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Loan and Allowance for Loan Losses
 9 Months Ended
Sep. 30, 2013
Loans And Leases Receivable Disclosure  
Loans and leases receivable disclosure [Text Block]

NOTE 5: LOANS AND ALLOWANCE FOR LOAN LOSSES

 

       September 30,  December 31,
(In thousands)  2013  2012
Commercial and industrial $58,766 $59,334
Construction and land development  37,062  37,631
Commercial real estate:      
 Owner occupied  57,082  64,368
 Other  113,438  119,243
  Total commercial real estate  170,520  183,611
Residential real estate:      
 Consumer mortgage  57,032  58,087
 Investment property  45,533  47,544
  Total residential real estate  102,565  105,631
Consumer installment  12,170  12,219
  Total loans  381,083  398,426
Less: unearned income  (378)  (233)
  Loans, net of unearned income $380,705 $398,193

Loans secured by real estate were approximately 82.4% of the Company's total loan portfolio at September 30, 2013. At September 30, 2013, the Company's geographic loan distribution was concentrated primarily in Lee County, Alabama and surrounding areas.

 

In accordance with ASC 310, a portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. As part of the Company's quarterly assessment of the allowance, the loan portfolio is disaggregated into the following portfolio segments: commercial and industrial, construction and land development, commercial real estate, residential real estate and consumer installment. Where appropriate, the Company's loan portfolio segments are further disaggregated into classes. A class is generally determined based on the initial measurement attribute, risk characteristics of the loan, and an entity's method for monitoring and determining credit risk.

 

The following describe the risk characteristics relevant to each of the portfolio segments and classes.

 

Commercial and industrial (“C&I”) — includes loans to finance business operations, equipment purchases, or other needs for small and medium-sized commercial customers. Also included in this category are loans to finance agricultural production. Generally the primary source of repayment is the cash flow from business operations and activities of the borrower.

 

Construction and land development (“C&D”) — includes both loans and credit lines for the purpose of purchasing, carrying and developing land into commercial developments or residential subdivisions. Also included are loans and lines for construction of residential, multi-family and commercial buildings. Generally the primary source of repayment is dependent upon the sale or refinance of the real estate collateral.

 

Commercial real estate (“CRE”) — includes loans disaggregated into two classes: (1) owner occupied and (2) other.

 

  • Owner occupied – includes loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized commercial customers. Generally the primary source of repayment is the cash flow from business operations and activities of the borrower, who owns the property.

     

  • Other – primarily includes loans to finance income-producing commercial and multi-family properties that are not owner occupied. Loans in this class include loans for neighborhood retail centers, hotels, medical and professional offices, single retail stores, industrial buildings, warehouses and apartments leased generally to local businesses and residents. Generally the primary source of repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower.

     

    Residential real estate (“RRE”) — includes loans disaggregated into two classes: (1) consumer mortgage and (2) investment property.

     

  • Consumer mortgage – primarily includes first or second lien mortgages and home equity lines of credit to consumers that are secured by a primary residence or second home. These loans are underwritten in accordance with the Bank's general loan policies and procedures which require, among other things, proper documentation of each borrower's financial condition, satisfactory credit history and property value.

     

  • Investment property – primarily includes loans to finance income-producing 1-4 family residential properties. Generally the primary source of repayment is dependent upon income generated from leasing the property securing the loan. The underwriting of these loans takes into consideration the rental rates and property value, as well as the financial health of the borrower.

 

Consumer installment — includes loans to individuals both secured by personal property and unsecured. Loans include personal lines of credit, automobile loans, and other retail loans. These loans are underwritten in accordance with the Bank's general loan policies and procedures which require, among other things, proper documentation of each borrower's financial condition, satisfactory credit history, and if applicable, property value.

 

The following is a summary of current, accruing past due and nonaccrual loans by portfolio segment and class as of September 30, 2013, and December 31, 2012.

         AccruingAccruingTotal    
         30-89 DaysGreater thanAccruingNon-  Total
(In thousands) CurrentPast Due90 daysLoansAccrual  Loans
September 30, 2013:          
Commercial and industrial $ 58,260 444 6 58,710 56 $ 58,766
Construction and land development   35,470 — — 35,470 1,592   37,062
Commercial real estate:          
 Owner occupied   55,992 49 — 56,041 1,041   57,082
 Other   113,012 — — 113,012 426   113,438
  Total commercial real estate   169,004 49 — 169,053 1,467   170,520
Residential real estate:          
 Consumer mortgage   55,814 200 93 56,107 925   57,032
 Investment property   44,859 289 — 45,148 385   45,533
  Total residential real estate   100,673 489 93 101,255 1,310   102,565
Consumer installment   12,130 40 — 12,170 —   12,170
  Total $ 375,537 1,022 99 376,658 4,425 $ 381,083

                
December 31, 2012:          
Commercial and industrial $ 59,101 173 — 59,274 60 $ 59,334
Construction and land development   35,917 8 — 35,925 1,706   37,631
Commercial real estate:          
 Owner occupied   63,323 — — 63,323 1,045   64,368
 Other   113,344 230 — 113,574 5,669   119,243
  Total commercial real estate   176,667 230 — 176,897 6,714   183,611
Residential real estate:          
 Consumer mortgage   55,521 1,202 58 56,781 1,306   58,087
 Investment property   46,460 335 — 46,795 749   47,544
  Total residential real estate   101,981 1,537 58 103,576 2,055   105,631
Consumer installment   12,157 62 — 12,219 —   12,219
  Total $ 385,823 2,010 58 387,891 10,535 $ 398,426
                
                

Allowance for Loan Losses

 

The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter. The level of the allowance is based upon management's evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect a borrower's ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan loss rates and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loans are charged off, in whole or in part, when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

 

 The Company deems loans impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement.

An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan. The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan's effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs.

The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.

In assessing the adequacy of the allowance, the Company also considers the results of its ongoing internal and independent loan review processes. The Company's loan review process assists in determining whether there are loans in the portfolio whose credit quality has weakened over time and evaluating the risk characteristics of the entire loan portfolio. The Company's loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as part of their examination process. The Company incorporates loan review results in the determination of whether or not it is probable that it will be able to collect all amounts due according to the contractual terms of a loan.

As part of the Company's quarterly assessment of the allowance, management divides the loan portfolio into five segments: commercial and industrial, construction and land development, commercial real estate, residential real estate, and consumer installment loans. The Company analyzes each segment and estimates an allowance allocation for each loan segment.

The allocation of the allowance for loan losses begins with a process of estimating the probable losses inherent for these types of loans. The estimates for these loans are established by category and based on the Company's internal system of credit risk ratings and historical loss data. The estimated loan loss allocation rate for the Company's internal system of credit risk grades is based on its experience with similarly graded loans. For loan segments where the Company believes it does not have sufficient historical loss data, the Company may make adjustments based, in part, on loss rates of peer bank groups. At September 30, 2013 and December 31, 2012, and for the periods then ended, the Company adjusted its historical loss rates for the commercial real estate portfolio segment based, in part, on loss rates of peer bank groups.

The estimated loan loss allocation for all five loan portfolio segments is then adjusted for management's estimate of probable losses for several “qualitative and environmental” factors. The allocation for qualitative and environmental factors is particularly subjective and does not lend itself to exact mathematical calculation. This amount represents estimated probable inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies or procedures and other influencing factors. These qualitative and environmental factors are considered for each of the five loan segments and the allowance allocation, as determined by the processes noted above, is increased or decreased based on the incremental assessment of these factors.

The Company regularly re-evaluates its practices in determining the allowance for loan losses. During 2013, the Company implemented certain refinements to its allowance for loan losses methodology, specifically the way that historical loss factors are calculated. Prior to June 30, 2013, the Company calculated average losses for all loan segments using a rolling 6 quarter historical period. In order to better capture the effects of the current economic cycle on the Company's loan loss experience, the Company calculated average losses for all loan segments (except for the commercial real estate loan segment) using a rolling 8 quarter historical period for the quarter ended June 30, 2013. Based upon management's review of charge-off trends for each loan segment, the Company continued to calculate average losses for the commercial real estate loan segment using a rolling 6 quarter historical period for the quarter ended June 30, 2013. If the Company continued to calculate average losses for all loan segments using a rolling 6 quarter historical period, the Company's calculated allowance for loan loss allocation would have decreased by approximately $1.1 million at June 30, 2013. Other than the changes discussed above, the Company has not made any changes to its calculation of historical loss periods that would impact the calculation of the allowance for loan losses or provision for loan losses for the periods included in the accompanying consolidated balance sheets and statements of earnings.

The following table details the changes in the allowance for loan losses by portfolio segment for the respective periods.

   September 30, 2013
(In thousands)Commercial and industrial Construction and land development Commercial real estate Residential real estate Consumer installment   Total
Quarter ended:              
Beginning balance$675 1,454 3,111 1,125 92  $ 6,457
Charge-offs  (177)  (137)  (103) (144)  —   (561)
Recoveries 23 1  21  — 5    50
 Net (charge-offs) recoveries (154) (136) (82) (144) 5   (511)
Provision 25 (129) 75 1 28    —
Ending balance$ 546  1,189  3,104  982  125  $ 5,946

Nine months ended:              
Beginning balance$812 1,545 3,137 1,126 103  $ 6,723
Charge-offs (245) (39) (262) (558) (199)   (1,303)
Recoveries 40 5 4 62 15    126
 Net charge-offs (205) (34) (258) (496) (184)   (1,177)
Provision (61) (322) 225 352 206   400
Ending balance$ 546  1,189  3,104  982  125  $ 5,946

   September 30, 2012
(In thousands)Commercial and industrial Construction and land development Commercial real estate Residential real estate Consumer installment   Total
Quarter ended:              
Beginning balance$731 1,623 2,817 1,278 54    6,503
Charge-offs  (152)  —  (1,626) (324) (35)  $(2,137)
Recoveries 20  —  71 35 3  $129
 Net charge-offs (132)  —  (1,555) (289) (32)   (2,008)
Provision 155 (14) 1,396 (42) 55  $1,550
Ending balance$754 1,609 2,658 947 77  $ 6,045

Nine months ended:            
Beginning balance$948 1,470 3,009 1,363 129  $ 6,919
Charge-offs (246) (231) (2,844) (435) (68)   (3,824)
Recoveries 28 1  71 85 15    200
 Net charge-offs  (218) (230) (2,773) (350) (53)   (3,624)
Provision 24 369 2,422 (66) 1   2,750
Ending balance$ 754  1,609  2,658  947  77  $ 6,045

The following table presents an analysis of the allowance for loan losses and recorded investment in loans by portfolio segment and impairment methodology as of September 30, 2013 and 2012.

 

 

       Collectively evaluated (1) Individually evaluated (2) Total
       AllowanceRecorded AllowanceRecorded AllowanceRecorded
       for loaninvestment for loaninvestment for loaninvestment
(In thousands) lossesin loans lossesin loans lossesin loans
September 30, 2013:         
Commercial and industrial$ 546 58,630  — 136  546 58,766
Construction and land development  1,090 35,469  99 1,593  1,189 37,062
Commercial real estate  2,919 167,564  185 2,956  3,104 170,520
Residential real estate  982 101,576  — 989  982 102,565
Consumer installment  125 12,170  — —  125 12,170
  Total$ 5,662 375,409  284 5,674  5,946 381,083

September 30, 2012:         
Commercial and industrial$ 754 58,395  — 184  754 58,579
Construction and land development  1,468 36,817  141 3,756  1,609 40,573
Commercial real estate  2,519 175,733  139 8,024  2,658 183,757
Residential real estate  915 101,297  32 2,022  947 103,319
Consumer installment  77 11,747  — —  77 11,747
  Total$ 5,733 383,989  312 13,986  6,045 397,975
               
(1)Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and
 pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans.
(2)Represents loans individually evaluated for impairment in accordance with ASC 310-30, Receivables (formerly FAS 114), and
 pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

Credit Quality Indicators

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for qualitative and environmental factors and are defined as follows:

  • Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral.
  • Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company's position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.
  • Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes debt repayment, even though they are currently performing. These loans are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;
  • Nonaccrual – includes loans where management has determined that full payment of principal and interest is in doubt.

 

(In thousands)  Pass  Special Mention Substandard Accruing Nonaccrual  Total loans
September 30, 2013:           
Commercial and industrial$ 53,776  4,184  750  56 $ 58,766
Construction and land development  34,175  177  1,118  1,592   37,062
Commercial real estate:           
 Owner occupied  54,076  1,083  882  1,041   57,082
 Other  111,231  963  818  426   113,438
  Total commercial real estate  165,307  2,046  1,700  1,467   170,520
Residential real estate:           
 Consumer mortgage  49,264  1,147  5,696  925   57,032
 Investment property  41,808  1,619  1,721  385   45,533
  Total residential real estate  91,072  2,766  7,417  1,310   102,565
Consumer installment  11,970  39  161  —   12,170
  Total$ 356,300  9,212  11,146  4,425 $ 381,083

December 31, 2012:           
Commercial and industrial$ 58,487  224  563  60 $ 59,334
Construction and land development  34,490  310  1,125  1,706   37,631
Commercial real estate:           
 Owner occupied  59,270  2,528  1,525  1,045   64,368
 Other  111,719  653  1,202  5,669   119,243
  Total commercial real estate  170,989  3,181  2,727  6,714   183,611
Residential real estate:           
 Consumer mortgage  49,462  1,544  5,775  1,306   58,087
 Investment property  43,559  1,033  2,203  749   47,544
  Total residential real estate  93,021  2,577  7,978  2,055   105,631
Consumer installment  11,850  155  214  —   12,219
  Total$ 368,837  6,447  12,607  10,535 $ 398,426

Impaired loans

 

The following tables present details related to the Company's impaired loans. Loans which have been fully charged-off do not appear in the following table. The related allowance generally represents the following components which correspond to impaired loans:

  • Individually evaluated impaired loans equal to or greater than $500,000 secured by real estate (nonaccrual construction and land development, commercial real estate, and residential real estate loans).
  • Individually evaluated impaired loans equal to or greater than $250,000 not secured by real estate (nonaccrual commercial and industrial and consumer installment loans).

 

The following tables set forth certain information regarding the Company's impaired loans that were individually evaluated for impairment at September 30, 2013 and December 31, 2012.

             
       September 30, 2013
(In thousands) Unpaid principal balance (1)Charge-offs and payments applied (2)Recorded investment (3)  Related allowance
With no allowance recorded:
Commercial and industrial$136 —136   
Construction and land development 2,879(1,682)1,197   
Commercial real estate:       
 Owner occupied 1,220(180)1,040   
 Other 516(90)426   
  Total commercial real estate 1,736(270)1,466   
Residential real estate:       
 Consumer mortgages 958(186)772   
 Investment property 340(123)217   
  Total residential real estate 1,298(309)989   
  Total $ 6,049 (2,261) 3,788 
With allowance recorded: 
Construction and land development$457(61)396 $99
Commercial real estate:       
 Owner occupied 882 —882  117
 Other 608 —608  68
  Total commercial real estate 1,490 —1,490  185
  Total $ 1,947 (61) 1,886 $ 284
  Total impaired loans$ 7,996 (2,322) 5,674 $ 284
             
(1) Unpaid principal balance represents the contractual obligation due from the customer.
(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been
 applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.
(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before
  any related allowance for loan losses.

       December 31, 2012
(In thousands) Unpaid principal balance (1)Charge-offs and payments applied (2)Recorded investment (3)  Related allowance
With no allowance recorded:
Commercial and industrial$169 —169   
Construction and land development 2,879(1,682)1,197   
Commercial real estate:       
 Owner occupied 787(212)575   
 Other 7,914(1,862)6,052   
  Total commercial real estate 8,701(2,074)6,627   
Residential real estate:       
 Consumer mortgages 971(152)819   
 Investment property 508(110)398   
  Total residential real estate 1,479(262)1,217   
  Total $13,228(4,018)9,210 
With allowance recorded: 
Construction and land development$471(45)426 $129
Commercial real estate:       
 Owner occupied 899 —899  134
  Total commercial real estate 899 —899  134
  Total $ 1,370 (45) 1,325 $ 263
  Total impaired loans$ 14,598 (4,063) 10,535 $ 263
             
(1) Unpaid principal balance represents the contractual obligation due from the customer.
(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been
 applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.
(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before
  any related allowance for loan losses.

The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class during the respective periods.

 

       Quarter ended September 30, 2013 Nine months ended September 30, 2013
       Average Total interest Average Total interest
       recorded income recorded income
(In thousands) investment recognized investment recognized
Impaired loans:
Commercial and industrial$139 2 152 7
Construction and land development 1,596  — 1,608  —
Commercial real estate:        
 Owner occupied 1,927 13 1,993 42
 Other 832 4 1,581 4
  Total commercial real estate 2,759 17 3,574 46
Residential real estate:        
 Consumer mortgages 776  — 801  —
 Investment property 231  — 323  —
  Total residential real estate 1,007  — 1,124  —
  Total $ 5,501  19  6,458  53

       Quarter ended September 30, 2012 Nine months ended September 30, 2012
       Average Total interest Average Total interest
       recorded income recorded income
(In thousands) investment recognized investment recognized
Impaired loans:
Commercial and industrial$189 3 200 11
Construction and land development 3,801  — 4,357  —
Commercial real estate:        
 Owner occupied 2,468 14 2,537 49
 Other 2,211  — 1,713  —
  Total commercial real estate 4,679 14 4,250 49
Residential real estate:        
 Consumer mortgages 846  — 870  —
 Investment property 855  — 650  —
  Total residential real estate 1,701  — 1,520  —
  Total $ 10,370  17  10,327  60

Troubled Debt Restructurings

 

Impaired loans also include troubled debt restructurings (“TDRs”). In the normal course of business, management may grant concessions to borrowers that are experiencing financial difficulty. A concession may include, but is not limited to, delays in required payments of principal and interest for a specified period, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date or reduction of the face amount or maturity amount of the debt. A concession has been granted when, as a result of the restructuring, the Bank does not expect to collect all amounts due, including interest at the original stated rate. A concession may have also been granted if the debtor is not able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt. The Company's determination of whether a loan modification is a TDR, the Company considers the individual facts and circumstances surrounding each modification. As part of the credit approval process, the restructured loans are evaluated for adequate collateral protection in determining the appropriate accrual status at the time of restructure.

 

Similar to other impaired loans, TDRs are measured for impairment based on the present value of expected payments using the loan's original effective interest rate as the discount rate, or the fair value of the collateral, less selling costs if the loan is collateral dependent. If the recorded investment in the loan exceeds the measure of fair value, impairment is recognized by establishing a valuation allowance as part of the allowance for loan losses or a charge-off to the allowance for loan losses. In periods subsequent to the modification, all TDRs are evaluated, including those that have payment defaults, for possible impairment.

 

The following is a summary of accruing and nonaccrual TDRs, which are included in impaired loan totals, and the related allowance for loan losses, by portfolio segment and class as of September 30, 2013, and December 31, 2012.

 

       TDRs
            Related
(In thousands) AccruingNonaccrualTotal  Allowance
September 30, 2013       
Commercial and industrial$136 —136 $ —
Construction and land development  —1,5931,593  99
Commercial real estate:       
 Owner occupied 8822921,174  117
 Other 6084261,034  68
  Total commercial real estate 1,4907182,208  185
Residential real estate:       
 Consumer mortgages  —772772   —
 Investment property  —217217   —
  Total residential real estate  —989989   —
  Total $ 1,626 3,300 4,926 $ 284

December 31, 2012  
Commercial and industrial$169 —169 $ —
Construction and land development  —1,6231,623  129
Commercial real estate:       
 Owner occupied 8991,0451,944  134
 Other  —432432   —
  Total commercial real estate 8991,4772,376  134
Residential real estate:       
 Consumer mortgages  —819819   —
 Investment property  —188188   —
  Total residential real estate  —1,0071,007   —
  Total $1,0684,1075,175 $263

At September 30, 2013, there were no significant outstanding commitments to advance additional funds to customers whose loans had been restructured.

 

The following table summarizes loans modified in a TDR during the respective periods both before and after their modification.

      Quarter ended September 30,  Nine Months ended September 30,
         Pre- Post -     Pre- Post -
         modification modification     modification modification
      Number  outstanding outstanding  Number  outstanding outstanding
      of  recorded recorded  of  recorded recorded
(Dollars in thousands)contracts  investment investment  contracts  investment investment
2013:             
Commercial real estate:              
 Owner occupied1 $882 882  1 $882 882
 Other1  606 610  1  1,037 1,041
  Total commercial real estate2  1,488 1,492  2  1,919 1,923
Residential real estate:              
 Consumer mortgages1  678 674  2  808 804
  Total residential real estate1  678 674  2  808 804
  Total 3 $ 2,166  2,166   4 $ 2,727  2,727
2012:             
Construction and land development1 $2,138 2,119  3 $4,981 3,873
Commercial real estate:              
 Owner occupied —   —  —  4  3,167 2,225
 Other —   —  —  2  1,804 1,657
  Total commercial real estate —   —  —  6  4,971 3,882
Residential real estate:              
 Consumer mortgages —   —  —  2  863 857
 Investment property1  375 373  1  375 373
  Total residential real estate1  375 373  3  1,238 1,230
  Total 2 $ 2,513  2,492   12 $ 11,190  8,985

The majority of the loans modified in a TDR during the quarters and nine-month periods ended September 30, 2013 and 2012, respectively, included permitting delays in required payments of principal and/or interest or where the only concession granted by the Company was that the interest rate at renewal was considered to be less than a market rate.

 

For the nine months ended September 30, 2012, the decrease in the post modification outstanding recorded investment was primarily due to principal payments made by borrowers at the date of modification for construction and land development loans and A/B note restructurings for two owner occupied commercial real estate loans. Total charge-offs related to B notes were $0.9 million for the nine months ended September 30, 2012.

 

The following table summarizes the recorded investment in loans modified in a TDR within the previous 12 months for which there was a payment default (defined as 90 days or more past due) during the respective periods.

      Quarter ended September 30,  Nine months ended September 30,
      Number of  Recorded   Number of  Recorded 
(Dollars in thousands)Contracts  investment(1)   Contracts  investment(1) 
2013:            
Construction and land development — $ —    1 $ 1,197 
Commercial real estate:            
 Other 1   426    1   426 
  Total commercial real estate 1   426    1   426 
  Total 1 $ 426    2 $ 1,623 
2012:            
Construction and land development — $ —    1 $ 2,386 
  Total — $ —    1 $ 2,386 
                  
(1) Amount as of applicable month end during the respective period for which there was a payment default.