Note 4 - Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note 4 – Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

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

	Three Months Ended March 31, 2021			Year Ended December 31, 2020			Three Months Ended March 31, 2020
Allowance for Loan Losses
Balance, beginning of period	$	21,403		$	13,152		$	13,152
Provision for loan losses		—			8,916			953
Charge-offs		(22	)		(1,006	)		(105	)
Recoveries		35			341			65
Balance, end of period	$	21,416		$	21,403		$	14,065
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	304		$	329		$	329
Recovery of unfunded commitments		(1	)		(25	)		(13	)
Balance, end of period	$	303		$	304		$	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 three months ended March 31, 2021 (dollars in thousands):

	Commercial (1)			Construction and Land Development		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-owner Occupied		Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2020	$	3,373		$	1,927	$	4,340		$	7,626	$	4,067		$	70		$	21,403
Provision for (recovery of) loan losses		(272	)		188		72			5		(32	)		39			—
Charge-offs		—			—		(3	)		—		—			(19	)		(22	)
Recoveries		9			—		2			—		5			19			35
Balance at March 31, 2021	$	3,110		$	2,115	$	4,411		$	7,631	$	4,040		$	109		$	21,416
Balance at March 31, 2021:
Allowance for Loan Losses
Individually evaluated for impairment	$	26		$	—	$	—		$	—	$	1		$	—		$	27
Collectively evaluated for impairment		3,058			2,115		4,208			7,192		3,869			109			20,551
Purchased credit impaired loans		26			—		203			439		170			—			838
Total	$	3,110		$	2,115	$	4,411		$	7,631	$	4,040		$	109		$	21,416
Loans
Individually evaluated for impairment	$	36		$	—	$	30		$	1,108	$	1,569		$	—		$	2,743
Collectively evaluated for impairment		446,599			159,576		353,159			618,215		359,194			11,188			1,947,931
Purchased credit impaired loans		474			225		11,360			9,419		6,475			13			27,966
Total	$	447,109		$	159,801	$	364,549		$	628,742	$	367,238		$	11,201		$	1,978,640

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(1) Includes PPP loans, which are guaranteed by the SBA and have no related allowance.

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, 2020 (dollars in thousands):

	Commercial (1)			Construction and Land Development		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-owner Occupied			Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2019	$	2,657		$	1,161	$	2,474		$	3,781		$	3,023		$	56		$	13,152
Provision for loan losses		1,156			764		1,871			3,960			1,076			89			8,916
Charge-offs		(505	)		—		(17	)		(165	)		(117	)		(202	)		(1,006	)
Recoveries		65			2		12			50			85			127			341
Balance at December 31, 2020	$	3,373		$	1,927	$	4,340		$	7,626		$	4,067		$	70		$	21,403
Balance at December 31, 2020:
Allowance for Loan Losses
Individually evaluated for impairment	$	29		$	—	$	—		$	—		$	1		$	—		$	30
Collectively evaluated for impairment		3,318			1,927		4,138			7,185			3,896			70			20,534
Purchased credit impaired loans		26			—		202			441			170			—			839
Total	$	3,373		$	1,927	$	4,340		$	7,626		$	4,067		$	70		$	21,403
Loans
Individually evaluated for impairment	$	57		$	—	$	286		$	1,270		$	1,239		$	—		$	2,852
Collectively evaluated for impairment		490,736			139,833		360,579			616,498			365,967			8,390			1,982,003
Purchased credit impaired loans		463			238		12,815			9,801			6,812			72			30,201
Total	$	491,256		$	140,071	$	373,680		$	627,569		$	374,018		$	8,462		$	2,015,056

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(1) Includes PPP loans, which are guaranteed by the SBA and have no related allowance.

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 levels and trends in delinquencies, nonaccrual loans, and charge-offs and recoveries; trends in volume and terms of loans; effects of changes in risk selection, underwriting standards, and lending policies; experience of lending staff; national, regional, and local economic trends and conditions; portfolio concentrations; regulatory and legal factors; competition; quality of loan review system; and value of underlying collateral.

There was no provision expense for the first quarter of 2021, compared to $953,000 for the same period in the previous year. The first quarter of 2021 warranted a significantly lower provision than the first quarter of 2020 based on loan activity, an improving economy, ongoing low charge-off and delinquency rates, and overall strong asset quality metrics. However, the economy continues to recover from the effects of the pandemic, and risk levels in general remain elevated, particularly in certain industry segments. The provision for loan losses for the 2020 period reflected 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 indicated a higher risk of probable losses in the Bank's portfolio. The Bank has been actively working with borrowers at risk who were impacted by the pandemic.