Note 8 – Loans and Asset Quality Information

The loans and foreclosed real estate that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and First Bank, which afford First Bank significant loss protection. (See the Company's 2010 Annual Report on Form 10-K for more information regarding the Cooperative Bank transaction and Note 4 above for the more information regarding The Bank of Asheville transaction.) Because of the loss protection provided by the FDIC, the risk of the Cooperative Bank and The Bank of Asheville loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreements as “non-covered loans.”

The following is a summary of the major categories of total loans outstanding:

($ in thousands)	June 30, 2011					December 31, 2010					June 30, 2010
	Amount		Percentage			Amount		Percentage			Amount		Percentage
All loans (non-covered and covered):

Commercial, financial, and agricultural	$	158,303		6	%		155,016		6	%		162,645		6	%
Real estate – construction, land development & other land loans		386,354		16	%		437,700		18	%		501,323		20	%
Real estate – mortgage – residential (1-4 family) first mortgages		803,209		33	%		802,658		33	%		817,167		32	%
Real estate – mortgage – home equity loans / lines of credit		266,995		11	%		263,529		11	%		265,443		11	%
Real estate – mortgage – commercial and other		745,858		31	%		710,337		29	%		722,988		28	%
Installment loans to individuals		80,423		3	%		83,919		3	%		84,319		3	%
Subtotal		2,441,142		100	%		2,453,159		100	%		2,553,885		100	%
Unamortized net deferred loan costs		1,298					973					691
Total loans	$	2,442,440					2,454,132					2,554,576

As of June 30, 2011, December 31, 2010 and June 30, 2010, net loans include unamortized premiums of $1,182,000, $687,000, and $785,000, respectively, related to acquired loans.

The following is a summary of the major categories of non-covered loans outstanding:

($ in thousands)	June 30, 2011					December 31, 2010					June 30, 2010
	Amount		Percentage			Amount		Percentage			Amount		Percentage
Non-covered loans:

Commercial, financial, and agricultural	$	145,811		7	%		150,545		7	%		157,751		7	%
Real estate – construction, land development & other land loans		306,140		15	%		344,939		17	%		377,939		18	%
Real estate – mortgage – residential (1-4 family) first mortgages		631,640		31	%		622,353		30	%		603,051		29	%
Real estate – mortgage – home equity loans / lines of credit		241,973		12	%		246,418		12	%		244,822		12	%
Real estate – mortgage – commercial and other		635,103		31	%		636,197		30	%		633,711		30	%
Installment loans to individuals		78,749		4	%		81,579		4	%		81,134		4	%
Subtotal		2,039,416		100	%		2,082,031		100	%		2,098,408		100	%
Unamortized net deferred loan costs		1,298					973					691
Total non-covered loans	$	2,040,714					2,083,004					2,099,099

The carrying amount of the covered loans at June 30, 2011 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	138		705		12,273		19,597		12,411		20,302
Real estate – construction, land development & other land loans		5,611		19,574		74,627		122,557		80,238		142,131
Real estate – mortgage – residential (1-4 family) first mortgages		1,383		2,962		172,352		205,147		173,735		208,109
Real estate – mortgage – home equity loans / lines of credit		276		962		22,272		29,175		22,548		30,137
Real estate – mortgage – commercial and other		6,129		11,418		104,910		139,207		111,039		150,625
Installment loans to individuals		−		8		1,755		1,937		1,755		1,945
Total	$	13,537		35,629		388,189		517,620		401,726		553,249

The carrying amount of the covered loans at December 31, 2010 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	−		−		4,471		5,272		4,471		5,272
Real estate – construction, land development & other land loans		1,898		3,328		90,863		147,615		92,761		150,943
Real estate – mortgage – residential (1-4 family) first mortgages		−		−		180,305		212,826		180,305		212,826
Real estate – mortgage – home equity loans / lines of credit		−		−		17,111		20,332		17,111		20,332
Real estate – mortgage – commercial and other		2,709		3,594		71,431		93,490		74,140		97,084
Installment loans to individuals		−		−		2,340		2,595		2,340		2,595
Total	$	4,607		6,922		366,521		482,130		371,128		489,052

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2009. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

($ in thousands)
Carrying amount of nonimpaired covered loans at December 31, 2009	$	485,572
Principal repayments		(43,801	)
Transfers to foreclosed real estate		(75,121	)
Loan charge-offs		(7,736	)
Accretion of loan discount		7,607
Carrying amount of nonimpaired covered loans at December 31, 2010		366,521
Additions due to acquisition of The Bank of Asheville (at fair value)		84,623
Principal repayments		(25,742	)
Transfers to foreclosed real estate		(33,286	)
Loan charge-offs		(10,456	)
Accretion of loan discount		6,529
Carrying amount of nonimpaired covered loans at June 30, 2011	$	388,189

As reflected in the table above, the Company accreted $6,529,000 of the loan discount on purchased nonimpaired loans into interest income during the first six months of 2011.

The following table presents information regarding all purchased impaired loans since December 31, 2009, substantially all of which are covered loans. The Company has applied the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected in the following table.

($ in thousands) Purchased Impaired Loans	Contractual Principal Receivable			Fair Market Value Adjustment – Write Down (Nonaccretable Difference)			Carrying Amount
Balance at December 31, 2009	$	39,293			3,242			36,051
Change due to payments received		(685	)		2			(687	)
Transfer to foreclosed real estate		(27,569	)		(225	)		(27,344	)
Change due to loan charge-off		(3,149	)		(625	)		(2,524	)
Other		190			(65	)		255
Balance at December 31, 2010	$	8,080			2,329			5,751
Additions due to acquisition of The Bank of Asheville		38,452			20,807			17,645
Change due to payments received		(691	)		(260	)		(431	)
Transfer to foreclosed real estate		(7,401	)		(1,223	)		(6,178	)
Change due to loan charge-off		(1,874	)		372			(2,246	)
Other		670			440			230
Balance at June 30, 2011	$	37,236			22,465			14,771

Each of the purchased impaired loans is on nonaccrual status and considered to be impaired. Because of the uncertainty of the expected cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments are applied to principal. Thus, there is no accretable yield associated with the above loans. During the first six months of 2010, the Company received $67,000 in payments that exceeded the initial carrying amount of the purchased impaired loans. These payments were recorded as interest income. There were no such amounts recorded in 2011.

Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, and other real estate. Nonperforming assets are summarized as follows:

ASSET QUALITY DATA ($ in thousands)	June 30, 2011		December 31, 2010		June 30, 2010

Non-covered nonperforming assets
Nonaccrual loans	$	71,570		62,326		73,152
Restructured loans – accruing		16,893		33,677		20,392
Accruing loans > 90 days past due		-		-		-
Total non-covered nonperforming loans		88,463		96,003		93,544
Other real estate		31,849		21,081		14,690
Total non-covered nonperforming assets	$	120,312		117,084		108,234

Covered nonperforming assets
Nonaccrual loans (1)	$	37,057		58,466		98,669
Restructured loans – accruing		24,325		14,359		8,450
Accruing loans > 90 days past due		-		-		-
Total covered nonperforming loans		61,382		72,825		107,119
Other real estate		102,883		94,891		80,074
Total covered nonperforming assets	$	164,265		167,716		187,193

Total nonperforming assets	$	284,577		284,800		295,427

(1) At June 30, 2011, December 31, 2010, and June 30, 2010, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $69.4 million, $86.2 million, and $146.5 million, respectively.

The following table presents information related to the Company's impaired loans.

($ in thousands)	As of /for the six months ended June 30, 2011		As of /for the year ended December 31, 2010		As of /for the six months ended June 30, 2010
Impaired loans at period end
Non-covered	$	88,463		96,003		93,544
Covered		61,382		72,825		107,119
Total impaired loans at period end	$	149,845		168,828		200,663

Average amount of impaired loans for period
Non-covered	$	91,187		89,751		79,913
Covered		69,102		95,373		106,096
Average amount of impaired loans for period – total	$	160,289		185,124		186,009

Allowance for loan losses related to impaired loans at period end
Non-covered	$	6,019		7,613		12,060
Covered		4,727		11,155		−
Allowance for loan losses related to impaired loans - total	$	10,746		18,768		12,060

Amount of impaired loans with no related allowance at period end
Non-covered	$	31,514		42,874		26,092
Covered		49,755		49,991		107,119
Total impaired loans with no related allowance at period end	$	81,269		92,865		133,211

All of the impaired loans noted in the table above were on nonaccrual status at each respective period end except for those classified as restructured loans (see table above for balances).

The remaining tables in this note present information derived from the Company's allowance for loan loss model. Relevant accounting guidance requires certain disclosures to be disaggregated based on how the Company develops its allowance for loan losses and manages its credit exposure. This model combines loan types in a different manner than the tables previously presented.

The following table presents the Company's nonaccrual loans as of June 30, 2011.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	301		178		479
Commercial – secured		2,015		107		2,122
Secured by inventory and accounts receivable		113		43		156

Real estate – construction, land development & other land loans		29,541		15,055		44,596

Real estate – residential, farmland and multi-family		22,642		12,296		34,938

Real estate – home equity lines of credit		2,548		1,013		3,561

Real estate – commercial		11,666		8,355		20,021

Consumer		2,744		10		2,754
Total	$	71,570		37,057		108,627

The following table presents the Company's nonaccrual loans as of December 31, 2010.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	64		160		224
Commercial – secured		1,566		3		1,569
Secured by inventory and accounts receivable		802		−		802

Real estate – construction, land development & other land loans		22,654		30,847		53,501

Real estate – residential, farmland and multi-family		27,055		19,716		46,771

Real estate – home equity lines of credit		2,201		685		2,886

Real estate – commercial		7,461		7,039		14,500

Consumer		523		16		539
Total	$	62,326		58,466		120,792

The following table presents an analysis of the payment status of the Company's loans as of June 30, 2011.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	31		41		301		38,341		38,714
Commercial - secured		965		602		2,015		101,814		105,396
Secured by inventory and accounts receivable		−		−		113		20,868		20,981

Real estate – construction, land development & other land loans		1,638		310		29,541		235,857		267,346

Real estate – residential, farmland, and multi-family		7,127		3,396		22,642		741,283		774,448

Real estate – home equity lines of credit		1,773		191		2,548		209,408		213,920

Real estate - commercial		1,935		867		11,666		544,411		558,879

Consumer		687		269		2,744		56,032		59,732
Total non-covered	$	14,156		5,676		71,570		1,948,014		2,039,416
Unamortized net deferred loan costs										1,298
Total non-covered loans									$	2,040,714

Covered loans	$	5,287		5,303		37,057		354,079		401,726

Total loans	$	19,443		10,979		108,627		2,302,093		2,442,440

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at June 30, 2011.

The following table presents an analysis of the payment status of the Company's loans as of December 31, 2010.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	225		92		64		41,564		41,945
Commercial - secured		1,165		195		1,566		102,657		105,583
Secured by inventory and accounts receivable		100		−		802		21,369		22,271

Real estate – construction, land development & other land loans		2,951		7,022		22,654		270,892		303,519

Real estate – residential, farmland, and multi-family		10,290		2,942		27,055		726,456		766,743

Real estate – home equity lines of credit		496		253		2,201		213,984		216,934

Real estate - commercial		2,581		1,193		7,461		552,020		563,255

Consumer		595		297		523		60,366		61,781
Total non-covered	$	18,403		11,994		62,326		1,989,308		2,082,031
Unamortized net deferred loan costs										973
Total non-covered loans									$	2,083,004

Total covered loans	$	6,713		4,127		58,466		301,822		371,128

Total loans	$	25,116		16,121		120,792		2,291,130		2,454,132

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2010.

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2011.

($ in thousands)	Commercial, Financial, And Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial And Other			Consumer			Unallo -cated			Total

As of and for the three months ended June 30, 2011

Beginning balance	$	4,142			10,203			12,463			3,359			3,359			2,223			24			35,773
Charge-offs		(740	)		(5,589	)		(2,248	)		(141	)		(313	)		(157	)		(121	)		(9,309	)
Recoveries		28			219			61			37			−			20			29			394
Provisions		475			6,957			1,808			(1,406	)		(187	)		(126	)		86			7,607
Ending balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465

As of and for the six months ended June 30, 2011

Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(1,896	)		(9,582	)		(5,596	)		(764	)		(1,380	)		(360	)		(236	)		(19,814	)
Recoveries		36			251			293			43			28			103			73			827
Provisions		1,034			8,601			6,104			(1,064	)		239			256			7			15,177
Ending balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465

Ending balances as of June 30, 2011: Allowance for loan losses

Individually evaluated for impairment	$	50			1,221			235			−			340			−			−			1,846

Collectively evaluated for impairment	$	3,855			10,569			11,849			1,849			2,519			1,960			18			32,619

Loans acquired with deteriorated credit quality	$	−			−			−			−			−			−			−			−

Loans receivable as of June 30, 2011:

Ending balance–total	$	165,091			267,346			774,448			213,920			558,879			59,732			−			2,039,416

Ending balances as of June 30, 2011: Loans

Individually evaluated for impairment	$	2,049			47,181			7,656			531			34,198			20			−			91,635

Collectively evaluated for impairment	$	163,042			220,165			766,792			213,389			524,681			59,712			−			1,947,781

Loans acquired with deteriorated credit quality	$	−			1,234			−			−			−			−			−			1,234

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2010.

($ in thousands)	Commercial, Financial, And Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo -cated			Total

As of and for the year ended December 31, 2010

Beginning balance	$	4,992			9,286			10,779			3,228			6,839			1,610			609			37,343
Charge-offs		(4,691	)		(15,721	)		(6,962	)		(2,490	)		(2,354	)		(1,587	)		−			(33,805	)
Recoveries		145			130			548			59			38			171			−			1,091
Provisions		4,285			18,825			6,918			2,837			(551	)		1,767			(435	)		33,646
Ending balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275

Ending balances as of December 31, 2010: Allowance for loan losses

Individually evaluated for impairment	$	867			3,740			1,070			269			611			−			−			6,557

Collectively evaluated for impairment	$	3,864			8,780			10,213			3,365			3,361			1,961			174			31,718

Loans acquired with deteriorated credit quality	$	−			−			−			−			−			−			−			−

Loans receivable as of December 31, 2010:

Ending balance – total	$	169,799			303,519			766,743			216,934			563,255			61,781			−			2,082,031

Ending balances as of December 31, 2010: Loans

Individually evaluated for impairment	$	3,487			64,549			15,786			1,223			25,213			28			−			110,286

Collectively evaluated for impairment	$	166,312			238,970			750,957			215,711			538,042			61,753			−			1,971,745

Loans acquired with deteriorated credit quality	$	−			1,144			−			−			−			−			−			1,144

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2011.

($ in thousands)	Covered Loans

As of and for the three months ended June 30, 2011

Beginning balance	$	7,002
Charge-offs		(4,789	)
Recoveries		−
Provisions		3,327
Ending balance	$	5,540

As of and for the six months ended June 30, 2011

Beginning balance	$	11,155
Charge-offs		(12,715	)
Recoveries		−
Provisions		7,100
Ending balance	$	5,540

Ending balances as of June 30, 2011: Allowance for loan losses

Individually evaluated for impairment	$	5,540

Collectively evaluated for impairment		−

Loans acquired with deteriorated credit quality		−

Loans receivable as of June 30, 2011:

Ending balance – total	$	401,726

Ending balances as of June 30, 2011: Loans

Individually evaluated for impairment	$	37,149

Collectively evaluated for impairment		364,577

Loans acquired with deteriorated credit quality		13,538

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2010.

($ in thousands)	Covered Loans

As of and for the year ended December 31, 2010

Beginning balance	$	−
Charge-offs		(9,761	)
Recoveries		−
Provisions		20,916
Ending balance	$	11,155

Ending balances as of December 31, 2010: Allowance for loan losses

Individually evaluated for impairment	$	11,155

Collectively evaluated for impairment		−

Loans acquired with deteriorated credit quality		−

Loans receivable as of December 31, 2010:

Ending balance – total	$	371,128

Ending balances as of December 31, 2010: Loans

Individually evaluated for impairment	$	72,690

Collectively evaluated for impairment		298,438

Loans acquired with deteriorated credit quality		4,607

The following table presents the Company's impaired loans as of June 30, 2011.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans:
With no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	−		−		−		−
Commercial - secured		749		1,103		−		653
Secured by inventory and accounts receivable		47		597		−		177

Real estate – construction, land development & other land loans		15,245		19,680		−		20,079

Real estate – residential, farmland, and multi-family		3,468		4,256		−		5,387

Real estate – home equity lines of credit		−		250		−		101

Real estate – commercial		11,990		12,808		−		11,771

Consumer		15		40		−		18
Total non-covered impaired loans with no allowance	$	31,514		38,734		−		38,186

Total covered impaired loans with no allowance	$	49,755		87,707		−		52,510

Total impaired loans with no allowance recorded	$	81,269		126,441		−		90,696

Non-covered loans:
With an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	301		301		55		197
Commercial - secured		1,266		1,269		228		1,097
Secured by inventory and accounts receivable		66		468		50		369

Real estate – construction, land development & other land loans		20,381		29,882		2,904		17,696

Real estate – residential, farmland, and multi-family		21,303		22,458		1,820		22,209

Real estate – home equity lines of credit		2,548		2,567		103		2,276

Real estate – commercial		8,356		8,792		356		7,059

Consumer		2,728		2,746		503		2,098
Total non-covered impaired loans with allowance	$	56,949		68,483		6,019		53,001

Total covered impaired loans with allowance	$	11,628		16,568		4,727		16,592

Total impaired loans with an allowance recorded	$	68,577		85,051		10,746		69,593

Interest income recorded on non-covered and covered impaired loans during the three and six months ended June 30, 2011 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

The following table presents the Company's impaired loans as of December 31, 2010.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans:
With no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	−		−		−		138
Commercial - secured		902		967		−		758
Secured by inventory and accounts receivable		240		650		−		186

Real estate – construction, land development & other land loans		22,026		26,012		−		15,639

Real estate – residential, farmland, and multi-family		8,269		9,447		−		7,437

Real estate – home equity lines of credit		302		502		−		381

Real estate – commercial		11,115		11,321		−		7,284

Consumer		20		40		−		46
Total non-covered impaired loans with no allowance	$	42,874		48,939		−		31,869

Total covered impaired loans with no allowance	$	49,991		77,321		−		83,955

Total impaired loans with no allowance recorded	$	92,865		126,260		−		115,824

Non-covered loans:
With an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	124		124		24		243
Commercial - secured		579		579		88		1,385
Secured by inventory and accounts receivable		1,026		1,026		609		613

Real estate – construction, land development & other land loans		17,540		19,926		3,932		21,362

Real estate – residential, farmland, and multi-family		23,012		23,012		1,820		22,166

Real estate – home equity lines of credit		2,148		2,223		357		1,928

Real estate – commercial		8,013		8,088		497		9,275

Consumer		687		687		286		910
Total non-covered impaired loans with allowance	$	53,129		55,665		7,613		57,882

Total covered impaired loans with allowance	$	22,834		27,105		11,155		11,418

Total impaired loans with an allowance recorded	$	75,963		82,770		18,768		69,300

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2010 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

The Company tracks credit quality based on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower's credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored monthly for credit quality based on many factors, such as payment history, the borrower's financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management's evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

The following describes the Company's internal risk grades in ascending order of likelihood of loss:

	Numerical Risk Grade	Description
Pass:
	1	Cash secured loans.
	2	Non-cash secured loans that have no minor or major exceptions to the lending guidelines.
	3	Non-cash secured loans that have no major exceptions to the lending guidelines.
Weak Pass:
	4	Non-cash secured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated.
Watch or Standard:
	9	Loans that meet the guidelines for a Risk Graded 5 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances. This category also includes all loans to insiders and any other loan that management elects to monitor on the watch list.
Special Mention:
	5	Existing loans with major exceptions that cannot be mitigated.
Classified:
	6	Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected.
	7	Loans that have a well-defined weakness that make the collection or liquidation improbable.
	8	Loans that are considered uncollectible and are in the process of being charged-off.

The following table presents the Company's recorded investment in loans by credit quality indicators as of June 30, 2011.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	12,203		25,295		−		295		921		38,714
Commercial - secured		35,814		62,501		1,440		1,379		4,262		105,396
Secured by inventory and accounts receivable		4,415		15,213		96		859		398		20,981

Real estate – construction, land development & other land loans		47,029		155,650		6,241		11,828		46,598		267,346

Real estate – residential, farmland, and multi-family		273,661		427,093		9,351		17,589		46,754		774,448

Real estate – home equity lines of credit		136,959		68,023		2,566		2,549		3,823		213,920

Real estate - commercial		164,238		325,657		32,211		10,020		26,753		558,879

Consumer		31,984		23,939		71		130		3,608		59,732
Total	$	706,303		1,103,371		51,976		44,649		133,117		2,039,416
Unamortized net deferred loan costs												1,298
Total non-covered loans											$	2,040,714

Total covered loans	$	83,777		168,063		−		13,878		136,008		401,726

Total loans	$	790,080		1,271,434		51,976		58,527		269,125		2,442,440

The following table presents the Company's recorded investment in loans by credit quality indicators as of December 31, 2010.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	14,850		25,992		−		332		771		41,945
Commercial - secured		40,995		55,918		2,100		2,774		3,796		105,583
Secured by inventory and accounts receivable		6,364		14,165		−		873		869		22,271

Real estate – construction, land development & other land loans		66,321		162,147		7,649		14,068		53,334		303,519

Real estate – residential, farmland, and multi-family		302,667		376,187		15,941		22,436		49,512		766,743

Real estate – home equity lines of credit		137,674		68,876		3,001		3,060		4,323		216,934

Real estate - commercial		190,284		301,828		33,706		12,141		25,296		563,255

Consumer		34,600		24,783		140		408		1,850		61,781
Total	$	793,755		1,029,896		62,537		56,092		139,751		2,082,031
Unamortized net deferred loan costs												973
Total non-covered loans											$	2,083,004

Total covered loans	$	38,276		187,526		−		7,579		137,747		371,128

Total loans	$	832,031		1,217,422		62,537		63,671		277,498		2,454,132