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Note 4 - Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

Our loan portfolio consists primarily of loans to borrowers within the Southern California metropolitan area, the New York City metropolitan area, Chicago (Illinois), Las Vegas (Nevada), Edison (New Jersey) and Honolulu (Hawaii). Although we seek to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in our market area and, as a result, our loan and collateral portfolios are, to some degree, concentrated in those industries.

The following table presents the balances in our loan held for investment ("HFI") portfolio as of the dates indicated:

*(dollars in thousands)*		*March 31, 2024*				*December 31, 2023*
Loans HFI:⁽¹⁾
Real Estate:
Construction and land development		$	198,070			$	181,469
Commercial real estate ⁽²⁾			1,178,498				1,167,857
Single-family residential mortgages			1,463,497				1,487,796
Commercial:
Commercial and industrial			121,441				130,096
SBA			54,677				52,074
Other			11,178				12,569
Total loans HFI ⁽¹⁾		$	3,027,361			$	3,031,861
Allowance for loan losses			(41,688	)			(41,903	)
Total loans HFI, net		$	2,985,673			$	2,989,958

	(1)	Net of discounts and deferred fees and costs.
	(2)	Includes non-farm and non-residential real estate loans, multifamily residential and 1-4 residential loans for a business purpose.

We use both internal and external qualitative factors within the Current Expected Credit Losses (“CECL”) model: lending policies, procedures, and strategies; economic conditions; changes in nature and volume of the portfolio; credit staffing and administration experience; problem loan trends; loan review results; collateral values; concentrations; and regulatory and business environment. During the first quarter of 2024, we recorded a decrease of $215,000 to the allowance for loan losses (“ALL”) and an increase of $31,000 to the reserve for unfunded commitments (“RUC”) compared to an increase of $2.0 million to the ALL and a decrease of $138,000 to the RUC during the first quarter of 2023.

The following table presents a summary of the changes in the ACL for the periods indicated:

		*For the Three Months Ended March 31,*
		*2024*												*2023*
*(dollars in thousands)*			*Allowance for loan losses*				*Reserve for unfunded loan commitments*				*Allowance for credit losses*				*Allowance for loan losses*				*Reserve for unfunded loan commitments*				*Allowance for credit losses*
Beginning balance		$	41,903			$	640			$	42,543			$	41,076			$	1,156			$	42,232
(Reversal)/provision for credit losses			(31	)			31				—				2,152				(138	)			2,014
Less loans charged-off			(214	)			—				(214	)			(161	)			—				(161	)
Recoveries on loans charged-off			30				—				30				4				—				4
Ending balance		$	41,688			$	671			$	42,359			$	43,071			$	1,018			$	44,089

The following tables present the balance and activity related to the ALL for loans HFI by loan portfolio segment for the periods presented.

		*For the Three Months Ended March 31, 2024*
*(dollars in thousands)*		*Construction and land development*				*Commercial real estate*				*Single-family residential mortgages*				*Commercial and industrial*				*SBA*				*Other*				*Total*
Allowance for loan losses:
Beginning balance		$	1,219			$	17,826			$	20,117			$	1,348			$	1,196			$	197			$	41,903
Provisions/(reversal) for credit losses			92				597				(239	)			(52	)			(461	)			32				(31	)
Charge-offs			—				(116	)			—				(3	)			—				(95	)			(214	)
Recoveries			—				—				—				1				—				29				30
Ending allowance balance		$	1,311			$	18,307			$	19,878			$	1,294			$	735			$	163			$	41,688

		For the Three Months Ended December 31, 2023
*(dollars in thousands)*		Construction and land development				Commercial real estate				Single-family residential mortgages				Commercial and industrial				SBA				Other				Total
Allowance for loan losses:
Beginning balance		$	1,767			$	17,575			$	20,340			$	1,367			$	1,176			$	205			$	42,430
(Reversal)/provisions for credit losses			(419	)			171				(223	)			(20	)			20				53				(418	)
Charge-offs			(129	)			—				—				—				—				(74	)			(203	)
Recoveries			—				80				—				1				—				13				94
Ending allowance balance		$	1,219			$	17,826			$	20,117			$	1,348			$	1,196			$	197			$	41,903

		For the Three Months Ended March 31, 2023
*(dollars in thousands)*		Construction and land development				Commercial real estate				Single-family residential mortgages				Commercial and industrial				SBA				Other				Total
Allowance for loan losses:
Beginning balance		$	2,638			$	17,657			$	17,640			$	1,804			$	621			$	716			$	41,076
(Reversal)/provisions for credit losses			(247	)			491				2,169				(303	)			50				(8	)			2,152
Charge-offs			—				—				(93	)			—				—				(68	)			(161	)
Recoveries			—				—				—				—				1				3				4
Ending allowance balance		$	2,391			$	18,148			$	19,716			$	1,501			$	672			$	643			$	43,071

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. We use the following definitions for risk ratings:

Pass - Loans classified as pass include loans not meeting the risk ratings defined below.

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following tables summarize our loans HFI by loan portfolio segment, risk rating and vintage year as of the dates indicated. The vintage year is the year of origination, renewal or major modification.

		*Term Loan by Vintage*
March 31, 2024		*2024*				*2023*				*2022*				*2021*				*2020*				*Prior*				*Revolving*				*Revolving Converted to Term During the Period*				*Total*
*(dollars in thousands)*
Real estate:
Construction and land development
Pass		$	103,198			$	47,311			$	17,582			$	14,140			$	3,925			$	225			$	—			$	—			$	186,381
Special mention			—				—				—				11,689				—				—				—				—				11,689
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	103,198			$	47,311			$	17,582			$	25,829			$	3,925			$	225			$	—			$	—			$	198,070
YTD gross write-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Commercial real estate
Pass		$	61,366			$	72,397			$	417,258			$	183,574			$	174,650			$	239,452			$	—			$	—			$	1,148,697
Special mention			—				—				—				—				—				6,851				—				—				6,851
Substandard			—				299				—				—				11,171				11,480				—				—				22,950
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	61,366			$	72,696			$	417,258			$	183,574			$	185,821			$	257,783			$	—			$	—			$	1,178,498
YTD gross write-offs		$	—			$	—			$	—			$	—			$	116			$	—			$	—			$	—			$	116
Single-family residential mortgages
Pass		$	8,666			$	152,528			$	583,948			$	235,679			$	121,112			$	336,587			$	1,487			$	—			$	1,440,007
Special mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				712				1,690				5,073				16,015				—				—				23,490
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	8,666			$	152,528			$	584,660			$	237,369			$	126,185			$	352,602			$	1,487			$	—			$	1,463,497
YTD gross write-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Commercial:
Commercial and industrial																																			—
Pass		$	7,467			$	1,216			$	3,118			$	5,912			$	2,377			$	6,574			$	85,700			$	—			$	112,364
Special mention			—				—				—				—				—				—				678				—				678
Substandard			—				—				83				—				1,387				4,854				2,075				—				8,399
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	7,467			$	1,216			$	3,201			$	5,912			$	3,764			$	11,428			$	88,453			$	—			$	121,441
YTD gross write-offs		$	—			$	—			$	3			$	—			$	—			$	—			$	—			$	—			$	3
SBA
Pass		$	7,071			$	3,295			$	10,979			$	9,869			$	1,998			$	17,860			$	—			$	—			$	51,072
Special mention			—				—				—				332				—				1,030				—				—				1,362
Substandard			—				—				—				—				—				2,243				—				—				2,243
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	7,071			$	3,295			$	10,979			$	10,201			$	1,998			$	21,133			$	—			$	—			$	54,677
YTD gross write-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Other:
Pass		$	—			$	181			$	2,401			$	7,915			$	551			$	20			$	22			$	—			$	11,090
Special mention			—				—				—				—				—				—				—				—				—
Substandard			—				—				73				9				6				—				—				—				88
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	—			$	181			$	2,474			$	7,924			$	557			$	20			$	22			$	—			$	11,178
YTD gross write-offs		$	—			$	—			$	—			$	95			$	—			$	—			$	—			$	—			$	95
Total by risk rating:
Pass		$	187,768			$	276,928			$	1,035,286			$	457,089			$	304,613			$	600,718			$	87,209			$	—			$	2,949,611
Special mention			—				—				—				12,021				—				7,881				678				—				20,580
Substandard			—				299				868				1,699				17,637				34,592				2,075				—				57,170
Doubtful			—				—				—				—				—				—				—				—				—
Total loans		$	187,768			$	277,227			$	1,036,154			$	470,809			$	322,250			$	643,191			$	89,962			$	—			$	3,027,361
Total YTD gross write-offs		$	—			$	—			$	3			$	95			$	116			$	—			$	—			$	—			$	214

		*Term Loan by Vintage*
December 31, 2023		*2023*				*2022*				*2021*				*2020*				*2019*				*Prior*				*Revolving*				*Revolving Converted to Term During the Period*				*Total*
*(dollars in thousands)*
Real estate:
Construction and land development
Pass		$	127,602			$	25,880			$	12,168			$	3,919			$	192			$	32			$	—			$	—			$	169,793
Special mention			—				—				11,676				—				—				—				—				—				11,676
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	127,602			$	25,880			$	23,844			$	3,919			$	192			$	32			$	—			$	—			$	181,469
YTD gross write-offs		$	—			$	—			$	—			$	—			$	—			$	140			$	—			$	—			$	140
Commercial real estate
Pass		$	90,126			$	423,564			$	186,904			$	175,650			$	94,796			$	152,847			$	—			$	—			$	1,123,887
Special mention			—				—				—				—				7,719				4,880				—				—				12,599
Substandard			301				—				—				11,410				2,295				17,365				—				—				31,371
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	90,427			$	423,564			$	186,904			$	187,060			$	104,810			$	175,092			$	—			$	—			$	1,167,857
YTD gross write-offs		$	—			$	2,078			$	—			$	459			$	—			$	—			$	—			$	—			$	2,537
Single-family residential mortgages
Pass		$	156,372			$	593,539			$	239,502			$	125,346			$	83,002			$	265,050			$	1,720			$	—			$	1,464,531
Special mention			—				—				619				—				—				3,855				—				—				4,474
Substandard			—				719				758				4,985				545				11,740				44				—				18,791
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	156,372			$	594,258			$	240,879			$	130,331			$	83,547			$	280,645			$	1,764			$	—			$	1,487,796
YTD gross write-offs		$	—			$	—			$	—			$	93			$	—			$	—			$	—			$	—			$	93
Commercial:
Commercial and industrial																																			—
Pass		$	1,305			$	3,283			$	6,281			$	2,901			$	2,049			$	4,700			$	99,339			$	—			$	119,858
Special mention			—				—				—				—				—				—				2,737				—				2,737
Substandard			—				87				—				1,410				7				4,952				1,045				—				7,501
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	1,305			$	3,370			$	6,281			$	4,311			$	2,056			$	9,652			$	103,121			$	—			$	130,096
YTD gross write-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
SBA
Pass		$	5,642			$	11,023			$	10,037			$	2,324			$	4,588			$	13,783			$	—			$	—			$	47,397
Special mention			—				—				331				—				—				1,025				—				—				1,356
Substandard			—				—				—				—				85				3,236				—				—				3,321
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	5,642			$	11,023			$	10,368			$	2,324			$	4,673			$	18,044			$	—			$	—			$	52,074
YTD gross write-offs		$	—			$	—			$	—			$	—			$	—			$	62			$	—			$	—			$	62
Other:
Pass		$	193			$	2,727			$	8,813			$	674			$	29			$	—			$	18			$	—			$	12,454
Special mention			—				—				—				—				—				—				—				—				—
Substandard			—				80				28				7				—				—				—				—				115
Doubtful			—				—				—				—				—				—				—				—				—
Total		$	193			$	2,807			$	8,841			$	681			$	29			$	—			$	18			$	—			$	12,569
YTD gross write-offs		$	—			$	79			$	273			$	10			$	—			$	—			$	—			$	—			$	362
Total by risk rating:
Pass		$	381,240			$	1,060,016			$	463,705			$	310,814			$	184,656			$	436,412			$	101,077			$	—			$	2,937,920
Special mention			—				—				12,626				—				7,719				9,760				2,737				—				32,842
Substandard			301				886				786				17,812				2,932				37,293				1,089				—				61,099
Doubtful			—				—				—				—				—				—				—				—				—
Total loans		$	381,541			$	1,060,902			$	477,117			$	328,626			$	195,307			$	483,465			$	104,903			$	—			$	3,031,861
Total YTD gross write-offs		$	—			$	2,157			$	273			$	562			$	—			$	202			$	—			$	—			$	3,194

The following tables present the aging of the recorded investment in past due loans, by loan portfolio segment, as of the dates indicated.


March 31, 2024		*30-59 Days*				*60-89 Days*				*90 Days Or More*				Total Past Due ⁽¹⁾				*Loans Not Past Due*				Total Loans ⁽¹⁾				Nonaccrual Loans ⁽¹⁾
*(dollars in thousands)*
Real estate:
Construction and land development		$	—			$	—			$	—			$	—			$	198,070			$	198,070			$	—
Commercial real estate			9,479				—				1,582				11,061				1,167,437				1,178,498				10,314
Single-family residential mortgages			3,400				929				19,986				24,315				1,439,182				1,463,497				22,806
Commercial:
Commercial and industrial			100				6,934				1,640				8,674				112,767				121,441				1,780
SBA			1,065				—				477				1,542				53,135				54,677				1,026
Other			23				18				9				50				11,128				11,178				9
Total		$	14,067			$	7,881			$	23,694			$	45,642			$	2,981,719			$	3,027,361			$	35,935

December 31, 2023
Real estate:
Construction and land development		$	—			$	—			$	—			$	—			$	181,469			$	181,469			$	—
Commercial real estate			1,341				216				1,582				3,139				1,164,718				1,167,857				10,569
Single-family residential mortgages			9,050				5,795				15,134				29,979				1,457,817				1,487,796				18,103
Commercial:
Commercial and industrial			1,544				—				854				2,398				127,698				130,096				854
SBA			356				—				2,085				2,441				49,633				52,074				2,085
Other			160				20				8				188				12,381				12,569				8
Total		$	12,451			$	6,031			$	19,663			$	38,145			$	2,993,716			$	3,031,861			$	31,619

(1)

Past due loans include nonaccrual loans and are therefore included in total loans.

We have no loans that are 90 days or more past due and still accruing at March 31, 2024 and December 31, 2023.

The following table presents the loans on nonaccrual status and the volume of such loans with no ALL, by loan portfolio segment, as of the dates indicated:

		*March 31, 2024*								*December 31, 2023*
		*Nonaccrual*								*Nonaccrual*
		*with no*								*with no*
		*Allowance*								*Allowance*
*(dollars in thousands)*		*for Loan Loss*				*Nonaccrual*				*for Loan Loss*				*Nonaccrual*
Real estate:
Commercial real estate		$	10,314			$	10,314			$	10,569			$	10,569
Single-family residential mortgages			22,806				22,806				18,103				18,103
Commercial:
Commercial and industrial			1,640				1,780				610				854
SBA			1,026				1,026				937				2,085
Other			—				9				—				8
Total		$	35,786			$	35,935			$	30,219			$	31,619

The following tables present the class of collateral, by loan portfolio segment, for individually evaluated, collateral dependent loans as of the dates indicated:

		*March 31, 2024*
(dollars in thousands)		*Commercial Real Estate*				*Residential Real Estate*				*Business Assets*				*Total*
Real Estate:
Commercial real estate		$	10,116			$	198			$	—			$	10,314
Single-family residential mortgages			—				22,806				—				22,806
Commercial:
Commercial and industrial			—				1,640				140				1,780
SBA			903				38				85				1,026
Total loans		$	11,019			$	24,682			$	225			$	35,926

		*December 31, 2023*
(dollars in thousands)		*Commercial Real Estate*				*Residential Real Estate*				*Business Assets*				*Total*
Real Estate:
Commercial real estate		$	10,353			$	216			$	—			$	10,569
Single-family residential mortgages			—				18,103				—				18,103
Commercial:
Commercial and industrial			—				610				244				854
SBA			800				1,200				85				2,085
Total loans		$	11,153			$	20,129			$	329			$	31,611

No interest income was recognized on a cash basis during the three months ended March 31, 2024, and 2023. We did not recognize any interest income on nonaccrual loans during the three months ended March 31, 2024, and March 31, 2023, while the loans were in nonaccrual status.

Occasionally, we modify loans to borrowers in financial distress by providing principal forgiveness, term extension, or interest rate reduction. We may provide multiple types of concessions on one loan. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for loan losses.

There were no loans that were both experiencing financial difficulty and modified during the three months ended March 31, 2024 and 2023.

There were no commitments to lend additional amounts at March 31, 2024 and December 31, 2023 to customers with outstanding modified loans. There were no nonaccrual loans that were modified during the past twelve months that had payment defaults during the periods.