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 June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Balance, beginning of period	$	6,752		$	7,917		$	8,813		$	7,995
Provision for loan losses		900			1,500			2,500			2,650
Recoveries		122			99			208			151
Loans charged-off		(461	)		(1,045	)		(4,208	)		(2,325	)
Balance, end of period	$	7,313		$	8,471		$	7,313		$	8,471

The Company's loans individually evaluated for impairment were approximately $14.7 million at June 30, 2011 and $25.2 million at December 31, 2010. Specific reserves totaling $825,000 were established for $4.9 million of impaired loans reported at June 30, 2011. At December 31, 2010, specific reserves totaling $3.1 million were established for $11.9 million of impaired loans. Interest recognized on impaired loans totaled $172,000 at June 30, 2011. Loans classified as TDRs totaled $463,000 and $653,000 at June 30, 2011 and December 31, 2010, respectively. Four commercial loans were classified as TDRs due to a reduction in monthly payments granted to the borrowers and one small consumer loan was classified as a TDR due to a credit exception granted to the borrower. As of June 30, 2011, there have been no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs.

To provide greater transparency on non-performing assets, additional disclosures required by ASU 2010-20 have been included below. Allowance for loan losses is reported by portfolio segment and further detail of credit quality indicators are provided by class of loans.

Modifications by Class of Loans (in thousands)

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructuring as of June 30, 2011:
Commercial, financial, and agricultural		4	$	451	$	451
Consumer - other		1		12		12
			$	463	$	463

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructuring as of December 31, 2010:
Commercial, financial, and agricultural		1	$	194	$	194
Commercial real estate - other		1		446		446
Consumer - other		1		13		13
			$	653	$	653

Allowance for Loan Losses and Recorded Investment in Loans

For the Six Months Ended June 30, 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		(437	)		(2,072	)		(1,215	)		(185	)		(298	)		(1	)		-		(4,208	)
Recoveries		106			13			-			4			85			-			-		208
Provision		634			825			522			178			337			4			-		2,500
Ending balance	$	1,967		$	1,729		$	1,872		$	859		$	854		$	32		$	-	$	7,313
Ending balance: individually evaluated for impairment	$	414		$	285		$	8		$	16		$	102		$	-		$	-	$	825

Loans:
Ending balance	$	194,136		$	46,608		$	213,007		$	71,589		$	56,768		$	4,660		$	644	$	587,412
Ending balance: individually evaluated for impairment	$	3,042		$	7,522		$	2,224		$	1,616		$	248		$	18		$	15	$	14,685

Allowance for Loan Losses and Recorded Investment in Loans

For the Year Ended December 31, 2010 (in thousands)

				Real Estate
	Coml, Fin, and Agric			Construction			Commercial			Residential			Consumer			Finance Leases Coml			Other		Total
Allowance for loan losses:
Beginning balance	$	2,105		$	2,240		$	1,683		$	631		$	1,315		$	21		$	-	$	7,995
Charge-offs		(1,333	)		(1,478	)		(130	)		(146	)		(1,368	)		(1	)		-		(4,456	)
Recoveries		50			1			1			60			141			1			-		254
Provision		842			2,200			1,011			317			642			8			-		5,020
Ending balance	$	1,664		$	2,963		$	2,565		$	862		$	730		$	29		$	-	$	8,813
Ending balance: individually evaluated for impairment	$	27		$	2,024		$	827		$	84		$	91		$	-		$	-	$	3,053

Loans:
Ending balance	$	177,598		$	54,164		$	208,764		$	72,460		$	62,272		$	4,748		$	806	$	580,812
Ending balance: individually evaluated for impairment	$	3,549		$	10,813		$	8,780		$	1,761		$	275		$	-		$	-	$	25,178

Credit Quality Indicators by Class of Loans

As of June 30, 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	$	183,907	$	29,246	$	198,232	$	411,385		91.5	%
Special Mention		3,169		3,680		4,935		11,784		2.6	%
Substandard		7,060		9,338		9,840		26,238		5.9	%
	$	194,136	$	42,264	$	213,007	$	449,407		100.0	%

Residential Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Residential - Construction		Residential - Prime		Residential - Subprime		Residential Total		% of Total Residential
Pass	$	4,130	$	66,852	$	-	$	70,982		93.5	%
Special mention		-		2,087		-		2,087		2.7	%
Substandard		214		2,650		-		2,864		3.8	%
	$	4,344	$	71,589	$	-	$	75,933		100.0	%


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	$	4,993	$	51,490	$	4,642	$	644	$	61,769		99.5	%
Nonperforming		10		275		18		-		303		0.5	%
	$	5,003	$	51,765	$	4,660	$	644	$	62,072		100.0	%

Credit Quality Indicators by Class of Loans
As of December 31, 2010 (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	$	165,581	$	32,061	$	191,089	$	388,731		89.50	%
Special Mention		3,661		3,851		3,726		11,238		2.59	%
Substandard		8,356		12,077		13,949		34,382		7.91	%
	$	177,598	$	47,989	$	208,764	$	434,351		100.0	%

Residential Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Residential - Construction		Residential - Prime		Residential - Subprime		Residential Total		% of Total Residential
Pass	$	5,959	$	66,867	$	-	$	72,826		92.61	%
Special mention		-		2,501		-		2,501		3.18	%
Substandard		216		3,092		-		3,308		4.21	%
	$	6,175	$	72,460	$	-	$	78,635		100.0	%

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	$	5,318	$	56,905	$	4,748	$	806	$	67,777		99.93	%
Nonperforming		-		49		-		-		49		0.07	%
	$	5,318	$	56,954	$	4,748	$	806	$	67,826		100.0	%

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 June 30, 2011
Commercial, financial, and agricultural	$	1,137	$	41	$	2,479	$	3,657	$	190,479	$	194,136	$	37
Commercial real estate - construction		52		50		4,398		4,500		37,764		42,264		-
Commercial real estate - other		1,570		185		1,134		2,889		210,118		213,007		-
Consumer - credit card		17		-		5		22		4,981		5,003		5
Consumer - other		183		80		235		498		51,267		51,765		27
Residential - construction		-		-		-		-		4,344		4,344		-
Residential - prime		917		135		649		1,701		69,888		71,589		-
Residential - subprime		-		-		-		-		-		-		-
Other loans		69		-		15		84		560		644		-
Finance leases commercial		4		-		18		22		4,638		4,660		-
	$	3,949	$	491	$	8,933	$	13,373	$	574,039	$	587,412	$	69

	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 December 31, 2010
Commercial, financial, and agricultural	$	1,298	$	114	$	2,405	$	3,817	$	173,781	$	177,598	$	17
Commercial real estate - construction		3,334		-		3,324		6,658		41,331		47,989		-
Commercial real estate - other		642		6,579		1,234		8,455		200,309		208,764		-
Consumer - credit card		50		23		-		73		5,245		5,318		-
Consumer - other		407		79		280		766		56,188		56,954		49
Residential - construction		-		-		-		-		6,175		6,175		-
Residential - prime		1,023		22		1,155		2,200		70,260		72,460		-
Residential - subprime		-		-		-		-		-		-		-
Other loans		102		3		-		105		701		806		-
Finance leases commercial		-		-		-		-		4,748		4,748		-
	$	6,856	$	6,820	$	8,398	$	22,074	$	558,738	$	580,812	$	66

(1)

Past due amounts may include loans on nonaccrual status.

Impaired Loans (in thousands)

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of June 30, 2011
With no related allowance recorded:
Commercial, financial, and agricultural	$	1,450	$	1,568	$	-	$	1,822	$	9
Commercial real estate – construction		4,844		6,554		-		6,160		99
Commercial real estate – other		2,044		2,124		-		4,884		18
Consumer – other		50		58		-		77		-
Residential – prime		1,375		1,375		-		1,578		22
Finance leases		18		19		-		9		-
Other		15		15		-		8		2
Subtotal:	$	9,796	$	11,713	$	-	$	14,538	$	150
With an allowance recorded:
Commercial		1,592		1,592		414		1,358		16
Commercial real estate – construction		2,678		5,698		285		1,339		-
Commercial real estate – other		180		180		8		180		-
Consumer – other		198		203		102		183		2
Residential – prime		241		241		16		232		4
Subtotal:	$	4,889	$	7,914	$	825	$	3,292	$	22
Totals:
Commercial		12,821		17,750		707		15,760		144
Consumer		248		261		102		260		2
Residential		1,616		1,616		16		1,810		26
Grand total:	$	14,685	$	19,627	$	825	$	17,830	$	172

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of December 31, 2010
With no related allowance recorded:
Commercial, financial, and agricultural	$	3,291	$	3,538	$	-	$	4,036	$	85
Commercial real estate – construction		5,918		9,175		-		5,584		179
Commercial real estate – other		2,407		2,487		-		1,941		114
Consumer – other		90		90		-		80		8
Residential – prime		1,549		1,549		-		1,166		77
Subtotal:	$	13,255	$	16,839	$	-	$	12,807	$	463
With an allowance recorded:
Commercial		258		258		27		1,671		6
Commercial real estate – construction		4,895		4,895		2,024		4,098		140
Commercial real estate – other		6,373		6,373		827		6,632		2
Consumer – other		185		185		91		262		3
Residential – prime		212		212		84		320		12
Subtotal:	$	11,923	$	11,923	$	3,053	$	12,983	$	163
Totals:
Commercial		23,142		26,726		2,878		23,962		526
Consumer		275		275		91		342		11
Residential		1,761		1,761		84		1,486		89
Grand total:	$	25,178	$	28,762	$	3,053	$	25,790	$	626


Loans on Nonaccrual Status (in thousands)

	June 30, 2011		December 31, 2010
Commercial, financial, and agricultural	$	2,591	$	2,589
Commercial real estate - construction		4,993		8,220
Commercial real estate - other		1,571		7,378
Consumer - credit card		-		-
Consumer - other		235		261
Residential - construction		-		-
Residential - prime		1,033		1,155
Residential - subprime		-		-
Other loans		15		-
Finance leases commercial		18		-
	$	10,456	$	19,603