Allowance for Loan Losses

12 Months Ended

Dec. 31, 2021

Allowance for Loan Losses

Allowance for Loan Losses

Note 4. Allowance for Loan Losses

Activity in the allowance for loan losses was as follows for the periods indicated (in thousands):

			Provision for
	Beginning		(Recovery of)						Ending
	Balance		Loan Losses		Charge-offs		Recoveries		Balance
Year Ended December 31, 2021
Construction and land development
Residential	$	214	$	(157)	$	—	$	—	$	57
Commercial		285		(56)		—		—		229
		499		(213)		—		—		286
Commercial real estate
Owner occupied		1,047		(214)		—		—		833
Non-owner occupied		1,421		(352)		—		14		1,083
Multifamily		47		(12)		—		—		35
Farmland		2		—		—		—		2
		2,517		(578)		—		14		1,953
Consumer real estate
Home equity lines		24		(23)		—		11		12
Secured by 1-4 family residential
First deed of trust		166		(54)		—		11		123
Second deed of trust		79		1		(84)		51		47
		269		(76)		(84)		73		182
Commercial and industrial loans
(except those secured by real estate)		408		47		—		31		486
Student loans		87		13		(35)		—		65
Consumer and other		36		39		(46)		—		29
Unallocated		154		268		—		—		422
	$	3,970	$	(500)	$	(165)	$	118	$	3,423
Year Ended December 31, 2020
Construction and land development
Residential	$	48	$	141	$	—	$	25	$	214
Commercial		137		148		—		—		285
		185		289		—		25		499
Commercial real estate
Owner occupied		671		376		—		—		1,047
Non-owner occupied		831		590		—		—		1,421
Multifamily		85		(38)		—		—		47
Farmland		2		—		—		—		2
		1,589		928		—		—		2,517
Consumer real estate
Home equity lines		271		(247)		—		—		24
Secured by 1-4 family residential
First deed of trust		343		(190)		—		13		166
Second deed of trust		64		45		(85)		55		79
		678		(392)		(85)		68		269
Commercial and industrial loans
(except those secured by real estate)		572		(58)		(135)		29		408
Student loans		108		27		(48)		—		87
Consumer and other		30		26		(24)		4		36
Unallocated		24		130		—		—		154
	$	3,186	$	950	$	(292)	$	126	$	3,970

The amount of the loan loss provision (recovery) is determined by an evaluation of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, delinquency trends, underlying collateral values, the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions. Loans originated under PPP are not considered in the evaluation of the allowance for loan losses because these loans carry a 100% guarantee from the SBA; however, if the collectability on the guarantee on a loan is at risk that loan will be included in the evaluation of the allowance for loan losses.

The level of the allowance reflects changes in the size of the portfolio or in any of its components as well as management’s continuing evaluation of industry concentrations, specific credit risk, loan loss experience, current loan portfolio quality, and present economic, political and regulatory conditions.  Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgement, should be charged off.  While management utilizes its best judgement and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The Company recorded a recovery of provision expense of $500,000 for the year ended December 31, 2021, compared to a provision for loan losses expense of $950,000 for the year ended December 31, 2020. The recovery of provision for the year ended December 31, 2021, resulted from a reduction in qualitative factors which was driven by improving economic factors, improved credit metrics, and elimination of COVID-19 related loan deferrals. The provision for loan losses for the year ended December 31, 2020, was driven primarily by an increase in the qualitative factors as a result of the continued economic uncertainty surrounding COVID-19. While the Delta and Omicron variants of the COVID-19 virus remain a risk to credit quality, we believe our current level of allowance for loan losses is adequate to cover incurred losses.

The allowance for loan losses at each of the periods presented includes an amount that could not be identified to individual types of loans referred to as the unallocated portion of the allowance.  We recognize the inherent imprecision in estimates of losses due to various uncertainties and the variability related to the factors used in calculation of the allowance. The allowance for loan losses included an unallocated portion of approximately $422,000 and $154,000 at December 31, 2021 and December 31, 2020, respectively.

Loans were evaluated for impairment as follows for the periods indicated (in thousands):

	Recorded Investment in Loans
	Allowance						Loans
	Ending						Ending
	Balance		Individually		Collectively		Balance		Individually		Collectively
Year Ended December 31, 2021
Construction and land development
Residential	$	57	$	—	$	57	$	6,805	$	—	$	6,805
Commercial		229		—		229		42,344		—		42,344
		286		—		286		49,149		—		49,149
Commercial real estate
Owner occupied		833		4		829		113,108		5,043		108,065
Non-owner occupied		1,083		—		1,083		129,786		1,458		128,328
Multifamily		35		—		35		11,666		—		11,666
Farmland		2		—		2		977		—		977
		1,953		4		1,949		255,537		6,501		249,036
Consumer real estate
Home equity lines		12		—		12		17,977		300		17,677
Secured by 1-4 family residential
First deed of trust		123		7		116		62,277		2,019		60,258
Second deed of trust		47		—		47		12,118		238		11,880
		182		7		175		92,372		2,557		89,815
Commercial and industrial loans
(except those secured by real estate)		486		—		486		100,421		185		100,236
Student loans		65		—		65		25,975		—		25,975
Consumer and other		451		—		451		3,003		—		3,003
	$	3,423	$	11	$	3,412	$	526,457	$	9,243	$	517,214
Year Ended December 31, 2020
Construction and land development
Residential	$	214	$	—	$	214	$	8,103	$	—	$	8,103
Commercial		285		—		285		21,466		—		21,466
		499		—		499		29,569		—		29,569
Commercial real estate
Owner occupied		1,047		9		1,038		99,784		3,905		95,879
Non-owner occupied		1,421		—		1,421		121,184		1,991		119,193
Multifamily		47		—		47		9,889		—		9,889
Farmland		2		—		2		367		—		367
		2,517		9		2,508		231,224		5,896		225,328
Consumer real estate
Home equity lines		24		—		24		18,394		300		18,094
Secured by 1-4 family residential
First deed of trust		166		8		158		57,089		2,011		55,078
Second deed of trust		79		—		79		11,097		699		10,398
		269		8		261		86,580		3,010		83,570
Commercial and industrial loans
(except those secured by real estate)		408		—		408		181,088		141		180,947
Student loans		87		—		87		29,657		—		29,657
Consumer and other		190		—		190		2,885		—		2,885
	$	3,970	$	17	$	3,953	$	561,003	$	9,047	$	551,956