Loans Receivable, Net

6 Months Ended

Jun. 30, 2021

Loans receivable, net at June 30, 2021 and December 31, 2020 consisted of the following (in thousands):


	June 30, 2021		December 31, 2020
Commercial:
Commercial and industrial (1)	$	474,919	$	470,656
Commercial real estate – owner occupied	1,045,514		1,145,065
Commercial real estate – investor	3,836,230		3,491,464
Total commercial	5,356,663		5,107,185
Consumer:
Residential real estate	2,168,545		2,309,459

Home equity loans and lines	255,097		285,016
Other consumer	40,485		54,446
Total consumer	2,464,127		2,648,921
Total loans receivable	7,820,790		7,756,106
Deferred origination costs, net	7,437		9,486
Allowance for loan credit losses	(53,876)		(60,735)
Total loans receivable, net	$	7,774,351	$	7,704,857

(1) The commercial and industrial loans balance at June 30, 2021 and December 31, 2020 includes Paycheck Protection Program (“PPP”) loans of $83.0 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, extended by the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021, 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 the 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
June 30, 2021

Commercial and industrial
Pass	$	89,195	$	37,402	$	33,466	$	21,560	$	12,478	$	83,544	$	179,549	$	457,194
Special Mention	—		249		249		586		125		925		3,193		5,327
Substandard	—		634		2,605		862		146		1,459		6,692		12,398
Total commercial and industrial	89,195		38,285		36,320		23,008		12,749		85,928		189,434		474,919
Commercial real estate - owner occupied
Pass	45,807		71,930		118,510		117,793		93,660		461,360		33,331		942,391
Special Mention	—		—		4,852		3,409		1,733		29,810		293		40,097
Substandard	—		—		14,372		8,806		2,674		36,705		469		63,026
Total commercial real estate - owner occupied	45,807		71,930		137,734		130,008		98,067		527,875		34,093		1,045,514
Commercial real estate - investor
Pass	563,217		661,190		593,559		286,315		409,720		944,756		192,820		3,651,577
Special Mention	—		—		25,823		17,113		5,321		34,150		—		82,407
Substandard	—		4,311		29,543		935		21,097		39,460		6,900		102,246
Total commercial real estate - investor	563,217		665,501		648,925		304,363		436,138		1,018,366		199,720		3,836,230


Residential real estate (1)
Pass	277,679		525,038		350,770		163,641		132,890		714,785		—		2,164,803
Special Mention	—		—		—		—		—		1,586		—		1,586
Substandard	—		—		—		—		221		1,935		—		2,156
Total residential real estate	277,679		525,038		350,770		163,641		133,111		718,306		—		2,168,545
Consumer (1)
Pass	13,542		21,781		22,044		63,640		21,228		147,750		1,959		291,944
Special Mention	—		—		—		—		—		538		—		538
Substandard	—		—		54		17		—		3,029		—		3,100
Total consumer	13,542		21,781		22,098		63,657		21,228		151,317		1,959		295,582

Total loans	$	989,440	$	1,322,535	$	1,195,847	$	684,677	$	701,293	$	2,501,792	$	425,206	$	7,820,790

(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 and six months ended June 30, 2021 and June 30, 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 June 30, 2021
Allowance for credit losses on loans
Balance at beginning of period	$	2,541	$	7,827	$	36,922	$	11,280	$	1,406	$	—	$	59,976
Credit loss (benefit) expense	1,871		(1,483)		(3,583)		(2,462)		(219)		—		(5,876)
Charge-offs	(33)		—		(311)		—		(76)		—		(420)
Recoveries	25		6		9		—		156		—		196
Balance at end of period	$	4,404	$	6,350	$	33,037	$	8,818	$	1,267	$	—	$	53,876
For the three months ended June 30, 2020
Allowance for credit losses on loans
Balance at beginning of period	$	6,649	$	3,096	$	7,159	$	8,417	$	4,314	$	—	$	29,635

Credit loss (benefit) expense	(1,697)		(334)		1,701		9,056		(84)		—		8,642

Charge-offs	—		—		(26)		(71)		(72)		—		(169)
Recoveries	27		3		26		283		62		—		401
Balance at end of period	$	4,979	$	2,765	$	8,860	$	17,685	$	4,220	$	—	$	38,509
For the six months ended June 30, 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	(1,004)		(8,740)		6,566		(2,797)		(940)		—		(6,915)
Charge-offs	(33)		—		(345)		(242)		(156)		—		(776)
Recoveries	51		36		113		39		593		—		832
Balance at end of period	$	4,404	$	6,350	$	33,037	$	8,818	$	1,267	$	—	$	53,876
For the six months ended June 30, 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 current expected credit loss (“CECL”) adoption	2,416		(1,109)		(5,395)		3,833		2,981		(25)		2,701
Credit loss (benefit) expense	(168)		952		4,078		12,641		(264)		—		17,239
Initial allowance for credit losses on purchased with credit deterioration (“PCD”) loans	1,221		26		260		109		1,023		—		2,639
Charge-offs	—		—		(26)		(1,346)		(181)		—		(1,553)
Recoveries	52		3		60		446		70		—		631
Balance at end of period	$	4,979	$	2,765	$	8,860	$	17,685	$	4,220	$	—	$	38,509

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 June 30, 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 $12.1 million and $13.8 million, respectively, and commercial real estate - investor of $15.2 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 $800,000 and $1.4 million at June 30, 2021 and December 31, 2020, respectively. At both June 30, 2021 and December 31, 2020, the amount of foreclosed residential real estate property held by the Company was $106,000.

The following table presents the recorded investment in non-accrual loans by loan portfolio segment as of June 30, 2021 and December 31, 2020 (in thousands):


	June 30, 2021		December 31, 2020
Commercial and industrial	$	1,635	$	1,908
Commercial real estate – owner occupied	12,100		13,751
Commercial real estate – investor	15,211		18,287
Residential real estate	6,137		8,671
Consumer	3,576		4,246
	$	38,659	$	46,863

At June 30, 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 June 30, 2021, there was $835,000 of loans that were 90 days or greater past due and still accruing interest that were fully paid off on July 1, 2021. At 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 June 30, 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
June 30, 2021
Commercial and industrial	$	1,290	$	1	$	358	$	1,649	$	473,270	$	474,919
Commercial real estate – owner occupied	165		732		7,450		8,347		1,037,167		1,045,514
Commercial real estate – investor	1,046		818		8,518		10,382		3,825,848		3,836,230
Residential real estate	—		1,586		2,156		3,742		2,164,803		2,168,545
Consumer	189		537		3,101		3,827		291,755		295,582
	$	2,690	$	3,674	$	21,583	$	27,947	$	7,792,843	$	7,820,790
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 June 30, 2021 and December 31, 2020, TDR loans totaled $20.4 million and $17.5 million, respectively. Included in the non-accrual loan total at June 30, 2021 and December 31, 2020 were $10.1 million and $5.5 million, respectively, of TDR loans. At June 30, 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 June 30, 2021 and December 31, 2020, which totaled $10.3 million and $12.0 million, respectively.

The following table presents information about TDR loans which occurred during the three and six months ended June 30, 2021 and June 30, 2020 (dollars in thousands):


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended June 30, 2021
Troubled debt restructurings:
Commercial real estate – investor	1	$	4,903	$	4,903
Residential real estate	3	244		336


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Six months ended June 30, 2021
Troubled debt restructurings:
Commercial real estate – investor	1	$	4,903	$	4,903
Residential real estate	3	244		336

Consumer	2	26		33


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three Months Ended June 30, 2020
Troubled debt restructurings:
Commercial real estate - owner occupied	1	$	1,112	$	1,143
Residential real estate	2	205		213


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Six months ended June 30, 2020
Troubled debt restructurings:
Commercial real estate - owner occupied	1	$	1,112	$	1,143

Residential real estate	4	431		447
Consumer	4	159		177

There was one TDR commercial real estate - investor loan for $923,000 that defaulted during the three and six months ended June 30, 2021 which was modified within the preceding year. There were no TDR loans that defaulted during the three and six months ended June 30, 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, extended by the CRRSA 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. 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 December 31, 2019 or the date of the modification, these loans are not considered TDR loans at June 30, 2021 and will not be reported as past due during the deferral period.