Allowance for Loan Losses

3 Months Ended

Mar. 31, 2021

Allowance for Credit Losses on Loans

Effective January 1, 2020, the Bank adopted ASU 2016-13. Risk characteristics by segment considered in the CECL model are the same as those disclosed in the 2020 Annual Form 10-K.

The baseline loss rates used to calculate the ACL on loans at March 31, 2021 utilized the Bank's average quarterly historical loss information from December 31, 2012 through the balance sheet date. There were no changes to this assumption during the three months ended March 31, 2021. The Bank believes the historic loss rates are viable inputs to the current CECL model as the Bank's lending practice and business has remained relatively stable throughout the periods. While the Bank's assets have grown, the credit culture has stayed relatively consistent.

Prepayments included in the CECL model at March 31, 2021 were based on the 48-month rolling historical averages for each segment, which management believes is an accurate representation of future prepayment activity. There were no changes to this assumption during the three months ended March 31, 2021.

The reasonable and supportable period used in the CECL model as of March 31, 2021 was five quarters. There were no changes to this assumption during the three months ended March 31, 2021. Management believes that forecasts beyond this five quarter time period tend to diverge in economic assumptions and may be less comparable to actual future events. As the length of the reasonable and supportable period increases, the degree of judgment involved in estimating the allowance will likely increase.

The Bank used a two-quarter reversion period in calculating the ACL on loans as of March 31, 2021 as it believes the historical loss information is relevant to the expected credit losses and recognizes the declining precision and increasing uncertainty of estimating credit losses in those periods beyond which it can make reasonable and supportable forecasts. There were no changes to this assumption during the three months ended March 31, 2021.

During the three months ended March 31, 2021, the ACL on loans decreased $6.0 million, or 8.5%, due primarily to a reversal of provision for credit losses on loans of $6.1 million following improvements in the economic forecast at March 31, 2021 as compared to the forecast for the three months ended December 31, 2020 and secondarily due to a decrease in total loans receivable, excluding SBA PPP which are fully guaranteed by the SBA and not provisioned for in the ACL on loans.

A summary of the changes in the ACL on loans during the three months ended March 31, 2021 and 2020 is as follows:


	Three Months Ended March 31,
	2021		2020
	(In thousands)
Balance at the beginning of the year	$	70,185	$	36,171
Impact of CECL Adoption	—		1,822
Balance at the beginning of the year, as adjusted	70,185		37,993
Charge-offs	(187)		(1,597)
Recoveries of loans previously charged-off	362		1,180
(Reversal of) provision for loan losses	(6,135)		9,964
Balance at the end of the year	$	64,225	$	47,540

The following tables detail the activity in the ACL on loans disaggregated by segment and class for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31, 2021
	Beginning Balance		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	30,010	$	(1)	$	205	$	(8,444)	$	21,770
SBA PPP	—		—		—		—		—
Owner-occupied CRE	9,486		—		2		976		10,464
Non-owner occupied CRE	10,112		—		—		2,858		12,970
Total commercial business	49,608		(1)		207		(4,610)		45,204
Residential real estate	1,591		—		—		(189)		1,402
Real estate construction and land development:
Residential	1,951		—		16		81		2,048
Commercial and multifamily	11,141		(1)		—		83		11,223
Total real estate construction and land development	13,092		(1)		16		164		13,271
Consumer	5,894		(185)		139		(1,500)		4,348
Total	$	70,185	$	(187)	$	362	$	(6,135)	$	64,225


	Three Months Ended March 31, 2020
	Beginning Balance		Impact of CECL Adoption		Beginning Balance, as Adjusted		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	11,739	$	(1,348)	$	10,391	$	(1,087)	$	1,057	$	3,539	$	13,900
SBA PPP	—		—		—		—		—		—		—
Owner-occupied CRE	4,512		452		4,964		(135)		12		1,375		6,216
Non-owner occupied CRE	7,682		(2,039)		5,643		—		—		2,107		7,750
Total commercial business	23,933		(2,935)		20,998		(1,222)		1,069		7,021		27,866
Residential real estate	1,458		1,471		2,929		—		3		94		3,026


	Three Months Ended March 31, 2020
	Beginning Balance		Impact of CECL Adoption		Beginning Balance, as Adjusted		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Real estate construction and land development:
Residential	1,455		(571)		884		—		14		(34)		864
Commercial and multifamily	1,605		7,240		8,845		—		—		2,599		11,444
Total real estate construction and land development	3,060		6,669		9,729		—		14		2,565		12,308
Consumer	6,821		(2,484)		4,337		(375)		94		284		4,340
Unallocated	899		(899)		—		—		—		—		—
Total	$	36,171	$	1,822	$	37,993	$	(1,597)	$	1,180	$	9,964	$	47,540