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Loans Receivable and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2021

Loans Receivable and Allowance for Credit Losses

The following is a summary of loans receivable by major category:


	March 31, 2021		December 31, 2020
Loan portfolio composition	(Dollars in thousands)
Real estate loans:
Residential	$	52,671	$	54,795
Commercial	8,489,638		8,425,959
Construction	269,114		291,380
Total real estate loans	8,811,423		8,772,134
Commercial business1	4,346,244		4,157,787
Residential mortgage	501,000		582,232
Consumer and other	43,962		51,060
Loans receivable	13,702,629		13,563,213
Allowance for credit losses	(207,943)		(206,741)
Loans receivable, net of allowance for credit losses	$	13,494,686	$	13,356,472

__________________________________

1 Commercial business loans as of March 31, 2021 and December 31, 2020 include $715.5 million and $452.7 million, respectively, in SBA Paycheck Protection Program Loans

On January 1, 2020, the Company adopted ASU 2016-13, or CECL, using the modified retrospective method for all of its loans measured at amortized cost.

Loans receivable is stated at the amount of unpaid principal, adjusted for net deferred fees and costs, premiums and discounts, purchase accounting fair value adjustments, and allowance for credit losses. The Company had net deferred fees of $15.4 million and net deferred costs of $3.6 million at March 31, 2021 and December 31, 2020, respectively. Net loan fees related to SBA Paycheck Protection Program (“PPP”) loans totaled $18.3 million at March 31, 2021 compared to $6.4 million at December 31, 2020 and included fees from the origination of SBA PPP loans net of deferred origination costs. The increase in deferred fees for SBA PPP loans was primarily due to the origination of $304.7 million in second round SBA PPP loans during the three months ended March 31, 2021.

The loan portfolio consists of four segments: real estate, commercial business, residential mortgage, and consumer and other loans. Real estate loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust and are collateralized by residential or commercial properties. Commercial business loans are loans provided to businesses for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions, international trade finance activities, and other business related financing needs and also include warehouse lines of credit and SBA PPP loans. Residential mortgage loans are extended for personal, family, or household use and are secured by a mortgage or deed of trust. Consumer and other loans consist of home equity, credit card, and other personal loans.

The tables below details the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2021 and 2020. Accrued interest receivables on loans totaled $55.9 million at March 31, 2021 and $54.6 million at December 31, 2020. The Company set aside an allowance on loan accrued interest receivables of $1.3 million at March 31, 2021 and $1.0 million at December 31, 2020.



	Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total
	(Dollars in thousands)







Three Months Ended March 31, 2021
Balance, beginning of period	$	162,196	$	39,155	$	4,227	$	1,163	$	206,741
Provision (credit) for credit losses	2,345		2,625		(1,492)		(178)		3,300
Loans charged off	(2,818)		(610)		—		(93)		(3,521)
Recoveries of charge offs	584		690		—		149		1,423
Balance, end of period	$	162,307	$	41,860	$	2,735	$	1,041	$	207,943


	Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total
	(Dollars in thousands)









Three Months Ended March 31, 2020
Balance, beginning of period	$	53,593	$	33,032	$	5,925	$	1,594	$	94,144
CECL day 1 adoption	27,791		(1,022)		(543)		(26)		26,200
Provision for credit losses	15,491		11,549		397		563		28,000
Loans charged off	(2,397)		(3,035)		—		(525)		(5,957)
Recoveries of charge offs	167		2,359		—		10		2,536

Balance, end of period	$	94,645	$	42,883	$	5,779	$	1,616	$	144,923

The following tables break out the allowance for credit losses and loan balance by measurement methodology at March 31, 2021 and December 31, 2020:


	March 31, 2021
	Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total
	(Dollars in thousands)
Allowance for credit losses:
Individually evaluated	$	16,641	$	3,969	$	16	$	15	$	20,641
Collectively evaluated	145,666		37,891		2,719		1,026		187,302
Total	$	162,307	$	41,860	$	2,735	$	1,041	$	207,943

Loans outstanding:
Individually evaluated	$	125,326	$	22,620	$	3,379	$	628	$	151,953
Collectively evaluated	8,686,097		4,323,624		497,621		43,334		13,550,676
Total	$	8,811,423	$	4,346,244	$	501,000	$	43,962	$	13,702,629


	December 31, 2020
	Real Estate		Commercial Business		Residential Mortgage		Consumer and Other		Total
	(Dollars in thousands)
Allowance for credit losses:
Individually evaluated	$	3,683	$	3,575	$	25	$	42	$	7,325
Collectively evaluated	158,513		35,580		4,202		1,121		199,416
Total	$	162,196	$	39,155	$	4,227	$	1,163	$	206,741

Loans outstanding:
Individually evaluated	$	93,476	$	25,706	$	3,416	$	605	$	123,203
Collectively evaluated	8,678,658		4,132,081		578,816		50,455		13,440,010
Total	$	8,772,134	$	4,157,787	$	582,232	$	51,060	$	13,563,213

As of March 31, 2021 and December 31, 2020, reserves for unfunded loan commitments recorded in other liabilities were $1.4 million and $1.3 million, respectively. For the three months ended March 31, 2021, the Company recorded additions to reserves for unfunded commitments recorded in credit related expenses totaling $105 thousand. For the three months ended March 31, 2020, the Company recorded additions to reserves for unfunded commitments recorded in credit related expenses totaling to $610 thousand.

Generally, loans are placed on nonaccrual status if principal and/or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to customers whose financial conditions have deteriorated are considered for nonaccrual status whether or not the loan is 90 days or more past due. Generally, payments received on nonaccrual loans are recorded as principal reductions. Loans are returned to accrual status only when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company does not recognize interest income while loans are on nonaccrual status.

The tables below represent the recorded investment of nonaccrual loans and loans past due 90 or more days and still on accrual status by class of loans and broken out by loans with a recorded ACL and those without a recorded ACL as of March 31, 2021 and December 31, 2020.


	March 31, 2021
	Nonaccrual with No ACL		Nonaccrual with an ACL		Total Nonaccrual (1)		Accruing Loans Past Due 90 or More Days
	(Dollars in thousands)
Real estate – residential	$	—	$	—	$	—	$	—
Real estate – commercial
Retail	10,153		26,751		36,904		—
Hotel & motel	14,541		4,772		19,313		—
Gas station & car wash	575		984		1,559		—
Mixed use	—		976		976		—
Industrial & warehouse	5,446		923		6,369		304
Other	6,220		2,479		8,699		—
Real estate – construction	18,120		—		18,120		—
Commercial business	7,669		6,411		14,080		—
Residential mortgage	1,992		1,387		3,379		—
Consumer and other	—		459		459		80
Total	$	64,716	$	45,142	$	109,858	$	384


	December 31, 2020
	Nonaccrual with No ACL		Nonaccrual with an ACL		Total Nonaccrual (1)		Accruing Loans Past Due 90 or More Days
	(Dollars in thousands)
Real estate – residential	$	—	$	—	$	—	$	—
Real estate – commercial
Retail	3,262		8,530		11,792		478
Hotel & motel	15,311		2,195		17,506		—
Gas station & car wash	151		1,493		1,644		—
Mixed use	1,883		788		2,671		—
Industrial & warehouse	5,443		1,022		6,465		—
Other	7,230		1,419		8,649		—
Real estate – construction	—		18,723		18,723		—
Commercial business	5,319		8,592		13,911		—
Residential mortgage	1,440		1,976		3,416		—
Consumer and other	—		461		461		136
Total	$	40,039	$	45,199	$	85,238	$	614

__________________________________

(1) Total nonaccrual loans exclude the guaranteed portion of SBA loans that are in liquidation totaling $25.0 million and $26.5 million, at March 31, 2021 and December 31, 2020, respectively.

The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2021 and December 31, 2020:


	March 31, 2021
	Real Estate Collateral		Other Collateral		Total
	(Dollars in thousands)
Real Estate - Residential	$	—	$	—	$	—
Real Estate - Commercial	91,562		—		91,562
Real Estate - Construction	18,120		—		18,120
Commercial Business	10,151		3,698		13,849
Residential Mortgage	1,992		—		1,992
Consumer and Other	18		—		18
Total	$	121,843	$	3,698	$	125,541


	December 31, 2020
	Real Estate Collateral		Other Collateral		Total
	(Dollars in thousands)
Real Estate - Residential	$	—	$	—	$	—
Real Estate - Commercial	55,945		—		55,945
Real Estate - Construction	8,122		—		8,122
Commercial Business	7,818		6,312		14,130
Residential Mortgage	1,440		—		1,440
Consumer and Other	15		—		15
Total	$	73,340	$	6,312	$	79,652

Interest income reversals due to loans being placed on nonaccrual status was $973 thousand and $37 thousand for the three months ended March 31, 2021 and 2020, respectively.

The following table presents the recorded investment of past due loans, including nonaccrual loans past due 30 or more days, by the number of days past due as of March 31, 2021 and December 31, 2020 by class of loans:


	As of March 31, 2021								As of December 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due
	(Dollars in thousands)
Real estate – residential	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate – commercial
Retail	7,509		—		4,107		11,616		852		8,141		10,276		19,269
Hotel & motel	1,039		—		17,809		18,848		62		1,401		14,744		16,207
Gas station & car wash	108		85		412		605		619		2,668		563		3,850
Mixed use	180		6,355		357		6,892		116		—		1,269		1,385
Industrial & warehouse	1,493		—		4,784		6,277		137		—		3,830		3,967
Other	975		1,800		3,183		5,958		2,738		545		3,000		6,283
Real estate – construction	—		—		7,519		7,519		8,122		—		—		8,122
Commercial business	1,704		275		4,479		6,458		816		3,683		4,700		9,199
Residential mortgage	7,216		—		2,254		9,470		4,841		—		2,263		7,104
Consumer and other	219		16		539		774		797		21		595		1,413
Total Past Due	$	20,443	$	8,531	$	45,443	$	74,417	$	19,100	$	16,459	$	41,240	$	76,799

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends. Homogeneous loans (i.e., home mortgage loans, home equity lines of credit, overdraft loans, express business loans, and automobile loans) are not risk rated and credit risk is analyzed largely by the number of days past due. This analysis is performed at least on a quarterly basis.

The definitions for risk ratings are as follows:

•Pass: Loans that meet a preponderance or more of the Company’s underwriting criteria and evidence an acceptable level of risk.

•Special Mention: Loans that have potential weaknesses that deserve 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 that are inadequately protected by the current net worth and paying capacity of the borrower or by the collateral pledged, if any. Loans in this classification have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

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

The following table presents the amortized cost basis of loans receivable by class, credit quality indicator, and year of origination as of March 31, 2021 and December 31, 2020.


	As of March 31, 2021
	Term Loan by Origination Year												Revolving Loans		Total
	2021		2020		2019		2018		2017		Prior
	(Dollars in thousands)
Real Estate - Residential
Pass/Not Rated	$	1,517	$	15,081	$	13,836	$	6,856	$	4,105	$	10,174	$	662	$	52,231
Special mention	—		—		—		—		—		—		228		228
Substandard	—		—		—		137		—		75		—		212
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	1,517	$	15,081	$	13,836	$	6,993	$	4,105	$	10,249	$	890	$	52,671
Real Estate - Commercial
Pass/Not Rated	$	410,873	$	1,514,537	$	1,474,205	$	1,436,369	$	1,150,644	$	1,845,078	$	113,414	$	7,945,120
Special mention	522		—		44,398		64,049		28,313		86,162		8,855		232,299
Substandard	3,616		578		15,670		29,410		59,449		200,298		3,198		312,219
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	415,011	$	1,515,115	$	1,534,273	$	1,529,828	$	1,238,406	$	2,131,538	$	125,467	$	8,489,638
Real Estate - Construction
Pass/Not Rated	$	5,190	$	42,418	$	41,964	$	85,511	$	44,932	$	26,884	$	—	$	246,899
Special mention	—		—		—		—		4,095		—		—		4,095
Substandard	—		—		—		—		10,601		7,519		—		18,120
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	5,190	$	42,418	$	41,964	$	85,511	$	59,628	$	34,403	$	—	$	269,114
Commercial Business
Pass/Not Rated	$	535,629	$	1,109,519	$	563,787	$	230,107	$	107,590	$	107,798	$	1,603,017	$	4,257,447
Special mention	5,136		1,337		3,977		13,448		5,942		11,226		3,196		44,262
Substandard	283		9,419		1,516		2,878		10,576		9,811		10,052		44,535
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	541,048	$	1,120,275	$	569,280	$	246,433	$	124,108	$	128,835	$	1,616,265	$	4,346,244
Residential Mortgage
Pass/Not Rated	$	5	$	5,635	$	70,489	$	197,903	$	145,923	$	77,666	$	—	$	497,621
Special mention	—		—		—		—		—		—		—		—
Substandard	—		—		122		512		552		2,193		—		3,379
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	5	$	5,635	$	70,611	$	198,415	$	146,475	$	79,859	$	—	$	501,000
Consumer and Other
Pass/Not Rated	$	1,597	$	6,340	$	2,392	$	1,873	$	2,118	$	7,187	$	21,782	$	43,289
Special mention	—		—		—		—		90		—		—		90
Substandard	—		—		—		—		—		583		—		583
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	1,597	$	6,340	$	2,392	$	1,873	$	2,208	$	7,770	$	21,782	$	43,962
Total Loans
Pass/Not Rated	$	954,811	$	2,693,530	$	2,166,673	$	1,958,619	$	1,455,312	$	2,074,787	$	1,738,875	$	13,042,607
Special mention	5,658		1,337		48,375		77,497		38,440		97,388		12,279		280,974
Substandard	3,899		9,997		17,308		32,937		81,178		220,479		13,250		379,048
Doubtful/Loss	—		—		—		—		—		—		—		—
Total	$	964,368	$	2,704,864	$	2,232,356	$	2,069,053	$	1,574,930	$	2,392,654	$	1,764,404	$	13,702,629


	December 31, 2020
	Term Loan by Origination Year												Revolving Loans		Total
	2020		2019		2018		2017		2016		Prior
	(Dollars in thousands)
Real Estate - Residential
Pass/Not Rated	$	15,158	$	13,924	$	7,587	$	4,316	$	6,800	$	3,460	$	3,104	$	54,349
Special mention	—		—		—		—		—		—		227		227
Substandard	—		—		139		—		—		80		—		219
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	15,158	$	13,924	$	7,726	$	4,316	$	6,800	$	3,540	$	3,331	$	54,795
Real Estate - Commercial
Pass/Not Rated	$	1,548,595	$	1,554,980	$	1,533,802	$	1,240,973	$	767,318	$	1,262,125	$	130,595	$	8,038,388
Special mention	—		2,805		24,569		10,694		8,031		32,048		1,600		79,747
Substandard	126		14,233		28,938		37,174		50,371		173,788		3,194		307,824
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	1,548,721	$	1,572,018	$	1,587,309	$	1,288,841	$	825,720	$	1,467,961	$	135,389	$	8,425,959
Real Estate - Construction
Pass/Not Rated	$	35,743	$	45,290	$	103,794	$	60,996	$	5,740	$	10,099	$	—	$	261,662
Special mention	—		—		—		—		5,771		5,224		—		10,995
Substandard	—		—		—		10,601		—		8,122		—		18,723
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	35,743	$	45,290	$	103,794	$	71,597	$	11,511	$	23,445	$	—	$	291,380
Commercial Business
Pass/Not Rated	$	1,294,368	$	584,453	$	224,447	$	117,708	$	77,209	$	43,674	$	1,686,428	$	4,028,287
Special mention	5,996		27,693		30,852		14,629		6,388		3,139		5,172		93,869
Substandard	2,430		1,323		5,539		4,394		6,158		5,463		10,323		35,630
Doubtful/Loss	—		—		1		—		—		—		—		1
Subtotal	$	1,302,794	$	613,469	$	260,839	$	136,731	$	89,755	$	52,276	$	1,701,923	$	4,157,787
Residential Mortgage
Pass/Not Rated	$	5,733	$	90,958	$	217,343	$	168,827	$	55,246	$	40,554	$	—	$	578,661
Special mention	—		—		—		—		—		—		—		—
Substandard	—		122		536		561		1,715		637		—		3,571
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	5,733	$	91,080	$	217,879	$	169,388	$	56,961	$	41,191	$	—	$	582,232
Consumer and Other
Pass/Not Rated	$	8,309	$	2,463	$	1,818	$	2,321	$	4,756	$	2,811	$	27,890	$	50,368
Special mention	—		—		—		103		—		—		—		103
Substandard	—		—		—		—		55		532		2		589
Doubtful/Loss	—		—		—		—		—		—		—		—
Subtotal	$	8,309	$	2,463	$	1,818	$	2,424	$	4,811	$	3,343	$	27,892	$	51,060
Total Loans
Pass/Not Rated	$	2,907,906	$	2,292,068	$	2,088,791	$	1,595,141	$	917,069	$	1,362,723	$	1,848,017	$	13,011,715
Special mention	5,996		30,498		55,421		25,426		20,190		40,411		6,999		184,941
Substandard	2,556		15,678		35,152		52,730		58,299		188,622		13,519		366,556
Doubtful/Loss	—		—		1		—		—		—		—		1
Total	$	2,916,458	$	2,338,244	$	2,179,365	$	1,673,297	$	995,558	$	1,591,756	$	1,868,535	$	13,563,213

For the three months ended March 31, 2021 and the twelve months ended December 31, 2020, there were no revolving loans converted to term loans.

The Company may reclassify loans held for investment to loans held for sale in the event that the Company plans to sell loans that were originated with the intent to hold to maturity. Loans transferred from held for investment to held for sale are carried at the lower of cost or fair value. The breakdown of loans by type that were reclassified from held for investment to held for sale for the three months ended March 31, 2021 and 2020 is presented in the following table:


	Three Months Ended March 31,
			2021		2020
Transfer of loans held for investment to held for sale		(Dollars in thousands)



Residential mortgage			$	—	$	1,002

On January 1, 2020 the Company adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”, or CECL. The Company calculates its ACL by estimating expected credit losses on a collective basis for loans that share similar risk characteristics. Loans that do not share similar risk characteristics with other loans are evaluated for credit losses on an individual basis. The Company uses a combination of a modeled and non-modeled approach that incorporates current and future economic conditions to estimate lifetime expected losses on a collective basis. The Company uses Probability of Default (“PD”), Loss Given Default (“LGD”), and Exposure at Default (“EAD”) methodologies with quantitative factors and qualitative considerations in calculation of the allowance for credit losses for collectively assessed loans. The Company uses a reasonable and supportable period of 2 years at which point loss assumptions revert back to historical loss information by means of 1 year reversion period.

The ACL for the Company’s construction, credit card, and certain consumer loans is calculated based on a non-modeled approach utilizing historical loss rates to estimate losses. A non-modeled approach was chosen for these loans as fewer data points exist which could result in high levels of estimated loss volatility under a modeled approach. In aggregate, non-modeled loans represented less than 3% of the Company’s total loan portfolio as of March 31, 2021.

The Company’s Economic Forecast Committee (“EFC”) reviews economic forecast scenarios that are incorporated in the Company’s ACL. The EFC reviews multiple scenarios provided to the Company by an independent third party and chooses a single scenario that best aligns with management’s expectation of future economic conditions. The forecast scenario contains certain macroeconomic variables that are incorporated into the Company’s modeling process, including GDP, unemployment rates, interest rates, and commercial real estate prices. As of March 31, 2021, the Company chose a forecast scenario that incorporates the effect of the COVID-19 pandemic and the expected economic recovery into estimates of future economic conditions. The forecast improved considerably since December 2020 with an increase in projected GDP growth and commercial real estate prices combined with a reduction in unemployment, particularly for periods in 2021. The forecast improvement reflect the current and projected effects of government stimulus packages, ongoing COVID-19 vaccinations, and the reopening of many businesses throughout the United States.

Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Company utilizes qualitative adjustments to the modeled and non-modeled estimated loss approaches. The parameters for making adjustments are established under a Credit Risk Matrix that provides different possible scenarios for each of the factors below. The Credit Risk Matrix and the possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio by as much as 25 basis points for each loan type pool. This matrix considers the following seven factors, which are patterned after the guidelines provided under the Federal Financial Institutions Examination Council (“FFIEC”) Interagency Policy Statement on the Allowance for Loan and Lease Losses, updated to reflect the adoption of CECL:

•Changes in lending policies and procedures, including underwriting standards and collection, charge off, and recovery practices;

•Changes in the nature and volume of the loan portfolio;

•Changes in the experience, ability, and depth of lending management and staff;

•Changes in the trends of the volume and severity of past due loans, classified loans, nonaccrual loans, troubled debt restructurings, and other loan modifications;

•Changes in the quality of the loan review system and the degree of oversight by the Directors;

•The existence and effect of any concentrations of credit and changes in the level of such concentrations; and

•The effect of external factors, such as competition, legal requirements, and regulatory requirements on the level of estimated losses in the loan portfolio.

For loans which do not share similar risk characteristics such as nonaccrual and TDR loans above $500 thousand, the Company evaluates these loans on an individual basis in accordance with ASC 326. These nonaccrual and TDR loans are considered to have different risk profiles than performing loans and therefore are evaluated separately. The Company decided to collectively assess TDRs and nonaccrual loans with balances below $500 thousand along with the performing and accrual loans in order to reduce the operational burden of individually assessing small TDR and nonaccrual loans with immaterial balances. For individually assessed loans, the ACL is measured using either 1) the present value of future cash flows discounted at the loan’s effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral, if the loan is collateral dependent. For the collateral dependent loans, the Company obtains a new appraisal to determine the fair value of collateral. The appraisals are based on an “as-is” valuation. To ensure that appraised values remain current, the Company either obtains updated appraisals every twelve months from a qualified independent appraiser or an internal evaluation of the collateral is performed by qualified personnel. If the third party market data indicates that the value of the collateral property has declined since the most recent valuation date, management adjusts the value of the property downward to reflect current market conditions. If the fair value of the collateral is less than the amortized balance of the loan, the Company recognizes an ACL with a corresponding charge to the provision for credit losses.

The Company maintains a separate ACL for its off-balance sheet unfunded loan commitments. The Company uses a funding rate to allocate the allowance to undrawn exposures. This funding rate is used as a credit conversion factor to capture how much undrawn lines of credit can potentially become drawn at any point. The funding rate is determined based on a lookback period of 8 quarters. Credit loss is not estimated for off-balance sheet credit exposures that are unconditionally cancellable by the Company.

The following tables present a breakdown of loans by recorded ACL, broken out by loans evaluated individually and collectively at March 31, 2021 and December 31, 2020:



	As of March 31, 2021
	Real Estate – Residential			Real Estate – Commercial			Real Estate – Construction			Commercial Business			Residential Mortgage			Consumer and Other			Total
	(Dollars in thousands)
Individually evaluated loans	$	—		$	107,205		$	18,121		$	22,620		$	3,379		$	628		$	151,953
ACL on individually evaluated loans	$	—		$	16,641		$	—		$	3,969		$	16		$	15		$	20,641
Individually evaluated loans ACL coverage	N/A			15.52		%	N/A			17.55		%	0.47		%	2.39		%	13.58		%
Collectively evaluated loans	$	52,671		$	8,382,433		$	250,993		$	4,323,624		$	497,621		$	43,334		$	13,550,676
ACL on collectively evaluated loans	$	267		$	143,735		$	1,664		$	37,891		$	2,719		$	1,026		$	187,302
Collectively evaluated loans ACL coverage	0.51		%	1.71		%	0.66		%	0.88		%	0.55		%	2.37		%	1.38		%
Total loans	$	52,671		$	8,489,638		$	269,114		$	4,346,244		$	501,000		$	43,962		$	13,702,629
Total ACL	$	267		$	160,376		$	1,664		$	41,860		$	2,735		$	1,041		$	207,943
Total ACL to total loans	0.51		%	1.89		%	0.62		%	0.96		%	0.55		%	2.37		%	1.52		%


	As of December 31, 2020
	Real Estate – Residential			Real Estate – Commercial			Real Estate – Construction			Commercial Business			Residential Mortgage			Consumer and Other			Total
	(Dollars in thousands)
Individually evaluated loans	$	—		$	74,753		$	18,723		$	25,706		$	3,416		$	605		$	123,203
ACL on individually evaluated loans	$	—		$	2,862		$	821		$	3,575		$	25		$	42		$	7,325
Individually evaluated loans ACL coverage	N/A			3.83		%	4.38		%	13.91		%	0.73		%	6.94		%	5.95		%
Collectively evaluated loans	$	54,795		$	8,351,206		$	272,657		$	4,132,081		$	578,816		$	50,455		$	13,440,010
ACL on collectively evaluated loans	$	391		$	156,665		$	1,457		$	35,580		$	4,202		$	1,121		$	199,416
Collectively evaluated loans ACL coverage	0.71		%	1.88		%	0.53		%	0.86		%	0.73		%	2.22		%	1.48		%
Total loans	$	54,795		$	8,425,959		$	291,380		$	4,157,787		$	582,232		$	51,060		$	13,563,213
Total ACL	$	391		$	159,527		$	2,278		$	39,155		$	4,227		$	1,163		$	206,741
Total ACL to total loans	0.71		%	1.89		%	0.78		%	0.94		%	0.73		%	2.28		%	1.52		%

Under certain circumstances, the Company provides borrowers relief through loan modifications. These modifications are either temporary in nature (“temporary modifications”) or are more substantive. The temporary modifications generally consist of interest only payments for a three to six month period, whereby principal payments are deferred. At the end of the modification period, the remaining principal balance is re-amortized based on the original maturity date. At the end of the modification period, the loan either 1) returns to the original contractual terms; 2) is further modified and accounted for as a troubled debt restructuring in accordance with ASC 310-10-35; or 3) is disposed of through foreclosure or liquidation.

TDR loans are individually evaluated in accordance with ASC 310 and ASC 326. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that the borrower will be in payment default on their debt in the foreseeable future without the modification. This evaluation is performed under the Bank’s internal underwriting policy. At March 31, 2021, total TDR loans were $79.7 million, compared to $51.6 million at December 31, 2020.

The balance of loans with modified terms due to COVID-19 as of March 31, 2021 totaled $949.1 million. The majority of these loans were modified in accordance with Section 4013 of the CARES Act. The CARES Act provides banks the option to temporarily suspend certain requirements under U.S. GAAP related to TDR for a limited period of time to account for the effects of COVID-19 if (i) the loan modification is made between March 1, 2020 and the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. As such, all modified loans that met the criteria outlined within Section 4013 of the CARES Act were not classified as TDR loans as of March 31, 2021 and December 31, 2020, unless the loans were TDR prior to the COVID-19 modification or borrowers were identified to be experiencing financial difficulty prior to the COVID-19 pandemic. As of March 31, 2021, real estate loans accounted for approximately 94% of the loans modified due to hardship from the COVID-19 pandemic. The modifications consisted of full payment deferrals, interest only payments, and a hybrid of full payment deferrals for a period of time followed by interest only payments. The modifications were granted mostly for periods from 3 to 9 months (see “COVID-19 Related Loan Modifications” in the Financial Condition section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information).

A summary of the recorded investment of TDR loans on accrual and nonaccrual status by type of concession as of March 31, 2021 and December 31, 2020 is presented below:


	As of March 31, 2021
	TDR Loans on Accrual Status								TDR Loans on Nonaccrual Status								Total TDRs
	Real Estate		Commercial Business		Residential Mortgage		Other		Real Estate		Commercial Business		Residential Mortgage		Other
	(Dollars in thousands)
Payment concession	$	17,419	$	809	$	—	$	55	$	7,459	$	576	$	—	$	—		$	26,318
Maturity / amortization concession	9,699		7,351		—		114		23,839		4,099		—		117			45,219
Rate concession	5,949		377		—		—		410		1,426		—		—			8,162

Total	$	33,067	$	8,537	$	—	$	169	$	31,708	$	6,101	$	—	$	117		$	79,699


	As of December 31, 2020
	TDR Loans on Accrual Status								TDR Loans on Nonaccrual Status								Total TDRs
	Real Estate		Commercial Business		Residential Mortgage		Other		Real Estate		Commercial Business		Residential Mortgage		Other
	(Dollars in thousands)
Payment concession	$	8,328	$	814	$	—	$	58	$	7,074	$	471	$	—	$	—	$	16,745
Maturity / amortization concession	11,331		10,219		—		114		925		3,814		—		117		26,520
Rate concession	6,112		378		—		—		424		1,430		—		—		8,344

Total	$	25,771	$	11,411	$	—	$	172	$	8,423	$	5,715	$	—	$	117	$	51,609

TDR loans on accrual status are comprised of loans that were accruing at the time of restructuring and for which the Company anticipates full repayment of both principal and interest under the restructured terms. TDR loans that are on nonaccrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments as modified. Sustained performance includes the periods prior to the modification and if the prior performance met or exceeded the modified terms. TDR loans on accrual status at March 31, 2021 were comprised of 34 commercial real estate loans totaling $33.1 million, 21 commercial business loans totaling $8.5 million, and 14 consumer and other loans totaling $169 thousand. TDR loans on accrual status at December 31, 2020 were comprised of 33 commercial real estate loans totaling $25.8 million, 25 commercial business loans totaling $11.4 million, and 16 consumer and other loans totaling $172 thousand. The Company expects that TDR loans on accrual status as of March 31, 2021, which were all performing in accordance with their restructured terms, to continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. TDR loans that were restructured at market interest rates and had sustained performance as agreed under the modified loan terms may be reclassified as non-TDR after each year end but are reserved for under ASC 310-10. The Company recorded an allowance totaling $18.9 million and $4.8 million for TDR loans as of March 31, 2021 and December 31, 2020, respectively.

The following tables present the recorded investment of loans classified as TDR during the three months ended March 31, 2021 and 2020 by class of loans:


	Three Months Ended March 31, 2021	Three Months Ended March 31, 2020
	Number of Loans	Balance		Number of Loans	Balance
	(Dollars in thousands)
Real estate – residential	—	$	—	—	$	—
Real estate – commercial
Retail	3	24,658		—	—
Hotel & motel	—	—		—	—
Gas station & car wash	1	575		1	54
Mixed use	—	—		—	—
Industrial & warehouse	2	9,150		1	261
Other	—	—		1	788
Real estate – construction	—	—		—	—
Commercial business	1	22		1	294
Residential mortgage	—	—		—	—
Consumer and other	4	44		1	18
Total	11	$	34,449	5	$	1,415

For TDRs modified during the three months ended March 31, 2021, the Company recorded $14.8 million in ACL. Total charge-offs of TDR loans modified during the three months ended March 31, 2021 totaled $0. For TDR loans modified during the three months ended March 31, 2020, the Company recorded $49 thousand in ACL. Total charge-offs of TDR loans modified during the three months ended March 31, 2020 totaled $0.

The following tables present loans modified as TDRs within the previous twelve months ended March 31, 2021 and 2020 that subsequently had payment defaults during the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
	Number of Loans	Balance		Number of Loans	Balance
	(Dollars in thousands)
Real estate – residential	—	$	—	—	$	—
Real estate – commercial
Retail	1	23,522		—	—
Hotel & motel	—	—		—	—
Gas station & car wash	—	—		—	—
Mixed Use	—	—		—	—
Industrial & warehouse	—	—		—	—
Other	—	—		2	293
Real estate – construction	—	—		—	—
Commercial business	2	671		2	292
Residential mortgage	—	—		—	—
Consumer and other	2	6		3	10
Total	5	$	24,199	7	$	595

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The Company recorded $13.1 million in ACL for TDR loans that had payment defaults during the three months ended March 31, 2021. Total charge offs for TDR loans that had payment defaults during the three months ended March 31, 2021 was $0.

The Company recorded $136 thousand of allowance for TDR loans that had payment defaults during the three months ended March 31, 2020. Total charge offs for TDR loans that had payment defaults during the three months ended March 31, 2020 totaled $14 thousand.