Note 7 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2012

Financing Receivables [Text Block]

7.      Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized as follows:

(In thousands)	September 30, 2012			December 31, 2011
Real Estate:
Real estate – construction and land development	$	115,324		$	119,989
Real estate mortgage – residential		413,284			445,464
Real estate mortgage – farmland and other commercial enterprises		377,696			384,331
Commercial:
Commercial and industrial		48,452			48,771
States and political subdivisions		22,489			23,601
Lease financing		3,510			7,578
Other		19,032			21,435
Consumer:
Secured		12,154			14,214
Unsecured		6,531			7,151
Total loans		1,018,472			1,072,534
Less unearned income		(161	)		(426	)
Total loans, net of unearned income	$	1,018,311		$	1,072,108

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

(In thousands)	Real Estate			Commercial			Consumer			Total
Three months ended September 30, 2012
Balance, beginning of period	$	24,221		$	2,137		$	755		$	27,113
Provision for loan losses		(1,114	)		591			267			(256	)
Recoveries		50			8			80			138
Loans charged off		(1,716	)		(36	)		(99	)		(1,851	)
Balance, end of period	$	21,441		$	2,700		$	1,003		$	25,144
Nine months ended September 30, 2012
Balance, beginning of period	$	23,538		$	3,508		$	1,218		$	28,264
Provision for loan losses		2,916			(790	)		(64	)		2,062
Recoveries		252			129			192			573
Loans charged off		(5,265	)		(147	)		(343	)		(5,755	)
Balance, end of period	$	21,441		$	2,700		$	1,003		$	25,144

(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

The following tables present individually impaired loans by class of loans for the dates indicated.

September 30, 2012 (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	$	22,576	$	30,405
Real estate mortgage – residential		4,060		4,578
Real estate mortgage – farmland and other commercial enterprises		15,860		17,527
Total	$	42,496	$	52,510
Impaired loans with an allowance recorded:
Real Estate
Real estate – construction and land development	$	10,733	$	10,700	$	696
Real estate mortgage – residential		6,179		6,164		1,303
Real estate mortgage – farmland and other commercial enterprises		19,211		19,191		1,735
Commercial
Commercial and industrial		250		247		244
Consumer
Secured		22		22		18
Unsecured		277		275		162
Total	$	36,672	$	36,599	$	4,158

December 31, 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	$	26,363	$	26,337
Real estate mortgage – residential		22,923		22,843
Real estate mortgage – farmland and other commercial enterprises		43,765		43,438
Commercial
Commercial and industrial		2,982		2,939
Consumer
Unsecured		19		18
Total	$	96,052	$	95,575
Impaired loans with an allowance recorded:
Real Estate
Real estate – construction and land development	$	13,440	$	13,425	$	139
Real estate mortgage – residential		13,239		13,197		998
Real estate mortgage – farmland and other commercial enterprises		15,070		15,035		600
Commercial
Commercial and industrial		456		453		159
Consumer
Secured		60		58		30
Total	$	42,265	$	42,168	$	1,926

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2012		2011		2012		2011
Average of individually impaired loans:
Real Estate
Real estate – construction and land development	$	26,902	$	44,832	$	37,921	$	55,755
Real estate mortgage – residential		8,979		27,731		14,744		29,665
Real estate mortgage – farmland and other commercial enterprises		35,076		53,957		38,967		62,980
Commercial
Commercial and industrial		214		2,989		426		3,947
Other		-		665		-		224
Consumer
Secured		22		74		66		74
Unsecured		374		-		251		-
Total average of impaired loans	$	71,567	$	130,248	$	92,375	$	152,645
Interest income recognized during impairment:
Real Estate
Real estate – construction and land development	$	249	$	229	$	630	$	862
Real estate mortgage – residential		52		270		308		1,024
Real estate mortgage – farmland and other commercial enterprises		418		560		1,419		2,038
Commercial
Commercial and industrial		8		39		22		147
Other		-		10		-		10
Consumer
Secured		-		1		5		4
Unsecured		8		-		13		-
Total interest income recognized during impairment	$	735	$	1,109	$	2,397	$	4,085
Cash-basis interest income recognized:
Real Estate
Real estate – construction and land development	$	204	$	229	$	573	$	765
Real estate mortgage – residential		44		265		298		986
Real estate mortgage – farmland and other commercial enterprises		608		550		1,437		1,925
Commercial
Commercial and industrial		8		39		22		146
Consumer
Secured		-		1		5		4
Unsecured		7		-		12		-
Total cash-basis interest income recognized	$	871	$	1,084	$	2,347	$	3,826

The following tables present the balance of the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2012 and December 31, 2011.

September 30, 2012 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,734	$	244	$	180	$	4,158
Collectively evaluated for impairment		17,707		2,456		823		20,986
Total ending allowance balance	$	21,441	$	2,700	$	1,003	$	25,144
Loans
Loans individually evaluated for impairment	$	78,619	$	250	$	299	$	79,168
Loans collectively evaluated for impairment		827,685		93,072		18,386		939,143
Total ending loan balance, net of unearned income	$	906,304	$	93,322	$	18,685	$	1,018,311

December 31, 2011 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,737	$	159	$	30	$	1,926
Collectively evaluated for impairment		21,801		3,349		1,188		26,338
Total ending allowance balance	$	23,538	$	3,508	$	1,218	$	28,264
Loans
Loans individually evaluated for impairment	$	134,800	$	3,438	$	79	$	138,317
Loans collectively evaluated for impairment		814,984		97,521		21,286		933,791
Total ending loan balance, net of unearned income	$	949,784	$	100,959	$	21,365	$	1,072,108

The following tables present the recorded investment in nonperforming loans by class of loans as of September 30, 2012 and December 31, 2011.

September 30, 2012 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate – construction and land development	$	16,652	$	8,736	$	28
Real estate mortgage – residential		8,891		717		-
Real estate mortgage – farmland and other commercial enterprises		16,778		16,996		-
Commercial:
Commercial and industrial		645		-		-
Lease financing		162		-		-
Consumer:
Secured		21		-		-
Unsecured		1		-		-
Total	$	43,150	$	26,449	$	28

December 31, 2011 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate – construction and land development	$	30,744	$	6,207	$	-
Real estate mortgage – residential		14,578		4,894		-
Real estate mortgage – farmland and other commercial enterprises		13,831		8,024		-
Commercial:
Commercial and industrial		386		-		-
Lease financing		124		-		-
Consumer:
Secured		80		-		-
Unsecured		12		-		1
Total	$	59,755	$	19,125	$	1

The Company has allocated $1.6 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2012. The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the nine months ended September 30, 2012, the Company had two credits that were modified as troubled debt restructurings. One restructuring includes a commercial real estate credit whereby the stated interest rate was reduced to 5.0% from 7.25% and repayment terms that include an initial six month interest only component. This credit had a pre and post-modification recorded investment of $8.8 million and $8.7 million, respectively. The restructuring resulted in an increase in the allowance for loan losses of $437 thousand and there were no related charge-offs recorded. The remaining restructured credit included reducing the stated interest rate on the loan to 4.125% from 6.0% and extending the due date by three months. This loan is secured by residential real estate and had a pre and post-modification recorded investment of $72 thousand. This restructuring increased the allowance for loan losses by $5 thousand and there were no related charge-offs recorded. The Company had no restructured credits during the first nine months of 2012 for which there was a payment default within twelve months following the modification.

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 the dates indicated. Past due loans that are also classified as nonaccrual are included in their respective past due category.

September 30, 2012 (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	$	104	$	10,224	$	10,328	$	104,996	$	115,324
Real estate mortgage – residential		2,298		4,430		6,728		406,556		413,284
Real estate mortgage – farmland and other commercial enterprises		537		14,631		15,168		362,528		377,696
Commercial:
Commercial and industrial		99		462		561		47,891		48,452
States and political subdivisions		-		-		-		22,489		22,489
Lease financing, net		8		162		170		3,179		3,349
Other		39		5		44		18,988		19,032
Consumer:
Secured		67		10		77		12,077		12,154
Unsecured		138		-		138		6,393		6,531
Total	$	3,290	$	29,924	$	33,214	$	985,097	$	1,018,311

December 31, 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	$	3,343	$	18,970	$	22,313	$	97,676	$	119,989
Real estate mortgage – residential		5,836		7,352		13,188		432,276		445,464
Real estate mortgage – farmland and other commercial enterprises		1,684		12,497		14,181		370,150		384,331
Commercial:
Commercial and industrial		98		300		398		48,373		48,771
States and political subdivisions		-		-		-		23,601		23,601
Lease financing, net		80		96		176		6,976		7,152
Other		29		-		29		21,406		21,435
Consumer:
Secured		200		17		217		13,997		14,214
Unsecured		61		5		66		7,085		7,151
Total	$	11,331	$	39,237	$	50,568	$	1,021,540	$	1,072,108

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 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.

	Real Estate						Commercial
September 30, 2012 (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	$	72,675	$	366,496	$	296,834	$	41,249	$	22,489	$	3,187	$	18,532
Special mention		7,576		19,467		31,254		6,159		-		-		492
Substandard		35,073		27,172		47,976		968		-		162		8
Doubtful		-		149		1,632		76		-		-		-
Total	$	115,324	$	413,284	$	377,696	$	48,452	$	22,489	$	3,349	$	19,032

	Real Estate						Commercial
December 31, 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	$	65,306	$	386,134	$	303,512	$	41,556	$	23,601	$	7,022	$	20,415
Special mention		7,443		16,585		19,393		2,969		-		6		1,000
Substandard		47,091		41,468		59,395		4,103		-		124		20
Doubtful		149		1,277		2,031		143		-		-		-
Total	$	119,989	$	445,464	$	384,331	$	48,771	$	23,601	$	7,152	$	21,435

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For consumer loan classes, the Company 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, 2012 and December 31, 2011.

	September 30, 2012				December 31, 2011
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	12,133	$	6,530	$	14,134	$	7,138
Nonperforming		21		1		80		13
Total	$	12,154	$	6,531	$	14,214	$	7,151