Note 4 - Loans Held for Investment

12 Months Ended

Dec. 31, 2015

Receivables [Abstract]

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

4. LOANS HELD FOR INVESTMENT

The following table summarizes loans held for investment at December 31, 2015 and 2014:

	December 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	$	68,229		11.2	%	$	64,647		13.4	%
Residential construction		3,934		0.6			1,382		0.3
Residential lots and raw land		157		0.1			828		0.2
Total mortgage loans		72,320		11.9			66,857		13.9
Commercial loans and leases:
Commercial real estate		338,714		55.7			255,800		53.2
Commercial construction		42,987		7.1			27,646		5.7
Commercial lots and raw land		28,271		4.7			27,502		5.7
Commercial and Industrial		45,481		7.5			28,379		5.9
Lease receivables		17,235		2.8			12,392		2.6
Total commercial loans and leases		472,688		77.8			351,719		73.1
Consumer loans:
Consumer real estate		17,239		2.8			18,863		3.9
Consumer construction		196		0.1			1,412		0.3
Consumer lots and raw land		9,643		1.6			10,430		2.2
Home equity lines of credit		29,709		4.8			28,059		5.8
Consumer other		6,070		1.0			3,932		0.8
Total consumer loans		62,857		10.3			62,696		13.0
Gross loans held for investment		607,865		100.0	%		481,272		100.0	%
Less deferred loan origination fees, net		850					836
Less allowance for loan and lease losses		7,867					7,520
Net loans held for investment	$	599,148				$	472,916

The Bank has pledged eligible loans as collateral for potential borrowings from the FHLB and the Federal Reserve Bank of Richmond (FRB). At December 31, 2015, the Bank pledged $220.6 million and $113.4 million of loans to the FHLB and FRB, respectively. See Note 13 below, for additional information.

The following table presents nonaccrual loans, including TDR loans, accounted for on a nonaccrual basis and segregated by class of financing receivables at the dates indicated.

	December 31, 2015			December 31, 2014
	(Dollars in thousands)
Non-accrual loans held for investment:
Non-TDR loans accounted for on a non-accrual status:
Residential real estate	$	635		$	727
Residential lots and raw land		-			11
Commercial real estate		594			554
Commercial construction		-			-
Commercial lots and raw land		-			32
Commercial and Industrial		-			-
Lease receivables		95			69
Consumer real estate		148			214
Consumer lots and raw land		140			124
Home equity lines of credit		81			61
Consumer other		2			6
Total non-TDR loans accounted for on a nonaccrual status		1,695			1,798
TDR loans accounted for on a nonaccrual status:
Past Due TDRs:
Residential real estate		-			-
Commercial real estate		-			1,182
Commercial construction		-			-
Commercial lots and raw land		-			-
Commercial and Industrial		-			-
Consumer real estate		159			51
Total Past Due TDRs		159			1,233
Current TDRs:
Residential real estate		809			834
Commercial real estate		534			127
Commercial construction		-			-
Commercial lots and raw land		-			1,046
Commercial and Industrial		-			-
Consumer lots and raw land		-			-
Total Current TDRs		1,343			2,007
Total TDR loans accounted for on a nonaccrual status		1,502			3,240
Total non-performing loans	$	3,197			5,038
Percentage of total loans held for investment, net		0.5	%		1.1	%
Loans over 90 days past due, still accruing	$	115		$	389
Other real estate owned		6,125			7,756
Total non-performing assets	$	9,437		$	13,183

Cumulative interest income not recorded on loans accounted for on a nonaccrual basis was $71,723 and $109,598 at December 31, 2015 and 2014, respectively.

The following tables present an age analysis of past due loans, segregated by class of loans as of December 31, 2015 and 2014:

	30-59		60-89		Greater		Total				Total		Over 90
	Days		Days		Than		Past				Financing		Days and
Past due loans held for investment:	Past Due		Past Due		90 Days		Due		Current		Receivables		Accruing
	(In thousands)
December 31, 2015
Residential real estate	$	2,238	$	107	$	354	$	2,699	$	65,530	$	68,229	$	115
Residential construction		120		-		-		120		3,814		3,934		-
Residential lots and raw land		-		-		-		-		157		157		-
Commercial real estate		1,054		227		103		1,384		337,330		338,714		-
Commercial construction		-		-		-		-		42,987		42,987		-
Commercial lots and raw land		69		-		-		69		28,202		28,271		-
Commercial and Industrial		3		-		-		3		45,478		45,481		-
Lease receivables		-		-		95		95		17,140		17,235		-
Consumer real estate		429		113		237		779		16,460		17,239		-
Consumer construction		-		-		-		-		196		196		-
Consumer lots and raw land		211		-		140		351		9,292		9,643		-
Home equity lines of credit		122		72		34		228		29,481		29,709		-
Consumer other		3		2		1		6		6,064		6,070		-
Total	$	4,249	$	521	$	964	$	5,734	$	602,131	$	607,865	$	115

	30-59		60-89		Greater		Total				Total		Over 90
	Days		Days		Than		Past				Financing		Days and
Past due loans held for investment:	Past Due		Past Due		90 Days		Due		Current		Receivables		Accruing
	(In thousands)
December 31, 2014
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 December 31, 2015 and 2014. Impaired loans include loans modified in a TDR, whether on accrual or nonaccrual status. At December 31, 2015, impaired loans included $2.4 million of impaired TDRs, compared to $4.6 million at December 31, 2014.

			Contractual				YTD Average		Interest Income
	Recorded		Unpaid Principal		Related		Recorded		Recognized on
Impaired Loans December 31, 2015	Investment		Balance		Allowance		Investment		Impaired Loans
	(In thousands)
With no related allowance recorded:
Residential real estate	$	1,087	$	1,384	$	-	$	1,180	$	62
Commercial real estate		9,521		9,573		-		10,883		564
Commercial construction		574		574		-		305		14
Commercial lots and raw land		2,616		2,616		-		2,764		139
Commercial and Industrial		42		42		-		44		2
Consumer real estate		201		207		-		277		8
Consumer lots and raw land		50		50		-		55		3
Home equity lines of credit		50		51		-		56		2
Consumer other		42		42		-		44		2
Subtotal:		14,183		14,539		-		15,608		796
With an allowance recorded:
Commercial real estate		821		823		365		1,434		57
Commercial and Industrial		14		14		14		61		2
Consumer real estate		79		79		30		100		2
Consumer lots and raw land		723		723		209		619		35
Subtotal		1,637		1,639		618		2,214		96
Totals:
Residential		1,087		1,384		-		1,180		62
Commercial		13,588		13,642		379		15,491		778
Consumer		1,145		1,152		239		1,151		52
Grand Total	$	15,820	$	16,178	$	618	$	17,822	$	892

			Contractual				YTD Average		Interest Income
	Recorded		Unpaid Principal		Related		Recorded		Recognized on
Impaired Loans December 31, 2014	Investment		Balance		Allowance		Investment		Impaired Loans
	(In thousands)
With no related allowance recorded:
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:
Residential		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. A description of the general characteristics of the 9 risk grades is 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 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. A description of the general characteristics of the 9 risk grades is 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. A description of the general characteristics of the 9 risk grades is 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, acceptable credit history, adequate cash flow, collateral with acceptable loan to value, additional repayment sources, and reliable earnings.

• 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 position at some future date.

• Risk Grade 7 (Substandard) - Substandard loans are inadequately protected by their 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 and consumer held for investment loan portfolios, segregated by loan class as of December 31, 2015 and 2014:

December 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		2,788		-		160		3,757
3-Average		98,148		10,023		2,247		8,095
4-Acceptable		209,936		31,139		18,086		30,218
5-Watch		11,877		391		3,821		1,350
6-Special Mention		7,872		860		2,715		41
7-Substandard		8,093		574		1,242		2,020
8-Doubtful		-		-		-		-
9-Loss		-		-		-		-
Total	$	338,714	$	42,987	$	28,271	$	45,481

December 31, 2015
Consumer Credit Exposure by Assigned Risk Grade	Consumer Real Estate		Consumer Construction		Consumer Lots and Raw Land		Home Equity Line of Credit		Consumer Other
	(In thousands)
Pass	$	16,253	$	196	$	7,906	$	29,523	$	6,000
6-Special Mention		679		-		1,270		61		26
7-Substandard		307		-		277		125		44
8-Doubtful		-		-		190		-		-
9-Loss		-		-		-		-		-
Total	$	17,239	$	196	$	9,643	$	29,709	$	6,070

December 31, 2015
Mortgage and Lease Receivable Credit Exposure by Assigned Risk Grade	Residential Real Estate		Residential Construction		Residential Lots and Raw Land		Lease Receivable
	(In thousands)
Pass	$	65,977	$	3,934	$	157	$	17,140
6-Special Mention		791		-		-		-
7-Substandard		1,461		-		-		95
8-Doubtful		-		-		-		-
9-Loss		-		-		-		-
Total	$	68,229	$	3,934	$	157	$	17,235

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 Line 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 Receivable
	(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