XML 161 R15.htm IDEA: XBRL DOCUMENT v2.4.0.8
6. Loans
 6 Months Ended
Jun. 30, 2013
Loans and Leases Receivable Disclosure [Abstract]  
Loans

NOTE 6. LOANS

 

Loans are generally stated at the amount of unpaid principal, reduced by unearned discount and allowance for loan losses. Interest on loans is accrued daily on the outstanding balances. Loan origination fees and certain direct loan origination costs are deferred and amortized as adjustments of the related loan yield over its contractual life. We categorize residential real estate loans in excess of $600,000 as jumbo loans.

 

Generally, loans are placed on nonaccrual status when principal or interest is greater than 90 days past due based upon the loan's contractual terms. Interest is accrued daily on impaired loans unless the loan is placed on nonaccrual status. Impaired loans are placed on nonaccrual status when the payments of principal and interest are in default for a period of 90 days, unless the loan is both well-secured and in the process of collection. Interest on nonaccrual loans is recognized primarily using the cost-recovery method. Loans may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loans.

 

Commercial-related loans or portions thereof (which are risk-rated) are charged off to the allowance for loan losses when the loss has been confirmed. This determination is made on a case by case basis considering many factors, including the prioritization of our claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity. We deem a loss confirmed when a loan or a portion of a loan is classified “loss” in accordance with bank regulatory classification guidelines, which state, “Assets classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted”.

 

Consumer-related loans are generally charged off to the allowance for loan losses upon reaching specified stages of delinquency, in accordance with the Federal Financial Institutions Examination Council policy. For example, credit card loans are charged off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a specified event (e.g., bankruptcy of the borrower), which ever is earlier. Residential mortgage loans are generally charged off to net realizable value no later than when the account becomes 180 days past due. Other consumer loans, if collateralized, are generally charged off to net realizable value at 120 days past due.

 

Loans are summarized as follows:

 

   June 30,  December 31,  June 30,
Dollars in thousands  2013  2012  2012
 Commercial  $78,963   $85,829   $92,060 
 Commercial real estate               
      Owner-occupied   149,660    154,252    152,347 
      Non-owner occupied   277,773    276,082    280,891 
 Construction and development               
      Land and land development   73,427    79,335    84,383 
      Construction   7,634    3,772    1,793 
 Residential real estate               
      Non-jumbo   216,759    216,714    217,321 
      Jumbo   58,567    61,567    61,961 
      Home equity   53,774    53,263    51,693 
 Consumer   20,147    20,586    21,212 
 Other   3,397    3,701    2,523 
      Total loans, net of unearned fees   940,101    955,101    966,184 
 Less allowance for loan losses   14,122    17,933    17,890 
       Loans, net  $925,979   $937,168   $948,294 

 

The following table presents the contractual aging of the recorded investment in past due loans by class as of June 30, 2013 and 2012 and December 31, 2012.

 

   At June 30, 2013
                  Recorded
                  Investment
    Past Due           >90 days 
Dollars in thousands   30-59 days    60-89 days    >90 days    Total    Current    and Accruing 
Commercial  $144   $55   $1,669   $1,868   $77,095   $—   
Commercial real estate                              
     Owner-occupied   85    —      314    399    149,261    —   
     Non-owner occupied   543    —      899    1,442    276,331    —   
Construction and development                              
     Land and land development   698    —      9,929    10,627    62,800    —   
     Construction   —      —      60    60    7,574    —   
Residential mortgage                              
     Non-jumbo   4,086    1,171    2,494    7,751    209,008    —   
     Jumbo   709    —      9,000    9,709    48,858    —   
     Home equity   101    26    25    152    53,622    —   
Consumer   239    64    63    366    19,781    —   
Other   53    —      —      53    3,344    —   
     Total  $6,658   $1,316   $24,453   $32,427   $907,674   $—   

  

   At December 31, 2012
                  Recorded
                  Investment
    Past Due           >90 days 
Dollars in thousands   30-59 days    60-89 days    >90 days    Total    Current    and Accruing 
Commercial  $225   $5   $2,294   $2,524   $83,305   $—   
Commercial real estate                              
     Owner-occupied   57    —      1,023    1,080    153,172    —   
     Non-owner occupied   182    193    908    1,283    274,799    —   
Construction and development                              
     Land and land development   —      —      11,795    11,795    67,540    —   
     Construction   —      —      153    153    3,619    —   
Residential mortgage                              
     Non-jumbo   3,344    2,616    2,797    8,757    207,957    —   
     Jumbo   —      —      12,564    12,565    49,002    —   
     Home equity   337    448    179    964    52,299    —   
Consumer   255    79    48    382    20,204    —   
Other   —      —      —      —      3,701    —   
     Total  $4,400   $3,341   $31,761   $39,503   $915,598   $—   

 

   At June 30, 2012
                  Recorded
                  Investment
    Past Due           >90 days 
Dollars in thousands   30-59 days    60-89 days    >90 days    Total    Current    and Accruing 
Commercial  $367   $20   $2,334   $2,721   $89,339   $—   
Commercial real estate                              
     Owner-occupied   1,074    888    590    2,552    149,795    —   
     Non-owner occupied   480    101    1,287    1,868    279,023    —   
Construction and development                              
     Land and land development   1,756    79    12,634    14,469    69,914    —   
     Construction   —      —      153    153    1,640    —   
Residential mortgage                              
     Non-jumbo   3,819    950    3,139    7,908    209,413    —   
     Jumbo   2,160    1,050    12,592    15,802    46,159    —   
     Home equity   450    7    69    526    51,167    —   
Consumer   329    88    37    454    20,758    —   
Other   —      —      —      —      2,523    —   
     Total  $10,435   $3,183   $32,835   $46,453   $919,731   $—   

 

 

Nonaccrual loans: The following table presents the nonaccrual loans included in the net balance of loans at June 30, 2013, December 31, 2012 and June 30, 2012.

 

Dollars in thousands  6/30/2013  12/31/2012  6/30/2012
Commercial  $3,996   $5,002   $6,476 
Commercial real estate               
   Owner-occupied   796    1,524    2,248 
   Non-owner occupied   899    1,032    1,288 
Construction and development               
   Land & land development   11,445    13,487    17,244 
   Construction   60    154    153 
Residential mortgage               
   Non-jumbo   4,333    3,518    3,449 
   Jumbo   9,000    12,564    14,752 
   Home equity   271    440    349 
Consumer   92    55     78 
Other   —      —    —   
     Total  $30,892   $37,776   $46,037 

 

 

Impaired loans: Impaired loans include the following:

 

  • Loans which we risk-rate (consisting of loan relationships having aggregate balances in excess of $2.0 million, or loans exceeding $500,000 and exhibiting credit weakness) through our normal loan review procedures and which, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. Risk-rated loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired.

 

  • Loans that have been modified in a troubled debt restructuring.

 

Both commercial and consumer loans are deemed impaired upon being contractually modified in a troubled debt restructuring. Troubled debt restructurings typically result from our loss mitigation activities and occur when we grant a concession to a borrower who is experiencing financial difficulty in order to minimize our economic loss and to avoid foreclosure or repossession of collateral. Once restructured in a troubled debt restructuring, a loan is generally considered impaired until its maturity, regardless of whether the borrower performs under the modified terms. Although such a loan may be returned to accrual status if the criteria set forth in our accounting policy are met, the loan would continue to be evaluated for an asset-specific allowance for loan losses and we would continue to report the loan in the impaired loan table below.

 

The table below sets forth information about our impaired loans.

 

Method Used to Measure Impairment of Impaired Loans      
Dollars in thousands          
Loan Category 6/30/2013 12/31/2012 6/30/2012   Method used to measure impairment
Commerical  $        7,825  $      10,776  $        3,031   Fair value of collateral
                162               165            3,864   Discounted cash flow 
Commerical real estate          
   Owner-occupied          12,074          14,028          13,299   Fair value of collateral
             2,657            2,686            2,709   Discounted cash flow 
   Non-owner occupied            6,814            9,468            9,987   Fair value of collateral
Construction and development        
   Land & land development          26,710          29,307          33,160   Fair value of collateral
                654               656               656   Discounted cash flow 
Residential mortgage          
   Non-jumbo            5,322            5,626            5,997   Fair value of collateral
                891               692            1,243   Discounted cash flow 
   Jumbo          17,824          21,543          23,653   Fair value of collateral
   Home equity               213               219               360   Fair value of collateral
Consumer                 62                 66                 45   Fair value of collateral
Total  $      81,208  $      95,232  $      98,004    

 

 

The following tables present loans individually evaluated for impairment at June 30, 2013, December 31, 2012 and June 30, 2012.

 

   June 30, 2013
            Average  Interest Income
    Recorded    Unpaid    Related     Impaired     Recognized 
Dollars in thousands   Investment    Principal Balance    Allowance    Balance    while impaired 
                          
Without a related allowance                         
  Commercial  $6,942   $7,104   $—     $8,133   $435 
  Commercial real estate                         
     Owner-occupied   9,770    9,774    —      10,638    491 
     Non-owner occupied   5,396    5,398    —      3,969    199 
  Construction and development                    
     Land & land development   16,904    16,904    —      16,853    725 
     Construction   —      —      —      —      —   
  Residential real estate                         
     Non-jumbo   3,250    3,258    —      3,035    120 
     Jumbo   7,911    7,916    —      9,352    503 
     Home equity   186    186    —      186    11 
Consumer   37    38    —      37    2 
Total without a related allowance  $50,396   $50,578   $—     $52,203   $2,486 
                          
With a related allowance                         
  Commercial  $874   $883   $387   $565   $4 
  Commercial real estate                         
     Owner-occupied   4,957    4,957    741    3,967    186 
     Non-owner occupied   1,415    1,416    165    1,421    28 
  Construction and development                    
     Land & land development   10,460    10,460    1,844    10,483    65 
     Construction   —      —      —      —      —   
  Residential real estate                         
     Non-jumbo   2,952    2,955    307    2,963    141 
     Jumbo   9,907    9,908    1,044    10,277    45 
     Home equity   28    27    27    28    —   
Consumer   25    24    13    25    2 
Total with a related allowance  $30,618   $30,630   $4,528   $29,729   $471 
                          
Total                         
   Commercial  $56,718   $56,896   $3,137   $56,029   $2,133 
   Residential real estate   24,234    24,250    1,378    25,841#   820 
   Consumer   62    62    13    62    4 
Total  $81,014   $81,208   $4,528   $81,932   $2,957 

 

   December 31, 2012
            Average  Interest Income
    Recorded    Unpaid    Related     Impaired     Recognized 
Dollars in thousands   Investment    Principal Balance    Allowance    Balance    while impaired 
                          
Without a related allowance                         
  Commercial  $10,518   $10,537   $—     $3,131   $134 
  Commercial real estate                         
     Owner-occupied   9,992    9,996    —      8,528    368 
     Non-owner occupied   6,143    6,145    —      6,056    304 
  Construction and development                         
     Land & land development   11,596    11,596    —      11,093    367 
     Construction   —      —      —      —      —   
  Residential real estate                         
     Non-jumbo   3,497    3,505    —      3,040    125 
     Jumbo   7,347    7,349    —      5,399    272 
     Home equity   191    191    —      191    11 
     Consumer   38    38    —      32    1 
Total without a related allowance  $49,322   $49,357   $—     $37,470   $1,582 
                          
With a related allowance                         
  Commercial  $404   $404   $85   $515   $6 
  Commercial real estate                         
     Owner-occupied   6,719    6,718    461    4,442    187 
     Non-owner occupied   3,321    3,323    286    3,341    115 
  Construction and development                         
     Land & land development   18,367    18,367    2,611    17,633    344 
     Construction   —      —      —      —      —   
  Residential real estate                         
     Non-jumbo   2,812    2,813    394    2,378    77 
     Jumbo   14,189    14,194    3,216    13,585    59 
     Home equity   28    28    28    29    —   
     Consumer   28    28    16    2    —   
Total with a related allowance  $45,868   $45,875   $7,097   $41,925   $788 
                          
Total                         
   Commercial  $67,060   $67,086   $3,443   $54,739   $1,825 
   Residential real estate   28,064    28,080    3,638    24,622#   544 
   Consumer   66    66    16    34    1 
Total  $95,190   $95,232   $7,097   $79,395   $2,370 

 

 

   June 30, 2012
            Average  Interest Income
    Recorded    Unpaid    Related     Impaired     Recognized 
Dollars in thousands   Investment    Principal Balance    Allowance    Balance    while impaired 
                          
Without a related allowance                         
  Commercial  $5,938   $5,947   $—     $1,818   $47 
  Commercial real estate                         
     Owner-occupied   12,893    12,872    —      9,778    359 
     Non-owner occupied   6,642    6,645    —      6,260    304 
  Construction and development                    
     Land & land development   17,981    17,982    —      15,696    579 
     Construction   —      —      —      —      —   
  Residential real estate                         
     Non-jumbo   3,810    3,819    —      3,164    140 
     Jumbo   17,665    17,669    —      15,504    250 
     Home equity   191    191    —      191    11 
Consumer   41    41    —      26    1 
Total without a related allowance  $65,161   $65,166   $—     $52,437   $1,691 
                          
With a related allowance                         
  Commercial  $948   $948   $254   $879   $4 
  Commercial real estate                         
     Owner-occupied   3,136    3,136    53    2,854    156 
     Non-owner occupied   3,341    3,342    306    3,350    115 
  Construction and development                    
     Land & land development   15,834    15,834    3,029    13,589    114 
     Construction   —      —      —      —      —   
  Residential real estate                         
     Non-jumbo   3,418    3,421    1,095    2,019    57 
     Jumbo   5,979    5,984    1,634    2,583    25 
     Home equity   169    169    147    165    7 
Consumer   4    4    4    —      —   
Total with a related allowance  $32,829   $32,838   $6,522   $25,439   $478 
                          
Total                         
   Commercial  $66,713   $66,706   $3,642   $54,224   $1,678 
   Residential real estate   31,232    31,253    2,876    23,626#   490 
   Consumer   45    45    4    26    1 
Total  $97,990   $98,004   $6,522   $77,876   $2,169 

  

A modification of a loan is considered a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession that we would not otherwise consider. This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, or a combination of both. A loan continues to be classified as a TDR for the life of the loan. Included in impaired loans are TDRs of $48.1 million, of which $38.5 million were current with respect to restructured contractual payments at June 30, 2013, and $56.7 million, of which $42.3 million were current with respect to restructured contractual payments at December 31, 2012. There were no commitments to lend additional funds under these restructurings at either balance sheet date.

 

The following table presents by class the TDRs that were restructured during the three and six months ended June 30, 2013 and 2012. Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate. All TDRs are evaluated individually for allowance for loan loss purposes.

 

 

   For the Three Months Ended  For the Three Months Ended
   June 30, 2013  June 30, 2012
         Pre-modification    Post-modification         Pre-modification    Post-modification 
    Number of    Recorded      Recorded      Number of    Recorded      Recorded   
dollars in thousands   Modifications    Investment    Investment    Modifications    Investment    Investment 
  Commercial   1   $23   $23    1   $77   $78 
  Commercial real estate                              
     Owner-occupied   —      —      —      —      —      —   
     Non-owner occupied   —      —      —      —      —      —   
  Construction and development                         
     Land & land development   —      —      —      1    1,789    1,000 
     Construction   —      —      —      —      —      —   
  Residential real estate                              
     Non-jumbo   2    241    241    3    497    506 
     Jumbo   —      —      —      3    2,301    2,701 
     Home equity   —      —      —      —      —      —   
  Consumer   —      —      —      1    4    4 
Total   3   $264   $264    9   $4,668   $4,289 

 

   For the Six Months Ended  For the Six Months Ended
   June 30, 2013  June 30, 2012
         Pre-modification    Post-modification         Pre-modification    Post-modification 
    Number of    Recorded      Recorded      Number of    Recorded      Recorded   
dollars in thousands   Modifications    Investment    Investment    Modifications    Investment    Investment 
  Commercial   1   $23   $23    3   $1,109   $1,117 
  Commercial real estate                              
     Owner-occupied   —      —      —      —      —      —   
     Non-owner occupied   —      —      —      2    2,134    1,757 
  Construction and development                         
     Land & land development   1    49    50    1    1,789    1,000 
     Construction   —      —      —      —      —      —   
  Residential real estate                              
     Non-jumbo   2    241    241    5    557    567 
     Jumbo   —      —      —      3    2,301    2,701 
     Home equity   —      —      —      —      —      —   
  Consumer   —      —      —      2    42    42 
Total   4   $313   $314    16   $7,932   $7,184 

 

The following table presents defaults during the stated period of TDRs that were restructured during the past twelve months. For purposes of these tables, a default is considered as either the loan was past due 30 days or more at any time during the period, or the loan was fully or partially charged off during the period.

 

 

   For the Three Months Ended  For the Six Months Ended
   June 30, 2013  June 30, 2013
   Number  Recorded  Number  Recorded
   of  Investment  of  Investment
dollars in thousands  Defaults  at Default Date  Defaults  at Default Date
Commercial  -  $-  -  $-
Commercial real estate            
Owner-occupied  -  -  -  -
Non-owner occupied  -  -  -  -
  Construction and development               
     Land & land development   —      —      2    1,676 
     Construction   —      —      —      —   
  Residential real estate                    
     Non-jumbo   2    519    2    521 
     Jumbo   —      —      —      —   
     Home equity   —      —      —      —   
  Consumer   2    23    2    24 
Total   4   $542    6   $2,221 

 

 

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. We internally grade all commercial loans at the time of loan origination. In addition, we perform an annual loan review on all non-homogenous commercial loan relationships with an aggregate exposure of $2 million, at which time these loans are re-graded. We use the following definitions for our risk grades:

 

Pass: Loans graded as Pass are loans to borrowers of acceptable credit quality and risk. They are higher quality loans that do not fit any of the other categories described below.

 

OLEM (Special Mention): Commercial loans categorized as OLEM are potentially weak. The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the asset may weaken or inadequately protect our position in the future.

 

Substandard: Commercial loans categorized as Substandard are inadequately protected by the borrower’s ability to repay, equity, and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the identified weaknesses are not mitigated.

 

Doubtful: Commercial loans categorized as Doubtful have all the weaknesses inherent in those loans classified as Substandard, with the added elements that the full collection of the loan is improbable and the possibility of loss is high.

 

Loss: Loans classified as loss are considered to be non-collectible and of such little value that their continuance as a bankable asset is not warranted. This does not mean that the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future.

 

The following table presents the recorded investment in construction and development, commercial, and commercial real estate loans which are generally evaluated based upon the internal risk ratings defined above.

 

Loan Risk Profile by Internal Risk Rating                        
                             
  Construction and Development         Commercial Real Estate
  Land and land development   Construction   Commercial   Owner Occupied   Non-Owner Occupied
Dollars in thousands 6/30/2013 12/31/2012   6/30/2013 12/31/2012   6/30/2013 12/31/2012   6/30/2013 12/31/2012   6/30/2013 12/31/2012
Pass  $      40,785  $    43,572    $    7,574  $           3,619    $       69,208  $    73,425    $    136,076  $     139,176    $    264,775  $     262,132
OLEM (Special Mention)              6,671            7,349                       -                            -                 1,391            1,260                 5,508                1,034              11,551             11,477
Substandard           25,971         28,414                   60                    153                 8,364         11,144                 8,076             14,042                 1,447                2,473
Doubtful                          -                        -                       -                            -                             -                        -                             -                            -                             -                            -
Loss                          -                        -                       -                            -                             -                        -                             -                            -                             -                            -
     Total  $      73,427  $    79,335    $    7,634  $           3,772    $       78,963  $    85,829    $    149,660  $     154,252    $    277,773  $     276,082

 

The following table presents the recorded investment in consumer, residential real estate, and home equity loans, which are generally evaluated based on the aging status of the loans, which was previously presented, and payment activity.

 

  Performing   Nonperforming
Dollars in thousands 6/30/2013 12/31/2012 6/30/2012   6/30/2013 12/31/2012 6/30/2012
Residential real estate              
   Non-jumbo  $   212,426  $     213,196  $   213,872    $       4,333  $        3,518  $       3,449
   Jumbo         49,567          49,003         47,209             9,000          12,564         14,752
   Home Equity         53,503          52,823         51,344                271               440              349
Consumer         20,056          20,531         21,134                  91                 55                78
Other           3,397            3,701           2,523                    -                    -                  -
Total  $   338,949  $   339,254  $   336,082    $     13,695  $      16,577  $     18,628

 

 

Loan commitments: ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.