Allowance For Loan Losses

9 Months Ended

Sep. 30, 2011

Allowance For Loan Losses [Abstract]

Note D –Allowance For Loan Losses

The following summarizes the activity in the allowance for loan loss, by portfolio segment, for the nine months ended September 30, 2011. The following also presents the balance in the allowance for loan loss disaggregated on the basis of the Company's impairment measurement method and the related recorded investment in loans, by portfolio segment, as of September 30, 2011 and December 31, 2010.

(In thousands)	Commercial and industrial			Commercial real estate			Residential real estate			Home equity			Consumer			DDA overdrafts			Previously securitized loans		Total
Allowance for loan loss:
Beginning balance	$	1,864		$	8,488		$	4,149		$	2,640		$	95		$	988		$	-	$	18,224
Charge-offs		(275	)		(341	)		(1,191	)		(614	)		(133	)		(1,318	)		-		(3,872	)
Recoveries		8			1,982			19			6			107			1,002			-		3,124
Provision		(1,032	)		1,942			744			538			23			157			-		2,372
Ending balance	$	565		$	12,071		$	3,721		$	2,570		$	92		$	829		$	-	$	19,848

As of September 30, 2011:
Allowance for loan loss
Evaluated for impairment:
Individually	$	-		$	4,241		$	-		$	-		$	-		$	-		$	-	$	4,241
Collectively		565			7,830			3,721			2,570			92			829			-		15,607
Total	$	565		$	12,071		$	3,721		$	2,570		$	92		$	829		$	-	$	19,848

Loans
Evaluated for impairment:
Individually	$	239		$	17,177		$	478		$	298		$	-		$	-		$	-	$	18,192
Collectively		119,138			691,381			630,201			427,173			36,575			2,924			214		1,907,606
Total	$	119,377		$	708,558		$	630,679		$	427,471		$	36,575		$	2,924		$	214	$	1,925,798

As of December 31, 2010:
Allowance for loan loss
Evaluated for impairment:
Individually	$	-		$	150		$	-		$	-		$	-		$	-		$	-	$	150
Collectively		1,864			8,338			4,149			2,640			95			988			-		18,074
Total	$	1,864		$	8,488		$	4,149		$	2,640		$	95		$	988		$	-	$	18,224

Loans
Evaluated for impairment:
Individually	$	-		$	15,909		$	483		$	1,047		$	-		$	-		$	-	$	17,439
Collectively		134,612			645,849			609,886			415,125			38,424			2,876			789		1,847,561
Total	$	134,612		$	661,758		$	610,369		$	416,172		$	38,424		$	2,876		$	789	$	1,865,000

During the third quarter of 2011, the Company received life insurance proceeds from a policy carried by one of our commercial customers. The Company had previously placed several loans to this customer on non-accrual status and recorded the charge-offs related to these credits. The life insurance proceeds satisfied the customer's remaining outstanding balances and also enabled the Company to recover $1.9 million of the previously recorded charge-offs.

Credit Quality Indicators

All commercial loans within the portfolio are subject to internal risk grading. All non-commercial loans are evaluated based on payment history. The Company's internal risk ratings are: Exceptional, Good, Acceptable, Pass/Watch, Special Mention, Substandard and Doubtful. Each internal risk rating is defined in the loan policy using the following criteria: balance sheet yields, ratios and leverage, cash flow spread and coverage, prior history, capability of management, market position/industry, potential impact of changing economic, legal, regulatory or environmental conditions, purpose structure, collateral support, and guarantor support. Risk grades are generally assigned by the primary lending officer and are periodically evaluated by the Company's internal loan review process. Based on an individual loan's risk grade, estimated loss percentages are applied to the outstanding balance of the loan to determine the amount of probable loss.

The Company categorizes loans into risk categories based on relevant information regarding the customer's debt service ability, capacity, overall collateral position along with other economic trends, and historical payment performance. The risk grades for each credit are updated when the Company receives current financial information, the loan is reviewed by the Company's internal loan review/credit administration departments, or the loan becomes delinquent or impaired. The risk grades are updated a minimum of annually for loans rated exceptional, good, acceptable, or pass/watch. Loans rated special mention, substandard or doubtful are reviewed at least quarterly. The Company uses the following definitions for risk ratings:

Risk Rating	Description

Exceptional	Loans classified as exceptional are secured with liquid collateral conforming to the internal loan policy. Loans rated within this category pose minimal risk of loss to the bank and the risk grade within this pool of loans is generally updated on an annual basis.

Good	Loans classified as good have similar characteristics that include a strong balance sheet, satisfactory debt service coverage ratios, strong management and/or guarantors, and little exposure to economic cycles. Loans within this category are generally reviewed on an annual basis. Loans in this category generally have a low chance of loss to the bank.

Acceptable	Loans classified as acceptable have acceptable liquidity levels, adequate debt service coverage ratios, experienced management, and have average exposure to economic cycles. Loans within this category generally have a low risk of loss to the bank.

Pass/watch	Loans classified as pass/watch have erratic levels of leverage and/or liquidity, cash flow is volatile and the borrower is subject to moderate economic risk. A borrower in this category poses a low to moderate risk of loss to the bank.

Special mention	Loans classified as special mention have a potential weakness(es) that deserves management's close attention. The potential weakness could result in deterioration of the loan repayment or the bank's credit position at some future date. A loan rated in this category poses a moderate loss risk to the bank.

Substandard	Loans classified as substandard reflect a customer with a well defined weakness that jeopardizes the liquidation of the debt. Loans in this category have the possibility that the bank will sustain some loss if the deficiencies are not corrected and the bank's collateral value is weakened by the financial deterioration of the borrower.

Doubtful	Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristics that make collection of the full contract amount highly improbable. Loans rated in this category are most likely to cause the bank to have a loss due to a collateral shortfall or a negative capital position.

The following presents loans by the Company's credit quality indicators as of September 30, 2011 and December 31, 2010:

(In thousands)	Commercial and industrial		Commercial real estate		Residential real estate		Home equity		Consumer		DDA overdrafts		Previously securitized loans		Total
September 30, 2011:
Risk Grade
Exceptional	$	3,836	$	43		-		-		-		-		-	$	3,879
Good		7,058		92,354		-		-		-		-		-		99,412
Acceptable		81,617		422,873		-		-		-		-		-		504,490
Pass/watch		24,872		143,192		-		-		-		-		-		168,064
Special mention		388		17,831		-		-		-		-		-		18,219
Substandard		1,480		32,168		-		-		-		-		-		33,648
Doubtful		126		97		-		-		-		-		-		223
Total	$	119,377	$	708,558												827,935

Payment Activity
Performing		-		-	$	629,482	$	425,801	$	36,561	$	2,924	$	165		1,094,933
Non-performing		-		-		1,197		1,670		14		-		49		2,930
Total		-		-	$	630,679	$	427,471	$	36,575	$	2,924	$	214	$	1,925,798

December 31, 2010:
Risk Grade
Exceptional	$	3,241	$	47		-		-		-		-		-	$	3,288
Good		5,693		68,417		-		-		-		-		-		74,110
Acceptable		98,067		396,072		-		-		-		-		-		494,139
Pass/watch		20,675		142,223		-		-		-		-		-		162,898
Special mention		4,030		28,547		-		-		-		-		-		32,577
Substandard		2,693		26,354		-		-		-		-		-		29,047
Doubtful		213		98		-		-		-		-		-		311
Total	$	134,612	$	661,758												796,370

Payment Activity
Performing		-		-	$	608,422	$	414,599	$	38,419	$	2,875	$	604		1,064,919
Non-performing		-		-		1,947		1,573		5		1		185		3,711
Total		-		-	$	610,369	$	416,172	$	38,424	$	2,876	$	789	$	1,865,000

Aging Analysis of Accruing and Non-Accruing Loans

The following presents an aging analysis of the Company's accruing and non-accruing loans as of September 30, 2011 and December 31, 2010:

(In thousands)	Commercial and industrial		Commercial real estate		Residential real estate		Home equity		Consumer		DDA overdrafts		Previously securitized loans		Total
September 30, 2011:
30 – 59 days past due	$	37	$	1,314	$	4,330	$	2,247	$	95	$	605	$	165	$	8,793
60 – 89 days past due		-		836		213		171		3		9		-		1,232
Over 90 days past due		-		273		26		7		14		-		-		320
Non-accrual		771		18,818		1,122		1,663		-		-		49		22,423
		808		21,241		5,691		4,088		112		614		214		32,768
Current		118,569		687,317		624,988		423,383		36,463		2,310		-		1,893,030
Total	$	119,377	$	708,558	$	630,679	$	427,471	$	36,575	$	2,924	$	214	$	1,925,798

December 31, 2010:
30 – 59 days past due	$	-	$	775	$	3,512	$	1,817	$	122	$	354	$	247	$	6,827
60 – 89 days past due		-		-		667		278		20		6		44		1,015
Over 90 days past due		-		-		595		181		5		1		54		836
Non-accrual		237		7,705		1,352		1,392		-		-		131		10,817
		237		8,480		6,126		3,668		147		361		476		19,495
Current		134,375		653,278		604,243		412,504		38,277		2,515		313		1,845,505
Total	$	134,612	$	661,758	$	610,369	$	416,172	$	38,424	$	2,876	$	789	$	1,865,000

Impaired Loans

The following presents the Company's impaired loans as of September 30, 2011 and December 31, 2010:

(In thousands)	Commercial and industrial		Commercial real estate		Residential real estate		Home equity		Consumer		DDA overdrafts		Previously securitized loans		Total
September 30, 2011:
With no related allowance recorded
Recorded investment	$	-	$	2,427	$	-	$	-	$	-	$	-	$	-	$	2,427
Unpaid principal balance		-		4,044		-		-		-		-		-		4,044

With an allowance recorded
Recorded investment	$	771	$	16,725	$	1,198	$	1,670	$	14	$	-	$	-	$	20,378
Unpaid principal balance		771		16,725		1,198		1,670		14		-		-		20,378
Related allowance		105		4,410		133		186		2		-		-		4,836

December 31, 2010:
With no related allowance recorded
Recorded investment	$	-	$	13,755	$	483	$	1,048	$	-	$	-	$	-	$	15,286
Unpaid principal balance		-		18,390		483		1,048		-		-		-		19,921

With an allowance recorded
Recorded investment	$	237	$	3,670	$	1,947	$	824	$	5	$	1	$	185	$	6,869
Unpaid principal balance		237		4,199		1,947		824		5		1		185		7,398
Related allowance		113		554		487		206		1		1		46	$	1,408

The following table presents information related to the average recorded investment and interest income recognized on the Company's impaired loans for the nine months ended September 30, 2011:

(In thousands)	Commercial and industrial		Commercial real estate		Residential real estate		Home equity		Consumer		DDA overdrafts		Previously securitized loans		Total
September 30, 2011:
With no related allowance recorded
Average recorded investment	$	-	$	12,350	$	320	$	698	$	-	$	-	$	-	$	13,368
Interest income recognized		-		206		15		5		-		-		-		226

With an allowance recorded
Average recorded investment	$	248	$	14,192	$	996	$	526	$	-	$	-	$	-	$	15,692
Interest income recognized		-		157		-		-		-		-		-		157

Approximately $0.2 million and $0.6 million of interest income would have been recognized during the three and nine months ended September 30, 2011, respectively, if such loans had been current in accordance with their original terms. There were no commitments to provide additional funds on non-accrual, impaired or other potential problem loans at September 30, 2011.

Loan Modifications

The Company's policy on loan modifications typically does not allow for modifications that would be considered a concession from the Company. However, when there is a modification, the Company evaluates each modification to determine if the modification constitutes a troubled debt restructuring ("TDR") in accordance with ASU 2011-02 whereby a modification of a loan would be considered a TDR when both of the following conditions are met: (1) a borrower is experiencing financial difficulty and (2) the modification constitutes a concession. When determining whether the borrower is experiencing financial difficulties, the Company reviews whether the debtor is currently in payment default on any of its debt or whether it is probable that the debtor would be in payment default in the foreseeable future without the modification. Other indicators of financial difficulty include whether the debtor has declared or is in the process of declaring bankruptcy, the debtor's ability to continue as a going concern, or the debtor's projected cash flow to service its debt (including principal and interest) in accordance with the contractual terms for the foreseeable future, without a modification.

At September 30, 2011, the Company had one loan modification that was considered to be a TDR, which was less than $0.3 million, relating to a commercial real estate loan. There was no material difference between the pre-modification and post-modification balances. The impact on the allowance for loan losses was insignificant. The TDR did not default during the three or nine months ended September 30, 2011.