Days		Total		Loans Not
March 31, 2024	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Residential real estate	$	4,638	$	2,591	$	3,654	$	10,883	$	746,013	$	756,896
Multi-family		—		—		3,383		3,383		564,660		568,043
Commercial real estate		3,706		1,429		9,120		14,255		532,317		546,572
Commercial and industrial		2,086		540		314		2,940		120,479		123,419
Construction and land development		—		—		—		—		10,136		10,136
Consumer		—		—		—		—		449		449
Total	$	10,430	$	4,560	$	16,471	$	31,461	$	1,974,054	$	2,005,515


(in thousands)	30 - 59		60 - 89		Greater than
	Days		Days		89 Days		Total		Loans Not
December 31, 2023	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Residential real estate	$	4,508	$	2,360	$	4,369	$	11,237	$	703,606	$	714,843
Multi-family		—		—		3,374		3,374		569,475		572,849
Commercial real estate		2,666		3,212		6,000		11,878		536,134		548,012
Commercial and industrial		755		555		211		1,521		106,391		107,912
Construction and land development		—		—		—		—		13,170		13,170
Consumer		—		—		—		—		413		413
Total	$	7,929	$	6,127	$	13,954	$	28,010	$	1,929,189	$	1,957,199

The Company adopted ASU 2022-02, Financial Instruments-Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) on October 1, 2023. The Company did not have any loans that were both experiencing difficulties and modified during the reporting periods beginning after October 1, 2023.

Credit Quality Indicators:

The Company has adopted a credit risk rating system as part of the risk assessment of its loan portfolio. The Company’s lending officers are required to assign a credit risk rating to each loan in their portfolio at origination. When the lender learns of important financial developments, the risk rating is reviewed and adjusted if necessary. In addition, the Company engages a third-party independent loan reviewer that performs quarterly reviews of a sample of loans, validating the credit risk ratings assigned to such loans. The credit risk ratings play an important role in the establishment of the loan loss provision and to confirm the adequacy of the allowance for credit losses.

The Company categorizes 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, public information, and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. The Company uses the following definitions for risk ratings:

Special Mention: The loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the asset or in the Company’s credit position at some future date.

Substandard: The loan is inadequately protected by current sound worth and paying capacity of the obligor or collateral pledged, if any. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: The loan has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing factors, conditions, and values, highly questionable and improbable.

Loans not having a credit risk rating of Special Mention, Substandard or Doubtful are considered pass loans.

The following table summarizes the Company’s loans by year of origination and internally assigned credit risk at March 31, 2024 and gross charge-offs for the three months ended March 31, 2024:


															Revolving
	Term Loans Amortized Cost by Origination Year												Revolving		Loans to
(in thousands)	2024		2023		2022		2021		2020		Prior		Loans		Term Loans		Total
Residential real estate ⁽¹⁾
Pass	$	51,611	$	190,491	$	203,712	$	62,960	$	39,118	$	171,905	$	—	$	26,223	$	746,020
Special Mention		—		—		593		1,219		520		1,003		—		—		3,335
Substandard		—		—		731		—		683		5,110		—		656		7,180
Total Residential real estate		51,611		190,491		205,036		64,179		40,321		178,018		—		26,879		756,535
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family
Pass		804		3,429		297,120		161,824		36,386		65,098		—		—		564,661
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		1,585		1,797		—		—		—		3,382
Total Multi-family		804		3,429		297,120		163,409		38,183		65,098		—		—		568,043
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Commercial real estate
Pass		15,601		90,038		180,032		80,068		25,871		128,142		—		—		519,752
Special Mention		—		—		1,846		8,380		—		8,332		—		—		18,558
Substandard		—		—		—		—		497		7,765		—		—		8,262
Total Commercial real estate		15,601		90,038		181,878		88,448		26,368		144,239		—		—		546,572
Current period gross charge-offs		—		—		—		—		—		30		—		—		30

Commercial and industrial
Pass		22,401		69,998		11,045		9,791		3,206		4,870		—		—		121,311
Special Mention		—		—		—		925		—		—		—		—		925
Substandard		—		206		—		372		30		575		—		—		1,183
Total Commercial and industrial		22,401		70,204		11,045		11,088		3,236		5,445		—		—		123,419
Current period gross charge-offs		—		60		—		—		—		—		—		—		60

Construction and land development
Pass		4		855		—		9,277		—		—		—		—		10,136
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Construction and land development		4		855		—		9,277		—		—		—		—		10,136
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Consumer
Pass		48		317		84		—		—		—		—		—		449
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Consumer		48		317		84		—		—		—		—		—		449
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Total Loans	$	90,469	$	355,334	$	695,163	$	336,401	$	108,108	$	392,800	$	—	$	26,879	$	2,005,154

Gross charge-offs	$	—	$	60	$	—	$	—	$	—	$	30	$	—	$	—	$	90

(1)

Certain fixed residential mortgage loans are included in a fair value hedging relationship. The amortized cost excludes a contra asset of $361 thousand related to basis adjustments for loans in the closed portfolio under the portfolio layer method at March 31, 2024. These basis adjustments would be allocated to the amortized cost of specific loans within the pool if hedge was dedesignated. See “Note 10 – Derivates” for more information on the fair value hedge.

The following table summarizes the Company’s loans by year of origination and internally assigned credit risk at December 31, 2023:


															Revolving
	Term Loans Amortized Cost by Origination Year												Revolving		Loans to
(in thousands)	2023		2022		2021		2020		2019		Prior		Loans		Term Loans		Total
Residential real estate ⁽¹⁾
Pass	$	191,238	$	207,166	$	64,906	$	39,772	$	79,581	$	98,150	$	—	$	24,975	$	705,788
Special Mention		—		—		—		522		230		—		—		—		752
Substandard		—		740		—		676		4,185		927		—		656		7,184
Total Residential real estate		191,238		207,906		64,906		40,970		83,996		99,077		—		25,631		713,724

Multi-family
Pass		3,533		299,217		162,678		36,592		10,854		56,601		—		—		569,475
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		1,580		1,794		—		—		—		—		3,374
Total Multi-family		3,533		299,217		164,258		38,386		10,854		56,601		—		—		572,849

Commercial real estate
Pass		86,834		187,570		80,761		26,300		42,476		95,265		—		—		519,206
Special Mention		—		1,852		8,433		293		3,647		6,427		—		—		20,652
Substandard		—		—		—		199		6,826		1,129		—		—		8,154
Total Commercial real estate		86,834		189,422		89,194		26,792		52,949		102,821		—		—		548,012

Commercial and industrial
Pass		74,352		11,392		10,015		4,407		126		5,274		—		—		105,566
Special Mention		—		—		913		—		—		540		—		—		1,453
Substandard		—		—		266		35		145		447		—		—		893
Total Commercial and industrial		74,352		11,392		11,194		4,442		271		6,261		—		—		107,912

Construction and land development
Pass		904		3,613		8,653		—		—		—		—		—		13,170
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Construction and land development		904		3,613		8,653		—		—		—		—		—		13,170

Consumer
Pass		326		87		—		—		—		—		—		—		413
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Consumer		326		87		—		—		—		—		—		—		413

Total Loans	$	357,187	$	711,637	$	338,205	$	110,590	$	148,070	$	264,760	$	—	$	25,631	$	1,956,080

(1)

Certain fixed residential mortgage loans are included in a fair value hedging relationship. The amortized cost excludes a contra asset of $1.1 million related to basis adjustments for loans in the closed portfolio under the portfolio layer method at December 31, 2023. These basis adjustments would be allocated to the amortized cost of specific loans within the pool if hedge was dedesignated. See “Note 10 – Derivates” for more information on the fair value hedge.