Note 6 – Allowance for Loan Losses

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior one to five years. Management believes the five-year historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed. The actual allowance for loan loss activity is provided below.


	Three Months Ended						Nine Months Ended
	September 30						September 30
	2014			2013			2014			2013
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Balance at beginning of the period	$	15,660		$	19,565		$	15,992		$	18,270
Loans charged-off:
Commercial
Owner occupied real estate		—			6			—			138
Non owner occupied real estate		—			45			22			191
Residential development		—			—			—			—
Development & Spec Land Loans		—			—			173			—
Commercial and industrial		1,093			774			1,220			913

Total commercial		1,093			825			1,415			1,242
Real estate
Residential mortgage		31			416			225			559
Residential construction		—			—			—			—
Mortgage warehouse		—			—			—			—

Total real estate		31			416			225			559
Consumer
Direct Installment		74			88			151			195
Direct Installment Purchased		—			—			—			—
Indirect Installment		306			271			874			624
Home Equity		37			201			468			639

Total consumer		417			560			1,493			1,458

Total loans charged-off		1,541			1,801			3,133			3,259

Recoveries of loans previously charged-off:
Commercial
Owner occupied real estate		4			14			10			46
Non owner occupied real estate		10			1			85			3
Residential development		—			—			—			—
Development & Spec Land Loans		55			—			55			—
Commercial and industrial		18			111			435			147

Total commercial		87			126			585			196
Real estate
Residential mortgage		12			5			19			8
Residential construction		—			—			—			—
Mortgage warehouse		—			—			—			—

Total real estate		12			5			19			8
Consumer
Direct Installment		10			54			49			448
Direct Installment Purchased		—			—			—			—
Indirect Installment		165			202			431			372
Home Equity		26			—			137			32

Total consumer		201			256			617			852

Total loan recoveries		300			387			1,221			1,056

Net loans charged-off (recovered)		1,241			1,414			1,912			2,203

Provision charged to operating expense
Commercial		1,563			(940	)		1,682			802
Real estate		697			675			(290	)		986
Consumer		(519	)		994			688			1,025

Total provision charged to operating expense		1,741			729			2,080			2,813

Balance at the end of the period	$	16,160		$	18,880		$	16,160		$	18,880

Certain loans are individually evaluated for impairment, and the Company’s general practice is to proactively charge down impaired loans to the fair value of the underlying collateral.

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except 1-4 family residential properties and consumer, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges-off 1-4 family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down or specific allocation of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the value is known but no later than when a loan is 180 days past due. Pursuant to such guidelines, the Company also charges-off unsecured open-end loans when the loan is 90 days past due, and charges down to the net realizable value other secured loans when they are 90 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection in full will occur regardless of delinquency status, are not charged off.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment analysis:


September 30, 2014	Commercial		Real Estate		Mortgage Warehousing		Consumer		Total
Allowance For Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,175	$	—	$	—	$	—	$	1,175
Collectively evaluated for impairment		5,846		3,304		1,300		4,041		14,491
Loans acquired with deteriorated credit quality		494		—		—		—		494

Total ending allowance balance	$	7,515	$	3,304	$	1,300	$	4,041	$	16,160


Loans:
Individually evaluated for impairment	$	8,497	$	—	$	—	$	—	$	8,497
Collectively evaluated for impairment		669,867		252,807		105,613		309,774		1,338,061
Loans acquired with deteriorated credit quality		591		—		—		—		591

Total ending loans balance	$	678,955	$	252,807	$	105,613	$	309,774	$	1,347,149


December 31, 2013	Commercial		Real Estate		Mortgage Warehousing		Consumer		Total
Allowance For Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,312	$	—	$	—	$	—	$	1,312
Collectively evaluated for impairment		4,963		3,462		1,638		4,228		14,291
Loans acquired with deteriorated credit quality		389		—		—		—		389

Total ending allowance balance	$	6,664	$	3,462	$	1,638	$	4,228	$	15,992


Loans:
Individually evaluated for impairment	$	7,448	$	—	$	—	$	—	$	7,448
Collectively evaluated for impairment		489,547		186,526		98,636		279,448		1,054,157
Loans acquired with deteriorated credit quality		9,355		24		—		1,030		10,409

Total ending loans balance	$	506,350	$	186,550	$	98,636	$	280,478	$	1,072,014