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Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2021
Receivables [Abstract]  
Allowance for Credit Losses Allowance for Credit Losses
Allowance for Credit Losses Methodology

In accordance with CECL, the ACL represents management's estimate of lifetime credit losses for assets within its scope, specifically loans and leases and unfunded commitments. To calculate the ACL, management uses models to estimate the PD and LGD for loans utilizing inputs that include forecasted future economic conditions and that are dependent upon specific macroeconomic variables relevant to each of the Bank's loan and lease portfolios. Moody's Analytics, a third party, provided the historical and forward-looking macroeconomic data utilized in the models used to calculate the ACL.

For ACL calculation purposes, the Bank considered the financial and economic environment at the time of assessment and economic scenarios that differed in the levels of severity and sensitivity to the ACL results. At each measurement date, the Bank selects the scenario that reflects its view of future economic conditions and is determined to be the most probable outcome.

All forecasts are updated for each variable where applicable and incorporated as relevant into the ACL calculation. Actual credit loss results and the timing thereof will differ from the estimate of credit losses, either in a strong economy or a recession, as the portfolio will change through time due to growth, risk mitigation actions and other factors. In addition, the scenarios used will differ and change through time as economic conditions change. Economic scenarios might not capture deterioration or improvement in the economy timely enough for the Bank to be able to adequately address the impact to the ACL.

Select macroeconomic variables are projected over the forecast period, and they could have a material impact in determining the ACL. As the length of the forecast period increases, information about the future becomes less readily available and projections are inherently less certain.
The following is a discussion of the changes in the factors that influenced management's current estimate of expected credit losses. The changes in the ACL estimate for all portfolio segments, during the three and nine months ended September 30, 2021, were primarily related to changes in the economic assumptions. The Bank opted to use Moody's Analytics' August consensus economic forecast for estimating the ACL as of September 30, 2021. This scenario is based on Moody's Analytics' review of a variety of surveys of baseline forecasts of the U.S. economy. These surveys vary in date of latest vintage, number of updates per year, list of variables forecast, duration of forecast, frequency of data (quarterly or annual), and the number of respondents. In the preparation of the Moody's Analytics consensus forecast, the focus is on the next three to five years, since that is the most typical duration in the surveyed results. Moody's Analytics' approach is to give greater consideration to the most recently produced forecasts, since they will include the most up-to-date historical information, and to those variables for which the number of surveyed responses is largest.

In the consensus scenario selected, the probability that the economy will perform better than this consensus is equal to the probability that it will perform worse and included the following factors:
•U.S. real GDP average annualized growth of 4.9% through 2022;
•U.S. unemployment rate average for 2021 of 5.5%, dropping to 4.2% in 2022;
•COVID infections abate in November 2021;
•Federal Reserve to keep the target range for the Fed Funds rate at 0% to 0.25% until early 2023.

The Bank uses an additional scenario that differs in terms of severity within the variables, both favorable and unfavorable, to assess the sensitivity in the ACL results and to inform qualitative adjustments. The Bank selected the Moody's Analytics' August S2 scenario for this analysis. In the scenario selected, there is a 75% probability that the economy will perform better, broadly speaking, and a 25% probability that it will perform worse; and the scenario includes the following factors:
•The stimulus is less effective than expected because of slower consumer spending. More of the funds end up in savings, and thus fiscal multipliers are smaller than assumed in the consensus scenario;
•New cases, hospitalizations and deaths from COVID-19 rise again and then diminish more slowly than anticipated, with fewer people than expected receiving vaccines;
•U.S. real GDP average annualized growth of 3.5% through 2022;
•U.S. unemployment rate average for 2021 of 5.9% with return to less than 5.0% unemployment in 2023;
•COVID infections abate in January 2022;
•Federal Reserve to keep target range for the Fed Funds rate near 0% until mid-2024.

The results using the comparison scenario for sensitivity analysis were reviewed by management and were considered when evaluating the qualitative factor adjustments.

The ACL is measured on a collective (pool) basis when similar characteristics exist. The Company has selected models at the portfolio level using a risk-based approach, with larger, more complex portfolios having more complex models. Except as noted below, the macroeconomic variables that are inputs to the models are reasonable and supportable over the life of the loans in that they reasonably project the key economic variables in the near term and then converge to a long run equilibrium trend. These models produce reasonable and supportable estimates of loss over the life of the loans as the projected credit losses will also converge to a steady state in line with the variables applied. The Company measures the ACL using the following methods:

Commercial Real Estate: Non-owner occupied commercial real estate, multifamily, and construction loans are analyzed using a model that uses four primary property variables: net operating income, property value, property type, and location. For PD estimation, the model simulates potential future paths of net operating income given commercial real estate market factors determined from macroeconomic and regional commercial real estate forecasts. Using the resulting expected debt service coverage ratios, together with predicted loan-to-values and other variables, the model estimates PD from the range of conditional possibilities. In addition, the model estimates maturity PD capturing refinance default risk to produce a total PD for the loan. The model estimates LGD, inclusive of principal loss and liquidation expenses, empirically using predicted loan-to-value as well as certain market and other factors. The LGD calculation also includes a separate maturity risk component. The primary economic drivers in the model are GDP growth, U.S. unemployment rate, and 10-Year Treasury yield. These economic drivers are translated into a forecast provided by Moody's Analytics' REIS of real estate metrics, such as rental rates, vacancies and cap rates. The model produces PD and LGD on a quarter-by-quarter basis for the life of loan.

The owner-occupied commercial real-estate portfolio utilizes a top-down macroeconomic model using linear regression. This model produces portfolio level quarterly net charge-off rates for 10 years and carries forward the last quarter's projected expected loss percentage to remaining periods. The primary economic drivers for this model are the 7-year A vs Aa corporate bond spread and S&P 500 corporate after-tax profits.
Commercial: Non-homogeneous commercial loans and leases and residential development loans are analyzed in a multi-step process. An initial PD is estimated using a model driven by an obligor's selected financial statement ratios, together with cycle-adjusting information based on the obligor's state and industry. An initial LGD is derived separately based on collateral type using collateral value and a haircut to reflect the loss in liquidation. Another model then applies an auto-regression technique to the initial PD and LGD metrics to estimate the PD and LGD curves according to the macroeconomic scenario over a one-year reasonable and supportable forecast. The primary economic drivers in the model are the S&P 500 Stock Price Index, S&P 500 Market Volatility Index, U.S. unemployment rate, as well as appropriate yield curves and credit spreads. This model utilizes output reversion methodology, which, after one year, reverts on a straight-line basis over two years to long-term PD estimated using financial statement ratios of each obligor.

The model for the homogeneous lease and equipment finance agreement portfolio uses lease and equipment finance agreement information, such as origination and performance, as well as macroeconomic variables to calculate PD and LGD values. The PD calculation is based on survival analysis while LGD is calculated using a two-step regression. The model calculates LGD using an estimate of the probability that a defaulted lease or equipment finance agreement will have a loss, and an estimate of the loss amount. The primary economic drivers for the model are GDP, U.S. unemployment rate, and a home price growth index. The model produces PD and LGD curves at the lease or equipment finance agreement level for each month in the forecast horizon.

Residential: The models for residential real estate and home equity lines of credit utilize loan level variables, such as origination and performance, as well as macroeconomic variables to calculate PD and LGD. The U.S. unemployment rate and home price growth rate indexes are primary economic drivers in both the residential real estate and HELOC models. In addition, the prime rate is also a primary driver in the HELOC model. The models focus on establishing an empirical relationship between default probabilities and a set of loan-level, borrower, and macroeconomic credit risk drivers. The LGD calculation for residential real estate is based on an estimate of the probability that a defaulted loan will have a loss, and then an estimate of the loss amount. HELOCs utilize the same model using residential real estate LGD values to assign loans to cohorts based on FICO scores and loan age. The model produces PD and LGD curves at the loan level for each quarter in the forecast horizon.

Consumer: Historical net charge-off information as well as economic forecast assumptions are used to project loss rates for the Consumer segment.

All loans and leases that have not been modeled receive a loss rate via an extrapolated rate methodology. The loans and leases receiving an extrapolated rate are typically newly originated loans and leases or loans and leases without the granularity of data necessary to be modeled. Based on the vintage year, credit classification, and reporting category of the modeled loans and leases, a loss factor is calculated and applied to the non-modeled loans and leases.

Along with the quantitative factors produced by the above models, management also considers prepayment speeds and qualitative factors when determining the ACL. The Company uses a prepayment model that forecasts the constant prepayment rates based on institution specific data for the commercial real estate, commercial and consumer portfolios and a forward curve approach that changes with macro-economic input variables for the residential portfolio. Below are the nine qualitative factors considered where applicable:

•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.
•Changes in national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.
•Changes in the nature and volume of the portfolio and in the terms of loans and leases.
•Changes in the experience, ability, and depth of lending management and other relevant staff.
•Changes in the volume and severity of past due loans and leases, the volume of non-accrual loans and leases, and the volume and severity of adversely classified or graded loans and leases.
•Changes in the quality of the Bank's credit review system.
•Changes in the value of the underlying collateral for collateral-dependent loans and leases.
•The existence and effect of any concentrations of credit, and changes in the level of such concentrations.
•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Bank's existing portfolio.
The Company evaluated each qualitative factor as of September 30, 2021, and made qualitative overlay adjustments of approximately $16.9 million to increase the amounts indicated by the models as considered necessary to adequately reflect the significant changes in credit conditions and overall portfolio risk, including $13.8 million qualitative overlay increase related to loans collateralized by hotel, retail, and office properties.

Loss factors from the models, prepayment speeds, and qualitative factors are input into the Company's CECL accounting application which aggregates the information. The Company then uses two methods to calculate the current expected credit loss: 1) the discounted cash flow method, which is used for all loans except lines of credit and 2) the non-discounted cash flow method which is used for lines of credit due to difficulty of calculating an effective interest rate when lines have yet to be drawn on. The DCF method utilizes the effective interest rate of individual assets to discount the expected credit losses adjusted for prepayments. The difference in the net present value and the amortized cost of the asset will result in the required allowance. The non-discounted cash flow method uses the exposure at default, along with the expected credit losses adjusted for prepayments to calculate the required allowance.

The following tables summarize activity related to the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30, 2021
(in thousands)Commercial Real EstateCommercialResidentialConsumer & OtherTotal
Allowance for credit losses on loans and leases
Balance, beginning of period$128,951 $121,390 $25,296 $4,250 $279,887 
(Recapture) provision for credit losses for loans and leases (20,141)2,719 1,703 (413)(16,132)
Charge-offs(916)(8,521)— (936)(10,373)
Recoveries120 3,346 281 431 4,178 
Net (charge-offs) recoveries(796)(5,175)281 (505)(6,195)
Balance, end of period$108,014 $118,934 $27,280 $3,332 $257,560 
Reserve for unfunded commitments
Balance, beginning of period$10,094 $2,145 $1,710 $590 $14,539 
(Recapture) provision for credit losses on unfunded commitments(3,273)440 247 (201)(2,787)
Balance, end of period6,821 2,585 1,957 389 11,752 
Total allowance for credit losses$114,835 $121,519 $29,237 $3,721 $269,312 
Nine Months Ended September 30, 2021
(in thousands)Commercial Real EstateCommercialResidentialConsumer & OtherTotal
Allowance for credit losses on loans and leases
Balance, beginning of period$141,710 $150,864 $27,964 $7,863 $328,401 
(Recapture) provision for credit losses for loans and leases(33,199)4,180 (1,212)(3,150)(33,381)
Charge-offs(1,086)(44,228)(70)(2,983)(48,367)
Recoveries589 8,118 598 1,602 10,907 
Net (charge-offs) recoveries(497)(36,110)528 (1,381)(37,460)
Balance, end of period$108,014 $118,934 $27,280 $3,332 $257,560 
Reserve for unfunded commitments
Balance, beginning of period15,360 2,190 1,661 1,075 20,286 
(Recapture) provision for credit losses on unfunded commitments(8,539)395 296 (686)(8,534)
Balance, end of period6,821 2,585 1,957 389 11,752 
Total allowance for credit losses$114,835 $121,519 $29,237 $3,721 $269,312 
Three Months Ended September 30, 2020
(in thousands)Commercial Real EstateCommercialResidentialConsumer & OtherTotal
Allowance for credit losses on loans and leases
Balance, beginning of period$152,828 $152,615 $40,548 $10,754 $356,745 
(Recapture) provision for credit losses for loans and leases(18,834)25,603 (5,641)657 1,785 
Charge-offs— (15,426)(120)(1,100)(16,646)
Recoveries 61 2,044 407 653 3,165 
Net recoveries (charge-offs)61 (13,382)287 (447)(13,481)
Balance, end of period$134,055 $164,836 $35,194 $10,964 $345,049 
Reserve for unfunded commitments
Balance, beginning of period$20,808 $2,921 $2,061 $578 $26,368 
(Recapture) provision for credit losses on unfunded commitments(380)(1,198)(542)58 (2,062)
Balance, end of period20,428 1,723 1,519 636 24,306 
Total allowance for credit losses$154,483 $166,559 $36,713 $11,600 $369,355 
Nine Months Ended September 30, 2020
(in thousands)Commercial Real EstateCommercialResidentialConsumer & OtherTotal
Allowance for credit losses on loans and leases
Balance, beginning of period$50,847 $73,820 $24,714 $8,248 $157,629 
Impact of CECL adoption5,077 44,009 2,099 (1,186)49,999 
Adjusted balance, beginning of period55,924 117,829 26,813 7,062 207,628 
Provision for credit losses for loans and leases77,664 96,577 7,701 6,829 188,771 
Charge-offs— (55,583)(274)(4,697)(60,554)
Recoveries467 6,013 954 1,770 9,204 
Net recoveries (charge-offs)467 (49,570)680 (2,927)(51,350)
Balance, end of period$134,055 $164,836 $35,194 $10,964 $345,049 
Reserve for unfunded commitments
Balance, beginning of period$534 $2,539 $149 $1,884 $5,106 
Impact of CECL adoption4,030 (487)1,267 (1,572)3,238 
Adjusted balance, beginning of period4,564 2,052 1,416 312 8,344 
Provision (recapture) for credit losses on unfunded commitments15,864 (329)103 324 15,962 
Balance, end of period20,428 1,723 1,519 636 24,306 
Total allowance for credit losses$154,483 $166,559 $36,713 $11,600 $369,355 

The following table presents the unfunded commitments for the period ended September 30, 2021 and 2020:
(in thousands)Total
Unfunded loan and lease commitments
September 30, 2021
$6,302,898 
September 30, 2020
$5,887,887 
Asset Quality and Non-Performing Loans and Leases

The Bank manages asset quality and controls credit risk through diversification of the loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank's Credit Quality Administration department is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due loans and leases and larger credits, designed to identify potential charges to the allowance for credit losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan and lease loss experience, estimated loan and lease losses, growth in the loan and lease portfolio, prevailing economic conditions and other factors.

Loans and Leases Past Due and Non-Accrual Loans and Leases

Typically, loans in a non-accrual status will not have an allowance for credit loss as they will be written down to their net realizable value or charged-off. However, the net realizable value for homogeneous leases and equipment finance agreements is determined by the LGD calculated by the CECL model and therefore leases and equipment finance agreements on non-accrual will have an allowance for credit losses until they become 181 days past due, at which time they are charged-off. The Company recognized no interest income on non-accrual loans and leases during the three and nine months ended September 30, 2021 and 2020.

Due to the deterioration of the U.S. economy resulting from the COVID-19 pandemic, the Company had an increase in loan payment deferral and forbearance requests. Once a deferral or forbearance request is received, a late charge waiver is put in place and payments are suspended for an agreed-upon period. Accrued and unpaid interest during the deferral period will be collected upon the expiration of the deferral or on a regular repayment schedule at the end of the deferral period. For certain loan types, the maturity date may be extended to allow for full amortization. In accordance with various government-mandated programs, these loans are generally classified based on their past due status prior to their deferral period; as such, they are classified as performing loans that accrue interest. As of September 30, 2021, loans of approximately $132.5 million are currently deferred under various federal and state guidelines and are classified as current as their contractual payments have been deferred. These deferred loans do not include deferrals of delinquent repurchased GNMA loans as the credit risk of these loans are guaranteed by government programs such as Federal Housing Agency, Veterans Affairs, and USDA Rural Development. At September 30, 2021, approximately $121.0 million of GNMA repurchased loans were on deferral. At December 31, 2020, the Bank had $355.5 million in deferred loans under various federal and state guidelines, excluding GNMA repurchased loans on deferral of $177.7 million.
The following tables present the carrying value of the loans and leases past due, by loan and lease class, as of September 30, 2021 and December 31, 2020:
September 30, 2021
(in thousands)Greater than 30 to 59 Days Past Due60 to 89 Days Past DueGreater than 90 Days and AccruingTotal Past Due
Non-Accrual (1)
CurrentTotal Loans and Leases
Commercial real estate
Non-owner occupied term, net$1,750 $— $— $1,750 $3,417 $3,556,597 $3,561,764 
Owner occupied term, net1,416 343 1 1,760 2,535 2,326,043 2,330,338 
Multifamily, net9,389 — — 9,389 — 3,803,635 3,813,024 
Construction & development, net— — — — — 882,778 882,778 
Residential development, net— — — — — 177,148 177,148 
Commercial
Term, net211 82 2 295 5,511 3,153,660 3,159,466 
Lines of credit & other, net501 5,820 3 6,324 930 923,096 930,350 
Leases & equipment finance, net8,502 7,347 2,449 18,298 11,759 1,427,191 1,457,248 
Residential
Mortgage, net
943 2,728 23,957 27,628 — 4,303,232 4,330,860 
Home equity loans & lines, net1,182 414 962 2,558 — 1,131,265 1,133,823 
Consumer & other, net455 243 116 814 — 192,327 193,141 
Total, net of deferred fees and costs$24,349 $16,977 $27,490 $68,816 $24,152 $21,876,972 $21,969,940 
(1) Loans and leases on non-accrual with an amortized cost basis of $24.2 million had a related allowance for credit losses of $7.3 million at September 30, 2021.
December 31, 2020
(in thousands)Greater than 30 to 59 Days Past Due60 to 89 Days Past DueGreater than 90 Days and AccruingTotal Past Due
Non-Accrual (1)
Current and OtherTotal Loans and Leases
Commercial real estate
Non-owner occupied term, net$1,214 $21,309 $815 $23,338 $3,809 $3,478,655 $3,505,802 
Owner occupied term, net182 103 208 493 5,984 2,327,468 2,333,945 
Multifamily, net— 215 — 215 — 3,348,981 3,349,196 
Construction & development, net3,991 — — 3,991 — 824,487 828,478 
Residential development, net— — — — — 192,761 192,761 
Commercial
Term, net562 — 4 566 2,205 4,021,696 4,024,467 
Lines of credit & other, net1,491 2,667 7 4,165 336 858,259 862,760 
Leases & equipment finance, net14,242 18,220 4,796 37,258 18,742 1,400,630 1,456,630 
Residential
Mortgage, net
1,587 3,912 27,713 33,212 — 3,838,694 3,871,906 
Home equity loans & lines, net844 544 2,463 3,851 — 1,132,213 1,136,064 
Consumer & other, net678 286 355 1,319 — 216,039 217,358 
Total, net of deferred fees and costs$24,791 $47,256 $36,361 $108,408 $31,076 $21,639,883 $21,779,367 
(1) Loans and leases on non-accrual with an amortized cost basis of $31.1 million had a related allowance for credit losses of $16.7 million at December 31, 2020.

Collateral Dependent Loans and Leases

Loans are classified as collateral dependent when it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes the amortized cost basis of the collateral dependent loans and leases by the type of collateral securing the assets as of September 30, 2021. There have been no significant changes in the level of collateralization from the prior periods.
(in thousands)Residential Real EstateCommercial Real Estate General Business AssetsOtherTotal
Commercial real estate
  Non-owner occupied term, net$— $3,121 $— $— $3,121 
  Owner occupied term, net— 2,123 — — 2,123 
Commercial
   Term, net1,356 536 779 2,454 5,125 
   Line of credit & other, net— — 930 1 931 
   Leases & equipment finance, net— — 11,759 — 11,759 
Residential
   Mortgage, net27,988 — — — 27,988 
   Home equity loans & lines, net2,937 — — — 2,937 
Total net of deferred fees and costs$32,281 $5,780 $13,468 $2,455 $53,984 
Troubled Debt Restructuring

At September 30, 2021 and December 31, 2020, troubled debt restructured loans of $9.8 million and $15.0 million, respectively, were classified as accruing TDR loans. The TDRs were granted in response to borrower financial difficulties, and generally provide for a temporary modification of loan repayment terms. In order for a new TDR loan to be considered for accrual status, the loan's collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow.

The following tables present TDR loans by accrual versus non-accrual status and by portfolio segment as of September 30, 2021 and December 31, 2020:
September 30, 2021
(in thousands)Accrual StatusNon-Accrual Status Total Modification# of Contracts
Commercial real estate, net$1,061 $70 $1,131 5 
Residential, net8,762 — 8,762 45 
Consumer & other, net26 — 26 3 
Total, net of deferred fees and costs$9,849 $70 $9,919 53 
December 31, 2020
(in thousands)Accrual StatusNon-Accrual StatusTotal Modification# of Contracts
Commercial real estate, net$1,345 $289 $1,634 7 
Commercial, net1,231 — 1,231 1 
Residential, net12,415 — 12,415 75 
Total, net of deferred fees and costs$14,991 $289 $15,280 83 

The following table presents loans that were determined to be TDRs during the three and nine months ended September 30, 2021 and 2020:
Three Months EndedNine Months Ended
(in thousands)September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Commercial, net$— $— $— $8,508 
Residential, net1,661 7,029 5,903 13,463 
Consumer & other, net— — 36 74 
Total, net of deferred fees and costs$1,661 $7,029 $5,939 $22,045 

Credit Quality Indicators

Management regularly reviews loans and leases in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading. In addition, the board reviews and approves the credit quality indicators each year. The Bank differentiates its lending portfolios into homogeneous and non-homogeneous loans and leases. Homogeneous loans and leases are risk rated on a single risk rating scale based on the past due status of the loan or lease.
The Bank's risk rating methodology for its non-homogeneous loans and leases uses a dual risk rating approach to assess the credit risk. This approach uses two scales to provide a comprehensive assessment of credit default risk and recovery risk. The probability of default scale measures a borrower's credit default risk using risk ratings ranging from 1 to 16, where a higher rating represents higher risk. For non-homogeneous loans and leases, PD ratings of 1 through 9 are "pass" grades, while PD ratings of 10 and 11 are "watch" grades. PD ratings of 12-16 correspond to the regulatory-defined categories of special mention (12), substandard (13-14), doubtful (15), and loss (16). The loss given default scale measures the amount of loss that may not be recovered in the event of a default, using six alphabetic ratings from A-F, where a higher rating represents higher risk. The LGD scale quantifies recovery risk associated with an event of default and predicts the amount of loss that would be incurred on a loan or lease if a borrower were to experience a major default and includes variables that may be external to the borrower, such as industry, geographic location, and credit cycle stage. It could also include variables specific to the borrower such as their probability of default and bankruptcies as well as variables specific to the loan or lease, including collateral valuation, covenant structure and debt type. The product of the borrower's PD and a loan or lease LGD is the loan or lease expected loss, expressed as a percentage. This provides a common language of credit risk across different loans.

The PD scale estimates the likelihood that a borrower will experience a major default on any of its debt obligations within a specified time period. Examples of major defaults include payments 90 days or more past due, non-accrual classification, bankruptcy filing, or a full or partial charge-off of a loan or lease. As such, the PD scale represents the credit quality indicator for non-homogeneous loans and leases.

The credit quality indicator rating categories follow regulatory classification and can be generally described by the following groupings for loans and leases:

Pass/Watch—A pass loan or lease is a loan or lease with a credit risk level acceptable to the Bank for extending credit and maintaining normal credit monitoring. A watch loan or lease is considered pass rated but has a heightened level of unacceptable default risk due to an emerging risk element or declining performance trend. Watch ratings are expected to be temporary, with issues resolved or manifested to the extent that a higher or lower risk rating would be appropriate within a short period of time.

Special Mention—A special mention loan or lease has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. These borrowers have an elevated probability of default but not to the point of a substandard classification.

Substandard—A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful—Loans or leases 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, based on currently existing facts, conditions, and values, highly questionable and improbable.

Loss—Loans or leases classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.
The following tables represent the amortized costs basis of the loans and leases by credit classification and vintage year by loan and lease class of financing receivable as of September 30, 2021 and December 31, 2020:
(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
September 30, 202120212020201920182017PriorTotal
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
Pass/Watch$526,979 $452,318 $626,217 $451,713 $323,746 $1,017,904 $1,853 $4,060 $3,404,790 
Special mention10,693 933 5,791 36,676 — 48,995 — — 103,088 
Substandard829 2,020 2,616 20,787 3,008 24,296 — — 53,556 
Doubtful— — — — — 86 — — 86 
Loss— — — — — 244 — — 244 
Total non-owner occupied term, net$538,501 $455,271 $634,624 $509,176 $326,754 $1,091,525 $1,853 $4,060 $3,561,764 
Owner occupied term, net
Credit quality indicator:
Pass/Watch$375,653 $254,143 $390,432 $283,285 $282,030 $674,773 $5,187 $748 $2,266,251 
Special mention550 897 7,977 11,685 9,322 19,095 — — 49,526 
Substandard— — 703 968 — 12,393 — — 14,064 
Doubtful— — — — — 67 — — 67 
Loss— — — — — 430 — — 430 
Total owner occupied term, net$376,203 $255,040 $399,112 $295,938 $291,352 $706,758 $5,187 $748 $2,330,338 
Multifamily, net
Credit quality indicator:
Pass/Watch$1,124,021 $386,911 $794,320 $427,943 $421,530 $621,542 $23,182 $2,936 $3,802,385 
Special mention— — — — — 1,250 — — 1,250 
Substandard— — — — 9,389 — — — 9,389 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total multifamily, net$1,124,021 $386,911 $794,320 $427,943 $430,919 $622,792 $23,182 $2,936 $3,813,024 
Construction & development, net
Credit quality indicator:
Pass/Watch$132,710 $321,591 $275,301 $105,270 $27,688 $172 $2,380 $— $865,112 
Special mention— 1,635 — 7,600 — — — — 9,235 
Substandard— — — 8,431 — — — — 8,431 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total construction & development, net$132,710 $323,226 $275,301 $121,301 $27,688 $172 $2,380 $— $882,778 
Residential development, net
Credit quality indicator:
Pass/Watch$15,260 $15,391 $— $— $— $— $136,948 $9,549 $177,148 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total residential development, net$15,260 $15,391 $— $— $— $— $136,948 $9,549 $177,148 
Total commercial real estate$2,186,695 $1,435,839 $2,103,357 $1,354,358 $1,076,713 $2,421,247 $169,550 $17,293 $10,765,052 
(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
September 30, 202120212020201920182017PriorTotal
Commercial:
Term, net
Credit quality indicator:
Pass/Watch$1,024,743 $511,451 $237,257 $238,367 $186,079 $238,496 $594,949 $15,062 $3,046,404 
Special mention15,000 7,501 122 29,182 642 1,181 26,795 239 80,662 
Substandard16,469 650 1,772 1,379 3,647 1,648 — 5,548 31,113 
Doubtful— — — — 869 1 — — 870 
Loss— — — 417 — — — — 417 
Total term, net$1,056,212 $519,602 $239,151 $269,345 $191,237 $241,326 $621,744 $20,849 $3,159,466 
Lines of credit & other, net
Credit quality indicator:
Pass/Watch$33,823 $11,766 $16,996 $17,615 $357 $1,888 $772,450 $2,997 $857,892 
Special mention496 — — 134 — 224 15,364 2,009 18,227 
Substandard— 476 — — — 1,118 47,428 5,205 54,227 
Doubtful— — — — — — 2 — 2 
Loss— — — — — — 1 1 2 
Total lines of credit & other, net$34,319 $12,242 $16,996 $17,749 $357 $3,230 $835,245 $10,212 $930,350 
Leases & equipment finance, net
Credit quality indicator:
Pass/Watch$468,180 $366,626 $322,365 $161,696 $58,870 $44,112 $— $— $1,421,849 
Special mention2,193 1,980 2,349 1,869 706 170 — — 9,267 
Substandard1,650 6,179 2,279 4,380 741 263 — — 15,492 
Doubtful2,273 2,494 2,373 1,506 748 70 — — 9,464 
Loss— 446 454 104 158 14 — — 1,176 
Total leases & equipment finance, net$474,296 $377,725 $329,820 $169,555 $61,223 $44,629 $— $— $1,457,248 
Total commercial$1,564,827 $909,569 $585,967 $456,649 $252,817 $289,185 $1,456,989 $31,061 $5,547,064 
Residential:
Mortgage, net
Credit quality indicator:
Pass/Watch$1,700,114 $722,986 $702,425 $220,512 $246,799 $710,397 $— $— $4,303,233 
Special mention— — 780 81 488 2,321 — — 3,670 
Substandard431 597 2,046 1,064 3,105 15,070 — — 22,313 
Doubtful— — — — — — — — — 
Loss— — 907 — — 737 — — 1,644 
Total mortgage, net$1,700,545 $723,583 $706,158 $221,657 $250,392 $728,525 $— $— $4,330,860 
Home equity loans & lines, net
Credit quality indicator:
Pass/Watch$135 $2 $— $19 $— $12,476 $1,086,719 $31,913 $1,131,264 
Special mention— — — — — 60 1,285 251 1,596 
Substandard— — — — — 134 321 152 607 
Doubtful— — — — — — — — — 
Loss— — — — — 36 93 227 356 
Total home equity loans & lines, net$135 $2 $— $19 $— $12,706 $1,088,418 $32,543 $1,133,823 
Total residential$1,700,680 $723,585 $706,158 $221,676 $250,392 $741,231 $1,088,418 $32,543 $5,464,683 
(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
September 30, 202120212020201920182017PriorTotal
Consumer & other, net:
Credit quality indicator:
Pass/Watch$13,616 $12,411 $14,605 $6,621 $4,589 $5,729 $132,063 $2,692 $192,326 
Special mention— 39 58 — 175 186 203 38 699 
Substandard— — 22 — — 15 10 59 106 
Doubtful— — — — — — — — — 
Loss— — — — — 7 3 — 10 
Total consumer & other, net$13,616 $12,450 $14,685 $6,621 $4,764 $5,937 $132,279 $2,789 $193,141 
Grand total$5,465,818 $3,081,443 $3,410,167 $2,039,304 $1,584,686 $3,457,600 $2,847,236 $83,686 $21,969,940 

(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
December 31, 202020202019201820172016PriorTotal
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
Pass/Watch$496,412 $677,975 $489,350 $379,691 $338,257 $932,207 $2,855 $4,139 $3,320,886 
Special mention13,281 1,432 40,899 2,800 31,699 27,167 — — 117,278 
Substandard3,129 2,668 19,951 3,062 19,806 18,586 — — 67,202 
Doubtful— — — — — 103 — — 103 
Loss— — — — — 333 — — 333 
Total non-owner occupied term, net$512,822 $682,075 $550,200 $385,553 $389,762 $978,396 $2,855 $4,139 $3,505,802 
Owner occupied term, net
Credit quality indicator:
Pass/Watch$284,698 $414,715 $321,900 $344,606 $257,969 $610,893 $6,270 $783 $2,241,834 
Special mention3,641 8,373 13,143 7,365 3,425 18,386 — — 54,333 
Substandard2,657 1,694 9,868 2,846 4,356 14,609 282 975 37,287 
Doubtful— — — — — 61 — — 61 
Loss— — — — — 430 — — 430 
Total owner occupied term, net$290,996 $424,782 $344,911 $354,817 $265,750 $644,379 $6,552 $1,758 $2,333,945 
Multifamily, net
Credit quality indicator:
Pass/Watch$383,871 $870,871 $593,076 $574,185 $276,108 $618,031 $23,282 $2,956 $3,342,380 
Special mention— — — — — 6,601 — — 6,601 
Substandard— — — 215 — — — — 215 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total multifamily, net$383,871 $870,871 $593,076 $574,400 $276,108 $624,632 $23,282 $2,956 $3,349,196 
(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
December 31, 202020202019201820172016PriorTotal
Construction & development, net
Credit quality indicator:
Pass/Watch$146,012 $283,052 $255,449 $127,564 $— $372 $— $— $812,449 
Special mention1,637 — 14,392 — — — — — 16,029 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total construction & development, net$147,649 $283,052 $269,841 $127,564 $— $372 $— $— $828,478 
Residential development, net
Credit quality indicator:
Pass/Watch$17,188 $2,571 $2,151 $— $— $— $163,320 $2,507 $187,737 
Special mention— — — — — — 5,024 — 5,024 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total residential development, net$17,188 $2,571 $2,151 $— $— $— $168,344 $2,507 $192,761 
Total commercial real estate$1,352,526 $2,263,351 $1,760,179 $1,442,334 $931,620 $2,247,779 $201,033 $11,360 $10,210,182 
Commercial:
Term, net
Credit quality indicator:
Pass/Watch$2,146,758 $294,576 $323,744 $240,458 $67,502 $226,137 $626,878 $29,598 $3,955,651 
Special mention4,859 548 13,395 1,265 273 1,416 1,036 2,259 25,051 
Substandard251 1,105 24,845 7,259 1,137 561 — 8,029 43,187 
Doubtful— — — — — 578 — — 578 
Loss— — — — — — — — — 
Total term, net$2,151,868 $296,229 $361,984 $248,982 $68,912 $228,692 $627,914 $39,886 $4,024,467 
Lines of credit & other, net
Credit quality indicator:
Pass/Watch$27,503 $27,395 $26,731 $548 $1,679 $531 $709,606 $5,578 $799,571 
Special mention4,033 — — 1 77 299 42,882 271 47,563 
Substandard501 472 — 195 377 940 6,958 6,177 15,620 
Doubtful— — — — — — 4 — 4 
Loss— — — — — — 1 1 2 
Total lines of credit & other, net$32,037 $27,867 $26,731 $744 $2,133 $1,770 $759,451 $12,027 $862,760 
Leases & equipment finance, net
Credit quality indicator:
Pass/Watch$502,305 $442,692 $239,551 $125,619 $64,400 $7,619 $— $— $1,382,186 
Special mention2,321 4,918 7,765 3,797 1,983 99 — — 20,883 
Substandard6,999 7,193 11,617 1,945 2,081 157 — — 29,992 
Doubtful2,615 8,255 4,834 2,880 1,343 79 — — 20,006 
Loss101 1,481 1,015 635 309 22 — — 3,563 
Total leases & equipment finance, net$514,341 $464,539 $264,782 $134,876 $70,116 $7,976 $— $— $1,456,630 
Total commercial$2,698,246 $788,635 $653,497 $384,602 $141,161 $238,438 $1,387,365 $51,913 $6,343,857 
(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
December 31, 202020202019201820172016PriorTotal
Residential:
Mortgage, net
Credit quality indicator:
Pass/Watch$809,232 $1,136,220 $393,041 $406,069 $424,270 $669,862 $— $— $3,838,694 
Special mention— 397 286 688 946 3,183 — — 5,500 
Substandard335 1,398 1,822 4,133 6,381 11,113 — — 25,182 
Doubtful— — — — — — — — — 
Loss— 1,314 — — — 1,216 — — 2,530 
Total mortgage, net$809,567 $1,139,329 $395,149 $410,890 $431,597 $685,374 $— $— $3,871,906 
Home equity loans & lines, net
Credit quality indicator:
Pass/Watch$40 $— $20 $— $259 $16,575 $1,077,753 $37,008 $1,131,655 
Special mention— — — — — 211 1,537 198 1,946 
Substandard— — — — — 43 254 233 530 
Doubtful— — — — — — — — — 
Loss— — — — — 182 1,107 644 1,933 
Total home equity loans & lines, net$40 $— $20 $— $259 $17,011 $1,080,651 $38,083 $1,136,064 
Total residential$809,607 $1,139,329 $395,169 $410,890 $431,856 $702,385 $1,080,651 $38,083 $5,007,970 
Consumer & other, net:
Credit quality indicator:
Pass/Watch$24,408 $22,802 $11,372 $4,170 $2,582 $4,101 $143,813 $2,789 $216,037 
Special mention— 95 79 27 28 3 660 74 966 
Substandard— 25 — — 2 — 205 110 342 
Doubtful— — — — — — — — — 
Loss— — — — — 10 3 — 13 
Total consumer & other, net$24,408 $22,922 $11,451 $4,197 $2,612 $4,114 $144,681 $2,973 $217,358 
Grand total$4,884,787 $4,214,237 $2,820,296 $2,242,023 $1,507,249 $3,192,716 $2,813,730 $104,329 $21,779,367