Loans Receivables, net

6 Months Ended

Jun. 30, 2024

Receivables [Abstract]

Loans Receivables, net

5. Loans Receivables, net

Financing receivables are comprised of the following:

	June 30, 2024			December 31, 2023
Loans receivables, gross	$	53,406		$	61,293
Less: Deferred loan fees		(1,422	)		(1,772	)
Less: Deposits		(1,067	)		(1,056	)
Plus: Deferred origination costs		297			360
Less: Allowance for credit losses		(575	)		(695	)
Loans receivable, net	$	50,639		$	58,130

Commercial Construction and Development Loans

Construction Loan Portfolio Summary

As of June 30, 2024, the Company’s portfolio consisted of 189 construction and nine development loans with 58 borrowers in 20 states.

The following is a summary of our loan portfolio to builders for home construction loans as of June 30, 2024 and December 31, 2023:

Year	Number of States		Number of Borrowers		Number of Loans		Value of Collateral(1)		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio(2)			Loan Fee
2024		20		58		189	$	98,249	$	68,218	$	48,154		69	%(3)		5	%
2023		20		62		225	$	117,169	$	75,300	$	51,788		64	%(3)		5	%

(1)	The value is determined by the appraised value.
(2)	The loan to value ratio is calculated by taking the commitment amount and dividing by the appraised value.
(3)	Represents the weighted average loan to value ratio of the loans.

Real Estate Development Loan Portfolio Summary

The following is a summary of our loan portfolio to builders for land development as of June 30, 2024 and December 31, 2023:

Year	Number of States		Number of Borrowers		Number of Loans		Gross Value of Collateral(1)		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio(2)			Interest Spread(4)
2024		6		9		9	$	15,888	$	5,596	$	5,252		33	%(3)		varies
2023		6		9		11	$	23,873	$	11,256	$	9,505		40	%(3)		varies

(1)	The value is determined by the appraised value.
(2)	The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value calculated as described above.
(3)	Represents the weighted average loan to value ratio of the loans.
(4)	The interest spread varies for the state of Pennsylvania and is 7% across other states.

The following is a roll forward of our loan receivables, net:

	June 30, 2024			December 31, 2023
Beginning balance	$	58,130		$	56,650
Originations and modifications		21,026			58,216
Principal collections		(19,912	)		(57,895	)
Transferred from loans receivables, net to foreclosed assets		(2,306	)		–
Transferred from loans receivables, net to real estate investments		(6,122	)		–
Change in builder deposit		(11	)		(217	)
Change in allowance for credit losses		121			1,832
Change in loan fees, net		(287	)		(456	)
Ending balance	$	50,639		$	58,130

Credit Quality Information

Effective January 1, 2023, we adopted ASC 326, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which replaced the incurred loss methodology for determining out provision for credit losses and allowance for credit losses with current expected credit loss (“CECL”) model. Upon the adoption of ASC 326 the total amount of the allowance for credit losses (“ACL”) on loans estimated using the CECL methodology increased $178 compared to the total amount of the allowance recorded using the prior incurred loss model.

Based on the Company’s size, complexity and historical data the aggregate method or loss-rate method was selected to estimate expected credit losses. An expected loss ratio is applied based on internal historical losses and originations. The aggregate method relies upon the performance of an entire segment of the loan portfolio to best represent the behavior of these specific segments over time. In addition, a modified open pool approach was used which utilizes our borrowers’ credit rankings for both construction and development loans. Internal risk-rating grades are assigned by the Company’s management based on an analysis of financial and collateral strength and other credit attributes underlying each loan. Loan grades are A, B and C and Unsecured for both construction and development loans where A and C defines the highest and lowest scores, respectively. Unsecured loans in our portfolio do not hold underlying collateral.

Each loan pool is adjusted for qualitative factors not inherently considered in the quantitative analysis. The qualitative adjustments either increase or decrease the quantitative model estimation. We consider factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of non-performing loans, trends in underlying collateral values, quality of our loan review system and other economic conditions, including inflation.

Our Company construction loans are collateralized by land and real estate while our Company development loans are collateralized by land. Secured nonaccrual loans individually evaluated are also collateralized by land and real estate.

The following table presents the Company’s gross loans receivable, commitment value and ACL for each respective credit rank loan pool category as of June 30, 2024:

	Loans Receivable Gross		Commitment Value		ACL
Construction Loans Collectively Evaluated
A Credit Risk	$	32,831	$	46,727	$	(182	)
B Credit Risk		9,837		14,445		(85	)
C Credit Risk		469		1,131		(14	)
Development Loans Collectively Evaluated
A Credit Risk	$	4,354	$	4,561	$	(2	)
B Credit Risk		447		583		-
C Credit Risk		452		452		(17	)
Unsecured Nonaccrual Loans Individually Evaluated	$	–	$	–	$	–
Secured Nonaccrual Loans Individually Evaluated	$	5,016	$	5,915	$	(366	)
ACL Unfunded Commitments	$	–	$	–	$	91
Total	$	53,406	$	73,814	$	(575	)

The following table presents the Company’s gross loans receivable, commitment value and ACL for each respective credit rank loan pool category as of December 31, 2023.

	Loans Receivable Gross		Commitment Value		ACL
Construction Loans Collectively Evaluated
A Credit Risk	$	40,252	$	59,075	$	(211	)
B Credit Risk		5,718		10,339		(32	)
C Credit Risk		–		–		–
Development Loans Collectively Evaluated
A Credit Risk	$	8,787	$	9,793	$	(5	)
B Credit Risk		172		511		–
C Credit Risk		452		454		(10	)
Unsecured Nonaccrual Loans Individually Evaluated	$	86	$	81	$	(86	)
Secured Nonaccrual Loans Individually Evaluated	$	5,826	$	6,303	$	(351	)
Total	$	61,293	$	86,556	$	(695	)

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of June 30, 2024:

	Nonaccrual with No Allowance for Credit Loss		Nonaccrual with Allowance for Credit Loss		Loans Past Due Over 89 Days Still Accruing
Unsecured Nonaccrual Loans Individually Evaluated	$	–	$	–	$	–
Secured Nonaccrual Loans Individually Evaluated	$	3,224	$	1,792	$	–
Total	$	3,224	$	1,792	$	–

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of December 31, 2023:

	Nonaccrual with No Allowance for Credit Loss		Nonaccrual with Allowance for Credit Loss		Loans Past Due Over 89 Days Still Accruing
Unsecured Nonaccrual Loans Individually Evaluated	$	–	$	86	$	–
Secured Nonaccrual Loans Individually Evaluated	$	2,495	$	3,331	$	–
Total	$	2,495	$	3,417	$	–

For loans greater than 12 months in age that are individually evaluated, appraisals are ordered and prepared if the current appraisal is greater than 13 months old and construction is greater than 90% complete. If construction is less than 90% complete the Company uses the latest appraisal on file. At certain times the Company may choose to use a broker’s opinions of value (“BOV”) as a replacement for an appraisal if deemed more efficient by management. Appraised values are adjusted for estimated costs associated with asset disposal. A broker’s opinion of selling price, use currently valid sales contracts on the subject property, or representative recent actual closings by the builder on similar properties may be used in place of a broker’s opinion of value.

Appraisers are state certified and are selected by first attempting to utilize the appraiser who completed the original appraisal report. If that appraiser is unavailable or unreasonably expensive, we use another appraiser who appraises routinely in that geographic area. BOVs are created by real estate agents. We try to first select an agent we have worked with, and then, if that fails, we select another agent who works in that geographic area.

In addition, our loan portfolio includes performing, forbearance and nonaccrual loans. The Company’s policies with respect to placing loans on nonaccrual and individually evaluated if they are past due greater than 90 days unless management deems the loan an exception. A fair market value analysis is performed and an allowance for credit loss is established based on the results of the analysis.

The following is an aging of our gross loan portfolio as of June 30, 2024:

	Gross Loan		Current		Past Due		Past Due		Past Due		Past Due
	Value		0 - 59		60 - 89		90 - 179		180 - 269		>270
Performing Loans
A Credit Risk	$	37,185	$	37,185	$	–	$	–	$	–	$	–
B Credit Risk		10,284		10,284		–		–		–		–
C Credit Risk		921		921		–		–		–		–
Forbearance Loans
Secured Nonaccrual Loans		1,199		–		–		–		–		1,199
Nonaccrual Loans
Unsecured Loans		–		–		–		–		–		–
Secured Loans		3,817		–		1,531		494		–		1,792
Total	$	53,406	$	48,390	$	1,531	$	494	$	–	$	2,991

The following is an aging of our gross loan portfolio as of December 31, 2023:

	Gross Loan		Current		Past Due		Past Due		Past Due		Past Due
	Value		0 - 59		60 - 89		90 - 179		180 - 269		>270
Performing Loans
A Credit Risk	$	49,039	$	49,039	$	–	$	–	$	–	$	–
B Credit Risk		5,890		5,890		–		–		–		–
C Credit Risk		452		452		–		–		–		–
Nonaccrual Loans
Unsecured Loans		86		–		–		–		–		86
Secured Loans		5,826		–		881		1,497		1,641		–
Total	$	61,293	$	55,381	$	881	$	1,497	$	1,641	$	86

Below is an aging schedule of loans receivable as of June 30, 2024, on a recency basis:

	No. Loans		Unpaid Balances		%
Current loans (Current accounts and accounts on which more than 50% of an original contract payment was made in the last 59 days.)		181	$	48,390		90.6	%
60-89 days		1		1,531		2.9	%
90-179 days		12		494		0.9	%
180-269 days		–		–		–	%
>270 days		4		2,991		5.6	%
Subtotal		198	$	53,406		100.0	%
Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days.)		–	$	–		–	%
Partial payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.)		–	$	–		–	%
Total		198	$	53,406		100.0	%

Below is an aging schedule of loans receivable as of December 31, 2023, on a recency basis:

	No. Loans		Unpaid Balances		%
Current loans (Current accounts and accounts on which more than 50% of an original contract payment was made in the last 59 days.)		219	$	55,381		90.4	%
60-89 days		3		881		1.4	%
90-179 days		3		1,497		2.4	%
180-269 days		4		1,641		2.7	%
>270 days		7		1,893		3.1	%
Subtotal		236	$	61,293		100.0	%
Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days.)		–	$	–		–	%
Partial payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.)		–	$	–		–	%
Total		236	$	61,293		100.0	%

Below is an aging schedule of loans receivable as of June 30, 2024, on a contractual basis:

	No. Loans		Unpaid Balances		%
Contractual terms (All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date.)		181	$	48,390		90.6	%
60-89 days		1		1,531		2.9	%
90-179 days		12		494		0.9	%
180-269 days		–		–		–	%
>270 days		4		2,991		5.6	%
Subtotal		198	$	53,406		100.0	%
Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days.)		–	$	–		–	%
Partial payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.)		–	$	–		–	%
Total		198	$	53,406		100.0	%

Below is an aging schedule of loans receivable as of December 31, 2023, on a contractual basis:

	No. Loans		Unpaid Balances		%
Contractual terms (All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date.)		219	$	55,381		90.4	%
60-89 days		3		881		1.4	%
90-179 days		3		1,497		2.4	%
180-269 days		4		1,641		2.7	%
>270 days		7		1,893		3.1	%
Subtotal		236	$	61,293		100.0	%
Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days.)		–	$	–		–	%
Partial payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.)		–	$	–		–	%
Total		236	$	61,293		100.0	%

Allowance for Credit Losses on Loans

The following table provides a roll forward of the allowance for credit losses for the quarter ended June 30, 2024:

	Performing Loans																	Nonaccrual loans
	Construction									Development
	A Credit Risk			B Credit Risk			C Credit Risk			A Credit Risk			B Credit Risk		C Credit Risk			Secured			Unsecured		Total
Allowance for credit losses as of March 31, 2024	$	(168	)		(33	)		–			(2	)		–		(18	)		(250	)		–	$	(471	)
Charge-offs		–			–			–			–			–		–			48			–		48
Credit loss provision funded		42			(25	)		(6	)		–			–		1			(164	)		–		(152	)
Allowance for credit losses as of June 30, 2024		(126	)		(58	)		(6	)		(2	)		–		(17	)		(366	)		–		(575	)
Reclassification of ACL on unfunded commitments		(59	)		(19	)		–			–			–								–		(78	)
Credit loss provision unfunded		3			(8	)		(8	)		–			–		–			–			–		(13	)
Reserve for unfunded commitments as of June 30, 2024	$	(56	)		(27	)		(8	)		–			–		–			–			–	$	(91	)

The following table provides a roll forward of the allowance for credit losses for the six months ended June 30, 2024:

	Performing Loans																	Nonaccrual loans
	Construction									Development
	A Credit Risk			B Credit Risk			C Credit Risk			A Credit Risk			B Credit Risk		C Credit Risk			Secured			Unsecured			Total
Allowance for credit losses as of December 31, 2023	$	(211	)		(32	)		–			(5	)		–		(10	)		(351	)		(86	)	$	(695	)
Reclassification of ACL on unfunded commitments		59			19			–			–			–		–			–			–			78
Charge-offs		–			–			–			–			–		–			364			52			416
Credit loss provision funded		26			(45	)		(6	)		3			–		(7	)		(379	)		34			(374	)
Allowance for credit losses as of June 30, 2024		(126	)		(58	)		(6	)		(2	)		–		(17	)		(366	)		–			(575	)
Reserve for unfunded commitments as of December 31, 2023		–			–			–			–			–		–			–			–			–
Reclassification of ACL on unfunded commitments		(59	)		(19	)		–			–			–		–			–			–			(78	)
Credit loss provision unfunded		3			(8	)		(8	)		–			–		–			–			–			(13	)
Reserve for unfunded commitments as of June 30, 2024	$	(56	)		(27	)		(8	)		–			–		–			–			–		$	(91	)

The following table provides a roll forward of the allowance for credit losses as of December 31, 2023:

	Performing Loans																		Nonaccrual loans
	Construction									Development
	A Credit Risk			B Credit Risk			C Credit Risk			A Credit Risk			B Credit Risk			C Credit Risk			Secured			Unsecured			Total
December 31, 2022	$	(174	)		(66	)		(9	)		(37	)		(2	)		(7	)		(247	)		(1,985	)	$	(2,527	)
Impact of the adoption of ASC 326		(33	)		(1	)		(12	)		35			2			(30	)		–			(139	)		(178	)
Charge-offs		–			–			–			–			–			–			132			2,610			2,742
Reduction in ACL for loan participations		5			–			–			–			–			–			–			–			5
Credit loss provision		(9	)		35			21			(3	)		–			27			(236	)		(572	)		(737	)
December 31, 2023	$	(211	)		(32	)		–			(5	)		–			(10	)		(351	)		(86	)	$	(695	)

Allowance for Credit Losses on Unfunded Loan Commitments

Unfunded commitments to extend credit, which have similar collateral, credit and market risk to our outstanding loans, were $20,408 and $25,263 as of June 30, 2024 and December 31, 2023, respectively. The ACL is calculated at an estimated loss rate on the total commitment value for loans in our portfolio. The ACL on unfunded commitments is calculated as the difference between the ACL on commitment value less the estimated loss rated and the total gross loan value for loans in our portfolio. As of June 30, 2024, the ACL for unfunded commitments was $91. As of June 30, 2024, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of loans receivable. Our concentration risks for our top three customers listed by geographic real estate market are summarized in the table below:

	June 30, 2024				December 31, 2023
		Percent of				Percent of
	Borrower	Loan			Borrower	Loan
	City	Commitments			City	Commitments
Highest concentration risk	Pittsburgh, PA		32	%	Pittsburgh, PA		29	%
Second highest concentration risk	Orlando, FL		6	%	Cape Coral, FL		7	%
Third highest concentration risk	Williamston, SC		5	%	Palm Bay, FL		6	%