NOTE 5 — LOANS

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

​

Included in C&I loans at December 31, 2021 and 2020 were $561,000 and $3.8 million, respectively, of PPP loans. Also included in C&I loans at December 31, 2021 and 2020 were $4.1 million and $0 million, respectively, of loans held for sale, measured at the lower of cost or fair value.  

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):

​

​

Net charge-offs were $4.5 million and $353,000 during the years ended December 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 (in thousands):

​

​

​

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

​

​

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, loans past due over 90 days and still accruing by class of loans (in thousands):

​

​

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

The following table presents the aging of the recorded investment in past due loans by class of loans (in thousands):

​

​

​

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 TDRs.

Included in impaired loans at December 31, 2021 and 2020 were $1.3 million and $1.4 million, respectively, of loans modified as TDRs. The Company allocated specific reserves amounting to $26,000 and $53,000 for TDRs as of December 31, 2021 and 2020, respectively. There were no loans modified as a TDR during the years ended December 31, 2021 or 2020. The Company has not committed to lend additional amounts as of December 31, 2021 to customers with outstanding loans that are classified as TDRs. During the years ended December 31, 2021 and 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 pursuant to the Company’s internal underwriting policy.

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

​

All TDRs at December 31, 2021 and 2020 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):

​

​

​

COVID-19 Loan Modifications

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.

​

As of December 31, 2020, the Company had 63 loans amounting to $220.3 million, or 7.00% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of December 31, 2020, principal payment deferrals were $121.4 million, or 3.87% of total loans, while full payment deferrals were $98.9 million, or 3.19% of total loans.