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LOANS

12 Months Ended

Dec. 31, 2022

NOTE 5 — LOANS

Loans, net of deferred fees and costs, consist of the following (in thousands):


	At December 31,
	2022		2021
Real estate
Commercial	$	3,254,508	$	2,488,382
Construction		143,693		151,791
Multi-family		468,540		355,290
One-to four-family		53,207		57,163
Total real estate loans		3,919,948		3,052,626
Commercial and industrial		908,616		654,535
Consumer		24,931		32,366
Total loans		4,853,495		3,739,527
Deferred fees, net of origination costs		(12,972)		(7,598)
Loans, net of deferred fees and costs		4,840,523		3,731,929
Allowance for loan losses		(44,876)		(34,729)
Net loans	$	4,795,647	$	3,697,200

Included in C&I loans at December 31, 2022 and 2021 were $97,000 and $561,000, respectively, of PPP loans. Also included in C&I loans at December 31, 2022 and 2021 were $0.0 and $4.1 million, respectively, of loans held for sale, measured at the lower of cost or fair value.

The following tables present the activity in the ALLL by segment. The portfolio segments represent the categories that the Company uses to determine its ALLL (in thousands):


	Commercial		Commercial						One-to four-
Year ended December 31, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729
Provision (credit) for loan losses		7,280		2,540		(122)		667		(35)		(214)		10,116
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		26		—		—		—		5		31
Total ending allowance balance	$	29,496	$	10,274	$	1,983	$	2,823	$	105	$	195	$	44,876


	Commercial		Commercial						One-to four-
Year ended December 31, 2021	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	17,243	$	12,123	$	1,593	$	2,661	$	206	$	1,581	$	35,407
Provision (credit) for loan losses		4,973		24		512		(505)		(66)		(1,122)		3,816
Loans charged-off		—		(4,764)		—		—		—		(55)		(4,819)
Recoveries		—		325		—		—		—		—		325
Total ending allowance balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729

The following tables present the balance in the ALLL and the recorded investment in loans by portfolio segment based on impairment method (in thousands):


	Commercial		Commercial						One-to four-
At December 31, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	24	$	24
Collectively evaluated for impairment		29,496		10,274		1,983		2,823		105		171		44,852
Total ending allowance balance	$	29,496	$	10,274	$	1,983	$	2,823	$	105	$	195	$	44,876
Loans:
Individually evaluated for impairment	$	26,740	$	—	$	—	$	—	$	899	$	24	$	27,663
Collectively evaluated for impairment		3,227,768		908,616		143,693		468,540		52,308		24,907		4,825,832
Total ending loan balance	$	3,254,508	$	908,616	$	143,693	$	468,540	$	53,207	$	24,931	$	4,853,495


	Commercial		Commercial						One-to four-
At December 31, 2021	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	26	$	170	$	196
Collectively evaluated for impairment		22,216		7,708		2,105		2,156		114		234		34,533
Total ending allowance balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729
Loans:
Individually evaluated for impairment	$	38,518	$	—	$	—	$	—	$	946	$	302	$	39,766
Collectively evaluated for impairment		2,449,864		654,535		151,791		355,290		56,217		32,064		3,699,761
Total ending loan balance	$	2,488,382	$	654,535	$	151,791	$	355,290	$	57,163	$	32,366	$	3,739,527

The following tables present loans individually evaluated for impairment (in thousands). The recorded investment in loans excludes accrued interest receivable and loan origination fees.


		At December 31, 2022					Year ended December 31, 2022
					Allowance
	Unpaid				for Loan		Average		Interest
	Principal		Recorded		Losses		Recorded		Income
	Balance		Investment		Allocated		Investment		Recognized
With an allowance recorded:
Consumer	$	24	$	24	$	24		79		—
Total	$	24	$	24	$	24	$	79	$	—

Without an allowance recorded:
One-to four-family	$	1,176	$	899	$	—	$	832	$	31
CRE		27,984		26,740		—		30,142		1,041
Total	$	29,160	$	27,639	$	—	$	30,974	$	1,072


		At December 31, 2021					Year ended December 31, 2021
					Allowance
	Unpaid				for Loan		Average		Interest
	Principal		Recorded		Losses		Recorded		Income
	Balance		Investment		Allocated		Investment		Recognized
With an allowance recorded:
One-to four-family	$	577	$	447	$	26	$	462	$	21
Consumer		302		302		170		1,766		84
C&I		—		—		—		2,726		—
Total	$	879	$	749	$	196	$	4,954	$	105

Without an allowance recorded:
One-to four-family	$	646	$	499	$	—	$	509	$	26
CRE		38,518		38,518		—		15,975		325
C&I		—		—		—		77		—
Total	$	39,164	$	39,017	$	—	$	16,561	$	351


			At December 31, 2020					Year ended December 31, 2020
						Allowance
	Unpaid					for Loan		Average		Interest
	Principal			Recorded		Losses		Recorded		Income
	Balance			Investment		Allocated		Investment		Recognized
With an allowance recorded:
One-to four-family	$	610		$	480	$	53	$	491	$	19
Consumer		2,197			2,197		1,203		1,503		88
C&I		4,192			4,192		3,662		3,456		—
Total	$	6,999		$	6,869	$	4,918	$	5,450	$	107

Without an allowance recorded:
One-to four-family	$	666		$	519	$	—	$	996	$	20
CRE		10,345			10,345		—		2,360		38
C&I		—			—		—		951		—
Total	$	11,011		$	10,864	$	—	$	4,307	$	58

For a loan to be considered impaired, management determines whether it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified non-accrual loans and TDRs. Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required.

For discussion on modification of loans to borrowers impacted by COVID-19, refer to the “COVID-19 Loan Modifications” section herein.

The following tables present the recorded investment in non-accrual loans, loans past due over 90 days and still accruing by class of loans (in thousands):


			Loans Past Due
			Over 90 Days
At December 31, 2022	Nonaccrual		Still Accruing
Consumer	$	24	$	—
Total	$	24	$	—


			Loans Past Due
			Over 90 Days
At December 31, 2021		Nonaccrual	Still Accruing
Commercial real estate	$	9,984	$	—
Consumer		37		265
Total	$	10,021	$	265

Interest income that would have been recorded for the years ended December 31, 2022, 2021 and 2020, had non-accrual loans been current according to their original terms, was immaterial.

The following table presents the aging of the recorded investment in past due loans by class of loans (in thousands):


					90
	30-59		60-89		Days and		Total past		Current
At December 31, 2022	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	24,000	$	—	$	24,000	$	3,230,508	$	3,254,508
Commercial & industrial		37		—		—		37		908,579		908,616
Construction		—		—		—		—		143,693		143,693
Multi-family		8,000		—		—		8,000		460,540		468,540
One-to four-family		—		—		—		—		53,207		53,207
Consumer		21		—		24		45		24,886		24,931
Total	$	8,058	$	24,000	$	24	$	32,082	$	4,821,413	$	4,853,495


					90
	30-59		60-89		Days and		Total past		Current
At December 31, 2021	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	—	$	9,984	$	9,984	$	2,478,398	$	2,488,382
Commercial & industrial		151		—		—		151		654,384		654,535
Construction		—		—		—		—		151,791		151,791
Multi-family		—		—		—		—		355,290		355,290
One-to four-family		—		—		—		—		57,163		57,163
Consumer		93		94		302		489		31,877		32,366
Total	$	244	$	94	$	10,286	$	10,624	$	3,728,903	$	3,739,527

Troubled Debt Restructurings

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired.

Included in impaired loans at both December 31, 2022 and 2021 were $1.2 million and $1.3 million, respectively, of loans modified as TDRs. The ALLL for TDRs was $0.0 and $26,000 as of December 31, 2022 and 2021, respectively. All TDRs at December 31, 2022 and 2021 were performing in accordance with their restructured terms. During the years ended December 31, 2022 and 2021, there were no payment defaults on any loans previously identified as TDRs. There were no loans modified as a TDR during the years ended December 31, 2022 or 2021. The Company has not committed to lend additional amounts as of December 31, 2022 to customers with outstanding loans that are classified as TDRs. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. 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 pursuant to the Company’s internal underwriting policy. The following table presents the recorded investment in TDRs by class of loans (in thousands):


	December 31,
	2022		2021
Commercial real estate	$	325	$	342
One-to four-family		899		946
Total	$	1,224	$	1,288

Credit Quality Indicators

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. Except for one-to four-family loans and consumer loans, the Company analyzes loans individually by classifying the loans as to credit risk at least annually. For one-to four-family loans and consumer loans, the Company evaluates credit quality based on the aging status of the loan, which was previously presented. An analysis is performed on a quarterly basis for loans classified as special mention, substandard, or doubtful. The Company uses the following definitions for risk ratings:

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard - Loans classified as substandard 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 Company will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above are classified as pass-rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):


			Special
At December 31, 2022	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	3,192,212	$	35,881	$	26,415	$	—	$	3,254,508
Commercial & industrial		876,867		31,749		—		—		908,616
Construction		143,693		—		—		—		143,693
Multi-family		468,540		—		—		—		468,540
Total	$	4,681,312	$	67,630	$	26,415	$	—	$	4,775,357


			Special
At December 31, 2021	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	2,449,864	$	342	$	38,176	$	—	$	2,488,382
Commercial & industrial		646,251		4,177		4,107		—		654,535
Construction		151,791		—		—		—		151,791
Multi-family		355,290		—		—		—		355,290
Total	$	3,603,196	$	4,519	$	42,283	$	—	$	3,649,998

COVID-19 Loan Modifications

As of December 31, 2022, the Company had one loan amounting to $20.8 million, or 0.43% of total loans, that was modified in accordance with the COVID-19 Guidance and the CARES Act. As of December 31, 2022, related principal payment deferrals were $20.8 million, or 0.43% of total loans, while none were full payment deferrals.

As of December 31, 2021, the Company had 8 loans amounting to $48.9 million, or 1.31% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of December 31, 2021, principal payment deferrals were $39.1 million, or 1.05% of total loans, while full payment deferrals were $9.9 million, or 0.26% of total loans.