| ALLOWANCE FOR LOAN LOSSES |
NOTE D — ALLOWANCE FOR LOAN LOSSES
In evaluating the allowance for loan losses, loans are analyzed based on the department originating
the loan, which in some instances may be different than how the (commercial, mortgage or consumer)
loans are categorized for regulatory reporting purposes. Required disclosures about activity in
the allowance for loan losses for reporting periods subsequent to December 15, 2010 are provided
below for the six months ended June 30, 2011. The following is an analysis of the allowance for
loan losses and the recorded investment in loans by portfolio segment and based on impairment
method as of and for the six month period ended June 30, 2011 and as of December 31, 2010, as well
as summary activity in the allowance for loan losses for the quarter ended June 30, 2010 (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2011 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real |
|
|
|
|
|
|
|
| |
|
Commercial |
|
|
|
|
|
|
Real Estate |
|
|
Estate |
|
|
|
|
|
|
|
| June 30, 2011 |
|
including |
|
|
|
|
|
|
Mortgage |
|
|
Mortgage |
|
|
|
|
|
|
|
| Allowance for Loan Losses: |
|
CRE |
|
|
Consumer |
|
|
1st Lien |
|
|
Junior Lien |
|
|
Total |
|
|
2010 |
|
|
Balance at January 1
|
|
$ |
4,239 |
|
|
$ |
86 |
|
|
$ |
1,211 |
|
|
$ |
158 |
|
|
$ |
5,694 |
|
|
$ |
6,075 |
|
|
Provision for loan losses
|
|
|
175 |
|
|
|
31 |
|
|
|
149 |
|
|
|
145 |
|
|
|
500 |
|
|
|
350 |
|
|
Loans charged off
|
|
|
(523 |
) |
|
|
(40 |
) |
|
|
(241 |
) |
|
|
(105 |
) |
|
|
(909 |
) |
|
|
(799 |
) |
|
Recoveries
|
|
|
101 |
|
|
|
5 |
|
|
|
8 |
|
|
|
3 |
|
|
|
117 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30
|
|
$ |
3,992 |
|
|
$ |
82 |
|
|
$ |
1,127 |
|
|
$ |
201 |
|
|
$ |
5,402 |
|
|
$ |
5,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
individually evaluated
for impairment
|
|
$ |
817 |
|
|
|
— |
|
|
$ |
232 |
|
|
$ |
13 |
|
|
$ |
1,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
collectively evaluated
for impairment
|
|
$ |
3,175 |
|
|
$ |
82 |
|
|
$ |
895 |
|
|
$ |
188 |
|
|
$ |
4,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
216,699 |
|
|
$ |
8,512 |
|
|
$ |
67,036 |
|
|
$ |
13,374 |
|
|
$ |
305,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
individually evaluated
for impairment
|
|
$ |
7,071 |
|
|
$ |
39 |
|
|
$ |
3,041 |
|
|
$ |
44 |
|
|
$ |
10,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
collectively evaluated
for impairment
|
|
$ |
209,628 |
|
|
$ |
8,473 |
|
|
$ |
63,995 |
|
|
$ |
13,330 |
|
|
$ |
295,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans also include demand deposit loan account charge-offs and recoveries amounting to
$78,000 and $42,000, respectively, for the six months ended June 30, 2011.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estate |
|
|
|
|
| |
|
Commercial |
|
|
|
|
|
|
Real Estate |
|
|
Mortgage |
|
|
|
|
| December 31, 2010 |
|
including |
|
|
|
|
|
|
Mortgage |
|
|
Junior |
|
|
|
|
| Allowance for Loan Losses: |
|
CRE |
|
|
Consumer |
|
|
1st Lien |
|
|
Lien |
|
|
Total |
|
|
Ending balance individually
evaluated for impairment
|
|
$ |
867 |
|
|
|
— |
|
|
$ |
300 |
|
|
$ |
4 |
|
|
$ |
1,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively
evaluated for impairment
|
|
$ |
3,372 |
|
|
$ |
87 |
|
|
$ |
911 |
|
|
$ |
153 |
|
|
$ |
4,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,239 |
|
|
$ |
87 |
|
|
$ |
1,211 |
|
|
$ |
157 |
|
|
$ |
5,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
216,401 |
|
|
$ |
9,849 |
|
|
$ |
69,437 |
|
|
$ |
13,837 |
|
|
$ |
309,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually
evaluated for impairment
|
|
$ |
7,676 |
|
|
$ |
87 |
|
|
$ |
2,881 |
|
|
$ |
122 |
|
|
$ |
10,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively
evaluated for impairment
|
|
$ |
208,725 |
|
|
$ |
9,762 |
|
|
$ |
66,556 |
|
|
$ |
13,715 |
|
|
$ |
298,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present loans individually evaluated for impairment by class of loans as of
June 30, 2011 and December 31, 2010 (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Unpaid |
|
|
Allowance for |
|
| |
|
Principal |
|
|
Loan Losses |
|
| June 30, 2011 |
|
Balance |
|
|
Allocated |
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
118 |
|
|
$ |
— |
|
|
Real estate — commercial
|
|
|
2,900 |
|
|
|
— |
|
|
Real estate — construction
|
|
|
157 |
|
|
|
— |
|
|
Consumer
|
|
|
39 |
|
|
|
— |
|
|
Real estate mortgage
|
|
|
2,296 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
863 |
|
|
|
157 |
|
|
Real estate — commercial
|
|
|
1,525 |
|
|
|
407 |
|
|
Real estate — construction
|
|
|
79 |
|
|
|
4 |
|
|
Consumer
|
|
|
— |
|
|
|
— |
|
|
Real estate mortgage
|
|
|
2,218 |
|
|
|
494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,195 |
|
|
$ |
1,062 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Unpaid |
|
|
Allowance for |
|
| |
|
Principal |
|
|
Loan Losses |
|
| December 31, 2010 |
|
Balance |
|
|
Allocated |
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
Commercial
|
|
|
608 |
|
|
$ |
— |
|
|
Real estate — commercial
|
|
|
2,685 |
|
|
|
— |
|
|
Real estate — construction
|
|
|
— |
|
|
|
— |
|
|
Consumer
|
|
|
87 |
|
|
|
— |
|
|
Real estate mortgage
|
|
|
2,495 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
588 |
|
|
|
99 |
|
|
Real estate — commercial
|
|
|
1,823 |
|
|
|
413 |
|
|
Real estate — construction
|
|
|
583 |
|
|
|
173 |
|
|
Consumer
|
|
|
— |
|
|
|
— |
|
|
Real estate mortgage
|
|
|
1,897 |
|
|
|
486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,766 |
|
|
$ |
1,171 |
|
|
|
|
|
|
|
|
|
The following table presents the aging of the recorded investment in past due and nonaccrual loans
for the year to date periods ended June 30, 2011 and December 31, 2010 by class of loans (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Greater than |
|
|
|
|
|
|
Loans Not |
|
|
|
|
| |
|
|
|
|
|
60-89 |
|
|
90 Days Past |
|
|
Total Past |
|
|
Past Due |
|
|
|
|
| |
|
30-59 Days |
|
|
Days Past |
|
|
Due & Non |
|
|
Due &Non |
|
|
or Non |
|
|
|
|
| June 30, 2011 |
|
Past Due |
|
|
Due |
|
|
Accrual |
|
|
Accrual |
|
|
Accrual |
|
|
Total |
|
|
Commercial
|
|
$ |
57 |
|
|
$ |
— |
|
|
$ |
436 |
|
|
$ |
493 |
|
|
$ |
55,533 |
|
|
$ |
56,026 |
|
|
Real estate — commercial
|
|
|
51 |
|
|
|
— |
|
|
|
3,288 |
|
|
|
3,339 |
|
|
|
136,772 |
|
|
|
140,111 |
|
|
Real estate — construction
|
|
|
134 |
|
|
|
— |
|
|
|
236 |
|
|
|
370 |
|
|
|
11,809 |
|
|
|
12,179 |
|
|
Consumer
|
|
|
65 |
|
|
|
12 |
|
|
|
40 |
|
|
|
117 |
|
|
|
8,726 |
|
|
|
8,843 |
|
|
Real estate mortgage
|
|
|
499 |
|
|
|
— |
|
|
|
2,534 |
|
|
|
3,033 |
|
|
|
85,429 |
|
|
|
88,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
806 |
|
|
$ |
12 |
|
|
$ |
6,534 |
|
|
$ |
7,352 |
|
|
$ |
298,269 |
|
|
$ |
305,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Greater than |
|
|
|
|
|
|
Loans Not |
|
|
|
|
| |
|
|
|
|
|
60-89 |
|
|
90 Days Past |
|
|
Total Past |
|
|
Past Due |
|
|
|
|
| |
|
30-59 Days |
|
|
Days Past |
|
|
Due & Non |
|
|
Due &Non |
|
|
or Non |
|
|
|
|
| December 31, 2010 |
|
Past Due |
|
|
Due |
|
|
Accrual |
|
|
Accrual |
|
|
Accrual |
|
|
Total |
|
|
Commercial
|
|
$ |
277 |
|
|
$ |
20 |
|
|
$ |
217 |
|
|
$ |
514 |
|
|
$ |
58,249 |
|
|
$ |
58,763 |
|
|
Real estate — commercial
|
|
|
184 |
|
|
|
— |
|
|
|
2,295 |
|
|
|
2,479 |
|
|
|
133,892 |
|
|
|
136,371 |
|
|
Real estate — construction
|
|
|
— |
|
|
|
— |
|
|
|
583 |
|
|
|
583 |
|
|
|
10,552 |
|
|
|
11,135 |
|
|
Consumer
|
|
|
62 |
|
|
|
— |
|
|
|
87 |
|
|
|
149 |
|
|
|
10,004 |
|
|
|
10,153 |
|
|
Real estate mortgage
|
|
|
737 |
|
|
|
28 |
|
|
|
2,112 |
|
|
|
2,877 |
|
|
|
90,225 |
|
|
|
93,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,260 |
|
|
$ |
48 |
|
|
$ |
5,294 |
|
|
$ |
6,602 |
|
|
$ |
302,922 |
|
|
$ |
309,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings:
The Company has allocated $311,000 and $379,000 of specific reserves to customers whose loan terms
have been modified as of June 30, 2011 and December 31, 2010, respectively. The Company intends to
lend no additional amounts to these customers.
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability
of borrowers to service their debt, such as: current financial information, historical payment
experience, credit documentation, public information, and current economic trends, among other
factors. The Company analyzes loans individually by classifying the loans as to credit risk. This
analysis includes all loans from the commercial loan department. This analysis is performed at
least annually. The Company uses the following definitions for risk ratings:
| |
|
Special Mention: Loans classified as special mention have a potential weakness that deserves
management’s close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or of the Company’s credit position at
some future date. |
| |
|
Substandard: Loans classified as substandard are inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so
classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the
debt. They are characterized by the distinct possibility that the Company will sustain some
loss if the deficiencies are not corrected. |
| |
|
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified
as 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. |
Loans not meeting the criteria above that are analyzed individually as part of the above described
process are considered to be pass rated loans.
As of June 30, 2011 and December 31, 2010, based on the most recent analysis performed, the risk
category of loans by class of loans was as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Special |
|
|
|
|
|
|
|
|
|
|
Not Risk |
|
|
|
|
| June 30, 2011 |
|
Pass |
|
|
Mention |
|
|
Substandard |
|
|
Doubtful |
|
|
Rated |
|
|
Total |
|
|
Commercial
|
|
$ |
42,916 |
|
|
$ |
8,161 |
|
|
$ |
4,949 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
56,026 |
|
|
Real estate — commercial
|
|
|
116,789 |
|
|
|
14,199 |
|
|
|
8,199 |
|
|
|
368 |
|
|
|
556 |
|
|
|
140,111 |
|
|
Real estate — construction
|
|
|
6,504 |
|
|
|
1,045 |
|
|
|
625 |
|
|
|
— |
|
|
|
4,005 |
|
|
|
12,179 |
|
|
Real estate — mortgage
|
|
|
7,435 |
|
|
|
1,147 |
|
|
|
3,263 |
|
|
|
— |
|
|
|
76,617 |
|
|
|
88,462 |
|
|
Consumer
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,843 |
|
|
|
8,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
173,644 |
|
|
$ |
24,552 |
|
|
$ |
17,036 |
|
|
$ |
368 |
|
|
$ |
90,021 |
|
|
$ |
305,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Special |
|
|
|
|
|
|
|
|
|
|
Not Risk |
|
|
|
|
| December 31, 2010 |
|
Pass |
|
|
Mention |
|
|
Substandard |
|
|
Doubtful |
|
|
Rated |
|
|
Total |
|
|
Commercial
|
|
$ |
44,819 |
|
|
$ |
12,821 |
|
|
$ |
1,123 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
58,763 |
|
|
Real estate — commercial
|
|
|
110,384 |
|
|
|
19,054 |
|
|
|
6,311 |
|
|
|
370 |
|
|
|
252 |
|
|
|
136,371 |
|
|
Real estate — construction
|
|
|
2,371 |
|
|
|
1,047 |
|
|
|
4,630 |
|
|
|
— |
|
|
|
3,087 |
|
|
|
11,135 |
|
|
Real estate — mortgage
|
|
|
7,096 |
|
|
|
2,892 |
|
|
|
2,700 |
|
|
|
— |
|
|
|
80,414 |
|
|
|
93,102 |
|
|
Consumer
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,153 |
|
|
|
10,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
164,670 |
|
|
$ |
35,814 |
|
|
$ |
14,764 |
|
|
$ |
370 |
|
|
$ |
93,906 |
|
|
$ |
309,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|