ALLOWANCE FOR CREDIT LOSSES

6 Months Ended

Jun. 30, 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 $18.1 million at June 30, 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 June 30, 2023 and December 31, 2022. The allowance was based on the CECL methodology.


	June 30, 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	$	363	$	—	$	575,741	$	3,148	$	576,104	$	3,148
Junior lien loan on residence		—		—		37,780		151		37,780		151
Multifamily property		18,868		1,986		1,865,501		8,551		1,884,369		10,537
Owner-occupied commercial real estate		—		—		258,909		4,708		258,909		4,708
Investment commercial real estate		9,935		—		1,031,254		13,548		1,041,189		13,548
Commercial and industrial		3,373		448		1,278,685		26,985		1,282,058		27,433
Lease financing		1,328		—		278,190		2,063		279,518		2,063
Construction		—		—		16,251		421		16,251		421
Consumer and other loans		—		—		55,476		695		55,476		695
Total ACL	$	33,867	$	2,434	$	5,397,787	$	60,270	$	5,431,654	$	62,704


	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 $33.7 million at June 30, 2023 and $15.8 million at December 31, 2022. Individually evaluated loans did not include any performing modified loans at June 30, 2023. An allowance of $233,000 was allocated to modified loans at June 30, 2023. All accruing modified loans were paying in accordance with their modified terms as of June 30, 2023. The Company has not committed to lend additional amounts as of June 30, 2023 to customers with outstanding loans that are classified as modified loans.

The allowance for credit losses was $62.7 million as of June 30, 2023, compared to $60.8 million at December 31, 2022. The increase in the allowance for credit losses (“ACL”) was primarily due to provision for credit losses of $3.2 million driven by loan growth of $150.1 million for the first six months of 2023. The provision for credit losses was partially offset by the charge-off of a specific reserve of $1.2 million related to a mixed-use commercial real estate loan during the quarter ended June 30, 2023. The allowance for credit losses as a percentage of loans was 1.15 percent at both June 30, 2023 and December 31, 2022.

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 June 30, 2023 and December 31, 2022:


	June 30, 2023
							Average
	Unpaid						Individually
	Principal		Recorded		Related		Evaluated
(In thousands)	Balance		Investment		Allowance		Loans
With no related allowance recorded:
Primary residential mortgage	$	408	$	363	$	—	$	436
Investment commercial real estate		12,500		9,935		—		10,967
Multifamily property		9,153		9,153		—		1,526
Commercial and industrial		3,775		1,608		—		2,004
Lease financing		1,383		1,328		—		1,529
Total loans with no related allowance	$	27,219	$	22,387	$	—	$	16,462
With related allowance recorded:
Multifamily property	$	9,714	$	9,715	$	1,986	$	7,254
Commercial and industrial		1,864		1,765		448		1,099
Total loans with related allowance	$	11,578	$	11,480	$	2,434	$	8,353
Total loans individually evaluated	$	38,797	$	33,867	$	2,434	$	24,815


	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 and six months ended June 30, 2023 and 2022 was not material. The Company did not recognize any income on non-accruing impaired loans for the three and six months ended June 30, 2023 and 2022.

The activity in the allowance for credit losses for the three months ended June 30, 2023 and June 30, 2022 is summarized below:


	April 1,										June 30,
	2023										2023
	Beginning							Provision			Ending
(In thousands)	ACL		Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	2,959	$	—		$	—	$	189		$	3,148
Junior lien loan on residence		146		—			—		5			151
Multifamily property		9,823		—			—		714			10,537
Owner-occupied commercial real estate		4,952		—			—		(244	)		4,708
Investment commercial real estate		14,538		(1,199	)		—		209			13,548
Commercial and industrial		26,869		—			—		564			27,433
Lease financing		1,989		—			—		74			2,063
Construction		313		—			—		108			421
Consumer and other loans		661		(15	)		2		47			695
Total ACL	$	62,250	$	(1,214	)	$	2	$	1,666		$	62,704

(A)

Provision to roll forward the ACL excludes a provision of $30,000 for off-balance sheet commitments.


	April 1,										June 30,
	2022										2022
	Beginning							Provision			Ending
(In thousands)	ACL		Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	2,291	$	—		$	—	$	(137	)	$	2,154
Junior lien loan on residence		161		(3	)		—		(7	)		151
Multifamily property		15,017		—			—		773			15,790
Owner-occupied commercial real estate		4,774		—			—		(114	)		4,660
Investment commercial real estate		10,504		—			—		465			10,969
Commercial and industrial		21,192		—			—		(194	)		20,998
Lease financing		3,354		—			—		(2	)		3,352
Construction		468		—			—		(109	)		359
Consumer and other loans		625		(7	)		—		(29	)		589
Total ACL	$	58,386	$	(10	)	$	—	$	646		$	59,022

(A)

Provision to roll forward the ACL excludes a provision of $803,000 for off-balance sheet commitments.

The activity in the allowance for credit losses for the six months ended June 30, 2023 and 2022 is summarized below:


	January 1,										June 30,
	2023										2023
	Beginning							Provision			Ending
(In thousands)	ACL		Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	2,894	$	—		$	—	$	254		$	3,148
Junior lien loan on residence		154		—			—		(3	)		151
Multifamily property		8,849		—			—		1,688			10,537
Owner-occupied commercial real estate		4,835		—			—		(127	)		4,708
Investment commercial real estate		15,480		(1,199	)		—		(733	)		13,548
Commercial and industrial		25,530		—			—		1,903			27,433
Lease financing		2,314		—			—		(251	)		2,063
Construction		236		—			—		185			421
Consumer and other loans		537		(61	)		5		214			695
Total ACL	$	60,829	$	(1,260	)	$	5	$	3,130		$	62,704

(A)

Provision to roll forward the ACL excludes a provision of $79,000 for off-balance sheet commitments.


	December 31,
	2021
	Prior to													June 30,
	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		$	—		$	—	$	(73	)	$	2,154
Junior lien loan on residence		88		83			(3	)		—		(17	)		151
Multifamily property		9,806		4,072			—			—		1,912			15,790
Owner-occupied commercial real estate		1,998		2,902			—			—		(240	)		4,660
Investment commercial real estate		27,083		(13,589	)		(250	)		—		(2,275	)		10,969
Commercial and industrial		17,509		(657	)		—			4		4,142			20,998
Lease financing		3,440		156			—			—		(244	)		3,352
Construction		48		361			—			—		(50	)		359
Consumer and other loans		215		419			(27	)		2		(20	)		589
Total ACL	$	61,697	$	(5,536	)	$	(280	)	$	6	$	3,135		$	59,022

(A)

Provision to roll forward the ACL excludes a provision of $689,000 for off-balance sheet commitments.

Allowance for Credit Losses on Off-Balance Sheet Commitments

The following tables present the activity in the ACL for off-balance sheet commitments for the six months ended June 30, 2023 and 2022:


	January 1,
	2023				June 30,
	Beginning		Provision		2023
(In thousands)	ACL		(Credit)		Ending ACL
Off balance sheet commitments	$	752	$	79	$	831
Total ACL	$	752	$	79	$	831


	December 31,
	2021						June 30,
	Prior to adoption		Impact of		Provision		2022
(In thousands)	of Topic 326		adopting Topic 326		(Credit)		Ending ACL
Off balance sheet commitments	$	—	$	302	$	689	$	991
Total ACL	$	—	$	302	$	689	$	991