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Loans

12 Months Ended

Dec. 31, 2011

Loans/Loan Servicing/Loan Commitments and Other Related Activities [Abstract]

NOTE 3 – LOANS

Loans at year end were as follows:


	2011			2010
Real estate:
Commercial and land development	$	66,886		$	58,047
One-to-four family		56,917			47,204
Home equity		30,086			27,766
Multifamily		17,041			14,397
Real estate construction:
Commercial and land development		4,822			9,942
One-to-four family		683			301
Commercial		33,473			26,158
Consumer:
Auto:
Direct		2,065			2,474
Indirect		4,541			6,401
Other		980			989

		217,494			193,679
Unearned and deferred income		(379	)		(409	)
Allowance for loan losses		(3,163	)		(2,585	)

	$	213,952		$	190,685

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending December 31, 2011:


	Commercial		Commercial Real Estate		Residential Real Estate			Home Equity			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	460	$	1,267	$	675		$	100		$	53		$	30		$	2,585
Provision for loan losses		303		140		214			(9	)		(18	)		(30	)		600
Loans charged-off		—		—		(28	)		(26	)		(17	)		—			(71	)
Recoveries		25		1		—			1			22			—			49

Total ending allowance balance	$	788	$	1,408	$	861		$	66		$	40		$	—		$	3,163

Activity in the allowance for loan losses was as follows:


	2011			2010			2009
Beginning balance	$	2,585		$	2,906		$	1,718
Provision for loan losses		600			2,229			1,829
Loans charged-off		(71	)		(2,576	)		(659	)
Recoveries		49			26			18

Ending balance	$	3,163		$	2,585		$	2,906

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 December 31, 2011 and 2010:


December 31, 2011	Commercial		Commercial Real Estate		Residential Real Estate		Home Equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	151	$	183	$	182	$	—	$	—	$	—	$	516
Collectively evaluated for impairment		637		1,225		679		66		40		—		2,647

Total ending allowance balance	$	788	$	1,408	$	861	$	66	$	40	$	—	$	3,163

Recorded investment in loans:
Loans individually evaluated for impairment	$	597	$	2,420	$	320	$	—	$	—	$	—	$	3,337
Loans collectively evaluated for impairment		32,984		69,290		74,230		30,288		7,698		—		214,490

Total ending loans balance	$	33,581	$	71,710	$	74,550	$	30,288	$	7,698	$	—	$	217,827


December 31, 2010	Commercial		Commercial Real Estate		Residential Real Estate		Home Equity		Consumer		Unallocated		Total
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

Individually impaired loans were as follows:


	2010
Year-end loans with no allocated allowance for loan losses	$	3,298
Year-end loans with allocated allowance for loan losses		1,394
Amount of the allowance for loan losses allocated		269


	2010		2009
Average of individually impaired loans during year	$	3,888	$	2,897

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

The following table presents loans individually evaluated for impairment by class of loans as of, and for the year ended December 31, 2011:


	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
December 31, 2011	Balance		Investment		Allocated		Investment
With no related allowance recorded:
Real estate:
Commercial and land development	$	406	$	406	$	—	$	426
One-to-four family		46		46		—		49
Real estate construction:
Commercial and land development		1,252		1,252		—		1,923
Commercial		29		29		—		31
With an allowance recorded:
Real estate:
Commercial and land development		762		762		183		902
One-to-four family		274		274		182		283
Multifamily		—		—		—		—
Commercial		568		568		151		509

	$	3,337	$	3,337	$	516	$	4,123

For purposes of this disclosure, the unpaid principal balance is not recorded for net charge-offs.

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


	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
December 31, 2010	Balance		Investment		Allocated
With no related allowance recorded:
Real estate:
Commercial and land development	$	1,258	$	1,256	$	—
One-to-four family		52		52		—
Real estate construction:
One-to-four family		1,326		1,325		—
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	$	4,689	$	269

Nonaccrual loans and loans past due 90 or more 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 90 or more days still on accrual by class of loans as of December 31, 2011 and 2010:


					Loans Past Due 90 or
	Nonaccrual				More Days Still Accruing
	2011		2010		2011		2010
Real estate:
Commercial and land development	$	1,168	$	1,358	$	—	$	—
One-to-four family		438		448		181		360
Home equity		382		382		—		116
Real estate construction:
Commercial and land development		1,252		1,524		—		—
Commercial		596		661		—		—
Consumer:
Auto:
Indirect		—		—		—		11

	$	3,836	$	4,373	$	181	$	487

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:


	30 - 59		60 - 89		90 or More
	Days		Days		Days		Total		Loans Not
	Past Due (1)		Past Due		Past Due (2)		Past Due		Past Due (3)		Total
Real estate:
Commercial and land development	$	—	$	30	$	922	$	952	$	65,940	$	66,892
One-to-four family		245		297		572		1,114		55,754		56,868
Home equity		—		—		382		382		29,906		30,288
Multifamily		—		—		—		—		17,001		17,001
Real estate construction:
Commercial and land development		856		—		396		1,252		3,566		4,818
One-to-four family		—		—		—		—		681		681
Commercial		37		—		597		634		32,947		33,581
Consumer:
Auto:
Direct		1		—		—		1		2,071		2,072
Indirect		17		—		—		17		4,629		4,646
Other		14		—		—		14		966		980

	$	1,170	$	327	$	2,869	$	4,366	$	213,461	$	217,827

(1)	Includes $856 thousand of loans on nonaccrual status.

(2)	All loans are nonaccrual status except for $181 thousand of loans past due 90 or more days still on accrual.

(3)	Includes $292 thousand 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		90 or More
	Days		Days		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	$	56,806	$	58,047
One-to-four family		769		167		784		1,720		45,484		47,204
Home equity		2		45		498		545		27,221		27,766
Multifamily		—		—		—		—		14,397		14,397
Real estate construction:
Commercial and land development		930		396		198		1,524		8,418		9,942
One-to-four family		—		—		—		—		301		301
Commercial		—		22		661		683		25,475		26,158
Consumer:
Auto:
Direct		22		—		—		22		2,452		2,474
Indirect		52		—		11		63		6,338		6,401
Other		9		—		—		9		980		989

	$	1,784	$	795	$	3,228	$	5,807	$	187,872	$	193,679

(1)	Includes $854 thousand of loans on nonaccrual status.

(2)	Includes $399 thousand of loans on nonaccrual status.

(3)	All loans are nonaccrual status except for $487 thousand of loans past due 90 or more days still on accrual.

(4)	Includes $379 thousand of loans on nonaccrual status.

Troubled Debt Restructuring

As of period ending December 31, 2011, certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The Corporation has two commercial loans with balances of $1,661 that were individually evaluated for impairment whose loan terms have been modified in troubled debt restructurings as of December 31, 2011. $300 of specific reserve has been allocated for these loans. The nature of the modifications did not impact the stated interest rate or the final maturities. The Corporation has not committed to lend any additional amounts as of December 31, 2011 to customers with outstanding loans that are classified as troubled debt restructurings. There have been no new loans classified as troubled debt restructurings as of December 31, 2011. 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.

Both commercial loans that were modified as troubled debt restructurings experienced payment default within twelve months after modification. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The troubled debt restructuring that subsequently defaulted increased the allowance for loan losses by $300 thousand and resulted in charge offs of $0 during the period ending December 31, 2011.

The terms of certain other loans were modified during the year ending December 31, 2011 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of December 31, 2011 of $888. The modification of these loans involved either a modification of the terms of a loan or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Corporation’s internal underwriting policy.

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, commercial real estate loans, and loans to commercial enterprises secured by one-to-four family residential properties. 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 December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


			Special
	Pass		Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	61,706	$	1,986	$	3,200	$	—	$	66,892
One-to-four family		—		263		1,129		—		1,392
Real estate construction:
Commercial and land development		3,104		196		1,518		—		4,818
Commercial		29,744		2,442		1,395		—		33,581

	$	94,554	$	4,887	$	7,242	$	—	$	106,683

As of December 31, 2010, the risk category of loans by class of loans is as follows:


			Special
	Pass		Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	53,794	$	350	$	3,903	$	—	$	58,047
Real estate construction:
Commercial and land development		6,352		1,788		1,802		—		9,942
Commercial		23,627		507		2,024		—		26,158

	$	83,773	$	2,645	$	7,729	$	—	$	94,147

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 December 31, 2011:


	Consumer						Residential Real Estate
	Consumer										One-to-four		Home
	Direct		Indirect		Other		Construction		Multifamily		Family		Equity
Performing	$	2,072	$	4,646	$	980	$	681	$	17,001	$	54,904	$	29,906
Nonperforming		—		—		—		—		—		572		382

	$	2,072	$	4,646	$	980	$	681	$	17,001	$	55,476	$	30,288

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2010:


	Consumer						Residential Real Estate
	Consumer										One-to-four		Home
	Direct		Indirect		Other		Construction		Multifamily		Family		Equity
Performing	$	2,474	$	6,390	$	989	$	301	$	14,397	$	46,420	$	27,268
Nonperforming		—		11		—		—		—		784		498

	$	2,474	$	6,401	$	989	$	301	$	14,397	$	47,204	$	27,766

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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