ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

9 Months Ended

Sep. 30, 2013

Allowance for Credit Losses [Text Block]

ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

The following tables present the activity in the allowance for loan losses for the three month periods ended September 30, 2013 and 2012 by portfolio segment:

Three Months Ended September 30, 2013	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	439,993	$	1,920,587	$	419,511	$	157,406	$	349,777	$	3,287,274
Charge-offs		(25,794)		0		(225,308)		(193,596)		0		(444,698)
Recoveries		19,656		0		7,804		0		0		27,460
Provision for loan losses		(51,133)		(105,707)		209,672		250,712		(303,544)		0
Ending balance	$	382,722	$	1,814,880	$	411,679	$	214,522	$	46,233	$	2,870,036

Three Months Ended September 30, 2012	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	1,356,903	$	2,251,981	$	442,467	$	193,706	$	76,240	$	4,321,297
Charge-offs		(656,201)		(2,299)		(79,767)		0		0		(738,267)
Recoveries		10,296		8,204		1,877		0		0		20,377
Provision for loan losses		(98,273)		(100,367)		2,191		(39,529)		235,978		0
Ending balance	$	612,725	$	2,157,519	$	366,768	$	154,177	$	312,218	$	3,603,407

The following tables present the activity in the allowance for loan losses for the nine month periods ended September 30, 2013 and 2012 by portfolio segment:

Nine Months Ended September 30, 2013	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	582,198	$	2,266,302	$	331,459	$	203,018	$	0	$	3,382,977
Charge-offs		(66,047)		(25,025)		(263,905)		(248,195)		0		(603,172)
Recoveries		75,856		0		14,375		0		0		90,231
Provision for loan losses		(209,285)		(426,397)		329,750		259,699		46,233		0
Ending balance	$	382,722	$	1,814,880	$	411,679	$	214,522	$	46,233	$	2,870,036

Nine Months Ended September 30, 2012	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	1,309,632	$	3,386,433	$	410,001	$	193,388	$	0	$	5,299,454
Charge-offs		(869,270)		(859,504)		(111,248)		(11,392)		0		(1,851,414)
Recoveries		36,844		21,727		21,761		0		0		80,332
Provision for loan losses		135,519		(391,137)		46,254		(27,819)		312,218		75,035
Ending balance	$	612,725	$	2,157,519	$	366,768	$	154,177	$	312,218	$	3,603,407

The remaining loan footnote tables on the following pages present loans at the recorded investment which includes unpaid principal, accrued interest receivable and net deferred, unearned fees. The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2013 and December 31, 2012:

September 30, 2013	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	31,938	$	1,319,242	$	147,892	$	75,361	$	0	$	1,574,433
Collectively evaluated for impairment		350,784		495,638		263,787		139,161		0		1,249,370
Unallocated		0		0		0		0		46,233		46,233
Total ending allowance balance	$	382,722	$	1,814,880	$	411,679	$	214,522	$	46,233	$	2,870,036

Loans:
Individually evaluated for impairment	$	1,226,231	$	6,911,363	$	306,026	$	861,509	$	0	$	9,305,129
Collectively evaluated for impairment		42,469,937		51,680,583		10,164,702		15,260,815		0		119,576,037
Total ending loans balance	$	43,696,168	$	58,591,946	$	10,470,728	$	16,122,324	$	0	$	128,881,166

December 31, 2012	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	104,727	$	1,489,569	$	89,050	$	127,030	$	0	$	1,810,376
Collectively evaluated for impairment		477,471		776,733		242,409		75,988		0		1,572,601
Unallocated		0		0		0		0		0		0
Total ending allowance balance	$	582,198	$	2,266,302	$	331,459	$	203,018	$	0	$	3,382,977

Loans:
Individually evaluated for impairment	$	3,288,294	$	7,322,850	$	321,820	$	782,732	$	0	$	11,715,696
Collectively evaluated for impairment		36,739,269		49,391,498		11,329,495		17,063,417		0		114,523,679
Total ending loans balance	$	40,027,563	$	56,714,348	$	11,651,315	$	17,846,149	$	0	$	126,239,375

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2013 and December 31, 2012. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

	As of September 30, 2013						For the periods ended September 30, 2013
							Three Months		Three Months		Three Months		Nine Months		Nine Months		Nine Months
			Unpaid				Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Balance		Allowance		Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	1,122,429	$	1,258,174	$	0	$	1,104,010	$	7,911	$	5,315	$	1,406,983	$	28,936	$	26,460
Commercial Real Estate:
General		2,472,673		2,504,385		0		2,343,382		26,440		26,440		2,369,993		78,459		78,459
Construction		0		0		0		0		0		0		0		0		0
Consumer:
Lines of credit		9,800		157,584		0		7,159		0		0		60,136		0		0
Other		58,369		73,870		0		42,295		0		0		26,438		0		0
Credit card		0		0		0		0		0		0		0		0		0
Residential		461,646		687,718		0		292,817		563		563		191,531		1,671		1,671
Subtotal	$	4,124,917	$	4,681,731	$	0	$	3,789,663	$	34,914	$	32,318	$	4,055,081	$	109,066	$	106,590

With an allowance recorded:
Commercial	$	103,802	$	103,343	$	31,938	$	133,788	$	1,493	$	1,493	$	326,595	$	13,895	$	13,540
Commercial Real Estate:
General		4,438,690		4,438,407		1,319,242		4,513,623		30,960		30,960		4,517,192		92,370		92,370
Construction		0		0		0		0		0		0		0		0		0
Consumer:
Lines of credit		197,628		196,715		127,124		286,416		2,953		2,296		183,031		6,696		5,141
Other		40,229		40,071		20,768		62,352		476		474		92,557		1,411		1,411
Credit card		0		0		0		0		0		0		299		0		0
Residential		399,863		408,113		75,361		560,146		4,879		3,677		513,278		14,479		10,988
Subtotal	$	5,180,212	$	5,186,649	$	1,574,433	$	5,556,325	$	40,761	$	38,900	$	5,632,952	$	128,851	$	123,450
Total	$	9,305,129	$	9,868,380	$	1,574,433	$	9,345,988	$	75,675	$	71,218	$	9,688,033	$	237,917	$	230,040

	As of December 31, 2012						For the periods ended September 30, 2012
							Three Months		Three Months		Three Months		Nine Months		Nine Months		Nine Months
			Unpaid				Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Balance		Allowance		Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	2,147,075	$	2,295,401	$	0	$	2,374,733	$	13,665	$	13,665	$	2,496,173	$	40,811	$	40,696
Commercial Real Estate:
General		2,662,984		2,739,027		0		3,328,040		27,030		18,288		2,665,005		39,906		31,214
Construction		0		0		0		61,223		0		0		223,032		0		0
Consumer:
Lines of credit		55,659		55,524		0		41,072		1,966		995		47,143		8,752		4,814
Other		26,221		26,221		0		15,557		71		0		18,796		106		0
Credit card		0		0		0		0		0		0		0		0		0
Residential		208,178		240,491		0		358,875		0		0		285,696		0		0
Subtotal	$	5,100,117	$	5,356,664	$	0	$	6,179,500	$	42,732	$	32,948	$	5,735,845	$	89,575	$	76,724
With an allowance recorded:
Commercial	$	1,141,219	$	1,139,885	$	104,727	$	1,186,175	$	9,981	$	9,276	$	1,595,863	$	30,009	$	26,306
Commercial Real Estate:
General		4,659,866		4,675,981		1,489,569		2,922,193		33,091		32,866		3,448,840		111,506		80,952
Construction		0		0		0		1,960,467		0		0		1,988,734		0		0
Consumer:
Lines of credit		135,111		134,976		40,180		162,470		1,054		871		187,926		2,777		2,594
Other		104,829		104,664		48,870		119,951		611		484		113,378		1,572		1,447
Credit card		0		0		0		3,248		0		0		1,317		0		0
Residential		574,554		594,307		127,030		440,504		3,313		3,129		500,164		9,658		9,253
Subtotal	$	6,615,579	$	6,649,813	$	1,810,376	$	6,795,008	$	48,050	$	46,626	$	7,836,222	$	155,522	$	120,552
Total	$	11,715,696	$	12,006,477	$	1,810,376	$	12,974,508	$	90,782	$	79,574	$	13,572,067	$	245,097	$	197,276

Non-performing loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category. However, non-accrual loans and loans past due 90 days still on accrual are all individually classified impaired loans.

The following tables present the aging of the recorded investment in past due and non accrual loans by class of loans as of September 30, 2013:

					Greater Than 90		Total Accruing				Total Recorded
	30-59 Days Past		60-89 Days Past		Days Past		Past Due		Current		Investment of
Accruing Loans	Due		Due		Due		Loans		Accruing Loans		Accruing Loans
Commercial	$	0	$	0	$	0	$	0	$	43,613,174	$	43,613,174
Commercial Real Estate:
General		0		0		0		0		53,811,236		53,811,236
Construction		0		0		0		0		2,101,163		2,101,163
Consumer:
Lines of credit		97,593		0		0		97,593		8,154,142		8,251,735
Other		0		4,949		0		4,949		1,662,599		1,667,548
Credit card		506		0		0		506		470,330		470,836
Residential		0		0		0		0		15,737,314		15,737,314
Total	$	98,099	$	4,949	$	0	$	103,048	$	125,549,958	$	125,653,006

					Greater Than 90		Total		Current		Total Non Accrual
	30-59 Days Past		60-89 Days Past		Days Past		Non Accrual		Non Accrual		Recorded
Non Accrual Loans	Due		Due		Due		Past Due Loans		Loans		Investment
Commercial	$	0	$	0	$	40,316	$	40,316	$	42,678	$	82,994
Commercial Real Estate:
General		204,541		0		0		204,541		2,475,006		2,679,547
Construction		0		0		0		0		0		0
Consumer:
Lines of credit		9,800		0		44,528		54,328		16,811		71,139
Other		0		2,141		0		2,141		7,329		9,470
Credit card		0		0		0		0		0		0
Residential		0		0		285,528		285,528		99,482		385,010
Total	$	214,341	$	2,141	$	370,372	$	586,854	$	2,641,306	$	3,228,160

The following tables present the aging of the recorded investment in past due and non accrual loans by class of loans as of December 31, 2012:

					Greater Than 90		Total Accruing				Total Recorded
	30-59 Days Past		60-89 Days Past		Days Past		Past Due		Current		Investment of
Accruing Loans	Due		Due		Due		Loans		Accruing Loans		Accruing Loans
Commercial	$	1,956	$	0	$	0	$	1,956	$	39,465,435	$	39,467,391
Commercial Real Estate:
General		97,605		0		0		97,605		50,193,607		50,291,212
Construction		0		0		0		0		3,479,043		3,479,043
Consumer:
Lines of credit		26,037		44,866		0		70,903		8,963,308		9,034,211
Other		3,707		0		0		3,707		2,015,334		2,019,041
Credit card		2,010		0		0		2,010		488,792		490,802
Residential		0		85,242		0		85,242		17,456,776		17,542,018
Total	$	131,315	$	130,108	$	0	$	261,423	$	122,062,295	$	122,323,718

					Greater Than 90		Total		Current		Total Non Accrual
	30-59 Days Past		60-89 Days Past		Days Past		Non Accrual		Non Accrual		Recorded
Non Accrual Loans	Due		Due		Due		Past Due Loans		Loans		Investment
Commercial	$	8,958	$	20,469	$	320,592	$	350,019	$	210,153	$	560,172
Commercial Real Estate:
General		8,414		280,399		406,792		695,605		2,248,488		2,944,093
Construction		0		0		0		0		0		0
Consumer:
Lines of credit		0		21,583		0		21,583		79,628		101,211
Other		0		0		6,050		6,050		0		6,050
Credit card		0		0		0		0		0		0
Residential		0		0		195,649		195,649		108,482		304,131
Total	$	17,372	$	322,451	$	929,083	$	1,268,906	$	2,646,751	$	3,915,657

Troubled Debt Restructurings:

The Company has allocated $1,537,738 of specific reserves on $8,361,469 of unpaid principal balance of loans to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2013 and $1,699,851 on $10,441,218 of unpaid principal balance of loans as of December 31, 2012. At September 30, 2013, the Company had an additional $181,503 in performing loans outstanding to one of those customers. As of December 31, 2012, there was $184,364 committed to one customer.

During the three and nine month periods ending September 30, 2013 and 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a stated rate of interest lower than the current market rate for new debt with similar risk; interest only payments on an amortizing note; a reduced payment amount which does not fully cover the interest; financing concessions; or a permanent reduction of the recorded investment in the loan.

In the nine month period ended September 30, 2013, one modification involved a stated interest rate below the current market rate for a period of 7 years, while another modification for 2.5 years involved interest-only payments on an amortizing note. One A-B note modification involved a permanent reduction of the recorded investment in the loan.

In the nine month period ended September 30, 2012, modifications involving a stated interest rate of the loan below the current market rate were for periods ranging from 11 months to 5 years. Modifications involving a reduced payment amount were for periods ranging from 5 months to 4 years. Two modifications involved a permanent reduction of the recorded investment in the loan.

In the three month period ended September 30, 2013, there were no loans modified as troubled debt restructurings and no charge-offs as part of a troubled debt restructuring.

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine month period ended September 30, 2013:

		Pre-Modification		Post-Modification
		Outstanding Recorded		Outstanding Recorded
Nine Months Ended September 30, 2013	Number of Loans	Investment		Investment
Troubled Debt Restructurings:
Commercial	1	$	143,136	$	133,425
Consumer:
Lines of credit	2		137,893		137,893
Total	3	$	281,029	$	271,318

In the nine month period ended September 30, 2013, there were $9,711 of charge-offs as part of a troubled debt restructuring arrangement and an additional $38,913 of specific reserves were established on these troubled debt restructurings.

In the three month period ended September 30, 2012, there were no loans modified as troubled debt restructurings and no charge-offs as part of a troubled debt restructuring.

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine month period ending September 30, 2012:

		Pre-Modification		Post-Modification
		Outstanding Recorded		Outstanding Recorded
Nine Months Ended September 30, 2012	Number of Loans	Investment		Investment
Troubled Debt Restructurings:
Commercial	1	$	11,880	$	11,880
Commercial Real Estate:
General	5		3,446,269		2,808,146
Consumer:
Lines of credit	2		126,860		126,860
Residential	1		62,085		62,085
Total	9	$	3,647,094	$	3,008,971

In the nine month period ended September 30, 2012, there were $638,000 of charge-offs as part of a troubled debt restructuring arrangement and an additional $50,000 of specific reserves were established on these troubled debt restructurings.

Generally, a modified loan is considered to be in payment default when the borrower is not performing according to the renegotiated terms.

For the three and nine month periods ended September 30, 2013 and 2012, there were no troubled debt restructurings that experienced a payment default within 12 months following the modification.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed utilizing the Company’s internal underwriting policy.

Credit Quality Indicators:

The Bank utilizes a numeric grading system for commercial and commercial real estate loans to indicate the strength of the credit. At origination, grades are assigned to each commercial and commercial real estate loan by assessing information about the specific borrower’s situation including cash flow analysis and the estimated collateral values. The loan grade is reassessed at each renewal or amendment but any credit may receive a review based on lender identification of changes in the situation or behavior of the borrower. All commercial and commercial real estate loans exceeding $500,000 are formally reviewed at least annually. Once a loan is graded a 5M or greater number, and is over $100,000, the loan grade will be reanalyzed once a quarter to assess the borrower’s compliance with the Bank’s documented action plan. In addition to these methods for assigning loan grades, changes may occur through the external loan review or regulatory exam process. The loan grades are as follows:

Exceptional. Loans with an exceptional credit rating.

Quality. Loans with excellent sources of repayment that conform, in all respects, to Bank policy and regulatory requirements. These are loans for which little repayment risk has been identified.

Above Average. Loans with above average sources of repayment and minimal identified credit or collateral exceptions and minimal repayment risk.

Average. Loans with average sources of repayment that materially conform to Bank policy and regulatory requirements. Repayment risk is considered average.

Acceptable. Loans with acceptable sources of repayment and risk.

5M. Monitor. Loans considered to be below average quality. The loans are often fundamentally sound but require more frequent management review because of an adverse financial event. Risk of non payment is elevated.

Special Mention. Loans that have potential weaknesses and deserve close attention. If uncorrected, further deterioration is likely. Risk of non payment is above average.

Substandard. Loans that are inadequately protected by the borrower’s capacity to pay or the collateral pledged. Risk of non payment is high.

Doubtful. Loans in this grade have identified weaknesses that make full repayment highly questionable and improbable.

When a loan is downgraded to a nine, it is considered a loss and is charged-off.

As of September 30, 2013 and December 31, 2012, and based on the most recent analysis performed, the recorded investment by risk category and class of loans is as follows:

					Commercial Real Estate				Commercial Real Estate
	Commercial				General				Construction
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2013		2012		2013		2012		2013		2012
1	$	0	$	0	$	0	$	0	$	0	$	0
2		261,437		298,200		0		0		0		0
3		7,791,976		2,004,476		4,697,215		4,141,391		0		0
4		13,313,325		14,017,221		17,931,763		12,911,811		467,651		384,848
5		15,217,224		16,373,423		21,066,423		22,177,734		236,099		1,695,990
5M		4,275,905		3,318,016		3,817,196		3,675,131		1,397,413		1,398,205
6		1,705,945		2,180,119		6,298,783		7,365,970		0		0
7		1,072,584		1,369,803		519,913		287,682		0		0
8		57,772		466,305		2,159,490		2,675,586		0		0
Total	$	43,696,168	$	40,027,563	$	56,490,783	$	53,235,305	$	2,101,163	$	3,479,043

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and 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 tables present the recorded investment in residential and consumer loans based on payment activity as of September 30, 2013 and December 31, 2012:

	Residential
	September 30,		December 31,
	2013		2012
Performing	$	15,260,815	$	17,063,417
Impaired		861,509		782,732
Total	$	16,122,324	$	17,846,149

	Consumer – Lines of credit				Consumer – Other				Consumer – Credit card
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2013		2012		2013		2012		2013		2012
Performing	$	8,115,446	$	8,944,652	$	1,578,420	$	1,894,041	$	470,836	$	490,802
Impaired		207,428		190,770		98,598		131,050		0		0
Total	$	8,322,874	$	9,135,422	$	1,677,018	$	2,025,091	$	470,836	$	490,802