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Note 4 - Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2014

Loans And Allowance For Credit Losses [Abstract]

Loans And Allowance For Credit Losses [Text Block]

Note 4: Loans and Allowance for Credit Losses

FDIC indemnification expired February 6, 2014 for County Bank non-single-family residential collateralized purchased loans; accordingly, such loans have been reclassified from purchased covered loans to purchased non-covered loans.

A summary of the major categories of loans outstanding is shown in the following tables.

	At March 31, 2014
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment & Other			Total
	(In thousands)
Originated loans	$	360,151		$	595,210		$	9,837		$	170,176		$	394,128		$	1,529,502
Purchased covered loans:
Gross purchased covered loans		-			-			-			4,856			14,756			19,612
Credit risk discount		-			-			-			(434	)		(209	)		(643	)
Purchased non-covered loans:
Gross purchased non-covered loans		25,643			200,358			3,199			991			49,797			279,988
Credit risk discount		(2,134	)		(7,892	)		(50	)		(262	)		(1,802	)		(12,140	)
Total	$	383,660		$	787,676		$	12,986		$	175,327		$	456,670		$	1,816,319

	At December 31, 2013
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment & Other			Total
	(In thousands)
Originated loans	$	338,824		$	596,653		$	10,723		$	176,196		$	400,888		$	1,523,284
Purchased covered loans:
Gross purchased covered loans		20,066			175,562			3,223			8,558			54,194			261,603
Credit risk discount		(1,530	)		(8,122	)		(50	)		(434	)		(797	)		(10,933	)
Purchased non-covered loans:
Gross purchased non-covered loans		7,525			35,712			-			999			12,799			57,035
Credit risk discount		(726	)		(786	)		-			(262	)		(1,471	)		(3,245	)
Total	$	364,159		$	799,019		$	13,896		$	185,057		$	465,613		$	1,827,744

Changes in the carrying amount of impaired purchased loans were as follows:

	For the Three Months Ended March 31, 2014			For the Year Ended December 31, 2013
Impaired purchased loans	(In thousands)
Carrying amount at the beginning of the period	$	4,936		$	14,629
Reductions during the period		(19	)		(9,693	)
Carrying amount at the end of the period	$	4,917		$	4,936

Changes in the accretable yield for purchased loans were as follows:

	For the Three Months Ended March 31, 2014			For the Year Ended December 31, 2013
Accretable yield:	(In thousands)
Balance at the beginning of the period	$	2,505		$	4,948
Reclassification from nonaccretable difference		909			12,504
Accretion		(1,149	)		(14,947	)
Balance at the end of the period	$	2,265		$	2,505

Accretion	$	(1,149	)	$	(14,947	)
Reduction in FDIC indemnification asset		211			11,438
(Increase) in interest income	$	(938	)	$	(3,509	)

The following summarizes activity in the allowance for credit losses:

	Allowance for Credit Losses For the Three Months Ended March 31, 2014
												Consumer			Purchased			Purchased
				Commercial						Residential		Installment			Non-covered			Covered
	Commercial			Real Estate			Construction			Real Estate		and Other			Loans			Loans			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	4,005		$	12,070		$	602		$	405	$	3,198		$	-		$	1,561		$	9,852	$	31,693
Additions:
Provision		130			(974	)		(160	)		86		214			1,272			-			432		1,000
Deductions:
Chargeoffs		(60	)		-			-			-		(999	)		(260	)		-			-		(1,319	)
Recoveries		168			163			3			-		400			1			-			-		735
Net loan losses		108			163			3			-		(599	)		(259	)		-			-		(584	)
Indemnification expiration		-			-			-			-		-			1,561			(1,561	)		-
Balance at end of period		4,243			11,259			445			491		2,813			2,574			-			10,284		32,109
Liability for off-balance sheet credit exposure		1,672			-			185			-		440			251			-			145		2,693
Total allowance for credit losses	$	5,915		$	11,259		$	630		$	491	$	3,253		$	2,825		$	-		$	10,429	$	34,802

	Allowance for Credit Losses For the Three Months Ended March 31, 2013
													Consumer			Purchased		Purchased
				Commercial						Residential			Installment			Non-covered		Covered
	Commercial			Real Estate			Construction			Real Estate			and Other			Loans		Loans			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	6,445		$	10,063		$	484		$	380		$	3,194		$	-	$	1,005		$	8,663	$	30,234
Additions:
Provision		531			994			(4	)		246			281			-		87			665		2,800
Deductions:
Chargeoffs		(1,902	)		(113	)		-			(87	)		(1,308	)		-		(359	)		-		(3,769	)
Recoveries		462			21			-			-			601			-		5			-		1,089
Net loan losses		(1,440	)		(92	)		-			(87	)		(707	)		-		(354	)		-		(2,680	)
Balance at end of period		5,536			10,965			480			539			2,768			-		738			9,328		30,354
Liability for off-balance sheet credit exposure		1,663			3			-			-			453			-		-			574		2,693
Total allowance for credit losses	$	7,199		$	10,968		$	480		$	539		$	3,221		$	-	$	738		$	9,902	$	33,047

The allowance for credit losses and recorded investment in loans were evaluated for impairment as follows:

	Allowance for Credit Losses and Recorded Investment in Loans Evaluated for Impairment At March 31, 2014
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans		Purchased Covered Loans		Unallocated		Total
	(In thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	100	$	550	$	-	$	-	$	-	$	895	$	-	$	-	$	1,545
Collectively evaluated for impairment		5,815		10,709		630		491		3,253		1,930		-		10,429		33,257
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-
Total	$	5,915	$	11,259	$	630	$	491	$	3,253	$	2,825	$	-	$	10,429	$	34,802
Carrying value of loans:
Individually evaluated for impairment	$	3,675	$	2,761	$	-	$	-	$	-	$	13,489	$	-	$	-	$	19,925
Collectively evaluated for impairment		356,476		592,449		9,837		170,176		394,128		249,684		18,727		-		1,791,477
Purchased loans with evidence of credit deterioration		-		-		-		-		-		4,675		242		-		4,917
Total	$	360,151	$	595,210	$	9,837	$	170,176	$	394,128	$	267,848	$	18,969	$	-	$	1,816,319

	Allowance for Credit Losses and Recorded Investment in Loans Evaluated for Impairment At December 31, 2013
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans		Purchased Covered Loans		Unallocated		Total
	(In thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	100	$	1,243	$	-	$	-	$	-	$	-	$	153	$	-	$	1,496
Collectively evaluated for impairment		5,563		10,827		639		405		3,695		-		1,408		10,353		32,890
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-
Total	$	5,663	$	12,070	$	639	$	405	$	3,695	$	-	$	1,561	$	10,353	$	34,386
Carrying value of loans:
Individually evaluated for impairment	$	3,901	$	3,357	$	-	$	-	$	-	$	3,785	$	9,999	$	-	$	21,042
Collectively evaluated for impairment		334,923		593,296		10,723		176,196		400,888		47,571		238,169		-		1,801,766
Purchased loans with evidence of credit deterioration		-		-		-		-		-		2,434		2,502		-		4,936
Total	$	338,824	$	596,653	$	10,723	$	176,196	$	400,888	$	53,790	$	250,670	$	-	$	1,827,744

The Bank’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” Loan Review evaluations occur every calendar quarter. If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review examinations, assigned risk grades are re-evaluated promptly. Credit risk grades assigned by the Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.

The following summarizes the credit risk profile by internally assigned grade:

	Credit Risk Profile by Internally Assigned Grade At March 31, 2014
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans			Purchased Covered Loans (1)			Total
	(In thousands)
Grade:
Pass	$	349,979	$	550,932	$	9,837	$	168,110	$	392,931	$	209,451		$	17,962		$	1,699,202
Substandard		9,157		44,278		-		2,066		983		70,109			1,650			128,243
Doubtful		1,015		-		-		-		17		402			-			1,434
Loss		-		-		-		-		197		26			-			223
Credit risk discount		-		-		-		-		-		(12,140	)		(643	)		(12,783	)
Total	$	360,151	$	595,210	$	9,837	$	170,176	$	394,128	$	267,848		$	18,969		$	1,816,319

(1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

	Credit Risk Profile by Internally Assigned Grade At December 31, 2013
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans			Purchased Covered Loans (1)			Total
	(In thousands)
Grade:
Pass	$	329,667	$	554,991	$	10,274	$	174,113	$	399,377	$	41,490		$	196,882		$	1,706,794
Substandard		8,142		41,662		449		2,083		1,127		14,587			64,624			132,674
Doubtful		1,015		-		-		-		19		958			97			2,089
Loss		-		-		-		-		365		-			-			365
Credit risk discount		-		-		-		-		-		(3,245	)		(10,933	)		(14,178	)
Total	$	338,824	$	596,653	$	10,723	$	176,196	$	400,888	$	53,790		$	250,670		$	1,827,744

(1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status At March 31, 2014
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	357,553	$	1,220	$	31	$	-	$	1,347	$	360,151
Commercial real estate		584,385		7,585		253		-		2,987		595,210
Construction		9,837		-		-		-		-		9,837
Residential real estate		167,842		2,010		-		-		324		170,176
Consumer installment & other		391,252		2,134		381		196		165		394,128
Total originated loans		1,510,869		12,949		665		196		4,823		1,529,502
Purchased non-covered loans		248,629		4,910		1,620		209		12,480		267,848
Purchased covered loans		18,859		19		5		-		86		18,969
Total	$	1,778,357	$	17,878	$	2,290	$	405	$	17,389	$	1,816,319

	Summary of Loans by Delinquency and Nonaccrual Status At December 31, 2013
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	336,497	$	677	$	383	$	-	$	1,267	$	338,824
Commercial real estate		586,619		4,012		2,473		-		3,549		596,653
Construction		10,275		-		-		-		448		10,723
Residential real estate		173,082		2,789		325		-		-		176,196
Consumer installment & other		396,725		3,035		606		410		112		400,888
Total originated loans		1,503,198		10,513		3,787		410		5,376		1,523,284
Purchased non-covered loans		45,755		4,237		180		-		3,618		53,790
Purchased covered loans		236,577		845		940		-		12,308		250,670
Total	$	1,785,530	$	15,595	$	4,907	$	410	$	21,302	$	1,827,744

The following is a summary of the effect of nonaccrual loans on interest income:

	For the Three Months Ended March 31,
	2014			2013
	(In thousands)

Interest income that would have been recognized had the loans performed in accordance with their original terms	$	375		$	753
Less: Interest income recognized on nonaccrual loans		(159	)		(375	)
Total reduction of interest income	$	216		$	378

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2014 and December 31, 2013.

The following summarizes impaired loans:

	Impaired Loans At March 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	3,490	$	4,001	$	-
Commercial real estate		10,940		13,278		-
Construction		2,035		2,498		-
Residential real estate		324		324		-
Consumer installment and other		1,418		1,525		-

Impaired loans with an allowance recorded:
Commercial		1,262		2,436		362
Commercial real estate		6,880		10,619		1,183

Total:
Commercial	$	4,752	$	6,437	$	362
Commercial real estate		17,820		23,897		1,183
Construction		2,035		2,498		-
Residential real estate		324		324		-
Consumer installment and other		1,418		1,525		-

	Impaired Loans At December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	3,931	$	4,498	$	-
Commercial real estate		11,002		13,253		-
Construction		2,483		2,947		-
Consumer installment and other		2,014		2,133		-

Impaired loans with an allowance recorded:
Commercial		1,000		2,173		100
Commercial real estate		9,773		12,482		1,396

Total:
Commercial	$	4,931	$	6,671	$	100
Commercial real estate		20,775		25,735		1,396
Construction		2,483		2,947		-
Consumer installment and other		2,014		2,133		-

Impaired loans include troubled debt restructured loans. Impaired loans at March 31, 2014, included $5,271 thousand of restructured loans, including $262 thousand that were on nonaccrual status. Impaired loans at December 31, 2013, included $5,453 thousand of restructured loans, including $529 thousand that were on nonaccrual status.

	Impaired Loans For the Three Months Ended March 31,
	2014				2013
	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
	(In thousands)
Commercial	$	4,842	$	67	$	13,729	$	54
Commercial real estate		19,298		117		28,507		300
Construction		2,259		-		2,111		26
Residential real estate		162		-		685		-
Consumer installment and other		1,716		8		1,963		7
Total	$	28,277	$	192	$	46,995	$	387

The following table provides information on troubled debt restructurings:

	Troubled Debt Restructurings At March 31, 2014
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	(In thousands)
Commercial		3	$	3,201	$	2,938	$	262
Commercial real estate		2		2,291		2,316		-
Consumer installment and other		1		18		17		-
Total		6	$	5,510	$	5,271	$	262

	Troubled Debt Restructurings At March 31, 2013
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	(In thousands)
Commercial		3	$	1,318	$	1,172	$	786
Commercial real estate		3		7,383		7,535		-
Total		6	$	8,701	$	8,707	$	786

During the three months ended March 31, 2014 and 2013, the Company modified one loan in each period with carrying values of $17 thousand and $2,009 thousand, respectively that was considered a troubled debt restructuring. The concession granted in the first quarter 2014 consisted of modification of payment terms to extend the maturity date to allow for deferred principal repayment. The concession granted in the restructuring completed in the first quarter 2013 consisted of modification of payment terms to lower the interest rate and extend the maturity date to allow for deferred principal repayment. During the three months ended March 31, 2014 and 2013, no troubled debt restructured loans defaulted. A troubled debt restructuring is considered to be in default when payments are ninety days or more past due.

The Company pledges loans to secure borrowings from the Federal Home Loan Bank (FHLB). The carrying value of the FHLB advances was $20,437 thousand and $20,577 thousand at March 31, 2014 and December 31, 2013, respectively. The loans restricted due to collateral requirements approximate $22,766 thousand and $24,242 thousand at March 31, 2014 and December 31, 2013, respectively. The amount of loans pledged exceeds collateral requirements. The FHLB does not have the right to sell or repledge such loans.

There were no loans held for sale at March 31, 2014 and December 31, 2013.