Note 7 – Loan Quality

The following table presents, by loan segment, the Allowance for Loan Losses (ALL) for the periods ended:

										Commercial
	Residential Real Estate 1-4 Family									Industrial &			Commercial
				Junior Liens &						Agricultural			Industrial &
(Dollars in thousands)	First Liens			Lines of Credit			Construction			Real Estate			Agricultural			Consumer			Total

ALL at December 31, 2011	$	1,049		$	308		$	1,222		$	5,257		$	1,651		$	236		$	9,723
Charge-offs		(36	)		(65	)		-			(1,992	)		(33	)		(86	)		(2,212	)
Recoveries		-			-			-			8			2			36			46
Provision		(81	)		68			(344	)		2,519			(232	)		20			1,950
ALL at March 31, 2012	$	932		$	311		$	878		$	5,792		$	1,388		$	206		$	9,507

ALL at December 31, 2010	$	600		$	352		$	2,596		$	3,358		$	1,578		$	317		$	8,801
Charge-offs		(107	)		(5	)		(400	)		(161	)		-			(64	)		(737	)
Recoveries		11			-			-			193			-			30			234
Provision		108			(55	)		146			826			(131	)		6			900
ALL at March 31, 2011	$	612		$	292		$	2,342		$	4,216		$	1,447		$	289		$	9,198

The following table presents, by loan segment, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) as of March 31, 2012 and December 31, 2011.

							Commercial
	Residential Real Estate 1-4 Family						Industrial &		Commercial
			Junior Liens &				Agricultural		Industrial &
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Agricultural		Consumer		Total

March 31, 2012
Loans evaluated for allowance:
Individually	$	4,580	$	753	$	758	$	22,858	$	4,427	$	-	$	33,376
Collectively		136,149		46,425		14,536		347,181		173,650		12,319		730,260
Total	$	140,729	$	47,178	$	15,294	$	370,039	$	178,077	$	12,319	$	763,636

ALL established for loans evaluated:
Individually	$	396	$	5	$	-	$	913	$	673	$	-	$	1,987
Collectively		536		306		878		4,879		715		206		7,520
ALL at March 31, 2012	$	932	$	311	$	878	$	5,792	$	1,388	$	206	$	9,507

December 31, 2011
Loans evaluated for allowance:
Individually	$	3,899	$	162	$	43	$	21,622	$	2,308	$	-	$	28,034
Collectively		137,998		47,974		21,239		337,352		180,386		13,427		738,376
Total	$	141,897	$	48,136	$	21,282	$	358,974	$	182,694	$	13,427	$	766,410

ALL established for loans evaluated:
Individually	$	495	$	3	$	-	$	1,591	$	870	$	-	$	2,959
Collectively		554		305		1,222		3,666		781		236		6,764
ALL at December 31, 2011	$	1,049	$	308	$	1,222	$	5,257	$	1,651	$	236	$	9,723

The following table shows additional information about those loans considered to be impaired at March 31, 2012 and December 31, 2011:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2012	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	1,764	$	1,798	$	2,816	$	2,961	$	396
Junior liens and lines of credit		620		623		133		133		5
Total		2,384		2,421		2,949		3,094		401
Residential real estate - construction		758		1,012		-		-		-
Commercial, industrial and agricultural real estate		15,850		19,003		7,008		7,598		913
Commercial, industrial and agricultural		2,398		2,418		2,029		2,189		673
Consumer		-		-		-		-		-
Total	$	21,390	$	24,854	$	11,986	$	12,881	$	1,987

December 31, 2011
Residential Real Estate 1-4 Family
First liens	$	176	$	177	$	3,723	$	3,867	$	495
Junior liens and lines of credit		28		30		134		134		3
Total		204		207		3,857		4,001		498
Residential real estate - construction		-		-		43		43		-
Commercial, industrial and agricultural real estate		11,072		12,092		10,550		12,050		1,591
Commercial, industrial and agricultural		94		109		2,214		2,352		870
Consumer		-		-		-		-		-
Total	$	11,370	$	12,408	$	16,664	$	18,446	$	2,959

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2012 and 2011:

	Three Months Ended				Three Months Ended
	March 31, 2012				March 31, 2011
(Dollars in thousands)	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	4,600	$	43	$	1,021	$	10
Junior liens and lines of credit		817		1		301		1
Total		5,417		44		1,322		11
Residential real estate - construction		9		-		9,488		36
Commercial, industrial and agricultural real estate		24,376		57		18,480		117
Commercial, industrial and agricultural		4,315		36		2,336		11
Consumer		-		-		3		-
Total	$	34,117	$	137	$	31,629	$	175

The following table presents a summary of nonperforming assets as of March 31, 2012 and December 31, 2011:

	March 31, 2012					December 31, 2011
			% of Loan					% of Loan
(Dollars in thousands)	Balance		Segment			Balance		Segment

Nonaccrual loans
Residential Real Estate 1-4 Family
First liens	$	2,241		1.6	%	$	1,749		1.2	%
Junior liens and lines of credit		933		2.0	%		282		0.6	%
Total		3,174		1.7	%		2,031		1.1	%
Residential real estate - construction		758		5.0	%		-		-
Commercial, industrial and agricultural real estate		16,447		4.4	%		14,278		4.0	%
Commercial, industrial and agricultural		1,461		0.8	%		1,447		0.8	%
Consumer		-		-			-		-
Total nonaccrual loans	$	21,840				$	17,756

Loans past due 90 days or more and still accruing
Residential Real Estate 1-4 Family
First liens	$	2,048				$	2,516
Junior liens and lines of credit		14					301
Total		2,062					2,817
Residential real estate - construction		116					121
Commercial, industrial and agricultural real estate		1,671					1,627
Commercial, industrial and agricultural		64					100
Consumer		55					107
Total loans past due 90 days or more and still accruing		3,968					4,772

Total nonperforming loans		25,808					22,528

Other real estate owned		3,123					3,224
Repossessed assets		8					6
		3,131					3,230

Total nonperforming assets	$	28,939				$	25,758

The following table presents the aging of payments of the loan portfolio:

			Loans Past Due and Still Accruing										Total
(Dollars in thousands)	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2012
Residential Real Estate 1-4 Family
First liens	$	133,243	$	3,136	$	61	$	2,048	$	5,245	$	2,241	$	1 40,729
Junior liens and lines of credit		45,529		604		98		14		716		933		47,178
Total		178,772		3,740		159		2,062		5,961		3,174		187,907
Residential real estate - construction		14,383		37		-		116		153		758		15,294
Commercial, industrial and agricultural real estate		346,240		5,163		518		1,671		7,352		16,447		370,039
Commercial, industrial and agricultural		174,863		1,641		48		64		1,753		1,461		178,077
Consumer		11,906		334		24		55		413		-		12,319
Total	$	726,164	$	10,915	$	749	$	3,968	$	15,632	$	21,840	$	7 63,636

December 31, 2011
Residential Real Estate 1-4 Family
First liens	$	134,105	$	2,574	$	953	$	2,516	$	6,043	$	1,749	$	141,897
Junior liens and lines of credit		46,311		1,121		121		301		1,543		282		48,136
Total		180,416		3,695		1,074		2,817		7,586		2,031		190,033
Residential real estate - construction		21,161		-		-		121		121		-		21,282
Commercial, industrial and agricultural real estate		337,462		2,961		2,646		1,627		7,234		14,278		358,974
Commercial, industrial and agricultural		179,907		113		1,127		100		1,340		1,447		182,694
Consumer		12,917		287		116		107		510		-		13,427
Total	$	731,863	$	7,056	$	4,963	$	4,772	$	16,791	$	17,756	$	766,410

The following table reports the internal credit rating for those loans in the portfolio that are assigned an individual credit rating (primarily commercial loans):

			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total

March 31, 2012
Commercial Purpose Residential Real Estate 1-4 Family
First liens	$	49,013	$	3,000	$	5,272	$	-	$	57,285
Junior liens and lines of credit		6,611		259		818		-		7,688
Total		55,624		3,259		6,090		-		64,973
Residential real estate - construction		12,692		987		873		-		14,552
Commercial, industrial and agricultural real estate		296,707		41,011		32,321		-		370,039
Commercial, industrial and agricultural		162,307		8,570		7,200		-		178,077
Total	$	527,330	$	53,827	$	46,484	$	-	$	627,641

December 31, 2011
Commercial Purpose Residential Real Estate 1-4 Family
First liens	$	45,879	$	3,733	$	5,518	$	-	$	55,130
Junior liens and lines of credit		7,119		377		350		-		7,846
Total		52,998		4,110		5,868		-		62,976
Residential real estate - construction		17,872		941		1,088		-		19,901
Commercial, industrial and agricultural real estate		291,967		41,675		25,332		-		358,974
Commercial, industrial and agricultural		168,207		7,649		6,838		-		182,694
Total	$	531,044	$	54,375	$	39,126	$	-	$	624,545

For loans that are not assigned an individual credit rating (primarily consumer and residential mortgage loans), the Bank evaluates credit quality based on the aging status of the loan (previously presented) and the performing status. Nonperforming loans are loans that are 90 days or more past due and still accruing and nonaccrual loans. The following table presents the performance status on selected loans:

(Dollars in thousands)

March 31, 2012	Performing		Non-performing		Total
Consumer	$	12,264	$	55	$	12,319
Residential Real Estate		121,006		1,928		122,934
Residential Real Estate Construction		742		-		742
	$	134,012	$	1,983	$	135,995

December 31, 2011	Performing		Non-performing		Total
Consumer	$	13,320	$	107	$	13,427
Residential Real Estate		125,011		2,046		127,057
Residential Real Estate Construction		1,381		-		1,381
	$	139,712	$	2,153	$	141,865

The following table presents information on the Bank's Troubled Debt Restructuring (TDR) loans:

					Troubled Debt Restructings
	Total				That Have Defaulted on
(Dollars in thousands)	Troubled Debt Restructings				Modified Terms YTD
	Number of		Recorded		Number of		Recorded
	Contracts		Investment		Contracts		Investment
March 31, 2012
Residential real estate		5	$	999		1	$	30
Commercial, industrial and agricultural		5		7,816		-		-
Commercial, industrial and agricultural real estate		10		4,549		-		-
Total		20	$	13,364		1	$	30

December 31, 2011
Residential real estate		2	$	93		-		-
Commercial, industrial and agricultural real estate		9		8,023		-		-
Total		11	$	8,116		-	$	-

The following table reports the performing status of TDR loans. The performing status is determined by the loans compliance

with the modified terms.

	March 31, 2012				December 31, 2011
	Performing		Nonperforming		Performing		Nonperforming
Residential real estate	$	969	$	30	$	93	$	-
Commercial, industrial and agricultural		7,816		-		-		-
Commercial, industrial and agricultural real estate		4,549		-		8,023		-
	$	13,334	$	30	$	8,116	$	-

The following table reports the recorded investment in new TDR loans made during the three months ended March 31, 2012.

			Recorded Investment
	Number of		Pre-TDR		After-TDR		Recorded
	Contracts		Modification		Modification		Investment
Residential real estate		3	$	1,261	$	1,086	$	907
Commercial, industrial and agricultural		3		2,223		2,223		2,360
Commercial, industrial and agricultural real estate		3		1,662		2,052		2,042
Total		9	$	5,146	$	5,361	$	5,309

The type of loan concession granted for loans newly classified as a troubled debt restructuring during the:

	Three Months Ended
	March 31, 2012
	Number of		Recorded
Modification or Concession	Contracts		Investment
Maturity		3	$	2,360
Rate		-		-
Payment		-		-
Multiple		6		2,949
		9	$	5,309

There were no new TDR loans recorded during the three months ended March 31, 2011.