Loans and Leases

3 Months Ended

Mar. 31, 2013

Loans and Leases [Abstract]

LOANS AND LEASES

NOTE 3 - LOANS AND LEASES

Loans outstanding at March 31, 2013 and December 31, 2012, are as follows:

	(Expressed in Thousands)
	March 31, 2013		December 31, 2012
Consumer Real Estate:
Construction	$	710	$	730
Farmland		230		239
Residential 1-4 Family		24,567		22,439
Home Equity Loans		1,860		1,960
Home Equity Lines of Credit		3,176		3,157
Total Consumer Real Estate		30,543		28,525
Commercial Real Estate:
Non-farm, non-residential		41,954		41,164
Multifamily (5 or more) residential properties		8,956		8,986
Total Commercial Real Estate		50,910		50,150
Commercial and Other Loans:
Commercial		5,452		5,626
Non-rated industrial development obligations		9,495		9,954
Other loans		21		23
Total Commercial and Other Loans		14,968		15,603
Consumer Loans:
Installment and other loans to individuals		4,022		4,668
Credit Cards		491		563
Total Consumer Loans		4,513		5,231
Total loans	$	100,934	$	99,509
Less unearned interest and deferred fees		128		122
Net loans	$	100,806	$	99,387

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. These policies and procedures are reviewed by management and approved by the Board of Directors on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentration of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

The Company originates direct and indirect consumer loans including principally residential real estate, home equity lines and loans, credit cards, and indirect vehicle loans using a credit analysis as part of the underwriting process. Each loan type has a separate underwriting criteria, which consists of several factors including debt to income, type of collateral, credit history and customer relationship with the Company.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected and the collateral securing the loan may fluctuate in value. Minimum standards and underwriting guidelines have been established for commercial loan types.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by the general economy or conditions specific to the real estate market such as geography and/or property type.

Non-accrual loans amounted to $3,465,224 and $3,550,640 at March 31, 2013 and December 31, 2012, respectively. The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was $42,301, $60,400 and $216,468 for three months ended March 31, 2013 and 2012 and for the year ended December 31, 2012, respectively.

The following tables present the contractual aging of the recorded investment in past due loans by class of loans (in thousands):

	March 31, 2013
	Current			30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Total Loans			90 Days or more Past Due and Accruing
Commercial and Other Loans	$	14,946		$	—	$	—	$	22	$	22	$	14,968		$	—
Commercial real estate		47,765			285		—		2,860		3,145		50,910			—
Consumer real estate		30,332			180		12		19		211		30,543			—
Consumer		4,500			7		—		6		13		4,513			—
Unearned interest and deferred fees		(128	)		—		—		—		—		(128	)		—
Total loans	$	97,415		$	472	$	12	$	2,907	$	3,391	$	100,806		$	—
Non-accrual loans included above are as follows:
Commercial and Other Loans	$	7		$	—	$	—	$	22	$	22	$	29		$	—
Commercial real estate		202			181		—		2,860		3,041		3,243			—
Consumer real estate		13			136		12		19		167		180			—
Consumer		7			—		—		6		6		13			—
Total non-accrual loans	$	229		$	317	$	12	$	2,907	$	3,236	$	3,465		$	—

	December 31, 2012
	Current			30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Total Loans			90 Days or more Past Due and Accruing
Commercial and Other Loans	$	15,515		$	65	$	—	$	23	$	88	$	15,603		$	—
Commercial real estate		47,261			31		—		2,858		2,889		50,150			—
Consumer real estate		28,006			139		295		85		519		28,525			—
Consumer		5,214			4		7		6		17		5,231			—
Unearned interest and deferred fees		(122	)		—		—		—		—		(122	)		—
Total loans	$	95,874		$	239	$	302	$	2,972	$	3,513	$	99,387		$	—
Non-accrual loans included above are as follows:
Commercial and Other Loans	$	8		$	—	$	—	$	23	$	23	$	31		$	—
Commercial real estate		257			—		—		2,858		2,858		3,115			—
Consumer real estate		195			108		—		85		193		388			—
Consumer		10			—		1		6		7		17			—
Total non-accrual loans	$	470		$	108	$	1	$	2,972	$	3,081	$	3,551		$	—

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention”, “Substandard”, and “Doubtful.” Substandard loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. Risk ratings are updated any time the situation warrants. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

The following tables present the risk category of loans by class of loans based on the most recent analysis performed and the contractual aging as of March 31, 2013 and December 31, 2012 (in thousands):

March 31, 2013	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and Other	$	14,937	$	—	$	31	$	—	$	14,968
Commercial Real Estate		41,245		2,961		6,704		—		50,910
Construction and Land Development		940		—		—		—		940
Total	$	57,122	$	2,961	$	6,735	$	—	$	66,818
Current	$	56,967	$	2,961	$	3,659	$	—	$	63,587
Past Due 30-59 days		155		—		—		—		155
Past Due 60-89 days		—		—		—		—		—
Past Due 90 days or more		—		—		—		—		—
Non- accrual		—		—		3,076		—		3,076
Total	$	57,122	$	2,961	$	6,735	$	—	$	66,818
December 31, 2012	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and Other	$	15,572	$	—	$	31	$	—	$	15,603
Commercial Real Estate		39,873		3,465		6,812		—		50,150
Construction and Land Development		969		—		—		—		969
Total	$	56,414	$	3,465	$	6,843	$	—	$	66,722
Current	$	56,349	$	3,465	$	3,728	$	—	$	63,542
Past Due 30-59 days		65		—		—		—		65
Past Due 60-89 days		—		—		—		—		—
Past Due 90 days or more		—		—		—		—		—
Non- accrual		—		—		3,115		—		3,115
Total	$	56,414	$	3,465	$	6,843	$	—	$	66,722

For consumer and residential real estate loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity as of March 31, 2013 and December 31, 2012 (in thousands):

March 31, 2013	Performing		Non-performing		Total
Consumer	$	4,499	$	14	$	4,513
Consumer Real Estate		28,539		1,064		29,603
Total	$	33,038	$	1,078	$	34,116
December 31, 2012	Performing		Non-performing		Total
Consumer	$	5,214	$	17	$	5,231
Consumer Real Estate		28,247		388		28,635
Total	$	33,461	$	405	$	33,866

Impaired loans at March 31, 2013 and December 31, 2012 are set forth in the following tables (in thousands):

	March 31, 2013
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Commercial and Other Loans	$	30	$	8	$	22	$	30	$	22
Commercial real estate		3,045		513		2,532		3,045		574
Consumer real estate		220		220		—		220		—
Total	$	3,295	$	741	$	2,554	$	3,295	$	596
	December 31, 2012
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Commercial and Other Loans	$	31	$	8	$	23	$	31	$	23
Commercial real estate		3,115		537		2,578		3,115		619
Consumer real estate		226		226		—		226		—
Total	$	3,372	$	771	$	2,601	$	3,372	$	642

The average recorded investment in impaired loans at March 31, 2013 and March 31, 2012 are set forth below in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired (in thousands):

	Average Recorded Investment
	March 31, 2013		March 31, 2012
Commercial and Other Loans	$	30	$	35
Commercial real estate		3,081		3,180
Consumer real estate		223		573
Total	$	3,334	$	3,788

Loan Modifications

The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonaccrual at the time of restructure and may only be returned to accrual status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDR’s on accrual status may remain in accrual status after they have been restructured as long as they continue to perform in accordance with their modified terms. There were no TDR’s in accrual status at March 31, 2013 and December 31, 2012.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination.

The Company did not have any new TDR’s originate during the three month periods ended March 31, 2013 and 2012. There were no TDR’s that defaulted during the three month periods ended March 31, 2013 and 2012.

No additional funds are committed to be advanced to customers whose loans were classified as TDR’s.