NOTE C.

LOANS AND ALLOWANCE FOR LOAN LOSSES

The Bank's loan portfolio (rounded to the nearest thousand) at December 31, 2011 and 2010, consists of the following:

	2011		2010
Commercial, Financial and Agricultural	$	22,366,000	$	24,661,000
Commercial Real Estate		91,477,000		108,856,000
Residential		69,206,000		78,671,000
Consumer		3,912,000		4,204,000
Overdrafts		96,000		247,000

Total loans	$	187,057,000	$	216,639,000

In the ordinary course of business, the Bank makes loans to its executive officers, principal stockholders, directors and to companies in which these borrowers are principal owners. Loans outstanding to such borrowers (including companies in which they are principal owners) amounted to $382,339 and $408,109 at December 31, 2011 and 2010, respectively. These loans were made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectability or present other unfavorable features.

The aggregate amount of loans to such related parties for 2011 and 2010 is as follows:

	2011			2010
Balance at January 1	$	408,109		$	957,807
New Loans		291,649			146,003
Repayments		(236,405	)		(552,869	)
Transfers out		(81,014	)		(142,832	)
Balance at December 31	$	382,339		$	408,109

Management segregates the loan portfolio into portfolio segments, which is defined as the level at which the Bank develops and documents a systematic method for determining its allowance for loan losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate. The following table sets forth, as of December 31, 2011 and 2010, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

Allowance for Credit losses and Recorded Investment in Financing Receivables

For the Year Ended December 31, 2011

	Commercial			Commercial Real Estate			Consumer			Residential			Unallocated		Total

Allowance for credit losses:

Beginning balance	$	376,946		$	1,470,692		$	26,590		$	505,515		$	40,400	$	2,420,143
Charge-offs		(681,987	)		(1,316,333	)		(20,226	)		(1,513,753	)		-		(3,532,299	)
Recoveries		154,325			465,450			4,168			84,124			-		708,067
Provision		443,434			915,912			18,238			2,929,182			385,233		4,692,000
Ending balance	$	292,718		$	1,535,721		$	28,770		$	2,005,068		$	425,633	$	4,287,910

Ending balance: individually evaluated for impairment	$	-		$	763,481		$	2,228		$	1,680,161		$	-	$	2,445,870

Ending Balance: collectively evaluated for impairment	$	292,718		$	772,240		$	26,542		$	324,907		$	425,633	$	1,842,040

Ending Balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-	$	-

Financing receivables:

Ending balance	$	22,366,000		$	91,477,000		$	4,008,000		$	69,206,000		$	-	$	187,057,000

Ending balance: individually evaluated for impairment	$	-		$	4,632,690		$	17,552		$	4,142,822		$	-	$	8,793,064

Ending balance: collectively evaluated for impairment	$	22,366,000		$	86,844,310		$	3,990,448		$	65,063,178		$	-	$	178,263,936

Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-	$	-

Allowance for Credit Losses and Recorded Investment in Financing Receivables

For the Year Ended December 31, 2010

				Commercial
	Commercial			Real Estate			Consumer			Residential			Unallocated			Total

Allowance for credit losses:

Beginning balance	$	631,065		$	2,476,025		$	161,172		$	300,750		$	309,726		$	3,878,738
Charge-offs		(523,284	)		(2,496,345	)		(24,381	)		(165,350	)		-			(3,209,360	)
Recoveries		48,477			6,336			4,427			16,521			-			75,761
Provision		220,688			1,484,676			(114,628	)		353,594			(269,326	)		1,675,004
Ending balance	$	376,946		$	1,470,692		$	26,590		$	505,515		$	40,400		$	2,420,143

Ending balance: individually evaluated for impairment	$	131,663		$	787,287		$	2,929		$	149,771		$	-		$	1,071,650

Ending Balance: collectively evaluated for impairment	$	245,283		$	683,405		$	23,661		$	355,744		$	40,400		$	1,348,493

Ending Balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-

Financing receivables:

Ending balance	$	24,661,000		$	108,856,000		$	4,451,000		$	78,671,000		$	-		$	216,639,000

Ending balance: individually evaluated for impairment	$	364,163		$	6,779,791		$	24,028		$	341,790		$	-		$	7,509,772

Ending balance: collectively evaluated for impairment	$	24,296,837		$	102,076,209		$	4,426,972		$	78,329,210		$	-		$	209,129,228

Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-

Management further disaggregates the loan portfolio segments into classes, which are based on the initial measurement of the loan, risk characteristics of the loan and the method for monitoring and assessing the credit risk of the loan.

The following table presents, by class, qualitative and quantitative information concerning the credit quality of financing receivables by credit quality indicators as of December 31, 2011 and 2010. The Bank considers all non-accrual loans, all loans more than 90 days past due and all troubled debt restructured as non-performing loans.

Credit Quality Indicators

As of December 31, 2011

	Performing		Non-Performing		Total

Commercial	$	22,216,151	$	149,849	$	22,366,000
Consumer		3,987,481		20,519		4,008,000

Real Estate:
Construction and Development:
1-4 family residential		12,511,000		-		12,511,000
Other construction loans		12,163,182		624,818		12,788,000
Commercial Real Estate:
Owner occupied		37,237,608		1,920,392		39,158,000
Non-owner occupied		37,443,519		2,087,481		39,531,000
Residential:
1-4 family residential		44,799,001		540,999		45,340,000
Multi-family		7,707,092		3,647,908		11,355,000
Total	$	178,065,034	$	8,991,966	$	187,057,000

Credit Quality Indicators

As of December 31, 2010

	Performing		Non-Performing		Total

Commercial	$	24,296,837	$	364,163	$	24,661,000
Consumer		4,426,783		24,217		4,451,000

Real Estate:
Construction and Development:
1-4 family residential		10,641,000		-		10,641,000
Other construction loans		17,521,218		911,782		18,433,000
Commercial Real Estate:
Owner occupied		37,311,142		2,777,858		40,089,000
Non-owner occupied		46,759,883		3,574,117		50,334,000
Residential:
1-4 family residential		54,622,211		341,789		54,964,000
Multi-family		13,066,000		-		13,066,000
Total	$	208,645,074	$	7,993,926	$	216,639,000

The following table presents, by class, an analysis of the age of the recorded investment in financing receivables that are past due based on the Company's review policy along with financing receivables past due 90 days or more and still accruing as of December 31, 2011 and 2010.

Aged Analysis of Past Due Financing Receivables

As of December 31, 2011

	30-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Financing Recievable		Recorded Investment > 90 Days and Accruing
Commercial	$	580,789	$	149,849	$	730,638	$	21,635,362	$	22,366,000	$	149,849
Consumer		88,621		2,966		91,587		3,916,413		4,008,000		2,966

Real Estate:
Construction & Development:
1-4 Family Residential		456,544		-		456,544		12,054,456		12,511,000		-
Other Construction Loan		217,304		624,817		842,121		11,945,879		12,788,000		-
Commercial Real Estate:
Owner Occupied		-		1,305,000		1,305,000		37,853,000		39,158,000		-
Non-Owner Occupied		-		-		-		39,531,000		39,531,000		-
Residential:
1-4 Family Residential		206,203		393,744		599,947		44,740,053		45,340,000		46,087
Multi-family		56,982		3,590,926		3,647,908		7,707,092		11,355,000		-
Total	$	1,606,443	$	6,067,302	$	7,673,745	$	179,383,255	$	187,057,000	$	198,902

Aged Analysis of Past Due Financing Receivables

As of December 31, 2010

	30-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Financing Recievable		Recorded Investment > 90 Days and Accruing
Commercial	$	67,563	$	188,594	$	256,157	$	24,404,843	$	24,661,000	$	-
Consumer		52,579		24,217		76,796		4,374,204		4,451,000		189

Real Estate:
Construction & Development:
1-4 Family Residential		833,395		-		833,395		9,807,605		10,641,000		-
Other Construction Loan		190,430		911,782		1,102,212		17,330,788		18,433,000		483,965
Commercial Real Estate:
Owner Occupied		1,548,589		3,574,117		5,122,706		34,966,294		40,089,000		-
Non-Owner Occupied		-		-		-		50,334,000		50,334,000		-
Residential:
1-4 Family Residential		700,210		140,467		840,677		54,123,323		54,964,000		-
Multi-family		-		-		-		13,066,000		13,066,000		-
Total	$	3,392,766	$	4,839,177	$	8,231,943	$	208,407,057	$	216,639,000	$	484,154

The following table presents, by class, information regarding the recorded investment in financing receivables that have been placed on non-accrual status as of December 31, 2011 and 2010.

Financing Receivables on Non-Accrual Status

For the Periods Ended

	12/31/2011		12/31/2010

Commercial	$	-	$	364,163
Consumer		17,553		24,028
Real Estate:
Construction and Development:
1-4 Family Residential		-		-
Other Construction Loans		624,817		427,817
Commercial Real Estate:
Owner Occupied		1,305,000		2,777,858
Non-owner Occupied		2,087,481		3,574,117
Residential:
1-4 Family Residential		494,913		341,789
Multi-family		3,647,908		-
Total	$	8,177,672	$	7,509,772

The following table presents, by class, for loans that meet the definition of an impaired loan in paragraphs ASC 310-10-35-16 through 35-17 for the year ended December 31, 2011 and 2010, (1) the recorded investment in impaired loans for which there is a related allowance for credit loss, (2) the recorded investment in impaired loans for which there is not a related allowance for credit loss and (3) the total unpaid principal balance in the impaired loan. Additionally, the table includes the average recorded investment in the impaired loan and the amount of interest income recognized using a cash basis method of accounting during the time within that period that the loans were impaired.

Impaired Loans

For Year Ended December 31, 2011

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Consumer		20,745		20,847		-		23,494		-
Real Estate:
Construction and Development:
1-4 Family Residential		-		-		-		-		-
Other Construction Loans		741,769		1,040,782		-		840,624		-
Commercial Real Estate:
Owner Occupied		1,477,578		1,868,836		-		1,957,307		29,003
Non-Owner Occupied		-		-		-		-		-
Residential:
1-4 Family Residential		411,438		401,521		-		411,763		-
Multifamily		58,682		56,704		-		58,682		-

With Related Allowance Recorded:
Commercial		-		-		-		-		-
Consumer		-		-		2,228		-		-
Real Estate:
Construction and Development:
1-4 Family Residential		-		-		-		-		-
Other Construction Loans		-		-		-		-		-
Commercial Real Estate:
Owner Occupied		740,137		1,042,235		303,750		1,115,619		15,855
Non-Owner Occupied		2,179,117		2,291,377		459,731		2,192,034		-
Residential:
1-4 Family Residential		147,105		138,549		55,456		155,430		-
Multifamily		3,757,228		4,235,361		1,624,705		4,193,116		-

Total:
Commercial		-		-		-		-		-
Consumer		20,745		20,847		2,228		23,494		-
Real Estate:
Construction and Development:
1-4 Family Residential		-		-		-		-		-
Other Construction Loans		741,769		1,040,782		-		840,624		-
Commercial Real Estate:
Owner Occupied		2,217,715		2,911,071		303,750		3,072,926		44,858
Non-Owner Occupied		2,179,117		2,291,377		459,731		2,192,034		-
Residential:
1-4 Family Residential		558,543		540,070		55,456		567,193		-
Multifamily		3,815,910		4,292,065		1,624,705		4,251,798		-
	$	9,533,799	$	11,096,212	$	2,445,870	$	10,948,069	$	44,858

Impaired Loans

For Year Ended December 31, 2010

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Consumer		26,370		-		-		26,498		-
Real Estate:
Construction and Development:
1-4 Family Residential		-		-		-		-		-
Other Construction Loans		330,703		556,817		-		590,120		-
Commercial Real Estate:
Owner Occupied		1,398,337		1,273,530		-		1,302,045		21,113
Non-Owner Occupied		-		-		-		-		-
Residential:
1-4 Family Residential		202,904		128,219		-		213,837		7,533
Multifamily		-		-		-		-		-

With Related Allowance Recorded:
Commercial		387,464		364,163		131,663		373,183		2,898
Consumer		-		-		2,929		-		-
Real Estate:
Construction and Development:
1-4 Family Residential		-		-		-		-		-
Other Construction Loans		170,968		454,000		45,500		171,396		-
Commercial Real Estate:
Owner Occupied		1,612,482		1,731,769		182,670		1,569,355		17,482
Non-Owner Occupied		3,707,323		3,574,117		559,117		3,707,323		-
Residential:
1-4 Family Residential		203,813		192,467		149,771		222,159		2,504
Multifamily		-		-		-		-		-

Total:
Commercial		387,464		364,163		131,663		373,183		2,898
Consumer		26,370		-		2,929		26,498		-
Real Estate:
Construction and Development:
1-4 Family Residential		-		-		-		-		-
Other Construction Loans		501,671		1,010,817		45,500		761,516		-
Commercial Real Estate:
Owner Occupied		3,010,819		3,005,299		182,670		2,871,400		38,595
Non-Owner Occupied		3,707,323		3,574,117		559,117		3,707,323		-
Residential:
1-4 Family Residential		406,717		320,686		149,771		435,996		10,037
Multifamily		-		-		-		-		-
	$	8,040,364	$	8,275,082	$	1,071,650	$	8,175,916	$	51,530

The following tables present, by class, an analysis of troubled debt restructurings of financing receivables as of December 31, 2011 and December 31, 2010.

Modifications

As of

	December 31, 2011						December 31, 2010

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Trouble Debt Restructurings
Commercial		-	$	-	$	-	$	-	$	-	$	-
Consumer		-		-		-		-		-		-

Real Estate:
Construction & Development:
1-4 Family Residential		-		-		-		-		-		-
Other Construction Loan		-		-		-		-		-		-
Commercial Real Estate:
Owner Occupied		4		3,148,204		2,218,273		-		-		-
Non-Owner Occupied		1		2,323,335		2,179,117		-		-		-
Residential:
1-4 Family Residential		-		-		-		-		-		-
Multi-family		1		4,183,839		3,698,435		-		-		-
Total		6	$	9,655,378	$	8,095,825	$	-	$	-	$	-

	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

Trouble Debt Restructurings
That Subsequently Defaulted
Commercial		-	$	-	$	-	$	-
Consumer		-		-		-		-

Real Estate:
Construction & Development:
1-4 Family Residential		-		-		-		-
Other Construction Loan		-		-		-		-
Commercial Real Estate:
Owner Occupied		2		1,594,516		-		-
Non-Owner Occupied		-		-		-		-
Residential:
1-4 Family Residential		-		-		-		-
Multi-family		-		-		-		-
Total		2	$	1,594,516	$	-	$	-