Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2011

Loans and Allowance for Loan Losses [Abstract]

Loans and Allowance for Loan Losses

Note 3 — Loans and Allowance for Loan Losses

(dollars in thousands)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2011 and 2010:

																				Three Months
																				Ended
			Commercial		Residential			Home												June 30, 2010
	Commercial		Real Estate		Real Estate			Equity			Consumer			Unallocated			Total			Total
Beginning balance	$	494	$	1,270	$	789		$	100		$	62		$	5		$	2,720		$	3,394
Provision for loan losses		115		62		9			(25	)		(8	)		(3	)		150			615
Loans charged-off		—		—		(24	)		—			(5	)		—			(29	)		(1,461	)
Recoveries		25		—		1			—			14			—			40			12
Ending balance	$	634	$	1,332	$	775		$	75		$	63		$	2		$	2,881		$	2,560

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2011 and 2010:

																				Six Months
																				Ended
			Commercial		Residential			Home												June 30, 2010
	Commercial		Real Estate		Real Estate			Equity			Consumer			Unallocated			Total			Total
Beginning balance	$	460	$	1,267	$	675		$	100		$	53		$	30		$	2,585		$	2,906
Provision for loan losses		149		65		126			(26	)		11			(28	)		297			1,122
Loans charged-off		—		—		(27	)		—			(17	)		—			(44	)		(1,482	)
Recoveries		25		—		1			1			16			—			43			14
Ending balance	$	634	$	1,332	$	775		$	75		$	63		$	2		$	2,881		$	2,560

The recorded investment in loans includes the principal balance outstanding, net of unearned and deferred income and including accrued interest receivable. The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2011 and December 31, 2010:

			Commercial		Residential		Home
	Commercial		Real Estate		Real Estate		Equity		Consumer		Unallocated		Total
June 30, 2011
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	101	$	183	$	235	$	—	$	—	$	—	$	519
Collectively evaluated for impairment		547		1,092		569		88		64		2		2,362
Total ending allowance balance	$	648	$	1,275	$	804	$	88	$	64	$	2	$	2,881
Recorded investment in loans:
Loans individually evaluated for impairment	$	599	$	2,677	$	1,123	$	—	$	—	$	—	$	4,399
Loans collectively evaluated for impairment		32,761		64,029		68,221		29,360		7,847		—		202,218
Total ending loans balance	$	33,360	$	66,706	$	69,344	$	29,360	$	7,847	$	—	$	206,617
December 31, 2010
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	30	$	239	$	—	$	—	$	—	$	269
Collectively evaluated for impairment		460		1,237		436		100		53		30		2,316
Total ending allowance balance	$	460	$	1,267	$	675	$	100	$	53	$	30	$	2,585
Recorded investment in loans:
Loans individually evaluated for impairment	$	662	$	2,881	$	1,149	$	—	$	—	$	—	$	4,692
Loans collectively evaluated for impairment		25,539		65,035		60,609		27,914		10,049		—		189,146
Total ending loans balance	$	26,201	$	67,916	$	61,758	$	27,914	$	10,049	$	—	$	193,838

The impact on interest income of impaired loans was not significant to the consolidated statements of income.

Impaired loans are generally measured for impairment using the fair value of the collateral supporting the loan. Evaluating impaired loan collateral is based on level 3 inputs utilizing outside appraisals adjusted by management for sales costs and other assumptions regarding market conditions to arrive at fair value.

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2011 and December 31, 2010:

	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
	Balance		Investment		Allocated		Investment
June 30, 2011
With no related allowance recorded:
Real estate:
Commercial and land development	$	426	$	426	$	—	$	561
One-to-four family		49		49		—		50
Real estate construction:
Commercial and land development		1,287		1,287		—		1,940
Commercial		31		31		—		45
With an allowance recorded:
Real estate:
Commercial and land development		962		962		183		965
One-to-four family		1,074		1,074		235		1,081
Real estate construction:
Commercial and land development		—		—		—		—
Commercial		568		568		101		461
	$	4,399	$	4,399	$	519	$	5,103

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance		Investment		Allocated
December 31, 2010
With no related allowance recorded:
Real estate:
Commercial and land development	$	1,258	$	1,258	$	—
One-to-four family		52		52		—
Real estate construction:
One-to-four family		1,326		1,326		—
Commercial		662		662		—
With an allowance recorded:
Real estate:
Commercial and land development		99		99		10
One-to-four family		1,097		1,097		239
Multifamily		—		—		—
Real estate construction:
Commercial and land development		198		198		20
	$	4,692	$	4,692	$	269

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2011 and December 31, 2010:

	June 30, 2011				December 31, 2010
			Loans Past Due				Loans Past Due
			Over 90 Days				Over 90 Days
	Nonaccrual		Still Accruing		Nonaccrual		Still Accruing
Real estate:
Commercial and land development	$	1,388	$	—	$	1,358	$	—
One-to-four family		450		41		448		360
Home equity		382		21		382		116
Real estate construction:
Commercial and land development		1,289		387		1,524		—
Commercial		599		—		661		—
Consumer:
Auto:
Indirect		—		—		—		11
	$	4,108	$	449	$	4,373	$	487

The following table presents the aging of the recorded investment in past due loans as of June 30, 2011 by class of loans:

	30 - 59		60 - 89		Greater Than
	Days		Days		90 Days		Total		Loans Not
	Past Due(1)		Past Due(2)		Past Due(3)		Past Due		Past Due(4)		Total
Real estate:
Commercial and land development	$	—	$	—	$	1,124	$	1,124	$	59,027	$	60,151
One-to-four family		742		307		442		1,491		50,084		51,575
Home equity		123		—		403		526		28,834		29,360
Multifamily		—		—		—		—		17,356		17,356
Real estate construction:
Commercial and land development		893		—		782		1,675		4,880		6,555
One-to-four family		—		—		—		—		413		413
Commercial		—		—		577		577		32,783		33,360
Consumer:
Auto:
Direct		—		—		—		—		2,193		2,193
Indirect		35		—		—		35		4,757		4,792
Other		4		—		—		4		858		862
	$	1,797	$	307	$	3,328	$	5,432	$	201,185	$	206,617

(1)	Includes $893 of loans on nonaccrual status.
(2)	Includes $26 of loans on nonaccrual status.
(3)	All loans are nonaccrual status except for $449 of loans past due over 90 days still on accrual.
(4)	Includes $310 of loans on nonaccrual status.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2010 by class of loans:

	30 - 59		60 - 89		Greater Than
	Days		Days		90 Days		Total		Loans Not
	Past Due(1)		Past Due(2)		Past Due(3)		Past Due		Past Due(4)		Total
Real estate:
Commercial and land development	$	—	$	165	$	1,076	$	1,241	$	56,726	$	57,967
One-to-four family		769		167		784		1,720		45,394		47,114
Home equity		2		45		498		545		27,369		27,914
Multifamily		—		—		—		—		14,353		14,353
Real estate construction:
Commercial and land development		930		396		198		1,524		8,425		9,949
One-to-four family		—		—		—		—		291		291
Commercial		—		22		661		683		25,518		26,201
Consumer:
Auto:
Direct		22		—		—		22		2,453		2,475
Indirect		52		—		11		63		6,524		6,587
Other		9		—		—		9		978		987
	$	1,784	$	795	$	3,228	$	5,807	$	188,031	$	193,838

(1)	Includes $854 of loans on nonaccrual status.
(2)	Includes $399 of loans on nonaccrual status.
(3)	All loans are nonaccrual status except for $487 of loans past due over 90 days still on accrual.
(4)	Includes $379 of loans on nonaccrual status.

Troubled Debt Restructuring

The Company has $1,860 of loans individually evaluated for impairment whose loan terms have been modified in troubled debt restructurings as of June 30, 2011. $250 of specific reserve has been allocated for these loans. The Company has not committed to lend any additional amounts as of June 30, 2011 to customers with outstanding loans that are classified as troubled debt restructurings. There were $1,876 of loans whose terms have been modified in troubled debt restructurings as of December 31, 2010. No specific reserve has been allocated for these loans.

Credit Quality Indicators

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends and other information specific to each borrower. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on an annual basis or more frequently if management becomes aware of information affecting a borrower’s ability to fulfill its obligation. The Corporation uses the following definitions for risk ratings:

Special Mention

Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard

Loans classified as substandard are inadequately protected by the current financial condition and paying capacity of the obligor or of the collateral securing the loan. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt with a distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful

Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
June 30, 2011	Pass		Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	56,410	$	273	$	3,468	$	—	$	60,151
Real estate construction:
Commercial and land development		3,007		1,987		1,561		—		6,555
Commercial		30,707		846		1,807		—		33,360
	$	90,124	$	3,106	$	6,836	$	—	$	100,066

			Special
December 31, 2010	Pass		Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	53,714	$	350	$	3,903	$	—	$	57,967
Real estate construction:
Commercial and land development		6,359		1,788		1,802		—		9,949
Commercial		23,670		507		2,024		—		26,201
	$	83,743	$	2,645	$	7,729	$	—	$	94,117

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of June 30, 2011 and December 31, 2010:

			Consumer						Residential Real Estate
											One-to-four		Home
June 30, 2011	Direct		Indirect		Other		Construction		Multifamily		Family		Equity		Total
Performing	$	2,193	$	4,792	$	862	$	413	$	17,356	$	51,133	$	28,957	$	105,706
Nonperforming		—		—		—		—		—		442		403		845
	$	2,193	$	4,792	$	862	$	413	$	17,356	$	51,575	$	29,360	$	106,551

			Consumer						Residential Real Estate
											One-to-four		Home
Dec. 31, 2010	Direct		Indirect		Other		Construction		Multifamily		Family		Equity		Total
Performing	$	2,475	$	6,576	$	987	$	291	$	14,353	$	46,330	$	27,416	$	98,428
Nonperforming		—		11		—		—		—		784		498		1,293
	$	2,475	$	6,587	$	987	$	291	$	14,353	$	47,114	$	27,914	$	99,721