Note 4. Allowance for Loan Losses and Credit Quality Indicators

Allowance for Loan Losses

The allowance for loan losses is maintained at a level management deems sufficient to absorb probable loan losses inherent in the loan portfolio. The allowance is increased by charges to earnings in the form of provision for loan losses and recoveries of prior loan charge-offs, and decreased by loans charged off. The provision is calculated to bring the allowance to a level which, according to a systematic process of measurement, reflects the amount management estimates is needed to absorb probable losses within the portfolio. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates, and the view of the regulatory authorities toward loan classifications. Purchased credit impaired loan pools are evaluated separately from the non-purchased credit impaired portfolio for impairment.

Management performs quarterly assessments to determine the appropriate level of allowance for loan losses. Differences between actual loan loss experience and estimates are reflected through adjustments that are made by increasing or decreasing the allowance based upon current measurement criteria. Commercial, consumer real estate, and non-real estate consumer loan portfolios are evaluated separately for purposes of determining the allowance. The specific components of the allowance include allocations to individual commercial loans and credit relationships and allocations to the remaining nonhomogeneous and homogeneous pools of loans that have been deemed impaired. Additionally, a loan that becomes adversely classified or graded is removed from a group of loans with similar risk characteristics that are not classified or graded to evaluate the removed loan collectively in a group of adversely classified or graded loans with similar risk characteristics. Management’s general reserve allocations are based on judgment of qualitative and quantitative factors about macro and micro economic conditions reflected within the portfolio of loans and the economy as a whole. Factors considered in this evaluation include, but are not necessarily limited to, probable losses from loan and other credit arrangements, general economic conditions, changes in credit concentrations or pledged collateral, historical loan loss experience, and trends in portfolio volume, maturities, composition, delinquencies, and nonaccruals. Historical loss rates for each risk grade of commercial loans are adjusted by environmental factors to estimate the amount of reserve needed by segment. While management has allocated the allowance for loan losses to various portfolio segments, the entire allowance is available for use against any type of loan loss deemed appropriate by management.

Purchased performing loans are recorded at fair value and include credit and interest rate marks associated with acquisition accounting adjustments, as accounted for under the contractual cash flow method of accounting. The fair value adjustment is accreted as an adjustment to yield over the estimated contractual lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. A provision for loan losses is recorded for any credit deterioration in these loans subsequent to the acquisition. In accordance with GAAP, there was no carryover of previously established allowance for loan losses on acquired portfolios.

The following tables detail activity within the allowance for loan losses, by portfolio segment, for the dates indicated:


	Three Months Ended March 31,
	2013												2012
				Consumer			Consumer									Consumer			Consumer
	Commercial			Real Estate			and Other			Total			Commercial			Real Estate			and Other			Total
(Amounts in thousands)
Beginning balance	$	17,267		$	7,906		$	597		$	25,770		$	17,752		$	7,711		$	742		$	26,205
Provision for loan losses		483			480			179			1,142			262			618			42			922
Loans charged off		(783	)		(1,396	)		(580	)		(2,759	)		(253	)		(1,105	)		(204	)		(1,562	)
Recoveries credited to allowance		283			13			401			697			104			35			96			235

Net charge-offs		(500	)		(1,383	)		(179	)		(2,062	)		(149	)		(1,070	)		(108	)		(1,327	)

Ending balance	$	17,250		$	7,003		$	597		$	24,850		$	17,865		$	7,259		$	676		$	25,800

Credit Quality Indicators

The Company identifies loans for potential impairment through a variety of means including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If it is determined that it is probable that the Company will not collect all principal and interest amounts contractually due, the loan is generally deemed to be impaired.

During the quarterly cash flow analysis, three of the Company’s seven purchased credit impaired loan pools were deemed impaired. These pools had a combined recorded investment of $20.08 million, a current unpaid principal balance of $26.61 million, and impairment of $276 thousand at March 31, 2013. For the three months ended March 31, 2013, the Company had an average recorded investment of $20.23 million and recognized interest income of $84 thousand in connection with the impaired loan pools. These amounts are not included in the tables below.


	March 31, 2013						December 31, 2012
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(Amounts in thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans with no related allowance:
Commercial loans
Construction, development, and other land	$	1,473	$	1,675	$	—	$	2,916	$	2,916	$	—
Commercial and industrial		913		912		—		284		284		—
Multi-family residential		70		87		—		—		—		—
Single family non-owner occupied		1,299		2,301		—		383		684		—
Non-farm, non-residential		6,628		7,227		—		5,282		5,362		—
Agricultural		—		—		—		—		—		—
Farmland		177		197		—		—		—		—
Consumer real estate loans
Home equity lines		321		444		—		276		277		—
Single family owner occupied		816		1,449		—		277		383		—
Owner occupied construction		—		—		—		—		—		—
Consumer and other loans
Consumer loans		—		—		—		—		—		—

Total impaired loans with no allowance		11,697		14,292		—		9,418		9,906		—

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		5,339		5,356		1,822		—		—		—
Commercial and industrial		3,108		8,236		3,100		3,318		8,502		3,192
Multi-family residential		375		396		15		378		397		18
Single family non-owner occupied		1,046		1,107		204		2,411		2,460		996
Non-farm, non-residential		2,730		2,926		430		2,781		2,958		358
Agricultural		—		—		—		—		—		—
Farmland		—		—		—		—		—		—
Consumer real estate loans
Home equity lines		222		230		222		223		230		223
Single family owner occupied		4,296		4,550		608		4,673		4,903		806
Owner occupied construction		—		—		—		—		—		—
Consumer and other loans
Consumer loans		—		—		—		—		—		—

Total impaired loans with an allowance		17,116		22,801		6,401		13,784		19,450		5,593

Total impaired loans	$	28,813	$	37,093	$	6,401	$	23,202	$	29,356	$	5,593


	For the Three Months Ended				For the Three Months Ended
	March 31, 2013				March 31, 2012
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Amounts in thousands)	Investment		Recognized		Investment		Recognized
Impaired loans with no related allowance:
Commercial loans
Construction, development, and other land	$	2,195	$	43	$	30	$	—
Commercial and industrial		599		11		483		—
Multi-family residential		35		2		596		—
Single family non-owner occupied		841		79		1,514		9
Non-farm, non-residential		5,955		212		2,684		10
Agricultural		—		—		—		—
Farmland		88		9		—		—
Consumer real estate loans
Home equity lines		298		25		502		6
Single family owner occupied		547		70		7,185		21
Owner occupied construction		—		—		—		—
Consumer and other loans
Consumer loans		—		—		2		—

Total impaired loans with no allowance		10,558		451		12,996		46

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		2,670		117		111		1
Commercial and industrial		3,217		—		2,210		—
Multi-family residential		376		7		—		—
Single family non-owner occupied		1,728		3		2,541		31
Non-farm, non-residential		2,756		26		7,310		91
Agricultural		—		—		—		—
Farmland		—		—		—		—
Consumer real estate loans
Home equity lines		222		3		—		—
Single family owner occupied		4,485		37		3,372		25
Owner occupied construction		—		—		—		—
Consumer and other loans
Consumer loans		—		—		—		—

Total impaired loans with an allowance		15,454		193		15,544		148

Total impaired loans	$	26,012	$	644	$	28,540	$	194

The following tables detail the Company’s recorded investment in loans related to each segment in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology at March 31, 2013, and December 31, 2012.


	March 31, 2013
	Non-acquired		Allowance		Loans		Allowance		Acquired		Allowance
	Loans Individually		for Loans		Collectively		for Loans		Impaired Loans		for Acquired
	Evaluated for		Individually		Evaluated for		Collectively		Evaluated for		Impaired Loans
(Amounts in thousands)	Impairment		Evaluated		Impairment		Evaluated		Impairment		Evaluated
Commercial loans
Construction, development, and other land	$	6,812	$	1,822	$	58,022	$	885	$	14,881	$	—
Commercial and industrial		4,013		3,100		89,818		1,002		3,040		8
Multi-family residential		445		15		65,407		1,486		626		—
Single family non-owner occupied		2,345		204		135,636		3,303		9,025		—
Non-farm, non-residential		9,358		430		441,359		4,595		32,366		—
Agricultural		—		—		2,244		24		1		—
Farmland		177		—		34,099		372		876		—

Total commercial loans		23,150		5,571		826,585		11,672		60,815		8
Consumer real estate loans
Home equity lines		543		222		137,680		1,265		50,625		—
Single family owner occupied		5,112		608		481,047		4,586		7,320		—
Owner occupied construction		—		—		20,292		321		1,096		—

Total consumer real estate loans		5,655		830		639,019		6,172		59,041		—
Consumer and other loans
Consumer loans		—		—		70,664		516		760		—
Other		—		—		3,603		81		—		—

Total consumer and other loans		—		—		74,267		597		760		—

Total loans	$	28,805	$	6,401	$	1,539,871	$	18,441	$	120,616	$	8


	December 31, 2012
	Non-acquired		Allowance		Loans		Allowance		Acquired		Allowance
	Loans Individually		for Loans		Collectively		for Loans		Impaired Loans		for Acquired
	Evaluated for		Individually		Evaluated for		Collectively		Evaluated for		Impaired Loans
(Amounts in thousands)	Impairment		Evaluated		Impairment		Evaluated		Impairment		Evaluated
Commercial loans
Construction, development, and other land	$	2,916	$	—	$	55,369	$	1,214	$	25,744	$	—
Commercial and industrial		3,602		3,192		88,540		1,159		3,544		8
Multi-family residential		378		18		67,278		1,612		649		—
Single family non-owner occupied		2,794		858		134,323		3,509		10,223		—
Non-farm, non-residential		8,063		358		451,240		4,901		38,072		—
Agricultural		—		—		1,852		22		1		—
Farmland		—		—		34,779		416		882		—

Total commercial loans		17,753		4,426		833,381		12,833		79,115		8
Consumer real estate loans
Home equity lines		499		223		139,706		1,351		50,343		—
Single family owner occupied		4,950		944		483,559		5,051		8,005		—
Owner occupied construction		—		—		16,768		337		1,099		—

Total consumer real estate loans		5,449		1,167		640,027		6,739		59,447		—
Consumer and other loans
Consumer loans		—		—		81,037		597		800		—
Other		—		—		5,666		—		—		—

Total consumer and other loans		—		—		86,703		597		800		—

Total loans	$	23,202	$	5,593	$	1,560,111	$	20,169	$	139,362	$	8

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk rating of commercial loans, the level of classified commercial loans, net charge-offs, nonperforming loans, and general economic conditions. The Company’s loan review function generally reviews all commercial loan relationships greater than $3.0 million on an annual basis and at various times through the year. Smaller commercial and retail loans are sampled for review throughout the year by our internal loan review department. Through the loan review process, loans are identified for upgrade or downgrade in risk rating and changed to reflect current information as part of the process.

The Company aggregates purchase credit impaired loans with common risk characteristics into the following loan pools: construction and development, commercial and industrial, commercial real estate, consumer, home equity lines of credit, residential real estate – 1st lien, residential real estate – 2nd lien, and lines of credit. However, these loan pools are disaggregated in the following tables for disclosure purposes.

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. A description of the general characteristics of the risk grades is as follows:

•

Pass – This grade includes loans to borrowers of acceptable credit quality and risk. The Company further differentiates within this grade based upon borrower characteristics which include: capital strength, earnings stability, liquidity leverage, and industry.

•

Special Mention – This grade includes loans that require more than a normal degree of supervision and attention. These loans have all the characteristics of an adequate asset, but due to being adversely affected by economic or financial conditions have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan.

•

Substandard – This grade includes loans that have well defined weaknesses which make payment default or principal exposure possible, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business to meet the repayment terms.

•

Doubtful – This grade includes loans that are placed on nonaccrual status. These loans have all the weaknesses inherent in a substandard loan with the added factor that the weaknesses are so severe that collection or liquidation in full, on the basis of current existing facts, conditions and values, is extremely unlikely, but because of certain specific pending factors, the amount of loss cannot yet be determined.

•

Loss – This grade includes loans that are to be charged off or charged down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the asset has no recovery or salvage value, but simply that it is not practical or desirable to defer writing off all or some portion of the loan, even though partial recovery may be realized in the future.

The following tables present the Company’s investment in loans held for investment by internal credit grade indicator at March 31, 2013, and December 31, 2012.


	March 31, 2013
			Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	38,976	$	1,279	$	13,968	$	997	$	—	$	55,220
Commercial and industrial		80,683		1,576		5,792		3,615		—		91,666
Multi-family residential		58,241		4,141		1,547		—		—		63,929
Single family non-owner occupied		119,349		4,835		11,180		970		—		136,334
Non-farm, non-residential		401,887		10,983		27,196		160		—		440,226
Agricultural		2,071		17		29		—		—		2,117
Farmland		28,411		1,413		4,106		—		—		33,930
Consumer real estate loans
Home equity lines		101,881		2,992		3,476		36		—		108,385
Single family owner occupied		433,486		9,270		27,252		429		—		470,437
Owner occupied construction		19,343		417		—		—		—		19,760
Consumer and other loans
Consumer loans		66,166		1,989		466		4		—		68,625
Other		3,585		5		13		—		—		3,603

Total non-covered loans	$	1,354,079	$	38,917	$	95,025	$	6,211	$	—	$	1,494,232


	March 31, 2013
(Amounts in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total
Covered loans
Commercial loans
Construction, development, and other land	$	12,747	$	963	$	10,751	$	34	$	—	$	24,495
Commercial and industrial		4,320		179		658		48		—		5,205
Multi-family residential		1,928		—		621		—		—		2,549
Single family non-owner occupied		5,050		—		5,536		86		—		10,672
Non-farm, non-residential		19,973		1,939		20,900		45		—		42,857
Agricultural		127		—		1		—		—		128
Farmland		1,125		—		97		—		—		1,222
Consumer real estate loans
Home equity lines		16,989		11,762		51,687		25		—		80,463
Single family owner occupied		16,668		200		5,943		231		—		23,042
Owner occupied construction		473		—		1,155		—		—		1,628
Consumer and other loans
Consumer loans		2,133		—		666		—		—		2,799
Other		—		—		—		—		—		—

Total covered loans	$	81,533	$	15,043	$	98,015	$	469	$	—	$	195,060


	December 31, 2012
(Amounts in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	41,850	$	1,497	$	13,546	$	541	$	—	$	57,434
Commercial and industrial		77,573		2,506		4,821		3,838		—		88,738
Multi-family residential		60,161		4,043		1,490		—		—		65,694
Single family non-owner occupied		112,562		5,938		16,092		1,320		—		135,912
Non-farm, non-residential		399,907		15,975		32,808		120		—		448,810
Agricultural		1,657		19		33		—		—		1,709
Farmland		28,887		2,262		3,421		—		—		34,570
Consumer real estate loans
Home equity lines		104,750		2,739		3,592		—		—		111,081
Single family owner occupied		436,587		9,599		27,319		—		42		473,547
Owner occupied construction		15,841		382		—		—		—		16,223
Consumer and other loans
Consumer loans		76,787		867		501		8		—		78,163
Other		5,657		8		1		—		—		5,666

Total non-covered loans	$	1,362,219	$	45,835	$	103,624	$	5,827	$	42	$	1,517,547


	December 31, 2012
(Amounts in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total
Covered loans
Commercial loans
Construction, development, and other land	$	6,463	$	2,120	$	17,834	$	178	$	—	$	26,595
Commercial and industrial		6,225		445		197		81		—		6,948
Multi-family residential		1,962		—		649		—		—		2,611
Single family non-owner occupied		6,065		2,223		3,015		125		—		11,428
Non-farm, non-residential		23,855		5,477		19,189		44		—		48,565
Agricultural		143		—		1		—		—		144
Farmland		935		—		156		—		—		1,091
Consumer real estate loans
Home equity lines		16,323		11,981		53,116		25		—		81,445
Single family owner occupied		16,011		927		5,786		237		—		22,961
Owner occupied construction		484		—		1,160		—		—		1,644
Consumer and other loans
Consumer loans		2,987		562		125		—		—		3,674
Other		—		—		—		—		—		—

Total covered loans	$	81,453	$	23,735	$	101,228	$	690	$	—	$	207,106

Nonaccrual loans, presented by loan class, consisted of the following at March 31, 2013, and December 31, 2012. Loans acquired with credit deterioration through business combinations, for which a discount exists, are generally not considered to be nonaccrual as a result of the accretion of the discount which is based on the expected cash flows of the loans.


(Amounts in thousands)	March 31, 2013						December 31, 2012
	Non-covered		Covered		Total		Non-covered		Covered		Total
Commercial loans
Construction, development, and other land	$	6,842	$	2,113	$	8,955	$	405	$	1,990	$	2,395
Commercial and industrial		5,375		48		5,423		3,912		35		3,947
Multi-family residential		445		—		445		378		—		378
Single family non-owner occupied		4,600		29		4,629		7,071		21		7,092
Non-farm, non-residential		5,644		562		6,206		5,938		951		6,889
Agricultural		17		—		17		2		—		2
Farmland		177		—		177		—		—		—
Consumer real estate loans
Home equity lines		925		538		1,463		872		436		1,308
Single family owner occupied		5,874		1,218		7,092		5,219		831		6,050
Owner occupied construction		—		59		59		—		59		59
Consumer and other loans
Consumer loans		169		—		169		126		—		126
Other		—		—		—		—		—		—

Total		30,068		4,567		34,635		23,923		4,323		28,246
Acquired impaired loans		8		—		8		8		—		8

Total nonaccrual loans	$	30,076	$	4,567	$	34,643	$	23,931	$	4,323	$	28,254

The following tables present the aging of past due loans, by loan class, at March 31, 2013, and December 31, 2012. Nonaccrual loans, excluding those 0 to 29 days past due, are included in the applicable delinquency category. There were no accruing loans contractually past due 90 days or more at March 31, 2013, and December 31, 2012. Acquired loans that are past due continue to accrue interest through the accretable yield under the accretion method of accounting and therefore are not considered to be nonaccrual.


	March 31, 2013
(Amounts in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90+ Days Past Due		Total Past Due		Current Loans		Total Loans
Non-covered loans
Commercial loans
Construction, development, and other land	$	301	$	1,413	$	5,275	$	6,989	$	48,231	$	55,220
Commercial and industrial		258		55		1,549		1,862		89,804		91,666
Multi-family residential		37		—		70		107		63,822		63,929
Single family non-owner occupied		258		107		2,332		2,697		133,637		136,334
Non-farm, non-residential		2,394		1,245		3,540		7,179		433,047		440,226
Agricultural		—		—		17		17		2,100		2,117
Farmland		42		—		177		219		33,711		33,930
Consumer real estate loans
Home equity lines		968		745		623		2,336		106,049		108,385
Single family owner occupied		6,837		1,113		1,654		9,604		460,833		470,437
Owner occupied construction		—		—		—		—		19,760		19,760
Consumer and other loans
Consumer loans		181		1,213		58		1,452		67,173		68,625
Other		—		—		—		—		3,603		3,603

Total non-covered loans	$	11,276	$	5,891	$	15,295	$	32,462	$	1,461,770	$	1,494,232


	March 31, 2013
(Amounts in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90+ Days Past Due		Total Past Due		Current Loans		Total Loans
Covered loans
Commercial loans
Construction, development, and other land	$	152	$	155	$	1,121	$	1,428	$	23,067	$	24,495
Commercial and industrial		147		—		33		180		5,025		5,205
Multi-family residential		—		—		—		—		2,549		2,549
Single family non-owner occupied		—		—		29		29		10,643		10,672
Non-farm, non-residential		22		38		562		622		42,235		42,857
Agricultural		—		—		—		—		128		128
Farmland		22		—		—		22		1,200		1,222
Consumer real estate loans
Home equity lines		194		165		180		539		79,924		80,463
Single family owner occupied		437		264		577		1,278		21,764		23,042
Owner occupied construction		119		—		59		178		1,450		1,628
Consumer and other loans
Consumer loans		—		—		—		—		2,799		2,799
Other		—		—		—		—		—		—

Total covered loans	$	1,093	$	622	$	2,561	$	4,276	$	190,784	$	195,060


	December 31, 2012
(Amounts in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90+ Days Past Due		Total Past Due		Current Loans		Total Loans
Non-covered loans
Commercial loans
Construction, development, and other land	$	344	$	—	$	188	$	532	$	56,902	$	57,434
Commercial and industrial		387		84		1,432		1,903		86,835		88,738
Multi-family residential		624		—		—		624		65,070		65,694
Single family non-owner occupied		1,841		1,348		3,715		6,904		129,008		135,912
Non-farm, non-residential		2,702		936		3,621		7,259		441,551		448,810
Agricultural		—		—		—		—		1,709		1,709
Farmland		216		196		—		412		34,158		34,570
Consumer real estate loans
Home equity lines		315		93		495		903		110,178		111,081
Single family owner occupied		6,564		1,176		1,644		9,384		464,163		473,547
Owner occupied construction		382		—		—		382		15,841		16,223
Consumer and other loans
Consumer loans		715		73		47		835		77,328		78,163
Other		—		—		—		—		5,666		5,666

Total non-covered loans	$	14,090	$	3,906	$	11,142	$	29,138	$	1,488,409	$	1,517,547


	December 31, 2012
(Amounts in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90+ Days Past Due		Total Past Due		Current Loans		Total Loans
Covered loans
Commercial loans
Construction, development, and other land	$	252	$	161	$	1,121	$	1,534	$	25,061	$	26,595
Commercial and industrial		45		—		—		45		6,903		6,948
Multi-family residential		—		—		—		—		2,611		2,611
Single family non-owner occupied		8		—		21		29		11,399		11,428
Non-farm, non-residential		501		—		927		1,428		47,137		48,565
Agricultural		—		—		—		—		144		144
Farmland		6		—		—		6		1,085		1,091
Consumer real estate loans
Home equity lines		217		112		204		533		80,912		81,445
Single family owner occupied		413		135		475		1,023		21,938		22,961
Owner occupied construction		—		—		59		59		1,585		1,644
Consumer and other loans
Consumer loans		—		—		—		—		3,674		3,674
Other		—		—		—		—		—		—

Total covered loans	$	1,442	$	408	$	2,807	$	4,657	$	202,449	$	207,106

The Company’s troubled debt restructurings (“TDRs”) totaled $11.87 million at March 31, 2013, and $12.05 million at December 31, 2012, which are reported net of those on nonaccrual status of $2.34 million and $3.83 million, respectively. Accruing nonperforming TDRs amounted to $1.60 million, or 13.45% of total accruing TDRs at March 31, 2013, and $6.01 million, or 49.88% of total TDRs at December 31, 2012. The allowance for loan losses included reserves related to TDRs of $1.65 million and $1.87 million at March 31, 2013, and December 31, 2012, respectively. Interest income recognized on TDRs for the three months ended March 31, 2013 and 2012 totaled $246 thousand and $94 thousand, respectively. There were no covered loans recorded as TDRs at September 30, 2012. Loans acquired with credit deterioration through business combinations, for which a discount exists, are generally not considered a TDR as long as the loan remains in the loan pool.

When restructuring loans for borrowers experiencing financial difficulty, the Company generally makes concessions in interest rates, loan terms and/or amortization terms. All restructured loans to borrowers experiencing financial difficulty in excess of $250 thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Restructured loans under $250 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain TDRs are classified as nonperforming at time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs.

The following table presents information for loans modified as TDRs that were restructured during the three months ended March 31, 2013 and 2012 by type of concession made and loan class. The post-modification recorded investment represents the loan balance immediately following modification.


	Three Months Ended March 31,
	2013						2012
	Total		Pre-Modification		Post-Modification		Total		Pre-Modification		Post-Modification
(Amounts in thousands)	Contracts		Recorded Investment		Recorded Investment		Contracts		Recorded Investment		Recorded Investment
Extended payment term
Single family owner occupied		—		—		—		1	$	351	$	319

Total		—	$	—	$	—		1	$	351	$	319

There were no payment defaults on loans modified as TDRs during the three months ended March 31, 2013 or 2012 that were restructured within the previous 12 months.