Note 7 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Financing Receivables [Text Block]

7. Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized as follows:

(In thousands)	June 30, 2014		December 31, 2013
Real Estate:
Real estate mortgage - construction and land development	$	97,769	$	101,352
Real estate mortgage - residential		365,969		371,582
Real estate mortgage - farmland and other commercial enterprises		392,910		418,147
Commercial:
Commercial and industrial		52,713		47,426
States and political subdivisions		25,150		21,561
Lease financing		398		902
Other		20,769		23,840
Consumer:
Secured		8,836		8,579
Unsecured		5,670		6,513
Total loans		970,184		999,902
Less unearned income		5		19
Total loans, net of unearned income	$	970,179	$	999,883

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 June 30, 2014
Balance, beginning of period	$	17,114		$	1,201		$	375		$	18,690
Provision for loan losses		(1,603	)		205			10			(1,388	)
Recoveries		189			18			39			246
Loans charged off		(252	)		(86	)		(87	)		(425	)
Balance, end of period	$	15,448		$	1,338		$	337		$	17,123
Six months ended June 30, 2014
Balance, beginning of period	$	18,716		$	1,409		$	452		$	20,577
Provision for loan losses		(2,359	)		1,130			(27	)		(1,256	)
Recoveries		357			45			74			476
Loans charged off		(1,266	)		(1,246	)		(162	)		(2,674	)
Balance, end of period	$	15,448		$	1,338		$	337		$	17,123

(In thousands)	Real Estate			Commercial			Consumer			Total
Three months ended June 30, 2013
Balance, beginning of period	$	21,402		$	1,558		$	603		$	23,563
Provision for loan losses		(848	)		624			(138	)		(362	)
Recoveries		48			14			114			176
Loans charged off		(362	)		(19	)		(53	)		(434	)
Balance, end of period	$	20,240		$	2,177		$	526		$	22,943
Six months ended June 30, 2013
Balance, beginning of period	$	22,254		$	1,513		$	678		$	24,445
Provision for loan losses		(1,500	)		617			(111	)		(994	)
Recoveries		184			97			150			431
Loans charged off		(698	)		(50	)		(191	)		(939	)
Balance, end of period	$	20,240		$	2,177		$	526		$	22,943

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

June 30, 2014 (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	$	15,753	$	8,566	$	4,400	$	12,966	$	856
Real estate mortgage - residential		10,930		3,980		6,645		10,625		1,195
Real estate mortgage - farmland and other commercial enterprises		25,833		7,126		18,600		25,726		1,278
Commercial
Commercial and industrial		240		23		217		240		195
Consumer
Unsecured		66		-		66		66		66
Total	$	52,822	$	19,695	$	29,928	$	49,623	$	3,590

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
Real Estate
Real estate mortgage - construction and land development	$	17,234	$	9,742	$	4,699	$	14,441	$	930
Real estate mortgage - residential		11,595		2,871		8,612		11,483		1,443
Real estate mortgage - farmland and other commercial enterprises		32,102		12,262		19,746		32,008		1,443
Commercial
Commercial and industrial		311		24		293		317		200
Consumer
Secured		18		-		18		18		15
Unsecured		71		-		72		72		71
Total	$	61,331	$	24,899	$	33,440	$	58,339	$	4,102

Three Months Ended June 30,	2014						2013
(In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate – construction and land development	$	15,452	$	120	$	118	$	24,159	$	338	$	347
Real estate mortgage – residential		11,059		147		141		10,836		87		83
Real estate mortgage – farmland and other commercial enterprises		26,295		359		346		28,209		236		236
Commercial
Commercial and industrial		245		3		3		1,154		29		29
Consumer
Secured		-		-		-		21		1		1
Unsecured		68		-		-		215		3		4
Total	$	53,119	$	629	$	608	$	64,594	$	694	$	700

Six Months Ended June 30,	2014						2013
(In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate – construction and land development	$	15,537	$	233	$	229	$	25,047	$	691	$	689
Real estate mortgage – residential		11,384		262		250		9,569		172		163
Real estate mortgage – farmland and other commercial enterprises		30,222		745		722		29,692		484		478
Commercial
Commercial and industrial		247		4		3		930		33		33
Consumer
Secured		9		-		-		21		1		1
Unsecured		69		4		3		214		6		6
Total	$	57,468	$	1,248	$	1,207	$	65,473	$	1,387	$	1,370

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 June 30, 2014 and December 31, 2013.

June 30, 2014 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,329	$	195	$	66	$	3,590
Collectively evaluated for impairment		12,119		1,143		271		13,533
Total ending allowance balance	$	15,448	$	1,338	$	337	$	17,123
Loans
Loans individually evaluated for impairment	$	49,317	$	240	$	66	$	49,623
Loans collectively evaluated for impairment		807,331		98,785		14,440		920,556
Total ending loan balance, net of unearned income	$	856,648	$	99,025	$	14,506	$	970,179

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

The following tables present the recorded investment in nonperforming loans by class of loans as of June 30, 2014 and December 31, 2013.

June 30, 2014 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate mortgage - construction and land development	$	4,794	$	4,219	$	-
Real estate mortgage - residential		5,149		4,532		-
Real estate mortgage - farmland and other commercial enterprises		7,937		16,657		-
Commercial:
Commercial and industrial		199		-		-
Other		11		-		-
Consumer:
Secured		5		-		-
Unsecured		-		48		-
Total	$	18,095	$	25,456	$	-

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

The Company has allocated $2.5 million and $2.7 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 June 30, 2014 and December 31, 2013, respectively. The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at June 30, 2014 and December 31, 2013.

The Company had no credits during 2014 that were modified as troubled debt restructurings. The Company had five credits in 2013 that were modified as troubled debt restructurings. Each of these credits represents debt by a borrower which was 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 following table presents loans by class modified as troubled debt restructurings that occurred during the three and six months ended June 30, 2013. There were no loans modified as troubled debt restructurings during 2014.

(Dollars in thousands) Troubled Debt Restructurings:	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Three Months Ended June 30, 2013
Real Estate:
Real estate mortgage – residential		1	$	18	$	18
Commercial:
Commercial and industrial		1		2		2
Consumer:
Secured		1		13		13
Total		3	$	33	$	33
Six Months Ended June 30, 2013
Real Estate:
Real estate mortgage – residential		3	$	309	$	309
Commercial:
Commercial and industrial		1		2		2
Consumer:
Secured		1		13		13
Total		5	$	324	$	324

The troubled debt restructurings identified above increased the allowance for loan losses by $15 thousand and $23 thousand in the three and six months periods ended June 30, 2013, respectively. There were no charge-offs related to these loans. There were no payment defaults during the first six months of 2014 or 2013 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.

June 30, 2014 (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	$	568	$	317	$	885	$	96,884	$	97,769
Real estate mortgage - residential		2,771		2,822		5,593		360,376		365,969
Real estate mortgage - farmland and other commercial enterprises		444		6,278		6,722		386,188		392,910
Commercial:
Commercial and industrial		45		176		221		52,492		52,713
States and political subdivisions		-		-		-		25,150		25,150
Lease financing, net		171		-		171		222		393
Other		25		-		25		20,744		20,769
Consumer:
Secured		56		2		58		8,778		8,836
Unsecured		58		-		58		5,612		5,670
Total	$	4,138	$	9,595	$	13,733	$	956,446	$	970,179

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

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
June 30, 2014 (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	$	75,835	$	332,358	$	345,066	$	50,930	$	25,150	$	393	$	20,691
Special Mention		7,207		12,219		16,532		785		-		-		59
Substandard		14,727		21,392		30,837		998		-		-		19
Doubtful		-		-		475		-		-		-		-
Total	$	97,769	$	365,969	$	392,910	$	52,713	$	25,150	$	393	$	20,769

	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

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 June 30, 2014 and December 31, 2013.

	June 30, 2014				December 31, 2013
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	8,831	$	5,622	$	8,576	$	6,461
Nonperforming		5		48		3		52
Total	$	8,836	$	5,670	$	8,579	$	6,513