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Allowance for Loan Losses | 9 Months Ended
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Sep. 30, 2012
Allowance for Loan Losses [Abstract] |
Allowance for Loan Losses | (4) Allowance for Loan Losses The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the nine month period ended September 30, 2012. 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.
September 30, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Beginning |  |  |  |  |  |  |  |  |  |  |  | Ending |
|  | Balance |  |  | Charge-Offs |  |  | Recoveries |  |  | Provision |  |  | Balance |
Commercial and Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 1,071 |  |  | $ | (407 | ) |  | $ | 105 |  |  | $ | 153 |  |  | $ | 922 |
Agricultural |  |  | 297 |  |  |  | (3 | ) |  |  | -- |  |  |  | -- |  |  |  | 294 |
Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial Construction |  |  | 3,123 |  |  |  | (1,929 | ) |  |  | 74 |  |  |  | 836 |  |  |  | 2,104 |
Residential Construction |  |  | 138 |  |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 138 |
Commercial |  |  | 6,448 |  |  |  | (4,273 | ) |  |  | 217 |  |  |  | 4,165 |  |  |  | 6,557 |
Residential |  |  | 3,695 |  |  |  | (632 | ) |  |  | 9 |  |  |  | 413 |  |  |  | 3,485 |
Farmland |  |  | 365 |  |  |  | (39 | ) |  |  | 5 |  |  |  | -- |  |  |  | 331 |
Consumer and Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer |  |  | 205 |  |  |  | (75 | ) |  |  | 63 |  |  |  | 60 |  |  |  | 253 |
Other |  |  | 308 |  |  |  | (11 | ) |  |  | 8 |  |  |  | -- |  |  |  | 305 |
|  | $ | 15,650 |  |  | $ | (7,369 | ) |  | $ | 481 |  |  | $ | 5,627 |  |  | $ | 14,389 |
The following table details activity in the allowance for loan losses, segregated by class of loan, for the nine month period ended September 30, 2011. 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.
September 30, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Beginning |  |  |  |  |  |  |  |  |  |  |  | Ending |
|  | Balance |  |  | Charge-Offs |  |  | Recoveries |  |  | Provision |  |  | Balance |
Commercial and Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 4,415 |  |  | $ | (718 | ) |  | $ | 124 |  |  | $ | (1,591 | ) |  | $ | 2,230 |
Agricultural |  |  | 698 |  |  |  | (455 | ) |  |  | 401 |  |  |  | (257 | ) |  |  | 387 |
Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial Construction |  |  | 4,126 |  |  |  | (4,218 | ) |  |  | 548 |  |  |  | 4,217 |  |  |  | 4,673 |
Residential Construction |  |  | 520 |  |  |  | -- |  |  |  | -- |  |  |  | (159 | ) |  |  | 361 |
Commercial |  |  | 8,030 |  |  |  | (12,175 | ) |  |  | 517 |  |  |  | 6,730 |  |  |  | 3,102 |
Residential |  |  | 5,942 |  |  |  | (1,291 | ) |  |  | 120 |  |  |  | (910 | ) |  |  | 3,861 |
Farmland |  |  | 944 |  |  |  | (61 | ) |  |  | 1 |  |  |  | (317 | ) |  |  | 567 |
Consumer and Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer |  |  | 3,074 |  |  |  | (192 | ) |  |  | 123 |  |  |  | (1,371 | ) |  |  | 1,634 |
Other |  |  | 531 |  |  |  | (100 | ) |  |  | 6 |  |  |  | (342 | ) |  |  | 95 |
|  | $ | 28,280 |  |  | $ | (19,210 | ) |  | $ | 1,840 |  |  | $ | 6,000 |  |  | $ | 16,910 |
In 2012, the Company refined its methodology used in estimating the amount of the Allowance for Loan and Lease Losses (ALLL). Management has been proactive in identifying problem loans, assessing exposure, and providing sufficient reserves to cover the exposures. The ALLL was increased in anticipation of identified exposures resulting in confirmed losses. When losses were confirmed, they were promptly charged off. As a result, losses over the last three years have been very high. During this time, newer loans granted were made subject to higher underwriting standards and more conservative appraisals. Because of the prompt recognition of losses that drove the excessive charge-off history, management now believes the remaining losses incurred in the current portfolio, including newer loans made, will be less than unadjusted loss history factors will suggest. Considering the major losses taken, along with organizational and staffing changes, the validity of qualitative factors in determining adjustments of loss history needed to be reviewed. Recognizing the importance of credit administration and the role of personnel involved in granting, approving, administering, monitoring, and collecting loans, management concluded that greater weight should be placed on factors associated with those activities. Additionally, during the quarter ended September 30, 2012, management reviewed the appropriateness of continuing to use a one-year annual loss rate to determine losses incurred in the loan portfolio segments of loans collectively reviewed for impairment. Consideration was given to the trends in losses incurred over prior quarters and economic indicators impacting the company. Management concluded that the one-year charge-off history should be expanded to include quarters from the current year. Thus, the annualized loss rates used for the September 30, 2012 allowance for loan loss calculation was based on an expanded period that includes all 4 quarters of 2011 and the first 2 quarters of 2012. The effect of these changes on the ALLL resulted in a reduction in the ALLL estimate of $3,422. Management believes the adjustments made will result in a better estimation of losses incurred in the portfolio. 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 below and an outstanding balance of $50,000 or more. At September 30, 2012 and 2011, impaired loans totaling $944 and $881 were below the $50,000 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. Since not all loans in the substandard category are considered impaired, this quarterly assessment often results in the identification of individual reserves which are placed against certain loans as part of management's allowance for loan loss calculation. The total of these loans and the related reserves are presented in the column titled "Substandard Loans Individually Reviewed for Impairment" in the following tables. The following tables present breakdowns of the allowance for loan losses, segregated by impairment methodology for September 30, 2012 and 2011:
September 30, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Ending Allowance Balance |
|  | Nonaccrual/TDR |  |  | Substandard |  |  | Total |  |  |  |  |  |  |
|  | Individually |  |  | Individually |  |  | Individually |  |  | Collectively |  |  |  |
|  | Evaluated for |  |  | Evaluated for |  |  | Evaluated for |  |  | Evaluated for |  |  |  |
|  | Impairment |  |  | Impairment |  |  | Impairment |  |  | Impairment |  |  | Total |
Commercial and Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 514 |  |  | $ | 214 |  |  | $ | 728 |  |  | $ | 194 |  |  | $ | 922 |
Agricultural |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 294 |  |  |  | 294 |
Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial Construction |  |  | 1,786 |  |  |  | 58 |  |  |  | 1,844 |  |  |  | 260 |  |  |  | 2,104 |
Residential Construction |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 138 |  |  |  | 138 |
Commercial |  |  | 864 |  |  |  | 376 |  |  |  | 1,240 |  |  |  | 5,317 |  |  |  | 6,557 |
Residential |  |  | 1,050 |  |  |  | 566 |  |  |  | 1,616 |  |  |  | 1,869 |  |  |  | 3,485 |
Farmland |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 331 |  |  |  | 331 |
Consumer and Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 253 |  |  |  | 253 |
Other |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 305 |  |  |  | 305 |
Total End of Period Allowance Balance |  | $ | 4,214 |  |  | $ | 1,214 |  |  | $ | 5,428 |  |  | $ | 8,961 |  |  | $ | 14,389 |
September 30, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Ending Loan Balance |
|  | Nonaccrual/TDR |  |  | Substandard |  |  | Total |  |  |  |  |  |  |
|  | Individually |  |  | Individually |  |  | Individually |  |  | Collectively |  |  |  |
|  | Evaluated for |  |  | Evaluated for |  |  | Evaluated for |  |  | Evaluated for |  |  |  |
|  | Impairment |  |  | Impairment |  |  | Impairment |  |  | Impairment |  |  | Total |
Commercial and Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 1,701 |  |  | $ | 2,390 |  |  | $ | 4,091 |  |  | $ | 50,190 |  |  | $ | 54,281 |
Agricultural |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 12,594 |  |  |  | 12,594 |
Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial Construction |  |  | 18,743 |  |  |  | 1,793 |  |  |  | 20,536 |  |  |  | 33,516 |  |  |  | 54,052 |
Residential Construction |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 6,038 |  |  |  | 6,038 |
Commercial |  |  | 34,165 |  |  |  | 6,069 |  |  |  | 40,234 |  |  |  | 271,159 |  |  |  | 311,393 |
Residential |  |  | 7,751 |  |  |  | 2,900 |  |  |  | 10,651 |  |  |  | 186,608 |  |  |  | 197,259 |
Farmland |  |  | 2,277 |  |  |  | 263 |  |  |  | 2,540 |  |  |  | 46,938 |  |  |  | 49,478 |
Consumer and Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer |  |  | 11 |  |  |  | 6 |  |  |  | 17 |  |  |  | 29,568 |  |  |  | 29,585 |
Other |  |  | -- |  |  |  | 18 |  |  |  | 18 |  |  |  | 11,824 |  |  |  | 11,842 |
Total End of Period Loan Balance |  | $ | 64,648 |  |  | $ | 13,439 |  |  | $ | 78,087 |  |  | $ | 648,435 |  |  | $ | 726,522 |
September 30, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Ending Allowance Balance |
|  | Nonaccrual/TDR |  |  | Substandard |  |  | Total |  |  |  |  |  |  |
|  | Individually |  |  | Individually |  |  | Individually |  |  | Collectively |  |  |  |
|  | Evaluated for |  |  | Evaluated for |  |  | Evaluated for |  |  | Evaluated for |  |  |  |
|  | Impairment |  |  | Impairment |  |  | Impairment |  |  | Impairment |  |  | Total |
Commercial and Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 39 |  |  | $ | 647 |  |  | $ | 686 |  |  | $ | 1,544 |  |  | $ | 2,230 |
Agricultural |  |  | 7 |  |  |  | -- |  |  |  | 7 |  |  |  | 380 |  |  |  | 387 |
Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial Construction |  |  | 4,323 |  |  |  | 256 |  |  |  | 4,579 |  |  |  | 94 |  |  |  | 4,673 |
Residential Construction |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 361 |  |  |  | 361 |
Commercial |  |  | 689 |  |  |  | 408 |  |  |  | 1,097 |  |  |  | 2,005 |  |  |  | 3,102 |
Residential |  |  | 2,036 |  |  |  | 958 |  |  |  | 2,994 |  |  |  | 867 |  |  |  | 3,861 |
Farmland |  |  | -- |  |  |  | 11 |  |  |  | 11 |  |  |  | 556 |  |  |  | 567 |
Consumer and Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer |  |  | 5 |  |  |  | 63 |  |  |  | 68 |  |  |  | 1,566 |  |  |  | 1,634 |
Other |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 95 |  |  |  | 95 |
Total End of Period Allowance Balance |  | $ | 7,099 |  |  | $ | 2,343 |  |  | $ | 9,442 |  |  | $ | 7,468 |  |  | $ | 16,910 |
September 30, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Ending Loan Balance |
|  | Nonaccrual/TDR |  |  | Substandard |  |  | Total |  |  |  |  |  |  |
|  | Individually |  |  | Individually |  |  | Individually |  |  | Collectively |  |  |  |
|  | Evaluated for |  |  | Evaluated for |  |  | Evaluated for |  |  | Evaluated for |  |  |  |
|  | Impairment |  |  | Impairment |  |  | Impairment |  |  | Impairment |  |  | Total |
Commercial and Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 1,609 |  |  | $ | 2,881 |  |  | $ | 4,490 |  |  | $ | 47,162 |  |  | $ | 51,652 |
Agricultural |  |  | 152 |  |  |  | 221 |  |  |  | 373 |  |  |  | 13,399 |  |  |  | 13,772 |
Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial Construction |  |  | 29,064 |  |  |  | 1,650 |  |  |  | 30,714 |  |  |  | 32,390 |  |  |  | 63,104 |
Residential Construction |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 2,628 |  |  |  | 2,628 |
Commercial |  |  | 34,888 |  |  |  | 4,533 |  |  |  | 39,421 |  |  |  | 280,701 |  |  |  | 320,122 |
Residential |  |  | 8,692 |  |  |  | 4,970 |  |  |  | 13,662 |  |  |  | 181,771 |  |  |  | 195,433 |
Farmland |  |  | 487 |  |  |  | 380 |  |  |  | 867 |  |  |  | 46,819 |  |  |  | 47,686 |
Consumer and Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer |  |  | 16 |  |  |  | 40 |  |  |  | 56 |  |  |  | 30,882 |  |  |  | 30,938 |
Other |  |  | -- |  |  |  | 31 |  |  |  | 31 |  |  |  | 15,633 |  |  |  | 15,664 |
Total End of Period Loan Balance |  | $ | 74,908 |  |  | $ | 14,706 |  |  | $ | 89,614 |  |  | $ | 651,385 |  |  | $ | 740,999 |

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