Note C - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

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

Note C - Loans and Allowance for Loan Losses

Loans are comprised of the following at December 31:

	2013		2012
Residential real estate	$	214,008	$	226,022
Commercial real estate:
Owner-occupied		94,586		104,842
Nonowner-occupied		62,108		52,792
Construction		28,972		17,376
Commercial and industrial		64,365		57,239
Consumer:
Automobile		38,811		41,168
Home equity		17,748		18,332
Other		45,721		40,517
		566,319		558,288
Less: Allowance for loan losses		6,155		6,905
Loans, net	$	560,164	$	551,383

The following table presents the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2013, 2012 and 2011:

December 31, 2013	Residential Real Estate			Commercial Real Estate			Commercial & Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,329		$	3,946		$	783		$	847		$	6,905
Provision for loan losses		458			(1,472	)		1,047			444			477
Loans charged off		(819	)		(2	)		(600	)		(1,279	)		(2,700	)
Recoveries		282			335			75			781			1,473
Total ending allowance balance	$	1,250		$	2,807		$	1,305		$	793		$	6,155

December 31, 2012	Residential Real Estate			Commercial Real Estate			Commercial & Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,860		$	3,493		$	636		$	1,355		$	7,344
Provision for loan losses		395			2,367			(1,381	)		202			1,583
Loans charged off		(1,066	)		(1,949	)		(499	)		(1,622	)		(5,136	)
Recoveries		140			35			2,027			912			3,114
Total ending allowance balance	$	1,329		$	3,946		$	783		$	847		$	6,905

December 31, 2011	Residential Real Estate			Commercial Real Estate			Commercial & Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,051		$	3,083		$	3,795		$	1,457		$	9,386
Provision for loan losses		2,642			932			439			883			4,896
Loans charged off		(2,034	)		(1,913	)		(4,725	)		(1,750	)		(10,422	)
Recoveries		201			1,391			1,127			765			3,484
Total ending allowance balance	$	1,860		$	3,493		$	636		$	1,355		$	7,344

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 December 31, 2013 and 2012:

December 31, 2013	Residential Real Estate		Commercial Real Estate		Commercial & Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	213	$	1,541	$	864	$	7	$	2,625
Collectively evaluated for impairment		1,037		1,266		441		786		3,530
Total ending allowance balance	$	1,250	$	2,807	$	1,305	$	793	$	6,155
Loans:
Loans individually evaluated for impairment	$	1,438	$	10,382	$	2,658	$	218	$	14,696
Loans collectively evaluated for impairment		212,570		175,284		61,707		102,062		551,623
Total ending loans balance	$	214,008	$	185,666	$	64,365	$	102,280	$	566,319

December 31, 2012	Residential Real Estate		Commercial Real Estate		Commercial & 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 as of the years ended December 31, 2013, 2012 and 2011:

December 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	$	766	$	766	$	-	$	539	$	41	$	41
Commercial real estate:
Owner-occupied		1,539		992		-		809		39		39
Nonowner-occupied		6,343		5,743		-		6,359		345		345
Commercial and industrial		2,223		1,811		-		1,234		96		96
With an allowance recorded:
Residential real estate		672		672		213		524		35		35
Commercial real estate:
Owner-occupied		290		290		157		116		-		-
Nonowner-occupied		3,357		3,357		1,384		3,423		164		164
Commercial and industrial		847		847		864		602		46		46
Consumer:
Home equity		218		218		7		87		9		9
Total	$	16,255	$	14,696	$	2,625	$	13,693	$	775	$	775

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

December 31, 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	$	-	$	-	$	-	$	748	$	36	$	31
Commercial real estate:
Owner-occupied		-		-		-		2,418		207		309
Nonowner-occupied		-		-		-		4,339		174		57
Commercial and industrial		-		-		-		483		40		40
With an allowance recorded:
Residential real estate		-		-		-		84		27		22
Commercial real estate:
Nonowner-occupied		-		-		-		2,414		128		118
Construction		-		-		-		677		35		31
Total	$	-	$	-	$	-	$	11,163	$	647	$	608

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

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 as of December 31, 2013 and 2012:

	Loans Past Due 90 Days And Still Accruing		Nonaccrual
December 31, 2013
Residential real estate	$	72	$	2,662
Commercial real estate:
Owner-occupied		-		799
Nonowner-occupied		-		52
Commercial and industrial		-		21
Consumer:
Automobile		5		8
Home equity		-		38
Other		1		-
Total	$	78	$	3,580

	Loans Past Due 90 Days And Still Accruing		Nonaccrual
December 31, 2012
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

The following table presents the aging of the recorded investment of past due loans by class of loans as of December 31, 2013 and 2012:

December 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	$	3,922	$	1,324	$	2,620	$	7,866	$	206,142	$	214,008
Commercial real estate:
Owner-occupied		206		34		683		923		93,663		94,586
Nonowner-occupied	–		–			52		52		62,056		62,108
Construction		60	–		–			60		28,912		28,972
Commercial and industrial		193		115		21		329		64,036		64,365
Consumer:
Automobile		638		123		13		774		38,037		38,811
Home equity		-		-		38		38		17,710		17,748
Other		651		38		1		690		45,031		45,721
Total	$	5,670	$	1,634	$	3,428	$	10,732	$	555,587	$	566,319

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 December 31, 2013 and December 31, 2012:

	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
December 31, 2013
Residential real estate
Interest only payments	$	527	$	-	$	527
Rate reduction		420		-		420
Commercial real estate:
Owner-occupied
Rate reduction		-		259		259
Maturity extension at lower stated rate than market rate		271		-		271
Nonowner-occupied
Interest only payments		8,450		-		8,450
Reduction of principal and interest payments		650		-		650
Commercial and industrial
Interest only payments		1,811		-		1,811
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		218		-		218
Total TDR’s	$	12,347	$	259	$	12,606

	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 year ended December 31, 2013, the TDR’s described above decreased the allowance for loan losses by $321 with no corresponding charge-offs. This resulted in a decrease to provision expense of $871 during the year ended December 31, 2013. During the year ended December 31, 2012, the TDR’s described above increased the allowance for loan losses and provision expense by $2,169, resulting in charge-offs of $536.

At December 31, 2013, the balance in TDR loans decreased $4,348, or 25.6%, from year-end 2012. The decrease was largely due to the removal of one commercial real estate loan from TDR status during the second quarter of 2013. This previously reported TDR loan, for which there was no principal forgiveness, totaled $4,222 at December 31, 2012. The loan paid as agreed under the modified terms through maturity in April 2013. During the three months ended June 30, 2013, the Bank re-underwrote and re-modified the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance and the overall cash flows of the borrower. Based on the terms of the re-modification, the loan no longer meets the criteria for a troubled debt restructuring and, as such, was removed from TDR status at June 30, 2013 and is no longer evaluated individually for impairment. During the years ended December 31, 2013 and 2012, no other loans were removed from TDR status as a result of a re-modification. At December 31, 2013 and December 31, 2012, a total of 98% and 93% of the Company’s TDR’s were performing according to their modified terms, respectively.  The Company allocated $1,511 and $2,107 in reserves to customers whose loan terms have been modified in TDR’s as of December 31, 2013 and December 31, 2012, respectively.  At December 31, 2013, the Company had $29 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 years ended December 31, 2013 and 2012:

	TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
December 31, 2013
Residential real estate
Interest only payments	$	527	$	527		-		-
Commercial and industrial
Interest only payments		1,811		1,811		-		-
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		218		218		-		-
Total TDR’s	$	2,556	$	2,556		-		-

	TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
December 31, 2012
Commercial real estate:
Owner-occupied
Reduction of principal and interest payments	$	4,308	$	4,308		-		-
Nonowner-occupied
Interest only payments		5,984		5,984		-		-
Reduction of principal and interest payments		686		686		-		-
Total TDR’s	$	10,978	$	10,978		-		-

All of the Company’s loans that were restructured during the years ended December 31, 2013 and 2012 were performing in accordance with their modified terms. Furthermore, there were no TDR’s described above at December 31, 2013 and 2012 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 loans modified during the year ended December 31, 2013 increased the provision expense and the allowance for loan losses by $7, with no corresponding charge-offs during those twelve months. As a result, at December 31, 2013, the Company had an allocation of reserves totaling $7 to customers whose loan terms have been modified during the year ended December 31, 2013 described above. The loans modified during the year ended December 31, 2012 had no impact on the provision expense and the allowance for loan losses. 

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 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 re-evaluation date. As of December 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:

December 31, 2013	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	86,497	$	5,310	$	2,779	$	94,586
Nonowner-occupied		51,119		7,107		3,882		62,108
Construction		27,998		-		974		28,972
Commercial and industrial		56,962		4,081		3,322		64,365
Total	$	222,576	$	16,498	$	10,957	$	250,031

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 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.

For residential and consumer loan classes, the Company 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 December 31, 2013 and December 31, 2012:

	Consumer
December 31, 2013	Automobile		Home Equity		Other		Residential Real Estate		Total
Performing	$	38,798	$	17,710	$	45,720	$	211,274	$	313,502
Nonperforming		13		38		1		2,734		2,786
Total	$	38,811	$	17,748	$	45,721	$	214,008	$	316,288

	Consumer
December 31, 2012	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 area of Ohio as well as the western counties of West Virginia.  Approximately 5.13% of total loans were unsecured at December 31, 2013, up from 4.87% at December 31, 2012.