ALLOWANCE FOR CREDIT LOSSES

3 Months Ended

Mar. 31, 2024

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 $30.2 million at March 31, 2024 and $27.8 million at December 31, 2023.

The following tables present the loan balances by segment, and the corresponding balances in the allowance as of March 31, 2024 and December 31, 2023. The allowance was based on the CECL methodology.


	March 31, 2024
			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	$	1,555	$	17	$	584,679	$	4,084	$	586,234	$	4,101
Junior lien loan on residence		120		—		38,892		178		39,012		178
Multifamily property		24,648		600		1,802,517		9,642		1,827,165		10,242
Owner-occupied commercial real estate		—		—		253,411		4,906		253,411		4,906
Investment commercial real estate		9,850		75		1,025,876		15,051		1,035,726		15,126
Commercial and industrial		31,597		4,019		1,252,504		24,736		1,284,101		28,755
Lease financing		1,760		—		237,101		1,431		238,861		1,431
Construction		—		—		20,658		597		20,658		597
Consumer and other loans		—		—		68,357		915		68,357		915
Total ACL	$	69,530	$	4,711	$	5,283,995	$	61,540	$	5,353,525	$	66,251


	December 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	$	652	$	—	$	584,474	$	3,931	$	585,126	$	3,931
Junior lien loan on residence		100		—		40,103		177		40,203		177
Multifamily property		16,645		—		1,819,745		8,782		1,836,390		8,782
Owner-occupied commercial real estate		—		—		255,110		4,840		255,110		4,840
Investment commercial real estate		9,881		—		1,051,316		15,403		1,061,197		15,403
Commercial and industrial		31,430		4,518		1,283,351		25,189		1,314,781		29,707
Lease financing		2,002		20		249,421		1,643		251,423		1,663
Construction		—		—		17,987		516		17,987		516
Consumer and other loans		—		—		63,906		869		63,906		869
Total ACL	$	60,710	$	4,538	$	5,365,413	$	61,350	$	5,426,123	$	65,888

Individually evaluated loans include nonaccrual loans of $69.4 million at March 31, 2024 and $60.6 million at December 31, 2023. Individually evaluated loans did not include any performing modified loans at March 31, 2024. An allowance of $178,000 was allocated to modified loans at March 31, 2024. All accruing modified loans were paying in accordance with their modified terms as of March 31, 2024. The Company has not committed to lend additional amounts as of March 31, 2024 to customers with outstanding loans that are classified as modified loans.

The allowance for credit losses was $66.3 million as of March 31, 2024, compared to $65.9 million at December 31, 2023. The increase in the allowance for credit losses (“ACL”) was primarily related to an increase in the ACL related to multifamily loans,

which was driven by the increase in individually evaluated loans of $8.0 million to $24.6 million and certain qualitative adjustments made during the first quarter of 2024. The increase in the ACL was partially offset by a reduced provision for loan losses due to the decrease in loans during the first quarter of 2024. The allowance for credit losses as a percentage of loans was 1.24 percent at March 31, 2024, compared to 1.21 percent at December 31, 2023.

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, 2024 and December 31, 2023:


	March 31, 2024
							Average
	Unpaid						Individually
	Principal		Recorded		Related		Evaluated
(In thousands)	Balance		Investment (A)		Allowance		Loans
With no related allowance recorded:
Primary residential mortgage (A)	$	1,043	$	964	$	—	$	783
Junior lien loan on residence (A)		120		120		—		114
Multifamily property (B)		23,295		21,073		—		18,121
Commercial and industrial (A)(C)(D)		7,589		5,032		—		6,339
Lease financing (E)		1,878		1,760		—		1,843
Total loans with no related allowance	$	33,925	$	28,949	$	—	$	27,200
With related allowance recorded:
Primary residential mortgage (A)	$	591	$	591	$	17	$	394
Multifamily property (B)		3,575		3,575		600		1,192
Investment commercial real estate (D)		12,500		9,850		75		9,860
Commercial and industrial (C)(D)(E)		25,360		26,565		4,019		29,141
Total loans with related allowance	$	42,026	$	40,581	$	4,711	$	40,587
Total loans individually evaluated	$	75,951	$	69,530	$	4,711	$	67,787

(A) Secured by residential real estate.

(B) Secured by multifamily residential properties.

(D) Secured by all business assets.

(E) Secured by machinery and equipment.


	December 31, 2023
							Average
	Unpaid						Individually
	Principal		Recorded		Related		Evaluated
(In thousands)	Balance		Investment		Allowance		Loans
With no related allowance recorded:
Primary residential mortgage (A)	$	712	$	652	$	—	$	428
Junior lien loan on residence (A)		100		100		—		8
Multifamily property (B)		18,868		16,645		—		5,964
Investment commercial real estate (C)		12,500		9,881		—		5,781
Commercial and industrial (A)(C)(D)		6,275		3,965		—		2,146
Lease financing (E)		1,035		946		—		2,067
Total loans with no related allowance	$	39,490	$	32,189	$	—	$	16,394
With related allowance recorded:
Commercial and industrial (C)(D)(E)	$	28,359	$	27,465	$	4,518	$	9,814
Lease financing (E)		1,079		1,056		20		1,611
Total loans with related allowance	$	29,438	$	28,521	$	4,538	$	11,425
Total loans individually evaluated for impairment	$	68,928	$	60,710	$	4,538	$	27,819

(A) Secured by residential real estate.

(B) Secured by multifamily residential properties.

(D) Secured by all business assets.

(E) Secured by machinery and equipment.

Interest income recognized on individually evaluated loans for the three months ended March 31, 2024 and 2023 was not material. The Company did not recognize any income on non-accruing impaired loans for the three months ended March 31, 2024 and 2023.

The activity in the allowance for credit losses for the three months ended March 31, 2024 and March 31, 2023 is summarized below:


	January 1,										March 31,
	2024										2024
	Beginning							Provision			Ending
(In thousands)	ACL		Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	3,931	$	—		$	—	$	170		$	4,101
Junior lien loan on residence		177		—			—		1			178
Multifamily property		8,782		—			—		1,460			10,242
Owner-occupied commercial real estate		4,840		—			—		66			4,906
Investment commercial real estate		15,403		—			—		(277	)		15,126
Commercial and industrial		29,707		(241	)		—		(711	)		28,755
Lease financing		1,663		—			—		(232	)		1,431
Construction		516		—			—		81			597
Consumer and other loans		869		(13	)		2		57			915
Total ACL	$	65,888	$	(254	)	$	2	$	615		$	66,251

(A)

Provision to roll forward the ACL excludes a provision of $12,000 for off-balance sheet commitments.


	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.

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 three months ended March 31, 2024 and 2023:


	January 1,
	2024				March 31,
	Beginning		Provision		2024
(In thousands)	ACL		(Credit)		Ending ACL
Off balance sheet commitments	$	687	$	12	$	699
Total ACL	$	687	$	12	$	699


	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