LOANS AND ALLOWANCE FOR CREDIT LOSSES

6 Months Ended

Jun. 30, 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):

	June 30,			December 31,
	2024			2023
1-4 Family residential real estate	$	73,788		$	61,645
Commercial		124,092			50,169
Consumer and other		874			698
Construction		47,291			34,538
Non-Owner Occupied (NOO) CRE		254,794			167,203
Owner Occupied (OO) CRE		167,234			82,228
Multifamily		67,422			60,546
Loans held for investment		735,495			457,027
Less: allowance for credit losses		(10,801	)		(5,860	)
Loans, net	$	724,694		$	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 June 30, 2024, and December 31, 2023, was $2.5 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 and six months ended June 30, 2024, and June 30, 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 June 30, 2024
Beginning balance	$	898	$	2,907		$	10		$	834		$	3,107	$	2,153	$	766	$	10,675
Provision (credit) for loan losses		75		(343	)		1			(105	)		267		92		13		—
Loans charged off		—		—			(2	)		—			—		—		—		(2	)
Recoveries		4		124			—			—			—		—		—		128
Balance on June 30, 2024	$	977	$	2,688		$	9		$	729		$	3,374	$	2,245	$	779	$	10,801

	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 six months ended June 30, 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		201		1,066			2			(41	)		1,432		1,033		159		3,852
Loans charged off		—		(208	)		(2	)		—			—		—		—		(210	)
Recoveries		6		129			—			—					—		—		135
Balance on June 30, 2024	$	977	$	2,688		$	9		$	729		$	3,374	$	2,245	$	779	$	10,801

	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 June 30, 2023
Beginning balance	$	422	$	1,075		$	6	$	663	$	1,951	$	697	$	569	$	5,383
Provision (credit) for loan losses		28		(284	)		1		82		92		229		2	$	150
Loans charged off		—		(315	)		—		—		—		—		—		(315	)
Recoveries		2		—			—		—		—		—		—		2
Balance on June 30, 2023	$	452	$	476		$	7	$	745	$	2,043	$	926	$	571	$	5,220

	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 six months ended June 30, 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		28			(284	)		1			82		92		229		2		150
Loans charged off		—			(315	)		—			—		—		—		—		(315	)
Recoveries		3			—			—			—		—		—		—		3
Balance on June 30, 2023	$	452		$	476		$	7		$	745	$	2,043	$	926	$	571	$	5,220

The following tables present the aging of the recorded investment in contractually past due loans, as of June 30, 2024, and December 31, 2023. It is shown by class of loans (dollars in thousands):

	Loans Contractually Past Due
	30–59		60–89		Over 90				Loans Not
June 30, 2024	Days		Days		Days		Total		Past Due		Total
1-4 Family residential real estate	$	—	$	62	$	—	$	62	$	73,726	$	73,788
Commercial		—		1,000		2,648		3,648		120,444		124,092
Consumer and other		—		—		—		—		874		874
Construction		—		—		—		—		47,291		47,291
NOO CRE		—		—		—		—		254,794		254,794
OO CRE		—		—		—		—		167,234		167,234
Multifamily		—		—		—		—		67,422		67,422
Total	$	—	$	1,062	$	2,648	$	3,710	$	731,785	$	735,495

	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 June 30, 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
June 30, 2024	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
1-4 Family
Pass	$	2,921	$	5,667	$	26,872	$	12,305	$	7,696	$	12,652	$	5,613	$	—	$	73,726
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		62		—		—		62
Doubtful		—		—		—		—		—		—		—		—		—
Total 1-4 Family		2,921		5,667		26,872		12,305		7,696		12,714		5,613		—		73,788
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Commercial
Pass		9,722		34,566		20,854		8,632		3,312		3,577		35,634		—		116,297
Special Mention		—		34		1,102		473		1,911		173		—		—		3,693
Substandard		—		449		2,346		491		580		236		—		—		4,102
Doubtful		—		—		—		—		—		—		—		—		—
Total Commercial		9,722		35,049		24,302		9,596		5,803		3,986		35,634		—		124,092
Current year-to-date gross write-offs		—		—		—		—		208		—		—		—		208
Consumer and other
Pass		77		—		73		—		—		108		616		—		874
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Consumer and Other		77		—		73		—		—		108		616		—		874
Current year-to-date gross write-offs		—		—		—		—		—		2		—		—		2
Construction
Pass		4,944		13,432		16,127		6,224		28		2,229		20		—		43,004
Special Mention		—		906		1,651		613		—		1,117		—		—		4,287
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Construction		4,944		14,338		17,778		6,837		28		3,346		20		—		47,291
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
NOO CRE
Pass		1,085		34,154		47,215		71,894		33,203		59,562		6,029		—		253,142
Special Mention		—		—		1,652		—		—		—		—		—		1,652
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total NOO CRE		1,085		34,154		48,867		71,894		33,203		59,562		6,029		—		254,794
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
OO CRE
Pass		1,372		38,388		38,115		44,585		12,328		28,282		1,074		—		164,144
Special Mention		—		226		—		—		—		1,661		—		—		1,887
Substandard		—		—		—		—		35		1,168		—		—		1,203
Doubtful		—		—		—		—		—		—		—		—		—
Total OO CRE		1,372		38,614		38,115		44,585		12,363		31,111		1,074		—		167,234
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Multi Family
Pass		—		499		19,957		23,088		6,423		14,547		957		—		65,471
Special Mention		—		—		—		—		1,018		—		—		—		1,018
Substandard		—		—		—		933		—		—		—		—		933
Doubtful		—		—		—		—		—		—		—		—		—
Total Multi Family		—		499		19,957		24,021		7,441		14,547		957		—		67,422
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Total	$	20,121	$	128,321	$	175,964	$	169,238	$	66,534	$	125,374	$	49,943	$	—	$	735,495
Total year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	208	$	2	$	—	$	—	$	210

	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 six months ended June 30, 2024, or June 30, 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 June 30, 2024
	Non-accrual loans				Loans past due
	with		Total non-accrual		over 89 days and
	no ACL		loans		still accruing
1-4 Family residential real estate	$	62	$	62	$	—
Commercial		1,280		3,455		—
Consumer and other		—		—		—
Construction		—		—		—
NOO CRE		—		—		—
OO CRE		—		—		—
Multifamily		933		933		—
Total	$	2,275	$	4,450	$	—
	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 $2,592,000, or 58.2%, and $589,000, or 26.3%, of the nonaccrual loan balances at June 30, 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 June 30, 2024 Collateral Dependent Loans
	Secured by		Secured by
	Real Estate		Other		Total
1-4 Family residential real estate	$	62	$	—	$	62
Commercial		—		3,455		3,455
Consumer and other		—		—		—
Construction		—		—		—
NOO CRE		—		—		—
OO CRE		—		—		—
Multifamily		933		—		933
Total	$	995	$	3,455	$	4,450

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 six months ended June 30, 2024, and 2023.