Loans

3 Months Ended

Mar. 31, 2012

Loans

Loans

(3)Loans

The composition of loans primary loan classification follows:

(in thousands)	March 31, 2012		December 31, 2011
Commercial and industrial	$	371,430	$	393,729
Construction and development	143,337		147,637
Real estate mortgage	981,004		966,665
Consumer	35,969		36,814
Total loans	$	1,531,740	$	1,544,845

The following table presents the balance in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment method as of March 31, 2012 and December 31, 2011.

	Type of Loan
March 31, 2012	Commercial		Construction		Real estate
(in thousands)	and industrial		and development		mortgage		Consumer		Total
Loans
Balance	$	371,430	$	143,337	$	981,004	$	35,969	$	1,531,740
Balance: individually evaluated for impairment	$	12,229	$	4,122	$	12,321	$	3	$	28,675
Balance: collectively evaluated for impairment	$	359,201	$	139,215	$	968,683	$	35,966	$	1,503,065

	Commercial			Construction			Real estate
	and industrial			and development			mortgage			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance December 31, 2011	$	7,364		$	3,546		$	11,182		$	540		$	7,113	$	29,745
Provision	571			1,537			1,857			(164		)	274		4,075
Charge-offs	(2,274		)	(23		)	(542		)	(160		)	—		(2,999		)
Recoveries	1			—			60			324			—		385
Ending balance March 31, 2012	$	5,662		$	5,060		$	12,557		$	540		$	7,387	$	31,206
Balance: individually evaluated for impairment	$	1,652		$	1,355		$	755		$	—				$	3,762
Balance: collectively evaluated for impairment	$	4,010		$	3,705		$	11,802		$	540		$	7,387	$	27,444

	Type of Loan
December 31, 2011	Commercial		Construction		Real estate
(in thousands)	and industrial		and development		mortgage		Consumer		Total
Loans
Balance	$	393,729	$	147,637	$	966,665	$	36,814	$	1,544,845
Balance: individually evaluated for impairment	$	5,459	$	2,416	$	14,170	$	94	$	22,139
Balance: collectively evaluated for impairment	$	388,270	$	145,221	$	952,495	$	36,720	$	1,522,706

	Commercial			Construction			Real estate
	and industrial			and development			mortgage			Consumer			Unallocated			Total
Allowance for loan losses
Beginning balance December 31, 2010	$	2,796		$	2,280		$	12,272		$	623		$	7,572		$	25,543
Provision	5,475			2,859			4,592			133			(459		)	12,600
Charge-offs	(1,015		)	(1,593		)	(5,840		)	(673		)	—			(9,121		)
Recoveries	108			—			158			457			—			723
Ending balance December 31, 2011	$	7,364		$	3,546		$	11,182		$	540		$	7,113		$	29,745
Balance: individually evaluated for impairment	$	954		$	10		$	1,597		$	—					$	2,561
Balance: collectively evaluated for impairment	$	6,410		$	3,536		$	9,585		$	540		$	7,113		$	27,184

Bancorp did not have any loans acquired with deteriorated credit quality at March 31, 2012 or December 31, 2011.

Management uses the following portfolio segments of loans when assessing and monitoring the risk and performance of the loan portfolio:

·Commercial and industrial

·Construction and development

·Real estate mortgage

·Consumer

The following table presents loans individually evaluated for impairment as of March 31, 2012 and December 31, 2011.

			Unpaid				Average
March 31, 2012	Recorded		principal		Related		recorded
(in thousands)	investment		balance		allowance		investment
Loans with no related allowance recorded
Commercial and industrial	$	7,822	$	7,822			$	4,258
Construction and development	2,316		2,316				2,316
Real estate mortgage	6,698		6,698				6,576
Consumer	3		3				49
Subtotal	16,839		16,839				13,199
Loans with an allowance recorded
Commercial and industrial	$	4,407	$	4,407	$	1,652	$	4,586
Construction and development	1,806		1,806		1,355		953
Real estate mortgage	5,623		7,873		755		6,670
Consumer	—		—		—		—
Subtotal	11,836		14,086		3,762		12,209
Total
Commercial and industrial	$	12,229	$	12,229	$	1,652	$	8,844
Construction and development	4,122		4,122		1,355		3,269
Real estate mortgage	12,321		14,571		755		13,246
Consumer	3		3		—		49
Total	$	28,675	$	30,925	$	3,762	$	25,408

			Unpaid				Average
December 31, 2011	Recorded		principal		Related		recorded
(in thousands)	investment		balance		allowance		investment
Loans with no related allowance recorded
Commercial and industrial	$	694	$	920			$	951
Construction and development	2,316		2,316				1,979
Real estate mortgage	6,453		6,453				6,353
Consumer	94		94				83
Subtotal	9,557		9,783				9,366
Loans with an allowance recorded
Commercial and industrial	$	4,765	$	6,415	$	954	$	2,447
Construction and development	100		100		10		20
Real estate mortgage	7,717		11,962		1,597		7,249
Consumer	—		—		—		10
Subtotal	12,582		18,477		2,561		9,726
Total
Commercial and industrial	$	5,459	$	7,335	$	954	$	3,398
Construction and development	2,416		2,416		10		1,999
Real estate mortgage	14,170		18,415		1,597		13,602
Consumer	94		94		—		93
Total	$	22,139	$	28,260	$	2,561	$	19,092

Differences between the recorded investment amounts and the unpaid principal balance amounts are due to partial charge-offs which have occurred over the life of the loans.

Impaired loans include non-accrual loans and loans accounted for as troubled debt restructuring (TDR), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over 90 days past due and still accruing interest.  Loans past due more than 90 days or more and still accruing interest amounted to $394,000 at March 31, 2012, and $1,160,000 at December 31, 2011.

The following table presents the recorded investment in non-accrual loans as of March 31, 2012 and December 31, 2011.

(in thousands)	March 31, 2012		December 31, 2011
Commercial and industrial	$	3,652	$	2,665
Construction and development	4,122		2,416
Real estate mortgage	11,455		13,562
Consumer	3		94
Total	$	19,232	$	18,737

The following table presents the recorded investment in loans accounted for as TDR as of March 31, 2012 and December 31, 2011.

		Pre-modification		Post-modification
March 31, 2012	Number of	outstanding recorded		outstanding recorded
(dollars in thousands)	contracts	investment		investment
Commercial & industrial	7	$	8,577	$	8,577
Real estate mortgage	3	866		866
Total	10	$	9,443	$	9,443

		Pre-modification		Post-modification
December 31, 2011	Number of	outstanding recorded		outstanding recorded
(dollars in thousands)	contracts	investment		investment
Commercial & industrial	4	$	2,794	$	2,794
Real estate mortgage	2	608		608
Total	6	$	3,402	$	3,402

The following table presents the recorded investment in loans accounted for as TDR that have defaulted as of March 31, 2012.

March 31, 2012	Number of
(dollars in thousands)	Contracts	Recorded Investment
Commercial & industrial	3	$	1,584
Real estate mortgage	1	361
Total	4	$	1,945

The loans in the table above are all related to one borrower and have a related allowance allocation of $750,000, which management estimates to be the total loss exposure to this credit.  Prior to 2012, Bancorp had not experienced loans accounted for as TDR that have subsequently defaulted.  At March 31, 2012, loans accounted for as TDR included modifications from original terms due to bankruptcy proceedings and modifications of amortization periods due to customer financial difficulties.  Some loans accounted for as TDR included temporary suspension of principal payments, resulting in payment of interest only.  There has been no forgiveness of principal for loans accounted for as TDR.  Loans accounted for as TDR are individually evaluated for impairment and, at March 31, 2012, had a total allowance allocation of $1,032,000, compared to $1,167,000 at December 31, 2011.

The following table presents the aging of the recorded investment in past due loans as of March 31, 2012 and December 31, 2011.

					Greater
					than
					90 days								Recorded
					past due								investment >
March 31, 2012	30-59 days		60-89 days		(includes		Total				Total		90 days and
(in thousands)	past due		past due		non-accrual)		past due		Current		loans		accruing
Commercial and industrial	$	1,746	$	1,127	$	3,652	$	6,525	$	364,905	$	371,430	$	—
Construction and development	187		—		4,122		4,309		139,028		143,337		—
Real estate mortgage	4,839		2,070		11,832		18,741		962,263		981,004		377
Consumer	14		16		20		50		35,919		35,969		17
Total	$	6,786	$	3,213	$	19,626	$	29,625	$	1,502,115	$	1,531,740	$	394

					Greater
					than
					90 days								Recorded
					past due								investment >
December 31, 2011	30-59 days		60-89 days		(includes		Total				Total		90 days and
(in thousands)	past due		past due		non-accrual)		past due		Current		loans		accruing
Commercial and industrial	$	989	$	162	$	2,665	$	3,816	$	389,913	$	393,729	$	—
Construction and development	86		—		2,416		2,502		145,135		147,637		—
Real estate mortgage	8,520		957		14,722		24,199		942,466		966,665		1,160
Consumer	336		—		94		430		36,384		36,814		—
Total	$	9,931	$	1,119	$	19,897	$	30,947	$	1,513,898	$	1,544,845	$	1,160

Bancorp categorizes loans into credit 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.  Pass-rated loans included all risk-rated loans other than those classified as special mention, substandard, and doubtful, which are defined below:

·Special Mention:  Loans classified as special mention have a potential weakness that deserves management’s close attention.  These potential weaknesses may result in deterioration of repayment prospects for the loan or of the Bank’s credit position at some future date.

·Substandard:  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize repayment of the debt.  They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

·Substandard non-performing:  Loans classified as substandard-non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as troubled debt restructurings.

·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 repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

As of March 31, 2012 and December 31, 2011, the risk categories of loans were as follows:

Credit risk profile by internally assigned grade

(in thousands)

March 31, 2012	Commercial  and industrial		Construction  and  development		Real estate  mortgage		Consumer		Total
Grade
Pass	$	339,225	$	128,393	$	924,565	$	35,939	$	1,428,122
Special mention	12,965		6,160		24,675		10		43,810
Substandard	7,011		4,662		19,066		—		30,739
Substandard non- performing	12,229		4,122		12,698		20		29,069
Doubtful	—		—		—		—		—
Total	$	371,430	$	143,337	$	981,004	$	35,969	$	1,531,740

December 31, 2011	Commercial  and industrial		Construction  and  development		Real estate  mortgage		Consumer		Total
Grade
Pass	$	356,090	$	132,846	$	896,217	$	36,709	$	1,421,862
Special mention	15,154		6,007		33,818		11		54,990
Substandard	17,026		6,368		21,300		—		44,694
Substandard non- performing	5,459		2,416		15,330		94		23,299
Doubtful	—		—		—		—		—
Total	$	393,729	$	147,637	$	966,665	$	36,814	$	1,544,845