Loans Receivable and Allowance for Credit Losses | LOANS RECEIVABLE AND THE ALLOWANCE FOR CREDIT LOSSES The following is a summary of loans receivable by major category: December 31, 2022 2021 (Dollars in thousands) Loan portfolio composition Real estate loans: Residential $ 76,045 $ 69,199 Commercial 9,170,784 8,816,080 Construction 167,751 220,652 Total real estate loans 9,414,580 9,105,931 Commercial business * 5,109,532 4,208,674 Residential mortgage 846,080 579,626 Consumer and other 33,348 58,512 Loans receivable 15,403,540 13,952,743 Allowance for credit losses (162,359) (140,550) Loans receivable, net of allowance for credit losses $ 15,241,181 $ 13,812,193 __________________________________ * Commercial business loans as of December 31, 2022 and 2021 include $1.9 million and $228.1 million, respectively, in SBA Paycheck Protection Program loans The Company segments its loan portfolio in four major categories: real estate loans, commercial business loans, residential mortgage loans, and consumer and other loans. Real estate loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust and are collateralized by residential or commercial properties. Commercial business loans are loans provided to businesses for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions, international trade finance activities, and other business related financing needs and also include warehouse lines of credit, syndicated loans, and SBA Paycheck Protection Program (“PPP”) loans. Residential mortgage loans are extended for personal, family, or household use and are secured by a mortgage or deed of trust. Consumer and other loans consist of home equity, credit card, and other personal loans. The Company had $49.2 million in loans held for sale as of December 31, 2022 compared to $99.0 million at December 31, 2021. Loans held for sale at December 31, 2022 consisted of $450 thousand in residential mortgage loans and $48.8 million in commercial real estate loans rated as substandard, compared to $49.7 million in SBA guaranteed loans, $23.2 million in residential mortgage loans, and $26.2 million in commercial real estate and commercial business loans rated as substandard at December 31, 2021. The tables below detail the activity in the allowance for credit losses (“ACL”) by portfolio segment for the years ended December 31, 2022 and 2021, and 2020. Recoveries for the year ended December 31, 2022 included $17.3 million in recoveries from a single lending relationship that had $29.6 million in charge offs during the year 2021. Charge offs for the year 2021 included $26.2 million in charge offs related to the sale of $275.3 million in loans with elevated credit risk. Real Estate Commercial Business Residential Mortgage Consumer and Other Total (Dollars in thousands) December 31, 2022 Balance, beginning of period $ 108,440 $ 27,811 $ 3,316 $ 983 $ 140,550 Provision (credit) for credit losses (27,451) 31,360 5,626 65 9,600 Loans charged off (6,803) (5,160) (22) (404) (12,389) Recoveries of charge offs 21,698 2,861 — 39 24,598 Balance, end of period $ 95,884 $ 56,872 $ 8,920 $ 683 $ 162,359 December 31, 2021 Balance, beginning of period $ 162,196 $ 39,155 $ 4,227 $ 1,163 $ 206,741 Provision (credit) for credit losses (2,051) (9,982) 12 (179) (12,200) Loans charged off (57,427) (3,558) (923) (328) (62,236) Recoveries of charge offs 5,722 2,196 — 327 8,245 Balance, end of period $ 108,440 $ 27,811 $ 3,316 $ 983 $ 140,550 December 31, 2020 Balance, beginning of period $ 53,593 $ 33,032 $ 5,925 $ 1,594 $ 94,144 CECL day 1 adoption 27,791 (1,022) (543) (26) $ 26,200 Provision (credit) for credit losses 87,619 7,776 (1,155) 760 95,000 Loans charged off (8,658) (6,157) — (1,211) (16,026) Recoveries of charge offs 1,851 5,526 — 46 7,423 Balance, end of period $ 162,196 $ 39,155 $ 4,227 $ 1,163 $ 206,741 The following tables break out the allowance for credit losses and loan balance by measurement methodology at December 31, 2022 and 2021: December 31, 2022 Real Estate Commercial Business Residential Mortgage Consumer and Other Total (Dollars in thousands) Allowance for credit losses: Individually evaluated $ 870 $ 2,941 $ 24 $ 21 $ 3,856 Collectively evaluated 95,014 53,931 8,896 662 158,503 Total $ 95,884 $ 56,872 $ 8,920 $ 683 $ 162,359 Loans outstanding: Individually evaluated $ 43,461 $ 12,477 $ 9,775 $ 436 $ 66,149 Collectively evaluated 9,371,119 5,097,055 836,305 32,912 15,337,391 Total $ 9,414,580 $ 5,109,532 $ 846,080 $ 33,348 $ 15,403,540 December 31, 2021 Real Estate Commercial Business Residential Mortgage Consumer and Other Total (Dollars in thousands) Allowance for credit losses: Individually evaluated $ 2,025 $ 3,056 $ 11 $ 23 $ 5,115 Collectively evaluated 106,415 24,755 3,305 960 135,435 Total $ 108,440 $ 27,811 $ 3,316 $ 983 $ 140,550 Loans outstanding: Individually evaluated $ 83,347 $ 19,407 $ 3,470 $ 409 $ 106,633 Collectively evaluated 9,022,584 4,189,267 576,156 58,103 13,846,110 Total $ 9,105,931 $ 4,208,674 $ 579,626 $ 58,512 $ 13,952,743 The ACL represents management’s best estimate of future lifetime expected losses on its held for investment loan portfolio. The Company calculates its ACL by estimating expected credit losses on a collective basis for loans that share similar risk characteristics. Loans that do not share similar risk characteristics with other loans are evaluated for credit losses on an individual basis. The Company uses a combination of a modeled and non-modeled approach that incorporates current and future economic conditions to estimate lifetime expected losses on a collective basis. The Company uses Probability of Default (“PD”), Loss Given Default (“LGD”), and Exposure at Default (“EAD”) methodologies with quantitative factors and qualitative considerations in calculation of the allowance for credit losses for collectively assessed loans. The Company uses a reasonable and supportable period of 2 years at which point loss assumptions revert back to historical loss information by means of 1 year reversion period. Due to the volatility that arose from the COVID-19 pandemic, the Company assessed whether it would be appropriate to shorten the reasonable and supportable period. However, the Company chose to keep the reasonable and supportable period at 2 years as a shorter period was estimated to result in large reductions in ACL which would not be reflective of the economic deterioration and future uncertainty caused by pandemic. The Company utilizes a baseline forecast scenario published by a third party that incorporates macroeconomic variables including GDP, unemployment rates, interest rates, and commercial real estate prices to project an economic outlook. The forecast scenario is utilized to estimate losses during the reasonable and supportable period. Changes in these assumptions and forecasts could significantly affect the Company’s estimate of future credit losses. See Note 1 “Significant Accounting Policies” of the Notes to Consolidated Financial Statements for further discussion of the Company’s ACL methodology. The increase in ACL for the year ended December 31, 2022 compared to December 31, 2021 was due to a decline in projected macroeconomic variables. The Moody’s consensus forecast scenario used in the December 31, 2022 ACL calculation included a decline in projection for GDP and commercial real estate prices compared to projection at the end of 2021. Overall, economic projection continued to decline throughout the year with an increase the potential for a recession in 2023. The Company maintains a separate ACL for its off-balance sheet unfunded loan commitments. The Company uses a funding rate to allocate the allowance to undrawn exposures. This funding rate is used as a credit conversion factor to capture how much undrawn can potentially become drawn at any point. The funding rate is determined based on a lookback period of 8 quarters. Credit loss is not estimated for off-balance sheet credit exposures that are unconditionally cancellable by the Company. As of December 31, 2022 and 2021, reserves for unfunded loan commitments recorded in other liabilities were $1.4 million and $1.1 million, respectively. For the year ended December 31, 2022, the Company recorded additions to reserves for unfunded commitments in credit related expenses totaling $250 thousand. For the year ended December 31, 2021, the Company recorded a credit to reserves for unfunded commitments totaling $195 thousand. Generally, loans are placed on nonaccrual status if principal and/or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to customers whose financial conditions have deteriorated are considered for nonaccrual status whether or not the loan is 90 days or more past due. Generally, payments received on nonaccrual loans are recorded as principal reductions. Loans are returned to accrual status only when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company does not recognize interest income while loans are on nonaccrual status. The tables below represent the amortized cost of nonaccrual loans and loans past due 90 or more days and still on accrual status by class of loans and broken out by loans with a recorded ACL and those without a recorded ACL as of December 31, 2022 and 2021. December 31, 2022 Nonaccrual with No ACL Nonaccrual with an ACL Total Nonaccrual (1) Accruing Loans Past Due 90 or More Days (Dollars in thousands) Real estate – residential $ — $ — $ — $ — Real estate – commercial Retail 17,635 1,007 18,642 — Hotel & motel 8,939 347 9,286 — Gas station & car wash 2,134 124 2,258 — Mixed use 781 186 967 — Industrial & warehouse 109 727 836 — Other 184 1,742 1,926 — Real estate – construction — — — — Commercial business 1,618 4,002 5,620 336 Residential mortgage 5,959 3,816 9,775 — Consumer and other — 377 377 65 Total $ 37,359 $ 12,328 $ 49,687 $ 401 December 31, 2021 Nonaccrual with No ACL Nonaccrual with an ACL Total Nonaccrual (1) Accruing Loans Past Due 90 or More Days (Dollars in thousands) Real estate – residential $ — $ — $ — $ — Real estate – commercial Retail 7,586 2,604 10,190 — Hotel & motel 5,471 6,564 12,035 — Gas station & car wash 575 1,267 1,842 — Mixed use 5,307 1,412 6,719 — Industrial & warehouse 687 1,897 2,584 — Other 1,233 5,153 6,386 215 Real estate – construction — — — — Commercial business 4,726 6,299 11,025 1,494 Residential mortgage 275 3,195 3,470 — Consumer and other — 365 365 422 Total $ 25,860 $ 28,756 $ 54,616 $ 2,131 __________________________________ (1) Total nonaccrual loans exclude the guaranteed portion of SBA loans that are in liquidation totaling $9.8 million and $19.5 million, at December 31, 2022 and 2021, respectively. The following table presents the amortized cost of collateral dependent loans as of December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Real Estate Collateral Other Collateral Total Real Estate Collateral Other Collateral Total (Dollars in thousands) Real estate – residential $ — $ — $ — $ — $ — $ — Real estate – commercial 35,523 — 35,523 65,590 — 65,590 Real estate – construction — — — — — — Commercial business 1,618 2,743 4,361 1,767 6,615 8,382 Residential mortgage 5,959 — 5,959 — — — Consumer and other — — — — — — Total $ 43,100 $ 2,743 $ 45,843 $ 67,357 $ 6,615 $ 73,972 Collateral on loans is a significant portion of what secures collateral dependent loans and significant changes to the fair value of the collateral can potentially impact ACL. During the years ended December 31, 2022 and 2021, the Company did not have any significant changes to the extent to which collateral secures its collateral dependent loans due to general deterioration or from other factors. Accrued interest receivables on loans totaled $47.3 million at December 31, 2022 and $36.2 million at December 31, 2021. The following table presents interest income reversals, due to loans being placed on nonaccrual status, by loan segment for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 2020 (Dollars in thousands) Real estate $ 1,906 $ 3,102 $ 1,047 Commercial business 307 62 78 Residential mortgage 309 17 — Consumer and other 1 3 3 Total $ 2,523 $ 3,184 $ 1,128 The following table presents the amortized cost of past due loans, including nonaccrual loans past due 30 or more days, by the number of days past due as of December 31, 2022 and 2021 by class of loans: December 31, 2022 December 31, 2021 30-59 Days 60-89 Days 90 or More Days Total 30-59 Days 60-89 Days 90 or More Days Total (Dollars in thousands) Real estate – residential $ 1,266 $ — $ — $ 1,266 $ — $ — $ — $ — Real estate – commercial Retail — 1,617 521 2,138 1,250 927 9,167 11,344 Hotel & motel 359 564 3,503 4,426 9,320 4,148 4,760 18,228 Gas station & car wash 582 124 — 706 575 — 832 1,407 Mixed use — — 781 781 1,124 — 5,625 6,749 Industrial & warehouse 85 89 268 442 247 — 785 1,032 Other — 333 621 954 1,198 6,522 3,185 10,905 Real estate – construction — — — — — — — — Commercial business 3,258 18 2,137 5,413 1,792 2,362 6,482 10,636 Residential mortgage 2,310 — 5,106 7,416 14,177 — 3,099 17,276 Consumer and other 617 44 308 969 59 21 787 867 Total Past Due $ 8,477 $ 2,789 $ 13,245 $ 24,511 $ 29,742 $ 13,980 $ 34,722 $ 78,444 The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes all loans with the exception of homogeneous loans, or loans that are evaluated together in pools of similar loans (i.e., home mortgage loans, home equity lines of credit, overdraft loans, express business loans, and automobile loans). Homogeneous loans are not risk rated and credit risk is analyzed largely by the number of days past due. This analysis is performed at least on a quarterly basis. The following table presents the amortized cost basis of loans receivable by class, credit quality indicator, and year of origination as of December 31, 2022 and 2021. December 31, 2022 Term Loan by Origination Year Revolving Loans Total 2022 2021 2020 2019 2018 Prior (Dollars in thousands) Real Estate - Residential Pass / not rated $ 19,256 $ 23,505 $ 9,691 $ 9,017 $ 3,964 $ 5,397 $ 3,995 $ 74,825 Special mention — — — — — — — — Substandard — — — — 661 559 — 1,220 Doubtful / loss — — — — — — — — Subtotal $ 19,256 $ 23,505 $ 9,691 $ 9,017 $ 4,625 $ 5,956 $ 3,995 $ 76,045 Real Estate - Commercial Pass / not rated $ 2,395,805 $ 2,140,650 $ 1,299,144 $ 1,043,970 $ 1,006,454 $ 1,053,970 $ 101,190 $ 9,041,183 Special mention — 14,622 7,301 6,001 13,565 15,912 202 57,603 Substandard — 8,240 1,736 7,881 9,589 44,552 — 71,998 Doubtful / loss — — — — — — — — Subtotal $ 2,395,805 $ 2,163,512 $ 1,308,181 $ 1,057,852 $ 1,029,608 $ 1,114,434 $ 101,392 $ 9,170,784 Real Estate - Construction Pass / not rated $ 6,570 $ 29,918 $ 63,192 $ 23,418 $ 8,135 $ 4,900 $ 89 $ 136,222 Special mention — — — 14,425 — 10,834 — 25,259 Substandard — — — — — 6,270 — 6,270 Doubtful / loss — — — — — — — — Subtotal $ 6,570 $ 29,918 $ 63,192 $ 37,843 $ 8,135 $ 22,004 $ 89 $ 167,751 Commercial Business Pass / not rated $ 2,311,344 $ 1,090,034 $ 291,592 $ 298,133 $ 69,721 $ 95,531 $ 864,343 $ 5,020,698 Special mention 17,911 37,393 13,707 110 — 24 5,256 74,401 Substandard — 2,833 5,889 1,000 1,020 3,691 — 14,433 Doubtful / loss — — — — — — — — Subtotal $ 2,329,255 $ 1,130,260 $ 311,188 $ 299,243 $ 70,741 $ 99,246 $ 869,599 $ 5,109,532 Residential Mortgage Pass / not rated $ 382,935 $ 283,163 $ 1,386 $ 30,603 $ 62,976 $ 75,242 $ — $ 836,305 Special mention — — — — — — — — Substandard — 311 — 967 384 8,113 — 9,775 Doubtful / loss — — — — — — — — Subtotal $ 382,935 $ 283,474 $ 1,386 $ 31,570 $ 63,360 $ 83,355 $ — $ 846,080 Consumer and Other Pass / not rated $ 10,005 $ 723 $ 3,351 $ 223 $ 10 $ 1,420 $ 17,239 $ 32,971 Special mention — — — — — — — — Substandard — — — — — 377 — 377 Doubtful / loss — — — — — — — — Subtotal $ 10,005 $ 723 $ 3,351 $ 223 $ 10 $ 1,797 $ 17,239 $ 33,348 Total Loans Pass / not rated $ 5,125,915 $ 3,567,993 $ 1,668,356 $ 1,405,364 $ 1,151,260 $ 1,236,460 $ 986,856 $ 15,142,204 Special mention 17,911 52,015 21,008 20,536 13,565 26,770 5,458 157,263 Substandard — 11,384 7,625 9,848 11,654 63,562 — 104,073 Doubtful / loss — — — — — — — — Total $ 5,143,826 $ 3,631,392 $ 1,696,989 $ 1,435,748 $ 1,176,479 $ 1,326,792 $ 992,314 $ 15,403,540 December 31, 2021 Term Loan by Origination Year Revolving Loans Total 2021 2020 2019 2018 2017 Prior (Dollars in thousands) Real Estate - Residential Pass / not rated $ 26,093 $ 10,471 $ 11,442 $ 4,952 $ 2,987 $ 7,260 $ 4,403 $ 67,608 Special mention — — — 534 — 924 — 1,458 Substandard — — — 133 — — — 133 Doubtful / loss — — — — — — — — Subtotal $ 26,093 $ 10,471 $ 11,442 $ 5,619 $ 2,987 $ 8,184 $ 4,403 $ 69,199 Real Estate - Commercial Pass / not rated $ 2,451,662 $ 1,415,909 $ 1,252,851 $ 1,238,425 $ 883,790 $ 1,086,182 $ 89,501 $ 8,418,320 Special mention 5,553 8,882 39,567 20,203 27,204 73,090 5,970 180,469 Substandard 7,436 7,718 17,533 25,330 53,000 105,995 279 217,291 Doubtful / loss — — — — — — — — Subtotal $ 2,464,651 $ 1,432,509 $ 1,309,951 $ 1,283,958 $ 963,994 $ 1,265,267 $ 95,750 $ 8,816,080 Real Estate - Construction Pass / not rated $ 16,545 $ 67,628 $ 32,044 $ 32,908 $ 8,292 $ 5,685 $ 89 $ 163,191 Special mention — — — 45,996 5,074 6,391 — 57,461 Substandard — — — — — — — — Doubtful / loss — — — — — — — — Subtotal $ 16,545 $ 67,628 $ 32,044 $ 78,904 $ 13,366 $ 12,076 $ 89 $ 220,652 Commercial Business Pass / not rated $ 1,755,104 $ 431,145 $ 461,460 $ 98,812 $ 53,629 $ 70,294 $ 1,299,372 $ 4,169,816 Special mention 1,379 523 4,780 2,897 550 5,083 2,594 17,806 Substandard 3,796 941 2,308 1,651 3,803 3,461 5,092 21,052 Doubtful / loss — — — — — — — — Subtotal $ 1,760,279 $ 432,609 $ 468,548 $ 103,360 $ 57,982 $ 78,838 $ 1,307,058 $ 4,208,674 Residential Mortgage Pass / not rated $ 282,191 $ 1,420 $ 40,377 $ 112,743 $ 85,446 $ 53,979 $ — $ 576,156 Special mention — — — — — — — — Substandard 275 — 128 394 541 2,132 — 3,470 Doubtful / loss — — — — — — — — Subtotal $ 282,466 $ 1,420 $ 40,505 $ 113,137 $ 85,987 $ 56,111 $ — $ 579,626 Consumer and Other Pass / not rated $ 19,203 $ 5,347 $ 1,783 $ 1,699 $ 1,769 $ 6,165 $ 22,095 $ 58,061 Special mention — — — — — — — — Substandard — — — — — 451 — 451 Doubtful / loss — — — — — — — — Subtotal $ 19,203 $ 5,347 $ 1,783 $ 1,699 $ 1,769 $ 6,616 $ 22,095 $ 58,512 Total Loans Pass / not rated $ 4,550,798 $ 1,931,920 $ 1,799,957 $ 1,489,539 $ 1,035,913 $ 1,229,565 $ 1,415,460 $ 13,453,152 Special mention 6,932 9,405 44,347 69,630 32,828 85,488 8,564 257,194 Substandard 11,507 8,659 19,969 27,508 57,344 112,039 5,371 242,397 Doubtful / loss — — — — — — — — Total $ 4,569,237 $ 1,949,984 $ 1,864,273 $ 1,586,677 $ 1,126,085 $ 1,427,092 $ 1,429,395 $ 13,952,743 For the years ended December 31, 2022 and 2021, there were no revolving loans converted to term loans. The Company may reclassify loans held for investment to loans held for sale in the event that the Company plans to sell loans that were originated with the intent to hold to maturity. Loans transferred from held for investment to held for sale are carried at the lower of cost or fair value. The breakdown of loans by type that were reclassified from held for investment to held for sale for the years ended December 31, 2022, 2021, and 2020 are presented in the following table: Year Ended December 31, 2022 2021 2020 Transfer of loans held for investment to held for sale (Dollars in thousands) Real estate - commercial $ 257,317 $ 365,426 $ — Commercial business 54,218 100,154 — Residential mortgage — 7,018 — Consumer — — 1,243 Total $ 311,535 $ 472,598 $ 1,243 The following tables present a breakdown of loans by recorded ACL, broken out by loans evaluated individually and collectively at December 31, 2022 and 2021: December 31, 2022 Real Estate – Real Estate – Real Estate – Commercial Residential Consumer Total (Dollars in thousands) Individually evaluated loans $ — $ 43,461 $ — $ 12,477 $ 9,775 $ 436 $ 66,149 ACL on individually evaluated loans $ — $ 870 $ — $ 2,941 $ 24 $ 21 $ 3,856 Individually evaluated loans ACL coverage N/A 2.00 % N/A 23.57 % 0.25 % 4.82 % 5.83 % Collectively evaluated loans $ 76,045 $ 9,127,323 $ 167,751 $ 5,097,055 $ 836,305 $ 32,912 $ 15,337,391 ACL on collectively evaluated loans $ 1,014 $ 92,947 $ 1,053 $ 53,931 $ 8,896 $ 662 $ 158,503 Collectively evaluated loans ACL coverage 1.33 % 1.02 % 0.63 % 1.06 % 1.06 % 2.01 % 1.03 % Total loans $ 76,045 $ 9,170,784 $ 167,751 $ 5,109,532 $ 846,080 $ 33,348 $ 15,403,540 Total ACL $ 1,014 $ 93,817 $ 1,053 $ 56,872 $ 8,920 $ 683 $ 162,359 Total ACL to total loans 1.33 % 1.02 % 0.63 % 1.11 % 1.05 % 2.05 % 1.05 % December 31, 2021 Real Estate – Real Estate – Real Estate – Commercial Residential Consumer Total (Dollars in thousands) Individually evaluated loans $ — $ 83,347 $ — $ 19,407 $ 3,470 $ 409 $ 106,633 ACL on individually evaluated loans $ — $ 2,025 $ — $ 3,056 $ 11 $ 23 $ 5,115 Individually evaluated loans ACL coverage N/A 2.43 % N/A 15.75 % 0.32 % 5.62 % 4.80 % Collectively evaluated loans $ 69,199 $ 8,732,733 $ 220,652 $ 4,189,267 $ 576,156 $ 58,103 $ 13,846,110 ACL on collectively evaluated loans $ 729 $ 104,145 $ 1,541 $ 24,755 $ 3,305 $ 960 $ 135,435 Collectively evaluated loans ACL coverage 1.05 % 1.19 % 0.70 % 0.59 % 0.57 % 1.65 % 0.98 % Total loans $ 69,199 $ 8,816,080 $ 220,652 $ 4,208,674 $ 579,626 $ 58,512 $ 13,952,743 Total ACL $ 729 $ 106,170 $ 1,541 $ 27,811 $ 3,316 $ 983 $ 140,550 Total ACL to total loans 1.05 % 1.20 % 0.70 % 0.66 % 0.57 % 1.68 % 1.01 % Under certain circumstances, the Company provides borrowers relief through loan modifications. These modifications are either temporary in nature (“temporary modifications”) or are more substantive. The temporary modifications generally consist of interest only payments for a three six TDR loans are individually evaluated in accordance with ASC 310 and ASC 326. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that the borrower will be in payment default on their debt in the foreseeable future without the modification. This evaluation is performed under the Bank’s internal underwriting policy. At December 31, 2022, TDR loans totaled $41.1 million, compared to $65.5 million at December 31, 2021. The balance of loans with modified terms due to COVID-19 as of December 31, 2022 totaled $0 compared to $22.8 million at December 31, 2021. The loans were modified in accordance with Section 4013 of the CARES Act. The CARES Act provides banks the option to temporarily suspend certain requirements under U.S. GAAP related to TDR for a limited period of time to account for the effects of COVID-19 if (i) the loan modification is made between March 1, 2020 and the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. As such, all modified loans that met the criteria outlined within Section 4013 of the CARES Act were not classified as TDR loans unless the loans were TDR prior to the COVID-19 modification or borrowers were identified to be experiencing financial difficulty prior to the COVID-19 pandemic (see “COVID-19 Related Loan Modifications” in the Financial Condition section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information). A summary of the amortized cost of TDR loans on accrual and nonaccrual status by type of concession as of December 31, 2022 and 2021 is presented below: December 31, 2022 TDR Loans on Accrual Status TDR Loans on Nonaccrual Status Total TDRs Real Estate Commercial Business Residential Mortgage Other Real Estate Commercial Business Residential Mortgage Other (Dollars in thousands) Payment concession $ 5,404 $ 501 $ — $ — $ 20,193 $ 171 $ — $ — $ 26,269 Maturity / amortization concession 2,190 6,175 — 280 101 2,245 — 87 11,078 Rate concession 2,195 186 — — — 1,398 — — 3,779 Total $ 9,789 $ 6,862 $ — $ 280 $ 20,294 $ 3,814 $ — $ 87 $ 41,126 December 31, 2021 TDR Loans on Accrual Status TDR Loans on Nonaccrual Status Total Real Estate Commercial Business Residential Mortgage Other Real Estate Commercial Business Residential Mortgage Other (Dollars in thousands) Payment concession $ 23,196 $ 790 $ — $ 16 $ 7,533 $ 420 $ — $ — $ 31,955 Maturity / amortization concession 15,449 7,284 — 183 269 3,109 — 117 26,411 Rate concession 5,161 339 — — 234 1,413 — — 7,147 Total $ 43,806 $ 8,413 $ — $ 199 $ 8,036 $ 4,942 $ — $ 117 $ 65,513 TDR loans on accrual status are comprised of loans that were accruing at the time of restructuring and for which the Company anticipates full repayment of both principal and interest under the restructured terms. TDR loans that are on nonaccrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments as modified. Sustained performance includes the periods prior to the modification and if the prior performance met or exceeded the modified terms. TDR loans on accrual status at December 31, 2022 were comprised of 24 commercial real estate loans totaling $9.8 million, 11 commercial business loans totaling $6.9 million, and 9 consumer and other loans totaling $280 thousand. TDR loans on accrual status at December 31, 2021 were comprised of 31 commercial real estate loans totaling $43.8 million, 19 commercial business loans totaling $8.4 million, and 10 consumer and other loans totaling $199 thousand. The Company expects that TDR loans on accrual status as of December 31, 2022, which were all performing in accordance with their restructured terms, to continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. TDR loans that were restructured at market interest rates and had sustained performance as agreed under the modified loan terms may be reclassified as non-TDR after each year end but are reserved for under ASC 310-10. The Company recorded an allowance for credit losses totaling $2.8 million, $2.7 million, and $4.8 million for TDR loans as of December 31, 2022, 2021, and 2020, respectively. As of December 31, 2022 and 2021, the Company had outstanding commitments to extend additional funds to these borrowers totaling $40 thousand and $557 thousand, respectively. The following tables present the amortized cost of loans classified as TDR during the years ended December 31, 2022, 2021, and 2020 by class of loans. Year Ended December 31, 2022 2021 2020 Number of Loans Balance Number of Loans Balance Number of Loans Balance (Dollars in thousands) Real estate – residential — $ — — $ — — $ — Real estate – commercial Retail — — 5 24,169 3 1,589 Hotel & motel 1 1,932 — — — — Gas station & car wash — — 1 575 2 501 Mixed use — — — — 2 1,215 Industrial & warehouse — — 1 506 1 256 Other — — — — 2 2,722 Real estate – construction — — — — — — Commercial business — — 3 309 6 1,620 Residential mortgage — — — — — — Consumer and other — — 2 13 9 113 Total 1 $ 1,932 12 $ 25,572 25 $ 8,016 The allowance for credit losses for the TDRs modified during the years ended December 31, 2022, 2021, and 2020 were $0, $86 thousand, and $1.5 million, respectively. There were no charge offs for TDR loans modified during the years ended December 31, 2022, 2021, and 2020. There was one new TDR loan modified with a payment concession totaling $1.9 million during the year ended December 31, 2022. For the year ended December 31, 2021, there were five TDR loans modified with payment concessions totaling $17.8 million and seven loans modified through maturity concessions totaling $7.8 million. For the year ended December 31, 2020, there were 11 TDR loans modified with payment concessions totaling $2.0 million, 12 TDR loans modified through maturity concessions totaling $5.4 million, and two TDR loans modified through interest rate concessions totaling $622 thousand. The following tables present the amortized cost balance of loans modified as TDRs within the previous twelve months ended December 31, 2022, 2021, and 2020 that subsequently had payment defaults during the years ended December 31, 2022, 2021, and 2020: For the Year Ended December 31, 2022 2021 2020 Number of Loans Balance Number of Loans Balance Number of Loans Balance (Dollars in thousands) Real estate – residential — $ — — $ — — $ — Real estate – commercial Retail — — 3 5,906 1 478 Hotel & motel — — — — — — Gas station & car wash — — 1 575 1 464 Mixed Use — — — — 2 1,215 Industrial & warehouse — — — — — — Other — — — — — — Real estate – construction — — — — — — Commercial business — — 1 102 1 164 Residential mortgage — — — — — — Consumer and other — — 2 13 5 30 Total — $ — 7 $ 6,596 10 $ 2,351 A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The Company recorded $0, $101 thousand and $120 thousand in ACL for TDR loans that had payment defaults during the year ended December 31, 2022, 2021 and 2020. There were no charge offs for TDR loans that had payment defaults during the year ended December 31, 2022, 2021 and 2020. There were seven TDR loans that subsequently defaulted during the year ended December 31, 2021. Three commercial real estate loans were modified through maturity concessions totaling $5.9 million. Four TDR loans that subsequently defaulted were modified through payment concessions which were comprised of one commercial real estate loan totaling to $575 thousand, one commercial business loan totaling to $102 thousand, and two consumer and other loans totaling to $13 thousand. There were ten TDR loans that subsequently defaulted in 2020. The four maturity concessions were comprised of two commercial real estate loans totaling $1.2 million and two consumer and other loans totaling $11 thousand. Four were modified through payment concessions comprised of one commercial real estate for $464 thousand and three consumer loans totaling $19 thousand. The two interest rate concessions were comprised of one commercial real estate loans for $458 thousand and one commercial business for $164 thousand. Related Party Loans In the ordinary course of business, the Company enters into loan transactions with certain of its executives and directors or associates of such executives and directors (“Related Parties”). All loans to Related Parties were made at substantially the same terms and conditions at the time of origination as other originated loans to borrowers that were not affiliated with the Company. All loans to Related Parties were current as of December 31, 2022 and 2021, and the outstanding principal balance as of December 31, 2022 and 2021 was $92.8 million and $31.9 million, respectively. Loans to Related Parties at December 31, 2022 consisted of $92.8 million in commercial real estate loans and $29 thousand in commercial business loans. Loans to Related Parties at December 31, 2021 consisted of $31.2 million in commercial real estate loans and $747 thousand in commercial business loans. The increase in Related Party loans from December 31, 2021 to December 31, 2022 was due to new loans totaling $64.2 million offset by payoffs of $2.5 million and payments of $756 thousand. |