NOTE 3 - LOANS

Year-end loans were as follows:

 

		2011				2010
Commercial		$	193,176			$	216,660
Residential real estate			266,268				260,625
Nonresidential real estate			523,485				482,173
Construction			104,788				107,611
Consumer			16,618				16,546
Municipal obligations			27,066				23,573
Gross loans			1,131,401				1,107,188
Less:    Deferred loan origination fees
and discount			(1,447	)			(1,179	)
Allowance for loan losses			(18,288	)			(17,368	)
Net loans		$	1,111,666			$	1,088,641

 

Certain of the Company’s directors are loan customers of the Bank. A schedule of the aggregate activity in these loans follows:

 

		2011
Beginning balance		$	2,415
Effect of change in composition of board			122
New loans and advances on lines of credit			14,452
Loan payments			(13,016	)
Ending balance		$	3,973

    

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

 

										Non
						Residential				Residential												Municipal
		Commercial				Real estate				Real estate				Construction				Consumer				Obligations				Total
Allowance for loan losses
Beginning balance		$	3,440			$	2,431			$	8,126			$	3,150			$	166			$	55			$	17,368
Provision for loan losses			1,919				1,330				3,400				3,400				527				(42	)			10,750
Loans charged off			(2,236	)			(1,214	)			(4,076	)			(2,066	)			(908	)			-				(10,500	)
Recoveries			84				44				164				1				377				-				670
Total ending allowance balance		$	3,207			$	2,591			$	7,614			$	4,701			$	162			$	13			$	18,288

 

Activity in the allowance for loan losses was as follows:

 

		2010				2009
Beginning balance		$	15,153			$	9,910
Provision charged to operations			15,500				12,825
Loans charged off			(14,006	)			(8,033	)
Recoveries			721				451
Ending balance		$	17,368			$	15,153

   

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.

 

										Non
						Residential				Residential												Municipal
		Commercial				Real estate				Real estate				Construction				Consumer				Obligations				Total
Allowance for loan losses
Ending allowance balance attributable to loans
Individually evaluated for impairment		$	224			$	477			$	2,994			$	3,748			$	-			$	-			$	7,443
Collectively evaluated for impairment			2,983				2,114				4,620				953				162				13				10,845
		$	3,207			$	2,591			$	7,614			$	4,701			$	162			$	13			$	18,288
Loans
Loans individually evaluated for impairment		$	917			$	6,100			$	20,390			$	7,854			$	-			$	-			$	35,261
Loans collectively evaluated for impairment			192,259				260,168				503,095				96,934				16,618				27,066				1,096,140
Total ending loan balance		$	193,176			$	266,268			$	523,485			$	104,788			$	16,618			$	27,066			$	1,131,401

   

										Non
						Residential				Residential												Municipal
December 31, 2010		Commercial				Real estate				Real estate				Construction				Consumer				Obligations				Total
Allowance for loan losses
Ending allowance balance attributable to loans
Individually evaluated for impairment		$	595			$	399			$	3,365			$	1,385			$	-			$	-			$	5,744
Collectively evaluated for impairment			2,845				2,032				4,761				1,765				166				55				11,624
Total ending allowance balance		$	3,440			$	2,431			$	8,126			$	3,150			$	166			$	55			$	17,368
Loans
Loans individually evaluated for impairment		$	1,769			$	2,828			$	15,583			$	5,776			$	-			$	-			$	25,956
Loans collectively evaluated for impairment			214,891				257,797				466,590				101,835				16,546				23,573				1,081,232
Total ending loans balance		$	216,660			$	260,625			$	482,173			$	107,611			$	16,546			$	23,573			$	1,107,188

   

Nonperforming and impaired loans were as follows

 

		2011				2010				2009
Nonaccrual loans at year end		$	15,651			$	20,648			$	23,826
Loans past due over 90 days, still accruing at year-end			219				414				1,736
Accruing restructured loans			13,306				6,135				3,568
Average impaired loans during the year			31,692				30,076				28,244
Interest income recognized during impairment			866				640				738
Cash basis interest recognized during impairment			742				728				742
Loans designated as impaired at year end with allowance allocated			29,123				22,524				32,142
Impaired loans with no allowance allocated			6,137				3,432				3,922
Allowance allocated to impaired loans at year end			7,443				5,744				5,916

 

Nonperforming loans includes both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans that are not performing.

   

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

 

		Unpaid								Allowance for				Average				Interest				Cash Basis
		Principal				Recorded				Loan Losses				Recorded				Income				Interest
		Balance				Investment				Allocated				Investment				Recognized				Recognized
With no related allowance recorded Commercial		$	350			$	310			$	-			$	341			$	-			$	-
Residential real estate
Home equity lines of credit			50				50				-				6				-				-
Multifamily properties			538				538				-				80				-				-
Other			1,703				1,703				-				1,444				-				-
Nonresidential real estate
Owner occupied properties			1,101				1,101				-				635				-				-
Non owner occupied properties			2,122				2,116				-				1,013				-				-
Construction			356				319				-				570				-				-
			6,220				6,137				-				4,089				-				-
With an allowance recorded
Commercial			733				607				224				1,718				18				10
Residential real estate
Home equity lines of credit			-				-				-				-				-				-
Multifamily properties			-				-				-				800				42				28
Other			3,859				3,809				477				2,663				78				73
Nonresidential real estate
Owner occupied properties			10,771				9,798				1,477				4,556				166				106
Non owner occupied properties			8,476				7,375				1,517				9,933				284				263
Construction			8,267				7,535				3,748				7,934				278				262
			32,106				29,123				7,443				27,604				866				742
Total		$	38,326			$	35,261			$	7,443			$	31,692			$	866			$	742

   

The following table presents individually impaired loans by class of loans as of December 31, 2010:

 

		Unpaid								Allowance for
		Principal				Recorded				Loan Losses
		Balance				Investment				Allocated
With no related allowance recorded
Commercial		$	310			$	310			$	-
Residential real estate
Home equity lines of credit			-				-				-
Multifamily properties			34				34
Other			259				259				-
Nonresidential real estate
Owner occupied properties			725				725				-
Non owner occupied properties			1,495				1,495				-
			3,432				3,432				-
Construction			609				609				-
With an allowance recorded
Commercial			1,459				1,459				595
Residential real estate
Home equity lines of credit			-				-				-
Multifamily properties			1,180				1,180				57
Other			1,355				1,355				342
Nonresidential real estate
Owner occupied properties			1,946				1,946				460
Non owner occupied properties			11,417				11,417				2,905
Construction			5,167				5,167				1,385
			22,524				22,524				5,744
Total		$	25,956			$	25,956			$	5,744

     

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

 

		Loans				Loans over
		30-90 days				90 days								Loans Not
		past due				past due				Nonaccrual				past due				Total
Commercial		$	692			$	74			$	1,175			$	191,235			$	193,176
Residential real estate
Home equity lines of credit			1,094				-				910				92,676				94,680
Multifamily properties			-				-				-				36,756				36,756
Other residential real estate			5,854				112				4,415				124,451				134,832
Nonresidential real estate
Owner occupied properties			2,623				-				2,270				247,875				252,768
Non owner occupied properties			3,942				-				4,358				262,417				270,717
Construction			265				-				1,897				102,626				104,788
Consumer
Credit card balances			60				32				-				6,400				6,492
Other consumer			37				1				626				9,462				10,126
Municipal obligations			-				-				-				27,066				27,066
Total		$	14,567			$	219			$	15,651			$	1,100,964			$	1,131,401

   

		Loans				Loans over
		30-90 days				90 days								Loans not
		past due				past due				Nonaccrual				past due				Total
December 31, 2010
Commercial		$	1,836			$	-			$	4,749			$	210,075			$	216,660
Residential real estate
Home equity lines of credit			141				-				728				93,317				94,186
Multifamily properties			-				-				34				37,663				37,697
Other residential real estate			3,571				263				3,446				121,462				128,742
Nonresidential real estate
Owner occupied properties			1,352				68				984				231,870				234,274
Non owner occupied properties			4,525				-				5,327				238,047				247,899
Construction			220				-				5,329				102,062				107,611
Consumer
Credit card balances			102				83				-				5,852				6,037
Other consumer			67				-				51				10,391				10,509
Municipal obligations			-				-				-				23,573				23,573
Total		$	11,814			$	414			$	20,648			$	1,074,312			$	1,107,188

 

Troubled Debt Restructurings:

 

The Company has allocated $2,074 and $1,436 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2011 and December 31, 2010. Troubled debt restructurings totaled $15,229 and $8,321 as of December 31, 2011 and December 31, 2010, respectively. The Company has not committed to lend additional amounts as of December 31, 2011 and December 31, 2010 to customers with outstanding loans that are classified as troubled debt restructurings.

 

During the year ending December 31, 2011, the terms of certain loans were modified as troubled debt restructurings. Modifications involving a reduction of the stated interest rate of the loan were for periods up to three years. Modifications involving an extension of the maturity date were for periods ranging from eight months to twelve months.

   

The following table presents loans by class modified as troubled debt restructurings that occurred during the period ending December 31, 2011:

 

						Pre-Modification				Post-Modification
						Outstanding Recorded				Outstanding  Recorded
		Number of  Loans				Investment				Investment
Troubled Debt Restructurings:
Commercial			2			$	349,870			$	310,439
Residential real estate
Home equity lines of credit			-				-				-
Multifamily properties
Other residential real estate			4				3,498,821				3,421,120
Nonresidential real estate
Owner occupied properties			3				8,137,536				7,989,080
Non owner occupied properties			4				3,661,111				3,496,046
Construction			1				437,380				12,500
Consumer
Credit card balances			-				-				-
Other consumer			-				-				-
Municipal obligations			-				-				-
Total			14			$	16,084,718			$	15,229,185

 

The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $919,927 as of December 31, 2011.

 

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the period ending December 31, 2011:

 

Troubled Debt Restructurings
That Subsequently Defaulted:		Number of Loans				Recorded Investment
Commercial			2			$	310,439
Residential real estate
Home equity lines of credit
Multifamily properties
Other residential real estate			1				700,093
Nonresidential real estate
Owner occupied properties			1				7,779,219
Non owner occupied properties			2				900,481
Construction			1				12,500
Consumer
Credit card balances
Other consumer
Municipal obligations			-				-
Total			7			$	9,702,732

  

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

 

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $0 and resulted in $399,574 for the twelve months ending December 31, 2011.

 

Credit Quality Indicators:

 

The Company 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, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company 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 net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the 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. Loans listed as not rated are either less than $100 or are included in group of homogeneous 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				Not Rated				Total
Commercial		$	170,394			$	9,684			$	13,098			$	-			$	-			$	193,176
Residential real estate
Home equity lines of credit			-				712				976				84				92,908				94,680
Multifamily properties			36,115				103				538				-				-				36,756
Other residential real estate			38,725				1,357				10843				-				83,907				134,832
Nonresidential real estate
Owner occupied properties			221,941				7,754				23,073				-				-				252,768
Non owner occupied properties			246,614				8,902				15,201				-				-				270,717
Construction			90,297				3,398				11,093				-				-				104,788
Consumer
Credit card balances			-				-				-				-				6,492				6,492
Other consumer			-				-				22				-				10,104				10,126
Municipal obligations			27,066				-				-				-				-				27,066
Total		$	831,152			$	31,910			$	74,844			$	84			$	193,411			$	1,131,401

  

December 31, 2010						Special
		Pass				Mention				Substandard				Doubtful				Not Rated				Total
Commercial		$	191,690			$	9,415			$	15,555			$	-				-			$	216,660
Residential real estate
Home equity lines of credit			-				-				871				6				93,309				94,186
Multifamily properties			35,483				1,303				911				-				-				37,697
Other residential real estate			40,975				137				9,186				-				78,444				128,742
Nonresidential real estate
Owner occupied properties			207,137				5,052				22,085				-				-				234,274
Non owner occupied properties			224,111				5,117				18,671				-				-				247,899
Construction			86,524				4,350				16,737				-				-				107,611
Consumer
Credit card balances			-				-				-				-				6,037				6,037
Other consumer			-				-				14				2				10,493				10,509
Municipal obligations			23,573				-				-				-								23,573
Total		$	809,493			$	25,374			$	84,030			$	8			$	188,283			$	1,107,188

 

Loans listed as not rated are included in groups of homogeneous loans. These loans are evaluated based on delinquency status.