Allowance for Credit Losses

3 Months Ended

Mar. 31, 2025

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


	Three Months Ended March 31, 2025
(In thousands)	Beginning Balance		Provision for Credit Losses		Charge- Offs		Recoveries		Ending Balance
Construction and land development	$	7,252	$	(483)	$	—	$	3	$	6,772
Commercial real estate - owner occupied	11,825		772		—		1		12,598
Commercial real estate - non-owner occupied	43,866		878		(320)		767		45,191
Residential real estate	39,168		1,160		(1)		21		40,348
Commercial and financial	27,533		6,434		(6,469)		113		27,611
Consumer	8,411		489		(1,487)		334		7,747
Totals	$	138,055	$	9,250	$	(8,277)	$	1,239	$	140,267


	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

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 March 31, 2025 and December 31, 2024, the Company utilized a multiple scenario model comprised of a blend of Moody’s economic scenarios. 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 three months ended March 31, 2025.

The allowance increased $2.2 million, or 1.6%, during the first quarter of 2025 to $140.3 million, or 1.34% of loans held for investment as of March 31, 2025.

In the Construction and Land Development segment, the decrease in allowance is primarily due to a decrease in outstanding loan balances. In this segment, the primary source of repayment is typically from proceeds of the sale 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 an increase in loan balances and increased uncertainty in the macroeconomic environment. 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 increase is driven by higher loan balances and increased uncertainty associated with the economy. 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 increase in the allowance is reflective of an increase in outstanding 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 allowance change in the first quarter included an increase due to higher loan balances, which was offset by the charge-off of loans 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 score. The decrease in allowance for consumer loans was driven by the continued decline in loan balances associated with a portfolio of acquired unsecured loans.