Loans

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Loans

NOTE B   LOANS

Major classifications of loans are as follows:

	December 31,
	2011			2010
Real Estate Mortgages:
Residential 1-4 Family	$	21,157,199		$	19,541,387
Commercial		15,786,519			20,281,907
Construction		6,399,173			9,023,499
Second Mortgages		820,257			948,686
Other		1,610,535			1,724,934
		45,773,683			51,520,413
Commercial		2,702,432			2,726,278
Personal		1,496,019			1,191,139
Credit Cards		6,038,529			6,321,359
Overdrafts		209,979			276,932
Total Loans		56,220,642			62,036,121
Allowance for Loan Losses		(1,800,000	)		(1,800,000	)
Deferred Loan Fees		(39,673	)		(35,607	)
Loans, Net	$	54,380,969		$	60,200,514

The following is a classification of loans by rate and maturity: (Dollar amounts in thousands)

	December 31,
	2011		2010
Fixed Rate Loans:
Maturing in 3 Months or Less	$	13,495	$	13,785
Maturing Between 3 and 12 Months		25,114		29,769
Maturing Between 1 and 5 Years		15,024		14,154
Maturing After 5 Years		571		631
Total Fixed Rate Loans		54,204		58,339
Variable Rate Loans:
Maturing Quarterly or More Frequently		721		723
Maturing Between 3 and 12 Months		—		698
Maturing Between 3 and 12 Months		—		—
Non-Accrual Loans		1,295		2,276
Total Variable Rate Loans		2,016		3,697
Total Loans	$	56,220	$	62,036

The Company’s loan portfolio segments consist of the following:

Real Estate Loans – Consists of residential first and second mortgage loans on one-to-four family homes; construction and development loans; multiple dwelling unit loans; housing rehabilitation loans; loans to purchase developed real property; and commercial real estate loans. Commercial real estate, multi-family residential and construction lending generally is considered to involve a higher degree of risk than single-family residential lending due to a variety of factors, including generally larger loan balances, the dependency on successful completion or operation of the project for repayment, the difficulties in estimating construction costs and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at stated maturity. As a result of the larger loan balances typically involved in these loans, an adverse development with respect to one loan or one credit relationship can expose us to greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan.

Commercial Loans (Secured and Unsecured) – Consists of working capital loans, secured and unsecured lines of credit, and small equipment loans. Commercial lending involves certain risk relating to changes in local and national economic conditions and the resulting effect on commercial borrowers. Such loans are subject to greater risk of default during periods of adverse economic conditions. Because such loans may be secured by equipment, inventory, accounts receivable and other non-real estate assets, the collateral may not be sufficient to ensure full payment of the loan in the event of a default. To reduce such risk, we may obtain the personal guarantees of one or more of the principals of the borrowers.

Personal/Consumer Loans – Consists of automobile, mobile home, recreational vehicle, and boat loans; home improvement and second-mortgage loans; secured and unsecured personal expense loans. Significant risks associated with consumer loans consist primarily of negative changes in the financial stability of the borrower and the lack of marketability of collateral.

Credit Cards – The Bank offers a variety of nationally recognized credit cards, in addition to its own Mr. Bol credit card, and private label credit cards for use at retail establishments nationwide. Credit card lines are underwritten using conservative credit criteria, including past credit history and debt-to-income ratios.

The Bank has a number of proprietary accounts it services. These accounts consist largely of small to medium sized merchants who have issued their own private-label cards. The Bank acquires these credit card accounts, typically with reserves posted, and requires the merchant to repurchase accounts 180 days or more past due.

Loans are considered past due of the required principal and interest payments have not been received as of the date of such payments were due. Loans are placed on non-accrual status, when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due.

Non-accrual loans, segregated by class of loans, as of December 31, 2011 and 2010, are as follows:

	December 31,
	2011		2010
Real Estate Mortgages
Residential 1 - 4 Family	$	619,155	$	793,001
Commercial		130,392		100,567
Construction		470,633		1,370,855
Second Mortgages		—		—
Other		—		—
Commercial		63,180		—
Personal		11,793		11,793
Credit Cards		—		—
Overdrafts		—		—
Total	$	1,295,153	$	2,276,216

An aging analysis of past due loans, segregated by class of loans, is as follows (Dollar amounts in thousands):

	December 31, 2011
	Loans		Loans								Accruing
	30-89		90 or More		Total						Loans 90 or
	Days		Days		Past Due		Current		Total		More Days
	Past Due		Past Due		Loans		Loans		Loans		Past Due
Real Estate
1 - 4 Family Residential	$	2,212	$	1,635	$	3,847	$	17,310	$	21,157	$	1,015
Commercial		—		299		299		15,487		15,786		169
Construction		214		853		1,067		5,332		6,399		382
Second Mortgages		12		—		12		808		820		—
Other		—		—		—		1,611		1,611		—
Commercial		27		1,077		1,104		1,598		2,702		1,014
Personal		70		54		124		1,372		1,496		43
Credit Cards		127		68		195		5,844		6,039		68
Overdrafts		98		8		106		104		210		8
Total	$	2,760	$	3,994	$	6,754	$	49,466	$	56,220	$	2,699

	December 31, 2010
	Loans		Loans								Accruing
	30-89		90 or More		Total						Loans 90 or
	Days		Days		Past Due		Current		Total		More Days
	Past Due		Past Due		Loans		Loans		Loans		Past Due
Real Estate
1 - 4 Family Residential	$	1,467	$	2,410	$	3,877	$	15,664	$	19,541	$	1,617
Commercial		328		101		429		19,853		20,282		—
Construction		406		1,371		1,777		7,247		9,024		—
Second Mortgages		29		—		29		920		949		—
Other		279		—		279		1,446		1,725		—
Commercial		461		1		462		2,264		2,726		1
Personal		63		22		85		1,106		1,191		11
Credit Cards		129		56		185		6,136		6,321		56
Overdrafts		4		210		214		63		277		210
Total	$	3,166	$	4,171	$	7,337	$	54,699	$	62,036	$	1,895

The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, or other actions.

When the Company modifies a loan, management evaluates any possible concession based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole source of repayment for the loan is the liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs. If management determines that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized through an allowance estimate.

The TDRs shown in the following table were modified by either an interest rate adjustment or extension of the maturity date:

Loan Type	Number of Loans		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Specific Reserves Allocated
Real Estate:
1 - 4 Family Residential		7	$	2,387,623	$	2,387,623	$	369,811
Commercial		2		300,793		300,793		68,736
Total		9	$	2,688,416	$	2,688,416	$	438,547

The following table presents TDRs modified during the year ended December 31, 2011:

Loan Type	Number of Loans		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Specific Reserves Allocated
Real Estate:
1 - 4 Family Residential		3	$	1,094,784	$	1,084,784	$	247,835
Commercial		2		300,793		300,793		68,736
Total		5	$	1,395,577	$	1,385,577	$	316,571

At December 31, 2011, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a troubled debt restructuring.

Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan is impaired, a specific valuation allowance is allocated, if necessary, 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. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

	December 31, 2011
	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total
	Principal		with No		with		Recorded		Related
	Balance		Allowance		Allowance		Investment		Allowance
Real Estate
1 - 4 Family Residential	$	3,006,778	$	524,480	$	2,482,298	$	3,006,778	$	501,655
Commercial		130,392		—		130,392		130,392		26,530
Construction		670,591		—		670,591		670,591		198,617
Second Mortgages		—		—		—		—		—
Other		—		—		—		—		—
Commercial		363,973		—		363,973		363,973		81,625
Personal		11,793		—		11,793		11,793		6,323
Credit Cards		—		—		—		—		—
Overdrafts		—		—		—		—		—
Total	$	4,183,527	$	524,480	$	3,659,047	$	4,183,527	$	814,750

	December 31, 2010
	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total
	Principal		with No		with		Recorded		Related
	Balance		Allowance		Allowance		Investment		Allowance
Real Estate
1 - 4 Family Residential	$	3,061,009	$	—	$	3,061,009	$	3,061,009	$	532,438
Commercial		—		—		—		—		—
Construction		1,573,221		—		1,573,321		1,573,321		382,261
Second Mortgages		—		—		—		—		—
Other		115,856		—		115,856		115,856		11,284
Commercial		7,303		—		7,303		7,303		820
Personal		108,894		—		108,894		108,894		5,362
Credit Cards		—		—		—		—		—
Overdrafts		205,751		—		205,751		205,751		30,863
Total	$	5,072,034	$	—	$	5,072,134	$	5,072,134	$	963,028