Loans and the Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2013

Loans and the Allowance for Loan Losses [Abstract]

The following is a summary of the balances in each class of the Company’s loan portfolio as of the dates indicated:

	June 30, 2013			December 31, 2012
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	80,553		$	77,267
Commercial		273,498			274,613
Construction		13,493			12,005
Second mortgages		12,242			14,315
Equity lines of credit		31,201			32,327
Total mortgage loans on real estate		410,987			410,527
Commercial loans		28,687			25,341
Consumer loans		10,985			13,146
Other		18,849			22,119
Total loans		469,508			471,133
Less: Allowance for loan losses		(7,296	)		(7,324	)
Loans, net of allowance and deferred fees	$	462,212		$	463,809

Credit Quality Information

The following table presents credit quality exposures by internally assigned risk ratings as of the dates indicated:

Credit Quality Information As of June 30, 2013
(in thousands)
	Pass		OAEM		Substandard		Total
Mortgage loans on real estate:
Residential 1-4 family	$	73,496	$	1,746	$	5,311	$	80,553
Commercial		256,142		7,708		9,648		273,498
Construction		10,374		239		2,880		13,493
Second mortgages		11,895		238		109		12,242
Equity lines of credit		30,598		0		603		31,201
Total mortgage loans on real estate		382,505		9,931		18,551		410,987
Commercial loans		27,533		112		1,042		28,687
Consumer loans		10,956		0		29		10,985
Other		18,849		0		0		18,849
Total	$	439,843	$	10,043	$	19,622	$	469,508

Credit Quality Information As of December 31, 2012
(in thousands)
	Pass		OAEM		Substandard		Total
Mortgage loans on real estate:
Residential 1-4 family	$	70,961	$	1,711	$	4,595	$	77,267
Commercial		258,195		6,781		9,637		274,613
Construction		8,651		254		3,100		12,005
Second mortgages		13,488		242		585		14,315
Equity lines of credit		31,704		239		384		32,327
Total mortgage loans on real estate		382,999		9,227		18,301		410,527
Commercial loans		23,997		209		1,135		25,341
Consumer loans		13,042		0		104		13,146
Other		22,119		0		0		22,119
Total	$	442,157	$	9,436	$	19,540	$	471,133

Past Due Loans

Loans in nonaccrual status that are also past due are included in the aging categories in the table below.

Age Analysis of Past Due Loans as of June 30, 2013
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Total Past Due		Total Current Loans (1)		Total Loans		Recorded Investment > 90 Days Past Due and Accruing
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	1,752	$	38	$	3,306	$	5,096	$	75,457	$	80,553	$	258
Commercial		0		200		716		916		272,582		273,498		0
Construction		404		0		2,880		3,284		10,209		13,493		0
Second mortgages		46		35		20		101		12,141		12,242		20
Equity lines of credit		175		75		0		250		30,951		31,201		0
Total mortgage loans on real estate		2,377		348		6,922		9,647		401,340		410,987		278
Commercial loans		54		49		0		103		28,584		28,687		0
Consumer loans		80		40		13		133		10,852		10,985		13
Other		65		9		5		79		18,770		18,849		5
Total	$	2,576	$	446	$	6,940	$	9,962	$	459,546	$	469,508	$	296

(1)

For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

Age Analysis of Past Due Loans as of December 31, 2012
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Total Past Due		Total Current Loans (1)		Total Loans		Recorded Investment > 90 Days Past Due and Accruing
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	1,115	$	0	$	3,783	$	4,898	$	72,369	$	77,267	$	348
Commercial		207		0		724		931		273,682		274,613		0
Construction		140		0		2,925		3,065		8,940		12,005		0
Second mortgages		113		0		544		657		13,658		14,315		60
Equity lines of credit		90		0		287		377		31,950		32,327		0
Total mortgage loans on real estate		1,665		0		8,263		9,928		400,599		410,527		408
Commercial loans		275		13		122		410		24,931		25,341		25
Consumer loans		85		22		11		118		13,028		13,146		11
Other		54		7		3		64		22,055		22,119		3
Total	$	2,079	$	42	$	8,399	$	10,520	$	460,613	$	471,133	$	447

(1)

For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

Nonaccrual Loans

The following table presents loans in nonaccrual status by class of loan as of the dates indicated:

Nonaccrual Loans by Class

	June 30, 2013		December 31, 2012
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	3,363	$	3,663
Commercial		2,965		3,037
Construction		2,880		3,065
Second mortgages		35		484
Equity lines of credit		0		286
Total mortgage loans on real estate		9,243		10,535
Commercial loans		0		97
Consumer loans		0		0
Total	$	9,243	$	10,632

Interest income that would have been recorded under original loan terms

The following table presents the interest income that the Company would have earned under the original terms of its nonaccrual loans and the actual interest recorded by the Company on nonaccrual loans for the periods presented:

	Six Months Ended June 30,
	2013		2012
	(in thousands)
Interest income that would have been recorded under original loan terms	$	275	$	275
Actual interest income recorded for the period		51		32
Reduction in interest income on nonaccrual loans	$	224	$	243

Troubled Debt Restructurings by Class

The following table presents TDRs during the period indicated, by class of loan:

Troubled Debt Restructurings by Class For the Six Months Ended June 30, 2013
(dollars in thousands)
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on June 30, 2013
Mortgage loans on real estate:
Residential 1-4 family		3	$	676	$	676	$	673
Commercial		1		207		207		203
Total		4	$	883	$	883	$	876

Troubled Debt Restructurings by Class For the Six Months Ended June 30, 2012
(dollars in thousands)
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on June 30, 2012
Mortgage loans on real estate:
Commercial		2	$	3,019	$	2,461	$	2,373
Second mortgages		1		111		145		140
Total		3	$	3,130	$	2,606	$	2,513

Restructurings that Subsequently Defaulted [Table Text Block]

The following table presents TDRs for the three and nine months ended September 30, 2013 for which there was a payment default where the default occurred within twelve months of restructuring.

Restructurings that Subsequently Defaulted
As of September 30, 2013
(in thousands)
	Recorded Investment in Defaulting Loans
Mortgage loans on real estate		$
Residential 1 - 4 family			79,000
Commercial			1,829,000
Total		$	1,908,000

During the three and nine months ended September 30, 2012, there were no TDRs for which there was a payment default where the default occurred within twelve months of restructuring. A TDR is considered in default when it is 90 days or more past due or has been charged off.

Impaired Loans by Class

The following table includes the recorded investment and unpaid principal balances (a portion of which may have been charged off) for impaired loans with the associated allowance amount, if applicable, as of the dates presented. Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized for the periods presented. The average balances are calculated based on daily average balances.

Impaired Loans by Class (in thousands)
	As of June 30, 2013								For the six months ended June 30, 2013
			Recorded Investment
	Unpaid Principal Balance		Without Valuation Allowance		With Valuation Allowance		Associated Allowance		Average Recorded Investment		Interest Income Recognized
Mortgage loans on real estate:
Residential 1-4 family	$	4,546	$	872	$	3,415	$	237	$	4,738	$	16
Commercial		13,702		3,683		7,082		1,261		10,910		269
Construction		3,639		0		2,880		360		2,891		0
Second mortgages		183		43		136		47		745		4
Equity lines of credit		50		50		0		0		193		1
Total mortgage loans on real estate	$	22,120	$	4,648	$	13,513	$	1,905	$	19,477	$	290
Commercial loans		0		0		0		0		12		0
Consumer loans		16		16		0		0		18		1
Total	$	22,136	$	4,664	$	13,513	$	1,905	$	19,507	$	291

Impaired Loans by Class (in thousands)
	As of December 31, 2012								For the year ended December 31, 2012
			Recorded Investment
	Unpaid Principal Balance		Without Valuation Allowance		With Valuation Allowance		Associated Allowance		Average Recorded Investment		Interest Income Recognized
Mortgage loans on real estate:
Residential 1-4 family	$	4,100	$	681	$	3,235	$	226	$	2,354	$	136
Commercial		12,459		3,741		5,817		180		10,151		242
Construction		3,782		3,064		0		0		3,320		(9	)
Second mortgages		695		583		47		5		542		12
Equity lines of credit		370		286		0		0		391		(2	)
Total mortgage loans on real estate	$	21,406	$	8,355	$	9,099	$	411	$	16,758	$	379
Commercial loans		117		0		97		33		104		(14	)
Consumer loans		17		17		0		0		26		1
Total	$	21,540	$	8,372	$	9,196	$	444	$	16,888	$	366

Allowance for loan losses by segment

The following table presents, by portfolio segment, the changes in the allowance for loan losses and the recorded investment in loans for the periods presented. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

ALLOWANCE FOR LOAN LOSSES AND RECORDED INVESTMENT IN LOANS
	(in thousands)
For the Six Months Ended June 30, 2013	Commercial			Real Estate - Construction			Real Estate - Mortgage			Consumer			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	677		$	187		$	6,179		$	204		$	77		$	7,324
Charge-offs		(106	)		(100	)		(413	)		(66	)		(79	)		(764	)
Recoveries		43			3			121			34			35			236
Provision for loan losses		(339	)		429			421			(22	)		11			500
Ending balance	$	275		$	519		$	6,308		$	150		$	44		$	7,296
Ending balance individually evaluated for impairment	$	0		$	360		$	1,545		$	0		$	0		$	1,905
Ending balance collectively evaluated for impairment		275			159			4,763			150			44			5,391
Ending balance	$	275		$	519		$	6,308		$	150		$	44		$	7,296
Loan Balances:
Ending balance individually evaluated for impairment	$	0		$	2,880		$	15,281		$	16		$	0		$	18,177
Ending balance collectively evaluated for impairment		28,687			10,613			382,213			10,969			18,849			451,331
Ending balance	$	28,687		$	13,493		$	397,494		$	10,985		$	18,849		$	469,508

For the Year Ended December 31, 2012	Commercial			Real Estate - Construction			Real Estate - Mortgage			Consumer			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	1,011		$	323		$	6,735		$	300		$	129		$	8,498
Charge-offs		(138	)		(831	)		(2,554	)		(259	)		(187	)		(3,969	)
Recoveries		67			30			162			70			66			395
Provision for loan losses		(263	)		665			1,836			93			69			2,400
Ending balance	$	677		$	187		$	6,179		$	204		$	77		$	7,324
Ending balance individually evaluated for impairment	$	33		$	0		$	411		$	0		$	0		$	444
Ending balance collectively evaluated for impairment		644			187			5,768			204			77			6,880
Ending balance	$	677		$	187		$	6,179		$	204		$	77		$	7,324
Loan Balances:
Ending balance individually evaluated for impairment	$	97		$	3,064		$	14,390		$	17		$	0		$	17,568
Ending balance collectively evaluated for impairment		25,244			8,941			384,132			13,129			22,119			453,565
Ending balance	$	25,341		$	12,005		$	398,522		$	13,146		$	22,119		$	471,133

Change in Allowance Methodology [Text Block]

The following table represents the effect on the loan loss provision for the nine months ended September 30, 2013 as a result of the changes to the methodology from that used in prior periods.

	Calculated Provision Based on Current Quarter Methodology			Calculated Provision Based on Prior Quarter Methodology			Difference
	(in thousands)
Portfolio Segment:
Commercial	$	(368	)	$	(346	)	$	(22	)
Real estate - construction		516			371			145
Real estate - mortgage		504			859			(355	)
Consumer loans		(13	)		(64	)		51
Other		161			36			125
Total	$	800		$	856		$	(56	)

Under the previous method, the provisions for real estate – construction and real estate – mortgage were calculated on the same pool of loans, with loss rates for that aggregated pool applied to the loan balances in those segments, even though the two segments have different risk characteristics and performance history. Under the current method, the historical loss rate on construction loans is calculated separately from other real estate loans, providing a more precise estimate of the Company's true historical losses.

The other loans segment in the table above includes overdrafts on deposit accounts. The new method allows management to perform a more granular analysis of overdrawn accounts.