LOANS

3 Months Ended

Mar. 31, 2014

Receivables [Abstract]

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

4. LOANS

Loans are summarized as follows:

	March 31,		December 31,
(Dollars in thousands)	2014		2013
Commercial Real Estate:
Other	$	252,623	$	257,901
Land Development		19,204		20,476
Building Lots		1,515		1,559
Residential mortgage		99,887		99,344
Consumer and home equity		51,526		54,010
Commercial		21,695		20,621
Indirect consumer		12,817		13,041
		459,267		466,952
Less:
Net deferred loan origination fees		(110)		(90)
Allowance for loan losses		(9,608)		(9,576)
		(9,718)		(9,666)
Net Loans	$	449,549	$	457,286

The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ending March 31, 2014 and 2013:

March 31, 2014			Commercial		Residential		Consumer &		Indirect
	Commercial		Real Estate		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Beginning Balance	$	540	$	8,358	$	292	$	309	$	77	$	9,576
Provision for loan losses		-		-		-		-		-		-
Charge-offs		-		(34)		(4)		(8)		(34)		(80)
Recoveries		9		54		3		16		30		112
Total ending allowance balance	$	549	$	8,378	$	291	$	317	$	73	$	9,608

March 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		(262)		(614)		(130)		37		(68)		(1,037)
Charge-offs		(94)		(391)		-		(47)		(16)		(548)
Recoveries		34		56		-		6		36		132
Total ending allowance balance	$	914	$	13,866	$	371	$	438	$	223	$	15,812

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

The following table presents 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 March 31, 2014 and 2013 and December 31, 2013:

March 31, 2014			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	$	144	$	2,730	$	3	$	32	$	-	$	2,909
Collectively evaluated for impairment		405		5,648		288		285		73		6,699
Total ending allowance balance	$	549	$	8,378	$	291	$	317	$	73	$	9,608
Loans:
Loans individually evaluated for impairment	$	799	$	32,631	$	3,051	$	470	$	-	$	36,951
Loans collectively evaluated for impairment		20,896		240,711		96,836		51,056		12,817		422,316
Total ending loans balance	$	21,695	$	273,342	$	99,887	$	51,526	$	12,817	$	459,267

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

March 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	$	192	$	6,439	$	55	$	91	$	-	$	6,777
Collectively evaluated for impairment		722		7,427		316		347		223		9,035
Total ending allowance balance	$	914	$	13,866	$	371	$	438	$	223	$	15,812
Loans:
Loans individually evaluated for impairment	$	865	$	36,495	$	3,703	$	775	$	-	$	41,838
Loans collectively evaluated for impairment		16,165		274,186		105,513		54,495		13,813		464,172
Total ending loans balance	$	17,030	$	310,681	$	109,216	$	55,270	$	13,813	$	506,010

The following tables’ present loans individually evaluated for impairment by class of loans as of March 31, 2014 and 2013 and December 31, 2013. 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.

March 31, 2014	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	$	681	$	477	$	-	$	476	$	3	$	3
Commercial Real Estate:
Land Development		1,439		1,439		-		1,714		21		21
Building Lots		477		212		-		212		-		-
Other		22,551		21,262		-		21,563		203		203
Residential Mortgage		3,099		2,992		-		2,992		19		19
Consumer and Home Equity		428		402		-		440		3		3
Indirect Consumer		-		-		-		-		-		-
With an allowance recorded:
Commercial		322		322		144		325		2		2
Commercial Real Estate:
Land Development		2,206		2,206		1,581		2,206		26		26
Building Lots		-		-		-		-		-		-
Other		9,707		7,512		1,149		7,076		67		67
Residential Mortgage		59		59		3		59		-		-
Consumer and Home Equity		68		68		32		68		1		1
Indirect Consumer		-		-		-		-		-		-
Total	$	41,037	$	36,951	$	2,909	$	37,131	$	345	$	345

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		1,022		16,512		694		694
Residential Mortgage		59		59		3		312		8		8
Consumer and Home Equity		68		68		32		229		7		7
Indirect Consumer		-		-		-		-		-		-
Total	$	41,509	$	37,311	$	2,786	$	44,394	$	1,826	$	1,826

March 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	$	878	$	672	$	-	$	630	$	4	$	4
Commercial Real Estate:
Land Development		3,868		3,120		-		3,997		49		49
Building Lots		477		212		-		212		-		-
Other		11,425		10,189		-		13,345		132		132
Residential Mortgage		3,382		3,382		-		1,691		9		9
Consumer and Home Equity		419		419		-		210		2		2
Indirect Consumer		-		-		-		-		-		-
With an allowance recorded:
Commercial		193		193		192		338		2		2
Commercial Real Estate:
Land Development		2,674		2,674		899		2,674		32		32
Building Lots		-		-		-		-		-		-
Other		22,395		20,301		5,540		19,778		202		202
Residential Mortgage		321		321		55		267		1		1
Consumer and Home Equity		355		355		91		272		2		2
Indirect Consumer		-		-		-		-		-		-
Total	$	46,387	$	41,838	$	6,777	$	43,414	$	435	$	435

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 March 31, 2014 and December 31, 2013.

					Restructured
					Loans Past Due		Loans Past Due
March 31, 2014					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	$	-	$	168	$	-	$	-	$	368
Commercial Real Estate:
Land Development		-		1,439		-		-		-
Building Lots		-		-		-		-		212
Other		978		21,272		-		-		5,945
Residential Mortgage		192		107		-		-		994
Consumer and Home Equity		-		72		-		-		161
Indirect Consumer		-		-		-		-		8
Total	$	1,170	$	23,058	$	-	$	-	$	7,688

					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

The following tables present the aging of the unpaid principal in past due loans as of March 31, 2014 and December 31, 2013 by class of loans:

March 31, 2014	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	$	9	$	-	$	368	$	377	$	21,318	$	21,695
Commercial Real Estate:
Land Development		-		-		2,206		2,206		16,998		19,204
Building Lots		-		-		212		212		1,303		1,515
Other		4,072		4,937		4,714		13,723		238,900		252,623
Residential Mortgage		385		983		795		2,163		97,724		99,887
Consumer and Home Equity		395		37		98		530		50,996		51,526
Indirect Consumer		123		26		6		155		12,662		12,817
Total	$	4,984	$	5,983	$	8,399	$	19,366	$	439,901	$	459,267

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		-		-		2,508		2,508		17,968		20,476
Building Lots		-		-		212		212		1,347		1,559
Other		5,250		6,213		11,236		22,699		235,202		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

Troubled Debt Restructurings:

We have allocated $1.0 million and $1.1 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2014 and December 31, 2013. 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 period ending March 31, 2014, no new loans were modified as troubled debt restructurings. Prior to the 2014 period, the terms of certain loans were modified as troubled debt restructurings and 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 table presents loans by class modified as troubled debt restructurings that occurred during the periods ending March 31, 2014 and 2013:

	Three Months Ended					Three Months Ended
	March 31, 2014					March 31, 2013
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number	Recorded		Recorded		Number	Recorded		Recorded
(Dollars in thousands)	of Loans	Investment		Investment		of Loans	Investment		Investment
Troubled Debt Restructurings:
Commercial	-	$	-	$	-	-	$	-	$	-
Commercial Real Estate:
Land Development	-		-		-	-		-		-
Building Lots	-		-		-	-		-		-
Other	-		-		-	3		2,154		2,154
Real Estate Construction	-		-		-	-		-		-
Residential Mortgage	-		-		-	-		-		-
Consumer and Home Equity	-		-		-	1		24		24
Indirect Consumer	-		-		-	-		-		-
Total	-	$	-	$	-	4	$	2,178	$	2,178

The troubled debt restructurings described above increased the allowance for loan losses allocated to troubled debt restructurings by $0 and $63,000 for the three months ended March 31, 2014 and 2013. Typically, these loans had allocated allowance prior to their formal modification. There were no charge-offs recorded on the troubled debt restructurings described above for the 2014 and 2013 periods.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the periods ending March 31, 2014 and 2013:

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31, 2013
	Number	Recorded		Number	Recorded
(Dollars in thousands)	of Loans	Investment		of Loans	Investment
Troubled Debt Restructurings:
Commercial	-	$	-	-	$	-
Commercial Real Estate:
Land Development	-		-	-		-
Building Lots	-		-	-		-
Other	-		-	-		-
Real Estate Construction	-		-	-		-
Residential Mortgage	-		-	-		-
Consumer and Home Equity	-		-	-		-
Indirect Consumer	-		-	-		-
Total	-	$	-	-	$	-

For disclosure purposes, a loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

We did not have any troubled debt restructurings for which there was a payment default within twelve months following the modification during the periods ending March 31, 2014 and 2013.

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 March 31, 2014and December 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

March 31, 2014
(Dollars in thousands)	Not Rated		Pass		Criticized		Substandard		Doubtful		Loss		Total
Commercial	$	-	$	20,429	$	466	$	800	$	-	$	-	$	21,695
Commercial Real Estate:
Land Development		-		14,762		2,236		2,206		-		-		19,204
Building Lots		-		882		421		212		-		-		1,515
Other		-		210,788		14,352		27,483		-		-		252,623
Residential Mortgage		95,753		-		1,035		3,099		-		-		99,887
Consumer and Home Equity		50,903		-		104		519		-		-		51,526
Indirect Consumer		12,783		-		-		34		-		-		12,817
Total	$	159,439	$	246,861	$	18,614	$	34,353	$	-	$	-	$	459,267

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

The following table presents the unpaid principal balance in residential mortgage, consumer and home equity and indirect consumer loans based on payment activity as of March 31, 2014 and December 31, 2013:

March 31, 2014		Residential		Consumer &		Indirect
(Dollars in thousands)		Mortgage		Home Equity		Consumer
Performing	$	98,701	$	51,365	$	12,809
Restructured on non-accrual		192		-		-
Non-accrual		994		161		8
Total	$	99,887	$	51,526	$	12,817

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