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LOANS AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2011

Loans and Allowance For Loan Losses [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE C – LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table presents the Company’s loan categories at September 30, 2011 and December 31, 2010.

	Total Loans						Non-Accrual Loans				Non-Accrual Percentage
	Sept. 30, 2011			Dec. 31, 2010			Sept. 30, 2011		Dec. 31, 2010		Sept. 30, 2011			Dec. 31, 2010
Construction & Development	$	15,992		$	16,177		$	-	$	-		0.00	%		0.00	%
Commercial real estate		160,204			152,508			2,210		5,428		1.38	%		3.56	%
Commercial & Industrial		72,622			69,510			2,466		3,032		3.40	%		4.36	%
Agricultural & Farmland		38,601			40,829			87		-		0.23	%		0.00	%
Residential real estate		98,772			96,257			2,107		3,285		2.13	%		3.41	%
Home Equity		38,569			38,681			440		474		1.14	%		1.23	%
Consumer, net of deferred fees		9,475			10,653			21		64		0.22	%		0.60	%
Other		4,691			2,929			-		-		0.00	%		0.00	%
Total	$	438,926		$	427,544		$	7,331	$	12,283		1.67	%		2.87	%

Residential Loans held for sale		10,590			9,055
Allowance for loan and lease losses	$	(6,235	)	$	(6,715	)

The following tables present the balance of the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method for both the three and nine months ended as of September 30, 2011and the year ended as of December 31, 2010.

For the Nine Months Ended				Commercial
Sept. 30, 2011	Commercial			RE &			Agricultural		Residential			Home Equity
($'s in thousands)	& Industrial			Construction			& Farmland		Real Estate			& Consumer			Other			Unallocated			Total

Beginning balance	$	1,723		$	3,774		$	16	$	643		$	401		$	128		$	30		$	6,715
Charge Offs		(607	)		(1,560	)		-		(238	)		(350	)		(4	)		-			(2,759	)
Recoveries		416			27			3		115			19			4			-			584
Provision		20			875			21		402			408		$	(29	)		(2	)		1,695
Ending Balance	$	1,552		$	3,116		$	40	$	922		$	478		$	99		$	28		$	6,235

Ending balance:
individually
evaluated for
impairment	$	732		$	429		$	-	$	153		$	119		$	-		$	-		$	1,433
Ending balance:
collectively
evaluated for
impairment	$	820		$	2,687		$	40	$	769		$	359		$	99		$	28		$	4,802

Loans:
Ending balance:
individually
evaluated for
impairment	$	2,391		$	2,675		$	-	$	1,311		$	95		$	-		$	-		$	6,472
Ending balance:
collectively
evaluated for
impairment	$	70,231		$	173,521		$	38,601	$	97,461		$	47,949		$	4,691		$	-		$	432,454

For the nine months ended September 30, 2010, the beginning balance for the allowance for loan loss was $7.03 million. During the nine month period of 2010, the Company incurred charge-offs of $9.74 million, received recoveries of $0.38 million, and had provision for loan loss of $8.79 million, for an ending balance of $6.45 million.

For the Three Months Ended				Commercial
Sept. 30, 2011	Commercial			RE &			Agricultural		Residential			Home Equity
($'s in thousands)	& Industrial			Construction			& Farmland		Real Estate			& Consumer			Other			Unallocated			Total

Beginning balance	$	1,522		$	3,444		$	27	$	894		$	427		$	99		$	31		$	6,444
Charge Offs		(11	)		(352	)		-		(72	)		(87	)		(5	)		-			(527	)
Recoveries		2			11			1		1			1			5			-			21
Provision		39			13			12		99			137			-			(3	)		297
Ending Balance	$	1,552		$	3,116		$	40	$	922		$	478		$	99		$	28		$	6,235

Ending balance:
individually
evaluated for
impairment	$	732		$	429		$	-	$	153		$	119		$	-		$	-		$	1,433
Ending balance:
collectively
evaluated for
impairment	$	820		$	2,687		$	40	$	769		$	359		$	99		$	28		$	4,802
Loans:
Ending balance:
individually
evaluated for
impairment	$	2,391		$	2,675		$	-	$	1,311		$	95		$	-		$	-		$	6,472
Ending balance:
collectively
evaluated for
impairment	$	70,231		$	173,521		$	38,601	$	97,461		$	47,949		$	4,691		$	-		$	432,454

For the three months ended September 30, 2010, the beginning balance for the allowance for loan loss was $7.00 million. During the three month period of 2010, the Company incurred charge-offs of $1.58 million, received recoveries of $0.13 million, and had provision for loan loss of $0.90 million, for an ending balance of $6.45 million.

For the Year Ended				Commercial
December 31, 2010	Commercial			RE &			Agricultural			Residential			Home Equity
($'s in thousands)	& Industrial			Construction			& Farmland			Real Estate			& Consumer			Other			Unallocated		Total

Beginning balance	$	2,604		$	3,210		$	92		$	715		$	255		$	154		$	-	$	7,030
Charge Offs		(4,739	)		(4,748	)		-			(1,210	)		(542	)		(95	)		-		(11,334	)
Recoveries		182			171			11			53			-			14			-		431
Provision		3,676			5,141			(87	)		1,085			688			55			30		10,588
Ending Balance	$	1,723		$	3,774		$	16		$	643		$	401		$	128		$	30	$	6,715

Ending balance:
individually
evaluated for
impairment	$	684		$	1,187		$	-		$	-		$	-		$	-		$	-	$	1,871
Ending balance:
collectively
evaluated for
impairment	$	1,039		$	2,587		$	16		$	643		$	401		$	128		$	30	$	4,844
Loans:
Ending balance:
individually
evaluated for
impairment	$	2,874		$	5,946		$	-		$	616		$	43		$	-		$	-	$	9,479
Ending balance:
collectively
evaluated for
impairment	$	66,636		$	162,739		$	40,829		$	95,641		$	49,291		$	2,929		$	-	$	418,065

Credit Risk Profile

The Company uses a nine tier risk rating system to grade its loans. The grade of a loan may change at any time during the life of the loan. The risk ratings are described as follows:

One (1) Superior - Risk is negligible. Loans are to well-seasoned borrowers, displaying sound financial condition, consistent superior earnings performance, strong capitalization, and access to a range of financing alternatives.

Two (2) Excellent - Risk is minimal. Borrower is well capitalized, operates in a stable industry, financial ratios exceed peers, and financial trends are positive.

Three (3) Good - Risk is modest. Borrower has good overall financial condition and adequate capitalization to withstand temporary setbacks. Financial trends are positive, and there is clear ability to service debt from the primary source.

Four (4) Average - Risk is acceptable. Borrowers in this category may be characterized by acceptable asset quality, but may face a degree of uncertainty due to new business, untried market, high degree of leverage, expansion, management change, or industry conditions.

Four Monitored (4m) = Monitored Pass Credits - Risk is increasing. Borrowers in this category may be characterized by an increasing amount of risk due to one or more of the following characteristics listed below. Additionally, these borrowers require a higher than normal amount of monitoring by the relationship manager and bank management. Borrowers who are placed in this category may also demonstrate the potential for an upgrade in the next 12 months given improvement in one or more of the factors listed below:

Declining trends in the earnings and cash flow of the company is evident by moderate to severe losses although debt service coverage remains within policy limits.

Lines of credit that have been evergreen (75% of maximum availability) for more than two consecutive years.

Absence of relevant financial information or stale financial information provided.

Restructure or modification to the loan agreement for the purpose of additional funds to support ongoing operations of the company.

The borrower demonstrates a material weakness or declining trend in collateral support for the given loans.

Five (5) Special Mention - Defined as having potential weaknesses that deserve management's close attention. If uncorrected these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution's credit position. Special mention credits are not considered as part of the classified extensions of credit category and do not expose State Bank to sufficient risk to warrant classification. Extensions of credit that might be detailed in this category include those in which:

The lending officer may be unable to properly supervise the credit because of an inadequate loan or credit agreement.

Questions exist regarding the condition of and/or control over collateral.

Economic or market conditions may unfavorably affect the obligor in the future.

A declining trend in the obligor's operations or an imbalanced position in the balance sheet exists, but not to the point that repayment is jeopardized.

Other deviations from prudent lending practices are present.

The special mention category should not be used to identify an extension of credit that has as its sole weakness credit-data or documentation exceptions not material to the repayment of the credit. It should also not be used to list extensions of credit that contain risks usually associated with that particular type of lending. Any extension of credit involves certain risks, regardless of the collateral or the borrower's capacity and willingness to repay the debt.

Six (6) Substandard - A "substandard" extension of credit is inadequately protected by the sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit 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 State Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard credits, does not have to exist in individual extensions of credit classified substandard.

Seven (7) Doubtful - Has all the weaknesses in one classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral, or refinancing plans.

An entire credit is not classified as doubtful when collection of a specific portion appears highly probable. An example of proper use of the doubtful category is the case of a company being liquidated, with the trustee-in-bankruptcy indicating a minimum disbursement of forty percent (40%) and a maximum of sixty-five percent (65%) to unsecured creditors including State Bank. In this situation, estimates are based on liquidation-value appraisals with actual values yet to be realized. By definition, the only portion of the credit that is doubtful is the twenty-five percent (25%) difference between forty percent (40%) and sixty-five percent (65%). A proper classification of such a credit would show forty percent (40%) substandard, twenty-five percent (25%) doubtful, and thirty-five percent (35%) loss.

Eight (8) Loss - Considered uncollectible and of such little value that continuance as a Bank asset is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather that 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 failing to meet the minimum conditions of the Doubtful classifications are charged off.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category as of September 30, 2011 and December 31, 2010 (dollars in thousands).

Sept. 30, 2011	Commercial		Comm. RE		Agricultural		Residential		Home Equity
Loan Grade	& Industrial		& Construction		& Farmland		Real Estate		& Consumer		Other		Total
1-2	$	667	$	414	$	171	$	1,593	$	126	$	57	$	3,028
3		24,531		63,571		14,538		76,862		44,916		1,317		225,735
4		42,928		97,121		23,748		14,593		2,457		3,317		184,164
Total Pass		68,126		161,106		38,457		93,048		47,499		4,691		412,927

Special Mention		236		9,706		5		1,126		28		-		11,101
Substandard		1,819		3,188		51		1,731		87		-		6,876
Doubtful		2,441		2,196		88		2,867		430		-		8,022
Loss		-		-		-		-		-		-		-
Total	$	72,622	$	176,196	$	38,601	$	98,772	$	48,044	$	4,691	$	438,926

December 31, 2010	Commercial		Comm. RE		Agricultural		Residential		Home Equity
Loan Grade	& Industrial		& Construction		& Farmland		Real Estate		& Consumer		Other		Total
1-2	$	863	$	690	$	180	$	1,837	$	107	$	-	$	3,677
3		24,020		61,050		15,968		75,405		46,019		1,221		223,683
4		38,195		91,755		24,186		11,527		2,299		1,708		169,670
Total Pass		63,078		153,495		40,334		88,769		48,425		2,929		397,030

Special Mention		1,021		7,141		6		2,568		204		-		10,940
Substandard		2,739		3,076		489		2,797		411		-		9,512
Doubtful		2,672		4,973		-		2,123		294		-		10,062
Loss		-		-		-		-		-		-		-
Total	$	69,510	$	168,685	$	40,829	$	96,257	$	49,334	$	2,929	$	427,544

The following tables present the Company’s loan portfolio aging analysis as of September 30, 2011 and December 31, 2010 (dollars in thousands).

	30-59 Days		60-89 Days		Greater Than		Total Past				Total Loans
Sept. 30, 2011	Past Due		Past Due		90 Days		Due		Current		Receivable

Commercial & Industrial	$	13	$	-	$	2,391	$	2,405	$	70,217	$	72,622
Commercial RE & Construction		-		-		2,553		2,553		173,643		176,196
Agricultural & Farmland		-		-		87		87		38,514		38,601
Residential Real Estate		223		35		730		988		97,784		98,772
Home Equity & Consumer		336		111		291		738		47,306		48,044
Other		-		-		-		-		4,691		4,691
Loans		573		146		6,052		6,771		432,155		438,926
Loans held for Sale		-		-		-		-		10,590		10,590
Total	$	573	$	146	$	6,052	$	6,771	$	442,744	$	449,515

	30-59 Days		60-89 Days		Greater Than		Total Past				Total Loans
December 31, 2010	Past Due		Past Due		90 Days		Due		Current		Receivable

Commercial & Industrial	$	242	$	73	$	2,744	$	3,059	$	66,451	$	69,510
Commercial RE & Construction		148		10		5,617		5,775		162,910		168,685
Agricultural & Farmland		-		88		-		88		40,741		40,829
Residential Real Estate		427		372		1,584		2,383		93,874		96,257
Home Equity & Consumer		255		25		547		827		48,507		49,334
Other		-		-		-		-		2,929		2,929
Loans		1,072		568		10,492		12,132		415,412		427,544
Loans held for Sale		-		-		-		-		9,055		9,055
Total	$	1,072	$	568	$	10,492	$	12,132	$	424,466	$	436,598

There were no loans greater than 90 days past due still accruing interest at September 30, 2011 and December 31, 2010.

The following tables present impaired loan activity for the three and nine months ended September 30, 2011 and for the year ended December 31, 2010.

Sept. 30, 2011	Nine Months Ended				Three Months Ended
($'s in thousands)	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial & Industrial	$	210	$	-	$	210	$	-
Commercial RE & Construction		700		-		504		-
Agricultural & Farmland		-		-		-		-
Residential Real Estate		531		17		525		5
Home Equity & Consumer		43		-		43		-
All Impaired Loans < $100,000		1,381		-		1,381		-
With a specific allowance recorded:
Commercial & Industrial		2,663		-		2,664		-
Commercial RE & Construction		3,121		13		3,133		4
Agricultural & Farmland		-		-		-		-
Residential Real Estate		1,106		22		1,120		8
Home Equity & Consumer		83		3		82		1
All Impaired Loans < $100,000		-		-		-		-
Totals:
Commercial & Industrial	$	2,873	$	-	$	2,874	$	-
Commercial RE & Construction	$	3,821	$	13	$	3,637	$	4
Agricultural & Farmland	$	-	$	-	$	-	$	-
Residential Real Estate	$	1,637	$	39	$	1,645	$	12
Home Equity & Consumer	$	126	$	3	$	125	$	1
All Impaired Loans < $100,000	$	1,381	$	-	$	1,381	$	-

December 31, 2010			Unpaid				Average		Interest
($'s in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial & Industrial	$	436	$	786	$	-	$	2,075	$	4
Commercial RE & Construction		2,744		4,040		-		4,195		52
Agricultural & Farmland		-		-		-		-		10
Residential Real Estate		616		741		-		1,045		2
Home Equity & Consumer		43		43		-		72		-
All Impaired Loans < $100,000		1,062		1,062		-		1,062		-
With a specific allowance recorded:
Commercial & Industrial		2,438		3,938		684		2,147		(48	)
Commercial RE & Construction		3,202		3,202		1,187		3,147		44
Agricultural & Farmland		-		-		-		-		-
Residential Real Estate		-		-		-		-		-
Home Equity & Consumer		-		-		-		-		-
All Impaired Loans < $100,000		-		-		-		-		-
Totals:
Commercial & Industrial	$	2,874	$	4,724	$	684	$	4,222	$	(44	)
Commercial RE & Construction	$	5,946	$	7,242	$	1,187	$	7,342	$	96
Agricultural & Farmland	$	-	$	-	$	-	$	-	$	10
Residential Real Estate	$	616	$	741	$	-	$	1,045	$	2
Home Equity & Consumer	$	43	$	43	$	-	$	72	$	-
All Impaired Loans < $100,000	$	1,062	$	1,062	$	-	$	1,062	$	-

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable State Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing loans but also include loans modified and reclassified as troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Troubled Debt Restructured (TDR) Loans

TDR’s are modified loans where a concession was provided to a borrower experiencing financial difficulties. Loan modifications are considered TDR’s when the concessions provided are not available to the borrower through either normal channels or other sources. However, not all loan modifications are TDR’s.

TDR Concession Types

The Company’s standards relating to loan modifications consider, among other factors, minimum verified income requirements, cash flow analysis, and collateral valuations. Each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower’s specific circumstances at a point in time. All loan modifications, including those classified as TDR’s, are reviewed and approved. The types of concessions provided to borrowers include:

Interest rate reduction: A reduction of the stated interest rate to a nonmarket rate for the remaining original life of the debt. The Company also may grant interest rate concessions for a limited timeframe on a case by case basis.

Amortization or maturity date change beyond what the collateral supports, including any of the following:

(1)

Lengthens the amortization period of the amortized principal beyond market terms. This concession reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.

(2)

Reduces the amount of loan principal to be amortized. This concession also reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.

(3)

Extends the maturity date or dates of the debt beyond what the collateral supports. This concession generally applies to loans without a balloon payment at the end of the term of the loan. In addition, there may be instances where renewing loans potentially require non-market terms and would then be reclassified as TDRs.

Other: A concession that is not categorized as one of the concessions described above. These concessions include, but are not limited to: principal forgiveness, collateral concessions, covenant concessions, and reduction of accrued interest. Principal forgiveness may result from any TDR modification of any concession type.

The table below presents our accruing and nonaccruing TDR’s at period-end for each of the past five quarters:

($'s in thousands)	September		June		March		December		September
	2011		2011		2011		2010		2010
TDR's - accruing:

Commercial & Industrial	$	-	$	-	$	-	$	-	$	1
Commercial RE & Construction		569		547		576		581		587
Agricultural & Farmland		5		5		5		6		6
Residential Real Estate		675		683		440		452		587
Home Equity & Consumer		62		50		52		68		47
Other		-		-		-		-		-
Total TDR's - accruing:		1,311		1,285		1,073		1,107		1,228

TDR's - nonaccruing:

Commercial & Industrial	$	1,884	$	1,908	$	2,119	$	1,907	$	2,166
Commercial RE & Construction		-		138		190		190		-
Agricultural & Farmland		-		-		-		-		-
Residential Real Estate		338		236		419		399		316
Home Equity & Consumer		-		-		-		-		22
Other		-		-		-		-		-
Total TDR's - nonaccruing:		2,222		2,282		2,728		2,496		2,504

Total TDR loans		3,533		3,567		3,801		3,603		3,732

	Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011
	Number of Contracts		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Contracts		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential Real Estate		1	$	102	$	102		2	$	315	$	315

There were no loans modified in a TDR from October 1, 2010 through September 30, 2011 that subsequently defaulted during the three and nine months ended September 30, 2011.

- Definition

The entire disclosure for claims held for amounts due a company. Examples include trade accounts receivables, notes receivables, loans receivables.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 310

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5066-111524

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 03

-Paragraph 7

-Article 9

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Statement of Position (SOP)

-Number 01-6

-Paragraph 13

-Subparagraph d

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 310

-SubTopic 10

-Section 50

-Paragraph 11

-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5162-111524

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 02

-Paragraph 3, 4

-Article 5

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 235

-SubTopic 10

-Section S99

-Paragraph 1

-Subparagraph (SX 210.4-08.(k))

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+ Details