Note 8 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2013

Receivables [Abstract]

Financing Receivables [Text Block]

8. Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized as follows:

(In thousands)	June 30, 2013		December 31, 2012
Real Estate:
Real estate – construction and land development	$	103,766	$	102,454
Real estate mortgage – residential		371,790		368,762
Real estate mortgage – farmland and other commercial enterprises		422,247		425,477
Commercial:
Commercial and industrial		47,732		46,812
States and political subdivisions		22,597		21,472
Lease financing		1,686		2,732
Other		18,681		19,156
Consumer:
Secured		10,071		11,732
Unsecured		6,251		6,515
Total loans		1,004,821		1,005,112
Less unearned income		55		117
Total loans, net of unearned income	$	1,004,766	$	1,004,995

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, 2013
Balance, beginning of period	$	21,402		$	1,558		$	603		$	23,563
Provision for loan losses		(848	)		624			(138	)		(362	)
Recoveries		48			14			114			176
Loans charged off		(362	)		(19	)		(53	)		(434	)
Balance, end of period	$	20,240		$	2,177		$	526		$	22,943
Six months ended June 30, 2013
Balance, beginning of period	$	22,254		$	1,513		$	678		$	24,445
Provision for loan losses		(1,500	)		617			(111	)		(994	)
Recoveries		184			97			150			431
Loans charged off		(698	)		(50	)		(191	)		(939	)
Balance, end of period	$	20,240		$	2,177		$	526		$	22,943

(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

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

June 30, 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	$	26,194	$	11,290	$	12,212	$	23,502	$	1,883
Real estate mortgage – residential		10,127		2,199		7,889		10,088		1,063
Real estate mortgage – farmland and other commercial enterprises		26,822		10,330		16,358		26,688		1,388
Commercial
Commercial and industrial		976		-		979		979		892
Consumer
Secured		20		-		20		20		16
Unsecured		212		-		213		213		102
Total	$	64,351	$	23,819	$	37,671	$	61,490	$	5,344

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 June 30, 2013 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate – construction and land development	$	24,159	$	338	$	347
Real estate mortgage – residential		10,836		87		83
Real estate mortgage – farmland and other commercial enterprises		28,209		236		236
Commercial
Commercial and industrial		1,154		29		29
Consumer
Secured		21		1		1
Unsecured		215		3		4
Total	$	64,594	$	694	$	700

Six Months Ended June 30, 2013 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate – construction and land development	$	25,047	$	691	$	689
Real estate mortgage – residential		9,569		172		163
Real estate mortgage – farmland and other commercial enterprises		29,692		484		478
Commercial
Commercial and industrial		930		33		33
Consumer
Secured		21		1		1
Unsecured		214		6		6
Total	$	65,473	$	1,387	$	1,370

Three Months Ended June 30, 2012 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate – construction and land development	$	46,166	$	201	$	199
Real estate mortgage – residential		16,449		86		93
Real estate mortgage – farmland and other commercial enterprises		40,761		498		469
Commercial
Commercial and industrial		301		-		-
Consumer
Secured		70		-		-
Unsecured		186		1		1
Total	$	103,933	$	786	$	762

Six Months Ended June 30, 2012 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate – construction and land development	$	43,491	$	381	$	369
Real estate mortgage – residential		17,658		256		254
Real estate mortgage – farmland and other commercial enterprises		40,934		1,001		828
Commercial
Commercial and industrial		533		14		14
Consumer
Secured		88		5		5
Unsecured		189		5		5
Total	$	102,893	$	1,662	$	1,475

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, 2013 and December 31, 2012.

June 30, 2013 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	4,334	$	892	$	118	$	5,344
Collectively evaluated for impairment		15,906		1,285		408		17,599
Total ending allowance balance	$	20,240	$	2,177	$	526	$	22,943
Loans
Loans individually evaluated for impairment	$	60,278	$	979	$	233	$	61,490
Loans collectively evaluated for impairment		837,525		89,662		16,089		943,276
Total ending loan balance, net of unearned income	$	897,803	$	90,641	$	16,322	$	1,004,766

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 June 30, 2013 and December 31, 2012.

June 30, 2013 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate – construction and land development	$	6,482	$	6,666	$	-
Real estate mortgage – residential		4,863		2,947		-
Real estate mortgage – farmland and other commercial enterprises		9,665		16,573		-
Commercial:
Commercial and industrial		204		13		-
Lease financing		41		-		-
Consumer:
Secured		4		-		-
Unsecured		-		39		-
Total	$	21,259	$	26,238	$	-

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 $2.8 million and $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 June 30, 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 June 30, 2013 and December 31, 2012.

The Company had five credits in 2013 that were modified as troubled debt restructurings. Each of these credits represents debt by a borrower which 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.

During 2012, the Company had one loan that was modified as a 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.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three and six months ended June 30, 2013 and 2012.

(Dollars in thousands) Troubled Debt Restructurings:	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Three Months Ended June 30, 2013
Real Estate:
Real estate mortgage – residential		1	$	18	$	18
Commercial:
Commercial and industrial		1		2		2
Consumer:
Secured		1		13		13
Total		3	$	33	$	33
Six Months Ended June 30, 2013
Real Estate:
Real estate mortgage – residential		3	$	309	$	309
Commercial:
Commercial and industrial		1		2		2
Consumer:
Secured		1		13		13
Total		5	$	324	$	324
Three Months Ended June 30, 2012
Real Estate:
Real estate mortgage – residential		1	$	72	$	72
Total		1	$	72	$	72
Six Months Ended June 30, 2012
Real Estate:
Real estate mortgage – residential		1	$	72	$	72
Total		1	$	72	$	72

The troubled debt restructurings identified above increased the allowance for loan losses by $15 thousand and $23 thousand in the three and six months periods ended June 30, 2013, respectively. Troubled debt restructurings increased the allowance for loan losses $5 thousand for the three and six months periods ended June 30, 2012. There were no charge-offs related to these loans. There were no payment defaults during the first six months of 2013 and 2012 for credits that were restructured during the previous twelve months.

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, 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	$	6	$	699	$	705	$	103,061	$	103,766
Real estate mortgage – residential		2,536		1,881		4,417		367,373		371,790
Real estate mortgage – farmland and other commercial enterprises		4,998		7,477		12,475		409,772		422,247
Commercial:
Commercial and industrial		215		53		268		47,464		47,732
States and political subdivisions		-		-		-		22,597		22,597
Lease financing, net		-		41		41		1,590		1,631
Other		40		-		40		18,641		18,681
Consumer:
Secured		80		-		80		9,991		10,071
Unsecured		28		-		28		6,223		6,251
Total	$	7,903	$	10,151	$	18,054	$	986,712	$	1,004,766

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
June 30, 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	$	76,357	$	332,975	$	343,545	$	43,175	$	22,597	$	1,590	$	18,208
Special mention		6,738		16,818		40,595		2,942		-		-		462
Substandard		20,637		21,949		38,107		1,539		-		41		11
Doubtful		34		48		-		76		-		-		-
Total	$	103,766	$	371,790	$	422,247	$	47,732	$	22,597	$	1,631	$	18,681

	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 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, 2013 and December 31, 2012.

	June 30, 2013				December 31, 2012
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	10,067	$	6,212	$	11,723	$	6,382
Nonperforming		4		39		9		133
Total	$	10,071	$	6,251	$	11,732	$	6,515