Note 7 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2012

Financing Receivables [Text Block]

7.  Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized as follows:

(In thousands)	June 30, 2012			December 31,  2011
Real Estate:
Real estate – construction and land development	$	116,401		$	119,989
Real estate mortgage – residential		430,651			445,464
Real estate mortgage – farmland and other commercial enterprises		380,842			384,331
Commercial:
Commercial and industrial		47,696			48,771
States and political subdivisions		22,779			23,601
Lease financing		4,682			7,578
Other		18,607			21,435
Consumer:
Secured		11,840			14,214
Unsecured		7,156			7,151
Total loans		1,040,654			1,072,534
Less unearned income		(215	)		(426	)
Total loans, net of unearned income	$	1,040,439		$	1,072,108

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 June 30, 2012
Balance, beginning of period	$	23,990		$	2,238		$	825		$	27,053
Provision for loan losses		1,437			(85	)		(11	)		1,341
Recoveries		75			22			56			153
Loans charged off		(1,281	)		(38	)		(115	)		(1,434	)
Balance, end of period	$	24,221		$	2,137		$	755		$	27,113
Six months ended June 30, 2012
Balance, beginning of period	$	23,538		$	3,508		$	1,218		$	28,264
Provision for loan losses		4,030			(1,381	)		(331	)		2,318
Recoveries		202			121			112			435
Loans charged off		(3,549	)		(111	)		(244	)		(3,904	)
Balance, end of period	$	24,221		$	2,137		$	755		$	27,113

(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

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

June 30, 2012 (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	$	23,228	$	33,318
Real estate mortgage – residential		7,348		7,976
Real estate mortgage – farmland and other commercial enterprises		16,598		18,537
Total	$	47,174	$	59,831
Impaired loans with an allowance recorded:
Real Estate
Real estate – construction and land development	$	11,026	$	11,157	$	636
Real estate mortgage – residential		13,898		13,864		1,827
Real estate mortgage – farmland and other commercial enterprises		19,945		19,815		2,034
Commercial
Commercial and industrial		250		250		233
Consumer
Secured		68		68		47
Unsecured		183		183		70
Total	$	45,370	$	45,337	$	4,847

December 31, 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	$	26,363	$	26,337
Real estate mortgage – residential		22,923		22,843
Real estate mortgage – farmland and other commercial enterprises		43,765		43,438
Commercial
Commercial and industrial		2,982		2,939
Consumer
Unsecured		19		18
Total	$	96,052	$	95,575
Impaired loans with an allowance recorded:
Real Estate
Real estate – construction and land development	$	13,440	$	13,425	$	139
Real estate mortgage – residential		13,239		13,197		998
Real estate mortgage – farmland and other commercial enterprises		15,070		15,035		600
Commercial
Commercial and industrial		456		453		159
Consumer
Secured		60		58		30
Total	$	42,265	$	42,168	$	1,926

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2012		2011		2012		2011
Average of individually impaired loans:
Real Estate
Real estate – construction and land development	$	41,044	$	54,107	$	38,297	$	56,041
Real estate mortgage – residential		21,571		40,513		22,852		35,914
Real estate mortgage – farmland and other commercial enterprises		40,761		62,088		40,934		67,566
Commercial
Commercial and industrial		301		4,553		533		4,434
Consumer
Secured		70		112		88		74
Unsecured		186		-		189		-
Total average of impaired loans	$	103,933	$	161,373	$	102,893	$	164,029
Interest income recognized during impairment:
Real Estate
Real estate – construction and land development	$	128	$	265	$	236	$	536
Real estate mortgage – residential		159		469		401		851
Real estate mortgage – farmland and other commercial enterprises		498		657		1,001		1,478
Commercial
Commercial and industrial		-		58		14		108
Consumer
Secured		-		-		5		3
Unsecured		1		-		5		-
Total interest income recognized during impairment	$	786	$	1,449	$	1,662	$	2,976
Cash-basis interest income recognized:
Real Estate
Real estate – construction and land development	$	126	$	169	$	225	$	406
Real estate mortgage – residential		166		454		398		814
Real estate mortgage – farmland and other commercial enterprises		469		656		828		1,375
Commercial
Commercial and industrial		-		52		14		102
Consumer
Secured		-		-		5		2
Unsecured		1		-		5		-
Total cash-basis interest income recognized	$	762	$	1,331	$	1,475	$	2,699

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 June 30, 2012 and December 31, 2011.

June 30, 2012 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	4,497	$	233	$	117	$	4,847
Collectively evaluated for impairment		19,724		1,904		638		22,266
Total ending allowance balance	$	24,221	$	2,137	$	755	$	27,113
Loans
Loans individually evaluated for impairment	$	92,043	$	250	$	251	$	92,544
Loans collectively evaluated for impairment		835,851		93,299		18,745		947,895
Total ending loan balance, net of unearned income	$	927,894	$	93,549	$	18,996	$	1,040,439

December 31, 2011 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,737	$	159	$	30	$	1,926
Collectively evaluated for impairment		21,801		3,349		1,188		26,338
Total ending allowance balance	$	23,538	$	3,508	$	1,218	$	28,264
Loans
Loans individually evaluated for impairment	$	134,800	$	3,438	$	79	$	138,317
Loans collectively evaluated for impairment		814,984		97,521		21,286		933,791
Total ending loan balance, net of unearned income	$	949,784	$	100,959	$	21,365	$	1,072,108

The following tables present the recorded investment in nonperforming loans by class of loans as of June 30, 2012 and December 31, 2011.

June 30, 2012 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate – construction and land development	$	23,966	$	6,143	$	-
Real estate mortgage – residential		12,428		3,468		28
Real estate mortgage – farmland and other commercial enterprises		17,444		7,929		-
Commercial:
Commercial and industrial		554		-		-
Lease financing		161		-		-
Consumer:
Secured		44		-		-
Unsecured		1		-		1
Total	$	54,598	$	17,540	$	29

December 31, 2011 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate – construction and land development	$	30,744	$	6,207	$	-
Real estate mortgage – residential		14,578		4,894		-
Real estate mortgage – farmland and other commercial enterprises		13,831		8,024		-
Commercial:
Commercial and industrial		386		-		-
Lease financing		124		-		-
Consumer:
Secured		80		-		-
Unsecured		12		-		1
Total	$	59,755	$	19,125	$	1

The Company has allocated $613 thousand of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2012.  The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the six month period ending June 30, 2012, the Company had one loan that was modified as troubled debt restructuring.  The modification of terms included reducing the stated interest rate on the loan to 4.125% from 6.0% and extending the due date by three months. This loan is secured by residential real estate and had a pre and post-modification recorded investment of $72 thousand. This restructuring increased the allowance for loan losses by $5 thousand. There were no related charge-offs recorded. The Company had no restructured credits during the first six months of 2012 for which there was a payment default within twelve months following the modification.

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.

June 30, 2012 (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	$	-	$	17,365	$	17,365	$	99,036	$	116,401
Real estate mortgage – residential		2,526		7,578		10,104		420,547		430,651
Real estate mortgage – farmland and other commercial enterprises		11,698		12,955		24,653		356,189		380,842
Commercial:
Commercial and industrial		212		475		687		47,009		47,696
States and political subdivisions		-		-		-		22,779		22,779
Lease financing, net		8		161		169		4,298		4,467
Other		40		-		40		18,567		18,607
Consumer:
Secured		81		8		89		11,751		11,840
Unsecured		29		3		32		7,124		7,156
Total	$	14,594	$	38,545	$	53,139	$	987,300	$	1,040,439

December 31, 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	$	3,343	$	18,970	$	22,313	$	97,676	$	119,989
Real estate mortgage – residential		5,836		7,352		13,188		432,276		445,464
Real estate mortgage – farmland and other commercial enterprises		1,684		12,497		14,181		370,150		384,331
Commercial:
Commercial and industrial		98		300		398		48,373		48,771
States and political subdivisions		-		-		-		23,601		23,601
Lease financing, net		80		96		176		6,976		7,152
Other		29		-		29		21,406		21,435
Consumer:
Secured		200		17		217		13,997		14,214
Unsecured		61		5		66		7,085		7,151
Total	$	11,331	$	39,237	$	50,568	$	1,021,540	$	1,072,108

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 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, 2012 (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	$	68,258	$	379,228	$	300,697	$	40,832	$	22,779	$	4,306	$	17,529
Special Mention		6,802		18,671		28,905		5,866		-		-		1,067
Substandard		41,341		31,821		49,318		998		-		161		11
Doubtful		-		931		1,922		-		-		-		-
Total	$	116,401	$	430,651	$	380,842	$	47,696	$	22,779	$	4,467	$	18,607

	Real Estate						Commercial
December 31, 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	$	65,306	$	386,134	$	303,512	$	41,556	$	23,601	$	7,022	$	20,415
Special Mention		7,443		16,585		19,393		2,969		-		6		1,000
Substandard		47,091		41,468		59,395		4,103		-		124		20
Doubtful		149		1,277		2,031		143		-		-		-
Total	$	119,989	$	445,464	$	384,331	$	48,771	$	23,601	$	7,152	$	21,435

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 June 30, 2012 and December 31, 2011.

	June 30, 2012				December 31, 2011
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	11,796	$	7,154	$	14,134	$	7,138
Nonperforming		44		2		80		13
Total	$	11,840	$	7,156	$	14,214	$	7,151