Effective January 1, 2020, the Bank adopted ASU 2016-13. The adoption replaced the allowance for loan losses with the ACL on loans and replaced the related provision for loan losses with the provision for credit losses on loans.

The baseline loss rates used to calculate the ACL on loans at January 1, 2020 utilized the bank's average quarterly historical loss information from December 31, 2007 through December 31, 2019. The baseline loss rate period for the ACL at June 30, 2020 used historical losses beginning December 31, 2012 through the balance sheet date. The Bank updated the historical loss period as it believes the economic cycle has ended, as evidenced by certain economic forecasts signaling that a recession has started given the prolonged, profound, and pervasive contraction in economic activities, otherwise known as the Global Coronavirus Recession. The Bank believes the historic loss rates are viable inputs to the current expected credit loss methodology as the Bank's lending practice and business has remained relatively stable throughout the periods. While the Bank's assets have grown, the credit culture has stayed consistent.

Prepayments included in the methodology at January 1, 2020 and June 30, 2020 were based on the 48-month rolling historical averages for each segment, which management believes is an accurate representation of future prepayment activity. Management's allowance estimates at January 1, 2020 and June 30, 2020 used a four quarter reasonable and supportable period, as forecasts beyond this time period tend to diverge in economic assumptions and may be less comparable to actual future events. As the length of the reasonable and supportable period increases, the degree of judgment involved in estimating the allowance will likely increase. The Bank used a two quarter reversion period in calculating its allowance as of January 1, 2020 and June 30, 2020 as it believes the

historical loss information is relevant to the expected credit losses and recognizes the declining precision and increasing uncertainty of estimating credit losses in those periods beyond which it can make reasonable and supportable forecasts. Risk characteristics by segment considered in the CECL methodology are the same as those disclosed in the 2019 Annual Form 10-K.


	Three Months Ended June 30, 2020
	Beginning Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	13,900	$	(1,824)	$	69	$	17,628	$	29,773
SBA PPP	—		—		—		—		—
Owner-occupied CRE	6,216		—		2		3,785		10,003
Non-owner occupied CRE	7,750		—		—		2,916		10,666
Total commercial business	27,866		(1,824)		71		24,329		50,442
One-to-four family residential	3,026		—		—		(803)		2,223
Real estate construction and land development:
One-to-four family residential	864		—		7		(304)		567
Five or more family residential and commercial properties	11,444		—		—		(2,887)		8,557
Total real estate construction and land development	12,308		—		7		(3,191)		9,124
Consumer	4,340		(431)		197		5,606		9,712

Total	$	47,540	$	(2,255)	$	275	$	25,941	$	71,501


	Six Months Ended June 30, 2020
	Balance at Beginning		Impact of CECL Adoption		Beginning Balance, as Adjusted		Charge-offs		Recoveries		Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	11,739	$	(1,348)	$	10,391	$	(2,911)	$	1,126	$	21,167	$	29,773
SBA PPP	—		—		—		—		—		—		—
Owner-occupied CRE	4,512		452		4,964		(135)		14		5,160		10,003
Non-owner occupied CRE	7,682		(2,039)		5,643		—		—		5,023		10,666
Total commercial business	23,933		(2,935)		20,998		(3,046)		1,140		31,350		50,442
One-to-four family residential	1,458		1,471		2,929		—		3		(709)		2,223
Real estate construction and land development:
One-to-four family residential	1,455		(571)		884		—		21		(338)		567
Five or more family residential and commercial properties	1,605		7,240		8,845		—		—		(288)		8,557
Total real estate construction and land development	3,060		6,669		9,729		—		21		(626)		9,124
Consumer	6,821		(2,484)		4,337		(806)		291		5,890		9,712
Unallocated	899		(899)		—						—		—
Total	$	36,171	$	1,822	$	37,993	$	(3,852)	$	1,455	$	35,905	$	71,501

The Bank recognized net charge-offs of $2.4 million during the six months ended June 30, 2020 primarily due to a commercial and industrial charge-off of $1.7 million related to a lending relationship that has been experiencing difficulties. Due to issues surrounding the control of the underlying loan collateral, the Bank determined it appropriate to charge-off the entire balance and pursue an aggressive collection strategy. Net charge-offs also included small dollar charge-off on a large volume of consumer loans of $806,000 and a full recovery of a commercial and industrial agricultural lending relationship of $963,000 during the six months ended June 30, 2020, which was charged-off during the three months ended December 31, 2019.

The provision for credit losses on loans of $35.9 million for the six months ended June 30, 2020 was necessary to build the allowance to account for the current and forecasted economic conditions amidst COVID-19. The macroeconomic forecast used in the June 30, 2020 CECL model was as of June 9, 2020, and included the actual results of the sharp recession, followed by forecasted widened "U-shaped" recovery with unemployment rate spiking to 13% in second quarter 2020 and decreasing to 5% by 2023, and GDP slumping 6.1% in 2020, but rebounding 6.3% in 2021, with modest increases in GDP in future years. This forecast is in stark contrast to that used in CECL model as of January 1, 2020, which predicted steady GDP growth and unemployment rates, among other factors.

The following tables detail activity in the allowance for loan losses disaggregated by segment and class for the three and six months ended June 30, 2019 under the incurred loss methodology, including the ASC 310-30 methodology for PCI loans:


	Three Months Ended June 30, 2019
	Beginning Balance		Charge-offs		Recoveries		Provision for Loan Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	11,755	$	(774)	$	62	$	950	$	11,993
Owner-occupied CRE	5,256		—		—		(190)		5,066
Non-owner occupied CRE	7,825		—		—		239		8,064
Total commercial business	24,836		(774)		62		999		25,123
One-to-four family residential	1,247		(15)		—		113		1,345
Real estate construction and land development:
One-to-four family residential	1,422		—		7		42		1,471
Five or more family residential and commercial properties	995		—		—		65		1,060
Total real estate construction and land development	2,417		—		7		107		2,531
Consumer	6,480		(566)		130		496		6,540
Unallocated	1,172		—		—		(348)		824
Total	$	36,152	$	(1,355)	$	199	$	1,367	$	36,363


	Six Months Ended June 30, 2019
	Beginning Balance		Charge-offs		Recoveries		Provision for Loan Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	11,343	$	(877)	$	69	$	1,458	$	11,993
Owner-occupied CRE	4,898		—		3		165		5,066
Non-owner occupied CRE	7,470		—		149		445		8,064
Total commercial business	23,711		(877)		221		2,068		25,123
One-to-four family residential	1,203		(30)		—		172		1,345
Real estate construction and land development:
One-to-four family residential	1,240		—		625		(394)		1,471
Five or more family residential and commercial properties	954		—		—		106		1,060
Total real estate construction and land development	2,194		—		625		(288)		2,531
Consumer	6,581		(1,152)		247		864		6,540
Unallocated	1,353		—		—		(529)		824
Total	$	35,042	$	(2,059)	$	1,093	$	2,287	$	36,363

The following table details the allowance for loan losses disaggregated on the basis of the Company's impairment method as of December 31, 2019 under the incurred loss methodology, including the ASC 310-30 methodology for PCI loans:


	Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		PCI Loans		Total Allowance for Loan Losses
	(In thousands)
Commercial business:
Commercial and industrial	$	1,372	$	9,772	$	595	$	11,739
Owner-occupied CRE	426		3,558		528		4,512
Non-owner occupied CRE	146		7,064		472		7,682
Total commercial business	1,944		20,394		1,595		23,933
One-to-four family residential	56		1,316		86		1,458
Real estate construction and land development:
One-to-four family residential	—		1,296		159		1,455
Five or more family residential and commercial properties	—		1,527		78		1,605
Total real estate construction and land development	—		2,823		237		3,060
Consumer	143		6,327		351		6,821
Unallocated	—		899		—		899
Total	$	2,143	$	31,759	$	2,269	$	36,171

The following table details the amortized cost of the loan receivables disaggregated on the basis of the Company’s impairment method as of December 31, 2019 under the incurred loss methodology, including the ASC 310-30 methodology for PCI loans:


	Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		PCI Loans		Loans Receivable
	(In thousands)
Commercial business:
Commercial and industrial	$	43,808	$	806,044	$	2,368	$	852,220
Owner-occupied CRE	6,336		793,984		4,914		805,234
Non-owner occupied CRE	6,324		1,276,964		5,491		1,288,779
Total commercial business	56,468		2,876,992		12,773		2,946,233
One-to-four family residential	215		127,870		3,575		131,660
Real estate construction and land development:
One-to-four family residential	237		104,059		—		104,296
Five or more family residential and commercial properties	—		170,350		—		170,350
Total real estate construction and land development	237		274,409		—		274,646
Consumer	561		413,017		1,762		415,340
Total	$	57,481	$	3,692,288	$	18,110	$	3,767,879