Loans Receivable, Net | Loans Receivable, Net Loans receivable, net at June 30, 2020 and December 31, 2019 consisted of the following (in thousands): June 30, 2020 December 31, 2019 Commercial: Commercial and industrial $ 910,762 $ 396,434 Commercial real estate – owner occupied 1,199,742 792,653 Commercial real estate – investor 3,449,160 2,296,410 Total commercial 5,559,664 3,485,497 Consumer: Residential real estate 2,426,277 2,321,157 Home equity loans and lines 320,627 318,576 Other consumer 71,721 89,422 Total consumer 2,818,625 2,729,155 Total loans 8,378,289 6,214,652 Deferred origination (fees) costs, net (4,300 ) 9,880 Allowance for credit losses (38,509 ) (16,852 ) Total loans, net $ 8,335,480 $ 6,207,680 The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. The Company uses the following definitions for risk ratings: Pass : Loans classified as Pass are well protected by the paying capacity and net worth of the borrower. Special Mention : Loans classified as Special Mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date. Substandard : Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful : Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The following table summarizes total loans by year of origination and internally assigned credit grades and risk characteristics (in thousands): 2020 2019 2018 2017 2016 2015 and prior Revolving lines of credit Total June 30, 2020 Commercial and industrial Pass $ 494,385 $ 42,054 $ 34,477 $ 67,037 $ 46,039 $ 68,244 $ 133,133 $ 885,369 Special Mention — 458 847 1,765 870 1,184 86 5,210 Substandard 226 3,600 1,790 1,073 62 4,512 8,920 20,183 Total commercial and industrial 494,611 46,112 37,114 69,875 46,971 73,940 142,139 910,762 Commercial real estate - owner occupied Pass 62,342 157,535 144,739 142,470 130,281 496,150 21,296 1,154,813 Special Mention — 191 — 1,389 88 5,510 388 7,566 Substandard — 2,122 2,817 2,921 3,740 25,670 93 37,363 Total commercial real estate - owner occupied 62,342 159,848 147,556 146,780 134,109 527,330 21,777 1,199,742 Commercial real estate - investor Pass 338,589 679,959 387,875 462,567 335,427 957,182 199,816 3,361,415 Special Mention — 27 — 11,003 6,033 22,661 9,178 48,902 Substandard — 178 1,553 460 5,487 25,031 6,134 38,843 Total commercial real estate - investor 338,589 680,164 389,428 474,030 346,947 1,004,874 215,128 3,449,160 Residential real estate (1) Pass 316,112 522,831 312,066 202,088 172,264 891,044 — 2,416,405 Special Mention — — 325 — — 4,102 — 4,427 Substandard — — — 221 — 5,224 — 5,445 Total residential real estate 316,112 522,831 312,391 202,309 172,264 900,370 — 2,426,277 Consumer (1) Pass 12,116 33,276 105,211 31,029 19,788 178,537 7,545 387,502 Special Mention — 79 — — — 257 — 336 Substandard — — — — — 4,510 — 4,510 Total consumer 12,116 33,355 105,211 31,029 19,788 183,304 7,545 392,348 Total loans $ 1,223,770 $ 1,442,310 $ 991,700 $ 924,023 $ 720,079 $ 2,689,818 $ 386,589 $ 8,378,289 (1) For residential and consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity. An analysis of the allowance for credit losses on loans for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands): Commercial Commercial Commercial Residential Consumer Unallocated Total For the three months ended Allowance for credit losses on loans Balance at beginning of period $ 6,649 $ 3,096 $ 7,159 $ 8,417 $ 4,314 $ — $ 29,635 Credit loss (benefit) expense (1,697 ) (334 ) 1,701 9,056 (84 ) — 8,642 Charge-offs — — (26 ) (71 ) (72 ) — (169 ) Recoveries 27 3 26 283 62 — 401 Balance at end of period $ 4,979 $ 2,765 $ 8,860 $ 17,685 $ 4,220 $ — $ 38,509 For the three months ended Allowance for credit losses on loans Balance at beginning of period $ 1,647 $ 3,438 $ 8,242 $ 1,965 $ 367 $ 1,046 $ 16,705 Credit loss (benefit) expense (34 ) (439 ) 117 729 285 (302 ) 356 Charge-offs — (132 ) (65 ) (768 ) (173 ) — (1,138 ) Recoveries 26 1 112 40 33 — 212 Balance at end of period $ 1,639 $ 2,868 $ 8,406 $ 1,966 $ 512 $ 744 $ 16,135 For the six months ended Allowance for credit losses on loans Balance at beginning of period $ 1,458 $ 2,893 $ 9,883 $ 2,002 $ 591 $ 25 $ 16,852 Impact of CECL adoption 2,416 (1,109 ) (5,395 ) 3,833 2,981 (25 ) 2,701 Credit loss expense (168 ) 952 4,078 12,641 (264 ) — 17,239 Initial allowance for credit losses on PCD loans 1,221 26 260 109 1,023 — 2,639 Charge-offs — — (26 ) (1,346 ) (181 ) — (1,553 ) Recoveries 52 3 60 446 70 — 631 Balance at end of period $ 4,979 $ 2,765 $ 8,860 $ 17,685 $ 4,220 $ — $ 38,509 For the six months ended Allowance for credit losses on loans Balance at beginning of period $ 1,609 $ 2,277 $ 8,770 $ 2,413 $ 486 $ 1,022 $ 16,577 Credit loss (benefit) expense (53 ) 1,112 (685 ) 705 175 (278 ) 976 Charge-offs — (522 ) (86 ) (1,193 ) (205 ) — (2,006 ) Recoveries 83 1 407 41 56 — 588 Balance at end of period $ 1,639 $ 2,868 $ 8,406 $ 1,966 $ 512 $ 744 $ 16,135 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. At June 30, 2020 , the Company had collateral dependent loans with an amortized cost balance as follows: commercial and industrial of $6.6 million , commercial real estate - owner occupied of $5.5 million , and commercial real estate - investor of $15.7 million . In addition, the Company had residential and consumer loans collateralized by residential real estate, which are in the process of foreclosure, with an amortized cost balance of $2.6 million at June 30, 2020 . The amount of foreclosed residential real estate property held by the Company was $248,000 at June 30, 2020 . In accordance with ASC 310, prior to the adoption of ASU 2016-13, the following table presents the balance in the allowance for credit losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 , excluding PCD loans (in thousands): Commercial and Industrial Commercial Real Estate – Owner Occupied Commercial Real Estate – Investor Residential Real Estate Consumer Unallocated Total December 31, 2019 Allowance for credit losses: Ending allowance balance attributed to loans: Individually evaluated for impairment $ — $ 474 $ — $ — $ 2 $ — $ 476 Collectively evaluated for impairment 1,458 2,419 9,883 2,002 589 25 16,376 Total ending allowance balance $ 1,458 $ 2,893 $ 9,883 $ 2,002 $ 591 $ 25 $ 16,852 Loans: Loans individually evaluated for impairment $ 243 $ 6,163 $ 5,584 $ 11,009 $ 3,511 $ — $ 26,510 Loans collectively evaluated for impairment 395,848 785,778 2,279,114 2,309,812 404,325 — 6,174,877 Total ending loan balance $ 396,091 $ 791,941 $ 2,284,698 $ 2,320,821 $ 407,836 $ — $ 6,201,387 As of December 31, 2019, the Company defined an impaired loan as non-accrual commercial real estate, multi-family, land, construction and commercial loans in excess of $250,000 . Impaired loans also include all loans modified as troubled debt restructurings. At December 31, 2019 , the impaired loan portfolio totaled $26.5 million for which there was $476,000 specific allocation in the allowance for credit losses. The average balance of impaired loans for the three and six months ended June 30, 2019 were $31.5 million and $30.9 million , respectively. In accordance with ASC 310, prior to the adoption of ASU 2016-13, the summary of loans individually evaluated for impairment by loan portfolio segment as of December 31, 2019 and for the three and six months ended June 30, 2019 , is as follows, excluding PCI loans (in thousands): Unpaid Principal Balance Recorded Investment Allowance for Credit Losses Allocated As of December 31, 2019 With no related allowance recorded: Commercial and industrial $ 265 $ 243 $ — Commercial real estate – owner occupied 4,062 3,968 — Commercial real estate – investor 6,665 5,584 — Residential real estate 11,009 11,009 — Consumer 3,734 3,509 — $ 25,735 $ 24,313 $ — With an allowance recorded: Commercial and industrial $ — $ — $ — Commercial real estate – owner occupied 2,376 2,195 474 Commercial real estate – investor — — — Residential real estate — — — Consumer 2 2 2 $ 2,378 $ 2,197 $ 476 Three Months Ended June 30, 2019 Six months ended June 30, 2019 Average Recorded Investment Interest Income Recognized Average Interest With no related allowance recorded: Commercial and industrial $ 249 $ 1 $ 708 $ 4 Commercial real estate – owner occupied 3,808 80 4,337 122 Commercial real estate – investor 10,882 22 10,501 158 Residential real estate 10,104 140 10,090 271 Consumer 3,270 48 3,171 94 $ 28,313 $ 291 $ 28,807 $ 649 With an allowance recorded: Commercial and industrial $ — $ — $ — $ — Commercial real estate – owner occupied 3,197 — — — Commercial real estate – investor — — 2,131 36 Residential real estate — — — — Consumer — — — — $ 3,197 $ — $ 2,131 $ 36 The following table presents the recorded investment in non-accrual loans by loan portfolio segment as of June 30, 2020 and December 31, 2019 (in thousands). The June 30, 2020 balances include PCD loans while the December 31, 2019 balances exclude PCI loans (in accordance with ASC 310, prior to the adoption of ASU 2016-13 on January 1, 2020). June 30, 2020 December 31, 2019 Commercial and industrial $ 8,211 $ 207 Commercial real estate – owner occupied 5,629 4,811 Commercial real estate – investor 17,922 2,917 Residential real estate 7,676 7,181 Consumer 3,119 2,733 $ 42,557 $ 17,849 At June 30, 2020 , there were no commitments to lend additional funds to borrowers whose loans are in non-accrual status. At June 30, 2020 and December 31, 2019 , loans in the amount of $42.6 million and $17.8 million , respectively, were three or more months delinquent or in the process of foreclosure. At June 30, 2020 , 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 June 30, 2020 and December 31, 2019 , there were no loans that were ninety days or greater past due and still accruing interest. The following table presents the aging of the recorded investment in past due loans as of June 30, 2020 and December 31, 2019 by loan portfolio segment (in thousands). The June 30, 2020 balances include PCD loans while the December 31, 2019 balances exclude PCI loans (in accordance with ASC 310, prior to the adoption of ASU 2016-13 on January 1, 2020). 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Loans Not Past Due Total June 30, 2020 Commercial and industrial $ 307 $ — $ 2,246 $ 2,553 $ 908,209 $ 910,762 Commercial real estate – owner occupied 793 143 2,392 3,328 1,196,414 1,199,742 Commercial real estate – investor 1,857 2,000 10,299 14,156 3,435,004 3,449,160 Residential real estate 943 7,119 4,032 12,094 2,414,183 2,426,277 Consumer 1,528 336 4,510 6,374 385,974 392,348 $ 5,428 $ 9,598 $ 23,479 $ 38,505 $ 8,339,784 $ 8,378,289 December 31, 2019 Commercial and industrial $ 100 $ — $ 207 $ 307 $ 395,784 $ 396,091 Commercial real estate – owner occupied 1,541 1,203 1,040 3,784 788,157 791,941 Commercial real estate – investor 381 938 2,792 4,111 2,280,587 2,284,698 Residential real estate 8,161 3,487 2,859 14,507 2,306,314 2,320,821 Consumer 1,048 491 2,388 3,927 403,909 407,836 $ 11,231 $ 6,119 $ 9,286 $ 26,636 $ 6,174,751 $ 6,201,387 The Company classifies certain loans as troubled debt restructurings 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. One-to-four family and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered troubled debt restructurings. For these loans, the Bank retains its security interest in the real estate collateral. At June 30, 2020 and December 31, 2019 , troubled debt restructured (“TDR”) loans totaled $22.6 million and $24.6 million , respectively. Included in the non-accrual loan total at June 30, 2020 , and December 31, 2019 , were $6.2 million and $6.6 million , respectively, of troubled debt restructurings. At June 30, 2020 , and December 31, 2019 , the Company had $424,000 and $476,000 , respectively, of specific reserves allocated to loans that are classified as troubled debt restructurings. Non-accrual loans which become troubled debt restructurings are generally returned to accrual status after six months of performance. In addition to the troubled debt restructurings included in non-accrual loans, the Company also has loans classified as accruing troubled debt restructurings at June 30, 2020 and December 31, 2019 , which totaled $16.4 million and $18.0 million , respectively. The following table presents information about troubled debt restructurings which occurred during the three and six months ended June 30, 2020 and 2019 , and troubled debt restructurings modified within the previous year and which defaulted during the three and six months ended June 30, 2020 and 2019 (dollars in thousands): Number of Loans Pre-modification Recorded Investment Post-modification Recorded Investment Three months ended June 30, 2020 Troubled Debt Restructurings: Commercial real estate – owner occupied 1 1,112 1,143 Residential real estate 2 205 213 Number of Loans Recorded Investment Troubled Debt Restructurings Which Subsequently Defaulted: None None Number of Loans Pre-modification Post-modification Six months ended June 30, 2020 Troubled Debt Restructurings: Consumer 4 $ 159 $ 177 Commercial real estate – owner occupied 1 1,112 1,143 Residential real estate 4 431 447 Number of Loans Recorded Investment Troubled Debt Restructurings Which Subsequently Defaulted: None None Number of Loans Pre-modification Recorded Investment Post-modification Recorded Investment Three Months Ended June 30, 2019 Troubled Debt Restructurings: Consumer 4 $ 442 $ 462 Residential real estate 2 332 351 Number of Loans Recorded Investment Troubled Debt Restructurings Which Subsequently Defaulted None None Number of Loans Pre-modification Recorded Investment Post-modification Recorded Investment Six months ended June 30, 2019 Troubled Debt Restructurings: Consumer 4 $ 442 $ 462 Residential real estate 5 921 972 Number of Loans Recorded Investment Troubled Debt Restructurings Which Subsequently Defaulted: None None In response to the COVID-19 pandemic and its economic impact to customers, a short-term modification program that complies with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19. This program allows for a deferral of payments for 90 days, which may extend for an additional 90 days. 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 year end or the date of the modification, these loans are not considered TDR loans at June 30, 2020 and will not be reported as past due during the deferral period. As part of the Two River and Country Bank acquisitions, the Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows (in thousands): Two River January 1, 2020 Country Bank January 1, 2020 Purchase price of loans at acquisition $ 26,354 $ 24,667 Allowance for credit losses at acquisition 1,343 1,296 Non-credit discount at acquisition 3,589 5,334 Par value of acquired loans at acquisition $ 31,286 $ 31,297 In accordance with ASC 310, prior to the adoption of ASU 2016-13,the following table summarizes the changes in accretable yield for PCI loans during the three and six months ended June 30, 2019 (in thousands): Three Months Ended Six Months Ended 2019 2019 Beginning balance $ 4,193 $ 3,630 Acquisition — 691 Accretion (531 ) (1,184 ) Reclassification from non-accretable difference (479 ) 46 Ending balance $ 3,183 $ 3,183 |