Loans Receivable, Including Loans Held For Sale

9 Months Ended

Sep. 30, 2022

Loans Receivable, Including Loans Held For Sale

LOANS RECEIVABLE, INCLUDING LOANS HELD FOR SALE

Major classifications of Loans receivable, including loans held for sale, held by WebBank as of September 30, 2022 and December 31, 2021 are as follows:


	Total								Current				Non-current
	September 30, 2022		%		December 31, 2021		%		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Loans held for sale	$	403,356			$	198,632			$	403,356	$	198,632	$	—	$	—

Commercial real estate loans	$	939	—	%	$	663	—	%	$	—	$	—	$	939	$	663
Commercial and industrial	796,551		87	%	779,536		91	%	422,368		293,965		374,183		485,571
Consumer loans	120,816		13	%	76,067		9	%	77,177		50,857		43,639		25,210
Total loans	918,306		100	%	856,266		100	%	499,545		344,822		418,761		511,444
Less:

Allowance for loan losses	(21,377)				(13,925)				(21,377)		(13,925)		—		—
Total loans receivable, net	$	896,929			$	842,341			478,168		330,897		418,761		511,444
Loans receivable, including loans held for sale (a)									$	881,524	$	529,529	$	418,761	$	511,444

(a) The carrying value of loans receivable, including loans held for sale, is considered to be representative of fair value because the rates of interest are not significantly different from market interest rates for instruments with similar maturities. The fair value of loans receivable, including loans held for sale, was $1,300,212 and $1,041,459 as of September 30, 2022 and December 31, 2021, respectively.

Loans with a carrying value of approximately $194,334 and $167,437 were pledged as collateral for potential borrowings as of September 30, 2022 and December 31, 2021, respectively. WebBank serviced $2,714 and $2,780 in loans for others as of September 30, 2022 and December 31, 2021, respectively.

WebBank sold loans classified as loans held for sale of $11,565,876 and $7,094,150 during the nine months ended September 30, 2022 and 2021, respectively. The sold loans were derecognized from the consolidated balance sheets. Loans

classified as loans held for sale primarily consist of consumer and small business loans. Amounts added to loans held for sale during the same periods were $11,822,704 and $7,177,820, respectively.

Allowance for Loan Losses

The ALLL represents an estimate of probable and estimable losses inherent in the loan portfolio as of the balance sheet date. Losses are charged to the ALLL when incurred. Generally, commercial loans are charged off or charged down when they are determined to be uncollectible in whole or in part. Consumer term loans are charged off at 120 days past due and open-end consumer and small and medium business loans are charged off at 180 days past due unless the loan is well secured and in the process of collection. The amount of the ALLL is established by analyzing the portfolio at least quarterly, and a provision for or reduction of loan losses is recorded so that the ALLL is at an appropriate level at the balance sheet date. The methodologies used to estimate the ALLL depend upon the impairment status and portfolio segment of the loan. Loan groupings are created for each loan class and are then graded against historical and industry loss rates.

After applying historic loss experience, the quantitatively derived level of ALLL is reviewed for each segment using qualitative criteria. Various risk factors are tracked that influence our judgment regarding the level of the ALLL across the portfolio segments. Primary qualitative factors that may be reflected in the quantitative models include:

•Asset quality trends

•Risk management and loan administration practices

•Portfolio management and controls

•Effect of changes in the nature and volume of the portfolio

•Changes in lending policies and underwriting policies

•Existence and effect of any portfolio concentrations

•National economic business conditions and other macroeconomic adjustments

•Regional and local economic and business conditions

•Data availability and applicability

•Industry monitoring

•Value of underlying collateral

Changes in the level of the ALLL reflect changes in these factors. The magnitude of the impact of each of these factors on the qualitative assessment of the ALLL changes from quarter to quarter according to the extent these factors are already reflected in historic loss rates and according to the extent these factors diverge from one another. Also considered is the uncertainty inherent in the estimation process when evaluating the ALLL. WebBank's ALLL increased $4,875, or 30%, during the three months ended September 30, 2022 and increased $7,452 or 54% during the nine months ended September 30, 2022. WebBank continues to monitor the impact of the current economic environment, including potential future negative impacts to its loan portfolio.

Changes in the ALLL are summarized as follows:


	Commercial Real Estate Loans		Commercial & Industrial		Consumer Loans		Total




December 31, 2021	$	23	$	9,205	$	4,697	$	13,925
Charge-offs	—		(947)		(1,273)		(2,220)
Recoveries	7		415		407		829
(Benefit) Provision	(5)		648		639		1,282
March 31, 2022	$	25	$	9,321	$	4,470	$	13,816
Charge-offs	—		(1,005)		(884)		(1,889)
Recoveries	6		410		276		692
(Benefit) Provision	(6)		2,489		1,400		3,883
June 30, 2022	$	25	$	11,215	$	5,262	$	16,502
Charge-offs	—		(1,672)		(712)		(2,384)
Recoveries	7		396		263		666
(Benefit) Provision	(5)		3,511		3,087		6,593
September 30, 2022	$	27	$	13,450	$	7,900	$	21,377


	Commercial Real Estate Loans		Commercial & Industrial		Consumer Loans		Total
December 31, 2020	$	22	$	9,293	$	17,744	$	27,059
Charge-offs	—		(3,607)		(3,669)		(7,276)
Recoveries	6		514		396		916
(Benefit) Provision	(6)		1,038		(1,747)		(715)
March 31, 2021	$	22	$	7,238	$	12,724	$	19,984
Charge-offs	—		(1,821)		(2,470)		(4,291)
Recoveries	6		885		363		1,254
(Benefit) Provision	(6)		808		(2,369)		(1,567)
June 30, 2021	$	22	$	7,110	$	8,248	$	15,380
Charge-offs	—		(1,465)		(1,753)		(3,218)
Recoveries	9		659		404		1,072
(Benefit) Provision	(10)		1,526		(1,079)		437
September 30, 2021	$	21	$	7,830	$	5,820	$	13,671

The ALLL and outstanding loan balances according to the Company's impairment method are summarized as follows:


September 30, 2022	Commercial Real Estate Loans		Commercial & Industrial		Consumer Loans		Total
Allowance for loan losses:
Individually evaluated for impairment	$	8	$	835	$	—	$	843
Collectively evaluated for impairment	19		12,615		7,900		20,534
Total	$	27	$	13,450	$	7,900	$	21,377
Outstanding loan balances:
Individually evaluated for impairment	$	8	$	2,789	$	—	$	2,797
Collectively evaluated for impairment	931		793,762		120,816		915,509
Total	$	939	$	796,551	$	120,816	$	918,306


December 31, 2021	Commercial Real Estate Loans		Commercial & Industrial		Consumer Loans		Total
Allowance for loan losses:
Individually evaluated for impairment	$	9	$	152	$	—	$	161
Collectively evaluated for impairment	14		9,053		4,697		13,764
Total	$	23	$	9,205	$	4,697	$	13,925
Outstanding loan balances:
Individually evaluated for impairment	$	9	$	2,079	$	—	$	2,088
Collectively evaluated for impairment	654		777,457		76,067		854,178
Total	$	663	$	779,536	$	76,067	$	856,266

Nonaccrual and Past Due Loans

Commercial and industrial loans past due 90 days or more and still accruing interest were $6,890 and $3,037 at September 30, 2022 and December 31, 2021, respectively. Consumer loans past due 90 days or more and still accruing interest were $950 and $460 at September 30, 2022 and December 31, 2021, respectively. The Company did not have any nonaccrual loans at September 30, 2022 or December 31, 2021.

Past due loans (accruing and nonaccruing) are summarized as follows:


September 30, 2022	Current		30-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Recorded Investment In Accruing Loans 90+ Days Past Due		Nonaccrual Loans That Are Current (a)
Commercial real estate loans	$	939	$	—	$	—	$	—	$	939	$	—	$	—
Commercial and industrial	781,011		8,650		6,890		15,540		796,551		6,890		—
Consumer loans	117,736		2,130		950		3,080		120,816		950		—
Total loans	$	899,686	$	10,780	$	7,840	$	18,620	$	918,306	$	7,840	$	—


December 31, 2021	Current		30-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Recorded Investment In Accruing Loans 90+ Days Past Due		Nonaccrual Loans That Are Current (a)
Commercial real estate loans	$	663	$	—	$	—	$	—	$	663	$	—	$	—
Commercial and industrial	772,157		4,342		3,037		7,379		779,536		3,037		—
Consumer loans	74,292		1,315		460		1,775		76,067		460		—
Total loans	$	847,112	$	5,657	$	3,497	$	9,154	$	856,266	$	3,497	$	—

(a) Represents nonaccrual loans that are not past due more than 30 days; however, full payment of principal and interest is still not expected.

Credit Quality Indicators

In addition to the past due and nonaccrual criteria, loans are analyzed using a loan grading system. Generally, internal grades are assigned to commercial loans based on the performance of the loans, financial/statistical models and loan officer judgment. For consumer loans and some commercial and industrial loans, the primary credit quality indicator is payment status. Reviews and grading of loans with unpaid principal balances of $100 or more is performed once per year. Grades follow definitions of Pass, Special Mention, Substandard and Doubtful, which are consistent with published definitions of regulatory risk classifications. The definitions of Pass, Special Mention, Substandard and Doubtful are summarized as follows:

•Pass: An asset in this category is a higher quality asset and does not fit any of the other categories described below. The likelihood of loss is considered remote.

•Special Mention: An asset in this category has a specific weakness or problem but does not currently present a significant risk of loss or default as to any material term of the loan or financing agreement.

•Substandard: An asset in this category has a developing or minor weakness or weaknesses that could result in loss or default if deficiencies are not corrected or adverse conditions arise.

•Doubtful: An asset in this category has an existing weakness or weaknesses that have developed into a serious risk of significant loss or default with regard to a material term of the financing agreement.

Outstanding loan balances (accruing and nonaccruing) categorized by these credit quality indicators are summarized as follows:


September 30, 2022	Non - Graded		Pass		Special Mention		Sub- standard		Doubtful		Total Loans


Commercial real estate loans	$	—	$	931	$	—	$	8	$	—	$	939
Commercial and industrial	552,207		239,566		1,989		2,789		—		796,551
Consumer loans	120,816		—		—		—		—		120,816
Total loans	$	673,023	$	240,497	$	1,989	$	2,797	$	—	$	918,306


December 31, 2021	Non - Graded		Pass		Special Mention		Sub- standard		Doubtful		Total Loans


Commercial real estate loans	$	—	$	654	$	—	$	9	$	—	$	663
Commercial and industrial	308,443		465,333		3,681		2,079		—		779,536
Consumer loans	76,067		—		—		—		—		76,067
Total loans	$	384,510	$	465,987	$	3,681	$	2,088	$	—	$	856,266

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable that WebBank will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled interest payments. When loans are impaired, an estimate of the amount of the balance that is impaired is made. A specific reserve is assigned to the loan based on the estimated present value of the loan's future cash flows discounted at the loan's effective interest rate, the observable market price of the loan or the fair value of the loan's underlying collateral less the cost to sell. When the impairment is based on the fair value of the loan's underlying collateral, the portion of the balance that is impaired is charged off, such that these loans do not have a specific reserve in the ALLL. Payments received on impaired loans that are accruing are recognized in interest income, in accordance with the contractual loan agreement. WebBank recognized $153 and $102 on impaired loans for the nine months ended September 30, 2022 and 2021, respectively. Payments received on impaired loans that are nonaccruing are not recognized in interest income, but are applied as a reduction of the principal outstanding. Payments are recognized when cash is received. Information on impaired loans is summarized as follows:


			Recorded Investment
September 30, 2022	Unpaid Principal Balance		With No Allowance		With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial real estate loans	$	8	$	—	$	8	$	8	$	8	$	9
Commercial and industrial	2,789		—		2,789		2,789		835		2,635
Total loans	$	2,797	$	—	$	2,797	$	2,797	$	843	$	2,644


			Recorded Investment
December 31, 2021	Unpaid Principal Balance		With No Allowance		With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial real estate loans	$	9	$	—	$	9	$	9	$	9	$	10
Commercial and industrial	2,079		—		2,079		2,079		152		2,468
Total loans	$	2,088	$	—	$	2,088	$	2,088	$	161	$	2,478

During the three months ended September 30, 2022, WebBank did not issue new loans under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") authorized under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The existing loans were funded by the PPP Liquidity Facility, have terms of between two and five years, and their repayment is guaranteed by the SBA. Payments by borrowers on the loans can begin up to 16 months after the note date, and interest will continue to accrue during the 16-month deferment at 1%. Loans can be forgiven in whole or in part (up to full principal and any accrued interest) if certain criteria are met. Loan processing fees paid to WebBank from the SBA are accounted for as loan origination fees. Net deferred fees are recognized over the life of the loan as yield adjustments on the loans. If a loan is paid off or forgiven by the SBA prior to its maturity date, the remaining unamortized deferred fees will be recognized in interest income at that time. The PPP loans are included in Commercial and industrial loans in the table above. As of September 30, 2022, the total PPP loans and associated liabilities were $77,459 and $59,305, respectively, and included in Long-term loans receivable, net, and Other borrowings, respectively, in the consolidated balance sheet as of September 30, 2022. As of December 31, 2021, the total PPP loans and associated liabilities were $328,713 and $333,963, respectively, and included in Long-term loans receivable, net, and Other borrowings, respectively, in the consolidated balance sheet as of December 31, 2021. Upon borrower forgiveness, the SBA pays WebBank for the principal and accrued interest owed on the loan. The Bank has received forgiveness payments from the SBA and received payments from borrowers of $252,840 during the nine months ended September 30, 2022.

The Company is offering loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act along with the interagency statement issued by the federal banking agencies provides that loan modifications made in response to COVID-19 do not need to be accounted for as a troubled debt restructuring ("TDR"). Accordingly, the Company does not account for such loan modifications as TDRs. The Company's loan modifications allow for payment deferrals, payment reduction, and settlements amongst others. As of September 30, 2022, the Company had granted loan modifications on $3,478 of loans. The loan modification program is ongoing and additional loans continue to be granted modifications. The Company granted approximately $5,182 short–term deferments on loan balances of $3,478, which represent 0.38% of total loan balances as of September 30, 2022. These loan modifications are not classified as TDRs and will not be reported as past due provided that they are performing in accordance with the modified terms.