NOTE 5 — LOANS

Net loans consist of the following as of December 31, 2019 and 2018 (dollars in thousands):


	December 31, 2019		December 31, 2018
Real estate
Commercial	$	1,668,236	$	949,778
Construction		30,827		42,540
Multi-family		375,611		307,126
One-to-four family		82,670		79,423
Total real estate loans		2,157,344		1,378,867

Commercial and industrial		448,619		381,692
Consumer		71,956		106,790
Total loans		2,677,919		1,867,349
Deferred fees		(4,970)		(2,133)
Loans, net of deferred fees and unamortized costs		2,672,949		1,865,216
Allowance for loan losses		(26,272)		(18,942)
Balance at the end of the period	$	2,646,677	$	1,846,274

The following tables represent the changes in the allowance for loan losses for the years ended December 31, 2019 and 2018, by portfolio segment. The portfolio segments represent the categories that the Bank uses to determine its allowance for loan losses (dollars in thousands):


	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


	Commercial		Commercial						One-to-four
Year ended December 31, 2018	Real Estate		& Industrial		Construction		Multi-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		1,978		(717)		106		891		90		790		3,138
Loans charged-off		(77)		(304)		—		—		—		(402)		(783)
Recoveries		—		1,700		—		—		—		—		1,700
Total ending allowance balance	$	9,037	$	6,257	$	625	$	2,047	$	228	$	748	$	18,942

Total charge offs were $1.2 million and $783,000 during the years ended December 31, 2019 and 2018, respectively. The provision for loan losses for the year ended December 31, 2019 was $4.2 million, as compared to $3.1 million for year ended December 31, 2018. The required provision for loan losses for the year ended December 31, 2019 was reduced due to $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, 2019 and 2018 (dollars in thousands):


	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


	Commercial		Commercial						One-to-four
At December 31, 2018	Real Estate		& Industrial		Construction		Multi-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 information related to loans determined to be impaired by class of loans as of and for the years ended December 31, 2019 and 2018 (dollars in thousands):


	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
C&I		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


	Unpaid Principal				Allowance for Loan		Average Recorded		Interest Income
At December 31, 2018	Balance		Recorded Investment		Losses Allocated		Investment		Recognized
With an allowance recorded:
One-to-four family		—		—		—		111		—
Consumer		105		89		44		157		7
Total	$	105	$	89	$	44	$	268	$	7

Without an allowance recorded:
One-to-four family		1,355		1,078		—		1,477		59
Commercial real estate		385		383		—		1,471		87
Total	$	1,740	$	1,461	$	—	$	2,948	$	146

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 year ended December 31, 2019 had non-accrual loans been current according to their original terms amounted to $144,000. The Bank recognized $94,000 of interest income for these loans for the year ended December 31, 2019.

Interest income that would have been recorded for the year ended December 31, 2018, had non-accrual loans been current according to their original terms, amounted to $14,000. The Bank recognized $12,000 of interest income for these loans for the year ended December 31, 2018.

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 nonaccrual 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.

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, 2019 and 2018 (dollars in thousands):


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


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

All TDRs at December 31, 2019 and 2018 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, 2019 and 2018 (dollars in thousands):


					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


					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
Multi-family		—		—		—		—		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 are classified as impaired. Included in impaired loans at December 31, 2019 and 2018 were loans modified as TDRs with a recorded investment of $1.4 million and $1.5 million, respectively. The Company had allocated $81,000 and $19,000 of specific reserves to customers whose loan terms have been modified as TDRs as of December 31, 2019 and 2018, respectively. The Company has not committed to lend additional amounts as of December 31, 2019 and 2018 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, 2019 and 2018 (dollars in thousands):


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


At December 31, 2018	Troubled Debt Restructuring
Commercial real estate	$	383
One-to-four family		1,078
Consumer		39
Total	$	1,500

There were no loans modified as a TDR during the year ended December 31, 2019. 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 2019 and 2018 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 (dollars in thousands):


			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


			Special
At December 31, 2018	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	949,395	$	383	$	—	$	—	$	949,778
Commercial & industrial		381,692		—		—		—		381,692
Construction		41,044		1,496		—		—		42,540
Multi-family		307,126		—		—		—		307,126
Total	$	1,679,257	$	1,879	$	—	$	—	$	1,681,136