Loans Receivable and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2022

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 March 31, 2022 and December 31, 2021 by segment and class:



	March 31, 2022		December 31, 2021
		(In Thousands)
Residential one-to-four family	$	233,251	$	224,534
Commercial and multi-family		1,804,815		1,720,174
Construction		141,082		153,904
Commercial business⁽¹⁾		198,216		191,139
Home equity⁽²⁾		52,279		50,469
Consumer		2,726		3,717
		2,432,369		2,343,937

Less:
Deferred loan fees, net		(2,459)		(1,876)
Allowance for loan losses		(33,980)		(37,119)

Total Loans, net	$	2,395,930	$	2,304,942
(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; and

Other external factors.

The methodology includes the segregation of the loan portfolio into two divisions: performing loans and loans determined to be impaired. Loans which are performing are evaluated homogeneously by loan class or loan type. The allowance for performing loans is evaluated based on historical loan loss experience with an adjustment for the qualitative factors listed above. Impaired loans can be loans which are more than 90 days delinquent, troubled debt restructurings, in the process of foreclosure, or a forced bankruptcy plan. These loans are individually evaluated for loan loss either by current appraisal, or net present value of expected cash flows. Management reviews the overall estimate for feasibility and bases the loan loss provision accordingly. During 2022 and 2021, additional stress tests were performed to model a potential collateral deficiency on those loans that are in sectors that have demonstrated a weakness in the current COVID environment. These stress tests supported an additional allowance by estimating probable losses for loans in sectors that are specifically challenged in the pandemic condition.

The Bank also maintains an unallocated allowance to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio. Management must make estimates using assumptions and information that is often subjective and subject to change.

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 general economic conditions.

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.

Other 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.

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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 months ended March 31, 2022, and the related portion of the allowances for loan losses that is allocated to each loan class, as of March 31, 2022 (in thousands):


	Residential			Commercial & Multi-family	Construction		Commercial Business ⁽¹⁾		Home Equity ⁽²⁾		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning Balance, January 1, 2022	$	4,094	$	22,065	$	2,231	$	8,000	$	533	$	14		182	$	37,119

Charge-offs:		-		-		-		(766)		-		-		-		(766)
Recoveries:		-		-		-		1		3		198		-		202
(Reversals) provisions:		(1,593)		(1,245)		(266)		901		(202)		(197)		27		(2,575)
Ending Balance, March 31, 2022		2,501		20,820		1,965		8,136		334		15		209		33,980

Ending Balance attributable to loans:
Individually evaluated for impairment		221		618		295		6,000		10		-		-		7,144
Collectively evaluated for impairment		2,280		20,202		1,670		2,136		324		15		209		26,836
Ending Balance, March 31, 2022		2,501		20,820		1,965		8,136		334		15		209		33,980

Loans Receivables:
Individually evaluated for impairment		4,836		24,901		2,954		7,517		747		-		-		40,955
Collectively evaluated for impairment		228,415		1,779,914		138,128		190,699		51,532		2,726		-		2,391,414
Total Gross Loans:	$	233,251	$	1,804,815	$	141,082	$	198,216	$	52,279	$	2,726	$	-	$	2,432,369
_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

The following table sets forth the activity in the Company’s allowance for loan losses for the three months ended March 31, 2021 (in thousands):


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

Charge-offs:		(57)		-		-		-		-		-		-		(57)
Recoveries:		27		-		-		-		3		-		-		30
(Reversals) provisions:		(426)		1,347		25		275		4		-		640		1,865
Ending Balance, March 31, 2021	$	2,837	$	23,119	$	2,002	$	6,581	$	293	$	-	$	645	$	35,477

Ending Balance attributable to loans:
Individually evaluated for impairment		302		381		-		4,601		23		-		-		5,307
Collectively evaluated for impairment		2,535		22,738		2,002		1,980		270		-		645		30,170
Ending Balance, March 31, 2021		2,837		23,119		2,002		6,581		293		-		645		35,477

Loans Receivables:
Individually evaluated for impairment		5,509		44,086		2,787		13,269		1,693		-		-		67,344
Collectively evaluated for impairment		228,866		1,656,027		164,437		164,071		51,667		851		-		2,265,919
Total Gross Loans:		234,375		1,700,113		167,224		177,340		53,360		851		-		2,333,263
_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

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

The following table sets forth the amount recorded in loans receivable at December 31, 2021. 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	$	265	$	1,690	$	210	$	5,650	$	13	$	-	$	-	$	7,828
Collectively evaluated for impairment		3,829		20,375		2,021		2,350		520		14		182		29,291
Ending Balance, December 31, 2021	$	4,094	$	22,065	$	2,231	$	8,000	$	533	$	14	$	182	$	37,119

Loans Receivables:
Individually evaluated for impairment	$	4,961	$	31,745	$	2,847	$	8,746	$	1,083	$	-	$	-	$	49,382
Collectively evaluated for impairment		219,573		1,688,429		151,057		182,393		49,386		3,717		-		2,294,555
Total Gross Loans:	$	224,534	$	1,720,174	$	153,904	$	191,139	$	50,469	$	3,717	$	-	$	2,343,937

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

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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 months ended March 31, 2022 and 2021 (in thousands):


		Three Months Ended March 31,
		2022		2022		2021		2021

	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Loans with no related allowance recorded:
Residential one-to-four family	$	2,935	$	37	$	3,453	$	34
Commercial and Multi-family		21,220		263		44,958		282
Construction		-		-		1,394		36
Commercial business⁽¹⁾		1,952		65		5,171		13
Home equity⁽²⁾		613		5		1,196		10
Consumer		-		-		-		-
Total Impaired Loans with no allowance recorded:	$	26,720	$	370	$	56,172	$	375

Loans with an allowance recorded:
Residential one-to-four family	$	1,964	$	-	$	2,943	$	32
Commercial and Multi-family		7,103		-		8,013		129
Construction		2,901		2		-		-
Commercial business⁽¹⁾		6,180		9		7,710		93
Home equity⁽²⁾		303		-		438		2
Consumer		-		-		-		-
Total Impaired Loans with an allowance recorded:	$	18,451	$	11	$	19,104	$	256

Total Impaired Loans:	$	45,171	$	381	$	75,276	$	631

__________

(1)Includes business lines of credit.

(2)Includes home equity lines of credit.

The following table summarizes the recorded investment by portfolio class at March 31, 2022 and December 31, 2021. (in thousands):



		As of March 31, 2022						As of December 31, 2021
		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	$	2,920	$	3,272	$	-	$	2,950	$	3,300	$	-
Commercial and multi-family		21,525		22,832		-		20,915		22,100		-
Construction		-		-		-		-		-		-
Commercial business⁽¹⁾		1,790		5,783		-		2,114		6,905		-
Home equity⁽²⁾		446		446		-		779		780		-
Total Impaired Loans with no related allowance recorded:	$	26,681	$	32,333	$	-	$	26,758	$	33,085	$	-

Loans with an allowance recorded:
Residential one-to-four family	$	1,916	$	1,937	$	221	$	2,011	$	2,032	$	265
Commercial and Multi-family		3,376		6,930		618		10,830		14,494		1,690
Construction		2,954		2,954		295		2,847		2,847		210
Commercial business⁽¹⁾		5,727		16,529		6,000		6,632		17,514		5,650
Home equity⁽²⁾		301		301		10		304		304		13
Total Impaired Loans with an allowance recorded:	$	14,274	$	28,651	$	7,144	$	22,624	$	37,191	$	7,828

Total Impaired Loans:	$	40,955	$	60,984	$	7,144	$	49,382	$	70,276	$	7,828

__________

(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. 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 March 31, 2022		At December 31, 2021
		(In thousands)
Recorded investment in TDRs:
Accrual status	$	14,659	$	12,402
Non-accrual status		390		3,570
Total recorded investment in TDRs	$	15,049	$	15,972

The Company originated one TDR loan totaling $115,388 and one TDR loan totaling $96,532 for the three-months ended March 31, 2022 and March 31, 2021, respectively.

For the three-months ended March 31, 2022 and March 31, 2021, TDRs, for which there was a payment default within twelve months of restructuring, totaled $0 and $127,449 for one loan, respectively.

The following table sets forth the delinquency status of total loans receivable as of March 31, 2022:



													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	$	327	$	-	$	86	$	413	$	232,838	$	233,251	$	-
Commercial and multi-family		1,983		-		757		2,740		1,802,075		1,804,815		-
Construction		-		-		2,954		2,954		138,128		141,082		-
Commercial business⁽¹⁾		3,623		4		2,932		6,559		191,657		198,216		-
Home equity⁽²⁾		188		-		-		188		52,091		52,279		-
Consumer		-		-		-		-		2,726		2,726		-
Total	$	6,121	$	4	$	6,729	$	12,854	$	2,419,515	$	2,432,369	$	-

_________

(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, 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	$	1,063	$	-	$	86	$	1,149	$	223,385	$	224,534	$	-
Commercial and multi-family		1,181		-		5,167		6,348		1,713,826		1,720,174		-
Construction		2,899		-		2,847		5,746		148,158		153,904		-
Commercial business⁽¹⁾		405		166		6,775		7,346		183,793		191,139		3,124
Home equity⁽²⁾		190		-		27		217		50,252		50,469		-
Consumer		-		-		-		-		3,717		3,717		-

Total	$	5,738	$	166	$	14,902	$	20,806	$	2,323,131	$	2,343,937	$	3,124

(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 March 31, 2022 and December 31, 2021, 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 March 31, 2022, and December 31, 2021, non-accrual loans differed from the amount of total loans past due greater than 90 days due to troubled debt restructuring of loans, loans 90 days past due and still accruing, or loans that were previously 90 days past due 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 $3.3 million at March 31, 2022 and $3.8 million at December 31, 2021 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 $665,000 at March 31, 2022 and $668,000 at December 31, 2021.



		As of March 31, 2022		As of December 31, 2021
		(In Thousands)		(In Thousands)
Non-Accruing Loans:

Residential one-to-four family	$	278	$	282
Commercial and multi-family		757		8,601
Construction		2,954		2,847
Commercial business⁽¹⁾		5,243		3,132
Home equity⁽²⁾		-		27

Total	$	9,232	$	14,889

_________

(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 three months ended March 31, 2022 and the twelve months ended December 31, 2021 would have been approximately $246,000 and $1.3 million, respectively. The Bank has not committed to lend additional funds to the borrowers whose loans have been placed on nonaccrual status. At March 31, 2022 and December 31, 2021 there were $0 and $3.1 million, respectively, of loans which were more than ninety days past due and still accruing interest.

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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 March 31, 2022 (in thousands). As of March 31, 2022, the Company had no loans with the classified rating of doubtful or loss.


	Pass		Special Mention		Substandard		Total

Residential one-to-four family	$	232,476	$	498	$	277	$	233,251
Commercial and multi-family		1,741,596		43,908		19,311		1,804,815
Construction		138,128		-		2,954		141,082
Commercial business⁽¹⁾		186,148		4,972		7,096		198,216
Home equity⁽²⁾		52,067		-		212		52,279
Consumer		2,726		-		-		2,726

Total Gross Loans	$	2,353,141	$	49,378	$	29,850	$	2,432,369

_________

(1) Includes business lines of credit.

(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, 2021 (in thousands). As of December 31, 2021, the Company had no loans with the classified rating of doubtful or loss.



	Pass		Special Mention		Substandard		Total

Residential one-to-four family	$	223,660	$	505	$	369	$	224,534
Commercial and multi-family		1,647,701		45,087		27,386		1,720,174
Construction		151,057		-		2,847		153,904
Commercial business⁽¹⁾		178,056		4,767		8,316		191,139
Home equity⁽²⁾		50,230		-		239		50,469
Consumer		3,717		-		-		3,717

Total Gross Loans	$	2,254,421	$	50,359	$	39,157	$	2,343,937

________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

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