Loans Receivable

3 Months Ended

Mar. 31, 2023

Receivables [Abstract]

Loans Receivable

Loans Receivable and Allowance for Credit Losses

Loans receivable are summarized as follows at the dates indicated: 

	March 31, 2023		December 31, 2022
	(In thousands)
One-to-four family residential:
Permanent owner occupied	$	242,477	$	232,869
Permanent non-owner occupied	240,183		241,311
	482,660		474,180
Multifamily	143,332		126,866
Commercial real estate	408,905		407,904
Construction/land:
One-to-four family residential	53,948		52,492
Multifamily	(131)		15,393
Land	9,786		9,759
	63,603		77,644
Business	31,659		31,363
Consumer	70,619		64,353
Total loans receivable, gross	1,200,778		1,182,310
Less:
ACL	16,028		15,227
Total loans receivable, net	$	1,184,750	$	1,167,083

    At March 31, 2023, loans totaling $648.0 million were pledged to secure borrowings from the FHLB compared to $605.0 million at December 31, 2022. In addition, loans totaling $85.2 million and $87.7 million were pledged to the Federal Reserve Bank of San Francisco to secure a line of credit at March 31, 2023 and December 31, 2022, respectively.

Credit Quality Indicators. The Company assigns a risk rating to all credit exposures based on a risk rating system designed to define the basic characteristics and identified risk elements of each credit extension. The Company utilizes a nine point risk rating system. A description of the general characteristics of the risk grades is as follows:

•Grades 1 through 5: These grades are considered to be “pass” credits. These include assets where there is virtually no credit risk, such as cash secured loans with funds on deposit with the Company. Pass credits also include credits that are on the Company’s watch list (grade 5), where the borrower exhibits potential weaknesses, which may, if not checked or corrected, negatively affect the borrower’s financial capacity and threaten their ability to fulfill debt obligations in the future.

•Grade 6: These credits, classified as “special mention”, possess weaknesses that deserve management’s close attention. Special mention assets do not expose the Company to sufficient risk to warrant adverse classification in the substandard, doubtful or loss categories. If left uncorrected, these potential weaknesses may result in deterioration in the Company’s credit position at a future date.Grade 7: These credits, classified as “substandard”, present a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These credits have well

defined weaknesses which jeopardize the orderly liquidation of the debt and are inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.

•Grade 8: These credits are classified as “doubtful” and possess well defined weaknesses which make the full collection or liquidation of the loan highly questionable and improbable. This classification is used where significant risk exposures are perceived but the exact amount of the loss cannot yet be determined due to pending events.

•Grade 9: Assets classified as “loss” are considered uncollectible and cannot be justified as a viable asset for the Company. There is little or no prospect of near term recovery and no realistic strengthening action of significance is pending.

The grades for watch and special mention loans are used by the Company to identify and track potential problem loans which do not rise to the levels described for substandard, doubtful, or loss. These are loans which have been criticized based upon known characteristics such as periodic payment delinquency, failure to comply with contractual terms of the loan or stale financial information from the borrower and/or guarantors. Loans identified as criticized (watch and special mention) or classified (substandard, doubtful or loss) are subject to problem loan reporting every three months.

    As of March 31, 2023, and December 31, 2022, the Company had no loans rated as doubtful or loss. The following tables represent a summary of loans at March 31, 2023, and December 31, 2022 by type and risk category:

	March 31, 2023
	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Total Loans
	(In thousands)
One-to-four family residential
Pass	$	18,166	$	155,300	$	102,559	$	67,545	$	34,995	$	102,459	$	481,024
Watch	—		—		—		—		—		620		620
Special mention	—		—		—		—		—		1,016		1,016
Substandard	—		—		—		—		—		—		—
Total one-to-four family residential	18,166		155,300		102,559		67,545		34,995		104,095		482,660
Multifamily
Pass	1,097		7,579		23,088		43,936		29,609		34,129		139,438
Watch	—		—		—		—		—		2,274		2,274
Special mention	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		1,620		1,620
Total multifamily	1,097		7,579		23,088		43,936		29,609		38,023		143,332
Commercial
Pass	12,083		35,346		82,859		70,849		22,362		116,683		340,182
Watch	—		—		4,185		8,783		—		5,949		18,917
Special mention	—		—		—		—		—		4,651		4,651
Substandard	—		—		—		527		1,295		43,333		45,155
Total commercial real estate	12,083		35,346		87,044		80,159		23,657		170,616		408,905
Construction/land
Pass	(131)		25,583		34,813		2,931		407		—		63,603
Watch	—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Total construction/land	(131)		25,583		34,813		2,931		407		—		63,603

	March 31, 2023
	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Total Loans(1)
	(In thousands)
Business
Pass	71		4,918		495		1,672		1,724		22,779		31,659
Watch	—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Total business	71		4,918		495		1,672		1,724		22,779		31,659
Consumer
Pass	10,942		30,776		12,528		6,869		5,781		3,448		70,344
Watch	—		—		—		—		26		—		26
Special mention	—		—		—		—		48		—		48
Substandard	—		—		201		—		—		—		201
Total consumer	10,942		30,776		12,729		6,869		5,855		3,448		70,619
Total loans receivable, gross
Pass	$	42,228	$	259,502	$	256,342	$	193,802	$	94,878	$	279,498	$	1,126,250
Watch	—		—		4,185		8,783		26		8,843		21,837
Special mention	—		—		—		—		48		5,667		5,715
Substandard	—		—		201		527		1,295		44,953		46,976
	$	42,228	$	259,502	$	260,728	$	203,112	$	96,247	$	338,961	$	1,200,778

	December 31, 2022
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Risk Rating:
Pass, grade 1-4	$	473,700	$	122,972	$	342,827	$	78,120	$	31,371	$	61,632	$	1,110,622
Pass, grade 5 (watch)	1,113		2,291		14,845		—		—		27		18,276
Special mention	1,023		—		4,668		—		—		203		5,894
Substandard	—		1,632		45,542		—		—		193		47,367
Total loans	$	475,836	$	126,895	$	407,882	$	78,120	$	31,371	$	62,055	$	1,182,159

ACL. ACL is a valuation account that is deducted from the loans amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the non-collectability of a loan balance is confirmed. Expected recoveries may not exceed the aggregate amounts previously charged-off and expected to be charged-off. The allowance for credit losses, as reported in our consolidated statements of financial conditions, is adjusted by a provision for credit losses, which is reported in earnings, and reduced by the charge-offs of loan amounts, net of recoveries.

When the Company classifies problem assets as either substandard or doubtful, pursuant to Federal regulations, or identifies a loan where it is uncertain if the Company will be able to collect all amounts due according to the contractual terms

of the loan, it may establish a specific allowance in an amount deemed prudent to address the risk specifically. 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 specifically allocated to the particular problem assets. When an insured institution classifies problem assets as a loss, pursuant to Federal regulations, it is required to charge-off such assets in the period in which they are deemed uncollectible. The determination as to the classification of the Company’s assets and the amount of valuation allowances is subject to review by bank regulators, who can require the establishment of additional allowances for credit losses.

At March 31, 2023, total loans receivable included $707,000 of loans originated under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) as compared to $5.2 million at March 31, 2022. Although these loans were included in the population of loans collectively evaluated for impairment, no general allowance was allocated to them as these loans are 100% guaranteed by the SBA.

The following tables detail activity in the allowance for credit losses on loans by loan categories at or for the three months ended March 31, 2023 and in the allowance for loan and lease losses (“ALLL”) under the incurred loss methodology for the three months ended March 31, 2022:

	At or For the Three Months Ended March 31, 2023
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
ACL:
Beginning balance	$	4,043	$	1,210	$	5,397	$	1,717	$	948	$	1,912	$	15,227
Adjustment for adoption of Topic 326	1,520		83		(970)		408		(510)		(31)		$	500
Recoveries	1		—		—		—		—		—		1
Provision (recapture)	47		314		69		(332)		(25)		227		300
Ending balance	$	5,611	$	1,607	$	4,496	$	1,793	$	413	$	2,108	$	16,028

	At or For the Three Months Ended March 31, 2022
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
ALLL
Beginning balance	$	3,214	$	1,279	$	6,615	$	2,064	$	1,112	$	1,373	$	15,657
Recoveries	2		—		—		—		—		—		2
Provision (recapture)	259		176		(300)		(422)		(331)		118		(500)
Ending balance	$	3,475	$	1,455	$	6,315	$	1,642	$	781	$	1,491	$	15,159
ALLL by category:
General allowance	$	3,457	$	1,455	$	6,315	$	1,642	$	781	$	1,491	$	15,141
Specific allowance	18		—		—		—		—		—		18
Loans:
Total loans	$	412,231	$	152,855	$	416,988	$	74,697	$	30,546	$	49,431	$	1,136,748
Loans collectively evaluated for impairment	410,136		151,195		376,815		74,697		30,546		49,431		1,092,820
Loans individually evaluated for impairment	2,095		1,660		40,173		—		—		—		43,928

Past Due Loans. Loans are considered past due if a scheduled principal or interest payment is due and unpaid for 30 days or more. Loans past due were $230,000 and $220,000 at March 31, 2023, and December 31, 2022, respectively, representing 0.02% of total loans receivable at both dates. The following tables represent a summary of the aging of loans by type at the dates indicated:

	Loans Past Due as of March 31, 2023
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total (1)
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	—	$	—	$	—	$	—	$	242,477	$	242,477
Non-owner occupied			—		—		—		240,183		240,183
Multifamily	—		—		—		—		143,332		143,332
Commercial real estate	—		—		—		—		408,905		408,905
Construction/land	—				—		—		63,603		63,603
Total real estate	—		—		—		—		1,098,500		1,098,500
Business	—		—		—		—		31,659		31,659
Consumer	29		—		201		230		70,389		70,619
Total loans	$	29	$	—	$	201	$	230	$	1,200,548	$	1,200,778

 ________________ 

(1) There were no loans 90 days and greater past due and still accruing interest at March 31, 2023.

	Loans Past Due as of December 31, 2022
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total (1)
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	—	$	—	$	—	$	—	$	233,785	$	233,785
Non-owner occupied	27		—		—		27		242,024		242,051
Multifamily	—		—		—		—		126,895		126,895
Commercial real estate	—		—		—		—		407,882		407,882
Construction/land	—		—		—		—		78,120		78,120
Total real estate	27		—		—		27		1,088,706		1,088,733
Business	—		—		—		—		31,371		31,371
Consumer	—		—		193		193		61,862		62,055
Total loans	$	27	$	—	$	193	$	220	$	1,181,939	$	1,182,159

_________________ 

(1) There were no loans 90 days and greater past due and still accruing interest at December 31, 2022.

Nonperforming Loans. When a loan becomes 90 days past due, the Company generally places the loan on nonaccrual status. Loans may be placed on nonaccrual status prior to being 90 days past due if there is an identified problem that indicates the borrower is unable to meet their scheduled payment obligations. Nonaccrual loans totaled $201,000 and $193,000 at March 31, 2023 and March 31, 2022, respectively.

The following tables summarize the loan portfolio by type and payment status at the dates indicated:

	March 31, 2023
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Performing (1)	$	482,660	$	143,332	$	408,905	$	63,603	$	31,659	$	70,418	$	1,200,577
Nonperforming	—		—		—		—				201		201
Total loans	$	482,660	$	143,332	$	408,905	$	63,603	$	31,659	$	70,619	$	1,200,778

_____________

(1) There were $242.5 million of owner-occupied one-to-four family residential loans and $240.2 million of non-owner occupied one-to-four family residential loans classified as performing.

	December 31, 2022
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Performing (1)	$	475,836	$	126,895	$	407,882	$	78,120	$	31,371	$	61,862	$	1,181,966
Nonperforming	—		—		—		—		—		193		193
Total loans	$	475,836	$	126,895	$	407,882	$	78,120	$	31,371	$	62,055	$	1,182,159

_____________

(1) There were $233.8 million of owner-occupied one-to-four family residential loans and $242.1 million of non-owner occupied one-to-four family residential loans classified as performing.

Impaired Loans and Allowance for Loan Losses - Prior to the implementation of Financial Instruments - Credit Losses (Topic 326) on January 1, 2023, a loan was considered impaired when, based on current information and circumstances, the Company determines it was probable that it would be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. Factors considered in determining impairment included, but were not limited to, the financial condition of the borrower, the value of the underlying collateral and the status of the economy. Impaired loans were comprised of loans on nonaccrual, TDRs that were performing under their restructured terms, and loans that were 90 days or more past due, but were still on accrual.

The following table presents a summary of loans individually evaluated for impairment by loan type at December 31, 2022:

	December 31, 2022
	Recorded Investment (1)		Unpaid Principal Balance (2)		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	174	$	175	$	—
Non-owner occupied	188		188		—
Multifamily	1,632		1,632		—
Commercial real estate	45,542		45,542		—
Total	47,536		47,537		—
Loans with an allowance:
One-to-four family residential:
Owner occupied	486		533		12
Non-owner occupied	512		512		1
Total	998		1,045		13
Total impaired loans:
One-to-four family residential:
Owner occupied	660		708		12
Non-owner occupied	700		700		1
Multifamily	1,632		1,632		—
Commercial real estate	45,542		45,542		—
Total	$	48,534	$	48,582	$	13

_________________ 

(1) Represents the loan balance less charge-offs.

(2) Contractual loan principal balance.

The following table presents the amortized cost basis of loans on nonaccrual status and loans 90 days or more past due and still accruing as of March 31, 2023:

	March 31, 2023
	Nonaccrual with No ACL		Nonaccrual with ACL		Total Nonaccrual		90 Days or More Past Due and Still Accruing
	(In thousands)
Consumer Loans	$	201	$	—	$	201	$	—
Total	$	201	$	—	$	201	$	—

The following table presents the amortized cost basis of collateral dependent loans by class as of March 31, 2023:

	March 31, 2023
	Real Estate		Total
	(In thousands)
Multifamily	$	1,620	$	1,620
Commercial Real Estate	$	45,155	$	45,155
Total	$	46,775	$	46,775

The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three months ended March 31, 2022:

		Three Months Ended March 31, 2022
		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied		$	178	$	3
Non-owner occupied		912		15
Multifamily		830		17
Commercial real estate		37,102		410
Total		39,022		445
Loans with an allowance:
One-to-four family residential:
Owner occupied		493		7
Non-owner occupied		519		9
Total		1,012		16
Total impaired loans:
One-to-four family residential:
Owner occupied		671		10
Non-owner occupied		1,431		24
Multifamily		830		17
Commercial real estate		37,102		410
Total		$	40,034	$	461

Troubled Debt Restructurings (“TDR”). On January 1, 2023, the Company adopted ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326) which eliminates the accounting guidance for TDR for creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower experiences financial difficulty. No loans to borrowers experiencing financial difficulty were modified in the three months ended March 31, 2023. At March 31, 2022, the Company had $2.1 million of TDRs. TDRs that default after they have been modified are typically evaluated individually on a collateral basis. For the three months ended March 31, 2022, no TDRs that had been modified in the previous 12 moths defaulted. The Company had no loan charge-offs for the three months ended March 31, 2023. We intend to disclose future loan charge-offs by year of origination in a vintage table, to be compliant with the ASU.