LOANS AND ALLOWANCE

3 Months Ended

Mar. 31, 2012

LOANS AND ALLOWANCE

LOANS AND ALLOWANCE

NOTE 4 - LOANS AND ALLOWANCE

Loans were as follows:

	March 31,2012			December 31, 2011
Commercial
Commercial and industrial	$	122,001		$	114,367
Agricultural	19,251			20,741
Commercial Real Estate
Farm	46,682			46,308
Hotel	142,096			146,358
Construction and development	25,892			30,746
Other	537,368			540,752
Residential
1-4 family	368,754			365,710
Home equity	214,181			212,202
Consumer
Direct	51,072			51,157
Indirect	4,782			6,038
Total loans	1,532,079			1,534,379
Allowance for loan losses	(38,541		)	(39,889		)
Net loans	$	1,493,538		$	1,494,490

Activity in the allowance for loan losses for the three months ended March 31, 2012 and 2011 and the recorded investment of loans and allowances by portfolio segment and impairment method as of March 31, 2012 and December 31, 2011 were as follows:

	Commercial			Commercial Real Estate			Residential			Consumer			Total
Allowance for loan loss
Balance, January 1, 2012	$	5,562		$	30,476		$	2,972		$	879		$	39,889
Provision charged to expense	(218		)	2,893			182			243			3,100
Losses charged off	(180		)	(3,908		)	(1,214		)	(619		)	(5,921		)
Recoveries	167			779			72			455			1,473
Balance, March 31, 2012	$	5,331		$	30,240		$	2,012		$	958		$	38,541

	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	(206		)	4,366			1,047			393			5,600
Losses charged off	(259		)	(4,262		)	(922		)	(550		)	(5,993		)
Recoveries	28			472			201			342			1,043
Balance, March 31, 2011	$	5,949		$	33,229		$	2,607		$	1,470		$	43,255
As of March 31, 2012
Ending Balance individually evaluated for impairment	$	1,228		$	3,131		$	—		$	—		$	4,359
Ending Balance collectively evaluated for impairment	4,103			27,109			2,012			958			34,182
Total ending allowance balance	$	5,331		$	30,240		$	2,012		$	958		$	38,541
Loans
Ending Balance individually evaluated for impairment	$	4,692		$	31,891		$	14,712		$	1,113		$	52,408
Ending Balance collectively evaluated for impairment	136,559			720,147			568,224			54,741			1,479,671
Total ending loan balance excludes $5,552 of accrued interest	$	141,251		$	752,038		$	582,936		$	55,854		$	1,532,079

As of December 31, 2011	Commercial		Commercial Real Estate		Residential		Consumer		Total
Ending Balance individually evaluated for impairment	$	1,193	$	5,476	$	—	$	—	$	6,669
Ending Balance collectively evaluated for impairment	4,369		25,000		2,972		879		33,220
Total ending allowance balance	$	5,562	$	30,476	$	2,972	$	879	$	39,889
Loans
Ending Balance individually evaluated for impairment	$	5,144	$	41,149	$	14,522	$	1,116	$	61,931
Ending Balance collectively evaluated for impairment	129,964		723,015		563,390		56,079		1,472,448
Total ending loan balance excludes $5,835 of accrued interest	$	135,108,	$	764,164	$	577,912	$	57,195	$	1,534,379

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2012:

March 31, 2012	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded
Commercial
Commercial and industrial	$	2,720	$	2,637	$	1,228
Commercial Real Estate
Farm	461		461		146
Hotel
Construction and development	1,483		1,394		623
Other	13,303		11,822		2,362
Subtotal — impaired with allowance recorded	17,967		16,314		4,359
With no related allowance recorded
Commercial
Commercial & industrial	2,811		2,019
Agricultural	333		36
Commercial Real Estate
Farm	594		541
Hotel	426		204
Construction and development	6,312		3,488
Other	16,535		13,981
Residential
1-4 Family	12,670		11,912
Home Equity	2,941		2,800
Consumer
Direct	1,054		1,043
Indirect	71		70
Subtotal — impaired with allowance recorded	43,747		36,094
Total impaired loans	$	61,714	$	52,408

Total interest income recognized and cash basis interest recognized on impaired loans for the first quarter of 2012 and 2011 was $9 and $48 respectively.

The following table presents the average balance of impaired loans at for the quarters ending March 31, 2012 and March 31, 2011.

	Average Balance
	March 31 2012		March 31 2011
Commercial
Commercial & industrial	$	4,871	$	7,742
Agricultural	46		129
Commercial Real Estate
Farm	1,010		1,193
Hotel	2,986		9,485
Construction and development	6,099		12,663
Other	26,426		30,798
Residential
1-4 Family	11,979		13,255
Home Equity	2,639		1,767
Consumer
Direct	1,063		1,181
Indirect	51		70
Total	$	57,170	$	78,283

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2011:

December 31, 2011	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded
Commercial
Commercial and industrial	$	3,130	$	3,057	$	1,193
Commercial Real Estate
Farm	486		486		193
Hotel	5,385		5,385		100
Construction and development	5,558		5,476		2,371
Other	14,400		14,322		2,812
Subtotal — impaired with allowance recorded	28,959		28,726		6,669
With no related allowance recorded
Commercial
Commercial & industrial	2,720		2,030
Agricultural	351		57
Commercial Real Estate
Farm	579		531
Hotel	876		384
Construction and development	2,996		1,839
Other	16,325		12,726
Residential
1-4 Family	12,344		12,045
Home Equity	2,548		2,477
Consumer
Direct	1,096		1,083
Indirect	35		33
Subtotal — impaired with allowance recorded	39,870		33,205
Total impaired loans	68,829		61,931		6,669

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 March 31, 2012 and December 31, 2011

	Non-accrual				Past due over 90 days and still accruing
	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Commercial
Commercial and industrial	$	2,511	$	2,518
Agricultural	36		57
Commercial Real Estate
Farm	1,002		1,016
Hotel	204		384
Construction and development	4,882		3,240
Other	20,748		21,060		51		3,259
Residential
1-4 Family	10,711		10,873		217
Home Equity	2,431		2,105
Consumer
Direct	261		242				7
Indirect	70		33
Total	$	42,856	$	41,528	$	268	$	3,266

The following table presents the aging of the recorded investment in past due loans as of March 31, 2012 by class of loans:

March 31, 2012	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	$	122,001	$	602	$	1,465	$	1,312	$	3,379	$	118,622
Agricultural	19,251		—		—		36		36		19,215
Commercial Real Estate
Farm	46,682		174		—		950		1,124		45,558
Hotel	142,096		—		—		204		204		141,892
Construction and development	25,892		1,890		240		2,992		5,122		20,770
Other	537,368		3,092		3,107		12,259		18,458		518,910
Residential
1-4 Family	368,754		6,150		585		6,036		12,771		355,983
Home Equity	214,181		469		165		1,573		2,207		211,974
Consumer
Direct	51,072		191		78		76		345		50,727
Indirect	4,782		48		23		16		87		4,695
Total — excludes $5,552 of accrued interest	$	1,532,079	$	12,616	$	5,663	$	25,454	$	43,733	$	1,488,346

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

December 31, 2011	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	$	114,367	1,139	655	1,831	3,625	110,742
Agricultural	20,741				57	57	20,684
Commercial Real Estate
Farm	46,308			58	905	963	45,345
Hotel	146,358				384	384	145,974
Construction and development	30,746		61		3,179	3,240	27,506
Other	540,752		4,249	3,576	16,529	24,354	516,398
Residential
1-4 Family	365,710		9,327	2,233	7,182	18,742	346,968
Home Equity	212,202		1,417	500	1,491	3,408	208,794
Consumer
Direct	51,157		382	146	129	657	50,500
Indirect	6,038		87	24	16	127	5,911
Total — excludes $5,835 of accrued interest	$	1,534,379	16,662	7,192	31,703	55,557	1,478,822

Troubled Debt Restructurings

During the period ending March 31, 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 60 months to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 14 months.

The troubled debt restructurings increased the allowance for loan losses by $0 for the three month period ending March 31, 2012 and resulted in charge offs of $0 during the three month period ending March 31, 2012.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three month period ending March 31, 2012:

		Pre-Modification		Post-Modification
		Outstanding Recorded		Outstanding Recorded
March 31, 2012	Number of Loans	Investment		Investment
Consumer
Direct	1	$	4	$	4
Total	1	$	4	$	4

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three month period ending March 31, 2012:

March 31, 2012	Number of Loans	Recorded Investment
Commercial real estate:
Other	6	$	942
Total	6	$	942

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the company’s internal underwriting policy.

The Company has allocated $1,083 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2012. 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, 2011, the comparable numbers were $3,013 of specific reserves and $0 of commitments.

During the first quarter of 2012, charge offs of $2,384 were taken on troubled debt restructuring loans.  Reserves of $1,768 were provided on these loans in prior quarters.

The terms of certain other loans were modified during the three month period ending March 31, 2012 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of March 31, 2012 of $5,686. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant

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 have demonstrated the 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 March 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

March 31, 2012	Pass		Special Mention		Substandard		Non-accrual
Commercial
Commercial and industrial	$	97,676	$	8,463	$	13,352	$	2,510
Agricultural	18,730		476		9		36
Commercial Real Estate
Farm	42,875		2,516		289		1,002
Hotel	74,605		48,068		19,219		204
Construction and development	14,110		2,379		4,521		4,882
Other	446,353		34,553		35,724		20,738
Total	$	694,349	$	96,455	$	73,114	$	29,372

At December 31, 2011, the risk category of loans by class of loans was as follows:

December 31, 2011	Pass		Special Mention		Substandard		Non-accrual
Commercial
Commercial and industrial	$	93,380	$	11,935	$	6,534	$	2,518
Agricultural	20,150		524		10		57
Commercial Real Estate
Farm	42,847		2,151		294		1,016
Hotel	77,259		51,900		16,815		384
Construction and development	15,498		3,212		8,796		3,240
Other	422,385		66,377		30,930		21,060
Total	$	671,519	$	136,099	$	63,379	$	28,275

Beginning in late 2011, loans not meeting the criteria above that are analyzed individually as part of the above described process are classified by delinquency. These loans are primarily residential mortgage and consumer loans. All consumer loans fully or partially secured by 1-4 residential real estate that are 60-89 days will be classified as Watch. If loans are greater than 90 days past due, they will be classified as Substandard. Consumer loans not secured by 1-4 family residential real estate that are 60-119 days past due will be classified Substandard while loans greater than 119 days will be classified as Loss. As of March 31, 2012 and December 31, 2011, the grading of loans by category of loans is as follows

March 31, 2012	Performing		Watch		Substandard
Residential
1-4 Family	$	362,133	$	585	$	6,036
Home Equity	212,443		165		1,573
Total	$	574,576	$	750	$	7,609

December 31, 2011	Performing		Watch		Substandard
Residential
1-4 Family	$	356,295	2,233		7,182
Home Equity	210,211		500		1,491
Total	$	566,506	$	2,733	$	8,673

March 31, 2012	Performing		Substandard		Loss
Consumer
Direct	$	50,918	$	84	$	70
Indirect	4,742		30		10
Total	$	55,660	$	114	$	80

December 31, 2011	Performing		Substandard		Loss
Consumer
Direct	$	50,882	$	201	$	74
Indirect	5,998		25		15
Total	$	56,880	$	226	$	89