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Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2011
Allowance for Loan Losses [Abstract]  
ALLOWANCE FOR LOAN LOSSES

NOTE 4—ALLOWANCE FOR LOAN LOSSES

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Corporation has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: Commercial and Agricultural loans, Commercial Real Estate loans, Residential Real Estate loans, Real Estate Construction loans and Consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a three year period for all portfolio segments. Certain economic factors are also considered for trends which management uses to establish the directionality of changes to the unallocated portion of the reserve. The following economic factors are analyzed:

 

  •  

Changes in lending policies and procedures

 

  •  

Changes in experience and depth of lending and management staff

 

  •  

Changes in quality of Bank’s credit review system

 

  •  

Changes in the nature and volume of the loan portfolio

 

  •  

Changes in past due, classified and nonaccrual loans and TDRs

 

  •  

Changes in economic and business conditions

 

  •  

Changes in competition or legal and regulatory requirements

 

  •  

Changes in concentrations within the loan portfolio

 

  •  

Changes in the underlying collateral for collateral dependent loans

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Corporation considers the allowance for loan losses of $21,257 adequate to cover loan losses inherent in the loan portfolio, at December 31, 2011. The following tables present by portfolio segment, the changes in the allowance for loan losses, the ending allocation of the allowance for loan losses and the loan balances outstanding for the period ended December 31, 2011 and December 31, 2010. The changes can be impacted by overall loan volume, adversely graded loans, historical charge-offs and economic factors. In the case of Real Estate Construction loans, a negative provision was made for a couple of reasons. While the total loans for this segment was nearly unchanged from the end of last year, the volume of graded loans for this segment declined. Since the graded loans generally require a greater need for reserves, and the overall volume for this segment did not change, a smaller reserve was calculated to be required. This is represented as a decrease in the provision. Management has reviewed its analysis of the allowance for loan losses and made modifications to the beginning balances in the 2011 table. The analysis at December 31, 2010 was based on information available at the time. Since then we have improved our information systems and management reporting tools to allow us to better segregate the portfolio. In order to consistently provide this information, we have adjusted the beginning balances to correspond with the current methodology. Additionally, the 2010 table has been reclassified to match the presentation in 2011. The allowance related to the unallocated segment was also reduced, mostly due to enhanced procedures for allocating the impact of the economic factors.

 

 

                                                         
    Commercial
&
Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

December 31, 2011

                                                        
               

Allowance for loan losses:

                                                        
               

Beginning balance

   $ 3,639     $ 9,827     $ 4,569     $ 2,139     $ 726     $ 868     $ 21,768  

Charge-offs

     (2,447 )      (4,561 )      (3,748 )      (981 )      (193 )      —         (11,930 ) 

Recoveries

     307       390       429       387       106       —         1,619  

Provision

     1,377       4,915       4,546       (571 )      80       (547 )      9,800  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 2,876     $ 10,571     $ 5,796     $ 974     $ 719     $ 321     $ 21,257  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                                                         
    Commercial
&
Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

December 31, 2010

                                                        
               

Allowance for loan losses:

                                                        
               

Beginning balance

   $ 2,957     $ 6,042     $ 3,917     $ 1,109     $ 401     $ 845     $ 15,271  

Charge-offs

     (2,710 )      (4,653 )      (4,029 )      (799 )      (460 )      —         (12,651 ) 

Recoveries

     303       650       99       —         156       —         1,208  

Provision

     3,089       7,788       4,582       1,829       629       23       17,940  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 3,639     $ 9,827     $ 4,569     $ 2,139     $ 726     $ 868     $ 21,768  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

 

                                                         
    Commercial
&
Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

December 31, 2011

                                                        
               

Allowance for loan losses:

                                                        
               

Ending balance:

                                                        

Individually evaluated for impairment

   $ 811     $ 2,940     $ 336     $ 239     $ 485     $ —       $ 4,811  
               

Ending balance:

                                                        

Collectively evaluated for impairment

   $ 2,065     $ 7,631     $ 5,460     $ 735     $ 234     $ 321     $ 16,446  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
               

Loan balances outstanding:

                                                        
               

Ending Balance

   $ 86,395     $ 371,852     $ 274,995     $ 39,790     $ 12,236             $ 785,268  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  
               

Ending balance:

                                                        

Individually evaluated for impairment

   $ 5,258     $ 17,700     $ 3,846     $ 576     $ —               $ 27,380  
               

Ending balance:

                                                        

Collectively evaluated for impairment

   $ 81,137     $ 354,152     $ 271,149     $ 39,214     $ 12,236             $ 757,888  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

 

 

                                                         
    Commercial
&
Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer     Unallocated     Total  

December 31, 2010

                                                        
               

Allowance for loan losses:

                                                        
               

Ending balance:

                                                        

Individually evaluated for impairment

   $ 1,322     $ 1,384     $ 355     $ 375     $ 427     $ —       $ 3,863  
               

Ending balance:

                                                        

Collectively evaluated for impairment

   $ 2,317     $ 8,443     $ 4,214     $ 1,764     $ 299     $ 868     $ 17,905  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
               

Loan balances outstanding:

                                                        
               

Ending Balance

   $ 84,913     $ 336,251     $ 295,038     $ 39,341     $ 11,780             $ 767,323  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  
               

Ending balance:

                                                        

Individually evaluated for impairment

   $ 5,924     $ 7,815     $ 2,347     $ 1,821     $ 1,266             $ 19,173  
               

Ending balance:

                                                        

Collectively evaluated for impairment

   $ 78,989     $ 328,436     $ 292,691     $ 37,520     $ 10,514             $ 748,150  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

 

The following table represents credit exposures by internally assigned risk ratings for the period ended December 31, 2011 and December 31, 2010. The risk rating analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Corporation’s internal credit risk rating system is based on experiences with similarly graded loans.

The Corporation’s internally assigned grades are as follows:

 

  •  

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

 

  •  

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

 

  •  

Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Citizens will sustain some loss if the deficiencies are not corrected.

 

  •  

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

 

  •  

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

 

  •  

Unrated – Generally, consumer loans are not risk-graded, except when collateral is used for a business purpose.

 

                                                 

December 31, 2011

  

Commercial
&
Agriculture

    

Commercial
Real Estate

    

Residential
Real Estate

    

Real Estate
Construction

    

Consumer
and Other

    

Total

  

Pass

   $ 73,011     $ 319,084     $ 92,577     $ 31,697     $ 2,208     $ 518,577  

Special Mention

     4,358       15,321       5,071       702       —         25,452  

Substandard

     9,026       37,447       17,764       5,067       —         69,304  

Doubtful

     —         —         —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 86,395     $ 371,852     $ 115,412     $ 37,466     $ 2,208     $ 613,333  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                                                 

December 31, 2010

   Commercial
&
Agriculture		     Commercial
Real Estate		     Residential
Real Estate		     Real Estate
Construction		     Consumer
and Other		     Total  

Pass

   $ 70,825     $ 284,083     $ 111,248     $ 28,815     $ 556     $ 495,527  

Special Mention

     2,972       12,674       2,821       937       —         19,404  

Substandard

     11,116       39,416       16,482       7,492       44       74,550  

Doubtful

     —         78       —         —         —         78  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending Balance

   $ 84,913     $ 336,251     $ 130,551     $ 37,244     $ 600     $ 589,559  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The following tables present performing and nonperforming loans based solely on payment activity for the period ended December 31, 2011 and December 31, 2010 that have not been assigned an internal risk grade. Payment activity is reviewed by management on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they become 90 days past due or if management thinks that we may not collect all of our principal and interest. Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due to economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

 

                                 

December 31, 2011

  

Residential
Real Estate

    

Real Estate
Construction

    

Consumer
and Other

    

Total

  

Performing

   $ 159,291     $ 2,324     $ 10,027     $ 171,642  

Nonperforming

     292       —         1       293  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 159,583     $ 2,324     $ 10,028     $ 171,935  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

                                 

December 31, 2010

  

Residential
Real Estate

    

Real Estate
Construction

    

Consumer
and Other

    

Total

  

Performing

   $ 162,702     $ 2,097     $ 11,169     $ 175,968  

Nonperforming

     1,785       —         11       1,796  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 164,487     $ 2,097     $ 11,180     $ 177,764  
   

 

 

    

 

 

    

 

 

    

 

 

  

Following is a table which includes an aging analysis of the recorded investment of past due loans outstanding as of December 31, 2011 and December 31, 2010.

 

                                                         

December 31, 2011

  

30-59
Days
Past Due

    

60-89
Days
Past Due

    

90 Days
or
Greater

    

Total

Past Due

    

Current

    

Total
Loans

    

Past Due
90 Days
and
Accruing

  

Commericial & Agriculture

   $ 229     $ 174     $ 509     $ 912     $ 85,483     $ 86,395     $ 19  

Commercial Real Estate

     4,156       1,369       9,466       14,991       356,861       371,852       737  

Residential Real Estate

     3,614       1,182       6,504       11,300       263,695       274,995       511  

Real Estate Construction

     —         —         45       45       39,745       39,790       45  

Consumer and Other

     89       16       2       107       12,129       12,236       2  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 8,088     $ 2,741     $ 16,526     $ 27,355     $ 757,913     $ 785,268     $ 1,314  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                                                         

December 31, 2010

  

30-59
Days
Past Due

    

60-89
Days
Past Due

    

90 Days
or
Greater

    

Total

Past Due

    

Current

    

Total
Loans

    

Past Due
90 Days
and
Accruing

  

Commericial & Agriculture

   $ 491     $ 309     $ 1,986     $ 2,786     $ 82,127     $ 84,913     $ 904  

Commercial Real Estate

     3,565       533       4,877       8,975       327,276       336,251       349  

Residential Real Estate

     3,261       666       7,058       10,985       284,053       295,038       382  

Real Estate Construction

     258       246       841       1,345       37,996       39,341       581  

Consumer and Other

     118       39       25       182       11,598       11,780       25  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 7,693     $ 1,793     $ 14,787     $ 24,273     $ 743,050     $ 767,323     $ 2,241  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The following table presents loans on nonaccrual status as of December 31, 2011 and December 31, 2010.

 

                 
   

2011

    

2010

  

Commericial & Agriculture

   $ 940     $ 2,661  

Commercial Real Estate

     15,346       8,059  

Residential Real Estate

     8,915       9,586  

Real Estate Construction

     567       1,869  

Consumer and Other

     —         —    
   

 

 

    

 

 

  

Total

   $ 25,768     $ 22,175  
   

 

 

    

 

 

  

 

Loan modifications that are considered troubled debt restructurings completed during the quarters and twelve month periods ended December 31, 2011 were as follows:

 

                         
    For the Twelve Month Period Ended
December 31, 2011		  
    Number of
Contracts		     Pre- Modification
Outstanding
Recorded
Investment		     Post- Modification
Outstanding
Recorded
Investment		  

Commericial & Agriculture

     3     $ 1,506     $ 1,506  

Commercial Real Estate

     3       2,074       2,004  

Residential Real Estate

     2       180       181  

Real Estate Construction

     —         —         —    

Consumer and Other

     —         —         —    
   

 

 

    

 

 

    

 

 

  

Total Loan Modifications

     8     $ 3,760     $ 3,691  
   

 

 

    

 

 

    

 

 

  

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new originations loans, so modified loans present a higher risk of loss than do new origination loans.

During the twelve month period ended December 31, 2011, no loans modified and considered TDRs made during the twelve months previous to December 31, 2011, have defaulted.

 

Impaired Loans: Larger (greater than $350) commercial loans and commercial real estate loans and all TDR’s, are tested for impairment. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.

Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although the Corporation may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income.

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables with the associated allowance amount, if applicable as of December 31, 2011 and December 31, 2010.

 

                                         

December 31, 2011

   Recorded
Investment		     Unpaid
Principal
Balance		     Related
Allowance		     Average
Recorded
Investment		     Interest
Income
Recognized		  

With no related allowance recorded:

                                        

Commericial & Agriculture

   $ 2,914     $ 3,010     $ —       $ 1,892     $ 217  

Commercial Real Estate

     3,804       4,739       —         3,678       343  

Residential Real Estate

     862       953       —         1,468       60  

Real Estate Construction

     —         —         —         914       —    
           

With an allowance recorded:

                                        

Commericial & Agriculture

   $ 2,344     $ 3,645     $ 618     $ 2,822     $ 264  

Commercial Real Estate

     13,896       16,534       3,094       9,851       925  

Residential Real Estate

     2,984       4,127       860       2,283       202  

Real Estate Construction

     576       1,103       239       448       17  
           

Total:

                                        

Commericial & Agriculture

   $ 5,258     $ 6,655     $ 618     $ 4,713     $ 481  

Commercial Real Estate

     17,700       21,273       3,094       13,529       1,268  

Residential Real Estate

     3,846       5,080       860       3,751       262  

Real Estate Construction

     576       1,103       239       1,363       17  
                                         

December 31, 2010

   Recorded
Investment		     Unpaid
Principal
Balance		     Related
Allowance		     Average
Recorded
Investment		     Interest
Income
Recognized		  

With no related allowance recorded:

                                        

Commericial & Agriculture

   $ 2,259     $ 2,597     $ —       $ 3,129     $ 24  

Commercial Real Estate

     1,849       2,683       —         5,579       11  

Residential Real Estate

     635       914       —         2,035       31  

Real Estate Construction

     477       477       —         293       34  

Consumer and Other

     125       125       —         125       —    
           

With an allowance recorded:

                                        

Commericial & Agriculture

   $ 3,665     $ 3,665     $ 1,322     $ 1,612     $ 191  

Commercial Real Estate

     5,966       5,966       1,384       4,569       256  

Residential Real Estate

     1,712       1,965       355       1,146       69  

Real Estate Construction

     1,344       1,344       375       1,377       7  

Consumer and Other

     1,141       1,166       427       1,145       31  
           

Total:

                                        

Commericial & Agriculture

   $ 5,924     $ 6,262     $ 1,322     $ 4,741     $ 215  

Commercial Real Estate

     7,815       8,649       1,384       10,148       267  

Residential Real Estate

     2,347       2,879       355       3,181       100  

Real Estate Construction

     1,821       1,821       375       1,670       41  

Consumer and Other

     1,266       1,291       427       1,270       31