LOANS

12 Months Ended

Dec. 31, 2013

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

NOTE 3 - LOANS

Outstanding loan balances by portfolio segment and class at December 31, 2013 and 2012 were as follows:

	2013		2012

Commercial	$	47,081,426	$	39,915,144
Commercial Real Estate:
General		57,101,939		53,096,828
Construction		2,065,308		3,464,366
Consumer:
Lines of credit		7,737,439		9,105,387
Other		1,560,384		2,015,234
Credit card		451,009		490,802
Residential		15,611,082		17,798,131
Net deferred loan fees		(54,343)		(55,642)
		131,554,244		125,830,250
Less: Allowance for loan losses		(2,809,642)		(3,382,977)
Loans, net	$	128,744,602	$	122,447,273

The following tables present the activity in the allowance for loan losses for the years ending December 31, 2013 and 2012 by portfolio segment:

			Commercial
December 31, 2013	Commercial		Real Estate		Consumer		Residential		Total
Allowance for loan losses:
Beginning balance	$	582,198	$	2,266,302	$	331,459	$	203,018	$	3,382,977
Charge-offs		(66,048)		(25,025)		(316,995)		(264,902)		(672,970)
Recoveries		80,507		0		19,128		0		99,635
Provision for loan losses		(257,609)		(423,274)		391,232		289,651		0
Ending balance	$	339,048	$	1,818,003	$	424,824	$	227,767	$	2,809,642

			Commercial
December 31, 2012	Commercial		Real Estate		Consumer		Residential		Total
Allowance for loan losses:
Beginning balance	$	1,309,632	$	3,386,433	$	410,001	$	193,388	$	5,299,454
Charge-offs		(1,042,700)		(954,701)		(132,394)		(11,392)		(2,141,187)
Recoveries		86,663		37,164		25,848		0		149,675
Provision for loan losses		228,603		(202,594)		28,004		21,022		75,035
Ending balance	$	582,198	$	2,266,302	$	331,459	$	203,018	$	3,382,977

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 December 31, 2013 and 2012:

			Commercial
2013	Commercial		Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment¹	$	28,705	$	1,302,677	$	191,887	$	87,635	$	0	$	1,610,904
Collectively evaluated for impairment		310,343		515,326		232,937		140,132		0		1,198,738
Unallocated		0		0		0		0		104,810		104,810
Total ending allowance balance	$	339,048	$	1,818,003	$	424,824	$	227,767	$	104,810	$	2,809,642

Loans:
Individually evaluated for impairment¹	$	1,165,730	$	6,784,821	$	518,428	$	1,127,955	$	0	$	9,596,934
Collectively evaluated for impairment		46,016,674		52,490,365		9,267,130		14,524,492		0		122,298,661
Total ending loans balance	$	47,182,404	$	59,275,186	$	9,785,558	$	15,652,447	$	0	$	131,895,595

			Commercial
2012	Commercial		Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment¹	$	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 impairment¹	$	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

¹ Loans that are specifically identified.

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

			Unpaid				Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest
2013	Investment		Balance		Allowance		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	1,049,046	$	1,059,514	$	0	$	1,326,391	$	36,446	$	34,382
Commercial Real Estate:
General		714,377		744,958		0		2,244,485		2,999		2,999
Construction		0		0		0		0		0		0
Consumer:
Lines of credit		107,750		255,128		0		55,715		642		642
Other		47,106		109,603		0		28,021		0		0
Credit card		0		0		0		0		0		0
Residential		343,859		554,300		0		234,300		0		0
Subtotal	$	2,262,138	$	2,723,503	$	0	$	3,888,912	$	40,087	$	38,023
With an allowance recorded:
Commercial	$	116,684	$	116,194	$	28,705	$	273,051	$	15,350	$	14,995
Commercial Real Estate:
General		6,070,444		6,069,393		1,302,677		4,634,901		226,872		226,872
Construction		0		0		0		0		0		0
Consumer:
Lines of credit		296,004		294,323		155,095		191,689		10,289		9,097
Other		67,568		67,406		36,792		89,464		1,877		1,877
Credit card		0		0		0		224		0		0
Residential		784,096		791,471		87,635		526,512		17,430		17,417
Subtotal	$	7,334,796	$	7,338,787	$	1,610,904	$	5,715,841	$	271,818	$	270,258
Total	$	9,596,934	$	10,062,290	$	1,610,904	$	9,604,753	$	311,905	$	308,281

			Unpaid				Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest
2012	Investment		Balance		Allowance		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	2,147,075	$	2,295,401	$	0	$	2,413,625	$	66,634	$	56,123
Commercial Real Estate:
General		2,662,984		2,739,027		0		2,783,388		66,501		64,093
Construction		0		0		0		167,274		0		0
Consumer:
Lines of credit		55,659		55,524		0		46,916		9,177		5,228
Other		26,221		26,221		0		17,290		106		0
Credit card		0		0		0		0		0		0
Residential		208,178		240,491		0		285,420		345		340
Subtotal	$	5,100,117	$	5,356,664	$	0	$	5,713,913	$	142,763	$	125,784
With an allowance recorded:
Commercial	$	1,141,219	$	1,139,885	$	104,727	$	1,510,788	$	65,446	$	38,083
Commercial Real Estate:
General		4,659,866		4,675,981		1,489,569		5,228,456		142,583		112,299
Construction		0		0		0		21,201		0		0
Consumer:
Lines of credit		135,111		134,976		40,180		176,507		3,897		3,431
Other		104,829		104,664		48,870		114,664		2,048		1,923
Credit card		0		0		0		988		0		0
Residential		574,554		594,307		127,030		486,301		12,907		12,541
Subtotal	$	6,615,579	$	6,649,813	$	1,810,376	$	7,538,905	$	226,881	$	168,277
Total	$	11,715,696	$	12,006,477	$	1,810,376	$	13,252,818	$	369,644	$	294,061

Non-performing loans, from a past due and accrual status, 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 December 31, 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	$	47,146,126	$	47,146,126
Commercial Real Estate:
General		0		0		0		0		54,827,857		54,827,857
Construction		0		0		0		0		2,071,737		2,071,737
Consumer:
Lines of credit		0		101,022		0		101,022		7,640,301		7,741,323
Other		1,583		10,824		0		12,407		1,500,086		1,512,493
Credit card		0		0		0		0		451,009		451,009
Residential		62,333		2,241		0		64,574		15,098,466		15,163,040
Total	$	63,916	$	114,087	$	0	$	178,003	$	128,735,582	$	128,913,585

					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	$	0	$	0	$	36,278	$	36,278
Commercial Real Estate:
General		0		0		0		0		2,375,592		2,375,592
Construction		0		0		0		0		0		0
Consumer:
Lines of credit		0		0		25,568		25,568		0		25,568
Other		0		25,360		0		25,360		29,805		55,165
Credit card		0		0		0		0		0		0
Residential		97,482		0		224,185		321,667		167,740		489,407
Total	$	97,482	$	25,360	$	249,753	$	372,595	$	2,609,415	$	2,982,010

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 $1,539,865 of specific reserves on $8,452,163 of unpaid principal balance of loans to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2013 and $1,699,851 of specific reserves on $10,441,218 of unpaid principal balance of loans as of December 31, 2012. At December 31, 2013, the Company had an additional $180,557 in performing loans outstanding to one of those customers. As of December 31, 2012, there was $184,364 committed to one customer.

During 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 2013, three modifications 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 modification involved a reduced payment amount for a period of 28 years. Lastly, one note involved a permanent reduction of the recorded investment in the loan in a modification commonly referred to as an A-B note structure. In these types of modifications, a detailed analysis of the borrower’s financial condition is performed and the total debt is separated into two notes. The first note (“note A”) is underwritten to be supported by current cash flows and collateral and the second note (“note B”) is made for the remaining unsecured debt. Note B is immediately charged-off after closing with collection occurring only after note A is completely repaid.

In 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 7 months to 4 years. One modification involved a financing concession on an amortizing note for 12 months. Two modifications, for the same customer, involving interest only payments on amortizing notes were for a 12 month period. Lastly, two modifications involved a permanent reduction of the recorded investment in the loan.

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.

The following table presents loans by class modified as troubled debt restructurings that occurred during the 12 month period ended December 31, 2013:

			Pre-Modification		Post-Modification
			Outstanding Recorded		Outstanding Recorded
2013	Number of Loans		Investment		Investment
Troubled Debt Restructurings:
Commercial		1	$	143,136	$	133,425
Commercial Real Estate:
General		0		0		0
Consumer:
Lines of credit		4		205,208		205,208
Residential		1		164,114		164,114
Total		6	$	512,458	$	502,747

In the 12 month period ended December 31, 2013, troubled debt restructurings incurred charge-offs of $10,000 of which all was related to the A-B note modification. As of December 31, 2013, an additional $80,000 of specific reserves were established on these troubled debt restructurings.

The following table presents loans by class modified as troubled debt restructurings that occurred during the 12 month period ended December 31, 2012:

			Pre-Modification		Post-Modification
			Outstanding Recorded		Outstanding Recorded
2012	Number of Loans		Investment		Investment
Troubled Debt Restructurings:
Commercial		2	$	101,880	$	101,880
Commercial Real Estate:
General		5		3,446,269		2,808,146
Consumer:
Lines of credit		3		142,894		142,894
Residential		2		144,312		144,312
Total		12	$	3,835,355	$	3,197,232

In the 12 month period ended December 31, 2012, troubled debt restructurings incurred charge-offs of $654,000 of which $638,000 was related to the A-B note modification. As of December 31, 2012, an additional $72,000 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 12 month period ended December 31, 2013, there was one troubled debt restructuring that experienced a payment default within 12 months following the modification. Below is a table which presents those loans by class:

			Recorded Investment
2013	Number of Loans		at time of default
Troubled Debt Restructurings
That Subsequently Defaulted:
Commercial		1	$	155,258
Commercial Real Estate:
General		0		0
Total		1	$	155,258

For the 12 month period ended December 31, 2012, there were no troubled debt restructurings that experienced a payment default within 12 months following the modification.

			Recorded Investment
2012	Number of Loans		at time of default
Troubled Debt Restructurings
That Subsequently Defaulted:
Commercial		0	$	0
Commercial Real Estate:
General		0		0
Total		0	$	0

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 borrowers 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 December 31, 2013 and 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
	2013		2012		2013		2012		2013		2012
1	$	0	$	0	$	0	$	0	$	0	$	0
2		94,676		298,200		0		0		0		0
3		8,623,409		2,004,476		5,524,989		4,141,391		0		0
4		13,898,810		14,017,221		18,675,411		12,911,811		441,114		384,848
5		17,539,364		16,373,423		20,604,611		22,177,734		233,302		1,695,990
5M		4,255,639		3,318,016		5,114,931		3,675,131		1,397,321		1,398,205
6		1,699,009		2,180,119		4,908,058		7,365,970		0		0
7		1,052,903		1,369,803		229,576		287,682		0		0
8		18,594		466,305		2,145,873		2,675,586		0		0
Total	$	47,182,404	$	40,027,563	$	57,203,449	$	53,235,305	$	2,071,737	$	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 December 31, 2013 and 2012:

	Residential
	2013		2012
Performing	$	14,524,492	$	17,063,417
Impaired		1,127,955		782,732
Total	$	15,652,447	$	17,846,149

	Consumer – Lines of credit				Consumer – Other				Consumer – Credit card
	2013		2012		2013		2012		2013		2012
Performing	$	7,363,137	$	8,944,652	$	1,452,984	$	1,894,041	$	451,009	$	490,802
Impaired		403,754		190,770		114,674		131,050		0		0
Total	$	7,766,891	$	9,135,422	$	1,567,658	$	2,025,091	$	451,009	$	490,802

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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