Note 7 - Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2015

Receivables [Abstract]

Financing Receivables [Text Block]

7. Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized as follows:

(In thousands)	March 31, 2015		December 31, 2014
Real Estate
Real estate mortgage – construction and land development	$	96,805	$	97,045
Real estate mortgage – residential		354,530		361,022
Real estate mortgage – farmland and other commercial enterprises		375,120		375,277
Commercial
Commercial and industrial		53,085		47,112
States and political subdivisions		21,874		22,369
Lease financing		115		159
Other		13,147		15,547
Consumer
Secured		7,516		7,963
Unsecured		5,198		5,450
Total loans		927,390		931,944
Less unearned income		1		1
Total loans, net of unearned income	$	927,389	$	931,943

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

Three months ended March 31, 2015
(In thousands)	Real Estate			Commercial			Consumer			Total
Balance, beginning of period	$	12,542		$	1,153		$	273		$	13,968
Provision for loan losses		(1,211	)		(290	)		(44	)		(1,545	)
Recoveries		286			16			37			339
Loans charged off		(95	)		(13	)		(48	)		(156	)
Balance, end of period	$	11,522		$	866		$	218		$	12,606

Three months ended March 31, 2014
(In thousands)	Real Estate			Commercial			Consumer			Total
Balance, beginning of period	$	18,716		$	1,409		$	452		$	20,577
Provision for loan losses		(756	)		925			(37	)		132
Recoveries		168			27			35			230
Loans charged off		(1,014	)		(1,160	)		(75	)		(2,249	)
Balance, end of period	$	17,114		$	1,201		$	375		$	18,690

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

March 31, 2015 (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	$	12,385	$	6,436	$	3,284	$	9,720	$	532
Real estate mortgage – residential		10,442		3,494		6,815		10,309		1,216
Real estate mortgage – farmland and other commercial enterprises		25,217		5,497		19,635		25,132		986
Commercial
Commercial and industrial		391		327		64		391		64
Consumer
Unsecured		22		-		22		22		22
Total	$	48,457	$	15,754	$	29,820	$	45,574	$	2,820

December 31, 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	$	13,656	$	6,902	$	3,917	$	10,819	$	744
Real estate mortgage – residential		10,256		3,473		6,649		10,122		1,172
Real estate mortgage – farmland and other commercial enterprises		23,003		5,247		17,649		22,896		1,359
Commercial
Commercial and industrial		93		22		71		93		71
Consumer
Unsecured		25		-		25		25		25
Total	$	47,033	$	15,644	$	28,311	$	43,955	$	3,371

Three Months Ended March 31, 2015 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	11,124	$	81	$	80
Real estate mortgage – residential		10,453		121		121
Real estate mortgage – farmland and other commercial enterprises		25,417		280		277
Commercial
Commercial and industrial		435		1		1
Consumer
Unsecured		24		-		-
Total	$	47,453	$	483	$	479

Three Months Ended March 31, 2014 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	15,623	$	113	$	111
Real estate mortgage – residential		11,713		115		109
Real estate mortgage – farmland and other commercial enterprises		34,193		254		244
Commercial
Commercial and industrial		249		1		-
Consumer
Secured		18		-		-
Unsecured		70		4		3
Total	$	61,866	$	487	$	467

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 March 31, 2015 and December 31, 2014.

March 31, 2015 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,734	$	64	$	22	$	2,820
Collectively evaluated for impairment		8,788		802		196		9,786
Total ending allowance balance	$	11,522	$	866	$	218	$	12,606
Loans
Loans individually evaluated for impairment	$	45,161	$	391	$	22	$	45,574
Loans collectively evaluated for impairment		781,294		87,829		12,692		881,815
Total ending loan balance, net of unearned income	$	826,455	$	88,220	$	12,714	$	927,389

December 31, 2014 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,275	$	71	$	25	$	3,371
Collectively evaluated for impairment		9,267		1,082		248		10,597
Total ending allowance balance	$	12,542	$	1,153	$	273	$	13,968
Loans
Loans individually evaluated for impairment	$	43,837	$	93	$	25	$	43,955
Loans collectively evaluated for impairment		789,507		85,093		13,388		887,988
Total ending loan balance, net of unearned income	$	833,344	$	85,186	$	13,413	$	931,943

The following tables present the recorded investment in nonperforming loans by class of loans as of March 31, 2015 and December 31, 2014.

March 31, 2015 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	3,165	$	3,679	$	-
Real estate mortgage – residential		3,443		4,408		-
Real estate mortgage – farmland and other commercial enterprises		4,401		17,738		-
Commercial
Commercial and industrial		76		-		-
Other		9		-		-
Consumer
Secured		13		-		-
Unsecured		6		8		2
Total	$	11,113	$	25,833	$	2

December 31, 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	$	3,744	$	3,742	$	-
Real estate mortgage – residential		3,474		4,674		-
Real estate mortgage – farmland and other commercial enterprises		4,202		16,004		-
Commercial
Commercial and industrial		81		-		-
Other		7		-		-
Consumer
Unsecured		-		9		-
Total	$	11,508	$	24,429	$	-

The Company has allocated $1.7 million and $2.2 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 March 31, 2015 and December 31, 2014, respectively. The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at March 31, 2015 and December 31, 2014.

The Company had no credits during 2015 or 2014 that were modified as troubled debt restructurings. Troubled debt restructurings increased during the first quarter of 2015 resulting from the purchase of a previously-participated portion of a loan to a nonaffiliated bank. This loan was participated prior to it being restructured. The purchase price paid represented a discount of $428 thousand or 15% of the purchased principal amount. The loan is performing under the terms of the restructuring and the borrower’s financial position has steadily improved. The discount is being accreted into interest income over the remaining four month contractual life ending in June 2015. The total outstanding balance related to this credit was $11.4 million at March 31, 2015. This represents 44.3% of the Company’s total restructured loans and is the largest such individual credit. This credit was restructured in 2012 following an interest rate concession and extended amortization term.

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.

March 31, 2015 (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	$	12	$	272	$	284	$	96,521	$	96,805
Real estate mortgage – residential		1,323		1,588		2,911		351,619		354,530
Real estate mortgage – farmland and other commercial enterprises		306		2,861		3,167		371,953		375,120
Commercial
Commercial and industrial		21		13		34		53,051		53,085
States and political subdivisions		-		-		-		21,874		21,874
Lease financing, net		-		-		-		114		114
Other		9		-		9		13,138		13,147
Consumer
Secured		34		-		34		7,482		7,516
Unsecured		21		8		29		5,169		5,198
Total	$	1,726	$	4,742	$	6,468	$	920,921	$	927,389

December 31, 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	$	96,773	$	97,045
Real estate mortgage – residential		1,395		1,595		2,990		358,032		361,022
Real estate mortgage – farmland and other commercial enterprises		75		3,484		3,559		371,718		375,277
Commercial
Commercial and industrial		-		13		13		47,099		47,112
States and political subdivisions		-		-		-		22,369		22,369
Lease financing, net		-		-		-		158		158
Other		40		7		47		15,500		15,547
Consumer
Secured		58		-		58		7,905		7,963
Unsecured		16		1		17		5,433		5,450
Total	$	1,584	$	5,372	$	6,956	$	924,987	$	931,943

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 and 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
March 31, 2015 (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	$	80,171	$	320,605	$	327,347	$	51,589	$	21,874	$	114	$	13,123
Special Mention		4,085		15,244		28,999		1,006		-		-		-
Substandard		12,549		18,681		18,321		490		-		-		24
Doubtful		-		-		453		-		-		-		-
Total	$	96,805	$	354,530	$	375,120	$	53,085	$	21,874	$	114	$	13,147

	Real Estate						Commercial
December 31, 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	$	81,438	$	326,124	$	327,019	$	45,665	$	22,369	$	158	$	15,526
Special Mention		2,674		16,429		27,855		946		-		-		14
Substandard		12,933		18,469		19,941		501		-		-		7
Doubtful		-		-		462		-		-		-		-
Total	$	97,045	$	361,022	$	375,277	$	47,112	$	22,369	$	158	$	15,547

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 March 31, 2015 and December 31, 2014.

	March 31, 2015				December 31, 2014
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity
Performing	$	7,503	$	5,182	$	7,963	$	5,441
Nonperforming		13		16		-		9
Total	$	7,516	$	5,198	$	7,963	$	5,450