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Non-performing Loans and Impaired Loans
 6 Months Ended
Jun. 30, 2013
Non-performing Loans and Impaired Loans [Abstract]  
Non-performing Loans and Impaired Loans

Note 6 – Non-performing Loans and Impaired Loans

The following table presents the nonaccrual, loans past due over 90 days still on accrual, and troubled debt restructured (“TDRs”) by class of loans:

 

                                         
June 30, 2013   Nonaccrual     Loans Past
Due Over  90
Days Still
Accruing		     Non  Performing
TDR’s		     Performing
TDR’s		     Total  Non-
Performing
Loans		  

Commercial

                                        

Owner occupied real estate

   $ 451     $ —       $ 79     $ 784     $ 1,314  

Non owner occupied real estate

     2,504       76       1,424       446       4,450  

Residential development

     —         —         —         —         —    

Development & Spec Land Loans

     733       —         —         —         733  

Commercial and industrial

     2,183       —         786       —         2,969  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     5,871       76       2,289       1,230       9,466  
           

Real estate

                                        

Residential mortgage

     3,795       3       2,866       2,415       9,079  

Residential construction

     —         —         287       —         287  

Mortgage warehouse

     —         —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total real estate

     3,795       3       3,153       2,415       9,366  
           

Consumer

                                        

Direct Installment

     410       31       —         —         441  

Direct Installment Purchased

     —         —         —         —         —    

Indirect Installment

     717       —         —         —         717  

Home Equity

     3,062       12       1,144       1,441       5,659  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Consumer

     4,189       43       1,144       1,441       6,817  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 13,855     $ 122     $ 6,586     $ 5,086     $ 25,649  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
           
December 31, 2012   Nonaccrual     Loans Past
Due Over  90
Days Still
Accruing		     Non  Performing
TDR’s		     Performing
TDR’s		     Total  Non-
Performing
Loans		  

Commercial

                                        

Owner occupied real estate

   $ 2,800     $ —       $ 1,272     $ 819     $ 4,891  

Non owner occupied real estate

     1,705       —         1,605       446       3,756  

Residential development

     —         —         —         —         —    

Development & Spec Land Loans

     705       —         —         —         705  

Commercial and industrial

     544       —         797       —         1,341  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     5,754       —         3,674       1,265       10,693  
           

Real estate

                                        

Residential mortgage

     4,565       2       2,536       1,761       8,864  

Residential construction

     —         —         291       —         291  

Mortgage warehouse

     —         —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total real estate

     4,565       2       2,827       1,761       9,155  
           

Consumer

                                        

Direct Installment

     138       26       —         —         164  

Direct Installment Purchased

     —         —         —         —         —    

Indirect Installment

     866       26       —         —         892  

Home Equity

     2,051       —         148       676       2,875  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Consumer

     3,055       52       148       676       3,931  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 13,374     $ 54     $ 6,649     $ 3,702     $ 23,779  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Included in the $13.9 million of non-accrual loans and the $6.6 million of non-performing TDR’s at June 30, 2013 were $1.7 million and $841,000, respectively, of loans acquired for which accretable yield was recognized.

From time to time, the Bank obtains information that may lead management to believe that the collection of payments may be doubtful on a particular loan. In recognition of this, it is management’s policy to convert the loan from an “earning asset” to a non-accruing loan. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date. Further, it is management’s policy to place a loan on a non-accrual status when the payment is delinquent in excess of 90 days or the loan has had the accrual of interest discontinued by management. The officer responsible for the loan and the Chief Operating Officer or the Senior Vice President of Operations must review all loans placed on non-accrual status. Subsequent payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal in accordance with the loan terms. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

A loan becomes impaired when, based on current information, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is classified as impaired, the degree of impairment must be recognized by estimating future cash flows from the debtor. The present value of these cash flows is computed at a discount rate based on the interest rate contained in the loan agreement. However, if a particular loan has a determinable market value for its collateral, the creditor may use that value. Also, if the loan is secured and considered collateral dependent, the creditor may use the fair value of the collateral. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

Smaller-balance, homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by 1 – 4 family residences, residential construction loans, automobile, home equity, second mortgage loans and mortgage warehouse loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicate that underlying cash flows of a borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are generally moved to non-accrual status when they are 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms, including TDRs, are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.

The Company’s TDRs are considered impaired loans and included in the allowance methodology using the guidance for impaired loans. At June 30, 2013, the type of concessions the Company has made on restructured loans has been temporary rate reductions and/or reductions in monthly payments and there have been no restructured loans with modified recorded balances. Any modification to a loan that is a concession and is not in the normal course of lending is considered a restructured loan. A restructured loan is returned to accruing status after six consecutive payments but is still reported as TDR unless the loan bears interest at a market rate. As of June 30, 2013, the Company had $11.7 million in TDRs and $5.1 million were performing according to the restructured terms and no TDR’s were returned to accrual status in the first three months of 2013. There was $2.2 million of specific reserves allocated to TDRs at June 30, 2013 based on the collateral deficiencies.

 

Loans transferred and classified as troubled debt restructuring during the six months ended June 30, 2013 and 2012, segregated by class, are shown in the table below.

 

                                 
    June 30, 2013     June 30, 2012  
     Number
of
Defaults		     Unpaid
Principal
Balance		     Number
of
Defaults		     Unpaid
Principal
Balance		  

Commercial

                                

Owner occupied real estate

     —       $ —         —       $ —    

Non owner occupied real estate

     —         —         —         —    

Residential development

     —         —         —         —    

Development & Spec Land Loans

     —         —         —         —    

Commercial and industrial

     —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     —         —         —         —    
         

Real estate

                                

Residential mortgage

     5       758       1       332  

Residential construction

     —         —         —         —    

Mortgage warehouse

     —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total real estate

     5       758       1       332  
         

Consumer

                                

Direct Installment

     —         —         —         —    

Direct Installment Purchased

     —         —         —         —    

Indirect Installment

     —         —         —         —    

Home Equity

     1       997       —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Consumer

     1       997       —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

     6     $ 1,755       1     $ 332  
   

 

 

    

 

 

    

 

 

    

 

 

  

Troubled debt restructured loans which had payment defaults during the six months ended June 30, 2013 and 2012, segregated by class, are shown in the table below. Default occurs when a loan is 90 days or more past due or has been transferred to nonaccrual.

 

                                 
    June 30, 2013     June 30, 2012  
     Number
of
Defaults		     Unpaid
Principal
Balance		     Number
of
Defaults		     Unpaid
Principal
Balance		  

Commercial

                                

Owner occupied real estate

     —       $ —         —       $ —    

Non owner occupied real estate

     —         —         —         —    

Residential development

     —         —         —         —    

Development & Spec Land Loans

     —         —         —         —    

Commercial and industrial

     —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     —         —         —         —    
         

Real estate

                                

Residential mortgage

     3       239       2       410  

Residential construction

     —         —         —         —    

Mortgage warehouse

     —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total real estate

     3       239       2       410  
         

Consumer

                                

Direct Installment

     —         —         —         —    

Direct Installment Purchased

     —         —         —         —    

Indirect Installment

     —         —         —         —    

Home Equity

     1       997       —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Consumer

     1       997       —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

     4     $ 1,236       2     $ 410  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

The following table presents commercial loans individually evaluated for impairment by class of loan:

 

                                                         
                      Three Months Ending     Six Months Ending  
June 30, 2013   Unpaid
Principal
Balance		     Recorded
Investment		     Allowance For
Loan Loss
Allocated		     Average
Balance in
Impaired
Loans		     Cash/Accrual
Interest
Income
Recognized		     Average
Balance in
Impaired
Loans		     Cash/Accrual
Interest
Income
Recognized		  

With no recorded allowance

                                                        

Commercial

                                                        

Owner occupied real estate

   $ 1,142     $ 1,146     $ —       $ 1,750       13     $ 1,785     $ 27  

Non owner occupied real estate

     2,579       2,584       —         2,710       12       2,439       23  

Residential development

     —         —         —         —         —         —         —    

Development & Spec Land Loans

     60       60       —         64       —         45       —    

Commercial and industrial

     906       922       —         1,595       3       1,478       3  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     4,687       4,712       —         6,119       28       5,747       53  
               

With an allowance recorded

                                                        

Commercial

                                                        

Owner occupied real estate

     172       172       30       216       —         222       —    

Non owner occupied real estate

     1,795       1,795       1,097       1,799       —         1,809       —    

Residential development

     —         —         —         —         —         —         —    

Development & Spec Land Loans

     673       673       425       702       —         706       —    

Commercial and industrial

     2,063       2,075       846       2,072       20       1,433       20  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     4,703       4,715       2,398       4,789       20       4,170       20  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 9,390     $ 9,427     $ 2,398     $ 10,908     $ 48     $ 9,917     $ 73  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
           
                      Three Months Ending     Six Months Ending  
June 30, 2012   Unpaid
Principal
Balance		     Recorded
Investment		     Allowance For
Loan Loss
Allocated		     Average
Balance in
Impaired
Loans		     Cash/Accrual
Interest
Income
Recognized		     Average
Balance in
Impaired
Loans		     Interest
Income
Recognized		  

With no recorded allowance

                                                        

Commercial

                                                        

Owner occupied real estate

   $ 1,350     $ 1,350     $ —       $ 1,403     $ —       $ 1,343     $ 2  

Non owner occupied real estate

     422       422       —         389       2       392       3  

Residential development

     —         —         —         —         —         —         —    

Development & Spec Land Loans

     14       14       —         5       1       2       1  

Commercial and industrial

     257       257       —         365       —         312       5  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     2,043       2,043       —         2,162       3       2,049       11  
               

With an allowance recorded

                                                        

Commercial

                                                        

Owner occupied real estate

     1,606       1,606       475       1,161       17       1,127       18  

Non owner occupied real estate

     3,682       3,684       1,100       3,685       —         3,524       —    

Residential development

     —         —         —         —         —         —         —    

Development & Spec Land Loans

     661       661       615       676       —         455       6  

Commercial and industrial

     804       804       273       806       —         811       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     6,753       6,755       2,463       6,328       17       5,917       24  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 8,796     $ 8,798     $ 2,463     $ 8,490     $ 20     $ 7,966     $ 35  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The following table presents the payment status by class of loan:

 

                                                 
June 30, 2013   30 - 59 Days
Past Due		     60 - 89 Days
Past Due		     Greater than 90
Days Past Due		     Total Past Due     Loans Not Past
Due		     Total  

Commercial

                                                

Owner occupied real estate

   $ 525     $ 506     $ —       $ 1,031     $ 158,348     $ 159,379  

Non owner occupied real estate

     —         68       76       144       233,059       233,203  

Residential development

     —         —         —         —         245       245  

Development & Spec Land Loans

     —         —         —         —         12,988       12,988  

Commercial and industrial

     354       58       —         412       95,237       95,649  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     879       632       76       1,587       499,877       501,464  
             

Real estate

                                                

Residential mortgage

     330       2       3       335       173,697       174,032  

Residential construction

     —         —         —         —         8,133       8,133  

Mortgage warehouse

     —         —         —         —         154,962       154,962  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total real estate

     330       2       3       335       336,792       337,127  
             

Consumer

                                                

Direct Installment

     135       18       31       184       27,915       28,099  

Direct Installment Purchased

     —         —         —         —         358       358  

Indirect Installment

     808       46       —         854       127,793       128,647  

Home Equity

     703       530       12       1,245       119,302       120,547  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total consumer

     1,646       594       43       2,283       275,368       277,651  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 2,855     $ 1,228     $ 122     $ 4,205     $ 1,112,037     $ 1,116,242  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Percentage of total loans

     0.26 %      0.11 %      0.01 %      0.38 %      99.62 %         
             
December 31, 2012   30 -59 Days
Past Due		     60 -89 Days
Past Due		     Greater than 90
Days Past Due		     Total Past Due     Loans Not Past
Due		     Total  

Commercial

                                                

Owner occupied real estate

   $ 2,207     $ 19     $ —       $ 2,226     $ 160,468     $ 162,694  

Non owner occupied real estate

     669       147       —         816       200,947       201,763  

Residential development

     —         —         —         —         1,056       1,056  

Development & Spec Land Loans

     —         —         —         —         6,963       6,963  

Commercial and industrial

     538       16       —         554       86,528       87,082  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     3,414       182       —         3,596       455,962       459,558  
             

Real estate

                                                

Residential mortgage

     167       —         2       169       181,281       181,450  

Residential construction

     —         —         —         —         7,681       7,681  

Mortgage warehouse

     —         —         —         —         251,448       251,448  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total real estate

     167       —         2       169       440,410       440,579  
             

Consumer

                                                

Direct Installment

     240       64       26       330       27,501       27,831  

Direct Installment Purchased

     —         —         —         —         429       429  

Indirect Installment

     1,105       177       26       1,308       132,173       133,481  

Home Equity

     1,072       321       —         1,393       125,195       126,588  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total consumer

     2,417       562       52       3,031       285,298       288,329  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 5,998     $ 744     $ 54     $ 6,796     $ 1,181,670     $ 1,188,466  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Percentage of total loans

     0.50 %      0.06 %      0.00 %      0.57 %      99.43 %         

The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

Horizon Bank’s processes for determining credit quality differ slightly depending on whether a new loan or a renewed loan is being underwritten, or whether an existing loan is being re-evaluated for credit quality. The latter usually occurs upon receipt of current financial information or other pertinent data that would trigger a change in the loan grade.

  •  

For new and renewed commercial loans, the Bank’s Credit Department, which acts independently of the loan officer, assigns the credit quality grade to the loan. Loan grades for loans with an aggregate credit exposure of $500,000 or greater are validated by the Loan Committee, which is chaired by the Chief Operating Officer (COO).

 

  •  

Commercial loan officers are responsible for reviewing their loan portfolios and report any adverse material change to the COO or Loan Committee. When circumstances warrant a change in the credit quality grade, loan officers are required to notify the COO and the Credit Department of the change in the loan grade. Downgrades are accepted immediately by the COO however, lenders must present their factual information to either the Loan Committee or the COO when recommending an upgrade.

 

  •  

The COO or his designee meets weekly with loan officers to discuss the status of past-due loans and classified loans. These meetings are also designed to give the loan officers an opportunity to identify an existing loan that should be downgraded to a classified grade.

 

  •  

Monthly, senior management meets with the Watch Committee, which reviews all of the past due, classified, and impaired loans and the relative trends of these assets. This committee also reviews the actions taken foreclosure mitigation, loan extensions, troubled debt restructures, and collateral repossessions. The information reviewed in this meeting act as a precursor for developing management’s analysis of the adequacy of the Allowance for Loan and Lease Losses.

For real estate and consumer loans, Horizon uses a grading system based on delinquency. Loans that are 90 days or more past due, on non-accrual, or are classified as a TDR are graded “Substandard.” After being 90 days delinquent a loan is charged off unless it is well secured and in the process of collection. If the latter case exists, the loan is placed on non-accrual. Occasionally a mortgage loan may be graded as “Special Mention.” When this situation arises, it is because the characteristics of the loan and the borrower fit the definition of a Risk Grade 5 described below, which is normally used for grading commercial loans. Loans not graded Substandard are considered Pass.

Horizon Bank employs an eight-grade rating system to determine the credit quality of commercial loans. The first four grades represent acceptable quality, and the last four grades mirror the criticized and classified grades used by the bank regulatory agencies (special mention, substandard, doubtful, and loss). The loan grade definitions are detailed below.

Risk Grade 1: Excellent (Pass)

Loans secured by liquid collateral, such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.

Risk Grade 2: Good (Pass)

Loans to businesses that have strong financial statements containing an unqualified opinion from a CPA firm and at least three consecutive years of profits; loans supported by unaudited financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans secured by publicly traded marketable securities where there is no impediment to liquidation; loans to individuals backed by liquid personal assets and unblemished credit history; or loans to publicly held companies with current long-term debt ratings of Baa or better.

Risk Grade 3: Satisfactory (Pass)

Loans supported by financial statements (audited or unaudited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered.

Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply:

 

  •  

At inception, the loan was properly underwritten, did not possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory;

 

  •  

At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss.

 

  •  

The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.

 

  •  

During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or the borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted.

Risk Grade 4: Satisfactory/Monitored (Pass)

Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than Satisfactory loans due to weak balance sheets, marginal earnings or cash flow, lack of financial information, weakening markets, insufficient or questionable collateral coverage or other uncertainties. These loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in a Satisfactory/Monitored loan is within acceptable underwriting guidelines so long as the loan is given the proper level of management supervision. Loans that normally fall into this grade include construction of commercial real estate buildings, land development and subdivisions, and rental properties that have not attained stabilization.

Risk Grade 5: Special Mention

Loans which possess some credit deficiency or potential weakness which deserves close attention. Such loans pose an unwarranted financial risk that, if not corrected, could weaken the loan by adversely impacting the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) weaknesses are considered “potential,” not “defined,” impairments to the primary source of repayment. These loans may be to borrowers with adverse trends in financial performance, collateral value and/or marketability, or balance sheet strength.

Risk Grade 6: Substandard

One or more of the following characteristics may be exhibited in loans classified Substandard:

 

  •  

Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss.

 

  •  

Loans are inadequately protected by the current net worth and paying capacity of the obligor.

 

  •  

The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.

 

  •  

Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

 

  •  

Unusual courses of action are needed to maintain a high probability of repayment.

 

  •  

The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments.

 

  •  

The lender is forced into a subordinated or unsecured position due to flaws in documentation.

  •  

Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms.

 

  •  

The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

 

  •  

There is a significant deterioration in market conditions to which the borrower is highly vulnerable.

Risk Grade 7: Doubtful

One or more of the following characteristics may be present in loans classified Doubtful:

 

  •  

Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable.

 

  •  

The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

 

  •  

The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

Risk Grade 8: Loss

Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The following table presents loans by credit grades.

 

                                         
June 30, 2013   Pass     Special
Mention		     Substandard     Doubtful     Total  

Commercial

                                        

Owner occupied real estate

   $ 147,937     $ 3,247     $ 8,195     $ —       $ 159,379  

Non owner occupied real estate

     209,033       5,490       18,680       —         233,203  

Residential development

     245       —         —         —         245  

Development & Spec Land Loans

     9,618       96       3,274       —         12,988  

Commercial and industrial

     84,045       6,163       5,441       —         95,649  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     450,878       14,996       35,590       —         501,464  
           

Real estate

                                        

Residential mortgage

     164,953       —         9,079       —         174,032  

Residential construction

     7,846       —         287       —         8,133  

Mortgage warehouse

     154,962       —         —         —         154,962  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total real estate

     327,761       —         9,366       —         337,127  
           

Consumer

                                        

Direct Installment

     27,658       —         441       —         28,099  

Direct Installment Purchased

     358       —         —         —         358  

Indirect Installment

     127,930       —         717       —         128,647  

Home Equity

     114,888       —         5,659       —         120,547  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Consumer

     270,834       —         6,817       —         277,651  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 1,049,473     $ 14,996     $ 51,773     $ —       $ 1,116,242  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Percentage of total loans

     94.02 %      1.34 %      4.64 %      0.00 %         
           
December 31, 2012   Pass     Special
Mention		     Substandard     Doubtful     Total  

Commercial

                                        

Owner occupied real estate

   $ 137,664     $ 6,407     $ 17,029     $ 1,594     $ 162,694  

Non owner occupied real estate

     171,319       19,440       10,717       287       201,763  

Residential development

     405       —         651       —         1,056  

Development & Spec Land Loans

     3,171       178       3,614       —         6,963  

Commercial and industrial

     78,810       3,136       5,136       —         87,082  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total commercial

     391,369       29,161       37,147       1,881       459,558  

Real estate

                                        

Residential mortgage

     172,586       —         8,864       —         181,450  

Residential construction

     7,390       —         291       —         7,681  

Mortgage warehouse

     251,448       —         —         —         251,448  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total real estate

     431,424       —         9,155       —         440,579  

Consumer

                                        

Direct Installment

     27,667       —         164       —         27,831  

Direct Installment Purchased

     429       —         —         —         429  

Indirect Installment

     132,589       —         892       —         133,481  

Home Equity

     123,713       —         2,875       —         126,588  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Consumer

     284,398       —         3,931       —         288,329  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 1,107,191     $ 29,161     $ 50,233     $ 1,881     $ 1,188,466  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Percentage of total loans

     93.16 %      2.45 %      4.23 %      0.16 %