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Loans and Allowance for Credit Losses (Tables)

6 Months Ended

Jun. 30, 2023

Loans and Leases Receivable Disclosure [Abstract]

Loans Outstanding by General Ledger Classification

Loans outstanding by general ledger classification as of June 30, 2023 and December 31, 2022, consisted of the following:

			June 30,						December 31,
			2023						2022
($ in thousands)
SBA			$	189,028					$	145,172
Commercial, non-real estate			24,851						11,484
Residential real estate			30,378						37,815
Strategic Program loans			63,094						47,848
Commercial real estate			18,677						12,063
Consumer			6,993						5,808
Total loans			$	333,021					$	260,190
Loans held-for-sale			(42,362)						(23,589)
Total loans held for investment			$	290,659					$	236,601
Deferred loan fees, net			(675)						(399)
Allowance for credit losses1			(12,321)						(11,985)
Net loans			$	277,663					$	224,217
(1) The Company adopted ASU 2016-13 as of January 1, 2023. The 2022 amounts presented are calculated under the prior accounting standard.

In determining an appropriate amount for the allowance, the Bank segmented and aggregated the loan portfolio based on the Federal Deposit Insurance Corporation ("FDIC") Consolidated Reports of Condition and Income ("Call Report") codes. The following pool segments identified as of June 30, 2023 are based on the CECL methodology:

($ in thousands)
Construction and land development			$	24,949
Residential real estate			29,357
Residential real estate multifamily			572
Commercial real estate			170,253
Commercial and industrial			16,507
Consumer			6,180
Lease financing receivables			22,109
Retained Strategic Program loans			20,732
Total loans			$	290,659

The portfolio classes identified as of December 31, 2022 are based on the incurred loss methodology and are segmented by general ledger classification as detailed below.

($ in thousands)
SBA			$	145,172
Commercial, non-real estate			11,484
Residential real estate			37,815
Retained Strategic Program loans			24,259
Commercial real estate			12,063
Consumer			5,808
Total loans			$	236,601

The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of the dates indicated:

($ in thousands)						Collateral Type
As of June 30, 2023						Real Estate						Personal Property						Total
Commercial real estate						$	1,809					$	—					$	1,809
Residential real estate						118						—						118
Total						$	1,927					$	—					$	1,927

($ in thousands)						Collateral Type
As of December 31, 2022						Real Estate						Personal Property						Total
Commercial real estate						$	356					$	—					$	356

Strategic Program Loans Retained and Held-for-sale

Strategic Program loans retained and held-for-sale as of June 30, 2023 and December 31, 2022, are summarized as follows:

			June 30,						December 31,
			2023						2022
($ in thousands)
Retained Strategic Program loans			$	20,732					$	24,259
Strategic Program loans held-for-sale			42,362						23,589
Total Strategic Program loans			$	63,094					$	47,848

Changes in Allowance for Loan Losses

Activity in the ACL by common characteristic loan pools based on the CECL methodology was as follows:

			Three Months Ended June 30, 2023
($ in thousands)			Beginning Balance						Provision (Reversal) of Credit Losses						Charge-Offs						Recoveries						Ending Balance
Construction and land development			$	285					$	(6)					$	—					$	—					$	279
Residential real estate			799						(51)						(121)						81						708
Residential real estate multifamily			5						1						—						—						6
Commercial real estate			3,034						133						—						—						3,167
Commercial and industrial			277						75						(66)						1						287
Consumer			82						27						(19)						—						90
Lease financing receivables			325						203						—						—						528
Retained Strategic Program loans			7,227						2,293						(2,516)						252						7,256
Total allowance for loan losses			$	12,034					$	2,675					$	(2,722)					$	334					$	12,321
Unfunded lending commitments			29						13						—						—						42
Total allowance for credit losses			$	12,063					$	2,688					$	(2,722)					$	334					$	12,363

			Six Months Ended June 30, 2023
($ in thousands)			Beginning Balance						Impact of ASU 2016-13 adoption						Provision (Reversal) of Credit Losses						Charge-Offs						Recoveries						Ending Balance
Construction and land development			$	424					$	(67)					$	(78)					$	—					$	—					$	279
Residential real estate			876						(58)						(73)						(121)						84						708
Residential real estate multifamily			3						1						2						—						—						6
Commercial real estate			3,238						(574)						625						(122)						—						3,167
Commercial and industrial			339						(85)						114						(84)						3						287
Consumer			65						14						30						(19)						—						90
Lease financing receivables			339						(105)						294						—						—						528
Retained Strategic Program loans			6,701						1,131						4,429						(5,541)						536						7,256
Total allowance for loan losses			$	11,985					$	257					$	5,343					$	(5,887)					$	623					$	12,321
Unfunded lending commitments			—						26						16						—						—						42
Total allowance for credit losses			$	11,985					$	283					$	5,359					$	(5,887)					$	623					$	12,363

Activity in the allowance for loan losses by general ledger classification based on the incurred loss methodology was as follows:

			Three Months Ended June 30, 2022
($ in thousands)			Beginning Balance						Provision (Reversal) of Loan Losses						Charge-Offs						Recoveries						Ending Balance
SBA			$	3,064					$	374					$	(102)					$	48					$	3,384
Commercial, non-real estate			107						166						—						1						274
Residential real estate			411						4						—						—						415
Retained Strategic Program loans			6,322						2,365						(2,560)						315						6,442
Commercial real estate			21						1						—						—						22
Consumer			62						3						—						—						65
Total allowance for loan losses			$	9,987					$	2,913					$	(2,662)					$	364					$	10,602

			Six Months Ended June 30, 2022
($ in thousands)			Beginning Balance						Provision (Reversal) of Loan Losses						Charge-Offs						Recoveries						Ending Balance
SBA			$	2,739					$	730					$	(133)					$	48					$	3,384
Commercial, non-real estate			132						140						—						2						274
Residential real estate			352						63						—						—						415
Retained Strategic Program loans			6,549						4,923						(5,438)						408						6,442
Commercial real estate			21						1						—						—						22
Consumer			62						3						—						—						65
Total allowance for loan losses			$	9,855					$	5,860					$	(5,571)					$	458					$	10,602

The following table presents the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance as of December 31, 2022. For the year ended December 31, 2022, the allowance was calculated based on the incurred loss methodology.

			Allowance for Loan Losses																		Portfolio Loan Balances
($ in thousands)			Individually						Collectively						Total						Individually						Collectively						Total
SBA			$	—					$	4,294					$	4,294					$	450					$	144,722					$	145,172
Commercial, non-real estate			—						401						401						—						11,484						11,484
Residential real estate			—						497						497						—						37,815						37,815
Retained Strategic Program loans			—						6,701						6,701						—						24,259						24,259
Commercial real estate			—						27						27						—						12,063						12,063
Consumer			—						65						65						—						5,808						5,808
Total loans			$	—					$	11,985					$	11,985					$	450					$	236,151					$	236,601

Summary of Impaired Loans

The following table presents, under previously applicable GAAP, loans individually evaluated for impairment as of December 31, 2022:

			Recorded Investment						Unpaid Principal Balance						Related Allowance						Average Recorded Investment						Interest Income Recognized
($ in thousands)
With no related allowance recorded
SBA			$	450					$	450					$	—					$	711					$	36
Commercial, non-real estate			—						—						—						—						—
Residential real estate			—						—						—						—						—
Retained Strategic Program loans			—						—						—						—						—
Commercial real estate			—						—						—						—						—
Consumer			—						—						—						—						—
Total			$	450					$	450					$	—					$	711					$	36

Summary of Nonaccrual and Past Due Loans

Nonaccrual and past due loans are summarized below as of June 30, 2023 and December 31, 2022:

June 30, 2023
($ in thousands)			Current						30-59 Days Due Due						60-89 Days Due Due						90+ Days Past Due & Still Accruing						Total Past Due						Non- Accrual						Total
Construction and land development			$	24,733					$	216					$	—					$	—					$	216					$	—					$	24,949
Residential real estate			29,239						—						—						—						—						118						29,357
Residential real estate multifamily			572						—						—						—						—						—						572
Commercial real estate			169,513						—						—						—						—						740						170,253
Commercial and industrial			16,458						28						21						—						49						—						16,507
Consumer			6,120						53						7						—						60						—						6,180
Lease financing receivables			22,109						—						—						—						—						—						22,109
Retained Strategic Program loans			19,022						935						638						137						1,710						—						20,732
Total			$	287,766					$	1,232					$	666					$	137					$	2,035					$	858					$	290,659

December 31, 2022
($ in thousands)			Current						30-59 Days Due Due						60-89 Days Due Due						90+ Days Past Due & Still Accruing						Total Past Due						Non- Accrual						Total
SBA			$	144,803					$	369					$	—					$	—					$	369					$	—					$	145,172
Commercial, non-real estate			11,484						—						—						—						—						—						11,484
Residential real estate			37,387						428						—						—						428						—						37,815
Retained Strategic Program loans			22,080						1,184						802						193						2,179						—						24,259
Commercial real estate			12,063						—						—						—						—						—						12,063
Consumer			5,776						32						—						—						32						—						5,808
Total			$	233,593					$	2,013					$	802					$	193					$	3,008					$	—					$	236,601

Outstanding Loan Balances Categorized by Credit Quality Indicators

The following table presents the ending balances of the Company's loan and lease portfolio including non-performing loans by class of receivable and originating year and considering certain credit quality indicators as of the date indicated along with gross chargeoffs for the six months ended June 30, 2023:

June 30, 2023			2023						2022						2021						Prior						Revolving Loans						Total
($ in thousands)
Construction and land development
Pass			$	4,595					$	15,789					$	4,358					$	207					$	—					$	24,949
Watch			—						—						—						—						—						—
Special Mention			—						—						—						—						—						—
Substandard			—						—						—						—						—						—
Total			4,595						15,789						4,358						207						—						24,949
Current period gross writeoff			—						—						—						—						—						—
Residential real estate
Pass			1,328						8,765						1,603						3,577						1,818						17,091
Watch			333						7,169						1,918						2,716						—						12,136
Special Mention			—						—						—						12						—						12
Substandard			—						118						—						—						—						118
Total			1,661						16,052						3,521						6,305						1,818						29,357
Current period gross writeoff			—						(121)						—						—						—						(121)
Residential real estate multifamily
Pass			200						266						80						—						—						546
Watch			—						—						—						26						—						26
Special Mention			—						—						—						—						—						—
Substandard			—						—						—						—						—						—
Total			200						266						80						26						—						572
Current period gross writeoff			—						—						—						—						—						—
Commercial real estate
Pass			41,966						34,298						859						14,220						—						91,343

Watch			16,087						34,310						15,069						12,260						—						77,726
Special Mention			—						—						—						444						—						444
Substandard			—						356						—						384						—						740
Total			58,053						68,964						15,928						27,308						—						170,253
Current period gross writeoff			—						—						—						(122)						—						(122)
Commercial and industrial
Pass			5,266						2,869						866						1,854						—						10,855
Watch			1,340						2,649						957						595						—						5,541
Special Mention			—						—						—						18						—						18
Substandard			—						—						—						93						—						93
Total			6,606						5,518						1,823						2,560						—						16,507
Current period gross writeoff			—						—						(13)						(71)						—						(84)
Consumer
Pass			2,001						2,463						873						780						1						6,118
Watch			38						—						—						1						—						39
Special Mention			—						—						—						—						—						—
Substandard			—						—						—						—						—						—
Not Rated			23						—						—						—						—						23
Total			2,062						2,463						873						781						1						6,180
Current period gross writeoff			—						(5)						(12)						(2)						—						(19)
Lease financing receivables
Pass			14,178						7,616						—						315						—						22,109
Watch			—						—						—						—						—						—
Special Mention			—						—						—						—						—						—
Substandard			—						—						—						—						—						—
Total			14,178						7,616						—						315						—						22,109
Current-period gross writeoffs			—						—						—						—						—						—
Retained Strategic Program loans
Pass			—						—						—						—						—						—
Watch			—						—						—						—						—						—
Special Mention			—						—						—						—						—						—
Substandard			—						—						—						—						—						—
Not Rated			11,136						7,450						2,145						1						—						20,732
Total			11,136						7,450						2,145						1						—						20,732
Current-period gross writeoffs			(438)						(4,474)						(627)						(2)						—						(5,541)

Total portfolio loans receivable, gross			98,491						124,118						28,728						37,503						1,819						290,659
Total current-period gross writeoffs			(438)						(4,600)						(652)						(197)						—						(5,887)

The following table presents the ending balances of the Company's loan and lease portfolio including non-performing loans by class of receivable and considering certain credit quality indicators as of the date indicated:

December 31, 2022
($ in thousands)			Pass Grade 1-4						Special Mention Grade 5						Classified/ Doubtful/Loss Grade 6-8						Total
SBA			$	144,149					$	573					$	450					$	145,172
Commercial, non-real estate			11,484						—						—						11,484
Residential real estate			37,815						—						—						37,815
Commercial real estate			12,063						—						—						12,063
Consumer			5,808						—						—						5,808
Not Risk Graded
Retained Strategic Program loans																					24,259
Total			$	211,319					$	573					$	450					$	236,601

Loans Modified and Recorded as TDR's

Loans modified and recorded as TDR’s at December 31, 2022, consist of the following:

($ in thousands)			Number of Contracts						Pre- Modification Outstanding Recorded Investment						Post- Modification Outstanding Recorded Investment
December 31, 2022
SBA			1						$	94					$	94
Total at December 31, 2022			1						$	94					$	94

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