Loans Receivable Held for Investment

3 Months Ended

Mar. 31, 2024

Loans Receivable Held for Investment [Abstract]

NOTE 4 – Loans Receivable Held for Investment

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

	March 31, 2024			December 31, 2023
	(In thousands)
Real estate:
Single-family	$	28,184		$	24,702
Multi-family		601,126			561,447
Commercial real estate		124,717			119,436
Church		12,573			12,717
Construction		90,333			89,887
Commercial – other		63,538			63,450
SBA loans ⁽¹⁾		12,475			14,954
Consumer		14			13
Gross loans receivable before deferred loan costs and premiums		932,960			886,606
Unamortized net deferred loan costs and premiums		1,828			1,971
Gross loans receivable		934,788			888,577
Credit and interest marks on purchased loans, net		(739	)		(772	)
Allowance for credit losses		(7,552	)		(7,348	)
Loans receivable, net	$	926,497		$	880,457

(1)	Including Paycheck Protection Program (“PPP”) loans.

As of March 31, 2024 and December 31, 2023, the SBA loan category above included $15 thousand and $2.5 million, respectively, of loans issued under the SBA’s 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.

Following the adoption of Accounting Standards Codification Topic (“ASC”) 326 – Financial Instruments-Credit Losses, on January 1, 2023, the Company analyzes all acquired loans at the time of acquisition for more-than-insignificant deterioration in credit quality since their origination date. Such loans are classified as purchased credit deteriorated (“PCD”) loans. Acquired loans classified as PCD are recorded at an initial amortized cost, which is comprised of the purchase price of the loans and the initial ACL determined for the loans, which is added to the purchase price, and any resulting discount or premium related to factors other than credit. PCI loans were considered to be PCD loans at the date of adoption of ASC 326. The Company accounts for interest income on PCD loans using the interest method, whereby any purchase discounts or premiums are accreted or amortized into interest income as an adjustment of the loan’s yield. An accretable yield is not determined for PCD loans.

As part of the CFBanc merger, the Company acquired PCI loans. Prior to the CFBanc merger, there were no such acquired loans. The carrying amount of those loans was as follows:

	March 31, 2024		December 31, 2023
Real estate:	(In thousands)
Single-family	$	–	$	–
Commercial – other		47		47
	$	47	$	47

The following tables summarizes the discount on the PCI loans for the three months ended:

	March 31, 2024			March 31, 2023
	(In thousands)
Balance at the beginning of the period	$	2		$	27
Deduction due to payoffs		–			(12	)
Accretion		(2	)		(4	)
Balance at the end of the period	$	–		$	11

The Company accounts for credit losses on loans in accordance with ASC 326 – Financial Instruments-Credit Losses, to determine the ACL. ASC 326 requires the Company to recognize estimates for lifetime losses on loans and off-balance sheet loan commitments at the time of origination or acquisition. The recognition of losses at origination or acquisition represents the Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan, and involves the use of significant management judgement and estimates, which are subject to change based on management’s on-going assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The Company uses the WARM method when determining estimates for the ACL for each of its portfolio segments. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter.

The Company’s ACL model also includes adjustments for qualitative factors, where appropriate. Qualitative adjustments may be related to and include, but are not limited to, factors such as: (i) changes in lending policies and procedures, including changes in underwriting standards and collections, charge offs, and recovery practices; (ii) changes in international, national, regional, and local conditions; (iii) changes in the nature and volume of the portfolio and terms of loans; (iv) changes in the experience, depth, and ability of lending management; (v) changes in the volume and severity of past due loans and other similar conditions; (vi) changes in the quality of the organization’s loan review system; (vii) changes in the value of underlying collateral for collateral dependent loans; (viii) the existence and effect of any concentrations of credit and changes in the levels of such concentrations; and (ix) the effect of other external factors (i.e., competition, legal and regulatory requirements) on the level of estimated credit losses. These qualitative factors incorporate the concept of reasonable and supportable forecasts, as required by ASC 326.

The following tables summarize the activity in the allowance for credit losses on loans for the periods indicated:

	March 31, 2024
	Beginning Balance		Charge-offs		Recoveries		Provision (recapture)			Ending Balance
Loans receivable held for investment:
Single-family	$	260	$	–	$	–	$	38		$	298
Multi-family		4,413		–		–		(88	)		4,325
Commercial real estate		1,094		–		–		15			1,109
Church		72		–		–		18			90
Construction		932		–		–		24			956
Commercial - other		529		–		–		193			722
SBA loans		48		–		–		4			52
Consumer		–		–		–		–			–
Total	$	7,348	$	–	$	–	$	204		$	7,552

	March 31, 2023
	Beginning Balance		Impact of CECL Adoption			Charge-offs		Recoveries		Provision (benefit)			Ending Balance
	(In thousands)
Loans receivable held for investment:
Single-family	$	109	$	214		$	–	$	–	$	(62	)	$	261
Multi-family		3,273		603			–		–		56			3,932
Commercial real estate		449		466			–		–		97			1,012
Church		65		37			–		–		(10	)		92
Construction		313		219			–		–		61			593
Commercial - other		175		254			–		–		(72	)		357
SBA loans		–		20			–		–		18			38
Consumer		4		(4	)		–		–		–			–
Total	$	4,388	$	1,809		$	–	$	–	$	88		$	6,285

The ACL increased from March 31, 2023 to March 31, 2024 due to growth in the loan portfolio. Since the Company has no historical loss rates of its own, it uses peer historical loss rates, which decreased during the first quarter of 2024 and caused the Company to decrease the factor for historical losses in its computation, causing a decrease in the reserve on certain loan categories.

The Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the loan portfolio. These loans are typically identified from those that have exhibited deterioration in credit quality, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, downgraded to substandard or worse, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio, or that have been identified as collateral dependent, are evaluated individually for purposes of determining an appropriate lifetime ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated selling costs. The Company may increase or decrease the ACL for collateral dependent loans based on changes in the estimated fair value of the collateral.

The following table presents collateral dependent loans by collateral type as of the date indicated:

	March 31, 2024
	Single-Family		Multi-Family Residential		Church		Business Assets		Total
Real estate:	(In thousands)
Single-family	$	42	$	–	$	–	$	–	$	42
Multi-family		–		401		–		–		401
Commercial real estate		–		–		58		–		58
Church		–		–		388		–		388
Commercial – other		–		–		–		267		267
Total	$	42	$	401	$	446	$	267	$	1,156

	December 31, 2023
	Single-Family		Multi-Family Residential		Church		Business Assets		Total
Real estate:	(In thousands)
Single-family	$	45	$	–	$	–	$	–	$	45
Multi-family		–		5,672		–		–		5,672
Commercial real estate		–		–		65		–		65
Church		–		–		391		–		391
Commercial – other		–		–		–		268		268
Total	$	45	$	5,672	$	456	$	268	$	6,441

At March 31, 2024 and December 31, 2023, $1.2 million and $6.4 million, respectively of individually evaluated loans were evaluated based on the underlying value of the collateral and no individually evaluated loans were evaluated using a discounted cash flow approach. These loans had an associated ACL of $111 thousand and $112 thousand as of March 31, 2024 and December 31, 2023, respectively. The Company had one $410 thousand individually evaluated loan on nonaccrual status at March 31, 2024.

Past Due Loans

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

	March 31, 2024
	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	$	–	$	–	$	–	$	–	$	28,184	$	28,184
Multi-family		–		–		401		401		602,553		602,954
Commercial real estate		–		–		–		–		124,717		124,717
Church		–		–		–		–		12,573		12,573
Construction		–		–		–		–		90,333		90,333
Commercial - other		–		–		–		–		63,538		63,538
SBA loans		9		360		–		369		12,106		12,475
Consumer		–		–		–		–		14		14
Total	$	9	$	360	$	401	$	770	$	934,018	$	934,788

	December 31, 2023
	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	$	–	$	–	$	–	$	–	$	24,702	$	24,702
Multi-family		–		401		–		401		563,017		563,418
Commercial real estate		–		–		–		–		119,436		119,436
Church		–		–		–		–		12,717		12,717
Construction		–		–		–		–		89,887		89,887
Commercial - other		–		–		–		–		63,450		63,450
SBA loans		379		–		–		379		14,575		14,954
Consumer		–		–		–		–		13		13
Total	$	379	$	401	$	–	$	780	$	887,797	$	888,577

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

	March 31, 2024		December 31, 2023
	(In thousands)
Loans receivable held for investment:
Multi-family	$	401	$	–
Total non-accrual loans	$	401	$	–

The non-accrual loan above had no related ACL at March 31, 2024. There were no loans 90 days or more delinquent that were accruing interest as of March 31, 2024 or December 31, 2023.

Modified Loans to Troubled Borrowers

GAAP requires that certain types of modifications of loans in response to a borrower’s financial difficulty be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or (v) any combination of the foregoing. The ACL for loans that were modified in response to a borrower’s financial difficulty is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACL for such loans is determined through individual evaluation. There were no loan modifications to borrowers that were experiencing financial difficulty during the three months ended March 31, 2024.

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.

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination as of the date indicated:

	Term Loans Amortized Cost Basis by Origination Year - As of March 31, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
	(In thousands)
Single-family:
Pass	$	–	$	551	$	4,135	$	3,039	$	2,050	$	14,612	$	–	$	24,387
Watch		–		–		–		745		869		714		–		2,328
Special Mention		–		–		–		–		–		115		–		115
Substandard		–		–		–		–		1,354		–		–		1,354
Total	$	–	$	551	$	4,135	$	3,784	$	4,273	$	15,441	$	–	$	28,184

Multi-family:
Pass	$	39,797	$	86,356	$	182,415	$	144,826	$	27,195	$	92,345	$	–	$	572,934
Watch		–		–		4,667		6,168		–		4,377		–		15,212
Special Mention		–		–		–		–		–		2,039		–		2,039
Substandard		–		–		–		894		–		11,875		–		12,769
Total	$	39,797	$	86,356	$	187,082	$	151,888	$	27,195	$	110,636	$	–	$	602,954

Commercial real estate:
Pass	$	15,000	$	1,751	$	21,406	$	25,877	$	24,477	$	22,487	$	–	$	110,998
Watch		–		–		440		–		5,256		2,579		–		8,275
Special Mention		–		884		–		–		–		–		–		884
Substandard		–		–		–		–		–		4,560		–		4,560
Total	$	15,000	$	2,635	$	21,846	$	25,877	$	29,733	$	29,626	$	–	$	124,717

Church:
Pass	$	–	$	2,892	$	–	$	2,196	$	1,735	$	2,649	$	–	$	9,472
Watch		–		–		–		–		–		1,490		–		1,490
Special Mention		–		–		–		–		–		648		–		648
Substandard		–		–		–		–		–		963		–		963
Total	$	–	$	2,892	$	–	$	2,196	$	1,735	$	5,750	$	–	$	12,573

Construction:
Pass	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–
Watch		954		43,787		31,126		8,094		–		1,841		–		85,802
Special Mention		–		252		4,279		–		–		–		–		4,531
Substandard		–		–		–		–		–		–		–		–
Total	$	954	$	44,039	$	35,405	$	8,094	$	–	$	1,841	$	–	$	90,333

Commercial – other:
Pass	$	–	$	15,000	$	9,033	$	80	$	6,196	$	7,632	$	–	$	37,941
Watch		17,594		–		312		–		–		6,549		–		24,455
Special Mention		–		–		–		–		972		–		–		972
Substandard		–		–		–		170		–		–		–		170
Total	$	17,594	$	15,000	$	9,345	$	250	$	7,168	$	14,181	$	–	$	63,538

SBA:
Pass	$	–	$	9,065	$	150	$	15	$	–	$	1,425	$	–	$	10,655
Watch		–		–		–		–		–		–		–		–
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		446		1,374		–		1,820
Total	$	–	$	9,065	$	150	$	15	$	446	$	2,799	$	–	$	12,475

Consumer:
Pass	$	14	$	–	$	–	$	–	$	–	$	–	$	–	$	14
Watch		–		–		–		–		–		–		–		–
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		–		–		–
Total	$	14	$	–	$	–	$	–	$	–	$	–	$	–	$	14

Total loans:
Pass	$	54,811	$	115,615	$	217,139	$	176,033	$	61,653	$	141,150	$	–	$	766,401
Watch		18,548		43,787		36,545		15,007		6,125		17,550		–		137,562
Special Mention		–		1,136		4,279		–		972		2,802		–		9,189
Substandard		–		–		–		1,064		1,800		18,772		–		21,636
Total loans	$	73,359	$	160,538	$	257,963	$	192,104	$	70,550	$	180,274	$	–	$	934,788

	Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
	(In thousands)
Single-family:
Pass	$	–	$	2,474	$	1,862	$	2,940	$	1,485	$	12,374	$	–	$	21,135
Watch		–		–		750		–		–		999		–		1,749
Special Mention		–		–		–		–		–		116		–		116
Substandard		–		–		–		1,365		–		337		–		1,702
Total	$	–	$	2,474	$	2,612	$	4,305	$	1,485	$	13,826	$	–	$	24,702

Multi-family:
Pass	$	81,927	$	183,295	$	145,652	$	27,356	$	44,511	$	47,119	$	–	$	529,860
Watch		–		4,686		6,203		–		1,186		6,474		–		18,549
Special Mention		–		–		899		–		–		1,344		–		2,243
Substandard		–		–		–		–		363		12,403		–		12,766
Total	$	81,927	$	187,981	$	152,754	$	27,356	$	46,060	$	67,340	$	–	$	563,418

Commercial real estate:
Pass	$	9,881	$	22,131	$	26,019	$	24,684	$	6,718	$	15,106	$	–	$	104,539
Watch		–		442		–		5,286		–		2,599		–		8,327
Special Mention		–		–		–		–		325		–		–		325
Substandard		–		–		–	$	–	$	–		6,245	$	–	$	6,245
Total	$	9,881	$	22,573	$	26,019	$	29,970	$	7,043	$	23,950	$	–	$	119,436

Church:
Pass	$	2,923	$	–	$	2,210	$	1,748	$	–	$	2,704	$	–	$	9,585
Watch		–		–		–		–		636		1,525		–		2,161
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		971		–		971
Total	$	2,923	$	–	$	2,210	$	1,748	$	636	$	5,200	$	–	$	12,717

Construction:
Pass	$	–	$	1,109	$	1,198	$	–	$	–	$	–	$	–	$	2,307
Watch		42,300		35,179		5,484		–		–		2,097		–		85,060
Special Mention		–		–		2,520		–		–		–		–		2,520
Substandard		–		–		–		–		–		–		–		–
Total	$	42,300	$	36,288	$	9,202	$	–	$	–	$	2,097	$	–	$	89,887

Commercial – other:
Pass	$	15,000	$	9,077	$	87	$	5,600	$	–	$	25,154	$	–	$	54,918
Watch		–		312		–		1,500		6,550		–		–		8,362
Special Mention		–		–		170		–		–		–		–		170
Substandard		–		–		–		–		–		–		–		–
Total	$	15,000	$	9,389	$	257	$	7,100	$	6,550	$	25,154	$	–	$	63,450

SBA:
Pass	$	11,809	$	109	$	2,453	$	–	$	16	$	100	$	–	$	14,487
Watch		–		–		–		–		–		–		–		–
Special Mention		–		–		–		467		–		–		–		467
Substandard		–		–		–		–		–		–		–		–
Total	$	11,809	$	109	$	2,453	$	467	$	16	$	100	$	–	$	14,954

Consumer:
Pass	$	13	$	–	$	–	$	–	$	–	$	–	$	–	$	13
Watch		–		–		–		–		–		–		–		–
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		–		–		–
Total	$	13	$	–	$	–	$	–	$	–	$	–	$	–	$	13

Total loans:
Pass	$	121,553	$	218,195	$	179,481	$	62,328	$	52,730	$	102,557	$	–	$	736,844
Watch		42,300		40,619		12,437		6,786		8,372		13,694		–		124,208
Special Mention		–		–		3,589		467		325		1,460		–		5,841
Substandard		–		–		–		1,365		363		19,956		–		21,684
Total loans	$	163,853	$	258,814	$	195,507	$	70,946	$	61,790	$	137,667	$	–	$	888,577

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an allowance for credit losses on off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities of the consolidated statements of financial condition. Upon the Company’s adoption of ASC 326 on January 1, 2023, the Company applies an expected credit loss estimation methodology for off-balance sheet commitments. This methodology is commensurate with the methodology applied to each respective segment of the loan portfolio in determining the ACL for loans held-for-investment. The loss estimation process includes assumptions for the probability that a loan will fund, as well as the expected amount of funding. These assumptions are based on the Company’s own historical internal loan data.

The allowance for off-balance sheet commitments was $420 thousand and $364 thousand at March 31, 2024 and December 31, 2023, respectively. This amount is included in accrued expenses and other liabilities on the consolidated statements of financial condition. The provision for off-balance sheet commitments was $56 thousand for the quarter-ended March 31, 2024.