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Credit Quality Assessment
 9 Months Ended
Sep. 30, 2012
Receivables [Abstract]  
Allowance for Credit Losses [Text Block]

Note 4: Credit Quality Assessment

 

Allowance for Credit Losses

 

Summary information on the allowance for credit loss activity for the nine months ended September 30, 2012 and September 30, 2011 is provided in the following table:

 

    Unaudited  
    Nine months ended  
    September 30,  
(in thousands)   2012     2011  
Balance at beginning of year   $ 3,433     $ 3,523  
Provision for credit losses     650       740  
Loan and lease charge-offs     (1,480 )     (553 )
Loan and lease recoveries     130       306  
Balance at period end   $ 2,733     $ 4,016  

 

The following tables provides information on the activity in the allowance for credit losses by the respective loan portfolio segment for the three months and nine months ended September 30, 2012 and September 30, 2011, and for the year ended December 31, 2011:

 

    September 30, 2012 - Unaudited  
                      Commercial     Commercial     Commercial              
    Construction     Residential     Residential     owner     non-owner     loans     Consumer        
(in thousands)   and land     first lien     junior lien     occupied     occupied     and leases     loans     Total  
Allowance for credit losses:                                                
                                                 
Nine months ended September 30, 2012                                          
Beginning balance   $ 174     $ 111     $ 64     $ 611     $ 197     $ 2,233     $ 43     $ 3,433  
Charge-offs     -       (23 )     (44 )     -       (268 )     (1,130 )     (15 )     (1,480 )
Recoveries     -       -       -       -       63       65       2       130  
Provision for credit losses     18       17       2       40       357       215       1       650  
Ending balance   $ 192     $ 105     $ 22     $ 651     $ 349     $ 1,383     $ 31     $ 2,733  
                                                                 
Three months ended September 30, 2012                                                        
Beginning balance   $ 99     $ 65     $ 42     $ 553     $ 532     $ 1,744     $ 41     $ 3,076  
Charge-offs     -       -       -       -       (268 )     (463 )     -       (731 )
Recoveries     -       -       -       -       63       16       1       80  
Provision for credit losses     93       40       (20 )     98       22       86       (11 )     308  
Ending balance   $ 192     $ 105     $ 22     $ 651     $ 349     $ 1,383     $ 31     $ 2,733  
                                                                 
Ending balance:                                                                
individually evaluated for impairment     103       73       -       -       -       257       -       433  
collectively evaluated for impairment     89       32       22       651       349       1,126       31       2,300  
                                                                 
Loans:                                                                
Ending balance     35,889       23,074       8,162       58,793       86,116       85,409       1,371       298,814  
Ending balance:                                                                
individually evaluated for impairment     432       471       -       -       3,146       1,978       -       6,027  
collectively evaluated for impairment     35,457       22,603       8,162       58,793       82,970       83,431       1,371       292,787  

 

 

    September 30, 2011 - Unaudited  
                      Commercial     Commercial     Commercial              
    Construction     Residential     Residential     owner     non-owner     loans     Consumer        
(in thousands)   and land     first lien     junior lien     occupied     occupied     and leases     loans     Total  
Allowance for credit losses:                                                                
                                                                 
Nine months ended September 30, 2011                                                                
Beginning balance   $ 143     $ 16     $ 20     $ 892     $ 124     $ 2,294     $ 34     $ 3,523  
Charge-offs     -       -       -       -       -       (531 )     (21 )     (552 )
Recoveries     -       -       -       -       -       304       1       305  
Provision for credit losses     26       1       -       229       12       443       29       740  
Ending balance   $ 169     $ 17     $ 20     $ 1,121     $ 136     $ 2,510     $ 43     $ 4,016  
                                                                 
Three months ended September 30, 2011                                                        
Beginning balance   $ 160     $ 17     $ 20     $ 1,146     $ 123     $ 2,366     $ 36     $ 3,868  
Charge-offs     -       -       -       -       -       (394 )     (16 )     (410 )
Recoveries     -       -       -       -       -       -       -       -  
Provision for credit losses     9       -       -       (25 )     13       538       23       558  
Ending balance   $ 169     $ 17     $ 20     $ 1,121     $ 136     $ 2,510     $ 43     $ 4,016  
                                                                 
Ending balance:                                                                
individually evaluated for impairment     -       -       -       1,033       -       112       -       1,145  
collectively evaluated for impairment     169       17       20       88       136       2,398       43       2,871  
                                                                 
Loans:                                                                
Ending balance     36,809       23,365       10,089       46,513       70,816       82,405       1,212       271,209  
Ending balance:                                                                
individually evaluated for impairment     -       475       -       2,122       -       1,243       -       3,840  
collectively evaluated for impairment     36,809       22,890       10,089       44,391       70,816       81,162       1,212       267,369  

 

    December 31, 2011  
                      Commercial     Commercial     Commercial              
    Construction     Residential     Residential     owner     non-owner     loans     Consumer        
(in thousands)   and land     first lien     junior lien     occupied     occupied     and leases     loans     Total  
Allowance for credit losses:                                                                
Beginning balance   $ 143     $ 16     $ 20     $ 892     $ 124     $ 2,294     $ 34     $ 3,523  
Charge-offs     -       -       -       (1,033 )     -       (562 )     (21 )     (1,616 )
Recoveries     -       -       -       -       -       361       1       362  
Provision for credit losses     31       95       44       752       73       140       29       1,164  
Ending balance   $ 174     $ 111     $ 64     $ 611     $ 197     $ 2,233     $ 43     $ 3,433  
                                                                 
Ending balance:                                                                
individually evaluated for impairment     -       68       44       -       -       1,161       -       1,273  
collectively evaluated for impairment     174       43       20       611       197       1,072       43       2,160  
                                                                 
Loans:                                                                
Ending balance     39,268       22,087       9,242       46,588       76,880       81,243       1,223       276,531  
Ending balance:                                                                
individually evaluated for impairment     -       611       44       1,988       2,783       3,498       9       8,933  
collectively evaluated for impairment     39,268       21,476       9,198       44,600       74,097       77,745       1,214       267,598  

 

When potential losses are identified, a specific provision and/or charge-off may be taken, based on the then current likelihood of repayment, that is at least in the amount of the collateral deficiency, and any potential collection costs, as determined by the independent third party appraisal. 

 

All loans that are considered impaired are subject to the completion of an impairment analysis.  This analysis highlights any potential collateral deficiencies. A specific amount of impairment is established based on the Company’s calculation of the probable loss inherent in the individual loan. The actual occurrence and severity of losses involving impaired credits can differ substantially from estimates.

 

Credit risk profile by portfolio segment based upon internally assigned risk assignments are presented below:

 

    September 30, 2012 - Unaudited  
                      Commercial     Commercial     Commercial              
    Construction     Residential     Residential     owner     non-owner     loans     Consumer        
(in thousands)   and land     first lien     junior lien     occupied     occupied     and leases     loans     Total  
Credit quality indicators:                                                                
Not classified   $ 35,457     $ 22,841     $ 8,162     $ 58,793     $ 85,726     $ 83,867     $ 1,371     $ 296,217  
Special mention     -       -       -       -       -       -       -       -  
Substandard     432       233       -       -       390       1,542       -       2,597  
Doubtful     -       -       -       -       -       -       -       -  
Total   $ 35,889     $ 23,074     $ 8,162     $ 58,793     $ 86,116     $ 85,409     $ 1,371     $ 298,814  

 

    December 31, 2011  
                      Commercial     Commercial     Commercial              
    Construction     Residential     Residential     owner     non-owner     loans     Consumer        
(in thousands)   and land     first lien     junior lien     occupied     occupied     and leases     loans     Total  
Credit quality indicators:                                                                
Not classified   $ 39,268     $ 21,476     $ 9,198     $ 44,600     $ 76,880     $ 78,014     $ 1,214     $ 270,650  
Special mention     -       -       -       -       -       -       -       -  
Substandard     -       611       44       1,988       -       3,229       9       5,881  
Doubtful     -       -       -       -       -       -       -       -  
Total   $ 39,268     $ 22,087     $ 9,242     $ 46,588     $ 76,880     $ 81,243     $ 1,223     $ 276,531  

 

· 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.
· Substandard - Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.
· Doubtful - Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

 

Loans classified special mention, substandard, doubtful or loss are reviewed at least quarterly to determine their appropriate classification. All commercial loan relationships are reviewed annually. Non-classified residential mortgage loans and consumer loans are not evaluated unless a specific event occurs to raise the awareness of a possible credit deterioration.

 

An aged analysis of past due loans are as follows:

 

    September 30, 2012 - Unaudited  
                      Commercial     Commercial     Commercial              
    Construction     Residential     Residential     owner     non-owner     loans     Consumer        
(in thousands)   and land     first lien     junior lien     occupied     occupied     and leases     loans     Total  
Analysis of past due loans:                                                                
Accruing loans current   $ 35,457     $ 22,395     $ 8,121     $ 58,793     $ 85,726     $ 83,757     $ 1,371     $ 295,620  
Accruing loans past due:                                                                
31-59 days past due     -       238       41       -       -       110       -       389  
60-89 days past due     -       208               -       -       -       -       208  
Greater than 90 days past due     -       -       -       -       -       -       -       -  
Total past due   $ -     $ 446     $ 41     $ -     $ -     $ 110     $ -     $ 597  
                                                                 
Non-accrual loans     432       233       -       -       390       1,542       -       2,597  
                                                                 
Total loans   $ 35,889     $ 23,074     $ 8,162     $ 58,793     $ 86,116     $ 85,409     $ 1,371     $ 298,814  

 

    December 31, 2011  
                      Commercial     Commercial     Commercial              
    Construction     Residential     Residential     owner     non-owner     loans     Consumer        
(in thousands)   and land     first lien     junior lien     occupied     occupied     and leases     loans     Total  
Analysis of past due loans:                                                                
Accruing loans current   $ 39,268     $ 21,719     $ 9,198     $ 44,600     $ 75,790     $ 77,951     $ 1,214     $ 269,740  
Accruing loans past due:                                                                
31-59 days past due     -       -       -       -       -       -       -       -  
60-89 days past due     -       -       -       -       1,000       63       -       1,063  
Greater than 90 days past due     -       -       -       -       90       -       -       90  
Total past due   $ -     $ -     $ -     $ -     $ 1,090     $ 63     $ -     $ 1,153  
                                                                 
Non-accrual loans     -       368       44       1,988       -       3,229       9       5,638  
                                                                 
Total loans   $ 39,268     $ 22,087     $ 9,242     $ 46,588     $ 76,880     $ 81,243     $ 1,223     $ 276,531  

 

Total loans either in non-accrual status or in excess of ninety days delinquent totaled $2.6 million or .87% of total loans outstanding as of September 30, 2012 compared to $5.7 million or 2.07% of total loans outstanding as of December 31, 2011.

 

The impaired loans for the nine months ended September 30, 2012 and the year ended December 31, 2011 are as follows:

 

    September 30, 2012 - Unaudited  
                      Commercial     Commercial     Commercial              
    Construction     Residential     Residential     owner     non-owner     loans     Consumer        
(in thousands)   & land     first lien     junior lien     occupied     occupied     and leases     loans     Total  
Impaired loans:                                                                
Recorded investment   $ 432     $ 471     $ -     $ -     $ 3,146     $ 1,978     $ -     $ 6,027  
With an allowance recorded     432       233       -       -       -       584       -       1,249  
With no related allowance recorded     -       238       -       -       3,146       1,394       -       4,778  
                                                                 
Related allowance     103       73       -       -       -       257       -       433  
                                                                 
Un-paid principal     432       471       -       -       3,081       2,134       -       6,118  
Nine months ended September 30, 2012                                                                
Average balance of impaired loans     441       472       -       -       3,517       2,418       -       6,848  
Interest income recognized     18       7       -       -       155       88       -       268  
Three months ended September 30, 2012                                                                
Average balance of impaired loans     432       472       -       -       3,510       2,265       -       6,679  
Interest income recognized   $ 18     $ -     $ -     $ -     $ 48     $ 69     $ -     $ 135  

 

    December 31, 2011  
                      Commercial     Commercial     Commercial              
    Construction     Residential     Residential     owner     non-owner     loans     Consumer        
(in thousands)   & land     first lien     junior lien     occupied     occupied     and leases     loans     Total  
Impaired loans:                                                                
Recorded investment   $ -     $ 611     $ 44     $ 1,988     $ 2,783     $ 3,498     $ 9     $ 8,933  
With an allowance recorded     -       368       44       -       -       1,884       -       2,296  
With no related allowance recorded     -       243       -       1,988       2,783       1,614       9       6,637  
                                                                 
Related allowance     -       68       44       -       -       1,161       -       1,273  
                                                                 
Un-paid principal     -       611       44       3,021       2,783       3,533       9       10,001  
                                                                 
Average balance of impaired loans     -       609       44       3,044       2,778       3,593       9       10,078  
Interest income recognized   $ -     $ 23     $ 2     $ 52     $ 114     $ 157     $ -     $ 348  

 

Nonaccrual loans included in impaired loans totaled $2.6 million and $5.6 million at September 30, 2012 and December 31, 2011, respectively. Interest income that would have been recorded if nonaccrual loans had been current and in accordance with their original terms was $68 thousand for the first nine months of 2012.

 

Management routinely evaluates other real estate owned (“OREO”) based upon periodic appraisals. For the nine months ended September 30, 2012 the Bank transferred two properties into OREO totaling $1.7 million, one of which was a residential property for $112 thousand that was also sold in 2012. During 2011, the Bank transferred two loans totaling $1.8 million, net of reserves, to OREO. For the nine months ended September 30, 2012 the Bank recorded an additional valuation allowance of $48 thousand in non-interest expense for two properties whose current appraised value was less than the recorded OREO amount. For 2011 the Bank recorded a valuation allowance of $393 thousand during the same nine month period.

 

The trouble debt restructured loans (“TDRs”) for September 30, 2012 and December 31, 2011 are as follows:

 

    September 30, 2012 - Unaudited  
    Number     Non-Accrual     Number     Accrual     Total  
(dollars in thousands)   of Loans     Status     of Loans     Status     TDR's  
Residential real estate - first lien     -     $ -       -     $ -     $ -  
Commercial real estate non-owner occupied     -       -       -       -       -  
Commercial loans     3       637       -       -       637  
      3     $ 637       -     $ -     $ 637  

 

    December 31, 2011  
    Number     Non-Accrual     Number     Accrual     Total  
(dollars in thousands)   of Loans     Status     of Loans     Status     TDR's  
Residential real estate - first lien     -     $ -       1     $ 240     $ 240  
Commercial real estate non-owner occupied     -       -       -       -       -  
Commercial loans     5       751       -       -       751  
      5     $ 751       1     $ 240     $ 991  

 

There have not been any defaults on loans classified as a TDR for the periods presented. One loan for $387 thousand was restructured during the three months ended September 30, 2012.

 

A summary of TDRs modifications outstanding and performance under modified terms are as follows:

 

    September 30, 2012 - Unaudited  
    Not Performing     Performing        
    to Modified     to Modified     Total  
(in thousands)   Terms     Terms     TDR's  
Residential real estate - first lien                        
Interest only payments   $ -     $ -     $ -  
Rate modification     -       -       -  
Forberance     -       -       -  
Extension or other modification     -       -       -  
Total residential real estate     -       -       -  
Commercial loans                        
Interest only payments   $ -     $ -     $ -  
Rate modification     -       -       -  
Forberance     -       -       -  
Extension or other modification     637       -       637  
Total commercial     637       -       637  
Total TDR's   $ 637     $ -     $ 637  

 

    December 31, 2011  
    Not Performing     Performing        
    to Modified     to Modified     Total  
(in thousands)   Terms     Terms     TDR's  
Residential real estate - first lien                        
Interest only payments   $ -     $ -     $ -  
Rate modification     -       -       -  
Forberance     -       -       -  
Extension or other modification     -       240       240  
Total residential real estate     -       240       240  
Commercial loans                        
Interest only payments   $ -     $ -     $ -  
Rate modification     -       -       -  
Forberance     353       -       353  
Extension or other modification     398       -       398  
Total commercial     751       -       751  
Total TDR's   $ 751     $ 240     $ 991