LOANS AND LEASES

6 Months Ended

Jun. 30, 2022

Receivables [Abstract]

LOANS AND LEASES

3. LOANS AND LEASES

Loans outstanding, excluding those held for sale, by general ledger classification, as of June 30, 2022 and December 31, 2021, consisted of the following:

			% of					% of
	June 30,		Totals			December 31,		Total
(Dollars in thousands)	2022		Loans			2021		Loans
Residential mortgage	$	511,826		9.93	%	$	498,300		10.37	%
Multifamily mortgage		1,876,783		36.41			1,595,866		33.20
Commercial mortgage		657,812		12.76			662,626		13.78
Commercial loans (including equipment financing) (1)		2,018,045		39.16			1,955,157		40.67
Commercial construction		15,473		0.30			20,044		0.42
Home equity lines of credit		36,023		0.70			40,803		0.85
Consumer loans, including fixed rate home equity loans		37,675		0.73			33,687		0.70
Other loans		236		0.01			238		0.01
Total loans	$	5,153,873		100.00	%	$	4,806,721		100.00	%

(1)Includes PPP loans of $9.4 million at June 30, 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 June 30, 2022 are based on the CECL methodology:

			% of
	June 30,		Totals
(Dollars in thousands)	2022		Loans
Primary residential mortgage	$	515,084		10.00	%
Junior lien loan on residence		39,010		0.76
Multifamily property		1,876,783		36.44
Owner-occupied commercial real estate		251,281		4.88
Investment commercial real estate		1,068,288		20.74
Commercial and industrial (1)		1,019,875		19.81
Lease financing		314,947		6.12
Construction		20,758		0.40
Consumer and other		43,774		0.85
Total loans		5,149,800		100.00	%
Net deferred costs		4,073
Total loans including net deferred costs	$	5,153,873

(1) Includes PPP loans of $9.4 million at June 30, 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 90 days or over still on accrual by class of loans as of June 30, 2022 and December 31, 2021:

	June 30, 2022
			Loans Past Due
			90 Days or Over
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	1,759	$	—
Junior lien loan on residence		16		—
Owner-occupied commercial real estate		296		—
Investment commercial real estate		12,471		—
Commercial and industrial		536		—
Total	$	15,078	$	—

	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 June 30, 2022 and December 31, 2021 by class of loans, excluding nonaccrual loans:

	June 30, 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	$	581	$	1,697	$	—	$	2,278
Junior lien loan on residence		53		—		—		53
Commercial and industrial		795		—		—		795
Total	$	1,429	$	1,697	$	—	$	3,126

	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 June 30, 2022 based on originations for the periods indicated; the years represent the year of origination for non-revolving loans:

	Grade as of June 30, 2022 for Loans Originated During
											2017				Revolving-
(In thousands)	2022		2021		2020		2019		2018		and Prior		Revolving		Term		Total
Primary residential mortgage:
Pass	$	73,700	$	96,485	$	65,468	$	39,389	$	28,912	$	207,278	$	—	$	697	$	511,929
Special mention		—		—		—		1,097		80		100		—		—		1,277
Substandard		—		—		462		212		285		919		—		—		1,878
Doubtful		—		—		—		—		—		—		—		—		—
Total primary residential mortgages		73,700		96,485		65,930		40,698		29,277		208,297		—		697		515,084
Junior lien loan on residence:
Pass		523		199		49		690		384		1,126		35,507		—		38,478
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		16		516		—		532
Doubtful		—		—		—		—		—		—		—		—		—
Total junior lien loan on residence		523		199		49		690		384		1,142		36,023		—		39,010
Multifamily property:
Pass		451,097		686,386		119,517		231,326		43,284		326,173		500		4,154		1,862,437
Special mention		—		—		—		2,873		—		3,542		—		—		6,415
Substandard		—		—		—		—		—		7,931		—		—		7,931
Doubtful		—		—		—		—		—		—		—		—		—
Total multifamily property		451,097		686,386		119,517		234,199		43,284		337,646		500		4,154		1,876,783
Owner-occupied commercial real estate:
Pass		4,543		44,515		21,154		12,480		22,902		142,338		716		2,337		250,985
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		296		—		—		296
Doubtful		—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate		4,543		44,515		21,154		12,480		22,902		142,634		716		2,337		251,281
Investment commercial real estate:
Pass		107,815		163,490		64,745		159,319		115,017		325,687		6,992		36,434		979,499
Special mention		—		—		—		34,414		7,797		30,584		—		—		72,795
Substandard		12,471		—		—		3,523		—		—		—		—		15,994
Doubtful		—		—		—		—		—		—		—		—		—
Total investment commercial real estate		120,286		163,490		64,745		197,256		122,814		356,271		6,992		36,434		1,068,288
Commercial and industrial:
Pass		131,764		264,794		128,158		105,890		35,032		6,853		304,093		24,455		1,001,039
Special mention		—		1,881		—		5,277		195		—		4,602		6,345		18,300
Substandard		—		—		—		—		292		208		36		—		536
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial		131,764		266,675		128,158		111,167		35,519		7,061		308,731		30,800		1,019,875
Lease financing:
Pass		48,810		79,608		65,951		62,373		36,682		21,523		—		—		314,947
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total lease financing		48,810		79,608		65,951		62,373		36,682		21,523		—		—		314,947
Construction loans:

Pass		—		—		—		1,455		—		5		9,020		10,278		20,758
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction loans		—		—		—		1,455		—		5		9,020		10,278		20,758
Consumer and other loans:
Pass		—		417		262		17		—		6,187		33,592		3,299		43,774
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer and other loans		—		417		262		17		—		6,187		33,592		3,299		43,774
Total:
Pass		818,252		1,335,894		465,304		612,939		282,213		1,037,170		390,420		81,654		5,023,846
Special mention		—		1,881		—		43,661		8,072		34,226		4,602		6,345		98,787
Substandard		12,471		—		462		3,735		577		9,370		552		—		27,167
Doubtful		—		—		—		—		—		—		—		—		—
Total Loans	$	830,723	$	1,337,775	$	465,766	$	660,335	$	290,862	$	1,080,766	$	395,574	$	87,999	$	5,149,800

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 June 30, 2022, $13.2 million of substandard loans were also considered individually evaluated, compared to $15.7 million at December 31, 2021.

Loan Modifications:

The CARES Act allowed 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 were met. The revised CARES Act extended TDR relief to loan modifications through January 1, 2022. This relief could 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 deferred or delayed the payment of principal or interest or changed 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 June 30, 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 June 30, 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 June 30, 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.

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 three-month period ended June 30, 2021:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Loans		Investment		Investment
Primary residential mortgage		1	$	822	$	822
Commercial and industrial		1		2,317		2,317
Total		2	$	3,139	$	3,139

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 following table presents loans by class modified as TDRs during the six-month period ended June 30, 2021:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Loans		Investment		Investment
Primary residential mortgage		1	$	822	$	822
Commercial and industrial		1		2,317		2,317
Total		2	$	3,139	$	3,139

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

There were no loans that were modified as TDRs for which there was a payment default within twelve months of modification at June 30, 2021.

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.