Note 5 - Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2011

Loans And Allowance For Credit Losses [Text Block]

Note 5: Loans and Allowance for Credit Losses

A summary of the major categories of loans outstanding is shown in the following table. Re-classification of some purchased non-covered loans occurred in the nine months ended September 30, 2011 upon conversion of such loans to the Company’s accounting systems.

	At September 30, 2011
													Consumer
				Commercial						Residential			Installment
	Commercial			Real Estate			Construction			Real Estate			& Other			Total
	(In thousands)
Originated loans	$	419,402		$	720,940		$	18,246		$	283,821		$	477,877		$	1,920,286
Purchased covered loans:
Impaired		2,312			21,377			3,064			-			243			26,996
Non impaired		131,240			356,301			14,543			14,051			81,187			597,322
Purchase discount		(20,736	)		(23,315	)		(2,550	)		(524	)		(1,840	)		(48,965	)
Purchased non-covered loans:
Impaired		806			21,557			4,413			-			639			27,415
Non impaired		14,829			74,360			8,400			4,063			26,679			128,331
Purchase discount		(692	)		(9,639	)		(3,277	)		(467	)		(2,471	)		(16,546	)
Total	$	547,161		$	1,161,581		$	42,839		$	300,944		$	582,314		$	2,634,839

	At December 31, 2010
													Consumer
				Commercial						Residential			Installment
	Commercial			Real Estate			Construction			Real Estate			& Other			Total
	(In thousands)
Originated loans	$	474,183		$	757,140		$	26,145		$	310,196		$	461,877		$	2,029,541
Purchased covered loans:
Impaired		17,922			18,768			11,386			140			255			48,471
Non impaired		180,302			395,091			22,185			18,758			89,949			706,285
Purchase discount		(29,239	)		(23,177	)		(5,191	)		(524	)		(3,653	)		(61,784	)
Purchased non-covered loans (refined):
Impaired		474			40,402			8,705			311			2,793			52,685
Non impaired		17,030			100,357			18,708			7,211			35,962			179,268
Purchase discount		(1,684	)		(17,071	)		(7,293	)		(467	)		(5,867	)		(32,382	)
Total	$	658,988		$	1,271,510		$	74,645		$	335,625		$	581,316		$	2,922,084

Changes in the carrying amount of impaired purchased covered loans were as follows:

	For the
	Nine Months Ended			For the Year Ended
	September 30, 2011			December 31, 2010
Impaired purchased covered loans	(In thousands)
Carrying amount at the beginning of the period	$	33,556		$	43,196
Reductions during the period		(14,096	)		(9,640	)
Carrying amount at the end of the period	$	19,460		$	33,556

Changes in the accretable yield for purchased loans were as follows:

	For the			For the
	Nine Months Ended			Year Ended
	September 30, 2011			December 31, 2010
Purchased loans	(In thousands)
Balance at the beginning of the period	$	6,089		$	-
Accretion		(9,215	)		(8,747	)
Reclassification from nonaccretable difference		6,897			14,836
Disposals and other		-			-
Balance at the end of the period	$	3,771		$	6,089
Accretion	$	(9,215	)	$	(8,747	)
Reduction in FDIC indemnification asset		7,256			6,816
Increase in interest income	$	(1,959	)	$	(1,931	)

The following table represents the non impaired purchased non-covered loans receivable at the acquisition date of August 20, 2010. The amounts include principal only and do not reflect accrued interest as of the date of acquisition or beyond:

	At August 20, 2010
	(refined)
Non impaired purchased non-covered loans receivable	(In thousands)
Gross contractual loan principal payment receivable	$	188,206
Estimate of contractual principal not expected to be collected		(14,955	)
Fair value of non impaired purchased loans receivable	$	176,025

The Company applied the cost recovery method to impaired purchased non-covered loans at the acquisition date of August 20, 2010 due to the uncertainty as to the timing of expected cash flows as reflected in the following table:

	At August 20, 2010
	(refined)
Impaired purchased non-covered loans	(In thousands)
Contractually required payments receivable (including interest)	$	70,882
Nonaccretable difference		(33,243	)
Cash flows expected to be collected		37,639
Accretable difference		-
Fair value of loans acquired	$	37,639

Changes in the carrying amount of impaired purchased non-covered loans were as follows for the periods indicated below from August 20, 2010 (acquisition date) through September 30, 2011:

				August 20, 2010
	For the Nine Months			through
	Ended			December 31, 2010
	September 30, 2011			(refined)
Impaired purchased non-covered loans	(In thousands)
Carrying amount at the beginning of the period	$	33,725		$	37,639
Reductions during the period		(15,241	)		(3,914	)
Carrying amount at the end of the period	$	18,484		$	33,725

No changes in the accretable yield for impaired purchased non-covered loans occurred from the August 20, 2010 purchase date through September 30, 2011.

The following summarizes activity in the allowance for credit losses:

	Allowance for Credit Losses
	For the Three Months Ended September 30, 2011
												Consumer					Purchased
				Commercial						Residential		Installment					Covered
	Commercial			Real Estate			Construction			Real Estate		and Other			Unallocated		Loans			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	6,729		$	10,241		$	3,959		$	466	$	3,522		$	8,091	$	-		$	33,008
Additions:
Provision		539			1,422			(826	)		317		539			381		428			2,800
Deductions:
Chargeoffs		(799	)		(398	)		(452	)		-		(1,575	)		-		(428	)		(3,652	)
Recoveries		190			-			-			-		547			-		-			737
Net loan and lease chargeoffs		(609	)		(398	)		(452	)		-		(1,028	)		-		(428	)		(2,915	)
Balance at end of period		6,659			11,265			2,681			783		3,033			8,472		-			32,893
Liability for off-balance sheet credit exposure		1,835			1			62			-		150			645		-			2,693
Total allowance for credit losses	$	8,494		$	11,266		$	2,743		$	783	$	3,183		$	9,117	$	-		$	35,586

	Allowance for Credit Losses
	For the Nine Months Ended September 30, 2011
													Consumer					Purchased
				Commercial						Residential			Installment					Covered
	Commercial			Real Estate			Construction			Real Estate			and Other			Unallocated		Loans			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	8,094		$	9,607		$	3,260		$	617		$	6,372		$	7,686	$	-		$	35,636
Additions:
Provision		3,518			2,057			1,347			693			(429	)		786		428			8,400
Deductions:
Chargeoffs		(5,786	)		(399	)		(1,926	)		(527	)		(5,050	)		-		(428	)		(14,116	)
Recoveries		833			-			-			-			2,140			-		-			2,973
Net loan and lease chargeoffs		(4,953	)		(399	)		(1,926	)		(527	)		(2,910	)		-		(428	)		(11,143	)
Balance at end of period		6,659			11,265			2,681			783			3,033			8,472		-			32,893
Liability for off-balance sheet credit exposure		1,835			1			62			-			150			645		-			2,693
Total allowance for credit losses	$	8,494		$	11,266		$	2,743		$	783		$	3,183		$	9,117	$	-		$	35,586

The recorded investment in loans was evaluated for impairment as follows:

	Recorded Investment in Loans Evaluated for Impairment
	At September 30, 2011
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Purchased Non-covered Loans		Purchased Covered Loans		Total
	(In thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	-	$	933	$	1,851	$	-	$	-	$	-	$	-	$	-	$	2,784
Collectively evaluated for impairment		8,494		10,333		892		783		3,183		9,117		-		-		32,802
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-
Total	$	8,494	$	11,266	$	2,743	$	783	$	3,183	$	9,117	$	-	$	-	$	35,586
Carrying value of loans:
Individually evaluated for impairment	$	1,989	$	1,473	$	3,183	$	-	$	-	$	-	$	4,527	$	5,946	$	17,118
Collectively evaluated for impairment	$	417,413	$	719,467	$	15,063		283,821		477,877		-		116,189		549,947	$	2,579,777
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		18,484		19,460		37,944
Total	$	419,402	$	720,940	$	18,246	$	283,821	$	477,877	$	-	$	139,200	$	575,353	$	2,634,839

	Recorded Investment in Loans Evaluated for Impairment
	At December 31, 2010 (refined)
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Purchased Non-covered Loans		Purchased Covered Loans		Total
	(In thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	-	$	-	$	1,365	$	-	$	-	$	-	$	-	$	-	$	1,365
Collectively evaluated for impairment		9,878		9,607		2,194		617		6,982		7,686		-		-		36,964
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-
Total	$	9,878	$	9,607	$	3,559	$	617	$	6,982	$	7,686	$	-	$	-	$	38,329
Carrying value of loans:
Individually evaluated for impairment	$	6,600	$	2,448	$	3,700	$	-	$	-	$	-	$	2,535	$	10,889	$	26,172
Collectively evaluated for impairment		467,583		754,692		22,445		310,196		461,877		-		163,311		648,527		2,828,631
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		33,725		33,556		67,281
Total	$	474,183	$	757,140	$	26,145	$	310,196	$	461,877	$	-	$	199,571	$	692,972	$	2,922,084

The Bank’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review examinations, assigned risk grades will be re-evaluated promptly. Credit risk grades assigned by the Loan Review Department are subject to review by the Bank’s regulatory authority during regulatory examinations.

The following summarizes the credit risk profile by internally assigned grade:

	Credit Risk Profile by Internally Assigned Grade
	At September 30, 2011
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans			Purchased Covered Loans			Total
	(In thousands)
Grade:
Pass	$	378,381	$	667,087	$	13,399	$	277,452	$	475,317	$	73,898		$	396,587		$	2,282,121
Special mention		18,264		24,934		341		2,474		450		16,516			36,818			99,797
Substandard		21,787		28,919		4,506		3,895		1,160		60,240			188,037			308,544
Doubtful		970		-		-		-		117		5,092			2,635			8,814
Loss		-		-		-		-		833		-			241			1,074
Default risk purchase discount		-		-		-		-		-		(16,546	)		(48,965	)		(65,511	)
Total	$	419,402	$	720,940	$	18,246	$	283,821	$	477,877	$	139,200		$	575,353		$	2,634,839

	Credit Risk Profile by Internally Assigned Grade
	At December 31, 2010
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans			Purchased Covered Loans			Total
	(In thousands)
Grade:
Pass	$	427,878	$	718,124	$	18,073	$	305,433	$	458,789	$	128,323		$	482,473		$	2,539,093
Special mention		17,731		19,216		-		1,749		568		25,223			62,455			126,942
Substandard		27,801		19,800		8,072		3,014		1,792		61,941			206,646			329,066
Doubtful		773		-		-		-		89		16,465			2,747			20,074
Loss		-		-		-		-		639		1			435			1,075
Default risk purchased discount		-		-		-		-		-		(32,382	)		(61,784	)		(94,166	)
Total	$	474,183	$	757,140	$	26,145	$	310,196	$	461,877	$	199,571		$	692,972		$	2,922,084

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status
	At September 30, 2011
	30-89 Days Past Due and Accruing		Past Due 90 days or More and Accruing		Total Past Due and Accruing		Current and Accruing		Nonaccrual		Total Loans
Commercial	$	4,077	$	-	$	4,077	$	409,805	$	5,520	$	419,402
Commercial real estate		13,253		-		13,253		702,604		5,083		720,940
Construction		-		-		-		14,224		4,022		18,246
Residential real estate		4,191		-		4,191		277,138		2,492		283,821
Consumer installment & other		4,632		794		5,426		472,270		181		477,877
Total originated loans		26,153		794		26,947		1,876,041		17,298		1,920,286
Purchased non-covered loans		4,375		-		4,375		109,284		25,541		139,200
Purchased covered loans		10,176		279		10,455		548,877		16,021		575,353
Total	$	40,704	$	1,073	$	41,777	$	2,534,202	$	58,860	$	2,634,839

	Summary of Loans by Delinquency and Nonaccrual Status
	At December 31, 2010
	30-89 Days Past Due and Accruing		Past Due 90 days or More and Accruing		Total Past Due and Accruing		Current and Accruing		Nonaccrual		Total Loans
Commercial	$	7,274	$	-	$	7,274	$	458,061	$	8,848	$	474,183
Commercial real estate		14,037		-		14,037		737,167		5,936		757,140
Construction		4,022		-		4,022		18,073		4,050		26,145
Residential real estate		2,552		-		2,552		305,709		1,935		310,196
Consumer installment & other		6,870		766		7,636		454,142		99		461,877
Total originated loans		34,755		766		35,521		1,973,152		20,868		2,029,541
Purchased non-covered loans		8,788		1		8,789		151,619		39,163		199,571
Purchased covered loans		27,848		355		28,203		617,624		47,145		692,972
Total	$	71,391	$	1,122	$	72,513	$	2,742,395	$	107,176	$	2,922,084

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, 2011 and December 31, 2010.

The following summarizes impaired loans:

	Impaired Loans
	At September 30, 2011
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	9,054	$	14,689	$	-
Commercial real estate		32,430		47,102		-
Construction		5,949		14,034		-
Consumer installments and other		2,973		3,640		-
Impaired loans with an allowance recorded:
Commercial real estate		1,473		1,473		933
Construction		3,183		3,183		1,851
Total:
Commercial	$	9,054	$	14,689	$	-
Commercial real estate		33,903		48,575		933
Construction		9,132		17,217		1,851
Consumer installments and other		2,973		3,640		-

	Impaired Loans
	For the Three Months Ended				For the Nine Months Ended
	September 30, 2011				September 30, 2011
	Average		Recognized		Average		Recognized
	Recorded		Interest		Recorded		Interest
	Investment		Income		Investment		Income
	(In thousands)
Commercial	$	10,950	$	39	$	16,664	$	548
Commercial real estate		33,978		520		39,098		1,249
Construction		17,065		122		21,839		295
Residential real estate		225		-		374		-
Consumer installments and other		2,474		7		2,444		24
Total	$	64,692	$	688	$	80,419	$	2,116

	Impaired Loans
	At December 31, 2010
			Unpaid
	Recorded		Principal
	Investment		Balance		Related
	(refined)		(refined)		Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	22,392	$	35,127	$	-
Commercial real estate		47,081		69,627		-
Construction		17,639		36,244		-
Residential real estate		449		451		-
Consumer installments and other		2,192		3,077		-
Impaired loans with an allowance recorded:
Construction		3,700		3,700		1,365
Total:
Commercial	$	22,392	$	35,127	$	-
Commercial real estate		47,081		69,627		-
Construction		21,339		39,944		1,365
Residential real estate		449		451		-
Consumer installments and other		2,192		3,077		-

During the nine months ended September 30, 2011, the Company restructured one troubled debt with a carrying value of $3,183 thousand pre-and post-modification; such loan was on nonaccrual status at September 30, 2011. The Company had no troubled debt restructuring during the nine months ended September 30, 2010.

The Company pledges loans to secure borrowings from the Federal Home Loan Bank (FHLB). At September 30, 2011, loans pledged to secure borrowing totaled $77,431 thousand compared with $137,954 thousand at December 31, 2010. The FHLB does not have the right to sell or repledge such loans.

There were no loans held for sale at September 30, 2011 and December 31, 2010.