NOTE D – LOANS

Major classifications of loans were as follows:

	December 31,
	2011			2010
	(In thousands)

Commercial, financial and agricultural	$	35,341		$	33,347
Real estate - construction and development		51,725			56,673
Real estate - mortgage		124,994			134,964
Installment loans to individuals		18,871			20,186
Other		2,092			2,594
		233,023			247,764
Less allowance for loan losses		(4,026	)		(4,477	)
	$	228,997		$	243,287

Included in the above are customer demand deposits in overdraft status of approximately $277,000 at December 31, 2011, and $587,000 at December 31, 2010.

Transactions in the allowance for loan losses were as follows:

	Years Ended December 31,
	2011		2010		2009
	(In thousands)
Balance at beginning of year	$	4,477	$	4,352	$	3,675

Loans charge-offs:
Commercial, financial & agricultural		120		611		303
Real estate - construction & development		1,996		1,002		1,452
Real estate - mortgage		1,001		379		987
Installment loans to individuals		750		856		1,070
Other		9		141		517
Total charge-offs	$	3,876	$	2,989	$	4,329

	Years Ended December 31,
	2011		2010		2009
	(In thousands)
Total charge-offs (brought forward)	$	3,876	$	2,989	$	4,329

Loan recoveries:
Commercial, financial & agricultural		33		74		69
Real estate - construction & development		18		9		44
Real estate - mortgage		17		75		94
Installment loans to individuals		509		593		837
Other		-		38		51
Total recoveries		577		789		1,095

Net charge-offs		3,299		2,200		3,234

Provision for loan losses		2,848		2,325		3,911

Balance at end of year	$	4,026	$	4,477	$	4,352

At December 31, 2011, loan lines of $250,000 and greater along with a sample of small loans, rated substandard or classified, were analyzed for impairment. The following is a summary comparison of the analysis for impairment:

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

December 31, 2011
	Commercial,				Installment
	Financial				and
	and Agriculture		Real Estate		Other		Total
			(In thousands)
Loans
Individually evaluated	$	613	$	35,809	$	193	$	36,615
Collectively evaluated		34,728		140,910		20,770		196,408
Total	$	35,341	$	176,719	$	20,963	$	233,023

Allowance for Loan Losses
Individually evaluated	$	33	$	2,144	$	82	$	2,259
Collectively evaluated		97		1,468		202		1,767
Total	$	130	$	3,612	$	284	$	4,026

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

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

Nonaccrual loans at December 31, 2011 totaled $7,537,000, and the loans past-due ninety days or more and still accruing totaled $10,000. Nonaccrual loans at December 31, 2010 totaled $9,584,000, and the loans past-due ninety days or more and still accruing totaled $63,000.

The average recorded investment in nonaccrual loans and loans past-due ninety days or more and still accruing during the years ended December 31, 2011, 2010, and 2009 was approximately $9,369,000, $10,067,000 and $11,608,000, respectively. For the years ended December 31, 2011, 2010, 2009, the amount of interest income recognized on impaired loans was immaterial. The amount of interest income that would have been recognized on impaired loans using the Cash-basis would have been $272 thousand, $435 thousand, and $444 thousand for the period ended December 31, 2011, 2010 and 2009, respectively. The Corporation had no loan commitments to borrowers in non-accrual status at December 31, 2011 and 2010.

The following table provides additional detail of loans lines of $250,000 and greater and a sample of small loans, rated substandard or lower which were analyzed for impairment and reflects the breakdown according to class as of December 31, 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 December 31, 2011 and December 31, 2010, are on nonaccrual status, 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.

December 31, 2011							Average		Interest
							Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized
	Investment		Balance		Allowance		YTD		YTD
	(In thousands)
Loans analyzed for
impairment with
no related allowance:
Commercial, financial, and agricultural	$	513	$	513	$	-	$	488	$	27
Real estate-construction and development		18,210	$	18,210		-		18,439		869
Real estate-mortgage		5,278	$	6,076		-		7,948		356
Installment loans and other		-		-		-		-		-
Total	$	24,001	$	24,799	$	-	$	26,875	$	1,252
Loans analyzed for
impairment with
a related allowance:
Commercial, financial, and agricultural	$	100	$	100	$	33	$	117	$	5
Real estate-construction and development		6,151		6,201		1,291		6,279		159
Real estate-mortgage		6,170		6,170		853		6,247		286
Installment loans and other		193		208		82		238		18
Total	$	12,614	$	12,679	$	2,259	$	12,881	$	468
Total loans analyzed for
impairment:
Commercial, financial, and agricultural	$	613	$	613	$	33	$	605	$	32
Real estate-construction and development		24,361		24,411		1,291		24,718		1,028
Real estate-mortgage		11,448		12,246		853		14,195		642
Installment loans and other		193		208		82		238		18
Total Impaired Loans	$	36,615	$	37,478	$	2,259	$	39,756	$	1,720

December 31, 2010
							Average		Interest
							Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized
	Investment		Balance		Allowance		YTD		YTD
	(In thousands)
Loans analyzed for
impairment 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

Loans analyzed for
impairment 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 loans analyzed for
impairment
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 gross interest income that would have been recorded in the period that ended if the nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the period for December 31, 2011 and 2010, was $211 thousand and $453 thousand, respectively.

The following table summarizes for December 31, 2011 and December 31, 2010 by class our loans classified as past due in excess of 30 days or more in addition to those loans classified as nonaccrual:

December 31, 2011
			90 Days +				Total
		30-89	Past Due				Past Due
	Days Past		and Still		Nonaccrual		and		Total
	Due		Accruing		Loans		Nonaccrual		Loans
	(In thousands)

Commercial, financial	$	353	$	-	$	43	$	396	$	35,341
and agricultural
Real estate - construction
and development		510		-		4,592		5,102		51,725
Real estate - mortgage		2,704		-		2,814		5,518		124,994
Installment loans to individuals		1,199		-		88		1,287		18,871
Other		12		10		-		22		2,092
Total	$	4,778	$	10	$	7,537	$	12,325	$	233,023

December 31, 2010
			90 Days +				Total
		30-89	Past Due				Past Due
	Days Past		and Still		Non-Accrual		and		Total
	Due		Accruing		Loans		Nonaccrual		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 December 31, 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:

December 31, 2011

	Commercial,		Real Estate				Installment
	Financial		Commercial &		Real Estate		and
	and Agriculture		Development		Mortgage		Other		Total
	(In thousands)
Pass	$	28,716	$	22,698	$	96,474	$	19,852	$	167,740
Special Mention		5,491		4,732		8,137		446		18,806
Substandard		1,134		24,295		20,383		665		46,477
Doubtful		-		-		-		-		-
Total		35,341		51,725		124,994		20,963		233,023

December 31, 2010
	Commercial,		Real Estate				Installment
	Financial		Commercial &		Real Estate		and
	and Agriculture		Development		Mortgage		Other		Total
	(In thousands)
Pass	$	24,093	$	15,545	$	107,179	$	21,514	$	168,331
Special Mention		7,811		10,261		10,329		643		29,044
Substandard		1,443		30,867		17,456		623		50,389
Doubtful		-		-		-		-		-
Total		33,347		56,673		134,964		22,780		247,764