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Allowance For Loan Losses And Credit Quality Of Financing Receivables
 12 Months Ended
Dec. 31, 2013
Allowance For Loan Losses And Credit Quality Of Financing Receivables [Abstract]  
Allowance For Loan Losses And Credit Quality Of Financing Receivables

NOTE 6 – ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY OF FINANCING RECEIVABLES

The following table presents changes in the allowance for loan losses disaggregated by the class of loans receivable for the years ended December 31, 2013 and 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

Commercial

 

Residential

 

Consumer

 

 

 

 

 

and

 

 

 

 

Real

 

Real

 

and

 

 

 

 

(Dollars in

Industrial

 

Construction

 

Estate

 

Estate

 

Other

 

Unallocated

 

Total

thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$
271 

 

$
223 

 

$
3,395 

 

$
869 

 

$
38 

 

$
180 

 

$
4,976 

Charge-offs

 
(55)

 

 
(350)

 

 
(2,317)

 

 
(246)

 

 
(28)

 

 

 -

 

 
(2,996)

Recoveries

 

 -

 

 
122 

 

 
450 

 

 
112 

 

 
12 

 

 

 -

 

 
696 

Provision

 
6 

 

 
313 

 

 
1,871 

 

 
206 

 

 
(6)

 

 
355 

 

 
2,745 

Ending balance

$
222 

 

$
308 

 

$
3,399 

 

$
941 

 

$
16 

 

$
535 

 

$
5,421 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$
304 

 

$
294 

 

$
4,833 

 

$
987 

 

$
9 

 

$
783 

 

$
7,210 

Charge-offs

 
(169)

 

 
(1,538)

 

 
(3,904)

 

 
(998)

 

 
(62)

 

 

 -

 

 
(6,671)

Recoveries

 
2 

 

 

 -

 

 
78 

 

 

 -

 

 
27 

 

 

 -

 

 
107 

Provision

 
134 

 

 
1,467 

 

 
2,388 

 

 
880 

 

 
64 

 

 
(603)

 

 
4,330 

Ending balance

$
271 

 

$
223 

 

$
3,395 

 

$
869 

 

$
38 

 

$
180 

 

$
4,976 

The following table presents the balance in the allowance of loan losses at December 31, 2013 and 2012 disaggregated on the basis of our impairment method by class of loans receivable along with the balance of loans receivable by class disaggregated on the basis of our impairment methodology:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Loan Losses

 

Loans Receivable

 

 

 

 

Balance

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

Related to

 

Related to

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually

 

Collectively

 

 

 

 

Individually

 

Collectively

 

 

 

 

Evaluated for

 

Evaluated for

 

 

 

 

Evaluated for

 

Evaluated for

(Dollars in thousands)

Balance

 

Impairment

 

Impairment

 

Balance

 

Impairment

 

Impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$
222 

 

$

 -

 

$
222 

 

$
15,205 

 

$

 -

 

$
15,205 

Construction

 
308 

 

 

 -

 

 
308 

 

 
7,307 

 

 

 -

 

 
7,307 

Commercial real estate

 
3,399 

 

 
322 

 

 
3,077 

 

 
260,664 

 

 
10,894 

 

 
249,770 

Residential real estate

 
941 

 

 
163 

 

 
778 

 

 
107,992 

 

 
2,626 

 

 
105,366 

Consumer and other loans

 
16 

 

 

 -

 

 
16 

 

 
1,617 

 

 

 -

 

 
1,617 

Unallocated

 
535 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Total

$
5,421 

 

$
485 

 

$
4,401 

 

$
392,785 

 

$
13,520 

 

$
379,265 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$
271 

 

$
27 

 

$
244 

 

$
16,158 

 

$
27 

 

$
16,131 

Construction

 
223 

 

 
42 

 

 
181 

 

 
7,004 

 

 
2,462 

 

 
4,542 

Commercial real estate

 
3,395 

 

 
230 

 

 
3,165 

 

 
225,345 

 

 
12,682 

 

 
212,663 

Residential real estate

 
869 

 

 
66 

 

 
803 

 

 
98,301 

 

 
3,351 

 

 
94,950 

Consumer and other loans

 
38 

 

 

 -

 

 
38 

 

 
1,255 

 

 

 -

 

 
1,255 

Unallocated

 
180 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Total

$
4,976 

 

$
365 

 

$
4,431 

 

$
348,063 

 

$
18,522 

 

$
329,541 

 

An age analysis of loans receivable which were past due as of December 31, 2013 and 2012 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment

 

 

 

 

 

 

 

Greater

 

 

 

 

 

 

 

Total

 

> 90 Days

 

30-59 Days

 

60-89 days

 

Than

 

Total Past

 

 

 

 

Financing

 

and

(Dollars in thousands)

Past Due

 

Past Due

 

90 Days (a)

 

Due

 

Current

 

Receivables

 

Accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$
13 

 

$

 -

 

$

 -

 

$
13 

 

$
15,192 

 

$
15,205 

 

$

 -

Construction

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
7,307 

 

 
7,307 

 

 

 -

Commercial real estate

 
2,139 

 

 
775 

 

 
9,823 

 

 
12,737 

 

 
247,927 

 

 
260,664 

 

 
123 

Residential real estate

 
495 

 

 
247 

 

 
2,192 

 

 
2,934 

 

 
105,058 

 

 
107,992 

 

 

 -

Consumer and other

 
7 

 

 
1 

 

 

 -

 

 
8 

 

 
1,609 

 

 
1,617 

 

 

 -

Total

$
2,654 

 

$
1,023 

 

$
12,015 

 

$
15,692 

 

$
377,093 

 

$
392,785 

 

$
123 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$

 -

 

$

 -

 

$
27 

 

$
27 

 

$
16,131 

 

$
16,158 

 

$

 -

Construction

 

 -

 

 

 -

 

 
2,462 

 

 
2,462 

 

 
4,542 

 

 
7,004 

 

 

 -

Commercial real estate

 
1,103 

 

 
1,303 

 

 
12,127 

 

 
14,533 

 

 
210,812 

 

 
225,345 

 

 
65 

Residential real estate

 
207 

 

 
127 

 

 
3,315 

 

 
3,649 

 

 
94,652 

 

 
98,301 

 

 

 -

Consumer and other

 
12 

 

 
3 

 

 
144 

 

 
159 

 

 
1,096 

 

 
1,255 

 

 
143 

Total

$
1,322 

 

$
1,433 

 

$
18,075 

 

$
20,830 

 

$
327,233 

 

$
348,063 

 

$
208 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) includes loans greater than 90 days past due and still accruing and non-accrual loans.

 

Loans for which the accrual of interest has been discontinued at December 31, 2013 and 2012 were:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

December 31, 2013

 

December 31, 2012

 

 

 

 

 

 

Commercial and industrial

$

 -

 

$
27 

Construction

 

 -

 

 
2,462 

Commercial real estate

 
9,700 

 

 
12,062 

Residential real estate

 
2,192 

 

 
3,315 

Consumer and other

 

 -

 

 
1 

Total

$
11,892 

 

$
17,867 

 

Loans are made to individuals as well as commercial entities. Specific loan terms vary as to interest rate, repayment, and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by the Company. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type. A description of the Company's different loan segments follows:

 

Commercial Loans: Commercial credit is extended primarily to middle market and small business customers. Commercial loans are generally made in the Company's market place for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans will generally be guaranteed in full or for a meaningful amount by the businesses' major owners. Underwriting of commercial loans is based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

 

Residential Mortgage and Consumer Loans: The Company originates mortgage and consumer loans including principally residential real estate and home equity lines and loans. Each loan type is evaluated on debt to income, type of collateral and loan to collateral value, credit history and Company relationship with the borrower.

 

In determining the adequacy of the allowance for loan losses, the Company estimates losses based on the identification of specific problem loans through its credit review process and also estimates losses inherent in other loans on an aggregate basis by loan type.  The credit review process includes the independent evaluation of the loan officer assigned risk ratings by the Chief Credit Officer and a third party loan review company.  Such risk ratings are assigned loss component factors that reflect the Company’s loss estimate for each group of loans.  It is management’s and the board of directors’ responsibility to oversee the lending process to ensure that all credit risks are properly identified, monitored, and controlled, and that loan pricing, terms, and other safeguards against non-performance and default are commensurate with the level of risk undertaken and is rated as such based on a risk-rating system.  Factors considered in assigning risk ratings and loss component factors include: borrower specific information related to expected future cash flows and operating results, collateral values, financial condition, payment status and other information; levels of and trends in portfolio charge-offs and recoveries; levels in portfolio delinquencies; effects of changes in loan concentrations and observed trends in the economy and other qualitative measurements.

 

The Company’s risk-rating system as defined below is consistent with the system used by regulatory agencies and consistent with industry practices. Loan classifications of Substandard, Doubtful or Loss are consistent with the regulatory definitions of classified assets. 

 

Pass: This category represents loans performing to contractual terms and conditions and the primary source of repayment is adequate to meet the obligation.  The Company has five categories within the Pass classification depending on strength of repayment sources, collateral values and financial condition of the borrower. 

 

Special Mention:  This category represents loans performing to contractual terms and conditions; however the primary source of repayment or the borrower is exhibiting some deterioration or weaknesses in financial condition that could potentially threaten the borrowers’ future ability to repay our loan principal and interest or fees due.

 

Substandard: This category represents loans that the primary source of repayment has significantly deteriorated or weakened which has or could threaten the borrowers’ ability to make scheduled payments.  The weaknesses require close supervision by the Company’s management and there is a distinct possibility that the Company could sustain some loss if the deficiencies are not corrected.  Such weaknesses could jeopardize the timely and ultimate collection of our loan principal and interest or fees due.  Loss may not be expected or evident, however, loan repayment is inadequately supported by current financial information or pledged collateral.

 

Doubtful: Loans so classified have all the inherent weaknesses of a substandard loan with the added provision that collection or liquidation in full is highly questionable and not reasonably assured.  The probability of at least partial loss is high, but extraneous factors might strengthen the asset to prevent loss. The validity of the extraneous factors must be continuously monitored. Once these factors are questionable the loan should be considered for full or partial charge-off.

 

Loss: Loans so classified are considered uncollectible, and of such little value that their continuance as active assets of the Company is not warranted.  Such loans are fully charged off.

 

The following tables illustrate the Company’s corporate credit risk profile by creditworthiness category as of December 31, 2013 and 2012: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Pass

 

Mention

 

Substandard

 

Doubtful

 

Total

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$
15,192 

 

$
13 

 

$

 -

 

$

 -

 

$
15,205 

Construction

 
7,307 

 

 

 -

 

 

 -

 

 

 -

 

 
7,307 

Commercial real estate

 
240,204 

 

 
7,378 

 

 
12,917 

 

 
165 

 

 
260,664 

Residential real estate

 
104,383 

 

 
871 

 

 
2,738 

 

 

 -

 

 
107,992 

Consumer and other

 
1,477 

 

 
140 

 

 

 -

 

 

 -

 

 
1,617 

 

$
368,563 

 

$
8,402 

 

$
15,655 

 

$
165 

 

$
392,785 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$
15,860 

 

$
269 

 

$
23 

 

$
6 

 

$
16,158 

Construction

 
4,542 

 

 

 -

 

 
2,462 

 

 

 -

 

 
7,004 

Commercial real estate

 
203,106 

 

 
4,648 

 

 
17,256 

 

 
335 

 

 
225,345 

Residential real estate

 
93,563 

 

 
253 

 

 
4,485 

 

 

 -

 

 
98,301 

Consumer and other

 
1,112 

 

 

 -

 

 
143 

 

 

 -

 

 
1,255 

 

$
318,183 

 

$
5,170 

 

$
24,369 

 

$
341 

 

$
348,063 

 

 

The following table reflects information regarding the Company’s impaired loans as of December 31, 2013 and 2012 and for the years then ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

 

Average

 

Interest

 

Recorded

 

Principal

 

Related

 

Recorded

 

Income

(Dollars in thousands)

Investment

 

Balance

 

Allowance

 

Investment

 

Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

$

 -

 

$

 -

 

$

 -

 

$
596 

 

$

 -

Commercial real estate

 
7,394 

 

 
7,967 

 

 

 -

 

 
8,030 

 

 
67 

Residential real estate

 
1,849 

 

 
1,874 

 

 

 -

 

 
2,157 

 

 
49 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 -

 

 

 -

 

 

 -

 

 
5 

 

 

 -

Construction

 

 -

 

 

 -

 

 

 -

 

 
318 

 

 

 -

Commercial real estate

 
3,500 

 

 
4,595 

 

 
322 

 

 
3,443 

 

 
10 

Residential real estate

 
777 

 

 
871 

 

 
163 

 

 
978 

 

 
12 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 -

 

 

 -

 

 

 -

 

 
5 

 

 

 -

Construction

 

 -

 

 

 -

 

 

 -

 

 
914 

 

 

 -

Commercial real estate

 
10,894 

 

 
12,562 

 

 
322 

 

 
11,473 

 

 
77 

Residential real estate

 
2,626 

 

 
2,745 

 

 
163 

 

 
3,135 

 

 
61 

 

$
13,520 

 

$
15,307 

 

$
485 

 

$
15,527 

 

$
138 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

 

Average

 

Interest

 

Recorded

 

Principal

 

Related

 

Recorded

 

Income

(Dollars in thousands)

Investment

 

Balance

 

Allowance

 

Investment

 

Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

$
2,420 

 

$
2,743 

 

$

 -

 

$
3,217 

 

$
41 

Commercial real estate

 
10,466 

 

 
13,581 

 

 

 -

 

 
13,131 

 

 
81 

Residential real estate

 
2,675 

 

 
2,768 

 

 

 -

 

 
2,192 

 

 
91 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 
27 

 

 
27 

 

 
27 

 

 
177 

 

 

 -

Construction

 
42 

 

 
42 

 

 
42 

 

 
66 

 

 

 -

Commercial real estate

 
2,216 

 

 
3,135 

 

 
230 

 

 
5,792 

 

 
64 

Residential real estate

 
676 

 

 
675 

 

 
66 

 

 
558 

 

 
26 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 
27 

 

 
27 

 

 
27 

 

 
177 

 

 

 -

Construction

 
2,462 

 

 
2,785 

 

 
42 

 

 
3,283 

 

 
41 

Commercial real estate

 
12,682 

 

 
16,716 

 

 
230 

 

 
18,923 

 

 
145 

Residential real estate

 
3,351 

 

 
3,443 

 

 
66 

 

 
2,750 

 

 
117 

 

$
18,522 

 

$
22,971 

 

$
365 

 

$
25,133 

 

$
303 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The average recorded investment in impaired loans is calculated using the average of impaired loans over the past five quarter-end periods. The Company recognizes income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Company.  If these factors do not exist, the Company will record all payments as a reduction of principal on such loans. 

 

Impaired loans include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in the interest rate on the loan, payment extensions, postponement or forgiveness of principal, forbearance or other actions intended to maximize collection.

 

The following table presents the recorded investment in troubled debt restructured loans as of December 31, 2013 and 2012 based on payment performance status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Commercial Real Estate

 

Commercial & Industrial

 

Residential Real Estate

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Performing

$
1,195 

 

$

 -

 

$
433 

 

$
1,628 

Non-performing

 
3,000 

 

 

 -

 

 
496 

 

 
3,496 

Total

$
4,195 

 

$

 -

 

$
929 

 

$
5,124 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

Performing

$
603 

 

$

 -

 

$
5 

 

$
608 

Non-performing

 
1,829 

 

 
6 

 

 
228 

 

 
2,063 

Total

$
2,432 

 

$
6 

 

$
233 

 

$
2,671 

 

Troubled debt restructured loans are considered impaired and are included in the previous impaired loans disclosures in this footnote.  As of December 31, 2013, we have not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

 

The following tables summarize troubled debt restructurings that occurred during the year ended December 31, 2013 and 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

Outstanding

 

Outstanding

 

 

Number of

 

Recorded

 

Recorded

(Dollars in thousands)

 

Loans

 

Investment

 

Investment

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

Commercial real estate

 
3 

 

$
3,100 

 

$
3,100 

Residential real estate

 
2 

 

 
655 

 

 
548 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

Residential real estate

 
2 

 

 
233 

 

 
233 

 

The troubled debt restructurings described above did not require an allocation of the allowance for credit losses for the years ended December 31, 2013 and 2012.  No charge-offs were recorded subsequent to modification during the twelve month periods ending December 31, 2013 and 2012. 

 

The following table summarizes the troubled debt restructurings for which there was a payment default within twelve months following the date of the restructuring for the year ended December 31, 2013 and 2012:

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Number of Loans

 

Recorded Investment

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

Commercial real estate

 
3 

 

$
1,302 

Residential real estate

 
1 

 

 
269 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

Residential real estate

 
1 

 

$
228 

 

Loans are considered to be in payment default once it is greater than 30 days contractually past due under the modified terms.  The troubled debt restructurings described above that subsequently defaulted resulted in a net allocation of the allowance for credit losses of $51 thousand and  $5 thousand for the years ended December 31, 2013 and 2012, respectively.  There were no charge-offs on these defaulted troubled debt restructurings during the twelve month periods ended December 31, 2013 and 2012.