XML 32 R11.htm IDEA: XBRL DOCUMENT v2.4.0.8
LOANS AND ALLOWANCE
 9 Months Ended
Sep. 30, 2013
LOANS AND ALLOWANCE  
LOANS AND ALLOWANCE

NOTE 4 — LOANS AND ALLOWANCE

 

Loans were as follows:

 

 

 

September 30,
2013

 

December 31,
2012

 

Commercial

 

 

 

 

 

Commercial and industrial

 

$

149,402

 

$

134,156

 

Agricultural

 

26,190

 

22,355

 

Commercial Real Estate

 

 

 

 

 

Farm

 

70,765

 

66,119

 

Hotel

 

109,322

 

131,495

 

Construction and development

 

27,392

 

25,208

 

Other

 

538,283

 

507,231

 

Residential

 

 

 

 

 

1-4 family

 

404,146

 

394,195

 

Home equity

 

239,283

 

224,329

 

Consumer

 

 

 

 

 

Direct

 

44,937

 

45,844

 

Indirect

 

1,270

 

2,451

 

Total loans

 

1,610,990

 

1,553,383

 

Allowance for loan losses

 

(27,849

)

(32,227

)

Net loans

 

$

1,583,141

 

$

1,521,156

 

 

Activity in the allowance for loan losses for the nine months ended September 30, 2013 and 2012 and the recorded investment of loans and allowances by portfolio segment and impairment method as of September 30, 2013 and December 31, 2012 were as follows:

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential

 

Consumer

 

Total

 

Allowance for loan loss

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2013

 

$

3,894

 

$

24,157

 

$

3,180

 

$

996

 

$

32,227

 

Provision charged to expense

 

366

 

506

 

1,659

 

1,203

 

3,734

 

Losses charged off

 

(1,058

)

(5,270

)

(1,767

)

(2,364

)

(10,459

)

Recoveries

 

262

 

564

 

375

 

1,146

 

2,347

 

Balance, September 30, 2013

 

$

3,464

 

$

19,957

 

$

3,447

 

$

981

 

$

27,849

 

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential

 

Consumer

 

Total

 

Allowance for loan loss

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2012

 

$

5,562

 

$

30,476

 

$

2,972

 

$

879

 

$

39,889

 

Provision charged to expense

 

(572

)

4,555

 

2,549

 

1,068

 

7,600

 

Losses charged off

 

(455

)

(10,025

)

(2,910

)

(2,468

)

(15,858

)

Recoveries

 

522

 

1,630

 

232

 

1,231

 

3,615

 

Balance,September 30, 2012

 

$

5,057

 

$

26,636

 

$

2,843

 

$

710

 

$

35,246

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Ending Balance individually evaluated for impairment

 

$

65

 

$

1,457

 

$

106

 

$

2

 

$

1,630

 

Ending Balance collectively evaluated for impairment

 

3,399

 

18,500

 

3,341

 

979

 

26,219

 

Total ending allowance balance

 

$

3,464

 

$

19,957

 

$

3,447

 

$

981

 

$

27,849

 

Loans

 

 

 

 

 

 

 

 

 

 

 

Ending Balance individually evaluated for impairment

 

$

521

 

$

24,226

 

$

13,183

 

$

835

 

$

38,765

 

Ending Balance collectively evaluated for impairment

 

175,071

 

721,536

 

630,246

 

45,372

 

1,572,225

 

Total ending loan balance excludes $5,104 of accrued interest

 

$

175,592

 

$

745,762

 

$

643,429

 

$

46,207

 

$

1,610,990

 

 

As of December 31, 2012

 

Commercial

 

Commercial
Real Estate

 

Residential

 

Consumer

 

Total

 

Ending Balance individually evaluated for impairment

 

$

150

 

$

3,067

 

$

—

 

$

—

 

$

3,217

 

Ending Balance collectively evaluated for impairment

 

3,744

 

21,090

 

3,180

 

996

 

29,010

 

Total ending allowance balance

 

$

3,894

 

$

24,157

 

$

3,180

 

$

996

 

$

32,227

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

Ending Balance individually evaluated for impairment

 

$

1,797

 

$

33,499

 

$

14,175

 

$

1,083

 

$

50,554

 

Ending Balance collectively evaluated for impairment

 

154,714

 

696,554

 

604,349

 

47,212

 

1,502,829

 

Total ending loan balance excludes $5,206 of accrued interest

 

$

156,511

 

$

730,053

 

$

618,524

 

$

48,295

 

$

1,553,383

 

 

The recorded investment in loans excludes accrued interest receivable due to immateriality.

 

Activity in the allowance for the loan losses by portfolio segment for the three months ended September 30, 2013 and September 30, 2012 was as follows:

 

As of September 30, 2013

 

Commercial

 

Commercial
Real Estate

 

Residential

 

Consumer

 

Total

 

Allowance for loan loss

 

 

 

 

 

 

 

 

 

 

 

Balance, July 1

 

$

3,635

 

$

20,108

 

$

3,459

 

$

800

 

$

28,002

 

Provision charged to expense

 

(121

)

175

 

288

 

658

 

1,000

 

Losses charged off

 

(91

)

(584

)

(448

)

(864

)

(1,987

)

Recoveries

 

41

 

258

 

148

 

387

 

834

 

Balance, September 30

 

$

3,464

 

$

19,957

 

$

3,447

 

$

981

 

$

27,849

 

 

As of September 30, 2012

 

Commercial

 

Commercial
Real Estate

 

Residential

 

Consumer

 

Total

 

Allowance for loan loss

 

 

 

 

 

 

 

 

 

 

 

Balance, July 1

 

$

4,945

 

$

29,580

 

$

2,975

 

$

789

 

$

38,289

 

Provision charged to expense

 

223

 

464

 

840

 

473

 

2,000

 

Losses charged off

 

(178

)

(3,936

)

(1,078

)

(962

)

(6,154

)

Recoveries

 

67

 

528

 

106

 

410

 

1,111

 

Balance, September 30

 

$

5,057

 

$

26,636

 

$

2,843

 

$

710

 

$

35,246

 

 

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2013.  Performing troubled debt restructurings totaling $6,631 were excluded as allowed by ASC 310-40.

 

September 30, 2013

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses Allocated

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

206

 

$

188

 

$

65

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

Farm

 

202

 

202

 

79

 

 

 

 

 

Hotel

 

 

 

 

 

 

 

 

 

 

 

Construction and development

 

854

 

772

 

160

 

 

 

 

 

Other

 

9,639

 

8,463

 

1,218

 

 

 

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

1-4 Family

 

1,094

 

988

 

103

 

 

 

 

 

Home Equity

 

51

 

51

 

3

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

Direct

 

127

 

127

 

2

 

 

 

 

 

Subtotal — impaired with allowance recorded

 

12,173

 

10,791

 

1,630

 

 

 

 

 

With no related allowance recorded

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

470

 

334

 

 

 

$

4

 

$

4

 

Agricultural

 

—

 

—

 

 

 

—

 

—

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

Farm

 

1,329

 

1,044

 

 

 

11

 

11

 

Hotel

 

—

 

—

 

 

 

1

 

1

 

Construction and development

 

862

 

411

 

 

 

45

 

45

 

Other

 

9,226

 

6,691

 

 

 

55

 

55

 

Residential

 

 

 

 

 

 

 

 

 

 

 

1-4 Family

 

11,095

 

9,778

 

 

 

3

 

3

 

Home Equity

 

2,590

 

2,379

 

 

 

4

 

4

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

Direct

 

721

 

695

 

 

 

16

 

16

 

Indirect

 

11

 

11

 

 

 

—

 

—

 

Subtotal — impaired with allowance recorded

 

26,304

 

21,343

 

 

 

139

 

139

 

Total impaired loans

 

$

38,477

 

$

32,134

 

$

1,630

 

$

139

 

$

139

 

 

The following table presents loans individually evaluated for impairment by class of loans at December 31, 2012:

 

December 31, 2012

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses Allocated

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

305

 

$

305

 

$

150

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

Farm

 

922

 

922

 

442

 

 

 

 

 

Construction and development

 

742

 

644

 

240

 

 

 

 

 

Other

 

9,727

 

9,419

 

2,385

 

 

 

 

 

Subtotal — impaired with allowance recorded

 

11,696

 

11,290

 

3,217

 

 

 

 

 

With no related allowance recorded

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

2,115

 

1,492

 

 

 

$

76

 

$

76

 

Agricultural

 

1

 

—

 

 

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

Farm

 

741

 

663

 

 

 

9

 

9

 

Hotel

 

6,257

 

5,968

 

 

 

 

 

 

 

Construction and development

 

2,685

 

1,499

 

 

 

108

 

108

 

Other

 

20,047

 

14,384

 

 

 

129

 

129

 

Residential

 

 

 

 

 

 

 

 

 

 

 

1-4 Family

 

13,110

 

11,548

 

 

 

3

 

3

 

Home Equity

 

2,801

 

2,627

 

 

 

17

 

17

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

Direct

 

1,083

 

1,066

 

 

 

9

 

9

 

Indirect

 

19

 

17

 

 

 

7

 

7

 

Subtotal — impaired with allowance recorded

 

48,859

 

39,264

 

 

 

358

 

358

 

Total impaired loans

 

$

60,555

 

$

50,554

 

$

3,217

 

$

358

 

$

358

 

 

The following table presents the average balance of impaired loans for the quarters ending September 30, 2013 and September 30, 2012, excluding performing troubled debt restructurings as allowed by ASC 310-40.

 

At September 30, 2013

 

Three Month
Average Balance

 

Nine Month
Average Balance

 

Commercial

 

 

 

 

 

Commercial & industrial

 

$

751

 

$

1,171

 

Agricultural

 

—

 

—

 

Commercial Real Estate

 

 

 

 

 

Farm

 

1,255

 

1,426

 

Hotel

 

—

 

1,492

 

Construction and development

 

1,302

 

1,694

 

Other

 

16,472

 

19,501

 

Residential

 

 

 

 

 

1-4 Family

 

10,421

 

10,716

 

Home Equity

 

2,500

 

2,572

 

Consumer

 

 

 

 

 

Direct

 

858

 

922

 

Indirect

 

12

 

15

 

Total

 

$

33,571

 

$

39,509

 

 

At September 30, 2012

 

Three Month
Average Balance

 

Nine Month
Average Balance

 

Commercial

 

 

 

 

 

Commercial & industrial

 

$

5,233

 

$

5,052

 

Agricultural

 

12

 

29

 

Commercial Real Estate

 

 

 

 

 

Farm

 

1,147

 

1,078

 

Hotel

 

—

 

1,493

 

Construction and development

 

4,708

 

5,403

 

Other

 

25,964

 

26,195

 

Residential

 

 

 

 

 

1-4 Family

 

11,691

 

11,835

 

Home Equity

 

2,845

 

2,742

 

Consumer

 

 

 

 

 

Direct

 

1,007

 

1,035

 

Indirect

 

42

 

47

 

Total

 

$

52,649

 

$

54,909

 

 

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2013 and December 31, 2012

 

 

 

Non-accrual

 

Past due over
90 days and
still accruing

 

 

 

September 30,
2013

 

December 31,
2012

 

September 30,
2013

 

December 31,
2012

 

Commercial

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

368

 

$

1,777

 

$

 

 

 

 

Agricultural

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

Farm

 

1,247

 

1,584

 

 

 

 

 

Hotel

 

 

 

 

 

 

 

 

 

Construction and development

 

715

 

1,657

 

 

 

$

565

 

Other

 

13,852

 

17,442

 

 

 

 

 

Residential

 

 

 

 

 

 

 

 

 

1-4 Family

 

9,503

 

10,392

 

 

 

 

 

Home Equity

 

2,068

 

2,216

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

Direct

 

208

 

366

 

 

 

 

 

Indirect

 

11

 

17

 

 

 

 

 

Total

 

$

27,972

 

$

35,451

 

$

—

 

$

565

 

 

The following table presents the aging of the recorded investment in past due loans as of September 30, 2013 by class of loans:

 

September 30, 2013

 

Total
Loans

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

Greater than
90 Days
Past Due

 

Total
Past Due

 

Loans Not
Past Due

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

149,402

 

$

90

 

$

—

 

$

65

 

$

155

 

$

149,247

 

Agricultural

 

26,190

 

—

 

—

 

—

 

—

 

26,190

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm

 

70,765

 

—

 

369

 

838

 

1,207

 

69,558

 

Hotel

 

109,322

 

—

 

—

 

—

 

—

 

109,322

 

Construction and development

 

27,392

 

—

 

—

 

715

 

715

 

26,677

 

Other

 

538,283

 

892

 

375

 

7,698

 

8,965

 

529,318

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 Family

 

404,146

 

1,702

 

1,675

 

5,348

 

8,725

 

395,421

 

Home Equity

 

239,283

 

846

 

362

 

1,197

 

2,405

 

236,878

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

44,937

 

122

 

45

 

134

 

301

 

44,636

 

Indirect

 

1,270

 

2

 

—

 

10

 

12

 

1,258

 

Total — excludes $5,104 of accrued interest

 

$

1,610,990

 

$

3,654

 

$

2,826

 

$

16,005

 

$

22,485

 

$

1,588,505

 

 

The following table presents the aging of the recorded investment in past due loans as of December 31, 2012 by class of loans:

 

December 31, 2012

 

Total
Loans

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

Greater than
90 Days
Past Due

 

Total
Past Due

 

Loans Not
Past Due

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

134,156

 

$

1,421

 

$

311

 

$

1,094

 

$

2,826

 

$

131,330

 

Agricultural

 

22,355

 

—

 

—

 

—

 

—

 

22,355

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm

 

66,119

 

158

 

—

 

1,417

 

1,575

 

64,544

 

Hotel

 

131,495

 

—

 

—

 

—

 

—

 

131,495

 

Construction and development

 

25,208

 

—

 

—

 

2,121

 

2,121

 

23,087

 

Other

 

507,231

 

2,516

 

1,208

 

10,607

 

14,331

 

492,900

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 Family

 

394,195

 

7,788

 

2,605

 

5,492

 

15,885

 

378,310

 

Home Equity

 

224,329

 

1,170

 

357

 

1,428

 

2,955

 

221,374

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

45,844

 

182

 

49

 

242

 

473

 

45,371

 

Indirect

 

2,451

 

33

 

12

 

5

 

50

 

2,401

 

Total — excludes $5,206 of accrued interest

 

$

1,553,383

 

$

13,268

 

$

4,542

 

$

22,406

 

$

40,216

 

$

1,513,167

 

 

Troubled Debt Restructurings

 

During the period ending September 30, 2013, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.

 

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 60 months to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 14 months.

 

The troubled debt restructurings increased the allowance for loan losses by $0 and $10 for the three month periods ending September 30, 2013 and 2012 and by $30 and $10 for the nine months period ending September 30, 2013 and 2012.  These troubled debt restructuring resulted in charge offs of $22 and $0 during the three month periods ending September 30, 2013 and 2012 and $442 and $2,399 during the nine month period ending September 30, 2013 and 2012.  Reserves of $0 and $0 for the three and nine month periods in 2013 and $0 in $1,768 for the three and nine month periods in 2012 were provided for these loans in prior quarters.

 

The following table presents loans by class modified as troubled debt restructurings that occurred during the three month periods ending September 30, 2013and 2012:

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Outstanding Recorded

 

Outstanding Recorded

 

September 30, 2013

 

Number of Loans

 

Investment

 

Investment

 

Residential

 

 

 

 

 

 

 

Home Equity

 

—

 

$

—

 

$

—

 

Total

 

—

 

$

—

 

$

—

 

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Outstanding Recorded

 

Outstanding Recorded

 

September 30, 2012

 

Number of Loans

 

Investment

 

Investment

 

Commercial

 

 

 

 

 

 

 

Commercial and industrial

 

1

 

$

91

 

$

91

 

Total

 

1

 

$

91

 

$

91

 

 

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine month periods ending September 30, 2013 and 2012:

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Outstanding Recorded

 

Outstanding Recorded

 

September 30, 2013

 

Number of Loans

 

Investment

 

Investment

 

Commercial

 

 

 

 

 

 

 

Commercial and industrial

 

1

 

$

28

 

$

28

 

Commercial real estate

 

 

 

 

 

 

 

Other real estate

 

3

 

344

 

344

 

Residential

 

 

 

 

 

 

 

1-4 Family

 

5

 

261

 

261

 

Home Equity

 

1

 

20

 

20

 

Consumer

 

 

 

 

 

 

 

Direct

 

1

 

30

 

30

 

Total

 

11

 

$

683

 

$

683

 

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Outstanding Recorded

 

Outstanding Recorded

 

September 30, 2012

 

Number of Loans

 

Investment

 

Investment

 

Commercial

 

 

 

 

 

 

 

Commercial and industrial

 

1

 

$

91

 

$

91

 

Residential

 

 

 

 

 

 

 

Home Equity

 

1

 

70

 

70

 

Consumer

 

 

 

 

 

 

 

Direct

 

1

 

4

 

4

 

Total

 

3

 

$

165

 

$

165

 

 

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three month period ending September 30, 2013:

 

September 30, 2013

 

Number of Loans

 

Recorded Investment

 

Residential:

 

 

 

 

 

1-4 Family

 

1

 

$

52

 

Home Equity

 

1

 

15

 

Consumer

 

 

 

 

 

Direct

 

1

 

4

 

 

 

 

 

 

 

Total

 

3

 

$

71

 

 

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine month period ending September  30, 2013:

 

September 30, 2013

 

Number of Loans

 

Recorded Investment

 

Residential

 

 

 

 

 

1-4 Family

 

2

 

$

89

 

Home Equity

 

1

 

15

 

Consumer

 

 

 

 

 

Direct

 

1

 

4

 

 

 

 

 

 

 

Total

 

4

 

$

108

 

 

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three month period ending September 30, 2012:

 

September 30, 2012

 

Number of Loans

 

Recorded Investment

 

Commercial

 

 

 

 

 

Commercial and industrial

 

2

 

$

2,058

 

Commercial real estate:

 

 

 

 

 

Other

 

1

 

370

 

Residential

 

 

 

 

 

1-4 Family

 

2

 

125

 

 

 

 

 

 

 

Total

 

5

 

$

2,553

 

 

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine month period ending September 30, 2012:

 

September 30, 2012

 

Number of Loans

 

Recorded Investment

 

Commercial

 

 

 

 

 

Commercial and industrial

 

3

 

$

2,195

 

Commercial real estate:

 

 

 

 

 

Development

 

1

 

323

 

Other

 

9

 

3,332

 

Residential

 

 

 

 

 

1-4 Family

 

2

 

125

 

Home Equity

 

1

 

12

 

 

 

 

 

 

 

Total

 

16

 

$

5,987

 

 

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.  The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $0 and $330 and resulted in charge offs of $0 and $0 during the three month period ending September 30, 2013 and 2012 respectively.  For the nine month period ending September 30, 2013 and 2012, the troubled debt restructurings that subsequently defaulted increased the allowance for loan losses by $0 and $543 and resulted in charge offs of $0 and $55.

 

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

 

The Company has allocated $709 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2013. The Company has not committed to lend any additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.  At December 31, 2012, the comparable numbers were $567 of specific reserves and $0 of commitments.  The total of troubled debt restructurings at September 30, 2013 and December 31, 2012 was $14,741 and $18,932 respectively.  Included in the TDR totals are non-accrual loans of $3,921 and $3,829 at September 30, 2013 and December 31, 2012 respectively and performing loans of $6,631 at September 30, 2013 and $0 at December 31, 2012.

 

Credit Quality Indicators:

 

The Company categorizes loans into risk categories based on relevant information about the ability of the borrower to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial and commercial real estate loans individually by classifying the loans as to credit risk. This analysis includes credit relationships with an outstanding balance greater than $1 million on an annual basis. The Company uses the following definitions for risk ratings:

 

Special Mention — Loans classified as special mention have above average risk that requires management’s ongoing attention. The borrower may have demonstrated the inability to generate profits or to maintain net worth, chronic delinquency and/or a demonstrated lack of willingness or capacity to meet obligations.

 

Substandard — Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are classified by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Non-accrual — Loans classified as non-accrual are loans where the further accrual of interest is stopped because payment in full of principal and interest is not expected. In most cases, the principal and interest has been in default for a period of 90 days or more.

 

As of September 30, 2013 and December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 

September  30, 2013

 

Pass

 

Special
Mention

 

Substandard

 

Non-accrual

 

Commercial

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

144,313

 

$

3,821

 

$

931

 

$

337

 

Agricultural

 

26,189

 

—

 

1

 

—

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

Farm

 

69,408

 

111

 

—

 

1,246

 

Hotel

 

61,991

 

47,331

 

—

 

—

 

Construction and development

 

24,749

 

1,460

 

468

 

715

 

Other

 

489,355

 

26,214

 

10,752

 

11,962

 

Total

 

$

816,005

 

$

78,937

 

$

12,152

 

$

14,260

 

 

At December 31, 2012, the risk category of loans by class of loans was as follows:

 

December 31, 2012

 

Pass

 

Special
Mention

 

Substandard

 

Non-accrual

 

Commercial

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

119,755

 

$

9,824

 

$

2,800

 

$

1,777

 

Agricultural

 

22,350

 

—

 

5

 

—

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

Farm

 

63,294

 

1,094

 

147

 

1,584

 

Hotel

 

83,522

 

47,973

 

—

 

—

 

Construction and development

 

18,719

 

1,465

 

3,367

 

1,657

 

Other

 

439,702

 

27,621

 

22,466

 

17,442

 

Total

 

$

747,342

 

$

87,977

 

$

28,785

 

$

22,460

 

 

Loans not analyzed individually as part of the above described process are classified by delinquency. These loans are primarily residential mortgage and consumer loans. All consumer loans fully or partially secured by 1-4  family residential real estate that are 60-89 days will be classified as Watch. If loans are greater than 90 days past due, they will be classified as Substandard. Consumer loans not secured by 1-4 family residential real estate that are 60-119 days past due will be classified Substandard while loans greater than 119 days will be classified as Loss.  The tables below show the grading of the loan by its past due status as compared to the table of non-accrual loans which is based on whether interest is accruing or not.  As of September 30, 2013 and December 31, 2012, the grading of loans by category of loans is as follows:

 

September  30, 2013

 

Performing

 

Watch

 

Substandard

 

Residential

 

 

 

 

 

 

 

1-4 Family

 

$

397,123

 

$

1,675

 

$

5,348

 

Home Equity

 

237,724

 

362

 

1,197

 

Total

 

$

634,847

 

$

2,037

 

$

6,545

 

 

December 31, 2012

 

Performing

 

Watch

 

Substandard

 

Residential

 

 

 

 

 

 

 

1-4 Family

 

$

386,098

 

$

2,605

 

$

5,492

 

Home Equity

 

222,544

 

357

 

1,428

 

Total

 

$

608,642

 

$

2,962

 

$

6,920

 

 

September 30, 2013

 

Performing

 

Substandard

 

Loss

 

Consumer

 

 

 

 

 

 

 

Direct

 

$

44,758

 

$

59

 

$

120

 

Indirect

 

1,260

 

—

 

10

 

Total

 

$

46,018

 

$

59

 

$

130

 

 

December 31, 2012

 

Performing

 

Substandard

 

Loss

 

Consumer

 

 

 

 

 

 

 

Direct

 

$

45,553

 

$

195

 

$

96

 

Indirect

 

2,434

 

12

 

5

 

Total

 

$

47,987

 

$

207

 

$

101