Loans | Note 6. Loans The Company has several lending lines of business including SBA loans, direct lease financing, SBLOC and other specialty and consumer lending. The Company also originates loans for sale to other financial institutions which issue commercial mortgage backed securities or to secondary government guaranteed loan markets. These sales are accounted for as true sales, and there is no continuing involvement in these loans after the sale. Servicing rights on these loans are not retained. The Company has elected fair value treatment for these loans to better reflect the economics of the transactions. At March 31 , 201 7, the fair value of the loans held for sale was $480.9 million and the unpaid principal balance was $478.2 m illion . Included in the gain on sale of loans in the Statements of Operations were losses recognized from changes in fair value of $155,000 for the three months ended March 31, 2017. There were no significant changes in fair value related to credit risk. Interest earned on loans held for sale during the period held are recorded in Interest Income-Loans, including fees on the Statements of Operations. In the second quarter of 2016, the Company purchased approximately $60 million in fleet vehicle leases which resulted in a customer list intangible of $3.4 million. The balance of the $8.0 million purchase price was allocated to premium which is being amortized over the estimated average lives of the purchased leases. 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 loans held for sale, are as follows (in thousands): March 31, December 31, 2017 2016 SBA non real estate $ 75,800 $ 74,644 SBA commercial mortgage 114,703 126,159 SBA construction 12,985 8,826 SBA loans * 203,488 209,629 Direct lease financing 363,172 346,645 SBLOC 660,423 630,400 Other specialty lending 12,443 11,073 Other consumer loans 16,318 17,374 1,255,844 1,215,121 Unamortized loan fees and costs 8,283 7,790 Total loans, net of deferred loan costs $ 1,264,127 $ 1,222,911 Included in the table above are demand deposit overdrafts reclassified as loan balances totaling $2.4 million at both March 31, 2017 and December 31, 2016. Overdraft charge-offs and recoveries are reflected in the allowance for loan and lease losses. * The following table shows SBA loans and SBA loans held for sale at the dates indicated (in thousands): March 31, December 31, 2017 2016 SBA loans, including deferred fees and costs $ 209,980 $ 215,786 SBA loans included in held for sale 159,831 154,016 Total SBA loans $ 369,811 $ 369,802 The following table provides information about impaired loans at March 3 1 , 201 7 and December 31, 201 6 (in thousands): Recorded investment Unpaid principal balance Related allowance Average recorded investment Interest income recognized March 31, 2017 Without an allowance recorded SBA non real estate $ 181 $ 181 $ - $ 187 $ - SBA commercial mortgage - - - - - Direct lease financing - - - - - Consumer - home equity 1,719 1,719 - 1,724 - With an allowance recorded - SBA non real estate 2,990 2,990 1,569 2,586 - SBA commercial mortgage 908 908 145 454 - Direct lease financing 684 684 166 709 - Consumer - home equity - - - - - Total SBA non real estate 3,171 3,171 1,569 2,773 - SBA commercial mortgage 908 908 145 454 - Direct lease financing 684 684 166 709 - Consumer - home equity 1,719 1,719 - 1,724 - 6,482 6,482 1,880 5,660 - December 31, 2016 Without an allowance recorded SBA non real estate $ 191 $ 191 $ - $ 336 $ - Direct lease financing - - - - - Consumer - other - - - 259 - Consumer - home equity 1,730 1,730 - 1,187 - With an allowance recorded SBA non real estate 2,183 2,183 938 1,277 - Direct lease financing 734 734 216 147 - Consumer - other - - - - - Consumer - home equity - - - 549 - Total SBA non real estate 2,374 2,374 938 1,613 - Direct lease financing 734 734 216 147 - Consumer - other - - - 259 - Consumer - home equity 1,730 1,730 - 1,736 - 4,838 4,838 1,154 3,755 - The following tables summarize the Company’s non-accrual loans, loans past due 90 days and still accruing and other real estate owned for the periods indicated (the Company had no non-accrual leases at March 31 , 201 7 or December 31, 201 6) (in thousands) : March 31, December 31, 2017 2016 Non-accrual loans SBA non real estate $ 3,028 $ 1,530 SBA commercial mortgage 908 - Consumer 1,433 1,442 Total non-accrual loans 5,369 2,972 Loans past due 90 days or more 1,534 661 Total non-performing loans 6,903 3,633 Other real estate owned 104 104 Total non-performing assets $ 7,007 $ 3,737 The Company’s loans that were modified as of March 31 , 201 7 and December 31, 201 6 and considered troubled debt restructurings are as follows ( dollars in thousands): March 31, 2017 December 31, 2016 Number Pre-modification recorded investment Post-modification recorded investment Number Pre-modification recorded investment Post-modification recorded investment SBA non real estate 3 $ 1,041 $ 1,041 2 $ 844 $ 844 Direct lease financing 1 684 684 1 734 734 Consumer 1 286 286 1 288 288 Total 5 $ 2,011 $ 2,011 4 $ 1,866 $ 1,866 The balances below provide information as to how the loans were modified as tr oubled debt restructurings as of March 3 1 , 201 7 and December 31, 201 6 (in thousands): March 31, 2017 December 31, 2016 Adjusted interest rate Extended maturity Combined rate and maturity Adjusted interest rate Extended maturity Combined rate and maturity SBA non real estate $ - $ 144 $ 897 $ - $ 144 $ 700 Direct lease financing - - 684 - - 734 Consumer - - 286 - - 288 Total $ - $ 144 $ 1,867 $ - $ 144 $ 1,722 The following table summarizes , as of March 31, 2017 , loans that had been restructured within the last 12 months that have subsequently defaulted. Number Pre-modification recorded investment SBA non real estate 2 $ 897 Total 2 $ 897 As of March 31 , 201 7 and December 31, 201 6 , the Company ha d no commitments to lend additional funds to loan customers whose loan terms have been modified in troubled debt restructurings. A detail of the changes in the allowance for loan and lease losses by loan category is as follows (in thousands): SBA non real estate SBA commercial mortgage SBA construction Direct lease financing SBLOC Other specialty lending Other consumer loans Unallocated Total March 31, 2017 Beginning balance $ 1,976 $ 737 $ 76 $ 1,994 $ 315 $ 32 $ 975 $ 227 $ 6,332 Charge-offs - - - (35) - - (12) - (47) Recoveries - - - - - - 9 - 9 Provision (credit) 1,096 151 38 (372) 15 10 100 (38) 1,000 Ending balance $ 3,072 $ 888 $ 114 $ 1,587 $ 330 $ 42 $ 1,072 $ 189 $ 7,294 Ending balance: Individually evaluated for impairment $ 1,569 $ 145 $ - $ 166 $ - $ - $ - $ - $ 1,880 Ending balance: Collectively evaluated for impairment $ 1,503 $ 743 $ 114 $ 1,421 $ 330 $ 42 $ 1,072 $ 189 $ 5,414 Loans: Ending balance $ 75,800 $ 114,703 $ 12,985 $ 363,172 $ 660,423 $ 12,443 $ 16,318 $ 8,283 $ 1,264,127 Ending balance: Individually evaluated for impairment $ 3,171 $ 908 $ - $ 684 $ - $ - $ 1,719 $ - $ 6,482 Ending balance: Collectively evaluated for impairment $ 72,629 $ 113,795 $ 12,985 $ 362,488 $ 660,423 $ 12,443 $ 14,599 $ 8,283 $ 1,257,645 December 31, 2016 Beginning balance $ 844 $ 408 $ 48 $ 1,022 $ 762 $ 199 $ 936 $ 181 $ 4,400 Charge-offs (128) - - (119) - - (1,211) - (1,458) Recoveries 1 - - 17 12 - 30 Provision (credit) 1,259 329 28 1,074 (447) (167) 1,238 46 3,360 Ending balance $ 1,976 $ 737 $ 76 $ 1,994 $ 315 $ 32 $ 975 $ 227 $ 6,332 Ending balance: Individually evaluated for impairment $ 938 $ - $ - $ 216 $ - $ - $ - $ - $ 1,154 Ending balance: Collectively evaluated for impairment $ 1,038 $ 737 $ 76 $ 1,778 $ 315 $ 32 $ 975 $ 227 $ 5,178 Loans: Ending balance $ 74,644 $ 126,159 $ 8,826 $ 346,645 $ 630,400 $ 11,073 $ 17,374 $ 7,790 $ 1,222,911 Ending balance: Individually evaluated for impairment $ 2,374 $ - $ - $ 734 $ - $ - $ 1,730 $ - $ 4,838 Ending balance: Collectively evaluated for impairment $ 72,270 $ 126,159 $ 8,826 $ 345,911 $ 630,400 $ 11,073 $ 15,644 $ 7,790 $ 1,218,073 March 31, 2016 Beginning balance $ 844 $ 408 $ 48 $ 1,022 $ 762 $ 199 $ 936 $ 181 4,400 Charge-offs - - - (20) - - (12) - (32) Recoveries - - - 6 - - 4 - 10 Provision (credit) 78 302 37 (174) (169) (69) (1) (4) - Ending balance $ 922 $ 710 $ 85 $ 834 $ 593 $ 130 $ 927 $ 177 $ 4,378 Ending balance: Individually evaluated for impairment $ 121 $ - $ - $ - $ - $ - $ 44 $ - $ 165 Ending balance: Collectively evaluated for impairment $ 801 $ 710 $ 85 $ 834 $ 593 $ 130 $ 883 $ 177 $ 4,213 Loans: Ending balance $ 71,220 $ 120,415 $ 9,736 $ 240,670 $ 592,656 $ 48,153 $ 21,782 $ 9,421 $ 1,114,053 Ending balance: Individually evaluated for impairment $ 808 $ - $ - $ - $ - $ - $ 1,591 $ - $ 2,399 Ending balance: Collectively evaluated for impairment $ 70,412 $ 120,415 $ 9,736 $ 240,670 $ 592,656 $ 48,153 $ 20,191 $ 9,421 $ 1,111,654 The Company did no t have loans acquired with deteriorated credit quality at either March 31 , 201 7 or December 31, 201 6 . A detail of the Company’s delinquent loans by loan category is as follows (in thousands): 30-59 Days 60-89 Days Greater than Total Total March 31, 2017 past due past due 90 days Non-accrual past due Current loans SBA non real estate $ 203 $ 393 $ - $ 3,028 $ 3,624 $ 72,176 $ 75,800 SBA commercial mortgage - - - 908 908 113,795 114,703 SBA construction - - - - - 12,985 12,985 Direct lease financing 2,538 754 1,534 - 4,826 358,346 363,172 SBLOC - - - - - 660,423 660,423 Other specialty lending - - - - - 12,443 12,443 Consumer - other - - - - - 5,165 5,165 Consumer - home equity - - - 1,433 1,433 9,720 11,153 Unamortized loan fees and costs - - - - - 8,283 8,283 $ 2,741 $ 1,147 $ 1,534 $ 5,369 $ 10,791 $ 1,253,336 $ 1,264,127 30-59 Days 60-89 Days Greater than Total Total December 31, 2016 past due past due 90 days Non-accrual past due Current loans SBA non real estate $ 559 $ - $ - $ 1,530 $ 2,089 $ 72,555 $ 74,644 SBA commercial mortgage - - - - - 126,159 126,159 SBA construction - - - - - 8,826 8,826 Direct lease financing 11,856 1,998 661 - 14,515 332,130 346,645 SBLOC - - - - - 630,400 630,400 Other specialty lending - - - - - 11,073 11,073 Consumer - other - - - - - 5,403 5,403 Consumer - home equity 155 - - 1,442 1,597 10,374 11,971 Unamortized loan fees and costs - - - - - 7,790 7,790 $ 12,570 $ 1,998 $ 661 $ 2,972 $ 18,201 $ 1,204,710 $ 1,222,911 The Company evaluates its loans under an internal loan risk rating system as a means of identifying problem loans. The following table provides information by credit risk rating indicator for each segment of the loan portfolio , excluding loans held for sale , at the dates indicated (in thousands): March 31, 2017 Pass Special mention Substandard Doubtful Loss Unrated subject to review * Unrated not subject to review * Total loans SBA non real estate $ 50,145 $ 3,011 $ 4,664 $ - $ - $ - $ 17,980 $ 75,800 SBA commercial mortgage 84,925 - 908 - - 10,335 18,535 114,703 SBA construction 12,985 - - - - - - 12,985 Direct lease financing 138,829 - 4,426 - - 20,233 199,684 363,172 SBLOC 295,012 - - - - 11,365 354,046 660,423 Other specialty lending 12,443 - - - - - - 12,443 Consumer 9,087 286 2,265 - - - 4,680 16,318 Unamortized loan fees and costs - - - - - - 8,283 8,283 $ 603,426 $ 3,297 $ 12,263 $ - $ - $ 41,933 $ 603,208 $ 1,264,127 December 31, 2016 SBA non real estate $ 51,437 $ 2,723 $ 3,628 $ - $ - $ - $ 16,856 $ 74,644 SBA commercial mortgage 92,485 - - - - 15,164 18,510 126,159 SBA construction 8,060 - - - - - 766 8,826 Direct lease financing 122,571 - 3,736 - - 30,881 189,457 346,645 SBLOC 277,489 - - - - - 352,911 630,400 Other specialty lending 11,073 - - - - - - 11,073 Consumer 9,837 288 2,312 - - - 4,937 17,374 Unamortized loan fees and costs - - - - - - 7,790 7,790 $ 572,952 $ 3,011 $ 9,676 $ - $ - $ 46,045 $ 591,227 $ 1,222,911 * For information on targeted loan review thresholds see “Allowance for Loan Losses ” |