Edgar Filing: INTERMOUNTAIN COMMUNITY BANCORP

IMCB-2011.9.30-10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER 000-50667

INTERMOUNTAIN COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)




Idaho		82-0499463
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

414 Church Street, Sandpoint, ID 83864

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code:

(208) 263-0505

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The number of shares outstanding of the registrant’s Common Stock, no par value per share, as of November 7, 2011 was 8,409,840.

Table of Contents

Intermountain Community Bancorp

FORM 10-Q

For the Quarter Ended September 30, 2011

TABLE OF CONTENTS





PART I — Financial Information
Item 1 — Financial Statements (Unaudited)
Consolidated Balance Sheets for September 30, 2011 and December 31, 2010	3
Consolidated Statements of Operations for the three months and nine months ended September 30, 2011 and 2010	4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010	5
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2011 and 2010	7
Notes to Consolidated Financial Statements	8
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3 — Quantitative and Qualitative Disclosures About Market Risk	59
Item 4 — Controls and Procedures	59
PART II — Other Information
Item 1 — Legal Proceedings	59
Item 1A — Risk Factors	60
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3 — Defaults Upon Senior Securities	66
Item 4 — [Removed and Reserved]	66
Item 5 — Other Information	66
Item 6 — Exhibits	66
Signatures	67
EX-31.1
EX-31.2
EX-32
EX-101

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PART I — Financial Information

Item - 1 Financial Statements

Intermountain Community Bancorp

Consolidated Balance Sheets

(Unaudited)



	September 30, 2011			December 31, 2010
	(Dollars in thousands)
ASSETS
Cash and cash equivalents:
Interest-bearing	$	84,599		$	132,693
Non-interest bearing and vault	13,483			11,973
Restricted cash	2,975			3,290
Available-for-sale securities, at fair value	193,209			183,081
Held-to-maturity securities, at amortized cost	21,670			22,217
Federal Home Loan Bank (“FHLB”) of Seattle stock, at cost	2,310			2,310
Loans held for sale	2,352			3,425
Loans receivable, net	525,478			563,228
Accrued interest receivable	4,052			4,360
Office properties and equipment, net	38,309			40,246
Bank-owned life insurance	9,034			8,765
Other intangibles	218			310
Other real estate owned (“OREO”)	7,378			4,429
Prepaid expenses and other assets	21,456			24,782
Total assets	$	926,523		$	1,005,109
LIABILITIES
Deposits	$	749,985		$	778,833
Securities sold subject to repurchase agreements	57,122			105,116
Advances from Federal Home Loan Bank	29,000			34,000
Cashier checks issued and payable	404			580
Accrued interest payable	1,575			1,406
Other borrowings	16,527			16,527
Accrued expenses and other liabilities	11,327			9,294
Total liabilities	865,940			945,756
Commitments and contingent liabilities
STOCKHOLDERS’ EQUITY
Common stock 300,000,000 shares authorized; 8,427,447 and 8,431,385 shares issued and 8,409,840 and 8,390,877 shares outstanding as of September 30, 2011 and December 31, 2010, respectively	78,868			78,803
Preferred stock 1,000,000 shares authorized; 27,000 shares issued and outstanding as of September 30, 2011 and December 31, 2010	26,059			25,794
Accumulated other comprehensive income (loss), net of tax	2,383			(1,229		)
Accumulated deficit	(46,727		)	(44,015		)
Total stockholders’ equity	60,583			59,353
Total liabilities and stockholders’ equity	$	926,523		$	1,005,109

The accompanying notes are an integral part of the consolidated financial statements.

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Intermountain Community Bancorp

Consolidated Statements of Operations

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(Dollars in thousands, except per share data)
Interest income:
Loans	$	8,224		$	9,563		$	24,990		$	29,026
Investments	2,385			2,174			6,897			5,926
Total interest income	10,609			11,737			31,887			34,952
Interest expense:
Deposits	1,158			1,862			3,540			6,303
Other borrowings	643			849			1,843			2,444
Total interest expense	1,801			2,711			5,383			8,747
Net interest income	8,808			9,026			26,504			26,205
Provision for losses on loans	(2,239		)	(10,058		)	(6,584		)	(21,780		)
Net interest income after provision for losses on loans	6,569			(1,032		)	19,920			4,425
Other income:
Fees and service charges	1,692			1,898			5,226			5,733
Loan related fee income	524			642			1,644			1,934
Net gain on sale of securities	12			206			12			349
Other-than-temporary impairment (“OTTI”) losses on investments (1)	(81		)	(349		)	(81		)	(605		)
Bank-owned life insurance	88			92			269			277
Other	248			328			810			650
Total other income	2,483			2,817			7,880			8,338
Operating expenses	9,812			21,918			29,164			44,754
Loss before income taxes	(760		)	(20,133		)	(1,364		)	(31,991		)
Income tax (provision) benefit	—			(4,169		)	—			882
Net loss	(760		)	(24,302		)	(1,364		)	(31,109		)
Preferred stock dividend	457			432			1,348			1,279
Net loss applicable to common stockholders	$	(1,217	)	$	(24,734	)	$	(2,712	)	$	(32,388	)
Loss per share — basic	$	(0.14	)	$	(2.95	)	$	(0.32	)	$	(3.86	)
Loss per share — diluted	$	(0.14	)	$	(2.95	)	$	(0.32	)	$	(3.86	)
Weighted average common shares outstanding — basic	8,409,840			8,390,877			8,405,422			8,383,841
Weighted average common shares outstanding — diluted	8,409,840			8,390,877			8,405,422			8,383,841

_____________________________________


(1)	Consisting of $0, $0, $0 and $1,529 of total other-than-temporary impairment net losses, net of $(81), $(349), $(81) and $924 recognized in other comprehensive income, for the three months ended September 30, 2011, and September 30, 2010 and nine months ended September 30, 2011 and September 30, 2010, respectively.

The accompanying notes are an integral part of the consolidated financial statements.

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Intermountain Community Bancorp

Consolidated Statements of Cash Flows

(Unaudited)



	Nine Months Ended
	September 30,
	2011			2010
	(Dollars in thousands)
Cash flows from operating activities:
Net loss	$	(1,364	)	$	(31,109	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	2,262			2,356
Stock-based compensation expense	168			281
Net amortization of premiums on securities	1,636			2,317
Provisions for losses on loans	6,584			21,781
Goodwill impairment	—			11,662
Deferred tax asset valuation allowance	—			7,400
Amortization of core deposit intangibles	92			97
(Gain) on sale of loans, investments, property and equipment	(666		)	(1,629		)
(Gain) on sale of other real estate owned	(101		)	(299		)
OTTI credit loss on available-for-sale investments	81			605
Charge down on other real estate owned	928			2,593
Accretion of deferred gain on sale of branch property	(11		)	(11		)
Net accretion of loan and deposit discounts and premiums	13			(30		)
Increase in cash surrender value of bank-owned life insurance	(269		)	(277		)
Change in:
Accrued interest receivable	308			437
Prepaid expenses and other assets	860			(1,242		)
Accrued interest payable	169			83
Accrued expenses and other liabilities	835			(1,064		)
Proceeds from sale of loans	32,378			52,850
Originations of loans held for sale	(30,650		)	(48,062		)
Net cash provided by operating activities	13,253			18,739
Cash flows from investing activities:
Purchases of available-for-sale securities	(47,352		)	(45,706		)
Proceeds from calls or maturities of available-for-sale securities	7,734			15,338
Principal payments on mortgage-backed securities	33,738			39,300
Purchases of held-to-maturity securities	—			(7,927		)
Proceeds from calls or maturities of held-to-maturity securities	524			853
Origination of loans, net principal payments	22,240			34,673
Purchase of office properties and equipment	(326		)	(852		)
Proceeds from sale of office properties and equipment	—			40
Proceeds from sale of other real estate owned	5,136			9,400
Net change in restricted cash	315			(1,015		)
Net cash provided by investing activities	22,009			44,104
Cash flows from financing activities:
Net change in demand, money market and savings deposits	6,283			(9,045		)
Net change in certificates of deposit	(35,131		)	(21,773		)
Net change in repurchase agreements	(47,994		)	(14,477		)
Payoff of FHLB advances	(5,000		)	(15,000		)
Retirement of treasury stock	(4		)	(4		)
Net cash used in financing activities	(81,846		)	(60,299		)
Net change in cash and cash equivalents	(46,584		)	2,544
Cash and cash equivalents, beginning of period	144,666			103,189
Cash and cash equivalents, end of period	$	98,082		$	105,733
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	5,212		$	8,664
Income taxes, net of tax refunds received	8			(7,144		)
Noncash investing and financing activities:
Loans converted to other real estate owned	8,912			6,581
Accrual of preferred stock dividend	1,083			1,032

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The accompanying notes are an integral part of the consolidated financial statements.

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Intermountain Community Bancorp

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(Dollars in thousands)
Net loss	$	(760	)	$	(24,302	)	$	(1,364	)	$	(31,109	)
Other comprehensive income:
Change in unrealized gains on investments, and mortgage backed securities (“MBS”) available for sale, excluding non-credit loss on impairment of securities	1,903			1,789			5,848			6,695
Non-credit loss on impairment on available-for-sale debt	81			349			81			(924		)
Less deferred income tax provision	(785		)	(846		)	(2,346		)	(2,285		)
Change in fair value of qualifying cash flow hedge	22			5			29			176
Net other comprehensive income	1,221			1,297			3,612			3,662
Comprehensive income (loss)	$	461		$	(23,005	)	$	2,248		$	(27,447	)

The accompanying notes are an integral part of the consolidated financial statements.

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Intermountain Community Bancorp

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation:

The foregoing unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of Intermountain Community Bancorp’s (“Intermountain’s” or “the Company’s”) consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of Intermountain’s consolidated financial position and results of operations.

2. Investments:

The amortized cost and fair values of investments are as follows (in thousands):

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	Available-for-Sale
	Amortized Cost		Non-Credit OTTI Recognized in OCI (Losses)			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value/ Carrying Value
September 30, 2011
U.S. treasury securities and obligations of U.S. government agencies	$	7,819	$	—		$	621	$	—		$	8,440
State and municipal securities	7,253		—			727		—			7,980
Mortgage-backed securities - Agency Pass Throughs	63,483		—			2,673		—			66,156
Mortgage-backed securities - Agency CMO's	83,307		—			2,273		(88		)	85,492
Mortgage-backed securities - Non Agency CMO's (investment grade)	6,362		—			416					6,778
Mortgage-backed securities - Non Agency CMO's (below investment grade)	20,374		(1,845		)	854		(1,020		)	18,363
	$	188,598	$	(1,845	)	$	7,564	$	(1,108	)	$	193,209
December 31, 2010
U.S. treasury securities and obligations of U.S. government agencies	$	4,020	$	—		$	—	$	(95	)	$	3,925
State and municipal securities	5,251		—			28		(49		)	5,230
Mortgage-backed securities - Agency Pass Throughs	53,593		—			1,357		(267		)	54,683
Mortgage-backed securities - Agency CMO's	88,503		—			1,365		(232		)	89,636
Mortgage-backed securities - Non Agency CMO's (investment grade)	11,344		—			200		(217		)	11,327
Mortgage-backed securities - Non Agency CMO's (below investment grade)	21,689		(1,926		)	726		(2,209		)	18,280
	$	184,400	$	(1,926	)	$	3,676	$	(3,069	)	$	183,081
	Held-to-Maturity
	Carrying Value / Amortized Cost		Non-Credit OTTI Recognized in OCI (Losses)			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2011
State and municipal securities	$	21,670	$	—		$	1,187	$	—		$	22,857
December 31, 2010
State and municipal securities	$	22,217	$	—		$	280	$	(385	)	$	22,112

The following table summarizes the duration of Intermountain’s unrealized losses on available-for-sale and held-to-maturity securities as of the dates indicated (in thousands).



	Less Than 12 Months				12 Months or Longer				Total
September 30, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. treasury securities and obligations of U.S. government agencies	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal securities	—		—		—		—		—		—
Mortgage-backed securities & CMO’s	4,757		61		14,801		1,047		19,558		1,108
Total	$	4,757	$	61	$	14,801	$	1,047	$	19,558	$	1,108

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	Less Than 12 Months				12 Months or Longer				Total
December 31, 2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. treasury securities and obligations of U.S. government agencies	$	3,897	$	95	$	—	$	—	$	3,897	$	95
State and municipal securities	11,713		434		—		—		11,713		434
Mortgage-backed securities & CMO’s	36,338		581		14,447		2,344		50,785		2,925
Total	$	51,948	$	1,110	$	14,447	$	2,344	$	66,395	$	3,454

At September 30, 2011, the amortized cost and fair value of available-for-sale and held-to-maturity debt securities, by contractual maturity, are as follows (in thousands):



	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	—	$	—	$	129	$	133
After one year through five years	22		22		875		931
After five years through ten years	9,807		10,497		9,312		9,916
After ten years	5,243		5,901		11,354		11,877
Subtotal	15,072		16,420		21,670		22,857
Mortgage-backed securities	173,526		176,789		—		—
Total Securities	$	188,598	$	193,209	$	21,670	$	22,857

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Intermountain’s investment portfolios are managed to provide and maintain liquidity; to maintain a balance of high quality, diversified investments to minimize risk; to offset other asset portfolio elements in managing interest rate risk; to provide collateral for pledging; and to maximize returns. At September 30, 2011, the Company does not intend to sell any of its available-for-sale securities that have a loss position and it is not likely that it will be required to sell the available-for-sale securities before the anticipated recovery of their remaining amortized cost or maturity date. The unrealized losses on residential mortgage-backed securities without other-than-temporary impairment (“OTTI”) were considered by management to be temporary in nature.

Investment securities are reviewed on an ongoing basis for the presence of OTTI impairment, taking into consideration current market conditions, fair value in relationship to cost, the extent and nature of the change in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is likely that we will be required to sell the security before recovery of our amortized cost basis of the investment, which may be at maturity, and other factors.

For the calculation and presentation of OTTI of debt securities, the Company considers whether they intend to sell a security or if it is likely that they would be required to sell the security before recovery of the amortized cost basis of the investment, which may be maturity. For debt securities, if the Company intends to sell the security or it is likely that it will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If the Company does not intend to sell the security and it is not likely that it will be required to sell the security but does not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis, less prior credit impairment losses taken, and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are presented as separate categories within OCI. For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the amount recorded in OCI increases the carrying value of the investment and does not affect earnings. If there is an indication of additional credit losses the security is reevaluated according to the procedures described above.

The following table presents the OTTI losses for the nine months ended September 30, 2011 and September 30, 2010:

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	2011				2010
	Held To Maturity		Available For Sale		Held To Maturity		Available For Sale
Total other-than-temporary impairment losses	$	—	$	—	$	—	$	1,529
Portion of other-than-temporary impairment losses transferred from (recognized in) other comprehensive income (1)	—		81		—		(924		)
Net impairment losses recognized in earnings (2)	$	—	$	81	$	—	$	605

_____________________________


(1)	Represents other-than-temporary impairment losses related to all other factors.


(2)	Represents other-than-temporary impairment losses related to credit losses.

The OTTI recognized on investment securities available for sale relates to two non-agency collateralized mortgage obligations. The Company recognized OTTI on the first investment security in the first quarter of 2009 and the second security in the second quarter of 2010. Each of these securities holds various levels of credit subordination. These securities were valued by third-party pricing services using matrix or model pricing methodologies and were corroborated by broker indicative bids. We estimated the cash flows of the underlying collateral for each security considering credit, interest and prepayment risk models that incorporate management’s estimate of projected key assumptions including prepayment rates, collateral default rates and loss severity. Assumptions utilized vary from security to security, and are influenced by factors such as underlying loan interest rates, geographic location, borrower characteristics, vintage, and historical experience. We then used a third party to obtain information about the structure of each security, including subordination and other credit enhancements, in order to determine how the underlying collateral cash flows will be distributed to each security issued in the structure. These cash flows were then discounted at the interest rate equal to the yield anticipated at the time the security was purchased. We review the actual collateral performance of these securities on a quarterly basis and update the inputs as appropriate to determine the projected cash flows.

See Note 11 “Fair Value of Financial Instruments” for more information on the calculation of fair or carrying value for the investment securities.

3. Loans and Allowance for Loan Losses:

The components of loans receivable are as follows (in thousands):



	September 30, 2011
	Loans Receivable			%		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Commercial	$	114,616		21.2	%	$	11,154	$	103,462
Commercial real estate	169,189			31.3		13,319		155,870
Commercial construction	17,153			3.2		1,734		15,419
Land and land development loans	43,603			8.1		6,853		36,750
Agriculture	82,879			15.4		3,601		79,278
Multifamily	26,902			5.0		—		26,902
Residential real estate	62,152			11.5		3,776		58,376
Residential construction	2,974			0.6		16		2,958
Consumer	12,157			2.3		597		11,560
Municipal	8,085			1.4		—		8,085
Total loans receivable	539,710			100.0	%	$	41,050	$	498,660
Allowance for loan losses	(14,367		)
Deferred loan fees, net of direct origination costs	135
Loans receivable, net	$	525,478
Weighted average interest rate	5.83		%

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	December 31, 2010
	Loans Receivable			%		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Commercial	$	122,656		21.3	%	$	10,698	$	111,958
Commercial real estate	175,559			30.5		13,077		162,482
Commercial construction	17,951			3.1		691		17,260
Land and land development loans	60,962			10.6		5,995		54,967
Agriculture	87,364			15.2		1,460		85,904
Multifamily	26,417			4.6		—		26,417
Residential real estate	60,872			10.6		3,276		57,596
Residential construction	3,219			0.6		277		2,942
Consumer	14,095			2.4		1,094		13,001
Municipal	6,528			1.1		—		6,528
Total loans receivable	575,623			100.0	%	$	36,568	$	539,055
Allowance for loan losses	(12,455		)
Deferred loan fees, net of direct origination costs	60
Loans receivable, net	$	563,228
Weighted average interest rate	6.04		%

The components of allowance for loan loss by types are as follows (in thousands):



	September 30, 2011
	Total Allowance		Individually Evaluated Allowance		Collectively Evaluated Allowance
Commercial	$	2,751	$	1,275	$	1,476
Commercial real estate	5,563		3,652		1,911
Commercial construction	722		377		345
Land and land development loans	2,099		741		1,358
Agriculture	802		6		796
Multifamily	95		—		95
Residential real estate	1,643		953		690
Residential construction	80		16		64
Consumer	584		461		123
Municipal	28		—		28
Total	$	14,367	$	7,481	$	6,886

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	December 31, 2010
	Total Allowance		Individually Evaluated Allowance		Collectively Evaluated Allowance
Commercial	$	2,925	$	744	$	2,181
Commercial real estate	3,655		1,475		2,180
Commercial construction	540		145		395
Land and land development loans	2,408		770		1,638
Agriculture	779		92		687
Multifamily	83		—		83
Residential real estate	1,252		545		707
Residential construction	65		—		65
Consumer	613		449		164
Municipal	135		—		135
Total	$	12,455	$	4,220	$	8,235

A summary of current, past due and nonaccrual loans as of September 30, 2011 is as follows, (in thousands):



	Current		30-89 Days Past Due		90 Days or More Past Due and Accruing		Nonaccrual		Total
Commercial	$	110,790	$	97	$	—	$	3,729	$	114,616
Commercial real estate	165,311		533		—		3,345		169,189
Commercial construction	17,106		—		—		47		17,153
Land and land development loans	41,146		189		—		2,268		43,603
Agriculture	82,339		136		—		404		82,879
Multifamily	26,902		—		—		—		26,902
Residential real estate	61,289		469		—		394		62,152
Residential construction	2,958		—		—		16		2,974
Consumer	11,856		175		—		126		12,157
Municipal	8,085		—		—		—		8,085
Total	$	527,782	$	1,599	$	—	$	10,329	$	539,710

A summary of current, past due and nonaccrual loans as of December 31, 2010 is as follows, (in thousands):



	Current		30-89 Days Past Due		90 Days or More Past Due and Accruing		Nonaccrual		Total
Commercial	$	118,036	$	761	$	—	$	3,859	$	122,656
Commercial real estate	171,633		360		—		3,566		175,559
Commercial construction	17,880		—		—		71		17,951
Land and land development loans	58,537		515		—		1,910		60,962
Agriculture	86,782		—		—		582		87,364
Multifamily	26,417		—		—		—		26,417
Residential real estate	58,481		1,361		66		964		60,872
Residential construction	3,109		—		—		110		3,219
Consumer	13,664		42		—		389		14,095
Municipal	6,528		—		—		—		6,528
Total	$	561,067	$	3,039	$	66	$	11,451	$	575,623

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The following table provides a summary of Troubled Debt Restructuring ("TDR") by performing status, (in thousands).




	September 30, 2011						December 31, 2010
Troubled Debt Restructurings	Nonaccrual		Accrual		Total		Nonaccrual		Accrual			Total
Commercial	$	325	$	193	$	518	$	—	$	104		$	104
Commercial real estate	1,889		—		1,889		2,154		189			2,343
Commercial construction	47		295		342		49		495			544
Land and land development loans	915		455		1,370		—		1,165			1,165
Agriculture	22		—		22		—		—		.	—
Residential real estate	—		1,388		1,388		—		682			682
Residential construction	16		—		16		—		—			—
Consumer	27		79		106		—		—			—
Total	$	3,241	$	2,410	$	5,651	$	2,203	$	2,635		$	4,838

A modified loan is considered a TDR when two conditions are met: 1) the borrower is experiencing documented financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. Modified terms are dependent upon the financial position and needs of the individual borrower, as the Company does not employ modification programs for temporary or trial periods. The most common types of modifications include interest rate adjustments, covenant modifications, forbearance and/or other concessions. If the modification agreement is violated, the loan is handled by the Company's Special Assets group for resolution, which may result in foreclosure.

Generally, TDRs are classified as impaired loans and TDRs for the remaining life of the loan. Impaired and TDR classification may be removed if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring. TDRs were $5.7 million and $4.8 million at September 30, 2011 and December 31, 2010, respectively. The company adopted the provisions of FASB ASU 2011-2, “A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” for the period ended September 30, 2011. The Company reviewed all restructurings that occurred between January 1, 2011 and September 30, 2011 for compliance with ASU 2011-02. The adoption of this ASU did not have a material impact on the company's consolidated financial statements.

The Company's loans that were modified in the three and nine month periods ended September 30, 2011 and considered a TDR are as follows (dollars in thousands):



	Three months ended September 30, 2011					Nine months ended September 30, 2011
	Number	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial	1	$	79	$	79	3	$	1,821	$	1,821
Land and land development loans	3	205		205		8	2,467		2,466
Agriculture	—	—		—		1	58		58
Residential real estate	1	8		8		7	945		945
Residential construction	—	—		—		1	123		123
Consumer	—	—		—		5	128		128
	5	$	292	$	292	25	$	5,542	$	5,541

The balances below provide information as to how the loans were modified as TDRs during the three and nine months ended September 30, 2011, (in thousands).

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	Three months ended September 30, 2011				Nine months ended September 30, 2011
	Adjusted Interest Rate Only		Other*		Adjusted Interest Rate Only		Other*
Commercial	$	79	$	—	$	79	$	1,742
Land and land development loans	205		—		455		2,011
Agriculture	—		—		—		58
Residential real estate	8		—		912		33
Residential construction	—		—		—		123
Consumer	—		—		128		—
	$	292	$	—	$	1,574	$	3,967

(*) Other includes term or principal concessions or a combination of concessions, including interest rates.

The allowance for loan losses and reserve for unfunded commitments are maintained at levels considered adequate by management to provide for probable loan losses as of the Consolidated Balance Sheet reporting dates. The allowance for loan losses and reserve for unfunded commitments are based on management’s assessment of various factors affecting the loan portfolio, including problem loans, business conditions and loss experience, and an overall evaluation of the quality of the underlying collateral. Changes in the allowance for loan losses and the reserve for unfunded commitments during the nine-month period ending September 30 are as follows:



	Allowance for Loan Losses September 30, 2011
	Balance, Beginning of Year		Charge-Offs Jan 1 through Sept 30, 2011			Recoveries Jan 1 through Sept 30, 2011		Provision			Balance, End of Period
	(Dollars in thousands)
Commercial	$	2,925	$	(1,202	)	$	580	$	448		$	2,751
Commercial real estate	3,655		(835		)	185		2,558			5,563
Commercial construction	540		—			—		182			722
Land and land development loans	2,408		(2,661		)	344		2,008			2,099
Agriculture	779		(332		)	49		306			802
Multifamily	83		—			—		12			95
Residential real estate	1,252		(687		)	113		965			1,643
Residential construction	65		(18		)	—		33			80
Consumer	613		(321		)	113		179			584
Municipal	135		—			—		(107		)	28
Allowance for loan losses	$	12,455	$	(6,056	)	$	1,384	$	6,584		$	14,367

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	Allowance for Loan Losses September 30, 2010
	Balance, Beginning of Year		Charge-Offs Jan 1 through Sept 30, 2010			Recoveries Jan 1 through Sept 30, 2010		Provision		Balance, End of Period
	(Dollars in thousands)
Commercial	$	4,785	$	(9,011	)	$	360	$	8,100	$	4,234
Commercial real estate	3,827		(4,444		)	271		3,848		3,502
Commercial construction	1,671		(1,203		)	10		101		579
Land and land development loans	2,707		(7,640		)	77		7,409		2,553
Agriculture	1,390		(725		)	11		273		949
Multifamily	26		(16		)	—		86		96
Residential real estate	1,412		(1,429		)	35		1,423		1,441
Residential construction	170		(93		)	—		158		235
Consumer	539		(395		)	138		353		635
Municipal	81		—			—		29		110
Allowances for loan losses	$	16,608	$	(24,956	)	$	902	$	21,780	$	14,334

Allowance for Unfunded Commitments



	September 30
	2011			2010
	(Dollars in thousands)
Balance Beginning January 1	$	17		$	11
Adjustment	(1		)	5
Transfers	—			—
Allowance — Unfunded Commitments at end of period	$	16		$	16

Management's policy is to charge off loans or portions of loans as soon as an identifiable loss amount can be determined from evidence obtained, such as current cash flow information, updated appraisals or similar real estate evaluations, equipment, inventory or similar collateral evaluations, accepted offers on loan sales or negotiated discounts, and/or guarantor asset valuations. In situations where problem loans are dependent on collateral liquidation for repayment, management obtains updated independent valuations, such as appraisals or broker opinions, generally no less frequently than once every six months and more frequently for larger or more troubled loans. In the time period between these independent valuations, the Company monitors market conditions for any significant event or events that would materially change the valuations, and updates them as appropriate. If the valuations suggest an increase in collateral values, the Company does not recover prior amounts charged off until the assets are actually sold and the increase realized. However, if the updated valuations suggest additional loss, the Company charges the additional amount off.

The following table provides information with respect to impaired loans as of the quarter ended September 30, 2011:

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	September 30, 2011						Nine Months Ended September 30, 2011

	Recorded Investment		Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized (*)
	(Dollars in thousands)
With an allowance recorded:
Commercial	$	4,157	$	4,392	$	1,275	$	3,156	$	250
Commercial real estate	9,580		11,005		3,652		7,289		674
Commercial construction	1,180		1,315		377		781		60
Land and land development loans	3,362		5,423		741		2,979		289
Agriculture	66		117		6		176		20
Multifamily	—		—		—		—		—
Residential real estate	2,025		2,268		953		1,461		114
Residential construction	16		122		16		36		28
Consumer	494		530		461		487		33
Municipal	—		—		—		—		—
Total	$	20,880	$	25,172	$	7,481	$	16,365	$	1,468
Without an allowance recorded:
Commercial	$	6,997	$	10,961	$	—	$	7,995	$	963
Commercial real estate	3,739		4,791		—		5,230		392
Commercial construction	554		554		—		372		24
Land and land development loans	3,491		6,038		—		5,163		411
Agriculture	3,535		3,906		—		1,489		312
Multifamily	—		—		—		—		—
Residential real estate	1,751		1,935		—		2,047		112
Residential construction	—		—		—		153		—
Consumer	103		105		—		228		7
Municipal	—		—		—		—		—
Total	$	20,170	$	28,290	$	—	$	22,677	$	2,221
Total:
Commercial	$	11,154	$	15,353	$	1,275	$	11,151	$	1,213
Commercial real estate	13,319		15,796		3,652		12,519		1,066
Commercial construction	1,734		1,869		377		1,153		84
Land and land development loans	6,853		11,461		741		8,142		700
Agriculture	3,601		4,023		6		1,665		332
Multifamily	—		—		—		—		—
Residential real estate	3,776		4,203		953		3,508		226
Residential construction	16		122		16		189		28
Consumer	597		635		461		715		40
Municipal	—		—		—		—		—
Total	$	41,050	$	53,462	$	7,481	$	39,042	$	3,689
(*) Interest Income on individually impaired loans are calculated using the cash-basis method.

The following table provides information with respect to impaired loans as of the year ended December 31, 2010:

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	December 31, 2010						Twelve Months Ended December 31, 2010

	Recorded Investment		Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized (*)
	(Dollars in thousands)
With an allowance recorded:
Commercial	$	2,319	$	2,320	$	744	$	3,785	$	173
Commercial real estate	4,383		5,088		1,475		4,804		381
Commercial construction	406		407		145		425		17