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LOANS AND ALLOWANCE FOR CREDIT LOSSES
9 Months Ended
Sep. 30, 2011
Receivables [Abstract] 
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
4. LOANS AND ALLOWANCE FOR CREDIT LOSSES
 
     The compositions and carrying values of the Company’s loan portfolio, excluding loans held for sale, were as follows:
 
(Dollars in thousands)     September 30, 2011     December 31, 2010
Commercial $296,335  $309,327 
Real estate construction  26,026   44,085 
Real estate mortgage  330,790   349,016 
Commercial real estate  836,752   818,577 
Installment and other consumer  13,721   15,265 
Total loans            1,503,624            1,536,270 
Allowance for loan losses  (36,314)  (40,217)
Total loans, net $1,467,310  $1,496,053 
 
 
     The following table presents an age analysis of the loan portfolio, including nonaccrual loans, for the periods shown:
 
(Dollars in thousands) September 30, 2011
  30 - 89 days Greater than Total Current Total
      past due     90 days past due     past due     loans     loans
Commercial $1,484 $6,951 $8,435 $287,900 $296,335
Real estate construction  291  6,907  7,198  18,828  26,026
Real estate mortgage  5,930  5,767  11,697  319,093  330,790
Commercial real estate  7,106  10,353  17,459  819,293  836,752
Installment and other consumer  88  1  89  13,632  13,721
Total $14,899 $29,979 $44,878 $1,458,746 $1,503,624
  
(Dollars in thousands) December 31, 2010
  30 - 89 days Greater than Total Current Total
  past due 90 days past due past due loans loans
Commercial $953 $9,984 $10,937 $298,390 $309,327
Real estate construction  2,098  4,039  6,137  37,948  44,085
Real estate mortgage  4,662  5,669  10,331  338,685  349,016
Commercial real estate  3,988  12,157  16,145  802,432  818,577
Installment and other consumer  53  -  53  15,212  15,265
Total $       11,754 $31,849 $       43,603 $       1,492,667 $       1,536,270
 
 
     Loans greater than 90 days past due are classified into nonaccrual status. In addition, certain loans not 90 days past due are on nonaccrual status.
 
     The following table presents an analysis of impaired loans for the periods shown:
 
                 Quarter ended
(Dollars in thousands) September 30, 2011 September 30, 2011
  Unpaid principal Impaired loans Impaired loans Total impaired Related Average impaired
      balance1     with no allowance     with allowance     loan balance     allowance     loan balance
Commercial $20,776 $9,987 $157 $10,144 $- $11,287
Real estate construction  10,944  7,197  41  7,238  -  8,947
Real estate mortgage  35,185  14,162  7,454  21,616  338  21,278
Commercial real estate  29,796  21,513  5,777  27,290  71  26,225
Installment and other consumer  1,659  6  137  143  -  19
Total $98,360 $52,865 $13,566 $66,431 $409 $67,756
 
                 Quarter ended
(Dollars in thousands) December 31, 2010 December 31, 2010
  Unpaid principal Impaired loans Impaired loans Total impaired Related Average impaired
  balance1 with no allowance with allowance loan balance allowance loan balance
Commercial $22,692 $13,377 $1,679 $15,056 $2 $19,992
Real estate construction  15,570  10,692  323  11,015  2  20,191
Real estate mortgage  28,856  15,491  7,828  23,319  443  20,610
Commercial real estate  28,717  21,648  5,634  27,282  103  17,187
Installment and other consumer  -  -  -  -  -  45
Total $95,835 $61,208 $15,464 $76,672 $550 $78,025
 
 
1The unpaid principal balance on impaired loans represents the amount owed by the borrower. The carrying value of impaired loans is lower than the unpaid principal balance due to charge-offs.
 
     A loan is accounted for as a troubled debt restructure (“TDR”) if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider granting. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk.
 
     The following table presents an analysis of TDRs for the periods ended September 30, 2011, and September 30, 2010:
 
(Dollars in thousands) TDRs recorded for the three months ending TDRs recorded in the 12 months prior to September 30, 2011 that
  September 30, 2011 subsequently defaulted in the three months ending September 30, 2011
  Number of Pre-TDR outstanding Post-TDR outstanding Number of Pre-TDR outstanding Post-TDR outstanding
      loans     recorded investment     recorded investment     loans     recorded investment     recorded investment
Commercial 1 $95 $95 2 $64  $61
Real estate construction -  -  - -  -  -
Real estate mortgage 4  751  745 1  59  59
Commercial real estate 2  424  421 2  356  356
Consumer loans 2  138  137 -  -  -
Total 9 $1,408 $1,398 5 $479 $476
    
(Dollars in thousands) TDRs recorded for the three months ending TDRs recorded in the 12 months prior to September 30, 2010 that
  September 30, 2010 subsequently defaulted in the three months ending September 30, 2010
  Number of Pre-TDR outstanding Post-TDR outstanding Number of Pre-TDR outstanding Post-TDR outstanding
  loans recorded investment recorded investment loans recorded investment recorded investment
Commercial 2 $110 $110 - $- $-
Real estate construction -  -  - 1  850  845
Real estate mortgage 2  433  430 -  -  -
Commercial real estate 1  687  681 -  -  -
Total 5 $1,230 $1,221 1 $850  $845
 
 
(Dollars in thousands) TDRs recorded for the nine months ending TDRs recorded in the 12 months prior to September 30, 2011 that
  September 30, 2011 subsequently defaulted in the nine months ending September 30, 2011
  Number of Pre-TDR outstanding Post-TDR outstanding Number of Pre-TDR outstanding Post-TDR outstanding
  loans recorded investment recorded investment loans recorded investment recorded investment
Commercial 10 $904     $874 2 $64 $61
Real estate construction 1  1,008  744 1  983  983
Real estate mortgage 9  2,822  2,803 1  59  59
Commercial real estate 5  1,341  1,334 2  356  356
Consumer loans 2  138  137 -  -  -
Total 27 $6,213 $     5,892 6 $1,462 $1,459
 
(Dollars in thousands) TDRs recorded for the nine months ending TDRs recorded in the 12 months prior to September 30, 2010 that
  September 30, 2010 subsequently defaulted in the nine months ending September 30, 2010
  Number of Pre-TDR outstanding Post-TDR outstanding Number of     Pre-TDR outstanding Post-TDR outstanding
      loans     recorded investment recorded investment loans recorded investment recorded investment
Commercial 17 $3,680 $3,570 - $-     $-
Real estate construction 10  3,729  3,555 1  850  845
Real estate mortgage 7  2,558  2,549 2  335  335
Commercial real estate 4  13,705  13,216 -  -  -
Total 38 $23,672 $22,890     3 $     1,185 $     1,180
                  
     TDRs are considered impaired and as such are typically measured based on the fair value of the collateral less selling costs. For TDRs that are collateral dependent, the Company charges off the amount of impairment at the time of impairment, rather than creating a specific reserve for the impairment amount.
 
     The following table presents nonaccrual loans by category as of the dates shown:
 
 September 30, December 31,
(Dollars in thousands)2011 2010
Commercial$9,987 $13,377
Real estate construction 7,197  10,692
Real estate mortgage 14,162  15,491
Commercial real estate 21,513  21,671
Installment and other consumer 6  -
       Total loans on nonaccrual status$     52,865     $     61,231
      
 
     The Company uses a risk rating matrix to assign a risk rating to loans not evaluated on a homogenous pool level. At September 30, 2011, $1.10 billion of loans were risk rated and $403.6 million were evaluated on a homogeneous pool basis. Individually risk rated loans are rated on a scale of 1 to 10. A description of the general characteristics of the 10 risk ratings is as follows:
  • Ratings 1, 2 and 3 - These ratings include loans to very high credit quality borrowers of investment or near investment grade. These borrowers have significant capital strength, moderate leverage, stable earnings and growth, and readily available financing alternatives. Smaller entities, regardless of strength, would generally not fit in these ratings. These ratings also include loans that are collateralized by U. S. Government securities or certificates of deposits.
      
  • Rating 4 - These ratings include loans to borrowers of solid credit quality with moderate risk. Borrowers in these ratings are differentiated from higher ratings on the basis of size (capital and/or revenue), leverage, asset quality and the stability of the industry or market area.
      
  • Ratings 5 and 6 - These ratings include “pass rating” loans to borrowers of acceptable credit quality and risk. Such borrowers are differentiated from Rating 4 in terms of size, secondary sources of repayment or they are of lesser stature in other key credit metrics in that they may be over-leveraged, undercapitalized, inconsistent in performance or in an industry or an economic area that is known to have a higher level of risk, volatility, or susceptibility to weaknesses in the economy. However, no material adverse trends are evident with borrowers in these pass ratings.
      
  • Rating 7 - This rating includes loans on management’s “watch list” and is intended to be utilized on a temporary basis for pass rating borrowers where a significant risk-modifying action is anticipated in the near term.
     
  • Rating 8 - This rating includes “Substandard” loans, in accordance with regulatory guidelines, for which the accrual of interest may or may not been discontinued. By definition under regulatory guidelines, a “Substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business.
     
  • Rating 9 - This rating includes “Doubtful” loans in accordance with regulatory guidelines. Such loans are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty.
     
  • Rating 10 - This rating includes “Loss” loans in accordance with regulatory guidelines. Such loans are to be charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt. 
     The Company considers loans assigned a risk rating 8 through 10 to be classified loans. The following table presents weighted average risk ratings of the loan portfolio and classified loans by category. The weighted average risk ratings did not exhibit material change from December 31, 2010, to September 30, 2011. Overall classified loans have contracted from December 31, 2010, with reductions in classified commercial and real estate construction balances more than offsetting increases in real estate mortgage and commercial real estate categories during the first nine months of 2011.
 
(Dollars in thousands) September 30, 2011 December 31, 2010
  Weighted average Classified Weighted average Classified
      risk rating     loans     risk rating     loans
Commercial  5.88 $23,192  5.89 $32,895
Real estate construction  7.22  13,060  7.33  24,131
Real estate mortgage  6.56  26,913  6.34  20,913
Commercial real estate  5.73  47,286  5.75  42,045
Installment and other consumer1  7.70  327  7.41  137
Total    $    110,778    $     120,121
   
Total loans risk rated $     1,099,999    $     1,096,859   
 
1 Installment and other consumer loans are primarily evalued on a homogenous pool level and generally not individually risk rated unless certain factors are met.
 
     The following table presents homogeneous loans where credit risk is evaluated on a portfolio basis by category, and includes home equity lines of credit and certain small business loans. Important credit quality metrics for this portfolio include balances on nonaccrual and past due status. Total loans and lines evaluated on a homogeneous pool basis were $403.6 million at September 30, 2011, and $439.4 million at December 31, 2010. As shown in the table below, such balances on nonaccrual status declined from $7.7 million at December 31, 2010, to $18,000 at September 30, 2011. During first quarter of 2011, due to the unique nature of nonstandard mortgages, the methodology for risk rating these loans was modified. This procedural change resulted in the movement of 35 notes with total commitments of $6.4 million from the homogenous pool to the individually risk rated portfolio. This change did not have a significant impact on the allowance for credit losses.
 
(Dollars in thousands) September 30, 2011 December 31, 2010
  Current Nonaccrual 30 - 89 days Current Nonaccrual 30 - 89 days
      status status     past due     status status past due
Commercial $47,495     $     1 $340 $54,217 $245     $7
Real estate construction  -  4  -  -  1,136  -
Real estate mortgage  257,246  12  553  269,862  4,958  1,931
Commercial real estate  84,578  1  141  90,782  1,334  8
Installment and other consumer  13,194  -  88  14,878  -  52
Total $     402,513 $18 $     1,122 $     429,739     $     7,673 $     1,998
                   
 
     The following table presents summary account activity relating to the allowance for credit losses by loan category for the periods shown:
 
(Dollars in thousands) Three months ended September 30, 2011
      Real estate Real estate Commercial Installment and        
      Commercial construction mortgage real estate     other consumer     Unallocated Total
Beginning balance June 30, 2011 $     7,858      $2,395  $     8,740  $13,834  $     984  $5,420  $39,231 
Provision for credit losses  974   93   667   (242)  372   (732)  1,132 
Losses charged to the allowance  (1,462)  (567)  (804)  (800)  (311)  -   (3,944)
Recoveries credited to the allowance  281   182   42   21   71   -   597 
Ending balance September 30, 2011 $7,651  $2,103  $8,645  $12,813  $1,116  $     4,688  $37,016 
  
(Dollars in thousands) Nine months ended September 30, 2011
      Real estate Real estate Commercial Installment and        
  Commercial construction mortgage real estate other consumer Unallocated Total
Beginning balance December 31, 2010 $8,541  $4,474  $8,156  $12,462  $1,273  $6,161  $41,067 
Provision for credit losses  875   (749)  5,137   2,017   827   (1,473)  6,634 
Losses charged to the allowance  (2,683)  (1,810)  (4,821)  (1,693)  (1,211)  -   (12,218)
Recoveries credited to the allowance  918   188   173   27   227   -   1,533 
Ending balance September 30, 2011 $7,651  $2,103  $8,645  $12,813  $1,116  $4,688  $37,016 
    
Loans valued for impairment:                            
Individually $10,144  $7,238  $21,616  $27,290  $143  $-  $66,431 
Collectively  286,191   18,788   309,174   809,462   13,578   -   1,437,193 
Total $296,335  $26,026  $330,790  $836,752  $13,721  $-  $1,503,624 
   
(Dollars in thousands) Twelve months ended December 31, 2010
      Real estate Real estate Commercial Installment and        
  Commercial construction mortgage real estate other consumer Unallocated Total
Beginning balance December 31, 2009 $8,224  $     7,240      $8,211  $9,492  $1,294  $4,957  $39,418 
Provision for credit losses  4,474   113   7,025   4,262   1,574   1,204   18,652 
Losses charged to the allowance  (5,229)  (3,576)  (7,461)  (1,321)  (1,889)  -   (19,476)
Recoveries credited to the allowance  1,072   697   381   29   294   -   2,473 
Ending balance at December 31, 2010 $8,541  $4,474  $8,156  $12,462  $1,273  $6,161  $41,067 
  
Loans valued for impairment:                            
Individually $15,056  $11,015  $23,319  $27,282  $-  $-  $76,672 
Collectively  294,271   33,070   325,697   791,295   15,265   -   1,459,598 
Total $309,327  $44,085  $349,016      $     818,577  $15,265  $-      $     1,536,270 
                              
     The following table shows the components of the allowance for credit losses:
 
(Dollars in thousands)     September 30, 2011     September 30, 2010
       Allowance for loan losses $36,314 $     41,753
       Reserve for unfunded commitments  702  865
Total allowance for credit losses $     37,016 $42,618
       
     The reserve for unfunded commitments was included in other liabilities as of September 30, 2011 and 2010.