Note 7 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2011

Financing Receivables [Text Block]

7.  Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized in the following table.

(Dollars in thousands)	June 30, 2011			December 31, 2010
Real Estate:
Real estate – construction and land development	$	141,601		$	154,208
Real estate – residential		451,107			469,273
Real estate mortgage – farmland and other commercial enterprises		403,483			416,904
Commercial:
Commercial and industrial		54,470			57,029
States and political subdivisions		25,377			26,302
Lease financing		11,605			16,187
Other		21,516			25,628
Consumer:
Secured		16,662			22,607
Unsecured		7,471			5,925
Total loans		1,133,292			1,194,063
Less unearned income		(758	)		(1,223	)
Total loans, net of unearned income	$	1,132,534		$	1,192,840

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

(Dollars in thousands)	Real Estate			Commercial			Consumer			Total
Three months ended June 30, 2011
Balance, beginning of period	$	24,609		$	3,454		$	959		$	29,022
Provision for loan losses		4,438			31			59			4,528
Recoveries		15			41			68			124
Loans charged off		(3,630	)		(157	)		(149	)		(3,936	)
Balance, end of period	$	25,432		$	3,369		$	937		$	29,738
Six months ended June 30, 2011
Balance, beginning of period	$	24,527		$	3,260		$	997		$	28,784
Provision for loan losses		6,625			258			86			6,969
Recoveries		83			80			127			290
Loans charged off		(5,803	)		(229	)		(273	)		(6,305	)
Balance, end of period	$	25,432		$	3,369		$	937		$	29,738

(Dollars in thousands)	Three Months Ended June 30, 2010			Six Months Ended June 30, 2010
Balance, beginning of period	$	23,694		$	23,364
Provision for loan losses		5,490			7,416
Recoveries		154			313
Loans charged off		(3,514	)		(5,269	)
Balance, end of period	$	25,824		$	25,824

The following table presents individually impaired loans by class of loans for the dates indicated.

June 30, 2011 (In thousands)	Recorded Investment		Unpaid Principal Balance		Allowance for Loan Losses Allocated
Impaired loans with no related allowance recorded:
Real Estate
Real estate – construction and land development	$	28,043	$	28,013
Real estate mortgage – residential		19,256		19,171
Real estate mortgage – farmland and other commercial enterprises		47,837		47,465
Commercial
Commercial and industrial		3,935		3,928
Total	$	99,071	$	98,577
Impaired loans with an allowance recorded:
Real Estate
Real estate – construction and land development	$	27,607	$	27,430	$	2,643
Real estate mortgage – residential		17,622		17,565		1,276
Real estate mortgage – farmland and other commercial enterprises		17,720		17,682		919
Commercial
Commercial and industrial		436		434		323
Consumer
Secured		63		62		62
Total	$	63,448	$	63,173	$	5,223

December 31, 2010 (In thousands)	Recorded Investment		Unpaid Principal Balance		Allowance for Loan Losses Allocated
Impaired loans with no related allowance recorded:
Real Estate
Real estate – construction and land development	$	27,350	$	27,298
Real estate mortgage – residential		13,103		13,059
Real estate mortgage – farmland and other commercial enterprises		17,895		17,864
Commercial
Commercial and industrial		14		14
Total	$	58,362	$	58,235
Impaired loans with an allowance recorded:
Real Estate
Real estate – construction and land development	$	31,529	$	31,452	$	2,793
Real estate mortgage – residential		20,147		19,986		2,051
Real estate mortgage – farmland and other commercial enterprises		19,897		19,810		824
Commercial
Commercial and industrial		447		444		310
Consumer
Secured		93		93		55
Total	$	72,113	$	71,785	$	6,033

The recorded investment column in the tables above excludes immaterial amounts attributed to net deferred loan costs.

(In thousands)	Three Months Ended June 30, 2011		Six Months Ended June 30, 2011
Average of individually impaired loans:
Real Estate
Real estate – construction and land development	$	54,107	$	56,041
Real estate mortgage – residential		40,513		35,914
Real estate mortgage – farmland and other commercial enterprises		62,088		67,566
Commercial
Commercial and industrial		4,553		4,434
Consumer
Secured		112		74
Total average of impaired loans	$	161,373	$	164,029
Interest income recognized during impairment:
Real Estate
Real estate – construction and land development	$	183	$	524
Real estate mortgage – residential		479		830
Real estate mortgage – farmland and other commercial enterprises		360		1,467
Commercial
Commercial and industrial		58		108
Consumer
Secured				3
Total interest income recognized during impairment	$	1,080	$	2,932
Cash-basis interest income recognized:
Real Estate
Real estate – construction and land development	$	150	$	379
Real estate mortgage – residential		335		688
Real estate mortgage – farmland and other commercial enterprises		648		1,305
Commercial
Commercial and industrial		52		102
Consumer
Secured				2
Total cash-basis interest income recognized	$	1,185	$	2,476

For the year ended December 31, 2010, the average of individually impaired loans was $120 million. Interest income recognized on impaired loans for 2010 was $4.0 million and cash-basis interest income recognized was $3.9 million. Amounts for 2010 do not include the same level of detail as presented in the table above since expanded disclosure requirements did not take effect until 2011.

The following tables present the balance of the allowance for loan losses and the recorded investment in loans by portfolio segment based on the impairment method as of June 30, 2011 and December 31, 2010.

June 30, 2011 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	4,838	$	323	$	62	$	5,223
Collectively evaluated for impairment		20,851		2,850		814		24,515
Total ending allowance balance	$	25,689	$	3,173	$	876	$	29,738
Loans
Loans individually evaluated for impairment	$	157,326	$	4,362	$	62	$	161,750
Loans collectively evaluated for impairment		838,865		107,848		24,071		970,784
Total ending loan balance, net of unearned income	$	996,191	$	112,210	$	24,133	$	1,132,534

December 31, 2010 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	5,668	$	310	$	55	$	6,033
Collectively evaluated for impairment		18,859		2,950		942		22,751
Total ending allowance balance	$	24,527	$	3,260	$	997	$	28,784
Loans
Loans individually evaluated for impairment	$	129,469	$	458	$	93	$	130,020
Loans collectively evaluated for impairment		910,916		123,465		28,439		1,062,820
Total ending loan balance, net of unearned income	$	1,040,385	$	123,923	$	28,532	$	1,192,840

Loans in the tables above exclude immaterial amounts attributed to accrued interest receivable.

The following tables present the recorded investment in nonperforming loans by class of loans as of June 30, 2011 and December 31, 2010.

June 30, 2011 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate – construction and land development	$	30,742	$	18,400
Real estate mortgage – residential		15,639		4,546
Real estate mortgage – farmland and other commercial enterprises		16,468		9,295
Commercial:
Commercial and industrial		577
Lease financing		212
Consumer:
Secured		85
Unsecured		14			$	3
Total	$	63,737	$	32,241	$	3

December 31, 2010 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate – construction and land development	$	35,893	$	16,793
Real estate mortgage – residential		10,728		9,147	$	28
Real estate mortgage – farmland and other commercial enterprises		6,528		11,038
Commercial:
Commercial and industrial		627
Lease financing		50				9
Other		31
Consumer:
Secured		109
Unsecured		5				5
Total	$	53,971	$	36,978	$	42

The tables above exclude immaterial amounts attributed to net deferred loan costs and accrued interest receivable.

The Company has allocated $2,861,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2011.  The Company has committed to lend additional amounts totaling up to $23,000 to customers with outstanding loans that are classified as troubled debt restructurings.

The tables below present an age analysis of past due loans 30 days or more by class of loans as of June 30, 2011 and December 31, 2010. Past due loans that are also classified as nonaccrual are included in their respective past due category.

June 30, 2011 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate:
Real estate – construction and land development	$	220	$	15,868	$	16,088	$	125,513	$	141,601
Real estate mortgage – residential		6,777		7,215		13,992		437,115		451,107
Real estate mortgage – farmland and other commercial enterprises		728		14,940		15,668		387,815		403,483
Commercial:
Commercial and industrial		138		401		539		53,931		54,470
States and political subdivisions								25,377		25,377
Lease financing, net		623		212		835		10,012		10,847
Other		50				50		21,466		21,516
Consumer:
Secured		162		51		213		16,449		16,662
Unsecured		57		5		62		7,409		7,471
Total	$	8,755	$	38,692	$	47,447	$	1,085,087	$	1,132,534

December 31, 2010 (In thousands)	30-89 Days Past Due	90 Days or More Past Due	Total	Current	Total Loans
Real Estate:
Real estate – construction and land development	$394	$23,418	$23,812	$130,396	$154,208
Real estate mortgage – residential	5,187	7,167	12,354	456,919	469,273
Real estate mortgage – farmland and other commercial enterprises	1,595	6,266	7,861	409,043	416,904
Commercial:
Commercial and industrial	194	538	732	56,297	57,029
States and political subdivisions				26,302	26,302
Lease financing, net	276	59	335	14,629	14,964
Other	114	3	117	25,511	25,628
Consumer:
Secured	145	102	247	22,360	22,607
Unsecured	69	12	81	5,844	5,925
Total	$7,974	$37,565	$45,539	$1,147,301	$1,192,840

The tables above exclude immaterial amounts attributed to net deferred loan costs and accrued interest receivable.

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.  Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the dates indicated.

	Real Estate						Commercial
June 30, 2011 (In thousands)	Real Estate-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	$	77,334	$	390,682	$	312,590	$	46,343	$	25,377	$	10,640	$	20,485
Special Mention		2,556		18,876		20,590		2,760						1,031
Substandard		58,906		39,935		64,757		5,189				207
Doubtful		2,805		1,614		5,546		178
Total	$	141,601	$	451,107	$	403,483	$	54,470	$	25,377	$	10,847	$	21,516

	Real Estate						Commercial
December 31, 2010 (In thousands)	Real Estate-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	$	79,535	$	407,317	$	341,684	$	52,961	$	26,302	$	14,905	$	24,360
Special Mention		14,180		18,858		31,747		2,531						1,199
Substandard		57,477		41,704		37,938		1,255				59		69
Doubtful		3,016		1,394		5,535		282
Total	$	154,208	$	469,273	$	416,904	$	57,029	$	26,302	$	14,964	$	25,628

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 June 30, 2011 and December 31, 2010.

	June 30, 2011				December 31, 2010
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	16,577	$	7,443	$	22,498	$	5,915
Nonperforming		85		28		109		10
Total	$	16,662	$	7,471	$	22,607	$	5,925

Each of the two preceding tables exclude immaterial amounts attributed to accrued interest receivable.