Note 7 - Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2016

Receivables [Abstract]

Financing Receivables [Text Block]

7. Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized as follows:

(In thousands)	March 31, 2016		December 31, 2015
Real Estate
Real estate mortgage – construction and land development	$	123,093	$	115,516
Real estate mortgage – residential		349,725		355,134
Real estate mortgage – farmland and other commercial enterprises		390,097		386,386
Commercial
Commercial and industrial		48,243		48,379
States and political subdivisions		20,013		17,643
Other		21,547		23,798
Consumer
Secured		4,583		6,665
Unsecured		4,988		5,754
Total loans		962,289		959,275
Less unearned income		-		-
Total loans, net of unearned income	$	962,289	$	959,275

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

Three months ended March 31, 2016 (In thousands)	Real Estate			Commercial			Consumer			Total
Balance, beginning of period	$	9,173		$	820		$	322		$	10,315
Provision for loan losses		(453	)		(6	)		(14	)		(473	)
Recoveries		52			36			32			120
Loans charged off		(63	)		(11	)		(60	)		(134	)
Balance, end of period	$	8,709		$	839		$	280		$	9,828

Three months ended March 31, 2015 (In thousands)	Real Estate			Commercial			Consumer			Total
Balance, beginning of period	$	12,542		$	1,153		$	273		$	13,968
Provision for loan losses		(1,211	)		(290	)		(44	)		(1,545	)
Recoveries		286			16			37			339
Loans charged off		(95	)		(13	)		(48	)		(156	)
Balance, end of period	$	11,522		$	866		$	218		$	12,606

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

March 31, 2016 (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 mortgage – construction and land development	$	9,602	$	3,582	$	3,358	$	6,940	$	538
Real estate mortgage – residential		8,970		2,897		6,028		8,925		1,248
Real estate mortgage – farmland and other commercial enterprises		23,655		7,124		16,402		23,526		530
Commercial
Commercial and industrial		418		23		396		419		219
Consumer
Unsecured		154		-		154		154		154
Total	$	42,799	$	13,626	$	26,338	$	39,964	$	2,689

December 31, 2015 (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 mortgage – construction and land development	$	9,932	$	3,875	$	3,372	$	7,247	$	556
Real estate mortgage – residential		8,655		2,502		6,024		8,526		1,278
Real estate mortgage – farmland and other commercial enterprises		20,980		4,149		16,703		20,852		681
Commercial
Commercial and industrial		399		-		400		400		223
Consumer
Unsecured		156		-		157		157		156
Total	$	40,122	$	10,526	$	26,656	$	37,182	$	2,894

Three Months Ended March 31, 2016 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	8,292	$	47	$	47
Real estate mortgage – residential		9,035		103		99
Real estate mortgage – farmland and other commercial enterprises		23,791		269		263
Commercial
Commercial and industrial		420		4		4
Consumer
Unsecured		156		2		1
Total	$	41,694	$	425	$	414

Three Months Ended March 31, 2015 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	11,124	$	81	$	80
Real estate mortgage – residential		10,453		121		121
Real estate mortgage – farmland and other commercial enterprises		25,417		280		277
Commercial
Commercial and industrial		435		1		1
Consumer
Unsecured		24		-		-
Total	$	47,453	$	483	$	479

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, 2016 and December 31, 2015.

March 31, 2016 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,316	$	219	$	154	$	2,689
Collectively evaluated for impairment		6,393		620		126		7,139
Total ending allowance balance	$	8,709	$	839	$	280	$	9,828
Loans
Loans individually evaluated for impairment	$	39,391	$	419	$	154	$	39,964
Loans collectively evaluated for impairment		823,524		89,384		9,417		922,325
Total ending loan balance, net of unearned income	$	862,915	$	89,803	$	9,571	$	962,289

December 31, 2015 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,515	$	223	$	156	$	2,894
Collectively evaluated for impairment		6,658		597		166		7,421
Total ending allowance balance	$	9,173	$	820	$	322	$	10,315
Loans
Loans individually evaluated for impairment	$	36,625	$	400	$	157	$	37,182
Loans collectively evaluated for impairment		820,411		89,420		12,262		922,093
Total ending loan balance, net of unearned income	$	857,036	$	89,820	$	12,419	$	959,275

The following tables present the recorded investment in nonperforming loans by class of loans as of March 31, 2016 and December 31, 2015.

March 31, 2016 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	1,368	$	3,667	$	-
Real estate mortgage – residential		2,552		4,097		-
Real estate mortgage – farmland and other commercial enterprises		3,520		15,399		-
Commercial
Commercial and industrial		84		382		-
Other		7		-		-
Consumer
Secured		8		-		-
Unsecured		1		142		-
Total	$	7,540	$	23,687	$	-

December 31, 2015 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	1,567	$	3,674	$	-
Real estate mortgage – residential		2,485		4,127		-
Real estate mortgage – farmland and other commercial enterprises		4,266		15,503		-
Commercial
Commercial and industrial		44		384		-
Other		8		-		-
Consumer
Secured		10		-		-
Unsecured		-		143		-
Total	$	8,380	$	23,831	$	-

The Company has allocated $1.8 million and $1.9 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, 2016 and December 31, 2015, respectively. The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at March 31, 2016 and December 31, 2015.

The Company had no credits during the first three months of 2016 or 2015 that were modified as troubled debt restructurings. Troubled debt restructurings increased during the first quarter of 2015 resulting from the purchase of a previously-participated portion of a loan to a nonaffiliated bank. This loan was participated prior to it being restructured. The purchase price paid represented a discount of $482 thousand or 15% of the purchased principal amount. The loan is performing under the terms of the restructuring and the borrower’s financial position has steadily improved. Accretion of the discount was recognized over the contractual life of the loan, which ended in June 2015. There is no further accretion to be recognized. The total outstanding balance related to this credit, which was renewed in June 2015, was $11.2 million at March 31, 2016. This represents 47.2% of the Company’s total restructured loans and is the largest such individual credit. This credit was restructured in 2012 following an interest rate concession and extended amortization term.

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, 2016 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate
Real estate mortgage – construction and land development	$	-	$	228	$	228	$	122,865	$	123,093
Real estate mortgage – residential		1,298		1,131		2,429		347,296		349,725
Real estate mortgage – farmland and other commercial enterprises		-		2,164		2,164		387,933		390,097
Commercial
Commercial and industrial		-		84		84		48,159		48,243
States and political subdivisions		-		-		-		20,013		20,013
Other		28		-		28		21,519		21,547
Consumer
Secured		8		-		8		4,575		4,583
Unsecured		13		76		89		4,899		4,988
Total	$	1,347	$	3,683	$	5,030	$	957,259	$	962,289

December 31, 2015 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate
Real estate mortgage – construction and land development	$	-	$	227	$	227	$	115,289	$	115,516
Real estate mortgage – residential		421		1,448		1,869		353,265		355,134
Real estate mortgage – farmland and other commercial enterprises		42		2,376		2,418		383,968		386,386
Commercial
Commercial and industrial		42		43		85		48,294		48,379
States and political subdivisions		-		-		-		17,643		17,643
Other		62		-		62		23,736		23,798
Consumer
Secured		9		1		10		6,655		6,665
Unsecured		18		-		18		5,736		5,754
Total	$	594	$	4,095	$	4,689	$	954,586	$	959,275

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 and 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
March 31, 2016 (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		Other
Credit risk profile by internally assigned rating grades
Pass	$	113,284	$	320,150	$	349,944	$	46,908	$	20,013	$	21,541
Special Mention		1,469		15,443		21,391		819		-		-
Substandard		8,340		14,132		18,762		516		-		6
Doubtful		-		-		-		-		-		-
Total	$	123,093	$	349,725	$	390,097	$	48,243	$	20,013	$	21,547

	Real Estate						Commercial
December 31, 2015 (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		Other
Credit risk profile by internally assigned rating grades
Pass	$	104,383	$	324,333	$	343,894	$	46,934	$	17,643	$	23,777
Special Mention		1,651		16,225		22,859		937		-		-
Substandard		9,482		14,576		19,633		508		-		21
Doubtful		-		-		-		-		-		-
Total	$	115,516	$	355,134	$	386,386	$	48,379	$	17,643	$	23,798

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 March 31, 2016 and December 31, 2015.

	March 31, 2016				December 31, 2015
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity
Performing	$	4,575	$	4,845	$	6,655	$	5,611
Nonperforming		8		143		10		143
Total	$	4,583	$	4,988	$	6,665	$	5,754