Note 4 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2014

Receivables [Abstract]

Financing Receivables [Text Block]

4. Loans and Allowance for Loan Losses

Major classifications of loans are summarized in the following table.

December 31, (In thousands)	2014		2013
Real Estate:
Real estate mortgage – construction and land development	$	97,045	$	101,352
Real estate mortgage – residential		361,022		371,582
Real estate mortgage – farmland and other commercial enterprises		375,277		418,147
Commercial:
Commercial and industrial		47,112		47,426
States and political subdivisions		22,369		21,561
Lease financing		159		902
Other		15,547		23,840
Consumer:
Secured		7,963		8,579
Unsecured		5,450		6,513
Total loans		931,944		999,902
Less unearned income		1		19
Total loans, net of unearned income	$	931,943	$	999,883

Loans with a carrying value of $441 million and $484 million at December 31, 2014 and December 31, 2013, respectively, were pledged to secure borrowings and lines of credit. Such borrowings primarily include FHLB advances and short-term borrowing arrangements with the Federal Reserve.

Loans to directors, executive officers, and principal shareholders of the Parent Company and its subsidiaries (including loans to affiliated companies of which they are principal owners) and loans to members of the immediate family of such persons were $17.9 million at December 31, 2014. Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectability. An analysis of the activity with respect to these loans is presented in the table below.

(In thousands)	Amount
Balance at December 31, 2013	$	18,065
New loans		5,356
Repayments		(5,537	)
Loans no longer meeting disclosure requirements, new loans meeting disclosure requirements, and other adjustments, net		40
Balance at December 31, 2014	$	17,924

Activity in the allowance for loan losses by portfolio segment was as follows for each of the three years in the period ended December 31, 2014:

(In thousands)	Real Estate			Commercial			Consumer			Total
2014
Balance at beginning of period	$	18,716		$	1,409		$	452		$	20,577
Provision for loan losses		(4,922	)		620			(62	)		(4,364	)
Recoveries		624			786			97			1,507
Loans charged off		(1,876	)		(1,662	)		(214	)		(3,752	)
Balance at end of period	$	12,542		$	1,153		$	273		$	13,968
2013
Balance at beginning of period	$	22,254		$	1,513		$	678		$	24,445
Provision for loan losses		(2,432	)		(2	)		(166	)		(2,600	)
Recoveries		327			155			221			703
Loans charged off		(1,433	)		(257	)		(281	)		(1,971	)
Balance at end of period	$	18,716		$	1,409		$	452		$	20,577
2012
Balance at beginning of period	$	23,538		$	3,508		$	1,218		$	28,264
Provision for loan losses		4,930			(1,825	)		(333	)		2,772
Recoveries		666			145			234			1,045
Loans charged off		(6,880	)		(315	)		(441	)		(7,636	)
Balance at end of period	$	22,254		$	1,513		$	678		$	24,445

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

As of and for the Year Ended December 31, 2014 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	13,656	$	6,902	$	3,917	$	10,819	$	744	$	13,557	$	424	$	423
Real estate mortgage – residential		10,256		3,473		6,649		10,122		1,172		11,254		550		535
Real estate mortgage – farmland and other commercial enterprises		23,003		5,247		17,649		22,896		1,359		28,711		1,088		1,070
Commercial
Commercial and industrial		93		22		71		93		71		255		6		5
Consumer
Secured		-		-		-		-		-		6		-		-
Unsecured		25		-		25		25		25		54		4		4
Total	$	47,033	$	15,644	$	28,311	$	43,955	$	3,371	$	53,837	$	2,072	$	2,037

As of and for the Year Ended December 31, 2013 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance  for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	17,234	$	9,742	$	4,699	$	14,441	$	930	$	17,314	$	509	$	461
Real estate mortgage – residential		11,595		2,871		8,612		11,483		1,443		12,727		460		445
Real estate mortgage – farmland and other commercial enterprises		32,102		12,262		19,746		32,008		1,443		32,785		1,546		1,519
Commercial
Commercial and industrial		311		24		293		317		200		994		40		40
Consumer
Secured		18		-		18		18		15		19		1		1
Unsecured		71		-		72		72		71		147		9		9
Total	$	61,331	$	24,899	$	33,440	$	58,339	$	4,102	$	63,986	$	2,565	$	2,475

Year Ended December 31, 2012 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	34,880	$	871	$	804
Real estate mortgage – residential		13,754		333		324
Real estate mortgage – farmland and other commercial enterprises		38,077		1,859		1,876
Commercial
Commercial and industrial		403		17		17
Consumer
Secured		66		6		6
Unsecured		271		17		16
Total	$	87,451	$	3,103	$	3,043

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 December 31, 2014 and 2013.

December 31, 2014 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,275	$	71	$	25	$	3,371
Collectively evaluated for impairment		9,267		1,082		248		10,597
Total ending allowance balance	$	12,542	$	1,153	$	273	$	13,968
Loans
Loans individually evaluated for impairment	$	43,837	$	93	$	25	$	43,955
Loans collectively evaluated for impairment		789,507		85,093		13,388		887,988
Total ending loan balance, net of unearned income	$	833,344	$	85,186	$	13,413	$	931,943

December 31, 2013 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,816	$	200	$	86	$	4,102
Collectively evaluated for impairment		14,900		1,209		366		16,475
Total ending allowance balance	$	18,716	$	1,409	$	452	$	20,577
Loans
Loans individually evaluated for impairment	$	57,932	$	317	$	90	$	58,339
Loans collectively evaluated for impairment		833,149		93,393		15,002		941,544
Total ending loan balance, net of unearned income	$	891,081	$	93,710	$	15,092	$	999,883

The following tables present the recorded investment in nonperforming loans by class of loans as of December 31, 2014 and 2013.

December 31, 2014 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate mortgage – construction and land development	$	3,744	$	3,742	$	-
Real estate mortgage – residential		3,474		4,674		-
Real estate mortgage – farmland and other commercial enterprises		4,202		16,004		-
Commercial:
Commercial and industrial		81		-		-
Other		7		-		-
Consumer:
Unsecured		-		9		-
Total	$	11,508	$	24,429	$	-

December 31, 2013 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate:
Real estate mortgage – construction and land development	$	5,821	$	4,391	$	-
Real estate mortgage – residential		5,154		4,826		10
Real estate mortgage – farmland and other commercial enterprises		12,677		16,987		434
Commercial:
Commercial and industrial		160		-		-
Lease financing		22		-		-
Consumer:
Secured		3		-		-
Unsecured		1		51		-
Total	$	23,838	$	26,255	$	444

The Company has allocated $2.2 million and $2.7 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 December 31, 2014 and 2013, respectively. The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at December 31, 2014 and 2013.

The Company had no credits during 2014 that were modified as troubled debt restructurings. The Company had eight credits in 2013 that were modified as troubled debt restructurings. Seven of those credits with an aggregate recorded investment of $338 thousand represent debt by borrowers discharged under Chapter 7 bankruptcy. The borrower in each case did not reaffirm their debt, and the release of personal liability by the court was deemed a concession. However, each borrower continues to make payments under the original terms of the loan agreement. The remaining restructuring consisted of a credit secured by commercial real estate whereby the maturity date was extended 48 months.

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2013. There were no loans modified as troubled debt restructurings during 2014.

(Dollars in thousands) Troubled Debt Restructurings:	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
2013
Real Estate:
Real estate mortgage – residential		3	$	309	$	309
Real estate mortgage – farmland and other commercial enterprises		1		598		598
Commercial:
Commercial and industrial		1		13		13
Consumer:
Secured		3		16		16
Total		8	$	936	$	936

The troubled debt restructurings identified above increased the allowance for loan losses by $37 thousand for 2013. There were no charge-offs related to these loans.

There were no payment defaults during 2014 for credits that were restructured during the previous twelve months. For 2013, the Company had one restructured credit for which there was a payment default within twelve months following the modification. This credit was secured by residential real estate with an outstanding balance of $8 thousand at year-end 2014. No charge-offs have been recorded for this credit.

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.

December 31, 2014 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate:
Real estate mortgage – construction and land development	$	-	$	272	$	272	$	96,773	$	97,045	$	-	$	3,744
Real estate mortgage – residential		1,395		1,595		2,990		358,032		361,022		-		3,474
Real estate mortgage – farmland and other commercial enterprises		75		3,484		3,559		371,718		375,277		-		4,202
Commercial:
Commercial and industrial		-		13		13		47,099		47,112		-		81
States and political subdivisions		-		-		-		22,369		22,369		-		-
Lease financing, net		-		-		-		158		158		-		-
Other		40		7		47		15,500		15,547		-		7
Consumer:
Secured		58		-		58		7,905		7,963		-		-
Unsecured		16		1		17		5,433		5,450		-		-
Total	$	1,584	$	5,372	$	6,956	$	924,987	$	931,943	$	-	$	11,508

December 31, 2013 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate:
Real estate mortgage– construction and land development	$	58	$	613	$	671	$	100,681	$	101,352	$	-	$	5,821
Real estate mortgage – residential		1,225		2,502		3,727		367,855		371,582		10		5,154
Real estate mortgage – farmland and other commercial enterprises		3,548		7,978		11,526		406,621		418,147		434		12,677
Commercial:
Commercial and industrial		71		53		124		47,302		47,426		-		160
States and political subdivisions		-		-		-		21,561		21,561		-		-
Lease financing, net		-		22		22		861		883		-		22
Other		56		-		56		23,784		23,840		-		-
Consumer:
Secured		41		3		44		8,535		8,579		-		3
Unsecured		58		1		59		6,454		6,513		-		1
Total	$	5,057	$	11,172	$	16,229	$	983,654	$	999,883	$	444	$	23,838

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 excludes immaterial amounts attributed to accrued interest receivable.

	Real Estate						Commercial
December 31, 2014 (In thousands)	Real Estate Mortgage -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	$	81,438	$	326,124	$	327,019	$	45,665	$	22,369	$	158	$	15,526
Special Mention		2,674		16,429		27,855		946		-		-		14
Substandard		12,933		18,469		19,941		501		-		-		7
Doubtful		-		-		462		-		-		-		-
Total	$	97,045	$	361,022	$	375,277	$	47,112	$	22,369	$	158	$	15,547

	Real Estate						Commercial
December 31, 2013 (In thousands)	Real Estate Mortgage -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	$	77,873	$	334,104	$	352,238	$	45,652	$	21,561	$	861	$	23,820
Special Mention		7,755		15,120		29,156		963		-		-		-
Substandard		15,724		22,358		36,753		735		-		22		20
Doubtful		-		-		-		76		-		-		-
Total	$	101,352	$	371,582	$	418,147	$	47,426	$	21,561	$	883	$	23,840

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 December 31, 2014 and 2013.

	December 31, 2014				December 31, 2013
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity:
Performing	$	7,963	$	5,441	$	8,576	$	6,461
Nonperforming		-		9		3		52
Total	$	7,963	$	5,450	$	8,579	$	6,513