10-Q 1 a50743583.htm PROVIDENT COMMUNITY BANCSHARES, INC. 10-Q a50743583.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q
(Mark One)
 
X  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended September 30, 2013
     
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the transition period from  _____  to  _____
 
COMMISSION FILE NUMBER 1-5735

PROVIDENT COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its Charter)
 
Delaware 57-1001177
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
                                                                                                                                                            
2700 Celanese Road, Rock Hill, South Carolina 29732
(Address of Principal Executive Offices)
 
(803) 325-9400
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   X    No__

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes   X    No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o       Accelerated filer o

Non-accelerated filer o         Smaller Reporting Company ■
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) 
Yes           No X

The Corporation had 1,790,599 shares, $0.01 par value, of common stock issued and outstanding as of November 8, 2013.
 
 
 

 
 
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

INDEX
 
Part I.
Financial Information
Page
 
       
     
       
     
 
3
 
       
     
 
4
 
       
     
 
5
 
       
     
 
6
 
       
     
 
7
 
       
 
8
 
       
     
 
27
 
       
     
 
50
 
       
 
50
 
       
Part II.
Other Information
   
       
 
50
 
       
 
50
 
       
 
51
 
       
 
51
 
       
 
51
 
       
 
51
 
       
 
51
 
       
 
52
 
 
 
 

 
 
           
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
           
           
September 30, 2013 and December 31, 2012
           
             
   
September 30,
   
December 31,
 
ASSETS
 
2013
   
2012
 
   
(Unaudited)
   
(Audited)
 
   
(DOLLARS IN THOUSANDS)
 
Cash and due from banks
  $ 4,810     $ 6,230  
Interest earning balances with the Federal Reserve
    1,920       2,531  
Federal funds sold
    5,633       20,298  
Cash and cash equivalents
    12,363       29,059  
                 
Investment and mortgage-backed securities-available for sale
    176,714       169,214  
                 
Loans, net of unearned fees
    121,326       127,781  
   Allowance for loan losses (ALL)
    (3,915 )     (4,367 )
Loans, net of ALL
    117,411       123,414  
                 
Other real estate owned (OREO)
    4,891       9,174  
Office properties and equipment, net
    3,285       3,180  
Federal Home Loan Bank stock, at cost
    2,107       2,253  
Federal Reserve Bank stock, at cost
    736       771  
Accrued interest receivable
    1,097       1,248  
Cash surrender value of life insurance
    8,397       8,210  
Other assets
    5,632       3,419  
TOTAL ASSETS
  $ 332,633     $ 349,942  
                 
LIABILITIES
               
                 
Demand and savings deposits
  $ 163,251     $ 160,314  
Time deposits
    106,806       117,167  
  Total deposits
    270,057       277,481  
Advances from the Federal Home Loan Bank
    37,500       37,500  
Securities sold under agreements to repurchase
    5,119       6,280  
Floating rate junior subordinated deferrable interest debentures
    12,372       12,372  
Accrued interest payable
    1,327       1,148  
Other liabilities
    3,238       2,953  
TOTAL LIABILITIES
    329,613       337,734  
                 
Commitments and contingencies-Note 5
               
                 
SHAREHOLDERS' EQUITY
               
                 
Serial preferred stock - $0.01 par value
               
  authorized - 500, 000 shares
               
   issued and outstanding - 9,266 shares
               
  at September 30, 2013 and December 31, 2012
    9,264       9,260  
Common stock - $0.01 par value,
               
  authorized - 5,000,000 shares,
               
   issued-2,192,958 and outstanding-1,790,599 shares at September 30, 2013
               
   and December 31, 2012, respectively
    20       20  
Common stock warrant
    25       25  
Additional paid-in capital
    12,919       12,919  
Accumulated other comprehensive loss
    (6,750 )     (527 )
Retained deficit, substantially restricted
    (6,158 )     (3,189 )
Treasury stock, at cost
    (6,300 )     (6,300 )
TOTAL SHAREHOLDERS' EQUITY
    3,020       12,208  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 332,633     $ 349,942  
                 
See notes to consolidated financial statements.
               
 
 
3

 
 
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                   
                       
Three and Nine Months Ended September 30, 2013 and 2012 (unaudited)
                   
    Three Months Ended     Nine Months Ended  
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
 
 
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
 
                         
Interest Income:
                       
  Loans
  $ 1,526     $ 1,775     $ 4,568     $ 5,556  
  Deposits and federal funds sold
    1       5       8       13  
  Interest on mortgage-backed securities
    269       348       731       1,115  
  Interest and dividends on investment securities
    784       592       2,159       1,835  
Total interest income
    2,580       2,720       7,466       8,519  
                                 
Interest Expense:
                               
  Deposit accounts
    235       312       770       1,030  
  Floating rate junior subordinated deferrable interest debentures
    63       69       190       210  
  Advances from the FHLB and other borrowings
    314       448       1,050       1,622  
Total interest expense
    612       829       2,010       2,862  
                                 
Net Interest Income
    1,968       1,891       5,456       5,657  
  Provision for loan losses
    --       --       500       630  
Net interest income after
                               
   provision for loan losses
    1,968       1,891       4,956       5,027  
                                 
Non-Interest Income:
                               
  Fees for financial services
    676       722       1,961       1,986  
  Other fees, net
    83       4       92       14  
  Net gain on sale of investments
    --       584       24       1,108  
Total non-interest income
    759       1,310       2,077       3,108  
                                 
Non-Interest Expense:
                               
  Compensation and employee benefits
    1,293       1,028       3,582       3,154  
  Occupancy and equipment
    660       654       1,951       1,934  
  Deposit insurance premiums
    193       217       578       611  
  Professional services
    170       164       505       519  
  Advertising and public relations
    5       5       22       29  
  OREO and loan operations
    121       539       1,008       614  
  Items processing
    69       65       196       202  
  Telephone
    49       44       139       133  
  Other
    329       223       805       605  
Total non-interest expense
    2,889       2,939       8,786       7,801  
                                 
Net (loss) income before income taxes
    (162 )     262       (1,753 )     334  
Expense for income taxes
    1,127       154       1,212       167  
Net (loss) income
    (1,289 )     108       (2,965 )     167  
Accretion of preferred stock to redemption value and preferred dividends accrued
    118       120       355       356  
Net loss to common shareholders
  $ (1,407 )   $ (12 )   $ (3,320 )   $ (189 )
                                 
Net loss per common share (basic)
  $ (0.79 )   $ (0.01 )   $ (1.85 )   $ (0.11 )
                                 
Net loss per common share (diluted)
  $ (0.79 )   $ (0.01 )   $ (1.85 )   $ (0.11 )
                                 
Weighted average number of common shares outstanding
                               
                                 
Basic
    1,790,599       1,790,599       1,790,599       1,790,599  
                                 
Diluted
    1,790,599       1,790,599       1,790,599       1,790,599  
 
See notes to consolidated financial statements.
 
 
4

 
 
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
 
 
                   
                       
Three and Nine Months Ended September 30, 2013 and 2012 (unaudited)
                       
                         
   
Three Months Ended
  Nine Months Ended  
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(DOLLARS IN THOUSANDS)
 
(DOLLARS IN THOUSANDS)
 
                         
Net (loss) income
  $ (1,289 )   $ 108     $ (2,965 )   $ 167  
Unrealized gain (loss) from'available for sale securities:
                               
Amounts reclassified from accumulated other comprehensive income (loss):
                               
     Unrealized holding gain (loss) arising during the period, pretax
    (3,445 )     842       (9,598 )     1,548  
     Tax expense (benefit)
    1,236       (311 )     3,390       (574 )
     Reclassification adjustment for realized gain (loss) in net income (loss)
    --       (584 )     (24 )     (1,108 )
     Tax expense (benefit)
    --       222       9       421  
Other comprehensive income (loss)
    (2,209 )     169       (6,223 )     287  
Comprehensive (loss) income
  $ (3,498 )   $ 277     $ (9,188 )   $ 454  
 
 
See notes to consolidated financial statements.
 
 
5

 
 
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
Nine Months Ended September 30, 2013 and 2012 (Unaudited)
 
                                                       
                                 
Retained
   
Accumulated
           
                           
Additional
   
Earnings,
   
Other
       
Total
 
    Preferred Stock    
Common Stock
       
Paid-in
   
Substantially
   
Comprehensive
 
Treasury Stock
 
Shareholders'
 
   
Shares
 
Amount
   
Shares
 
Amount
 
Warrants
   
Capital
   
Restricted
   
Loss
 
at Cost
 
Equity
 
      (Dollars in Thousands, Except Share Data)  
BALANCE AT DECEMBER 31, 2011
  9,266   $ 9,255     1,790,599   $ 20   $ 25     $ 12,919     $ (3,062 )   $ (387 )   $ (6,300 )   $ 12,470  
                                                                       
Net income
                                          167                       167  
                                                                       
Comprehensive income
                                                  287               287  
                                                                       
Accretion of Preferred Stock to redemption value
        3                                 (3 )                     --  
                                                                       
                                                                       
BALANCE AT SEPTEMBER 30, 2012
  9,266   $ 9,258     1,790,599   $ 20   $ 25     $ 12,919     $ (2,898 )   $ (100 )   $ (6,300 )   $ 12,924  
                                                                       
BALANCE AT DECEMBER 31, 2012
  9,266   $ 9,260     1,790,599   $ 20   $ 25     $ 12,919     $ (3,189 )   $ (527 )   $ (6,300 )   $ 12,208  
                                                                       
Net loss
                                          (2,965 )                     (2,965 )
                                                                       
Comprehensive loss
                                                  (6,223 )             (6,223 )
                                                                       
Accretion of Preferred Stock to redemption value
        4                                 (4 )                     --  
                                                                       
                                                                       
BALANCE AT SEPTEMBER 30, 2013
  9,266   $ 9,264     1,790,599   $ 20   $ 25     $ 12,919     $ (6,158 )   $ (6,750 )   $ (6,300 )   $ 3,020  
 
See notes to consolidated financial statements.
 
 
6

 
 
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
           
           
Nine Months Ended September 30, 2013 and 2012 (unaudited)
           
             
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2013
   
2012
 
   
(IN THOUSANDS)
 
             
OPERATING ACTIVITIES:
           
             
Net (loss) income
  $ (2,965 )   $ 167  
Adjustments to reconcile net income (loss) to
               
  net cash (used) provided by operating activities:
               
  Provision for loan losses
    500       630  
  Amortization of securities
    761       1,215  
  Depreciation expense
    244       269  
  Recognition of deferred income, net of costs
    (70 )     (209 )
  Deferral of fee income, net of costs
    109       200  
  Gain on investment transactions
    (24 )     (1,108 )
  Loss (gain) on OREO sales
    242       (77 )
  OREO impairment
    750       650  
  Bank property transferred to OREO
    --       1,356  
  Changes in operating assets and liabilities:
               
   Decrease in accrued interest receivable
    151       215  
   Increase in cash surrender value of life insurance
    (187 )     (215 )
   (Increase) decrease in other assets
    (2,213 )     554  
   Increase in other liabilities
    285       334  
   Increase in accrued interest payable
    179       52  
                 
Net cash (used) provided by operating activities
    (2,238 )     4,033  
                 
INVESTING ACTIVITIES:
               
                 
Purchase of AFS securities
    (93,004 )     (166,011 )
Proceeds from sales of AFS securities
    1,774       38,954  
Maturities of AFS securities
    66,550       114,199  
Principal repayment on mortgage-backed securities AFS
    10,220       11,438  
Net decrease in loans
    5,464       21,485  
Redemption of FHLB/FRB stock
    181       1,050  
Proceeds from sales of OREO, net of costs and improvements
    3,291       1,627  
Purchase of office properties and equipment
    (349 )     (80 )
                 
Net cash (used) provided by investing activities
    (5,873 )     22,662  
                 
FINANCING ACTIVITIES:
               
                 
Decrease in other borrowings
    (1,161 )     (21,211 )
Decrease in deposit accounts
    (7,424 )     (1,826 )
                 
Net cash used by financing activities
    (8,585 )     (23,037 )
                 
NET (DECREASE) INCREASE IN CASH
               
   AND CASH EQUIVALENTS
    (16,696 )     3,658  
                 
CASH AND CASH EQUIVALENTS
               
   AT BEGINNING OF PERIOD
    29,059       23,893  
                 
CASH AND CASH EQUIVALENTS
               
   AT END OF PERIOD
  $ 12,363     $ 27,551  
                 
SUPPLEMENTAL DISCLOSURES:
               
                 
Cash paid for:
               
  Income taxes
  $ --     $ --  
  Interest
    1,830       2,810  
                 
Non-cash transactions:
               
  Loans foreclosed
  $ 1,117     $ 3,422  
 Unrealized gain (loss) on securities available for sale, net of income tax
    (6,246 )     974  
 
See notes to consolidated financial statements.
 
 
7

 
 
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
(UNAUDITED)

1.           Presentation of Consolidated Financial Statements

The accompanying unaudited consolidated financial statements of Provident Community Bancshares, Inc. (the “Corporation”) and Provident Community Bank, N.A. (the “Bank”) were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments which are, in the opinion of management, necessary for the fair presentation of the interim consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results which may be expected for the entire calendar year or for any other period. This quarterly report should be read in conjunction with the Corporation’s annual report on Form 10-K for the year ended December 31, 2012. Certain amounts in the prior year’s financial statements have been reclassified to conform to current year classifications.

Recently Issued Accounting Standards

 The following is a summary of recent authoritative pronouncements that may affect accounting, reporting, and disclosure of financial information by the Corporation.

The Comprehensive Income topic of the Accounting Standards Codification (“ASC”) was amended in June 2011. The amendment eliminated the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity and required consecutive presentation of the statement of net income and other comprehensive income. The amendments were applicable to the Corporation January 1, 2012 and have been applied retrospectively.  In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements while the Financial Accounting Standards Board (“FASB”) redeliberated the presentation requirements for the reclassification adjustments. In February 2013, the FASB further amended the Comprehensive Income topic clarifying the conclusions from such redeliberations. Specifically, the amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, in certain circumstances an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income.  The amendments were effective for the Corporation on a prospective basis for reporting periods beginning after December 15, 2012. These amendments did not have a material effect on the Corporation’s financial statements.

In February, 2013, the FASB amended the Liabilities topic to address obligations resulting from joint and several liability arrangements.  The guidance addresses recognition of financial commitments arising from joint and several liability arrangements.  Specifically, the amendments require recognition of financial commitments arising from loans, contracts, and legal rulings if the Corporation can be held liable for the entire claim.  The amendments will be effective for the Corporation for reporting periods beginning after December 15, 2013.  The Corporation does not expect these amendments to have a material effect on its financial statements.

On April 22, 2013, the FASB issued guidance addressing application of the liquidation basis of accounting.  The guidance is intended to clarify when an entity should apply the liquidation basis of accounting.  In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting.  The amendments will be effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein and those requirements should be applied prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The Corporation does not expect these amendments to have any effect on its financial statements.
 
 
8

 
 
On July 18, 2013, the FASB issued guidance to eliminate the diversity in practice regarding presentation of unrecognized tax benefits in the statement of financial position.  Under the clarified guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, will be presented in the financial statements as a reduction to a deferred tax asset unless certain criteria are met.  The requirements should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.  The amendments will be effective for the Corporation for reporting periods beginning after December 15, 2013. The Corporation does not expect these amendments to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the Financial Accounting Standards Board or other standards-setting bodies are not expected to have a material impact on the Corporation’s financial position, results of operations or cash flows.
 
 2. Income (Loss) Per Common Share

Basic income (loss) per common share amounts for the three and nine months ended September 30, 2013 and 2012 were computed based on the weighted average number of common shares outstanding during the period. Diluted income (loss) per share adjusts for the dilutive effect of outstanding common stock options and warrants during the periods utilizing the treasury stock method. There were no common stock equivalents included in the diluted loss per share calculation for the three and nine months ended September 30, 2013 and 2012 as all outstanding options and warrants had a higher average exercise price than the average market price and were therefore anti-dilutive. Anti-dilutive common stock equivalents that were excluded in the diluted loss per common share calculation for the three and nine months ended September 30, 2013 and 2012 were 235,380.

3. Assets Pledged

 Approximately $58.6 million and $62.7 million of debt securities at September 30, 2013 and December 31, 2012, respectively, were pledged by the Bank as collateral to secure deposits of the State of South Carolina, and Union, Laurens and York counties along with additional borrowings and repurchase agreements. The Bank pledges as collateral for Federal Home Loan Bank (the “FHLB”) advances commercial and residential real estate mortgage loans under a collateral agreement with the FHLB whereby the Bank maintains, free of other encumbrances, qualifying mortgages (as defined) with unpaid principal balances equal to, when discounted at 75% of the unpaid principal balances, 100% of total advances. As part of the total assets pledged, the Bank will also pledge securities to cover additional advances from the FHLB that exceed the qualifying mortgages balance along with security repurchase lines with various brokerage houses.

 
9

 
 
4. Loans, net

Loans receivable consisted of the following (dollars in thousands):
 
   
September 30,
   
December 31,
 
   
2013
   
2013
 
Mortgage loans:
           
Fixed-rate residential
  $ 5,456     $ 6,329  
Adjustable-rate residential
    3,176       3,376  
Commercial real estate
    72,185       75,210  
Construction
    566       59  
Total mortgage loans
    81,383       84,974  
Commercial non real estate
    10,388       9,024  
Consumer loans:
               
Home equity
    12,896       14,063  
Consumer and installment
    16,404       19,468  
Consumer lines of credit
    263       267  
Total consumer loans
    29,563       33,798  
Total loans
    121,334       127,796  
Adjustments:
               
Unamortized loan discount
    (163 )     (181 )
Allowance for loan losses
    (3,915 )     (4,367 )
Net deferred loan origination costs
    155       166  
Total, net
  $ 117,411     $ 123,414  
Weighted-average interest rate of loans
    4.94 %     5.15 %
 
Information about impaired loans for the periods ended September 30, 2013 and December 31, 2012 is as follows (in thousands):

    September 30,    
December 31,
 
   
2013
   
2012
 
             
Loans receivable for which there is a related allowance for credit losses determined in accordance with ASC 310-10/Statement No. 114
  $  5,428     $   5,339  
Other impaired loans                                                                  
    12,988       20,508  
        Total impaired loans                                                                  
  $ 18,416     $ 25,847  
Average monthly balance of impaired loans
  $ 19,630     $ 29,171  
Specific allowance for credit losses                                                                   
  $ 2,071     $ 2,385  

 
10

 
 
Impaired Loans
For the Periods Ended September 30, 2013 and December 31, 2012
(in thousands)

September 30, 2013
 
Unpaid
Principal
Balance
   
Recorded
Investment
   
Related
Allowance
   
Average
Recorded
Investment
 
                         
With no related allowance recorded:
                       
                         
Commercial
                       
Commercial real estate
  $ 6,983     $ 5,852     $ --     $ 6,418  
Commercial non real estate
    2,333       1,938       --       2,135  
 
                               
Consumer
                               
Consumer – other
    4,366       3,152       --       3,759  
Consumer - home equity
    573       546       --       560  
                                 
Residential real estate
                               
1-4 Family
    1,707       1,500       --       1,604  
                                 
With a related allowance recorded:
                               
                                 
Commercial
                               
Commercial real estate
  $ 6,484     $ 3,766     $ 1,278     $ 5,125  
Commercial non real estate
    94       77       38       85  
 
                               
Consumer
                               
Consumer – other
    1,667       1,585       755       1,626  
                                 
Residential real estate
                               
1-4 Family
    --       --       --       --  
                                 
Total:
  $ 24,207     $ 18,416     $ 2,071     $ 21,312  
  Commercial
    15,894       11,633       1,316       13,763  
  Consumer
    6,606       5,283       755       5,945  
  Residential
    1,707       1,500       --       1,604  
 
 
11

 
 
December 31, 2012
 
Unpaid
Principal
Balance
   
Recorded
Investment
   
Related
Allowance
   
Average
Recorded
Investment
 
                         
With no related allowance recorded:
                       
                         
Commercial
                       
Commercial real estate
  $ 14,778     $ 13,273     $ --     $ 14,025  
Commercial non real estate
    2,004       1,680       --       1,842  
 
                               
Consumer
                               
Consumer - other
    4,611       3,696       --       4,154  
Consumer - home equity
    566       536       --       551  
                                 
Residential real estate
                               
1-4 Family
    1,448       1,323       --       1,385  
                                 
With a related allowance recorded:
                               
                                 
Commercial
                               
Commercial real estate
  $ 5,622     $ 3,388     $ 1,260     $ 4,505  
Commercial non real estate
    206       189       49       198  
 
                               
Consumer
                               
Consumer – other
    1,363       1,354       962       1,358  
                                 
Residential real estate
                               
1-4 Family
    416       408       114       412  
                                 
Total:
  $ 31,014     $ 25,847     $ 2,385     $ 28,430  
  Commercial
    22,610       18,530       1,309       20,570  
  Consumer
    6,540       5,586       962       6,063  
  Residential
    1,864       1,731       114       1,797  
 
 
12

 

 
Loans Receivable on Nonaccrual Status
As of September 30, 2013 and December 31, 2012
(in thousands)
 
   
September 30,
   
December 31,
 
   
2013
   
2012
 
Commercial
           
Commercial real estate
  $ 6,649     $ 8,734  
Commercial non real estate
    820       835  
                 
Consumer
               
Consumer – other
    2,023       2,287  
Consumer – automobile
    --       19  
Consumer – home equity
    314       329  
                 
Residential real estate
               
1-4 family
    1,226       970  
Total
  $ 11,032     $ 13,174  
 
Allowance for Loan Losses and Recorded Investment in Loans Receivable
(in thousands)

         
Commercial
                   
   
Commercial
   
Real Estate
   
Consumer
   
Residential
   
Total
 
                               
September 30, 2013
                             
                               
Allowance for loan losses:
                             
                               
Beginning balance
  $ 1,040     $ 1,675     $ 1,301     $ 351     $ 4,367  
Charge-offs
    (28 )     (477 )     (581 )     (15 )     (1,101 )
Recoveries
    17       79       45       8       149  
Provisions
    --        314       326       (140 )     500  
Ending balance
  $ 1,029     $ 1,591     $ 1,091     $ 204     $ 3,915  
                                         
Loans receivable:
                                       
                                         
Ending balances:
                                       
Individually evaluated for impairment
  $ 2,015     $ 9,618     $ 5,283     $ 1,500     $ 18,416  
    Allowance for loan losses
     38        1,278       755        --       2,071  
Collectively evaluated for impairment  imprimpairment
  $ 8,373     $ 62,567     $ 24,280     $ 7,698     $ 102,918  
    Allowance for loan losses
    991       313       336       204       1,844  
Ending balance
  $ 10,388     $ 72,185     $ 29,563     $ 9,198     $ 121,334  
Total allowance for loan losses
  $ 1,029     $ 1,591     $ 1,091     $ 204     $ 3,915  

 
13

 
 
         
Commercial
                   
   
Commercial
   
Real Estate
   
Consumer
   
Residential
   
Total
 
                               
December 31, 2012
                             
                               
Allowance for loan losses:
                             
                               
Beginning balance
  $ 1,887     $ 1,920     $ 484     $ 258     $ 4,549  
Charge-offs
    (118 )     (339 )     (576 )     (8 )     (1,041 )
Recoveries
    52       94       5       4       155  
Provisions
    (781 )     --       1,388       97       704  
Ending Balance
  $ 1,040     $ 1,675     $ 1,301     $ 351     $ 4,367  
                                         
Loans receivable:
                                       
                                         
Ending balances:
                                       
Individually evaluated for impairment
  $ 1,869     $ 16,661     $ 5,586     $ 1,731     $ 25,847  
    Allowance for loan losses
    49       1,260       962       114       2,385  
Collectively evaluated for impairment  imprimpairment
  $ 7,155     $ 58,549     $ 28,212     $ 8,033     $ 101,949  
    Allowance for loan losses
    991       415       339       237       1,982  
Ending balance
  $ 9,024     $ 75,210     $ 33,798     $ 9,764     $ 127,796  
Total allowance for loan losses
  $ 1,040     $ 1,675     $ 1,301     $ 351     $ 4,367  

 
14

 
 
Credit Quality Indicators
As of September 30, 2013 and December 31, 2012
(in thousands)

Credit Quality Indicators: The Corporation regularly monitors the credit quality of its loan portfolio. Credit quality refers to the current and expected ability of borrowers to repay their obligations according to the contractual terms of such loans. Credit quality is evaluated through assignment of individual loan grades, as well as past-due and performing status analysis. Credit quality indicators allow the Corporation to assess the inherent loss on certain individual and pools of loans.

Commercial Credit Exposure (1)
Credit Risk Profile by Creditworthiness Category

   
Commercial non real
   
Commercial real
 
   
estate
   
estate
 
   
September 30,
   
December 31,
   
September 30,
   
December 31,
 
      2013       2012     2013     2012  
Grade 1 Superior quality
  $ 50     $ 58     $ --     $ --  
Grade 2 Good quality
    --       --       --       --  
Grade 3 Satisfactory
    138       209       5,742       7,238  
Grade 4 Acceptable
    4,392       4,148       24,001       24,844  
Grade 5 Watch
    3,477       2,433       28,944       23,762  
Grade 6 Special mention
    731       1,125       3,741       6,860  
Grade 7 Substandard
    1,523       957       8,526       11,256  
Grade 8 Doubtful
    77       94       1,231       1,250  
Total
  $ 10,388     $ 9,024     $ 72,185     $ 75,210  
                                                              
(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

The Corporation uses an internal risk rating system to classify and monitor the credit quality of loans. Loan risk ratings are based on a graduated scale representing increasing likelihood of loss. Primary responsibility for the assignment of risk ratings of loans is with the individual loan officer assigned to each loan, subject to verification by the Credit Administration department. Risk ratings are also reviewed periodically by an independent third party loan review firm that reports directly to the Board of Directors.

Consumer Credit Exposure (1)
Credit Risk Profile by Internally Assigned Grade
 
   
Residential
   
Consumer
 
&