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Note 4 - Allowance for Loan Losses
 3 Months Ended
Mar. 31, 2016
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]
(
4
) Allowance for Loan Losses
 
The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the three month period ended March 31, 2016 and March 31, 2015. 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.
 
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending
 
 
 
Balance
 
 
Charge-Offs
 
 
Recoveries
 
 
Provision
 
 
Balance
 
                                         
Commercial and Agricultural
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
855
 
 
$
(169
)
 
$
12
 
 
$
(144
)
 
$
554
 
Agricultural
 
 
203
 
 
 
(22
)
 
 
1
 
 
 
10
 
 
 
192
 
                                         
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
 
 
691
 
 
 
-
 
 
 
804
 
 
 
(685
)
 
 
810
 
Residential Construction
 
 
20
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
20
 
Commercial
 
 
3,851
 
 
 
(248
)
 
 
168
 
 
 
1,475
 
 
 
5,246
 
Residential
 
 
1,990
 
 
 
(63
)
 
 
14
 
 
 
(136
)
 
 
1,805
 
Farmland
 
 
912
 
 
 
-
 
 
 
125
 
 
 
(234
)
 
 
803
 
                                         
Consumer and Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
63
 
 
 
(49
)
 
 
15
 
 
 
72
 
 
 
101
 
Other
 
 
19
 
 
 
-
 
 
 
3
 
 
 
(4
)
 
 
18
 
                                         
 
 
$
8,604
 
 
$
(551
)
 
$
1,142
 
 
$
354
 
 
$
9,549
 
 
 
 
 
March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending
 
 
 
Balance
 
 
Charge-Offs
 
 
Recoveries
 
 
Provision
 
 
Balance
 
                                         
Commercial and Agricultural
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
   $ 497     $ (184 )   $ 13     $ 8     $ 334  
Agricultural
     304       -       1       2       307  
                                         
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
     1,223       (6 )     14       138       1,369  
Residential Construction
     138       -       -       -       138  
Commercial
     3,665       (125 )     88       144       3,772  
Residential
     2,425       (589 )     22       42       1,900  
Farmland
     104       -       -       2       106  
                                         
Consumer and Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
    67       (36 )     13       26       70  
Other
     379       -       2       -       381  
                                         
    $ 8,802     $ (940 )   $ 153     $ 362     $ 8,377  
 
The loss history period used at March 31, 2016 was based on the loss rate from the twelve quarters ended December 31, 2015.
 
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.
 
A change in the method of calculation since March 31, 2015 and since year end 2015 was made.  The historical losses period was increased from 8 quarters to 12 quarters.  Management believes the 12 quarter period includes loss history that will be more indicative of incurred losses than 8 quarters.  In more recent quarters, recoveries have exceeded ongoing expectations, and losses have moderated significantly as problem loans made several years ago have been worked out.  The result is that net charge-offs have become lower than ongoing expectations.  This change in the historical losses period from 8 quarters to 12 quarters increased the ALLL calculation for call code segments by $718. The Company’s allowance for loan losses consists of specific valuation allowances established for probable losses on specific loans and historical valuation allowances for other loans with similar risk characteristics. Effective with the quarter ended June 30, 2015, the calculation of the amount needed in the Allowance for Loan Losses changed. Management determined that the segmentation method for the ASC 450-20 portion of the loan portfolio should be changed to bank call report categories. Prior to this change, the ASC 450-20 segmentation categorized loans by various non-owner occupied commercial real estate loan types and risk grades for the remainder of the ASC 450-20 portion of the portfolio. On the date of change, June 30, 2015, the change in methodology resulted in an increase to the calculated allowance for loan loss reserve of $1,621; however, no additional provisions were required to be recorded as a result of the change.
 
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 $17.84 million and $7.2 million as of March 31, 2016 and 2015, respectively. Specific allowance allocations were made for these loans totaling $1.17 million and $596 thousand as of March 31, 2016 and 2015, 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 March 31, 2016, there were 156 impaired loans totaling $3.6 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 March 31, 2015, impaired loans totaling $4.4 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 March 31, 2016 and 2015:
 
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
4
 
 
$
550
 
 
$
554
 
 
$
37
 
 
$
45,078
 
 
$
45,115
 
Agricultural
 
 
-
 
 
 
192
 
 
 
192
 
 
 
-
 
 
 
18,562
 
 
 
18,562
 
                                                 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
 
 
24
 
 
 
786
 
 
 
810
 
 
 
389
 
 
 
35,581
 
 
 
35,970
 
Residential Construction
 
 
-
 
 
 
20
 
 
 
20
 
 
 
-
 
 
 
9,849
 
 
 
9,849
 
Commercial
 
 
1,940
 
 
 
3,306
 
 
 
5,246
 
 
 
16,918
 
 
 
330,454
 
 
 
347,372
 
Residential
 
 
528
 
 
 
1,277
 
 
 
1,805
 
 
 
3,370
 
 
 
192,309
 
 
 
195,679
 
Farmland
 
 
35
 
 
 
768
 
 
 
803
 
 
 
1,401
 
 
 
64,884
 
 
 
66,285
 
                                                 
Consumer and Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
-
 
 
 
101
 
 
 
101
 
 
 
-
 
 
 
19,661
 
 
 
19,661
 
Other
 
 
-
 
 
 
18
 
 
 
18
 
 
 
-
 
 
 
15,768
 
 
 
15,768
 
                                                 
Total End of Period Balance
 
$
2,531
 
 
$
7,018
 
 
$
9,549
 
 
$
22,115
 
 
$
732,146
 
 
$
754,261
 
 
March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
   $ 94     $ 240     $ 334     $ 94     $ 51,680     $ 51,774  
Agricultural
     -       307       307       8       19,180       19,188  
                                                 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
     49       1,320       1,369       3,428       45,183       48,611  
Residential Construction
     -       138       138       -       10,030       10,030  
Commercial
     209       3,563       3,772       21,953       319,892       341,845  
Residential
     330       1,570       1,900       3,680       199,198       202,878  
Farmland
     53       53       106       1,699       49,873       51,572  
                                                 
Consumer and Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
     -       70       70       -       21,705       21,705  
Other
     -       381       381       -       6,031       6,031  
                                                 
Total End of Period Balance
   $ 735     $ 7,642     $ 8,377     $ 30,862     $ 722,772     $ 753,634