Note 6 - Loans Held for Investment

3 Months Ended

Mar. 31, 2015

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

6. Loans Held for Investment. Loans held for investment at March 31, 2015 and December 31, 2014 are listed below:

	March 31, 2015					December 31, 2014
	Amount		Percent of Total			Amount		Percent of Total
	(Dollars in thousands)
Loans Held for Investment
Mortgage loans:
Residential real estate	$	64,974		13.3	%	$	64,647		13.4	%
Residential construction		1,631		0.3			1,382		0.3
Residential lots and raw land		808		0.2			828		0.2
Total mortgage loans		67,413		13.8			66,857		13.9
Commercial loans and leases:
Commercial real estate		261,921		53.5			255,800		53.2
Commercial construction		28,386		5.8			27,646		5.7
Commercial lots and raw land		26,620		5.4			27,502		5.7
Commercial and industrial		29,819		6.1			28,379		5.9
Lease receivables		12,637		2.6			12,392		2.6
Total commercial loans and leases		359,383		73.4			351,719		73.1
Consumer loans:
Consumer real estate		18,105		3.7			18,863		3.9
Consumer construction		1,583		0.3			1,412		0.3
Consumer lots and raw land		10,434		2.1			10,430		2.2
Home equity lines of credit		27,142		5.6			28,059		5.8
Consumer other		5,381		1.1			3,932		0.8
Total consumer loans		62,645		12.8			62,696		13.0
Gross loans held for investment		489,441		100.0	%		481,272		100.0	%
Less deferred loan origination fees, net		765					836
Less allowance for loan and lease losses		7,203					7,520
Net loans held for investment	$	481,473				$	472,916

The Bank has pledged eligible real estate loans as collateral for potential borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”) in the amount of $139.3 million at March 31, 2015, compared to $137.6 million at December 31, 2014. At March 31, 2015, the Bank has also pledged eligible loans as collateral to the Federal Reserve Bank of Richmond (“FRB”) in the amount of $84.2 million, compared to $81.3 million at December 31, 2014, for potential access to the FRB Discount Window.   

The following tables detail non-accrual loans held for investment, including troubled debt restructured (“TDR”) loans accounted for on a non-accrual status, segregated by class of loans, at March 31, 2015 and December 31, 2014:

	March 31, 2015		December 31, 2014
Non-accrual loans held for investment:	(Dollars in thousands)
Non-TDR loans accounted for on a non-accrual status:
Residential real estate	$	842	$	727
Residential lots and raw land		10		11
Commercial real estate		529		554
Commercial lots and raw land		39		32
Lease receivables		146		69
Consumer real estate		295		214
Consumer lots and raw land		76		124
Home equity lines of credit		73		61
Consumer other		6		6
Total Non-TDR loans accounted for on a non-accrual status	$	2,016	$	1,798

TDR loans accounted for on a non-accrual status:	March 31, 2015			December 31, 2014
Past Due TDRs:	(Dollars in thousands)
Commercial real estate	$	1,155		$	1,182
Consumer real estate		51			51
Total Past Due TDRs on a non-accrual status		1,206			1,233
Performing TDRs:
Residential real estate		827			834
Commercial real estate		123			127
Commercial lots and raw land		244			1,046
Total performing TDRs on non-accrual status		1,194			2,007
Total TDR loans accounted for on a non-accrual status	$	2,400		$	3,240
Total non-accrual loans	$	4,416		$	5,038
Percentage of total loans held for investment, net		0.9	%		1.1	%
Loans over 90 days past due and still accruing		-			389
Other real estate owned	$	7,082		$	7,756
Total non-performing assets	$	11,498		$	13,183

Cumulative interest income not recorded on loans accounted for on a non-accrual status was $106,235 and $109,598 at March 31, 2015 and December 31, 2014, respectively. 

The following table presents an age analysis of past due loans held for investment, segregated by class of loans as of March 31, 2015 and December 31, 2014:

Past due loans held for investment:	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables		Over 90 Days and Accruing
March 31, 2015	(In thousands)
Residential real estate	$	1,571	$	113	$	604	$	2,288	$	62,686	$	64,974	$	-
Residential construction		-		-		-		-		1,631		1,631		-
Residential lots and raw land		2		-		9		11		797		808		-
Commercial real estate		797		-		1,155		1,952		259,969		261,921		-
Commercial construction		-		-		-		-		28,386		28,386		-
Commercial lots and raw land		-		-		39		39		26,581		26,620		-
Commercial and industrial		-		-		-		-		29,819		29,819		-
Lease receivables		-		-		146		146		12,491		12,637		-
Consumer real estate		352		186		180		718		17,387		18,105		-
Consumer construction		-		-		-		-		1,583		1,583		-
Consumer lots and raw land		13		-		76		89		10,345		10,434		-
Home equity lines of credit		34		48		65		147		26,995		27,142		-
Consumer other		8		-		6		14		5,367		5,381		-
Total	$	2,777	$	347	$	2,280	$	5,404	$	484,037	$	489,441	$	-

Past due loans held for investment:	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables		Over 90 Days and Accruing
December 31, 2014	(In thousands)
Residential real estate	$	1,553	$	361	$	944	$	2,858	$	61,789	$	64,647	$	389
Residential construction		-		-		-		-		1,382		1,382		-
Residential lots and raw land		-		2		9		11		817		828		-
Commercial real estate		1,099		444		1,182		2,725		253,075		255,800		-
Commercial construction		-		-		-		-		27,646		27,646		-
Commercial lots and raw land		307		39		32		378		27,124		27,502		-
Commercial and industrial		63		-		-		63		28,316		28,379		-
Lease receivables		-		-		69		69		12,323		12,392		-
Consumer real estate		501		164		149		814		18,049		18,863		-
Consumer construction		-		-		-		-		1,412		1,412		-
Consumer lots and raw land		-		21		124		145		10,285		10,430		-
Home equity lines of credit		45		30		46		121		27,938		28,059		-
Consumer other		12		-		6		18		3,914		3,932		-
Total	$	3,580	$	1,061	$	2,561	$	7,202	$	474,070	$	481,272	$	389

The following table presents information on loans that were considered impaired as of March 31, 2015 and December 31, 2014. Impaired loans include loans modified as a TDR, whether on accrual or non-accrual status. At March 31, 2015, impaired loans included $3.7 million of TDRs, compared to $4.6 million at December 31, 2014.

Impaired Loans-March 31, 2015	Recorded Investment		Contractual Unpaid Principal Balance		Related Allowance		YTD Average Recorded Investment		Interest Income Recognized on Impaired Loans
With no related allowance recorded:	(In thousands)
Residential real estate	$	1,109	$	1,405	$	-	$	1,307	$	18
Commercial real estate		11,817		11,861		-		12,074		172
Commercial construction		103		103		-		103		1
Commercial lots and raw land		2,818		2,818		-		2,884		36
Commercial and industrial		45		45		-		45		1
Consumer real estate		340		344		-		266		3
Consumer lots and raw land		57		57		-		59		1
Home equity lines of credit		79		80		-		69		-
Consumer other		45		45		-		45		1
Subtotal:		16,413		16,758		-		16,852		233
With an allowance recorded:
Commercial real estate		1,501		1,559		135		1,516		27
Commercial lots and raw land		39		39		30		227		-
Commercial and industrial		244		244		224		122		6
Consumer real estate		130		130		19		131		2
Consumer lots and raw land		560		560		95		602		7
Subtotal:		2,474		2,532		503		2,598		42
Totals:
Mortgage		1,109		1,405		-		1,307		18
Commercial		16,567		16,669		389		16,971		243
Consumer		1,211		1,216		114		1,172		14
Grand Total:	$	18,887	$	19,290	$	503	$	19,450	$	275

Impaired Loans-December 31, 2014	Recorded Investment		Contractual Unpaid Principal Balance		Related Allowance		YTD Average Recorded Investment		Interest Income Recognized on Impaired Loans
With no related allowance recorded:	(In thousands)
Residential real estate	$	1,505	$	1,802	$	-	$	1,268	$	74
Commercial real estate		12,331		12,361		-		13,851		721
Commercial construction		103		103		-		1,793		5
Commercial lots and raw land		2,951		2,958		-		3,623		159
Commercial and industrial		46		46		-		48		2
Consumer real estate		192		192		-		258		6
Consumer lots and raw land		59		59		-		477		4
Home equity lines of credit		58		58		-		46		3
Consumer other		46		46		-		76		2
Subtotal:		17,291		17,625		-		21,440		976
With an allowance recorded:
Residential real estate		235		235		185		47		11
Commercial real estate		1,530		1,569		167		2,638		74
Commercial lots and raw land		416		418		251		152		29
Consumer real estate		132		132		19		139		6
Consumer lots and raw land		643		643		165		584		31
Home equity lines of credit		25		25		5		15		-
Subtotal		2,981		3,022		792		3,575		151
Totals:
Mortgage		1,740		2,037		185		1,315		85
Commercial		17,377		17,455		418		22,105		990
Consumer		1,155		1,155		189		1,595		52
Grand Total	$	20,272	$	20,647	$	792	$	25,015	$	1,127

Credit Quality Indicators. The Bank assigns a risk grade to each loan in the portfolio as part of the on-going monitoring of the credit quality of the loan portfolio.

Commercial loans are graded on a scale of 1 to 9 as follows:

• Risk Grade 1 (Excellent) - Loans in this category are considered to be of the highest quality. The borrower(s) has significant financial strength, stability, and liquidity. Proven cash flow is significantly more than required to service current and proposed debt with consistently strong earnings. Collateral position is very strong and a secondary source of repayment is self-evident. Guarantors may not be necessary to support the debt.

• Risk Grade 2 (Above Average) - Loans are supported by above average financial strength and stability. Cash flow is more than sufficient to meet current demands. Earnings are strong and reliable, but may differ from year to year. Collateral is highly liquid and sufficient to repay the debt in full. Guarantors may qualify for the loan on a direct basis.

• Risk Grade 3 (Average) - Credits in this group are supported by upper tier industry-average financial strength and stability. Liquidity levels fluctuate and need for short-term credit is demonstrated. Cash flow is steady and adequate to meet demands but can fluctuate. Earnings should be consistent but operating losses have not occurred recently. Collateral is generally pledged at an acceptable loan to value, but the credit can support some level of unsecured exposure. Guarantors with demonstrable financial strength are typically required on loans to business entities, but may not be on loans to individual borrowers.

• Risk Grade 4 (Acceptable) - Credits in this group are supported by lower end industry-average financial strength and stability. Liquidity levels fluctuate but are acceptable and need for short term credit is demonstrated. Cash flow is adequate to meet demands but can fluctuate. Earnings may be inconsistent but operating losses have not occurred recently. Collateral is generally pledged at an acceptable loan to value. Guarantors with demonstrable financial strength are required on loans to business entities, but may not be on loans to individual borrowers.

• Risk Grade 5 (Watch) - An asset in this category is one that has been identified by the lender, or credit administration as a loan that has shown some degree of deterioration from its original status. These loans are typically protected by collateral but have potential weaknesses that deserve management’s close attention, but are not yet at a point to become a classified asset. There may be unsecured loans that are included in this category. These are loans that management feels need to be watched more closely than those rated as acceptable and if left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset to warrant including them as classified assets.

• Risk Grade 6 (Special Mention) - An asset in this category is currently protected by collateral but has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.

• Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the debtor(s) or of the collateral pledged, if any. These credits have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.

• Risk Grade 8 (Doubtful) - A loan graded in this category has all the weaknesses inherent in one graded Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values highly questionable and improbable.

• Risk Grade 9 (Loss) - A loan graded as Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This grade does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

Consumer loans are graded on a scale of 1 to 9 as follows:

 • Risk Grades 1 - 5 (Pass) - Loans in this category generally show little to no signs of weakness or have adequate mitigating factors that minimize the risk of loss. Some of the characteristics of these loans include, but are not limited to, adequate financial strength and stability, adequate cash flow, collateral with acceptable loan to value, additional repayment sources, and reliable earnings.

 • Risk Grade 6 (Special Mention) - An asset in this category is currently protected by collateral but has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Bank’s position at some future date.

 • Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the debtor(s) or of the collateral pledged, if any. These credits have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.

 • Risk Grade 8 (Doubtful) - A loan graded in this category has all the weaknesses inherent in one graded Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values highly questionable and improbable.

•  Risk Grade 9 (Loss) - A loan graded as Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This grade does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

Mortgage loans are graded on a scale of 1 to 9 as follows:

• Risk Grades 1 - 4 (Pass) - Loans in this category generally show little to no signs of weakness or have adequate mitigating factors that minimize the risk of loss. Some of the characteristics of these loans include, but are not limited to, adequate financial strength and stability, acceptable credit history, adequate cash flow, collateral with acceptable loan to value, additional repayment sources, and reliable earnings.

• Risk Grade 5 (Pass -Watch) – Watch loans have shown credit quality changes from the original status. These loans are typically protected by collateral but have potential weaknesses that deserve management’s close attention, but are not yet at a point to become a classified asset. These are loans that management feels need to be watched more closely than those rated as Pass and if left uncorrected may result in the deterioration of the repayment prospects for the asset to warrant including them as classified assets.

• Risk Grade 6 (Special Mention) – Special Mention loans are currently protected by collateral but have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.

• Risk Grade 7 (Substandard) - Substandard loans are inadequately protected by the sound net worth and paying capacity of the borrower(s). Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

• Risk Grade 8 (Doubtful) - Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

• Risk Grade 9 (Loss) - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

The following table presents information on risk ratings of the commercial, consumer, mortgage and lease receivable portfolios, segregated by loan class as of March 31, 2015 and December 31, 2014:

March 31, 2015
Commercial Credit Exposure by Assigned Risk Grade	Commercial Real Estate		Commercial Construction		Commercial Lots and Raw Land		Commercial and Industrial
	(In thousands)
1-Excellent	$	-	$	-	$	-	$	-
2-Above Average		3,280		907		21		1,015
3-Average		54,989		6,478		1,601		4,173
4-Acceptable		171,674		18,062		16,390		21,608
5-Watch		15,078		2,329		3,786		605
6-Special Mention		6,895		507		3,043		2,091
7-Substandard		10,005		103		1,779		327
8-Doubtful		-		-		-		-
9-Loss		-		-		-		-
Total	$	261,921	$	28,386	$	26,620	$	29,819

March 31, 2015
Consumer Credit Exposure by Assigned Risk Grade	Consumer Real Estate		Consumer Construction		Consumer Lots and Raw Land		Home Equity Lines of Credit		Consumer Other
	(In thousands)
Pass	$	16,996	$	1,583	$	10,016	$	26,940	$	5,319
6-Special Mention		598		-		285		58		3
7-Substandard		511		-		133		144		59
8-Doubtful		-		-		-		-		-
9-Loss		-		-		-		-		-
Total	$	18,105	$	1,583	$	10,434	$	27,142	$	5,381

March 31, 2015
Mortgage and Lease Receivable Credit Exposure by Assigned Risk Grade	Residential Real Estate		Residential Construction		Residential Lots and Raw Land		Lease Receivables
	(In thousands)
Pass	$	62,629	$	1,631	$	798	$	12,491
6-Special Mention		677		-		-		-
7-Substandard		1,668		-		10		146
8-Doubtful		-		-		-		-
9-Loss		-		-		-		-
Total	$	64,974	$	1,631	$	808	$	12,637

December 31, 2014
Commercial Credit Exposure by Assigned Risk Grade	Commercial Real Estate		Commercial Construction		Commercial Lots and Raw Land		Commercial and Industrial
	(In thousands)
1-Excellent	$	-	$	-	$	-	$	-
2-Above Average		2,030		778		24		955
3-Average		53,699		5,681		1,560		5,264
4-Acceptable		166,639		17,701		16,601		19,562
5-Watch		16,117		2,641		3,948		458
6-Special Mention		7,195		515		3,201		2,051
7-Substandard		10,120		330		2,168		89
8-Doubtful		-		-		-		-
9-Loss		-		-		-		-
Total	$	255,800	$	27,646	$	27,502	$	28,379

December 31, 2014
Consumer Credit Exposure by Assigned Risk Grade	Consumer Real Estate		Consumer Construction		Consumer Lots and Raw Land		Home Equity Lines of Credit		Consumer Other
	(In thousands)
Pass	$	17,796	$	1,412	$	9,958	$	27,828	$	3,866
6-Special Mention		636		-		288		60		4
7-Substandard		431		-		184		171		62
8-Doubtful		-		-		-		-		-
9-Loss		-		-		-		-		-
Total	$	18,863	$	1,412	$	10,430	$	28,059	$	3,932

December 31, 2014
Mortgage and Lease Receivable Credit Exposure by Assigned Risk Grade	Residential Real Estate		Residential Construction		Residential Lots and Raw Land		Lease Receivables
	(In thousands)
Pass	$	61,779	$	1,382	$	817	$	12,323
6-Special Mention		684		-		-		-
7-Substandard		2,095		-		11		69
8-Doubtful		89		-		-		-
9-Loss		-		-		-		-
Total	$	64,647	$	1,382	$	828	$	12,392