Loans Receivable and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2022

Loans Receivable and Allowance for Loan Losses [Abstract]

Loans Receivable and Allowance for Loan Losses

Note 5 - Loans Receivable and Allowance for Loan Losses

The following table presents the recorded investment in loans receivable at December 31, 2022 and December 31, 2021 by segment and class:



	December 31, 2022		December 31, 2021
		(In Thousands)
Loans:
Residential one-to-four family	$	250,123	$	224,534
Commercial and multi-family		2,345,229		1,720,174
Construction		144,931		153,904
Commercial business⁽¹⁾		282,007		191,139
Home equity⁽²⁾		56,888		50,469
Consumer		3,240		3,717
Total Loans		3,082,418		2,343,937
Less:
Deferred loan fees, net		(4,714)		(1,876)
Allowance for loan losses		(32,373)		(37,119)
		(37,087)		(38,995)
Total Loans, net	$	3,045,331	$	2,304,942

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

The Company occasionally transfers a portion of its originated commercial loans to participating lending partners. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying consolidated Statements of Financial Condition. The Company and its lending partners share proportionally in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans, collects cash payments from the borrowers, remits payments (net of servicing fees), and disburses required escrow funds to relevant parties.

Note 5 - Loans Receivable and Allowance for Loan Losses (continued)

At December 31, 2022 and 2021, loans serviced by the Bank for the benefit of others totaled approximately $159.3 million and $196.3 million, respectively.

Acquired Loans

The difference between the undiscounted cash flows expected at acquisition and the investment in the acquired loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non- accretable difference,” are not recognized as a yield adjustment, as a loss accrual or as a valuation allowance. Under ASC Subtopic 310-30, these PCI loans may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics. The Company elected to account for the loans with evidence of credit deterioration individually rather than aggregate them into pools.

Increases in expected cash flows subsequent to the acquisition are recognized prospectively through an adjustment of the yield on the loans over the remaining life, while decreases in expected cash flows are recognized as impairments through a loss provision and an increase in the allowance for loan losses. Valuation allowances (recognized in the allowance for loan losses) on these impaired loans reflect only losses incurred after the acquisition (representing all cash flows that were expected at acquisition but currently are not expected to be received).

The following table presents the unpaid principal balance and the related recorded investment of all acquired loans included in the Company’s Consolidated Statements of Financial Condition.



	December 31,
	2022		2021
	(In Thousands)
Unpaid principal balance	$	114,053	$	140,969
Recorded investment		101,430		122,533

The accretable discount on loans acquired with deteriorated credit quality was not material.

Related-Party Loans

The Bank grants loans to its officers and directors and to their associates. The activity with respect to loans to directors, officers and associates of such persons, is as follows:



		Years Ended December 31,
		2022		2021
		(In Thousands)
Balance – beginning	$	31,696	$	29,159
Loans originated		-		14,875
Collections of principal		(5,431)		(12,338)
Balance - ending	$	26,265	$	31,696

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 restructured, 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.

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.

Note 5 - Loans Receivable and Allowance for Loan Losses (continued)

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.

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.

Note 5- Loans Receivable and Allowance for Loan Losses (continued)

The following tables set forth the activity in the Bank’s allowance for loan losses and recorded investment in loans receivable at December 31, 2022 and 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:
Beginning Balance, December 31, 2021	$	4,094	$	22,065	$	2,231	$	8,000	$	533	$	14	$	182	$	37,119

Charge-offs:		-		-		-		(2,095)		-		-		-		(2,095)
Recoveries:		23		-		-		191		12		198		-		424
Provision (credit):		(1,643)		(316)		(137)		(729)		(60)		(188)		(2)		(3,075)
Ending Balance, December 31, 2022	$	2,474	$	21,749	$	2,094	$	5,367	$	485	$	24	$	180	$	32,373

Ending Balance attributable to loans:
Individually evaluated for impairment	$	196	$	-	$	518	$	2,066	$	4	$	-	$		$	2,784
Collectively evaluated for impairment		2,278		21,749		1,576		3,301		481		24		180		29,589
Ending Balance, December 31, 2022	$	2,474	$	21,749	$	2,094	$	5,367	$	485	$	24	$	180	$	32,373

Loans Receivables:
Individually evaluated for impairment	$	5,147	$	15,397	$	3,180	$	3,821	$	727	$	-	$	-	$	28,272
Collectively evaluated for impairment		244,976		2,329,832		141,751		278,186		56,161		3,240		-		3,054,146
Total Gross Loans	$	250,123	$	2,345,229	$	144,931	$	282,007	$	56,888	$	3,240	$	-	$	3,082,418

__________

(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 credit losses:
Beginning Balance, December 31, 2020	$	3,293	$	21,772	$	1,977	$	6,306	$	286	$	-	$	5	$	33,639

Charge-offs:		(69)		-		-		(205)		-		(198)		-		(472)
Recoveries:		27		-		-		3		67		-		-		97
Provision (credit):		843		293		254		1,896		180		212		177		3,855
Ending Balance, December 31, 2021	$	4,094	$	22,065	$	2,231	$	8,000	$	533	$	14	$	182	$	37,119

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.

Note 5- 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 December 31, 2022 and 2021, respectively. Loans are generally 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 December 31, 2022, 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 but still accruing interest, or loans that were previously 90 days past due both of which are maintained on non-accrual status for a minimum of six months until the borrower has demonstrated their ability to satisfy the terms of the loan.


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

Residential one-to-four family	$	243	$	282
Commercial and multi-family		346		8,601
Construction		3,180		2,847
Commercial business⁽¹⁾		1,340		3,132
Home equity⁽²⁾		-		27
Total	$	5,109	$	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 years ended December 31, 2022 and 2021 would have been approximately $1.0 million and $1.3 million, respectively. Interest income recognized on loans returned to accrual was approximately $1.6 million and $1.2 million, respectively. The Bank is not committed to lend additional funds to the borrowers whose loans have been placed on a nonaccrual status. At December 31, 2022 and 2021, there were $0 and $3.1 million, respectively, of loans which were more than ninety days past due and still accruing interest.

Nonaccrual loans in the preceding table do not include loans acquired with deteriorated credit quality of $0 at December 31, 2022, and $668,000 at December 31, 2021, which were recorded at their fair value at acquisition.

The following table summarizes the recorded investment and unpaid principal balances of impaired loans for the years ended December 31, 2022 and December 31, 2021. (In Thousands):


		As of December 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:
Residential one-to-four family	$	3,313	$	3,472	$	-	$	2,950	$	3,300	$	-
Commercial and multi-family		15,397		16,355		-		20,915		22,100		-
Commercial business⁽¹⁾		691		4,648		-		2,114		6,905		-
Home equity⁽²⁾		500		500		-		779		780		-
Total Impaired Loans with no related allowance recorded:	$	19,901	$	24,975	$	-	$	26,758	$	33,085	$	-

Loans with an allowance recorded:
Residential one-to-four family	$	1,834	$	1,856	$	196	$	2,011	$	2,032	$	265
Commercial and Multi-family		-		-		-		10,830		14,494		1,690
Construction		3,180		3,180		518		2,847		2,847		210
Commercial business⁽¹⁾		3,130		8,276		2,066		6,632		17,514		5,650
Home equity⁽²⁾		227		227		4		304		304		13
Total Impaired Loans with an allowance recorded:	$	8,371	$	13,539	$	2,784	$	22,624	$	37,191	$	7,828

Total Impaired Loans:	$	28,272	$	38,514	$	2,784	$	49,382	$	70,276	$	7,828

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Note 5- Loans Receivable and Allowance for Loan Losses (continued)

The following table summarizes the average recorded investment and actual interest income recognized on impaired loans for the years ended December 31, 2022 and December 31, 2021 (In Thousands).


	Years Ended December 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	$	2,981	$	149	$	2,968	$	145
Commercial and multi-family		22,511		1,088		28,189		1,073
Construction		-		-		697		36
Commercial business⁽¹⁾		1,250		73		2,886		182
Home equity⁽²⁾		540		24		981		44
Total Impaired Loans with no allowance recorded:	$	27,282	$	1,334	$	35,721	$	1,480

Loans with an allowance recorded:
Residential one-to-four family	$	1,948	$	63	$	2,230	$	231
Commercial and Multi-family		2,841		266		11,111		380
Construction		3,041		41		2,105		9
Commercial business⁽¹⁾		4,924		105		7,949		164
Home equity⁽²⁾		272		5		352		2
Total Impaired Loans with an allowance recorded:	$	13,026	$	480	$	23,747	$	786

Total Impaired Loans:	$	40,308	$	1,814	$	59,468	$	2,266

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

A troubled debt restructuring (“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 December 31, 2022			At December 31, 2021
	(In thousands)
Recorded investment in TDRs:
Accrual status	$	10,636	$	12,402
Non-accrual status		399		3,570
Total recorded investment in TDRs	$	11,035	$	15,972

The following tables summarize information with regard to troubled debt restructurings which occurred during the years ended December 31, 2022 and 2021 (Dollars in Thousands).


Year Ended December 31, 2022
	Number of ‎Contracts		Pre-Modification Recorded Investments		Post-Modification Recorded Investments
Commercial and multi-family	1		115		115
Residential	1		169		180
Total	2	$	284	$	295


		Pre-Modification ‎ Outstanding		Post-Modification ‎ Outstanding
Year Ended December 31, 2021	Number of ‎Contracts	Recorded Investments		Recorded Investments
Residential one-to-four family	2		3,261		3,169
Commercial business⁽¹⁾	2		130		120
Home equity⁽²⁾	1		96		95
Total	5	$	3,487	$	3,384

There were no troubled debt restructurings for which there was a payment default within twelve months of restructuring in 2022 or in 2021.

Note 5 - Loans Receivable and Allowance for Loan Losses (continued)

The loans included above are considered TDRs as a result of the Company implementing the following concessions: adjusting the interest rate to a below market rate and/or accepting interest only for a period of time or a change in amortization period.

The following table sets forth the delinquency status of total loans receivable at December 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	$	253	$	314	$	-	$	567	$	249,556	$	250,123	$	-
Commercial and multi-family		2,163		428		-		2,591		2,342,638		2,345,229		-
Construction		-		-		3,180		3,180		141,751		144,931		-
Commercial business⁽¹⁾		190		1,115		1,086		2,391		279,616		282,007		-
Home equity⁽²⁾		699		-		-		699		56,189		56,888		-
Consumer		-		-		-		-		3,240		3,240		-
Total	$	3,305	$	1,857	$	4,266	$	9,428	$	3,072,990	$	3,082,418	$	-

__________

(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 5 - Loans Receivable and Allowance for Loan Losses (continued)

Criticized and Classified Assets

The Company’s 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. As of December 31, 2022, the Company had $17.8 million in assets classified as substandard, which were also classified as impaired. As of December 31, 2021, the Company had $39.2 million in assets classified as substandard, which were also classified as impaired. The loans classified as substandard represent primarily commercial loans 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.

Residential, home equity, and consumer loans are rated pass at origination with subsequent adjustments based on delinquency status.

The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within the Company’s internal risk rating system as of December 31, 2022 and 2021. (In Thousands):


	Pass		Special Mention		Substandard		Doubtful		Loss		Total
December 31, 2022
Residential one-to-four family	$	249,398	$	303	$	422	$	-	$	-	$	250,123
Commercial and multi-family		2,320,865		14,183		10,181		-		-		2,345,229
Construction		141,751		-		3,180		-		-		144,931
Commercial business⁽¹⁾		273,770		4,416		3,821		-		-		282,007
Home equity⁽²⁾		56,676		-		212		-		-		56,888
Consumer		3,240		-		-		-		-		3,240
Total Gross Loans	$	3,045,700	$	18,902	$	17,816	$	-	$	-	$	3,082,418

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.


	Pass		Special Mention		Substandard		Doubtful		Loss		Total
December 31, 2021
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.