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Non Performing Assets IncludingTrouble Debt Restructurings (TDR)

6 Months Ended

Jun. 30, 2012

Non Performing Assets Including Trouble Debt Restructurings [Abstract]

Non-Performing Assets Including Trouble Debt Restructurings (TDR)

9.	Non-performing Assets Including Troubled Debt Restructurings (TDR)

The following table presents information concerning non-performing assets including TDR (in thousands, except percentages):


	June 30, 2012			December 31, 2011
Non-accrual loans
Commercial	$	—		$	—
Commercial loans secured by real estate		2,466			3,870
Real estate-mortgage		1,673			1,205

Total		4,139			5,075


Past due 90 days and still accruing
Real estate-mortgage		—			—

Total		—			—


Other real estate owned
Commercial loans secured by real estate		697			20
Real estate-mortgage		153			104

Total		850			124


TDR’s not in non-accrual		88			—

Total non-performing assets including TDR	$	5,077		$	5,199

Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned		0.74	%		0.78	%

Consistent with accounting and regulatory guidance, the Bank recognizes a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Bank’s objective in offering a troubled debt restructure is to increase the probability of repayment of the borrower’s loan.

To be considered a TDR, both of the following criteria must be met:

•

the borrower must be experiencing financial difficulties; and

•

the Bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would not otherwise be considered.

Factors that indicate a borrower is experiencing financial difficulties include, but are not limited to:

•

the borrower is currently in default on their loan(s);

•

the borrower has filed for bankruptcy;

•

the borrower has insufficient cash flows to service their loan(s); and

•

the borrower is unable to obtain refinancing from other sources at a market rate similar to rates available to a non-troubled debtor.

Factors that indicate that a concession has been granted include, but are not limited to:

•

the borrower is granted an interest rate reduction to a level below market rates for debt with similar risk; or

•

the borrower is granted a material maturity date extension, or extension of the amortization plan to provide payment relief. For purposes of this policy, a material maturity date extension will generally include any maturity date extension, or the aggregate of multiple consecutive maturity date extensions, that exceed 120 days. A restructuring that results in an insignificant delay in payment, i.e. 120 days or less, is not necessarily a TDR. Insignificant payment delays occur when the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value, and will result in an insignificant shortfall in the originally scheduled contractual amount due, and/or the delay in timing of the restructured payment period is insignificant relative to the frequency of payments, the original maturity or the original amortization.

The determination of whether a restructured loan is a TDR requires consideration of all of the facts and circumstances surrounding the modification. No single factor is determinative of whether a restructuring is a TDR. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean that the borrower is experiencing financial difficulty. Accordingly, determination of whether a modification is a TDR involves a large degree of judgment.

Any loan modification where the borrower’s aggregate exposure is at least $250,000 and where the loan currently maintains a criticized or classified risk rating, i.e. Special Mention, Substandard or Doubtful, or where the loan will be assigned a criticized or classified rating after the modification is evaluated to determine the need for TDR classification.

The following table details the TDRs at June 30, 2012 (dollars in thousands).


Loans in accrual status	# of Loans		Current Balance		Concession Granted
Commercial loan secured by real estate		1	$	88	Extension of maturity date


Loans in non-accrual status	# of Loans		Current Balance		Concession Granted
Commercial loan secured by real estate		2	$	1,504	Extension of maturity date

The following table details the TDRs at December 31, 2011 (dollars in thousands).


Loans in non-accrual status	# of Loans		Current Balance		Concession Granted
Commercial loan secured by real estate		5	$	2,870	Extension of maturity date

In all instances where loans have been modified in troubled debt restructurings the pre- and post-modified balances are the same.

Once a loan is classified as a TDR, this classification will remain until documented improvement in the financial position of the account supports confidence that all principal and interest will be paid according to terms. Additionally, the customer must have re-established a track record of timely payments according to the restructured contract terms for a minimum of six consecutive months prior to consideration for removing the loan from TDR status. However, a loan will continue to be on non-accrual status until, consistent with our policy, the borrower has made a minimum of six consecutive payments in accordance with the terms of the loan.

During the first six months of 2012, the Company had one restructured commercial real-estate loan, that was transferred during the past 12 months into non-accrual status, that subsequently defaulted, and was sold to an independent party for $275,000. The Company charged down the loan by $32,000 to facilitate the sale. A second TDR loan with a balance of $398,000 was also sold to an independent party in the second quarter of 2012. Overall, the Company realized a net-charge-off of $305,000 on this problem credit when compared to its original balance of $703,000. The Company also took ownership of another TDR commercial real-estate property with a balance of approximately $600,000 (after a previous $386,000 charge-down in 2011) and moved the property into other real estate owned in the second quarter of 2012.

The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above. Other real estate owned is recorded at fair value minus estimated costs to sell.

The following table sets forth, for the periods indicated, (1) the gross interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period, (2) the amount of interest income actually recorded on such loans, and (3) the net reduction in interest income attributable to such loans (in thousands).


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Interest income due in accordance with original terms	$	55	$	94	$	118	$	229
Interest income recorded		—		—		—		(173	)

Net reduction in interest income	$	55	$	94	$	118	$	56