Loans, Allowance for Loan Losses and Credit Quality | 6 Months Ended |
Jun. 30, 2014 |
Receivables [Abstract] | ' |
Allowance for Credit Losses [Text Block] | ' |
Note 5. Loans, Allowance for Loan Losses and Credit Quality |
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Loans by Loan Class |
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The Bank categorizes its loan receivables into four main segments which are commercial real estate loans, commercial and industrial loans, guaranteed student loans, and consumer loans. Each category of loan has a different level of credit risk. Real estate loans are generally safer than loans secured by other assets because the value of the underlying collateral is generally ascertainable and does not fluctuate as much as other assets. Owner occupied commercial real estate loans are generally the least risky type of commercial real estate loan. Non-owner occupied commercial real estate loans and construction and development loans contain more risk. Commercial loans, which can be secured by real estate or other assets, or which can be unsecured, are generally more risky than commercial real estate loans. Guaranteed student loans are guaranteed by the U.S. Department of Education for approximately 98% of the principal and interest. Consumer loans may be secured by residential real estate, automobiles or other assets or may be unsecured. Those secured by residential real estate are the least risky and those that are unsecured are the most risky type of consumer loans. Any type of loan which is unsecured is generally more risky than a secured loan. These levels of risk are general in nature, and many factors including the creditworthiness of the borrower or the particular nature of the secured asset may cause any type of loan to be more or less risky than another. In the commercial real estate category of the loan portfolio the sub-segments are acquisition-development-construction, non-owner occupied and owner occupied. In the consumer category of the loan portfolio the sub-segments are residential real estate, home equity lines of credit and other. Management has not further divided its eight sub-segments into classes. This provides Management and the Board with sufficient information to evaluate the risks within the Bank’s portfolio. |
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The table below presents loans by sub-segment at June 30, 2014 and December 31, 2013. |
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(dollars in thousands) | | June 30, 2014 | | December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition, development and construction | | $ | 2,263 | | $ | 3,475 | | | | | | | | | | | | | | | | | | | | | | |
Non-owner occupied | | | 35,070 | | | 28,606 | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 53,576 | | | 50,500 | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | 24,605 | | | 21,085 | | | | | | | | | | | | | | | | | | | | | | |
Guaranteed student loans | | | 70,624 | | | 55,427 | | | | | | | | | | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage | | | 8,508 | | | 7,156 | | | | | | | | | | | | | | | | | | | | | | |
HELOC | | | 9,105 | | | 7,250 | | | | | | | | | | | | | | | | | | | | | | |
Other | | | 534 | | | 508 | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | 204,285 | | | 174,007 | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | | | -1,407 | | | -1,489 | | | | | | | | | | | | | | | | | | | | | | |
Total loans, net of allowance for loan losses | | $ | 202,878 | | $ | 172,518 | | | | | | | | | | | | | | | | | | | | | | |
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Loans Acquired with Evidence of Deterioration in Credit Quality |
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Acquired in the acquisition of Bank of Virginia in 2010, and included in the table above, are loans acquired with evidence of deterioration in credit quality. These loans are accounted for under the guidance ASC 310-30. Information related to these loans is as follows: |
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(dollars in thousands) | | June 30, 2014 | | December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | |
Contract principal balance | | $ | 7,667 | | $ | 8,689 | | | | | | | | | | | | | | | | | | | | | | |
Accretable discount | | | -52 | | | -62 | | | | | | | | | | | | | | | | | | | | | | |
Nonaccretable discount | | | -5 | | | -61 | | | | | | | | | | | | | | | | | | | | | | |
Book value of loans | | $ | 7,610 | | $ | 8,566 | | | | | | | | | | | | | | | | | | | | | | |
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A discount is applied to these loans such that the carrying amount approximates the cash flows expected to be received from the borrower or from the liquidation of collateral. Due to a high level of uncertainty regarding the timing and amount of these cash flows in December 2010, Management initially considered the entire discount to be nonaccretable. However, due to improvement in the status of some credits, the majority of the discount was subsequently transferred to accretable and is amortized as a yield adjustment over the lives of the individual loans. Cash flows received on loans with a nonaccretable discount are applied on a cost recovery method, whereby payments are applied first to the loan balance. When the loan balance is fully recovered, payments are then applied to income. Any future reductions in carrying value as a result of deteriorating credit quality require an allowance for loan losses related to these loans. |
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A summary of changes to the accretable and nonaccretable discounts during the six months ended June 30, 2014 and 2013 is as follows: |
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| | Six Months Ending June 30. | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 | | | | | | | | | | | | | | | | |
(dollars in thousands) | | Accretable | | Nonaccretable | | Accretable | | Nonaccretable | | | | | | | | | | | | | | | | |
Discount | Discount | Discount | Discount | | | | | | | | | | | | | | | |
Beginning balance | | $ | 62 | | $ | 61 | | $ | 476 | | $ | 165 | | | | | | | | | | | | | | | | |
Charge-offs related to loans covered by ASC 310-30 | | | - | | | -56 | | | - | | | - | | | | | | | | | | | | | | | | |
Transfer to accretable discount | | | - | | | - | | | 104 | | | -104 | | | | | | | | | | | | | | | | |
Discount accretion | | | -10 | | | - | | | -326 | | | - | | | | | | | | | | | | | | | | |
Ending balance | | $ | 52 | | $ | 5 | | $ | 254 | | $ | 61 | | | | | | | | | | | | | | | | |
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Credit Quality Indicators |
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Credit risk ratings reflect the current risk of default and/or loss for a given asset. The risk of loss is driven by factors intrinsic to the borrower and the unique structural characteristics of the loan. The credit risk rating begins with an analysis of the borrower’s credit history, ability to repay the debt as agreed, use of proceeds, and the value and stability of the value of the collateral securing the loan. The attributes ordinarily considered when reviewing a borrower are as follows: |
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· | industry/industry segment; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | position within industry; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | earnings, liquidity and operating cash flow trends; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | asset and liability values; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | financial flexibility/debt capacity; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | management and controls; and | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | quality of financial reporting. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The unique structural characteristics ordinarily considered when reviewing a loan are as follows: |
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· | credit terms/loan documentation; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | guaranty/third party support; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | collateral; and | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | loan maturity. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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On a quarterly basis, the process of estimating the Allowance for Loan Loss begins with Management’s review of the risk rating assigned to individual credits. Through this process, loans adversely risk rated are evaluated for impairment based on ASC 310-40. The following is a summary of the risk rating definitions the Company uses to assign a risk grade to each loan within the portfolio: |
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Grade 1 - Highest Quality | Loans to persons and businesses with unquestionable financial strength and character that carry extremely low probabilities of default. Balance sheets and cash flow are extremely strong relative to the magnitude of debt. This rating would be analogous to the highest investment grade ratings. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Grade 2 - Above Average Quality | Loans to persons and business entities with unquestioned character that carry low probabilities of default. Borrowers have strong, stable earnings and financial condition. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Grade 3 - Satisfactory | Loans to persons and businesses with acceptable financial condition that carry average probabilities of default. Borrower’s exhibit adequate cash flow to service debt and have acceptable levels of leverage. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Grade 4 - Pass | Loans to persons and businesses with a lack of stability in the primary source of repayment or temporary weakness in their balance sheet or earnings. These loans carry above average probabilities of default. These borrowers generally have higher leverage and less liquidity than loans rated 3-Satisfactory. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Grade 5- Special Mention | Loans to borrowers that exhibit potential credit weakness or a downward trend that warrant additional supervision. While potentially weak, the loan is currently marginally acceptable and no loss of principal or interest is envisioned. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Grade 6 – Substandard | Borrowers with one or more well defined weaknesses that jeopardize the orderly liquidation of the debt. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. Possibility of loss or protracted workout exists if immediate corrective action is not taken. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Grade 7 – Doubtful | Loans with all the weaknesses inherent in a Substandard classification, with the added provision that the weaknesses make collection of debt in full highly questionable and improbable, based on currently existing facts, conditions, and values. Serious problems exist to the point where a partial loss of principal is likely. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Grade 8 – Loss | Borrower is deemed incapable of repayment of the entire principal. A charge-off is required for the portion of principal management has deemed it will not be repaid. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following is the distribution of loans by credit quality and segment as of June 30, 2014 and December 31, 2013: |
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| | June 30, 2014 | |
(dollars in thousands) | | Commercial Real Estate | | | | | | | | Consumer | | | | |
Credit quality class | | Acq-Dev | | Non-owner | | Owner | | Commercial and | | Guaranteed | | Residential | | HELOC | | Other | | Total | |
Construction | Occupied | Occupied | Industrial | Student Loans | Mortgage |
1 Highest quality | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
2 Above average quality | | | - | | | 2,018 | | | 3,132 | | | 2,015 | | | 70,624 | | | 49 | | | 961 | | | 45 | | | 78,844 | |
3 Satisfactory | | | 229 | | | 16,030 | | | 28,538 | | | 12,921 | | | - | | | 4,133 | | | 4,746 | | | 403 | | | 67,000 | |
4 Pass | | | 781 | | | 15,405 | | | 18,394 | | | 7,557 | | | - | | | 4,016 | | | 2,354 | | | 86 | | | 48,593 | |
5 Special mention | | | - | | | 126 | | | - | | | 81 | | | - | | | 124 | | | 319 | | | - | | | 650 | |
6 Substandard | | | 270 | | | - | | | 259 | | | 786 | | | - | | | - | | | 273 | | | - | | | 1,588 | |
7 Doubtful | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
| | | 1,280 | | | 33,579 | | | 50,323 | | | 23,360 | | | 70,624 | | | 8,322 | | | 8,653 | | | 534 | | | 196,675 | |
Loans acquired with deteriorating credit quality | | | 983 | | | 1,491 | | | 3,253 | | | 1,245 | | | - | | | 186 | | | 452 | | | - | | | 7,610 | |
Total loans | | $ | 2,263 | | $ | 35,070 | | $ | 53,576 | | $ | 24,605 | | $ | 70,624 | | $ | 8,508 | | $ | 9,105 | | $ | 534 | | $ | 204,285 | |
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| | December 31, 2013 | |
(dollars in thousands) | | Commercial Real Estate | | | | | | | | Consumer | | | | |
Credit quality class | | Acq-Dev | | Non-owner | | Owner | | Commercial and | | Guaranteed | | Residential | | HELOC | | Other | | Total | |
Construction | Occupied | Occupied | Industrial | Student Loans | Mortgage |
1 Highest quality | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
2 Above average quality | | | - | | | 2,078 | | | 2,966 | | | 2,170 | | | 55,427 | | | 73 | | | 205 | | | 80 | | | 62,999 | |
3 Satisfactory | | | 325 | | | 10,563 | | | 25,264 | | | 8,290 | | | - | | | 3,965 | | | 3,541 | | | 350 | | | 52,298 | |
4 Pass | | | 1,500 | | | 12,990 | | | 14,606 | | | 8,128 | | | - | | | 2,710 | | | 2,243 | | | 78 | | | 42,255 | |
5 Special mention | | | 299 | | | 1,449 | | | 3,486 | | | 268 | | | - | | | 203 | | | 630 | | | - | | | 6,335 | |
6 Substandard | | | 267 | | | - | | | 336 | | | 759 | | | - | | | 15 | | | 177 | | | - | | | 1,554 | |
7 Doubtful | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
| | | 2,391 | | | 27,080 | | | 46,658 | | | 19,615 | | | 55,427 | | | 6,966 | | | 6,796 | | | 508 | | | 165,441 | |
Loans acquired with deteriorating credit quality | | | 1,084 | | | 1,526 | | | 3,842 | | | 1,470 | | | - | | | 190 | | | 454 | | | - | | | 8,566 | |
Total loans | | $ | 3,475 | | $ | 28,606 | | $ | 50,500 | | $ | 21,085 | | $ | 55,427 | | $ | 7,156 | | $ | 7,250 | | $ | 508 | | $ | 174,007 | |
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A summary of the balances of loans outstanding by days past due, including accruing and non-accruing loans by portfolio class as of June 30, 2014 and December 31, 2013 is as follows: |
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| | June 30, 2014 | | | | |
| | Commercial Real Estate | | | | | | | | Consumer | | | | |
(dollars in thousands) | | Acq-Dev | | Non-owner | | Owner | | Commercial | | Guaranteed | | Residential | | HELOC | | Other | | Total | |
Construction | Occupied | Occupied | and | Student | Mortgage |
| | | Industrial | Loans | |
30 - 59 days | | $ | - | | $ | - | | $ | - | | $ | 93 | | $ | 3,803 | | $ | - | | $ | - | | $ | - | | $ | 3,896 | |
60 - 89 days | | | - | | | - | | | - | | | - | | | 5,565 | | | - | | | - | | | - | | | 5,565 | |
> 90 days | | | 548 | | | - | | | 568 | | | 93 | | | 10,370 | | | 44 | | | - | | | - | | | 11,623 | |
Total past due | | | 548 | | | - | | | 568 | | | 186 | | | 19,738 | | | 44 | | | - | | | - | | | 21,084 | |
Current | | | 1,715 | | | 35,070 | | | 53,008 | | | 24,419 | | | 50,886 | | | 8,464 | | | 9,105 | | | 534 | | | 183,201 | |
Total loans | | $ | 2,263 | | $ | 35,070 | | $ | 53,576 | | $ | 24,605 | | $ | 70,624 | | $ | 8,508 | | $ | 9,105 | | $ | 534 | | $ | 204,285 | |
> 90 days still accruing | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 10,370 | | $ | - | | $ | - | | $ | - | | $ | 10,370 | |
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| | December 31, 2013 | | | | |
| | Commercial Real Estate | | | | | | | | Consumer | | | | |
(dollars in thousands) | | Acq-Dev | | Non-owner | | Owner | | Commercial | | Guaranteed | | Residential | | HELOC | | Other | | Total | |
Construction | Occupied | Occupied | and | Student | Mortgage |
| | | Industrial | Loans | |
30 - 59 days | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 5,044 | | $ | 54 | | $ | - | | $ | - | | $ | 5,098 | |
60 - 89 days | | | - | | | - | | | - | | | - | | | 2,268 | | | 15 | | | - | | | - | | | 2,283 | |
> 90 days | | | 633 | | | - | | | 2,051 | | | 632 | | | 18,387 | | | 44 | | | - | | | - | | | 21,747 | |
Total past due | | | 633 | | | - | | | 2,051 | | | 632 | | | 25,699 | | | 113 | | | - | | | - | | | 29,128 | |
Current | | | 2,842 | | | 28,606 | | | 48,449 | | | 20,453 | | | 29,728 | | | 7,043 | | | 7,250 | | | 508 | | | 144,879 | |
Total loans | | $ | 3,475 | | $ | 28,606 | | $ | 50,500 | | $ | 21,085 | | $ | 55,427 | | $ | 7,156 | | $ | 7,250 | | $ | 508 | | $ | 174,007 | |
> 90 days still accruing | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 18,387 | | $ | - | | $ | - | | $ | - | | $ | 18,387 | |
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Non-accrual Loans |
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Loans are placed on nonaccrual status when Management believes the collection of the principal and interest is doubtful. A delinquent loan is generally placed in nonaccrual status when: |
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· | principal and/or interest is past due for 90 days or more, unless the loan is well-secured or in the process of collection; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | the financial strength of the borrower or a guarantor has materially declined; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | collateral value has declined; or | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | other facts would make the repayment in full of principal and interest unlikely. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Loans placed on nonaccrual status are reported to the Board at its next regular meeting. When a loan is placed on nonaccrual, all interest which has been accrued is charged back against current earnings as a reduction in interest income, which adversely affects the yield on loans in the period of reversal. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain. |
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Loans placed on non-accrual status may, at the lenders discretion, be returned to accrual status after: |
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· | payments are received for a reasonable period in accordance with the loan documents (typically for (6) months), and any doubt as to the loan's full collectability has been removed; or | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | the troubled loan is restructured and, evidenced by a credit evaluation of the borrower's financial condition and the prospects for full payment are good. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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When a loan is returned to accrual status after restructuring, the pre-restructuring risk rating is maintained until a satisfactory payment history is re-established. Returning non-accrual loans to an accrual status requires the prior written approval of the Chief Credit Officer. |
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A summary of non-accrual loans by portfolio class is as follows: |
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(dollars in thousands) | | June 30, | | December 31, | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition, development and construction | | $ | 548 | | $ | 633 | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 988 | | | 2,051 | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | 668 | | | 858 | | | | | | | | | | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage | | | 44 | | | 59 | | | | | | | | | | | | | | | | | | | | | | |
HELOC | | | 324 | | | 333 | | | | | | | | | | | | | | | | | | | | | | |
Total non-accrual loans | | $ | 2,572 | | $ | 3,934 | | | | | | | | | | | | | | | | | | | | | | |
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Non-accrual troubled debt restructurings included above | | $ | 994 | | $ | 119 | | | | | | | | | | | | | | | | | | | | | | |
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Impaired Loans |
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All loans that are rated Doubtful are assessed as impaired based on the expectation that the full collection of principal and interest is in doubt. All loans that are rated Substandard or are expected to be downgraded to Substandard, require additional analysis to determine if a specific reserve under ASC 310-40 is required. All loans that are rated Special Mention are presumed not to be impaired. However, Special Mention rated loans are typically evaluated for the following adverse characteristics that may indicate further analysis is warranted before completing an assessment of impairment: |
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· | a loan is 60 days or more delinquent on scheduled principal or interest; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | a loan is presently in an unapproved over-advanced position; | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | a loan is newly modified; or | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | a loan is expected to be modified. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following information is a summary of the Company’s policies pertaining to impaired loans: |
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A loan is deemed impaired when it qualifies for a risk rating of Substandard or worse. Factors impairing repayment might include: inadequate repayment capacity, severe erosion of equity, likely reliance on non-primary source of repayment, guarantors with limited resources, and obvious material deterioration in borrower’s financial condition. The possibility of loss or protracted workout exists if immediate corrective action is not taken. |
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Once deemed impaired, the loan is then analyzed for the extent of the impairment. Impairment is the difference between the principal balance of the loan and (i) the discounted cash flows of the borrower or (ii) the fair market value of the collateral less the costs involved with liquidation (i.e., real estate commissions, attorney costs, etc.). This difference is then reflected as a component in the allowance for loan loss as a specific reserve. |
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Certain loans were identified and individually evaluated for impairment at June 30, 2014. A number of these impaired loans were not charged with a valuation allowance due to Management’s judgment that the cash flows from the underlying collateral or equity available from guarantors was sufficient to recover the Company’s entire investment, while one loan experienced collateral deterioration and supplemental specific reserve was added. The results of those analyses are presented in the following tables. |
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The following information is a summary of related impaired loans, excluding loans acquired with deteriorating credit quality, presented by portfolio class as of June 30, 2014: |
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(dollars in thousands) | | Recorded | | Unpaid | | Related | | Average | | Interest | | | | | | | | | | | | | |
Investment | Principal | Allowance | Recorded | Recorded | | | | | | | | | | | | |
| | | Investment | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition, development and construction | | $ | 270 | | $ | 270 | | $ | - | | $ | 269 | | $ | 8 | | | | | | | | | | | | | |
Non-owner occupied | | | 1,342 | | | 1,342 | | | - | | | 1,648 | | | 44 | | | | | | | | | | | | | |
Owner occupied | | | 259 | | | 259 | | | - | | | 259 | | | - | | | | | | | | | | | | | |
Commercial and industrial | | | 734 | | | 734 | | | - | | | 667 | | | 3 | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
HELOC | | | 273 | | | 273 | | | - | | | 274 | | | 6 | | | | | | | | | | | | | |
Other | | | - | | | - | | | - | | | | | | - | | | | | | | | | | | | | |
Total | | $ | 2,878 | | $ | 2,878 | | $ | - | | $ | 3,117 | | $ | 61 | | | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition, development and construction | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | | | | | | | | | | | | |
Non-owner occupied | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Owner occupied | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Commercial and industrial | | | 52 | | | 52 | | | 35 | | | 52 | | | - | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
HELOC | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Other | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Total | | $ | 52 | | $ | 52 | | $ | 35 | | $ | 52 | | $ | - | | | | | | | | | | | | | |
|
The following information is a summary of related impaired loans, excluding loans acquired with deteriorating credit quality, presented by portfolio class as of December 31, 2013: |
|
(dollars in thousands) | | Recorded | | Unpaid | | Related | | Average | | Interest | | | | | | | | | | | | | |
Investment | Principal | Allowance | Recorded | Recorded | | | | | | | | | | | | |
| | | Investment | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition, development and construction | | $ | 267 | | $ | 267 | | $ | - | | $ | 267 | | $ | 19 | | | | | | | | | | | | | |
Non-owner occupied | | | 1,352 | | | 1,352 | | | - | | | 1,652 | | | 83 | | | | | | | | | | | | | |
Owner occupied | | | 259 | | | 259 | | | - | | | 259 | | | - | | | | | | | | | | | | | |
Commercial and industrial | | | 759 | | | 759 | | | - | | | 759 | | | 44 | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage | | | 15 | | | 15 | | | - | | | 15 | | | 5 | | | | | | | | | | | | | |
HELOC | | | 177 | | | 177 | | | - | | | 177 | | | 8 | | | | | | | | | | | | | |
Other | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Total | | $ | 2,829 | | $ | 2,829 | | $ | - | | $ | 3,129 | | $ | 159 | | | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition, development and construction | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | | | | | | | | | | | | |
Non-owner occupied | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Owner occupied | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Commercial and industrial | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
HELOC | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Other | | | - | | | - | | | - | | | - | | | - | | | | | | | | | | | | | |
Total | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | | | | | | | | | | | | |
|
Loans with deteriorated credit quality acquired as part of the Bank of Virginia acquisition are accounted for under the requirements of ASC 310-30. These loans are not considered impaired and not included in the table above. |
|
Activity in the allowance for loan losses for the six months ended June 30, 2014 and June 30, 2013 is summarized below: |
|
| | Commercial Real Estate | | | | | | | | Consumer | | | | |
(dollars in thousands) | | Acquisition, | | Non-owner | | Owner | | Commercial | | Guaranteed | | Residential | | HELOC | | Other | | Total | |
Development, | Occupied | Occupied | and Industrial | Student | Mortgage |
Construction | | | | Loans | |
Allowance for loan losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance, December 31, 2013 | | $ | 300 | | $ | 39 | | $ | 322 | | $ | 377 | | $ | 268 | | $ | 120 | | $ | 20 | | $ | 43 | | $ | 1,489 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Charge-offs | | | -6 | | | -114 | | | - | | | -17 | | | -265 | | | - | | | - | | | - | | | -402 | |
Recoveries | | | 3 | | | 47 | | | - | | | 18 | | | - | | | 2 | | | 2 | | | 19 | | | 91 | |
Net Charge-offs (recoveries) | | | -3 | | | -67 | | | - | | | 1 | | | -265 | | | 2 | | | 2 | | | 19 | | | -311 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision (recovery) | | | -101 | | | 149 | | | -158 | | | 131 | | | 191 | | | 63 | | | -11 | | | -35 | | | 229 | |
Ending balance, June 30, 2014 | | $ | 196 | | $ | 121 | | $ | 164 | | $ | 509 | | $ | 194 | | $ | 185 | | $ | 11 | | $ | 27 | | $ | 1,407 | |
|
| | Commercial Real Estate | | | | | | | | Consumer | | | | |
(dollars in thousands) | | Acquisition, | | Non-owner | | Owner | | Commercial | | Guaranteed | | Residential | | HELOC | | Other | | Total | |
Development, | Occupied | Occupied | and Industrial | Student | Mortgage |
Construction | | | | Loans | |
Allowance for loan losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance, December 31, 2012 | | $ | 229 | | $ | 231 | | $ | 350 | | $ | 782 | | $ | - | | $ | 50 | | $ | 457 | | $ | 11 | | $ | 2,110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Charge-offs | | | - | | | - | | | -289 | | | - | | | -39 | | | - | | | -365 | | | -8 | | | -701 | |
Recoveries | | | 1 | | | - | | | - | | | 18 | | | - | | | - | | | - | | | - | | | 19 | |
Net Charge-offs (recoveries) | | | 1 | | | - | | | -289 | | | 18 | | | -39 | | | - | | | -365 | | | -8 | | | -682 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision (recovery) | | | -107 | | | 57 | | | 483 | | | -546 | | | 295 | | | 2 | | | -51 | | | 1 | | | 134 | |
Ending balance, June 30, 2013 | | $ | 123 | | $ | 288 | | $ | 544 | | $ | 254 | | $ | 256 | | $ | 52 | | $ | 41 | | $ | 4 | | $ | 1,562 | |
|
A summary of the allowance for loan losses by portfolio segment and impairment evaluation methodology as of June 30, 2014 and December 31, 2013 is as follows: |
|
| | Commercial Real Estate | | | | | | | | Consumer | | | | |
(dollars in thousands) | | Acquisition, | | Non-owner | | Owner | | Commercial | | Guaranteed | | Residential | | HELOC | | Other | | Total | |
Development, | Occupied | Occupied | and | Student | Mortgage |
Construction | | | Industrial | Loans | |
Allowance for loan losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | - | | $ | - | | $ | - | | $ | 35 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 35 | |
Collectively evaluated for impairment | | | 156 | | | 121 | | | 164 | | | 474 | | | 194 | | | 185 | | | 11 | | | 27 | | | 1,332 | |
Loans acquired with deteriorated credit quality | | | 40 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 40 | |
Ending balance, June 30, 2014 | | $ | 196 | | $ | 121 | | $ | 164 | | $ | 509 | | $ | 194 | | $ | 185 | | $ | 11 | | $ | 27 | | $ | 1,407 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross loan balances | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 270 | | $ | 1,342 | | $ | 259 | | $ | 786 | | $ | - | | $ | - | | $ | 273 | | $ | - | | $ | 2,930 | |
Collectively evaluated for impairment | | | 1,010 | | | 32,237 | | | 50,064 | | | 22,574 | | | 70,624 | | | 8,322 | | | 8,380 | | | 534 | | | 193,745 | |
Loans acquired with deteriorated credit quality | | | 983 | | | 1,491 | | | 3,253 | | | 1,245 | | | - | | | 186 | | | 452 | | | - | | | 7,610 | |
Ending balance, June 30, 2014 | | $ | 2,263 | | $ | 35,070 | | $ | 53,576 | | $ | 24,605 | | $ | 70,624 | | $ | 8,508 | | $ | 9,105 | | $ | 534 | | $ | 204,285 | |
|
| | Commercial Real Estate | | | | | | | | Consumer | | | | |
(dollars in thousands) | | Acquisition, | | Non-owner | | Owner | | Commercial | | Guaranteed | | Residential | | HELOC | | Other | | Total | |
Development, | Occupied | Occupied | and | Student | Mortgage |
Construction | | | Industrial | Loans | |
Allowance for loan losses for loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
Collectively evaluated for impairment | | | 260 | | | 39 | | | 128 | | | 377 | | | 268 | | | 120 | | | 20 | | | 43 | | | 1,255 | |
Loans acquired with deteriorated credit quality | | | 40 | | | - | | | 194 | | | - | | | - | | | - | | | - | | | - | | | 234 | |
Ending balance, December 31, 2013 | | $ | 300 | | $ | 39 | | $ | 322 | | $ | 377 | | $ | 268 | | $ | 120 | | $ | 20 | | $ | 43 | | $ | 1,489 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross loan balances | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 267 | | $ | 1,352 | | $ | 259 | | $ | 759 | | $ | - | | $ | 15 | | $ | 177 | | $ | - | | $ | 2,829 | |
Collectively evaluated for impairment | | | 2,124 | | | 25,728 | | | 46,399 | | | 18,856 | | | 55,427 | | | 6,951 | | | 6,619 | | | 508 | | | 162,612 | |
Loans acquired with deteriorated credit quality | | | 1,084 | | | 1,526 | | | 3,842 | | | 1,470 | | | - | | | 190 | | | 454 | | | - | | | 8,566 | |
Ending balance, December 31, 2013 | | $ | 3,475 | | $ | 28,606 | | $ | 50,500 | | $ | 21,085 | | $ | 55,427 | | $ | 7,156 | | $ | 7,250 | | $ | 508 | | $ | 174,007 | |
|
Troubled Debt Restructurings |
|
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 delinquent 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. |
|
Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity. |
|
During the three and six months ended June 30, 2014, two loans were modified in troubled debt restructurings and one previous troubled debt restructured loan was paid off . During the three and six months ended June 30, 2013, no loans were modified in troubled debt restructurings. At June 30, 2014 and December 31, 2013, six and five loans were classified as trouble debt restructuring, respectively. The principal balance outstanding relating to these was $2.8 million and $2.0 million at June 30, 2014 and December 31, 2013, respectively. Of these amounts, $1.8 million and $1.9 million were accruing, respectively. During the three and six months ended June 30, 2014 and 2013, no defaults occurred on loans modified as TDR’s in the preceding twelve months. |
|
The number and outstanding recorded investment of loans entered into under the terms of a TDR, including modifications of acquired impaired loans, by type of concession granted, are set forth in the following tables: |
|
| | Three and Six Months Ended June 30, 2014 | | | | | | | | | | | | | | | |
(dollars in thousands) | | Number | | Rate | | Term | | Pre-modification | | Post-modification | | | | | | | | | | | | | | | |
of loans | modification | extension | recorded | recorded | | | | | | | | | | | | | | |
| | | investment | investment | | | | | | | | | | | | | | |
Commercial and industrial | | 1 | | - | | $ | 512 | | $ | 512 | | $ | 495 | | | | | | | | | | | | | | | |
Commercial real estate - owner occupied | | 1 | | - | | | 595 | | | 595 | | | 425 | | | | | | | | | | | | | | | |
Total | | 2 | | - | | $ | 1,107 | | $ | 1,107 | | $ | 920 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |