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Loans Held for Investment and Allowance for Credit Losses (Tables)

9 Months Ended

Sep. 30, 2023

Loans and Leases Receivable Disclosure [Abstract]

Loans Outstanding by General Ledger Classification

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.

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

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.

Strategic Program Loans Retained and Held-for-sale

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

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 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

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 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

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 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

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						$	377					$	377
Total at December 31, 2022			1						$	377					$	377

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