Loans

6 Months Ended

Jun. 30, 2011

Loans & Allowance for Loan Losses and Credit Quality [Abstract]

Note 4. Loans

Loans, net of unearned income, consist of the following:


	June 30, 2011					December 31, 2010
(Dollars in Thousands)	Amount		Percent			Amount		Percent
Commercial loans
Construction — commercial	$	34,966		2.55	%	$	42,694		3.08	%
Land development		4,694		0.34	%		16,650		1.20	%
Other land loans		23,354		1.70	%		24,468		1.77	%
Commercial and industrial		92,891		6.76	%		94,123		6.79	%
Multi-family residential		78,163		5.69	%		67,824		4.89	%
Non-farm, non-residential		333,475		24.27	%		351,904		25.39	%
Agricultural		1,677		0.12	%		1,342		0.10	%
Farmland		37,227		2.71	%		36,954		2.67	%

Total commercial loans		606,447		44.14	%		635,959		45.89	%
Consumer real estate loans
Home equity lines		111,995		8.15	%		111,620		8.05	%
Single family residential mortgage		560,527		40.80	%		549,157		39.61	%
Owner-occupied construction		18,062		1.31	%		18,349		1.32	%

Total consumer real estate loans		690,584		50.26	%		679,126		48.98	%
Consumer and other loans
Consumer loans		64,692		4.71	%		63,475		4.58	%
Other		12,221		0.89	%		7,646		0.55	%

Total consumer and other loans		76,913		5.60	%		71,121		5.13	%

Total loans	$	1,373,944		100.00	%	$	1,386,206		100.00	%


Loans held for sale	$	920				$	4,694

Acquired, Impaired Loans

Loans acquired in a business combination are recorded at estimated fair value on their purchase date. Under applicable accounting standards, it is not appropriate to carryover a valuation for the allowance for loan losses at the time of acquisition when the acquired loans have evidence of credit deterioration. Evidence of credit quality deterioration as of the purchase date may include measures such as credit scores, decline in collateral value, past due and non-accrual status. For acquired, impaired loans the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference which is included in the carrying amount of the loans. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges, or a reversal of the nonaccretable difference with a positive impact on interest income prospectively. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. Acquired performing loans are recorded at fair value, including a credit component. The fair value adjustment is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. A provision for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition.

The following table presents information regarding acquired, impaired loans for the three- and six-month periods ended June 30, 2011 and 2010. The Company has estimated the cash flows to be collected on the loans and discounted those cash flows at a market rate of interest.


	Acquired, Impaired Loans
	2011								2010
	TriStone			Other		Total			TriStone			Other			Total
(In thousands)
Balance, January 1	$	2,814		$	407	$	3,221		$	3,838		$	4,196		$	8,034
Principal payments received		(173	)		—		(173	)		(961	)		(224	)		(1,185	)
Accretion		13			—		13			30			—			30
Other		60			—		60			426			—			426
Charge-offs		—			—		—			(499	)		—			(499	)

Balance, June 30	$	2,714		$	407	$	3,121		$	2,834		$	3,972		$	6,806


Balance, March 31	$	2,884		$	407	$	3,291		$	3,323		$	3,972		$	7,295
Principal payments received		(138	)		—		(138	)		(94	)		—			(94	)
Accretion		6			—		6			15			—			15
Other		(38	)		—		(38	)		10			—			10
Charge-offs		—			—		—			(420	)		—			(420	)

Balance, June 30	$	2,714		$	407	$	3,121		$	2,834		$	3,972		$	6,806

The remaining balance of the accretable difference at June 30, 2011, and December 31, 2010, was $931 thousand and $944 thousand, respectively

Off-Balance Sheet Financial Instruments

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized on the balance sheet. The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is not a violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparties. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties.

Standby letters of credit and written financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. To the extent deemed necessary, collateral of varying types and amounts is held to secure customer performance under certain of those letters of credit outstanding.

Financial instruments whose contract amounts represent credit risk are commitments to extend credit (including availability of lines of credit) of $210.53 million and standby letters of credit and financial guarantees written of $2.93 million at June 30, 2011. Additionally, the Company had gross notional amounts of outstanding commitments to lend related to secondary market mortgage loans of $3.50 million at June 30, 2011.