Allowance for Credit Losses on Loans

6 Months Ended

Jun. 30, 2021

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 June 30, 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 six months ended June 30, 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 June 30, 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 six months ended June 30, 2021.

The reasonable and supportable period used in the CECL model as of June 30, 2021 was five quarters. There were no changes to this assumption during the six months ended June 30, 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 June 30, 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 six months ended June 30, 2021.

During the six months ended June 30, 2021, the ACL on loans decreased $18.6 million, or 26.5%, due primarily to a reversal of provision for credit losses on loans of $19.0 million following improvements in the economic forecast at June 30, 2021 as compared to the forecast at December 31, 2020 and secondarily due to a decrease in total loans receivable, excluding SBA PPP loans 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 six months ended June 30, 2021 and 2020 is as follows:


	Six Months Ended June 30,
	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	(320)		(3,852)
Recoveries of loans previously charged-off	653		1,455
(Reversal of) provision for credit losses on loans	(18,956)		35,905
Balance at the end of the year	$	51,562	$	71,501

The following tables detail the activity in the ACL on loans disaggregated by segment and class for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30, 2021
	Beginning Balance		Charge-offs		Recoveries		Reversal of Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	21,770	$	(13)	$	132	$	(4,404)	$	17,485
SBA PPP	—		—		—		—		—
Owner-occupied CRE	10,464		—		11		(1,913)		8,562
Non-owner occupied CRE	12,970		—		—		(2,340)		10,630
Total commercial business	45,204		(13)		143		(8,657)		36,677
Residential real estate	1,402		—		—		(249)		1,153
Real estate construction and land development:
Residential	2,048		—		4		(416)		1,636
Commercial and multifamily	11,223		—		—		(2,388)		8,835
Total real estate construction and land development	13,271		—		4		(2,804)		10,471
Consumer	4,348		(120)		144		(1,111)		3,261
Total	$	64,225	$	(133)	$	291	$	(12,821)	$	51,562

Six Months Ended June 30, 2021

Beginning Balance

Charge-offs

Recoveries

(Reversal of) Provision for Credit Losses

Ending Balance

(In thousands)

Commercial business:


	Six Months Ended June 30, 2021
	Beginning Balance		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial and industrial	$	30,010	$	(14)	$	337	$	(12,848)	$	17,485
SBA PPP	—		—		—		—		—
Owner-occupied CRE	9,486		—		13		(937)		8,562
Non-owner occupied CRE	10,112		—		—		518		10,630
Total commercial business	49,608		(14)		350		(13,267)		36,677
Residential real estate	1,591		—		—		(438)		1,153
Real estate construction and land development:
Residential	1,951		—		20		(335)		1,636
Commercial and multifamily	11,141		(1)		—		(2,305)		8,835
Total real estate construction and land development	13,092		(1)		20		(2,640)		10,471
Consumer	5,894		(305)		283		(2,611)		3,261
Total	$	70,185	$	(320)	$	653	$	(18,956)	$	51,562


	Three Months Ended June 30, 2020
	Beginning Balance		Charge-offs		Recoveries		Provision for (Reversal of Provision for) Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	13,900	$	(1,824)	$	69	$	17,628	$	29,773

Owner-occupied CRE	6,216		—		2		3,785		10,003
Non-owner occupied CRE	7,750		—		—		2,916		10,666
Total commercial business	27,866		(1,824)		71		24,329		50,442
Residential real estate	3,026		—		—		(803)		2,223
Real estate construction and land development:
Residential	864		—		7		(304)		567
Commercial and multifamily	11,444		—		—		(2,887)		8,557
Total real estate construction and land development	12,308		—		7		(3,191)		9,124
Consumer	4,340		(431)		197		5,606		9,712

Total	$	47,540	$	(2,255)	$	275	$	25,941	$	71,501


	Six Months Ended June 30, 2020
	Beginning Balance		Impact of CECL Adoption		Beginning Balance, as Adjusted		Charge-offs		Recoveries		Provision for (Reversal of Provision for) Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	11,739	$	(1,348)	$	10,391	$	(2,911)	$	1,126	$	21,167	$	29,773

Owner-occupied CRE	4,512		452		4,964		(135)		14		5,160		10,003
Non-owner occupied CRE	7,682		(2,039)		5,643		—		—		5,023		10,666
Total commercial business	23,933		(2,935)		20,998		(3,046)		1,140		31,350		50,442
Residential real estate	1,458		1,471		2,929		—		3		(709)		2,223


	Six Months Ended June 30, 2020
	Beginning Balance		Impact of CECL Adoption		Beginning Balance, as Adjusted		Charge-offs		Recoveries		Provision for (Reversal of Provision for) Credit Losses		Ending Balance
	(In thousands)
Real estate construction and land development:
Residential	1,455		(571)		884		—		21		(338)		567
Commercial and multifamily	1,605		7,240		8,845		—		—		(288)		8,557
Total real estate construction and land development	3,060		6,669		9,729		—		21		(626)		9,124
Consumer	6,821		(2,484)		4,337		(806)		291		5,890		9,712
Unallocated	899		(899)		—		—		—		—		—
Total	$	36,171	$	1,822	$	37,993	$	(3,852)	$	1,455	$	35,905	$	71,501