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Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2012
Allowance for Loan Losses [Abstract]  
Allowance for Loan Losses

(6) Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

 

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on 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 agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Generally, troubled debt restructurings are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. Generally, the Company returns a troubled-debt restructuring to accrual status upon six months of performance under the new terms.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

All loans over $250,000 in the commercial, commercial real estate and construction loan classes rated substandard or worse and all troubled debt restructurings are evaluated individually for impairment. All other loans are evaluated as homogeneous pools. If a loan is impaired, a specific reserve is recorded so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of homogeneous loans with smaller individual balances, such as consumer and residential real estate loans, are evaluated collectively for impairment, and accordingly, are not separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be “collateral-dependent,” the loan is reported at the fair value of the collateral net of costs to sell. For troubled debt restructurings that subsequently default, the Company determines the allowance amount in accordance with its accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience, adjusted for qualitative factors. The historical loss experience is determined by loan class, and is based on the actual loss history experienced by the Company over a six-quarter historical loan loss period. This actual loss experience is supplemented with other qualitative factors based on the risks present for each loan class. These qualitative factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following loan classes have been identified:

 

  •  

Commercial, financial & agricultural loans

 

  •  

Commercial real estate mortgages

 

  •  

Real estate — construction loans

 

  •  

Residential mortgages (1st and 2nd liens)

 

  •  

Home equity loans

 

  •  

Consumer loans

For performing loans, an estimate of adequacy is made by applying qualitative factors specific to the portfolio to the period-end balances. Consideration is also given to the type and collateral of the loans with particular attention paid to commercial real estate construction loans, due to the inherent risk of this type of loan. Specific and general reserves are available for any identified loss.

At June 30, 2012, non-performing loans, including non-accrual loans and loans contractually past due 90 days or more with regard to payment of principal and/or interest, totaled $54,079,000 as compared to $80,760,000 at December 31, 2011. When compared to total loans, non-performing loans declined to 6.4% at June 30, 2012, down from 8.3% at December 31, 2011. A decrease in commercial real estate non-accrual loans, principally due to loans sold in the second quarter, was primarily responsible for the decline in total non-accrual loans at June 30, 2012.

 

Information pertaining to the allowance for loan losses at June 30, 2012 is as follows: (in thousands)

 

                                                         
    Commercial,
financial, and
agricultural		     Commercial
real estate
mortgages		     Real estate
construction
loans		     Residential
mortgages (1st
and 2nd liens)		     Home
equity
loans		     Consumer
loans		     Total  

Allowance for loan losses:

                                                        

Ending balance (total allowance)

   $ 16,319     $ 8,851     $ 176     $ 2,286     $ 1,406     $ 189     $ 29,227  

Ending balance: individually evaluated for impairment

     3,336       281       —         930       468       4       5,019  

Ending balance: collectively evaluated for impairment

     12,983       8,570       176       1,356       938       185       24,208  

Loan balances:

                                                        

Ending balance (loan portfolio) (1)

   $ 200,093     $ 364,317     $ 43,632     $ 146,642     $ 75,223     $ 17,890     $ 847,797  

Ending balance: individually evaluated for impairment

     24,379       31,636       17,111       7,501       3,560       502       84,689  

Ending balance: collectively evaluated for impairment

     175,714       332,681       26,521       139,141       71,663       17,388       763,108  

 

(1) Other loans of $428, not included here, consist primarily of advances under lines of credit.

Further information pertaining to the allowance for loan losses at December 31, 2011 is as follows: (in thousands)

 

                                                         
    Commercial,
financial, and
agricultural		     Commercial
real estate
mortgages		     Real estate
construction
loans		     Residential
mortgages (1st
and 2nd liens)		     Home
equity
loans		     Consumer
loans		     Total  

Allowance for loan losses:

                                                        

Ending balance (total allowance)

   $ 25,080     $ 11,029     $ 623     $ 2,401     $ 512     $ 313     $ 39,958  

Ending balance: individually evaluated for impairment

     7,477       3,092       57       —         —         —         10,626  

Ending balance: collectively evaluated for impairment

     17,603       7,937       566       2,401       512       313       29,332  

Loan balances:

                                                        

Ending balance (loan portfolio) (1)

   $ 206,652     $ 428,646     $ 49,704     $ 160,619     $ 79,684     $ 43,806     $ 969,111  

Ending balance: individually evaluated for impairment

     36,559       66,402       19,251       8,345       3,897       646       135,100  

Ending balance: collectively evaluated for impairment

     170,093       362,244       30,453       152,274       75,787       43,160       834,011  

 

(1) Other loans of $543, not included here, consist primarily of advances under lines of credit.

The following is a summary of current and past due loans at June 30, 2012: (in thousands)

 

                                                 
    Past Due              
    30 - 59 days     60 - 89 days     90 days & over     Total     Current     Total  

Commercial:

                                                

Commercial, financial, and agricultural

   $ 1,047     $ 1,134     $ 15,633     $ 17,814     $ 182,279     $ 200,093  

Commercial real estate

     3,131       596       22,541       26,268       338,049       364,317  

Real estate construction loans

     —         4,250       6,334       10,584       33,048       43,632  

Consumer:

                                                

Residential mortgages (1st and 2nd liens)

     3,181       —         5,847       9,028       137,614       146,642  

Home equity loans

     100       —         3,560       3,660       71,563       75,223  

Consumer loans

     343       —         164       507       17,383       17,890  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total (1)

   $ 7,802     $ 5,980     $ 54,079     $ 67,861     $ 779,936     $ 847,797  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Other loans of $428, not included here, consist primarily of advances under lines of credit.

 

The following is a summary of current and past due loans at December 31, 2011: (in thousands)

 

                                                 
    Past Due              
    30 - 59 days     60 - 89 days     90 days & over     Total     Current     Total  

Commercial:

                                                

Commercial, financial, and agricultural

   $ 9,774     $ 8,574     $ 16,867     $ 35,215     $ 171,437     $ 206,652  

Commercial real estate

     4,981       4,843       45,344       55,168       373,478       428,646  

Real estate construction loans

     1,282       —         6,978       8,260       41,444       49,704  

Consumer:

                                                

Residential mortgages

                                                

(1st and 2nd liens)

     3,479       1,144       7,028       11,651       148,968       160,619  

Home equity loans

     —         198       3,897       4,095       75,589       79,684  

Consumer loans

     215       78       646       939       42,867       43,806  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total (1)

   $ 19,731     $ 14,837     $ 80,760     $ 115,328     $ 853,783     $ 969,111  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Other loans of $543, not included here, consist primarily of advances under lines of credit.

The following is a summary of impaired loans, by class of loan, at June 30, 2012 and December 31, 2011: (in thousands)

 

                                                 
    June 30, 2012     December 31, 2011  
    Impaired Loans     Impaired Loans  
    Unpaid Principal
Balance		     Recorded
Balance		     Allowance
Allocated		     Unpaid
Principal
Balance		     Recorded
Balance		     Allowance
Allocated		  

With no allowance recorded:

                                                

Commercial, financial & agricultural loans

   $ 12,648     $ 12,401     $ —       $ 21,162     $ 20,885     $ —    

Commercial real estate mortgages

     34,233       29,530       —         52,679       46,687       —    

Real estate construction loans

     19,983       17,111       —         19,939       17,044       —    

Residential mortgages (1st & 2nd liens)

     —         —         —         8,914       8,345       —    

Home equity loans

     —         —         —         3,995       3,897       —    

Consumer loans

     —         —         —         646       646       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

   $ 66,864     $ 59,042     $ —       $ 107,335     $ 97,504     $ —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

With an allowance recorded:

                                                

Commercial, financial & agricultural loans

   $ 12,361     $ 11,977     $ 3,336     $ 15,877     $ 15,674     $ 7,477  

Commercial real estate mortgages

     2,128       2,106       281       20,609       19,715       3,092  

Real estate construction loans

     —         —         —         2,207       2,207       57  

Residential mortgages (1st & 2nd liens)

     8,397       7,501       930       —         —         —    

Home equity loans

     3,838       3,560       468       —         —         —    

Consumer loans

     502       502       4       —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

   $ 27,226     $ 25,646     $ 5,019     $ 38,693     $ 37,596     $ 10,626  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 94,090     $ 84,688     $ 5,019     $ 146,028     $ 135,100     $ 10,626  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

The following table presents information regarding average balances of impaired loans and interest income recognized on impaired loans for the quarters and the six months ended June 30, 2012 and 2011: (dollars in thousands)

 

                                                 
    Quarter Ended June 30, 2012     Quarter Ended June 30, 2011  
    Impaired Loans     Impaired Loans  
    Average recorded
investment in
impaired loans		     Interest income
recognized on
impaired loans		     Interest income
recognized on a
cash basis on
impaired loans		     Average recorded
investment in
impaired loans		     Interest income
recognized on
impaired loans		     Interest income
recognized on a
cash basis on
impaired loans		  

Commercial, financial & agricultural loans

   $ 28,398     $ 315     $ —       $ 23,034     $ 336     $ —    

Commercial real estate mortgages

     54,531       259       —         60,316       555       —    

Real estate construction loans

     18,093       338       —         30,027       —         —    

Residential mortgages (1st & 2nd liens)

     1,898       85       —         6,887       —         —    

Home equity loans

     3,863       —         —         3,687       —         —    

Consumer loans

     624       —         —         182       —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 107,407     $ 997     $ —       $ 124,133     $ 891     $ —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     
    Six Months Ended June 30, 2012     Six Months Ended June 30, 2011  
    Impaired Loans     Impaired Loans  
    Average recorded
investment in
impaired loans		     Interest income
recognized on
impaired loans		     Interest income
recognized on a
cash basis on
impaired loans		     Average recorded
investment in
impaired loans		     Interest income
recognized on
impaired loans		     Interest income
recognized on a
cash basis on
impaired loans		  

Commercial, financial & agricultural loans

   $ 31,425     $ 315     $ —       $ 20,863     $ 606     $ —    

Commercial real estate mortgages

     60,363       259       —         57,113       1,356       —    

Real estate construction loans

     18,557       338       —         29,450       —         —    

Residential mortgages (1st & 2nd liens)

     8,287       85       —         5,765       —         —    

Home equity loans

     3,900       —         —         2,776       —         —    

Consumer loans

     641       —         —         145       —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 123,173     $ 997     $ —       $ 116,112     $ 1,962     $ —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The following is a summary of information pertaining to non-performing assets: (in thousands)

 

                 
    June 30,
2012		     December 31,
2011		  

Non-accrual Loans

   $ 54,079     $ 80,760  

Non-accrual Loans Held-for-Sale

     7,500       —    

Loans 90 Days Past Due and Still Accruing

     —         —    

Other Real Estate Owned

     2,172       1,800  
   

 

 

    

 

 

  

Total Non-performing Assets

   $ 63,751     $ 82,560  
   

 

 

    

 

 

  

Troubled debt restructurings accruing interest

   $ 9,789     $ 1,496  

Troubled debt restructurings - nonaccruing

   $ 15,834     $ 24,979  

 

The following table summarizes non-accrual loans by loan class as of June 30, 2012 and December 31, 2011 (dollars in thousands):

 

                                                                 
    Non-accrual Loans  
          Total     % of           Total     % of  
        % of     Loans (1)     Total           % of     Loans (1)     Total  
  6/30/2012     Total     6/30/2012     Loans     12/31/2011     Total     12/31/2011     Loans  

Commercial, financial & agricultural

   $ 15,633       28.9 %    $ 200,093       1.8 %    $ 16,867       20.9 %    $ 206,652       1.7 % 

Commercial real estate mortgages

     22,541       41.7       364,317       2.7       45,344       56.2       428,646       4.7  

Real estate construction loans

     6,334       11.7       43,632       0.8       6,978       8.6       49,704       0.7  

Residential mortgages (1st & 2nd liens)

     5,847       10.8       146,642       0.7       7,028       8.7       160,619       0.7  

Home equity loans

     3,560       6.6       75,223       0.4       3,897       4.8       79,684       0.4  

Consumer loans

     164       0.3       17,890       —         646       0.8       43,806       0.1  

Other loans

     —         —         428       —         —         —         543       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total non-accrual loans

   $ 54,079       100.0 %    $ 848,225       6.4 %    $ 80,760       99.9 %    $ 969,654       8.3 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(1) Net of unearned discount

The Company had no loans past due 90 days or more and still accruing at June 30, 2012 or December 31, 2011.

The following table details the collateral value securing non-accrual loans: (in thousands)

 

                                 
    June 30, 2012     December 31, 2011  
    Non-accrual Loans     Non-accrual Loans  
    Principal Balance     Collateral Value     Principal Balance     Collateral Value  

Commercial, financial & agricultural loans (1)

   $ 15,633     $ —       $ 16,867     $ —    

Commercial real estate mortgages

     22,541       52,840       45,344       68,067  

Real estate construction loans

     6,334       2,666       6,978       6,715  

Residential mortgages (1st and 2nd liens)

     5,847       14,319       7,028       14,133  

Home equity loans

     3,560       7,145       3,897       7,438  

Consumer loans

     164       —         646       —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 54,079     $ 76,970     $ 80,760     $ 96,353  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Repayment of commercial, financial and agricultural loans is expected from the cash flow of the business. The collateral typically securing these loans is a lien on all corporate assets via a blanket UCC filing and does not usually include real estate. For purposes of this disclosure, the Company has ascribed no collateral value to this class of loans.

Additional interest income of approximately $1,405,000 and $963,000 would have been recorded during the three months ended June 30, 2012 and 2011, respectively, if the loans had performed in accordance with their original terms. For the six months ended June 30, 2012 and 2011, additional interest income of approximately $2,818,000 and $1,764,000, respectively, would have been recorded if the loans had performed in accordance with their original terms.

A total of $2,034,000 is committed to be advanced in connection with impaired loans as of June 30, 2012. This represents the amount the Company is legally required to advance under existing loan agreements. These loans are not in default under the terms of the loan agreements and are accruing. It is the Company’s policy to evaluate advances on impaired loans on a case by case basis. Absent a legal obligation to advance pursuant to the terms of the loan agreement, the Company generally will not advance funds for which it has outstanding commitments but may do so in certain circumstances.

 

The following table summarizes loan balances and allocates the allowance for loan losses by risk rating as of June 30, 2012: (in thousands)

 

                                                         
    Commercial,
financial, and
agricultural		     Commercial
real estate
mortgages		     Real estate
construction
loans		     Residential
mortgages (1st
and 2nd liens)		     Home equity
loans		     Consumer
loans (4)		     Total  

Unimpaired loans:

                                                        

Total pass loans (1)

   $ 150,656     $ 281,960     $ 7,551     $ 139,141     $ 71,664     $ 17,388     $ 668,360  

Loss factor (2)

     7.38 %      2.49 %      0.61 %      0.97 %      1.31 %      1.06 %      3.09 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     11,111       7,020       46       1,356       938       185       20,656  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total special mention loans

     11,561       34,191       3,962       —         —         —         49,714  

Loss factor

     6.31 %      2.87 %      0.58 %                              3.49 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     729       981       23       —         —         —         1,733  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total substandard loans

     13,497       16,529       15,008       —         —         —         45,034  

Loss factor

     8.47 %      3.44 %      0.71 %                              4.04 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     1,143       569       107       —         —         —         1,819  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Impaired loans:

                                                        

Total substandard loans

     24,379       31,637       15,465       7,501       3,559       502       83,043  

Loss factor

     13.68 %      0.89 %      0.00 %(3)      12.40 %      13.15 %      0.80 %      6.04 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     3,336       281       —         930       468       4       5,019  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total doubtful loans

     —         —         1,646       —         —         —         1,646  

Loss factor

                     0.00 %                              0.00 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     —         —         —         —         —         —         —    

Total unimpaired loans

   $ 175,714     $ 332,680     $ 26,521     $ 139,141     $ 71,664     $ 17,388     $ 763,108  

Total reserve on unimpaired loans

   $ 12,983     $ 8,570     $ 176     $ 1,356     $ 938     $ 185     $ 24,208  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Other loans of $428, not included here, consist primarily of advances under lines of credit.
(2) Loss factor calculation is reserve as a percentage of balance for a loan class.
(3) Loss factor is driven by higher collateral positions and charge-offs taken within this loan class.
(4) Net of unearned discount.

The following table summarizes loan balances and allocates the allowance for loan losses by risk rating as of December 31, 2011: (in thousands)

 

                                                         
    Commercial,
financial, and
agricultural		     Commercial
real estate
mortgages		     Real estate
construction
loans		     Residential
mortgages (1st
and 2nd liens)		     Home equity
loans		     Consumer
loans (4)		     Total  

Unimpaired loans:

                                                        

Total pass loans (1)

   $ 151,553     $ 289,856     $ 4,932     $ 152,274     $ 75,787     $ 31,385     $ 705,787  

Loss factor (2)

     9.98 %      2.19 %      1.74 %      1.58 %      0.68 %      1.00 %      3.51 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     15,121       6,359       86       2,401       512       313       24,792  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total special mention loans

     16,448       41,283       7,772       —         —         —         65,503  

Loss factor

     8.68 %      2.18 %      1.88 %                              3.78 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     1,428       900       146       —         —         —         2,474  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total substandard loans

     13,892       31,105       17,749       —         —         —         62,746  

Loss factor

     7.59 %      2.18 %      1.88 %                              3.29 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     1,054       678       334       —         —         —         2,066  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Impaired loans:

                                                        

Total substandard loans

     36,316       66,402       17,639       8,345       3,897       646       133,245  

Loss factor

     20.52 %      4.66 %      0.32 %(3)                              7.96 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     7,452       3,092       57       —         —         —         10,601  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total doubtful loans

     243       —         1,612       —         —         —         1,855  

Loss factor

     10.29 %              0.00 %                              1.35 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Reserve

     25       —         —         —         —         —         25  

Total unimpaired loans

   $ 181,893     $ 362,244     $ 30,453     $ 152,274     $ 75,787     $ 31,385     $ 834,036  

Total reserve on unimpaired loans

   $ 17,603     $ 7,937     $ 566     $ 2,401     $ 512     $ 313     $ 29,332  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Other loans of $543, not included here, consist primarily of advances under lines of credit.
(2) Loss factor calculation is reserve as a percentage of balance for a loan class.
(3) Loss factor is driven by higher collateral positions and charge-offs taken within this loan class.
(4) Net of unearned discount.

 

The following table summarizes the activity in the allowance for loan losses by loan class for the periods indicated: (in thousands)

 

                                                         
    Commercial and
Industrial		     Commercial
Real Estate		     Real Estate
Construction
Loans		     Residential
mortgages
(1st and 2nd
liens)		     Home equity
loans		     Consumer
loans		     Total  

Three months ended June 30, 2012

                                                        

Balance at beginning of period

   $ 25,598     $ 11,029     $ 623     $ 2,007     $ 451     $ 300     $ 40,008  

Charge-offs

     (790 )      (7,692 )      —         (193 )      (532 )      (50 )      (9,257 ) 

Recoveries

     769       —         80       1       —         26       876  

(Credit) provision for loan losses

     (9,258 )      5,514       (527 )      471       1,487       (87 )      (2,400 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at end of period

   $ 16,319     $ 8,851     $ 176     $ 2,286     $ 1,406     $ 189     $ 29,227  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Three months ended June 30, 2011

                                                        

Balance at beginning of period

   $ 27,642     $ 10,599     $ 5,694     $ 615     $ 2,282     $ 707     $ 47,539  

Charge-offs

     (562 )      —         —         (363 )      —         (87 )      (1,012 ) 

Recoveries

     141       —         —         1       —         25       167  

Provision for loan losses

     3,265       611       (1,531 )      1,438       (374 )      (192 )      3,217  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at end of period

   $ 30,486     $ 11,210     $ 4,163     $ 1,691     $ 1,908     $ 453     $ 49,911  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Six months ended June 30, 2012

                                                        

Balance at beginning of period

   $ 25,080     $ 11,029     $ 623     $ 2,401     $ 512     $ 313     $ 39,958  

Charge-offs

     (1,127 )      (7,692 )      —         (588 )      (593 )      (82 )      (10,082 ) 

Recoveries

     1,624       —         80       2       —         45       1,751  

(Credit) provision for loan losses

     (9,258 )      5,514       (527 )      471       1,487       (87 )      (2,400 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at end of period

   $ 16,319     $ 8,851     $ 176     $ 2,286     $ 1,406     $ 189     $ 29,227  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Six months ended June 30, 2011

                                                        

Balance at beginning of period

   $ 13,826     $ 9,226     $ 3,177     $ 519     $ 1,392     $ 279     $ 28,419  

Charge-offs

     (1,289 )      —         —         (411 )      (70 )      (144 )      (1,914 ) 

Recoveries

     178       —         —         1       —         39       218  

Provision for loan losses

     17,771       1,984       986       1,582       586       279       23,188  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at end of period

   $ 30,486     $ 11,210     $ 4,163     $ 1,691     $ 1,908     $ 453     $ 49,911  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Credit Quality Information

The Bank utilizes an eight-grade risk-rating system for commercial loans, commercial real estate and construction loans. Loans in risk grades 1- 4 are considered “pass” loans. The Bank’s risk grades are as follows:

Risk Grade 1 Excellent:

Loans secured by liquid collateral, such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.

Risk Grade 2 Good:

Loans to businesses that have strong financial statements containing an unqualified opinion from a CPA firm and at least three consecutive years of profits; loans supported by un-audited financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans secured by publicly traded marketable securities where there is no impediment to liquidation; loans to individuals backed by liquid personal assets, established credit history, and unquestionable character; or loans to publicly held companies with current long-term debt ratings of Baa or better.

 

Risk Grade 3 Satisfactory:

Loans supported by financial statements (audited or un-audited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered. Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply:

 

  •  

At inception, the loan was properly underwritten, did not possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory;

 

  •  

At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss.

 

  •  

The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.

 

  •  

During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or

 

  •  

The borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted.

Risk Grade 4 Satisfactory/Monitored:

Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than satisfactory loans due to weak balance sheets, marginal earnings or cash flow, or other uncertainties. These loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in a Satisfactory/Monitored loan is within acceptable underwriting guidelines so long as the loan is given the proper level of management supervision.

Risk Grade 5 Special Mention:

Loans which possess some credit deficiency or potential weakness which deserves close attention. Such loans pose an unwarranted financial risk that, if not corrected, could weaken the loan by adversely impacting the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) weaknesses are considered “potential,” not “defined,” impairments to the primary source of repayment.

Risk Grade 6 Substandard:

One or more of the following characteristics may be exhibited in loans classified Substandard:

 

  •  

Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss.

 

  •  

Loans are inadequately protected by the current net worth and paying capacity of the obligor.

 

  •  

The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.

 

  •  

Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

 

  •  

Unusual courses of action are needed to maintain a high probability of repayment.

 

  •  

The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments.

 

  •  

The lender is forced into a subordinated or unsecured position due to flaws in documentation.

 

  •  

Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms.

 

  •  

The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

 

  •  

There is a significant deterioration in market conditions to which the borrower is highly vulnerable.

 

Risk Grade 7 Doubtful:

One or more of the following characteristics may be present in loans classified Doubtful:

 

  •  

Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable.

 

  •  

The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

 

  •  

The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

Risk Grade 8 Loss:

Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The Bank considers real estate, home equity and consumer loans secured by real estate that are contractually past due 90 days or more or where legal action has commenced against the borrower to be substandard. The Bank follows the Federal Financial Institutions Examination Council (“FFIEC”) Uniform Retail Credit Classification guidelines.

The Bank annually reviews the ratings on all commercial and industrial, commercial real estate and construction loans greater than $1 million. Semi-annually, the Bank engages an independent third-party to review a significant portion of loans within these loan classes. Management uses the results of these reviews as part of its ongoing review process.

The following table identifies the credit risk profile by internally assigned grade as of June 30, 2012: (in thousands)

 

                                                         

Credit Risk Profile By Internally Assigned Grade

  
    Commercial Credit Exposure     Consumer Credit Exposure  
    Commercial,
financial, and
agricultural		     Commercial  real
estate
mortgages		     Real estate
construction
loans		     Residential
mortgages (1st
and 2nd liens)		     Home equity
loans		     Consumer loans     Total  

Grade:

                                                        

Pass (1)

   $ 150,656     $ 281,960     $ 7,551     $ 139,141     $ 71,664     $ 17,388     $ 668,360  

Special mention

     11,561       34,191       3,962       —         —         —         49,714  

Substandard

     37,876       48,166       30,473       7,501       3,559       502       128,077  

Doubtful

     —         —         1,646       —         —         —         1,646  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 200,093     $ 364,317     $ 43,632     $ 146,642     $ 75,223     $ 17,890     $ 847,797  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Other loans of $428, not included here, consist primarily of advances under lines of credit.

 

The following table presents the credit risk profile by internally assigned grade as of December 31, 2011: (in thousands)

 

                                                         
    Credit Risk Profile By Internally Assigned Grade  
    Commercial Credit Exposure     Consumer Credit Exposure  
    Commercial,
financial, and
agricultural		     Commercial  real
estate
mortgages		     Real estate
construction
loans		     Residential
mortgages (1st
and 2nd liens)		     Home equity
loans		     Consumer loans     Total  

Grade:

                                                        

Pass (1)

   $ 144,952     $ 289,856     $ 4,932     $ 152,274     $ 75,787     $ 43,160     $ 710,961  

Special mention

     16,448       41,283       7,772       —         —         —         65,503  

Substandard

     45,009       97,507       35,388       8,345       3,897       646       190,792  

Doubtful

     243       —         1,612       —         —         —         1,855  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 206,652     $ 428,646     $ 49,704     $ 160,619     $ 79,684     $ 43,806     $ 969,111  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Other loans of $543, not included here, consist primarily of advances under lines of credit.

The following table presents information regarding troubled debt restructurings as of June 30, 2012 and December 31, 2011 (dollars in thousands):

 

                                 
    June 30, 2012     December 31, 2011  
Total Troubled Debt Restructurings   Number of
Loans		     Outstanding
Recorded
Balance		     Number of
Loans		     Outstanding
Recorded
Balance		  

Commercial, financial, and agricultural

     60     $ 9,199       52     $ 6,011  

Commercial, secured by real estate

     9       8,104       9       12,083  

Real estate construction loans

     2       5,217       2       5,183  

Residential mortgages

     12       2,853       11       2,986  

Consumer

     6       250       5       212  
   

 

 

    

 

 

    

 

 

    

 

 

  
      89     $ 25,623       79     $ 26,475  
   

 

 

    

 

 

    

 

 

    

 

 

  

The following table presents, by class, information regarding troubled debt restructurings executed during the three months and six months ended June 30, 2012 (dollars in thousands):

 

                                                 
    For the three months ended
June 30, 2012		     For the six months ended
June 30, 2012		  
          Pre-Modification     Post-Modification           Pre-Modification     Post-Modification  
          Outstanding     Outstanding           Outstanding     Outstanding  
    Number of     Recorded     Recorded     Number of     Recorded     Recorded  
New Troubled Debt Restructurings   Loans     Balance     Balance     Loans     Balance     Balance  

Commercial, financial, and agricultural

     5     $ 2,140     $ 2,272       14     $ 5,456     $ 5,588  

Residential mortgages

     1       81       81       1       81       81  

Consumer

     1       49       49       1       49       49  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
      7     $ 2,270     $ 2,402       16     $ 5,586     $ 5,718  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

The table below presents by class, information regarding loans modified as troubled debt restructurings in the last 12 months that had payment defaults of 90 days or more during the three months and six months ended June 30, 2012 (dollars in thousands)

 

                                 
Defaulted Troubled Debt Restructurings   For the three months
ended June 30, 2012		     For the six months ended
June 30, 2012		  
    Number
of Loans		     Outstanding
Recorded
Balance		     Number
of Loans		     Outstanding
Recorded
Balance		  

Commercial, financial, and agricultural

     1     $ 1,127       2     $ 2,508  

Commercial, secured by real estate

     —         —         1       —    

Real estate construction loans

     —         —         1       1,646  

Residential mortgages

     —         —         1       488  
   

 

 

    

 

 

    

 

 

    

 

 

  
      1     $ 1,127       5     $ 4,642  
   

 

 

    

 

 

    

 

 

    

 

 

  

The Company allocated $295,000 and $2,600,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2012 and December 31, 2011, respectively. These loans involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower payment requirement based upon their current cash flow. These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.