Loans, Allowance for Credit Losses and Credit Quality

9 Months Ended

Sep. 30, 2024

Receivables [Abstract]

Loans, Allowance for Credit Losses and Credit Quality

NOTE 4 – LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

Loans

Loans that the Company has the intent and ability to hold until maturity or payoff are carried at amortized cost (net of the allowance for credit losses). Amortized cost is the principal amount outstanding, adjusted by partial charge-offs and net of deferred loan origination costs and fees. For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual life of the loan using the level-yield method. When a loan is paid off, the unamortized portion is recognized in interest income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status. As a general rule, loans more than 90 days past due with respect to principal or interest, or sooner if management considers such action to be prudent, are classified as nonaccrual loans. However, loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection. Income accruals are suspended on all nonaccrual

loans in a timely manner and all previously accrued and uncollected interest is reversed against current income. A loan can be returned to accrual status when collectibility of principal and interest is reasonably assured and the loan has performed for a period of time, generally six months. When doubt exists as to the collectability of a loan, any payments received are applied to reduce the amortized cost of the loan to the extent necessary to eliminate such doubt. For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible. This determination is made based on management's review of specific facts and circumstances of the individual loan, including the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform.

Allowance for Credit Losses - Loans Held for Investment

The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. Credit losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. Subsequent recoveries, if any, are credited to the allowance. Under the current expected credit loss (CECL) methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics. The Company has elected to segment its loans based on Federal Call codes used for reporting loans to the Federal Deposit Insurance Corporation as part of the Call Report process. These segments are collectively evaluated for expected credit losses using a quantitative Discounted Cash Flow ("DCF") model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The Company has elected to use this approach because DCF models allow for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner and peer data is available for certain inputs such as the probability of default and the loss given default. The quantitative model utilizes a loss factor based approach to estimate expected credit losses, which are derived from internal historical and industry peer loss experience. The model estimates expected credit losses using loan level data over the estimated life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the historical long-run average using the straight-line reversion method. Management periodically evaluates a reasonable and supportable period and a reversion period to be appropriate for purposes of estimating expected credit losses. The qualitative risk factors impacting the expected risk of loss within the portfolio include the following:

•Lending policies and procedures

•Economic and business conditions

•Nature and volume of loans

•Changes in management

•Changes in credit quality

•Changes in loan review system

•Changes to underlying collateral values

•Concentrations of credit risk

•Other external factors

Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company will use either a DCF approach or a fair value of collateral approach. The latter approach will be used for loans deemed to be collateral dependent or when foreclosure is probable. Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within accrued interest receivable in the consolidated balance sheets. Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy. Consistent with the Company's policy for nonaccrual loans, accrued interest receivable is typically written off when loans reach 90 days past due and are placed on nonaccrual status.

In the ordinary course of business, the Company enters into commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses with an additional assumption of probability of funding. The reserve for unfunded lending commitments is included in other liabilities in the consolidated balance sheets.

Loans consisted of the following as of the dates indicated:

	At September 30,						At December 31,
	2024						2023
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One-to-four family residential	$	419,373			37.3	%	$	410,131			39.1	%
Multi-family		326,975			29.1	%		287,361			27.4	%
Commercial		222,680			19.8	%		196,365			18.7	%
Home equity lines of credit and loans		39,413			3.5	%		33,357			3.2	%
Construction		101,401			9.0	%		112,000			10.7	%
Other loans:
Commercial		14,508			1.3	%		9,219			0.9	%
Consumer		141			0.0	%		173			0.0	%
Total loans, gross		1,124,491			100.0	%		1,048,606			100.0	%
Less:
Net deferred loan fees		(480	)					(226	)
Allowance for credit losses		(9,068	)					(8,591	)
Total loans, net	$	1,114,943					$	1,039,789

The carrying value of loans pledged to secure advances from the FHLBB were $676.5 million and $553.0 million as of September 30, 2024 and December 31, 2023, respectively.

The following tables set forth information regarding the allowance for credit losses on loans as of and for the three and nine months ended September 30, 2024 and 2023:

	For the three months ended September 30, 2024
	(in thousands)
	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)			Ending Balance(1)
Real estate loans:
One-to-four family residential	$	3,604	$	-	$	-	$	81		$	3,685
Multi-family		1,304		-		-		53			1,357
Commercial		1,740		-		-		95			1,835
Home equity lines of credit and loans		363		-		-		19			382
Construction		1,814		-		-		(211	)		1,603
Other loans:
Commercial		199		-		-		6			205
Consumer		1		-		-		-			1
Total	$	9,025	$	-	$	-	$	43		$	9,068

	For the nine months ended September 30, 2024
	(in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance(1)
Real estate loans:
One-to-four family residential	$	3,555	$	-		$	-	$	130		$	3,685
Multi-family		1,190		-			-		167			1,357
Commercial		1,636		-			-		199			1,835
Home equity lines of credit and loans		321		-			-		61			382
Construction		1,757		-			-		(154	)		1,603
Other loans:												-
Commercial		131		-			-		74			205
Consumer		1		(3	)		-		3			1
Total	$	8,591	$	(3	)	$	-	$	480		$	9,068

	For the three months ended September 30, 2023
	(in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance(1)
Real estate loans:
One-to-four family residential	$	1,980	$	-		$	-	$	40		$	2,020
Multi-family		2,150		-			-		79			2,229
Commercial		2,348		-			-		(154	)		2,194
Home equity lines of credit and loans		203		-			-		4			207
Construction		1,570		-			-		(126	)		1,444
Other loans:
Commercial		218		-			-		(21	)		197
Consumer		1		(1	)		1		-			1
Total	$	8,470	$	(1	)	$	1		(178	)	$	8,292

	For the nine months ended September 30, 2023
	(in thousands)
	Beginning Balance		Cumulative effect accounting adjustment(2)			Charge-offs			Recoveries		Provision		Ending Balance(1)
Real estate loans:
One-to-four family residential	$	1,703	$	130		$	-		$	-	$	187	$	2,020
Multi-family		1,839		77			-			-		313		2,229
Commercial		1,797		145			-			-		252		2,194
Home equity lines of credit and loans		194		(20	)		-			-		33		207
Construction		1,286		136			-			-		22		1,444
Other loans:
Commercial		60		34			-			-		103		197
Consumer		1		-			(1	)		1		-		1
Unallocated		320		(320	)		-			-		-		-
Total	$	7,200	$	182		$	(1	)	$	1	$	910	$	8,292

(1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $3.5 million and $2.9 million as of September 30, 2024 and September 30, 2023.

(2) Represents an adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment for the nine months ended September 30, 2023 represents a $182,000 increase to the allowance for credit losses attributable to the change in accounting methodology for estimating the allowance for credit losses on loans resulting from the Company's adoption of the standard.

The following tables show the age analysis of past due loans as of the dates indicated:

	30–59 Days		60–89 Days		90 Days or More		Total Past Due		Total Current		Total Loans		90 days or more past due and accruing		Loans on Non-accrual
	(in thousands)
As of September 30, 2024
Real estate loans:
One-to-four family residential	$	1,545	$	—	$	—	$	1,545	$	417,828	$	419,373	$	—	$	1,012
Multi-family		—		—		—		—		326,975		326,975		—		—
Commercial		—		—		—		—		222,680		222,680		—		—
Home equity lines of credit and loans		220		258		—		478		38,935		39,413		—		85
Construction		—		—		—		—		101,401		101,401		—		—
Other loans:
Commercial		—		—		—		—		14,508		14,508		—		—
Consumer		1		1		—		2		139		141		—		1
	$	1,766	$	259	$	—	$	2,025	$	1,122,466	$	1,124,491	$	—	$	1,098

	30–59 Days		60–89 Days		90 Days or More		Total Past Due		Total Current		Total Loans		90 days or more past due and accruing		Loans on Non-accrual
	(in thousands)
As of December 31, 2023
Real estate loans:
One-to-four family residential	$	722	$	225	$	809	$	1,756	$	408,375	$	410,131	$	—	$	1,191
Multi-family		—		—		—		—		287,361		287,361		—		—
Commercial		—		—		—		—		196,365		196,365		—		—
Home equity lines of credit and loans		360		—		8		368		32,989		33,357		—		22
Construction		—		—		—		—		112,000		112,000		—		—
Other loans:
Commercial		—		—		—		—		9,219		9,219		—		—
Consumer		1		—		—		1		172		173		—		—
	$	1,083	$	225	$	817	$	2,125	$	1,046,481	$	1,048,606	$	—	$	1,213

During the three months ended September 30, 2024 and 2023, interest income recognized on nonaccrual loans amounted to $13,000 and $12,000, respectively. During the nine months ended September 30, 2024 and 2023, interest income recognized on nonaccrual loans amounted to $49,000 and $26,000, respectively. The following tables show information regarding nonaccrual loans as of the dates indicated:

	As of September 30, 2024
	With an Allowance for Credit Losses		Without an Allowance for Credit Losses		Total
	(in thousands)
Real estate loans:
One-to-four family residential	$	—	$	1,012	$	1,012
Home equity lines of credit and loans		—		85		85
Consumer		—		1		1
Total nonaccrual loans	$	—	$	1,098	$	1,098

	As of December 31, 2023
	With an Allowance for Credit Losses		Without an Allowance for Credit Losses		Total
	(in thousands)
Real estate loans:
One-to-four family residential	$	—	$	1,191	$	1,191
Home equity lines of credit and loans		—		22		22
Total nonaccrual loans	$	—	$	1,213	$	1,213

Credit Quality Information

During the second quarter of 2024, the Company expanded its internal loan risk rating system from a seven grade system to a ten grade system. The new loan rating system for multi-family and commercial real estate, construction, commercial loans and certain residential and home equity lines of credit is as follows:

Loans rated 1 – 6: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 7: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 8: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Bank will sustain some loss if the weakness is not corrected.

Loans rated 9: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 10: Loans in this category are considered uncollectible (loss) and of such little value that their continuance as loans is not warranted.

The rating system as of December 31, 2023 was as follows:

Loans rated 1 – 3: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Bank will sustain some loss if the weakness is not corrected.

Loans rated 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 7: Loans in this category are considered uncollectible (loss) and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial loans with aggregate potential outstanding balances of $500,000 or more, and all commercial real estate loans (including multi-family and construction loans as well as residential and home equity line of credit loans to commercial borrowers) with aggregate potential outstanding balances of $2.0 million or more. For loans that are not formally rated, the Company initially assesses credit quality based upon the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s payment activity.

The following tables detail the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of September 30, 2024 and December 31, 2023:

	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
	2024		2023		2022		2021		2020		Prior
As of September 30, 2024	(in thousands)
One-to-four family residential
Pass	$	2,734	$	14,157	$	35,081	$	15,229	$	4,018	$	11,892	$	—	$	—	$	83,111
Special Mention		—		—		—		—		636		440		—		—		1,076
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		24,692		46,686		85,337		69,451		48,868		60,152		—		—		335,186
Total	$	27,426	$	60,843	$	120,418	$	84,680	$	53,522	$	72,484	$	—	$	—	$	419,373
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Multi-family
Pass	$	11,373	$	54,026	$	202,121	$	35,545	$	8,682	$	8,874	$	6,354	$	—	$	326,975
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	11,373	$	54,026	$	202,121	$	35,545	$	8,682	$	8,874	$	6,354	$	—	$	326,975
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate
Pass	$	22,655	$	41,411	$	77,828	$	25,839	$	15,586	$	32,556	$	6,805	$	—		222,680
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	22,655	$	41,411	$	77,828	$	25,839	$	15,586	$	32,556	$	6,805	$	—	$	222,680
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Home equity lines of credit and loans
Pass	$	199	$	323	$	—	$	—	$	—	$	—	$	6,033	$	—	$	6,555
Special Mention		—		—		—		—		—		10		74		—		84
Substandard		—		—		—		—		—		—		99		—		99
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		127		390		27		8		—		75		31,452		596		32,675
Total	$	326	$	713	$	27	$	8	$	—	$	85	$	37,658	$	596	$	39,413
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction
Pass	$	19,615	$	32,207	$	39,820	$	4,516	$	—	$	2,988	$	—	$	—	$	99,146
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		459		1,796		—		—		—		—		—		—		2,255
Total	$	20,074	$	34,003	$	39,820	$	4,516	$	—	$	2,988	$	—	$	—	$	101,401
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial
Pass	$	5,100	$	4,419	$	2,768	$	355	$	20	$	202	$	1,644	$	—	$	14,508
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	5,100	$	4,419	$	2,768	$	355	$	20	$	202	$	1,644	$	—	$	14,508
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		8		17		31		41		—		8		36		—		141
Total	$	8	$	17	$	31	$	41	$	—	$	8	$	36	$	—	$	141
Current-period gross charge-offs	$	3	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	3

	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
	2023		2022		2021		2020		2019		Prior
As of December 31, 2023	(in thousands)
One-to-four family residential
Pass	$	9,689	$	36,662	$	15,529	$	4,476	$	4,230	$	9,224	$	—	$	—	$	79,810
Special Mention		—		—		—		809		—		451		—		—		1,260
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		48,688		90,827		72,463		51,035		7,129		58,919		—		—		329,061
Total	$	58,377	$	127,489	$	87,992	$	56,320	$	11,359	$	68,594	$	—	$	—	$	410,131
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Multi-family
Pass	$	45,188	$	194,999	$	26,820	$	8,873	$	—	$	9,798	$	1,683	$	—	$	287,361
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	45,188	$	194,999	$	26,820	$	8,873	$	—	$	9,798	$	1,683	$	—	$	287,361
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate
Pass	$	43,639	$	72,671	$	24,138	$	16,407	$	4,054	$	31,132	$	4,324	$	—	$	196,365
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	43,639	$	72,671	$	24,138	$	16,407	$	4,054	$	31,132	$	4,324	$	—	$	196,365
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Home equity lines of credit and loans
Pass	$	326	$	—	$	—	$	—	$	—	$	—	$	4,986	$	—	$	5,312
Special Mention		—		—		—		—		—		14		8		—		22
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		410		36		12		—		65		22		26,970		508		28,023
Total	$	736	$	36	$	12	$	—	$	65	$	36	$	31,964	$	508	$	33,357
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction
Pass	$	33,707	$	55,170	$	17,228	$	—	$	786	$	2,988	$	—	$	—	$	109,879
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		2,121		—		—		—		—		—		—		—		2,121
Total	$	35,828	$	55,170	$	17,228	$	—	$	786	$	2,988	$	—	$	—	$	112,000
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial
Pass	$	4,444	$	3,349	$	428	$	35	$	89	$	154	$	655	$	—	$	9,154
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		65		—		—		—		—		—		65
Total	$	4,444	$	3,349	$	493	$	35	$	89	$	154	$	655	$	—	$	9,219
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		31		38		45		—		—		13		46		—		173
Total	$	31	$	38	$	45	$	—	$	—	$	13	$	46	$	—	$	173
Current-period gross charge-offs	$	2	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	2

(1) All loans not formally rated were accruing as of September 30, 2024 and December 31, 2023.

At September 30, 2024 and December 31, 2023, the Company had no consumer mortgage loans secured by residential real estate property in the process of foreclosure.

For the three and nine months ended September 30, 2024 and 2023, the Company did not provide loan restructurings involving borrowers that are experiencing financial difficulty.