Note 9 - Loans

 

Loan balances were as follows (in thousands):

		6/30/2012				12/31/2011
Commercial		$	181,932			$	193,176
Residential real estate			280,135				266,268
Nonresidential real estate			539,748				523,485
Construction			100,094				104,788
Consumer			16,307				16,618
Municipal obligations			27,014				27,066
Gross loans			1,145,230				1,131,401
Less:     Deferred loan origination fees and discount			(1,497	)			(1,447	)
Allowance for loan losses			(18,346	)			(18,288	)
Net loans		$	1,125,387			$	1,111,666

   

The following tables present the activity in the allowance for loan losses for the three months ending June 30, 2012 and 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, 2012 and December 31, 2011 (in thousands):

 

										Non
						Residential				Residential												Municipal
June 30, 2012		Commercial				Real estate				Real estate				Construction				Consumer				Obligations				Total
Allowance for loan losses
Beginning balance		$	2,581			$	2,916			$	6,768			$	5,694			$	166			$	237			$	18,362
Provision for loan losses			(406	)			995				163				688				321				(61	)			1,700
Loans charged off			(16	)			(148	)			(269	)			(1,219	)			(156	)			0				(1,808	)
Recoveries			0				23				4				4				61				0				92
Total ending allowance balance		$	2,159			$	3,786			$	6,666			$	5,167			$	392			$	176			$	18,346
Ending allowance balance attributable to loans
Individually evaluated for impairment		$	138			$	870			$	2,279			$	4,229			$	0			$	0			$	7,516
Collectively evaluated for impairment			2,021				2,916				4,387				938				392				176				10,830
Total ending allowance balance		$	2,159			$	3,786			$	6,666			$	5,167			$	392			$	176			$	18,346
Loans
Loans individually evaluated for impairment		$	865			$	7,670			$	19,913			$	8,077			$	0			$	0			$	36,525
Loans collectively evaluated for impairment			181,067				272,465				519,835				92,017				16,307				27,014				1,108,705
Total ending loans balance		$	181,932			$	280,135			$	539,748			$	100,094			$	16,307			$	27,014			$	1,145,230

  

The following tables present the activity in the allowance for loan losses for the six months ending June 30, 2012 and 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, 2012 and December 31, 2011 (in thousands):

 

										Non
						Residential				Residential												Municipal
June 30, 2012		Commercial				Real estate				Real estate				Construction				Consumer				Obligations				Total
Allowance for loan losses
Beginning balance		$	3,207			$	2,591			$	7,614			$	4,701			$	162			$	13			$	18,288
Provision for loan losses			(677	)			1,687				220				1,706				401				163				3,500
Loans charged off			(372	)			(522	)			(1,173	)			(1,246	)			(325	)			0				(3,638	)
Recoveries			1				30				5				6				154				0				196
Total ending allowance balance		$	2,159			$	3,786			$	6,666			$	5,167			$	392			$	176			$	18,346
Ending allowance balance attributable to loans
Individually evaluated for impairment		$	138			$	870			$	2,279			$	4,229			$	0			$	0			$	7,516
Collectively evaluated for impairment			2,021				2,916				4,387				938				392				176				10,830
Total ending allowance balance		$	2,159			$	3,786			$	6,666			$	5,167			$	392			$	176			$	18,346
Loans
Loans individually evaluated for impairment		$	865			$	7,670			$	19,913			$	8,077			$	0			$	0			$	36,525
Loans collectively evaluated for impairment			181,067				272,465				519,835				92,017				16,307				27,014				1,108,705
Total ending loans balance		$	181,932			$	280,135			$	539,748			$	100,094			$	16,307			$	27,014			$	1,145,230

 

										Non
						Residential				Residential												Municipal
June 30, 2011		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			1,387				396				1,138				2,844				253				(18	)			6,000
Loans charged off			(920	)			(464	)			(2,484	)			(1,499	)			(462	)			0				(5,829	)
Recoveries			24				40				2				1				210				0				277
Total ending allowance balance		$	3,931			$	2,403			$	6,782			$	4,496			$	167			$	37			$	17,816

 

										Non
						Residential				Residential												Municipal
December 31, 2011		Commercial				Real estate				Real estate				Construction				Consumer				Obligations				Total
Ending allowance balance attributable to loans
Individually evaluated for impairment		$	224			$	477			$	2,994			$	3,748			$	0			$	0			$	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			$	0			$	0			$	35,261
Loans collectively evaluated for impairment			192,259				260,168				503,095				96,934				16,618				27,066				1,096,140
Total ending loans balance		$	193,176			$	266,268			$	523,485			$	104,788			$	16,618			$	27,066			$	1,131,401

  

The following table presents individually impaired loans by class of loans as of and for the three months ended June 30, 2012 (in thousands):

 

		Unpaid								Allowance for				Average				Interest
		Principal				Recorded				Loan Losses				Recorded				Income				Interest
		Balance				Investment				Allocated				Investment				Recognized				Received
With no related allowance recorded
Commercial		$	349			$	309			$	0			$	309			$	0			$	0
Residential real estate
Home equity lines of credit			50				50				0				50				0				0
Multifamily properties			0				0				0				264				0				0
Other			2,060				2,045				0				2,059				0				0
Nonresidential real estate
Owner occupied properties			188				188				0				574				0				0
Non owner occupied properties			1,894				1,892				0				2,317				0				0
Construction			655				355				0				178				0				0
With an allowance recorded
Commercial			557				557				138				1,001				2				1
Residential real estate
Home equity lines of credit			137				137				137				137				0				0
Multifamily properties			2,115				1,784				241				892				11				11
Other			3,729				3,654				492				3,642				21				17
Nonresidential real estate
Owner occupied properties			9,009				9,008				1,124				9,037				78				77
Non owner occupied properties			9,644				8,824				1,155				8,246				47				22
Construction			8,834				7,722				4,229				8,824				46				41
Total		$	39,221			$	36,525			$	7,516			$	37,530			$	205			$	169

  

The following table presents individually impaired loans by class of loans as of and for the six months ended June 30, 2012 (in thousands):

 

		Unpaid								Allowance for				Average				Interest
		Principal				Recorded				Loan Losses				Recorded				Income				Interest
		Balance				Investment				Allocated				Investment				Recognized				Received
With no related allowance recorded
Commercial		$	349			$	309			$	0			$	309			$	0			$	0
Residential real estate
Home equity lines of credit			50				50				0				50				0				0
Multifamily properties			0				0				0				398				0				0
Other			2,060				2,045				0				1,973				0				0
Nonresidential real estate
Owner occupied properties			188				188				0				802				0				0
Non owner occupied properties			1,894				1,892				0				2,373				0				0
Construction			655				355				0				169				0				0
With an allowance recorded
Commercial			557				557				138				1,013				3				1
Residential real estate
Home equity lines of credit			137				137				137				103				0				0
Multifamily properties			2,115				1,784				241				446				11				11
Other			3,729				3,654				492				3,681				45				40
Nonresidential real estate
Owner occupied properties			9,009				9,008				1,124				9,235				158				156
Non owner occupied properties			9,644				8,824				1,155				7,884				109				72
Construction			8,834				7,722				4,229				8,778				118				110
Total		$	39,221			$	36,525			$	7,516			$	37,214			$	444			$	390

  

The following table presents individually impaired loans by class of loans as of and for the six months ended June 30, 2011 (in thousands):

 

		Unpaid								Allowance for				Average				Interest
		Principal				Recorded				Loan Losses				Recorded				Income				Interest
		Balance				Investment				Allocated				Investment				Recognized				Received
With no related allowance recorded
Commercial		$	722			$	432			$	0			$	371			$	0			$	0
Residential real estate
Home equity lines of credit			0				0				0				0				0				0
Multifamily properties			0				0				0				17				0				0
Other			2,529				2,529				0				1,337				0				0
Nonresidential real estate
Owner occupied properties			341				218				0				143				0				0
Non owner occupied properties			1,196				1,190				0				867				0				0
Construction			1,757				928				0				464				0				0
With an allowance recorded
Commercial			3,616				3,361				1,320				2,230				7				4
Residential real estate
Home equity lines of credit			0				0				0				0				0				0
Multifamily properties			870				870				247				871				28				19
Other			2,679				2,660				581				2,610				36				34
Nonresidential real estate
Owner occupied properties			897				897				178				1,503				1				1
Non owner occupied properties			9,332				7,915				1,753				9,252				125				120
Construction			10,432				9,191				3,587				8,829				127				108
Total		$	34,371			$	30,191			$	7,666			$	28,494			$	324			$	286

  

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

 

		Unpaid								Allowance for
		Principal				Recorded				Loan Losses
		Balance				Investment				Allocated
With no related allowance recorded
Commercial		$	350			$	310			$	0
Residential real estate
Home equity lines of credit			50				50				0
Multifamily properties			538				538				0
Other			1,703				1,703				0
Nonresidential real estate
Owner occupied properties			1,101				1,101				0
Non owner occupied properties			2,122				2,116				0
Construction			356				319				0
With an allowance recorded
Commercial			733				607				224
Residential real estate
Home equity lines of credit			0				0				0
Multifamily properties			0				0				0
Other			3,859				3,809				477
Nonresidential real estate
Owner occupied properties			10,771				9,798				1,477
Non owner occupied properties			8,476				7,375				1,517
Construction			8,267				7,535				3,748
Total		$	38,326			$	35,261			$	7,443

 

The following table presents the aging of the recorded investment in past due loans by class of loans as of June 30, 2012 and December 31, 2011 (in thousands):

 

		Loans				Loans over
		30-90 days				90 days								Loans not
		past due				past due				Nonaccrual				past due				Total
June 30, 2012
Commercial		$	498			$	0			$	1,074			$	180,360			$	181,932
Residential real estate
Home equity lines of credit			241				0				1,095				100,244				101,580
Multifamily properties			0				0				448				42,908				43,356
Other residential real estate			1,055				0				4,388				129,756				135,199
Nonresidential real estate
Owner occupied properties			1,747				0				1,653				263,562				266,962
Non owner occupied properties			3,369				126				3,583				265,708				272,786
Construction			78				0				3,798				96,218				100,094
Consumer
Credit card balances			20				68				0				6,239				6,327
Other consumer			43				1				226				9,710				9,980
Municipal obligations			0				0				0				27,014				27,014
Total		$	7,051			$	195			$	16,265			$	1,121,719			$	1,145,230

 

		Loans				Loans over
		30-90 days				90 days								Loans not
		past due				past due				Nonaccrual				past due				Total
December 31, 2011
Commercial		$	692			$	74			$	1,175			$	191,235			$	193,176
Residential real estate
Home equity lines of credit			1,094				0				910				92,676				94,680
Multifamily properties			0				0				0				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				0				2,270				247,875				252,768
Non owner occupied properties			3,942				0				4,358				262,417				270,717
Construction			265				0				1,897				102,626				104,788
Consumer
Credit card balances			60				32				0				6,400				6,492
Other consumer			37				1				626				9,462				10,126
Municipal obligations			0				0				0				27,066				27,066
Total		$	14,567			$	219			$	15,651			$	1,100,964			$	1,131,401

  

Troubled Debt Restructurings:

 

The Company has allocated $4,374,000 and $2,074,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2012 and December 31, 2011, respectively. Troubled debt restructurings totaled $20,737,000 and $15,229,000 as of June 30, 2012 and December 31, 2011, respectively. The Company has not committed to lend additional amounts as of June 30, 2012 and December 31, 2011 to customers with outstanding loans that are classified 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 six months ending June 30, 2012:

 

						Pre-Modification				Post-Modification
						Outstanding Recorded				Outstanding Recorded
		Number of Loans				Investment				Investment
Troubled Debt Restructurings:
Commercial			3			$	508,281			$	467,796
Residential real estate
Home equity lines of credit			0				0				0
Multifamily properties
Other residential real estate			6				4,170,926				4,049,039
Nonresidential real estate
Owner occupied properties			3				8,137,536				7,857,519
Non owner occupied properties			4				3,661,111				3,152,428
Construction			6				5,463,376				5,210,624
Consumer
Credit card balances			0				0				0
Other consumer			0				0				0
Municipal obligations							0				0
Total			22			$	21,941,230			$	20,737,406

 

The troubled debt restructurings described above increased the allowance for loan losses by $681,727 and resulted in charge-offs of $1,112,147 during the second quarter ending June 30, 2012 and $1,262,147 for the six months ending June 30, 2012.

 

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 June 30, 2012:

 

 

Troubled Debt Restructurings
That Subsequently Defaulted:		Number of Loans				Recorded Investment
Commercial			3			$	467,796
Residential real estate
Home equity lines of credit
Multifamily properties
Other residential real estate			3				3,195,080
Nonresidential real estate
Owner occupied properties			1				7,647,784
Non owner occupied properties			3				1,472,171
Construction			2				3,168,504
Consumer
Credit card balances
Other consumer
Municipal obligations			0				0
Total			12			$	15,951,335

 

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 $411,322 and resulted in charge-offs of $1,112,147 during the second quarter ending June 30, 2012 and $1,262,147 for the six months ending June 30, 2012.

 

Credit Quality Indicators:

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: 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 $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. Loans with balances below $100,000 and homogenous loans, such as residential real estate and consumer loans, are analyzed for credit quality based on aging status, which was previously presented. 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.

 

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

 

						Special
		Pass				Mention				Substandard				Doubtful				Not Rated(1)				Total
June 30, 2012
Commercial		$	161,292			$	16,847			$	3,793			$	0			$	0			$	181,932
Residential real estate
Home equity lines of credit			11,472				965				1,006				90				88,047				101,580
Multifamily properties			41,471				101				1,784				0				0				43,356
Other residential real estate			40,109				1,133				10,844				31				83,082				135,199
Nonresidential real estate
Owner occupied properties			232,488				16,713				17,761				0				0				266,962
Non owner occupied properties			249,678				7,827				15,281				0				0				272,786
Construction			85,966				3,383				10,745				0				0				100,094
Consumer
Credit card balances			0				0				0				2				6,325				6,327
Other consumer			0				0				16				0				9,964				9,980
Municipal obligations			27,014				0				0				0				0				27,014
Total		$	849,490			$	46,969			$	61,230			$	123			$	187,418			$	1,145,230

 

(1) Not rated loans represent the homogenous pools risk category.

 

						Special
		Pass				Mention				Substandard				Doubtful				Not Rated(1)				Total
December 31, 2011
Commercial		$	170,394			$	9,684			$	13,098			$	0			$	0			$	193,176
Residential real estate
Home equity lines of credit			0				712				976				84				92,908				94,680
Multifamily properties			36,115				103				538				0				0				36,756
Other residential real estate			38,725				1,357				10,843				0				83,907				134,832
Nonresidential real estate
Owner occupied properties			221,941				7,754				23,073				0				0				252,768
Non owner occupied properties			246,614				8,902				15,201				0				0				270,717
Construction			90,297				3,398				11,093				0				0				104,788
Consumer
Credit card balances			0				0				0				0				6,492				6,492
Other consumer			0				0				22				0				10,104				10,126
Municipal obligations			27,066				0				0				0				0				27,066
Total		$	831,152			$	31,910			$	74,844			$	84			$	193,411			$	1,131,401

 

(1) Not rated loans represent the homogenous pools risk category.