Note 4 - Allowance for Loan Losses

6 Months Ended

Jun. 30, 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

six

month period ended

June

30,

2017

and

June 30, 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.

June 30, 2017
	Beginning										Ending
	Balance		Charge-Offs			Recoveries		Provision			Balance
Commercial and Agricultural
Commercial	$	456	$	(124	)	$	100	$	(7	)	$	425
Agricultural		168		(4	)		2		72			238
Real Estate
Commercial Construction		323		(49	)		162		334			770
Residential Construction		13		-			-		(2	)		11
Commercial		5,751		(966	)		302		(424	)		4,663
Residential		1,396		(605	)		33		148			972
Farmland		722		-			-		137			859
Consumer and Other
Consumer		80		(117	)		51		70			84
Other		14		-			-		7			21
	$	8,923	$	(1,865	)	$	650	$	335		$	8,043

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

During the

first

quarter of

2017

Company management completed the transition to 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.  As of

June 30, 2017,

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

$431,600.

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

June 30, 2017,

there were

153

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

June 30, 2016,

there were

165

impaired loans totaling

$3.8

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

$13.04

million and

$12.64

million as of

June 30, 2017

and

2016,

respectively. Specific allowance allocations were made for these loans totaling

$1.19

million and

$791

thousand as of

June 30, 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

June 30, 2017

and

2016:

June 30, 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	$	-	$	425	$	425	$	33	$	44,850	$	44,883
Agricultural		-		238		238		5		21,805		21,810
Real Estate
Commercial Construction		4		766		770		72		35,079		35,151
Residential Construction		-		11		11		-		9,230		9,230
Commercial		1,517		3,146		4,663		17,292		338,509		355,801
Residential		20		952		972		2,336		198,236		200,572
Farmland		26		833		859		1,040		69,154		70,194
Consumer and Other
Consumer		-		84		84		-		19,134		19,134
Other		-		21		21		-		18,791		18,791
Total End of Period Balance	$	1,567	$	6,476	$	8,043	$	20,778	$	754,788	$	775,566

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