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LOANS

12 Months Ended

Dec. 31, 2020

NOTE 5 — LOANS

Net loans consist of the following as of December 31, 2020 and 2019 (in thousands):


	December 31, 2020		December 31, 2019
Real estate
Commercial	$	1,887,505	$	1,668,236
Construction		112,290		30,827
Multi-family		433,239		375,611
One-to-four family		71,354		82,670
Total real estate loans		2,504,388		2,157,344

Commercial and industrial		591,500		448,619
Consumer		46,431		71,956
Total loans		3,142,319		2,677,919
Deferred fees		(5,266)		(4,970)
Loans, net of deferred fees and unamortized costs		3,137,053		2,672,949
Allowance for loan losses		(35,407)		(26,272)
Balance at the end of the period	$	3,101,646	$	2,646,677

Included in commercial and industrial loans at December 31, 2020 are $3.8 million of Paycheck Protection Program loans.

The following tables represent the changes in the allowance for loan losses for the years ended December 31, 2020 and 2019, by portfolio segment. The portfolio segments represent the categories that the Bank uses to determine its allowance for loan losses (in thousands):


	Commercial		Commercial						One-to-four
Year ended December 31, 2020	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	15,317	$	7,070	$	411	$	2,453	$	267	$	754	$	26,272
Provision (credit) for loan losses		1,926		5,165		1,182		208		(61)		1,068		9,488
Loans charged-off		—		(254)		—		—		—		(251)		(505)
Recoveries		—		142		—		—		—		10		152
Total ending allowance balance	$	17,243	$	12,123	$	1,593	$	2,661	$	206	$	1,581	$	35,407


	Commercial		Commercial						One-to-four
Year ended December 31, 2019	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	9,037	$	6,257	$	625	$	2,047	$	228	$	748	$	18,942
Provision (credit) for loan losses		6,280		(2,678)		(214)		406		39		390		4,223
Loans charged-off		—		(798)		—		—		—		(389)		(1,187)
Recoveries		—		4,289		—		—		—		5		4,294
Total ending allowance balance	$	15,317	$	7,070	$	411	$	2,453	$	267	$	754	$	26,272

Net charge-offs were $353,000 during the year ended December 31, 2020 and net recoveries were $3.1 million during the year ended December 31, 2019. Included in the net recoveries during the year ended December 31, 2019 were $4.3 million of recoveries related primarily to the recovery of medallion loans previously charged off in 2017 and 2016.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of December 31, 2020 and 2019 (in thousands):


	Commercial		Commercial						One-to-four
At December 31, 2020	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	3,662	$	—	$	—	$	53	$	1,203	$	4,918
Collectively evaluated for impairment		17,243		8,461		1,593		2,661		153		378		30,489
Total ending allowance balance	$	17,243	$	12,123	$	1,593	$	2,661	$	206	$	1,581	$	35,407
Loans:
Individually evaluated for impairment	$	10,345	$	4,192	$	—	$	—	$	999	$	2,197	$	17,733
Collectively evaluated for impairment		1,877,160		587,308		112,290		433,239		70,355		44,234		3,124,586
Total ending loan balance	$	1,887,505	$	591,500	$	112,290	$	433,239	$	71,354	$	46,431	$	3,142,319


	Commercial		Commercial						One-to-four
At December 31, 2019	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	805	$	—	$	—	$	64	$	311	$	1,180
Collectively evaluated for impairment		15,317		6,265		411		2,453		203		443		25,092
Total ending allowance balance	$	15,317	$	7,070	$	411	$	2,453	$	267	$	754	$	26,272
Loans:
Individually evaluated for impairment	$	367	$	1,047	$	—	$	—	$	3,384	$	728	$	5,526
Collectively evaluated for impairment		1,667,869		447,572		30,827		375,611		79,286		71,228		2,672,393
Total ending loan balance	$	1,668,236	$	448,619	$	30,827	$	375,611	$	82,670	$	71,956	$	2,677,919

The following tables present information related to loans determined to be impaired by class of loans as of and for the years ended December 31, 2020 and 2019 (in thousands):


	Unpaid Principal				Allowance for Loan		Average Recorded		Interest Income
At December 31, 2020	Balance		Recorded Investment		Losses Allocated		Investment		Recognized
With an allowance recorded:
One-to-four family	$	610	$	480	$	53	$	491	$	19
Consumer		2,197		2,197		1,203		1,503		88
Commercial and industrial		4,192		4,192		3,662		3,456		—
Total	$	6,999	$	6,869	$	4,918	$	5,450	$	107

Without an allowance recorded:
One-to-four family		666	$	519	$	—	$	996	$	20
Commercial real estate		10,345		10,345		—		2,360		38
Commercial and industrial		—		—		—		951		—
Total	$	11,011	$	10,864	$	—	$	4,307	$	58


	Unpaid Principal				Allowance for Loan		Average Recorded		Interest Income
At December 31, 2019	Balance		Recorded Investment		Losses Allocated		Investment		Recognized
With an allowance recorded:
One-to-four family	$	633	$	503	$	64	$	411	$	19
Consumer		731		728		311		311		13
Commercial and industrial		1,047		1,047		805		419		—
Total	$	2,411	$	2,278	$	1,180	$	1,141	$	32

Without an allowance recorded:
One-to-four family		3,028	$	2,881	$	—	$	2,063	$	124
Commercial real estate		367		367		—		375		15
Total	$	3,395	$	3,248	$	—	$	2,438	$	139

The recorded investment in loans excludes accrued interest receivable and loan origination fees. Interest income was recognized on a cash basis for impaired loans.

Interest income that would have been recorded for the years ended December 31, 2020 and 2019, had non-accrual loans been current according to their original terms, was immaterial.

For a loan to be considered impaired, management determines after review whether it is probable that the Bank will be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified non-accrual loans, TDRs and any loans for which management believes that it is probable that the Bank will be unable to collect all amounts due, including both interest and principal, according to the contractual terms of the loan agreement. Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required.

The following tables present the recorded investment in non-accrual loans, loans past due over 90 days and still accruing by class of loans as of December 31, 2020 and 2019 (in thousands):


At December 31, 2020	Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	4,192	$	—
One-to-four family		—		—
Consumer		1,428		769
Total	$	5,620	$	769


At December 31, 2019		Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	1,047	$	408
One-to-four family		2,345		—
Consumer		693		—
Total	$	4,085	$	408

All TDRs at December 31, 2020 and 2019 were performing in accordance with their structured terms.

The following table presents the aging of the recorded investment in past due loans by class of loans as of December 31, 2020 and 2019 (in thousands):


					Greater
	30-59		60-89		than 90		Total past		Current
At December 31, 2020	Days		Days		days		due		loans		Total
Commercial real estate	$	40	$	9,984	$	—	$	10,024	$	1,877,481	$	1,887,505
Commercial & industrial		4,429		6,400		4,192		15,021		576,479		591,500
Construction		—		—		—		—		112,290		112,290
Multi-family		—		—		—		—		433,239		433,239
One-to-four family		2,908		—		—		2,908		68,446		71,354
Consumer		112		32		2,197		2,341		44,090		46,431
Total	$	7,489	$	16,416	$	6,389	$	30,294	$	3,112,025	$	3,142,319


					Greater
	30-59		60-89		than 90		Total past		Current
At December 31, 2019	Days		Days		days		due		loans		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	1,668,236	$	1,668,236
Commercial & industrial		346		—		1,455		1,801		446,818		448,619
Construction		—		—		—		—		30,827		30,827
Multi-family		—		—		—		—		375,611		375,611
One-to-four family		—		—		—		—		82,670		82,670
Consumer		636		14		693		1,343		70,613		71,956
Total	$	982	$	14	$	2,148	$	3,144	$	2,674,775	$	2,677,919

Troubled Debt Restructurings

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and are classified as impaired. Included in impaired loans at December 31, 2020 and 2019 were loans modified as TDRs with a recorded investment of $1.4 million. The Company had allocated $53,000 and $81,000 of specific reserves to customers whose loan terms have been modified as TDRs as of December 31, 2020 and 2019, respectively. The Company has not committed to lend additional amounts as of December 31, 2020 and 2019 to customers with outstanding loans that are classified as TDRs.

The following tables present the recorded investment in TDRs by class of loans as of December 31, 2020 and 2019 (in thousands):


At December 31, 2020	Troubled Debt Restructuring
Commercial real estate	$	361
One-to-four family		999
Total	$	1,360


At December 31, 2019	Troubled Debt Restructuring
Commercial real estate	$	367
One-to-four family		1,039
Consumer		35
Total	$	1,441

There were no loans modified as a TDR during the year ended December 31, 2020. TDRs include loans with one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. Modifications involving a reduction of the stated interest rate and/or an extension of the maturity date were for a period of three to five years.

In 2020 and 2019, there were no TDRs for which there was a payment default within twelve months following the modification. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Bank’s internal underwriting policy.

Credit Quality Indicators

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, credit documentation, public information, and current economic trends, among other factors. Except for one-to-four family loans and consumer loans, the Bank analyzes loans individually by classifying the loans as to credit risk at least annually. For one-to-four family loans and consumer loans, the Bank evaluates credit quality based on the aging status of the loan, which was previously presented. An analysis is performed on a quarterly basis for loans classified as special mention, substandard, or doubtful. The Bank uses the following definitions for risk ratings:

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 institution’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 debt. They are characterized by the distinct possibility that the institution 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, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):


			Special
At December 31, 2020	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	1,877,160	$	361	$	9,984	$	—	$	1,887,505
Commercial & industrial		583,809		3,499		—		4,192		591,500
Construction		112,290		—		—		—		112,290
Multi-family		433,239		—		—		—		433,239
Total	$	3,006,498	$	3,860	$	9,984	$	4,192	$	3,024,534


			Special
At December 31, 2019	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	1,667,869	$	367	$	—	$	—	$	1,668,236
Commercial & industrial		446,612		—		960		1,047		448,619
Construction		30,827		—		—		—		30,827
Multi-family		375,611		—		—		—		375,611
Total	$	2,520,919	$	367	$	960	$	1,047	$	2,523,293

COVID-19 Loan Modifications

On March 22, 2020, the banking regulators and the FASB issued guidance to financial institutions who are working with borrowers affected by COVID-19 (“COVID-19 guidance”). The COVID-19 guidance indicated that regulatory agencies will not criticize institutions for working with borrowers and will not direct banks to automatically categorize all COVID-19 related loan modifications as TDRs. In addition, the COVID-19 guidance noted that modification or deferral programs

mandated by the federal or a state government related to COVID-19 would not be in the scope of Accounting Standards Codification Subtopic 310-40 – Receivables – Troubled Debt Restructurings by Creditors (“ASC 310-40”), such as a state program that requires all institutions within that state to suspend mortgage payments for a specified period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” allows banks to temporarily suspend certain requirements under GAAP related to TDRs for a limited period to account for the effects of COVID-19. A bank may elect to account for modifications on certain loans under Section 4013 of the CARES Act or, if a loan modification is not eligible under Section 4013, a bank may use the criteria in the COVID-19 Guidance to determine when a loan modification is not a TDR in accordance with ASC 310-40.

As of December 31, 2020, the Company had 63 loan deferrals amounting to $220.3 million, or 7.0% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. These loans, in accordance with COVID-19 guidance and the CARES Act, are not included in disclosures related to past due loans.