Note 4 - Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2013

Loans And Allowance For Credit Losses [Text Block]

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 June 30, 2013
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment & Other			Total
	(In thousands)
Originated loans	$	309,621		$	614,005		$	8,015		$	195,322		$	426,340		$	1,553,303
Purchased covered loans:
Impaired		284			6,211			1,649			-			254			8,398
Non impaired		42,386			220,054			4,805			9,280			58,567			335,092
Purchase discount		(5,058	)		(11,597	)		(99	)		(434	)		(1,326	)		(18,514	)
Purchased non-covered loans:
Impaired		660			2,621			-			-			198			3,479
Non impaired		8,170			34,758			1,330			1,015			15,919			61,192
Purchase discount		(876	)		(1,002	)		-			(262	)		(1,469	)		(3,609	)
Total	$	355,187		$	865,050		$	15,700		$	204,921		$	498,483		$	1,939,341

	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 Six Months Ended June 30, 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		(605	)		(10,726	)
Carrying amount at the end of the period	$	7,260		$	7,865

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

	For the Six Months Ended June 30, 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		(4,166	)		(8,808	)
Carrying amount at the end of the period	$	2,598		$	6,764

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

	For the Six Months Ended June 30, 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		8,864			12,121
Accretion		(7,363	)		(17,163	)
Disposals and other		-			-
Balance at the end of the period	$	6,449		$	4,948
Accretion	$	(7,363	)	$	(17,163	)
Reduction in FDIC indemnification asset		5,759			13,207
(Increase) in interest income	$	(1,604	)	$	(3,956	)

The following summarizes activity in the allowance for credit losses:

	Allowance for Credit Losses For the Three Months Ended June 30, 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	$	5,536		$	10,965		$	480		$	539		$	2,768		$	-		$	738		$	9,328	$	30,354
Additions:
Provision		(1,301	)		660			(2	)		15			225			116			46			2,041		1,800
Deductions:
Chargeoffs		(148	)		(427	)		-			(22	)		(896	)		(116	)		(517	)		-		(2,126	)
Recoveries		297			77			-			-			506			-			18			-		898
Net loan recoveries (losses)		149			(350	)		-			(22	)		(390	)		(116	)		(499	)		-		(1,228	)
Balance at end of period		4,384			11,275			478			532			2,603			-			285			11,369		30,926
Liability for off-balance sheet credit exposure		1,698			1			127			-			473			-			-			394		2,693
Total allowance for credit losses	$	6,082		$	11,276		$	605		$	532		$	3,076		$	-		$	285		$	11,763	$	33,619

	Allowance for Credit Losses For the Six Months Ended June 30, 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		(770	)		1,653			(6	)		261			507			116			133			2,706		4,600
Deductions:
Chargeoffs		(2,050	)		(539	)		-			(109	)		(2,205	)		(116	)		(876	)		-		(5,895	)
Recoveries		759			98			-			-			1,107			-			23			-		1,987
Net loan losses		(1,291	)		(441	)		-			(109	)		(1,098	)		(116	)		(853	)		-		(3,908	)
Balance at end of period		4,384			11,275			478			532			2,603			-			285			11,369		30,926
Liability for off-balance sheet credit exposure		1,698			1			127			-			473			-			-			394		2,693
Total allowance for credit losses	$	6,082		$	11,276		$	605		$	532		$	3,076		$	-		$	285		$	11,763	$	33,619

	Allowance for Credit Losses For the Three Months Ended June 30, 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 loan losses:
Balance at beginning of period	$	6,814		$	11,427		$	2,755		$	645		$	2,825		$	-		$	139		$	7,278	$	31,883
Additions:
Provision		1,984			(1,561	)		(270	)		19			817			25			324			1,462		2,800
Deductions:
Chargeoffs		(2,696	)		-			-			(62	)		(1,211	)		(25	)		(247	)		-		(4,241	)
Recoveries		228			33			196			-			600			-			24			-		1,081
Net loan (losses) recoveries		(2,468	)		33			196			(62	)		(611	)		(25	)		(223	)		-		(3,160	)
Balance at end of period		6,330			9,899			2,681			602			3,031			-			240			8,740		31,523
Liability for off-balance sheet credit exposure		1,644			16			12			-			384			-			-			637		2,693
Total allowance for credit losses	$	7,974		$	9,915		$	2,693		$	602		$	3,415		$	-		$	240		$	9,377	$	34,216

	Allowance for Credit Losses For the Six Months Ended June 30, 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 loan losses:
Balance at beginning of period	$	6,012		$	10,611		$	2,342	$	781		$	3,072		$	-		$	-		$	9,779		$	32,597
Additions:
Provision		3,259			203			141		753			1,444			25			814			(1,039	)		5,600
Deductions:
Chargeoffs		(3,558	)		(948	)		-		(932	)		(2,864	)		(25	)		(612	)		-			(8,939	)
Recoveries		617			33			198		-			1,379			-			38			-			2,265
Net loan (losses) recoveries		(2,941	)		(915	)		198		(932	)		(1,485	)		(25	)		(574	)		-			(6,674	)
Balance at end of period		6,330			9,899			2,681		602			3,031			-			240			8,740			31,523
Liability for off-balance sheet credit exposure		1,644			16			12		-			384			-			-			637			2,693
Total allowance for credit losses	$	7,974		$	9,915		$	2,693	$	602		$	3,415		$	-		$	240		$	9,377		$	34,216

The recorded investment in loans evaluated for impairment follows:

	Allowance for Credit Losses and Recorded Investment in Loans Evaluated for Impairment At June 30, 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	$	100	$	-	$	-	$	-	$	-	$	-	$	147	$	-	$	247
Collectively evaluated for impairment		5,982		11,276		605		532		3,076		-		138		11,763		33,372
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-
Total	$	6,082	$	11,276	$	605	$	532	$	3,076	$	-	$	285	$	11,763	$	33,619
Carrying value of loans:
Individually evaluated for impairment	$	2,496	$	4,421	$	-	$	-	$	-	$	3,990	$	15,169	$	-	$	26,076
Collectively evaluated for impairment		307,125		609,584		8,015		195,322		426,340		54,474		302,547		-		1,903,407
Purchased loans with evidence of credit deterioration		-		-		-		-		-		2,598		7,260		-		9,858
Total	$	309,621	$	614,005	$	8,015	$	195,322	$	426,340	$	61,062	$	324,976	$	-	$	1,939,341

	Allowance for Credit Losses and 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 June 30, 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	$	297,214	$	568,854	$	7,557	$	192,790	$	424,989	$	44,635		$	227,835		$	1,763,874
Substandard		10,271		45,151		458		2,532		1,137		19,049			115,255			193,853
Doubtful		2,136		-		-		-		8		987			350			3,481
Loss		-		-		-		-		206		-			50			256
Default risk purchase discount		-		-		-		-		-		(3,609	)		(18,514	)		(22,123	)
Total	$	309,621	$	614,005	$	8,015	$	195,322	$	426,340	$	61,062		$	324,976		$	1,939,341

 (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 June 30, 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	$	304,644	$	2,302	$	-	$	2,675	$	309,621
Commercial real estate		593,883		14,275		-		5,847		614,005
Construction		8,015		-		-		-		8,015
Residential real estate		194,348		560		-		414		195,322
Consumer installment & other		422,702		3,397		241		-		426,340
Total originated loans		1,523,592		20,534		241		8,936		1,553,303
Purchased non-covered loans		54,447		1,712		-		4,903		61,062
Purchased covered loans		300,332		7,747		74		16,823		324,976
Total	$	1,878,371	$	29,993	$	315	$	30,662	$	1,939,341

	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						For the Six Months
	Ended June 30,
	2013			2012			2013			2012
	(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	634		$	1,104		$	1,388		$	2,168
Less: Interest income recognized on nonaccrual loans		(203	)		(494	)		(578	)		(1,336	)
Total reduction of interest income	$	431		$	610		$	810		$	832

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2013 and December 31, 2012.

The following summarizes impaired loans:

	Impaired Loans At June 30, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	9,717	$	17,846	$	-
Commercial real estate		21,536		24,652		-
Construction		2,935		3,369		-
Residential real estate		414		414		-
Consumer installment and other		521		627		-
Impaired loans with an allowance recorded:
Commercial		1,000		2,173		100
Commercial real estate		3,954		3,954		147
Total:
Commercial	$	10,717	$	20,019	$	100
Commercial real estate		25,490		28,606		147
Construction		2,935		3,369		-
Residential real estate		414		414		-
Consumer installment and other		521		627		-

	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 June 30, 2013, included $8,014 thousand of restructured loans, including $7,358 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 June 30,								For the Six Months Ended June 30,
	2013				2012				2013				2012
	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
	(In thousands)
Commercial	$	11,473	$	52	$	9,888	$	67	$	12,601	$	106	$	9,342	$	117
Commercial real estate		27,166		205		30,228		349		27,836		505		31,416		727
Construction		2,397		25		7,552		59		2,254		51		7,981		159
Residential real estate		558		-		1,112		-		621		-		957		-
Consumer installment and other		1,059		8		2,825		8		1,511		15		2,873		26
Total	$	42,653	$	290	$	51,605	$	483	$	44,823	$	677	$	52,569	$	1,029

The following table provides information on troubled debt restructurings:

	Troubled Debt Restructurings At June 30, 2013
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	(In thousands)
Commercial		4	$	1,991	$	1,759	$	-
Commercial real estate		3		6,295		6,255		147
Total		7	$	8,286	$	8,014	$	147

	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 and six months ended June 30, 2013, the Company modified three loans with a total carrying value of $1,010 thousand and four loans with a total carrying value of $3,019 thousand, respectively, that were considered troubled debt restructurings. During the three and six months ended June 30, 2012, the Company modified one loan with a carrying value of $429 thousand and two loans totaling $1,817 thousand, respectively, that were considered troubled debt restructurings. The concessions granted in the four restructurings completed in the first six months of 2013 consisted of modification of payment terms to lower the interest rate and extend the maturity date to allow for deferred principal repayment. The concessions granted in the restructurings completed during the first six months of 2012 largely consisted of modification of payment terms extending the maturity date to allow for deferred principal repayment. During the three and six months ended June 30, 2013, a commercial real estate loan with a carrying value of $3,954 thousand defaulted. During the three and six months ended June 30, 2012, a construction loan with a carrying value of $3,068 thousand defaulted.

The Company pledges loans to secure borrowings from the Federal Home Loan Bank (“FHLB”). The carrying value of the FHLB advances was $25,687 thousand and $25,799 thousand at June 30, 2013 and December 31, 2012, respectively. The loans restricted due to collateral requirements approximate $28,492 thousand and $32,084 thousand at June 30, 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 June 30, 2013 and December 31, 2012.