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

3 Months Ended

Mar. 31, 2022

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, 2022			Year Ended December 31, 2021			Three Months Ended March 31, 2021
Allowance for Loan Losses
Balance, beginning of period	$	18,678		$	21,403		$	21,403
Recovery of loan losses		(758	)		(2,825	)		—
Charge-offs		(37	)		(146	)		(22	)
Recoveries		105			246			35
Balance, end of period	$	17,988		$	18,678		$	21,416
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	386		$	304		$	304
Provision for (recovery of) unfunded commitments		26			82			(1	)
Balance, end of period	$	412		$	386		$	303

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, 2022 (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, 2021	$	2,668		$	1,397		$	3,964		$	7,141		$	3,458		$	50		$	18,678
(Recovery of) provision for loan losses		(261	)		(16	)		(327	)		(17	)		(142	)		5			(758	)
Charge-offs		(3	)		—			—			—			(5	)		(29	)		(37	)
Recoveries		72			—			2			1			4			26			105
Balance at March 31, 2022	$	2,476		$	1,381		$	3,639		$	7,125		$	3,315		$	52		$	17,988
Balance at March 31, 2022:
Allowance for Loan Losses
Individually evaluated for impairment	$	2		$	—		$	—		$	—		$	—		$	—		$	2
Collectively evaluated for impairment		2,455			1,351			3,615			6,591			3,268			52			17,332
Purchased credit impaired loans		19			30			24			534			47			—			654
Total	$	2,476		$	1,381		$	3,639		$	7,125		$	3,315		$	52		$	17,988
Loans
Individually evaluated for impairment	$	10		$	—		$	—		$	1,159		$	856		$	—		$	2,025
Collectively evaluated for impairment		291,416			148,072			393,689			747,177			380,647			7,349			1,968,350
Purchased credit impaired loans		271			204			8,617			4,481			4,039			21			17,633
Total	$	291,697		$	148,276		$	402,306		$	752,817		$	385,542		$	7,370		$	1,988,008

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(1) Includes Paycheck Protection Program ("PPP") loans, which are guaranteed by the Small Business Administration ("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, 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 loan losses		(745	)		(530	)		(380	)		(493	)		(655	)		(22	)		(2,825	)
Charge-offs		—			—			(3	)		—			(53	)		(90	)		(146	)
Recoveries		40			—			7			8			99			92			246
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 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.

The Company recorded a negative provision (recovery) for loan losses of ($758) thousand for the first quarter of 2022, as compared to a negative provision (recovery) of ($2.8) million for the fourth quarter of 2021, and no provision expense or recovery for the first quarter of 2021. The first quarter of 2022 and fourth quarter of 2021 negative provisions were the result of continued improvement in economic conditions, ongoing low charge-off and delinquency rates, and overall strong asset quality metrics. The provision expense that would have been required in the first quarter of 2021 based on loan activity was offset by the adjustments to qualitative factors for improved economic conditions.