Allowance for Loan Losses

6 Months Ended

Jun. 30, 2011

Loans & Allowance for Loan Losses [Abstract]

Allowance for Loan Losses

Note 5 — Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses, and ending balance of loans, net of unearned fees for the periods indicated.

	Allowance for Loan Losses — Three months ended June 30, 2011
	RE Mortgage						Home Equity						Auto			Other						Construction
(in thousands)	Resid.			Comm.			Lines			Loans			Indirect			Consum.			C&I			Resid.			Comm.			Total
Beginning balance	$	3,544		$	12,027		$	16,296		$	911		$	481		$	704		$	6,967		$	1,395		$	899		$	43,224
Charge-offs		(321	)		(1,621	)		(1,928	)		(264	)		(100	)		(304	)		(202	)		(395	)		(95	)		(5,230	)
Recoveries		—			38			86			—			56			165			41			20			1			407
Provision		(702	)		2,975			2,026			524			(53	)		257			6			677			(149	)		5,561
Ending balance	$	2,521		$	13,419		$	16,480		$	1,171		$	384		$	822		$	6,812		$	1,697		$	656		$	43,962

	Allowance for Loan Losses — Six months ended June 30, 2011
	RE Mortgage						Home Equity						Auto			Other						Construction
(in thousands)	Resid.			Comm.			Lines			Loans			Indirect			Consum.			C&I			Resid.			Comm.			Total
Beginning balance	$	3,007		$	12,700		$	15,054		$	795		$	1,229		$	701		$	5,991		$	1,824		$	1,270		$	42,571
Charge-offs		(1,446	)		(1,989	)		(5,529	)		(264	)		(235	)		(533	)		(1,758	)		(430	)		(95	)		(12,279	)
Recoveries		112			66			247			2			183			374			62			22			40			1,108
Provision		848			2,642			6,708			638			(793	)		280			2,517			281			(559	)		12,562
Ending balance	$	2,521		$	13,419		$	16,480		$	1,171		$	384		$	822		$	6,812		$	1,697		$	656		$	43,962
Ending balance:
Individ. evaluated for impairment	$	955		$	2,181		$	1,408		$	129		$	113		$	22		$	206		$	286		$	509		$	5,809
Loans pooled for evaluation	$	1,552		$	11,224		$	14,629		$	1,042		$	271		$	800		$	4,968		$	1,150		$	147		$	35,783
Loans acquired with deteriorated credit quality	$	14		$	14		$	443			—			—			—		$	1,638		$	261			—		$	2,370

	Loans, net of unearned fees — As of June 30, 2011
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.		Comm.		Total
Ending balance:
Total loans	$	127,083	$	701,674	$	332,532	$	14,905	$	16,767	$	18,660	$	140,531	$	22,479	$	21,431	$	1,396,062
Individ. evaluated for impairment	$	11,292	$	65,734	$	8,271	$	492	$	936	$	93	$	5,385	$	6,250	$	7,329	$	105,782
Loans pooled for evaluation	$	109,393	$	611,279	$	317,959	$	14,413	$	15,831	$	18,567	$	127,109	$	11,784	$	14,102	$	1,240,437
Loans acquired with deteriorated credit quality	$	6,398	$	24,661	$	6,302		—		—		—	$	8,037	$	4,445		—	$	49,843

The following tables summarize the activity in the allowance for loan losses, and ending balance of loans, net of unearned fees for the periods indicated.

	Allowance for Loan Losses — Three months ended June 30, 2010
	RE Mortgage						Home Equity						Auto			Other						Construction
(in thousands)	Resid.			Comm.			Lines			Loans			Indirect			Consum.			C&I			Resid.			Comm.			Total
Beginning balance	$	2,131		$	6,679		$	14,428		$	907		$	1,645		$	657		$	7,067		$	304		$	2,522		$	36,340
Charge-offs		(293	)		(1,497	)		(3,095	)		(303	)		(337	)		(543	)		(535	)		(1,782	)		(39	)		(8,424	)
Recoveries		—			28			24			7			167			182			103			3			—			514
Provision		1,002			4,153			2,551			1,305			(13	)		302			(455	)		1,748			(593	)		10,000
Ending balance	$	2,840		$	9,363		$	13,908		$	1,916		$	1,462		$	598		$	6,180		$	273		$	1,890		$	38,430
Ending balance:

	Allowance for Loan Losses — Six months ended June 30, 2010
	RE Mortgage						Home Equity						Auto			Other						Construction
(in thousands)	Resid.			Comm.			Lines			Loans			Indirect			Consum.			C&I			Resid.			Comm.			Total
Beginning balance	$	2,618		$	5,071		$	13,483		$	940		$	1,986		$	616		$	6,958		$	2,067		$	1,734		$	35,473
Charge-offs		(748	)		(4,064	)		(5,337	)		(711	)		(863	)		(883	)		(1,061	)		(2,819	)		(39	)		(16,525	)
Recoveries		—			55			68			7			327			384			117			24			—			982
Provision		970			8,301			5,694			1,680			12			481			166			1,001			195			18,500
Ending balance	$	2,840		$	9,363		$	13,908		$	1,916		$	1,462		$	598		$	6,180		$	273		$	1,890		$	38,430
Ending balance:
Individ. evaluated for impairment	$	494		$	857		$	2,977		$	368		$	461		$	67		$	1,147		$	46		$	511		$	6,928
Loans pooled for evaluation	$	2,346		$	8,506		$	10,931		$	1,548		$	1,001		$	531		$	5,033		$	227		$	1,379		$	31,502
Loans acquired with deteriorated credit quality		—			—			—			—			—			—			—			—			—			—

	Loans, net of unearned fees — As of June 30, 2010
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.		Comm.		Total
Ending balance:
Total loans	$	121,638	$	729,218	$	346,795	$	46,580	$	34,189	$	15,143	$	162,503	$	10,320	$	34,554	$	1,500,940
Individ. evaluated for impairment	$	7,556	$	57,485	$	9,960	$	1,026	$	1,759	$	190	$	3,351	$	1,252	$	12,397	$	94,976
Loans pooled for evaluation	$	106,304	$	641,933	$	328,109	$	45,554	$	32,430	$	14,953	$	147,786	$	4,330	$	22,157	$	1,343,556
Loans acquired with deteriorated credit quality	$	7,778	$	29,800	$	8,726		—		—		—	$	11,366	$	4,738		—	$	62,408

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio.

The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows:

• Pass — This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital.

• Special Mention — This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention.

• Substandard — This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well defined workout/rehabilitation program.

• Doubtful — This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans.

• Loss — This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified.

The following tables present ending loan balances by loan category and risk grade for the periods indicated:

	Credit Quality Indicators-As of June 30, 2011
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.		Comm.		Total
Originated loans:
Pass	$	104,754	$	543,687	$	310,264	$	14,176	$	15,261	$	18,409	$	116,396	$	8,353	$	8,855	$	1,140,155
Special mention		1,282		50,797		1,219		—		39		11		8,115		3,394		4,990		69,847
Substandard		14,649		82,529		14,747		729		1,467		240		7,983		6,287		7,586		136,217
Loss		—		—		—		—		—		—		—		—		—		—
Total	$	120,685	$	677,013	$	326,230	$	14,905	$	16,767	$	18,660	$	132,494	$	18,034	$	21,431	$	1,346,219
PCI loans	$	6,398	$	24,661	$	6,302		—		—		—	$	8,037	$	4,445		—	$	49,843
Total loans	$	127,083	$	701,674	$	332,532	$	14,905	$	16,767	$	18,660	$	140,531	$	22,479	$	21,431	$	1,396,062

	Credit Quality Indicators-As of December 31, 2010
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.		Comm.		Total
Originated loans:
Pass	$	106,967	$	543,492	$	312,315	$	16,740	$	22,405	$	15,363	$	108,511	$	8,190	$	8,940	$	1,142,923
Special mention		1,259		60,171		1,884		23		45		11		14,518		3,395		4,397		85,703
Substandard		14,664		75,582		16,538		913		2,207		255		10,020		7,857		7,674		135,710
Total	$	122,890	$	679,245	$	330,737	$	17,676	$	24,657	$	15,629	$	133,049	$	19,442	$	21,011	$	1,364,336
PCI loans	$	7,597	$	25,739	$	7,072		—		—		—	$	10,364	$	4,463		—	$	55,235
Total loans	$	130,487	$	704,984	$	337,809	$	17,676	$	24,657	$	15,629	$	143,413	$	23,905	$	21,011	$	1,419,571

Consumer loans, whether unsecured or secured by real estate, automobiles, or other personal property, are primarily susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of the two.

Problem consumer loans are generally identified by payment history of the borrower (delinquency). The Bank manages its consumer loan portfolios by monitoring delinquency and contacting borrowers to encourage repayment, suggest modifications if appropriate, and, when continued scheduled payments become unrealistic, initiate repossession or foreclosure through appropriate channels. Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third parties, public value information (blue book values for autos), sales invoices, or other appropriate means. Appropriate valuations are obtained at initiation of the credit and periodically (every 3-12 months depending on collateral type) once repayment is questionable and the loan has been classified.

Commercial real estate loans generally fall into two categories, owner-occupied and non-owner occupied. Loans secured by owner occupied real estate are primarily susceptible to changes in the business conditions of the related business. This may be driven by, among other things, industry changes, geographic business changes, changes in the individual fortunes of the business owner, and general economic conditions and changes in business cycles. These same risks apply to commercial loans whether secured by equipment or other personal property or unsecured. Losses on loans secured by owner occupied real estate, equipment, or other personal property generally are dictated by the value of underlying collateral at the time of default and liquidation of the collateral. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven by more general economic conditions, underlying collateral generally has devalued more and results in larger losses due to default. Loans secured by non-owner occupied real estate are primarily susceptible to risks associated with swings in occupancy or vacancy and related shifts in lease rates, rental rates or room rates. Most often these shifts are a result of changes in general economic or market conditions or overbuilding and resultant over-supply. Losses are dependent on value of underlying collateral at the time of default. Values are generally driven by these same factors and influenced by interest rates and required rates of return as well as changes in occupancy costs.

Construction loans, whether owner occupied or non-owner occupied commercial real estate loans or residential development loans, are not only susceptible to the related risks described above but the added risks of construction itself including cost over-runs, mismanagement of the project, or lack of demand or market changes experienced at time of completion. Again, losses are primarily related to underlying collateral value and changes therein as described above.

Problem commercial loans are generally identified by periodic review of financial information which may include financial statements, tax returns, rent rolls and payment history of the borrower (delinquency). Based on this information the Bank may decide to take any of several courses of action including demand for repayment, additional collateral or guarantors, and, when repayment becomes unlikely through Borrower’s income and cash flow, repossession or foreclosure of the underlying collateral.

Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third parties, public value information (blue book values for autos), sales invoices, or other appropriate means. Appropriate valuations are obtained at initiation of the credit and periodically (every 3-12 months depending on collateral type) once repayment is questionable and the loan has been classified.

Once a loan becomes delinquent and repayment becomes questionable, a Bank collection officer will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Bank will estimate its probable loss, using a recent valuation as appropriate to the underlying collateral less estimated costs of sale, and charge the loan down to the estimated net realizable amount. Depending on the length of time until ultimate collection, the Bank may revalue the underlying collateral and take additional charge-offs as warranted. Revaluations may occur as often as every 3-12 months depending on the underlying collateral and volatility of values. Final charge-offs or recoveries are taken when collateral is liquidated and actual loss is known. Unpaid balances on loans after or during collection and liquidation may also be pursued through lawsuit and attachment of wages or judgment liens on borrower’s other assets.

The following table shows the ending balance of current, past due, and nonaccrual originated loans by loan category as of June 30, 2011:

	Analysis of Past Due and Nonaccrual Originated Loans-As of June 30, 2011
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.		Comm.		Total
Originated loans:
Past due:
30-59 Days	$	359	$	13,138	$	3,479	$	318	$	464	$	69	$	1,463	$	64	$	5,180	$	24,534
60-89 Days		122		963		2,233		80		184		16		442		337		400		4,777
> 90 Days		4,543		10,595		3,256		138		247		—		2,840		547		476		22,642
Total past due		5,024		24,696		8,968		536		895		85		4,745		948		6,056		51,953
Current		115,661		652,317		317,262		14,369		15,872		18,575		127,749		17,086		15,375		1,294,266
Total loans	$	120,685	$	677,013	$	326,230	$	14,905	$	16,767	$	18,660	$	132,494	$	18,034	$	21,431	$	1,346,219
> 90 Days and still accruing		—		—		—		—		—		—		—		—		—		—
Nonaccrual loans	$	10,623	$	42,832	$	7,363	$	426	$	864	$	93	$	4,180	$	6,250	$	1,089	$	73,720

The following table shows the contractual ending balance of current, past due, and nonaccrual PCI loans by loan category as of June 30, 2011 (this table is prepared on an individual loan basis):

	Analysis of Past Due and Nonaccrual PCI Loans-As of June 30, 2011
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.		Comm.		Total
PCI Loans:
Past due:
30-59 Days		—	$	333		—		—		—		—		—	$	528		—	$	861
60-89 Days		—		—		110		—		—		—		796		—		—		906
> 90 Days		—		1,549		335		—		—		—		771		30		—		2,685
Total past due		—		1,882		445		—		—		—		1,567		558		—		4,452
Current		6,398		22,779		5,857		—		—		—		6,470		3,887		—		45,391
Total PCI loans	$	6,398	$	24,661	$	6,302		—		—		—	$	8,037	$	4,445		—	$	49,843

At June 30, 2011, the Company had no nonaccruing PCI loans.

The following table shows the ending balance of current, past due, and nonaccrual originated loans by loan category as of December 31, 2010:

	Analysis of Past Due and Nonaccrual Originated Loans-As of December 31, 2010
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.		Comm.		Total
Originated loans:
Past due:
30-59 Days	$	2,822	$	11,191	$	3,546	$	158	$	604	$	68	$	1,405	$	270		—	$	20,064
60-89 Days		1,139		1,864		2,209		—		401		33		893		—		275		6,814
> 90 Days		7,980		20,748		6,843		694		403		7		401		1,781		612		39,469
Total past due		11,941		33,803		12,598		852		1,408		108		2,699		2,051		887		66,347
Current		110,949		645,442		318,139		16,824		23,249		15,521		130,350		17,391		20,124		1,297,989
Total loans	$	122,890	$	679,245	$	330,737	$	17,676	$	24,657	$	15,629	$	133,049	$	19,442	$	21,011	$	1,364,336
> 90 Days and still accruing		—	$	147		—		—		—		—		—	$	98		—	$	245
Nonaccrual loans	$	11,771	$	38,778	$	10,604	$	701	$	1,296	$	83	$	4,618	$	7,019	$	872	$	75,742

The following table shows the contractual ending balance of current, past due, and nonaccrual PCI loans by loan category as of December 31, 2010 (this table is prepared on an individual loan basis):

	Analysis of Past Due and Nonaccrual PCI Loans-As of December 31, 2010
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.		Comm.		Total
PCI Loans:
Past due:
30-59 Days		—	$	1,749		—		—		—		—	$	241		—		—	$	1,990
60-89 Days		—		353		505		—		—		—		79		—		—		937
> 90 Days		562		300		34		—		—		—		2,299		358		—		3,553
Total past due		562		2,402		539		—		—		—		2,619		358		—		6,480
Current		7,689		28,197		8,331		—		—		—		8,797		4,855		—		57,869
Total PCI loans	$	8,251	$	30,599	$	8,870		—		—		—	$	11,416	$	5,213		—	$	64,349

At December 31, 2010, the Company had no nonaccruing PCI loans.

Impaired originated loans are those where management has concluded that it is probable that the borrower will be unable to pay all amounts due under the contractual terms. The following tables show the recorded investment (financial statement balance), unpaid principal balance, average recorded investment, and interest income recognized for impaired originated loans, segregated by those with no related allowance recorded and those with an allowance recorded for the periods indicated.

	Impaired Originated Loans-As June 30, 2011
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.			Comm.		Total
With no related allowance recorded:
Recorded investment	$	7,613	$	44,873	$	4,311	$	362	$	548	$	34	$	4,791	$	4,501		$	6,472	$	73,505
Unpaid principal	$	10,165	$	51,637	$	7,009	$	783	$	1,005	$	37	$	5,815	$	9,280		$	6,666	$	92,397
Average recorded Investment	$	6,903	$	45,180	$	4,833	$	527	$	631	$	42	$	4,846	$	5,288		$	6,541	$	74,791
Interest income Recognized	$	13	$	814	$	4	$	3	$	6	$	1	$	57	$	2		$	189	$	1,089
With an allowance recorded:
Recorded investment	$	3,679	$	20,861	$	3,960	$	130	$	388	$	59	$	594	$	1,749		$	857	$	32,277
Unpaid principal	$	4,069	$	23,516	$	4,603	$	295	$	476	$	63	$	743	$	2,706		$	906	$	37,377
Related allowance	$	955	$	2,181	$	1,408	$	129	$	113	$	22	$	206	$	286		$	509	$	5,809
Average recorded Investment	$	4,827	$	15,105	$	4,661	$	105	$	528	$	47	$	838	$	1,300		$	843	$	28,254
Interest income Recognized	$	17	$	408	$	24	$	1	$	2		—	$	8	$	(18	)	$	6	$	448

At June 30, 2011, $50,337,000 of originated loans were TDR and classified as impaired. The Company did not have any obligations to lend additional funds on these loans as of June 30, 2011.

	Impaired Originated Loans-As of December 31, 2010
	RE Mortgage				Home Equity				Auto		Other				Construction
(in thousands)	Resid.		Comm.		Lines		Loans		Indirect		Consum.		C&I		Resid.		Comm.		Total
With no related allowance recorded:
Recorded investment	$	6,192	$	45,487	$	5,354	$	691	$	714	$	49	$	4,900	$	6,075	$	6,609	$	76,071
Unpaid principal	$	7,521	$	52,962	$	8,755	$	1,002	$	1,349	$	52	$	5,571	$	10,854	$	6,797	$	94,863
Average recorded Investment	$	4,599	$	32,575	$	4,688	$	425	$	607	$	66	$	3,330	$	8,137	$	3,962	$	58,389
Interest income Recognized	$	99	$	1,609	$	93	$	17	$	37	$	4	$	186	$	123	$	377	$	2,545
With an allowance recorded:
Recorded investment	$	5,975	$	9,349	$	5,362	$	79	$	667	$	34	$	1,081	$	850	$	828	$	24,225
Unpaid principal	$	6,278	$	11,122	$	6,379	$	82	$	793	$	37	$	1,398	$	1,235	$	898	$	28,222
Related allowance	$	1,654	$	1,042	$	2,933	$	78	$	239	$	14	$	590	$	116	$	279	$	6,945
Average recorded Investment	$	4,204	$	5,844	$	4,373	$	326	$	1,112	$	84	$	1,285	$	1,597	$	563	$	19,388
Interest income Recognized	$	222	$	506	$	129	$	5	$	17	$	1	$	46	$	14	$	22	$	962

At December 31, 2010, $36,423,000 of originated loans were TDR and classified as impaired. The Company had obligations to lend $415,000 of additional funds on these TDR as of December 31, 2010.