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Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2011
Allowance For Loan Losses [Abstract]  
Allowance For Loan Losses
Note 6. Allowance for Loan Losses
The Company maintains an allowance for loan losses in an amount determined by management on the basis of the character of the loans, loan performance, the financial condition of borrowers, the value of collateral securing loans and other relevant factors.
The following table summarizes the changes in the Company’s allowance for loan losses for the periods indicated.
                                 
    Three months ended     Six months ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
            (In thousands)                  
Allowance for loan losses, beginning of period
  $ 14,958     $ 13,229     $ 14,053     $ 12,373  
Loans charged off
    (380 )     (451 )     (969 )     (1,283 )
Recoveries on loans previously charged-off
    137       122       431       235  
 
                       
Net charge-offs
    (243 )     (329 )     (538 )     (1,048 )
Provision charged to expense
    1,200       1,450       2,400       3,025  
 
                       
Allowance for loan losses, end of period
  $ 15,915     $ 14,350     $ 15,915     $ 14,350  
 
                       
Further information pertaining to the allowance for loan losses for three months ending June 30, 2011 follows:
                                                                 
    Construction     Commercial     Commercial     Residential                            
    and Land     and     Real     Real             Home              
    Development     Industrial     Estate     Estate     Consumer     Equity     Unallocated     Total  
    (Dollars in thousands)  
Allowance for loan losses:
                                                               
 
                                                               
Balance at March 31, 2011
  $ 1,978     $ 3,632     $ 6,021     $ 1,801     $ 286     $ 707     $ 533     $ 14,958  
Charge-offs
    —       (228 )     —       (1 )     (150 )     (1 )     —       (380 )
Recoveries
    —       30       —       —       107       —       —       137  
Provision
    594       141       300       (55 )     48       69       103       1,200  
 
                                               
 
                                                               
Balance at June 30, 2011
  $ 2,572     $ 3,575     $ 6,321     $ 1,745     $ 291     $ 775     $ 636     $ 15,915  
 
                                               
Further information pertaining to the allowance for loan losses for six months ending June 30, 2011 follows:
                                                                 
    Construction     Commercial     Commercial     Residential                            
    and Land     and     Real     Real             Home              
    Development     Industrial     Estate     Estate     Consumer     Equity     Unallocated     Total  
    (Dollars in thousands)  
Allowance for loan losses:
                                                               
Balance at December 31, 2010
  $ 1,752     $ 3,163     $ 5,671     $ 1,718     $ 298     $ 725     $ 726     $ 14,053  
Charge-offs
    —       (385 )     —       (281 )     (303 )     (1 )     —       (969 )
Recoveries
    —       175       —       14       242       —       —       431  
Provision
    820       621       650       294       55       51       (90 )     2,400  
 
                                               
 
                                                               
Balance at June 30, 2011
  $ 2,572     $ 3,574     $ 6,321     $ 1,745     $ 292     $ 775     $ 636     $ 15,915  
 
                                               
Amount of allowance for loan losses for loans deemed to be impaired
  $ 303     $ 770     $ 394     $ 3     $ —     $ —     $ —       1,470  
Amount of allowance for loan losses for loans not deemed to be impaired
  $ 2,269     $ 2,804     $ 5,927     $ 1,742     $ 292     $ 775     $ 636     $ 14,445  
 
                                                               
Loans:
                                                               
Ending balance
  $ 55,572     $ 88,619     $ 470,041     $ 232,235     $ 6,560     $ 110,001     $ —     $ 963,028  
Loans deemed to be impaired
  $ 4,000     $ 1,861     $ 7,867     $ 33     $ —     $ —     $ —     $ 13,800  
Loans not deemed to be impaired
  $ 51,572     $ 86,758     $ 462,174     $ 232,202     $ 6,560     $ 110,001     $ —     $ 949,228  
Further information pertaining to the allowance for loan losses at December 31, 2010 follows:
                                                                 
    Construction     Commercial             Residential                            
    and Land     and     Commercial Real     Real             Home              
    Development     Industrial     Estate     Estate     Consumer     Equity     Unallocated     Total  
    (Dollars in thousands)  
Allowance for loan losses:
                                                               
Balance at December 31, 2009
  $ 362     $ 4,972     $ 2,983     $ 1,304     $ 1,753     $ 761     $ 238     $ 12,373  
Charge-offs
    (900 )     (1,559 )     (922 )     (515 )     (495 )     (52 )     —       (4,443 )
Recoveries
    —       172       —       8       368       —       —       548  
Provision
    2,290       (422 )     3,610       921       (1,328 )     16       488       5,575  
 
                                               
Balance at December 31, 2010
  $ 1,752     $ 3,163     $ 5,671     $ 1,718     $ 298     $ 725     $ 726     $ 14,053  
 
                                               
Amount of allowance for loan losses for loans deemed to be impaired
  $ —     $ 292     $ 25     $ —     $ —     $ —     $ —     $ 317  
Amount of allowance for loan losses for loans not deemed to be impaired
  $ 1,752     $ 2,871     $ 5,646     $ 1,718     $ 298     $ 725     $ 726     $ 13,736  
 
                                                               
Loans:
                                                               
Ending balance
  $ 53,583     $ 90,654     $ 433,337     $ 207,787     $ 6,594     $ 114,209     $ —     $ 906,164  
Loans deemed to be impaired
  $ 4,000     $ 1,471     $ 2,492     $ —     $ —     $ —     $ —     $ 7,963  
Loans not deemed to be impaired
  $ 49,583     $ 89,183     $ 430,845     $ 207,787     $ 6,594     $ 114,209     $ —     $ 898,201  
The company utilizes a six grade internal loan rating system for commercial real estate, construction and commercial loans as follows:
Loans rated 1-3:
Loans in this category are considered “pass” rated loans with low to average risk.
Loans rated monitor 4:
Monitor 4 loans represent classified loans that management is closely monitoring for credit quality. These loans have had or may have minor credit quality deterioration as of June 30, 2011 and December 31, 2010.
Loans rated substandard 5:
Substandard 5 loans represent classified loans that management is closely monitoring for credit quality. These loans have had more significant credit quality deterioration as of June 30, 2011 and December 31, 2010.
Loans rated doubtful 6:
Doubtful 6 loans represent classified loans that management is closely monitoring for credit quality. These loans had more significant credit quality deterioration as of June 30, 2011 and are doubtful for full collection.
Impaired:
Impaired loans represent classified loans that management is closely monitoring for credit quality. A loan is classified as impaired when it is probable that the Company will be unable to collect all amounts due.
The following table presents the Company’s loans by risk rating at June 30, 2011.
                         
    Construction     Commercial     Commercial  
    and Land     and     Real  
    Development     Industrial     Estate  
    (Dollars in thousands)  
Grade:
                       
1-3
  $ 44,546     $ 86,244     $ 458,179  
Monitor 4
    6,987       514       3,995  
Substandard 5
    —       —       —  
Doubtful 6
    —       —       —  
Impaired
    4,039       1,861       7,867  
 
                 
Total
  $ 55,572     $ 88,619     $ 470,041  
 
                 
The following table presents the Company’s loans by risk rating at December 31, 2010.
                         
    Construction     Commercial     Commercial  
    and Land     and     Real  
    Development     Industrial     Estate  
    (Dollars in thousands)  
Grade:
                       
1-3
  $ 42,887     $ 88,103     $ 415,528  
Monitor 4
    6,696       1,080       15,317  
Substandard 5
    —       —       —  
Doubtful 6
    —       —       —  
Impaired
    4,000       1,471       2,492  
 
                 
Total
  $ 53,583     $ 90,654     $ 433,337  
 
                 
The Company utilized payment performance as credit quality indicators for residential real estate, consumer and overdrafts, and the home equity portfolio. The indicators are depicted in the table “aging of past due loans,” below.
Further information pertaining to the allowance for loan losses at June 30, 2011 follows:
                                                 
                    Accrual                    
    Accruing             Greater                    
    30-89 Days             Than     Total              
    Past Due     Non Accrual     90 Days     Past Due     Current Loans     Total  
    (Dollars in thousands)  
 
Construction and land development
  $ —     $ 4,000     $ —     $ 4,000     $ 51,572     $ 55,572  
Commercial and industrial
    881       1,284       30       2,195       86,424       88,619  
Commercial real estate
    4,214       4,597       516       9,327       460,714       470,041  
Residential real estate
    3,120       2,384       —       5,504       226,731       232,235  
Consumer and overdrafts
    9       47       —       56       6,504       6,560  
Home equity
    1,183       2       —       1,185       108,816       110,001  
 
                                   
Total
  $ 9,406     $ 12,314     $ 546     $ 22,267     $ 940,761     $ 963,028  
 
                                   
Further information pertaining to the allowance for loan losses at December 31, 2010 follows:
                                                 
                    Accrual                    
    Accruing             Greater                    
    30-89 Days             Than     Total              
    Past Due     Non Accrual     90 Days     Past Due     Current Loans     Total  
    (Dollars in thousands)  
 
Construction and land development
  $ —     $ 4,000     $ —     $ 4,000     $ 49,583     $ 53,583  
Commercial and industrial
    912       569       50       1,531       89,123       90,654  
Commercial real estate
    1,737       784       —       2,521       430,816       433,337  
Residential real estate
    4,172       2,487       —       6,659       201,128       207,787  
Consumer and overdrafts
    8       4       —       12       6,582       6,594  
Home equity
    574       224       —       798       113,411       114,209  
 
                                   
Total
  $ 7,403     $ 8,068     $ 50     $ 15,521     $ 890,643     $ 906,164  
 
                                   
A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, The Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company measures impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. The Company’s policy for recognizing interest income on impaired loans is contained within Note 1 of the consolidated financial statements.
The following is information pertaining to impaired loans for June 30, 2011:
                                                         
                                    Average     Interest     Interest  
                            Average     Carrying Value     Income     Income  
            Unpaid             Carrying Value     For 6 Months     Recognized for     Recognized for  
            Principal     Required     For 3 Months     Ending     3 Months     6 Months  
    Carrying Value     Balance     Reserve     Ending 6/30/11     6/30/11     Ending 6/30/11     Ending 6/30/11  
    (Dollars in thousands)  
With no required reserve recorded:
                                                       
Construction and land development
  $ 1,800     $ 3,292     $ —     $ 3,450     $ 3,686     $ —     $ —  
Commercial and industrial
    324       725       —       337       407       —       —  
Commercial real estate
    190       203       —       191       427       —       —  
Residential real estate
    —       —       —       —       —       —       —  
Consumer
    —       —       —       —       —       —       —  
Home equity
    —       —       —       —       —       —       —  
 
                                         
Total
  $ 2,314     $ 4,220     $ —     $ 3,978     $ 4,520     $ —     $ —  
 
                                         
With required reserve recorded:
                                                       
Construction and land development
    2,239     $ 5,251     $ 303     $ 560     $ 320     $ —     $ —  
Commercial and industrial
    1,537       1,551       770       1,189       956       3       6  
Commercial real estate
    7,677       7,809       394       6,305       4,695       21       33  
Residential real estate
    33       33       3       34       19       1       1  
Consumer
    —       —       —       —       —       —       —  
Home equity
    —       —       —       —       —       —       —  
 
                                         
Total
  $ 11,486     $ 14,644     $ 1,470     $ 8,088     $ 5,990     $ 25     $ 40  
 
                                         
Total
                                                       
Construction and land development
  $ 4,039     $ 8,543     $ 303     $ 4,010     $ 4,006     $ —     $ —  
Commercial and industrial
    1,861       2,276       770       1,526       1,362       3       6  
Commercial real estate
    7,867       8,012       394       6,496       5,123       21       33  
Residential real estate
    33       33       3       34       19       1       1  
Consumer
    —       —       —       —       —       —       —  
Home equity
    —       —       —       —       —       —       —  
 
                                         
Total
  $ 13,800     $ 18,864     $ 1,470     $ 12,066     $ 10,510     $ 25     $ 40  
 
                                         
The following is information pertaining to impaired loans at December 31, 2010:
                                         
            Unpaid                     Interest  
            Principal     Required     Average     Income  
    Carrying Value     Balance     Reserve     Carrying Value     Recognized  
    (Dollars in thousands)  
With no required reserve recorded:
                                       
Construction and land development
  $ 4,000     $ 8,504     $ —     $ 2,262     $ —  
Commercial and industrial
    893       1,092       —       826       83  
Commercial real estate
    960       969       —       2,013       122  
Residential real estate
    —       —       —       —       —  
Consumer
    —       —       —       —       —  
Home equity
    —       —       —       —       —  
 
                             
Total
  $ 5,853     $ 10,565     $ —     $ 5,101     $ 205  
 
                             
With required reserve recorded:
                                       
Construction and land development
  $ —     $ —     $ —     $ 2,500     $ —  
Commercial and industrial
    578       588       292       842       31  
Commercial real estate
    1,532       1,532       25       1,163       20  
Residential real estate
    —       —       —       —       —  
Consumer
    —       —       —       —       —  
Home equity
    —       —       —       —       —  
 
                             
Total
  $ 2,110     $ 2,120     $ 317     $ 4,505     $ 51  
 
                             
 
                                       
Total
                                       
Construction and land development
  $ 4,000     $ 8,504     $ —     $ 4,762     $ —  
Commercial and industrial
    1,471       1,680       292       1,668       114  
Commercial real estate
    2,492       2,501       25       3,176       142  
Residential real estate
    —       —                   —  
Consumer
    —       —       —       —       —  
Home equity
    —       —       —       —       —  
 
                             
Total
  $ 7,963     $ 12,685     $ 317     $ 9,606     $ 256  
 
                             
Troubled Debt Restructuring at June 30, 2011
                         
            Pre-modification     Post-modification  
            O/S Recorded     O/S Recorded  
    Number of Contracts     Investment     Investment  
Construction and land development
    1     $ 39     $ 39  
Commercial and industrial
    11       671       611  
Commercial real estate
    5       3,323       3,271  
Residential real estate
    0       —       —  
Consumer
    0       —       —  
Home equity
    0       —       —  
 
                 
Total
    17     $ 4,033     $ 3,921  
 
                 
Troubled Debt Restructurings at June 30, 2011 That Subsequently Defaulted
                 
    Number of Contracts     Recorded Investment  
Construction and land development
    0     $ —  
Commercial and industrial
    2       160  
Commercial real estate
    0       —  
Residential real estate
    0       —  
Consumer
    0       —  
Home equity
    0       —  
 
           
Total
    2     $ 160  
 
           
TDR’s were identified as a modification where a concession was granted to a customer who is having financial difficulties. This concession may be below market rate, longer amortization/term, and a lower payment amount. The present value calculation of the modification did not result in an increase in the reserve for these loans. The loans were modified, for both the commercial and industrial real estate loans, by reducing interest rates as well as extending terms on the loans. The financial impact of the modifications for performing commercial and industrial loans were $59,669 reduction in principal and an additional $4,515 in interest payments for the six months ended June 30, 2011. The financial impact of the modifications for performing commercial real estate loans were $51,808 and $81,249 reduction in principal and interest, respectively, for the six months ended June 30, 2011.