form10q.htm
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q
    
 (Mark One)

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

OR

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 0-12247
 
SOUTHSIDE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
 
TEXAS
  
75-1848732
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
1201 S. Beckham, Tyler, Texas
  
75701
(Address of principal executive offices)
  
(Zip Code)
 
903-531-7111
(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.  Yes  x    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 o   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  x
Non-accelerated filer o
Smaller reporting company o
(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 o  No x

The number of shares of the issuer's common stock, par value $1.25, outstanding as of April 22, 2011 was 16,441,417 shares.

 
TABLE OF CONTENTS
 
 
Page
PART I.FINANCIAL INFORMATION  
   
 
ITEM 1.
   1
         
 
ITEM 2.
   28
         
 
ITEM 3.
   44
         
 
ITEM 4.
   45
         
PART II.  OTHER INFORMATION  
   
 
ITEM 1.
   45
         
 
ITEM 1A.
   45
         
 
ITEM 2.
   45
         
 
ITEM 3.
   45
         
 
ITEM 4.
   45
         
 
ITEM 5.
   45
         
 
ITEM 6.
   46
         
47
   
48
   
 
   
 
   
 
 
 
 
 
PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share amounts)
 
 
   
March 31,
    
December 31,
  
 
  
2011
    
2010
  
ASSETS            
Cash and due from banks
   $ 48,185     $ 56,188  
Interest earning deposits
     1,435       22,885  
Total cash and cash equivalents
     49,620       79,073  
Investment securities:
                
Available for sale, at estimated fair value
     320,720       299,344  
Held to maturity, at amortized cost
     1,495       1,495  
Mortgage-backed and related securities:
                
Available for sale, at estimated fair value
     1,091,710       946,043  
Held to maturity, at amortized cost
     407,939       417,862  
FHLB stock, at cost
     29,216       34,712  
Other investments, at cost
     2,064       2,064  
Loans held for sale
     2,665       6,583  
Loans:
                
Loans
     1,063,644       1,077,920  
Less:  allowance for loan losses
     (19,780 )     (20,711 )
Net Loans
     1,043,864       1,057,209  
Premises and equipment, net
     50,340       50,144  
Goodwill
     22,034       22,034  
Other intangible assets, net
     708       777  
Interest receivable
     15,215       18,033  
Deferred tax asset
     6,269       6,677  
Other assets
     54,857       57,571  
TOTAL ASSETS
   $ 3,098,716     $ 2,999,621  
LIABILITIES AND EQUITY
                
Deposits:
                
Noninterest bearing
   $ 459,906     $ 423,304  
Interest bearing
     1,740,917       1,711,124  
Total Deposits
     2,200,823       2,134,428  
Short-term obligations:
                
Federal funds purchased and repurchase agreements
     2,981       3,844  
FHLB advances
     214,456       189,094  
Other obligations
     2,144       2,651  
Total Short-term obligations
     219,581       195,589  
Long-term obligations:
                
FHLB  advances
     322,242       373,479  
Long-term debt
     60,311       60,311  
Total Long-term obligations
     382,553       433,790  
Other liabilities
     73,376       20,378  
TOTAL LIABILITIES
     2,876,333       2,784,185  
                 
Off-Balance-Sheet Arrangements, Commitments and Contingencies (Note 10)
                
                 
Shareholders' equity:
                
Common stock - $1.25 par, 40,000,000 shares authorized, 18,465,255 shares issued in 2011 (including 790,405 shares declared on March 31, 2011 as a stock dividend) and 17,660,312 shares issued in 2010
     23,081       22,075  
Paid-in capital
     178,274       162,877  
Retained earnings
     53,117       64,567  
Treasury stock (2,023,838 shares at cost)
     (28,377 )     (28,377 )
Accumulated other comprehensive loss
     (5,575 )     (6,819 )
TOTAL SHAREHOLDERS' EQUITY
     220,520       214,323  
Noncontrolling interest
     1,863       1,113  
TOTAL EQUITY
     222,383       215,436  
TOTAL LIABILITIES AND EQUITY
   $ 3,098,716     $ 2,999,621  

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

 
1
 
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)

   
Three Months
  
   
Ended March 31,
  
   
2011
    
2010
  
Interest income
            
Loans
   $ 17,271     $ 17,765  
Investment securities – taxable
     18       26  
Investment securities – tax-exempt
     3,229       2,826  
Mortgage-backed and related securities
     11,297       14,277  
FHLB stock and other investments
     80       82  
Other interest earning assets
     10       11  
Total interest income
     31,905       34,987  
Interest expense
                
Deposits
     4,036       5,005  
Short-term obligations
     1,729       1,680  
Long-term obligations
     3,881       5,226  
Total interest expense
     9,646       11,911  
Net interest income
     22,259       23,076  
Provision for loan losses
     2,138       3,867  
Net interest income after provision for loan losses
     20,121       19,209  
Noninterest income
                
Deposit services
     3,879       4,064  
Gain on sale of securities available for sale
     1,805       8,355  
                 
Total other-than-temporary impairment losses
     –       (39 )
Portion of loss recognized in other comprehensive income (before taxes)
     –       (36 )
Net impairment losses recognized in earnings
     –       (75 )
                 
Gain on sale of loans
     283       281  
Trust income
     651       530  
Bank owned life insurance income
     286       285  
Other
     1,105       933  
Total noninterest income
     8,009       14,373  
Noninterest expense
                
Salaries and employee benefits
     11,691       10,942  
Occupancy expense
     1,721       1,643  
Equipment expense
     493       437  
Advertising, travel & entertainment
     553       537  
ATM and debit card expense
     215       167  
Director fees
     191       177  
Supplies
     224       270  
Professional fees
     555       406  
Postage
     179       186  
Telephone and communications
     337       373  
FDIC Insurance
     763       679  
Other
     1,810       1,635  
Total noninterest expense
     18,732       17,452  
                 
Income before income tax expense
     9,398       16,130  
Provision for income tax expense
     1,216       3,955  
Net income
     8,182       12,175  
Less: Net income attributable to the noncontrolling interest
     (865 )     (530 )
Net income attributable to Southside Bancshares, Inc.
   $ 7,317     $ 11,645  
Earnings per common share – basic
   $ 0.45     $ 0.70  
Earnings per common share – diluted
   $ 0.45     $ 0.70  
Dividends paid per common share
   $ 0.17     $ 0.17  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
2
 
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
(in thousands, except share amounts)
 
   
Three Months Ended
March 31,
  
   
2011
    
2010
  
Common Stock
            
Balance, beginning of period
   $ 22,075     $ 20,928  
Issuance of common stock (14,538 shares in 2011 and 60,543 shares in 2010)
     18       76  
Stock dividend declared
     988       942  
Balance, end of period
     23,081       21,946  
Paid-in capital
                
Balance, beginning of period
     162,877       146,357  
Issuance of common stock (14,538 shares in 2011 and 60,543 shares in 2010)
     274       396  
Tax benefit of incentive stock options
     2       145  
Stock dividend declared
     15,121       14,562  
Balance, end of period
     178,274       161,460  
Retained earnings
                
Balance, beginning of period
     64,567       53,812  
Net income attributable to Southside Bancshares, Inc.
     7,317       11,645  
Dividends paid on common stock ($0.17 per share in 2011 and $0.17 per share in 2010)
     (2,658 )     (2,552 )
Stock dividend declared
     (16,109 )     (15,504 )
Balance, end of period
     53,117       47,401  
Treasury Stock
                
Balance, beginning of period
     (28,377 )     (23,545 )
Purchase of common stock (1,101 shares in 2010)
     –       (24 )
Balance, end of period
     (28,377 )     (23,569 )
Accumulated other comprehensive loss
                
Balance, beginning of period
     (6,819 )     4,229  
Net unrealized gains on available for sale securities, net of tax
     2,187       560  
Reclassification adjustment for gains on sales of available for sale securities included in net income, net of tax
     (1,174 )     (5,431 )
Non-credit portion of other-than-temporary impairment losses on available for sale securities, net of tax
     –       23  
Reclassification of other-than-temporary impairment charges on available for sale securities included in net income, net of tax
     –       49  
Adjustment to net periodic benefit cost, net of tax
     231       161  
Net change in accumulated other comprehensive income (loss)
     1,244       (4,638 )
Balance, end of period
     (5,575 )     (409 )
Total shareholders’ equity
     220,520       206,829  
Noncontrolling interest
                
Balance, beginning of period
     1,113       468  
Net income attributable to noncontrolling interest shareholders
     865       530  
Capital distribution to noncontrolling interest shareholders
     (115 )     (156 )
Balance, end of period
     1,863       842  
Total equity
   $ 222,383     $ 207,671  
                 
Comprehensive income
                
Net income
   $ 8,182     $ 12,175  
Net change in accumulated other comprehensive income (loss)
     1,244       (4,638 )
Comprehensive income
     9,426       7,537  
Comprehensive income attributable to the noncontrolling interest
     (865 )     (530 )
Comprehensive income attributable to Southside Bancshares, Inc.
   $ 8,561     $ 7,007  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
3
 
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 
   
Three Months Ended
March 31,
  
   
2011
    
2010
  
             
OPERATING ACTIVITIES:
            
Net income
   $ 8,182     $ 12,175  
Adjustments to reconcile net income to net cash provided by operations:
                
Depreciation
     806       775  
Amortization of premium
     8,708       7,120  
Accretion of discount and loan fees
     (1,171 )     (1,271 )
Provision for loan losses
     2,138       3,867  
Decrease in interest receivable
     2,818       3,134  
(Increase) decrease in other assets
     (2,299 )     1,052  
Net change in deferred taxes
     (262 )     (50 )
Decrease in interest payable
     (409 )     (430 )
Increase in other liabilities
     1,356       4,380  
Decrease in loans held for sale
     3,918       821  
Gain on sale of securities available for sale
     (1,805 )     (8,355 )
Net other-than-temporary impairment losses
     –       75  
Gain on sale of assets
     –       (7 )
Loss on retirement of assets
     90       –  
Impairment on other real estate owned
     130       20  
Gain on sale of other real estate owned
     –       (15 )
Net cash provided by operating activities
     22,200       23,291  
                 
INVESTING ACTIVITIES:
                
Proceeds from sales of investment securities available for sale
     9,801       12,265  
Proceeds from sales of mortgage-backed securities available for sale
     172,354       388,909  
Proceeds from maturities of investment securities available for sale
     8,722       2,784  
Proceeds from maturities of mortgage-backed securities available for sale
     73,933       96,982  
Proceeds from maturities of mortgage-backed securities held to maturity
     13,356       18,129  
Proceeds from redemption of FHLB stock
     9,738       2,360  
Purchases of investment securities available for sale
     (29,344 )     (15,248 )
Purchases of mortgage-backed securities available for sale
     (353,601 )     (317,794 )
Purchases of mortgage-backed securities held to maturity
     (5,301 )     (215,686 )
Purchases of FHLB stock and other investments
     (4,242 )     (36 )
Net decrease in loans
     10,529       11,328  
Purchases of premises and equipment
     (1,092 )     (1,795 )
Proceeds from sales of premises and equipment
     –       38  
Proceeds from sales of other real estate owned
     –       419  
Proceeds from sales of repossessed assets
     1,517       1,199  
Net cash used in investing activities
     (93,630 )     (16,146 )
 
The accompanying notes are an integral part of these consolidated financial statements.

 
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
(in thousands)
 
   
Three Months Ended
  
   
March 31,
  
   
2011
    
2010
  
FINANCING ACTIVITIES:
            
Net increase in demand and savings accounts
    
44,367
      
125,151
  
Net increase (decrease) in certificates of deposit
    
26,827
      
(67,420
)
Net decrease in federal funds purchased and repurchase agreements
    
(863
)
    
(6,155
)
Proceeds from FHLB advances
    
1,074,136
      
1,203,170
  
Repayment of FHLB advances
    
(1,100,011
)
    
(1,273,780
)
Net capital distributions to non-controlling interest in consolidated entities
    
(115
)
    
(156
)
Tax benefit of incentive stock options
    
2
      
145
  
Purchase of common stock
    
–
      
(24
)
Proceeds from the issuance of common stock
    
292
      
472
  
Dividends paid
    
(2,658
)
    
(2,552
)
Net cash provided by (used in) financing activities
    
41,977
      
(21,149
)
                 
Net decrease in cash and cash equivalents
    
(29,453
)
    
(14,004
)
Cash and cash equivalents at beginning of period
    
79,073
      
52,166
  
Cash and cash equivalents at end of period
  
$
49,620
    
$
38,162
  
                 
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
                
Interest paid
  
$
10,055
    
$
12,341
  
Income taxes paid
    
–
      
–
  
                 
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
                
Acquisition of other repossessed assets and real estate through foreclosure
  
$
1,576
    
$
1,930
  
Declaration of 5% stock dividend
    
16,109
      
15,504
  
Adjustment to pension liability
    
(355
)
    
(247
)
Unsettled trades to purchase securities
    
(52,044
)
    
(37,458
)
Unsettled trades to sell securities
    
–
      
1,453
  
Unsettled issuances of brokered CDs
    
–
      
19,830
  

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


SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

1.     Basis of Presentation

In this report, the words “the Company,” “we,” “us,” and “our” refer to the combined entities of Southside Bancshares, Inc. and its subsidiaries.  The words “Southside” and “Southside Bancshares” refer to Southside Bancshares, Inc.  The words “Southside Bank” and “the Bank” refer to Southside Bank (which, subsequent to the internal merger of Fort Worth National Bank (“FWNB”) with and into Southside Bank, includes FWNB).  “FWBS” refers to Fort Worth Bancshares, Inc., a bank holding company acquired by Southside of which FWNB was a wholly-owned subsidiary.  “SFG” refers to Southside Financial Group, LLC, of which Southside owns a 50% interest and consolidates for financial reporting.

The consolidated balance sheet as of March 31, 2011, and the related consolidated statements of income, equity and cash flows and notes to the financial statements for the three month period ended March 31, 2011 and 2010 are unaudited; in the opinion of management, all adjustments necessary for a fair statement of such financial statements have been included.  Such adjustments consisted only of normal recurring items.  All significant intercompany accounts and transactions are eliminated in consolidation.  The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires the use of management’s estimates. These estimates are subjective in nature and involve matters of judgment.  Actual amounts could differ from these estimates.

Interim results are not necessarily indicative of results for a full year.  These financial statements should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2010.  All share data has been adjusted to give retroactive recognition to stock splits and stock dividends.  For a description of our significant accounting and reporting policies, refer to Note 1 of the Notes to Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
Accounting Standards
 
ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures About Fair Value Measurements.” ASU 2010-06 requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) company should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy became effective for us on January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective for us on January 1, 2010. See Note 9 – Fair Value Measurements.
 
ASU No. 2010-18 “Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset”.  ASU 2010-18 provides that modifications of loans that are accounted for within a pool do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. ASU 2010-18 does not affect the accounting for loans that are not accounted for within pools. Loans accounted for individually continue to be subject to the troubled debt restructuring accounting provisions.  ASU 2010-18 is effective prospectively for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010. Early application is permitted. Upon initial adoption of ASU 2010-18, an entity may make a one-time election to terminate accounting for loans as a pool. This election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration.  The provisions of ASU 2010-18 did not have a significant impact on our consolidated financial statements.

 
6
 
ASU No. 2010-20, “Receivables (Topic 310) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment.  The required disclosures include, among other things, a roll forward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 became effective for our financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period became effective for our financial statements that include periods on or after January 1, 2011.

ASU No. 2010-28, “Intangibles - Goodwill and Other (Topic 350) - When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist such as if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The provisions of ASU 2010-28 became effective on January 1, 2011 and did not have a significant impact on our financial statements.

ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (Topic 310)”, was issued January 2011 deferring the new disclosure requirements (paragraphs 310-10-50-31 through 50-34 of the FASB Accounting Standards Codification) about troubled debt restructurings to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. As a result of the issuance of Update 2011-02, the provisions of Update 2011-01 are effective for the first interim or annual period beginning on or after June 15, 2011 or September 30, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. We do not expect the adoption of the Update to have a material effect on our financial statements at the date of adoption.

ASU No. 2011-02, “Receivables (Topic 310) - A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU 2011-02, that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 will be effective on July 1, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. Adoption of ASU 2011-02 is not expected have a significant impact on our financial statements.

2.     Earnings Per Share

Earnings per share attributable to Southside Bancshares, Inc. on a basic and diluted basis have been adjusted to give retroactive recognition to stock splits and stock dividends and is calculated as follows (in thousands, except per share amounts):

   
Three Months
  
   
Ended March 31,
  
   
2011
    
2010
  
Basic and Diluted Earnings:
            
    Net Income - Southside Bancshares, Inc.
  
$
7,317
    
$
11,645
  
                 
Basic weighted-average shares outstanding:
    
16,429
      
16,546
  
Add:   Stock options
    
5
      
67
  
Diluted weighted-average shares outstanding
    
16,434
      
16,613
  
                 
Basic Earnings Per Share:
                
Net Income - Southside Bancshares, Inc.
  
$
0.45
    
$
0.70
  
                 
Diluted Earnings Per Share:
                
Net Income - Southside Bancshares, Inc.
  
$
0.45
    
$
0.70
  

 
7
 
On March 31, 2011, our board of directors declared a 5% stock dividend to common stock shareholders of record as of April 20, 2011, and payable on May 11, 2011.

For the three month period ended March 31, 2011 and 2010, there were no antidilutive options.

3.  Comprehensive Income (Loss)

The components of other comprehensive income (loss) are as follows (in thousands):

 
Three Months Ended March 31, 2011
  
 
Before-Tax
  
Tax
  
Net-of-Tax
  
 
Amount
  
Expense
  
Amount
  
Unrealized gains on securities:
            
Unrealized holding gains arising during period
 $ 3,364   $ (1,177 ) $ 2,187  
Less:  reclassification adjustment for gains included in net income
   1,805     (631 )   1,174  
Net unrealized gains on securities
   1,559     (546 )   1,013  
Change in pension plans
   355     (124 )   231  
Other comprehensive income
 $ 1,914   $ (670 ) $ 1,244  
 
 
Three Months Ended March 31, 2010
  
 
Before-Tax
  
Tax (Expense)
  
Net-of-Tax
  
 
Amount
  
Benefit
  
Amount
  
Unrealized losses on securities:
            
Unrealized holding gains arising during period
 $ 861   $ (301 ) $ 560  
Non credit portion of other-than-temporary impairment losses on the AFS securities
   36     (13 )   23  
Less:  reclassification adjustment for gains included in net income
   8,355     (2,924 )   5,431  
Less:  reclassification of other-than-temporary impairment charges on AFS securities included in net income
   (75 )   26     (49 )
Net unrealized losses on securities
   (7,383 )   2,584     (4,799 )
Change in pension plans
   247     (86 )   161  
Other comprehensive loss
 $ (7,136 ) $ 2,498   $ (4,638 )
 
4. Securities

The amortized cost and estimated market value of investment and mortgage-backed securities as of March 31, 2011 and December 31, 2010, are reflected in the tables below (in thousands):

   
March 31, 2011
  
         
Gross
    
Gross Unrealized Losses
        
   
Amortized
    
Unrealized
    
Non-Credit
          
Estimated
  
AVAILABLE FOR SALE:
  
Cost
    
Gains
    
OTTI
    
Other
    
Market Value
  
Investment Securities:
                              
U.S. Treasury
   $ 4,700     $ –     $ –     $ –     $ 4,700  
State and Political Subdivisions
     308,998       8,837       –       2,820       315,015  
Other Stocks and Bonds
     2,925       –       1,920       –       1,005  
Mortgage-backed Securities:
                                        
U.S. Government Agencies
     164,473       4,983       –       656       168,800  
Government-Sponsored Enterprises
     915,951       13,490       –       6,531       922,910  
Total
   $ 1,397,047     $ 27,310     $ 1,920     $ 10,007     $ 1,412,430  
 

 
March 31, 2011
  
       
Gross
    
Gross Unrealized Losses
      
 
Amortized
    
Unrealized
    
Non-Credit
      
Estimated
  
HELD TO MATURITY:
Cost
    
Gains
    
OTTI
  
Other
  
Market Value
  
Investment Securities:
                        
State and Political Subdivisions
 $ 1,011     $ 81     $ –   $ –   $ 1,092  
Other Stocks and Bonds
   484       20       –     –     504  
Mortgage-backed Securities:
                                  
U.S. Government Agencies
   20,432       601       –     16     21,017  
Government-Sponsored Enterprises
   387,507       7,419       –     1,187     393,739  
Total
 $ 409,434     $ 8,121     $ –   $ 1,203   $ 416,352  

 
December 31, 2010
  
       
Gross
    
Gross Unrealized Losses
        
 
Amortized
    
Unrealized
    
Non-Credit
          
Estimated
  
AVAILABLE FOR SALE:
Cost
    
Gains
    
OTTI
    
Other
    
Market Value
  
Investment Securities:
                            
U.S. Treasury
 $ 4,700     $ –     $ –     $ –     $ 4,700  
State and Political Subdivisions
   296,357       4,445       –       6,540       294,262  
Other Stocks and Bonds
   3,117       1       2,736       –       382  
Mortgage-backed Securities:
                                      
U.S. Government Agencies
   149,402       5,311       –       179       154,534  
Government-Sponsored Enterprises
   777,921       16,049       –       2,461       791,509  
Total
 $ 1,231,497     $ 25,806     $ 2,736     $ 9,180     $ 1,245,387  

 
December 31, 2010
  
       
Gross
    
Gross Unrealized Losses
      
 
Amortized
    
Unrealized
    
Non-Credit
      
Estimated
  
HELD TO MATURITY:
Cost
    
Gains
    
OTTI
  
Other
  
Market Value
  
Investment Securities:
                        
State and Political Subdivisions
 $ 1,012     $ 44     $ –   $ –   $ 1,056  
Other Stocks and Bonds
   483       14       –     –     497  
Mortgage-backed Securities:
                                  
U.S. Government Agencies
   21,888       631       –     55     22,464  
Government-Sponsored Enterprises
   395,974       8,743       –     609     404,108  
Total
 $ 419,357     $ 9,432     $ –   $ 664   $ 428,125  

 
The following table represents the unrealized loss on securities for the three months ended March 31, 2011 and year ended December 31, 2010 (in thousands):

 
Less Than 12 Months
  
More Than 12 Months
  
Total
  
 
Fair Value
  
Unrealized
Loss
  
Fair Value
  
Unrealized
Loss
  
Fair Value
  
Unrealized
Loss
  
As of March 31, 2011:
                        
                         
Available for Sale
                        
State and Political Subdivisions
 $ 98,793   $ 2,778   $ 268   $ 42   $ 99,061   $ 2,820  
Other Stocks and Bonds
   –     –     1,005     1,920     1,005     1,920  
Mortgage-Backed Securities
   497,018     7,081     9,551     106     506,569     7,187  
Total
 $ 595,811   $ 9,859   $ 10,824   $ 2,068   $ 606,635   $ 11,927  
                                     
Held to Maturity
                                    
Mortgage-Backed Securities
 $ 62,218   $ 249   $ 34,296   $ 954   $ 96,514   $ 1,203  
Total
 $ 62,218   $ 249   $ 34,296   $ 954   $ 96,514   $ 1,203  
                         
As of December 31, 2010:
                        
                         
Available for Sale
                        
State and Political Subdivisions
 $ 136,671   $ 6,501   $ 270   $ 39   $ 136,941   $ 6,540  
Other Stocks and Bonds
   –     –     189     2,736     189     2,736  
Mortgage-Backed Securities
   312,985     2,475     21,779     165     334,764     2,640  
                                     
Total
 $ 449,656   $ 8,976   $ 22,238   $ 2,940   $ 471,894   $ 11,916  
                                     
Held to Maturity
                                    
Mortgage-Backed Securities
 $ 52,676   $ 644   $ 1,104   $ 20   $ 53,780   $ 664  
Total
 $ 52,676   $ 644   $ 1,104   $ 20   $ 53,780   $ 664  

When it is determined that a decline in fair value of Held to Maturity (“HTM”) and Available for Sale (“AFS”) securities is other-than-temporary, the carrying value of the security is reduced to its estimated fair value, with a corresponding charge to earnings for the credit portion and the non credit portion to other comprehensive income.  In estimating other-than-temporary impairment losses, management considers, among other things, the length of time and the extent to which the fair value has been less than cost and the financial condition and near-term prospects of the issuer.  Additionally, we do not currently intend to sell the securities and it is not more likely than not that we will be required to sell the security before the anticipated recovery of its amortized cost basis.

The turmoil in the capital markets had a significant impact on our estimate of fair value for certain of our securities.  We believe the market values are reflective of illiquidity and credit impairment.  At March 31, 2011, we have in AFS Other Stocks and Bonds, $2.9 million amortized cost basis in pooled trust preferred securities (“TRUPs”).  Those securities are structured products with cash flows dependent upon securities issued by U.S. financial institutions, including banks and insurance companies.  Our estimate of fair value at March 31, 2011 for the TRUPs is approximately $1.0 million and reflects the market illiquidity.  With the exception of the TRUPs, to the best of management’s knowledge and based on our consideration of the qualitative factors associated with each security, there were no securities in our investment and mortgage-backed securities portfolio at March 31, 2011 with an other-than-temporary impairment.

 
Given the facts and circumstances associated with the TRUPs we performed detailed cash flow modeling for each TRUP using an industry-accepted cash flow model. Prior to loading the required assumptions into the model we reviewed the financial condition of each of the underlying issuing banks within the TRUP collateral pool that had not deferred or defaulted as of March 31, 2011.  Management’s best estimate of a deferral assumption was assigned to each issuing bank based on the category in which it fell.  Our analysis of the underlying cash flows contemplated various default, deferral and recovery scenarios to arrive at our best estimate of cash flows.  Based on that detailed analysis, we have concluded that the other-than-temporary impairment, which captures the credit component in compliance with FASB ASC Topic 320, “Investments – Debt and Equity Securities,” was estimated at $3.1 million at both March 31, 2011 and December 31, 2010. The non credit charge to other comprehensive income was estimated at $1.9 million and $2.7 million at March 31, 2011 and December 31, 2010, respectively.  The carrying amount of the TRUPs was written down with $75,000 and $3.0 million recognized in earnings for the three months ended March 31, 2010 and for the year ended December 31, 2009, respectively.  There was no additional writedown of the TRUPs recognized in earnings for the three months ended March 31, 2011.  The cash flow model assumptions represent management’s best estimate and consider a variety of qualitative factors, which include, among others, the credit rating downgrades, the severity and duration of the mark-to-market loss, and the structural nuances of each TRUP.  Management believes that the detailed review of the collateral and cash flow modeling support the conclusion that the TRUPs had an other-than-temporary impairment at March 31, 2011.  We will continue to update our assumptions and the resulting analysis each reporting period to reflect changing market conditions.  Additionally, we do not currently intend to sell the TRUPs and it is not more likely than not that we will be required to sell the TRUPs before the anticipated recovery of their amortized cost basis.

The table below provides more detail on the TRUPs at March 31, 2011 (in thousands).


TRUP
    
Par
    
Credit Loss
    
Amortized Cost
    
Fair Value
    
Tranche
    
Credit Rating
  
                                       
  1     $ 2,000     $ 1,075     $ 925     $ 285       C1    
Ca
  
  2       2,000       550       1,450       360       B1    
Ca
  
  3       2,000       1,450       550       360       B2     C  
        $ 6,000     $ 3,075     $ 2,925     $ 1,005                  

The following table presents the impairment activity related to credit loss, which is recognized in earnings, and the impairment activity related to all other factors, which are recognized in other comprehensive income (in thousands).

 
Three Months Ended March 31, 2011
  
 
Impairment
Related to
Credit Loss
  
Impairment
Related to All
Other Factors
  
Total
Impairment
  
 
 
             
Balance, beginning of the period
 $ 3,075   $ 2,694   $ 5,769  
Charges on securities for which other-than-temporary impairment charges were not previously recognized
   –     –     –  
Additional charges on securities for which other-than-temporary impairment charges were previously recognized
   –     –     –  
Balance, end of the period
 $ 3,075   $ 2,694   $ 5,769  
 
 
11
 
Interest income recognized on AFS and HTM securities for the periods presented (in thousands):

   
Three Months Ended
  
   
March 31,
2011
    
March 31,
2010
  
U.S. Treasury
  
$
1
    
$
2
  
State and Political Subdivisions
    
3,237
      
2,836
  
Other Stocks and Bonds
    
9
      
14
  
Mortgage-backed Securities
    
11,297
      
14,277
  
Total interest income on securities
  
$
14,544
    
$
17,129
  

There were no securities transferred from AFS to HTM during the three months ended March 31, 2011 or 2010.  There were no sales from the HTM portfolio during the three months ended March 31, 2011 or 2010.  There were $409.4 million of securities classified as HTM for the three months ended March 31, 2011 compared to $419.4 million of securities classified as HTM for the year ended December 31, 2010.

Of the $1.8 million in net securities gains from the AFS portfolio for the three months ended March 31, 2011, there were $1.8 million in realized gains and $45,000 in realized losses.  Of the $8.4 million in net securities gains from the AFS portfolio for the three months ended March 31, 2010, there were $9.3 million in realized gains and $0.9 million in realized losses.

The amortized cost and fair value of securities at March 31, 2011 are presented below by contractual maturity.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.  Mortgage-backed securities are presented in total by category due to the fact that mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with varying maturities.  The characteristics of the underlying pool of mortgages, such as fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder.  The term of a mortgage-backed pass-through security thus approximates the term of the underlying mortgages and can vary significantly due to prepayments.
 
   
March 31, 2011
  
   
Amortized
Cost
    
Fair Value
  
   
(in thousands)
  
Available for sale securities:
            
             
Investment Securities
            
Due in one year or less
   $ 6,946     $ 6,981  
Due after one year through five years
     6,991       7,170  
Due after five years through ten years
     27,240       28,332  
Due after ten years
     275,446       278,237  
      316,623       320,720  
Mortgage-backed securities
     1,080,424       1,091,710  
Total
   $ 1,397,047     $ 1,412,430  

 
   
March 31, 2011
  
   
Amortized
Cost
    
Fair Value
  
   
(in thousands)
  
Held to maturity securities:
            
             
Investment Securities
            
Due in one year or less
   $ –     $ –  
Due after one year through five years
     –       –  
Due after five years through ten years
     484       504  
Due after ten years
     1,011       1,092  
      1,495       1,596  
Mortgage-backed securities
     407,939       414,756  
Total
   $ 409,434     $ 416,352  

Investment and mortgage-backed securities with book values of $940.6 million at March 31, 2011 and $977.4 million at December 31, 2010 were pledged to collateralize Federal Home Loan Bank (“FHLB”) advances, repurchase agreements, public funds and trust deposits or for other purposes as required by law.

Securities with limited marketability, such as FHLB stock and other investments, are carried at cost, which approximates its fair value and assessed for other-than-temporary impairment.  These securities have no maturity date.

5.  Loans and Allowance for Probable Loan Losses

The following table sets forth loan totals for the periods presented (in thousands):

 
At
    
At
  
 
March 31,
    
December 31,
  
 
2011
    
2010
  
Real Estate Loans:
          
Construction
 $ 111,635     $ 115,094  
1-4 Family residential
   218,178       219,031  
Other
   202,986       200,723  
Commercial loans
   143,265       148,761  
Municipal loans
   198,561       196,594  
Loans to individuals
   189,019       197,717  
Total loans
 $ 1,063,644     $ 1,077,920  

 
Allowance for Loan Losses

The allowance for loan losses is based on the most current review of the loan portfolio and is validated by multiple processes.  First, the bank utilizes historical data to establish general reserve amounts for each class of loans.  While we track several years of data, we primarily review one year data because we found during the 1980’s that longer periods would not respond quickly enough to market conditions.  Second, our lenders have the primary responsibility for identifying problem loans and estimating necessary reserves based on customer financial stress and underlying collateral.  These recommendations are reviewed by the Senior lender, the Special Assets department, and the Loan Review department and are signed off on by the President.  Third, the Loan Review department does independent reviews of the portfolio on an annual basis.  The Loan Review department follows a board-approved annual loan review scope.  The loan review scope encompasses a number of metrics that takes into consideration the size of the loan, the type of credit extended, the seasoning of the loan and the performance of the loan.  The loan review scope as it relates to size, focuses more on larger dollar loan relationships, typically, for example, aggregate debt of $500,000 or greater.  The Loan Review officer also tracks specific reserves for loans by type compared to general reserves to determine trends in comparative reserves as well as losses not reserved for prior to charge off to determine the efficiency of the specific reserve process.

At each review, a subjective analysis methodology is used to grade the respective loan.  Categories of grading vary in severity from loans that do not appear to have a significant probability of loss at the time of review to loans that indicate a probability that the entire balance of the loan will be uncollectible.  If full collection of the loan balance appears unlikely at the time of review, estimates of future expected cash flows or appraisals of the collateral securing the debt are used to allocate the necessary allowances.  The internal loan review department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk associated with them.  In addition, a list of specifically reserved loans or loan relationships of $50,000 or more is updated on a quarterly basis in order to properly allocate necessary allowances and keep management informed on the status of attempts to correct the deficiencies noted with respect to the loan.

For loans to individuals the methodology associated with determining the appropriate allowance for losses on loans primarily consists of an evaluation of individual payment histories, remaining term to maturity and underlying collateral support.

Industry experience indicates that a portion of our loans will become delinquent and a portion of the loans will require partial or entire charge-off.  Regardless of the underwriting criteria utilized, losses may be experienced as a result of various factors beyond our control, including, among other things, changes in market conditions affecting the value of properties used as collateral for loans and problems affecting the credit of the borrower and the ability of the borrower to make payments on the loan.  Our determination of the adequacy of allowance for loan losses is based on various considerations, including an analysis of the risk characteristics of various classifications of loans, previous loan loss experience, specific loans which would have loan loss potential, delinquency trends, estimated fair value of the underlying collateral, current economic conditions, the views of the bank regulators (who have the authority to require additional allowances), and geographic and industry loan concentration.

Consumer loans at SFG are reserved for based on general estimates of loss at the time of purchase for current loans.  SFG loans experiencing past due status or extension of maturity characteristics are reserved for at significantly higher levels based on the circumstances associated with each specific loan.  In general the reserves for SFG are calculated based on the past due status of the loan.  For reserve purposes, the portfolio has been segregated by past due status and by the remaining term variance from the original contract.  During repayment, loans that pay late will take longer to pay out than the original contract.  Additionally, some loans may be granted extensions for extenuating payment circumstances.  The remaining term extensions increase the risk of collateral deterioration and accordingly, reserves are increased to recognize this risk.

For loans originated after August 1, 2010, additional reserve methods have been added.  New pools purchased are reserved at their estimated annual loss.  Thereafter, the reserve is adjusted based on the actual performance versus projected performance.  Additionally, during the fourth quarter of 2010, data mining measures were further enhanced to track migration within risk tranches.  Reserves are adjusted quarterly to match the migration metrics.

 
14
 
Credit Quality Indicators
 
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  We use the following definitions for risk ratings:
 
·  
Satisfactory (Rating 1 – 4) – This rating is assigned to all satisfactory loans.  This category, by definition, should consist of completely acceptable credit.  Credit and collateral exceptions should not be present, although their presence would not necessarily prohibit a loan from being rated Satisfactory, if deficiencies are in process of correction.  These loans will not be included in the Watch List.
 
·  
Satisfactory (Rating 5) – Special Treatment Required – (Pass Watch) – These loans require some degree of special treatment, but not due to credit quality.  This category does not include loans specially mentioned or adversely classified by the Loan Review Officer or regulatory authorities; however, particular attention must be accorded such credits due to characteristics such as:
 
 
·
A lack of, or abnormally extended payment program;
 
·
A heavy degree of concentration of collateral without sufficient margin;
 
·
A vulnerability to competition through lesser or extensive financial leverage;
 
·
A dependence on a single, or few customers, or sources of supply and materials without suitable substitutes or alternatives.
 
·  
Special Mention (Rating 6) – A Special Mention asset has potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.  Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

·  
Substandard (Rating 7) – Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

·  
Doubtful (Rating 8) – Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation, in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

·  
Loss (Rating 9) – Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.  This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

Loans not meeting risk ratings six through nine are reserved for as a group of similar type pass rated credits and included in the general portion of the allowance for loan losses.

The general portion of the loan loss allowance is reflective of historical charge-off levels for similar loans adjusted for changes in current conditions and other relevant factors.  These factors are likely to cause estimated losses to differ from historical loss experience and include:

·  
Changes in lending policies or procedures, including underwriting, collection, charge-off, and recovery procedures;
·  
Changes in local, regional and national economic and business conditions including entry into new markets;
·  
Changes in the volume or type of credit extended;
·  
Changes in the experience, ability, and depth of lending management;
·  
Changes in the volume and severity of past due, nonaccrual, restructured, or classified loans;
·  
Changes in loan review or Board oversight; and,
·  
Changes in the level of concentrations of credit.

 
15
 
The following table details activity in the Allowance for Loan Losses by portfolio segment for the periods presented (in thousands):

   
Three Months Ended March 31, 2011
  
   
Real Estate
                      
   
Construction
  
1-4 Family Residential
  
Other
  
Commercial Loans
  
Municipal Loans
  
Loans to Individuals
  
Unallocated
  
Total
  
                                   
Balance at beginning of period
   $ 2,585   $ 1,988   $ 3,354   $ 3,746   $ 607   $ 7,978   $ 453   $ 20,711  
Provision for loan losses
     247     74     (148 )   190     (2 )   1,634     143     2,138  
Loans charged off
     –     (319 )   (80 )   (550 )   –     (3,099 )   –     (4,048  )
Recoveries of loans charged off
     –     65     195     111     –     608     –     979  
Balance at end of period
   $ 2,832   $ 1,808   $ 3,321   $ 3,497   $ 605   $ 7,121   $ 596   $ 19,780  
                                                   
Ending balance – individually evaluated for impairment
   $ 1,157   $ 763   $ 835   $ 1,798   $ 118   $ 427   $ –   $ 5,098  
Ending balance – collectively evaluated for impairment
     1,675     1,045     2,486     1,699     487     6,694     596     14,682  
Balance at end of period
   $ 2,832   $ 1,808   $ 3,321   $ 3,497   $ 605   $ 7,121   $ 596   $ 19,780  
 
   
Three Months Ended March 31, 2010
  
   
Real Estate
                      
   
Construction
  
1-4 Family Residential
  
Other
  
Commercial Loans
  
Municipal Loans
  
Loans to Individuals
  
Unallocated
  
Total
  
                                   
Balance at beginning of period
   $ 3,080   $ 1,460   $ 3,175   $ 3,184   $ 400   $ 7,321   $ 1,276   $ 19,896  
Provision for loan losses
     195     234     144     590     114     2,523     67     3,867  
Loans charged off
     (873 )   (108 )   (200 )   (613 )   –     (3,132 )   –     (4,926 )
Recoveries of loans charged off
     15     3     –     58     –     555     –     631  
Balance at end of period
   $ 2,417   $ 1,589   $ 3,119   $ 3,219   $ 514   $ 7,267   $ 1,343   $ 19,468  
                                                   
Ending balance – individually evaluated for impairment
   $ 1,172   $ 451   $ 550   $ 1,293   $ 133   $ 473   $ –   $ 4,072  
Ending balance – collectively evaluated for impairment
     1,245     1,138     2,569     1,926     381     6,794     1,343     15,396  
Balance at end of period
   $ 2,417   $ 1,589   $ 3,119   $ 3,219   $ 514   $ 7,267   $ 1,343   $ 19,468  
 
The following table details activity of the Reserve for Unfunded Loan Commitments for the periods presented (in thousands):

   
Three Months Ended March 31,
  
   
2011
    
2010
  
   
(in thousands)
  
Reserve For Unfunded Loan Commitments:
                
Balance at beginning of year
  
$
30
    
$
5
  
Provision for losses on unfunded loan commitments
    
–
      
15
  
Balance at end of year
  
$
30
    
$
20
  

 
The following table sets forth the balance in the recorded investment in loans by portfolio segment based on impairment method as described in the allowance for loan losses methodology discussion for the periods presented (in thousands):
 
   
Real Estate
                          
March 31, 2011
  
Construction
    
1-4 Family Residential
    
Other
    
Commercial Loans
    
Municipal Loans
    
Loans to Individuals
    
Total
  
                                           
Loans individually evaluated for impairment
   $ 9,826     $ 7,832     $ 10,294     $ 10,978     $ 709     $ 1,474     $ 41,113  
Loans collectively evaluated for impairment
     101,809       210,346       192,692       132,287       197,852       187,545       1,022,531  
Total ending loans balance
   $ 111,635     $ 218,178     $ 202,986     $ 143,265     $ 198,561     $ 189,019     $ 1,063,644  
 
   
Real Estate
                          
December 31, 2010
  
Construction
    
1-4 Family Residential
    
Other
    
Commercial Loans
    
Municipal Loans
    
Loans to Individuals
    
Total
  
                                           
Loans individually evaluated for impairment
   $ 10,355     $ 8,331     $ 10,688     $ 12,144     $ 738     $ 1,625     $ 43,881  
Loans collectively evaluated for impairment
     104,739       210,700       190,035       136,617       195,856       196,092       1,034,039  
Total ending loans balance
   $ 115,094     $ 219,031     $ 200,723     $ 148,761     $ 196,594     $ 197,717     $ 1,077,920  
 
The following table sets forth loans by credit quality indicator for the periods presented (in thousands):
 
March 31, 2011
  
Pass
    
Pass Watch
    
Special Mention
    
Substandard
    
Doubtful
    
Loss
    
Total
  
                                           
Real Estate Loans:
                                          
Construction
   $ 101,810     $ 760     $ 1,362     $ 7,623     $ 80     $ –     $ 111,635  
1-4 Family residential
     210,346       634       1,347       5,093       758       –       218,178  
Other
     192,692       100       4,732       5,364       98       –       202,986  
Commercial loans
     132,287       1,983       1,186       7,459       350       –       143,265  
Municipal loans
     197,852       258       –       451       –       –       198,561  
Loans to individuals
     176,061       8,328       23       2,818       1,780       9       189,019  
Total
   $ 1,011,048     $ 12,063     $ 8,650     $ 28,808     $ 3,066     $ 9     $ 1,063,644  
 
December 31, 2010
  
Pass
    
Pass Watch
    
Special Mention
    
Substandard
    
Doubtful
    
Loss
    
Total
  
                                           
Real Estate Loans: