Loans

12 Months Ended

Dec. 31, 2022

Loans

Loans

Note 4—Loans

Loans Held for Sale

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

	December 31,
	2022		2021
Residential real estate	$	6,181	$	11,359
Commercial real estate		1,544		53,628
Total loans held for sale	$	7,725	$	64,987

At December 31, 2022, loans held for sale includes nonaccrual residential real estate loans of $1,942. 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.

During the year ended December 31, 2021, commercial real estate loans with a carrying value of $61,549 were reclassified as loans held for sale from loans held for investment due to management’s change in intent and decision to sell the loans. On the date of transfer, the amortized cost exceeded the fair value of the loans due to credit deterioration. The Company recorded a charge-off of $7,921 to the allowance for loan losses, which established a new aggregate cost basis for the loans of $53,628 on the date of transfer. 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:

	December 31,
	2022		2021
Residential real estate	$	1,391,276	$	1,704,231
Commercial real estate		221,669		201,240
Construction		44,503		106,759
Commercial lines of credit		1,396		363
Other consumer		5		221
Total loans		1,658,849		2,012,814
Less: allowance for loan losses		(45,464)		(56,548)
Loans, net	$	1,613,385	$	1,956,266

Accrued interest receivable related to total gross loans, including loans held for sale, was $6,894 and $7,282 as of December 31, 2022 and 2021, respectively, and is recorded separately from the amortized cost basis of the loans on the consolidated balance sheets.

Loans totaling $389,830 and $557,410 were pledged as collateral on the FHLB borrowings at December 31, 2022 and 2021, respectively.

In October 2022, the Company acquired a pool of residential mortgage loans with an unpaid principal balance of $31,307 for a total purchase price of $30,847 from a third party investor. These loans were considered performing loans at the time of purchase.

During the year ended December 31, 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.

During the year ended December 31, 2022 and 2021, the Company repurchased pools of Advantage Loan Program loans with a total outstanding principal balance of $65,621 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 $179,828 and $171,185 at December 31, 2022 and 2021, respectively. For more information on the repurchases of Advantage Loan Program loans, refer to Note 19—Commitments and Contingencies.

The following tables present the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2022, 2021 and 2020:

							Commercial
	Residential		Commercial				Lines of		Other
December 31, 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		(5,105)		3,060		(7,919)		30		—		(9,934)
Charge offs		(197)		(4,064)		—		—		—		(4,261)
Recoveries		1,051		90		1,970		—		—		3,111
Total ending balance	$	27,951	$	11,694	$	5,781	$	38	$	—	$	45,464
							Commercial
	Residential		Commercial				Lines of		Other
December 31, 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		(1,578)		(2,052)		(4,552)		(83)		—		(8,265)
Charge offs		—		(7,921)		(1,965)		—		—		(9,886)
Recoveries		1,414		639		259		—		—		2,312
Total ending balance	$	32,202	$	12,608	$	11,730	$	8	$	—	$	56,548
							Commercial
	Residential		Commercial				Lines of		Other
December 31, 2020	Real Estate		Real Estate		Construction		Credit		Consumer		Total
Allowance for loan losses:
Beginning balance	$	12,336	$	5,243	$	3,822	$	328	$	1	$	21,730
Provision (recovery) for loan losses		23,604		16,634		14,866		(237)		(2)		54,865
Charge offs		(3,594)		—		(707)		—		—		(4,301)
Recoveries		20		65		7		—		1		93
Total ending balance	$	32,366	$	21,942	$	17,988	$	91	$	—	$	72,387

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 December 31, 2022 and 2021:

							Commercial
	Residential		Commercial				Lines of		Other
December 31, 2022	Real Estate		Real Estate		Construction		Credit		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	11	$	—	$	—	$	—	$	—	$	11
Collectively evaluated for impairment		27,940		11,694		5,781		38		—		45,453
Total ending allowance balance	$	27,951	$	11,694	$	5,781	$	38	$	—	$	45,464
Loans:
Loans individually evaluated for impairment	$	45	$	—	$	2,485	$	107	$	—	$	2,637
Loans collectively evaluated for impairment		1,391,231		221,669		42,018		1,289		5		1,656,212
Total ending loans balance	$	1,391,276	$	221,669	$	44,503	$	1,396	$	5	$	1,658,849

							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 December 31, 2022						Year Ended December 31, 2022
	Unpaid						Average		Interest		Cash Basis
	Principal		Recorded		Allowance for		Recorded		Income		Interest
	Balance		Investment		Loan Losses		Investment		Recognized		Recognized
With no related allowance for loan losses recorded:
Commercial real estate:
Retail	$	227	$	—	$	—	$	—	$	—	$	—
Construction		2,485		2,485		—		6,004		166		149
Commercial lines of credit:
Private banking		107		107		—		112		6		5
Subtotal		2,819		2,592		—		6,116		172		154
With an allowance for loan losses recorded:
Residential real estate, first mortgage		79		45		11		169		4		4
Total	$	2,898	$	2,637	$	11	$	6,285	$	176	$	158

	At December 31, 2021						Year Ended December 31, 2021
	Unpaid						Average		Interest		Cash Basis
	Principal		Recorded		Allowance for		Recorded		Income		Interest
	Balance		Investment		Loan Losses		Investment		Recognized		Recognized
With no related allowance for loan losses recorded:
Residential real estate, first mortgage	$	91	$	65	$	—	$	79	$	—	$	—
Commercial real estate:
Retail		—		—		—		612		—		—
Hotels/Single-room occupancy hotels		4,459		4,441		—		14,370		—		—
Office		—		—		—		1,846		—		—
Other		—		—		—		68		—		—
Construction		15,004		14,984		—		30,239		231		218
Commercial lines of credit:
Private banking		116		116		—		1,034		8		8
Subtotal		19,670		19,606		—		48,248		239		226
With an allowance for loan losses recorded:
Residential real estate, first mortgage		273		285		159		281		3		3
Construction		—		—		—		2,541		219		200
Subtotal		273		285		159		2,822		222		203
Total	$	19,943	$	19,891	$	159	$	51,070	$	461	$	429

	At December 31, 2020						Year Ended December 31, 2020
	Unpaid						Average		Interest		Cash Basis
	Principal		Recorded		Allowance for		Recorded		Income		Interest
	Balance		Investment		Loan Losses		Investment		Recognized		Recognized
With no related allowance for loan losses recorded:
Residential real estate, first mortgage	$	116	$	94	$	—	$	96	$	—	$	—
Commercial real estate:
Retail		1,247		1,029		—		1,065		58		48
Hotels/Single-room occupancy hotels		11,428		11,419		—		5,221		—		—
Construction		42,669		41,951		—		29,395		964		744
Commercial lines of credit:
Private banking		—		—		—		1,505		42		35
C&I lending		3,857		3,857		—		1,184		—		—
Subtotal		59,317		58,350		—		38,466		1,064		827
With an allowance for loan losses recorded:
Residential real estate, first mortgage		114		114		41		116		5		4
Commercial real estate, hotels/single-room occupancy hotels		8,645		8,526		287		3,858		—		—
Construction		6,920		6,920		1,905		6,189		255		226
Commercial lines of credit:
Private banking		124		124		4		128		7		6
Subtotal		15,803		15,684		2,237		10,291		267		236
Total	$	75,120	$	74,034	$	2,237	$	48,757	$	1,331	$	1,063

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 December 31, 2022 and 2021:

	At December 31,
	2022				2021
			Loans Past				Loans Past
			Due Over 90				Due Over 90
	Nonaccrual		Days Still		Nonaccrual		Days Still
	Loans		Accruing		Loans		Accruing
Residential real estate:
Residential first mortgage	$	33,501	$	35	$	45,439	$	39
Residential second mortgage		189		—		236		—
Commercial real estate:
Hotels/Single-room occupancy hotels		—		—		4,441		—
Construction		—		—		12,499		—
Total	$	33,690	$	35	$	62,615	$	39

As of December 31, 2022, there were nonaccrual loans of $33,690 of which an allowance for loan losses of $5,160 has been allocated with respect to these loans. The estimated fair value of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered necessary.

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

	30 ‑ 59		60 ‑ 89		Greater than
	Days		Days		89 Days		Total		Loans Not
December 31, 2022	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Residential real estate:
Residential first mortgage	$	17,881	$	5,337	$	33,536	$	56,754	$	1,324,545	$	1,381,299
Residential second mortgage		99		—		189		288		9,689		9,977
Commercial real estate:
Retail		—		—		—		—		28,971		28,971
Multifamily		—		—		—		—		81,444		81,444
Office		—		—		—		—		39,610		39,610
Hotels/Single-room occupancy hotels		—		—		—		—		5,208		5,208
Industrial		—		—		—		—		30,242		30,242
Other		—		—		—		—		36,194		36,194
Construction		—		—		—		—		44,503		44,503
Commercial lines of credit:
Private banking		—		—		—		—		107		107
C&I lending		—		—		—		—		1,289		1,289
Other consumer		—		—		—		—		5		5
Total	$	17,980	$	5,337	$	33,725	$	57,042	$	1,601,807	$	1,658,849

	30 ‑ 59		60 ‑ 89		Greater 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 interest, and nonaccrual loans.

Troubled Debt Restructurings

At December 31, 2022 and 2021, the balance of outstanding loans identified as troubled debt restructurings, along with the allocated portion of the allowance for loan losses with respect to these loans, was as follows:

	At December 31,
	2022				2021
	Recorded		Allowance for		Recorded		Allowance for
	Investment		Loan Losses		Investment		Loan Losses
Residential real estate, first mortgage	$	45	$	11	$	181	$	39
Commercial real estate:
Hotels/Single-room occupancy hotels		—		—		4,441		—
Construction		2,485		—		13,678		—
Commercial lines of credit, private banking		107		—		116		—
Total	$	2,637	$	11	$	18,416	$	39

During the year ended December 31, 2022, there were no loans modified as troubled debt restructurings. At December 31, 2022, there were no troubled debt restructurings in default.

During the year ended December 31, 2021, there were no loans that defaulted for which the default occurred within one year of modification. At December 31, 2021, there were five loans totaling $15,752 in default that had been modified as troubled debt restructurings.

The terms of certain other loans have been modified during 2022 and 2021 that did not meet the definition of a troubled debt restructuring. These other loans that were modified were not considered significant.

Forbearance Loans

The CARES Act created a forbearance program for impacted borrowers and imposed a temporary 60-day moratorium on foreclosures and foreclosure-related evictions related to federally backed mortgage loans, which included loans secured by a first or subordinate lien on residential one-to-four family real property that have been purchased by Fannie Mae or Freddie Mac, are insured by the Department of Housing and Urban Development or are insured or guaranteed by other listed agencies. The federal agencies extended these programs on multiple occasions into late 2021, but they have since expired. The California legislature responded by enacting some statewide eviction protections which are in some cases supplemented by local ordinances, while the New York legislature extended the state’s eviction moratorium through January 2022.

The Company had offered forbearance under the CARES Act to customers facing COVID-19-related financial difficulties that generally provided for principal and interest forbearance for 120 days to residential borrowers with extensions available to qualified borrowers available for up to a maximum deferral period of twelve months, and these loans were not considered troubled debt restructurings. Under the forbearance program, interest continued to accrue at the note rate. At the end of the forbearance period, the borrower’s accrued but unpaid interest was added to their outstanding principal balance while keeping the principal and interest payment at the amount determined in accordance with the terms of the note, thus extending the loan’s maturity date. The terms of commercial loan forbearances were reviewed and determined on a case-by-case basis, and these loans were not considered troubled debt restructurings. The Company terminated the forbearance program, effective July 31, 2021. There were no loans outstanding under the COVID-19 forbearance program at December 31, 2022.

Foreclosure Proceedings

At December 31, 2022 and 2021, the recorded investment of residential mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $5,711 and $2,780, respectively. Of the loans in formal foreclosure proceedings, $603 and $2,770 were included in loans held for sale in the consolidated balance sheets at December 31, 2022 and 2021, respectively, and were carried at the lower of amortized cost or fair value. The balance of loans are classified as held for investment and receive an allocation of the allowance for loan losses consistent with a substandard loan loss allocation rate as these loans were classified as substandard.

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

			Special
December 31, 2022	Pass		Mention		Substandard		Doubtful		Total
Residential real estate:
Residential first mortgage	$	1,347,763	$	—	$	33,536	$	—	$	1,381,299
Residential second mortgage		9,788		—		189		—		9,977
Commercial real estate:
Retail		28,971		—		—		—		28,971
Multifamily		67,361		14,083		—		—		81,444
Office		39,610		—		—		—		39,610
Hotels/Single-room occupancy hotels		—		3,669		1,539		—		5,208
Industrial		30,242		—		—		—		30,242
Other		21,036		15,158		—		—		36,194
Construction		31,369		4,650		8,484		—		44,503
Commercial lines of credit:
Private banking		107		—		—		—		107
C&I lending		1,289		—		—		—		1,289
Other consumer		5		—		—		—		5
Total	$	1,577,541	$	37,560	$	43,748	$	—	$	1,658,849

			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