Loans Receivable and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

Receivables [Abstract]

Loans Receivable and Allowance for Credit Losses

Note 5. Loans Receivable and Allowance for Credit Losses

Loans receivable at March 31, 2024 and December 31, 2023 are summarized as follows:

	March 31,			December 31,
	2024			2023
	(in thousands)
Mortgage loans:
1-4 Family residential
Investor-Owned	$	339,331		$	343,689
Owner-Occupied		150,842			152,311
Multifamily residential		545,825			550,559
Nonresidential properties		327,350			342,343
Construction and land		608,665			503,925
Total mortgage loans		1,972,013			1,892,827
Nonmortgage loans:
Business loans		26,664			19,779
Consumer loans (1)		6,741			8,966
Total non-mortgage loans		33,405			28,745
Total loans, gross		2,005,418			1,921,572
Net deferred loan origination costs		674			468
Allowance for Credit Losses		(24,664	)		(26,154	)
Loans receivable, net	$	1,981,428		$	1,895,886

(1)As of March 31, 2024 and December 31, 2023, consumer loans include $5.7 million and $8.0 million, respectively, of microloans originated by the Bank pursuant to its arrangement with Grain.

The Company’s lending activities are conducted principally in metropolitan New York City. The Company primarily grants loans secured by real estate to individuals and businesses pursuant to an established credit policy applicable to each type of lending activity in which it engages. Although collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment to be based on the borrowers’ ability to generate continuing cash flows. The Company also evaluates the collateral and creditworthiness of each customer. The credit policy provides that depending on the borrowers’ creditworthiness and type of collateral, credit may be extended up to predetermined percentages of the market value of the collateral or on an unsecured basis. Real estate is the primary form of collateral. Other important forms of collateral are time deposits and marketable securities.

For disclosures related to the allowance for credit losses and credit quality, the Company does not have any disaggregated classes of loans below the segment level.

Credit-Quality Indicators: Internally assigned risk ratings are used as credit-quality indicators, which are reviewed by management on a quarterly basis.

The objectives of the Company’s risk-rating system are to provide the Board of Directors and senior management with an objective assessment of the overall quality of the loan portfolio, to promptly and accurately identify loans with well-defined credit weaknesses so that timely action can be taken to minimize credit loss, to identify relevant trends affecting the collectability of the loan portfolio, to isolate potential problem areas and to provide essential information for determining the adequacy of the allowance for credit losses.

Below are the definitions of the internally assigned risk ratings:

•Strong Pass – Loans to a new or existing borrower collateralized at least 90 percent by an unimpaired deposit account at the Company.

•Good Pass – Loans to a new or existing borrower in a well-established enterprise in excellent financial condition with strong liquidity and a history of consistently high level of earnings, cash flow and debt service capacity.

•Satisfactory Pass – Loans to a new or existing borrower of average strength with acceptable financial condition, satisfactory record of earnings and sufficient historical and projected cash flow to service the debt.

•Performance Pass – Existing loans that evidence strong payment history but document less than average strength, financial condition, record of earnings, or projected cash flows with which to service the debt.

•Special Mention – Loans in this category are currently protected but show one or more potential weaknesses and risks which may inadequately protect collectability or borrower’s ability to meet repayment terms at some future date if the weakness or weaknesses are not monitored or remediated.

•Substandard – Loans that are inadequately protected by the repayment capacity of the borrower or the current sound net worth of the collateral pledged, if any. Loans in this category have well defined weaknesses and risks that jeopardize the repayment. They are characterized by the distinct possibility that some loss may be sustained if the deficiencies are not remediated.

•Doubtful – Loans that have all the weaknesses of loans classified as “Substandard” with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable.

Loans within the top four categories above are considered pass rated, as commonly defined. Risk ratings are assigned as necessary to differentiate risk within the portfolio. Risk ratings are reviewed on an ongoing basis and revised to reflect changes in the borrowers’ financial condition and outlook, debt service coverage capability, repayment performance, collateral value and coverage as well as other considerations.

The following tables present credit risk ratings by loan segment as of March 31, 2024 and December 31, 2023:

	March 31, 2024
	Mortgage Loans								Nonmortgage Loans
							Construction						Total
	1-4 Family		Multifamily		Nonresidential		and Land		Business		Consumer		Loans
	(in thousands)
Risk Rating:
Pass	$	480,635	$	540,088	$	324,319	$	602,489	$	26,434	$	6,741	$	1,980,706
Special mention		1,855		—		2,517		—		230		—		4,602
Substandard		7,683		5,737		514		6,176		—		—		20,110
Total	$	490,173	$	545,825	$	327,350	$	608,665	$	26,664	$	6,741	$	2,005,418

	December 31, 2023
	Mortgage Loans								Nonmortgage Loans
							Construction						Total
	1-4 Family		Multifamily		Nonresidential		and Land		Business		Consumer		Loans
	(in thousands)
Risk Rating:
Pass	$	485,747	$	546,471	$	339,726	$	497,266	$	19,759	$	8,966	$	1,897,935
Special mention		2,150		1,109		2,527		—		—		—		5,786
Substandard		8,103		2,979		90		6,659		20		—		17,851
Total	$	496,000	$	550,559	$	342,343	$	503,925	$	19,779	$	8,966	$	1,921,572

An aging analysis of loans, as of March 31, 2024 and December 31, 2023, is as follows:

	March 31, 2024
			30-59		60-89		90 Days						90 Days
			Days		Days		or More				Nonaccrual		or More
	Current		Past Due		Past Due		Past Due		Total		Loans		Accruing
	(in thousands)
Mortgage loans:
1-4 Family residential
Investor-Owned	$	338,650	$	—	$	281	$	400	$	339,331	$	400	$	—
Owner-Occupied		148,969		—		—		1,873		150,842		1,873		—
Multifamily residential		540,088		—		1,639		4,098		545,825		4,098		—
Nonresidential properties		324,392		2,517		—		441		327,350		441		—
Construction and land		602,488		—		—		6,177		608,665		6,177		—
Nonmortgage loans:
Business		26,005		274		9		376		26,664		146		230
Consumer		5,983		364		394		—		6,741		—		—
Total	$	1,986,575	$	3,155	$	2,323	$	13,365	$	2,005,418	$	13,135	$	230

	December 31, 2023
			30-59		60-89		90 Days						90 Days
			Days		Days		or More				Nonaccrual		or More
	Current		Past Due		Past Due		Past Due		Total		Loans		Accruing
	(in thousands)
Mortgage loans:
1-4 Family residential
Investor-Owned	$	342,896	$	—	$	—	$	793	$	343,689	$	793	$	—
Owner-Occupied		150,181		—		—		2,130		152,311		2,130		—
Multifamily residential		546,471		1,109		—		2,979		550,559		2,979		—
Nonresidential properties		342,343		—		—		—		342,343		—		—
Construction and land		497,266		—		—		6,659		503,925		6,659		—
Nonmortgage loans:
Business		19,240		366		8		165		19,779		165		—
Consumer		7,423		536		1,007		—		8,966		—		—
Total	$	1,905,820	$	2,011	$	1,015	$	12,726	$	1,921,572	$	12,726	$	—

The following schedules detail the composition of the allowance for credit losses on loans and the related recorded investment in loans as of and for the three months ended March 31, 2024 and 2023, and as of and for the year ended December 31, 2023:

	For the Three Months Ended March 31, 2024
	Mortgage Loans														Nonmortgage Loans						Total
	1-4 Family Investor Owned			1-4 Family Owner Occupied			Multifamily			Nonresidential			Construction and Land		Business			Consumer			For the Period
	(in thousands)
Allowance for Credit Losses:
Balance, beginning of period	$	4,415		$	2,012		$	4,365		$	3,176		$	4,807	$	531		$	6,848		$	26,154
Provision (benefit) charged to expense		(158	)		(49	)		(151	)		(940	)		1,596		82			(635	)		(255	)
Charge-offs		—			—			—			—			—		(52	)		(1,302	)		(1,354	)
Recoveries		—			—			—			—			—		—			119			119
Balance, end of period	$	4,257		$	1,963		$	4,214		$	2,236		$	6,403	$	561		$	5,030		$	24,664
Ending balance: individually    evaluated for impairment	$	—		$	75		$	—		$	—		$	—	$	142		$	—		$	217
Ending balance: collectively    evaluated for impairment		4,257			1,888			4,214			2,236			6,403		419			5,030			24,447
Total	$	4,257		$	1,963		$	4,214		$	2,236		$	6,403	$	561		$	5,030		$	24,664
Loans:
Ending balance: individually    evaluated for impairment	$	399		$	1,874		$	4,098		$	441		$	6,177	$	146		$	—		$	13,135
Ending balance: collectively    evaluated for impairment		338,932			148,968			541,727			326,909			602,488		26,518			6,741			1,992,283
Total	$	339,331		$	150,842		$	545,825		$	327,350		$	608,665	$	26,664		$	6,741		$	2,005,418

	For the Three Months Ended March 31, 2023
	Mortgage Loans												Nonmortgage Loans					Total
	1-4 Family Investor Owned		1-4 Family Owner Occupied		Multifamily			Nonresidential		Construction and Land			Business		Consumer			For the Period
	(in thousands)
Allowance for loan losses:
Balance, beginning of period	$	3,863	$	1,723	$	8,021		$	2,724	$	2,683		$	120	$	15,458		$	34,592
Provision (benefit) charged to expense		135		182		455			16		750			1		(1,860	)		(321	)
Impact of CECL adoption		766		146		(3,962	)		578		(911	)		236		57			(3,090	)
Charge-offs		—		—		—			—		—			—		(2,569	)		(2,569	)
Recoveries		—		—		—			—		—			—		363			363
Balance, end of period	$	4,764	$	2,051	$	4,514		$	3,318	$	2,522		$	357	$	11,449		$	28,975
Ending balance: individually    evaluated for impairment	$	60	$	100	$	—		$	37	$	—		$	40	$	—		$	237
Ending balance: collectively    evaluated for impairment		4,704		1,951		4,514			3,281		2,522			317		11,449			28,738
Total	$	4,764	$	2,051	$	4,514		$	3,318	$	2,522		$	357	$	11,449		$	28,975
Loans:
Ending balance: individually    evaluated for impairment	$	5,234	$	5,576	$	1,439		$	792	$	11,905		$	40	$	—		$	24,986
Ending balance: collectively    evaluated for impairment		349,325		143,905		551,991			313,768		223,252			19,850		14,227			1,616,318
Total	$	354,559	$	149,481	$	553,430		$	314,560	$	235,157		$	19,890	$	14,227		$	1,641,304

	For the Year Ended December 31, 2023
	Mortgage Loans														Nonmortgage Loans						Total
	1-4 Family Investor Owned			1-4 Family Owner Occupied		Multifamily			Nonresidential			Construction and Land			Business			Consumer			For the Period
	(in thousands)
Allowance for loan losses:
Balance, beginning of year	$	3,863		$	1,723	$	8,021		$	2,724		$	2,683		$	120		$	15,458		$	34,592
Provision (benefit) charged to expense		(214	)		143		306			(126	)		3,035			235			(2,142	)		1,237
Impact of CECL adoption		766			146		(3,962	)		578			(911	)		236			57			(3,090	)
Charge-offs		—			—		—			—			—			(63	)		(7,227	)		(7,290	)
Recoveries		—			—		—			—			—			3			702			705
Balance, end of year	$	4,415		$	2,012	$	4,365		$	3,176		$	4,807		$	531		$	6,848		$	26,154
Ending balance: individually    evaluated for impairment	$	—		$	72	$	—		$	—		$	—		$	161		$	—		$	233
Ending balance: collectively    evaluated for impairment		4,415			1,940		4,365			3,176			4,807			370			6,848			25,921
Total	$	4,415		$	2,012	$	4,365		$	3,176		$	4,807		$	531		$	6,848		$	26,154
Loans:
Ending balance: individually    evaluated for impairment	$	793		$	2,130	$	2,979		$	—		$	6,659		$	165		$	—		$	12,726
Ending balance: collectively    evaluated for impairment		342,896			150,181		547,580			342,343			497,266			19,614			8,966			1,908,846
Total	$	343,689		$	152,311	$	550,559		$	342,343		$	503,925		$	19,779		$	8,966		$	1,921,572

Loans are considered impaired when current information and events indicate all amounts due may not be collectable according to the contractual terms of the related loan agreements. Impaired loans are identified by applying normal loan review procedures in accordance with the allowance for credit losses methodology. Management periodically assesses loans to determine whether impairment exists. Any loan that is, or will potentially be, no longer performing in accordance with the terms of the original loan contract is evaluated to determine impairment.

The following information relates to impaired loans as of and for the three months ended March 31, 2024 and 2023 and as of and for the year ended December 31, 2023:

	Unpaid Contractual		Recorded Investment		Recorded Investment		Total				Average		Interest Income
	Principal		With No		With		Recorded		Related		Recorded		Recognized
As of and For the Three Months Ended  March 31, 2024	Balance		Allowance		Allowance		Investment		Allowance		Investment		on a Cash Basis
	(in thousands)
Mortgage loans:
1-4 Family residential	$	2,256	$	1,825	$	448	$	2,273	$	75	$	2,598	$	4
Multifamily residential		4,069		4,098		—		4,098		—		3,539		35
Nonresidential properties		441		441		—		441		—		221		—
Construction and land		6,177		6,177		—		6,177		—		6,418		987
Nonmortgage loans:
Business		146		—		146		146		142		156		—
Consumer		—		—		—		—		—		—		—
Total	$	13,089	$	12,541	$	594	$	13,135	$	217	$	12,932	$	1,026
	Unpaid Contractual		Recorded Investment		Recorded Investment		Total				Average		Interest Income
	Principal		With No		With		Recorded		Related		Recorded		Recognized
As of and For the Three Months Ended   March 31, 2023	Balance		Allowance		Allowance		Investment		Allowance		Investment		on a Cash Basis
	(in thousands)
Mortgage loans:
1-4 Family residential	$	11,212	$	9,452	$	1,358	$	10,810	$	160	$	10,197	$	83
Multifamily residential		1,437		1,439		—		1,439		—		720		—
Nonresidential properties		833		452		340		792		37		796		7
Construction and land		11,905		11,905		—		11,905		—		9,736		—
Nonmortgage loans:
Business		40		—		40		40		40		20		—
Consumer		—		—		—		—		—		—		—
Total	$	25,427	$	23,248	$	1,738	$	24,986	$	237	$	21,469	$	90

	Unpaid Contractual		Recorded Investment		Recorded Investment		Total				Average		Interest Income
	Principal		With No		With		Recorded		Related		Recorded		Recognized
As of and for the Year Ended    December 31, 2023	Balance		Allowance		Allowance		Investment		Allowance		Investment		on a Cash Basis
	(in thousands)
Mortgage loans:
1-4 Family residential	$	2,906	$	2,475	$	448	$	2,923	$	72	$	4,812	$	82
Multifamily residential		2,966		2,979		—		2,979		—		1,463		151
Nonresidential properties		—		—		—		—		—		198		—
Construction and land		6,650		6,659		—		6,659		—		8,211		—
Nonmortgage loans:
Business		165		—		165		165		161		104		—
Consumer		—		—		—		—		—		—		—
Total	$	12,687	$	12,113	$	613	$	12,726	$	233	$	14,788	$	233

The Company adopted Accounting Standards Update (“ASU”) 2022-02 on January 1, 2023. Since adoption, the Company has not modified any loans with borrowers experiencing financial difficulty. These modifications may include a reduction in interest rate, an extension in term, principal forgiveness and/or other than insignificant payment delay. At March 31, 2024 and December 31, 2023, there were no loans with modifications to borrowers experiencing financial difficulty.

Prior to the adoption of ASU 2022-02 on January 1, 2023, the Company classified certain loans as troubled debt restructuring (“TDR”) loans when credit terms to a borrower in financial difficulty were modified, in accordance with ASC 310-40. With the adoption of ASU

2022-02 as of January 1, 2023, the Company has ceased to recognize or measure for new TDRs but those existing at December 31, 2022 will remain until settled.

At March 31, 2024 and December 31, 2023, there were 20 and 21 troubled debt restructured loans totaling $5.6 million and $5.9 million of which $4.9 million and $5.2 million are on accrual status, respectively. There were no commitments to lend additional funds to borrowers whose loans have been modified in a troubled debt restructuring.

Write-off and write-down of Microloans

In 2020, the Company entered into a business arrangement with the FinTech startup company Grain. Grain’s product is a mobile application geared to the underbanked, minorities and new generations entering the financial services market. In employing this mobile application, the Bank uses non-traditional underwriting methodologies to provide revolving credit to borrowers who otherwise may gravitate to using alternative non-bank lenders. Under the terms of its former agreement with Grain, the Bank was the lender for Grain-originated microloans with credit lines currently up to $1,500 and, where applicable, the depository for related security deposits. Grain originated and serviced these microloans and is responsible for maintaining compliance with the Bank's origination and servicing standards, as well as applicable regulatory and legal requirements. If a microloan was found to be fraudulent, became 90 days delinquent upon 90 days of origination or defaulted due to a failure of Grain to properly service the microloan, the Bank’s applicable standards for origination or servicing were deemed to have not been complied with and the microloan was put back to Grain, who then became responsible for the microloan and any related losses. The microloans put back to Grain were accounted for as an “other asset,” specifically referred to herein as the “Grain Receivable.”

On November 1, 2023, Ponce Financial Group, Inc. and Grain signed a Perpetual Software License Agreement in order for the Bank to assume the servicing of the remaining Grain loans. In order to facilitate the transfer of the servicing responsibilities to the Bank, Grain granted the Bank a perpetual right and license to use the Grain software, including the source code to service the remaining loans.

At March 31, 2024, the Bank had 11,939 Grain microloans outstanding, net of put backs, with an aggregate balance totaling $5.7 million and which were performing, in management’s opinion, comparably to similar portfolios, offset by an $4.9 million allowance for credit losses, resulting in $0.9 million in Grain microloans. Since the beginning of the Bank’s agreement with Grain and through March 31, 2024, 45,322 microloans amounting to $24.1 million have been deemed to be fraudulent and put back to Grain. The Company has written-down a total of $15.4 million, net of recoveries, of the Grain Receivable and received $6.8 million in cash from Grain and through the application of security deposits connected to fraudulent loan accounts. The Bank also opted to use the $1.8 million grant it received from the U.S. Treasury Department’s Rapid Response ‎Program to defray the Grain Receivable. The application of those amounts resulted in no net receivable. Additionally, the Company wrote-off its equity investment in Grain of $1.0 million during the year ended December 31, 2022. As of March 31, 2024, the Company’s total exposure to Grain was $0.9 million of the remaining microloans, net of allowance for credit losses, excluding $1.6 million of security deposits by Grain borrowers. The $0.1 million of recoveries for the three months ended March 31, 2024 and the $0.9 million recoveries for the three months ended March 31, 2023 related to Grain is included in non-interest expense in the accompanying Consolidated Statements of Operations.

Grain Technology, Inc. ("Grain") Total Exposure as of March 31, 2024
(in thousands)
Receivable from Grain
Microloans originated - put back to Grain (inception-to-March 31, 2024)	$	24,051
Write-downs, net of recoveries (inception-to-date as of March 31, 2024)		(15,406	)
Cash receipts from Grain (inception-to-March 31, 2024)		(6,819	)
Grant/reserve (inception-to-March 31, 2024)		(1,826	)
Net receivable as of March 31, 2024	$	—
Microloan receivables from Grain borrowers
Grain originated loans receivable as of March 31, 2024	$	5,731
Allowance for credit losses as of March 31, 2024 (1)		(4,868	)
Microloans, net of allowance for credit losses as of March 31, 2024	$	863
Investments
Investment in Grain	$	1,000
Investment in Grain write-off		(1,000	)
Investment in Grain as of March 31, 2024	$	—
Total exposure to Grain as of March 31, 2024 (2)	$	863

(1) Excludes $1.6 million of security deposits by Grain originated borrowers reported in deposits in the accompanying Consolidated Statements of Financial Conditions.

(2) Total remaining exposure to Grain borrowers. These loans are now serviced by the Bank.

Off-Balance Sheet Credit Losses

Also included within the scope of the CECL standard are off-balance sheet loan commitments, which includes the unfunded portion of committed lines of credit and construction loans.

The Company estimates expected credit losses over the contractual period in which the company is exposed to credit risk through a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet exposures is adjusted as a provision for credit loss expense. The Company uses similar assumptions and risk factors that are developed for collectively evaluated financing receivables. This estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments to be funded over its estimated life.

At March 31, 2024 and December 31, 2023, the allowance for off-balance sheet credit losses was $3.8 million and $3.6 million, respectively, which is included in the "Other liabilities" on the Consolidated Statements of Financial Condition. During the three months ended March 31, 2024 and 2023, the Company had $0.2 million and $1.0 million, respectively, in credit loss provision for off-balance-sheet items, which are included in "Provision for contingencies" on the Consolidated Statements of Operations.

The following table presents the activity in the allowance for off-balance-sheet credit losses:

	For the Three
	Months Ended		For the Year Ended
	March 31, 2024		December 31, 2023
Allowance for credit losses on unfunded commitment at beginning of period	$	3,613	$	354
Impact on CECL adoption		—		948
Provision for credit losses		164		2,311
Allowance for credit losses on unfunded commitment at end of period	$	3,777	$	3,613