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Loans Held for Investment and Allowance for Credit Losses | 9 Months Ended
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Sep. 30, 2023
Loans and Leases Receivable Disclosure [Abstract] |
Loans Held for Investment and Allowance for Credit Losses | Loans Held for Investment and Allowance for Credit Losses Loans held for investment outstanding by general ledger classification as of September 30, 2023 and December 31, 2022, consisted of the following:
| September 30, |  | December 31,
| 2023 |  | 2022
($ in thousands) |  |  |
SBA(1) | $ | 219,305 |  |  | $ | 145,172 |
Commercial, non-real estate | 34,044 |  |  | 11,484 |
Residential real estate | 34,891 |  |  | 37,815 |
Strategic Program loans | 20,040 |  |  | 24,259 |
Commercial real estate | 21,680 |  |  | 12,063 |
Consumer | 7,675 |  |  | 5,808 |
Total loans held for investment | $ | 337,635 |  |  | $ | 236,601 |
Deferred loan fees, net | (452) |  |  | (399) |
Allowance for credit losses(2) | (12,986) |  |  | (11,985) |
Net loans | $ | 324,197 |  |  | $ | 224,217 |
(1) Included in the SBA loans held for investment above are $112.5 million and $49.5 million of loans guaranteed by the SBA as of September 30, 2023 and December 31, 2022, respectively.
(2) The Company adopted ASU 2016-13 as of January 1, 2023. The 2022 amounts presented are calculated under the prior accounting standard.
Strategic Program Loans – In 2016, the Company began originating loans with various third-party loan origination platforms that use technology and other innovative systems to streamline the origination of unsecured consumer and secured or unsecured business loans to a wide array of borrowers within certain approved credit profiles. Loans issued by the Company through these programs generally follow and are limited to specific predetermined underwriting criteria. The Company earns monthly minimum program fees from these third parties. Based on the volume of loans originated by the Company related to each Strategic Program, an additional fee equal to a percentage of the loans generated under the Strategic Program may be collected. The program fee is included within non-interest income on the Consolidated Statements of Income. The Company generally retains the loans and/or receivables for a number of business days after origination before selling the loans and/or receivables to the Strategic Program platform or another investor. Interest income is recognized by the Company while holding the loans. These loans are classified as held-for-sale on the balance sheet. The Company may also hold a portion of the loans or receivable and sell the remainder directly to the Strategic Programs or other investors. The Company generally services the loans originated through the Strategic Programs in consideration of servicing fees equal to a percentage of the loans generated under the Strategic Programs. In turn, the Strategic Program service providers, subject to the Company’s approval and oversight, serve as sub-servicer and perform typical primary servicing duties including loan collections, modifications, charging-off, reporting and monitoring. Each Strategic Program establishes a “reserve” deposit account with the Company. The agreements generally require that the reserve account deposit balance does not fall below an agreed upon dollar or percentage threshold related to the total loans currently outstanding as held for sale by the Company for the specific Strategic Program. If necessary, the Company has the right to withdraw amounts from the reserve account to fulfill loan purchaser obligations created under the program agreements. Total cash held in reserve by Strategic Programs at the Company at September 30, 2023 and December 31, 2022, was $29.1 million and $16.6 million, respectively. Strategic Program loans retained and held-for-sale as of September 30, 2023 and December 31, 2022, are summarized as follows:
| September 30, |  | December 31,
| 2023 |  | 2022
($ in thousands) |  |  |
Retained Strategic Program loans | $ | 20,040 |  |  | $ | 24,259 |
Strategic Program loans held-for-sale | 45,710 |  |  | 23,589 |
Total Strategic Program loans | $ | 65,750 |  |  | $ | 47,848 |
Allowance for Credit Losses 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 September 30, 2023 are based on the CECL methodology:
($ in thousands) |
Construction and land development | $ | 26,668 |
Residential real estate | 49,046 |
Residential real estate multifamily | 602 |
Commercial real estate | 183,579 |
Commercial and industrial | 19,364 |
Consumer | 6,870 |
Lease financing receivables | 31,466 |
Retained Strategic Program loans | 20,040 |
Total loans | $ | 337,635 |
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 |
Activity in the ACL by common characteristic loan pools based on the CECL methodology was as follows:
| Three Months Ended September 30, 2023
($ in thousands) | Beginning Balance |  | Provision for Credit Losses |  | Charge-Offs |  | Recoveries |  | Ending Balance
Construction and land development | $ | 279 |  |  | $ | 14 |  |  | $ | — |  |  | $ | — |  |  | $ | 293 |
Residential real estate | 708 |  |  | 223 |  |  | — |  |  | 3 |  |  | 934 |
Residential real estate multifamily | 6 |  |  | — |  |  | — |  |  | — |  |  | 6 |
Commercial real estate | 3,167 |  |  | 46 |  |  | (31) |  |  | 389 |  |  | 3,571 |
Commercial and industrial | 287 |  |  | 151 |  |  | (107) |  |  | 18 |  |  | 349 |
Consumer | 90 |  |  | 39 |  |  | (28) |  |  | 2 |  |  | 103 |
Lease financing receivables | 528 |  |  | 6 |  |  | — |  |  | — |  |  | 534 |
Retained Strategic Program loans | 7,256 |  |  | 2,431 |  |  | (2,748) |  |  | 257 |  |  | 7,196 |
Total allowance for loan losses | $ | 12,321 |  |  | $ | 2,910 |  |  | $ | (2,914) |  |  | $ | 669 |  |  | $ | 12,986 |
Unfunded lending commitments | 42 |  |  | 160 |  |  | — |  |  | — |  |  | 202 |
Total allowance for credit losses | $ | 12,363 |  |  | $ | 3,070 |  |  | $ | (2,914) |  |  | $ | 669 |  |  | $ | 13,188 |
| Nine Months Ended September 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) |  |  | $ | (64) |  |  | $ | — |  |  | $ | — |  |  | $ | 293 |
Residential real estate | 876 |  |  | (58) |  |  | 150 |  |  | (121) |  |  | 87 |  |  | 934 |
Residential real estate multifamily | 3 |  |  | 1 |  |  | 2 |  |  | — |  |  | — |  |  | 6 |
Commercial real estate | 3,238 |  |  | (574) |  |  | 671 |  |  | (153) |  |  | 389 |  |  | 3,571 |
Commercial and industrial | 339 |  |  | (85) |  |  | 265 |  |  | (191) |  |  | 21 |  |  | 349 |
Consumer | 65 |  |  | 14 |  |  | 69 |  |  | (47) |  |  | 2 |  |  | 103 |
Lease financing receivables | 339 |  |  | (105) |  |  | 300 |  |  | — |  |  | — |  |  | 534 |
Retained Strategic Program loans | 6,701 |  |  | 1,131 |  |  | 6,860 |  |  | (8,289) |  |  | 793 |  |  | 7,196 |
Total allowance for loan losses | $ | 11,985 |  |  | $ | 257 |  |  | $ | 8,253 |  |  | $ | (8,801) |  |  | $ | 1,292 |  |  | $ | 12,986 |
Unfunded lending commitments | — |  |  | 26 |  |  | 176 |  |  | — |  |  | — |  |  | 202 |
Total allowance for credit losses | $ | 11,985 |  |  | $ | 283 |  |  | $ | 8,429 |  |  | $ | (8,801) |  |  | $ | 1,292 |  |  | $ | 13,188 |
Activity in the allowance for loan losses by general ledger classification based on the incurred loss methodology was as follows:
| Three Months Ended September 30, 2022
($ in thousands) | Beginning Balance |  | Provision (Reversal) of Loan Losses |  | Charge-Offs |  | Recoveries |  | Ending Balance
SBA | $ | 3,384 |  |  | $ | 675 |  |  | $ | (259) |  |  | $ | 9 |  |  | $ | 3,809 |
Commercial, non-real estate | 274 |  |  | 190 |  |  | — |  |  | — |  |  | 464 |
Residential real estate | 415 |  |  | 38 |  |  | — |  |  | — |  |  | 453 |
Retained Strategic Program loans | 6,442 |  |  | 3,542 |  |  | (3,070) |  |  | 233 |  |  | 7,147 |
Commercial real estate | 22 |  |  | 7 |  |  | — |  |  | — |  |  | 29 |
Consumer | 65 |  |  | 5 |  |  | (4) |  |  | — |  |  | 66 |
Total allowance for loan losses | $ | 10,602 |  |  | $ | 4,457 |  |  | $ | (3,333) |  |  | $ | 242 |  |  | $ | 11,968 |
| Nine Months Ended September 30, 2022
($ in thousands) | Beginning Balance |  | Provision (Reversal) of Loan Losses |  | Charge-Offs |  | Recoveries |  | Ending Balance
SBA | $ | 2,739 |  |  | $ | 1,405 |  |  | $ | (392) |  |  | $ | 57 |  |  | $ | 3,809 |
Commercial, non-real estate | 132 |  |  | 330 |  |  | — |  |  | 2 |  |  | 464 |
Residential real estate | 352 |  |  | 101 |  |  | — |  |  | — |  |  | 453 |
Retained Strategic Program loans | 6,549 |  |  | 8,465 |  |  | (8,508) |  |  | 641 |  |  | 7,147 |
Commercial real estate | 21 |  |  | 8 |  |  | — |  |  | — |  |  | 29 |
Consumer | 62 |  |  | 8 |  |  | (4) |  |  | — |  |  | 66 |
Total allowance for loan losses | $ | 9,855 |  |  | $ | 10,317 |  |  | $ | (8,904) |  |  | $ | 700 |  |  | $ | 11,968 |
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 |
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 |
Nonaccrual and past due loans are summarized below as of September 30, 2023 and December 31, 2022:
September 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(1) |  | Total
Construction and land development | $ | 26,371 |  |  | $ | — |  |  | $ | — |  |  | $ | 297 |  |  | $ | 297 |  |  | $ | — |  |  | $ | 26,668 |
Residential real estate | 48,928 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 118 |  |  | 49,046 |
Residential real estate multifamily | 602 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 602 |
Commercial real estate | 169,497 |  |  | 3,815 |  |  | — |  |  | — |  |  | 3,815 |  |  | 10,267 |  |  | 183,579 |
Commercial and industrial | 19,323 |  |  | 20 |  |  | — |  |  | — |  |  | 20 |  |  | 21 |  |  | 19,364 |
Consumer | 6,806 |  |  | 44 |  |  | 7 |  |  | 13 |  |  | 64 |  |  | — |  |  | 6,870 |
Lease financing receivables | 31,466 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 31,466 |
Retained Strategic Program loans | 18,262 |  |  | 950 |  |  | 770 |  |  | 58 |  |  | 1,778 |  |  | — |  |  | 20,040 |
Total | $ | 321,255 |  |  | $ | 4,829 |  |  | $ | 777 |  |  | $ | 368 |  |  | $ | 5,974 |  |  | $ | 10,406 |  |  | $ | 337,635 |
(1) Included in the nonaccrual loan balances are $4.7 million of SBA 7(a) loan balances guaranteed by the SBA.
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |
($ 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 | $ | 143,733 |  |  | $ | 1,439 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,439 |  |  | $ | — |  |  | $ | 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 | $ | 232,523 |  |  | $ | 3,083 |  |  | $ | 802 |  |  | $ | 193 |  |  | $ | 4,078 |  |  | $ | — |  |  | $ | 236,601 |
There was no interest income for the nine months ended September 30, 2023 and 2022, recognized on nonaccrual loans. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Bank measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by Call Report code and then risk grade grouping. In addition to past due and nonaccrual status criteria, the Company also evaluates loans using a loan grading system. Internal loan grades are based on current financial information, historical payment experience, and credit documentation, among other factors. Performance-based grades are summarized below: Pass – A Pass asset is higher quality and does not fit any of the other categories described below. The likelihood of loss is believed to be remote. Watch – A Watch asset may be a larger loan or one that places a heavier reliance on collateral due to the relative financial strength of the borrower. The assets may be maintenance intensive requiring closer monitoring. The obligor is believed to have an adequate primary source of repayment. Special Mention – A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the Company believes that it is currently protected against a default and loss is considered unlikely and not imminent. Substandard – A Substandard asset is believed to be inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have identified weaknesses and are characterized by the possibility that the Company may sustain some loss if deficiencies are not corrected. Not Rated – For certain Strategic Program and consumer loans, the Company does not evaluate and risk rate the loans in the same manner as other loans in the Company’s portfolio. The Not Rated loans are typically homogenous, smaller dollar balances approved using abridged underwriting methods that allow the Company to streamline the loan approval process and increase efficiency. Credit quality for Strategic Program loans is highly correlated with delinquency levels. 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 nine months ended September 30, 2023:
September 30, 2023 | 2023 |  | 2022 |  | 2021 |  | Prior |  | Revolving Loans |  | Total
($ in thousands) |  |  |  |  |  |  |  |  |  |  |
Construction and land development |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 9,595 |  |  | $ | 12,400 |  |  | $ | 4,276 |  |  | $ | 100 |  |  | $ | — |  |  | $ | 26,371 |
Watch | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard | — |  |  | 297 |  |  | — |  |  | — |  |  | — |  |  | 297 |
Total | 9,595 |  |  | 12,697 |  |  | 4,276 |  |  | 100 |  |  | — |  |  | 26,668 |
Current period gross writeoff | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential real estate |  |  |  |  |  |  |  |  |  |  |
Pass | 17,117 |  |  | 9,363 |  |  | 1,497 |  |  | 3,072 |  |  | 2,134 |  |  | 33,183 |
Watch | 4,378 |  |  | 6,718 |  |  | 1,740 |  |  | 2,254 |  |  | — |  |  | 15,090 |
Special Mention | — |  |  | 367 |  |  | 173 |  |  | 115 |  |  | — |  |  | 655 |
Substandard | — |  |  | 118 |  |  | — |  |  | — |  |  | — |  |  | 118 |
Total | 21,495 |  |  | 16,566 |  |  | 3,410 |  |  | 5,441 |  |  | 2,134 |  |  | 49,046 |
Current period gross writeoff | — |  |  | (121) |  |  | — |  |  | — |  |  | — |  |  | (121) |
Residential real estate multifamily |  |  |  |  |  |  |  |  |  |  |
Pass | 231 |  |  | 265 |  |  | 80 |  |  | — |  |  | — |  |  | 576 |
Watch | — |  |  | — |  |  | — |  |  | 26 |  |  | — |  |  | 26 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | 231 |  |  | 265 |  |  | 80 |  |  | 26 |  |  | — |  |  | 602 |
Current period gross writeoff | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |
Pass | 53,271 |  |  | 34,201 |  |  | 857 |  |  | 13,079 |  |  | — |  |  | 101,408 |
Watch | 17,712 |  |  | 31,705 |  |  | 13,462 |  |  | 9,909 |  |  | — |  |  | 72,788 |
Special Mention | 954 |  |  | 432 |  |  | 949 |  |  | 1,500 |  |  | — |  |  | 3,835 |
Substandard | 3,351 |  |  | 1,967 |  |  | 230 |  |  | — |  |  | — |  |  | 5,548 |
Total | 75,288 |  |  | 68,305 |  |  | 15,498 |  |  | 24,488 |  |  | — |  |  | 183,579 |
Current period gross writeoff | — |  |  | (21) |  |  | (9) |  |  | (123) |  |  | — |  |  | (153) |
Commercial and industrial |  |  |  |  |  |  |  |  |  |  |
Pass | 7,697 |  |  | 2,797 |  |  | 811 |  |  | 1,675 |  |  | — |  |  | 12,980 |
Watch | 2,137 |  |  | 2,713 |  |  | 838 |  |  | 530 |  |  | — |  |  | 6,218 |
Special Mention | — |  |  | — |  |  | — |  |  | 52 |  |  | — |  |  | 52 |
Substandard | — |  |  | — |  |  | — |  |  | 114 |  |  | — |  |  | 114 |
Total | 9,834 |  |  | 5,510 |  |  | 1,649 |  |  | 2,371 |  |  | — |  |  | 19,364 |
Current period gross writeoff | — |  |  | — |  |  | (92) |  |  | (99) |  |  | — |  |  | (191) |
Consumer |  |  |  |  |  |  |  |  |  |  |
Pass | 3,244 |  |  | 2,219 |  |  | 729 |  |  | 665 |  |  | 1 |  |  | 6,858 |
Watch | 11 |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | 12 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Not Rated | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | 3,255 |  |  | 2,219 |  |  | 729 |  |  | 666 |  |  | 1 |  |  | 6,870 |
Current period gross writeoff | (3) |  |  | (5) |  |  | (32) |  |  | (7) |  |  | — |  |  | (47) |
Lease financing receivables |  |  |  |  |  |  |  |  |  |  |
Pass | 24,092 |  |  | 7,097 |  |  | — |  |  | 277 |  |  | — |  |  | 31,466 |
Watch | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | 24,092 |  |  | 7,097 |  |  | — |  |  | 277 |  |  | — |  |  | 31,466 |
Current-period gross writeoffs | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Retained Strategic Program loans |  |  |  |  |  |  |  |  |  |  |
Pass | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Watch | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Not Rated | 13,370 |  |  | 4,967 |  |  | 1,702 |  |  | 1 |  |  | — |  |  | 20,040 |
Total | 13,370 |  |  | 4,967 |  |  | 1,702 |  |  | 1 |  |  | — |  |  | 20,040 |
Current-period gross writeoffs | (1,835) |  |  | (5,624) |  |  | (828) |  |  | (2) |  |  | — |  |  | (8,289) |
Total portfolio loans receivable, gross | 157,160 |  |  | 117,626 |  |  | 27,344 |  |  | 33,370 |  |  | 2,135 |  |  | 337,635 |
Total current-period gross writeoffs | (1,838) |  |  | (5,771) |  |  | (961) |  |  | (231) |  |  | — |  |  | (8,801) |
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 |
Effective January 1, 2023 loan modifications to borrowers experiencing financial difficulty are required to be disclosed by type of modification and by type of loan. Prior accounting guidance classified loans which were modified as troubled debt restructurings ("TDRs") only if the modification reflected a concession from the lender in the form of a below market interest rate or other concession in addition to borrower financial difficulty. Under the new guidance (ASU 2022-02), loans with modifications made after January 1, 2023, will be reported under the new loan modification guidance whether a concession is made or not. As of January 1, 2023, the Company has ceased to recognize or measure new TDRs but those existing at December 31, 2022 will remain until settled. In the nine months ended September 30, 2023 there were no material loan modifications reportable under the new guidance. Loans modified and recorded as TDR’s at December 31, 2022, c onsist of the following:
($ in thousands) | Number of Contracts |  | Pre- Modification Outstanding Recorded Investment |  | Post- Modification Outstanding Recorded Investment
December 31, 2022 |  |  |  |  |
SBA | 1 |  | $ | 377 |  |  | $ | 377 |
Total at December 31, 2022 | 1 |  | $ | 377 |  |  | $ | 377 |
The amount of SBA loans as of December 31, 2022 includes $0.3 million of SBA 7(a) loan balances that are guaranteed by the SBA. At December 31, 2022, there were no commitments to lend additional funds to debtors whose loan terms have been modified in a TDR. There was one principal charge-off recorded related to TDRs during the nine months ended September 30, 2022 for $0.01 million. There was no principal charge-off recorded related to TDRs during the three months ended September 30, 2022. During the three and nine months ended September 30, 2022, there were no loan modifications to TDRs. Separately, one restructured loan incurred a default within 12 months of the restructure date during the nine months ended September 30, 2022. This same loan was paid in full with interest on June 2, 2022. Collateral-Dependent Financial Loans A collateral-dependent financial loan relies substantially on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers (1) character, overall financial condition and resources, and payment record of the borrower; (2) the prospects for support from any financially responsible guarantors; and (3) the nature and degree of protection provided by the cash flow and value of any underlying collateral. The loan may become collateral-dependent when foreclosure is probable or the borrower is experiencing financial difficulty and its sources of repayment become inadequate over time. At such time, the Company develops an expectation that repayment will be provided substantially through the operation or sale of the collateral. The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of the dates indicated:
($ in thousands) |  | Collateral Type
As of September 30, 2023 |  | Real Estate |  | Personal Property |  | Total
Residential real estate |  | $ | 118 |  |  | $ | — |  |  | $ | 118 |
Commercial real estate |  | 10,267 |  |  | — |  |  | 10,267 |
Commercial and industrial |  | — |  |  | 21 |  |  | 21 |
Total |  | $ | 10,385 |  |  | $ | 21 |  |  | $ | 10,406 |
The amount of collateral-dependent SBA loans as of September 30, 2023 include $4.7 million of SBA 7(a) loan balances that are guaranteed by the SBA.
($ in thousands) |  | Collateral Type
As of December 31, 2022 |  | Real Estate |  | Personal Property |  | Total
Commercial real estate |  | $ | 1,426 |  |  | $ | — |  |  | $ | 1,426 |
The amount of collateral-dependent SBA loans as of December 31, 2022 include $1.1 million of SBA 7(a) loan balances that are guaranteed by the SBA.

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 310 -SubTopic 10 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//310-10/tableOfContent + Details
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