Allowance for Credit Losses | NOTE 5: ALLOWANCE FOR CREDIT LOSSES The following is a roll forward of the Bank’s allowance for credit losses related to loans for the following periods: Beginning Adoption of Provision for Ending (dollars in thousands) Balance ASC 326 Credit Losses Charge-offs Recoveries Balance Quarter Ended June 30, 2020: Real estate loans: Residential properties $ 6,026 $ — $ 730 $ — $ — $ 6,756 Commercial properties 1,178 — 8,133 — — 9,311 Land 1,252 — 2,116 — — 3,368 Commercial and industrial loans 10,125 — (1,225) (525) 113 8,488 Consumer loans 204 — 2 — — 206 Total $ 18,785 $ — $ 9,756 $ (525) $ 113 $ 28,129 Six Months Ended June 30, 2020: Real estate loans: Residential properties $ 8,423 $ (363) $ (1,304) $ — $ — $ 6,756 Commercial properties 4,166 (3,760) 8,905 — — 9,311 Land 573 (92) 2,887 — — 3,368 Commercial and industrial loans 7,448 — 1,531 (1,055) 564 8,488 Consumer loans 190 — 16 — — 206 Total $ 20,800 $ (4,215) $ 12,035 $ (1,055) $ 564 $ 28,129 Year Ended December 31, 2019: Real estate loans: Residential properties $ 9,216 $ — $ (793) $ — $ — $ 8,423 Commercial properties 4,547 — (381) — — 4,166 Land 391 — 182 — — 573 Commercial and industrial loans 4,628 — 3,653 (2,687) 1,854 7,448 Consumer loans 218 — (24) (5) 1 190 Total $ 19,000 $ — $ 2,637 $ (2,692) $ 1,855 $ 20,800 The following table presents the balance in the allowance for credit losses and the recorded investment in loans by impairment method as of: Allowance for Credit Losses Unaccreted Purchased Credit Evaluated for Impairment Credit Component (dollars in thousands) Individually Collectively Deteriorated Total Other Loans June 30, 2020: Allowance for credit losses: Real estate loans: Residential properties $ 34 $ 6,722 $ — $ 6,756 $ Commercial properties 385 8,926 — 9,311 Land — 3,368 — 3,368 Commercial and industrial loans 784 7,704 — 8,488 Consumer loans — 206 — 206 Total $ 1,203 $ 26,926 $ — $ 28,129 $ Loans: Real estate loans: Residential properties $ 5,556 $ 3,390,022 $ 291 $ 3,395,869 $ Commercial properties 6,546 762,864 5,529 774,939 Land 500 64,594 — 65,094 Commercial and industrial loans 6,067 869,080 317 875,464 Consumer loans 17 18,623 — 18,640 Total $ 18,686 $ 5,105,183 $ 6,137 $ 5,130,006 $ December 31, 2019: Allowance for credit losses: Real estate loans: Residential properties $ — $ 8,423 $ — $ 8,423 $ 1,013 Commercial properties 107 4,059 — 4,166 1,048 Land — 573 — 573 6 Commercial and industrial loans 763 6,685 — 7,448 277 Consumer loans — 190 — 190 1 Total $ 870 $ 19,930 $ — $ 20,800 $ 2,345 Loans: Real estate loans: Residential properties $ 2,897 $ 3,012,203 $ — $ 3,015,100 $ 189,339 Commercial properties 6,689 824,026 3,327 834,042 201,370 Land — 69,476 781 70,257 28,660 Commercial and industrial loans 9,316 590,489 408 600,213 24,143 Consumer loans — 16,273 — 16,273 253 Total $ 18,902 $ 4,512,467 $ 4,516 $ 4,535,885 $ 443,765 The column labeled “Unaccreted Credit Component Other Loans” represents the amount of unaccreted credit component discount for the other loans acquired in a business combination, and the stated principal balance of the related loans. The discount is equal to 0.53% of the stated principal balance of these loans as of December 31, 2019. In addition to this unaccreted credit component discount, an additional $0.3 million of ACL has been provided for these loans as of December 31, 2019. Assets that were previously accounted for as PCI under ASC 310-30 are accounted for as PCD assets under the new impairment standard. When instruments that were accounted for as PCI are transitioned to the new PCD model, a “gross up” is recorded to the amortized cost basis of the asset and the allowance for credit losses of these instruments. If any noncredit discount still exists, it is accredited to interest income using the interest method. The Bank 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, collateral adequacy, credit documentation, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as loans secured by multifamily or commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Bank uses the following definitions for risk ratings: Pass: Special Mention: Substandard: Loans individually evaluated Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions above and smaller, homogeneous loans not assessed on an individual basis. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows as of: Loans Individually (dollars in thousands) Pass Special Mention Substandard Loans Evaluated Total June 30, 2020: Real estate loans: Residential properties $ 3,383,143 $ — $ 7,170 $ 5,556 $ 3,395,869 Commercial properties 760,071 663 7,659 6,546 774,939 Land 64,594 — — 500 65,094 Commercial and industrial loans 859,832 5,824 3,741 6,067 875,464 Consumer loans 18,623 — — 17 18,640 Total $ 5,086,263 $ 6,487 $ 18,570 $ 18,686 $ 5,130,006 December 31, 2019: Real estate loans: Residential properties $ 3,012,203 $ — $ — $ 2,897 $ 3,015,100 Commercial properties 821,425 679 5,249 6,689 834,042 Land 69,476 — 781 — 70,257 Commercial and industrial loans 579,153 8,202 3,542 9,316 600,213 Consumer loans 16,273 — — — 16,273 Total $ 4,498,530 $ 8,881 $ 9,572 $ 18,902 $ 4,535,885 The risk categories of loans based on year of origination, with classified loans defined as special mention loans, substandard loans and loans individually evaluated as of June 30, 2020, are as follows: Revolving (dollars in thousands) 2020 2019 2018 2017 2016 Prior Loans Total Loans secured by Real Estate: Residential Multifamily Pass $ 714,812 $ 694,794 $ 590,767 $ 326,321 $ 156,876 $ 72,762 $ — $ 2,556,332 Classified — — — — — — — — Total $ 714,812 $ 694,794 $ 590,767 $ 326,321 $ 156,876 $ 72,762 $ — $ 2,556,332 Single Family Pass $ 75,833 $ 103,177 $ 142,061 $ 127,670 $ 128,707 $ 222,836 $ 26,527 $ 826,811 Classified — — — 1,971 — 7,763 2,992 12,726 Total $ 75,833 $ 103,177 $ 142,061 $ 129,641 $ 128,707 $ 230,599 $ 29,519 $ 839,537 Commercial Real Estate Pass $ 7,753 $ 108,580 $ 141,335 $ 137,158 $ 135,078 $ 230,167 $ — $ 760,071 Classified — 44 — 2,397 2,542 9,885 — 14,868 Total $ 7,753 $ 108,624 $ 141,335 $ 139,555 $ 137,620 $ 240,052 $ — $ 774,939 Land and Constructions Pass $ — $ 14,647 $ 25,798 $ 22,311 $ 783 $ 1,055 $ — $ 64,594 Classified — — 500 — — — — 500 Total $ — $ 14,647 $ 26,298 $ 22,311 $ 783 $ 1,055 $ — $ 65,094 Commercial Pass $ 304,033 $ 185,354 $ 83,577 $ 21,366 $ 18,864 $ 21,684 $ 224,954 $ 859,832 Classified 826 4,090 2,570 704 2,300 283 4,859 15,632 Total $ 304,859 $ 189,444 $ 86,147 $ 22,070 $ 21,164 $ 21,967 $ 229,813 $ 875,464 Consumer Pass $ 1,704 $ — $ 1,430 $ 5 $ 7,061 $ 134 $ 8,289 $ 18,623 Classified — — — 17 — — — 17 Total $ 1,704 $ — $ 1,430 $ 22 $ 7,061 $ 134 $ 8,289 $ 18,640 Total loans Pass $ 1,104,135 $ 1,106,552 $ 984,968 $ 634,831 $ 447,369 $ 548,638 $ 259,770 $ 5,086,263 Classified 826 4,134 3,070 5,089 4,842 17,931 7,851 43,743 Total $ 1,104,961 $ 1,110,686 $ 988,038 $ 639,920 $ 452,211 $ 566,569 $ 267,621 $ 5,130,006 Loans evaluated individually and any related allowance are as follows as of: With No Allowance Recorded With an Allowance Recorded Unpaid Unpaid Principal Recorded Principal Recorded Related (dollars in thousands) Balance Investment Balance Investment Allowance June 30, 2020: Real estate loans: Residential properties $ 4,849 $ 4,803 $ 801 $ 753 $ 32 Commercial properties 5,686 5,398 1,148 1,148 101 Land 500 500 — — — Commercial and industrial loans 3,405 3,046 3,207 3,021 778 Consumer loans 17 17 — — — Total $ 14,457 $ 13,764 $ 5,156 $ 4,922 $ 911 December 31, 2019: Real estate loans: Residential properties $ 2,970 $ 2,897 $ — $ — $ — Commercial properties 5,683 5,456 1,188 1,188 107 Land — — — — — Commercial and industrial loans 6,485 5,708 3,764 3,653 763 Total $ 15,138 $ 14,061 $ 4,952 $ 4,841 $ 870 The weighted average annualized average balance of the recorded investment for these loans, beginning from when the loan became classified as a loan individually evaluated, and any interest income recorded on these loans after they became classified as a loan individually evaluated is as follows for the: Six Months Ended Year Ended June 30, 2020 December 31, 2019 Average Average Recorded Interest Recorded Interest (dollars in thousands) Investment Income Investment Income Real estate loans: Residential properties $ 6,316 $ 26 $ 1,765 $ 13 Commercial properties 10,925 118 8,889 341 Land 165 523 — Commercial and industrial loans 12,450 891 10,608 11 Consumer loans 25 — — — Total $ 29,881 $ 1,035 $ 21,785 $ 365 There was no interest income recognized on a cash basis in either 2020 or 2019 on these loans. The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses and the related ACL allocated to these loans: Equipment/ ACL (dollars in thousands) Real Estate Cash Receivables Total Allocation June 30, 2020: Loans secured by Real Estate: Residential properties Single family $ 3,649 $ — $ — $ 3,649 $ — Commercial real estate loans 421 — — 421 — Land 500 — — 500 — Commercial loans 1,039 250 1,180 2,469 116 Consumer loans — 18 — 18 — Total $ 5,609 $ 268 $ 1,180 $ 7,057 $ 116 |