ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

9 Months Ended

Sep. 30, 2015

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 and nine month periods ended September 30, 2015 and 2014 by portfolio segment:

			Commercial
Three Months Ended September 30, 2015	Commercial		Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	529,851	$	426,628	$	276,099	$	196,789	$	144,006	$	1,573,373
Charge-offs		0		0		(138)		0		0		(138)
Recoveries		11,600		33		131,044		0		0		142,677
Provision for loan losses		(68,267)		(344)		(107,264)		26,577		149,298		0
Ending balance	$	473,184	$	426,317	$	299,741	$	223,366	$	293,304	$	1,715,912

			Commercial
Three Months Ended September 30, 2014	Commercial		Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	428,247	$	1,468,382	$	390,000	$	229,779	$	225,152	$	2,741,560
Charge-offs		(2,929)		(777,974)		(5,966)		0		0		(786,869)
Recoveries		18,300		0		4,241		0		0		22,541
Provision for loan losses		13,682		97,769		(67,709)		(27,417)		(16,325)		0
Ending balance	$	457,300	$	788,177	$	320,566	$	202,362	$	208,827	$	1,977,232

			Commercial
Nine Months Ended September 30, 2015	Commercial		Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	500,776	$	848,589	$	294,039	$	204,485	$	130,283	$	1,978,172
Charge-offs		0		(429,212)		(14,225)		0		0		(443,437)
Recoveries		38,500		33		142,644		0		0		181,177
Provision for loan losses		(66,092)		6,907		(122,717)		18,881		163,021		0
Ending balance	$	473,184	$	426,317	$	299,741	$	223,366	$	293,304	$	1,715,912

			Commercial
Nine Months Ended September 30, 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)		(54,690)		(115,585)		0		(1,135,760)
Recoveries		277,250		2,557		23,543		0		0		303,350
Provision for loan losses		(135,179)		14,093		(73,111)		90,180		104,017		0
Ending balance	$	457,300	$	788,177	$	320,566	$	202,362	$	208,827	$	1,977,232

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, 2015 and December 31, 2014:

			Commercial
September 30, 2015	Commercial		Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	133,473	$	39,829	$	144,754	$	87,958	$	0	$	406,014
Collectively evaluated for impairment		339,711		386,488		154,987		135,408		0		1,016,594
Unallocated		0		0		0		0		293,304		293,304
Total ending allowance balance	$	473,184	$	426,317	$	299,741	$	223,366	$	293,304	$	1,715,912

Loans:
Individually evaluated for impairment	$	1,756,307	$	5,500,660	$	279,525	$	736,399	$	0	$	8,272,891
Collectively evaluated for impairment		47,665,673		44,992,977		6,848,029		16,114,672		0		115,621,351
Total ending loans balance	$	49,421,980	$	50,493,637	$	7,127,554	$	16,851,071	$	0	$	123,894,242

			Commercial
December 31, 2014	Commercial		Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	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 impairment	$	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

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2015 and December 31, 2014. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

	Recorded		Unpaid Principal		Related
September 30, 2015	Investment		Balance		Allowance
With no related allowance recorded:
Commercial	$	1,326,130	$	1,323,050	$	0
Commercial Real Estate:
General		5,388,250		6,557,997		0
Construction		0		0		0
Consumer:
Lines of credit		15,370		15,740		0
Other		0		0		0
Credit card		0		0		0
Residential		420,713		453,228		0
Subtotal	$	7,150,463	$	8,350,015	$	0

With a related allowance recorded:
Commercial	$	430,177	$	443,109	$	133,473
Commercial Real Estate:
General		112,410		157,366		39,829
Construction		0		0		0
Consumer:
Lines of credit		253,197		252,382		133,904
Other		10,958		10,850		10,850
Credit card		0		0		0
Residential		315,686		322,949		87,958
Subtotal	$	1,122,428	$	1,186,656	$	406,014
Total	$	8,272,891	$	9,536,671	$	406,014

	Recorded		Unpaid Principal		Related
December 31, 2014	Investment		Balance		Allowance
With no related allowance recorded:
Commercial	$	1,436,684	$	1,432,867	$	0
Commercial Real Estate:
General		4,734,250		4,797,634		0
Construction		0		0		0
Consumer:
Lines of credit		87,646		97,188		0
Other		363		363		0
Credit card		0		0		0
Residential		160,580		193,074		0
Subtotal	$	6,419,523	$	6,521,126	$	0

With a related allowance recorded:
Commercial	$	365,705	$	379,068	$	135,694
Commercial Real Estate:
General		1,740,616		2,478,367		411,996
Construction		0		0		0
Consumer:
Lines of credit		277,650		276,294		151,074
Other		11,663		11,541		11,541
Credit card		0		0		0
Residential		393,300		401,270		82,753
Subtotal	$	2,788,934	$	3,546,540	$	793,058
Total	$	9,208,457	$	10,067,666	$	793,058

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.

	Three Months		Three Months		Three Months
	Average Recorded		Interest Income		Cash Basis
September 30, 2015	Investment		Recognized		Interest Recognized
With no related allowance recorded:
Commercial	$	1,332,829	$	12,534	$	12,534
Commercial Real Estate:
General		5,525,724		54,728		57,025
Construction		0		0		0
Consumer:
Lines of credit		15,905		0		0
Other		0		0		0
Credit card		0		0		0
Residential		422,240		401		401
Subtotal	$	7,296,698	$	67,663	$	69,960

With a related allowance recorded:
Commercial	$	430,920	$	5,626	$	5,676
Commercial Real Estate:
General		37,470		0		0
Construction		0		0		0
Consumer:
Lines of credit		254,100		3,640		3,717
Other		11,208		0		0
Credit card		0		0		0
Residential		316,262		2,299		2,383
Subtotal	$	1,049,960	$	11,565	$	11,776
Total	$	8,346,658	$	79,228	$	81,736

	Three Months		Three Months		Three Months
	Average Recorded		Interest Income		Cash Basis
September 30, 2014	Investment		Recognized		Interest Recognized
With no related allowance recorded:
Commercial	$	1,354,845	$	12,205	$	9,913
Commercial Real Estate:
General		5,165,179		64,547		63,255
Construction		0		0		0
Consumer:
Lines of credit		64,792		0		0
Other		622		0		0
Credit card		0		0		0
Residential		248,415		0		0
Subtotal	$	6,833,853	$	76,752	$	73,168

With a related allowance recorded:
Commercial	$	501,237	$	4,522	$	4,522
Commercial Real Estate:
General		1,680,955		0		0
Construction		0		0		0
Consumer:
Lines of credit		315,554		4,583		4,570
Other		28,996		0		0
Credit card		0		0		0
Residential		608,613		7,791		5,898
Subtotal	$	3,135,355	$	16,896	$	14,990
Total	$	9,969,208	$	93,648	$	88,158

	Nine Months		Nine Months		Nine Months
	Average Recorded		Interest Income		Cash Basis
September 30, 2015	Investment		Recognized		Interest Recognized
With no related allowance recorded:
Commercial	$	1,413,541	$	38,499	$	38,499
Commercial Real Estate:
General		5,471,768		156,773		156,773
Construction		0		0		0
Consumer:
Lines of credit		44,369		0		0
Other		0		0		0
Credit card		0		0		0
Residential		275,598		1,322		1,322
Subtotal	$	7,205,276	$	196,594	$	196,594

With a related allowance recorded:
Commercial	$	428,710	$	16,910	$	16,257
Commercial Real Estate:
General		364,337		0		0
Construction		0		0		0
Consumer:
Lines of credit		275,605		12,319		12,289
Other		11,166		0		0
Credit card		0		0		0
Residential		358,373		9,784		8,793
Subtotal	$	1,438,191	$	39,013	$	37,339
Total	$	8,643,467	$	235,607	$	233,933

	Nine Months		Nine Months		Nine Months
	Average Recorded		Interest Income		Cash Basis
September 30, 2014	Investment		Recognized		Interest Recognized
With no related allowance recorded:
Commercial	$	1,139,932	$	27,048	$	24,756
Commercial Real Estate:
General		4,505,766		178,618		168,296
Construction		0		0		0
Consumer:
Lines of credit		89,827		0		0
Other		8,454		268		0
Credit card		0		0		0
Residential		357,249		0		0
Subtotal	$	6,101,228	$	205,934	$	193,052

With a related allowance recorded:
Commercial	$	913,524	$	11,440	$	11,440
Commercial Real Estate:
General		3,602,123		0		0
Construction		0		0		0
Consumer:
Lines of credit		303,475		13,259		12,717
Other		42,522		38		0
Credit card		0		0		0
Residential		637,301		23,119		18,252
Subtotal	$	5,498,945	$	47,856	$	42,409
Total	$	11,600,173	$	253,790	$	235,461

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, 2015:

					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	$	9,212	$	0	$	0	$	9,212	$	49,398,590	$	49,407,802
Commercial Real Estate:
General		141,667		0		0		141,667		47,199,764		47,341,431
Construction		0		0		0		0		2,029,712		2,029,712
Consumer:
Lines of credit		0		0		0		0		5,372,901		5,372,901
Other		0		0		0		0		1,276,844		1,276,844
Credit card		0		0		0		0		462,439		462,439
Residential		0		0		0		0		16,721,360		16,721,360
Total	$	150,879	$	0	$	0	$	150,879	$	122,461,610	$	122,612,489

					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	$	14,178	$	14,178
Commercial Real Estate:
General		0		0		143,445		143,445		979,049		1,122,494
Construction		0		0		0		0		0		0
Consumer:
Lines of credit		0		0		0		0		15,370		15,370
Other		0		0		0		0		0		0
Credit card		0		0		0		0		0		0
Residential		0		78,482		0		78,482		51,229		129,711
Total	$	0	$	78,482	$	143,445	$	221,927	$	1,059,826	$	1,281,753

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

Troubled Debt Restructurings:

A loan is considered to be a Troubled Debt Restructure (“TDR”) when the Bank grants a concession to the borrower that it would not normally consider because the borrower is experiencing financial difficulty. The concession is typically a modification of one or more of the terms such as a rate reduction below the current market rate for new debt with similar risk; interest only payments on an amortizing note; a reduced payment amount which does not cover the interest; financing concessions; or a permanent reduction of the recorded investment of 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 Company has allocated $332,963 of specific reserves on $7,023,253 of unpaid principal balance of loans to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2015 and $729,552 on $7,353,365 of unpaid principal balance of loans as of December 31, 2014. At September 30, 2015, the Company had an additional $10,454 in performing loans outstanding to one of those customers. As of December 31, 2014, there was $185,821 committed to two customers.

The following tables present loans by class modified as troubled debt restructurings that occurred during the three and nine month periods ended September 30, 2015:

			Pre-Modification		Post-Modification
			Outstanding Recorded		Outstanding Recorded
Three Months Ended September 30, 2015	Number of Loans		Investment		Investment
Troubled Debt Restructurings:
Commercial		1	$	20,017	$	19,685
Total		1	$	20,017	$	19,685

			Pre-Modification		Post-Modification
			Outstanding Recorded		Outstanding Recorded
Nine Months Ended September 30, 2015	Number of Loans		Investment		Investment
Troubled Debt Restructurings:
Commercial		1	$	20,017	$	19,685
Residential		1		272,800		272,800
Total		2	$	292,817	$	292,485

In both the three and nine month periods ending September 30, 2015, the modifications involved financing concessions ranging from 22 months to 19 years, however, there were no charge-offs related to the troubled debt restructurings.

In the nine month period ending September 30, 2015, an additional $20,000 of specific reserves were established on loans modified as troubled debt restructurings.

In the three month period ended September 30, 2014, there were no loans modified as troubled debt restructurings and no charge-offs as part of a troubled debt restructuring.

			Pre-Modification		Post-Modification
			Outstanding Recorded		Outstanding Recorded
Nine Months Ended September 30, 2014	Number of Loans		Investment		Investment
Troubled Debt Restructurings:
Commercial		1	$	249,249	$	275,116
Commercial Real Estate:
General		1		2,413,000		2,413,000
Total		2	$	2,662,249	$	2,688,116

In the nine month period ending September 30, 2014, the modifications involved financing concessions on amortizing notes ranging from 10 months to 12 months, however, there were no charge-offs related to the troubled debt restructurings.

In the nine month period ending September 30, 2014, an additional $48,000 of specific reserves were established on loans modified as 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 ending September 30, 2015 there were no troubled debt restructurings that experienced a payment default within 12 months following the modification.

For the three and nine month periods ended September 30, 2014 there was one troubled debt restructuring that experienced a payment default within 12 months following the modification. The payment default occurred in the second quarter. Below is a table which presents that loan by class:

			Recorded Investment
	Number of Loans		at time of default
Troubled Debt Restructurings
That Subsequently Defaulted:
Commercial	$	1	$	196,340
Total		1	$	196,340

The troubled debt restructuring that subsequently defaulted described above did not result in any additional charge-offs and there were no specific reserves on the remaining balance as of September 30, 2014.

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 analyzed once a quarter. 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 in full.

As of September 30, 2015 and December 31, 2014, 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,
	2015		2014		2015		2014		2015		2014
1	$	841,880	$	15,816	$	0	$	0	$	0	$	0
2		0		0		0		0		0		0
3		12,491,216		10,755,378		4,541,618		5,743,647		68,941		0
4		12,961,819		15,207,227		17,842,987		23,551,631		268,680		351,678
5		18,612,683		21,175,719		12,902,940		15,460,915		176,899		186,594
5M		1,725,058		692,413		4,324,757		4,441,083		0		0
6		1,426,523		1,764,371		7,542,211		2,872,263		1,515,192		1,359,150
7		1,348,559		1,441,534		290,530		729,249		0		0
8		14,242		16,211		1,018,882		1,476,138		0		0
Total	$	49,421,980	$	51,068,669	$	48,463,925	$	54,274,926	$	2,029,712	$	1,897,422

A $4.6 million loan in the commercial real estate segment was rated a 4 at December 31, 2015 and was graded a 6 at September 30, 2015. The loan was downgraded due to financial reporting discrepancies. The loan is 90% guaranteed by the US Department of Agriculture and is well collateralized.

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, 2015 and December 31, 2014:

	Residential
	September 30,		December 31,
	2015		2014
Performing	$	16,114,672	$	14,654,563
Impaired		736,399		553,880
Total	$	16,851,071	$	15,208,443

	Consumer – Lines of credit				Consumer – Other				Consumer – Credit card
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2015		2014		2015		2014		2015		2014
Performing	$	5,119,704	$	5,428,889	$	1,265,886	$	1,350,616	$	462,439	$	490,743
Impaired		268,567		365,296		10,958		12,026		0		0
Total	$	5,388,271	$	5,794,185	$	1,276,844	$	1,362,642	$	462,439	$	490,743