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Loans
 12 Months Ended
Dec. 31, 2011
Loans and Allowance for Loan Losses and Credit Quality [Abstract]  
Loans
Note 4. Loans

Loans, net of unearned income, consisted of the following at December 31, 2011 and 2010:

 

                 
(Amounts in thousands)   2011     2010  

Commercial loans

                

Construction — commercial

   $ 35,482     $ 42,694  

Land development

     2,902       16,650  

Other land loans

     23,384       24,468  

Commercial and industrial

     91,939       94,123  

Multi-family residential

     77,050       67,824  

Single family non-owner occupied

     106,743       104,960  

Non-farm, non-residential

     336,005       351,904  

Agricultural

     1,374       1,342  

Farmland

     37,161       36,954  
   

 

 

    

 

 

  

Total commercial loans

     712,040       740,919  

Consumer real estate loans

                

Home equity lines

     111,387       111,620  

Single family owner occupied

     473,067       444,197  

Owner occupied construction

     19,577       18,349  
   

 

 

    

 

 

  

Total consumer real estate loans

     604,031       574,166  

Consumer and other loans

                

Consumer loans

     67,129       63,475  

Other

     12,867       7,646  
   

 

 

    

 

 

  

Total consumer and other loans

     79,996       71,121  
   

 

 

    

 

 

  

Loans held for investment, net of unearned income

   $ 1,396,067     $ 1,386,206  
   

 

 

    

 

 

  
     

Loans held for sale

   $ 5,820     $ 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 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 carrying amount of acquired loans at July 31, 2009, consisted of loans with credit deterioration, or impaired loans, and loans with no credit deterioration, or performing loans. The following table presents the acquired performing loans receivable at the acquisition date of July 31, 2009. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

 

         
    July 31, 2009  
(Amounts in thousands)      

Contractually required principal payments to balance sheet received

   $ 125,366  

Fair value of adjustment for credit, interest rate, and liquidity

     (472 ) 
   

 

 

  

Fair value of loans receivable, with no credit deterioration

   $ 124,894  
   

 

 

  

 

The following table presents information regarding acquired, impaired loans. The Company has estimated the cash flows to be collected on the loans and discounted those cash flows at a market rate of interest.

 

                         
    TriStone     Other     Total  
(Amounts in thousands)                  

Balance, January 1, 2010

   $ 3,838     $ 4,196     $ 8,034  

Principal payments received

     (1,034 )      (2,900 )      (3,934 ) 

Accretion

     61       —         61  

Other

     448       —         448  

Charge-offs

     (499 )      (889 )      (1,388 ) 
   

 

 

    

 

 

    

 

 

  

Balance, December 31, 2010

   $ 2,814     $ 407     $ 3,221  
   

 

 

    

 

 

    

 

 

  
       

Balance, January 1, 2011

   $ 2,814     $ 407     $ 3,221  

Principal payments received

     (513 )      —         (513 ) 

Accretion

     174       —         174  

Other

     4       —         4  

Charge-offs

     —         —         —    
   

 

 

    

 

 

    

 

 

  

Balance, December 31, 2011

   $ 2,479     $ 407     $ 2,886  
   

 

 

    

 

 

    

 

 

  

At December 31, 2011 and 2010, the remaining balance of the accretable difference totaled $919 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 $194.27 million and standby letters of credit and financial guarantees written of $2.90 million at December 31, 2011. Additionally, the Company had gross notional amounts of outstanding commitments to lend related to secondary market mortgage loans of $9.15 million at December 31, 2011.

Related Party Loans

In the normal course of business, the Company’s subsidiary bank has made loans to directors and executive officers of the Company, its subsidiaries, and to affiliates of such directors and officers (collectively referred to as “related parties”). All loans and commitments made to such officers and directors and to companies in which they are officers, or have significant ownership interest, have been made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons not related to the Company. The aggregate dollar amount of loans to related parties totaled $18.41 million and $12.46 million at December 31, 2011 and 2010, respectively. During 2011, $10.08 million in new loans and increases were made and repayments on such loans to related parties totaled $4.13 million. There were no changes to related party loans resulting from changes in the composition of the Company’s subsidiary board members and executive officers.

Overdrafts

At December 31, 2011 and 2010, customer overdrafts totaling $1.48 million and $1.46 million, respectively, were reclassified as loans.