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Note 4 - Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2013

Loans And Allowance For Credit Losses [Text Block]

Note 4: Loans and Allowance for Credit Losses

A summary of the major categories of loans outstanding is shown in the following table.

	At March 31, 2013
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment & Other			Total
	(In thousands)
Originated loans	$	318,502		$	625,185		$	7,920		$	213,919		$	447,870		$	1,613,396
Purchased covered loans:
Impaired		293			6,899			1,737			-			255			9,184
Non impaired		57,589			232,854			4,942			8,816			62,309			366,510
Purchase discount		(6,958	)		(13,600	)		(188	)		(434	)		(1,480	)		(22,660	)
Purchased non-covered loans:
Impaired		1,244			6,111			-			-			297			7,652
Non impaired		9,367			37,548			1,369			2,205			16,949			67,438
Purchase discount		(913	)		(1,750	)		(95	)		(262	)		(1,566	)		(4,586	)
Total	$	379,124		$	893,247		$	15,685		$	224,244		$	524,634		$	2,036,934

	At December 31, 2012
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment & Other			Total
	(In thousands)
Originated loans	$	340,116		$	632,927		$	7,984		$	222,458		$	460,698		$	1,664,183
Purchased covered loans:
Impaired		308			7,585			1,824			-			257			9,974
Non impaired		59,135			247,534			5,462			9,374			66,932			388,437
Purchase discount		(8,459	)		(15,140	)		(279	)		(433	)		(1,817	)		(26,128	)
Purchased non-covered loans:
Impaired		1,261			6,763			-			-			297			8,321
Non impaired		9,840			38,673			1,619			3,110			18,554			71,796
Purchase discount		(870	)		(1,748	)		(95	)		(474	)		(2,039	)		(5,226	)
Total	$	401,331		$	916,594		$	16,515		$	234,035		$	542,882		$	2,111,357

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

	For the Three Months Ended March 31, 2013			For the Year Ended December 31, 2012
Impaired purchased covered loans	(In thousands)
Carrying amount at the beginning of the period	$	7,865		$	18,591
Reductions during the period		(284	)		(10,726	)
Carrying amount at the end of the period	$	7,581		$	7,865

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

	For the Three Months Ended March 31, 2013			For the Year Ended December 31, 2012
Impaired purchased non-covered loans	(In thousands)
Carrying amount at the beginning of the period	$	6,764		$	15,572
Reductions during the period		(804	)		(8,808	)
Carrying amount at the end of the period	$	5,960		$	6,764

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

	For the Three Months Ended March 31, 2013			For the Year Ended December 31, 2012
Accretable yield:	(In thousands)
Balance at the beginning of the period	$	4,948		$	9,990
Reclassification from nonaccretable difference		8,154			12,121
Accretion		(3,641	)		(17,163	)
Disposals and other		-			-
Balance at the end of the period	$	9,461		$	4,948

Accretion	$	(3,641	)	$	(17,163	)
Reduction in FDIC indemnification asset		2,782			13,207
(Increase) in interest income	$	(859	)	$	(3,956	)

The following summarizes activity in the allowance for credit losses:

	Allowance for Credit Losses For the Three Months Ended March 31, 2013
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment and Other			Purchased Non-covered Loans		Purchased Covered Loans			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	6,445		$	10,063		$	484		$	380		$	3,194		$	-	$	1,005		$	8,663	$	30,234
Additions:
Provision		531			994			(4	)		246			281			-		87			665		2,800
Deductions:
Chargeoffs		(1,902	)		(113	)		-			(87	)		(1,308	)		-		(359	)		-		(3,769	)
Recoveries		462			21			-			-			601			-		5			-		1,089
Net loan losses		(1,440	)		(92	)		-			(87	)		(707	)		-		(354	)		-		(2,680	)
Balance at end of period		5,536			10,965			480			539			2,768			-		738			9,328		30,354
Liability for off-balance sheet credit exposure		1,663			3			-			-			453			-		-			574		2,693
Total allowance for credit losses	$	7,199		$	10,968		$	480		$	539		$	3,221		$	-	$	738		$	9,902	$	33,047

	Allowance for Credit Losses For the Three Months Ended March 31, 2012
	Commercial			Commercial Real Estate			Construction		Residential Real Estate			Consumer Installment and Other			Purchased Covered Loans			Unallocated			Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	6,012		$	10,611		$	2,342	$	781		$	3,072		$	-		$	9,779		$	32,597
Additions:
Provision		1,275			1,764			411		734			627			490			(2,501	)		2,800
Deductions:
Chargeoffs		(862	)		(948	)		-		(870	)		(1,653	)		(365	)		-			(4,698	)
Recoveries		389			-			2		-			779			14			-			1,184
Net loan losses		(473	)		(948	)		2		(870	)		(874	)		(351	)		-			(3,514	)
Balance at end of period		6,814			11,427			2,755		645			2,825			139			7,278			31,883
Liability for off-balance sheet credit exposure		1,643			-			26		-			189			-			835			2,693
Total allowance for credit losses	$	8,457		$	11,427		$	2,781	$	645		$	3,014		$	139		$	8,113		$	34,576

The recorded investment in loans evaluated for impairment follows:

	Recorded Investment in Loans Evaluated for Impairment At March 31, 2013
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non- covered Loans		Purchased Covered Loans		Unallocated		Total
	(In thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	886	$	584	$	-	$	-	$	-	$	-	$	723	$	-	$	2,193
Collectively evaluated for impairment		6,313		10,384		480		539		3,221		-		15		9,902		30,854
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-
Total	$	7,199	$	10,968	$	480	$	539	$	3,221	$	-	$	738	$	9,902	$	33,047
Carrying value of loans:
Individually evaluated for impairment	$	2,171	$	3,319	$	-	$	-	$	-	$	5,196	$	16,086	$	-	$	26,772
Collectively evaluated for impairment		316,331		621,866		7,920		213,919		447,870		59,348		329,367		-		1,996,621
Purchased loans with evidence of credit deterioration		-		-		-		-		-		5,960		7,581		-		13,541
Total	$	318,502	$	625,185	$	7,920	$	213,919	$	447,870	$	70,504	$	353,034	$	-	$	2,036,934

	Recorded Investment in Loans Evaluated for Impairment At December 31, 2012
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non- covered Loans		Purchased Covered Loans		Unallocated		Total
	(In thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	1,865	$	134	$	-	$	-	$	-	$	-	$	753	$	-	$	2,752
Collectively evaluated for impairment		6,314		9,938		484		380		3,613		-		252		9,194		30,175
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-
Total	$	8,179	$	10,072	$	484	$	380	$	3,613	$	-	$	1,005	$	9,194	$	32,927
Carrying value of loans:
Individually evaluated for impairment	$	5,153	$	4,161	$	-	$	-	$	-	$	3,029	$	16,680	$	-	$	29,023
Collectively evaluated for impairment		334,963		628,766		7,984		222,458		460,698		65,098		347,738		-		2,067,705
Purchased loans with evidence of credit deterioration		-		-		-		-		-		6,764		7,865		-		14,629
Total	$	340,116	$	632,927	$	7,984	$	222,458	$	460,698	$	74,891	$	372,283	$	-	$	2,111,357

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.” Loan Review evaluations occur every calendar quarter. 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 March 31, 2013
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non- covered Loans			Purchased Covered Loans (1)			Total
	(In thousands)
Grade:
Pass	$	305,285	$	590,834	$	7,457	$	211,445	$	446,365	$	48,379		$	253,854		$	1,863,619
Substandard		10,798		34,351		463		2,474		1,224		25,172			121,300			195,782
Doubtful		2,419		-		-		-		31		1,539			455			4,444
Loss		-		-		-		-		250		-			85			335
Default risk purchase discount		-		-		-		-		-		(4,586	)		(22,660	)		(27,246	)
Total	$	318,502	$	625,185	$	7,920	$	213,919	$	447,870	$	70,504		$	353,034		$	2,036,934

(1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

	Credit Risk Profile by Internally Assigned Grade At December 31, 2012
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non- covered Loans			Purchased Covered Loans (1)			Total
	(In thousands)
Grade:
Pass	$	324,452	$	599,472	$	7,518	$	219,655	$	459,076	$	51,901		$	274,976		$	1,937,050
Substandard		11,413		33,455		466		2,803		1,158		27,066			122,815			199,176
Doubtful		4,251		-		-		-		46		1,145			470			5,912
Loss		-		-		-		-		418		5			150			573
Default risk purchase discount		-		-		-		-		-		(5,226	)		(26,128	)		(31,354	)
Total	$	340,116	$	632,927	$	7,984	$	222,458	$	460,698	$	74,891		$	372,283		$	2,111,357

(1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status At March 31, 2013
	Current and Accruing		30-89 Days Past Due and Accruing		Past Due 90 days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	313,381	$	2,493	$	-	$	2,628	$	318,502
Commercial real estate		613,517		6,427		-		5,241		625,185
Construction		7,920		-		-		-		7,920
Residential real estate		213,353		333		-		233		213,919
Consumer installment & other		444,284		3,224		305		57		447,870
Total originated loans		1,592,455		12,477		305		8,159		1,613,396
Purchased non-covered loans		60,242		1,150		-		9,112		70,504
Purchased covered loans		330,958		10,111		88		11,877		353,034
Total	$	1,983,655	$	23,738	$	393	$	29,148	$	2,036,934

	Summary of Loans by Delinquency and Nonaccrual Status At December 31, 2012
	Current and Accruing		30-89 Days Past Due and Accruing		Past Due 90 days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	333,474	$	1,032	$	-	$	5,610	$	340,116
Commercial real estate		616,276		10,750		-		5,901		632,927
Construction		7,984		-		-		-		7,984
Residential real estate		220,032		2,193		-		233		222,458
Consumer installment & other		455,007		5,205		455		31		460,698
Total originated loans		1,632,773		19,180		455		11,775		1,664,183
Purchased non-covered loans		65,567		1,821		4		7,499		74,891
Purchased covered loans		352,619		6,488		155		13,021		372,283
Total	$	2,050,959	$	27,489	$	614	$	32,295	$	2,111,357

The following is a summary of the effect of nonaccrual loans on interest income:

	For the Three Months Ended March 31,
	2013			2012
	(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	753		$	1,064
Less: Interest income recognized on nonaccrual loans		(375	)		(842	)
Total (addition) reduction of interest income	$	378		$	222

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2013 and December 31, 2012.

The following summarizes impaired loans:

	Impaired Loans At March 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	2,277	$	8,187	$	-
Commercial real estate		26,155		30,081		-
Construction		1,859		2,355		-
Residential real estate		701		702		-
Consumer installment and other		1,597		2,402		-

Impaired loans with an allowance recorded:
Commercial		9,952		11,582		1,609
Commercial real estate		2,686		2,686		584

Total:
Commercial	$	12,229	$	19,769	$	1,609
Commercial real estate		28,841		32,767		584
Construction		1,859		2,355		-
Residential real estate		701		702		-
Consumer installment and other		1,597		2,402		-

	Impaired Loans At December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	3,100	$	9,506	$	-
Commercial real estate		24,135		27,972		-
Construction		2,363		2,992		-
Residential real estate		668		668		-
Consumer installment and other		2,328		2,616		-

Impaired loans with an allowance recorded:
Commercial		12,129		13,739		2,588
Commercial real estate		4,038		4,038		164

Total:
Commercial	$	15,229	$	23,245	$	2,588
Commercial real estate		28,173		32,010		164
Construction		2,363		2,992		-
Residential real estate		668		668		-
Consumer installment and other		2,328		2,616		-

Impaired loans may include troubled debt restructured loans. Impaired loans at March 31, 2013, included $8,707 thousand of restructured loans, including $2,976 thousand that were on nonaccrual status. Impaired loans at December 31, 2012, included $6,678 thousand of restructured loans, including $988 thousand that were on nonaccrual status.

	Impaired Loans For the Three Months Ended March 31,
	2013				2012
	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
	(In thousands)
Commercial	$	13,729	$	54	$	6,576	$	50
Commercial real estate		28,507		300		32,119		378
Construction		2,111		26		6,461		100
Residential real estate		685		-		311		-
Consumer installment and other		1,963		7		2,894		18
Total	$	46,995	$	387	$	48,361	$	546

The following table provides information on troubled debt restructurings:

	Troubled Debt Restructurings At March 31, 2013
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	(In thousands)
Commercial		3	$	1,318	$	1,172	$	786
Commercial real estate		3		7,383		7,535		-
Total		6	$	8,701	$	8,707	$	786

	Troubled Debt Restructurings At December 31, 2012
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	(In thousands)
Commercial		3	$	1,318	$	1,196	$	797
Commercial real estate		2		5,391		5,482		-
Total		5	$	6,709	$	6,678	$	797

During the three months ended March 31, 2013 and 2012, the Company modified one loan in each period with carrying values of $2,009 thousand and $429 thousand, respectively that was considered a troubled debt restructuring. The concession granted in the restructuring completed in the first quarter 2013 consisted of modification of payment terms to lower the interest rate and extend the maturity date to allow for deferred principal repayment. The concession granted in the first quarter 2012 consisted of modification of payment terms to extend the maturity date to allow for deferred principal repayment. During the three months ended March 31, 2013 and 2012, no troubled debt restructured loans defaulted.

The Company pledges loans to secure borrowings from the Federal Home Loan Bank (“FHLB”). The carrying value of the FHLB advances was $25,743 thousand and $25,799 thousand at March 31, 2013 and December 31, 2012, respectively. The loans restricted due to collateral requirements approximate $28,843 thousand and $32,084 thousand at March 31, 2013 and December 31, 2012, respectively. The amount of loans pledged exceeds collateral requirements. The FHLB does not have the right to sell or repledge such loans.

There were no loans held for sale at March 31, 2013 and December 31, 2012.