LOANS AND ALLOWANCE FOR CREDIT LOSSES

3 Months Ended

Mar. 31, 2024

Receivables [Abstract]

LOANS AND ALLOWANCE FOR CREDIT LOSSES

NOTE 4 – 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 - Summary of 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):

	March 31,			December 31,
	2024			2023
1-4 Family residential real estate	$	72,355		$	61,645
Commercial		127,957			50,169
Consumer and other		872			698
Construction		56,410			34,538
Non-Owner Occupied (NOO) CRE		262,623			167,203
Owner Occupied (OO) CRE		159,376			82,228
Multifamily		70,714			60,546
Loans held for investment		750,307			457,027
Less: allowance for credit losses		(10,675	)		(5,860	)
Loans, net	$	739,632		$	451,167

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 March 31, 2024, and December 31, 2023, was $2.7 million and $1.3 million, respectively, presented in accrued interest receivable on the Condensed Consolidated Balance Sheets. Refer to Note 1 - Summary of 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 three months ended March 31, 2024, and March 31, 2023, (dollars in thousands):

	1–4 Family									NOO		OO
	Residential					Consumer				Commercial		Commercial
	Real Estate		Commercial			and Other		Construction		Real Estate		Real Estate		Multifamily		Total
Changes in allowance for credit losses for the three months ended March 31, 2024
Beginning balance	$	736	$	924		$	8	$	512	$	1,859	$	1,201	$	620	$	5,860
Acquisition of CBOA Financial PCD Loans		34		777			1		258		83		11		—		1,164
Provision (credit) for loan losses		126		1,409			1		64		1,165		941		146		3,852
Loans charged off		—		(208	)		—		—		—		—		—		(208	)
Recoveries		2		5			—		—				—		—		7
Balance on March 31, 2024	$	898	$	2,907		$	10	$	834	$	3,107	$	2,153	$	766	$	10,675

	1–4 Family											NOO		OO
	Residential						Consumer					Commercial		Commercial
	Real Estate			Commercial			and Other			Construction		Real Estate		Real Estate		Multifamily		Total
Changes in allowance for loan losses for the three months ended March 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		—			—			—			—		—		—		—		—
Loans charged off		—			—			—			—		—		—		—		—
Recoveries		1			—			—			—		—		—		—		1
Balance on March 31, 2023	$	422		$	1,075		$	6		$	663	$	1,951	$	697	$	569	$	5,383

The following table presents the aging of the recorded investment in contractually past due loans, as of March 31, 2024, and December 31, 2023. It is shown by class of loans (dollars in thousands):

	Loans Contractually Past Due
March 31, 2024	30–59 Days		60–89 Days		Over 90 Days		Total		Loans Not Past Due		Total
1-4 Family residential real estate	$	259	$	—	$	—	$	259	$	72,096	$	72,355
Commercial		2,813		885		350		4,048		123,909		127,957
Consumer and other		—		—		—		—		872		872
Construction		—		—		—		—		56,410		56,410
NOO CRE		—		—		—		—		262,623		262,623
OO CRE		—		—		—		—		159,376		159,376
Multifamily		337		—		—		337		70,377		70,714
Total	$	3,409	$	885	$	350	$	4,644	$	745,663	$	750,307

	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		—		—		—		—		167,203		167,203
OO CRE		—		—		—		—		82,228		82,228
Multifamily		—		—		—		—		60,546		60,546
Total	$	409	$	—	$	589	$	998	$	456,029	$	457,027

Credit quality indicators – The following tables represent the credit exposure by internally assigned grades. 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 tables present the amortized cost basis of loans by credit quality indicator, by class of financing receivable, and year of origination for term loans as of March 31, 2024, and 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 tables (dollars in thousands).

	Term Loans Amortized Cost by Origination
													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
March 31, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
1-4 Family
Pass	$	1,517	$	5,870	$	27,070	$	12,402	$	7,842	$	13,501	$	3,738	$	—	$	71,940
Special Mention		—		—		—		—		—		350		—		—		350
Substandard		—		—		—		—		—		65		—		—		65
Doubtful		—		—		—		—		—		—		—		—		—
Total 1-4 Familly		1,517		5,870		27,070		12,402		7,842		13,916		3,738		—		72,355
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Commercial
Pass		708		35,204		31,210		10,140		3,546		4,501		35,597		—		120,907
Special Mention		—		—		147		—		1,944		88		101		—		2,280
Substandard		—		571		2,365		491		653		97		341		—		4,518
Doubtful		—		—		—		—		252		—		—		—		252
Total Commercial		708		35,775		33,722		10,631		6,395		4,686		36,039		—		127,957
Current year-to-date gross write-offs		—		—		—		—		208		—		—		—		208
Consumer and other
Pass		—		—		129		—		3		40		700		—		872
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Consumer and Other		—		—		129		—		3		40		700		—		872
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Construction
Pass		1,855		15,914		26,371		6,439		723		2,318		18		—		53,639
Special Mention		—		1,681		—		—		—		—		—		—		1,681
Substandard		—		—		—		—		—		1,090		—		—		1,090
Doubtful		—		—		—		—		—		—		—		—		—
Total Construction		1,855		17,595		26,371		6,439		723		3,408		18		—		56,410
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
NOO CRE
Pass		587		34,328		52,822		72,306		32,988		63,014		6,206		—		262,252
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		371		—		—		371
Doubtful		—		—		—		—		—		—		—		—		—
Total NOO CRE		587		34,328		52,822		72,306		32,988		63,385		6,206		—		262,623
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
OO CRE
Pass		879		37,994		30,487		38,286		12,414		28,899		199		—		149,158
Special Mention		—		226		—		7,099		—		1,676		—		—		9,001
Substandard		—		—		—		—		37		1,180		—		—		1,217
Doubtful		—		—		—		—		—		—		—		—		—
Total OO CRE		879		38,220		30,487		45,385		12,451		31,755		199		—		159,376
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Multi Family
Pass		—		500		19,853		24,811		6,478		16,238		860		—		68,739
Special Mention		—		—		—		—		1,023		—		—		—		1,023
Substandard		—		—		—		952		—		—		—		—		952
Doubtful		—		—		—		—		—		—		—		—		—
Total Multi Family		—		500		19,853		25,763		7,501		16,238		860		—		70,714
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Total	$	5,547	$	132,289	$	190,455	$	172,925	$	67,903	$	133,428	$	47,760	$	—	$	750,307
Total year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	208	$	—	$	—	$	—	$	208

	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		779		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		779		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		52,241		21,091		13,491		30,911		6,140		—		166,960
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		243		—		—		—		—		243
Doubtful		—		—		—		—		—		—		—		—		—
Total NOO CRE		7,187		35,899		52,241		21,334		13,491		30,911		6,140		—		167,203
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	$	122,629	$	50,977	$	29,080	$	56,106	$	19,187	$	779	$	457,027
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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 three months ending March 31, 2024, or March 31, 2023. 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 March 31, 2024
	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	$	65	$	65	$	—
Commercial		1,412		2,046		—
Consumer and other		—		—		—
Construction		—		—		—
NOO CRE		371		371		—
OO CRE		—		—		—
Multifamily		953		953		—
Total	$	2,801	$	3,435	$	—
	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	$	—

Non-accrual loan balances guaranteed by the SBA are $1,145,000, or 33.3%, and $589,000, or 26.3%, of the nonaccrual loan balances at March 31, 2024, and December 31, 2023, respectively.

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 March 31, 2024 Collateral Dependent Loans
	Secured by Real Estate		Secured by Other		Total
1-4 Family residential real estate	$	65	$	—	$	65
Commercial		—		2,046		2,046
Consumer and other		—		—		—
Construction		—		—		—
NOO CRE		371		—		371
OO CRE		—		—		—
Multifamily		953		—		953
Total	$	1,389	$	2,046	$	3,435

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 three months ended March 31, 2024, and 2023.