LOANS AND ALLOWANCE

6 Months Ended

Jun. 30, 2011

LOANS AND ALLOWANCE

LOANS AND ALLOWANCE

NOTE 4 - LOANS AND ALLOWANCE

Loans were as follows:

	June 30, 2011			December 31, 2010
Commercial
Commercial and industrial	$	129,023		$	138,291
Agricultural	18,809			27,178
Commercial Real Estate
Farm	53,059			48,307
Hotel	149,568			152,416
Construction and development	36,086			59,319
Other	574,587			589,192
Residential
1-4 family	376,186			380,987
Home equity	214,268			213,607
Consumer
Direct	55,224			59,139
Indirect	8,694			12,535
Total loans	1,615,504			1,680,971
Allowance for loan losses	(41,462		)	(42,605		)
Net loans	$	1,574,042		$	1,638,366

Activity in the allowance for loan losses was as follows:

	June 30,
	2011			2010
Allowance for loan losses
Balances, January 1	$	42,605		$	46,648
Provision for losses	9,600			22,250
Recoveries on loans	1,814			1,171
Loans charged off	(12,557		)	(28,633		)
Balances, June 30	$	41,462		$	41,436

Activity in the allowance for loan losses for the six months ended June 30, 2011 and the recorded investment of loans and allowances by portfolio segment and impairment method as of June 30, 2011 were as follows:

	Commercial			Commercial Real Estate			Residential			Consumer			Total
Allowance for loan loss
Balance, January 1, 2011	$	6,386		$	32,653		$	2,281		$	1,285		$	42,605
Provision charged to expense	(259		)	7,816			1,653			390			9,600
Losses charged off	(543		)	(9,266		)	(1,710		)	(1,038		)	(12,557		)
Recoveries	205			648			364			597			1,814
Balance, June 30, 2011	$	5,789		$	31,851		$	2,588		$	1,234		$	41,462
Ending Balance individually evaluated for impairment	$	1,806		$	5,140		$	—		$	—		$	6,946
Ending Balance collectively evaluated for impairment	3,983			26,711			2,588			1,234			34,516
Total ending allowance balance	$	5,789		$	31,851		$	2,588		$	1,234		$	41,462
Loans
Ending Balance individually evaluated for impairment	$	6,375		$	40,420		$	11,493		$	1,248		$	59,536
Ending Balance collectively evaluated for impairment	141,457			772,880			578,961			62,670			1,555,968
Total ending loan balance excludes $ 6,308 of accrued interest	$	147,832		$	813,300		$	590,454		$	63,918		$	1,615,504

Activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2011 was as follows:

	Commercial			Commercial Real Estate				Residential				Consumer				Total
Allowance for loan loss
Balance, April 1, 2011	$	5,949		$	33,229			$	2,607			$	1,470			$	43,255
Provision charged to expense	(53		)	3,450				606				(3			)	4,000
Losses charged off	(284		)	(5,004			)	(788			)	(488			)	(6,564			)
Recoveries	177			176				163				255				771
Balance, June 30, 2011	$	5,789		$		31,851		$		2,588		$		1,234		$		41,462

The balance of recorded investment of loans and allowance for loan losses by portfolio segment and impairment method as of December 31, 2010 were as follows:

Balance, December 31, 2010	Commercial		Commercial Real Estate		Residential		Consumer		Total
Ending Balance individually evaluated for impairment	$	1,753	$	8,571	$	—	$	—	$	10,324
Ending Balance collectively evaluated for impairment	4,633		24,082		2,281		1,285		32,281
Total ending allowance balance	$	6,386	$	32,653	$	2,281	$	1,285	$	42,605
Loans
Ending Balance individually evaluated for impairment	$	8,223	$	64,048	$	16,801	$	1,504	$	90,576
Ending Balance collectively evaluated for impairment	157,246		785,186		577,793		70,170		1,590,395
Total ending loan balance excludes $6,779 of accrued interest	$	165,469	$	849,234	$	594,594	$	71,674	$	1,680,971

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2011:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded
Commercial
Commercial and industrial	$	4,416	$	4,368	$	1,806
Agricultural
Commercial Real Estate
Farm	461		461		128
Hotel	5,442		5,441		52
Construction and development	3,507		2,338		702
Other	14,409		13,400		4,258
Total	$	28,235	$	26,008	$	6,946
With no related allowance recorded
Commercial
Commercial and industrial	$	2,323	$	1,887	$	—
Agricultural	411		120
Commercial Real Estate
Farm	571		538
Hotel	876		384
Construction and development	7,883		4,666
Other	16,179		13,192
Residential
1-4 Family	10,010		9,700
Home Equity	1,885		1,793
Consumer
Direct	1,205		1,194
Indirect	58		54
Total	$	41,401	$	33,528	$	—

The following table presents the average balance of impaired loans by class for the three and six month period ended June 30, 2011and interest income recognized on impaired loans and cash basis interest for the six month period ended June 30, 2011

	Three Month Average Balance		Six Month Average Balance		Interest Income Recognized / Cash Basic Interest
Commercial
Commercial and industrial	$	6,823	$	7,246	$	19
Agricultural	124		126
Commercial Real Estate
Farm	1,092		1,128
Hotel	6,066		8,265
Construction and development	6,664		10,777
Other	28,536		29,396		35
Residential
1-4 Family	10,661		12,070		5
Home Equity	1,708		1,776		9
Consumer
Direct	1,063		1,186		2
Indirect	59		64		3
Total	$	62,796	$	72,034	$	73
The amounts at June 30, 2010 were as follows:	$	96,039	$	97,257	$	51

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded
Commercial
Commercial and industrial	$	4,935	$	4,902	$	1,753
Agricultural
Commercial Real Estate
Farm	461		465		71
Hotel	13,178		12,603		1,151
Construction and development	41,924		17,613		3,110
Other	22,580		20,458		4,239
Total	$	83,078	$	56,041	$	10,324
With no related allowance recorded
Commercial
Commercial and industrial	$	3,966	$	3,191	$	—
Agricultural	422		130
Commercial Real Estate
Farm	766		735
Hotel	59		60
Construction and development	1,677		1,390
Other	14,120		10,724
Residential
1-4 Family	15,171		14,889
Home Equity	2,000		1,912
Consumer
Direct	1,431		1,430
Indirect	78		74
Total	$	39,690	$	34,535	$	—

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2011 and December 31, 2010

	June 30, 2011				December 31, 2010
	Non-accrual		Past due over 90 days and still accruing		Non-accrual		Past due over 90 days and still accruing
Commercial
Commercial and industrial	$	3,576	$	—	$	4,587	$	—
Agricultural	120				130
Commercial Real Estate
Farm	998				736
Hotel	384				6,533
Construction and development	6,496				19,004
Other	21,071		62		24,531		41
Residential
1-4 Family	8,005		31		10,682		849
Home Equity	1,651		11		1,688		85
Consumer
Direct	217				261		14
Indirect	54				74
Total	$	42,572	$	104	$	68,226	$	989

The following table presents the aging of the recorded investment in past due loans as of June 30, 2011 by class of loans:

	Total Loans		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due
Commercial
Commercial and industrial	$	129,023	$	1,121	$	159	$	2,691	$	3,971	$	125,052
Agricultural	18,809						118		118		18,691
Commercial Real Estate
Farm	53,059		278				937		1,215		51,844
Hotel	149,568						384		384		149,184
Construction and development	36,086		1,200		1,103		6,110		8,413		27,673
Other	574,587		4,686		2,649		13,262		20,597		553,990
Residential
1-4 Family	376,186		2,424		1,970		5,240		9,634		366,552
Home Equity	214,268		808		419		940		2,167		212,101
Consumer
Direct	55,224		268		100		80		448		54,776
Indirect	8,694		89		24		17		130		8,564
Total — excludes $6,308 of accrued interest	$	1,615,504	$	10,874	$	6,424	$	29,779	$	47,077	$	1,568,427

The following table presents the aging of the recorded investment in past due loans as of December 31, 2010 by class of loans:

	Total Loans		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due
Commercial
Commercial and industrial	$	138,291	$	1,202	$	233	$	3,151	$	4,586	$	133,705
Agricultural	27,178						130		130		27,048
Commercial Real Estate
Farm	48,307						528		528		47,779
Hotel	152,416						512		512		151,904
Construction and development	59,319				728		18,276		19,004		40,315
Other	589,192		4,237		2,678		17,646		24,561		564,631
Residential
1-4 Family	380,987		7,101		2,633		8,013		17,747		363,240
Home Equity	213,607		642		261		1,375		2,278		211,329
Consumer
Direct	59,139		508		153		138		799		58,340
Indirect	12,535		114		6		36		156		12,379
Total — excludes $6,779 of accrued interest	$	1,680,971	$	13,804	$	6,692	$	49,805	$	70,301	$	1,610,670

At June 30, 2011, the Company had $16,243 of troubled debt restructurings compared to $22,250 at December 31, 2010.  The Company has allocated $2,382 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2011. The Company has committed to lend additional amounts totaling $0 to customers with outstanding loans that are classified as troubled debt restructurings.  At December 31, 2010, the comparable numbers were $2,599 of specific reserves and $517 of commitments.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of the borrower to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial and commercial real estate loans individually by classifying the loans as to credit risk. This analysis includes credit relationships with an outstanding balance greater than $1 million on an annual basis. The Company uses the following definitions for risk ratings:

Special Mention — Loans classified as special mention have above average risk that requires management’s ongoing attention. The borrower may demonstrated inability to generate profits or to maintain net worth, chronic delinquency and/or a demonstrated lack of willingness or capacity to meet obligations.

Substandard — Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are classified by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Non-accrual — Loans classified as non-accrual are loans where the further accrual of interest is stopped because payment in full of principal and interest is not expected. In most cases, the principal and interest has been in default for a period of 90 days or more.

As of June 30, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass		Special Mention		Substandard		Non-accrual
Commercial
Commercial and industrial	$	109,941	$	9,719	$	5,787	$	3,576
Agricultural	17,866		666		159		118
Commercial Real Estate
Farm	47,552		3,038		1,471		998
Hotel	77,263		68,644		3,277		384
Construction and development	13,621		8,734		7,235		6,496
Other	456,746		52,421		44,125		21,295
Total	$	722,989	$	143,222	$	62,054	$	32,867

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be performing or under performing. These loans are primarily residential mortgage and consumer loans. Performing loans are loans risk graded 1-4 and under performing loans are loans risk graded 5, 6, or 9. As of June 30, 2011, the performing/under performing loans by class of loans are as follows:

	Performing		Under performing
Residential
1-4 Family	$	344,576	$	31,610
Home Equity	208,386		5,882
Consumer
Direct	53,330		1,894
Indirect	8,492		202
Total	$	614,784	$	39,588

As of December 31, 2010, the risk category of loans by class of loans is as follows:

	Pass		Special Mention		Substandard		Non-accrual
Commercial
Commercial and industrial	$	113,349	$	14,019	$	6,336	$	4,587
Agricultural	25,113		1,766		169		130
Commercial Real Estate
Farm	38,206		7,590		1,775		736
Hotel	86,884		55,666		3,332		6,533
Construction and development	16,083		10,697		13,535		19,004
Other	479,863		45,491		39,308		24,531
Total	$	759,498	$	135,229	$	64,455	$	55,521

As of December 31, 2010, the performing/under performing loans by class of loans are as follows:

	Performing		Under performing
Residential
1-4 Family	$	351,181	$	29,806
Home Equity	207,833		5,774
Consumer
Direct	57,240		1,899
Indirect	12,248		287
Total	$	628,502	$	37,766