LOANS AND ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2023

LOANS AND ALLOWANCE FOR CREDIT LOSSES

LOANS AND ALLOWANCE FOR CREDIT LOSSES

NOTE 5 — LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

	At September 30,		At December 31,
	2023		2022
Real estate
Commercial	$	3,712,664	$	3,254,508
Construction		149,212		143,693
Multi-family		462,999		468,540
One-to four-family		50,205		53,207
Total real estate loans		4,375,080		3,919,948
Commercial and industrial		976,778		908,616
Consumer		18,361		24,931
Total loans		5,370,219		4,853,495
Deferred fees, net of origination costs		(15,732)		(12,972)
Loans, net of deferred fees and costs		5,354,487		4,840,523
Allowance for credit losses		(52,298)		(44,876)
Net loans	$	5,302,189	$	4,795,647

Included in C&I loans at September 30, 2023 and December 31, 2022 were $64,000 and $97,000, respectively, of PPP loans. At September 30, 2023 and December 31, 2022, $3.3 billion and $2.4 billion of loans were pledged to support available borrowing capacity from the FHLB and FRB.

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

	Commercial		Commercial				Multi		One-to four-
Three months ended September 30, 2023	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for credit losses:
Beginning balance	$	34,621	$	10,977	$	1,600	$	3,543	$	362	$	547	$	51,650
Provision/(credit) for credit losses		404		119		169		(54)		(11)		150		777
Loans charged-off		—		—		—		—		—		(129)		(129)
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	35,025	$	11,096	$	1,769	$	3,489	$	351	$	568	$	52,298

	Commercial		Commercial				Multi		One-to four-
Three months ended September 30, 2022	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for credit losses:
Beginning balance	$	25,945	$	9,144	$	2,587	$	2,539	$	102	$	217	$	40,534
Provision/(credit) for credit losses		1,019		954		(55)		103		(3)		(11)		2,007
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	26,964	$	10,098	$	2,532	$	2,642	$	99	$	206	$	42,541

	Commercial		Commercial						One-to four-
Nine months ended September 30, 2023	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for credit losses:
Beginning balance	$	29,496	$	10,274	$	1,983	$	2,823	$	105	$	195	$	44,876
Cumulative effect of changes in accounting principle		48		471		424		705		181		421		2,250
Provision/(credit) for credit losses		5,481		351		(638)		(39)		65		225		5,445
Loans charged-off		—		—		—		—		—		(273)		(273)
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	35,025	$	11,096	$	1,769	$	3,489	$	351	$	568	$	52,298

	Commercial		Commercial						One-to four-
Nine months ended September 30, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for credit losses:
Beginning balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729
Provision/(credit) for credit losses		4,748		2,390		427		486		(41)		(203)		7,807
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		5		5
Total ending allowance balance	$	26,964	$	10,098	$	2,532	$	2,642	$	99	$	206	$	42,541

Net charge-offs for the three and nine months ended September 30, 2023 were $129,000 and $273,000, respectively. Net recoveries for the three and nine months ended September 30, 2022 were $0 and $5,000, respectively.

The following tables present the activity in the ACL for unfunded loan commitments (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Balance at the beginning of period	$	1,240	$	180	$	180	$	180
Cumulative effect of changes in accounting principle		—		—		777		—
Provision/(credit) for credit losses		14		—		297		—
Total ending allowance balance	$	1,254	$	180	$	1,254	$	180

The following tables present the balance in the ACL and the recorded investment in loans by portfolio segment based on allowance measurement methodology (in thousands):

	Commercial		Commercial						One-to four-
At September 30, 2023	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for credit losses:
Individually assessed	$	—	$	—	$	—	$	—	$	—	$	137	$	137
Collectively assessed		35,025		11,096		1,769		3,489		351		431		52,161
Total ending allowance balance	$	35,025	$	11,096	$	1,769	$	3,489	$	351	$	568	$	52,298
Loans:
Individually assessed	$	41,005	$	6,934	$	—	$	—	$	—	$	251	$	48,190
Collectively assessed		3,671,659		969,844		149,212		462,999		50,205		18,110		5,322,029
Total ending loan balance	$	3,712,664	$	976,778	$	149,212	$	462,999	$	50,205	$	18,361	$	5,370,219

	Commercial		Commercial						One-to four-
At December 31, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for credit losses:
Individually assessed	$	—	$	—	$	—	$	—	$	—	$	24	$	24
Collectively assessed		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 assessed	$	26,740	$	—	$	—	$	—	$	899	$	24	$	27,663
Collectively assessed		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

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

			Nonaccrual		Loans Past Due
			Without an		Over 90 Days
At September 30, 2023	Nonaccrual		ACL		Still Accruing
Commercial real estate	$	24,000	$	24,000	$	—
Commercial & industrial		6,934		6,934		—
Consumer		24		—		—
Total	$	30,958	$	30,934	$	—

			Nonaccrual		Loans Past Due
			Without an		Over 90 Days
At December 31, 2022		Nonaccrual	ACL		Still Accruing
Consumer		24		—		—
Total	$	24	$	—	$	—

Interest income on nonaccrual loans recognized on a cash basis for the three and nine months ended September 30, 2023 and 2022 was immaterial.

The following tables present 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 September 30, 2023	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	—	$	24,000	$	24,000	$	3,688,664	$	3,712,664
Commercial & industrial		31		23		6,934		6,988		969,790		976,778
Construction		—		—		—		—		149,212		149,212
Multi-family		27,285		11,200		—		38,485		424,514		462,999
One-to four-family		—		—		—		—		50,205		50,205
Consumer		—		1		24		25		18,336		18,361
Total	$	27,316	$	11,224	$	30,958	$	69,498	$	5,300,721	$	5,370,219

					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

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 ratings 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. 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 considered to be pass-rated loans.

The following table presents loan balances by credit quality indicator and year of origination at September 30, 2023 (in thousands):

	2023		2022		2021		2020		2019		2018 & Prior		Revolving		Total
CRE
Pass	$	1,172,394	$	1,348,513	$	541,243	$	162,438	$	223,040	$	113,821	$	43,340	$	3,604,789
Special Mention		13,058		38,867		14,637		308		—		—		—		66,870
Substandard		—		24,000		—		17,005		—		—		—		41,005
Total	$	1,185,452	$	1,411,380	$	555,880	$	179,751	$	223,040	$	113,821	$	43,340	$	3,712,664
Construction
Pass	$	50,639	$	50,248	$	39,304	$	—	$	—	$	—	$	9,021	$	149,212
Total	$	50,639	$	50,248	$	39,304	$	—	$	—	$	—	$	9,021	$	149,212
Multi-family
Pass	$	84,393	$	131,186	$	52,048	$	23,774	$	37,826	$	79,087	$	6,461	$	414,775
Special Mention		—		27,285		20,939		—		—		—		—		48,224
Total	$	84,393	$	158,471	$	72,987	$	23,774	$	37,826	$	79,087	$	6,461	$	462,999
One-to four-family
Current	$	—	$	4,163	$	—	$	10,365	$	12,384	$	23,293	$	—	$	50,205
Total	$	—	$	4,163	$	—	$	10,365	$	12,384	$	23,293	$	—	$	50,205
Commercial and industrial
Pass	$	161,702	$	267,030	$	97,771	$	21,190	$	15,764	$	8,238	$	325,877	$	897,572
Special Mention		3,840		34,168		—		2,448		—		—		31,816		72,272
Substandard		3,435		—		—		—		—		—		3,499		6,934
Total	$	168,977	$	301,198	$	97,771	$	23,638	$	15,764	$	8,238	$	361,192	$	976,778
Consumer
Current	$	—	$	—	$	—	$	—	$	—	$	18,336	$	—	$	18,336
Past due		—		—		—		—		—		25		—		25
Total	$	—	$	—	$	—	$	—	$	—	$	18,361	$	—	$	18,361

There were $129,000 and $273,000 of Consumer loan charge-offs for the three and nine months ended September 30, 2023, respectively, which were originated in 2018 and prior. There were $41.0 million of substandard classified collateral dependent CRE loans at September 30, 2023.

There were no loan modifications where the borrower was experiencing financial difficulty for the three and nine months ended September 30, 2023.

For loans evaluated by credit risk ratings, the following table presents loan balances by credit quality indicator and by class of loans at December 31, 2022 (in thousands):

			Special
	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

The following tables present loans individually evaluated for impairment pursuant to the disclosure requirements prior to the adoption of ASU No. 2016-13 on January 1, 2023 (in thousands). The recorded investment in loans excludes accrued interest receivable and loan origination fees.

		At December 31, 2022
					Allowance
	Unpaid				for Loan
	Principal		Recorded		Losses
	Balance		Investment		Allocated
With an allowance recorded:
Consumer		24		24		24
Total	$	24	$	24	$	24
Without an allowance recorded:
One-to four-family	$	1,176	$	899	$	—
CRE		27,984		26,740		—
Total	$	29,160	$	27,639	$	—

	Average		Interest
	Recorded		Income
Three months ended September 30, 2022	Investment		Recognized
With an allowance recorded:
Consumer		24		—
Total	$	24	$	—
Without an allowance recorded:
One-to four-family	$	916	$	9
C&I		28,486		273
Total	$	29,402	$	282

	Average		Interest
	Recorded		Income
Nine months ended September 30, 2022	Investment		Recognized
With an allowance recorded:
Consumer		93		—
Total	$	93	$	—
Without an allowance recorded:
One-to four-family	$	816	$	26
C&I		30,992		769
Total	$	31,808	$	795