LOANS

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

4. LOANS

Loans are summarized as follows:

	December 31,
(Dollars in thousands)	2013		2012
Commercial Real Estate (CRE):
Other-CRE other than Land
Development and Building Lots	$	257,901	$	290,424
Land Development		20,476		28,310
Building Lots		1,559		2,151
Residential mortgage		99,344		110,025
Consumer and home equity		54,010		57,888
Commercial		20,621		19,931
Indirect consumer		13,041		16,211
		466,952		524,940
Less:
Net deferred loan origination fees		(90)		(105)
Allowance for loan losses		(9,576)		(17,265)
		(9,666)		(17,370)
Net Loans	$	457,286	$	507,570

We utilize eligible real estate loans to collateralize advances and letters of credit from the Federal Home Loan Bank. We had $41 million in residential mortgage loans pledged under this arrangement at December 31, 2013 and $50 million in residential mortgage loans pledged at December 31, 2012.

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ending December 31, 2013, 2012 and 2011:

December 31, 2013			Commercial		Residential		Consumer &		Indirect
	Commercial		Real Estate		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Beginning Balance	$	1,236	$	14,815	$	501	$	442	$	271	$	17,265
Provision for loan losses		(587)		(2,396)		77		32		(212)		(3,086)
Charge-offs		(166)		(4,215)		(318)		(210)		(118)		(5,027)
Recoveries		57		154		32		45		136		424
Total ending allowance balance	$	540	$	8,358	$	292	$	309	$	77	$	9,576

December 31, 2012			Commercial		Residential		Consumer &		Indirect
	Commercial		Real Estate		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Beginning Balance	$	1,422	$	13,830	$	922	$	610	$	397	$	17,181
Provision for loan losses		32		7,114		(333)		59		(75)		6,797
Charge-offs		(313)		(6,295)		(88)		(249)		(219)		(7,164)
Recoveries		95		166		-		22		168		451
Total ending allowance balance	$	1,236	$	14,815	$	501	$	442	$	271	$	17,265

December 31, 2011			Commercial		Residential		Consumer &		Indirect
	Commercial		Real Estate		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Beginning Balance	$	1,657	$	18,753	$	751	$	708	$	796	$	22,665
Provision for loan losses		786		19,798		837		107		(318)		21,210
Allowance associated with probable branch divestiture and probable loan sale		(1)		(5)		(236)		(41)		-		(283)
Charge-offs		(1,093)		(24,987)		(438)		(246)		(188)		(26,952)
Recoveries		73		271		8		82		107		541
Total ending allowance balance	$	1,422	$	13,830	$	922	$	610	$	397	$	17,181

We did not implement any significant changes to our allowance related accounting policies or methodology during the current period.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of December 31, 2013 and 2012:

December 31, 2013			Commercial		Residential		Consumer &		Indirect
	Commercial		Real Estate		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	148	$	2,603	$	3	$	32	$	-	$	2,786
Collectively evaluated for impairment		392		5,755		289		277		77		6,790
Total ending allowance balance	$	540	$	8,358	$	292	$	309	$	77	$	9,576
Loans:
Loans individually evaluated for impairment	$	803	$	32,911	$	3,051	$	546	$	-	$	37,311
Loans collectively evaluated for impairment		19,818		247,025		96,293		53,464		13,041		429,641
Total ending loans balance	$	20,621	$	279,936	$	99,344	$	54,010	$	13,041	$	466,952

December 31, 2012			Commercial		Residential		Consumer &		Indirect
	Commercial		Real Estate		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	252	$	7,593	$	86	$	51	$	-	$	7,982
Collectively evaluated for impairment		984		7,222		415		391		271		9,283
Total ending allowance balance	$	1,236	$	14,815	$	501	$	442	$	271	$	17,265
Loans:
Loans individually evaluated for impairment	$	1,071	$	43,513	$	213	$	188	$	-	$	44,985
Loans collectively evaluated for impairment		18,860		277,372		109,812		57,700		16,211		479,955
Total ending loans balance	$	19,931	$	320,885	$	110,025	$	57,888	$	16,211	$	524,940

The following tables’ present loans individually evaluated for impairment by class of loans as of December 31, 2013, 2012 and 2011. The difference between the unpaid principal balance and recorded investment represents partial write downs/charge offs taken on individual impaired credits. The recorded investment and average recorded investment in loans excludes accrued interest receivable and loan origination fees.

December 31, 2013	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
(Dollars in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	679	$	475	$	-	$	747	$	21	$	21
Commercial Real Estate:
Land Development		2,014		1,989		-		2,898		139		139
Building Lots		477		212		-		212		-		-
Other		25,441		21,864		-		17,934		754		754
Residential Mortgage		3,119		2,992		-		2,368		63		63
Consumer and Home Equity		478		478		-		330		10		10
Indirect Consumer		-		-		-		-		-		-
With an allowance recorded:
Commercial		328		328		148		314		9		9
Commercial Real Estate:
Land Development		2,206		2,206		1,581		2,538		121		121
Building Lots		-		-		-		-		-		-
Other		6,640		6,640		1,021		16,512		694		694
Residential Mortgage		59		59		3		312		8		8
Consumer and Home Equity		68		68		33		229		7		7
Indirect Consumer		-		-		-		-		-		-
Total	$	41,509	$	37,311	$	2,786	$	44,394	$	1,826	$	1,826

December 31, 2012	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
(Dollars in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	588	$	588	$	-	$	1,070	$	39	$	39
Commercial Real Estate:
Land Development		5,595		4,873		-		5,728		237		237
Building Lots		477		212		-		810		14		14
Other		22,121		16,500		-		25,051		961		961
Residential Mortgage		-		-		-		-		-		-
Consumer and Home Equity		-		-		-		-		-		-
Indirect Consumer		-		-		-		-		-		-
With an allowance recorded:
Commercial		483		483		252		564		21		21
Commercial Real Estate:
Land Development		2,674		2,674		899		2,436		101		101
Building Lots		-		-		-		191		3		3
Other		19,254		19,254		6,694		20,075		772		772
Residential Mortgage		213		213		86		1,191		24		24
Consumer and Home Equity		188		188		51		260		6		6
Indirect Consumer		-		-		-		54		1		1
Total	$	51,593	$	44,985	$	7,982	$	57,430	$	2,179	$	2,179

December 31, 2011	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
(Dollars in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	2,154	$	2,154	$	-	$	1,808	$	86	$	86
Commercial Real Estate:
Land Development		12,719		7,124		-		8,336		203		203
Building Lots		3,662		1,305		-		522		2		2
Other		36,475		32,337		-		37,038		1,471		1,471
Residential Mortgage		-		-		-		-		-		-
Consumer and Home Equity		-		-		-		-		-		-
Indirect Consumer		-		-		-		-		-		-
With an allowance recorded:
Commercial		1,076		1,076		410		1,210		57		57
Commercial Real Estate:
Land Development		2,952		2,952		442		8,438		206		206
Building Lots		477		477		265		1,894		6		6
Other		17,518		17,150		2,696		24,697		982		982
Residential Mortgage		1,802		1,681		481		1,648		19		19
Consumer and Home Equity		193		193		109		261		-		-
Indirect Consumer		123		123		39		134		-		-
Total	$	79,151	$	66,572	$	4,442	$	85,986	$	3,032	$	3,032

The following tables present the recorded investment in restructured, nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2013 and 2012.

					Restructured
					Loans Past Due		Loans Past Due
December 31, 2013					Over 90 Days		Over 90 Days		Non-Accrual
	Restructured on		Restructured on		Still		Still		Excluding
(Dollars in thousands)	Non-Accrual Status		Accrual Status		Accruing		Accruing		Restructured
Commercial	$	-	$	178	$	-	$	-	$	421
Commercial Real Estate:
Land Development		-		1,687		-		-		302
Building Lots		-		-		-		-		212
Other		986		17,025		4,780		2,226		6,443
Residential Mortgage		301		-		-		-		1,532
Consumer and Home Equity		23		73		-		-		156
Indirect Consumer		-		-		-		-		30
Total	$	1,310	$	18,963	$	4,780	$	2,226	$	9,096

					Restructured
					Loans Past Due		Loans Past Due
December 31, 2012					Over 90 Days		Over 90 Days		Non-Accrual
	Restructured on		Restructured on		Still		Still		Excluding
(Dollars in thousands)	Non-Accrual Status		Accrual Status		Accruing		Accruing		Restructured
Commercial	$	31	$	221	$	-	$	-	$	562
Commercial Real Estate:
Land Development		675		3,053		-		-		695
Building Lots		-		170		-		-		212
Other		9,047		19,080		-		-		9,356
Residential Mortgage		-		303		-		-		827
Consumer and Home Equity		-		24		-		-		37
Indirect Consumer		-		-		-		-		13
Total	$	9,753	$	22,851	$	-	$	-	$	11,702

The following tables present the aging of the unpaid principal in past due loans as of December 31, 2013 and 2012 by class of loans:

December 31, 2013	30-59		60-89		Greater than
	Days		Days		90 Days		Total		Loans Not
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial	$	-	$	-	$	421	$	421	$	20,200	$	20,621
Commercial Real Estate:
Land Development		-		-		302		302		20,174		20,476
Building Lots		-		-		212		212		1,347		1,559
Other		5,250		6,213		13,442		24,905		232,996		257,901
Residential Mortgage		1,446		511		1,053		3,010		96,334		99,344
Consumer and Home Equity		430		23		117		570		53,440		54,010
Indirect Consumer		211		55		22		288		12,753		13,041
Total	$	7,337	$	6,802	$	15,569	$	29,708	$	437,244	$	466,952

December 31, 2012	30-59		60-89		Greater than
	Days		Days		90 Days		Total		Loans Not
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial	$	-	$	95	$	562	$	657	$	19,274	$	19,931
Commercial Real Estate:
Land Development		361		-		1,228		1,589		26,721		28,310
Building Lots		-		-		212		212		1,939		2,151
Other		1,264		1,239		13,449		15,952		274,472		290,424
Residential Mortgage		3,588		995		827		5,410		104,615		110,025
Consumer and Home Equity		351		255		45		651		57,237		57,888
Indirect Consumer		246		130		13		389		15,822		16,211
Total	$	5,810	$	2,714	$	16,336	$	24,860	$	500,080	$	524,940

Troubled Debt Restructurings:

We have allocated $1.1 million and $3.1 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2013 and December 31, 2012. We are not committed to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring. Specific reserves are generally assessed prior to loans being modified as a TDR, as most of these loans migrate from our internal watch list and have been specifically reserved for as part of our normal reserving methodology.

During the periods ending December 31, 2013 and 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from six months to one year. Modifications involving an extension of the maturity date were for periods ranging from three to six months.

The following tables’ present loans by class modified as troubled debt restructurings that occurred during the years ending December 31, 2013 and 2012:

			Pre-Modification		Post-Modification
December 31, 2013			Outstanding		Outstanding
	Number		Recorded		Recorded
(Dollars in thousands)	of Loans		Investment		Investment
Troubled Debt Restructurings:
Commercial		-	$	-	$	-
Commercial Real Estate:
Land Development		-		-		-
Building Lots		-		-		-
Other		5		3,485		3,485
Residential Mortgage		-		-		-
Consumer and Home Equity		2		73		73
Indirect Consumer		-		-		-
Total		7	$	3,558	$	3,558

			Pre-Modification		Post-Modification
December 31, 2012			Outstanding		Outstanding
	Number		Recorded		Recorded
(Dollars in thousands)	of Loans		Investment		Investment
Troubled Debt Restructurings:
Commercial		2	$	58	$	58
Commercial Real Estate:
Land Development		3		3,727		3,586
Building Lots		2		171		171
Other		6		6,508		6,508
Residential Mortgage		-		-		-
Consumer and Home Equity		-		-		-
Indirect Consumer		-		-		-
Total		13	$	10,464	$	10,323

The troubled debt restructurings described above increased the allowance for loan losses allocated to troubled debt restructurings by $53,000 and $197,000 during the years ending December 31, 2013 and 2012. The troubled debt restructurings described above resulted in charge-offs of $0 and $141,000 during the years ending December 31, 2013 and 2012.

The following tables’ present loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the years ending December 31, 2013 and 2012:

December 31, 2013
	Number		Recorded
(Dollars in thousands)	of Loans		Investment
Troubled Debt Restructurings:
Commercial		-	$	-
Commercial Real Estate:
Land Development		-		-
Building Lots		-		-
Other		1		4,780
Residential Mortgage		-		-
Consumer and Home Equity		-		-
Indirect Consumer		-		-
Total		1	$	4,780

December 31, 2012
	Number		Recorded
(Dollars in thousands)	of Loans		Investment
Troubled Debt Restructurings:
Commercial		-	$	-
Commercial Real Estate:
Land Development		2		2,862
Building Lots		-		-
Other		1		7,531
Residential Mortgage		-		-
Consumer and Home Equity		-		-
Indirect Consumer		-		-
Total		3	$	10,393

For disclosure purposes, a loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

The troubled debt restructurings that subsequently defaulted described above resulted in a reversal of provision for loan losses of $111,000 and increased the allowance for loan losses by $1.6 million during the years ending December 31, 2013 and 2012. The troubled debt restructurings that subsequently defaulted described above resulted in charge offs of $0 and $2.2 million for the years ending December 31, 2013 and 2012.

Credit Quality Indicators:

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes commercial and commercial real estate loans. We also evaluate credit quality on residential mortgage, consumer and home equity and indirect consumer loans based on the aging status and payment activity of the loan. This analysis is performed on a monthly basis. We use the following definitions for risk ratings:

Criticized: Loans classified as criticized have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in our credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: Loans classified as loss are considered non-collectible and their continuance as bankable assets is not warranted.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are included in groups of homogeneous loans. For our residential mortgage, consumer and home equity, and indirect consumer homogeneous loans, we also evaluate credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

As of December 31, 2013 and 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

December 31, 2013
(Dollars in thousands)	Not Rated		Pass		Criticized		Substandard		Doubtful		Loss		Total
Commercial	$	-	$	19,289	$	470	$	862	$	-	$	-	$	20,621
Commercial Real Estate:
Land Development		-		15,484		2,484		2,508		-		-		20,476
Building Lots		-		906		441		212		-		-		1,559
Other		-		213,719		13,920		30,262		-		-		257,901
Residential Mortgage		95,351		-		942		3,051		-		-		99,344
Consumer and Home Equity		53,407		-		72		531		-		-		54,010
Indirect Consumer		12,988		-		-		53		-		-		13,041
Total	$	161,746	$	249,398	$	18,329	$	37,479	$	-	$	-	$	466,952

December 31, 2012
(Dollars in thousands)	Not Rated		Pass		Criticized		Substandard		Doubtful		Loss		Total
Commercial	$	-	$	16,736	$	2,000	$	1,195	$	-	$	-	$	19,931
Commercial Real Estate:
Land Development		-		17,744		3,059		7,507		-		-		28,310
Building Lots		-		1,447		492		212		-		-		2,151
Other		-		235,954		18,297		36,173		-		-		290,424
Residential Mortgage		105,148		-		442		4,435		-		-		110,025
Consumer and Home Equity		56,593		-		569		726		-		-		57,888
Indirect Consumer		16,129		-		10		72		-		-		16,211
Total	$	177,870	$	271,881	$	24,869	$	50,320	$	-	$	-	$	524,940

The following tables present the unpaid principal balance in residential mortgage, consumer and home equity and indirect consumer loans based on payment activity as of December 31, 2013 and 2012:

December 31, 2013	Residential		Consumer &		Indirect
(Dollars in thousands)	Mortgage		Home Equity		Consumer
Performing	$	97,511	$	53,831	$	13,011
Restructured on non-accrual		301		23		-
Non-accrual		1,532		156		30
Total	$	99,344	$	54,010	$	13,041

December 31, 2012	Residential		Consumer &		Indirect
(Dollars in thousands)	Mortgage		Home Equity		Consumer
Performing	$	109,198	$	57,851	$	16,198
Restructured on non-accrual		-		-		-
Non-accrual		827		37		13
Total	$	110,025	$	57,888	$	16,211