Allowance for Credit Losses on Loans and Leases

9 Months Ended

Sep. 30, 2024

Allowance for Credit Losses on Loans and Leases

The following table summarizes activity in the allowance for credit losses for the periods indicated:


	Multi- Family		Commercial Real Estate		One-to-Four Family First Mortgage		Acquisition, Development, and Construction		Other		Total
Three Months Ended September 30, 2024	(in millions)
Balance, beginning of period	$	618	$	328	$	40	$	43	$	239	$	1,268

Charge-offs	(101)		(110)		(7)		(4)		(38)		(260)
Recoveries	3		6		5		—		7		21
Provision for (recovery of) credit losses on loans and leases	104		68		4		11		48		235
Balance, end of period	$	624	$	292	$	42	$	50	$	256	$	1,264
Three Months Ended September 30, 2023
Balance, beginning of period	$	192	$	69	$	45	$	23	$	265	$	594

Charge-offs	(2)		(13)		(1)		—		(10)		(26)
Recoveries	—		—		—		—		2		2
Provision for (recovery of) credit losses on loans and leases	(6)		64		(1)		8		(16)		49
Balance, end of period	$	184	$	120	$	43	$	31	$	241	$	619

Nine Months Ended September 30, 2024
Balance, beginning of period	$	307	$	366	$	47	$	36	$	236	$	992

Charge-offs	(188)		(411)		(8)		(4)		(94)		(705)
Recoveries	4		6		5		—		20		35
Provision for (recovery of) credit losses on loans and leases	501		331		(2)		18		94		942
Balance, end of period	$	624	$	292	$	42	$	50	$	256	$	1,264
Nine Months Ended September 30, 2023
Balance, beginning of period	$	178	$	46	$	46	$	20	$	103	$	393
Adjustment for Purchased PCD Loans	—		—		—		—		13		13
Charge-offs	(2)		(14)		(3)		—		(16)		(35)
Recoveries	—		—		—		—		12		12
Provision for (recovery of) credit losses on loans and leases	8		88		—		11		129		236
Balance, end of period	$	184	$	120	$	43	$	31	$	241	$	619

At September 30, 2024, the allowance for credit losses on loans and leases was $1.3 billion compared to $1.0 billion at December 31, 2023, up $272 million. Interest rates remain persistently high which will put pressure on the ability for certain borrowers with interest rates resetting at current levels to cover debt service. When combined with inflationary pressure on operating costs and limits on the ability to increase rental rates, debt service levels may approach or exceed some properties' net operating income, which increases the risk of loss. We believe that higher interest rates for a longer period of time will have a more significant impact on our loans that will reprice during the next 18 months. Although the short-term interest rate reduction announced by the Federal Reserve during the third quarter 2024 does alleviate some pressure on our borrowers, rates remain high and uncertainty remains for future potential rate reductions. Therefore, we have incorporated a higher probability of default related to those loans as they approach their scheduled repricing date in the measurement of our allowance for credit losses.

Our allowance for credit losses is determined based on quantitative modeling that incorporates and weighs economic forecast scenarios. The key inputs to our quantitative allowance for credit losses models include borrowers' projected debt service based on the most recent financial information available and underlying collateral property values. Property values are particularly meaningful for our multi-family and commercial real estate portfolios. Our models consider the entire life of the loan, including both the interest only period of the loan, if applicable, and the amortization period, to assess the probability of default and the loss given default. For our multi-family portfolio, we obtain and utilize current and projected geography-specific market information in our forecasts. In estimating the qualitative component of our allowance for credit losses, we have adjusted key inputs used by the model on an average basis for certain loans, most notably net operating income and property values to reflect weaknesses in the underlying data, including the recency of appraisal values, and the lack of significant loss history in available data, particularly for multi-family loans and, most notably, rent-regulated multi-family loans.

As of September 30, 2024 and December 31, 2023, the allowance for unfunded commitments totaled $64 million and $52 million, respectively.

The allowance for credit losses on loans and leases to total loans held for investment ratio increased to 1.78 percent at September 30, 2024, compared to 1.17 percent at December 31, 2023. Excluding loans with government guarantees and warehouse loans, the allowance for credit losses was 1.80 percent at September 30, 2024, compared to 1.26 percent at December 31, 2023.

The following table presents additional information about the Company’s non-accrual loans at September 30, 2024:


(in millions)	Recorded Investment		Related Allowance		Interest Income Recognized
Non-accrual loans with no related allowance:
Multi-family	$	837	$	—	$	23
Commercial real estate	722		—		33
One-to-four family first mortgage	94		—		—
Acquisition, development, and construction	17		—		1
Other (includes commercial and industrial)	7		—		—
Total non-accrual loans with no related allowance	$	1,677	$	—	$	57
Non-accrual loans with an allowance recorded:
Multi-family	$	667	$	56	$	22
Commercial real estate	83		24		4
One-to-four family first mortgage	9		1		—
Acquisition, development, and construction	17		4		1
Other (includes commercial and industrial)	250		78		7
Total non-accrual loans with an allowance recorded	$	1,026	$	163	$	34
Total non-accrual loans:
Multi-family	$	1,504	$	56	$	45
Commercial real estate	805		24		37
One-to-four family first mortgage	103		1		—
Acquisition, development, and construction	34		4		2
Other (includes commercial and industrial)	257		78		7
Total non-accrual loans	$	2,703	$	163	$	91

The following table presents additional information about the Company’s non-accrual loans at December 31, 2023:


(in millions)	Recorded Investment		Related Allowance		Interest Income Recognized
Non-accrual loans with no related allowance:
Multi-family	$	134	$	—	$	5
Commercial real estate	53		—		2
One-to-four family first mortgage	85		—		—

Other (includes commercial and industrial)	22		—		—
Total non-accrual loans with no related allowance	$	294	$	—	$	7
Non-accrual loans with an allowance recorded:
Multi-family	$	4	$	—	$	—
Commercial real estate	$	75	$	17	$	3
One-to-four family first mortgage	11		2		—

Other (includes commercial and industrial)	44		28		—
Total non-accrual loans with an allowance recorded	$	134	$	47	$	3
Total non-accrual loans:
Multi-family	$	138	$	—	$	5
Commercial real estate	128		17		5
One-to-four family first mortgage	96		2		—

Other (includes commercial and industrial)	66		28		—
Total non-accrual loans	$	428	$	47	$	10