Note 4 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2014

Receivables [Abstract]

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

         NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	September 30,		December 31,
	2014		2013
Residential real estate	$	210,898	$	214,008
Commercial real estate:
Owner-occupied		93,742		94,586
Nonowner-occupied		67,224		62,108
Construction		29,799		28,972
Commercial and industrial		80,413		64,365
Consumer:
Automobile		41,745		38,811
Home equity		17,698		17,748
Other		45,352		45,721
		586,871		566,319
Less: Allowance for loan losses		6,964		6,155
Loans, net	$	579,907	$	560,164

         The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2014 and 2013:

September 30, 2014	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,957		$	3,171		$	1,651		$	1,149		$	7,928
Provision for loan losses		(240	)		(551	)		(90	)		199			(682	)
Loans charged off		(157	)		(78	)		(37	)		(363	)		(635	)
Recoveries		99			3			114			137			353
Total ending allowance balance	$	1,659		$	2,545		$	1,638		$	1,122		$	6,964

September 30, 2013	Residential Real Estate			Commercial Real Estate		Commercial and Industrial		Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,192		$	3,034	$	1,342	$	900		$	6,468
Provision for loan losses		173			313		291		56			833
Loans charged-off		(94	)		----		----		(256	)		(350	)
Recoveries		80			48		14		173			315
Total ending allowance balance	$	1,351		$	3,395	$	1,647	$	873		$	7,266

    The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2014 and 2013:

September 30, 2014	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,250		$	2,807		$	1,305		$	793		$	6,155
Provision for loan losses		511			(100	)		83			704			1,198
Loans charged off		(350	)		(235	)		(41	)		(815	)		(1,441	)
Recoveries		248			73			291			440			1,052
Total ending allowance balance	$	1,659		$	2,545		$	1,638		$	1,122		$	6,964

September 30, 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		318			(880	)		823		414			675
Loans charged-off		(551	)		(2	)		----		(977	)		(1,530	)
Recoveries		255			331			41		589			1,216
Total ending allowance balance	$	1,351		$	3,395		$	1,647	$	873		$	7,266

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 September 30, 2014 and December 31, 2013:

September 30, 2014	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	$	115	$	670	$	898	$	5	$	1,688
Collectively evaluated for impairment		1,544		1,875		740		1,117		5,276
Total ending allowance balance	$	1,659	$	2,545	$	1,638	$	1,122	$	6,964
Loans:
Loans individually evaluated for impairment	$	1,829	$	11,840	$	5,612	$	218	$	19,499
Loans collectively evaluated for impairment		209,069		178,925		74,801		104,577		567,372
Total ending loans balance	$	210,898	$	190,765	$	80,413	$	104,795	$	586,871

December 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	$	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

The following tables present information related to loans individually evaluated for impairment by class of loans as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013:

September 30, 2014	Unpaid  Principal  Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Residential real estate	$	411	$	411	$	115
Commercial real estate:
Nonowner-occupied		3,295		3,295		670
Commercial and industrial		2,309		2,309		898
Consumer:
Home equity		218		218		5
With no related allowance recorded:
Residential real estate		1,418		1,418		----
Commercial real estate:
Owner-occupied		3,491		2,944		----
Nonowner-occupied		6,201		5,601		----
Commercial and industrial		4,056		3,303		----
Total	$	21,399	$	19,499	$	1,688

December 31, 2013	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Residential real estate	$	672	$	672	$	213
Commercial real estate:
Owner-occupied		290		290		157
Nonowner-occupied		3,357		3,357		1,384
Commercial and industrial		2,658		2,658		864
Consumer:
Home equity		218		218		7
With no related allowance recorded:
Residential real estate		766		766		----
Commercial real estate:
Owner-occupied		1,539		992		----
Nonowner-occupied		6,343		5,743		----
Commercial and industrial		412		----		----
Total	$	16,255	$	14,696	$	2,625

	Three months ended September 30, 2014						Nine months ended September 30, 2014
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average Impaired Loans		Interest  Income  Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Residential real estate	$	412	$	5	$	5	$	416	$	22	$	22
Commercial real estate:
Owner-occupied		-		-		-		-		-		-
Nonowner-occupied		3,299		18		18		3,321		92		92
Commercial and industrial		2,299		26		26		2,462		83		83
Consumer:
Home equity		218		1		1		218		5		5
With no related allowance recorded:
Residential real estate		971		36		36		749		50		50
Commercial real estate:
Owner-occupied		2,364		61		61		1,678		91		91
Nonowner-occupied		5,620		76		76		5,669		227		227
Commercial and industrial		3,462		71		71		1,731		150		150
Consumer:
Home equity		-		-		-		-		-		-
Total	$	18,645	$	294	$	294	$	16,244	$	720	$	720

	Three months ended September 30, 2013						Nine months ended September 30, 2013
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average  Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Residential real estate	$	552	$	17	$	17	$	487	$	25	$	25
Commercial real estate:
Owner-occupied		145		----		----		73		----		----
Nonowner-occupied		3,422		41		41		3,439		94		94
Commercial and industrial		3,259		39		39		1,629		107		107
Consumer:
Home equity		109		8		8		54		8		8
With no related allowance recorded:
Residential real estate		611		12		12		544		25		25
Commercial real estate:
Owner-occupied		1,479		9		9		1,391		31		31
Nonowner-occupied		5,974		81		81		6,513		267		267
Commercial and industrial		-		-		-		-		-		-
Consumer:
Home equity		----		----		----		----		3		3
Total	$	15,551	$	207	$	207	$	14,130	$	560	$	560

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 September 30, 2014 and December 31, 2013:

September 30, 2014	Loans Past Due 90 Days And Still Accruing		Nonaccrual
Residential real estate	$	129	$	3,070
Commercial real estate:
Owner-occupied		----		1,426
Consumer:
Automobile		8		25
Home equity		----		43
Other		----		69
Total	$	137	$	4,633

December 31, 2013	Loans Past Due 90 Days And Still Accruing		Nonaccrual
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

The following table presents the aging of the recorded investment of past due loans by class of loans as of September 30, 2014 and December 31, 2013:

September 30, 2014	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	$	1,950	$	1,203	$	3,018	$	6,171	$	204,727	$	210,898
Commercial real estate:
Owner-occupied		----		209		1,426		1,635		92,107		93,742
Nonowner-occupied		278		----		----		278		66,946		67,224
Construction		1,270		----		----		1,270		28,529		29,799
Commercial and industrial		30		101		----		131		80,282		80,413
Consumer:
Automobile		490		145		19		654		41,091		41,745
Home equity		74		----		43		117		17,581		17,698
Other		272		152		69		493		44,859		45,352
Total	$	4,364	$	1,810	$	4,575	$	10,749	$	576,122	$	586,871

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

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 credit or 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 September 30, 2014 and December 31, 2013:

	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified  Terms		Total TDR’s
September 30, 2014
Residential real estate
Interest only payments	$	523	$	----	$	523
Rate reduction		411		----		411
Commercial real estate:
Owner-occupied
Rate reduction		----		249		249
Maturity extension at lower stated rate than market rate		1,062		----		1,062
Nonowner-occupied
Interest only payments		8,263		----		8,263
Reduction of principal and interest payments		633		----		633
Commercial and industrial
Interest only payments		5,217		----		5,217
Credit extension at lower stated rate than market rate		395		----		395
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		218		----		218
Total TDR’s	$	16,722	$	249	$	16,971

	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

During the nine months ended September 30, 2014, the TDR’s described above decreased the provision expense and the allowance for loan losses by $687 with no corresponding charge-offs. 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.

At September 30, 2014, the balance in TDR loans increased $4,365, or 34.6%, from year-end 2013. The increase was largely due to the modification of four commercial loans totaling $4,065 at September 30, 2014. During the second quarter of 2014, the contractual terms of two commercial and industrial loans totaling $3,621 were adjusted to permit short-term, interest-only payments, which created a concession to the borrower. During the second quarter of 2014, the contractual maturity of one commercial real estate loan totaling $767 was extended at an interest rate lower than the current market rate for new debt with similar risk, which created a concession to the borrower. During the third quarter of 2014, new credit was extended to a commercial borrower totaling $395 at an interest rate lower than the current market rate for new debt with similar risk, which created a concession to the borrower. At September 30, 2014 and December 31, 2013, a total of 98% of the Company’s TDR’s were performing according to their modified terms. The Company allocated $1,688 and $2,375 in reserves to customers whose loan terms have been modified in TDR’s as of September 30, 2014 and December 31, 2013, respectively. At September 30, 2014, the Company had $3,083 in commitments to lend additional amounts to customers with outstanding loans that are classified as TDR’s, as compared to $718 at December 31, 2013.

The following table presents the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the nine months ended September 30, 2014 and 2013:

	TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Nine months ended September 30, 2014	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Pre- Modification Recorded  Investment		Post- Modification Recorded  Investment
Commercial real estate:
Owner-occupied
Maturity extension at lower stated rate than market rate	$	762	$	762	$	----	$	----
Commercial and industrial
Interest only payments		2,908		2,908		----		----
Maturity extension at lower stated rate than market rate		395		395		----		----
Total TDR’s	$	4,065	$	4,065	$	----	$	----

	TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Nine months ended September 30, 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	$	----	$	----
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		218		218		----		----
Total TDR’s	$	467	$	467	$	----	$	----

All of the Company’s loans that were restructured during the nine months ended September 30, 2014 and 2013 were performing in accordance with their modified terms. Furthermore, there were no TDR’s described above at September 30, 2014 and 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 loans modified during the nine months ended September 30, 2014 had no impact on the provision expense or the allowance for loan losses. As of September 30, 2014, the Company had no allocation of reserves to customers whose loan terms were modified during the first nine months of 2014. The loans modified during the nine months ended September 30, 2013 increased provision expense and the allowance for loan losses by $7. As a result, at September 30, 2013, the Company had an allocation of reserves totaling $7 to customers whose loan terms had been modified during the first nine 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 or 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 September 30, 2014 and December 31, 2013, and based on the most recent analysis performed, the risk category of commercial loans by class of loans was as follows:

September 30, 2014	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	87,614	$	959	$	5,169	$	93,742
Nonowner-occupied		55,325		3,357		8,542		67,224
Construction		29,799		----		----		29,799
Commercial and industrial		73,440		477		6,496		80,413
Total	$	246,178	$	4,793	$	20,207	$	271,178

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

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.

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 repayment activity as of September 30, 2014 and December 31, 2013:

September 30, 2014	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total
Performing	$	41,712	$	17,655	$	45,283	$	207,699	$	312,349
Nonperforming		33		43		69		3,199		3,344
Total	$	41,745	$	17,698	$	45,352	$	210,898	$	315,693

December 31, 2013	Consumer
	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

The Company, through its subsidiaries, originates 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 5.67% of total loans were unsecured at September 30, 2014, up from 5.13% at December 31, 2013.