Loans

6 Months Ended

Jun. 30, 2021

4. LOANS

A summary of loans follows:

	June 30,			December 31,
	2021			2020
	(Dollars in thousands)
Real estate loans:
Residential real estate:
One- to four-family	$	489,310		$	564,146
Home equity lines of credit		56,032			68,721
Multi-family		809,317			880,552
Commercial real estate		2,295,030			2,499,660
Construction		645,622			731,432
Total real estate loans		4,295,311			4,744,511
Commercial and industrial		703,745			765,195
Consumer		9,749			10,707
Total loans		5,008,805			5,520,413
Allowance for credit losses		(64,300	)		(68,824	)
Net deferred loan origination fees		(7,930	)		(7,784	)
Loans, net	$	4,936,575		$	5,443,805

The Company has transferred a portion of its originated commercial real estate loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying balance sheets. The Company and participating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments to participating lenders and disburses required escrow funds to relevant parties. At June 30, 2021 and December 31, 2020, the Company was servicing loans for participants aggregating $188.1 million and $176.4 million, respectively.

At June 30, 2021, multi-family and commercial real estate loans with carrying values totaling $220.2 million and $1.188 billion, respectively, were pledged as collateral for FHLB borrowings.

An analysis of the allowance for credit losses and related information follows:

	Three Months Ended June 30, 2021
	One- to four- family			Multi- family			Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Balance at March 31, 2021	$	1,617		$	1,722		$	166		$	29,433	$	21,586		$	8,467		$	445		$	63,436
Provision (reversal) for credit losses		(239	)		(205	)		(30	)		871		607			(257	)		2			749
Charge-offs		—			—			—			—		—			(50	)		(23	)		(73	)
Recoveries		73			—			2			—		100			1			12			188
Balance at June 30, 2021	$	1,451		$	1,517		$	138		$	30,304	$	22,293		$	8,161		$	436		$	64,300

	Three Months Ended June 30, 2020
	One- to four- family			Multi- family			Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Balance at March 31, 2020	$	794		$	7,680		$	94		$	26,728	$	9,457		$	6,114		$	79		$	50,946
Provision (reversal) for credit losses		723			797			84			4,941		1,834			1,296			(34	)		9,641
Charge-offs		—			—			—			—		—			(83	)		(16	)		(99	)
Recoveries		13			—			—			—		—			5			41			59
Balance at June 30, 2020	$	1,530		$	8,477		$	178		$	31,669	$	11,291		$	7,332		$	70		$	60,547

	Six Months Ended June 30, 2021
	One- to four- family			Multi- family			Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Balance at December 31, 2020	$	2,076		$	2,251		$	206		$	30,145	$	25,197		$	8,453		$	496		$	68,824
Provision (reversal) for loan losses		(630	)		(734	)		(70	)		159		(3,004	)		(169	)		(39	)		(4,487	)
Charge-offs		(68	)		—			—			—		—			(139	)		(57	)		(264	)
Recoveries		73			—			2			—		100			16			36			227
Balance at June 30, 2021	$	1,451		$	1,517		$	138		$	30,304	$	22,293		$	8,161		$	436		$	64,300

	Six Months Ended June 30, 2020
	One- to four- family			Multi- family			Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Balance at December 31, 2019	$	691		$	7,825		$	69		$	26,943	$	8,913		$	5,765		$	116		$	50,322
Provision (reversal) for loan losses		826			652			108			4,726		2,378			1,694			(18	)		10,366
Charge-offs		—			—			—			—		—			(133	)		(80	)		(213	)
Recoveries		13			—			1			—		—			6			52			72
Balance at June 30, 2020	$	1,530		$	8,477		$	178		$	31,669	$	11,291		$	7,332		$	70		$	60,547

	One- to four- family		Multi- family		Home equity lines of credit		Commercial real estate		Construction		Commercial and industrial		Consumer		Total
	(In thousands)
June 30, 2021
Amount of allowance for credit losses for loans deemed to be impaired	$	—	$	—	$	—	$	2,326	$	—	$	166	$	—	$	2,492
Amount of allowance for credit losses for loans not deemed to be impaired		1,451		1,517		138		27,978		22,293		7,995		436		61,808
	$	1,451	$	1,517	$	138	$	30,304	$	22,293	$	8,161	$	436	$	64,300
Loans deemed to be impaired	$	109	$	—	$	—	$	8,176	$	—	$	635	$	—	$	8,920
Loans not deemed to be impaired		489,201		809,317		56,032		2,286,854		645,622		703,110		9,749		4,999,885
	$	489,310	$	809,317	$	56,032	$	2,295,030	$	645,622	$	703,745	$	9,749	$	5,008,805

December 31, 2020
Amount of allowance for credit losses for loans deemed to be impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Amount of allowance for credit losses for loans not deemed to be impaired		2,076		2,251		206		30,145		25,197		8,453		496		68,824
	$	2,076	$	2,251	$	206	$	30,145	$	25,197	$	8,453	$	496	$	68,824
Loans deemed to be impaired	$	602	$	—	$	—	$	1,648	$	—	$	2,075	$	—	$	4,325
Loans not deemed to be impaired		563,544		880,552		68,721		2,498,012		731,432		763,120		10,707		5,516,088
	$	564,146	$	880,552	$	68,721	$	2,499,660	$	731,432	$	765,195	$	10,707	$	5,520,413

The following table provides information about the Company’s past due and non-accrual loans:

	30-59		60-89		90 Days
	Days		Days		or Greater		Total		Loans on
	Past Due		Past Due		Past Due		Past Due		Non-accrual
	(In thousands)
June 30, 2021
Real estate loans:
Residential real estate:
One- to four-family	$	392	$	200	$	595	$	1,187	$	1,633
Home equity lines of credit		—		—		20		20		20
Multi-family		3,943		—		—		3,943		—
Commercial real estate		8,176		—		—		8,176		8,176
Total real estate loans		12,511		200		615		13,326		9,829
Commercial and industrial		—		146		489		635		635
Consumer		667		176		—		843		—
Total	$	13,178	$	522	$	1,104	$	14,804	$	10,464

December 31, 2020
Real estate loans:
Residential real estate:
One- to four-family	$	504	$	231	$	1,116	$	1,851	$	2,617
Home equity lines of credit		—		—		20		20		20
Total real estate loans		504		231		1,136		1,871		2,637
Commercial and industrial		390		—		360		750		527
Consumer		448		245		—		693		—
Total	$	1,342	$	476	$	1,496	$	3,314	$	3,164

At June 30, 2021 and December 31, 2020, the Company did not have any accruing loans past due 90 days or more.

The following tables provide information with respect to the Company’s impaired loans:

	June 30, 2021						December 31, 2020
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
Impaired loans without a valuation allowance:
One- to four-family	$	109	$	185			$	602	$	940
Commercial real estate		—		—				1,648		1,648
Commercial and industrial		469		799				2,075		2,404
Total		578		984				4,325		4,992
Impaired loans with a valuation allowance:
Commercial real estate	$	8,176	$	8,176	$	2,326	$	—	$	—	$	—
Commercial and industrial		166		207		166		—		—		—
Total		8,342		8,383		2,492		—	$	—		—
Total impaired loans	$	8,920	$	9,367	$	2,492	$	4,325	$	4,992	$	—

	Three Months Ended June 30,
	2021						2020
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		on Cash Basis		Investment		Recognized		on Cash Basis
	(In thousands)
One- to four-family	$	109	$	4	$	4	$	1,213	$	13	$	6
Commercial real estate		2,727		81		—		2,136		21		—
Commercial and industrial		635		—		—		2,495		17		—
Total impaired loans	$	3,471	$	85	$	4	$	5,844	$	51	$	6

	Six Months Ended June 30,
	2021						2020
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		on Cash Basis		Investment		Recognized		on Cash Basis
	(In thousands)
One- to four-family	$	110	$	4	$	4	$	1,216	$	27	$	14
Commercial real estate		1,367		161		—		2,049		42		—
Commercial and industrial		640		4		4		2,517		43		—
Total impaired loans	$	2,117	$	169	$	8	$	5,782	$	112	$	14

The following table summarizes the Company’s troubled debt restructurings (“TDRs”) at the dates indicated:

	June 30,		December 31,
	2021		2020
	(In thousands)
TDRs on accrual status:
One- to four-family	$	1,492	$	1,731
Total TDRs on accrual status		1,492		1,731
TDRs on non-accrual status:
One- to four-family		109		420
Total TDRs on non-accrual status		109		420
Total TDRs	$	1,601	$	2,151

The Company generally places loans modified as TDRs on non-accrual status for a minimum period of six months. Loans modified as TDRs qualify for return to accrual status once they have demonstrated performance with the modified terms of the loan agreement for a minimum of six consecutive months and future payments are reasonably assured. TDRs are initially reported as impaired loans with an allowance established as part of the allocated component of the allowance for credit losses when the discounted cash flows of the impaired loan is lower than the carrying value of that loan. TDRs may be removed from impairment disclosures in the year following the restructure if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring. Refer to Troubled Debt Restructurings and Other Loan Modifications, in Management’s Discussion and Analysis of Financial Condition and Results of Operations within this report for more detail regarding loans deferred or modified under the CARES Act and not included in TDRs.

In response to COVID-19, the Company has provided temporary relief in the form of short-term loan modifications, generally with deferred payments and associated accrued interest due and payable based on the specific terms of the modification. As of June 30, 2021, the Company had $268.6 million in loans making interest-only payments under COVID-19 related loan modifications, representing 5.4% of the total loan portfolio.

The Company utilizes a ten-grade internal loan rating system for multi-family, commercial real estate, construction, and commercial and industrial loans as follows:

•

Loans rated 1 - 6: Loans in these categories are considered “pass” rated loans with low to average risk.

•

Loans rated 7: Loans in these categories are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

•

Loans rated 8: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth, generation of cash flows, and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

•

Loans rated 9: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

•

Loans rated 10: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on multi-family, commercial real estate, construction, and commercial and industrial loans. The Company also engages an independent third-party to review a significant portion of loans within these segments on at least an annual basis. Management uses the results of these reviews as part of its annual review process.

The following table provides the Company’s risk-rated loans by class:

	June 30, 2021								December 31, 2020
	Multi-family						Commercial		Multi-family						Commercial
	residential		Commercial				and		residential		Commercial				and
	real estate		real estate		Construction		industrial		real estate		real estate		Construction		industrial
	(In thousands)
Loans rated 1 - 6	$	809,317	$	2,200,420	$	645,622	$	648,965	$	880,552	$	2,483,867	$	731,432	$	704,534
Loans rated 7		—		86,434		—		34,036		—		15,793		—		37,093
Loans rated 8		—		8,176		—		20,744		—		—		—		23,568
Loans rated 9		—		—		—		—		—		—		—		—
Loans rated 10		—		—		—		—		—		—		—		—
Total	$	809,317	$	2,295,030	$	645,622	$	703,745	$	880,552	$	2,499,660	$	731,432	$	765,195

For one- to four-family residential real estate loans, home equity lines of credit and consumer loans, management uses delinquency reports as the key credit quality indicator.

Meridian Bancorp, Inc. 10-Q