Loans

9 Months Ended

Sep. 30, 2022

Loans

Loans

Note 4—Loans

Loans Held for Sale

The major categories of loans held for sale were as follows:

	September 30,		December 31,
	2022		2021
Residential real estate	$	7,279	$	11,359
Commercial real estate		1,554		53,628
Total loans held for sale	$	8,833	$	64,987

At September 30, 2022, loans held for sale includes nonaccrual residential real estate loans of $3,657. Also, a commercial real estate loan with a recorded investment of $1,554 included as held for sale has been classified in the Special Mention category. At December 31, 2021, loans held for sale includes nonaccrual loans of $18,026, consisting of residential real estate loans of $8,671 and commercial real estate loans of $9,355, of which one commercial real estate loan of $2,059 was considered a troubled debt restructuring.

In February 2022, the Company sold substantially all of its commercial real estate loans held for sale, which loans had a carrying value of $49,455 on the date of sale, to a third party for cash proceeds of $49,610.

Loans Held for Investment and Allowance for Loan Losses

The major categories of loans held for investment and the allowance for loan losses were as follows:

	September 30,		December 31,
	2022		2021
Residential real estate	$	1,430,472	$	1,704,231
Commercial real estate		199,446		201,240
Construction		50,320		106,759
Commercial lines of credit		1,389		363
Other consumer		1		221
Total loans		1,681,628		2,012,814
Less: allowance for loan losses		(45,362)		(56,548)
Loans, net	$	1,636,266	$	1,956,266

Loans totaling $446,153 and $557,410 were pledged as collateral on FHLB borrowings at September 30, 2022 and December 31, 2021, respectively.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2022 and 2021:

							Commercial
	Residential		Commercial				Lines of		Other
Three Months Ended September 30, 2022	Real Estate		Real Estate		Construction		Credit		Consumer		Total
Allowance for loan losses:
Beginning balance	$	29,982	$	15,035	$	6,708	$	36	$	5	$	51,766
Provision (recovery) for loan losses		(1,841)		(209)		(2,304)		2		(5)		(4,357)
Charge offs		—		(4,064)		—		—		—		(4,064)
Recoveries		46		5		1,966		—		—		2,017
Total ending balance	$	28,187	$	10,767	$	6,370	$	38	$	—	$	45,362

							Commercial
	Residential		Commercial				Lines of		Other
Nine Months Ended September 30, 2022	Real Estate		Real Estate		Construction		Credit		Consumer		Total
Allowance for loan losses:
Beginning balance	$	32,202	$	12,608	$	11,730	$	8	$	—	$	56,548
Provision (recovery) for loan losses		(4,594)		2,138		(7,329)		30		—		(9,755)
Charge offs		(197)		(4,064)		—		—		—		(4,261)
Recoveries		776		85		1,969		—		—		2,830
Total ending balance	$	28,187	$	10,767	$	6,370	$	38	$	—	$	45,362

							Commercial
	Residential		Commercial				Lines of		Other
Three Months Ended September 30, 2021	Real Estate		Real Estate		Construction		Credit		Consumer		Total
Allowance for loan losses:
Beginning balance	$	33,064	$	22,491	$	15,056	$	58	$	—	$	70,669
Provision (recovery) for loan losses		109		1,486		(1,194)		(4)		—		397
Charge offs		—		—		(1,965)		—		—		(1,965)
Recoveries		530		605		2		—		—		1,137
Total ending balance	$	33,703	$	24,582	$	11,899	$	54	$	—	$	70,238

							Commercial
	Residential		Commercial				Lines of		Other
Nine Months Ended September 30, 2021	Real Estate		Real Estate		Construction		Credit		Consumer		Total
Allowance for loan losses:
Beginning balance	$	32,366	$	21,942	$	17,988	$	91	$	—	$	72,387
Provision (recovery) for loan losses		16		2,004		(4,129)		(37)		—		(2,146)
Charge offs		—		—		(1,965)		—		—		(1,965)
Recoveries		1,321		636		5		—		—		1,962
Total ending balance	$	33,703	$	24,582	$	11,899	$	54	$	—	$	70,238

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment by impairment methodology as of September 30, 2022 and December 31, 2021:

							Commercial
	Residential		Commercial				Lines of		Other
September 30, 2022	Real Estate		Real Estate		Construction		Credit		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	12	$	—	$	—	$	—	$	—	$	12
Collectively evaluated for impairment		28,175		10,767		6,370		38		—		45,350
Total ending allowance balance	$	28,187	$	10,767	$	6,370	$	38	$	—	$	45,362
Loans:
Loans individually evaluated for impairment	$	48	$	—	$	2,485	$	110	$	—	$	2,643
Loans collectively evaluated for impairment		1,430,424		199,446		47,835		1,279		1		1,678,985
Total ending loans balance	$	1,430,472	$	199,446	$	50,320	$	1,389	$	1	$	1,681,628

							Commercial
	Residential		Commercial				Lines of		Other
December 31, 2021	Real Estate		Real Estate		Construction		Credit		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	159	$	—	$	—	$	—	$	—	$	159
Collectively evaluated for impairment		32,043		12,608		11,730		8		—		56,389
Total ending allowance balance	$	32,202	$	12,608	$	11,730	$	8	$	—	$	56,548
Loans:
Loans individually evaluated for impairment	$	350	$	4,441	$	14,984	$	116	$	—	$	19,891
Loans collectively evaluated for impairment		1,703,881		196,799		91,775		247		221		1,992,923
Total ending loans balance	$	1,704,231	$	201,240	$	106,759	$	363	$	221	$	2,012,814

The following tables present information related to impaired loans by class of loans as of and for the periods indicated:

	At September 30, 2022						At December 31, 2021
	Unpaid				Allowance		Unpaid				Allowance
	Principal		Recorded		for Loan		Principal		Recorded		for Loan
	Balance		Investment		Losses		Balance		Investment		Losses
With no related allowance for loan losses recorded:
Residential real estate:
First mortgage	$	—	$	—	$	—	$	91	$	65	$	—
Commercial real estate:
Retail		229		—		—		—		—		—
Hotels/Single-room occupancy hotels		—		—		—		4,459		4,441		—
Construction		2,485		2,485		—		15,004		14,984		—
Commercial lines of credit:
Private banking		110		110		—		116		116		—
Subtotal		2,824		2,595		—		19,670		19,606		—
With an allowance for loan losses recorded:
Residential real estate:
First mortgage		82		48		12		273		285		159
Total	$	2,906	$	2,643	$	12	$	19,943	$	19,891	$	159

	Three Months Ended at September 30,
	2022						2021
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance for loan losses recorded:
Residential real estate:
First mortgage	$	—	$	—	$	—	$	82	$	—	$	—
Commercial real estate:
Retail		—		—		—		7		—		—
Hotels/Single-room occupancy hotels		—		—		—		10,862		—		—
Office		—		—		—		2,769		—		—
Construction		5,375		40		27		18,820		40		27
Commercial lines of credit:
Private banking		111		2		1		119		2		1
Subtotal		5,486		42		28		32,659		42		28
With an allowance for loan losses recorded:
Residential real estate:
First mortgage		48		2		2		279		1		1
Construction		—		—		—		10,387		56		38
Subtotal		48		2		2		10,666		57		39
Total	$	5,534	$	44	$	30	$	43,325	$	99	$	67

	Nine Months Ended at September 30,
	2022						2021
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance for loan losses recorded:
Residential real estate:
First mortgage	$	—	$	—	$	—	$	88	$	—	$	—
Commercial real estate:
Retail		—		—		—		765		—		—
Hotels/Single-room occupancy hotels		—		—		—		17,948		—		—
Office		—		—		—		2,768		—		—
Other		—		—		—		91		—		—
Construction		6,885		118		105		27,387		192		179
Commercial lines of credit:
Private banking		113		5		4		1,264		7		7
Subtotal		6,998		123		109		50,311		199		186
With an allowance for loan losses recorded:
Residential real estate:
First mortgage		198		3		3		280		3		3
Construction		—		—		—		9,751		181		163
Subtotal		198		3		3		10,031		184		166
Total	$	7,196	$	126	$	112	$	60,342	$	383	$	352

In the tables above, the unpaid principal balance is not reduced for partial charge offs. Also, the recorded investment excludes accrued interest receivable on loans, which was not significant.

Also presented in the table above is the average recorded investment of the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method. The average balances are calculated based on the month-end balances of the loans for the period reported.

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual, excluding nonaccrual loans held for sale, by class of loans as of September 30, 2022 and December 31, 2021:

	September 30, 2022				December 31, 2021
			Loans Past				Loans Past
			Due Over				Due Over
			90 Days Still				90 Days Still
	Nonaccrual		Accruing		Nonaccrual		Accruing
Residential real estate:
Residential first mortgage	$	35,654	$	36	$	45,439	$	39
Residential second mortgage		189		—		236		—
Commercial real estate:
Hotels/Single-room occupancy hotels		—		—		4,441		—
Construction		—		—		12,499		—
Total	$	35,843	$	36	$	62,615	$	39

The following tables present the aging of the recorded investment in past due loans as of September 30, 2022 and December 31, 2021 by class of loans:

					Greater
	30 - 59		60 - 89		than
	Days		Days		89 Days		Total		Loans Not
September 30, 2022	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Residential real estate:
Residential first mortgage	$	20,839	$	3,284	$	35,690	$	59,813	$	1,360,315	$	1,420,128
Residential second mortgage		—		—		189		189		10,155		10,344
Commercial real estate:
Retail		—		—		—		—		26,026		26,026
Multifamily		—		—		—		—		81,723		81,723
Office		—		—		—		—		18,216		18,216
Hotels/ Single-room occupancy hotels		—		—		—		—		5,240		5,240
Industrial		—		—		—		—		30,372		30,372
Other		—		—		—		—		37,869		37,869
Construction		—		—		—		—		50,320		50,320
Commercial lines of credit:
Private banking		—		—		—		—		110		110
C&I lending		—		—		—		—		1,279		1,279
Other consumer		—		—		—		—		1		1
Total	$	20,839	$	3,284	$	35,879	$	60,002	$	1,621,626	$	1,681,628

					Greater
	30 - 59		60 - 89		than
	Days		Days		89 Days		Total		Loans Not
December 31, 2021	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Residential real estate:
Residential first mortgage	$	24,044	$	3,425	$	45,478	$	72,947	$	1,617,509	$	1,690,456
Residential second mortgage		107		—		236		343		13,432		13,775
Commercial real estate:
Retail		—		—		—		—		19,574		19,574
Multifamily		—		—		—		—		96,960		96,960
Office		—		—		—		—		12,382		12,382
Hotels/Single-room occupancy hotels		—		—		4,441		4,441		9,780		14,221
Industrial		—		—		—		—		7,320		7,320
Other		—		—		—		—		50,783		50,783
Construction		10,500		—		12,499		22,999		83,760		106,759
Commercial lines of credit:
Private banking		—		—		—		—		116		116
C&I lending		—		—		—		—		247		247
Other consumer		—		—		—		—		221		221
Total	$	34,651	$	3,425	$	62,654	$	100,730	$	1,912,084	$	2,012,814

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential real estate and other consumer loans, the Company also evaluates credit quality based on the aging status of the loan, which is presented above, and by payment activity. The Company reviews the status of nonperforming loans, which include loans 90 days past due and still accruing, and nonaccrual loans.

Troubled Debt Restructurings

As of September 30, 2022 and December 31, 2021, the Company has a recorded investment in troubled debt restructurings (“TDR”) of $2,643 and $18,416, respectively. The Company has allocated a specific allowance for loan losses for these loans of $12 as of September 30, 2022 and has allocated $39 of specific allowance for loan loss for these loans as of December 31, 2021. There are no commitments to lend additional amounts.

There were no loans modified as TDRs during the three or nine months ended September 30, 2022 or 2021.

There were no TDRs for which there was a payment default within twelve months following the modification during the three or nine months ended September 30, 2022 or 2021. At September 30, 2022, there were no loans in default. At December 31, 2021, five loans totaling $15,752 were in default.

The terms of certain other loans have been modified during the three and nine months ended September 30, 2022 that did not meet the definition of a TDR. These other loans that were modified were not considered significant.

Foreclosure Proceedings

At September 30, 2022 and December 31, 2021, the recorded investment of residential mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $7,266 and $2,780, respectively. Of the loans in formal foreclosure proceedings, $2,755 and $2,770 were included in loans held for sale in the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021, respectively, and were carried at the lower of amortized cost or fair value. The balance of loans is classified as held for investment and receives an allocation of the allowance for loan losses consistent with a substandard loan loss allocation rate as these loans were classified as substandard at September 30, 2022 and December 31, 2021, respectively.

Credit Quality

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 loans individually by classifying the loans as to credit risk. This analysis includes homogeneous loans, such as residential real estate and other consumer loans, and non-homogeneous loans, such as commercial lines of credit, construction and commercial real estate loans. This analysis is performed at least quarterly. The Company uses the following definitions for risk ratings:

Pass: Loans are of satisfactory quality.

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close 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 loan. 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, based on currently existing facts, conditions and values, highly questionable and improbable.

At September 30, 2022 and December 31, 2021, the risk rating of loans by class of loans was as follows:

			Special
September 30, 2022	Pass		Mention		Substandard		Doubtful		Total
Residential real estate:
Residential first mortgage	$	1,384,438	$	—	$	35,690	$	—	$	1,420,128
Residential second mortgage		10,155		—		189		—		10,344
Commercial real estate:
Retail		26,026		—		—		—		26,026
Multifamily		69,369		12,354		—		—		81,723
Office		18,216		—		—		—		18,216
Hotels/ Single-room occupancy hotels		—		3,692		1,548		—		5,240
Industrial		30,372		—		—		—		30,372
Other		22,703		15,166		—		—		37,869
Construction		37,617		4,648		8,055		—		50,320
Commercial lines of credit:
Private banking		110		—		—		—		110
C&I lending		1,279		—		—		—		1,279
Other consumer		1		—		—		—		1
Total	$	1,600,286	$	35,860	$	45,482	$	—	$	1,681,628

			Special
December 31, 2021	Pass		Mention		Substandard		Doubtful		Total
Residential real estate:
Residential first mortgage	$	1,644,974	$	—	$	45,249	$	233	$	1,690,456
Residential second mortgage		13,539		—		236		—		13,775
Commercial real estate:
Retail		18,846		728		—		—		19,574
Multifamily		75,543		8,104		13,313		—		96,960
Office		10,413		—		1,969		—		12,382
Hotels/ Single-room occupancy hotels		8,205		—		6,016		—		14,221
Industrial		7,320		—		—		—		7,320
Other		48,996		1,692		95		—		50,783
Construction		67,254		17,226		16,348		5,931		106,759
Commercial lines of credit:
Private banking		116		—		—		—		116
C&I lending		236		11		—		—		247
Other consumer		221		—		—		—		221
Total	$	1,895,663	$	27,761	$	83,226	$	6,164	$	2,012,814

During the three and nine months ended September 30, 2022, the Company repurchased a pool of Advantage Loan Program loans with a total outstanding principal balance of $35,241 and $65,621. During the three and nine months ended September 30, 2021, the Company repurchased pools of Advantage Loan Program loans with a total outstanding principal balance of $6,067 and $173,829, respectively. The Advantage Loan Program loans that have been repurchased and included in the loan portfolio have an outstanding principal balance of $190,467 and $171,185 at September 30, 2022 and December 31, 2021, respectively. For more information on the repurchases of Advantage Loan Program loans, refer to Note 16—Commitments and Contingencies.

During the three months ended September 30, 2022, the Company charged off $4,064 of its recorded investment in certain higher risk commercial real estate loans held in its portfolio. These commercial real estate loans were then sold to a third-party investor for net cash proceeds of $17,794. No gain or loss was recorded on the sale of the commercial real estate loans.