Note 5 - Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note 5 – 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) for each of the years in the three-year period ended December 31, 2022, are presented below (dollars in thousands):

	Year Ended December 31,
	2022			2021			2020
Allowance for Loan Losses
Balance, beginning of year	$	18,678		$	21,403		$	13,152
Provision for (recovery of) loan losses		1,597			(2,825	)		8,916
Charge-offs		(1,019	)		(146	)		(1,006	)
Recoveries		299			246			341
Balance, end of year	$	19,555		$	18,678		$	21,403

	Year Ended December 31,
	2022			2021		2020
Reserve for Unfunded Lending Commitments
Balance, beginning of year	$	386		$	304	$	329
Provision for (recovery of) unfunded commitments		(9	)		82		(25	)
Charge-offs		—			—		—
Balance, end of year	$	377		$	386	$	304

The reserve for unfunded loan commitments is included in other liabilities, and the provision for unfunded commitments is included in noninterest expense. 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

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

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, 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
Charge-offs		—			—			(3	)		—			(53	)		(90	)		(146	)
Recoveries		40			—			7			8			99			92			246
Provision/(recovery)		(745	)		(530	)		(380	)		(493	)		(655	)		(22	)		(2,825	)
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

(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, portfolio analysis of smaller balance, homogenous loans, and qualitative factors. Qualitative factors include trends in delinquencies, nonaccrual loans, and loss rates; trends in volume and terms of loans, effects of changes in risk selection, underwriting standards, and lending policies; experience of lending officers, other lending staff and loan review; national, regional, and local economic trends and conditions; legal, regulatory and collateral factors; and concentrations of credit.

The provision expense recorded for the year ended December 31, 2022 was necessitated in large part by loan growth. For the year ended December 31, 2021, the Company recorded a negative provision (recovery) as the credit issues anticipated in 2020 did not materialize and the economic landscape improved substantially. Management will continue to evaluate the adequacy of the Company's allowance for loan 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.