Allowance for Credit Losses

3 Months Ended

Mar. 31, 2026

Activity in the ACL is summarized as follows:


	Three Months Ended March 31, 2026
(In thousands)	Beginning Balance		Provision for Credit Losses		Charge- Offs		Recoveries		Ending Balance
Construction and land development	$	9,740	$	(940)	$	(34)	$	89	$	8,855
CRE - owner occupied	16,528		1,862		(22)		214		18,582
CRE - non-owner occupied	56,143		(864)		(16)		8		55,271
Residential real estate	51,297		1,345		(258)		10		52,394
Commercial and financial	37,943		(952)		(2,897)		158		34,252
Consumer	7,152		310		(700)		136		6,898
Totals	$	178,803	$	761	$	(3,927)	$	615	$	176,252


	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
CRE - owner occupied	11,825		772		—		1		12,598
CRE - 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

Management establishes the allowance using relevant available information from both internal and external sources, relating to past events, current economic 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, 2026 and December 31, 2025, 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 regarding monetary policy and changes in 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 ACL for the three months ended March 31, 2026.

The allowance decreased $2.6 million, or 1.4%, during the first quarter of 2026 to $176.3 million, representing 1.39% of loans held for investment as of March 31, 2026.

In the Construction and land development segment, the decrease in allowance is primarily driven by a decrease in modeled expected losses. 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 CRE - owner-occupied segment, the allowance increased due to routine updates to assumptions for loss given default which increased for this segment. Risk characteristics include, but are not limited to, collateral type, note structure and loan seasoning.

In the CRE - non-owner-occupied segment, the allowance decrease is driven by lower 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 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, LTV 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 decreased in the first quarter due to charge-offs and due to routine updates to assumptions for loss given default, partially offset by growth 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, LTV ratios, loan seasoning, and FICO scores. The decrease in allowance for consumer loans was driven by a decrease in loan balances.