Note 6 - Loans Receivable and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note

6

: Loans Receivable

and Allowance for Loan Losses

The following table sets forth the Company’s gross loans by major categories as of

March

31,

2017

and

December

31,

2016:

(dollars in thousands)	March 31, 2017			December 31, 2016
Commercial real estate	$	394,840		$	378,519
Construction and land development		78,636			61,453
Commercial and industrial		188,873			174,744
Owner occupied real estate		273,996			276,986
Consumer and other		67,402			63,660
Residential mortgage		22,652			9,682
Total loans receivable		1,026,399			965,044
Deferred costs (fees)		(256	)		(72	)
Allowance for loan losses		(9,181	)		(9,155	)
Net loans receivable	$	1,016,962		$	955,817

The Company disaggregates its loan portfolio into groups of loans with similar risk characteristics for purposes of estimating the allowance for loan losses. The Company’s loan groups include commercial real estate, construction and land development, commercial and industrial, owner occupied real estate, consumer, and residential mortgages. The loan groups are also considered classes for purposes of monitoring and assessing credit quality based on certain risk characteristics.

The following tables provide the activity in and ending balances of the allowance for loan losses by loan portfolio class at and for the

three

months ended

March

31,

2017

and

2016:

(dollars in thousands)	Commercial Real Estate			Construction and Land Development			Commercial and Industrial			Owner Occupied Real Estate			Consumer and Other			Residential Mortgage			Unallocated		Total
Three months ended March 31, 2017
Allowance for loan losses:
Beginning balance:	$	3,254		$	557		$	2,884		$	1,382		$	588		$	58		$	432	$	9,155
Charge-offs		-			-			-			(8	)		(2	)		-			-		(10	)
Recoveries		7			-			29			-			-			-			-		36
Provisions (credits)		(299	)		(11	)		(143	)		253			(11	)		72			139		-
Ending balance	$	2,962		$	546		$	2,770		$	1,627		$	575		$	130		$	571	$	9,181
Three months ended March 31, 2016
Allowance for loan losses:
Beginning balance:	$	2,393		$	338		$	2,932		$	2,030		$	295		$	14		$	701	$	8,703
Charge-offs		-			-			(18	)		(28	)		-			-			-		(46	)
Recoveries		-			-			72			-			-			-			-		72
Provisions (credits)		(348	)		76			(44	)		89			17			(3	)		513		300
Ending balance	$	2,045		$	414		$	2,942		$	2,091		$	312		$	11		$	1,214	$	9,029

The following tables provide a summary of the allowance for loan losses and balance of loans receivable by loan class and by impairment method as of

March

31,

2017

and

December

31,

2016:

(dollars in thousands)	Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Unallocated		Total
March 31, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	1,305	$	-	$	1,758	$	297	$	262	$	-	$	-	$	3,622
Collectively evaluated for impairment		1,657		546		1,012		1,330		313		130		571		5,559
Total allowance for loan losses	$	2,962	$	546	$	2,770	$	1,627	$	575	$	130	$	571	$	9,181
Loans receivable:
Loans evaluated individually	$	18,854	$	-	$	5,287	$	3,475	$	1,272	$	-	$	-	$	28,888
Loans evaluated collectively		375,986		78,636		183,586		270,521		66,130		22,652		-		997,511
Total loans receivable	$	394,840	$	78,636	$	188,873	$	273,996	$	67,402	$	22,652	$	-	$	1,026,399

(dollars in thousands)	Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Unallocated		Total
December 31, 2016
Allowance for loan losses:
Individually evaluated for impairment	$	1,277	$	-	$	1,624	$	274	$	293	$	-	$	-	$	3,468
Collectively evaluated for impairment		1,977		557		1,260		1,108		295		58		432		5,687
Total allowance for loan losses	$	3,254	$	557	$	2,884	$	1,382	$	588	$	58	$	432	$	9,155
Loans receivable:
Loans evaluated individually	$	19,245	$	-	$	5,180	$	2,325	$	1,290	$	130	$	-	$	28,170
Loans evaluated collectively		359,274		61,453		169,564		274,661		62,370		9,552		-		936,874
Total loans receivable	$	378,519	$	61,453	$	174,744	$	276,986	$	63,660	$	9,682	$	-	$	965,044

A loan is considered impaired, when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans, but also include internally classified accruing loans. The following table summarizes information with regard to impaired loans by loan portfolio class as of

March

31,

2017

and

December

31,

2016:

	March 31, 2017						December 31, 2016
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial real estate	$	12,234	$	12,235	$	-	$	12,347	$	12,348	$	-
Construction and land development		-		-		-		-		-		-
Commercial and industrial		1,907		3,067		-		1,955		3,111		-
Owner occupied real estate		1,631		1,742		-		621		733		-
Consumer and other		817		1,115		-		687		976		-
Residential mortgage		-		-		-		130		130		-
Total	$	16,589	$	18,159	$	-	$	15,740	$	17,298	$	-
With an allowance recorded:
Commercial real estate	$	6,620	$	6,634	$	1,305	$	6,898	$	6,912	$	1,277
Construction and land development		-		-		-		-		-		-
Commercial and industrial		3,380		6,047		1,758		3,225		5,892		1,624
Owner occupied real estate		1,844		1,844		297		1,704		1,704		274
Consumer and other		455		481		262		603		627		293
Residential mortgage		-		-		-		-		-		-
Total	$	12,299	$	15,006	$	3,622	$	12,430	$	15,135	$	3,468
Total:
Commercial real estate	$	18,854	$	18,869	$	1,305	$	19,245	$	19,260	$	1,277
Construction and land development		-		-		-		-		-		-
Commercial and industrial		5,287		9,114		1,758		5,180		9,003		1,624
Owner occupied real estate		3,475		3,586		297		2,325		2,437		274
Consumer and other		1,272		1,596		262		1,290		1,603		293
Residential mortgage		-		-		-		130		130		-
Total	$	28,888	$	33,165	$	3,622	$	28,170	$	32,433	$	3,468

The following table presents additional information regarding the Company’s impaired loans for the

three

months ended

March

31,

2017

and

2016:

	Three Months Ended March 31 ,
	2017				201 6
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded  Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate	$	12,290	$	70	$	11,589	$	65
Construction and land development		-		-		117		-
Commercial and industrial		1,931		8		1,998		10
Owner occupied real estate		1,126		12		483		1
Consumer and other		752		3		829		3
Residential mortgage		65		1		-		-
Total	$	16,164	$	94	$	15,016	$	79
With an allowance recorded:
Commercial real estate	$	6,759	$	5	$	508	$	8
Construction and land development		-		-		-		-
Commercial and industrial		3,303		17		3,110		19
Owner occupied real estate		1,774		6		2,830		6
Consumer and other		529		4		213		2
Residential mortgage		-		-		-		-
Total	$	12,365	$	32	$	6,661	$	35
Total:
Commercial real estate	$	19,049	$	75	$	12,097	$	73
Construction and land development		-		-		117		-
Commercial and industrial		5,234		25		5,108		29
Owner occupied real estate		2,900		18		3,313		7
Consumer and other		1,281		7		1,042		5
Residential mortgage		65		1		-		-
Total	$	28,529	$	126	$	21,677	$	114

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of

March

31,

2017

and

December

31,

2016:

(dollars in thousands)	30-59 Days Pas t Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing
At March 31 , 201 7
Commercial real estate	$	-	$	6	$	12,733	$	12,739	$	382,101	$	394,840	$	-
Construction and land development		-		-		-		-		78,636		78,636		-
Commercial and industrial		1,009		434		3,299		4,742		184,131		188,873		-
Owner occupied real estate		1,174		-		1,690		2,864		271,132		273,996		-
Consumer and other		23		24		807		854		66,548		67,402		-
Residential mortgage		-		-		-		-		22,652		22,652		-
Total	$	2,206	$	464	$	18,529	$	21,199	$	1,005,200	$	1,026,399	$	-

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing
At December 31 , 201 6
Commercial real estate	$	-	$	9	$	13,089	$	13,098	$	365,421	$	378,519	$	-
Construction and land development		-		-		-		-		61,453		61,453		-
Commercial and industrial		568		-		3,151		3,719		171,025		174,744		-
Owner occupied real estate		468		-		1,718		2,186		274,800		276,986		172
Consumer and other		24		22		808		854		62,806		63,660		-
Residential mortgage		-		-		130		130		9,552		9,682		130
Total	$	1,060	$	31	$	18,896	$	19,987	$	945,057	$	965,044	$	302

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of

March

31,

2017

and

December

31,

2016:

(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
At March 31, 2017 :
Commercial real estate	$	380,763	$	863	$	13,214	$	-	$	394,840
Construction and land development		78,636		-		-		-		78,636
Commercial and industrial		182,990		596		3,858		1,429		188,873
Owner occupied real estate		270,521		-		3,475		-		273,996
Consumer and other		66,130		-		1,272		-		67,402
Residential mortgage		22,524		128		-		-		22,652
Total	$	1,001,564	$	1,587	$	21,819	$	1,429	$	1,026,399

(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
At December 31, 2016 :
Commercial real estate	$	364,066	$	877	$	13,576	$	-	$	378,519
Construction and land development		61,453		-		-		-		61,453
Commercial and industrial		168,958		606		3,751		1,429		174,744
Owner occupied real estate		274,150		511		2,325		-		276,986
Consumer and other		62,370		-		1,290		-		63,660
Residential mortgage		9,552		-		130		-		9,682
Total	$	940,549	$	1,994	$	21,072	$	1,429	$	965,044

The following table shows non-accrual loans by class as of

March

31,

2017

and

December

31,

2016:

(dollars in thousands)	March 31, 2017		December 31, 201 6
Commercial real estate	$	12,733	$	13,089
Construction and land development		-		-
Commercial and industrial		3,299		3,151
Owner occupied real estate		1,690		1,546
Consumer and other		807		808
Residential mortgage		-		-
Total	$	18,529	$	18,594

If these loans were performing under their original contractual rate, interest income on such loans would have increased approximately

$276,000

and

$200,000

for the

three

months ended

March

31,

2017

and

2016,

respectively.

Troubled Debt Restructurings

A modification to the contractual terms of a loan which results in a concession to a borrower that is experiencing financial difficulty is classified as a troubled debt restructuring (“TDR”). The concessions made in a TDR are those that would not otherwise be considered for a borrower or collateral with similar risk characteristics. A TDR is typically the result of efforts to minimize potential losses that

may

be incurred during loan workouts, foreclosure, or repossession of collateral at a time when collateral values are declining. Concessions include a reduction in interest rate below current market rates, a material extension of time to the loan term or amortization period, partial forgiveness of the outstanding principal balance, acceptance of interest only payments for a period of time, or a combination of any of these conditions.

The following table summarizes the balance of outstanding TDRs at

March

31,

2017

and

December

31,

2016:

(dollars in thousands)	Number of Loans		Accrual Status		Non- Accrual Status		Total TDRs
March 31, 2017
Commercial real estate		2	$	5,640	$	6,129	$	11,769
Construction and land development		-		-		-		-
Commercial and industrial		2		222		349		571
Owner occupied real estate		-		-		-		-
Consumer and other		-		-		-		-
Residential mortgage		-		-		-		-
Total		4	$	5,862	$	6,478	$	12,340
December 31, 201 6
Commercial real estate		1	$	5,669	$	-	$	5,669
Construction and land development		-		-		-		-
Commercial and industrial		2		228		349		577
Owner occupied real estate		-		-		-		-
Consumer and other		-		-		-		-
Residential mortgage		-		-		-		-
Total		3	$	5,897	$	349	$	6,246

All TDRs are considered impaired and are therefore individually evaluated for impairment in the calculation of the allowance for loan losses. Some TDRs

may

not ultimately result in the full collection of principal and interest as restructured and could lead to potential incremental losses. These potential incremental losses would be factored into our estimate of the allowance for loan losses. The level of any subsequent defaults will likely be affected by future economic conditions.

The Company modified

one

commercial real estate loan in the amount of

$6.1

million during the

three

months ended

March

31,

2017.

This loan was transferred to non-accrual status during the

second

quarter of

2015

as a result of delinquency caused by

tenant

vacancies. The Company restructured the loan based on new leases obtained by the borrower. In accordance with the modified terms of the loan, certain concessions have been granted, including a reduction in the interest rate.

There were

no

loan modifications made during the

three

months ended

March

31,

2016

that met the criteria of a TDR.

There were

no

residential mortgages in the process of foreclosure as of

March

31,

2017

and

December

31,

2016.

Other real estate owned relating to residential real estate was

$59,000

and

$126,000

at

March

31,

2017

and

December

31,

2016.

After a loan is determined to be a TDR, the Company continues to track its performance under the most recent restructured terms. There were

no

TDRs that subsequently defaulted during the

three

months ended

March

31,

2017.

There were

no

TDRs that subsequently defaulted during the year ended

December

31,

2016.