4. Allowance for Loan Losses

3 Months Ended

Mar. 31, 2016

Allowance For Loan Losses

4. Allowance for Loan Losses

A summary of the allowance for loan losses follows:

March 31, 2016  (in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	4,442	$	-	$	1	$	(686	)	$	3,757	$	2,186	$	1,571
Farmland		95		-		-		(53	)		42		-		42
Real Estate		806		23		4		354			1,141		234		907
Multi-Family		71		-		-		(43	)		28		-		28
Commercial Real Estate		445		-		13		293			751		74		677
Home Equity – closed end		174		1		-		(35	)		138		-		138
Home Equity – open end		634		1		106		252			991		587		404
Commercial & Industrial – Non-Real Estate		1,055		83		2		(46	)		928		27		901
Consumer		108		10		6		9			113		-		113
Dealer Finance		836		69		27		(19	)		775		22		753
Credit Cards		115		25		12		(26	)		76		-		76
Total	$	8,781	$	212	$	171	$	-		$	8,740	$	3,130	$	5,610

December 31, 2015  (in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	4,738	$	156	$	85	$	(225	)	$	4,442	$	2,373	$	2,069
Farmland		-		-		-		95			95		-		95
Real Estate		623		25		37		171			806		238		568
Multi-Family		-		-		-		71			71		-		71
Commercial Real Estate		126		-		65		254			445		18		427
Home Equity – closed end		188		26		6		6			174		-		174
Home Equity – open end		154		51		-		531			634		269		365
Commercial & Industrial – Non-Real Estate		1,211		-		62		(218	)		1,055		-		1,055
Consumer		214		32		32		(106	)		108		-		108
Dealer Finance		1,336		251		24		(273	)		836		17		819
Credit Cards		135		60		46		(6	)		115		-		115
Total	$	8,725	$	601	$	357	$	300		$	8,781	$	2,915	$	5,866

March 31, 2016	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	74,760	$	11,888	$	62,872
Farmland		13,068		-		13,068
Real Estate		168,889		2,011		166,878
Multi-Family		7,458		-		7,458
Commercial Real Estate		129,485		1,373		128,112
Home Equity – closed end		8,823		-		8,823
Home Equity –open end		57,783		2,990		54,793
Commercial & Industrial – Non-Real Estate		28,720		205		28,515
Consumer		8,023		17		8,006
Dealer Finance		57,306		85		57,221
Credit Cards		2,579		-		2,579
Total	$	556,894	$	18,569	$	538,325

Recorded Investment in Loan Receivables (in thousands)

December 31, 2015	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	69,759	$	12,895	$	56,864
Farmland		13,378		-		13,378
Real Estate		166,587		1,421		165,167
Multi-Family		7,559		-		7,559
Commercial Real Estate		128,032		1,197		126,835
Home Equity – closed end		9,135		-		9,135
Home Equity –open end		56,599		2,573		54,026
Commercial & Industrial – Non-Real Estate		27,954		181		27,773
Consumer		8,219		18		8,201
Dealer Finance		54,086		72		54,013
Credit Cards		2,745		-		2,745
Total	$	544,053	$	18,357	$	525,696

Aging of Past Due Loans Receivable (in thousands) as of March 31, 2016

	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, 2016
Construction/Land Development	$	155	$	94	$	52	$	4,870	$	5,171	$	69,589	$	74,760
Farmland		-		-		-		-		-		13,068		13,068
Real Estate		1,255		453		82		922		2,712		166,177		168,889
Multi-Family		-		-		-		-		-		7,458		7,458
Commercial Real Estate		426		-		138		-		564		128,921		129,485
Home Equity – closed end		21		-		3		-		24		8,799		8,823
Home Equity – open end		682		-		47		39		768		57,015		57,783
Commercial & Industrial – Non- Real Estate		109		8		25		217		359		28,361		28,720
Consumer		38		6		4		-		48		7,975		8,023
Dealer Finance		773		238		238		73		1,322		55,984		57,306
Credit Cards		8		2		-		-		10		2,569		2,579
Total	$	3,467	$	801	$	589	$	6,121	$	10,978	$	545,916	$	556,894

 Aging of Past Due Loans Receivable (in thousands) as of December 31, 2015

	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, 2015
Construction/Land Development	$	104	$	-	$	-	$	4,688	$	4,792	$	64,967	$	69,759
Farmland		-		-		-		-		-		13,378		13,378
Real Estate		2,684		1,332		272		1,010		5,298		161,289		166,587
Multi-Family		-		-		-		-		-		7,559		7,559
Commercial Real Estate		340		241		-		-		581		127,451		128,032
Home Equity – closed end		41		7		-		-		48		9,087		9,135
Home Equity – open end		918		46		107		40		1,111		55,488		56,599
Commercial & Industrial – Non- Real Estate		114		3		25		109		251		27,703		27,954
Consumer		120		10		-		-		130		8,089		8,219
Dealer Finance		905		183		152		108		1,348		52,738		54,086
Credit Cards		10		13		15		-		38		2,707		2,745
Total	$	5,236	$	1,835	$	571	$	5,955	$	13,597	$	530,456	$	544,053

CREDIT QUALITY INDICATORS (in thousands)

AS OF MARCH 31, 2016

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	$	-	$	432	$	9,285	$	37,023	$	13,096	$	3,237	$	11,687	$	-	$	74,760
Farmland		66		-		2,565		3,558		4,914		1,965		-		-		13,068
Real Estate		-		1,098		58,650		74,904		23,848		8,316		2,073		-		168,889
Multi-Family		-		371		3,880		3,014		193		-		-		-		7,458
Commercial Real Estate		-		2,022		25,072		76,070		21,252		3,714		1,355		-		129,485
Home Equity – closed end		-		-		3,412		3,690		1,615		103		3		-		8,823
Home Equity – open end		-		1,571		14,737		32,797		4,805		385		3,488		-		57,783
Commercial & Industrial (Non-Real Estate)		1,221		214		7,374		16,984		2,616		66		245		-		28,720
Total	$	1,287	$	5,708	$	124,975	$	248,040	$	72,339	$	17,786	$	18,851	$	-	$	488,986

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,579	$	65,014
Non performing		-		315
Total	$	2,579	$	65,329

CREDIT QUALITY INDICATORS (in thousands)

AS OF DECEMBER 31, 2015

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	$	-	$	485	$	8,410	$	31,783	$	14,260	$	3,216	$	11,605	$	-	$	69,759
Farmland		66		-		2,615		3,768		4,952		1,977		-		-		13,378
Real Estate		-		955		54,400		76,545		23,695		8,334		2,658		-		166,587
Multi-Family		-		391		3,925		3,046		197		-		-		-		7,559
Commercial Real Estate		-		2,087		25,889		74,337		20,271		4,149		1,299		-		128,032
Home Equity – closed end		-		-		3,549		3,792		1,661		114		19		-		9,135
Home Equity – open end		-		1,657		15,043		31,455		4,827		398		3,219		-		56,599
Commercial & Industrial (Non-Real Estate)		896		646		6,423		17,053		2,281		517		138		-		27,954
Total	$	962	$	6,221	$	120,254	$	241,779	$	72,144	$	18,705	$	18,938	$	-	$	479,003

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,730	$	62,046
Non performing		15		259
Total	$	2,745	$	62,305

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.