Loans Receivable and Allowance for Loan Losses | 12 Months Ended |
Dec. 31, 2013 |
Loans Receivable and Allowance for Loan Losses | ' |
Loans Receivable and Allowance for Loan Losses | ' |
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(5) Loans Receivable and Allowance for Loan Losses |
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        The loan portfolio at December 31, 2013 and 2012 consists of the following: |
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(In thousands) | | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 219,156 | | $ | 222,961 | | | | | | | | | | | | | | | | | | | |
Real estate—commercial | | | 1,048,579 | | | 827,243 | | | | | | | | | | | | | | | | | | | |
Real estate—construction | | | 363,063 | | | 373,717 | | | | | | | | | | | | | | | | | | | |
Real estate—residential | | | 299,484 | | | 260,352 | | | | | | | | | | | | | | | | | | | |
Home equity lines | | | 109,481 | | | 117,647 | | | | | | | | | | | | | | | | | | | |
Consumer | | | 4,159 | | | 4,204 | | | | | | | | | | | | | | | | | | | |
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| | | 2,043,922 | | | 1,806,124 | | | | | | | | | | | | | | | | | | | |
Net deferred fees | | | (3,754 | ) | | (2,695 | ) | | | | | | | | | | | | | | | | | | |
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Loans receivable, net of fees | | | 2,040,168 | | | 1,803,429 | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | | | (27,864 | ) | | (27,400 | ) | | | | | | | | | | | | | | | | | | |
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Loans receivable, net | | $ | 2,012,304 | | $ | 1,776,029 | | | | | | | | | | | | | | | | | | | |
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        Loans totaling $1.1 billion serve as collateral for the Company's Federal Home Loan Bank advance capacity at December 31, 2013. Loans held as collateral at the Federal Reserve for use of the Company's discount window line of credit total $109.8 million at December 31, 2013. |
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        For purposes of monitoring the performance of the loan portfolio and estimating the allowance for loan losses, the Company's loans receivable portfolio is segmented as follows: commercial and industrial, real estate-commercial, real estate-construction, real estate-residential, home equity lines and consumer loans. |
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        Commercial and Industrial Loans.    The Company makes commercial loans to qualified businesses within its market area. The commercial lending portfolio consists primarily of commercial and industrial loans for the financing of accounts receivable, property, plant and equipment. The Company has a government contract lending group which provides secured lending to government contracting firms and businesses based primarily on receivables from the federal government. In addition, the Company, which is certified as a preferred lender by the Small Business Administration (SBA), offers SBA guaranteed loans and asset-based lending arrangements to its customers. |
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        Commercial and industrial loans generally have a higher degree of risk than other certain types of loans. Commercial loans typically are made on the basis of the borrower's ability to repay the loan from the cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory, the values of which may fluctuate over time and generally cannot be appraised with as much precision as residential real estate. As a result, the availability of funds for the repayment of commercial loans may be substantially dependent upon the commercial success of the business itself. To manage these risks, the Company's policy is to secure commercial loans originated with both the assets of the business, which are subject to the risks described above, and other additional collateral and guarantees that may be available. |
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        Real Estate-Commercial Loans.    Real estate-commercial loans are primarily secured by various types of commercial real estate, including office, retail, warehouse, industrial and other non-residential types of properties and are made to the owners and/or occupiers of such property. |
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        These loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income-producing properties is typically dependent upon the successful operation of a business or real estate project and thus may be subject to adverse conditions in the commercial real estate market or in the general economy. The Company generally requires personal guarantees or endorsements with respect to these loans and loan-to-value ratios for real estate-commercial loans generally do not exceed 80%. |
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        Real Estate-Construction Loans.    The Company's real estate-construction loan portfolio consists of single-family residential properties, multi-family properties and commercial projects. Construction lending entails significant additional risks as they often involve larger loan balances concentrated with single borrowers or groups of related borrowers. Construction loans also involve additional risks since funds are advanced while the property is under construction, which property has uncertain value prior to the completion of construction. Thus, it is more difficult to accurately evaluate the total loan funds required to complete a project and related loan-to-value ratios. To reduce the risks associated with construction lending, the Company generally limits loan-to-value ratios to 80% of when-completed appraised values for owner-occupied residential or commercial properties and for investor-owned residential or commercial properties. Construction loan agreements may include provisions which allow for the payment of contractual interest from an interest reserve. Amounts drawn from an interest reserve increase the amount of the outstanding balance of the construction loan. This is an industry standard practice. |
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        Real Estate-Residential and Home Equity Loans.    Real estate-residential loans are originated by Cardinal Bank and George Mason. This portfolio consists of residential first and second mortgage loans, residential construction loans and home equity lines of credit and term loans secured primarily by the residences of borrowers. |
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        Residential mortgage loans and home equity lines of credit secured by owner-occupied property generally are made with a loan-to-value ratio of up to 80%. Loan-to-value ratios of up to 90% may be allowed on residential owner-occupied property if the borrower exhibits unusually strong creditworthiness. |
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        Consumer Loans.    The Company's consumer loans consist primarily of installment loans made to individuals for personal, family and household purposes. The specific types of consumer loans originated include home improvement loans, automobile loans, debt consolidation loans and other general consumer lending. |
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        Consumer loans may entail greater risk than certain other types of loans, particularly in the case of consumer loans that are unsecured, such as lines of credit, or secured by rapidly depreciable assets, such as automobiles. |
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        The Company's policy for consumer loans is to accept moderate risk while minimizing losses, primarily through a careful credit and financial analysis of the borrower. In evaluating consumer loans, the Company requires its lending officers to review the borrower's collateral and stability of income, past credit history, amount of debt currently outstanding and the impact of these factors on the ability of the borrower to repay the loan in a timely manner. |
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        The Company also issues credit cards to certain of its customers. In determining to whom the Company will issue credit cards, the Company evaluates the borrower's level and stability of income, past credit history and other factors. Credit card receivables are included in the consumer loan portfolio. |
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        Substantially all of the Company's loans, commitments and standby letters of credit have been granted to customers located in the Washington, D.C. metropolitan area. As a matter of regulatory restriction, the Company's banking subsidiary limits the amount of credit extended to any single borrower or group of related borrowers. At December 31, 2013, the amount of credit extended to any single borrower or group of related borrowers was limited to $51.5 million. Loans in process at December 31, 2013 and 2012 were $0 and $573,000, respectively. |
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        The Company's allowance for loan losses is based first, on a segmentation of its loan portfolio by general loan type, or portfolio segments, as presented in the preceding table. Certain portfolio segments are further disaggregated and evaluated collectively for impairment based on class segments, which are largely based on the type of collateral underlying each loan. |
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        An analysis of the change in the allowance for loan losses follows: |
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(In thousands) | | 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | |
Balance, beginning of year | | $ | 27,400 | | $ | 26,159 | | $ | 24,210 | | | | | | | | | | | | | | | | |
Provision for loan losses | | | (32 | ) | | 7,123 | | | 6,910 | | | | | | | | | | | | | | | | |
Loans charged-off | | | (231 | ) | | (6,919 | ) | | (5,654 | ) | | | | | | | | | | | | | | | |
Recoveries | | | 727 | | | 1,037 | | | 693 | | | | | | | | | | | | | | | | |
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Balance, end of year | | $ | 27,864 | | $ | 27,400 | | $ | 26,159 | | | | | | | | | | | | | | | | |
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        An analysis of the allowance for loan losses based on loan type, or segment, and the Company's loan portfolio, which identifies certain loans that are evaluated for individual or collective impairment, is below: |
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Allowance for Loan Losses |
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For the Year Ended December 31, 2013 |
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(In thousands) |
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| | Commercial and | | Real Estate— | | Real Estate— | | Real Estate— | | Home Equity | | Consumer | | Total | | | | |
Industrial | Commercial | Construction | Residential | Lines | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning Balance, January 1 | | $ | 525 | | $ | 17,990 | | $ | 7,675 | | $ | 857 | | $ | 266 | | $ | 87 | | | 27,400 | | | | |
Charge-offs | | | (42 | ) | | — | | | — | | | (185 | ) | | — | | | (4 | ) | | (231 | ) | | | |
Recoveries | | | 311 | | | 289 | | | 21 | | | 104 | | | — | | | 2 | | | 727 | | | | |
Provision for loan losses | | | 2,535 | | | (2,203 | ) | | (2,360 | ) | | 1,645 | | | 343 | | | 8 | | | (32 | ) | | | |
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Ending Balance, December 31, 2013 | | $ | 3,329 | | $ | 16,076 | | $ | 5,336 | | $ | 2,421 | | $ | 609 | | $ | 93 | | $ | 27,864 | | | | |
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Ending Balance, December 31, 2013: | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | |
Collectively evaluated for impairment | | | 3,329 | | | 16,076 | | | 5,336 | | | 2,421 | | | 609 | | | 93 | | | 27,864 | | | | |
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Loans Receivable |
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At December 31, 2013 |
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(In thousands) |
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| | Commercial and | | Real Estate— | | Real Estate— | | Real Estate— | | Home Equity | | Consumer | | Total | | | | |
Industrial | Commercial | Construction | Residential | Lines | | | |
Loans Receivable: | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance, December 31, 2013 | | $ | 219,156 | | $ | 1,048,579 | | $ | 363,063 | | $ | 299,484 | | $ | 109,481 | | $ | 4,159 | | $ | 2,043,922 | | | | |
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Ending Balance, December 31, 2013: | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 814 | | $ | 1,738 | | $ | 775 | | $ | — | | $ | 51 | | $ | — | | $ | 3,378 | | | | |
Collectively evaluated for impairment | | | 218,342 | | | 1,046,841 | | | 362,288 | | | 299,484 | | | 109,430 | | | 4,159 | | | 2,040,544 | | | | |
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Allowance for Loan Losses |
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For the Year Ended December 31, 2012 |
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(In thousands) |
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| | Commercial and | | Real Estate— | | Real Estate— | | Real Estate— | | Home Equity | | Consumer | | Total | | | | |
Industrial | Commercial | Construction | Residential | Lines | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning Balance, January 1 | | $ | 3,390 | | $ | 13,377 | | $ | 6,495 | | $ | 1,709 | | $ | 1,119 | | $ | 69 | | | 26,159 | | | | |
Charge-offs | | | (1,194 | ) | | (4,959 | ) | | — | | | (291 | ) | | (460 | ) | | (15 | ) | | (6,919 | ) | | | |
Recoveries | | | 24 | | | 105 | | | 627 | | | 241 | | | 36 | | | 4 | | | 1,037 | | | | |
Provision for loan losses | | | (1,695 | ) | | 9,467 | | | 553 | | | (802 | ) | | (429 | ) | | 29 | | | 7,123 | | | | |
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Ending Balance, December 31, 2012 | | $ | 525 | | $ | 17,990 | | $ | 7,675 | | $ | 857 | | $ | 266 | | $ | 87 | | $ | 27,400 | | | | |
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Ending Balance, December 31, 2012: | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | |
Collectively evaluated for impairment | | | 525 | | | 17,990 | | | 7,675 | | | 857 | | | 266 | | | 87 | | | 27,400 | | | | |
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Loans Receivable |
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At December 31, 2012 |
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(In thousands) |
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| | Commercial and | | Real Estate— | | Real Estate— | | Real Estate— | | Home Equity | | Consumer | | Total | | | | |
Industrial | Commercial | Construction | Residential | Lines | | | |
Loans Receivable: | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance, December 31, 2012 | | $ | 222,961 | | $ | 827,243 | | $ | 373,717 | | $ | 260,352 | | $ | 117,647 | | $ | 4,204 | | $ | 1,806,124 | | | | |
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Ending Balance, December 31, 2012: | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 2,064 | | $ | 1,657 | | $ | 4,725 | | $ | — | | $ | — | | $ | — | | $ | 8,446 | | | | |
Collectively evaluated for impairment | | | 220,897 | | | 825,586 | | | 368,992 | | | 260,352 | | | 117,647 | | | 4,204 | | | 1,797,678 | | | | |
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        The accounting policy related to the allowance for loan losses is considered a critical policy given the level of estimation, judgment and uncertainty in evaluating the levels of the allowance required for the inherent probable losses in the loan portfolio and the material effect such estimation, judgment and uncertainty can have on the consolidated financial results. |
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        The Company's ongoing credit quality management process relies on a system of activities to assess and evaluate various factors that impact the estimation of the allowance for loan losses. These factors include, but are not limited to: current economic conditions; loan concentrations, collateral adequacy and value; past loss experience for particular types of loans, size, composition and nature of loans; migration of loans through the Company's loan rating methodology; trends in charge-offs and recoveries. This process also contemplates a disciplined approach to managing and monitoring credit exposures to ensure that the structure and pricing of credit is always consistent with the Company's assessment of the risk. The loan officer has frequent contact with the borrower and is a key player in the credit management process and must develop and diligently practice sound credit management skills and habits to ensure effectiveness. Under the direction of the Company's loan committee and the chief credit officer, the credit risk management function works with the loans officers and other groups within the Company to monitor the loan portfolio, maintain the watch list, and compile the analysis necessary to determine the allowance for loan losses. |
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        Loans are added to the watch list when circumstances appear to warrant the inclusion of the relationship. As a general rule, loans are added to the watch list when they are deemed to be problem assets. Problem assets are defined as those that have been risk rated substandard or lower. Successful problem asset management requires early recognition of deteriorating credits and timely corrective or risk management actions. Generally, risk ratings are either approved or amended by the loan committee accordingly. Problem loans are maintained on the watch list until the loan is either paid off or circumstances around the borrower's situation improve to the point that the risk rating on the loan is adjusted upward. |
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        In addition to internal activities, the Company also engages an external consultant on a quarterly basis to review the Company's loan portfolio. This external loan review function helps to evaluate the soundness of the loan portfolio through a third party review of existing exposures in the portfolio, supporting the commercial loan officers in the execution of its credit management responsibilities, and monitoring the adherence to the Company's credit risk management standards. |
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        The following tables report the Company's nonaccrual and past due loans at December 31, 2013 and 2012. In addition, the credit quality of the loan portfolio is provided as of December 31, 2013 and 2012. |
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Nonaccrual and Past Due Loans |
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At December 31, 2013 |
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(In thousands) |
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| | 30Â -Â 59 | | 60Â -Â 89 | | 90 Days | | Total | | Current | | Total Loans | | 90 Days | | Nonaccrual | |
Days | Days | or More | Past Due | Past Due | Loans |
Past Due | Past Due | Past Due | | and Still | |
| | (includes | | Accruing | |
| | nonaccrual) | | | |
Commercial and industrial | | $ | 101 | | $ | 316 | | $ | — | | $ | 417 | | $ | 218,739 | | | 219,156 | | $ | — | | $ | — | |
Real estate—commercial | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | — | | | — | | | — | | | — | | | 279,631 | | | 279,631 | | | — | | | — | |
Non-owner occupied | | | 82 | | | — | | | 1,738 | | | 1,820 | | | 767,128 | | | 768,948 | | | — | | | 1,738 | |
Real estate—construction | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | | — | | | — | | | — | | | — | | | 120,144 | | | 120,144 | | | — | | | — | |
Commercial | | | — | | | — | | | 525 | | | 525 | | | 242,394 | | | 242,919 | | | — | | | 525 | |
Real estate—residential | | | | | | | | | | | | | | | | | | | | | | | | | |
Single family | | | 8 | | | — | | | — | | | 8 | | | 213,537 | | | 213,545 | | | — | | | — | |
Multi-family | | | — | | | — | | | — | | | — | | | 85,939 | | | 85,939 | | | — | | | — | |
Home equity lines | | | — | | | — | | | 51 | | | 51 | | | 109,430 | | | 109,481 | | | — | | | 51 | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | | |
Installment | | | — | | | — | | | — | | | — | | | 3,912 | | | 3,912 | | | — | | | — | |
Credit cards | | | — | | | — | | | — | | | — | | | 247 | | | 247 | | | — | | | — | |
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| | $ | 191 | | $ | 316 | | $ | 2,314 | | $ | 2,821 | | $ | 2,041,101 | | $ | 2,043,922 | | $ | — | | $ | 2,314 | |
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Nonaccrual and Past Due Loans |
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At December 31, 2012 |
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(In thousands) |
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| | 30Â -Â 59 | | 60Â -Â 89 | | 90 Days | | Total | | Current | | Total Loans | | 90 Days | | Nonaccrual | |
Days | Days | or More | Past Due | Past Due | Loans |
Past Due | Past Due | Past Due | | and Still | |
| | (includes | | Accruing | |
| | nonaccrual) | | | |
Commercial and industrial | | $ | — | | $ | — | | $ | 2,064 | | $ | 2,064 | | $ | 220,897 | | | 222,961 | | $ | — | | $ | 2,064 | |
Real estate—commercial | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | — | | | — | | | — | | | — | | | 255,343 | | | 255,343 | | | — | | | — | |
Non-owner occupied | | | — | | | — | | | 3,800 | | | 3,800 | | | 568,100 | | | 571,900 | | | — | | | 3,800 | |
Real estate—construction | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | | — | | | — | | | — | | | — | | | 84,551 | | | 84,551 | | | — | | | — | |
Commercial | | | — | | | — | | | 1,762 | | | 1,762 | | | 287,404 | | | 289,166 | | | — | | | 1,762 | |
Real estate—residential | | | | | | | | | | | | | | | | | | | | | | | | | |
Single family | | | — | | | — | | | — | | | — | | | 209,740 | | | 209,740 | | | — | | | — | |
Multi-family | | | — | | | — | | | — | | | — | | | 50,612 | | | 50,612 | | | — | | | — | |
Home equity lines | | | — | | | — | | | — | | | — | | | 117,647 | | | 117,647 | | | — | | | — | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | | |
Installment | | | — | | | — | | | — | | | — | | | 3,916 | | | 3,916 | | | — | | | — | |
Credit cards | | | — | | | — | | | — | | | — | | | 288 | | | 288 | | | — | | | — | |
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| | $ | — | | $ | — | | $ | 7,626 | | $ | 7,626 | | $ | 1,798,498 | | $ | 1,806,124 | | $ | — | | $ | 7,626 | |
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        At December 31, 2013, 2012, and 2011, the Company had impaired loans on nonaccrual status of $2.3 million, $7.6 million, and $14.6 million, respectively. The valuation allowance for impaired loans for each of the years ended December 31, 2013 and 2012 was $0. For the years ended December 31, 2013, 2012, and 2011, the Company charged-off $0, $4.8 million, and $5.1 million, respectively, related to impaired loans for the portion of the outstanding principal balance which was unsecured based on the estimated fair value of the underlying collateral. |
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        The average balance of impaired loans was $4.2 million, $11.3 million, and $10.3 million, for 2013, 2012, and 2011, respectively. Interest income that would have been recorded had these loans been performing for the years ended December 31, 2013, 2012, and 2011, would have been $626,000, $491,000, and $766,000, respectively. The interest income realized prior to these loans being placed on nonaccrual status for December 31, 2013, 2012, and 2011, was $5,000, $111,000, and $341,000, respectively. For each of the years ended December 31, 2013 and 2012, the Company did not have any accruing loans past due 90 days or more as to principal or interest payments. |
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        Additional information on the Company's impaired loans that were evaluated for specific reserves as of December 31, 2013 and 2012, including the recorded investment on the statement of condition and the unpaid principal balance, is shown below: |
|
Impaired Loans |
|
At December 31, 2013 |
|
(In thousands) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Recorded | | Unpaid Principal | | Related | | Interest Income | | | | | | | | | | | | | |
Investment | Balance | Allowance | Recognized | | | | | | | | | | | | |
With no related allowance: | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 814 | | $ | 814 | | $ | — | | $ | 23 | | | | | | | | | | | | | |
Real estate—commercial | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Non-owner occupied | | | 1,738 | | | 3,872 | | | — | | | — | | | | | | | | | | | | | |
Real estate—construction | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Commercial | | | 775 | | | 2,928 | | | — | | | — | | | | | | | | | | | | | |
Real estate—residential | | | | | | | | | | | | | | | | | | | | | | | | | |
Single family | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Multi-family | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Home equity lines | | | 51 | | | 51 | | | — | | | — | | | | | | | | | | | | | |
With related allowance: | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | — | | $ | — | | $ | — | | $ | — | | | | | | | | | | | | | |
Real estate—commercial | | | | | | | | | | | | — | | | | | | | | | | | | | |
Owner occupied | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Non-owner occupied | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Real estate—construction | | | | | | | | | | | | — | | | | | | | | | | | | | |
Residential | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Commercial | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Real estate—residential | | | | | | | | | | | | — | | | | | | | | | | | | | |
Single family | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Multi-family | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Home equity lines | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
By segment total: | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 814 | | $ | 814 | | $ | — | | $ | 23 | | | | | | | | | | | | | |
Real estate—commercial | | | 1,738 | | | 3,872 | | | — | | | — | | | | | | | | | | | | | |
Real estate—construction | | | 775 | | | 2,928 | | | — | | | — | | | | | | | | | | | | | |
Real estate—residential | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Home equity lines | | | 51 | | | 51 | | | — | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | | | | |
Total | | $ | 3,378 | | $ | 7,665 | | $ | — | | $ | 23 | | | | | | | | | | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | | | | |
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        The difference between the recorded investment and the unpaid principal balance in the above table is a result of partial loan charge-offs that the Company has recorded on these impaired loans. |
|
Impaired Loans |
|
At December 31, 2012 |
|
(In thousands) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Recorded | | Unpaid Principal | | Related | | Interest Income | | | | | | | | | | | | | |
Investment | Balance | Allowance | Recognized | | | | | | | | | | | | |
With no related allowance: | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 2,064 | | $ | 2,985 | | $ | — | | $ | 269 | | | | | | | | | | | | | |
Real estate—commercial | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Non-owner occupied | | | 4,370 | | | 6,943 | | | — | | | 35 | | | | | | | | | | | | | |
Real estate—construction | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Commercial | | | 2,012 | | | 5,449 | | | — | | | 469 | | | | | | | | | | | | | |
Real estate—residential | | | | | | | | | | | | | | | | | | | | | | | | | |
Single family | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Multi-family | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Home equity lines | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
With related allowance: | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | — | | $ | — | | $ | — | | $ | — | | | | | | | | | | | | | |
Real estate—commercial | | | | | | | | | | | | — | | | | | | | | | | | | | |
Owner occupied | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Non-owner occupied | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Real estate—construction | | | | | | | | | | | | — | | | | | | | | | | | | | |
Residential | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Commercial | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Real estate—residential | | | | | | | | | | | | — | | | | | | | | | | | | | |
Single family | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Multi-family | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Home equity lines | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
By segment total: | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 2,064 | | $ | 2,985 | | $ | — | | $ | 269 | | | | | | | | | | | | | |
Real estate—commercial | | | 4,370 | | | 6,943 | | | — | | | 35 | | | | | | | | | | | | | |
Real estate—construction | | | 2,012 | | | 5,449 | | | — | | | 469 | | | | | | | | | | | | | |
Real estate—residential | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
Home equity lines | | | — | | | — | | | — | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | | | | |
Total | | $ | 8,446 | | $ | 15,377 | | $ | — | | $ | 773 | | | | | | | | | | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | | | | |
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        In order to maximize the collection of certain loans, the Company will attempt to work with borrowers when necessary to extend or modify loan terms to better align with the borrower's ability to repay. Extensions and modifications to loans are made in accordance with the Company's policy and conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately. The Company considers regulatory guidelines when restructuring a loan to ensure that prudent lending practices are followed. As such, qualification criteria and payment terms consider the borrower's current and prospective ability to comply with the modified terms of the loan. |
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        A modification is classified as a troubled debt restructuring ("TDR") if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Company has granted a concession to the borrower. The Company determines that a borrower may be experiencing financial difficulty if the borrower is currently in default on any of its debt, or if the Company is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower's financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk, and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Company also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Company for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management's judgment is required when determining whether a modification is a TDR. |
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        Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reductions in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity. |
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        Nonaccruing loans that are modified can be placed back on accrual status when both the principal and interest are current and it is probable that the Company will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement. The Company modified one loan as a TDR during the year ended December 31, 2013. The following table reconciles the beginning and ending balances on TDRs for the year ended December 31, 2013 and 2012, respectively: |
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Troubled Debt Restructurings |
|
At December 31, 2013 |
|
(In thousands) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial and | | Real Estate— | | Real Estate— | | Real Estate— | | Home Equity | | Consumer | | Total | | | | |
Industrial | Commercial | Construction | Residential | Lines | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning Balance, January 1, 2013 | | $ | 1,776 | | $ | 3,800 | | $ | 1,762 | | $ | — | | $ | — | | $ | — | | $ | 7,338 | | | | |
New TDRs | | | — | | | 570 | | | — | | | — | | | — | | | — | | | 570 | | | | |
Increases to existing TDRs | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | |
Charge-Offs Post Modification | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | |
Sales, paydowns, or other decreases | | | (1,776 | ) | | (2,632 | ) | | (1,237 | ) | | — | | | — | | | — | | | (5,645 | ) | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Ending Balance, December 31, 2012 | | $ | — | | $ | 1,738 | | $ | 525 | | $ | — | | $ | — | | $ | — | | $ | 2,263 | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
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|
Troubled Debt Restructurings |
|
At December 31, 2012 |
|
(In thousands) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial and | | Real Estate— | | Real Estate— | | Real Estate— | | Home Equity | | Consumer | | Total | | | | |
Industrial | Commercial | Construction | Residential | Lines | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning Balance, January 1, 2012 | | $ | 3,497 | | $ | 9,098 | | $ | 2,750 | | $ | — | | $ | — | | $ | — | | $ | 15,345 | | | | |
New TDRs | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | |
Increases to existing TDRs | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | |
Charge-Offs Post Modification | | | (1,068 | ) | | (3,749 | ) | | — | | | — | | | — | | | — | | | (4,817 | ) | | | |
Sales, paydowns, or other decreases | | | (653 | ) | | (1,549 | ) | | (988 | ) | | — | | | — | | | — | | | (3,190 | ) | | | |
| | | | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Ending Balance, December 31, 2012 | | $ | 1,776 | | $ | 3,800 | | $ | 1,762 | | $ | — | | $ | — | | $ | — | | $ | 7,338 | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
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        All of these TDRs are on nonaccrual as of December 31, 2013 and 2012, respectively, per the Company's policy for placing a loan on nonaccrual and are included in the impaired loans table above. Nonaccrual TDRs that are reasonably assured of repayment according to their modified terms may be returned to accrual status by the Company upon a detailed credit evaluation of the borrower's financial condition and prospects for repayment under the revised terms. Consistent with regulatory guidance, upon sustained performance and classification as a TDR over the Company's year-end, the loan will be removed from TDR status as long as the modified terms were market-based at the time of the modification. |
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        As of December 31, 2013, the TDRs make up one relationship with the Bank. These loans are performing as expected post-modification. As of December 31, 2012, the TDRs make up three relationships with the Bank and were performing as expected post-modification. For restructured loans in the portfolio, the Company had no loan loss reserves for each of the years ended December 31, 2013 and 2012, respectively. There were no outstanding commitments to advance additional funds to customer relationships whose loans had been restructured for each of the years ended December 31, 2013 and 2012. |
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        Loans modified as TDRs within the previous 12 months and for which there was a payment default during the period are calculated by first identifying TDRs that defaulted during the period and then determining whether they were modified within the 12 months prior to the default. For the year ended December 31, 2013, one loan identified as a TDR had a payment default within the last twelve months. For the year ended December 31, 2012, no loans identified as TDRs had a payment default within the last twelve months. |
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        One of the most significant factors in assessing the credit quality of the Company's loan portfolio is the risk rating. The Company uses the following risk ratings to manage the credit quality of its loan portfolio: pass, substandard, doubtful and loss. During 2011, the Company added an additional risk rating, other loans especially mentioned ("OLEM"), for the monitoring of credit quality. Other loans especially mentioned are those loans in which the borrower exhibits potential weakness that may, if not corrected or reversed, weaken the bank's credit position at some future date. These loans may not show problems as yet due to the borrower's apparent ability to service the debt, but special circumstances surround the loans of which the Bank's management should be aware. Substandard risk rated loans are those loans whose full final collectability may not appear to be a matter for serious doubt, but which nevertheless have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and require close supervision by management. Loans that have a risk rating of doubtful have all the weakness inherent in one graded substandard with the added provision that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and value, highly questionable. A loss loan is one that is considered uncollectible and will be charged-off immediately. All other loans not rated OLEM, substandard, doubtful or loss are considered to have a pass risk rating. Substandard and doubtful risk rated loans are evaluated for impairment. The following table presents a summary of the risk ratings by portfolio segment and class segment at December 31, 2013 and 2012, respectively. |
|
Internal Risk Rating Grades |
|
At December 31, 2013 |
|
(In thousands) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pass | | OLEM | | Substandard | | Doubtful | | Loss | | | | | | | | | | |
Commercial and industrial | | $ | 217,755 | | $ | 587 | | $ | 814 | | $ | — | | $ | — | | | | | | | | | | |
Real estate—commercial | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 279,631 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Non-owner occupied | | | 753,872 | | | 13,338 | | | 1,738 | | | — | | | — | | | | | | | | | | |
Real estate—construction | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | | 120,144 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Commercial | | | 242,144 | | | — | | | 775 | | | — | | | — | | | | | | | | | | |
Real estate—residential | | | | | | | | | | | | | | | | | | | | | | | | | |
Single family | | | 213,537 | | | 8 | | | — | | | — | | | — | | | | | | | | | | |
Multi-family | | | 85,939 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Home equity lines | | | 109,430 | | | — | | | 51 | | | — | | | — | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | | |
Installment | | | 3,912 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Credit cards | | | 247 | | | — | | | — | | | — | | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | $ | 2,026,611 | | $ | 13,933 | | $ | 3,378 | | $ | — | | $ | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
|
Internal Risk Rating Grades |
|
At December 31, 2012 |
|
(In thousands) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pass | | OLEM | | Substandard | | Doubtful | | Loss | | | | | | | | | | |
Commercial and industrial | | $ | 220,266 | | $ | 631 | | $ | 2,064 | | $ | — | | $ | — | | | | | | | | | | |
Real estate—commercial | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 255,343 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Non-owner occupied | | | 542,983 | | | 27,260 | | | 1,657 | | | — | | | — | | | | | | | | | | |
Real estate—construction | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | | 84,551 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Commercial | | | 281,163 | | | 3,278 | | | 4,725 | | | — | | | — | | | | | | | | | | |
Real estate—residential | | | | | | | | | | | | | | | | | | | | | | | | | |
Single family | | | 209,740 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Multi-family | | | 50,612 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Home equity lines | | | 117,647 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | | |
Installment | | | 3,916 | | | — | | | — | | | — | | | — | | | | | | | | | | |
Credit cards | | | 288 | | | — | | | — | | | — | | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | $ | 1,766,509 | | $ | 31,169 | | $ | 8,446 | | $ | — | | $ | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
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        Loans rated substandard and doubtful totaling $3.4 million and $8.4 million were evaluated for impairment at December 31, 2013 and 2012, respectively. For each of the years ended December 31, 2013 and 2012, there was no related allowance for impaired loans. Loans receivable—evaluated for impairment and measured at fair value on a non-recurring basis, net of the related allowance is $3.4 million and $8.4 million for the years ended December 31, 2013 and 2012, respectively (see Note 23 to the notes to consolidated financial statements for additional information). |
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