Loans Receivable Held for Investment

6 Months Ended

Jun. 30, 2021

Loans Receivable Held for Investment [Abstract]

Loans Receivable Held for Investment

  NOTE (6) – Loans Receivable Held for Investment

Loans receivable held for investment were as follows as of the dates indicated:

	June 30, 2021			December 31, 2020
	(In thousands)
Real estate:
Single family	$	53,556		$	48,217
Multi-family		346,192			272,387
Commercial real estate		92,491			24,289
Church		15,652			16,658
Construction		22,677			429
Commercial – other		46,973			57
SBA loans (1)		40,027			-
Consumer		73			7
Gross loans receivable before deferred loan costs and premiums		617,641			362,044
Unamortized net deferred loan costs and premiums		373			1,300
Gross loans receivable		618,014			363,344
Allowance for loan losses		(3,296	)		(3,215	)
Loans receivable, net	$	614,718		$	360,129

    (1)          ^{Including Paycheck Protection Program (PPP) loans.}

Purchased Credit Impaired (PCI) Loans

As part of the CFBanc Merger, the Company acquired loans for which there was, at acquisition, evidence of credit deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. Prior to the CFBanc Merger, there were no such acquired loans. The carrying amount of those loans as of June 30, 2021, is as follows:

	June 30, 2021
	(In thousands)
Real estate:
Single family	$	534
Commercial real estate		187
Commercial - other		84
	$	805

On the acquisition date, the amount by which the undiscounted expected cash flows of the purchased credit impaired loans exceeded the estimated fair value of the loan is the accretable yield. The accretable yield is measured at each financial reporting date and represents the difference between the remaining undiscounted cash flows and the current carrying value of the purchased credit impaired loan. At June 30, 2021, none of the Company’s purchased credit impaired loans were classified as nonaccrual.

The following table summarizes the accretable yield on the purchased credit impaired loans for the three and six months ended June 30, 2021:

	Three Months Ended June 30, 2021			Six Months Ended June 30, 2021
	(In thousands)
Balance at the beginning of the period	$	-		$	-
Additions		346			346
Accretion		(19	)		(19	)
Balance at the end of the period	$	327		$	327

The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:

	Three Months Ended June 30, 2021
	Real Estate
	Single family			Multi- family		Commercial real estate		Church			Construction		Commercial - other			SBA Loans		Consumer		Total
	(In thousands)
Beginning balance	$	275		$	2,473	$	219	$	221		$	22	$	5		$	-	$	-	$	3,215
Provision for (recapture of) loan losses		(105	)		133		8		(13	)		59		(1	)		-		-		81
Recoveries		-			-		-		-			-		-			-		-		-
Loans charged off		-			-		-		-			-		-			-		-		-
Ending balance	$	170		$	2,606	$	227	$	208		$	81	$	4		$	-	$	-	$	3,296

	Three Months Ended June 30, 2020
	Real Estate
	Single family		Multi- family		Commercial real estate		Church			Construction			Commercial - other			SBA Loans		Consumer			Total
	(In thousands)
Beginning balance	$	308	$	2,408	$	140	$	323		$	24		$	7		$	-	$	1		$	3,211
Provision for (recapture of) loan losses		-		16		29		(41	)		(2	)		(1	)		-		(1	)		-
Recoveries		4		-		-		-			-			-			-		-			4
Loans charged off		-		-		-		-			-			-			-		-			-
Ending balance	$	312	$	2,424	$	169	$	282		$	22		$	6		$	-	$	-		$	3,215

	Six Months Ended June 30, 2021
	Real Estate
	Single family			Multi-family		Commercial real estate		Church			Construction		Commercial - other		SBA Loans		Consumer			Total
				(In thousands)
Beginning balance	$	296		$	2,433	$	222	$	237		$	22	$	4	$	-	$	1		$	3,215
Provision for (recapture of)    loan losses		(126	)		173		5		(29	)		59		-		-		(1	)		81
Recoveries		-			-		-		-			-		-		-		-			-
Loans charged off		-			-		-		-			-		-		-		-			-
Ending balance	$	170		$	2,606	$	227	$	208		$	81	$	4	$	-	$	-		$	3,296

	Six Months Ended June 30, 2020
	Real Estate
	Single family			Multi-family		Commercial real estate		Church			Construction			Commercial - other			SBA Loans		Consumer			Total
				(In thousands)
Beginning balance	$	312		$	2,319	$	133	$	362		$	48		$	7		$	-	$	1		$	3,182
Provision for (recapture of)    loan losses		(4	)		105		36		(80	)		(26	)		(1	)		-		(1	)		29
Recoveries		4			-		-		-			-			-			-		-			4
Loans charged off		-			-		-		-			-			-			-		-			-
Ending balance	$	312		$	2,424	$	169	$	282		$	22		$	6		$	-	$	-		$	3,215

The following tables present the balance in the allowance for loan losses and the recorded investment (unpaid contractual principal balance less charge-offs, less interest applied to principal, plus unamortized deferred costs and premiums) by loan type and based on impairment method as of the dates indicated:

	June 30, 2021
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		SBA Loans		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3	$	-	$	-	$	42	$	-	$	-	$	-	$	-	$	45
Collectively evaluated for impairment		167		2,606		227		166		81		4		-		-		3,251
Total ending allowance balance	$	170	$	2,606	$	227	$	208	$	81	$	4	$	-	$	-	$	3,296
Loans:
Loans individually evaluated for impairment	$	66	$	290	$	-	$	3,718	$	-	$	-	$	-	$	-	$	4,074
Loans collectively evaluated for impairment		53,600		347,540		92,491		11,602		22,583		46,973		39,078		73		613,940
Total ending loans balance	$	53,666	$	347,830	$	92,491	$	15,320	$	22,583	$	46,973	$	39,078	$	73	$	618,014

	December 31, 2020
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other			SBA Loans	Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	89	$	-	$	-	$	52	$	-	$	-	$	-	$	-	$	141
Collectively evaluated for impairment		207		2,433		222		185		22		4		-		1		3,074
Total ending allowance balance	$	296	$	2,433	$	222	$	237	$	22	$	4	$	-	$	1	$	3,215
Loans:
Loans individually evaluated for impairment	$	573	$	298	$	-	$	3,813	$	-	$	47	$	-	$	-	$	4,731
Loans collectively evaluated for impairment		47,784		273,566		24,322		12,495		430		9		-		7		358,613
Total ending loans balance	$	48,357	$	273,864	$	24,322	$	16,308	$	430	$	56	$	-	$	7	$	363,344

The following table presents information related to loans individually evaluated for impairment by loan type as of the periods indicated:

	June 30, 2021						December 31, 2020
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)
With no related allowance recorded:
Single family	$	-	$	-	$	-	$	2	$	1	$	-
Multi-family		290		290		-		298		298		-
Church		2,487		1,914		-		2,527		1,970		-
With an allowance recorded:
Single family		66		66		3		573		573		88
Church		1,804		1,804		42		1,842		1,842		52
Commercial - other		-		-		-		47		47		1
Total	$	4,647	$	4,074	$	45	$	5,289	$	4,731	$	141

 The recorded investment in loans excludes accrued interest receivable due to immateriality.  For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.

The following tables present the monthly average of loans individually evaluated for impairment by loan type and the related interest income for the periods indicated:

	Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	316	$	4	$	597	$	7
Multi-family		292		5		308		5
Church		3,742		63		4,160		74
Commercial - other		11		-		59		1
Total	$	4,361	$	72	$	5,124	$	87

	Six Months Ended June 30, 2021				Six Months Ended June 30, 2020
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	426	$	10	$	599	$	14
Multi-family		294		10		309		11
Church		3,766		126		4,190		309
Commercial - other		26		1		60		2
Total	$	4,512	$	147	$	5,158	$	336

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans and interest recoveries on non-accrual loans that were paid off.  Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible or paid off.  When a loan is returned to accrual status, the interest payments that were previously applied to principal are deferred and amortized over the remaining life of the loan.  Foregone interest income that would have been recognized had loans performed in accordance with their original terms amounted to $19 thousand and $22 thousand for the three months ended June 30, 2021 and 2020, respectively, and $38 thousand and $45 thousand for the six months ended June 30, 2021 and 2020, respectively, and were not included in the consolidated results of operations.

As of June 30, 2021, the Bank had $1.9 million in 30 to 89 days delinquencies, and no loans were past due 90 days or more. The following tables present the aging of the recorded investment in past due loans by loan type as of the periods indicated:

	June 30, 2021
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
	(In thousands)
Loans receivable held for investment:
Single family	$	-	$	-	$	-	$	-	$	53,666	$	53,666
Multi-family		-		-		-		-		347,830		347,830
Commercial real estate		1,554		-		-		1,554		90,937		92,491
Church		-		-		-		-		15,320		15,320
Construction		-		-		-		-		22,583		22,583
Commercial - other		-		310		-		310		46,663		46,973
SBA loans		21		-		-		21		39,057		39,078
Consumer		-		-		-		-		73		73
Total	$	1,575	$	310	$	-	$	1,885	$	616,129	$	618,014

	December 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
	(In thousands)
Loans receivable held for investment:
Single family	$	-	$	-	$	-	$	-	$	48,357	$	48,357
Multi-family		-		-		-		-		273,864		273,864
Commercial real estate		-		-		-		-		24,322		24,322
Church		-		-		-		-		16,308		16,308
Construction		-		-		-		-		430		430
Commercial - other		-		-		-		-		56		56
Consumer		-		-		-		-		7		7
Total	$	-	$	-	$	-	$	-	$	363,344	$	363,344

The following table presents the recorded investment in non-accrual loans by loan type as of the periods indicated:

	June 30, 2021		December 31, 2020
	(In thousands)
Loans receivable held for investment:
Single-family residence	$	-	$	1
Church		735		786
Total non-accrual loans	$	735	$	787

There were no loans 90 days or more delinquent that were accruing interest as of June 30, 2021 or December 31, 2020. None of the church non-accrual loans were delinquent, but none qualified for accrual status as of the periods indicated.

Troubled Debt Restructurings (TDRs)

In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, six months  or less is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented.  The guidance also provides that these modified loans generally will not be classified as non-accrual loans during the term of the modification.

The Bank has implemented a loan modification program for the effects of COVID-19 on its borrowers. At the date of this filing, no borrowers have requested loan modifications. To date, no modifications have been granted.

At June 30, 2021, loans classified as TDRs totaled $4.1 million, of which $408 thousand were included in non-accrual loans and $3.7 million were on accrual status.  At December 31, 2020, loans classified as TDRs totaled $4.2 million, of which $232 thousand were included in non-accrual loans and $4.0 million were on accrual status.  The Company has allocated $45 thousand and $141 thousand of specific reserves for accruing TDRs as of June 30, 2021 and December 31, 2020, respectively.  TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time and for which the Bank anticipates full repayment of both principal and interest.  TDRs that are on non-accrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments, as modified.  A well-documented credit analysis that supports a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms is also required.  As of June 30, 2021 and December 31, 2020, the Company had no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs.  No loans were modified during the three or six months ended June 30, 2021 and 2020.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  For single family residential, consumer and other smaller balance homogenous loans, a credit grade is established at inception, and generally only adjusted based on performance.  Information about payment status is disclosed elsewhere herein.  The Company analyzes all other loans individually by classifying the loans as to credit risk.  This analysis is performed at least on a quarterly basis.  The Company uses the following definitions for risk ratings:

◾ Watch.  Loans classified as watch exhibit weaknesses that could threaten the current net worth and paying capacity of the obligors.  Watch graded loans are generally performing and are not more than 59 days past due. A watch rating is used when a material deficiency exists, but correction is anticipated within an acceptable time frame.

◾ Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

◾ Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

◾ Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

◾ Loss.  Loans classified as loss are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor and/or by the value of the underlying collateral.  Pass rated loans are not more than 59 days past due and are generally performing in accordance with the loan terms.  Based on the most recent analysis performed, the risk categories of loans by loan type as of the periods indicated were as follows:

	June 30, 2021
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	53,666	$	-	$	-	$	-	$	-	$	-
Multi-family		347,477		-		-		353		-		-
Commercial real estate		91,018		-		-		1,473		-		-
Church		13,615		647		-		1,058		-		-
Construction		22,583		-		-		-		-		-
Commercial - other		46,973		-		-		-		-		-
SBA loans		39,078		-		-		-		-		-
Consumer		73		-		-		-		-		-
Total	$	614,483	$	647	$	-	$	2,884	$	-	$	-

	December 31, 2020
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	48,357	$	-	$	-	$	1	$	-	$	-
Multi-family		273,501		-		-		362		-		-
Commercial real estate		22,834		1,488		-		-		-		-
Church		12,899		657		-		2,752		-		-
Construction		430		-		-		-		-		-
Commercial - other		9		-		-		47		-		-
Consumer		7		-		-		-		-		-
Total	$	358,037	$	2,145	$	-	$	3,162	$	-	$	-

  In 2015, CFC 45 was formed to, in effect, act as a pass-through entity for a Merrill Lynch NMTC Corp. (“Merrill Lynch”) allocation of funds in connection with the Bank’s participation in the New Markets Tax Credit (“NMTC”) Program totaling $14.0 million. (See Note 8 - Borrowings.) The financial statements for CFC 45 are consolidated with those of the Company, and as such the Company has reflected a $14.0 million loan made by CFC 45 to a Qualified Active Low Income Business in gross loans above as of June 30, 2021, in connection with the NMTC Program.