Loans Receivable, Net

12 Months Ended

Dec. 31, 2021

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


	December 31,
	2021		2020
Commercial:
Commercial and industrial (1)	$	449,224	$	470,656
Commercial real estate - owner occupied	1,055,065		1,145,065
Commercial real estate - investor	4,378,061		3,491,464
Total commercial	5,882,350		5,107,185
Consumer:
Residential real estate	2,479,701		2,309,459

Home equity loans and lines and other consumer (“other consumer”)	260,819		339,462

Total consumer	2,740,520		2,648,921


Total loans receivable	8,622,870		7,756,106

Deferred origination costs, net of fees	9,332		9,486
Allowance for loan credit losses	(48,850)		(60,735)
Total loans receivable, net	$	8,583,352	$	7,704,857

(1)Commercial and industrial loans at December 31, 2021 and 2020 includes Paycheck Protection Program (“PPP”) loans of $22.9 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 CARES, extended by the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021, were not re-evaluated until the initial 90-day forbearance period ended. At that time, risk ratings were 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 ease 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 Company’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
December 31, 2021
Commercial and industrial
Pass	$	42,955	$	22,573	$	22,878	$	16,404	$	8,671	$	50,887	$	271,818	$	436,186
Special Mention	—		—		231		350		85		172		3,645		4,483
Substandard	—		457		2,281		813		198		2,029		2,777		8,555
Total commercial and industrial	42,955		23,030		25,390		17,567		8,954		53,088		278,240		449,224
Commercial real estate - owner occupied
Pass	116,355		71,196		125,212		91,531		109,232		449,966		10,913		974,405
Special Mention	—		—		1,365		3,829		479		14,371		2		20,046
Substandard	—		—		14,166		8,549		5,606		31,576		717		60,614
Total commercial real estate - owner occupied	116,355		71,196		140,743		103,909		115,317		495,913		11,632		1,055,065
Commercial real estate - investor
Pass	1,387,753		609,916		535,551		274,662		375,646		800,089		255,613		4,239,230
Special Mention	—		—		23,794		9,400		2,731		28,663		582		65,170
Substandard	—		4,267		28,802		468		8,495		28,228		3,401		73,661
Total commercial real estate - investor	1,387,753		614,183		588,147		284,530		386,872		856,980		259,596		4,378,061


Residential real estate (1)
Pass	876,135		475,134		288,699		127,756		105,385		602,331		—		2,475,440
Special Mention	—		212		—		61		—		1,313		—		1,586
Substandard	—		—		—		—		351		2,324		—		2,675
Total residential real estate	876,135		475,346		288,699		127,817		105,736		605,968		—		2,479,701
Other consumer (1)
Pass	26,512		19,168		18,179		51,954		17,955		123,783		—		257,551
Special Mention	—		—		—		—		—		322		—		322
Substandard	—		—		—		18		—		2,928		—		2,946
Total other consumer	26,512		19,168		18,179		51,972		17,955		127,033		—		260,819

Total loans	$	2,449,710	$	1,202,923	$	1,061,158	$	585,795	$	634,834	$	2,138,982	$	549,468	$	8,622,870

(1)For residential real estate and other 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
Other 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 other 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 other 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 years ended December 31, 2021 and 2020 is as follows (in thousands):


	Commercial and Industrial		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Investor		Residential Real Estate		Other Consumer		Unallocated		Total
For the Year Ended December 31, 2021
Allowance for credit losses on loans
Balance at beginning of year	$	5,390	$	15,054	$	26,703	$	11,818	$	1,770	$	—	$	60,735
Credit loss benefit	(321)		(9,190)		(974)		(761)		(1,100)		—		(12,346)
Charge-offs	(154)		(65)		(345)		(254)		(213)		—		(1,031)
Recoveries	124		85		120		352		811		—		1,492
Balance at end of year	$	5,039	$	5,884	$	25,504	$	11,155	$	1,268	$	—	$	48,850
For the Year Ended December 31, 2020
Allowance for credit losses on loans
Balance at beginning of year	$	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
Initial allowance for credit losses on PCD loans	1,221		26		260		109		1,023		—		2,639
Credit loss expense (benefit) (1)	1,039		15,007		34,935		8,191		(1,770)		—		57,402
Charge-offs (1)	(890)		(1,769)		(13,081)		(3,200)		(1,244)		—		(20,184)
Recoveries	146		6		101		883		189		—		1,325
Balance at end of year	$	5,390	$	15,054	$	26,703	$	11,818	$	1,770	$	—	$	60,735

(1) The year ended December 31, 2020 was impacted by the shift in current and forward-looking economic conditions, credit migration, and borrower vulnerability related to COVID-19. The Company recorded $14.6 million of charge-offs related to the sale of higher-risk commercial loans and $3.3 million of charge-offs related to the sale of under-performing residential and consumer loans.

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 December 31, 2021 and 2020, the Company had collateral dependent loans with an amortized cost balance as follows: commercial and industrial of $277,000 and $1.9 million, respectively, commercial real estate - owner occupied of $11.9 million and $13.8 million, respectively, and commercial real estate - investor of $3.6 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 $438,000 and $1.4 million at December 31, 2021 and 2020, respectively. At both December 31, 2021 and 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 December 31, 2021 and 2020 (in thousands).


	December 31,
	2021		2020
Commercial and industrial	$	277	$	1,908
Commercial real estate – owner occupied	11,904		13,751
Commercial real estate – investor	3,614		18,287
Residential real estate	6,114		8,671
Other consumer	3,585		4,246
Total non-accrual loans	$	25,494	$	46,863

At December 31, 2021 and 2020, 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 December 31, 2021, there was one loan for $46,000 that was 90 days or greater past due and still accruing interest that was fully paid on January 14, 2022. 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 December 31, 2021 and 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
December 31, 2021
Commercial and industrial	$	25	$	151	$	277	$	453	$	448,771	$	449,224
Commercial real estate – owner occupied	599		—		575		1,174		1,053,891		1,055,065
Commercial real estate – investor	1,717		102		1,709		3,528		4,374,533		4,378,061
Residential real estate	9,705		1,586		2,675		13,966		2,465,735		2,479,701
Other consumer	339		322		2,946		3,607		257,212		260,819
Total loans receivable	$	12,385	$	2,161	$	8,182	$	22,728	$	8,600,142	$	8,622,870
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
Other consumer	978		533		3,568		5,079		334,383		339,462
Total loans receivable	$	29,096	$	7,558	$	27,126	$	63,780	$	7,692,326	$	7,756,106

The Company classifies certain loans as TDR 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 Company retains its security interest in the real estate collateral. At December 31, 2021 and 2020, TDR loans totaled $23.6 million and $17.5 million, respectively. At December 31, 2021 and 2020, there were $11.3 million and $5.5 million, respectively, of TDR loans included in the non-accrual loan totals. At December 31, 2021 and 2020, the Company had no specific reserves allocated to loans that are classified as TDRs. Non-accrual loans which become TDRs are generally returned to accrual status after six months of payment performance and the ultimate collectability of the restructured transaction is not in doubt. In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans, which totaled $12.3 million and $12.0 million at December 31, 2021 and 2020, respectively.

The following table presents information about TDRs which occurred during the years ended December 31, 2021 and 2020 (dollars in thousands):


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
For the Year Ended December 31, 2021
Troubled debt restructurings:
Commercial real estate – owner occupied	2	$	6,406	$	6,423
Commercial real estate – investor	1	4,903		4,903
Residential real estate	3	244		336
Other consumer	3	39		49
For the Year Ended December 31, 2020
Troubled debt restructurings:
Commercial real estate – owner occupied	1	$	1,112	$	1,143
Commercial real estate – investor	2	1,035		1,116
Residential real estate	6	1,018		1,065
Other consumer	6	1,035		668

There was one TDR consumer loan and one TDR commercial real estate - investor loan for $15,000 and $923,000, respectively, that defaulted during the year ended December 31, 2021 which were modified within the preceding year. The TDR commercial real estate - investor loan was current at December 31, 2021. There were no TDR loans that defaulted during the year ended December 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, 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 December 31, 2021 and will not be reported as past due during the deferral period.