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. The allowance is increased by provisions charged to expense and is reduced by net charge-offs. 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 level of the allowance is based on management’s evaluation of probable losses in the loan portfolio, after consideration of prevailing economic conditions in the Company’s market area, the volume and composition of the loan portfolio, and historical loan loss experience. The allowance for loan losses consists of specific reserves for individually impaired credits and TDRs, reserves for nonimpaired loans based on historical loss factors and reserves based on general economic factors and other qualitative risk factors such as changes in delinquency trends, industry concentrations or local/national economic trends. This risk assessment process is performed at least quarterly, and, as adjustments become necessary, they are realized in the periods in which they become known.

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 TDRs. 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, 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 heavily as it believes it is more indicative of future charge-offs. 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.

Although management attempts to maintain the allowance at a level deemed adequate to provide for probable losses, future additions to the allowance may be necessary based upon certain factors including changes in market conditions and underlying collateral values. In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for loan losses. These agencies may require the Company to make additional provisions based on their judgments about information available to them at the time of their examination.

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 three months ended March 31, 2022 and 2021:


	For the three months ended March 31, 2022
	SBA held
	for								Residential
(In thousands)	investment		Commercial		Residential		Consumer		construction		Total
Balance, beginning of period	$	1,074	$	15,053	$	4,114	$	671	$	1,390	$	22,302
Charge-offs		—		—		—		(6)		—		(6)
Recoveries		22		28		—		—		—		50
Net recoveries (charge-offs)		22		28		—		(6)		—		44
Provision for (credit to) loan losses charged to expense		(155)		(376)		170		(23)		206		(178)
Balance, end of period	$	941	$	14,705	$	4,284	$	642	$	1,596	$	22,168


	For the three months ended March 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		(282)		(373)		—		(1)		—		(656)
Recoveries		15		1		—		—		—		16
Net (charge-offs) recoveries		(267)		(372)		—		(1)		—		(640)
Provision for (credit to) loan losses charged to expense		620		107		(309)		(131)		213		500
Balance, end of period	$	1,654	$	14,727	$	5,009	$	549	$	1,026	$	22,965

The following tables present loans and their related allowance for loan losses, by portfolio segment, as of March 31, 2022 and December 31, 2021:

March 31, 2022

SBA held

for

Residential

(In thousands)

investment

Commercial

Residential

Consumer

construction

Total

Allowance for loan losses ending balance:

Individually evaluated for impairment

2,349

224

219

2,852

Collectively evaluated for impairment

937

12,356

4,060

586

1,377

19,316

Total

941

14,705

4,284

642

1,596

22,168

Loan ending balances:

Individually evaluated for impairment

537

4,772

3,146

627

3,273

12,355

Collectively evaluated for impairment

61,129

975,139

424,019

77,075

126,385

1,663,747

Total

61,666

979,911

427,165

77,702

129,658

1,676,102


	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	$	4	$	2,615	$	80	$	56	$	68	$	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

Changes in Methodology

The Company allocated an additional reserve for loans with a substandard rating, not otherwise considered for specific reserves.

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 March 31, 2022, a $439 thousand commitment reserve was reported on the balance sheet as an “other liability”, compared to a $400 thousand commitment reserve at December 31, 2021, due to a larger amount of unfunded commitments.