XML 68 R14.htm IDEA: XBRL DOCUMENT v2.4.0.8
Allowance for Loan and Lease Losses
 3 Months Ended
Mar. 31, 2014
Loans and Leases Receivable Disclosure [Abstract]  
Allowance for Loan and Lease Losses

6. Allowance for Loan and Lease Losses

 

Originated Loans and Leases 

Management reviews the appropriateness of the allowance for loan and lease losses (“allowance”) on a regular basis. Management considers the accounting policy relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company’s results of operations. The Company has developed a methodology to measure the amount of estimated loan loss exposure inherent in the loan portfolio to assure that an appropriate allowance is maintained. The Company’s methodology is based upon guidance provided in SEC Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues and ASC Topic 310, Receivables and ASC Topic 450, Contingencies.

 

The Company’s methodology for determining and allocating the allowance for loan and lease losses focuses on ongoing reviews of larger individual loans and leases, historical net charge-offs, delinquencies in the loan and lease portfolio, the level of impaired and nonperforming loans, values of underlying loan and lease collateral, the overall risk characteristics of the portfolios, changes in character or size of the portfolios, geographic location, current economic conditions, changes in capabilities and experience of lending management and staff, and other relevant factors. The various factors used in the methodologies are reviewed on a regular basis.

 

At least annually, management reviews all commercial and commercial real estate loans exceeding a certain threshold and assigns a risk rating. The Company uses an internal loan rating system of pass credits, special mention loans, substandard loans, doubtful loans, and loss loans (which are fully charged off). The definitions of “special mention”, “substandard”, “doubtful” and “loss” are consistent with banking regulatory definitions. Factors considered in assigning loan ratings include: the customer’s ability to repay based upon customer’s expected future cash flow, operating results, and financial condition; the underlying collateral, if any; and the economic environment and industry in which the customer operates. Special mention loans have potential weaknesses that if left uncorrected may result in deterioration of the repayment prospects and a downgrade to a more severe risk rating. A substandard loan credit has a well-defined weakness which makes payment default or principal exposure likely, but not yet certain. There is a possibility that the Company will sustain some loss if the deficiencies are not corrected. A doubtful loan has a high possibility of loss, but the extent of the loss is difficult to quantify because of certain important and reasonably specific pending factors.

 

At least quarterly, management reviews all commercial and commercial real estate loans and leases and agriculturally related loans with an outstanding principal balance of over $500,000 that are internally risk rated special mention or worse, giving consideration to payment history, debt service payment capacity, collateral support, strength of guarantors, local market trends, industry trends, and other factors relevant to the particular borrowing relationship. Through this process, management identifies impaired loans. For loans and leases considered impaired, estimated exposure amounts are based upon collateral values or present value of expected future cash flows discounted at the original effective interest rate of each loan. For commercial loans, commercial mortgage loans, and agricultural loans not specifically reviewed, and for homogenous loan portfolios such as residential mortgage loans and consumer loans, estimated exposure amounts are assigned based upon historical net loss experience and current charge-off trends, past due status, and management’s judgment of the effects of current economic conditions on portfolio performance. In determining and assigning historical loss factors to the various homogeneous portfolios, the Company calculates average net losses over a period of time and compares this average to current levels and trends to ensure that the calculated average loss factors are reasonable.

 

Since the methodology is based upon historical experience and trends as well as management’s judgment, factors may arise that result in different estimates. Significant factors that could give rise to changes in these estimates may include, but are not limited to, changes in economic conditions in the local area, concentration of risk, changes in interest rates, and declines in local property values. While management’s evaluation of the allowance as of March 31, 2014, considers the allowance to be appropriate, under adversely different conditions or assumptions, the Company would need to increase or decrease the allowance.

 

Acquired Loans and Leases

 

Acquired loans accounted for under ASC 310-30

 

For our acquired loans, our allowance for loan losses is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.

 

Acquired loans accounted for under ASC 310-20

 

We establish our allowance for loan losses through a provision for credit losses based upon an evaluation process that is similar to our evaluation process used for originated loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience, carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that warrant recognition in determining our allowance for loan losses.

 

The following tables detail activity in the allowance for loan and lease losses segregated by originated and acquired loan and lease portfolios and by portfolio segment for the three months ended March 31, 2014 and 2013.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 

Three months ended March 31, 2014
(in thousands) 

Commercial

and Industrial

   Commercial Real Estate  

Residential

Real Estate

  

Consumer

and Other

   Finance Leases   Total 
                               
Allowance for originated loans and leases                              
                               
Beginning balance  $8,406   $10,459   $5,771   $2,059   $5   $26,700 
                               
Charge-offs   (121)   (180)   (193)   (252)   0    (746)
Recoveries   65    2    12    117    0    196 
Provision   419    134    (222)   185    (5)   511 
Ending Balance  $8,769   $10,415   $5,368   $2,109   $0   $26,661 
                               
Allowance for acquired loans                              
                               
Beginning balance  $168   $770   $274   $58   $0   $1,270 
                               
Charge-offs   (19)   (25)   (99)   (6)       (149)
Recoveries   0    0    0    0    0    0 
Provision   149    74    (105)   114    0    232 
Ending Balance  $298   $819   $70   $166   $0   $1,353 

 

Three months ended March 31, 2013
(in thousands) 

Commercial

and Industrial

   Commercial Real Estate  

Residential

Real Estate

  

Consumer

and Other

   Finance Leases   Total 
                               
Allowance for originated loans and leases                              
                               
Beginning balance  $7,533   $10,184   $4,981   $1,940   $5   $24,643 
                               
Charge-offs   (390)   (346)   (192)   (264)   0    (1,192)
Recoveries   160    78    2    87    0    327 
Provision   (266)   728    245    116    (3)   820 
Ending Balance  $7,037   $10,644   $5,036   $1,879   $2   $24,598 

 

 

Three months ended March 31, 2013
(in thousands) 

Commercial

and Industrial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

and Other

   Finance Leases   Total 
                               
Allowance for acquired loans and leases                              
                               
Beginning balance  $0   $0   $0   $0   $0   $0 
                               
Charge-offs   (23)   0    (107)   (25)   0    (155)
Provision   23    63    107    25    0    218 
Ending Balance  $0   $63   $0   $0   $0   $63 

 

At March 31, 2014 and December 31, 2013, the allocation of the allowance for loan and lease losses summarized on the basis of the Company’s impairment methodology was as follows:

 

(in thousands) 

Commercial

and Industrial

   Commercial Real Estate  

Residential

Real Estate

  

Consumer

and Other

   Finance Leases   Total 
                               
Allowance for originated loans and leases                              
March 31, 2014                              
Individually evaluated for impairment  $79   $0   $0   $0   $0   $79 
Collectively evaluated for impairment   8,690    10,415    5,368    2,109    0    26,582 
Ending balance  $8,769   $10,415   $5,368   $2,109   $0   $26,661 
                               
Allowance for acquired loans                              
March 31, 2014                              
Individually evaluated for impairment  $0   $0   $0   $0   $0   $0 
Collectively evaluated for impairment   298    819    70    166    0    1,353 
Ending balance  $298   $819   $70   $166   $0   $1,353 

 

(in thousands)  Commercial and Industrial   Commercial Real Estate   Residential Real Estate   Consumer and Other   Finance Leases   Total 
                               
Allowance for originated loans and leases                              
December 31, 2013                              
Individually evaluated for impairment  $0   $0   $0   $0   $0   $0 
Collectively evaluated for impairment   8,406    10,459    5,771    2,059    5    26,700 
Ending balance  $8,406   $10,459   $5,771   $2,059   $5   $26,700 
                               
Allowance for acquired loans                              
December 31, 2013                              
Individually evaluated for impairment  $0   $250   $0   $0   $0   $250 
Collectively evaluated for impairment   168    520    274    58    0    1,020 
Ending balance  $168   $770   $274   $58   $0   $1,270 

 

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology as of March 31, 2014 and December 31, 2013 was as follows:

 

(in thousands) 

Commercial

and Industrial

   Commercial Real Estate  

Residential

Real Estate

  

Consumer

and Other

   Finance Leases   Total 
                               
Originated loans and leases                              
March 31, 2014                              
Individually evaluated for impairment  $3,581   $15,650   $1,058   $0   $0   $20,289 
Collectively evaluated for impairment   627,464    1,016,979    835,446    52,056    5,529    2,537,474 
Total  $631,045   $1,032,629   $836,504   $52,056   $5,529   $2,557,763 

 

(in thousands) 

Commercial

and Industrial

   Commercial Real Estate  

Residential

Real Estate

  

Consumer

and Other

   Covered Loans   Total 
                               
Acquired loans                              
March 31, 2014                              
Individually evaluated for impairment  $2,777   $6,356   $87   $0   $0   $9,220 
Loans acquired with deteriorated credit quality  1,428  8,638   9,022   0   24,106   43,194 
Collectively evaluated for impairment   125,673    379,811    89,634    1,158    0    596,276 
Total  $129,878   $394,805   $98,743   $1,158   $24,106   $648,690 

 

(in thousands) 

Commercial

and Industrial

   Commercial Real Estate  

Residential

Real Estate

  

Consumer

and Other

   Finance Leases   Total 
                               
Originated loans and leases                              
December 31, 2013                              
Individually evaluated for impairment  $4,664    16,269   $1,223   $0   $0   $22,156 
Collectively evaluated for impairment   632,563    986,119    829,552    53,514    5,563    2,507,311 
Total  $637,227   $1,002,388   $830,775   $53,514   $5,563   $2,529,467 

 

(in thousands) 

Commercial

and Industrial

   Commercial Real Estate  

Residential

Real Estate

  

Consumer

and Other

   Covered Loans   Total 
                               
Acquired loans                              
December 31, 2013                              
Individually evaluated for                              
impairment  $2,231    2,429   $73   $0   $0   $4,733 
Loans acquired with                              
deteriorated credit quality   2,558    10,263    9,355    0    24,633    46,809 
Collectively evaluated for                              
impairment   123,714    396,234    93,091    1,224    1,235    615,498 
Total  $128,503   $408,926   $102,519   $1,224   $25,868   $667,040 

 

A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans consist of our non-homogenous nonaccrual loans, and all loans restructured in a troubled debt restructuring (TDR). Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off. The majority of impaired loans are collateral dependent impaired loans that have limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans, and previous charge-offs. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis.

 

Impaired loans are set forth in the tables below as of March 31, 2014 and December 31, 2013.

 

   03/31/2014       12/31/2013 
(in thousands)  Recorded Investment   Unpaid Principal Balance   Related Allowance   Recorded Investment   Unpaid Principal Balance   Related Allowance 
Originated loans and leases with no related allowance                              
                               
Commercial and industrial                              
Commercial and industrial other  $3,146   $5,126   $0   $4,664   $5,069   $0 
Commercial real estate                              
Construction   5,860    11,469    0    6,073    11,683    0 
Commercial real estate other   9,790    10,410    0    10,196    13,518    0 
Residential real estate                              
Residential real estate other   1,058    1,134    0    1,223    1,299    0 
Subtotal  $19,854   $28,139   $0   $22,156   $31,569   $0 
                               
Originated loans and leases with related allowance                              
                               
Commercial and industrial                              
Commercial and industrial other   435    435    79    0    0    0 
Subtotal  $435   $435   $79   $0   $0   $0 
Total  $20,289   $28,574   $79   $22,156   $31,569   $0 

 

   03/31/2014       12/31/2013 
(in thousands)  Recorded Investment   Unpaid Principal Balance   Related Allowance   Recorded Investment   Unpaid Principal Balance   Related Allowance 
Acquired loans and leases with no related allowance                              
                               
Commercial and industrial                              
Commercial and industrial other  $2,777   $3,880   $0   $2,231   $5,081   $0 
Commercial real estate                              
Construction   2,035    2,724    0    0    0    0 
Commercial real estate other   4,321    6,269    0    1,960    1,960    0 
Residential real estate                              
Residential real estate other   87    87    0    73    73    0 
Subtotal  $9,220   $12,960   $0   $4,264   $7,114   $0 
                               
Acquired loans and leases with related allowance                              
                               
Commercial real estate                              
Commercial real estate other   0    0    0    469    719    250 
Subtotal  $0   $0   $0   $469   $719   $250 
Total  $9,220   $12,960   $0   $4,733   $7,833   $250 

 

The average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2014 and 2013 was as follows:

 

   Three Months Ended   Three Months Ended 
   03/31/2014   03/31/2013 
(in thousands)  Average Recorded Investment   Interest Income Recognized   Average Recorded Investment   Interest Income Recognized 
Originated loans and leases with no related allowance                    
                     
Commercial and industrial                    
Commercial and industrial other   3,047    0    5,307    0 
Commercial real estate                    
Construction   5,966    0    6,547    0 
Commercial real estate other   9,840    0    11,024    0 
Residential real estate                    
Residential real estate other   1,057    0    480    0 
Subtotal  $19,910   $0   $23,358   $0 
                     
Originated loans and leases with related allowance                    
Commercial and industrial                     
Commercial and industrial other    453    0    0    0 
Subtotal  $453   $0   $0   $0 
Total  $20,363   $0   $23,358   $0 

 

   Three Months Ended   Three Months Ended 
   03/31/2014   03/31/2013 
(in thousands)  Average Recorded Investment   Interest Income Recognized   Average Recorded Investment   Interest Income Recognized 
Acquired loans and leases with no related allowance                    
                     
Commercial and industrial                    
Commercial and industrial other   1,084    0    419    5 
Commercial real estate                    
Construction   2,028    0    0    0 
Commercial real estate other   6,081    0    1,797    26 
Residential real estate                    
Residential real estate other   88    0    0    0 
Total  $9,281   $0   $2,216   $31 

  

Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider. These modifications may include, among others, an extension for the term of the loan, and granting a period when interest-only payments can be made with the principal payments made over the remaining term of the loan or at maturity.

 

The following tables present information on loans modified in troubled debt restructuring during the periods indicated.

 

March 31, 2014   Three months ended 
               Defaulted TDRs1 
(in thousands)   Number of Loans   Pre- Modification Outstanding Recorded Investment   Post- Modification Outstanding Recorded Investment   Number of Loans   Post- Modification Outstanding Recorded Investment 
Commercial and Industrial                         
Commercial real estate                         
Commercial real estate other    0    0    0    1    63 
Residential real estate                         
Residential real estate other   0    0    0    1    195 
Total   0   $0   $0    2   $258 

1TDRs that defaulted during the last three months that were restructured in the prior twelve months.

 

March 31, 2013  Three months ended 
               Defaulted TDRs3  
(in thousands)  Number of Loans   Pre- Modification Outstanding Recorded Investment   Post- Modification Outstanding Recorded Investment   Number of Loans   Post- Modification Outstanding Recorded Investment 
                          
Originated loans and leases                         
Commercial and industrial                         
Commercial and industrial other1   1   $92   $92    0   $0 
Commercial real estate                         
Commercial real estate other2   3    371    371    0    0 
Total   4   $463   $463    0   $0 

1Represents the following concessions:  extension of term

2 Represents the following concessions:  extension of term (1 loan: $129,000) and extended term and lowered rate (2 loans: $242,000)

3 TDRs that defaulted in the current quarter that were restructured in the prior twelve months.

 

The following tables present credit quality indicators (internal risk grade) by class of commercial and industrial loans and commercial real estate loans as of March 31, 2014 and December 31, 2013.

 

March 31, 2014                            
   Commercial and Industrial   Commercial and Industrial   Commercial Real Estate   Commercial Real Estate   Commercial Real Estate     
(in thousands)  Other   Agriculture   Other   Agriculture   Construction   Total 
Originated Loans and Leases                              
Internal risk grade:                              
Pass  $546,980   $51,566   $887,183   $56,655   $43,648   $1,586,032 
Special Mention   21,328    100    19,303    122    3,872    44,725 
Substandard   9,476    1,595    15,538    448    5,860    32,917 
Total  $577,784   $53,261   $922,024   $57,225   $53,380   $1,663,674 

 

 

March 31, 2014                        
   Commercial and Industrial   Commercial and Industrial   Commercial Real Estate   Commercial Real Estate   Commercial Real Estate     
(in thousands)  Other   Agriculture   Other   Agriculture   Construction   Total 
Acquired Loans and Leases                              
Internal risk grade:                              
Pass  $113,741   $0   $320,106   $1,108   $40,655   $475,610 
Special Mention   7,862    0    5,127    1,947    0    14,936 
Substandard   8,275    0    25,862    0    0    34,137 
Total  $129,878   $0   $351,095   $3,055   $40,655   $524,683 

 

December 31, 2013                        
   Commercial and Industrial   Commercial and Industrial   Commercial Real Estate   Commercial Real Estate   Commercial Real Estate     
(in thousands)  Other   Agriculture   Other   Agriculture   Construction   Total 
Originated Loans and Leases                              
Internal risk grade:                              
Pass  $531,293   $72,997   $869,488   $52,054   $36,396   $1,562,228 
Special Mention   20,688    100    17,536    123    3,918    42,365 
Substandard   10,458    1,691    16,296    450    6,127    35,022 
Total  $562,439   $74,788   $903,320   $52,627   $46,441   $1,639,615 

 

December 31, 2013                        
   Commercial and Industrial   Commercial and Industrial   Commercial Real Estate   Commercial Real Estate   Commercial Real Estate     
(in thousands)  Other   Agriculture   Other   Agriculture   Construction   Total 
Acquired Loans and Leases                              
Internal risk grade:                              
Pass  $116,160   $0   $5,809   $1,150   $363,427   $486,546 
Special Mention   3,821    0    11,516    1,985    0    17,322 
Substandard   8,522    0    22,028    0    3,011    33,561 
Total  $128,503   $0   $39,353   $3,135   $366,438   $537,429 

 

The following tables present credit quality indicators by class of residential real estate loans and by class of consumer loans. Nonperforming loans include nonaccrual, impaired, and loans 90 days past due and accruing interest.  All other loans are considered performing as of March 31, 2014 and December 31, 2013. For purposes of this footnote, acquired loans that were recorded at fair value at the acquisition date and are 90 days or greater past due are considered performing.

 

March 31, 2014                    
(in thousands)  Residential Home Equity   Residential Mortgages   Consumer Indirect   Consumer Other   Total 
Originated Loans and Leases                         
Performing  $171,175   $656,790   $19,668   $32,151   $879,784 
Nonperforming   1,994    6,545    234    3    8,776 
Total  $173,169   $663,335   $19,902   $32,154   $888,560 

 

 

March 31, 2014                    
(in thousands)  Residential Home Equity   Residential Mortgages   Consumer Indirect   Consumer Other   Total 
Acquired Loans and Leases                         
Performing  $63,266   $33,070   $2   $1,156   $97,494 
Nonperforming   773    1,634    0    0    2,407 
Total  $64,039   $34,704   $2   $1,156   $99,901 

 

December 31, 2013
(in thousands)  Residential Home Equity   Residential Mortgages   Consumer Indirect   Consumer Other   Total 
Originated Loans and Leases                         
Performing  $170,270   $651,139   $20,986   $32,274   $874,669 
Nonperforming   1,539    7,827    216    38    9,620 
Total  $171,809   $658,966   $21,202   $32,312   $884,289 

 

December 31, 2013
(in thousands)  Residential Home Equity   Residential Mortgages   Consumer Indirect   Consumer Other   Total 
Acquired Loans and Leases                         
Performing  $65,339   $33,014   $5   $1,219   $99,577 
Nonperforming   1,844    2,322    0    0    4,166 
Total  $67,183   $35,336   $5   $1,219   $103,743