Allowance for Credit Losses on Loans

6 Months Ended

Jun. 30, 2022

The baseline loss rates used to calculate the ACL on loans at June 30, 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 six months ended June 30, 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 June 30, 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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 2022, the ACL on loans decreased $2.7 million, or 6.3%, due primarily to a reversal of provision for credit losses on loans of $3.2 million driven by a $2.9 million 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 June 30, 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 six months ended June 30, 2022 and 2021 is as follows:


	Six Months Ended June 30,
	2022		2021
	(In thousands)
Beginning balance	$	42,361	$	70,185
Charge-offs	(604)		(320)
Recoveries of loans previously charged-off	1,110		653
Reversal of provision for credit losses on loans	(3,171)		(18,956)
Ending balance	$	39,696	$	51,562

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


	Three Months Ended June 30, 2022
	Beginning Balance		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	15,265	$	(117)	$	149	$	(1,264)	$	14,033
Owner-occupied CRE	7,085		—		—		1,077		8,162
Non-owner occupied CRE	9,582		—		—		(70)		9,512
Total commercial business	31,932		(117)		149		(257)		31,707
Residential real estate	1,803		—		—		334		2,137
Real estate construction and land development:
Residential	1,124		—		6		(49)		1,081
Commercial and multifamily	3,175		—		53		(1,025)		2,203
Total real estate construction and land development	4,299		—		59		(1,074)		3,284
Consumer	2,299		(132)		53		348		2,568
Total	$	40,333	$	(249)	$	261	$	(649)	$	39,696


	Six Months Ended June 30, 2022
	Beginning Balance		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	17,777	$	(280)	$	421	$	(3,885)	$	14,033
Owner-occupied CRE	6,411		(36)		—		1,787		8,162
Non-owner occupied CRE	8,861		—		—		651		9,512
Total commercial business	33,049		(316)		421		(1,447)		31,707
Residential real estate	1,409		(30)		3		755		2,137
Real estate construction and land development:
Residential	1,304		—		14		(237)		1,081
Commercial and multifamily	3,972		—		53		(1,822)		2,203
Total real estate construction and land development	5,276		—		67		(2,059)		3,284
Consumer	2,627		(258)		619		(420)		2,568
Total	$	42,361	$	(604)	$	1,110	$	(3,171)	$	39,696


	Three Months Ended June 30, 2021
	Beginning Balance		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	21,770	$	(13)	$	132	$	(4,404)	$	17,485
Owner-occupied CRE	10,464		—		11		(1,913)		8,562
Non-owner occupied CRE	12,970		—		—		(2,340)		10,630
Total commercial business	45,204		(13)		143		(8,657)		36,677
Residential real estate	1,402		—		—		(249)		1,153
Real estate construction and land development:
Residential	2,048		—		4		(416)		1,636
Commercial and multifamily	11,223		—		—		(2,388)		8,835
Total real estate construction and land development	13,271		—		4		(2,804)		10,471
Consumer	4,348		(120)		144		(1,111)		3,261
Total	$	64,225	$	(133)	$	291	$	(12,821)	$	51,562


	Six Months Ended June 30, 2021
	Beginning Balance		Charge-offs		Recoveries		(Reversal of) Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	30,010	$	(14)	$	337	$	(12,848)	$	17,485
Owner-occupied CRE	9,486		—		13		(937)		8,562
Non-owner occupied CRE	10,112		—		—		518		10,630
Total commercial business	49,608		(14)		350		(13,267)		36,677
Residential real estate	1,591		—		—		(438)		1,153
Real estate construction and land development:
Residential	1,951		—		20		(335)		1,636
Commercial and multifamily	11,141		(1)		—		(2,305)		8,835
Total real estate construction and land development	13,092		(1)		20		(2,640)		10,471
Consumer	5,894		(305)		283		(2,611)		3,261
Total	$	70,185	$	(320)	$	653	$	(18,956)	$	51,562