Note 7 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 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)	September 30, 2014		December 31, 2013
Real Estate:
Real estate mortgage - construction and land development	$	97,270	$	101,352
Real estate mortgage - residential		361,315		371,582
Real estate mortgage - farmland and other commercial enterprises		382,789		418,147
Commercial:
Commercial and industrial		53,859		47,426
States and political subdivisions		24,355		21,561
Lease financing		241		902
Other		20,022		23,840
Consumer:
Secured		8,184		8,579
Unsecured		5,799		6,513
Total loans		953,834		999,902
Less unearned income		2		19
Total loans, net of unearned income	$	953,832	$	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 September 30, 2014
Balance, beginning of period	$	15,448		$	1,338		$	337		$	17,123
Provision for loan losses		(1,036	)		(496	)		(4	)		(1,536	)
Recoveries		114			691			20			825
Loans charged off		(436	)		(230	)		(54	)		(720	)
Balance, end of period	$	14,090		$	1,303		$	299		$	15,692
Nine months ended September 30, 2014
Balance, beginning of period	$	18,716		$	1,409		$	452		$	20,577
Provision for loan losses		(3,395	)		634			(31	)		(2,792	)
Recoveries		471			736			94			1,301
Loans charged off		(1,702	)		(1,476	)		(216	)		(3,394	)
Balance, end of period	$	14,090		$	1,303		$	299		$	15,692

(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

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

September 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	$	15,152	$	8,297	$	4,159	$	12,456	$	647
Real estate mortgage - residential		10,237		3,164		6,961		10,125		1,370
Real estate mortgage - farmland and other commercial enterprises		26,167		7,403		18,648		26,051		1,440
Commercial
Commercial and industrial		222		23		199		222		132
Consumer
Unsecured		27		-		27		27		27
Total	$	51,805	$	18,887	$	29,994	$	48,881	$	3,616

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 September 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 mortgage – construction and land development	$	13,157	$	46	$	46	$	16,815	$	128	$	109
Real estate mortgage – residential		10,651		150		143		11,799		94		105
Real estate mortgage – farmland and other commercial enterprises		27,014		495		495		33,925		329		318
Commercial
Commercial and industrial		375		2		2		1,037		4		4
Consumer
Secured		-		-		-		18		-		-
Unsecured		30		-		-		75		-		-
Total	$	51,227	$	693	$	686	$	63,669	$	555	$	536

Nine Months Ended September 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 mortgage – construction and land development	$	14,735	$	279	$	275	$	17,683	$	405	$	402
Real estate mortgage – residential		11,137		412		393		13,023		356		340
Real estate mortgage – farmland and other commercial enterprises		29,141		1,240		1,217		33,006		1,137		1,120
Commercial
Commercial and industrial		290		6		5		966		37		37
Consumer
Secured		6		-		-		20		1		1
Unsecured		56		4		3		167		6		6
Total	$	55,365	$	1,941	$	1,893	$	64,865	$	1,942	$	1,906

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, 2014 and December 31, 2013.

September 30, 2014 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,457	$	132	$	27	$	3,616
Collectively evaluated for impairment		10,633		1,171		272		12,076
Total ending allowance balance	$	14,090	$	1,303	$	299	$	15,692
Loans
Loans individually evaluated for impairment	$	48,632	$	222	$	27	$	48,881
Loans collectively evaluated for impairment		792,742		98,253		13,956		904,951
Total ending loan balance, net of unearned income	$	841,374	$	98,475	$	13,983	$	953,832

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 September 30, 2014 and December 31, 2013.

September 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	$	4,525	$	3,981	$	-
Real estate mortgage - residential		4,854		4,735		-
Real estate mortgage - farmland and other commercial enterprises		6,027		16,563		-
Commercial:
Commercial and industrial		111		-		-
Other		8		-		-
Consumer:
Secured		4		-		-
Unsecured		1		10		-
Total	$	15,530	$	25,289	$	-

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 $2.3 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 September 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 September 30, 2014 and December 31, 2013.

The Company had no credits during 2014 that were modified as troubled debt restructurings. 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 was 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.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three and nine months ended September 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 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

The troubled debt restructurings identified above increased the allowance for loan losses by $7 thousand and $30 thousand in the three and nine months ended September 30, 2013, respectively. There were no charge-offs related to these loans. 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 $9 thousand. No charge-offs have been recorded for this credit. There were no payment defaults during the first nine months of 2014 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, 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	$	-	$	272	$	272	$	96,998	$	97,270
Real estate mortgage - residential		2,090		1,999		4,089		357,226		361,315
Real estate mortgage - farmland and other commercial enterprises		1,474		4,317		5,791		376,998		382,789
Commercial:
Commercial and industrial		-		39		39		53,820		53,859
States and political subdivisions		-		-		-		24,355		24,355
Lease financing, net		-		-		-		239		239
Other		21		-		21		20,001		20,022
Consumer:
Secured		67		-		67		8,117		8,184
Unsecured		133		-		133		5,666		5,799
Total	$	3,785	$	6,627	$	10,412	$	943,420	$	953,832

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
September 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	$	77,703	$	325,540	$	328,846	$	52,185	$	24,355	$	239	$	20,004
Special Mention		5,166		15,035		23,616		964		-		-		11
Substandard		14,401		20,740		29,858		710		-		-		7
Doubtful		-		-		469		-		-		-		-
Total	$	97,270	$	361,315	$	382,789	$	53,859	$	24,355	$	239	$	20,022

	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 September 30, 2014 and December 31, 2013.

	September 30, 2014				December 31, 2013
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	8,180	$	5,788	$	8,576	$	6,461
Nonperforming		4		11		3		52
Total	$	8,184	$	5,799	$	8,579	$	6,513