4. Allowance for Loan Losses

3 Months Ended

Mar. 31, 2014

Allowance For Loan Losses

4. Allowance for Loan Losses

Note 4. Allowance for Loan Losses

A summary of the allowance for loan losses follows:

March 31, 2014  (in thousands)	Beginning Balance			Charge-offs		Recoveries		Provision			Ending Balance			Percentage of loans in each category to total			Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	4,007		$	671	$	12	$	557		$	3,905			48.76	%	$	1,604	$	2,301
Farmland		(2	)		-		-		-			(2	)		(.03	%)		-		(2	)
Real Estate		400			-		-		(22	)		378			4.72	%		157		221
Multi-Family		-			-		-		-			-						-		-
Commercial Real Estate		777			-		11		(81	)		707			8.82	%		214		493
Home Equity – closed end		157			-		-		(10	)		147			1.84	%		22		125
Home Equity – open end		476			29		-		18			465			5.81	%		12		453
Commercial & Industrial – Non-Real Estate		1,464			242		17		187			1,426			17.80	%		-		1,426
Consumer		156			30		5		(3	)		128			1.60	%		-		128
Dealer Finance		628			-		-		121			749			9.36	%		-		749
Credit Cards		121			14		16		(17	)		106			1.32	%		-		106
Unallocated		-			-		-		-			-			-			-		-
Total	$	8,184		$	986	$	61	$	750		$	8,009			100	%	$	2,009	$	6,000

December 31, 2013  (in thousands)	Beginning Balance			Charge-offs		Recoveries		Provision			Ending Balance			Percentage of loans in each category to total			Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	2,771		$	2,127	$	40	$	3,323		$	4,007			48.96	%	$	1,560	$	2,447
Farmland		(2	)		-		-		-			(2	)		(.03	%)		-		(2	)
Real Estate		924			173		-		(351	)		400			4.89	%		154		246
Multi-Family		(37	)		-		-		37			-			-			-		-
Commercial Real Estate		1,113			201		42		(177	)		777			9.49	%		282		495
Home Equity – closed end		360			159		-		(44	)		157			1.92	%		17		140
Home Equity – open end		659			68		29		(144	)		476			5.82	%		9		467
Commercial & Industrial – Non-Real Estate		2,113			986		127		210			1,464			17.89	%		-		1,464
Consumer		51			173		14		264			156			1.91	%		-		156
Dealer Finance		72			17		-		573			628			7.68	%		-		628
Credit Cards		130			121		28		84			121			1.48	%		-		121
Unallocated		-			-		-		-			-			-			-		-
Total	$	8,154		$	4,025	$	280	$	3,775		$	8,184			100	%	$	2,022	$	6,162

Recorded Investment in Loan Receivables (in thousands)

March 31, 2014	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	70,648	$	18,306	$	52,342
Farmland		12,532		1,457		11,075
Real Estate		155,774		1,084		154,690
Multi-Family		11,693		-		11,693
Commercial Real Estate		116,583		2,504		114,079
Home Equity – closed end		9,451		488		8,963
Home Equity –open end		47,187		100		47,087
Commercial & Industrial – Non-Real Estate		25,953		279		25,674
Consumer		8,847		-		8,847
Dealer Finance		25,253		-		25,253
Credit Cards		2,406		-		2,406
	$	486,327	$	24,218	$	462,108
Total

December 31, 2013	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	68,512	$	14,259	$	54,253
Farmland		13,197		1,459		11,738
Real Estate		154,628		1,194		153,434
Multi-Family		11,797		-		11,797
Commercial Real Estate		113,415		1,969		111,446
Home Equity – closed end		10,228		488		9,740
Home Equity –open end		47,358		100		47,258
Commercial & Industrial – Non-Real Estate		25,903		242		25,661
Consumer		10,163		2		10,161
Dealer Finance		20,572				20,572
Credit Cards		2,680		-		2,680
	$	478,453	$	19,713	$	458,740
Total

Aging of Past Due Loans Receivable (in thousands) as of March 31, 2014

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Non-Accrual Loans		Total Past Due		Current		Total Loan Receivable
March 31, 2014
Construction/Land Development	$	1,073	$	2,374	$	-	$	7,935	$	11,382	$	59,266	$	70,648
Farmland		98		-		-		-		98		12,434		12,532
Real Estate		4,337		646		-		1,291		6,274		149,500		155,774
Multi-Family		-		-		-		-		-		11,693		11,693
Commercial Real Estate		2,268		-		-		1,287		3,555		113,028		116,583
Home Equity – closed end		18		-		-		171		189		9,262		9,451
Home Equity – open end		609		25		10		119		763		46,424		47,187
Commercial & Industrial – Non- Real Estate		1,412		14		-		176		1,602		24,351		25,953
Consumer		153		54		4		-		211		8,636		8,847
Dealer Finance		304		78		58		-		440		24,813		25,253
Credit Cards		6		3		7		-		16		2,390		2,406
Total	$	10,278	$	3,194	$	79	$	10,979	$	24,530	$	461,797	$	486,327

Aging of Past Due Loans Receivable (in thousands) as of December 31, 2013

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Non-Accrual Loans		Total Past Due		Current		Total Loan Receivable
December 31, 2013
Construction/Land Development	$	167	$	735	$	-	$	8,556	$	9,458	$	59,054	$	68,512
Farmland		-		-		-		-		-		13,197		13,197
Real Estate		4,659		920		246		1,407		7,232		147,396		154,628
Multi-Family		107		-		-		-		107		11,690		11,797
Commercial Real Estate		858		-		-		1,474		2,332		111,083		113,415
Home Equity – closed end		122		79		10		180		391		9,837		10,228
Home Equity – open end		549		39		51		222		861		46,497		47,358
Commercial & Industrial – Non- Real Estate		148		20		4		416		588		25,315		25,903
Consumer		169		71		5		-		245		9,918		10,163
Dealer Finance		335		72		11		-		418		20,154		20,572
Credit Cards		21		3		-		-		24		2,656		2,680
Total	$	7,135	$	1,939	$	327	$	12,255	$	21,656	$	456,797	$	478,453

CREDIT QUALITY INDICATORS (in thousands)

AS OF MARCH 31, 2014

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	-	$	5,734	$	25,374	$	11,206	$	1,257	$	27,077	$	-	$	70,648
Farmland		68		-		1,358		4,103		5,449		-		1,554		-		12,532
Real Estate		-		555		68,256		52,815		19,864		6,066		8,218		-		155,774
Multi-Family		-		649		4,382		2,041		4,621				-		-		11,693
Commercial Real Estate		-		1,554		23,899		56,142		20,577		12,241		2,170		-		116,583
Home Equity – closed end		-		-		4,483		3,064		1,418		246		240		-		9,451
Home Equity – open end		-		1,574		12,861		26,189		5,756		306		501		-		47,187
Commercial & Industrial (Non-Real Estate)		777		120		4,272		15,165		2,936		2,454		229		-		25,953
Total	$	845	$	4,452	$	125,245	$	184,893	$	71,827	$	22,570	$	39,989	$	-	$	449,821

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,399	$	34,038
Non performing		7		62
Total	$	2,406	$	34,100

CREDIT QUALITY INDICATORS (in thousands)

AS OF DECEMBER 31, 2013

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	-	$	3,166	$	25,657	$	11,116	$	2,946	$	25,627	$	-	$	68,512
Farmland		69		-		1,406		5,206		4,816		143		1,557		-		13,197
Real Estate		-		562		68,241		52,190		19,037		7,821		6,777		-		154,628
Multi-Family		-		668		4,442		2,275		4,412		-		-		-		11,797
Commercial Real Estate		-		1,897		18,062		55,350		21,677		13,406		3,023		-		113,415
Home Equity – closed end		-		-		4,574		3,117		1,870		281		386		-		10,228
Home Equity – open end		-		1,482		13,308		26,734		4,840		327		667		-		47,358
Commercial & Industrial (Non-Real Estate)		815		92		3,631		16,265		3,108		1,516		476		-		25,903
Total	$	884	$	4,701	$	116,830	$	186,794	$	70,876	$	26,440	$	38,513	$	-	$	445,038

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,680	$	30,719
Non performing		-		16
Total	$	2,680	$	30,735

Description of loan grades:

Grade 1 – Minimal Risk:   Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.

Grade 2 – Modest Risk:  Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.

Grade 3 – Average Risk:  Borrower generates sufficient cash flow to fund debt service.  Employment (or business) is stable with good future trends.  Credit is very good.

Grade 4 – Acceptable Risk:  Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must by covered through additional long term debt.  Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.

Grade 5 – Marginally acceptable:  Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable.  Employment or business stability may be weak or deteriorating.  May be currently performing as agreed, but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects.  Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.

Grade 6 – Watch:  Loans are currently protected, but are weak due to negative balance sheet or income statement trends.  There may be a lack of effective control over collateral or the existence of documentation deficiencies.  These loans have potential weaknesses that deserve management’s close attention.  Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness.  Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable.  Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt.  Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

Grade 8 – Doubtful:  The loan has all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety.  Cash flow is insufficient to service the debt.  It may be difficult to project the exact amount of loss, but the probability of some loss is great.  Loans are to be placed on non-accrual status when any portion is classified doubtful.