8.       LOANS

 

Major classifications of loans at December 31, 2013 and 2012 are summarized as follows:

 

December 31, (Dollars in thousands)		2013			2012
Commercial:
Commercial real estate		$	584,133		$	639,557
Commercial business loans		378,663			332,169
Commercial construction		38,067			105,047
Total commercial loans		1,000,863			1,076,773
Residential:
Residential real estate		683,700			665,246
Residential construction		277			2,094
Total residential loans		683,977			667,340
Consumer loans:
Home equity & lines of credit		234,154			258,499
Personal		40,892			55,850
Education		206,521			217,896
Automobile		175,400			170,946
Total consumer loans		656,967			703,191
Total loans		2,341,807			2,447,304
Allowance for losses		(55,649		)	(57,649		)
Loans, net		$	2,286,158		$	2,389,655

 

Included in the balance of residential loans are approximately $780 thousand and $2.7 million of loans held for sale at December 31, 2013 and December 31, 2012, respectively. These loans are carried at the lower of cost or estimated fair value, on an aggregate basis. Loans held for sale are loans originated by the Bank to be sold to a third party under contractual obligation to purchase the loans from the Bank.  For the year ended December 31, 2013 and 2012, the Bank sold residential mortgage loans with an unpaid principal balance of approximately $20.6 million and $100.7 million, respectively, and recorded mortgage banking income of approximately $1.0 million and $2.7 million, respectively.  The Bank retained the related servicing rights for the loans that were sold to Fannie Mae and receives a 25 basis point servicing fee from the purchaser of the loans.

 

In the ordinary course of business, the Company has granted loans to executive officers and directors and their affiliates amounting to $463 thousand, $386 thousand and $202 thousand at December 31, 2013, 2012, and 2011, respectively.  The amount of payoffs and repayments with respect to such loans during the years ended December 31, 2013, 2012 and 2011 totaled $77 thousand, $94 thousand and $310 thousand, respectively. During the year ended December 31, 2013, there were $150 thousand new related party loans granted compared to no new related party loans granted during the year ended December 31, 2012 and $1 thousand granted during the year ended December 31, 2011.

 

Allowance for Loan Losses

 

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio.  The Company evaluates the appropriateness of the allowance for loan losses balance on loans on a quarterly basis.  When additional allowances are necessary, a provision for loan losses is charged to earnings. The Company’s methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a specific valuation allowance on identified problem loans; (2) a general valuation allowance on the remainder of the loan portfolio; and (3) an unallocated component.  Management established an unallocated reserve to cover uncertainties that the Company believes have resulted in losses that have not yet been allocated to specific elements of the general component. Such factors include uncertainties in economic conditions and in identifying triggering events that directly correlate to subsequent loss rates, changes in appraised value of underlying collateral, risk factors that have not yet manifested themselves in loss allocation factors and historical loss experience data that may not precisely correspond to the current portfolio or economic conditions. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodology for estimating general losses in the portfolio. The appropriate allowance level is estimated based upon factors and trends identified by the Company at the time the consolidated financial statements are prepared. Management continuously evaluates its allowance methodology; however, the unallocated allowance is subject to changes each reporting period.

 

Although the Company determines the amount of each element of the allowance separately, the entire allowance for loan losses is available to absorb losses in the loan portfolio. The Company charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due, except government guaranteed student loans, and all loans rated substandard or worse that are 90 days past due.  As a result, no specific valuation allowance was maintained at December 31, 2013, 2012 and 2011 for non-performing loans.

 

The following tables set forth the activity in the allowance for loan losses by portfolio for the years ended December 31, 2013, 2012 and 2011:

 

		COMMERCIAL									RESIDENTIAL						CONSUMER
																	Home
																	Equity &
December 31, 2013		Real									Real						Equity
(Dollars in thousands)		Estate			Business			Construction			Estate			Construction			Lines			Personal			Education			Auto			Unallocated			Total
Allowance for credit losses:
Beginning balance		$	21,994		$	18,088		$	8,242		$	2,293		$	142		$	2,397		$	2,062		$	303		$	1,578		$	550		$	57,649
Charge-offs		7,795			5,340			3,539			836			215			740			654			105			1,113			—			20,337
Recoveries		1,785			902			1,058			430			—			255			182			—			725			—			5,337
Provision (credit)		6,105			5,651			(2,573		)	313			73			1,221			1,097			108			1,005			—			13,000
Allowance ending balance		$	22,089		$	19,301		$	3,188		$	2,200		$	—		$	3,133		$	2,687		$	306		$	2,195		$	550		$	55,649
Allowance ending balance
Individually evaluated for impairment		—			—			—			—			—			—			—			—			—			—			—
Collectively evaluated for impairment		22,089			19,301			3,188			2,200			—			3,133			2,687			306			2,195			550			55,649
Loans acquired with deteriorated credit quality(1)		—			—			—			—			—			—			—			—			—			—			—
Total Allowance		$	22,089		$	19,301		$	3,188		$	2,200		$	—		$	3,133		$	2,687		$	306		$	2,195		$	550		$	55,649
Financing receivable:
Ending balance
Individually evaluated for impairment		$	28,027		$	26,022		$	2,518		$	12,827		$	130		$	1,120		$	107		—			$	151		—			$	70,902
Collectively evaluated for impairment		555,998			352,641			35,345			670,686			147			233,034			40,785			206,521			175,249			—			2,270,406
Loans acquired with deteriorated credit quality(1)		108			—			204			187			—			—			—			—			—			—			499
Total Portfolio		$	584,133		$	378,663		$	38,067		$	683,700		$	277		$	234,154		$	40,892		$	206,521		$	175,400		$	—		$	2,341,807

 

(1)             Loans acquired with deteriorated credit quality and loans modified under a trouble debt restructuring that are performing in accordance with their modified terms and have been returned to accruing status are evaluated on  an individual basis.

 

		COMMERCIAL									RESIDENTIAL						CONSUMER
																	Home
																	Equity &
December 31, 2012		Real									Real						Equity
(Dollars in thousands)		Estate			Business			Construction			Estate			Construction			Lines			Personal			Education			Auto			Unallocated			Total
Allowance for credit losses:
Beginning balance		$	16,254		$	15,376		$	14,791		$	1,620		$	65		$	2,020		$	1,855		$	279		$	1,403		$	550		$	54,213
Charge-offs		7,590			9,867			5,803			736			479			979			681			135			1,070			—			27,340
Recoveries		218			905			675			36			—			253			201			—			488			—			2,776
Provision (credit)		13,112			11,674			(1,421		)	1,373			556			1,103			687			159			757			—			28,000
Allowance ending balance		$	21,994		$	18,088		$	8,242		$	2,293		$	142		$	2,397		$	2,062		$	303		$	1,578		$	550		$	57,649
Allowance ending balance
Individually evaluated for impairment		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Collectively evaluated for impairment		21,994			18,088			8,242			2,293			142			2,397			2,062			303			1,578			550			57,649
Loans acquired with deteriorated credit quality(1)		—			—			—			—			—			—			—			—			—			—			—
Total Allowance		$	21,994		$	18,088		$	8,242		$	2,293		$	142		$	2,397		$	2,062		$	303		$	1,578		$	550		$	57,649
Financing receivable:
Ending balance
Individually evaluated for impairment		$	37,358		$	18,748		$	13,407		$	15,075		$	783		$	1,110		$	592		$	—		$	119		$	—		$	87,192
Collectively evaluated for impairment		601,981			313,421			89,866			649,815			1,311			257,389			55,258			217,896			170,827			—			2,357,764
Loans acquired with deteriorated credit quality(1)		218			—			1,774			356			—			—			—			—			—			—			2,348
Total Portfolio		$	639,557		$	332,169		$	105,047		$	665,246		$	2,094		$	258,499		$	55,850		$	217,896		$	170,946		$	—		$	2,447,304

 

(1)              Loans acquired with deteriorated credit quality and loans modified under a trouble debt restructuring that are performing in accordance with their modified terms and have been returned to accruing status are evaluated on an individual basis.

 

		COMMERCIAL									RESIDENTIAL						CONSUMER
																	Home
																	Equity &
December 31, 2011		Real									Real						Equity
(Dollars in thousands)		Estate			Business			Construction			Estate			Construction			Lines			Personal			Education			Auto			Unallocated			Total
Allowance for credit losses:
Beginning balance		$	14,793		$	14,407		$	9,296		$	1,854		$	30		$	2,136		$	977		$	297		$	1,026		$	550		$	45,366
Charge-offs		8,508			5,897			16,063			968			36			587			1,643			147			1,185			—			35,034
Recoveries		651			1,027			3,333			28			—			461			310			—			571			—			6,381
Provision		9,318			5,839			18,225			706			71			10			2,211			129			991			—			37,500
Allowance ending balance		$	16,254		$	15,376		$	14,791		$	1,620		$	65		$	2,020		$	1,855		$	279		$	1,403		$	550		$	54,213
Allowance ending balance
Individually evaluated for impairment		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Collectively evaluated for impairment		16,254			15,376			14,791			1,620			65			2,020			1,855			279			1,403			550			54,213
Total Allowance		$	16,254		$	15,376		$	14,791		$	1,620		$	65		$	2,020		$	1,855		$	279		$	1,403		$	550		$	54,213
Financing receivable:
Ending balance
Individually evaluated for impairment		$	38,324		$	31,666		$	40,349		$	12,477		$	1,850		$	499		$	436		$	—		$	97		$	—		$	125,698
Collectively evaluated for impairment		508,686			397,600			193,196			611,478			3,731			268,294			72,658			234,844			159,944			—			2,450,431
Total Portfolio		$	547,010		$	429,266		$	233,545		$	623,955		$	5,581		$	268,793		$	73,094		$	234,844		$	160,041		$	—		$	2,576,129

 

The provision for loan losses charged to expense is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans under FASB ASC Topic 310 for Loans and Debt Securities.  Under the accounting guidance FASB ASC Topic 310 for Receivables, for all loan segments a loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay or insignificant shortfall in amount of payments does not necessarily result in the loan being identified as impaired.  When all or a portion of the loan is deemed uncollectible, the uncollectible portion is charged-off.  The measurement is based either on the present value of expected future cash flows discounted at the loan’s interest rate, or the fair value of the collateral if the loan is collateral-dependent.  Most of the Company’s commercial loans are collateral dependent and therefore the Company uses the value of the collateral to measure the loss. Any collateral or discounted cash flow deficiency for loans that are 90 days past due are charged-off. Impairment losses are included in the provision for loan losses.  Large groups of homogeneous loans are collectively evaluated for impairment, except for those loans restructured under a troubled debt restructuring.

 

Classified Loans

 

The Bank’s credit review process includes a risk classification of all commercial and residential loans that includes pass, special mention, substandard and doubtful.  The classification of a loan may change based on changes in the creditworthiness of the borrower. The description of the risk classifications are as follows:

 

A loan is classified as pass when payments are current and it is performing under the original contractual terms. A loan is classified as special mention when the borrower exhibits potential credit weakness or a downward trend which, if not checked or corrected, will weaken the asset or inadequately protect the Bank’s position.  While potentially weak, the borrower is currently marginally acceptable; no loss of principal or interest is envisioned.  A loan is classified as substandard when the borrower has a well defined weakness or weaknesses that jeopardize the orderly liquidation of the debt. A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor, normal repayment from this borrower is in jeopardy, and there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. A loan is classified as doubtful when a borrower has all weaknesses inherent in a loan classified as substandard with the added provision that: (1) the weaknesses make collection of debt in full on the basis of currently existing facts, conditions and values highly questionable and improbable; (2) serious problems exist to the point where a partial loss of principal is likely; and (3) the possibility of loss is extremely high, but because of certain important, reasonably specific pending factors which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined.  Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens and additional refinancing plans. The Company charges-off the collateral or discounted cash flow deficiency on all loans on non-accrual status. In all cases, loans (except for government-guaranteed education loans) are placed on non-accrual when 90 days past due or earlier if collection of principal or interest is considered doubtful.

 

The following tables set forth the amounts and percentage of the portfolio of classified asset categories for the commercial and residential loan portfolios at December 31, 2013 and 2012:

 

Commercial and Residential Loans

Credit Risk Internally Assigned

(Dollars in thousands)

 

		December 31, 2013
		Commercial					Commercial					Commercial					Residential					Residential
		Real Estate					Business					Construction					Real Estate					Construction					Total
Grade
Pass		$	511,527		88	%	$	318,190		84	%	$	32,719		86	%	$	675,667		99	%	$	147		53	%	$	1,538,250		91	%
Special Mention		25,806			4	%	21,714			6	%	2,006			5	%	—			—	%	—			—	%	49,526			3	%
Substandard		46,800			8	%	38,759			10	%	3,342			9	%	8,033			1	%	130			47	%	97,064			6	%
Doubtful		—			—	%	—			—	%	—			—	%	—			—	%	—			—	%	—			—	%
Total		$	584,133		100	%	$	378,663		100	%	$	38,067		100	%	$	683,700		100	%	$	277		100	%	$	1,684,840		100	%

 

		December 31, 2012
		Commercial					Commercial					Commercial					Residential					Residential
		Real Estate					Business					Construction					Real Estate					Construction					Total
Grade
Pass		$	557,397		87	%	$	280,375		84	%	$	75,788		72	%	$	656,936		99	%	$	1,311		63	%	$	1,571,807		90	%
Special Mention		36,468			6	%	30,106			9	%	4,061			4	%	—			—	%	—			—	%	70,635			3	%
Substandard		44,281			7	%	19,596			6	%	25,198			24	%	8,310			1	%	783			37	%	98,168			6	%
Doubtful		1,411			—	%	2,092			1	%	—			—	%	—			—	%	—			—	%	3,503			1	%
Total		$	639,557		100	%	$	332,169		100	%	$	105,047		100	%	$	665,246		100	%	$	2,094		100	%	$	1,744,113		100	%

 

The Bank’s credit review process is based on payment history for all consumer loans.  The collateral deficiency on consumer loans is charged-off when they become 90 days delinquent with the exception of education loans which are guaranteed by the U.S. government.  The following tables set forth the consumer loan risk profile based on payment activity as of December 31, 2013 and 2012:

 

		December 31, 2013
		Home Equity & Lines of
		Credit					Personal					Education					Auto					Total
Performing		$	233,201		100	%	$	40,785		100	%	$	182,111		88	%	$	175,249		100	%	$	631,346		96	%
Non-performing		953			—	%	107			—	%	24,410			12	%	151			—	%	25,621			4	%
Total		$	234,154		100	%	$	40,892		100	%	$	206,521		100	%	$	175,400		100	%	$	656,967		100	%

 

		December 31, 2012
		Home Equity & Lines of
		Credit					Personal					Education					Auto					Total
Performing		$	257,389		100	%	$	55,258		99	%	$	193,883		89	%	$	170,827		100	%	$	677,357		96	%
Non-performing		1,110			—	%	592			1	%	24,013			11	%	119			—	%	25,834			4	%
Total		$	258,499		100	%	$	55,850		100	%	$	217,896		100	%	$	170,946		100	%	$	703,191		100	%

 

Loans Acquired with Deteriorated Credit Quality

 

The outstanding principal balance and related carrying amount of loans acquired with deteriorated credit quality, for which the Company applies the provisions of ASC 310-30, as of December 31, 2013 and 2012, are as follows:

 

		December 31,			December 31,
(Dollars in thousands)		2013			2012
Oustanding principal balance		$	923		$	3,199
Carrying amount		499			2,348

 

The following table presents changes in the accretable discount on loans acquired with deteriorated credit quality, for which the Company applies the provisions of ASC 310-30, since the April 3, 2012 acquisition date through December 31, 2013:

 

		Accretable
(Dollars in thousands)		Discount
Balance, April 3, 2012		$	159
Accretion		(87		)
Balance, December 31, 2012		$	72
Accretion		(57		)
Balance, December 31, 2013		$	15

 

Loan Delinquencies and Non-accrual Loans

 

The Company monitors the past due and non-accrual status of loans in determining the loss classification, impairment status and in determining the allowance for loan losses.  Generally, all loans past due 90 days are put on non-accrual status.  Education loans greater than 90 days delinquent continue to accrue interest as they are U.S. government guaranteed with little risk of credit loss.

 

The following tables provide information about delinquent and non-accrual loans in the Company’s portfolio at the dates indicated:

 

Aged Analysis of Past Due and Non-accrual Financing Receivables

As of December 31, 2013

 

																																Recorded
		30-59					60-89					> 90																				Investment
		Days					Days					Days					Total										Total					>90 Days
		Past					Past					Past					Past										Financing					And			Non-
(Dollars in thousands)		Due					Due					Due					Due					Current					Receivables					Accruing			Accruing (1)
Commercial:
Commercial real estate		$	2,017		9	%	$	—		—	%	$	6,814		17	%	$	8,831		11	%	$	575,302		25	%	$	584,133		25	%	$	—		$	20,613		40	%
Commercial business loans		330			1	%	1,103			8	%	3,094			8	%	4,527			6	%	374,136			17	%	378,663			16	%	—			15,900			31	%
Commercial construction		—			—	%	752			6	%	1,766			4	%	2,518			3	%	35,549			2	%	38,067			2	%	—			2,518			5	%
Total commercial		$	2,347		10	%	$	1,855		14	%	$	11,674		29	%	$	15,876		20	%	$	984,987		44	%	$	1,000,863		43	%	$	—		$	39,031		76	%
Residential:
Residential real estate		$	2,796		11	%	$	1,068		8	%	$	3,076		8	%	$	6,940		9	%	$	676,760		30	%	$	683,700		29	%	$	—		$	11,393		22	%
Residential construction		—			—	%	—			—	%	130			—	%	130			—	%	147			—	%	277			—	%	—			130			—	%
Total residential		$	2,796		11	%	$	1,068		8	%	$	3,206		8	%	$	7,070		9	%	$	676,907		30	%	$	683,977		29	%	$	—		$	11,523		22	%
Consumer loans:
Home equity & lines of credit		$	700		3	%	$	435		3	%	$	448		1	%	$	1,583		2	%	$	232,571		9	%	$	234,154		10	%	$	—		$	953		2	%
Personal		542			2	%	77			1	%	2			—	%	621			1	%	40,271			2	%	40,892			2	%	—			107			—	%
Education		16,223			65	%	9,485			71	%	24,410			62	%	50,118			64	%	156,403			7	%	206,521			9	%	24,410			—			—	%
Automobile		2,293			9	%	448			3	%	—			—	%	2,741			4	%	172,659			8	%	175,400			7	%	—			151			—	%
Total consumer		$	19,758		79	%	$	10,445		78	%	$	24,860		63	%	$	55,063		71	%	$	601,904		26	%	$	656,967		28	%	$	24,410		$	1,211		2	%
Total		$	24,901		100	%	$	13,368		100	%	$	39,740		100	%	$	78,009		100	%	$	2,263,798		100	%	$	2,341,807		100	%	$	24,410		$	51,765		100	%

 

(1)         Non-accruing loans do not include $499 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

 

Aged Analysis of Past Due and Non-accrual Financing Receivables

As of December 31, 2012

 

																																Recorded
		30-59					60-89					> 90																				Investment
		Days					Days					Days					Total										Total					>90 Days
		Past					Past					Past					Past										Financing					And			Non-
(Dollars in thousands)		Due					Due					Due					Due					Current					Receivables					Accruing			Accruing (1)
Commercial:
Commercial real estate		$	9,532		21	%	$	1,857		10	%	$	23,754		34	%	$	35,143		26	%	$	604,414		26	%	$	639,557		26	%	$	—		$	25,636		37	%
Commercial business loans		750			2	%	2,785			15	%	7,394			10	%	10,929			8	%	321,240			14	%	332,169			14	%	—			13,255			19	%
Commercial construction		9,990			22	%	1,735			9	%	6,986			10	%	18,711			14	%	86,336			4	%	105,047			4	%	—			13,407			20	%
Total commercial		$	20,272		45	%	$	6,377		34	%	$	38,134		54	%	$	64,783		48	%	$	1,011,990		44	%	$	1,076,773		44	%	$	—		$	52,298		76	%
Residential:
Residential real estate		$	3,817		9	%	$	1,786		9	%	$	7,646		11	%	$	13,249		10	%	$	651,997		28	%	$	665,246		27	%	$	—		$	13,515		20	%
Residential construction		—			—	%	—			—	%	783			1	%	783			1	%	1,311			—	%	2,094			—	%	—			783			1	%
Total residential		$	3,817		9	%	$	1,786		9	%	$	8,429		12	%	$	14,032		11	%	$	653,308		28	%	$	667,340		27	%	$	—		$	14,298		21	%
Consumer loans:
Home equity & lines of credit		$	1,291		3	%	$	406		2	%	$	263		—	%	$	1,960		1	%	$	256,539		11	%	$	258,499		11	%	$	—		$	1,110		2	%
Personal		498			1	%	327			2	%	187			—	%	1,012			1	%	54,838			2	%	55,850			2	%	—			592			1	%
Education		15,852			36	%	9,963			52	%	24,013			34	%	49,828			37	%	168,068			8	%	217,896			9	%	24,013			—			—	%
Automobile		2,717			6	%	227			1	%	—			—	%	2,944			2	%	168,002			7	%	170,946			7	%	—			119			—	%
Total consumer		$	20,358		46	%	$	10,923		57	%	$	24,463		34	%	$	55,744		41	%	$	647,447		28	%	$	703,191		29	%	$	24,013		$	1,821		3	%
Total		$	44,447		100	%	$	19,086		100	%	$	71,026		100	%	$	134,559		100	%	$	2,312,745		100	%	$	2,447,304		100	%	$	24,013		$	68,417		100	%

 

(1)         Non-accruing loans do not include $2.3 million of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

 

Troubled Debt Restructured Loans

 

The Bank determines whether a restructuring of debt constitutes a troubled debt restructuring (“TDR”) in accordance with guidance under FASB ASC Topic 310 Receivables. The Bank considers a loan a TDR when the borrower is experiencing financial difficulty and the Bank grants a concession that they would not otherwise consider but for the borrower’s financial difficulties.  A TDR includes a modification of debt terms or assets received in satisfaction of the debt (including a foreclosure or a deed in lieu of foreclosure) or a combination of types.  The Bank evaluates selective criteria to determine if a borrower is experiencing financial difficulty, including the ability of the borrower to obtain funds from sources other than the Bank at market rates.  The Bank considers all TDR loans as impaired loans and, generally, they are put on non-accrual status.  The Bank will not consider the loan a TDR if the loan modification was made for customer retention purposes. The Bank’s policy for returning a loan to accruing status requires the preparation of a well documented credit evaluation which includes the following:

 

·                  A review of the borrower’s current financial condition in which the borrower must demonstrate sufficient cash flow to support the repayment of all principal and interest including any amounts previously charged-off;

·                  An updated appraisal or home valuation which must demonstrate sufficient collateral value to support the debt;

·                  Sustained performance based on the restructured terms for at least six consecutive months; and

·                  Approval by the Special Assets Committee which consists of the Chief Credit Officer, the Chief Financial Officer and other members of senior management.

 

The Bank had 35 loans totaling $28.4 million, 31 loans totaling $20.8 million, and 36 loans totaling $23.7 million whose terms were modified in a manner that met the criteria for a TDR as of December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, 10 of the TDRs were commercial real estate loans with an aggregate outstanding balance of $8.6 million, 12 were commercial business loans with an aggregate outstanding balance of $16.0 million, 4 were commercial construction with an aggregate outstanding balance of $1.3 million, 4 were residential real estate loans with an aggregate outstanding balance of $2.1 million, and the remaining 5 were consumer loans with an aggregate outstanding balance of $394 thousand. The Company had four accruing TDRs in the amount of $10.1 million as of December 31, 2013 that were modified during the year. As of December 31, 2012, 10 of the TDRs were commercial real estate loans with an aggregate outstanding balance of $7.8 million, 7 were commercial business loans with an aggregate outstanding balance of $9.2 million, 3 were commercial construction with an aggregate outstanding balance of $2.7 million, 2 were residential real estate loans with an aggregate outstanding balance of $145 thousand, and the remaining 9 were consumer loans with an aggregate outstanding balance of $908 thousand. The Company had accruing TDRs in the amount of $5.5 million as of December 31, 2012 that were modified during the year. As of December 31, 2011, 11 of the TDRs were commercial real estate loans with an aggregate outstanding balance of $7.8 million, 10 were commercial business loans with an aggregate outstanding balance of $9.9 million, one was a commercial construction loan with an outstanding balance of $3.9 and the remaining 14 loans were residential real estate loans with an aggregate outstanding balance of $2.1 million.

 

The following tables summarize information about TDRs as of and for the years ended December 31, 2013, 2012 and 2011:

 

		For the Year Ended December 31, 2013
(Dollars in thousands, except number of loans)		No. of Loans		Balance
Loans modified during the period in a manner that met the definition of a TDR		11		$	14,437
Modifications granted:
Reduction of outstanding principal due		1		—
Deferral of principal amounts due		3		2,132
Temporary reduction in interest rate		—		—
Deferral of interest due		—		—
Below market interest rate granted		3		2,183
Release of collateral		4		10,122
Outstanding principal balance immediately before modification		11		14,576
Outstanding principal balance immediately after modification		11		14,437
Aggregate principal charge-off recognized on TDRs outstanding at period end since origination		19		11,942
Outstanding principal balance at period end		35		28,445
TDRs that re-defaulted subsequent to being modified (in the past twelve months)		5		2,372

 

		For the Year Ended December 31, 2012
(Dollars in thousands, except number of loans)		No. of Loans		Balance
Loans modified during the period in a manner that met the definition of a TDR		13		$	9,066
Modifications granted:
Reduction of outstanding principal due		2		5,493
Deferral of principal amounts due		11		3,573
Temporary reduction in interest rate		—		—
Deferral of interest due		—		—
Below market interest rate granted		—		—
Outstanding principal balance immediately before modification		13		10,761
Outstanding principal balance immediately after modification		13		9,066
Aggregate principal charge-off recognized on TDRs outstanding at period end since origination		13		7,693
Outstanding principal balance at period end		31		20,830
TDRs that re-defaulted subsequent to being modified (in the past twelve months)		—		—

 

		For the Year Ended December 31, 2011
(Dollars in 000’s, except number of loans)		No. of Loans		Balance
Loans modified during the period in a manner that met the definition of a TDR		4		$	1,801
Modifications granted:
Reduction of outstanding principal due		—		—
Deferral of principal amounts due		1		43
Temporary reduction in interest rate		1		60
Deferral of interest due		2		1,698
Below market interest rate granted		—		—
Outstanding principal balance immediately before and after modification		4		1,801
Aggregate principal charge-off recognized on TDRs outstanding at period end since origination		13		5,545
Outstanding principal balance at period end		36		23,709
TDRs that re-defaulted subsequent to being modified (in the past twelve months)		—		—

 

Impaired Loans

 

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.  Once a loan is identified as individually impaired, management measures the extent of the impairment in accordance with guidance under FASB ASC Topic 310 for Receivables.  The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value or discounted cash flows.  However, collateral value is predominantly used to assess the fair value of an impaired loan. Those impaired loans not requiring an allowance represent loans for which the fair value of the collateral or expected repayments exceed the recorded investments in such loans.

 

Components of Impaired Loans

 

Impaired Loans

For the Year Ended December 31, 2013

 

(Dollars in thousands)		Recorded  Investment			Unpaid  Principal  Balance			Related  Allowance			Average  Recorded  Investment			Interest  Income  Recognized			Interest  Income  Recognized  Using Cash  Basis
Impaired loans with no related specific allowance recorded:
Commercial Real Estate		$	20,613		$	28,116		$	—		$	23,889		$	—		$	—
Commercial Business		26,022			30,264			—			12,521			—			—
Commercial Construction		2,518			6,214			—			8,745			—			—
Residential Real Estate		11,393			11,955			—			12,295			—			—
Residential Construction		130			338			—			447			—			—
Home Equity and Lines of Credit		953			971			—			1,140			—			—
Personal		107			107			—			208			—			—
Education		—			—			—			—			—			—
Auto		151			151			—			147			—			—
Total Impaired Loans:		$	61,887		$	78,116		$	—		$	59,392		$	—		$	—
Commercial		49,153			64,594			—			45,155			—			—
Residential		11,523			12,293			—			12,742			—			—
Consumer		1,211			1,229			—			1,495			—			—
Total		$	61,887		$	78,116		$	—		$	59,392		$	—		$	—

 

The impaired loans table above includes $10.1 million of accruing TDRs that were modified during 2013 and are performing in accordance with their modified terms.  The impaired loans table above does not include $499 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

 

Impaired Loans

For the Year Ended December 31, 2012

 

(Dollars in thousands)		Recorded  Investment			Unpaid  Principal  Balance			Related  Allowance			Average  Recorded  Investment			Interest  Income  Recognized			Interest  Income  Recognized  Using Cash  Basis
Impaired loans with no related specific allowance recorded:
Commercial Real Estate		$	25,636		$	36,691		$	—		$	29,310		$	—		$	—
Commercial Business		18,747			25,128			—			21,439			279			—
Commercial Construction		13,407			24,016			—			24,043			—			—
Residential Real Estate		13,515			14,374			—			12,718			—			—
Residential Construction		783			783			—			1,491			—			—
Home Equity and Lines of Credit		1,110			1,127			—			1,040			—			—
Personal		592			743			—			535			—			—
Education		—			—			—			—			—			—
Auto		119			126			—			71			—			—
Total Impaired Loans:		$	73,909		$	102,988		$	—		$	90,647		$	279		$	—
Commercial		$	57,790		$	85,835		$	—		$	74,792		$	279		$	—
Residential		14,298			15,157			—			14,209			—			—
Consumer		1,821			1,996			—			1,646			—			—
Total		$	73,909		$	102,988		$	—		$	90,647		$	279		$	—

 

The impaired loans table above includes $5.5 million of accruing TDRs that were modified during 2012 and are performing in accordance with their modified terms.  We recorded $279 thousand of interest income related to these accruing TDRs during the year ended December 31, 2012.  The impaired loans table above does not include $2.3 million of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

 

Impaired Loans

For the Year Ended December 31, 2011

 

(Dollars in thousands)		Recorded  Investment			Unpaid  Principal  Balance			Related  Allowance			Average  Recorded  Investment			Interest  Income  Recognized			Interest  Income  Recognized  Using Cash  Basis
Impaired loans with no related specific allowance recorded:
Commercial Real Estate		$	29,367		$	42,143		$	—		$	30,075		$	—		$	—
Commercial Business		26,959			34,182			—			25,051			—			—
Commercial Construction		36,222			60,114			—			41,087			—			—
Residential Real Estate		12,477			13,139			—			14,998			—			—
Residential Construction		1,850			1,850			—			1,006			—			—
Home Equity and Lines of Credit		499			504			—			428			—			—
Personal		436			830			—			575			—			—
Education		—			—			—			—			—			—
Auto		97			97			—			95			—			—
Total Impaired Loans:		$	107,907		$	152,859		$	—		$	113,315		$	—		$	—
Commercial		$	92,548		$	136,439		$	—		$	96,213		$	—		$	—
Residential		14,327			14,989			—			16,004			—			—
Consumer		1,032			1,431			—			1,098			—			—
Total		$	107,907		$	152,859		$	—		$	113,315		$	—		$	—

 

The Company charged-off the collateral or discounted cash flow deficiency on all impaired loans and as a result, no specific valuation allowance was required for any impaired loans at December 31, 2013. Interest income that would have been recorded for the year ended December 31, 2013, had impaired loans been current according to their original terms, amounted to approximately $3.5 million.

 

Non-performing loans (which includes non-accrual loans and loans past 90 days or more and still accruing) at December 31, 2013 and 2012 amounted to approximately $76.2 million and $92.4 million, respectively, and include $24.4 million and $24.0 million in guaranteed student loans, respectively.