Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

3 Months Ended

Mar. 31, 2021

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

On January 1, 2020, the Company adopted CECL, which replaced the incurred loss methodology with an expected loss methodology. This new methodology applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of this new standard resulted in the Company recording a $3.2 million increase to the allowance for credit losses on off-balance sheet credit exposures with a corresponding cumulative effect adjustment to decrease retained earnings $2.4 million, net of income taxes.

Management analyzes the Company's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for off-balance sheet credit exposures, the exposure at default includes an estimated drawdown of unused credit based on historical credit utilization factors and current loss factors, resulting in a proportionate amount of expected credit losses.

The following table illustrates the impact of the January 1, 2020 adoption of CECL on off-balance sheet credit exposures:


	January 1, 2020
	As reported under CECL		Prior to CECL	Impact of CECL adoption
Liabilities
Allowance for credit losses on off-balance sheet credit exposure	$	3,206	—	3,206

For the three months ended March 31, 2021, the Company recorded an $875,000 benefit to the provision for credit losses for off-balance sheet credit exposures, compared to $1.0 million provision for the three months ended March 31, 2020. This decrease in the provision for credit losses for off-balance sheet credit exposures was primarily due to a reduction in the required allowance for these exposures as loss factors decreased resulting from an improved economic forecast compared to the prior year.

The allowance for credit losses for off-balance sheet credit exposures was $4.1 million and $5.0 million at March 31, 2021 and December 31, 2020, respectively, and are included in other liabilities on the Consolidated Statements of Financial Condition.