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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

[x]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT   OF 1934
For the quarterly period ended March 31, 2011
[  ]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 0-15204

NATIONAL BANKSHARES, INC.
 (Exact name of registrant as specified in its charter)

Virginia
(State or other jurisdiction of incorporation or organization)
54-1375874
(I.R.S. Employer Identification No.)

101 Hubbard Street
P. O. Box 90002
Blacksburg, VA
 
 
24062-9002
(Address of principal executive offices)
(Zip Code)

(540) 951-6300
(Registrant’s telephone number, including area code)

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.  [x] Yes   [  ] No

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). [x] Yes   [ ] No

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.

Large accelerated filer  [  ]      Accelerated filer  [x]      Non-accelerated filer  [  ]       Smaller reporting company  [  ]
(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 Exchange Act).
[ ] Yes   [x] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class
Common Stock, $1.25 Par Value
Outstanding at May 1, 2011
6,935,974

(This report contains 42 pages)


 
 

 

NATIONAL BANKSHARES, INC. AND SUBSIDIARIES

Form 10-Q
Index


 
Page
     
Item 1
3
     
 
3 - 4
     
 
5 - 6
     
 
7
 
 
 
 
8 - 9
 
 
 
 
10 - 26
     
Item 2
27 - 36
     
Item 3
36
     
Item 4
36
     
   
     
Item 1
36
     
Item 1A
36
     
Item 2
36
     
Item 3
36
 
 
 
Item 4
36
 
 
 
Item 5
37
     
Item 6
37
     
 
37
     
 
38 – 39
     
 
40 - 42




 
2

 

Part I
Financial Information
Item 1. Financial Statements
National Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets

 
 
(Unaudited)
       
   
March 31,
   
December 31,
 
$ in thousands, except per share data
 
2011
   
2010
 
Assets
               
Cash and due from banks
 
$
11,800
   
$
9,858
 
Interest-bearing deposits
   
55,674
     
69,400
 
Securities available for sale, at fair value
   
190,844
     
184,907
 
Securities held to maturity (fair value approximates $133,858 at March 31, 2011 and $129,913 at December 31, 2010)
   
132,669
     
131,000
 
Mortgage loans held for sale
   
---
     
2,460
 
Loans:
               
Real estate construction loans
   
48,671
     
46,169
 
Real estate mortgage loans
   
173,785
     
173,533
 
Commercial and industrial loans
   
280,607
     
269,818
 
Loans to individuals
   
85,816
     
87,868
 
Total loans
   
588,879
     
577,388
 
Less unearned income and deferred fees
   
(977
)
   
 (945
)
Loans, net of unearned income and deferred fees
   
587,902
     
576,443
 
Less allowance for loan losses
   
(8,245
)
   
(7,664
)
Loans, net
   
579,657
     
568,779
 
Premises and equipment, net
   
10,366
     
10,470
 
Accrued interest receivable
   
6,514
     
6,016
 
Other real estate owned, net
   
2,222
     
1,723
 
Intangible assets and goodwill
   
11,272
     
11,543
 
Other assets
   
25,540
     
26,082
 
Total assets
 
$
1,026,558
   
$
1,022,238
 
                 
Liabilities and Stockholders' Equity
               
Noninterest-bearing demand deposits
 
$
136,769
   
$
131,540
 
Interest-bearing demand deposits
   
372,470
     
365,040
 
Savings deposits
   
58,273
     
55,800
 
Time deposits
   
318,383
     
332,203
 
Total deposits
   
885,895
     
884,583
 
Accrued interest payable
   
260
     
257
 
Other liabilities
   
6,738
     
8,211
 
Total liabilities
   
892,893
     
893,051
 
Commitments and contingencies
   
---
     
---
 

 
3

 


                 
Stockholders' Equity
               
        Preferred stock, no par value, 5,000,000 shares authorized; none issued and outstanding
 
$
---
   
$
---
 
Common stock of $1.25 par value.
               
Authorized 10,000,000 shares; issued and outstanding 6,935,974 shares at March 31, 2011 and 6,933,474 shares at December 31, 2010
   
8,670
     
8,667
 
Retained earnings
   
127,218
     
123,161
 
Accumulated other comprehensive loss, net
   
(2,223
)
   
(2,641
)
Total stockholders' equity
   
133,665
     
129,187
 
Total liabilities and stockholders' equity
 
$
1,026,558
   
$
1,022,238
 

See accompanying notes to consolidated financial statements.

 
4

 

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended March 31, 2011 and 2010
(Unaudited)


   
March 31,
   
March 31,
 
$ in thousands, except per share data
 
2011
   
2010
 
Interest Income
               
Interest and fees on loans
 
$
9,095
   
$
9,176
 
Interest on interest-bearing deposits
   
32
     
19
 
Interest on securities – taxable
   
1,662
     
1,443
 
Interest on securities – nontaxable
   
1,676
     
1,602
 
Total interest income
   
12,465
     
12,240
 
                 
Interest Expense
               
Interest on time deposits of $100,000 or more
   
561
     
946
 
Interest on other deposits
   
1,818
     
2,033
 
Total interest expense
   
2,379
     
2,979
 
Net interest income
   
10,086
     
9,261
 
Provision for loan losses
   
800
     
647
 
Net interest income after provision for loan losses
   
9,286
     
8,614
 
                 
Noninterest Income
               
Service charges on deposit accounts
   
612
     
714
 
Other service charges and fees
   
58
     
47
 
Credit card fees
   
733
     
666
 
Trust income
   
246
     
269
 
BOLI income
   
184
     
185
 
Other income
   
91
     
104
 
Realized securities gains (losses), net
   
10
     
(14
)
Total noninterest income
   
1,934
     
1,971
 
                 
Noninterest Expense
               
Salaries and employee benefits
   
2,904
     
2,856
 
Occupancy and furniture and fixtures
   
423
     
491
 
Data processing and ATM
   
444
     
357
 
FDIC assessment
   
346
     
263
 
Credit card processing
   
586
     
508
 
Intangible assets amortization
   
271
     
271
 
Net costs of other real estate owned
   
134
     
33
 
Franchise taxes
   
242
     
239
 
Other operating expenses
   
734
     
766
 
Total noninterest expense
   
6,084
     
5,784
 
Income before income taxes
   
5,136
     
4,801
 
Income tax expense
   
1,112
     
1,032
 
Net Income
 
$
4,024
   
$
3,769
 
 
 
 
5

 
 
 
                 
Basic net income per share
 
$
0.58
   
$
0.54
 
Fully diluted net income per share
 
$
0.58
   
$
0.54
 
Weighted average number of commonshares outstanding – basic
   
6,933,780
     
6,933,474
 
Weighted average number of commonshares outstanding – diluted
   
6,957,450
     
6,952,812
 
Dividends declared per share
 
$
---
   
$
---
 

See accompanying notes to consolidated financial statements.

 
6

 


National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended March 31, 2011 and 2010
(Unaudited)

$ in thousands
 
Common Stock
   
Retained Earnings
   
Accumulated Other Comprehensive Income (Loss)
   
Comprehensive Income
   
Total
 
Balances at December 31, 2009
  $ 8,667     $ 113,901     $ (492 )  
 
    $ 122,076  
Net income
    ---       3,769       ---     $ 3,769       3,769  
Other comprehensive income, net of tax:
                                       
Unrealized gain on securities available for sale, net of income tax $350
    ---       ---       ---       650       ---  
Reclass adjustment, net of tax $5
    ---       ---       ---       9       ---  
Other comprehensive income, net of tax $355
    ---       ---       659       659       659  
Comprehensive income
    ---       ---       ---     $ 4,428       ---  
Balances at March 31, 2010
  $ 8,667     $ 117,670     $ 167             $ 126,504  
                                         
Balances at December 31, 2010
  $ 8,667     $ 123,161     $ (2,641 )           $ 129,187  
Net income
    ---       4,024       ---     $ 4,024       4,024  
Stock options exercised
    3       33       ---               36  
Other comprehensive income, net of tax:
                                       
Unrealized gains on securities available for sale, net of income tax $228
    ---       ---       ---       423       ---  
Reclass adjustment, net of tax $(3)
    ---       ---       ---       (5 )     ---  
Other comprehensive income, net of tax $225
    ---       ---       418       418       418  
Comprehensive income
    ---       ---       ---     $ 4,442       ---  
Balances at March 31, 2011
  $ 8,670     $ 127,218     $ (2,223 )           $ 133,665  

See accompanying notes to consolidated financial statements.

 
7

 

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2011 and 2010
(Unaudited)

   
March 31,
   
March 31,
 
$ in thousands
 
2011
   
2010
 
Cash Flows from Operating Activities
           
Net income
  $ 4,024     $ 3,769  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    800       647  
Depreciation of bank premises and equipment
    209       223  
Amortization of intangibles
    271       271  
Amortization of premiums and accretion of discounts, net
    61       79  
(Gains) losses on sales and calls of securities available for sale, net
    (8 )     14  
(Gains) on calls of securities held to maturity, net
    (2 )     ---  
Losses and write-downs on other real estate owned
    100       29  
Net change in:
               
Mortgage loans held for sale
    2,460       (1,232 )
Accrued interest receivable
    (498 )     64  
Other assets
    228       (63 )
Accrued interest payable
    3       56  
Other liabilities
    (1,368 )     740  
Net cash provided by operating activities
    6,280       4,597  
                 
Cash Flows from Investing Activities
               
Net change interest-bearing deposits
    13,726       (22,976 )
Proceeds from calls, principal payments, sales and maturities of securities available for sale
    10,659       13,782  
Proceeds from calls, principal payments and maturities of securities held to maturity
    5,449       9,833  
Purchases of securities available for sale
    (16,000 )     (6,359 )
Purchases of securities held to maturity
    (7,138 )     (6,030 )
Collections of loan participations
    25       66  
Loan originations and principal collections, net
    (12,622 )     671  
Proceeds from disposal of other real estate owned
    295       210  
Recoveries on loans charged off
    25       24  
Additions to bank premises and equipment
    (105 )     (324 )
Net cash used in investing activities
    (5,686 )     (11,103 )
                 
Cash Flows from Financing Activities
               
Net change in time deposits
    (13,820 )     (5,188 )
Net change in other deposits
    15,132       10,544  
Stock options exercised
    36       ---  
Net cash provided by financing activities
    1,348       5,356  
Net change in cash and due from banks
    1,942       (1,150 )
Cash and due from banks at beginning of period
    9,858       12,894  
Cash and due from banks at end of period
  $ 11,800     $ 11,744  
 
 
 
8

 
 
 
Supplemental Disclosures of Cash Flow Information
               
Interest paid on deposits and borrowed funds
  $ 2,376     $ 2,923  
Income taxes paid
  $ ---     $ 576  
                 
Supplemental Disclosure of Noncash Activities
               
Loans charged against the allowance for loan losses
  $ 243     $ 456  
Loans transferred to other real estate owned
  $ 894     $ 680  
Unrealized gains on securities available for sale
  $ 643     $ 1,014  


See accompanying notes to consolidated financial statements.

 
9

 

National Bankshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)

$ in thousands, except per share data and % data

Note 1: General

The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (“NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The accompanying interim period consolidated financial statements are unaudited; however, in the opinion of management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.  The results of operations for the three months ended March 31, 2011 are not necessarily indicative of results of operations for the full year or any other interim period.  The interim period consolidated financial statements and financial information included in this Form 10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s 2010 Form 10-K.  The Company posts all reports required to be filed under the Securities and Exchange Act of 1934 on its web site at www.nationalbankshares.com.
Subsequent events have been considered through the date when the Form 10-Q was issued.
 
Note 2: Stock-Based Compensation

The Company had a stock option plan, the 1999 Stock Option Plan, that was adopted in 1999 and that was terminated on March 9, 2009. From 1999 to 2005, incentive stock options were granted annually to key employees of NBI and its subsidiaries. None have been granted since 2005.  All of the outstanding stock options are vested. Because there have been no options granted in 2011 and all options were fully vested at December 31, 2008, there is no expense included in net income for the periods presented.

Options
 
Shares
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Outstanding at January 1, 2011
    109,500     $ 22.14              
Exercised
    2,500       14.825              
Forfeited or expired
    ---       ---              
Outstanding March 31, 2011
    107,000     $ 22.31       4.28     $ 706  
Exercisable at March 31, 2011
    107,000     $ 22.31       4.28     $ 706  

During the three months ended March 31, 2011, there were 2,500 shares exercised with an intrinsic value of $35. During the first three months of 2010, there were no stock options exercised.

Note 3:                      Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and value of the underlying collateral.
Impaired loans are those loans that have been modified in a troubled debt restructure and larger, non-homogeneous loans that are in nonaccrual or exhibit payment history or financial status that indicate the probability that collection will not occur according to the loan’s terms. Generally, impaired loans are risk rated “classified” or “other assets especially mentioned.”  Impaired loans are measured at the lower of the invested amount or the fair market value. Impaired loans with an impairment loss are designated nonaccrual. Please refer to Note 1 of the 10-K, “Summary of Significant Accounting Policies” for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.
Using a risk-based perspective, the Company determined five major categories, called segments, within the non-impaired portfolio. Characteristics of loans within portfolio segments are further analyzed to determine sub-groups.  These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model.  Subgroups with total balances exceeding 5% of Tier I and Tier II Capital are designated as loan classes.
 
 
10

 
 
The Company’s segments consist of real estate-secured consumer loans, non-real estate-secured consumer loans, commercial real estate, commercial and industrial loans and construction, development and land loans.  Consumer real estate is composed of loans to purchase or build a primary residence as well as equity lines secured by a primary residence.  Consumer non-real estate contains credit cards, automobile and other installment loans, and deposit overdrafts.  Commercial real estate is composed of all commercial loans that are secured by real estate.  The commercial and industrial segment is commercial loans that are not secured by real estate.  Construction, development and other land loans are composed of loans to developers of residential and commercial properties.

The Company’s segments and classes are as follows:

Consumer Real Estate
        Equity lines
        Closed-end consumer real estate
        Consumer construction
 
Consumer, Non-Real Estate
        Credit cards
        Consumer, general
        Consumer overdraft
 
Commercial & Industrial
        Commercial & industrial
 
Construction, Development and Land
        Residential
        Commercial
Commercial Real Estate
        College housing
        Office/Retail space
        Nursing homes
        Hotels
        Municipalities
        Medical professionals
        Religious organizations
        Convenience stores
        Entertainment and sports
        Nonprofits
        Restaurants
        General contractors
        Other commercial real estate

Risk factors are analyzed for each class to estimate collective reserves.  Factors include allocations for the historical charge-off percentage and changes in national and local economic and business conditions, in the nature and volume of the portfolio, in loan officers’ experience and in loan quality.  Increased allocations for the risk factors applied to each class are made for special mention and classified loans.  The Company allocates additional reserves for “high risk” loans, determined to be junior lien mortgages, high loan-to-value loans and interest-only loans.

An analysis of the allowance for loan losses follows:

   
Three Months ended
March 31,
   
Year ended
December 31,
 
   
2011
   
2010
   
2010
 
Balance at beginning of period
  $ 7,664     $ 6,926     $ 6,926  
Provision for loan losses
    800       647       3,409  
Loans charged off
    (244 )     (456 )     (2,810 )
Recoveries of loans previously charged off
    25       24       139  
Balance at the end of period
  $ 8,245     $ 7,141     $ 7,664  
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees
    1.40 %     1.21 %     1.33 %
Ratio of net charge-offs to average loans, net of unearned income and deferred fees(1)
    0.15 %     0.30 %     0.46 %
Ratio of allowance for loan losses to nonperforming loans(2)
    96.58 %     92.23 %     91.01 %

(1)  
Net charge-offs are on an annualized basis.
(2)  
The Company defines nonperforming loans as total nonaccrual and restructured loans.  Loans 90 days past due and still accruing are excluded.

 
11

 


A detailed analysis showing the allowance roll-forward by portfolio segment follows:

March 31, 2011
   
Consumer Real Estate
   
Consumer Non-Real Estate
   
Commercial Real Estate
   
Commercial & Industrial
   
Construction, Development & Other Land
   
 
Unallocated
   
Total
 
Allowance for Loan Losses
 
Beginning Balance
  $ 1,059     $ 586     $ 4,033     $ 1,108     $ 749     $ 129     $ 7,664  
Charge-offs
    (36 )     (90 )     (118 )     ---       ---       ---       (244 )
Recoveries
    7       18       ---       ---       ---       ---       25  
Provision for loan losses
    72       (50 )     740       113       (59 )     (16 )     800  
Ending Balance
  $ 1,102     $ 464     $ 4,655     $ 1,221     $ 690     $ 113     $ 8,245  

December 31, 2010
   
Consumer Real Estate
   
Consumer Non-Real Estate
   
Commercial Real Estate
   
Commercial & Industrial
   
Construction, Development & Land
   
 
Unallocated
   
Total
 
Allowance for Loan Losses
 
Beginning Balance
  $ 249     $ 1,049     $ 4,321     $ 459     $ 562     $ 286     $ 6,926  
Charge-offs
    (89 )     (358 )     (1,021 )     (927 )     (415 )     ---       (2,810 )
Recoveries
    10       67       61       1       ---       ---       139  
Provision for loan losses
    889       (172 )     672       1,575       602       (157 )     3,409  
Ending Balance
  $ 1,059     $ 586     $ 4,033     $ 1,108     $ 749     $ 129     $ 7,664  

An analysis of the components of the ending balance of the allowance for loan losses by portfolio segment follows:

March 31, 2011
   
Consumer Real Estate
   
Consumer Non-Real Estate
   
Commercial Real Estate
   
Commercial & Industrial
   
Construction, Development & Other Land
   
 
Unallocated
   
Total
 
Allowance for loans individually evaluated for impairment
  $ 30     $ ---     $ 626     $ 558     $ 42     $ ---     $ 1,256  
Allowance for loans collectively evaluated for impairment
    1,072       464       4,029       663       648       113       6,989  
Total allowance for loan losses
  $ 1,102     $ 464     $ 4,655     $ 1,221     $ 690     $ 113     $ 8,245  


 
12

 


December 31, 2010
   
Consumer Real Estate
   
Consumer Non-Real Estate
   
Commercial Real Estate
   
Commercial & Industrial
   
Construction, Development & Other Land
   
 
Unallocated
   
Total
 
Allowance for loans individually evaluated for impairment
  $ 27     $ ---     $ 565     $ 508     $ 100     $ ---     $ 1,200  
Allowance for loans collectively evaluated for impairment
    1,032       586       3,468       600       649       129       6,464  
Total allowance for loan losses
  $ 1,059     $ 586     $ 4,033     $ 1,108     $ 749     $ 129     $ 7,664  

The ending balance of loans associated with the components of the allowance for loan losses follows:

March 31, 2011
   
Consumer Real Estate
   
Consumer Non-Real Estate
   
Commercial Real Estate
   
Commercial & Industrial
   
Construction, Development & Other Land
   
 
Unallocated
   
Total
 
Loans individually evaluated for impairment
  $ 614     $ ---     $ 5,172     $ 608     $ 1,536     $ ---     $ 7,930  
Loans collectively evaluated for impairment
    115,438       30,566       350,893       38,597       44,478       ---       579,972  
Total loans
  $ 116,052     $ 30,566     $ 356,065     $ 39,205     $ 46,014     $ ---     $ 587,902  

December 31, 2010
   
Consumer Real Estate
   
Consumer Non-Real Estate
   
Commercial Real Estate
   
Commercial & Industrial
   
Construction, Development & Other Land
   
 
Unallocated
   
Total
 
Loans individually evaluated for impairment
  $ 505     $ ---     $ 5,151     $ 698     $ 2,437     $ ---     $ 8,791  
Loans collectively evaluated for impairment
    108,855       35,679       343,780       36,374       42,964       ---       567,652  
Total loans
  $ 109,360     $ 35,679     $ 348,931     $ 37,072     $ 45,401     $ ---     $ 576,443  

A summary of nonperforming assets follows:
 
   
March 31,
   
December 31,
 
   
2011
   
2010
   
2010
 
Nonperforming assets:
                 
Nonaccrual loans
  $ 7,653     $ 7,743     $ 1,938  
Restructured loans not in nonaccrual
    884       ---       6,483  
Total nonperforming loans
    8,537       7,743       8,421  
Other real estate owned, net
    2,222       2,567       1,723  
Total nonperforming assets
  $ 10,759     $ 10,310     $ 10,144  
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned
    1.83 %     1.75 %     1.75 %

 
13

 

A summary of loans past due 90 days or more and impaired loans follows:
 
   
March 31,
   
December 31,
 
   
2011
   
2010
   
2010
 
Loans past due 90 days or more and still accruing
  $ 1,078     $ 2,217     $ 1,336  
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees
    0.18 %     0.38 %     0.23 %
Impaired loans:
                       
Total impaired loans
  $ 7,930     $ 7,743     $ 8,791  
Impaired loans with a valuation allowance
  $ 7,084     $ 7,693     $ 7,676  
Valuation allowance
    1,256       2,438       1,200  
Impaired loans, net of allowance
  $ 5,828     $ 5,255     $ 6,476  
Impaired loans with no valuation allowance
  $ 846     $ 50     $ 1,115  
Average recorded investment in impaired loans(1)
  $ 7,690     $ 7,712     $ 7,526  
Income recognized on impaired loans
  $ 20     $ ---     $ 17  
Amount of income recognized on a cash basis
  $ ---     $ ---     $ ---  

(1) Recorded investment includes principle and accrued interest.

A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, segregated by loan class follows:

March 31, 2011
   
Average Recorded Investment in Impaired
Loans
   
Unpaid Principal Balance of Impaired Loans
   
(A)
Total Recorded Investment in Impaired Loans
   
Recorded Investment in (A) for Which There is No Related Allowance
   
Recorded Investment in (A) for Which There is a Related Allowance
   
Related Allowance for Impaired Loans
   
 
Interest Income Recognized
 
Consumer Real Estate
                                         
Closed-end Consumer Real Estate
  $ 542     $ 614     $ 614     $ 75     $ 539     $ 30     $ 1  
                                                         
Commercial Real Estate
                                                       
Hotels
    3,496       3,502       3,502       285       3,217       113       ---  
Medical Professionals
    52       79       79       ---       79       79       5  
College Housing
    121       82       82       ---       82       ---       ---  
Undeveloped Land
    254       252       254       254       ---       ---       3  
Other Commercial Real Estate
    1,159       1,257       1,259       ---       1,259       434       10  
                                                         
Commercial & Industrial
                                                       
Commercial & Industrial
    608       608       608       ---       608       558       ---  
                                                         
Construction, Development and Land
                                                       
Residential
    1,458       1,536       1,536       358       1,178       42       1  
                                                         
Total
  $ 7,690     $ 7,930     $ 7,934     $ 972     $ 6,962     $ 1,256     $ 20  
 
 
 
14

 
 
 
    December 31, 2010
   
Average Recorded Investment in Impaired
Loans
   
Unpaid Principal Balance of Impaired Loans
   
(A)
Total Recorded Investment in Impaired Loan
   
Recorded Investment in (A) for Which There is No Related Allowance
   
Recorded Investment in (A) for Which There is a Related Allowance
   
Related Allowance for Impaired Loans
   
 
Interest Income Recognized
 
Consumer Real Estate
                                         
Closed-end Consumer Real Estate
  $ 337     $ 505     $ 505     $ ---     $ 505     $ 26     $ ---  
                                                         
Commercial Real Estate
                                                       
Office & Retail
    253       ---       ---       ---       ---       ---       ---  
Hotel
    2,767       3,509       3,509       287       3,222       267       ---  
Convenience stores
    49       577       592       592       ---       ---       15  
Other commercial real estate
    337       1,065       1,066       ---       1,066       299       1  
                                                         
Commercial & Industrial
                                                       
Commercial & Industrial
    1,183       698       698       ---       698       508       ---  
                                                         
Construction, Development and Land
                                                       
Residential
    2,579       2,185       2,185       ---       2,185       100       ---  
Commercial
    21       252       253       253       ---       ---       1  
                                                         
Total
  $ 7,526     $ 8,791     $ 8,808     $ 1,132     $ 7,676     $ 1,200     $ 17  

Note: Only classes with impaired loans are shown.

The Company collects and discloses data in compliance with accounting guidance in effect for the year disclosed. The table above and the following tables disclose information only for December 31, 2010 and March 31, 2011, following accounting guidance adopted during 2010.  Information for periods prior to December 31, 2010 was collected according to guidance in effect at that time and is not available in the format adopted in 2010.

 
15

 


An analysis of past due and nonaccrual loans follows:

March 31, 2011
                   
   
30 – 89 Days Past Due
   
90 or More Days Past Due
   
90 Days Past Due and Still Accruing
   
Nonaccruals (Including Impaired Nonaccruals)
 
Consumer Real Estate
                       
Equity Lines
  $ 30     $ ---     $ ---     $ ---  
Closed-ended Consumer Real Estate
    948       1,514       321       1,193  
Consumer Construction
    ---       ---       ---       ---  
                                 
Consumer, Non-Real Estate
                               
Credit Cards
    24       28       28       ---  
Consumer General
    246       65       65       ---  
Consumer Overdraft
    ---       ---       ---       ---  
                                 
Commercial Real Estate
                               
College Housing
    681       182       ---       182  
Office/Retail
    ---       ---       ---       ---  
Nursing Homes
    ---       ---       ---       ---  
Hotels
    624       526       ---       3,502  
Municipalities
    ---       ---       ---       ---  
Medical Professionals
    ---       ---       ---       ---  
Religious Organizations
    ---       ---       ---       ---  
Convenience Stores
    38       ---       ---       ---  
Entertainment and Sports
    ---       ---       ---       ---  
Nonprofits
    ---       ---       ---       ---  
Restaurants
    332       ---       ---       ---  
General Contractors
    ---       66       43       163  
Other Commercial Real Estate
    1,159       1,191       582       609  
                                 
Commercial and Industrial
                               
Commercial and Industrial
    14       507       39       468  
                                 
Construction, Development and Land
                               
Residential
    ---       1,301       ---       1,536  
Commercial
    ---       ---       ---       ---  
Total
  $ 4,096     $ 5,380     $ 1,078     $ 7,653  


 
16

 


 
 
December 31, 2010
                   
   
30 – 89 Days Past Due
   
90 or More Days Past Due
   
90 Days Past Due and Still Accruing
   
Nonaccruals (Including Impaired Nonaccruals)
 
Consumer Real Estate
                       
Equity Lines
  $ 69     $ ---     $ ---     $ ---  
Closed-ended Consumer Real Estate
    1,868       1,178       612       783  
Consumer Construction
    ---       ---       ---       ---  
                                 
Consumer, Non-Real Estate
                               
Credit Cards
    67       42       29       ---  
Consumer General
    518       45       37       ---  
Consumer Overdraft
    ---       ---       ---       ---  
                                 
Commercial Real Estate
                               
College Housing
    224       262       ---       ---  
Office/Retail
    ---       ---       ---       ---  
Nursing Homes
    ---       ---       ---       ---  
Hotels
    ---       802       ---       3,509  
Municipalities
    ---       ---       ---       ---  
Medical Professionals
    ---       181       ---       ---  
Religious Organizations
    ---       ---       ---       ---  
Convenience Stores
    9       577       577       ---  
Entertainment and Sports
    ---       ---       ---       ---  
Nonprofits
    ---       ---       ---       ---  
Restaurants
    ---       ---       ---       ---  
General Contractors
    ---       85       ---       ---  
Other Commercial Real Estate
    792       136       ---       715  
                                 
Commercial and Industrial
                               
Commercial and Industrial
    740       609       81       879  
                                 
Construction, Development and Land
                               
Residential
    ---       2,185       ---       2,185  
Commercial
    25       ---       ---       ---  
Total
  $ 4,312     $ 6,102     $ 1,336     $ 8,071  

Nonaccrual loans that meet the Company’s balance thresholds are designated as impaired. Total nonaccrual loans at March 31, 2011 were $7,653, of which $6,794 were impaired, compared with $7,743 in nonaccruals at March 31, 2010, all of which were impaired.  As of December 31, 2010 nonaccruals totaled $8,071, of which $7,612 were impaired.  No interest income was recognized on nonaccrual loans for the three months ended March 31, 2011 or March 31, 2010.
Loans past due greater than 90 days that continue to accrue interest totaled $1,078 at March 31, 2011, compared with $1,336 at December 31, 2010, and $2,217 at March 31, 2010.
The estimate of credit risk for non-impaired loans is obtained by applying allocations for internal and external factors.  The allocations are increased for loans that exhibit greater credit quality risk.
 
 
17

 
 
Credit quality indicators, which the Company terms risk grades, are assigned through the Company’s credit review function for larger loans and selective review of loans that fall below credit review thresholds.  Loans that do not indicate heightened risk are graded as “pass.” Loans that appear to have elevated credit risk because of frequent or persistent past due status, which is less than 75 days, or that show weakness in the borrower’s financial condition are risk graded “special mention.”  Loans with frequent or persistent delinquency exceeding 75 days or that have a higher level of weakness in the borrower’s financial condition are graded “classified.” Classified loans have regulatory risk ratings of “substandard” and “doubtful.”   Allocations are increased by 50% and by 100% for loans with grades of “special mention” and “classified,” respectively.
Determination of risk grades was completed for the portfolio as of March 31, 2011 and 2010.

The following displays non-impaired loans by credit quality indicator:

March 31, 2011
   
Pass
   
Special Mention
   
Classified
(Excluding Impaired)
 
Consumer Real Estate
                 
Equity Lines
  $ 16,286     $ 20     $ 25  
Closed-end Consumer Real Estate
    93,083       620       2,413  
Consumer Construction
    2,991       ---       ---  
                         
Consumer, Non-Real Estate
                       
Credit Cards
    6,418       ---       24  
Consumer General
    23,594       89       165  
Consumer Overdraft
    276       ---       ---  
                         
Commercial Real Estate