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

9 Months Ended

Sep. 30, 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):

	Nine Months Ended September 30, 2022			Year Ended December 31, 2021			Nine Months Ended September 30, 2021
Allowance for Loan Losses
Balance, beginning of period	$	18,678		$	21,403		$	21,403
Provision for (recovery of) loan losses		438			(2,825	)		(870	)
Charge-offs		(185	)		(146	)		(70	)
Recoveries		258			246			167
Balance, end of period	$	19,189		$	18,678		$	20,630
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	386		$	304		$	304
(Recovery of) provision for unfunded commitments		(8	)		82			23
Balance, end of period	$	378		$	386		$	327

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 nine months ended September 30, 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
Provision for (recovery of) loan losses		60			487		(313	)		(48	)		200			52			438
Charge-offs		(78	)		—		—			—			(5	)		(102	)		(185	)
Recoveries		103			—		19			3			37			96			258
Balance at September 30, 2022	$	2,753		$	1,884	$	3,670		$	7,096		$	3,690		$	96		$	19,189
Balance at September 30, 2022:
Allowance for Loan Losses
Individually evaluated for impairment	$	169		$	—	$	—		$	—		$	—		$	48		$	217
Collectively evaluated for impairment		2,584			1,856		3,647			6,580			3,641			48			18,356
Purchased credit impaired loans		—			28		23			516			49			—			616
Total	$	2,753		$	1,884	$	3,670		$	7,096		$	3,690		$	96		$	19,189
Loans
Individually evaluated for impairment	$	283		$	—	$	2,421		$	1,068		$	982		$	95		$	4,849
Collectively evaluated for impairment		295,167			209,306		413,810			759,606			414,338			6,493			2,098,720
Purchased credit impaired loans		91			1,194		7,447			4,289			2,807			18			15,846
Total	$	295,541		$	210,500	$	423,678		$	764,963		$	418,127		$	6,606		$	2,119,415

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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 provision for loan losses for the third quarter of 2022 of $615 thousand compared to $482 thousand in the third quarter of the previous year. The provision expense for the third quarter of 2022 was a function of continued loan growth during the period. The provision expense in the third quarter of 2021 was the net of the provision for loan growth offset by positive adjustments in qualitative factors for improved economic conditions.