Note 8 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2013

Receivables [Abstract]

Financing Receivables [Text Block]

8. Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized as follows:

(In thousands)	September 30, 2013		December 31, 2012
Real Estate:
Real estate mortgage – construction and land development	$	106,870	$	102,454
Real estate mortgage – residential		371,292		368,762
Real estate mortgage – farmland and other commercial enterprises		418,690		425,477
Commercial:
Commercial and industrial		47,433		46,812
States and political subdivisions		22,849		21,472
Lease financing		1,268		2,732
Other		26,327		19,156
Consumer:
Secured		8,957		11,732
Unsecured		6,479		6,515
Total loans		1,010,165		1,005,112
Less unearned income		34		117
Total loans, net of unearned income	$	1,010,131	$	1,004,995

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, 2013
Balance, beginning of period	$	20,240		$	2,177		$	526		$	22,943
Provision for loan losses		(528	)		(2	)		(56	)		(586	)
Recoveries		70			25			37			132
Loans charged off		(407	)		(98	)		(35	)		(540	)
Balance, end of period	$	19,375		$	2,102		$	472		$	21,949
Nine months ended September 30, 2013
Balance, beginning of period	$	22,254		$	1,513		$	678		$	24,445
Provision for loan losses		(2,028	)		615			(167	)		(1,580	)
Recoveries		254			122			187			563
Loans charged off		(1,105	)		(148	)		(226	)		(1,479	)
Balance, end of period	$	19,375		$	2,102		$	472		$	21,949

(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

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

September 30, 2013 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated
Real Estate
Real estate mortgage – construction and land development	$	18,422	$	10,952	$	4,701	$	15,653	$	921
Real estate mortgage – residential		12,554		2,626		9,805		12,431		1,557
Real estate mortgage – farmland and other commercial enterprises		33,285		12,574		20,628		33,202		1,617
Commercial
Commercial and industrial		911		-		915		915		823
Consumer
Secured		19		-		19		19		15
Unsecured		61		-		61		61		61
Total	$	65,252	$	26,152	$	36,129	$	62,281	$	4,994

December 31, 2102 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated
Real Estate
Real estate mortgage – construction and land development	$	26,831	$	12,712	$	11,068	$	23,780	$	2,075
Real estate mortgage – residential		7,474		2,215		5,259		7,474		1,069
Real estate mortgage – farmland and other commercial enterprises		33,491		13,294		18,803		32,097		1,588
Commercial
Commercial and industrial		210		-		207		207		198
Consumer
Secured		21		-		21		21		17
Unsecured		309		-		310		310		196
Total	$	68,336	$	28,221	$	35,668	$	63,889	$	5,143

Three Months Ended September 30, 2013 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	16,815	$	128	$	109
Real estate mortgage – residential		11,799		94		105
Real estate mortgage – farmland and other commercial enterprises		33,925		329		318
Commercial
Commercial and industrial		1,037		4		4
Consumer
Secured		18		-		-
Unsecured		75		-		-
Total	$	63,669	$	555	$	536

Nine Months Ended September 30, 2013 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	17,683	$	405	$	402
Real estate mortgage – residential		13,023		356		340
Real estate mortgage – farmland and other commercial enterprises		33,006		1,137		1,120
Commercial
Commercial and industrial		966		37		37
Consumer
Secured		20		1		1
Unsecured		167		6		6
Total	$	64,865	$	1,942	$	1,906

Three Months Ended September 30, 2012 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	26,902	$	249	$	204
Real estate mortgage – residential		8,979		52		44
Real estate mortgage – farmland and other commercial enterprises		35,076		418		608
Commercial
Commercial and industrial		214		8		8
Consumer
Secured		22		-		-
Unsecured		374		8		7
Total	$	71,567	$	735	$	871

Nine Months Ended September 30, 2012 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	37,921	$	630	$	573
Real estate mortgage – residential		14,744		308		298
Real estate mortgage – farmland and other commercial enterprises		38,967		1,419		1,437
Commercial
Commercial and industrial		426		22		22
Consumer
Secured		66		5		5
Unsecured		251		13		12
Total	$	92,375	$	2,397	$	2,347

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, 2013 and December 31, 2012.

September 30, 2013 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	4,095	$	823	$	76	$	4,994
Collectively evaluated for impairment		15,280		1,279		396		16,955
Total ending allowance balance	$	19,375	$	2,102	$	472	$	21,949
Loans
Loans individually evaluated for impairment	$	61,286	$	915	$	80	$	62,281
Loans collectively evaluated for impairment		835,566		96,928		15,356		947,850
Total ending loan balance, net of unearned income	$	896,852	$	97,843	$	15,436	$	1,010,131

December 31, 2012 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	4,732	$	198	$	213	$	5,143
Collectively evaluated for impairment		17,522		1,315		465		19,302
Total ending allowance balance	$	22,254	$	1,513	$	678	$	24,445
Loans
Loans individually evaluated for impairment	$	63,351	$	207	$	331	$	63,889
Loans collectively evaluated for impairment		833,342		89,848		17,916		941,106
Total ending loan balance, net of unearned income	$	896,693	$	90,055	$	18,247	$	1,004,995

The following tables present the recorded investment in nonperforming loans by class of loans as of September 30, 2013 and December 31, 2012.

September 30, 2013 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate mortgage – construction and land development	$	6,332	$	4,391	$	-
Real estate mortgage – residential		5,538		4,912		-
Real estate mortgage – farmland and other commercial enterprises		13,004		17,086		-
Commercial:
Commercial and industrial		138		-		-
Lease financing		29		-		-
Consumer:
Secured		22		8		-
Unsecured		-		38		-
Total	$	25,063	$	26,435	$	-

December 31, 2012 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate mortgage – construction and land development	$	7,700	$	8,736	$	-
Real estate mortgage – residential		6,025		634		-
Real estate mortgage – farmland and other commercial enterprises		12,878		16,940		103
Commercial:
Commercial and industrial		649		-		-
Lease financing		53		-		-
Consumer:
Secured		9		-		-
Unsecured		94		39		-
Total	$	27,408	$	26,349	$	103

The Company has allocated $2.7 million and $2.9 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings and that are in compliance with those terms as of September 30, 2013 and December 31, 2012. The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at September 30, 2013 and December 31, 2012.

The Company had seven credits in 2013 that were modified as troubled debt restructurings. Six of these credits with an aggregate recorded investment of $331 thousand represent debt by borrowers discharged under Chapter 7 bankruptcy. The borrower in each case did not reaffirm their debt, and the release of personal liability by the court is deemed a concession. However, each borrower continues to make payments under the original terms of the loan agreement. The remaining restructuring consists of a credit secured by commercial real estate whereby the maturity date was extended 48 months.

During the first nine months of 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. The other restructuring represents a residential real estate credit in which the stated interest rate on the loan was reduced to 4.125% from 6.0% and extending the due date by three months.

The following tables present loans by class modified as troubled debt restructurings that occurred during the three and nine months ended September 30, 2013 and 2012.

(Dollars in thousands) Troubled Debt Restructurings:	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Three Months Ended September 30, 2013
Real Estate:
Real estate mortgage – farmland and other commercial enterprises		1	$	598	$	598
Consumer:
Secured		1		7		7
Total		2	$	605	$	605
Nine Months Ended September 30, 2013
Real Estate:
Real estate mortgage – residential		3	$	309	$	309
Real estate mortgage – farmland and other commercial enterprises		1		598		598
Commercial:
Commercial and industrial		1		13		13
Consumer:
Secured		2		9		9
Total		7	$	929	$	929

(Dollars in thousands) Troubled Debt Restructurings:	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Three Months Ended September 30, 2012
Real Estate:
Real estate mortgage – farmland and other commercial enterprises		1	$	8,796	$	8,717
Total		1	$	8,796	$	8,717
Nine Months Ended September 30, 2012
Real Estate:
Real estate mortgage – residential		1	$	72	$	72
Real estate mortgage – farmland and other commercial enterprises		1		8,796		8,717
Total		2	$	8,868	$	8,789

The troubled debt restructurings identified in the tables above increased the allowance for loan losses by $7 thousand and $30 thousand in the three and nine months ended September 30, 2013, respectively. Troubled debt restructurings increased the allowance for loan losses by $437 thousand and $442 thousand for the three and nine months ended September 30, 2012. There were no charge-offs related to loans restructured in 2013 and 2012.

For the nine months ended September 30, 2013, the Company had one restructured credit for which there was a payment default within twelve months following the modification. This credit is secured by residential real estate with an outstanding balance of $17 thousand. No charge-offs have been recorded for this credit. There were no payment defaults during the first nine months of 2012 for credits that were restructured during the previous twelve months.

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, 2013 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate:
Real estate mortgage – construction and land development	$	58	$	599	$	657	$	106,213	$	106,870
Real estate mortgage – residential		2,819		2,336		5,155		366,137		371,292
Real estate mortgage – farmland and other commercial enterprises		1,169		10,131		11,300		407,390		418,690
Commercial:
Commercial and industrial		-		53		53		47,380		47,433
States and political subdivisions		-		-		-		22,849		22,849
Lease financing, net		14		29		43		1,191		1,234
Other		93		-		93		26,234		26,327
Consumer:
Secured		53		7		60		8,897		8,957
Unsecured		68		-		68		6,411		6,479
Total	$	4,274	$	13,155	$	17,429	$	992,702	$	1,010,131

December 31, 2012 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate:
Real estate mortgage – construction and land development	$	908	$	1,361	$	2,269	$	100,185	$	102,454
Real estate mortgage – residential		2,303		2,500		4,803		363,959		368,762
Real estate mortgage – farmland and other commercial enterprises		1,990		10,724		12,714		412,763		425,477
Commercial:
Commercial and industrial		108		53		161		46,651		46,812
States and political subdivisions		-		-		-		21,472		21,472
Lease financing, net		1		53		54		2,561		2,615
Other		38		399		437		18,719		19,156
Consumer:
Secured		69		-		69		11,663		11,732
Unsecured		137		-		137		6,378		6,515
Total	$	5,554	$	15,090	$	20,644	$	984,351	$	1,004,995

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, which are considered to have a low risk of loss. 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, 2013 (In thousands)	Real Estate Mortgage –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, net		Other
Credit risk profile by internally assigned rating grades:
Pass	$	83,183	$	334,591	$	347,472	$	45,604	$	22,849	$	1,205	$	26,299
Special mention		6,282		14,925		29,307		351		-		-		-
Substandard		17,345		21,686		41,911		1,402		-		29		28
Doubtful		60		90		-		76		-		-		-
Total	$	106,870	$	371,292	$	418,690	$	47,433	$	22,849	$	1,234	$	26,327

	Real Estate						Commercial
December 31, 2012 (In thousands)	Real Estate Mortgage –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, net		Other
Credit risk profile by internally assigned rating grades:
Pass	$	68,721	$	328,214	$	348,918	$	41,527	$	21,472	$	2,615	$	18,592
Special mention		7,562		18,485		35,027		4,201		-		-		559
Substandard		26,171		21,984		41,532		1,008		-		-		5
Doubtful		-		79		-		76		-		-		-
Total	$	102,454	$	368,762	$	425,477	$	46,812	$	21,472	$	2,615	$	19,156

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, 2013 and December 31, 2012.

	September 30, 2013				December 31, 2012
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	8,927	$	6,441	$	11,723	$	6,382
Nonperforming		30		38		9		133
Total	$	8,957	$	6,479	$	11,732	$	6,515