LOANS AND ALLOWANCE FOR CREDIT LOSSES

6 Months Ended

Jun. 30, 2012

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, 2012			December 31, 2011
Commercial	$	292,643		$	299,766
Real estate construction		44,026			30,162
Real estate mortgage		308,891			324,994
Commercial real estate		837,415			832,767
Installment and other consumer		12,822			13,612
Total loans		1,495,797			1,501,301
Allowance for loan losses		(33,132	)		(35,212	)
Total loans, net	$	1,462,665		$	1,466,089

The following table presents an age analysis of the loan portfolio, including nonaccrual loans, for the periods shown:

(Dollars in thousands)	June 30, 2012
	30 - 89 days		Greater than		Total		Current		Total
	past due		90 days past due		past due		loans		loans
Commercial	$	1,045	$	4,725	$	5,770	$	286,873	$	292,643
Real estate construction		-		5,687		5,687		38,339		44,026
Real estate mortgage		2,927		2,389		5,316		303,575		308,891
Commercial real estate		5,162		4,823		9,985		827,430		837,415
Installment and other consumer		18		1		19		12,803		12,822
Total	$	9,152	$	17,625	$	26,777	$	1,469,020	$	1,495,797
(Dollars in thousands)	December 31, 2011
	30 - 89 days		Greater than		Total		Current		Total
	past due		90 days past due		past due		loans		loans
Commercial	$	849	$	5,692	$	6,541	$	293,225	$	299,766
Real estate construction		-		5,522		5,522		24,640		30,162
Real estate mortgage		3,787		6,226		10,013		314,981		324,994
Commercial real estate		3,619		6,328		9,947		822,820		832,767
Installment and other consumer		56		1		57		13,555		13,612
Total	$	8,311	$	23,769	$	32,080	$	1,469,221	$	1,501,301

Loans greater than 90 days past due are classified into nonaccrual status. In addition, certain loans not 90 days past due are on nonaccrual status.

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

											Quarter ended
(Dollars in thousands)	June 30, 2012										June 30, 2012
	Unpaid principal		Impaired loans		Impaired loans		Total impaired		Related		Average impaired
	balance1		with no allowance		with allowance		loan balance		allowance		loan balance
Commercial	$	17,868	$	6,199	$	443	$	6,642	$	27	$	6,726
Real estate construction		10,777		5,686		-		5,686		-		5,672
Real estate mortgage		25,976		9,283		4,838		14,121		166		17,194
Commercial real estate		22,462		12,384		8,713		21,097		288		23,378
Installment and other consumer		1,926		-		85		85		21		118
Total	$	79,009	$	33,552	$	14,079	$	47,631	$	502	$	53,088
											Quarter ended
(Dollars in thousands)	December 31, 2011										December 31, 2011
	Unpaid principal		Impaired loans		Impaired loans		Total impaired		Related		Average impaired
	balance1		with no allowance		with allowance		loan balance		allowance		loan balance
Commercial	$	18,736	$	7,750	$	224	$	7,974	$	1	$	10,504
Real estate construction		9,716		5,823		41		5,864		-		8,405
Real estate mortgage		30,732		11,949		6,779		18,728		329		20,892
Commercial real estate		25,426		15,070		8,604		23,674		173		25,969
Installment and other consumer		1,812		5		175		180		-		54
Total	$	86,422	$	40,597	$	15,823	$	56,420	$	503	$	65,824

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.

The balance of Troubled Debt Restructurings (“TDR”) at June 30, 2012, was $32.1 million, down from $37.6 million at December 31, 2011. The following table presents an analysis of TDRs recorded for the periods ended June 30, 2012, and June 30, 2011:

(Dollars in thousands)	TDRs recorded for the three months ended					TDRs recorded in the 12 months prior to June 30, 2012 that
	June 30, 2012					subsequently defaulted in the three months ended June 30, 2012
	Number of	Pre-TDR outstanding		Post-TDR outstanding		Number of	Pre-TDR outstanding		Amount Defaulted
	loans	recorded investment		recorded investment		loans	recorded investment
Commercial	1	$	40	$	40	-	$	-	$	-
Real estate construction	-		-		-	-		-		-
Real estate mortgage	-		-		-	-		-		-
Commercial real estate	-		-		-	-		-		-
Consumer loans	-		-		-	-		-		-
Total	1	$	40	$	40	-	$	-	$	-
(Dollars in thousands)	TDRs recorded for the three months ended					TDRs recorded in the 12 months prior to June 30, 2011 that
	June 30, 2011					subsequently defaulted in the three months ended June 30, 2011
	Number of	Pre-TDR outstanding		Post-TDR outstanding		Number of	Pre-TDR outstanding		Amount Defaulted
	loans	recorded investment		recorded investment		loans	recorded investment
Commercial	4	$	368	$	366	-	$	-	$	-
Real estate construction	-		-		-	-		-		-
Real estate mortgage	2		789		786	-		-		-
Commercial real estate	2		735		732	-		-		-
Consumer loans	-		-		-	-		-		-
Total	8	$	1,892	$	1,884	-	$	-	$	-

(Dollars in thousands)	TDRs recorded for the six months ended						TDRs recorded in the 12 months prior to June 30, 2012 that
	June 30, 2012						subsequently defaulted in the six months ended June 30, 2012
	Number of		Pre-TDR outstanding		Post-TDR outstanding		Number of	Pre-TDR outstanding		Amount Defaulted
	loans		recorded investment		recorded investment		loans	recorded investment
Commercial		3	$	689	$	689	-	$	-	$	-
Real estate construction		-		-		-	-		-		-
Real estate mortgage		-		-		-	-		-		-
Commercial real estate		-		-		-	-		-		-
Consumer loans		-		-		-	1		88		87
Total		3	$	689	$	689	1	$	88	$	87
(Dollars in thousands)	TDRs recorded for the six months ended						TDRs recorded in the 12 months prior to June 30, 2011 that
	June 30, 2011						subsequently defaulted in the six months ended June 30, 2011
	Number of		Pre-TDR outstanding		Post-TDR outstanding		Number of	Pre-TDR outstanding		Amount Defaulted
	loans		recorded investment		recorded investment		loans	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	-		-		-
Consumer loans		-		-		-	-		-		-
Total		19	$	4,805	$	4,494	1	$	983	$	983

     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 creating a specific reserve for the impairment amount.

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

	June 30,		December 31,
(Dollars in thousands)	2012		2011
Commercial	$	6,199	$	7,750
Real estate construction		5,686		5,823
Real estate mortgage		9,283		11,949
Commercial real estate		12,384		15,070
Installment and other consumer		-		5
Total loans on nonaccrual status	$	33,552	$	40,597

     The Company uses a risk rating matrix to assign a risk rating to loans not evaluated on a homogenous pool level. At June 30, 2012, $1.11 billion of loans were risk rated and $382.4 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 or 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, including classified loans, by category. The weighted average risk rating of the portfolio exhibited modest improvement from December 31, 2011, to June 30, 2012. However, the Company experienced reductions in all classified loan portfolio categories during over this period.

(Dollars in thousands)	June 30, 2012				December 31, 2011
	Weighted average		Classified		Weighted average		Classified
	risk rating		loans		risk rating		loans
Commercial		5.77	$	20,000		5.84	$	22,401
Real estate construction		6.63		12,242		6.99		13,159
Real estate mortgage		6.40		19,342		6.50		24,004
Commercial real estate		5.64		30,360		5.67		35,255
Installment and other consumer1		7.83		244		7.87		358
Total			$	82,188			$	95,177
Total loans risk rated	$	1,113,353			$	1,103,713

¹ Installment and other consumer loans are primarily evaluated 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 loans and 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 $382.4 million at June 30, 2012, and $397.6 million at December 31, 2011.

(Dollars in thousands)	June 30, 2012						December 31, 2011
	Current		Nonaccrual		30 - 89 days		Current		Nonaccrual		30 - 89 days
	status		status		past due		status		status		past due
Commercial	$	43,972	$	1	$	362	$	46,774	$	11	$	112
Real estate construction		-		4		-		-		4		-
Real estate mortgage		243,497		16		1,283		254,107		13		1,480
Commercial real estate		80,416		1		364		81,601		1		283
Installment and other consumer		12,509		1		19		13,146		-		56
Total	$	380,394	$	23	$	2,028	$	395,628	$	29	$	1,931

       The following tables present summary account activity relating to the allowance for credit losses by loan category:

(Dollars in thousands)	Three months ended June 30, 2012
				Real estate		Real estate			Commercial			Installment and
	Commercial			construction		mortgage			real estate			other consumer			Unallocated			Total
Beginning balance March 31, 2012	$	6,869		$	2,303	$	8,067		$	11,840		$	1,066		$	4,489		$	34,634
Provision for credit losses		55			134		1,003			(1,145	)		65			(604	)		(492	)
Losses charged to the allowance		(379	)		-		(476	)		(549	)		(252	)		-			(1,656	)
Recoveries credited to the allowance		156			29		48			1,129			52			-			1,414
Ending balance June 30, 2012	$	6,701		$	2,466	$	8,642		$	11,275		$	931		$	3,885		$	33,900

	Six months ended June 30, 2012
				Real estate			Real estate			Commercial			Installment and
	Commercial			construction			mortgage			real estate			other consumer			Unallocated			Total
Beginning balance December 31, 2011	$	7,746		$	2,490		$	8,461		$	11,833		$	1,067		$	4,386		$	35,983
Provision for credit losses		(827	)		(52	)		1,685			(1,097	)		389			(501	)		(403	)
Losses charged to the allowance		(1,014	)		(3	)		(1,715	)		(611	)		(672	)		-			(4,015	)
Recoveries credited to the allowance		796			31			211			1,150			147			-			2,335
Ending balance June 30, 2012	$	6,701		$	2,466		$	8,642		$	11,275		$	931		$	3,885		$	33,900
Loans valued for impairment:
Individually	$	6,642		$	5,686		$	14,121		$	21,097		$	85		$	-		$	47,631
Collectively		286,001			38,340			294,770			816,318			12,737			-			1,448,166
Total	$	292,643		$	44,026		$	308,891		$	837,415		$	12,822		$	-		$	1,495,797

(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

       The decline in the provision for credit losses and the allowance for credit losses reflected the improving trend in the overall risk profile of the loan portfolio. The allowance for credit losses at June 30, 2012 declined from December 31, 2011, also due to lower overall loan balances as well as adjustments being made to loan category risk rating reserve percentages.

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

(Dollars in thousands)	June 30, 2012		June 30, 2011
Allowance for loan losses	$	33,132	$	38,422
Reserve for unfunded commitments		768		809
Total allowance for credit losses	$	33,900	$	39,231