XML 49 R11.htm IDEA: XBRL DOCUMENT

Loans

6 Months Ended

Jun. 30, 2012

NOTE 6.

LOANS

The composition of loans is summarized as follows:


	June 30,			December 31,
	2012			2011
Unsecured	$	784,464		$	848,418
Cash Value		3,911,684			3,927,837
Residential Real Estate		24,600,663			31,146,880
Commercial Real Estate		186,039,299			181,117,917
Business Assets		2,308,011			1,821,587
Vehicles		1,794,346			1,948,661
Other		102,953			104,200

		219,541,420			220,915,500

Unearned loan fees		(730,300	)		(742,898	)
Allowance for loan losses		(5,337,583	)		(5,154,505	)

Loans, net	$	213,473,537		$	215,018,097

For purposes of the disclosures required pursuant to the adoption of amendments to ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which the entity develops and documents a systematic method for determining its allowance for loan losses. There are seven loan portfolio segments that include unsecured, cash value, residential real estate, commercial real estate, business assets, vehicles, and other.

Unsecured – Loans in this segment are any loans, whether guaranteed, endorsed or co-made, that are not fully collateralized. Unsecured loans are subject to the lending policies and procedures described in Note 2. Total unsecured loans as of June 30, 2012 were 0.4% of the total loan portfolio.

Cash Value – These are loans fully secured by cash or cash equivalents. Cash value loans are subject to the lending policies and procedures described in Note 2. Total cash value loans as of June 30, 2012 were 1.8% of the total loan portfolio.

Residential Real Estate – These loans include all mortgages and other liens on residential real estate, as well as vacant land designated as residential real estate. Residential real estate loans are subject to the lending policies and procedures described in Note 2. Total residential real estate loans as of June 30, 2012 were 11.2% of the total loan portfolio.

Commercial Real Estate – The commercial real estate portfolio represents the largest category of the Company’s loan portfolio. These loans include all mortgages and other liens on commercial real estate. Commercial real estate loans are subject to the lending policies and procedures described in Note 2. Total commercial real estate loans as of June 30, 2012 were 84.7% of the total loan portfolio.

Business Assets – Loans in this segment are made to businesses and are generally secured by business assets, equipment, inventory, and accounts receivable. Business assets loans are subject to the lending policies and procedures described in Note 2. Total business assets loans as of June 30, 2012 were 1.0% of the total loan portfolio.

Vehicles – Loans in this segment are secured by motor vehicles. Vehicle loans are subject to the lending policies and procedures described in Note 2. Total vehicle loans as of June 30, 2012 were 0.8% of the total loan portfolio.

Other – Loans in this segment are generally secured by consumer loans, but include all loans that do not belong in one of the other segments. Other loans are subject to the lending policies and procedures described in Note 2. Total other loans as of June 30, 2012 were less than 0.1% of the total loan portfolio.

The allowance for loan losses and loans evaluated for impairment for the three and six months ended June 30, 2012, by portfolio segment, is as follows:


	Unsecured			Cash Value		Residential Real Estate			Commercial Real Estate			Business Assets			Vehicles			Other		Unallocated		Total
Allowance for loan losses:
For the three months ended June 30, 2012
Beginning balance	$	74,550		$	17,054	$	2,249,923		$	2,160,109		$	351,867		$	218,354		$	—	$	39,935	$	5,111,792
Charge-offs		—			—		(54,208	)		(251,066	)		—			—			—		—		(305,274	)
Recoveries		514			—		1,398			8,519			1,184			9,450			—		—		21,065
Provision		(7,010	)		—		(279,096	)		568,059			64,213			(10,956	)		—		174,790		510,000

Ending balance	$	68,054		$	17,054	$	1,918,017		$	2,485,621		$	417,264		$	216,848		$	—	$	214,725	$	5,337,583

Allowance for loan losses:
For the six months ended June 30, 2012
Beginning balance	$	97,961		$	16,727	$	2,083,285		$	2,480,770		$	299,741		$	176,021		$	—	$	—	$	5,154,505
Charge-offs		(14,325	)		—		(500,597	)		(663,630	)		(2,087	)		(9,633	)		—		—		(1,190,272	)
Recoveries		2,454			—		6,402			90,010			10,034			9,450			—		—		118,350
Provision		(18,036	)		327		328,927			578,471			109,576			41,010			—		214,725		1,255,000

Ending balance	$	68,054		$	17,054	$	1,918,017		$	2,485,621		$	417,264		$	216,848		$	—	$	214,725	$	5,337,583

Ending balance - individually evaluated impairment	$	7,958		$	17,054	$	1,253,285		$	375,178		$	282,519		$	80,587		$	—	$	—	$	2,016,581

Loans:
Ending balance (1)	$	784,464		$	3,911,684	$	24,600,663		$	186,039,299		$	2,308,011		$	1,794,346		$	102,953	$	—	$	219,541,420

Ending balance - Loans individually evaluated for impairment	$	35,177		$	17,054	$	11,856,064		$	35,586,232		$	618,545		$	125,541		$	—	$	—	$	48,238,613

(1)	Loan balances presented are gross of unearned loan fees of $730,300.

The allowance for loan losses and loans evaluated for impairment for the year ended December 31, 2011, by portfolio segment, is as follows:


	Unsecured			Cash Value		Residential Real Estate			Commercial Real Estate			Business Assets			Vehicles			Other			Unallocated			Total
Allowance for loan losses:
December 31, 2011
Beginning balance	$	63,020		$	5,210	$	2,258,833		$	2,234,925		$	316,844		$	141,759		$	5		$	203,168		$	5,223,764
Charge-offs		(68,717	)		—		(1,532,779	)		(1,058,851	)		(219,264	)		(174,728	)		—			—			(3,054,339	)
Recoveries		9,199			—		190,046			26,853			11,807			1,175			—			—			239,080
Provision		94,459			11,517		1,167,185			1,277,843			190,354			207,815			(5	)		(203,168	)		2,746,000

Ending balance	$	97,961		$	16,727	$	2,083,285		$	2,480,770		$	299,741		$	176,021		$	—		$	—		$	5,154,505

Ending balance - individually evaluated impairment	$	37,861		$	17,054	$	1,559,888		$	942,959		$	287,819		$	67,891		$	—		$	—		$	2,913,472

Loans:
Ending balance (1)	$	848,418		$	3,927,837	$	31,146,880		$	181,117,917		$	1,821,587		$	1,948,661		$	104,200		$	—		$	220,915,500

Ending balance - Loans individually evaluated for impairment	$	65,080		$	17,054	$	12,180,496		$	35,582,735		$	650,392		$	145,395		$	—		$	—		$	48,641,152

(1)	Loan balances presented are gross of unearned loan fees of $742,898.

The allowance for loan losses and loans evaluated for impairment for the three and six months ended June 30, 2011, by portfolio segment, is as follows:


	Unsecured			Cash Value		Residential Real Estate			Commercial Real Estate			Business Assets			Vehicles			Other			Unallocated			Total
Allowance for loan losses:
For the three months ended June 30, 2011
Beginning balance	$	106,021		$	14,262	$	1,829,967		$	2,810,638		$	328,785		$	132,161		$	5		$	70,198		$	5,292,037
Charge-offs		(6,043	)		—		(1,790	)		(181,240	)		—			(5,972	)		—			—			(195,045	)
Recoveries		2,909			—		—			6,683			1,481			1,175			—			—			12,248
Provision		(44,783	)		1,385		264,833			(15,635	)		(26,400	)		(3,444	)		(5	)		(25,951	)		150,000

Ending balance	$	58,104		$	15,647	$	2,093,010		$	2,620,446		$	303,866		$	123,920		$	—		$	44,247		$	5,259,240

Allowance for loan losses:
For the six months ended June 30, 2011
Beginning balance	$	63,020		$	5,210	$	2,258,833		$	2,234,925		$	316,844		$	141,759		$	5		$	203,168		$	5,223,764
Charge-offs		(20,915	)		—		(34,288	)		(273,678	)		—			(14,028	)		—			—			(342,909	)
Recoveries		6,895			—		—			12,659			2,656			1,175			—			—			23,385
Provision		9,104			10,437		(131,535	)		646,540			(15,634	)		(4,986	)		(5	)		(158,921	)		355,000

Ending balance	$	58,104		$	15,647	$	2,093,010		$	2,620,446		$	303,866		$	123,920		$	—		$	44,247		$	5,259,240

Ending balance - individually evaluated impairment	$	573		$	—	$	1,011,572		$	1,198,730		$	197,089		$	71,736		$	—		$	—		$	2,479,700

Loans:
Ending balance (1)	$	780,583		$	4,704,932	$	37,750,152		$	183,593,077		$	2,314,489		$	2,265,230		$	105,365		$	—		$	231,513,828

Ending balance - Loans individually evaluated for impairment	$	49,662		$	—	$	17,325,001		$	35,633,745		$	852,986		$	169,923		$	—		$	—		$	54,031,317

(1)	Loan balances presented are gross of unearned loan fees of $1,087,983.

A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16), when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual term of the loan. Impaired loans include loans modified in trouble debt restructuring 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.

Impaired loans by portfolio segment are as follows:


	As of June 30, 2012
	Unpaid Total Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Unsecured	$	35,177	$	27,219	$	7,958	$	35,177	$	7,958
Cash value		17,054		—		17,054		17,054		17,054
Residential real estate		12,750,284		7,464,890		4,391,174		11,856,064		1,253,285
Commercial real estate		37,497,795		24,798,101		10,788,131		35,586,232		375,178
Business assets		618,545		310,526		308,019		618,545		282,519
Vehicles		125,541		6,036		119,505		125,541		80,587
Other		—		—		—		—		—


	As of December 31, 2011
	Unpaid Total Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Unsecured	$	65,080	$	27,219	$	37,861	$	65,080	$	37,861
Cash value		17,054		—		17,054		17,054		17,054
Residential real estate		13,754,238		7,738,672		4,441,824		12,180,496		1,559,888
Commercial real estate		37,035,387		18,762,620		16,820,115		35,582,735		942,959
Business assets		650,392		334,973		315,419		650,392		287,819
Vehicles		145,395		62,344		83,051		145,395		67,891
Other		—		—		—		—		—

When the Company measures impairment based on the present value of expected cash flows the changes in the present value of these cash flows on impaired loans are recognized as part of bad-debt expense. Interest income from impaired loans for the three and six months ended June 30, 2012 and 2011 and for the year ended December 31, 2011, by portfolio segment, is as follows:


	Three months ended June 30, 2012				Three months ended June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Unsecured	$	21,909	$	313	$	66,703	$	2,077
Cash value		17,054		—		311,426		—
Residential real estate		11,869,970		89,878		17,444,654		79,376
Commercial real estate		34,746,035		400,638		34,281,724		51,256
Business assets		623,818		6,674		1,502,104		503
Vehicles		127,318		291		135,774		337
Other		—		—		—		—


	Six months ended June 30, 2012				Six months ended June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Unsecured	$	50,129	$	313	$	72,402	$	3,259
Cash value		17,054		—		207,617		4,671
Residential real estate		12,018,280		148,561		17,865,725		125,531
Commercial real estate		35,584,484		629,948		32,664,678		128,122
Business assets		634,469		6,990		1,648,181		32,181
Vehicles		135,468		857		170,164		444
Other		—		—		—		—


	Year ended December 31, 2011
	Average Recorded Investment		Interest Income Recognized
Unsecured	$	65,096	$	3,582
Cash value		127,981		1,314
Residential real estate		15,630,196		390,773
Commercial real estate		32,650,297		1,243,184
Business assets		1,251,354		31,742
Vehicles		160,830		12,539
Other		—		—

A primary credit quality indicator for financial institutions is delinquent balances. Following are the delinquent amounts, by portfolio segment, as of June 30, 2012:


	Current		30-89 Days		Greater Than 90 Days And Still Accruing		Total Accruing Past Due		Non-accrual		Total Financing Receivables
Unsecured	$	740,639	$	10,528	$	867	$	11,395	$	32,430	$	784,464
Cash value		3,894,630		—		—		—		17,054		3,911,684
Residential real estate		18,168,745		1,387,470		100,852		1,488,322		4,943,596		24,600,663
Commercial real estate		155,327,664		11,176,532		—		11,176,532		19,535,103		186,039,299
Business assets		1,688,336		125,459		5,144		130,603		489,072		2,308,011
Vehicles		1,577,553		48,921		—		48,921		167,872		1,794,346
Other		102,953		—		—		—		—		102,953

	$	181,500,520	$	12,748,910	$	106,863	$	12,855,773	$	25,185,127	$	219,541,420

Following are the delinquent amounts, by portfolio segment, as of December 31, 2011:


	Current		30-89 Days		Greater Than 90 Days And Still Accruing		Total Accruing Past Due		Non-accrual		Total Financing Receivables
Unsecured	$	680,215	$	96,348	$	25,358	$	121,706	$	46,497	$	848,418
Cash value		3,627,793		282,990		—		282,990		17,054		3,927,837
Residential real estate		24,875,203		1,340,826		—		1,340,826		4,930,851		31,146,880
Commercial real estate		149,663,226		10,485,170		2,271,985		12,757,155		18,697,536		181,117,917
Business assets		997,810		308,062		—		308,062		515,715		1,821,587
Vehicles		1,679,728		91,771		—		91,771		177,162		1,948,661
Other		104,200		—		—		—		—		104,200

	$	181,628,175	$	12,605,167	$	2,297,343	$	14,902,510	$	24,384,815	$	220,915,500

The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, unless the loan is well-secured. When a loan becomes 90 days past due, it is evaluated to determine if the loan is well-secured and in the process of collection of past due amounts. Loans disclosed as included on nonaccrual status are generally past due over 90 days. However, as of June 30, 2012 two residential real estate loans totaling $34,725, three commercial real estate loans totaling $268,278 and one unsecured loan totaling $3,734 were past due less than 90 days and carried as nonaccrual at management’s discretion based on the afore mentioned qualifications. As of June 30, 2012 loans past due over 90 and still accruing have been examined by management to ensure they are well-secured and in the process of collection of past due amounts.

The Company uses an eight-grade internal loan rating system for its loan portfolio as follows:

Grade 1 - Prime (Excellent) – Loans to borrowers with unquestionable financial strength and a solid earning history. This category includes national, international, regional, local entities, and individuals with commensurate capitalization, profitability, income, or ready access to capital markets as well as loans collateralized by cash equivalents. These loans are considered substantially risk free.

Grade 2 - Good (Superior) – Loans which exhibit a strong earnings record, and liquidity and leverage ratios that compare favorably with the industry. There are excellent prospects for continued growth. This category also includes those loans secured within margins with marketable collateral. Limited risk. The elements for risk for these borrowers are slightly greater than those associated with risk grade Prime.

Grade 3 - Acceptable (Average) – Loans to borrowers with a satisfactory financial condition, liquidity, and earnings history which indications that the trend will continue. Working capital is considered adequate and income is sufficient to repay debt as scheduled. Handles normal credit needs in a satisfactory manner.

Grade 4 - Fair (Watch) – Loans to borrowers which may show at least one of the following: start-up operation or venture capital, financial condition, adverse events which have not yet become trends such as sporadic profitability, occasional overdrafts, instances of slow pay, documentation deficiencies. Borrower may also exhibit substantial grantor support. Debt is being handled as agreed, and the primary source of repayment remains available. Circumstances may warrant more than normal monitoring, but are not serious enough to warrant criticism of classification.

Grade 5 - Special Mention – Loans with potential weaknesses which may, if not checked and corrected, would weaken the assets or inadequately protect the Bank’s credit position at some future date. These loans may require resolution of specific pending events before the associated risk can be adequately evaluated. These are criticized loans.

Grade 6 - Substandard – Loans, which are inadequately protected by the net worth and cash flow capacity of the borrower or the collateral pledged. The credit risk in this situation relates to the possibility of some loss of principal or interest if the deficiencies are not corrected. These loans are considered classified.

Grade 7 - Doubtful – Loans, which are inadequately protected by the net worth of the borrower or the collateral pledged and repayment in full is improbable on the basis of existing facts, values and conditions. The possibility of loss is high, but because of certain important and reasonable specific pending factors, which may work to the advantage and strengthening of the facility, its classification as an estimated loss is deferred until its more exact status may be determined. These loans are considered classified, as value is impaired. A full or partial reserve is warranted.

Grade 8 - Loss – Loans, which are considered uncollectible and continuance as an unacceptable asset are not warranted. These loans are considered classified and are either charged off or fully reserved against.

The following table presents the Company’s loans by risk rating, before unearned loan fees, at June 30, 2012:


Rating:	Unsecured		Cash Value		Residential Real Estate		Commercial Real Estate		Business Assets		Vehicles		Other		Total
Grade 1 (Prime)	$	—	$	27,504	$	—	$	—	$	—	$	—	$	—	$	27,504
Grade 2 (Superior)		18,202		223,893		—		348,149		—		10,497		—		600,741
Grade 3 (Acceptable-Average)		616,270		3,573,771		9,234,053		110,787,875		1,384,545		1,340,886		—		126,937,400
Grade 4 - Fair (Watch)		61,012		69,462		1,857,868		5,882,971		—		24,771		102,953		7,999,037
Grade 5 (Special Mention)		14,382		—		1,397,168		17,777,882		295,181		211,230		—		19,695,843
Grade 6 (Substandard)		73,771		17,054		12,006,710		51,242,422		628,285		206,962		—		64,175,204
Grade 7 (Doubtful)		—		—		104,864		—		—		—		—		104,864
Grade 8 (Loss)		827		—		—		—		—		—		—		827

	$	784,464	$	3,911,684	$	24,600,663	$	186,039,299	$	2,308,011	$	1,794,346	$	102,953	$	219,541,420

The following table presents the Company’s loans by risk rating at December 31, 2011:


Rating:	Unsecured		Cash Value		Residential Real Estate		Commercial Real Estate		Business Assets		Vehicles		Other		Total
Grade 1 (Prime)	$	15,490	$	27,296	$	—	$	—	$	—	$	—	$	—	$	42,786
Grade 2 (Superior)		20,127		190,867		—		354,446		—		18,929		—		584,369
Grade 3 (Acceptable-Average)		575,653		3,574,692		12,193,364		119,006,553		539,117		1,389,332		—		137,278,711
Grade 4 - Fair (Watch)		63,473		72,988		1,940,701		6,166,739		308,062		55,803		104,200		8,711,966
Grade 5 (Special Mention)		14,162		—		3,013,965		12,125,628		301,423		253,112		—		15,708,290
Grade 6 (Substandard)		159,513		61,994		13,892,036		43,464,551		672,985		231,381		—		58,482,460
Grade 7 (Doubtful)		—		—		106,814		—		—		104		—		106,918
Grade 8 (Loss)		—		—		—		—		—		—		—		—

	$	848,418	$	3,927,837	$	31,146,880	$	181,117,917	$	1,821,587	$	1,948,661	$	104,200	$	220,915,500

Each loan is assigned a risk rating at origination, and grades are continuously assessed as part of the Bank’s loan grading system based on loan review results as well as internal evaluations. Grades are changed as necessary based on the most recent information and indications available for each loan.

In this current real estate environment it has become more common to restructure or modify the terms of certain loans under certain conditions (i.e. troubled debt restructures or “TDRs”). In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable real estate market. The Company has not forgiven any material principal amounts on any loan modifications to date.

At the time a loan is restructured, the Company considers the existing and anticipated cash flows and recent payment history to determine whether a restructured loan will accrue interest. Once a loan is restructured, missed payment under the revised note is an indication the customer is experiencing further cash flow difficulties, and therefore a restructure would immediately go to nonaccrual status. From time to time the Company has modified loans and not accounted for them as troubled debt restructurings. Given the current economic environment, especially with respect to interest rates, there have been instances where a good customer has come in to renegotiate for a more favorable rate or one more in line with market rates. Given this and similar circumstances we have made concessions to keep the relationship. In such cases these are not and will not be accounted for or reported as a TDR. Before any loan is modified and considered as a Troubled Debt Restructure, a thorough analysis is performed on current financial information and collateral valuation to derive a payment schedule that is supported by cash flows. The existing and anticipated cash flows and recent payment history will determine whether the loan will accrue interest or not.

The Company’s TDRs as of June 30, 2012 and December 31, 2011 are presented below based on their status as performing or non-performing in accordance with the restructured terms:


	June 30, 2012		December 31, 2011
Performing TDRs	$	14,445,158	$	13,360,284
Non-performing TDRs		8,137,161		7,832,091

Total TDRs	$	22,582,319	$	21,192,375

TDRs quantified by loan type and classified separately as accrual and non-accrual are presented below as of June 30, 2012 and December 31, 2011:


	June 30, 2012
	Accruing		Non-Accrual		Total
Unsecured	$	—	$	—	$	—
Cash value		—		—		—
Residential real estate		5,279,949		7,262,736		12,542,685
Commercial real estate		9,498,288		530,435		10,028,723
Business assets		10,845		—		10,845
Vehicles		66		—		66
Other		—		—		—

Total TDRs	$	14,789,148	$	7,793,171	$	22,582,319


	December 31, 2011
	Accruing		Non-Accrual		Total
Unsecured	$	—	$	13,604	$	13,604
Cash value		—		—		—
Residential real estate		4,935,018		—		4,935,018
Commercial real estate		11,142,281		5,083,439		16,225,720
Business assets		12,205		—		12,205
Vehicles		5,828		—		5,828
Other		—		—		—

Total TDRs	$	16,095,332	$	5,097,043	$	21,192,375

The Company’s policy is to return non-accrual TDR loans to accrual status when all the principal and interest amounts contractually due, pursuant to its modified terms, are brought current and future payments are reasonably assured. The policy also considers payment history of the borrower, but is not dependent upon a specific number of payments.

The Company recorded $618,290 and $726,270 in specific reserves on TDRs as of June 30, 2012 and December 31, 2011, respectively. The Company recognized $121,532 in charge offs on TDR loans during the six months ended June 30, 2012 and no charge offs for the year ended December 31, 2011.

Loans are modified to minimize loan losses when the Company believes the modification will improve the borrower’s financial condition and ability to repay the loan. The Company typically does not forgive principal. The Company generally either defers, or decreases monthly payments for a temporary period of time. A summary of the types of concessions made as of June 30, 2012 and December 31, 2011 are presented in the table below:


	June 30,		December 31,
	2012		2011
Lowered interest rate and/or payment amount	$	7,056,405	$	5,767,702
Interest only payment terms		1,553,667		3,476,659
Interest only & rate reduction		1,721,152		935,697
Waived interest and/or late fees		5,471,369		5,478,899
A&B note structure		2,212,206		1,015,693
Substitution of debtor		4,567,520		4,517,725

Total TDRs	$	22,582,319	$	21,192,375

The following table presents loans modified as TDRs by class and related recorded investment, which includes accrued interest and fees on accruing loans, in those loans as of June 30, 2012 and December 31, 2011:


	June 30, 2012				December 31, 2011
	Number of		Recorded		Number of		Recorded
	Loans		Investment		Loans		Investment
Unsecured		0	$	—		1	$	13,604
Cash value		0		—		0		—
Residential real estate		9		6,303,915		5		4,949,688
Commercial real estate		25		16,389,979		22		16,320,317
Business assets		2		11,534		2		12,799
Vehicles		1		66		2		6,017
Other		0		—		0		—

Total TDRs		37	$	22,705,494		32	$	21,302,425

There have been no loans modified as TDRs within the past six months for which there was a payment default within the six month period ended June 30, 2012. There have been no loans modified as TDRs within the past twelve months for which there was a payment default within the twelve month period ended December 31, 2011.