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Note 5 - Allowance for Loan Losses

12 Months Ended

Dec. 31, 2015

Disclosure Text Block Supplement [Abstract]

Allowance for Credit Losses [Text Block]

(5) Allowance for Loan Losses

Changes in the allowance for loan losses for the years ended December 31 are as follows:

	2015			2014			2013

Balance, Beginning of Year	$	8,802,316		$	11,805,986		$	12,736,921

Provision for Loan Losses		865,500			1,308,000			4,485,000
Loans Charged Off		(2,083,347	)		(5,104,491	)		(6,227,716	)
Recoveries of Loans Previously Charged Off		1,019,436			792,821			811,781

Balance, End of Year	$	8,603,905		$	8,802,316		$	11,805,986

The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the years ended December 31. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other loan categories and periodically may result in reallocation within the provision categories.

2015	Beginning Balance		Charge-Offs			Recoveries		Provision			Ending Balance

Commercial and Agricultural
Commercial	$	497,561	$	(454,971	)	$	52,111	$	760,663		$	855,364
Agricultural		304,172		(5,000	)		3,600		(99,681	)		203,091

Real Estate
Commercial Construction		1,222,695		(97,698	)		485,834		(920,065	)		690,766
Residential Construction		138,092		-			-		(118,202	)		19,890
Commercial		3,664,777		(275,297	)		270,003		191,044			3,850,527
Residential		2,425,327		(929,668	)		109,626		385,070			1,990,355
Farmland		103,800		(40,000	)		20,000		827,892			911,692

Consumer and Other
Consumer		66,914		(255,062	)		61,976		189,549			63,377
Other		378,978		(25,651	)		16,286		(350,770	)		18,843

	$	8,802,316	$	(2,083,347	)	$	1,019,436	$	865,500		$	8,603,905

2014

Commercial and Agricultural
Commercial	$	1,017,073	$	(624,944	)	$	76,002	$	29,430		$	497,561
Agricultural		293,886		-			2,700		7,586			304,172

Real Estate
Commercial Construction		1,782,179		(1,543,099	)		485,005		498,610			1,222,695
Residential Construction		138,092		-			-		-			138,092
Commercial		4,379,276		(1,326,825	)		90,042		522,284			3,664,777
Residential		3,278,269		(1,033,966	)		31,127		149,897			2,425,327
Farmland		311,494		(233,580	)		20,000		5,886			103,800

Consumer and Other
Consumer		243,253		(342,077	)		72,477		93,261			66,914
Other		362,464		-			15,468		1,046			378,978

	$	11,805,986	$	(5,104,491	)	$	792,821	$	1,308,000		$	8,802,316

2013	Beginning Balance		Charge-Offs			Recoveries		Provision		Ending Balance

Commercial and Agricultural
Commercial	$	981,021	$	(120,690	)	$	55,829	$	100,913	$	1,017,073
Agricultural		296,175		(34,502	)		6,200		26,013		293,886

Real Estate
Commercial Construction		1,890,200		(2,071,162	)		253,459		1,709,682		1,782,179
Residential Construction		138,092		-			-		-		138,092
Commercial		5,162,839		(2,872,408	)		297,984		1,790,861		4,379,276
Residential		3,405,947		(706,242	)		64,583		513,981		3,278,269
Farmland		290,526		(20,977	)		21,762		20,183		311,494

Consumer and Other
Consumer		227,774		(397,822	)		93,520		319,781		243,253
Other		344,347		(3,913	)		18,444		3,586		362,464

	$	12,736,921	$	(6,227,716	)	$	811,781	$	4,485,000	$	11,805,986

The loss history period used at December 31, 2015, 2014 and 2013 was based on the loss rate from the eight quarters ended September 30, 2015, 2014 and 2013, respectively.

The Company’s allowance for loan losses consists of specific valuation allowances established for probable losses on specific loans and historical valuation allowances for other loans with similar risk characteristics. Effective with the quarter ended June 30, 2015, the calculation of the amount needed in the Allowance for Loan Losses changed. Management determined that the segmentation method for the ASC 450-20 portion of the loan portfolio should be changed to bank call report categories. Prior to this change, the ASC 450-20 segmentation categorized loans by various non-owner occupied commercial real estate loan types and risk grades for the remainder of the ASC 450-20 portion of the portfolio. On the date of change, June 30, 2015, the change in methodology resulted in an increase to the calculated allowance for loan loss reserve of $1,621,424; however, no additional provisions were required to be recorded as a result of the change.

During 2014, management changed its methodology for calculating the allowance for loan losses to better reflect the estimated losses inherent in the portfolio. Specific changes included:

●

Reducing the historical loss ratios by including loan loss recoveries in the calculation. Previously, management included only the loan charge-off amount and did not consider the effect of subsequent recoveries.

●

Reducing the balance of those loans which are guaranteed by government agencies, such as SBA loans. Previously, the entire balance of such loans was considered in the calculation of the general reserves; however, beginning in 2014, only the nonguaranteed portion of these loans is subject to the loss calculation.

Management feels these changes better align the calculation of the allowance for loan losses with the direction of the loan portfolio. These changes did not result in a significant change to the recorded allowance for loan loss balance.

During the third quarter of 2013, management implemented a change to its methodology for calculating the allowance for loan losses. This change was intended to better reflect the current position of the loan portfolio. Prior to the third quarter, the allowance for loan loss calculation incorporated a qualitative factor related to improvements in credit administration. These improvements, which began in 2008, included organizational changes to credit administration, specifically related to managing past due loans, grading of loans, recognition of losses and underwriting of new loans. Primary among the organizational changes was the appointment of experienced lending officers to oversee the lending function, as well as the appointment of a chief credit officer. Management feels these organizational changes are now fully implemented, as evidenced by a lower charge-off rate and, therefore, the qualitative factor is no longer relevant. The removal of this qualitative factor did not result in a significant adjustment to the recorded allowance for loan loss balance.

The Company determines its individual reserves during its quarterly review of substandard loans. This process involves reviewing all loans with a risk grade of 6 or greater and an outstanding balance of $250,000 or more, regardless of the loans impairment classification. Effective March 31, 2013, management increased the dollar threshold of this review process from $50,000 to $250,000. The threshold change resulted in loans totaling $4.1 million at December 31, 2013 being removed from the individual impairment review process and being placed in the collective review process.

Since not all loans in the substandard category are considered impaired, this quarterly review process may result in the identification of specific reserves on nonimpaired loans. Management considers those loans graded substandard, but not classified as impaired, to be higher risk loans and, therefore, makes specific allocations to the allowance for those loans if warranted. The total of such loans is $11,155,813 and $9,356,253 as of December 31, 2015 and 2014, respectively. Specific allowance allocations were made for these loans totaling $276,731 and $747,982 as of December 31, 2015 and 2014, respectively. Since these loans are not considered impaired, both the loan balance and related specific allocation are included in the “Collectively Evaluated for Impairment” column of the following tables.

At December 31, 2015, impaired loans totaling $3,744,733 were below the $250,000 review threshold and were not individually reviewed for impairment. Those loans were subject to the Bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables. Likewise, at December 31, 2014 and 2013, impaired loans totaling $3,885,411 and $2,821,199, respectively, were below the $250,000 review threshold and were subject to the Bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables.

Ending Allowance Balance

Ending Loan Balance

2015

Individually

Evaluated for Impairment

Collectively

Evaluated for Impairment

Total

Individually

Evaluated for Impairment

Collectively

Evaluated for Impairment

Total

Commercial and Agricultural

Commercial

94,538

760,826

855,364

122,928

47,658,761

47,781,689

Agricultural

203,091

8,445

19,185,052

19,193,497

Real Estate

Commercial Construction

25,344

665,422

690,766

1,622,560

38,484,073

40,106,633

Residential Construction

19,890

9,413,263

Commercial

1,607,962

2,242,565

3,850,527

23,628,213

322,633,820

346,262,033

Residential

308,188

1,682,167

1,990,355

3,597,386

193,405,033

197,002,419

Farmland

37,386

874,306

911,692

1,402,939

60,376,920

61,779,859

Consumer and Other

Consumer

63,377

20,605,465

Other

18,843

16,490,737

Total End of Year Balance

2,073,418

6,530,487

8,603,905

30,382,471

728,253,124

758,635,595

	Ending Allowance Balance						Ending Loan Balance
2014	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total

Commercial and Agricultural
Commercial	$	96,580	$	400,981	$	497,561	$	96,580	$	50,863,685	$	50,960,265
Agricultural		-		304,172		304,172		-		16,689,444		16,689,444

Real Estate
Commercial Construction		53,947		1,168,748		1,222,695		3,384,377		47,874,593		51,258,970
Residential Construction		-		138,092		138,092		-		11,220,683		11,220,683
Commercial		456,941		3,207,836		3,664,777		21,693,061		310,537,786		332,230,847
Residential		414,684		2,010,643		2,425,327		7,559,965		196,192,655		203,752,620
Farmland		28,962		74,838		103,800		1,700,793		48,250,191		49,950,984

Consumer and Other
Consumer		-		66,914		66,914		-		22,820,314		22,820,314
Other		-		378,978		378,978		-		7,209,682		7,209,682

Total End of Year Balance	$	1,051,114	$	7,751,202	$	8,802,316	$	34,434,776	$	711,659,033	$	746,093,809

2013

Commercial and Agricultural
Commercial	$	433,714	$	583,359	$	1,017,073	$	1,542,058	$	46,565,390	$	48,107,448
Agricultural		-		293,886		293,886		-		10,665,938		10,665,938

Real Estate
Commercial Construction		830,546		951,633		1,782,179		7,971,298		44,767,485		52,738,783
Residential Construction		-		138,092		138,092		-		6,549,260		6,549,260
Commercial		423,685		3,955,591		4,379,276		24,757,942		317,025,596		341,783,538
Residential		526,005		2,752,264		3,278,269		6,545,490		199,712,437		206,257,927
Farmland		85,500		225,994		311,494		1,617,206		45,417,220		47,034,426

Consumer and Other
Consumer		-		243,253		243,253		-		25,675,560		25,675,560
Other		-		362,464		362,464		9,146		12,396,436		12,405,582

Total End of Year Balance	$	2,299,450	$	9,506,536	$	11,805,986	$	42,443,140	$	708,775,322	$	751,218,462