Loans and Allowance for loan Losses

12 Months Ended

Dec. 31, 2015

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 4. Loans and Allowance for loan Losses

Portfolio Segmentation:

At December 31, 2015 and 2014, loans consist of the following (in thousands):

	December 31, 2015						December 31, 2014
	PCI		All Other				PCI		All Other
	Loans		Loans		Total		Loans		Loans		Total
Commercial real estate	$	20,050	$	349,727	$	369,777	$	3,102	$	190,349	$	193,451
Consumer real estate		12,764		148,930		161,694		4,380		77,034		81,414
Construction and land development		2,695		102,783		105,478		36		52,469		52,505
Commercial and industrial		2,768		82,183		84,951		3		33,716		33,719
Consumer and other		-		5,815		5,815		-		2,314		2,314
Total loans		38,277		689,438		727,715		7,521		355,882		363,403
Less:  Allowance for loan losses		-		(4,354)		(4,354)		-		(3,880)		(3,880)
Loans, net	$	38,277	$	685,084	$	723,361	$	7,521	$	352,002	$	359,523

For purposes of the disclosures required pursuant to the adoption of ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are five loan portfolio segments that include commercial real estate, consumer real estate, construction and land development, commercial and industrial, and consumer and other.

The following describe risk characteristics relevant to each of the portfolio segments:

Commercial Real Estate: Commercial real estate loans include owner-occupied commercial real estate loans and loans secured by income-producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Consumer Real Estate: Consumer real estate loans include real estate loans secured by first liens, second liens, or open end real estate loans, such as home equity lines. These are repaid by various means such as a borrower's income, sale of the property, or rental income derived from the property. One to four family first mortgage loans are repaid by various means such as a borrower's income, sale of the property, or rental income derived from the property. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Construction and Land Development: Loans for real estate construction and development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Commercial and Industrial: The commercial and industrial loan portfolio segment includes commercial, financial, and agricultural loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers' business operations.

Consumer and Other: The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans, and educational loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

Credit Risk Management:

The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk management is guided by credit policies that provide for a consistent and prudent approach to underwriting and approvals of credits. Within the Credit Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.

Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer real estate and consumer and other portfolio segments, the risk management process focuses on managing customers who become delinquent in their payments. For the other portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios, including a third party review of the largest credits on an annual basis or more frequently as needed. To ensure problem credits are identified on a timely basis, several specific portfolio reviews occur periodically to assess the larger adversely rated credits for proper risk rating and accrual status.

Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Senior Credit Officer and the Directors Loan Committee.

The allowance for loan losses is a valuation reserve allowance established through provisions for loan losses charged against income. The allowance for loan losses, which is evaluated quarterly, is maintained at a level that management deems sufficient to absorb probable losses inherent in the loan portfolio. Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. The allowance for loan losses is comprised of specific valuation allowances for loans evaluated individually for impairment and general allocations for pools of homogeneous loans with similar risk characteristics and trends.

The allowance for loan losses related to specific loans is based on management's estimate of potential losses on impaired loans as determined by (1) the present value of expected future cash flows; (2) the fair value of collateral if the loan is determined to be collateral dependent or (3) the loan's observable market price. The Company's homogeneous loan pools include commercial real estate loans, consumer real estate loans, construction and land development loans, commercial and industrial loans, and consumer and other loans. The general allocations to these loan pools are based on the historical loss rates for specific loan types and the internal risk grade, if applicable, adjusted for both internal and external qualitative risk factors.

The qualitative factors considered by management include, among other factors, (1) changes in local and national economic conditions; (2) changes in asset quality; (3) changes in loan portfolio volume; (4) the composition and concentrations of credit; (5) the impact of competition on loan structuring and pricing; (6) the impact of interest rate changes on portfolio risk and (7) effectiveness of the Company's loan policies, procedures and internal controls. The total allowance established for each homogeneous loan pool represents the product of the historical loss ratio adjusted for qualitative factors and the total dollar amount of the loans in the pool.

The composition of loans by loan classification for impaired and performing loan status at December 31, 2015 and 2014, is summarized in the tables below (amounts in thousands):

	December 31, 2015
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
	Real Estate		Real Estate		Development		Industrial		and Other		Total
Performing loans	$	347,775	$	145,289	$	101,751	$	81,715	$	5,815	$	682,345
Impaired loans		1,952		3,641		1,032		468		-		7,093
		349,727		148,930		102,783		82,183		5,815		689,438
PCI loans		20,050		12,764		2,695		2,768		-		38,277
Total	$	369,777	$	161,694	$	105,478	$	84,951	$	5,815	$	727,715

	December 31, 2014
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
	Real Estate		Real Estate		Development		Industrial		and Other		Total
Performing loans	$	188,169	$	71,634	$	50,301	$	33,178	$	2,314	$	345,596
Impaired loans		2,180		5,400		2,168		538		-		10,286
		190,349		77,034		52,469		33,716		2,314		355,882
PCI loans		3,102		4,380		36		3		-		7,521
Total loans	$	193,451	$	81,414	$	52,505	$	33,719	$	2,314	$	363,403

The following tables show the allowance for loan losses allocation by loan classification for impaired and performing loans as of December 31, 2015 and 2014 (amounts in thousands):

December 31, 2015
					Construction		Commercial		Consumer
	Commercial		Consumer		and Land		and		and
	Real Estate		Real Estate		Development		Industrial		Other		Total
Performing loans	$	1,906	$	1,015	$	627	$	519	$	29	$	4,096
Impaired loans		-		-		-		258		-		258
Total	$	1,906	$	1,015	$	627	$	777	$	29	$	4,354

December 31, 2014
					Construction		Commercial		Consumer
	Commercial		Consumer		and Land		and		and
	Real Estate		Real Estate		Development		Industrial		Other		Total
Performing loans	$	1,734	$	903	$	630	$	353	$	26	$	3,646
Impaired loans		-		3		60		171		-		234
Total	$	1,734	$	906	$	690	$	524	$	26	$	3,880

The following tables detail the changes in the allowance for loan losses for the year ending December 31, 2015 and December 31, 2014, by loan classification (amounts in thousands):

December 31, 2015
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and		Consumer
	Real Estate		Estate		Development		Industrial		and Other		Total
Beginning balance	$	1,734	$	906	$	690	$	524	$	26	$	3,880
Loans charged off		(95)		(247)		(50)		-		(114)		(506)
Recoveries of loans charged off		-		-		26		19		12		57
Provision charged to operating expense		267		356		(39)		234		105		923
Ending balance	$	1,906	$	1,015	$	627	$	777	$	29	$	4,354

December 31, 2014
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and		Consumer
	Real Estate		Estate		Development		Industrial		and Other		Total
Beginning balance	$	1,603	$	1,040	$	726	$	503	$	264	$	4,136
Loans charged off		-		(623)		(7)		(118)		(65)		(813)
Recoveries of loans charged off		2		-		-		-		123		125
Provision charged to operating expense		129		489		(29)		139		(296)		432
Ending balance	$	1,734	$	906	$	690	$	524	$	26	$	3,880

A description of the general characteristics of the risk grades used by the Company is as follows:

Pass: Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the debt if required, for any weakness that may exist.

Watch: Loans in this risk category involve borrowers that exhibit characteristics, or are operating under conditions that, if not successfully mitigated as planned, have a reasonable risk of resulting in a downgrade within the next six to twelve months. Loans may remain in this risk category for six months and then are either upgraded or downgraded upon subsequent evaluation.

Special Mention: Loans in this risk grade are the equivalent of the regulatory definition of "Other Assets Especially Mentioned" classification. Loans in this category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and /or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the Company's credit position.

Substandard: Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined.

Uncollectible: Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loan losses are taken in the period in which the loan becomes uncollectible. Consequently, the Company typically does not maintain a recorded investment in loans within this category.

The following tables outline the amount of each loan classification and the amount categorized into each risk rating as of December 31, 2015 and 2014 (amounts in thousands):

Non PCI Loans

	December 31, 2015
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
	Real Estate		Real Estate		Development		Industrial		and Other		Total
Pass	$	349,030	$	146,645	$	101,751	$	81,683	$	5,815	$	684,924
Watch		184		327		-		-		-		511
Special mention		387		-		-		32		-		419
Substandard		126		1,958		1,032		468		-		3,584
Doubtful		-		-		-		-		-		-
Total	$	349,727	$	148,930	$	102,783	$	82,183	$	5,815	$	689,438

PCI Loans

	December 31, 2015
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
	Real Estate		Real Estate		Development		Industrial		and Other		Total
Pass	$	17,127	$	11,635	$	1,947	$	2,458	$	-	$	33,167
Watch		-		260		-		-		-		260
Special mention		1,975		-		526		221		-		2,722
Substandard		948		869		222		89		-		2,128
Doubtful		-		-		-		-		-		-
Total	$	20,050	$	12,764	$	2,695	$	2,768	$	-	$	38,277
Total loans	$	369,777	$	161,694	$	105,478	$	84,951	$	5,815	$	727,715

Non PCI Loans

	December 31, 2014
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
	Real Estate		Real Estate		Development		Industrial		and Other		Total
Pass	$	188,113	$	71,199	$	44,484	$	33,178	$	2,314	$	339,288
Watch		56		226		6,273		-		-		6,555
Special mention		-		-		-		-		-		-
Substandard		2,180		5,609		1,712		538		-		10,039
Doubtful		-		-		-		-		-		-
Total	$	190,349	$	77,034	$	52,469	$	33,716	$	2,314	$	355,882

PCI Loans

	December 31, 2014
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
	Real Estate		Real Estate		Development		Industrial		and Other		Total
Pass	$	2,358	$	3,968	$	-	$	-	$	-	$	6,326
Watch		-		309		36		3		-		348
Special mention		-		-		-		-		-		-
Substandard		744		103		-		-		-		847
Doubtful		-		-		-		-		-		-
Total	$	3,102	$	4,380	$	36	$	3	$	-	$	7,521
Total loans	$	193,451	$	81,414	$	52,505	$	33,719	$	2,314	$	363,403

Past Due Loans:

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places a loan on nonaccrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

The following tables present the aging of the recorded investment in loans and leases as of December 31, 2015 and 2014 (amounts in thousands):

	December 31, 2015
	30-89 Days		Past Due 90
	Past Due and		Days or More				Total				Current		Total
	Accruing		and Accruing		Nonaccrual		Past Due		PCI Loans		Loans		Loans
Commercial real estate	$	471	$	258	$	-	$	729	$	20,050	$	348,998	$	369,777
Consumer real estate		581		232		1,351		2,164		12,764		146,766		161,694
Construction and land development		137		-		483		620		2,695		102,163		105,478
Commercial and industrial		207		12		418		637		2,768		81,546		84,951
Consumer and other		12		-		-		12		-		5,803		5,815
Total	$	1,408	$	502	$	2,252	$	4,162	$	38,277	$	685,276	$	727,715

	December 31, 2014
	30-89 Days		Past Due 90
	Past Due and		Days or More				Total		PCI		Current		Total
	Accruing		and Accruing		Nonaccrual		Past Due		Loans		Loans		Loans
Commercial real estate	$	-	$	-	$	1,757	$	1,757	$	3,102	$	188,592	$	193,451
Consumer real estate		-		-		2,249		2,249		4,380		74,785		81,414
Construction and land development		-		-		643		643		36		51,826		52,505
Commercial and industrial		-		-		418		418		3		33,298		33,719
Consumer and other		12		-		-		12		-		2,302		2,314
Total	$	12	$	-	$	5,067	$	5,079	$	7,521	$	350,803	$	363,403

Impaired Loans:

A loan held for investment is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

The following is an analysis of the impaired loan portfolio detailing the related allowance recorded as of and for the years ended December 31, 2015 and 2014 (amounts in thousands):

							For the year ended
	At December 31, 2015						December 31, 2015
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Non PCI Loans:
Commercial real estate	$	1,952	$	1,952	$	-	$	1,898	$	73
Consumer real estate		3,641		4,341		-		4,003		81
Construction and land development		1,033		1,033		-		1,044		26
Commercial and industrial		49		49		-		54		3
Consumer and other		-		-		-		-		-
		6,675		7,375		-		6,999		183
PCI loans: None in 2015
Impaired loans with a valuation allowance:
Non PCI Loans:
Commercial real estate		-		-		-		-		-
Consumer real estate		-		-		-		-		-
Construction and land development		-		-		-		-		-
Commercial and industrial		418		418		258		448		-
Consumer and other		-		-		-		-		-
		418		418		258		448		-
PCI loans:  None in 2015
Total impaired loans	$	7,093	$	7,793	$	258	$	7,447	$	183

							For the year ended
	At December 31, 2014						December 31, 2014
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Non PCI Loans:
Commercial real estate	$	2,180	$	2,180	$	-	$	2,247	$	193
Consumer real estate		5,155		5,692		-		5,289		362
Construction and land development		1,086		1,090		-		1,257		54
Commercial and industrial		-		-		-		-		-
Consumer and other		-		-		-		-		-
		8,421		8,962		-		8,793		609
PCI loans: None in 2014
Impaired loans with a valuation allowance:
Non PCI Loans:
Commercial real estate		-		-		-		-		-
Consumer real estate		245		245		3		294		12
Construction and land development		1,082		1,082		60		1,101		82
Commercial and industrial		538		538		171		539		59
Consumer and other		-		-		-		-		-
		1,865		1,865		234		1,934		153
PCI loans:  None in 2014
Total impaired loans	$	10,286	$	10,827	$	234	$	10,727	$	762

Troubled Debt Restructurings:

At December 31, 2015 and 2014, impaired loans included loans that were classified as Troubled Debt Restructurings ("TDRs"). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Company considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy; and (iv) the debtor's projected cash flow is sufficient to satisfy contractual payments due under the original terms of the loan without a modification.

The Company considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Company include the debtor's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan.

The most common concessions granted by the Company generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt; (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk; (iii) a temporary period of interest-only payments; and (iv) a reduction in the contractual payment amount for either a short period or remaining term of the loan. As of December 31, 2015 and 2014, management had approximately, $4,990,000 and $5,563,000, respectively, in loans that met the criteria for restructured, which included approximately $1,297,000 and $3,626,000, respectively, of loans on nonaccrual. A loan is placed back on accrual status when both principal and interest are current and it is probable that management will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

There were no loans modified as troubled debt restructurings during the year ended December 31, 2015.

The following table presents a summary of loans that were modified as troubled debt restructurings during the year ended December 31, 2014 (amounts in thousands):

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
		Recorded		Recorded
December 31, 2014	Number of Contracts	Investment		Investment
Commercial real estate	1	$	1,757	$	1,757
Consumer real estate	3		3,169		3,169
Commercial and industrial	1		52		52

There were no loans that were modified as troubled debt restructurings during the past twelve months and for which there was a subsequent payment default.

Purchased Credit Impaired Loans:

The Company has acquired loans which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans at December 31, 2015 is as follows (in thousands):

Commercial real estate	$	22,995
Consumer real estate		16,909
Construction and land development		3,553
Commercial and industrial		3,660
Consumer and other		-
Total loans	$	47,117
Less remaining purchase discount		(8,840)
		38,277
Less: Allowance for loan losses		-
Carrying amount, net of allowance	$	38,277

The following is a summary of the accretable discount on acquired loans for the years ended December 31, 2015 and 2014 (in thousands):

	2015		2014
Accretable yield, beginning of period	$	7,983	$	10,266
Additions		4,282		-
Accretion income		(1,805)		(2,252)
Reclassification from nonaccretable		151		(292)
Other changes, net		(394)		261
Accretable yield, end of period	$	10,217	$	7,983

The Company did not increase the allowance for loan losses on purchase credit impaired loans during the years ended December 31, 2015 and 2014.

Purchased credit impaired loans acquired during the year ended December 31, 2015 for which it was probable at acquisition that all contractually required payments would not be collected are as follows (in thousands):

Contractual principal and interest at acquisition	$	45,678
Nonaccretable difference		(4,072)
Expected Cash flows at acquisition		41,606
Accretable yield		(4,282)
Basis in PCI loans at acquisition - estimated fair value	$	37,324

Related Party Loans:

In the ordinary course of business, the Company has granted loans to certain related parties, including directors, executive officers, and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. A summary of activity in loans to related parties is as follows (in thousands):

	2015		2014
Balance, beginning of year	$	14,813	$	16,230
Disbursements		548		7,847
Repayments		(4,510)		(9,264)
Balance, end of year	$	10,851	$	14,813

At December 31, 2015, the Company had pre-approved but unused lines of credit totaling approximately $1,378,000 to related parties.