Impaired Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2012

Impaired Loans and Allowance for Loan Losses [Abstract]

Impaired Loans and Allowance for Loan Losses

Note F    Impaired Loans and Allowance for Loan Losses

During 2012, the total of newly identified TDRs was $18.0 million, of which $0.1 million were accruing construction and land development loans, $4.9 million were accruing residential real estate mortgages, $0.8 million were accruing commercial real estate loans, and $0.1 million were accruing consumer loans. Loans modified, but where full collection under the modified terms is doubtful, are classified as nonaccrual loans from the date of modification and are therefore excluded from the tables below.

The Company’s TDR concessions granted generally do not include forgiveness of principal balances. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.

When a loan is modified as a TDR, there is not a direct, material impact on the loans within the Consolidated Balance Sheet, as principal balances are generally not forgiven. Most loans prior to modification were classified as an impaired loan and the allowance for loan losses is determined in accordance with the Company’s policy as disclosed in Note A.

The following table presents loans that were modified within the twelve months ending December 31, 2012:

	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Specific Reserve Recorded		Valuation Allowance Recorded
			(In thousands)
Construction and land development		1	$	71	$	64	$	0	$	7
Residential real estate		28		4,941		4,531		0		410
Commercial real estate		2		800		747		0		53
Consumer		2		75		72		0		3
		33	$	5,887	$	5,414	$	0	$	473

Accruing loans that were restructured within the twelve months ending December 31, 2012 and defaulted during the twelve months ended December 31, 2012 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual and specific allowance for loan loss is assigned in accordance with the Company’s policy as disclosed in note A.

	Number of Contracts		Recorded Investment
	(Dollars in thousands)
Residential real estate		7		913

At December 31, 2012 and 2011, the Company’s recorded investment in impaired loans and related valuation allowance was as follows:

	Impaired Loans
	for the Year Ended December 31, 2012
			Unpaid		Related		Average		Interest
	Recorded		Principal		Valuation		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
			( In thousands )
With no related allowance recorded:
Construction and land development	$	1,128	$	1,608	$	0	$	1,399	$	5
Commercial real estate		12,357		14,337		0		12,103		433
Residential real estate		15,463		22,022		0		12,019		455
Commercial and financial		0		0		0		7		0
Consumer		223		255		0		431		12
With an allowance recorded:
Construction and land development		2,897		2,941		230		3,539		127
Commercial real estate		26,130		26,648		2,264		39,527		1,304
Residential real estate		24,256		24,752		4,700		26,795		696
Commercial and financial		0		0		0		34		0
Consumer		447		460		76		585		22
Total:
Construction and land development		4,025		4,549		230		4,938		132
Commercial real estate		38,487		40,985		2,264		51,630		1,737
Residential real estate		39,719		46,774		4,700		38,814		1,151
Commercial and financial		0		0		0		41		0
Consumer		670		715		75		1,016		34
	$	82,901	$	93,023	$	7,269	$	96,439	$	3,054

	Impaired Loans
	for the Year Ended December 31, 2011
			Unpaid		Related		Average		Interest
	Recorded		Principal		Valuation		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
			( In thousands )
With no related allowance recorded:
Construction and land development	$	1,616	$	2,431	$	0	$	2,527	$	14
Commercial real estate		19,101		22,219		0		21,221		425
Residential real estate		9,128		13,442		0		8,752		155
Commercial and financial		16		16		0		774		2
Consumer		481		523		0		417		2
With an allowance recorded:
Construction and land development		3,777		4,131		375		13,699		153
Commercial real estate		39,199		39,824		3,385		44,369		1,843
Residential real estate		26,140		26,940		3,099		26,869		913
Commercial and financial		101		101		8		154		3
Consumer		578		584		112		746		31
Total:
Construction and land development		5,393		6,562		375		16,226		167
Commercial real estate		58,300		62,043		3,385		65,590		2,268
Residential real estate		35,268		40,382		3,099		35,621		1,068
Commercial and financial		117		117		8		928		5
Consumer		1,059		1,107		112		1,163		33
	$	100,137	$	110,211	$	6,979	$	119,528	$	3,541

Impaired loans also include loans that have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulities have been granted. At December 31, 2012 and 2011, accruing TDRs totaled $41.9 million and $71.6 million, respectively.

The average recorded investment in impaired loans for the years ended December 31, 2012, 2011 and 2010 was $96,439,000, $119,528,000 and $149,058,000, respectively. The impaired loans were measured for impairment based on the value of underlying collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. The valuation allowance is included in the allowance for loan losses.

Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions to principal. For the years ended December 31, 2012, 2011 and 2010, the Company recorded $3,054,000, $3,541,000 and $2,671,000, respectively, in interest income on impaired loans.

For impaired loans whose impairment is measured based on the present value of expected future cash flows a total of $1.0 million and $1.1 million, respectively for 2012 and 2011 was included in interest income and represents the change in present value attributable to the passage of time.

The nonaccrual loans and accruing loans past due 90 days or more were $40,955,000 and $1,000, respectively, at December 31, 2012, $28,526,000 and $0, respectively at the end of 2011, and were $68,284,000 and $0, respectively, at year-end 2010.

Activity in the allowance for loans losses for the three years ended December 31, 2012, 2011 and 2010 are summarized as follows:

	Beginning Balance		Provision for Loan Losses			Charge- Offs			Recoveries		Net Charge- Offs			Ending Balance
	(In thousands)
December 31, 2012
Construction and land development	$	1,883	$	(478	)	$	(612	)	$	341	$	(271	)	$	1,134
Commercial real estate		11,477		3,209			(8,539	)		2,702		(5,837	)		8,849
Residential real estate		10,966		7,767			(8,381	)		738		(7,643	)		11,090
Commercial and financial		402		283			(346	)		129		(217	)		468
Consumer		837		15			(410	)		121		(289	)		563
	$	25,565	$	10,796		$	(18,288	)	$	4,031	$	(14,257	)	$	22,104
December 31, 2011
Construction and land development	$	7,214	$	(1,645	)	$	(4,739	)	$	1,053	$	(3,686	)	$	1,883
Commercial real estate		18,563		(3,777	)		(3,663	)		354		(3,309	)		11,477
Residential real estate		10,102		7,833			(7,482	)		513		(6,969	)		10,966
Commercial and financial		480		(379	)		0			301		301			402
Consumer		1,385		(58	)		(562	)		72		(490	)		837
	$	37,744	$	1,974		$	(16,446	)	$	2,293	$	(14,153	)	$	25,565
December 31, 2010	$	45,192	$	31,680		$	(41,628	)	$	2,500	$	(39,128	)	$	37,744

As discussed in Note A, “Significant Accounting Policies,” the allowance for loan losses is composed of specific allowances for certain impaired loans and general allowances grouped into loan pools based on similar characteristics. The Company’s loan portfolio and related allowance at December 31, 2012 and 2011 is shown in the following tables.

	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
December 31, 2012	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
	(In thousands)
Construction and land development	$	4,025	$	230	$	56,711	$	904	$	60,736	$	1,134
Commercial real estate		38,487		2,264		448,341		6,585		486,828		8,849
Residential real estate		39,719		4,700		529,612		6,390		569,331		11,090
Commercial and financial		0		0		61,903		468		61,903		468
Consumer		670		75		46,613		488		47,283		563
	$	82,901	$	7,269	$	1,143,180	$	14,835	$	1,226,081	$	22,104

	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
December 31, 2011	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
	(In thousands)
Construction and land development	$	5,393	$	375	$	43,791	$	1,508	$	49,184	$	1,883
Commercial real estate		58,300		3,385		450,053		8,092		508,353		11,477
Residential real estate		35,268		3,099		510,978		7,867		546,246		10,966
Commercial and financial		117		8		52,988		394		53,105		402
Consumer		1,059		112		50,127		725		51,186		837
	$	100,137	$	6,979	$	1,107,937	$	18,586	$	1,208,074	$	25,565