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 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 evaluated for 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. 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, 2022

Residential

(In thousands)

SBA

Commercial

Residential

Consumer

Construction

Total

Balance, beginning of period

1,074

15,053

4,114

671

1,390

22,302

Charge-offs

(59)

(1,000)

—

(398)

—

(1,457)

Recoveries

109

—

192

Net (charge-offs) recoveries

(26)

(891)

(351)

—

(1,265)

Provision for (credit to) loan losses charged to expense

(173)

1,092

1,333

670

1,237

4,159

Balance, end of period

875

15,254

5,450

990

2,627

25,196


	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		86		34		42		—		—		162
Net recoveries (charge-offs)		(505)		(517)		42		(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 (charge-offs) recoveries		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

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, 2022

Residential

(In thousands)

SBA

Commercial

Residential

Consumer

Construction

Total

Allowance for loan losses ending balance:

Individually evaluated for impairment

115

516

—

1,112

1,779

Collectively evaluated for impairment

760

14,738

5,414

990

1,515

23,417

Total

875

15,254

5,450

990

2,627

25,196

Loan ending balances:

Individually evaluated for impairment

690

3,101

3,361

—

3,432

10,584

Collectively evaluated for impairment

71,614

1,184,442

601,730

78,164

160,025

2,095,975

Total

72,304

1,187,543

605,091

78,164

163,457

2,106,559


	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

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 December 31, 2022, a $0.5 million commitment reserve was reported on the balance sheet in “Other liabilities”, compared to a $0.4 million commitment reserve at December 31, 2021.