XML 29 R15.htm IDEA: XBRL DOCUMENT

Note 8 - Loans

6 Months Ended

Jun. 30, 2024

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

8. Loans

Most of the Company’s business activities are with clients located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan clients in Hong Kong. The Company has no specific industry concentration, and generally its loans, when secured, are secured by real property or other collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, from refinancing by other lenders, or through sale by the borrowers of the secured collateral.

The types of loans in the Company’s Consolidated Balance Sheets as of June 30, 2024, and December 31, 2023, were as follows:

	*June 30, 2024*			*December 31, 2023*
	(In thousands)

Commercial loans	$	3,090,763		$	3,305,048
Construction loans		356,978			422,647
Commercial real estate loans		9,886,030			9,729,581
Residential mortgage loans		5,782,202			5,838,747
Equity lines		235,277			245,919
Installment and other loans		6,274			6,198
Gross loans	$	19,357,524		$	19,548,140
Allowance for loan losses		(153,404	)		(154,562	)
Unamortized deferred loan fees, net		(10,785	)		(10,720	)
Total loans held for investment, net	$	19,193,335		$	19,382,858

Loans held for sale	$	—		$	—

As of June 30, 2024, and December 31, 2023, recorded investment in non-accrual loans was $107.3 million and $66.7 million, respectively. For non-accrual loans, the amounts previously charged-off represent 11.6% and 15.8% of the contractual balances for non-accrual loans as of June 30, 2024, and December 31, 2023, respectively.

The following table presents non-accrual loans and the related allowance as of June 30, 2024, and December 31, 2023. There were no non-accrual loans with allocated allowance as of June 30, 2024, and December 31, 2023.

	*June 30, 2024*
	*Unpaid Principal Balance*		*Recorded Investment*		*Allowance*
	(In thousands)

With no allocated allowance:
Commercial loans	$	15,890	$	4,075	$	—
Construction loans		22,998		22,998		—
Commercial real estate loans		72,238		60,085		—
Residential mortgage loans and equity lines		20,585		20,112		—
Subtotal	$	131,711	$	107,270	$	—

Total non-accrual loans	$	131,711	$	107,270	$	—

	*December 31, 2023*
	*Unpaid Principal Balance*		*Recorded Investment*		*Allowance*
	(In thousands)

With no allocated allowance:
Commercial loans	$	26,310	$	14,404	$	—
Construction loans		7,736		7,736		—
Commercial real estate loans		41,725		32,030		—
Residential mortgage loans and equity lines		12,957		12,511		—
Subtotal	$	88,728	$	66,681	$	—

Total non-accrual loans	$	88,728	$	66,681	$	—

The following tables present the average recorded investment and interest income recognized on non-accrual loans for the period indicated:

	*Three Months Ended*				*Six Months Ended*
	*June 30, 2024*				*June 30, 2024*
	*Average Recorded Investment*		*Interest Income Recognized*		*Average Recorded Investment*		*Interest Income Recognized*
	(In thousands)

Commercial loans	$	7,462	$	3	$	11,279	$	5
Construction loans		22,998		—		25,548		—
Commercial real estate loans		57,997		74		50,934		122
Residential mortgage loans and equity lines		16,720		—		15,445		—
Total non-accrual loans	$	105,177	$	77	$	103,206	$	127

	Three Months Ended				Six Months Ended
	June 30, 2023				June 30, 2023
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)

Commercial loans	$	20,518	$	4	$	21,948	$	7
Commercial real estate loans		39,069		166		37,650		397
Residential mortgage loans and equity lines		11,741		—		10,858		.
Installment and other loans		—		—		1		—
Total non-accrual loans	$	71,328	$	170	$	70,457	$	404

The following tables present the aging of the loan portfolio by type as of June 30, 2024, and as of December 31, 2023:

	*June 30, 2024*
	*Accruing*
	*30-59 Days Past Due*		*60-89 Days Past Due*		*90 Days or More Past Due*		*Non-accrual Loans*		*Total Past Due*		*Loans Not Past Due*		*Total*
	(In thousands)
Type of Loans:
Commercial loans	$	6,567	$	5,532	$	2,207	$	4,075	$	18,381	$	3,072,382	$	3,090,763
Construction loans		—		—		—		22,998		22,998		333,980		356,978
Commercial real estate loans		925		12,702		1,236		60,085		74,948		9,811,082		9,886,030
Residential mortgage loans and equity lines		954		6,510		—		20,112		27,576		5,989,903		6,017,479
Installment and other loans		3		—		—		—		3		6,271		6,274
Total loans	$	8,449	$	24,744	$	3,443	$	107,270	$	143,906	$	19,213,618	$	19,357,524

	December 31, 2023
	Accruing
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)
Type of Loans:
Commercial loans	$	11,771	$	7,770	$	508	$	14,404	$	34,453	$	3,270,595	$	3,305,048
Construction loans		25,389		22,998		—		7,736		56,123		366,524		422,647
Commercial real estate loans		27,900		1,503		6,649		32,030		68,082		9,661,499		9,729,581
Residential mortgage loans and equity lines		59,606		6,670		—		12,511		78,787		6,005,879		6,084,666
Installment and other loans		32		—		—		—		32		6,166		6,198
Total loans	$	124,698	$	38,941	$	7,157	$	66,681	$	237,477	$	19,310,663	$	19,548,140

The Company has adopted ASU 2022-02, "Financial Instruments – Troubled Debt Restructurings ("TDR") and Vintage Disclosures" effective January 1, 2023. As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our Allowance for Credit Losses ("ACL") approach discussed further below in this footnote.

Under this guidance on loan modifications made to borrowers experiencing financial difficulty, when a loan held for investment is modified and is considered to be a continuation of the original loan, the Company uses the post-modification contractual rate to derive the effective interest rate when using a discounted cash flow method to determine the allowance for credit loss.

The amendments in this guidance require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan.

The Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in the quantitative baseline. These individually evaluated loans are removed from the pooling approach for the quantitative baseline, and include non-accrual loans, loan modifications made to borrowers experiencing financial difficulty, and other loans as deemed appropriate by management. The Company applies the loan refinancing and restructuring guidance provided in ASU 2022-02 to determine whether a modification made to a borrower result in a new loan or a continuation of an existing loan.

If economic conditions or other factors worsen relative to the assumptions the Company utilized, the expected loan losses will increase accordingly in future periods.

The following table presents the amortized cost of loans modified to borrowers experiencing financial difficulty disaggregated by class of financing receivable and type of concession granted and the financial effects of the modifications for the three and six months ended June 30, 2024, and June 30, 2023, by loan class and modification type.

	*Three Months Ended June 30, 2024*											*Financial Effects of Loan Modifications*
	*Term Extension*		*Payment Delay*		*Combo-Rate Reduction/Term Extension/Payment Delay*		*Total*		*Modification as a % of Loan Class*			*Weighted-Average Rate Reduction*		*Weighted-Average Term Extension (in Years)*		*Weighted-Average Payment Deferral (in Years)*
	(In thousands)
Loan Type
Commercial loans	$	4,883	$	—	$	—	$	4,883		0.16	%		0.74		1.5		0.0
Total	$	4,883	$	—	$	—	$	4,883


	*Six Months Ended June 30, 2024*											*Financial Effects of Loan Modifications*
	*Term Extension*		*Payment Delay*		*Combo-Rate Reduction/Term Extension/Payment Delay*		*Total*		*Modification as a % of Loan Class*			*Weighted-Average Rate Reduction*		*Weighted-Average Term Extension (in Years)*		*Weighted-Average Payment Deferral (in Years)*
	(In thousands)
Loan Type
Commercial loans	$	4,883	$	—	$	1,836	$	6,719		0.22	%		0.06		1.8		0.3
Residential mortgage loans		—		221		—		221		0.00	%		0.15		0.0		2.0
Total	$	4,883	$	221	$	1,836	$	6,940

	*Three Months Ended June 30, 2023*											*Financial Effects of Loan Modifications*
	*Term Extension*		*Payment Delay*		*Combo-Rate Reduction/Term Extension/Payment Delay*		*Total*		*Modification as a % of Loan Class*			*Weighted-Average Rate Reduction*		*Weighted-Average Term Extension (in Years)*		*Weighted-Average Payment Deferral (in Years)*
	(In thousands)
Loan Type
Commercial loans	$	—	$	—	$	126	$	126		0.00	%		3.25		0.75		0.25
Total	$	—	$	—	$	126	$	126


	*Six Months Ended June 30, 2023*											*Financial Effects of Loan Modifications*
	*Term Extension*		*Payment Delay*		*Combo-Rate Reduction/Term Extension/Payment Delay*		*Total*		*Modification as a % of Loan Class*			*Weighted-Average Rate Reduction*		*Weighted-Average Term Extension (in Years)*		*Weighted-Average Payment Deferral (in Years)*
	(In thousands)
Loan Type
Commercial loans	$	—	$	—	$	126	$	126		0.00	%		3.25		0.75		0.25
Total	$	—	$	—	$	126	$	126

The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms. The Company tracks the performance of modified loans. There were no loans that received a modification during the three and six months ended June 30, 2024, that subsequently defaulted.

A modified loan may become delinquent and may result in a payment default (generally 90 days past due) subsequent to modification. There were no loans that received modifications which subsequently defaulted during the three and six months ended June 30, 2024.

The Company closely monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table presents the performance of loans that were modified for the three and six months ended June 30, 2024, since the adoption of ASU 2022-02 on January 1, 2023.

	*Three Months Ended June 30, 2024*
	*Current*		*30–89 Days Past Due*		*90+ Days Past Due*		*Total*
	(In thousands)
Loan Type
Commercial loans	$	4,883	$	—	$	—	$	4,883
Total	$	4,883	$	—	$	—	$	4,883

	*Six Months Ended June 30, 2024*
	*Current*		*30–89 Days Past Due*		*90+ Days Past Due*		*Total*
	(In thousands)
Loan Type
Commercial loans	$	6,719	$	—	$	—	$	6,719
Residential mortgage loans		221		—		—		221
Total	$	6,940	$	—	$	—	$	6,940

	Three Months Ended June 30, 2023
	Current		30–89 Days Past Due		90+ Days Past Due		Total
	(In thousands)
Loan Type
Commercial loans	$	126	$	—	$	—	$	126
Total	$	126	$	—	$	—	$	126

	Six Months Ended June 30, 2023
	Current		30–89 Days Past Due		90+ Days Past Due		Total
	(In thousands)
Loan Type
Commercial loans	$	126	$	—	$	—	$	126
Total	$	126	$	—	$	—	$	126

Under the Company’s internal underwriting policy, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification in order to determine whether a borrower is experiencing financial difficulty.

As of June 30, 2024, there were no commitments to lend additional funds to borrowers experiencing financial difficulty and whose loans were modified.

As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk grade to each loan. Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of sources of repayment, the borrower’s current financial and liquidity status and other relevant information. The risk rating categories can be generally described by the following grouping for non-homogeneous loans:

●

Pass/Watch – These loans range from minimal credit risk to higher than average, but still acceptable, credit risk. The loans have sufficient sources of repayment to repay the loans in full, in accordance with all the terms and conditions and remain currently well protected by collateral values.

●

Special Mention – Borrower is fundamentally sound, and loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay. Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support.

●

Substandard – These loans are inadequately protected by current sound net worth, paying capacity, or collateral. Well-defined weaknesses exist that could jeopardize repayment of debt. Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss.

●

Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan), a loss classification is deferred until the situation is better defined.

●

Loss – These loans are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

The following table summarizes the Company’s loans held for investment and current year-to-date gross write-offs as of June 30, 2024, and December 31, 2023, presented by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification. Revolving Loans that are converted to term loans presented in the table below are excluded from the term loans by vintage year columns.

	*Loans Amortized Cost Basis by Origination Year*
June 30, 2024	*2024*		*2023*		*2022*		*2021*		*2020*		*Prior*		*Revolving Loans*		*Revolving Converted to Term Loans*		*Total*
	(In thousands)
Commercial loans
Pass/Watch	$	282,985	$	331,024	$	242,031	$	262,156	$	57,262	$	120,683	$	1,609,154	$	8,483	$	2,913,778
Special Mention		420		246		2,749		14,406		21,973		8,359		32,118		—		80,271
Substandard		154		6,486		15,328		—		—		6,406		64,099		373		92,846
Total	$	283,559	$	337,756	$	260,108	$	276,562	$	79,235	$	135,448	$	1,705,371	$	8,856	$	3,086,895
YTD gross write-offs	$	—	$	401	$	441	$	8,096	$	148	$	40	$	1,070	$	—	$	10,196
Construction loans
Pass/Watch	$	1,066	$	43,592	$	136,198	$	77,477	$	2,564	$	13,620	$	—	$	—	$	274,517
Special Mention		—		3,509		—		31,146		23,997		—		—		—		58,652
Substandard		—		—		—		—		—		22,998		—		—		22,998
Total	$	1,066	$	47,101	$	136,198	$	108,623	$	26,561	$	36,618	$	—	$	—	$	356,167
YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate loans
Pass/Watch	$	686,111	$	2,120,624	$	1,851,089	$	1,529,293	$	847,101	$	2,433,709	$	168,127	$	—	$	9,636,054
Special Mention		—		11,210		15,500		9,249		1,847		21,528		2,099		—		61,433
Substandard		—		11,185		30,393		46,226		4,992		86,327		2,041		—		181,164
Total	$	686,111	$	2,143,019	$	1,896,982	$	1,584,768	$	853,940	$	2,541,564	$	172,267	$	—	$	9,878,651
YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	251	$	—	$	—	$	251
Residential mortgage loans
Pass/Watch	$	342,901	$	1,069,894	$	1,072,956	$	848,067	$	486,990	$	1,935,373	$	—	$	—	$	5,756,181
Special Mention		—		—		—		—		33		1,598		—		—		1,631
Substandard		—		574		2,388		3,906		4,594		13,370		—		—		24,832
Total	$	342,901	$	1,070,468	$	1,075,344	$	851,973	$	491,617	$	1,950,341	$	—	$	—	$	5,782,644
YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Equity lines
Pass/Watch	$	—	$	—	$	87	$	—	$	—	$	—	$	217,511	$	16,280	$	233,878
Substandard		—		—		—		—		—		—		1,982		333		2,315
Total	$	—	$	—	$	87	$	—	$	—	$	—	$	219,493	$	16,613	$	236,193
YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	3	$	3
Installment and other loans
Pass/Watch	$	1,171	$	4,848	$	169	$	1	$	—	$	—	$	—	$	—	$	6,189
Total	$	1,171	$	4,848	$	169	$	1	$	—	$	—	$	—	$	—	$	6,189
YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total loans	$	1,314,808	$	3,603,192	$	3,368,888	$	2,821,927	$	1,451,353	$	4,663,971	$	2,097,131	$	25,469	$	19,346,739
Total YTD gross write-offs	$	—	$	401	$	441	$	8,096	$	148	$	291	$	1,070	$	3	$	10,450

	*Loans Amortized Cost Basis by Origination Year*
December 31, 2023	*2023*		*2022*		*2021*		*2020*		*2019*		*Prior*		*Revolving Loans*		*Revolving Converted to Term Loans*		*Total*
	(In thousands)
Commercial loans
Pass/Watch	$	381,705	$	323,939	$	326,650	$	96,725	$	75,281	$	136,162	$	1,775,162	$	8,308	$	3,123,932
Special Mention		4,488		4,875		8,559		23,380		—		—		75,419		—		116,721
Substandard		1,752		653		9,895		2,462		763		5,775		40,131		116		61,547
Total	$	387,945	$	329,467	$	345,104	$	122,567	$	76,044	$	141,937	$	1,890,712	$	8,424	$	3,302,200
YTD gross write-offs	$	—	$	977	$	1,312	$	384	$	3,672	$	6,044	$	1,520	$	—	$	13,909
Construction loans
Pass/Watch	$	29,550	$	131,984	$	153,977	$	19,461	$	13,298	$	3,131	$	—	$	—	$	351,401
Special Mention		1,911		—		11,707		25,389		—		22,998		—		—		62,005
Substandard		—		—		—		—		7,736		—		—		—		7,736
Total	$	31,461	$	131,984	$	165,684	$	44,850	$	21,034	$	26,129	$	—	$	—	$	421,142
YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	4,221	$	—	$	—	$	4,221
Commercial real estate loans
Pass/Watch	$	2,121,489	$	1,959,239	$	1,585,010	$	887,508	$	1,019,952	$	1,726,015	$	184,601	$	—	$	9,483,814
Special Mention		37,604		18,910		38,405		3,499		10,303		17,210		1,384		—		127,315
Substandard		—		11,870		12,170		2,965		17,293		66,205		—		—		110,503
Total	$	2,159,093	$	1,990,019	$	1,635,585	$	893,972	$	1,047,548	$	1,809,430	$	185,985	$	—	$	9,721,632
YTD gross write-offs	$	—	$	—	$	208	$	—	$	969	$	4,164	$	—	$	—	$	5,341
Residential mortgage loans
Pass/Watch	$	1,140,998	$	1,128,526	$	902,613	$	524,315	$	541,005	$	1,583,118	$	—	$	—	$	5,820,575
Special Mention		—		—		—		33		—		1,619		—		—		1,652
Substandard		7		652		3,325		2,577		1,334		9,311		—		—		17,206
Total	$	1,141,005	$	1,129,178	$	905,938	$	526,925	$	542,339	$	1,594,048	$	—	$	—	$	5,839,433
YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Equity lines
Pass/Watch	$	—	$	98	$	—	$	—	$	—	$	—	$	227,502	$	16,628	$	244,228
Special Mention		—		3		—		—		—		—		—		—		3
Substandard		—		—		—		—		—		—		2,511		173		2,684
Total	$	—	$	101	$	—	$	—	$	—	$	—	$	230,013	$	16,801	$	246,915
YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Installment and other loans
Pass/Watch	$	5,114	$	981	$	3	$	—	$	—	$	—	$	—	$	—	$	6,098
Total	$	5,114	$	981	$	3	$	—	$	—	$	—	$	—	$	—	$	6,098
YTD gross write-offs	$	—	$	15	$	—	$	—	$	—	$	—	$	—	$	—	$	15
Total loans	$	3,724,618	$	3,581,730	$	3,052,314	$	1,588,314	$	1,686,965	$	3,571,544	$	2,306,710	$	25,225	$	19,537,420
Total YTD gross write-offs	$	—	$	992	$	1,520	$	384	$	4,641	$	14,429	$	1,520	$	—	$	23,486

Allowance for Credit Losses

The Company has an allowance framework under ASC Topic 326 for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. The forward-looking concept of current expected credit loss (“CECL”) approach requires loss estimates to consider historical experience, current conditions and reasonable and supportable economic forecasts of future events and circumstances.

The ACL is the combination of the allowance for loan losses and the reserve for unfunded loan commitments. The allowance for loan losses is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "other liabilities" on the Consolidated Balance Sheets (Unaudited). The amortized cost basis of loans does not include accrued interest receivable, which is included in "accrued interest receivable" on the Consolidated Balance Sheets. The "Provision for credit losses" on the Consolidated Statements of Operations and Comprehensive Income (Unaudited) is a combination of the provision for loan losses and the provision for unfunded loan commitments.

Under the Company’s CECL approach, management estimates the ACL using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable economic forecasts that vary by loan portfolio. We use economic forecasts from Moody’s Analytics in this process. The economic forecast is updated monthly; therefore, the one used for each quarter-end calculation is generally based on a one-month lag based on the timing of when the forecast is released. The Company does not consider a one-month lag to create a material difference but considers any subsequent material changes to our estimated loss forecasts as deemed appropriate. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in gross domestic product (or “GDP”), unemployment rates, property values, or other relevant factors.

Under the CECL methodology, quantitative and qualitative loss factors are applied to our population of loans on a collective pool basis when similar risk characteristics exist. The Company evaluates loans for expected credit losses on an individual basis if, based on current information and events, the loan does not share similar credit risk characteristics with other loans. The Company may choose to measure expected credit losses on an individual loan basis by using one of the following methods: (1) the present value of the expected future cash flows of the loan discounted at the loan’s original effective interest rate, or (2) if the loan is collateral dependent, the fair value of the collateral less costs to sell. For loans that are not collateral-dependent, the Company uses the present value of future cash flows.

Quantitative Factors

Under the Company’s CECL methodology, nine portfolio segments with similar risk characteristics are evaluated for expected loss. Six portfolios are modeled using econometric models and three smaller portfolios are evaluated using a simplified loss-rate method that calculates lifetime expected credit losses for the respective pools (simplified approach). The six portfolios subject to econometric modeling include residential mortgages; commercial and industrial loans (“C&I”); construction loans; commercial real estate (“CRE”) for multifamily loans; CRE for owner-occupied loans; and other CRE loans. We estimate the probability of default during the reasonable and supportable forecast period using separate econometric regression models developed to correlate macroeconomic variables, (GDP, unemployment, CRE prices and residential mortgage prices) to historical credit performance for each of the six loan portfolios from the fourth quarter of 2007 to the fourth quarter of 2022. Loss given default rates are computed based on the charge-offs recognized divided by the exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2022. The probability of default and the loss given default rates are applied to the expected amount at default at the loan level based on contractual scheduled payments and estimated prepayments. The amounts so calculated comprise the quantitative portion of the allowance for credit losses.

The Company’s CECL methodology utilizes an eight-quarter reasonable and supportable (“R&S”) forecast period, and a four-quarter reversion period. Management relies on multiple forecasts, blending them into a single loss estimate. Generally speaking, the blended scenario approach would include the Baseline, the Alternative Scenario 1 – Upside – 10th Percentile and the Alternative Scenario 3 – Downside – 90th Percentile forecasts. After the R&S period, the Company reverts linearly for the four-quarter reversion period to the long-term loss rates for each of the six portfolios of loans.

The Company’s CECL methodology estimates expected credit losses over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

The simplified approach portfolios include Small Business Administration (“SBA”) loans, Home Equity Lines of Credit (“HELOCs”) and cash-secured loans, which are not modelled econometrically due to the low loss history for these three pools of loans. The forecasted loss rate is based on the forecasted GDP and unemployment rates during the first eight quarters of the portfolio’s contractual life, reversion loss rates for the next four quarters of the portfolio’s contractual life on a linear declining rate, and the long-term loss rate projected over the remainder of the portfolio’s contractual life.

Qualitative Factors

Under the Company’s CECL methodology, the qualitative portion of the reserve on pooled loans represents management’s judgment of additional considerations to account for internal and external risk factors that are not adequately measured in the quantitative reserve. The qualitative loss factors consider idiosyncratic risk factors, conditions that may not be reflected in quantitatively derived results, or other relevant factors to seek to ensure the allowance for credit losses reflects our best estimate of current expected credit losses. The qualitative reserves include reserves for policy exceptions, experience of management and staff, level of competition in the lending environment, weak risk identification, lack of historical loss experience with residential mortgage loans made to non-U.S. residents, oil & gas, the higher risk characteristics of purchased syndicated loans, model uncertainty, and loans with potential risk of loss given the current environment, including CRE and Office loans, but have not degraded to the point of qualifying for a specific reserve. Current and forecasted economic trends and underlying market values for collateral dependent loans also are considered within the econometric models described above.

The Company’s CECL methodology requires a significant amount of management judgment in determining the appropriate allowance for credit losses. Several of the steps in the methodology involve judgment and are subjective in nature including, among other things:

●

Segmenting the loan portfolio

●

Determining the amount of loss history to consider

●

Selecting predictive econometric regression models that use appropriate macroeconomic variables

●

Determining the methodology to forecast prepayments

●

Selecting the most appropriate economic forecast scenario

●

Determining the length of the R&S forecast and reversion periods

●

Estimating expected utilization rates on unfunded loan commitments

●

Assessing relevant and appropriate qualitative factors.

In addition, the CECL methodology is dependent on economic forecasts that are inherently imprecise and will change from period to period. Although the allowance for credit losses is considered by management to be appropriate, there can be no assurance that it will be sufficient to absorb future losses.

Management believes the allowance for credit losses is appropriate for the CECL in our loan portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. The criteria for default may include any one of the following: on nonaccrual status, modifications to borrowers experiencing financial difficulty, or payment delinquency of 90 days or more.

Individually Evaluated Loans

When a loan no longer shares similar risk characteristics with other loans, such as in the case of certain nonaccrual loans, the Company estimates the allowance for loan losses on an individual loan basis. Generally, the allowance for loan losses for individually evaluated loans is measured as the difference between the recorded value of the loans and the fair value of the collateral. For loans evaluated individually, the Company uses one of two different asset valuation measurement methods: (1) the fair value of collateral less costs to sell; or (2) the present value of expected future cash flows. If an individually evaluated loan is determined to be collateral dependent, the Company applies the fair value of the collateral less costs to sell method. If an individually evaluated loan is determined not to be collateral dependent, the Company uses the present value of future cash flows.

Unfunded Loan Commitments

Unfunded loan commitments are generally related to providing credit facilities to clients of the Bank and are not actively traded financial instruments. These unfunded commitments are disclosed as off-balance sheet financial instruments in Note 9 in the Notes to Consolidated Financial Statements (Unaudited).

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company, using the same loss factors as used for the allowance for loan losses. The reserve for unfunded loan commitments uses a one-year historical usage rate of the unfunded commitments during the contractual life of the commitments. The allowance for unfunded commitments is included in “other liabilities” on the Consolidated Balance Sheets. Changes in the allowance for unfunded commitments are included in the provision for credit losses.

The following tables set forth activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2024, and June 30, 2023.

Three months ended June 30, 2024 and 2023

									*Residential*
							*Commercial*		*Mortgage Loans*			*Installment*
	*Commercial*			*Construction*			*Real Estate*		*and*			*and Other*
	*Loans*			*Loans*			*Loans*		*Equity Lines*			*Loans*		*Total*
	(In thousands)
Allowance for Loan Losses:
March 31, 2024 Ending Balance	$	51,290		$	8,539		$	77,049	$	17,701		$	10	$	154,589
Provision/(reversal) for expected credit losses		5,429			373			1,416		(419	)		13		6,812
Charge-offs		(8,257	)		—			—		—			—		(8,257	)
Recoveries		126			—			—		134			—		260
Net (charge-offs)/recoveries		(8,131	)		—			—		134			—		(7,997	)
June 30, 2024 Ending Balance	$	48,588		$	8,912		$	78,465	$	17,416		$	23	$	153,404

Allowance for unfunded credit commitments:
March 31, 2024 Ending Balance	$	7,460		$	2,326		$	—	$	—		$	—	$	9,786
Provision/(reversal) for expected credit losses		33			(245	)		—		—			—		(212	)
June 30, 2024 Ending Balance	$	7,493		$	2,081		$	—	$	—		$	—	$	9,574

										*Residential*
							*Commercial*			*Mortgage Loans*		*Installment*
	*Commercial*			*Construction*			*Real Estate*			*and*		*and Other*
	*Loans*			*Loans*			*Loans*			*Equity Lines*		*Loans*			*Total*
	(In thousands)
Allowance for Loan Losses:
March 31, 2023 Ending Balance	$	45,975		$	10,900		$	70,367		$	17,633	$	9		$	144,884
Provision for expected credit losses		6,514			1,851			3,249			581		10			12,205
Charge-offs		(2,352	)		—			(130	)		—		(1	)		(2,483	)
Recoveries		442			—			61			—		—			503
Net (charge-offs)		(1,910	)		—			(69	)		—		(1	)		(1,980	)
June 30, 2023 Ending Balance	$	50,579		$	12,751		$	73,547		$	18,214	$	18		$	155,109

Allowance for unfunded credit commitments:
March 31, 2023 Ending Balance	$	8,275		$	5,215		$	85		$	—	$	—		$	13,575
Reversal for expected credit losses		(1,291	)		(1,674	)		(85	)		—		—			(3,050	)
June 30, 2023 Ending Balance	$	6,984		$	3,541		$	—		$	—	$	—		$	10,525

Six months ended June 30, 2024 and 2023

										*Residential*
							*Commercial*			*Mortgage Loans*			*Installment*
	*Commercial*			*Construction*			*Real Estate*			*and*			*and Other*
	*Loans*			*Loans*			*Loans*			*Equity Lines*			*Loans*		*Total*
	(In thousands)
Allowance for Loan Losses:
December 31, 2023 Ending Balance	$	53,791		$	8,180		$	74,428		$	18,140		$	23	$	154,562
Provision/(reversal) for expected credit losses		4,055			732			4,288			(1,096	)		—		7,979
Charge-offs		(10,196	)		—			(251	)		(3	)		—		(10,450	)
Recoveries		938			—			—			375			—		1,313
Net (charge-offs)/recoveries		(9,258	)		—			(251	)		372			—		(9,137	)
June 30, 2024 Ending Balance	$	48,588		$	8,912		$	78,465		$	17,416		$	23	$	153,404

Allowance for unfunded credit commitments:
December 31, 2023 Ending Balance	$	6,888		$	2,165		$	—		$	—		$	—	$	9,053
Provision/(reversal) for expected credit losses		605			(84	)		—			—			—		521
June 30, 2024 Ending Balance	$	7,493		$	2,081		$	—		$	—		$	—	$	9,574

										Residential
							*Commercial*			*Mortgage Loans*			*Installment*
	*Commercial*			*Construction*			*Real Estate*			*and*			*and Other*
	*Loans*			*Loans*			*Loans*			*Equity Lines*			*Loans*			*Total*
	(In thousands)
Allowance for Loan Losses:
December 31, 2022 Ending Balance	$	49,435		$	10,417		$	68,366		$	18,232		$	35		$	146,485
Provision/(reversal) for expected credit losses		6,454			2,334			6,712			(30	)		(10	)		15,460
Charge-offs		(6,263	)		—			(4,120	)		—			(7	)		(10,390	)
Recoveries		953			—			2,589			12			—			3,554
Net (charge-offs)/recoveries		(5,310	)		—			(1,531	)		12			(7	)		(6,836	)
June 30, 2023 Ending Balance	$	50,579		$	12,751		$	73,547		$	18,214		$	18		$	155,109

Allowance for unfunded credit commitments:
December 31, 2022 Ending Balance	$	4,840		$	3,890		$	—		$	—		$	—		$	8,730
Provision/(reversal) for expected credit losses		2,144			(349	)		—			—			—			1,795
June 30, 2023 Ending Balance	$	6,984		$	3,541		$	—		$	—		$	—		$	10,525