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

12 Months Ended

Dec. 31, 2021

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 (included in other liabilities) for each of the years in the three-year period ended December 31, 2021, are presented below (dollars in thousands):

	Year Ended December 31,
	2021			2020			2019
Allowance for Loan Losses
Balance, beginning of year	$	21,403		$	13,152		$	12,805
Provision for (recovery of) loan losses		(2,825	)		8,916			456
Charge-offs		(146	)		(1,006	)		(333	)
Recoveries		246			341			224
Balance, end of year	$	18,678		$	21,403		$	13,152

	Year Ended December 31,
	2021		2020			2019
Reserve for Unfunded Lending Commitments
Balance, beginning of year	$	304	$	329		$	217
Provision for (recovery of) unfunded commitments		82		(25	)		112
Charge-offs		—		—			—
Balance, end of year	$	386	$	304		$	329

The reserve for unfunded loan commitments is included in other liabilities, and the provision for unfunded commitments is included in noninterest expense. The following table presents the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment for the year ended December 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
Charge-offs		—			—			(3	)		—			(53	)		(90	)		(146	)
Recoveries		40			—			7			8			99			92			246
Provision recovery		(745	)		(530	)		(380	)		(493	)		(655	)		(22	)		(2,825	)
Balance at December 31, 2021	$	2,668		$	1,397		$	3,964		$	7,141		$	3,458		$	50		$	18,678
Balance at December 31, 2021:
Allowance for Loan Losses
Individually evaluated for impairment	$	7		$	—		$	—		$	—		$	—		$	—		$	7
Collectively evaluated for impairment		2,642			1,365			3,767			6,778			3,402			50			18,004
Purchased credit impaired loans		19			32			197			363			56			—			667
Total	$	2,668		$	1,397		$	3,964		$	7,141		$	3,458		$	50		$	18,678
Loans
Individually evaluated for impairment	$	14		$	—		$	8		$	1,185		$	1,025		$	—		$	2,232
Collectively evaluated for impairment		299,470			133,984			382,562			724,180			377,290			7,060			1,924,546
Purchased credit impaired loans		289			237			8,947			5,669			4,645			15			19,802
Total	$	299,773		$	134,221		$	391,517		$	731,034		$	382,960		$	7,075		$	1,946,580

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

The following table presents the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment 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
Charge-offs		(505	)		—		(17	)		(165	)		(117	)		(202	)		(1,006	)
Recoveries		65			2		12			50			85			127			341
Provision		1,156			764		1,871			3,960			1,076			89			8,916
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

(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, portfolio analysis of smaller balance, homogenous 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 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 loan portfolio. For the year ended December 31, 2021, the Company recorded a negative provision (recovery) as the credit issues anticipated in 2020 did not materialize and the economic landscape improved substantially. 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 loan portfolio are known. The effects of the pandemic may require further changes in the level of allowance.