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Note 5 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans | 12 Months Ended
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Dec. 31, 2013
Disclosure Text Block Supplement [Abstract] |
Allowance for Credit Losses [Text Block] | Note 5: Allowance for Loan Losses, Nonperforming Assets and Impaired Loans The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and to identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and value of the underlying collateral. Impaired loans are those loans that have been modified in a troubled debt restructure (“TDR” or “restructure”) and larger, non-homogeneous loans that are in nonaccrual or exhibit payment history or financial status that indicate the probability that collection will not occur according to the loan’s terms. Generally, impaired loans are given risk ratings that indicate higher risk, such as “classified” or “other assets especially mentioned.” Impaired loans are individually evaluated to determine appropriate reserves and are measured at the lower of the invested amount or the fair market value. Troubled debt restructurings impact the estimation of the appropriate level of the allowance for loan losses. If the restructuring included forgiveness of a portion of principal or accrued interest, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Further, restructured loans are individually evaluated for impairment, with amounts below fair value accrued in the allowance for loan losses. TDRs that experience a payment default are examined to determine whether the default indicates collateral dependency or cash flows below those that were included in the fair value measurement. TDRs, as well as all impaired loans, that are determined to be collateral dependent are charged down to fair value. Deficiencies indicated by impairment measurements for TDRs that are not collateral dependent may be accrued in the allowance for loan losses or charged off if deemed uncollectible. The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively-evaluated loans is applied at the class level. Portfolio Segments and Classes Beginning January 1, 2013, the Company segregated certain loans that were included within the classes of the Residential Real Estate segment, including Equity lines, Residential closed-end first liens and Residential closed-end junior liens. The loans segregated in 2013 are secured by residential real estate collateral that is owned by investors and for which the primary repayment source is rental income. The new class in the Residential Real Estate segment allows the Company to address credit risks characteristic of investor-owned residential real estate. Segregating the investor-owned residential real estate did not have a significant impact on the calculation of the allowance for loan losses. Consistent with accounting guidance, prior periods have not been restated and are shown as originally published using the segments and classes in effect for the period. The segments and classes used in determining the allowance for loan losses, beginning in 2013 are as follows.
Real Estate Construction Construction, residential Construction, other Consumer Real Estate Equity lines Residential closed-end first liens Residential closed-end junior liens Investor-owned residential real estate Commercial Real Estate Multifamily real estate Commercial real estate, owner-occupied Commercial real estate, other | Commercial Non Real Estate Commercial and Industrial Public Sector and IDA Public sector and IDA Consumer Non Real Estate Credit cards Automobile Other consumer loans
During the first quarter of 2012, the Company revised its basis for determining segments and classes for the allowance for loan losses. In previous periods, the loan portfolio was segmented primarily by repayment source, whereas beginning with the first quarter of 2012 disaggregation is based primarily upon collateral type for secured loans and borrower type or repayment terms for unsecured loans. This aligns the allowance categories with those used for financial statements and other notes, providing greater uniformity and comparability. Consistent with accounting guidance, prior periods have not been restated and are shown as originally published using the segments and classes in effect for the period. These changes did not have a significant effect on the calculation of the balance in the allowance for loan losses. The segments and classes used in determining the allowance for loan losses for 2012 are as follows.
Real Estate Construction Construction, residential Construction, other Consumer Real Estate Equity lines Residential closed-end first liens Residential closed-end junior liens Commercial Real Estate Multifamily real estate Commercial real estate, owner occupied Commercial real estate, other | Commercial Non Real Estate Commercial and Industrial Public Sector and IDA Public sector and IDA Consumer Non Real Estate Credit cards Automobile Other consumer loans
Prior to the first quarter of 2012, the Company’s segments and classes were as follows.
Consumer Real Estate Equity lines Closed-end consumer real estate Consumer construction Consumer, Non Real Estate Credit cards Consumer, general Consumer overdraft Commercial & Industrial Commercial & Industrial Construction, Development and Land Residential Commercial | Commercial Real Estate College housing Office/Retail space Nursing homes Hotels Municipalities Medical professionals Religious organizations Convenience stores Entertainment and sports Nonprofits Restaurants General contractors Other commercial real estate
Historical Loss Rates The Company’s allowance methodology for collectively-evaluated loans applies historical loss rates by class to current class balances as part of the process of determining required reserves. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The annualized current-year loss rate is averaged with that of prior periods to obtain the historical loss rate. Prior to the first quarter of 2013, one historical loss rate for each class was calculated and applied to current class balance to obtain the allocation for historical loss rates. Beginning with the first quarter of 2013, two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard” or higher. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified balances at the reporting date. The revised calculation and application of historical loss rates impacted the calculation of reserves for collectively-evaluated loans. Under the former methodology, the class historical loss rates were applied to all collectively-evaluated loans and would have resulted in a total allocation of $2,173. Under the revised methodology, class historical loss rates are applied to only non-classified loans, resulting in an allocation of $2,158. In addition, the classified historical loss rate resulted in an allocation of $637, for a total allocation based on historical loss rates of $2,795. Consistent with accounting guidance, prior periods have not been restated and are shown as originally published using the methodology in effect for the period. Risk Factors In addition to historical loss rates, risk factors pertinent to each class are analyzed to estimate reserves for collectively-evaluated loans. Factors include changes in national and local economic and business conditions, the nature and volume of classes within the portfolio, loan quality and loan officers’ experience. Prior to the first quarter of 2013, management also reviewed the Company’s lending policies and loan review system to determine whether changes had occurred during the quarter that affected credit risk. Until the first quarter of 2013, no changes were found to affect credit risk and no additional allocations were applied. During the first quarter of 2013, the Company incorporated to the allowance methodology a factor for changes in the Company’s lending policies and a factor for changes in the quality of the Company’s loan review, and set standard allocations for associated risk. The addition of the factors formalized and standardized a practice already in place and did not have a significant impact on the calculation of the allowance for loan losses. The analysis of certain factors results in standard allocations to all segments and classes. These factors include loan officers’ average years of experience, the risk from changes in lending policies, and the risk from changes in loan review. Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include levels of past due loans, nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment. Please refer to Note 1: Summary of Significant Accounting Policies for a discussion of risk factors pertinent to each class. Factor allocations applied to each class are increased for loans rated special mention and increased to a greater extent for loans rated classified. The Company allocates additional reserves for “high risk” loans, determined to be junior lien mortgages, high loan-to-value loans and interest-only loans. An analysis of the allowance for loan losses follows:
|  | Years ended December 31, |
|  | 2013 |  |  | 2012 |  |  | 2011 |
Balance at beginning of year |  | $ | 8,349 |  |  | $ | 8,068 |  |  | $ | 7,664 |
Loans charged off |  |  | (1,820 | ) |  |  | (2,953 | ) |  |  | (2,628 | )
Recoveries of loans previously charged off |  |  | 167 |  |  |  | 100 |  |  |  | 83 |
Provision for loan losses |  |  | 1,531 |  |  |  | 3,134 |  |  |  | 2,949 |
Balance at end of year |  | $ | 8,227 |  |  | $ | 8,349 |  |  | $ | 8,068 |
A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows:
|  | Activity in the Allowance for Loan Losses by Segment for the year ended December 31, 2013 |
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Balance, December 31, 2012 |  | $ | 1,070 |  |  | $ | 2,263 |  |  | $ | 3,442 |  |  | $ | 959 |  |  | $ | 142 |  |  | $ | 424 |  |  | $ | 49 |  |  | $ | 8,349 |
Charge-offs |  |  | (184 | ) |  |  | (256 | ) |  |  | (64 | ) |  |  | (968 | ) |  |  | --- |  |  |  | (348 | ) |  |  | --- |  |  |  | (1,820 | )
Recoveries |  |  | 44 |  |  |  | 1 |  |  |  | 25 |  |  |  | 18 |  |  |  | --- |  |  |  | 79 |  |  |  | --- |  |  |  | 167 |
Provision for loan losses |  |  | (67 | ) |  |  | (311 | ) |  |  | 282 |  |  |  | 980 |  |  |  | (10 | ) |  |  | 421 |  |  |  | 236 |  |  |  | 1,531 |
Balance, December 31, 2013 |  | $ | 863 |  |  | $ | 1,697 |  |  | $ | 3,685 |  |  | $ | 989 |  |  | $ | 132 |  |  | $ | 576 |  |  | $ | 285 |  |  | $ | 8,227 |
|  | Activity in the Allowance for Loan Losses by Segment for the year ended December 31, 2012 |
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Balance, December 31, 2011 |  | $ | 1,079 |  |  | $ | 1,245 |  |  | $ | 3,515 |  |  | $ | 1,473 |  |  | $ | 232 |  |  | $ | 403 |  |  | $ | 121 |  |  | $ | 8,068 |
Charge-offs |  |  | (640 | ) |  |  | (370 | ) |  |  | (1,589 | ) |  |  | (109 | ) |  |  | --- |  |  |  | (245 | ) |  |  | --- |  |  |  | (2,953 | )
Recoveries |  |  | 13 |  |  |  | 8 |  |  |  | --- |  |  |  | 2 |  |  |  | --- |  |  |  | 77 |  |  |  | --- |  |  |  | 100 |
Provision for loan losses |  |  | 618 |  |  |  | 1,380 |  |  |  | 1,516 |  |  |  | (407 | ) |  |  | (90 | ) |  |  | 189 |  |  |  | (72 | ) |  |  | 3,134 |
Balance, December 31, 2012 |  | $ | 1,070 |  |  | $ | 2,263 |  |  | $ | 3,442 |  |  | $ | 959 |  |  | $ | 142 |  |  | $ | 424 |  |  | $ | 49 |  |  | $ | 8,349 |
|  | Activity in the Allowance for Loan Losses by Segment for the year ended December 31, 2011(1) |
|  | Consumer Real Estate |  |  | Consumer Non-Real Estate |  |  | Commercial Real Estate |  |  | Commercial & Industrial |  |  | Construction, Development & Land |  |  | Unallocated |  |  | Total |
Balance, December 31, 2010 |  | $ | 1,059 |  |  | $ | 586 |  |  | $ | 4,033 |  |  | $ | 1,108 |  |  | $ | 749 |  |  | $ | 129 |  |  | $ | 7,664 |
Charge-offs |  |  | (461 | ) |  |  | (266 | ) |  |  | (457 | ) |  |  | (655 | ) |  |  | (789 | ) |  |  | --- |  |  |  | (2,628 | )
Recoveries |  |  | 14 |  |  |  | 68 |  |  |  | --- |  |  |  | 1 |  |  |  | --- |  |  |  | --- |  |  |  | 83 |
Provision for loan losses |  |  | 440 |  |  |  | 13 |  |  |  | 935 |  |  |  | 581 |  |  |  | 988 |  |  |  | (8 | ) |  |  | 2,949 |
Balance, December 31, 2011 |  | $ | 1,052 |  |  | $ | 401 |  |  | $ | 4,511 |  |  | $ | 1,035 |  |  | $ | 948 |  |  | $ | 121 |  |  | $ | 8,068 |
| (1) | Segments reported for December 31, 2011 are presented using the segmentation method in effect for 2011. The Company began reporting under revised segments in 2012.
|  | Allowance for Loan Losses by Segment and Evaluation Method as of December 31, 2013 |
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Individually evaluated for impairment |  | $ | --- |  |  | $ | 10 |  |  | $ | 610 |  |  | $ | 4 |  |  | $ | --- |  |  | $ | --- |  |  | $ | --- |  |  | $ | 624 |
Collectively evaluated for impairment |  |  | 863 |  |  |  | 1,687 |  |  |  | 3,075 |  |  |  | 985 |  |  |  | 132 |  |  |  | 576 |  |  |  | 285 |  |  |  | 7,603 |
Total |  | $ | 863 |  |  | $ | 1,697 |  |  | $ | 3,685 |  |  | $ | 989 |  |  | $ | 132 |  |  | $ | 576 |  |  | $ | 285 |  |  | $ | 8,227 |
|  | Loans by Segment and Evaluation Method as of December 31, 2013 |
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Individually evaluated for impairment |  | $ | --- |  |  | $ | 780 |  |  | $ | 12,079 |  |  | $ | 102 |  |  | $ | --- |  |  | $ | 24 |  |  | $ | --- |  |  | $ | 12,985 |
Collectively evaluated for impairment |  |  | 45,925 |  |  |  | 144,719 |  |  |  | 299,187 |  |  |  | 31,160 |  |  |  | 34,220 |  |  |  | 28,399 |  |  |  | --- |  |  |  | 583,610 |
Total |  | $ | 45,925 |  |  | $ | 145,499 |  |  | $ | 311,266 |  |  | $ | 31,262 |  |  | $ | 34,220 |  |  | $ | 28,423 |  |  | $ | --- |  |  | $ | 596,595 |
|  | Allowance for Loan Losses by Segment and Evaluation Method as of December 31, 2012 |
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Individually evaluated for impairment |  | $ | --- |  |  | $ | 43 |  |  | $ | 273 |  |  | $ | 231 |  |  | $ | --- |  |  | $ | 7 |  |  | $ | --- |  |  | $ | 554 |
Collectively evaluated for impairment |  |  | 1,070 |  |  |  | 2,220 |  |  |  | 3,169 |  |  |  | 728 |  |  |  | 142 |  |  |  | 417 |  |  |  | 49 |  |  |  | 7,795 |
Total |  | $ | 1,070 |  |  | $ | 2,263 |  |  | $ | 3,442 |  |  | $ | 959 |  |  | $ | 142 |  |  | $ | 424 |  |  | $ | 49 |  |  | $ | 8,349 |
|  | Loans by Segment and Evaluation Method as of December 31, 2012 |
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Individually evaluated for impairment |  | $ | 6,643 |  |  | $ | 864 |  |  | $ | 10,329 |  |  | $ | 574 |  |  | $ | --- |  |  | $ | 46 |  |  | $ | --- |  |  | $ | 18,456 |
Collectively evaluated for impairment |  |  | 43,670 |  |  |  | 142,398 |  |  |  | 293,979 |  |  |  | 36,775 |  |  |  | 26,169 |  |  |  | 31,668 |  |  |  | --- |  |  |  | 574,659 |
Total |  | $ | 50,313 |  |  | $ | 143,262 |  |  | $ | 304,308 |  |  | $ | 37,349 |  |  | $ | 26,169 |  |  | $ | 31,714 |  |  | $ | --- |  |  | $ | 593,115 |
A summary of ratios for the allowance for loan losses follows:
|  | December 31, |
|  | 2013 |  |  | 2012 |
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees |  |  | 1.38 | % |  |  | 1.41 | %
Ratio of net charge-offs to average loans, net of unearned income and deferred fees |  |  | 0.28 | % |  |  | 0.49 | %
A summary of nonperforming assets follows:
|  | December 31, |
|  | 2013 |  |  | 2012 |
Nonperforming assets: |  |  |  |  |  |  |  |
Nonaccrual loans |  | $ | 5,732 |  |  | $ | 10,870 |
Restructured loans in nonaccrual |  |  | 852 |  |  |  | 2,151 |
Total nonperforming loans |  |  | 6,584 |  |  |  | 13,021 |
Other real estate owned, net |  |  | 4,712 |  |  |  | 1,435 |
Total nonperforming assets |  | $ | 11,296 |  |  | $ | 14,456 |
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned |  |  | 1.88 | % |  |  | 2.44 | %
Ratio of allowance for loan losses to nonperforming loans(1) |  |  | 124.95 | % |  |  | 64.12 | %
| (1) | The Company defines nonperforming loans as total nonaccrual and restructured loans that are nonaccrual. Loans 90 days past due and still accruing and accruing restructured loans are excluded.
A summary of loans past due 90 days or more and impaired loans follows:
|  | December 31, |
|  | 2013 |  |  | 2012 |
Loans past due 90 days or more and still accruing |  | $ | 190 |  |  | $ | 170 |
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees |  |  | 0.03 | % |  |  | 0.03 | %
Accruing restructured loans |  | $ | 6,191 |  |  | $ | 2,005 |
Impaired loans:
Impaired loans with no valuation allowance |  | $ | 10,372 |  |  | $ | 16,974 |
Impaired loans with a valuation allowance |  |  | 2,613 |  |  |  | 1,482 |
Total impaired loans |  |  | 12,985 |  |  |  | 18,456 |
Valuation allowance |  |  | (624 | ) |  |  | (554 | )
Impaired loans, net of allowance |  | $ | 12,361 |  |  | $ | 17,902 |
Average recorded investment in impaired loans(1) |  | $ | 16,654 |  |  | $ | 13,540 |
Income recognized on impaired loans, after designation as impaired |  | $ | 267 |  |  | $ | 9 |
Amount of income recognized on a cash basis |  | $ | --- |  |  | $ | --- |
| (1) | Recorded investment includes principal, accrued interest, and deferred fees and costs.
No interest income was recognized on nonaccrual loans for the years ended December 31, 2013, 2012 or 2011. Nonaccrual loans that meet the Company’s balance thresholds are designated as impaired. A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, by loan class follows:
|  | Impaired Loans as of December 31, 2013 |
|  | Principal Balance |  |  | (A) Total Recorded Investment(1) |  |  | Recorded Investment(1) in (A) for Which There is No Related Allowance |  |  | Recorded Investment(1) in (A) for Which There is a Related Allowance |  |  | Related Allowance |
Consumer Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential closed-end first liens |  |  | 440 |  |  |  | 442 |  |  |  | 232 |  |  |  | 210 |  |  |  | 3 |
Residential closed-end junior liens |  |  | 259 |  |  |  | 261 |  |  |  | --- |  |  |  | 261 |  |  |  | 7 |
Investor-owned residential real estate |  |  | 81 |  |  |  | 82 |  |  |  | 82 |  |  |  | --- |  |  |  | --- |
Commercial Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 3,278 |  |  |  | 3,274 |  |  |  | 3,274 |  |  |  | --- |  |  |  | --- |
Commercial real estate, owner occupied |  |  | 5,643 |  |  |  | 5,645 |  |  |  | 3,864 |  |  |  | 1,781 |  |  |  | 610 |
Commercial real estate, other |  |  | 3,158 |  |  |  | 3,158 |  |  |  | 3,158 |  |  |  | --- |  |  |  | --- |
Commercial Non Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 102 |  |  |  | 103 |  |  |  | 1 |  |  |  | 102 |  |  |  | 4 |
Consumer Non Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Automobile |  |  | 24 |  |  |  | 24 |  |  |  | 24 |  |  |  | --- |  |  |  | --- |
Total |  | $ | 12,985 |  |  | $ | 12,989 |  |  | $ | 10,635 |  |  | $ | 2,354 |  |  | $ | 624 |
|  | Impaired Loans as of December 31, 2012 |
|  | Principal Balance |  |  | (A) Total Recorded Investment(1) |  |  | Recorded Investment(1) in (A) for Which There is No Related Allowance |  |  | Recorded Investment(1) in (A) for Which There is a Related Allowance |  |  | Related Allowance |
Real Estate Construction(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction, residential |  | $ | 123 |  |  | $ | 118 |  |  | $ | 118 |  |  | $ | --- |  |  | $ | --- |
Construction, other |  |  | 6,520 |  |  |  | 6,487 |  |  |  | 6,487 |  |  |  | --- |  |  |  | --- |
Consumer Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential closed-end first liens |  |  | 783 |  |  |  | 785 |  |  |  | 634 |  |  |  | 151 |  |  |  | 43 |
Residential closed-end junior liens |  |  | 81 |  |  |  | 81 |  |  |  | 81 |  |  |  | --- |  |  |  | --- |
Commercial Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 5,284 |  |  |  | 5,288 |  |  |  | 5,288 |  |  |  | --- |  |  |  | --- |
Commercial real estate, owner occupied |  |  | 5,045 |  |  |  | 5,043 |  |  |  | 4,293 |  |  |  | 750 |  |  |  | 273 |
Commercial Non Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 574 |  |  |  | 574 |  |  |  | 39 |  |  |  | 535 |  |  |  | 231 |
Consumer Non Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Automobile |  |  | 46 |  |  |  | 46 |  |  |  | --- |  |  |  | 46 |  |  |  | 7 |
Total |  | $ | 18,456 |  |  | $ | 18,422 |  |  | $ | 16,940 |  |  | $ | 1,482 |  |  | $ | 554 |
| (1) | Recorded investment includes principal, accrued interest, and deferred fees and costs.
| (2) | Only classes with impaired loans are shown
|  | Average Investment and Interest Income for Impaired Loans For the Year Ended December 31, 2013 |
|  | Average Recorded Investment(1) |  |  | Interest Income Recognized |
Real Estate Construction |  |  |  |  |  |  |  |
Construction, residential |  | $ | 40 |  |  | $ | --- |
Construction, other |  |  | 2,885 |  |  |  | --- |
Consumer Real Estate |  |  |  |  |  |  |  |
Residential closed-end first liens |  |  | 364 |  |  |  | 3 |
Residential closed-end junior liens |  |  | 280 |  |  |  | 9 |
Investor-owned residential real estate |  |  | 131 |  |  |  | 6 |
Commercial Real Estate |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 4,172 |  |  |  | --- |
Commercial real estate, owner occupied |  |  | 5,265 |  |  |  | 136 |
Commercial real estate, other |  |  | 3,369 |  |  |  | 110 |
Commercial Non Real Estate |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 117 |  |  |  | 3 |
Consumer Non Real Estate |  |  |  |  |  |  |  |
Automobile |  |  | 31 |  |  |  | --- |
Total |  | $ | 16,654 |  |  | $ | 267 |
| (1) | Recorded investment includes principal, accrued interest, and deferred fees and costs.
| (2) | Only classes with impaired loans are shown.
|  | Average Investment and Interest Income for Impaired Loans For the Year Ended December 31, 2012 |
|  | Average Recorded Investment(1) |  |  | Interest Income Recognized |
Real Estate Construction |  |  |  |  |  |  |  |
Construction, residential |  | $ | 1,171 |  |  | $ | --- |
Construction, other |  |  | 4,290 |  |  |  | 1 |
Consumer Real Estate |  |  |  |  |  |  |  |
Equity lines |  |  | 101 |  |  |  | --- |
Residential closed-end first liens |  |  | 873 |  |  |  | 2 |
Residential closed-end junior liens |  |  | 234 |  |  |  | --- |
Commercial Real Estate |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 1,466 |  |  |  | 5 |
Commercial real estate, owner occupied |  |  | 4,806 |  |  |  | 1 |
Commercial Non Real Estate |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 570 |  |  |  | --- |
Consumer Non Real Estate |  |  |  |  |  |  |  |
Automobile |  |  | 4 |  |  |  | --- |
Other consumer |  |  | 25 |  |  |  | --- |
Total |  | $ | 13,540 |  |  | $ | 9 |
| (1) | Recorded investment includes principal, accrued interest, and deferred fees and costs.
| (2) | Only classes with impaired loans are shown.
|  | Average Investment and Interest Income for Impaired Loans For the Year Ended December 31, 2011(3)
|  | Average Recorded Investment(1) |  |  | Interest Income Recognized |  |
Consumer Real Estate(2) |  |  |  |  |  |  |  |  |
Closed-end Consumer Real Estate |  | $ | 450 |  |  | $ | 3 |  |
Commercial Real Estate(2) |  |  |  |  |  |  |  |  |
College Housing |  |  | 281 |  |  |  | 7 |  |
Office and Retail |  |  | 292 |  |  |  | --- |  |
Hotels |  |  | 3,445 |  |  |  | 41 |  |
Medical Professionals |  |  | 67 |  |  |  | 5 |  |
General Contractors |  |  | 112 |  |  |  | 4 |  |
Other Commercial Real Estate |  |  | 1,139 |  |  |  | 24 |  |
Commercial & Industrial(2) |  |  |  |  |  |  |  |  |
Commercial & Industrial |  |  | 553 |  |  |  | --- |  |
Construction, Development and Land(2) |  |  |  |  |  |  |  |  |
Residential |  |  | 2,143 |  |  |  | 49 |  |
Commercial |  |  | 252 |  |  |  | 8 |  |
Total |  | $ | 8,734 |  |  | $ | 141 |  |
| (1) | Recorded investment includes principal, accrued interest, and deferred fees and costs.
| (2) | Only classes with impaired loans are shown.
| (3) | Segments reported for December 31, 2011 are presented using the segmentation method in effect for 2011. The Company began reporting under revised segments in 2012.
An analysis of past due and nonaccrual loans follows: December 31, 2013
|  | 30 – 89 Days Past Due |  |  | 90 or Mor e Days Past Due |  |  | 90 or More Days Past Due and Still Accruing |  |  | Nonaccruals (Including Impaired Nonaccruals) |
Real Estate Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction, residential |  | $ | 45 |  |  | $ | --- |  |  | $ | --- |  |  | $ | --- |
Construction, other |  |  | 45 |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Consumer Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity lines |  |  | --- |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Residential closed-end first liens |  |  | 903 |  |  |  | 252 |  |  |  | 128 |  |  |  | 308 |
Residential closed-end junior liens |  |  | 10 |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Investor-owned residential real estate |  |  | 422 |  |  |  | 91 |  |  |  | --- |  |  |  | 91 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 430 |  |  |  | 3,278 |  |  |  | --- |  |  |  | 3,278 |
Commercial real estate, owner occupied |  |  | 604 |  |  |  | 2,519 |  |  |  | --- |  |  |  | 2,756 |
Commercial real estate, other |  |  | 32 |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Commercial Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 196 |  |  |  | 43 |  |  |  | --- |  |  |  | 128 |
Public Sector and IDA |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Public sector and IDA |  |  | --- |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Consumer Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  |  | 3 |  |  |  | 13 |  |  |  | 13 |  |  |  | --- |
Automobile |  |  | 217 |  |  |  | 26 |  |  |  | 2 |  |  |  | 23 |
Other consumer loans |  |  | 49 |  |  |  | 46 |  |  |  | 47 |  |  |  | --- |
Total |  | $ | 2,956 |  |  | $ | 6,268 |  |  | $ | 190 |  |  | $ | 6,584 |
December 31, 2012
|  | 30 – 89 Days Past Due |  |  | 90 or More Days Past Due |  |  | 90 or More Days Past Due and Still Accruing |  |  | Nonaccruals (Including Impaired Nonaccruals) |
Real Estate Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction, residential |  | $ | --- |  |  | $ | 123 |  |  | $ | --- |  |  | $ | 123 |
Construction, other |  |  | 31 |  |  |  | 89 |  |  |  | --- |  |  |  | 3,109 |
Consumer Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity lines |  |  | 22 |  |  |  | 30 |  |  |  | 30 |  |  |  | 98 |
Residential closed-end first liens |  |  | 1,507 |  |  |  | 605 |  |  |  | 126 |  |  |  | 801 |
Residential closed-end junior liens |  |  | 121 |  |  |  | 39 |  |  |  | --- |  |  |  | 120 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 671 |  |  |  | 261 |  |  |  | --- |  |  |  | 4,624 |
Commercial real estate, owner occupied |  |  | 1,113 |  |  |  | --- |  |  |  | --- |  |  |  | 3,536 |
Commercial real estate, other |  |  | 40 |  |  |  | 2,089 |  |  |  | --- |  |  |  | --- |
Commercial Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 291 |  |  |  | 505 |  |  |  | --- |  |  |  | 561 |
Public Sector and IDA |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Public sector and IDA |  |  | --- |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Consumer Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  |  | 20 |  |  |  | 4 |  |  |  | 4 |  |  |  | --- |
Automobile |  |  | 142 |  |  |  | 10 |  |  |  | 10 |  |  |  | 49 |
Other consumer loans |  |  | 132 |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Total |  | $ | 4,090 |  |  | $ | 3,755 |  |  | $ | 170 |  |  | $ | 13,021 |
The estimate of credit risk for non-impaired loans is obtained by applying allocations for internal and external factors. The allocations are increased for loans that exhibit greater credit quality risk. Credit quality indicators, which the Company terms risk grades, are assigned through the Company’s credit review function for larger loans and selective review of loans that fall below credit review thresholds. Loans that do not indicate heightened risk are graded as “pass.” Loans that appear to have elevated credit risk because of frequent or persistent past due status, which is less than 75 days, or that show weakness in the borrower’s financial condition are risk graded “special mention.” Loans with frequent or persistent delinquency exceeding 75 days or that have a higher level of weakness in the borrower’s financial condition are graded “classified.” Classified loans have regulatory risk ratings of “substandard” and “doubtful.” Allocations are increased by 50% and by 100% for loans with grades of “special mention” and “classified,” respectively. Determination of risk grades was completed for the portfolio as of December 31, 2013, 2012 and 2011. The following displays non-impaired gross loans by credit quality indicator: December 31, 2013
|  | Pass |  |  | Special Mention (Excluding Impaired) |  |  | Classified (Excluding Impaired) |
Real Estate Construction |  |  |  |  |  |  |  |  |  |  |  |
Construction, 1-4 family residential |  | $ | 17,702 |  |  | $ | 163 |  |  | $ | 45 |
Construction, other |  |  | 27,971 |  |  |  | 29 |  |  |  | 15 |
Consumer Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Equity lines |  |  | 16,146 |  |  |  | 16 |  |  |  | --- |
Closed-end first liens |  |  | 82,767 |  |  |  | 1,007 |  |  |  | 1,275 |
Closed-end junior liens |  |  | 4,813 |  |  |  | 109 |  |  |  | 3 |
Investor-owned residential real estate |  |  | 38,071 |  |  |  | 105 |  |  |  | 407 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Multifamily residential real estate |  |  | 67,573 |  |  |  | --- |  |  |  | 958 |
Commercial real estate owner-occupied |  |  | 134,137 |  |  |  | 2,206 |  |  |  | 701 |
Commercial real estate, other |  |  | 89,340 |  |  |  | 1,209 |  |  |  | 3,063 |
Commercial Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 29,987 |  |  |  | 878 |  |  |  | 295 |
Public Sector and IDA |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions |  |  | 24,220 |  |  |  | --- |  |  |  | --- |
Consumer Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  |  | 6,354 |  |  |  | --- |  |  |  | --- |
Automobile |  |  | 11,428 |  |  |  | 253 |  |  |  | 34 |
Other consumer |  |  | 10,253 |  |  |  | 17 |  |  |  | 60 |
Total |  | $ | 570,762 |  |  | $ | 5,992 |  |  | $ | 6,856 |
December 31, 2012
|  | Pass |  |  | Special Mention (Excluding Impaired) |  |  | Classified (Excluding Impaired) |
Real Estate Construction |  |  |  |  |  |  |  |  |  |  |  |
Construction, 1-4 family residential |  | $ | 14,344 |  |  | $ | 158 |  |  | $ | --- |
Construction, other |  |  | 29,011 |  |  |  | --- |  |  |  | 120 |
Consumer Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Equity lines |  |  | 17,742 |  |  |  | 100 |  |  |  | 182 |
Closed-end first liens |  |  | 113,893 |  |  |  | 652 |  |  |  | 2,413 |
Closed-end junior liens |  |  | 6,713 |  |  |  | 119 |  |  |  | 138 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Multifamily residential real estate |  |  | 36,421 |  |  |  | --- |  |  |  | 324 |
Commercial real estate owner-occupied |  |  | 160,188 |  |  |  | 253 |  |  |  | 1,079 |
Commercial real estate, other |  |  | 92,628 |  |  |  | 3,112 |  |  |  | --- |
Commercial Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 36,372 |  |  |  | 99 |  |  |  | 318 |
Public Sector and IDA |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions |  |  | 26,170 |  |  |  | --- |  |  |  | --- |
Consumer Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  |  | 6,690 |  |  |  | --- |  |  |  | --- |
Automobile |  |  | 12,344 |  |  |  | 101 |  |  |  | 56 |
Other consumer |  |  | 11,815 |  |  |  | 45 |  |  |  | 105 |
Total |  | $ | 564,331 |  |  | $ | 4,639 |  |  | $ | 4,735 |
Sales, Purchases and Reclassification of Loans The Company finances mortgages under “best efforts” contracts with mortgage purchasers. The mortgages are designated as held for sale upon initiation. There have been no major reclassifications from portfolio loans to held for sale. Occasionally, the Company purchases or sells participations in loans. All participation loans purchased met the Company’s normal underwriting standards at the time the participation was entered. Participation loans are included in the appropriate portfolio balances to which the allowance methodology is applied. Troubled Debt Restructurings From time to time the Company modifies loans in troubled debt restructurings (“TDRs”). The following tables present restructurings by class that occurred during the years ended December 31, 2013 and 2012. Note: Only classes with restructured loans are presented.
|  | Restructurings that occurred during the year ended December 31, 2013 |
|  | Number of Contracts |  |  | Pre-Modification Outstanding Recorded Investment |  |  | Post-Modification Outstanding Recorded Investment(1) |
Consumer Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Closed-end first liens |  |  | 2 |  |  | $ | 453 |  |  | $ | 525 |
Closed-end junior liens |  |  | 1 |  |  |  | 262 |  |  |  | 267 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate owner-occupied |  |  | 1 |  |  |  | 154 |  |  |  | 239 |
Commercial real estate non owner-occupied |  |  | 1 |  |  |  | 3,500 |  |  |  | 3,500 |
Commercial Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 1 |  |  |  | 32 |  |  |  | 45 |
Total |  |  | 6 |  |  | $ | 4,401 |  |  | $ | 4,576 |
| (1) | Post-modification outstanding recorded investment considers amounts immediately following the modification. Amounts do not reflect balances at the end of the period.
|  | Restructurings that occurred during the year ended December 31, 2012 |
|  | Number of Contracts |  |  | Pre-Modification Outstanding Recorded Investment |  |  | Post-Modification Outstanding Recorded Investment(1) |
Consumer Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Closed-end first liens |  |  | 5 |  |  | $ | 389 |  |  | $ | 348 |
Closed-end junior liens |  |  | 1 |  |  |  | 147 |  |  |  | 93 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate owner-occupied |  |  | 3 |  |  |  | 890 |  |  |  | 895 |
Commercial Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial |  |  | 1 |  |  |  | 400 |  |  |  | 400 |
Total |  |  | 10 |  |  | $ | 1,826 |  |  | $ | 1,736 |
| (1) | Post-modification outstanding recorded investment considers amounts immediately following the modification. Amounts do not reflect balances at the end of the period.
The modifications that resulted in troubled debt restructurings between January 1, 2013 and December 31, 2013 provided payment relief to the borrowers without forgiveness of principal or accrued interest. The date of conversion from interest-only to amortizing payments for one commercial real estate loan was extended beyond the date specified by the contract, resulting in designation as a troubled debt restructuring. During the second quarter of 2013, the loan was converted to amortizing payments. The other commercial real estate loan was modified to extend the term, lower the interest rate and provide debt consolidation to allow the borrower increased debt service ability. Two modifications to consumer real estate loans capitalized accrued interest and reduced interest rates, while the other modification did not reduce the interest rate and shifted payments from interest-only to amortizing. One commercial non-real estate loan was modified to reduce the interest rate, capitalize interest and shift payments from interest-only to amortizing. Loans restructured in 2012 received modifications that included partial charge-offs of $109 for two consumer real estate loans; providing payment relief primarily by extending maturity dates or changing amortization structures without reducing interest rates or amounts owed; and adding a co-borrower to one consumer real estate loan. Restructured loans are designated impaired and measured for impairment. The impairment measurement for restructured loans that occurred in 2013 resulted in an accrual to the allowance for loan losses of $11 at December 31, 2013. Restructurings in 2012 resulted in an accrual to the allowance for loan losses of $210 at December 31, 2012. The following tables present restructured loans that were modified during 2013 and 2012 and that subsequently experienced payment default. The company defines default as one or more payments that occur more than 90 days past the due date, charge-off or foreclosure subsequent to modification.
Restructurings that defaulted during the year ended December 31, 2013 that were modified within 12 months prior to default |
|  | Number of Contracts |  |  | Recorded Investment(1) |
Consumer Real Estate |  |  |  |  |  |  |  |
Closed-end first liens |  |  | 1 |  |  | $ | 24 |
Closed-end junior liens |  |  | 1 |  |  |  | 81 |
Commercial Real Estate |  |  |  |  |  |  |  |
Commercial real estate owner occupied |  |  | 2 |  |  |  | 834 |
Commercial Non Real Estate |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 1 |  |  |  | 388 |
Total |  |  | 5 |  |  | $ | 1,327 |
| (1) | Recorded investment at the time the default occurred.
Of the TDRs that defaulted during 2013, 5 became TDRs within 12 months prior to default. One commercial real estate loan became past due and the collateral was foreclosed and placed into other real estate at the loan balance of $193. The collateral's fair value less selling costs was sufficient to cover the principal balance of the loan and no charge against the allowance for loan losses was required. One consumer real estate loan and one commercial non-real estate loan became past due and the underlying collateral was sold, with a resulting charge to the allowance for loan losses of $263. Two of the TDR loans remain in the loan portfolio. One consumer real estate loan became past due and impairment measurements required a $71 charge against the allowance for loan losses, while one commercial real estate loan became past due and impairment measurements indicated a specific allocation of $349 to the allowance for loan losses.
Restructurings that defaulted during the year ended December 31, 2012 that were modified within 12 months prior to default |
|  | Number of Contracts |  |  | Recorded Investment(1) |
Consumer Real Estate |  |  |  |  |  |  |  |
Closed-end first liens |  |  | 1 |  |  | $ | 96 |
Closed-end junior liens |  |  | 1 |  |  |  | 81 |
Commercial Real Estate |  |  |  |  |  |  |  |
Commercial real estate owner occupied |  |  | 2 |  |  |  | 861 |
Commercial Non Real Estate |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 1 |  |  |  | 388 |
Total |  |  | 5 |  |  | $ | 1,426 |
| (1) | Recorded investment at the time the default occurred.
Most of the restructured loans that experienced a payment default reported for December 31, 2012 above are secured by real estate, for which the impairment measurement is based upon the fair value of the underlying collateral. The amount of the loan balance that exceeds the collateral value is accrued in the allowance for loan losses. Because fair value measurements are based upon fair value of collateral, the payment default did not significantly impact the measurement of impairment. Restructured loans that become more than 90 days past due are designated nonaccrual. Nonaccrual levels are factored into the allowance methodology for collectively-evaluated loans.

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