Note 4 - Allowance for Credit Losses - Loans and Reserve for Unfunded Lending Commitments

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note 4 – Allowance for Credit Losses - Loans and Reserve for Unfunded Lending Commitments

Changes in the allowance for credit 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, 2023			Year Ended December 31, 2022			Three Months Ended March 31, 2022
Allowance for Credit Losses - Loans
Balance, beginning of period	$	19,555		$	18,678		$	18,678
Day 1 impact of CECL adoption		5,192			-			-
Provision for (recovery of) credit losses		329			1,597			(758	)
Charge-offs		(395	)		(1,019	)		(37	)
Recoveries		180			299			105
Balance, end of period	$	24,861		$	19,555		$	17,988
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	377		$	386		$	386
Day 1 impact of CECL adoption		305			-			-
Provision for (recovery of) unfunded commitments		6			(9	)		26
Balance, end of period	$	688		$	377		$	412

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 (i.e. commitment cannot canceled at any time). 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, and are discussed in Note 1. The allowance for unfunded loan commitments is included in other liabilities on the Company's consolidated balance sheets.

The following table presents changes in the Company's allowance for credit losses by portfolio segment and the related loan balance total by segment at and for the three months ended March 31, 2023 (dollars in thousands):

	Commercial			Construction and Land Development		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-owner Occupied			Residential Real Estate			Home Equity			Consumer			Total
Allowance for Credit Losses - Loans
Balance at December 31, 2022	$	2,874		$	1,796	$	3,785		$	7,184		$	3,077		$	790		$	49		$	19,555
Day 1 impact of CECL adoption		883			272		1,078			2,069			653			190			47			5,192
Provision for (recovery of) credit losses		245			212		(28	)		(21	)		(38	)		(24	)		(17	)		329
Charge-offs		(360	)		—		—			—			—			—			(35	)		(395	)
Recoveries		34			—		6			24			62			8			46			180
Balance at March 31, 2023	$	3,676		$	2,280	$	4,841		$	9,256		$	3,754		$	964		$	90		$	24,861

__________________________

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, 2022 (dollars in thousands):

	Commercial			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
Provision for loan losses		442			399		(199	)		476			373			106			1,597
Charge-offs		(357	)		—		—			(436	)		(5	)		(221	)		(1,019	)
Recoveries		121			—		20			3			41			114			299
Balance at December 31, 2022	$	2,874		$	1,796	$	3,785		$	7,184		$	3,867		$	49		$	19,555
Balance at December 31, 2022:
Allowance for Loan Losses
Individually evaluated for impairment	$	—		$	—	$	—		$	—		$	—		$	—		$	—
Collectively evaluated for impairment		2,873			1,772		3,762			7,184			3,822			49			19,462
Purchased credit impaired loans		1			24		23			—			45			—			93
Total	$	2,874		$	1,796	$	3,785		$	7,184		$	3,867		$	49		$	19,555
Loans
Individually evaluated for impairment	$	—		$	—	$	2,420		$	1,360		$	1,314		$	—		$	5,094
Collectively evaluated for impairment		304,240			196,357		408,656			824,153			427,809			6,599			2,167,814
Purchased credit impaired loans		7			1,168		7,386			2,215			2,749			16			13,541
Total	$	304,247		$	197,525	$	418,462		$	827,728		$	431,872		$	6,615		$	2,186,449

__________________________

The allowance for credit losses - loans is allocated to loan segments based upon historical default and loss experience, weighted average life estimates, risk grades on individual loans, and qualitative factors. Qualitative factors include effects of changes in risk selection, underwriting standards, and lending policies; expected economic conditions throughout a reasonable and supportable period; experience of lending staff; quality of loan review system; and changes in the regulatory, legal, and competitive environment.

The Company recorded a provision for credit losses for the first quarter of 2023 of $329 thousand compared to a negative provision of $758 thousand in the first quarter of the previous year. The provision expense for the first quarter of 2023 was a function of loan growth and net charge-off activity during the period. The negative provision expense in the first quarter of 2022 was the result of improvement in economic conditions, ongoing low charge-off and delinquency rates, and overall strong asset quality metrics.