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Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2014
Allowance for Loan Losses [Abstract]  
Allowance for Loan Losses
(4)  Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the six month period ended June 30, 2014 and June 30, 2013.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other loan categories and periodically may result in reallocation within the provision categories.

June 30, 2014
 
  
  
  
  
 
 
 
Beginning
  
  
  
  
Ending
 
 
 
Balance
  
Charge-Offs
  
Recoveries
  
Provision
  
Balance
 
 
 
  
  
  
  
 
Commercial and Agricultural
 
  
  
  
  
 
Commercial
 
$
1,017
  
$
(373
)
 
$
58
  
$
18
  
$
720
 
Agricultural
  
294
   
-
   
1
   
5
   
300
 
 
                    
Real Estate
                    
Commercial Construction
  
1,782
   
(470
)
  
254
   
308
   
1,874
 
Residential Construction
  
138
   
-
   
-
   
-
   
138
 
Commercial
  
4,379
   
(753
)
  
43
   
323
   
3,992
 
Residential
  
3,278
   
(585
)
  
25
   
92
   
2,810
 
Farmland
  
312
   
(234
)
  
-
   
4
   
82
 
 
                    
Consumer and Other
                    
Consumer
  
243
   
(173
)
  
51
   
57
   
178
 
Other
  
363
   
-
   
12
   
1
   
376
 
 
                    
 
 
$
11,806
  
$
(2,588
)
 
$
444
  
$
808
  
$
10,470
 


June 30, 2013
 
  
  
  
  
 
 
 
Beginning
  
  
  
  
Ending
 
 
 
Balance
  
Charge-Offs
  
Recoveries
  
Provision
  
Balance
 
 
 
  
  
  
  
 
Commercial and Agricultural
 
  
  
  
  
 
Commercial
 
$
981
  
$
(45
)
 
$
38
  
$
43
  
$
1,017
 
Agricultural
  
296
   
(27
)
  
4
   
26
   
299
 
 
                    
Real Estate
                    
Commercial Construction
  
1,890
   
(791
)
  
120
   
756
   
1,975
 
Residential Construction
  
138
   
-
   
-
   
-
   
138
 
Commercial
  
5,163
   
(1,425
)
  
85
   
1,361
   
5,184
 
Residential
  
3,406
   
(279
)
  
18
   
267
   
3,412
 
Farmland
  
291
   
(21
)
  
16
   
20
   
306
 
 
                    
Consumer and Other
                    
Consumer
  
228
   
(233
)
  
55
   
223
   
273
 
Other
  
344
   
(4
)
  
9
   
4
   
353
 
 
                    
 
 
$
12,737
  
$
(2,825
)
 
$
345
  
$
2,700
  
$
12,957
 

The loss history period used at June 30, 2014 was based on the loss rate from the eight quarters ended March 31, 2014.

During the third quarter 2013, management implemented a change to its methodology for calculating the allowance for loan losses.  This change was intended to better reflect the current position of the loan portfolio.  Prior to the third quarter, the allowance for loan loss calculation incorporated a qualitative factor related to improvements in credit administration.  These improvements, which began in 2008, included organizational changes to credit administration, specifically related to managing past due loans, grading of loans, recognition of losses and underwriting of new loans.  Primary among the organizational changes was the appointment of experienced lending officers to oversee the lending function, as well as the appointment of a chief credit officer.  Management feels these organizational changes are now fully implemented, as evidenced by a lower charge-off rate, and therefore, the qualitative factor is no longer relevant.  The removal of this qualitative factor did not result in a significant adjustment to the recorded allowance for loan loss balance.

The Company determines its individual reserves during its quarterly review of substandard loans.  This process involves reviewing all loans with a risk grade of 6 or greater and an outstanding balance of $250,000 or more, regardless of the loans impairment classification.

Since not all loans in the substandard category are considered impaired, this quarterly review process may result in the identification of specific reserves on nonimpaired loans.  Management considers those loans graded substandard, but not classified as impaired, to be higher risk loans and, therefore, makes specific allocations to the allowance for those loans if warranted.  The total of such loans is $9.0 million and $8.2 million as of June 30, 2014 and 2013, respectively.  Specific allowance allocations were made for these loans totaling $630 thousand and $615 thousand as of June 30, 2014 and 2013, respectively.  Since these loans are not considered impaired, both the loan balance and related specific allocation are included in the “Collectively Evaluated for Impairment” column of the following tables.

At June 30, 2014, there were impaired loans totaling $3.93 million below the $250,000 review threshold which were not individually reviewed for impairment.  Those loans were subject to the bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables.  Likewise, at June 30, 2013, impaired loans totaling $2.17 million were below the $250,000 review threshold and were subject to the bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables.
 
The following tables present breakdowns of the allowance for loan losses, segregated by impairment methodology for June 30, 2014 and 2013:

June 30, 2014
 
  
  
  
  
  
 
 
 
Ending Allowance Balance
  
Ending Loan Balance
 
 
 
  
  
  
  
  
 
 
 
Individually
  
Collectively
  
  
Individually
  
Collectively
  
 
 
 
Evaluated for
  
Evaluated for
  
  
Evaluated for
  
Evaluated for
  
 
 
 
Impairment
  
Impairment
  
Total
  
Impairment
  
Impairment
  
Total
 
Commercial and Agricultural
 
  
  
  
  
  
 
Commercial
 
$
102
  
$
618
  
$
720
  
$
1,068
  
$
40,772
  
$
41,840
 
Agricultural
  
-
   
300
   
300
   
-
   
18,568
   
18,568
 
 
                        
Real Estate
                        
Commercial Construction
  
1,082
   
792
   
1,874
   
4,812
   
45,368
   
50,180
 
Residential Construction
  
-
   
138
   
138
   
-
   
10,875
   
10,875
 
Commercial
  
772
   
3,220
   
3,992
   
26,204
   
306,691
   
332,895
 
Residential
  
310
   
2,500
   
2,810
   
4,815
   
196,698
   
201,513
 
Farmland
  
-
   
82
   
82
   
963
   
48,212
   
49,175
 
 
                        
Consumer and Other
                        
Consumer
  
-
   
178
   
178
   
-
   
23,548
   
23,548
 
Other
  
-
   
376
   
376
   
-
   
7,169
   
7,169
 
 
                        
Total End of Period Balance
 
$
2,266
  
$
8,204
  
$
10,470
  
$
37,862
  
$
697,901
  
$
735,763
 

June 30, 2013
 
  
  
  
  
  
 
 
 
Ending Allowance Balance
  
Ending Loan Balance
 
 
 
  
  
  
  
  
 
 
 
Individually
  
Collectively
  
  
Individually
  
Collectively
  
 
 
 
Evaluated for
  
Evaluated for
  
  
Evaluated for
  
Evaluated for
  
 
 
 
Impairment
  
Impairment
  
Total
  
Impairment
  
Impairment
  
Total
 
Commercial and Agricultural
 
  
  
  
  
  
 
Commercial
 
$
551
  
$
466
  
$
1,017
  
$
2,388
  
$
48,770
  
$
51,158
 
Agricultural
  
-
   
299
   
299
   
-
   
14,177
   
14,177
 
 
                        
Real Estate
                        
Commercial Construction
  
1,580
   
395
   
1,975
   
10,007
   
42,692
   
52,699
 
Residential Construction
  
-
   
138
   
138
   
-
   
8,189
   
8,189
 
Commercial
  
1,080
   
4,104
   
5,184
   
23,144
   
302,173
   
325,317
 
Residential
  
982
   
2,430
   
3,412
   
6,591
   
201,971
   
208,562
 
Farmland
  
-
   
306
   
306
   
2,277
   
47,521
   
49,798
 
 
                        
Consumer and Other
                        
Consumer
  
-
   
273
   
273
   
-
   
27,439
   
27,439
 
Other
  
-
   
353
   
353
   
-
   
6,804
   
6,804
 
 
                        
Total End of Period Balance
 
$
4,193
  
$
8,764
  
$
12,957
  
$
44,407
  
$
699,736
  
$
744,143