Loans, Allowance for Loan Losses and Credit Quality

6 Months Ended

Jun. 30, 2011

Loans, Allowance for Loan Losses and Credit Quality [Abstract]

LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

NOTE 4 — LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

     The following table summarizes changes in the allowance for loan losses by loan category and bifurcates the amount of allowance allocated to each loan category based on collective impairment analysis and loans evaluated individually for impairment:

As of June 30, 2011
(Dollars in Thousands)
	Commercial and			Commercial Real			Commercial			Small			Residential Real			Consumer			Consumer
	Industrial			Estate			Construction			Business			Estate			Home Equity			Other			Total
Allowance for Loan Losses:
Beginning Balance	$	10,423		$	21,939		$	2,145		$	3,740		$	2,915		$	3,369		$	1,724		$	46,255
Charge-offs		(1,706	)		(1,144	)		(769	)		(584	)		(402	)		(579	)		(887	)		(6,071	)
Recoveries		271			—			75			54			—			17			354			771
Provision		2,095			2,200			620			(1,157	)		729			906			289			5,682
Ending Balance	$	11,083		$	22,995		$	2,071		$	2,053		$	3,242		$	3,713		$	1,480		$	46,637
Ending Balance: individually evaluated for impairment	$	60		$	478		$	—		$	181		$	1,281		$	23		$	255		$	2,278
Ending Balance: collectively evaluated for impairment	$	11,023		$	22,517		$	2,071		$	1,872		$	1,961		$	3,690		$	1,225		$	44,359
Financing Receivables:
Ending Balance: total loans by group	$	568,022		$	1,801,026		$	130,303		$	78,905		$	461,001		$	632,735		$	53,239		$	3,725,231	(1)
Ending Balance: individually evaluated for impairment	$	3,253		$	25,189		$	551		$	3,172		$	12,572		$	484		$	2,151		$	47,372
Ending Balance: collectively evaluated for impairment	$	564,769		$	1,775,837		$	129,752		$	75,733		$	448,429		$	632,251		$	51,088		$	3,677,859

As of December 31, 2010
	Commercial and			Commercial Real			Commercial			Small			Residential Real			Consumer			Consumer
	Industrial			Estate			Construction			Business			Estate			Home Equity			Other			Total
Allowance for Loan Losses:
Beginning Balance	$	7,545		$	19,451		$	2,457		$	3,372		$	2,840		$	3,945		$	2,751		$	42,361
Charge-offs		(5,170	)		(3,448	)		(1,716	)		(2,279	)		(557	)		(939	)		(2,078	)		(16,187	)
Recoveries		361			1			—			217			59			131			657			1,426
Provision		7,687			5,935			1,404			2,430			573			232			394			18,655
Ending Balance	$	10,423		$	21,939		$	2,145		$	3,740		$	2,915		$	3,369		$	1,724		$	46,255
Ending Balance: individually evaluated for impairment	$	511		$	411		$	151		$	221		$	991		$	17		$	245		$	2,547
Ending Balance: collectively evaluated for impairment	$	9,912		$	21,528		$	1,994		$	3,519		$	1,924		$	3,352		$	1,479		$	43,708
Financing Receivables:
Ending Balance: total loans by group	$	502,952		$	1,717,118		$	129,421		$	80,026		$	478,111		$	579,278		$	68,773		$	3,555,679	(1)
Ending Balance: individually evaluated for impairment	$	3,823		$	26,665		$	1,999		$	2,494		$	9,963		$	428		$	2,014		$	47,386
Ending Balance: collectively evaluated for impairment	$	499,129		$	1,690,453		$	127,422		$	77,532		$	468,148		$	578,850		$	66,759		$	3,508,293

(1) The amount of deferred fees included in the ending balance was $2.7 million and $2.8 million at June 30, 2011 and December 31, 2010, respectively.

     For the purpose of estimating the allowance for loan losses, management segregates the loan portfolio into the portfolio segments detailed in the above tables. Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. Some of the risk characteristics unique to each loan category include:

Commercial Portfolio:

Commercial & Industrial — Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant & equipment, or real estate, if applicable. Repayment sources consist of: primarily, operating cash flow, and secondarily, liquidation of assets.

Real Estate — Commercial — Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans are typically written with amortizing payment structures. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of: primarily, cash flow from operating leases and rents, and secondarily, liquidation of assets.

Commercial Real Estate — Construction — Loans in this category consist of short-term construction loans, revolving and non-revolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property. Project types include: residential 1-4 family condominium and multi-family homes, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans may be written with non-amortizing or hybrid payment structures depending upon the type of project. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources vary depending upon the type of project and may consist of: sale or lease of units, operating cash flow or liquidation of other assets.

Small Business — Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant & equipment, or real estate (if applicable). Repayment sources consist of: primarily, operating cash flow, and secondarily, liquidation of assets.

     For the commercial portfolio it is the Bank’s policy to obtain personal guaranties for payment from individuals holding material ownership interests of the borrowing entities.

Consumer Portfolio:

Consumer Real Estate — Residential — Residential mortgage loans held in the Bank’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral. Collateral consists of mortgage liens on 1-4 family residential properties. The Company does not originate sub-prime loans.

Consumer — Home Equity — Home equity loans and lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes or on non-owner occupied 1-4 family homes with more restrictive loan to value requirements. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines.

Consumer — Other — Other consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer — Other loans may be secured or unsecured. Auto loans collateral consists of liens on motor vehicles.

Credit Quality

     The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, impaired, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring (“TDR”). The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio.

     For the commercial and industrial, commercial real estate, commercial construction and small business portfolios, the Company utilizes a 10-point commercial risk rating system, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-ratings categories are defined as follows:

1- 6 Rating — Pass

Risk-rating grades “1” through “6” comprise those loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average or below average asset quality, margins and market share. Collateral coverage is protective.

7 Rating — Potential Weakness

Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Bank’s asset and position. While potentially weak, these borrowers are currently marginally acceptable; no loss of principal or interest is envisioned.

8 Rating — Definite Weakness — Loss Unlikely

Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loan may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.

9 Rating — Partial Loss Probable

Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.

10 Rating — Definite Loss

Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Bank is not warranted.

     The credit quality of the commercial loan portfolio is actively monitored and any changes in credit quality are reflected in risk-rating changes. Risk ratings are assigned or reviewed for all new loans, when advancing significant additions to existing relationships (over $50,000), at least quarterly for all actively managed loans, and any time a significant event occurs, including at renewal of the loan.

     The Company utilizes a comprehensive strategy for monitoring commercial credit quality. Borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by an experienced credit analysis group. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis.

     The following table details the internal risk grading categories for the Company’s commercial and industrial, commercial real estate, commercial construction and small business portfolios:

			June 30, 2011
	Risk		Commercial		Commercial		Commercial
Category	Rating		and Industrial		Real Estate		Construction		Small Business		Total
Pass		1 — 6	$	516,671	$	1,594,645	$	114,847	$	70,365	$	2,296,528
Potential Weakness		7		26,064		120,360		9,371		4,751		160,546
Definite Weakness — Loss Unlikely		8		23,635		83,491		6,085		3,572		116,783
Partial Loss Probable		9		1,652		2,530		—		217		4,399
Definitive Loss		10		—		—		—		—		—
Total			$	568,022	$	1,801,026	$	130,303	$	78,905	$	2,578,256

			December 31, 2010
	Risk		Commercial		Commercial		Commercial
Category	Rating		and Industrial		Real Estate		Construction		Small Business		Total
Pass		1 — 6	$	445,116	$	1,496,822	$	110,549	$	70,987	$	2,123,474
Potential Weakness		7		30,250		99,400		6,311		5,252		141,213
Definite Weakness — Loss Unlikely		8		25,864		117,850		12,561		3,533		159,808
Partial Loss Probable		9		1,722		3,046		—		254		5,022
Definitive Loss		10		—		—		—		—		—
Total			$	502,952	$	1,717,118	$	129,421	$	80,026	$	2,429,517

     For the Company’s residential real estate, residential construction, home equity and other consumer portfolios, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a quarterly basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically, typically twice per annum. The following table shows the weighted average FICO scores and the weighted average combined LTV ratio for the periods indicated below:

	As of
	June 30,			December 31,
	2011			2010
Residential Portfolio
FICO Score (re-scored)		737			738
Combined LTV (re-valued)		65.0	%		64.0	%
Home Equity Portfolio
FICO Score (re-scored)		762			760
Combined LTV (re-valued)		55.0	%		55.0	%

     The average FICO scores above for June 30, 2011 are based upon rescores available from May 2011, and actual score data for loans booked between June 1 and June 30, 2011. The average FICO scores above for December 31, 2010 are based upon re-scores available from November 2010 and actual score data for loans booked between December 1 and December 31, 2010. The combined LTV ratios for June 30, 2011 for residential is based upon updated automated valuations as of November 30, 2010 and for home equity based upon updated automated valuations as of May 31, 2011. The combined LTV ratios at December 31, 2010 for both residential and home equity are based upon updated automated valuation as of November 30, 2010.

     The Bank’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. Delinquent loans are managed by a team of seasoned collection specialists and the Bank seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as a nonaccrual loan. As permitted by banking regulations, certain consumer loans past due 90 days or more may continue to accrue interest. The Company also may use discretion regarding other loans over 90 days delinquent if the loan is well secured and in process of collection. Set forth is information regarding the Company’s nonperforming loans at the period shown.

     The following table shows nonaccrual loans at the dates indicated:

	June 30,		December 31,
	2011		2010
	(Dollars In Thousands)
Loans accounted for on a nonaccrual basis (1)
Commercial and Industrial	$	2,674	$	3,123
Commercial Real Estate		6,455		7,837
Commercial Construction		552		1,999
Small Business		1,130		887
Residential Real Estate		8,546		6,728
Home Equity		1,867		1,752
Consumer — Other		447		505
Total nonaccrual loans	$	21,671	$	22,831

(1) Included in these amounts were $5.9 million and $4.0 million nonaccruing TDRs at June 30, 2011 and December 31, 2010, respectively.

     The following table shows the age analysis of past due financing receivables as of the dates indicated:

	June 30, 2011
																					Recorded
	30-59 days				60-89 days				90 days or more				Total Past Due						Total		Investment
	Number		Principal		Number		Principal		Number		Principal		Number		Principal				Financing		>90 Days
	of Loans		Balance		of Loans		Balance		of Loans		Balance		of Loans		Balance		Current		Receivables		and Accruing
	(Dollars in Thousands)
Commercial and Industrial		8	$	877		7	$	699		19	$	1,951		34	$	3,527	$	564,495	$	568,022	$	—
Commercial Real Estate		16		3,464		6		1,548		25		4,574		47		9,586		1,791,440		1,801,026		—
Commercial Construction		—		—		—		—		3		551		3		551		129,752		130,303		—
Small Business		29		1,075		12		190		19		110		60		1,375		77,530		78,905		—
Residential Real Estate		13		2,515		8		2,926		27		4,267		48		9,708		444,889		454,597		—
Residential Construction		—		—		—		—		—		—		—		—		6,404		6,404		—
Home Equity		22		845		12		1,145		16		981		50		2,971		629,764		632,735		110
Consumer — Other		279		2,247		56		328		82		568		417		3,143		50,096		53,239		145
Total		367	$	11,023		101	$	6,836		191	$	13,002		659	$	30,861	$	3,694,370	$	3,725,231	$	255

	December 31,2010
																					Recorded
	30-59 days				60-89 days				90 days or more				Total Past Due						Total		Investment
	Number		Principal		Number		Principal		Number		Principal		Number		Principal				Financing		>90 Days
	of Loans		Balance		of Loans		Balance		of Loans		Balance		of Loans		Balance		Current		Receivables		and Accruing
	(Dollars in Thousands)
Commercial and Industrial		16	$	1,383		8	$	910		18	$	2,207		42	$	4,500	$	498,452	$	502,952	$	—
Commercial Real Estate		13		2,809		7		4,820		29		6,260		49		13,889		1,703,229		1,717,118		—
Commercial Construction		—		—		—		—		9		1,999		9		1,999		127,422		129,421		—
Small Business		23		1,071		11		302		19		420		53		1,793		78,233		80,026		—
Residential Real Estate		14		4,793		6		865		21		4,050		41		9,708		464,228		473,936		—
Residential Construction		—		—		—		—		—		—		—		—		4,175		4,175		—
Home Equity		31		1,737		8		878		12		1,095		51		3,710		575,568		579,278		4
Consumer — Other		402		2,986		89		478		85		564		576		4,028		64,745		68,773		273
Total		499	$	14,779		129	$	8,253		193	$	16,595		821	$	39,627	$	3,516,052	$	3,555,679	$	277

     In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work-out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans that are modified are reviewed by the Bank to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

     The Bank’s policy is to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for approximately six months, subsequent to being modified, before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status.

     The following table shows the TDR loans on accrual and nonaccrual status as of the dates indicated:

June 30,2011
	TDRs on Accrual Status				TDRs on Nonaccrual Status				Total TDRs
	Number of		Balance of		Number of		Balance of		Number of		Balance of
	Loans		Loans		Loans		Loans		Loans		Loans
	(Dollars in Thousands)
Commercial and Industrial		3	$	167		5	$	782		8	$	949
Commercial Real Estate		16		17,907		3		1,056		19		18,963
Small Business		64		2,042		4		41		68		2,083
Residential Real Estate		29		8,868		11		3,704		40		12,572
Home Equity		5		300		2		184		7		484
Consumer — Other		173		2,009		7		142		180		2,151
TOTAL TDRs		290	$	31,293		32	$	5,909		322	$	37,202

December 31, 2010
	TDRs on Accrual Status				TDRs on Nonaccrual Status				Total TDRs
	Number of		Balance of		Number of		Balance of		Number of		Balance of
	Loans		Loans		Loans		Loans		Loans		Loans
	(Dollars in Thousands)
Commercial and Industrial		10	$	443		1	$	555		11	$	998
Commercial Real Estate		14		13,679		4		1,468		18		15,147
Small Business		49		1,523		—		—		49		1,523
Residential Real Estate		25		8,329		6		1,634		31		9,963
Home Equity		4		242		2		186		6		428
Consumer — Other		138		1,875		4		139		142		2,014
TOTAL TDRs		240	$	26,091		17	$	3,982		257	$	30,073

     The amount of the specific reserve associated with the TDRs was $1.8 million and $1.6 million at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011 and December 31, 2010, the amount of additional commitments to lend funds to borrowers who have been a party to a TDR was $1.5 million and $1.2 million, respectively. During the three and six months ended June 30, 2011, $7.7 million and $9.7 million of loans were modified and considered to be a TDR and no TDRs moved from nonaccrual to accrual. During the year ended December 31, 2010, $21.8 million loans were modified and considered to be a TDR and $1.2 million of TDRs moved from nonaccrual to accrual in 2010.

     The table below sets forth information regarding the Company’s impaired loans as of the dates indicated:

							For the Three Months Ended				For the Six Months Ended
	As of June 30, 2011						June 30, 2011				June 30, 2011
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
	(Dollars in Thousands)
With no Related Allowance Recorded:
Commercial & Industrial	$	2,913	$	3,653	$	—	$	3,206	$	58	$	3,306	$	117
Commercial Real Estate		18,018		18,515		—		18,291		334		18,474		645
Commercial Construction		551		551		—		554		10		564		21
Small Business		1,884		2,014		—		1,841		33		1,873		65
Residential Real Estate (1)		—		—		—		—		—		—		—
Consumer — Home Equity		22		22		—		22		—		22		1
Consumer — Other		10		10		—		12		—		17		1
Subtotal		23,398		24,765		—		23,926		435		24,256		850
With an Allowance Recorded:
Commercial & Industrial	$	340	$	343	$	60	$	342	$	7	$	343	$	13
Commercial Real Estate		7,171		7,911		478		7,326		91		7,377		215
Commercial Construction		—		—		—		—		—		—		—
Small Business		1,288		1,320		181		1,383		19		1,428		39
Residential Real Estate (1)		12,572		13,152		1,281		12,674		154		12,556		246
Consumer — Home Equity		463		472		23		464		7		465		13
Consumer — Other		2,140		2,200		255		2,137		21		2,049		40
Subtotal		23,974		25,398		2,278		24,326		299		24,218		566
Total	$	47,372	$	50,163	$	2,278	$	48,252	$	734	$	48,474	$	1,416

							For the Three Months Ended				For the Six Months Ended
	As of June 30, 2010						June 30, 2010				June 30, 2010
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
	(Dollars in Thousands)
With no Related Allowance Recorded:
Commercial & Industrial	$	3,214	$	4,880	$	—	$	3,282	$	75	$	3,580	$	145
Commercial Real Estate		11,951		12,322		—		12,417		220		12,595		435
Commercial Construction		1,075		2,625		—		2,583		48		2,604		95
Small Business		1,491		1,537		—		1,512		24		1,454		46
Residential Real Estate (1)		284		284		—		284		2		285		5
Consumer — Home Equity		—		—		—		—		—		—		—
Consumer — Other		64		63		—		64		1		63		2
Subtotal		18,079		21,711		—		20,142		370		20,581		728
With an Allowance Recorded:
Commercial & Industrial	$	1,876	$	1,883	$	1,013	$	1,886	$	27	$	1,890	$	50
Commercial Real Estate		3,906		3,906		201		4,041		46		4,076		92
Commercial Construction		—		—		—		—		—		—		—
Small Business		825		873		389		842		13		818		27
Residential Real Estate (1)		8,053		8,054		761		7,893		76		7,954		156
Consumer — Home Equity		348		348		14		345		4		346		8
Consumer — Other		1,519		1,518		180		1,377		15		1,186		27
Subtotal		16,527		16,582		2,558		16,384		181		16,270		360
Total	$	34,606	$	38,293	$	2,558	$	36,526	$	551	$	36,851	$	1,088

(1) Includes residential construction loans.