Note 9 - Loans

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

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

9. Loans

Most of the Company’s business activities are with clients 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 clients 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, 2023 and December 31, 2022, were as follows:

	March 31, 2023			December 31, 2022
	(In thousands)
Commercial loans	$	3,153,039		$	3,318,778
Real estate construction loans		558,967			559,372
Commercial mortgage loans		8,916,766			8,793,685
Residential mortgage loans		5,384,220			5,252,952
Equity lines		298,630			324,548
Installment and other loans		5,717			4,689
Gross loans	$	18,317,339		$	18,254,024
Allowance for loan losses		(144,884	)		(146,485	)
Unamortized deferred loan fees, net		(5,872	)		(6,641	)
Total loans, net	$	18,166,583		$	18,100,898

As of March 31, 2023, recorded investment in non-accrual loans was $73.6 million. As of December 31, 2022, recorded investment in non-accrual loans totaled $68.9 million. For non-accrual loans, the amounts previously charged off represent 10.5% and 14.1% of the contractual balances for non-accrual loans as of March 31, 2023 and December 31, 2022, respectively.

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, 2023
	Average Recorded Investment		Interest Income Recognized
	(In thousands)
Commercial loans	$	23,395	$	4
Commercial mortgage loans		36,214		231
Residential mortgage loans and equity lines		9,965		—
Installment and other loans.		3		—
Total non-accrual loans	$	69,577	$	235

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

The following table presents non-accrual loans and the related allowance as of March 31, 2023 and December 31, 2022:

	March 31, 2023
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance:
Commercial loans	$	27,401	$	10,887	$	—
Commercial mortgage loans		49,927		40,218		—
Residential mortgage loans and equity lines		11,896		11,283		—
Subtotal	$	89,224	$	62,388	$	—
With allocated allowance:
Commercial loans	$	12,511	$	11,192	$	4,258
Commercial mortgage loans		—		—		—
Subtotal	$	12,511	$	11,192	$	4,258
Total non-accrual loans	$	101,735	$	73,580	$	4,258

	December 31, 2022
	Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance:
Commercial loans	$	27,341	$	12,949	$	—
Commercial mortgage loans		37,697		32,205		—
Residential mortgage loans and equity lines		9,626		8,978		—
Installment and other loans		9		8		—
Subtotal	$	74,673	$	54,140	$	—
With allocated allowance:
Commercial loans	$	14,643	$	12,823	$	3,734
Commercial mortgage loans		1,896		1,891		207
Subtotal	$	16,539	$	14,714	$	3,941
Total non-accrual loans	$	91,212	$	68,854	$	3,941

The following tables present the aging of the loan portfolio by type as of March 31, 2023, and as of December 31, 2022:

	March 31, 2023
	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	$	7,623	$	272	$	100	$	22,079	$	30,074	$	3,122,965	$	3,153,039
Real estate construction loans		—		—		—		—		—		558,967		558,967
Commercial mortgage loans		19,870		—		12,656		40,218		72,744		8,844,022		8,916,766
Residential mortgage loans and equity lines.		31,998		—		—		11,283		43,281		5,639,569		5,682,850
Installment and other loans		9		10		—		—		19		5,698		5,717
Total loans	$	59,500	$	282	$	12,756	$	73,580	$	146,118	$	18,171,221	$	18,317,339

	December 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	$	8,192	$	3,235	$	10,208	$	25,772	$	47,407	$	3,271,371	$	3,318,778
Real estate construction loans		—		—		—		—		—		559,372		559,372
Commercial mortgage loans		25,772		—		1,372		34,096		61,240		8,732,445		8,793,685
Residential mortgage loans and equity lines.		47,043		5,685		—		8,978		61,706		5,515,794		5,577,500
Installment and other loans		5		1		—		8		14		4,675		4,689
Total loans	$	81,012	$	8,921	$	11,580	$	68,854	$	170,367	$	18,083,657	$	18,254,024

The Company has adopted ASU 2022-02, Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023. As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our ACL approach discussed further below in this footnote.

Under the new guidance on loan modifications made to borrowers experiencing financial difficulty, when a loan held for investment is modified and is considered to be a continuation of the original loan, the Company uses the post-modification contractual rate to derive the effective interest rate when using a discounted cash flow method to determine the allowance for credit loss.

The amendments in this new guidance eliminate the TDR recognition and measurement and, instead, require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan.

Under the prior TDR guidance, 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 restructuring to set up interest reserves. Loans classified as TDRs were reported as individually evaluated loans.

The allowance for credit loss on a TDR was 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. Under the prior guidance when the value of a concession was measured using the discounted cash flow method, the allowance for credit loss was determined by discounting the expected future cash flows at the original interest rate of the loan.

Upon adoption of ASU 2022-02, 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 for the quantitative baseline, and include non-accrual loans, loan modifications made to borrowers experiencing financial difficulty, and other loans as deemed appropriate by management. In addition, the Company individually evaluates “reasonably expected” loan modifications made to borrowers experiencing financial difficulty, which are identified by the Company as a commercial loan expected to be classified as a loan modification made to borrowers experiencing financial difficulty.  Individually evaluated loans also includes “reasonably expected” loan modifications made to borrowers experiencing financial difficulty, 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.

If 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 December 31, 2022, under the prior TDR guidance, there were accruing TDRs of $15.1 million and non-accruing TDRs of $6.3 million. As of December 31, 2022, there were zero accruing TDRs and $427 thousand non-accruing TDRs.

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

	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

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, and interest rate reductions, or a combination of the two. For the three months ended March 31, 2023 there were no loan modifications made to borrowers experiencing financial difficulty.

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

	December 31, 2022
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs:
Commercial loans	$	2,588	$	—	$	—	$	2,588
Commercial mortgage loans		2,791		—		5,855		8,646
Residential mortgage loans		2,181		445		1,285		3,911
Total accruing TDRs	$	7,560	$	445	$	7,140	$	15,145

	December 31, 2022
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs:
Commercial loans	$	3,629	$	—	$	—	$	3,629
Commercial mortgage loans		1,098		—		—		1,098
Residential mortgage loans		1,621		—		—		1,621
Total non-accrual TDRs	$	6,348	$	—	$	—	$	6,348

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, 2023. 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, 2023, the Company did not have commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company has modified the terms of the loan in the form of principal forgiveness, an interest rate reduction, and other-than-insignificant payment delay, or a term extension in the current reporting period.

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 higher than average, but still acceptable, credit risk. The loans have sufficient sources of repayment to repay the loans in full, in accordance with all the terms and conditions and remain currently well protected by collateral values. 

●  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, 2023 and December 31, 2022, 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, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Converted to Term Loans		Total
	(In thousands)
Commercial loans
Pass/Watch	$	62,760	$	462,944	$	436,143	$	161,289	$	99,233	$	191,552	$	1,631,086	$	5,231	$	3,050,238
Special Mention		—		1,212		3,822		2,437		—		3,540		46,123		—		57,134
Substandard		—		59		12,530		285		3,173		6,274		20,823		820		43,964
Doubtful		—		—		—		—		—		1,406		232		—		1,638
Total	$	62,760	$	464,215	$	452,495	$	164,011	$	102,406	$	202,772	$	1,698,264	$	6,051	$	3,152,974
YTD gross writeoffs	$	—	$	164	$	760	$	145	$	2,053	$	778	$	11	$	—	$	3,911
Real estate construction loans
Pass/Watch	$	11,190	$	114,805	$	249,947	$	112,823	$	18,429	$	3,072	$	—	$	—	$	510,266
Special Mention		—		—		491		—		11,903		22,998		—		—		35,392
Substandard		—		—		—		—		1,736		9,266		—		—		11,002
Total	$	11,190	$	114,805	$	250,438	$	112,823	$	32,068	$	35,336	$	—	$	—	$	556,660
YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial mortgage loans
Pass/Watch	$	387,087	$	2,077,494	$	1,715,118	$	958,330	$	1,090,519	$	2,176,822	$	181,831	$	—	$	8,587,201
Special Mention		—		22,150		29,121		25,604		21,038		57,120		—		—		155,033
Substandard		—		12,277		12,361		14,392		19,902		107,434		2,639		—		169,005
Total	$	387,087	$	2,111,921	$	1,756,600	$	998,326	$	1,131,459	$	2,341,376	$	184,470	$	—	$	8,911,239
YTD gross writeoffs	$	—	$	—	$	208	$	—	$	—	$	3,782	$	—	$	—	$	3,990
Residential mortgage loans
Pass/Watch	$	264,586	$	1,195,811	$	950,229	$	570,344	$	586,635	$	1,800,951	$	—	$	—	$	5,368,556
Special Mention		—		459		—		489		678		2,275		—		—		3,901
Substandard		—		204		748		434		1,239		10,186		—		—		12,811
Total	$	264,586	$	1,196,474	$	950,977	$	571,267	$	588,552	$	1,813,412	$	—	$	—	$	5,385,268
YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Equity lines
Pass/Watch	$	—	$	127	$	—	$	—	$	—	$	—	$	277,548	$	20,217	$	297,892
Special Mention		—		—		—		—		—		—		11		—		11
Substandard		—		—		—		—		—		—		1,627		204		1,831
Total	$	—	$	127	$	—	$	—	$	—	$	—	$	279,186	$	20,421	$	299,734
YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Installment and other loans
Pass/Watch	$	241	$	2,573	$	2,778	$	—	$	—	$	—	$	—	$	—	$	5,592
Total	$	241	$	2,573	$	2,778	$	—	$	—	$	—	$	—	$	—	$	5,592
YTD gross writeoffs	$	—	$	6	$	—	$	—	$	—	$	—	$	—	$	—	$	6
Total loans	$	725,864	$	3,890,115	$	3,413,288	$	1,846,427	$	1,854,485	$	4,392,896	$	2,161,920	$	26,472	$	18,311,467
Total YTD gross wrieoffs	$	—	$	170	$	968	$	145	$	2,053	$	4,560	$	11	$	—	$	7,907

	Loans Amortized Cost Basis by Origination Year
December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Converted to Term Loans		Total
	(In thousands)
Commercial loans
Pass/Watch	$	488,748	$	446,647	$	180,226	$	119,355	$	107,896	$	106,649	$	1,753,509	$	6,560	$	3,209,590
Special Mention		1,212		4,696		2,818		68		308		4,354		41,110		—		54,566
Substandard		25		12,750		342		4,859		2,766		6,985		22,084		133		49,944
Doubtful		—		—		—		1,504		2,185		—		234		—		3,923
Total	$	489,985	$	464,093	$	183,386	$	125,786	$	113,155	$	117,988	$	1,816,937	$	6,693	$	3,318,023
YTD gross writeoffs	$	96	$	587	$	120	$	71	$	1,786	$	360	$	202	$	—	$	3,222
Real estate construction loans
Pass/Watch	$	99,798	$	264,197	$	113,312	$	20,479	$	3,067	$	—	$	—	$	—	$	500,853
Special Mention		—		360		9,449		11,643		22,945		—		—		—		44,397
Substandard		—		—		—		1,736		9,309		—		—		—		11,045
Total	$	99,798	$	264,557	$	122,761	$	33,858	$	35,321	$	—	$	—	$	—	$	556,295
YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial mortgage loans
Pass/Watch	$	2,087,650	$	1,728,607	$	975,953	$	1,094,505	$	908,748	$	1,420,982	$	178,116	$	—	$	8,394,561
Special Mention		22,150		57,015		25,593		32,119		17,999		63,782		1,600		—		220,258
Substandard		12,320		7,861		14,392		19,972		34,899		81,844		2,631		—		173,919
Total	$	2,122,120	$	1,793,483	$	1,015,938	$	1,146,596	$	961,646	$	1,566,608	$	182,347	$	—	$	8,788,738
YTD gross writeoffs	$	—	$	—	$	—	$	—	$	2,091	$	—	$	—	$	—	$	2,091
Residential mortgage loans
Pass/Watch	$	1,228,391	$	964,799	$	580,990	$	600,786	$	417,565	$	1,444,320	$	—	$	—	$	5,236,851
Special Mention		—		—		33		—		752		905		—		—		1,690
Substandard		206		762		2,028		1,966		1,799		8,785		—		—		15,546
Total	$	1,228,597	$	965,561	$	583,051	$	602,752	$	420,116	$	1,454,010	$	—	$	—	$	5,254,087
YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Equity lines
Pass/Watch	$	731	$	—	$	—	$	—	$	—	$	—	$	302,825	$	21,460	$	325,016
Special Mention		5		—		—		—		—		—		—		—		5
Substandard		12		—		—		—		—		—		1,043		220		1,275
Total	$	748	$	—	$	—	$	—	$	—	$	—	$	303,868	$	21,680	$	326,296
YTD gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Installment and other loans
Pass/Watch	$	1,792	$	2,152	$	—	$	—	$	—	$	—	$	—	$	—	$	3,944
Total	$	1,792	$	2,152	$	—	$	—	$	—	$	—	$	—	$	—	$	3,944
YTD gross writeoffs	$	115	$	—	$	—	$	—	$	—	$	—	$	62	$	—	$	177
Total loans	$	3,943,040	$	3,489,846	$	1,905,136	$	1,908,992	$	1,530,238	$	3,138,606	$	2,303,152	$	28,373	$	18,247,383
Total YTD gross wrieoffs	$	211	$	587	$	120	$	71	$	3,877	$	360	$	264	$	—	$	5,490

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 ASC Topic 326 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 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. 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 fourth quarter of 2021. 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 fourth quarter of 2021. 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 – 10^th Percentile and the Alternative Scenario 3 – Downside – 90^th 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 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 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 fair value of the collateral. 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 ended March 31, 2023, and March 31, 2022.

									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:
January 1, 2023 Beginning Balance	$	49,435		$	10,417	$	68,366		$	18,232		$	35		$	146,485
(Reversal)/provision for credit losses on loans		(60	)		483		3,463			(611	)		(20	)		3,255
Charge-offs		(3,911	)		—		(3,990	)		—			(6	)		(7,907	)
Recoveries		511			—		2,528			12			—			3,051
Net (charge-offs)/recoveries		(3,400	)		—		(1,462	)		12			(6	)		(4,856	)
March 31, 2023 Ending Balance	$	45,975		$	10,900	$	70,367		$	17,633		$	9		$	144,884
Allowance for unfunded credit commitments:
January 1, 2023 Beginning Balance	$	4,840		$	3,890	$	—		$	—		$	—		$	8,730
Provision for credit losses on unfunded credit commitments		3,435			1,325		85			—			—			4,845
March 31, 2023 Ending Balance	$	8,275		$	5,215	$	85		$	—		$	—		$	13,575

									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)
January 1, 2022 Beginning Balance	$	43,394		$	6,302		$	61,081	$	25,379	$	1	$	136,157
Provision for credit losses on loans		1,206			1,128			2,702		4,200		103		9,339
Charge-offs		(221	)		—			—		—		—		(221	)
Recoveries		359			6			95		51		—		511
Net 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:
January 1, 2022 Beginning Balance		3,725			3,375			—		—		—	$	7,100
Reversal for credit losses on unfunded credit commitments		(548	)		(148	)		—		—		—		(696	)
March 31, 2022 Ending Balance	$	3,177		$	3,227		$	—	$	—	$	—	$	6,404