Effective January 1, 2020, the Bank adopted ASU 2016-13. CECL 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. Risk characteristics by segment considered in the CECL methodology are the same as those disclosed in the 2019 Annual Form 10-K.

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 for the ACL at September 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 due to COVID-19. 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 CECL model at January 1, 2020 and September 30, 2020 were based on the 48-month rolling historical averages for each segment, which management believes is an accurate representation of

The reasonable and supportable period used in the CECL model at January 1, 2020 was four quarters and was increased to five quarters in the CECL model at September 30, 2020 to include the additional impact of certain macroeconomic factors with lagged periods. Management believes that 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 the ACL as of January 1, 2020 and September 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.

The macroeconomic forecast used in the CECL model as of January 1, 2020 predicted continued economic expansion with steady GDP growth of 1.8% and low unemployment rates of 3.5% in 2020, among other factors. The onset of the COVID-19 pandemic resulted in identification of an economic recession during the second quarter of 2020. The macroeconomic forecast used in the CECL model as of September 30, 2020 reflected a slow and long recovery from the COVID-19 recession. The modeled recovery is expected to last through the end of 2021, including a contraction in GDP of 3.7% for 2020 and a rebound of 3.7% for 2021, and modest increases in GDP in future years. Unemployment rates are expected to average 8.7% during the remainder of 2020 and gradually reduce to 4.0% by 2025.


	Three Months Ended September 30, 2020
	Beginning Balance		Charge-offs		Recoveries		Provision for Credit Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	29,773	$	(507)	$	78	$	1,815	$	31,159
SBA PPP	—		—		—		—		—
Owner-occupied CRE	10,003		—		2		3,027		13,032
Non-owner occupied CRE	10,666		—		—		(124)		10,542
Total commercial business	50,442		(507)		80		4,718		54,733
One-to-four family residential	2,223		—		—		(398)		1,825
Real estate construction and land development:
One-to-four family residential	567		—		139		(42)		664
Five or more family residential and commercial properties	8,557		—		—		70		8,627
Total real estate construction and land development	9,124		—		139		28		9,291
Consumer	9,712		(335)		142		(2,028)		7,491

Total	$	71,501	$	(842)	$	361	$	2,320	$	73,340


	Nine Months Ended September 30, 2020
	Beginning Balance		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	$	(3,418)	$	1,204	$	22,982	$	31,159
SBA PPP	—		—		—		—		—		—		—
Owner-occupied CRE	4,512		452		4,964		(135)		16		8,187		13,032


	Nine Months Ended September 30, 2020
	Beginning Balance		Impact of CECL Adoption		Beginning Balance, as Adjusted		Charge-offs		Recoveries		Provision for Credit Losses		Ending Balance
	(In thousands)
Non-owner occupied CRE	7,682		(2,039)		5,643		—		—		4,899		10,542
Total commercial business	23,933		(2,935)		20,998		(3,553)		1,220		36,068		54,733
One-to-four family residential	1,458		1,471		2,929		—		3		(1,107)		1,825
Real estate construction and land development:
One-to-four family residential	1,455		(571)		884		—		160		(380)		664
Five or more family residential and commercial properties	1,605		7,240		8,845		—		—		(218)		8,627
Total real estate construction and land development	3,060		6,669		9,729		—		160		(598)		9,291
Consumer	6,821		(2,484)		4,337		(1,141)		433		3,862		7,491
Unallocated	899		(899)		—		—		—		—		—
Total	$	36,171	$	1,822	$	37,993	$	(4,694)	$	1,816	$	38,225	$	73,340

The Bank recognized net charge-offs of $2.9 million during the nine months ended September 30, 2020 primarily due to a commercial and industrial charge-off of $1.7 million related to a lending relationship that had 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 two commercial and industrial loan relationships totaling $447,000 as a result of impacts from the COVID-19 pandemic and small dollar net charge-offs on a large volume of consumer loans of $708,000. Net charge-offs were offset partially by a full recovery of a commercial and industrial agricultural lending relationship of $963,000 during the nine months ended September 30, 2020, which was charged-off during the three months ended December 31, 2019.

The provision for credit losses on loans of $38.2 million for the nine months ended September 30, 2020 was necessary to build the allowance to account for the current and forecasted economic conditions amidst COVID-19, including the credit losses estimated on collectively and individually evaluated loans.

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


	Three Months Ended September 30, 2019
	Beginning Balance		Charge-offs		Recoveries		Provision for Loan Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	11,993	$	(306)	$	43	$	449	$	12,179
Owner-occupied CRE	5,066		—		46		(656)		4,456
Non-owner occupied CRE	8,064		—		292		(525)		7,831
Total commercial business	25,123		(306)		381		(732)		24,466
One-to-four family residential	1,345		(15)		—		81		1,411
Real estate construction and land development:
One-to-four family residential	1,471		—		3		(133)		1,341


	Three Months Ended September 30, 2019
	Beginning Balance		Charge-offs		Recoveries		Provision for Loan Losses		Ending Balance
	(In thousands)
Five or more family residential and commercial properties	1,060		—		—		229		1,289
Total real estate construction and land development	2,531		—		3		96		2,630
Consumer	6,540		(501)		127		621		6,787
Unallocated	824		—		—		400		1,224
Total	$	36,363	$	(822)	$	511	$	466	$	36,518


	Nine Months Ended September 30, 2019
	Beginning Balance		Charge-offs		Recoveries		Provision for Loan Losses		Ending Balance
	(In thousands)
Commercial business:
Commercial and industrial	$	11,343	$	(1,183)	$	112	$	1,907	$	12,179
Owner-occupied CRE	4,898		—		49		(491)		4,456
Non-owner occupied CRE	7,470		—		441		(80)		7,831
Total commercial business	23,711		(1,183)		602		1,336		24,466
One-to-four family residential	1,203		(45)		—		253		1,411
Real estate construction and land development:
One-to-four family residential	1,240		—		628		(527)		1,341
Five or more family residential and commercial properties	954		—		—		335		1,289
Total real estate construction and land development	2,194		—		628		(192)		2,630
Consumer	6,581		(1,653)		374		1,485		6,787
Unallocated	1,353		—		—		(129)		1,224
Total	$	35,042	$	(2,881)	$	1,604	$	2,753	$	36,518

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


	Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		PCI Loans		Total Allowance for Loan Losses
	(In thousands)
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