Allowance for Credit Losses on Loans

3 Months Ended

Mar. 31, 2021

Allowance for Credit Losses on Loans

The ACL on loans is management’s estimate of expected credit losses over the expected life of the loans at the reporting date. The level of the ACL on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the calculation of loss given default and the estimation of expected credit losses. Adjustments to historical information are made for differences in specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, that may not be reflected in historical loss rates.

In accordance with the ACL policy, the methodology is reviewed no less than annually. In the first quarter of 2021, management updated its ACL methodology for pooled loans to incorporate additional econometric factors in the determination of the probability of default for each loan portfolio segment. Econometric factors are selected based on the correlation of the factor to credit losses for each loan portfolio segment. Effective January 1, 2021, the following econometric factors are utilized in the determination of the probability of default for each loan portfolio segment; the national unemployment rate (“NUR”) and gross domestic product (“GDP”) econometric factors are utilized for the commercial real estate and other consumer loan portfolio segments; the NUR and national home price index (“HPI”) econometric factors are utilized for the residential real estate and home equity portfolio segments; and the NUR econometric factor is utilized for the commercial & industrial loan portfolio segment. Prior to January 1, 2021, solely the NUR was used in the determination of the probability of default for each loan portfolio segment.

The following table presents the activity in the ACL on loans for the three months ended March 31, 2021:


(Dollars in thousands)	Commercial				Consumer
	CRE	C&I	Total Commercial	Residential Real Estate	Home Equity	Other	Total Consumer	Total
Beginning Balance	$22,065	$12,228	$34,293	$8,042	$1,300	$471	$1,771	$44,106

Charge-offs	—	(3)	(3)	(50)	—	(11)	(11)	(64)
Recoveries	—	2	2	33	2	9	11	46
Provision	(768)	162	(606)	(1,556)	129	82	211	(1,951)
Ending Balance	$21,297	$12,389	$33,686	$6,469	$1,431	$551	$1,982	$42,137

The following table presents the activity in the allowance for loan losses for the three months ended March 31, 2020:


(Dollars in thousands)	Commercial				Consumer
	CRE	C&I	Total Commercial	Residential Real Estate	Home Equity	Other	Total Consumer	Total
Beginning Balance	$14,741	$3,921	$18,662	$6,615	$1,390	$347	$1,737	$27,014
Adoption of ASC 326	3,405	3,029	6,434	221	(106)	(48)	(154)	6,501
Charge-offs	(153)	(294)	(447)	—	(173)	(15)	(188)	(635)
Recoveries	—	4	4	—	1	7	8	12
Provision	1,743	3,671	5,414	893	323	143	466	6,773
Ending Balance	$19,736	$10,331	$30,067	$7,729	$1,435	$434	$1,869	$39,665