Non-performing loans, which are primarily commercial real estate properties, were $13.2 million as of December 31, 2012, or 10.7% of total loans, as compared to $16.8 million at December 31, 2011, a decrease of $3.6 million. Other real estate owned increased $776,000 to $9.2 million at December 31, 2012 from $8.4 million at December 31, 2011, primarily as a result of the transfer of two bank properties totaling $1.3 million. Bank properties that are no longer in use and are for sale are required to be removed from fixed assets and transferred to OREO. Bad debt charge-offs, net of recoveries, were $886,000 for the twelve months ended December 31, 2012 compared to $3.8 million for the same period in 2011.
Dwight V. Neese, President and CEO, said “Our financial performance improved over the comparable quarter for the previous year but was still affected by the continued decline in real estate values in the markets we serve. We reported lower loan charge-offs and provisions in the fourth quarter and we continue to be focused on reducing the level of our nonperforming assets in order to improve profitability. Our results reflect the positive outcome of proactive measures that were taken earlier to deal with uncertain market conditions. As a result, our capital ratios increased and higher underwriting standards contributed to an improved quarter. We continue to be very focused on serving our target market of local businesses and professionals. We continue to seek new loan opportunities, but find new loan demand to be relatively weak in the marketplace. We are disappointed that loan demand has remained weak, resulting in our excess cash being invested in the securities portfolio instead of loans. We are well positioned to assist our customers in achieving their financial goals and the structure of our balance sheet provides flexibility for us to grow core deposits and loans without substantially increasing our overall total assets. This strategy is important in continuing to increase our net interest margin and regulatory capital ratios.”