4. Allowance for Loan Losses

6 Months Ended

Jun. 30, 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:

June 30, 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		$	1,191	$	13	$	897		$	3,726			46.60	%	$	1,553	$	2,173
Farmland		(2	)		-		-		-			(2	)		(.02	%)		-		(2	)
Real Estate		400			129		-		79			350			4.38	%		125		225
Multi-Family		-			-		-		-			-						-		-
Commercial Real Estate		777			-		32		(102	)		707			8.84	%		190		517
Home Equity – closed end		157			-		-		(16	)		141			1.76	%		-		141
Home Equity – open end		476			29		-		16			463			5.80	%		-		463
Commercial & Industrial – Non-Real Estate		1,464			385		33		272			1,384			17.31	%		-		1,384
Consumer		156			23		20		14			167			2.08	%		-		167
Dealer Finance		628			34		5		350			949			11.87	%		-		949
Credit Cards		121			25		24		(10	)		110			1.38	%		-		110
Total	$	8,184		$	1,816	$	127	$	1,500		$	7,995			100	%	$	1,868	$	6,127

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			1.90	%		-		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

June 30, 2014	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	64,941	$	15,908	$	49,033
Farmland		12,139		1,452		10,687
Real Estate		157,318		966		156,352
Multi-Family		11,557		-		11,557
Commercial Real Estate		120,929		2,468		118,461
Home Equity – closed end		10,010		-		10,010
Home Equity –open end		47,797		-		47,797
Commercial & Industrial – Non-Real Estate		25,318		276		25,042
Consumer		10,812		-		10,812
Dealer Finance		31,987		-		31,987
Credit Cards		2,498		-		2,498
Total	$	495,306	$	21,070	$	474,236

Recorded Investment in Loan Receivables (in thousands)

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
Total	$	478,453	$	19,713	$	458,740

Aging of Past Due Loans Receivable (in thousands) as of June 30, 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
June 30, 2014
Construction/Land Development	$	489	$	-	$	-	$	5,168	$	5,657	$	59,284	$	64,941
Farmland		85		593		-		-		678		11,461		12,139
Real Estate		3,068		463		77		661		4,269		153,049		157,318
Multi-Family		-		-		-		-		-		11,557		11,557
Commercial Real Estate		1,317		-		-		1,353		2,670		118,259		120,929
Home Equity – closed end		23		13		-		-		36		9,974		10,010
Home Equity – open end		444		-		-		34		478		47,319		47,797
Commercial & Industrial – Non- Real Estate		89		41		-		15		145		25,173		25,318
Consumer		79		46		-		16		141		10,671		10,812
Dealer Finance		148		49		39		15		251		31,736		31,987
Credit Cards		15		5		4		-		24		2,474		2,498
Total	$	5,757	$	1,210	$	120	$	7,262	$	14,349	$	480,957	$	495,306

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 JUNE 30, 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	$	-	$	-	$	5,785	$	22,194	$	10,578	$	2,217	$	24,167	$	-	$	64,941
Farmland		68		-		1,561		3,511		4,857		-		2,142		-		12,139
Real Estate		-		541		63,339		59,173		22,519		7,289		4,457		-		157,318
Multi-Family		-		505		4,430		2,023		4,599				-		-		11,557
Commercial Real Estate		-		1,504		21,080		60,567		24,098		10,969		2,711		-		120,929
Home Equity – closed end		-		-		4,680		3,212		1,961		144		13		-		10,010
Home Equity – open end		-		1,587		12,576		26,853		3,998		1,865		918		-		47,797
Commercial & Industrial (Non-Real Estate)		709		93		4,293		16,604		2,793		728		98		-		25,318
Total	$	777	$	4,230	$	117,744	$	194,137	$	75,403	$	23,212	$	34,506	$	-	$	450,009

Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
	Credit Cards		Consumer
Performing	$	2,494	$	42,729
Non performing		4		70
Total	$	2,498	$	42,799

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.