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Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Note 7 Allowance for Credit Losses

The tables below detail the Company’s allowance for credit losses as of the dates shown:


	Year ended December 31, 2023
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	37,608	$	32,050	$	19,306	$	589	$	89,553
Charge-offs		(277)		—		(48)		(1,250)		(1,575)
Recoveries		290		3		26		125		444
Provision expense for credit losses		7,683		612		266		964		9,525
Ending balance	$	45,304	$	32,665	$	19,550	$	428	$	97,947


	Year ended December 31, 2022
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	31,256	$	10,033	$	8,056	$	349	$	49,694
Day 1 CECL provision expense		4,274		11,792		5,034		128		21,228
PCD allowance for credit loss at acquisition		2,408		3,559		270		1		6,238
Charge-offs		(1,340)		—		(2)		(845)		(2,187)
Recoveries		185		21		54		125		385
Provision expense for credit losses		825		6,645		5,894		831		14,195
Ending balance	$	37,608	$	32,050	$	19,306	$	589	$	89,553

In evaluating the loan portfolio for an appropriate ACL level, excluding loans evaluated individually, loans were grouped into segments based on broad characteristics such as primary use and underlying collateral. Within the segments, the portfolio was further disaggregated into classes of loans with similar attributes and risk characteristics for purposes of developing the underlying data used within the discounted cash flow model including, but not limited to, prepayment and recovery rates as well as loss rates tied to macro-economic conditions within management’s reasonable and supportable forecast. The ACL also includes subjective adjustments based upon qualitative risk factors including asset quality, loss trends, lending management, portfolio growth and loan review/internal audit results.

Net charge-offs on loans during the year ended December 31, 2023 were $1.1 million. The Company recorded an increase in the allowance for credit losses of $8.4 million during 2023, driven by loan growth and an increase in specific reserves.

Net charge-offs on loans during the year ended December 31, 2022 were $1.8 million. The Company recorded an increase in the allowance for credit losses of $39.9 million during 2022, which included a Day 1 provision expense of $21.2 million for the non-PCD acquired loan portfolios and a $6.2 million credit allowance for Day 1 acquired PCD loans. The remainder of the provision expense during the year was driven by loan growth and higher reserve requirements from changes in the CECL model’s underlying macro-economic forecast.

At the acquisition date, RCB and BOJH had $2.1 million and $0.5 million, respectively, of previously charged off loans for which the Company continued to have contractual rights to the cash flows. In accordance with ASC Topic 326, PCD loan accounting is to be applied by the acquirer whereby an allowance for credit losses should be recorded for this subset of loans at the acquisition date, and if deemed non-collectible, the loans are to be fully charged off on the acquirer’s books. Such amounts were fully reserved for, charged off on the acquisition date and excluded from the 2022 table above.

The Company has elected to exclude AIR from the allowance for credit losses calculation. As of December 31, 2023 and December 31, 2022, AIR from loans totaled $42.4 million and $31.8 million, respectively.