Allowance for Credit Losses on Loans

12 Months Ended

Dec. 31, 2021

Effective January 1, 2020, the Bank adopted ASU 2016-13. CECL Adoption replaced the allowance for loan losses with the ACL on loans and replaced the related provision for loan losses with the provision for credit losses on loans.

The baseline loss rates used to calculate the ACL on loans at December 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 year ended December 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 December 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 year ended December 31, 2021.

The reasonable and supportable period and subsequent reversion period used in the CECL model was five quarters and two quarters at December 31, 2021. There were no changes to these assumptions during the year ended December 31, 2021. Management believes forecasts beyond this seven 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 increases.

During the year ended December 31, 2021, the ACL on loans decreased $27.8 million, or 39.6%, due primarily to a reversal of provision for credit losses on loans of $27.3 million. The reversal of provision for credit losses was primarily driven by improvements in the economic forecast used in the CECL model at December 31, 2021 as compared to the forecast used in the CECL model at December 31, 2020.

The ACL on loans at December 31, 2021 and December 31, 2020 did not include a reserve for SBA PPP loans as these loans are fully guaranteed by the SBA.

A summary of the changes in the ACL on loans during the years ended December 31, 2021, December 31, 2020 and December 31, 2019 is as follows:


	Year Ended December 31,
	2021		2020		2019
	(In thousands)
Balance at the beginning of the year	$	70,185	$	36,171	$	35,042
Impact of CECL Adoption	—		1,822		—
Balance at the beginning of the year, as adjusted	70,185		37,993		35,042
Charge-offs	(1,946)		(5,622)		(4,989)
Recoveries of loans previously charged-off	1,420		2,381		1,807
(Reversal of) provision for credit losses on loans	(27,298)		35,433		4,311
Balance at the end of the year	$	42,361	$	70,185	$	36,171

The following tables detail the activity in the ACL on loans by segment and class for the periods indicated:


	Year Ended December 31, 2021
	Beginning Balance		Charge-offs		Recoveries		Reversal of Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	30,010	$	(917)	$	791	$	(12,107)	$	17,777

Owner-occupied CRE	9,486		(359)		25		(2,741)		6,411
Non-owner occupied CRE	10,112		—		—		(1,251)		8,861
Total commercial business	49,608		(1,276)		816		(16,099)		33,049
Residential real estate	1,591		—		—		(182)		1,409
Real estate construction and land development:
Residential	1,951		—		32		(679)		1,304
Commercial and multifamily	11,141		(1)		—		(7,168)		3,972
Total real estate construction and land development	13,092		(1)		32		(7,847)		5,276
Consumer	5,894		(669)		572		(3,170)		2,627
Total	$	70,185	$	(1,946)	$	1,420	$	(27,298)	$	42,361


	Year Ended December 31, 2020
	Beginning Balance		Impact of CECL Adoption		Beginning Balance, as Adjusted		Charge-offs		Recoveries		Provision (Reversal of Provision) for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	11,739	$	(1,348)	$	10,391	$	(3,616)	$	1,513	$	21,722	$	30,010

Owner-occupied CRE	4,512		452		4,964		(135)		17		4,640		9,486
Non-owner occupied CRE	7,682		(2,039)		5,643		—		—		4,469		10,112
Total commercial business	23,933		(2,935)		20,998		(3,751)		1,530		30,831		49,608
Residential real estate	1,458		1,471		2,929		—		3		(1,341)		1,591
Real estate construction and land development:
Residential	1,455		(571)		884		—		278		789		1,951
Commercial and multifamily	1,605		7,240		8,845		(417)		—		2,713		11,141
Total real estate construction and land development	3,060		6,669		9,729		(417)		278		3,502		13,092
Consumer	6,821		(2,484)		4,337		(1,454)		570		2,441		5,894
Unallocated	899		(899)		—		—		—		—		—
Total	$	36,171	$	1,822	$	37,993	$	(5,622)	$	2,381	$	35,433	$	70,185

The following table details activity in the allowance for loan losses by segment and class for the period indicated:


	Year Ended December 31, 2019
	Beginning Balance		Charge-offs		Recoveries		Provision for Loan Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	11,343	$	(2,692)	$	166	$	2,922	$	11,739
Owner-occupied CRE	4,898		—		50		(436)		4,512
Non-owner occupied CRE	7,470		—		441		(229)		7,682
Total commercial business	23,711		(2,692)		657		2,257		23,933
Residential real estate	1,203		(60)		—		315		1,458


	Year Ended December 31, 2019
	Beginning Balance		Charge-offs		Recoveries		Provision for Loan Losses		Ending Balance
Real estate construction and land development:
Residential	1,240		(133)		637		(289)		1,455
Commercial and multifamily	954		—		—		651		1,605
Total real estate construction and land development	2,194		(133)		637		362		3,060
Consumer	6,581		(2,104)		513		1,831		6,821
Unallocated	1,353		—		—		(454)		899
Total	$	35,042	$	(4,989)	$	1,807	$	4,311	$	36,171