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Note 5 - Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]
(5
)
Allowance
for
Loan
Losses
 
Changes in the allowance for loan losses for the years ended
December
31
are as follows:
 
 
 
201
6
 
  
2015
    
2014
  
                         
Balance,
Beginning
of
Year
 
$
8,603,905
 
   $
8,802,316
     $
11,805,986
  
                         
Provision for Loan Losses
 
 
1,062,000
 
    
865,500
      
1,308,000
  
Loans Charged Off
 
 
(2,087,850
)
    
(2,083,347
 )    
(5,104,491
 )
Recoveries of Loans Previously Charged Off
 
 
1,345,238
 
    
1,019,436
      
792,821
  
                         
Balance,
End
of
Year
 
$
8,923,293
 
   $
8,603,905
     $
8,802,316
  
 
The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the years ended
December
31.
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.
 
2016
 
Beginning
Balance
 
 
Charge-
O
ffs
 
 
Recoveries
 
 
Provision
 
 
Ending
Balance
 
                                         
Commercial
and
Agricultur
al
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
855,364
 
 
$
(304,918
)
 
$
66,738
 
 
$
(160,987
)
 
$
456,197
 
Agricultural
 
 
203,091
 
 
 
(19,258
)
 
 
4,150
 
 
 
(20,291
)
 
 
167,692
 
                                         
Real
Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
 
 
690,766
 
 
 
(25,318
)
 
 
814,586
 
 
 
(1,157,309
)
 
 
322,725
 
Residential Construction
 
 
19,890
 
 
 
-
 
 
 
-
 
 
 
(6,399
)
 
 
13,491
 
Commercial
 
 
3,850,527
 
 
 
(992,067
)
 
 
206,154
 
 
 
2,686,384
 
 
 
5,750,998
 
Residential
 
 
1,990,355
 
 
 
(361,630
)
 
 
49,660
 
 
 
(282,286
)
 
 
1,396,099
 
Farmland
 
 
911,692
 
 
 
(119,576
)
 
 
145,000
 
 
 
(214,785
)
 
 
722,331
 
                                         
Consumer
and
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
63,377
 
 
 
(265,083
)
 
 
52,629
 
 
 
229,342
 
 
 
80,265
 
Other
 
 
18,843
 
 
 
-
 
 
 
6,321
 
 
 
(11,669
)
 
 
13,495
 
                                         
 
 
$
8,603,905
 
 
$
(2,087,850
)
 
$
1,345,238
 
 
$
1,062,000
 
 
$
8,923,293
 
                                         
2015
                                        
                                         
Commercial
and
Agricultur
al
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
   $
497,561
     $
(454,971
 )   $
52,111
     $
760,663
     $
855,364
  
Agricultural
    
304,172
      
(5,000
 )    
3,600
      
(99,681
 )    
203,091
  
                                         
Real
Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
    
1,222,695
      
(97,698
 )    
485,834
      
(920,065
 )    
690,766
  
Residential Construction
    
138,092
      
-
     
-
     
(118,202
 )    
19,890
  
Commercial
    
3,664,777
      
(275,297
 )    
270,003
      
191,044
      
3,850,527
  
Residential
    
2,425,327
      
(929,668
 )    
109,626
      
385,070
      
1,990,355
  
Farmland
    
103,800
      
(40,000
 )    
20,000
      
827,892
      
911,692
  
                                         
Consumer
and
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
    
66,914
      
(255,062
 )    
61,976
      
189,549
      
63,377
  
Other
    
378,978
      
(25,651
 )    
16,286
      
(350,770
 )    
18,843
  
                                         
    $
8,802,316
     $
(2,083,347
 )   $
1,019,436
     $
865,500
     $
8,603,905
  
 
2014
 
Beginning
Balance
 
 
Charge
-O
ffs
 
 
Recoveries
 
 
Provision
 
 
Ending
Balance
 
                                         
Commercial
and
Agricultur
al
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
   $
1,017,073
     $
(624,944
 )   $
76,002
     $
29,430
     $
497,561
  
Agricultural
    
293,886
      
-
     
2,700
      
7,586
      
304,172
  
                                         
Real
Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
    
1,782,179
      
(1,543,099
 )    
485,005
      
498,610
      
1,222,695
  
Residential Construction
    
138,092
      
-
     
-
     
-
     
138,092
  
Commercial
    
4,379,276
      
(1,326,825
 )    
90,042
      
522,284
      
3,664,777
  
Residential
    
3,278,269
      
(1,033,966
 )    
31,127
      
149,897
      
2,425,327
  
Farmland
    
311,494
      
(233,580
 )    
20,000
      
5,886
      
103,800
  
                                         
Consumer
and
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
    
243,253
      
(342,077
 )    
72,477
      
93,261
      
66,914
  
Other
    
362,464
      
-
     
15,468
      
1,046
      
378,978
  
                                         
    $
11,805,986
     $
(5,104,491
 )   $
792,821
     $
1,308,000
     $
8,802,316
  
 
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. 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
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
December
31,
2016,
this change in the historical loss period resulted in an increase to the allowance for loan losses of
$804,000.
The loss history period used at
December
31,
2015
and
2014
was based on the loss rate from the
eight
quarters ended
September
30,
2015
and
2014,
respectively.
 
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
$1,621,424.
 
During
2014,
management changed its methodology for calculating the allowance for loan losses to better reflect the estimated losses inherent in the portfolio.  Specific changes included:
 
 
●
Reducing the historical loss ratios by including loan loss recoveries in the calculation.  Previously, management included only the loan charge-off amount and did not consider the effect of subsequent recoveries.
 
 
●
Reducing the balance of those loans which are guaranteed by government agencies, such as SBA loans.  Previously, the entire balance of such loans was considered in the calculation of the general reserves; however, beginning in
2014,
only the nonguaranteed portion of these loans is subject to the loss calculation.
 
Management feels these changes better align the calculation of the allowance for loan losses with the direction of the loan portfolio.  These changes did not result in a significant change 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
$10,786,699
and
$11,155,813
as of
December
31,
2016
and
2015,
respectively. Specific allowance allocations were made for these loans totaling
$632,706
and
$276,731
as of
December
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
December
31,
2016,
there were
160
impaired loans totaling
$4,204,156
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
December
31,
2015
and
2014,
impaired loans totaling
$3,744,733
and
$3,885,411,
respectively, 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.
 
 
 
Ending
Allowance
Balance
 
 
Ending
Loan
Balance
 
201
6
 
Individually
Evaluated
for
Impairment
 
 
Collectively
Evaluated
for
Impairment
 
 
Total
 
 
Individually
Evaluated
for
Impairment
 
 
Collectively
Evaluated
for
I
mpairment
 
 
Total
 
                                                 
Commercial
and
Agricultural
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
-
 
 
$
456,197
 
 
$
456,197
 
 
$
6,671
 
 
$
47,018,207
 
 
$
47,024,878
 
Agricultural
 
 
-
 
 
 
167,692
 
 
 
167,692
 
 
 
-
 
 
 
17,079,579
 
 
 
17,079,579
 
                                                 
Real
Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
 
 
21,135
 
 
 
301,590
 
 
 
322,725
 
 
 
72,296
 
 
 
30,286,066
 
 
 
30,358,362
 
Residential Construction
 
 
-
 
 
 
13,491
 
 
 
13,491
 
 
 
-
 
 
 
11,830,447
 
 
 
11,830,447
 
Commercial
 
 
3,021,943
 
 
 
2,729,055
 
 
 
5,750,998
 
 
 
22,422,451
 
 
 
326,667,580
 
 
 
349,090,031
 
Residential
 
 
362,522
 
 
 
1,033,577
 
 
 
1,396,099
 
 
 
2,911,874
 
 
 
192,668,093
 
 
 
195,579,967
 
Farmland
 
 
29,172
 
 
 
693,159
 
 
 
722,331
 
 
 
1,044,047
 
 
 
65,833,150
 
 
 
66,877,197
 
                                                 
Consumer
and
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
-
 
 
 
80,265
 
 
 
80,265
 
 
 
-
 
 
 
19,695,241
 
 
 
19,695,241
 
Other
 
 
-
 
 
 
13,495
 
 
 
13,495
 
 
 
-
 
 
 
16,747,861
 
 
 
16,747,861
 
                                                 
Total
End
of
Year
Balance
 
$
3,434,772
 
 
$
5,488,521
 
 
$
8,923,293
 
 
$
26,457,339
 
 
$
727,826,224
 
 
$
754,283,563
 
 
 
 
Ending Allowance Balance
 
 
Ending Loan Balance
 
2015
 
Individually
Evaluated
for
Impairment
 
 
Collectively
Evaluated
for
Impairment
 
 
Total
 
 
Individually
Evaluated
for
Impairment
 
 
Collectively
Evaluated
for
Impairment
 
 
Total
 
                                                 
Commercial
and
Agricultural
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
   $
94,538
     $
760,826
     $
855,364
     $
122,928
     $
47,658,761
     $
47,781,689
  
Agricultural
    
-
     
203,091
      
203,091
      
8,445
      
19,185,052
      
19,193,497
  
                                                 
Real
Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
    
25,344
      
665,422
      
690,766
      
1,622,560
      
38,484,073
      
40,106,633
  
Residential Construction
    
-
     
19,890
      
19,890
      
-
     
9,413,263
      
9,413,263
  
Commercial
    
1,607,962
      
2,242,565
      
3,850,527
      
23,628,213
      
322,633,820
      
346,262,033
  
Residential
    
308,188
      
1,682,167
      
1,990,355
      
3,597,386
      
193,405,033
      
197,002,419
  
Farmland
    
37,386
      
874,306
      
911,692
      
1,402,939
      
60,376,920
      
61,779,859
  
                                                 
Consumer
and
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
    
-
     
63,377
      
63,377
      
-
     
20,605,465
      
20,605,465
  
Other
    
-
     
18,843
      
18,843
      
-
     
16,490,737
      
16,490,737
  
                                                 
Total
End
of
Year
Balance
   $
2,073,418
     $
6,530,487
     $
8,603,905
     $
30,382,471
     $
728,253,124
     $
758,635,595
  
                                                 
2014
                                                
                                                 
Commercial
and
Agricultural
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
   $
96,580
     $
400,981
     $
497,561
     $
96,580
     $
50,863,685
     $
50,960,265
  
Agricultural
    
-
     
304,172
      
304,172
      
-
     
16,689,444
      
16,689,444
  
                                                 
Real
Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Construction
    
53,947
      
1,168,748
      
1,222,695
      
3,384,377
      
47,874,593
      
51,258,970
  
Residential Construction
    
-
     
138,092
      
138,092
      
-
     
11,220,683
      
11,220,683
  
Commercial
    
456,941
      
3,207,836
      
3,664,777
      
21,693,061
      
310,537,786
      
332,230,847
  
Residential
    
414,684
      
2,010,643
      
2,425,327
      
7,559,965
      
196,192,655
      
203,752,620
  
Farmland
    
28,962
      
74,838
      
103,800
      
1,700,793
      
48,250,191
      
49,950,984
  
                                                 
Consumer
and
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
    
-
     
66,914
      
66,914
      
-
     
22,820,314
      
22,820,314
  
Other
    
-
     
378,978
      
378,978
      
-
     
7,209,682
      
7,209,682
  
                                                 
Total
End
of
Year
Balance
   $
1,051,114
     $
7,751,202
     $
8,802,316
     $
34,434,776
     $
711,659,033
     $
746,093,809