Note 4 - Allowance for Loan Losses

3 Months Ended

Mar. 31, 2017

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,

2017

and

March

31,

2016.

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, 2017
	Beginning										Ending
	Balance		Charge-Offs			Recoveries		Provision			Balance
Commercial and Agricultural
Commercial	$	456	$	(4	)	$	79	$	(128	)	$	403
Agricultural		168		-			1		20			189
Real Estate
Commercial Construction		323		-			162		(183	)		302
Residential Construction		13		-			-		(3	)		10
Commercial		5,751		(852	)		247		773			5,919
Residential		1,396		(15	)		15		(160	)		1,236
Farmland		722		-			-		(13	)		709
Consumer and Other
Consumer		80		(46	)		19		28			81
Other		14		-			-		1			15
	$	8,923	$	(917	)	$	523	$	335		$	8,864

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

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 was completed in the

first

quarter of

2017.

  As of

March

31,

2017,

this change in the historical loss period resulted in an increase to the allowance for loan losses of

$575,000.

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.

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

March

31,

2017,

there were

161

impaired loans totaling

$4.3

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,

2016,

there were

156

impaired loans totaling

$3.6

million which 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.

Since not all loans in the substandard category are considered impaired, this quarterly review process

may

result in the identification of specific reserves on unimpaired 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

$10.16

million and

$17.84

million as of

March

31,

2017

and

2016,

respectively. Specific allowance allocations were made for these loans totaling

$802

thousand and

$1.17

million as of

March

31,

2017

and

2016,

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 following tables present breakdowns of the allowance for loan losses, segregated by impairment methodology for

March

31,

2017

and

2016:

March 31, 2017
	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	$	-	$	403	$	403	$	-	$	44,925	$	44,925
Agricultural		-		189		189		5		19,301		19,306
Real Estate
Commercial Construction		21		281		302		72		30,468		30,540
Residential Construction		-		10		10		-		9,367		9,367
Commercial		3,051		2,868		5,919		19,865		339,278		359,143
Residential		340		896		1,236		3,102		192,180		195,282
Farmland		27		682		709		1,042		63,828		64,870
Consumer and Other
Consumer		-		81		81		-		19,188		19,188
Other		-		15		15		-		17,720		17,720
Total End of Period Balance	$	3,439	$	5,425	$	8,864	$	24,086	$	736,255	$	760,341

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