5.	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 September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Balance, beginning of period	$	7,222		$	7,313		$	7,276		$	8,813
Provision for loan losses		300			650			1,550			3,150
Recoveries		86			48			247			256
Loans charged-off		(234	)		(682	)		(1,699	)		(4,890	)
Balance, end of period	$	7,374		$	7,329		$	7,374		$	7,329

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 September 30, 2012, one industry segment concentration, the oil and gas industry, constituted 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 $133.1 million, or 16.5% of total loans. Additionally, the Company's exposure to loans secured by commercial real estate is monitored. At September 30, 2012, loans secured by commercial real estate (including commercial construction and multifamily loans) totaled approximately $336.9 million. Of the $336.9 million, $278.2 million represent CRE loans, 61% of which are secured by owner-occupied commercial properties. Of the $336.9 million in loans secured by commercial real estate, $4.1 million, or 1.2%, were on nonaccrual status at September 30, 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 September 30, 2012:
Commercial, financial, and agricultural		2	$	244	$	232
Consumer - other		1		14		10
			$	258	$	242

	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)

	September 30, 2012				September 30, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial, financial, and agricultural		3	$	250		-	$	-

One loan previously identified as a troubled debt restructuring ("TDR") was removed from TDR status during the third quarter of 2012 after the loan was paid off. For purposes of the determination of an allowance for loan losses on these 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 September 30, 2012, there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs.

Allowance for Loan Losses and Recorded Investment in Loans

For the Nine Months Ended September 30, 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		(683	)		-		(495	)		(126	)		(395	)		-		-		(1,699	)
Recoveries		169			9		-			3			66			-		-		247
Provision		574			378		282			114			197			4		1		1,550
Ending balance	$	1,794		$	2,048	$	2,002		$	927		$	578		$	23	$	2	$	7,374
Ending balance: individually evaluated for impairment	$	461		$	40	$	64		$	-		$	95		$	-	$	-	$	660

Loans:
Ending balance	$	266,046		$	57,727	$	293,579		$	110,735		$	73,334		$	5,041	$	2,371	$	808,833
Ending balance: individually evaluated for impairment	$	2,302		$	926	$	3,144		$	1,771		$	299		$	-	$	-	$	8,442

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 September 30, 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	$	258,281	$	39,620	$	283,062	$	580,963		96.35	%
Special mention		2,530		718		5,171		8,419		1.40	%
Substandard		4,987		2,964		5,346		13,297		2.21	%
Doubtful		248		-		-		248		0.04	%
	$	266,046	$	43,302	$	293,579	$	602,927		100.00	%

Residential Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Residential Construction		Residential Prime		Residential Subprime		Residential Total		% of Total Residential
Pass	$	14,334	$	106,814	$	-	$	121,148		96.79	%
Special mention		-		588		-		588		0.47	%
Substandard		91		3,333		-		3,424		2.74	%
	$	14,425	$	110,735	$	-	$	125,160		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	$	5,168	$	67,866	$	5,041	$	2,371	$	80,446		99.63	%
Nonperforming		5		295		-		-		300		0.37	%
	$	5,173	$	68,161	$	5,041	$	2,371	$	80,746		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		Total Loans		Recorded Investment > 90 days and Accruing
As of September 30, 2012
Commercial, financial, and agricultural	$	878	$	61	$	2,492	$	3,431	$	262,615	$	266,046	$	526
Commercial real estate – construction		1,169		15		131		1,315		41,987		43,302		-
Commercial real estate - other		3,391		232		3,144		6,767		279,502		286,269		-
Consumer - credit card		27		15		5		47		5,126		5,173		5
Consumer - other		527		62		170		759		67,402		68,161		1
Residential - construction		142		-		-		142		14,283		14,425		-
Residential - prime		1,220		520		823		2,563		115,482		118,045		-
Residential - subprime		-		-		-		-		-		-		-
Other loans		116		-		-		116		2,255		2,371		-
Finance leases commercial		-		-		-		-		5,041		5,041		-
	$	7,470	$	905	$	6,765	$	15,140	$	793,693	$	808,833	$	532

	30-59 Days Past Due (1)		60-89 DaysPast 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 September 30, 2012
With no related allowance recorded:
Commercial, financial, and agricultural	$	896	$	1,024	$	-	$	1,039	$	6
Commercial real estate – construction		856		856		-		685		1
Commercial real estate – other		2,752		3,226		-		2,670		37
Consumer – other		115		125		-		117		1
Residential – prime		1,771		1,771		-		1,710		25
Subtotal:	$	6,390	$	7,002	$	-	$	6,221	$	70
With an allowance recorded:
Commercial, financial, and agricultural		1,406		1,406		461		1,157		16
Commercial real estate – construction		70		70		40		66		-
Commercial real estate – other		392		392		64		388		-
Consumer – other		184		184		95		185		3
Residential – prime		-		-		-		34		-
Subtotal:	$	2,052	$	2,052	$	660	$	1,830	$	19
Totals:
Commercial		6,372		6,974		565		6,005		60
Consumer		299		309		95		302		4
Residential		1,771		1,771		-		1,744		25
Grand total:	$	8,442	$	9,054	$	660	$	8,051	$	89

	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)

	September 30, 2012		December 31, 2011
Commercial, financial, and agricultural	$	2,302	$	1,897
Commercial real estate - construction		926		902
Commercial real estate - other		3,144		2,271
Consumer - credit card		-		-
Consumer - other		289		275
Residential - construction		-		-
Residential - prime		1,646		884
Residential - subprime		-		-
Other loans		-		-
Finance leases commercial		-		-
	$	8,307	$	6,229

The amount of interest that would have been recorded on nonaccrual loans, had the loans not been classified as nonaccrual, totaled approximately $502,000 and $684,000 for the nine months ended September 30, 2012 and 2011, respectively. Interest actually received on nonaccrual loans at September 30, 2012 and 2011 was $25,000 and $129,000, respectively.