LOANS

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

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

4. LOANS

Loans are summarized as follows:

	June 30,		December 31,
(Dollars in thousands)	2014		2013
Commercial Real Estate:
Other	$	249,727	$	257,901
Land Development		16,636		20,476
Building Lots		1,480		1,559
Residential mortgage		98,566		99,344
Consumer and home equity		51,473		54,010
Commercial		24,479		20,621
Indirect consumer		13,075		13,041
		455,436		466,952
Less:
Net deferred loan origination fees		(67)		(90)
Allowance for loan losses		(9,538)		(9,576)
		(9,605)		(9,666)
Net Loans	$	445,831	$	457,286

The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ending June 30, 2014 and 2013:

Three Months Ended
June 30, 2014			Commercial		Residential		Consumer &		Indirect
	Commercial		Real Estate		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Beginning Balance	$	549	$	8,378	$	291	$	317	$	73	$	9,608
Provision for loan losses		38		120		-		(20)		(38)		100
Charge-offs		-		(268)		(15)		(16)		(10)		(309)
Recoveries		25		58		12		15		29		139
Total ending allowance balance	$	612	$	8,288	$	288	$	296	$	54	$	9,538

Six Months Ended
June 30, 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		38		120		-		(20)		(38)		100
Charge-offs		-		(302)		(19)		(24)		(44)		(389)
Recoveries		34		112		15		31		59		251
Total ending allowance balance	$	612	$	8,288	$	288	$	296	$	54	$	9,538

Three Months Ended
June 30, 2013			Commercial		Residential		Consumer &		Indirect
	Commercial		Real Estate		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Beginning Balance	$	914	$	13,866	$	371	$	438	$	223	$	15,812
Provision for loan losses		(10)		229		-		(14)		7		212
Charge-offs		-		(61)		-		(51)		(41)		(153)
Recoveries		4		20		4		23		25		76
Total ending allowance balance	$	908	$	14,054	$	375	$	396	$	214	$	15,947

Six Months Ended
June 30, 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		(272)		(385)		(130)		23		(61)		(825)
Charge-offs		(94)		(452)		-		(98)		(57)		(701)
Recoveries		38		76		4		29		61		208
Total ending allowance balance	$	908	$	14,054	$	375	$	396	$	214	$	15,947

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 June 30, 2014 and 2013 and December 31, 2013:

June 30, 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	$	139	$	3,014	$	4	$	2	$	-	$	3,159
Collectively evaluated for impairment		473		5,274		284		294		54		6,379
Total ending allowance balance	$	612	$	8,288	$	288	$	296	$	54	$	9,538
Loans:
Loans individually evaluated for impairment	$	724	$	30,097	$	2,625	$	401	$	-	$	33,847
Loans collectively evaluated for impairment		23,755		237,746		95,941		51,072		13,075		421,589
Total ending loans balance	$	24,479	$	267,843	$	98,566	$	51,473	$	13,075	$	455,436

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

June 30, 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	$	184	$	6,851	$	31	$	81	$	-	$	7,147
Collectively evaluated for impairment		724		7,203		344		315		214		8,800
Total ending allowance balance	$	908	$	14,054	$	375	$	396	$	214	$	15,947
Loans:
Loans individually evaluated for impairment	$	1,213	$	35,731	$	3,418	$	664	$	-	$	41,026
Loans collectively evaluated for impairment		15,817		268,097		98,863		53,785		13,087		449,649
Total ending loans balance	$	17,030	$	303,828	$	102,281	$	54,449	$	13,087	$	490,675

The following tables’ present loans individually evaluated for impairment by class of loans as of June 30, 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.

							Three Months Ended						Six Months Ended
							June 30, 2014						June 30, 2014
June 30, 2014	Unpaid				Allowance for		Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest		Recorded		Income		Interest
(Dollars in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	622	$	410	$	-	$	444	$	3	$	3	$	454	$	6	$	6
Commercial Real Estate:
Land Development		1,325		1,325		-		1,382		7		7		1,584		15		15
Building Lots		477		212		-		212		-		-		212		-		-
Other		23,462		19,464		-		20,363		190		190		20,863		403		403
Residential Mortgage		2,558		2,468		-		2,730		18		18		2,817		35		35
Consumer and Home Equity		420		380		-		391		4		4		420		7		7
Indirect Consumer		-		-		-		-		-		-		-		-		-
With an allowance recorded:
Commercial		314		314		139		318		2		2		321		4		4
Commercial Real Estate:
Land Development		2,206		2,198		1,573		2,202		10		10		2,203		22		22
Building Lots		-		-		-		-		-		-		-		-		-
Other		6,914		6,898		1,441		7,205		67		67		7,017		136		136
Residential Mortgage		157		157		4		108		1		1		92		1		1
Consumer and Home Equity		21		21		2		45		-		-		52		1		1
Indirect Consumer		-		-		-		-		-		-		-		-		-
Total	$	38,476	$	33,847	$	3,159	$	35,400	$	302	$	302	$	36,035	$	630	$	630

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

							Three Months Ended						Six Months Ended
							June 30, 2013						June 30, 2013
June 30, 2013	Unpaid				Allowance for		Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest		Recorded		Income		Interest
(Dollars in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	1,234	$	1,028	$	-	$	850	$	6	$	6	$	763	$	10	$	10
Commercial Real Estate:
Land Development		2,336		2,311		-		2,716		33		33		3,435		84		84
Building Lots		477		212		-		212		-		-		212		-		-
Other		11,042		9,880		-		9,785		99		99		12,023		239		239
Residential Mortgage		2,941		2,941		-		1,691		6		6		3,162		53		53
Consumer and Home Equity		395		395		-		210		1		1		407		7		7
Indirect Consumer		-		-		-		-		-		-		-		-		-
With an allowance recorded:
Commercial		185		185		184		189		1		1		287		4		4
Commercial Real Estate:
Land Development		2,930		2,930		961		2,802		35		35		2,759		67		67
Building Lots		-		-		-		-		-		-		-		-		-
Other		22,609		20,398		5,890		20,350		215		215		19,984		412		412
Residential Mortgage		477		477		31		399		2		2		337		6		6
Consumer and Home Equity		269		269		81		312		1		1		271		5		5
Indirect Consumer		-		-		-		-		-		-		-		-		-
Total	$	44,895	$	41,026	$	7,147	$	39,516	$	399	$	399	$	43,640	$	887	$	887

The following tables present the recorded investment in restructured, non-accrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2014 and December 31, 2013.

					Restructured
					Loans Past Due		Loans Past Due
June 30, 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	$	-	$	161	$	-	$	-	$	364
Commercial Real Estate:
Land Development		-		1,325		-		-		2,198
Building Lots		-		-		-		-		212
Other		5,493		16,189		-		-		3,135
Residential Mortgage		299		-		-		-		1,112
Consumer and Home Equity		-		71		-		-		139
Indirect Consumer		-		-		-		-		11
Total	$	5,792	$	17,746	$	-	$	-	$	7,171

					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		-		-		2,508
Building Lots		-		-		-		-		212
Other		986		17,025		4,780		2,226		4,237
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 June 30, 2014 and December 31, 2013 by class of loans:

June 30, 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	$	-	$	-	$	364	$	364	$	24,115	$	24,479
Commercial Real Estate:
Land Development		-		-		2,198		2,198		14,438		16,636
Building Lots		-		-		212		212		1,268		1,480
Other		8,297		969		8,628		17,894		231,833		249,727
Residential Mortgage		393		702		274		1,369		97,197		98,566
Consumer and Home Equity		173		67		91		331		51,142		51,473
Indirect Consumer		207		21		11		239		12,836		13,075
Total	$	9,070	$	1,759	$	11,778	$	22,607	$	432,829	$	455,436

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 $1.4 million and $1.1 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 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 quarter and six month periods ending June 30, 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 June 30, 2014 and 2013:

	Three Months Ended					Three Months Ended
	June 30, 2014					June 30, 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	-		-		-	2		1,392		1,392
Residential Mortgage	-		-		-	-		-		-
Consumer and Home Equity	-		-		-	1		53		53
Indirect Consumer	-		-		-	-		-		-
Total	-	$	-	$	-	3	$	1,445	$	1,445

	Six Months Ended					Six Months Ended
	June 30, 2014					June 30, 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	-		-		-	5		3,534		3,534
Residential Mortgage	-		-		-	-		-		-
Consumer and Home Equity	-		-		-	2		76		76
Indirect Consumer	-		-		-	-		-		-
Total	-	$	-	$	-	7	$	3,610	$	3,610

The troubled debt restructurings described above increased the allowance for loan losses allocated to troubled debt restructurings by $0 for the three and six months ended June 30, 2014. The troubled debt restructurings described above resulted in a reversal of provision for loan losses allocated to troubled debt restructurings of $11,000 and $164,000 for the three and six months ended June 30, 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 June 30, 2014 and 2013:

	Three Months Ended			Three Months Ended
	June 30, 2014			June 30, 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	1		806	-		-
Residential Mortgage	-		-	-		-
Consumer and Home Equity	-		-	-		-
Indirect Consumer	-		-	-		-
Total	1	$	806	-	$	-

	Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 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	1		806	-		-
Residential Mortgage	-		-	-		-
Consumer and Home Equity	-		-	-		-
Indirect Consumer	-		-	-		-
Total	1	$	806	-	$	-

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

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $0 for the three and six months ended June 30, 2014. The troubled debt restructurings described above resulted in charge-offs of $0 for the three and six month periods ended June 30, 2014. We did not have any troubled debt restructurings for which there was a payment default within twelve months following the modification during the June 30, 2013 three and six month periods.

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 June 30, 2014 and December 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

June 30, 2014
(Dollars in thousands)	Not Rated		Pass		Criticized		Substandard		Doubtful		Loss		Total
Commercial	$	-	$	23,231	$	462	$	786	$	-	$	-	$	24,479
Commercial Real Estate:
Land Development		-		12,218		2,212		2,206		-		-		16,636
Building Lots		-		861		407		212		-		-		1,480
Other		-		212,732		9,708		27,287		-		-		249,727
Residential Mortgage		95,045		-		896		2,625		-		-		98,566
Consumer and Home Equity		50,986		-		114		373		-		-		51,473
Indirect Consumer		13,036		-		-		39		-		-		13,075
Total	$	159,067	$	249,042	$	13,799	$	33,528	$	-	$	-	$	455,436

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 June 30, 2014 and December 31, 2013:

June 30, 2014	Residential		Consumer &		Indirect
(Dollars in thousands)	Mortgage		Home Equity		Consumer
Performing	$	97,155	$	51,334	$	13,064
Restructured on non-accrual		299		-		-
Non-accrual		1,112		139		11
Total	$	98,566	$	51,473	$	13,075

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