Note 5 – Loans

Loans, excluding loans held for sale, were comprised of the following:

	December 31,
(in thousands)	2011		2010

Commercial	$	134,166	$	85,051
Commercial real estate:
Construction and land development		54,433		37,168
Commercial real estate		351,961		210,393
Residential real estate:
Residential		179,812		119,398
Home equity		96,195		61,064
Consumer		8,191		7,707
Total loans	$	824,758	$	520,781

Net deferred loan costs included in the above loan categories are $11,000 for 2011 and $124,000 for 2010.

Overdraft deposits were reclassified to consumer loans in the amount of $240,000 and $78,000 for 2011 and 2010, respectively.

Interest income, including accretion, on loans acquired from MidCarolina for the six months ended December 31, 2011 was approximately $14.5 million. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at December 31, 2011 are as follows:

(in thousands)
Outstanding principal balance	$	321,002
Carrying amount		293,569

The outstanding principal balance and related carrying amount of acquired loans, for which the Company applies ASC 310-30 (formerly SOP 03-3), to account for interest earned, as of the indicated dates is as follows:

	December 31,		December 31,
(in thousands)	2011		2010
Outstanding principal balance	$	45,760	$	390
Carrying amount		34,027		166

The following table presents changes in the accretable discount on acquired loans, for which the Company applies ASC 310-30 (formerly SOP 03-3), for the year ended December 31, 2011.

	Accretable
(in thousands)	Discount
Balance at December 31, 2010	$	27
Recorded at acquisition, July 1, 2011		1,663
Accretion		(634	)
Balance at December 31, 2011	$	1,056

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2011.

					90 Days +
					Past Due		Non-		Total
	30- 59 Days		60-89 Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans

Commercial	$	98	$	99	$	-	$	1,820	$	2,018	$	132,148	$	134,166
Commercial real estate:
Construction and land development		1,086		1,163		-		5,817		8,065		46,367		54,433
Commercial real estate		1,052		471		-		2,115		3,637		348,324		351,961
Residential:
Residential		1,519		741		-		3,475		5,736		174,077		179,812
Home equity		270		243		197		244		954		95,242		96,195
Consumer:
Consumer		126		7		-		49		181		8,010		8,191
Total	$	4,151	$	2,724	$	197	$	13,520	$	20,591	$	804,168	$	824,758

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2010.

					90 Days +
					Past Due		Non-		Total
	30- 59 Days		60-89 Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans

Commercial	$	-	$	46		-	$	401	$	447	$	84,604	$	85,051
Commercial real estate:
Construction and land development		-		40		-		59		99		37,069		37,168
Commercial real estate		572		175		-		614		1,361		209,032		210,393
Residential:
Residential		742		704		-		1,419		2,865		116,533		119,398
Home equity		15		23		-		97		135		60,929		61,064
Consumer:
Consumer		8		72		-		7		87		7,620		7,707
Total	$	1,337	$	1,060	$	-	$	2,597	$	4,994	$	515,787	$	520,781

The following table presents the Company's impaired loan balances by portfolio segment at December 31, 2011.

			Unpaid				Average		Interest
(in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	48	$	-
Commercial real estate:
Construction and land development		364		391		-		292		-
Commercial real estate		279		279		-		207		17
Residential:
Residential		1,185		1,276		-		376		2
Home equity		89		89		-		50		3
Consumer:
Consumer		49		56		-		17		-
	$	1,966	$	2,091	$	-	$	990	$	22
With an related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial real estate:
Construction and land development		363		363		49		139		-
Commercial real estate		888		888		80		75		-
Residential:
Residential		21		21		1		7		-
Home equity		-		-		-		-		-
Consumer:
Consumer		-		-		-		-		-
	$	1,272	$	1,272	$	130	$	221	$	-
Total:
Commercial	$	-	$	-	$	-	$	48	$	-
Commercial real estate:
Construction and land development		727		754		49		431		-
Commercial real estate		1,167		1,167		80		282		17
Residential:
Residential		1,206		1,297		1		383		2
Home equity		89		89		-		50		3
Consumer:
Consumer		49		56		-		17		-
	$	3,238	$	3,363	$	130	$	1,211	$	22

The following table presents the Company's impaired loan balances by portfolio segment at December 31, 2010.

			Unpaid				Average		Interest
(in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	231	$	240	$	-	$	531	$	9
Commercial real estate		329		355		-		1,291		7
Residential		-		-		-		681		1

With an related allowance recorded:
Commercial		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Residential		-		-		-		-		-
	$	560	$	595	$	-	$	2,503	$	17

The following table shows the detail of loans modified as troubled debt restructurings (“TDRs”) included in the impaired loan balances for the year ended December 31, 2011.

	Loans Modified as a TDR for the
	Year Ended December 31, 2011
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Oustanding Recorded
(dollars in thousands)	Contracts		Investment		Investment
Commercial real estate:
Construction and land development		3		373		330
Other		1		44		39
Residential:
Residential		1		316		287
Total		5	$	733	$	656

During the year ended December 31, 2011, the Company had no loans that subsequently defaulted within twelve months of modification.

The following table shows the Company's commercial loan portfolio broken down by internal risk grading as of December 31, 2011.

(in thousands)
Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade

			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity

Pass	$	130,603	$	35,264	$	321,371	$	161,158	$	93,193
Special Mention		1,349		3,401		19,072		10,166		1,606
Substandard		2,214		15,767		11,519		8,488		1,396
Doubtful		-		-		-		-		-
Total	$	134,166	$	54,433	$	351,961	$	179,812	$	96,195


Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity

	Consumer

Performing	$	8,050
Nonperforming		141
Total	$	8,191

Loans classified in the Pass category typically are fundamentally sound and risk factors are reasonable and acceptable.

Loans classified in the Special Mention category typically have been criticized internally, by loan review or the loan officer, or by external regulators under the current credit policy regarding risk grades.

Loans classified in the Substandard category typically have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are typically characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Loans classified in the Doubtful category typically have all the weaknesses inherent in loans classified as substandard, plus the added characteristic the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur that may salvage the debt.

Consumer loans are classified as performing or nonperforming. A loan is nonperforming when payments of interest and principal are past due 90 days or more, or payments are less than 90 days past due, but there are other good reasons to doubt that payment will be made in full.

The following table shows the Company's commercial loan portfolio broken down by internal risk grading as of December 31, 2010.

(in thousands)
Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade

			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity

Pass	$	83,693	$	31,868	$	196,668	$	107,351	$	59,604
Special Mention		844		1,669		8,387		8,350		1,150
Substandard		514		3,631		5,338		3697		310
Doubtful		-		-		-		-		-
Total	$	85,051	$	37,168	$	210,393	$	119,398	$	61,064

Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity

	Consumer
Performing	$	7,423
Nonperforming		284
	$	7,707