NOTE D - LOANS

Loans
Major Classifications

Major classifications of loans were as follows:
	September 30,			December 31,
	2011			2010
	(In thousands)

Commercial, financial and agricultural	$	42,003		$	33,347
Real estate - construction and development		52,731			56,673
Real estate - mortgage		123,152			134,964
Installment loans to individuals		20,525			20,186
Other		1,142			2,594
		239,553			247,764
Less allowance for loan losses		(4,128	)		(4,477	)
	$	235,425		$	243,287

Activity in the allowance for loan losses for the period indicated is as follows:

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
	2011			2010			2011			2010
	(In thousands)						(In thousands)
Balance at beginning of period	$	5,377		$	3,710		$	4,477		$	4,352
Provision for loan losses		1,066			376			2,572			1,228
Loans charged-off		(2,462	)		(546	)		(3,393	)		(2,433	)
Recoveries on loans previously charged-off		147			168			472			561
Balance at end of period	$	4,128		$	3,708		$	4,128		$	3,708

The following table provides the ending balances in the Company's loans and allowance for loan losses, broken down by portfolio segment as of September 30, 2011 and December 31, 2010. The table also provides additional detail as to the amount of our loans and allowance that corresponds to individual versus collective impairment evaluation. The impairment evaluation corresponds to the Company's systematic methodology for estimating its Allowance for Loan Losses.

September 30, 2011
			Installment		Commercial,
			and		Financial
	Real Estate		Other		and Agriculture		Total
	(In thousands)
Loans
Individually evaluated	$	30,946	$	-	$	240	$	31,186
Collectively evaluated		144,937		21,667		41,763		208,367
Total	$	175,883	$	21,667	$	42,003	$	239,553

Allowance for Loan Losses
Individually evaluated	$	2,177	$	-	$	-	$	2,177
Collectively evaluated		1,290		361		300		1,951
Total	$	3,467	$	361	$	300	$	4,128

December 31, 2010
			Installment		Commercial,
			and		Financial
	Real Estate		Other		and Agriculture		Total
	(In thousands)
Loans
Individually evaluated	$	44,284	$	28	$	950	$	45,262
Collectively evaluated		147,359		22,752		32,391		202,502
Total	$	191,643	$	22,780	$	33,341	$	247,764

Allowance for Loan Losses
Individually evaluated	$	2,870	$	1	$	8	$	2,879
Collectively evaluated		1,136		215		247		1,598
Total	$	4,006	$	216	$	255	$	4,477

At September 30, 2011, and December 31, 2010, loan lines of $250,000 and greater, rated substandard or lower, were analyzed for impairment. The following is a summary comparison of the analysis for impairment.

	September 30,		December 31,
	2011		2010
	(In thousands)
Loans analyzed for impairment
without a valuation allowance	$	22,531,089	$	28,171,248
Loans analyzed for impairment
with a valuation allowance		8,655,283		17,090,793
Total impaired loans	$	31,186,372	$	45,262,041
Valuation allowance related to impaired loans	$	2,177,000	$	2,879,000

The following table provides additional detail of loan lines of $250,000 and greater, rated substandard or lower which were analyzed for impairment and reflects the breakdown according to class as of September 30, 2011, and December 31, 2010. The recorded investment included in the following table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. As a majority of these loans at September 30, 2011, and December 31, 2010, are on nonaccrual status, the recorded investment excludes any insignificant amount of accrued interest receivable on loans 90 days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs.

September 30, 2011
							Average		Interest
							Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized
	Investment		Balance		Allowance		YTD		YTD
	(In thousands)
Impaired loans with
no related allowance:
Commercial, financial, and agricultural	$	240	$	240	$	-	$	205	$	9
Real estate-construction and development		17,242		17,242		-		16,936		521
Real estate-mortgage		5,049		5,710		-		5,034		100
Installment loans and other		-		-		-		-		-
Total	$	22,531	$	23,192	$	-	$	22,175	$	630
Impaired loans with
a related allowance:
Commercial, financial, and agricultural	$	-	$	-	$	-	$	-	$	-
Real estate-construction and development		6,976		6,976		1,583		7,074		133
Real estate-mortgage		1,679		1,679		594		1,223		54
Installment loans and other		-		-		-		-		-
Total	$	8,655	$	8,655	$	2,177	$	8,297	$	187
Total Impaired Loans
Commercial, financial, and agricultural	$	240	$	240	$	-	$	205	$	9
Real estate-construction and development		24,218		24,218		1,583		24,010		654
Real estate-mortgage		6,728		7,389		594		6,257		154
Installment loans and other		-		-		-		-		-
Total Impaired Loans	$	31,186	$	31,847	$	2,177	$	30,472	$	817

December 31, 2010
							Average		Interest
							Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized
	Investment		Balance		Allowance		YTD		YTD
	(In thousands)
Impaired loans with
no related allowance:
Commercial, financial, and agricultural	$	623	$	623	$	-	$	580	$	29
Real estate-construction and development		17,886		17,886		-		20,360		762
Real estate-mortgage		9,662		9,662		-		9,759		377
Installment loans and other		-		-		-		-		-
Total	$	28,171	$	28,171	$	-	$	30,699	$	1,168
Impaired loans with
a related allowance:
Commercial, financial, and agricultural	$	327	$	347	$	8	$	338	$	12
Real estate-construction and development		12,030		12,030		1,667		10,788		364
Real estate-mortgage		4,706		4,982		1,203		4,784		192
Installment loans and other		28		28		1		31		1
Total	$	17,091	$	17,387	$	2,879	$	15,941	$	569
Total Impaired Loans
Commercial, financial, and agricultural	$	950	$	970	$	8	$	918	$	41
Real estate-construction and development		29,916		29,916		1,667		31,148		1,126
Real estate-mortgage		14,368		14,644		1,203		14,543		569
Installment loans and other		28		28		1		31		1
Total Impaired Loans	$	45,262	$	45,558	$	2,879	$	46,640	$	1,737

The following table is summary of nonaccrual loans and loans past due 90 days still on accrual status:

	September 30,		December 31,
	2011		2010
	(In thousands)
Nonaccrual loans	$	6,176	$	9,584
Loans past due over 90 days still on accrual	$	119	$	63

The following table is a summary of interest recognized and cash-basis interest earned on impaired loans:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Average of individually impaired loans
during period	$	30,518	$	45,186	$	30,472	$	41,008
Interest income recognized during
impairment	$	531	$	-	$	817	$	-
Cash-basis interest income recognized	$	287	$	-	$	823	$	-

The following table summarizes by class the Company's loans classified as past due in excess of 30 days or more in addition to those loans classified as non-accrual:

September 30, 2011
			90 Days +
		30-89	Past Due
	Days Past		and Still		Non-Accrual		Total		Total
	Due		Accruing		Loans		Past Due		Loans
	(In thousands)

Commercial, financial	$	225	$	2	$	57	$	284	$	42,003
and agricultural
Real estate - construction
and development		814		-		3,629		4,443		52,731
Real estate - mortgage		4,063		115		2,358		6,536		123,152
Installment loans to individuals		848		-		125		973		20,525
Other		130		2		7		139		1,142
Total	$	6,080	$	119	$	6,176	$	12,375	$	239,553

December 31, 2010
			90 Days +
		30-89	Past Due
	Days Past		and Still		Non-Accrual		Total		Total
	Due		Accruing		Loans		Past Due		Loans
	(In thousands)

Commercial, financial	$	238	$	29	$	326	$	593	$	33,347
and agricultural
Real estate - construction
and development		1,016		-		3,856		4,872		56,673
Real estate - mortgage		2,070		-		5,237		7,307		134,964
Installment loans to individuals		842		-		165		1,007		20,186
Other		67		34		-		101		2,594
Total	$	4,233	$	63	$	9,584	$	13,880	$	247,764

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance:

Special Mention: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

As of September 30, 2011, and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

September 30, 2011
	Real Estate				Installment
	Commercial &		Real Estate		and		Financial
	Development		Mortgage		Other		and Agriculture		Total
	(In thousands)
Pass	$	19,557	$	95,871	$	20,690	$	35,285	$	171,403
Special Mention		7,812		10,921		549		5,360		24,642
Substandard		25,362		16,365		429		1,359		43,515
Doubtful		-		-		-		-		-
Subtotal		52,731		123,157		21,668		42,004		239,560
Less: Unearned
Discount		-		5		1		1		7
Loans, net of
unearned discount	$	52,731	$	123,152	$	21,667	$	42,003	$	239,553

December 31, 2010

	Real Estate				Installment		Commercial,
	Commercial &		Real Estate		and		Financial
	Development		Mortgage		Other		and Agriculture		Total
	(In thousands)
Pass	$	15,545	$	107,179	$	21,514	$	24,098	$	168,336
Special Mention		10,261		10,329		643		7,811		29,044
Substandard		30,867		17,456		623		1,443		50,389
Doubtful		-		-		-		-		-
Subtotal		56,673		134,964		22,780		33,352		247,769
Less: Unearned
Discount		-		-		-		5		5
Loans, net of
unearned discount	$	56,673	$	134,964	$	22,780	$	33,347	$	247,764

Troubled Debt Restructurings

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions below market interest rates compared to debt with similar characteristics, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. Effective July 1, 2011, the Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2011-02, “Receivables (Topic 310) - A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” As such, the Company reassessed all loan modifications occurring since January 1, 2011 for identification as troubled debt restructurings.

The book balance of troubled debt restructurings at September 30, 2011 and December 31, 2010 was $557 thousand and $308 thousand, respectively. Approximately, $28 thousand and $0 in specific reserves have been established with respect to these loans as of September 30, 2011 and December 31, 2010, respectively. As of September 30, 2011 and December 31, 2010, the Company had no additional amounts committed on any loan classified as a troubled debt restructuring.

During the period ending September 30, 2011, the terms of two loans were modified in troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; an extension of maturity and change in payment terms; or a permanent reduction of the recorded investment in the loan.

No modifications involving a reduction of the stated interest rate were made during the period ended September 30, 2011. The modifications on the two loans involve restructuring the payment schedule to require an interest only payment at the end of the initial three months, interest only for the next three monthly payments and then a reinstatement of the original payment schedule thereafter.

The following tables present loans by class modified as troubled debt restructurings

Three Months ending September 30, 2011

Number

Pre-Modification

Post-Modification

Outstanding Recorded

Troubled Debt Restructurings

Loans

Investment

Commercial and Residential Loans

557

Construction Loans

Commercial Loans

Consumer Loans

Other

Total

557

Nine Months ending September 30, 2011

Number

Pre-Modification

Post-Modification

Outstanding Recorded

Troubled Debt Restructurings

Loans

Investment

Commercial and Residential Loans

557

Construction Loans

Commercial Loans

Consumer Loans

Other

Total

557