Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2013

Loans and Allowance For Loan Losses [Abstract]

Loans and Allowance for Loan Losses

NOTE 4 - Loans and Allowance for Loan Losses

The following table summarizes the composition of our loan portfolio.

		March 31, 2013				December 31, 2012
(dollars in thousands)		Amount		% of Total		Amount		% of Total
Commercial
Owner occupied RE	$	157,207		23.6	%	158,790		24.6	%
Non-owner occupied RE		178,789		26.9	%	165,163		25.6	%
Construction		20,100		3.0	%	20,347		3.1	%
Business		115,615		17.4	%	114,169		17.7	%
Total commercial loans		471,711		70.9	%	458,469		71.0	%
Consumer
Real estate		87,226		13.1	%	86,559		13.4	%
Home equity		78,785		11.9	%	77,895		12.1	%
Construction		16,765		2.5	%	13,749		2.1	%
Other		10,757		1.6	%	9,277		1.4	%
Total consumer loans		193,533		29.1	%	187,480		29.0	%
Total gross loans, net of deferred fees		665,244		100.0	%	645,949		100.0	%
Less—allowance for loan losses		(9,367	)			(9,091	)
Total loans, net	$	655,877				636,858

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.

			March 31, 2013
(dollars in thousands)		One year or less	After one but within five years	After five years		Total
Commercial
Owner occupied RE	$	25,603	88,790	42,814		157,207
Non-owner occupied RE		55,761	97,608	25,420		178,789
Construction		9,112	5,453	5,535		20,100
Business		54,525	55,134	5,956		115,615
Total commercial loans		145,001	246,985	79,725		471,711
Consumer
Real estate		14,438	27,325	45,463		87,226
Home equity		4,378	20,912	53,495		78,785
Construction		9,089	1,414	6,262		16,765
Other		5,644	4,392	721		10,757
Total consumer loans		33,549	54,043	105,941		193,533
Total gross loans, net of deferred fees	$	178,550	301,028	185,666		665,244
Loans maturing after one year with:
Fixed interest rates					$	319,467
Floating interest rates						167,227
			December 31, 2012
		One year or less	After one but within five years	After five years		Total
Commercial
Owner occupied RE	$	23,833	92,681	42,276		158,790
Non-owner occupied RE		47,252	98,514	19,397		165,163
Construction		9,206	4,387	6,754		20,347
Business		57,947	50,084	6,138		114,169
Total commercial loans		138,238	245,666	74,565		458,469
Consumer
Real estate		12,907	27,702	45,950		86,559
Home equity		7,083	17,832	52,980		77,895
Construction		6,032	1,530	6,187		13,749
Other		5,475	2,826	976		9,277
Total consumer		31,497	49,890	106,093		187,480
Total gross loan, net of deferred fees	$	169,735	295,556	180,658		645,949
Loans maturing after one year with:
Fixed interest rates					$	314,396
Floating interest rates						161,818

Portfolio Segment Methodology

Commercial

Commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews. We apply historic grade-specific loss factors to each class of loans. In the development of our statistically derived loan grade loss factors, we observe historical losses over a relevant period for each loan grade. These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends. The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a troubled debt restructuring ("TDR"), whether on accrual or nonaccrual status.

Consumer

For consumer loans, we determine the allowance on a collective basis utilizing historic loss factors to represent our best estimate of inherent loss. We pool loans, generally by loan class with similar risk characteristics. In addition, we establish an allowance for consumer loans that have been modified in a TDR, whether on accrual or nonaccrual status. The allowance also includes an amount for the estimated impairment on nonaccrual consumer loans and consumer loans modified in a TDR, whether on accrual or nonaccrual status.

Credit Quality Indicators

Commercial

We manage a consistent process for assessing commercial loan credit quality by monitoring our loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our categories include Pass, Special mention, Substandard, Doubtful, and Loss, each of which is defined by banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for loan losses.

The tables below provide a breakdown of outstanding commercial loans by risk category.

					March 31, 2013
(dollars in thousands)		Owner occupied RE	Non-owner occupied RE	Construction	Business	Total
Pass	$	146,356	154,751	17,021	106,520	424,648
Special mention		8,789	9,822	997	4,106	23,714
Substandard		2,062	14,216	2,082	4,989	23,349
Doubtful		-	-	-	-	-
Loss		-	-	-	-	-
	$	157,207	178,789	20,100	115,615	471,711
					December 31, 2012
		Owner occupied RE	Non-owner occupied RE	Construction	Business	Total
Pass	$	148,255	141,352	18,265	105,024	412,896
Special mention		7,446	9,358	-	2,750	19,554
Substandard		3,089	14,453	2,082	6,395	26,019
Doubtful		-	-	-	-	-
Loss		-	-	-	-	-
	$	158,790	165,163	20,347	114,169	458,469

The following tables provide past due information for outstanding commercial loans and include loans on nonaccrual status as well as accruing TDRs.

					March 31, 2013
(dollars in thousands)		Owner occupied RE	Non-owner occupied RE	Construction	Business	Total
Current	$	156,479	177,084	19,034	114,748	467,345
30-59 days past due		-	339	-	126	465
60-89 days past due		573	176	60	5	814
Greater than 90 Days		155	1,190	1,006	736	3,087
	$	157,207	178,789	20,100	115,615	471,711

					December 31, 2012
		Owner occupied RE	Non-owner occupied RE	Construction	Business	Total
Current	$	157,036	163,700	19,341	112,322	452,399
30-59 days past due		306	-	-	539	845
60-89 days past due		-	463	-	100	563
Greater than 90 Days		1,448	1,000	1,006	1,208	4,662
	$	158,790	165,163	20,347	114,169	458,469

As of March 31, 2013 and December 31, 2012, loans 30 days or more past due represented 0.94% and 1.11% of our total loan portfolio, respectively. Commercial loans 30 days or more past due were 0.66% and 0.94% of our total loan portfolio as of March 31, 2013 and December 31, 2012, respectively.

Consumer

We manage a consistent process for assessing consumer loan credit quality by monitoring our loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our categories include Pass, Special mention, Substandard, Doubtful, and Loss, each of which is defined by banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for loan losses.

The tables below provide a breakdown of outstanding consumer loans by risk category.

					March 31, 2013
(dollars in thousands)		Real estate	Home equity	Construction	Other	Total
Pass	$	83,579	74,731	16,765	10,410	185,485
Special mention		2,513	2,189	-	39	4,741
Substandard		1,134	1,865	-	308	3,307
Doubtful		-	-	-	-	-
Loss		-	-	-	-	-
	$	87,226	78,785	16,765	10,757	193,533
					December 31, 2012
		Real estate	Home equity	Construction	Other	Total
Pass	$	83,173	73,718	13,749	8,752	179,392
Special mention		2,307	2,290	-	170	4,767
Substandard		1,079	1,887	-	355	3,321
Doubtful		-	-	-	-	-
Loss		-	-	-	-	-
	$	86,559	77,895	13,749	9,277	187,480

The following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status as well as accruing TDRs.

					March 31, 2013
(dollars in thousands)		Real estate	Home equity	Construction	Other	Total
Current	$	85,784	78,319	16,765	10,751	191,619
30-59 days past due		907	-	-	6	913
60-89 days past due		535	20	-	-	555
Greater than 90 Days		-	446	-	-	446
	$	87,226	78,785	16,765	10,757	193,533

					December 31, 2012
		Real estate	Home equity	Construction	Other	Total
Current	$	85,999	77,430	13,749	9,233	186,411
30-59 days past due		560	100	-	-	660
60-89 days past due		-	-	-	44	44
Greater than 90 Days		-	365	-	-	365
	$	86,559	77,895	13,749	9,277	187,480

As of March 31, 2013 and December 31, 2012, consumer loans 30 days or more past due were 0.29% and 0.17%, respectively, of total loans.

Nonperforming assets

Following is a summary of our nonperforming assets, including nonaccruing TDRs.

(dollars in thousands)		March 31, 2013		December 31, 2012
Commercial
Owner occupied RE	$	294		155
Non-owner occupied RE		1,215		1,255
Construction		1,006		1,006
Business		202		202
Consumer
Real estate		116		119
Home equity		575		577
Construction		-		-
Other		-		44
Nonaccruing troubled debt restructurings		2,900		4,809
Total nonaccrual loans, including nonaccruing TDRs		6,308		8,167
Other real estate owned		2,522		1,719
Total nonperforming assets	$	8,830		9,886
Nonperforming assets as a percentage of:
Total assets		1.07	%	1.24	%
Gross loans		1.33	%	1.53	%
Total loans over 90 days past due	$	3,533		5,027
Loans over 90 days past due and still accruing		-		-
Accruing troubled debt restructurings		8,997		9,421

Impaired Loans

The table below summarizes key information for impaired loans. Our impaired loans include loans on nonaccrual status and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans may have estimated impairment which is included in the allowance for loan losses. Our commercial and consumer impaired loans are evaluated individually to determine the related allowance for loan losses.

			March 31, 2013
			Recorded investment
				Impaired loans
		Unpaid		with related		Related
		Principal	Impaired	allowance for		allowance for
(dollars in thousands)		Balance	loans	loan losses		loan losses
Commercial
Owner occupied RE	$	1,114	1,275	981		268
Non-owner occupied RE		6,183	5,687	1,749		611
Construction		4,824	2,082	1,944		304
Business		3,364	4,287	3,049		1,829
Total commercial		15,485	13,331	7,723		3,012
Consumer
Real estate		982	982	545		128
Home equity		768	768	395		292
Construction		-	-	-		-
Other		224	224	195		46
Total consumer		1,974	1,974	1,135		466
Total	$	17,459	15,305	8,858		3,478
			December 31, 2012
			Recorded investment
					Impaired loans
		Unpaid			with related		Related
		Principal	Impaired		allowance for		allowance for
		Balance	loans		loan losses		loan losses
Commercial
Owner occupied RE	$	3,071	2,271		2,116		398
Non-owner occupied RE		7,497	7,162		2,218		831
Construction		4,824	2,082		1,075		213
Business		4,048	4,048		3,329		2,092
Total commercial		19,440	15,563		8,738		3,534
Consumer
Real estate		985	985		162		24
Home equity		770	770		605		91
Construction		-	-		-		-
Other		270	270		-		-
Total consumer		2,025	2,025		767		115
Total	$	21,465	17,588		9,505		3,649

The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class.

		Three months ended March 31, 2013		Year ended December 31, 2012
(dollars in thousands)		Average recorded investment	Recognized interest income	Average recorded investment	Recognized interest income
Commercial
Owner occupied RE	$	1,693	2	3,881	17
Non-owner occupied RE		6,505	73	5,811	392
Construction		2,082	10	2,127	66
Business		4,167	25	3,880	84
Total commercial		14,447	110	15,699	559
Consumer
Real estate		984	8	1,397	44
Home equity		769	2	518	12
Construction		-	-	-	-
Other		247	2	240	14
Total consumer		2,000	12	2,155	70
Total	$	16,447	122	17,854	629

Allowance for Loan Losses

The allowance for loan loss is management's estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

During the first quarter of 2013, management implemented a new allowance model to measure the estimated credit losses inherent in the loan portfolio.  As a result, management has adjusted the historical loss period for the Commercial and Consumer  portfolio segments to 12 quarters.  Also, included in the general component of the allowance for loan losses for both portfolio segments is a margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating general losses in the portfolio.  The new model's qualitative factors that measure the margin of imprecision have been updated to reflect the current lending environment. Lastly, the Consumer portfolio segment reserve now also includes an amount for the estimated impairment on nonaccrual consumer loans.

The following table summarizes the activity related to our allowance for loan losses:

		Three months ended March 31,
(dollars in thousands)		2013		2012
Balance, beginning of period	$	9,091		8,925
Provision for loan losses		1,125		1,200
Loan charge-offs:
Commercial
Owner occupied RE		(386	)	(129	)
Non-owner occupied RE		-		(143	)
Construction		-		-
Business		(515	)	(561	)
Total commercial		(901	)	(833	)
Consumer
Real estate		-		(102	)
Home equity		-		(7	)
Construction		-		-
Other		(43	)	-
Total consumer		(43	)	(109	)
Total loan charge-offs		(944	)	(942	)
Loan recoveries:
Commercial
Owner occupied RE		2		4
Non-owner occupied RE		-		-
Construction		-		9
Business		86		-
Total commercial		88		13
Consumer
Real estate		-		-
Home equity		7		-
Construction		-		-
Other		-		-
Total consumer		7		-
Total recoveries		95		13
Net loan charge-offs		(849	)	(929	)
Balance, end of period	$	9,367		9,196
Net charge-offs to average loans (annualized)		0.52	%	0.62	%
Allowance for loan losses to gross loans		1.41	%	1.51	%
Allowance for loan losses to nonperforming loans		148.49	%	91.55	%

The following tables summarize the activity in the allowance for loan losses by our commercial and consumer portfolio segments.

				Three months March 31, 2013
(dollars in thousands)		Commercial		Consumer		Total
Balance, beginning of period	$	7,981		1,110		9,091
Provision		541		584		1,125
Loan charge-offs		(901	)	(43	)	(944	)
Loan recoveries		88		7		95
Net loan charge-offs		(813	)	(36	)	(849	)
Balance, end of period	$	7,709		1,658		9,367

				Year ended December 31, 2012
		Commercial		Consumer		Total
Balance, beginning of period	$	8,061		864		8,925
Provision		3,447		1,103		4,550
Loan charge-offs		(3,600	)	(905	)	(4,505		)
Loan recoveries		73		48		121
Net loan charge-offs		(3,527	)	(857	)	(4,384		)
Balance, end of period	$	7,981		1,110			9,091

The following table disaggregates our allowance for loan losses and recorded investment in loans by impairment methodology.

						March 31, 2013
		Allowance for loan losses			Recorded investment in loans
(dollars in thousands)		Commercial	Consumer	Total	Commercial	Consumer	Total
Individually evaluated	$	3,012	466	3,478	13,331	1,974	15,305
Collectively evaluated		4,697	1,192	5,889	458,380	191,559	649,939
Total	$	7,709	1,658	9,367	471,711	193,533	665,244
						December 31, 2012
		Allowance for loan losses			Recorded investment in loans
		Commercial	Consumer	Total	Commercial	Consumer	Total
Individually evaluated	$	3,534	-	3,534	15,563	-	15,563
Collectively evaluated		4,447	1,110	5,557	442,906	187,480	630,386
Total	$	7,981	1,110	9,091	458,469	187,480	645,949