Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

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


	Three Months Ended March 31, 2024
(In thousands)	Beginning Balance		Provision for Credit Losses		Charge- Offs		Recoveries		Ending Balance
Construction and land development	$	8,637	$	(1,640)	$	—	$	4	$	7,001
Commercial real estate - owner occupied	5,529		4,484		—		4		10,017
Commercial real estate - non-owner occupied	48,288		(1,621)		(84)		18		46,601
Residential real estate	39,016		(631)		—		243		38,628
Commercial and financial	34,343		(1,501)		(2,656)		521		30,707
Consumer	13,118		2,277		(1,888)		208		13,715
Totals	$	148,931	$	1,368	$	(4,628)	$	998	$	146,669


	Three Months Ended March 31, 2023
(In thousands)	Beginning Balance		Allowance on PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		Ending Balance
Construction and land development	$	6,464	$	5	$	69	$	—	$	2	$	6,540
Commercial real estate - owner occupied	6,051		139		101		—		1		6,292
Commercial real estate - non-owner occupied	43,258		647		9,715		(109)		64		53,575
Residential real estate	29,605		400		9,898		(159)		150		39,894
Commercial and financial	15,648		11,983		6,414		(2,642)		190		31,593
Consumer	12,869		161		5,401		(695)		10		17,746
Totals	$	113,895	$	13,335	$	31,598	$	(3,605)	$	417	$	155,640

Management establishes the allowance using relevant available information from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Forecast data is sourced from Moody’s Analytics (“Moody’s”), a firm widely recognized for its research, analysis, and economic forecasts. The forecasts of future economic conditions are over the expected remaining life of the loan using economic forecasts that revert to long-term historical averages over time.

As of March 31, 2024 and December 31, 2023, the Company utilized a multiple scenario model comprised of a blend of Moody’s economic scenarios and considered the uncertainty associated with the assumptions in the scenarios, including continued actions taken by the Federal Reserve 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 disruptions, and the potential impact of persistent high inflation on the economy. Outcomes in any or all of these factors could differ from the scenarios utilized, 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 three months ended March 31, 2024.

In the Construction and Land Development segment, the decrease in the allowance is due to a decrease 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 increased due to continued uncertainty in connection with commercial real estate valuations broadly, and the collateral values associated with the underlying loans. 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 decrease in the allowance is primarily attributed to improvement in the forecast for macroeconomic factors, partially offset by higher loan balances. Repayment is often dependent upon rental income from the successful 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 decrease in the allowance is due to an improvement in the forecast for macroeconomic factors, partially offset by an increase in 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 decrease in the allowance is due to a decrease in loan balances. 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 allowance reflects an increase in expected losses, partly offset by a decrease in loan balances.