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Loans and Allowance for Loan Losses | 6 Months Ended
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Jun. 30, 2013
Loans and Allowance for Loan Losses |
Loans and Allowance for Loan Losses | (2) Loans and Allowance for Loan Losses Loans A summary of loans, by major class within the Company’s loan portfolio, at June 30, 2013 and December 31, 2012 is as follows:
|  | June 30, |  | December 31, |
(in thousands) |  | 2013 |  | 2012 |
Commercial, financial, and agricultural |  | $ | 136,643 |  | $ | 130,040 |
Real estate construction - residential |  | 23,647 |  | 22,177 |
Real estate construction - commercial |  | 48,146 |  | 43,486 |
Real estate mortgage - residential |  | 217,828 |  | 221,223 |
Real estate mortgage - commercial |  | 389,706 |  | 405,092 |
Installment and other consumer |  | 23,020 |  | 24,966 |
Total loans |  | $ | 838,990 |  | $ | 846,984 |
The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, Clinton, Warsaw, Springfield, Branson and Lee’s Summit, Missouri. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Installment and other consumer loans consist primarily of the financing of vehicles. At June 30, 2013, loans with a carrying value of $405,522,000 were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit. Allowance for loan losses The following is a summary of the allowance for loan losses for the three and six months ended June 30, 2013, and 2012: Three Months Ended June 30, 2013
|  | Commercial, |  | Real Estate |  | Real Estate |  | Real Estate |  | Real Estate |  | Installment |  |  |  |  |
|  | Financial, & |  | Construction - |  | Construction - |  | Mortgage - |  | Mortgage - |  | Loans to |  |  |  |  |
(in thousands) |  | Agricultural |  | Residential |  | Commercial |  | Residential |  | Commercial |  | Individuals |  | Unallocated |  | Total |
Balance at beginning of period |  | $ | 1,828 |  | $ | 899 |  | $ | 1,811 |  | $ | 2,921 |  | $ | 6,840 |  | $ | 243 |  | $ | 3 |  | $ | 14,545 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Provision for loan losses |  | 370 |  | 33 |  | 389 |  | (399 | ) | 591 |  | 18 |  | (2 | ) | 1,000 |
Deductions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans charged off |  | 101 |  | 0 |  | 0 |  | 95 |  | 28 |  | 70 |  | 0 |  | 294 |
Less recoveries on loans |  | (22 | ) | 0 |  | (2 | ) | (29 | ) | (12 | ) | (42 | ) | 0 |  | (107 | )
Net loans charged off |  | 79 |  | 0 |  | (2 | ) | 66 |  | 16 |  | 28 |  | 0 |  | 187 |
Balance at end of period |  | $ | 2,119 |  | $ | 932 |  | $ | 2,202 |  | $ | 2,456 |  | $ | 7,415 |  | $ | 233 |  | $ | 1 |  | $ | 15,358 |
Six Months Ended June 30, 2013
|  | Commercial, |  | Real Estate |  | Real Estate |  | Real Estate |  | Real Estate |  | Installment |  |  |  |  |
|  | Financial, & |  | Construction - |  | Construction - |  | Mortgage - |  | Mortgage - |  | Loans to |  |  |  |  |
(in thousands) |  | Agricultural |  | Residential |  | Commercial |  | Residential |  | Commercial |  | Individuals |  | Unallocated |  | Total |
Balance at beginning of period |  | $ | 1,937 |  | $ | 732 |  | $ | 1,711 |  | $ | 3,387 |  | $ | 6,834 |  | $ | 239 |  | $ | 2 |  | $ | 14,842 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Provision for loan losses |  | 279 |  | 320 |  | 489 |  | (588 | ) | 1,436 |  | 65 |  | (1 | ) | 2,000 |
Deductions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans charged off |  | 162 |  | 120 |  | 0 |  | 387 |  | 1,027 |  | 179 |  | 0 |  | 1,875 |
Less recoveries on loans |  | (65 | ) | 0 |  | (2 | ) | (44 | ) | (172 | ) | (108 | ) | 0 |  | (391 | )
Net loans charged off |  | 97 |  | 120 |  | (2 | ) | 343 |  | 855 |  | 71 |  | 0 |  | 1,484 |
Balance at end of period |  | $ | 2,119 |  | $ | 932 |  | $ | 2,202 |  | $ | 2,456 |  | $ | 7,415 |  | $ | 233 |  | $ | 1 |  | $ | 15,358 |
Three Months Ended June 30, 2012
|  | Commercial, |  | Real Estate |  | Real Estate |  | Real Estate |  | Real Estate |  | Installment |  |  |  |  |
|  | Financial, & |  | Construction - |  | Construction - |  | Mortgage - |  | Mortgage - |  | Loans to |  |  |  |  |
(in thousands) |  | Agricultural |  | Residential |  | Commercial |  | Residential |  | Commercial |  | Individuals |  | Unallocated |  | Total |
Balance at beginning of period |  | $ | 2,722 |  | $ | 727 |  | $ | 1,410 |  | $ | 3,563 |  | $ | 5,976 |  | $ | 237 |  | $ | 5 |  | $ | 14,640 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Provision for loan losses |  | 363 |  | (54 | ) | 211 |  | 380 |  | 525 |  | 63 |  | 12 |  | 1,500 |
Deductions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans charged off |  | 69 |  | 0 |  | 0 |  | 422 |  | 438 |  | 132 |  | 0 |  | 1,061 |
Less recoveries on loans |  | (29 | ) | (36 | ) | (23 | ) | (39 | ) | (44 | ) | (64 | ) | 0 |  | (235 | )
Net loans charged off |  | 40 |  | (36 | ) | (23 | ) | 383 |  | 394 |  | 68 |  | 0 |  | 826 |
Balance at end of period |  | $ | 3,045 |  | $ | 709 |  | $ | 1,644 |  | $ | 3,560 |  | $ | 6,107 |  | $ | 232 |  | $ | 17 |  | $ | 15,314 |
Six Months Ended June 30, 2012
|  | Commercial, |  | Real Estate |  | Real Estate |  | Real Estate |  | Real Estate |  | Installment |  |  |  |  |
|  | Financial, & |  | Construction - |  | Construction - |  | Mortgage - |  | Mortgage - |  | Loans to |  |  |  |  |
(in thousands) |  | Agricultural |  | Residential |  | Commercial |  | Residential |  | Commercial |  | Individuals |  | Unallocated |  | Total |
Balance at beginning of period |  | $ | 1,804 |  | $ | 1,188 |  | $ | 1,562 |  | $ | 3,251 |  | $ | 5,734 |  | $ | 267 |  | $ | 3 |  | $ | 13,809 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Provision for loan losses |  | 1,230 |  | (546 | ) | 59 |  | 795 |  | 1,552 |  | 96 |  | 14 |  | 3,200 |
Deductions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans charged off |  | 104 |  | 0 |  | 0 |  | 577 |  | 1,300 |  | 271 |  | 0 |  | 2,252 |
Less recoveries on loans |  | (115 | ) | (67 | ) | (23 | ) | (91 | ) | (121 | ) | (140 | ) | 0 |  | (557 | )
Net loans charged off |  | (11 | ) | (67 | ) | (23 | ) | 486 |  | 1,179 |  | 131 |  | 0 |  | 1,695 |
Balance at end of period |  | $ | 3,045 |  | $ | 709 |  | $ | 1,644 |  | $ | 3,560 |  | $ | 6,107 |  | $ | 232 |  | $ | 17 |  | $ | 15,314 |
Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration. Although the allowance for loan losses are comprised of specific and general allocations, the entire allowance is available to absorb credit losses. The following table provides the balance in the allowance for loan losses at June 30, 2013 and December 31, 2012, and the related loan balance by impairment methodology.
|  | Commercial, |  | Real Estate |  | Real Estate |  | Real Estate |  | Real Estate |  | Installment |  |  |  |  |
|  | Financial, and |  | Construction - |  | Construction - |  | Mortgage - |  | Mortgage - |  | Loans to |  |  |  |  |
(in thousands) |  | Agricultural |  | Residential |  | Commercial |  | Residential |  | Commercial |  | Individuals |  | Unallocated |  | Total |
June 30, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 580 |  | $ | 248 |  | $ | 768 |  | $ | 1,156 |  | $ | 3,128 |  | $ | 6 |  | $ | 0 |  | $ | 5,886 |
Collectively evaluated for impairment |  | 1,539 |  | 684 |  | 1,434 |  | 1,300 |  | 4,287 |  | 227 |  | 1 |  | 9,472 |
Total |  | $ | 2,119 |  | $ | 932 |  | $ | 2,202 |  | $ | 2,456 |  | $ | 7,415 |  | $ | 233 |  | $ | 1 |  | $ | 15,358 |
Loans outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 4,332 |  | $ | 2,280 |  | $ | 7,831 |  | $ | 5,754 |  | $ | 18,162 |  | $ | 44 |  | $ | 0 |  | $ | 38,403 |
Collectively evaluated for impairment |  | 132,311 |  | 21,367 |  | 40,315 |  | 212,074 |  | 371,544 |  | 22,976 |  | 0 |  | 800,587 |
Total |  | $ | 136,643 |  | $ | 23,647 |  | $ | 48,146 |  | $ | 217,828 |  | $ | 389,706 |  | $ | 23,020 |  | $ | 0 |  | $ | 838,990 |
December 31, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 213 |  | $ | 125 |  | $ | 542 |  | $ | 1,069 |  | $ | 2,071 |  | $ | 0 |  | $ | 0 |  | $ | 4,020 |
Collectively evaluated for impairment |  | 1,724 |  | 607 |  | 1,169 |  | 2,318 |  | 4,763 |  | 239 |  | 2 |  | 10,822 |
Total |  | $ | 1,937 |  | $ | 732 |  | $ | 1,711 |  | $ | 3,387 |  | $ | 6,834 |  | $ | 239 |  | $ | 2 |  | $ | 14,842 |
Loans outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 4,157 |  | $ | 2,496 |  | $ | 7,762 |  | $ | 5,771 |  | $ | 18,959 |  | $ | 44 |  | $ | 0 |  | $ | 39,189 |
Collectively evaluated for impairment |  | 125,883 |  | 19,681 |  | 35,724 |  | 215,452 |  | 386,133 |  | 24,922 |  | 0 |  | 807,795 |
Total |  | $ | 130,040 |  | $ | 22,177 |  | $ | 43,486 |  | $ | 221,223 |  | $ | 405,092 |  | $ | 24,966 |  | $ | 0 |  | $ | 846,984 |
Impaired loans Loans evaluated under ASC 310-10-35 include loans which are individually evaluated for impairment. All other loans are collectively evaluated for impairment under ASC 450-20. Impaired loans totaled $38,632,000 and $39,363,000 at June 30, 2013 and December 31, 2012, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings. Total impaired loans of $38,632,000 at June 30, 2013, includes $38,403,000 of impaired loans individually evaluated for impairment and $229,000 of non-accrual consumer loans that were collectively evaluated for impairment. Total impaired loans of $39,363,000 at December 31, 2012, includes $39,189,000 of impaired loans individually evaluated for impairment and $174,000 of non-accrual consumer loans that were collectively evaluated for impairment. The specific reserve component applies to loans evaluated individually for impairment. The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. At June 30, 2013 and December 31, 2012 approximately $35,672,000 and $36,142,000, respectively, of impaired loans were evaluated based on the fair value of the loan’s collateral. Once the impairment amount is calculated, a specific reserve allocation is recorded. At June 30, 2013, $5,886,000 of the Company’s allowance for loan losses was allocated to impaired loans totaling approximately $38,632,000 compared to $4,020,000 of the Company’s allowance for loan losses allocated to impaired loans totaling approximately $39,363,000 at December 31, 2012. Management determined that $10,689,000, or 28%, of total impaired loans required no reserve allocation at June 30, 2013 compared to $14,733,000, or 37%, at December 31, 2012 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability. The incurred loss component of the general reserve, or loans collectively evaluated for impairment, is determined by applying percentages to pools of loans by asset type. Loans not individually evaluated are aggregated based on similar risk characteristics. Historical loss rates for each risk group, which is updated quarterly, are quantified using all recorded loan charge-offs. Management determined that the previous twelve quarters were reflective of the loss characteristics of the Company’s loan portfolio during the recent three year economic environment. These historical loss rates for each risk group are used as the starting point to determine allowance provisions. The Company’s methodology includes factors that allow management to adjust its estimates of losses based on the most recent information available. The rates are then adjusted to reflect actual changes and anticipated changes such as changes in specific allowances on loans and real estate acquired through foreclosure, any gains and losses on final disposition of real estate acquired through foreclosure, changes in national and local economic conditions and developments, including general economic and business conditions affecting the Company’s key lending areas, credit quality trends, specific industry conditions within portfolio segments, bank regulatory examination results, and findings of the internal loan review department. These risk factors are generally reviewed and updated quarterly, as appropriate. The categories of impaired loans at June 30, 2013 and December 31, 2012 are as follows:
|  | June 30, |  | December 31, |
(in thousands) |  | 2013 |  | 2012 |
Non-accrual loans |  | $ | 30,840 |  | $ | 31,081 |
Troubled debt restructurings continuing to accrue interest |  | 7,792 |  | 8,282 |
Total impaired loans |  | $ | 38,632 |  | $ | 39,363 |
The following tables provide additional information about impaired loans at June 30, 2013 and December 31, 2012, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.
|  |  |  | Unpaid |  |  |
|  | Recorded |  | Principal |  | Specific |
(in thousands) |  | Investment |  | Balance |  | Reserves |
June 30, 2013 |  |  |  |  |  |  |
With no related allowance recorded: |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 2,372 |  | $ | 2,423 |  | $ | 0 |
Real estate - construction residential |  | 105 |  | 139 |  | 0 |
Real estate - construction commercial |  | 2,942 |  | 3,227 |  | 0 |
Real estate - residential |  | 1,605 |  | 2,083 |  | 0 |
Real estate - commercial |  | 3,436 |  | 3,615 |  | 0 |
Consumer |  | 229 |  | 245 |  | 0 |
Total |  | $ | 10,689 |  | $ | 11,732 |  | $ | 0 |
With an allowance recorded: |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 1,960 |  | $ | 2,037 |  | $ | 580 |
Real estate - construction residential |  | 2,175 |  | 2,273 |  | 248 |
Real estate - construction commercial |  | 4,889 |  | 5,067 |  | 768 |
Real estate - residential |  | 4,149 |  | 4,324 |  | 1,156 |
Real estate - commercial |  | 14,726 |  | 15,913 |  | 3,128 |
Consumer |  | 44 |  | 44 |  | 6 |
Total |  | $ | 27,943 |  | $ | 29,658 |  | $ | 5,886 |
Total impaired loans |  | $ | 38,632 |  | $ | 41,390 |  | $ | 5,886 |
|  |  |  | Unpaid |  |  |
|  | Recorded |  | Principal |  | Specific |
(in thousands) |  | Investment |  | Balance |  | Reserves |
December 31, 2012 |  |  |  |  |  |  |
With no related allowance recorded: |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 3,272 |  | $ | 4,009 |  | $ | 0 |
Real estate - construction residential |  | 2,307 |  | 2,339 |  | 0 |
Real estate - construction commercial |  | 1,879 |  | 2,102 |  | 0 |
Real estate - residential |  | 1,939 |  | 2,393 |  | 0 |
Real estate - commercial |  | 5,162 |  | 5,565 |  | 0 |
Consumer |  | 174 |  | 186 |  | 0 |
Total |  | $ | 14,733 |  | $ | 16,594 |  | $ | 0 |
With an allowance recorded: |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 885 |  | $ | 898 |  | $ | 213 |
Real estate - construction residential |  | 189 |  | 189 |  | 125 |
Real estate - construction commercial |  | 5,883 |  | 6,011 |  | 542 |
Real estate - residential |  | 3,832 |  | 3,999 |  | 1,069 |
Real estate - commercial |  | 13,797 |  | 14,167 |  | 2,071 |
Consumer |  | 44 |  | 44 |  | 0 |
Total |  | $ | 24,630 |  | $ | 25,308 |  | $ | 4,020 |
Total impaired loans |  | $ | 39,363 |  | $ | 41,902 |  | $ | 4,020 |
The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2013 and 2012.
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |
|  | 2013 |  | 2012 |  | 2013 |  | 2012 |
|  |  |  | Interest |  |  |  | Interest |  |  |  | Interest |  |  |  | Interest |
|  |  |  | Recognized |  |  |  | Recognized |  |  |  | Recognized |  |  |  | Recognized |
|  | Average |  | For the |  | Average |  | For the |  | Average |  | For the |  | Average |  | For the |
|  | Recorded |  | Period |  | Recorded |  | Period |  | Recorded |  | Period |  | Recorded |  | Period |
(in thousands) |  | Investment |  | Ended |  | Investment |  | Ended |  | Investment |  | Ended |  | Investment |  | Ended |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 2,434 |  | $ | 23 |  | $ | 2,598 |  | $ | 21 |  | $ | 2,449 |  | $ | 47 |  | $ | 2,630 |  | $ | 43 |
Real estate - construction residential |  | 216 |  | 0 |  | 93 |  | 0 |  | 293 |  | 0 |  | 255 |  | 7 |
Real estate - construction commercial |  | 3,227 |  | 0 |  | 1,572 |  | 0 |  | 3,242 |  | 1 |  | 1,506 |  | 0 |
Real estate - residential |  | 2,084 |  | 0 |  | 2,390 |  | 40 |  | 2,087 |  | 0 |  | 3,515 |  | 42 |
Real estate - commercial |  | 3,628 |  | 28 |  | 12,344 |  | 28 |  | 3,701 |  | 57 |  | 13,439 |  | 60 |
Consumer |  | 248 |  | 1 |  | 146 |  | 0 |  | 254 |  | 2 |  | 153 |  | 0 |
Total |  | $ | 11,837 |  | $ | 52 |  | $ | 19,143 |  | $ | 89 |  | $ | 12,026 |  | $ | 107 |  | $ | 21,498 |  | $ | 152 |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 2,042 |  | $ | 20 |  | $ | 3,842 |  | $ | 7 |  | $ | 2,049 |  | $ | 32 |  | $ | 3,284 |  | $ | 14 |
Real estate - construction residential |  | 2,273 |  | 0 |  | 189 |  | 0 |  | 2,273 |  | 0 |  | 242 |  | 0 |
Real estate - construction commercial |  | 5,327 |  | 0 |  | 6,147 |  | 0 |  | 5,558 |  | 0 |  | 6,187 |  | 0 |
Real estate - residential |  | 4,331 |  | 16 |  | 2,818 |  | (23 | ) | 4,354 |  | 39 |  | 2,666 |  | 7 |
Real estate - commercial |  | 16,143 |  | 46 |  | 15,033 |  | 0 |  | 16,506 |  | 96 |  | 14,496 |  | 0 |
Consumer |  | 44 |  | 0 |  | 0 |  | 0 |  | 44 |  | 0 |  | 0 |  | 0 |
Total |  | $ | 30,160 |  | $ | 82 |  | $ | 28,029 |  | $ | (16 | ) | $ | 30,784 |  | $ | 167 |  | $ | 26,875 |  | $ | 21 |
Total impaired loans |  | $ | 41,997 |  | $ | 134 |  | $ | 47,172 |  | $ | 73 |  | $ | 42,810 |  | $ | 274 |  | $ | 48,373 |  | $ | 173 |
The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken resulting from current appraisals received. The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to troubled debt restructurings, was $134,000 and $73,000, and $274,000 and $173,000, for the three and six months ended June 30, 2013 and 2012, respectively. The average recorded investment on impaired loans is calculated on a monthly basis during the periods reported. Contractual interest due on loans in non-accrual status was $751,000 at June 30, 2013 compared to $1,110,000 at June 30, 2012. During the three and six months ended June 30, 2013, $49,000 and $92,000, respectively, in interest was recognized on loans in non-accrual status on a cash basis. During the three and six months ended June 30, 2012, there was no significant interest recognized on loans in non-accrual status. Delinquent and Non-Accrual Loans The delinquency status of loans is determined based on the contractual terms of the notes. Borrowers are generally classified as delinquent once payments become 30 days or more past due. The following table provides aging information for the Company’s past due and non-accrual loans at June 30, 2013 and December 31, 2012.
|  | Current or |  |  |  | 90 Days |  |  |  |  |
|  | Less Than |  |  |  | Past Due |  |  |  |  |
|  | 30 Days |  | 30 - 89 Days |  | And Still |  |  |  |  |
(in thousands) |  | Past Due |  | Past Due |  | Accruing |  | Non-Accrual |  | Total |
June 30, 2013 |  |  |  |  |  |  |  |  |  |  |
Commercial, Financial, and Agricultural |  | $ | 134,013 |  | $ | 672 |  | $ | 1 |  | $ | 1,957 |  | $ | 136,643 |
Real Estate Construction - Residential |  | 21,207 |  | 160 |  | 0 |  | 2,280 |  | 23,647 |
Real Estate Construction - Commercial |  | 40,315 |  | 0 |  | 0 |  | 7,831 |  | 48,146 |
Real Estate Mortgage - Residential |  | 212,285 |  | 628 |  | 213 |  | 4,702 |  | 217,828 |
Real Estate Mortgage - Commercial |  | 375,070 |  | 839 |  | 0 |  | 13,797 |  | 389,706 |
Installment and Other Consumer |  | 22,486 |  | 254 |  | 7 |  | 273 |  | 23,020 |
Total |  | $ | 805,376 |  | $ | 2,553 |  | $ | 221 |  | $ | 30,840 |  | $ | 838,990 |
December 31, 2012 |  |  |  |  |  |  |  |  |  |  |
Commercial, Financial, and Agricultural |  | $ | 126,884 |  | $ | 1,821 |  | $ | 0 |  | $ | 1,335 |  | $ | 130,040 |
Real Estate Construction - Residential |  | 19,390 |  | 290 |  | 0 |  | 2,497 |  | 22,177 |
Real Estate Construction - Commercial |  | 35,117 |  | 607 |  | 0 |  | 7,762 |  | 43,486 |
Real Estate Mortgage - Residential |  | 213,694 |  | 2,199 |  | 0 |  | 5,330 |  | 221,223 |
Real Estate Mortgage - Commercial |  | 390,032 |  | 1,122 |  | 0 |  | 13,938 |  | 405,092 |
Installment and Other Consumer |  | 24,221 |  | 520 |  | 6 |  | 219 |  | 24,966 |
Total |  | $ | 809,338 |  | $ | 6,559 |  | $ | 6 |  | $ | 31,081 |  | $ | 846,984 |
Credit Quality The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment. Loans are placed on watch status when (1) one or more weaknesses that could jeopardize timely liquidation exits; or (2) the margin or liquidity of an asset is sufficiently tenuous that adverse trends could result in a collection problem. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. It is the Company’s policy to discontinue the accrual of interest income on loans when management believes that the collection of interest or principal is doubtful. Loans are placed on non-accrual status when (1) deterioration in the financial condition of the borrower exists for which payment of full principal and interest is not expected, or (2) payment of principal or interest has been in default for a period of 90 days or more and the asset is not both well secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis. The following table presents the risk categories by class at June 30, 2013 and December 31, 2012.
(in thousands) |  | Commercial, Financial, & Agricultural |  | Real Estate Construction - Residential |  | Real Estate Construction - Commercial |  | Real Estate Mortgage - Residential |  | Real Estate Mortgage - Commercial |  | Installment and other Consumer |  | Total |
At June 30, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Watch |  | $ | 16,058 |  | $ | 1,744 |  | $ | 3,399 |  | $ | 21,694 |  | $ | 23,041 |  | $ | 496 |  | $ | 66,432 |
Substandard |  | 8,453 |  | 2,910 |  | 2,336 |  | 10,362 |  | 12,023 |  | 478 |  | 36,562 |
Non-accrual |  | 1,957 |  | 2,280 |  | 7,831 |  | 4,702 |  | 13,797 |  | 273 |  | 30,840 |
Total |  | $ | 26,468 |  | $ | 6,934 |  | $ | 13,566 |  | $ | 36,758 |  | $ | 48,861 |  | $ | 1,247 |  | $ | 133,834 |
At December 31, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Watch |  | $ | 14,814 |  | $ | 4,580 |  | $ | 6,459 |  | $ | 26,063 |  | $ | 29,753 |  | $ | 672 |  | $ | 82,341 |
Substandard |  | 6,485 |  | 396 |  | 2,035 |  | 5,472 |  | 11,027 |  | 423 |  | 25,838 |
Non-accrual |  | 1,335 |  | 2,497 |  | 7,762 |  | 5,330 |  | 13,938 |  | 219 |  | 31,081 |
Total |  | $ | 22,634 |  | $ | 7,473 |  | $ | 16,256 |  | $ | 36,865 |  | $ | 54,718 |  | $ | 1,314 |  | $ | 139,260 |
Troubled Debt Restructurings At June 30, 2013, loans classified as troubled debt restructurings (TDRs) totaled $19,983,000, of which $12,191,000 was on non-accrual status and $7,792,000 was on accrual status. At December 31, 2012, loans classified as TDRs totaled $22,363,000, of which $14,081,000 was on non-accrual status and $8,282,000 was on accrual status. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. Accordingly, specific reserves of $2,154,000 and $1,544,000 related to TDRs were allocated to the allowance for loan losses at June 30, 2013 and December 31, 2012, respectively. The following table summarizes loans that were modified as TDRs during the six months ended June 30, 2013 and 2012:
|  | Six Months Ended June 30, |
|  | 2013 |  | 2012 |
|  | Recorded Investment (1) |  | Recorded Investment (1) |
(in thousands) |  | Number of Contracts |  | Pre- Modification |  | Post- Modification |  | Number of Contracts |  | Pre- Modification |  | Post- Modification |
Troubled Debt Restructurings |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | 0 |  | $ | 0 |  | $ | 0 |  | 1 |  | $ | 188 |  | $ | 196 |
Real estate construction - commercial |  | 0 |  | 0 |  | 0 |  | 1 |  | 43 |  | 43 |
Real estate mortgage - residential |  | 1 |  | 619 |  | 619 |  | 0 |  | 0 |  | 0 |
Total |  | 1 |  | $ | 619 |  | $ | 619 |  | 2 |  | $ | 231 |  | $ | 239 |
(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported. The Company’s portfolio of loans classified as TDRs include concessions such as interest rates below the current market rate, deferring principal payments, and extending maturity dates. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is ultimately repaid in full, charged-off, or the collateral for the loan is foreclosed and sold. The Company considers a loan in TDR status in default when the borrower’s payment according to the modified terms is at least 90 days past due or has defaulted due to expiration of the loan’s maturity date. During the six months ended June 30, 2013, one loan meeting the TDR criteria was modified. During the three months ended June 30, 2013 and 2012 there were no loans modified as TDRs. There were no loans modified as a TDR that defaulted during the three and six months ended June 30, 2013, and within twelve months of their modification date. No loans modified as a TDR during the three and six months ended June 30, 2012 defaulted.

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