Note 3 - Loans Receivable

12 Months Ended

Dec. 31, 2012

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 3. Loans Receivable

The major classifications of loans in the consolidated balance sheets at December 31, 2012 and 2011 were as follows:

(Dollars In Thousands)	December 31,
	2012			2011
Construction:
Residential	$	5,036		$	3,695
Land acquisition, development & commercial		20,198			23,911
Real Estate:
Residential		69,691			58,070
Commercial		109,302			102,312
Commercial, industrial & agricultural		42,382			36,297
Equity lines		20,504			19,018
Consumer		7,824			5,776
	$	274,937		$	249,079
Less allowance for loan losses		(3,790	)		(3,979	)
Loans, net	$	271,147		$	245,100

The past due and nonaccrual status of loans as of December 31, 2012 was as follows:

(Dollars In Thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Nonaccrual  Loans
Construction:
Residential	$	–	$	–	$	–	$	–	$	5,036	$	5,036	$	–
Land acquisition, development & commercial		–		723		1,034		1,757		18,441		20,198		1,756
Real Estate:
Residential		–		562		184		746		68,945		69,691		582
Commercial		–		–		236		236		109,066		109,302		236
Commercial, industrial & agricultural		–		157		–		157		42,225		42,382		–
Equity lines		60		–		115		175		20,329		20,504		115
Consumer		–		–		–		–		7,824		7,824		–
Total	$	60	$	1,442	$	1,569	$	3,071	$	271,866	$	274,937	$	2,689

The past due and nonaccrual status of loans as of December 31, 2011 was as follows:

(Dollars In Thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past  Due		Current		Total Loans		Nonaccrual  Loans
Construction:
Residential	$	–	$	–	$	–	$	–	$	3,695	$	3,695	$	–
Land acquisition, development & commercial		–		464		632		1,096		22,815		23,911		632
Real Estate:
Residential		–		535		179		714		57,356		58,070		714
Commercial		–		–		–		–		102,312		102,312		–
Commercial, industrial & agricultural		55		–		43		98		36,199		36,297		43
Equity lines		–		–		643		643		18,375		19,018		643
Consumer		–		–		–		–		5,776		5,776		–
Total	$	55	$	999	$	1,497	$	2,551	$	246,528	$	249,079	$	2,032

There were no loans past due ninety days or more and still accruing interest at December 31, 2012 or December 31, 2011.

Impaired loans, which include TDRs of $6.5 million and the related allowance at December 31, 2012, were as follows:

December 31, 2012 With no related allowance:	Recorded  Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance  Total Loans		Interest Income  Recognized
(Dollars In Thousands)
Construction:
Residential	$	–	$	–	$	–	$	–	$	–
Land acquisition, development & commercial		3,632		3,692		–		3,647		187
Real Estate:
Residential		611		611		–		611		23
Commercial		9,018		9,018		–		9,018		440
Commercial, industrial & agricultural		916		916		–		916		33
Equity lines		115		439		–		115		–
Consumer		–		–		–		–		–
Total loans with no allowance	$	14,292	$	14,676	$	–	$	14,307	$	683

December 31, 2012 With an allowance recorded: (Dollars In Thousands)	Recorded  Investment  in Loans		Unpaid  Principal Balance		Related Allowance		Average Balance Total Loans		Interest  Income  Recognized
Construction:
Residential	$	–	$	–	$	–	$	–	$	–
Land acquisition, development & commercial		–		–		–		–		–
Real Estate:
Residential		199		199		137		199		13
Commercial		1,139		1,139		71		1,139		74
Commercial, industrial & agricultural		–		–		–		–		–
Equity lines		–		–		–		–		–
Consumer		–		–		–		–		–
Total  loans with an allowance	$	1,338	$	1,338	$	208	$	1,338	$	87

Impaired loans, which include TDRs of $8.4 million and the related allowance at December 31, 2011 were as follows:

December 31, 2011 With no related allowance: (Dollars In Thousands)	Recorded  Investment  in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction:
Residential	$	–	$	–	$	–	$	917	$	–
Land acquisition, development & commercial		2,174		3,300		–		2,815		100
Real Estate:
Residential		714		714		–		1,868		27
Commercial		8,508		8,508		–		7,201		383
Commercial, industrial & agricultural		–		–		–		218		–
Equity lines		439		439		–		175		5
Consumer		–		–		–		–		–
Total loans with no allowance	$	11,835	$	12,961	$	–	$	13,194	$	515

December 31, 2011 With an allowance recorded: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total  Loans		Interest Income Recognized
Construction:
Residential	$	–	$	–	$	–	$	288	$	–
Land acquisition, development & commercial		801		801		249		3,024		38
Real Estate:
Residential		–		–		–		137		–
Commercial		3,080		3,080		292		2,386		183
Commercial, industrial & agricultural		–		–		–		–		–
Equity lines		203		203		88		108		5
Consumer		–		–		–		–		–
Total  loans with an allowance	$	4,084	$	4,084	$	629	$	5,943	$	226

Troubled Debt Restructurings

Included in certain loan categories in the impaired loans tables above are troubled debt restructurings (“TDR’s”) that were classified as impaired.  TDR’s at December 31 2012 were comprised of 3 loans totaling $6.5 million.  Two of the three loans totaling $6.3 million are performing in accordance with their restructured terms and are not on nonaccrual status.  The remaining $199 thousand loan is not past due, but is on nonaccrual status.  This compares with $8.4 million in total restructured loans at December 31, 2011.  One of the loans classified as a TDR at the end of the 2011 deteriorated further in 2012, resulting in a partial charge-off of $478 thousand, and subsequently transferred to other real estate owned for $1.6 million.  The amount of the valuation allowance related to total TDR’s was $137 thousand as of December 31, 2012 and $277 thousand as of December 31, 2011.

The following table presents by class of loan, information related to loans modified in a TDR during 2012:

	Loans modified as TDR's For the year ended December 31, 2012
Class of Loan	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
			(In thousands)
Construction loans:
Residential		—	$	—	$	—
Land acquisition, development & commercial		—		—		—
Real estate loans:		—		—		—
Residential		1		202		202
Commercial		—		—		—
Commercial, industrial, agricultural		—		—		—
Equity lines		—		—		—
Consumer		—		—		—
Total Loans		1	$	202	$	202

During 2012, the Company modified one loan considered to be a TDR.  The terms were modified changing the loan from a home equity line of credit to a non-real estate secured term loan.  This TDR was current at the end of 2012, and had not subsequently defaulted.

The following table presents by class of loan, information related to loans modified in a TDR during 2011:

	Loans modified as TDR's For the year ended December 31, 2011
Class of Loan	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
			(In thousands)
Construction loans:
Residential		—	$	—	$	—
Land acquisition, development & commercial		—		—		—
Real estate loans:		—		—		—
Residential		—		—		—
Commercial		2		6,671		6,421
Commercial, industrial, agricultural		—		—		—
Equity lines		—		—		—
Consumer		—		—		—
Total Loans		2	$	6,671	$	6,421

During 2011, the Company modified 2 loans that were considered to be TDRs.  The Company accepted a permanent reduction in the recorded investment on one loan and extended the interest only payment term of another loan.

Management considers troubled debt restructurings and subsequent defaults in restructured loans in the determination of the adequacy of the Company’s allowance for loan losses.  When identified as a TDR, a loan is evaluated for potential loss based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs if the loan is collateral dependent.  Loans identified as TDR’s frequently are on non-accrual status at the time of the restructuring and, in some cases, partial charge-offs may have already been taken against the loan and a specific allowance may have already been established for the loan.  As a result of any modification as a TDR, the specific reserve associated with the loan may be increased.  Additionally, loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future defaults.  If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment.  As a result, any specific allowance may be increased, adjustments may be made in the allocation of the total allowance balance, or partial charge-offs may be taken to further write-down the carrying value of the loan.  Management exercises significant judgment in developing estimates for potential losses associated with TDRs.