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NET LOANS RECEIVABLE

3 Months Ended

Sep. 30, 2023

5.NET LOANS RECEIVABLE

A summary of net loans receivable is as follows (dollars in thousands):


	September 30, 2023		June 30, 2023
Commercial:
Real estate	$	409,436	$	411,165
Commercial and industrial		98,388		97,307
Construction		98,361		92,714
Total commercial		606,185		601,186
Residential mortgages		514,023		463,196
Home equity loans and lines		89,465		85,477
Consumer		14,900		16,779
		1,224,573		1,166,638
Allowance for credit losses		(21,069)		(22,469)
Net loans receivable	$	1,203,504	$	1,144,169

Accrued interest receivable totaled $5.0 million at September 30, 2023 and is excluded from the estimate of credit losses.

The Company’s July 1, 2023 adoption of CECL resulted in a significant change to our methodology for estimating the allowance for credit losses. The allowance for credit losses on loans is established through a provision for credit losses based on the results of life of loan quantitative models, reserves associated with collateral-dependent loans evaluated individually and adjustments for the impact of current economic conditions not accounted for in the quantitative models. The discounted cash flow methodology is used to calculate the CECL reserve for the commercial, residential mortgages, and home equity loans and lines of credit segments. The Company uses a four-quarter reasonable and supportable forecast period based on economic forecast from the Federal Open Market Committee (“FOMC”) of the Federal Reserve's projections of civilian unemployment and year-over-year U.S. GDP growth. The forecast will revert to long-term economic conditions over a four quarter reversion period on a straight-line basis. The remaining life method is used to determine the CECL reserve for the consumer loan segment. A qualitative factor framework has been developed to adjust the quantitative loss rates for asset-specific risk characteristics or current conditions at the reporting date.

The following tables present the activity in the allowance for credit losses by portfolio segment (dollars in thousands):


	For the Three Months Ended September 30, 2023
			Cumulative Effect
	Beginning		Adjustment for the								Ending
	Balance		Adoption of ASC 326		Provisions		Charge-offs		Recoveries		Balance
Commercial	$	14,288	$	(1,307)	$	173	$	—	$	27	$	13,181
Residential mortgages		6,222		(670)		639		—		—		6,191
Home equity loans and lines of credit		1,470		(265)		89		(12)		—		1,282
Consumer		489		(69)		15		(23)		3		415
Allowance for credit losses - loans		22,469		(2,311)		916		(35)		30		21,069
Allowance for credit losses - off-balance sheet credit exposures		—		1,624		(166)		—		—		1,458
Total allowance for credit losses	$	22,469	$	(687)	$	750	$	(35)	$	30	$	22,527


	For the Three Months Ended September 30, 2022
			Residential
	Commercial		Mortgages		Home Equity		Consumer		Total
Allowance for loan losses at beginning of period	$	17,818	$	2,899	$	1,388	$	419	$	22,524
Provisions charged to operations		(772)		851		(30)		71		120
Loans charged off		(34)		(24)		—		(71)		(129)
Recoveries on loans charged off		43		10		—		1		54
Allowance for loan losses at end of period	$	17,055	$	3,736	$	1,358	$	420	$	22,569

The Company established a reserve for off-balance sheet credit exposures in conjunction with its adoption of ASC 326-Financial Instruments-Credit Losses. The allowance for credit losses on off-balance sheet credit exposures is recognized as a liability (classified as a component of other liabilities in the consolidated statements of condition), with adjustments to the reserve recognized in the provision for credit losses on the consolidated statements of operations.

The following tables present the balance in the allowance for credit losses and allowance for loan losses and the recorded investment in loans by portfolio segment (dollars in thousands):


	September 30, 2023
			Residential
	Commercial		Mortgages		Home Equity		Consumer		Total
Allowance for credit losses:
Related to loans individually evaluated	$	785	$	—	$	—	$	—	$	785
Related to loans collectively evaluated		12,396		6,191		1,282		415		20,284
Ending balance	$	13,181	$	6,191	$	1,282	$	415	$	21,069

Loans:
Individually evaluated	$	11,344	$	—	$	—	$	—	$	11,344
Loans collectively evaluated		594,841		514,023		89,465		14,900		1,213,229
Ending balance	$	606,185	$	514,023	$	89,465	$	14,900	$	1,224,573


	June 30, 2023
			Residential
	Commercial		Mortgages			Home Equity	Consumer		Total
Allowance for loan losses:
Related to loans individually evaluated for impairment	$	792	$	—	$	—	$	—	$	792
Related to loans collectively evaluated for impairment		13,496		6,222		1,470		489		21,677
Ending balance	$	14,288	$	6,222	$	1,470	$	489	$	22,469

Loans:
Individually evaluated for impairment	$	11,544	$	—	$	—	$	—	$	11,544
Loans collectively evaluated for impairment		589,642		463,196		85,477		16,779		1,155,094
Ending balance	$	601,186	$	463,196	$	85,477	$	16,779	$	1,166,638

The following table presents information related to impaired loans by class (dollars in thousands):


							For the Year Ended
	June 30, 2023						June 30, 2023
	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income
	Balance		Investment		Allocated		Investment		Recognized
With no related allowance recorded:
Commercial:
Real estate	$	10,241	$	10,213	$	—	$	10,538	$	133
Commercial and industrial		—		—		—		—		—
Construction		—		—		—		—		—
Subtotal		10,241		10,213		—		10,538		133
With an allowance recorded:
Commercial:
Real estate		681		681		142		699		35
Commercial and industrial		650		650		650		575		—
Construction		—		—		—		—		—
Subtotal		1,331		1,331		792		1,274		35
Total	$	11,572	$	11,544	$	792	$	11,812	$	168

Interest income on nonaccrual loans is recognized using the cost recovery method. Interest income on impaired loans that were on nonaccrual status and cash-basis interest income for the year ended June 30, 2023 was nominal.

At various times, certain loan modifications are executed for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan. Substantially all of these modifications include one or a combination of the following: extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; temporary reduction in the interest rate; change in scheduled payment amount including interest only; or extensions of additional credit for payment of delinquent real estate taxes or other costs.

As previously noted in Note 2 – Summary of Significant Accounting Policies, effective July 1, 2023, the Company adopted ASU 2022-02, Financial Instruments-Credit Losses (Topic 326)-Troubled Debt Restructurings. The Company may occasionally make modifications to loans where the borrower is considered to be experiencing financial difficulty. Types of modifications considered under ASU 2022-02 include principal reductions, interest rate reductions, term extensions, or a combination. There were no modifications to loans where the borrower is considered to be experiencing financial difficulty for the three months ended September 30, 2023.

There were no loans modified as troubled debt restructurings during the three months ended September 30, 2022. There were no loans that had been modified as a troubled debt restructuring during the twelve months prior to September 30, 2022 which subsequently defaulted during the three months ended September 30, 2022.

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans (dollars in thousands):


	September 30, 2023
			Nonaccrual		Past Due
			Loans With		90 Days
			No Related		Still on		Recognized
	Nonaccrual		Allowance		Accrual		Interest Income
Commercial:
Real estate	$	7,830	$	7,830	$	4	$	—
Commercial and industrial		649		—		—		—
Construction		—		—		—		—
Residential mortgages		4,426		—		—		—
Home equity loans and lines		1,501		—		—		—
Consumer		—		—		11		—
	$	14,406	$	7,830	$	15	$	—


	June 30,
	2023
			Past Due
			90 Days
			Still on
	Nonaccrual		Accrual
Commercial:
Real estate	$	8,025	$	174
Commercial and industrial		650		—
Construction		—		3,237
Residential mortgages		4,000		120
Home equity loans and lines		1,560		—
Consumer		—		—
	$	14,235	$	3,531

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually evaluated loans.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans (dollars in thousands):


	September 30, 2023
	Amortized Cost		Collateral Type
Commercial:
Real estate	$	10,695	Commercial Real Estate Property
Commercial and industrial		649	Business Assets
Construction		—
Residential mortgages		—
Home equity loans and lines		—
Consumer		—
	$	11,344

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


	September 30, 2023
	30 - 59		60 - 89		90 or more
	Days		Days		Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial:
Real estate	$	1,048	$	—	$	4,306	$	5,354	$	404,082	$	409,436
Commercial and industrial		19		—		649		668		97,720		98,388
Construction		—		—		—		—		98,361		98,361
Residential mortgages		729		699		487		1,915		512,108		514,023
Home equity loans and lines		1,046		301		528		1,875		87,590		89,465
Consumer		30		1		11		42		14,858		14,900
Total	$	2,872	$	1,001	$	5,981	$	9,854	$	1,214,719	$	1,224,573


	June 30, 2023
	30 - 59		60 - 89		90 or more
	Days		Days		Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial:
Real estate	$	4,798	$	—	$	4,458	$	9,256	$	401,909	$	411,165
Commercial and industrial		678		100		352		1,130		96,177		97,307
Construction		—		—		3,237		3,237		89,477		92,714
Residential mortgages		1,257		1,327		762		3,346		459,850		463,196
Home equity loans and lines		1,340		64		540		1,944		83,533		85,477
Consumer		18		22		—		40		16,739		16,779
Total	$	8,091	$	1,513	$	9,349	$	18,953	$	1,147,685	$	1,166,638

The Company categorizes commercial 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 Company analyzes commercial loans individually by classifying the loans as to credit risk. The Company 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.

Commercial loans not meeting the criteria above are considered to be pass rated loans.

The Company grades residential mortgages, home equity loans and lines of credit and consumer loans as either non-performing or performing.

Non-performing – Loans that are over 90 days past due and still accruing interest or on nonaccrual.

Performing – Loans not meeting any of the above criteria are considered to be performing loans.

The following table presents loans summarized by segment and class, and the risk category (dollars in thousands):


													Revolving		Revolving
													Loans		Loans
		Term Loans Amortized Cost Basis by Origination Year											Amortized		Converted
September 30, 2023	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
Commercial real estate
Risk Rating
Pass	$	468	$	44,802	$	49,698	$	24,593	$	53,478	$	181,310	$	2,583	$	—	$	356,932
Special mention		—		—		—		—		16,741		3,125		—		—		19,866
Substandard		—		—		—		—		2,949		29,000		571		—		32,520
Doubtful		—		—		—		—		—		118		—		—		118
Total commercial real estate	$	468	$	44,802	$	49,698	$	24,593	$	73,168	$	213,553	$	3,154	$	—	$	409,436

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and industrial
Risk Rating
Pass	$	4,169	$	8,372	$	6,210	$	3,689	$	5,296	$	9,811	$	52,726	$	—	$	90,273
Special mention		—		—		—		—		—		—		702		—		702
Substandard		—		—		1,290		178		1,882		3,242		172		—		6,764
Doubtful		—		—		—		—		—		352		297		—		649
Total commercial and industrial	$	4,169	$	8,372	$	7,500	$	3,867	$	7,178	$	13,405	$	53,897	$	—	$	98,388

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial construction
Risk Rating
Pass	$	3,135	$	15,743	$	48,858	$	22,620	$	—	$	7,172	$	200	$	—	$	97,728
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		633		—		—		633
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction	$	3,135	$	15,743	$	48,858	$	22,620	$	—	$	7,805	$	200	$	—	$	98,361

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential mortgages
Performing	$	33,041	$	214,643	$	44,711	$	59,631	$	38,261	$	119,198	$	112	$	—	$	509,597
Non-performing		—		724		563		—		609		2,530		—		—		4,426
Total residential mortgages	$	33,041	$	215,367	$	45,274	$	59,631	$	38,870	$	121,728	$	112	$	—	$	514,023

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity loans and lines of credit
Performing	$	2,590	$	7,343	$	10,268	$	3,906	$	1,465	$	15,726	$	46,666	$	—	$	87,964
Non-performing		—		—		—		—		17		481		1,003		—		1,501
Total home equity loans and lines of credit	$	2,590	$	7,343	$	10,268	$	3,906	$	1,482	$	16,207	$	47,669	$	—	$	89,465

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	12	$	—	$	12

Consumer
Performing	$	738	$	1,787	$	164	$	132	$	65	$	3,270	$	8,733	$	—	$	14,889
Non-performing		—		—		4		—		5		—		2		—		11
Total consumer	$	738	$	1,787	$	168	$	132	$	70	$	3,270	$	8,735	$	—	$	14,900

Current period gross charge-offs	$	23	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	23

The following table presents commercial loans summarized by class of loans and the risk category (dollars in thousands):


	June 30, 2023
			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial
Real estate	$	352,874	$	1,977	$	56,196	$	118	$	411,165
Commercial and industrial		89,245		1,614		6,448		—		97,307
Construction		91,805		—		909		—		92,714
	$	533,924	$	3,591	$	63,553	$	118	$	601,186

The Company considered the performance of the loan portfolio and its impact on the allowance for loan losses. For residential mortgages, home equity loans and lines of credit and consumer loan classes, the Company also evaluated credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

As of September 30, 2023 and June 30, 2023, the Company had pledged $522.5 million and $476.6 million respectively, of residential mortgage, home equity and commercial loans as collateral for FHLBNY borrowings and stand-by letters of credit.