4. Credit Quality of Loans and Allowance for Loan Losses

The allowance for loan losses and recorded investment in loans as of the dates indicated are as follows:

	As of March 31, 2013
(in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Loans Acquired with Deteriorated Credit Quality		Total
Allowance for loan losses:
Commercial, financial, agriculture	$	1,115	$	467	$	-	$	1,582
Real estate – construction		2,212		51		-		2,263
Commercial real estate		2,252		21		-		2,273
Residential real estate		827		42		-		869
Consumer		319		106		-		425
Financial leases		42		-		-		42
Other		3		-		-		3
Total allowance for loan losses	$	6,770	$	687	$	-	$	7,457

	As of March 31, 2013
(in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Loans Acquired with Deteriorated Credit Quality		Total
Loans:
Commercial, financial, agriculture	$	313,677	$	1,648	$	72	$	315,397
Real estate – construction		81,673		835		-		82,508
Commercial real estate		399,117		2,688		3,900		405,705
Residential real estate		136,797		1,205		282		138,284
Consumer		88,643		255		-		88,898
Financial leases		4,962		-		-		4,962
Other		2,105		-		-		2,105
Total loans	$	1,026,974	$	6,631	$	4,254	$	1,037,859

	As of December 31, 2012
(in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Loans Acquired with Deteriorated Credit Quality		Total
Allowance for loan losses:
Commercial, financial, agriculture	$	1,144	$	391	$	-	$	1,535
Real estate – construction		2,090		57		-		2,147
Commercial real estate		2,131		35		-		2,166
Residential real estate		906		30		-		936
Consumer		429		114		-		543
Financial leases		41		-		-		41
Other		2		-		-		2
Total allowance for loan losses	$	6,743	$	627	$	-	$	7,370

	As of December 31, 2012
(in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Loans Acquired with Deteriorated Credit Quality		Total
Loans:
Commercial, financial, agriculture	$	313,937	$	1,636	$	82	$	315,655
Real estate – construction		74,398		936		-		75,334
Commercial real estate		407,489		2,911		3,984		414,384
Residential real estate		140,776		1,627		455		142,858
Consumer		90,231		330		-		90,561
Financial leases		5,769		-		-		5,769
Other		2,379		-		-		2,379
Total loans	$	1,034,979	$	7,440	$	4,521	$	1,046,940

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 March 31, 2013, 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 $144.1 million, or 13.9% of total loans. Additionally, the Company's exposure to loans secured by commercial real estate is monitored. At March 31, 2013, loans secured by commercial real estate (including commercial construction, farmland and multifamily loans) totaled approximately $470.8 million. Of the $470.8 million, $348.5 million represent CRE loans, 58.2% of which are secured by owner-occupied commercial properties. Of the $470.8 million in loans secured by commercial real estate, $3.6 million, or 0.8%, were on nonaccrual status at March 31, 2013.

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 March 31, 2013:
Commercial, financial, and agricultural		4	$	412	$	370
Real Estate - commercial		3		4,983		4,662
			$	5,395	$	5,032

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings as of December 31, 2012:
Commercial, financial, and agricultural		3	$	370	$	353
Real Estate – commercial		3		4,983		4,709
			$	5,353	$	5,062

Trouble Debt Restructurings that Subsequently Defaulted (in thousands)

	March 31, 2013				March 31, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial, financial, and agricultural		4	$	259		3	$	251

One loan with a pre-modification balance of $27,000 was identified as a TDR and no additional defaults on TDRs were recorded during the three months ended March 31, 2013. 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 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 March 31, 2013, there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs.

For the Three Months Ended March 31, 2013 (in thousands)
				Real Estate
	Coml, Fin, and Agric			Construction		Commercial			Residential			Consumer			Finance Leases Coml		Other		Total
Allowance for loan losses:
Beginning balance	$	1,535		$	2,147	$	2,166		$	936		$	543		$	41	$	2	$	7,370
Charge-offs		(181	)		-		(18	)		(109	)		(216	)		-		-		(524	)
Recoveries		16			5		10			1			29			-		-		61
Provision		212			111		115			41			69			1		1		550
Ending balance	$	1,582		$	2,263	$	2,273		$	869		$	425		$	42	$	3	$	7,457
Ending balance: individually evaluated for impairment	$	467		$	51	$	21		$	42		$	106		$	-	$	-	$	687

Loans:
Ending balance	$	315,397		$	82,508	$	405,705		$	138,284		$	88,898		$	4,962	$	2,105	$	1,037,859
Ending balance: individually evaluated for impairment,	$	1,648		$	835	$	2,688		$	1,205		$	255		$	-	$	-	$	6,631

Allowance for Loan Losses and Recorded Investment in Loans

For the Year Ended December 31, 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		(1,054	)		-		(550	)		(126	)		(526	)		-		-		(2,256	)
Recoveries		181			18		1			2			98			-		-		300
Provision		674			468		500			124			261			22		1		2,050
Ending balance	$	1,535		$	2,147	$	2,166		$	936		$	543		$	41	$	2	$	7,370
Ending balance: individually evaluated for impairment	$	391		$	57	$	35		$	30		$	114		$	-	$	-	$	627

Loans:
Ending balance	$	315,655		$	75,334	$	414,384		$	142,858		$	90,561		$	5,769	$	2,379	$	1,046,940
Ending balance: individually evaluated for impairment	$	1,636		$	936	$	2,911		$	1,627		$	330		$	-	$	-	$	7,440

As of March 31, 2013 (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	$	308,294	$	62,579	$	380,402	$	751,275		95.55	%
Special mention		2,897		663		13,729		17,289		2.20	%
Substandard		3,887		1,888		6,816		12,591		1.60	%
Doubtful		319		3		4,758		5,080		0.65	%
	$	315,397	$	65,133	$	405,705	$	786,235		100.00	%

Residential Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Residential Construction		Residential Prime		Residential Subprime		Residential Total		% of Total Residential
Pass	$	17,139	$	133,525	$	-	$	150,664		96.79	%
Special mention		-		1,398		-		1,398		0.90	%
Substandard		236		3,361		-		3,597		2.31	%
	$	17,375	$	138,284	$	-	$	155,659		100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer Credit Card		Consumer Other		Finance Leases Commercial		Other Loans		Total		% of Total
Performing	$	5,892	$	82,722	$	4,962	$	2,105	$	95,681		99.70	%
Nonperforming		29		255		-		-		284		0.30	%
	$	5,921	$	82,977	$	4,962	$	2,105	$	95,965		100.00	%

Credit Quality Indicators by Class of Loans
As of December 31, 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	$	304,219	$	54,737	$	396,077	$	755,033		95.76	%
Special Mention		5,748		684		6,224		12,656		1.61	%
Substandard		4,503		2,925		7,514		14,942		1.90	%
Doubtful		1,185		4		4,569		5,758		0.73	%
	$	315,655	$	58,350	$	414,384	$	788,389		100.00	%

Residential Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Residential Construction		Residential Prime		Residential Subprime		Residential Total		% of Total Residential
Pass	$	16,785	$	137,681	$	-	$	154,466		96.64	%
Special mention		-		1,612		-		1,612		1.01	%
Substandard		199		3,565		-		3,764		2.35	%
	$	16,984	$	142,858	$	-	$	159,842		100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer Credit Card		Consumer Other		Finance Leases Commercial		Other Loans		Total		% of Total
Performing	$	6,792	$	83,347	$	5,769	$	2,379	$	98,287		99.57	%
Nonperforming		15		407		-		-		422		0.43	%
	$	6,807	$	83,754	$	5,769	$	2,379	$	98,709		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 March 31, 2013
Commercial, financial, and agricultural	$	1,011	$	51	$	1,669	$	2,731	$	312,666	$	315,397	$	141
Commercial real estate – construction		229		537		188		954		64,179		65,133		-
Commercial real estate – other		1,663		176		2,449		4,288		401,417		405,705
Consumer - credit card		37		3		-		40		5,881		5,921		-
Consumer - other		361		97		142		600		82,377		82,977		22
Residential – construction		-		-		-		-		17,375		17,375		-
Residential – prime		2,000		124		1,251		3,375		134,909		138,284		-
Residential – subprime		-		-		-		-		-		-		-
Other loans		78		7		-		85		2,020		2,105		-
Finance leases commercial		4		-		-		4		4,958		4,962		-
	$	5,383	$	995	$	5,699	$	12,077	$	1,025,782	$	1,037,859	$	163

	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, 2012
Commercial, financial, and agricultural	$	2,220	$	321	$	2,580	$	5,121	$	310,534	$	315,655	$	1,019
Commercial real estate - construction		66		96		101		263		58,087		58,350		-
Commercial real estate - other		4,131		2,108		3,577		9,816		404,568		414,384		952
Consumer - credit card		24		2		15		41		6,766		6,807		15
Consumer - other		421		134		186		741		83,013		83,754		-
Residential - construction		-		-		-		-		16,984		16,984		-
Residential - prime		1,140		317		1,408		2,865		139,993		142,858		-
Residential - subprime		-		-		-		-		-		-		-
Other loans		87		-		-		87		2,292		2,379		-
Finance leases commercial		-		-		-		-		5,769		5,769		-
	$	8,089	$	2,978	$	7,867	$	18,934	$	1,028,006	$	1,046,940	$	1,986

(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 March 31, 2013
With no related allowance recorded:
Commercial, financial, and agricultural	$	590	$	701	$	-	$	577	$	-
Commercial real estate – construction		676		676		-		723		-
Commercial real estate – other		2,485		3,015		-		2,508		6
Consumer – other		51		59		-		82		-
Residential – prime		909		909		-		1,242		2
Subtotal:	$	4,711	$	5,360	$	-	$	5,132	$	8
With an allowance recorded:
Commercial, financial, and agricultural		1,058		1,058		467		1,065		1
Commercial real estate – construction		159		159		51		162		-
Commercial real estate – other		203		203		21		292		-
Consumer – other		204		204		106		210		-
Residential – prime		296		296		42		174		-
Subtotal:	$	1,920	$	1,920	$	687	$	1,903	$	1
Totals:
Commercial		5,171		5,812		539		5,327		7
Consumer		255		263		106		292		-
Residential		1,205		1,205		42		1,416		2
Grand total:	$	6,631	$	7,280	$	687	$	7,035	$	9

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
As of December 31, 2012
With no related allowance recorded:
Commercial, financial, and agricultural	$	564	$	675	$	-	$	861	$	5
Commercial real estate – construction		771		770		-		834		1
Commercial real estate – other		2,530		3,059		-		1,780		38
Consumer – other		114		122		-		81		1
Residential – prime		1,575		1,575		-		1,213		26
Finance leases commercial		-		-		-		-		-
Other loans		-		-		-		-		-
Subtotal:	$	5,554	$	6,201	$	-	$	4,769	$	71
With an allowance recorded:
Commercial, financial, and agricultural		1,072		1,072		391		1,128		21
Commercial real estate – construction		165		165		57		85		7
Commercial real estate – other		381		381		35		811		3
Consumer – other		216		216		114		228		6
Residential – prime		52		52		30		172		4
Subtotal:	$	1,886	$	1,886	$	627	$	2,424	$	41
Totals:
Commercial		5,483		6,122		483		5,499		75
Consumer		330		338		114		309		7
Residential		1,627		1,627		30		1,385		30
Other		-		-		-		-		-
Grand total:	$	7,440	$	8,087	$	627	$	7,193	$	112

Loans on Nonaccrual Status (in thousands)
	March 31, 2013		December 31, 2012
Commercial, financial, and agricultural	$	1,856	$	2,015
Commercial real estate – construction		838		941
Commercial real estate - other		2,783		3,017
Consumer - credit card		-		-
Consumer - other		292		409
Residential - construction		-		-
Residential - prime		1,757		2,505
Residential - subprime		-		-
Other loans		-		-
Finance leases commercial		-		-
	$	7,526	$	8,887

The amount of interest that would have been recorded on nonaccrual loans, had the loans not been classified as nonaccrual, totaled approximately $148,000 and $177,000 for the three months ended March 31, 2013 and 2012, respectively. Interest actually received on nonaccrual loans at March 31, 2013 and 2012 was $36,000 and $20,000, respectively.