Note 4 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2015

Receivables [Abstract]

Financing Receivables [Text Block]

4. Loans and Allowance for Loan Losses

Major classifications of loans are summarized in the following table.

December 31, (In thousands)	2015		2014
Real Estate:
Real estate mortgage – construction and land development	$	115,516	$	97,045
Real estate mortgage – residential		355,134		361,022
Real estate mortgage – farmland and other commercial enterprises		386,386		375,277
Commercial:
Commercial and industrial		48,379		47,112
States and political subdivisions		17,643		22,369
Lease financing		-		159
Other		23,798		15,547
Consumer:
Secured		6,665		7,963
Unsecured		5,754		5,450
Total loans		959,275		931,944
Less unearned income		-		1
Total loans, net of unearned income	$	959,275	$	931,943

From time to time the Company may purchase a limited amount of loans originated by otherwise nonaffiliated third parties. The Company performs its own risk assessment and makes the credit decision on each loan prior to purchase. The Company purchased smaller balance commercial loans totaling $8.3 million and $3.8 million in the aggregate during 2015 and 2014, respectively. The average amount of the purchased loans was $115 thousand for 2015 and $80 thousand for 2014.

Loans with a carrying value of $440 million and $441 million at December 31, 2015 and December 31, 2014, 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 $18.5 million at December 31, 2015. 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, 2014	$	17,924
New loans		11,380
Repayments		(10,973	)
Loans no longer meeting disclosure requirements, new loans meeting disclosure requirements, and other adjustments, net		209
Balance at December 31, 2015	$	18,540

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, 2015:

(In thousands)	Real Estate			Commercial			Consumer			Total
2015
Balance at beginning of period	$	12,542		$	1,153		$	273		$	13,968
Provision for loan losses		(3,099	)		(449	)		119			(3,429	)
Recoveries		463			210			112			785
Loans charged off		(733	)		(94	)		(182	)		(1,009	)
Balance at end of period	$	9,173		$	820		$	322		$	10,315
2014
Balance at beginning of period	$	18,716		$	1,409		$	452		$	20,577
Provision for loan losses		(4,922	)		620			(62	)		(4,364	)
Recoveries		624			786			97			1,507
Loans charged off		(1,876	)		(1,662	)		(214	)		(3,752	)
Balance at end of period	$	12,542		$	1,153		$	273		$	13,968
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

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

As of and for the Year Ended December 31, 2015 (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	$	9,932	$	3,875	$	3,372	$	7,247	$	556	$	9,409	$	343	$	337
Real estate mortgage – residential		8,655		2,502		6,024		8,526		1,278		9,810		448		438
Real estate mortgage – farmland and other commercial enterprises		20,980		4,149		16,703		20,852		681		22,439		890		887
Commercial
Commercial and industrial		399		-		400		400		223		523		16		16
Consumer
Unsecured		156		-		157		157		156		127		6		6
Total	$	40,122	$	10,526	$	26,656	$	37,182	$	2,894	$	42,308	$	1,703	$	1,684

As of and for the Year Ended 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		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	13,656	$	6,902	$	3,917	$	10,819	$	744	$	13,557	$	424	$	423
Real estate mortgage – residential		10,256		3,473		6,649		10,122		1,172		11,254		550		535
Real estate mortgage – farmland and other commercial enterprises		23,003		5,247		17,649		22,896		1,359		28,711		1,088		1,070
Commercial
Commercial and industrial		93		22		71		93		71		255		6		5
Consumer
Secured		-		-		-		-		-		6		-		-
Unsecured		25		-		25		25		25		54		4		4
Total	$	47,033	$	15,644	$	28,311	$	43,955	$	3,371	$	53,837	$	2,072	$	2,037

Year Ended December 31, 2013 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	17,314	$	509	$	461
Real estate mortgage – residential		12,727		460		445
Real estate mortgage – farmland and other commercial enterprises		32,785		1,546		1,519
Commercial
Commercial and industrial		994		40		40
Consumer
Secured		19		1		1
Unsecured		147		9		9
Total	$	63,986	$	2,565	$	2,475

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, 2015 and 2014.

December 31, 2015 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,515	$	223	$	156	$	2,894
Collectively evaluated for impairment		6,658		597		166		7,421
Total ending allowance balance	$	9,173	$	820	$	322	$	10,315
Loans
Loans individually evaluated for impairment	$	36,625	$	400	$	157	$	37,182
Loans collectively evaluated for impairment		820,411		89,420		12,262		922,093
Total ending loan balance, net of unearned income	$	857,036	$	89,820	$	12,419	$	959,275

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 December 31, 2015 and 2014.

December 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	$	1,567	$	3,674	$	-
Real estate mortgage – residential		2,485		4,127		-
Real estate mortgage – farmland and other commercial enterprises		4,266		15,503		-
Commercial:
Commercial and industrial		44		384		-
Other		8		-		-
Consumer:
Secured		10		-		-
Unsecured		-		143		-
Total	$	8,380	$	23,831	$	-

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 $1.9 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 December 31, 2015 and 2014, 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, 2015 and 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 $11.2 million at December 31, 2015. This represents 47.2% 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 year ended December 31, 2015. 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
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 for 2015. There were no charge-offs related to these loans.

There were no payment defaults during 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.

December 31, 2015 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate:
Real estate mortgage – construction and land development	$	-	$	227	$	227	$	115,289	$	115,516	$	-	$	1,567
Real estate mortgage – residential		421		1,448		1,869		353,265		355,134		-		2,485
Real estate mortgage – farmland and other commercial enterprises		42		2,376		2,418		383,968		386,386		-		4,266
Commercial:
Commercial and industrial		42		43		85		48,294		48,379		-		44
States and political subdivisions		-		-		-		17,643		17,643		-		-
Other		39		-		39		23,759		23,798		-		8
Consumer:
Secured		9		1		10		6,655		6,665		-		10
Unsecured		18		-		18		5,736		5,754		-		-
Total	$	571	$	4,095	$	4,666	$	954,609	$	959,275	$	-	$	8,380

December 31, 2014 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate:
Real estate mortgage – construction and land development	$	-	$	272	$	272	$	96,773	$	97,045	$	-	$	3,744
Real estate mortgage – residential		1,395		1,595		2,990		358,032		361,022		-		3,474
Real estate mortgage – farmland and other commercial enterprises		75		3,484		3,559		371,718		375,277		-		4,202
Commercial:
Commercial and industrial		-		13		13		47,099		47,112		-		81
States and political subdivisions		-		-		-		22,369		22,369		-		-
Lease financing, net		-		-		-		158		158		-		-
Other		40		7		47		15,500		15,547		-		7
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	$	-	$	11,508

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, 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		Other
Credit risk profile by internally assigned rating grades:
Pass	$	104,383	$	324,333	$	343,894	$	46,934	$	17,643	$	23,777
Special Mention		1,651		16,225		22,859		937		-		-
Substandard		9,482		14,576		19,633		508		-		21
Doubtful		-		-		-		-		-		-
Total	$	115,516	$	355,134	$	386,386	$	48,379	$	17,643	$	23,798

	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 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, 2015 and 2014.

	December 31, 2015				December 31, 2014
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	6,655	$	5,611	$	7,963	$	5,441
Nonperforming		10		143		-		9
Total	$	6,665	$	5,754	$	7,963	$	5,450