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Loans Receivable Held for Investment

9 Months Ended

Sep. 30, 2024

Loans Receivable Held for Investment [Abstract]

NOTE 4 – Loans Receivable Held for Investment

Loans receivable held for investment were as follows as of the dates indicated:

	September 30, 2024			December 31, 2023
	(In thousands)
Real estate:
Single-family	$	23,845		$	24,702
Multi-family		625,662			561,447
Commercial real estate		163,258			119,436
Church		9,543			12,717
Construction		79,396			89,887
Commercial – other		71,236			63,450
SBA loans⁽¹⁾		895			14,954
Consumer		20			13
Gross loans receivable before deferred loan costs and premiums		973,855			886,606
Unamortized net deferred loan costs and premiums		1,896			1,971
Gross loans receivable		975,751			888,577
Credit and interest marks on purchased loans, net		(436	)		(772	)
Allowance for credit losses		(8,527	)		(7,348	)
Loans receivable, net	$	966,788		$	880,457

(1)	Including Paycheck Protection Program (“PPP”) loans.

As of September 30, 2024 and December 31, 2023, the SBA loan category above included $0 and $2.5 million, respectively, of loans issued under the SBA’s PPP. PPP loans have terms of two to five years and earn interest at 1%. PPP loans are fully guaranteed by the SBA and have virtually no risk of loss. The Bank expects the vast majority of the PPP loans to be fully forgiven by the SBA.

Accrued interest on loans receivable was $4.5 million and $3.3 million at September 30, 2024 and December 31, 2023, respectively.

The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to recognize estimates for lifetime losses on loans and off-balance sheet loan commitments at the time of origination or acquisition. The recognition of losses at origination or acquisition represents the Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan, and involves the use of significant management judgement and estimates, which are subject to change based on management’s on-going assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The Company uses the weighted average remaining maturity (“WARM”) method when determining estimates for the allowance for credit losses (“ACL”) for each of its portfolio segments. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter.

The Company’s ACL model also includes adjustments for qualitative factors, where appropriate. Qualitative adjustments may include, but are not limited to, factors such as: (i) changes in lending policies and procedures, including changes in underwriting standards and collections, charge offs, and recovery practices; (ii) changes in international, national, regional, and local conditions; (iii) changes in the nature and volume of the portfolio and terms of loans; (iv) changes in the experience, depth, and ability of lending management; (v) changes in the volume and severity of past due loans and other similar conditions; (vi) changes in the quality of the organization’s loan review system; (vii) changes in the value of underlying collateral for collateral dependent loans; (viii) the existence and effect of any concentrations of credit and changes in the levels of such concentrations; and (ix) the effect of other external factors (i.e., competition, legal and regulatory requirements) on the level of estimated credit losses. These qualitative factors incorporate the concept of reasonable and supportable forecasts, as required by ASC 326.

For the three months ended September 30, 2024, the Company recorded a provision for credit losses of $399 thousand, compared to a recovery of provision for credit losses of $2 thousand for the three months ended September 30, 2023. For the nine months ended September 30, 2024, the Company recorded a provision for credit losses of $1.2 million, compared to $808 thousand for the nine months ended September 30, 2023. The provisions for credit losses during the third quarter and nine months ended September 30, 2024 include recoveries of provisions for credit losses for off-balance sheet loan commitments of $24 thousand and $26 thousand, respectively. The increases in the provisions for credit losses during the three and nine months ended September 30, 2024 were primarily due to growth in the loan portfolio.

The allowance for credit losses (“ACL”) increased to $8.5 million as of September 30, 2024, compared to $7.3 million as of December 31, 2023 due to growth in the loan portfolio.

The following tables summarize the activity in the allowance for credit losses on loans for the periods indicated:

	Three Months Ended September 30, 2024
	Beginning Balance			Charge-offs			Recoveries			Provision (Recapture) ⁽¹⁾				Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single-family		$	301		$	–		$	–		$	(87	)		$	214
Multi-family			4,690			–			–			46				4,736
Commercial real estate			1,171			–			–			122				1,293
Church			84			–			–			(24	)			60
Construction			1,110			–			–			271				1,381
Commercial - other			618			–			–			141				759
SBA loans			130			–			–			(46	)			84
Consumer			–			–			–			–				–
Total		$	8,104		$	–		$	–		$	423			$	8,527

	Nine Months Ended September 30, 2024
	Beginning Balance			Charge-offs			Recoveries			Provision (Recapture) ⁽¹⁾				Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single family		$	260		$	–		$	–		$	(46	)		$	214
Multi-family			4,413			–			–			323				4,736
Commercial real estate			1,094			–			–			199				1,293
Church			72			–			–			(12	)			60
Construction			932			–			–			449				1,381
Commercial - other			529			–			–			230				759
SBA loans			48			–			–			36				84
Consumer			–			–			–			–				–
Total		$	7,348		$	–		$	–		$	1,179			$	8,527

(1)	The Bank also recorded a recovery of provision for off-balance sheet loan commitments of $24 thousand and $26 thousand for the three and nine months ended September 30, 2024, respectively.

	Three Months Ended September 30, 2023
	Beginning Balance			Charge-offs			Recoveries			Provision (Recapture) ⁽¹⁾				Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single-family		$	247		$	–		$	–		$	(6	)		$	241
Multi-family			4,255			–			–			(8	)			4,247
Commercial real estate			1,012			–			–			9				1,021
Church			83			–			–			(4	)			79
Construction			788			–			–			59				847
Commercial - other			546			–			–			(121	)			425
SBA loans			39			–			–			–				39
Consumer			–			–			–			–				–
Total		$	6,970		$	–		$	–		$	(71	)		$	6,899

	Nine Months Ended September 30, 2023
	Beginning Balance		Impact of CECL Adoption			Charge-offs		Recoveries		Provision (Recapture) ⁽¹⁾			Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single family	$	109	$	214		$	–	$	–	$	(82	)	$	241
Multi-family		3,273		603			–		–		371			4,247
Commercial real estate		449		466			–		–		106			1,021
Church		65		37			–		–		(23	)		79
Construction		313		219			–		–		315			847
Commercial - other		175		254			–		–		(4	)		425
SBA loans		–		20			–		–		19			39
Consumer		4		(4	)		–		–		–			–
Total	$	4,388	$	1,809		$	–	$	–	$	702		$	6,899

(1)	The Bank also recorded a provision for off-balance sheet loan commitments of $69 thousand and $106 thousand for the three and nine months ended September 30, 2023, respectively.

The Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the loan portfolio. These loans are typically identified from those that have exhibited deterioration in credit quality, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, downgraded to substandard or worse, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio, or that have been identified as collateral dependent, are evaluated individually for purposes of determining an appropriate ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated selling costs. The Company may increase or decrease the ACL for collateral dependent loans based on changes in the estimated fair value of the collateral.

The following table presents collateral dependent loans by collateral type as of the dates indicated:

	September 30, 2024
	Single-Family		Multi-Family Residential		Church		Business Assets		Total
Real estate:	(In thousands)
Single-family	$	36	$	–	$	–	$	–	$	36
Total	$	36	$	–	$	–	$	–	$	36

	December 31, 2023
	Single-Family		Multi-Family Residential		Church		Business Assets		Total
Real estate:	(In thousands)
Single-family	$	45	$	–	$	–	$	–	$	45
Multi-family		–		5,672		–		–		5,672
Commercial real estate		–		–		65		–		65
Church		–		–		391		–		391
Commercial – other		–		–		–		268		268
Total	$	45	$	5,672	$	456	$	268	$	6,441

At September 30, 2024 and December 31, 2023, $36 thousand and $6.4 million, respectively, of individually evaluated loans were evaluated based on the estimated fair value of the underlying collateral. These loans had an associated ACL of $0 and $112 thousand, as of September 30, 2024 and December 31, 2023, respectively. None of these collateral dependent loans were on nonaccrual status at September 30, 2024 or December 31, 2023. At September 30, 2024, one $73 thousand individually evaluated loan was evaluated using a discounted future cash flow approach. At December 31, 2023, no individually evaluated loans were evaluated using a discounted future cash flow approach.

Past Due Loans

The following tables present the aging of the recorded investment in past due loans by loan type as of the dates indicated:

	September 30, 2024
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
	(In thousands)
Loans receivable held for investment:
Single-family	$	–	$	–	$	–	$	–	$	23,869	$	23,869
Multi-family		–		–		–		–		628,591		628,591
Commercial real estate		–		1,374		–		1,374		159,434		160,808
Church		–		–		–		–		11,717		11,717
Construction		–		–		–		–		78,950		78,950
Commercial - other		–		–		–		–		70,901		70,901
SBA loans		–		291		–		291		604		895
Consumer		–		–		–		–		20		20
Total	$	–	$	1,665	$	–	$	1,665	$	974,086	$	975,751

	December 31, 2023
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
	(In thousands)
Loans receivable held for investment:
Single-family	$	–	$	–	$	–	$	–	$	24,702	$	24,702
Multi-family		–		401		–		401		563,017		563,418
Commercial real estate		–		–		–		–		119,436		119,436
Church		–		–		–		–		12,717		12,717
Construction		–		–		–		–		89,887		89,887
Commercial - other		–		–		–		–		63,450		63,450
SBA loans		379		–		–		379		14,575		14,954
Consumer		–		–		–		–		13		13
Total	$	379	$	401	$	–	$	780	$	887,797	$	888,577

The following table presents the recorded investment in non-accrual loans by loan type as of the dates indicated:

	September 30, 2024		December 31, 2023
	(In thousands)
Loans receivable held for investment:
SBA loans	$	291	$	–
Total non-accrual loans	$	291	$	–

There were no loans 90 days or more delinquent that were accruing interest as of September 30, 2024 or December 31, 2023.

Modified Loans to Troubled Borrowers

GAAP requires that certain types of modifications of loans in response to a borrower’s financial difficulty be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or (v) any combination of the foregoing. The ACL for loans that were modified in response to a borrower’s financial difficulty is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACL for such loans is determined through individual evaluation. There were no loan modifications to borrowers that were experiencing financial difficulty during the three or nine months ended September 30, 2024 or 2023.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. For single-family residential, consumer, and other smaller balance homogenous loans, a credit grade is established at inception, and generally only adjusted based on performance. Information about payment status is disclosed elsewhere herein. The Company analyzes all other loans individually by classifying the loans as to credit risk. This analysis is performed at least on a quarterly basis. The Company uses the following definitions for risk ratings:

●

Watch. Loans classified as watch exhibit weaknesses that could threaten the current net worth and paying capacity of the obligors. Watch graded loans are generally performing and are not more than 59 days past due. A watch rating is used when a material deficiency exists, but correction is anticipated within an acceptable time frame.

●

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

●

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

●

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

●

Loss. Loans classified as loss are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor and/or by the value of the underlying collateral. Pass rated loans are not more than 59 days past due and are generally performing in accordance with the loan terms.

The following tables stratify the loans held for investment portfolio by the Company’s internal risk grading and by year of origination as of September 30, 2024 and December 31, 2023:

	Term Loans Amortized Cost Basis by Origination Year - As of September 30, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
	(In thousands)
Single-family:
Pass	$	–	$	556	$	4,073	$	1,822	$	2,016	$	13,813	$	–	$	22,280
Watch		–		–		–		734		855		–		–		1,589
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		–		–		–
Total	$	–	$	556	$	4,073	$	2,556	$	2,871	$	13,813	$	–	$	23,869

Multi-family:
Pass	$	65,883	$	82,266	$	173,000	$	126,251	$	26,941	$	85,822	$	–	$	560,163
Watch		–		1,384		15,727		16,638		–		8,032		–		41,781
Special Mention		–		–		3,238		3,155		–		653		–		7,046
Substandard		–		1,549		–		4,487		–		13,565		–		19,601
Total	$	65,883	$	85,199	$	191,965	$	150,531	$	26,941	$	108,072	$	–	$	628,591

Commercial real estate:
Pass	$	31,882	$	13,695	$	20,982	$	29,797	$	14,695	$	18,944	$	–	$	129,995
Watch		14,886		–		435		–		13,120		1,498		–		29,939
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		874		–		–		–		–		–	$	874
Total	$	46,768	$	14,569	$	21,417	$	29,797	$	27,815	$	20,442	$	–	$	160,808

Church:
Pass	$	–	$	2,465	$	–	$	2,161	$	1,709	$	2,956	$	–	$	9,291
Watch		–		381		–		–		–		842		–		1,223
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		1,203		–		1,203
Total	$	–	$	2,846	$	–	$	2,161	$	1,709	$	5,001	$	–	$	11,717

Construction:
Pass	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–
Watch		5,699		31,804		4,160		–		–		2,037		–		43,700
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		3,896		27,289		4,065		–		–		–		35,250
Total	$	5,699	$	35,700	$	31,449	$	4,065	$	–	$	2,037	$	–	$	78,950

Commercial – other:
Pass	$	–	$	4	$	7,867	$	–	$	2,799	$	6,054	$	–	$	16,724
Watch		8,606		28,147		717		–		–		2,250		–		39,720
Special Mention		8,832		–		351		–		–		–		–		9,183
Substandard		–		–		–		108		867		4,299		–		5,274
Total	$	17,438	$	28,151	$	8,935	$	108	$	3,666	$	12,603	$	–	$	70,901

SBA:
Pass	$	300	$	–	$	150	$	–	$	–	$	76	$	–	$	526
Substandard		–		–		–		–		369		–		–		369
Total	$	300	$	–	$	150	$	–	$	369	$	76	$	–	$	895

Consumer:
Pass	$	20	$	–	$	–	$	–	$	–	$	–	$	–	$	20
Total	$	20	$	–	$	–	$	–	$	–	$	–	$	–	$	20

Total loans:
Pass	$	98,085	$	98,986	$	206,072	$	160,031	$	48,160	$	127,665	$	–	$	738,999
Watch		29,191		61,716		21,039		17,372		13,975		14,659		–		157,952
Special Mention		8,832		–		3,589		3,155		–		653		–		16,229
Substandard		–		6,319		27,289		8,660		1,236		19,067		–		62,571
Total loans	$	136,108	$	167,021	$	257,989	$	189,218	$	63,371	$	162,044	$	–	$	975,751

	Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
	(In thousands)
Single-family:
Pass	$	–	$	2,474	$	1,862	$	2,940	$	1,485	$	12,374	$	–	$	21,135
Watch		–		–		750		–		–		999		–		1,749
Special Mention		–		–		–		–		–		116		–		116
Substandard		–		–		–		1,365		–		337		–		1,702
Total	$	–	$	2,474	$	2,612	$	4,305	$	1,485	$	13,826	$	–	$	24,702

Multi-family:
Pass	$	81,927	$	183,295	$	145,652	$	27,356	$	44,511	$	47,119	$	–	$	529,860
Watch		–		4,686		6,203		–		1,186		6,474		–		18,549
Special Mention		–		–		899		–		–		1,344		–		2,243
Substandard		–		–		–		–		363		12,403		–		12,766
Total	$	81,927	$	187,981	$	152,754	$	27,356	$	46,060	$	67,340	$	–	$	563,418

Commercial real estate:
Pass	$	9,881	$	22,131	$	26,019	$	24,684	$	6,718	$	15,106	$	–	$	104,539
Watch		–		442		–		5,286		–		2,599		–		8,327
Special Mention		–		–		–		–		325		–		–		325
Substandard		–		–		–	$	–	$	–		6,245	$	–	$	6,245
Total	$	9,881	$	22,573	$	26,019	$	29,970	$	7,043	$	23,950	$	–	$	119,436

Church:
Pass	$	2,923	$	–	$	2,210	$	1,748	$	–	$	2,704	$	–	$	9,585
Watch		–		–		–		–		636		1,525		–		2,161
Substandard		–		–		–		–		–		971		–		971
Total	$	2,923	$	–	$	2,210	$	1,748	$	636	$	5,200	$	–	$	12,717

Construction:
Pass	$	–	$	1,109	$	1,198	$	–	$	–	$	–	$	–	$	2,307
Watch		42,300		35,179		5,484		–		–		2,097		–		85,060
Special Mention		–		–		2,520		–		–		–		–		2,520
Total	$	42,300	$	36,288	$	9,202	$	–	$	–	$	2,097	$	–	$	89,887

Commercial – other:
Pass	$	15,000	$	9,077	$	87	$	5,600	$	–	$	25,154	$	–	$	54,918
Watch		–		312		–		1,500		6,550		–		–		8,362
Special Mention		–		–		170		–		–		–		–		170
Total	$	15,000	$	9,389	$	257	$	7,100	$	6,550	$	25,154	$	–	$	63,450

SBA:
Pass	$	11,809	$	109	$	2,453	$	–	$	16	$	100	$	–	$	14,487
Special Mention		–		–		–		467		–		–		–		467
Total	$	11,809	$	109	$	2,453	$	467	$	16	$	100	$	–	$	14,954

Consumer:
Pass	$	13	$	–	$	–	$	–	$	–	$	–	$	–	$	13
Total	$	13	$	–	$	–	$	–	$	–	$	–	$	–	$	13

Total loans:
Pass	$	121,553	$	218,195	$	179,481	$	62,328	$	52,730	$	102,557	$	–	$	736,844
Watch		42,300		40,619		12,437		6,786		8,372		13,694		–		124,208
Special Mention		–		–		3,589		467		325		1,460		–		5,841
Substandard		–		–		–		1,365		363		19,956		–		21,684
Total loans	$	163,853	$	258,814	$	195,507	$	70,946	$	61,790	$	137,667	$	–	$	888,577

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an allowance for credit losses on off-balance sheet commitments related to unfunded loans and lines of credit, which is included in accrued expenses and other liabilities in the consolidated statements of financial condition. The Company applies an expected credit loss estimation methodology for off-balance sheet commitments. This methodology is commensurate with the methodology applied to each respective segment of the loan portfolio in determining the ACL for loans held-for-investment. The loss estimation process includes assumptions for the probability that a loan will fund, as well as the expected amount of funding. These assumptions are based on the Company’s own historical internal loan data.

The allowance for off-balance sheet commitments was $342 thousand and $364 thousand at September 30, 2024 and December 31, 2023, respectively. The recovery of provision for off-balance sheet loan commitments was $24 thousand for the three months ended September 30, 2024 and $26 thousand for the nine months ended September 30, 2024. The provision for off-balance sheet loan commitments was $69 thousand for the three months ended September 30, 2023 and $106 thousand for the nine months ended September 30, 2023.