Loans Receivable and the Allowance for Loan Losses

6 Months Ended

Jun. 30, 2022

Loans Receivable and the Allowance for Loan Losses

Loans Receivable and the Allowance for Loan Losses

Note 6 — Loans Receivable and the Allowance for Loan Losses

Loans are stated at unpaid principal balances plus net deferred loan origination fees and costs less an allowance for loan losses. Interest on loans receivable is recorded on the accrual basis. An allowance for uncollected interest is established on loans where management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations or where interest or principal is 90 days or more past due, unless the loans are well secured with a reasonable expectation of collection. When a loan is placed on nonaccrual, an allowance for uncollected interest is established and charged against current income. Thereafter, interest income is not recognized unless the financial condition and payment record of the borrower warrant the recognition of interest income. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Interest on loans that have been restructured is accrued according to the renegotiated terms. Net loan origination fees and costs are deferred and amortized into interest income over the contractual lives of the related loans by use of the level yield method. Past due status of loans is based upon the contractual due date. Prepayment penalties received on loans which pay in full prior to the scheduled maturity are included in interest income in the period the prepayment penalties are collected.

The composition of loans were as follows at June 30, 2022 and December 31, 2021:

	June 30,		December 31,
	2022		2021
	(In Thousands)
Residential real estate:
One-to-four family	$	5,758	$	7,189
Multi-family		83,866		84,425
Mixed-use		23,495		28,744
Total residential real estate		113,119		120,358
Non-residential real estate		26,633		50,016
Construction		780,858		683,830
Commercial and industrial		102,594		118,378
Consumer		418		269
Total Loans		1,023,622		972,851
Allowance for loan losses		(5,467)		(5,242)
Deferred loan costs, net		527		484
	$	1,018,682	$	968,093

Loans serviced for the benefit of others totaled approximately $14,368,000 and $14,610,000 at June 30, 2022 and December 31, 2021, respectively. The value of mortgage servicing rights was not material at June 30, 2022 and December 31, 2021. The Company did not issue Payroll Protection Program (“PPP”) loans associated with the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (the “CARES Act”) in 2022 or 2021.

The Company had no loans to related parties at June 30, 2022 and December 31, 2021. In addition, the Company did not originate any loans to related parties in 2022 or 2021.

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The following tables summarize the allocation of the allowance for loan losses and loans receivable by loan class and impairment method at June 30, 2022 and December 31, 2021:

At June 30, 2022:

			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Ending balance	$	546	$	198	$	3,581	$	865	$	16	$	261	$	5,467
Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	546	$	198	$	3,581	$	865	$	16	$	261	$	5,467
Loans receivable:
Ending balance	$	113,119	$	26,633	$	780,858	$	102,594	$	418	$	—	$	1,023,622
Ending balance: individually evaluated for impairment	$	865	$	769	$	—	$	—	$	—	$	—	$	1,634
Ending balance: collectively evaluated for impairment	$	112,254	$	25,864	$	780,858	$	102,594	$	418	$	—	$	1,021,988

At December 31, 2021:

			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Ending balance	$	571	$	381	$	3,143	$	973	$	10	$	164	$	5,242
Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	571	$	381	$	3,143	$	973	$	10	$	164	$	5,242
Loans receivable:
Ending balance	$	120,358	$	50,016	$	683,830	$	118,378	$	269	$	—	$	972,851
Ending balance: individually evaluated for impairment	$	876	$	746	$	—	$	—	$	—	$	—	$	1,622
Ending balance: collectively evaluated for impairment	$	119,482	$	49,270	$	683,830	$	118,378	$	269	$	—	$	971,229

The activity in the allowance for loan loss by loan class for the three months ended June 30, 2022 and 2021 was as follows:

			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance - March 31, 2022	$	510	$	340	$	3,392	$	958	$	17	$	111	$	5,328
Charge-offs		—		—		—		—		(7)		—		(7)
Recoveries		146		—		—		—		—		—		146
Provision (Benefit)		(110)		(142)		189		(93)		6		150		—
Balance - June 30, 2022	$	546	$	198	$	3,581	$	865	$	16	$	261	$	5,467
			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance - March 31, 2021	$	699	$	501	$	3,144	$	756	$	2	$	—	$	5,102
Charge-offs		—		—		—		—		(9)		—		(9)
Recoveries		1		—		—		—		—		—		1
Provision (Benefit)		(13)		(25)		52		(74)		22		38		—
Balance - June 30, 2021	$	687	$	476	$	3,196	$	682	$	15	$	38	$	5,094

The activity in the allowance for loan loss by loan class for the six months ended June 30, 2022 and 2021 was as follows:

			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance - December 31, 2021	$	571	$	381	$	3,143	$	973	$	10	$	164	$	5,242
Charge-offs		—		—		—		—		(17)		—		(17)
Recoveries		189		53		—		—		—		—		242
Provision (Benefit)		(214)		(236)		438		(108)		23		97		—
Balance - June 30, 2022	$	546	$	198	$	3,581	$	865	$	16	$	261	$	5,467
			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance - December 31, 2020	$	707	$	519	$	3,068	$	774	$	20	$	—	$	5,088
Charge-offs		—		—		—		—		(20)		—		(20)
Recoveries		1		—		—		—		8		—		9
Provision (Benefit)		(21)		(43)		128		(92)		7		38		17
Balance - June 30, 2021	$	687	$	476	$	3,196	$	682	$	15	$	38	$	5,094

During the three months ended June 30, 2022, the provision expenses recorded for construction loans were primarily attributed to the increased loan balances. The credit provision recorded for residential loans was due to loan recoveries during the three-month period. The credit provision recorded for non-residential loans and commercial and industrial loans was due to decreased loan balances.

During the three months ended June 30, 2021, the provision expenses recorded for construction loans were primarily attributed to the increased loan balances. The credit provision recorded for other loan segments was primarily due to decreased loan balances.

During the six months ended June 30, 2022, the provision expenses recorded for construction loans were attributed to the increased loan balances. The credit provition recorded for residential loans was primarily due to loan recoveries during the six-month period. The credit provision recorded for non-residential loans was attributed to loan recoveries and

decreased loan balances. The credit provision recorded for commercial and industrial loans was primarily due to decreased loan balances.

During the six months ended June 30, 2021, the provision expenses recorded for construction loans were primarily attributed to the increased loan balances. The credit provision recorded for other loan segments was primarily due to decreased loan balances.

The following table shows our recorded investment, unpaid principal balance and allocated allowance for loan losses for loans that were considered impaired as of and for the periods presented:

As of and for the Three and Six months Ended June 30, 2022 and 2021:

							Three Months Ended June 30, 2022				Six Months Ended June 30, 2022
	Recorded		Unpaid Principal		Related		Average Recorded		Interest Income		Average Recorded		Interest Income
2022	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
	(In Thousands)
With no related allowance recorded:
Residential real estate-Multi-family	$	865	$	865	$	—	$	865	$	16	$	869	$	22
Non-residential real estate		769		836		—		768		4		760		14
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
		1,634		1,701		—		1,633		20		1,629		36
With an allowance recorded		—		—		—		—		—		—		—
Total:
Residential real estate-Multi-family		865		865		—		865		16		869		22
Non-residential real estate		769		836		—		768		4		760		14
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
	$	1,634	$	1,701	$	—	$	1,633	$	20	$	1,629	$	36
							Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
	Recorded		Unpaid Principal		Related		Average Recorded		Interest Income		Average Recorded		Interest Income
2021	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
	(In Thousands)
With no related allowance recorded:
Residential real estate-Multi-family	$	1,977	$	1,977	$	—	$	1,986	$	24	$	1,994	$	45
Non-residential real estate		4,334		4,401		—		4,337		8		4,378		17
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
		6,311		6,378		—		6,323		32		6,372		62
With an allowance recorded		—		—		—		—		—		—		—
Total:
Residential real estate-Multi-family		1,977		1,977		—		1,986		24		1,994		45
Non-residential real estate		4,334		4,401		—		4,337		8		4,378		17
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
	$	6,311	$	6,378	$	—	$	6,323	$	32	$	6,372	$	62

As of and for the Year Ended December 31, 2021:

	Recorded		Unpaid Principal		Related		Average Recorded		Interest Income
2021	Investment		Balance		Allowance		Investment		Recognized
	(In Thousands)
With no related allowance recorded:
Residential real estate-Multi-family	$	876	$	876	$	—	$	1,986	$	86
Non-residential real estate		746		813		—		3,891		36
Construction		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
		1,622		1,689		—		5,877		122
With an allowance recorded		—		—		—		—		—
Total:
Residential real estate-Multi-family		876		876		—		1,986		86
Non-residential real estate		746		813		—		3,891		36
Construction		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
	$	1,622	$	1,689	$	—	$	5,877	$	122

There were two non-accrual loans totaling $769,000 as of June 30, 2022. The two non-accrual loans are non-residential loans from one borrower and are secured by the same property that is in foreclosure due to a maturity default at June 30, 2022. The Company did not recognize any interest income on non-accrual loans during the six months ended June 30, 2022 and 2021. Interest income that would have been recorded had the loans been on accrual status would have amounted to approximately $7,000 for the three and six months ended June 30, 2022. The Company is not committed to lend additional funds to borrowers whose loans have been placed on non-accrual status. There were no non-accrual loans at December 31, 2021.

The following tables provide information about delinquencies in our loan portfolio at the dates indicated.

Age Analysis of Past Due Loans as of June 30, 2022:

													Recorded
													Investment >
	30 – 59 Days		60 – 89 Days		Greater Than		Total Past				Total Loans		90 Days and
	Past Due		Past Due		90 Days		Due		Current		Receivable		Accruing
	(In Thousands)
Residential real estate:
One- to four-family	$	—	$	—	$	—	$	—	$	5,758	$	5,758	$	—
Multi-family		—		949		—		949		82,917		83,866		—
Mixed-use		—		—		—		—		23,495		23,495		—
Non-residential real estate		—		769		—		769		25,864		26,633		—
Construction loans		—		—		—		—		780,858		780,858		—
Commercial and industrial loans		—		—		—		—		102,594		102,594		—
Consumer		—		—		—		—		418		418		—
	$	—	$	1,718	$	—	$	1,718	$	1,021,904	$	1,023,622	$	—

Age Analysis of Past Due Loans as of December 31, 2021:

													Recorded
													Investment
	30 – 59 Days		60 – 89 Days		Greater Than		Total Past				Total Loans		> 90 Days and
	Past Due		Past Due		90 Days		Due		Current		Receivable		Accruing
	(In Thousands)
Residential real estate:
One- to four-family	$	—	$	—	$	—	$	—	$	7,189	$	7,189	$	—
Multi-family		—		—		—		—		84,425		84,425		—
Mixed-use		—		—		—		—		28,744		28,744		—
Non-residential real estate		—		—		—		—		50,016		50,016		—
Construction loans		—		—		—		—		683,830		683,830		—
Commercial and industrial loans		—		—		—		—		118,378		118,378		—
Consumer		—		—		—		—		269		269		—
	$	—	$	—	$	—	$	—	$	972,851	$	972,851	$	—

The following tables provide certain information related to the credit quality of our loan portfolio.

Credit Risk Profile by Internally Assigned Grade as of June 30, 2022:

	Residential		Non-residential				Commercial
	Real Estate		Real Estate		Construction		and Industrial		Consumer		Total
	(In Thousands)
Grade:
Pass	$	113,119	$	25,864	$	780,858	$	102,594	$	418	$	1,022,853
Special Mention		—		—		—		—		—		—
Substandard		—		769		—		—		—		769
Doubtful		—		—		—		—		—		—
	$	113,119	$	26,633	$	780,858	$	102,594	$	418	$	1,023,622

Credit Risk Profile by Internally Assigned Grade as of December 31, 2021:

	Residential		Non-residential				Commercial
	Real Estate		Real Estate		Construction		and Industrial		Consumer		Total
	(In Thousands)
Grade:
Pass	$	120,358	$	49,270	$	683,830	$	118,378	$	269	$	972,105
Special Mention		—		—		—		—		—		—
Substandard		—		746		—		—		—		746
Doubtful		—		—		—		—		—		—
	$	120,358	$	50,016	$	683,830	$	118,378	$	269	$	972,851

Troubled Debt Restructuring:

The following table shows our recorded investment for loans classified as a troubled debt restructuring (a “TDR”) that are performing according to their restructured terms at the periods indicated:

	June 30,			December 31,
	2022			2021
	Number of	Recorded		Number of	Recorded
	contracts	Investment		contracts	Investment
	(Dollars in Thousands)
Residential Real Estate - Mixed-use	2	$	865	2	$	876
Non-residential real estate	—		—	2		746
Total performing	2	$	865	4	$	1,622

The following is a summary of interest foregone on loans classified as a TDR for the three and six month periods ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In Thousands)				(In Thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	18	$	33	$	42	$	76
Less: Interest income included in the results of operations		14		32		36		62
Total foregone interest	$	4	$	1	$	6	$	14

There were no loans modified that were deemed to be a TDR during the six months ended June 30, 2022 and 2021. During the three and six months ended June 30, 2022, two TDR loans were placed on non-accrual status due to maturity default. During the three and six months ended June 30, 2021, none of the loans that were modified during the previous twelve months had defaulted.

The CARES Act includes a provision for the Company to opt out of applying the “troubled-debt restructuring” (“TDR”) accounting guidance in ASC 310-40 for certain loan modifications. Loan modifications made between March 1, 2020 and the earlier of  (1) January 1, 2022 or (2) 60 days after the President declares a termination of the COVID-19 national emergency were eligible for this relief if the related loans were not more than 30 days past due as of December 31, 2020. As of June 30, 2022, we had no loans in deferral status under the CARES Act.