Note 4 - Allowance For Loan Losses And Impaired Loans

3 Months Ended

Mar. 31, 2012

Allowance For Loan Losses And Impaired Loans [Text Block]

4.      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 March 31, 2012 and 2011 by portfolio segment:

Three Months Ended March 31, 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		(188,792	)		(762,700	)		(14,788	)		0		0		(966,280	)
Recoveries		8,109			0			17,785			0		0		25,894
Provision for loan losses		9,114			(137,025	)		100,262			12,613		90,071		75,035
Ending balance	$	1,138,063		$	2,486,708		$	513,260		$	206,001	$	90,071	$	4,434,103

Three Months Ended March 31, 2011	Commercial			Commercial Real Estate			Consumer			Residential		Total
Allowance for loan losses:
Beginning balance	$	1,218,865		$	2,896,176		$	546,603		$	130,263	$	4,791,907
Charge-offs		(134,701	)		(88,238	)		(60,458	)		0		(283,397	)
Recoveries		27,648			3,498			11,707			0		42,853
Provision for loan losses		49,094			393,603			133,464			128,344		704,505
Ending balance	$	1,160,906		$	3,205,039		$	631,316		$	258,607	$	5,255,868

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of March 31, 2012 and December 31, 2011:

March 31, 2012	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	494,640	$	1,547,031	$	146,944	$	130,567	$	0	$	2,319,182
Collectively evaluated for impairment		643,423		939,677		366,316		75,434		0		2,024,850
Unallocated		0		0		0		0		90,071		90,071
Total ending allowance balance	$	1,138,063	$	2,486,708	$	513,260	$	206,001	$	90,071	$	4,434,103
Loans:
Individually evaluated for impairment	$	4,381,639	$	8,277,290	$	377,437	$	862,887	$	0	$	13,899,253
Collectively evaluated for impairment		38,478,495		52,283,244		15,251,807		16,111,223		0		122,124,769
Total ending loans balance	$	42,860,134	$	60,560,534	$	15,629,244	$	16,974,110	$	0	$	136,024,022

December 31, 2011	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	466,001	$	2,312,396	$	109,309	$	103,393	$	2,991,099
Collectively evaluated for impairment		843,631		1,074,037		300,692		89,995		2,308,355
Total ending allowance balance	$	1,309,632	$	3,386,433	$	410,001	$	193,388	$	5,299,454
Loans:
Individually evaluated for impairment	$	3,930,572	$	11,063,154	$	274,700	$	595,598	$	15,864,024
Collectively evaluated for impairment		46,310,136		55,826,461		16,025,489		16,429,725		134,591,811
Total ending loans balance	$	50,240,708	$	66,889,615	$	16,300,189	$	17,025,323	$	150,455,835

The following tables present loans individually evaluated for impairment by class of loans as of March 31, 2012 and December 31, 2011.  For purposes of this disclosure, the Company reports unpaid principal balance net of partial charge-offs.

March 31, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Three Months Average Recorded Investment		Three Months Interest Income Recognized		Three Months Cash Basis Interest Recognized
With no related allowance recorded:
Commercial	$	2,913,456	$	2,908,723	$	0	$	2,718,618	$	13,805	$	11,080
Commercial Real Estate:
General		1,885,038		1,884,593		0		2,228,041		2,432		2,426
Construction		403,092		403,092		0		393,109		0		0
Consumer:
Lines of credit		42,148		42,061		0		58,583		490		284
Other		20,418		20,418		0		20,455		0		0
Credit card		0		0		0		0		0		0
Residential		184,010		184,498		0		184,987		501		501
Subtotal	$	5,448,162	$	5,443,385	$	0	$	5,603,793	$	17,228	$	14,291
With an allowance recorded:
Commercial	$	1,468,183	$	1,467,605	$	494,640	$	3,866,728	$	8,255	$	8,036
Commercial Real Estate:
General		4,028,693		4,021,707		420,107		2,050,063		42,808		11,137
Construction		1,960,467		1,960,467		1,126,924		1,960,467		0		0
Consumer:
Lines of credit		202,948		202,660		60,660		179,288		1,545		1,545
Other		109,811		109,643		84,172		110,363		485		485
Credit card		2,112		2,112		2,112		704		0		0
Residential		678,877		677,353		130,567		520,004		4,807		3,556
Subtotal	$	8,451,091	$	8,441,547	$	2,319,182	$	8,687,617	$	57,900	$	24,759
Total	$	13,899,253	$	13,884,932	$	2,319,182	$	14,291,410	$	75,128	$	39,050

December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance		Twelve Months Average Recorded Investment		Twelve Months Interest Income Recognized		Twelve Months Cash Basis Interest Recognized
With no related allowance recorded:
Commercial	$	2,591,467	$	2,589,356	$	0	$	3,511,753	$	55,237	$	55,237
Commercial Real Estate:
General		4,388,271		4,377,406		0		3,265,902		123,083		107,620
Construction		227,842		227,842		0		511,659		0		0
Consumer:
Lines of credit		91,397		91,327		0		72,432		616		616
Other		0		0		0		6,012		0		0
Credit card		0		0		0		0		0		0
Residential		186,207		186,723		0		314,265		0		0
Subtotal	$	7,485,184	$	7,472,654	$	0	$	7,682,023	$	178,936	$	163,473
With an allowance recorded:
Commercial	$	1,339,105	$	1,337,955	$	466,001	$	959,371	$	30,124	$	29,623
Commercial Real Estate:
General		4,171,379		4,135,809		1,024,846		2,865,844		51,694		30,049
Construction		2,275,662		2,275,337		1,287,550		2,069,800		2,373		2,202
Consumer:
Lines of credit		63,854		63,675		16,128		145,132		11,143		3,682
Other		119,449		119,275		93,181		74,854		1,955		1,650
Credit card		0		0		0		1,006		0		0
Residential		409,391		408,244		103,393		699,853		22,948		18,135
Subtotal	$	8,378,840	$	8,340,295	$	2,991,099	$	6,815,860	$	120,237	$	85,341
Total	$	15,864,024	$	15,812,949	$	2,991,099	$	14,497,883	$	299,173	$	248,814

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 March 31, 2012:

Accruing Loans	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Accruing Past Due Loans		Current Accruing Loans		Total Recorded Investment of Accruing Loans
Commercial	$	24,285	$	11,880	$	0	$	36,165	$	41,058,727	$	41,094,892
Commercial Real Estate:
General		0		0		0		0		51,916,526		51,916,526
Construction		0		0		0		0		3,844,333		3,844,333
Consumer:
Lines of credit		64,571		0		0		64,571		12,748,118		12,812,689
Other		12,559		0		0		12,559		2,162,775		2,175,334
Credit card		360		2,112		0		2,472		514,627		517,099
Residential		88,269		0		0		88,269		16,561,318		16,649,587
Total	$	190,044	$	13,992	$	0	$	204,036	$	128,806,424	$	129,010,460

Non Accrual Loans	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Non Accrual Past Due Loans		Current Non Accrual Loans		Total Non Accrual Recorded Investment
Commercial	$	4,966	$	34,286	$	1,600,686	$	1,639,938	$	125,304	$	1,765,242
Commercial Real Estate:
General		0		145,800		698,414		844,214		1,648,616		2,492,830
Construction		0		0		290,499		290,499		2,016,346		2,306,845
Consumer:
Lines of credit		2,010		0		100,954		102,964		21,158		124,122
Other		0		0		0		0		0		0
Credit card		0		0		0		0		0		0
Residential		0		0		207,041		207,041		117,482		324,523
Total	$	6,976	$	180,086	$	2,897,594	$	3,084,656	$	3,928,906	$	7,013,562

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, 2011:

Accruing Loans	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Accruing Past Due Loans		Current Accruing Loans		Total Recorded Investment of Accruing Loans
Commercial	$	576,736	$	48,273	$	0	$	625,009	$	48,278,897	$	48,903,906
Commercial Real Estate:
General		197,488		243,075		0		440,563		57,422,942		57,863,505
Construction		0		0		0		0		4,063,776		4,063,776
Consumer:
Lines of credit		11,052		102,760		21,002		134,814		13,194,317		13,329,131
Other		8,817		0		0		8,817		2,306,281		2,315,098
Credit card		0		0		5,899		5,899		521,959		527,858
Residential		80,952		0		0		80,952		16,772,293		16,853,245
Total	$	875,045	$	394,108	$	26,901	$	1,296,054	$	142,560,465	$	143,856,519

Non Accrual Loans	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Non Accrual Past Due Loans		Current Non Accrual Loans		Total Non Accrual Recorded Investment
Commercial	$	0	$	2,478	$	1,172,890	$	1,175,368	$	161,434	$	1,336,802
Commercial Real Estate:
General		0		0		869,398		869,398		1,673,895		2,543,293
Construction		0		0		406,090		406,090		2,012,951		2,419,041
Consumer:
Lines of credit		4,826		66,587		48,230		119,643		0		119,643
Other		0		0		8,459		8,459		0		8,459
Credit card		0		0		0		0		0		0
Residential		0		0		0		0		172,078		172,078
Total	$	4,826	$	69,065	$	2,505,067	$	2,578,958	$	4,020,358	$	6,599,316

Troubled Debt Restructurings:

The Company has allocated $1,797,908 of specific reserves on $10,094,649 of loans to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2012 and $1,499,705 on $9,036,794 as of December 31, 2011. At March 31, 2012, the Company had an additional $221,825 in performing loans outstanding to two of those customers. As of December 31, 2011, there was $222,700 committed to one customer. These customers are paying as agreed on those loans.

During the three month period ended March 31, 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; or a permanent reduction of the recorded investment in the loan.

One modification involving a stated interest rate of the loan below the current market rate was for an 11 month period. 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.

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

Three Months Ended March 31, 2012	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded 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		1		104,444		104,444
Residential		1		62,085		62,085
Total		8	$	3,624,678	$	2,986,555

In the three month period ended March 31, 2012, there were $638,000 of charge-offs as part of a troubled debt restructuring arrangement and an additional $30,000 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 and stops communicating and working with the Bank.

For the three month period ended March 31, 2012, there were no troubled debt restructurings that experienced a payment default within twelve 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 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:

1.   Exceptional. Loans with an exceptional credit rating.

2.   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.

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

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

5.   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.

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

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

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

As of March 31, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Commercial				Commercial Real Estate General				Commercial Real Estate Construction
			March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
	1		$	0	$	0	$	0	$	0	$	0	$	0
	2			254,512		253,956		0		0		0		0
	3			2,867,481		4,947,905		3,086,472		3,141,880		0		0
	4			9,650,543		13,552,704		14,754,115		19,274,469		263,203		271,335
	5			20,451,695		21,119,918		22,049,463		21,250,749		2,125,392		2,347,947
	5	M		4,218,877		3,910,143		7,084,844		5,452,332		1,399,026		1,360,030
	6			367,693		1,838,505		3,843,594		7,562,147		0		0
	7			3,494,619		3,567,564		2,510,319		2,293,571		0		39,330
	8			1,554,714		1,050,013		1,080,549		1,431,650		2,363,557		2,464,175
Total			$	42,860,134	$	50,240,708	$	54,409,356	$	60,406,798	$	6,151,178	$	6,482,817

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 March 31, 2012 and December 31, 2011:

	Residential
	March 31, 2012		December 31, 2011
Performing	$	16,111,223	$	16,429,725
Impaired		862,887		595,598
Total	$	16,974,110	$	17,025,323

	Consumer – Lines of credit				Consumer – Other				Consumer – Credit card
	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Performing	$	12,691,715	$	13,293,523	$	2,045,105	$	2,204,108	$	514,987	$	527,858
Impaired		245,096		155,251		130,229		119,449		2,112		0
Total	$	12,936,811	$	13,448,774	$	2,175,334	$	2,323,557	$	517,099	$	527,858