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Note 9 - Loans

9 Months Ended

Sep. 30, 2022

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 September 30, 2022 and December 31, 2021, were as follows:

September 30, 2022

December 31, 2021

(In thousands)

Commercial loans
$ 3,367,437 $ 2,982,399

Real estate construction loans
573,421 611,031

Commercial mortgage loans
8,677,733 8,143,272

Residential mortgage loans
5,130,650 4,182,006

Equity lines
350,448 419,487

Installment and other loans
7,114 4,284

Gross loans
$ 18,106,803 $ 16,342,479

Allowance for loan losses
(148,817 ) (136,157 )

Unamortized deferred loan fees, net
(6,936 ) (4,321 )

Total loans, net
$ 17,951,050 $ 16,202,001

As of September 30, 2022, recorded investment in non-accrual loans was $68.1 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 12.2% and 10.7% of the contractual balances for non-accrual loans as of September 30, 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

Nine Months Ended

September 30, 2022

September 30, 2022

Average

Recorded

Investment

Interest

Income

Recognized

Average

Recorded

Investment

Interest

Income

Recognized

(In thousands)

Commercial loans
$ 26,809 $ — $ 28,691 $ —

Commercial mortgage loans
18,861 191 28,878 508

Residential mortgage loans and equity lines
16,743 7 14,838 20

Installment and other loans
61 — 35 —

Total non-accrual loans
$ 62,474 $ 198 $ 72,442 $ 528

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2021

Average

Recorded

Investment

Interest

Income

Recognized

Average

Recorded

Investment

Interest

Income

Recognized

(In thousands)

Commercial loans
$ 16,379 $ — $ 22,989 $ —

Real estate construction loans
4,548 50 4,310 220

Commercial mortgage loans
37,017 140 37,964 297

Residential mortgage loans and equity lines
9,831 7 8,976 23

Total non-accrual loans
$ 67,775 $ 197 $ 74,239 $ 540

The following table presents non-accrual loans and the related allowance as of September 30, 2022 and December 31, 2021:

September 30, 2022

Unpaid

Principal

Balance

Recorded

Investment

Allowance

(In thousands)

With no allocated allowance

Commercial loans
$ 10,171 $ 6,887 $ —

Commercial mortgage loans
14,148 10,956 —

Residential mortgage loans and equity lines
5,582 5,407 —

Installment and other loans
10 9 —

Subtotal
$ 29,911 $ 23,259 $ —

With allocated allowance

Commercial loans
$ 32,426 $ 19,717 $ 4,013

Commercial mortgage loans
16,002 15,955 2,146

Residential mortgage loans and equity lines
9,951 9,194 39

Subtotal
$ 58,379 $ 44,866 $ 6,198

Total non-accrual loans
$ 88,290 $ 68,125 $ 6,198

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 September 30, 2022, and as of December 31, 2021:

September 30, 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
$ 7,223 $ 3,151 $ 1,112 $ 26,604 $ 38,090 $ 3,329,347 $ 3,367,437

Real estate construction loans
— — — — — 573,421 573,421

Commercial mortgage loans
— 1,107 2,060 26,911 30,078 8,647,655 8,677,733

Residential mortgage loans and equity lines
3,383 4,690 — 14,601 22,674 5,458,424 5,481,098

Installment and other loans
35 — — 9 44 7,070 7,114

Total loans
$ 10,641 $ 8,948 $ 3,172 $ 68,125 $ 90,886 $ 18,015,917 $ 18,106,803

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 September 30, 2022, accruing TDRs were $15.2 million and non-accrual TDRs were $6.4 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 $10 thousand in reserves to accruing TDRs and $499 thousand to non-accrual TDRs as of September 30, 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 and nine months ended September 30, 2022 and 2021, their specific reserves as of September 30, 2022, and 2021, and charge-offs for the three months and six months ended September 30, 2022, and 2021:

Three Months Ended September 30, 2022

September 30, 2022

No. of

Contracts

Pre-Modification

Outstanding

Recorded

Investment

Post-Modification

Outstanding

Recorded

Investment

Charge-offs

Specific Reserve

(In thousands)

Commercial mortgage loans
2 $ 2,572 $ 2,572 $ — $ —

Residential mortgage loans and equity lines
4 1,466 1,442 — —

Total
6 $ 4,038 $ 4,014 $ — $ —

Three Months Ended September 30, 2021

September 30, 2021

No. of

Contracts

Pre-Modification

Outstanding

Recorded

Investment

Post-Modification

Outstanding

Recorded

Investment

Charge-offs

Specific Reserve

(In thousands)

Residential mortgage loans and equity lines
1 $ 479 $ 479 $ — $ 14

Total
1 $ 479 $ 479 $ — $ 14

Nine Months Ended September 30, 2022

September 30, 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

Commercial mortgage loans
2 2,572 2,572

Residential mortgage loans and equity lines
8 2,190 2,162 — 4

Total
14 $ 10,877 $ 10,849 $ — $ 2,570

Nine Months Ended September 30, 2021

September 30, 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
1 479 479 — 14

Total
2 $ 1,165 $ 1,165 $ — $ 14

Modifications of the loan terms in the three and nine months ended September 30, 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 September 30, 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 that 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 September 30, 2022, and December 31, 2021, is set forth in the table below:

September 30, 2022

Payment

Deferral

Rate

Reduction

Rate Reduction

and Payment

Deferral

Total

(In thousands)

Accruing TDRs

Commercial loans
$ 2,643 $ — $ — $ 2,643

Commercial mortgage loans
2,734 — 5,874 8,608

Residential mortgage loans
2,198 459 1,300 3,957

Total accruing TDRs
$ 7,575 $ 459 $ 7,174 $ 15,208

September 30, 2022

Payment

Deferral

Rate

Reduction

Rate Reduction

and Payment

Deferral

Total

(In thousands)

Non-accrual TDRs

Commercial loans
$ 4,805 $ — $ — $ 4,805

Residential mortgage loans
1,635 — — 1,635

Total non-accrual TDRs
$ 6,440 $ — $ — $ 6,440

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

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 September 30, 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 September 30, 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 September 30, 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

September 30, 2022

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Revolving

Converted to

Term Loans

Total

(In thousands)

Commercial loans

Pass/Watch
$ 440,389 $ 487,748 $ 201,540 $ 127,595 $ 115,076 $ 131,652 $ 1,749,754 $ 6,429 $ 3,260,183

Special Mention
1,212 4,494 2,869 72 2,697 11,418 22,703 250 45,715

Substandard
— 12,324 4,973 6,511 2,852 5,226 25,278 38 57,202

Doubtful
— — — 1,088 2,185 — 232 — 3,505

Total
$ 441,601 $ 504,566 $ 209,382 $ 135,266 $ 122,810 $ 148,296 $ 1,797,967 $ 6,717 $ 3,366,605

YTD period charge-offs
$ — $ 134 $ 169 $ 71 $ 1,786 $ — $ 202 $ — $ 2,362

YTD period recoveries
(7 ) — (31 ) — (164 ) (202 ) (1,705 ) — (2,109 )

Net charge-offs/(recoveries)
$ (7 ) $ 134 $ 138 $ 71 $ 1,622 $ (202 ) $ (1,503 ) $ — $ 253

Real estate construction loans

Pass/Watch
$ 80,633 $ 271,855 $ 114,015 $ 58,922 $ 24,650 $ — $ — $ — $ 550,075

Special Mention
— — 8,579 — — — — — 8,579

Substandard
— — — 2,005 9,352 — — — 11,357

Total
$ 80,633 $ 271,855 $ 122,594 $ 60,927 $ 34,002 $ — $ — $ — $ 570,011

YTD period charge-offs
$ — $ — $ — $ — $ — $ — $ — $ — $ —

YTD period recoveries
— — — — — (6 ) — — (6 )

Net charge-offs/(recoveries)
$ — $ — $ — $ — $ — $ (6 ) $ — $ — $ (6 )

Commercial mortgage loans

Pass/Watch
$ 1,597,328 $ 1,781,573 $ 1,084,550 $ 1,124,054 $ 941,945 $ 1,573,895 $ 179,343 $ — $ 8,282,688

Special Mention
43,636 51,488 25,686 42,685 18,952 63,473 1,300 — 247,220

Substandard
— 7,269 1,744 12,383 31,933 86,222 3,371 — 142,922

Total
$ 1,640,964 $ 1,840,330 $ 1,111,980 $ 1,179,122 $ 992,830 $ 1,723,590 $ 184,014 $ — $ 8,672,830

YTD period charge-offs
$ — $ — $ — $ — $ — $ — $ — $ — $ —

YTD period recoveries
— — — (180 ) — (7 ) (83 ) — (270 )

Net charge-offs/(recoveries)
$ — $ — $ — $ (180 ) $ — $ (7 ) $ (83 ) $ — $ (270 )

Residential mortgage loans

Pass/Watch
$ 995,736 $ 976,137 $ 595,493 $ 610,410 $ 433,398 $ 1,495,370 $ — $ — $ 5,106,544

Special Mention
— — 33 1,552 755 911 — — 3,251

Substandard
8 1,108 2,343 4,897 3,248 10,439 — — 22,043

Total
$ 995,744 $ 977,245 $ 597,869 $ 616,859 $ 437,401 $ 1,506,720 $ — $ — $ 5,131,838

YTD period charge-offs
$ — $ — $ — $ — $ — $ — $ 58 $ — $ 58

YTD period recoveries
— — — — — (45 ) — — (45 )

Net charge-offs/(recoveries)
$ — $ — $ — $ — $ — $ (45 ) $ 58 $ — $ 13

Equity lines

Pass/Watch
$ 878 $ — $ — $ — $ — $ — $ 325,751 $ 23,229 $ 349,858

Special Mention
28 — — — — — — — 28

Substandard
18 — — — — — 2,251 236 2,505

Total
$ 924 $ — $ — $ — $ — $ — $ 328,002 $ 23,465 $ 352,391

YTD period charge-offs
$ — $ — $ — $ — $ — $ — $ — $ — $ —

YTD period recoveries
— — — — — — (8 ) (12 ) (20 )

Net charge-offs/(recoveries)
$ — $ — $ — $ — $ — $ — $ (8 ) $ (12 ) $ (20 )

Installment and other loans

Pass/Watch
$ 1,246 $ 4,848 $ 98 $ — $ — $ — $ — $ — $ 6,192

Total
$ 1,246 $ 4,848 $ 98 $ — $ — $ — $ — $ — $ 6,192

YTD period charge-offs
$ 80 $ — $ — $ — $ — $ — $
—

$ — $ 80

YTD period recoveries
(1 ) — — — — — — — (1 )

Net charge-offs/(recoveries)
$ 79 $ — $ — $ — $ — $ — $ — $ — $ 79

Total loans
$ 3,161,112 $ 3,598,844 $ 2,041,923 $ 1,992,174 $ 1,587,043 $ 3,378,606 $ 2,309,983 $ 30,182 $ 18,099,867

Net charge-offs/(recoveries)
$ 72 $ 134 $ 138 $ (109 ) $ 1,622 $ (260 ) $ (1,536 ) $ (12 ) $ 49

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 third 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, and an adjustment to reflect the time gap between the preparation of the Moody's forecast of future GDP, unemployment rates, CRE and home price indexes and the higher likelihood of an economic slowdown resulting from the impact of higher interest rates. 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. Generally, the allowance for loan losses for individually evaluated loans is measured as the difference between the recorded value of the loans and the collaterals 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 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 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 and nine months ended September 30, 2022, and September 30, 2021.

Three months ended September 30, 2022 and 2021

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

Allowance for Loan Losses:

(In thousands)

June 30, 2022 Ending Balance
$ 49,069 $ 7,276 $ 68,600 $ 23,692 $ 135 $ 148,772

Provision/(reversal) for possible credit losses
1,845 (1,065 ) 1,362 (1,612 ) 72 602

Charge-offs
(2,091 ) — — (58 ) (79 ) (2,228 )

Recoveries
1,576 — 88 7 — 1,671

Net (charge-offs)/recoveries
(515 ) — 88 (51 ) (79 ) (557 )

September 30, 2022 Ending Balance
$ 50,399 $ 6,211 $ 70,050 $ 22,029 $ 128 $ 148,817

Allowance for unfunded credit commitments:

June 30, 2022 Ending Balance
$ 2,804 $ 3,306 $ 26 $ — $ — $ 6,136

Provision/(reversal) for possible credit losses
1,576 (152 ) (26 ) — — 1,398

September 30, 2022 Ending Balance
$ 4,380 $ 3,154 $ — $ — $ — $ 7,534

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

Allowance for Loan Losses:

(In thousands)

June 30, 2021 Ending Balance
$ 40,067 $ 6,119 $ 58,026 $ 27,043 $ 1 $ 131,256

Provision/(reversal) for possible credit losses
674 149 2,786 (609 ) — 3,000

Charge-offs
(2,649 ) — — (3 ) — (2,652 )

Recoveries
121 76 144 — — 341

Net (charge-offs)/recoveries
(2,528 ) 76 144 (3 ) — (2,311 )

September 30, 2021 Ending Balance
$ 38,213 $ 6,344 $ 60,956 $ 26,431 $ 1 $ 131,945

Allowance for unfunded credit commitments:

June 30, 2021 Ending Balance
$ 4,388 $ 3,581 $ 81 $ — $ — $ 8,050

Provision/(reversal) for possible credit losses
329 (396 ) 117 — — 50

September 30, 2021 Ending Balance
$ 4,717 $ 3,185 $ 198 $ — $ — $ 8,100

Nine months ended September 30, 2022 and 2021

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

Allowance for Loan Losses:

(In thousands)

December 31, 2021 Ending Balance
$ 43,394 $ 6,302 $ 61,081 $ 25,379 $ 1 $ 136,157

Provision/(reversal) for possible credit losses
7,258 (97 ) 8,699 (3,357 ) 206 12,709

Charge-offs
(2,362 ) — — (58 ) (80 ) (2,500 )

Recoveries
2,109 6 270 65 1 2,451

Net (charge-offs)/recoveries
(253 ) 6 270 7 (79 ) (49 )

September 30, 2022 Ending Balance
$ 50,399 $ 6,211 $ 70,050 $ 22,029 $ 128 $ 148,817

Allowance for unfunded credit commitments:

December 31, 2021 Ending Balance
$ 3,725 $ 3,375 $ — $ — $ — $ 7,100

Provision/(reversal) for possible credit losses
655 (221 ) — — — 434

September 30, 2022 Ending Balance
$ 4,380 $ 3,154 $ — $ — $ — $ 7,534

Residential

Real Estate

Commercial

Mortgage Loans

Installment

Commercial

Construction

Mortgage

and

and Other

Loans

Loans

Loans

Equity Lines

Loans

Total

Allowance for Loan Losses:

(In thousands)

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
18,891 (279 ) (23,526 ) (10,788 ) (8 ) (15,710 )

Charge-offs
(19,499 ) — — (3 ) — (19,502 )

Recoveries
1,545 76 284 274 — 2,179

Net (charge-offs)/recoveries
(17,954 ) 76 284 271 — (17,323 )

September 30, 2021 Ending Balance
$ 38,213 $ 6,344 $ 60,956 $ 26,431 $ 1 $ 131,945

Allowance for unfunded credit commitments:

December 31, 2020 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
(3,321 ) (640 ) 163 — — (3,798 )

September 30, 2021 Ending Balance
$ 4,717 $ 3,185 $ 198 $ — $ — $ 8,100