We adopted the new current expected credit loss accounting guidance, CECL, and all related amendments as of December 31, 2020. Certain prior period credit quality disclosures related to impaired loans and individually and collectively evaluated loans were superseded with the current guidance and have not been included below. Refer to Note 3, Loans and Allowance for Loan Losses, under Part II, Item 8 of our 2019 Form 10-K for additional prior period information. Also refer to Note 1, Summary of Significant Accounting Policies, for additional information regarding the adoption of CECL.


	December 31,
(in thousands)	2021		2020
Commercial and industrial	$	301,602	$	498,408
Real estate:
Commercial owner-occupied	392,345		304,963
Commercial investor-owned	1,189,021		961,208
Construction	119,840		73,046
Home equity	88,746		104,813
Other residential	114,558		123,395
Installment and other consumer loans	49,533		22,723
Total loans, at amortized cost 1	2,255,645		2,088,556
Allowance for credit losses on loans	(23,023)		(22,874)
Total loans, net of allowance for credit losses on loans	$	2,232,622	$	2,065,682

1 Amortized cost includes net deferred loan origination (fees) costs of $(901) thousand and $(4.1) million at December 31, 2021 and 2020, respectively. Amounts are also net of unrecognized purchase discounts of $2.5 million and $815 thousand at December 31, 2021 and 2020, respectively. Amortized cost excludes accrued interest, which totaled $7.1 million and $8.8 million at December 31, 2021 and 2020, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

Concentrations of Credit - Virtually all of our loans are from customers located in Northern California. Approximately 86% and 77%, of total loans were secured by real estate at December 31, 2021 and 2020, respectively. At December 31, 2021 and 2020, 70% and 61%, respectively, of our loans were for commercial real estate, the majority of which were secured by real estate located in Marin, Sonoma, Napa, Alameda, San Francisco, Sacramento, and Contra Costa counties (California). The increase in the percentages secured by real estate from 2020 to 2021 was primarily due to a $180.4 million reduction in unsecured loans guaranteed by the SBA under the Paycheck Protection Program ("PPP"), which are included in commercial and industrial loans.

Commercial and Industrial Loans - Commercial loans are generally made to established small and mid-sized businesses to provide financing for their growth and working capital needs, equipment purchases and acquisitions. Management examines historical, current, and projected cash flows to determine the ability of the borrower to repay obligations as agreed. Commercial loans are made based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral and guarantor support. The cash flows of borrowers, however, may not occur as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed, such as accounts receivable and inventory, and typically include personal guarantees. We target stable businesses with guarantors who provide additional sources of repayment and have proven to be resilient in periods of economic stress. A weakened economy, and resultant decreased consumer and/or business spending, will have an effect on the credit quality of commercial loans.

using the effective yield method over the contractual life of each loan. The recognition of fees and costs is accelerated when the loan is forgiven by the SBA and/or paid off prior to maturity. PPP loans are fully guaranteed by the SBA and are expected to be forgiven by the SBA if they meet the requirements of the program. PPP loans totaling $111.2 million (net of $2.5 million in unrecognized fees and costs) and $291.6 million (net of $5.4 million in unrecognized fees and costs) were included in commercial and industrial loan balances at December 31, 2021 and 2020, respectively. The December 31, 2021 amount includes 13 PPP loans totaling $2.8 million assumed in the ARB acquisition. In 2021 and 2020, respectively, Bank of Marin recognized $8.3 million and $3.8 million in PPP fees, net of costs.

Commercial Real Estate Loans - Commercial real estate loans, which include income producing investment properties and owner-occupied real estate used for business purposes, are subject to underwriting standards and processes similar to commercial loans discussed above. We underwrite these loans to be repaid from cash flow from either the business or investment property and supported by real property collateral. Underwriting standards for commercial real estate loans include, but are not limited to, debt coverage and loan-to-value ratios. Furthermore, a large majority of our loans are guaranteed by the owners of the properties. Conditions in the real estate markets or downturn in the general economy may adversely affect our commercial real estate loans. In the event of a vacancy, we expect guarantors to carry the loans until they find a replacement tenant. The owner's substantial equity investment provides a strong economic incentive to continue to support the commercial real estate projects. As such, we have generally experienced a relatively low level of loss and delinquencies in this portfolio.

Construction Loans - Construction loans are generally made to developers and builders to finance construction, renovation and occasionally land acquisitions in anticipation of near-term development. Construction loans include interest reserves that are used for the payment of interest during the development and marketing periods and are capitalized as part of the loan balance. When a construction loan is placed on nonaccrual status before the depletion of the interest reserve, we apply the interest funded by the interest reserve against the loan's principal balance. These loans are underwritten after evaluation of the borrower's financial strength, reputation, prior track record, and independent appraisals. We monitor all construction projects to determine whether they are on schedule, completed as planned and in accordance with the approved construction budgets. Significant events can affect the construction industry, including: the inherent volatility of real estate markets and vulnerability to delays due to weather, change orders, inability to obtain construction permits, labor or material shortages, and price changes. Estimates of construction costs and value associated with the completed project may be inaccurate. Repayment of construction loans is largely dependent on the ultimate success of the project.

Consumer Loans - Consumer loans primarily consist of home equity lines of credit, other residential loans, floating homes and indirect luxury auto loans along with a small number of installment loans. Our other residential loans include tenancy-in-common fractional interest loans ("TIC") located almost entirely in San Francisco County. We originate consumer loans utilizing credit score information, debt-to-income ratio and loan-to-value ratio analysis. Diversification among consumer loan types, coupled with relatively small loan amounts that are spread across many individual borrowers, mitigates risk. We do not originate sub-prime residential mortgage loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages," the characteristics of which are reduced documentation, borrowers with low FICO scores or collateral with high loan-to-value ratios.

Pass and Watch - Loans to borrowers of acceptable or better credit quality. Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history and management expertise. Loans in this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt-service-coverage ratios. These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial consequences. Negative external industry factors are generally not present. The loan may be secured, unsecured or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain. This category also includes “Watch” loans, where

Substandard - Inadequately protected by either the current sound worth and paying capacity of the obligor or the collateral pledged, if any. A Substandard asset has a well-defined weakness or weaknesses that jeopardize(s) the liquidation of the debt. Substandard assets are characterized by the distinct possibility that we will sustain some loss if such weaknesses or deficiencies are not corrected. Well-defined weaknesses include adverse trends or developments of the borrower’s financial condition, managerial weaknesses and/or significant collateral deficiencies.

Doubtful - Critical weaknesses that make collection or liquidation in full improbable. There may be specific pending events that work to strengthen the asset; however, the amount or timing of the loss may not be determinable. Pending events generally occur within one year of the asset being classified as Doubtful. Examples include: merger, acquisition, or liquidation; capital injection; guarantee; perfecting liens on additional collateral; and refinancing. Such loans are placed on non-accrual status and usually are collateral-dependent.

We regularly review our credits for accuracy of risk grades whenever we receive new information. Borrowers are generally required to submit financial information at regular intervals. Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk and complexity. In addition, investor commercial real estate borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually. We monitor construction loans monthly. We review home equity and other consumer loans based on delinquency. We also review loans graded “Watch” or worse, regardless of loan type, no less than quarterly.


December 31, 2021	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost
(in thousands)	2021		2020		2019		2018		2017		Prior				Total
Commercial and industrial:
Pass and Watch	$	96,643	$	35,967	$	25,754	$	12,763	$	2,729	$	31,280	$	90,744	$	295,880
Special Mention	—		1,700		584		273		—		—		2,088		4,645
Substandard	—		—		—		—		—		—		1,077		1,077
Total commercial and industrial	$	96,643	$	37,667	$	26,338	$	13,036	$	2,729	$	31,280	$	93,909	$	301,602
Commercial real estate, owner-occupied:
Pass and Watch	$	58,395	$	43,216	$	49,485	$	36,174	$	42,430	$	104,898	$	—	$	334,598
Special Mention	16,748		—		—		7,846		—		16,996		—		41,590
Substandard	—		7,155		285		—		—		8,603		—		16,043
Doubtful	—		114		—		—		—		—		—		114
Total commercial real estate, owner-occupied	$	75,143	$	50,485	$	49,770	$	44,020	$	42,430	$	130,497	$	—	$	392,345
Commercial real estate, investor-owned:
Pass and Watch	$	225,722	$	186,214	$	187,418	$	143,028	$	75,419	$	325,882	$	84	$	1,143,767
Special Mention	—		1,214		2,714		11,773		1,787		9,540		—		27,028
Substandard	—		—		—		695		—		17,531		—		18,226
Total commercial real estate, investor-owned	$	225,722	$	187,428	$	190,132	$	155,496	$	77,206	$	352,953	$	84	$	1,189,021


December 31, 2021	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost		Total
Construction:
Pass and Watch	$	31,269	$	70,528	$	8,935	$	9,108	$	—	$	—	$	—	$	119,840


Total construction	$	31,269	$	70,528	$	8,935	$	9,108	$	—	$	—	$	—	$	119,840
Home equity:
Pass and Watch	$	—	$	—	$	—	$	—	$	10	$	268	$	87,693	$	87,971

Substandard	—		—		—		—		—		377		398		775
Total home equity	$	—	$	—	$	—	$	—	$	10	$	645	$	88,091	$	88,746
Other residential:
Pass and Watch	$	15,800	$	31,981	$	25,529	$	15,411	$	7,964	$	17,873	$	—	$	114,558


Total other residential	$	15,800	$	31,981	$	25,529	$	15,411	$	7,964	$	17,873	$	—	$	114,558
Installment and other consumer:
Pass and Watch	$	17,207	$	7,748	$	9,436	$	5,633	$	1,123	$	6,620	$	1,766	$	49,533


Total installment and other consumer	$	17,207	$	7,748	$	9,436	$	5,633	$	1,123	$	6,620	$	1,766	$	49,533
Total loans:
Pass and Watch	$	445,036	$	375,654	$	306,557	$	222,117	$	129,675	$	486,821	$	180,287	$	2,146,147
Total Special Mention	$	16,748	$	2,914	$	3,298	$	19,892	$	1,787	$	26,536	$	2,088	$	73,263
Total Substandard	$	—	$	7,155	$	285	$	695	$	—	$	26,511	$	1,475	$	36,121
Total Doubtful	$	—	$	114	$	—	$	—	$	—	$	—	$	—	$	114
Totals	$	461,784	$	385,837	$	310,140	$	242,704	$	131,462	$	539,868	$	183,850	$	2,255,645


December 31, 2020	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost
(in thousands)	2020		2019		2018		2017		2016		Prior				Total
Commercial and industrial:
Pass and Watch	$	308,237	$	22,589	$	12,596	$	4,508	$	5,915	$	34,282	$	85,889	$	474,016
Special Mention	—		2,034		1,318		141		11		49		19,092		22,645
Substandard	1,747		—		—		—		—		—		—		1,747
Total commercial and industrial	$	309,984	$	24,623	$	13,914	$	4,649	$	5,926	$	34,331	$	104,981	$	498,408
Commercial real estate, owner-occupied:
Pass and Watch	$	31,029	$	27,581	$	32,603	$	43,843	$	12,768	$	101,014	$	—	$	248,838
Special Mention	—		—		11,764		17,062		7,343		6,601		—		42,770
Substandard	7,147		—		—		—		6,208		—		—		13,355
Total commercial real estate, owner-occupied	$	38,176	$	27,581	$	44,367	$	60,905	$	26,319	$	107,615	$	—	$	304,963
Commercial real estate, investor-owned:
Pass and Watch	$	162,300	$	144,751	$	173,955	$	100,842	$	94,862	$	253,611	$	117	$	930,438
Special Mention	—		10,695		—		1,819		—		8,124		—		20,638
Substandard	—		2,716		4,435		—		1,553		1,428		—		10,132
Total commercial real estate, investor-owned	$	162,300	$	158,162	$	178,390	$	102,661	$	96,415	$	263,163	$	117	$	961,208
Construction:
Pass and Watch	$	31,654	$	30,150	$	11,242	$	—	$	—	$	—	$	—	$	73,046


Total construction	$	31,654	$	30,150	$	11,242	$	—	$	—	$	—	$	—	$	73,046
Home equity:
Pass and Watch	$	—	$	—	$	—	$	—	$	128	$	694	$	102,614	$	103,436
Special Mention	—		—		—		—		—		—		799		799
Substandard	—		—		—		—		—		391		187		578
Total home equity	$	—	$	—	$	—	$	—	$	128	$	1,085	$	103,600	$	104,813
Other residential:
Pass and Watch	$	34,447	$	31,079	$	23,673	$	10,574	$	6,035	$	17,587	$	—	$	123,395


Total other residential	$	34,447	$	31,079	$	23,673	$	10,574	$	6,035	$	17,587	$	—	$	123,395
Installment and other consumer:
Pass and Watch	$	2,361	$	4,382	$	3,483	$	1,543	$	3,423	$	4,921	$	2,593	$	22,706

Substandard	—		—		—		17		—		—		—		17
Total installment and other consumer	$	2,361	$	4,382	$	3,483	$	1,560	$	3,423	$	4,921	$	2,593	$	22,723
Total loans:
Pass and Watch	$	570,028	$	260,532	$	257,552	$	161,310	$	123,131	$	412,109	$	191,213	$	1,975,875
Total Special Mention	$	—	$	12,729	$	13,082	$	19,022	$	7,354	$	14,774	$	19,891	$	86,852
Total Substandard	$	8,894	$	2,716	$	4,435	$	17	$	7,761	$	1,819	$	187	$	25,829
Totals	$	578,922	$	275,977	$	275,069	$	180,349	$	138,246	$	428,702	$	211,291	$	2,088,556


Loan Aging Analysis by Class
(in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor-owned		Construction		Home equity		Other residential		Installment and other consumer		Total
December 31, 2021
30-59 days past due	$	2	$	—	$	—	$	—	$	498	$	—	$	1,036	$	1,536
60-89 days past due	394		—		—		—		67		—		—		461
90 days or more past due	229		—		—		—		88		—		—		317
Total past due	625		—		—		—		653		—		1,036		2,314
Current	300,977		392,345		1,189,021		119,840		88,093		114,558		48,497		2,253,331
Total loans 1	$	301,602	$	392,345	$	1,189,021	$	119,840	$	88,746	$	114,558	$	49,533	$	2,255,645
Non-accrual loans 2	$	—	$	7,269	$	694	$	—	$	413	$	—	$	—	$	8,376
Non-accrual loans with no allowance	$	—	$	7,269	$	694	$	—	$	413	$	—	$	—	$	8,376
December 31, 2020
30-59 days past due	$	—	$	—	$	1,673	$	—	$	274	$	—	$	136	$	2,083
60-89 days past due	—		—		—		—		—		—		622		622
90 days or more past due	—		—		—		—		—		—		—		—
Total past due	—		—		1,673		—		274		—		758		2,705
Current	498,408		304,963		959,535		73,046		104,539		123,395		21,965		2,085,851
Total loans 1	$	498,408	$	304,963	$	961,208	$	73,046	$	104,813	$	123,395	$	22,723	$	2,088,556
Non-accrual loans 2	$	—	$	7,147	$	1,610	$	—	$	459	$	—	$	17	$	9,233
Non-accrual loans with no allowance	$	—	$	7,147	$	1,610	$	—	$	459	$	—	$	17	$	9,233

2 None of the non-accrual loans as of December 31, 2021 or 2020 were earning interest on a cash basis. We recognized no interest income on non-accrual loans for the years ended December 31, 2021, 2020 or 2019. There was no accrued interest reversed from interest income for the single loan that was placed on non-accrual status in 2021, as interest due was paid current. Accrued interest of $36 thousand was reversed from interest income for loans that were placed on non-accrual status during the year ended December 31, 2020.


	Amortized Cost by Collateral Type
(in thousands)	Commercial Real Estate		Residential Real Estate		Other		Total		Allowance for Credit Losses
December 31, 2021

Commercial real estate, owner-occupied	$	7,269	$	—	$	—	$	7,269	$	—
Commercial real estate, investor-owned	694		—		—		694		—

Home equity	—		413		—		413		—


Total	$	7,963	$	413	$	—	$	8,376	$	—
December 31, 2020
Commercial real estate, owner-occupied	$	7,147	$	—	$	—	$	7,147	$	—
Commercial real estate, investor-owned	1,610		—		—		1,610		—

Home equity	—		459		—		459		—

Installment and other consumer	—		—		17		17		—
Total	$	16,720	$	872	$	17	$	17,609	$	—

In accordance with section 4013 of the 2020 CARES Act, subsequently amended by section 541 of the 2020 Economic Aid Act, we elected to apply the temporary accounting relief provisions for loan modifications that met certain criteria, which would otherwise be designated as a TDR under existing GAAP. Since the onset of the pandemic, the Bank granted payment relief for 269 loans that included full payment deferral or interest-only payments on loan balances exceeding $402.9 million. As of December 31, 2020, there were 21 borrowing relationships with 29 loans totaling $71.0 million on payment relief. As of December 31, 2021, two borrowing relationships with three loans totaling $23.6 million were continuing to benefit from payment relief. The weighted average loan-to-value ratio of the remaining payment relief loans was approximately 44%. We accrue and recognize interest income on loans under payment relief based on the original contractual interest rates. When payments resume at the end of the relief period, the payments will generally be applied to accrued interest due until accrued interest is fully paid. We monitor the financial situation of these clients closely and expect them to resume payments as the economy continues to recover.


(dollars in thousands)	Number of Contracts Modified	Pre-Modification Amortized Cost		Post-Modification Amortized Cost		Post-Modification Amortized Cost at Period End
TDRs modified during 2021:
Commercial and industrial	1	$	1,101	$	1,101	$	901

Home equity	1	120		120		120

Total	2	$	1,221	$	1,221	$	1,021
TDRs modified during 2020:
Commercial and industrial	1	$	170	$	162	$	96
Commercial real estate, investor-owned	1	1,553		1,553		1,553
Home equity	1	276		276		271
Installment and other consumer	2	204		204		201
Total	5	$	2,203	$	2,195	$	2,121
TDRs modified during 2019:
Commercial and industrial	1	$	298	$	298	$	150

For purchased loans with a more-than-insignificant amount of credit deterioration since origination ("PCD loans") the initial allowance for credit losses at the date of acquisition was added to the purchase price (or fair value) to determine the initial amortized cost basis. Subsequent changes in expected credit losses (favorable or unfavorable) are recognized through net income as adjustments to the allowance for credit losses on loans. Refer to Note 1, Summary of Significant Accounting Policies, for additional information regarding the accounting for PCD and non-PCD loans.


Allowance for Credit Losses on Loans Rollforward
(in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor-owned		Construction		Home equity		Other residential		Installment and other consumer		Unallocated		Total
Year ended December 31, 2021
Beginning balance	$	2,530	$	2,778	$	12,682	$	1,557	$	738	$	998	$	291	$	1,300	$	22,874
Provision (reversal) - CECL method	(1,240)		(561)		(476)		62		(193)		(360)		333		986		(1,449)
Initial allowance for PCD loans	405		559		533		—		—		6		2		—		1,505
(Charge-offs)	—		—		—		—		—		—		(5)		—		(5)
Recoveries	14		—		—		34		50		—		—		—		98
Ending balance	$	1,709	$	2,776	$	12,739	$	1,653	$	595	$	644	$	621	$	2,286	$	23,023
Year ended December 31, 2020
Beginning balance	$	2,334	$	2,462	$	8,483	$	638	$	850	$	973	$	284	$	653	$	16,677
Provision - incurred loss method	208		673		3,141		219		188		287		122		612		5,450
(Charge-offs)	(30)		—		—		—		—		—		—		—		(30)
Recoveries	13		—		—		3		—		—		—		—		16
Balance at September 30, 2020	2,525		3,135		11,624		860		1,038		1,260		406		1,265		22,113
Impact of CECL adoption	(278)		138		1,755		201		(361)		(212)		(125)		486		1,604
Post adoption balance at October 1, 2020	2,247		3,273		13,379		1,061		677		1,048		281		1,751		23,717
Provision (reversal) - CECL method	269		(495)		(697)		496		61		(50)		11		(451)		(856)
(Charge-offs)	—		—		—		—		—		—		(1)		—		(1)
Recoveries	14		—		—		—		—		—		—		—		14
Ending balance	$	2,530	$	2,778	$	12,682	$	1,557	$	738	$	998	$	291	$	1,300	$	22,874
Year ended December 31, 2019
Beginning balance	$	2,436	$	2,407	$	7,703	$	756	$	915	$	800	$	310	$	494	$	15,821
Provision (reversal) - incurred loss method	(49)		55		768		(118)		(65)		173		(23)		159		900
(Charge-offs)	(75)		—		—		—		—		—		(3)		—		(78)
Recoveries	22		—		12		—		—		—		—		—		34
Ending balance	$	2,334	$	2,462	$	8,483	$	638	$	850	$	973	$	284	$	653	$	16,677

We adopted the CECL accounting standard on December 31, 2020, which we had previously postponed under the optional accounting relief provisions of the CARES Act passed in March 2020 to the earlier of the end of the national emergency or December 31, 2020. During the first nine months of 2020, we applied the incurred loss method under previous GAAP in determining the allowance for credit losses on loans. Refer to Note 1, Summary of Significant Accounting Policies, for additional information on the adoption of CECL.

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $1.330 billion and $1.165 billion at December 31, 2021 and 2020, respectively. In addition, we pledge eligible TIC loans, which totaled $106.2 million and $113.6 million at December 31, 2021 and 2020, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB"). For additional information, see Note 7, Borrowings.

The Bank has, and expects to have in the future, banking transactions in the ordinary course of its business with directors, officers, principal shareholders and their businesses or associates. These transactions, including loans, are granted on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with persons not related to us. Likewise, these transactions do not involve more than the normal risk of collectability or present other unfavorable features.