Note 3 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

Financing Receivables [Text Block]

3.   Loans and Allowance for Loan Losses

Major classifications of loans are summarized in the following table.

December 31, (In thousands)	2013		2012
Real Estate:
Real estate mortgage – construction and land development	$	101,352	$	102,454
Real estate mortgage – residential		371,582		368,762
Real estate mortgage – farmland and other commercial enterprises		418,147		425,477
Commercial:
Commercial and industrial		47,426		46,812
States and political subdivisions		21,561		21,472
Lease financing		902		2,732
Other		23,840		19,156
Consumer:
Secured		8,579		11,732
Unsecured		6,513		6,515
Total loans		999,902		1,005,112
Less unearned income		19		117
Total loans, net of unearned income	$	999,883	$	1,004,995

Loans with a carrying value of $484 million and $466 million at December 31, 2013 and December 31, 2012, respectively, were pledged to secure borrowings and lines of credit. Such borrowings primarily include FHLB advances and short-term borrowing arrangements with the Federal Reserve.

Loans to directors, executive officers, and principal shareholders of the Parent Company and its subsidiaries (including loans to affiliated companies of which they are principal owners) and loans to members of the immediate family of such persons were $18.1 million at December 31, 2013. Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectability. An analysis of the activity with respect to these loans is presented in the table below.

(In thousands)	Amount
Balance at December 31, 2012	$	19,987
New loans		5,170
Repayments		(6,434	)
Loans no longer meeting disclosure requirements, new loans meeting disclosure requirements, and other adjustments, net		(658	)
Balance at December 31, 2013	$	18,065

Activity in the allowance for loan losses by portfolio segment was as follows for each of the three years in the period ended December 31, 2013:

(In thousands)	Real Estate			Commercial			Consumer			Total
2013
Balance at beginning of period	$	22,254		$	1,513		$	678		$	24,445
Provision for loan losses		(2,432	)		(2	)		(166	)		(2,600	)
Recoveries		327			155			221			703
Loans charged off		(1,433	)		(257	)		(281	)		(1,971	)
Balance at end of period	$	18,716		$	1,409		$	452		$	20,577
2012
Balance at beginning of period	$	23,538		$	3,508		$	1,218		$	28,264
Provision for loan losses		4,930			(1,825	)		(333	)		2,772
Recoveries		666			145			234			1,045
Loans charged off		(6,880	)		(315	)		(441	)		(7,636	)
Balance at end of period	$	22,254		$	1,513		$	678		$	24,445
2011
Balance at beginning of period	$	24,527		$	3,260		$	997		$	28,784
Provision for loan losses		12,548			511			428			13,487
Recoveries		241			860			245			1,346
Loans charged off		(13,778	)		(1,123	)		(452	)		(15,353	)
Balance at end of period	$	23,538		$	3,508		$	1,218		$	28,264

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

As of and for the Year Ended December 31, 2013 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	17,234	$	9,742	$	4,699	$	14,441	$	930	$	17,314	$	509	$	461
Real estate mortgage – residential		11,595		2,871		8,612		11,483		1,443		12,727		460		445
Real estate mortgage – farmland and other commercial enterprises		32,102		12,262		19,746		32,008		1,443		32,785		1,546		1,519
Commercial
Commercial and industrial		311		24		293		317		200		994		40		40
Consumer
Secured		18		-		18		18		15		19		1		1
Unsecured		71		-		72		72		71		147		9		9
Total	$	61,331	$	24,899	$	33,440	$	58,339	$	4,102	$	63,986	$	2,565	$	2,475

As of and for the Year Ended December 31, 2012 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	26,831	$	12,712	$	11,068	$	23,780	$	2,075	$	34,880	$	871	$	804
Real estate mortgage – residential		7,474		2,215		5,259		7,474		1,069		13,754		333		324
Real estate mortgage – farmland and other commercial enterprises		33,491		13,294		18,803		32,097		1,588		38,077		1,859		1,876
Commercial
Commercial and industrial		210		-		207		207		198		403		17		17
Consumer
Secured		21		-		21		21		17		66		6		6
Unsecured		309		-		310		310		196		271		17		16
Total	$	68,336	$	28,221	$	35,668	$	63,889	$	5,143	$	87,451	$	3,103	$	3,043

Year Ended December 31, 2011 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	51,226	$	719	$	716
Real estate mortgage – residential		28,732		1,282		1,271
Real estate mortgage – farmland and other commercial enterprises		67,565		2,847		2,768
Commercial
Commercial and industrial		4,174		205		164
Consumer
Secured		66		6		4
Unsecured		9		-		-
Total	$	151,772	$	5,059	$	4,923

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 December 31, 2013 and 2012.

December 31, 2013 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,816	$	200	$	86	$	4,102
Collectively evaluated for impairment		14,900		1,209		366		16,475
Total ending allowance balance	$	18,716	$	1,409	$	452	$	20,577
Loans
Loans individually evaluated for impairment	$	57,932	$	317	$	90	$	58,339
Loans collectively evaluated for impairment		833,149		93,393		15,002		941,544
Total ending loan balance, net of unearned income	$	891,081	$	93,710	$	15,092	$	999,883

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 December 31, 2013 and 2012.

December 31, 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	$	5,821	$	4,391	$	-
Real estate mortgage – residential		5,154		4,826		10
Real estate mortgage – farmland and other commercial enterprises		12,677		16,987		434
Commercial:
Commercial and industrial		160		-		-
Lease financing		22		-		-
Consumer:
Secured		3		-		-
Unsecured		1		51		-
Total	$	23,838	$	26,255	$	444

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 December 31, 2013 and 2012, respectively. The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at December 31, 2013 and 2012.

During 2013, the Company had eight credits that were modified as troubled debt restructurings. Seven of these credits with an aggregate recorded investment of $338 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 2012, the Company had three 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. One restructuring includes a residential real estate credit 

whereby the stated interest rate was reduced to 4.125% from 6.0% and the due date extended by three months. The remaining restructured credit represents a secured consumer loans in which the maturity date was extended.

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2013 and 2012.

(Dollars in thousands)			Pre-Modification Outstanding		Post-Modification Outstanding
Troubled Debt Restructurings:	Number of Loans		Recorded Investment		Recorded Investment
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		3		16		16
Total		8	$	936	$	936
2012
Real Estate:
Real estate mortgage – residential		1	$	72	$	72
Real estate mortgage – farmland and other commercial enterprises		1		8,796		8,717
Consumer:
Unsecured		1		38		38
Total		3	$	8,906	$	8,827

The troubled debt restructurings identified above increased the allowance for loan losses by $37 thousand and $442 thousand for 2013 and 2012, respectively. There were no charge-offs related to loans restructured in 2013 or 2012.

The Company had one restructured credit in 2013 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 $15 thousand at year-end 2013. No charge-offs have been recorded for this credit.

The Company had one restructured credit in 2012 for which there was a payment default within twelve months following the modification. This credit had an outstanding balance of $72 thousand at December 31, 2012 and is secured by residential real estate. This credit had a specific reserve allocation of $5 thousand at year-end 2012. There were no charge-offs recorded during 2012 related to this credit.

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.

December 31, 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	$	613	$	671	$	100,681	$	101,352
Real estate mortgage – residential		1,225		2,502		3,727		367,855		371,582
Real estate mortgage – farmland and other commercial enterprises		3,548		7,978		11,526		406,621		418,147
Commercial:
Commercial and industrial		71		53		124		47,302		47,426
States and political subdivisions		-		-		-		21,561		21,561
Lease financing, net		-		22		22		861		883
Other		56		-		56		23,784		23,840
Consumer:
Secured		41		3		44		8,535		8,579
Unsecured		58		1		59		6,454		6,513
Total	$	5,057	$	11,172	$	16,229	$	983,654	$	999,883

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 excludes immaterial amounts attributed to accrued interest receivable.

	Real Estate						Commercial
December 31, 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		Other
Credit risk profile by internally assigned rating grades:
Pass	$	77,873	$	334,104	$	352,238	$	45,652	$	21,561	$	861	$	23,820
Special Mention		7,755		15,120		29,156		963		-		-		-
Substandard		15,724		22,358		36,753		735		-		22		20
Doubtful		-		-		-		76		-		-		-
Total	$	101,352	$	371,582	$	418,147	$	47,426	$	21,561	$	883	$	23,840

	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		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 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 December 31, 2013 and 2012.

	December 31, 2013				December 31, 2012
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	8,576	$	6,461	$	11,723	$	6,382
Nonperforming		3		52		9		133
Total	$	8,579	$	6,513	$	11,732	$	6,515