Note 4 - Loans, Allowance for Credit Losses and Credit Quality

6 Months Ended

Jun. 30, 2025

Notes to Financial Statements

Financing Receivables [Text Block]

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

Loans

Loans that the Company has the intent and ability to hold until maturity or payoff are carried at amortized cost (net of the allowance for credit losses). Amortized cost is the principal amount outstanding, adjusted by partial charge-offs and net of deferred loan origination costs and fees. For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual life of the loan using the level-yield method. When a loan is paid off, the unamortized portion is recognized in interest income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status. As a general rule, loans more than 90 days past due with respect to principal or interest, or sooner if management considers such action to be prudent, are classified as nonaccrual loans. However, loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans in a timely manner and all previously accrued and uncollected interest is reversed against current income. A loan can be returned to accrual status when collectibility of principal and interest is reasonably assured and the loan has performed for a period of time, generally six months. When doubt exists as to the collectibility of a loan, any payments received are applied to reduce the amortized cost of the loan to the extent necessary to eliminate such doubt. For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible. This determination is made based on management's review of specific facts and circumstances of the individual loan, including the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform.

Allowance for Credit Losses - Loans Held for Investment

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

●

Lending policies and procedures

●

Economic and business conditions

●

Nature and volume of loans

●

Changes in management

●

Changes in credit quality

●

Changes in loan review system

●

Changes to underlying collateral values

●

Concentrations of credit risk

●

Other external factors

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

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

Loans consisted of the following as of the dates indicated:

		*At June 30,*								*At December 31,*
		*2025*								*2024*
		*Amount*				*Percent*				*Amount*				*Percent*
		(Dollars in thousands)
Real estate loans:
One-to-four family residential		$	448,473				34.6	%		$	422,841				36.9	%
Multi-family			385,845				29.9	%			343,970				30.0	%
Commercial			309,990				24.0	%			228,991				20.0	%
Home equity lines of credit and loans			47,586				3.7	%			45,154				4.0	%
Construction			87,211				6.8	%			90,894				7.9	%
Other loans:
Commercial			12,330				0.9	%			13,844				1.2	%
Consumer			889				0.1	%			141				0.0	%
Total loans, gross			1,292,324				100.0	%			1,145,835				100.0	%
Less:
Net deferred loan fees			(697	)							(502	)
Allowance for credit losses			(9,886	)							(8,884	)
Total loans, net		$	1,281,741							$	1,136,449

The carrying value of loans pledged to secure advances from the FHLBB were $746.3 million and $744.6 million as of June 30, 2025 and December 31, 2024, respectively.

The following tables set forth information regarding the allowance for credit losses on loans as of and for the three and six months ended June 30, 2025 and 2024:

		*For the three months ended June 30, 2025*
		(in thousands)
		*Beginning*												*Provision*				*Ending*
		*Balance*				*Charge-offs*				*Recoveries*				*(benefit)*				Balance⁽¹⁾
Real estate loans:
One-to-four family residential		$	2,698			$	—			$	—			$	135			$	2,833
Multi-family			2,632				—				—				134				2,766
Commercial			2,532				—				—				586				3,118
Home equity lines of credit and loans			119				—				—				15				134
Construction			708				—				—				208				916
Other loans:
Commercial			118				—				—				(5	)			113
Consumer			1				(2	)			1				6				6
Total		$	8,808			$	(2	)		$	1			$	1,079			$	9,886

		*For the six months ended June 30, 2025*
		(in thousands)
		*Beginning*												*(Benefit)*				*Ending*
		*Balance*				*Charge-offs*				*Recoveries*				*provision*				Balance⁽¹⁾
Real estate loans:
One-to-four family residential		$	2,928			$	—			$	—			$	(95	)		$	2,833
Multi-family			2,422				—				—				344				2,766
Commercial			2,260				—				—				858				3,118
Home equity lines of credit and loans			118				—				—				16				134
Construction			1,036				—				—				(120	)			916
Other loans:
Commercial			119				(81	)			—				75				113
Consumer			1				(3	)			1				7				6
Total		$	8,884			$	(84	)		$	1			$	1,085			$	9,886

		*For the three months ended June 30, 2024*
		(in thousands)
		*Beginning*												*Provision*				*Ending*
		*Balance*				*Charge-offs*				*Recoveries*				*(benefit)*				Balance⁽¹⁾
Real estate loans:
One-to-four family residential		$	3,511			$	—			$	—			$	93			$	3,604
Multi-family			1,283				—				—				21				1,304
Commercial			1,672				—				—				68				1,740
Home equity lines of credit and loans			319				—				—				44				363
Construction			1,681				—				—				133				1,814
Other loans:
Commercial			203				—				—				(4	)			199
Consumer			1				(3	)			—				3				1
Total		$	8,670			$	(3	)		$	—			$	358			$	9,025

		*For the six months ended June 30, 2024*
		(in thousands)
		*Beginning*																*Ending*
		*Balance*				*Charge-offs*				*Recoveries*				*Provision*				Balance⁽¹⁾
Real estate loans:
One-to-four family residential		$	3,555			$	—			$	—			$	49			$	3,604
Multi-family			1,190				—				—				114				1,304
Commercial			1,636				—				—				104				1,740
Home equity lines of credit and loans			321				—				—				42				363
Construction			1,757				—				—				57				1,814
Other loans:
Commercial			131				—				—				68				199
Consumer			1				(3	)			—				3				1
Total		$	8,591			$	(3	)		$	—			$	437			$	9,025

(1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $4.1 million and $3.6 million as of June 30, 2025 and June 30, 2024.

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

																										*90 days or*
										*90 Days*				*Total*				*Total*				*Total*				*more past due*				*Loans on*
		*30–59 Days*				*60–89 Days*				*or More*				*Past Due*				*Current*				*Loans*				*and accruing*				*Non-accrual*
		(in thousands)
As of June 30, 2025
Real estate loans:
One-to-four family residential		$	57			$	490			$	106			$	653			$	447,820			$	448,473			$	—			$	982
Multi-family			1,313				—				—				1,313				384,532				385,845				—				—
Commercial			—				—				—				—				309,990				309,990				—				—
Home equity lines of credit and loans			80				—				12				92				47,494				47,586				—				304
Construction			—				—				—				—				87,211				87,211				—				—

Other loans:
Commercial			—				—				—				—				12,330				12,330				—				—
Consumer			—				—				—				—				889				889				—				—
		$	1,450			$	490			$	118			$	2,058			$	1,290,266			$	1,292,324			$	—			$	1,286

																										90 days or
										*90 Days*				*Total*				*Total*				*Total*				*more past due*				*Loans on*
		*30–59 Days*				*60–89 Days*				*or More*				*Past Due*				*Current*				*Loans*				*and accruing*				*Non-accrual*
		(in thousands)
As of December 31, 2024
Real estate loans:
One-to-four family residential		$	1,260			$	—			$	1,077			$	2,337			$	420,504			$	422,841			$	—			$	1,872
Multi-family			—				—				—				—				343,970				343,970				—				—
Commercial			—				—				—				—				228,991				228,991				—				—
Home equity lines of credit and loans			405				—				85				490				44,664				45,154				—				85
Construction			—				—				—				—				90,894				90,894				—				—

Other loans:
Commercial			—				—				—				—				13,844				13,844				—				—
Consumer			—				—				—				—				141				141				—				—
		$	1,665			$	—			$	1,162			$	2,827			$	1,143,008			$	1,145,835			$	—			$	1,957

During the three months ended June 30, 2025 and 2024, interest income recognized on nonaccrual loans amounted to $10,000 and $17,000, respectively. During the six months ended June 30, 2025 and 2024, interest income recognized on nonaccrual loans amounted to $49,000 and $35,000, respectively. The following tables show information regarding nonaccrual loans as of the dates indicated:

														*Six Months Ended*
		*As of June 30, 2025*												*June 30, 2025*
		*With an*				*Without an*
		*Allowance for*				*Allowance for*								*Interest Income*
		*Credit Losses*				*Credit Losses*				*Total*				*Recognized*
		(in thousands)

Real estate loans:
One-to-four family residential		$	—			$	982			$	982			$	32
Home equity lines of credit and loans			—				304				304				17
Total nonaccrual loans		$	—			$	1,286			$	1,286			$	49

														Year Ended
		As of December 31, 2024												December 31, 2024
		*With an*				*Without an*
		*Allowance for*				*Allowance for*								*Interest Income*
		*Credit Losses*				*Credit Losses*				*Total*				*Recognized*
		(in thousands)

Real estate loans:
One-to-four family residential		$	—			$	1,872			$	1,872			$	53
Home equity lines of credit and loans			—				85				85				1
Total nonaccrual loans		$	—			$	1,957			$	1,957			$	54

Credit Quality Information

The Company's loan rating system for multi-family and commercial real estate, construction, commercial loans and certain residential and home equity lines of credit is as follows:

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

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

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

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

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

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

The following tables detail the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of June 30, 2025 and December 31, 2024:

																										*Revolving*				*Revolving*
																										*Loans*				*Loans*
																										*Amortized*				*Converted*
		*Term Loans Amortized Cost Basis by Origination Year*																								*Cost Basis*				*to Term*				*Total*
		*2025*				*2024*				*2023*				*2022*				*2021*				*Prior*
		(in thousands)
As of June 30, 2025
One-to-four family residential
Pass		$	17,297			$	8,865			$	14,006			$	33,592			$	14,440			$	15,095			$	—			$	—			$	103,295
Special Mention			—				—				522				—				365				518				—				—				1,405
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			22,427				27,097				46,181				81,025				66,996				100,047				—				—				343,773
Total		$	39,724			$	35,962			$	60,709			$	114,617			$	81,801			$	115,660			$	—			$	—			$	448,473

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Multi-family
Pass		$	51,895			$	21,409			$	52,357			$	204,438			$	28,267			$	17,083			$	10,396			$	—			$	385,845
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			—				—				—				—				—				—				—				—				—
Total		$	51,895			$	21,409			$	52,357			$	204,438			$	28,267			$	17,083			$	10,396			$	—			$	385,845

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Commercial real estate
Pass		$	68,926			$	28,561			$	38,690			$	98,260			$	24,521			$	44,621			$	6,411			$	—			$	309,990
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			—				—				—				—				—				—				—				—				—
Total		$	68,926			$	28,561			$	38,690			$	98,260			$	24,521			$	44,621			$	6,411			$	—			$	309,990

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Home equity lines of credit and loans
Pass		$	—			$	197			$	320			$	—			$	—			$	—			$	6,582			$	—			$	7,099
Special Mention			—				—				—				—				—				5				337				12				354
Substandard			—				—				—				—				—				—				99				—				99
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			89				173				367				26				4				63				38,669				643				40,034
Total		$	89			$	370			$	687			$	26			$	4			$	68			$	45,687			$	655			$	47,586

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Construction
Pass		$	15,131			$	42,451			$	12,781			$	10,038			$	337			$	2,988			$	—			$	—			$	83,726
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			1,991				951				543				—				—				—				—				—				3,485
Total		$	17,122			$	43,402			$	13,324			$	10,038			$	337			$	2,988			$	—			$	—			$	87,211

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Commercial
Pass		$	—			$	4,501			$	4,392			$	2,314			$	288			$	167			$	668			$	—			$	12,330
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			—				—				—				—				—				—				—				—				—
Total		$	—			$	4,501			$	4,392			$	2,314			$	288			$	167			$	668			$	—			$	12,330

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	16			$	65			$	—			$	81

Consumer
Pass		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			765				7				12				24				35				4				42				—				889
Total		$	765			$	7			$	12			$	24			$	35			$	4			$	42			$	—			$	889

Current-period gross charge-offs		$	3			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	3

																										Revolving				Revolving
																										Loans				Loans
																										Amortized				Converted
		Term Loans Amortized Cost Basis by Origination Year																								Cost Basis				to Term				Total
		2024				2023				2022				2021				2020				Prior
		(in thousands)
As of December 31, 2024
One-to-four family residential
Pass		$	8,351			$	12,065			$	34,466			$	15,123			$	3,979			$	11,766			$	—			$	—			$	85,750
Special Mention			—				—				—				—				636				771				—				—				1,407
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			30,905				46,491				84,245				68,818				48,728				56,497				—				—				335,684
Total		$	39,256			$	58,556			$	118,711			$	83,941			$	53,343			$	69,034			$	—			$	—			$	422,841

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Multi-family
Pass		$	24,006			$	55,612			$	201,562			$	35,315			$	8,611			$	8,792			$	10,072			$	—			$	343,970
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			—				—				—				—				—				—				—				—				—
Total		$	24,006			$	55,612			$	201,562			$	35,315			$	8,611			$	8,792			$	10,072			$	—			$	343,970

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Commercial real estate
Pass		$	28,614			$	40,935			$	82,054			$	25,215			$	15,447			$	32,071			$	4,655			$	—			$	228,991
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			—				—				—				—				—				—				—				—				—
Total		$	28,614			$	40,935			$	82,054			$	25,215			$	15,447			$	32,071			$	4,655			$	—			$	228,991

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Home equity lines of credit and loans
Pass		$	199			$	323			$	—			$	—			$	—			$	—			$	8,083			$	—			$	8,605
Special Mention			—				—				—				—				—				10				322				—				332
Substandard			—				—				—				—				—				—				99				—				99
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			176				382				27				7				—				71				34,618				837				36,118
Total		$	375			$	705			$	27			$	7			$	—			$	81			$	43,122			$	837			$	45,154

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Construction
Pass		$	30,986			$	19,398			$	32,483			$	2,493			$	—			$	2,988			$	—			$	—			$	88,348
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			1,116				1,430				—				—				—				—				—				—				2,546
Total		$	32,102			$	20,828			$	32,483			$	2,493			$	—			$	2,988			$	—			$	—			$	90,894

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Commercial
Pass		$	4,501			$	4,410			$	2,597			$	340			$	—			$	195			$	1,801			$	—			$	13,844
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			—				—				—				—				—				—				—				—				—
Total		$	4,501			$	4,410			$	2,597			$	340			$	—			$	195			$	1,801			$	—			$	13,844

Current-period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

Consumer
Pass		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Special Mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Loans not formally rated ⁽¹⁾			7				16				29				39				—				6				44				—				141
Total		$	7			$	16			$	29			$	39			$	—			$	6			$	44			$	—			$	141

Current-period gross charge-offs		$	4			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	4

(1) All loans not formally rated were accruing as of June 30, 2025 . Non-accrual loans that were not formally rated amounted to $526,000 as of December 31, 2024.

At June 30, 2025, the Company had no consumer mortgage loans secured by residential real estate property in the process of foreclosure. At December 31, 2024, the Company had one consumer mortgage loan secured by residential real estate property in the process of foreclosure for $335,000.

For the three and six months ended June 30, 2025 and 2024, the Company did not provide loan restructurings involving borrowers that are experiencing financial difficulty.