LOANS

12 Months Ended

Dec. 31, 2014

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

NOTE 3 - LOANS

Outstanding loan balances by portfolio segment and class at December 31, 2014 and 2013 were as follows:

	2014		2013

Commercial	$	50,977,933	$	47,081,426
Commercial Real Estate:
General		54,180,393		57,101,939
Construction		1,891,746		2,065,308
Consumer:
Lines of credit		5,774,029		7,737,439
Other		1,356,714		1,560,384
Credit card		490,743		451,009
Residential		15,172,246		15,611,082
Net deferred loan fees		(56,671)		(54,343)
		129,787,133		131,554,244
Less: Allowance for loan losses		(1,978,172)		(2,809,642)
Loans, net	$	127,808,961	$	128,744,602

The following tables present the activity in the allowance for loan losses for the years ending December 31, 2014 and 2013 by portfolio segment:

			Commercial
December 31, 2014	Commercial		Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	339,048	$	1,713,193	$	424,824	$	227,767	$	104,810	$	2,809,642
Charge-offs		(23,819)		(941,666)		(71,151)		(115,586)		0		(1,152,222)
Recoveries		288,800		2,557		29,395		0		0		320,752
Provision for loan losses		(103,253)		74,505		(89,029)		92,304		25,473		0
Ending balance	$	500,776	$	848,589	$	294,039	$	204,485	$	130,283	$	1,978,172

			Commercial
December 31, 2013	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		(66,048)		(25,025)		(316,995)		(264,902)		0		(672,970)
Recoveries		80,507		0		19,128		0		0		99,635
Provision for loan losses		(257,609)		(528,084)		391,232		289,651		104,810		0
Ending balance	$	339,048	$	1,713,193	$	424,824	$	227,767	$	104,810	$	2,809,642

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, 2014 and 2013:

2014	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment¹	$	135,694	$	411,996	$	162,615	$	82,753	$	0	$	793,058
Collectively evaluated for impairment		365,082		436,593		131,424		121,732		0		1,054,831
Unallocated		0		0		0		0		130,283		130,283
Total ending allowance balance	$	500,776	$	848,589	$	294,039	$	204,485	$	130,283	$	1,978,172

Loans:
Individually evaluated for impairment¹	$	1,802,389	$	6,474,866	$	377,322	$	553,880	$	0	$	9,208,457
Collectively evaluated for impairment		49,266,280		49,697,482		7,270,248		14,654,563		0		120,888,573
Total ending loans balance	$	51,068,669	$	56,172,348	$	7,647,570	$	15,208,443	$	0	$	130,097,030

2013	Commercial		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		410,516		232,937		140,132		0		1,093,928
Unallocated		0		0		0		0		104,810		104,810
Total ending allowance balance	$	339,048	$	1,713,193	$	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

¹ Loans that are specifically identified.

The following tables present loans individually evaluated for impairment by class of loans as of December 31, 2014 and 2013. 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
2014	Investment		Balance		Allowance		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	1,436,684	$	1,432,867	$	0	$	1,230,435	$	41,167	$	38,849
Commercial Real Estate:
General		4,734,250		4,797,634		0		4,428,492		186,401		177,219
Construction		0		0		0		0		0		0
Consumer:
Lines of credit		87,646		97,188		0		81,978		0		0
Other		363		363		0		6,432		268		0
Credit card		0		0		0		0		0		0
Residential		160,580		193,074		0		315,394		1,946		1,946
Subtotal	$	6,419,523	$	6,521,126	$	0	$	6,062,731	$	229,782	$	218,014
With an allowance recorded:
Commercial	$	365,705	$	379,068	$	135,694	$	351,143	$	16,016	$	16,016
Commercial Real Estate:
General		1,740,616		2,478,367		411,996		3,308,305		0		0
Construction		0		0		0		0		0		0
Consumer:
Lines of credit		277,650		276,294		151,074		305,232		18,010		16,842
Other		11,663		11,541		11,541		36,296		166		0
Credit card		0		0		0		0		0		0
Residential		393,300		401,270		82,753		594,203		20,052		19,592
Subtotal	$	2,788,934	$	3,546,540	$	793,058	$	4,595,179	$	54,244	$	52,450
Total	$	9,208,457	$	10,067,666	$	793,058	$	10,657,910	$	284,026	$	270,464

			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

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, 2014:

					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	$	51,052,522	$	51,052,522
Commercial Real Estate:
General		0		0		0		0		52,439,759		52,439,759
Construction		0		0		0		0		1,897,422		1,897,422
Consumer:
Lines of credit		133,353		0		0		133,353		5,576,570		5,709,923
Other		175		0		0		175		1,362,269		1,362,444
Credit card		4,958		0		0		4,958		485,785		490,743
Residential		144,798		0		0		144,798		14,928,488		15,073,286
Total	$	283,284	$	0	$	0	$	283,284	$	127,742,815	$	128,026,099

					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	$	16,147	$	16,147
Commercial Real Estate:
General		0		0		310,442		310,442		1,524,725		1,835,167
Construction		0		0		0		0		0		0
Consumer:
Lines of credit		0		0		84,262		84,262		0		84,262
Other		0		0		198		198		0		198
Credit card		0		0		0		0		0		0
Residential		86,482		0		48,675		135,157		0		135,157
Total	$	86,482	$	0	$	443,577	$	530,059	$	1,540,872	$	2,070,931

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

Troubled Debt Restructurings:

The Company has allocated $729,552 of specific reserves on $7,353,365 of unpaid principal balance of loans to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2014 and $1,539,865 of specific reserves on $8,452,163 of unpaid principal balance of loans as of December 31, 2013.

During 2014 and 2013, 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 2014, two modifications involved financing concessions on amortizing notes ranging from 10 months to 12 months.

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 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, 2014:

		Pre-Modification		Post-Modification
		Outstanding Recorded		Outstanding Recorded		Current
2014	Number of Loans	Investment		Investment		Balance
Troubled Debt Restructurings:
Commercial	1	$	249,249	$	275,116	$	230,000
Commercial Real Estate:
General	1		2,413,000		2,413,000		2,344,843
Total	2	$	2,662,249	$	2,688,116	$	2,574,843

In the 12 month period ended December 31, 2014, there were no charge-offs related to the troubled debt restructurings. As of December 31, 2014, an additional $47,646 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, 2013:

		Pre-Modification		Post-Modification
		Outstanding Recorded		Outstanding Recorded		Current
2013	Number of Loans	Investment		Investment		Balance
Troubled Debt Restructurings:
Commercial	1	$	143,136	$	133,425	$	52,504
Lines of credit	4		205,208		205,208		165,863
Residential	1		164,114		164,114		163,727
Total	6	$	512,458	$	502,747	$	382,094

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.

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, 2014, there were two 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
2014	Number of Loans	at time of default
Commercial	1	$	196,340
Residential	1		57,687
Total	2	$	254,027

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
Commercial	1	$	155,258
Total	1	$	155,258

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, 2014 and 2013, 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
	2014		2013		2014		2013		2014		2013
1	$	15,816	$	0	$	0	$	0	$	0	$	0
2		0		94,676		0		0		0		0
3		10,755,378		8,623,409		5,743,647		5,524,989		0		0
4		15,207,227		13,898,810		23,551,631		18,675,411		351,678		441,114
5		21,175,719		17,539,364		15,460,915		20,604,611		186,594		233,302
5M		692,413		4,255,639		4,441,083		5,114,931		0		1,397,321
6		1,764,371		1,699,009		2,872,263		4,908,058		1,359,150		0
7		1,441,534		1,052,903		729,249		229,576		0		0
8		16,211		18,594		1,476,138		2,145,873		0		0
Total	$	51,068,669	$	47,182,404	$	54,274,926	$	57,203,449	$	1,897,422	$	2,071,737

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, 2014 and 2013:

	Residential
	2014		2013
Performing	$	14,654,563	$	14,524,492
Impaired		553,880		1,127,955
Total	$	15,208,443	$	15,652,447

	Consumer – Lines of credit				Consumer – Other				Consumer – Credit card
	2014		2013		2014		2013		2014		2013
Performing	$	5,428,889	$	7,363,137	$	1,350,616	$	1,452,984	$	490,743	$	451,009
Impaired		365,296		403,754		12,026		114,674		0		0
Total	$	5,794,185	$	7,766,891	$	1,362,642	$	1,567,658	$	490,743	$	451,009

- 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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