Note 6. Loans

Major classifications of loans are as follows (in thousands):

	June 30,		December 31,
	2011		2010

Commercial	$	450,916	$	441,799
Commercial mortgage (1)		593,842		580,780
Construction		205,730		203,120
Total commercial loans		1,250,488		1,225,699
Direct financing leases, net		127,016		103,289
Residential mortgage		98,113		93,004
Consumer loans and others		200,132		194,320
		1,675,749		1,616,312
Deferred loan costs		2,911		2,883
Total loans, net of deferred loan costs	$	1,678,660	$	1,619,195

Supplemental loan data:
Construction 1-4 family	$	93,422	$	100,689
Construction commercial, acquisition and development		112,308		102,431
	$	205,730	$	203,120

(1) At June 30, 2011, our owner occupied loans amounted to $132 million, or 22.2% of commercial mortgages as compared to $127 million, or 21.8% at December 31, 2010.

The Company identifies a loan as impaired where it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. Total impaired loans were $19.5 million at June 30, 2011, of which $18.5 million had specific valuation allowances of $5.2 million. The remaining $1.0 million of impaired loans did not have a valuation allowance. The balance of impaired loans was $15.3 million at December 31, 2010, which had a specific valuation allowance of $5.3 million.

The Company recognizes income on impaired loans after they are placed into non-accrual status on a cash basis only when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Company. If these factors do not exist, the Company will not recognize income on such loans. Interest income would have increased by $188,000 in second quarter 2011 and $283,000 for the six months ended June 30, 2011 if interest on impaired loans had been accrued. The Company did not recognize any interest income on impaired loans in second quarter or six months ended June 30, 2011 and 2010, respectively.

The following table provides information about impaired loans at June 30, 2011 and December 31, 2010 (in thousands):

	Recorded investment		Unpaid principal balance		Related allowance
June 30, 2011
Without an allowance recorded
Construction	$	251	$	1,560	$	-
Commercial mortgage		774		774		-
Commercial		-		-		-
Consumer		-		-		-
Residential		-		-		-
With an allowance recorded
Construction		594		594		394
Commercial mortgage		2,008		2,008		542
Commercial		5,337		5,337		1,674
Consumer - home equity		633		633		428
Residential		9,929		10,025		2,163
Total
Construction	$	845	$	2,154	$	394
Commercial	$	8,119	$	8,119	$	2,216
Consumer	$	633	$	633	$	428
Residential	$	9,929	$	10,025	$	2,163

December 31, 2010
Without an allowance recorded
Commercial mortgage	$	-	$	-	$	-
Commercial		-		-		-
Consumer		-		-		-
Residential		-		-		-
With an allowance recorded
Construction		4,881		4,881		2,644
Commercial mortgage		1,650		1,650		284
Commercial		2,280		2,280		1,316
Consumer - home equity		960		960		117
Residential		5,526		5,622		970
Total
Construction	$	4,881	$	4,881	$	2,644
Commercial	$	3,930	$	3,930	$	1,600
Consumer	$	960	$	960	$	117
Residential	$	5,526	$	5,622	$	970

	Average recorded investment		Interest income recognized
June 30, 2011
Without an allowance recorded
Construction	$	251	$	-
Commercial mortgage		774
Commercial		-		-
Consumer		-		-
Residential		-		-
With an allowance recorded
Construction		1,019		-
Commercial mortgage		2,010		-
Commercial		3,941		-
Consumer - home equity		633		-
Residential		8,250		-
Total
Construction	$	1,270	$	-
Commercial	$	6,725	$	-
Consumer	$	633	$	-
Residential	$	8,250	$	-

The following tables summarize the Company's non-accrual loans, loans past due 90 days and other real estate owned for the periods indicated (the Company had no non-accrual leases at June 30, 2011 or December 31, 2010):

	June 30,		December 31,
	2011		2010
	(in thousands)

Non-accrual loans
Construction	$	845	$	4,881
Commercial mortgage		2,782		1,650
Commercial		5,337		2,280
Consumer		633		960
Residential		9,929		5,526
Total non-accrual loans		19,526		15,297

Loans past due 90 days or more		4,397		2,220
Total non-performing loans		23,923		17,517
Other real estate owned		3,764		2,115
Total non-performing assets	$	27,687	$	19,632

An analysis of the changes in the allowance for loan and lease losses by loan category is as follows (in thousands):

				Commercial						Residential						Direct financing
Six months ended	Commercial			mortgage			Construction			mortgage			Consumer			leases, net		Unallocated			Total
June 30, 2011
Beginning balance	$	6,051		$	9,501		$	5,030		$	2,115		$	578		$	164	$	624		$	24,063
Charge-offs		(4,702	)		(102	)		(2,496	)		(49	)		(681	)		-		-			(8,030	)
Recoveries		2			13			2			-			-			-		-			17
Provision		8,852			(526	)		983			939			1,488			78		(179	)		11,635
Ending balance	$	10,203		$	8,886		$	3,519		$	3,005		$	1,385		$	242	$	445		$	27,685

Ending balance: Individually evaluated for impairment	$	1,674		$	542		$	394		$	2,163		$	428		$	-	$	-		$	5,201

Ending balance: Collectively evaluated for impairment	$	8,529		$	8,344		$	3,125		$	842		$	957		$	242	$	445		$	22,484


Loans:
Ending balance	$	450,916		$	593,842		$	205,730		$	98,113		$	200,132		$	127,016	$	2,911		$	1,678,660

Ending balance: Individually evaluated for impairment	$	5,337		$	2,782		$	845		$	9,929		$	633		$	-	$	-		$	19,526

Ending balance: Collectively evaluated for impairment	$	445,579		$	591,060		$	204,885		$	88,184		$	199,499		$	127,016	$	2,911		$	1,659,134

Twelve months ended
December 31, 2010
Beginning balance	$	5,181		$	7,041		$	4,356	$	1,699		$	460		$	151		$	235	$	19,123
Charge-offs		(4,453	)		(9,060	)		-		(1,254	)		(618	)		(3	)		-		(15,388	)
Recoveries		232			47			4		742			6			10			-		1,041
Provision		5,091			11,473			670		928			730			6			389		19,287
Ending balance	$	6,051		$	9,501		$	5,030	$	2,115		$	578		$	164		$	624	$	24,063

Ending balance: Individually evaluated for impairment	$	1,316		$	284		$	2,644	$	970		$	117		$	-		$	-	$	5,331

Ending balance: Collectively evaluated for impairment	$	4,735		$	9,217		$	2,386	$	1,145		$	461		$	164		$	624	$	18,732


Loans:
Ending balance	$	444,259		$	580,780		$	203,120	$	93,147		$	194,600		$	103,289		$	-	$	1,619,195

Ending balance: Individually evaluated for impairment	$	2,280		$	1,650		$	4,881	$	5,526		$	960		$	-		$	-	$	15,297

Ending balance: Collectively evaluated for impairment	$	441,979		$	579,130		$	198,239	$	87,621		$	193,640		$	103,289		$	-	$	1,603,898

	Six months ended June 30,
	2010

Balance in the allowance for loan and lease losses at
beginning of period	$	19,123

Loans charged-off:
Commercial		6,484
Construction		-
Lease financing		-
Residential mortgage		223
Consumer		138
Total		6,845

Recoveries:
Commercial		79
Construction		3
Lease financing		-
Residential mortgage		16
Consumer		6
Total		104
Net charge-offs		6,741
Provision charged to operations		9,954
Balance in allowance for loan and lease losses at end
of period	$	22,336
Net charge-offs/average loans		0.44	%

The Company did not have loans acquired with deteriorated credit quality at either June 30, 2011 or December 31, 2010.

A detail of the Company's delinquent loans by loan category is as follows (in thousands):

Age Analysis of Past Due Loans

	30-59 Days		60-89 Days		Greater Than				Total				Total
June 30, 2011	past due		past due		90 days		Nonaccrual		past due		Current		loans
Commercial	$	3,351	$	-	$	1,133	$	5,337	$	9,821	$	441,095	$	450,916
Commercial mortgage		2,349		1,070		824		2,782		7,025		586,817		593,842
Construction		-		-		2,366		845		3,211		202,519		205,730
Direct financing leases, net		1,305		52		69		-		1,426		125,590		127,016
Consumer - other		-		50		5		-		55		155,800		155,855
Consumer - home equity		330		1,012		-		633		1,975		42,302		44,277
Residential mortgage		-		-		-		9,929		9,929		88,184		98,113
Unamortized costs		-		-		-		-		-		2,911		2,911
	$	7,335	$	2,184	$	4,397	$	19,526	$	33,442	$	1,645,218	$	1,678,660

December 31, 2010
Commercial	$	-	$	100	$	285	$	2,280	$	2,665	$	439,134	$	441,799
Commercial mortgage		774		-		824		1,650		3,248		577,532		580,780
Construction		-		391		-		4,881		5,272		197,848		203,120
Direct financing leases, net		816		192		49		-		1,057		102,232		103,289
Consumer - other		-		2		12		-		14		148,715		148,729
Consumer - home equity		330		-		-		960		1,290		44,301		45,591
Residential mortgage		-		-		1,050		5,526		6,576		86,428		93,004
Unamortized costs		-		-		-		-		-		2,883		2,883
	$	1,920	$	685	$	2,220	$	15,297	$	20,122	$	1,599,073	$	1,619,195

The following table classifies loans by categories which are used throughout the industry as of June 30, 2011 and December 31, 2010 (in thousands):


									Commercial				Residential
	Commercial				Construction				mortgage				mortgage
	6/30/2011		12/31/2010		6/30/2011		12/31/2010		6/30/2011		12/31/2010		6/30/2011		12/31/2010
Risk Rating
Pass	$	273,480	$	291,140	$	166,749	$	165,089	$	477,488	$	461,378	$	28,183	$	30,066
Special Mention		21,450		-		-		-		-		-		-		-
Substandard		9,894		6,091		5,277		5,271		4,675		3,608		9,929		6,576
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-
Unrated		146,092		144,568		33,704		32,760		111,679		115,794		60,001		56,362
Total	$	450,916	$	441,799	$	205,730	$	203,120	$	593,842	$	580,780	$	98,113	$	93,004


					Direct financing
	Consumer				leases, net				Unamortized costs				Total
	6/30/2011		12/31/2010		6/30/2011		12/31/2010		6/30/2011		12/31/2010		6/30/2011		12/31/2010
Risk Rating
Pass	$	65,713	$	59,064	$	12,000	$	-	$	-	$	-	$	1,023,613	$	1,006,737
Special Mention		-		-		-		-		-		-		21,450		-
Substandard		2,157		1,224		42		-		-		-		31,974		22,770
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-
Unrated		132,262		134,032		114,974		103,289		2,911		2,883		601,623		589,688
Total	$	200,132	$	194,320	$	127,016	$	103,289	$	2,911	$	2,883	$	1,678,660	$	1,619,195