Loans

9 Months Ended

Sep. 30, 2011

NOTE 4 — LOANS

Due to the Bank Merger, the Company reported no loans on its Consolidated Balance Sheet as of September 30, 2011 (Successor). All of the disclosures in this section are related to the Predecessor Company. The composition of the loan portfolio by loan type as of December 31, 2010 (Predecessor) was as follows:


	December 31,
	2010

Commercial real estate	$	1,080,805
Residential real estate		378,783
Commercial		222,927
Consumer		75,498
Other		1,913
Unearned income		(14,548	)

Loans, net of unearned income	$	1,745,378


Allowance for loan losses	$	(66,830	)

Activity in the allowance for loan losses was as follows:


	Jan 1 - Sept 7			Jan 1 to Sept 30,
	2011			2010

Beginning balance	$	66,830		$	50,161
Add (deduct):
Provision for loan losses		43,742			45,461
Loans charged off		(40,814	)		(47,248	)
Recoveries of loans charged off		1,987			1,948

Balance, end of period	$	71,745		$	50,322

Activity in the allowance for loan losses and recorded investment in loans by segment:

July 1 to Sept 7, 2011 Allowance Rollforward:


	Commercial			Residential
Predecessor Company	Real Estate			Real Estate			Commercial			Consumer			Other		Total

Allowance for Loan losses:
Beginning balance, July 1, 2011	$	49,472		$	4,897		$	5,523		$	2,828		$	8	$	62,728
Add (deduct);
Charge-off’s		(4,763	)		(647	)		(1,328	)		(444	)		—		(7,182	)
Recoveries		313			89			137			147			—		686
Provision		12,928			720			1,618			247					15,513

Ending balance, September 7, 2011	$	57,950		$	5,059		$	5,950		$	2,778		$	8	$	71,745

January 1 to Sept 7, 2011 Allowance Rollforward:


	Commercial			Residential
Predecessor Company	Real Estate			Real Estate			Commercial			Consumer			Other		Total

Allowance for Loan losses:
Beginning balance, January 1, 2011	$	54,203		$	4,431		$	5,080		$	3,108		$	8	$	66,830
Add (deduct);
Charge-off’s		(34,538	)		(1,466	)		(3,397	)		(1,413	)		—		(40,814	)
Recoveries		726			142			633			486			—		1,987
Provision		37,559			1,952			3,634			597			—		43,742

Ending balance, September 7, 2011	$	57,950		$	5,059		$	5,950		$	2,778		$	8	$	71,745


Allowance for Loan Losses:	Commercial		Residential
Predecessor Company	Real Estate		Real Estate		Commercial		Consumer		Other		Total

As of December 31, 2010
Allocation for loans individually evaluated for impairment	$	22,939	$	1,027	$	722	$	146	$	—	$	24,834
Allocation for loans collectively evaluated for impairment		31,264		3,404		4,358		2,962		8		41,996


Ending Balance	$	54,203	$	4,431	$	5,080	$	3,108	$	8	$	66,830

Impaired loans by class are presented below as of December 31, 2010 (Predecessor Company):


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized

Commercial Real Estate:
Speculative 1-4 Family	$	72,138	$	98,141	$	11,830	$	85,487	$	2,292
Construction		56,758		69,355		8,366		63,710		2,565
Owner Occupied		13,590		14,513		851		14,119		644
Non-owner Occupied		25,824		27,561		1,823		28,786		1,375
Other		1,865		2,090		69		2,278		66
Residential Real Estate:
HELOC		2,807		2,894		346		2,603		88
Mortgage-Prime		4,539		4,722		590		4,661		209
Mortgage-Subprime		370		370		57		370		—
Other		981		1,285		34		2,419		47
Commercial:		6,149		7,510		722		6,729		171
Consumer:
Prime		217		228		32		252		13
Subprime		228		228		35		228		—
Auto-Subprime		525		525		79		525		—
Other:		—		—		—		—		—

Total		185,991		229,422		24,834		212,167		7,470

The Predecessor Company managed the loan portfolio by assigning one of nine credit risk ratings based on an internal assessment of credit risk. The credit risk categories are prime, desirable, satisfactory I or pass, satisfactory II, acceptable with care, management watch, substandard, and loss.

Prime credit risk rating: Assets of this grade are the highest quality credits of the Bank. They exceed substantially all the Bank’s underwriting criteria, and provide superior protection for the Bank through the paying capacity of the borrower and value of the collateral. The Bank’s credit risk is considered to be negligible. Included in this section are well-established borrowers with significant, diversified sources of income and net worth, or borrowers with ready access to alternative financing and unquestioned ability to meet debt obligations as agreed. A loan secured by cash or other highly liquid collateral, where the Bank holds such collateral, may be assigned this grade.

Desirable credit risk rating: Assets of this grade also exceed substantially all of the Bank’s underwriting criteria; however, they may lack the consistent long-term performance of a Prime rated credit. The credit risk to the Bank is considered minimal on these assets. Paying capacity of the borrower is still very strong with favorable trends and the value of the collateral is considered more than adequate to protect the Bank. Unsecured loans to borrowers with above-average earnings, liquidity and capital may be assigned this grade.

Satisfactory I credit risk rating or pass credit rating: Assets of this grade conform to all of the Bank’s underwriting criteria and evidence a below-average level of credit risk. Borrower’s paying capacity is strong, with stable trends. If the borrower is a company, its earnings, liquidity and capitalization compare favorably to typical companies in its industry. The credit is well structured and serviced. Secondary sources of repayment are considered to be good. Payment history is good, and borrower consistently complies with all major covenants.

Satisfactory II credit risk rating: Assets of this grade conform to substantially all of the Bank’s underwriting criteria and evidence an average level of credit risk. However, such assets display more susceptibility to economic, technological or political changes since they lack the above-average financial strength of credits rated Satisfactory Tier I. Borrower’s repayment capacity is considered to be adequate. Credit is appropriately structured and serviced; payment history is satisfactory.

Acceptable with care credit risk rating: Assets of this grade conform to most of the Bank’s underwriting criteria and evidence an acceptable, though higher than average, level of credit risk. However, these loans have certain risk characteristics that could adversely affect the borrower’s ability to repay, given material adverse trends. Therefore, loans in this category require an above-average level of servicing or show more reliance on collateral and guaranties to preclude a loss to the Bank, should material adverse trends develop. If the borrower is a company, its earnings, liquidity and capitalization are slightly below average, when compared to its peers.

Management watch credit risk rating: Assets included in this category are currently protected but are potentially weak. These assets constitute an undue and unwarranted credit risk but do not presently expose the Bank to a sufficient degree of risk to warrant adverse classification. However, Management Watch assets do possess credit deficiencies deserving management’s close attention. If not corrected, such weaknesses or deficiencies may expose the Bank to an increased risk of loss in the future. Management Watch loans represent assets where the Bank’s ability to substantially affect the outcome has diminished to some degree, and thus it must closely monitor the situation to determine if and when a downgrade is warranted.

Substandard credit risk rating: Substandard assets are inadequately protected by the current net worth and financial capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as Substandard.

Loss credit rating: These assets are considered uncollectible and of such little value that their continuance as assets is not warranted. This classification does not mean that an asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be affected in the future. Losses should be taken in the period in which they are identified as uncollectible.

Predecessor Company credit quality indicators by class are presented below as of December 31, 2010:


	Speculative 1-4				Owner		Non-Owner
	Family		Construction		Occupied		Occupied		Other
Commercial Real Estate Credit Exposure
Prime	$	—	$	—	$	—	$	—	$	—
Desirable		—		1,573		968		177		—
Satisfactory tier I		2,836		978		38,623		56,221		4,246
Satisfactory tier II		14,010		34,239		102,383		130,850		17,999
Acceptable with care		69,902		47,093		62,198		159,216		45,597
Management Watch		27,383		15,259		5,298		26,415		2,965
Substandard		91,845		61,388		16,289		38,037		6,817
Loss		—		—		—		—		—

Total		205,976		160,530		225,759		410,916		77,624


	December 31,
	2010
	Commercial
Commercial Credit Exposure
Prime	$	1,236
Desirable		7,951
Satisfactory tier I		33,859
Satisfactory tier II		91,505
Acceptable with care		72,286
Management Watch		8,511
Substandard		7,579
Loss		—

Total		222,927

Predecessor Company
As of December 31, 2010


					Mortgage-
	HELOC		Mortgage		Subprime		Other
Consumer Real Estate Credit Exposure
Pass	$	188,086	$	131,845	$	11,692	$	29,833
Management Watch		1,017		317		—		—
Substandard		2,807		5,117		50		1,529

Total		191,910		137,279		11,742		31,362

Predecessor Company


			Consumer-		Consumer Auto
As of December 31, 2010	Consumer - Prime		Subprime		-Subprime
Consumer Credit Exposure
Pass	$	35,029	$	13,093	$	18,588
Management Watch		—		—		—
Substandard		217		39		474

Total		35,246		13,132		19,062

A substantial portion of the Predecessor Company’s commercial real estate loans was secured by real estate in markets in which the Company is located. These loans are often structured with interest reserves to fund interest costs during the construction and development period. Additionally, certain of these loans are structured with interest-only terms. A portion of the consumer mortgage and commercial real estate portfolios were originated through the permanent financing of construction, acquisition and development loans. The prolonged economic downturn has negatively impacted many borrower’s and guarantors’ ability to make payments under the terms of the loans as their liquidity has been depleted. Accordingly, the ultimate collectability of a substantial portion of these loans and the recovery of a substantial portion of the carrying amount of other real estate owned are susceptible to changes in real estate values in these areas. Continued economic distress could negatively impact additional borrowers’ and guarantors’ ability to repay their debt which will make more of the Company’s loans collateral dependent.

Predecessor Company — Age analysis of past due loans by class are presented below for December 31, 2010:


													Recorded
													Investment
					Greater								> 90 Days
	30-59 Days		60-89 Days		Than 90		Total Past						and
	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing

Commercial real estate:
Speculative 1-4 Family	$	22,267	$	1,777	$	30,802	$	54,846	$	151,130	$	205,976	$	1,758
Construction		14,541		—		26,915		41,456		119,074		160,530		—
Owner Occupied		8,114		1,633		4,137		13,884		211,875		225,759		—
Non-owner Occupied		4,014		5,961		8,814		18,789		392,127		410,916		170
Other		116		865		1,491		2,472		75,152		77,624		18
Residential real estate:
HELOC		747		358		644		1,749		190,161		191,910		—
Mortgage-Prime		1,359		915		1,779		4,053		133,226		137,279		8
Mortgage-Subprime		100		51		98		249		11,493		11,742		—
Other		403		176		566		1,145		30,217		31,362		19
Commercial		2,422		593		3,922		6,937		215,990		222,927		92
Consumer:
Prime		315		86		108		509		34,737		35,246		29
Subprime		155		64		6		225		12,907		13,132		—
Auto-Subprime		476		166		101		743		18,319		19,062		18
Other		73		—		—		73		1,840		1,913		—

Total		55,102		12,645		79,383		147,130		1,598,248		1,745,378		2,112

Non-accrual loans by class are presented below:


	December 31,
	2010
Commercial real estate:
Speculative 1-4 Family	$	63,298
Construction		41,789
Owner Occupied		5,511
Non-owner Occupied		18,772
Other		1,865
Residential real estate:
HELOC		1,668
Mortgage-Prime		3,350
Mortgage-Subprime		254
Other		957
Commercial		5,813
Consumer:
Prime		130
Subprime		107
Auto-Subprime		193
Other		—

Total		143,707

Nonperforming loans were as follows:


	December 31, 2010

Loans past due 90 days still on accrual	$	2,112
Nonaccrual loans		143,707


Total	$	145,819

Nonperforming loans and impaired loans are defined differently. Nonperforming loans are loans that are 90 days past due and still accruing interest and nonaccrual loans. Impaired loans are loans that based upon current information and events it is considered probable that the Company will be unable to collect all amounts of contractual interest and principal as scheduled in the loan agreement. Some loans may be included in both categories, whereas other loans may only be included in one category.

The Predecessor Company may elect to formally restructure a loan due to the weakening credit status of a borrower so that the restructuring may facilitate a repayment plan that minimizes the potential losses that the Company may have to otherwise incur. At December 31, 2010, the Company had $49,537 of restructured loans of which $9,597 was classified as non-accrual and the remaining were performing. The Company had taken charge-offs of $843 on the restructured non-accrual loans as of December 31, 2010.

The aggregate amount of loans to executive officers and directors of the Predecessor Company and their related interests was approximately $7,848 at December 31, 2010.