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Loans

12 Months Ended

Dec. 31, 2020

Note E—Loans

The Company has several lending lines of business including small business comprised primarily of SBA loans, direct lease financing, SBLOC and IBLOC and other specialty and consumer lending. Prior to 2020, the Company also originated loans for sale into commercial mortgage-backed securitizations or to secondary government guaranteed loan markets. At origination, the Company elected fair value treatment for these loans as they were originally held-for-sale, to better reflect the economics of the transactions. Currently, the Company intends to hold these loans on its balance sheet, and thus no longer classifies these loans as held-for-sale. The Company continues to present these loans at fair value. At December 31, 2020 and 2019, the fair value of these loans was $1.81 billion and $1.18 billion, and the unpaid principal balance was $1.81 billion and $1.17 billion, respectively. Included in the net realized and unrealized gains (losses) on loans originated for sale in the consolidated statement of operations were changes in fair value resulting in an unrealized loss of $3.6 million in 2020, an unrealized gain of $963,000 in 2019 and an unrealized loss of $979,000 in 2018. These amounts include credit related reductions in fair value of $1.0 million, $486,000 and $829,000, respectively, in 2020, 2019 and 2018. Interest earned on loans held at fair value during the period held is recorded in Interest Income – Loans, including fees in the consolidated statements of operations. The Bank also pledged the majority of its loans held for investment at amortized cost and commercial loans at fair value to either the Federal Home Loan Bank or the Federal Reserve Bank for lines of credit with those institutions. The Federal Home Loan Bank line is periodically utilized to manage liquidity, but the Federal Reserve line has, prior to 2020, not generally been used. However, in light of the impact of the Covid-19 pandemic, the Federal Reserve has encouraged banks to utilize their lines to maximize the amount of funding available for credit markets. Accordingly, the Bank has periodically borrowed against its Federal Reserve line on an overnight basis. The amount of loans pledged varies and the collateral may be unpledged at any time to the extent the collateral exceeds advances. The lines are maintained consistent with the Bank’s liquidity policy which maximizes potential liquidity. At December 31, 2020, $1.70 billion of loans were pledged to the Federal Reserve and $1.25 billion of loans were pledged to the Federal Home Loan Bank. There were no balances against these lines at that date.

In 2019, 2018 and 2017, the Company sponsored the structuring of commercial mortgage loan securitizations and in 2020 decided not to pursue additional securitizations. The loans sold to the commercial mortgage-backed securitizations are transitional commercial mortgage loans which are made to improve and rehabilitate existing properties which are already cash flowing. Servicing rights are not retained. Each of the securitizations is considered a variable interest entity of which the Company is not the primary beneficiary. Further, true sale accounting has been applicable to each of the securitizations, as supported by a review performed by an independent third-party consultant. In each of the securitizations, the Company has obtained a tranche of certificates which are accounted for as available-for-sale debt securities. The securities are recorded at fair value at acquisition, which is determined by an independent third party based on the discounted cash flow method using unobservable (level 3) inputs. The loans securitized are structured with some prepayment protection and with extension options which are common for rehabilitation loans. It was expected that those factors would generally offset the impact of prepayments which would therefore not be significant. Accordingly, prepayments on Commercial Real Estate (“CRE“) securities were not originally assumed in the first four securitizations. However, as a result of higher than expected prepayments on CRE2, annual prepayments of 15% on CRE5 were assumed, beginning after the first-year anniversary of the CRE5 securitization. For CRE6, there was no premium or discount associated with the tranche purchased and prepayments were accordingly not estimated.

Because of credit enhancements for each security, cash flows were not reduced by expected losses. For each of the securitizations, the Company has recorded a gain which is comprised of (i) the excess of consideration received by the Company in the transaction over the carrying value of the loans at securitization, less related transactions costs incurred; and (ii) the recognition of previously deferred origination and exit fees.

There were no securitizations in 2020. A summary of securitizations and securities obtained from those securitizations in 2019 and 2018 is as follows:

In the third quarter of 2019, the Company sponsored The Bancorp Commercial Mortgage 2019-CRE6 Trust, securitizing $778.2 million of loans and recording a $14.2 million gain. The certificates obtained by the Company in the transaction had an acquisition date fair value of $51.6 million based upon an initial discount rate of 4.12%.

In the first quarter of 2019, the Company sponsored The Bancorp Commercial Mortgage 2019-CRE5 Trust, securitizing $518.3 million of loans and recording a $11.2 million gain. The certificates obtained by the Company in the transaction had an acquisition date fair value of $41.6 million based upon an initial discount rate of 4.75%.

In the third quarter of 2018, the Company sponsored The Bancorp Commercial Mortgage 2018-CRE4 Trust, securitizing $341.0 million of loans and recording a $9.0 million gain. The certificates obtained by the Company in the transaction had an acquisition date fair value of $33.7 million based upon an initial discount rate of 4.88%.

In the first quarter of 2018, the Company sponsored The Bancorp Commercial Mortgage 2018-CRE3 Trust, securitizing $304.3 million of loans and recording an $11.7 million gain. The certificates obtained by the Company in the transaction had an acquisition date fair value of $28.4 based upon an initial discount rate of 5.79%.

In 2020, the Company decided to not pursue securitizations and no future securitizations are currently planned. The loans being currently retained total approximately $1.57 billion and are mostly comprised of multi-family loans, specifically apartment buildings. The $1.57 billion comprises the majority of the commercial loans, at fair value on the balance sheet, with the balance of that category comprised of the government guaranteed portion of SBA loans.

The Company analyzes credit risk prior to making loans, on an individual loan basis. The Company considers relevant aspects of the borrowers’ financial position and cash flow, past borrower performance, management’s knowledge of market conditions, collateral and the ratio of the loan amount to estimated collateral value in making its credit determinations.

Major classifications of loans, excluding commercial loans, at fair value, are as follows (in thousands):


	December 31,		December 31,
	2020		2019

SBL non-real estate	$	255,318	$	84,579
SBL commercial mortgage		300,817		218,110
SBL construction		20,273		45,310
Small business loans *		576,408		347,999
Direct lease financing		462,182		434,460
SBLOC / IBLOC **		1,550,086		1,024,420
Advisor financing ***		48,282		—
Other specialty lending		2,179		3,055
Other consumer loans ****		4,247		4,554
		2,643,384		1,814,488
Unamortized loan fees and costs		8,939		9,757
Total loans, net of unamortized loan fees and costs	$	2,652,323	$	1,824,245


	December 31,		December 31,
	2020		2019

SBL loans, net of (deferred fees) and costs of $1,536 and $4,215 ‎for December 31, 2020 and December 31, 2019, respectively	$	577,944	$	352,214
SBL loans included in commercial loans, at fair value		243,562		220,358
Total small business loans	$	821,506	$	572,572

* The preceding table shows small business loans and small business loans held at fair value. The small business loans held at fair value are comprised of the government guaranteed portion of certain SBA loans at the dates indicated (in thousands). A reduction in SBL non-real estate from $293.5 million to $255.3 million in the fourth quarter of 2020 resulted from the commencement of U.S. treasury repayments of PPP loans which totaled $42.1 million in fourth quarter 2020. At December 31, 2020, PPP loans totaled $167.7 million.

** Securities Backed Lines of Credit, or SBLOC, are collateralized by marketable securities, while Insurance Backed Lines of Credit, or IBLOC, are collateralized by the cash surrender value of insurance policies. At Decmber 31, 2020 and December 31, 2019, respectively, IBLOC loans amounted to $437.2 million and $144.6 million.

*** In 2020, the Company began originating loans to investment advisors for purposes of debt refinance, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value ratios of 70%, based on third party business appraisals, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate.

**** Included in the table above under other consumer loans are demand deposit overdrafts reclassified as loan balances totaling $663,000 and $882,000 at December 31, 2020 and December 31, 2019, respectively. Estimated overdraft charge-offs and recoveries are reflected in the allowance for credit losses and have been immaterial.

‎

The following table provides information about loans individually evaluated for credit loss at December 31, 2020 and 2019 (in thousands):


	December 31, 2020
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
SBL non-real estate	$	387	$	2,836	$	—	$	370	$	3
SBL commercial mortgage		2,037		2,037		—		1,253		—
Direct lease financing		299		299		—		3,352		—
Consumer - home equity		557		557		—		554		10
With an allowance recorded
SBL non-real estate		3,044		3,044		(2,129)		3,257		15
SBL commercial mortgage		5,268		5,268		(1,010)		2,732		—
SBL construction		711		711		(34)		711		—
Direct lease financing		452		452		(4)		716		—
Consumer - home equity		—		—		—		24		—
Total
SBL non-real estate		3,431		5,880		(2,129)		3,627		18
SBL commercial mortgage		7,305		7,305		(1,010)		3,985		—
SBL construction		711		711		(34)		711		—
Direct lease financing		751		751		(4)		4,068		—
Consumer - home equity		557		557		—		578		10
	$	12,755	$	15,204	$	(3,177)	$	12,969	$	28

	December 31, 2019
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
SBL non-real estate	$	335	$	2,717	$	—	$	277	$	5
SBL commercial mortgage		76		76		—		15		—
SBL construction		—		—		—		284		—
Direct lease financing		286		286		—		362		11
Consumer - home equity		489		489		—		1,161		9
With an allowance recorded
SBL non-real estate		3,804		4,371		(2,961)		3,925		30
SBL commercial mortgage		971		971		(136)		561		—
SBL construction		711		711		(36)		284		—
Direct lease financing		—		—		—		244		—
Consumer - home equity		121		121		(9)		344		—
Total
SBL non-real estate		4,139		7,088		(2,961)		4,202		35
SBL commercial mortgage		1,047		1,047		(136)		576		—
SBL construction		711		711		(36)		568		—
Direct lease financing		286		286		—		606		11
Consumer - home equity		610		610		(9)		1,505		9
	$	6,793	$	9,742	$	(3,142)	$	7,457	$	55

The loan review department recommends non-accrual status for loans to the surveillance committee, where interest income appears to be uncollectible or a protracted delay in collection becomes evident. The surveillance committee further vets and approves the non-accrual status.

The following table summarizes non-accrual loans with and without an allowance for credit losses (“ACL”) as of the periods indicated (in thousands):


	December 31, 2020						December 31, 2019
	Non-accrual loans with a related ACL		Non-accrual loans without a related ACL		Total non-accrual loans		Total non-accrual loans
SBL non-real estate	$	2,824	$	335	$	3,159	$	3,693
SBL commercial mortgage		5,269		2,036		7,305		1,047
SBL construction		711		—		711		711
Direct leasing		452		299		751		—
Consumer		—		301		301		345
	$	9,256	$	2,971	$	12,227	$	5,796

The following table summarizes the Company’s non-accrual loans, loans past due 90 days at December 31, 2020 and 2019, respectively (the Company had no other real estate owned in continuing operations at December 31, 2020 or December 31, 2019):


	December 31,
	2020		2019
		(in thousands)
Non-accrual loans
SBL non-real estate	$	3,159	$	3,693
SBL commercial mortgage		7,305		1,047
SBL construction		711		711
Direct leasing		751		—
Consumer		301		345
Total non-accrual loans		12,227		5,796

Loans past due 90 days or more and still accruing		497		3,264
Total non-performing loans		12,724		9,060
Total non-performing assets	$	12,724	$	9,060

The Company had no other real estate owned (“OREO”) in continuing operations at December 31, 2020 and December 31, 2019.

Interest which would have been earned on loans classified as non-accrual at December 31, 2020 and 2019, was $406,000 and $388,000, respectively. No income on non-accrual loans was recognized during 2020 or 2019. In 2020 and 2019, respectively, $890,000 and $870,000 were reversed from interest income, which represented interest accrued on loans placed into non-accrual status during the period.

The Company’s loans that were modified as of December 31, 2020 and 2019 and considered troubled debt restructurings are as follows (in thousands):


	December 31, 2020						December 31, 2019
	Number		Pre-modification recorded investment		Post-modification recorded investment		Number		Pre-modification recorded investment		Post-modification recorded investment
SBL non-real estate		8	$	911	$	911		8	$	1,309	$	1,309
Direct lease financing		1		251		251		1		286		286
Consumer		2		469		469		2		489		489
Total		11	$	1,631	$	1,631		11	$	2,084	$	2,084

The balances below provide information as to how the loans were modified as troubled debt restructured loans at December 31, 2020 and 2019 (in thousands):


	December 31, 2020						December 31, 2019

	Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity
SBL non-real estate	$	—	$	16	$	895	$	—	$	51	$	1,258
Direct lease financing		—		251		—		—		286		—
Consumer		—		—		469		—		—		489
Total	$	—	$	267	$	1,364	$	—	$	337	$	1,747

The Company had no commitments to extend additional credit to loans classified as troubled debt restructurings as of either December 31, 2020 or 2019.

When loans are classified as troubled debt restructurings, the Company estimates the value of underlying collateral and repayment sources. A specific reserve in the allowance for credit losses is established if the collateral valuation, less estimated disposition costs, is lower than the recorded loan value. The amount of the specific reserve serves to increase the provision for credit losses in the quarter the loan is classified as a troubled debt restructuring. As of December 31, 2020, there were eleven troubled debt restructured loans with a balance of $1.6 million which had specific reserves of $467,000. Substantially all of these reserves related to the non-guaranteed portion of SBA loans for start-up businesses.

The Company had three troubled debt restructured loans that had been restructured within the last 12 months that have subsequently defaulted. The largest was for a single borrower who came under financial stress and agreed to an orderly liquidation of vehicles collateralizing their $15.3 million loan balance at March 31, 2020, which was reflected in the direct lease financing balance and in troubled debt restructurings at that date. The borrower subsequently filed for bankruptcy and the bankruptcy court gave the Company permission to sell the vehicles which were transferred to other assets as of June 30, 2020. Subsequent vehicle sales have repaid substantially all of the balance which has been reduced to $57,000.

The following table summarizes the other two loans that were restructured within the 12 months ended December 31, 2020 that have subsequently defaulted (in thousands).

The SBA began, in April 2020, to make six months of principal and interest payments on SBA 7a loans, which are generally 75% guaranteed by the U.S. government. As of December 31, 2020, the Company had $337.9 million of related guaranteed balances, and additionally had $167.7 million of PPP loan balances which were also guaranteed. The majority of the six months of support expired in the fourth quarter of 2020, and the Company is generally approving Covid-19 pandemic-related deferrals for principal and interest payments as they are requested by borrowers. Additionally, the Company has, and is, granting such deferrals for certain other loans. The Consolidated Appropriations Act, 2021, became law in December 2020 and provided for at least an additional two months of principal and interest payments on SBA 7a loans, with up to five months of payments for hotel, restaurant and other more highly impacted loans. Unlike the six months of CARES Act payments, these additional payments are capped at $9,000 per month. Per section 4013 of the CARES Act, accounting and banking regulators have determined that loans with Covid-19 pandemic-related deferrals of principal and interest payments will not, during the deferral period, be classified as delinquent, non-accrual or restructured. Such treatment is temporary and will terminate after the earlier of the end of the national emergency, or December 31, 2021.

Effective January 1, 2020, CECL accounting replaced the prior incurred loss model that recognized losses when it became probable that a credit loss would be incurred, with a new requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against

the allowance when they are deemed uncollectible. Loans are deemed uncollectible based on individual facts and circumstances including the quality of repayment sources, the length of collection efforts and the probability and timing of recoveries. During the first quarter of 2020, upon adoption of the guidance, the allowance for credit losses was increased by $2.6 million. Additionally, $569,000 was established as an allowance for off-balance sheet credit losses (for unfunded loan commitments) and recorded in other liabilities. These amounts did not impact the Company’s Consolidated Statement of Operations, as the guidance required these cumulative differences between the two accounting conventions to flow through retained earnings, net of their income tax benefit. The following table shows the effect of the adoption of CECL as of January 1, 2020 and the December 31, 2020 allowance for credit loss (in thousands).


	December 31, 2019			January 1, 2020			December 31, 2020
	Incurred loss method			CECL (day 1 adoption)			CECL
	Amount		% of Segment	Amount		% of Segment	Amount		% of Segment
Allowance for credit losses on loans and leases
SBL non real estate	$	4,985	5.89%	$	4,765	5.63%	$	5,060	1.98%
SBL commercial mortgage		1,472	0.67%		2,009	0.92%		3,315	1.10%
SBL construction		432	0.95%		571	1.26%		328	1.62%
Direct lease financing		2,426	0.56%		4,788	1.10%		6,043	1.31%
SBLOC		440	0.05%		440	0.05%		557	0.05%
IBLOC		113	0.08%		72	0.05%		218	0.05%
Advisor financing		—	—%		—	—%		362	0.75%
Other specialty lending (1)		12	0.39%		170	5.56%		150	6.88%
Consumer - other		40	0.88%		60	1.32%		49	1.15%
Unallocated		318			—			—
	$	10,238	0.56%	$	12,875	0.71%	$	16,082	0.61%

Liabilities:
Allowance for credit losses on off-balance sheet credit exposures		—			569			795
Total allowance for credit losses	$	10,238		$	13,444		$	16,877

(1)Included in other specialty lending are $35.4 million of SBA loans purchased for CRA purposes as of December 31, 2020. These loans are classified as SBL in the Company’s loan tables.

Management estimates the allowance using relevant available internal and external historical loan performance information, current economic conditions and reasonable and supportable forecasts. Historical credit loss experience provides the initial basis for the estimation of expected credit losses over the estimated remaining life of the loans. The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be responsive to changes in portfolio credit quality and the impact of current and future economic conditions on loan performance. The review of the appropriateness of the allowance is performed by the Chief Credit Officer and presented to the audit committee for their review. The allowance for credit losses includes reserves on loan pools with similar risk characteristics based on a lifetime loss-rate model, or vintage analysis, as described in the following paragraph. Loans that do not share risk characteristics are evaluated on an individual basis. If foreclosure is believed to be probable or repayment is expected from the sale of the collateral, a reserve for deficiency is established within the allowance. Expected credit losses for such collateral dependent loans are based on the difference between loan principal and the estimated fair value of the collateral, adjusted for estimated disposition costs as appropriate.

For purposes of determining the pool-basis reserve, the loans not assigned an individual reserve are segregated by product type, to recognize differing risk characteristics within portfolio segments. A historical loss rate is calculated for each product type, except SBLOC and IBLOC, based upon historical net charge-offs for that product. The loss rate is determined by classifying charge-off losses according to the year the related loans were originated, which is referred to as vintage analysis. The loss rate is then projected over the estimated remaining loan lives unique to each loan pool, to determine estimated lifetime losses. For SBLOC and IBLOC, since losses have not been incurred, probability of loss/loss given default considerations are utilized. Additionally, for all loan pools the Company adds to the allowance a component for each pool based upon qualitative factors such as the Company’s current loan performance statistics as determined by pool. These qualitative factors adjust for asset specific differences between historical loss experience and the current portfolio for each pool. The qualitative factors are intended to address factors that may not be reflected in historical loss rates and otherwise unaccounted for in the quantitative process. A similar process is employed to calculate an allowance assigned to off-balance sheet commitments, which are comprised of unfunded loan commitments and letters of credit. That allowance is recorded in other liabilities. The model also includes qualitative factors which may increase or decrease the allowance compared to historical loss rates. However, expected losses provided for in the allowance are primarily based on applying

historical loss rates over the estimated remaining lives of the loans. Even though portions of the allowance may be allocated to loans that have been individually measured for credit deterioration, the entire allowance is available for any credit that, in management’s judgment, should be charged off.

The Company ranks its qualitative factors in five levels: minimal risk, low, moderate, moderate-high and high. When the Company adopted CECL as of January 1, 2020, the management assumption was that some degree of economic slowdown should be considered over the next eighteen months. That belief reflected the length of the current economic expansion and the relatively high level of unsustainable deficit spending. Accordingly, certain of the Company’s qualitative factors were set at moderate as of January 1, 2020. Based on the uncertainty as to how the Covid-19 pandemic would impact the Company’s loan pools, the Company increased other qualitative factors to moderate in 2020. The economic qualitative factor is based on the estimated impact of economic conditions on the loan pools, as distinguished from the economic factors themselves. The Company’s charge-offs have been non-existent for SBLOC and IBLOC. Further, the charge-off history for SBL and leasing do not correlate with economic conditions. Given the continuing economic weakness, the economic qualitative component for the non-guaranteed portion of SBA 7a loans, was increased to moderate high. While specific or groups of economic factors did not correlate with actual historical losses, multiple economic factors are considered. For the non-guaranteed portion of SBA loans and leasing, the Company’s loss forecasting analysis included a review of industry statistics. However, the Company’s own charge-off history was the primary quantitative element in the forecasts.

‎

Below are the portfolio segments used to pool loans with similar risk characteristics and align with the Company’s methodology for measuring expected credit losses. These pools have similar risk and collateral characteristics, and certain of these pools are broken down further in determining and applying the vintage loss estimates previously discussed. For instance, within the direct lease financing pool, government and public institution leases are considered separately. Additionally, the Company evaluates its loans under an internal loan risk rating system as a means of identifying problem loans. The special mention classification indicates weaknesses that may, if not cured, threaten the borrower’s future repayment ability. A substandard classification reflects an existing weakness indicating the possible inadequacy of net worth and other repayment sources. These classifications are used both by regulators and peers, as they have been correlated with an increased probability of credit losses. A summary of the Company’s primary portfolio pools and loans accordingly classified, by year of origination, at December 31, 2020 is as follows (in thousands):


As of December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving loans at amortized cost		Total
SBL non real estate
Non-rated	$	169,598	$	—	$	—	$	—	$	—	$	—	$	—	$	169,598
Pass		10,775		10,943		12,002		5,454		7,153		9,964		—		56,291
Special mention		—		—		731		—		499		767		—		1,997
Substandard		—		—		20		1,489		1,347		1,491		—		4,347
Total SBL non-real estate		180,373		10,943		12,753		6,943		8,999		12,222		—		232,233

SBL commercial mortgage
Non-rated		20,185		2,758		—		—		—		—		—		22,943
Pass		26,971		76,975		46,099		39,219		32,505		35,298		—		257,067
Special mention		—		1,852		—		—		—		257		—		2,109
Substandard		—		—		—		—		77		7,605		—		7,682
Total SBL commercial mortgage		47,156		81,585		46,099		39,219		32,582		43,160		—		289,801

SBL construction
Non-rated		821		—		—		—		—		—		—		821
Pass		6,769		1,146		11,081		—		—		—		—		18,996
Substandard		—		—		—		—		711		—		—		711
Total SBL construction		7,590		1,146		11,081		—		711		—		—		20,528

Direct lease financing
Non-rated		23,273		2,888		2,189		1,093		447		7		—		29,897
Pass		249,946		90,156		53,638		23,944		9,091		1,106		—		427,881
Substandard		3,536		45		97		152		536		38		—		4,404
Total direct lease financing		276,755		93,089		55,924		25,189		10,074		1,151		—		462,182

SBLOC
Non-rated		—		—		—		—		—		—		8,099		8,099
Pass		—		—		—		—		—		—		1,109,161		1,109,161
Total SBLOC		—		—		—		—		—		—		1,117,260		1,117,260

IBLOC
Non-rated		—		—		—		—		—		—		132,777		132,777
Pass		—		—		—		—		—		—		304,376		304,376
Total IBLOC		—		—		—		—		—		—		437,153		437,153

Other specialty
Non-rated		2,691		—		—		—		—		—		—		2,691
Pass		376		3,569		6,225		7,320		7,228		12,555		—		37,273
Total other specialty		3,067		3,569		6,225		7,320		7,228		12,555		—		39,964

Advisor financing
Non-rated		23,014		—		—		—		—		—		—		23,014
Pass		25,941		—		—		—		—		—		—		25,941
Total advisor financing		48,955		—		—		—		—		—		—		48,955

Consumer
Non-rated		933		—		—		14		—		1,558		—		2,505
Pass		—		—		—		—		—		1,441		—		1,441
Substandard		—		—		—		—		—		301		—		301
Total consumer		933		—		—		14		—		3,300		—		4,247
Total *	$	564,829	$	190,332	$	132,082	$	78,685	$	59,594	$	72,388	$	1,554,413	$	2,652,323

Included in the table above, in the SBL non real estate non-rated total of $169.6 million, were $167.7 million of PPP loans which are government guaranteed.

The following table provides information by credit risk rating indicator for each segment of the loan portfolio excluding commercial loans at fair value at December 31, 2019 (in thousands):


	December 31, 2019
	Pass		Special mention		Substandard		Unrated subject to review *		Unrated not subject to review *		Total loans
SBL non-real estate	$	76,108	$	3,045	$	4,430	$	—	$	996	$	84,579
SBL commercial mortgage		208,809		2,249		5,577		—		1,475		218,110
SBL construction		44,599		—		711		—		—		45,310
Direct lease financing		420,289		—		8,792		—		5,379		434,460
SBLOC / IBLOC		942,858		—		—		—		81,562		1,024,420
Other specialty lending		3,055		—		—		—		—		3,055
Consumer		2,545		—		345		—		1,664		4,554
Unamortized loan fees and costs		—		—		—		—		9,757		9,757
	$	1,698,263	$	5,294	$	19,855	$	—	$	100,833	$	1,824,245

Included in other specialty lending in the December 31, 2020 table above are $35.4 million of SBA loans purchased for CRA purposes as of December 31, 2020. These loans are classified as SBL in the Company’s loan table which classify loans by type, as opposed to risk characteristics.

* At December 31, 2020, in excess of 50% of the total continuing loan portfolio was reviewed. The targeted coverages and scope of the reviews are risk-based and vary according to each portfolio. These thresholds are maintained as follows:

Security Backed Lines of Credit (SBLOC) – The targeted review threshold for 2020 was 40% with the largest 25% of SBLOCs by commitment to be reviewed annually. A random sampling of a minimum of 20 of the remaining loans will be reviewed each quarter. At December 31, 2020, approximately 62% of the SBLOC portfolio had been reviewed.

Insurance Backed Lines of Credit (IBLOC) – The targeted review threshold for 2020 was 40% with the largest 25% of IBLOCs by commitment to be reviewed annually. A random sample of the remaining loans will also be reviewed and a minimum of 20 loans will be reviewed each quarter. At December 31, 2020, approximately 70% of the IBLOC portfolio had been reviewed.

Advisor Financing – The targeted review threshold for 2020 was 50%. At December 31, 2020, approximately 51% of the advisor financing portfolio had been reviewed. The loan balance review threshold is $1.0 million.

Small Business Loans – The targeted review threshold for 2020 was 60%, to be rated and/or reviewed within 90 days of funding, less fully guaranteed loans purchased for CRA, or fully guaranteed PPP loans. The loan balance review threshold is $1.5 million and, additionally, any classified loans. At December 31, 2020, over 80% of the non government guaranteed loan portfolio had been reviewed.

Direct Lease Financing – The targeted review threshold for 2020 was 35%. At December 31, 2020, approximately 51% of the leasing portfolio had been reviewed. All lease relationships exceeding $1.5 million are reviewed.

Commercial Mortgages, at fair value (Floating Rate) – The targeted review threshold for 2020 was 60%. Floating rate loans will be reviewed initially within 90 days of funding and will be monitored on an ongoing basis as to payment status. Subsequent reviews will be performed based on a sampling each quarter. Each floating rate loan will be reviewed if any available extension options are exercised. At December 31, 2020, approximately 100% of the CMBS floating rate loans on the books more than 90 days had been reviewed.

Commercial Mortgages, at fair value (Fixed Rate) - 100% of fixed rate loans that are unable to be readily sold on the secondary market and remain on the Bank's books after nine months will be reviewed at least annually. At December 31, 2020, approximately 100% of the CMBS fixed rate portfolio had been reviewed.

Specialty Lending - Specialty Lending, defined as commercial loans unique in nature that do not fit into other established categories, have a review coverage threshold of 100% for non-Community Reinvestment Act (“CRA”) loans. At December 31, 2020, approximately 100% of the non-CRA loans had been reviewed.

Home Equity Lines of Credit, or (“HELOC”) – The targeted review threshold for 2020 was 50%. At December 31, 2020, approximately 57% of the HELOC portfolio had been reviewed.

SBL. Substantially all small business loans consist of SBA loans. The Bank participates in loan programs established by the SBA, including the 7(a) Loan Guarantee Program and the 504 Fixed Asset Financing Program and a temporary program, the Paycheck Protection Program, or (“PPP”), in 2020. The 7(a) Loan Guarantee Program is designed to help small business borrowers start or expand their businesses by providing partial guarantees of loans made by banks and non-bank lending institutions for specific business purposes, including long or short term working capital; funds for the purchase of equipment, machinery, supplies and materials; funds for the purchase, construction or renovation of real estate; and funds to acquire, operate or expand an existing business or refinance existing debt, all under conditions established by the SBA. The 504 Fixed Asset Financing Program includes the financing of real estate and commercial mortgages. In 2020, the Company also participated in PPP, which provides short-term loans to small businesses. PPP loans are fully guaranteed by the U.S. government. This program was a specific response to the Covid-19 pandemic, and these loans are expected to be reimbursed by the U.S. government within one year of their origination. The Company segments the SBL portfolio into four pools: non-real estate, commercial mortgage and construction to capture the risk characteristics of each pool, and the PPP loans discussed above. In the table above, the government guaranteed PPP loans, amounting to $167.7 million, are included in non-rated SBL non-real estate. The qualitative factors for SBL loans focus on changes in international, national, regional, and local economic and business conditions, changes in the value of underlying collateral, changes in credit concentrations, and changes in the volume and severity of past due loans. Additionally, the construction segment adds a qualitative factor for general construction risk, such as construction delays. The U.S. government guaranteed portions of 7a loans and fully guaranteed PPP loans, are not included in the risk pools because they have inherently different risk characteristics because of the U.S. government guarantee.

Direct lease financing. The Company provides lease financing for commercial and government vehicle fleets and, to a lesser extent, provides lease financing for other equipment. Leases are either open-end or closed-end. An open-end lease is one in which, at the end of the lease term, the lessee must pay us the difference between the amount at which Company sells the leased asset and the stated termination value. Termination value is a contractual value agreed to by the parties at the inception of a lease as to the value of the leased asset at the end of the lease term. A closed-end lease is one for which no such payment is due on lease termination. In a closed-end lease, the risk that the amount received on a sale of the leased asset will be less than the residual value is assumed by us, as lessor. The qualitative factors for direct lease financing focus on international, national, regional, and local economic and business conditions, changes in the value of underlying collateral, changes in credit concentrations, and changes in the volume and severity of past due loans.

SBLOC. SBLOC loans are made to individuals, trusts and entities and are secured by a pledge of marketable securities maintained in one or more accounts with respect to which the Company obtains a securities account control agreement. The securities pledged may be either debt or equity securities or a combination thereof, but all such securities must be listed for trading on a national securities exchange or automated inter-dealer quotation system. SBLOCs are typically payable on demand. Maximum SBLOC line amounts are calculated by applying a standard ‘advance rate’ calculation against the eligible security type depending on asset class: typically up to 50% for equity securities and mutual fund securities and 80% for investment grade (Standard & Poor’s rating of BBB- or higher, or Moody’s rating of Baa3 or higher) municipal or corporate debt securities. Substantially all SBLOCs have full recourse to the borrower. The underlying securities collateral for SBLOC loans is monitored on a daily basis to confirm the composition of the client portfolio and its daily market value. The primary qualitative factor in the SBLOC analysis is the ratio of loans outstanding to market value. This factor has been maintained at low levels, which has remained appropriate as losses have not materialized despite the historic declines in the equity markets during 2020, during which there were no losses. Significant losses have not been incurred since inception of this line of business. Additionally, the advance rates noted above were established to provide the Company with protection from declines in market conditions from the origination date of the lines of credit.

IBLOC. IBLOC loans are collateralized by the cash surrender value of insurance policies. Should a loan default, the primary risks for IBLOCs are if the insurance company issuing the policy were to become insolvent, or if that company would fail to recognize the Bank’s assignment of policy proceeds. To mitigate these risks, insurance company ratings are periodically evaluated for compliance with Bank standards. Additionally, the Bank utilizes assignments of cash surrender value which legal counsel has concluded are enforceable. The qualitative factors for IBLOC primarily focus on the concentration risk with insurance companies.

Advisor financing. In 2020, the Bank began originating loans to investment advisors for purposes of debt refinance, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value ratios of 70%, based on third party business appraisals, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate. The qualitative factors for advisor financing focus on changes in lending policies and procedures, portfolio performance and economic conditions.

Other specialty lending and consumer loans. Other specialty lending loans and consumer loans are categories of loans which the Company generally no longer offers. The loans primarily are consumer loans and home equity loans. The qualitative factors for all other specialty lending and consumer loans focus on changes in the underlying collateral for collateral dependent loans, portfolio loan performance, loan concentrations and changes in economic conditions.

Expected credit losses are estimated over the estimated remaining lives of loans. The estimate excludes possible extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation that a loan will be restructured, or the extension or renewal options are included in the borrower contract and are not unconditionally cancellable by us.

The Company does not measure an allowance for credit losses on accrued interest receivable balances, because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status.

Allowance for credit losses on off-balance sheet credit exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through the provision for credit losses. The estimate considers the likelihood that funding will occur over the estimated life of the commitment. The amount of the allowance in the liability account as of December 31, 2020 was $795,000.

A detail of the changes in the allowance for credit losses by loan category and summary of loans evaluated individually and collectively for credit deterioration is as follows (in thousands):


	December 31, 2020
	SBL non-real estate		SBL commercial mortgage			SBL construction			Direct lease financing		SBLOC / IBLOC		Advisor financing		Other specialty lending		Other consumer loans		Unallocated			Total
Beginning balance 12/31/2019	$	4,985		$	1,472		$	432	$	2,426	$	553	$	—	$	12	$	40		$	318	$	10,238
1/1 CECL adjustment		(220)			537			139		2,362		(41)		—		158		20			(318)		2,637
Charge-offs		(1,350)			—			—		(2,243)		—		—		—		—			—		(3,593)
Recoveries		103			—			—		570		—		—		—		—			—		673
Provision (credit)		1,542			1,306			(243)		2,928		263		362		(20)		(11)			—		6,127
Ending balance	$	5,060		$	3,315		$	328	$	6,043	$	775	$	362	$	150	$	49		$	—	$	16,082

Ending balance: Individually evaluated for expected credit loss	$	2,129		$	1,010		$	34	$	4	$	—	$	—	$	—	$	—		$	—	$	3,177

Ending balance: Collectively evaluated for expected credit loss	$	2,931		$	2,305		$	294	$	6,039	$	775	$	362	$	150	$	49		$	—	$	12,905

Loans:
Ending balance*	$	255,318		$	300,817		$	20,273	$	462,182	$	1,550,086	$	48,282	$	2,179	$	4,247		$	8,939	$	2,652,323

Ending balance: Individually evaluated for expected credit loss	$	3,431		$	7,305		$	711	$	751	$	—	$	—	$	—	$	557		$	—	$	12,755

Ending balance: Collectively evaluated for expected credit loss	$	251,887		$	293,512		$	19,562	$	461,431	$	1,550,086	$	48,282	$	2,179	$	3,690		$	8,939	$	2,639,568


	December 31, 2019
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Other specialty lending		Other consumer loans		Unallocated		Total
Beginning balance 1/1/2019	$	4,636	$	941	$	250	$	2,025	$	393	$	60	$	108	$	240	$	8,653
Charge-offs		(1,362)		—		—		(528)		—		—		(1,103)		—		(2,993)
Recoveries		125		—		—		51		—		—		2		—		178
Provision (credit)		1,586		531		182		878		160		(48)		1,033		78		4,400
Ending balance	$	4,985	$	1,472	$	432	$	2,426	$	553	$	12	$	40	$	318	$	10,238

Ending balance: Individually evaluated for impairment	$	2,961	$	136	$	36	$	—	$	—	$	—	$	9	$	—	$	3,142

Ending balance: Collectively evaluated for impairment	$	2,024	$	1,336	$	396	$	2,426	$	553	$	12	$	31	$	318	$	7,096

Loans:
Ending balance*	$	84,579	$	218,110	$	45,310	$	434,460	$	1,024,420	$	3,055	$	4,554	$	9,757	$	1,824,245

Ending balance: Individually evaluated for impairment	$	4,139	$	1,047	$	711	$	286	$	—	$	—	$	610	$	—	$	6,793

Ending balance: Collectively evaluated for impairment	$	80,440	$	217,063	$	44,599	$	434,174	$	1,024,420	$	3,055	$	3,944	$	9,757	$	1,817,452

*The ending balance for loans in the unallocated column represents deferred costs and fees.

The Company did not have loans acquired with deteriorated credit quality at either December 31, 2020 or December 31, 2019.

A detail of the Company’s delinquent loans by loan category is as follows (in thousands):


	December 31, 2020
	30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	1,760	$	805	$	110	$	3,159	$	5,834	$	249,484	$	255,318
SBL commercial mortgage		87		961		—		7,305		8,353		292,464		300,817
SBL construction		—		—		—		711		711		19,562		20,273
Direct lease financing		2,845		941		78		751		4,615		457,567		462,182
SBLOC / IBLOC		650		247		309		—		1,206		1,548,880		1,550,086
Advisor financing		—		—		—		—		—		48,282		48,282
Other specialty lending		—		—		—		—		—		2,179		2,179
Consumer - other		—		—		—		—		—		1,164		1,164
Consumer - home equity		—		—		—		301		301		2,782		3,083
Unamortized loan fees and costs		—		—		—		—		—		8,939		8,939
	$	5,342	$	2,954	$	497	$	12,227	$	21,020	$	2,631,303	$	2,652,323

	December 31, 2019
	30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	36	$	125	$	—	$	3,693	$	3,854	$	80,725	$	84,579
SBL commercial mortgage		—		1,983		—		1,047		3,030		215,080		218,110
SBL construction		—		—		—		711		711		44,599		45,310
Direct lease financing		2,008		2,692		3,264		—		7,964		426,496		434,460
SBLOC / IBLOC		290		75		—		—		365		1,024,055		1,024,420
Other specialty lending		—		—		—		—		—		3,055		3,055
Consumer - other		—		—		—		—		—		1,137		1,137
Consumer - home equity		—		—		—		345		345		3,072		3,417
Unamortized loan fees and costs		—		—		—		—		—		9,757		9,757
	$	2,334	$	4,875	$	3,264	$	5,796	$	16,269	$	1,807,976	$	1,824,245

December 31, 2020

Pre-modification recorded investment

SBL non-real estate