Allowance for Credit Losses on Loans

9 Months Ended

Sep. 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 September 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 nine months ended September 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 September 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 nine months ended September 30, 2021.

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

During the nine months ended September 30, 2021, the ACL on loans decreased $21.9 million, or 31.2%, due primarily to a reversal of provision for credit losses on loans of $21.8 million. The reversal of provision for credit losses was primarily driven by improvements in the economic forecast at September 30, 2021 as compared to the forecast at December 31, 2020.

A summary of the changes in the ACL on loans during the nine months ended September 30, 2021 and 2020 is as follows:


	Nine Months Ended September 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	(1,267)		(4,694)
Recoveries of loans previously charged-off	1,207		1,816
(Reversal of) provision for credit losses on loans	(21,808)		38,225
Balance at the end of the year	$	48,317	$	73,340

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


	Three Months Ended September 30, 2021
	Beginning Balance		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	17,485	$	(743)	$	373	$	1,531	$	18,646
SBA PPP	—		—		—		—		—
Owner-occupied CRE	8,562		—		12		(1,644)		6,930
Non-owner occupied CRE	10,630		—		—		(1,133)		9,497
Total commercial business	36,677		(743)		385		(1,246)		35,073
Residential real estate	1,153		—		—		(67)		1,086
Real estate construction and land development:
Residential	1,636		—		8		136		1,780
Commercial and multifamily	8,835		—		—		(1,530)		7,305
Total real estate construction and land development	10,471		—		8		(1,394)		9,085
Consumer	3,261		(204)		161		(145)		3,073
Total	$	51,562	$	(947)	$	554	$	(2,852)	$	48,317


	Nine Months Ended September 30, 2021
	Beginning Balance		Charge-offs		Recoveries		Reversal of Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	30,010	$	(757)	$	710	$	(11,317)	$	18,646
SBA PPP	—		—		—		—		—


	Nine Months Ended September 30, 2021
	Beginning Balance		Charge-offs		Recoveries		Reversal of Provision for Credit Losses		Ending Balance
	(In thousands)
Owner-occupied CRE	9,486		—		25		(2,581)		6,930
Non-owner occupied CRE	10,112		—		—		(615)		9,497
Total commercial business	49,608		(757)		735		(14,513)		35,073
Residential real estate	1,591		—		—		(505)		1,086
Real estate construction and land development:
Residential	1,951		—		28		(199)		1,780
Commercial and multifamily	11,141		(1)		—		(3,835)		7,305
Total real estate construction and land development	13,092		(1)		28		(4,034)		9,085
Consumer	5,894		(509)		444		(2,756)		3,073
Total	$	70,185	$	(1,267)	$	1,207	$	(21,808)	$	48,317


	Three Months Ended September 30, 2020
	Beginning Balance		Charge-offs		Recoveries		Provision for (Reversal of Provision for) Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	29,773	$	(507)	$	78	$	1,815	$	31,159
SBA PPP	—		—		—		—		—
Owner-occupied CRE	10,003		—		2		3,027		13,032
Non-owner occupied CRE	10,666		—		—		(124)		10,542
Total commercial business	50,442		(507)		80		4,718		54,733
Residential real estate	2,223		—		—		(398)		1,825
Real estate construction and land development:
Residential	567		—		139		(42)		664
Commercial and multifamily	8,557		—		—		70		8,627
Total real estate construction and land development	9,124		—		139		28		9,291
Consumer	9,712		(335)		142		(2,028)		7,491

Total	$	71,501	$	(842)	$	361	$	2,320	$	73,340


	Nine Months Ended September 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	$	(3,418)	$	1,204	$	22,982	$	31,159
SBA PPP	—		—		—		—		—		—		—
Owner-occupied CRE	4,512		452		4,964		(135)		16		8,187		13,032
Non-owner occupied CRE	7,682		(2,039)		5,643		—		—		4,899		10,542
Total commercial business	23,933		(2,935)		20,998		(3,553)		1,220		36,068		54,733
Residential real estate	1,458		1,471		2,929		—		3		(1,107)		1,825


	Nine Months Ended September 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		—		160		(380)		664
Commercial and multifamily	1,605		7,240		8,845		—		—		(218)		8,627
Total real estate construction and land development	3,060		6,669		9,729		—		160		(598)		9,291
Consumer	6,821		(2,484)		4,337		(1,141)		433		3,862		7,491
Unallocated	899		(899)		—		—		—		—		—
Total	$	36,171	$	1,822	$	37,993	$	(4,694)	$	1,816	$	38,225	$	73,340