Allowance for Credit Losses on Loans

3 Months Ended

Mar. 31, 2022

The baseline loss rates used to calculate the ACL on loans at March 31, 2022 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, 2022. 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, 2022 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, 2022.

The reasonable and supportable period and subsequent reversion period used in the CECL model was five quarters and two quarters, respectively, at December 31, 2021. There were no changes to these assumptions during the three months ended March 31, 2022. 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 three months ended March 31, 2022, the ACL on loans decreased $2.0 million, or 4.8%, due primarily to a reversal of provision for credit losses on loans of $2.5 million driven by a reduction in the ACL on loans individually evaluated for losses and their related ACL as well as changes in the loan mix and continued improvement in forecasted economic indicators used to calculate credit losses. The ACL on loans at March 31, 2022 and December 31, 2021 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 three months ended March 31, 2022 and 2021 is as follows:


	Three Months Ended March 31,
	2022		2021
	(In thousands)
Balance at the beginning of the year	$	42,361	$	70,185
Charge-offs	(355)		(187)
Recoveries of loans previously charged-off	849		362
Reversal of provision for credit losses on loans	(2,522)		(6,135)
Balance at the end of the year	$	40,333	$	64,225

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


	Three Months Ended March 31, 2022
	Beginning Balance		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	17,777	$	(163)	$	272	$	(2,621)	$	15,265
Owner-occupied CRE	6,411		(36)		—		710		7,085
Non-owner occupied CRE	8,861		—		—		721		9,582
Total commercial business	33,049		(199)		272		(1,190)		31,932
Residential real estate	1,409		(30)		3		421		1,803
Real estate construction and land development:
Residential	1,304		—		8		(188)		1,124


	Three Months Ended March 31, 2022
	Beginning Balance		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial and multifamily	3,972		—		—		(797)		3,175
Total real estate construction and land development	5,276		—		8		(985)		4,299
Consumer	2,627		(126)		566		(768)		2,299
Total	$	42,361	$	(355)	$	849	$	(2,522)	$	40,333


	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
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