(7) CREDIT QUALITY OF LOANS AND ALLOWANCE FOR LOAN LOSSES

The following tables summarize the balances by loan category of the allowance for loan losses with changes arising from charge-offs, recoveries and provision expense for the quarters ending March 31, 2012 and March 31, 2011, and for the year ending December 31, 2011 (dollars in thousands):

Allowance for Loan Losses

As of and for the Three Months Ended March 31, 2012


Allowance for Credit Losses	Real Estate Construction and Land Development			Real Estate Secured by Farmland			Real Estate Secured by Residential Properties			Real Estate Secured by Nonfarm Nonresidential			Consumer Installment			Credit Cards and Related Plans			Commercial and Industrial			Loans to Finance Agricultural Production			All Other Loans			General Qualitative & Quantitative Portion			Total
Beginning balance	$	3,655		$	15		$	2,418		$	1,740		$	46		$	18		$	555		$	115		$	26		$	3,504		$	12,092
Charge-offs		(219	)		(—	)		(102	)		(238	)		(41	)		(3	)		(357	)		(—	)		(52	)		(—	)		(1,012	)
Recoveries		226			—			27			1			1			—			10			—			40			—			305
Provisions		(562	)		—			143			62			144			53			297			7			14			(158	)		—

Ending Balance	$	3,100		$	15		$	2,486		$	1,565		$	150		$	68		$	505		$	122		$	28		$	3,346		$	11,385

Ending Balance: individually evaluated for impairment	$	321		$	—		$	642		$	890		$	—		$	—		$	—		$	—		$	—		$	—		$	1,853

Ending Balance: collectively evaluated for impairment	$	2,779		$	15		$	1,844		$	675		$	150		$	68		$	505		$	122		$	28		$	3,346		$	9,532

Loans
Ending Balance	$	66,820		$	28,900		$	107,912		$	201,567		$	5,890		$	1,668		$	46,434		$	21,770		$	10,422		$	—		$	491,383

Ending Balance: individually evaluated for impairment	$	9,166		$	—		$	7,314		$	16,310		$	—		$	—		$	335		$	—		$	—		$	—		$	33,125

Ending Balance: collectively evaluated for impairment	$	57,654		$	28,900		$	100,598		$	185,257		$	5,890		$	1,668		$	46,099		$	21,770		$	10,422		$	—		$	458,258

Allowance for Loan Losses

As of and for the Three Months Ended March 31, 2011


Allowance for Credit Losses	Real Estate Construction and Land Development			Real Estate Secured by Farmland			Real Estate Secured by Residential Properties			Real Estate Secured by Nonfarm Nonresidential			Consumer Installment			Credit Cards and Related Plans			Commercial and Industrial			Loans to Finance Agricultural Production			All Other Loans			General Qualitative & Quantitative Portion			Total
Beginning balance	$	6,168		$	28		$	3,450		$	1,007		$	12		$	21		$	882		$	18		$	139		$	1,522		$	13,247
Charge-offs		(1,273	)		(—	)		(449	)		(—	)		(9	)		(9	)		(254	)		(—	)		(66	)		(—	)		(2,060	)
Recoveries		—			—			1			—			2			—			63			—			36			—			102
Provisions		2,692			1			1,000			111			11			177			441			(3	)		21			(521	)		3,930

Ending Balance	$	7,587		$	29		$	4,002		$	1,118		$	16		$	189		$	1,132		$	15		$	130		$	1,001		$	15,219

Ending Balance: individually evaluated for impairment	$	2,113		$	—		$	751		$	594		$	—		$	169		$	362		$	—		$	—		$	—		$	3,989

Ending Balance: collectively evaluated for impairment	$	5,474		$	29		$	3,251		$	524		$	16		$	20		$	770		$	15		$	130		$	1,001		$	11,230

Loans
Ending Balance	$	84,045		$	27,812		$	119,202		$	215,979		$	4,192		$	2,366		$	55,150		$	22,086		$	15,809		$	—		$	546,641

Ending Balance: individually evaluated for impairment	$	15,642		$	—		$	7,285		$	4,573		$	—		$	200		$	843		$	—		$	—		$	—		$	28,543

Ending Balance: collectively evaluated for impairment	$	68,403		$	27,812		$	111,917		$	211,406		$	4,192		$	2,166		$	54,307		$	22,086		$	15,809		$	—		$	518,098

Allowance for Loan Losses

As of and for the Year Ended December 31, 2011


Allowance for Credit Losses	Real Estate Construction and Land Development			Real Estate Secured by Farmland			Real Estate Secured by Residential Properties			Real Estate Secured by Nonfarm Nonresidential			Consumer Installment			Credit Cards and Related Plans			Commercial and Industrial			Loans to Finance Agricultural Production			All Other Loans			General Qualitative & Quantitative Portion			Total
Beginning balance	$	6,168		$	28		$	3,450		$	1,007		$	12		$	21		$	882		$	18		$	139		$	1,522		$	13,247
Charge-offs		(5,150	)		(—	)		(1,985	)		(1,887	)		(20	)		(294	)		(385	)		(—	)		(237	)		(—	)		(9,958	)
Recoveries		10			—			12			43			5			3			103			—			144			—			320
Provisions		2,627			(13	)		941			2,577			49			288			(45	)		97			(20	)		1,982			8,483

Ending Balance	$	3,655		$	15		$	2,418		$	1,740		$	46		$	18		$	555		$	115		$	26		$	3,504		$	12,092

Ending Balance: individually evaluated for impairment	$	637		$	—		$	480		$	1,181		$	—		$	—		$	165		$	—		$	—		$	—		$	2,463

Ending Balance: collectively evaluated for impairment	$	3,018		$	15		$	1,938		$	559		$	46		$	18		$	390		$	115		$	26		$	3,504		$	9,629

Loans
Ending Balance	$	67,127		$	29,890		$	110,374		$	203,063		$	6,620		$	1,661		$	45,679		$	21,539		$	10,589		$	—		$	496,542

Ending Balance: individually evaluated for impairment	$	10,074		$	—		$	5,514		$	14,029		$	—		$	—		$	561		$	1,111		$	—		$	—		$	31,289

Ending Balance: collectively evaluated for impairment	$	57,053		$	29,890		$	104,860		$	189,034		$	6,620		$	1,661		$	45,118		$	20,428		$	10,589		$	—		$	465,253

Loans are closely monitored by management for changes in quality. This monitoring includes assessing the appropriateness of the credit quality indicator in relation to the risk of the loan. Management uses the following indicators to grade the risk of each loan based on a system of eight possible ratings. These indicators are included in the Company's loan policy which is reviewed and updated at least annually.

Pass: Include loans that are risk rated one through three. The primary source of repayment for pass loans is very likely to be sufficient, with secondary sources readily available; strong financial position; minimal risk; profitability, liquidity and capitalization are better than industry norms.

Weak Pass: Include loans that are risk rated four. The asset quality for weak pass assets is generally acceptable. Primary source of loan repayment is acceptable and secondary sources are likely to be realized, if needed; acceptable business credit, but borrowers operations, cash flow, or financial condition evidence more than average risk; requires above average levels of supervision and attention from Loan Officer. The source of increased risk has been identified, can be effectively managed/corrected, and the increased risk is not significant to warrant a more severe rating.

Special Mention: Include loans that are risk rated five. A special mention asset is considered to be high risk due to potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Company's credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard: Include loans that are risk rated six through eight. Loans rated as substandard are considered to be very high risk. A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

The following tables present loans as of March 31, 2012 and December 31, 2011 classified by risk type (dollars in thousands):

Credit Quality Indicators

As of March 31, 2012


	Pass		Weak Pass		Special Mention		Substandard		Total
Real Estate – Construction and Land Development Loans	$	29,928	$	21,389	$	5,639	$	9,864	$	66,820
Real Estate – Secured by Farmland		21,136		3,617		4,147		—		28,900
Real Estate – Secured by Residential Properties		58,227		30,126		11,102		8,457		107,912
Real Estate – Secured by Nonfarm Nonresidential		91,605		68,083		20,178		21,701		201,567
Consumer Installment		3,738		1,782		302		68		5,890
Credit Cards and Related Plans		821		572		273		2		1,668
Commercial and Industrial		25,957		16,536		2,147		1,794		46,434
Loans to Finance Agriculture Production		18,783		2,297		690		—		21,770
All Other Loans		5,940		4,458		24		—		10,422

Total	$	256,135	$	148,860	$	44,502	$	41,886	$	491,383

Credit Quality Indicators

As of December 31, 2011


	Pass		Weak Pass		Special Mention		Substandard		Total
Real Estate – Construction and Land Development Loans	$	27,833	$	23,237	$	4,853	$	11,204	$	67,127
Real Estate – Secured by Farmland		22,008		4,430		3,452		—		29,890
Real Estate – Secured by Residential Properties		60,121		31,146		12,302		6,805		110,374
Real Estate – Secured by Nonfarm Nonresidential		90,099		75,384		18,663		18,917		203,063
Consumer Installment		4,025		2,212		254		129		6,620
Credit Cards and Related Plans		850		529		279		3		1,661
Commercial and Industrial		25,133		16,146		2,686		1,714		45,679
Loans to Finance Agriculture Production		16,473		3,290		584		1,192		21,539
All Other Loans		3,171		7,393		25		—		10,589

Total	$	249,713	$	163,767	$	43,098	$	39,964	$	496,542

The following tables summarize the past due loans by category as of March 31, 2012 and December 31, 2011 (dollars in thousands):

Past Due Loans

As of March 31, 2012


	30 -59 Days Past Due		60 -89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total
Real Estate Construction and Land Development	$	591	$	79	$	4,791	$	5,461	$	61,359	$	66,820
Real Estate Secured by Farmland		42		—		—		42		28,858		28,900
Real Estate Secured by Residential Properties		1,040		65		1,859		2,964		104,948		107,912
Real Estate Secured by Nonfarm Nonresidential		583		1,377		6,040		8,000		193,567		201,567
Consumer Installment		20		9		—		29		5,861		5,890
Credit Cards and Related Plans		6		—		—		6		1,662		1,668
Commercial and Industrial		64		138		159		361		46,073		46,434
Loans to Finance Agricultural Production		—		—		—		—		21,770		21,770
All Other Loans		—		—		—		—		10,422		10,422

Total	$	2,346	$	1,668	$	12,849	$	16,863	$	474,520	$	491,383

Non-Accrual Loans Included in above Total	$	1,256	$	1,536	$	12,849	$	15,641	$	3,765	$	19,406

Past Due Loans

As of December 31, 2011


	30 -59 Days Past Due		60 -89 Days Past Due		Greater than 89 Days(1)		Total Past Due		Current		Total
Real Estate Construction and Land Development	$	447	$	198	$	6,142	$	6,787	$	60,340	$	67,127
Real Estate Secured by Farmland		—		—		—		—		29,890		29,890
Real Estate Secured by Residential Properties		1,055		993		1,278		3,326		107,048		110,374
Real Estate Secured by Nonfarm Nonresidential		2,357		—		4,446		6,803		196,260		203,063
Consumer Installment		65		—		22		87		6,533		6,620
Credit Cards and Related Plans		2		2		—		4		1,657		1,661
Commercial and Industrial		294		—		205		499		45,180		45,679
Loans to Finance Agricultural Production		—		—		—		—		21,539		21,539
All Other Loans		—		—		—		—		10,589		10,589

Total	$	4,220	$	1,193	$	12,093	$	17,506	$	479,036	$	496,542

Non-Accrual Loans Included in above Total	$	1,426	$	588	$	12,093	$	14,107	$	1,866	$	15,973

The following tables summarize impaired loans as of March 31, 2012, March 31, 2011 and December 31, 2011 (dollars in thousands). The recorded investment balance includes the loan balance, deferred fees that have yet to be recognized and accrued interest. The deferred fees that have yet to be recognized are not material amounts.

Impaired Loans

As of and for the Three Months Ended March 31, 2012


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real Estate Construction and Land Development	$	5,776	$	8,508	$	—	$	6,030	$	23
Real Estate Secured by Farmland		—		—		—		—		—
Real Estate Secured by Residential Properties		1,455		1,611		—		1,587		12
Real Estate Secured by Nonfarm Nonresidential		7,723		7,991		—		7,151		34
Consumer Installment		—		—		—		—		—
Credit Cards and Related Plans		—		—		—		—		—
Commercial and Industrial		335		500		—		303		2
Loans to Finance Agricultural Production		—		—		—		586		8
All Other Loans		—		—		—		—		—

Total impaired loans with no related allowance	$	15,289	$	18,610	$	—	$	15,657	$	79
With an allowance recorded:
Real Estate Construction and Land Development	$	3,399	$	3,465	$	321	$	3,904	$	15
Real Estate Secured by Farmland		—		—		—		—		—
Real Estate Secured by Residential Properties		5,867		5,950		642		5,130		39
Real Estate Secured by Nonfarm Nonresidential		8,600		8,829		890		8,775		41
Consumer Installment		—		—		—		—		—
Credit Cards and Related Plans		—		—		—		—		—
Commercial and Industrial		—		—		—		182		2
Loans to Finance Agricultural Production		—		—		—		—		—
All Other Loans		—		—		—		—		—

Total impaired loans with related allowance recorded	$	17,866	$	18,244	$	1,853	$	17,991	$	97
Total
Construction and Land Development	$	9,175	$	11,973	$	321	$	9,934	$	38
Residential		7,322		7,561		642		6,717		51
Commercial		16,658		17,320		890		16,997		87
Consumer		—		—		—		—		—

Total impaired loans	$	33,155	$	36,854	$	1,853	$	33,648	$	176

Impaired Loans

As of and for the Three Months Ended March 31, 2011


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real Estate Construction and Land Development	$	6,858	$	10,859	$	—	$	8,534	$	45
Real Estate Secured by Farmland		—		—		—		—		—
Real Estate Secured by Residential Properties		4,406		4,694		—		3,837		15
Real Estate Secured by Nonfarm Nonresidential		1,548		1,546		—		851		6
Consumer Installment		—		—		—				—
Credit Cards and Related Plans		—		—		—		—		—
Commercial and Industrial		393		518		—		434		5
Loans to Finance Agricultural Production		—		—		—		—		—
All Other Loans		—		—		—		—		—

Total impaired loans with no related allowance	$	13,205	$	17,617	$	—	$	13,656	$	71
With an allowance recorded:
Real Estate Construction and Land Development	$	8,792	$	9,796	$	2,112	$	7,622	$	40
Real Estate Secured by Farmland		—		—		—		—		—
Real Estate Secured by Residential Properties		2,885		2,880		751		2,921		11
Real Estate Secured by Nonfarm Nonresidential		3,030		3,095		594		3,402		22
Consumer Installment		—		—		—		—		—
Credit Cards and Related Plans		201		200		170		200		3
Commercial and Industrial		452		451		362		449		6
Loans to Finance Agricultural Production		—		—		—		—		—
All Other Loans		—		—		—		—		—

Total impaired loans with related allowance recorded	$	15,360	$	16,422	$	3,989	$	14,594	$	82
Total
Construction and Land Development	$	15,650	$	20,655	$	2,112	$	16,156	$	85
Residential		7,291		7,574		751		6,758		26
Commercial		5,423		5,610		956		5,136		39
Consumer		201		200		170		200		3

Total impaired loans	$	28,565	$	34,039	$	3,989	$	28,250	$	153

Impaired Loans

As of December 31, 2011


	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real Estate Construction and Land Development	$	6,280	$	11,137	$	—
Real Estate Secured by Farmland		—		—		—
Real Estate Secured by Residential Properties		2,135		2,611		—
Real Estate Secured by Nonfarm Nonresidential		7,075		7,484		—
Consumer Installment		—		—		—
Credit Cards and Related Plans		—		—		—
Commercial and Industrial		379		500		—
Loans to Finance Agricultural Production		1,109		1,110		—
All Other Loans		—		—		—

Total impaired loans with no related allowance	$	16,978	$	22,842	$	—
With an allowance recorded:
Real Estate Construction and Land Development	$	3,806	$	3,794	$	637
Real Estate Secured by Farmland		—		—		—
Real Estate Secured by Residential Properties		3,391		3,382		480
Real Estate Secured by Nonfarm Nonresidential		6,976		6,957		1,181
Consumer Installment		—		—		—
Credit Cards and Related Plans		—		—		—
Commercial and Industrial		186		186		165
Loans to Finance Agricultural Production		—		—		—
All Other Loans		—		—		—

Total impaired loans with related allowance recorded	$	14,359	$	14,319	$	2,463
Total
Construction and Land Development	$	10,086	$	14,931	$	637
Residential		5,526		5,993		480
Commercial		15,725		16,237		1,346
Consumer		—		—		—

Total impaired loans	$	31,337	$	37,161	$	2,463

The following table presents nonaccrual loans as of March 31, 2012 and December 31, 2011 by loan category (dollars in thousands):

Nonaccrual Loans


	March 31, 2012		December 31, 2011
Real Estate Construction and Land Development	$	5,937	$	6,795
Real Estate Secured by Farmland		—		—
Real Estate Secured by Residential Properties		2,263		2,113
Real Estate Secured by Nonfarm Nonresidential		10,898		6,767
Consumer Installment		8		22
Credit Cards and Related Plans		—		—
Commercial and Industrial		300		276
Loans to Finance Agricultural Production		—		—
All Other Loans		—		—

Total	$	19,406	$	15,973

Interest income not recognized due to loans being on nonaccrual status during the quarters ended March 31, 2012 and March 31, 2011 was approximately $248 thousand and $205 thousand, respectively.

Troubled Debt Restructurings

Loans which management identifies as impaired generally will be nonperforming loans or restructured loans (also known as "troubled debt restructurings" or "TDRs"). As a result of adopting the amendments in ASU 2011-02, the Company reassessed all restructurings that occurred on or after the beginning of the fiscal year of adoption (January 1, 2011) to determine whether they are considered TDRs under the amended guidance. The Company identified no loans as TDRs which the allowance for loan losses had previously been measured under a general allowance methodology. TDRs are treated as impaired loans in determining the adequacy of the allowance for loan loss.

For the quarters ended March 31, 2012 and March 31, 2011 the following table presents a breakdown of the types of concessions made by loan class. The recorded investment balances presented are balances at the time of concessions.


	March 31, 2012
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Below market interest rate:
Real Estate Secured by Residential Properties		1	$	1,943	$	1,943


	March 31, 2011
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Below market interest rate:
Real Estate Secured by Residential Properties		1	$	219	$	219
Real Estate Secured by Nonfarm Nonresidential		1	$	1,145	$	1,145

Total		2	$	1,364	$	1,364

The following table presents the successes and failures during the quarter of loans modified by the types of modifications during the twelve months prior to March 31, 2012. The recorded investment balances presented are as of March 31, 2012.


	Paid in Full				Paying as Restructured				Converted to Non-accrual				Foreclosure/Default
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(Dollars in thousands)
Below market interest rate		—	$	—		4	$	3,520		1	$	622		—	$	—
Extended payment terms		—		—		9		2,889		—		—		—		—
Forgiveness of principal		—		—		—		—		—		—		—		—

Total	$	—	$	—		13	$	6,409		1	$	622	$	—	$	—

There was one loan with a recorded investment of $169 thousand that is included in paying as restructured in the table above that was placed on non-accrual in a prior period. While the loan was not ninety days past due, it was moved into nonaccrual status due to payment concerns. There were no loans that were restructured during the year ending on March 31, 2012 that were ninety or more past due and therefore had a payment default.