Note 9 - Loans

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

9. Loans

Most of the Company’s business activities are with customers located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan customers in Hong Kong. The Company has no specific industry concentration, and generally its loans, when secured, are secured by real property or other collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, from refinancing by other lenders, or through sale by the borrowers of the secured collateral.

The types of loans in the Company’s Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, were as follows:

	March 31, 2022			December 31, 2021
	(In thousands)
Commercial loans	$	3,125,151		$	2,982,399
Residential mortgage loans		4,834,782			4,182,006
Commercial mortgage loans		8,401,742			8,143,272
Real estate construction loans		631,740			611,031
Equity lines		398,851			419,487
Installment and other loans		6,091			4,284
Gross loans	$	17,398,357		$	16,342,479
Allowance for loan losses		(145,786	)		(136,157	)
Unamortized deferred loan fees, net		(4,679	)		(4,321	)
Total loans, net	$	17,247,892		$	16,202,001

As of March 31, 2022, recorded investment in non-accrual loans was $86.3 million. As of December 31, 2021, recorded investment in non-accrual loans totaled $65.8 million. For non-accrual loans, the amounts previously charged off represent 1.9% and 10.7% of the contractual balances for non-accrual loans as of March 31, 2022 and December 31, 2021.

The following tables present the average recorded investment and interest income recognized on non-accrual loans for the period indicated:

	Three Months Ended
	March 31, 2022
	Average Recorded Investment		Interest Income Recognized
	(In thousands)
Commercial loans	$	27,351	$	—
Real estate construction loans		—		—
Commercial mortgage loans		37,909		429
Residential mortgage loans and equity lines		12,439		7
Total non-accrual loans	$	77,699	$	436

	Three Months Ended
	March 31, 2021
	Average Recorded Investment		Interest Income Recognized
	(In thousands)
Commercial loans	$	28,268	$	12
Real estate construction loans		4,229		97
Commercial mortgage loans		40,116		57
Residential mortgage loans and equity lines		8,427		8
Total impaired loans	$	81,040	$	174

The following table presents non-accrual loans and the related allowance as of March 31, 2022 and December 31, 2021:

	March 31, 2022
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	15,898	$	11,304	$	—
Commercial mortgage loans		24,988		21,459		—
Residential mortgage loans and equity lines		5,967		5,750		—
Subtotal	$	46,853	$	38,513	$	—
With allocated allowance
Commercial loans	$	34,167	$	24,978	$	5,293
Commercial mortgage loans		17,760		16,636		3,017
Residential mortgage loans and equity lines		7,256		6,206		30
Subtotal	$	59,183	$	47,820	$	8,340
Total non-accrual loans	$	106,036	$	86,333	$	8,340

	December 31, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	15,879	$	11,342	$	—
Commercial mortgage loans		24,437		21,209		—
Residential mortgage loans and equity lines		6,020		5,850		—
Subtotal	$	46,336	$	38,401	$	—
With allocated allowance
Commercial loans	$	14,294	$	5,217	$	894
Commercial mortgage loans		17,930		16,964		3,631
Residential mortgage loans and equity lines		6,048		5,264		22
Subtotal	$	38,272	$	27,445	$	4,547
Total non-accrual loans	$	84,608	$	65,846	$	4,547

The following tables present the aging of the loan portfolio by type as of March 31, 2022, and as of December 31, 2021:

	March 31, 2022
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)
Type of Loans:
Commercial loans	$	15,757	$	1,886	$	300	$	36,282	$	54,225	$	3,070,926	$	3,125,151
Real estate construction loans		—		—		—		—		—		631,740		631,740
Commercial mortgage loans		5,582		—		—		38,095		43,677		8,358,065		8,401,742
Residential mortgage loans and equity lines		91,465		1,609		—		11,956		105,030		5,128,603		5,233,633
Installment and other loans		194		—		—		—		194		5,897		6,091
Total loans	$	112,998	$	3,495	$	300	$	86,333	$	203,126	$	17,195,231	$	17,398,357

	December 31, 2021
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)
Type of Loans:
Commercial loans	$	4,294	$	9,877	$	1,439	$	16,558	$	32,168	$	2,950,231	$	2,982,399
Real estate construction loans		—		—		—		—		—		611,031		611,031
Commercial mortgage loans		8,389		—		—		38,173		46,562		8,096,710		8,143,272
Residential mortgage loans and equity lines		20,129		3,138		—		11,115		34,382		4,567,111		4,601,493
Installment and other loans		—		—		—		—		—		4,284		4,284
Total loans	$	32,812	$	13,015	$	1,439	$	65,846	$	113,112	$	16,229,367	$	16,342,479

A TDR is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity date. Although these loan modifications are considered TDRs, TDR loans that have, pursuant to the Bank’s policy, performed under the restructured terms and have demonstrated sustained performance under the modified terms for six months are returned to accrual status. The sustained performance considered by management pursuant to its policy includes the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructure to set up interest reserves. Loans classified as TDRs are reported as individually evaluated loans.

The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit loss is determined by discounting the expected future cash flows at the original interest rate of the loan.

The Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in the quantitative baseline. These individually evaluated loans are removed from the pooling approach discussed in Note 1 - Summary of Significant Accounting Policies – to the Consolidated Financial Statements of the Company’s 2021 Form 10-K, for the quantitative baseline, and include non-accrual loans, TDRs, and other loans as deemed appropriate by management. In addition, the Company individually evaluates “reasonably expected” TDRs, which are identified by the Company as a commercial loan expected to be classified as a TDR. Individually evaluated loans also includes “reasonably expected” TDRs, identified by the Company as a consumer loan for which a borrower’s application of loan modification due to hardship has been received by the Company. Management judgment is utilized to make this determination.

Although the Company took steps to incorporate the impact of the COVID-19 pandemic on the economic conditions and other factors utilized to determine the expected loan losses, if the economic conditions or other factors worsen relative to the assumptions the Company utilized, the expected loan losses will increase accordingly in future periods.

As of March 31, 2022, accruing TDRs were $13.0 million and non-accrual TDRs were $14.2 million compared to accruing TDRs of $12.8 million and non-accrual TDRs of $8.2 million as of December 31, 2021. The Company allocated $52 thousand in reserves to accruing TDRs and $2.6 million to non-accrual TDRs as of March 31, 2022, compared to seven thousand to accruing TDRs and three thousand to non-accrual TDRs as of December 31, 2021.

The following tables set forth TDRs that were modified during the three months ended March 31, 2022 and 2021, their specific reserves as of March 31, 2022, and 2021, and charge-offs for the three months ended March 31, 2022, and 2021:

	Three Months Ended March 31, 2022								March 31, 2022
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		4	$	6,115	$	6,115	$	—	$	2,566
Residential mortgage loans and equity lines		2		346		346		—		1
Total		6	$	6,461	$	6,461	$	—	$	2,567

	Three Months Ended March 31, 2021								March 31, 2021
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		1	$	686	$	686	$	—	$	—
Residential mortgage loans and equity lines		—		—		—		—		—
Total		1	$	686	$	686	$	—	$	—

Modifications of the loan terms in the three months ended March 31, 2022, were in the form of extensions of maturity dates, which ranged generally from three to twelve months from the modification date.

We expect that the TDRs on accruing status as of March 31, 2022, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans.  The ongoing impact of the COVID pandemic or worsening economy, however, could increase the risk of such TDRs become non-accrual due to the borrowers’ inability to continue to comply with their restructured terms.

A summary of TDRs by type of concession and by type of loan, as of March 31, 2022, and December 31, 2021, is set forth in the table below:

	March 31, 2022
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs
Commercial loans	$	3,262	$	—	$	—	$	3,262
Commercial mortgage loans		—		5,490		604		6,094
Residential mortgage loans		1,796		235		1,607		3,638
Total accruing TDRs	$	5,058	$	5,725	$	2,211	$	12,994

	March 31, 2022
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs
Commercial loans	$	13,713	$	—	$	—	$	13,713
Commercial mortgage loans		—		—		—		—
Residential mortgage loans		439		—		—		439
Total non-accrual TDRs	$	14,152	$	—	$	—	$	14,152

	December 31, 2021
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs
Commercial loans	$	3,368	$	—	$	—	$	3,368
Commercial mortgage loans		438		5,522		168		6,128
Residential mortgage loans		1,464		249		1,628		3,341
Total accruing TDRs	$	5,270	$	5,771	$	1,796	$	12,837

	December 31, 2021
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs
Commercial loans	$	7,717	$	—	$	—	$	7,717
Commercial mortgage loans		—		—		—		—
Residential mortgage loans		458		—		—		458
Total non-accrual TDRs	$	8,175	$	—	$	—	$	8,175

The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms.  The Company did not have any loans that were modified as a TDR during the previous twelve months and which had subsequently defaulted as of March 31, 2022.

Under the Company’s internal underwriting policy, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification in order to determine whether a borrower is experiencing financial difficulty.

As of March 31, 2022, there were no commitments to lend additional funds to those borrowers whose loans had been restructured, were considered individually evaluated, or were on non-accrual status.

The CARES Act, signed into law on March 27, 2020, and as extended by the CAA, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020, and the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications.

As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk grade to each loan. Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of sources of repayment, the borrower’s current financial and liquidity status and other relevant information. The risk rating categories can be generally described by the following grouping for non-homogeneous loans: 

● Pass/Watch – These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.

● Special Mention – Borrower is fundamentally sound, and loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay. Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support.

● Substandard – These loans are inadequately protected by current sound net worth, paying capacity, or collateral. Well-defined weaknesses exist that could jeopardize repayment of debt. Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss.

●   Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan), a loss classification is deferred until the situation is better defined.

●   Loss – These loans are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

The following table summarizes the Company’s loan held for investment as of March 31, 2022 and December 31, 2021, presented by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification:

	Loans Amortized Cost Basis by Origination Year
March 31, 2022	2022		2021		2020		2019			2018			Prior			Revolving Loans			Revolving Converted to Term Loans			Total
	(In thousands)
Commercial loans
Pass/Watch	$	93,686	$	619,275	$	254,961	$	158,130		$	136,244		$	174,985		$	1,554,220		$	8,194		$	2,999,695
Special Mention		—		299		490		2,751			1,582			3,509			39,063			—			47,694
Substandard		—		2,239		4,947		25,023			12,770			6,569			19,231			5,582			76,361
Doubtful		—		—		—		784			—			—			897			—			1,681
Total	$	93,686	$	621,813	$	260,398	$	186,688		$	150,596		$	185,063		$	1,613,411		$	13,776		$	3,125,431
YTD period charge-offs	$	—	$	—	$	120	$	24		$	—		$	—		$	77		$	—		$	221
YTD period recoveries		—		—		—		—			(37	)		(202	)		(120	)		—			(359	)
Net charge-offs/(recoveries)	$	—	$	—	$	120	$	24		$	(37	)	$	(202	)	$	(43	)	$	—		$	(138	)
Real estate construction loans
Pass/Watch	$	32,605	$	231,895	$	180,527	$	83,007		$	24,532		$	—		$	—		$	—		$	552,566
Special Mention		—		—		24,000		31,712			17,870			—			—			—			73,582
Substandard		—		—		—		2,005			—			—			—			—			2,005
Total	$	32,605	$	231,895	$	204,527	$	116,724		$	42,402		$	—		$	—		$	—		$	628,153
YTD period charge-offs	$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
YTD period recoveries		—		—		—		—			—			(6	)		—			—			(6	)
Net charge-offs/(recoveries)	$	—	$	—	$	—	$	—		$	—		$	(6	)	$	—		$	—		$	(6	)
Commercial mortgage loans
Pass/Watch	$	513,830	$	1,956,143	$	1,208,014	$	1,231,764		$	998,977		$	1,918,522		$	201,167		$	—		$	8,028,417
Special Mention		13,242		30,791		10,831		42,978			75,987			73,643			—			—			247,472
Substandard		—		499		—		14,673			28,318			75,172			3,363			—			122,025
Total	$	527,072	$	1,987,433	$	1,218,845	$	1,289,415		$	1,103,282		$	2,067,337		$	204,530		$	—		$	8,397,914
YTD period charge-offs	$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
YTD period recoveries		—		—		—		(60	)		—			(7	)		(28	)		—			(95	)
Net charge-offs/(recoveries)	$	—	$	—	$	—	$	(60	)	$	—		$	(7	)	$	(28	)	$	—		$	(95	)
Residential mortgage loans
Pass/Watch	$	297,480	$	1,032,076	$	649,133	$	679,313		$	484,245		$	1,659,554		$	—		$	—		$	4,801,801
Special Mention		72		303		577		1,568			3,170			14,452			—			—			20,142
Substandard		—		487		1,852		3,218			2,594			6,068			—			—			14,219
Total	$	297,552	$	1,032,866	$	651,562	$	684,099		$	490,009		$	1,680,074		$	—		$	—		$	4,836,162
YTD period charge-offs	$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
YTD period recoveries		—		—		—		—			—			(45	)		—			—			(45	)
Net charge-offs/(recoveries)	$	—	$	—	$	—	$	—		$	—		$	(45	)	$	—		$	—		$	(45	)
Equity lines
Pass/Watch	$	1,339	$	—	$	—	$	—		$	—		$	4		$	370,446		$	27,116		$	398,905
Special Mention		30		—		—		—			—			—			—			—			30
Substandard		—		—		—		—			—			—			2,095			262			2,357
Total	$	1,369	$	—	$	—	$	—		$	—		$	4		$	372,541		$	27,378		$	401,292
YTD period charge-offs	$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
YTD period recoveries		—		—		—		—			—			—			(2	)		(4	)		(6	)
Net charge-offs/(recoveries)	$	—	$	—	$	—	$	—		$	—		$	—		$	(2	)	$	(4	)	$	(6	)
Installment and other loans
Pass/Watch	$	379	$	4,274	$	73	$	—		$	—		$	—		$	—		$	—		$	4,726
Total	$	379	$	4,274	$	73	$	—		$	—		$	—		$	—		$	—		$	4,726
YTD period charge-offs	$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
YTD period recoveries		—		—		—		—			—			—			—			—			—
Net charge-offs/(recoveries)	$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Total loans	$	952,663	$	3,878,281	$	2,335,405	$	2,276,926		$	1,786,289		$	3,932,478		$	2,190,482		$	41,154		$	17,393,678
Net charge-offs/(recoveries)	$	—	$	—	$	120	$	(36	)	$	(37	)	$	(260	)	$	(73	)	$	(4	)	$	(290	)

	Loans Amortized Cost Basis by Origination Year
December 31, 2021	2021		2020			2019			2018			2017		Prior			Revolving Loans			Revolving Converted to Term Loans			Total
	(In thousands)
Commercial loans
Pass/Watch	$	606,770	$	268,756		$	183,468		$	142,419		$	80,701	$	100,496		$	1,437,463		$	7,433		$	2,827,506
Special Mention		395		780			1,138			1,645			3,157		—			40,761			49			47,925
Substandard		450		5,879			22,513			16,423			14,309		5,221			34,713			5,716			105,224
Doubtful		—		—			—			—			—		—			900			—			900
Total	$	607,615	$	275,415		$	207,119		$	160,487		$	98,167	$	105,717		$	1,513,837		$	13,198		$	2,981,555
YTD period charge-offs	$	—	$	1,478		$	507		$	366		$	—	$	50		$	17,650		$	—		$	20,051
YTD period recoveries		—		(1	)		(29	)		(124	)		—		(191	)		(1,361	)		—			(1,706	)
Net	$	—	$	1,477		$	478		$	242		$	—	$	(141	)	$	16,289		$	—		$	18,345
Real estate construction loans
Pass/Watch	$	199,188	$	188,782		$	125,316		$	24,548		$	—	$	—		$	—		$	—		$	537,834
Special Mention		—		23,107			27,672			17,374			—		—			—			—			68,153
Substandard		—		—			1,919			—			—		—			—			—			1,919
Total	$	199,188	$	211,889		$	154,907		$	41,922		$	—	$	—		$	—		$	—		$	607,906
YTD period charge-offs	$	—	$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—
YTD period recoveries		—		—			—			—			—		(76	)		—			—			(76	)
Net	$	—	$	—		$	—		$	—		$	—	$	(76	)	$	—		$	—		$	(76	)
Commercial mortgage loans
Pass/Watch	$	1,893,807	$	1,201,825		$	1,253,548		$	1,031,191		$	727,916	$	1,313,882		$	198,869		$	—		$	7,621,038
Special Mention		45,719		59,182			49,796			103,101			61,105		60,448			750			—			380,101
Substandard		1,110		—			13,483			42,803			1,580		76,906			3,297			—			139,179
Total	$	1,940,636	$	1,261,007		$	1,316,827		$	1,177,095		$	790,601	$	1,451,236		$	202,916		$	—		$	8,140,318
YTD period charge-offs	$	—	$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—
YTD period recoveries		—		—			(240	)		—			—		(28	)		(111	)		—			(379	)
Net	$	—	$	—		$	(240	)	$	—		$	—	$	(28	)	$	(111	)	$	—		$	(379	)
Residential mortgage loans
Pass/Watch	$	978,375	$	622,999		$	678,775		$	502,325		$	453,992	$	929,846		$	—		$	—		$	4,166,312
Special Mention		—		46			1,576			1,064			836		438			—			—			3,960
Substandard		1,684		147			2,698			2,574			862		5,255			—			—			13,220
Total	$	980,059	$	623,192		$	683,049		$	505,963		$	455,690	$	935,539		$	—		$	—		$	4,183,492
YTD period charge-offs	$	—	$	—		$	—		$	—		$	3	$	—		$	—		$	—		$	3
YTD period recoveries		—		—			—			—			—		(208	)		—			—			(208	)
Net	$	—	$	—		$	—		$	—		$	3	$	(208	)	$	—		$	—		$	(205	)
Equity lines
Pass/Watch	$	—	$	—		$	—		$	—		$	—	$	5		$	389,069		$	30,025		$	419,099
Substandard		—		—			—			—			—		—			1,230			273			1,503
Total	$	—	$	—		$	—		$	—		$	—	$	5		$	390,299		$	30,298		$	420,602
YTD period charge-offs	$	—	$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—
YTD period recoveries		—		—			—			—			—		—			(10	)		(64	)		(74	)
Net	$	—	$	—		$	—		$	—		$	—	$	—		$	(10	)	$	(64	)	$	(74	)
Installment and other loans
Pass/Watch	$	4,117	$	168		$	—		$	—		$	—	$	—		$	—		$	—		$	4,285
Total	$	4,117	$	168		$	—		$	—		$	—	$	—		$	—		$	—		$	4,285
YTD period charge-offs	$	—	$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—
YTD period recoveries		—		—			—			—			—		—			—			—			—
Net	$	—	$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—
Total loans	$	3,731,615	$	2,371,671		$	2,361,902		$	1,885,467		$	1,344,458	$	2,492,497		$	2,107,052		$	43,496		$	16,338,158
Net charge-offs/(recoveries)	$	—	$	1,477		$	238		$	242		$	3	$	(453	)	$	16,168		$	(64	)	$	17,611

Revolving loans that are converted to term loans presented in the table above are excluded from the term loans by vintage year columns.

Allowance for Credit Losses

The Company has an allowance framework under ASU 2016-13 for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. The forward-looking concept of current expected credit loss (“CECL”) approach requires loss estimates to consider historical experience, current conditions and reasonable and supportable economic forecasts of future events and circumstances.

The ACL on loans held for investment is the combination of the allowance for loan losses and the reserve for unfunded loan commitments. The allowance for loan losses is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "other liabilities" on the Consolidated Balance Sheets (Unaudited). The amortized cost basis of loans does not include accrued interest receivable, which is included in "accrued interest receivable" on the Consolidated Balance Sheets. The "Provision for credit losses" on the Consolidated Statements of Operations and Comprehensive Income (Unaudited) is a combination of the provision for loan losses and the provision for unfunded loan commitments.

Under the Company’s CECL approach, management estimates the ACL using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable economic forecasts that vary by loan portfolio. We use economic forecasts from Moody’s Analytics in this process. The economic forecast is updated monthly; therefore, the one used for each quarter-end calculation is generally based on a one-month lag based on the timing of when the forecast is released. The Company does not consider a one-month lag to create a material difference but considers any subsequent material changes to our estimated loss forecasts as deemed appropriate. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in gross domestic product (or “GDP”), unemployment rates, property values, or other relevant factors.

Under the CECL methodology, quantitative and qualitative loss factors are applied to our population of loans on a collective pool basis when similar risk characteristics exist. When loans do not share similar risk characteristics, the Company would evaluate the loan for expected credit losses on an individual basis. The Company evaluates loans for expected credit losses on an individual basis if, based on current information and events, the loan does not share similar credit risk characteristics with other loans. The Company may choose to measure expected credit losses on an individual loan basis by using one of the following methods: (1) the present value of the expected future cash flows of the loan discounted at the loan’s original effective interest rate, or (2) if the loan is collateral dependent, the fair value of the collateral less costs to sell. For loans that are not collateral-dependent, the Company uses the present value of future cash flows.

Quantitative Factors

Under the Company’s CECL methodology, nine portfolio segments with similar risk characteristics are evaluated for expected loss. Six portfolios are modeled using econometric models and three smaller portfolios are evaluated using a simplified loss-rate method that calculates lifetime expected credit losses for the respective pools (simplified approach). The six portfolios subject to econometric modeling include residential mortgages; commercial and industrial loans (“C&I”); construction loans; commercial real estate (“CRE”) for multifamily loans; CRE for owner-occupied loans; and other CRE loans. We estimate the probability of default during the reasonable and supportable forecast period using separate econometric regression models developed to correlate macroeconomic variables, (GDP, unemployment, CRE prices and residential mortgage prices) to historical credit performance for each of the six loan portfolios from the fourth quarter of 2007 to the first quarter of 2022. Loss given default rates are computed based on the charge-offs recognized divided by the exposure at default of defaulted loans starting with the fourth quarter of 2007 through the first quarter of 2022. The probability of default and the loss given default rates are applied to the expected amount at default at the loan level based on contractual scheduled payments and estimated prepayments. The amounts so calculated comprise the quantitative portion of the allowance for credit losses.

The Company’s CECL methodology utilizes an eight-quarter reasonable and supportable (“R&S”) forecast period, and a four-quarter reversion period. Management relies on multiple forecasts, blending them into a single loss estimate. Generally speaking, the blended scenario approach would include the Baseline, the Alternative Scenario 1 – Upside – 10th Percentile and the Alternative Scenario 3 – Downside – 90th Percentile forecasts. After the R&S period, the Company reverts linearly for the four-quarter reversion period to the long-term loss rates for each of the six portfolios of loans.

The Company’s CECL methodology estimates expected credit losses over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: (i) management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or (ii) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

The simplified approach portfolios include Small Business Administration (“SBA”) loans, Home Equity Lines of Credit (“HELOCs”) and cash-secured loans, which are not modelled econometrically due to the low loss history for these three pools of loans. The forecasted loss rate is based on the forecasted GDP and unemployment rates during the first eight quarters of the portfolio’s contractual life, reversion loss rates for the next four quarters of the portfolio’s contractual life on a linear declining rate, and the long-term loss rate projected over the remainder of the portfolio’s contractual life.

Qualitative Factors

Under the Company’s CECL methodology, the qualitative portion of the reserve on pooled loans represents management’s judgment of additional considerations to account for internal and external risk factors that are not adequately measured in the quantitative reserve. The qualitative loss factors consider idiosyncratic risk factors, conditions that may not be reflected in quantitatively derived results, or other relevant factors to seek to ensure the allowance for credit losses reflects our best estimate of current expected credit losses. The qualitative reserves include reserves for policy exceptions, experience of management and staff, level of competition in the lending environment, weak risk identification, lack of historical experience with residential mortgage loans made to non-U.S. residents, oil & gas, included as part of the C&I loan portfolio, and the higher risk characteristics of purchased syndicated loans. Current and forecasted economic trends and underlying market values for collateral dependent loans also are considered within the econometric models described above.

The Company’s CECL methodology requires a significant amount of management judgment in determining the appropriate allowance for credit losses. Several of the steps in the methodology involve judgment and are subjective in nature including, among other things:

● Segmenting the loan portfolio

● Determining the amount of loss history to consider

● Selecting predictive econometric regression models that use appropriate macroeconomic variables

● Determining the methodology to forecast prepayments

● Selecting the most appropriate economic forecast scenario

● Determining the length of the R&S forecast and reversion periods

● Estimating expected utilization rates on unfunded loan commitments

● Assessing relevant and appropriate qualitative factors.

In addition, the CECL methodology is dependent on economic forecasts that are inherently imprecise and will change from period to period. Although the allowance for credit losses is considered by management to be appropriate, there can be no assurance that it will be sufficient to absorb future losses.

Management believes the allowance for credit losses is appropriate for the CECL in our loan portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date.

Individually Evaluated Loans 

When a loan no longer shares similar risk characteristics with other loans, such as in the case of certain nonaccrual or TDR loans, the Company estimates the allowance for loan losses on an individual loan basis. The allowance for loan losses for individually evaluated loans is measured as the difference between the recorded value of the loans and their fair value.  For loans evaluated individually, the Company uses one of three different asset valuation measurement methods: (1) the fair value of collateral less costs to sell; (2) the present value of expected future cash flows; and (3) the loan's observable market price. If an individually evaluated loan is determined to be collateral dependent, the Company applies the fair value of the collateral less costs to sell method. If an individually evaluated loan is determined not to be collateral dependent, the Company uses the present value of future cash flows or the observable market value of the loan.

Unfunded Loan Commitments

Unfunded loan commitments are generally related to providing credit facilities to clients of the Bank and are not actively traded financial instruments. These unfunded commitments are disclosed as off-balance sheet financial instruments in Note 10 in the Notes to Condensed Consolidated Financial Statements (Unaudited).

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company, using the same loss factors as used for the allowance for loan losses. The reserve for unfunded loan commitments uses a three-year historical usage rate of the unfunded commitments during the contractual life of the commitments. The allowance for unfunded commitments is included in “other liabilities” on the Condensed Consolidated Balance Sheets. Changes in the allowance for unfunded commitments are included in the provision for loan losses.

The following tables set forth activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2022, and March 31, 2021.

									Residential
				Real Estate			Commercial		Mortgage Loans		Installment
	Commercial			Construction			Mortgage		and		and Other
	Loans			Loans			Loans		Equity Lines		Loans		Total
	(In thousands)
Allowance for Loan Losses:
December 31, 2021 Ending Balance	$	43,394		$	6,302		$	61,081	$	25,379	$	1	$	136,157
Provision/(reversal) for possible credit losses		1,206			1,128			2,702		4,200		103		9,339
Charge-offs		(221	)		—			—		—		—		(221	)
Recoveries		359			6			95		51		—		511
Net (charge-offs)/recoveries		138			6			95		51		—		290
March 31, 2022 Ending Balance	$	44,738		$	7,436		$	63,878	$	29,630	$	104	$	145,786
Allowance for unfunded credit commitments:
December 31, 2021 Ending Balance	$	3,725		$	3,375		$	—	$	—	$	—	$	7,100
Provision/(reversal) for possible credit losses		(548	)		(148	)		—		—		—		(696	)
March 31, 2022 Ending Balance	$	3,177		$	3,227		$	—	$	—	$	—	$	6,404

										Residential
				Real Estate			Commercial			Mortgage Loans			Installment
	Commercial			Construction			Mortgage			and			and Other
	Loans			Loans			Loans			Equity Lines			Loans			Total
	(In thousands)
Allowance for Loan Losses:
December 31, 2020 Ending Balance	$	68,742		$	30,854		$	49,205		$	17,737		$	—		$	166,538
Impact of ASU 2016-13 adoption		(31,466	)		(24,307	)		34,993			19,211			9			(1,560	)
January 1, 2021 Beginning Balance		37,276			6,547			84,198			36,948			9			164,978
Provision/(reversal) for possible credit losses		12,627			446			(18,851	)		(6,325	)		(6	)		(12,109	)
Charge-offs		(9,138	)		—			—			—			—			(9,138	)
Recoveries		1,269			—			—			110			—			1,379
Net (charge-offs)/recoveries		(7,869	)		—			—			110			—			(7,759	)
March 31, 2021 Ending Balance	$	42,034		$	6,993		$	65,347		$	30,733		$	3		$	145,110
Allowance for unfunded credit commitments:
December 31, 2021 Ending Balance	$	4,802		$	690		$	101		$	284		$	3		$	5,880
Impact of ASU 2016-13 adoption		3,236			3,135			(66	)		(284	)		(3	)		6,018
January 1, 2021 Beginning Balance		8,038			3,825			35			—			—			11,898
Provision/(reversal) for possible credit losses		125			(1,574	)		—			—			—			(1,449	)
March 31, 2021 Ending Balance	$	8,163		$	2,251		$	35		$	—		$	—		$	10,449