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Note 4 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2014

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

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	June 30,		December 31,
	2014		2013
Residential real estate	$	212,729	$	214,008
Commercial real estate:
Owner-occupied		93,763		94,586
Nonowner-occupied		66,652		62,108
Construction		33,071		28,972
Commercial and industrial		78,403		64,365
Consumer:
Automobile		40,422		38,811
Home equity		18,066		17,748
Other		44,812		45,721
		587,918		566,319
Less: Allowance for loan losses		7,928		6,155

Loans, net	$	579,990	$	560,164

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

June 30, 2014	Residential Real Estate			Commercial Real Estate		Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,516		$	2,740	$	1,357		$	849		$	6,462
Provision for loan losses		444			383		201			358			1,386
Loans charged off		(139	)		----		(4	)		(197	)		(340	)
Recoveries		136			48		97			139			420
Total ending allowance balance	$	1,957		$	3,171	$	1,651		$	1,149		$	7,928

June 30, 2013	Residential Real Estate			Commercial Real Estate			Commercial and Industrial		Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,314		$	3,744		$	761	$	853		$	6,672
Provision for loan losses		(182	)		(715	)		565		143			(189	)
Loans charged-off		(100	)		----			----		(284	)		(384	)
Recoveries		160			5			16		188			369
Total ending allowance balance	$	1,192		$	3,034		$	1,342	$	900		$	6,468

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

June 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		751			451			173			505			1,880
Loans charged off		(193	)		(157	)		(4	)		(452	)		(806	)
Recoveries		149			70			177			303			699
Total ending allowance balance	$	1,957		$	3,171		$	1,651		$	1,149		$	7,928

June 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		145			(1,193	)		532		358			(158	)
Loans charged-off		(457	)		(2	)		----		(721	)		(1,180	)
Recoveries		175			283			27		416			901
Total ending allowance balance	$	1,192		$	3,034		$	1,342	$	900		$	6,468

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 June 30, 2014 and December 31, 2013:

June 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	$	230	$	1,194	$	907	$	6	$	2,337
Collectively evaluated for impairment		1,727		1,977		744		1,143		5,591
Total ending allowance balance	$	1,957	$	3,171	$	1,651	$	1,149	$	7,928

Loans:
Loans individually evaluated for impairment	$	1,421	$	10,724	$	5,910	$	219	$	18,274
Loans collectively evaluated for impairment		211,308		182,762		72,493		103,081		569,644
Total ending loans balance	$	212,729	$	193,486	$	78,403	$	103,300	$	587,918

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 table presents information related to loans individually evaluated for impairment by class of loans as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013:

June 30, 2014	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Residential real estate	$	896	$	896	$	230
Commercial real estate:
Nonowner-occupied		3,303		3,303		1,194
Commercial and industrial		2,289		2,289		907
Consumer:
Home equity		219		219		6
With no related allowance recorded:
Residential real estate		525		525		----
Commercial real estate:
Owner-occupied		2,330		1,783		----
Nonowner-occupied		6,238		5,638		----
Commercial and industrial		4,026		3,621		----
Total	$	19,826	$	18,274	$	2,337

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 June 30, 2014						Six months ended June 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	$	898	$	8	$	8	$	902	$	17	$	17
Commercial real estate:
Nonowner-occupied		3,317		40		40		3,330		74		74
Commercial and industrial		2,441		28		28		2,514		57		57
Consumer:
Home equity		219		2		2		219		4		4
With no related allowance recorded:
Residential real estate		525		6		6		526		14		14
Commercial real estate:
Owner-occupied		1,387		21		21		1,255		30		30
Nonowner-occupied		5,665		76		76		5,691		151		151
Commercial and industrial		1,811		79		79		1,207		79		79
Total	$	16,263	$	260	$	260	$	15,644	$	426	$	426

	Three months ended June 30, 2013						Six months ended June 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	$	426	$	4	$	4	$	424	$	8	$	8
Commercial real estate:
Nonowner-occupied		3,438		12		12		3,450		53		53
Commercial and industrial		1,759		68		68		1,173		68		68
With no related allowance recorded:
Residential real estate		475		10		10		481		13		13
Commercial real estate:
Owner-occupied		1,391		19		19		1,362		22		22
Nonowner-occupied		6,549		93		93		6,717		186		186
Commercial and industrial		----		----		----		----		----		----
Consumer:
Home equity		----		----		----		----		3		3
Total	$	14,038	$	206	$	206	$	13,607	$	353	$	353

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 June 30, 2014 and December 31, 2013:

June 30, 2014	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	94	$	3,058
Commercial real estate:
Owner-occupied		----		462
Commercial and industrial		----		2
Consumer:
Automobile		48		8
Home equity		----		55
Other		3		----
Total	$	145	$	3,585

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 June 30, 2014 and December 31, 2013:

June 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	$	2,237	$	721	$	2,772	$	5,730	$	206,999	$	212,729
Commercial real estate:
Owner-occupied		81		----		462		543		93,220		93,763
Nonowner-occupied		149		----		----		149		66,503		66,652
Construction		----		----		----		----		33,071		33,071
Commercial and industrial		758		156		2		916		77,487		78,403
Consumer:
Automobile		510		120		51		681		39,741		40,422
Home equity		130		26		55		211		17,855		18,066
Other		397		178		3		578		44,234		44,812
Total	$	4,262	$	1,201	$	3,345	$	8,808	$	579,110	$	587,918

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 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 June 30, 2014 and December 31, 2013:

	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
June 30, 2014
Residential real estate
Interest only payments	$	525	$	----	$	525
Rate reduction		414		----		414
Commercial real estate:
Owner-occupied
Rate reduction		----		254		254
Maturity extension at lower stated rate than market rate		1,067		----		1,067
Nonowner-occupied
Interest only payments		8,303		----		8,303
Reduction of principal and interest payments		638		----		638
Commercial and industrial
Interest only payments		5,025		----		5,025
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		219		----		219

Total TDR’s	$	16,191	$	254	$	16,445

	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 six months ended June 30, 2014, the TDR’s described above decreased the provision expense and the allowance for loan losses by $194 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 June 30, 2014, the balance in TDR loans increased $3,839, or 30.5%, from year-end 2013. The increase was largely due to the modification of three commercial loans totaling $4,388. 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. At June 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 $1,317 and $1,511 in reserves to customers whose loan terms have been modified in TDR’s as of June 30, 2014 and December 31, 2013, respectively. At June 30, 2014, the Company had $1,975 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 six months ended June 30, 2014 and 2013:

	TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Six months ended June 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	$	767	$	767	$	----	$	----
Commercial and industrial
Interest only payments		3,621		3,621		----		----
Total TDR’s	$	4,388	$	4,388	$	----	$	----

	TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Six months ended June 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	$	----	$	----
Total TDR’s	$	249	$	249	$	----	$	----

All of the Company’s loans that were restructured during the six months ended June 30, 2014 and 2013 were performing in accordance with their modified terms. Furthermore, there were no TDR’s described above at June 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 six months ended June 30, 2014 had no impact on the provision expense or the allowance for loan losses. As of June 30, 2014, the Company had no allocation of reserves to customers whose loan terms were modified during the first six months of 2014. The loans modified during the six months ended June 30, 2013 had no impact on the provision expense or the allowance for loan losses. As of June 30, 2013, the Company had no allocation of reserves to customers whose loan terms have been modified during the first six 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 June 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:

June 30, 2014	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	86,125	$	2,188	$	5,450	$	93,763
Nonowner-occupied		52,844		5,225		8,583		66,652
Construction		32,751		320		----		33,071
Commercial and industrial		71,137		494		6,772		78,403
Total	$	242,857	$	8,227	$	20,805	$	271,889

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 June 30, 2014 and December 31, 2013:

June 30, 2014	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	40,366	$	18,011	$	44,809	$	209,577	$	312,763
Nonperforming		56		55		3		3,152		3,266
Total	$	40,422	$	18,066	$	44,812	$	212,729	$	316,029

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 5.28% of total loans were unsecured at June 30, 2014, up from 5.13% at December 31, 2013.

- 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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