Note 3 - Loans

9 Months Ended

Sep. 30, 2015

Receivables [Abstract]

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

(3) Loans

Composition of loans, net of deferred fees and costs, by primary loan portfolio class follows:

(in thousands)	September 30, 2015		December 31, 2014
Commercial and industrial	$	610,877	$	571,754
Construction and development, excluding undeveloped land		109,870		95,733
Undeveloped land		18,950		21,268
Real estate mortgage:
Commercial investment		491,171		487,822
Owner occupied commercial		357,628		340,982
1-4 family residential		222,643		211,548
Home equity - first lien		49,937		43,779
Home equity - junior lien		62,223		66,268
Subtotal: Real estate mortgage		1,183,602		1,150,399
Consumer		31,126		29,396
Total loans	$	1,954,425	$	1,868,550

The following table presents the balance in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment evaluation method as of September 30, 2015 and December 31, 2014.

(in thousands)	Type of loan
			Construction
			and development
	Commercial		excluding
	and		undeveloped		Undeveloped		Real estate
September 30, 2015	industrial		land		land		mortgage		Consumer		Total
Loans	$	610,877	$	109,870	$	18,950	$	1,183,602	$	31,126	$	1,954,425
Loans collectively evaluated for impairment	$	604,021	$	109,523	$	18,950	$	1,179,342	$	31,041	$	1,942,877
Loans individually evaluated for impairment	$	6,778	$	26	$	-	$	3,764	$	85	$	10,653
Loans acquired with deteriorated credit quality	$	78	$	321	$	-	$	496	$	-	$	895

				Construction
				and development
	Commercial			excluding
	and			undeveloped		Undeveloped			Real estate
	industrial			land		land			mortgage			Consumer			Unallocated		Total
Allowance for loan losses
At December 31, 2014	$	11,819		$	721	$	1,545		$	10,541		$	294		$	-	$	24,920
Provision (credit)		(214	)		599		(1,327	)		844			98			-		-
Charge-offs		(3,346	)		-		-			(688	)		(447	)		-		(4,481	)
Recoveries		47			-		650			118			360			-		1,175
At September 30, 2015	$	8,306		$	1,320	$	868		$	10,815		$	305		$	-	$	21,614
Allowance for loans collectively evaluated for impairment	$	7,089		$	1,320	$	868		$	10,499		$	235		$	-	$	20,011
Allowance for loans individually evaluated for impairment	$	1,217		$	-	$	-		$	316		$	70		$	-	$	1,603
Allowance for loans acquired with deteriorated credit quality	$	-		$	-	$	-		$	-		$	-		$	-	$	-

(in thousands)	Type of loan
			Construction
			and development
	Commercial		excluding
	and		undeveloped		Undeveloped		Real estate
December 31, 2014	industrial		land		land		mortgage		Consumer		Total
Loans	$	571,754	$	95,733	$	21,268	$	1,150,399	$	29,396	$	1,868,550
Loans collectively evaluated for impairment	$	564,443	$	94,603	$	21,268	$	1,146,212	$	29,311	$	1,855,837
Loans individually evaluated for impairment	$	7,239	$	516	$	-	$	3,720	$	76	$	11,551
Loans acquired with deteriorated credit quality	$	72	$	614	$	-	$	467	$	9	$	1,162

				Construction
				and development
	Commercial			excluding
	and			undeveloped			Undeveloped			Real estate
	industrial			land			land			mortgage			Consumer			Unallocated		Total
Allowance for loan losses
At December 31, 2013	$	7,644		$	2,555		$	5,376		$	12,604		$	343		$	-	$	28,522
Provision (credit)		4,593			(1,584	)		(2,244	)		(1,190	)		25			-		(400	)
Charge-offs		(661	)		(250	)		(1,753	)		(993	)		(587	)		-		(4,244	)
Recoveries		243			-			166			120			513			-		1,042
At December 31, 2014	$	11,819		$	721		$	1,545		$	10,541		$	294		$	-	$	24,920
Allowance for loans collectively evaluated for impairment	$	10,790		$	706		$	1,545		$	10,285		$	218		$	-	$	23,544
Allowance for loans individually evaluated for impairment	$	1,029		$	15		$	-		$	256		$	76		$	-	$	1,376
Allowance for loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-	$	-

The considerations by Bancorp in computing its allowance for loan losses are determined based on the various risk characteristics of each loan segment. Relevant risk characteristics are as follows:

● Commercial and industrial loans: Loans in this category are made to businesses. Generally these loans are secured by assets of the business and repayment is expected from the cash flows of the business. A weakened economy and resultant decreased consumer and/or business spending will have an effect on the credit quality in this loan category.

● Construction and development, excluding undeveloped land: Loans in this category primarily include owner-occupied and investment construction loans and commercial development projects. In most cases, construction loans require only interest to be paid during construction. Upon completion or stabilization, the construction loan may convert to permanent financing in the real estate mortgage segment, requiring principal amortization. Repayment of development loans is derived from sale of lots or units including any pre-sold units. Credit risk is affected by construction delays, cost overruns, market conditions and availability of permanent financing, to the extent such permanent financing is not being provided by Bancorp.

● Undeveloped land: Loans in this category are secured by land initially acquired for development by the borrower, but for which no development has yet taken place. Credit risk is affected by market conditions and time to sell lots at an adequate price. Credit risk is also affected by availability of permanent financing, to the extent such permanent financing is not being provided by Bancorp.  

● Real estate mortgage: Loans in this category are made to and secured by owner-occupied residential real estate, owner-occupied real estate used for business purposes, and income-producing investment properties. Repayment is dependent on credit quality of the individual borrower. Underlying properties are generally located in Bancorp’s primary market area. Cash flows of income producing investment properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on credit quality. Overall health of the economy, including unemployment rates and real estate prices, has an effect on credit quality in this loan category.

● Consumer: Loans in this category may be either secured or unsecured and repayment is dependent on credit quality of the individual borrower and, if applicable, sale of collateral securing the loan. Therefore, overall health of the economy, including unemployment rates and stock prices, will have a significant effect on credit quality in this loan category.

Bancorp has loans that were acquired in a 2013 acquisition, for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable that all contractually required payments would not be collected. The carrying amount of those loans is included in the balance sheet amounts of loans at September 30, 2015 and December 31, 2014. Changes in the fair value adjustment for acquired impaired loans are shown in the following table:

(in thousands)	Accretable discount			Non-accretable discount
Balance at December 31, 2013	$	137		$	369
Accretion		(75	)		(103	)
Reclassifications from (to) non-accretable discount		-			-
Disposals		-			-
Balance at December 31, 2014		62			266
Accretion		(53	)		(74	)
Reclassifications from (to) non-accretable discount		-			-
Disposals		-			-
Balance at September 30, 2015	$	9		$	192

The following table presents loans individually evaluated for impairment as of September 30, 2015 and December 31, 2014.

(in thousands)			Unpaid				Average
	Recorded		principal		Related		recorded
September 30, 2015	investment		balance		allowance		investment
Loans with no related allowance recorded
Commercial and industrial	$	1,545	$	4,245	$	-	$	988
Construction and development, excluding undeveloped land		26		151		-		26
Undeveloped land		-		-		-		-
Real estate mortgage
Commercial investment		285		542		-		154
Owner occupied commercial		1,603		2,040		-		1,591
1-4 family residential		316		316		-		600
Home equity - first lien		91		91		-		43
Home equity - junior lien		37		37		-		64
Subtotal: Real estate mortgage		2,332		3,026		-		2,452
Consumer		15		15		-		4
Subtotal	$	3,918	$	7,437	$	-	$	3,470
Loans with an allowance recorded
Commercial and industrial	$	5,233	$	6,804	$	1,217	$	5,387
Construction and development, excluding undeveloped land		-		-		-		368
Undeveloped land		-		-		-		-
Real estate mortgage
Commercial investment		-		-		-		92
Owner occupied commercial		1,432		1,432		316		1,328
1-4 family residential		-		-		-		188
Home equity - first lien		-		-		-		-
Home equity - junior lien		-		-		-		-
Subtotal: Real estate mortgage		1,432		1,432		316		1,608
Consumer		70		70		70		73
Subtotal	$	6,735	$	8,306	$	1,603	$	7,436
Total
Commercial and industrial	$	6,778	$	11,049	$	1,217	$	6,375
Construction and development, excluding undeveloped land		26		151		-		394
Undeveloped land		-		-		-		-
Real estate mortgage		-		-		-		-
Commercial investment		285		542		-		246
Owner occupied commercial		3,035		3,472		316		2,919
1-4 family residential		316		316		-		788
Home equity - first lien		91		91		-		43
Home equity - junior lien		37		37		-		64
Subtotal: Real estate mortgage		3,764		4,458		316		4,060
Consumer		85		85		70		77
Total	$	10,653	$	15,743	$	1,603	$	10,906

(in thousands)			Unpaid				Average
	Recorded		principal		Related		recorded
December 31, 2014	investment		balance		allowance		investment
Loans with no related allowance recorded
Commercial and industrial	$	896	$	3,596	$	-	$	996
Construction and development, excluding undeveloped land		26		151		-		26
Undeveloped land		-		-		-		5,608
Real estate mortgage
Commercial investment		113		113		-		198
Owner occupied commercial		1,784		2,221		-		1,939
1-4 family residential		870		870		-		782
Home equity - first lien		-		-		-		11
Home equity - junior lien		36		36		-		69
Subtotal: Real estate mortgage		2,803		3,240		-		2,999
Consumer		-		-		-		-
Subtotal	$	3,725	$	6,987	$	-	$	9,629
Loans with an allowance recorded
Commercial and industrial	$	6,343	$	7,914	$	1,029	$	6,797
Construction and development, excluding undeveloped land		490		490		15		196
Undeveloped land		-		-		-		-
Real estate mortgage
Commercial investment		122		122		-		640
Owner occupied commercial		716		716		112		704
1-4 family residential		79		79		144		651
Home equity - first lien		-		-		-		-
Home equity - junior lien		-		-		-		-
Subtotal: Real estate mortgage		917		917		256		1,995
Consumer		76		76		76		80
Subtotal	$	7,826	$	9,397	$	1,376	$	9,068
Total
Commercial and industrial	$	7,239	$	11,510	$	1,029	$	7,793
Construction and development, excluding undeveloped land		516		641		15		222
Undeveloped land		-		-		-		5,608
Real estate mortgage		-		-		-		-
Commercial investment		235		235		-		838
Owner occupied commercial		2,500		2,937		112		2,643
1-4 family residential		949		949		144		1,433
Home equity - first lien		-		-		-		11
Home equity - junior lien		36		36		-		69
Subtotal: Real estate mortgage		3,720		4,157		256		4,994
Consumer		76		76		76		80
Total	$	11,551	$	16,384	$	1,376	$	18,697

Differences between recorded investment amounts and unpaid principal balance amounts less related allowance are due to partial charge-offs which have occurred over the life of loans.

Impaired loans include non-accrual loans and accruing loans accounted for as troubled debt restructurings (TDR), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over 90 days past due and still accruing interest. Loans past due more than 90 days and still accruing interest amounted to $544 thousand and $329 thousand at September 30, 2015 and December 31, 2014, respectively.

The following table presents the recorded investment in non-accrual loans as of September 30, 2015 and December 31, 2014.

(in thousands)	September 30, 2015		December 31, 2014
Commercial and industrial	$	5,769	$	1,381
Construction and development, excluding undeveloped land		26		516
Undeveloped land		-		-
Real estate mortgage
Commercial investment		285		235
Owner occupied commercial		3,035		2,081
1-4 family residential		316		950
Home equity - first lien		91		-
Home equity - junior lien		37		36
Subtotal: Real estate mortgage		3,764		3,302
Consumer		15		-
Total	$	9,574	$	5,199

At September 30, 2015 and December 31, 2014, Bancorp had accruing loans classified as TDR of $1.1 million and $6.4 million, respectively. Bancorp did not modify and classify any additional loans as TDR during the nine months ended September 30, 2015 or 2014.

Bancorp had no loans accounted for as TDR that were restructured and subsequently experienced a payment default within the previous 12 months as of September 30, 2015 or 2014.

Loans accounted for as TDR include modifications from original terms such as those due to bankruptcy proceedings, certain modifications of amortization periods or extended suspension of principal payments due to customer financial difficulties. Loans accounted for as TDR, which have not defaulted, are individually evaluated for impairment and, at September 30, 2015, had a total allowance allocation of $188 thousand, compared to $703 thousand at December 31, 2014.

At September 30, 2015, Bancorp did not have any outstanding commitments to lend additional funds to borrowers whose loans have been modified as TDR, compared to $458 thousand at December 31, 2014.

The following table presents the aging of the recorded investment in loans as of September 30, 2015 and December 31, 2014.

													Recorded
(in thousands)					90 or more								investment
					days past								> 90 days
	30-59 days		60-89 days		due (includes)		Total				Total		and
September 30, 2015	past due		past due		non-accrual)		past due		Current		loans		accruing
Commercial and industrial	$	26	$	25	$	5,769	$	5,820	$	605,057	$	610,877	$	-
Construction and development, excluding undeveloped land		-		-		26		26		109,844		109,870		-
Undeveloped land		-		-		-		-		18,950		18,950		-
Real estate mortgage
Commercial investment		427		-		285		712		490,459		491,171		-
Owner occupied commercial		268		114		3,035		3,417		354,211		357,628		-
1-4 family residential		814		734		860		2,408		220,235		222,643		544
Home equity - first lien		17		72		91		180		49,757		49,937		-
Home equity - junior lien		62		126		37		225		61,998		62,223		-
Subtotal: Real estate mortgage		1,588		1,046		4,308		6,942		1,176,660		1,183,602		544
Consumer		36		-		15		51		31,075		31,126		-
Total	$	1,650	$	1,071	$	10,118	$	12,839	$	1,941,586	$	1,954,425	$	544
December 31, 2014
Commercial and industrial	$	3,860	$	3	$	1,382	$	5,245	$	566,509	$	571,754	$	1
Construction and development, excluding undeveloped land		69		-		757		826		94,907		95,733		241
Undeveloped land		-		-		-		-		21,268		21,268		-
Real estate mortgage
Commercial investment		993		249		235		1,477		486,345		487,822		-
Owner occupied commercial		1,272		920		2,081		4,273		336,709		340,982		-
1-4 family residential		1,801		285		1,023		3,109		208,439		211,548		73
Home equity - first lien		-		-		14		14		43,765		43,779		14
Home equity - junior lien		470		78		36		584		65,684		66,268
Subtotal: Real estate mortgage		4,536		1,532		3,389		9,457		1,140,942		1,150,399		87
Consumer		43		18		-		61		29,335		29,396		-
Total	$	8,508	$	1,553	$	5,528	$	15,589	$	1,852,961	$	1,868,550	$	329

Consistent with regulatory guidance, Bancorp categorizes loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends. Pass-rated loans include all risk-rated loans other than those classified as special mention, substandard, substandard non-performing and doubtful, which are defined below:

● Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. These potential weaknesses may result in deterioration of repayment prospects for the loan or of Bancorp’s credit position at some future date.

● Substandard: Loans classified as substandard are inadequately protected by the paying capacity of the obligor or of collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize repayment of the debt. They are characterized by the distinct possibility that Bancorp will sustain some loss if the deficiencies are not corrected.

● Substandard non-performing: Loans classified as substandard non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as troubled debt restructurings.

● Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

As of September 30, 2015 and December 31, 2014, the internally assigned risk grades of loans by category were as follows:

(in thousands)			Special				Substandard				Total
September 30, 2015	Pass		mention		Substandard		non-performing		Doubtful		loans
Commercial and industrial	$	591,923	$	9,946	$	2,230	$	6,778	$	-	$	610,877
Construction and development, excluding undeveloped land		106,558		2,945		341		26		-		109,870
Undeveloped land		18,273		520		157		-		-		18,950
Real estate mortgage
Commercial investment		484,638		5,755		493		285		-		491,171
Owner occupied commercial		340,032		12,038		2,523		3,035		-		357,628
1-4 family residential		220,287		1,496		-		860		-		222,643
Home equity - first lien		49,846		-		-		91		-		49,937
Home equity - junior lien		61,968		97		121		37		-		62,223
Subtotal: Real estate mortgage		1,156,771		19,386		3,137		4,308		-		1,183,602
Consumer		31,041		-		-		85		-		31,126
Total	$	1,904,566	$	32,797	$	5,865	$	11,197	$	-	$	1,954,425
December 31, 2014
Commercial and industrial	$	546,582	$	6,215	$	11,717	$	7,240	$	-	$	571,754
Construction and development, excluding undeveloped land		88,389		4,867		1,720		757		-		95,733
Undeveloped land		20,578		530		160		-		-		21,268
Real estate mortgage
Commercial investment		482,415		4,991		181		235		-		487,822
Owner occupied commercial		328,385		6,942		3,156		2,499		-		340,982
1-4 family residential		209,396		1,129		-		1,023		-		211,548
Home equity - first lien		43,765		-		-		14		-		43,779
Home equity - junior lien		66,182		50		-		36		-		66,268
Subtotal: Real estate mortgage		1,130,143		13,112		3,337		3,807		-		1,150,399
Consumer		29,244		76		-		76		-		29,396
Total	$	1,814,936	$	24,800	$	16,934	$	11,880	$	-	$	1,868,550