Impaired Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2011

Impaired Loans and Allowance for Loan Losses [Abstract]

Impaired Loans and Allowance for Loan Losses

Note F    Impaired Loans and Allowance for Loan Losses

During the third quarter of 2011, the Company adopted Accounting Standards Update (ASU) 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (“TDR”) (Topic 310), which modified guidance for identifying restructurings of receivables that constitute a TDR. As a result of adopting the provisions of ASU 2011-02, the Company reassessed all loan modifications that occurred after December 31, 2010 for identification as TDRs. The Company did not identify any loans that were previously measured under general allowance for credit losses methodology as TDRs. The Company adopted the provisions of the ASU that require impaired loan accounting and reporting for newly identified TDRs as of July 1, 2011. During 2011, the total of newly identified TDRs was $31.2 million, of which $0.3 million were accruing construction and land development loans, $6.4 million were accruing residential real estate mortgages, $20.7 million were accruing commercial real estate loans, and $0.2 million were accruing consumer loans. Loans modified, but where full collection under the modified terms is doubtful, are classified as nonaccrual loans from the date of modification and are therefore excluded from the tables below.

The Company's TDR concessions granted generally do not include forgiveness of principal balances. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.

When a loan is modified as a TDR, there is not a direct, material impact on the loans within the Consolidated Balance Sheet, as principal balances are generally not forgiven. All loans prior to modification were classified as an impaired loan and the allowance for loan losses is determined in accordance with its policy as disclosed in Note A. The following table presents loans that were modified within the twelve months ending December 31, 2011:

			Pre-		Post-
			Modification		Modification
	Number		Outstanding		Outstanding		Specific		Valuation
	of		Recorded		Recorded		Reserve		Allowance
	Contracts		Investment		Investment		Recorded		Recorded
			(Dollars in Thousands)
Construction and land development		6	$	340	$	335	$	—	$	6
Residential real estate		29		6,408		6,221		—		188
Commercial real estate		12		20,694		19,027		—		1,667
Commercial and financial		1		9		8		—		—
Consumer		4		187		156		—		30
		52	$	27,638	$	25,747	$	—	$	1,891

Accruing loans that were restructured within the twelve months ending December 31, 2011 and defaulted during the twelve months ended December 31, 2011 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual and specific allowance for loan loss is assigned in accordance with the Company's policy as disclosed in note A.

	Number of Contracts		Recorded Investment
	(Dollars in Thousands)
Construction and land development		1	$	37
Residential real estate		1		220
Commercial real estate		—		—
Commercial and financial		1		8
Consumer		—		—
		3	$	265

At December 31, 2011 and 2010, the Company's recorded investment in impaired loans and related valuation allowance was as follows:

	Impaired Loans
	for the Year Ended December 31, 2011
			Unpaid		Related		Average		Interest
	Recorded		Principal		Valuation		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
With no related allowance recorded:
Construction and land development	$	1,616	$	2,431	$	—	$	2,527	$	14
Commercial real estate		19,101		22,219		—		21,221		425
Residential real estate		9,128		13,442		—		8,752		155
Commercial and financial		16		16		—		774		2
Consumer		481		523		—		417		2
With an allowance recorded:
Construction and land development		3,777		4,131		375		13,699		153
Commercial real estate		39,199		39,824		3,385		44,369		1,843
Residential real estate		26,140		26,940		3,099		26,869		913
Commercial and financial		101		101		8		154		3
Consumer		578		584		112		746		31
Total:
Construction and land development		5,393		6,562		375		16,226		167
Commercial real estate		58,300		62,043		3,385		65,590		2,268
Residential real estate		35,268		40,382		3,099		35,621		1,068
Commercial and financial		117		117		8		928		5
Consumer		1,059		1,107		112		1,163		33
	$	100,137	$	110,211	$	6,979	$	119,528	$	3,541

	Impaired Loans
	for the Year Ended December 31, 2010
			Unpaid		Related		Average		Interest
	Recorded		Principal		Valuation		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
With no related allowance recorded:
Construction and land development	$	3,826	$	9,243	$	—			$	29
Commercial real estate		22,365		27,962		—				382
Residential real estate		9,731		14,561		—				54
Commercial and financial		4,607		4,721		—				—
Consumer		5		5		—				1
With an allowance recorded:
Construction and land development		29,425		32,232		5,076				211
Commercial real estate		36,421		42,173		5,404				1,198
Residential real estate		26,887		27,188		3,640				741
Commercial and financial		104		104		9				—
Consumer		1,263		1,271		233				55
Total:
Construction and land development		33,251		41,475		5,076	$	51,583		240
Commercial real estate		58,786		70,135		5,404		61,448		1,580
Residential real estate		36,618		41,749		3,640		31,174		795
Commercial and financial		4,711		4,825		9		3,016		—
Consumer		1,268		1,276		233		1,837		56
	$	134,634	$	159,460	$	14,362	$	149,058	$	2,671

Impaired loans also include loans that have been modified in troubled debt restructurings (“TDRs”) where concessions to borrowers who experienced financial difficulties have been granted. At December 31, 2011 and 2010, accruing TDRs totaled $71.6 million and $66.4 million, respectively.

In March 2012, the Company concluded that the lead bank in a $14.6 million participation classified as a TDR may not renew their borrower’s loan, and instead proceed with foreclosure when the loan matures in November 2012. These facts could alter the loan’s status as an accruing TDR in the first quarter 2012, at which point management expects that an additional valuation allowance of approximately $2.1 million would be recorded.

The valuation allowance is included in the allowance for loan losses. The average recorded investment in impaired loans for the years ended December 31, 2011, 2010 and 2009 was $119,528,000, $149,058,000 and $137,295,000, respectively. The impaired loans were measured for impairment based primarily on the value of underlying collateral.

Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions to principal. For the years ended December 31, 2011, 2010 and 2009, the Company recorded $3,541,000, $2,671,000 and $708,000, respectively, in interest income on impaired loans.

The nonaccrual loans and accruing loans past due 90 days or more were $28,526,000 and $0, respectively, at December 31, 2011, $68,284,000 and $0. respectively at the end of 2010, and were $97,876,000 and $156,000, respectively, at year-end 2009.

Transactions in the allowance for loans losses for the three years ended December 31, 2011, 2010 and 2009 are summarized as follows:

December 31 , 2011	Beginning Balance		Provision for Loan Losses			Charge- Offs			Recoveries		Net Charge- Offs			Ending Balance
	(In thousands)
Construction and land development	$	7,214	$	(1,645	)	$	(4,739	)	$	1,053	$	(3,686	)	$	1,883
Commercial real estate		18,563		(3,777	)		(3,663	)		354		(3,309	)		11,477
Residential real estate		10,102		7,833			(7,482	)		513		(6,969	)		10,966
Commercial and financial		480		(379	)		—			301		301			402
Consumer		1,385		(58	)		(562	)		72		(490	)		837
	$	37,744	$	1,974		$	(16,446	)	$	2,293	$	(14,153	)	$	25,565
December 31, 2010	$	45,192	$	31,680		$	(41,628	)	$	2,500	$	(39,128	)	$	37,744
December 31, 2009	$	29,388	$	124,767		$	(110,826	)	$	1,863	$	(108,963	)	$	45,192

As discussed in Note A, “Significant Accounting Policies,” the allowance for loan losses is composed of specific allowances for certain impaired loans and general allowances grouped into loan pools based on similar characteristics. The Company's loan portfolio and related allowance at December 31, 2011 and 2010 is shown in the following tables.

	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
December 31, 2011	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
	(In thousands)
Construction and land development	$	5,393	$	375	$	43,791	$	1,508	$	49,184	$	1,883
Commercial real estate		58,300		3,385		450,053		8,092		508,353		11,477
Residential real estate		35,268		3,099		510,978		7,867		546,246		10,966
Commercial and financial		117		8		52,988		394		53,105		402
Consumer		1,059		112		50,127		725		51,186		837
	$	100,137	$	6,979	$	1,107,937	$	18,586	$	1,208,074	$	25,565

	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
December 31, 2010	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
	(In thousands)
Construction and land development	$	33,251	$	5,076	$	46,055	$	2,138	$	79,306	$	7,214
Commercial real estate		58,786		5,404		484,817		13,159		543,603		18,563
Residential real estate		36,618		3,640		480,376		6,462		516,994		10,102
Commercial and financial		4,711		9		44,114		471		48,825		480
Consumer		1,268		233		50,612		1,152		51,880		1,385
	$	134,634	$	14,362	$	1,105,974	$	23,382	$	1,240,608	$	37,744