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Loans Receivable Held for Investment

9 Months Ended

Sep. 30, 2022

Loans Receivable Held for Investment [Abstract]

NOTE (5) – Loans Receivable Held for Investment

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

	September 30, 2022			December 31, 2021
	(In thousands)
Real estate:
Single family	$	30,781		$	45,372
Multi-family		459,234			393,704
Commercial real estate		91,576			93,193
Church		16,683			22,503
Construction		57,845			32,072
Commercial – other		66,516			46,539
SBA loans⁽¹⁾		3,654			18,837
Consumer		9			–
Gross loans receivable before deferred loan costs and premiums		726,298			652,220
Unamortized net deferred loan costs and premiums		1,564			1,526
Gross loans receivable		727,862			653,746
Credit and interest marks on purchased loans, net		(1,194	)		(1,842	)
Allowance for loan losses		(3,983	)		(3,391	)
Loans receivable, net	$	722,685		$	648,513

⁽¹⁾

Including Paycheck Protection Program (PPP) loans.

As of September 30, 2022 and December 31, 2021, the commercial loan category above included $2.9 million and $18.0 million, respectively, of loans issued under the SBA’s Paycheck Protection Program (PPP). PPP loans have terms of two to five years and earn interest at 1%. PPP loans are fully guaranteed by the SBA and have virtually no risk of loss. The Bank expects the vast majority of the PPP loans to be fully forgiven by the SBA.

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 September 30, 2022, and December 31, 2021, was as follows:

	September 30, 2022		December 31, 2021
	(In thousands)
Real estate:
Single family	$	67	$	558
Commercial real estate		–		221
Commercial – other		26		104
	$	93	$	883

On the acquisition date, the amount by which the undiscounted expected cash flows of the PCI 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 PCI loan. At September 30, 2022, and December 31, 2021, none of the Company’s PCI loans were classified as nonaccrual.

The following table summarizes the accretable yield on the PCI loans for the three and nine months ended September 30, 2022 and September 30, 2021:

	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
	(In thousands)

Balance at the beginning of the period	$	160		$	883
Deduction due to payoffs		(71	)		(810	)
Accretion		(4	)		(20	)
Balance at the end of the period	$	93		$	93

	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
	(In thousands)

Balance at the beginning of the period	$	327	$	–
Additions		–		346
Accretion		19		38
Balance at the end of the period	$	308	$	308

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

	For the Three Months Ended September 30, 2022
	Real Estate
	Single Family			Multi- Family		Commercial Real Estate		Church		Construction		Commercial - Other		Consumer		Total
Beginning balance	$	120		$	2,278	$	153	$	48	$	221	$	138	$	4	$	2,962
Provision for (recapture of) loan losses		(8	)		641		142		6		187		53		–		1,021
Recoveries		–			–		–		–		–		–		–		–
Loans charged off		–			–		–		–		–		–		–		–
Ending balance	$	112		$	2,919	$	295	$	54	$	408	$	191	$	4	$	3,983

	For the Three Months Ended September 30, 2021
	Real Estate
	Single Family			Multi- Family		Commercial Real Estate		Church			Construction		Commercial - Other		Consumer		Total
Beginning balance	$	170		$	2,606	$	227	$	208		$	81	$	4	$	–	$	3,296
Provision for (recapture of) loan losses		(10	)		325		32		(18	)		35		–		1		365
Recoveries		–			–		–		–			–		–		–		–
Loans charged off		–			–		–		–			–		–		–		–
Ending balance	$	160		$	2,931	$	259	$	190		$	116	$	4	$	1	$	3,661

	For the Nine Months Ended September 30, 2022
	Real Estate
	Single Family			Multi- Family		Commercial Real Estate		Church			Construction		Commercial - Other		Consumer			Total
Beginning balance	$	145		$	2,657	$	236	$	103		$	212	$	23	$	15		$	3,391
Provision for (recapture of) loan losses		(33	)		262		59		(49	)		196		168		(11	)		592
Recoveries		–			–		–		–			–		–		–			–
Loans charged off		–			–		–		–			–		–		–			–
Ending balance	$	112		$	2,919	$	295	$	54		$	408	$	191	$	4		$	3,983

	For the Nine Months Ended September 30, 2021
	Real Estate
	Single Family			Multi- Family		Commercial Real Estate		Church			Construction		Commercial - Other		Consumer		Total
Beginning balance	$	296		$	2,433	$	222	$	237		$	22	$	4	$	1	$	3,215
Provision for (recapture of) loan losses		(136	)		498		37		(47	)		94		–		–		446
Recoveries		–			–		–		–			–		–		–		–
Loans charged off		–			–		–		–			–		–		–		–
Ending balance	$	160		$	2,931	$	259	$	190		$	116	$	4	$	1	$	3,661

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:

	September 30, 2022
	Real Estate
	Single Family		Multi- Family		Commercial Real Estate		Church		Construction		Commercial - Other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3	$	–	$	–	$	4	$	–	$	–	$	–	$	7
Collectively evaluated for impairment		109		2,919		295		50		408		191		4		3,976
Total ending allowance balance	$	112	$	2,919	$	295	$	54	$	408	$	191	$	4	$	3,983
Loans:
Loans individually evaluated for impairment	$	58	$	268	$	–	$	2,135	$	–	$	–	$	–	$	2,461
Loans collectively evaluated for impairment		21,607		422,731		40,946		7,030		53,813		30,447		9		576,583
Subtotal		21,665		422,999		40,946		9,165		53,813		30,447		9		579,044
Loans acquired in the Merger		9,116		37,799		50,630		7,518		4,032		39,723		–		148,818
Total ending loans balance	$	30,781	$	460,798	$	91,576	$	16,683	$	57,845	$	70,170	$	9	$	727,862

	December 31, 2021
	Real Estate
	Single Family		Multi- Family		Commercial Real Estate		Church		Construction		Commercial - Other		SBA		Total

Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3	$	–	$	–	$	4	$	–	$	–	$	–	$	7
Collectively evaluated for impairment		142		2,657		236		99		212		23		15		3,384
Total ending allowance balance	$	145	$	2,657	$	236	$	103	$	212	$	23	$	15	$	3,391
Loans:
Loans individually evaluated for impairment	$	65	$	282	$	–	$	1,954	$	–	$	–	$	–	$	2,301
Loans collectively evaluated for impairment		32,599		353,179		25,507		9,058		24,225		3,124		–		447,692
Subtotal		32,664		353,461		25,507		11,012		24,225		3,124		–		449,993
Loans acquired in the Merger		12,708		41,769		67,686		11,491		7,847		43,415		18,837		203,753
Total ending loans balance	$	45,372	$	395,230	$	93,193	$	22,503	$	32,072	$	46,539	$	18,837	$	653,746

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

	September 30, 2022						December 31, 2021
	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:
Multi-family	$	267	$	267	$	–	$	282	$	282	$	–
Church		2,049		2,049		–		1,854		1,854		–
With an allowance recorded:
Single family		58		58		3		65		65		3
Church		87		87		4		100		100		4
Total	$	2,461	$	2,461	$	7	$	2,301	$	2,301	$	7

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 September 30, 2022				Three Months Ended September 30, 2021
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	60	$	1	$	65	$	4
Multi-family		268		5		288		5
Church		2,172		25		3,614		64
Commercial - other		–		–		–		–
Total	$	2,500	$	31	$	3,967	$	73

	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	63	$	3	$	318	$	14
Multi-family		274		14		292		15
Church		2,197		76		3,710		190
Commercial - other		–		–		18		1
Total	$	2,534	$	93	$	4,338	$	220

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 $17 thousand and $19 thousand for the three months ended September 30, 2022 and 2021, respectively, and $51 thousand and $38 thousand for the nine months ended September 30, 2022 and 2021, respectively, and were not included in the consolidated results of operations.

The following tables present the aging of the recorded investment in past due loans by loan type as of the dates indicated:

	September 30, 2022
	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	$	–	$	–	$	–	$	–	$	30,781	$	30,781
Multi-family		4,316		5,864		–		10,180		450,618		460,798
Commercial real estate		–		–		–		–		91,576		91,576
Church		–		–		–		–		16,683		16,683
Construction		–		–		–		–		57,845		57,845
Commercial - other		41		12		–		53		66,463		66,516
SBA loans		–		–		–		–		3,654		3,654
Consumer		–		–		–		–		9		9
Total	$	4,357	$	5,876	$	–	$	10,233	$	717,629	$	727,862

	December 31, 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	$	–	$	–	$	–	$	–	$	45,372	$	45,372
Multi-family		–		–		–		–		395,230		395,230
Commercial real estate		–		–		2,423		2,423		90,770		93,193
Church		–		–		–		–		22,503		22,503
Construction		–		–		–		–		32,072		32,072
Commercial - other		–		–		–		–		46,539		46,539
Consumer		–		–		–		–		18,837		18,837
Total	$	–	$	–	$	2,423	$	2,423	$	651,323	$	653,746

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

	September 30, 2022		December 31, 2021
	(In thousands)
Loans receivable held for investment:
Church	$	608	$	684
Total non-accrual loans	$	608	$	684

There were no loans 90 days or more delinquent that were accruing interest as of September 30, 2022 or December 31, 2021. None of the church non-accrual loans were delinquent, but none qualified for accrual status as of the dates indicated.

Troubled Debt Restructurings (TDRs)

At September 30, 2022, loans classified as TDRs totaled $2.0 million, of which $155 thousand were included in non-accrual loans and $1.9 million were on accrual status. At December 31, 2021, loans classified as TDRs totaled $1.8 million, of which $188 thousand were included in non-accrual loans and $1.6 million were on accrual status. The Company has allocated $7 thousand of specific reserves for accruing TDRs as of September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021, 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 nine months ended September 30, 2022 and 2021.

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 dates indicated were as follows:

	September 30, 2022
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss		Total
	(In thousands)
Single family	$	30,422	$	359	$	–	$	–	$	–	$	–	$	30,781
Multi-family		448,183		1,735		7,162		3,718		–		–		460,798
Commercial real estate		90,142		–		–		1,434		–		–		91,576
Church		14,934		–		–		1,749		–		–		16,683
Construction		23,504		34,341		–		–		–		–		57,845
Commercial - others		61,426		5,090		–		–		–		–		66,516
SBA		3,022		632		–		–		–		–		3,654
Consumer		9		–		–		–		–		–		9
Total	$	671,642	$	42,157	$	7,162	$	6,901	$	–	$	–	$	727,862

	December 31, 2021
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss		Total
	(In thousands)
Single family	$	42,454	$	1,343	$	271	$	1,304	$	–	$	–	$	45,372
Multi-family		378,141		7,987		575		8,527		–		–		395,230
Commercial real estate		69,257		7,034		9,847		7,055		–		–		93,193
Church		20,021		–		–		2,482		–		–		22,503
Construction		10,522		21,550		–		–		–		–		32,072
Commercial - other		33,988		12,551		–		–		–		–		46,539
SBA		18,665		–		172		–		–		–		18,837
Total	$	573,048	$	50,465	$	10,865	$	19,368	$	–	$	–	$	653,746