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LOANS AND ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2022

NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans, net of deferred costs and fees, consist of the following (in thousands):


	March 31, 2022		December 31, 2021
Real estate
Commercial	$	2,782,092	$	2,488,382
Construction		168,760		151,791
Multi-family		373,095		355,290
One-to-four family		52,819		57,163
Total real estate loans		3,376,766		3,052,626
Commercial and industrial		723,624		654,535
Consumer		29,688		32,366
Total loans		4,130,078		3,739,527
Deferred fees, net of origination costs		(8,635)		(7,598)
Loans, net of deferred fees and costs		4,121,443		3,731,929
Allowance for loan losses		(38,134)		(34,729)
Net loans	$	4,083,309	$	3,697,200

Included in C&I loans at March 31, 2022 and December 31, 2021 are $298,000 and $561,000 respectively, of PPP loans.

The following tables present the activity in the ALLL by segment. The portfolio segments represent the categories that the Company uses to determine its ALLL (in thousands):


	Commercial		Commercial						One-to-four
Three months ended March 31, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729
Provision (credit) for loan losses		2,504		780		224		100		(36)		(172)		3,400
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		5		5
Total ending allowance balance	$	24,720	$	8,488	$	2,329	$	2,256	$	104	$	237	$	38,134


	Commercial		Commercial						One-to-four
Three months ended March 31, 2021	Real Estate		& Industrial		Construction		Multi-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

Net recoveries for the three months ended March 31, 2022 were $5,000. Net charge-offs for the three months ended March 31, 2021 were $855,000.

The following tables present the balance in the ALLL and the recorded investment in loans by portfolio segment based on impairment method (in thousands):


	Commercial		Commercial						One-to-four
At March 31, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	24	$	24
Collectively evaluated for impairment		24,720		8,488		2,329		2,256		104		213		38,110
Total ending allowance balance	$	24,720	$	8,488	$	2,329	$	2,256	$	104	$	237	$	38,134
Loans:
Individually evaluated for impairment	$	28,478	$	—	$	—	$	—	$	933	$	24	$	29,435
Collectively evaluated for impairment		2,753,614		723,624		168,760		373,095		51,886		29,664		4,100,643
Total ending loan balance	$	2,782,092	$	723,624	$	168,760	$	373,095	$	52,819	$	29,688	$	4,130,078


	Commercial		Commercial						One-to-four
At December 31, 2021	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	26	$	170	$	196
Collectively evaluated for impairment		22,216		7,708		2,105		2,156		114		234		34,533
Total ending allowance balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729
Loans:
Individually evaluated for impairment	$	38,518	$	—	$	—	$	—	$	946	$	302	$	39,766
Collectively evaluated for impairment		2,449,864		654,535		151,791		355,290		56,217		32,064		3,699,761
Total ending loan balance	$	2,488,382	$	654,535	$	151,791	$	355,290	$	57,163	$	32,366	$	3,739,527

The following tables present loans individually evaluated for impairment recognized (in thousands):


	Unpaid				Allowance
	Principal		Recorded		for Loan
At March 31, 2022	Balance		Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	570	$	440	$	—
Consumer		24		24		24
Total	$	594	$	464	$	24

Without an allowance recorded:
One-to-four family	$	641	$	493	$	—
Commercial real estate		28,477		28,478		—
Total	$	29,118	$	28,971	$	—


	Unpaid				Allowance
	Principal		Recorded		for Loan
At December 31, 2021	Balance		Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	577	$	447	$	26
Consumer		302		302		170
Total	$	879	$	749	$	196

Without an allowance recorded:
One-to-four family	$	646	$	499	$	—
Commercial real estate		38,518		38,518		—
Total	$	39,164	$	39,017	$	—


	Average		Interest
	Recorded		Income
Three months ended March 31, 2022	Investment		Recognized
With an allowance recorded:
One-to-four family	$	224	$	3
Consumer		163		—
Total	$	387	$	3

Without an allowance recorded:
One-to-four family	$	716	$	6
Commercial real estate		33,498		230
Total	$	34,214	$	236

	Average		Interest
	Recorded		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 and industrial		96		—
Total	$	10,955	$	174

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

For a loan to be considered impaired, management determines whether it is probable that the Company 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 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 (in thousands):


At March 31, 2022	Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Commercial real estate	$	—	$	—
Commercial & industrial		—		—
One-to-four family		—		—
Consumer		24		—
Total	$	24	$	—


At December 31, 2021		Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Commercial real estate	$	9,984	$	—
Commercial & industrial		—		—
One-to-four family		—		—
Consumer		37		265
Total	$	10,021	$	265

Interest income that would have been recorded for the three months ended March 31, 2022 and 2021 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 (in thousands):


					90
	30-59		60-89		Days and		Total past		Current
At March 31, 2022	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	2,782,092	$	2,782,092
Commercial & industrial		111		—		—		111		723,513		723,624
Construction		—		—		—		—		168,760		168,760
Multi-family		—		—		—		—		373,095		373,095
One-to-four family		—		—		—		—		52,819		52,819
Consumer		73		—		24		97		29,591		29,688
Total	$	184	$	—	$	24	$	208	$	4,129,870	$	4,130,078


					90
	30-59		60-89		Days and		Total past		Current
At December 31, 2021	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	—	$	9,984	$	9,984	$	2,478,398	$	2,488,382
Commercial & industrial		151		—		—		151		654,384		654,535
Construction		—		—		—		—		151,791		151,791
Multi-family		—		—		—		—		355,290		355,290
One-to-four family		—		—		—		—		57,163		57,163
Consumer		93		94		302		489		31,877		32,366
Total	$	244	$	94	$	10,286	$	10,624	$	3,728,903	$	3,739,527

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 both March 31, 2022 and December 31, 2021 were $1.3 million of loans modified as TDRs. There were no loans modified as a TDR during the three months ended March 31, 2022 and 2021. The Company has not committed to lend additional amounts as of March 31, 2022 to customers with outstanding loans that are classified as TDRs. During the three months ended March 31, 2022 and March 31, 2021, 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 pursuant to the Company’s internal underwriting policy.

The following tables present the recorded investment in TDRs by class of loans (in thousands):


At March 31, 2022	March 31, 2022		December 31, 2021
Commercial real estate	$	339	$	342
One-to-four family		933		946
Total	$	1,272	$	1,288

All TDRs at March 31, 2022 and December 31, 2021 were performing in accordance with their restructured terms.

Credit Quality Indicators

The Company 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 Company analyzes loans individually by classifying the loans as to credit risk at least annually. For one-to-four family loans and consumer loans, the Company 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 Company uses the following definitions for risk ratings:

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’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 Company 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 is as follows (in thousands):


			Special
At March 31, 2022	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	2,753,614	$	339	$	28,139	$	—	$	2,782,092
Commercial & industrial		719,399		4,225		—		—		723,624
Construction		168,760		—		—		—		168,760
Multi-family		373,095		—		—		—		373,095
Total	$	4,014,868	$	4,564	$	28,139	$	—	$	4,047,571


			Special
At December 31, 2021	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	2,449,864	$	342	$	38,176	$	—	$	2,488,382
Commercial & industrial		646,251		4,177		4,107		—		654,535
Construction		151,791		—		—		—		151,791
Multi-family		355,290		—		—		—		355,290
Total	$	3,603,196	$	4,519	$	42,283	$	—	$	3,649,998

COVID-19 Loan Modifications

As of March 31, 2022, the Company had six loans amounting to $47.1 million, or 1.14% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of March 31, 2022, principal payment deferrals were $47.1 million, or 1.14% of total loans, while none were full payment deferrals.

As of December 31, 2021, the Company had eight loans amounting to $48.9 million, or 1.31% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of December 31, 2021, principal payment deferrals were $39.1 million, or 1.05% of total loans, while full payment deferrals were $9.9 million, or 0.26% of total loans.