Note 5 - Allowance for Credit Losses - Loans and Reserve for Unfunded Lending Commitments

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note 5 – 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) for each of the years in the three-year period ended December 31, 2023, are presented below (dollars in thousands): 

	Year Ended December 31,
	2023			2022			2021
Allowance for Credit Losses
Balance, beginning of year	$	19,555		$	18,678		$	21,403
Day 1 impact of CECL adoption		5,192			—			—
Provision for (recovery of) credit losses		433			1,597			(2,825	)
Charge-offs		(1,002	)		(1,019	)		(146	)
Recoveries		1,095			299			246
Balance, end of year	$	25,273		$	19,555		$	18,678

	Year Ended December 31,
	2023		2022			2021
Reserve for Unfunded Lending Commitments
Balance, beginning of year	$	377	$	386		$	304
Day 1 impact of CECL adoption		305		—			-
Provision for (recovery of) unfunded commitments		63		(9	)		82
Balance, end of year	$	745	$	377		$	386

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 be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted through the provision for credit losses. 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 the Company's allowance for credit losses by portfolio segment at and for the year ended December 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
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
Charge-offs		(894	)		—		—			—			(6	)		(9	)		(93	)		(1,002	)
Recoveries		492			10		37			213			164			57			122			1,095
Provision/(recovery)		390			769		(317	)		(355	)		40			(69	)		(25	)		433
Balance at December 31, 2023	$	3,745		$	2,847	$	4,583		$	9,111		$	3,928		$	959		$	100		$	25,273

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, 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
Charge-offs		(357	)		—		—			(436	)		(5	)		(221	)		(1,019	)
Recoveries		121			—		20			3			41			114			299
Provision/(recovery)		442			399		(199	)		476			373			106			1,597
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

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

The allowance for credit losses - loans is allocated to loan segments based upon historical default and loss experience, prepayment 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 forecast period; experience of lending staff; quality of loan review system; and changes in the regulatory, legal, and competitive environment.

The provision expense recorded of $433 thousand for the year ended December 31, 2023 was necessitated by loan growth. For the year ended December 31, 2022, the Company recorded a provision expense of $1.6 million necessitated by loan growth. Management will continue to evaluate the adequacy of the Company's allowance for credit losses as more economic data becomes available and as changes within the Company's loan portfolio are known. Changes in economic conditions may require further changes in the level of allowance.