Note 6 - Loans Receivable and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2018

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

June 30, 2018

and

December 31, 2017:

(dollars in thousands)	June 3 0 , 2018			December 31, 2017
Commercial real estate	$	489,574		$	433,304
Construction and land development		120,165			104,617
Commercial and industrial		188,254			173,343
Owner occupied real estate		335,871			309,838
Consumer and other		83,467			76,183
Residential mortgage		100,108			64,764
Total loans receivable		1,317,439			1,162,049
Deferred costs (fees)		139			229
Allowance for loan losses		(7,566	)		(8,599	)
Net loans receivable	$	1,310,012		$	1,153,679

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

June 30, 2018

and

2017:

(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 June 30, 201 8
Allowance for loan losses:
Beginning balance:	$	1,903	$	751	$	1,261		$	1,692		$	460		$	508	$	75	$	6,650
Charge-offs		-		-		-			-			(14	)		-		-		(14	)
Recoveries		33		-		76			20			1			-		-		130
Provisions (credits)		103		21		112			144			62			130		228		800
Ending balance	$	2,039	$	772	$	1,449		$	1,856		$	509		$	638	$	303	$	7,566
Three months ended June 30, 201 7
Allowance for loan losses:
Beginning balance:	$	2,962	$	546	$	2,770		$	1,627		$	575		$	130	$	571	$	9,181
Charge-offs		-		-		(152	)		(100	)		(6	)		-		-		(258	)
Recoveries		-		-		30			-			1			-		-		31
Provisions (credits)		209		34		(152	)		71			(26	)		108		256		500
Ending balance	$	3,171	$	580	$	2,496		$	1,598		$	544		$	238	$	827	$	9,454

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

six

months ended

June 30, 2018

and

2017:

(dollars in thousands)	Commercia l Real Estate			Construction and Land Development		Commercial and Industrial			Owner Occupied Real Estate			Consumer and Other			Residential Mortgage		Unallocated		Total
Six months ended June 30, 201 8
Allowance for loan losses:
Beginning balance:	$	3,774		$	725	$	1,317		$	1,737		$	573		$	392	$	81	$	8,599
Charge-offs		(1,535	)		-		(151	)		(465	)		(212	)		-		-		(2,363	)
Recoveries		33			-		76			20			1			-		-		130
Provisions (credits)		(233	)		47		207			564			147			246		222		1,200
Ending balance	$	2,039		$	772	$	1,449		$	1,856		$	509		$	638	$	303	$	7,566
Six months ended June 30, 201 7
Allowance for loan losses:
Beginning balance:	$	3,254		$	557	$	2,884		$	1,382		$	588		$	58	$	432	$	9,155
Charge-offs		-			-		(152	)		(108	)		(8	)		-		-		(268	)
Recoveries		7			-		59			-			1			-		-		67
Provisions (credits)		(90	)		23		(295	)		324			(37	)		180		395		500
Ending balance	$	3,171		$	580	$	2,496		$	1,598		$	544		$	238	$	827	$	9,454

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

June 30, 2018

and

December 31, 2017:

(dollars in thousands)	Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Unallocated		Total
June 30, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	-	$	-	$	622	$	201	$	68	$	-	$	-	$	891
Collectively evaluated for impairment		2,039		772		827		1,655		441		638		303		6,675
Total allowance for loan losses	$	2,039	$	772	$	1,449	$	1,856	$	509	$	638	$	303	$	7,566
Loans receivable:
Loans evaluated individually	$	13,811	$	-	$	6,783	$	3,400	$	790	$	-	$	-	$	24,784
Loans evaluated collectively		475,763		120,165		181,471		332,471		82,677		100,108		-		1,292,655
Total loans receivable	$	489,574	$	120,165	$	188,254	$	335,871	$	83,467	$	100,108	$	-	$	1,317,439

(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, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	1,964	$	-	$	374	$	235	$	217	$	-	$	-	$	2,790
Collectively evaluated for impairment		1,810		725		943		1,502		356		392		81		5,809
Total allowance for loan losses	$	3,774	$	725	$	1,317	$	1,737	$	573	$	392	$	81	$	8,599
Loans receivable:
Loans evaluated individually	$	15,415	$	-	$	4,501	$	3,798	$	1,002	$	-	$	-	$	24,716
Loans evaluated collectively		417,889		104,617		168,842		306,040		75,181		64,764		-		1,137,333
Total loans receivable	$	433,304	$	104,617	$	173,343	$	309,838	$	76,183	$	64,764	$	-	$	1,162,049

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

June 30, 2018

and

December 31, 2017:

	June 30, 2018						December 31, 2017
(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	$	13,811	$	14,699	$	-	$	9,264	$	9,268	$	-
Construction and land development		-		-		-		-		-		-
Commercial and industrial		4,818		8,618		-		2,756		6,674		-
Owner occupied real estate		2,093		2,241		-		2,595		2,743		-
Consumer and other		638		986		-		655		981		-
Residential mortgage		-		-		-		-		-		-
Total	$	21,360	$	26,544	$	-	$	15,270	$	19,666	$	-
With an allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	6,151	$	6,165	$	1,964
Construction and land development		-		-		-		-		-		-
Commercial and industrial		1,965		2,107		622		1,745		1,752		374
Owner occupied real estate		1,307		1,314		201		1,203		1,206		235
Consumer and other		152		153		68		347		379		217
Residential mortgage		-		-		-		-		-		-
Total	$	3,424	$	3,574	$	891	$	9,446	$	9,502	$	2,790
Total:
Commercial real estate	$	13,811	$	14,699	$	-	$	15,415	$	15,433	$	1,964
Construction and land development		-		-		-		-		-		-
Commercial and industrial		6,783		10,725		622		4,501		8,426		374
Owner occupied real estate		3,400		3,555		201		3,798		3,949		235
Consumer and other		790		1,139		68		1,002		1,360		217
Residential mortgage		-		-		-		-		-		-
Total	$	24,784	$	30,118	$	891	$	24,716	$	29,168	$	2,790

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

three

months ended

June 30, 2018

and

June 30, 2017:

	Three Months Ended June 30,
	201 8				201 7
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate	$	13,828	$	72	$	8,794	$	95
Construction and land development		-		-		-		-
Commercial and industrial		5,162		28		2,139		10
Owner occupied real estate		2,338		14		1,812		17
Consumer and other		639		1		868		5
Residential mortgage		-		-		21		-
Total	$	21,967	$	115	$	13,634	$	127
With an allowance recorded:
Commercial real estate	$	-	$	-	$	6,515	$	4
Construction and land development		-		-		-		-
Commercial and industrial		1,774		-		3,015		17
Owner occupied real estate		1,075		6		1,380		8
Consumer and other		152		-		407		2
Residential mortgage		-		-		-		-
Total	$	3,001	$	6	$	11,317	$	31
Total:
Commercial real estate	$	13,828	$	72	$	15,309	$	99
Construction and land development		-		-		-		-
Commercial and industrial		6.936		28		5,154		27
Owner occupied real estate		3,413		20		3,192		25
Consumer and other		791		1		1,275		7
Residential mortgage		-		-		21		-
Total	$	24,968	$	121	$	24,951	$	158

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

six

months ended

June 30, 2018

and

June 30, 2017:

	Six Months Ended June 30,
	201 8				201 7
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate	$	12,307	$	144	$	10,542	$	165
Construction and land development		-		-		-		-
Commercial and industrial		4,360		33		2,035		18
Owner occupied real estate		2,423		28		1,469		29
Consumer and other		644		2		810		8
Residential mortgage		-		-		43		1
Total	$	19,734	$	207	$	14,899	$	221
With an allowance recorded:
Commercial real estate	$	2,050	$	-	$	6,637	$	9
Construction and land development		-		-		-		-
Commercial and industrial		1,765		3		3,159		34
Owner occupied real estate		1,118		12		1,577		14
Consumer and other		217		1		468		6
Residential mortgage		-		-		-		-
Total	$	5,150	$	16	$	11,841	$	63
Total:
Commercial real estate	$	14,357	$	144	$	17,179	$	174
Construction and land development		-		-		-		-
Commercial and industrial		6,125		36		5,194		52
Owner occupied real estate		3,541		40		3,046		43
Consumer and other		861		3		1,278		14
Residential mortgage		-		-		43		1
Total	$	24,884	$	223	$	26,740	$	284

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

June 30, 2018

and

December 31, 2017:

(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 June 30 , 201 8
Commercial real estate	$	815	$	129	$	7,426	$	8,370	$	481,204	$	489,574	$	-
Construction and land development		-		-		-		-		120,165		120,165		-
Commercial and industrial		-		-		3,885		3,885		184,369		188,254		-
Owner occupied real estate		-		-		2,004		2,004		333,867		335,871		-
Consumer and other		12		-		791		803		82,664		83,467		-
Residential mortgage		-		-		-		-		100,108		100,108		-
Total	$	827	$	129	$	14,106	$	15,062	$	1,302,377	$	1,317,439	$	-

(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 7
Commercial real estate	$	-	$	-	$	8,963	$	8,963	$	424,341	$	433,304	$	-
Construction and land development		-		-		-		-		104,617		104,617		-
Commercial and industrial		969		-		2,895		3,864		169,479		173,343		-
Owner occupied real estate		-		-		2,136		2,136		307,702		309,838		-
Consumer and other		144		-		851		995		75,188		76,183		-
Residential mortgage		-		-		-		-		64,764		64,764		-
Total	$	1,113	$	-	$	14,845	$	15,958	$	1,146,091	$	1,162,049	$	-

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

June 30, 2018

and

December 31, 2017:

(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
At June 3 0 , 2018:
Commercial real estate	$	481.204	$	944	$	7,426	$	-	$	489,574
Construction and land development		120,165		-		-		-		120,165
Commercial and industrial		181,452		19		6,503		280		188,254
Owner occupied real estate		331,121		1,350		3,400		-		335,871
Consumer and other		82,677		-		790		-		83,467
Residential mortgage		99,983		125		-		-		100,108
Total	$	1,296,602	$	2,438	$	18,119	$	280	$	1,317,439

(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
At December 31, 2017:
Commercial real estate	$	423,382	$	959	$	8,963	$	-	$	433,304
Construction and land development		104,617		-		-		-		104,617
Commercial and industrial		168,702		140		4,221		280		173,343
Owner occupied real estate		306,040		-		3,798		-		309,838
Consumer and other		75,181		-		1,002		-		76,183
Residential mortgage		64,637		127		-		-		64,764
Total	$	1,142,559	$	1,226	$	17,984	$	280	$	1,162,049

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

June 30, 2018

and

December 31, 2017:

(dollars in thousands)	June 3 0 , 2018		December 31, 2017
Commercial real estate	$	7,426	$	8,963
Construction and land development		-		-
Commercial and industrial		3,885		2,895
Owner occupied real estate		2,004		2,136
Consumer and other		791		851
Residential mortgage		-		-
Total	$	14,106	$	14,845

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

$184,000

and

$363,000

for the

three

and

six

months ended

June 30, 2018,

respectively, and

$210,000

and

$486,000

for the

three

and

six

months ended

June 30, 2017,

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 information with regard to outstanding troubled debt restructurings at

June 30, 2018

and

December 31, 2017:

(dollars in thousands)	Number of Loans		Accrual Status		Non- Accrual Status		Total TDRs
June 3 0 , 2018
Commercial real estate		1	$	6,384	$	-	$	6,384
Construction and land development		-		-		-		-
Commercial and industrial		3		-		1,524		1,524
Owner occupied real estate		1		-		242		242
Consumer and other		-		-		-		-
Residential mortgage		-		-		-		-
Total		5	$	6,384	$	1,766	$	8,150
December 31, 2017
Commercial real estate		1	$	6,452	$	-	$	6,452
Construction and land development		-		-		-		-
Commercial and industrial		3		1,175		349		1,524
Owner occupied real estate		1		242		-		242
Consumer and other		-		-		-		-
Residential mortgage		-		-		-		-
Total		5	$	7,869	$	349	$	8,218

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.

There were

no

loan modifications made during the

three

and

six

months ended

June 30, 2018

that met the criteria of a TDR.

The Company modified

one

commercial and industrial loan during the

twelve

month period ended

December 31, 2017.

In accordance with the modified terms of the commercial and industrial loan, the principal balance of

$975,000

was converted from a line of credit to a term loan with a

five

year maturity.

The Company modified

one

owner occupied real estate loan during the

twelve

month period ended

December 31, 2017.

In accordance with the modified terms of the owner occupied loan of

$245,000,

certain concessions have been granted, including a reduction in the interest rate and an extension of the maturity date of the loan.

The Company modified

one

commercial real estate loan in the amount of

$6.5

million during the

twelve

month period ended

December 31, 2017

that met the criteria of a TDR. 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. In addition, the principal was increased by

$421,000.

As a result of current payments for

six

consecutive months, the loan was returned to accrual status in the

third

quarter of

2017.

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

June 30, 2018

and during the year ended

December 31, 2017.

There were

three

TDRs that subsequently defaulted during the

six

months ended

June 30, 2018.

There were

no

residential mortgages in the process of foreclosure as of

June 30, 2018

and

December 31, 2017.

Other real estate owned relating to residential real estate was

$42,000

at

June 30, 2018

and

December 31, 2017.