Loans Receivable, Net

3 Months Ended

Mar. 31, 2022

Loans receivable, net at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):


	March 31,		December 31,
	2022		2021
Commercial:
Commercial real estate – investor	$	4,607,880	$	4,378,061
Commercial real estate – owner occupied	1,057,246		1,055,065
Commercial and industrial (1)	502,739		449,224
Total commercial	6,167,865		5,882,350
Consumer:
Residential real estate	2,687,927		2,479,701

Home equity loans and lines and other consumer (“other consumer”)	253,184		260,819

Total consumer	2,941,111		2,740,520
Total loans receivable	9,108,976		8,622,870
Deferred origination costs, net of fees	7,301		9,332
Allowance for loan credit losses	(50,598)		(48,850)
Total loans receivable, net	$	9,065,679	$	8,583,352

(1) The commercial and industrial loans balance at March 31, 2022 and December 31, 2021 includes Paycheck Protection Program loans of $15.0 million and $22.9 million, respectively.

The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. Generally, risk ratings for loans on forbearance pursuant to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, extended by the Coronavirus Response and Relief Supplemental Appropriations (“CRRSA”) Act of 2021, 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 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. 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):


	2022		2021		2020		2019		2018		2017 and prior		Revolving lines of credit		Total
March 31, 2022

Commercial real estate - investor
Pass	$	325,263	$	1,368,731	$	611,037	$	537,525	$	262,169	$	1,110,883	$	277,149	$	4,492,757
Special Mention	—		—		—		19,416		9,378		31,267		655		60,716
Substandard	—		—		—		21,625		83		30,803		1,896		54,407
Total commercial real estate - investor	325,263		1,368,731		611,037		578,566		271,630		1,172,953		279,700		4,607,880
Commercial real estate - owner occupied
Pass	36,220		119,031		73,971		123,635		90,325		530,927		10,408		984,517
Special Mention	—		—		—		10,851		4,610		9,395		260		25,116
Substandard	—		—		—		4,600		7,722		35,128		163		47,613
Total commercial real estate - owner occupied	36,220		119,031		73,971		139,086		102,657		575,450		10,831		1,057,246
Commercial and industrial
Pass	17,126		36,479		20,194		19,933		14,809		57,415		324,808		490,764
Special Mention	—		—		—		658		269		325		3,207		4,459
Substandard	—		—		423		1,764		813		2,124		2,392		7,516
Total commercial and industrial	17,126		36,479		20,617		22,355		15,891		59,864		330,407		502,739


Residential real estate (1)
Pass	313,669		869,552		453,895		267,613		114,815		665,096		—		2,684,640
Special Mention	—		—		—		684		—		461		—		1,145
Substandard	—		—		—		—		—		2,142		—		2,142
Total residential real estate	313,669		869,552		453,895		268,297		114,815		667,699		—		2,687,927
Other consumer (1)
Pass	6,056		27,264		17,848		17,712		48,383		133,500		—		250,763
Special Mention	—		—		—		—		—		175		—		175
Substandard	—		—		—		—		60		2,186		—		2,246
Total other consumer	6,056		27,264		17,848		17,712		48,443		135,861		—		253,184

Total loans	$	698,334	$	2,421,057	$	1,177,368	$	1,026,016	$	553,436	$	2,611,827	$	620,938	$	9,108,976

(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.


	2021		2020		2019		2018		2017		2016 and prior		Revolving lines of credit		Total
December 31, 2021
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
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 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
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.

An analysis of the allowance for credit losses on loans for the three months ended March 31, 2022 and 2021 is as follows (in thousands):


	Commercial Real Estate – Investor		Commercial Real Estate – Owner Occupied		Commercial and Industrial		Residential Real Estate		Other Consumer		Unallocated		Total
For the three months ended March 31, 2022
Allowance for credit losses on loans
Balance at beginning of period	$	25,504	$	5,884	$	5,039	$	11,155	$	1,268	$	—	$	48,850
Credit loss (benefit) expense	(1,867)		(840)		(406)		5,028		(259)		—		1,656
Charge-offs	—		(4)		—		—		(139)		—		(143)
Recoveries	—		13		16		94		112		—		235
Balance at end of period	$	23,637	$	5,053	$	4,649	$	16,277	$	982	$	—	$	50,598
For the three months ended March 31, 2021
Allowance for credit losses on loans
Balance at beginning of period	$	26,703	$	15,054	$	5,390	$	11,818	$	1,770	$	—	$	60,735
Credit loss expense (benefit)	10,149		(7,257)		(2,875)		(335)		(721)		—		(1,039)


Charge-offs	(34)		—		—		(242)		(80)		—		(356)
Recoveries	104		30		26		39		437		—		636
Balance at end of period	$	36,922	$	7,827	$	2,541	$	11,280	$	1,406	$	—	$	59,976

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, non-accruing. At March 31, 2022 and December 31, 2021, the Company had collateral dependent loans with an amortized cost balance as follows: commercial real estate - investor of $3.6 million for each period, commercial real estate - owner occupied of $9.6 million and $11.9 million, respectively, and commercial and industrial of $2.8 million and $277,000, 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 $440,000 and $438,000 at March 31, 2022 and December 31, 2021, respectively. At both March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021 (in thousands):


	March 31,		December 31,
	2022		2021
Commercial real estate – investor	$	3,575	$	3,614
Commercial real estate – owner occupied	9,632		11,904
Commercial and industrial	2,830		277
Residential real estate	7,047		6,114
Other consumer	3,841		3,585
	$	26,925	$	25,494

At March 31, 2022 and December 31, 2021, the non-accrual loans were included in the allowance for credit loss calculation and the Company did not recognize or accrue interest income on these loans. At March 31, 2022, there were no loans that were 90 days or greater past due and still accruing. 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.

The following table presents the aging of the recorded investment in past due loans as of March 31, 2022 and December 31, 2021 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
March 31, 2022
Commercial real estate – investor	$	2,109	$	74	$	1,663	$	3,846	$	4,604,034	$	4,607,880
Commercial real estate – owner occupied	4,465		18		373		4,856		1,052,390		1,057,246
Commercial and industrial	66		43		356		465		502,274		502,739
Residential real estate	9,816		1,146		2,142		13,104		2,674,823		2,687,927
Other consumer	779		175		2,246		3,200		249,984		253,184
	$	17,235	$	1,456	$	6,780	$	25,471	$	9,083,505	$	9,108,976
December 31, 2021
Commercial real estate – investor	$	1,717	$	102	$	1,709	$	3,528	$	4,374,533	$	4,378,061
Commercial real estate – owner occupied	599		—		575		1,174		1,053,891		1,055,065
Commercial and industrial	25		151		277		453		448,771		449,224
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
	$	12,385	$	2,161	$	8,182	$	22,728	$	8,600,142	$	8,622,870

The Company classifies certain loans as troubled debt restructuring (“TDR”) loans when credit terms to a borrower in financial difficulty are modified. The modifications may include a reduction in rate, an extension in term, the capitalization of past due amounts and/or the restructuring of scheduled principal payments. Residential real estate and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered TDR loans. For these loans, the Bank retains its security interest in the real estate collateral. At March 31, 2022 and December 31, 2021, TDR loans totaled $19.6 million and $23.6 million, respectively. At March 31, 2022 and December 31, 2021, there were $11.9 million and $11.3 million, respectively, of TDR loans included in the non-accrual loan totals. At March 31, 2022 and December 31, 2021, the Company had no specific reserves allocated to loans that were classified as TDR loans. Non-accrual loans which become TDR loans are generally returned to accrual status after six months of performance. In addition to the TDR loans included in non-accrual loans, the Company also has TDR loans classified as accruing loans which totaled $7.7 million and $12.3 million at March 31, 2022 and December 31, 2021, respectively.

The following table presents information about TDR loans which occurred during the three months ended March 31, 2022 and 2021 (dollars in thousands):


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended March 31, 2022
Troubled debt restructurings:

Commercial and industrial	1	$	65	$	65
Other consumer	3	991		1,109


Three months ended March 31, 2021
Troubled debt restructurings:




Other consumer	2	$	26	$	33

There were no TDR loans that defaulted during the three months ended March 31, 2022 and 2021, 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 Bank’s 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, 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 March 31, 2022 and 2021 and will not be reported as past due during the deferral period.