Note 8 - Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2013

Financing Receivables [Text Block]

8.  Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized as follows:

(In thousands)	March 31, 2013		December 31, 2012
Real Estate:
Real estate - construction and land development	$	103,214	$	102,454
Real estate mortgage - residential		373,894		368,762
Real estate mortgage - farmland and other commercial enterprises		433,127		425,477
Commercial:
Commercial and industrial		47,595		46,812
States and political subdivisions		23,329		21,472
Lease financing		2,224		2,732
Other		17,631		19,156
Consumer:
Secured		10,852		11,732
Unsecured		6,193		6,515
Total loans		1,018,059		1,005,112
Less unearned income		82		117
Total loans, net of unearned income	$	1,017,977	$	1,004,995

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

Three months ended March 31, 2013 (In thousands)	Real Estate			Commercial			Consumer			Total
Balance, beginning of period	$	22,254		$	1,513		$	678		$	24,445
Provision for loan losses		(652	)		(7	)		27			(632	)
Recoveries		136			83			36			255
Loans charged off		(336	)		(31	)		(138	)		(505	)
Balance, end of period	$	21,402		$	1,558		$	603		$	23,563

Three months ended March 31, 2012 (In thousands)	Real Estate			Commercial			Consumer			Total
Balance, beginning of period	$	23,538		$	3,508		$	1,218		$	28,264
Provision for loan losses		2,593			(1,296	)		(320	)		977
Recoveries		127			99			56			282
Loans charged off		(2,268	)		(73	)		(129	)		(2,470	)
Balance, end of period	$	23,990		$	2,238		$	825		$	27,053

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

March 31, 2013 (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 - construction and land development	$	26,523	$	11,568	$	12,289	$	23,857	$	1,887
Real estate mortgage - residential		8,138		2,796		5,370		8,166		1,067
Real estate mortgage - farmland and other commercial enterprises		32,308		15,432		15,393		30,825		1,425
Commercial
Commercial and industrial		667		400		268		668		245
Consumer
Secured		21		-		21		21		17
Unsecured		211		-		213		213		100
Total	$	67,868	$	30,196	$	33,554	$	63,750	$	4,741

December 31, 2102 (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 - construction and land development	$	26,831	$	12,712	$	11,068	$	23,780	$	2,075
Real estate mortgage - residential		7,474		2,215		5,259		7,474		1,069
Real estate mortgage - farmland and other commercial enterprises		33,491		13,294		18,803		32,097		1,588
Commercial
Commercial and industrial		210		-		207		207		198
Consumer
Secured		21		-		21		21		17
Unsecured		309		-		310		310		196
Total	$	68,336	$	28,221	$	35,668	$	63,889	$	5,143

Three Months Ended March 31, 2013 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate - construction and land development	$	25,945	$	353	$	342
Real estate mortgage - residential		8,288		85		80
Real estate mortgage - farmland and other commercial enterprises		31,191		248		242
Commercial
Commercial and industrial		704		4		4
Consumer
Secured		21		-		-
Unsecured		213		3		2
Total	$	66,362	$	693	$	670

Three Months Ended March 31, 2012 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate - construction and land development	$	35,550	$	108	$	99
Real estate mortgage - residential		24,133		242		232
Real estate mortgage - farmland and other commercial enterprises		41,107		503		359
Commercial
Commercial and industrial		765		14		14
Consumer
Secured		106		5		5
Unsecured		192		4		4
Total	$	101,853	$	876	$	713

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 March 31, 2013 and December 31, 2012.

March 31, 2013 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	4,379	$	245	$	117	$	4,741
Collectively evaluated for impairment		17,023		1,313		486		18,822
Total ending allowance balance	$	21,402	$	1,558	$	603	$	23,563
Loans
Loans individually evaluated for impairment	$	62,848	$	668	$	234	$	63,750
Loans collectively evaluated for impairment		847,387		90,029		16,811		954,227
Total ending loan balance, net of unearned income	$	910,235	$	90,697	$	17,045	$	1,017,977

December 31, 2012 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	4,732	$	198	$	213	$	5,143
Collectively evaluated for impairment		17,522		1,315		465		19,302
Total ending allowance balance	$	22,254	$	1,513	$	678	$	24,445
Loans
Loans individually evaluated for impairment	$	63,351	$	207	$	331	$	63,889
Loans collectively evaluated for impairment		833,342		89,848		17,916		941,106
Total ending loan balance, net of unearned income	$	896,693	$	90,055	$	18,247	$	1,004,995

The following tables present the recorded investment in nonperforming loans by class of loans as of March 31, 2013 and December 31, 2012.

March 31, 2013 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate - construction and land development	$	6,693	$	6,678	$	-
Real estate mortgage - residential		6,143		2,953		82
Real estate mortgage - farmland and other commercial enterprises		14,473		16,860		-
Commercial:
Commercial and industrial		608		-		-
Lease financing		47		-		-
Consumer:
Secured		29		-		-
Unsecured		1		38		-
Total	$	27,994	$	26,529	$	82

December 31, 2012 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate - construction and land development	$	7,700	$	8,736	$	-
Real estate mortgage - residential		6,025		634		-
Real estate mortgage - farmland and other commercial enterprises		12,878		16,940		103
Commercial:
Commercial and industrial		649		-		-
Lease financing		53		-		-
Consumer:
Secured		9		-		-
Unsecured		94		39		-
Total	$	27,408	$	26,349	$	103

The Company has allocated $2.9 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 March 31, 2013 and December 31, 2012.  The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at March 31, 2013 and December 31, 2012.

During the three months ended March 31, 2013, the Company had two credits that were modified as troubled debt restructurings. Each of these two credits is secured by residential real estate whereby the borrowers’ debt was discharged under Chapter 7 bankruptcy. The borrower in each case did not reaffirm their debt, and the release of personal liability by the court is deemed a concession. However, each borrower continues to make payments under the original terms of the loan agreement. There were no restructured credits during the three months ended March 31, 2013 or 2012 for which there was a payment default within twelve months following the modification.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2013. There were no such modifications during the three months ended March 31, 2012.

(Dollars in thousands) Troubled Debt Restructurings:	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Three Months Ended March 31, 2013
Real Estate:
Real estate mortgage - residential		2	$	291	$	291
Total		2	$	291	$	291

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.

March 31, 2013 (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	$	106	$	567	$	673	$	102,541	$	103,214
Real estate mortgage - residential		1,327		2,666		3,993		369,901		373,894
Real estate mortgage - farmland and other commercial enterprises		1,731		12,038		13,769		419,358		433,127
Commercial:
Commercial and industrial		123		453		576		47,019		47,595
States and political subdivisions		-		-		-		23,329		23,329
Lease financing, net		19		47		66		2,076		2,142
Other		51		-		51		17,580		17,631
Consumer:
Secured		98		23		121		10,731		10,852
Unsecured		66		-		66		6,127		6,193
Total	$	3,521	$	15,794	$	19,315	$	998,662	$	1,017,977

December 31, 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	$	908	$	1,361	$	2,269	$	100,185	$	102,454
Real estate mortgage - residential		2,303		2,500		4,803		363,959		368,762
Real estate mortgage - farmland and other commercial enterprises		1,990		10,724		12,714		412,763		425,477
Commercial:
Commercial and industrial		108		53		161		46,651		46,812
States and political subdivisions		-		-		-		21,472		21,472
Lease financing, net		1		53		54		2,561		2,615
Other		38		399		437		18,719		19,156
Consumer:
Secured		69		-		69		11,663		11,732
Unsecured		137		-		137		6,378		6,515
Total	$	5,554	$	15,090	$	20,644	$	984,351	$	1,004,995

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 exclude immaterial amounts attributed to accrued interest receivable.

	Real Estate						Commercial
March 31, 2013 (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	$	74,747	$	332,632	$	358,480	$	42,678	$	23,329	$	2,095	$	17,136
Special Mention		7,121		18,190		32,551		3,519		-		-		481
Substandard		21,306		23,072		42,048		1,322		-		47		14
Doubtful		40		-		48		76		-		-		-
Total	$	103,214	$	373,894	$	433,127	$	47,595	$	23,329	$	2,142	$	17,631

	Real Estate						Commercial
December 31, 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	$	68,721	$	328,214	$	348,918	$	41,527	$	21,472	$	2,615	$	18,592
Special Mention		7,562		18,485		35,027		4,201		-		-		559
Substandard		26,171		21,984		41,532		1,008		-		-		5
Doubtful		-		79		-		76		-		-		-
Total	$	102,454	$	368,762	$	425,477	$	46,812	$	21,472	$	2,615	$	19,156

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 March 31, 2013 and December 31, 2012.

	March 31, 2013				December 31, 2012
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	10,823	$	6,154	$	11,723	$	6,382
Nonperforming		29		39		9		133
Total	$	10,852	$	6,193	$	11,732	$	6,515