Loans

6 Months Ended

Jun. 30, 2022

Loans [Abstract]

Loans

Note 6. Loans

The Company has several lending lines of business including: small business comprised primarily of SBA loans; direct lease financing primarily for commercial vehicles and to a lesser extent equipment; SBLOC collateralized by marketable securities; IBLOC collateralized by the cash value of eligible life insurance policies; and investment advisor financing for purposes of debt refinance, acquisition of another firm or internal succession. Prior to 2020, the Company also originated commercial real estate bridge loans for sale into securitizations. 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 accounts for these loans as held-for-sale. The Company continues to present these loans at fair value. At June 30, 2022, the fair value of these loans was $995.5 million, and the unpaid principal balance was $999.9 million. Included in “Net realized and unrealized gains (losses) on commercial loans, at fair value” in the consolidated statements of operations were changes in the fair value of such loans. For the six months ended June 30, 2022, net unrealized losses recognized for such changes in fair value were $1.5 million, which reflected $650,000 of loss attributable to credit weaknesses. For the six months ended June 30, 2021, unrealized losses recognized for such changes in fair value were $478,000 of which $246,000 was attributable to credit weaknesses. In the third quarter of 2021, the Company resumed the origination of such loans which it also intends to hold for investment and which are accounted for at amortized cost. They are captioned as REBLs as they are transitional commercial mortgage loans which are made to improve and rehabilitate existing properties which already have cash flow. The Bank 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 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 June 30, 2022, $1.92 billion of loans were pledged to the Federal Reserve and $1.46 billion of loans were pledged to the Federal Home Loan Bank. At June 30, 2022, there was $385.0 million outstanding against the Federal Reserve line collateral and $0 outstanding against the Federal Home Loan Bank line.

Prior to 2020, the Company sponsored the structuring of commercial mortgage loan securitizations, and in 2020, the Company decided not to pursue additional securitizations. The loans previously sold to the commercial mortgage-backed securitizations were transitional commercial mortgage loans made to improve and rehabilitate existing properties which already have cash flow. Servicing rights were 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 obtained a tranche of certificates which are accounted for as available-for-sale debt securities. The securities were recorded at fair value at acquisition, which value was confirmed by an independent third-party based on the discounted cash flow method using unobservable (level 3) inputs. Of the six securities resulting from our securitizations all have been repaid except that from CRE-2. As of June 30, 2022, the principal balance of the security owned by the Company issued by CRE-2 was $12.6 million. Repayment is expected from the workout or disposition of commercial real estate collateral, after repayment of more senior tranches. The remaining collateral consists of four loans, three backed by retail properties and one backed by an office complex. In addition to the repayment of the single performing retail loan for $8.0 million, the servicer is utilizing 2021 appraised values totaling $32.6 million for the foreclosed property on the remaining two retail properties. The office building loan matured on June 1, 2022, and subject to verification from a recently ordered appraisal, a broker’s indication of value for that collateral was $20.9 million. The $53.5 million total estimated collateral value of these three defaulted loans, compares to $60.7 million to be repaid on those loans. We expect that the $7.2 million deficiency will be absorbed by the two tranches subordinate to the Company’s security, which total $31.4 million. After those tranches absorb the deficiency, 41.1% protection will remain in those subordinate tranches. However, any future reappraisals could result in further decreases in collateral valuation. While available information indicates that the value of existing collateral will be adequate to repay the Company’s security, there can be no assurance that such valuations will be realized upon property liquidations, and that deficiencies will not exceed the 41.1% remaining credit support.

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 loan amounts to estimated collateral value in making its credit determinations.

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

	June 30,		December 31,
	2022		2021
SBL non-real estate	$	112,854	$	147,722
SBL commercial mortgage		425,219		361,171
SBL construction		27,042		27,199
Small business loans		565,115		536,092
Direct lease financing		583,086		531,012
SBLOC / IBLOC *		2,274,256		1,929,581
Advisor financing **		155,235		115,770
Real estate bridge loans		1,106,875		621,702
Other loans ***		63,514		5,014
		4,748,081		3,739,171
Unamortized loan fees and costs		6,616		8,053
Total loans, including unamortized loan fees and costs	$	4,754,697	$	3,747,224

	June 30,		December 31,
	2022		2021
SBL loans, including costs net of deferred fees of $6,444 and $5,345
for June 30, 2022 and December 31, 2021, respectively	$	571,559	$	541,437
SBL loans included in commercial loans, at fair value		168,579		199,585
Total small business loans ****	$	740,138	$	741,022

* 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 June 30, 2022 and December 31, 2021, respectively, IBLOC loans amounted to $1.02 billion and $788.3 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.

*** Includes demand deposit overdrafts reclassified as loan balances totaling $170,000 and $322,000 at June 30, 2022 and December 31, 2021, respectively. Estimated overdraft charge-offs and recoveries are reflected in the allowance for credit losses and have been immaterial.

**** The small business loans held at fair value are comprised of the government guaranteed portion of SBA 7a loans at the dates indicated. A reduction in SBL non-real estate from $122.4 million to $112.9 million in the second quarter of 2022 resulted primarily from U.S. government repayments of Paycheck Protection Program (“PPP”) loans authorized by The Consolidated Appropriations Act, 2021. PPP loans totaled $10.3 million at June 30, 2022 and $23.7 million at March 31, 2022, respectively.

The following table provides information about loans individually evaluated for credit loss at June 30, 2022 and December 31, 2021 (in thousands):

	June 30, 2022
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
SBL non-real estate	$	244	$	3,700	$	—	$	394	$	4
SBL commercial mortgage		—		—		—		75		—
Direct lease financing		—		—		—		87		—
Consumer - home equity		307		307		—		313		4
With an allowance recorded
SBL non-real estate		926		926		(593)		1,407		5
SBL commercial mortgage		1,423		1,423		(365)		867		—
SBL construction		710		710		(34)		710		—
Other loans		4,159		4,159		(31)		4,159		52
Total
SBL non-real estate		1,170		4,626		(593)		1,801		9
SBL commercial mortgage		1,423		1,423		(365)		942		—
SBL construction		710		710		(34)		710		—
Direct lease financing		—		—		—		87		—
Other loans		4,159		4,159		(31)		4,159		52
Consumer - home equity		307		307		—		313		4
	$	7,769	$	11,225	$	(1,023)	$	8,012	$	65

	December 31, 2021
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
SBL non-real estate	$	409	$	3,414	$	—	$	412	$	5
SBL commercial mortgage		223		246		—		1,717		—
Direct lease financing		254		254		—		430		—
Consumer - home equity		320		320		—		458		8
With an allowance recorded
SBL non-real estate		1,478		1,478		(829)		2,267		13
SBL commercial mortgage		589		589		(115)		2,634		—
SBL construction		710		710		(34)		711		—
Direct lease financing		—		—		—		132		—
Consumer - other		—		—		—		5		—
Total
SBL non-real estate		1,887		4,892		(829)		2,679		18
SBL commercial mortgage		812		835		(115)		4,351		—
SBL construction		710		710		(34)		711		—
Direct lease financing		254		254		—		562		—
Consumer - other		—		—		—		5		—
Consumer - home equity		320		320		—		458		8
	$	3,983	$	7,011	$	(978)	$	8,766	$	26

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):

	June 30, 2022						December 31, 2021
	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	$	792	$	103	$	895	$	1,313
SBL commercial mortgage		1,423		—		1,423		812
SBL construction		710		—		710		710
Direct leasing		—		—		—		254
Consumer - home equity		—		63		63		72
Other loans		607		—		607		—
	$	3,532	$	166	$	3,698	$	3,161

The Company had $18.9 million of other real estate owned at June 30, 2022 and $18.9 million of other real estate owned at December 31, 2021. The following table summarizes the Company’s non-accrual loans, loans past due 90 days or more, and other real estate owned at June 30, 2022 and December 31, 2021, respectively:

	June 30,		December 31,
	2022		2021
	(in thousands)
Non-accrual loans
SBL non-real estate	$	895	$	1,313
SBL commercial mortgage		1,423		812
SBL construction		710		710
Direct leasing		—		254
Other loans		607		—
Consumer - home equity		63		72
Total non-accrual loans		3,698		3,161
Loans past due 90 days or more and still accruing		4,848		461
Total non-performing loans		8,546		3,622
Other real estate owned		18,873		18,873
Total non-performing assets	$	27,419	$	22,495

Interest which would have been earned on loans classified as non-accrual for the six months ended June 30, 2022 and 2021, was $68,000 and $172,000, respectively. No income on non-accrual loans was recognized during the six months ended June 30, 2022. In the six months ended June 30, 2022 and 2021 a total of $198,000 and $36,000, respectively, was 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 June 30, 2022 and December 31, 2021 and considered troubled debt restructurings are as follows (dollars in thousands):

	June 30, 2022						December 31, 2021
	Number		Pre-modification recorded investment		Post-modification recorded investment		Number		Pre-modification recorded investment		Post-modification recorded investment
SBL non-real estate		9	$	665	$	665		9	$	1,231	$	1,231
SBL commercial mortgage		1		835		835		—		—		—
Other loans		1		3,552		3,552		—		—		—
Consumer - home equity		1		244		244		1		248		248
Total(1)		12	$	5,296	$	5,296		10	$	1,479	$	1,479

⁽¹⁾Troubled debt restructurings include non-accrual loans of $1.2 million and $656,000 at June 30, 2022 and December 31, 2021, respectively.

The balances below provide information as to how the loans were modified as troubled debt restructuring loans as of June 30, 2022 and December 31, 2021 (in thousands):

	June 30, 2022						December 31, 2021
	Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity
SBL non-real estate	$	—	$	—	$	665	$	—	$	—	$	1,231
SBL commercial mortgage		—		—		835		—		—		—
Other loans		—		—		3,552		—		—		—
Consumer - home equity		—		—		244		—		—		248
Total(1)	$	—	$	—	$	5,296	$	—	$	—	$	1,479

⁽¹⁾Troubled debt restructurings include non-accrual loans of $1.2 million and $656,000 at June 30, 2022 and December 31, 2021, respectively.

The Company had no commitments to extend additional credit to loans classified as troubled debt restructurings as of June 30, 2022 or December 31, 2021.

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 June 30, 2022, there were 12 troubled debt restructured loans with a balance of $5.3 million which had specific reserves of $609,000. As of December 31, 2021, there were 10 troubled debt restructured loans with a balance of $1.5 million which had specific reserves of $476,000. Substantially all of these reserves related to the non-guaranteed portion of SBA loans for start-up businesses.

The following table summarizes loans that were restructured within the 12 months ended June 30, 2022 that have subsequently defaulted (in thousands):

	June 30, 2022
	Number	Pre-modification recorded investment
SBL non-real estate	1	$	334
Total	1	$	334

Management estimates the allowance for credit losses 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 of the Company’s Board of Directors for their review. With the exception of SBLOC and IBLOC, which utilize probability of loss/loss given default, and the other loan category, which uses discounted cash flow to determine a reserve, the allowances for other categories are determined by establishing 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. Those reserves are estimated based on the difference between loan principal and the estimated fair value of the collateral, adjusted for estimated disposition costs.

Except for SBLOC, IBLOC and other loans as noted above, 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, and an average historical loss rate is calculated for each product type. Loss rates are computed by classifying net charge-offs by year of loan origin, and dividing into total originations for that specific year. This methodology is referred to as vintage analysis. The average 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. For the other loan category discounted cash flow is utilized to determine a reserve. For all loan pools the Company considers the need for an additional allowance based upon qualitative factors such as the Company’s current loan performance statistics as determined by pool. These qualitative factors are intended to account for forward looking expectations over a twelve to eighteen month period not reflected in historical loss rates and otherwise unaccounted for in the quantitative process. Accordingly, such factors may increase or decrease the allowance compared to historical loss rates as the Company’s forward looking expectations change. Aside from the qualitative adjustments to account for forward looking expectations of loss over a twelve to eighteen month projection period, the balance of the allowance reverts directly to the Company’s quantitative analysis derived from its historical loss rates. 

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 for unfunded commitments is recorded in other liabilities. 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, low, moderate, moderate-high and high risk. The individual qualitative factors for each portfolio segment have their own scale based on an analysis of that segment. A high risk ranking has the greatest impact on the allowance calculation with each level below having a lesser impact on a sliding scale. The qualitative factors used for each portfolio are described below in the description of each portfolio segment. 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 U.S. government 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 and moderate high in 2020. In the second quarter of 2021, the Company reassessed these factors and reversed increases to moderate-high for certain pools, based upon increased vaccination rates and significant reopening of the economy. As a result of continuing economic uncertainty in 2022, including heightened inflation and increased risks of recession, the qualitative factors were maintained at their original levels, which had been set in anticipation of a downturn. The potential impact of heightened inflation was also considered by line of business heads, credit leadership and other staff. Two areas were identified which might be specifically impacted. First, Federal Reserve rate increases will directly increase a real estate bridge loan sponsors’ floating rate borrowing costs, and may also impair repayment ability in the future. However, rising rents in the multifamily sector provide a significant risk mitigant to that portfolio which consists primarily of apartment buildings. Second, inflation in fuel prices poses a risk to the Company’s vehicle fleet leases, specifically for less fuel efficient vehicles for which demand and values may decrease. However, vehicle shortages have resulted in higher vehicle prices, a condition estimated to persist in a twelve to eighteen month time frame.

The economic qualitative factor is based on the estimated impact of economic conditions on the loan pools, as distinguished from the economic factors themselves, for the following reasons. The Company has not experienced charge-offs for either real estate bridge lending or similarly underwritten loans in its predecessor commercial loans, at fair value portfolio, despite stressed economic conditions. Additionally, there have been no losses for multi-family (apartment buildings) in the Company’s securitizations. Accordingly, the estimated credit losses for this pool were derived purely from industry loss information for multi-family housing. The estimated reserve on the multi-family portfolio is currently derived from that industry qualitative factor. Similarly, the Company’s charge-offs have been virtually non-existent for SBLOC and IBLOC notwithstanding stressed economic periods. Investment advisor loans were first offered in 2020 with limited performance history. For investment advisor loans, the nature of the underlying ultimate repayment source was considered, namely the fee-based advisory income streams resulting from investment portfolios under management and the impact changes in economic conditions would have on those payment streams. Additionally, the Company’s charge-off histories for small business loans, primarily SBA, and leases have not correlated with economic conditions, including trends in unemployment. While specific economic factors did not correlate with actual historical losses, multiple economic factors are considered. For the non-guaranteed portion of SBA loans, leases, real estate bridge lending and investment advisor financing the Company’s loss forecasting analysis included a review of industry statistics. However, the Company’s own charge-off history and average life estimates, for categories in which the Company has experienced charge-offs, was the primary quantitatively derived element in the forecasts. The qualitative component results from management’s qualitative assessments. In the second quarter of 2022, the Company adjusted its collateral qualitative factor for small business loans downward to account for a greater percentage of government guaranteed balances in applicable pools as compared to prior periods. Additionally, in the second quarter of 2022, allowances on credit deteriorated loans were reduced. The largest reduction was $1.0 million which resulted when single family units from a construction loan were sold for higher than expected prices. That loan had been included in discontinued loans prior to first quarter 2022, when discontinued assets were reclassified to continuing operations. The Company no longer engages in new construction residential lending.

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 June 30, 2022 and December 31, 2021 are as follows (in thousands):

As of June 30, 2022	2022		2021		2020		2019		2018		Prior		Revolving loans at amortized cost		Total
SBL non real estate
Non-rated*	$	2,393	$	11,696	$	340	$	—	$	—	$	—	$	—	$	14,429
Pass		11,600		30,975		14,783		7,802		8,092		10,543		—		83,795
Special mention		—		—		—		—		624		474		—		1,098
Substandard		—		—		336		190		1		645		—		1,172
Total SBL non-real estate		13,993		42,671		15,459		7,992		8,717		11,662		—		100,494
SBL commercial mortgage
Non-rated		17,496		—		—		—		—		—		—		17,496
Pass		47,626		97,919		56,012		70,795		47,000		78,617		—		397,969
Special mention		—		—		141		1,853		—		659		—		2,653
Substandard		—		—		—		—		834		589		—		1,423
Total SBL commercial mortgage		65,122		97,919		56,153		72,648		47,834		79,865		—		419,541
SBL construction
Non-rated		198		—		—		—		—		—		—		198
Pass		—		11,247		12,461		2,426		—		—		—		26,134
Substandard		—		—		—		—		—		710		—		710
Total SBL construction		198		11,247		12,461		2,426		—		710		—		27,042
Direct lease financing
Non-rated		49,240		38,489		10,581		1,482		706		237		—		100,735
Pass		142,813		159,899		111,638		42,770		17,085		5,247		—		479,452
Special mention		29		—		—		—		10		8		—		47
Substandard		1,005		671		1,131		45		—		—		—		2,852
Total direct lease financing		193,087		199,059		123,350		44,297		17,801		5,492		—		583,086
SBLOC
Non-rated		—		—		—		—		—		—		3,913		3,913
Pass		—		—		—		—		—		—		1,253,147		1,253,147
Total SBLOC		—		—		—		—		—		—		1,257,060		1,257,060
IBLOC
Non-rated		—		—		—		—		—		—		503,028		503,028
Pass		—		—		—		—		—		—		514,168		514,168
Total IBLOC		—		—		—		—		—		—		1,017,196		1,017,196
Advisor financing
Non-rated		2,713		950		—		—		—		—		—		3,663
Pass		42,632		67,989		40,951		—		—		—		—		151,572
Total advisor financing		45,345		68,939		40,951		—		—		—		—		155,235
Real estate bridge loans
Pass		473,319		633,556		—		—		—		—		—		1,106,875
Total real estate bridge loans		473,319		633,556		—		—		—		—		—		1,106,875
Other loans
Non-rated		3,244		49		92		—		—		22,130		549		26,064
Pass		228		369		112		2,843		3,832		42,656		1,225		51,265
Special mention		—		—		—		—		—		3,552		—		3,552
Substandard		—		—		—		—		—		607		64		671
Total other loans**		3,472		418		204		2,843		3,832		68,945		1,838		81,552
	$	794,536	$	1,053,809	$	248,578	$	130,206	$	78,184	$	166,674	$	2,276,094	$	4,748,081
Unamortized loan fees and costs		—		—		—		—		—		—		—		6,616
Total															$	4,754,697

*Included in the SBL non real estate non-rated total of $14.4 million, were $10.3 million of PPP loans.

**Included in Other loans are $18.0 million of SBA loans purchased for Community Reinvestment Act (“CRA”) purposes as of June 30, 2022. These loans are classified as SBL in the Company’s loan table which classify loans by type, as opposed to risk characteristics.

As of December 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving loans at amortized cost		Total
SBL non real estate
Non-rated*	$	39,318	$	7,257	$	—	$	—	$	—	$	—	$	—	$	46,575
Pass		34,172		15,934		8,794		8,988		5,088		9,809		—		82,785
Special mention		—		—		99		666		—		859		—		1,624
Substandard		—		—		—		18		848		895		—		1,761
Total SBL non-real estate		73,490		23,191		8,893		9,672		5,936		11,563		—		132,745
SBL commercial mortgage
Non-rated		10,963		—		—		—		—		—		—		10,963
Pass		79,166		57,554		75,290		43,820		37,607		46,016		—		339,453
Special mention		—		141		1,853		—		—		247		—		2,241
Substandard		—		—		—		—		—		812		—		812
Total SBL commercial mortgage		90,129		57,695		77,143		43,820		37,607		47,075		—		353,469
SBL construction
Pass		6,869		12,629		1,880		5,111		—		—		—		26,489
Substandard		—		—		—		—		—		710		—		710
Total SBL construction		6,869		12,629		1,880		5,111		—		710		—		27,199
		.
Direct lease financing
Non-rated		56,152		13,271		1,933		1,115		355		104		—		72,930
Pass		214,780		145,256		58,337		26,662		8,574		2,105		—		455,714
Special mention		—		—		—		22		38		—		—		60
Substandard		526		1,679		38		22		31		12		—		2,308
Total direct lease financing		271,458		160,206		60,308		27,821		8,998		2,221		—		531,012
SBLOC
Non-rated		—		—		—		—		—		—		3,176		3,176
Pass		—		—		—		—		—		—		1,138,140		1,138,140
Total SBLOC		—		—		—		—		—		—		1,141,316		1,141,316
IBLOC
Non-rated		—		—		—		—		—		—		346,604		346,604
Pass		—		—		—		—		—		—		441,661		441,661
Total IBLOC		—		—		—		—		—		—		788,265		788,265
Advisor financing
Non-rated		38,330		258		—		—		—		—		—		38,588
Pass		33,776		43,406		—		—		—		—		—		77,182
Total advisor financing		72,106		43,664		—		—		—		—		—		115,770
Real estate bridge loans
Pass		621,702		—		—		—		—		—		—		621,702
Total real estate bridge loans		621,702		—		—		—		—		—		—		621,702
Other loans
Non-rated		396		152		—		—		—		216		656		1,420
Pass		373		113		3,081		4,553		5,212		11,604		1,264		26,200
Substandard		—		—		—		—		—		—		73		73
Total other loans**		769		265		3,081		4,553		5,212		11,820		1,993		27,693
Total	$	1,136,523	$	297,650	$	151,305	$	90,977	$	57,753	$	73,389	$	1,931,574	$	3,739,171
Unamortized loan fees and costs		—		—		—		—		—		—		—		8,053
Total															$	3,747,224

*Included in the SBL non real estate non-rated total of $46.6 million, were $44.8 million of PPP loans which are government guaranteed.

**Included in Other loans are $22.7 million of SBA loans purchased for CRA purposes as of December 31, 2021. These loans are classified as SBL in the Company’s loan table which classify loans by type, as opposed to risk characteristics.

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, the 504 Fixed Asset Financing Program, and a temporary program, the PPP. 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 and 2021, 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 PPP loans are included in non-rated SBL non real estate. The qualitative factors for SBL loans focus on pool loan performance, underlying collateral for collateral dependent loans and changes in economic conditions. Additionally, the construction segment adds a qualitative factor for general construction risk, such as construction delays resulting from labor shortages or availability/pricing of construction materials. PPP loans, which are fully guaranteed, 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 the difference between the amount at which the 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 the Bank, as lessor. The qualitative factors for direct lease financing focus on underlying collateral for collateral dependent loans, portfolio loan performance, loan concentrations and changes in economic conditions.

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 for 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 eligible 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.

Investment 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. As credit losses have not been experienced, the allowance is determined by qualitative factors. The qualitative factors for investment advisor financing focus on historical industry losses, changes in lending policies and procedures, portfolio performance and economic conditions.

Real estate bridge loans. Real estate bridge loans are transitional commercial mortgage loans which are made to improve and rehabilitate existing properties which already have cash flow, and which are securitized by those properties. The portfolio is comprised primarily of apartment buildings. Prior to 2020, such loans were originated for securitization and loans which had been originated but not securitized continue to be accounted for at fair value in “Commercial loans, at fair value”, on the balance sheet. In 2021, originations resumed and are being held for investment in “Loans, net of deferred fees and costs”, on the balance sheet. As credit losses have not been experienced,

the allowance is determined by qualitative factors. Qualitative factors focus on historical industry losses, changes in economic conditions, underlying collateral and portfolio performance.

Other loans. Other loans include commercial and consumer loans including home equity lines of credit of the type the Company generally no longer offers. Qualitative factors 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 June 30, 2022 and as of December 31, 2021 was $2.7 million.

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):

	June 30, 2022
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		Unallocated**		Total
Beginning 1/1/2022	$	5,415	$	2,952	$	432	$	5,817	$	964	$	868	$	1,181	$	177	$	—	$	17,806
Charge-offs		(844)		—		—		(199)		—		—		—		—		—		(1,043)
Recoveries		33		—		—		93		—		—		—		—		—		126
Provision (reversal of)*		380		(632)		(3)		513		174		296		889		581		—		2,198
Ending balance	$	4,984	$	2,320	$	429	$	6,224	$	1,138	$	1,164	$	2,070	$	758	$	—	$	19,087
Ending balance: Individually evaluated for expected credit loss	$	593	$	365	$	34	$	—	$	—	$	—	$	—	$	31	$	—	$	1,023
Ending balance: Collectively evaluated for expected credit loss	$	4,391	$	1,955	$	395	$	6,224	$	1,138	$	1,164	$	2,070	$	727	$	—	$	18,064
Loans:
Ending balance**	$	112,854	$	425,219	$	27,042	$	583,086	$	2,274,256	$	155,235	$	1,106,875	$	63,514	$	6,616	$	4,754,697
Ending balance: Individually evaluated for expected credit loss	$	1,170	$	1,423	$	710	$	—	$	—	$	—	$	—	$	4,466	$	—	$	7,769
Ending balance: Collectively evaluated for expected credit loss	$	111,684	$	423,796	$	26,332	$	583,086	$	2,274,256	$	155,235	$	1,106,875	$	59,048	$	6,616	$	4,746,928

	December 31, 2021
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		Unallocated**		Total
Beginning balance 1/1/2021	$	5,060	$	3,315	$	328	$	6,043	$	775	$	362	$	—	$	199	$	—	$	16,082
Charge-offs		(1,138)		(417)		—		(412)		(15)		—		—		(24)		—		(2,006)
Recoveries		51		9		—		58		—		—		—		1,099		—		1,217
Provision (reversal of)*		1,442		45		104		128		204		506		1,181		(1,097)		—		2,513
Ending balance	$	5,415	$	2,952	$	432	$	5,817	$	964	$	868	$	1,181	$	177	$	—	$	17,806
Ending balance: Individually evaluated for expected credit loss	$	829	$	115	$	34	$	—	$	—	$	—	$	—	$	—	$	—	$	978
Ending balance: Collectively evaluated for expected credit loss	$	4,586	$	2,837	$	398	$	5,817	$	964	$	868	$	1,181	$	177	$	—	$	16,828
Loans:
Ending balance**	$	147,722	$	361,171	$	27,199	$	531,012	$	1,929,581	$	115,770	$	621,702	$	5,014	$	8,053	$	3,747,224
Ending balance: Individually evaluated for expected credit loss	$	1,887	$	812	$	710	$	254	$	—	$	—	$	—	$	320	$	—	$	3,983
Ending balance: Collectively evaluated for expected credit loss	$	145,835	$	360,359	$	26,489	$	530,758	$	1,929,581	$	115,770	$	621,702	$	4,694	$	8,053	$	3,743,241

	June 30, 2021
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Other loans		Unallocated**		Total
Beginning 1/1/2021	$	5,060	$	3,315	$	328	$	6,043	$	775	$	362	$	199		—	$	16,082
Charge-offs		(321)		(23)		—		(193)		(15)		—		—		—		(552)
Recoveries		15		—		—		7		—		—		—		—		22
Provision (reversal of)*		263		(663)		(27)		(139)		104		179		23		—		(260)
Ending balance	$	5,017	$	2,629	$	301	$	5,718	$	864	$	541	$	222		—	$	15,292
Ending balance: Individually evaluated for expected credit loss	$	1,559	$	510	$	34	$	—	$	—	$	—	$	10	$	—	$	2,113
Ending balance: Collectively evaluated for expected credit loss	$	3,458	$	2,119	$	267	$	5,718	$	864	$	541	$	212	$	—	$	13,179
Loans:
Ending balance**	$	228,958	$	343,487	$	18,494	$	506,424	$	1,729,628	$	72,190	$	5,840	$	10,323	$	2,915,344
Ending balance: Individually evaluated for expected credit loss	$	2,729	$	3,167	$	711	$	635	$	—	$	—	$	550	$	—	$	7,792
Ending balance: Collectively evaluated for expected credit loss	$	226,229	$	340,320	$	17,783	$	505,789	$	1,729,628	$	72,190	$	5,290	$	10,323	$	2,907,552

*The amount shown as the provision for (reversal of) credit losses for the period reflects the provision on (reversal of) credit losses for loans, while the consolidated statements of operations provision for (reversal of) credit losses include provisions for unfunded commitments of $1.3 million, $131,000 and $597,000, respectively, for the six months ended June 30, 2022 and June 30, 2021, and for full year 2021.

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

A summary of the Company’s net charge-offs accordingly classified, by year of origination, at June 30, 2022 are as follows (in thousands):

As of June 30, 2022		2022		2021		2020		2019		2018		Prior		Total
SBL non-real estate
Current period charge-offs	$	—	$	—	$	—	$	—	$	—	$	(844)	$	(844)
Current period recoveries		—		—		—		—		—		33		33
Current period SBL non-real estate net charge-offs		—		—		—		—		—		(811)		(811)
SBL commercial mortgage
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period SBL commercial mortgage net charge-offs		—		—		—		—		—		—		—
SBL construction
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period SBL construction net charge-offs		—		—		—		—		—		—		—
Direct lease financing
Current period charge-offs		—		(50)		(123)		(26)		—		—		(199)
Current period recoveries		—		—		87		6		—		—		93
Current period direct lease financing net charge-offs		—		(50)		(36)		(20)		—		—		(106)
SBLOC
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period SBLOC net charge-offs		—		—		—		—		—		—		—
IBLOC
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period IBLOC net charge-offs		—		—		—		—		—		—		—
Advisor financing
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period advisor financing net charge-offs		—		—		—		—		—		—		—
Real estate bridge loans
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period real estate bridge loans net charge-offs		—		—		—		—		—		—		—
Other loans
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period other loans net recoveries		—		—		—		—		—		—		—
Total
Current period charge-offs		—		(50)		(123)		(26)		—		(844)		(1,043)
Current period recoveries		—		—		87		6		—		33		126
Current period net charge-offs	$	—	$	(50)	$	(36)	$	(20)	$	—	$	(811)	$	(917)

The Company did not have loans acquired with deteriorated credit quality at either June 30, 2022 or December 31, 2021. In the second quarter of 2022, the Company purchased $22.2 million of lease receivables and $7.3 million of SBL none of which were credit deteriorated.

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

	June 30, 2022
	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	$	1,327	$	1,144	$	608	$	895	$	3,974	$	108,880	$	112,854
SBL commercial mortgage		2,134		7		—		1,423		3,564		421,655		425,219
SBL construction		—		—		—		710		710		26,332		27,042
Direct lease financing		932		639		589		—		2,160		580,926		583,086
SBLOC / IBLOC		2,021		1,407		94		—		3,522		2,270,734		2,274,256
Advisor financing		—		—		—		—		—		155,235		155,235
Real estate bridge loans		—		—		—		—		—		1,106,875		1,106,875
Other loans		1,288		94		3,557		670		5,609		57,905		63,514
Unamortized loan fees and costs		—		—		—		—		—		6,616		6,616
	$	7,702	$	3,291	$	4,848	$	3,698	$	19,539	$	4,735,158	$	4,754,697

	December 31, 2021
	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	$	1,375	$	3,138	$	441	$	1,313	$	6,267	$	141,455	$	147,722
SBL commercial mortgage		—		220		—		812		1,032		360,139		361,171
SBL construction		—		—		—		710		710		26,489		27,199
Direct lease financing		1,833		692		20		254		2,799		528,213		531,012
SBLOC / IBLOC		5,985		289		—		—		6,274		1,923,307		1,929,581
Advisor financing		—		—		—		—		—		115,770		115,770
Real estate bridge loans		—		—		—		—		—		621,702		621,702
Other loans		—		—		—		72		72		4,942		5,014
Unamortized loan fees and costs		—		—		—		—		—		8,053		8,053
	$	9,193	$	4,339	$	461	$	3,161	$	17,154	$	3,730,070	$	3,747,224

The scheduled maturities of the direct financing leases reconciled to the total lease receivables in the consolidated balance sheet, are as follows (in thousands):

Remaining 2022	$	90,377
2023		142,853
2024		119,769
2025		65,408
2026		33,777
2027 and thereafter		10,000
Total undiscounted cash flows		462,184
Residual value *		178,897
Difference between undiscounted cash flows and discounted cash flows		(57,995)
Present value of lease payments recorded as lease receivables	$	583,086

*Of the $178,897,000, $30,239,000 is not guaranteed by the lessee or other guarantors.