Note 7 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2011

Financing Receivables [Text Block]

7.  Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized in the following table.

(In thousands)	September 30, 2011			December 31, 2010
Real Estate:
Real estate – construction and land development	$	132,481		$	154,208
Real estate – residential		446,268			469,273
Real estate mortgage – farmland and other commercial enterprises		394,140			416,904
Commercial:
Commercial and industrial		51,067			57,029
States and political subdivisions		24,146			26,302
Lease financing		9,247			16,187
Other		22,362			25,628
Consumer:
Secured		14,432			22,607
Unsecured		7,523			5,925
Total loans		1,101,666			1,194,063
Less unearned income		(567	)		(1,223	)
Total loans, net of unearned income	$	1,101,099		$	1,192,840

Activity in the allowance for loan losses was as follows for the periods indicated.

(In thousands)	Real Estate			Commercial			Consumer			Total
Three months ended September 30, 2011
Balance, beginning of period	$	25,432		$	3,369		$	937		$	29,738
Provision for loan losses		3,742			(775	)		265			3,232
Recoveries		105			622			90			817
Loans charged off		(2,614	)		(114	)		(187	)		(2,915	)
Balance, end of period	$	26,665		$	3,102		$	1,105		$	30,872
Nine months ended September 30, 2011
Balance, beginning of period	$	24,527		$	3,260		$	997		$	28,784
Provision for loan losses		10,367			(517	)		351			10,201
Recoveries		188			702			217			1,107
Loans charged off		(8,417	)		(343	)		(460	)		(9,220	)
Balance, end of period	$	26,665		$	3,102		$	1,105		$	30,872

(In thousands)	Three Months Ended September 30, 2010			Nine Months Ended September 30, 2010
Balance, beginning of period	$	25,824		$	23,364
Provision for loan losses		6,244			13,660
Recoveries		140			453
Loans charged off		(4,414	)		(9,683	)
Balance, end of period	$	27,794		$	27,794

The following table presents individually impaired loans by class of loans for the dates indicated. The recorded investment column in the tables below excludes immaterial amounts attributed to net deferred loan costs.

September 30, 2011 (In thousands)	Recorded Investment		Unpaid Principal Balance		Allowance for Loan Losses Allocated
Impaired loans with no related allowance recorded:
Real Estate
Real estate – construction and land development	$	21,845	$	21,783
Real estate mortgage – residential		20,986		20,897
Real estate mortgage – farmland and other commercial enterprises		44,029		43,706
Commercial
Commercial and industrial		3,364		3,363
Total	$	90,224	$	89,749
Impaired loans with an allowance recorded:
Real Estate
Real estate – construction and land development	$	26,146	$	26,003	$	3,041
Real estate mortgage – residential		16,252		16,201		1,317
Real estate mortgage – farmland and other commercial enterprises		17,455		17,420		1,226
Commercial
Commercial and industrial		442		439		162
Other		671		671		122
Consumer
Secured		79		78		60
Total	$	61,045	$	60,812	$	5,928

December 31, 2010 (In thousands)	Recorded Investment		Unpaid Principal Balance		Allowance for Loan Losses Allocated
Impaired loans with no related allowance recorded:
Real Estate
Real estate – construction and land development	$	27,350	$	27,298
Real estate mortgage – residential		13,103		13,059
Real estate mortgage – farmland and other commercial enterprises		17,895		17,864
Commercial
Commercial and industrial		14		14
Total	$	58,362	$	58,235
Impaired loans with an allowance recorded:
Real Estate
Real estate – construction and land development	$	31,529	$	31,452	$	2,793
Real estate mortgage – residential		20,147		19,986		2,051
Real estate mortgage – farmland and other commercial enterprises		19,897		19,810		824
Commercial
Commercial and industrial		447		444		310
Consumer
Secured		93		93		55
Total	$	72,113	$	71,785	$	6,033

(In thousands)	Three Months Ended September 30, 2011		Nine Months Ended September 30, 2011
Average of individually impaired loans:
Real Estate
Real estate – construction and land development	$	39,566	$	50,489
Real estate mortgage – residential		32,997		34,931
Real estate mortgage – farmland and other commercial enterprises		53,957		62,980
Commercial
Commercial and industrial		2,989		3,947
Other		665		224
Consumer
Secured		74		74
Total average of impaired loans	$	130,248	$	152,645
Interest income recognized during impairment:
Real Estate
Real estate – construction and land development	$	181	$	717
Real estate mortgage – residential		318		1,169
Real estate mortgage – farmland and other commercial enterprises		560		2,038
Commercial
Commercial and industrial		39		147
Other		10		10
Consumer
Secured		1		4
Total interest income recognized during impairment	$	1,109	$	4,085
Cash-basis interest income recognized:
Real Estate
Real estate – construction and land development	$	181	$	626
Real estate mortgage – residential		311		1,125
Real estate mortgage – farmland and other commercial enterprises		550		1,925
Commercial
Commercial and industrial		39		146
Consumer
Secured		1		4
Total cash-basis interest income recognized	$	1,082	$	3,826

For the year ended December 31, 2010, the average of individually impaired loans was $120 million. Interest income recognized on impaired loans for 2010 was $4.0 million and cash-basis interest income recognized was $3.9 million. Amounts for 2010 do not include the same level of detail as presented in the table above since expanded disclosure requirements did not take effect until 2011.

The following tables present the balance of the allowance for loan losses and the recorded investment in loans by portfolio segment based on the impairment method as of September 30, 2011 and December 31, 2010. Loan amounts in the tables below exclude immaterial amounts attributed to accrued interest receivable.

September 30, 2011 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	5,584	$	284	$	60	$	5,928
Collectively evaluated for impairment		21,306		2,807		831		24,944
Total ending allowance balance	$	26,890	$	3,091	$	891	$	30,872
Loans
Loans individually evaluated for impairment	$	146,010	$	4,473	$	78	$	150,561
Loans collectively evaluated for impairment		826,879		101,782		21,877		950,538
Total ending loan balance, net of unearned income	$	972,889	$	106,255	$	21,955	$	1,101,099

December 31, 2010 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	5,668	$	310	$	55	$	6,033
Collectively evaluated for impairment		18,859		2,950		942		22,751
Total ending allowance balance	$	24,527	$	3,260	$	997	$	28,784
Loans
Loans individually evaluated for impairment	$	129,469	$	458	$	93	$	130,020
Loans collectively evaluated for impairment		910,916		123,465		28,439		1,062,820
Total ending loan balance, net of unearned income	$	1,040,385	$	123,923	$	28,532	$	1,192,840

The following tables present the recorded investment in nonperforming loans by class of loans as of September 30, 2011 and December 31, 2010. The tables below exclude immaterial amounts attributed to net deferred loan costs and accrued interest receivable.

September 30, 2011 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate – construction and land development	$	28,557	$	14,950
Real estate mortgage – residential		13,728		4,550
Real estate mortgage – farmland and other commercial enterprises		16,697		9,242
Commercial:
Commercial and industrial		427
Lease financing		163
Other		691
Consumer:
Secured		55			$	2
Unsecured		4
Total	$	60,322	$	28,742	$	2

December 31, 2010 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate – construction and land development	$	35,893	$	16,793
Real estate mortgage – residential		10,728		9,147	$	28
Real estate mortgage – farmland and other commercial enterprises		6,528		11,038
Commercial:
Commercial and industrial		627
Lease financing		50				9
Other		31
Consumer:
Secured		109
Unsecured		5				5
Total	$	53,971	$	36,978	$	42

The Company has allocated $3.5 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2011.  The Company has committed to lend additional amounts totaling up to $8 thousand to customers with outstanding loans that are classified as troubled debt restructurings.

During the nine months ending September 30, 2011, the terms of three loans were modified as troubled debt restructurings. The modification of the terms of such loans included one forbearance arrangement to reduce a customer’s monthly principal and interest payment for a period of six months and two arrangements to adjust the stated interest rate of the loans to a below market rate for new debt with similar risk. The rate on one of these two loans was reduced to 4% from 6%. The rate on the other loan was increased to 5% from 4%, but was still considered below the market rate for new debt with similar risk characteristics.

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ending September 30, 2011.  There were no such modifications for the three months ending September 30, 2011

(Dollars in thousands) Troubled Debt Restructurings:	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nine months ending September 30, 2011
Real Estate:
Real estate – construction and land development		1	$	159	$	159
Real estate mortgage – residential		2		940		940
Total		3	$	1,099	$	1,099

The troubled debt restructurings identified above increased the allowance for loan losses by $127 thousand. There were no charge-offs related to these loans during the first nine months of 2011.

During the nine months ending September 30, 2011, the Company had one restructured credit for which there was a payment default within twelve months following the modification. This credit represents a real estate construction and land development project with an outstanding balance of $2.9 million at September 30, 2011. This credit has a specific reserve allocation of $68 thousand at September 30, 2011 and related charge-offs were recorded during 2011 in the amount of $232 thousand.

The tables below present an age analysis of past due loans 30 days or more by class of loans as of September 30, 2011 and December 31, 2010. Past due loans that are also classified as nonaccrual are included in their respective past due category. The tables below exclude immaterial amounts attributed to net deferred loan costs and accrued interest receivable.

September 30, 2011 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate:
Real estate – construction and land development	$	6,165	$	9,714	$	15,879	$	116,602	$	132,481
Real estate mortgage – residential		3,671		7,524		11,195		435,073		446,268
Real estate mortgage – farmland and other commercial enterprises		263		14,401		14,664		379,476		394,140
Commercial:
Commercial and industrial		101		265		366		50,701		51,067
States and political subdivisions								24,146		24,146
Lease financing, net				163		163		8,517		8,680
Other		730				730		21,632		22,362
Consumer:
Secured		115		23		138		14,294		14,432
Unsecured		93		11		104		7,419		7,523
Total	$	11,138	$	32,101	$	43,239	$	1,057,860	$	1,101,099

December 31, 2010 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate:
Real estate – construction and land development	$	394	$	23,418	$	23,812	$	130,396	$	154,208
Real estate mortgage – residential		5,187		7,167		12,354		456,919		469,273
Real estate mortgage – farmland and other commercial enterprises		1,595		6,266		7,861		409,043		416,904
Commercial:
Commercial and industrial		194		538		732		56,297		57,029
States and political subdivisions								26,302		26,302
Lease financing, net		276		59		335		14,629		14,964
Other		114		3		117		25,511		25,628
Consumer:
Secured		145		102		247		22,360		22,607
Unsecured		69		12		81		5,844		5,925
Total	$	7,974	$	37,565	$	45,539	$	1,147,301	$	1,192,840

The Company categorizes loans into 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 and conditions. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes large-balance loans and non-homogeneous loans, such as commercial real estate and certain residential real estate loans. Loan rating grades, as described further below, are assigned based on a continuous process. The amount and adequacy of the allowance for loan loss is determined on a quarterly basis. The Company uses the following definitions for its risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the borrower’s repayment ability, weaken the collateral or inadequately protect the Company’s credit position at some future date. These credits pose elevated risk, but their weaknesses do not yet justify a substandard classification.

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

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

Loans not meeting the criteria above which are analyzed individually as part of the above described process are considered to be pass rated loans.  Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the dates indicated. Each of the following tables exclude immaterial amounts attributed to accrued interest receivable.

	Real Estate						Commercial
September 30, 2011 (In thousands)	Real Estate-Construction and Land Development		Real Estate Mortgage-Residential		Real Estate Mortgage-Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Lease Financing		Other
Credit risk profile by internally assigned rating grades:
Pass	$	76,760	$	386,963	$	307,878	$	45,494	$	24,146	$	8,138	$	20,404
Special Mention		1,096		14,915		22,023		840						1,118
Substandard		54,476		42,289		60,588		4,590				542		840
Doubtful		149		2,101		3,651		143
Total	$	132,481	$	446,268	$	394,140	$	51,067	$	24,146	$	8,680	$	22,362

	Real Estate						Commercial
December 31, 2010 (In thousands)	Real Estate-Construction and Land Development		Real Estate Mortgage-Residential		Real Estate Mortgage-Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Lease Financing		Other
Credit risk profile by internally assigned rating grades:
Pass	$	79,535	$	407,317	$	341,684	$	52,961	$	26,302	$	14,905	$	24,360
Special Mention		14,180		18,858		31,747		2,531						1,199
Substandard		57,477		41,704		37,938		1,255				59		69
Doubtful		3,016		1,394		5,535		282
Total	$	154,208	$	469,273	$	416,904	$	57,029	$	26,302	$	14,964	$	25,628

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses.  For consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  The following table presents the consumer loans outstanding based on payment activity as of September 30, 2011 and December 31, 2010.

	September 30, 2011				December 31, 2010
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	14,377	$	7,491	$	22,498	$	5,915
Nonperforming		55		32		109		10
Total	$	14,432	$	7,523	$	22,607	$	5,925