Allowance for Credit Losses

12 Months Ended

Dec. 31, 2024

Note 5 - Allowance for Credit Losses

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


	For the Year Ended December 31, 2024
(In thousands)	Beginning Balance		Provision for Credit Losses		Charge- Offs		Recoveries		Ending Balance
Construction and land development	$	8,637	$	(1,404)	$	(1)	$	20	$	7,252
Commercial real estate - owner occupied	5,529		6,629		(341)		8		11,825
Commercial real estate - non-owner occupied	48,288		(3,096)		(1,485)		159		43,866
Residential real estate	39,016		(150)		(134)		436		39,168
Commercial and financial	34,343		7,789		(17,616)		3,017		27,533
Consumer	13,118		6,490		(12,288)		1,091		8,411
Total	$	148,931	$	16,258	$	(31,865)	$	4,731	$	138,055


	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

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, 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 December 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. Outcomes 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 year ended December 31, 2024.

The allowance decreased $10.9 million, or 7.3%, during 2024 to $138.1 million, or 1.34%, of loans held for investment as of December 31, 2024.

In the Construction and Land Development segment, the decrease in the allowance is primarily due to a decrease in outstanding loan balances. In this segment, the primary source of repayment typically stems from proceeds of the sale or permanent financing of the underlying property. Therefore, industry, 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. 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 allowance decrease is driven by an improvement in the economic forecast, partially offset by the impact of higher outstanding loan balances. Repayment is often dependent upon rental income from the successful operation of the underlying property or from the sale of the 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 residential mortgage, home equity loans and HELOCs. The allowance reflects higher loan balances partially offset by an improvement in macroeconomic factors. 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 primarily due to resolution of several impaired relationships that were previously 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 scores. The decrease in allowance for Consumer was driven by the decision to sell approximately $20 million in acquired unsecured loans, resulting in a decrease in loan balances and charge-offs of $2.9 million upon the transfer to held-for-sale.