Note 5 - Allowance for Loan Losses and Credit Quality Information

12 Months Ended

Dec. 31, 2014

Allowance For Loan Losses And Credit Quality Information [Abstract]

Allowance For Loan Losses And Credit Quality Information [Text Block]

NOTE 5 Allowance for Loan Losses and Credit Quality Information

The allowance for loan losses is summarized as follows:

(Dollars in thousands)	1-4 Family			Commercial Real Estate			Consumer			Commercial Business			Total
Balance, December 31, 2011	$	3,718			13,622			1,159			5,389			23,888
Provision for losses		(834	)		3,864			686			(1,172	)		2,544
Charge-offs		(63	)		(5,719	)		(1,071	)		(2,464	)		(9,317	)
Recoveries		0			1,821			372			2,300			4,493
Balance, December 31, 2012	$	2,821			13,588			1,146			4,053			21,608
Provision for losses	$	(1,206	)		(5,190	)		347			(1,832	)		(7,881	)
Charge-offs		(200	)		(3,711	)		(484	)		(651	)		(5,046	)
Recoveries		213			1,771			97			639			2,720
Balance, December 31, 2013	$	1,628			6,458			1,106			2,209			11,401
Provision for losses	$	(440	)		(3,518	)		(4	)		(3,036	)		(6,998	)
Charge-offs		(92	)		(936	)		(131	)		(55	)		(1,214	)
Recoveries		0			3,020			38			2,085			5,143
Balance, December 31, 2014	$	1,096			5,024			1,009			1,203			8,332
Allocated to:
Specific reserves	$	404			2,403			382			589			3,778
General reserves		1,224			4,055			724			1,620			7,623
Balance, December 31, 2013	$	1,628			6,458			1,106			2,209			11,401
Allocated to:
Specific reserves	$	270			370			307			127			1,074
General reserves		826			4,654			702			1,076			7,258
Balance, December 31, 2014	$	1,096			5,024			1,009			1,203			8,332
Loans receivable at December 31, 2013:
Individually reviewed for impairment	$	1,888			17,190			917			1,281			21,276
Collectively reviewed for impairment		74,579			177,260			52,506			70,428			374,773
Ending balance	$	76,467			194,450			53,423			71,709			396,049
Loans receivable at December 31, 2014:
Individually reviewed for impairment	$	1,867			9,728			806			555			12,956
Collectively reviewed for impairment		67,974			181,940			54,119			56,567			360,600
Ending balance	$	69,841			191,668			54,925			57,122			373,556

The following table summarizes the amount of classified and unclassified loans at December 31:

	December 31, 2014
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
1-4 family	$	0		2,493		207		0		2,700		67,141		69,841
Commercial real estate:
Residential developments		323		9,960		0		0		10,283		9,677		19,960
Other		7,376		8,792		0		0		16,168		155,540		171,708
Consumer		0		489		55		261		805		54,120		54,925
Commercial business:
Construction industry		0		439		0		0		439		6,682		7,121
Other		4,255		1,156		0		0		5,411		44,590		50,001
	$	11,954		23,329		262		261		35,806		337,750		373,556

	December 31, 2013
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
1-4 family	$	738		6,987		322		0		8,047		68,420		76,467
Commercial real estate:
Residential developments		0		19,229		0		0		19,229		13,755		32,984
Other		5,337		13,092		0		0		18,429		143,037		161,466
Consumer		0		524		152		240		916		52,507		53,423
Commercial business:
Construction industry		0		401		0		0		401		5,933		6,334
Other		1,419		6,433		0		0		7,852		57,523		65,375
	$	7,494		46,666		474		240		54,874		341,175		396,049

Classified loans represent special mention, performing substandard, and non-performing loans categorized as substandard, doubtful and loss. Loans classified as special mention are loans that have potential weaknesses that, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Loans classified as substandard are loans that are generally inadequately protected by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have the weaknesses of those classified as substandard, with additional characteristics that make collection in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified as loss is considered uncollectible and of such little value that continuance as an asset on the balance sheet is not warranted. Loans classified as substandard or doubtful require the Bank to perform an analysis of the individual loan and charge off any loans, or portion thereof, that are deemed uncollectible.

The aging of past due loans at December 31 is summarized as follows:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
2014
1-4 family	$	413		673		841		1,927		67,914		69,841		0
Commercial real estate:
Residential developments		0		0		0		0		19,960		19,960		0
Other		0		0		0		0		171,708		171,708		0
Consumer		550		176		131		857		54,068		54,925		0
Commercial business:
Construction industry		0		0		0		0		7,121		7,121		0
Other		136		0		0		136		49,865		50,001		0
	$	1,099		849		972		2,920		370,636		373,556		0
2013
1-4 family	$	1,542		128		322		1,992		74,475		76,467		0
Commercial real estate:
Residential developments		0		1,426		0		1,426		31,558		32,984		0
Other		0		0		0		0		161,466		161,466		0
Consumer		418		256		57		731		52,692		53,423		0
Commercial business:
Construction industry		0		1,934		0		1,934		4,400		6,334		0
Other		800		104		0		904		64,471		65,375		0
	$	2,760		3,848		379		6,987		389,062		396,049		0

Impaired loans include loans that are non-performing (non-accruing) and loans that have been modified in a troubled debt restructuring. The following table summarizes impaired loans and related allowances for the years ended December 31, 2014 and 2013:
 

	December 31, 2014
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
1-4 family	$	755		755		0		432		32
Commercial real estate:
Residential developments		7,416		10,040		0		7,633		219
Other		48		216		0		50		6
Consumer		463		464		0		467		15
Commercial business:
Construction industry		80		198		0		87		0
Other		0		0		0		0		0
Loans with an allowance recorded:
1-4 family		1,112		1,112		270		1,543		14
Commercial real estate:
Residential developments		1,522		1,522		240		3,121		0
Other		742		743		130		847		32
Consumer		343		360		307		451		9
Commercial business:
Construction industry		0		0		0		0		0
Other		475		1,026		127		887		20
Total:
1-4 family		1,867		1,867		270		1,975		46
Commercial real estate:
Residential developments		8,938		11,562		240		10,754		219
Other		790		959		130		897		38
Consumer		806		824		307		918		24
Commercial business:
Construction industry		80		198		0		87		0
Other		475		1,026		127		887		20
	$	12,956		16,436		1,074		15,518		347

	December 31, 2013
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
1-4 family	$	88		88		0		1,304		2
Commercial real estate:
Residential developments		8,257		13,636		0		9,122		81
Other		52		52		0		350		55
Consumer		487		491		0		350		12
Commercial business:
Construction industry		93		296		0		91		2
Other		0		0		0		7		0
Loans with an allowance recorded:
1-4 family		1,800		1,844		404		2,417		36
Commercial real estate:
Residential developments		7,994		12,725		2,260		12,414		54
Other		888		888		143		1,977		202
Consumer		429		429		382		1,057		14
Commercial business:
Construction industry		0		0		0		29		0
Other		1,188		1,984		589		1,647		36
Total:
1-4 family		1,888		1,932		404		3,721		38
Commercial real estate:
Residential developments		16,251		26,361		2,260		21,536		135
Other		940		940		143		2,327		257
Consumer		916		920		382		1,407		26
Commercial business:
Construction industry		93		296		0		120		2
Other		1,188		1,984		589		1,654		36
	$	21,276		32,433		3,778		30,765		494

At December 31, 2014, 2013 and 2012, non-accruing loans totaled $10.9 million, $17.5 million and $30.0 million, respectively, for which the related allowance for loan losses was $0.8 million, $3.4 million and $3.9 million, respectively. Non-accruing loans for which no specific allowance has been recorded because management determined that the value of the collateral was sufficient to repay the loan totaled $8.0 million, $7.8 million and $10.3 million, respectively. Had the loans performed in accordance with their original terms, the Company would have recorded gross interest income on the loans of $0.9 million, $1.8 million and $2.4 million in 2014, 2013 and 2012, respectively. For the years ended December 31, 2014, 2013 and 2012, the Company recognized interest income on these loans of $0.2 million, $0.1 million and $0.5 million, respectively. All of the interest income that was recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accrual loans also include some of the loans that have had terms modified in a troubled debt restructuring.

The following table summarizes non-accrual loans at December 31:
 

(Dollars in thousands)	2014		2013
1-4 family	$	1,564		1,602
Commercial real estate:
Residential developments		8,483		14,146
Other		267		403
Consumer		486		737
Commercial business:
Construction industry		80		93
Other		40		515
	$	10,920		17,496

Included in loans receivable, net, are certain loans that have been modified in order to maximize collection of loan balances. If the Company, for legal or economic reasons related to the borrower’s financial difficulties, grants a concession compared to the original terms and conditions of the loan, the modified loan is considered a troubled debt restructuring (TDR).

At December 31, 2014, 2013 and 2012, there were loans included in loans receivable, net, with terms that had been modified in a troubled debt restructuring totaling $9.4 million, $17.4 million and $31.7 million, respectively. Had these loans been performing in accordance with their original terms throughout 2014, 2013 and 2012, the Company would have recorded gross interest income of $0.9 million, $1.8 million and $2.5 million, respectively. During 2014, 2013 and 2012, the Company recorded interest income of $0.3 million, $0.5 million and $0.9 million on these loans, respectively. For the loans that were modified in 2014, $0.1 million are classified and performing, and $0.1 million are non-performing at December 31, 2014.

The following table summarizes troubled debt restructurings at December 31:

(Dollars in thousands)	2014		2013
1-4 family	$	368		840
Commercial real estate:
Residential developments		7,432		14,244
Other		524		537
Consumer		571		697
Commercial business:
Construction industry		80		93
Other		475		981
	$	9,450		17,392

There were no material commitments to lend additional funds to customers whose loans were restructured or classified as non-accrual at December 31, 2014 or December 31, 2013.

TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal and/or interest due, or acceptance of real estate or other assets in full or partial satisfaction of the debt. Loan modifications are not reported as TDRs after 12 months if the loan was modified at a market rate of interest for comparable risk loans, and the loan is performing in accordance with the terms of the restructured agreement. All loans classified as TDRs are considered to be impaired.

When a loan is modified as a TDR, there may be a direct, material impact on the loans within the Consolidated Balance Sheets, as principal balances may be partially forgiven. The financial effects of TDRs are presented in the following table and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the periods ending December 31, 2014 and 2013:

	Year ended December 31, 2014						Year ended December 31, 2013
(Dollars in thousands)	Number of Contracts		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment		Number of Contracts		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
Troubled debt restructurings:
1-4 family		2	$	760		760		2	$	210		219
Commercial real estate:
Residential developments		0		0		0		0		0		0
Other		1		155		155		3		754		329
Consumer		4		155		140		21		528		548
Commercial business:
Construction industry		0		0		0		1		41		41
Other		1		31		25		5		194		218
Total		8	$	1,101		1,080		32	$	1,727		1,355

Loans that were restructured within the 12 months preceding December 31, 2014 and 2013 and defaulted during the year are presented in the table below:

	Year ended December 31, 2014				Year ended December 31, 2013
(Dollars in thousands)	Number of Contracts		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
1-4 family		1	$	640		0	$	0
Total		1	$	640		0	$	0

The Company considers a loan to have defaulted when it becomes 90 or more days past due under the modified terms, when it is placed in non-accrual status, when it becomes other real estate owned, or when it becomes non-compliant with some other material requirement of the modification agreement.

Loans that were non-accrual prior to modification remain non-accrual for at least six months following modification. Non-accrual TDR loans that have performed according to the modified terms for six months may be returned to accruing status. Loans that were accruing prior to modification remain on accrual status after the modification as long as the loan continues to perform under the new terms.

TDRs are reviewed for impairment following the same methodology as other impaired loans. For loans that are collateral dependent, the value of the collateral is reviewed and additional reserves may be added to general reserves as needed. Loans that are not collateral dependent may have additional reserves established if deemed necessary. The allocated allowance for TDRs was $0.4 million, or 5.1%, of the total $8.3 million in allowance for loan losses at December 31, 2014, and $2.9 million, or 25.6%, of the total $11.4 million in allowance for loan losses at December 31, 2013.