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Loans Receivable
 12 Months Ended
Dec. 31, 2020
Loans and Leases Receivable Disclosure [Abstract]  
Loan Receivable Loans Receivable
The Company originates loans in the ordinary course of business and has also acquired loans through mergers and acquisitions. Accrued interest receivable was excluded from disclosures presenting the Company's amortized cost of loans receivable as it was deemed insignificant. Accrued interest receivable on loans totaled $15.8 million and $10.7 million at December 31, 2020 and December 31, 2019, respectively. No ACL on accrued interest receivable on loans was recorded at December 31, 2020 and December 31, 2019.
The Company adopted ASU 2016-13 effective January 1, 2020, which prospectively changed disclosure requirements for loans receivable and increased the beginning ACL on loans as discussed in Note (5) Allowance for Credit Losses on Loans.

(a) Loan Origination/Risk Management
The Company categorizes the individual loans in the total loan portfolio into four segments: commercial business; residential real estate; real estate construction and land development; and consumer. Within these segments are classes of loans for which management monitors and assesses credit risk in the loan portfolios. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and criticized loans. The Company also conducts internal loan reviews and validates the credit risk assessment on a periodic basis and presents the results of these reviews to management. The loan review process complements and reinforces the risk identification and assessment decisions made by loan officers and credit personnel.
The amortized cost of loans receivable, net of ACL on loans at December 31, 2020 and December 31, 2019 consisted of the following portfolio segments and classes:
December 31, 2020December 31, 2019
(In thousands)
Commercial business:
Commercial and industrial$733,098 $852,220 
SBA PPP715,121 — 
Owner-occupied CRE856,684 805,234 
Non-owner occupied CRE1,410,303 1,288,779 
Total commercial business3,715,206 2,946,233 
Residential real estate
122,756 131,660 
December 31, 2020December 31, 2019
(In thousands)
Real estate construction and land development:
Residential
78,259 104,296 
Commercial and multifamily
227,454 170,350 
Total real estate construction and land development305,713 274,646 
Consumer324,972 415,340 
Loans receivable4,468,647 3,767,879 
Allowance for credit losses on loans(70,185)(36,171)
 Loans receivable, net$4,398,462 $3,731,708 
Balances included in amortized cost of Loans receivable:
Unamortized net discount on acquired loans$6,575 $8,371 
Unamortized net deferred (fee) cost$(15,458)$2,441 

A discussion of the risk characteristics of each loan portfolio segment is as follows:
Commercial Business:
There are four significant classes of loans in the commercial business portfolio segment: commercial and industrial, SBA PPP, owner-occupied commercial real estate and non-owner occupied commercial real estate. The owner and non-owner occupied commercial real estate classes are both considered commercial real estate loans. As the commercial and industrial loans, SBA PPP loans and commercial real estate loans carry different risk characteristics, they are discussed separately below:
Commercial and industrial. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may include a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial and industrial loans carry more risk than other loans because the borrowers’ cash flow is less predictable, and in the event of a default, the amount of loss is potentially greater and more difficult to quantify because the value of the collateral securing these loans may fluctuate, may be uncollectible, or may be obsolete or of limited use, among other things.
SBA PPP. The Bank began originating SBA PPP loans following the enactment of the CARES Act in April 2020. SBA PPP loans are fully guaranteed by the SBA, intended for businesses impacted by the COVID-19 pandemic and designed to provide near term relief to help small businesses sustain operations. These loans have either a two-year or five-year maturity date and earn interest at 1%. The Bank also earns a fee based on the size of the loan, which is recognized over the life of the loan. The balance of unamortized net deferred fees on SBA PPP loans was $15.4 million at December 31, 2020. The Bank expects that the great majority of SBA PPP borrowers will seek full or partial forgiveness of their loan obligations in accordance with the CARES Act.
Commercial real estate. The Company originates commercial real estate loans primarily within its primary market areas. These loans are subject to underwriting standards and processes similar to commercial and industrial loans in that these loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate properties. Commercial real estate lending typically involves higher loan principal amounts and payments on loans, and repayment is dependent on successful operation and management of the properties. The value of the real estate securing these loans can be adversely affected by conditions in the real estate market or the economy. There is some common risk characteristics with owner-occupied commercial real estate loans and non-owner occupied commercial real estate loans. However, owner-occupied commercial real estate loans are generally considered to have a slightly lower risk profile as we typically have the guarantee of the owner-occupant and can underwrite risk using the complete financial information on the entity that occupies the property.
Residential Real Estate:
The majority of the Company’s residential real estate loans are secured by one-to-four family residences located in its primary market areas. The Company’s underwriting standards require that residential real estate loans maintained in the portfolio generally are owner-occupied and do not exceed 80% of the lower of appraised value at origination or cost of the underlying collateral. Terms of maturity typically range from 15 to 30 years. The Company generally sells its originated residential real estate loans in the secondary market and retains a smaller portion in its loan portfolio.
Real Estate Construction and Land Development:
The Company originates construction loans for residential and for commercial and multifamily properties. The residential construction loans generally include construction of custom single-family homes whereby the home buyer is the
borrower. The Company also provides financing to builders for the construction of pre-sold residential homes and, in selected cases, to builders for the construction of speculative single-family residential property. Substantially all construction loans are short-term in nature and priced with variable rates of interest. Construction lending can involve a higher level of risk than other types of lending because funds are advanced partially based upon the value of the project, which is uncertain prior to the project’s completion. Because of the uncertainties inherent in estimating construction costs as well as the market value of a completed project and the effects of governmental regulation of real property, the Company’s estimates with regard to the total funds required to complete a project and the related loan-to-value ratio may vary from actual results. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness. If the Company’s estimate of the value of a project at completion proves to be overstated, it may have inadequate security for repayment of the loan and may incur a loss if the borrower does not repay the loan. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being dependent upon successful completion of the construction project, market interest rate changes, government regulation of real property, general economic conditions and the availability of long-term financing.
Consumer:
The Company originates consumer loans and lines of credit that are both secured and unsecured. The underwriting process for these loans ensures a qualifying primary and secondary source of repayment. Underwriting standards for home equity loans are significantly influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage of 80%, collection remedies, the number of such loans a borrower can have at one time and documentation requirements. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed. The majority of consumer loans are for relatively small amounts disbursed among many individual borrowers which reduces the credit risk for this type of loan. To further reduce the risk, trend reports are reviewed by management on a regular basis.
The Company also purchased indirect consumer loans. These indirect consumer loans were secured by new and used automobile and recreational vehicles and were originated indirectly by established and well-known dealers located in our market areas. In addition, the indirect loans purchased were made to only prime borrowers. The Company ceased indirect auto loan originations in March 2020.

(b) Concentrations of Credit
Most of the Company’s lending activity occurs within its primary market areas which are concentrated along the I-5 corridor from Whatcom County to Clark County in Washington State and Multnomah County and Washington County in Oregon, as well as other contiguous markets and represents a geographic concentration. In addition, approximately 88.2% and 82.7% of our loan portfolio at December 31, 2020 and December 31, 2019, respectively, consisted of commercial-type loans, including commercial business loans and commercial and multifamily real estate construction and land development loans. Commercial-type loans are generally viewed as having more inherent risk of default than residential real estate loans or other consumer loans. Also, the commercial-type loan balance per borrower is typically larger than that for residential real estate loans and other consumer loans, implying higher potential losses on an individual loan basis.

(c) Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade of the loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) nonperforming loans and (v) the general economic conditions of the United States of America, and specifically the states of Washington and Oregon. The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 10. A description of the general characteristics of the risk grades is as follows:
•Grades 1 to 5: These grades are considered “pass grade” ("Pass") and include loans with negligible to above average, but acceptable, risk. These borrowers generally have strong to acceptable capital levels and consistent earnings and debt service capacity. Loans with the higher grades within the “pass” category may include borrowers who are experiencing unusual operating difficulties, but have acceptable payment performance to date. Increased monitoring of financial information and/or collateral may be appropriate. Loans with this grade show no immediate loss exposure.
•Grade 6: This grade includes "Watch" loans and is considered a “pass grade.” The grade is intended to be utilized on a temporary basis for pass grade borrowers where a potentially significant risk-modifying action is anticipated in the near term.
•Grade 7: This grade includes "Special Mention" ("SM") loans and is intended to highlight loans deemed by management to have some elevated risks that deserve management's close attention. Loans with this grade show signs of deteriorating profits and capital and the borrower might not be strong enough to sustain a major setback. The borrower is typically higher than normally leveraged and outside support might be modest and likely illiquid. The loan is at risk of further credit decline unless active measures are taken to correct the situation.
•Grade 8: This grade includes “Substandard” ("SS") loans in accordance with regulatory guidelines, which the Company has determined have a high credit risk. These loans also have well-defined weaknesses and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. The borrower may have shown serious negative trends in financial ratios and performance. Such loans may be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. Loans with this grade are placed on accrual or nonaccrual status based on the Company’s accrual policy.
•Grade 9: This grade includes “Doubtful” loans in accordance with regulatory guidelines and the Company has determined these loans to have excessive credit risk. Such loans are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. Additionally, these loans generally have been partially charged off for the amount considered uncollectible.
•Grade 10: This grade includes “Loss” loans in accordance with regulatory guidelines and the Company has determined these loans have the highest risk of loss. Such loans are charged off or charged down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.
Numerical loan grades for loans are established at the origination of the loan. Changes to loan grades are considered at the time new information about the performance of a loan becomes available, including the receipt of updated financial information from the borrower, results of annual term loan reviews performed by the Bank's credit department and scheduled loan reviews performed by the Bank’s internal Loan Review department. For consumer loans, the Bank follows the FDIC’s Uniform Retail Credit Classification and Account Management Policy for subsequent classification in the event of payment delinquencies or default. Typically, an individual loan grade will not be changed from the prior period unless there is a specific indication of credit deterioration or improvement. Credit deterioration is evidenced by delinquency, direct communications with the borrower, or other borrower information that becomes known to management. Credit improvements are evidenced by known facts regarding the borrower or the collateral property.
The loan grades relate to the likelihood of losses in that the higher the grade, the greater the loss potential. Loans with a pass grade may have some estimated inherent losses, but to a lesser extent than the other loan grades. The Special Mention loan grade is transitory in that the Company is waiting on additional information to determine the likelihood and extent of the potential loss. The likelihood of loss for Special Mention graded loans, however, is greater than Watch graded loans because there has been measurable credit deterioration. Loans with a Substandard grade are generally loans which the Company individually evaluates for an ACL on loans. For Doubtful and Loss graded loans, the Company is almost certain of the losses and the outstanding principal balances are generally charged off to the realizable value.
During the year ended December 31, 2020, the Bank did not automatically adversely classify credits that were affected by the COVID-19 pandemic or were granted a COVID Modification.
The following table presents the amortized cost of loans receivable by risk grade as of December 31, 2020:

Term Loans
Amortized Cost Basis by Origination Year		Revolving Loans
Revolving Loans Converted to Term Loans (1)
Loans Receivable
20202019201820172016Prior
(In thousands)
Commercial business:
Commercial and industrial
Pass$118,971 $127,919 $70,766 $44,231 $37,658 $95,958 $121,440 $819 $617,762 
SM14,430 9,162 10,878 4,171 5,700 3,579 11,790 814 60,524 
SS2,199 11,835 3,416 9,348 1,052 7,651 15,484 3,827 54,812 
Total135,600 148,916 85,060 57,750 44,410 107,188 148,714 5,460 733,098 
SBA PPP
Pass715,121 — — — — — — — 715,121 
Total715,121 — — — — — — — 715,121 
Owner-occupied CRE
Pass89,224 167,095 94,830 80,138 74,902 254,864 — — 761,053 
SM6,146 4,540 16,386 11,231 5,464 12,105 — — 55,872 
SS— — 114 7,320 3,313 29,012 — — 39,759 
Total95,370 171,635 111,330 98,689 83,679 295,981 — — 856,684 
Term Loans
Amortized Cost Basis by Origination Year		Revolving Loans
Revolving Loans Converted to Term Loans (1)
Loans Receivable
20202019201820172016Prior
(In thousands)
Non-owner occupied CRE
Pass197,548 173,153 148,830 172,438 240,614 406,817 — — 1,339,400 
SM— 1,979 357 2,448 6,210 3,539 — — 14,533 
SS— — 3,623 — 35,455 17,292 — — 56,370 
Total197,548 175,132 152,810 174,886 282,279 427,648 — — 1,410,303 
Total commercial business
Pass1,120,864 468,167 314,426 296,807 353,174 757,639 121,440 819 3,433,336 
SM20,576 15,681 27,621 17,850 17,374 19,223 11,790 814 130,929 
SS2,199 11,835 7,153 16,668 39,820 53,955 15,484 3,827 150,941 
Total1,143,639 495,683 349,200 331,325 410,368 830,817 148,714 5,460 3,715,206 
Residential real estate
Pass30,141 41,829 15,730 10,362 7,322 16,825 — — 122,209 
SS— — — 59 — 488 — — 547 
Total30,141 41,829 15,730 10,421 7,322 17,313 — — 122,756 
Real estate construction and land development:
Residential
Pass33,801 36,697 2,725 1,097 971 1,042 — — 76,333 
SS— — — 1,926 — — — — 1,926 
Total33,801 36,697 2,725 3,023 971 1,042 — — 78,259 
Commercial and multifamily
Pass27,423 151,020 38,682 5,660 689 1,407 — — 224,881 
SM67 1,011 — — — 29 — — 1,107 
SS572 450 — — — 444 — — 1,466 
Total28,062 152,481 38,682 5,660 689 1,880 — — 227,454 
Total real estate construction and land development
Pass61,224 187,717 41,407 6,757 1,660 2,449 — — 301,214 
SM67 1,011 — — — 29 — — 1,107 
SS572 450 — 1,926 — 444 — — 3,392 
Total61,863 189,178 41,407 8,683 1,660 2,922 — — 305,713 
Consumer
Pass43,742 77,083 53,195 30,559 13,443 15,453 87,547 315 321,337 
SS34 404 684 648 420 1,319 78 48 3,635 
Total43,776 77,487 53,879 31,207 13,863 16,772 87,625 363 324,972 
Loans receivable
Pass1,255,971 774,796 424,758 344,485 375,599 792,366 208,987 1,134 4,178,096 
SM20,643 16,692 27,621 17,850 17,374 19,252 11,790 814 132,036 
SS2,805 12,689 7,837 19,301 40,240 56,206 15,562 3,875 158,515 
Total$1,279,419 $804,177 $460,216 $381,636 $433,213 $867,824 $236,339 $5,823 $4,468,647 
(1) Represents loans receivable balance at December 31, 2020 which was converted from a revolving loan to an amortizing loan during the year ended December 31, 2020.
The following table presents the amortized cost of loans receivable by credit quality indicator as of December 31, 2019 in accordance with disclosure requirements prior to CECL Adoption:
December 31, 2019
PassSpecial MentionSubstandardDoubtful/LossTotal
(In thousands)
Commercial business:
Commercial and industrial$771,559 $16,340 $64,321 $— $852,220 
Owner-occupied CRE765,411 24,659 15,164 — 805,234 
Non-owner occupied CRE1,274,513 5,662 8,604 — 1,288,779 
Total commercial business2,811,483 46,661 88,089 — 2,946,233 
Residential real estate
130,818 — 842 — 131,660 
Real estate construction and land development:
Residential
101,973 1,516 807 — 104,296 
Commercial and multifamily169,668 682 — — 170,350 
Total real estate construction and land development271,641 2,198 807 — 274,646 
Consumer411,141 — 3,675 524 415,340 
Loans receivable$3,625,083 $48,859 $93,413 $524 $3,767,879 

Potential problem loans are risk rated "Special Mention" or worse that are not classified as a performing TDR or nonaccrual loan and are not individually evaluated for credit loss, but which management is closely monitoring because the financial information of the borrower causes concern as to their ability to meet their loan repayment terms. Potential problem loans as of December 31, 2020 and December 31, 2019 were $182.3 million and $87.8 million, respectively.

(d) Nonaccrual Loans
The following table presents the amortized cost of nonaccrual loans for the dates indicated:
December 31, 2020December 31,
2019
Nonaccrual without ACLNonaccrual with ACLTotal Nonaccrual
Nonaccrual (1)
(In thousands)
Commercial business:
Commercial and industrial$22,039 $9,208 $31,247 $33,544 
Owner-occupied CRE4,693 13,700 18,393 4,714 
Non-owner occupied CRE3,424 3,722 7,146 6,062 
Total commercial business30,156 26,630 56,786 44,320 
Residential real estate
67 117 184 19 
Real estate construction and land development:
Commercial and multifamily
572 450 1,022 — 
Consumer31 69 100 186 
Total$30,826 $27,266 $58,092 $44,525 
(1) Presentation of December 31, 2019 balances is in accordance with disclosure requirements prior to CECL Adoption.
The following table presents the reversal of interest income on loans due to the write-off of accrued interest receivable upon the initial classification of loans as nonaccrual loans and the interest income recognized due to payment in full of previously classified nonaccrual loans during the following periods:
December 31, 2020
December 31, 2019
Interest Income ReversedInterest Income RecognizedInterest Income ReversedInterest Income Recognized
(In thousands)
Commercial business:
Commercial and industrial$(95)$434 $(552)$147 
Owner-occupied CRE(238)89 — 228 
Non-owner occupied CRE(208)67 (32)181 
Total commercial business(541)590 (584)556 
Residential real estate
(2)2 — — 
Real estate construction and land development:
Residential
— — (3)33 
Commercial and multifamily
(11)— — — 
Total real estate construction and land development(11)— (3)33 
Consumer(1)47 — 6 
Total$(555)$639 $(587)$595 

For the years ended December 31, 2020 and 2019, no interest income was recognized subsequent to a loan’s classification as nonaccrual, except as indicated in the tables above.

(e) Past due loans
The Company performs an aging analysis of past due loans using policies consistent with regulatory reporting requirements with categories of 30-89 days past due and 90 or more days past due. The amortized cost of past due loans as of December 31, 2020 were as follows:
December 31, 2020
30-89 Days90 Days 
or Greater		Total Past 
Due		CurrentLoans Receivable
(In thousands)
Commercial business:
Commercial and industrial$4,621 $8,082 $12,703 $720,395 $733,098 
SBA PPP— — — 715,121 715,121 
Owner-occupied CRE991 403 1,394 855,290 856,684 
Non-owner occupied CRE412 1,970 2,382 1,407,921 1,410,303 
Total commercial business6,024 10,455 16,479 3,698,727 3,715,206 
Residential real estate
765 16 781 121,975 122,756 
Real estate construction and land development:
Residential
— — — 78,259 78,259 
Commercial and multifamily
2,225 — 2,225 225,229 227,454 
Total real estate construction and land development2,225 — 2,225 303,488 305,713 
Consumer1,407 30 1,437 323,535 324,972 
Total$10,421 $10,501 $20,922 $4,447,725 $4,468,647 
The following table presents the amortized cost of past due loans as of December 31, 2019 in accordance with disclosure requirements prior to CECL Adoption:
December 31, 2019
30-89 Days90 Days or GreaterTotal Past 
Due		CurrentTotalPCI LoansLoans Receivable
(In thousands)
Commercial business:
Commercial and industrial$10,479 $6,772 $17,251 $832,601 $849,852 $2,368 $852,220 
Owner-occupied CRE607 806 1,413 798,907 800,320 4,914 805,234 
Non-owner occupied CRE554 1,843 2,397 1,280,891 1,283,288 5,491 1,288,779 
Total commercial business11,640 9,421 21,061 2,912,399 2,933,460 12,773 2,946,233 
Residential real estate
797 — 797 127,288 128,085 3,575 131,660 
Real estate construction and land development:
Residential
1,516 — 1,516 102,780 104,296 — 104,296 
Commercial and multifamily
— — — 170,350 170,350 — 170,350 
Total real estate construction and land development1,516 — 1,516 273,130 274,646 — 274,646 
Consumer2,071 — 2,071 411,507 413,578 1,762 415,340 
Total$16,024 $9,421 $25,445 $3,724,324 $3,749,769 $18,110 $3,767,879 

There were no loans 90 days or more past due that were still accruing interest as of December 31, 2020 or December 31, 2019.

(f) Collateral-dependent Loans
The type of collateral securing loans individually evaluated for credit losses and for which the repayment was expected to be provided substantially through the operation or sale of the collateral as of December 31, 2020 were as follows:
Loans receivable(1)
CREFarmlandResidential Real EstateEquipment or Accounts ReceivableOtherTotal
(In thousands)
Commercial business:
Commercial and industrial$1,893 $18,738 $584 $774 $631 $22,620 
Owner-occupied CRE4,693 — — — — 4,693 
Non-owner occupied CRE3,424 — — — — 3,424 
Total commercial business10,010 18,738 584 774 631 30,737 
Residential real estate
— — 67 — — 67 
Real estate construction and land development:
Commercial and multifamily
572 — — — — 572 
Consumer— — 30 — — 30 
Total$10,582 $18,738 $681 $774 $631 $31,406 
(1) Balances represent the amortized cost of the loan. If multiple collateral sources secure the loan, the entire balance is presented in the primary collateral category, which generally represents the majority of the collateral balance.

There have been no significant changes to the collateral securing individually evaluated loans for credit losses and for which repayment was expected to be provided substantially through the operation or sale of the collateral during the year ended December 31, 2020, except changes due to payoffs and additions of loans to this classification.
Under the probable incurred loss methodology, including the ASC 310-30 methodology for PCI loans, comparative
disclosures of collateral-dependent loans as of December 31, 2019 are similar to the disclosures for impaired loans. Impaired loans include nonaccrual loans, performing TDR loans, and other loans with a specific valuation allowance, excluding PCI loans. The amortized cost of impaired loans as of December 31, 2019 is set forth in the following table:
December 31, 2019
Amortized Cost With
No Specific
Valuation
Allowance		Amortized Cost With
Specific
Valuation
Allowance		Total
Amortized Cost		Outstanding
Principal
Balance		Related
Specific
Valuation
Allowance
(In thousands)
Commercial business:
Commercial and industrial$30,179 $13,629 $43,808 $45,585 $1,372 
Owner-occupied CRE3,921 2,415 6,336 6,764 426 
Non-owner occupied CRE5,309 1,015 6,324 6,458 146 
Total commercial business39,409 17,059 56,468 58,807 1,944 
Residential real estate
— 215 215 223 56 
Real estate construction and land development:
Residential
237 — 237 237 — 
Consumer— 561 561 570 143 
Total$39,646 $17,835 $57,481 $59,837 $2,143 

The average amortized cost of impaired loans for the year ended December 31, 2019 and 2018 are set forth in the following table:
Year Ended December 31,
20192018
(In thousands)
Commercial business:
Commercial and industrial$31,905 $16,773 
Owner-occupied CRE6,008 11,313 
Non-owner occupied CRE7,751 9,463 
Total commercial business45,664 37,549 
Residential real estate
242 290 
Real estate construction and land development:
Residential
682 1,091 
Commercial and multifamily
— 129 
Total real estate construction and land development682 1,220 
Consumer576 430 
Total$47,164 $39,489 

(g) Troubled Debt Restructured Loans
The majority of the Bank’s TDR loans are a result of granting extensions of maturity on troubled credits which have already been adversely classified. The Bank grants such extensions to reassess the borrower’s financial status and to develop a plan for repayment. The second most prevalent concessions are certain modifications with extensions that also include interest rate reductions. Certain TDR loans were additionally re-amortized over a longer period of time. These modifications would all be considered a concession for a borrower that could not obtain similar financing terms from another source other than from the Bank.
The financial effects of each modification will vary based on the specific restructure. The Bank’s TDR loans are primarily fully amortizing term loans. If the interest rate is not adjusted and the modified terms are consistent with other similar credits being offered, the Bank may not experience any loss associated with the restructure. If, however, the restructure involves forbearance agreements or interest rate modifications, the Bank may not collect all the principal and interest based on the original contractual terms.
During the year ended December 31, 2020, the Company elected to apply the temporary relief under the CARES Act and related regulatory guidance to certain eligible short-term modifications and did not classify the modifications as TDRs for accounting or disclosure purposes. COVID Modifications whose payment deferral exceeded 180 days following the loans' initial modification were classified as TDR based on the Bank's internal policy.
The unfunded commitment to borrowers related to TDR loans was $2.6 million and $736,000 at December 31, 2020 and December 31, 2019, respectively.
For the years ended December 31, 2020, 2019 and 2018, the Bank recorded $1.8 million, $1.2 million, and $1.4 million respectively, of interest income related to performing TDR loans.
Loans that were modified as TDR loans are set forth in the following table for the periods indicated:
Year Ended December 31,
202020192018
Number of
Contracts (2)
Amortized Cost (1) (2)
Number of
Contracts (2)
Amortized Cost (1) (2)
Number of
Contracts (2)
Amortized Cost (1) (2)
(Dollars in thousands)
Commercial business:
Commercial and industrial75$36,118 44$31,122 31$16,132 
Owner-occupied CRE1419,326 41,695 42,521 
Non-owner occupied CRE9 25,728 4 2,208 32,944 
Total commercial business9881,172 5235,025 3821,597 
Residential real estate
122 —— —— 
Real estate construction and land development:
Residential
41,926 1237 2665 
Commercial and multifamily
1 450 — — — — 
Total real estate construction and land development5 2,376 1 237 2 665 
Consumer481,198 12157 13243 
Total152$84,768 65$35,419 53$22,505 
(1)Number of contracts and amortized cost represent loans which have balances as of period end, net of subsequent payments after modifications. Certain modified loans may have been paid-down or charged-off during the years ended December 31, 2020, 2019 and 2018.
(2) As the Bank did not forgive any principal or interest balance as part of the loan modifications, the Bank’s amortized cost in each loan at the date of modification (pre-modification) did not change as a result of the modification (post-modification).
The increase in TDR loans during the year ended December 31, 2020 was due primarily to the impacts of the COVID-19 pandemic and the Bank's policy to classify COVID Modifications where the payment deferral period exceeded 180-days as a TDR. For non-COVID modifications, the concessions granted largely consisted of maturity extensions. The Bank typically grants shorter extension periods to continually monitor these TDR loans despite the fact that the extended date might not be the date the Bank expects sufficient cash flow from these borrowers to repay the debt. The Bank does not consider these modifications a subsequent default of a TDR as new loan terms, specifically new maturity dates, were granted. The Bank had a related ACL on loans that were modified as TDR loans of $7.5 million, $1.0 million, and $2.3 million at December 31, 2020, December 31, 2019 and December 31, 2018, respectively.
The following table presents loans that were modified in a troubled debt restructure and subsequently defaulted within twelve months from the modification date during the periods indicated:
Year Ended December 31,
202020192018
Number of
Contracts (1)
Amortized Cost (1)
Number of
Contracts (1)
Amortized Cost (1)
Number of
Contracts (1)
Amortized Cost (1)
(Dollars in thousands)
Commercial business:
Commercial and industrial4 $2,136 13 $12,854 5 $1,890 
Owner-occupied CRE2 1,369 3 1,142 1 65 
Non-owner occupied CRE2 1,811 1 52 — — 
Total commercial business8 5,316 1714,048 6 1955
Year Ended December 31,
202020192018
Number of
Contracts (1)
Amortized Cost (1)
Number of
Contracts (1)
Amortized Cost (1)
Number of
Contracts (1)
Amortized Cost (1)
(Dollars in thousands)
Real estate construction and land development:
Residential
— — — — 2 665 
Total8$5,316 17$14,048 8 $2,620 
(1)Number of contracts and amortized cost represent loans which have balances as of period end, net of subsequent payments after modifications. Certain modified loans may have been paid-down or charged-off during the years ended December 31, 2020, 2019 and 2018.
During the years ended December 31, 2020, 2019, and 2018, eight, 11 and seven TDR loans defaulted because each was past its modified maturity date and the borrower has not subsequently repaid the credits. The Bank chose not to extend further the maturity date on these loans. The remaining six and one TDR loan for the years ended December 31, 2019 and 2018, respectively, defaulted because the borrower was more than 90 days delinquent on their scheduled loan payments. The Bank had an ACL on loans for these TDR loans which defaulted during the related years of $229,000, $88,000, and $260,000 at December 31, 2020, 2019, and 2018.

(h) Purchased Credit Impaired Loans
Upon CECL Adoption, the Company transitioned PCI loans to PCD loans. The following table reflects the outstanding principal balance and amortized cost of PCI loans at December 31, 2019:
December 31, 2019
Outstanding PrincipalAmortized Cost
(In thousands)
Commercial business:
Commercial and industrial$4,439 $2,368 
Owner-occupied CRE4,925 4,914 
Non-owner occupied CRE7,028 5,491 
Total commercial business16,392 12,773 
Residential real estate
3,095 3,575 
Consumer1,463 1,762 
Total$20,950 $18,110 

On the acquisition dates, the amount by which the undiscounted expected cash flows of the PCI loans exceeded the estimated fair value of the loan was the “accretable yield.” The accretable yield was then measured at each financial reporting date and represented the difference between the remaining undiscounted expected cash flows and the current carrying value of the PCI loans. The following table summarizes the accretable yield on the PCI loans during the periods indicated:
Year Ended December 31,
20192018
(In thousands)
Balance at the beginning of the year$9,493 $11,224 
Accretion(1,936)(2,674)
Disposal and other(1,600)(2,871)
Reclassification from nonaccretable difference884 3,814 
Balance at the end of the year$6,841 $9,493 
(i) Related Party Loans
In the ordinary course of business, the Company has granted loans to certain directors, executive officers and their affiliates. Activity in related party loans during the periods indicated was as follows:
Year Ended December 31,
202020192018
(In thousands)
Balance outstanding at the beginning of year$8,144 $8,367 $8,460 
Principal additions199 — 211 
Principal reductions(649)(223)(304)
Balance outstanding at the end of year$7,694 $8,144 $8,367 

All related party loans were performing in accordance with the underlying loan agreements as of December 31, 2020 and December 31, 2019. The Company had $545,000 and $557,000 of unfunded commitments to related parties as of December 31, 2020 and December 31, 2019, respectively. The Company did not have any borrowings from related parties at December 31, 2020 or December 31, 2019.

(j) Residential Real Estate Loan Sales
The Bank originates residential real estate loans; a portion of which are sold on the secondary market. The Bank does not retain servicing on loans sold in the secondary market. At December 31, 2020 and December 31, 2019, the balance of loans held for sale was $4.9 million and $5.5 million, respectively.
The following table presents information concerning the origination and sale of the Bank's residential real estate loans and the gains from their sale:
 Year Ended December 31,
 202020192018
 (In thousands)
Residential real estate:
Originated (1)
$191,207 $150,030 $121,998 
Sold137,580 68,238 76,834 
Gain on sale of loans, net (2)
5,044 2,159 2,403 
(1) Includes loans originated for sale in the secondary market or for the Bank's loan portfolio.
(2) Excludes net gains on sales of SBA and other loans.

The Bank may additionally make commitments to fund residential real estate loans (interest rate locks) to be sold into the secondary market. The contractual amounts of commitments to sell and fund residential real estate loans at December 31, 2020 and December 31, 2019 were as follows:
 December 31, 2020December 31, 2019
 (In thousands)
Commitments to sell residential real estate loans$18,127 $8,815 
Commitments to fund residential real estate loans (at interest rates approximating market rates) for portfolio or for sale:
Fixed rate19,640 15,509 
Variable or adjustable rate98 3,111 
Total commitments to fund residential real estate loans$19,738 $18,620 

The fair values of freestanding derivatives related to the commitments to fund residential real estate loans and sell at locked interest rates were not significant at December 31, 2020 or December 31, 2019.
(k) Commercial Loan Sales, Servicing, and Commercial Servicing Asset
Details of loans serviced for others are as follows:
 December 31, 2020December 31, 2019
 (In thousands)
Loans serviced for others with participating interest, gross loan balance$32,131 $40,616 
Loans serviced for others with participating interest, participation balance owned by Bank (1)
7,842 9,850 
(1) Included in the balance of loans receivable on the Consolidated Statements of Financial Condition.
The Company recognized $423,000, $532,000 and $506,000 of servicing income for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company's servicing asset at December 31, 2020 and December 31, 2019 was $583,000 and $361,000, respectively. The activity and balances for the year ended December 31, 2018 were not significant.
Fair value for the annual impairment analysis at December 31, 2020 was determined using a discount rate of 10.0% and prepayment speeds ranging from 12.5% to 18.6%. Fair value for the annual impairment analysis at December 31, 2019 was determined using discount rates ranging from 10.0% to 12.8% and prepayment speeds from 11.5% to 19.7%. There was no valuation allowance on the Company's servicing asset as of December 31, 2020, December 31, 2019 and December 31, 2018.