UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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Annual Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act of 1934 |
For the fiscal year ended
Or
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Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act of 1934 |
For the transition period from ______________ to ______________.
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices) |
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Registrant's telephone number, including area code: 1-(
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
| Name of each exchange on which registered |
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Trading Symbol
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES o NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES o NO
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES NO o
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the Registrant was required to submit such files).
YES NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
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Large accelerated filer o | Non-accelerated filer o | Smaller reporting company |
If any emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2023, as reported by the Nasdaq Global Market, was approximately $
As of March 1, 2024, there were
DOCUMENTS INCORPORATED BY REFERENCE:
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This report on Form 10-K contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of BCB Bancorp, Inc. and subsidiaries. This document may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of said safe harbor provisions. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in this Annual Report on Form 10-K and in other documents filed with the Securities and Exchange Commission. These forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Although we believe that our plans, intentions and expectations, as reflected in these forward-looking statements are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or realized. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, changes in market interest rates, general economic conditions, legislation, and regulation; changes in monetary and fiscal policies of the United States Government, including policies of the United States Treasury and Federal Reserve Board; changes in the quality or composition of the loan or investment portfolios; changes in deposit flows, competition, and demand for financial services, loans, deposits and investment products in our local markets; changes in accounting principles and guidelines; war or terrorist activities; and other economic, competitive, governmental, regulatory, geopolitical and technological factors affecting the our operations, pricing and services, and those discussed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this report. We do not assume any obligation to revise forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as may be required by law.
BCB Bancorp, Inc.
BCB Bancorp, Inc. (individually referred to herein as the “Parent Company” and together with its subsidiaries, collectively referred to herein as the “Company”) is a New Jersey corporation established in 2003, and is the holding company parent of BCB Community Bank (the “Bank”). The Company has not engaged in any significant business activity other than owning all of the outstanding common stock of BCB Community Bank. Our executive office is located at 104-110 Avenue C, Bayonne, New Jersey 07002. Our telephone number is 1-(800)-680-6872 and our website is www.bcb.bank. Information on our website is not incorporated into this Annual Report on Form 10-K. At December 31, 2023 we had $3.832 billion in consolidated assets, $2.979 billion in deposits and $314.1 million in consolidated stockholders’ equity. The Parent Company is subject to extensive regulation by the Board of Governors of the Federal Reserve System.
BCB Community Bank
The Bank opened for business on November 1, 2000 as Bayonne Community Bank, a New Jersey chartered commercial bank. The Bank changed its name from Bayonne Community Bank to BCB Community Bank in April 2007. At December 31, 2023, the Bank operated at twenty-four branches in Bayonne, Edison, Hoboken, Fairfield, Holmdel, Jersey City, Lyndhurst, Maplewood, Monroe Township, Newark, Parsippany, Plainsboro, River Edge, Rutherford, South Orange, Union, and Woodbridge, New Jersey, as well as four branches in Staten Island and Hicksville, New York, through executive offices located at 104-110 Avenue C, and an administrative office located at 591-595 Avenue C, Bayonne, New Jersey 07002. The Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) and the Bank is a member of the Federal Home Loan Bank (“FHLB”) System.
We are a community-oriented financial institution. Our business is to offer FDIC-insured deposit products and to invest funds held in deposit accounts at the Bank, together with funds generated from operations, in loans and investment securities. We offer our customers:
loans, including commercial and multi-family real estate loans, one-to-four family mortgage loans, commercial business loans, construction loans, home equity loans, and consumer loans. In recent years the primary growth in our loan portfolio has been in loans secured by commercial real estate and multi-family properties;
FDIC-insured deposit products, including savings and club accounts, interest and non-interest-bearing demand accounts, money market accounts, certificates of deposit, and individual retirement accounts; and,
retail and commercial banking services including wire transfers, money orders, safe deposit boxes, night depository, debit cards, online banking, mobile banking, fraud detection (positive pay), and automated teller services.
Recent Events
On December 14, 2023, the Company completed a private placement of 1,527 shares of Series J Noncumulative Perpetual Stock, par value $0.01 per share (the “Series J Preferred Stock”), resulting in gross proceeds of $15,270,000. Also during the fourth quarter of 2023, the Company redeemed the remaining 1,101 outstanding shares of its Series H 3.5% Noncumulative Perpetual Preferred Stock, at their face value of $10,000 per share, for a total redemption amount of $11.0 million.
On September 14, 2023, the Company redeemed 22 outstanding shares of its Series H 3.5% Noncumulative Perpetual Preferred Stock, at their face value of $10,000 per share, for a total redemption amount of $220,000.
Business Strategy
Our business strategy is to operate as a well-capitalized, profitable, and independent community-oriented financial institution dedicated to providing the highest quality customer service. Management’s and the Board of Directors’ extensive knowledge of the markets we serve helps to differentiate us from our competitors. Our business strategy incorporates the following elements: maintaining a community focus, focusing on profitability, strengthening our balance sheet, emphasizing real estate- based lending, capitalizing on market dynamics, providing attentive and personalized service, and attracting highly qualified and experienced personnel. These attributes coupled with our desire to seek out under-served markets for banking products and services, facilitate the growth of our franchise footprint organically and synergistically.
Maintaining a community focus. Our management and Board of Directors have strong ties to the communities we serve. Many members of the management team are New Jersey natives and are active in the communities we serve through non-profit board membership, local business development organizations, and industry associations. In addition, our board members are well-established professionals and business leaders in the communities we serve. Management and the Board are interested in making a lasting contribution to these communities, and they have succeeded in attracting deposits and loans through attentive and personalized service.
Focusing on profitability. Management is focused on optimizing profitability while also meeting the needs of businesses and individuals in its community. The persistently high interest rate environment and competition for liquidity have negatively impacted margins for our industry. Management continues to prudently manage its balance sheet to protect its spread income in a challenging operating environment. Additionally, Management continues to be committed to managing and controlling our non-interest expenses to improve our efficiency ratio.
Strengthening our balance sheet. Management has slowed its balance sheet growth to strengthen its liquidity and capital position. Management is focused on reducing reliance on wholesale borrowing that is expensive and not core to the Bank’s operating philosophy. Additionally, slower balance sheet growth combined with profitability are expected to continue to enhance the Company’s capital position. Management remains committed to strengthening the Company’s statements of financial condition and maintaining profitability by diversifying the products, pricing and services we offer. Additionally, the Company is very focused on maintaining robust asset quality as the industry continues to face challenges from an uncertain macroeconomic environment.
Emphasizing real estate-based lending. A primary focus of our business strategy is to originate loans secured by commercial and multi-family properties. Such loans generally provide higher returns than loans secured by one-to-four family properties. As a result of our underwriting practices, including debt service requirements for commercial real estate and multi-family loans, management believes that such loans offer us an opportunity to obtain higher returns without a significant increased level of risk.
Capitalizing on market dynamics. The consolidation of the banking industry in northeast New Jersey has provided a unique opportunity for a customer-focused banking institution, such as our Bank. We believe our local roots and community focus provide the Bank with an opportunity to capitalize on the consolidation in our market area. This consolidation has moved decision making away from local, community-based banks to much larger banks headquartered outside of New Jersey. We believe our local roots and community focus provide the Bank with an opportunity to capitalize on the consolidation in our market area.
Providing attentive and personalized service. Management believes that providing attentive and personalized service is the key to gaining deposit and loan relationships in the markets we serve and their surrounding communities.
Attracting highly experienced and qualified personnel. An important part of our strategy is to hire bankers who have prior experience in the markets we serve, as well as pre-existing business relationships. Our management team averages over decades of banking experience, while our lenders and branch personnel have significant experience at community banks and regional banks throughout the region. Management believes that its knowledge of these markets has been a critical element in the success of the Bank. Management’s extensive knowledge of the local communities has allowed us to develop and implement a highly focused and disciplined approach to lending, and has enabled the Bank to attract a high percentage of low-cost deposits.
Our Market Area
We are located in Bayonne, Jersey City and Hoboken in Hudson County, Edison, Monroe Township, Plainsboro and Woodbridge in Middlesex County, Lyndhurst, River Edge, and Rutherford in Bergen County; Fairfield, Maplewood, Newark, and South Orange in Essex County, Holmdel in Monmouth County, Parsippany in Morris County, and Union in Union County, New Jersey. The Bank also operates three branches in Staten Island, New York and one in Hicksville, New York. The Bank’s locations are easily accessible and provide convenient services to businesses and individuals throughout our market area. These areas are all considered “bedroom” or “commuter” communities to Manhattan. Our market area is well-served by a network of arterial roadways, including Route 440 and the New Jersey Turnpike.
Our market area has a high level of commercial business activity. Businesses are concentrated in the service sector and retail trade areas. Major employers in our market area include certain medical centers, municipalities, and school districts.
Competition
The banking industry in northeast New Jersey and New York City is extremely competitive. We compete for deposits and loans with existing New Jersey and out-of-state financial institutions that have longer operating histories, larger capital reserves, and more established customer bases. Our competition includes large financial services companies and other entities, in addition to traditional banking institutions, such as savings and loan associations, savings banks, commercial banks and credit unions. Our larger competitors have a greater ability to finance wide-ranging advertising campaigns through greater capital resources. Our marketing efforts depend heavily upon referrals from officers, directors, stockholders, advertising in local media, and through a social media presence. We compete for business principally on the basis of personal service to customers, customer access to our business development officers, loan officers, executive officers and directors, and competitive interest rates and fees.
In the financial services industry in recent years, intense market demands, technological and regulatory changes, and economic pressures have eroded industry classifications that were once clearly defined. Banks have diversified their services, competitively priced their deposit products and become more cost-effective as a result of competition with each other and with new types of financial service companies, including non-banking competitors. Some of these market dynamics have resulted in a number of new bank and non-bank competitors, increased merger activity, and increased customer awareness of product and service differences among competitors
Lending Activities
Loan Maturities. The following table sets forth the contractual maturity of our loan portfolio at December 31, 2023. The amount shown represents outstanding principal balances. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as being due in one year or less. The table does not include prepayments or scheduled principal repayments.
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| Due within 1 Year |
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| Due after 1 through 5 Years |
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| After 5 Years through 15 Years |
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| After 15 Years |
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| Total |
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Residential One-to-four family |
| $ | 9 |
| $ | 9,215 |
| $ | 25,285 |
| $ | 213,786 |
| $ | 248,295 |
Construction |
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| 178,515 |
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| 9,378 |
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| - |
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| 4,923 |
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| 192,816 |
Commercial business(1) |
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| 151,025 |
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| 133,523 |
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| 75,997 |
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| 11,657 |
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| 372,202 |
Commercial and multi-family |
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| 151,674 |
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| 555,795 |
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| 440,250 |
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| 1,286,396 |
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| 2,434,115 |
Home equity(2) |
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| 565 |
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| 2,070 |
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| 12,930 |
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| 50,766 |
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| 66,331 |
Consumer |
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| 1,853 |
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| 1,491 |
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| 299 |
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| - |
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| 3,643 |
Total amount due |
| $ | 483,641 |
| $ | 711,472 |
| $ | 554,761 |
| $ | 1,567,528 |
| $ | 3,317,402 |
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Loans with Fixed or Floating or Adjustable Rates of Interest. The following table sets forth the dollar amount of all loans at December 31, 2023 that are due after December 31, 2024, and have fixed interest rates or that have floating or adjustable interest rates.
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| Fixed Rates |
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| Floating or Adjustable Rates |
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| Total |
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Residential One-to-four family |
| $ | 157,792 |
| $ | 90,494 |
| $ | 248,286 |
Construction |
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| - |
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| 14,301 |
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| 14,301 |
Commercial business(1) |
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| 74,263 |
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| 146,914 |
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| 221,177 |
Commercial and multi-family |
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| 387,039 |
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| 1,895,402 |
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| 2,282,441 |
Home equity(2) |
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| 15,552 |
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| 50,214 |
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| 65,766 |
Consumer |
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| 1,200 |
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| 590 |
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| 1,790 |
Total amount due |
| $ | 635,846 |
| $ | 2,197,915 |
| $ | 2,833,761 |
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Commercial and Multi-family Real Estate Loans. Commercial real estate loans are secured by improved property such as office buildings, mixed use buildings, retail stores, shopping centers, warehouses, and other non-residential buildings. Loans secured by multi-family properties contain five or more residential units. Generally, the Bank offers fully amortizing loans on both property types at loan amounts up to 75 percent of the appraised value of the property. Both commercial and multi-family real estate loans are generally made at rates that adjust above the Federal Home Loan Bank of New York interest rate, with terms of up to 30 years. In addition, the Bank offers balloon loans with fixed interest rates which generally mature in three to five years with amortization periods up to 30 years. The Bank’s owner-occupied loans represented 21% of total Commercial and multi-family loans as of December 31, 2023 and the Bank’s multi-family portfolio represented 23% of the total Commercial and multi-family real estate loans. The rent controlled portion comprised 5% of total multi-family loans. The Bank’s multi-family loan portfolio had average LTVs of 55%. As of December 31, 2023, the Bank’s largest commercial real estate loan had an outstanding principal balance of $42.5 million. The borrower is a well-known private university, and the loan is secured by various properties which are associated with University functions. This loan is performing in accordance with its terms at December 31, 2023.
Loans secured by commercial and multi-family real estate are generally larger and involve a greater degree of risk than one-to-four family residential mortgage loans. The borrower’s creditworthiness, as well as the property’s continued viability and cash flow potential are of primary concern in commercial and multi-family real estate lending. Commercial loans secured by owner occupied properties involve different risks when measured against one-to-four family residential and non-owner-occupied commercial mortgage loans. Cash flow on owner occupied properties is often dependent on the success of the business operation contained within the subject property. The Bank intends to continue the origination of loans secured by commercial real estate and multi-family properties.
Construction Loans. The Bank offers loans to finance the construction of various types of commercial and residential properties. Generally, construction loans are offered with terms of up to thirty months, with adjustable interest rates tied to a margin above Prime Rate. Customarily, the Bank originates loans on projects which have all necessary permits in place to the Bank’s satisfaction. Construction loan funds are disbursed as the project progresses. The Bank also offers construction loans that convert to a permanent mortgage on the property upon completion of the project, provided compliance with conditions set forth at loan approval. Terms of such permanent mortgage loans are similar to other mortgage loans secured by similar properties, with the interest rate established at the time of conversion. As of December 31, 2023, the Bank’s largest construction loan has a borrowing capacity of $24.8 million, of which $200,000 has not been disbursed. The loan is recourse to a well-capitalized borrower, with proceeds used to construct a transit-oriented multifamily development in northern New Jersey. This loan is performing in accordance with its terms at December 31, 2023.
Construction financing is generally considered a higher risk lending product. To mitigate risks, the Bank will, among other things, obtain a plan and cost review from a third-party vendor, which reviews the borrowers proposed construction budget for appropriateness. The Bank will also obtain an appraisal report which provides values based on various possible project results. These reports generally include value scenarios such as “As Is,” “As Completed,” “As a Rental,” “As Sellout,” and “As a Bulk Sale.”
Commercial Business Loans. The Bank offers a variety of commercial business loans in the form of either lines of credit or fully amortizing term loans. Lines of credit (LOCs) are typically utilized for working capital purposes. LOCs are either revolving or non-revolving and provide loan terms between one and three years. LOC repayment is generally interest only with adjustable interest rates tied to a margin above Prime Rate. Term loans are typically utilized for the purchase of a business or
equipment for a business, and carry fully amortizing terms up to seven years. Term loan interest rates may be fixed or adjustable and tied to a margin above the Federal Home Loan Bank of New York rate. Commercial business loans are underwritten based upon the borrower’s ability to service such debt from income. These loans are generally made to small and mid-sized companies located within the Bank’s primary and secondary lending areas. Depending on the circumstances, a commercial business loan may be secured by equipment, accounts receivable, inventory, chattel or other assets. As of December 31, 2023, the Bank’s largest commercial business loan has an outstanding balance of $24.3 million and is collateralized by 2nd mortgages on various franchises. This loan is performing in accordance with its terms at December 31, 2023.
Commercial business loans generally have higher rates and shorter terms than one-to-four family residential loans, but may also involve higher average balances and a higher risk of default, as their repayment generally depends on the success of the borrower’s business.
SBA Lending. The Bank offers qualifying business loans guaranteed by the U.S. Small Business Administration (“SBA”). Amongst other characteristics, SBA borrowers are often sound businesses, but may have a smaller amount of equity funds to invest in their businesses, may be at an emergent stage of business development, or have other characteristics that may make them ineligible for conventional bank loans. There is a well-developed market for the sale of the guaranteed portion of SBA 7(a) loans. As of December 31, 2023, the Bank’s largest SBA loan has an outstanding balance of $4.9 million and is secured by a gym located in Marlboro, NJ. This loan is performing in accordance with its terms at December 31, 2023.
Residential Lending. Residential loans are secured by one-to-four family dwellings, condominiums and cooperative units. Residential mortgage loans are secured by properties located in our primary lending areas of Bergen, Essex, Middlesex, Hudson, Monmouth and Richmond Counties; adjoining counties are considered as our secondary lending areas. Generally, we originate residential mortgage loans up to 80 percent loan-to-value at a maximum loan amount of $2.5 million and 75 percent loan-to-value at a maximum loan amount of $5.0 million for primary residences. The loan-to-value ratio is based on the lesser of the appraised value or the purchase price without the requirement of private mortgage insurance. We will originate loans with loan-to-value ratios up to 90 percent, provided the borrower obtains private mortgage insurance approval. We originate both fixed and adjustable rate residential loans with a term of up to 30 years. We offer 15, 20, and 30 year fixed, 15/30-year balloon and 3/1, 5/1, 7/1 and 10/1 adjustable rate loans with payments being calculated to include principal, interest, taxes and insurance. The 3/1 and 5/1 adjustable rate loans are qualified at 2.0 percent above the start rate; all other loans are qualified at the start rate. We have a number of correspondent relationships with third party lenders in which we deliver closed first mortgage loans. Our correspondent banking relationships allow us to offer customers competitive long-term fixed and adjustable rate loans we could not otherwise originate, while providing the Bank a source of fee income. During 2023, loans totaling approximately $2.3 million were sold in the secondary market and gains of approximately $36,000 were recognized from the sale of such loans.
Home Equity Loans and Home Equity Lines of Credit. The Bank offers home equity loans and lines of credit that are secured by either the borrower’s primary residence, a secondary residence or an investment property. Our home equity loans can be structured as loans that are disbursed in full at closing or as lines of credit. Home equity lines of credit are offered with terms up to 20 years. Virtually all of our home equity loans are originated with fixed rates of interest and home equity lines of credit are originated with adjustable interest rates tied to the prime rate. Home equity loans and lines of credit are underwritten utilizing the same criteria used to underwrite one-to-four family residential loans. Home equity lines of credit may be underwritten with a loan-to-value ratio of up to 80 percent in a first lien position. At December 31, 2023, the outstanding and committed balances of home equity loans and lines of credit totaled $56.9 million and $57.0 million, respectively.
Consumer Loans. The Bank makes secured passbook, automobile and, on occasion, unsecured consumer loans. Consumer loans generally have terms between one and five years. They generally are made on a fixed rate basis, fully-amortizing.
Loan Approval Authority and Underwriting. The Bank’s Lending Policy has established lending limits for executive management. Two senior officers have the authority to approve loan requests up to $3.0 million (Level 1). Two officers with authority, one designated senior officer and one executive officer (CEO, CLO, and/or COO), have authority to approve loan requests greater than $3.0 million (Level 2). For loan requests greater than $20.0 million, with certain policy exceptions, Level 3 authorization is required. Level 3 requires Level 2 signatures plus a majority of the Bank’s Loan Committee Members. Deviation of 5 basis points or less from Policy DSCR and/or LTV calculations (regardless of single credit or exposure amount), may be approved at the discretion of management. Loans approved by the Loan Committee shall be presented to the Board of Directors for ratification in a timely manner.
The Bank will customarily begin its underwriting analysis of a loan request upon receipt of a completed loan application, and all appropriate financial information from a prospective borrower. Property valuations or appraisals are required for all real estate collateralized loans. Appraisals are prepared by a state certified independent appraiser approved by the Bank Board of Directors.
Loan Commitments. Written commitments are given to prospective borrowers on all approved loans. Generally, we honor commitments for up to 60 days from the date of issuance. At December 31, 2023, our outstanding loan origination commitments totaled $975,000, standby letters of credit totaled $13.4 million, undisbursed construction funds totaled $63.4 million, and undisbursed lines of credit funds totaled $235.3 million.
Loan Delinquencies. Notices of nonpayment are generated to borrowers once the loan account(s) becomes either 10 or 15 days past due, as specified in the applicable promissory note. A nonresponsive borrower will receive collection calls and a site visit from a bank representative in addition to follow-up delinquency notices. If such payment is not received after 60 days, a notice of right to cure default is sent to the borrower providing 30 additional days to bring the loan current before foreclosure or other remedies are commenced. The Bank utilizes various reporting tools to closely monitor the performance and asset quality of the loan portfolio. The Bank complies with all federal, state and local laws regarding collection of its delinquent accounts.
Nonaccrual Status. Loans are placed on a nonaccrual status when the loan becomes more than 90 days delinquent or when, in our opinion, the collection of payment is doubtful. Once placed on nonaccrual status, the accrual of interest income is discontinued until the loan has been returned to accrual status. At December 31, 2023, the Bank had $18.8 million in non-accruing loans. The largest exposure of non-performing loans was a commercial real estate loan with an outstanding principal balance of approximately $3.6 million fully collateralized by a 21 unit condominium in New York.
As of December 31, 2023, nonaccrual loans differed from the amount of total loans past due greater than 90 days due to loans that were previously 90 days past due which are maintained on nonaccrual status for a minimum of six months until the borrower has demonstrated their ability to satisfy the terms of the loan.
Troubled Debt Restructuring. 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 measurement of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. The Company did not have any loans that were both experiencing financial difficulty and modified during the twelve months ending December 31, 2023.
Criticized and Classified Loans. The Bank’s Lending Policy contains an internal rating system which evaluates the overall risk of a problem loan. When a loan is classified and determined to be impaired, the Bank may establish specific allowances for credit losses. 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 credit losses generally do not qualify as regulatory capital. At December 31, 2023, the Bank reported $85.7 million in classified assets.
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 of recovery.
The grades are determined through the use of qualitative and quantitative matrices that consider various characteristics of the loan such as payment performance, quality of management, principals’/guarantors’ character, balance sheet strength, collateral quality, cash flow coverage, position within the industry, loan structure and documentation.
Allowance for Credit Losses. The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The allowance for credit losses is reported separately as a contra-asset on the consolidated statement of financial condition. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the consolidated statement of financial condition in other liabilities while the provision for credit losses related to unfunded commitments is reported in other non-interest expense.
Allowance for Credit Losses on Loans Receivable. The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. Individually evaluated loans are primarily nonaccrual and collateral dependent loans. Furthermore, the Company evaluates the pooling methodology at least annually to ensure that loans with similar risk characteristics are pooled appropriately. Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.
The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. The Company calculates estimated credit losses for these loan segments using quantitative models and qualitative factors. Further information on loan segmentation and the credit loss estimation is included in Note 7 – Loan Receivables and Allowance for Credit Losses.
Individually Evaluated Loans. On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.
Allowance for Credit Losses on Off-Balance Sheet Commitments. The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the Company relies on a third-party econometric model that calculates current utilization rates and projected utilization rates for different loan segments. The model then develops projections for future draws on the lines and forecasts losses to estimate reserves for each loan segment. The allowance for credit losses on unfunded loan commitments is included in other liabilities on the consolidated statement of financial condition and the related credit expense is recorded in other non-interest expense in the consolidated statements of income.
Allowance for Credit Losses on Available for Sale Securities. For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more than likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rate by major agencies and have a long history of no credit losses.
Changes in the allowance for credit losses are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued Interest Receivable. The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans and available for sale securities. Accrued interest receivable on loans and securities is reported as a component of accrued interest receivable on the consolidated statement of financial condition.
Allocation of the Allowance for Credit losses. The following table illustrates the allocation of the allowance for credit losses for each category of loan. The allocation of the allowance to each category is not necessarily indicative of future loss in any particular category and does not restrict our use of the allowance to absorb losses in other loan categories.
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| December 31, | ||||||||||||||||
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| 2023 |
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| 2022 |
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| 2021 |
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| Amount |
| Percent of Loans in each Category to Total Loans |
|
|
| Amount |
| Percent of Loans in each Category to Total Loans |
|
|
| Amount |
| Percent of Loans in each Category to Total Loans |
|
| (Dollars in Thousands) | ||||||||||||||||
Residential one-to-four family | $ | 2,344 |
| 7.48 | % |
| $ | 2,474 |
| 8.11 | % |
| $ | 4,094 |
| 9.58 | % |
Commercial and Multi-family |
| 16,301 |
| 73.38 |
|
|
| 21,749 |
| 76.08 |
|
|
| 22,065 |
| 73.39 |
|
Construction |
| 3,841 |
| 5.81 |
|
|
| 2,094 |
| 4.70 |
|
|
| 2,231 |
| 6.57 |
|
Commercial business(1) |
| 10,353 |
| 11.22 |
|
|
| 5,367 |
| 9.15 |
|
|
| 8,000 |
| 8.15 |
|
Home equity(2) |
| 691 |
| 2.0 |
|
|
| 485 |
| 1.85 |
|
|
| 533 |
| 2.15 |
|
Consumer |
| 78 |
| 0.11 |
|
|
| 24 |
| 0.11 |
|
|
| 14 |
| 0.16 |
|
Unallocated |
| - |
| - |
|
|
| 180 |
| - |
|
|
| 182 |
| - |
|
Total | $ | 33,608 |
| 100.00 | % |
| $ | 32,373 |
| 100.00 | % |
| $ | 37,119 |
| 100.00 | % |
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
The following table presents, for the years indicated, an analysis of the allowance for credit losses and other related data.
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| Years Ended December 31, | ||||||||||
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|
| 2023 |
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| 2022 |
|
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| 2021 |
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|
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|
|
|
Allowance for credit losses to total loans outstanding |
|
| 1.01 | % |
|
| 1.05 | % |
|
| 1.58 | % |
Allowance for credit losses |
| $ | 33,608 |
|
| $ | 32,373 |
|
| $ | 37,119 |
|
Total loans outstanding |
| $ | 3,313,316 |
|
| $ | 3,077,704 |
|
| $ | 2,342,061 |
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|
|
|
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|
|
Nonaccrual loans to total loans outstanding |
|
| 0.57 | % |
|
| 0.17 | % |
|
| 0.64 | % |
Nonaccrual loans |
| $ | 18,783 |
|
| $ | 5,109 |
|
| $ | 14,889 |
|
Total loans outstanding |
| $ | 3,313,316 |
|
| $ | 3,077,704 |
|
| $ | 2,342,061 |
|
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|
|
|
|
|
|
Allowance for credit losses to nonaccrual loans |
|
| 178.90 | % |
|
| 633.65 | % |
|
| 249.30 | % |
Allowance for credit losses |
| $ | 33,608 |
|
| $ | 32,373 |
|
| $ | 37,119 |
|
Nonaccrual loans |
| $ | 18,783 |
|
| $ | 5,109 |
|
| $ | 14,889 |
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|
Net charge-offs (recovery) during the period to daily average loans outstanding |
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|
|
|
|
|
|
Residential one-to-four family |
|
| (0.02) | % |
|
| 0.01 | % |
|
| 0.02 | % |
Net charge-off (recovery) during the period |
|
| (45) |
|
|
| (23) |
|
|
| 42 |
|
Average amount outstanding |
| $ | 248,847 |
|
| $ | 232,916 |
|
| $ | 228,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and multi-family |
|
| - | % |
|
| - | % |
|
| - | % |
Net charge-off (recovery) during the period |
|
| - |
|
|
| - |
|
|
| - |
|
Average amount outstanding |
| $ | 2,445,876 |
|
| $ | 1,981,862 |
|
| $ | 1,725,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
| - | % |
|
| - | % |
|
| - | % |
Net charge-off (recovery) during the period |
|
| - |
|
|
| - |
|
|
| - |
|
Average amount outstanding |
| $ | 162,984 |
|
| $ | 147,411 |
|
| $ | 145,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
| 0.21 | % |
|
| (0.91) | % |
|
| 0.12 | % |
Net charge-off (recovery) during the period |
|
| 765 |
|
|
| 1,904 |
|
|
| 202 |
|
Average amount outstanding |
| $ | 358,048 |
|
| $ | 208,996 |
|
| |||