| Loans and Allowance for Credit Losses | LOANS AND ALLOWANCE FOR CREDIT LOSSES At June 30, 2024, the Company’s loan portfolio was $17.19 billion, compared to $16.85 billion at December 31, 2023. The various categories of loans are summarized as follows: June 30, December 31, (In thousands) 2024 2023 Consumer: Credit cards $ 178,354 $ 191,204 Other consumer 130,278 127,462 Total consumer 308,632 318,666 Real Estate: Construction and development 3,056,703 3,144,220 Single family residential 2,666,201 2,641,556 Other commercial 7,760,266 7,552,410 Total real estate 13,483,170 13,338,186 Commercial: Commercial 2,484,474 2,490,176 Agricultural 285,181 232,710 Total commercial 2,769,655 2,722,886 Other 630,980 465,932 Total loans $ 17,192,437 $ 16,845,670 The above table presents total loans at amortized cost. The difference between amortized cost and unpaid principal balance is primarily premiums and discounts associated with acquisition date fair value adjustments on acquired loans as well as deferred origination costs and fees totaling $265,000 and $6.7 million at June 30, 2024 and December 31, 2023, respectively. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $79.5 million and $77.1 million at June 30, 2024 and December 31, 2023, respectively, and is included in interest receivable on the consolidated balance sheets. Loan Origination/Risk Management – The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral; obtaining and monitoring collateral; and providing an adequate allowance for credit losses by regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry. The Company seeks to use diversification within the loan portfolio to reduce its credit risk, thereby minimizing the adverse impact on the portfolio if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. Consumer – The consumer loan portfolio consists of credit card loans and other consumer loans. Credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio. Although they are regularly reviewed to facilitate the identification and monitoring of creditworthiness, credit card loans are unsecured loans, making them more susceptible to economic downturns that result in increased unemployment. Other consumer loans include direct installment loans and account overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures. Real estate – The real estate loan portfolio consists of construction and development loans (“C&D”), single family residential loans and commercial loans. C&D and commercial real estate (“CRE”) loans can be particularly sensitive to valuation of real estate. CRE cycles are inevitable. The long planning and production process for new properties and rapid shifts in business conditions and employment create an inherent tension between supply and demand for commercial properties. While general economic trends often move individual markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE market are traditionally different from those affecting residential real estate markets; thereby making predictions for one market based on the other difficult. Additionally, submarkets within CRE – such as office, industrial, apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the overall risk through diversification across types of CRE loans. Management realizes that local demand and supply conditions will also mean that different geographic areas will experience cycles of different amplitude and duration. The Company monitors these loans closely. Commercial – The commercial loan portfolio includes commercial and agricultural loans, representing loans to commercial customers and farmers for use in normal business or farming operations to finance working capital needs, equipment purchases or other expansion projects. Paycheck Protection Program (“PPP”) loans are also included in the commercial loan portfolio. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrowers, particularly cash flow from customers’ business or farming operations. The Company continues its efforts to keep loan terms short, reducing the negative impact of upward movement in interest rates. Term loans are generally set up with one Paycheck Protection Program Loans – The Company originated loans pursuant to multiple PPP appropriations of the Coronavirus Aid, Relief and Economic Security Act which provided 100% federally guaranteed loans for small businesses to cover up to 24 weeks of payroll costs and assistance with mortgage interest, rent and utilities. Notably, these small business loans may be forgiven by the SBA if borrowers maintain their payrolls and satisfy certain other conditions. PPP loans have a zero percent risk-weight for regulatory capital ratios. As of June 30, 2024 and December 31, 2023, the total outstanding balance of PPP loans was $3.3 million and $4.8 million, respectively. Other – The other loan portfolio includes mortgage warehouse loans, representing warehouse lines of credit to mortgage originators for the disbursement of newly originated 1-4 family residential loans. Also included in the other loan portfolio are loans to public sector customers, including state and local governments. Nonaccrual and Past Due Loans – Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The amortized cost basis of nonaccrual loans segregated by category of loans are as follows: June 30, December 31, (In thousands) 2024 2023 Consumer: Credit cards $ 570 $ 487 Other consumer 344 589 Total consumer 914 1,076 Real estate: Construction and development 2,125 2,457 Single family residential 31,186 27,209 Other commercial 23,238 11,960 Total real estate 56,549 41,626 Commercial: Commercial 44,878 39,886 Agricultural 547 734 Total commercial 45,425 40,620 Other 3 3 Total $ 102,891 $ 83,325 As of June 30, 2024 and December 31, 2023, nonaccrual loans for which there was no related allowance for credit losses had an amortized cost of $1.1 million and $3.2 million, respectively. These loans are individually assessed and do not hold an allowance due to being adequately collateralized under the collateral-dependent valuation method. An age analysis of the amortized cost basis of past due loans, including nonaccrual loans, segregated by class of loans is as follows: (In thousands) Gross 90 Days Total Current Total 90 Days June 30, 2024 Consumer: Credit cards $ 1,941 $ 670 $ 2,611 $ 175,743 $ 178,354 $ 544 Other consumer 987 108 1,095 129,183 130,278 — Total consumer 2,928 778 3,706 304,926 308,632 544 Real estate: Construction and development 788 1,465 2,253 3,054,450 3,056,703 — Single family residential 19,991 13,744 33,735 2,632,466 2,666,201 14 Other commercial 7,852 19,016 26,868 7,733,398 7,760,266 — Total real estate 28,631 34,225 62,856 13,420,314 13,483,170 14 Commercial: Commercial 6,637 26,858 33,495 2,450,979 2,484,474 — Agricultural 1,316 44 1,360 283,821 285,181 — Total commercial 7,953 26,902 34,855 2,734,800 2,769,655 — Other — 3 3 630,977 630,980 — Total $ 39,512 $ 61,908 $ 101,420 $ 17,091,017 $ 17,192,437 $ 558 December 31, 2023 Consumer: Credit cards $ 1,734 $ 892 $ 2,626 $ 188,578 $ 191,204 $ 791 Other consumer 1,471 216 1,687 125,775 127,462 — Total consumer 3,205 1,108 4,313 314,353 318,666 791 Real estate: Construction and development 3,171 2,190 5,361 3,138,859 3,144,220 — Single family residential 30,697 12,522 43,219 2,598,337 2,641,556 7 Other commercial 4,702 3,612 8,314 7,544,096 7,552,410 — Total real estate 38,570 18,324 56,894 13,281,292 13,338,186 7 Commercial: Commercial 13,799 22,750 36,549 2,453,627 2,490,176 349 Agricultural 92 516 608 232,102 232,710 — Total commercial 13,891 23,266 37,157 2,685,729 2,722,886 349 Other — 3 3 465,929 465,932 — Total $ 55,666 $ 42,701 $ 98,367 $ 16,747,303 $ 16,845,670 $ 1,147 Loan Modifications to Borrowers Experiencing Financial Difficulty The Company has internal loan modification programs for borrowers experiencing financial difficulties. Modifications to borrowers experiencing financial difficulties may include interest rate reductions, principal or interest forgiveness and/or term extensions. The Company primarily uses interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal. During the three and six month periods ended June 30, 2024, the Company modified one real estate single family residential loan to a borrower who was experiencing financial difficulty, which included an interest rate reduction. The loan had a period-end amortized cost basis of $663,000 and represented 0.03% of the single family residential real estate class of loans at June 30, 2024. The financial effects of this loan modification were not significant and the modification did not significantly impact the Company’s determination of the allowance for credit losses on loans during the periods. During the three and six month periods ended June 30, 2023, the Company modified one commercial loan to a borrower who was experiencing financial difficulty, which included a term extension. The loan had a period-end amortized cost basis of $655,000 and represented 0.03% of the commercial class of loans at June 30, 2023. The financial effects of this loan modification were not significant and the modification did not significantly impact the Company’s determination of the allowance for credit losses on loans during the periods. The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty. There was one commercial loan to a borrower experiencing financial difficulty with a period-end amortized cost basis of $23,000 that was modified during the previous twelve months and which subsequently defaulted during the six months ended June 30, 2024. There were no loans to borrowers experiencing financial difficulty that had a payment default during the three and six months ended June 30, 2023 and were modified in the twelve months prior to default. In relation to loans modified to borrowers experiencing financial difficulty, the Company defines a payment default as a payment received more than 90 days after its due date. At June 30, 2024 and December 31, 2023, the Company had $4.8 million and $2.5 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At June 30, 2024 and December 31, 2023, the Company had $124,000 and $506,000, respectively, of Other Real Estate Owned (“OREO”) secured by residential real estate properties. Credit Quality Indicators – As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk rating of commercial and real estate loans, (ii) the level of classified commercial and real estate loans, (iii) net charge-offs, (iv) non-performing loans (see details above) and (v) the general economic conditions of the Company’s local markets. The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes including lending management monitoring, executive management and board committee oversight, and independent credit review. A description of the general characteristics of the risk ratings is as follows: • Pass (Excellent) – This category includes loans which are virtually free of credit risk. Borrowers in this category represent the highest credit quality and greatest financial strength. • Pass (Good) - Loans under this category possess a nominal risk of default. This category includes borrowers with strong financial strength and superior financial ratios and trends. These loans are generally fully secured by cash or equivalents (other than those rated “excellent”). • Pass (Acceptable – Average) - Loans in this category are considered to possess a normal level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality and within established borrowing parameters. • Pass (Monitor) - Loans in the Watch (Monitor) category exhibit an overall acceptable level of risk, but that risk may be increased by certain conditions, which represent “red flags”. These “red flags” require a higher level of supervision or monitoring than the normal “Pass” rated credit. The borrower may be experiencing these conditions for the first time, or it may be recovering from weakness, which at one time justified a higher rating. These conditions may include: weaknesses in financial trends; marginal cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor diversity in operations; lack of adequate monitoring information or lender supervision; questionable management ability/stability. • Special Mention - A loan in this category has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention loans are not adversely classified (although they are “criticized”) and do not expose an institution to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating trends or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention rating may include management problems, pending litigation, a non-existent or ineffective loan agreement or other material structural weakness, and/or other significant deviation from prudent lending practices. • Substandard - A Substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the loan. • Doubtful - A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status. • Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible. The Company monitors credit quality in the consumer portfolio by delinquency status. The delinquency status of loans is updated daily. A description of the delinquency credit quality indicators is as follows: • Current - Loans in this category are either current in payments or are under 30 days past due. These loans are considered to have a normal level of risk. • 30-89 Days Past Due - Loans in this category are between 30 and 89 days past due and are subject to the Company’s loss mitigation process. These loans are considered to have a moderate level of risk. • 90+ Days Past Due - Loans in this category are 90 days or more past due and are placed on nonaccrual status. These loans have been subject to the Company’s loss mitigation process and foreclosure and/or charge-off proceedings have commenced. The Company uses a dual risk rating scale that utilizes quantitative models and qualitative factors (“score cards”) to assist in determining the appropriate risk rating for its commercial loans. This dual risk rating methodology incorporates a “probability of default” analysis which utilizes quantified metrics such as loan terms and financial performance, as well as a “loss given default” analysis which utilizes collateral values and economics of the market, among other attributes. Model outputs are reviewed and analyzed to ensure the projected risk levels are commensurate with underwriting and credit leader expectations. The risk rating scale includes Probability of Default levels of 1 – 16 and Loss Given Default levels of A – I. The scale allows for more granular recognition of risk and diversification of grading among traditional Pass grades. The following is a reconciliation between the expanded risk rating scale and the Company’s traditional risk rating segments utilized within the commercial loan classes presented in the credit quality indicator tables. • Pass - Includes loans with an expanded risk rating of 1 through 11. Loans with a risk rating of 10 and 11 equate to loans included on management’s “watch list” and is intended to be utilized on a temporary basis for pass grade borrowers where a significant risk-modifying action is anticipated in the near term. • Special Mention - Includes loans with an expanded risk rating of 12. • Substandard - Includes loans with an expanded risk rating of 13 and 14. • Doubtful and loss - Includes loans with an expanded risk rating of 15 and 16. The following table presents a summary of loans by credit quality indicator, as of June 30, 2024, segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2024 (YTD) 2023 2022 2021 2020 2019 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Consumer - credit cards Delinquency: Current $ — $ — $ — $ — $ — $ — $ 175,743 $ — $ 175,743 30-89 days past due — — — — — — 1,941 — 1,941 90+ days past due — — — — — — 670 — 670 Total consumer - credit cards — — — — — — 178,354 — 178,354 Current-period consumer - credit cards gross charge-offs — — — — — — 3,064 — 3,064 Consumer - other Delinquency: Current 48,568 25,922 25,929 7,678 2,136 1,428 17,522 — 129,183 30-89 days past due 98 148 469 113 3 50 106 — 987 90+ days past due 9 8 63 22 — 4 2 — 108 Total consumer - other 48,675 26,078 26,461 7,813 2,139 1,482 17,630 — 130,278 Current-period consumer - other gross charge-offs 7 482 326 44 9 1 125 — 994 Real estate - C&D Risk rating: Pass 32,236 126,562 92,288 38,860 33,941 26,160 2,696,428 — 3,046,475 Special mention — — 64 — — 386 2,681 — 3,131 Substandard — 71 67 3,951 — 106 2,902 — 7,097 Doubtful and loss — — — — — — — — — Total real estate - C&D 32,236 126,633 92,419 42,811 33,941 26,652 2,702,011 — 3,056,703 Current-period real estate - C&D gross charge-offs — — — — — — 52 — 52 Real estate - SF residential Delinquency: Current 117,485 349,776 590,514 336,109 201,501 616,937 420,144 — 2,632,466 30-89 days past due 372 427 5,056 1,087 1,190 8,093 3,766 — 19,991 90+ days past due 285 602 2,404 894 1,123 4,986 3,450 — 13,744 Total real estate - SF residential 118,142 350,805 597,974 338,090 203,814 630,016 427,360 — 2,666,201 Current-period real estate - SF residential gross charge-offs — — 109 — 1 4 56 — 170 Real estate - other commercial Risk rating: Pass 290,535 522,924 1,573,506 1,135,286 476,787 754,095 2,590,434 — 7,343,567 Special mention 887 16,462 11,581 19,412 1,596 11,964 106,721 — 168,623 Substandard 4,533 18,716 22,700 10,870 11,902 40,167 139,188 — 248,076 Doubtful and loss — — — — — — — — — Total real estate - other commercial 295,955 558,102 1,607,787 1,165,568 490,285 806,226 2,836,343 — 7,760,266 Current-period real estate - other commercial gross charge-offs — 2,590 — — — — 168 — 2,758 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2024 (YTD) 2023 2022 2021 2020 2019 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Commercial Risk rating: Pass 106,181 343,149 297,549 173,125 40,903 75,337 1,361,565 — 2,397,809 Special mention 131 87 3,254 749 210 1,032 14,622 — 20,085 Substandard 264 1,556 17,095 5,636 3,771 8,392 29,866 — 66,580 Doubtful and loss — — — — — — — — — Total commercial 106,576 344,792 317,898 179,510 44,884 84,761 1,406,053 — 2,484,474 Current-period commercial - gross charge-offs — 203 2,073 1,168 353 1,136 6,889 — 11,822 Commercial - agriculture Risk rating: Pass 20,548 27,201 24,916 10,628 3,688 2,045 193,052 — 282,078 Special mention — 241 194 821 — — 534 — 1,790 Substandard — — 573 54 279 14 393 — 1,313 Doubtful and loss — — — — — — — — — Total commercial - agriculture 20,548 27,442 25,683 11,503 3,967 2,059 193,979 — 285,181 Current-period commercial - agriculture gross charge-offs — — — 8 6 — — — 14 Other Delinquency: Current 15,505 45,646 141,305 28,134 1,987 37,414 360,986 — 630,977 30-89 days past due — — — — — — — — — 90+ days past due — — — — — 3 — — 3 Total other 15,505 45,646 141,305 28,134 1,987 37,417 360,986 — 630,980 Current-period other - gross charge-offs — — — — — — 288 — 288 Total $ 637,637 $ 1,479,498 $ 2,809,527 $ 1,773,429 $ 781,017 $ 1,588,613 $ 8,122,716 $ — $ 17,192,437 The following table presents a summary of loans by credit quality indicator, as of December 31, 2023, segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 2018 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Consumer - credit cards Delinquency: Current $ — $ — $ — $ — $ — $ — $ 188,578 $ — $ 188,578 30-89 days past due — — — — — — 1,734 — 1,734 90+ days past due — — — — — — 892 — 892 Total consumer - credit cards — — — — — — 191,204 — 191,204 Current-period consumer - credit cards gross charge-offs — — — — — — 5,303 — 5,303 Consumer - other Delinquency: Current 55,091 35,904 12,115 3,838 1,471 1,106 16,250 — 125,775 30-89 days past due 400 719 127 53 2 16 154 — 1,471 90+ days past due 35 127 46 — — — 8 — 216 Total consumer - other 55,526 36,750 12,288 3,891 1,473 1,122 16,412 — 127,462 Current-period consumer - other gross charge-offs 220 826 493 79 29 128 449 — 2,224 Real estate - C&D Risk rating: Pass 138,749 143,711 52,081 45,027 10,278 13,632 2,710,853 504 3,114,835 Special mention — 1,143 7,284 — — 396 16,682 — 25,505 Substandard — 101 48 — — 247 3,484 — 3,880 Doubtful and loss — — — — — — — — — Total real estate - C&D 138,749 144,955 59,413 45,027 10,278 14,275 2,731,019 504 3,144,220 Current-period real estate - C&D gross charge-offs — 1,148 — — — 8 349 — 1,505 Real estate - SF residential Delinquency: Current 371,326 620,933 352,589 238,128 121,416 504,675 388,705 565 2,598,337 30-89 days past due 5,222 5,061 3,667 2,283 1,741 9,759 2,964 — 30,697 90+ days past due 1,313 2,443 1,810 1,661 120 3,465 1,710 — 12,522 Total real estate - SF residential 377,861 628,437 358,066 242,072 123,277 517,899 393,379 565 2,641,556 Current-period real estate - SF residential gross charge-offs — 111 12 73 — 677 232 — 1,105 Real estate - other commercial Risk rating: Pass 729,602 1,651,010 1,237,810 621,595 171,230 417,122 2,333,637 — 7,162,006 Special mention 37,302 8,458 10,149 7,844 1,364 11,604 84,978 — 161,699 Substandard 40,664 10,290 4,495 16,646 6,293 9,861 140,454 — 228,703 Doubtful and loss — — — 2 — — — — 2 Total real estate - other commercial 807,568 1,669,758 1,252,454 646,087 178,887 438,587 2,559,069 — 7,552,410 Current-period real estate - other commercial gross charge-offs — — — 7 2 35 9,731 — 9,775 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 2018 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Commercial Risk rating: Pass 440,872 354,016 200,941 67,320 27,374 42,953 1,271,826 — 2,405,302 Special mention 157 14,117 316 367 98 889 8,228 — 24,172 Substandard 1,998 11,874 6,272 2,934 1,722 3,392 32,510 — 60,702 Doubtful and loss — — — — — — — — — Total commercial 443,027 380,007 207,529 70,621 29,194 47,234 1,312,564 — 2,490,176 Current-period commercial - gross charge-offs 463 2,081 778 197 244 815 1,351 — 5,929 Commercial - agriculture Risk rating: Pass 39,680 30,075 13,940 6,280 2,071 303 134,180 — 226,529 Special mention 363 733 1,068 — — — 3,257 — 5,421 Substandard 518 37 71 104 26 — 4 — 760 Doubtful and loss — — — — — — — — — Total commercial - agriculture 40,561 30,845 15,079 6,384 2,097 303 137,441 — 232,710 Current-period commercial - agriculture gross charge-offs — 7 — — — 26 — — 33 Other Delinquency: Current 45,234 144,732 28,413 2,543 3,255 36,719 205,033 — 465,929 30-89 days past due — — — — — — — — — 90+ days past due — — — — — 3 — — 3 Total other 45,234 144,732 28,413 2,543 3,255 36,722 205,033 — 465,932 Current-period other - gross charge-offs — — — — — — 298 — 298 Total $ 1,908,526 $ 3,035,484 $ 1,933,242 $ 1,016,625 $ 348,461 $ 1,056,142 $ 7,546,121 $ 1,069 $ 16,845,670 Allowance for Credit Losses Allowance for Credit Losses – The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, quantitative factors, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected loan losses and risks inherent in the loan portfolio. The Company’s allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses . Accordingly, the methodology is comprised of two components: individual assessments on loans with unique risk characteristics and collective assessments for loans that share similar risk characteristics. Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated for collective assessment. The Company uses statistically-based models that leverage assumptions about current and future economic conditions throughout the contractual life of the loan. Expected credit losses are estimated by either lifetime loss rates or expected loss cash flows based on three key parameters: probability-of-default (“PD”), exposure-at-default (“EAD”), and loss-given-default (“LGD”). Future economic conditions are incorporated to the extent that they are reasonable and supportable. Beyond the reasonable and supportable periods, the economic variables revert to a historical equilibrium at a pace dependent on the state of the economy reflected within the economic scenarios. To determine the best estimate of credit losses as of June 30, 2024, the Company utilized a probability-weighted, multiple-scenario approach consisting of Baseline, Upside (S1), and Downside (S3) scenarios published by Moody’s Analytics in June 2024 that was updated to reflect the U.S. economic outlook. The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. These factors may include but are not limited to portfolio trends and considerations, other economic considerations, policy actions, concentration risk, or imprecision risk. Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical relationship with the historical loss experience of the segments. Loans that have unique risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating. For a collateral-dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for credit losses as a specific allocation. Loans for which the repayment is expected to be provided substantially through the operation or sale of collateral and where the borrower is experiencing financial difficulty had an amortized cost of $110.6 million and $144.6 million as of June 30, 2024 and December 31, 2023, respectively, as further detailed in the table below. The collateral securing these loans consist of commercial real estate properties, residential properties, and other business assets. (In thousands) Real Estate Collateral Other Collateral Total June 30, 2024 Construction and development $ 2,056 $ — $ 2,056 Single family residential — — — Other commercial real estate 77,295 — 77,295 Commercial — 31,262 31,262 Total $ 79,351 $ 31,262 $ 110,613 December 31, 2023 Construction and development $ 43,826 $ — $ 43,826 Single family residential 3,870 — 3,870 Other commercial real estate 76,229 — 76,229 Commercial — 20,679 20,679 Total $ 123,925 $ 20,679 $ 144,604 The following table details activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2024. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. (In thousands) Commercial Real Credit Other Total Allowance for credit losses: Three Months Ended June 30, 2024 Beginning balance, April 1, 2024 $ 35,191 $ 180,414 $ 5,768 $ 5,994 $ 227,367 Provision for credit loss expense 15,147 (5,187) 1,194 (55) 11,099 Charge-offs (7,243) (123) (1,418) (550) (9,334) Recoveries 455 72 221 509 1,257 Net (charge-offs) recoveries (6,788) (51) (1,197) (41) (8,077) Ending balance, June 30, 2024 $ 43,550 $ 175,176 $ 5,765 $ 5,898 $ 230,389 Six Months Ended June 30, 2024 Beginning balance, January 1, 2024 $ 36,470 $ 177,177 $ 5,868 $ 5,716 $ 225,231 Provision for credit loss expense 18,019 172 2,492 622 21,305 Charge-offs (11,836) (2,980) (3,064) (1,282) (19,162) Recoveries 897 807 469 842 3,015 Net (charge-offs) recoveries (10,9 |
