4. Credit Quality of Loans and Allowance for Loan Losses

A summary of the activity in the allowance for loan losses is as follows (in thousands):

	Three Months Ended March 31,
	2012			2011
Balance, beginning of period	$	7,276		$	8,813
Provision for loan losses		675			1,600
Recoveries		66			86
Loans charged-off		(939	)		(3,747	)
Balance, end of period	$	7,078		$	6,752

The Company monitors loan concentrations and evaluates individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity for each major standard industry classification segment. At March 31, 2012, one industry segment concentration, the oil and gas industry, aggregate more than 10% of the loan portfolio. The Company's exposure in the oil and gas industry, including related service and manufacturing industries, totaled approximately $118.1 million, or 15.8% of total loans. Additionally, the Company's exposure to loans secured by commercial real estate is monitored. At March 31, 2012, loan secured by commercial real estate (including commercial construction and multifamily loans) totaled approximately $327.9 million. Of the $327.9 million, $266.7 million represent CRE loans, 62% of which are secured by owner-occupied commercial properties. Of the $327.9 million in loans secured by commercial real estate, $4.0 million, or 1.2%, were on nonaccrual status at March 31, 2012.

Modifications by Class of Loans (in thousands)

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings as of March 31, 2012:
Commercial, financial, and agricultural		3	$	427	$	410
Consumer - other		1		14		11
			$	441	$	421

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings as of December 31, 2011:
Commercial, financial, and agricultural		4	$	447	$	444
Consumer - other		1		14		12
			$	461	$	456

Trouble Debt Restructurings that Subsequently Defaulted (in thousands)

	March 31, 2012				March 31, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial, financial, and agricultural		3	$	251		-	$	-

For purposes of the determination of an allowance for loan losses on these troubled debt restructurings ("TDRs"), as an identified TDR, the Company considers a loss probable on the loan and, as a result is reviewed for specific impairment in accordance with the Company's allowance for loan loss methodology. If it is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans. As of March 31, 2012, there have been no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs.

Allowance for Loan Losses and Recorded Investment in Loans
For the Three Months Ended March 31, 2012 (in thousands)
				Real Estate
	Coml, Fin, and Agric			Construction		Commercial			Residential			Consumer			Finance Leases Coml		Other		Total
Allowance for loan losses:
Beginning balance	$	1,734		$	1,661	$	2,215		$	936		$	710		$	19	$	1	$	7,276
Charge-offs		(254	)		-		(478	)		(52	)		(155	)		-		-		(939	)
Recoveries		43			4		1			-			18			-		-		66
Provision		193			212		133			54			81			2		-		675
Ending balance	$	1,716		$	1,877	$	1,871		$	938		$	654		$	21	$	1	$	7,078
Ending balance: individually evaluated for impairment	$	232		$	2	$	14		$	32		$	124		$	-	$	-	$	404

Loans:
Ending balance	$	221,855		$	55,320	$	283,114		$	112,142		$	70,085		$	3,840	$	1,411	$	747,767
Ending balance: individually evaluated for impairment	$	2,096		$	843	$	3,140		$	1,698		$	343		$	-	$	-	$	8,120

Allowance for Loan Losses and Recorded Investment in Loans
For the Year Ended December 31, 2011 (in thousands)
				Real Estate
	Coml, Fin, and Agric			Construction			Commercial			Residential			Consumer			Finance Leases Coml			Other		Total
Allowance for loan losses:
Beginning balance	$	1,664		$	2,963		$	2,565		$	862		$	730		$	29		$	-	$	8,813
Charge-offs		(1,109	)		(2,444	)		(1,246	)		(283	)		(671	)		(19	)		-		(5,772	)
Recoveries		152			14			1			4			138			1			-		310
Provision		1,027			1,128			895			353			513			8			1		3,925
Ending balance	$	1,734		$	1,661		$	2,215		$	936		$	710		$	19		$	1	$	7,276
Ending balance: individually evaluated for impairment	$	240		$	2		$	321		$	21		$	98		$	-		$	-	$	682

Loans:
Ending balance	$	223,283		$	52,712		$	280,798		$	113,582		$	69,980		$	4,276		$	1,674	$	746,305
Ending balance: individually evaluated for impairment	$	2,341		$	901		$	2,271		$	1,142		$	287		$	-		$	-	$	6,942

Credit Quality Indicators by Class of Loans
As of March 31, 2012 (in thousands)

Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Commercial, Financial, and Agricultural		Commercial Real Estate Construction		Commercial Real Estate Other		Commercial Total		% of Total Commercial
Pass	$	215,534	$	39,814	$	269,300	$	524,648		95.43	%
Special mention		1,937		1,055		8,641		11,633		2.12	%
Substandard		4,199		3,915		5,173		13,287		2.42	%
Doubtful		185		-		-		185		0.03	%
	$	221,855	$	44,784	$	283,114	$	549,753		100.00	%

Residential Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Residential Construction		Residential Prime		Residential Subprime		Residential Total		% of Total Residential
Pass	$	10,471	$	104,283	$	-	$	114,754		93.54	%
Special mention		-		4,553		-		4,553		3.71	%
Substandard		65		3,306		-		3,371		2.75	%
	$	10,536	$	112,142	$	-	$	122,678		100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer Credit Card		Consumer Other		Finance Leases Commercial		Other Loans		Consumer Total		% of Total Consumer
Performing	$	5,069	$	64,691	$	3,840	$	1,411	$	75,011		99.57	%
Nonperforming		12		313		-		-		325		0.43	%
	$	5,081	$	65,004	$	3,840	$	1,411	$	75,336		100.00	%

Credit Quality Indicators by Class of Loans
As of December 31, 2011 (in thousands)

Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Commercial, Financial, and Agricultural		Commercial Real Estate Construction		Commercial Real Estate Other		Commercial Total		% of Total Commercial
Pass	$	216,465	$	36,631	$	264,542	$	517,638		94.88	%
Special Mention		1,705		1,104		10,755		13,564		2.49	%
Substandard		4,809		3,728		5,501		14,038		2.57	%
Doubtful		304		-		-		304		0.06	%
	$	223,283	$	41,463	$	280,798	$	545,544		100.00	%

Residential Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Residential Construction		Residential Prime		Residential Subprime		Residential Total		% of Total Residential
Pass	$	9,041	$	104,965	$	-	$	114,006		91.33	%
Special mention		1,077		5,152		-		6,229		4.99	%
Substandard		1,131		3,465		-		4,596		3.68	%
	$	11,249	$	113,582	$	-	$	124,831		100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
		Consumer Credit Card	Consumer Other		Finance Leases Commercial		Other Loans		Consumer Total		% of Total Consumer
Performing	$	5,182	$	64,497	$	4,276	$	1,674	$	75,629		99.60	%
Nonperforming		18		283		-		-		301		0.40	%
	$	5,200	$	64,780	$	4,276	$	1,674	$	75,930		100.00	%

Age Analysis of Past Due Loans by Class of Loans (in thousands)

	30-59 Days Past Due (1)		60-89 Days Past Due (1)		Greater than 90 Days Past Due (1)		Total Past Due		Current		Tota l Loans		Recorded Investment > 90 days and Accruing
As of March 31, 2012
Commercial, financial, and agricultural	$	730	$	148	$	1,975	$	2,853	$	219,002	$	221,855	$	400
Commercial real estate - construction		214		111		279		604		44,180		44,784		-
Commercial real estate - other		566		188		2,568		3,322		279,792		283,114		-
Consumer - credit card		36		19		12		67		5,014		5,081		12
Consumer - other		224		76		275		575		64,429		65,004		6
Residential - construction		-		-		-		-		10,536		10,536		-
Residential - prime		1,510		422		696		2,628		109,514		112,142		-
Residential - subprime		-		-		-		-		-		-		-
Other loans		70		4		-		74		1,337		1,411		-
Finance leases commercial		-		-		-		-		3,840		3,840		-
	$	3,350	$	968	$	5,805	$	10,123	$	737,644	$	747,767	$	418

	30-59 Days Past Due (1)		60-89 Days P ast Due (1)		Greater than 90 Days Past Due (1)		Total Past Due		Current		Total Loans		Recorded Investment > 90 days and Accruing
As of December 31, 2011
Commercial, financial, and agricultural	$	622	$	242	$	1,856	$	2,720	$	220,563	$	223,283	$	64
Commercial real estate - construction		673		166		358		1,197		40,266		41,463		-
Commercial real estate - other		3,185		-		1,878		5,063		275,735		280,798		-
Consumer - credit card		79		-		19		98		5,102		5,200		19
Consumer - other		410		193		269		872		63,908		64,780		8
Residential - construction		-		-		-		-		11,249		11,249		-
Residential - prime		2,457		469		685		3,611		109,971		113,582		140
Residential - subprime		-		-		-		-		-		-		-
Other loans		118		-		-		118		1,556		1,674		-
Finance leases commercial		-		-		-		-		4,276		4,276		-
	$	7,544	$	1,070	$	5,065	$	13,679	$	732,626	$	746,305	$	231

(1)

Past due amounts may include loans on nonaccrual status.

Impaired Loans by Class of Loans (in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of March 31, 2012
With no related allowance recorded:
Commercial, financial, and agricultural	$	962	$	1,110	$	-	$	1,060	$	-
Commercial real estate - construction		839		905		-		868		1
Commercial real estate - other		3,028		3,502		-		2,029		-
Consumer - other		67		77		-		57		-
Residential - prime		1,447		1,447		-		1,149		11
Subtotal:	$	6,343	$	7,041	$	-	$	5,163	$	12
With an allowance recorded:
Commercial, financial, and agricultural		1,134		1,134		232		1,159		1
Commercial real estate - construction		4		4		2		4		-
Commercial real estate - other		111		111		14		676		-
Consumer - other		276		276		124		258		1
Residential - prime		252		252		32		271		-
Subtotal:	$	1,777	$	1,777	$	404	$	2,368	$	2
Totals:
Commercial		6,078		6,766		248		5,796	$	2
Consumer		343		353		124		315		1
Residential		1,699		1,699		32		1,420		11
Grand total:	$	8,120	$	8,818	$	404	$	7,531	$	14

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of December 31, 2011
With no related allowance recorded:
Commercial, financial, and agricultural	$	1,157	$	1,248	$	-	$	2,311	$	2
Commercial real estate - construction		897		963		-		4,511		9
Commercial real estate - other		1,029		1,029		-		2,958		31
Consumer - other		48		59		-		65		3
Residential - prime		851		851		-		1,334		28
Finance leases commercial		-		-		-		4		-
Other loans		-		-		-		3		-
Subtotal:	$	3,982	$	4,150	$	-	$	11,186	$	73
With an allowance recorded:
Commercial, financial, and agricultural		1,184		1,184		240		1,140		58
Commercial real estate - construction		4		4		2		1,580		-
Commercial real estate - other		1,242		1,242		321		1,639		98
Consumer - other		239		242		98		202		10
Residential - prime		291		291		21		255		1
Subtotal:	$	2,960	$	2,963	$	682	$	4,816	$	167
Totals:
Commercial		5,513		5,670		563		14,143		198
Consumer		287		301		98		267		13
Residential		1,142		1,142		21		1,589		29
Other		-		-		-		3		-
Grand total:	$	6,942	$	7,113	$	682	$	16,002	$	240

Loans on Nonaccrual Status

(in thousands)

	March 31, 2012		December 31, 2011
Commercial, financial, and agricultural	$	1,917	$	1,897
Commercial real estate - construction		843		902
Commercial real estate - other		3,139		2,271
Consumer - credit card		-		-
Consumer - other		307		275
Residential - construction		-		-
Residential - prime		1,449		884
Residential - subprime		-		-
Other loans		-		-
Finance leases commercial		-		-
	$	7,655	$	6,229

The amount of interest that would have been recorded on nonaccrual loans, had the loans not been classified as nonaccrual, totaled approximately $177,000 and $296,000 for the three months ended March 31, 2012 and 2011, respectively. Interest actually received on nonaccrual loans at March 31, 2012 and 2011 was $20,000 and $35,000, respectively.