Loans Receivable and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2021

Loans Receivable and Allowance for Loan Losses [Abstract]

Loans Receivable and Allowance for Loan Losses

Note 7 - Loans Receivable and Allowance for Loan Losses

The following tables present the recorded investment in loans receivable as of September 30, 2021 and December 31, 2020 by segment and class:



	September 30, 2021		December 31, 2020
		(In Thousands)
Residential one-to-four family	$	224,330	$	244,369
Commercial and multi-family		1,739,976		1,690,836
Construction		149,076		155,967
Commercial business⁽¹⁾		161,416		184,357
Home equity⁽²⁾		52,109		53,667
Consumer		2,730		822
		2,329,637		2,330,018

Less:
Deferred loan fees, net		(1,627)		(1,358)
Allowance for loan losses		(38,156)		(33,639)
Sub-total		(39,783)		(34,997)

Total Loans, net	$	2,289,854	$	2,295,021
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

‎

Note 7 – Loans Receivable and Allowance for Loan Losses (Continued)

Allowance for Loan Losses

The allowance for loan loss is evaluated regularly by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements. These elements include a general allocated reserve for performing loans, a specific reserve for impaired loans and an unallocated portion.

The Company consistently applies the following comprehensive methodology. During the quarterly review of the allowance for loan losses, the Company considers a variety of qualitative factors that include:

Lending Policies and Procedures

Personnel responsible for the particular portfolio - relative to experience and ability of staff

Trend for past due, criticized and classified loans

Relevant economic factors

Quality of the loan review system

Value of collateral for collateral dependent loans

The effect of any concentrations of credit and the changes in the level of such concentrations

Other external factors

The methodology includes the segregation of the loan portfolio into two divisions. Loans that are performing and loans that are impaired. Loans which are performing are evaluated by loan class or loan type. The allowance for performing loans is evaluated based on historical loan loss experience with an adjustment for qualitative factors referred to above. Impaired loans are loans which are more than 90 days delinquent, troubled debt restructured, or adversely classified. These loans are individually evaluated for loan loss either by current appraisal, or net present value. Management reviews the overall estimate for feasibility and establishes the loan loss provision accordingly. Loan categories for specific business types were stressed due to rising delinquencies within those market sectors (hospitality, restaurants, office space, and commercial condos) to determine the potential for collateral shortfalls.

The loan portfolio is segmented into the following loan segments, where the risk level for each class is analyzed when determining the allowance for loan losses:

Residential one-to-four family real estate loans involve certain risks such as interest rate risk and risk of non-repayment. Adjustable-rate residential real estate loans decrease the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying properties may be adversely affected by higher interest rates. Repayment risk may be affected by a number of factors including, but not necessarily limited to, job loss, divorce, illness and personal bankruptcy of the borrower.

Commercial and multi-family real estate lending entails additional risks as compared with residential family property lending. Such loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. The success of such projects is sensitive to changes in supply and demand conditions in the market for commercial real estate as well as economic conditions generally.

Construction lending is generally considered to involve a high risk due to the concentration of principal in a limited number of loans and borrowers and the effects of the general economic conditions on developers and builders. Moreover, a construction loan can involve additional risks because of the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost (including interest) of the project. The nature of these loans is such that they are generally difficult to evaluate and monitor. In addition, speculative construction loans to a builder are not necessarily pre-sold and thus pose a greater potential risk to the Bank than construction loans to individuals on their personal residence.

Commercial business lending, including lines of credit, is generally considered higher risk due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on the business. Commercial business loans are primarily secured by inventories and other business assets. In many cases, any repossessed collateral for a defaulted commercial business loans will not provide an adequate source of repayment of the outstanding loan balance.

Home equity lending entails certain risks such as interest rate risk and risk of non-repayment. The marketability of the underlying property may be adversely affected by higher interest rates, decreasing the collateral value securing the loan. Repayment risk can be affected by job loss, divorce, illness and personal bankruptcy of the borrower. Home equity line of credit lending entails securing an equity interest in the borrower’s home. In many cases, the Bank’s position in these loans is as a junior lien holder to another institution’s superior lien. This type of lending is often priced on an adjustable rate basis with the rate set at or above a predefined index. Adjustable-rate loans decrease the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default.

Consumer loans generally have more credit risk because of the type and nature of the collateral and, in certain cases, the absence of collateral. Consumer loans generally have shorter terms and higher interest rates than other lending. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, and personal bankruptcy. In many cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan.

An unallocated component is maintained to cover uncertainties that could affect management’s estimates of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

‎

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the activity in the Company’s allowance for loan losses for the three and nine months ended September 30, 2021, and the related portion of the allowances for loan losses that is allocated to each loan class, as of September 30, 2021 (in thousands):


	Residential			Commercial & Multi-family	Construction		Commercial Business ⁽¹⁾		Home Equity ⁽²⁾		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance, June 30, 2021	$	2,911	$	24,438	$	2,341	$	6,852	$	294	$	3	$	633	$	37,472

Charge-offs:		-		-		-		-		-		-		-		-
Recovery:		-		-		-		1		3		-		-		4
Provisions:		(75)		370		(307)		879		19		20		(226)		680
Ending Balance, September 30, 2021:		2,836		24,808		2,034		7,732		316		23		407		38,156

Ending Balance attributable to loans:
Individually evaluated for impairment		276		1,469		150		5,770		16		-		-		7,681
Collectively evaluated for impairment		2,560		23,339		1,884		1,962		300		23		407		30,475
Ending Balance, September 30, 2021		2,836		24,808		2,034		7,732		316		23		407		38,156

Loans Receivables:
Individually evaluated for impairment		5,104		39,356		2,787		10,343		1,273		-		-		58,863
Collectively evaluated for impairment		219,226		1,700,620		146,289		151,073		50,836		2,730		-		2,270,774
Total Gross Loans:	$	224,330	$	1,739,976	$	149,076	$	161,416	$	52,109	$	2,730	$	-	$	2,329,637
_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.


	Residential			Commercial & Multi-family	Construction		Commercial Business (1)			Home Equity (2)	Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance, January 1, 2021	$	3,293	$	21,772	$	1,977	$	6,306	$	286	$	-	$	5	$	33,639

Charge-offs:		(60)		-		-		(103)		-		(198)		-		(361)
Recovery:		27		-		-		2		-		9		-		38
Provisions:		(424)		3,036		57		1,527		30		212		402		4,840
Ending Balance, September 30, 2021	$	2,836	$	24,808	$	2,034	$	7,732	$	316	$	23	$	407	$	38,156
_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

‎

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the activity in the Company’s allowance for loan losses for the three and nine months ended September 30, 2020 (in thousands):



	Residential			Commercial & Multi-family	Construction		Commercial Business ⁽¹⁾		Home Equity ⁽²⁾			Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance, June 30, 2020	$	3,076	$	16,942	$	1,334	$	4,311	$	684	-	$	6	$	2,489	$	28,842

Recovery:		-		-		-		190		2			-		-		192
Provisions:		58		1,731		395		2,891		(63)			6		(2,292)		2,726
Ending Balance September 30, 2020	$	3,134	$	18,673	$	1,729	$	7,392	$	623		$	12	$	197	$	31,760

Ending Balance attributable to loans:
Individually evaluated for impairment	$	385	$	313	$	-	$	3,128	$	27		$	-	$	-	$	3,853
Collectively evaluated for impairment		2,749		18,360		1,729		4,264		596			12		197		27,907
Ending Balance September 30, 2020	$	3,134	$	18,673	$	1,729	$	7,392	$	623		$	12	$	197	$	31,760

Loans Receivables:
Individually evaluated for impairment	$	8,533	$	13,980	$	-	$	7,163	$	1,642		$	-	$	-	$	31,318
Collectively evaluated for impairment		233,263		1,663,688		134,769		304,041		59,331			770		-		2,395,862
Total Gross Loans:	$	241,796	$	1,677,668	$	134,769	$	311,204	$	60,973		$	770	$	-	$	2,427,180
_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.


	Residential			Commercial & Multi-family	Construction		Commercial Business (1)			Home Equity (2)	Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance, January 1, 2020	$	2,722	$	15,372	$	1,244	$	3,790	$	333	$	-	$	273	$	23,734

Charge-offs:		(4)		-		-		-		-		-		-		(4)
Recovery:		-		-		-		492		8		4		-		504
Provisions:		416		3,301		485		3,110		282		8		(76)		7,526
Ending Balance, September 30, 2020	$	3,134	$	18,673	$	1,729	$	7,392	$	623	$	12	$	197	$	31,760
_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

The following table sets forth the amount recorded in loans receivable at December 31, 2020. The table also details the amount of total loans receivable that are evaluated individually, and collectively, for impairment and the related portion of the allowance for loan losses that is allocated to each loan class (in thousands):


		Residential		Commercial & Multi-family		Construction		Commercial Business ⁽¹⁾		Home Equity ⁽²⁾		Consumer		Unallocated		Total
Allowance for credit losses:
Ending Balance attributable to loans:
Individually evaluated for impairment	$	416	$	378	$	-	$	3,640	$	27	$	-	$	-	$	4,461
Collectively evaluated for impairment		2,877		21,394		1,977		2,666		259		-		5		29,178
Ending Balance, December 31, 2020	$	3,293	$	21,772	$	1,977	$	6,306	$	286	$	-	$	5	$	33,639

Loans Receivables:																-
Individually evaluated for impairment	$	7,281	$	61,854	$	-	$	12,492	$	1,574	$	-	$	-	$	83,201
Collectively evaluated for impairment		237,088		1,628,982		155,967		171,865		52,093		822		-		2,246,817
Total Gross Loans:	$	244,369	$	1,690,836	$	155,967	$	184,357	$	53,667	$	822	$	-	$	2,330,018

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

‎

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes the average recorded investment and interest income recognized on impaired loans with no related allowance recorded by portfolio class for the three and nine months ended September 30, 2021 and 2020 (in thousands):


		Three Months Ended September 30,								Nine Months Ended September 30,
		2021		2021		2020		2020		2021		2021		2020		2020

	Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
Loans with no related allowance recorded:
Residential one-to-four family	$	3,050	$	37	$	4,664	$	16	$	2,973	$	108	$	4,652	$	120
Commercial and Multi-family		29,742		271		10,632		36		30,614		830		9,974		234
Construction		-		-		-		-		929		36		-		-
Commercial business⁽¹⁾		2,465		65		4,380		53		3,143		104		3,541		208
Home equity⁽²⁾		938		12		1,204		6		1,048		35		1,091		25
Consumer		-		-		-		-		-		-		-		-
Total Impaired Loans with no allowance recorded:	$	36,195	$	385	$	20,880	$	111	$	38,707	$	1,113	$	19,258	$	587

Loans with an allowance recorded:
Residential one-to-four family	$	2,110	$	66	$	3,720	$	3	$	2,302	$	165	$	3,714	$	50
Commercial and Multi-family		10,942		100		1,221		-		11,204		331		1,225		20
Construction		2,787		3		-		-		1,858		6		-		-
Commercial business⁽¹⁾		8,197		24		2,830		82		8,388		141		2,420		140
Home equity⁽²⁾		340		-		431		2		368		2		440		8
Consumer		-		-		-		-		-		-		-		-
Total Impaired Loans with an allowance recorded:	$	24,376	$	193	$	8,202	$	87	$	24,120	$	645	$	7,799	$	218

Total Impaired Loans:	$	60,571	$	578	$	29,082	$	198	$	62,827	$	1,758	$	27,057	$	805

__________

(1)Includes business lines of credit.

(2)Includes home equity lines of credit.

The following table summarizes the recorded investment by portfolio class at September 30, 2021 and December 31, 2020. (in thousands):



		As of September 30, 2021						As of December 31, 2020
		Recorded		Unpaid Principal		Related		Recorded		Unpaid Principal		Related
		Investment		Balance		Allowance		Investment		Balance		Allowance
Loans with no related allowance recorded:
Residential one-to-four family	$	2,998	$	3,343	$	-	$	4,084	$	4,660	$	-
Commercial and multi-family		28,438		29,892		-		57,558		58,739		-
Construction		-		-		-		-		-		-
Commercial business⁽¹⁾		1,869		6,473		-		5,844		17,687		-
Home equity⁽²⁾		934		936		-		1,124		1,126		-
Total Impaired Loans with no related allowance recorded:	$	34,239	$	40,644	$	-	$	68,610	$	82,212	$	-

Loans with an allowance recorded:
Residential one-to-four family	$	2,106	$	2,134	$	276	$	3,197	$	3,252	$	416
Commercial and Multi-family		10,918		14,551		1,469		4,296		4,501		378
Construction		2,787		2,787		150		-		-		-
Commercial business⁽¹⁾		8,474		21,284		5,770		6,648		12,511		3,640
Home equity⁽²⁾		339		339		16		450		458		27
Total Impaired Loans with an allowance recorded:	$	24,624	$	41,095	$	7,681	$	14,591	$	20,722	$	4,461

Total Impaired Loans:	$	58,863	$	81,739	$	7,681	$	83,201	$	102,934	$	4,461

__________

(1) Includes business lines of credit.
‎(2) Includes home equity lines of credit.

‎

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

A troubled debt restructured loan (“TDR”) is a loan that has been modified whereby the Company has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Company to maximize the ultimate recovery of a loan. A TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a concession that would otherwise not be granted to the borrower. Pursuant to the CARES Act, a loan that was current at December 31, 2019 and modified due to the COVID-19 pandemic is not considered a TDR. The types of concessions granted generally include, but are not limited to, interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal. All TDRs were considered impaired and therefore were individually evaluated for impairment in the calculation of the allowance for loan losses. Prior to their classification as TDRs, certain of these loans had been collectively evaluated for impairment in the calculation of the allowance for loan losses.


		At September 30, 2021		At December 31, 2020
		(In thousands)
Recorded investment in TDRs:
Accrual status	$	12,568	$	13,760
Non-accrual status		3,823		2,303
Total recorded investment in TDRs	$	16,391	$	16,063

The Company originated one TDR loan totaling $168,102 and five new TDR loans totaling $458,181 for the three months ended September 30, 2021 and September 30, 2020, respectively.

For the three months ended September 30, 2021 and September 30, 2020, TDRs, for which there was a payment default within twelve months of restructuring, totaled $232,072 for one loan and $602,274 for two loans respectively.

The following table sets forth the delinquency status of total loans receivable as of September 30, 2021:



													Loans Receivable
	30-59 Days		60-90 Days		Greater Than		Total Past				Total Loans		>90 Days
	Past Due		Past Due		90 Days		Due		Current		Receivable		and Accruing
		(In Thousands)

Residential one-to-four family	$	463	$	-	$	152	$	615	$	223,715	$	224,330	$	-
Commercial and multi-family		2,992		-		6,047		9,039		1,730,937		1,739,976		651
Construction		-		-		2,787		2,787		146,289		149,076		-
Commercial business⁽¹⁾		723		434		3,352		4,509		156,907		161,416		-
Home equity⁽²⁾		32		-		33		65		52,044		52,109		-
Consumer		-		-		-		-		2,730		2,730		-
Total	$	4,210	$	434	$	12,371	$	17,015	$	2,312,622	$	2,329,637	$	651

_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

The following table sets forth the delinquency status of total loans receivable at December 31, 2020:



													Loans Receivable
	30-59 Days		60-90 Days		Greater Than		Total Past				Total Loans		>90 Days
	Past Due		Past Due		90 Days		Due		Current		Receivable		and Accruing
		(In Thousands)
Originated loans:
Residential one-to-four family	$	507	$	266	$	664	$	1,437	$	242,932	$	244,369	$	125
Commercial and multi-family		15,910		2,996		1,334		20,240		1,670,596		1,690,836		-
Construction		-		-		-		-		155,967		155,967		-
Commercial business⁽¹⁾		3,889		904		3,354		8,147		176,210		184,357		133
Home equity⁽²⁾		541		12		502		1,055		52,612		53,667		75
Consumer		-		-		-		-		822		822		-

Total	$	20,847	$	4,178	$	5,854	$	30,879	$	2,299,139	$	2,330,018	$	333

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The table below sets forth the amounts and types of non-accrual loans in the Bank’s loan portfolio at September 30, 2021 and December 31, 2020, respectively. Loans are placed on non-accrual status when they become more than 90 days delinquent, or when the collection of principal and/or interest become doubtful. As of September 30, 2021, and December 31, 2020, non-accrual loans differed from the amount of total loans past due greater than 90 days due to loans which are maintained on non-accrual status for a minimum of six months until the borrower has demonstrated its ability to satisfy the terms of the loan. There were $9.5 million at September 30, 2021 and $11.9 million at December 31, 2020 in nonaccrual loans that were less than ninety days past due. Nonaccrual loans do not include loans acquired with deteriorated credit quality which were recorded at their fair value at acquisition and totaled $667,000 at September 30, 2021 and $1.1 million at December 31, 2020.



		As of September 30, 2021		As of December 31, 2020
		(In Thousands)		(In Thousands)
Non-Accruing Loans:

Residential one-to-four family	$	455	$	1,736
Commercial and multi-family		13,322		8,721
Construction		2,787		-
Commercial business⁽¹⁾		4,128		5,383
Home equity⁽²⁾		33		556

Total	$	20,725	$	16,396

_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Had non-accrual loans been performing in accordance with their original terms, the interest income recognized for the nine months ended September 30, 2021 and the twelve months ended December 31, 2020 would have been approximately $998,000 and $1.2 million, respectively. The Bank has not committed to lend additional funds to the borrowers whose loans have been placed on nonaccrual status. At September 30, 2021 and December 31, 2020, there were $651,000 and $333,000, respectively, of loans which were more than ninety days past due and still accruing interest.

‎

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

Criticized and Classified Assets

Company policies provide for a classification system for problem assets. Under this classification system, problem assets are classified as “substandard,” “doubtful,” or “loss.”

When the Company classifies problem assets, the Company may establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining our regulatory capital. Specific valuation allowances for loan losses generally do not qualify as regulatory capital. The loans classified as substandard are secured either by residential real estate, commercial real estate or heavy equipment. The loans that have been classified substandard were classified as such primarily due to payment status, because updated financial information has not been timely provided, or the collateral underlying the loan is in the process of being revalued.

The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies. The grades assigned and definitions are as follows, and loans graded excellent, above average, good and watch list (risk ratings 1-5) are treated as “pass” for grading purposes. The “criticized” risk rating (6) and the “classified” risk ratings (7-9) are detailed below:

6 – Special Mention- Loans currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible collateral deficiency.

7 – Substandard- Loans that are inadequately protected by current sound worth, paying capacity, and collateral support. Loans on “nonaccrual” status. The loan needs special and corrective attention.

8 – Doubtful- Weaknesses in credit quality and collateral support make full collection improbable, but pending reasonable factors remain sufficient to defer the loss status.

9 – Loss- Continuance as a bankable asset is not warranted. However, this does not preclude future attempts at partial recovery.

The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention and substandard within the Company’s internal risk rating system as of September 30, 2021 (in thousands). As of September 30, 2021, the Company had no loans with the classified rating of doubtful or loss.


	Pass		Special Mention		Substandard		Total

Residential one-to-four family	$	223,275	$	511	$	544	$	224,330
Commercial and multi-family		1,661,477		43,551		34,948		1,739,976
Construction		146,289		-		2,787		149,076
Commercial business⁽¹⁾		146,549		4,844		10,023		161,416
Home equity⁽²⁾		51,802		62		245		52,109
Consumer		2,730		-		-		2,730

Total Gross Loans	$	2,232,122	$	48,968	$	48,547	$	2,329,637

_________

(1) Includes business lines of credit and PPP loans.

(2) Includes home equity lines of credit.

The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention and substandard within the Company’s internal risk rating system as of December 31, 2020 (In thousands). As of December 31, 2020, the Company had no loans with the classified rating of doubtful or loss.



	Pass		Special Mention		Substandard		Total

Residential one-to-four family	$	241,237	$	1,087	$	2,045	$	244,369
Commercial and multi-family		1,631,838		2,152		56,846		1,690,836
Construction		155,967		-		-		155,967
Commercial business⁽¹⁾		173,833		1,497		9,027		184,357
Home equity⁽²⁾		53,005		-		662		53,667
Consumer		822		-		-		822

Total Gross Loans	$	2,256,702	$	4,736	$	68,580	$	2,330,018

________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

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