LOANS AND ALLOWANCE FOR CREDIT LOSSES

6 Months Ended

Jun. 30, 2011

Receivables [Abstract]

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

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

     The compositions and carrying values of the Company’s loan portfolio, excluding loans held for sale, were as follows:

(Dollars in thousands)	June 30, 2011			December 31, 2010
Commercial	$	297,817		$	309,327
Real estate construction		32,434			44,085
Real estate mortgage		336,724			349,016
Commercial real estate		839,665			818,577
Installment and other consumer		14,507			15,265
Total loans		1,521,147			1,536,270
Allowance for loan losses		(38,422	)		(40,217	)
Total loans, net	$	1,482,725		$	1,496,053

     Loans greater than 90 days past due are classified into nonaccrual status. The following table presents an age analysis of the loan portfolio, including nonaccrual loans, for the periods shown:

(Dollars in thousands)	June 30, 2011
	30 - 89 days		Greater than		Total		Current		Total
	past due		90 days past due		past due		loans		loans
Commercial	$	2,750	$	6,804	$	9,554	$	288,263	$	297,817
Real estate construction		5,750		1,664		7,414		25,020		32,434
Real estate mortgage		4,293		4,554		8,847		327,877		336,724
Commercial real estate		8,043		9,843		17,886		821,779		839,665
Installment and other consumer		8		1		9		14,498		14,507
Total	$	20,844	$	22,866	$	43,710	$	1,477,437	$	1,521,147
(Dollars in thousands)	December 31, 2010
	30 - 89 days		Greater than		Total		Current		Total
	past due		90 days past due		past due		loans		loans
Commercial	$	953	$	9,984	$	10,937	$	298,390	$	309,327
Real estate construction		2,098		4,039		6,137		37,948		44,085
Real estate mortgage		4,662		5,669		10,331		338,685		349,016
Commercial real estate		3,988		12,157		16,145		802,432		818,577
Installment and other consumer		53		-		53		15,212		15,265
Total	$	11,754	$	31,849	$	43,603	$	1,492,667	$	1,536,270

The following table presents an analysis of impaired loans for the periods shown:

											Quarter ended
(Dollars in thousands)	June 30, 2011										June 30, 2011
	Unpaid principal		Impaired loans		Impaired loans		Total impaired		Related		Average impaired
	balance1		with no allowance		with allowance		loan balance		allowance		loan balance
Commercial	$	18,482	$	9,279	$	164	$	9,443	$	-	$	11,833
Real estate construction		12,118		7,797		840		8,637		-		9,491
Real estate mortgage		34,195		14,282		7,054		21,336		312		21,314
Commercial real estate		26,970		19,263		5,801		25,064		84		25,702
Installment and other consumer		1,513		1		-		1		-		3
Total	$	93,278	$	50,622	$	13,859	$	64,481	$	396	$	68,343
											Quarter ended
(Dollars in thousands)	December 31, 2010										December 31, 2010
	Unpaid principal		Impaired loans		Impaired loans		Total impaired		Related		Average impaired
	balance1		with no allowance		with allowance		loan balance		allowance		loan balance
Commercial	$	22,692	$	13,377	$	1,679	$	15,056	$	2	$	19,992
Real estate construction		15,570		10,692		323		11,015		2		20,191
Real estate mortgage		28,856		15,491		7,828		23,319		443		20,610
Commercial real estate		28,717		21,648		5,634		27,282		103		17,187
Installment and other consumer		-		-		-		-		-		45
Total	$	95,835	$	61,208	$	15,464	$	76,672	$	550	$	78,025

1The unpaid principal balance on impaired loans represents the amount owed by the borrower. The carrying value of impaired loans is lower than the unpaid principal balance due to charge-offs.

     A loan is accounted for as a troubled debt restructure (“TDR”) if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider granting. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk.

The following table presents an analysis of TDRs for the periods ended June 30, 2011, and June 30, 2010:

						TDRs recorded in the 12 months prior to June 30, 2011 that
(Dollars in thousands)	TDRs recorded for the six months ending June 30, 2011					subsequently defaulted in the six months ending June 30, 2011
	Number of	Pre-TDR outstanding		Post-TDR outstanding		Number of	Pre-TDR outstanding		Post-TDR outstanding
	loans	recorded investment		recorded investment		loans	recorded investment		recorded investment
Commercial	9	$	809	$	779	-	$	-	$	-
Real estate construction	1		1,008		744	1		983		983
Real estate mortgage	6		2,071		2,058	-		-		-
Commercial real estate	3		917		913	-		-		-
Total	19	$	4,805	$	4,494	1	$	983	$	983
						TDRs recorded in the 12 months prior to June 30, 2010 that
(Dollars in thousands)	TDRs recorded for the six months ending June 30, 2010					subsequently defaulted in the six months ending June 30, 2010
	Number of	Pre-TDR outstanding		Post-TDR outstanding		Number of	Pre-TDR outstanding		Post-TDR outstanding
	loans	recorded investment		recorded investment		loans	recorded investment		recorded investment
Commercial	15	$	3,570	$	3,460	-	$	-	$	-
Real estate construction	10		3,729		3,555	-		-		-
Real estate mortgage	5		2,125		2,119	2		335		335
Commercial real estate	3		13,018		12,535	-		-		-
Total	33	$	22,442	$	21,669	2	$	335	$	335

     TDRs are considered impaired and as such are typically measured based on the fair value of the collateral less selling costs. For TDRs that are collateral dependent the Company charges off the amount of impairment at the time of impairment, rather than placing the impaired loan amount in a specific reserve allowance. Known impairments on non-real estate secured TDRs are charged off immediately rather than recording a specific reserve allowance in the allowance for loan losses. TDRs that have subsequently defaulted are removed from the loan balances with any loss charged to the allowance for loan losses reserve. Additional losses charged on subsequently defaulting TDRs is typically a minimal amount and immaterial for the period ending June 30, 2011.

The following table presents nonaccrual loans by category as of the dates shown:

	June 30,		December 31,
(Dollars in thousands)	2011		2010
Commercial	$	9,280	$	13,377
Real estate construction		7,796		10,692
Real estate mortgage		14,282		15,491
Commercial real estate		19,263		21,671
Installment and other consumer		1		-
Total loans on nonaccrual status	$	50,622	$	61,231

     The Company uses a risk rating matrix to assign a risk rating to loans not evaluated on a homogenous pool level. At June 30, 2011, $1.10 billion of loans were risk rated and $417.6 million were evaluated on a homogeneous pool basis. Individually risk rated loans are rated on a scale of 1 to 10. A description of the general characteristics of the 10 risk ratings is as follows:

• Ratings 1, 2 and 3 - These ratings include loans to very high credit quality borrowers of investment or near investment grade. These borrowers have significant capital strength, moderate leverage, stable earnings and growth, and readily available financing alternatives. Smaller entities, regardless of strength, would generally not fit in these ratings. These ratings also include loans that are collateralized by U. S. Government securities and certificates of deposits.
   
• Rating 4 - These ratings include loans to borrowers of solid credit quality with moderate risk. Borrowers in these ratings are differentiated from higher ratings on the basis of size (capital and/or revenue), leverage, asset quality and the stability of the industry or market area.
   
• Ratings 5 and 6 - These ratings include “pass rating” loans to borrowers of acceptable credit quality and risk. Such borrowers are differentiated from Rating 4 in terms of size, secondary sources of repayment or they are of lesser stature in other key credit metrics in that they may be over-leveraged, undercapitalized, inconsistent in performance or in an industry or an economic area that is known to have a higher level of risk, volatility, or susceptibility to weaknesses in the economy. However, no material adverse trends are evident with borrowers in these pass ratings.
   
• Rating 7 - This rating includes loans on management’s “watch list” and is intended to be utilized on a temporary basis for pass rating borrowers where a significant risk-modifying action is anticipated in the near term.
   
• Rating 8 - This rating includes “Substandard” loans, in accordance with regulatory guidelines, for which the accrual of interest may or may not been discontinued. By definition under regulatory guidelines, a “Substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business.
   
• Rating 9 - This rating includes “Doubtful” loans in accordance with regulatory guidelines. Such loans are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty.
   
• Rating 10 - This rating includes “Loss” loans in accordance with regulatory guidelines. Such loans are to be charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

     The Company considers loans assigned a risk rating 8 through 10 to be classified loans. The following table presents weighted average risk ratings of the loan portfolio and classified loans by category. The weighted average risk ratings did not exhibit material change from December 31, 2010, to June 30, 2011. Overall classified loans have contracted from December 31, 2010, with reductions in classified commercial and real estate construction balances more than offsetting increases in real estate mortgage and commercial real estate categories during the first six months of 2011.

(Dollars in thousands)	June 30, 2011				December 31, 2010
	Weighted average		Classified		Weighted average		Classified
	risk rating		loans		risk rating		loans
Commercial		5.92	$	23,862		5.89	$	32,895
Real estate construction		7.09		14,135		7.33		24,131
Real estate mortgage		6.54		28,266		6.34		20,913
Commercial real estate		5.73		49,487		5.75		42,045
Installment and other consumer1		7.76		226		7.41		137
Total			$	115,976			$	120,121
Total loans risk rated	$	1,103,554			$	1,096,859

1 Installment and other consumer loans are primarily evalued on a homogenous pool level and generally not individually risk rated unless certain factors are met.

     The following table presents homogeneous loans where credit risk is evaluated on a portfolio basis by category, and includes home equity lines of credit and certain small business loans. Important credit quality metrics for this portfolio include balances on nonaccrual and past due status. Total loans and lines evaluated on a homogeneous pool basis were $417.6 million at June 30, 2011, and $439.4 million at December 31, 2010. Such balances on nonaccrual status declined from $7.7 million at December 31, 2010, to $2.6 million at June 30, 2011. During first quarter 2011, due to the unique nature of nonstandard mortgages, the methodology for risk rating these loans was modified. This procedural change resulted in the movement of 35 notes with total commitments of $6.4 million from the homogenous pool to the individually risk rated portfolio. This change did not have a significant impact on the allowance for loan losses.

(Dollars in thousands)	June 30, 2011						December 31, 2010
	Current		Nonaccrual		30 - 89 days		Current		Nonaccrual		30 - 89 days
	status		status		past due		status		status		past due
Commercial	$	49,627	$	47	$	728	$	54,217	$	245	$	7
Real estate construction		-		753		-		-		1,136		-
Real estate mortgage		262,438		934		921		269,862		4,958		1,931
Commercial real estate		86,594		870		372		90,782		1,334		8
Installment and other consumer		14,300		2		7		14,878		-		52
Total	$	412,959	$	2,606	$	2,028	$	429,739	$	7,673	$	1,998

     The following table presents summary account activity relating to the allowance for credit losses by loan category for the periods shown:

(Dollars in thousands)	Three months ended June 30, 2011
				Real estate			Real estate			Commercial			Installment and
	Commercial			construction			mortgage			real estate			other consumer			Unallocated			Total
Beginning balance March 31, 2011	$	8,735		$	3,989		$	8,137		$	12,790		$	1,118		$	5,660		$	40,429
Provision for credit losses		(556	)		(733	)		3,116			1,605			234			(240	)		3,426
Losses charged to the allowance		(460	)		(866	)		(2,531	)		(564	)		(439	)		-			(4,860	)
Recoveries credited to the allowance		139			5			18			3			71			-			236
Ending balance June 30, 2011	$	7,858		$	2,395		$	8,740		$	13,834		$	984		$	5,420		$	39,231
(Dollars in thousands)	Six months ended June 30, 2011
				Real estate			Real estate			Commercial			Installment and
	Commercial			construction			mortgage			real estate			other consumer			Unallocated			Total
Beginning balance December 31, 2010	$	8,541		$	4,474		$	8,156		$	12,462		$	1,273		$	6,161		$	41,067
Provision for credit losses		(99	)		(842	)		4,470			2,259			455			(741	)		5,502
Losses charged to the allowance		(1,221	)		(1,242	)		(4,016	)		(893	)		(902	)		-			(8,274	)
Recoveries credited to the allowance		637			5			130			6			158			-			936
Ending balance June 30, 2011	$	7,858		$	2,395		$	8,740		$	13,834		$	984		$	5,420		$	39,231
Loans valued for impairment:
Individually	$	9,443		$	8,637		$	21,336		$	25,064		$	1		$	-		$	64,481
Collectively		288,374			23,797			315,388			814,601			14,506			-			1,456,666
Total	$	297,817		$	32,434		$	336,724		$	839,665		$	14,507		$	-		$	1,521,147
(Dollars in thousands)	Twelve months ended December 31, 2010
				Real estate			Real estate			Commercial			Installment and
	Commercial			construction			mortgage			real estate			other consumer			Unallocated			Total
Beginning balance December 31, 2009	$	8,224		$	7,240		$	8,211		$	9,492		$	1,294		$	4,957		$	39,418
Provision for credit losses		4,474			113			7,025			4,262			1,574			1,204			18,652
Losses charged to the allowance		(5,229	)		(3,576	)		(7,461	)		(1,321	)		(1,889	)		-			(19,476	)
Recoveries credited to the allowance		1,072			697			381			29			294			-			2,473
Ending balance at December 31, 2010	$	8,541		$	4,474		$	8,156		$	12,462		$	1,273		$	6,161		$	41,067
Loans valued for impairment:
Individually	$	15,056		$	11,015		$	23,319		$	27,282		$	-		$	-		$	76,672
Collectively		294,271			33,070			325,697			791,295			15,265			-			1,459,598
Total	$	309,327		$	44,085		$	349,016		$	818,577		$	15,265		$	-		$	1,536,270

     The following table shows the components of the allowance for credit losses:

(Dollars in thousands)	June 30, 2011		June 30, 2010
Allowance for loan losses	$	38,422	$	43,329
Reserve for unfunded commitments		809		1,018
Total allowance for credit losses	$	39,231	$	44,347

The reserve for unfunded commitments was included in other liabilities as of June 30, 2011 and 2010.