Note 5 - Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note 5 – Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

Changes in the allowance for loan losses and the reserve for unfunded lending commitments at and for the indicated dates and periods are presented below (dollars in thousands):

	Six Months Ended June 30, 2020			Year Ended December 31, 2019			Six Months Ended June 30, 2019
Allowance for Loan Losses
Balance, beginning of period	$	13,152		$	12,805		$	12,805
Provision for loan losses		5,712			456			6
Charge-offs		(549	)		(333	)		(123	)
Recoveries		192			224			98
Balance, end of period	$	18,507		$	13,152		$	12,786
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	329		$	217		$	217
Provision for unfunded commitments		12			112			99
Balance, end of period	$	341		$	329		$	316

The reserve for unfunded loan commitments is included in other liabilities.

The following table presents changes in the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at and for the six months ended June 30, 2020 (dollars in thousands):

	Commercial			Commercial Real Estate		Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2019	$	2,657		$	7,416	$	3,023		$	56		$	13,152
Provision for loan losses		967			3,783		942			20			5,712
Charge-offs		(411	)		—		(62	)		(76	)		(549	)
Recoveries		26			58		33			75			192
Balance at June 30, 2020	$	3,239		$	11,257	$	3,936		$	75		$	18,507
Balance at June 30, 2020:
Allowance for Loan Losses
Individually evaluated for impairment	$	122		$	138	$	26		$	—		$	286
Collectively evaluated for impairment		3,097			11,092		3,705			75			17,969
Acquired impaired loans		20			27		205			—			252
Total	$	3,239		$	11,257	$	3,936		$	75		$	18,507
Loans
Individually evaluated for impairment	$	149		$	1,879	$	1,191		$	—		$	3,219
Collectively evaluated for impairment		566,162			1,088,707		396,211			9,038			2,060,118
Acquired impaired loans		548			29,574		8,237			15			38,374
Total	$	566,859		$	1,120,160	$	405,639		$	9,053		$	2,101,711

The following table presents changes in the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at and for the year ended December 31, 2019 (dollars in thousands):

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2018	$	2,537		$	7,246		$	2,977		$	45		$	12,805
Provision for loan losses		119			167			58			112			456
Charge-offs		(12	)		(6	)		(70	)		(245	)		(333	)
Recoveries		13			9			58			144			224
Balance at December 31, 2019	$	2,657		$	7,416		$	3,023		$	56		$	13,152
Balance at December 31, 2019:
Allowance for Loan Losses
Individually evaluated for impairment	$	204		$	—		$	26		$	—		$	230
Collectively evaluated for impairment		2,448			7,386			2,794			56			12,684
Acquired impaired loans		5			30			203			—			238
Total	$	2,657		$	7,416		$	3,023		$	56		$	13,152
Loans
Individually evaluated for impairment	$	784		$	502		$	906		$	—		$	2,192
Collectively evaluated for impairment		337,312			1,004,296			433,121			10,866			1,785,595
Acquired impaired loans		981			32,321			9,711			15			43,028
Total	$	339,077		$	1,037,119		$	443,738		$	10,881		$	1,830,815

The allowance for loan losses is allocated to loan segments based upon historical loss factors, risk grades on individual loans, and qualitative factors.  Qualitative factors include trends in delinquencies, nonaccrual loans, and loss rates; trends in volume and terms of loans, effects of changes in risk selection, underwriting standards, and lending policies; experience of lending officers, other lending staff and loan review; national, regional, and local economic trends and conditions; legal, regulatory and collateral factors; and concentrations of credit.

The provision for loan losses for the 2020 period reflects an increase in the allowance based on a qualitative assessment of the declining and uncertain economic landscape in the wake of the COVID-19 pandemic.  Sharp declines in employment, gross national product, housing and auto sales, housing starts and business activity in general indicates possible credit losses. The Bank has been actively working with borrowers at risk who were impacted by the stay-at-home orders, utilizing its DAP to include short-term deferments of principal and interest and short-term acceptance of interest-only payments.  Many of the Bank's customers have applied for and received PPP loans.   Management will continue to evaluate the adequacy of the Company's allowance for loan losses as more economic data becomes available and as changes within the Company's portfolio are known.  The effects of the pandemic may require the Company to fund additional increases in the allowance for loan losses in future periods.