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LOANS AND ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2021

NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans, net of deferred costs and fees, consist of the following as of March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020
Real estate
Commercial	$	1,981,218	$	1,887,505
Construction		121,122		112,290
Multifamily		445,284		433,239
One-to-four family		66,481		71,354
Total real estate loans		2,614,105		2,504,388

Commercial and industrial		587,092		591,500
Consumer		41,916		46,431
Total loans		3,243,113		3,142,319
Deferred fees		(5,449)		(5,266)
Loans, net of deferred fees and unamortized costs		3,237,664		3,137,053
Allowance for loan losses		(35,502)		(35,407)
Balance at the end of the period	$	3,202,162	$	3,101,646

Included in commercial and industrial loans at March 31, 2021 and December 31, 2020 are $4.5 million and $3.8 million, respectively, of Paycheck Protection Program (“PPP”) loans.

The following tables present the activity in the ALLL by segment for the three months ended March 31, 2021 and 2020. The portfolio segments represent the categories that the Bank uses to determine its allowance for loan losses (in thousands):


	Commercial		Commercial				Multi		One-to-four
Three months ended March 31, 2021	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	17,243	$	12,123	$	1,593	$	2,661	$	206	$	1,581	$	35,407
Provision/(credit) for loan losses		1,098		(441)		114		71		(28)		136		950
Loans charged-off		—		(855)		—		—		—		—		(855)
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	18,341	$	10,827	$	1,707	$	2,732	$	178	$	1,717	$	35,502


	Commercial		Commercial				Multi		One-to-four
Three months ended March 31, 2020	Real Estate		& Industrial		Construction		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		2,052		2,378		209		255		(64)		(40)	—	4,790
Loans charged-off		—		(13)		—		—		—		(188)	—	(201)
Recoveries		—		58		—		—		—		5	—	63
Total ending allowance balance	$	17,369	$	9,493	$	620	$	2,708	$	203	$	531	$	30,924

Net charge-offs were $855,000 and $138,000 for the three months ended March 31, 2021 and 2020, respectively.

The following tables present the balance in the ALLL and the recorded investment in loans by portfolio segment based on impairment method as of March 31, 2021 and December 31, 2020 (in thousands):


	Commercial		Commercial				Multi		One-to-four
At March 31, 2021	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	2,814	$	—	$	—	$	44	$	1,379	$	4,237
Collectively evaluated for impairment		18,341		8,013		1,707		2,732		134		338		31,265
Total ending allowance balance	$	18,341	$	10,827	$	1,707	$	2,732	$	178	$	1,717	$	35,502
Loans:
Individually evaluated for impairment	$	10,340	$	3,337	$	—	$	—	$	982	$	2,128	$	16,787
Collectively evaluated for impairment		1,970,878		583,755		121,122		445,284		65,499		39,788		3,226,326
Total ending loan balance	$	1,981,218	$	587,092	$	121,122	$	445,284	$	66,481	$	41,916	$	3,243,113


	Commercial		Commercial				Multi		One-to-four
At December 31, 2020	Real Estate		& Industrial		Construction		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

The following tables present loans individually evaluated for impairment recognized as of March 31, 2021 and December 31, 2020 (in thousands):


	Unpaid Principal				Allowance for Loan
At March 31, 2021	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	598	$	468	$	44
Consumer		2,128		2,128		1,379
Commercial & industrial		4,192		3,337		2,814
Total	$	6,918	$	5,933	$	4,237

Without an allowance recorded:
One-to-four family	$	661	$	514	$	—
Commercial real estate		10,340		10,340		—
Commercial & industrial		—		—		—
Total	$	11,001	$	10,854	$	—


	Unpaid Principal				Allowance for Loan
At December 31, 2020	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	610		480		53
Consumer		2,197		2,197		1,203
Commercial & industrial		4,192		4,192		3,662
Total	$	6,999	$	6,869	$	4,918

Without an allowance recorded:
One-to-four family		666		519		—
Commercial real estate		10,345		10,345		—
Commercial & industrial		—		—		—
Total	$	11,011	$	10,864	$	—

The recorded investment in loans excludes accrued interest receivable and loan origination fees.

The following tables present the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans for the three months ended March 31, 2021 and 2020 (in thousands):


	Average Recorded		Interest Income
Three months ended March 31, 2021	Investment		Recognized
With an allowance recorded:
One-to-four family	$	474		8
Consumer		2,162		29
Commercial & industrial		3,669		—
Total	$	6,305	$	37

Without an allowance recorded:
One-to-four family	$	516	$	7
Commercial real estate		10,343		167
Commercial & industrial		96		—
Total	$	10,955	$	174


	Average Recorded		Interest Income
Three months ended March 31, 2020	Investment		Recognized
With an allowance recorded:
One-to-four family	$	500	$	5
Consumer		548		5
Commercial & industrial		1,047		—
Total	$	2,095	$	10

Without an allowance recorded:
One-to-four family	$	1,706	$	7
Commercial real estate		365		4
Commercial & industrial		2,377
Total	$	4,448	$	11

For a loan to be considered impaired, management determines whether it is probable that the Bank will not 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 and troubled debt restructurings (“TDRs”). 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.

For discussion on modification of loans to borrowers impacted by COVID-19, refer to the “COVID-19 Loan Modifications” section herein.

The following tables present the recorded investment in non-accrual loans and loans past due over 90 days and still accruing, by class of loans, as of March 31, 2021 and December 31, 2020 (in thousands):


At March 31, 2021	Non-accrual		Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	3,337	$	—
Consumer		1,523		604
Total	$	4,860	$	604


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

Interest income that would have been recorded for the three months ended March 31, 2021 and 2020 had non-accrual loans been current according to their original terms was immaterial.

The following tables present the aging of the recorded investment in past due loans by class of loans as of March 31, 2021 and December 31, 2020 (in thousands):


					Greater
	30-59		60-89		than 90		Total past		Current
At March 31, 2021	Days		Days		days		due		loans		Total
Commercial real estate	$	3,360	$	—	$	—	$	3,360	$	1,977,858	$	1,981,218
Commercial & industrial		3,941		6,400		3,337		13,678		573,414		587,092
Construction		—		—		—		—		121,122		121,122
Multifamily		—		—		—		—		445,284		445,284
One-to-four family		—		—		—		—		66,481		66,481
Consumer		48		21		2,127		2,196		39,720		41,916
Total	$	7,349	$	6,421	$	5,464	$	19,234	$	3,223,879	$	3,243,113


					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
Multifamily		—		—		—		—		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

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 classified as impaired.

Included in impaired loans at March 31, 2021 and December 31, 2020 were $1.3 million and $1.4 million, respectively, of loans modified as TDRs. The Bank allocated specific reserves amounting to $44,000 and $53,000 for TDRs as of March 31, 2021 and December 31, 2020, respectively. There were no loans modified as a TDR during the three months ended March 31, 2021 or the year ended December 31, 2020. The Bank has not committed to lend additional amounts as of March 31, 2021 to customers with outstanding loans that are classified as TDRs. During the three months ended March 31, 2021 and March 31, 2020 there were no payment defaults on any loans previously identified as TDRs. 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.

The following tables present the recorded investment in TDRs by class of loans as of March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020
Troubled debt restructurings:
Real Estate:
Commercial real estate	$	356	$	361
One-to-four family		982		999
Total troubled debt restructurings	$	1,339	$	1,360

All TDRs at March 31, 2021 and December 31, 2020 were performing in accordance with their restructured terms.

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 are considered to be pass-rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans as of March 31, 2021 and December 31, 2020 is as follows (in thousands):


			Special
At March 31, 2021	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	1,970,878	$	356	$	9,984	$	—	$	1,981,218
Commercial & industrial		580,256		3,499		—		3,337		587,092
Construction		121,122		—		—		—		121,122
Multifamily		445,284		—		—		—		445,284
Total	$	3,117,540	$	3,855	$	9,984	$	3,337	$	3,134,716


			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

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 March 31, 2021, the Company had 30 loans amounting to $65.3 million, or 2.1% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of March 31, 2021, principal payment deferrals were $37.4 million, or 1.2% of total loans, while full payment deferrals were $27.9 million, or 0.9% of total loans.