Note 6 - Loans Receivable and Allowance for Loan Losses

9 Months Ended

Sep. 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

September 30, 2018

and

December 31, 2017:

(dollars in thousands)	September 30, 2018			December 31, 2017
Commercial real estate	$	495,529		$	433,304
Construction and land development		125,512			104,617
Commercial and industrial		195,493			173,343
Owner occupied real estate		358,956			309,838
Consumer and other		86,897			76,183
Residential mortgage		116,376			64,764
Total loans receivable		1,378,763			1,162,049
Deferred costs (fees)		25			229
Allowance for loan losses		(8,084	)		(8,599	)
Net loans receivable	$	1,370,704		$	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

September 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 September 30, 2018
Allowance for loan losses:
Beginning balance:	$	2,039	$	772	$	1,449		$	1,856		$	509		$	638	$	303		$	7,566
Charge-offs		-		-		-			-			(1	)		-		-			(1	)
Recoveries		17		-		1			-			1			-		-			19
Provisions (credits)		202		34		193			156			38			103		(226	)		500
Ending balance	$	2,258	$	806	$	1,643		$	2,012		$	547		$	741	$	77		$	8,084
Three months ended September 30, 2017
Allowance for loan losses:
Beginning balance:	$	3,171	$	580	$	2,496		$	1,598		$	544		$	238	$	827		$	9,454
Charge-offs		-		-		(1,195	)		(49	)		(4	)		-		-			(1,248	)
Recoveries		47		-		5			-			-			-		-			52
Provisions (credits)		381		69		(85	)		87			11			85		(548	)		-
Ending balance	$	3,599	$	649	$	1,221		$	1,636		$	551		$	323	$	279		$	8,258

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

nine

months ended

September 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
Nine months ended September 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	)		(213	)		-		-			(2,364	)
Recoveries		50			-		77			20			2			-		-			149
Provisions (credits)		(31	)		81		400			720			185			349		(4	)		1,700
Ending balance	$	2,258		$	806	$	1,643		$	2,012		$	547		$	741	$	77		$	8,084
Nine months ended September 30, 2017
Allowance for loan losses:
Beginning balance:	$	3,254		$	557	$	2,884		$	1,382		$	588		$	58	$	432		$	9,155
Charge-offs		-			-		(1,347	)		(157	)		(12	)		-		-			(1,516	)
Recoveries		54			-		64			-			1			-		-			119
Provisions (credits)		291			92		(380	)		411			(26	)		265		(153	)		500
Ending balance	$	3,599		$	649	$	1,221		$	1,636		$	551		$	323	$	279		$	8,258

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

September 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
September 30, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	194	$	-	$	792	$	242	$	85	$	-	$	-	$	1,313
Collectively evaluated for impairment		2,064		806		851		1,770		462		741		77		6,771
Total allowance for loan losses	$	2,258	$	806	$	1,643	$	2,012	$	547	$	741	$	77	$	8,084
Loans receivable:
Loans evaluated individually	$	13,510	$	-	$	3,979	$	3,035	$	801	$	-	$	-	$	21,325
Loans evaluated collectively		482,019		125,512		191,514		355,921		86,096		116,376		-		1,357,438
Total loans receivable	$	495,529	$	125,512	$	195,493	$	358,956	$	86,897	$	116,376	$	-	$	1,378,763

(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

September 30, 2018

and

December 31, 2017:

	September 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	$	8,894	$	8,899	$	-	$	9,264	$	9,268	$	-
Construction and land development		-		-		-		-		-		-
Commercial and industrial		1,969		5,728		-		2,756		6,674		-
Owner occupied real estate		2,198		2,298		-		2,595		2,743		-
Consumer and other		649		1,008		-		655		981		-
Residential mortgage		-		-		-		-		-		-
Total	$	13,710	$	17,933	$	-	$	15,270	$	19,666	$	-

With an allowance recorded:
Commercial real estate	$	4,616	$	5,500	$	194	$	6,151	$	6,165	$	1,964
Construction and land development		-		-		-		-		-		-
Commercial and industrial		2,010		2,198		792		1,745		1,752		374
Owner occupied real estate		837		894		242		1,203		1,206		235
Consumer and other		152		155		85		347		379		217
Residential mortgage		-		-		-		-		-		-
Total	$	7,615	$	8,747	$	1,313	$	9,446	$	9,502	$	2,790

Total:
Commercial real estate	$	13,510	$	14,399	$	194	$	15,415	$	15,433	$	1,964
Construction and land development		-		-		-		-		-		-
Commercial and industrial		3,979		7,926		792		4,501		8,426		374
Owner occupied real estate		3,035		3,192		242		3,798		3,949		235
Consumer and other		801		1,163		85		1,002		1,360		217
Residential mortgage		-		-		-		-		-		-
Total	$	21,325	$	26,680	$	1,313	$	24,716	$	29,168	$	2,790

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

three

months ended

September 30, 2018

and

September 30, 2017:

	Three Months Ended September 30,
	2018				2017
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate	$	9,748	$	72	$	7,024	$	106
Construction and land development		-		-		-		-
Commercial and industrial		2,566		12		2,366		8
Owner occupied real estate		2,255		15		2,313		17
Consumer and other		647		10		923		9
Residential mortgage		-		-		-		-
Total	$	15,216	$	109	$	12,626	$	140

With an allowance recorded:
Commercial real estate	$	3,976	$	-	$	6,391	$	4
Construction and land development		-		-		-		-
Commercial and industrial		1,948		1		2,118		16
Owner occupied real estate		905		6		1,100		8
Consumer and other		169		-		346		2
Residential mortgage		-		-		-		-
Total	$	6,998	$	7	$	9,955	$	30

Total:
Commercial real estate	$	13,724	$	72	$	13,415	$	110
Construction and land development		-		-		-		-
Commercial and industrial		4,514		13		4,484		24
Owner occupied real estate		3,160		21		3,413		25
Consumer and other		816		10		1,269		11
Residential mortgage		-		-		-		-
Total	$	22,214	$	116	$	22,581	$	170

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

nine

months ended

September 30, 2018

and

September 30, 2017:

	Nine Months Ended September 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	$	11,454	$	216	$	9,657	$	271
Construction and land development		-		-		-		-
Commercial and industrial		3,762		45		2,149		26
Owner occupied real estate		2,367		43		1,719		46
Consumer and other		645		12		837		17
Residential mortgage		-		-		33		1
Total	$	18,228	$	316	$	14,395	$	361

With an allowance recorded:
Commercial real estate	$	2,692	$	-	$	6,575	$	13
Construction and land development		-		-		-		-
Commercial and industrial		1,826		4		2,710		50
Owner occupied real estate		1,047		18		1,437		22
Consumer and other		201		1		438		8
Residential mortgage		-		-		-		-
Total	$	5,766	$	23	$	11,160	$	93

Total:
Commercial real estate	$	14,146	$	216	$	16,232	$	284
Construction and land development		-		-		-		-
Commercial and industrial		5,588		49		4,859		76
Owner occupied real estate		3,414		61		3,156		68
Consumer and other		846		13		1,275		25
Residential mortgage		-		-		33		1
Total	$	23,994	$	339	$	25,555	$	454

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

September 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 September 30, 2018
Commercial real estate	$	1,148	$	128	$	7,159	$	8,435	$	487,094	$	495,529	$	-
Construction and land development		-		-		-		-		125,512		125,512		-
Commercial and industrial		-		108		3,868		3,976		191,517		195,493		-
Owner occupied real estate		-		-		1,651		1,651		357,305		358,956		-
Consumer and other		221		-		801		1,022		85,875		86,897		-
Residential mortgage		125		-		-		125		116,251		116,376		-
Total	$	1,494	$	236	$	13,479	$	15,209	$	1,363,554	$	1,378,763	$	-

(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, 2017
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

September 30, 2018

and

December 31, 2017:

(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
At September 30, 2018:
Commercial real estate	$	487,438	$	932	$	7,159	$	-	$	495,529
Construction and land development		125,512		-		-		-		125,512
Commercial and industrial		191,499		15		3,699		280		195,493
Owner occupied real estate		354,595		1,326		3,035		-		358,956
Consumer and other		86,096		-		801		-		86,897
Residential mortgage		116,251		125		-		-		116,376
Total	$	1,361,391	$	2,398	$	14,694	$	280	$	1,378,763

(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

September 30, 2018

and

December 31, 2017:

(dollars in thousands)	September 30, 2018		December 31, 2017
Commercial real estate	$	7,159	$	8,963
Construction and land development		-		-
Commercial and industrial		3,868		2,895
Owner occupied real estate		1,651		2,136
Consumer and other		801		851
Residential mortgage		-		-
Total	$	13,479	$	14,845

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

$156,000

and

$519,000

for the

three

and

nine

months ended

September 30, 2018,

respectively, and

$127,000

and

$372,000

for the

three

and

nine

months ended

September 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

September 30, 2018

and

December 31, 2017:

(dollars in thousands)	Number of Loans		Accrual Status		Non-Accrual Status		Total TDRs
September 30, 2018
Commercial real estate		1	$	6,351	$	-	$	6,351
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	$	6,351	$	1,766	$	8,117
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

nine

months ended

September 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

September 30, 2018

and during the year ended

December 31, 2017.

There were

three

TDRs that subsequently defaulted during the

nine

months ended

September 30, 2018.

There were

no

residential mortgages in the process of foreclosure as of

September 30, 2018

and

December 31, 2017.

Other real estate owned relating to residential real estate was

$0

at

September 30, 2018

and

$42,000

at

December 31, 2017.