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Impaired Loans and Valuation Allowance for Loan Losses

6 Months Ended

Jun. 30, 2013

Impaired Loans and Valuation Allowance for Loan Losses [Abstract]

IMPAIRED LOANS AND VALUATION ALLOWANCE FOR LOAN LOSSES

NOTE F — IMPAIRED LOANS AND VALUATION ALLOWANCE FOR LOAN LOSSES

During the six months ended June 30, 2013, the total of newly identified troubled debt restructurings (“TDRs”) was $5.7 million, of which $1.0 million were accruing commercial real estate loans, $0.9 million were accruing residential real estate mortgages, 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 Company’s policy.

The following table presents loans that were modified within the six months ending June 30, 2013:


(Dollars in thousands) Troubled Debt Restructurings Modified	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Specific Reserve Recorded		Valuation Allowance Recorded
Construction and land development		1	$	14	$	13	$	0	$	1
Residential real estate		7		870		754		0		116
Commercial real estate		2		986		866		0		120
Commercial and financial		0		0		0		0		0
Consumer		1		92		74		0		18

		11	$	1,962	$	1,707	$	0	$	255

Accruing loans that were restructured within the twelve months preceding June 30, 2013 and defaulted during the six months ended June 30, 2013 are presented in the table below. The Company considers a loan to have defaulted when it becomes 60 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.


	2013
(Dollars in thousands) Troubled Debt Restructurings Defaulted	Number of Contracts		Recorded Investment
Construction and land development		0	$	0
Residential real estate		1		72
Commercial real estate		0		0
Commercial and financial		0		0
Consumer		0		0

		1	$	72

As of June 30, 2013 and December 31, 2012, the Company’s recorded investment in impaired loans and the related valuation allowance were as follows:


	June 30, 2013
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance
Impaired Loans with No Related Allowance Recorded:
Construction and land development	$	2,736	$	3,419	$	0
Commercial real estate		7,335		10,170		0
Residential real estate		14,315		20,783		0
Commercial and financial		0		0		0
Consumer		141		178		0
Impaired Loans with an Allowance Recorded:
Construction and land development		1,112		1,188		175
Commercial real estate		13,821		14,348		1,054
Residential real estate		22,847		23,441		4,006
Commercial and financial		0		0		0
Consumer		571		589		124
Total:
Construction and land development		3,848		4,607		175
Commercial real estate		21,156		24,518		1,054
Residential real estate		37,162		44,224		4,006
Commercial and financial		0		0		0
Consumer		712		767		124

	$	62,878	$	74,116	$	5,359


	December 31, 2012
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance
Impaired Loans with No Related Allowance Recorded:
Construction and land development	$	1,128	$	1,608	$	0
Commercial real estate		12,357		14,337		0
Residential real estate		15,463		22,022		0
Commercial and financial		0		0		0
Consumer		223		255		0
Impaired Loans with an Allowance Recorded:
Construction and land development		2,897		2,941		230
Commercial real estate		26,130		26,648		2,264
Residential real estate		24,256		24,752		4,700
Commercial and financial		0		0		0
Consumer		447		460		75
Total:
Construction and land development		4,025		4,549		230
Commercial real estate		38,487		40,985		2,264
Residential real estate		39,719		46,774		4,700
Commercial and financial		0		0		0
Consumer		670		715		75

	$	82,901	$	93,023	$	7,269

For the six months ended June 30, 2013 and 2012, the Company’s average recorded investments in impaired loans and related interest income were as follows:


	Six Months Ended June 30, 2013				Six Months Ended June 30, 2012
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired Loans with No Related Allowance
Recorded:
Construction & land development	$	2,216	$	50	$	1,569	$	2
Commercial real estate		9,194		18		12,167		155
Residential real estate		15,084		10		10,145		137
Commercial and financial		0		0		11		0
Consumer		142		1		486		1
Impaired Loans with an Allowance Recorded:
Construction & land development		1,547		19		3,750		64
Commercial real estate		24,115		274		43,870		902
Residential real estate		23,418		286		27,648		429
Commercial and financial		0		0		39		8
Consumer		586		11		619		11
Total:
Construction & land development		3,763		69		5,319		66
Commercial real estate		33,309		292		56,037		1,057
Residential real estate		38,502		296		37,793		566
Commercial and financial		0		0		50		8
Consumer		728		12		1,105		12

	$	76,302	$	669	$	100,304	$	1,709

Impaired loans also include loans that have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulties have been granted. At June 30, 2013 and December 31, 2012, accruing TDRs totaled $29.6 million and $41.9 million, respectively.

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 six months ended June 30, 2013 and 2012, the Company recorded $669,000 and $1,709,000, 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 $799,000 and $518,000, respectively, was included in interest income for the six months ended June 30, 2013 and 2012, and represents the change in present value attributable to the passage of time.

Activity in the allowance for loan losses for the three and six-month periods ended June 30, 2013 is summarized as follows:


	Allowance for Loan Losses for the Three Months Ended June 30, 2013
(Dollars in thousands)	Beginning Balance		Provision for Loan Losses			Charge- Offs			Recoveries		Net Charge- Offs			Ending Balance
Construction & land development	$	1,108	$	(26	)	$	(223	)	$	18	$	(205	)	$	877
Commercial real estate		8,448		(427	)		(1,517	)		221		(1,296	)		6,725
Residential real estate		10,722		1,107			(826	)		150		(676	)		11,153
Commercial and financial		558		(193	)		0			198		198			563
Consumer		704		104			(52	)		4		(48	)		760

	$	21,540	$	565		$	(2,618	)	$	591	$	(2,027	)	$	20,078


	Allowance for Loan Losses for the Six Months Ended June 30, 2013
(Dollars in thousands)	Beginning Balance		Provision for Loan Losses			Charge- Offs			Recoveries		Net Charge- Offs			Ending Balance
Construction & land development	$	1,134	$	167		$	(557	)	$	133	$	(424	)	$	877
Commercial real estate		8,849		(378	)		(2,046	)		300		(1,746	)		6,725
Residential real estate		11,090		1,588			(1,772	)		247		(1,525	)		11,153
Commercial and financial		468		(123	)		(60	)		278		218			563
Consumer		563		264			(79	)		12		(67	)		760

	$	22,104	$	1,518		$	(4,514	)	$	970	$	(3,544	)	$	20,078

Activity in the allowance for loan losses for the three and six-month periods ended June 30, 2012 is summarized as follows:


	Allowance for Loan Losses for the Three Months Ended June 30, 2012
(Dollars in thousands)	Beginning Balance		Provision for Loan Losses			Charge- Offs			Recoveries		Net Charge- Offs			Ending Balance
Construction & land development	$	1,509	$	24		$	(249	)	$	71	$	(178	)	$	1,355
Commercial real estate		10,911		4,415			(3,444	)		95		(3,349	)		11,977
Residential real estate		10,826		2,042			(2,770	)		214		(2,556	)		10,312
Commercial and financial		417		72			(194	)		34		(160	)		329
Consumer		792		(98	)		(41	)		9		(32	)		662

	$	24,455	$	6,455		$	(6,698	)	$	423	$	(6,275	)	$	24,635


	Allowance for Loan Losses for the Six Months Ended June 30, 2012
(Dollars in thousands)	Beginning Balance		Provision for Loan Losses			Charge- Offs			Recoveries		Net Charge- Offs			Ending Balance
Construction & land development	$	1,883	$	(135	)	$	(479	)	$	86	$	(393	)	$	1,355
Commercial real estate		11,477		6,060			(5,731	)		171		(5,560	)		11,977
Residential real estate		10,966		2,906			(3,824	)		264		(3,560	)		10,312
Commercial and financial		402		150			(291	)		68		(223	)		329
Consumer		837		(221	)		(54	)		100		46			662

	$	25,565	$	8,760		$	(10,379	)	$	689	$	(9,690	)	$	24,635

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 June 30, 2013 and 2012 is shown in the following tables.


	At June 30, 2013
	Individually Evaluated for				Collectively Evaluated for
	Impairment				Impairment				Total
(Dollars in thousands)	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
Construction & land development	$	3,848	$	175	$	57,268	$	702	$	61,116	$	877
Commercial real estate		21,156		1,054		492,442		5,671		513,598		6,725
Residential real estate		37,162		4,006		544,216		7,147		581,378		11,153
Commercial and financial		0		0		65,224		563		65,224		563
Consumer		712		124		43,865		636		44,577		760

	$	62,878	$	5,359	$	1,203,015	$	14,719	$	1,265,893	$	20,078


	At June 30, 2012
	Individually Evaluated for				Collectively Evaluated for
	Impairment				Impairment				Total
(Dollars in thousands)	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
Construction & land development	$	4,871	$	449	$	52,357	$	906	$	57,228	$	1,355
Commercial real estate		55,178		4,615		438,438		7,362		493,616		11,977
Residential real estate		42,219		4,099		521,716		6,213		563,935		10,312
Commercial and financial		40		1		56,180		328		56,220		329
Consumer		1,016		109		49,339		553		50,355		662

	$	103,324	$	9,273	$	1,118,030	$	15,362	$	1,221,354	$	24,635