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Allowance for Credit Losses

12 Months Ended

Dec. 31, 2024

(4) Allowance for Credit Losses

We adopted the provisions of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2020 on a modified retrospective basis. Results and information regarding our ACL included in this Note are calculated and presented in accordance with that accounting standards update.

ASU 2016-13 replaces the long-standing incurred-loss model with a current expected credit loss model (“CECL”) that recognizes credit losses over the life of a financial asset. Using the CECL methodology, expected credit losses capture historical information, current conditions, and reasonable and supportable forecasts of future conditions. The ACL is deducted from the amortized cost of an instrument to present the net amount expected to be collected on the financial asset. Our ACL primarily consists of the aggregate ACL estimates of our Subsidiary Banks. The estimates are established through charges to operations in the form of charges to provisions for credit loss expense. Loan losses or recoveries are charged or credited directly to the ACL. The ACL of each Subsidiary Bank is maintained at a level considered appropriate by management, based on estimated current expected credit losses in the current loan portfolio, including information about past events, current conditions, and reasonable and supportable forecasts.

The estimation of the ACL is based on a loss-rate methodology that measures lifetime losses on loan pools that have similar risk characteristics. Loans that do not have similar risk characteristics are evaluated on an individual basis. The segmentation of the loan portfolio into pools requires a balancing process between capturing similar risk characteristics and containing sufficient loss history to provide meaningful results. Our segmentation starts at the general loan category with further sub-segmentation based on collateral types that may be of meaningful size and/or may contain sufficient differences in risk characteristics based on management’s judgement that would warrant further segmentation. The general loan categories along with primary risk characteristics used in our calculation are as follows:

Commercial and industrial loans. This category includes loans extended to a diverse array of businesses for working capital or equipment purchases. These loans are mostly secured by the collateral pledged by the borrower that is directly related to the business activities of the company such as equipment, accounts receivable, and inventory. The borrower’s abilities to generate revenues from equipment purchases, collect accounts receivable, and to turn inventory into sales are risk factors in the repayment of the loan. A small portion of this loan category is related to loans secured by oil and gas production and loans secured by aircraft.

Construction and land development loans. This category includes the development of land from unimproved land to lot development for both residential and commercial use and vertical construction across residential and commercial real estate classes. These loans carry risk of repayment when projects incur cost overruns, have an increase in the price of construction materials, encounter zoning, entitlement and environmental issues, or encounter other factors that may affect the completion of a project on time and on budget. Additionally, repayment risk may be negatively impacted when the market experiences a deterioration in the value of real estate. Risks specifically related to 1-4 family development loans also include mortgage rate risk and the practice by the mortgage industry of more restrictive underwriting standards, which inhibits the buyer from obtaining long term financing creating excessive housing and lot inventory in the market.

Commercial real estate loans. This category includes loans secured by farmland, multifamily properties, owner-occupied commercial properties, and non-owner-occupied commercial properties. Owner-occupied commercial properties include warehouses often along the U.S. border for import/export operations, office space where the borrower is the primary tenant, restaurants and other single-tenant retail spaces. Non-owner-occupied commercial properties include hotels, retail centers, office and professional buildings, and leased warehouses. These loans carry the risk of repayment when market values deteriorate, the business experiences turnover in key management, the business is unable to attract or maintain stable occupancy levels, or the market experiences an exit of a specific business type that is significant to the local economy, such as a manufacturing plant. Our primary risk management tool is internal monitoring measured against internal concentration limits that are significantly lower than regulatory thresholds and are segmented by low-risk and high-risk characteristics, such as the borrower’s equity, cash flow coverage, and non-amortizing versus amortizing status, further disaggregated by the length of time to pay in full. This monitoring is regularly reported to senior management and the board of directors. Risk management practices also extend to managing the borrower’s relationship with us and are designed to recognize degradation in the borrower’s ability to repay under established terms well before the borrower may default. Loan and deposit activity by the borrower is monitored on a frequent basis, which may prompt a change in risk classification. Once a loan is moved to a more severe risk classification, the loan performance, and when applicable, a plan by the borrower to rectify issues are monitored and reviewed at least quarterly. Additionally, our credit administration team, who is independent from the lending team, reviews a substantial portion of the commercial lending portfolio annually, which includes a significant portion of the commercial real estate loan portfolio given the current mix of loans in our portfolio. The table below summarizes the commercial real estate loan portfolio disaggregated by the type of real estate securing the credit as of December 31, 2024:


	December 31, 2024					December 31, 2023
	(Dollars in Thousands)					(Dollars in Thousands)
		Amount		Percent of Total			Amount		Percent of Total
Commercial real estate:
Commercial real estate construction development	$	1,313,984		23.0	%	$	1,035,936		19.6	%
Hotel		1,080,706		18.9			1,116,539		21.1
Retail multi-tenant		738,874		12.9			699,145		13.2
Lot development: residential and commercial lots		513,760		9.0			548,797		10.4
Warehouse		435,783		7.6			355,635		6.7
Office/Professional buildings		416,014		7.3			311,413		5.9
1 - 4 family construction		338,832		5.9			329,828		6.2
Multi-family		310,115		5.4			380,839		7.2
Owner occupied real estate		270,584		4.7			246,797		4.7
Commercial leased properties		194,023		3.4			167,539		3.2
Farmland		109,697		1.9			97,812		1.8
Total commercial real estate	$	5,722,372	$	100.0	%	$	5,290,280	$	100.0	%

1-4 family mortgages. This category includes both first and second lien mortgages for the purpose of home purchases or refinancing of existing mortgage loans. A small portion of this loan category is related to home equity lines of credits, lots purchases, and home construction. Loan repayments may be affected by unemployment or underemployment and deteriorating market values of real estate.

Consumer loans. This category includes deposit secured, vehicle secured, and unsecured loans, including overdrafts, made to individuals. Repayment is primarily affected by unemployment or underemployment.

The loan pools are further broken down using a risk-based segmentation based on internal classifications for commercial loans and past due status for consumer mortgage loans. Non-mortgage consumer loans are evaluated as one segment. On a weekly basis, commercial loan past due reports are reviewed by the credit quality committee to determine if a loan has any potential problems and if a loan should be placed on our internal Watch List report. Additionally, our

credit department reviews the majority of our loans for proper internal classification purposes regardless of whether they are past due and segregates any loans with potential problems for further review. The credit department will discuss the potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the evaluation. Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the review process. After the above analysis is completed, we will determine if a loan should be placed on an internal Watch List report because of issues related to the analysis of the credit, credit documents, collateral, and/or payment history.

Our internal Watch List report is segregated into the following categories: (i) Pass, (ii) Economic Monitoring, (iii) Special Review, (iv) Watch List—Pass, (v) Watch List—Substandard, and (vi) Watch List—Doubtful. Loans placed in the Economic Monitoring or Special Review categories reflect our opinion that the loans have potential weaknesses that require monitoring on a more frequent basis. Credits in those categories are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. Loans placed in the Watch List—Pass category reflect our opinion that the credit contains weaknesses that represent a greater degree of risk, which warrants “extra attention.” Credits placed in this category are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. Loans placed in the Watch List—Substandard category are considered to be potentially inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. Those credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial, economic, market, or political conditions which may jeopardize repayment of principal under contractual terms. Furthermore, there is a possibility that we may sustain some future loss if such weaknesses are not corrected. Loans placed in the Watch List—Doubtful category have shown defined weaknesses and reflect our belief that it is likely, based on current information and events, that we will be unable to collect all principal and/or interest amounts contractually due. Loans placed in the Watch List—Doubtful category are placed on non-accrual when they are moved to that category.

For the purposes of the ACL, in order to maintain segments with sufficient history for meaningful results, the credits in the Pass and Economic Monitoring categories are aggregated, the credits in the Special Review and Watch List—Pass category are aggregated, and the credits in the Watch List—Substandard category remain in their own segment. For loans classified as Watch List—Doubtful, management evaluates these credits in accordance FASB ASC Subtopic 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost,” and, if deemed necessary, a specific reserve is allocated to the loan. The analysis of the specific reserve is based on a variety of factors, including the borrower’s ability to pay, the economic conditions impacting the borrower’s industry and any collateral deficiency. If it is a collateral-dependent loan, the net realizable fair value of collateral will be evaluated for any deficiencies. Substantially all of our loans evaluated as Watch List – Doubtful are measured using the fair value of collateral method. In rare cases, we may use other methods to determine the specific reserve of a loan if such loan is not collateral dependent.

Within each collectively evaluated pool, the robustness of the lifetime historical loss-rate is evaluated and, if needed, is supplemented with peer loss rates through a model risk adjustment. Certain qualitative loss factors are then evaluated to incorporate management’s two-year reasonable and supportable forecast period followed by a reversion to the pool’s average lifetime loss-rate. Those qualitative loss factors are: (i) trends in portfolio volume and composition, (ii) volume and trends in classified loans, delinquencies and non-accruals, (iii) concentration risk, (iv) trends in underlying collateral value, (v) changes in policies, procedures, and strategies, and (vi) economic conditions. Qualitative factors also include potential losses stemming from operational risk factors arising from fraud, natural disasters, pandemics, geopolitical events and large loans. The large loan operational risk factor was added beginning in the second quarter of 2023. Because of the magnitude of large loans, they pose a higher risk of default. Recognizing this risk and establishing an operational risk factor to capture that risk, is prudent action in the current economic environment. Large loans are usually part of a larger relationship with collateral that is pledged across the relationship. Defaulting on a larger loan may therefore jeopardize an entire collateral relationship. The current economic environment has created challenges for borrowers to service their debt. Increasing cap rates, elevated office vacancies, an upward trend in apartment vacancies and significant increases in interest rates are all contributing to the elevated risk in large loans. Should any of the factors considered by management in evaluating the adequacy of the ACL change, our estimate could also change, which could affect the level of future credit loss expense.

We have elected to not measure an ACL for accrued interest receivable given our timely approach in identifying and writing off uncollectible accrued interest. An ACL for off-balance sheet exposure is derived from a projected usage

rate of any unfunded commitment multiplied by the historical loss rate, plus model risk adjustment, if any, of the on-balance sheet loan pools.

Our management continually reviews the ACL of the Subsidiary Banks using the amounts determined from the estimates established on specific doubtful loans, the estimate established on quantitative historical loss percentages, and the estimate based on qualitative current conditions and reasonable and supportable two-year forecasted data. Our methodology reverts to the average lifetime loss-rate beyond the forecast period when we can no longer develop reasonable and supportable forecasts. Should any of the factors considered by management in evaluating the adequacy of the estimate for current expected credit losses change, our estimate of current expected credit losses could also change, which could affect the level of future credit loss expense. While the calculation of our ACL utilizes management’s best judgment and all information reasonably available, the adequacy of the ACL is dependent on a variety of factors beyond our control, including, among other things, the performance of the entire loan portfolio, the economy, government actions, changes in interest rates, and the view of regulatory authorities towards loan classifications.

A summary of the changes in the allowance for probable loan losses by loan class is as follows:


	December 31, 2024
	Domestic														Foreign
			Commercial
			real estate:
			other		Commercial
			construction &		real estate:		Commercial
			land		farmland &		real estate:		Residential:		Residential:
	Commercial		development		commercial		multifamily		first lien		junior lien		Consumer		Foreign		Total

	(Dollars in Thousands)
Balance at December 31, 2023	$	35,550	$	55,291	$	42,703	$	5,088	$	5,812	$	11,024	$	318	$	1,283	$	157,069
Losses charged to allowance		(34,149)		(2,228)		—		—		(46)		—		(185)		—		(36,608)
Recoveries credited to allowance		4,079		—		20		—		38		123		13		1		4,274
Net losses charged to allowance		(30,070)		(2,228)		20		—		(8)		123		(172)		1		(32,334)
Provision (credit) charged to operations		24,373		7,576		1,267		(219)		(276)		(1,116)		135		62		31,802
Balance at December 31, 2024	$	29,853	$	60,639	$	43,990	$	4,869	$	5,528	$	10,031	$	281	$	1,346	$	156,537


	December 31, 2023
	Domestic														Foreign
			Commercial
			real estate:
			other		Commercial
			construction &		real estate:		Commercial
			land		farmland &		real estate:		Residential:		Residential:
	Commercial		development		commercial		multifamily		first lien		junior lien		Consumer		Foreign		Total

	(Dollars in Thousands)
Balance at December 31, 2022	$	26,728	$	44,684	$	36,474	$	3,794	$	4,759	$	8,284	$	281	$	968	$	125,972
Losses charged to allowance		(9,664)		—		—		—		(43)		(298)		(179)		—		(10,184)
Recoveries credited to allowance		5,433		837		143		—		16		260		16		—		6,705
Net losses charged to allowance		(4,231)		837		143		—		(27)		(38)		(163)		—		(3,479)
Provision (credit) charged to operations		13,053		9,770		6,086		1,294		1,080		2,778		200		315		34,576
Balance at December 31, 2023	$	35,550	$	55,291	$	42,703	$	5,088	$	5,812	$	11,024	$	318	$	1,283	$	157,069


	December 31, 2022
	Domestic														Foreign
			Commercial
			real estate:
			other		Commercial
			construction &		real estate:		Commercial
			land		farmland &		real estate:		Residential:		Residential:
	Commercial		development		commercial		multifamily		first lien		junior lien		Consumer		Foreign		Total

	(Dollars in Thousands)
Balance at December 31, 2021	$	23,178	$	35,390	$	35,654	$	3,291	$	4,073	$	7,754	$	272	$	762	$	110,374
Losses charged to allowance		(9,050)		(2)		(16)		—		(160)		(28)		(223)		—		(9,479)
Recoveries credited to allowance		2,894		123		27		—		240		104		38		—		3,426
Net losses charged to allowance		(6,156)		121		11		—		80		76		(185)		—		(6,053)
Provision (credit) charged to operations		9,706		9,173		809		503		606		454		194		206		21,651
Balance at December 31, 2022	$	26,728	$	44,684	$	36,474	$	3,794	$	4,759	$	8,284	$	281	$	968	$	125,972

The ACL is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of probable loan losses when evaluating loans (i) individually or (ii) collectively. The increase in losses charged to the ACL for the year ended December 31, 2024 in the Commercial category can be attributed to a charge-down on one loan secured primarily by equipment and pipeline infrastructure used in the oil and gas industry. The credit has been classified as Watch-List Doubtful since the end of 2022 at which time, and going forward, we have evaluated our loss exposure and adjusted reserves accordingly. We also continued to attempt to work with our customer during that period; however, those negotiations came to a halt late in the third quarter of 2023 when the customer declared bankruptcy. In March 2024, the bankruptcy court awarded the winning bid at foreclosure for the assets collateralizing the loan to a principal owner of the business. The bid was not for the full carrying value of the loan and resulted in a charge-down of approximately $25.6 million. The pool specific qualitative loss factors management deemed appropriate for the ACL calculation at December 31, 2023 remained constant in the December 31, 2024 calculation.

The table below provides additional information on the balance of loans individually or collectively evaluated for impairment and their related allowance, by loan class:


	December 31, 2024
	Loans Individually				Loans Collectively
	Evaluated For				Evaluated For
	Impairment				Impairment
	Recorded				Recorded
	Investment		Allowance		Investment		Allowance

	(Dollars in Thousands)
Domestic
Commercial	$	52,110	$	400	$	1,799,693	$	29,453
Commercial real estate: other construction & land development		8,195		8,122		2,476,259		52,517
Commercial real estate: farmland & commercial		65,733		8,228		2,862,070		35,762
Commercial real estate: multifamily		42,964		1,882		267,151		2,987
Residential: first lien		45		—		530,039		5,528
Residential: junior lien		141		—		469,088		10,031
Consumer		—		—		49,777		281
Foreign		—		—		186,561		1,346

Total	$	169,188	$	18,632	$	8,640,638	$	137,905


	December 31, 2023
	Loans Individually				Loans Collectively
	Evaluated For				Evaluated For
	Impairment				Impairment
	Recorded				Recorded
	Investment		Allowance		Investment		Allowance

	(Dollars in Thousands)
Domestic
Commercial	$	30,872	$	7,971	$	1,597,358	$	27,579
Commercial real estate: other construction & land development		15,701		4,320		2,075,921		50,971
Commercial real estate: farmland & commercial		299		—		2,793,254		42,703
Commercial real estate: multifamily		96		—		380,743		5,088
Residential: first lien		93		—		477,940		5,812
Residential: junior lien		—		—		460,868		11,024
Consumer		—		—		45,121		318
Foreign		—		—		180,695		1,283

Total	$	47,061	$	12,291	$	8,011,900	$	144,778

The increase in Commercial loans individually evaluated for impairment at December 31, 2024 compared to December 31, 2023 can be attributed to two loans secured by commercial properties that were placed on non-accrual in the fourth quarter of 2024. The increase in commercial real estate: farmland & commercial loans individually evaluated for impairment at December 31, 2024 compared to December 31, 2023 can be attributed to one relationship secured by commercial buildings in which childcare centers are operated. The increase in Commercial real estate: multifamily loans can be attributed to two loans secured by apartments that were placed on non-accrual in the third quarter of 2024.

Loans accounted for on a non-accrual basis at December 31, 2024, 2023 and 2022 amounted to $169,136,000, $47,170,000, and $51,648,000, respectively. The effect of such non-accrual loans reduced interest income by approximately $12,661,000, $6,614,000, and $116,000 for the years ended December 31, 2024, 2023, and 2022, respectively. Amounts received on non-accruals are applied, for financial accounting purposes, first to principal and then to interest after all principal has been collected. Accruing loans contractually past due 90 days or more as to principal or interest payments at December 31, 2024, 2023, and 2022 amounted to approximately $6,693,000, $5,597,000, and $6,132,000, respectively.

The table below provides additional information on loans accounted for on a non-accrual basis by loan class:


	December 31, 2024				December 31, 2023

	(Dollars in Thousands)
		Total Non-Accrual Loans		Non-Accrual Loans with No Credit Allowance		Total Non-Accrual Loans		Non-Accrual Loans with No Credit Allowance
Domestic
Commercial	$	52,110	$	51,276	$	30,872	$	122
Commercial real estate: other construction & land development		8,195		73		15,701		5,400
Commercial real estate: farmland & commercial		65,733		24,757		299		211
Commercial real estate: multifamily		42,964		73		96		96
Residential: first lien		134		134		202		172
Total non-accrual loans	$	169,136	$	76,313	$	47,170	$	6,001

Doubtful loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected. We have identified these loans through our normal loan review procedures. Doubtful loans are measured based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent.

Substantially all of our doubtful loans are measured at the fair value of the collateral. In limited cases, we may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent.

We adopted the provisions of Accounting Standards Update 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) on January 1, 2023. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in existing guidance and enhances disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases. The adoption of ASU 2022-02 did not have a significant impact on our consolidated financial statements.

We occasionally provide modifications to borrowers experiencing financial difficulties. Modifications may include certain concessions that we must evaluate under ASU 2022-02 to determine the need for disclosure. Concessions to borrowers experiencing financial difficulties that would require disclosure include principal forgiveness, term extension, an other-than-insignificant payment delay, an interest rate reduction or a combination of these concessions. For the twelve months ended December 31, 2024, we did not provide any material modifications under these circumstances to any borrower experiencing financial difficulty that would require disclosure.

The Subsidiary Banks charge-off that portion of any loan which management considers to represent a loss as well as that portion of any other loan which is classified as a “loss” by bank examiners. Commercial and industrial or real estate loans are generally considered by management to represent a loss, in whole or part, when an exposure beyond any collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower’s financial condition and general economic conditions in the borrower’s industry. Generally, unsecured consumer loans are charged-off when 90 days past due.

While management considers that it is generally able to identify borrowers with financial problems reasonably early and to monitor credit extended to such borrowers carefully, there is no precise method of predicting loan losses. The determination that a loan is likely to be uncollectible and that it should be wholly or partially charged-off as a loss is an exercise of judgment. Similarly, the determination of the adequacy of the ACL (formerly allowance for probable loan losses) can be made only on a subjective basis. It is the judgment of our management that the ACL at December 31, 2024 and December 31, 2023, was adequate to absorb expected losses from loans in the portfolio at that date.

The following table presents information regarding the aging of past due loans by loan class:


	December 31, 2024
							90 Days or		Total
	30 - 59		60 - 89		90 Days or		greater &		Past				Total
	Days		Days		Greater		still accruing		Due		Current		Portfolio

	(Dollars in Thousands)
Domestic
Commercial	$	4,070	$	51,577	$	579	$	534	$	56,226	$	1,795,577	$	1,851,803
Commercial real estate: other construction & land development		2,421		15		8,122		—		10,558		2,473,896		2,484,454
Commercial real estate: farmland & commercial		1,221		—		26,416		262		27,637		2,900,166		2,927,803
Commercial real estate: multifamily		—		270		25,064		—		25,334		284,781		310,115
Residential: first lien		4,763		1,337		3,631		3,542		9,731		520,353		530,084
Residential: junior lien		2,599		1,544		2,000		2,000		6,143		463,086		469,229
Consumer		122		32		16		16		170		49,607		49,777
Foreign		816		1,992		339		339		3,147		183,414		186,561
Total past due loans	$	16,012	$	56,767	$	66,167	$	6,693	$	138,946	$	8,670,880	$	8,809,826


	December 31, 2023
							90 Days or		Total
	30 - 59		60 - 89		90 Days or		greater &		Past				Total
	Days		Days		Greater		still accruing		Due		Current		Portfolio

		(Dollars in Thousands)
Domestic
Commercial	$	2,387	$	1,583	$	30,238	$	539	$	34,208	$	1,594,022	$	1,628,230
Commercial real estate: other construction & land development		3,460		—		10,245		—		13,705		2,077,917		2,091,622
Commercial real estate: farmland & commercial		1,424		371		93		4		1,888		2,791,665		2,793,553
Commercial real estate: multifamily		369		330		—		—		699		380,140		380,839
Residential: first lien		1,812		1,439		2,545		2,437		5,796		472,236		478,032
Residential: junior lien		1,273		613		1,701		1,701		3,587		457,282		460,869
Consumer		263		11		27		27		301		44,820		45,121
Foreign		1,884		848		889		889		3,621		177,074		180,695
Total past due loans	$	12,872	$	5,195	$	45,738	$	5,597	$	63,805	$	7,995,156	$	8,058,961

The increase in Commercial loans past due 60 - 89 days or greater at December 31, 2024 can be primarily attributed to two loans secured by commercial properties that were placed on non-accrual in the fourth quarter of 2024. The decrease in Commercial loans past due 90 days or greater at December 31, 2024 can be attributed to a loan secured by equipment and pipeline infrastructure used in the oil and gas industry and oil and gas production that was charged-down in the first quarter of 2024. The increase in Commercial real estate: farmland and commercial loans past due 90 days or greater at December 3, 2024 can be attributed to two loans, one is a hotel and one is a commercial building, both of which are on non-accrual at December 31, 2024. The increase in Commercial real estate: multifamily loans at December 31, 2024 can be attributed to a loan secured by apartments that is on non-accrual at December 31, 2024. Our internal classified report is segregated into the following categories: (i) “Special Review Credits,” (ii) “Watch List—Pass Credits,” or (iii) “Watch List—Substandard Credits.” The loans placed in the “Special Review Credits” category reflect our opinion that the loans reflect potential weakness which require monitoring on a more frequent basis. The “Special Review Credits” are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the “Watch List—Pass Credits” category reflect our opinion that the credit contains weaknesses which represent a greater degree of risk, which warrant “extra attention.” The “Watch List—Pass Credits” are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the “Watch List—Substandard Credits” classification are considered to be potentially inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial, economic, market, or political conditions which may jeopardize

repayment of principal and interest. Furthermore, there is the possibility that we could sustain some future loss if such weaknesses are not corrected.

A summary of the loan portfolio by credit quality indicator by loan class is as follows:



		2024	2023		2022		2021		2020		Prior		Total

	(Dollars in Thousands)
Balance at December 31, 2024
Domestic
Commercial
Pass	$	993,045	$	343,212	$	135,057	$	214,702	$	37,670	$	63,030	$	1,786,716
Watch List - Pass		—		11,113		—		—		—		—		11,113
Watch List - Substandard		1,341		327		74		122		—		—		1,864
Watch List - Doubtful		881		51,184		45		—		—		—		52,110
Total Commercial	$	995,267	$	405,836	$	135,176	$	214,824	$	37,670	$	63,030	$	1,851,803
Commercial
Current-period gross writeoffs	$	5,711	$	2,689	$	25,686	$	44	$	14	$	5	$	34,149
Commercial real estate: other construction & land development
Pass	$	1,029,399	$	921,180	$	322,348	$	144,221	$	39,908	$	2,925	$	2,459,981
Special Review		—		16,000		—		—		—		—		16,000
Watch List - Substandard		278		—		—		—		—		—		278
Watch List - Doubtful		73		—		8,122		—		—		—		8,195
Total Commercial real estate: other construction & land development	$	1,029,750	$	937,180	$	330,470	$	144,221	$	39,908	$	2,925	$	2,484,454
Commercial real estate: other construction & land development
Current-period gross writeoffs	$	—	$	1,146	$	1,082	$	—	$	—	$	—	$	2,228
Commercial real estate: farmland & commercial
Pass	$	814,273	$	631,806	$	531,035	$	312,757	$	220,510	$	245,334	$	2,755,715
Special Review		643		67,567		—		—		—		—		68,210
Watch List - Pass		16,490		—		—		—		—		—		16,490
Watch List - Substandard		18,934		242		2,122		—		357		—		21,655
Watch List - Doubtful		52,973		115		12,645		—		—		—		65,733
Total Commercial real estate: farmland & commercial	$	903,313	$	699,730	$	545,802	$	312,757	$	220,867	$	245,334	$	2,927,803
Commercial real estate: multifamily
Pass	$	90,092	$	11,538	$	108,830	$	18,621	$	8,198	$	29,871	$	267,150
Watch List - Doubtful		17,901		25,064		—		—		—		—		42,965
Total Commercial real estate: multifamily	$	107,993	$	36,602	$	108,830	$	18,621	$	8,198	$	29,871	$	310,115
Residential: first lien
Pass	$	180,743	$	107,100	$	81,618	$	57,503	$	29,316	$	73,390	$	529,670
Watch List - Substandard		95		—		—		274		—		—		369
Watch List - Doubtful		23		—		22		—		—		—		45
Total Residential: first lien	$	180,861	$	107,100	$	81,640	$	57,777	$	29,316	$	73,390	$	530,084
Residential: first lien
Current-period gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	46	$	46
Residential: junior lien
Pass	$	91,202	$	73,740	$	65,144	$	70,969	$	65,799	$	102,234	$	469,088
Watch List- Doubtful		141		—		—		—		—		—		141
Total Residential: junior lien	$	91,343	$	73,740	$	65,144	$	70,969	$	65,799	$	102,234	$	469,229
Consumer
Pass	$	38,778	$	8,137	$	904	$	422	$	22	$	1,514	$	49,777
Total Consumer	$	38,778	$	8,137	$	904	$	422	$	22	$	1,514	$	49,777
Consumer
Current-period gross writeoffs	$	43	$	120	$	22	$	—	$	—	$	—	$	185
Foreign
Pass	$	124,716	$	30,648	$	16,877	$	6,962	$	2,879	$	4,479	$	186,561
Total Foreign	$	124,716	$	30,648	$	16,877	$	6,962	$	2,879	$	4,479	$	186,561
Total Loans	$	3,472,021	$	2,298,973	$	1,284,843	$	826,553	$	404,659	$	522,777	$	8,809,826



		2023	2022		2021		2020		2019		Prior		Total

	(Dollars in Thousands)
Balance at December 31, 2023
Domestic
Commercial
Pass	$	791,233	$	272,919	$	364,271	$	50,602	$	21,468	$	74,119	$	1,574,612
Special Review		7,613		1,800		164		—		—		—		9,577
Watch List - Pass		11,865		—		—		—		—		—		11,865
Watch List - Substandard		1,180		92		28		—		—		4		1,304
Watch List - Doubtful		27		30,810		35		—		—		—		30,872
Total Commercial	$	811,918	$	305,621	$	364,498	$	50,602	$	21,468	$	74,123	$	1,628,230
Commercial
Current-period gross writeoffs	$	7,053	$	2,187	$	155	$	264	$	2	$	3	$	9,664
Commercial real estate: other construction & land development
Pass	$	938,739	$	674,037	$	324,238	$	96,400	$	14,058	$	3,219	$	2,050,691
Watch List - Substandard		25,230		—		—		—		—		—		25,230
Watch List - Doubtful		2,726		12,975		—		—		—		—		15,701
Total Commercial real estate: other construction & land development	$	966,695	$	687,012	$	324,238	$	96,400	$	14,058	$	3,219	$	2,091,622
Commercial real estate: farmland & commercial
Pass	$	888,878	$	628,653	$	415,458	$	267,705	$	184,164	$	248,626	$	2,633,484
Special Review		5,205		—		3,357		—		—		—		8,562
Watch List - Pass		16,654		87		233		—		—		—		16,974
Watch List - Substandard		129,644		2,201		—		2,304		84		1		134,234
Watch List - Doubtful		211		88		—		—		—		—		299
Total Commercial real estate: farmland & commercial	$	1,040,592	$	631,029	$	419,048	$	270,009	$	184,248	$	248,627	$	2,793,553
Commercial real estate: multifamily
Pass	$	123,523	$	94,551	$	42,081	$	73,652	$	10,743	$	36,193	$	380,743
Watch List - Doubtful		—		96		—		—		—		—		96
Total Commercial real estate: multifamily	$	123,523	$	94,647	$	42,081	$	73,652	$	10,743	$	36,193	$	380,839
Residential: first lien
Pass	$	180,127	$	83,568	$	68,082	$	39,935	$	27,499	$	78,306	$	477,517
Watch List - Substandard		—		—		327		—		—		95		422
Watch List - Doubtful		—		93		—		—		—		—		93
Total Residential: first lien	$	180,127	$	83,661	$	68,409	$	39,935	$	27,499	$	78,401	$	478,032
Residential: first lien
Current-period gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	43	$	43
Residential: junior lien
Pass	$	88,628	$	76,845	$	96,411	$	76,490	$	34,870	$	87,625	$	460,869
Total Residential: junior lien	$	88,628	$	76,845	$	96,411	$	76,490	$	34,870	$	87,625	$	460,869
Residential: junior lien
Current-period gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	298	$	298
Consumer
Pass	$	36,639	$	5,366	$	1,043	$	237	$	157	$	1,679	$	45,121
Total Consumer	$	36,639	$	5,366	$	1,043	$	237	$	157	$	1,679	$	45,121
Consumer
Current-period gross writeoffs	$	54	$	115	$	9	$	—	$	1	$	—	$	179
Foreign
Pass	$	116,104	$	43,842	$	12,317	$	2,016	$	2,797	$	3,619	$	180,695
Total Foreign	$	116,104	$	43,842	$	12,317	$	2,016	$	2,797	$	3,619	$	180,695
Total Loans	$	3,364,226	$	1,928,023	$	1,328,045	$	609,341	$	295,840	$	533,486	$	8,058,961

The increase in Watch-List Pass Commercial loans at December 31, 2024 compared to December 31, 2023 can be primarily attributable to a relationship secured by commercial property, which was downgraded in the fourth quarter of 2024, offset by the charge-down of a loan secured by equipment and pipeline infrastructure used in the oil and gas industry and oil and gas production that was charged down in the first quarter of 2024, as previously discussed. The increase in Special Review Commercial real estate: other construction and land development loans at December 31, 2024 compared to December 31, 2023 can be attributed to a loan secured by residential lots that was upgraded from Watch-List Substandard. The decrease in Watch-List Substandard loans in the same category for the same period can be attributed to the upgrade to Special Review of the residential lot loan, as mentioned, and the reclassification of a loan securing a hotel

upon the completion of construction to the Commercial real estate: farmland & commercial category. The increase in Commercial real estate: multifamily loans can be primarily attributed to two loans secured by apartments that were placed on non-accrual in 2024.