Loans Receivable and Allowance for Credit Losses | Loans Receivable and Allowance for Credit Losses Loans receivable at June 30, 2023 and December 31, 2022 are summarized as follows (in thousands): June 30, 2023 December 31, 2022 Mortgage loans: Commercial $ 4,373,436 4,316,185 Multi-family 1,645,770 1,513,818 Construction 707,234 715,494 Residential 1,166,159 1,177,698 Total mortgage loans 7,892,599 7,723,195 Commercial loans 2,348,447 2,233,670 Consumer loans 301,306 304,780 Total gross loans 10,542,352 10,261,645 Premiums on purchased loans 1,374 1,380 Net deferred fees (13,195) (14,142) Total loans $ 10,530,531 10,248,883 The following tables summarize the aging of loans receivable by portfolio segment and class of loans (in thousands): June 30, 2023 30-59 Days 60-89 Days Non-accrual Recorded Total Past Current Total Loans Non-accrual loans with no related allowance Mortgage loans: Commercial $ 1,445 1,137 7,279 — 9,861 4,363,575 4,373,436 4,276 Multi-family 3,853 — 2,314 — 6,167 1,639,603 1,645,770 2,314 Construction — — 1,874 — 1,874 705,360 707,234 1,874 Residential 1,427 1,171 1,698 — 4,296 1,161,863 1,166,159 1,698 Total mortgage loans 6,725 2,308 13,165 — 22,198 7,870,401 7,892,599 10,162 Commercial loans 3,021 90 31,885 — 34,996 2,313,451 2,348,447 19,504 Consumer loans 957 147 878 — 1,982 299,324 301,306 878 Total gross loans $ 10,703 2,545 45,928 — 59,176 10,483,176 10,542,352 30,544 December 31, 2022 30-59 Days 60-89 Days Non-accrual Recorded Total Past Current Total Loans Receivable Non-accrual loans with no related allowance Mortgage loans: Commercial $ 2,300 412 28,212 — 30,924 4,285,261 4,316,185 22,961 Multi-family 790 — 1,565 — 2,355 1,511,463 1,513,818 1,565 Construction 905 1,097 1,878 — 3,880 711,614 715,494 1,878 Residential 1,411 1,114 1,928 — 4,453 1,173,245 1,177,698 1,928 Total mortgage loans 5,406 2,623 33,583 — 41,612 7,681,583 7,723,195 28,332 Commercial loans 964 1,014 24,188 — 26,166 2,207,504 2,233,670 21,156 Consumer loans 885 147 738 — 1,770 303,010 304,780 739 Total gross loans $ 7,255 3,784 58,509 — 69,548 10,192,097 10,261,645 50,227 Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amounts of these non-accrual loans were $45.9 million and $58.5 million at June 30, 2023 and December 31, 2022, respectively. Included in non-accrual loans were $17.4 million and $42.9 million of loans which were less than 90 days past due at June 30, 2023 and December 31, 2022, respectively. There were no loans 90 days or greater past due and still accruing interest at June 30, 2023 and December 31, 2022. The activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands): Three months ended June 30, Mortgage loans Commercial loans Consumer loans Total 2023 Balance at beginning of period $ 63,195 27,117 2,446 92,758 Provision charge (benefit) to operations 6,742 3,769 (111) 10,400 Recoveries of loans previously charged-off 3 134 173 310 Loans charged-off — (1,313) (82) (1,395) Balance at end of period $ 69,940 29,707 2,426 102,073 2022 Balance at beginning of period $ 50,096 23,799 2,380 76,275 Provision charge (benefit) to operations 5,593 (2,710) 117 3,000 Recoveries of loans previously charged-off 361 443 109 913 Loans charged-off (986) (145) (41) (1,172) Balance at end of period $ 55,064 21,387 2,565 79,016 Six months ended June 30, Mortgage loans Commercial loans Consumer loans Total 2023 Balance at beginning of period $ 58,218 27,413 2,392 88,023 Cumulative effect of adopting Accounting Standards Update ("ASU") No. 2022-02 (510) (43) (41) (594) Provision charge (benefit) to operations 12,954 3,461 (15) 16,400 Recoveries of loans previously charged-off 6 301 258 565 Loans charged-off (728) (1,425) (168) (2,321) Balance at end of period $ 69,940 29,707 2,426 102,073 2022 Balance at beginning of period $ 52,104 26,343 2,293 80,740 Provision charge (benefit) charge to operations 3,599 (7,115) 116 (3,400) Recoveries of loans previously charged-off 371 2,304 275 2,950 Loans charged-off (1,010) (145) (119) (1,274) Balance at end of period $ 55,064 21,387 2,565 79,016 For the three and six months ended June 30, 2023, the Company recorded a $10.4 million and a $16.4 million provision for credit losses on loans, respectively. The increase in provision was attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices over the expected life of the loan portfolio within our CECL model. The following table summarizes the Company's gross charge-offs recorded during the three months ended June 30, 2023 by year of origination (in thousands): 2023 2022 2021 2020 2019 Prior to 2019 Total Loans Commercial loans $ — — — — — 1,313 1,313 Consumer loans (1) 4 — — — — 3 7 Total gross loans $ 4 — — — — 1,316 1,320 (1) During the three months ended June 30, 2023, charge-offs on consumer overdraft accounts totaled $75,000, which is not included in the table above. The following table summarizes the Company's gross charge-offs recorded during the six months ended June 30, 2023 by year of origination (in thousands): 2023 2022 2021 2020 2019 Prior to 2019 Total Loans Mortgage loans: Commercial $ — — — — — 707 707 Residential — — — — — 21 21 Total mortgage loans — — — — — 728 728 Commercial loans — — — — — 1,425 1,425 Consumer loans (1) 9 — — — — 13 22 Total gross loans $ 9 — — — — 2,166 2,175 (1) During the six months ended June 30, 2023, charge-offs on consumer overdraft accounts totaled $146,000, which is not included in the table above. The Company defines a loan individually evaluated for impairment as a non-homogeneous loan greater than $1.0 million, for which, based on current information, it is not expected to collect all amounts due under the contractual terms of the loan agreement. At June 30, 2023, there were 17 loans totaling $37.1 million, compared to 10 loans totaling $42.8 million at December 31, 2022, that were individually evaluated for impairment. A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the collateral’s fair value less any selling costs. A specific allocation of the allowance for credit losses is established for each collateral-dependent loan with a carrying balance greater than the collateral’s fair value, less estimated selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less estimated selling costs. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral-dependent loan and updated annually, or more frequently if required. At each fiscal quarter end, if a loan is designated as collateral-dependent and the third-party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value and evaluated for charge offs. The Company believes there have been no significant time lapses resulting from this process. At June 30, 2023 and December 31, 2022, the Company had $14.6 million and $24.0 million related to the fair value of collateral-dependent loans individually evaluated for impairment, respectively. These loans at June 30, 2023 consisted of $14.6 million in commercial loans. Loan modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearance, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. In addition, management attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. The following illustrates the most common loan modifications by loan classes offered by the Company that are required to be disclosed pursuant to the requirements of ASU 2022-02: Loan Classes Modification types Commercial Term extension, interest rate reductions, payment delay, or combination thereof. These modifications extend the term of the loan, lower the payment amount, or otherwise delay payments during a defined period for the purpose of providing borrowers additional time to return to compliance with the original loan term. Residential Mortgage/ Home Equity Forbearance period greater than six months. These modifications require reduced or no payments during the forbearance period for the purpose of providing borrowers additional time to return to compliance with the original loan term. As well as, term extension and rate adjustment. These modifications extend the term of the loan and provides for an adjustment to the interest rate, which reduces the monthly payment requirement. Automobile/ Direct Installment Term extension greater than three months. These modifications extend the term of the loan, which reduces the monthly payment requirement. Effective January 1, 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a modified retrospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for loan modifications to borrowers experiencing financial difficulty. Instead, these loan modifications are included in their respective pool and a historical loss rate is applied to the current loan balance to arrive at the quantitative and qualitative baseline portion of the allowance for credit losses. As a result, The Company recorded a $594,000 reduction to the allowance for credit losses, which resulted in a $433,000 cumulative effect adjustment increase, net of tax to retained earnings. There were no loan modifications made to borrowers experiencing financial difficulty during the three months ended June 30, 2023. The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023 (in thousands): Term Extension Interest Rate Reduction Interest Rate Reduction and Term Extension % of Total Class of Loans and Leases Commercial loans $ 3,771 — 1,250 0.21 % Total gross loans $ 3,771 — 1,250 0.05 % The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023 (in thousands): Weighted-Average Months of Term Extension Weight-Average Rate Change Commercial loans 10 0.28 % Total gross loans 10 0.28 % There were no loan modifications made to borrowers experiencing financial difficulty during the three or six months ended June 30, 2023, that subsequently defaulted. The following table presents the aging analysis of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023 (in thousands): Current 30-59 Days Past Due 60-89 Days Past Due 90 days or more Past Due Non- Accrual Total Commercial loans $ 5,021 — — — — 5,021 Total gross loans $ 5,021 — — — — 5,021 Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. However, our TDR accounting described herein was suspended for most of our loss mitigation activities through our election to account for certain eligible loss mitigation activities occurring between March 2020 and January 1, 2022 under the COVID-19 relief granted pursuant to the CARES Act and the Consolidated Appropriations Act of 2021. Effective January 1, 2023, we adopted ASU 2022-02, which eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023. The following table presents the number of loans modified as TDRs during the three and six months ended June 30, 2022, along with their balances immediately prior to the modification date and post-modification as of June 30, 2022 (in thousands): For the three and six months ended June 30, 2022 Troubled Debt Restructurings Number of Pre-Modification Post-Modification Mortgage loans: Residential 2 $ 265 206 Multi Family 1 1,618 1,601 Total mortgage loans 3 1,883 1,807 Commercial loans 2 378 274 Total restructured loans 5 $ 2,261 2,081 Durin g the three and six months ended June 30, 2022, $921,000 of charge-offs were recorded on collateral-dependent impaired loans. There was one loan totaling $209,000 which had a payment default (90 days or more past due) for a loan modified as a TDR within the 12 month period ending June 30, 2023. For TDRs that subsequently defaulted, the Company determined the amount of the allowance for the respective loans in accordance with the accounting policy for the allowance for credit losses on loans individually evaluated for impairment. As allowed by CECL, loans acquired by the Company that experience more-than-insignificant deterioration in credit quality after origination, are classified as Purchased Credit Deteriorated ("PCD") loans. At June 30, 2023, the balance of PCD loans totaled $173.3 million with a related allowance for credit losses of $1.6 million. The balance of PCD loans at December 31, 2022 was $193.0 million with a related allowance for credit losses of $1.7 million. Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also reviewed periodically through loan review examinations which are currently performed by an independent third-party. Reports by the independent third-party are presented to the Audit Committee of the Board of Directors. The Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration. PPP loans were fully guaranteed by the SBA and were eligible for forgiveness by the SBA to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan was made as long as certain conditions were met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA are to be repaid by the SBA to the Company. Eligibility ended for this program in May of 2021. PPP loans are included in our commercial loan portfolio. Under the PPP, the Company secured 2,067 PPP loans for its customers totaling $682.0 million. As of June 30, 2023, 2,054 PPP loans totaling $679.4 million were forgiven and repaid by the SBA. The balance of PPP loans at June 30, 2023 was $2.6 million. The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades as of June 30, 2023 and December 31, 2022 (in thousands): Gross Loans Held for Investment by Year of Origination at June 30, 2023 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Revolving loans to term loans Total Loans Commercial Mortgage Special mention $ — — — 2,713 2,346 33,436 485 — 38,980 Substandard — — — 376 — 7,785 434 — 8,595 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 3,089 2,346 41,221 919 — 47,575 Pass/Watch 290,713 910,869 670,781 511,239 513,150 1,318,607 96,163 14,339 4,325,861 Total commercial mortgage $ 290,713 910,869 670,781 514,328 515,496 1,359,828 97,082 14,339 4,373,436 Multi-family Special mention $ — — — — — 9,608 — — 9,608 Substandard — — — — — 3,211 — — 3,211 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 12,819 — — 12,819 Pass/Watch 132,991 170,856 198,427 279,117 232,748 614,456 3,223 1,133 1,632,951 Total multi-family $ 132,991 170,856 198,427 279,117 232,748 627,275 3,223 1,133 1,645,770 Construction Special mention $ — — — — — — — — — Substandard — — — — 1,097 777 — — 1,874 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — 1,097 777 — — 1,874 Pass/Watch 33,795 276,155 266,520 105,078 8,456 13,346 2,010 705,360 Total construction $ 33,795 276,155 266,520 105,078 9,553 14,123 — 2,010 707,234 Residential (1) Special mention $ — — — — — 1,172 — — 1,172 Substandard — — — — — 2,142 — — 2,142 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 3,314 — — 3,314 Pass/Watch 42,524 147,449 205,949 205,123 92,537 469,263 — — 1,162,845 Total residential $ 42,524 147,449 205,949 205,123 92,537 472,577 — — 1,166,159 Gross Loans Held for Investment by Year of Origination at June 30, 2023 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Revolving loans to term loans Total Loans Total Mortgage Special mention $ — — — 2,713 2,346 44,216 485 — 49,760 Substandard — — — 376 1,097 13,915 434 — 15,822 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 3,089 3,443 58,131 919 — 65,582 Pass/Watch 500,023 1,505,329 1,341,677 1,100,557 846,891 2,415,672 99,386 17,482 7,827,017 Total Mortgage $ 500,023 1,505,329 1,341,677 1,103,646 850,334 2,473,803 100,305 17,482 7,892,599 Commercial Special mention $ — 70 387 577 54 11,490 9,714 — 22,292 Substandard — — 14,966 17,133 3,974 14,473 13,837 352 64,735 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 70 15,353 17,710 4,028 25,963 23,551 352 87,027 Pass/Watch 154,852 379,855 308,290 148,648 151,902 552,747 538,651 26,475 2,261,420 Total commercial $ 154,852 379,925 323,643 166,358 155,930 578,710 562,202 26,827 2,348,447 Consumer (1) Special mention $ — — — — — 145 — 2 147 Substandard — — — — — 4 709 90 803 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 149 709 92 950 Pass/Watch 14,243 29,064 19,513 3,328 15,341 93,900 112,425 12,542 300,356 Total consumer $ 14,243 29,064 19,513 3,328 15,341 94,049 113,134 12,634 301,306 Total Loans Special mention $ — 70 387 3,290 2,400 55,851 10,199 2 72,199 Substandard — — 14,966 17,509 5,071 28,392 14,980 442 81,360 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 70 15,353 20,799 7,471 84,243 25,179 444 153,559 Pass/Watch 669,118 1,914,248 1,669,480 1,252,533 1,014,134 3,062,319 750,462 56,499 10,388,793 Total gross loans $ 669,118 1,914,318 1,684,833 1,273,332 1,021,605 3,146,562 775,641 56,943 10,542,352 (1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan. Gross Loans Held for Investment by Year of Origination at December 31, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving loans to term loans Total Loans Commercial Mortgage Special mention $ — — 3,071 26,809 52,509 14,740 — — 97,129 Gross Loans Held for Investment by Year of Origination at December 31, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving loans to term loans Total Loans Substandard — — — — 18,020 11,774 434 — 30,228 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — 3,071 26,809 70,529 26,514 434 — 127,357 Pass/Watch 951,367 630,584 567,448 546,474 218,620 1,164,854 94,716 14,765 4,188,828 Total commercial mortgage $ 951,367 630,584 570,519 573,283 289,149 1,191,368 95,150 14,765 4,316,185 Multi-family Special mention $ — — — — — 9,730 — — 9,730 Substandard — — — — — 2,356 — — 2,356 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 12,086 — — 12,086 Pass/Watch 142,550 150,293 282,228 234,953 187,499 502,177 887 1,145 1,501,732 Total multi-family $ 142,550 150,293 282,228 234,953 187,499 514,263 887 1,145 1,513,818 Construction Special mention $ — — — — 19,728 905 — — 20,633 Substandard — — — 2,197 777 — — — 2,974 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 2,197 20,505 905 — — 23,607 Pass/Watch 168,674 362,542 103,067 38,639 16,917 62 1,986 691,887 Total construction $ 168,674 362,542 103,067 40,836 37,422 967 — 1,986 715,494 Residential (1) Special mention $ — — — — — 1,114 — — 1,114 Substandard — — — — 264 4,417 — — 4,681 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — 264 5,531 — — 5,795 Pass/Watch 151,077 212,697 211,445 95,872 58,226 442,586 — — 1,171,903 Total residential $ 151,077 212,697 211,445 95,872 58,490 448,117 — — 1,177,698 Total Mortgage Special mention $ — — 3,071 26,809 72,237 26,489 — — 128,606 Substandard — — — 2,197 19,061 18,547 434 — 40,239 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — 3,071 29,006 91,298 45,036 434 — 168,845 Gross Loans Held for Investment by Year of Origination at December 31, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving loans to term loans Total Loans Pass/Watch 1,413,668 1,356,116 1,164,188 915,938 481,262 2,109,679 95,603 17,896 7,554,350 Total Mortgage $ 1,413,668 1,356,116 1,167,259 944,944 572,560 2,154,715 96,037 17,896 7,723,195 Commercial Special mention $ 75 1,148 444 201 10,156 4,379 14,530 140 31,073 Substandard — 7,605 10,230 4,391 3,561 13,734 7,604 364 47,489 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 75 8,753 10,674 4,592 13,717 18,113 22,134 504 78,562 Pass/Watch 377,662 320,334 162,175 161,150 87,396 522,798 492,717 30,876 2,155,108 Total commercial $ 377,737 329,087 172,849 165,742 101,113 540,911 514,851 31,380 2,233,670 Consumer (1) Special mention $ — — — — — 146 — — 146 Substandard — 8 — 109 332 209 — 658 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — 8 — 109 478 209 — 804 Pass/Watch 30,132 20,671 2,909 16,682 16,156 88,173 115,777 13,476 303,976 Total consumer $ 30,132 20,671 2,917 16,682 16,265 88,651 115,986 13,476 304,780 Total Loans Special mention $ 75 1,148 3,515 27,010 82,393 31,014 14,530 140 159,825 Substandard — 7,605 10,238 6,588 22,731 32,613 8,247 364 88,386 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 75 8,753 13,753 33,598 105,124 63,627 22,777 504 248,211 Pass/Watch 1,821,462 1,697,121 1,329,272 1,093,770 584,814 2,720,650 704,097 62,248 10,013,434 Total gross loans $ 1,821,537 1,705,874 1,343,025 1,127,368 689,938 2,784,277 726,874 62,752 10,261,645 (1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan. |