Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Activity in the allowance for credit losses is summarized as follows:


	For the Year Ended December 31, 2023
(In thousands)	Beginning Balance		Initial Allowance on PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		Ending Balance
Construction and land development	$	6,464	$	5	$	2,160	$	—	$	8	$	8,637
Commercial real estate - owner occupied	6,051		139		(663)		—		2		5,529
Commercial real estate - non-owner occupied	43,258		647		4,315		(120)		188		48,288
Residential real estate	29,605		400		8,858		(356)		509		39,016
Commercial and financial	15,648		17,527		17,644		(18,565)		2,089		34,343
Consumer	12,869		161		5,204		(5,754)		638		13,118
Total	$	113,895	$	18,879	$	37,518	$	(24,795)	$	3,434	$	148,931


	For the Year Ended December 31, 2022
(In thousands)	Beginning Balance		Initial Allowance on PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		TDR Allowance Adjustments		Ending Balance
Construction and land development	$	2,751	$	518	$	3,127	$	—	$	68	$	—	$	6,464
Commercial real estate - owner occupied	8,579		38		(2,566)		—		—		—		6,051
Commercial real estate - non-owner occupied	36,617		880		5,871		(179)		69		—		43,258
Residential real estate	12,811		229		16,284		(84)		393		(28)		29,605
Commercial and financial	19,744		1,699		(5,367)		(1,233)		807		(2)		15,648
Consumer	2,813		1,911		8,834		(1,415)		733		(7)		12,869

Total	$	83,315	$	5,275	$	26,183	$	(2,911)	$	2,070	$	(37)	$	113,895


	For the Year Ended December 31, 2021
(In thousands)	Beginning Balance		Initial Allowance on PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		TDR Allowance Adjustments		Ending Balance
Construction and land development	$	4,920	$	—	$	(2,300)	$	—	$	133	$	(2)	$	2,751
Commercial real estate - owner occupied	9,868		—		(1,289)		—		—		—		8,579
Commercial real estate - non-owner occupied	38,266		1,327		(1,664)		(1,327)		15		—		36,617
Residential real estate	17,500		—		(5,822)		(57)		1,196		(6)		12,811
Commercial and financial	18,690		1,719		2,292		(3,987)		1,030		—		19,744
Consumer	3,489		—		(638)		(727)		697		(8)		2,813
Total	$	92,733	$	3,046	$	(9,421)	$	(6,098)	$	3,071	$	(16)	$	83,315

As of December 31, 2023 and 2022, the Company utilized a blend of Moody’s most recent “U.S. Macroeconomic Outlook Baseline” and “Alternative Scenario 3 - Downside - 90th Percentile” scenarios and considered the uncertainty associated with the assumptions in both scenarios, including for the 2023 analysis, the actions taken by the FRB with regard to monetary policy

and interest rates and the potential impact of those actions, the conflicts in the Middle East and Russia-Ukraine and the magnitude of the resulting market disruption, and the potential impact of persistent high inflation on economic growth. Outcomes in any or all of these factors could differ from the scenarios identified above, and the Company incorporated qualitative considerations reflecting the risk of uncertain economic conditions, and for additional dimensions of risk that may not be captured in the quantitative model.

The following section discusses changes in the level of the allowance for credit losses for the year ended December 31, 2023.

In the Construction and Land Development segment, the increase in the allowance is primarily due to an increase in loan balances. In this segment, the primary source of repayment is typically from proceeds of the sale, refinancing, or permanent financing of the underlying property; therefore, industry and collateral type and estimated collateral values are among the relevant factors in assessing expected losses.

In the Commercial Real Estate - Owner-Occupied segment, the allowance decreased from the prior year due to changes in loan mix and slight improvements in the forecast for macroeconomic factors. Risk characteristics include but are not limited to, collateral type, note structure, and loan seasoning.

In the Commercial Real Estate - Non Owner-Occupied segment, the increase in the allowance reflects higher loan balances and an increase in reserves for individually evaluated loans, partially offset by a decrease in expected losses due to improvements in the forecast for macroeconomic factors. Repayment is often dependent upon rental income from the operation of the underlying property. Loan performance may be adversely affected by general economic conditions or conditions specific to the real estate market, including property types. Collateral type, note structure, and loan seasoning are among the risk characteristics analyzed for this segment.

The Residential Real Estate segment includes first mortgages secured by residential property, and home equity lines of credit. The increase in the allowance reflects higher loan balances. Risk characteristics considered for this segment include, but are not limited to, borrower FICO score, lien position, loan to value ratios, and loan seasoning.

In the Commercial and Financial segment, borrowers are primarily small to medium sized professional firms and other businesses, and loans are generally supported by projected cash flows of the business, collateralized by business assets, and/or guaranteed by the business owners. The increase in reserves is due to an increase in loan balances, both through acquisition and organic loan growth, combined with an increase in expected losses on commercial and industrial unsecured loans. Charge-offs for this segment include the charge-off of an $11.3 million acquired PCD loan that was fully reserved. Industry, collateral type, estimated collateral values and loan seasoning are among the relevant factors in assessing expected losses.

Consumer loans include installment and revolving lines, loans for automobiles, boats, and other personal or family purposes. Risk characteristics considered for this segment include, but are not limited to, collateral type, loan to value ratios, loan seasoning and FICO score. The increase in the reserve during the year reflects higher expected losses due to changes in loan mix, partly offset by a decrease in loan balances.