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LOANS AND ALLOWANCE FOR LOAN LOSSES
 9 Months Ended
Sep. 30, 2012
Receivables [Abstract]  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE D – LOANS AND ALLOWANCE FOR LOAN LOSSES

 

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Generally, loans are placed on non-accrual status not later than 90 days past due, unless the loan is well-secured and in the process of collection. All interest accrued, but not collected for loans that are placed on non-accrual or charged-off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the non-collectability of a loan balance is probable. Subsequent recoveries, if any, are credited to the allowance.

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.

 

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected on the historical loss or risk rating data.

 

A loan is considered impaired when, based on current information and events, it is probable that State Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration each of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial, agricultural, and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

 

When State Bank moves a loan to non-accrual status, total unpaid interest accrued to date is reversed from income. Subsequent payments are applied to the outstanding principal balance with the interest portion of the payment recorded on the balance sheet as a contra-loan. Interest received on impaired loans may be realized once all contractual principal amounts are received or when a borrower establishes a history of six consecutive timely principal and interest payments. It is at the discretion of management to determine when a loan is placed back on accrual status upon receipt of six consecutive timely payments.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, State Bank does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

 

Categories of loans at September 30, 2012 and December 31, 2011 include:

 

($'s in thousands)   September 30,     December 31,  
    2012     2011  
Commercial   $ 76,101     $ 78,112  
Commercial real estate     198,682       187,829  
Agricultural     42,988       38,361  
Residential real estate     85,727       87,656  
Home Equity & Consumer     51,581       50,681  
Leasing     207       216  
Total loans     455,286       442,855  
Less                
Net deferred loan fees, premiums and discounts     (265 )     (301 )
Loans, net of unearned income   $ 455,021     $ 442,554  
Allowance for loan losses   $ (6,696 )   $ (6,529 )

 

The risk characteristics of each loan portfolio segment are as follows:

 

Commercial and Agricultural

 

Commercial and agricultural loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

 

 Commercial Real Estate including Construction

 

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financial single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus nonowner-occupied loans.

 

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

 

Residential and Consumer

 

Residential and consumer loans consist of two segments – residential mortgage loans and personal loans. For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

 

 The following table presents the Company’s nonperforming loans at September 30, 2012 and December 31, 2011.

 

($'s in thousands)   September 30,     December 31,  
    2012     2011  
Commercial   $ 1,362     $ 2,393  
Commercial real estate     448       1,456  
Agricultural     3       -  
Residential real estate     2,607       2,471  
Home Equity & Consumer     829       580  
Leasing     -       -  
                 
Total nonaccruing loans     5,249       6,900  
                 
Accruing Troubled Debt Restructures (TDR's)     1,735       1,334  
                 
Total Nonperforming Loans   $ 6,984     $ 8,234  

 

The following tables present the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method for the three and nine months ended September 30, 2012, and 2011.

 

          Commercial           Residential     Home Equity                    
($'s in thousands)   Commercial     Real Estate     Agricultural     Real Estate     & Consumer     Other     Unallocated     Total  
                                                 
ALLOWANCE FOR LOAN AND LEASE LOSSES                              
                                                                 
For the Three Months Ended                                        
September 30, 2012                                        
Beginning balance   $ 1,517     $ 3,020     $ 95     $ 1,047     $ 802     $ 136     $ 1     $ 6,618  
Charge Offs     (79 )     (180 )     (10 )     -       (25 )     (8 )     -       (301 )
Recoveries     11       5       2       (2 )     61       2       -       79  
Provision     152       57       107       (18 )     12       (9 )     (1 )     300  
Ending Balance   $ 1,601     $ 2,902     $ 194     $ 1,027     $ 850     $ 121     $ -     $ 6,696  

 

For the Nine Months Ended                  
September 30, 2012                  
Beginning balance   $ 1,914     $ 2,880     $ 51     $ 956     $ 599     $ 139     $ (10 )   $ 6,529  
Charge Offs     (284 )     (279 )     (10 )     (65 )     (366 )     (24 )     -       (1,028 )
Recoveries     39       47       4       80       69       5       1       245  
Provision     (68 )     254       149       56       548       1       10       950  
Ending Balance   $ 1,601     $ 2,902     $ 194     $ 1,027     $ 850     $ 121     $ 1     $ 6,696  

 

 

Loans Receivable at September 30, 2012                                
          Commercial           Residential     Home Equity                    
    Commercial     Real Estate     Agricultural     Real Estate     & Consumer     Other     Unallocated     Total  
Ending balance:                                                                
individually evaluated for impairment   $ 591     $ -     $ 2     $ 311     $ 189     $ -     $ -     $ 1,093  
Ending balance:                                                                
collectively evaluated for impairment   $ 1,010     $ 2,902     $ 192     $ 716     $ 661     $ 121     $ 1     $ 5,603  
Loans:                                                                
Ending balance:                                                                
individually evaluated for impairment   $ 1,362     $ 849     $ 3     $ 2,756     $ 580     $ -     $ -     $ 5,550  
Ending balance:                                                                
collectively evaluated for impairment   $ 74,739     $ 197,833     $ 42,985     $ 82,971     $ 51,001     $ 207     $ -     $ 449,736  

 

Allowance for loan and Lease Losses

For the Three Months Ended		         Commercial           Residential     Home Equity                    
September 30, 2011   Commercial     Real Estate     Agricultural     Real Estate     & Consumer     Other     Unallocated     Total  
Beginning balance   $ 1,522     $ 3,444     $ 27     $ 894     $ 427     $ 99     $ 30     $ 6,444  
Charge Offs     (11 )     (352 )     -       (72 )     (87 )     (5 )     -       (527 )
Recoveries     2       11       1       1       1       5       -       21  
Provision     39       13       12       99       137       -       (3 )     297  
Ending Balance   $ 1,552     $ 3,116     $ 40     $ 922     $ 478     $ 99     $ 27     $ 6,235  

 

          Commercial           Residential     Home Equity                    
($'s in thousands)   Commercial     Real Estate     Agricultural     Real Estate     & Consumer     Other     Unallocated     Total  
                                                 
For the Nine Months Ended                                                                
September 30, 2011                                                                
Beginning balance   $ 1,723     $ 3,774     $ 16     $ 643     $ 401     $ 128     $ 30     $ 6,715  
Charge Offs     (607 )     (1,560 )     -       (238 )     (350 )     (4 )     -       (2,759 )
Recoveries     416       27       4       115       19       4       -       585  
Provision     20       875       20       402       408     $ (29 )     (2 )     1,694  
Ending Balance   $ 1,552     $ 3,116     $ 40     $ 922     $ 478     $ 99     $ 28     $ 6,235  

 

Loans Receivable at December 31, 2011                                    
          Commercial           Residential     Home Equity                    
    Commercial     Real Estate     Agricultural     Real Estate     & Consumer     Other     Unallocated     Total  
Ending balance:                                                                
individually evaluated for impairment   $ 1,017     $ 19     $ 5     $ 280     $ 212     $ -     $ -     $ 1,533  
Ending balance:                                                                
collectively evaluated for impairment   $ 897     $ 2,861     $ 46     $ 676     $ 387     $ 139     $ (10 )   $ 4,996  
Loans:                                                                
Ending balance:                                                                
individually evaluated for impairment   $ 3,283     $ 2,473     $ 5     $ 2,074     $ 543     $ -     $ -     $ 8,378  
Ending balance:                                                                
collectively evaluated for impairment   $ 74,829     $ 185,356     $ 38,356     $ 85,582     $ 50,138     $ 216     $ -     $ 434,477  

 

 
Loans Receivable at September 30, 2011                                    
          Commercial           Residential     Home Equity                    
    Commercial     Real Estate     Agricultural     Real Estate     & Consumer     Other     Unallocated     Total  
Ending balance:                                                                
individually evaluated for impairment   $ 732     $ 429     $ -     $ 153     $ 119     $ -     $ -     $ 1,433  
Ending balance:                                                                
collectively evaluated for impairment   $ 820     $ 2,687     $ 40     $ 769     $ 359     $ 99     $ 28     $ 4,802  
Loans:                                                                
Ending balance:                                                                
individually evaluated for impairment   $ 2,391     $ 2,675     $ -     $ 1,311     $ 95     $ -     $ -     $ 6,472  
Ending balance:                                                                
collectively evaluated for impairment   $ 70,231     $ 173,521     $ 38,601     $ 97,461     $ 47,949     $ 4,691     $ -     $ 432,454  

 

Credit Risk Profile

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100 thousand and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

 

Special Mention (5): Assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.

 

Substandard (6): Loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful (7): Loans classified as doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable and improbable.

 

Loss (8): Loans are considered uncollectable and of such little value that continuing to carry them as assets on the Company’s financial statement is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass (1-4) rated loans.

 

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of September 30, 2012 and December 31, 2011 ($’s in thousands).

 

September 30, 2012                     Residential     Home Equity              
    Commercial     Commercial RE     Agricultural     Real Estate     & Consumer     Other     Total  
1-2   $ 778     $ 111     $ 117     $ -     $ -     $ -     $ 1,006  
3     22,761       59,652       9,135       74,690       46,599       24       212,861  
4     49,753       125,311       33,699       6,355       3,553       183       218,854  
Total Pass     73,292       185,074       42,951       81,045       50,152       207       432,721  
                                                         
5     66       9,905       -       1,507       501       -       11,979  
6     1,490       3,160       34       860       119       -       5,663  
7     1,253       543       3       2,315       809       -       4,923  
8     -       -       -       -       -       -       -  
Total   $ 76,101     $ 198,682     $ 42,988     $ 85,727     $ 51,581     $ 207     $ 455,286  

 

 

December 31, 2011                     Residential     Home Equity              
    Commercial     Commercial RE     Agricultural     Real Estate     & Consumer     Other     Total  
1-2   $ 909     $ 188     $ 152     $ 1,548     $ 127     $ 140     $ 3,064  
3     24,375       62,506       13,203       78,122       43,814       -       222,020  
4     48,004       110,633       24,950       1,576       6,095       76       191,334  
Total Pass     73,288       173,327       38,305       81,246       50,036       216       416,418  
                                                         
5     610       9,703       5       1,666       72       -       12,056  
6     2,037       3,358       51       1,834       92       -       7,372  
7     2,177       1,441       -       2,910       481       -       7,009  
8     -       -       -       -       -       -       -  
Total   $ 78,112     $ 187,829     $ 38,361     $ 87,656     $ 50,681     $ 216     $ 442,855  

 

The following tables present the Company’s loan portfolio aging analysis as of September 30, 2012 and December 31, 2011 ($’s in thousands).

 

    30-59 Days     60-89 Days     Greater Than     Total Past           Total Loans  
September 30, 2012   Past Due     Past Due     90 Days     Due     Current     Receivable  
                                     
Commercial   $ 4     $ -     $ 612     $ 616     $ 75,485     $ 76,101  
Commercial real estate     77       -       448       525       198,157       198,682  
Agricultural     -       -       -       -       42,988       42,988  
Residential real estate     123       221       1,434       1,778       83,949       85,727  
Home Equity & Consumer     231       -       547       778       50,803       51,581  
Leases     -       -       -       -       207       207  
Loans & Leases     435       221       3,041       3,697       451,589       455,286  
Loans held for sale     -       -       -       -       11,584       11,584  
                                                 
Total   $ 435     $ 221     $ 3,041     $ 3,697     $ 463,173     $ 466,870  

 

    30-59 Days     60-89 Days     Greater Than     Total Past           Total Loans  
December 31, 2011   Past Due     Past Due     90 Days     Due     Current     Receivable  
                                     
Commercial   $ 58     $ -     $ 2,334     $ 2,392     $ 75,720     $ 78,112  
Commercial real estate     67       -       1,656       1,723       186,106       187,829  
Agricultural     -       -       -       -       38,361       38,361  
Residential real estate     412       784       569       1,765       85,891       87,656  
Home Equity & Consumer     465       194       505       1,164       49,517       50,681  
Leases     -       -       -       -       216       216  
Loans & Leases     1,002       978       5,064       7,044       435,811       442,855  
                                                 
Loans held for sale     -       -       -       -       5,238       5,238  
                                                 
Total   $ 1,002     $ 978     $ 5,064     $ 7,044     $ 441,049     $ 448,093  

 

All loans past due 90 days are systematically placed on nonaccrual status.

 

The following tables present impaired loan information as of and for the three and nine months ended September 30, 2012 and 2011, and as of the twelve months ended December 31, 2011:

 

          Unpaid        
September 30, 2012   Recorded     Principal     Related  
($'s in thousands)   Investment     Balance     Allowance  
With no related allowance recorded:                        
Commercial   $ 418     $ 2,304     $ -  
Commercial Real Estate     849       1,893       -  
Agricultural     -       -       -  
Residential     1,271       1,282       -  
Home Equity Consumer & Other     225       258       -  
All Impaired Loans < $100,000     1,441       1,441       -  
With a specific allowance recorded:                        
Commercial     944       944       591  
Commercial Real Estate     -       -       -  
Agricultural     3       3       2  
Residential     1,485       1,538       311  
Home Equity Consumer & Other     355       355       189  
Totals:                        
Commercial   $ 1,362     $ 3,248     $ 591  
Commercial Real Estate   $ 849     $ 1,893     $ -  
Agricultural   $ 3     $ 3     $ 2  
Residential   $ 2,756     $ 2,820     $ 311  
Home Equity Consumer & Other   $ 580     $ 613     $ 189  
All Impaired Loans < $100,000   $ 1,441     $ 1,441     $ -  

 

    Nine Months Ended September 30, 2012     Three Months Ended September 30, 2012  
    Average     Interest     Average     Interest  
($'s in thousands)   Recorded     Income     Recorded     Income  
    Investment     Recognized     Investment     Recognized  
                         
With no related allowance recorded:                                
Commercial   $ 2,568     $ -     $ 2,071     $ -  
Commercial Real Estate     2,078       18       2,013       6  
Agricultural     -       -       -       -  
Residential     1,359       57       1,351       16  
Home Equity Consumer & Other     393       11       388       4  
All Impaired Loans < $100,000     1,441       -       1,441       -  
With a specific allowance recorded:                                
Commercial     949       6       947       3  
Commercial Real Estate     -       -       -       -  
Agricultural     3       -       3       -  
Residential     1,480       38       1,475       12  
Home Equity Consumer & Other     365       13       362       5  
Totals:                                
Commercial   $ 3,517     $ 6     $ 3,018     $ 3  
Commercial Real Estate   $ 2,078     $ 18     $ 2,013     $ 6  
Agricultural   $ 3     $ -     $ 3     $ -  
Residential   $ 2,839     $ 95     $ 2,826     $ 28  
Home Equity Consumer & Other   $ 758     $ 24     $ 750     $ 9  
All Impaired Loans < $100,000   $ 1,441     $ -     $ 1,441     $ -  

 

 

Twelve Months Ended         Unpaid        
December 31, 2011   Recorded     Principal     Related  
($'s in thousands)   Investment     Balance     Allowance  
With no related allowance recorded:                        
Commercial   $ 1,206     $ 1,856     $ -  
Commercial Real Estate     1,061       2,149       -  
Agricultural     -       -       -  
Residential     581       581       -  
Home Equity Consumer & Other     189       217       -  
All Impaired Loans < $100,000     1,065       1,065       -  
With a specific allowance recorded:                        
Commercial     2,077       3,787       1,017  
Commercial Real Estate     1,412       2,827       19  
Agricultural     5       5       5  
Residential     1,493       1,596       280  
Home Equity Consumer & Other     354       354       212  
Totals:                        
Commercial   $ 3,283     $ 5,643     $ 1,017  
Commercial Real Estate   $ 2,473     $ 4,976     $ 19  
Agricultural   $ 5     $ 5     $ 5  
Residential   $ 2,074     $ 2,177     $ 280  
Home Equity Consumer & Other   $ 543     $ 571     $ 212  
All Impaired Loans < $100,000   $ 1,065     $ 1,065     $ -  

 

September 30, 2011         Unpaid        
($'s in thousands)   Recorded     Principal     Related  
    Investment     Balance     Allowance  
With no related allowance recorded:                        
Commercial & Industrial   $ 165     $ 515     $ -  
Commercial RE & Construction     504       1,367       -  
Agricultural & Farmland     -       -       -  
Residential Real Estate     438       485       -  
Home Equity & Consumer     43       43       -  
All Impaired Loans < $100,000     1,381       1,381       -  
With a specific allowance recorded:                        
Commercial & Industrial     2,226       4,074       732  
Commercial RE & Construction     2,171       3,260       480  
Agricultural & Farmland     -       -       -  
Residential Real Estate     873       1,081       221  
Home Equity & Consumer     52       87       -  
Totals:                        
Commercial & Industrial   $ 2,391     $ 4,589     $ 732  
Commercial RE & Construction   $ 2,675     $ 4,627     $ 480  
Agricultural & Farmland   $ -     $ -     $ -  
Residential Real Estate   $ 1,311     $ 1,567     $ 221  
Home Equity & Consumer   $ 95     $ 130     $ -  
All Impaired Loans < $100,000   $ 1,381     $ 1,381     $ -  

 

 

 

    Nine Months Ended     Three Months Ended  
September 30, 2011   Average     Interest     Average     Interest  
($'s in thousands)   Recorded     Income     Recorded     Income  
    Investment     Recognized     Investment     Recognized  
With no related allowance recorded:                                
Commercial & Industrial   $ 210     $ -     $ 210     $ -  
Commercial RE & Construction     700       -       504       -  
Agricultural & Farmland     -       -       -       -  
Residential Real Estate     531       17       525       5  
Home Equity & Consumer     43       -       43       -  
All Impaired Loans < $100,000     1,381       -       1,381       -  
With a specific allowance recorded:                                
Commercial & Industrial     2,663       -       2,664       -  
Commercial RE & Construction     3,121       13       3,133       4  
Agricultural & Farmland     -       -       -       -  
Residential Real Estate     1,106       22       1,120       8  
Home Equity & Consumer     83       3       82       1  
Totals:                                
Commercial & Industrial   $ 2,873     $ -     $ 2,874     $ -  
Commercial RE & Construction   $ 3,821     $ 13     $ 3,637     $ 4  
Agricultural & Farmland   $ -     $ -     $ -     $ -  
Residential Real Estate   $ 1,637     $ 39     $ 1,645     $ 13  
Home Equity & Consumer   $ 126     $ 3     $ 125     $ 1  
All Impaired Loans < $100,000   $ 1,381     $ -     $ 1,381     $ -  

 

Impaired loans less than $100,000 are included in groups of homogenous loans. These loans are evaluated based on delinquency status.

 

Interest income recognized on a cash basis does not materially differ from interest income recognized on an accrual basis.

 

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable State Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

 

Troubled Debt Restructured (TDR) Loans

TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concessions provided are not available to the borrower through either normal channels or other sources. However, not all loan modifications are TDRs.

 

TDR Concession Types

 

The Company’s standards relating to loan modifications consider, among other factors, minimum verified income requirements, cash flow analysis, and collateral valuations. Each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower’s specific circumstances at a point in time. All loan modifications, including those classified as TDRs, are reviewed and approved. The types of concessions provided to borrowers include:

 

· Interest rate reduction: A reduction of the stated interest rate to a nonmarket rate for the remaining original life of the debt. The Company also may grant interest rate concessions for a limited timeframe on a case by case basis.
· Amortization or maturity date change beyond what the collateral supports, including any of the following:

 

(1) Lengthens the amortization period of the amortized principal beyond market terms. This concession reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.

 

(2) Reduces the amount of loan principal to be amortized. This concession also reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.

 

(3) Extends the maturity date or dates of the debt beyond what the collateral supports. This concession generally applies to loans without a balloon payment at the end of the term of the loan. In addition, there may be instances where renewing loans potentially require non-market terms and would then be reclassified as TDRs.

 

· Other: A concession that is not categorized as one of the concessions described above. These concessions include, but are not limited to: principal forgiveness, collateral concessions, covenant concessions, and reduction of accrued interest. Principal forgiveness may result from any TDR modification of any concession type.

 

The table below presents the activity of TDRs during the three and nine months ended September 30, 2012 and the twelve months ended December 31, 2011.

 

($'s in thousands)   Three Months Ended September 30, 2012  
          Pre-Modification     Post-Modification  
    Number of     Recorded     Recorded  
    Contracts     Investment     Investment  
                         
Residential Real Estate     2     $ 60     $ 60  

 

($'s in thousands)   Nine Months Ended September 30, 2012  
          Pre-Modification     Post-Modification  
    Number of     Recorded     Recorded  
    Contracts     Investment     Investment  
                         
Residential Real Estate     10     $ 334     $ 334  

 

($'s in thousands)   Twelve Months Ended December 31, 2011  
          Pre-Modification     Post-Modification  
    Number of     Recorded     Recorded  
    Contracts     Investment     Investment  
                         
Residential Real Estate     14     $ 1,011     $ 1,011  

 

Of the TDRs entered into during 2012, none had subsequently defaulted as of September 30, 2012. Redefaults are defined as loans that were performing TDRs that became 90 days or more past due post restructuring. The Company has specifically allocated $0.83 million of the $6.7 million in loan loss allowance to all TDR loans. All TDRs resulted from a reduction to a borrower’s rate or change in amortization. No principal reductions have been granted.