| 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 |
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