Loans and Allowance for Probable Loan Losses | 6 Months Ended |
Jun. 30, 2014 |
Receivables [Abstract] | ' |
Loans and Allowance for Probable Loan Losses | ' |
Loans and Allowance for Probable Loan Losses |
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Loans in the accompanying consolidated balance sheets are classified as follows (in thousands): |
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| June 30, 2014 | | 31-Dec-13 | | | | | | | | | | | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | $ | 164,668 | | | $ | 125,219 | | | | | | | | | | | | | | | | | | | | | | | | | |
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1-4 Family Residential | 391,675 | | | 390,499 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other | 271,858 | | | 262,536 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Commercial Loans | 156,893 | | | 157,655 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Municipal Loans | 239,883 | | | 245,550 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Loans to Individuals | 166,308 | | | 169,814 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total Loans | 1,391,285 | | | 1,351,273 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Less: Allowance for Loan Losses | 18,408 | | | 18,877 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Net Loans | $ | 1,372,877 | | | $ | 1,332,396 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Real Estate Construction Loans |
Our construction loans are collateralized by property located primarily in the market areas we serve. A majority of our construction loans will be owner-occupied. Construction loans for speculative projects are financed, but these typically have secondary sources of repayment and collateral. Our construction loans have both adjustable and fixed interest rates during the construction period. Construction loans to individuals are typically priced and made with the intention of granting the permanent loan on the property. Speculative and commercial construction loans are subject to underwriting standards similar to that of the commercial portfolio. Owner occupied 1-4 family residential construction loans are subject to the underwriting standards of the permanent loan. |
Real Estate 1-4 Family Residential Loans |
Residential loan originations are generated by our loan officers, in-house origination staff, marketing efforts, present customers, walk-in customers and referrals from real estate agents and builders. We focus our lending efforts primarily on the origination of loans secured by first mortgages on owner-occupied, 1-4 family residences. Substantially all of our 1-4 family residential loan originations are secured by properties located in or near our market areas. |
Our 1-4 family residential loans generally have maturities ranging from five to 30 years. These loans are typically fully amortizing with monthly payments sufficient to repay the total amount of the loan. Our 1-4 family residential loans are made at both fixed and adjustable interest rates. |
Underwriting for 1-4 family residential loans includes debt-to-income analysis, credit history analysis, appraised value and down payment considerations. Changes in the market value of real estate can affect the potential losses in the portfolio. |
Other Real Estate |
Other Real Estate loans primarily include loans collateralized by commercial office buildings, retail, medical facilities and offices, warehouse facilities, hotels and churches. In determining whether to originate commercial real estate loans, we generally consider such factors as the financial condition of the borrower and the debt service coverage of the property. Other real estate loans are made at both fixed and adjustable interest rates for terms generally up to 20 years. |
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Commercial Loans |
Our commercial loans are diversified loan types including short-term working capital loans for inventory and accounts receivable and short- and medium-term loans for equipment or other business capital expansion. Management does not consider there to be a concentration of risk in any one industry type, other than the medical industry. Loans to borrowers in the medical industry include all loan types listed above for commercial loans. Collateral for these loans varies depending on the type of loan and financial strength of the borrower. The primary source of repayment for loans in the medical community is cash flow from continuing operations. |
In our commercial loan underwriting, we assess the creditworthiness, ability to repay, and the value and liquidity of the collateral being offered. Terms of commercial loans are generally commensurate with the useful life of the collateral offered. |
Municipal Loans |
We have a specific lending department that makes loans to municipalities and school districts throughout the state of Texas. The majority of the loans to municipalities and school districts have tax or revenue pledges and in some cases are additionally supported by collateral. Municipal loans made without a direct pledge of taxes or revenues are usually made based on some type of collateral that represents an essential service. |
Loans to Individuals |
Substantially all originations of our loans to individuals are made to consumers in our market areas. The majority of loans to individuals are collateralized by titled equipment, which are primarily automobiles. Loan pools purchased through SFG are subjected to a modeling system that takes into consideration credit scores and estimated collateral values to determine expected defaults in each pool. SFG purchased loan pools of approximately $30.4 million and $45.3 million, net of discount, during the six months ended June 30, 2014 and June 30, 2013, respectively. For the three months ended June 30, 2014 and June 30, 2013, SFG purchased loan pools of approximately $9.6 million and $23.5 million, net of discount. |
Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards we employ for consumer loans include an application, a determination of the applicant's payment history on other debts, with the greatest weight being given to payment history with us, and an assessment of the borrower's ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount. Most of our loans to individuals are collateralized, which management believes should assist in limiting our exposure. |
Allowance for Loan Losses |
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The allowance for loan losses is based on the most current review of the loan portfolio and is a result of multiple processes. First, the bank utilizes historical data to establish general reserve amounts for each class of loans. The historical charge off figure is further adjusted through qualitative factors that include general trends in past dues, nonaccruals and classified loans to more effectively and promptly react to both positive and negative movements. Second, our lenders have the primary responsibility for identifying problem loans and estimating necessary reserves based on customer financial stress and underlying collateral. These recommendations are reviewed by senior loan administration, the Special Assets department, and the Loan Review department. Third, the Loan Review department independently reviews the portfolio on an annual basis. The Loan Review department follows a board-approved annual loan review scope. The loan review scope encompasses a number of considerations including the size of the loan, the type of credit extended, the seasoning of the loan and the performance of the loan. The Loan Review scope, as it relates to size, focuses more on larger dollar loan relationships, typically, for example, aggregate debt of $500,000 or greater. The Loan Review officer also reviews specific reserves compared to general reserves to determine trends in comparative reserves as well as losses not reserved for prior to charge-off to determine the effectiveness of the specific reserve process. |
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At each review, a subjective analysis methodology is used to grade the respective loan. Categories of grading vary in severity from loans that do not appear to have a significant probability of loss at the time of review to loans that indicate a probability that the entire balance of the loan will be uncollectible. If full collection of the loan balance appears unlikely at the time of review, estimates of future expected cash flows or appraisals of the collateral securing the debt are used to determine the necessary allowances. The internal loan review department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk associated with them. In addition, a list of specifically reserved loans or loan relationships of $50,000 or more is updated on a quarterly basis in order to properly determine necessary allowances and keep management informed on the status of attempts to correct the deficiencies noted with respect to the loan. |
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For loans to individuals, the methodology associated with determining the appropriate allowance for losses on loans primarily consists of an evaluation of individual payment histories, remaining term to maturity and underlying collateral support. |
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SFG loans, included in loans to individuals, experiencing past due status or extension of maturity characteristics are reserved for at higher levels based on the circumstances associated with each specific loan. In general the reserves for SFG are calculated based on the past due status of the loan. For reserve purposes, the portfolio has been segregated by past due status and by the remaining term variance from the original contract. During repayment, loans that pay late will take longer to repay than the original contract. Additionally, some loans may be granted extensions for extenuating payment circumstances and evaluated for troubled debt classification. The remaining term extensions increase the risk of collateral deterioration and, accordingly, reserves are increased to recognize this risk. |
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Industry and our own experience indicates that a portion of our loans will become delinquent and a portion of the loans will require partial or full charge-off. Regardless of the underwriting criteria utilized, losses may be experienced as a result of various factors beyond our control, including, among other things, changes in market conditions affecting the value of properties used as collateral for loans and problems affecting the credit of the borrower and the ability of the borrower to make payments on the loan. Our determination of the appropriateness of the allowance for loan losses is based on various considerations, including an analysis of the risk characteristics of various classifications of loans, previous loan loss experience, specific loans which would have loan loss potential, delinquency trends, estimated fair value of the underlying collateral, current economic conditions, and geographic and industry loan concentration. |
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Credit Quality Indicators |
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We categorize loans into risk categories on an ongoing basis based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We use the following definitions for risk ratings: |
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• | Pass (Rating 1 – 4) – This rating is assigned to all satisfactory loans. This category, by definition, consists of acceptable credit. Credit and collateral exceptions should not be present, although their presence would not necessarily prohibit a loan from being rated Pass, if deficiencies are in process of correction. These loans are not included in the Watch List. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Pass Watch (Rating 5) – Special Treatment Required – These loans require some degree of special treatment, but not due to credit quality. This category does not include loans specially mentioned or adversely classified by Loan Review; however, particular attention must be accorded such credits due to characteristics such as: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | A lack of, or abnormally extended payment, program; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | A heavy degree of concentration of collateral without sufficient margin; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | A vulnerability to competition through lesser or extensive financial leverage; and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | A dependence on a single, or few customers, or sources of supply and materials without suitable substitutes or alternatives. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Special Mention (Rating 6) – A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Substandard (Rating 7) – Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Doubtful (Rating 8) – Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation, in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans that are accruing and not considered troubled debt restructurings ("TDR") are reserved for as a group of similar type credits and included in the general portion of the allowance for loan losses. |
The general portion of the loan loss allowance is reflective of historical charge-off levels for similar loans adjusted for changes in current conditions and other relevant factors. These factors are likely to cause estimated losses to differ from historical loss experience and include: |
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• | Changes in lending policies or procedures, including underwriting, collection, charge-off, and recovery procedures; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Changes in local, regional and national economic and business conditions including entry into new markets; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Changes in the volume or type of credit extended; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Changes in the experience, ability, and depth of lending management; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Changes in the volume and severity of past due, nonaccrual, restructured, or classified loans; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Changes in charge-off trends; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Changes in loan review or Board oversight; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Changes in the level of concentrations of credit; and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Changes in external factors, such as competition and legal and regulatory requirements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following tables detail activity in the allowance for loan losses by portfolio segment for the periods presented (in thousands): |
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| Six Months Ended June 30, 2014 |
| Real Estate | | | | | | | | | | |
| Construction | | 1-4 Family | | Other | | Commercial | | Municipal | | Loans to | | Unallocated | | Total |
Residential | Loans | Loans | Individuals |
Balance at beginning of period | $ | 2,142 | | | $ | 3,277 | | | $ | 2,572 | | | $ | 1,970 | | | $ | 668 | | | $ | 8,248 | | | $ | — | | | $ | 18,877 | |
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Provision (reversal) for loan losses | 309 | | | 628 | | | (140 | ) | | (319 | ) | | (5 | ) | | 6,310 | | | — | | | 6,783 | |
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Loans charged off | (14 | ) | | (22 | ) | | — | | | (5 | ) | | — | | | (8,273 | ) | | — | | | (8,314 | ) |
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Recoveries of loans charged off | 59 | | | 32 | | | 4 | | | 111 | | | — | | | 856 | | | — | | | 1,062 | |
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Balance at end of period | $ | 2,496 | | | $ | 3,915 | | | $ | 2,436 | | | $ | 1,757 | | | $ | 663 | | | $ | 7,141 | | | $ | — | | | $ | 18,408 | |
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| Three Months Ended June 30, 2014 |
| Real Estate | | | | | | | | | | |
| Construction | | 1-4 Family | | Other | | Commercial | | Municipal | | Loans to | | Unallocated | | Total |
Residential | Loans | Loans | Individuals |
Balance at beginning of period | $ | 2,130 | | | $ | 3,797 | | | $ | 2,411 | | | $ | 2,031 | | | $ | 777 | | | $ | 7,641 | | | $ | — | | | $ | 18,787 | |
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Provision (reversal) for loan losses | 319 | | | 92 | | | 24 | | | (322 | ) | | (114 | ) | | 2,651 | | | — | | | 2,650 | |
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Loans charged off | — | | | — | | | — | | | (5 | ) | | — | | | (3,541 | ) | | — | | | (3,546 | ) |
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Recoveries of loans charged off | 47 | | | 26 | | | 1 | | | 53 | | | — | | | 390 | | | — | | | 517 | |
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Balance at end of period | $ | 2,496 | | | $ | 3,915 | | | $ | 2,436 | | | $ | 1,757 | | | $ | 663 | | | $ | 7,141 | | | $ | — | | | $ | 18,408 | |
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| Six Months Ended June 30, 2013 |
| Real Estate | | | | | | | | | | |
| Construction | | 1-4 Family | | Other | | Commercial | | Municipal | | Loans to | | Unallocated | | Total |
Residential | Loans | Loans | Individuals |
Balance at beginning of period | $ | 2,355 | | | $ | 3,545 | | | $ | 2,290 | | | $ | 3,158 | | | $ | 633 | | | $ | 7,373 | | | $ | 1,231 | | | $ | 20,585 | |
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Provision (reversal) for loan losses | (277 | ) | | 281 | | | (129 | ) | | (620 | ) | | — | | | 3,916 | | | (658 | ) | | 2,513 | |
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Loans charged off | — | | | (228 | ) | | (67 | ) | | (198 | ) | | — | | | (5,364 | ) | | — | | | (5,857 | ) |
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Recoveries of loans charged off | 22 | | | 11 | | | 10 | | | 110 | | | — | | | 976 | | | — | | | 1,129 | |
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Balance at end of period | $ | 2,100 | | | $ | 3,609 | | | $ | 2,104 | | | $ | 2,450 | | | $ | 633 | | | $ | 6,901 | | | $ | 573 | | | $ | 18,370 | |
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| Three Months Ended June 30, 2013 |
| Real Estate | | | | | | | | | | |
| Construction | | 1-4 Family | | Other | | Commercial | | Municipal | | Loans to | | Unallocated | | Total |
Residential | Loans | Loans | Individuals |
Balance at beginning of period | $ | 2,247 | | | $ | 3,488 | | | $ | 2,002 | | | $ | 2,847 | | | $ | 621 | | | $ | 6,451 | | | $ | 886 | | | $ | 18,542 | |
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Provision (reversal) for loan losses | (152 | ) | | 114 | | | 118 | | | (330 | ) | | 12 | | | 2,572 | | | (313 | ) | | 2,021 | |
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Loans charged off | — | | | — | | | (21 | ) | | (127 | ) | | — | | | (2,557 | ) | | — | | | (2,705 | ) |
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Recoveries of loans charged off | 5 | | | 7 | | | 5 | | | 60 | | | — | | | 435 | | | — | | | 512 | |
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Balance at end of period | $ | 2,100 | | | $ | 3,609 | | | $ | 2,104 | | | $ | 2,450 | | | $ | 633 | | | $ | 6,901 | | | $ | 573 | | | $ | 18,370 | |
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The following tables present the balance in the allowance for loan losses by portfolio segment based on impairment method (in thousands): |
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| As of June 30, 2014 | | | | |
| Real Estate | | | | | | | | | | | | |
| Construction | | 1-4 Family | | Other | | Commercial | | Municipal | | Loans to | | Total | | | | |
Residential | Loans | Loans | Individuals | | | | |
Ending balance – individually evaluated for impairment | $ | 113 | | | $ | 226 | | | $ | 160 | | | $ | 372 | | | $ | 15 | | | $ | 72 | | | $ | 958 | | | | | |
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Ending balance – collectively evaluated for impairment | 2,383 | | | 3,689 | | | 2,276 | | | 1,385 | | | 648 | | | 7,069 | | | 17,450 | | | | | |
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Balance at end of period | $ | 2,496 | | | $ | 3,915 | | | $ | 2,436 | | | $ | 1,757 | | | $ | 663 | | | $ | 7,141 | | | $ | 18,408 | | | | | |
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| As of December 31, 2013 | | | | |
| Real Estate | | | | | | | | | | | | |
| Construction | | 1-4 Family | | Other | | Commercial | | Municipal | | Loans to | | Total | | | | |
Residential | Loans | Loans | Individuals | | | | |
Ending balance – individually evaluated for impairment | $ | 103 | | | $ | 161 | | | $ | 73 | | | $ | 240 | | | $ | 15 | | | $ | 173 | | | $ | 765 | | | | | |
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Ending balance – collectively evaluated for impairment | 2,039 | | | 3,116 | | | 2,499 | | | 1,730 | | | 653 | | | 8,075 | | | 18,112 | | | | | |
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Balance at end of period | $ | 2,142 | | | $ | 3,277 | | | $ | 2,572 | | | $ | 1,970 | | | $ | 668 | | | $ | 8,248 | | | $ | 18,877 | | | | | |
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The following tables present the recorded investment in loans by portfolio segment based on impairment method (in thousands): |
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| June 30, 2014 | | | | |
| Real Estate | | | | | | | | | | | | |
| Construction | | 1-4 Family | | Other | | Commercial | | Municipal | | Loans to | | Total | | | | |
Residential | Loans | Loans | Individuals | | | | |
Loans individually evaluated for impairment | $ | 2,067 | | | $ | 3,991 | | | $ | 3,567 | | | $ | 1,087 | | | $ | 759 | | | $ | 347 | | | $ | 11,818 | | | | | |
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Loans collectively evaluated for impairment | 162,601 | | | 387,684 | | | 268,291 | | | 155,806 | | | 239,124 | | | 165,961 | | | 1,379,467 | | | | | |
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Total ending loan balance | $ | 164,668 | | | $ | 391,675 | | | $ | 271,858 | | | $ | 156,893 | | | $ | 239,883 | | | $ | 166,308 | | | $ | 1,391,285 | | | | | |
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| December 31, 2013 | | | | |
| Real Estate | | | | | | | | | | | | |
| Construction | | 1-4 Family | | Other | | Commercial | | Municipal | | Loans to | | Total | | | | |
Residential | Loans | Loans | Individuals | | | | |
Loans individually evaluated for impairment | $ | 1,472 | | | $ | 2,624 | | | $ | 1,778 | | | $ | 1,369 | | | $ | 759 | | | $ | 559 | | | $ | 8,561 | | | | | |
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Loans collectively evaluated for impairment | 123,747 | | | 387,875 | | | 260,758 | | | 156,286 | | | 244,791 | | | 169,255 | | | 1,342,712 | | | | | |
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Total ending loan balance | $ | 125,219 | | | $ | 390,499 | | | $ | 262,536 | | | $ | 157,655 | | | $ | 245,550 | | | $ | 169,814 | | | $ | 1,351,273 | | | | | |
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The following table sets forth loans by credit quality indicator for the periods presented (in thousands): |
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| June 30, 2014 | | | | | | | | |
| Pass | | Pass Watch | | Special Mention | | Substandard | | Doubtful | | Total | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | |
Construction | $ | 158,774 | | | $ | 1,746 | | | $ | 1,401 | | | $ | 2,694 | | | $ | 53 | | | $ | 164,668 | | | | | | | | | |
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1-4 Family Residential | 381,530 | | | 1,476 | | | 1,733 | | | 6,231 | | | 705 | | | 391,675 | | | | | | | | | |
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Other | 259,575 | | | 3,873 | | | 2,617 | | | 5,783 | | | 10 | | | 271,858 | | | | | | | | | |
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Commercial Loans | 135,174 | | | 14,534 | | | — | | | 6,889 | | | 296 | | | 156,893 | | | | | | | | | |
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Municipal Loans | 238,874 | | | — | | | — | | | 1,009 | | | — | | | 239,883 | | | | | | | | | |
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Loans to Individuals | 165,609 | | | 28 | | | — | | | 493 | | | 178 | | | 166,308 | | | | | | | | | |
| | | | | | | |
Total | $ | 1,339,536 | | | $ | 21,657 | | | $ | 5,751 | | | $ | 23,099 | | | $ | 1,242 | | | $ | 1,391,285 | | | | | | | | | |
| | | | | | | |
|
|
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | | | | | | | |
| Pass | | Pass Watch | | Special Mention | | Substandard | | Doubtful | | Total | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | |
Construction | $ | 121,280 | | | $ | — | | | $ | 1,419 | | | $ | 2,454 | | | $ | 66 | | | $ | 125,219 | | | | | | | | | |
| | | | | | | |
1-4 Family Residential | 380,741 | | | 1,626 | | | 3,025 | | | 4,901 | | | 206 | | | 390,499 | | | | | | | | | |
| | | | | | | |
Other | 249,381 | | | 2,553 | | | 4,698 | | | 5,887 | | | 17 | | | 262,536 | | | | | | | | | |
| | | | | | | |
Commercial Loans | 150,683 | | | 836 | | | 9 | | | 5,826 | | | 301 | | | 157,655 | | | | | | | | | |
| | | | | | | |
Municipal Loans | 244,505 | | | — | | | — | | | 1,045 | | | — | | | 245,550 | | | | | | | | | |
| | | | | | | |
Loans to Individuals | 168,764 | | | 27 | | | 2 | | | 719 | | | 302 | | | 169,814 | | | | | | | | | |
| | | | | | | |
Total | $ | 1,315,354 | | | $ | 5,042 | | | $ | 9,153 | | | $ | 20,832 | | | $ | 892 | | | $ | 1,351,273 | | | | | | | | | |
| | | | | | | |
|
|
The following table sets forth nonperforming assets for the periods presented (in thousands): |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At | | At | | | | | | | | | | | | | | | | | | | | | | | | |
June 30, | December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | | | | | | | | | | | | | | | | | | | | | | | | |
Nonaccrual loans | $ | 9,620 | | | $ | 8,088 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Accruing loans past due more than 90 days | 4 | | | 3 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Restructured loans | 4,036 | | | 3,888 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other real estate owned | 383 | | | 726 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Repossessed assets | 492 | | | 901 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total Nonperforming Assets | $ | 14,535 | | | $ | 13,606 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
|
Nonaccrual and Past Due Loans |
|
Nonaccrual loans are loans 90 days or more delinquent and collection in full of both the principal and interest is not expected. Additionally, some loans that are not delinquent may be placed on nonaccrual status due to doubts about full collection of principal or interest. When a loan is categorized as nonaccrual, the accrual of interest is discontinued and any accrued balance is reversed for financial statement purposes. Payments of contractual interest are recognized as income only to the extent that full recovery of the principal balance of the loan is reasonably certain. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Other factors, such as the value of collateral securing the loan and the financial condition of the borrower, are considered in judgments as to potential loan loss. |
Loans are considered impaired if, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. The measurement of loss on impaired loans is generally based on the present value of the expected future cash flows discounted at the historical effective interest rate stipulated in the loan agreement, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. In measuring the fair value of the collateral, in addition to relying on third party appraisals, we use assumptions, such as discount rates, and methodologies, such as comparison to the recent selling price of similar assets, consistent with those that would be utilized by unrelated third parties performing a valuation. Loans that are evaluated and determined not to meet the definition of an impaired loan are reserved for at the general reserve rate for its appropriate class. |
|
Nonaccrual loans and accruing loans past due more than 90 days include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. |
|
|
The following table sets forth the recorded investment in nonaccrual and accruing loans past due more than 90 days by class of loans for the periods presented (in thousands): |
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2014 | | December 31, 2013 | | | | | | | | | | | | | | | | |
| Nonaccrual | | Accruing Loans Past Due More Than 90 Days | | Nonaccrual | | Accruing Loans Past Due More Than 90 Days | | | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | | | |
Construction | $ | 2,067 | | | $ | — | | | $ | 1,472 | | | $ | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
1-4 Family Residential | 2,566 | | | — | | | 1,435 | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other | 2,431 | | | — | | | 599 | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Commercial Loans | 513 | | | — | | | 1,062 | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Loans to Individuals | 2,043 | | | 4 | | | 3,520 | | | 3 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total | $ | 9,620 | | | $ | 4 | | | $ | 8,088 | | | $ | 3 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
|
The following tables present the aging of the recorded investment in past due loans by class of loans (in thousands): |
|
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2014 | | | | | | | | |
| 30-59 Days | | 60-89 Days | | Greater than 90 Days Past Due | | Total Past | | Current | | Total | | | | | | | | |
Past Due | Past Due | Due | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | |
Construction | $ | — | | | $ | — | | | $ | 2,067 | | | $ | 2,067 | | | $ | 162,601 | | | $ | 164,668 | | | | | | | | | |
| | | | | | | |
1-4 Family Residential | 40 | | | 559 | | | 2,566 | | | 3,165 | | | 388,510 | | | 391,675 | | | | | | | | | |
| | | | | | | |
Other | 990 | | | 197 | | | 2,431 | | | 3,618 | | | 268,240 | | | 271,858 | | | | | | | | | |
| | | | | | | |
Commercial Loans | 16 | | | 36 | | | 513 | | | 565 | | | 156,328 | | | 156,893 | | | | | | | | | |
| | | | | | | |
Municipal Loans | — | | | — | | | — | | | — | | | 239,883 | | | 239,883 | | | | | | | | | |
| | | | | | | |
Loans to Individuals | 6,705 | | | 2,440 | | | 2,047 | | | 11,192 | | | 155,116 | | | 166,308 | | | | | | | | | |
| | | | | | | |
Total | $ | 7,751 | | | $ | 3,232 | | | $ | 9,624 | | | $ | 20,607 | | | $ | 1,370,678 | | | $ | 1,391,285 | | | | | | | | | |
| | | | | | | |
|
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | | | | | | | |
| 30-59 Days Past Due | | 60-89 Days Past Due | | Greater than 90 Days | | Total Past | | Current | | Total | | | | | | | | |
Past Due | Due | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | |
Construction | $ | 311 | | | $ | — | | | $ | 1,472 | | | $ | 1,783 | | | $ | 123,436 | | | $ | 125,219 | | | | | | | | | |
| | | | | | | |
1-4 Family Residential | 4,340 | | | 781 | | | 1,435 | | | 6,556 | | | 383,943 | | | 390,499 | | | | | | | | | |
| | | | | | | |
Other | 2,652 | | | — | | | 599 | | | 3,251 | | | 259,285 | | | 262,536 | | | | | | | | | |
| | | | | | | |
Commercial Loans | 411 | | | 22 | | | 1,062 | | | 1,495 | | | 156,160 | | | 157,655 | | | | | | | | | |
| | | | | | | |
Municipal Loans | — | | | — | | | — | | | — | | | 245,550 | | | 245,550 | | | | | | | | | |
| | | | | | | |
Loans to Individuals | 7,241 | | | 2,590 | | | 3,523 | | | 13,354 | | | 156,460 | | | 169,814 | | | | | | | | | |
| | | | | | | |
Total | $ | 14,955 | | | $ | 3,393 | | | $ | 8,091 | | | $ | 26,439 | | | $ | 1,324,834 | | | $ | 1,351,273 | | | | | | | | | |
| | | | | | | |
|
|
The following table sets forth interest income recognized on nonaccrual and restructured loans by class of loans for the periods presented. Average recorded investment is reported on a year-to-date basis (in thousands): |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended | | | | | | | | |
| June 30, 2014 | | June 30, 2013 | | | | | | | | |
| Average Recorded Investment | | Interest Income Recognized | | Accruing | | Average | | Interest Income Recognized | | Accruing Interest at Original Contracted Rate | | | | | | | | |
Interest at | Recorded | | | | | | | | |
Original | Investment | | | | | | | | |
Contracted Rate | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | |
Construction | $ | 1,578 | | | $ | 11 | | | $ | 69 | | | $ | 1,919 | | | $ | 3 | | | $ | 82 | | | | | | | | | |
| | | | | | | |
1-4 Family Residential | 2,982 | | | 65 | | | 110 | | | 3,121 | | | 20 | | | 82 | | | | | | | | | |
| | | | | | | |
Other | 2,362 | | | 75 | | | 81 | | | 2,159 | | | 28 | | | 78 | | | | | | | | | |
| | | | | | | |
Commercial Loans | 1,446 | | | 19 | | | 37 | | | 1,979 | | | 6 | | | 57 | | | | | | | | | |
| | | | | | | |
Municipal Loans | 759 | | | 21 | | | 21 | | | — | | | — | | | — | | | | | | | | | |
| | | | | | | |
Loans to Individuals | 2,679 | | | 103 | | | 235 | | | 3,030 | | | 150 | | | 300 | | | | | | | | | |
| | | | | | | |
Total | $ | 11,806 | | | $ | 294 | | | $ | 553 | | | $ | 12,208 | | | $ | 207 | | | $ | 599 | | | | | | | | | |
| | | | | | | |
|
|
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | |
| June 30, 2014 | | June 30, 2013 | | | | | | | | |
| Average Recorded Investment | | Interest Income Recognized | | Accruing | | Average | | Interest Income Recognized | | Accruing | | | | | | | | |
Interest at | Recorded | Interest | | | | | | | | |
Original | Investment | at Original | | | | | | | | |
Contracted Rate | | Contracted Rate | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | |
Construction | $ | 1,643 | | | $ | 9 | | | $ | 35 | | | $ | 1,551 | | | $ | 2 | | | $ | 41 | | | | | | | | | |
| | | | | | | |
1-4 Family residential | 3,418 | | | 21 | | | 55 | | | 3,238 | | | 5 | | | 42 | | | | | | | | | |
| | | | | | | |
Other | 2,838 | | | 22 | | | 40 | | | 1,900 | | | 10 | | | 39 | | | | | | | | | |
| | | | | | | |
Commercial loans | 1,444 | | | 12 | | | 18 | | | 1,914 | | | 1 | | | 28 | | | | | | | | | |
| | | | | | | |
Municipal loans | 759 | | | 21 | | | 21 | | | — | | | — | | | — | | | | | | | | | |
| | | | | | | |
Loans to individuals | 2,144 | | | 23 | | | 146 | | | 2,689 | | | 54 | | | 162 | | | | | | | | | |
| | | | | | | |
Total | $ | 12,246 | | | $ | 108 | | | $ | 315 | | | $ | 11,292 | | | $ | 72 | | | $ | 312 | | | | | | | | | |
| | | | | | | |
|
The following table sets forth impaired loans by class of loans for the periods presented (in thousands): |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2014 | | | | | | | | | | | | |
| Unpaid Contractual Principal Balance | | Recorded Investment With No Allowance | | Recorded Investment With Allowance | | Total Recorded Investment | | Related | | | | | | | | | | | | |
Allowance for | | | | | | | | | | | | |
Loan Losses | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | |
Construction | $ | 2,743 | | | $ | — | | | $ | 2,067 | | | $ | 2,067 | | | $ | 113 | | | | | | | | | | | | | |
| | | | | | | | | | | |
1-4 Family Residential | 4,106 | | | — | | | 3,991 | | | 3,991 | | | 226 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Other | 3,577 | | | — | | | 3,567 | | | 3,567 | | | 160 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Commercial Loans | 1,236 | | | — | | | 1,087 | | | 1,087 | | | 372 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Municipal Loans | 759 | | | — | | | 759 | | | 759 | | | 15 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Loans to Individuals | 2,368 | | | — | | | 2,155 | | | 2,155 | | | 1,048 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | 14,789 | | | $ | — | | | $ | 13,626 | | | $ | 13,626 | | | $ | 1,934 | | | | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | | | | | | | | | | | |
| Unpaid | | Recorded | | Recorded | | Total | | Related | | | | | | | | | | | | |
Contractual | Investment | Investment | Recorded | Allowance for | | | | | | | | | | | | |
Principal | With No | With | Investment | Loan Losses | | | | | | | | | | | | |
Balance | Allowance | Allowance | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | |
Construction | $ | 2,629 | | | $ | — | | | $ | 1,472 | | | $ | 1,472 | | | $ | 103 | | | | | | | | | | | | | |
| | | | | | | | | | | |
1-4 Family Residential | 2,748 | | | — | | | 2,624 | | | 2,624 | | | 161 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Other | 1,800 | | | — | | | 1,778 | | | 1,778 | | | 73 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Commercial Loans | 1,606 | | | — | | | 1,369 | | | 1,369 | | | 240 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Municipal Loans | 759 | | | — | | | 759 | | | 759 | | | 15 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Loans to Individuals | 4,280 | | | — | | | 3,943 | | | 3,943 | | | 1,950 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | 13,822 | | | $ | — | | | $ | 11,945 | | | $ | 11,945 | | | $ | 2,542 | | | | | | | | | | | | | |
| | | | | | | | | | | |
|
At the time a loss is probable in the collection of contractual amounts, specific reserves are allocated. Loans are charged off when deemed uncollectible or as soon as collection by liquidation is evident to the liquidation value of the collateral net of liquidation costs, if any, and placed in nonaccrual status. |
|
Troubled Debt Restructurings |
|
The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. |
|
The following tables set forth the recorded investment in TDRs for the periods presented (dollars in thousands): |
|
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2014 | | | | | | | | | | | | | |
| Extend Amortization | | Interest Rate Reductions | | Combination (1) | | Total Modifications | | Number of Loans | | | | | | | | | | | | | |
Period | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family Residential | $ | — | | | $ | 284 | | | $ | — | | | $ | 284 | | | 1 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other | — | | | — | | | 413 | | | 413 | | | 2 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Commercial Loans | 313 | | | — | | | 56 | | | 369 | | | 5 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Loans to Individuals | — | | | 15 | | | 45 | | | 60 | | | 4 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | $ | 313 | | | $ | 299 | | | $ | 514 | | | $ | 1,126 | | | 12 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2014 | | | | | | | | | | | | | |
| Extend Amortization | | Interest Rate Reductions | | Combination (1) | | Total Modifications | | Number of Loans | | | | | | | | | | | | | |
Period | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family Residential | $ | — | | | $ | — | | | $ | — | | | $ | — | | | — | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other | — | | | — | | | 388 | | | 388 | | | 1 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Commercial Loans | 60 | | | — | | | — | | | 60 | | | 2 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Loans to Individuals | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | $ | 60 | | | $ | — | | | $ | 388 | | | $ | 448 | | | 3 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2013 | | | | | | | | | | | | | |
| Extend Amortization | | Interest Rate Reductions | | Combination (1) | | Total Modifications | | Number of Loans | | | | | | | | | | | | | |
Period | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | | |
Construction | $ | 40 | | | $ | — | | | $ | — | | | $ | 40 | | | 1 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
1-4 Family Residential | 285 | | | — | | | 468 | | | 753 | | | 6 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other | — | | | — | | | 16 | | | 16 | | | 1 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Commercial Loans | 307 | | | — | | | 19 | | | 326 | | | 5 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Loans to Individuals | 14 | | | 185 | | | 35 | | | 234 | | | 32 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | $ | 646 | | | $ | 185 | | | $ | 538 | | | $ | 1,369 | | | 45 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2013 | | | | | | | | | | | | | |
| Extend Amortization | | Interest Rate Reductions | | Combination (1) | | Total Modifications | | Number of Loans | | | | | | | | | | | | | |
Period | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family Residential | $ | — | | | $ | — | | | $ | 391 | | | $ | 391 | | | 2 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other | — | | | — | | | 16 | | | 16 | | | 1 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Commercial Loans | 22 | | | — | | | — | | | 22 | | | 1 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Loans to Individuals | 14 | | | 185 | | | 28 | | | 227 | | | 30 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | $ | 36 | | | $ | 185 | | | $ | 435 | | | $ | 656 | | | 34 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
|
(1) These modifications include an extension of the amortization period and interest rate reduction. |
|
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The majority of loans restructured as TDRs during the three and six months ended June 30, 2014 were modified with a combination of interest rate reductions and maturity extensions. Interest continues to be charged on principal balances outstanding during the term extended. Therefore, the financial effects of the recorded investment of loans restructured as TDRs during the three and six months ended June 30, 2014 and June 30, 2013 were insignificant. Generally, the loans identified as TDRs were previously reported as impaired loans prior to restructuring and therefore the modification did not impact our determination of the allowance for loan losses. |
On an ongoing basis, the performance of the restructured loans is monitored for subsequent payment default. Payment default for TDRs is recognized when the borrower is 90 days or more past due. For the three and six months ended June 30, 2014 and 2013, there were no material defaults. Payment defaults for TDRs did not significantly impact the determination of the allowance for loan loss. |
At June 30, 2014 and December 31, 2013, there were no commitments to lend additional funds to borrowers whose terms had been modified in TDRs. |