Note 4 - Allowance for Credit Losses on Loans

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Credit Loss, Financial Instrument [Text Block]

Note 4 - Allowance for Credit Losses on Loans

The Company maintains an ACLL and an ACLUC in accordance with ASC 326: Financial Instruments - Credit Losses. ASC 326 requires the Company to recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition. The recognition of credit losses at origination or acquisition represents the Company’s best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics. Determining the ACLL involves the use of significant management judgement and estimates, which are subject to change based on management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the Bank's Current Expected Credit Loss ("CECL") model. The reserve is an estimate based upon factors and trends at the time the financial statements are prepared. The Company adopted ASU 2016-13 effective January 1, 2023, which increased the beginning ACLL.

The Company has identified segments of loans with similar risk characteristics for which it then applies one of two loss methodologies. The Company uses a DCF methodology for most of its segments to calculate the ACLL. For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a Remaining Life methodology. The Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. The allowance for individually evaluated loans is calculated using the collateral value method, which considers the likely source of repayment as the value of the collateral, less estimated costs to sell, or another method such as the cash flow method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt. When the cash flow method is used, cash flows are discounted back by the effective interest rate and compared to the total recorded investment. If the present value of cash flows is less than the total recorded investment, a reserve is calculated.

The following tables detail activity in the allowance for credit losses on loans by class for the periods shown:

	At or For the Three Months Ended September 30, 2024
	Beginning Balance		Charge-offs			Recoveries		(Recapture of) Provision for Credit Losses			Ending Balance
	(In thousands)
One-to-four family	$	4,536	$	—		$	42	$	(270	)	$	4,308
Multi-family		1,624		—			—		965			2,589
Commercial real estate		3,132		—			—		(495	)		2,637
Construction and land		801		—			—		(85	)		716
Home equity		1,692		—			—		(446	)		1,246
Auto and other consumer		2,596		(492	)		24		805			2,933
Commercial business		4,962		(24	)		—		2,603			7,541
Total	$	19,343	$	(516	)	$	66	$	3,077		$	21,970

	At or For the Nine Months Ended September 30, 2024
	Beginning Balance		Charge-offs			Recoveries		Provision for (Recapture of) Credit Losses			Ending Balance
	(In thousands)
One-to-four family	$	2,975	$	—		$	44	$	1,289		$	4,308
Multi-family		1,154		—			—		1,435			2,589
Commercial real estate		3,671		—			—		(1,034	)		2,637
Construction and land		1,889		(3,978	)		—		2,805			716
Home equity		1,077		—			—		169			1,246
Auto and other consumer		4,409		(2,130	)		268		386			2,933
Commercial business		2,335		(2,700	)		—		7,906			7,541
Total	$	17,510	$	(8,808	)	$	312	$	12,956		$	21,970

	At or For the Three Months Ended September 30, 2023
	Beginning Balance		Charge-offs			Recoveries			Provision for (Recapture of) Credit Losses			Ending Balance
	(In thousands)
One-to-four family	$	3,012	$	—		$	—		$	526		$	3,538
Multi-family		1,041		—			—			230			1,271
Commercial real estate		2,924		—			—			(390	)		2,534
Construction and land		2,535		—			—			(352	)		2,183
Home equity		1,125		—			—			178			1,303
Auto and other consumer		4,795		(731	)		(501	)		601			4,164
Commercial business		1,865		—			—			87			1,952
Total	$	17,297	$	(731	)	$	(501	)	$	880		$	16,945

	At or For the Nine Months Ended September 30, 2023
	Beginning Balance		Impact of Day 1 CECL Adoption			Adjusted Beginning Balance		Charge-offs			Recoveries		Provision for (Recapture of) Credit Losses			Ending Balance
	(In thousands)
One-to-four family	$	3,343	$	(429	)	$	2,914	$	—		$	4	$	620		$	3,538
Multi-family		2,468		(1,449	)		1,019		—			—		252			1,271
Commercial real estate		4,217		(604	)		3,613		—			—		(1,079	)		2,534
Construction and land		2,344		1,555			3,899		—			—		(1,716	)		2,183
Home equity		549		346			895		(11	)		5		414			1,303
Auto and other consumer		2,024		2,381			4,405		(2,657	)		84		2,332			4,164
Commercial business		786		794			1,580		—			—		372			1,952
Unallocated		385		(385	)		—		—			—		—			—
Total	$	16,116	$	2,209		$	18,325	$	(2,668	)	$	93	$	1,195		$	16,945

Allowance for Credit Losses on Unfunded Loan Commitments. The Company estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Company has determined that no allowance is necessary for its home equity line of credit portfolio as it has the contractual ability to unconditionally cancel the available lines of credit. The allowance methodology is similar to the ACLL, but additionally includes an estimate of the future utilization of the commitment as determined by historical commitment utilization. The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class. The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision, or recapture of provision, for credit losses on unfunded commitments on the Consolidated Statements of Income. The allowance for unfunded commitments was $704,000 and $817,000 at September 30, 2024, and December 31, 2023, respectively.