NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans, net of deferred costs and fees, consist of the following as of September 30, 2019 and December 31, 2018 (dollars in thousands):


	September 30, 2019		December 31, 2018
Real estate
Commercial	$	1,505,537		$	949,778
Construction		37,986			42,540
Multifamily		360,346			307,126
One-to-four family		69,087			79,423
Total real estate loans		1,972,956			1,378,867

Commercial and industrial		449,425			381,692
Consumer		78,988			106,790
Total loans		2,501,369			1,867,349
Deferred fees		(4,672)			(2,133)
Loans, net of deferred fees and unamortized costs		2,496,697			1,865,216
Allowance for loan losses		(24,444)			(18,942)
Balance at the end of the period	$	2,472,253		$	1,846,274

The following tables present the activity in the Allowance for Loan Losses (referred herein as “ALLL”) by segment for the three and nine months ended September 30, 2019 and 2018 (dollars in thousands):


	Commercial		Commercial				Multi		One-to-four
Three months ended September 30, 2019	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	13,006	$	6,142	$	501	$	2,249	$	253	$	564	$	22,715
Provision/(credit) for loan losses		1,223		422		6		104		(31)		280		2,004
Loans charged-off		—		(74)		—		—		—		(201)		(275)
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	14,229	$	6,490	$	507	$	2,353	$	222	$	643	$	24,444


	Commercial		Commercial				Multi		One-to-four
Three months ended September 30, 2018	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	8,139	$	6,053	$	666	$	1,557	$	380	$	668	$	17,463
Provision/(credit) for loan losses		412		(1,264)		5		143		(44)		295		(453)
Loans charged-off		—		—		—		—		—		(54)		(54)
Recoveries		—		1,537		—		—		—		—		1,537
Total ending allowance balance	$	8,551	$	6,326	$	671	$	1,700	$	336	$	909	$	18,493


	Commercial		Commercial				Multi		One-to-four
Nine months ended September 30, 2019	Real Estate		& Industrial		Construction		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		5,192		(3,677)		(118)		306		(6)		226		1,923
Loans charged-off		—		(360)		—		—		—		(331)		(691)
Recoveries		—		4,270		—		—		—		—		4,270
Total ending allowance balance	$	14,229	$	6,490	$	507	$	2,353	$	222	$	643	$	24,444


	Commercial		Commercial				Multi		One-to-four
Nine months ended September 30, 2018	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	7,136	$	5,578	$	519	$	1,156	$	138	$	360	$	14,887
Provision/(credit) for loan losses		1,415		(771)		152		544		198		756		2,294
Loans charged-off		—		(71)		—		—		—		(207)		(278)
Recoveries		—		1,590		—		—		—		—		1,590
Total ending allowance balance	$	8,551	$	6,326	$	671	$	1,700	$	336	$	909	$	18,493

Net charge-offs (recoveries) during the three months ended September 30, 2019 and 2018 were $275,000 and $(1.5) million, respectively.

Net recoveries were $3.6 million and $1.3 million during the nine months ended September 30, 2019 and 2018. Included in the net recoveries during the nine months ended September 30, 2019 were $4.2 million in recoveries related to previously charged-off taxi medallion loans.

The following tables present the balance in the ALLL and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2019 and December 31, 2018 (dollars in thousands):


	Commercial		Commercial				Multi		One-to-four
At September 30, 2019	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	200	$	—	$	—	$	60	$	158	$	418
Collectively evaluated for impairment		14,229		6,290		507		2,353		162		485		24,026
Total ending allowance balance	$	14,229	$	6,490	$	507	$	2,353	$	222	$	643	$	24,444
Loans:
Individually evaluated for impairment	$	371	$	1,047	$	—	$	—	$	3,405	$	557	$	5,380
Collectively evaluated for impairment		1,505,166		448,378		37,986		360,346		65,682		78,431		2,495,989
Total ending loan balance	$	1,505,537	$	449,425	$	37,986	$	360,346	$	69,087	$	78,988	$	2,501,369


	Commercial		Commercial				Multi		One-to-four
At December 31, 2018	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	44	$	44
Collectively evaluated for impairment		9,037		6,257		625		2,047		228		704		18,898
Total ending allowance balance	$	9,037	$	6,257	$	625	$	2,047	$	228	$	748	$	18,942
Loans:
Individually evaluated for impairment	$	383	$	—	$	—	$	—	$	1,078	$	89	$	1,550
Collectively evaluated for impairment		949,395		381,692		42,540		307,126		78,345		106,701		1,865,799
Total ending loan balance	$	949,778	$	381,692	$	42,540	$	307,126	$	79,423	$	106,790	$	1,867,349

The following tables present loans individually evaluated for impairment recognized as of September 30, 2019 and December 31, 2018 (dollars in thousands):


	Unpaid Principal				Allowance for Loan
At September 30, 2019	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	640	$	510	$	60
Consumer		557		557		158
Commercial & industrial		1,047		1,047		200
Total	$	2,244	$	2,114	$	418

Without an allowance recorded:
One-to-four family	$	3,042	$	2,895	$	—
Commercial real estate		371		371		—
Total	$	3,413	$	3,266	$	—


	Unpaid Principal				Allowance for Loan
At December 31, 2018	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	—	$	—	$	—
Consumer		105		89		44
Total	$	105	$	89	$	44

Without an allowance recorded:
One-to-four family	$	1,355	$	1,078	$	—
Commercial real estate		385		383		—
Total	$	1,740	$	1,461	$	—

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 as of and for the three and nine months ended September 30, 2019 and 2018 (in thousands):


	Average Recorded		Interest Income
Three months ended September 30, 2019	Investment		Recognized
With an allowance recorded:
One-to-four family	$	513	$	5
Consumer		316		3
Commercial & industrial		524		—
Total	$	1,353	$	8

Without an allowance recorded:
One-to-four family	$	2,907	$	66
Commercial real estate		373		4
Total	$	3,280	$	70


	Average Recorded		Interest Income
Three months ended September 30, 2018	Investment		Recognized
With an allowance recorded:
Consumer		228		3
Total	$	228	$	3

Without an allowance recorded:
One-to-four family	$	1,093	$	14
Commercial real estate		1,528		21
Total	$	2,621	$	35


	Average Recorded		Interest Income
Nine months ended September 30, 2019	Investment		Recognized
With an allowance recorded:
One-to-four family	$	388	$	15
Consumer		207		7
Commercial & industrial		262		—
Total	$	857	$	22

Without an allowance recorded:
One-to-four family	$	1,859	$	156
Commercial real estate		377		12
Total	$	2,236	$	168


	Average Recorded		Interest Income
Nine months ended September 30, 2018	Investment		Recognized
With an allowance recorded:
One-to-four family	$	139	$	—
Consumer		174		5
Total	$	313	$	5

Without an allowance recorded:
One-to-four family	$	1,576	$	43
Commercial real estate		1,743		83
Total	$	3,319	$	126

For a loan to be considered impaired, management determines after review 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 nonaccrual 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.

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 September 30, 2019 and December 31, 2018 (dollars in thousands):


At September 30, 2019	Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	1,047	$	716
Consumer		594		—
One-to-four family		2,357		—
Total	$	3,998	$	716


At December 31, 2018		Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	—	$	239
Consumer		50		—
Total	$	50	$	239

Non-accrual loans and loans past due 90 days that are still accruing include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

Interest income that would have been recorded for the three and nine months ended September 30, 2019 and 2018, had non-accrual loans been current according to their original terms, were immaterial.

The following tables present the aging of the recorded investment in past due loans by class of loans as of September 30, 2019 and December 31, 2018 (dollars in thousands):


					Greater
	30-59		60-89		than 90		Total past		Current
At September 30, 2019	Days		Days		days		due		loans		Total
Commercial real estate	$	2,598	$	—	$	—	$	2,598	$	1,502,939	$	1,505,537
Commercial & industrial		2,413		107		1,763		4,283		445,142		449,425
Construction		—		—		—		—		37,986		37,986
Multifamily		—		—		—		—		360,346		360,346
One-to-four family		—		—		2,357		2,357		66,730		69,087
Consumer		641		145		594		1,380		77,608		78,988
Total	$	5,652	$	252	$	4,714	$	10,618	$	2,490,751	$	2,501,369


					Greater
	30-59		60-89		than 90		Total past		Current
At December 31, 2018	Days		Days		days		due		loans		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	949,778	$	949,778
Commercial & industrial		1,670		95		239		2,004		379,688		381,692
Construction		—		—		—		—		42,540		42,540
Multifamily		—		—		—		—		307,126		307,126
One-to-four family		870		—		—		870		78,553		79,423
Consumer		119		43		50		212		106,578		106,790
Total	$	2,659	$	138	$	289	$	3,086	$	1,864,263	$	1,867,349

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 September 30, 2019 and December 31, 2018 were $1.5 million of loans modified as TDRs. The Bank has allocated $60,000 in specific reserves to those customers with loans modified as TDRs as of September 30, 2019, as compared to $19,000 allocated at December 31, 2018. There were no loans modified as a TDR during the three and nine months ended September 30, 2019. There was one consumer loan in the amount of $39,000 that was modified as a TDR during the year ended December 31, 2018. The Bank has not committed to lend additional amounts as of September 30, 2019 to customers with outstanding loans that are classified as TDRs. During the nine months ended September 30, 2019 and September 30, 2018, 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 September 30, 2019 and December 31, 2018 (dollars in thousands):


	September 30, 2019		December 31, 2018
Troubled debt restructurings:
Real Estate:
Commercial	$	371	$	383
One-to-four family		1,048		1,078
Consumer		39		39
Total troubled debt restructurings	$	1,458	$	1,500

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. The Bank generally analyzes all loans over $500,000, other than one-to-four family and consumer 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 and by performance status. 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 is as follows (dollars in thousands):


			Special
At September 30, 2019	Pass		Mention		Substandard			Total
Commercial real estate	$	1,505,166	$	371	$	—	$	1,505,537
Commercial & industrial		447,806		—		1,619		449,425
Construction		37,986		—		—		37,986
Multifamily		360,346		—		—		360,346
Total	$	2,351,304	$	371	$	1,619	$	2,353,294


			Special
At December 31, 2018	Pass		Mention		Substandard			Total
Commercial real estate	$	949,395	$	383	$	—	$	949,778
Commercial & industrial		380,196		1,496		—		381,692
Construction		42,540		—		—		42,540
Multifamily		307,126		—		—		307,126
Total	$	1,679,257	$	1,879	$	—	$	1,681,136