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Credit Quality and Nonperforming Assets | 3 Months Ended
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Mar. 31, 2013
Non Performing Assets [Abstract] |
Credit Quality and Nonperforming Assets | Note 11 – Credit Quality and Nonperforming Assets Credit Quality Classifications The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired to characterize the associated credit risk. Balances classified as “loss” are immediately charged off. The Company uses the following definitions of risk classifications:
| ⋅ | Pass : Larger non-homogeneous loans not meeting the risk rating definitions below, and smaller homogeneous loans that are not assessed on an individual basis.
| ⋅ | Special Mention : Loans which have potential issues that deserve the close attention of management. If left uncorrected, those potential weaknesses could eventually diminish the prospects for full repayment of principal and interest according to the contractual terms of the loan agreement, or could result in deterioration of the Company’s credit position at some future date.
| ⋅ | Substandard : Loans that have at least one clear and well-defined weakness which could jeopardize the ultimate recoverability of all principal and interest, such as a borrower displaying a highly leveraged position, unfavorable financial operating results and/or trends, uncertain repayment sources or a deteriorated financial condition.
| ⋅ | Impaired : A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include all nonperforming loans, loans classified as restructured troubled debt, and certain other loans that are still being maintained on accrual status. If the Bank grants a concession to a borrower in financial difficulty, the loan falls into the category of a troubled debt restructuring (TDR). A TDR may be nonperforming or performing, depending on its accrual status and the demonstrated ability of the borrower to comply with restructured terms.
Credit quality classifications for the Company’s loan balances were as follows, as of the dates indicated: Credit Quality Classifications (dollars in thousands, unaudited)
|  | March 31, 2013 |
|  | Pass |  | Special Mention |  | Substandard |  | Impaired |  | Total |
Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 Family residential construction |  | $ | 988 |  | $ | 324 |  | $ | - |  | $ | - |  | $ | 1,312 |
Other construction/Land |  |  | 13,442 |  |  | 900 |  |  | 915 |  |  | 12,018 |  |  | 27,275 |
1-4 Family - closed end |  |  | 69,821 |  |  | 2,237 |  |  | 792 |  |  | 23,291 |  |  | 96,141 |
Equity Lines |  |  | 55,518 |  |  | 55 |  |  | 2,075 |  |  | 931 |  |  | 58,579 |
Multi-family residential |  |  | 5,681 |  |  | 607 |  |  | - |  |  | - |  |  | 6,288 |
Commercial real estate - owner occupied |  |  | 138,525 |  |  | 23,867 |  |  | 7,237 |  |  | 8,417 |  |  | 178,046 |
Commercial real estate - non-owner occupied |  |  | 74,174 |  |  | 6,800 |  |  | 244 |  |  | 16,542 |  |  | 97,760 |
Farmland |  |  | 82,583 |  |  | 2,205 |  |  | 3,499 |  |  | 1,923 |  |  | 90,210 |
Total Real Estate |  |  | 440,732 |  |  | 36,995 |  |  | 14,762 |  |  | 63,122 |  |  | 555,611 |
Agricultural |  |  | 25,659 |  |  | 449 |  |  | - |  |  | 659 |  |  | 26,767 |
Commercial and Industrial |  |  | 183,516 |  |  | 4,570 |  |  | 371 |  |  | 4,850 |  |  | 193,307 |
Small Business Administration |  |  | 15,176 |  |  | 1,624 |  |  | 731 |  |  | 3,146 |  |  | 20,677 |
Direct finance leases |  |  | 3,743 |  |  | 4 |  |  | - |  |  | 150 |  |  | 3,897 |
Consumer loans |  |  | 22,230 |  |  | 378 |  |  | 321 |  |  | 4,113 |  |  | 27,042 |
Total Gross Loans and Leases |  | $ | 691,056 |  | $ | 44,020 |  | $ | 16,185 |  | $ | 76,040 |  | $ | 827,301 |
| December 31, 2012 |
| Pass |  | Special Mention |  | Substandard |  | Impaired |  | Total |
Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 Family residential construction | $ | 1,599 |  | $ | 1,333 |  | $ | 89 |  | $ | 153 |  | $ | 3,174 |
Other construction/Land |  | 13,270 |  |  | 952 |  |  | 1,132 |  |  | 12,648 |  |  | 28,002 |
1-4 Family - closed end |  | 73,002 |  |  | 2,484 |  |  | 1,208 |  |  | 23,222 |  |  | 99,916 |
Equity Lines |  | 58,161 |  |  | 96 |  |  | 1,949 |  |  | 1,258 |  |  | 61,464 |
Multi-family residential |  | 5,351 |  |  | 609 |  |  | - |  |  | - |  |  | 5,960 |
Commercial real estate - owner occupied |  | 144,207 |  |  | 22,895 |  |  | 6,562 |  |  | 8,950 |  |  | 182,614 |
Commercial real estate - non-owner occupied |  | 67,407 |  |  | 6,864 |  |  | 568 |  |  | 17,969 |  |  | 92,808 |
Farmland |  | 64,176 |  |  | 2,216 |  |  | 3,526 |  |  | 1,933 |  |  | 71,851 |
Total Real Estate |  | 427,173 |  |  | 37,449 |  |  | 15,034 |  |  | 66,133 |  |  | 545,789 |
Agricultural |  | 21,333 |  |  | 462 |  |  | 24 |  |  | 663 |  |  | 22,482 |
Commercial and Industrial |  | 247,375 |  |  | 5,020 |  |  | 1,845 |  |  | 3,656 |  |  | 257,896 |
Small Business Administration |  | 15,002 |  |  | 1,551 |  |  | 743 |  |  | 3,227 |  |  | 20,523 |
Direct finance leases |  | 4,076 |  |  | 22 |  |  | - |  |  | 135 |  |  | 4,233 |
Consumer loans |  | 23,881 |  |  | 445 |  |  | 198 |  |  | 4,348 |  |  | 28,872 |
Total Gross Loans and Leases | $ | 738,840 |  | $ | 44,949 |  | $ | 17,844 |  | $ | 78,162 |  | $ | 879,795 |
Past Due and Nonperforming Assets Nonperforming assets are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets, including mobile homes and other real estate owned (“OREO”). OREO consists of properties acquired by foreclosure or similar means, which the Company is offering or will offer for sale. Nonperforming loans and leases result when reasonable doubt exists with regard to the ability of the Company to collect all principal and interest on a loan or lease. At that point, we stop accruing interest on the loan or lease in question, and reverse any previously-recognized interest to the extent that it is uncollected or associated with interest-reserve loans. Any asset for which principal or interest has been in default for 90 days or more is also placed on non-accrual status, even if interest is still being received, unless the asset is both well secured and in the process of collection. An aging of the Company’s loan balances, by number of days past due as of the indicated dates, is presented in the following tables: Loan Portfolio Aging (dollars in thousands, unaudited)
|  | March 31, 2013 |
|  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days Or More Past Due (2) |  | Total Past Due |  | Current |  | Total Financing Receivables |  | Non-Accrual Loans (1) |
Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 Family residential construction |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 1,312 |  | $ | 1,312 |  | $ | - |
Other construction/Land |  |  | 11 |  |  | 27 |  |  | 105 |  |  | 143 |  |  | 27,132 |  |  | 27,275 |  |  | 10,556 |
1-4 Family - closed end |  |  | 1,656 |  |  | - |  |  | 806 |  |  | 2,462 |  |  | 93,679 |  |  | 96,141 |  |  | 15,493 |
Equity Lines |  |  | 25 |  |  | 311 |  |  | 41 |  |  | 377 |  |  | 58,202 |  |  | 58,579 |  |  | 728 |
Multi-family residential |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 6,288 |  |  | 6,288 |  |  | - |
Commercial real estate - owner occupied |  |  | 1,009 |  |  | - |  |  | 1,810 |  |  | 2,819 |  |  | 175,227 |  |  | 178,046 |  |  | 5,301 |
Commercial real estate - non-owner occupied |  |  | 248 |  |  | - |  |  | 7,291 |  |  | 7,539 |  |  | 90,221 |  |  | 97,760 |  |  | 10,229 |
Farmland |  |  | 925 |  |  | 230 |  |  | 1,679 |  |  | 2,834 |  |  | 87,376 |  |  | 90,210 |  |  | 1,923 |
Total Real Estate |  |  | 3,874 |  |  | 568 |  |  | 11,732 |  |  | 16,174 |  |  | 539,437 |  |  | 555,611 |  |  | 44,230 |
Agricultural |  |  | - |  |  | - |  |  | 659 |  |  | 659 |  |  | 26,108 |  |  | 26,767 |  |  | 659 |
Commercial and Industrial |  |  | 671 |  |  | 391 |  |  | 1,018 |  |  | 2,080 |  |  | 191,227 |  |  | 193,307 |  |  | 2,388 |
Small Business Administration |  |  | 521 |  |  | 3 |  |  | 1,433 |  |  | 1,957 |  |  | 18,720 |  |  | 20,677 |  |  | 2,094 |
Direct finance leases |  |  | - |  |  | 4 |  |  | 150 |  |  | 154 |  |  | 3,743 |  |  | 3,897 |  |  | 150 |
Consumer loans |  |  | 230 |  |  | 30 |  |  | - |  |  | 260 |  |  | 26,782 |  |  | 27,042 |  |  | 1,045 |
Total Gross Loans and Leases |  | $ | 5,296 |  | $ | 996 |  | $ | 14,992 |  | $ | 21,284 |  | $ | 806,017 |  | $ | 827,301 |  | $ | 50,566 |
(1) Included in Total Financing Receivables (2) As of March 31, 2013 there were no loans over 90 days past due and still accruing.
|  | December 31, 2012 |
|  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days Or More Past Due (2) |  | Total Past Due |  | Current |  | Total Financing Receivables |  | Non-Accrual Loans (1) |
Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 Family residential construction |  | $ | - |  | $ | - |  | $ | 153 |  | $ | 153 |  | $ | 3,021 |  | $ | 3,174 |  | $ | 153 |
Other construction/Land |  |  | 374 |  |  | 211 |  |  | - |  |  | 585 |  |  | 27,417 |  |  | 28,002 |  |  | 11,163 |
1-4 Family - closed end |  |  | 1,335 |  |  | 88 |  |  | 376 |  |  | 1,799 |  |  | 98,117 |  |  | 99,916 |  |  | 15,381 |
Equity Lines |  |  | 473 |  |  | 40 |  |  | 66 |  |  | 579 |  |  | 60,885 |  |  | 61,464 |  |  | 1,026 |
Multi-family residential |  |  | 177 |  |  | - |  |  | - |  |  | 177 |  |  | 5,783 |  |  | 5,960 |  |  | - |
Commercial real estate - owner occupied |  |  | 1,372 |  |  | 813 |  |  | 1,289 |  |  | 3,474 |  |  | 179,140 |  |  | 182,614 |  |  | 5,314 |
Commercial real estate - non-owner occupied |  |  | 7,831 |  |  | - |  |  | 1,499 |  |  | 9,330 |  |  | 83,478 |  |  | 92,808 |  |  | 11,642 |
Farmland |  |  | 231 |  |  | - |  |  | 1,679 |  |  | 1,910 |  |  | 69,941 |  |  | 71,851 |  |  | 1,933 |
Total Real Estate |  |  | 11,793 |  |  | 1,152 |  |  | 5,062 |  |  | 18,007 |  |  | 527,782 |  |  | 545,789 |  |  | 46,612 |
Agricultural |  |  | 24 |  |  | 157 |  |  | 506 |  |  | 687 |  |  | 21,795 |  |  | 22,482 |  |  | 664 |
Commercial and Industrial |  |  | 1,419 |  |  | 518 |  |  | 7 |  |  | 1,944 |  |  | 255,952 |  |  | 257,896 |  |  | 2,386 |
Small Business Administration |  |  | 905 |  |  | - |  |  | 1,574 |  |  | 2,479 |  |  | 18,044 |  |  | 20,523 |  |  | 2,159 |
Direct finance leases |  |  | - |  |  | 34 |  |  | 123 |  |  | 157 |  |  | 4,076 |  |  | 4,233 |  |  | 135 |
Consumer loans |  |  | 238 |  |  | 189 |  |  | 87 |  |  | 514 |  |  | 28,358 |  |  | 28,872 |  |  | 1,138 |
Total Gross Loans and Leases |  | $ | 14,379 |  | $ | 2,050 |  | $ | 7,359 |  | $ | 23,788 |  | $ | 856,007 |  | $ | 879,795 |  | $ | 53,094 |
(1) Included in Total Financing Receivables (2) As of December 31, 2012 there were no loans over 90 days past due and still accruing. Troubled Debt Restructurings A loan that is modified for a borrower who is experiencing financial difficulty is classified as a troubled debt restructuring (“TDR”), if the modification constitutes a concession. At March 31, 2013, the Company had a total of $51.6 million in TDR’s, including $31.8 million in TDR’s that were on non-accrual status. Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of at least six months to demonstrate the borrower’s ability to comply with the modified terms. However, performance prior to the modification, or significant events that coincide with the modification, could result in a loan’s return to accrual status after a shorter performance period or even at the time of loan modification. TDR’s may have the TDR designation removed in the calendar year following the restructuring, if the loan is in compliance with all modified terms and is yielding a market rate of interest. Regardless of the period of time that has elapsed, if the borrower’s ability to meet the revised payment schedule is uncertain then the loan will be kept on non-accrual status. Moreover, a TDR is generally considered to be in default when it appears that the customer will not likely be able to repay all principal and interest pursuant to the terms of the restructured agreement. The Company may agree to different types of concessions when modifying a loan or lease. The tables below summarize TDR’s which were modified during the noted periods, by type of concession: Troubled Debt Restructurings, by Type of Loan Modification (dollars in thousands, unaudited)
|  | For the Quarter Ended March 31, 2013 |
|  | Rate Modification |  | Term Modification |  | Interest Only Modification |  | Rate & Term Modification |  | Rate & Interest Only Modification |  | Term & Interest Only Modification |  | Rate, Term & Interest Only Modification |  | Total |
Trouble Debt Restructurings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other construction/Land |  | $ | - |  | $ | 247 |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 247 |
1-4 family - closed-end |  |  | - |  |  | 3,240 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 3,240 |
Commercial RE - owner occupied |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Commercial RE - non owner occupied |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Total Real Estate Loans |  |  | - |  |  | 3,487 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 3,487 |
Commercial and Industrial |  |  | - |  |  | 1,457 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 1,457 |
Consumer loans |  |  | - |  |  | 263 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 263 |
Small Business Administration Loans |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
|  | $ | - |  | $ | 5,207 |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 5,207 |
|  | For the Quarter Ended March 31, 2012 |
|  | Rate Modification |  | Term Modification |  | Interest Only Modification |  | Rate & Term Modification |  | Rate & Interest Only Modification |  | Term & Interest Only Modification |  | Rate, Term & Interest Only Modification |  | Total |
Trouble Debt Restructurings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other construction/Land |  | $ | - |  | $ | - |  | $ | - |  | $ | 53 |  | $ | - |  | $ | - |  | $ | - |  | $ | 53 |
1-4 family - closed-end |  |  | - |  |  | 110 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 110 |
Commercial RE - owner occupied |  |  | - |  |  | 779 |  |  | - |  |  | 318 |  |  | - |  |  | - |  |  | - |  |  | 1,097 |
Commercial RE - non owner occupied |  |  | - |  |  | 74 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 74 |
Total Real Estate Loans |  |  | - |  |  | 963 |  |  | - |  |  | 371 |  |  | - |  |  | - |  |  | - |  |  | 1,334 |
Commercial and Industrial |  |  | - |  |  | 25 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 25 |
Consumer loans |  |  | - |  |  | 109 |  |  | - |  |  | 118 |  |  | - |  |  | - |  |  | - |  |  | 227 |
Small Business Administration Loans |  |  | - |  |  | - |  |  | - |  |  | 475 |  |  | - |  |  | - |  |  | - |  |  | 475 |
|  | $ | - |  | $ | 1,097 |  | $ | - |  | $ | 964 |  | $ | - |  | $ | - |  | $ | - |  | $ | 2,061 |
The following tables present, by class, additional details related to loans classified as TDR’s during the referenced periods, including the recorded investment in the loan both before and after modification and balances that were modified during the period: Troubled Debt Restructurings (dollars in thousands, unaudited)
|  | For the Quarter Ended March 31, 2013 |
|  | Number of Loans |  | Pre- Modification Outstanding Recorded Investment |  | Post- Modification Outstanding Recorded Investment |  | Reserve Difference (1) |  | Reserve |
Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other Construction/Land |  |  | 1 |  | $ | 249 |  | $ | 247 |  | $ | 6 |  | $ | 4 |
1-4 family - closed-end |  |  | 1 |  |  | 3,240 |  |  | 3,240 |  |  | - |  |  | - |
Commercial RE- owner occupied |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Commercial RE- non-owner occupied |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Total Real Estate Loans |  |  |  |  |  | 3,489 |  |  | 3,487 |  |  | 6 |  |  | 4 |
Commercial and Industrial |  |  | 3 |  |  | 1,457 |  |  | 1,457 |  |  | (38) |  |  | 57 |
Small Business Administration Loans |  |  | 5 |  |  | 263 |  |  | 263 |  |  | 31 |  |  | 39 |
Consumer loans |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
|  |  |  |  | $ | 5,209 |  | $ | 5,207 |  | $ | (1) |  | $ | 100 |
(1) This represents the change in the ALL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.
|  | For the Quarter Ended March 31, 2012 |
|  | Number of Loans |  | Pre- Modification Outstanding Recorded Investment |  | Post- Modification Outstanding Recorded Investment |  | Reserve Difference (1) |  | Reserve |
Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other Construction/Land |  |  | 1 |  | $ | 53 |  | $ | 53 |  | $ | - |  | $ | - |
1-4 family - closed-end |  |  | 2 |  |  | 110 |  |  | 110 |  |  | 6 |  |  | 8 |
Commercial RE- owner occupied |  |  | 2 |  |  | 747 |  |  | 1,097 |  |  | (71) |  |  | - |
Commercial RE- non-owner occupied |  |  | 1 |  |  | 74 |  |  | 74 |  |  | 6 |  |  | 6 |
Total Real Estate Loans |  |  |  |  |  | 984 |  |  | 1,334 |  |  | (59) |  |  | 14 |
Commercial and Industrial |  |  | 2 |  |  | 25 |  |  | 25 |  |  | (11) |  |  | 2 |
Small Business Administration Loans |  |  | 1 |  |  | 468 |  |  | 475 |  |  | 2 |  |  | 118 |
Consumer loans |  |  | 4 |  |  | 228 |  |  | 227 |  |  | (14) |  |  | 12 |
|  |  |  |  | $ | 1,705 |  | $ | 2,061 |  | $ | (82) |  | $ | 146 |
(1) This represents the change in the ALL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology. The table below summarizes TDR’s that defaulted during the period noted, and any charge-offs on those TDR’s resulting from such default. Troubled Debt Restructurings (dollars in thousands, unaudited)
|  | Subsequent default three-months ended March 31, 2013 |
|  | Number of Loans |  | Recorded Investment |  | Charge-Offs |
Real Estate: |  |  |  |  |  |  |  |  |  |
1-4 family – closed-end |  |  | - |  | $ | - |  | $ | - |
Equity Lines |  |  | - |  |  | - |  |  | - |
Commercial RE- owner occupied |  |  | - |  |  | - |  |  | - |
Total Real Estate Loans |  |  |  |  |  | - |  |  | - |
Agricultural products |  |  | - |  |  | - |  |  | - |
Commercial and Industrial |  |  | 2 |  |  | 173 |  |  | 96 |
Small Business Administration Loans |  |  | - |  |  | - |  |  | - |
Consumer loans |  |  | 1 |  |  | 2 |  |  | 2 |
|  |  |  |  | $ | 175 |  | $ | 98 |
|  | Subsequent default three-months ended March 31, 2012 |
|  | Number of Loans |  | Recorded Investment |  | Charge-Offs |
Real Estate: |  |  |  |  |  |  |  |  |  |
1-4 family - closed-end |  |  | 1 |  | $ | 93 |  | $ | - |
Equity Lines |  |  | 1 |  |  | 213 |  |  | - |
Commercial RE- owner occupied |  |  | 2 |  |  | 1,773 |  |  | - |
Total Real Estate Loans |  |  |  |  |  | 2,079 |  |  | - |
Agricultural products |  |  | - |  |  | - |  |  | - |
Commercial and Industrial |  |  | - |  |  | - |  |  | - |
Small Business Administration Loans |  |  | - |  |  | - |  |  | - |
Consumer Loans |  |  | 3 |  |  | 488 |  |  | - |
|  |  |  |  | $ | 2,567 |  | $ | - |

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