Loans Receivable and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2023

Loans Receivable and Allowance for Credit Losses [Abstract]

Loans Receivable and Allowance for Loan Losses

Note 7 - Loans Receivable and Allowance for Credit Losses

The following tables present the recorded investment in loans receivable as of March 31, 2023 and December 31, 2022 by segment and class:



	March 31, 2023		December 31, 2022
		(In Thousands)
Residential one-to-four family	$	246,683	$	250,123
Commercial and multi-family		2,466,932		2,345,229
Construction		162,553		144,931
Commercial business⁽¹⁾		327,598		282,007
Home equity⁽²⁾		58,822		56,888
Consumer		3,383		3,240
		3,265,971		3,082,418

Less:
Deferred loan fees, net		(5,225)		(4,714)
Allowance for credit losses⁽³⁾		(28,882)		(32,373)

Total Loans, net	$	3,231,864	$	3,045,331

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

(3) The company adopted ASU 2016-13 on January 1, 2023 with a modified retrospective approach. Accordingly, at March 31, 2023, the allowance for credit losses was determined in accordance with ASSC 326, “Financial Instruments-Credit Losses”.
‎

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

Allowance for Credit Losses

The Company engages a third-party vendor to assist in the CECL calculation and has established a robust internal governance framework to oversee the quarterly estimation process for the allowance for credit losses (“ACL”). The ACL calculation methodology relies on regression-based discounted cash flow (“DCF”) models that correlate relationships between certain financial metrics and external market and macroeconomic variables. Following are some of the key factors and assumptions that are used in the Company’s CECL calculations:

methods based on probability of default and loss given default which are modeled based on macroeconomic scenarios;

a reasonable and supportable forecast period determined based on management’s current review of macroeconomic environment;

a reversion period after the reasonable and supportable forecast period;

estimated prepayment rates based on the Company’s historical experience and future macroeconomic environment;

estimated credit utilization rates based on the Company’s historical experience and future macroeconomic environment; and

incorporation of qualitative factors not captured within the modeled results. The qualitative factors include but are not limited to changes in lending policies, business conditions, changes in the nature and size of the portfolio, portfolio concentrations, and external factors such as competition.

Allowance for Credit Losses are aggregated for the major loan segments, with similar risk characteristics, summarized below. However, for the purposes of calculating the reserves, these segments may be further broken down into loan classes by risk characteristics that include but are not limited to regulatory call codes, industry type, geographic location, and collateral type.

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.

‎

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

The following table sets forth the activity in the Company’s allowance for credit losses for the three ended March 31, 2023, and the related portion of the allowances for credit losses that is allocated to each loan class, as of March 31, 2023 (in thousands):


	Residential			Commercial & Multi-family	Construction		Commercial Business ⁽¹⁾		Home Equity ⁽²⁾		Consumer		Unallocated		Total
Allowance for credit losses:
Ending Balance December 31, 2022	$	2,474	$	21,749	$	2,094	$	5,367	$	485	$	24	$	180	$	32373
Effect of adopting ASU No. 2016-13 ("CECL")		144		(7,123)		1,387		1,418		182		7		(180)		(4,165)
Beginning Balance, January 1, 2023		2,618		14,626		3,481		6,785		667		31		-		28,208

Charge-offs:		-		-		-		(1)		-		-		-		(1)
Recoveries:		12		-		-		25		16		-		-		53
Provision (credit):		(269)		340		369		182		(3)		3		-		622
Ending Balance, March 31, 2023		2,361		14,966		3,850		6,991		680		34		-		28,882

Ending Balance attributable to loans:
Individually evaluated		-		2		605		1,981		-		-		-		2,588
Collectively evaluated		2,361		14,964		3,245		5,010		680		34		-		26,294
Ending Balance, March 31, 2023		2,361		14,966		3,850		6,991		680		34		-		28,882

Loans Receivables:
Individually evaluated		358		10,114		3,217		3,684		212		358		-		17,943
Collectively evaluated		246,325		2,456,818		159,336		323,914		58,610		3,025		-		3,248,028
Total Gross Loans:	$	246,683	$	2,466,932	$	162,553	$	327,598	$	58,822	$	3,383	$	-	$	3,265,971
_____________________________
(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 credit losses for the three months ended March 31, 2022, and the related portion of the allowance for credit losses that is allocated to each class as of March 31, 2022 (in thousands):


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

Charge-offs:		-		-		-		(766)		-			-		-		(766)
Recovery:		-		-		-		1		3			198		-		202
Provisions (credit):		(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	$	221	$	618	$	295	$	6,000	$	10		$	-	$	-	$	7,144
Collectively evaluated		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	$	4,836	$	24,901	$	2,954	$	7,517	$	747		$	-	$	-	$	40,955
Collectively evaluated		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.

‎

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

The following table sets forth the amount recorded in loans receivable at December 31, 2022. 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 credit 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	$	196	$	-	$	518	$	2,066	$	4	$	-	$	-	$	2,784
Collectively evaluated		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	$	5,147	$	15,397	$	3,180	$	3,821	$	727	$	-	$	-	$	28,272
Collectively evaluated		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.

The Following table presents the activity in the allowance for credit losses on off balance sheet exposures for the three months ended March 31, 2023 (in thousands):


		Three Months Ended March 31, 2023
		(In thousands)
Allowance for Credit Losses:
Balance at December 31, 2022	$	-
Impact of adopting ASU 2016-13 ("CECL") effective January 1, 2022		1,266
Provision for credit losses		(577)
Balance at March 31, 2023	$	689

‎

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

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. The Company did have any loans that were both experiencing financial difficulty and modified during the three months ended March 31, 2023.

The following table sets forth the delinquency status of total loans receivable as of March 31, 2023:



													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	$	2,189	$	-	$	-	$	2,189	$	244,494	$	246,683	$	-
Commercial and multi-family		2,835		-		-		2,835		2,464,097		2,466,932		-
Construction		928		-		3,217		4,145		158,408		162,553		-
Commercial business⁽¹⁾		369		-		804		1,173		326,425		327,598		-
Home equity⁽²⁾		249		-		499		748		58,074		58,822		499
Consumer		-		-		-		-		3,383		3,383		-
Total	$	6,570	$	-	$	4,520	$	11,090	$	3,254,881	$	3,265,971	$	499

_________

(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, 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.

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

The table below sets forth the amounts and types of non-accrual loans in the Bank’s loan portfolio at March 31, 2023 and December 31, 2022, 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, 2023, and December 31, 2022, non-accrual loans differed from the amount of total loans past due 90 days due to 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 $1.0 million at March 31, 2023 and $843,000 at December 31, 2022 in non-accrual loans that were less than ninety days past due.



		As of March 31, 2023		As of December 31, 2022
		(In Thousands)		(In Thousands)
Non-Accruing Loans:

Residential one-to-four family	$	237	$	243
Commercial and multi-family		340		346
Construction		3,217		3,180
Commercial business⁽¹⁾		1,264		1,340
Home equity⁽²⁾		-		-

Total	$	5,058	$	5,109

_________

(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, 2023 and the twelve months ended December 31, 2022 would have been approximately $431,000 and $1.0 million, respectively. The Bank has not committed to lend additional funds to the borrowers whose loans have been placed on non-accrual status. At March 31, 2023 there were $499,000 of loans which were more than ninety days past due and still accruing interest. There were no loans more than ninety days past due and still accruing at December 31, 2022.

‎

Note 7 - Loans Receivable and Allowance for Credit 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.”

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 “non-accrual” 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 summarizes the Company's loans by year of origination and internally assigned credit risk rating at March 31, 2023 and gross charge-offs for the three months ended March 31, 2023.


Loans by Year of Origination at March 31, 2023
		2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans to Term Loans		Total
Residential one-to-four family
Pass	$	2,602	$	54,989	$	40,097	$	32,801	$	12,427	$	103,409	$	-	$	-	$	246,325
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		178		-		-		180		-		-		358
Total one-to-four family	$	2,602	$	54,989	$	40,275	$	32,801	$	12,427	$	103,589	$	-	$	-	$	246,683

Commercial and multi-family
Pass	$	165,350	$	849,009	$	232,502	$	228,676	$	55,126	$	913,116	$	-	$	-	$	2,443,779
Special Mention		-		-		-		-		-		13,039		-		-		13,039
Substandard		-		597		-		-		-		9,517		-		-		10,114
Total Commercial and multi-family	$	165,350	$	849,606	$	232,502	$	228,676	$	55,126	$	935,672	$	-	$	-	$	2,466,932

Construction
Pass	$	4,244	$	65,049	$	58,553	$	19,388	$	-	$	5,880	$	6,222	$	-	$	159,336
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		3,217		-		-		3,217
Total Construction	$	4,244	$	65,049	$	58,553	$	19,388	$	-	$	9,097	$	6,222	$	-	$	162,553

Commercial business
Pass	$	1,266	$	320		3,040		5,394	$	7,813	$	41,161	$	259,567	$	-	$	318,561
Special Mention		-		-		-		-		410		1,562		3,382		-		5,354
Substandard		-		-		-		-		-		3,313		370		-		3,683
Total Commercial business	$	1,266	$	320	$	3,040	$	5,394	$	8,223	$	46,036	$	263,319	$	-	$	327,598

Home equity
Pass	$	1,034	$	1,757	$	602	$	815	$	1,364	$	7,511	$	45,021	$	506	$	58,610
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		212		212
Total Home equity	$	1,034	$	1,757	$	602	$	815	$	1,364	$	7,511	$	45,021	$	718	$	58,822

Consumer
Pass	$	627	$	533	$	2,031	$	129	$	57	$	-	$	6	$	-	$	3,383
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total Consumer	$	627	$	533	$	2,031	$	129	$	57	$	-	$	6	$	-	$	3,383

Total Loans	$	175,123	$	972,254	$	337,003	$	287,203	$	77,197	$	1,101,905	$	314,568	$	718	$	3,265,971

Gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	1	$	-	$	-	$	1

‎

The following table summarizes the Company's loans by year of origination and internally assigned credit risk rating at December 31, 2022.


Loans by Year of Origination at December 31, 2022
		2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans to Term Loans		Total
Residential one-to-four family
Pass	$	56,893	$	40,465	$	33,019	$	12,959	$	23,918	$	82,144	$	-	$	-	$	249,398
Special Mention		-		-		-		-		-		303		-		-		303
Substandard		-		179		-		-		-		243		-		-		422
Total one-to-four family	$	56,893	$	40,644	$	33,019	$	12,959	$	23,918	$	82,690	$	-	$	-	$	250,123

Commercial and multi-family
Pass	$	854,299	$	234,441	$	235,830	$	55,752	$	312,353	$	628,191	$	-	$	-	$	2,320,866
Special Mention		-		-		-		-		-		14,183		-		-		14,183
Substandard		599		-		-		-		8,000		1,581		-		-		10,180
Total Commercial and multi-family	$	854,898	$	234,441	$	235,830	$	55,752	$	320,353	$	643,955	$	-	$	-	$	2,345,229

Construction
Pass	$	51,783	$	58,827	$	17,518	$	-	$	1,794	$	4,031	$	7,798	$	-	$	141,751
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		3,180		-		-		-		3,180
Total Construction	$	51,783	$	58,827	$	17,518	$	-	$	4,974	$	4,031	$	7,798	$	-	$	144,931

Commercial business
Pass	$	70	$	5,331	$	5,470	$	8,070	$	22,940	$	19,487	$	212,402	$	-	$	273,770
Special Mention		-		-		-		431		-		1,600		2,385		-		4,416
Substandard		-		-		-		-		2,686		758		377		-		3,821
Total Commercial business	$	70	$	5,331	$	5,470	$	8,501	$	25,626	$	21,845	$	215,164	$	-	$	282,007

Home equity
Pass	$	1,541	$	643	$	830	$	1,390	$	1,465	$	6,437	$	43,857	$	513	$	56,676
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		212		212
Total Home equity	$	1,541	$	643	$	830	$	1,390	$	1,465	$	6,437	$	43,857	$	725	$	56,888

Consumer
Pass	$	994	$	2,034	$	139	$	67	$	-	$	-	$	6	$	-	$	3,240
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total Consumer	$	994	$	2,034	$	139	$	67	$	-	$	-	$	6	$	-	$	3,240

Total Loans	$	966,179	$	341,920	$	292,806	$	78,669	$	376,336	$	758,958	$	266,825	$	725	$	3,082,418