Loans

6 Months Ended

Jun. 30, 2011

Loans

Loans

(4) Loans

The composition of loans by primary loan classification follows:

(In thousands)	June 30, 2011		December 31, 2010
Commercial and industrial	$	365,008	$	343,956
Real estate mortgage:
Commercial investment	382,753		362,904
Owner occupied commercial	313,531		316,291
1-4 family residential	159,320		157,983
Home equity - first lien	38,376		39,449
Home equity - junior lien	83,880		91,813
Subtotal: Real estate mortgage	977,860		968,440
Construction and development	158,412		159,482
Consumer	37,670		36,547
Total loans	$	1,538,950	$	1,508,425

An analysis of the changes in the allowance for loan losses for the six months ended June 30, 2011 and 2010 follows (in thousands):

	2011			2010
Beginning balance January 1,	$	25,543		$	20,000
Provision for loan losses	5,400			5,079
Loans charged off	(3,715		)	(2,560		)
Recoveries	336			414
Ending balance June 30,	$	27,564		$	22,933

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2011 and December 31, 2010.

	Type of Loan
June 30, 2011	Commercial			Construction			Real estate
(in thousands)	and industrial			and development			mortgage			Consumer			Unallocated			Total
Allowance for credit losses
Beginning balance December 31, 2010	$	2,796		$	3,630		$	12,272		$	623		$	6,222		$	25,543
Charge-offs	(816		)	(1,226		)	(1,366		)	(307		)	—			(3,715		)
Recoveries	20			—			116			200			—			336
Provision	3,390			989			2,613			60			(1,652		)	5,400
Ending balance June 30, 2011	$	5,390		$	3,393		$	13,635		$	576		$	4,570		$	27,564
Balance: individually evaluated for impairment	$	500		$	—		$	824		$	—					$	1,324
Balance: collectively evaluated for impairment	$	4,890		$	3,393		$	12,811		$	576		$	4,570		$	26,240
Balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—
Loans
Balance	$	365,008		$	158,412		$	977,860		$	37,670					$	1,538,950
Balance: individually evaluated for impairment	$	2,209		$	700		$	12,815		$	96					$	15,820
Balance: collectively evaluated for impairment	$	362,799		$	157,712		$	965,045		$	37,574					$	1,523,130
Balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—					$	—

	Type of Loan
December 31, 2010	Commercial			Construction			Real estate
(in thousands)	and industrial			and development			mortgage			Consumer			Unallocated		Total
Allowance for credit losses
Beginning balance December 31, 2009	$	4,091		$	1,518		$	6,513		$	947		$	6,931	$	20,000
Charge-offs	(1,418		)	(2,211		)	(2,450		)	(687		)	—		(6,766		)
Recoveries	115			26			163			536			—		840
Provision	8			2,947			8,046			(173		)	641		11,469
Ending balance December 31, 2010	$	2,796		$	2,280		$	12,272		$	623		$	7,572	$	25,543
Balance: individually evaluated for impairment	$	90		$	—		$	1,724		$	—				$	1,814
Balance: collectively evaluated for impairment	$	2,706		$	2,280		$	10,548		$	623		$	7,572	$	23,729
Balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—	$	—
Loans
Balance	$	343,956		$	159,482		$	968,440		$	36,547				$	1,508,425
Balance: individually evaluated for impairment	$	520		$	700		$	15,955		$	95				$	17,270
Balance: collectively evaluated for impairment	$	343,436		$	158,782		$	952,485		$	36,452				$	1,491,155
Balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—				$	—

Information regarding impaired loans follows (in thousands):

	June 30, 2011		December 31, 2010
Principal balance of impaired loans	$	15,820	$	17,270
Impaired loans with a valuation allowance	3,832		7,335
Amount of valuation allowance	1,324		1,814
Impaired loans with no valuation allowance	11,988		9,935
Average balance of impaired loans for the period	15,572		13,212

Management uses the following classes of loans when assessing and monitoring the risk and performance of the loan portfolio:

· Commercial and industrial

· Real estate mortgage

· Construction and development

· Consumer

The following table presents loans individually evaluated for impairment as of June 30, 2011 and December 31, 2010.

			Unpaid
June 30, 2011	Recorded		principal		Related
(in thousands)	investment		balance		allowance
Loans with no related allowance recorded
Commercial and industrial	$	794	$	1,918
Real estate mortgage	10,398		11,653
Construction and development	700		700
Consumer	96		139
Loans with an allowance recorded
Commercial and industrial	$	1,415	$	2,000	$	500
Real estate mortgage	2,417		2,417		824
Construction and development	—		—		—
Consumer	—		—		—
Total
Commercial and industrial	$	2,209	$	3,918	$	500
Real estate mortgage	$	12,815	$	14,070	$	824
Construction and development	$	700	$	700	$	—
Consumer	$	96	$	139	$	—

			Unpaid
December 31, 2010	Recorded		principal		Related
(in thousands)	investment		balance		allowance
Loans with no related allowance recorded
Commercial and industrial	$	420	$	1,982
Real estate mortgage	8,720		9,455
Construction and development	700		700
Consumer	95		140
Subtotal	9,935		12,277
Loans with an allowance recorded
Commercial and industrial	$	100	$	292	$	90
Real estate mortgage	7,235		7,235		1,724
Construction and development	—		—		—
Consumer	—		—		—
Subtotal	7,335		7,527		1,814
Total
Commercial and industrial	$	520	$	2,274	$	90
Real estate mortgage	$	15,955	$	16,690	$	1,724
Construction and development	$	700	$	700	$	—
Consumer	$	95	$	140	$	—
Subtotal	17,270		19,804		1,814

Unpaid principal balance does not reflect partial charge-offs which may have occurred over the life of the loans.

Impaired loans include non-accrual loans and loans accounted for as troubled debt restructuring. Non-performing loans include the balance of impaired loans plus any loans over 90 days past due and still accruing interest.

The following table presents the recorded investment in non-accrual loans as of June 30, 2011 and December 31, 2010.

	June 30		December 31
(In thousands)	2011		2010
Commercial and industrial	$	2,286	$	2,328
Construction and development	3,288		4,589
Real estate mortgage	9,899		7,194
Consumer	97		277
Total	$	15,570	$	14,388

Included in non-performing loans are loans accounted for as troubled debt restructuring totaling $250,000 at June 30, 2011 and $2,882,000 at December 31, 2010, which continue to accrue interest.

The following table presents the aging of the recorded investment in past due loans as of June 30, 2011 and December 31, 2010.

					Greater								Recorded
					than								investment >
June 30, 2011	30-59 days		60-89 days		90 days		Total				Total		90 days and
(in thousands)	past due		past due		past due		past due		Current		loans		accruing
Commercial and industrial	$	1,006	$	92	$	2,209	$	3,307	$	361,701	$	365,008	$	—
Real estate mortgage	4,815		5,650		14,228		24,693		953,167		977,860		1,663
Construction and development	699		2,318		700		3,717		154,695		158,412		—
Consumer	222		7		96		325		37,345		37,670		—
Total	$	6,742	$	8,067	$	17,233	$	32,042	$	1,506,908	$	1,538,950	$	1,663

					Greater								Recorded
					than								investment >
December 31, 2010	30-59 days		60-89 days		90 days		Total				Total		90 days and
(in thousands)	past due		past due		past due		past due		Current		loans		accruing
Commercial and industrial	$	1,681	$	194	$	547	$	2,422	$	341,534	$	343,956	$	27
Real estate mortgage	5,943		4,821		15,039		25,803		942,637		968,440		1,966
Construction and development	256		—		700		956		158,526		159,482		—
Consumer	69		4		146		219		36,328		36,547		51
Total	$	7,949	$	5,019	$	16,432	$	29,400	$	1,479,025	$	1,508,425	$	2,044

Bancorp categorizes loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information and current economic trends.  Pass-rated loans included all risk-rated loans other than those classified as special mention, substandard, and doubtful, which are defined below:

· Special Mention:  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the loan or of the Bank’s credit position at some future date.

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

· Doubtful:  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

As of June 30, 2011 and December 31, 2010, the risk categories of loans were as follows:

Credit risk profile by internally assigned grade

(in thousands)

June 30, 2011	Commercial and industrial		Real estate mortgage		Construction and development		Consumer		Total
Grade
Pass	$	328,320	$	899,500	$	142,670	$	37,632	$	1,408,122
Special mention	18,756		34,296		6,258		14		59,324
Substandard	17,932		44,064		9,484		24		71,504
Doubtful	—		—		—		—		—
Total	$	365,008	$	977,860	$	158,412	$	37,670	$	1,538,950

December 31, 2010	Commercial and industrial		Real estate mortgage		Construction and development		Consumer		Total
Grade
Pass	$	315,053	$	891,762	$	140,986	$	36,172	$	1,383,973
Special mention	20,440		30,402		6,222		67		57,131
Substandard	8,463		46,276		12,274		308		67,321
Doubtful	—		—		—		—		—
Total	$	343,956	$	968,440	$	159,482	$	36,547	$	1,508,425

Credit risk profile based on payment activity

(in thousands)

June 30, 2011	Commercial and industrial		Real estate mortgage		Construction and development		Consumer		Total
Performing	$	362,799	$	963,382	$	157,712	$	37,574	$	1,521,467
Non-performing	2,209		14,478		700		96		17,483
Total	$	365,008	$	977,860	$	158,412	$	37,670	$	1,538,950

December 31, 2010	Commercial and industrial		Real estate mortgage		Construction and development		Consumer		Total
Performing	$	343,409	$	950,519	$	158,782	$	36,401	$	1,489,111
Non-performing	547		17,921		700		146		19,314
Total	$	343,956	$	968,440	$	159,482	$	36,547	$	1,508,425