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Loans and Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2023
Loans and Allowance for Credit Losses [Abstract]  
Loans and Allowance for Credit Losses

Note 4 - Loans and Allowance for Credit Losses

Loans consisted of the following segments as of September 30, 2023 and December 31, 2022:

 

 

 

September 30,

 

 

 

December 31,

 

 

 

2023

 

 

 

2022

 

 

 

(Dollars in thousands)

 

Real Estate Loans:

 

 

 

 

 

 

 

Residential, one- to four-family (1)

$

 

172,974

 

 

$

 

175,904

 

Home Equity

 

 

51,276

 

 

 

 

53,057

 

Commercial (2)

 

 

323,535

 

 

 

 

326,955

 

Total real estate loans

 

 

547,785

 

 

 

 

555,916

 

Other Loans:

 

 

 

 

 

 

 

Commercial

 

 

18,749

 

 

 

 

19,576

 

Consumer

 

 

1,113

 

 

 

 

1,217

 

Total gross loans

 

 

567,647

 

 

 

 

576,709

 

Net deferred loan costs

 

 

3,843

 

 

 

 

3,893

 

Allowance for credit losses on loans

 

 

(6,642

)

 

 

 

(7,065

)

Loans receivable, net

$

 

564,848

 

 

$

 

573,537

 

 

(1)
Includes one- to four-family construction loans.
(2)
Includes commercial construction loans.

 

Real estate loans of approximately $57.4 million and $147.4 million were pledged as collateral for Federal Home Loan Bank (FHLB) advances as of September 30, 2023 and December 31, 2022, respectively.

 

Loans are stated at the principal amounts outstanding, net of unamortized loan fees and costs, with interest income recognized on the interest method based upon the terms of the loan. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Loans are reported by the portfolio segments identified above and are analyzed by management on this basis. All loan policies identified below apply to all segments of the loan portfolio.

 

Allowance for Credit Losses for Loans

 

The Company adopted ASU 2016-13 on January 1, 2023 at which time the Company implemented the current expected credit loss model in estimating the allowance for credit losses valuation account. Adjustments to the allowance for credit losses on loans is recognized in (credit) provision for credit losses on the unaudited consolidated statements of income. As part of the CECL calculation, the loan portfolio is segmented into the following loan types by risk level:

 

Real Estate Loans:

One- to Four-Family – are loans secured by first lien collateral on residential real estate primarily held in the Western New York region. These loans can be affected by economic conditions and the value of underlying properties. Western New York’s housing market has consistently demonstrated stability in home prices despite economic conditions. Furthermore, the Company has conservative underwriting standards and its residential lending policies and procedures verify that its one- to four-family residential mortgage loans generally conform to secondary market guidelines.
Home Equity - are loans or lines of credit secured by first or second liens on owner-occupied residential real estate primarily held in the Western New York region. These loans can also be affected by economic conditions and the values of underlying properties. Home equity loans may have increased risk of loss if the Company does not hold the first mortgage resulting in the Company being in a secondary position in the event of collateral liquidation. The Company does not originate interest only home equity loans.
Commercial Real Estate – are loans used to finance the purchase of real property, which generally consists of developed real estate that is held as first lien collateral for the loan. These loans are secured by real estate properties that are primarily held in the Western New York region. Commercial real estate lending involves additional risks compared with one- to four-family residential lending, because payments on loans secured by commercial real estate properties are often dependent on the successful operation or management of the properties, and/or the collateral value of the commercial real estate securing the loan, and repayment of such loans may be subject to adverse conditions in the real estate market or economic conditions to a greater extent than one- to four-family residential mortgage loans. Also, commercial real estate loans typically involve relatively large loan balances concentrated with single borrowers or groups of related borrowers.

 

Other Loans:

Commercial – includes business installment loans, lines of credit, and other commercial loans. Most of our commercial loans are for terms generally not in excess of 5 years. Whenever possible, we collateralize these loans with a lien on business assets and equipment and require the personal guarantees from principals of the borrower. Commercial loans generally involve a higher degree of credit risk, as commercial loans can involve relatively large loan balances to a single borrower or groups of related borrowers, with the repayment of such loans typically dependent on the successful operation of the commercial business and the income stream of the borrower. Such risks can be significantly affected by economic conditions. Although commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default may be an insufficient source of repayment because the equipment or other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the credit worthiness of the borrowers (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.
Consumer – consist of loans secured by collateral such as an automobile or a deposit account, unsecured loans and lines of credit. Consumer loans tend to have a higher credit risk due to the loans being either unsecured or secured by rapidly depreciable assets. Furthermore, consumer loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

 

Included in the Real Estate Loans for one-to four-family and commercial real estate are loans to finance the construction of either a one- to four-family owner occupied home or commercial real estate. At the end of the construction period, the loan automatically converts to either a one- to four-family residential mortgage or a commercial real estate mortgage, as applicable. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion compared to the actual cost of construction. The Company limits its risk during construction as disbursements are not made until the required work for each advance has been completed and an updated lien search is performed. The completion of the construction progress is verified by a Company loan officer or inspections performed by an independent appraisal firm or other third party. Construction loans also expose us to the risk of construction delays which may impair the borrower’s ability to repay the loan.

 

The following table details the changes in the allowance for credit losses by loan segment for the three and nine months ended September 30, 2023.

 

 

 

Real Estate Loans

 

 

Other Loans

 

 

 

 

 

 

 

One- to Four-Family(1)

 

 

Home Equity

 

 

Commercial Real Estate (2)

 

 

Commercial

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

 

(Dollars in thousands)

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Credit Loss: on Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – July 1, 2023

 

$

 

541

 

 

$

 

257

 

 

$

 

5,422

 

 

$

 

520

 

 

$

 

18

 

 

$

 

—

 

 

$

 

6,758

 

Charge-offs

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

(16

)

 

 

 

—

 

 

 

 

(16

)

Recoveries

 

 

 

—

 

 

 

 

—

 

 

 

 

35

 

 

 

 

—

 

 

 

 

2

 

 

 

 

—

 

 

 

 

37

 

(Credit) provision

 

 

 

(6

)

 

 

 

(47

)

 

 

 

(122

)

 

 

 

25

 

 

 

 

13

 

 

 

 

—

 

 

 

 

(137

)

Balance – September 30, 2023

 

$

 

535

 

 

$

 

210

 

 

$

 

5,335

 

 

$

 

545

 

 

$

 

17

 

 

$

 

—

 

 

$

 

6,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2023

 

$

 

411

 

 

$

 

217

 

 

$

 

5,746

 

 

$

 

509

 

 

$

 

47

 

 

$

 

135

 

 

$

 

7,065

 

Impact of adopting ASC 326

 

 

 

201

 

 

 

 

114

 

 

 

 

55

 

 

 

 

72

 

 

 

 

(25

)

 

 

 

(135

)

 

 

 

282

 

Charge-offs

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

(47

)

 

 

 

—

 

 

 

 

(47

)

Recoveries

 

 

 

—

 

 

 

 

—

 

 

 

 

35

 

 

 

 

29

 

 

 

 

7

 

 

 

 

—

 

 

 

 

71

 

(Credit) provision

 

 

 

(77

)

 

 

 

(121

)

 

 

 

(501

)

 

 

 

(65

)

 

 

 

35

 

 

 

 

—

 

 

 

 

(729

)

Balance – September 30, 2023

 

$

 

535

 

 

$

 

210

 

 

$

 

5,335

 

 

$

 

545

 

 

$

 

17

 

 

$

 

—

 

 

$

 

6,642

 

Ending balance: individually evaluated
   for impairment

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

Ending balance: collectively evaluated
   for impairment

 

$

 

535

 

 

$

 

210

 

 

$

 

5,335

 

 

$

 

545

 

 

$

 

17

 

 

$

 

—

 

 

$

 

6,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Loans Receivable(3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

 

172,974

 

 

$

 

51,276

 

 

$

 

323,535

 

 

$

 

18,749

 

 

$

 

1,113

 

 

$

 

—

 

 

$

 

567,647

 

Ending balance: individually evaluated
   for impairment

 

$

 

142

 

 

$

 

—

 

 

$

 

1,242

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

1,384

 

Ending balance: collectively evaluated
   for impairment

 

$

 

172,832

 

 

$

 

51,276

 

 

$

 

322,293

 

 

$

 

18,749

 

 

$

 

1,113

 

 

$

 

—

 

 

$

 

566,263

 

 

(1)
Includes one- to four-family construction loans.
(2)
Includes commercial construction loans of $23.9 million.
(3)
Gross Loans Receivable does not include allowance for credit losses of $(6,642) or deferred loan costs of $3,843.

 

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology. The following tables summarize the activity in the allowance for loan losses for the three and nine months ended September 30, 2022 and the distribution of the allowance for loan losses and loans receivable by loan portfolio class and impairment method as of September 30, 2022 and December 31, 2022:

 

 

 

Real Estate Loans

 

 

Other Loans

 

 

 

 

 

 

 

One- to Four-Family(2)

 

 

Home Equity

 

 

Commercial

 

 

Construction - Commercial

 

 

Commercial

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

 

(Dollars in thousands)

 

September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Loan Losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – July 1, 2022

 

$

 

449

 

 

$

 

330

 

 

$

 

4,908

 

 

$

 

373

 

 

$

 

479

 

 

$

 

24

 

 

$

 

184

 

 

$

 

6,747

 

Charge-offs

 

 

 

—

 

 

 

 

—

 

 

 

 

-

 

 

 

 

—

 

 

 

 

—

 

 

 

 

(17

)

 

 

 

—

 

 

 

 

(17

)

Recoveries

 

 

 

-

 

 

 

 

—

 

 

 

 

115

 

 

 

 

—

 

 

 

 

—

 

 

 

 

4

 

 

 

 

—

 

 

 

 

119

 

Provision (credit)

 

 

 

17

 

 

 

 

(62

)

 

 

 

35

 

 

 

 

10

 

 

 

 

(1

)

 

 

 

23

 

 

 

 

(22

)

 

 

 

-

 

Balance – September 30, 2022

 

$

 

466

 

 

$

 

268

 

 

$

 

5,058

 

 

$

 

383

 

 

$

 

478

 

 

$

 

34

 

 

$

 

162

 

 

$

 

6,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – January 1, 2022

 

$

 

383

 

 

$

 

211

 

 

$

 

4,377

 

 

$

 

360

 

 

$

 

531

 

 

$

 

32

 

 

$

 

224

 

 

$

 

6,118

 

Charge-offs

 

 

 

—

 

 

 

 

—

 

 

 

 

(4

)

 

 

 

—

 

 

 

 

—

 

 

 

 

(58

)

 

 

 

—

 

 

 

 

(62

)

Recoveries

 

 

 

17

 

 

 

 

1

 

 

 

 

269

 

 

 

 

—

 

 

 

 

—

 

 

 

 

6

 

 

 

 

—

 

 

 

 

293

 

Provision (credit)

 

 

 

66

 

 

 

 

56

 

 

 

 

416

 

 

 

 

23

 

 

 

 

(53

)

 

 

 

54

 

 

 

 

(62

)

 

 

 

500

 

Balance – September 30, 2022

 

$

 

466

 

 

$

 

268

 

 

$

 

5,058

 

 

$

 

383

 

 

$

 

478

 

 

$

 

34

 

 

$

 

162

 

 

$

 

6,849

 

Ending balance: individually
   evaluated for impairment

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

Ending balance: collectively
   evaluated for impairment

 

$

 

466

 

 

$

 

268

 

 

$

 

5,058

 

 

$

 

383

 

 

$

 

478

 

 

$

 

34

 

 

$

 

162

 

 

$

 

6,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Loans Receivable(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

 

171,570

 

 

$

 

50,633

 

 

$

 

295,582

 

 

$

 

23,241

 

 

$

 

21,950

 

 

$

 

1,171

 

 

$

 

—

 

 

$

 

564,147

 

Ending balance: individually
   evaluated for impairment

 

$

 

216

 

 

$

 

14

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

230

 

Ending balance: collectively
   evaluated for impairment

 

$

 

171,354

 

 

$

 

50,619

 

 

$

 

295,582

 

 

$

 

23,241

 

 

$

 

21,950

 

 

$

 

1,171

 

 

$

 

—

 

 

$

 

563,917

 

 

(1)
Gross Loans Receivable does not include allowance for loan losses of $(6,849) or deferred loan costs of $3,872.
(2)
Includes one- to four- family construction loans.

 

 

Real Estate Loans

 

 

Other Loans

 

 

 

 

 

One- to Four-Family(2)

 

 

Home Equity

 

 

Commercial

 

 

Commercial - Construction

 

 

Commercial

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Loan Losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2022

 

$

411

 

 

$

217

 

 

$

5,398

 

 

$

348

 

 

$

509

 

 

$

47

 

 

$

135

 

 

$

7,065

 

Ending balance: individually
   evaluated for impairment

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Ending balance: collectively
   evaluated for impairment

 

$

411

 

 

$

217

 

 

$

5,398

 

 

$

348

 

 

$

509

 

 

$

47

 

 

$

135

 

 

$

7,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Loans Receivable(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance

 

$

175,904

 

 

$

53,057

 

 

$

304,037

 

 

$

22,918

 

 

$

19,576

 

 

$

1,217

 

 

$

—

 

 

$

576,709

 

Ending balance: individually
   evaluated for impairment

 

$

153

 

 

$

14

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

167

 

Ending balance: collectively
   evaluated for impairment

 

$

175,751

 

 

$

53,043

 

 

$

304,037

 

 

$

22,918

 

 

$

19,576

 

 

$

1,217

 

 

$

—

 

 

$

576,542

 

 

(1)
Gross Loans Receivable does not include allowance for loan losses of $(7,065) or deferred loan costs of $3,893.
(2)
Includes one- to four-family construction loans.

 

Unfunded Loan Commitments

 

The Company’s allowance for credit losses on unfunded loan commitments is recognized as a liability and included within other liabilities on the unaudited consolidated statement of financial condition, with adjustments to the reserve recognized in (credit) provision for credit losses on the unaudited consolidated statements of income. The Company did not record an allowance on unfunded loan commitments prior to January 1, 2023. The Company’s activity in the allowance for credit losses on unfunded loan commitments for the three and nine months ended September 30, 2023 was as follows:

 

 

For the Three and Nine Months Ended September 30, 2023

 

 

(Dollars in thousands)

 

Balance at December 31, 2022

$

 

—

 

Impact of CECL Adoption

 

 

633

 

Balance at March 31, 2023

 

 

633

 

Provision for Credit Losses

 

 

(220

)

Balance at June 30, 2023

 

 

413

 

Provision for Credit Losses

 

 

(62

)

Balance at September 30, 2023

$

 

351

 

 

Non-accrual Loans and Delinquency Status

 

The following table presents the amortized cost basis of loans on non-accrual status, loans on non-accrual status with no allowance for credit losses recorded and loans past due 90 days or more and still accruing by loan segment as of the periods indicated.

 

 

Total Non-accrual

 

 

Non-accrual with no Allowance for Credit Losses

 

 

90 Days or More Past Due and Accruing

 

 

 

September 30,

 

 

 

December 31,

 

 

 

September 30,

 

 

 

December 31,

 

 

 

September 30,

 

 

 

December 31,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

(Dollars in thousands)

 

Real Estate Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential, one- to four-family (1)

$

 

2,004

 

 

$

 

2,295

 

 

$

 

2,004

 

 

$

 

2,295

 

 

$

 

—

 

 

$

 

1

 

Home Equity

 

 

319

 

 

 

 

602

 

 

 

 

319

 

 

 

 

602

 

 

 

 

—

 

 

 

 

—

 

Commercial Real Estate (2)

 

 

1,226

 

 

 

 

—

 

 

 

 

1,226

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Consumer

 

 

8

 

 

 

 

34

 

 

 

 

8

 

 

 

 

34

 

 

 

 

—

 

 

 

 

—

 

Total loans

$

 

3,557

 

 

$

 

2,931

 

 

$

 

3,557

 

 

$

 

2,931

 

 

$

 

—

 

 

$

 

1

 

 

(1)
Includes one- to four-family construction loans.
(2)
Includes commercial construction loans.

 

There was no interest income recognized on non-accrual loans during the three and nine months ended September 30, 2023 and there was $4,000 of interest income recognized during the three and nine months ended September 30, 2022, respectively. The accrual of interest on loans is discontinued when in management’s opinion, the borrower may be unable to meet payments as they become due. A loan does not have to be 90 days delinquent in order to be classified as non-accrual. When interest accrual is discontinued, all unpaid accrued interest is reversed. If ultimate collection of principal is in doubt, all cash receipts on non-accrual loans are applied to reduce the principal balance.

 

The following tables provide an analysis of past due loans as of the dates indicated:

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days or More

 

 

Total Past

 

 

 

Current

 

 

Total Loans

 

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Due

 

 

 

Due

 

 

Receivable

 

 

 

(Dollars in thousands)

 

September 30, 2023:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential, one- to four-family(1)

 

$

 

1,103

 

 

$

 

123

 

 

$

 

538

 

 

$

 

1,764

 

 

$

 

171,210

 

 

$

 

172,974

 

Home equity

 

 

 

45

 

 

 

 

68

 

 

 

 

107

 

 

 

 

220

 

 

 

 

51,056

 

 

 

 

51,276

 

Commercial(2)

 

 

 

203

 

 

 

 

1,039

 

 

 

 

—

 

 

 

 

1,242

 

 

 

 

322,293

 

 

 

 

323,535

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

117

 

 

 

 

—

 

 

 

 

—

 

 

 

 

117

 

 

 

 

18,632

 

 

 

 

18,749

 

Consumer

 

 

 

—

 

 

 

 

2

 

 

 

 

5

 

 

 

 

7

 

 

 

 

1,106

 

 

 

 

1,113

 

Total

 

$

 

1,468

 

 

$

 

1,232

 

 

$

 

650

 

 

$

 

3,350

 

 

$

 

564,297

 

 

$

 

567,647

 

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days or More

 

 

Total Past

 

 

 

Current

 

 

Total Loans

 

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Due

 

 

 

Due

 

 

Receivable

 

 

 

(Dollars in thousands)

 

December 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential, one- to four-family(1)

 

$

 

1,173

 

 

$

 

380

 

 

$

 

1,649

 

 

$

 

3,202

 

 

$

 

172,702

 

 

$

 

175,904

 

Home equity

 

 

 

137

 

 

 

 

287

 

 

 

 

468

 

 

 

 

892

 

 

 

 

52,165

 

 

 

 

53,057

 

Commercial(2)

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

326,955

 

 

 

 

326,955

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

19,576

 

 

 

 

19,576

 

Consumer

 

 

 

15

 

 

 

 

—

 

 

 

 

17

 

 

 

 

32

 

 

 

 

1,185

 

 

 

 

1,217

 

Total

 

$

 

1,325

 

 

$

 

667

 

 

$

 

2,134

 

 

$

 

4,126

 

 

$

 

572,583

 

 

$

 

576,709

 

 

(1)
Includes one- to four-family construction loans.
(2)
Includes commercial real estate construction loans.

 

Collateral-Dependent Loans

 

Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral-dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is measured on an individual loan basis based on the difference between the fair value of the loan’s collateral, which is adjusted for liquidation costs, and the amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance for credit losses is required. Refer to Note 8 - Fair Value of Financial Instruments for additional information.

 

The following table presents an analysis of the amortized cost of collateral-dependent loans of the Company as of September 30, 2023 by collateral type and loan segment:

 

 

 

Residential

 

 

Business

 

 

 

 

 

Commercial

 

 

 

 

 

Total

 

 

 

Properties

 

 

Assets

 

 

Land

 

 

Property

 

 

Other

 

 

Loans

 

 

(Dollars in thousands)

 

Real Estate Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential, one- to four-family

$

 

145

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

145

 

Home Equity

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial

 

 

200

 

 

 

—

 

 

 

1,026

 

 

 

—

 

 

 

—

 

 

 

1,226

 

Total

$

 

345

 

$

 

—

 

$

 

1,026

 

$

 

—

 

$

 

—

 

$

 

1,371

 

 

There was no allowance recorded on the above noted collateral-dependent loans as of September 30, 2023.

 

Pre-Adoption of ASC 326 – Impaired Loans

 

For periods prior to the adoption of ASC 326, a loan was considered impaired when, based on current information and events, it was probable that the Company would not be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled payments when due. Impairment was measured on a loan-by-loan basis for commercial real estate loans and commercial loans. Larger groups of smaller balance homogeneous loans were collectively evaluated for impairment. Accordingly, the Company did not separately identify individual consumer, home equity, or one- to four-family loans for impairment disclosure, unless they were subject to a troubled debt restructuring.

 

The following is a summary of information pertaining to impaired loans at or for the periods indicated:

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

Recorded

 

 

Principal

 

 

Related

 

 

 

Investment

 

 

Balance

 

 

Allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2022

 

 

 

(Dollars in thousands)

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Residential, one- to four-family

 

$

 

153

 

 

$

 

153

 

 

$

 

—

 

Home equity

 

 

 

14

 

 

 

 

14

 

 

 

 

—

 

Commercial real estate(1)

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Total impaired loans with no related allowance

 

 

 

167

 

 

 

 

167

 

 

 

 

—

 

 

 

 

Average

 

 

Interest

 

 

 

Recorded

 

 

Income

 

 

 

Investment

 

 

Recognized

 

 

 

For the Nine Months Ended September 30, 2022

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

Residential, one- to four-family

 

$

 

252

 

 

$

 

9

 

Home equity

 

 

 

22

 

 

 

 

—

 

Commercial real estate(2)

 

 

 

3,262

 

 

 

 

—

 

Total impaired loans

 

$

 

3,536

 

 

$

 

9

 

 

(1)
Commercial Real Estate loans consisted of one loan which was paid off during the year ended December 31, 2022.
(2)
Average Commercial Real Estate loans consisted of one loan which was paid off during the nine months ended September 30, 2022.

 

Credit Quality Indicators

 

The Company’s policies provide for the classification of loans as follows:

•
Pass/Performing;
•
Special Mention – does not currently expose the Company to a sufficient degree of risk but does possess credit deficiencies or potential weaknesses deserving the Company’s close attention;
•
Substandard – has one or more well-defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. A substandard asset would be one inadequately protected by the current net worth and paying capacity of the obligor or pledged collateral, if applicable;
•
Doubtful – has all the weaknesses inherent in substandard loans with the additional characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss; and
•
Loss – loan is considered uncollectible and continuance without the establishment of a specific valuation reserve is not warranted.

 

Each commercial loan is individually assigned a loan classification. The Company’s consumer loans, including residential one- to four-family loans and home equity loans, are classified by using the delinquency status as the basis for classifying

these loans. Generally, all consumer loans more than 90 days past due are classified and placed in non-accrual. Such loans that are well-secured and in the process of collection will remain in accrual status.

 

Asset quality indicators for all loans and the Company’s risk rating process are reviewed on a monthly basis. Risk ratings are updated as circumstances that could affect the repayment of individual loans are brought to management’s attention through an established monitoring process. Written action plans are maintained and reviewed on a quarterly basis for all classified commercial loans. In addition to the Company’s internal process, an outsourced independent credit review function is in place for commercial loans to further assess assigned risk classifications and monitor compliance with internal lending policies and procedures.

 

The following table presents loans by credit quality indicator by origination year at September 30, 2023:

 

 

 

YTD 2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

 

 

(Dollars in thousands)

 

Residential, one-to four-family(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Pass

$

 

9,050

 

$

 

36,486

 

$

 

30,209

 

$

 

18,234

 

$

 

10,245

 

$

 

66,389

 

$

 

—

 

$

 

170,613

 

    Substandard

 

 

—

 

 

 

266

 

 

 

40

 

 

 

94

 

 

 

275

 

 

 

1,686

 

 

 

—

 

 

 

2,361

 

    Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

         Total

$

 

9,050

 

$

 

36,752

 

$

 

30,249

 

$

 

18,328

 

$

 

10,520

 

$

 

68,075

 

$

 

—

 

$

 

172,974

 

Current period gross chargeoffs

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Pass

$

 

3,492

 

$

 

3,212

 

$

 

109

 

$

 

50

 

$

 

301

 

$

 

532

 

$

 

43,174

 

$

 

50,870

 

    Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

406

 

 

 

406

 

    Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

         Total

$

 

3,492

 

$

 

3,212

 

$

 

109

 

$

 

50

 

$

 

301

 

$

 

532

 

$

 

43,580

 

$

 

51,276

 

Current period gross chargeoffs

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Pass

$

 

13,995

 

$

 

85,751

 

$

 

54,080

 

$

 

42,579

 

$

 

39,196

 

$

 

75,789

 

$

 

—

 

$

 

311,390

 

    Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

989

 

 

 

689

 

 

 

—

 

 

 

—

 

 

 

1,678

 

    Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,242

 

 

 

5,439

 

 

 

3,786

 

 

 

—

 

 

 

10,467

 

    Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

         Total

$

 

13,995

 

$

 

85,751

 

$

 

54,080

 

$

 

44,810

 

$

 

45,324

 

$

 

79,575

 

$

 

—

 

$

 

323,535

 

Current period gross chargeoffs

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Pass

$

 

1,223

 

$

 

2,571

 

$

 

800

 

$

 

665

 

$

 

1,965

 

$

 

7,108

 

$

 

—

 

$

 

14,332

 

    Special mention

 

 

—

 

 

 

—

 

 

 

287

 

 

 

—

 

 

 

790

 

 

 

—

 

 

 

—

 

 

 

1,077

 

    Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3,015

 

 

 

325

 

 

 

—

 

 

 

3,340

 

    Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

         Total

$

 

1,223

 

$

 

2,571

 

$

 

1,087

 

$

 

665

 

$

 

5,770

 

$

 

7,433

 

$

 

—

 

$

 

18,749

 

Current period gross chargeoffs

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

$

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Pass

$

 

218

 

$

 

280

 

$

 

89

 

$

 

152

 

$

 

3

 

$

 

133

 

$

 

205

 

$

 

1,080

 

    Substandard

 

 

—

 

 

 

—

 

 

 

3

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

29

 

 

 

33

 

    Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

         Total

$

 

218

 

$

 

280

 

$

 

92

 

$

 

153

 

$

 

3

 

$

 

133

 

$

 

234

 

$

 

1,113

 

Current period gross chargeoffs

$

 

—

 

$

 

8

 

$

 

3

 

$

 

3

 

$

 

—

 

$

 

—

 

$

 

33

 

$

 

47

 

 

(1)
Includes one- to four-family construction loans.
(2)
Includes commercial construction loans.

 

The following table presents loans by credit quality indicator at December 31, 2022:

 

 

 

Pass/Performing

 

 

Special Mention

 

 

Substandard

 

 

Doubtful

 

 

Loss

 

 

Total

 

 

 

(Dollars in thousands)

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential, one- to four-family(1)

 

$

 

173,857

 

 

$

 

—

 

 

$

 

2,047

 

 

$

 

—

 

 

$

 

—

 

 

$

 

175,904

 

Home equity

 

 

 

52,269

 

 

 

 

—

 

 

 

 

788

 

 

 

 

—

 

 

 

 

—

 

 

 

 

53,057

 

Commercial(2)

 

 

 

314,218

 

 

 

 

3,272

 

 

 

 

9,465

 

 

 

 

—

 

 

 

 

—

 

 

 

 

326,955

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

14,926

 

 

 

 

1,112

 

 

 

 

3,538

 

 

 

 

—

 

 

 

 

—

 

 

 

 

19,576

 

Consumer

 

 

 

1,183

 

 

 

 

—

 

 

 

 

24

 

 

 

 

—

 

 

 

 

10

 

 

 

 

1,217

 

Total

 

$

 

556,453

 

 

$

 

4,384

 

 

$

 

15,862

 

 

$

 

—

 

 

$

 

10

 

 

$

 

576,709

 

 

(1)
Includes one- to four- family construction loans.
(2)
Includes commercial construction loans.

 

Modifications with Borrowers Experiencing Financial Difficulty:

 

Occasionally, the Company modifies loans to borrowers in financial distress by providing modifications to loans that it would not normally grant. Such modifications could include principal forgiveness, term extension, a significant payment delay, an interest rate reduction or the addition of a co-borrower or guarantor. When principal forgiveness is provided, the amount of the forgiveness is charged-off against the allowance for credit losses.

 

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.

 

In some cases, the Company provides multiple types of modifications on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification may be granted, such as principal forgiveness.

 

The following table presents the amortized cost basis of loans at September 30, 2023 that were experiencing financial difficulty and were modified during the three and nine months ended September 30, 2023, by loan class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables is also presented.

 

 

 

Principal Forgiveness

 

 

Payment Delay

 

 

Term Extension

 

 

Interest Rate Reduction

 

 

Add Co-Borrower/
Guarantor

 

 

Combination Term Extension and Add Co-Borrower

 

 

Percentage of Total Class of Financing Receivable

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

4,935

 

 

$

 

—

 

 

 

 

1.53

%

Other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

1,114

 

 

 

 

5.94

%

Total

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

—

 

 

$

 

4,935

 

 

$

 

1,114

 

 

 

 

 

 

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

 

 

 

Term Extension and Added Co-Borrower

Loan Type

 

Financial Effect

 

 

 

 Commercial Real Estate

 

Added a co-borrower with financial ability to strengthen the credit risk related to this particular loans. No other modification was made to this loan that had a financial effect on the borrower(s).

Other - Commercial

 

Added a weighted-average of 5 years to the life of the loans, which reduced the monthly payment amount for the borrowers. Added a co-borrower with financial ability to strengthen the credit risk related to these particular loans.

 

 

 

There were no modified loans past due or on non-accrual as of September 30, 2023.

 

There were no modified loans made during the three and nine months ended September 30, 2023 that subsequently defaulted.

 

The Company has not committed to lending additional amounts to the borrowers included in the previous tables.

 

Foreclosed real estate consists of property acquired in settlement of loans which is carried at its fair value less estimated selling costs. Write-downs from cost to fair value less estimated selling costs are recorded at the date of acquisition or repossession and are charged to the allowance for credit losses. Foreclosed real estate was $100,000 and $95,000 at September 30, 2023 and December 31, 2022, respectively, and was included as a component of other assets on the consolidated statements of financial condition. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction was $0.2 million at September 30, 2023 and $1.8 million at December 31, 2022.