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Note 3 - Loans Receivable

9 Months Ended

Sep. 30, 2024

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 3 - Loans Receivable

The Company has identified three segments of its loan portfolio that reflect the structure of the lending function, the Company's strategic plan and the manner in which management monitors performance and credit quality. The three loan portfolio segments are: Real Estate Loans, Consumer Loans and Commercial Business Loans. These segments are further disaggregated into classes based on similar attributes and risk characteristics.

Loan amounts are presented at amortized cost which is comprised of the loan balance net of unearned loan fees in excess of unamortized costs and unamortized purchase premiums of $19.5 million as of September 30, 2024 and $14.8 million as of December 31, 2023. The amortized cost reflected in total loans receivable does not include accrued interest receivable. Accrued interest receivable on loans was $6.5 million as of September 30, 2024 and $6.0 million as of December 31, 2023, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the calculation of the allowance for credit losses on loans.

The amortized cost of loans receivable, net of the allowance for credit losses on loans ("ACLL"), consisted of the following at the dates indicated:

	September 30, 2024			December 31, 2023
	(In thousands)
Real Estate:
One-to-four family	$	395,792		$	378,432
Multi-family		353,813			333,094
Commercial real estate		376,008			387,983
Construction and land		95,709			129,691
Total real estate loans		1,221,322			1,229,200
Consumer:
Home equity		76,960			69,403
Auto and other consumer		281,198			249,130
Total consumer loans		358,158			318,533
Commercial business loans		155,327			112,295
Total loans receivable		1,734,807			1,660,028
Less:
Derivative basis adjustment		(1,579	)		—
Allowance for credit losses on loans		21,970			17,510
Total loans receivable, net	$	1,714,416		$	1,642,518

Nonaccrual Loans. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. For those loans placed on nonaccrual status due to payment delinquency, return to accrual status will generally not occur until the borrower demonstrates repayment ability over a period of not less than six months.

The following table presents the amortized cost of nonaccrual loans by class of loan at the dates indicated:

	September 30, 2024						December 31, 2023
	Nonaccrual Loans with ACLL		Nonaccrual Loans with No ACLL		Total Nonaccrual Loans		Nonaccrual Loans with ACLL		Nonaccrual Loans with No ACLL		Total Nonaccrual Loans
	(In thousands)
One-to-four family	$	312	$	1,319	$	1,631	$	418	$	1,426	$	1,844
Multi-family		—		—		—		—		—		—
Commercial real estate		10		5,624		5,634		28		—		28
Construction and land		16		19,366		19,382		6		14,980		14,986
Home equity		87		29		116		92		31		123
Auto and other consumer		31		863		894		38		748		786
Commercial business		2,100		619		2,719		165		712		877
Total nonaccrual loans	$	2,556	$	27,820	$	30,376	$	747	$	17,897	$	18,644

Interest income recognized on a cash basis on nonaccrual loans for the three months ended September 30, 2024 and 2023, was $1,000 and $19,000, respectively. Interest income recognized on a cash basis on nonaccrual loans for the nine months ended September 30, 2024 and 2023, was $35,000 and $52,000, respectively.

Past due loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. There were no loans past due 90 days or more and still accruing interest at September 30, 2024 and December 31, 2023.

The following tables present the amortized cost of past due loans (including both accruing and nonaccruing loans) by segment and class as of the periods shown:

	30-59 Days		60-89 Days		90 Days or More		Total
September 30, 2024		Past Due		Past Due		Past Due		Past Due		Current		Total Loans
	(In thousands)
Real Estate:
One-to-four family	$	—	$	360	$	1,003	$	1,363	$	394,429	$	395,792
Multi-family		—		—		—		—		353,813		353,813
Commercial real estate		—		—		5,624		5,624		370,384		376,008
Construction and land		—		8,172		11,198		19,370		76,339		95,709
Total real estate loans		—		8,532		17,825		26,357		1,194,965		1,221,322
Consumer:
Home equity		53		29		—		82		76,878		76,960
Auto and other consumer		2,378		430		894		3,702		277,496		281,198
Total consumer loans		2,431		459		894		3,784		354,374		358,158
Commercial business loans		1,350		646		605		2,601		152,726		155,327
Total loans	$	3,781	$	9,637	$	19,324	$	32,742	$	1,702,065	$	1,734,807

	30-59 Days		60-89 Days		90 Days or More		Total
December 31, 2023		Past Due		Past Due		Past Due		Past Due		Current		Total Loans
	(In thousands)
Real Estate:
One-to-four family	$	802	$	—	$	1,010	$	1,812	$	376,620	$	378,432
Multi-family		—		—		—		—		333,094		333,094
Commercial real estate		—		8,526		—		8,526		379,457		387,983
Construction and land		14		—		—		14		129,677		129,691
Total real estate loans		816		8,526		1,010		10,352		1,218,848		1,229,200
Consumer:
Home equity		59		—		—		59		69,344		69,403
Auto and other consumer		1,854		601		791		3,246		245,884		249,130
Total consumer loans		1,913		601		791		3,305		315,228		318,533
Commercial business loans		1,117		757		—		1,874		110,421		112,295
Total loans	$	3,846	$	9,884	$	1,801	$	15,531	$	1,644,497	$	1,660,028

Credit quality indicator. Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful, or loss; risk ratings 6, 7, and 8 in our 8-point risk rating system, respectively. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When First Fed classifies problem assets as either substandard or doubtful, it may choose to individually evaluate the expected credit loss or may determine that the characteristics are not significantly different from those in pooled loan analysis. The Company evaluates individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose First Fed to sufficient risk to warrant classification as substandard or doubtful but possess identified weaknesses are designated as either watch or special mention assets; risk ratings 4 and 5 in our risk rating system, respectively. Loans not otherwise classified are considered pass graded loans and are rated 1-3 in our risk rating system.

The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of September 30, 2024, as well as gross charge-off activity for the nine months ended September 30, 2024. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

	Term Loans by Year of Origination or Most Recent Renewal or Extension ⁽¹⁾												Revolving		Total
	2024		2023		2022		2021		2020		Prior		Loans		Loans
	(In thousands)
One-to-four family
Pass (Grades 1-3)	$	725	$	10,300	$	125,483	$	117,096	$	65,822	$	69,553	$	—	$	388,979
Watch (Grade 4)		—		—		570		1,314		1,011		2,170		—		5,065
Special Mention (Grade 5)		—		—		—		—		—		79		—		79
Substandard (Grade 6)		—		—		—		—		845		824		—		1,669
Total one-to-four family		725		10,300		126,053		118,410		67,678		72,626		—		395,792
Gross charge-offs year-to-date		—		—		—		—		—		—		—		—
Multi-family
Pass (Grades 1-3)		7,185		37,138		107,903		94,588		50,179		11,417		—		308,410
Watch (Grade 4)		8,787		14,869		1,772		16,208		2,787		980		—		45,403
Total multi-family		15,972		52,007		109,675		110,796		52,966		12,397		—		353,813
Gross charge-offs year-to-date		—		—		—		—		—		—		—		—
Commercial Real Estate
Pass (Grades 1-3)		13,843		52,041		72,061		98,202		68,103		31,619		—		335,869
Watch (Grade 4)		556		3,801		10,430		—		8,522		772		—		24,081
Special Mention (Grade 5)		—		—		—		—		1,265		2,720		—		3,985
Substandard (Grade 6)		—		—		10		12,063		—		—		—		12,073
Total commercial real estate		14,399		55,842		82,501		110,265		77,890		35,111		—		376,008
Gross charge-offs year-to-date		—		—		—		—		—		—		—		—
Construction and Land
Pass (Grades 1-3)		21,753		15,971		20,158		11,394		512		559		—		70,347
Watch (Grade 4)		192		5,541		—		224		—		25		—		5,982
Substandard (Grade 6)		8,177		11,187		—		—		—		16		—		19,380
Total construction and land		30,122		32,699		20,158		11,618		512		600		—		95,709
Gross charge-offs year-to-date		—		3,978		—		—		—		—		—		3,978
Home Equity
Pass (Grades 1-3)		4,554		6,169		6,564		4,282		2,695		4,834		47,262		76,360
Watch (Grade 4)		—		—		—		—		36		27		411		474
Substandard (Grade 6)		—		—		—		29		55		11		31		126
Total home equity		4,554		6,169		6,564		4,311		2,786		4,872		47,704		76,960
Gross charge-offs year-to-date		—		—		—		—		—		—		—		—
Auto and Other Consumer
Pass (Grades 1-3)		57,620		49,772		69,604		38,192		13,372		48,000		515		277,075
Watch (Grade 4)		1,032		524		572		59		386		225		1		2,799
Special Mention (Grade 5)		206		70		—		148		6		—		—		430
Substandard (Grade 6)		31		111		224		241		134		153		—		894
Total auto and other consumer		58,889		50,477		70,400		38,640		13,898		48,378		516		281,198
Gross charge-offs year-to-date		—		406		1,319		92		17		234		62		2,130
Commercial business
Pass (Grades 1-3)		22,827		21,000		9,059		4,047		1,714		42,683		35,786		137,116
Watch (Grade 4)		—		144		1,086		90		—		—		974		2,294
Special Mention (Grade 5)		—		—		1,534		1,595		—		—		—		3,129
Substandard (Grade 6)		1,619		263		5,649		2,145		614		—		2,495		12,785
Loss (Grade 8)		—		—		—		—		—		—		3		3
Total commercial business		24,446		21,407		17,328		7,877		2,328		42,683		39,258		155,327
Gross charge-offs year-to-date		—		—		813		1,748		139		—		—		2,700
Total loans
Pass (Grades 1-3)		128,507		192,391		410,832		367,801		202,397		208,665		83,563		1,594,156
Watch (Grade 4)		10,567		24,879		14,430		17,895		12,742		4,199		1,386		86,098
Special Mention (Grade 5)		206		70		1,534		1,743		1,271		2,799		—		7,623
Substandard (Grade 6)		9,827		11,561		5,883		14,478		1,648		1,004		2,526		46,927
Loss (Grade 8)		—		—		—		—		—		—		3		3
Total loans	$	149,107	$	228,901	$	432,679	$	401,917	$	218,058	$	216,667	$	87,478	$	1,734,807
Total gross charge-offs year-to-date	$	—	$	4,384	$	2,132	$	1,840	$	156	$	234	$	62	$	8,808

(1) Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of December 31, 2023, as well as gross charge-off activity for the year then ended. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

	Term Loans by Year of Origination or Most Recent Renewal or Extension ⁽¹⁾													Revolving		Total
	2023		2022		2021		2020		2019		Prior			Loans		Loans
	(In thousands)
One-to-four family
Pass (Grades 1-3)	$	2,282	$	102,389	$	118,028	$	69,229	$	13,882	$	65,701		$	—	$	371,511
Watch (Grade 4)		—		275		1,338		1,569		—		1,295			—		4,477
Special Mention (Grade 5)		—		—		—		300		—		80			—		380
Substandard (Grade 6)		—		—		—		327		482		1,255			—		2,064
Total one-to-four family		2,282		102,664		119,366		71,425		14,364		68,331			—		378,432
Gross charge-offs for the year		—		—		—		—		—		—			—		—
Multi-family
Pass (Grades 1-3)		52,208		105,902		88,293		57,588		6,922		5,356			—		316,269
Watch (Grade 4)		—		—		15,126		708		—		991			—		16,825
Total multi-family		52,208		105,902		103,419		58,296		6,922		6,347			—		333,094
Gross charge-offs for the year		—		—		—		—		—		—			—		—
Commercial Real Estate
Pass (Grades 1-3)		52,823		87,712		99,058		76,664		13,096		22,425			—		351,778
Watch (Grade 4)		4,433		1,168		1,340		8,829		3,561		496			—		19,827
Special Mention (Grade 5)		—		—		6,528		—		—		2			—		6,530
Substandard (Grade 6)		—		28		8,526		1,294		—		—			—		9,848
Total commercial real estate		57,256		88,908		115,452		86,787		16,657		22,923			—		387,983
Gross charge-offs for the year		—		—		—		—		—		—			—		—
Construction and Land
Pass (Grades 1-3)		20,772		49,508		23,988		727		344		464			—		95,803
Watch (Grade 4)		6,512		4,935		229		—		—		15			—		11,691
Special Mention (Grade 5)		7,196		—		—		—		—		14			—		7,210
Substandard (Grade 6)		14,981		—		—		—		—		6			—		14,987
Total construction and land		49,461		54,443		24,217		727		344		499			—		129,691
Gross charge-offs for the year		—		—		—		—		—		—			—		—
Home Equity
Pass (Grades 1-3)		7,179		7,169		4,638		3,063		1,331		4,283			41,105		68,768
Watch (Grade 4)		—		—		—		—		—		155			345		500
Substandard (Grade 6)		—		—		30		59		—		13			33		135
Total home equity		7,179		7,169		4,668		3,122		1,331		4,451			41,483		69,403
Gross charge-offs for the year		—		—		—		—		—		10			—		10
Auto and Other Consumer
Pass (Grades 1-3)		49,649		69,052		64,101		29,113		14,660		18,593			385		245,553
Watch (Grade 4)		270		919		579		204		138		59			4		2,173
Special Mention (Grade 5)		90		334		33		162		—		—			—		619
Substandard (Grade 6)		84		393		—		—		30		278			—		785
Total auto and other consumer		50,093		70,698		64,713		29,479		14,828		18,930			389		249,130
Gross charge-offs for the year		—		3,018		15		52		11		112			104		3,312
Commercial business
Pass (Grades 1-3)		23,499		19,191		11,032		2,440		455		13,635			29,976		100,228
Watch (Grade 4)		340		62		275		270		—		(1	)		3,806		4,752
Substandard (Grade 6)		291		3,653		104		779		—		(1	)		2,489		7,315
Total commercial business		24,130		22,906		11,411		3,489		455		13,633			36,271		112,295
Gross charge-offs for the year		—		—		—		—		—		—			—		—
Total loans
Pass (Grades 1-3)		208,412		440,923		409,138		238,824		50,690		130,457			71,466		1,549,910
Watch (Grade 4)		11,555		7,359		18,887		11,580		3,699		3,010			4,155		60,245
Special Mention (Grade 5)		7,286		334		6,561		462		—		96			—		14,739
Substandard (Grade 6)		15,356		4,074		8,660		2,459		512		1,551			2,522		35,134
Total loans	$	242,609	$	452,690	$	443,246	$	253,325	$	54,901	$	135,114		$	78,143	$	1,660,028
Total Gross charge-offs for the year	$	—	$	3,018	$	15	$	52	$	11	$	122		$	104	$	3,322

(1) Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

Individually Evaluated Loans. The Company evaluates loans collectively for purposes of determining the ACLL in accordance with ASC 326 by aggregating loans deemed to possess similar risk characteristics and individually evaluates loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. These loans are typically identified from a substandard or worse internal risk grade, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, modified loans made to borrowers experiencing financial difficulty, 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 possess unique risk characteristics are evaluated individually for purposes of determining an appropriate lifetime ACLL. 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. Collateral dependent loans are evaluated based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACLL for collateral dependent individually evaluated loans based on changes in the estimated expected fair value of the collateral. In cases where the loan is well-secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACLL is recorded. Changes in the ACLL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

As of September 30, 2024, $31.8 million of loans were individually evaluated with $2.6 million of ACLL attributed to such loans. At September 30, 2024, eight individually evaluated loans totaling $4.6 million were evaluated using a discounted cash flow approach and the remaining loans totaling $27.2 million were evaluated based on the underlying value of the collateral. One loan evaluated using the discounted cash flow method remained on accrual at quarter end, while the other loans evaluated using the discounted cash flow method and all loans evaluated based on collateral value were on nonaccrual at September 30, 2024.

At December 31, 2023, $20.0 million of loans were individually evaluated with $165,000 of ACLL attributed to such loans. At December 31, 2023, one individually evaluated loan with a recorded investment of $2.5 million was evaluated using a discounted cash flow approach and the remaining loans totaling $17.5 million were evaluated based on the underlying value of the collateral. The loan evaluated using the discounted cash flow method was accruing at year end, while the collateral dependent loans were all on nonaccrual status at December 31, 2023.

Collateral Dependent Loans. Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral.

The following table summarizes individually evaluated collateral dependent loans by segment and collateral type as of the periods shown:

	Collateral Type
September 30, 2024		Single Family Residence		Warehouse		Condominium		Automobile		Business Assets		Total
	(In thousands)
One-to-four family	$	1,319	$	—	$	—	$	—	$	—	$	1,319
Commercial real estate		—		5,624		—		—		—		5,624
Construction and land		8,178		—		11,187		—		—		19,365
Home equity		29		—		—		—		—		29
Auto and other consumer		—		—		—		241		—		241
Commercial business		—		—		—		—		603		603
Total collateral dependent loans	$	9,526	$	5,624	$	11,187	$	241	$	603	$	27,181

	Collateral Type
December 31, 2023		Single Family Residence		Condominium		Automobile		Business Assets		Total
	(In thousands)
One-to-four family	$	1,426	$	—	$	—	$	—	$	1,426
Construction and land		—		14,981		—		—		14,981
Home equity		30		—		—		—		30
Auto and other consumer		—		—		180		—		180
Commercial business		—		119		—		652		771
Total collateral dependent loans	$	1,456	$	15,100	$	180	$	652	$	17,388

Modified Loans to Troubled Borrowers. On January 1, 2023, the Company adopted ASU 2022-02, which introduced new reporting requirements for modifications of loans to borrowers experiencing financial difficulty. The Company refers to these loans as modified loans to troubled borrowers ("MLTB"). A MLTB arises from a modification made to a loan in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, which consist of the following: principal forgiveness, interest rate reduction, other-than-insignificant payment delay, term extension, or any combination of the foregoing. The ACLL for a MLTB 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 ACLL for a MLTB is determined through individual evaluation.

During the nine months ended September 30, 2024, there was one new MLTB, a commercial business loan with a recorded investment of $17,000 for which the Bank agreed to defer payments. The borrower has agreed to resume principal and interest payments at the end of the deferral period. The loan was current at September 30, 2024, based on the modified terms.

During the year ended December 31, 2023, there was one new MLTB, a commercial business loan with a recorded investment of $119,000 for which the Bank agreed to defer principal payments. The borrower continues to make interest-only payments and the loan was current at year end based on the modified terms.