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Note 3 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2012

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:

	2012		2011
Residential real estate	$	226,022	$	238,490
Commercial real estate:
Owner-occupied		104,842		129,364
Nonowner-occupied		52,792		56,620
Construction		17,376		21,471
Commercial and industrial		57,239		45,200
Consumer:
Automobile		41,168		45,702
Home equity		18,332		20,507
Other		40,517		40,954
		558,288		598,308
Less: Allowance for loan losses		6,905		7,344

Loans, net	$	551,383	$	590,964

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

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

Activity in the allowance for loan losses was as follows:

	2010
Allowance for loan losses:
Beginning balance	$	8,198
Provision for loan losses		5,871
Loans charged off		(5,879	)
Recoveries		1,196
Total ending allowance balance	$	9,386

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, 2012 and 2011:

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

December 31, 2011	Residential Real Estate		Commercial Real Estate		Commercial & Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	130	$	525	$	-	$	-	$	655
Collectively evaluated for impairment		1,730		2,968		636		1,355		6,689
Total ending allowance balance	$	1,860	$	3,493	$	636	$	1,355	$	7,344

Loans:
Loans individually evaluated for impairment	$	1,505	$	9,733	$	334	$	-	$	11,572
Loans collectively evaluated for impairment		236,985		197,722		44,866		107,163		586,736
Total ending loans balance	$	238,490	$	207,455	$	45,200	$	107,163	$	598,308

The following table presents information related to loans individually evaluated for impairment by class of loans as of the year ended December 31, 2012 and December 31, 2011:

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	$	1,136	$	1,085	$	-	$	748	$	36	$	31
Commercial real estate:
Owner-occupied		2,774		2,531		-		2,418		207		309
Nonowner-occupied		4,131		4,131		-		4,339		174		57
Commercial and industrial		614		334		-		483		40		40

With an allowance recorded:
Residential real estate		420		420		130		84		27		22
Commercial real estate:
Nonowner-occupied		2,396		2,396		437		2,414		128		118
Construction		675		675		88		677		35		31

Total	$	12,146	$	11,572	$	655	$	11,163	$	647	$	608

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

The following table presents information for impaired loans as of December 31:

	2010

Average of individually impaired loans during year	$	24,589
Interest income recognized during impairment	$	1,158
Cash basis interest income recognized	$	1,083

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, 2012 and 2011:

	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

	Loans Past Due 90 Days And Still Accruing		Nonaccrual
December 31, 2011
Residential real estate	$	439	$	2,536
Commercial real estate:
Owner-occupied		-		125
Consumer:
Automobile		13		12
Home equity		-		5
Other		7		-

Total	$	459	$	2,678

The following table presents the aging of the recorded investment of past due loans by class of loans as of December 31, 2012 and 2011:

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

December 31, 2011	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	$	3,731	$	1,144	$	2,975	$	7,850	$	230,640	$	238,490
Commercial real estate:
Owner-occupied		182		-		125		307		129,057		129,364
Nonowner-occupied		-		232		-		232		56,388		56,620
Construction		204		-		-		204		21,267		21,471
Commercial and industrial		171		14		-		185		45,015		45,200
Consumer:
Automobile		864		110		13		987		44,715		45,702
Home equity		75		76		5		156		20,351		20,507
Other		506		162		7		675		40,279		40,954

Total	$	5,733	$	1,738	$	3,125	$	10,596	$	587,712	$	598,308

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, 2012 and December 31, 2011:

	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

	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
December 31, 2011
Residential real estate
Interest only payments	$	-	$	283	$	283
Rate reduction		420		-		420
Commercial real estate:
Owner-occupied
Interest only payments		680		-		680
Rate reduction		449		-		449
Maturity extension at lower stated rate than market rate		219		-		219
Nonowner-occupied
Interest only payments		6,296		-		6,296
Construction
Interest only payments		674		-		674
Commercial and industrial
Interest only payments		334		-		334

Total TDR’s	$	9,072	$	283	$	9,355

The troubled debt restructurings described above increased the allowance for loan losses by $2,169 and $33, resulted in charge-offs of $536 and $271 during the years ended December 31, 2012 and 2011.

At December 31, 2012, the balance in TDR loans increased $7,599, or 81.2%, from year-end 2011. This was largely impacted by the modification of two commercial real estate loans totaling $10,206. During the first quarter of 2012, the contractual terms of one commercial real estate loan totaling $4,222 were adjusted, reducing principal and interest payments that created a concession to the borrower. During the fourth quarter of 2012, the contractual terms of one commercial real estate loan totaling $5,984 were adjusted to permit short-term, interest-only payments that created a concession to the borrower. At December 31, 2012 and December 31, 2011, 93% and 97% of the Company’s TDR’s were performing according to their modified terms, respectively. The Company allocated $2,107 and $655 in reserves to customers whose loan terms have been modified in TDR’s as of December 31, 2012 and December 31, 2011, respectively. At December 31, 2012, the Company had $109 in commitments to lend additional amounts to customers with outstanding loans that are classified as TDR’s, as compared to $81 at December 31, 2011.

The following table presents the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the year ended December 31, 2012 and 2011:

	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	$	4,266	$	4,222		-		-
Nonowner-occupied
Interest only payments		5,984		5,984		-		-
Reduction of principal and interest payments		686		671		-		-

Total TDR’s	$	10,936	$	10,877		-		-

	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, 2011
Commercial real estate:
Owner-occupied
Rate reduction	$	959	$	868		-		-
Maturity extension at lower stated rate than market rate		226		219		-		-
Nonowner-occupied
Interest only payments		400		400		-		-

Total TDR’s	$	1,585	$	1,487		-		-

All of the Company’s TDR’s that occurred during the years ended December 31, 2012 and 2011 were performing in accordance with their modified term. Furthermore, there were no TDR’s described above at December 31, 2012 and 2011 that experienced any payment defaults within twelve months following the 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 during the year ended December 31, 2012 had no impact on the allowance for losses or charge-offs. The TDR’s described above during the year ended December 31, 2011 increased the allowance for loan losses by $544 and resulted in charge-offs of $414. The Company had no specific allocations reserved to customers whose loan terms have been modified during the year ended December 31, 2012. The Company had allocated $130 of reserves to customers whose loan terms have been modified during the year ended December 31, 2011.

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, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of commercial loans by class of loans is as follows:

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

December 31, 2011	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	103,743	$	15,030	$	10,591	$	129,364
Nonowner-occupied		30,375		12,815		13,430		56,620
Construction		19,519		-		1,952		21,471
Commercial and industrial		36,633		3,250		5,317		45,200
Total	$	190,270	$	31,095	$	31,290	$	252,655

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, 2012 and December 31, 2011:

	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

	Consumer
December 31, 2011	Automobile		Home Equity		Other		Residential Real Estate		Total
Performing	$	45,677	$	20,502	$	40,947	$	235,515	$	342,641
Nonperforming		25		5		7		2,975		3,012
Total	$	45,702	$	20,507	$	40,954	$	238,490	$	345,653

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 4.87% of total loans were unsecured at December 31, 2012, up from 3.98% at December 31, 2011.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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