ALLOWANCE FOR CREDIT LOSSES

3 Months Ended

Mar. 31, 2023

4. ALLOWANCE FOR CREDIT LOSSES

On January 1, 2022, the Company adopted ASU 2016-13, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. See Note 1, Summary of Significant Accounting Policies for additional information on Topic 326.

The Company does not estimate expected credit losses on accrued interest receivable (“AIR”) on loans, as AIR is reversed or written off when the full collection of the AIR related to a loan becomes doubtful. AIR on loans totaled $16.9 million at March 31, 2023 and $22.8 million at December 31, 2022.

The following tables present the loan balances by segment, and the corresponding balances in the allowance as of March 31, 2023 and December 31, 2022. The allowance was based on the CECL methodology.


	March 31, 2023
			Ending ACL
			Attributable				Ending ACL
	Total		To		Total		Attributable
	Individually		Individually		Loans		To Loans				Total
	Evaluated		Evaluated		Collectively		Collectively		Total		Ending
(In thousands)	Loans		Loans		Evaluated		Evaluated		Loans		ACL
Primary residential mortgage	$	574	$	—	$	545,559	$	2,959	$	546,133	$	2,959
Junior lien loan on residence		—		—		36,986		146		36,986		146
Multifamily property		11,236		1,104		1,860,151		8,719		1,871,387		9,823
Owner-occupied commercial real estate		—		—		274,923		4,952		274,923		4,952
Investment commercial real estate		11,166		1,221		1,005,559		13,317		1,016,725		14,538
Commercial and industrial		3,268		296		1,265,082		26,573		1,268,350		26,869
Lease financing		1,492		—		281,414		1,989		282,906		1,989
Construction		—		—		12,593		313		12,593		313
Consumer and other loans		—		—		52,249		661		52,249		661
Total ACL	$	27,736	$	2,621	$	5,334,516	$	59,629	$	5,362,252	$	62,250


	December 31, 2022
			Ending ACL
			Attributable				Ending ACL
	Total		To		Total		Attributable
	Individually		Individually		Loans		To Loans				Total
	Evaluated		Evaluated		Collectively		Collectively		Total		Ending
(In thousands)	Loans		Loans		Evaluated		Evaluated		Loans		ACL
Primary residential mortgage	$	374	$	—	$	527,410	$	2,894	$	527,784	$	2,894
Junior lien loan on residence		—		—		38,265		154		38,265		154
Multifamily property		—		—		1,863,915		8,849		1,863,915		8,849
Owner-occupied commercial real estate		—		—		272,009		4,835		272,009		4,835
Investment commercial real estate		11,208		1,208		1,032,917		14,272		1,044,125		15,480
Commercial and industrial		3,385		299		1,191,277		25,231		1,194,662		25,530
Lease financing		1,765		—		286,801		2,314		288,566		2,314
Construction		—		—		9,936		236		9,936		236
Consumer and other loans		—		—		42,319		537		42,319		537
Total ACL	$	16,732	$	1,507	$	5,264,849	$	59,322	$	5,281,581	$	60,829

Individually evaluated loans include nonaccrual loans of $26.6 million at March 31, 2023 and $15.8 million at December 31, 2022. Individually evaluated loans did not include any performing modified loans at March 31, 2023. No allowance was allocated to modified loans at March 31, 2023. All accruing modified loans were paying in accordance with their modified terms as of March 31, 2023. The Company has not committed to lend additional amounts as of March 31, 2023 to customers with outstanding loans that are classified as modified loans.

The allowance for credit losses was $62.3 million as of March 31, 2023, compared to $60.8 million at December 31, 2022. The increase in the allowance for credit losses (“ACL”) was primarily due to specific reserves of $1.1 million related to one multifamily relationship of $9.7 million. The allowance for credit losses as a percentage of loans was 1.16 percent and 1.15 percent at March 31, 2023 and December 31, 2022, respectively.

Under Topic 326, the Company's methodology for determining the ACL on loans is based upon key assumptions, including historic net charge-offs, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation.

The following tables present collateral dependent loans individually evaluated by segment as of March 31, 2023 and December 31, 2022:


	March 31, 2023
							Average
	Unpaid						Individually
	Principal		Recorded		Related		Evaluated
(In thousands)	Balance		Investment		Allowance		Loans
With no related allowance recorded:
Primary residential mortgage	$	724	$	574	$	—	$	507
Commercial and industrial		3,775		1,743		—		1,810
Lease financing		1,537		1,492		—		1,674
Total loans with no related allowance	$	6,036	$	3,809	$	—	$	3,991
With related allowance recorded:
Multifamily property	$	11,267	$	11,236	$	1,104	$	3,745
Investment commercial real estate		12,500		11,166		1,221		11,183
Commercial and industrial		1,546		1,525		296		1,217
Total loans with related allowance	$	25,313	$	23,927	$	2,621	$	16,145
Total loans individually evaluated	$	31,349	$	27,736	$	2,621	$	20,136


	December 31, 2022
							Average
	Unpaid						Individually
	Principal		Recorded		Related		Evaluated
(In thousands)	Balance		Investment		Allowance		Loans
With no related allowance recorded:
Primary residential mortgage	$	415	$	374	$	—	$	249
Commercial and industrial		3,868		1,836		—		539
Lease financing		1,792		1,765		—		444
Total loans with no related allowance	$	6,075	$	3,975	$	—	$	1,232
With related allowance recorded:
Investment commercial real estate	$	12,500	$	11,208	$	1,208	$	12,402
Commercial and industrial		1,555		1,549		299		174
Total loans with related allowance	$	14,055	$	12,757	$	1,507	$	12,576
Total loans individually evaluated for impairment	$	20,130	$	16,732	$	1,507	$	13,808

Interest income recognized on individually evaluated loans for the three months ended March 31, 2023 and 2022 was not material. The Company did not recognize any income on non-accruing impaired loans for the three months ended March 31, 2023 and 2022.

The activity in the allowance for credit losses for the three months ended March 31, 2023 and March 31, 2022 is summarized below:


	January 1,										March 31,
	2023										2023
	Beginning							Provision			Ending
(In thousands)	ACL		Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	2,894	$	—		$	—	$	65		$	2,959
Junior lien loan on residence		154		—			—		(8	)		146
Multifamily property		8,849		—			—		974			9,823
Owner-occupied commercial real estate		4,835		—			—		117			4,952
Investment commercial real estate		15,480		—			—		(942	)		14,538
Commercial and industrial		25,530		—			—		1,339			26,869
Lease financing		2,314		—			—		(325	)		1,989
Construction		236		—			—		77			313
Consumer and other loans		537		(46	)		3		167			661
Total ACL	$	60,829	$	(46	)	$	3	$	1,464		$	62,250

(A)

Provision to roll forward the ACL excludes a provision of $49,000 for off-balance sheet commitments.


	December 31,
	2021
	Prior to													March 31,
	Adoption		Impact of											2022
	of		Adopting								Provision			Ending
(In thousands)	Topic 326		Topic 326			Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	1,510	$	717		$	—		$	—	$	1,318		$	3,545
Junior lien loan on residence		88		83			—			—		71			242
Multifamily property		9,806		4,072			—			—		1,602			15,480
Owner-occupied commercial real estate		1,998		2,902			—			—		3			4,903
Investment commercial real estate		27,083		(13,589	)		(250	)		—		(2,275	)		10,969
Commercial and industrial		17,509		(657	)		—			4		1,797			18,653
Lease financing		3,440		156			—			—		(242	)		3,354
Construction		48		361			—			—		123			532
Consumer and other loans		215		419			(20	)		2		92			708
Total ACL	$	61,697	$	(5,536	)	$	(270	)	$	6	$	2,489		$	58,386

(A)

Provision to roll forward the ACL excludes a credit of $114,000 for off-balance sheet commitments.

Allowance for Credit Losses on Off Balance Sheet Commitments

The following table presets the activity in the ACL for off-balance sheet commitments for the three months ended March 31, 2023 and 2022:


	January 1,
	2023				March 31,
	Beginning		Provision		2023
(In thousands)	ACL		(Credit)		Ending ACL
Off balance sheet commitments	$	752	$	49	$	801
Total ACL	$	752	$	49	$	801


	December 31,
	2021							March 31,
	Prior to adoption		Impact of		Provision			2022
(In thousands)	of Topic 326		adopting Topic 326		(Credit)			Ending ACL
Off balance sheet commitments	$	—	$	302	$	(114	)	$	188
Total ACL	$	—	$	302	$	(114	)	$	188