Note 4 - Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2013

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

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	March 31, 2013		December 31, 2012
Residential real estate	$	223,552	$	226,022
Commercial real estate:
Owner-occupied		102,116		104,842
Nonowner-occupied		50,879		52,792
Construction		19,270		17,376
Commercial and industrial		58,185		57,239
Consumer:
Automobile		40,073		41,168
Home equity		18,151		18,332
Other		39,048		40,517
		551,274		558,288
Less: Allowance for loan losses		6,672		6,905
Loans, net	$	544,602	$	551,383

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2013 and 2012:

March 31, 2013	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,329		$	3,946		$	783		$	847		$	6,905
Provision for loan losses		327			(478	)		(33	)		215			31
Loans charged off		(357	)		(2	)		----			(437	)		(796	)
Recoveries		15			278			11			228			532
Total ending allowance balance	$	1,314		$	3,744		$	761		$	853		$	6,672

March 31, 2012	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,730		$	3,623		$	636		$	1,355		$	7,344
Provision for loan losses		277			892			(88	)		235			1,316
Loans charged-off		(593	)		(1,096	)		(70	)		(519	)		(2,278	)
Recoveries		77			4			145			239			465
Total ending allowance balance	$	1,491		$	3,423		$	623		$	1,310		$	6,847

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 March 31, 2013 and December 31, 2012:

March 31, 2013	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	$	133	$	1,979	$	----	$	----	$	2,112
Collectively evaluated for impairment		1,181		1,765		761		853		4,560
Total ending allowance balance	$	1,314	$	3,744	$	761	$	853	$	6,672
Loans:
Loans individually evaluated for impairment	$	1,112	$	15,588	$	----	$	219	$	16,919
Loans collectively evaluated for impairment		222,440		156,677		58,185		97,053		534,355
Total ending loans balance	$	223,552	$	172,265	$	58,185	$	97,272	$	551,274

December 31, 2012	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	$	128	$	1,979	$	----	$	----	$	2,107
Collectively evaluated for impairment		1,201		1,967		783		847		4,798
Total ending allowance balance	$	1,329	$	3,946	$	783	$	847	$	6,905
Loans:
Loans individually evaluated for impairment	$	827	$	16,354	$	----	$	220	$	17,401
Loans collectively evaluated for impairment		225,195		158,656		57,239		99,797		540,887
Total ending loans balance	$	226,022	$	175,010	$	57,239	$	100,017	$	558,288

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

Three months ended March 31, 2013	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	$	830	$	686	$	----	$	703	$	3	$	3
Commercial real estate:
Owner-occupied		5,644		5,098		----		5,313		72		72
Nonowner-occupied		7,849		7,049		----		7,052		93		93
Commercial and industrial		422		----		----		----		----		----
Consumer:
Home equity		219		219		----		220		3		3
With an allowance recorded:
Residential real estate		426		426		133		423		4		4
Commercial real estate:
Nonowner-occupied		3,441		3,441		1,979		3,456		41		41
Total	$	18,831	$	16,919	$	2,112	$	17,167	$	216	$	216

Three months ended March 31, 2012	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	$	1,247	$	1,055	$	----	$	1,070	$	7	$	6
Commercial real estate:
Owner-occupied		9,984		9,737		----		7,604		166		143
Nonowner-occupied		3,440		2,293		----		2,458		24		22
Construction		674		395		----		535		5		5
Commercial and industrial		614		329		----		331		10		9
Consumer:
Automobile		36		36		----		18		1		1
Home equity		220		220		----		110		3		3
With an allowance recorded:
Commercial real estate:
Owner-occupied		1,571		1,571		758		996		27		18
Total	$	17,786	$	15,636	$	758	$	13,122	$	243	$	207

Year ended December 31, 2012	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	$	619	$	407	$	----	$	493	$	----	$	----
Commercial real estate:
Owner-occupied		5,528		5,528		----		4,729		338		338
Nonowner-occupied		10,085		8,847		----		4,767		456		456
Commercial and industrial		426		----		----		----		----		----
Consumer:
Home equity		220		220		----		176		9		9
With an allowance recorded:
Residential real estate		420		420		128		420		23		23
Commercial real estate:
Nonowner-occupied		1,979		1,979		1,979		1,132		38		38
Total	$	19,277	$	17,401	$	2,107	$	11,717	$	864	$	864

The recorded investment of a loan is its carrying value excluding accrued interest and deferred loan fees.

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:

March 31, 2013	Loans Past Due 90 Days And Still Accruing		Nonaccrual
Residential real estate	$	287	$	2,906
Commercial real estate:
Owner-occupied		----		1,115
Nonowner-occupied		----		52
Consumer:
Automobile		9		15
Home equity		100		----
Other		----		5
Total	$	396	$	4,093

December 31, 2012	Loans Past Due 90 Days And Still Accruing		Nonaccrual
Residential real estate	$	341	$	2,533
Commercial real estate:
Owner-occupied		----		675
Nonowner-occupied		----		352
Consumer:
Automobile		11		4
Home equity		----		62
Other		7		----
Total	$	359	$	3,626

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 aging of the recorded investment of past due loans by class of loans:

March 31, 2013	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	$	3,275	$	898	$	3,096	$	7,269	$	216,283	$	223,552
Commercial real estate:
Owner-occupied		816		440		675		1,931		100,185		102,116
Nonowner-occupied		----		----		52		52		50,827		50,879
Construction		----		----		----		----		19,270		19,270
Commercial and industrial		180		----		----		180		58,005		58,185
Consumer:
Automobile		683		145		9		837		39,236		40,073
Home equity		20		----		100		120		18,031		18,151
Other		752		31		5		788		38,260		39,048
Total	$	5,726	$	1,514	$	3,937	$	11,177	$	540,097	$	551,274

December 31, 2012	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	$	5,525	$	1,033	$	2,797	$	9,355	$	216,667	$	226,022
Commercial real estate:
Owner-occupied		753		111		675		1,539		103,303		104,842
Nonowner-occupied		----		----		352		352		52,440		52,792
Construction		----		----		----		----		17,376		17,376
Commercial and industrial		202		----		----		202		57,037		57,239
Consumer:
Automobile		905		138		13		1,056		40,112		41,168
Home equity		112		37		62		211		18,121		18,332
Other		1,066		162		7		1,235		39,282		40,517
Total	$	8,563	$	1,481	$	3,906	$	13,950	$	544,338	$	558,288

Troubled Debt Restructurings:

A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. All TDR's are considered to be impaired. 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; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms.

The Company has allocated reserves for a portion of its TDR's to reflect the fair values of the underlying collateral or the present value of the concessionary terms granted to the customer.

The following table presents the types of TDR loan modifications by class of loans as of March 31, 2013 and December 31, 2012:

	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
March 31, 2013
Residential real estate
Interest only payments	$	249	$	----	$	249
Rate reduction		426		----		426
Commercial real estate:
Owner-occupied
Interest only payments		----		675		675
Rate reduction		----		440		440
Maturity extension at lower stated rate than market rate		183		----		183
Reduction of principal and interest payments		3,800		----		3,800
Nonowner-occupied
Interest only payments		9,825		----		9,825
Reduction of principal and interest payments		665		----		665
Total TDR’s	$	15,148	$	1,115	$	16,263

	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
December 31, 2012
Residential real estate
Interest only payments	$	----	$	180	$	180
Rate reduction		420		----		420
Commercial real estate:
Owner-occupied
Interest only payments		----		675		675
Rate reduction		440		----		440
Maturity extension at lower stated rate than market rate		191		----		191
Reduction of principal and interest payments		4,222		----		4,222
Nonowner-occupied
Interest only payments		9,856		300		10,156
Reduction of principal and interest payments		670		----		670
Total TDR’s	$	15,799	$	1,155	$	16,954

During the three months ended March 31, 2013, the TDR’s described above increased the allowance for loan losses by $280, with no corresponding charge-offs.  This was largely the result of a $275 recovery of a previously charged-off commercial real estate loan that had been classified as a TDR loan at December 31, 2012.  During the year ended December 31, 2012, the TDR’s described above increased the allowance for loan losses by $2,169, resulting in charge-offs of $536.

At March 31, 2013, the balance in TDR loans decreased $691, or 4.1%, from year-end 2012.  The decrease was largely due to the $300 payoff of one commercial real estate loan and principal payments received on another commercial real estate loan totaling $422 during the first quarter of 2013.  At March 31, 2013 and December 31, 2012, a total of 93% of the Company’s TDR’s were performing according to their modified terms.  The Company allocated $2,112 and $2,107 in reserves to customers whose loan terms have been modified in TDR’s as of March 31, 2013 and December 31, 2012, respectively.  At March 31, 2013, the Company had $116 in commitments to lend additional amounts to customers with outstanding loans that are classified as TDR’s, as compared to $109 at December 31, 2012.

The following table presents the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the three months ended March 31, 2013:

	TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Three months ended March 31, 2013	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential real estate
Interest only payments	$	249	$	249	$	----	$	----
Total TDR’s	$	249	$	249	$	----	$	----

All of the Company’s TDR’s that occurred during the three months ended March 31, 2013 were performing in accordance with their modified terms.  Furthermore, there were no TDR’s described above at March 31, 2013 that experienced any payment defaults within twelve months following their loan modification.  A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual.  TDR loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  The TDR’s described above had no impact on the allowance for loan losses or charge-offs during the three months ended March 31, 2013.  As of March 31, 2013, the Company had no allocation of reserves to customers whose loan terms have been modified during the first three months of 2013.

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 categories called “criticized” and “classified" assets. The Company considers its criticized assets to be loans that are graded 8 and its classified assets to be loans that are graded 9 through 10. The Company's risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed $500.

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

Special Mention (Loan Grade 8).Loans classified as special mention indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency. These loans will be under constant supervision, are not classified and do not expose the institution to sufficient risks to warrant classification. These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy may be necessary to correct the deficiencies. These loans are considered bankable assets with no apparent loss of principal or interest envisioned. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. Credits that are defined as a troubled debt restructuring should be graded no higher than special mention until they have been reported as performing over one year after restructuring.

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.

Criticized and 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 criticized and classified asset rating as pass rated loans, which will include loans graded from 1 (Prime) to 7 (Watch). All commercial loans are categorized into a risk category either at the time of origination or reevaluation date. As of March 31, 2013 and December 31, 2012, and based on the most recent analysis performed, the risk category of commercial loans by class of loans is as follows:

March 31, 2013	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	91,287	$	7,803	$	3,026	$	102,116
Nonowner-occupied		42,990		680		7,209		50,879
Construction		18,200		----		1,070		19,270
Commercial and industrial		49,336		5,105		3,744		58,185
Total	$	201,813	$	13,588	$	15,049	$	230,450

December 31, 2012	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	87,614	$	14,057	$	3,171	$	104,842
Nonowner-occupied		39,627		2,171		10,994		52,792
Construction		16,276		----		1,100		17,376
Commercial and industrial		47,226		4,793		5,220		57,239
Total	$	190,743	$	21,021	$	20,485	$	232,249

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. Nonperforming loans are defined as loans that are past due 90 days and still accruing or loans that have been placed on nonaccrual.  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 repayment activity as of March 31, 2013 and December 31, 2012:

March 31, 2013	Consumer
	Automobile		Home  Equity		Other		Residential Real Estate		Total
Performing	$	40,049	$	18,051	$	39,043	$	220,359	$	317,502
Nonperforming		24		100		5		3,193		3,322
Total	$	40,073	$	18,151	$	39,048	$	223,552	$	320,824

December 31, 2012	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total
Performing	$	41,153	$	18,270	$	40,510	$	223,148	$	323,081
Nonperforming		15		62		7		2,874		2,958
Total	$	41,168	$	18,332	$	40,517	$	226,022	$	326,039

The Company, through its subsidiaries, grants residential, consumer, and commercial loans to customers located primarily in the southeastern areas of Ohio as well as the western counties of West Virginia.  Approximately 5.05% of total loans were unsecured at March 31, 2013, up from 4.87% at December 31, 2012.