LOANS AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2011

Receivables [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	June 30,		December 31,
	2011		2010
Residential real estate	$	231,664	$	236,878
Commercial real estate:
Owner-occupied		149,453		149,042
Nonowner-occupied		58,920		55,989
Construction		22,235		21,591
Commercial and industrial		50,509		55,306
Consumer:
Automobile		51,445		58,271
Home equity		19,899		20,527
Other		39,245		43,718
		623,370		641,322
Less:  Allowance for loan losses		6,479		9,386
Loans, net	$	616,891	$	631,936

The Bank originated refund anticipation loans that contributed fee income of $561 and $655 during the six months ended June 30, 2011 and June 30, 2010, respectively.  As recommended by the FDIC, the Bank ceased offering refund anticipation loans effective April 19, 2011.

Activity in the allowance for loan losses was as follows:	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Beginning balance	$	8,052		$	8,778		$	9,386		$	8,198
Loans charged off:
Residential real estate		337			268			584			524
Commercial real estate		1,932			1,037			1,972			1,037
Commercial and industrial		862			184			4,701			184
Consumer		330			527			747			1,046
Total loans charged off		3,461			2,016			8,004			2,791
Recoveries of loans:
Residential real estate		29			6			37			9
Commercial real estate		804			----			911			70
Commercial and industrial		71			1			71			25
Consumer		225			333			375			670
Total recoveries of loans		1,129			340			1,394			774
Net loan charge-offs		(2,332	)		(1,676	)		(6,610	)		(2,017	)
Provision charged to operations		759			721			3,703			1,642
Balance, end of year	$	6,479		$	7,823		$	6,479		$	7,823

As a result of management’s evaluation of the trends in the real estate market, the status of long-term, collateral dependent impaired loans and the current regulatory environment, management decided to take partial charge-offs more quickly on collateral dependent impaired loans.

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2011:

June 30, 2011	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	993	$	3,141	$	3,795	$	1,457	$	----	$	9,386
Provision for loan losses		562		1,437		1,605		99		----		3,703
Loans charged off		584		1,972		4,701		747		----		8,004
Recoveries		37		911		71		375		----		1,394
Total ending allowance balance	$	1,008	$	3,517	$	770	$	1,184	$	----	$	6,479

The recorded investment of a loan is its carrying value excluding accrued interest and deferred loan fees.  The difference in the unpaid principal balance and recorded investment of the Company’s loans was not materially different at year-end 2010.

The following table presents the balance in the allowance for loan losses and the recorded investment of loans by portfolio segment and based on impairment method as of June 30, 2011 and December 31, 2010:

June 30, 2011	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	424	$	----	$	----	$	424
Collectively evaluated for impairment		1,008		3,093		770		1,184		6,055
Total ending allowance balance	$	1,008	$	3,517	$	770	$	1,184	$	6,479
Loans:
Loans individually evaluated for impairment	$	764	$	11,675	$	3,139	$	----	$	15,578
Loans collectively evaluated for impairment		230,900		218,933		47,370		110,589		607,792
Total ending loans balance	$	231,664	$	230,608	$	50,509	$	110,589	$	623,370

December 31, 2010	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	125	$	1,698	$	3,407	$	----	$	5,230
Collectively evaluated for impairment		868		1,443		388		1,457		4,156
Total ending allowance balance	$	993	$	3,141	$	3,795	$	1,457	$	9,386
Loans:
Loans individually evaluated for impairment	$	1,784	$	13,460	$	7,862	$	----	$	23,106
Loans collectively evaluated for impairment		235,094		213,162		47,444		122,516		618,216
Total ending loans balance	$	236,878	$	226,622	$	55,306	$	122,516	$	641,322

Information regarding impaired loans is as follows:	June 30, 2011		December 31, 2010
Loans with no allocated allowance for loan losses	$	13,156	$	7,884
Loans with allocated allowance for loan losses		2,422		15,222
Total impaired loans	$	15,578	$	23,106
Amount of the allowance for loan losses allocated	$	424	$	5,230
Average of individually impaired loans during year	$	17,823	$	24,589

Average impaired loans during the six months ended June 30, 2011 and 2010 were $17,823 and $18,346, respectively.  Average impaired loans for the three months ended June 30, 2011 and 2010 were $18,513 and $21,816, respectively.  Interest recognized on impaired loans during the six months ended June 30, 2011 and 2010 were $568 and $168, respectively.  Interest recognized on impaired loans during the three months ended June 30, 2011 and 2010 were $223 and $84, respectively.  Accrual basis income was not materially different from cash basis income for the periods presented.

The following table presents loans individually evaluated for impairment by class of loans:

June 30, 2011	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Residential real estate	$	826	$	764	$	----	$	773	$	9	$	3
Commercial real estate:
Owner-occupied		7,713		7,008		----		7,309		239		232
Nonowner-occupied		1,696		1,565		----		1,653		39		36
Construction		679		679		----		679		19		17
Commercial and industrial		7,257		3,139		----		4,986		192		159
Consumer:
Automobile		----		----		----		----		----		----
Home equity		----		----		----		----		----		----
Other		----		----		----		----		----		----
With an allowance recorded:
Residential real estate		----		----		----		----		----		----
Commercial real estate:
Owner-occupied		----		----		----		----		----		----
Nonowner-occupied		2,423		2,423		424		2,423		70		60
Construction		----		----		----		----		----		----
Commercial and industrial		----		----		----		----		----		----
Consumer:
Automobile		----		----		----		----		----		----
Home equity		----		----		----		----		----		----
Other		----		----		----		----		----		----
Total	$	20,594	$	15,578	$	424	$	17,823	$	568	$	507

December 31, 2010	Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	1,244	$	----
Commercial real estate:
Owner-occupied		4,234		----
Nonowner-occupied		992		----
Construction		743		----
Commercial and industrial		671		----
Consumer:
Automobile		----		----
Home equity		----		----
Other		----		----
With an allowance recorded:
Residential real estate		540		125
Commercial real estate:
Owner-occupied		4,731		1,125
Nonowner-occupied		2,760		573
Construction		----		----
Commercial and industrial		7,191		3,407
Consumer:
Automobile		----		----
Home equity		----		----
Other		----		----
Total	$	23,106	$	5,230

Nonaccrual loans and loans past due 90 days or more and still accruing were as follows:

	June 30, 2011		December 31, 2010
Loans past due 90 days or more and still accruing	$	1,315	$	1,714
Nonaccrual loans	$	4,489	$	3,295

Nonaccrual loans and loans past due 90 days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans.

The following table presents the recorded investment of nonaccrual loans and loans past due 90 days or more and still accruing by class of loans:

June 30, 2011	Loans Past Due 90 Days And Still Accruing		Nonaccrual
Residential real estate	$	1,131	$	2,797
Commercial real estate:
Owner-occupied		13		1,577
Nonowner-occupied		86		----
Construction		----		----
Commercial and industrial		----		----
Consumer:
Automobile		46		----
Home equity		----		115
Other		39		----
Total	$	1,315	$	4,489

December 31, 2010	Loans Past Due 90 Days And Still Accruing		Nonaccrual
Residential real estate	$	1,487	$	2,200
Commercial real estate:
Owner-occupied		----		428
Nonowner-occupied		----		432
Construction		----		----
Commercial and industrial		----		----
Consumer:
Automobile		114		100
Home equity		43		104
Other		70		31
Total	$	1,714	$	3,295

The following table presents the aging of the recorded investment of past due loans by class of loans:

June 30, 2011	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate	$	3,199	$	1,432	$	3,834	$	8,465	$	223,199	$	231,664
Commercial real estate:
Owner-occupied		631		----		1,590		2,221		147,232		149,453
Nonowner-occupied		364		----		86		450		58,470		58,920
Construction		----		----		----		----		22,235		22,235
Commercial and industrial		54		38		----		92		50,417		50,509
Consumer:
Automobile		693		140		46		879		50,566		51,445
Home equity		37		46		115		198		19,701		19,899
Other		419		105		39		563		38,682		39,245
Total	$	5,397	$	1,761	$	5,710	$	12,868	$	610,502	$	623,370

December 31, 2010	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate	$	4,731	$	1,951	$	3,448	$	10,130	$	226,748	$	236,878
Commercial real estate:
Owner-occupied		1,564		17		428		2,009		147,033		149,042
Nonowner-occupied		87		----		432		519		55,470		55,989
Construction		----		----		----		----		21,591		21,591
Commercial and industrial		15		----		----		15		55,291		55,306
Consumer:
Automobile		1,010		342		213		1,565		56,706		58,271
Home equity		78		50		147		275		20,252		20,527
Other		793		238		101		1,132		42,586		43,718
Total	$	8,278	$	2,598	$	4,769	$	15,645	$	625,677	$	641,322

Troubled Debt Restructurings:

The Company has $12,306 and $16,814 in loans classified as TDR’s, with specific reserve allocations of $424 and $3,791 as of June 30, 2011 and December 31, 2010, respectively.  The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as TDR’s at June 30, 2011 and December 31, 2010.

Credit Quality Indicators:

The Company categorizes 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. These risk categories are represented by a loan grading scale from 1 through 10. The Company analyzes loans individually with a higher credit risk rating and groups these loans into a category called "classified" assets. The Company considers its classified assets to be loans that are graded 9 through 10 and generally have outstanding balances greater than $200. Loans graded a 9 or 10 that have outstanding balances of less than $200 may be included in the classified asset category if 1) a portion of the loan balance has been specifically allocated to the allowance for loan losses, or 2) the aggregate borrowings of the customer meet or exceed $200. While the Company uses these criteria for evaluating and establishing its higher risk, classified asset category, loans that do not meet these criteria may still be included as classified assets based on other subjective factors that indicate a concern over the borrower's ability to repay the loan. The Company's risk categories are reviewed annually on loans that have aggregate borrowing amounts that meet or exceed $500.

The Company uses the following definitions for its classified loan risk ratings:

Substandard (Loan Grade 9).Loans classified as substandard represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of one or more well defined weaknesses and the collateral pledged may inadequately protect collection of the loans. Loss of principal is not likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loan grade 8 loans. Collateral liquidation is considered likely to satisfy debt.

Doubtful (Loan Grade 10).Loans classified as doubtful display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This should be a temporary category until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors which may strengthen the credit can be more accurately determined. These factors may include proposed acquisitions, liquidation procedures, capital injection, receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard.

Classified loans will mostly consist of commercial and industrial and commercial real estate loans. The Company considers its loans that do not meet the criteria for a classified asset rating as pass rated loans, which will include loans graded from 1 (Prime) to 8 (Special Mention). All commercial loans are categorized into a risk category either at the time of origination or re-evaluation date. As of June 30, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of commercial loans by class of loans is as follows:

June 30, 2011	Pass		Classified		Total
Commercial real estate:
Owner-occupied	$	132,672	$	16,781	$	149,453
Nonowner-occupied		49,888		9,032		58,920
Construction		14,776		7,459		22,235
Commercial and industrial		38,243		12,266		50,509
Total	$	235,579	$	45,538	$	281,117

December 31, 2010	Pass		Classified		Total
Commercial real estate:
Owner-occupied	$	138,490	$	10,552	$	149,042
Nonowner-occupied		50,119		5,870		55,989
Construction		15,550		6,041		21,591
Commercial and industrial		43,668		11,638		55,306
Total	$	247,827	$	34,101	$	281,928

The Company also obtains the credit scores of its borrowers upon origination (if available by the credit bureau), but the scores are not updated. The Company focuses mostly on the performance and repayment ability of the borrower as an indicator of credit risk and does not consider a borrower's credit score to be a significant influence in the determination of a loan's credit risk grading.

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans by class of loans based on payment activity as of June 30, 2011 and December 31, 2010:

June 30, 2011	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total
Performing	$	51,399	$	19,784	$	39,206	$	227,736	$	338,125
Nonperforming		46		115		39		3,928		4,128
Total	$	51,445	$	19,899	$	39,245	$	231,664	$	342,253

December 31, 2010	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total
Performing	$	58,057	$	20,380	$	43,617	$	233,191	$	355,245
Nonperforming		214		147		101		3,687		4,149
Total	$	58,271	$	20,527	$	43,718	$	236,878	$	359,394

The Company, through its subsidiaries, grants residential, consumer, and commercial loans to customers located primarily in the central and southeastern areas of Ohio as well as the western counties of West Virginia.  Approximately 3.80% of total loans were unsecured at June 30, 2011, down from 3.93% at December 31, 2010.