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Allowance for Loan Losses
 9 Months Ended
Sep. 30, 2012
Allowance for Loan Losses [Abstract]  
Allowance for Loan Losses

(5) Allowance for Loan Losses

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Corporation has segmented certain loans in the portfolio by product type. Historical loss percentages for each risk category are calculated and used as the basis for calculating loan loss allowance allocations. These historical loss percentages are calculated over a three-year period for all portfolio segments. Certain economic factors are also considered for trends which management uses to establish the directionality of changes to the unallocated portion of the reserve. The following economic factors are analyzed:

 

  •  

Changes in lending policies and procedures

 

  •  

Changes in experience and depth of lending and management staff

 

  •  

Changes in quality of Bank’s credit review system

 

  •  

Changes in nature and volume of the loan portfolio

 

  •  

Changes in past due, classified and nonaccrual loans and TDRs

 

  •  

Changes in economic and business conditions

 

  •  

Changes in competition or legal and regulatory requirements

 

  •  

Changes in concentrations within the loan portfolio

 

  •  

Changes in the underlying collateral for collateral dependent loans

 

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Corporation considers the allowance for loan losses of $21,489 adequate to cover loan losses inherent in the loan portfolio, at September 30, 2012. The following tables present by portfolio segment, the changes in the allowance for loan losses and the loan balances outstanding for periods ended September 30, 2012, September 30, 2011 and December 31, 2011. The allowance for Consumer loans was reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type.

 

                                                         
    Commercial
& Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

For the nine months ending September 30, 2012

                                                        
               

Allowance for loan losses:

                                                        

Beginning balance

   $ 2,876     $ 10,571     $ 5,796     $ 974     $ 719     $ 321     $ 21,257  

Charge-offs

     (610 )      (2,463 )      (2,803 )      (297 )      (174 )      —         (6,347 ) 

Recoveries

     280       371       208       104       51       —         1,014  

Provision

     23       2,748       2,758       284       (343 )      95       5,565  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 2,569     $ 11,227     $ 5,959     $ 1,065     $ 253     $ 416     $ 21,489  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The allowances for both Real Estate Construction and Consumer loans were reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type. The net result of these changes was a reduction in the allowance for these loan types and is represented as a decrease in the provision. The allowance related to the unallocated segment was also reduced.

 

                                                         
    Commercial
& Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

For the nine months ending September 30, 2011

                                                        
               

Allowance for loan losses:

                                                        

Beginning balance

   $ 3,639     $ 9,827     $ 4,569     $ 2,139     $ 726     $ 868     $ 21,768  

Charge-offs

     (1,053 )      (2,926 )      (3,126 )      (778 )      (151 )      —         (8,034 ) 

Recoveries

     284       299       245       348       77       —         1,253  

Provision

     1,079       3,253       4,265       (498 )      (18 )      (381 )      7,700  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 3,949     $ 10,453     $ 5,953     $ 1,211     $ 634     $ 487     $ 22,687  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                                                         
               
    Commercial
& Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

For the three months ending September 30, 2012

                                                        
               

Allowance for loan losses:

                                                        

Beginning balance

   $ 2,537     $ 11,701     $ 6,379     $ 1,095     $ 262     $ (43 )    $ 21,931  

Charge-offs

     (192 )      (824 )      (1,334 )      (192 )      (49 )              (2,591 ) 

Recoveries

     180       196       47       (9 )      35               449  

Provision

     44       154       867       171       5       459       1,700  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 2,569     $ 11,227     $ 5,959     $ 1,065     $ 253     $ 416     $ 21,489  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The allowance for both Real Estate Construction and Consumer loans were reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type. The net result of these changes was a reduction in the allowance for these loan types and is represented as a decrease in the provision.

G

                                                         
    Commercial
& Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

For the three months ending September 30, 2011

                                                        
               

Allowance for loan losses:

                                                        

Beginning balance

   $ 2,821     $ 10,713     $ 6,184     $ 1,196     $ 670     $ 165     $ 21,749  

Charge-offs

     (145 )      (710 )      (703 )      —         (42 )      —         (1,600 ) 

Recoveries

     111       166       136       98       27       —         538  

Provision

     1,162       284       336       (83 )      (21 )      322       2,000  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 3,949     $ 10,453     $ 5,953     $ 1,211     $ 634     $ 487     $ 22,687  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                                                         
    Commercial
& Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

September 30, 2012

                                                        
               

Allowance for loan losses:

                                                        

Ending balance:

                                                        

Individually evaluated for impairment

   $ 251     $ 3,760     $ 808     $ 194     $ 62     $ —       $ 5,075  
               

Ending balance:

                                                        

Collectively evaluated for impairment

   $ 2,318     $ 7,467     $ 5,151     $ 871     $ 191     $ 416     $ 16,414  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 2,569     $ 11,227     $ 5,959     $ 1,065     $ 253     $ 416     $ 21,489  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Loan balances outstanding:

                                                        

Ending balance:

                                                        

Individually evaluated for impairment

   $ 5,264     $ 18,150     $ 6,219     $ 885     $ 63             $ 30,581  
               

Ending balance:

                                                        

Collectively evaluated for impairment

   $ 79,584     $ 387,385     $ 250,621     $ 44,520     $ 9,981             $ 772,091  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

Ending Balance

   $ 84,848     $ 405,535     $ 256,840     $ 45,405     $ 10,044             $ 802,672  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

 

                                                         
    Commercial
& Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

December 31, 2011

                                                        
               

Allowance for loan losses:

                                                        

Ending balance:

                                                        

Individually evaluated for impairment

   $ 618     $ 3,094     $ 860     $ 239     $ —       $ —       $ 4,811  
               

Ending balance:

                                                        

Collectively evaluated for impairment

   $ 2,258     $ 7,477     $ 4,936     $ 735     $ 719     $ 321     $ 16,446  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 2,876     $ 10,571     $ 5,796     $ 974     $ 719     $ 321     $ 21,257  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Loan balances outstanding:

                                                        

Ending balance:

                                                        

Individually evaluated for impairment

   $ 5,258     $ 17,700     $ 3,846     $ 576     $ —               $ 27,380  
               

Ending balance:

                                                        

Collectively evaluated for impairment

   $ 81,137     $ 354,152     $ 271,149     $ 39,214     $ 12,236             $ 757,888  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

Ending Balance

   $ 86,395     $ 371,852     $ 274,995     $ 39,790     $ 12,236             $ 785,268  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

 

The following table represents credit exposures by internally assigned grades for the period ended September 30, 2012 and December 31, 2011. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. Residential real estate loans with an internal credit risk grade include commercial loans that are secured by conventional 1-4 family residential properties. Real estate construction loans with an internal credit risk grade include commercial construction, land development and other land loans. The Corporation’s internal credit risk grading system is based on experiences with similarly graded loans.

The Corporation’s internally assigned grades are as follows:

 

  •  

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

 

  •  

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

 

  •  

Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Citizens will sustain some loss if the deficiencies are not corrected.

 

  •  

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

 

  •  

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

 

  •  

Unrated – Generally, consumer loans are not risk-graded, except when collateral is used for a business purpose.

 

                                                 

September 30, 2012

   Commercial
& Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Total  

Pass

   $ 74,610     $ 364,004     $ 94,859     $ 39,229     $ 900     $ 573,602  

Special Mention

     1,901       7,625       2,447       682       —         12,655  

Substandard

     8,337       33,906       14,156       2,339       67       58,805  

Doubtful

     —         —         —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 84,848     $ 405,535     $ 111,462     $ 42,250     $ 967     $ 645,062  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
             

December 31, 2011

   Commercial
& Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Total  

Pass

   $ 73,011     $ 319,084     $ 92,577     $ 31,697     $ 2,208     $ 518,577  

Special Mention

     4,358       15,321       5,071       702       —         25,452  

Substandard

     9,026       37,447       17,764       5,067       —         69,304  

Doubtful

     —         —         —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 86,395     $ 371,852     $ 115,412     $ 37,466     $ 2,208     $ 613,333  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

The following tables present performing and nonperforming loans based solely on payment activity for the period ended September 30, 2012 and December 31, 2011 that have not been assigned an internal risk grade. Payment activity is reviewed by management on a monthly basis to determine how loans are performing. Loans are considered to be nonperforming when they become 90 days past due. Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

 

                                 
    Residential
Real Estate		     Real Estate
Construction		     Consumer     Total  

September 30, 2012

                                

Performing

   $ 145,378     $ 3,155     $ 9,077     $ 157,610  

Nonperforming

     —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 145,378     $ 3,155     $ 9,077     $ 157,610  
   

 

 

    

 

 

    

 

 

    

 

 

  
         
    Residential
Real Estate		     Real Estate
Construction		     Consumer     Total  

December 31, 2011

                                

Performing

   $ 159,291     $ 2,324     $ 10,027     $ 171,642  

Nonperforming

     292       —         1       293  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 159,583     $ 2,324     $ 10,028     $ 171,935  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

The following table includes an aging analysis of the recorded investment of past due loans outstanding as of September 30, 2012 and December 31, 2011.

 

                                                         

September 30, 2012

   30-59
Days
Past Due		     60-89
Days
Past Due		     90 Days or
Greater		     Total Past
Due		     Current     Total Loans     Past Due
90 Days
and
Accruing		  

Commericial & Agriculture

   $ 364     $ 48     $ 710     $ 1,122     $ 83,726     $ 84,848     $ 245  

Commercial Real Estate

     931       2,264       8,958       12,153       393,382       405,535       2,189  

Residential Real Estate

     736       1,047       7,857       9,640       247,200       256,840       262  

Real Estate Construction

     323       —         801       1,124       44,281       45,405       —    

Consumer

     48       26       —         74       9,970       10,044       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 2,402     $ 3,385     $ 18,326     $ 24,113     $ 778,559     $ 802,672     $ 2,696  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
               

December 31, 2011

   30-59
Days
Past Due		     60-89
Days
Past Due		     90 Days or
Greater		     Total Past
Due		     Current     Total Loans     Past Due
90 Days
and
Accruing		  

Commericial & Agriculture

   $ 229     $ 174     $ 509     $ 912     $ 85,483     $ 86,395     $ 19  

Commercial Real Estate

     4,156       1,369       9,466       14,991       356,861       371,852       737  

Residential Real Estate

     3,614       1,182       6,504       11,300       263,695       274,995       511  

Real Estate Construction

     —         —         45       45       39,745       39,790       45  

Consumer

     89       16       2       107       12,129       12,236       2  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 8,088     $ 2,741     $ 16,526     $ 27,355     $ 757,913     $ 785,268     $ 1,314  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although the Corporation may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income.

The following table presents loans on nonaccrual status as of September 30, 2012 and December 31, 2011.

 

                 
    September 30, 2012     December 31, 2011  

Commericial & Agriculture

   $ 2,793     $ 940  

Commercial Real Estate

     19,137       15,346  

Residential Real Estate

     10,408       8,915  

Real Estate Construction

     1,355       567  

Consumer

     55       —    
   

 

 

    

 

 

  

Total

   $ 33,748     $ 25,768  
   

 

 

    

 

 

  

 

Loan modifications that are considered troubled debt restructurings (TDRs) completed during the quarter ended September 30, 2012 and September 30, 2011 were as follows:

 

                         
    For the Quarter Ended September 30, 2012  
    Number of
Contracts		     Pre-Modification
Outstanding
Recorded
Investment		     Post-Modification
Outstanding
Recorded
Investment		  

Commericial & Agriculture

     2     $ 197     $ 497  

Commercial Real Estate

     —         —         —    

Residential Real Estate

     1       385       385  

Real Estate Construction

     —         —         —    

Consumer

     1       19       19  
   

 

 

    

 

 

    

 

 

  

Total TDRs

     4     $ 601     $ 901  
   

 

 

    

 

 

    

 

 

  
   
    For the Quarter Ended September 30, 2011  
    Number of
Contracts		     Pre-Modification
Outstanding
Recorded
Investment		     Post-Modification
Outstanding
Recorded
Investment		  

Commericial & Agriculture

     —       $ —       $ —    

Commercial Real Estate

     —         —         —    

Residential Real Estate

     1       143       144  

Real Estate Construction

     —         —         —    

Consumer

     —         —         —    
   

 

 

    

 

 

    

 

 

  

Total TDRs

     1     $ 143     $ 144  
   

 

 

    

 

 

    

 

 

  

 

Loan modifications that are considered troubled debt restructurings (TDRs) completed during the nine month periods ended September 30, 2012 and September 30, 2012 were as follows:

 

                         
    For the Nine-Month Period Ended September 30, 2012  
    Number of
Contracts		     Pre-Modification
Outstanding
Recorded
Investment		     Post-Modification
Outstanding
Recorded
Investment		  

Commericial & Agriculture

     6     $ 983     $ 976  

Commercial Real Estate

     3       1,206       1,206  

Residential Real Estate

     21       1,250       1,171  

Real Estate Construction

     —         —         —    

Consumer

     5       66       66  
   

 

 

    

 

 

    

 

 

  

Total TDRs

     35     $ 3,505     $ 3,419  
   

 

 

    

 

 

    

 

 

  
   
    For the Nine-Month Period Ended September 30, 2011  
    Number of
Contracts		     Pre-Modification
Outstanding
Recorded
Investment		     Post-Modification
Outstanding
Recorded
Investment		  

Commericial & Agriculture

     —       $ —       $ —    

Commercial Real Estate

     —         —         —    

Residential Real Estate

     1       143       144  

Real Estate Construction

     —         —         —    

Consumer

     —         —         —    
   

 

 

    

 

 

    

 

 

  

TDRs

     1     $ 143     $ 144  
   

 

 

    

 

 

    

 

 

  

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans.

During the three and nine-month period ended September 30, 2012 and 2011, there were no defaults on any loans which were modified and considered TDRs during the twelve months previous to the respective periods ending September 30, 2012 or September 30, 2011.

 

Impaired Loans: Larger (greater than $350) commercial loans and commercial real estate loans, many of which are 60 days or more past due, are tested for impairment. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.

The following tables include the recorded investment and unpaid principal balances for impaired financing receivables with the associated allowance amount, if applicable, as of September 30, 2012 and December 31, 2011.

 

                                                 
    September 30, 2012     December 31, 2011  

September 30, 2012

   Recorded
Investment		     Unpaid
Principal
Balance		     Related
Allowance		     Recorded
Investment		     Unpaid
Principal
Balance		     Related
Allowance		  

With no related allowance recorded:

                                                

Commericial & Agriculture

   $ 5,003     $ 5,339     $ —       $ 2,914     $ 3,010     $ —    

Commercial Real Estate

     8,030       9,192       —         3,804       4,739       —    

Residential Real Estate

     3,086       4,598       —         862       953       —    

Real Estate Construction

     —         —         —         —         —         —    

Consumer and Other

     1       1       —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 16,120     $ 19,130     $ —       $ 7,580     $ 8,702     $ —    
             

With an allowance recorded:

                                                

Commericial & Agriculture

   $ 261     $ 271     $ 251     $ 2,344     $ 3,645     $ 618  

Commercial Real Estate

     10,120       12,194       3,760       13,896       16,534       3,094  

Residential Real Estate

     3,133       3,274       808       2,984       4,127       860  

Real Estate Construction

     885       1,413       194       576       1,103       239  

Consumer and Other

     62       62       62       —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 14,461     $ 17,214     $ 5,075     $ 19,800     $ 25,409     $ 4,811  
             

Total:

                                                

Commericial & Agriculture

   $ 5,264     $ 5,610     $ 251     $ 5,258     $ 6,655     $ 618  

Commercial Real Estate

     18,150       21,386       3,760       17,700       21,273       3,094  

Residential Real Estate

     6,219       7,872       808       3,846       5,080       860  

Real Estate Construction

     885       1,413       194       576       1,103       239  

Consumer and Other

     63       63       62       —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 30,581     $ 36,344     $ 5,075     $ 27,380     $ 34,111     $ 4,811  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                                 
    September 30, 2012     September 30, 2011  
  Average
Recorded
Investment		     Interest
Income
Recognized		     Average
Recorded
Investment		     Interest
Income
Recognized		  

For the quarter ended:

                                

Commericial & Agriculture

   $ 5,366     $ 26     $ 5,112     $ 168  

Commercial Real Estate

     16,448       329       13,953       666  

Residential Real Estate

     5,227       145       3,317       172  

Real Estate Construction

     608       11       849       9  

Consumer and Other

     54       1       —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 27,703     $ 512     $ 23,231     $ 1,015  
   

 

 

    

 

 

    

 

 

    

 

 

  
     
    September 30, 2012     September 30, 2011  
  Average
Recorded
Investment		     Interest
Income
Recognized		     Average
Recorded
Investment		     Interest
Income
Recognized		  

For the nine months ended:

                                

Commericial & Agriculture

   $ 4,631     $ 205     $ 4,618     $ 330  

Commercial Real Estate

     17,060       995       12,975       934  

Residential Real Estate

     4,628       391       3,574       194  

Real Estate Construction

     531       11       1,560       41  

Consumer and Other

     28       1       —         —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 26,878     $ 1,603     $ 22,727     $ 1,499