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Loans
 6 Months Ended 12 Months Ended
Jun. 30, 2013
Dec. 31, 2012
Loans [Abstract]    
Loans
Note 5 – Loans
 
Loans were comprised of the following classifications at June 30, 2013 and December 31, 2012:
 
 
 
June 30,
 
 
December 31,
 
 
 
2013
 
 
2012
 
Commercial:
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
346,375
 
 
$
335,373
 
Commercial Real Estate Loans
 
 
508,675
 
 
 
488,496
 
Agricultural Loans
 
 
175,958
 
 
 
179,906
 
Retail:
 
 
 
 
 
 
 
 
Home Equity Loans
 
 
73,232
 
 
 
74,437
 
Consumer Loans
 
 
46,186
 
 
 
41,103
 
Residential Mortgage Loans
 
 
95,279
 
 
 
88,586
 
Subtotal
 
 
1,245,705
 
 
 
1,207,901
 
Less:   Unearned Income
 
 
(2,741
)
 
 
(3,035
)
Allowance for Loan Losses
 
 
(15,263
)
 
 
(15,520
)
Loans, Net
 
$
1,227,701
 
 
$
1,189,346
 
 
The following table presents the activity in the allowance for loan losses by portfolio class for the three months ending June 30, 2013 and 2012:
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
 
Total
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
4,753
 
 
$
8,879
 
 
$
766
 
 
$
118
 
 
$
189
 
 
$
300
 
 
$
729
 
 
$
15,734
 
Provision for Loan Losses
 
 
(452
)
 
 
(53
)
 
 
51
 
 
 
196
 
 
 
43
 
 
 
(16
)
 
 
31
 
 
 
(200
)
Recoveries
 
 
10
 
 
 
27
 
 
 
—
 
 
 
—
 
 
 
16
 
 
 
1
 
 
 
—
 
 
 
54
 
Loans Charged-off
 
 
(53
)
 
 
(217
)
 
 
—
 
 
 
(1
)
 
 
(49
)
 
 
(5
)
 
 
—
 
 
 
(325
)
Ending Balance
 
$
4,258
 
 
$
8,636
 
 
$
817
 
 
$
313
 
 
$
199
 
 
$
280
 
 
$
760
 
 
$
15,263
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
 
Total
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
4,460
 
 
$
9,234
 
 
$
751
 
 
$
204
 
 
$
196
 
 
$
441
 
 
$
480
 
 
$
15,766
 
Provision for Loan Losses
 
 
312
 
 
 
(202
)
 
 
139
 
 
(17
)
 
 
83
 
 
(8
)
 
 
84
 
 
 
391
 
Recoveries
 
 
4
 
 
 
7
 
 
 
—
 
 
 
—
 
 
 
33
 
 
 
7
 
 
 
—
 
 
 
51
 
Loans Charged-off
 
 
(69
)
 
 
(307
)
 
 
—
 
 
(6
)
 
 
(85
)
 
 
(49
)
 
 
—
 
 
 
(516
)
Ending Balance
 
$
4,707
 
 
$
8,732
 
 
$
890
 
 
$
181
 
 
$
227
 
 
$
391
 
 
$
564
 
 
$
15,692
 
 
The following table presents the activity in the allowance for loan losses by portfolio class for the six months ending June 30, 2013 and 2012:
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
 
Total
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
4,555
 
 
$
8,931
 
 
$
989
 
 
$
141
 
 
$
214
 
 
$
186
 
 
$
504
 
 
$
15,520
 
Provision for Loan Losses
 
 
(257
)
 
 
(47
)
 
 
(172
)
 
 
237
 
 
 
36
 
 
 
97
 
 
 
256
 
 
 
150
 
Recoveries
 
 
13
 
 
 
78
 
 
 
—
 
 
 
—
 
 
 
71
 
 
 
3
 
 
 
—
 
 
 
165
 
Loans Charged-off
 
 
(53
)
 
 
(326
)
 
 
—
 
 
 
(65
)
 
 
(122
)
 
 
(6
)
 
 
—
 
 
 
(572
)
Ending Balance
 
$
4,258
 
 
$
8,636
 
 
$
817
 
 
$
313
 
 
$
199
 
 
$
280
 
 
$
760
 
 
$
15,263
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
 
Total
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
3,493
 
 
$
9,297
 
 
$
926
 
 
$
258
 
 
$
190
 
 
$
402
 
 
$
746
 
 
$
15,312
 
Provision for Loan Losses
 
 
1,273
 
 
 
(144
)
 
 
(36
)
 
 
(30
)
 
 
129
 
 
 
71
 
 
 
(182
)
 
 
1,081
 
Recoveries
 
 
49
 
 
 
26
 
 
 
—
 
 
 
1
 
 
 
64
 
 
 
9
 
 
 
—
 
 
 
149
 
Loans Charged-off
 
 
(108
)
 
 
(447
)
 
 
—
 
 
 
(48
)
 
 
(156
)
 
 
(91
)
 
 
—
 
 
 
(850
)
Ending Balance
 
$
4,707
 
 
$
8,732
 
 
$
890
 
 
$
181
 
 
$
227
 
 
$
391
 
 
$
564
 
 
$
15,692
 
 
In determining the adequacy of the allowance for loan loss, general allocations are made for other pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss. General allocations of the allowance are primarily made based on a three-year historical average for loan losses for these portfolios, judgmentally adjusted for economic factors and portfolio trends. For 2012, the Company utilized a 4 quarter rolling historical loan loss average. Beginning in 2013, management deemed a rolling 12 quarter historical loan loss average to be more indicative of the inherent losses in the Company’s loan portfolio in the current economic environment than the 4 quarter average. This change in methodology resulted in an increase to the required loan loss allowance of approximately $280.
 
Loan impairment is reported when full repayment under the terms of the loan is not expected. This methodology is used for all loans, including loans acquired with deteriorated credit quality. For purchased loans, the assessment is made at the time of acquisition as well as over the life of loan. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
  
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2013 and December 31, 2012:
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
 
 
Total
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Allowance Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually Evaluated for Impairment
 
$
4,158
 
 
$
496
 
 
$
3,662
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Collectively Evaluated for Impairment
 
 
10,955
 
 
 
3,762
 
 
 
4,824
 
 
 
817
 
 
 
313
 
 
 
199
 
 
 
280
 
 
 
760
 
Acquired with Deteriorated Credit Quality
 
 
150
 
 
 
—
 
 
 
150
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Total Ending Allowance Balance
 
$
15,263
 
 
$
4,258
 
 
$
8,636
 
 
$
817
 
 
$
313
 
 
$
199
 
 
$
280
 
 
$
760
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Individually Evaluated for Impairment
 
$
10,923
 
 
$
2,511
 
 
$
7,467
 
 
$
945
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Loans Collectively Evaluated for Impairment
 
 
1,229,900
 
 
 
342,557
 
 
 
495,213
 
 
 
177,017
 
 
 
73,486
 
 
 
46,175
 
 
 
95,452
 
 
 
—
 
Loans Acquired with Deteriorated Credit Quality
 
 
9,851
 
 
 
2,231
 
 
 
7,333
 
 
 
—
 
 
 
—
 
 
 
140
 
 
 
147
 
 
 
—
 
Total Ending Loans Balance (1)
 
$
1,250,674
 
 
$
347,299
 
 
$
510,013
 
 
$
177,962
 
 
$
73,486
 
 
$
46,315
 
 
$
95,599
 
 
$
—
 
 
(1) Total recorded investment in loans includes $4,969 in accrued interest.
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
 
 
Total
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Allowance Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually Evaluated for Impairment
 
$
5,323
 
 
$
1,279
 
 
$
3,894
 
 
$
150
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Collectively Evaluated for Impairment
 
 
10,109
 
 
 
3,208
 
 
 
5,017
 
 
 
839
 
 
 
141
 
 
 
214
 
 
 
186
 
 
 
504
 
Acquired with Deteriorated Credit Quality
 
 
88
 
 
 
68
 
 
 
20
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Total Ending Allowance Balance
 
$
15,520
 
 
$
4,555
 
 
$
8,931
 
 
$
989
 
 
$
141
 
 
$
214
 
 
$
186
 
 
$
504
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Individually Evaluated for Impairment
 
$
12,520
 
 
$
2,547
 
 
$
7,550
 
 
$
2,423
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Loans Collectively Evaluated for Impairment
 
 
1,189,729
 
 
 
331,920
 
 
 
473,209
 
 
 
180,152
 
 
 
74,699
 
 
 
41,083
 
 
 
88,666
 
 
 
—
 
Loans Acquired with Deteriorated Credit Quality
 
 
11,174
 
 
 
1,840
 
 
 
9,037
 
 
 
—
 
 
 
—
 
 
 
148
 
 
 
149
 
 
 
—
 
Total Ending Loans Balance (1)
 
$
1,213,423
 
 
$
336,307
 
 
$
489,796
 
 
$
182,575
 
 
$
74,699
 
 
$
41,231
 
 
$
88,815
 
 
$
—
 
 
(1) Total recorded investment in loans includes $5,522 in accrued interest.
 
The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2013 and December 31, 2012:
 
 
 
Unpaid
 
 
 
 
 
Allowance for
 
 
 
Principal
 
 
Recorded
 
 
Loan Losses
 
 
 
Balance(1)
 
 
Investment
 
 
Allocated
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
1,975
 
 
$
1,995
 
 
$
—
 
Commercial Real Estate Loans
 
 
3,674
 
 
 
1,894
 
 
 
—
 
Agricultural Loans
 
 
937
 
 
 
946
 
 
 
—
 
Subtotal
 
 
6,586
 
 
 
4,835
 
 
 
—
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
566
 
 
 
516
 
 
 
496
 
Commercial Real Estate Loans
 
 
6,011
 
 
 
5,925
 
 
 
3,812
 
Agricultural Loans
 
 
—
 
 
 
—
 
 
 
—
 
Subtotal
 
 
6,577
 
 
 
6,441
 
 
 
4,308
 
Total
 
$
13,163
 
 
$
11,276
 
 
$
4,308
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
—
 
 
$
—
 
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
439
 
 
$
353
 
 
$
150
 
 
(1) Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.
 
 
 
Unpaid
 
 
 
 
 
Allowance for
 
 
 
Principal
 
 
Recorded
 
 
Loan Losses
 
 
 
Balance(1)
 
 
Investment
 
 
Allocated
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
108
 
 
$
87
 
 
$
—
 
Commercial Real Estate Loans
 
 
4,312
 
 
 
2,154
 
 
 
—
 
Agricultural Loans
 
 
2,126
 
 
 
2,137
 
 
 
—
 
Subtotal
 
 
6,546
 
 
 
4,378
 
 
 
—
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2,642
 
 
 
2,581
 
 
 
1,347
 
Commercial Real Estate Loans
 
 
5,579
 
 
 
5,418
 
 
 
3,914
 
Agricultural Loans
 
 
285
 
 
 
286
 
 
 
150
 
Subtotal
 
 
8,506
 
 
 
8,285
 
 
 
5,411
 
Total
 
$
15,052
 
 
$
12,663
 
 
$
5,411
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance  Recorded (Included in the Total Above)
 
$
45
 
 
$
25
 
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance  Recorded (Included in the Total Above)
 
$
155
 
 
$
118
 
 
$
88
 
 
(1) Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.
 
The following table presents loans individually evaluated for impairment by class of loans including purchase credit impaired loans that subsequently result in additional allowance for loan losses for the three month period ended June 30, 2013 and 2012:
 
 
 
Average
 
 
Interest
 
 
Cash
 
 
 
Recorded
 
 
Income
 
 
Basis
 
 
 
Investment
 
 
Recognized
 
 
Recognized
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
1,993
 
 
$
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
2,196
 
 
 
—
 
 
 
—
 
Agricultural Loans
 
 
2,041
 
 
 
127
 
 
 
168
 
Subtotal
 
 
6,230
 
 
 
127
 
 
 
168
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
522
 
 
 
1
 
 
 
1
 
Commercial Real Estate Loans
 
 
6,276
 
 
 
6
 
 
 
4
 
Agricultural Loans
 
 
—
 
 
 
—
 
 
 
—
 
Subtotal
 
 
6,798
 
 
 
7
 
 
 
5
 
Total
 
$
13,028
 
 
$
134
 
 
$
173
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
80
 
 
$
—
 
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
363
 
 
$
1
 
 
$
1
 
 
 
 
Average
 
 
Interest
 
 
Cash
 
 
 
Recorded
 
 
Income
 
 
Basis
 
 
 
Investment
 
 
Recognized
 
 
Recognized
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
100
 
 
$
1
 
 
$
1
 
Commercial Real Estate Loans
 
 
6,166
 
 
 
1
 
 
 
1
 
Agricultural Loans
 
 
145
 
 
 
2
 
 
 
2
 
Subtotal
 
 
6,411
 
 
 
4
 
 
 
4
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2,795
 
 
 
2
 
 
 
2
 
Commercial Real Estate Loans
 
 
6,546
 
 
 
5
 
 
 
5
 
Agricultural Loans
 
 
—
 
 
 
—
 
 
 
—
 
Subtotal
 
 
9,341
 
 
 
7
 
 
 
7
 
Total
 
$
15,752
 
 
$
11
 
 
$
11
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
1,029
 
 
$
1
 
 
$
1
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
205
 
 
$
—
 
 
$
—
 
 
The following table presents loans individually evaluated for impairment by class of loans including purchase credit impaired loans that subsequently result in additional allowance for loan losses for the six month period ended June 30, 2013 and 2012:
 
 
 
Average
 
 
Interest
 
 
Cash
 
 
 
Recorded
 
 
Income
 
 
Basis
 
 
 
Investment
 
 
Recognized
 
 
Recognized
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
1,052
 
 
$
—
 
 
$
1
 
Commercial Real Estate Loans
 
 
2,183
 
 
 
—
 
 
 
—
 
Agricultural Loans
 
 
2,231
 
 
 
175
 
 
 
184
 
Subtotal
 
 
5,466
 
 
 
175
 
 
 
185
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
1,528
 
 
 
2
 
 
 
2
 
Commercial Real Estate Loans
 
 
6,042
 
 
 
11
 
 
 
9
 
Agricultural Loans
 
 
—
 
 
 
—
 
 
 
—
 
Subtotal
 
 
7,570
 
 
 
13
 
 
 
11
 
Total
 
$
13,036
 
 
$
188
 
 
$
196
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
55
 
 
$
—
 
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
314
 
 
$
1
 
 
$
1
 
  
 
 
Average
 
 
Interest
 
 
Cash
 
 
 
Recorded
 
 
Income
 
 
Basis
 
 
 
Investment
 
 
Recognized
 
 
Recognized
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
377
 
 
$
2
 
 
$
2
 
Commercial Real Estate Loans
 
 
5,858
 
 
 
5
 
 
 
5
 
Agricultural Loans
 
 
73
 
 
 
2
 
 
 
2
 
Subtotal
 
 
6,308
 
 
 
9
 
 
 
9
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2,818
 
 
 
3
 
 
 
3
 
Commercial Real Estate Loans
 
 
6,914
 
 
 
11
 
 
 
9
 
Agricultural Loans
 
 
—
 
 
 
—
 
 
 
—
 
Subtotal
 
 
9,732
 
 
 
14
 
 
 
12
 
Total
 
$
16,040
 
 
$
23
 
 
$
21
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
212
 
 
$
1
 
 
$
1
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
77
 
 
$
—
 
 
$
—
 
 
All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan. Uncollected accrued interest for each class of loans is reversed against income at the time a loan is placed on non-accrual. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. All classes of loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans are typically charged-off at 180 days past due, or earlier if deemed uncollectible. Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection.
 
The following table presents the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual by class of loans as of June 30, 2013 and December 31, 2012:
 
 
 
 
 
 
 
 
Loans Past Due
 
 
 
 
 
 
 
 
 
90 Days or More
 
 
 
Non-Accrual
 
 
& Still Accruing
 
 
 
2013
 
 
2012
 
 
2013
 
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
478
 
 
$
2,480
 
 
$
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
7,404
 
 
 
7,275
 
 
 
—
 
 
 
—
 
Agricultural Loans
 
 
14
 
 
 
—
 
 
 
102
 
 
 
—
 
Home Equity Loans
 
 
267
 
 
 
178
 
 
 
—
 
 
 
—
 
Consumer Loans
 
 
194
 
 
 
167
 
 
 
—
 
 
 
—
 
Residential Mortgage Loans
 
 
153
 
 
 
257
 
 
 
—
 
 
 
—
 
Total
 
$
8,510
 
 
$
10,357
 
 
$
102
 
 
$
—
 
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
474
 
 
$
148
 
 
$
—
 
 
$
—
 
 
  
The following table presents the aging of the recorded investment in past due loans by class of loans as of June 30, 2013 and December 31, 2012:
 
 
 
 
 
 
 
 
 
 
 
 
90 Days
 
 
 
 
 
 
 
 
 
 
 
 
30-59 Days
 
 
60-89 Days
 
 
or More
 
 
Total
 
 
Loans Not
 
 
 
Total
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
347,299
 
 
$
302
 
 
$
119
 
 
$
429
 
 
$
850
 
 
$
346,449
 
Commercial Real Estate Loans
 
 
510,013
 
 
 
206
 
 
 
40
 
 
 
1,657
 
 
 
1,903
 
 
 
508,110
 
Agricultural Loans
 
 
177,962
 
 
 
—
 
 
 
—
 
 
 
116
 
 
 
116
 
 
 
177,846
 
Home Equity Loans
 
 
73,486
 
 
 
336
 
 
 
98
 
 
 
267
 
 
 
701
 
 
 
72,785
 
Consumer Loans
 
 
46,315
 
 
 
207
 
 
 
27
 
 
 
53
 
 
 
287
 
 
 
46,028
 
Residential Mortgage Loans
 
 
95,599
 
 
 
2,672
 
 
 
643
 
 
 
153
 
 
 
3,468
 
 
 
92,131
 
Total (1)
 
$
1,250,674
 
 
$
3,723
 
 
$
927
 
 
$
2,675
 
 
$
7,325
 
 
$
1,243,349
 
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
9,851
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
9,851
 
 
(1) Total recorded investment in loans includes $4,969 in accrued interest.
 
 
 
 
 
 
 
 
 
 
 
 
90 Days
 
 
 
 
 
 
 
 
 
 
 
 
30-59 Days
 
 
60-89 Days
 
 
or More
 
 
Total
 
 
Loans Not
 
 
 
Total
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
336,307
 
 
$
436
 
 
$
133
 
 
$
448
 
 
$
1,017
 
 
$
335,290
 
Commercial Real Estate Loans
 
 
489,796
 
 
 
1,352
 
 
 
—
 
 
 
2,063
 
 
 
3,415
 
 
 
486,381
 
Agricultural Loans
 
 
182,575
 
 
 
42
 
 
 
14
 
 
 
—
 
 
 
56
 
 
 
182,519
 
Home Equity Loans
 
 
74,699
 
 
 
177
 
 
 
48
 
 
 
178
 
 
 
403
 
 
 
74,296
 
Consumer Loans
 
 
41,231
 
 
 
431
 
 
 
23
 
 
 
18
 
 
 
472
 
 
 
40,759
 
Residential Mortgage Loans
 
 
88,815
 
 
 
2,070
 
 
 
495
 
 
 
257
 
 
 
2,822
 
 
 
85,993
 
Total (1)
 
$
1,213,423
 
 
$
4,508
 
 
$
713
 
 
$
2,964
 
 
$
8,185
 
 
$
1,205,238
 
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
11,174
 
 
$
—
 
 
$
120
 
 
$
—
 
 
$
120
 
 
$
11,054
 
 
(1) Total recorded investment in loans includes $5,522 in accrued interest.
 
Troubled Debt Restructurings:
 
In certain instances, the Company may choose to restructure the contractual terms of loans. A troubled debt restructuring occurs when the Bank grants a concession to the borrower that it would not otherwise consider due to a borrower’s financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the Company’s internal underwriting policy. The Company uses the same methodology for loans acquired with deteriorated credit quality as for all other loans when determining whether the loan is a troubled debt restructuring.
 
During the six months ended June 30, 2013 and the year ended December 31, 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. There were no troubled debt restructurings for the six months ended June 30, 2013 and the year ended December 31, 2012 for loans acquired with deteriorated credit quality at the time of acquisition.
 
The following table presents the recorded investment of troubled debt restructurings by class of loans as of June 30, 2013 and December 31, 2012:
 
 
 
Total
 
 
Performing
 
 
Non-Accrual(1)
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
2,455
 
 
$
2,033
 
 
$
422
 
Commercial Real Estate Loans
 
 
4,521
 
 
 
395
 
 
 
4,126
 
Total
 
$
6,976
 
 
$
2,428
 
 
$
4,548
 
 
 
 
Total
 
 
Performing
 
 
Non-Accrual(1)
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
2,461
 
 
$
66
 
 
$
2,395
 
Commercial Real Estate Loans
 
 
6,031
 
 
 
304
 
 
 
5,727
 
Total
 
$
8,492
 
 
$
370
 
 
$
8,122
 
 
(1) The non-accrual troubled debt restructurings are included in the Non-Accrual Loan table presented on previous page.
 
The Company has committed to lending an additional amount of $34 as of June 30, 2013 to customers with outstanding loans that are classified as troubled debt restructurings. The Company had not committed to lending any additional amounts as of December 31, 2012 to customers with outstanding loans that are classified as troubled debt restructurings.
 
The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ending June 30, 2013 and 2012:
 
 
 
 
 
 
Pre-Modification
 
 
Post-Modification
 
 
 
Number of
 
 
Outstanding Recorded
 
 
Outstanding Recorded
 
 
 
Loans
 
 
Investment
 
 
Investment
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
—
 
 
$
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
1
 
 
 
81
 
 
 
118
 
Total
 
 
1
 
 
$
81
 
 
$
118
 
 
The troubled debt restructurings described above decreased the allowance for loan losses by $210 and resulted in charge-offs of $0 during the three months ending June 30, 2013.
 
 
 
 
 
 
 
 
 
Pre-Modification
 
 
Post-Modification
 
 
 
Number of
 
 
Outstanding Recorded
 
 
Outstanding Recorded
 
 
 
Loans
 
 
Investment
 
 
Investment
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
—
 
 
$
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
—
 
 
 
—
 
 
 
—
 
Total
 
 
—
 
 
$
—
 
 
$
—
 
 
The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during the three months ending June 30, 2012.
  
The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ending June 30, 2013 and 2012:
 
 
 
 
 
 
Pre-Modification
 
 
Post-Modification
 
 
 
Number of
 
 
Outstanding Recorded
 
 
Outstanding Recorded
 
 
 
Loans
 
 
Investment
 
 
Investment
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
—
 
 
$
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
1
 
 
 
81
 
 
 
118
 
Total
 
 
1
 
 
$
81
 
 
$
118
 
 
The troubled debt restructurings described above decreased the allowance for loan losses by $210 and resulted in charge-offs of $0 during the six months ending June 30, 2013.
 
 
 
 
 
 
Pre-Modification
 
 
Post-Modification
 
 
 
Number of
 
 
Outstanding Recorded
 
 
Outstanding Recorded
 
 
 
Loans
 
 
Investment
 
 
Investment
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
—
 
 
$
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
—
 
 
 
—
 
 
 
—
 
Total
 
 
—
 
 
$
—
 
 
$
—
 
 
The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during the six months ending June 30, 2012.
 
The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three months ending June 30, 2013 and 2012:
 
Troubled Debt Restructurings That Subsequently Defaulted:
 
Number of Loans
 
 
Recorded Investment
 
June 30, 2013
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
—
 
 
 
—
 
Total
 
 
—
 
 
$
—
 
 
The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and no charge-offs during the three months ending June 30, 2013.
 
Troubled Debt Restructurings That Subsequently Defaulted:
 
Number of Loans
 
 
Recorded Investment
 
June 30, 2012
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
—
 
 
 
—
 
Total
 
 
—
 
 
$
—
 
 
The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and no charge-offs during the three months ending June 30, 2012.
 
A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
  
The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the six months ending June 30, 2013 and 2012:
 
Troubled Debt Restructurings That Subsequently Defaulted:
 
Number of Loans
 
 
Recorded Investment
 
June 30, 2013
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
—
 
 
 
—
 
Total
 
 
—
 
 
$
—
 
 
The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and no charge-offs during the six months ending June 30, 2013.
 
Troubled Debt Restructurings That Subsequently Defaulted:
 
Number of Loans
 
 
Recorded Investment
 
June 30, 2012
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
1
 
 
$
565
 
Commercial Real Estate Loans
 
 
1
 
 
 
292
 
Total
 
 
2
 
 
$
857
 
 
The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and charge-offs of $108 during the six months ending June 30, 2012.
 
A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
 
Credit Quality Indicators:
 
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company classifies loans as to credit risk by individually analyzing loans. This analysis includes commercial and industrial loans, commercial real estate loans, and agricultural loans with an outstanding balance greater than $100. This analysis is typically performed on at least an annual basis. The Company uses the following definitions for risk ratings:
 
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
 
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
 
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
  
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
 
 
 
 
 
 
Special
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
 
Mention
 
 
Substandard
 
 
Doubtful
 
 
Total
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
319,137
 
 
$
16,894
 
 
$
11,268
 
 
$
—
 
 
$
347,299
 
Commercial Real Estate Loans
 
 
472,008
 
 
 
19,207
 
 
 
18,798
 
 
 
—
 
 
 
510,013
 
Agricultural Loans
 
 
174,218
 
 
 
2,596
 
 
 
1,148
 
 
 
—
 
 
 
177,962
 
Total
 
$
965,363
 
 
$
38,697
 
 
$
31,214
 
 
$
—
 
 
$
1,035,274
 
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
318
 
 
$
3,525
 
 
$
5,721
 
 
$
—
 
 
$
9,564
 
 
 
 
 
 
 
Special
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
 
Mention
 
 
Substandard
 
 
Doubtful
 
 
Total
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
307,997
 
 
$
14,441
 
 
$
13,869
 
 
$
—
 
 
$
336,307
 
Commercial Real Estate Loans
 
 
446,639
 
 
 
21,338
 
 
 
21,819
 
 
 
—
 
 
 
489,796
 
Agricultural Loans
 
 
176,730
 
 
 
2,855
 
 
 
2,990
 
 
 
—
 
 
 
182,575
 
Total
 
$
931,366
 
 
$
38,634
 
 
$
38,678
 
 
$
—
 
 
$
1,008,678
 
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
319
 
 
$
3,220
 
 
$
7,338
 
 
$
—
 
 
$
10,877
 
 
The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For home equity, consumer and residential mortgage loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in home equity, consumer and residential mortgage loans based on payment activity as of June 30, 2013 and December 31, 2012:
 
 
 
Home Equity
 
 
Consumer
 
 
Residential
 
 
 
Loans
 
 
Loans
 
 
Mortgage Loans
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Performing
 
$
73,219
 
 
$
46,121
 
 
$
95,446
 
Nonperforming
 
 
267
 
 
 
194
 
 
 
153
 
Total
 
$
73,486
 
 
$
46,315
 
 
$
95,599
 
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
—
 
 
$
140
 
 
$
147
 
 
 
 
Home Equity
 
 
Consumer
 
 
Residential
 
 
 
Loans
 
 
Loans
 
 
Mortgage Loans
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Performing
 
$
74,521
 
 
$
41,064
 
 
$
88,558
 
Nonperforming
 
 
178
 
 
 
167
 
 
 
257
 
Total
 
$
74,699
 
 
$
41,231
 
 
$
88,815
 
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
—
 
 
$
148
 
 
$
149
 
  
The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The recorded investment of those loans is as follows:
 
 
 
June 30, 2013
 
 
 
 
 
Commercial and Industrial Loans
 
$
2,231
 
Commercial Real Estate Loans
 
 
7,333
 
Home Equity Loans
 
 
—
 
Consumer Loans
 
 
140
 
Residential Mortgage Loans
 
 
147
 
Total
 
$
9,851
 
 
 
 
 
 
Carrying amount, Net of Allowance of $150
 
$
9,701
 
 
 
 
December 31, 2012
 
 
 
 
 
Commercial and Industrial Loans
 
$
1,840
 
Commercial Real Estate Loans
 
 
9,037
 
Home Equity Loans
 
 
—
 
Consumer Loans
 
 
148
 
Residential Mortgage Loans
 
 
149
 
Total
 
$
11,174
 
 
 
 
 
 
Carrying amount, Net of Allowance of $88
 
$
11,086
 
 
Accretable yield, or income expected to be collected, is as follows:
 
 
 
June 30, 2013
 
 
June 30, 2012
 
 
 
 
 
 
 
 
Balance at April 1
 
$
208
 
 
$
630
 
New Loans Purchased
 
 
—
 
 
 
—
 
Accretion of Income
 
 
(234
)
 
 
(241
)
Reclassifications from Non-accretable Difference
 
 
208
 
 
 
—
 
Charge-off of Accretable Yield
 
 
—
 
 
 
—
 
Balance at June 30
 
$
182
 
 
$
389
 
 
Accretable yield, or income expected to be collected, is as follows:
 
 
 
June 30, 2013
 
 
June 30, 2012
 
 
 
 
 
 
 
 
Balance at January 1
 
$
170
 
 
$
967
 
New Loans Purchased
 
 
—
 
 
 
—
 
Accretion of Income
 
 
(446
)
 
 
(784
)
Reclassifications from Non-accretable Difference
 
 
458
 
 
 
206
 
Charge-off of Accretable Yield
 
 
—
 
 
 
—
 
Balance at June 30
 
$
182
 
 
$
389
 
 
For those purchased loans disclosed above, the Company increased the allowance for loan losses by $70 during the three months ended June 30, 2013. For those purchased loans disclosed above, the Company increased the allowance for loan losses by $61 during the six months ended June 30, 2013. For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the three and six months ended June 30, 2012. No allowances for loan losses were reversed during the same periods.
NOTE 4 – Loans
 
Loans were comprised of the following classifications at December 31:
 
2012
2011
Commercial:
Commercial and Industrial Loans and Leases
$
335,373
$
293,172
Commercial Real Estate Loans
488,496
452,071
Agricultural Loans
179,906
167,693
Retail:
Home Equity Loans
74,437
77,070
Consumer Loans
41,103
47,409
Residential Mortgage Loans
88,586
86,134
Subtotal
1,207,901
1,123,549
Less: Unearned Income
(3,035
)
(2,556
)
Allowance for Loan Losses
(15,520
)
(15,312
)
Loans, net
$
1,189,346
$
1,105,681
 
The following tables present the activity in the allowance for loan losses by portfolio class for the years ended December 31, 2012 and 2011:
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
 
Total
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
3,493
 
 
$
9,297
 
 
$
926
 
 
$
258
 
 
$
190
 
 
$
402
 
 
$
746
 
 
$
15,312
 
Provision for Loan Losses
 
 
1,150
 
 
 
1,326
 
 
 
63
 
 
 
(32
)
 
 
194
 
 
 
(47
)
 
 
(242
)
 
 
2,412
 
Recoveries
 
 
74
 
 
 
97
 
 
 
—
 
 
 
2
 
 
 
123
 
 
 
30
 
 
 
—
 
 
 
326
 
Loans Charged-off
 
 
(162
)
 
 
(1,789
)
 
 
—
 
 
 
(87
)
 
 
(293
)
 
 
(199
)
 
 
—
 
 
 
(2,530
)
Ending Balance
 
$
4,555
 
 
$
8,931
 
 
$
989
 
 
$
141
 
 
$
214
 
 
$
186
 
 
$
504
 
 
$
15,520
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
 
Total
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
3,713
 
 
$
7,497
 
 
$
750
 
 
$
220
 
 
$
362
 
 
$
543
 
 
$
232
 
 
$
13,317
 
Provision for Loan Losses
 
 
1,195
 
 
 
4,265
 
 
 
176
 
 
 
287
 
 
 
23
 
 
 
340
 
 
 
514
 
 
 
6,800
 
Recoveries
 
 
98
 
 
 
139
 
 
 
—
 
 
 
6
 
 
 
125
 
 
 
16
 
 
 
—
 
 
 
384
 
Loans Charged-off
 
 
(1,513
)
 
 
(2,604
)
 
 
—
 
 
 
(255
)
 
 
(320
)
 
 
(497
)
 
 
—
 
 
 
(5,189
)
Ending Balance
 
$
3,493
 
 
$
9,297
 
 
$
926
 
 
$
258
 
 
$
190
 
 
$
402
 
 
$
746
 
 
$
15,312
 
 
The following table presents the activity in the allowance for loan losses for the year ended December 31, 2010:
 
2010
Beginning Balance
$
11,016
Provision for Loan Losses
5,225
Loans Charged-off
(4,214
)
Recoveries
1,290
Ending Balance
$
13,317
 
Loan impairment is reported when full repayment under the terms of the loan is not expected. This methodology is used for all loans, including loans acquired with deteriorated credit quality. For purchased loans, the assessment is made at the time of acquisition as well as over the life of loan. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
 
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of December 31, 2012 and 2011:
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
December 31, 2012
 
Total
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Allowance Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually Evaluated for Impairment
 
$
5,323
 
 
$
1,279
 
 
$
3,894
 
 
$
150
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Collectively Evaluated for Impairment
 
 
10,109
 
 
 
3,208
 
 
 
5,017
 
 
 
839
 
 
 
141
 
 
 
214
 
 
 
186
 
 
 
504
 
Acquired with Deteriorated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Quality
 
 
88
 
 
 
68
 
 
 
20
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Total Ending Allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance
 
$
15,520
 
 
$
4,555
 
 
$
8,931
 
 
$
989
 
 
$
141
 
 
$
214
 
 
$
186
 
 
$
504
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
  
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Individually
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Evaluated for Impairment
 
$
12,520
 
 
$
2,547
 
 
$
7,550
 
 
$
2,423
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Loans Collectively
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Evaluated for Impairment
 
 
1,189,729
 
 
 
331,920
 
 
 
473,209
 
 
 
180,152
 
 
 
74,699
 
 
 
41,083
 
 
 
88,666
 
 
 
—
 
Loans Acquired with Deteriorated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Quality
 
 
11,174
 
 
 
1,840
 
 
 
9,037
 
 
 
—
 
 
 
—
 
 
 
148
 
 
 
149
 
 
 
—
 
Total Ending Loans Balance (1)
 
$
1,213,423
 
 
$
336,307
 
 
$
489,796
 
 
$
182,575
 
 
$
74,699
 
 
$
41,231
 
 
$
88,815
 
 
$
—
 
 
(1) Total recorded investment in loans includes $5,522 in accrued interest.
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
 
Commercial
 
 
 
 
 
Home
 
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
 
Real Estate
 
 
Agricultural
 
 
Equity
 
 
Consumer
 
 
Mortgage
 
 
 
 
December 31, 2011
 
Total
 
 
Leases
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Loans
 
 
Unallocated
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Allowance Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually Evaluated for Impairment
 
$
4,834
 
 
$
466
 
 
$
4,368
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Collectively Evaluated for Impairment
 
 
10,401
 
 
 
3,027
 
 
 
4,852
 
 
 
926
 
 
 
258
 
 
 
190
 
 
 
402
 
 
 
746
 
Acquired with Deteriorated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Quality
 
 
77
 
 
 
—
 
 
 
77
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Total Ending Allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance
 
$
15,312
 
 
$
3,493
 
 
$
9,297
 
 
$
926
 
 
$
258
 
 
$
190
 
 
$
402
 
 
$
746
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Individually
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Evaluated for Impairment
 
$
16,613
 
 
$
3,567
 
 
$
13,046
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Loans Collectively
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Evaluated for Impairment
 
 
1,096,571
 
 
 
287,924
 
 
 
427,063
 
 
 
170,513
 
 
 
77,323
 
 
 
47,431
 
 
 
86,317
 
 
 
—
 
Loans Acquired with Deteriorated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Quality
 
 
16,121
 
 
 
2,596
 
 
 
13,209
 
 
 
—
 
 
 
—
 
 
 
164
 
 
 
152
 
 
 
—
 
Total Ending Loans Balance (1)
 
$
1,129,305
 
 
$
294,087
 
 
$
453,318
 
 
$
170,513
 
 
$
77,323
 
 
$
47,595
 
 
$
86,469
 
 
$
—
 
 
(1) Total recorded investment in loans includes $5,756 in accrued interest.
 
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012 and 2011:
 
 
 
Unpaid
 
 
 
 
 
Allowance for
 
 
 
Principal
 
 
Recorded
 
 
Loan Losses
 
 
 
Balance(1)
 
 
Investment
 
 
Allocated
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
108
 
 
$
87
 
 
$
—
 
Commercial Real Estate Loans
 
 
4,312
 
 
 
2,154
 
 
 
—
 
Agricultural Loans
 
 
2,126
 
 
 
2,137
 
 
 
—
 
Subtotal
 
 
6,546
 
 
 
4,378
 
 
 
—
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2,642
 
 
 
2,581
 
 
 
1,347
 
Commercial Real Estate Loans
 
 
5,579
 
 
 
5,418
 
 
 
3,914
 
Agricultural Loans
 
 
285
 
 
 
286
 
 
 
150
 
Subtotal
 
 
8,506
 
 
 
8,285
 
 
 
5,411
 
Total
 
$
15,052
 
 
$
12,663
 
 
$
5,411
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
45
 
 
$
25
 
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
155
 
 
$
118
 
 
$
88
 
 
(1) Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.
 
 
 
Unpaid
 
 
 
 
 
Allowance for
 
 
 
Principal
 
 
Recorded
 
 
Loan Losses
 
 
 
Balance(1)
 
 
Investment
 
 
Allocated
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
1,731
 
 
$
1,066
 
 
$
—
 
Commercial Real Estate Loans
 
 
6,991
 
 
 
5,894
 
 
 
—
 
Agricultural Loans
 
 
—
 
 
 
—
 
 
 
—
 
Subtotal
 
 
8,722
 
 
 
6,960
 
 
 
—
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2,502
 
 
 
2,501
 
 
 
466
 
Commercial Real Estate Loans
 
 
7,587
 
 
 
7,230
 
 
 
4,445
 
Agricultural Loans
 
 
—
 
 
 
—
 
 
 
—
 
Subtotal
 
 
10,089
 
 
 
9,731
 
 
 
4,911
 
Total
 
$
18,811
 
 
$
16,691
 
 
$
4,911
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
48
 
 
$
28
 
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
205
 
 
$
77
 
 
$
77
 
 
(1) Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.
 
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012 and 2011:
 
 
 
Average
 
 
Interest
 
 
Cash
 
 
 
Recorded
 
 
Income
 
 
Basis
 
 
 
Investment
 
 
Recognized
 
 
Recognized
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
252
 
 
$
3
 
 
$
3
 
Commercial Real Estate Loans
 
 
4,506
 
 
 
18
 
 
 
18
 
Agricultural Loans
 
 
535
 
 
 
2
 
 
 
2
 
Subtotal
 
 
5,293
 
 
 
23
 
 
 
23
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2,726
 
 
 
9
 
 
 
8
 
Commercial Real Estate Loans
 
 
6,660
 
 
 
23
 
 
 
19
 
Agricultural Loans
 
 
74
 
 
 
—
 
 
 
—
 
Subtotal
 
 
9,460
 
 
 
32
 
 
 
27
 
Total
 
$
14,753
 
 
$
55
 
 
$
50
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
26
 
 
$
2
 
 
$
2
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
154
 
 
$
6
 
 
$
4
 
 
 
 
Average
 
 
Interest
 
 
Cash
 
 
 
Recorded
 
 
Income
 
 
Basis
 
 
 
Investment
 
 
Recognized
 
 
Recognized
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
1,107
 
 
$
9
 
 
$
9
 
Commercial Real Estate Loans
 
 
4,438
 
 
 
75
 
 
 
75
 
Agricultural Loans
 
 
19
 
 
 
6
 
 
 
6
 
Subtotal
 
 
5,564
 
 
 
90
 
 
 
90
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
3,642
 
 
 
11
 
 
 
11
 
Commercial Real Estate Loans
 
 
9,390
 
 
 
37
 
 
 
34
 
Agricultural Loans
 
 
—
 
 
 
—
 
 
 
—
 
Subtotal
 
 
13,032
 
 
 
48
 
 
 
45
 
Total
 
$
18,596
 
 
$
138
 
 
$
135
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
28
 
 
$
4
 
 
$
4
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
77
 
 
$
1
 
 
$
1
 
 
The following table presents information for loans individually evaluated for impairment for the year ended December 31, 2010:
 
2010
Average Balance of Impaired Loans During the Year
$
10,166
Interest Income Recognized During Impairment
78
Interest Income Recognized on Cash Basis
78
 
All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan. Uncollected accrued interest for each class of loans is reversed against income at the time a loan is placed on non-accrual. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. All classes of loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans are typically charged-off at 180 days past due, or earlier if deemed uncollectible. Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection.
 
The following table presents the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual by class of loans as of December 31, 2012 and 2011:
 
Loans Past Due
90 Days or More
Non-Accrual
& Still Accruing
2012
2011
2012
2011
Commercial and Industrial Loans and Leases
$
2,480
$
3,471
$
—
$
—
Commercial Real Estate Loans
7,275
13,289
—
—
Agricultural Loans
—
—
—
—
Home Equity Loans
178
90
—
—
Consumer Loans
167
259
—
—
Residential Mortgage Loans
257
748
—
—
Total
$
10,357
$
17,857
$
—
$
—
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)
$
148
$
859
$
—
$
—
 
The following table presents the aging of the recorded investment in past due loans by class of loans as of December 31, 2012 and 2011:
 
 
 
 
 
 
 
 
 
 
 
 
90 Days
 
 
 
 
 
 
 
 
 
 
 
 
30-59 Days
 
 
60-89 Days
 
 
or More
 
 
Total
 
 
Loans Not
 
 
 
Total
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
336,307
 
 
$
436
 
 
$
133
 
 
$
448
 
 
$
1,017
 
 
$
335,290
 
Commercial Real Estate Loans
 
 
489,796
 
 
 
1,352
 
 
 
—
 
 
 
2,063
 
 
 
3,415
 
 
 
486,381
 
Agricultural Loans
 
 
182,575
 
 
 
42
 
 
 
14
 
 
 
—
 
 
 
56
 
 
 
182,519
 
Home Equity Loans
 
 
74,699
 
 
 
177
 
 
 
48
 
 
 
178
 
 
 
403
 
 
 
74,296
 
Consumer Loans
 
 
41,231
 
 
 
431
 
 
 
23
 
 
 
18
 
 
 
472
 
 
 
40,759
 
Residential Mortgage Loans
 
 
88,815
 
 
 
2,070
 
 
 
495
 
 
 
257
 
 
 
2,822
 
 
 
85,993
 
Total (1)
 
$
1,213,423
 
 
$
4,508
 
 
$
713
 
 
$
2,964
 
 
$
8,185
 
 
$
1,205,238
 
Loans Acquired With Deteriorated Credit Quality
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
11,174
 
 
$
—
 
 
$
120
 
 
$
—
 
 
$
120
 
 
$
11,054
 
 
(1) Total recorded investment in loans includes $5,522 in accrued interest.
 
 
 
 
 
 
 
 
 
 
 
 
90 Days
 
 
 
 
 
 
 
 
 
 
 
 
30-59 Days
 
 
60-89 Days
 
 
or More
 
 
Total
 
 
Loans Not
 
 
 
Total
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
 
Past Due
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
294,087
 
 
$
220
 
 
$
—
 
 
$
1,141
 
 
$
1,361
 
 
$
292,726
 
Commercial Real Estate Loans
 
 
453,318
 
 
 
381
 
 
 
148
 
 
 
5,920
 
 
 
6,449
 
 
 
446,869
 
Agricultural Loans
 
 
170,513
 
 
 
10
 
 
 
—
 
 
 
—
 
 
 
10
 
 
 
170,503
 
Home Equity Loans
 
 
77,323
 
 
 
176
 
 
 
6
 
 
 
90
 
 
 
272
 
 
 
77,051
 
Consumer Loans
 
 
47,595
 
 
 
287
 
 
 
117
 
 
 
221
 
 
 
625
 
 
 
46,970
 
Residential Mortgage Loans
 
 
86,469
 
 
 
2,752
 
 
 
893
 
 
 
748
 
 
 
4,393
 
 
 
82,076
 
Total (1)
 
$
1,129,305
 
 
$
3,826
 
 
$
1,164
 
 
$
8,120
 
 
$
13,110
 
 
$
1,116,195
 
Loans Acquired With Deteriorated Credit Quality
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
16,121
 
 
$
248
 
 
$
56
 
 
$
554
 
 
$
858
 
 
$
15,263
 
 
(1) Total recorded investment in loans includes $5,756 in accrued interest.
 
Troubled Debt Restructurings:
 
In certain instances, the Company may choose to restructure the contractual terms of loans. A troubled debt restructuring occurs when the Bank grants a concession to the borrower that it would not otherwise consider due to a borrower’s financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the Company’s internal underwriting policy. The Company uses the same methodology for loans acquired with deteriorated credit quality as for all other loans when determining whether the loan is a troubled debt restructuring.
 
During the years ending December 31, 2012 and 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. There were no troubled debt restructurings for the years ended December 31, 2012 and 2011 for loans acquired with deteriorated credit quality at the time of acquisition.
 
The following table presents the recorded investment of troubled debt restructurings by class of loans as of December 31, 2012 and 2011:
 
Total
Performing
Non-Accrual(1)
December 31, 2012
Commercial and Industrial Loans and Leases
$
2,461
$
66
$
2,395
Commercial Real Estate Loans
6,031
304
5,727
Total
$
8,492
$
370
$
8,122
 
Total
Performing
Non-Accrual(1)
December 31, 2011
Commercial and Industrial Loans and Leases
$
3,391
$
98
$
3,293
Commercial Real Estate Loans
9,088
315
8,773
Total
$
12,479
$
413
$
12,066
 
(1) The non-accrual troubled debt restructurings are included in the Non-Accrual Loan table presented on previous page.
 
The Company has not committed to lending any additional amounts as of December 31, 2012 and 2011 to customers with outstanding loans that are classified as troubled debt restructurings.
 
The following table presents loans by class modified as troubled debt restructurings that occurred during the year ending December 31, 2012 and 2011:
 
Pre-Modification
Post-Modification
Number of
Outstanding Recorded
Outstanding Recorded
Loans
Investment
Investment
December 31, 2012
Commercial and Industrial Loans and Leases
2
$
9
$
9
Commercial Real Estate Loans
—
—
—
Total
2
$
9
$
9
 
The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during the year ending December 31, 2012.
 
Pre-Modification
Post-Modification
Number of
Outstanding Recorded
Outstanding Recorded
Loans
Investment
Investment
December 31, 2011
Commercial and Industrial Loans and Leases
4
$
4,541
$
4,499
Commercial Real Estate Loans
6
7,099
6,850
Total
10
$
11,640
$
11,349
 
The troubled debt restructurings described above increased the allowance for loan losses by $1,945 and resulted in charge-offs of $834 during the year ending December 31, 2011.
 
The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ending December 31, 2012 and 2011:
 
Troubled Debt Restructurings That Subsequently Defaulted:
Number of Loans
Recorded Investment
December 31, 2012
Commercial and Industrial Loans and Leases
1
$
565
Commercial Real Estate Loans
3
1,377
Total
4
$
1,942
 
The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $12 and resulted in charge-offs of $306 during the year ending December 31, 2012.
 
Troubled Debt Restructurings That Subsequently Defaulted:
Number of Loans
Recorded Investment
December 31, 2011
Commercial and Industrial Loans and Leases
1
$
527
Commercial Real Estate Loans
—
 
—
Total
1
$
527
 
The troubled debt restructurings that subsequently defaulted described above decreased the allowance for loan losses by $500 and resulted in charge-offs of $500 during the year ending December 31, 2011.
 
A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
 
Credit Quality Indicators:
 
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company classifies loans as to credit risk by individually analyzing loans. This analysis includes commercial and industrial loans, commercial real estate loans, and agricultural loans with an outstanding balance greater than $100. This analysis is typically performed on at least an annual basis. The Company uses the following definitions for risk ratings:
 
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
 
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
 
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
 
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
 
Special
Pass
Mention
Substandard
Doubtful
Total
December 31, 2012
Commercial and Industrial Loans and Leases
$
307,997
$
14,441
$
13,869
$
—
$
336,307
Commercial Real Estate Loans
446,639
21,338
21,819
—
489,796
Agricultural Loans
176,730
2,855
2,990
—
182,575
Total
$
931,366
$
38,634
$
38,678
$
—
$
1,008,678
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)
$
319
$
3,220
$
7,338
$
—
$
10,877
 
Special
Pass
Mention
Substandard
Doubtful
Total
December 31, 2011
Commercial and Industrial Loans and Leases
$
264,037
$
16,188
$
13,862
$
—
$
294,087
Commercial Real Estate Loans
396,057
28,272
28,989
—
453,318
Agricultural Loans
165,153
2,744
2,616
—
170,513
Total
$
825,247
$
47,204
$
45,467
$
—
$
917,918
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)
$
—
$
2,804
$
13,001
$
—
$
15,805
 
The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For home equity, consumer and residential mortgage loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in home equity, consumer and residential mortgage loans based on payment activity as of December 31, 2012 and 2011:
 
Home Equity
Consumer
Residential
Loans
Loans
Mortgage Loans
December 31, 2012
Performing
$
74,521
$
41,064
$
88,558
Nonperforming
178
167
257
Total
$
74,699
$
41,231
$
88,815
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)
$
—
$
148
$
149
 
Home Equity
Consumer
Residential
Loans
Loans
Mortgage Loans
December 31, 2011
Performing
$
77,233
$
47,336
$
85,721
Nonperforming
 
90
259
748
Total
$
77,323
$
47,595
$
86,469
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)
$
—
$
164
$
152
 
The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The recorded investment of those loans is as follows:
 
December 31, 2012
 
 
 
 
Commercial and Industrial Loans
$
1,840
Commercial Real Estate Loans
9,037
Home Equity Loans
—
Consumer Loans
148
Residential Mortgage Loans
149
Total
$
11,174
 
 
 
  
 
Carrying Amount, Net of Allowance
$
11,086
 
December 31, 2011
Commercial and Industrial Loans
$
2,596
Commercial Real Estate Loans
13,209
Home Equity Loans
—
Consumer Loans
164
Residential Mortgage Loans
152
Total
$
16,121
 
 
 
 
 
Carrying Amount, Net of Allowance
$
16,044
 
Accretable yield, or income expected to be collected, is as follows:
 
December 31, 2012
December 31, 2011
 
 
 
 
 
 
 
Balance at January 1
$
967
$
—
New Loans Purchased
—
2,042
Accretion of Income
(1,265
)
(1,130
)
Reclassifications from Non-accretable Difference
468
129
Charge-off of Accretable Yield
—
(74
)
Balance at December 31
$
170
$
967
 
For those purchased loans disclosed above, the Company increased the allowance for loan losses by $88 and $77 for the years ended December 31, 2012 and 2011. No allowances for loan losses were reversed during the same period.
 
Certain directors, executive officers, and principal shareholders of the Company, including their immediate families and companies in which they are principal owners, were loan customers of the Company during 2012. A summary of the activity of these loans follows:
 
Balance
Changes
Balance
January 1,
in Persons
Deductions
December 31,
2012
Additions
Included
Collected
Charged-off
2012
$
6,994
$
7,419
$
119
$
(5,530
)
$
—
$
9,002