ALLOWANCE FOR CREDIT LOSSES

12 Months Ended

Dec. 31, 2023

As previously mentioned in Note 1, since the adoption of ASC 326 on January 1, 2023, the ACL for loans represents management's estimate of life of loan credit losses in the portfolio as of the end of the period. The ACL related to unfunded commitments is included in other liabilities in the consolidated balance sheet. The following table presents the balance sheet activity in the ACL by portfolio segment for loans, using the CECL methodology for the year ended December 31, 2023.


	CECL
(dollars in thousands)	Balance, December 31, 2022		Adoption of ASU 2016-13		Charge-offs		Recoveries		Provision for credit losses on loans		Balance, December 31, 2023
Year ended December 31, 2023
Construction, land & land development	$	1,959	$	148	$	—	$	10	$	87	$	2,204
Other commercial real estate	8,886		(630)		(69)		42		(1,165)		7,064
Total commercial real estate	10,845		(482)		(69)		52		(1,078)		9,268
Residential real estate	2,354		1,053		(771)		79		2,390		5,105
Commercial, financial & agricultural	2,709		(690)		(1,069)		201		959		2,110
Consumer and other	220		66		(35)		22		1,615		1,888
Total allowance for credit losses on loans	$	16,128	$	(53)	$	(1,944)	$	354	$	3,886	$	18,371

Colony used a one-year reasonable and supportable forecast period. The changes in loss rates used as the basis for the estimate of credit losses during this period were modeled using historical data from peer banks and macroeconomic forecast data obtained from a third party vendor, which were then applied to Colony's recent default experience as a starting point. As of December 31, 2023, the Company expects that the markets in which it operates will experience stable economic and unemployment conditions with the trend of delinquencies returning to more normalized levels, over the next two years. Management adjusted the historical loss experience for these expectations. No reversion adjustments were necessary, as the starting point for the Company's estimate was a cumulative loss rate covering the expected contractual term of the portfolio.

The following table details activity in the allowance for loan losses, segregated by class of loans, using the incurred loss methodology for the year ended December 31, 2022. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other loan categories and periodically may result in reallocation within the provision categories.


	Incurred Loss
(dollars in thousands)	Balance, December 31, 2021		Charge-offs		Recoveries		Provision		Balance, December 31, 2022
Year ended December 31, 2022
Construction, land & land development	$	1,127	$	—	$	25	$	807	$	1,959
Other commercial real estate	7,691		(58)		85		1,168		8,886
Total commercial real estate	8,818		(58)		110		1,975		10,845
Residential real estate	1,805		(48)		50		547		2,354
Commercial, financial & agricultural	1,083		(314)		139		1,801		2,709
Consumer and other	1,204		(60)		29		(953)		220
Total allowance for loan losses	$	12,910	$	(480)	$	328	$	3,370	$	16,128

The following table represents the recorded investment in loans by portfolio segment and the balance of the allowance assigned to each segment based on the incurred loss methodology of evaluating the loans for impairment as of December 31, 2022.


(dollars in thousands)	Construction, land & land development		Other commercial real estate		Residential real estate		Commercial, financial & agricultural		Consumer and other		Total
Year ended December 31, 2022
Period-end amount allocated to:
Individually evaluated for impairment	$	44	$	—	$	—	$	—	$	—	$	44
Collectively evaluated for impairment	1,915		8,853		2,354		2,709		220		16,051
Purchase credit impaired	—		33		—		—		—		33
Ending balance	$	1,959	$	8,886	$	2,354	$	2,709	$	220	$	16,128

Loans:
Loans individually evaluated for impairment	$	514	$	3,754	$	62	$	—	$	—	$	4,330
Loans collectively evaluated for impairment	228,921		970,895		289,992		223,923		18,247		1,731,978
Purchase credit impaired	—		798		—		—		—		798
Ending balance	$	229,435	$	975,447	$	290,054	$	223,923	$	18,247	$	1,737,106

The Company determines its individual reserves during its quarterly review of substandard loans. This process involves reviewing all loans with a risk grade of 7 or greater and an outstanding balance of $500,000 or more, regardless of the loans impairment classification.

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded commitments is separately classified on the balance sheet within Other liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded commitments for the year ended December 31, 2023.


(dollars in thousands)	Total Allowance for Credit Losses-Unfunded Commitments

Year Ended
Balance, December 31, 2022	$	—
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13	1,661
Change in unfunded commitments	(286)
Balance, December 31, 2023	$	1,375