Loans Receivable, Net

3 Months Ended

Mar. 31, 2021

Loans receivable, net at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):


	March 31, 2021		December 31, 2020
Commercial:
Commercial and industrial (1)	$	498,245	$	470,656
Commercial real estate – owner occupied	1,066,351		1,145,065
Commercial real estate – investor	3,804,351		3,491,464
Total commercial	5,368,947		5,107,185
Consumer:
Residential real estate	2,189,348		2,309,459

Home equity loans and lines	267,591		285,016
Other consumer	46,651		54,446
Total consumer	2,503,590		2,648,921
Total loans receivable	7,872,537		7,756,106
Deferred origination costs, net	8,029		9,486
Allowance for loan credit losses	(59,976)		(60,735)
Total loans receivable, net	$	7,820,590	$	7,704,857

(1) The commercial and industrial loans balance at March 31, 2021 and December 31, 2020 includes Paycheck Protection Program (“PPP”) loans of $109.7 million and $95.4 million, respectively.

The Company categorizes all 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, credit documentation, and current economic trends, among other factors. Generally, risk ratings for loans on forbearance pursuant to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act are not re-evaluated until the initial 90-day forbearance period ends. At that time, risk ratings are updated with an emphasis on industries that were heavily impacted by the pandemic, as well as individual borrower liquidity, and other measures of resiliency as described below. The Company evaluates risk ratings on an ongoing basis and as such, adversely rated loans will be re-evaluated as government restrictions end and businesses resume normal operations. The Company uses the following definitions for risk ratings:

Pass: Loans classified as Pass are well protected by the paying capacity and net worth of the borrower.

Special Mention: Loans classified as Special Mention have a potential weakness that deserves management’s close attention. This includes borrowers that have been negatively affected by the pandemic but demonstrate some degree of liquidity. This liquidity may or may not be adequate to resume operations. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’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 borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. This includes borrowers whose operations were negatively affected by the pandemic and whom, in our assessment, do not have adequate liquidity available to resume operations at levels sufficient to service their current debt levels. They are characterized by the distinct possibility that the Company 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 total loans by year of origination, internally assigned credit grades and risk characteristics (in thousands):


	2021		2020		2019		2018		2017		2016 and prior		Revolving lines of credit		Total
March 31, 2021

Commercial and industrial
Pass	$	68,908	$	85,402	$	35,616	$	25,960	$	13,952	$	88,010	$	161,358	$	479,206
Special Mention	—		334		1,866		776		1,328		706		2,029		7,039
Substandard	—		567		1,279		881		754		2,033		6,486		12,000
Total commercial and industrial	68,908		86,303		38,761		27,617		16,034		90,749		169,873		498,245
Commercial real estate - owner occupied
Pass	20,780		72,657		120,065		122,007		115,902		496,736		10,127		958,274
Special Mention	—		—		3,488		6,556		1,973		32,144		278		44,439
Substandard	—		—		14,377		8,926		2,874		36,912		549		63,638
Total commercial real estate - owner occupied	20,780		72,657		137,930		137,489		120,749		565,792		10,954		1,066,351
Commercial real estate - investor
Pass	399,267		656,812		603,104		306,120		420,926		997,722		214,003		3,597,954
Special Mention	—		—		25,847		17,113		14,086		41,043		—		98,089
Substandard	—		4,311		29,576		1,962		18,244		47,845		6,370		108,308
Total commercial real estate - investor	399,267		661,123		658,527		325,195		453,256		1,086,610		220,373		3,804,351


Residential real estate (1)
Pass	122,744		553,741		387,283		188,276		145,840		789,192		—		2,187,076
Special Mention	—		—		198		—		—		335		—		533
Substandard	—		—		—		—		221		1,518		—		1,739
Total residential real estate	122,744		553,741		387,481		188,276		146,061		791,045		—		2,189,348
Consumer (1)
Pass	5,331		23,648		24,022		72,429		23,595		159,762		2,038		310,825
Special Mention	—		—		54		18		—		49		—		121
Substandard	—		—		—		17		—		3,279		—		3,296
Total consumer	5,331		23,648		24,076		72,464		23,595		163,090		2,038		314,242

Total loans	$	617,030	$	1,397,472	$	1,246,775	$	751,041	$	759,695	$	2,697,286	$	403,238	$	7,872,537

(1)For residential real estate and consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.


	2020		2019		2018		2017		2016		2015 and prior		Revolving lines of credit		Total
December 31, 2020
Commercial and industrial
Pass	$	137,262	$	40,737	$	27,967	$	18,845	$	33,568	$	59,339	$	134,140	$	451,858
Special Mention	150		583		826		1,422		907		118		1,429		5,435
Substandard	581		1,284		1,243		809		439		1,706		7,301		13,363
Total commercial and industrial	137,993		42,604		30,036		21,076		34,914		61,163		142,870		470,656
Commercial real estate - owner occupied
Pass	96,888		114,506		122,962		124,050		104,264		428,423		18,932		1,010,025
Special Mention	—		3,512		8,240		1,023		17,115		17,811		439		48,140
Substandard	—		34,670		9,001		3,404		3,677		35,509		639		86,900
Total commercial real estate - owner occupied	96,888		152,688		140,203		128,477		125,056		481,743		20,010		1,145,065
Commercial real estate - investor
Pass	635,930		628,435		317,104		426,268		281,876		812,062		194,913		3,296,588
Special Mention	—		15,979		17,113		15,225		4,234		55,872		149		108,572
Substandard	4,311		9,217		1,931		17,222		11,474		36,326		5,823		86,304
Total commercial real estate - investor	640,241		653,631		336,148		458,715		297,584		904,260		200,885		3,491,464
Residential real estate (1)
Pass	595,982		437,593		226,435		166,773		146,237		729,037		—		2,302,057
Special Mention	—		532		—		—		446		2,186		—		3,164
Substandard	570		—		1,489		221		—		1,958		—		4,238
Total residential real estate	596,552		438,125		227,924		166,994		146,683		733,181		—		2,309,459
Consumer (1)
Pass	24,954		26,659		83,296		25,469		16,565		156,276		2,145		335,364
Special Mention	—		—		—		—		150		382		—		532
Substandard	—		—		—		—		—		3,566		—		3,566
Total consumer	24,954		26,659		83,296		25,469		16,715		160,224		2,145		339,462
Total loans	$	1,496,628	$	1,313,707	$	817,607	$	800,731	$	620,952	$	2,340,571	$	365,910	$	7,756,106

(1) For residential real estate and consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity.

An analysis of the allowance for credit losses on loans for the three months ended March 31, 2021 and March 31, 2020 is as follows (in thousands):


	Commercial and Industrial		Commercial Real Estate – Owner Occupied		Commercial Real Estate – Investor		Residential Real Estate		Consumer		Unallocated		Total
For the three months ended March 31, 2021
Allowance for credit losses on loans
Balance at beginning of period	$	5,390	$	15,054	$	26,703	$	11,818	$	1,770	$	—	$	60,735

Credit loss (benefit) expense	(2,875)		(7,257)		10,149		(335)		(721)		—		(1,039)

Charge-offs	—		—		(34)		(242)		(80)		—		(356)
Recoveries	26		30		104		39		437		—		636
Balance at end of period	$	2,541	$	7,827	$	36,922	$	11,280	$	1,406	$	—	$	59,976
For the three months ended March 31, 2020
Allowance for credit losses on loans
Balance at beginning of period	$	1,458	$	2,893	$	9,883	$	2,002	$	591	$	25	$	16,852
Impact of CECL adoption	2,416		(1,109)		(5,395)		3,833		2,981		(25)		2,701
Credit loss expense (benefit)	1,529		1,286		2,377		3,585		(180)		—		8,597
Initial allowance for credit losses on PCD loans	1,221		26		260		109		1,023		—		2,639
Charge-offs	—		—		—		(1,275)		(109)		—		(1,384)
Recoveries	25		—		34		163		8		—		230
Balance at end of period	$	6,649	$	3,096	$	7,159	$	8,417	$	4,314	$	—	$	29,635

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. At March 31, 2021 and December 31, 2020, the Company had collateral dependent loans with an amortized cost balance as follows: commercial and industrial of $1.6 million and $1.9 million, respectively, commercial real estate - owner occupied of $12.3 million and $13.8 million, respectively, and commercial real estate - investor of $18.5 million and $18.3 million, respectively. In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $1.3 million and $1.4 million at March 31, 2021 and December 31, 2020, respectively. At March 31, 2021 and December 31, 2020, the amount of foreclosed residential real estate property held by the Company were $106,000 and $106,000, respectively.

The following table presents the recorded investment in non-accrual loans by loan portfolio segment as of March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020
Commercial and industrial	$	1,689	$	1,908
Commercial real estate – owner occupied	12,345		13,751
Commercial real estate – investor	18,520		18,287
Residential real estate	6,422		8,671
Consumer	3,782		4,246
	$	42,758	$	46,863

At March 31, 2021, the non-accrual loans were included in the allowance for credit loss calculation and the Company did not recognize or accrue interest income on these loans. At March 31, 2021 and December 31, 2020, there were no loans that were 90 days or greater past due and still accruing interest.

The following table presents the aging of the recorded investment in past due loans as of March 31, 2021 and December 31, 2020 by loan portfolio segment (in thousands):


	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
March 31, 2021
Commercial and industrial	$	169	$	669	$	394	$	1,232	$	497,013	$	498,245
Commercial real estate – owner occupied	649		—		7,719		8,368		1,057,983		1,066,351
Commercial real estate – investor	3,377		—		9,047		12,424		3,791,927		3,804,351
Residential real estate	11,031		533		1,739		13,303		2,176,045		2,189,348
Consumer	1,873		120		3,298		5,291		308,951		314,242
	$	17,099	$	1,322	$	22,197	$	40,618	$	7,831,919	$	7,872,537
December 31, 2020
Commercial and industrial	$	3,050	$	628	$	327	$	4,005	$	466,651	$	470,656
Commercial real estate – owner occupied	1,015		—		7,871		8,886		1,136,179		1,145,065
Commercial real estate – investor	8,897		3,233		11,122		23,252		3,468,212		3,491,464
Residential real estate	15,156		3,164		4,238		22,558		2,286,901		2,309,459
Consumer	978		533		3,568		5,079		334,383		339,462
	$	29,096	$	7,558	$	27,126	$	63,780	$	7,692,326	$	7,756,106

The Company classifies certain loans as troubled debt restructured (“TDR”) loans when credit terms to a borrower in financial difficulty are modified. The modifications may include a reduction in rate, an extension in term, the capitalization of past due amounts and/or the restructuring of scheduled principal payments. Residential real estate and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered TDR loans. For these loans, the Bank retains its security interest in the real estate collateral. At March 31, 2021 and December 31, 2020, TDR loans totaled $16.6 million and $17.5 million, respectively. Included in the non-accrual loan total at March 31, 2021 and December 31, 2020 were $5.1 million and $5.5 million, respectively, of TDR loans. At March 31, 2021 and December 31, 2020, the Company had no specific reserves allocated to loans that are classified as TDR loans. Non-accrual loans which become TDR loans are generally returned to accrual status after six months of performance. In addition to the TDR loans included in non-accrual loans, the Company also has loans classified as accruing TDR loans at March 31, 2021 and December 31, 2020, which totaled $11.5 million and $12.0 million, respectively.

The following table presents information about TDR loans which occurred during the three months ended March 31, 2021 and March 31, 2020 (dollars in thousands):


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended March 31, 2021
Troubled debt restructurings:
Consumer	2	$	26	$	33


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three Months Ended March 31, 2020
Troubled debt restructurings:
Consumer	4	$	159	$	177
Residential real estate	2	226		234

There were no TDR loans that defaulted during the three months ended March 31, 2021 and March 31, 2020 which were modified within the preceding year.

In response to the COVID-19 pandemic and its economic impact on customers, short-term modification programs that comply with the CARES Act were implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19. The Commercial Borrower Relief Program allowed for the deferral of principal and interest or principal only. For principal and interest deferrals as well as principal only deferrals, all payments received will first be applied to all accrued and

unpaid interest and the balance, if any, on account of unpaid principal, then to fees, expenses and other amounts due to the Bank. Monthly payments will continue until the maturity date when all then unpaid principal, interest, fees, and all other charges are due and payable to the Bank. The Consumer Borrower Relief Program allowed for the deferral of principal and interest. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date. Provided these loans were current as of either year end or the date of the modification, these loans are not considered TDR loans at March 31, 2021 and will not be reported as past due during the deferral period.