Loans, Allowance for Loan Losses, and Credit Quality Indicators

12 Months Ended

Dec. 31, 2012

Loans, Allowance for Loan Losses, and Credit Quality Indicators

3. Loans, Allowance for Loan Losses, and Credit Quality Indicators:

Major classifications of loans, including loans held-for-sale, at December 31 are as follows:

	December 31, 2012			% of gross loans			December 31, 2011			% of gross loans
Real estate secured loans:
Permanent Loans:
Multi-family residential	$	45,212			5.2	%	$	51,897			6.3	%
Residential 1-4 family		51,437			5.9	%		61,717			7.5	%
Owner-occupied commercial		219,276			25.2	%		207,008			25.2	%
Nonowner-occupied commercial		145,315			16.7	%		157,844			19.3	%
Total permanent real estate loans		461,240			53.0	%		478,466			58.3	%
Construction Loans:
Multi-family residential		17,022			2.0	%		2,574			0.3	%
Residential 1-4 family		20,390			2.3	%		17,960			2.2	%
Commercial real estate		23,235			2.7	%		10,901			1.3	%
Commercial bare land and acquisition & development		10,668			1.2	%		19,496			2.4	%
Residential bare land and acquisition & development		8,405			0.9	%		12,707			1.6	%
Total construction real estate loans		79,720			9.1	%		63,638			7.8	%
Total real estate loans		540,960			62.1	%		542,104			66.0	%
Commercial loans		325,604			37.4	%		272,600			33.2	%
Consumer loans		3,581			0.4	%		4,569			0.6	%
Other loans		1,112			0.1	%		1,556			0.2	%
Gross loans		871,257			100.0	%		820,829			100.0	%
Deferred loan origination fees		(841	)					(677	)
		870,416						820,152
Allowance for loan losses		(16,345	)					(14,941	)
Total loans, net of allowance for loan losses and net deferred fees	$	854,071					$	805,211
Loans held-for-sale	$	—					$	1,058

At December 31, 2012, outstanding loans to dental professionals totaled $270,782 and represented 31.1 percent of total outstanding loans compared to dental professional loans of $208,489 or 25.4 percent of total loans at December 31, 2011. Additional information about the Company’s dental portfolio can be found in Item 8, Note 4 of the Notes to Consolidated Financial Statements. There are no other industry concentrations in excess of 10 percent of the total loan portfolio. However, as of December 31, 2012, approximately 62.1 percent of the Company’s loan portfolio was collateralized by real estate and is, therefore, susceptible to changes in local market conditions. While appropriate action is taken to manage identified concentration risks, management believes that the loan portfolio is well diversified by geographic location and among industry groups.

Allowance for Loan Losses:

A summary of the activity in the allowance for loan losses is as follows for the years ended 2012, 2011, and 2010:

	Twelve months ended December 31,
	2012			2011			2010
Balance, beginning of period	$	14,941		$	16,570		$	13,367
Provision charged to income		1,900			12,900			15,000
Loans charged against allowance		(3,664	)		(15,804	)		(15,514	)
Recoveries credited to allowance		3,168			1,275			3,717
Balance, end of period	$	16,345		$	14,941		$	16,570

The allowance for loan losses is established as an amount that management considers adequate to absorb possible losses on existing loans within the portfolio. The allowance consists of general, specific, and unallocated components. The general component is based upon all loans collectively evaluated for impairment. The specific component is based upon all loans individually evaluated for impairment. The unallocated component represents credit losses inherent in the loan portfolio that may not have been contemplated in the general risk factors or the specific allowance analysis. Loans are charged against the allowance when management believes the collection of principal and interest is unlikely.

The Company performs regular credit reviews of the loan portfolio to determine the credit quality and adherence to underwriting standards. When loans are originated, they are assigned a risk rating that is reassessed periodically during the term of the loan through the credit review process. The Company’s internal risk rating methodology assigns risk ratings ranging from one to ten, where a higher rating represents higher risk. The ten-point risk rating categories are a primary factor in determining an appropriate amount for the allowance for loan losses.

Estimated credit losses reflect consideration of all significant factors that affect the collectability of the loan portfolio. The historical loss rate for each group of loans with similar risk characteristics is determined based on the Company’s own loss experience in that group. Historical loss experience and recent trends in losses provides a reasonable starting point for analysis, however they do not by themselves form a sufficient basis to determine the appropriate level for the allowance for loan losses. Qualitative or environmental factors that are likely to cause estimated credit losses to differ from historical losses are also considered including but not limited to:

• Changes in international, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments,

• Changes in the nature and volume of the portfolio and in the terms of loans,

• Changes in the experience, ability, and depth of lending management and other relevant staff,

• Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans,

• Changes in the quality of the institution’s loan review system,

• Changes in the value of underlying collateral for collateral-dependent loans,

• The existence and effect of any concentrations of credit, and changes in the level of such concentrations,

• The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio,

• Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.

The adequacy of the allowance for loan losses and the reserve for unfunded commitments is determined using a consistent, systematic methodology and is monitored regularly based on management’s evaluation of numerous factors. For each portfolio segment, these factors include:

• The quality of the current loan portfolio,

• The trend in the migration of the loan portfolio’s risk ratings,

• The velocity of migration of losses and potential losses,

• Current economic conditions,

• Loan concentrations,

• Loan growth rates,

• Past-due and nonperforming trends,

• Evaluation of specific loss estimates for all significant problem loans,

• Recovery experience,

• Peer comparison loss rates.

There have been no significant changes to the Company’s allowance for loan losses methodology or policies in the periods presented.

A summary of the activity in the allowance for loan losses by major loan classification follows:

Allowance for Loan Losses and Recorded Investment in Loans Receivable

For the year ended December 31, 2012
	Commercial and Other			Real Estate			Construction			Consumer			Unallocated			Total
Beginning balance	$	2,776		$	8,267		$	2,104		$	87		$	1,707		$	14,941
Charge-offs		(1,401	)		(1,190	)		(1,054	)		(19	)		—			(3,664	)
Recoveries		1,917			55			1,188			8			—			3,168
Provision		554			2,324			(251	)		(6	)		(721	)		1,900
Ending balance	$	3,846		$	9,456		$	1,987		$	70		$	986		$	16,345

	Balances as of December 31, 2012
	Commercial and Other		Real Estate		Construction		Consumer		Unallocated		Total
Ending allowance: collectively evaluated for impairment	$	3,844	$	9,456	$	1,987	$	70	$	986	$	16,343
Ending allowance: individually evaluated for impairment		2		—		—		—		—		2
Total ending allowance	$	3,846	$	9,456	$	1,987	$	70	$	986	$	16,345
Ending loan balance: collectively evaluated for impairment	$	322,677	$	455,206	$	79,619	$	3,581	$	—	$	861,083
Ending loan balance: individually evaluated for impairment		4,039		6,034		101		—		—		10,174
Total ending loan balance	$	326,716	$	461,240	$	79,720	$	3,581	$	—	$	871,257

For the year ended December 31, 2011
	Commercial and Other			Real Estate			Construction			Consumer			Unallocated		Total
Beginning balance	$	2,230		$	10,042		$	3,040		$	64		$	1,194	$	16,570
Charge-offs		(1,403	)		(5,555	)		(8,792	)		(54	)		—		(15,804	)
Recoveries		581			176			498			20			—		1,275
Provision		1,368			3,604			7,358			57			513		12,900
Ending balance	$	2,776		$	8,267		$	2,104		$	87		$	1,707	$	14,941

	Balances as of December 31, 2011
	Commercial and Other		Real Estate		Construction		Consumer		Unallocated		Total
Ending allowance: collectively evaluated for impairment	$	2,776	$	7,812	$	2,104	$	87	$	1,707	$	14,486
Ending allowance: individually evaluated for impairment		—		455		—		—		—		455
Total ending allowance	$	2,776	$	8,267	$	2,104	$	87	$	1,707	$	14,941
Ending loan balance: collectively evaluated for impairment	$	267,099	$	467,426	$	50,548	$	4,569	$	—	$	789,642
Ending loan balance: individually evaluated for impairment		7,057		11,040		13,090		—		—		31,187
Total ending loan balance	$	274,156	$	478,466	$	63,638	$	4,569	$	—	$	820,829

The 2012 ending allowance includes $2 in specific allowance for $10,174 of impaired loans ($9,493 net of government guarantees). At December 31, 2011, the Company had $31,187 of impaired loans ($30,094 net of government guarantees) with a specific allowance of $455 assigned. Management believes that the allowance for loan losses was adequate as of December 31, 2012. However, future loan losses may exceed the levels provided for in the allowance for loan losses and could possibly result in additional charges to the provision for loan losses.

Credit Quality Indicators

The Company uses the following loan grades, which are also often used by regulators when assessing the credit quality of a loan portfolio.

Pass – Credit exposure in this category range between the highest credit quality to average credit quality. Primary repayment sources generate satisfactory debt service coverage under normal conditions. Cash flow from recurring sources is expected to continue to produce adequate debt service capacity. There are many levels of credit quality contained in the Pass definition, but none of the loans contained in this category rise to the level of special mention.

Special Mention – A special mention asset has 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 institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The Bank strictly and carefully employs the FDIC definition in assessing assets that may apply to this category. It is apparent that in many cases asset weaknesses relevant to this definition either, (1) better fit a definition of a “well-defined weakness,” or (2) in our experience ultimately migrate to worse risk grade categories, such as Substandard and Doubtful. Consequently, management elects to downgrade most potential Special Mention credits to Substandard or Doubtful, and therefore adopts a conservative risk grade process in the use of the Special Mention risk grade.

Substandard – A substandard asset is inadequately protected by the current sound worth and paying capacity of the Borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans in this category are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard.

Doubtful – An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Management strives to consistently apply these definitions when allocating its loans by loan grade. The loan portfolio is continuously monitored for changes in credit quality and management takes appropriate action to update the loan risk ratings accordingly. Management has not changed the Company’s policy towards its use of credit quality indicators during the periods reported.

The following tables present the Company’s loan portfolio information by loan type and credit grade at December 31, 2012, and December 31, 2011:

Credit Quality Indicators

As of December 31, 2012

	Loan Grade
	Pass		Special Mention		Substandard		Doubtful		Totals
Real estate loans
Multi-family residential	$	43,883	$	—	$	1,329	$	—	$	45,212
Residential 1-4 family		43,458		—		7,979		—		51,437
Owner-occupied commercial		208,713		—		10,563		—		219,276
Nonowner-occupied commercial		141,762		—		3,553		—		145,315
Total real estate loans		437,816		—		23,424		—		461,240
Construction
Multi-family residential		17,022		—		—		—		17,022
Residential 1-4 family		20,278		—		112		—		20,390
Commercial real estate		21,646		—		1,589		—		23,235
Commercial bare land and acquisition & development		10,668		—		—		—		10,668
Residential bare land and acquisition & development		5,449		—		2,956		—		8,405
Total construction loans		75,063		—		4,657		—		79,720
Commercial and other		317,250		—		9,466		—		326,716
Consumer		3,544		—		37		—		3,581
Totals	$	833,673	$	—	$	37,584	$	—	$	871,257

As of December 31, 2011

	Loan Grade
	Pass		Special Mention		Substandard		Doubtful		Totals
Real estate loans
Multi-family residential	$	50,547	$	—	$	1,350	$	—	$	51,897
Residential 1-4 family		51,622		—		10,095		—		61,717
Owner-occupied commercial		194,250		—		11,143		1,615		207,008
Nonowner-occupied commercial		154,805		—		3,039		—		157,844
Total real estate loans		451,224		—		25,627		1,615		478,466
Construction
Multi-family residential		2,574		—		—		—		2,574
Residential 1-4 family		14,036		—		3,924		—		17,960
Commercial real estate		7,075		—		3,826		—		10,901
Commercial bare land and acquisition & development		11,000		—		8,496		—		19,496
Residential bare land and acquisition & development		9,929		—		2,778		—		12,707
Total construction loans		44,614		—		19,024		—		63,638
Commercial and other		264,415		—		9,663		78		274,156
Consumer		4,486		—		83		—		4,569
Totals	$	764,739	$	—	$	54,397	$	1,693	$	820,829

Past Due and Nonaccrual Loans

The Company uses the terms “past due” and “delinquent” interchangeably. Amortizing loans are considered past due or delinquent based upon the number of contractually required payments not made as indicated in the following table:

Number of Payments Past Due	Days Delinquent
2 Payments		30 Days
3 Payments		60 Days
4 Payments		90 Days
5 Payments		120 Days
6 Payments		150 Days
7 Payments		180 Days

Delinquency status for all contractually matured loans, commercial and commercial real estate loans with non-monthly amortization and all other extensions of credit are determined based upon the number of calendar months past due.

The following tables present an aged analysis of past due and nonaccrual loans at December 31, 2012, and December 31, 2011:

Aged Analysis of Loans Receivable

As of December 31, 2012

	30-59 Days Past Due Still Accruing		60-89 Days Past Due Still Accruing		Greater Than 90 Days Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Total Current		Total Loans Receivable
Real estate loans
Multi-family residential	$	—	$	—	$	—	$	—	$	—	$	45,212	$	45,212
Residential 1-4 family		351		318		—		1,140		1,809		49,628		51,437
Owner-occupied commercial		—		—		—		3,805		3,805		215,471		219,276
Nonowner-occupied commercial		1,404		—		—		—		1,404		143,911		145,315
Total real estate loans		1,755		318		—		4,945		7,018		454,222		461,240
Construction
Multi-family residential		—		—		—		—		—		17,022		17,022
Residential 1-4 family		234		—		—		—		234		20,156		20,390
Commercial real estate		—		—		—		—		—		23,235		23,235
Commercial bare land and acquisition & development		—		—		—		—		—		10,668		10,668
Residential bare land and acquisition & development		—		—		—		101		101		8,304		8,405
Total construction loans		234		—		—		101		335		79,385		79,720
Commercial and other		264		—		—		4,315		4,579		322,137		326,716
Consumer		8		—		—		—		8		3,573		3,581
Total	$	2,261	$	318	$	—	$	9,361	$	11,940	$	859,317	$	871,257

As of December 31, 2011

	30-59 Days Past Due Still Accruing		60-89 Days Past Due Still Accruing		Greater Than 90 Days Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Total Current		Total Loans Receivable
Real estate loans
Multi-family residential	$	—	$	—	$	—	$	—	$	—	$	51,897	$	51,897
Residential 1-4 family		251		210		—		3,426		3,887		57,830		61,717
Owner-occupied commercial		151		190		—		5,138		5,479		201,529		207,008
Nonowner-occupied commercial		—		—		—		575		575		157,269		157,844
Total real estate loans		402		400		—		9,139		9,941		468,525		478,466
Construction
Multi-family residential		—		—		—		—		—		2,574		2,574
Residential 1-4 family		67		—		—		757		824		17,136		17,960
Commercial real estate		1,635		—		—		933		2,568		8,333		10,901
Commercial bare land and acquisition & development		—		—		—		7,837		7,837		11,659		19,496
Residential bare land and acquisition & development		52		175		—		1,929		2,156		10,551		12,707
Total construction loans		1,754		175		—		11,456		13,385		50,253		63,638
Commercial and other		634		—		—		5,999		6,633		267,523		274,156
Consumer		—		—		—		—		—		4,569		4,569
Total	$	2,790	$	575	$	—	$	26,594	$	29,959	$	790,870	$	820,829

Impaired Loans

Regular credit reviews of the portfolio are performed to identify loans that are considered potentially impaired. Potentially impaired loans are referred to the ALCO Committee for review and are included in the specific calculation of allowance for loan losses. A loan is considered impaired when, based on current information and events, the Company is unlikely to collect all principal and interest due according to the terms of the loan agreement. When the amount of the impairment represents a confirmed loss it is charged off against the allowance for loan losses. Impaired loans are often reported net of government guarantees to the extent that the guarantees are expected to be collected. Impaired loans generally include all loans classified as nonaccrual and troubled debt restructurings.

Accrual of interest is discontinued on impaired loans when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of principal or interest is doubtful. Accrued, but uncollected interest is generally reversed when loans are placed on nonaccrual status. Interest income is subsequently recognized only to the extent cash payments are received satisfying all delinquent principal and interest amounts, and the prospects for future payments in accordance with the loan agreement appear relatively certain. In accordance with GAAP, payments received on nonaccrual loans are applied to the principal balance and no interest income is recognized. Interest income may be recognized on impaired loans that are not on nonaccrual status.

The following tables display an analysis of the Company’s impaired loans at December 31, 2012, and December 31, 2011:

Impaired Loan Analysis

As of December 31, 2012

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Real estate
Multi-family residential	$	—	$	—	$	—	$	—	$	—
Residential 1-4 family		1,447		2,032		—		3,068		—
Owner-occupied commercial		4,229		5,069		—		4,157		21
Nonowner-occupied commercial		358		358		—		153		11
Total real estate loans		6,034		7,459		—		7,378		32
Construction
Multi-family residential		—		—		—		—		—
Residential 1-4 family		—		—		—		544		—
Commercial real estate		—		—		—		1,219		—
Commercial bare land and acquisition & development		—		—		—		5,621		—
Residential bare land and acquisition & development		101		173		—		1,024		—
Total construction loans		101		173		—		8,408		—
Commercial and other		3,921		9,417		—		5,056		2
Consumer		—		—		—		—		—
With an allowance recorded
Real estate
Multi-family residential		—		—		—		—		—
Residential 1-4 family		—		—		—		18		—
Owner-occupied commercial		—		—		—		681		—
Nonowner-occupied commercial		—		—		—		12		—
Total real estate loans		—		—		—		711		—
Construction
Multi-family residential		—		—		—		—		—
Residential 1-4 family		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—		—
Residential bare land and acquisition & development		—		—		—		—		—
Total construction loans		—		—		—		—		—
Commercial and other		118		129		2		148		—
Consumer		—		—		—		—		—
Total
Real estate
Multi-family residential		—		—		—		—		—
Residential 1-4 family		1,447		2,032		—		3,086		—
Owner-occupied commercial		4,229		5,069		—		4,838		21
Nonowner-occupied commercial		358		358		—		165		11
Total real estate loans		6,034		7,459		—		8,089		32
Construction
Multi-family residential		—		—		—		—		—
Residential 1-4 family		—		—		—		544		—
Commercial real estate		—		—		—		1,219		—
Commercial bare land and acquisition & development		—		—		—		5,621		—
Residential bare land and acquisition & development		101		173		—		1,024		—
Total construction loans		101		173		—		8,408		—
Commercial and other		4,039		9,546		2		5,204		2
Consumer		—		—		—		—		—
Total impaired loans	$	10,174	$	17,178	$	2	$	21,701	$	34

Impaired Loan Analysis

As of December 31, 2011

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Real estate
Multi-family residential	$	—	$	—	$	—	$	54	$	—
Residential 1-4 family		4,300		4,756		—		5,785		52
Owner-occupied commercial		3,954		4,295		—		6,220		36
Nonowner-occupied commercial		525		1,011		—		5,052		—
Other real estate loans		431		412		—		729		33
Total real estate loans		9,210		10,474		—		17,840		121
Construction
Multi-family residential		—		—		—		136		—
Residential 1-4 family		757		1,037		—		1,331		—
Commercial real estate		2,568		3,306		—		3,161		111
Commercial bare land and acquisition & development		7,837		13,027		—		12,617		234
Residential bare land and acquisition & development		1,928		5,319		—		2,242		38
Total construction loans		13,090		22,689		—		19,487		383
Commercial and other		7,057		10,691		—		6,137		44
Consumer		—		—		—		—		—
With an allowance recorded
Real estate
Multi-family residential		—		—		—		—		—
Residential 1-4 family		215		248		10		351		—
Owner-occupied commercial		1,615		1,614		445		427		—
Nonowner-occupied commercial		—		—		—		30		—
Other real estate loans		—		—		—		67		—
Total real estate loans		1,830		1,862		455		875		—
Construction
Multi-family residential		—		—		—		—		—
Residential 1-4 family		—		—		—		462		—
Commercial real estate		—		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—		—
Residential bare land and acquisition & development		—		—		—		1,099		—
Total construction loans		—		—		—		1,561		—
Commercial and other		—		—		—		1,391		—
Consumer		—		—		—		—		—
Total
Real estate
Multi-family residential		—		—		—		54		—
Residential 1-4 family		4,515		5,004		10		6,136		52
Owner-occupied commercial		5,569		5,909		445		6,647		36
Nonowner-occupied commercial		525		1,011		—		5,082		—
Other real estate loans		431		412		—		796		33
Total real estate loans		11,040		12,336		455		18,715		121
Construction
Multi-family residential		—		—		—		136		—
Residential 1-4 family		757		1,037		—		1,793		—
Commercial real estate		2,568		3,306		—		3,161		111
Commercial bare land and acquisition & development		7,837		13,027		—		12,617		234
Residential bare land and acquisition & development		1,928		5,319		—		3,341		38
Total construction loans		13,090		22,689		—		21,048		383
Commercial and other		7,057		10,691		—		7,528		44
Consumer		—		—		—		—		—
Total impaired loans	$	31,187	$	45,716	$	455	$	47,291	$	548

The impaired balances reported above are not adjusted for government guarantees of $681 and $1,094 at December 31, 2012, and December 31, 2011, respectively. The recorded investment in impaired loans, net of government guarantees totaled $9,493 and $30,094 at December 31, 2012, and December 31, 2011, respectively.

The average recorded investment in impaired loans was $21,701, $47,291, and $66,510 for the twelve months ended December 31, 2012, 2011 and 2010, respectively. The interest income recognized on impaired loans was $34, $548 and $2,602 for the years ended December 31, 2012, 2011 and 2010, respectively.

Troubled Debt Restructurings

In the normal course of business, the Company may modify the terms of certain loans, attempting to protect as much of its investment as possible. Management evaluates the circumstances surrounding each modification to determine whether it is a troubled debt restructuring (“TDR”). TDRs exist when 1) the restructuring constitutes a concession, and 2) the debtor is experiencing financial difficulties. The Company adopted the amendments of Accounting Standards Update No. 2011-02, “Receivables – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring” during the third quarter 2011. The Update requires retrospective application to the beginning of the annual period of adoption.

The following table displays the Company’s TDRs by class at December 31, 2012, and 2011:

	Troubled Debt Restructurings as of
	December 31, 2012				December 31, 2011
	Number of Contracts		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment
Real estate
Multifamily residential		—	$	—		—	$	—
Residential 1-4 family		8		565		9		2,422
Owner-occupied commercial		5		2,095		3		860
Non owner-occupied commercial		1		140		2		679
Total real estate loans		14		2,800		14		3,961
Construction
Multifamily residential		—		—		—		—
Residential 1-4 family		—		—		—		—
Commercial real estate		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—
Residential bare land and acquisition & development		5		101		4		1,804
Total construction loans		5		101		4		1,804
Commercial and other		8		589		3		1,058
Consumer		—		—		—		—
		27	$	3,490		21	$	6,823

The recorded investment in TDRs in nonaccrual status totaled $2,336 and $4,091 at December 31, 2012, and December 31, 2011, respectively. The Bank’s policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appear relatively certain. The Bank’s policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

For the twelve months ended December 31, 2012, the Company identified 6 TDRs that are newly considered impaired for which impairment was previously measured under the Company’s general loan loss allowance methodology. The total recorded investment in such receivables was $806, and the associated allowance for loan losses was $2 at December 31, 2012.

The types of modifications offered can generally be described in the following categories:

Rate Modification – A modification in which the interest rate is modified.

Term Modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

Combination Modification – Any other type of modification, including the use of multiple types of modifications.

The following tables present newly non-covered restructured loans that occurred during the twelve months ended December 31, 2012 and 2011, respectively:

	Troubled Debt Restructurings
	Identified during the twelve months ended December 31, 2012
	Rate Modification		Term Modification		Interest Only Modification		Combination Modification
Real estate
Multifamily residential	$	—	$	—	$	—	$	—
Residential 1-4 family		—		—		121		—
Owner-occupied commercial		—		112		—		303
Non owner-occupied commercial		—		—		—		—
Total real estate loans		—		112		121		303
Construction
Multifamily residential		—		—		—		—
Residential 1-4 family		—		—		—		—
Commercial real estate		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—
Residential bare land and acquisition & development		—		127		—		—
Total construction loans		—		127		—		—
Commercial and other		—		228		230		69
Consumer		—		—		—		—
	$	—	$	467	$	351	$	372

	Troubled Debt Restructurings
	Identified during the twelve months ended December 31, 2011
	Rate Modification		Term Modification		Interest Only Modification		Combination Modification
Real estate
Multifamily residential	$	—	$	—	$	—	$	—
Residential 1-4 family		140		26		928		1,328
Owner-occupied commercial		—		305		—		555
Non owner-occupied commercial		—		154		—		525
Total real estate loans		140		485		928		2,408
Construction
Multifamily residential		—		—		—		—
Residential 1-4 family		—		—		—		—
Commercial real estate		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—
Residential bare land and acquisition & development		—		—		—		1,804
Total construction loans		—		—		—		1,804
Commercial and other		—		—		—		634
Consumer		—		—		—		—
	$	140	$	485	$	928	$	4,846

Subsequent to a loan being classified as a TDR, a borrower may become unwilling or unable to abide by the terms of the modified agreement. In such cases of default, the Company takes appropriate action to secure additional payments including the use of foreclosure proceedings. The following table presents loans receivable modified as troubled debt restructurings that subsequently defaulted within twelve months during the period:

	Troubled Debt Restructurings That Subsequently Defaulted during the Period Ended December 31,
	2012				2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Real estate
Multifamily residential		—	$	—		—	$	—
Residential 1-4 family		2		340		1		738
Owner-occupied commercial		1		411		1		429
Non owner-occupied commercial		—		—		1		525
Total real estate loans		3		751		3		1,692
Construction
Multifamily residential		—		—		—		—
Residential 1-4 family		—		—		—		—
Commercial real estate		—		—		—		—
Commercial bare land and acquisition & development		—		—		—		—
Residential bare land and acquisition & development		—		—		2		442
Total construction loans		—		—		2		442
Commercial and other		1		194		1		634
Consumer		—		—		—		—
		4	$	945		6	$	2,768

At December 31, 2012, and December 31, 2011, the Company had no commitments to lend additional funds on loans restructured as TDRs.