Loans Receivable, Net

9 Months Ended

Sep. 30, 2023

Loans receivable, net at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	September 30,		December 31,
	2023		2022
Commercial:
Commercial real estate – investor	$	5,334,279	$	5,171,952
Commercial real estate – owner occupied	957,216		997,367
Commercial and industrial	652,119		622,372
Total commercial	6,943,614		6,791,691
Consumer:
Residential real estate	2,928,259		2,861,991

Home equity loans and lines and other consumer (“other consumer”)	251,698		264,372

Total consumer	3,179,957		3,126,363
Total loans receivable	10,123,571		9,918,054
Deferred origination costs, net of fees	8,462		7,488
Allowance for loan credit losses	(63,877)		(56,824)
Total loans receivable, net	$	10,068,156	$	9,868,718

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. The Company evaluates risk ratings on an ongoing basis. 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. 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 collection or the liquidation 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 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):


	2023		2022		2021		2020		2019		2018 and prior		Revolving lines of credit		Total
September 30, 2023

Commercial real estate - investor
Pass	$	126,967	$	1,165,509	$	1,314,561	$	527,205	$	497,540	$	972,537	$	658,558	$	5,262,877
Special Mention	—		—		2,437		187		60		17,893		1,388		21,965
Substandard	—		—		—		3,750		11,907		32,980		800		49,437
Total commercial real estate - investor	126,967		1,165,509		1,316,998		531,142		509,507		1,023,410		660,746		5,334,279
Commercial real estate - owner occupied
Pass	54,658		115,573		109,260		65,866		106,434		461,324		13,543		926,658
Special Mention	—		—		—		—		—		4,542		457		4,999
Substandard	—		3,278		—		—		1,986		20,205		90		25,559
Total commercial real estate - owner occupied	54,658		118,851		109,260		65,866		108,420		486,071		14,090		957,216
Commercial and industrial
Pass	98,193		58,728		20,374		10,087		9,193		53,478		379,799		629,852
Special Mention	—		654		197		—		—		197		14,625		15,673
Substandard	—		—		—		—		902		1,438		4,254		6,594
Total commercial and industrial	98,193		59,382		20,571		10,087		10,095		55,113		398,678		652,119


Residential real estate (1)
Pass	182,209		926,600		571,434		397,584		225,997		618,805		—		2,922,629
Special Mention	—		1,332		187		205		123		456		—		2,303
Substandard	62		—		—		258		487		2,520		—		3,327
Total residential real estate	182,271		927,932		571,621		398,047		226,607		621,781		—		2,928,259
Other consumer (1)
Pass	26,676		20,640		21,656		13,339		13,142		124,084		30,481		250,018

Substandard	—		—		—		1		6		1,673		—		1,680
Total other consumer	26,676		20,640		21,656		13,340		13,148		125,757		30,481		251,698

Total loans	$	488,765	$	2,292,314	$	2,040,106	$	1,018,482	$	867,777	$	2,312,132	$	1,103,995	$	10,123,571

(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.


	2022		2021		2020		2019		2018		2017 and prior		Revolving lines of credit		Total
December 31, 2022
Commercial real estate - investor
Pass	$	1,144,763	$	1,339,289	$	555,937	$	524,428	$	220,999	$	881,344	$	450,787	$	5,117,547
Special Mention	—		2,508		192		17,094		—		12,818		2,188		34,800
Substandard	—		—		—		893		—		18,180		532		19,605
Total commercial real estate - investor	1,144,763		1,341,797		556,129		542,415		220,999		912,342		453,507		5,171,952
Commercial real estate - owner occupied
Pass	119,912		110,440		59,952		115,385		88,204		458,708		14,932		967,533
Special Mention	—		—		—		—		748		5,679		—		6,427
Substandard	—		—		3,750		2,037		4,817		12,803		—		23,407
Total commercial real estate - owner occupied	119,912		110,440		63,702		117,422		93,769		477,190		14,932		997,367
Commercial and industrial
Pass	60,078		23,724		14,072		17,175		10,992		47,370		443,211		616,622
Special Mention	—		7		—		—		—		250		1,680		1,937
Substandard	—		21		76		1,083		301		2,212		120		3,813
Total commercial and industrial	60,078		23,752		14,148		18,258		11,293		49,832		445,011		622,372
Residential real estate (1)
Pass	919,364		591,745		419,712		247,387		99,945		577,392		—		2,855,545
Special Mention	—		193		1,514		204		59		2,407		—		4,377
Substandard	—		—		—		656		286		1,127		—		2,069
Total residential real estate	919,364		591,938		421,226		248,247		100,290		580,926		—		2,861,991
Other consumer (1)
Pass	24,069		24,111		15,440		15,471		39,057		108,818		34,851		261,817
Special Mention	—		—		—		75		—		598		—		673
Substandard	—		—		—		157		18		1,707		—		1,882
Total other consumer	24,069		24,111		15,440		15,703		39,075		111,123		34,851		264,372
Total loans	$	2,268,186	$	2,092,038	$	1,070,645	$	942,045	$	465,426	$	2,131,413	$	948,301	$	9,918,054

(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 three and nine months ended September 30, 2023 and 2022 was as follows (in thousands):


	Commercial Real Estate – Investor		Commercial Real Estate – Owner Occupied		Commercial and Industrial		Residential Real Estate		Other Consumer		Total
For the three months ended September 30, 2023
Allowance for credit losses on loans
Balance at beginning of period	$	24,481	$	4,342	$	5,945	$	26,152	$	871	$	61,791
Provision (benefit) for credit losses	9,602		119		604		95		(63)		10,357
Charge-offs (1)	(8,350)		—		—		—		(29)		(8,379)
Recoveries	2		3		13		17		73		108
Balance at end of period	$	25,735	$	4,464	$	6,562	$	26,264	$	852	$	63,877
For the three months ended September 30, 2022
Allowance for credit losses on loans
Balance at beginning of period	$	22,608	$	5,021	$	5,240	$	18,196	$	996	$	52,061
Provision (benefit) for credit losses	82		(1,047)		554		1,618		1		1,208
Charge-offs	(3)		—		—		—		(2)		(5)
Recoveries	3		48		69		44		93		257
Balance at end of period	$	22,690	$	4,022	$	5,863	$	19,858	$	1,088	$	53,521
For the nine months ended September 30, 2023
Allowance for credit losses on loans
Balance at beginning of period	$	21,070	$	4,423	$	5,695	$	24,530	$	1,106	$	56,824
Provision (benefit) for credit losses	13,010		38		974		1,700		(322)		15,400
Charge-offs (1)	(8,350)		(6)		(128)		—		(111)		(8,595)
Recoveries	5		9		21		34		179		248
Balance at end of period	$	25,735	$	4,464	$	6,562	$	26,264	$	852	$	63,877
For the nine months ended September 30, 2022
Allowance for credit losses on loans
Balance at beginning of period	$	25,504	$	5,884	$	5,039	$	11,155	$	1,268	$	48,850
(Benefit) provision for credit losses	(2,865)		(2,003)		720		8,612		(128)		4,336
Charge-offs	(3)		(18)		—		(56)		(358)		(435)
Recoveries	54		159		104		147		306		770
Balance at end of period	$	22,690	$	4,022	$	5,863	$	19,858	$	1,088	$	53,521

(1) Gross charge-offs for the three and nine months ended September 30, 2023 of $8.4 million and $8.6 million, respectively, primarily related to one commercial relationship, which was originated in 2019 and had a partial charge-off of $8.4 million in the third quarter of 2023 to its estimated realizable value of $8.8 million. The remainder of the charge-offs were related to loans that were originated in and prior to 2018.

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 and, therefore, is classified as non-accruing. At September 30, 2023 and December 31, 2022, the Company had collateral dependent loans with an amortized cost balance as follows: commercial real estate - investor of $15.1 million and $4.6 million, respectively, commercial real estate - owner occupied of $240,000 and $4.0 million, respectively, and commercial and industrial of $1.1 million and $160,000, 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 $2.7 million and $858,000 at September 30, 2023 and December 31, 2022, respectively.

The following table presents the recorded investment in non-accrual loans, by loan portfolio segment as of September 30, 2023 and December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Commercial real estate – investor (1)	$	20,723	$	10,483
Commercial real estate – owner occupied	240		4,025
Commercial and industrial	1,120		331
Residential real estate	5,624		5,969
Other consumer	2,391		2,457
	$	30,098	$	23,265

(1) At September 30, 2023, non-performing loans included the remaining exposure of $8.8 million on a commercial real estate relationship that was partially charged-off during the three months ended September 30, 2023.

At September 30, 2023 and December 31, 2022, 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 September 30, 2023, there were no loans that were past due 90 days or greater and still accruing interest. At December 31, 2022, there was one Paycheck Protection Program (“PPP”) loan for $14,000 that was past due 90 days or greater and still accrued interest, which subsequently became current. Per Small Business Administration (“SBA”) guidelines, the SBA will pay accrued interest through the deferral period up to a maximum of 120 days past due. Given these servicing guidelines, PPP loans that are 90 to 120 days past due will be reported as accruing loans.

The following table presents the aging of the recorded investment in past due loans as of September 30, 2023 and December 31, 2022 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
September 30, 2023
Commercial real estate – investor (1)	$	999	$	11,266	$	3,791	$	16,056	$	5,318,223	$	5,334,279
Commercial real estate – owner occupied	799		1,529		35		2,363		954,853		957,216
Commercial and industrial	1,773		803		145		2,721		649,398		652,119
Residential real estate	—		2,303		3,327		5,630		2,922,629		2,928,259
Other consumer	1,119		—		1,680		2,799		248,899		251,698
	$	4,690	$	15,901	$	8,978	$	29,569	$	10,094,002	$	10,123,571
December 31, 2022
Commercial real estate – investor	$	217	$	875	$	3,700	$	4,792	$	5,167,160	$	5,171,952
Commercial real estate – owner occupied	143		80		3,750		3,973		993,394		997,367
Commercial and industrial	159		47		180		386		621,986		622,372
Residential real estate	7,003		4,377		2,069		13,449		2,848,542		2,861,991
Other consumer	573		673		1,882		3,128		261,244		264,372
	$	8,095	$	6,052	$	11,581	$	25,728	$	9,892,326	$	9,918,054

(1) At September 30, 2023, 60-89 days past due loans included the remaining exposure of $8.8 million on a commercial real estate relationship that was partially charged-off during the three months ended September 30, 2023.

The Company adopted Accounting Standards Update (“ASU”) 2022-02 on January 1, 2023. Since adoption, the Company has modified certain loans to borrowers experiencing financial difficulty. These modifications may include a reduction in interest rate, an extension in term, principal forgiveness and/or other than insignificant payment delay. At September 30, 2023, loans with modifications to borrowers experiencing financial difficulty totaled $1.1 million related to term extensions and interest rate reductions, which included residential real estate loans of $723,000 and other consumer loans of $410,000.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Of the $1.1 million loans with modifications to borrowers experiencing financial difficulty, $994,000 were current and one residential loan of $140,000 had a payment default during the three and nine months ended September 30, 2023.

Prior to the adoption of ASU 2022-02, the Company classified certain loans as troubled debt restructuring (“TDR”) loans when credit terms to a borrower in financial difficulty were modified in accordance with ASC 310-40. Since adoption of this ASU, the Company has ceased to recognize or measure for new TDRs but those existing at December 31, 2022 remain until settled.

At September 30, 2023 and December 31, 2022, TDR loans totaled $13.2 million and $13.9 million, respectively. At September 30, 2023 and December 31, 2022, there were $5.8 million and $6.4 million, respectively, of TDR loans included in the non-accrual loan totals. At September 30, 2023 and December 31, 2022, the Company had $354,000 and $590,000, respectively, of specific reserve allocated to one loan that was classified as a TDR loan. 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 TDR loans classified as accruing loans, which totaled $7.4 million and $7.5 million at September 30, 2023 and December 31, 2022, respectively.

The following table presents information about TDR loans which occurred during the three and nine months ended September 30, 2022 (dollars in thousands):


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended September 30, 2022
Troubled debt restructurings:


Other consumer	3	$	114	$	124


Nine months ended September 30, 2022
Troubled debt restructurings:


Commercial and industrial	1	65		65

Other consumer	6	1,105		1,233

There were no TDR loans that defaulted during the three and nine months ended September 30, 2023 and 2022, which were modified within the preceding year.