The Company has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. At a minimum, the adequacy of the allowance for loan losses is

reviewed by management on a quarterly basis. For purposes of determining the allowance for loan losses, the Company has segmented the loans in its portfolio by loan type. Loans are segmented into the following pools: SBA 7(a), commercial, residential mortgages, consumer, and residential construction loans. Certain portfolio segments are further broken down into classes based on the associated risks within those segments and the type of collateral underlying each loan. Commercial loans are divided into the following five classes: commercial real estate, commercial real estate construction, unsecured business line of credit, commercial other, and SBA 504. Consumer loans are divided into two classes as follows: home equity and other.

The standardized methodology used to assess the adequacy of the allowance includes the allocation of specific and general reserves. The same standard methodology is used, regardless of loan type. Specific reserves are made to individual impaired loans and troubled debt restructurings (see Note 1 for additional information on this term). The general reserve is set based upon a representative average historical net charge-off rate adjusted for the following environmental factors: delinquency and impairment trends, charge-off and recovery trends, changes in the volume of restructured loans, volume and loan term trends, changes in risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes. Within the five-year historical net charge-off rate, the Company weights the past three years more because it believes they are more indicative of future losses. All of the environmental factors are ranked and assigned a basis points value based on the following scale: low, low moderate, moderate, high moderate and high risk. Each environmental factor is evaluated separately for each class of loans and risk weighted based on its individual characteristics.

According to the Company’s policy, a loss (“charge-off”) is to be recognized and charged to the allowance for loan losses as soon as a loan is recognized as uncollectable. All credits which are 90 days past due must be analyzed for the Company’s ability to collect on the credit. Once a loss is known to exist, the charge-off approval process is immediately expedited. This charge-off policy is followed for all loan types.

The allocated allowance is the total of identified specific and general reserves by loan category. The allocation is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any segment of the portfolio.

The following tables detail the activity in the allowance for loan losses by portfolio segment for the past three years:

For the year ended December 31, 2021

SBA held

for

Residential

(In thousands)

investment

Commercial

Residential

Consumer

Construction

Total

Balance, beginning of period

1,301

14,992

5,318

681

813

23,105

Charge-offs

(591)

(551)

—

(4)

—

(1,146)

Recoveries

—

162

Net (charge-offs) recoveries

(505)

(517)

(4)

—

(984)

Provision for (credit to) loan losses charged to expense

278

578

(1,246)

(6)

577

181

Balance, end of period

1,074

15,053

4,114

671

1,390

22,302


	For the year ended December 31, 2020
	SBA held
	for									Residential
(In thousands)	investment		Commercial		Residential		Consumer		Construction		Total
Balance, beginning of period	$	1,079	$	9,722	$	4,254	$	625	$	715	$	16,395
Charge-offs		(26)		(669)		(200)		—		—		(895)
Recoveries		83		522		—		—		—		605
Net recoveries (charge-offs)		57		(147)		(200)		—		—		(290)
Provision for loan losses charged to expense		165		5,417		1,264		56		98		7,000
Balance, end of period	$	1,301	$	14,992	$	5,318	$	681	$	813	$	23,105


	For the year ended December 31, 2019
	SBA held
	for									Residential
(In thousands)	investment		Commercial		Residential		Consumer		Construction		Total
Balance, beginning of period	$	1,655	$	8,705	$	3,900	$	618	$	610	$	15,488
Charge-offs		(535)		(501)		(205)		(1)		—		(1,242)
Recoveries		23		16		—		10		—		49
Net (charge-offs) recoveries		(512)		(485)		(205)		9		—		(1,193)
Provision for (credit to) loan losses charged to expense		(64)		1,502		559		(2)		105		2,100
Balance, end of period	$	1,079	$	9,722	$	4,254	$	625	$	715	$	16,395

The following tables present loans and their related allowance for loan losses, by portfolio segment, as of December 31^st for the past two years:

December 31, 2021

SBA held

for

Residential

(In thousands)

investment

Commercial

Residential

Consumer

Construction

Total

Allowance for loan losses ending balance:

Individually evaluated for impairment

2,615

2,823

Collectively evaluated for impairment

1,070

12,438

4,034

615

1,322

19,479

Total

1,074

15,053

4,114

671

1,390

22,302

Loan ending balances:

Individually evaluated for impairment

510

4,220

3,262

637

3,122

11,751

Collectively evaluated for impairment

82,015

927,506

406,093

77,307

117,403

1,610,324

Total

82,525

931,726

409,355

77,944

120,525

1,622,075


	December 31, 2020
	SBA held
	for									Residential
(In thousands)	investment		Commercial		Residential		Consumer			Construction	Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	324	$	3,682	$	101	$	—	$	—	$	4,107
Collectively evaluated for impairment		977		11,310		5,217		681		813		18,998
Total	$	1,301	$	14,992	$	5,318	$	681	$	813	$	23,105
Loan ending balances:
Individually evaluated for impairment	$	2,102	$	5,702	$	5,217	$	1,295	$	1,750	$	16,066
Collectively evaluated for impairment		155,742		834,086		462,369		64,805		85,414		1,602,416
Total	$	157,844	$	839,788	$	467,586	$	66,100	$	87,164	$	1,618,482

Changes in Methodology:

The Company did not make any changes to its allowance for loan losses methodology in the current period.

Reserve for Unfunded Loan Commitments

In addition to the allowance for loan losses, the Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable losses. Adjustments to the reserve are made through other expense and applied to the reserve which is classified as other liabilities. At December 31, 2021, a $400 thousand commitment reserve was reported on the balance sheet as an “other liability”, compared to a $288 thousand commitment reserve at December 31, 2020. There were no losses on unfunded loan commitments during 2021 or 2020.