Loans And Allowance For Loan Losses

9 Months Ended

Sep. 30, 2011

Loans And Allowance For Loan Losses

Loans And Allowance For Loan Losses

Note 5:      Loans and Allowance for Loan Losses

Categories of loans at September 30, 2011 and December 31, 2010 include the following:

	September 30, 2011	December 31, 2010
(In thousands)
Commercial loans	$   138,098	$   144,181
Commercial real estate loans	163,764	169,253
Construction loans	43,382	64,641
Home equity loans	60,269	64,289
Residential real estate loans	39,705	36,903
Lease financing	2,790	5,530
Consumer loans	7,380	7,657
Total loans	455,388	492,454
Less:  Allowance for loan losses	12,892	14,731
Net loans	$   442,496	$   477,723

The following tables present the balance in the allowance for loan losses at or for the three and nine months ended September 30, 2011 and 2010:

		At or For the Three Months Ended September 30, 2011
(In thousands)	Commercial		Commercial Real Estate	Construction	Home Equity	Residential Real Estate	Lease Financing	Consumer	Total
Allowance for loan losses:
Balance, beginning of period	$     2,654		$     4,666	$     3,685	$   1,100	$     1,386	$         60	$          45	$   13,596
Provision charged to expense	142		(1,119)	(5)	482	1,222	(15)	(7)	700
Losses charged off	(86)		(69)	(917)	(321)	(120)	–	–	(1,513)
Recoveries	10		26	4	–	66	–	3	109
Balance, end of period	$     2,720		$     3,504	$     2,767	$  1,261	$     2,554	$         45	$         41	$  12,892
	At or For the Three Months Ended September 30, 2010
	Commercial		Commercial Real Estate	Construction	Home Equity	Residential Real Estate	Lease Financing	Consumer	Total
Allowance for loan losses:
Balance, beginning of period	$     3,250		$     7,399	$     4,710	$   1,491	$     1,584	$       149	$        107	$   18,690
Provision charged to expense	200		(254)	(115)	(78)	342	(61)	(34)	–
Losses charged off	(652)		(151)	(944)	–	(243)	–	–	(1,990)
Recoveries	158		115	68	15	2	2	3	363
Balance, end of period	$     2,956		$     7,109	$     3,719	$  1,428	$     1,685	$         90	$         76	$  17,063
		At or For the Nine Months Ended September 30, 2011
	Commercial		Commercial Real Estate	Construction	Home Equity	Residential Real Estate	Lease Financing	Consumer	Total
Allowance for loan losses:
Balance, beginning of year	$     3,339		$     3,974	$     4,579	$   1,262	$     1,488	$         38	$          51	$   14,731
Provision charged to expense	(212)		573	419	514	1,442	(18)	(18)	2,700
Losses charged off	(581)		(1,069)	(2,277)	(555)	(526)	–	–	(5,008)
Recoveries	174		26	46	40	150	25	8	469
Balance, end of period	$     2,720		$     3,504	$     2,767	$  1,261	$     2,554	$         45	$         41	$  12,892
	At or For the Nine Months Ended September 30, 2010
Allowance for loan losses:	Commercial		Commercial Real Estate	Construction	Home Equity	Residential Real Estate	Lease Financing	Consumer	Total
Balance, beginning of year	$     3,630		$     7,253	$     5,929	$   1,061	$     1,737	$       238	$        152	$   20,000
Provision charged to expense	(259)		138	1,040	475	305	(156)	(93)	1,450
Losses charged off	(797)		(407)	(3,354)	(125)	(364)	(6)	–	(5,053)
Recoveries	382		125	104	17	7	14	17	666
Balance, end of period	$     2,956		$     7,109	$     3,719	$  1,428	$     1,685	$         90	$         76	$  17,063

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment methods as of September 30, 2011 and December 31, 2010:

		September 30, 2011
(In thousands)	Commercial		Commercial Real Estate	Construction	Home Equity	Residential Real Estate	Lease Financing	Consumer	Total
Allowance for loan losses:
Individually evaluated for impairment	$     1,327		$     2,173	$     1,981	$      579	$     2,024	$         38	$            –	$     8,122
Collectively evaluated for impairment	1,393		1,331	786	682	530	7	41	4,770
Total	$     2,720		$     3,504	$     2,767	$  1,261	$     2,554	$         45	$         41	$  12,892
Loans:
Individually evaluated for impairment	$    20,171		$    20,656	$   19,357	$   4,085	$   11,092	$       694	$            4	$              76,059
Collectively evaluated for impairment	117,927		143,108	24,025	56,184	28,613	2,096	7,376	379,329
Total	$  138,098		$  163,764	$  43,382	$     60,269	$  39,705	$    2,790	$    7,380	$      455,388
		December 31, 2010
	Commercial		Commercial Real Estate	Construction	Home Equity	Residential Real Estate	Lease Financing	Consumer	Total
Allowance for loan losses:
Individually evaluated for impairment	$     1,832		$     2,617	$     3,647	$      576	$        912	$           5	$            2	$     9,591
Collectively evaluated for impairment	1,507		1,357	932	686	576	33	49	5,140
Total	$     3,339		$     3,974	$     4,579	$  1,262	$     1,488	$         38	$         51	$  14,731
Loans:
Individually evaluated for impairment	$    26,444		$   26,704	$   35,521	$   3,544	$     8,691	$       983	$          64	$      101,951
Collectively evaluated for impairment	117,737		142,549	29,120	60,745	28,212	4,547	7,593	390,503
Total	$  144,181		$  169,253	$  64,641	$     64,289	$  36,903	$    5,530	$    7,657	$      492,454

The following table presents the credit risk profile of the Company's loan portfolio based on the rating category and payment activity as of September 30, 2011 and December 31, 2010. These categories are defined as follows:

          Pass – loans that exhibit acceptable financial performance, cash flow, leverage and the probability of default is considered low.

          Classified – loans are inadequately protected by the current payment capacity of the obligor or by the collateral pledged.  These loans are characterized by the distinct probability that the Company will sustain some loss or added expenses if the deficiencies are not corrected.

	September 30, 2011			December 31, 2010
(In thousands)	Pass	Classified	Total	Pass	Classified	Total
Commercial	$  129,737	$     8,361	$  138,098	$      133,603	$   10,578	$      144,181
Commercial real estate	148,033	15,731	163,764	148,892	20,361	169,253
Construction	25,594	17,788	43,382	35,896	28,745	64,641
Home equity	58,877	1,392	60,269	61,442	2,847	64,289
Residential real estate	30,991	8,714	39,705	30,115	6,788	36,903
Lease financing	2,469	321	2,790	5,048	482	5,530
Consumer	7,380	–	7,380	7,605	52	7,657
Total	$  403,081	$  52,307	$  455,388	$      422,601	$  69,853	$      492,454

The following table presents the Company's loan portfolio aging analysis, including loans on non-accrual, as of September 30, 2011 and December 31, 2010:

	September 30, 2011
(In thousands)	30-59 Days Past Due	60-89 Days Past Due	Greater than 90 Days Past Due	Total Past Due	Current	Total Loans Receivable	Total Loans > 90 Days & Accruing
Commercial	$        695	$            –	$        400	$   1,095	$  137,003	$      138,098	$            –
Commercial real estate	310	143	972	1,425	162,339	163,764	–
Construction	87	335	1,433	1,855	41,527	43,382	–
Home equity	434	–	165	599	59,670	60,269	–
Residential real estate	874	272	1,102	2,248	37,457	39,705	–
Lease financing	102	–	–	102	2,688	2,790	–
Consumer	–	–	–	–	7,380	7,380	–
Total	$     2,502	$        750	$     4,072	$  7,324	$  448,064	$      455,388	$           –
	December 31, 2010
	30-59 Days Past Due	60-89 Days Past Due	Greater than 90 Days Past Due	Total Past Due	Current	Total Loans Receivable	Total Loans > 90 Days & Accruing
Commercial	$        241	$        307	$     2,648	$   3,196	$  140,985	$      144,181	$            –
Commercial real estate	–	–	1,247	1,247	168,006	169,253	–
Construction	46	–	7,936	7,982	56,659	64,641	–
Home equity	200	–	964	1,164	63,125	64,289	–
Residential real estate	265	322	3,741	4,328	32,575	36,903	–
Lease financing	20	51	114	185	5,345	5,530	–
Consumer	4	–	–	4	7,653	7,657	–
Total	$        776	$        680	$  16,650	$      18,106	$  474,348	$      492,454	$           –

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Impaired loans include non-performing loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The following table presents impaired loans for September 30, 2011 and December 31, 2010:

	September 30, 2011
(In thousands)	Recorded Balance	Unpaid Principal Balance	Specific Allowance
Loans without a specific valuation allowance:
Commercial	$        278	$        813	$            –
Commercial real estate	1,116	1,150	–
Construction	–	–	–
Home equity	477	500	–
Residential real estate	918	1,014	–
Lease financing	–	–	–
Consumer	–	–	–
Loans with a specific valuation allowance:
Commercial	$     3,214	$     3,321	$        823
Commercial real estate	3,554	4,135	663
Construction	15,575	16,315	1,470
Home equity	478	508	267
Residential real estate	3,994	4,571	1,423
Lease financing	303	303	33
Consumer	–	–	–
Total:
Commercial	$     3,492	$     4,134	$        823
Commercial real estate	4,670	5,285	663
Construction	15,575	16,315	1,470
Home equity	955	1,008	267
Residential real estate	4,912	5,585	1,423
Lease financing	303	303	33
Consumer	–	–	–
Total	$   29,907	$  32,630	$     4,679

	December 31, 2010
(In thousands)	Recorded Balance	Unpaid Principal Balance	Specific Allowance
Loans without a specific valuation allowance:
Commercial	$        220	$        315	$            –
Commercial real estate	4,080	4,700	–
Construction	3,203	3,203	–
Home equity	585	587	–
Residential real estate	1,279	1,924	–
Lease financing	140	256	–
Consumer	52	54	–
Loans with a specific valuation allowance
Commercial	$     5,541	$     5,585	$     1,133
Commercial real estate	8,022	8,092	1,110
Construction	22,318	22,430	3,039
Home equity	626	648	299
Residential real estate	4,618	5,480	577
Lease financing	402	402	3
Consumer	–	–	–
Total:
Commercial	$     5,761	$     5,900	$     1,133
Commercial real estate	12,102	12,792	1,110
Construction	25,521	25,633	3,039
Home equity	1,211	1,235	299
Residential real estate	5,897	7,404	577
Lease financing	542	658	3
Consumer	52	54	–
Total	$   51,086	$   53,676	$     6,161

The December 31, 2010 information presented above was reclassified from the information presented in the 2010 Form 10K, to include troubled debt restructurings that were paying as agreed but not classified as impaired loans at December 31, 2010. This reclassification had no impact on the calculation of the allowance for loan losses.

   The following table presents additional information related to impaired loans for the three and nine months ended  September 30, 2011:

	For the three months ended September 30, 2011			For the nine months ended September 30, 2011
(In thousands)	Average Investment in Impaired Loans	Interest Income Recognized	Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance:
Commercial	$        307	$            –	$        227		$            –
Commercial real estate	1,761	16	1,829		31
Construction	139	–	1,756		–
Home equity	480	–	537		3
Residential real estate	1,100	–	1,177		16
Lease financing	13	32	32		67
Consumer	13	1	36		1
Loans with a specific valuation allowance:
Commercial	$     3,302	$            2	$     3,982		$            4
Commercial real estate	3,612	–	7,639		–
Construction	15,282	–	17,571		–
Home equity	638	3	732		3
Residential real estate	3,688	–	3,713		4
Lease financing	310	–	288		2
Consumer	–	–	–		–
Total:
Commercial	$     3,609	$            2	$     4,209		$            4
Commercial real estate	5,373	16	9,468		31
Construction	15,421	–	19,327		–
Home equity	1,118	3	1,269		6
Residential real estate	4,788	–	4,890		20
Lease financing	323	32	320		69
Consumer	13	1	36		1
Total	$   30,645	$          54	$   39,519		$        131

Included in certain loan categories in the impaired loans are troubled debt restructurings that were classified as impaired. At September 30, 2011, the Company had $3,063,000 of commercial loans, $4,132,000 of commercial real estate loans, $14,835,000 of construction loans, $3,284,000 of residential real estate loans and $351,000 of lease financing loans that were modified in troubled debt restructurings and classified as impaired.

The following table presents loans restructured and classified as troubled debt restructurings during the nine months ended September 30, 2011 and for the twelve months ended December 31, 2010:

	September 30, 2011			December 31, 2010
(In thousands)	Number  of Loans	Pre-Modification Outstanding Recorded Balance	Post-Modification Outstanding Recorded Balance	Number  of Loans	Pre-Modification Outstanding Recorded Balance	Post-Modification Outstanding Recorded Balance
Commercial	4	$     1,268	$     1,150	3	$     3,230	$     2,865
Commercial real estate	2	1,153	931	2	6,339	6,418
Construction	3	3,724	3,725	8	20,638	19,932
Home equity	–	–	–	–	–	–
Residential real estate	–	–	–	2	204	204
Lease financing	–	–	–	2	596	446
Consumer	–	–	–	–	–	–
Total	9	$     6,145	$     5,806	17	$  31,007	$  29,865

The loans restructured and classified as troubled debt restructurings during the nine month period ended September 30, 2011 were primarily renewals of existing debt to troubled borrowers at a below market rate. The loans restructured and classified as troubled debt restructurings during the twelve month period ended December 31, 2010 were renewals of existing debt to troubled borrowers and debt restructurings to interest-only terms or to a below market interest rate.

As a result of adopting the amendments in ASU 2011-02, A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring, the Company reassessed all restructurings that occurred on or after the beginning of its current fiscal year (January 1, 2011) for identification as troubled debt restructurings. The Company identified four loans restructured during the current fiscal year not originally classified as troubled debt restructurings totaling $1,066,000 at September 30, 2011; however, these loans were properly classified as non-accrual impaired loans at the time of restructure and thus the allowance for loan losses was measured using the impairment measurement guidance. Accordingly, there was no change in the valuation of these loans.

The following table presents troubled debt restructurings within the previous 12 months included above that are 90 days past due or are on non-accrual as of September 30, 2011:

	September 30, 2011
(In thousands)	Number  of Loans	Recorded Balance
Commercial	4	$             1,150
Commercial real estate	–	–
Construction	2	535
Home equity	–	–
Residential real estate	–	–
Lease financing	–	–
Consumer	–	–
Total	6	$             1,685

The Company has foreclosed on three construction loans with an aggregate balance of $7,342,000 at December 31, 2010 and one commercial real estate loan with a balance of $6,347,000 at December 31, 2010 during the period ended September 30, 2011. These loans were included in the balance of troubled debt restructurings at December 31, 2010.

As of September 30, 2011, the Company had $672,000 of commitments outstanding to borrowers with troubled debt restructurings. However, these commitments are subject to approval prior to advancement of funds to the borrower.

The following table presents the Company's non-accrual loans, also included in impaired loans, at September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
(In thousands)
Commercial	$             1,589	$             2,896
Commercial real estate	2,171	10,088
Construction	4,102	10,417
Home equity	955	1,211
Residential real estate	2,365	5,553
Lease financing	–	140
Consumer	–	52
	$           11,182	$           30,357