Loans And Allowance For Loan Losses

6 Months Ended

Jun. 30, 2011

Loans And Allowance For Loan Losses

Loans And Allowance For Loan Losses

Note 6 – Loans and Allowance for Loan Losses

Major classifications of loans by portfolio segment at June 30, 2011 and December 31, 2010 were:

	June 30, 2011			December 31, 2010
Construction and development	$	86,399,303		$	109,504,581
Commercial		58,237,917			63,717,189
Commercial mortgage		474,336,338			526,154,023
Residential mortgage		219,665,081			246,060,473
Installment loans to individuals		7,101,944			8,298,460
Other		100,141			375,566
Gross loans		845,840,724			954,110,292
Unearned income		(1,661,046	)		(1,723,031	)
Unaccreted discount on acquired loans		(1,808,371	)		(1,954,995	)
Credit enhancement on acquired loans		(1,877,543	)		(2,932,493	)
Allowance for loan losses		(59,632,841	)		(79,038,370	)
Loans, net	$	780,860,923		$	868,461,403

As of June 30, 2011 and December 31, 2010, loans with a carrying value of $239.5 million and $253.6 million, respectively, were pledged to the Federal Home Loan Bank of Atlanta as collateral for borrowings and $31.8 million and $61.8 million, respectively, of loans were pledged to the Federal Reserve.

During the third quarter of 2010, the Company completed an asset purchase and sale agreement with an independent third party accounted for as a transfer of financial assets whereby the Company sold $13.6 million of certain non-performing commercial and construction and development loans (plus accrued interest, late charges, and fees related to the loans of $4.6 million) without recourse at book value, and paid cash of $52.0 million; in exchange for the purchase of a pool of existing performing residential mortgage home equity loans, with an estimated fair value of $71.3 million. The Company does not have any continuing interest related to the non-performing commercial and construction and development loans that were sold.

Since the current market for residential mortgage home equity loans is illiquid, the Company determined the fair value of the loan portfolio based on a level 3 valuation approach. The Company engaged an independent third party to assist management of the Company in estimating the value of the portfolio of performing residential mortgage home equity loans utilizing observable market rates and credit characteristics for similar instruments. The loans were segmented by loan type and credit risk ratings further delineated based on FICO score and LTV ratio. The Company utilized the discounted cash flow model to estimate the fair value of the loans using assumptions for the weighted average rate, weighted average maturity, prepayment speed, projected default rates, loss given the default and estimates of prevailing discount rates net of credit risks. The expected cash flow approach includes the credit losses directly in the projected cash flows. The net estimated discount rate utilized in the discounted cash flow was 4.5% in conjunction with a constant prepayment rate (CPR) of between 10% and 2.5%, depending on the combined loan to value ratio of the individual loans included in the portfolio. The fair value estimate also took into consideration that as part of the loan purchase the Bank also received a $2.9 million credit enhancement, representing 4% of the loan pool, as a non-refundable reserve against future losses on the pool of loans. The non-recurring fair value of the portfolio was determined to be 97.2% of par as of August 25, 2010. These loans are geographically dispersed throughout the United States and had a book value of $73.3 million. The loans were recorded at fair value. The difference between the fair value and the outstanding balance of the loans received (book value) is accreted to interest income over the average life of the loans as an adjustment to yield.

The Company's allowance for loan losses is the amount considered adequate to absorb probable losses within its loan portfolio based on management's evaluation of the size and current risk characteristics of each of the segments of its loan portfolio. Such evaluation considers numerous factors and credit quality indicators, including, but not limited to net charge-off trends, internal risk ratings and changes in such risk ratings, historical losses incurred, collateral values, borrower FICO scores (primarily for consumer loans and home mortgage equity lines of credit), delinquency rates, non-performing and restructured loans, underwriting practices, industry conditions and economic trends. The housing downturn and broader economic slowdown that accelerated in 2009 and has continued into 2011 has negatively affected both our consumer and commercial loan portfolios and was a significant factor management considered in the evaluation of all of the loan portfolio segments. During 2010, the Company updated its Allowance for Loan and Lease Policy and enhanced its methodology for calculating the estimate for its general allocation (ASC Topic 450) portion of the allowance analysis by modifying the historical loss experience to a rolling three year quarterly time period, putting more weight on the most recent quarter's loss experience and current conditions. This change resulted in an increase to the allowance for loan losses at June 30, 2011 as more recent charge-off history was weighted more heavily than prior history when losses were extremely low, and focusing environmental qualitative considerations on credit rating trends within the construction and development and commercial mortgage portfolio segments. These portfolio segments contain the highest risk of loss. Additionally, the Company further clarified the methodology for identifying loans that should be assessed for impairment under ASC Topic 310 (see below). The Company believes these changes to its methodology more accurately reflect the risk inherent in its portfolio by weighting recent loss and loan segment experiences more heavily. A variety of initiatives were undertaken to bolster the loan grading function further clarifying the identification of loans that should be assessed for impairment. These initiatives and procedures which augmented the loan function included the development of extensive loan reviews, relationship reviews, cash flow analysis, and the use of an independent third party loan review team to augment the identification of impaired loans.

The adequacy of the allowance for loan losses is periodically evaluated by the Company, in order to maintain the allowance at a level that is sufficient to absorb probable credit losses. The allowance is comprised of a general allowance, a specific allowance for identified problem loans and an unallocated allowance representing estimations made pursuant to either FASB ASC Topic 450 "Accounting for Contingencies," or FASB ASC Topic 310 "Accounting by Creditors for Impairment of a Loan." The specific component relates to loans that are classified as loss, doubtful or substandard. For these loans or other such loans that are also considered as impaired, an allowance is established based on a thorough analysis of the most probable form of repayment, including the present value of the loan's expected future cash flows, the loan's estimated observable market price, or the estimated fair value of the underlying collateral value depending on the most likely source of repayment. A reserve is established when the fair value of the impaired loan is lower than the carrying value of the loan. A loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. For the majority of the real estate loans included in the construction and development, commercial mortgage and residential mortgage loan segments, the Company uses numerous sources of information in order make an evaluation of the property's value that collateralizes these loans. Estimated collateral valuations are based on appraisals, broker price opinions, recent sales of similar properties, and other property-specific and relevant market information. The value estimate is based on an orderly disposition and marketing period of the property. In some instances, the Company adjusts externally provided appraisals for justifiable and well-documented reasons, such as age of the appraisal, the appraiser not being aware of certain property specific factors, or recent sales information. For commercial and industrial loans the Company relies more heavily on the borrower's cash flow to support the fair value of the loan, however, also utilizes various sources of information to support the value of collateral such as equipment, accounts receivable or inventory; in addition to any real estate that may collateralize such loans.

The general component covers non-classified loans that are grouped into pools or segments based on similar characteristics and is based on historical loss experience and other credit quality indicators for each loan portfolio segment adjusted for qualitative factors. Such qualitative factors management considers are the known and inherent risks in each segment of the loan portfolio, including adverse circumstances that may affect the ability of the borrower to repay interest and/or principal, the estimated value of collateral, an analysis of the levels and trends of delinquencies, charge-offs and levels of concentrations within each loan segment of the portfolio, and the credit risk ratings of the various loan segments (in particular construction and development and commercial real estate loan portfolios). Such factors as the level and trend of interest rates, internal process factors and the condition of the national and local economies are also considered. The housing downturn and broader economic slowdown that accelerated in 2009 and has continued into 2011 has negatively affected both our consumer and commercial loan portfolios and has been a significant factor that management has considered in evaluating the general component of all loan segments. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Increases and decreases in the allowance due to changes in the measurement of impaired loans, if applicable, are included in the provision for loan losses. Loans continue to be classified as impaired unless they are brought fully current and the collection of scheduled interest and principal is considered probable.

When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance. Subsequent recoveries, if any, are credited to the allowance. The Bank's policy regarding charge-offs requires all loans that are deemed uncollectible be charged off in the period that the loan is deemed uncollectible but in no case later than 90 days after a loan is placed in non-accrual status. Also, all loans classified as "loss" by regulators must be charged off in the period identified. All loans recommended for charge off will be approved by the President and ratified by the Executive Committee. In addition, for real estate loans that are collateral dependent for collection, the uncollectible portion of the loan is charged off at the time of foreclosure, repossession, or liquidation or at such time any portion of the loan is deemed to be uncollectible and in no case later than 90 days after a loan is placed in non-accrual status.

A summary of the activity in the allowance for loan losses by portfolio segment and recorded investment in loans for the six months ended June 30, 2011 and a summary of the activity in the allowance for loan losses for the six months ended June 30, 2010 were as follows:

	Six months ended June 30, 2011																					Six months ended June 30, 2010
(in thousands)	Construction and Development			Commercial			Commercial Mortgage			Residential Mortgage			Installment loans to Individuals			Other and Unallocated			Total			Total
Allowance for credit losses:
Beginning balance	$	13,893		$	7,950		$	45,314		$	8,563		$	815		$	2,503		$	79,038		$	45,771
Charge-offs		(11,302	)		(2,949	)		(28,909	)		(3,679	)		(469	)		(43	)		(47,351	)		(4,193	)
Recoveries		3			24			85			316			8			5			441			177
Provision		10,018			875			15,660			2,141			251			(1,440	)		27,505			10,007
Ending balance	$	12,612		$	5,900		$	32,150		$	7,341		$	605		$	1,025		$	59,633		$	51,762
Ending balance individually evaluated for impairment	$	7,041		$	3,122		$	18,455		$	4,421		$	225		$	—		$	33,264
Ending balance collectively evaluated for impairment	$	5,571		$	2,778		$	13,695		$	2,920		$	380		$	1,025		$	26,369
Gross Loans:
Ending balance	$	86,399		$	58,238		$	474,336		$	219,665		$	7,102		$	100		$	845,840
Ending balance individually evaluated for impairment	$	50,744		$	13,287		$	225,405		$	42,678		$	1,016		$	—		$	333,130
Ending balance collectively evaluated for impairment	$	35,655		$	44,951		$	248,931		$	176,987		$	6,086		$	100		$	512,710

A summary of the recorded investment in loans by portfolio segment and the total allowance for loan losses as of December 31, 2010 were as follows:

(in thousands)	Construction and Development		Commercial		Commercial Mortgage		Residential Mortgage		Installment loans to Individuals		Other and Unallocated		Total
Allowance for credit losses:
Ending balance	$	13,893	$	7,950	$	45,314	$	8,563	$	815	$	2,503	$	79,038
Ending balance individually evaluated for impairment	$	10,480	$	5,715	$	35,361	$	6,245	$	531	$	35	$	58,367
Ending balance collectively evaluated for impairment	$	3,413	$	2,235	$	9,953	$	2,318	$	284	$	2,468	$	20,671
Gross Loans:
Ending balance	$	109,505	$	63,717	$	526,154	$	246,060	$	8,298	$	376	$	954,110
Ending balance individually evaluated for impairment	$	68,659	$	13,715	$	230,249	$	41,812	$	938	$	35	$	355,408
Ending balance collectively evaluated for impairment	$	40,846	$	50,002	$	295,905	$	204,248	$	7,360	$	341	$	598,702

At June 30, 2011, management believed the allowance for loan losses is commensurate with the risk existing in its loan portfolio and is directionally consistent with the change in the quality of the loan portfolio. However, the allowance may be increased or decreased in the future based on loan balances outstanding, changes in internally generated credit quality ratings of the loan portfolio, changes in general economic conditions, or other risk factors. Additionally, the allowance is subject to regulatory examinations and determination as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance in comparison to peer banks identified by regulatory agencies. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available at the time of the examinations.

In addition to the allowance for loan losses, the Company received a credit enhancement of $2.9 million related to the purchase of residential mortgage home equity loans as discussed above. This enhancement was based on loan to value ratios and distributed FICO scores at the time of purchase, and is included as an offset against loans on the consolidated balance sheet. Subsequent to the purchase of the loans, management reviewed the FICO scores and payment histories as the primary credit quality indicators to evaluate the credit quality of this portfolio. At the time of purchase there were no significant delinquencies in the portfolio. Past due loans within the acquired residential mortgage home equity loans as of June 30, 2011 are included in the Analysis of Past Due Loan table below; and make up the majority of the past due home equity lines of credit as of June 30, 2011 and December 31, 2010. Management intends on updating the FICO scores at least annually, and reviews both the delinquency trends and FICO scores within the portfolio quarterly to determine the adequacy of the allowance for loan losses related to the acquired loans. During the period ended June 30, 2011, the Company charged off approximately $1.0 million of the purchased home equity loans against the original $2.9 million credit enhancement (This charge-off is not included in the above summary of activity in the allowance for loan losses table). At June 30, 2011, management determined that the remaining $1.9 million of credit enhancement received in connection with the acquired loans and the unaccreted discount was adequate to cover future losses inherent in the pool of loans and no further allowance was required at June 30, 2011.

Accounting standards require certain disclosures concerning impaired loans. A loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal or interest due according to the contractual terms of the loan agreement. Impaired loans amounted to $333.1 million and $355.4 million, with specific reserves allocated from the allowance for loan losses of $33.3 million and $58.4 million as of June 30, 2011 and December 31, 2010, respectively. Impaired loans for which no specific reserves have been allocated from the allowance for loan losses amounted to $171.8 million and $136.1 million as of June 30, 2011 and December 31, 2010, respectively. Included in the above impaired loan amounts were non-accrual loans of $142.4 million and $125.0 million as of June 30, 2011 and December 31, 2010, respectively. Loans that were 90 days past due and still collecting interest at June 30, 2011 and December 31, 2010 were $8.6 million and $5.4 million, respectively.

Following is more detailed information about impaired loans as of June 30, 2011 and December 31, 2010 by loan class:

			Unpaid				Average		Interest
June 30, 2011	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans with no related allowance recorded:
Construction and development:
1-4 family residential construction	$	100,000	$	100,000	$	—	$	1,553,744	$	3,017
Other construction, land and land development		16,653,836		19,508,979		—		20,052,364		83,587
Commercial		3,544,098		3,655,098		—		2,942,542		9,486
Commercial mortgage:
Multifamily residential properties		3,760,052		3,760,052		—		3,225,719		67,301
Owner occupied non-residential		12,694,766		12,694,766		—		14,672,928		369,525
Other non-residential		110,312,826		135,958,447		—		97,108,665		2,261,526
Residential mortgage:
1-4 family		22,247,141		23,590,132		—		16,337,878		480,175
Home equity line of credit		1,723,594		2,778,545		—		1,807,921		26,907
Installment loans to individuals		755,861		755,861		—		564,134		(4,547	)
Other		—		—		—		—		—
	$	171,792,174	$	202,801,880			$	158,265,895	$	3,296,977
Impaired loans with an allowance recorded:
Construction and development:
1-4 family residential construction	$	170,850	$	170,850	$	9,438	$	457,182	$	—
Other construction, land and land development		33,818,961		40,228,817		7,032,001		39,202,543		563,722
Commercial		9,742,829		10,117,829		3,121,572		10,620,164		202,490
Commercial mortgage:
Multifamily residential properties		4,222,056		4,344,475		679,056		4,812,416		89,344
Owner occupied non-residential		6,856,657		6,856,657		790,804		6,271,839		141,090
Other non-residential		87,558,742		91,387,067		16,984,703		98,130,967		2,262,634
Residential mortgage:
1-4 family		18,116,518		18,367,889		4,278,819		22,970,210		495,660
Home equity line of credit		591,164		591,164		142,371		753,680		11,082
Installment loans to individuals		259,815		262,807		225,301		512,092		48,095
Other		—		—		—		11,642		—
	$	161,337,592	$	172,327,555	$	33,264,065	$	183,742,735	$	3,814,117
Total
Construction and development	$	50,743,647	$	60,008,646	$	7,041,439	$	61,265,833	$	650,326
Commercial		13,286,927		13,772,927		3,121,572		13,562,706		211,976
Commercial mortgage		225,405,099		255,001,464		18,454,563		224,222,534		5,191,420
Residential mortgage		42,678,417		45,327,730		4,421,190		41,869,689		1,013,824
Installment loans to individuals		1,015,676		1,018,668		225,301		1,076,226		43,548
Other		—		—		—		11,642		—
	$	333,129,766	$	375,129,435	$	33,264,065	$	342,008,630	$	7,111,094

			Unpaid
December 31, 2010	Recorded		Principal		Related
	Investment		Balance		Allowance
Impaired loans with no related allowance recorded:
Construction and development:
1-4 family residential construction	$	3,688,605	$	3,980,241	$	—
Other construction, land and land development		21,165,605		21,578,730		—
Commercial		2,607,768		3,272,559		—
Commercial mortgage:
Multifamily residential properties		1,628,566		1,628,566		—
Owner occupied non-residential		14,956,926		14,956,926		—
Other non-residential		77,423,188		80,429,324		—
Residential mortgage:
1-4 family		13,652,238		13,831,987		—
Home equity line of credit		636,843		636,843		—
Installment loans to individuals		344,627		344,627		—
Other		—		—		—
	$	136,104,366	$	140,659,803
Impaired loans with an allowance recorded:
Construction and development:
1-4 family residential construction	$	1,200,696	$	1,200,696	$	178,988
Other construction, land and land development		42,603,698		46,746,791		10,301,622
Commercial		11,106,948		11,106,948		5,715,089
Commercial mortgage:
Multifamily residential properties		6,178,531		6,178,531		1,218,460
Owner occupied non-residential		7,236,169		7,236,169		1,328,950
Other non-residential		122,825,285		131,114,836		32,813,898
Residential mortgage:
1-4 family		26,494,105		26,494,105		5,871,192
Home equity line of credit		1,028,847		1,028,847		373,548
Installment loans to individuals		594,337		594,337		530,774
Other		34,927		34,927		34,927
	$	219,303,543	$	231,736,187	$	58,367,448
Total
Construction and development	$	68,658,604	$	73,506,458	$	10,480,610
Commercial		13,714,716		14,379,507		5,715,089
Commercial mortgage		230,248,665		241,544,352		35,361,308
Residential mortgage		41,812,033		41,991,782		6,244,740
Installment loans to individuals		938,964		938,964		530,774
Other		34,927		34,927		34,927
	$	355,407,909	$	372,395,990	$	58,367,448

The Company is required to account for certain loan modifications or restructurings as troubled debt restructurings ("TDR"). In general, the modification or restructuring of a loan constitutes a TDR when we grant a concession to a borrower experiencing financial difficulty. TDRs typically result from the Company's loss mitigation activities. The primary factor the Company uses to consider a loan for modification is delinquency and payment defaults. Other identifying factors utilized include the review and analysis of the borrower's financial statements along with changes in value of underlying collateral. If there is significant doubt as to whether the debtor will be in a position to continue to make future payments, a loan will be considered for modification. Modifications typically include rate reductions, payment extensions, modifications to the payment amount and term of the loan or other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Typically, the term of the loan is shortened to between 6 to 36 months, with a 12-month term being the most common. This avoids the Company committing to "Long Term" concessions and allows the Company the opportunity to review and revisit the loan terms within a shorter period of time.

At the time of a TDR, the borrower's payment history, past due status and ability to make payments based on the revised terms of the loan are considered. If a loan was accruing prior to being modified as a TDR and the borrower is able to make such payments and there are no other factors or circumstances to the contrary, the loan will continue on an accruing status, provided the TDR is supported by a current well documented credit evaluation and positive prospects of repayment under the revised terms. This analysis is conducted by the loan officer having responsibility for the credit and very often with the support and further review by the credit analysis department. In most cases the analysis is reviewed and approved by the Company's Senior Loan Committee and in cases where the customer relationship exceeds $1 million is further reviewed and discussed with the Company's Executive Loan Committee. If a loan was on non-accrual status at the time of the TDR, the loan remains on non-accrual status following the modification. A TDR may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed.

All TDRs are considered to be impaired and are evaluated as such in the quarterly loan loss allowance calculation and included in the credit quality indicator below by loan segment. As of June 30, 2011, loans classified as troubled debt restructurings were approximately $185.7 million, all of which are considered impaired and included in the tables above. Of this amount, $98.1 million was accruing and $87.6 million was non-accruing at June 30, 2011. None of the non-accrual troubled debt restructurings were returned to accrual status during the six months ended June 30, 2011 and are evaluated as such in the quarterly allowance calculation. As of December 31, 2010, approximately $172.0 million of loans were classified as troubled debt restructurings. Of this amount, $98.4 million was accruing and $73.6 million was non-accruing at December 31, 2010.

The following table presents information regarding TDR loans by classification at June 30, 2011 and December 31, 2010.

Troubled Debt Restructured Loans

(in thousands)	June 30, 2011		December 31, 2010
Construction and development	$	21,582	$	32,874
Commercial		8,538		9,305
Commercial mortgage		135,602		115,752
Residential mortgage		19,660		13,578
Installment and other loans		335		446
Total	$	185,717	$	171,955

It is the Company's policy to not report as TDRs restructured loans that have continued to be in compliance with the modified terms and conditions for six months and yield a market rate of interest at the time of restructuring in years subsequent to the year in which the loan was first reported as a TDR.

The Company has modified loans that were not accounted for as TDRs. These modifications are typically granted for seasonality issues where cash flow is decreased. The time period involved is generally quite short in relation to the loan term; for example, such a non-TDR modification may be interest only payments for 90 days. We consider this treatment of interest only payments for a short time as an insignificant delay in payment; consequently, we do not consider these modifications as troubled debt restructurings. In addition, we do not consider interest rate modifications to reflect a decrease in market interest rates or maintain a relationship with the debtor, where the debtor is not experiencing financial difficulty and can obtain funding from other sources, to be a troubled debt restructuring under current guidance.

Loans, including impaired loans, are generally classified as non-accrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-secured and in the process of collection. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accrual, if repayment in full of principal and/or interest is in doubt.

Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance with the contractual terms of interest and principal.

While a loan is classified as non-accrual and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding. When the future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a non-accrual loan has been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.

Loans on a non-accrual status as of June 30, 2011 and December 31, 2010 were as follows:

	June 30, 2011		December 31, 2010
Construction and development:
1-4 family residential construction	$	170,850	$	2,045,522
Other construction, land and land development		31,258,338		39,335,220
Commercial		4,810,244		3,814,332
Commercial mortgage:
Multifamily residential properties		6,990,334		1,418,484
Owner occupied non-residential		6,350,849		5,703,011
Other non-residential		70,130,205		53,358,127
Residential mortgage:
1-4 family		20,405,640		18,109,931
Home equity line of credit		1,538,281		704,057
Installment loans to individuals		731,066		481,298
Other		—		34,928
Total	$	142,385,807	$	125,004,910

Management utilizes many factors in its ongoing monitoring and evaluation of the credit quality of its loan portfolio. Such evaluation considers numerous factors and credit quality indicators including net charge-off and historical incurred loss trends as reported in the above summary of loan loss activity; impaired, non-performing and restructured loans as reported above and associated collateral values; and the following delinquency rates and trends as reported in the aged analysis of past due loans. Past due loan reports, non-performing loans, charge-off loans, delinquency rates and trends are updated and reviewed by senior management at least monthly or more frequently as warranted.

The following table shows the past due loans by loan class as of June 30, 2011. The credit quality indicator information has been updated through June 30, 2011.

June 30, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Investment > 90 Days and Accruing
Construction and development:
1-4 family residential construction	$	—	$	—	$	170,850	$	170,850	$	3,492,296	$	3,663,146	$	—
Other construction, land and land development		2,636,358		2,004,817		32,977,519		37,618,694		45,117,463		82,736,157		1,719,181
Commercial		2,362,401		990,734		5,772,004		9,125,139		49,112,778		58,237,917		961,760
Commercial mortgage:
Multifamily residential properties		—		—		6,990,334		6,990,334		23,906,714		30,897,048		—
Owner occupied non-residential		4,634,900		1,278,140		6,540,042		12,453,082		75,328,273		87,781,355		189,193
Other non-residential		18,271,200		7,027,403		72,952,010		98,250,613		257,407,322		355,657,935		2,821,805
Residential mortgage:
1-4 family		7,024,598		3,269,694		23,140,825		33,435,117		114,835,171		148,270,288		2,735,185
Home equity line of credit		2,396,999		378,579		1,672,181		4,447,759		66,947,034		71,394,793		133,900
Installment loans to individuals		74,350		7,078		761,931		843,359		6,258,585		7,101,944		30,865
Other		—		—		—		—		100,141		100,141		—
Total	$	37,400,806	$	14,956,445	$	150,977,696	$	203,334,947	$	642,505,777	$	845,840,724	$	8,591,889

The following table shows the past due loans by loan class as of December 31, 2010. The credit quality indicator information has been updated through December 31, 2010.

December 31, 2010	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Investment > 90 Days and Accruing
Construction and development:
1-4 family residential construction	$	—	$	—	$	2,045,522	$	2,045,522	$	11,927,263	$	13,972,785	$	—
Other construction, land and land development		4,746,073		13,744,294		23,833,059		42,323,426		53,208,370		95,531,796		557,896
Commercial		1,736,126		1,630,466		3,164,449		6,531,041		57,186,148		63,717,189		—
Commercial mortgage:
Multifamily residential properties		—		318,659		2,234,410		2,553,069		30,254,579		32,807,648		815,926
Owner occupied non-residential		6,069,839		1,791,197		5,703,011		13,564,047		67,600,107		81,164,154		—
Other non-residential		14,394,387		4,758,354		54,955,037		74,107,778		338,074,443		412,182,221		2,484,970
Residential mortgage:
1-4 family		4,238,810		2,662,405		18,746,536		25,647,751		140,891,042		166,538,793		1,136,422
Home equity line of credit		5,473,753		912,107		1,060,727		7,446,587		72,075,093		79,521,680		356,670
Installment loans to individuals		335,712		298,175		257,436		891,323		7,407,137		8,298,460		—
Other		—		—		34,928		34,928		340,638		375,566		—
Total	$	36,994,700	$	26,115,657	$	112,035,115	$	175,145,472	$	778,964,820	$	954,110,292	$	5,351,884

Additionally, management utilizes other credit quality indicators in determining the allowance for loan losses and evaluating the credit quality of its loan portfolio including internal risk ratings and changes in such risk ratings by loan class, payment activity by loan class and loan to collateral values. Management uses the classification system defined in bank regulations to evaluate the level of credit risk in the loan portfolio in establishing its internal risk ratings. Using the risk-based approach, the loan portfolio is reviewed and assigned a quality risk rating based on management's best judgment of the likelihood of repayment or, if a loan is troubled, the likelihood of timely and orderly liquidation without loss of either principal or interest. Management is constantly reviewing and updating the internal risk ratings. Risk ratings on all loans up for renewal are reviewed at the time of renewal. Classified or loans past due are reviewed at least monthly and pass loans are reviewed at least annually or more frequently as warranted. These internal ratings are divided into three groups as defined below:

• Pass (not classified): Pass assets are well protected by the current net worth and paying capacity of the borrower, or guarantors, if any, or by the fair value, less cost to sell, of any underlying collateral.

• Special Mention (a watch rating): A special mention asset has potential weaknesses that deserve management's close attention due to Company specific or systematic conditions. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future point. Special mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

• Classified (an adverse rating): The three adverse classifications are Substandard, Doubtful, and Loss, as defined below.

• Substandard: A "substandard" asset is inadequately protected by the current sound worth and paying capacity of the borrower or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

• Doubtful: An asset classified as "doubtful" has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values. The likelihood of a loss on an asset or portion of an asset classified as "doubtful" is high.

• Loss: An asset or portion thereof, classified "loss" is considered uncollectible and of such little value that its continuance on the Bank's books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery, but rather, there is much doubt about, how much will be recovered, or whether recovery will occur.

The tables below present certain credit quality indicators related to the loan portfolio by class as of June 30, 2011 and December 31, 2010.

Credit Exposure – all loan portfolio segments, excluding acquired residential mortgage home equity loans Credit Profile by Internally Assigned Risk. The credit quality indicator information was updated through June 30, 2011.

June 30, 2011 Grade	Pass		Special Mention		Substandard		Doubtful		Loss
Construction and development:
1-4 family residential construction	$	3,392,296	$	—	$	270,850	$	—	$	—
Other construction, land and land development		29,735,497		2,527,863		45,443,766		4,604,058		424,973
Commercial		42,029,049		2,921,941		11,504,723		1,782,204		—
Commercial mortgage:
Multifamily residential properties		20,030,439		2,884,501		7,366,832		615,276		—
Owner occupied non-residential		64,910,188		3,319,744		19,551,423		—		—
Other non-residential		133,359,103		24,427,264		195,115,968		2,755,600		—
Residential mortgage:
1-4 family		94,045,278		13,861,351		38,966,540		1,071,137		325,982
Home equity line of credit, excluding loans acquired		6,873,868		723,080		1,767,193		—		—
Installment loans to individuals		5,492,861		593,407		941,226		74,450		—
Other		100,141		—		—		—		—
	$	399,968,720	$	51,259,151	$	320,928,521	$	10,902,725	$	750,955

Credit Exposure – all loan portfolio segments, excluding acquired residential mortgage home equity loans Credit Profile by Internally Assigned Risk. The credit quality indicator information was updated through December 31, 2010.

December 31, 2010 Grade	Pass		Special Mention		Substandard		Doubtful
Construction and development:
1-4 family residential construction	$	7,971,634	$	1,111,850	$	4,889,301	$	—
Other construction, land and land development		30,060,155		1,702,338		56,249,107		7,520,196
Commercial		46,766,207		3,236,266		12,048,280		1,666,436
Commercial mortgage:
Multifamily residential properties		17,362,038		7,638,513		7,807,097		—
Owner occupied non-residential		54,891,415		4,079,644		22,193,095		—
Other non-residential		172,769,936		39,163,812		194,169,544		6,078,929
Residential mortgage:
1-4 family		110,608,023		15,784,427		39,015,250		1,131,093
Home equity line of credit, excluding loans acquired		8,460,338		1,235,951		1,208,472		—
Installment loans to individuals		7,292,786		66,710		886,309		52,655
Other		340,639		—		34,927		—
	$	456,523,171	$	74,019,511	$	338,501,382	$	16,449,309

All loans classified with a loss risk rating as of December 31, 2010 were charged off.

Credit Exposure - all loan portfolio segments

Credit Risk Profile Based on Payment Activity

	Performing Loans				Non-performing Loans
	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
Construction and development:
1-4 family residential construction	$	3,492,296	$	11,927,263	$	170,850	$	2,045,522
Other construction, land and land development		49,758,638		55,638,680		32,977,519		39,893,116
Commercial		52,465,913		59,902,857		5,772,004		3,814,332
Commercial mortgage:
Multifamily residential properties		23,906,714		30,573,238		6,990,334		2,234,410
Owner occupied non-residential		81,241,313		75,461,143		6,540,042		5,703,011
Other non-residential		282,705,925		356,339,124		72,952,010		55,843,097
Residential mortgage:
1-4 family		125,129,463		147,292,440		23,140,825		19,246,353
Home equity line of credit		69,722,612		78,460,953		1,672,181		1,060,727
Installment loans to individuals		6,340,013		7,817,162		761,931		481,298
Other		100,141		340,638		—		34,928
	$	694,863,028	$	823,753,498	$	150,977,696	$	130,356,794

The credit quality indicator information above was updated through June 30, 2011 and December 31, 2010, the respective periods identified in the table. Non-performing loans include non-accrual loans and loans contractually past due 90 days or more and still accruing interest.