Loans Receivable and the Allowance for Loan Losses

9 Months Ended

Sep. 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 September 30, 2022 and December 31, 2021:

	September 30,		December 31,
	2022		2021
	(In Thousands)
Residential real estate:
One-to-four family	$	5,706	$	7,189
Multi-family		88,418		84,425
Mixed-use		22,817		28,744
Total residential real estate		116,941		120,358
Non-residential real estate		25,587		50,016
Construction		862,450		683,830
Commercial and industrial		111,416		118,378
Consumer		1,023		269
Total Loans		1,117,417		972,851
Deferred loan costs, net		551		484
Allowance for loan losses		(5,461)		(5,242)
	$	1,112,507	$	968,093

Loans serviced for the benefit of others totaled approximately $16,585,000 and $14,610,000 at September 30, 2022 and December 31, 2021, respectively. The value of mortgage servicing rights was not material at September 30, 2022 and December 31, 2021. The Company did not originate 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 September 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 September 30, 2022 and December 31, 2021:

At September 30, 2022:

			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Ending balance	$	395	$	143	$	3,893	$	931	$	35	$	64	$	5,461
Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	395	$	143	$	3,893	$	931	$	35	$	64	$	5,461
Loans receivable:
Ending balance	$	116,941	$	25,587	$	862,450	$	111,416	$	1,023	$	—	$	1,117,417
Ending balance: individually evaluated for impairment	$	861	$	—	$	—	$	—	$	—	$	—	$	861
Ending balance: collectively evaluated for impairment	$	116,080	$	25,587	$	862,450	$	111,416	$	1,023	$	—	$	1,116,556

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 September 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 - June 30, 2022	$	546	$	198	$	3,581	$	865	$	16	$	261	$	5,467
Charge-offs		—		—		—		—		(6)		—		(6)
Recoveries		—		—		—		—		—		—		—
Provision (Benefit)		(151)		(55)		312		66		25		(197)		—
Balance -September 30, 2022	$	395	$	143	$	3,893	$	931	$	35	$	64	$	5,461
			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance - June 30, 2021	$	687	$	476	$	3,196	$	682	$	15	$	38	$	5,094
Charge-offs		—		(3,593)		—		—		(3)		—		(3,596)
Recoveries		151		—		—		—		—		—		151
Provision (Benefit)		(321)		3,512		51		195		(11)		167		3,593
Balance - September 30, 2021	$	517	$	395	$	3,247	$	877	$	1	$	205	$	5,242

The activity in the allowance for loan loss by loan class for the nine months ended September 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		—		—		—		—		(23)		—		(23)
Recoveries		189		53		—		—		—		—		242
Provision (Benefit)		(365)		(291)		750		(42)		48		(100)		—
Balance - September 30, 2022	$	395	$	143	$	3,893	$	931	$	35	$	64	$	5,461
			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		—		(3,593)		—		—		(23)		—		(3,616)
Recoveries		152		—		—		—		8		—		160
Provision (Benefit)		(342)		3,469		179		103		(4)		205		3,610
Balance - September 30, 2021	$	517	$	395	$	3,247	$	877	$	1	$	205	$	5,242

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

During the three months ended September 30, 2021, the provision expenses recorded for non-residential loans were primarily attributed to the previously disclosed charge-off of $3.6 million during the three months ended September 30, 2021 regarding a nonresidential bridge loan secured by real estate with a balance of $3.6 million. The provision expenses recorded for commercial and industrial loan and construction loan segments were primarily due to increased loan balances, and the credit provision recorded for residential real estate loan segment was due to decreased loan balance.

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

During the nine months ended September 30, 2021, the provision expenses recorded were primarily attributed to the previously disclosed charge-off of $3.6 million during the nine months ended September 30, 2021 regarding a nonresidential bridge loan secured by real estate with a balance of $3.6 million, as well as increased loan balances in construction loan and commercial and industrial loan segments. The credit provision recorded for residential real estate was 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 Nine months Ended September 30, 2022 and 2021:

							Three Months Ended September 30, 2022				Nine Months Ended September 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	$	861	$	861	$	—	$	863	$	11	$	867	$	33
Non-residential real estate		—		—		—		385		—		570		14
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
		861		861		—		1,248		11		1,437		47
With an allowance recorded		—		—		—		—		—		—		—
Total:
Residential real estate-Multi-family		861		861		—		863		11		867		33
Non-residential real estate		—		—		—		385		—		570		14
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
	$	861	$	861	$	—	$	1,248	$	11	$	1,437	$	47
							Three Months Ended September 30, 2021				Nine Months Ended September 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	$	1,964	$	1,964	$	—	$	1,971	$	24	$	1,986	$	69
Non-residential real estate		740		807		—		2,571		9		3,486		26
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
		2,704		2,771		—		4,542		33		5,472		95
With an allowance recorded		—		—		—		—		—		—		—
Total:
Residential real estate-Multi-family		1,964		1,964		—		1,971		24		1,986		69
Non-residential real estate		740		807		—		2,571		9		3,486		26
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
	$	2,704	$	2,771	$	—	$	4,542	$	33	$	5,472	$	95

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 no non-accrual loans at September 30, 2022. The Company did not recognize any interest income on non-accrual loans during the nine months ended September 30, 2022 and 2021. During the three months ended September 30, 2022, the Company collected $23,000 interest income from a non-accrual loan that was satisfied in July 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 September 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	$	—	$	—	$	—	$	—	$	5,706	$	5,706	$	—
Multi-family		—		—		—		—		88,418		88,418		—
Mixed-use		—		—		—		—		22,817		22,817		—
Non-residential real estate		—		—		—		—		25,587		25,587		—
Construction loans		—		1,578		—		1,578		860,872		862,450		—
Commercial and industrial loans		—		—		—		—		111,416		111,416		—
Consumer		—		—		—		—		1,023		1,023		—
	$	—	$	1,578	$	—	$	1,578	$	1,115,839	$	1,117,417	$	—

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 September 30, 2022:

	Residential		Non-residential				Commercial
	Real Estate		Real Estate		Construction		and Industrial		Consumer		Total
	(In Thousands)
Grade:
Pass	$	116,941	$	25,587	$	862,450	$	111,416	$	1,023	$	1,117,417
Special Mention		—		—		—		—		—		—
Substandard		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—
	$	116,941	$	25,587	$	862,450	$	111,416	$	1,023	$	1,117,417

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:

	September 30,			December 31,
	2022			2021
	Number of	Recorded		Number of	Recorded
	contracts	Investment		contracts	Investment
	(Dollars in Thousands)
Residential Real Estate - Mixed-use	2	$	861	2	$	876
Non-residential real estate	—		—	2		746
Total performing	2	$	861	4	$	1,622

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

	Three Months Ended September 30,				Nine Months Ended September 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	$	21	$	54	$	62	$	130
Less: Interest income included in the results of operations		11		33		47		95
Total foregone interest	$	10	$	21	$	15	$	35

There were no loans modified that were deemed to be a TDR during the nine months ended September 30, 2022 and 2021. During the three and nine months ended September 30, 2022 and 2021, none of the loans that were modified during the previous twelve months had defaulted.