Note 7 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 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)	September 30, 2015		December 31, 2014
Real Estate:
Real estate mortgage – construction and land development	$	107,130	$	97,045
Real estate mortgage – residential		355,258		361,022
Real estate mortgage – farmland and other commercial enterprises		368,870		375,277
Commercial:
Commercial and industrial		51,187		47,112
States and political subdivisions		18,428		22,369
Lease financing		25		159
Other		22,218		15,547
Consumer:
Secured		6,787		7,963
Unsecured		5,242		5,450
Total loans		935,145		931,944
Less unearned income		-		1
Total loans, net of unearned income	$	935,145	$	931,943

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, 2015
Balance, beginning of period	$	10,806		$	1,057		$	336		$	12,199
Provision for loan losses		(765	)		(136	)		3			(898	)
Recoveries		38			145			28			211
Loans charged off		(151	)		(42	)		(42	)		(235	)
Balance, end of period	$	9,928		$	1,024		$	325		$	11,277
Nine months ended September 30, 2015
Balance, beginning of period	$	12,542		$	1,153		$	273		$	13,968
Provision for loan losses		(2,552	)		(237	)		82			(2,707	)
Recoveries		376			176			91			643
Loans charged off		(438	)		(68	)		(121	)		(627	)
Balance, end of period	$	9,928		$	1,024		$	325		$	11,277

(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

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

September 30, 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	$	10,410	$	4,373	$	3,379	$	7,752	$	543
Real estate mortgage – residential		9,304		2,588		6,660		9,248		1,149
Real estate mortgage – farmland and other commercial enterprises		21,182		4,200		16,848		21,048		687
Commercial
Commercial and industrial		436		-		438		438		261
Consumer
Unsecured		161		-		161		161		161
Total	$	41,493	$	11,161	$	27,486	$	38,647	$	2,801

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 September 30,	2015						2014
(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	$	9,650	$	49	$	47	$	13,157	$	46	$	46
Real estate mortgage – residential		9,416		109		109		10,651		150		143
Real estate mortgage – farmland and other commercial enterprises		20,999		255		252		27,014		359		358
Commercial
Commercial and industrial		449		5		5		375		2		2
Consumer
Unsecured		161		2		2		30		-		-
Total	$	40,675	$	420	$	415	$	51,227	$	557	$	549

Nine Months Ended September 30,	2015						2014
(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	$	10,382	$	265	$	258	$	14,735	$	279	$	275
Real estate mortgage – residential		10,199		364		352		11,137		412		393
Real estate mortgage – farmland and other commercial enterprises		22,931		780		771		29,141		839		816
Commercial
Commercial and industrial		563		11		11		290		6		5
Consumer
Secured								6		-		-
Unsecured		118		4		4		56		4		3
Total	$	44,193	$	1,424	$	1,396	$	55,365	$	1,540	$	1,492

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, 2015 and December 31, 2014.

September 30, 2015 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,379	$	261	$	161	$	2,801
Collectively evaluated for impairment		7,549		763		164		8,476
Total ending allowance balance	$	9,928	$	1,024	$	325	$	11,277
Loans
Loans individually evaluated for impairment	$	38,048	$	438	$	161	$	38,647
Loans collectively evaluated for impairment		793,210		91,420		11,868		896,498
Total ending loan balance, net of unearned income	$	831,258	$	91,858	$	12,029	$	935,145

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 September 30, 2015 and December 31, 2014.

September 30, 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	$	1,861	$	3,679	$	-
Real estate mortgage – residential		2,527		4,350		-
Real estate mortgage – farmland and other commercial enterprises		3,739		15,594		-
Commercial:
Commercial and industrial		55		385		-
Other		9		-		-
Consumer:
Secured		10		-		-
Unsecured		-		147		-
Total	$	8,201	$	24,155	$	-

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		-		-
Lease financing		7		-		-
Consumer:
Unsecured		-		9		-
Total	$	11,508	$	24,429	$	-

The Company has allocated $1.9 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 September 30, 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 September 30, 2015 and December 31, 2014.

The Company had three credits modified as troubled debt restructurings during 2015. Additionally, troubled debt restructurings increased as a result of the purchase of a previously-participated portion of a loan to a nonaffiliated bank during the first quarter of 2015. This loan was participated prior to it being restructured. The purchase price paid represented a discount of $482 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. Accretion of the discount was recognized over the contractual life of the loan, which ended in June 2015. There is no further accretion to be recognized. The total outstanding balance related to this credit, which was renewed during June 2015, was $11.3 million at September 30, 2015. This represents 46.8% 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 following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2015. There were no loans modified as troubled debt restructurings during the three months ended September 30, 2015 or during 2014.

(Dollars in thousands) Troubled Debt Restructurings:	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nine Months Ended September 30, 2015
Commercial:
Commercial and industrial		2	$	388	$	388
Consumer:
Secured		1		145		145
Total		3	$	533	$	533

The troubled debt restructurings identified above increased the allowance for loan losses by $356 thousand in the nine month period ended September 30, 2015. There were no charge-offs related to these loans. There were no payment defaults during the first nine months of 2015 or 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, 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	$	2	$	227	$	229	$	106,901	$	107,130
Real estate mortgage – residential		1,706		698		2,404		352,854		355,258
Real estate mortgage – farmland and other commercial enterprises		876		2,125		3,001		365,869		368,870
Commercial:
Commercial and industrial		-		19		19		51,168		51,187
States and political subdivisions		-		-		-		18,428		18,428
Lease financing, net		25		-		25		-		25
Other		19		-		19		22,199		22,218
Consumer:
Secured		4		-		4		6,783		6,787
Unsecured		23		-		23		5,219		5,242
Total	$	2,655	$	3,069	$	5,724	$	929,421	$	935,145

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, 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, 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	$	92,979	$	323,928	$	327,195	$	49,697	$	18,428	$	25	$	22,196
Special Mention		4,018		15,791		24,191		999		-		-		-
Substandard		10,133		15,539		17,484		491		-		-		22
Doubtful		-		-		-		-		-		-		-
Total	$	107,130	$	355,258	$	368,870	$	51,187	$	18,428	$	25	$	22,218

	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 September 30, 2015 and December 31, 2014.

	September 30, 2015				December 31, 2014
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	6,777	$	5,095	$	7,963	$	5,441
Nonperforming		10		147		-		9
Total	$	6,787	$	5,242	$	7,963	$	5,450