LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Loans Receivable

The composition of loans, categorized by the type of the loan, is as follows:

	September 30, 2012			December 31, 2011
Commercial, industrial, and municipal	$	138,021		$	127,192
Commercial real estate mortgage		184,183			184,360
Commercial construction and development		25,544			20,078
Residential real estate mortgage		97,687			78,114
Residential construction and development		13,514			13,419
Residential real estate home equity		22,883			23,193
Consumer and individual		5,302			3,732
Subtotals – Gross loans		487,134			450,088
Loans in process of disbursement		(6,676	)		(4,787	)
Subtotals – Disbursed loans		480,458			445,301
Net deferred loan costs		222			197
Allowance for loan losses		(7,431	)		(7,941	)
Net loans receivable	$	473,249		$	437,557

Summary of Impaired Loans Receivable at Period End

The following is a summary of information pertaining to impaired loans at period-end:

	September 30, 2012		December 31, 2011
Impaired loans without a valuation allowance	$	8,199	$	5,474
Impaired loans with a valuation allowance		9,055		11,745
Total impaired loans before valuation allowances		17,254		17,219
Valuation allowance related to impaired loans		2,537		3,178
Net impaired loans	$	14,717	$	14,041

Loans Receivable Allowance for Loan Losses Activity

Activity in the allowance for loans losses during the nine months ended September 30, 2012 follows:

Allowance for loan losses:	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
Beginning Balance	$	3,406		$	3,175		$	1,242		$	118		$	—	$	7,941
Provision		233			(458	)		530			20			—		325
Recoveries		6			4			3			4			—		17
Charge offs		(105	)		(234	)		(462	)		(51	)		—		(852	)
Ending balance	$	3,540		$	2,487		$	1,313		$	91		$	—	$	7,431
Individually evaluated for impairment	$	1,625		$	570		$	336		$	6		$	—	$	2,537
Collectively evaluated for impairment	$	1,915		$	1,917		$	977		$	85		$	—	$	4,894
Loans receivable (gross):
Individually evaluated for impairment	$	5,741		$	8,955		$	2,543		$	15		$	—	$	17,254
Collectively evaluated for impairment	$	132,280		$	200,772		$	131,541		$	5,287		$	—	$	469,880

Activity in the allowance for loans losses during the nine months ended September 30, 2011, follows:

Allowance for loan losses:	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
Beginning Balance	$	3,862		$	3,674		$	211		$	213		$	—	$	7,960
Provision		604			(468	)		1,016			(2	)		—		1,150
Recoveries		166			6			—			5			—		177
Charge offs		(808	)		(132	)		(224	)		(104	)		—		(1,268	)
Ending balance	$	3,824		$	3,080		$	1,003		$	112		$	—	$	8,019
Individually evaluated for impairment	$	2,020		$	970		$	456		$	22		$	—	$	3,468
Collectively evaluated for impairment	$	1,804		$	2,110		$	547		$	90		$	—	$	4,551
Loans receivable (gross):
Individually evaluated for impairment	$	6,947		$	8,418		$	2,093		$	75		$	—	$	17,533
Collectively evaluated for impairment	$	125,311		$	188,029		$	108,133		$	3,509		$	—	$	424,982

Loans Receivable Commercial Credit Exposure

The commercial credit exposure based on internally assigned credit grade at September 30, 2012, follows:

			Commercial		Construction
	Commercial		Real Estate		& Development		Agricultural		Government		Total
High quality (risk rating 1)	$	38	$	—	$	—	$	—	$	—	$	38
Minimal risk (2)		24,317		21,524		307		517		1,640		48,305
Average risk (3)		53,364		102,052		18,877		2,305		12,224		188,822
Acceptable risk (4)		29,153		43,189		2,762		344		—		75,448
Watch risk (5)		7,700		7,979		1,758		—		—		17,437
Substandard risk (6)		678		1,723		601		—		—		3,002
Impaired loans (7)		5,713		7,716		1,239		28		—		14,696
Total	$	120,963	$	184,183	$	25,544	$	3,194	$	13,864	$	347,748

The commercial credit exposure based on internally assigned credit grade at December 31, 2011, follows:

			Commercial		Construction
	Commercial		Real Estate		& Development		Agricultural		Government		Total
High quality (risk rating 1)	$	65	$	—	$	—	$	—	$	—	$	65
Minimal risk (2)		10,404		21,922		205		534		1,660		34,725
Average risk (3)		54,387		103,614		12,981		1,088		6,153		178,223
Acceptable risk (4)		38,381		42,435		2,401		307		—		83,524
Watch risk (5)		7,054		7,972		2,903		—		—		17,929
Substandard risk (6)		675		1,005		937		—		—		2,617
Impaired loans (7)		6,456		7,412		651		28		—		14,547
Total	$	117,422	$	184,360	$	20,078	$	1,957	$	7,813	$	331,630

Loans Receivable Consumer Credit Exposure

The consumer credit exposure based on payment activity and internally assigned credit grade at September 30, 2012, follows:

	Residential-		Residential-		Construction and
	Prime		HELOC		Development		Consumer		Total
Performing	$	95,478	$	22,702	$	13,361	$	5,287	$	136,828
Impaired loans		2,209		181		153		15		2,558
Total	$	97,687	$	22,883	$	13,514	$	5,302	$	139,386

The consumer credit exposure based on payment activity and internally assigned credit grade at December 31, 2011, follows:

	Residential-		Residential-		Construction and
	Prime		HELOC		Development		Consumer		Total
Performing	$	75,923	$	22,925	$	13,275	$	3,663	$	115,786
Impaired loans		2,191		268		144		69		2,672
Total	$	78,114	$	23,193	$	13,419	$	3,732	$	118,458

Loans Receivable Payment Age Analysis

The payment age analysis of loans receivable disbursed at September 30, 2012, follows:

	30-59		60-89		90+		Total				Total		90+ and
Loan Class	Days		Days		Days		Past Due		Current		Loans		Accruing
Commercial:
Commercial and industrial	$	660	$	281	$	1,478	$	2,419	$	118,544	$	120,963	$	—
Agricultural		—		—		—		—		3,194		3,194		—
Government		—		—		—		—		13,864		13,864		—
Commercial real estate:
Commercial real estate		705		160		1,354		2,219		181,964		184,183		—
Commercial construction and development		20		909		127		1,056		20,475		21,530		—
Residential real estate:
Residential – Prime		297		159		1,359		1,815		95,872		97,687		—
Residential – HELOC		148		42		111		301		22,582		22,883		—
Residential – construction and development		14		—		132		146		10,706		10,852		—
Consumer		26		3		3		32		5,270		5,302		—
Total	$	1,870	$	1,554	$	4,564	$	7,988	$	472,471	$	480,458	$	—

The payment age analysis of loans receivable disbursed at December 31, 2011, follows:

	30-59		60-89		90+		Total				Total		90+ and
Loan Class	Days		Days		Days		Past Due		Current		Loans		Accruing
Commercial:
Commercial and industrial	$	670	$	25	$	2,041	$	2,736	$	114,686	$	117,422	$	—
Agricultural		—		—		—		—		1,957		1,957		—
Government		—		—		—		—		7,813		7,813		—
Commercial real estate:
Commercial real estate		542		—		1,229		1,771		182,589		184,360		—
Commercial construction and development		—		—		145		145		17,195		17,340		—
Residential real estate:
Residential – prime		1,127		173		1,144		2,444		75,670		78,114		—
Residential – HELOC		255		5		129		389		22,804		23,193		—
Residential – construction and development		—		35		77		112		11,258		11,370		—
Consumer		11		—		54		65		3,667		3,732		—
Total	$	2,605	$	238	$	4,819	$	7,662	$	437,639	$	445,301	$	—

Loans Receivable Impairments, by Loan Class

Impaired loans as of September 30, 2012, and during the nine months then ended, by loan class, follows:

	Unpaid						Average		Interest
	Principal		Related		Recorded		Recorded		Income
	Balance		Allowance		Investment		Investment		Recognized
With no related allowance recorded:
Commercial & industrial	$	1,657	$	—	$	1,657	$	1,632	$	55
Commercial real estate		4,814		—		4,814		4,260		184
Commercial construction & development		1,035		—		1,035		518		—
Agricultural		—		—		—		—		—
Government		—		—		—		—		—
Residential – prime		673		—		673		418		6
Residential – HELOC		20		—		20		10		3
Residential construction & development		—		—		—		—		—
Consumer		—		—		—		—		—
With an allowance recorded:
Commercial & industrial	$	4,056	$	1,599	$	2,457	$	2,836	$	44
Commercial real estate		2,902		550		2,352		2,682		85
Commercial construction & development		204		20		184		322		18
Agricultural		28		26		2		1		—
Government		—		—		—		—		—
Residential – prime		1,536		278		1,258		1,420		8
Residential – HELOC		161		54		107		122		—
Residential construction & development		153		4		149		129		5
Consumer		15		6		9		32		1
Totals:
Commercial & industrial	$	5,713	$	1,599	$	4,114	$	4,468	$	99
Commercial real estate		7,716		550		7,166		6,942		269
Commercial construction & development		1,239		20		1,219		840		18
Agricultural		28		26		2		1		—
Government		—		—		—		—		—
Residential – prime		2,209		278		1,931		1,838		14
Residential – HELOC		181		54		127		132		3
Residential construction & development		153		4		149		129		5
Consumer		15		6		9		32		1

The impaired loans at December 31, 2011, and during the year then ended, by loan class, follows:

	Unpaid						Average		Interest
	Principal		Related		Recorded		Recorded		Income
	Balance		Allowance		Investment		Investment		Recognized
With no related allowance recorded:
Commercial and industrial	$	1,606	$	—	$	1,606	$	2,409	$	51
Commercial real estate		3,706		—		3,706		4,515		204
Commercial construction and development		—		—		—		120		—
Agricultural		—		—		—		150		—
Government		—		—		—		—		—
Residential – Prime		162		—		162		396		1
Residential – HELOC		—		—		—		23		—
Residential construction and development		—		—		—		12		—
Consumer		—		—		—		11		—
With an allowance recorded:
Commercial and industrial	$	4,850	$	1,635	$	3,215	$	2,050	$	93
Commercial real estate		3,706		694		3,012		1,637		154
Commercial construction and development		651		191		460		386		23
Agricultural		28		28		—		5		2
Government		—		—		—		—		—
Residential – Prime		2,029		448		1,581		1,041		53
Residential – HELOC		268		131		137		99		9
Residential construction and development		144		36		108		74		5
Consumer		69		15		54		37		2
Totals:
Commercial and industrial	$	6,456	$	1,635	$	4,821	$	4,459	$	144
Commercial real estate		7,412		694		6,718		6,152		358
Commercial construction and development		651		191		460		506		23
Agricultural		28		28		—		155		2
Government		—		—		—		—		—
Residential – Prime		2,191		448		1,743		1,437		54
Residential – HELOC		268		131		137		122		9
Residential construction and development		144		36		108		86		5
Consumer		69		15		54		48		2

Loans Receivable Loans on Non Accrual Status at Period End

Loans on nonaccrual status at period-end, follows:

	September 30, 2012		December 31, 2011
Commercial:
Commercial and industrial	$	3,748	$	4,309
Agricultural		27		—
Commercial real estate:
Commercial real estate		1,903		1,585
Commercial construction and development		129		148
Residential real estate:
Residential – prime		2,033		1,640
Residential – HELOC		161		159
Residential construction and development		133		78
Consumer		6		55
Total	$	8,140	$	7,974

Loans Receivable Troubled Debt Restructuring as of June 30, 2012

The following table presents information concerning modifications of troubled debt made during the quarter ended September 30, 2012 before specific reserves:

			Pre-modification		Post-modification
	Number of		outstanding recorded		outstanding recorded
As of September 30, 2012 ($000s)	contracts		investment		investment at period-end
Commercial & industrial		3	$	481	$	475
Residential real estate		1	$	121	$	89

The following table presents information concerning modifications of troubled debt made during the nine months ended September 30, 2012 before specific reserves:

			Pre-modification		Post-modification
	Number of		outstanding recorded		outstanding recorded
As of September 30, 2012 ($000s)	contracts		investment		investment at period-end
Commercial & industrial		6	$	661	$	637
Commercial real estate		2	$	527	$	508
Residential real estate		1	$	121	$	89

The following table presents information concerning modifications of troubled debt made during the quarter ended September 30, 2011 before specific reserves:

			Pre-modification		Post-modification
	Number of		outstanding recorded		outstanding recorded
As of September 30, 2011 ($000s)	contracts		investment		investment at period-end
Commercial real estate		1	$	89	$	89

The following table presents information concerning modifications of troubled debt made during the nine months ended September 30, 2011 before specific reserves:

			Pre-modification		Post-modification
	Number of		outstanding recorded		outstanding recorded
As of September 30, 2011 ($000s)	contracts		investment		investment at period-end
Commercial & industrial		6	$	1,157	$	1,123
Commercial real estate		7	$	4,371	$	4,363
Commercial construction & development		1	$	74	$	73

The following table outlines past troubled debt restructurings that subsequently defaulted within twelve months of the last restructuring date. For purposes of this table, default is defined as 90 days or more past due on restructured payments.

Default during the quarter ended	Number of		Recorded
September 30, 2012 ($000s)	contracts		investment
Commercial real estate		1	$	45

Default during the nine months ended	Number of		Recorded
September 30, 2012 ($000s)	contracts		investment
Commercial & industrial		1	$	—
Commercial real estate		1	$	45

Default during the quarter and nine months ended	Number of		Recorded
September 30, 2011 ($000s)	contracts		investment
Commercial real estate		2	$	267