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 into commercial mortgage backed securitizations or to secondary government guaranteed loan markets. These sales are accounted for as true sales, and 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 June 30, 2018, the fair value of the loans held for sale was $448.0 million and their book value was $445.7 million. Included in the realized and unrealized gains (losses) on loans originated for sale in the Consolidated Statements of Operations were losses recognized from changes in fair value for unsold loans. For the six months ended June 30, 2018, losses recognized for such changes in fair value were $2.4 million. For the six months ended June 30, 2017, gains similarly recognized were $2.0 million. There were no 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, in the Consolidated Statements of Operations. 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): June 30, December 31, 2018 2017 SBA non-real estate $ 75,141 $ 70,379 SBA commercial mortgage 156,268 142,086 SBA construction 17,781 16,740 SBA loans * 249,190 229,205 Direct lease financing 389,387 377,660 SBLOC 795,823 730,462 Other specialty lending 48,253 30,720 Other consumer loans 13,174 14,133 1,495,827 1,382,180 Unamortized loan fees and costs 10,985 10,048 Total loans, net of deferred loan fees and costs $ 1,506,812 $ 1,392,228 Included in the table above under other consumer loans are demand deposit overdrafts reclassified as loan balances totaling $2.4 million and $2.3 million at June 30, 2018 and December 31, 2017, respectively. 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): June 30, December 31, 2018 2017 SBA loans, including deferred fees and costs $ 257,412 $ 236,724 SBA loans included in held for sale 182,072 165,177 Total SBA loans $ 439,484 $ 401,901 The following table provides information about impaired loans at June 30, 2018 and December 31, 2017 (in thousands): Recorded investment Unpaid principal balance Related allowance Average recorded investment Interest income recognized June 30, 2018 Without an allowance recorded SBA non-real estate $ 193 $ 636 $ - $ 435 $ - SBA commercial mortgage - - - - - Direct lease financing 476 588 - 411 - Consumer - other - - - - - Consumer - home equity 1,624 1,624 - 1,669 - With an allowance recorded - SBA non-real estate 3,411 3,411 2,423 2,588 - SBA commercial mortgage 458 458 74 536 - Direct lease financing 974 974 160 660 - Consumer - other - - - - - Consumer - home equity - - - - - Total SBA non-real estate 3,604 4,047 2,423 3,023 - SBA commercial mortgage 458 458 74 536 - Direct lease financing 1,450 1,562 160 1,071 - Consumer - other - - - - - Consumer - home equity 1,624 1,624 - 1,669 - $ 7,136 $ 7,691 $ 2,657 $ 6,299 $ - December 31, 2017 Without an allowance recorded SBA non-real estate $ 459 $ 1,286 $ - $ 311 $ - SBA commercial mortgage - - - - - Direct lease financing 229 341 - 103 - Consumer - other - - - 259 - Consumer - home equity 1,695 1,695 - 1,712 - With an allowance recorded SBA non-real estate 2,399 2,399 1,689 2,507 - SBA commercial mortgage 693 693 225 747 - Direct lease financing - - - 405 - Consumer - other - - - 14 - Consumer - home equity - - - - - Total SBA non-real estate 2,858 3,685 1,689 2,818 - SBA commercial mortgage 693 693 225 747 - Direct lease financing 229 341 - 508 - Consumer - other - - - 273 - Consumer - home equity 1,695 1,695 - 1,712 - $ 5,475 $ 6,414 $ 1,914 $ 6,058 $ - 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 June 30, 2018 or December 31, 2017) (in thousands): June 30, December 31, 2018 2017 Non-accrual loans SBA non-real estate $ 3,110 $ 1,889 SBA commercial mortgage 458 693 Consumer 1,347 1,414 Total non-accrual loans 4,915 3,996 Loans past due 90 days or more 1,459 227 Total non-performing loans 6,374 4,223 Other real estate owned 405 450 Total non-performing assets $ 6,779 $ 4,673 Interest which would have been earned on loans classified as non - accrual at June 30 , 2018 and 2017, were respectively, $130,000 and $114,000 . The Company’s loans that were modified as of June 30, 2018 and December 31, 2017 and considered troubled debt restructurings are as follows (dollars in thousands): June 30, 2018 December 31, 2017 Number Pre-modification recorded investment Post-modification recorded investment Number Pre-modification recorded investment Post-modification recorded investment SBA non-real estate 5 $ 1,344 $ 1,344 5 $ 1,476 $ 1,476 Direct lease financing 3 1,451 1,451 1 230 230 Consumer 2 525 525 2 535 535 Total 10 $ 3,320 $ 3,320 8 $ 2,241 $ 2,241 The balances below provide information as to how the loans were modified as troubled debt restructurings loans as of June 30, 2018 and December 31, 2017 (in thousands): June 30, 2018 December 31, 2017 Adjusted interest rate Extended maturity Combined rate and maturity Adjusted interest rate Extended maturity Combined rate and maturity SBA non-real estate $ - $ 102 $ 1,242 $ - $ 115 $ 1,361 Direct lease financing - 974 477 - - 230 Consumer - - 525 - - 535 Total $ - $ 1,076 $ 2,244 $ - $ 115 $ 2,126 The following table summarizes, as of June 30, 2018, loans that had been restructured within the last 12 months that have subsequently defaulted ( in thousands): Number Pre-modification recorded investment SBA non-real estate 1 $ 666 Total 1 $ 666 The Company had commitments to extend $235,000 on two loans classified as troubled debt restructurings as of June 30, 2018 and a commitment to extend $228,000 on one loan classified as a troubled debt restructuring as of December 31, 2017. However, based upon available information from the borrower whose loan comprises substantially all of $235,000, he does not intend to draw on the commitment. 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 June 30, 2018 Beginning balance $ 3,145 $ 1,120 $ 136 $ 1,495 $ 365 $ 57 $ 581 $ 197 $ 7,096 Charge-offs (388) (157) - (244) - - (15) - (804) Recoveries 47 11 - 64 - - - - 122 Provision (credit) 1,091 88 53 286 33 56 (22) 15 1,600 Ending balance $ 3,895 $ 1,062 $ 189 $ 1,601 $ 398 $ 113 $ 544 $ 212 $ 8,014 Ending balance: Individually evaluated for impairment $ 2,423 $ 74 $ - $ 160 $ - $ - $ - $ - $ 2,657 Ending balance: Collectively evaluated for impairment $ 1,472 $ 988 $ 189 $ 1,441 $ 398 $ 113 $ 544 $ 212 $ 5,357 Loans: Ending balance $ 75,141 $ 156,268 $ 17,781 $ 389,387 $ 795,823 $ 48,253 $ 13,174 $ 10,985 $ 1,506,812 Ending balance: Individually evaluated for impairment $ 3,604 $ 458 $ - $ 1,450 $ - $ - $ 1,624 $ - $ 7,136 Ending balance: Collectively evaluated for impairment $ 71,537 $ 155,810 $ 17,781 $ 387,937 $ 795,823 $ 48,253 $ 11,550 $ 10,985 $ 1,499,676 December 31, 2017 Beginning balance $ 1,976 $ 737 $ 76 $ 1,994 $ 315 $ 32 $ 975 $ 227 $ 6,332 Charge-offs (1,171) - - (927) - - (109) - (2,207) Recoveries 19 - - 8 - - 24 - 51 Provision (credit) 2,321 383 60 420 50 25 (309) (30) 2,920 Ending balance $ 3,145 $ 1,120 $ 136 $ 1,495 $ 365 $ 57 $ 581 $ 197 $ 7,096 Ending balance: Individually evaluated for impairment $ 1,689 $ 225 $ - $ - $ - $ - $ - $ - $ 1,914 Ending balance: Collectively evaluated for impairment $ 1,456 $ 895 $ 136 $ 1,495 $ 365 $ 57 $ 581 $ 197 $ 5,182 Loans: Ending balance $ 70,379 $ 142,086 $ 16,740 $ 377,660 $ 730,462 $ 30,720 $ 14,133 $ 10,048 $ 1,392,228 Ending balance: Individually evaluated for impairment $ 2,858 $ 693 $ - $ 229 $ - $ - $ 1,695 $ - $ 5,475 Ending balance: Collectively evaluated for impairment $ 67,521 $ 141,393 $ 16,740 $ 377,431 $ 730,462 $ 30,720 $ 12,438 $ 10,048 $ 1,386,753 June 30, 2017 Beginning balance $ 1,976 $ 737 $ 76 $ 1,994 $ 315 $ 32 $ 975 $ 227 6,332 Charge-offs (136) - - (201) - - (17) - (354) Recoveries 2 - - - - - 23 - 25 Provision (credit) 1,180 292 (6) (291) 44 112 65 (46) 1,350 Ending balance $ 3,022 $ 1,029 $ 70 $ 1,502 $ 359 $ 144 $ 1,046 $ 181 $ 7,353 Ending balance: Individually evaluated for impairment $ 1,425 $ 141 $ - $ 143 $ - $ - $ 73 $ - $ 1,782 Ending balance: Collectively evaluated for impairment $ 1,597 $ 888 $ 70 $ 1,359 $ 359 $ 144 $ 973 $ 181 $ 5,571 Loans: Ending balance $ 74,511 $ 126,224 $ 11,057 $ 371,002 $ 718,707 $ 44,389 $ 15,858 $ 8,515 $ 1,370,263 Ending balance: Individually evaluated for impairment $ 3,044 $ 908 $ - $ 607 $ - $ - $ 1,787 $ - $ 6,346 Ending balance: Collectively evaluated for impairment $ 71,467 $ 125,316 $ 11,057 $ 370,395 $ 718,707 $ 44,389 $ 14,071 $ 8,515 $ 1,363,917 The Company did no t have loans acquired with deteriorated credit quality at either June 30, 2018 or December 31, 2017. A detail of the Company’s delinquent loans by loan category is as follows (in thousands): 30-59 Days 60-89 Days 90 Days Total Total June 30, 2018 past due past due or greater Non-accrual past due Current loans SBA non-real estate $ 224 $ 44 $ - $ 3,110 $ 3,378 $ 71,763 $ 75,141 SBA commercial mortgage - - - 458 458 155,810 156,268 SBA construction - - - - - 17,781 17,781 Direct lease financing 1,458 1,050 1,390 - 3,898 385,489 389,387 SBLOC - - - - - 795,823 795,823 Other specialty lending - - - - - 48,253 48,253 Consumer - other - - - - - 4,447 4,447 Consumer - home equity - - 69 1,347 1,416 7,311 8,727 Unamortized loan fees and costs - - - - - 10,985 10,985 $ 1,682 $ 1,094 $ 1,459 $ 4,915 $ 9,150 $ 1,497,662 $ 1,506,812 30-59 Days 60-89 Days 90 Days Total Total December 31, 2017 past due past due or greater Non-accrual past due Current loans SBA non-real estate $ 58 $ 268 $ - $ 1,889 $ 2,215 $ 68,164 $ 70,379 SBA commercial mortgage - - - 693 693 141,393 142,086 SBA construction - - - - - 16,740 16,740 Direct lease financing 3,789 2,233 227 - 6,249 371,411 377,660 SBLOC - - - - - 730,462 730,462 Other specialty lending - - - - - 30,720 30,720 Consumer - other - - - - - 4,482 4,482 Consumer - home equity 142 73 - 1,414 1,629 8,022 9,651 Unamortized loan fees and costs - - - - - 10,048 10,048 $ 3,989 $ 2,574 $ 227 $ 3,996 $ 10,786 $ 1,381,442 $ 1,392,228 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): June 30, 2018 Pass Special mention Substandard Doubtful Loss Unrated subject to review * Unrated not subject to review * Total loans SBA non-real estate $ 66,928 $ 2,394 $ 4,464 $ - $ - $ 1,281 $ 74 $ 75,141 SBA commercial mortgage 153,986 275 458 - - 307 1,242 156,268 SBA construction 17,024 - 682 - - 75 - 17,781 Direct lease financing 214,283 - 2,138 - - 4,208 168,758 389,387 SBLOC 393,868 - - - - - 401,955 795,823 Other specialty lending 48,253 - - - - - - 48,253 Consumer 7,412 - 1,827 - - - 3,935 13,174 Unamortized loan fees and costs - - - - - - 10,985 10,985 $ 901,754 $ 2,669 $ 9,569 $ - $ - $ 5,871 $ 586,949 $ 1,506,812 December 31, 2017 SBA non-real estate $ 63,547 $ 3,392 $ 3,450 $ - $ - $ - $ (10) $ 70,379 SBA commercial mortgage 141,084 277 693 - - - 32 142,086 SBA construction 16,740 - - - - - - 16,740 Direct lease financing 204,906 - 2,895 - - 8,820 161,039 377,660 SBLOC 357,050 - - - - - 373,412 730,462 Other specialty lending 30,720 - - - - - - 30,720 Consumer 7,910 281 1,947 - - - 3,995 14,133 Unamortized loan fees and costs - - - - - - 10,048 10,048 $ 821,957 $ 3,950 $ 8,985 $ - $ - $ 8,820 $ 548,516 $ 1,392,228 * For information on targeted loan review thresholds see “Allowance for Loan Losses ” in form 10-K in the loans footnote and in this Form 10-Q in the Management’s Discussion of and Analysis of Financial Condition and Results of Operations. |