Portfolio Loans Receivable and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

Portfolio Loans Receivable and Allowance for Credit Losses

Note 5 - Portfolio Loans Receivable and Allowance for Credit Losses

The following is a summary of the major categories of total loans outstanding:



	March 31, 2024				December 31, 2023
(in thousands)	Amount		Percent		Amount		Percent
Real estate:
Residential	$	577,112	29	%	$	573,104	30	%
Commercial	736,316		37	%	684,229		35	%
Construction	290,016		15	%	290,108		15	%
Commercial and Industrial	254,577		13	%	239,208		13	%
Credit card, net of reserve(1)	111,898		6	%	123,331		7	%
Other consumer	738		—	%	950		—	%
Portfolio loans receivable, gross	1,970,657		100	%	1,910,930		100	%
Deferred origination fees, net	(6,132)				(7,642)
Allowance for credit losses	(29,350)				(28,610)
Portfolio loans receivable, net	$	1,935,175			$	1,874,678

_____________

(1) Credit card loans are presented net of reserve for interest and fees.

The following tables set forth the changes in the ACL and an allocation of the ACL by loan segment class for the three months ended March 31, 2024 and March 31, 2023.


(in thousands)	Beginning Balance		Provision (Release of Provision) for Credit Losses		Charge-Offs		Recoveries		Ending Balance
Three Months Ended March 31, 2024
Real estate:
Residential	$	5,518	$	633	$	(225)	$	—	$	5,926
Commercial	10,316		807		—		—		11,123
Construction	2,271		28		—		—		2,299
Commercial and Industrial	4,406		(306)		(98)		—		4,002
Credit card	6,087		1,567		(1,768)		104		5,990
Other consumer	12		(2)		—		—		10
Total	$	28,610	$	2,727	$	(2,091)	$	104	$	29,350













Three Months Ended March 31, 2023
Real estate:
Residential	$	4,283	$	1,125	$	—	$	—	$	5,408
Commercial	12,039		(2,165)		(943)		—		8,931
Construction	1,809		(56)		—		—		1,753
Commercial and Industrial	4,008		940		—		10		4,958
Credit card	5,033		1,818		(1,702)		2		5,151
Other consumer	17		(2)		—		—		15
Total	$	27,189	$	1,660	$	(2,645)	$	12	$	26,216

Past due loans, segregated by age and class of loans, as of March 31, 2024 and December 31, 2023 were as follows:


Portfolio Loans Past Due
	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Portfolio Loans		Accruing Loans 90 or More Days Past Due		Nonaccrual Loans
(in thousands)
March 31, 2024
Real estate:
Residential	$	2,479	$	818	$	6,303	$	9,600	$	567,512	$	577,112	$	—	$	6,762
Commercial	1,391		11,610		551		13,552		722,764		736,316		—		3,064
Construction	—		661		3,876		4,537		285,479		290,016		—		3,868
Commercial and Industrial	2,008		1,353		448		3,809		250,768		254,577		—		667
Credit card	5,544		5,494		621		11,659		100,239		111,898		621		—
Other consumer	—		—		—		—		738		738		—		—
Total	$	11,422	$	19,936	$	11,799	$	43,157	$	1,927,500	$	1,970,657	$	621	$	14,361



	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Portfolio Loans		Accruing Loans 90 or More Days Past Due		Nonaccrual Loans

December 31, 2023

Real estate:
Residential	$	2,201	$	3,096	$	11,066	$	16,363	$	556,741	$	573,104	$	17	$	11,398
Commercial	1,577		322		582		2,481		681,748		684,229		—		582
Construction	—		1,165		3,296		4,461		285,647		290,108		—		3,288
Commercial and Industrial	1,356		74		454		1,884		237,324		239,208		—		774
Credit card	7,767		6,877		519		15,163		108,168		123,331		519		—
Other consumer	—		—		—		—		950		950		—		—
Total	$	12,901	$	11,534	$	15,917	$	40,352	$	1,870,578	$	1,910,930	$	536	$	16,042

There were $2.4 million and $8.1 million of loans secured by one-to-four family residential properties in the process of foreclosure as of March 31, 2024 and December 31, 2023, respectively.

The increase in loans 60-89 days past due and special mention loan levels at March 31, 2024 from December 31, 2023 includes a single owner-occupied commercial real estate loan relationship with a total outstanding exposure amount of $11.6 million. The borrower fell behind in payments due to unexpected timing delays in the collection of outstanding receivables. Payments have resumed and the borrower remains actively engaged with the Company in resolving the past due status.

The following presents the nonaccrual loans as of March 31, 2024 and December 31, 2023:


	March 31, 2024
	Nonaccrual with No Allowance for Credit Loss		Nonaccrual with an Allowance for Credit Loss		Total Nonaccrual Loans		Interest Recognized on Nonaccrual Loans
(in thousands)

Real estate:
Residential	$	6,111	$	651	$	6,762	$	221
Commercial	3,064		—		3,064		93
Construction	3,868		—		3,868		180
Commercial and Industrial	439		228		667		56


Total	$	13,482	$	879	$	14,361	$	550

	December 31, 2023
	Nonaccrual with No Allowance for Credit Loss		Nonaccrual with an Allowance for Credit Loss		Total Nonaccrual Loans		Interest Recognized on Nonaccrual Loans


Real estate:
Residential	$	11,152	$	246	$	11,398	$	236
Commercial	582		—		582		46
Construction	3,288		—		3,288		185
Commercial and Industrial	598		176		774		71
Total	$	15,620	$	422	$	16,042	$	538

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

•Residential real estate loans are primarily secured by owner-occupied primary residences and, to a lesser extent, investor-owned residences.

•Commercial real estate loans can be secured by either owner-occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner-occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

•Construction loans are typically secured by owner-occupied commercial real estate or non-owner occupied investment real estate. Typically, owner-occupied construction loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties that are in process of construction. Non-owner occupied commercial construction loans are generally secured by office buildings and complexes, multi-family complexes, land under development, and other commercial and industrial real estate in process of construction.

•Commercial and industrial loans are generally secured by equipment, inventory, accounts receivable, and other commercial property.


Collateral dependent loans amortized cost
(in thousands)	March 31, 2024		December 31, 2023
Real estate:
Residential	$	5,345	$	11,152
Commercial	3,064		582
Construction	5,038		3,288
Commercial and Industrial	537		657

Total	$	13,984	$	15,679

Of the collateral dependent loans as of March 31, 2024, a specific reserve of $405 thousand and $150 thousand was assessed for residential real estate and commercial and industrial loans, respectively. Of the collateral dependent loans as of December 31, 2023, a specific reserve of $115 thousand was assessed for commercial and industrial loans. The Company had no modifications on loans to borrowers experiencing financial difficulty during the three months ended March 31, 2024 or the three months ended March 31, 2023.

Credit quality indicators

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grade of loans, the level of classified loans, net charge-offs, nonperforming loans, and general economic conditions in the Company’s market. From a credit risk standpoint, the Company utilizes a risk grading matrix to assign a risk grade to each of its loans. The classifications of loans reflect a judgment about the risk of expected credit loss associated with each loan. Credit quality indicators are reviewed and adjusted regularly to account for the degree of risk and expected credit loss that the Company believes to be appropriate for each financial asset.

A description of the general characteristics of loans characterized as classified is as follows:

Pass

Loans characterized as pass includes loans graded exceptional, very good, good, satisfactory and pass/watch. The Company believes that there is a low likelihood of credit deterioration related to those loans that are considered pass.

Special mention

A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Borrowers may exhibit poor liquidity and leverage positions resulting from generally negative cash flow or negative trends in earnings. Access to alternative financing may be limited to finance companies for business borrowers and may be unavailable for commercial real estate borrowers.

Substandard

A substandard loan is inadequately protected by the current financial condition and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Borrowers may exhibit recent or unexpected unprofitable operations, an inadequate debt service coverage ratio, or marginal liquidity and capitalization. These loans require more intense supervision by Company management.

Doubtful

A doubtful loan has all the weaknesses associated with a substandard loan 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.

The following table presents the balances of classified loans based on the most recent credit quality indicator analysis. Classified loans include Special Mention, Substandard and Doubtful loans. Pass classified loans include loans graded exceptional, very good, good, satisfactory, and pass/watch. Credit card loans are ungraded as they are not individually graded. Charge-offs presented represent gross charge-offs recognized in the current period:


March 31, 2024	Term Loans by Origination Year
(in thousands)	2024		2023		2022		2021		2020		Prior		Revolving		Total
Residential – Real estate
Pass	$	29,966	$	134,102	$	132,476	$	76,409	$	75,128	$	117,615	$	—	$	565,696
Special Mention	—		—		—		132		3,647		285		—		4,064
Substandard	—		—		33		332		—		6,987		—		7,352
Doubtful	—		—		—		—		—		—		—		—
Total	29,966		134,102		132,509		76,873		78,775		124,887		—		577,112
Commercial – Real estate
Pass	52,595		63,615		172,972		141,121		77,031		208,492		—		715,826
Special Mention	—		—		18,495		—		—		801		—		19,296
Substandard	—		—		—		—		—		1,194		—		1,194
Doubtful	—		—		—		—		—		—		—		—
Total	52,595		63,615		191,467		141,121		77,031		210,487		—		736,316
Construction – Real estate
Pass	16,217		144,267		59,095		41,338		15,234		8,981		—		285,132
Special Mention	—		661		—		—		—		—		—		661
Substandard	—		—		—		—		1,568		2,655		—		4,223
Doubtful	—		—		—		—		—		—		—		—
Total	16,217		144,928		59,095		41,338		16,802		11,636		—		290,016
Commercial and Industrial
Pass	24,939		71,139		66,282		27,157		8,436		51,796		—		249,749
Special Mention	—		—		805		—		2,367		312		—		3,484
Substandard	—		46		619		207		—		472		—		1,344
Doubtful	—		—		—		—		—		—		—		—
Total	24,939		71,185		67,706		27,364		10,803		52,580		—		254,577
Other consumer
Pass	—		—		262		134		111		231		—		738
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Total	—		—		262		134		111		231		—		738
Credit card
Ungraded	—		—		—		—		—		—		111,898		111,898
Portfolio loans receivable, gross	$	123,717	$	413,830	$	451,039	$	286,830	$	183,522	$	399,821	$	111,898	$	1,970,657


March 31, 2024
(in thousands)	2024		2023		2022		2021		2020		Prior		Revolving		Total
Gross Charge-offs
Residential	$	—	$	—	$	—	$	—	$	—	$	225	$	—	$	225
Commercial and Industrial	—		98		—		—		—		—		—		98
Credit card	—		—		—		—		—		—		1,768		1,768
Total	$	—	$	98	$	—	$	—	$	—	$	225	$	1,768	$	2,091


December 31, 2023	Term Loans by Origination Year
(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Total
Residential – Real estate
Pass	$	140,394	$	137,362	$	76,556	$	76,938	$	36,122	$	88,055	$	—	$	555,427
Special Mention	—		—		134		3,670		1,176		288		—		5,268
Substandard	—		33		—		—		26		12,350		—		12,409
Doubtful	—		—		—		—		—		—		—		—
Total	140,394		137,395		76,690		80,608		37,324		100,693		—		573,104
Commercial – Real estate
Pass	62,095		185,776		145,756		68,748		96,238		116,347		—		674,960
Special Mention	—		6,897		—		—		805		985		—		8,687
Substandard	—		—		—		—		582		—		—		582
Doubtful	—		—		—		—		—		—		—		—
Total	62,095		192,673		145,756		68,748		97,625		117,332		—		684,229
Construction – Real estate
Pass	142,157		72,240		46,180		16,859		6,246		2,517		—		286,199
Special Mention	—		—		—		—		—		614		—		614
Substandard	—		—		—		1,254		597		1,444		—		3,295
Doubtful	—		—		—		—		—		—		—		—
Total	142,157		72,240		46,180		18,113		6,843		4,575		—		290,108
Commercial and Industrial
Pass	70,540		71,689		28,007		9,364		18,036		37,392		—		235,028
Special Mention	—		156		—		2,406		47		273		—		2,882
Substandard	30		814		211		—		42		201		—		1,298
Doubtful	—		—		—		—		—		—		—		—
Total	70,570		72,659		28,218		11,770		18,125		37,866		—		239,208
Other consumer
Pass	75		278		147		116		—		334		—		950
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Total	75		278		147		116		—		334		—		950
Credit card
Ungraded	—		—		—		—		—		—		123,331		123,331
Portfolio loans receivable, gross	$	415,291	$	475,245	$	296,991	$	179,355	$	159,917	$	260,800	$	123,331	$	1,910,930


December 31, 2023
(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Total
Gross Charge-offs
Residential	$	—	$	—	$	—	$	—	$	—	$	670	$	—	$	670
Commercial	—		—		—		—		943		—		—		943
Commercial and Industrial	—		98		—		—		—		—		—		98
Credit card	—		—		—		—		—		—		7,076		7,076
Total	$	—	$	98	$	—	$	—	$	943	$	670	$	7,076	$	8,787

Outstanding loan commitments were as follows:


(in thousands)	March 31, 2024		December 31, 2023
Unused lines of credit
Real Estate:
Residential	$	17,812	$	15,436
Residential - Home Equity	43,225		43,892
Commercial	29,542		20,424
Construction	116,614		98,777
Commercial and Industrial	52,627		42,751
Credit card(1)	128,374		114,882
Other consumer	311		310
Total	$	388,505	$	336,472



Letters of credit	$	4,641	$	4,641

_______________

(1)Outstanding loan commitments in the credit card portfolio include $108.4 million and $98.2 million in secured and partially secured balances as of March 31, 2024 and December 31, 2023, respectively.

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition of the contract. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will, at any given time, draw upon their lines in full. Loan commitments generally have variable interest rates, fixed expiration dates, and may require payment of a fee.

The Company's maximum exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the credit commitment. Loan commitments and lines of credit are generally made on the same terms, including with regard to collateral, as outstanding loans. Management is not aware of any accounting loss to be incurred by funding these loan commitments.

The Company maintains an estimated reserve for unfunded commitments and certain off-balance sheet items such as unfunded lines of credit, which is reflected in other liabilities, with increases or decreases in the reserve being charged to or released from operating expense. Activity for this account is as follows for the periods presented:


	Three months ended
(in thousands)	March 31, 2024		March 31, 2023
Balance at beginning of period	$	806	$	1,682
Impact of adopting the CECL standard on January 1, 2023	—		(775)
Provision for (release of) credit losses on unfunded commitments	142		(19)


Balance at end of period	$	948	$	888

The Company makes representations and warranties that loans sold to investors meet the investors’ program guidelines and that the information provided by the borrowers is accurate and complete. In the event of a default on a loan sold, the investor may have the right to make a claim for losses due to document deficiencies, program non-compliance, early payment default, and fraud or borrower misrepresentations.

The Company maintains a reserve for potential losses on mortgage loans sold, which is reflected in other liabilities, with changes being charged to or released from operating expense. Activity in this reserve is as follows for the periods presented:


	Three months ended
(in thousands)	March 31, 2024		March 31, 2023
Balance at beginning of period	$	985	$	1,174
Provision for mortgage loan put-back reserve	13		5


Balance at end of period	$	998	$	1,179