Loans And Allowance For Credit Losses

12 Months Ended

Dec. 31, 2023

Receivables [Abstract]

Loans And Allowance For Credit Losses

Note 3 – Loans And Allowance For Credit Losses

On January 1, 2023, the Company adopted the new CECL standard, ASU 2016-13, using the modified retrospective method for all financial assets measured at amortized cost. For comparability, the Company has adjusted certain prior period loan amounts to conform to the current presentation of segmentation under CECL. Refer to Note 1 - Nature of Operations and Significant Accounting Policies for additional information related to the Company’s methodology for estimating the allowance for credit losses.

The following presents a summary of the Company’s loans at amortized cost as of the dates noted (dollars in thousands):

	December 31,
	2023			2022
1-4 Family residential real estate	$	61,645		$	63,176
Commercial		50,169			48,567
Consumer and other		698			1,048
Construction		34,538			43,664
Non-Owner Occupied (NOO) CRE		168,404			185,699
Owner Occupied (OO) CRE		82,228			61,375
Multifamily		60,546			61,201
Gross loans		458,228			464,730
Deferred loan fees		(1,201	)		(1,370	)
Loans held for investment		457,027			463,360
Less: allowance for credit losses		(5,860	)		(4,778	)
Loans, net	$	451,167		$	458,582

Allowance for Credit Losses on Loans

Beginning January 1, 2023, the allowance for credit losses for loans is measured on the loan’s amortized cost basis, excluding interest receivable. Interest receivable excluded at December 31, 2023, and December 31, 2022, was $1.3 million and $1.2 million, respectively, presented in Accrued interest receivable on the Condensed Consolidated Balance Sheets. Refer to Note 1 - Nature of Operations and Significant Accounting Policies for additional information related to the Company’s methodology for estimating the allowance for credit losses.

Allocation of a portion of the allowance for credit losses to one category of loans does not preclude its availability to absorb losses in other categories. The following table presents the activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2023, and December 31, 2022 (dollars in thousands):

	1–4 Family Residential Real Estate			Commercial			Consumer and Other			Construction			NOO Commercial Real Estate			OO Commercial Real Estate			Multifamily			Total
Changes in allowance for credit losses for the year ended December 31, 2023
Beginning balance	$	454		$	1,382		$	56		$	222		$	1,680		$	555		$	429		$	4,778
Impact of adopting of ASU 2016-13		(33	)		(307	)		(50	)		441			271			142			140			604
Provision (credit) for loan losses		309			170			2			(151	)		3,290			504			51			4,175
Loans charged off		—			(321	)		—			—			(3,382	)		—			—			(3,703	)
Recoveries		6			—			—			—						—			—			6
Balance on December 31, 2023	$	736		$	924		$	8		$	512		$	1,859		$	1,201		$	620		$	5,860
	1–4 Family Residential Real Estate			Commercial			Consumer and Other			Construction			NOO Commercial Real Estate			OO Commercial Real Estate			Multifamily			Total
Changes in allowance for loan losses for the year ended December 31, 2022
Beginning balance	$	470		$	647		$	101		$	282		$	2,565		$	731		$	532		$	5,328
Provision (credit) for loan losses		49			3,640			(45	)		(60	)		(885	)		(176	)		(103	)		2,420
Loans charged off		(72	)		(2,905	)		—			—			—			—			—			(2,977	)
Recoveries		7			—			—			—			—			—			—			7
Balance on December 31, 2022	$	454		$	1,382		$	56		$	222		$	1,680		$	555		$	429		$	4,778
Allowance for loan losses - December 31, 2022
Ending balance individually evaluated for impairment	$	—		$	99		$	—		$	—		$	—		$	—		$	—		$	99
Ending balance collectively evaluated for impairment		454			1,283			56			222			1,680			555			429			4,679
Total	$	454		$	1,382		$	56		$	222		$	1,680		$	555		$	429		$	4,778
Gross loans - December 31, 2022
Ending balance individually evaluated for impairment	$	719		$	1,641		$	—		$	1,591		$	—		$	—		$	—		$	3,951
Ending balance collectively evaluated for impairment		62,457			46,926			1,048			42,073			185,699			61,375			61,201			460,779
Total	$	63,176		$	48,567		$	1,048		$	43,664		$	185,699		$	61,375		$	61,201		$	464,730

The following table presents the aging of the recorded investment in contractually past due loans, as of December 31, 2023, and 2022. It is shown by class of loans (dollars in thousands):

	Loans Contractually Past Due
December 31, 2023	30–59 Days		60–89 Days		Over 90 Days		Total		Loans Not Past Due		Total
1-4 Family residential real estate	$	409	$	—	$	—	$	409	$	61,236	$	61,645
Commercial		—		—		589		589		49,580		50,169
Consumer and other		—		—		—		—		698		698
Construction		—		—		—		—		34,538		34,538
NOO CRE		—		—		—		168,404		—		168,404
OO CRE		—		—		—		—		82,228		82,228
Multifamily		—		—		—		—		60,546		60,546
Total	$	409	$	—	$	589	$	998	$	457,230	$	458,228
	Loans Contractually Past Due
December 31, 2022	30–59 Days		60–89 Days		Over 90 Days		Total		Loans Not Past Due		Total
1-4 Family residential real estate	$	536	$	441	$	—	$	977	$	62,199	$	63,176
Commercial		313		427		292		1,032		47,535		48,567
Consumer and other		—		—		—		—		1,048		1,048
Construction		—		—		—		—		43,664		43,664
NOO CRE		512		—		—		512		185,187		185,699
OO CRE		—		—		—		—		61,375		61,375
Multifamily		—		519		—		519		60,682		61,201
Total	$	1,361	$	1,387	$	292	$	3,040	$	461,690	$	464,730

Non-accrual loan balances guaranteed by the SBA are $589,000, or 26.3%, and $99,000, or 1.5%, of the nonaccrual loan balances at December 31, 2023, and December 31, 2022, respectively.

Impaired Loans: The following tables include the recorded investment and unpaid principal balances, net of charge-offs for impaired loans with the associated allowance amount, if applicable. Management determined the allocated allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the allocated allowance recorded.

December 31, 2022 (dollars in thousands)	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment
With no related allowance recorded:
Construction	$	1,591	$	1,591	$	—	$	1,464
1-4 Family Residential RE		719		719		—		739
Commercial and Industrial		—		—		—		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial Real Estate		—		—		—		—
1-4 Family Residential RE		—		—		—		—
Commercial and Industrial		4,546		1,641		99		4,333
Consumer		—		—		—		—
Total	$	6,856	$	3,951	$	99	$	6,536

Credit quality indicators – The following table represents the credit exposure by internally assigned grades at December 31, 2023, and December 31, 2022. This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan. The Company uses the following definitions for risk ratings:

Pass: Strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention: Potential weaknesses that deserve management’s close attention. Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard: Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful: All the weakness inherent in one classified as substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable.

Loss – Considered uncollectible or no longer a bankable asset. This classification does not mean that the asset has no recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is not practical or desirable to defer writing off a portion or whole of a perceived asset even though partial recovery may be collected in the future.

The following table presents the amortized cost basis of loans by credit quality indicator, by class of financing receivable, and year of origination for term loans as of December 31, 2023. For revolving lines of credit that are converted to term loans, if the conversion involved a credit decision, such loans are included in the origination year in which the credit decision was made. If revolving lines of credit converted to term loans without a credit decision, such lines of credit are included in the “Revolving lines of credit converted to term” column in the following table (dollars in thousands).

	Term Loans Amortized Cost by Origination
December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
1-4 Family
Pass	$	4,244	$	24,009	$	12,236	$	7,928	$	1,466	$	9,622	$	1,717	$	—	$	61,222
Special Mention		—		—		—		—		—		357		—		—		357
Substandard		—		—		—		—		—		67		—		—		67
Doubtful		—		—		—		—		—		—		—		—		—
Total 1-4 Family		4,244		24,009		12,236		7,928		1,466		10,045		1,717		—		61,645
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Commercial
Pass		13,150		15,405		3,234		3,176		87		1,546		10,139		—		46,737
Special Mention		—		163		—		2,018		—		—		—		—		2,181
Substandard		—		—		—		903		96		—		—		—		999
Doubtful		—		—		—		—		252		—		—		—		252
Total Commercial		13,150		15,568		3,234		6,097		435		1,546		10,139		—		50,169
Current year-to-date gross write-offs		—		—		—		—		321		—		—		—		321
Consumer and other
Pass		43		138		—		5		10		3		499		—		698
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Consumer and Other		43		138		—		5		10		3		499		—		698
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Construction
Pass		7,788		21,551		3,938		38		310		592		321		—		34,538
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Construction		7,788		21,551		3,938		38		310		592		321		—		34,538
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
NOO CRE
Pass		7,187		35,899		53,442		21,091		13,491		30,911		6,140		—		168,161
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		243		—		—		—		—		243
Doubtful		—		—		—		—		—		—		—		—		—
Total NOO CRE		7,187		35,899		53,442		21,334		13,491		30,911		6,140		—		168,404
Current year-to-date gross write-offs		3,382		—		—		—		—		—		—		—		3,382
OO CRE
Pass		20,726		12,365		20,807		7,966		5,806		4,214		—		—		71,884
Special Mention		228		—		7,196		—		—		1,690		—		—		9,114
Substandard		—		—		—		37		1,193		—		—		—		1,230
Doubtful		—		—		—		—		—		—		—		—		—
Total OO CRE		20,954		12,365		28,003		8,003		6,999		5,904		—		—		82,228
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Multi Family
Pass		500		15,652		22,007		7,572		6,369		7,105		371		—		59,575
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		970		—		—		—		—		—		970
Doubtful		—		—		—		—		—		—		—		—		—
Total Multi Family		500		15,652		22,977		7,572		6,369		7,105		371		—		60,546
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Total	$	53,866	$	125,182	$	123,830	$	50,977	$	29,080	$	56,106	$	19,187	$	—	$	458,228
Total year-to-date gross write-offs	$	3,382	$	—	$	—	$	—	$	321	$	—	$	—	$	—	$	3,703

As of December 31, 2022, the risk category of loans by class of loans was as follows (dollars in thousands):

December 31, 2022	Pass		Special Mention		Substandard		Doubtful		Not Risk Rated		Total
1-4 Family	$	62,517	$	—	$	659	$	—	$	—	$	63,176
Commercial		46,474		377		1,716		—		—		48,567
Consumer and other		993		—		—		—		55		1,048
Construction		42,073		—		1,591		—		—		43,664
NOO CRE		185,699		—		—		—		—		185,699
OO CRE		57,407		3,685		283		—		—		61,375
Multi Family		61,201		—		—		—		—		61,201
Total	$	456,364	$	4,062	$	4,249	$	—	$	55	$	464,730

Non-accrual loans – The accrual of interest on loans is discontinued at the time the loan becomes 90 or more days delinquent unless the loan is well secured and in the process of collection or renewal due to maturity. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged off if collection of interest or principal is considered doubtful. There was no interest income recognized from non-accrual loans in the income statement for the years ending December 31, 2023, and December 31, 2022. The following presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing by class as of the date noted (dollars in thousands).

	As of December 31, 2023
	Non-accrual loans with no ACL		Total non-accrual loans		Loans past due over 89 days and still accruing
1-4 Family residential real estate	$	66	$	66	$	—
Commercial		847		1,208		—
Consumer and other		—		—		—
Construction		—		—		—
NOO CRE		—		—		—
OO CRE		—		—		—
Multifamily		970		970		—
Total	$	1,883	$	2,244	$	—
	As of December 31, 2022
	Non-accrual loans with no ACL		Total non-accrual loans		Loans past due over 89 days and still accruing
1-4 Family residential real estate	$	719	$	719	$	—
Commercial		—		1,641		292
Consumer and other		—		—		—
Construction		1,591		1,591		—
NOO CRE		—		—		—
OO CRE		—		—		—
Multifamily		—		—		—
Total	$	2,310	$	3,951	$	292

Collateral dependent loans – Non-accrual loans, excluding loans held for investment measured at fair value, are classified as collateral dependent loans and are individually evaluated. The following presents the amortized cost basis of collateral-dependent loans, which are individually evaluated to determine expected credit losses by class of loans as of the date noted (dollars in thousands):

	As of December 31, 2023 Collateral Dependent Loans
	Secured by Real Estate		Secured by Other		Total
1-4 Family residential real estate	$	66	$	—	$	66
Commercial		—		1,208		1,208
Consumer and other		—		—		—
Construction		—		—		—
NOO CRE		—		—		—
OO CRE		—		—		—
Multifamily		970		—		970
Total	$	1,036	$	1,208	$	2,244

Loan Modifications Made to Borrowers Experiencing Financial Difficulty – The ACL incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The analysis includes losses from modifications of receivables to borrowers experiencing financial difficulty. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the ACL allowance for credit losses, a change to the ACL is generally not recorded when a loan is modified. Currently, the bank does not hold any loans having modified terms related to economic distress and none were modified during the years ended December 31, 2023, or 2022.