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Note 4 - Allowance for Loan Losses
 6 Months Ended
Jun. 30, 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 six month period ended June 30, 2016 and June 30, 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.
 
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending
 
 
 
Balance
 
 
Charge-Offs
 
 
Recoveries
 
 
Provision
 
 
Balance
 
                                         
Commercial and Agricultural
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
855
 
 
$
(225
)
 
$
25
 
 
$
(100
)
 
$
555
 
Agricultural
 
 
203
 
 
 
(18
)
 
 
2
 
 
 
64
 
 
 
251
 
                                         
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
 
 
691
 
 
 
(25
)
 
 
804
 
 
 
(1,032
)
 
 
438
 
Residential Construction
 
 
20
 
 
 
-
 
 
 
-
 
 
 
(2
)
 
 
18
 
Commercial
 
 
3,851
 
 
 
(569
)
 
 
180
 
 
 
2,136
 
 
 
5,598
 
Residential
 
 
1,990
 
 
 
(159
)
 
 
23
 
 
 
(242
)
 
 
1,612
 
Farmland
 
 
912
 
 
 
-
 
 
 
125
 
 
 
(241
)
 
 
796
 
                                         
Consumer and Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
63
 
 
 
(111
)
 
 
21
 
 
 
123
 
 
 
96
 
Other
 
 
19
 
 
 
-
 
 
 
5
 
 
 
2
 
 
 
26
 
                                         
 
 
$
8,604
 
 
$
(1,107
)
 
$
1,185
 
 
$
708
 
 
$
9,390
 
 
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending
 
 
 
Balance
 
 
Charge-Offs
 
 
Recoveries
 
 
Provision
 
 
Balance
 
                                         
Commercial and Agricultural
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
   $ 497     $ (185 )   $ 23     $ 11     $ 346  
Agricultural
     304       -       2       3       309  
                                         
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
     1,223       (96 )     272       187       1,586  
Residential Construction
     138       -       -       -       138  
Commercial
     3,665       (166 )     128       195       3,822  
Residential
     2,425       (744 )     35       57       1,773  
Farmland
     104       -       -       2       106  
                                         
Consumer and Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
    67       (90 )     30       35       42  
Other
     379       (25 )     3       1       358  
                                         
    $ 8,802     $ (1,306 )   $ 493     $ 491     $ 8,480  
 
For the year ended December 31, 2015 the Company’s historical loss ratio within the ALLL calculation was based on a rolling 8 quarter historical loss period.  During the first quarter of 2016 Company management implemented a change to its allowance for loan loss methodology by expanding the historical loss period from a rolling 8 quarters to a rolling 16 quarters.  Management believes the longer historical loss period better reflects the current and expected loss behavior of the loan portfolio within the current credit cycle.  The transition to a rolling 16 quarter loss period will be complete in the first quarter of 2017.  As of June 30, 2016, this change in the historical loss period resulted in an increase to the allowance for loan losses of $669,000.
 
Management continually evaluates the allowance for loan losses methodology seeking to refine and enhance this process as appropriate, and it is likely that the methodology will continue to evolve over time.
 
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 $12.64 million and $8.6 million as of June 30, 2016 and 2015, respectively. Specific allowance allocations were made for these loans totaling $791 thousand and $569 thousand as of June 30, 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.
 
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. At June 30, 2016, there were 165 impaired loans totaling $3.8 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, 2015, there were 156 impaired loans totaling $4.3 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, 2016 and 2015:
 
June 30, 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
 
$
-
 
 
$
555
 
 
$
555
 
 
$
9
 
 
$
47,925
 
 
$
47,934
 
Agricultural
 
 
-
 
 
 
251
 
 
 
251
 
 
 
-
 
 
 
24,307
 
 
 
24,307
 
                                                 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
 
 
22
 
 
 
416
 
 
 
438
 
 
 
384
 
 
 
31,908
 
 
 
32,292
 
Residential Construction
 
 
-
 
 
 
18
 
 
 
18
 
 
 
-
 
 
 
9,141
 
 
 
9,141
 
Commercial
 
 
2,886
 
 
 
2,712
 
 
 
5,598
 
 
 
17,463
 
 
 
327,718
 
 
 
345,181
 
Residential
 
 
440
 
 
 
1,172
 
 
 
1,612
 
 
 
3,609
 
 
 
192,531
 
 
 
196,140
 
Farmland
 
 
33
 
 
 
763
 
 
 
796
 
 
 
1,048
 
 
 
69,089
 
 
 
70,137
 
                                                 
Consumer and Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
-
 
 
 
96
 
 
 
96
 
 
 
-
 
 
 
19,936
 
 
 
19,936
 
Other
 
 
-
 
 
 
26
 
 
 
26
 
 
 
-
 
 
 
19,141
 
 
 
19,141
 
                                                 
Total End of Period Balance
 
$
3,381
 
 
$
6,009
 
 
$
9,390
 
 
$
22,513
 
 
$
741,696
 
 
$
764,209
 
 
 
June 30, 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
   $ 92     $ 254     $ 346     $ 91     $ 52,415     $ 52,506  
Agricultural
     -       309       309       8       24,011       24,019  
                                                 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
     18       1,568       1,586       3,313       43,386       46,699  
Residential Construction
     -       138       138       -       11,327       11,327  
Commercial
     278       3,544       3,822       20,537       320,630       341,167  
Residential
     320       1,453       1,773       3,432       199,373       202,805  
Farmland
     59       47       106       1,697       52,438       54,135  
                                                 
Consumer and Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
     -       42       42       -       21,371       21,371  
Other
     -       358       358       -       6,049       6,049  
                                                 
Total End of Period Balance
   $ 767     $ 7,713     $ 8,480     $ 29,078     $ 731,000     $ 760,078