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Loans and Leases and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2025

Loans and Leases and Allowance for Credit Losses

Note 4. Loans and Leases and Allowance for Credit Losses

Portfolio Segmentation:

Major categories of loans and leases are summarized as follows (in thousands):


	March 31,		December 31,
	2025		2024
Commercial real estate:
Non-owner occupied	$	1,117,392	$	1,080,404
Owner occupied		885,396		867,678
Consumer real estate		784,602		741,836
Construction and land development		357,393		361,735
Commercial and industrial		768,454		775,620
Leases		64,208		64,878
Consumer and other		14,762		14,189
Total loans and leases		3,992,207		3,906,340
Less: Allowance for credit losses		(38,175)		(37,423)
Loans and leases, net	$	3,954,032	$	3,868,917

The loan and lease portfolio is disaggregated into segments. There are seven loan and lease portfolio segments which include commercial real estate, consumer real estate, construction and land development, commercial and industrial, leases, and consumer and other.

The following describe risk characteristics relevant to each of the portfolio segments:

Commercial Real Estate – Non-Owner Occupied: Commercial real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Commercial Real Estate - Owner Occupied: Commercial real estate loans to operating businesses are long-term financing of land and buildings where the owner occupies the property. These loans are repaid by cash flow generated from the business operation.

Consumer Real Estate: Consumer real estate loans include real estate loans secured by first liens, second liens, or open end real estate loans, such as home equity lines. These are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Construction and Land Development: Loans for real estate construction and development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Commercial and Industrial: The commercial and industrial loan portfolio segment includes commercial and financial loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers’ business operations.

Leases: The lease portfolio segment includes leases to small and mid-size companies for equipment financing leases. These leases are secured by a secured interest in the equipment being leased.

Consumer and Other: The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans, and educational loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

The following tables detail the changes in the allowance for credit losses by loan and lease classification (in thousands):


	Three Months Ended March 31, 2025
	Commercial		Commercial
	Real Estate		Real Estate		Consumer		Construction		Commercial
	Non-Owner		Owner		Real		and Land		and				Consumer
	Occupied		Occupied		Estate		Development		Industrial		Leases		and Other		Total
Beginning balance	$	6,972	$	8,341	$	8,355	$	4,168	$	8,552	$	919	$	116	$	37,423
Charged-off loans and leases		—		—		—		—		(59)		(190)		(83)		(332)
Recoveries of charge-offs		—		2		—		200		23		—		16		241
Provision charged to expense ⁽¹⁾		354		72		333		(214)		112		113		73		843
Ending balance	$	7,326	$	8,415	$	8,688	$	4,154	$	8,628	$	842	$	122	$	38,175


	Three Months Ended March 31, 2024
	Commercial		Commercial
	Real Estate		Real Estate		Consumer		Construction		Commercial
	Non-Owner		Owner		Real		and Land		and				Consumer
	Occupied		Occupied		Estate		Development		Industrial		Leases		and Other		Total
Beginning balance	$	6,846	$	8,418	$	7,249	$	4,874	$	6,924	$	640	$	115	$	35,066
Charged-off loans and leases		—				(107)		(441)		(201)		(77)		(94)		(920)
Recoveries of charge-offs		—		2		79		—		26		—		28		135
Provision charged to expense ⁽²⁾		(392)		(31)		25		271		(108)		94		63		(78)
Ending balance	$	6,454	$	8,389	$	7,246	$	4,704	$	6,641	$	657	$	112	$	34,203

(1)

In the provision expense in the consolidated statements of income there was a provision of $136 thousand unfunded commitments through the provision for credit losses not reflected in the three months ended March 31, 2025.

(2)

In the provision expense in the consolidated statements of income was a release of $362 thousand of unfunded commitments through the provision for credit losses not reflected in the three months ended March 31, 2024.

We maintain the allowance for credit losses at a level that we deem appropriate to adequately cover the expected credit loss in the loan and lease portfolio. Our provision for loan and lease losses for the three months ended March 31, 2025, and 2024, is $843 thousand and ($78) thousand, respectively. As of March 31, 2025, and December 31, 2024, our allowance for credit losses was $38.2 million and $37.4 million, respectively, which we deemed to be adequate at each of

the respective dates. Our allowance for credit losses as a percentage of total loans and leases was 0.96% at March 31, 2025, and December 31, 2024.

A description of the general characteristics of the risk grades used by the Company is as follows:

Pass: Loans and leases in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan and lease obligations. Loans and leases in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the debt if required, for any weakness that may exist.

Watch: Loans and leases in this risk category involve borrowers that exhibit characteristics, or are operating under conditions that, if not successfully mitigated as planned, have a reasonable risk of resulting in a downgrade within the next six to twelve months. Loans and leases may remain in this risk category for six months and then are either upgraded or downgraded upon subsequent evaluation.

Special Mention: Loans and leases in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned” classification. Loans and leases in this category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and /or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the Company’s credit position.

Substandard: Loans and leases in this risk grade are inadequately protected by the borrower’s current financial condition and payment capability or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans and leases in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined.

Uncollectible: Loans and leases in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan or lease has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan or lease, even though partial recovery may be obtained in the future. Charge-offs against the allowance for credit losses are taken in the period in which the loan or lease becomes uncollectible. Consequently, the Company typically does not maintain a recorded investment in loans or leases within this category.

The Company evaluates the loan risk grading system definitions and allowance for credit loss methodology on an ongoing basis.

The following tables outline the amount of each loan and lease classification and the amount categorized into each risk rating based on year of origination as of March 31, 2025, and December 31, 2024 (in thousands):


	March 31, 2025
	Loans Amortized Cost Basis by Origination Year
															Revolving
															Loans
													Revolving		Converted
	2025		2024		2023		2022		2021		Prior		Loans		to Term		Total
Commercial real estate - non-owner occupied
Pass	$	53,205	$	226,470	$	149,212	$	282,735	$	201,690	$	165,639	$	7,738	$	-	$	1,086,689
Watch		-		-		1,637		6,730		17,079		4,262		-		-		29,708
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		457		-		-		-		538		-		-		995
Doubtful		-		-		-		-		-		-		-		-		-
Total commercial real estate - non-owner occupied		53,205		226,927		150,849		289,465		218,769		170,439		7,738		-		1,117,392
YTD gross charge-offs		-		-		-		-		-		-		-		-		-

Commercial real estate - owner occupied
Pass		27,394		140,755		120,316		267,078		152,868		143,217		13,138		-		864,766
Watch		1,212		4,571		5,847		1,160		-		2,318		1,565		-		16,673
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		317		-		3,282		358		-		-		3,957
Doubtful		-		-		-		-		-		-		-		-		-
Total commercial real estate - owner occupied		28,606		145,326		126,480		268,238		156,150		145,893		14,703		-		885,396
YTD gross charge-offs		-		-		-		-		-		-		-		-		-

Consumer real estate
Pass		38,021		159,445		103,193		161,951		80,163		98,765		138,128		199		779,865
Watch		-		-		80		-		108		1,173		1,210		-		2,571
Special mention		-		-		-		-		-		49		-		-		49
Substandard		-		180		49		60		176		1,379		273		-		2,117
Doubtful		-		-		-		-		-		-		-		-		-
Total consumer real estate		38,021		159,625		103,322		162,011		80,447		101,366		139,611		199		784,602
YTD gross charge-offs		-		-		-		-		-		-		-		-		-

Construction and land development
Pass		32,958		224,927		32,461		38,274		7,345		11,037		6,762		2,762		356,526
Watch		-		-		-		103		208		-		-		-		311
Special mention		-		493		-		-		-		-		-		-		493
Substandard		-		-		-		-		63		-		-		-		63
Doubtful		-		-		-		-		-		-		-		-		-
Total construction and land development		32,958		225,420		32,461		38,377		7,616		11,037		6,762		2,762		357,393
YTD gross charge-offs		-		-		-		-		-		-		-		-		-

Commercial and industrial
Pass		27,650		123,138		119,560		125,587		39,447		41,519		282,370		-		759,271
Watch		-		943		116		105		2,899		-		2,844		-		6,907
Special mention		-		-		-		-		-		-		-		-		-
Substandard		23		9		37		455		1,520		175		57		-		2,276
Doubtful		-		-		-		-		-		-		-		-		-
Total commercial and industrial		27,673		124,090		119,713		126,147		43,866		41,694		285,271		-		768,454
YTD gross charge-offs		-		-		(29)		(30)		-		-		-		-		(59)

Leases
Pass		6,852		23,268		15,438		14,838		2,829		983		-		-		64,208
Watch		-		-		-		-		-		-		-		-		-
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total leases		6,852		23,268		15,438		14,838		2,829		983		-		-		64,208
YTD gross charge-offs		-		(54)		(133)		(3)		-		-		-		-		(190)


	March 31, 2025
	Loans Amortized Cost Basis by Origination Year
															Revolving
															Loans
													Revolving		Converted
	2025		2024		2023		2022		2021		Prior		Loans		to Term		Total
Consumer and other
Pass		1,421		3,607		1,580		819		394		460		6,407		-		14,688
Watch		-		8		-		-		-		-		60		-		68
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		6		-		-		-		-		-		6
Doubtful		-		-		-		-		-		-		-		-		-
Total consumer and other		1,421		3,615		1,586		819		394		460		6,467		-		14,762
YTD gross charge-offs		-		(35)		(12)		(6)		(3)		(27)		-		-		(83)

Total loans
Pass		187,501		901,610		541,760		891,282		484,736		461,620		454,543		2,961		3,926,013
Watch		1,212		5,522		7,680		8,098		20,294		7,753		5,679		-		56,238
Special mention		-		493		-		-		-		49		-		-		542
Substandard		23		646		409		515		5,041		2,450		330		-		9,414
Doubtful		-		-		-		-		-		-		-		-		-
Total loans	$	188,736	$	908,271	$	549,849	$	899,895	$	510,071	$	471,872	$	460,552	$	2,961	$	3,992,207
Total YTD gross charge-offs	$	-	$	(89)	$	(174)	$	(39)	$	(3)	$	(27)	$	-	$	-	$	(332)


	December 31, 2024
	Loans Amortized Cost Basis by Origination Year
															Revolving
															Loans
													Revolving		Converted
	2024		2023		2022		2021		2020		Prior		Loans		to Term		Total
Commercial real estate - non-owner occupied
Pass	$	241,022	$	118,055	$	286,728	$	228,554	$	85,754	$	97,319	$	8,295	$	696	$	1,066,423
Watch		-		1,637		6,769		278		-		4,275		-		-		12,959
Special mention		-		-		-		-		-		-		-		-		-
Substandard		470		-		-		-		301		251		-		-		1,022
Doubtful		-		-		-		-		-		-		-		-		-
Total commercial real estate - non-owner occupied		241,492		119,692		293,497		228,832		86,055		101,845		8,295		696		1,080,404
YTD gross charge-offs		-		-		-		-		-		-		-		-		-

Commercial real estate - owner occupied
Pass		145,848		118,233		275,328		155,119		62,755		78,934		12,368		198		848,783
Watch		1,451		2,814		2,398		1,251		1,676		364		744		-		10,698
Special mention		3,147		-		-		-		-		-		-		-		3,147
Substandard		-		332		-		3,303		305		365		745		-		5,050
Doubtful		-		-				-		-		-		-		-		-
Total commercial real estate - owner occupied		150,446		121,379		277,726		159,673		64,736		79,663		13,857		198		867,678
YTD gross charge-offs		-		-		-		-		-		-		-		-		-

Consumer real estate
Pass		151,786		105,416		154,956		82,463		47,122		61,844		131,267		2,099		736,953
Watch		-		81		-		109		258		420		1,241		-		2,109
Special mention		-		-		-		-		-		50		-		-		50
Substandard		184		-		61		311		-		1,854		314		-		2,724
Doubtful		-		-		-		-		-		-		-		-		-
Total consumer real estate		151,970		105,497		155,017		82,883		47,380		64,168		132,822		2,099		741,836
YTD gross charge-offs		-		-		-		-		-		-		-		-		-

Construction and land development
Pass		199,160		74,200		51,438		6,146		2,168		9,562		12,392		89		355,155
Watch		2,477		-		105		3,015		-		-		-		-		5,597
Special mention		515		-		-		-		-		-		-		-		515
Substandard		262		-		-		68		-		138		-		-		468
Doubtful		-		-		-		-		-		-		-		-		-
Total construction and land development		202,414		74,200		51,543		9,229		2,168		9,700		12,392		89		361,735
YTD gross charge-offs		-		-		-		-		(441)		-		-		-		(441)


	December 31, 2024
	Loans Amortized Cost Basis by Origination Year
															Revolving
															Loans
													Revolving		Converted
	2024		2023		2022		2021		2020		Prior		Loans		to Term		Total
Commercial and industrial
Pass		130,898		128,646		133,782		43,299		17,716		26,933		282,695		3,239		767,208
Watch		103		107		119		2,807		-		-		2,865		14		6,015
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		40		455		1,657		129		46		9		61		2,397
Doubtful		-		-		-		-		-		-		-		-		-
Total commercial and industrial		131,001		128,793		134,356		47,763		17,845		26,979		285,569		3,314		775,620
YTD gross charge-offs		-		(618)		(235)		-		-		-		(29)		(46)		(928)

Leases
Pass		25,371		18,285		16,299		3,601		1,019		303		-		-		64,878
Watch		-		-		-		-		-		-		-		-		-
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total leases		25,371		18,285		16,299		3,601		1,019		303		-		-		64,878
YTD gross charge-offs		(74)		(619)		(589)		(1)		(1)		(28)		-		-		(1,312)

Consumer and other
Pass		4,385		1,932		922		387		284		238		6,024		-		14,172
Watch		4		-		-		-		-		-		-		-		4
Special mention		-		-		-		-		-		-		-		-		-
Substandard		11		-		-		-		-		2		-		-		13
Doubtful		-		-		-		-		-		-		-		-		-
Total consumer and other		4,400		1,932		922		387		284		240		6,024		-		14,189
YTD gross charge-offs		(24)		(84)		(61)		(37)		(53)		(77)		-		-		(336)

Total loans
Pass		898,470		564,767		919,453		519,569		216,818		275,133		453,041		6,321		3,853,572
Watch		4,035		4,639		9,391		7,460		1,934		5,059		4,850		14		37,382
Special mention		3,662		-		-		-		-		50		-		-		3,712
Substandard		927		372		516		5,339		735		2,656		1,068		61		11,674
Doubtful		-		-		-		-		-		-		-		-		-
Total loans	$	907,094	$	569,778	$	929,360	$	532,368	$	219,487	$	282,898	$	458,959	$	6,396	$	3,906,340
Total YTD gross charge-offs	$	(98)	$	(1,321)	$	(885)	$	(38)	$	(495)	$	(105)	$	(29)	$	(46)	$	(3,017)

Past Due Loans and Leases:

A loan or lease is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan or lease agreement. Generally, management places a loan or lease on nonaccrual when there is a clear indicator that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan or lease is 90 days past due.

The following tables present an aging analysis of our loan and lease portfolio (in thousands):


	March 31, 2025
					90 Days
	30-59 Days		60-89 Days		or More		Total		Loans Not		Total
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate:
Non-owner occupied	$	98	$	614	$	263	$	975	$	1,116,417	$	1,117,392
Owner occupied		1,308		358		539		2,205		883,191		885,396
Consumer real estate		2,673		82		892		3,647		780,955		784,602
Construction and land development		19		—		—		19		357,374		357,393
Commercial and industrial		1,104		491		2,078		3,673		764,781		768,454
Leases		2,485		394		2,259		5,138		59,070		64,208
Consumer and other		59		78		35		172		14,590		14,762
Total	$	7,746	$	2,017	$	6,066	$	15,829	$	3,976,378	$	3,992,207


	December 31, 2024
					90 Days
	30-59 Days		60-89 Days		or More		Total		Loans Not		Total
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate:
Non-owner occupied	$	378	$	—	$	263	$	641	$	1,079,763		1,080,404
Owner occupied		731		47		539		1,317		866,361		867,678
Consumer real estate		2,258		826		764		3,848		737,988		741,836
Construction and land development		523		—		—		523		361,212		361,735
Commercial and industrial		1,417		367		1,636		3,420		772,200		775,620
Leases		1,645		—		2,118		3,763		61,115		64,878
Consumer and other		96		24		18		138		14,051		14,189
Total	$	7,048	$	1,264	$	5,338	$	13,650	$	3,892,690	$	3,906,340

The table below presents the amortized cost basis of loans on nonaccrual status and loans past due 90 or more days and still accruing interest at March 31, 2025, and December 31, 2024. Also presented is the balance of loans on nonaccrual status at March 31, 2025 and December 31, 2024, for which there was no related allowance for credit losses is recorded (in thousands):


	March 31, 2025						December 31, 2024
	Total		Nonaccrual		Loans Past Due		Total		Nonaccrual		Loans Past Due
	Nonaccrual		With No Allowance		Over 90 Days		Nonaccrual		With No Allowance		Over 90 Days
	Loans		for Credit Losses		Still Accruing		Loans		for Credit Losses		Still Accruing
Commercial real estate:
Non-owner occupied	$	504	$	263	$	—	$	514	$	263	$	—
Owner occupied		891		539		—		906		539		—
Consumer real estate		1,364		175		—		1,995		752		—
Construction and land development		36		—		—		39		—		—
Commercial and industrial		2,436		—		148		1,820		—		144
Leases		2,387		—		—		2,433		—		—
Consumer and other		6		—		35		2		—		18
Total	$	7,624	$	977	$	183	$	7,709	$	1,554	$	162

The following table presents the amortized cost basis of collateral-dependent loans, which are individually evaluated to determine expected credit losses (in thousands):


	March 31, 2025
	Real Estate		Other		Total
Commercial real estate:
Non-owner occupied	$	720	$	—	$	720
Owner occupied		3,563				3,563
Consumer real estate		462		—		462
Construction and land development		—		—		—
Commercial and industrial		—		2,149		2,149
Leases		—		—		—
Consumer and other		—		—		—
Total	$	4,745	$	2,149	$	6,894

	December 31, 2024
	Real Estate		Other		Total
Commercial real estate:
Non-owner occupied	$	733	$	—	$	733
Owner occupied		4,636				4,636
Consumer real estate		1,139		—		1,139
Construction and land development		262		—		262
Commercial and industrial		—		2,286		2,286
Leases		—		534		534
Consumer and other		—		—		—
Total	$	6,770	$	2,820	$	9,590

Loan Modifications to Borrowers Experiencing Financial Difficulty:

The table below shows the amortized cost of loans and leases made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2025 and 2024, respectively. (dollars in thousands):


					Payment Delay
	Payment		Term		and Term
Three Months Ended March 31, 2025	Delay		Extension		Extension		Total
Commercial real estate:
Non-owner occupied	$	—	$	—	$	—	$	—
Owner occupied		—		—		—		—
Consumer real estate		—		—		—		—
Construction and land development		—		—		—		—
Commercial and industrial		—		23		—		23
Leases		—		—		—		—
Consumer and other		—		—		—		—
Total	$	—	$	23	$	—	$	23


					Payment Delay
	Payment		Term		and Term
Three Months Ended March 31, 2024	Delay		Extension		Extension		Total
Commercial real estate:
Non-owner occupied	$	—	$	—	$	—	$	—
Owner occupied		—		200		—		200
Consumer real estate		—		—		—		—
Construction and land development		—		—		—		—
Commercial and industrial		—		—		—		—
Leases		—		—		—		—
Consumer and other		—		—		—		—
Total	$	—	$	200	$	—	$	200

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2025 and 2024, respectively. (dollars in thousands):


	Weighted-Average
	Term
	Extension
Three Months Ended March 31, 2025	(in months)
Commercial real estate:
Non-owner occupied		—
Owner occupied		—
Consumer real estate		—
Construction and land development		—
Commercial and industrial		36
Leases		—
Consumer and other		—


	Weighted-Average
	Term
	Extension
Three Months Ended March 31, 2024	(in months)
Commercial real estate:
Non-owner occupied		—
Owner occupied		3
Consumer real estate		—
Construction and land development		—
Commercial and industrial		—
Leases		—
Consumer and other		—

No loan modifications made to borrowers experiencing financial difficulty defaulted during the three months ended March 31, 2025, and 2024, respectively.

The table below shows an age analysis of loans and leases made to borrowers experiencing financial difficulty that were modified in the last twelve months, (in thousands):


	March 31, 2025
					90 Days
			30-89 Days		or More
	Current		Past Due		Past Due		Nonaccrual		Total
Commercial real estate:
Non-owner occupied	$	—	$	—	$	—	$	—	$	—
Owner occupied		—		—		—		—		—
Consumer real estate		166		—		—		130		296
Construction and land development		—		—		—		—		—
Commercial and industrial		12		—		—		32		44
Leases		—		—		—		—		—
Consumer and other		—		—		—		—		—
Total	$	178	$	—	$	—	$	162	$	340

Foreclosure Proceedings and Balances:

As of March 31, 2025, there was no residential real estate property secured by real estate included in other real estate owned and there were two residential real estate loans totaling $129 thousand in the process of foreclosure.