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Note 7 - Loans and Allowance for Loan Losses
 9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Financing Receivables [Text Block]
7.
Loans and Allowance for Loan Losses
 
Major classifications of loans outsta
nding are summarized as follows:
             
(
In thousands)
  
September
30,
2017
    
December 31,
2016
  
                 
Real Estate
  
 
 
 
  
 
 
 
Real estate mortgage
– construction and land development
   $
112,005
     $
120,230
  
Real estate mortgage
– residential
   
342,350
      
350,295
  
Real estate mortgage
– farmland and other commercial enterprises
    
427,575
      
400,367
  
Commercial
 
 
 
 
  
 
 
 
Commercial and industrial
    
63,853
      
48,607
  
States and political subdivisions
    
20,250
      
18,933
  
Other
    
20,308
      
23,308
  
Consumer
  
 
 
 
  
 
 
 
Secured
    
4,728
      
4,554
  
Unsecured
    
4,042
      
4,681
  
Total loans
    
995,111
      
970,975
  
Less unearned income
    
-
      
-
  
Total loans, net of unearned income
  $
995,111
     $
970,975
  
                 
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, 2017
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Balance, beginning of
period
   $
7,961
     $
900
     $
361
     $
9,222
  
Provision for loan losses
    
(376
 )    
25
      
(28
 )    
(379
 )
Recoveries
    
259
      
44
      
27
      
330
  
Loans charged off
    
(16
 )    
(86
 )    
(23
 )    
(125
 )
Balance, end of period
   $
7,828
     $
883
     $
337
     $
9,048
  
                                 
Nine
months e
nded
September
30, 2017
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Balance, beginning of period
   $
8,205
     $
854
     $
285
     $
9,344
  
Provision for loan losses
    
(526
 )    
153
      
75
      
(298
 )
Recoveries
    
674
      
110
      
46
      
830
  
Loans charged off
    
(525
 )    
(234
 )    
(69
 )    
(828
 )
Balance, end of period
   $
7,828
     $
883
     $
337
     $
9,048
  
                                 
                         
(
In thousands)
  
Real Estate
    
Commercial
    
Consumer
    
Total
  
Three months ended
September
30
, 2016
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Balance, beginning of
period
   $
8,404
     $
806
     $
275
     $
9,485
  
Provision for loan losses
    
(425
 )    
203
      
32
      
(190
 )
Recoveries
    
31
      
52
      
9
      
92
  
Loans charged off
    
(88
 )    
(134
 )    
(19
 )    
(241
 )
Balance, end of period
   $
7,922
     $
927
     $
297
     $
9,146
  
                                 
Nine
months ended
September
30, 2016
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Balance,
beginning period
   $
9,173
     $
820
     $
322
     $
10,315
  
Provision for loan losses
    
(1,025
 )    
193
      
13
      
(819
 )
Recoveries
    
133
      
107
      
52
      
292
  
Loans charged off
    
(359
 )    
(193
 )    
(90
 )    
(642
 )
Balance, end of period
   $
7,922
     $
927
     $
297
     $
9,146
  
                                 
The following table
s present individually impaired loans by class of loans for the dates indicated.
                               

September 30, 2017 (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
   $
4,569
     $
2,003
     $
1,962
     $
3,965
     $
385
  
Real estate mortgage – residential
    
9,985
      
2,807
      
7,207
      
10,014
      
1,650
  
Real estate mortgage – farmland and other commercial enterprises
    
19,961
      
4,342
      
15,494
      
19,836
      
313
  
Commercial
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
400
      
-
      
401
      
401
      
219
  
Consumer
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Unsecured
    
313
      
-
      
313
      
313
      
221
  
Total
   $
35,228
     $
9,152
     $
25,377
     $
34,529
     $
2,788
  
                                       
                               

December 31, 2016 (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
   $
9,076
     $
2,599
     $
3,800
     $
6,399
     $
759
  
Real estate mortgage – residential
    
9,930
      
4,388
      
5,590
      
9,978
      
1,503
  
Real estate mortgage – farmland and other commercial enterprises
    
25,045
      
9,699
      
15,235
      
24,934
      
304
  
Commercial
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
435
      
20
      
418
      
438
      
236
  
Consumer
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Unsecured
    
146
      
-
      
146
      
146
      
146
  
Total
   $
44,632
     $
16,706
     $
25,189
     $
41,895
     $
2,948
  
                                         
             
Three Months Ended
September 30,
  
2017
    
2016
  
(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
   $
5,932
     $
52
     $
28
     $
7,838
     $
88
     $
88
  
Real estate mortgage – residential
    
10,199
      
139
      
134
      
9,214
      
136
      
136
  
Real estate mortgage – farmland and other commercial enterprises
    
19,166
      
224
      
223
      
26,401
      
292
      
292
  
Commercial
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
401
      
6
      
6
      
409
      
4
      
2
  
Consumer
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Unsecured
    
333
      
4
      
4
      
150
      
2
      
2
  
Total
   $
36,031
     $
425
     $
395
     $
44,012
     $
522
     $
520
  
                                                 
             
Nine
Months Ended September 30,
  
2017
    
2016
  
(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
   $
5,464
     $
186
     $
161
     $
8,319
     $
243
     $
231
  
Real estate mortgage – residential
    
10,329
      
393
      
385
      
8,957
      
348
      
323
  
Real estate mortgage – farmland and other commercial enterprises
    
22,436
      
822
      
815
      
25,728
      
929
      
908
  
Commercial
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
436
      
17
      
17
      
413
      
15
      
13
  
Other
    
8
      
-
      
-
      
-
      
-
      
-
  
Consumer
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Unsecured
    
331
      
13
      
12
      
152
      
5
      
4
  
Total
   $
39,004
     $
1,431
     $
1,390
     $
43,569
     $
1,540
     $
1,479
  
                                                 
The following table
s 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, 2017
and
December 31, 2016.
                         
September
3
0
, 2017 (In thousands)
  
Real Estate
    
Commercial
    
Consumer
    
Total
  
Allowance for Loan
Losses
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Ending allowance balance attributable to loans:
                                
Individually evaluated for impairment
   $
2,348
     $
219
     $
221
     $
2,788
  
Collectively evaluated for impairment
    
5,480
      
664
      
116
      
6,260
  
Total ending allowance balance
   $
7,828
     $
883
     $
337
     $
9,048
  
                                 
Loans
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Loans individually evaluated for impairment
   $
33,815
     $
401
     $
313
     $
34,529
  
Loans collectively evaluated for impairment
    
848,115
      
104,010
      
8,457
      
960,582
  
Total ending loan balance, net of unearned income
   $
881,930
     $
104,411
     $
8,770
     $
995,111
  
                                 
                         
December 31,
2016 (In thousands)
  
Real Estate
    
Commercial
    
Consumer
    
Total
  
Allowance for Loan Losses
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Ending allowance balance attributable to loans:
                                
Individually evaluated for impairment
   $
2,566
     $
236
     $
146
     $
2,948
  
Collectively evaluated for impairment
    
5,639
      
618
      
139
      
6,396
  
Total ending allowance balance
   $
8,205
     $
854
     $
285
     $
9,344
  
                                 
Loans
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Loans individually evaluated for impairment
   $
41,311
     $
438
     $
146
     $
41,895
  
Loans collectively evaluated for impairment
    
829,581
      
90,410
      
9,089
      
929,080
  
Total
ending loan balance, net of unearned income
   $
870,892
     $
90,848
     $
9,235
     $
970,975
  
                                 
The following tables present the recorded investment in nonperforming loans by class of loans as of
September 3
0,
2017
and
December 31, 2016
.
                   
 
September
3
0, 2017 (In thousands)
  
Nonaccrual
    
Restructured
Loans
    
Loans Past
Due 90 Days
or More and
Still Accruing
  
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Real estate mortgage – construction and land development
   $
380
     $
1,957
     $
-
  
Real estate mortgage – residential
    
1,490
      
5,356
      
-
  
Real estate mortgage – farmland and other commercial enterprises
    
1,908
      
14,461
      
-
  
Commercial
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
-
      
372
      
-
  
Consumer
  
 
 
 
  
 
 
 
  
 
 
 
Unsecured
    
171
      
130
      
32
  
Total
   $
3,949
     $
22,276
     $
32
  
                       
                   
 
December 31, 201
6 (In thousands)
  
Nonaccrual
    
Restructured
Loans
    
Loans
Past
Due 90 Days
or More and
Still Accruing
  
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Real estate mortgage – construction and land development
   $
712
     $
3,637
     $
-
  
Real estate mortgage – residential
    
2,316
      
4,006
      
-
  
Real estate mortgage – farmland and other commercial enterprises
    
3,383
      
14,787
      
-
  
Commercial
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
-
      
377
      
-
  
Consumer
  
 
 
 
  
 
 
 
  
 
 
 
Secured
    
4
      
-
      
-
  
Unsecured
    
8
      
135
      
-
  
Total
   $
6,423
     $
22,942
     $
-
  
                         
The Company has allocated
$1.8
million and
$2.0
million of specific reserves as of
September 30, 2017
and
December 31, 2016,
respectively, to customers whose loan terms have been modified in troubled debt restructurings and that are in compliance with those terms. The Company had
no
commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at
September 30, 2017
and
December 31, 2016.
The Company had
no
credits during the
first
nine
months of
2017
or
2016
that were modified as troubled debt restructurings.
 
The table
s 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
3
0, 2017 (In thousands)
  
30-8
9
Days
Past Due
    
90 Days
or More
Past Due
    
Total
    
Current
    
Total
Loans
  
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Real estate mortgage – construction and land development
   $
15
     $
314
     $
329
     $
111,676
     $
112,005
  
Real estate mortgage – residential
    
763
      
476
      
1,239
      
341,111
      
342,350
  
Real estate mortgage – farmland and other commercial enterprises
    
-
      
1,090
      
1,090
      
426,485
      
427,575
  
Commercial
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
-
      
-
      
-
      
63,853
      
63,853
  
States and political subdivisions
    
-
      
-
      
-
      
20,250
      
20,250
  
Other
    
-
      
-
      
-
      
20,308
      
20,308
  
Consumer
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Secured
    
-
      
-
      
-
      
4,728
      
4,728
  
Unsecured
    
2
      
-
      
2
      
4,040
      
4,042
  
Total
   $
780
     $
1,880
     $
2,660
     $
992,451
     $
995,111
  
                                       
                               
December 31, 201
6 (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
   $
393
     $
227
     $
620
     $
119,610
     $
120,230
  
Real estate mortgage – residential
    
1,935
      
798
      
2,733
      
347,562
      
350,295
  
Real estate mortgage – farmland and other commercial enterprises
    
-
      
2,483
      
2,483
      
397,884
      
400,367
  
Commercial
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
-
      
-
      
-
      
48,607
      
48,607
  
States and political subdivisions
    
-
      
-
      
-
      
18,933
      
18,933
  
Other
    
24
      
-
      
24
      
23,284
      
23,308
  
Consumer
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Secured
    
13
      
-
      
13
      
4,541
      
4,554
  
Unsecured
    
30
      
8
      
38
      
4,643
      
4,681
  
Total
   $
2,395
     $
3,516
     $
5,911
     $
965,064
     $
970,975
  
                                         
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
  
September
3
0, 2017

(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
   $
107,517
     $
317,404
     $
399,738
     $
62,964
     $
20,250
     $
19,679
  
Special
Mention
    
408
      
9,591
      
17,564
      
487
    
 
-
      
629
  
Substandard
    
4,080
      
15,355
      
10,273
      
402
    
 
-
      
-
  
Doubtful
    
-
      
-
      
-
      
-
    
 
-
    
 
-
  
Total
   $
112,005
     $
342,350
     $
427,575
     $
63,853
     $
20,250
     $
20,308
  
                                                 
             
   
Real Estate
    
Commercial
  
December 31, 201
6
(In thousands)
  
Real Estate
Mortgage –Construction
and Land Development
    
Real Estate Mortgage
–
Residential
    
Real Estate
Mortgage
–
Farmland and Other Commercial Enterprises
    
Commercia
and
Industrial
    
States and
Political Subdivisions
    
Other
  
Credit risk profile by internally assigned rating grades
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Pass
   $
112,435
     $
323,300
     $
363,448
     $
47,254
     $
18,933
     $
23,308
  
Special Mention
    
1,413
      
12,147
      
21,088
      
764
      
-
      
-
  
Substandard
    
6,382
      
14,806
      
15,831
      
589
      
-
      
-
  
Doubtful
    
-
      
42
      
-
      
-
      
-
      
-
  
Total
   $
120,230
     $
350,295
     $
400,367
     $
48,607
     $
18,933
     $
23,308
  
                                                 
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, 2017
and
December 31, 2016.
             
   
September
3
0
, 2017
    
December 31, 201
6
  
   
Consumer
    
Consumer
  
(In thousands)
  
Secured
    
Unsecured
    
Secured
    
Unsecured
  
Credit risk profile based on payment activity
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Performing
   $
4,728
     $
3,709
     $
4,550
     $
4,538
  
Nonperforming
    
-
      
333
      
4
      
143
  
Total
   $
4,728
     $
4,042
     $
4,554
     $
4,681
  
                                 
The Company evaluates the loan risk grading system definitions and allowance for loan
loss methodology on an ongoing basis. During the
first
quarter of
2017,
the Company shortened the look-back period it uses to determine historical loss rates to the previous
twelve
quarters from
sixteen
quarters.
No
other significant changes were made to the loan risk grading system definitions and allowance for loan loss methodology during the past year.