7. IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED

9 Months Ended

Sep. 30, 2011

Loans and Leases Receivable, Nonperforming Loan and Lease, Policy [Policy Text Block]

7. IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED

At September 30, 2011 and December 31, 2010, the recorded investment in nonperforming loans and leases was approximately $20,965,000 and $22,571,000, respectively. Nonperforming loans and leases include all such loans and leases that are either placed on nonaccrual status or are 90 days past due as to principal or interest but still accrue interest because such loans are well-secured and in the process of collection. The Company considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. At September 30, 2011, the recorded investment in loans and leases that were considered to be impaired totaled $38,780,000, which includes $20,801,000 in nonperforming loans and leases and $17,979,000 in performing loans and leases. Of the total impaired loans of $38,780,000, loans totaling $16,320,000 were deemed to not require a specific reserve and loans totaling $22,460,000 were deemed to require a specific reserve of $1,465,000. At December 31, 2010, the recorded investment in loans and leases that were considered to be impaired totaled $40,237,000, which included $22,168,000 with no specific reserve and $18,069,000 were deemed to require a specific reserve of $1,619,000. If interest had been accruing on the nonperforming loans, such income would have approximated $398,000 and $1,288,000, respectively, for the three-month and nine-month periods ended September 30, 2011 and $528,000 and $1,231,000, respectively, for the three-month and nine-month periods ended September 30, 2010.

At September 30, 2011 and December 31, 2010, the recorded investment in other real estate owned (“OREO”) was $3,827,000 and $2,696,000, respectively. In addition, the Company owned one repossessed mobile home classified on the balance sheet in accrued interest receivable and other assets with a book value of $55,000. For the three months ended March 31, 2011, the Company transferred six properties from four relationships with loan balances in the amount of $1,988,000 to OREO and subsequently wrote these balances down by $222,000 to $1,766,000, and sold three properties with balances of $554,000 for a net loss of $28,000. In addition to the $222,000 in write downs, the Company also adjusted the balances, through charges to the allowance for loan and lease losses, of properties obtained in the prior quarter in the amount of $166,000. For the three months ended June 30, 2011, the Company transferred two properties with loan balances in the amount of $293,000 to OREO and subsequently wrote these balances down by $31,000 to $262,000, and sold three properties with balances of $150,000 for a net gain of $2,000. The Company also adjusted the balance on two properties that were obtained in the prior quarter for which fair value evaluations were received in the current quarter in the amount of $187,000. The $187,000 had been reserved for in the allowance for loan and lease losses at March 31, 2011. The Company periodically obtains property valuations to determine whether the recorded book value is considered fair value. During the second quarter of 2011, this valuation process resulted in the Company reducing the book value of certain properties by $441,000. For the three months ended September 30, 2011, the Company transferred seven properties with loan balances in the amount of $1,109,000 to OREO and subsequently wrote these balances down by $26,000 to $1,083,000, and sold one property with a balance of $210,000 for no gain or loss. The Company also adjusted the balance on three properties that were obtained in prior quarters for which new appraisals were received in the current quarter in the amount of $156,000. The Company also had a $126,000 valuation allowance on properties that it expects to sell in the fourth quarter of 2011.

The September 30, 2011 OREO balance of $3,827,000 consists of 22 properties including 7 residential land properties in the amount of $658,000, 1 commercial land property totaling $313,000, 5 commercial real estate properties in the amount of $1,525,000 and 9 residential real estate properties in the amount of $1,331,000. Nonperforming loans and leases, OREO, and other repossessed assets at September 30, 2011 and December 31, 2010 are summarized as follows:

(dollars in thousands)	September 30, 2011			December 31, 2010
Nonaccrual loans and leases that are current to terms	$	1,031		$	3,004
Nonaccrual loans and leases that are past due		19,934			19,567
Loans and leases past due 90 days and accruing interest		—			—
Other real estate owned and other repossessed assets		3,882			2,696
Total nonperforming assets	$	24,847		$	25,267
Nonperforming loans and leases to total loans and leases		6.67	%		6.52	%
Total nonperforming assets to total assets		4.27	%		4.36	%

Impaired loans and leases as of and for the periods ended September 30, 2011 and December 31, 2010 are summarized as follows:

September 30, 2011			Unpaid				Average		Interest
(dollars in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial:
Commercial	$	2,552	$	2,552		—	$	3,654	$	116
Real estate:
Commercial		9,627		11,085		—		9,197		224
Multi-family		18		18		—		869		6
Construction		494		494		—		3,097		1
Residential		3,490		3,490		—		2,656		16
Other:
Agriculture		—		—		—		127		—
Consumer		139		139		—		166		12
	$	16,320	$	17,778	$	—	$	19,766	$	375
With an allowance recorded:
Commercial:
Commercial	$	2,677	$	4,256	$	465	$	1,749	$	121
Real estate:
Commercial		13,123		15,106		463		12,254		1,745
Multi-family		1,190		1,283		6		796		26
Construction		3,831		5,002		367		1,615		19
Residential		869		869		35		1,673		16
Other:
Agriculture		597		597		89		398		3
Consumer		173		173		40		239		22
	$	22,460	$	27,286	$	1,465	$	18,724	$	1,952
Total:
Commercial:
Commercial	$	5,229	$	6,808	$	465	$	5,403	$	237
Real estate:
Commercial		22,750		26,191		463		21,451		1,969
Multi-family		1,208		1,301		6		1,665		32
Construction		4,325		5,496		367		4,712		20
Residential		4,359		4,359		35		4,329		32
Other:
Agriculture		597		597		89		525		3
Consumer		312		312		40		405		34
	$	38,780	$	45,064	$	1,465	$	38,490	$	2,327

December 31, 2010			Unpaid				Average		Interest
(dollars in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial:
Commercial	$	5,026	$	5,418		—	$	5,042	$	137
Real estate:
Commercial		9,066		12,149		—		14,013		424
Multi-family		1,382		2,382		—		1,383		70
Construction		4,695		7,064		—		6,545		43
Residential		1,663		1,835		—		1,593		50
Other:
Agriculture		129		322		—		206		4
Consumer		207		207		—		317		16
	$	22,168	$	29,377	$	—	$	29,099	$	744
With an allowance recorded:
Commercial:
Commercial	$	3,231	$	3,231	$	274	$	3,452	$	196
Real estate:
Commercial		12,120		12,584		1,160		9,369		456
Multi-family		1,214		1,214		22		1,321		44
Residential		1,013		1,013		152		861		51
Other:
Consumer		491		491		11		492		24
	$	18,069	$	18,533	$	1,619	$	15,495	$	771
Total:
Commercial:
Commercial	$	8,257	$	8,649	$	274	$	8,494	$	333
Real estate:
Commercial		21,186		24,733		1,160		23,382		880
Multi-family		2,596		3,596		22		2,704		114
Construction		4,695		7,064		—		6,545		43
Residential		2,676		2,848		152		2,454		101
Other:
Agriculture		129		322		—		206		4
Consumer		698		698		11		809		40
	$	40,237	$	47,910	$	1,619	$	44,594	$	1,515