Loans And Allowance For Loan Losses | 12 Months Ended |
Dec. 31, 2013 |
Loans And Allowance For Loan Losses [Abstract] | ' |
Loans And Allowance For Loan Losses | ' |
NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES |
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The fundamental lending business of the Company is based on understanding, measuring, and controlling the credit risk inherent in the loan portfolio. The Company's loan portfolio is subject to varying degrees of credit risk. These risks entail both general risks, which are inherent in the lending process, and risks specific to individual borrowers. The Company's credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry or collateral type. The loan portfolio segment balances are presented in the following table: |
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| | | December 31, | | | | | | | | | | | | | | | |
| | | 2013 | | 2012 | | | | | | | | | | | | | | | |
| Commercial & Industrial | $ | 34,278,539 | $ | 20,601,207 | | | | | | | | | | | | | | | |
| Commercial Real Estate | | 157,450,876 | | 39,906,055 | | | | | | | | | | | | | | | |
| Residential Real Estate | | 73,323,554 | | 22,229,445 | | | | | | | | | | | | | | | |
| Home Equity Line of Credit | | 33,257,822 | | 10,284,221 | | | | | | | | | | | | | | | |
| Land | | 1,716,747 | | 3,098,973 | | | | | | | | | | | | | | | |
| Construction | | 19,343,013 | | 4,704,581 | | | | | | | | | | | | | | | |
| Consumer & Other | | 1,309,781 | | 911,690 | | | | | | | | | | | | | | | |
| Total Loans | | 320,680,332 | | 101,736,172 | | | | | | | | | | | | | | | |
| Less: Allowance for Loan Losses | | -851,000 | | -655,942 | | | | | | | | | | | | | | | |
| Net Loans | $ | 319,829,332 | $ | 101,080,230 | | | | | | | | | | | | | | | |
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At December 31, 2013 and December 31, 2012, loans not considered to have deteriorated credit quality at acquisition had a total remaining unamortized discount of $3,386,065 and $2,144,901, respectively. |
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Portfolio Segments: |
The Company currently manages its credit products and the respective exposure to loan losses by the following specific portfolio segments, which are levels at which the Company develops and documents its systematic methodology to determine the allowance for loan losses. The Company considers each loan type to be a portfolio segment having unique risk characteristics. |
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Commercial & Industrial |
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Commercial & Industrial (“C&I”) loans are made to provide funds for equipment and general corporate needs. Repayment of these loans primarily uses the funds obtained from the operation of the borrower's business. C&I loans also include lines of credit that are utilized to finance a borrower's short-term credit needs and/or to finance a percentage of eligible receivables or inventory. Of primary concern in C&I lending is the borrower's creditworthiness and ability to successfully generate sufficient cash flow from their business to service the debt. |
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Commercial Real Estate |
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Commercial Real Estate loans are bifurcated into Investor and Owner Occupied types (classes). Commercial Real Estate - Investor loans consist of loans secured by non-owner occupied properties and involve investment properties for warehouse, retail, apartment, and office space with a history of occupancy and cash flow. This commercial real estate class includes mortgage loans to the developers and owners of commercial real estate where the borrower intends to operate or sell the property at a profit and use the income stream or proceeds from the sale(s) to repay the loan. Commercial Real Estate - Owner Occupied loans consist of commercial mortgage loans secured by owner occupied properties and involves a variety of property types to conduct the borrower's operations. The primary source of repayment for this type of loan is the cash flow from the business and is based upon the borrower's financial health and the ability of the borrower and the business to repay. At December 31, 2013 and December 31, 2012, Commercial Real Estate – Investor loans had a total balance of $110,352,299 and $25,125,750, respectively. At December 31, 2013 and December 31, 2012, Commercial Real Estate – Owner Occupied loans had a total balance of $47,098,577 and $14,780,305, respectively. |
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Residential Real Estate |
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Residential Real Estate loans are bifurcated into Investor and Owner Occupied types (classes). Residential Real Estate - Investor loans consist of loans secured by non-owner occupied residential properties and usually carry higher credit risk than Residential Real Estate – Owner Occupied loans due to their reliance on stable rental income and due to lower incentive for the borrower to avoid foreclosure. Payments on loans secured by rental properties often depend on the successful operation and management of the properties and the payment of rent by tenants. At December 31, 2013 and December 31, 2012, Residential Real Estate – Investor loans had a total balance of $26,670,715 and $15,124,645, respectively. At December 31, 2013 and December 31, 2012, Residential Real Estate – Owner Occupied loans had a total balance of $46,652,839 and $7,104,800, respectively. |
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Home Equity Line of Credit |
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Home Equity Lines of Credit (“HELOCs”) are a form of revolving credit in which a borrower's primary residence serves as collateral. Borrowers use HELOCs primarily for education, home improvements, and other significant personal expenditures. The borrower will be approved for a specific credit limit set at a percentage of their home's appraised value less the balance owed on the existing first mortgage. Major risks in HELOC lending include the borrower's ability to service the existing first mortgage plus proposed HELOC, the Company's ability to pursue collection in a second lien position upon default, and overall risks in fluctuation in the value of the underlying collateral property |
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Land |
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Land loans are secured by underlying properties that usually consist of tracts of undeveloped land that do not produce income. These loans carry the risk that there will be inadequate demand to ensure the sale of the property within an acceptable time. As a result, land loans carry the risk that the builder will have to pay the property taxes and other carrying costs of the property until an end buyer is found. |
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Construction |
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Construction loans, which includes land development loans, are generally considered to involve a higher degree of credit risk than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property's value at completion of construction and estimated costs of construction, as well as the property’s ability to attract and retain tenants. Loan funds are disbursed periodically as pre-specified stages of completion are attained based upon site inspections. If the Company is forced to foreclose on a building before or at completion due to a default, it may be unable to recover all of the unpaid balance of and accrued interest on the loan as well as related foreclosure and holding costs. |
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Consumer & Other |
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Consumer & Other loans include installment loans, personal lines of credit, and automobile loans. Payment on these loans often depends on the borrower's creditworthiness and ability to generate sufficient cash flow to service the debt. |
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Allowance for Loan Losses |
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To control and monitor credit risk, management has an internal credit process in place to determine whether credit standards are maintained along with in-house loan administration accompanied by oversight and review procedures. The primary purpose of loan underwriting is the evaluation of specific lending risks that involves the analysis of the borrower's ability to service the debt as well as the assessment of the underlying collateral. Oversight and review procedures include the monitoring of the portfolio credit quality, early identification of potential problem credits and the management of the problem credits. As part of the oversight and review process, the Company maintains an allowance for loan losses to absorb estimated and probable losses inherent in the loan portfolio. |
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For purposes of calculating the allowance, the Company segregates its loan portfolio into portfolio segments based primarily on the type of supporting collateral. The Commercial Real Estate and Residential Real Estate segments, which both exclude any collateral property currently under construction, are further disaggregated into Owner Occupied and Investor classes for each. Further, all segments are also segregated as either purchased credit impaired loans, purchased loans not deemed impaired, troubled debt restructurings, or new originations. |
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The analysis for determining the allowance is consistent with guidance set forth in U.S. GAAP and the Interagency Policy Statement on the Allowance for Loan and Lease Losses. Pursuant to Bank policy, the allowance is evaluated quarterly by management and is based upon management's review of the collectability of loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers' ability to repay, estimated value of any underlying collateral and prevailing economic conditions. The allowance consists of specific and general reserves. The specific reserves relate to loans classified as impaired primarily including nonaccrual loans, troubled debt restructurings, and purchased credit impaired loans where cash flows have deteriorated from those forecasted as of the acquisition date. The reserve for these loans is established when the discounted cash flows, collateral value, or observable market price, whichever is appropriate, of the impaired loan is lower than the carrying value. For impaired loans, any measured impairment is charged-off against the loan and allowance for those loans that are collateral dependent in the applicable reporting period. |
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The general reserve covers loans that are not classified as impaired and primarily includes purchased loans not deemed impaired and new loan originations. The general reserve requirement is based on historical loss experience and several qualitative factors derived from economic and market conditions that have been determined to have an effect on the probability and magnitude of a loss. Since the Bank does not have its own sufficient loss experience, management also references the historical net charge-off experience of peer groups to determine a reasonable range of reserve values, which is permissible per Bank policy. The peer groups consist of competing Maryland-based financial institutions with established ranges in total asset size. Management will continue to evaluate the appropriateness of the peer group data used with each quarterly allowance analysis until such time that the Bank has sufficient loss experience to provide a foundation for the general reserve requirement. The qualitative analysis incorporates global environmental factors in the following trends: national and local economic metrics; portfolio risk ratings and composition; and concentrations in credit. |
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The following table provides information on the activity in the allowance for loan losses by the respective loan portfolio segment for the year ended December 31, 2013: |
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| | | Commercial | | | Commercial | | Residential | | Home Equity | | | | | | Consumer | | | | |
| | | & Industrial | | | Real Estate | | Real Estate | | Line of Credit | | Land | | Construction | | & Other | | Total | | |
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | |
| Beginning balance | $ | 121,759 | | $ | 131,350 | $ | 199,306 | $ | 81,955 | $ | 6,400 | $ | 109,335 | $ | 5,837 | $ | 655,942 | | |
| Charge-offs | | -82,860 | | | -187,419 | | -441,421 | | -10,919 | | - | | - | | -1,000 | | -723,619 | | |
| Recoveries(1) | | - | | | - | | 39,135 | | 13,578 | | 23,026 | | - | | 731 | | 76,470 | | |
| Provision | | 128,501 | | | 380,149 | | 283,219 | | 44,589 | | -22,508 | | 26,081 | | 2,176 | | 842,207 | | |
| Ending balance | $ | 167,400 | | $ | 324,080 | $ | 80,239 | $ | 129,203 | $ | 6,918 | $ | 135,416 | $ | 7,744 | $ | 851,000 | | |
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The following table presents loans and the related allowance for loan losses, by loan portfolio segment, as of December 31, 2013: |
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| | | Commercial | | | Commercial | | Residential | | Home Equity | | | | | | Consumer | | | | |
| | | & Industrial | | | Real Estate | | Real Estate | | Line of Credit | | Land | | Construction | | & Other | | Total | | |
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | |
| Ending balance: individually evaluated for impairment | $ | - | | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | | |
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| Ending balance: collectively evaluated for impairment | | 167,400 | | | 324,080 | | 80,239 | | 129,203 | | 6,918 | | 135,416 | | 7,744 | | 851,000 | | |
| Totals | $ | 167,400 | | $ | 324,080 | $ | 80,239 | $ | 129,203 | $ | 6,918 | $ | 135,416 | $ | 7,744 | $ | 851,000 | | |
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| Loans: | | | | | | | | | | | | | | | | | | | |
| Ending balance: individually evaluated for impairment(2) | $ | 730,881 | | $ | 1,354,962 | $ | 3,544,741 | $ | 325,866 | $ | - | $ | 104,926 | $ | - | $ | 6,061,376 | | |
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| Ending balance: collectively evaluated for impairment | | 31,315,355 | | | 132,236,685 | | 66,467,228 | | 32,418,288 | | 355,190 | | 17,894,718 | | 1,309,781 | | 281,997,245 | | |
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| Ending balance: loans acquired with deteriorated credit quality(3) | | 2,232,303 | | | 23,859,229 | | 3,311,585 | | 513,668 | | 1,361,557 | | 1,343,369 | | - | | 32,621,711 | | |
| Totals | $ | 34,278,539 | | $ | 157,450,876 | $ | 73,323,554 | $ | 33,257,822 | $ | 1,716,747 | $ | 19,343,013 | $ | 1,309,781 | $ | 320,680,332 | | |
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| -1 | | Excludes cash payments received on loans acquired with deteriorated credit quality with a carrying value of $0. | | | | | | | | | | | | | | | | | |
| -2 | | Includes loans acquired with deteriorated credit quality of $501,143 that have current period charge-offs. | | | | | | | | | | | | | | | | | |
| -3 | | Consists of loans acquired with deteriorated credit quality that do not have current period charge-offs or specific reserves. | | | | | | | | | | | | | | | | | |
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The following table provides information on the activity in the allowance for loan losses by the respective loan portfolio segment for the year ended December 31, 2012: |
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| | | Commercial | | | Commercial | | Residential | | Home Equity | | | | | | Consumer | | | | |
| | | & Industrial | | | Real Estate | | Real Estate | | Line of Credit | | Land | | Construction | | & Other | | Total | | |
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | |
| Beginning balance | $ | 151,395 | | $ | 88,361 | $ | 49,490 | $ | 446,911 | $ | 8,256 | $ | 75,473 | $ | 4,767 | $ | 824,653 | | |
| Charge-offs | | -101,128 | | | -1,796 | | -183,765 | | -647,063 | | -36,177 | | - | | - | | -969,929 | | |
| Recoveries(1) | | 30,000 | | | 1,796 | | 7,000 | | 28,605 | | - | | - | | - | | 67,401 | | |
| Provision | | 41,492 | | | 42,989 | | 326,581 | | 253,502 | | 34,321 | | 33,862 | | 1,070 | | 733,817 | | |
| Ending balance | $ | 121,759 | | $ | 131,350 | $ | 199,306 | $ | 81,955 | $ | 6,400 | $ | 109,335 | $ | 5,837 | $ | 655,942 | | |
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The following table presents loans and the related allowance for loan losses, by loan portfolio segment, as of December 31, 2012: |
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| | | Commercial | | | Commercial | | Residential | | Home Equity | | | | | | Consumer | | | | |
| | | & Industrial | | | Real Estate | | Real Estate | | Line of Credit | | Land | | Construction | | & Other | | Total | | |
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | |
| Ending balance: individually evaluated for impairment(2) | $ | - | | $ | - | $ | 213,882 | $ | 2,060 | $ | - | $ | - | $ | - | $ | 215,942 | | |
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| Ending balance: collectively evaluated for impairment | | 121,759 | | | 131,350 | | -14,576 | | 79,895 | | 6,400 | | 109,335 | | 5,837 | | 440,000 | | |
| Totals | $ | 121,759 | | $ | 131,350 | $ | 199,306 | $ | 81,955 | $ | 6,400 | $ | 109,335 | $ | 5,837 | $ | 655,942 | | |
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| Loans: | | | | | | | | | | | | | | | | | | | |
| Ending balance: individually evaluated for impairment(3) | $ | 1,068,137 | | $ | - | $ | 2,573,139 | $ | 557,570 | $ | 84,523 | $ | - | $ | - | $ | 4,283,369 | | |
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| Ending balance: collectively evaluated for impairment | | 18,519,535 | | | 36,622,790 | | 17,315,860 | | 9,726,651 | | 2,242,320 | | 4,704,581 | | 911,690 | | 90,043,427 | | |
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| Ending balance: loans acquired with deteriorated credit quality(4) | | 1,013,535 | | | 3,283,265 | | 2,340,446 | | - | | 772,130 | | - | | - | | 7,409,376 | | |
| Totals | $ | 20,601,207 | | $ | 39,906,055 | $ | 22,229,445 | $ | 10,284,221 | $ | 3,098,973 | $ | 4,704,581 | $ | 911,690 | $ | 101,736,172 | | |
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| -1 | | Excludes cash payments received on loans acquired with deteriorated credit quality with a carrying value of $0. | | | | | | | | | | | | | | | | | |
| -2 | | Includes specific reserves of $213,882 for a troubled debt restructuring. | | | | | | | | | | | | | | | | | |
| -3 | | Includes loans acquired with deteriorated credit quality of $1,186,307 that have current period charge-offs or specific reserves. | | | | | | | | | | | | | | | | | |
| -4 | | Consists of loans acquired with deteriorated credit quality that do not have current period charge-offs or specific reserves. | | | | | | | | | | | | | | | | | |
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The following table presents information with respect to impaired loans, which includes loans acquired with deteriorated credit quality that have current period charge-offs, as December 31, 2013: |
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| | As of December 31, 2013 | | | For the Year Ended | | | | | | | | | |
31-Dec-13 | | | | | | | | | |
| | | | Unpaid | | | | | Average | | Interest | | | | | | | | | |
| | Recorded | | Principal | | Related | | | Recorded | | Income | | | | | | | | | |
| | Investment | | Balance | | Allowance | | | Investment | | Recognized(1) | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | |
Commercial & Industrial | $ | 730,881 | $ | 875,797 | $ | - | | $ | 766,112 | $ | 100,065 | | | | | | | | | |
Commercial Real Estate - Investor | | 659,002 | | 1,147,133 | | - | | | 466,578 | | 34,185 | | | | | | | | | |
Commercial Real Estate - Owner Occupied | | 695,960 | | 689,644 | | - | | | 707,029 | | - | | | | | | | | | |
Residential Real Estate - Investor | | 680,662 | | 770,812 | | - | | | 681,586 | | 12,985 | | | | | | | | | |
Residential Real Estate - Owner Occupied | | 2,864,079 | | 3,698,438 | | - | | | 3,010,094 | | 178,299 | | | | | | | | | |
Home Equity Line of Credit | | 325,866 | | 370,361 | | - | | | 334,432 | | 2,440 | | | | | | | | | |
Land | | - | | - | | - | | | - | | - | | | | | | | | | |
Construction | | 104,926 | | 845,451 | | - | | | 94,724 | | 115,608 | | | | | | | | | |
Consumer & Other | | - | | 20,491 | | - | | | - | | 1,057 | | | | | | | | | |
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With an allowance recorded: | | | | | | | | | | | | | | | | | | | | |
Commercial & Industrial | | - | | - | | - | | | - | | - | | | | | | | | | |
Commercial Real Estate - Investor | | - | | - | | - | | | - | | - | | | | | | | | | |
Commercial Real Estate - Owner Occupied | | - | | - | | - | | | - | | - | | | | | | | | | |
Residential Real Estate - Investor | | - | | - | | - | | | - | | - | | | | | | | | | |
Residential Real Estate - Owner Occupied | | - | | - | | - | | | - | | - | | | | | | | | | |
Home Equity Line of Credit | | - | | - | | - | | | - | | - | | | | | | | | | |
Land | | - | | - | | - | | | - | | - | | | | | | | | | |
Construction | | - | | - | | - | | | - | | - | | | | | | | | | |
Consumer & Other | | - | | - | | - | | | - | | - | | | | | | | | | |
Total: | | 6,061,376 | | 8,418,127 | | - | | | 6,060,555 | | 444,639 | | | | | | | | | |
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Commercial & Industrial | $ | 730,881 | $ | 875,797 | $ | - | | $ | 766,112 | $ | 100,065 | | | | | | | | | |
Commercial Real Estate | | 1,354,962 | | 1,836,777 | | - | | | 1,173,607 | | 34,185 | | | | | | | | | |
Residential Real Estate | | 3,544,741 | | 4,469,250 | | - | | | 3,691,680 | | 191,284 | | | | | | | | | |
Home Equity Line of Credit | | 325,866 | | 370,361 | | - | | | 334,432 | | 2,440 | | | | | | | | | |
Land | | - | | - | | - | | | - | | - | | | | | | | | | |
Construction | | 104,926 | | 845,451 | | - | | | 94,724 | | 115,608 | | | | | | | | | |
Consumer & Other | | - | | 20,491 | | - | | | - | | 1,057 | | | | | | | | | |
| $ | 6,061,376 | $ | 8,418,127 | $ | - | | $ | 6,060,555 | $ | 444,639 | | | | | | | | | |
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| -1 | | Consists primarily of accretion income on loans acquired from BNB with deteriorated credit quality that were reclassified as troubled debt restructurings subsequent to acquisition. | | | | | | | | | | | | | | | | | |
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The following table presents information with respect to impaired loans, which includes loans acquired with deteriorated credit quality that have current period charge-offs, as of December 31, 2012: |
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| | As of December 31, 2012 | | | For the Year Ended | | | | | | | | | |
31-Dec-12 | | | | | | | | | |
| | | | Unpaid | | | | | Average | | Interest | | | | | | | | | |
| | Recorded | | Principal | | Related | | | Recorded | | Income | | | | | | | | | |
| | Investment | | Balance | | Allowance | | | Investment | | Recognized(1) | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | |
Commercial & Industrial | $ | 1,068,137 | $ | 1,257,975 | $ | - | | $ | 1,149,017 | $ | 67,109 | | | | | | | | | |
Commercial Real Estate - Investor | | - | | - | | - | | | - | | - | | | | | | | | | |
Commercial Real Estate - Owner Occupied | | - | | - | | - | | | - | | - | | | | | | | | | |
Residential Real Estate - Investor | | 1,155,813 | | 1,284,054 | | - | | | 1,151,293 | | 179,579 | | | | | | | | | |
Residential Real Estate - Owner Occupied | | 735,503 | | 1,373,018 | | - | | | 735,542 | | 99,441 | | | | | | | | | |
Home Equity Line of Credit | | 390,937 | | 524,474 | | - | | | 478,154 | | 16,717 | | | | | | | | | |
Land | | 84,523 | | 922,056 | | - | | | 153,832 | | 192,709 | | | | | | | | | |
Construction | | - | | - | | - | | | - | | - | | | | | | | | | |
Consumer & Other | | - | | 22,079 | | - | | | - | | 1,061 | | | | | | | | | |
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With an allowance recorded: | | | | | | | | | | | | | | | | | | | | |
Commercial & Industrial | | - | | - | | - | | | - | | - | | | | | | | | | |
Commercial Real Estate - Investor | | - | | - | | - | | | - | | - | | | | | | | | | |
Commercial Real Estate - Owner Occupied | | - | | - | | - | | | - | | - | | | | | | | | | |
Residential Real Estate - Investor | | - | | - | | - | | | - | | - | | | | | | | | | |
Residential Real Estate - Owner Occupied | | 681,823 | | 786,580 | | 213,882 | | | 696,565 | | 36,279 | | | | | | | | | |
Home Equity Line of Credit | | 166,633 | | 195,101 | | 2,060 | | | 171,818 | | - | | | | | | | | | |
Land | | - | | - | | - | | | - | | - | | | | | | | | | |
Construction | | - | | - | | - | | | - | | - | | | | | | | | | |
Consumer & Other | | - | | - | | - | | | - | | - | | | | | | | | | |
Total: | | 4,283,369 | | 6,365,337 | | 215,942 | | | 4,536,221 | | 592,895 | | | | | | | | | |
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Commercial & Industrial | $ | 1,068,137 | $ | 1,257,975 | $ | - | | $ | 1,149,017 | $ | 67,109 | | | | | | | | | |
Commercial Real Estate | | - | | - | | - | | | - | | - | | | | | | | | | |
Residential Real Estate | | 2,573,139 | | 3,443,652 | | 213,882 | | | 2,583,400 | | 315,299 | | | | | | | | | |
Home Equity Line of Credit | | 557,570 | | 719,575 | | 2,060 | | | 649,972 | | 16,717 | | | | | | | | | |
Land | | 84,523 | | 922,056 | | - | | | 153,832 | | 192,709 | | | | | | | | | |
Construction | | - | | - | | - | | | - | | - | | | | | | | | | |
Consumer & Other | | - | | 22,079 | | - | | | - | | 1,061 | | | | | | | | | |
| $ | 4,283,369 | $ | 6,365,337 | $ | 215,942 | | $ | 4,536,221 | $ | 592,895 | | | | | | | | | |
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| -1 | | Consists primarily of accretion income on loans acquired with deteriorated credit quality that were reclassified as troubled debt restructurings subsequent to acquisition. | | | | | | | | | | | | | | | | | |
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In addition to monitoring the performance status of the loan portfolio, the Company utilizes a risk rating scale (1-8) to evaluate loan asset quality for all loans. Loans that are rated 1-4 are classified as pass credits. Loans rated a 5 (Watch) are pass credits, but are loans that have been identified that warrant additional attention and monitoring. Loans that are risk rated 5 or higher are placed on the Company's monthly watch list. For the pass rated loans, management believes there is a low risk of loss related to these loans and as necessary, credit may be strengthened through improved borrower performance and/or additional collateral. Loans rated a 6 (Special Mention) or higher are considered criticized loans and represent an increased level of credit risk and are placed into these three categories: |
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6 (Special Mention) - Borrowers exhibit potential credit weaknesses or downward trends that may weaken the credit position if uncorrected. The borrowers are considered marginally acceptable without potential for loss of principal or interest. |
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7 (Substandard) - Borrowers have well defined weaknesses or characteristics that present the possibility that the Company will sustain some loss if the deficiencies are not corrected. |
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8 (Doubtful) - Borrowers classified as doubtful have the same weaknesses found in substandard borrowers; however, these weaknesses indicate that the collection of debt in full (principal and interest), based on current conditions, is highly questionable and improbable. |
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In the normal course of loan portfolio management, relationship managers are responsible for continuous assessment of credit risk arising from the individual borrowers within their portfolio and assigning appropriate risk ratings. Credit Administration is responsible for ensuring the integrity and operation of the risk rating system and maintenance of the watch list. The Officer's Loan Committee meets monthly to discuss and monitor problem credits and internal risk rating downgrades that result in updates to the watch list. |
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The following table provides information with respect to the Company's credit quality indicators by class of the loan portfolio as of December 31, 2013: |
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| | | | | Risk Rating | | | |
| | | | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | | | |
Commercial & Industrial | | | | $ | 33,136,370 | | $ | 713,909 | | $ | 428,260 | | $ | - | | $ | 34,278,539 | | | |
Commercial Real Estate - Investor | | | | | 99,120,824 | | | 4,265,276 | | | 6,966,199 | | | - | | | 110,352,299 | | | |
Commercial Real Estate - Owner Occupied | | | | | 37,768,562 | | | 3,883,453 | | | 5,446,562 | | | - | | | 47,098,577 | | | |
Residential Real Estate - Investor | | | | | 25,795,419 | | | 242,381 | | | 632,915 | | | - | | | 26,670,715 | | | |
Residential Real Estate - Owner Occupied | | | | | 42,223,599 | | | 77,473 | | | 4,351,767 | | | - | | | 46,652,839 | | | |
Home Equity Line of Credit | | | | | 32,418,803 | | | 391,993 | | | 447,026 | | | - | | | 33,257,822 | | | |
Land | | | | | 1,716,747 | | | - | | | - | | | - | | | 1,716,747 | | | |
Construction | | | | | 18,847,368 | | | 88,044 | | | 407,601 | | | - | | | 19,343,013 | | | |
Consumer & Other | | | | | 1,309,781 | | | - | | | - | | | - | | | 1,309,781 | | | |
Total | | | | $ | 292,337,473 | | $ | 9,662,529 | | $ | 18,680,330 | | $ | - | | $ | 320,680,332 | | | |
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The following table provides information with respect to the Company's credit quality indicators by class of the loan portfolio as of December 31, 2012: |
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| | | | | Risk Rating | | | |
| | | | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | | | |
Commercial & Industrial | | | | $ | 19,730,587 | | $ | 413,042 | | $ | 457,578 | | $ | - | | $ | 20,601,207 | | | |
Commercial Real Estate - Investor | | | | | 24,194,162 | | | 517,545 | | | 414,043 | | | - | | | 25,125,750 | | | |
Commercial Real Estate - Owner Occupied | | | | | 12,836,793 | | | 905,329 | | | 1,038,183 | | | - | | | 14,780,305 | | | |
Residential Real Estate - Investor | | | | | 13,697,795 | | | - | | | 1,426,850 | | | - | | | 15,124,645 | | | |
Residential Real Estate - Owner Occupied | | | | | 4,303,223 | | | 140,847 | | | 2,660,730 | | | - | | | 7,104,800 | | | |
Home Equity Line of Credit | | | | | 9,706,937 | | | - | | | 577,284 | | | - | | | 10,284,221 | | | |
Land | | | | | 2,728,263 | | | - | | | 370,710 | | | - | | | 3,098,973 | | | |
Construction | | | | | 4,704,581 | | | - | | | - | | | - | | | 4,704,581 | | | |
Consumer & Other | | | | | 911,690 | | | - | | | - | | | - | | | 911,690 | | | |
Total | | | | $ | 92,814,031 | | $ | 1,976,763 | | $ | 6,945,378 | | $ | - | | $ | 101,736,172 | | | |
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Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. |
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The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2013. Purchased credit impaired loans are excluded from this aging and nonaccrual loans schedule. |
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| | Accrual Loans | | | | | | |
| | 30-59 | | | 60-89 | | | 90 or More | | | | | | | | | | | | |
| | Days | | | Days | | | Days | | | Total | | | | | | Nonaccrual | | | Total |
| | Past Due | | | Past Due | | | Past Due | | | Past Due | | | Current | | | Loans | | | Loans |
Commercial & Industrial | $ | 60,653 | | $ | - | | $ | - | | $ | 60,653 | | $ | 31,842,702 | | $ | 142,881 | | $ | 32,046,236 |
Commercial Real Estate - Investor | | - | | | - | | | - | | | - | | | 93,983,453 | | | 100,459 | | | 94,083,912 |
Commercial Real Estate - Owner Occupied | | 175,341 | | | - | | | - | | | 175,341 | | | 38,135,290 | | | 695,960 | | | 39,006,591 |
Residential Real Estate - Investor | | - | | | 226,996 | | | - | | | 226,996 | | | 24,892,038 | | | 472,100 | | | 25,591,134 |
Residential Real Estate - Owner Occupied | | 1,049,769 | | | 117,372 | | | - | | | 1,167,141 | | | 41,151,500 | | | 2,102,194 | | | 44,420,835 |
Home Equity Line of Credit | | 319,767 | | | - | | | - | | | 319,767 | | | 32,128,982 | | | 295,406 | | | 32,744,155 |
Land | | - | | | - | | | - | | | - | | | 355,191 | | | - | | | 355,191 |
Construction | | 104,926 | | | - | | | - | | | 104,926 | | | 17,894,719 | | | - | | | 17,999,645 |
Consumer & Other | | 508 | | | - | | | - | | | 508 | | | 1,309,271 | | | - | | | 1,309,779 |
Total | $ | 1,710,964 | | $ | 344,368 | | $ | - | | $ | 2,055,332 | | $ | 281,693,146 | | $ | 3,809,000 | | $ | 287,557,478 |
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Purchased credit impaired loans | | | | | | | | | | | | | | | | | | | | 33,122,854 |
Total Loans | | | | | | | | | | | | | | | | | | | $ | 320,680,332 |
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The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2012. Purchased credit impaired loans are excluded from this aging and nonaccrual loans schedule. |
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| | | | | | | | | | | | | | | | | | | | |
| | Accrual Loans | | | | | | |
| | 30-59 | | | 60-89 | | | 90 or More | | | | | | | | | | | | |
| | Days | | | Days | | | Days | | | Total | | | | | | Nonaccrual | | | Total |
| | Past Due | | | Past Due | | | Past Due | | | Past Due | | | Current | | | Loans | | | Loans |
Commercial & Industrial | $ | - | | $ | - | | $ | - | | $ | - | | $ | 19,220,670 | | $ | 367,002 | | $ | 19,587,672 |
Commercial Real Estate - Investor | | - | | | - | | | - | | | - | | | 24,754,227 | | | - | | | 24,754,227 |
Commercial Real Estate - Owner Occupied | | - | | | - | | | - | | | - | | | 11,868,563 | | | - | | | 11,868,563 |
Residential Real Estate - Investor | | - | | | - | | | 460,354 | | | 460,354 | | | 12,947,404 | | | 190,975 | | | 13,598,733 |
Residential Real Estate - Owner Occupied | | - | | | - | | | - | | | - | | | 4,881,732 | | | 222,227 | | | 5,103,959 |
Home Equity Line of Credit | | - | | | 23,304 | | | - | | | 23,304 | | | 9,741,869 | | | 519,048 | | | 10,284,221 |
Land | | - | | | - | | | - | | | - | | | 2,326,843 | | | - | | | 2,326,843 |
Construction | | - | | | - | | | - | | | - | | | 4,704,581 | | | - | | | 4,704,581 |
Consumer & Other | | - | | | - | | | - | | | - | | | 911,690 | | | - | | | 911,690 |
Total | $ | - | | $ | 23,304 | | $ | 460,354 | | $ | 483,658 | | $ | 91,357,579 | | $ | 1,299,252 | | $ | 93,140,489 |
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Purchased credit impaired loans | | | | | | | | | | | | | | | | | | | | 8,595,683 |
Total Loans | | | | | | | | | | | | | | | | | | | $ | 101,736,172 |
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Troubled Debt Restructurings |
The restructuring of a loan constitutes a troubled debt restructuring, or TDR, if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider in the normal course of business. A concession may include an extension of repayment terms which would not normally be granted, a reduction of interest rate or the forgiveness of principal and/or accrued interest. If the debtor is experiencing financial difficulty and the creditor has granted a concession, the Company will make the necessary disclosures related to the TDR. In certain cases, a modification may be made in an effort to retain a customer who is not experiencing financial difficulty. This type of modification is not considered to be a TDR. Once a loan has been modified and is considered a TDR, it is reported as an impaired loan. All TDRs are evaluated individually for impairment on a quarterly basis as part of the allowance for credit losses calculation. A specific allowance for TDR loans is established when the discounted cash flows, collateral value or observable market price, whichever is appropriate, of the TDR is lower than the carrying value. If a loan deemed a TDR has performed for at least six months at the level prescribed by the modification, it is not considered to be non-performing; however, it will generally continue to be reported as impaired, but may be returned to accrual status. A TDR is deemed in default on its modified terms once a contractual payment is 30 or more days past due. |
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The following table presents a breakdown of loans the Company modified during the years ended December 31, 2013 and 2012: |
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| | Year Ended December 31, 2013 | | Year Ended December 31, 2012 | | | | | | | | |
| | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | | | | | | | |
| Troubled Debt Restructurings: | | | | | | | | | | | | | | | | | | | |
| Commercial & Industrial | 1 | $ | 160,885 | $ | 160,885 | | 4 | $ | 850,136 | $ | 861,317 | | | | | | | | |
| Commercial Real Estate - Investor | - | | - | | - | | - | | - | | - | | | | | | | | |
| Commercial Real Estate - Owner Occupied | - | | - | | - | | - | | - | | - | | | | | | | | |
| Residential Real Estate - Investor | - | | - | | - | | - | | - | | - | | | | | | | | |
| Residential Real Estate - Owner Occupied | 1 | | 683,763 | | 683,763 | | 1 | | 76,675 | | 76,675 | | | | | | | | |
| Home Equity Line of Credit | 1 | | 68,685 | | 68,685 | | 4 | | 467,297 | | 467,297 | | | | | | | | |
| Land | - | | - | | - | | 1 | | 288,882 | | 288,882 | | | | | | | | |
| Construction | - | | - | | - | | - | | - | | - | | | | | | | | |
| Consumer & Other | - | | - | | - | | - | | - | | - | | | | | | | | |
| Totals | 3 | $ | 913,333 | $ | 913,333 | | 10 | $ | 1,682,990 | $ | 1,694,171 | | | | | | | | |
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The restructuring of the C&I loans as of December 31, 2012 included an extension of the loan maturity date at an interest rate lower than the current rate for new debt with similar risk. This C&I TDR subsequently paid off in November 2013, resulting in accretion interest recognized upon resolution of $29,559. The restructuring of the Residential Real Estate - Owner Occupied loan included an extension of loan maturity date and reduced payments per executed forbearance agreement, which was expected to result in concessions to the borrower. This Residential Real Estate - Owner Occupied TDR was on nonaccrual status at December 31, 2013. The restructuring of the HELOC included a deferral of payments beyond the original contractual loan term and change to interest only payments to allow more manageable debt service by the borrower. This HELOC TDR was an accruing loan at December 31, 2013. |
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For the year ended December 31, 2012, the restructurings of the C&I loans included two consolidations of multiple related notes into new loans, with one such TDR having a split note structure. Both of these restructurings, which account for $691,879 of the post-modification C&I recorded investment, were at interest rates lower than the current rates for new debt with similar risks in an effort to accommodate the borrower's cash flow difficulties, and are accruing TDRs at December 31, 2013. The restructurings of the HELOCs resulted in interest rate concessions and changes in payment terms from interest only to monthly principal and interest payments, to allow more manageable debt service by the borrower. All HELOC TDRs were subsequently reclassified to Residential Real Estate - Owner Occupied in 2013 and all but one were on nonaccrual status at December 31, 2013. The Land loan restructuring involved an extension of the loan maturity date at an interest rate lower than the current rate for new debt with similar risk. This loan was combined as part of the C&I split note TDR described previously. The Residential Real Estate - Owner Occupied restructuring involved the extension of the loan maturity date at an interest rate lower than the current rate for new debt with similar risk, and was an accruing TDR at December 31, 2013. |
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During the year ended December 31, 2013, three TDRs with the same borrower having a total combined carrying value of $436,521 were paid from proceeds from the sale of collateral properties resulting in accretion interest recognized upon resolution of $205,204. |
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Two loans modified as TDRs during the previous twelve months having a combined carrying value of $752,448 were in default of their modified terms at December 31, 2013. At December 31, 2013 and 2012, the Bank had $2,582,468 and $2,477,140 in loans identified as TDRs, respectively, of which $948,488 and $682,919 were on nonaccrual status, respectively. |
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