Edgar Filing: SIERRA BANCORP

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

Commission file number: 000-33063

SIERRA BANCORP

(Exact name of Registrant as specified in its charter)

California	33-0937517
(State of Incorporation)	(IRS Employer Identification No)

86 North Main Street, Porterville, California 93257

(Address of principal executive offices) (Zip Code)

(559) 782-4900

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes R No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes R No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ¨	Accelerated filer R
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller Reporting Company ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No R

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, no par value, 14,101,259 shares outstanding as of October 31, 2011

FORM 10-Q

Table of Contents

		Page
Part I - Financial Information		1
Item 1. Financial Statements (Unaudited)		1
Consolidated Balance Sheets		1
Consolidated Statements of Income		2
Consolidated Statements of Cash Flows		3
Notes to Unaudited Consolidated Financial Statements		4

Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations		21
Forward-Looking Statements		21
Critical Accounting Policies		21
Overview of the Results of Operations and Financial Condition		22
Earnings Performance		24
Net Interest Income and Net Interest Margin		24
Provision for Loan and Lease Losses		28
Non-interest Revenue and Operating Expense		29
Provision for Income Taxes		33
Balance Sheet Analysis		33
Earning Assets		33
Investments		33
Loan Portfolio		34
Nonperforming Assets		36
Allowance for Loan and Lease Losses		37
Off-Balance Sheet Arrangements		39
Other Assets		39
Deposits and Interest-Bearing Liabilities		40
Deposits		40
Other Interest-Bearing Liabilities		42
Non-Interest Bearing Liabilities		42
Liquidity and Market Risk Management		42
Capital Resources		45

Item 3. Qualitative & Quantitative Disclosures about Market Risk		46

Item 4. Controls and Procedures		46

Part II - Other Information		47
Item 1. - Legal Proceedings		47
Item 1A. - Risk Factors		47
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 3. - Defaults upon Senior Securities		47
Item 4. - (Removed and Reserved)		47
Item 5. - Other Information		47
Item 6. - Exhibits		48

Signatures		49

PART I - FINANCIAL INFORMATION

Item 1

SIERRA BANCORP

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	September 30, 2011			December 31, 2010
	(unaudited)			(audited)
ASSETS
Cash and due from banks	$	40,612		$	42,110
Interest-bearing deposits in other banks		17,693			325
Federal funds sold		-			210
Total Cash & Cash Equivalents		58,305			42,645

Investment securities available for sale		429,828			331,730

Loans and leases:
Loans held for sale		855			914
Gross loans and leases		757,784			804,626
Allowance for loan and lease losses		(20,492	)		(21,138	)
Deferred loan and lease fees, net		403			113
Net Loans and Leases		738,550			784,515

Premises and equipment, net		19,455			20,190
Operating leases, net		507			904
Foreclosed assets		18,185			20,691
Goodwill		5,544			5,544
Other assets		80,868			80,352
TOTAL ASSETS	$	1,351,242		$	1,286,571

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing	$	286,474		$	251,908
Interest bearing		807,145			800,366
Total Deposits		1,093,619			1,052,274
Federal funds purchased and repurchase agreements		4,633			-
Short-term borrowings		25,000			14,650
Long-term borrowings		15,000			15,000
Other liabilities		13,737			14,122
Junior subordinated debentures		30,928			30,928
TOTAL LIABILITIES		1,182,917			1,126,974

SHAREHOLDERS' EQUITY
Serial Preferred stock, no par value; 10,000,000 shares authorized; none issued		-			-
Common stock, no par value; 24,000,000 shares authorized; 14,062,259 and 13,976,741 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively		56,624			63,477
Additional paid in capital		9,316			1,652
Retained earnings		97,288			93,570
Accumulated other comprehensive income		5,097			898
TOTAL SHAREHOLDERS' EQUITY		168,325			159,597

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,351,242		$	1,286,571

The accompanying notes are an integral part of these consolidated financial statements

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data, unaudited)

	For the Quarter					For the Nine Months
	Ended September 30,					Ended September 30,
	2011		2010			2011		2010
Interest income:
Interest and fees on loans	$	11,780	$	13,074		$	35,480	$	40,147
Interest on investment securities:
Taxable		2,420		2,131			6,621		6,282
Tax-exempt		716		695			2,153		2,012
Interest on federal funds sold and interest-bearing Deposits		23		8			56		30
Total interest income		14,939		15,908			44,310		48,471

Interest expense:
Interest on deposits		1,063		1,496			3,279		4,825
Interest on short-term borrowings		7		49			46		141
Interest on long-term borrowings		143		143			425		461
Interest on manditorily redeemable trust preferred securities		179		198			540		553
Total interest expense		1,392		1,886			4,290		5,980

Net Interest Income		13,547		14,022			40,020		42,491

Provision for loan losses		3,000		6,380			9,600		13,280

Net Interest Income after Provision for Loan Losses		10,547		7,642			30,420		29,211

Non-interest revenue:
Service charges on deposit accounts		2,439		2,959			7,140		8,549
Gains on investment securities available-for-sale		-		2,639			-		2,639
Other		930		1,455			3,278		3,715
Total other operating income		3,369		7,053			10,418		14,903

Other operating expense:
Salaries and employee benefits		4,849		4,582			15,760		15,511
Occupancy expense		1,787		1,774			4,987		5,332
Other		3,932		8,239			13,078		17,473
Total other operating expenses		10,568		14,595			33,825		38,316

Income before income taxes		3,348		100			7,013		5,798

Provision for income taxes		822		(787	)		774		27

Net Income	$	2,526	$	887		$	6,239	$	5,771

PER SHARE DATA
Book value	$	11.97	$	11.88		$	11.97	$	11.88
Cash dividends	$	0.06	$	0.06		$	0.18	$	0.18
Earnings per share basic	$	0.18	$	0.08		$	0.45	$	0.50
Earnings per share diluted	$	0.18	$	0.08		$	0.44	$	0.49
Average shares outstanding, basic		14,051,614		11,650,137			14,015,583		11,642,517
Average shares outstanding, diluted		14,097,368		11,738,067			14,081,936		11,728,261

The accompanying notes are an integral part of these consolidated financial statements

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands, unaudited)

	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:

Net income	$	6,239		$	5,771
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on investment of securities		-			(2,639	)
Gain on sales of loans		(93	)		(60	)
Gain on disposal of fixed assets		(12	)		(108	)
Loss on sale on foreclosed assets		569			446
Writedown on foreclosed assets		1,656			4,473
Share-based compensation expense		166			98
Provision for loan losses		9,600			13,280
Depreciation and amortization		1,971			2,237
Net amortization on securities premiums and discounts		4,031			2,249
Increase in unearned net loan fees		(291	)		(590	)
Increase in cash surrender value of life insurance policies		(5,538	)		(1,022	)
Proceeds from sales of loans portfolio		3,440			1,225
Net Decrease in loans held-for-sale		59			56
Decrease (Increase) in interest receivable and other assets		1,362			(1,146	)
Decrease in other liabilities		(389	)		(851	)
Net Decrease in Restricted Stock, at Cost		996			667
Deferred income tax benefit		(105	)		(143	)
Excess tax provision (benefit) from equity based compensation		4			(15	)
Net cash provided by operating activities		23,665			23,928

Cash flows from investing activities:
Maturities of securities available for sale		2,664			6,251
Proceeds from sales/calls of securities available for sale		3,119			74,183
Purchases of securities available for sale		(154,229	)		(169,921	)
Principal paydowns on securities available for sale		53,430			49,951
Decrease in loans receivable, net		28,709			29,262
Purchases of premises and equipment, net		(830	)		(1,767	)
Proceeds from sales of foreclosed assets		4,681			4,520
Net cash used in investing activities		(62,456	)		(7,521	)

Cash flows from financing activities:
Increase (Decrease) in deposits		41,345			(35,877	)
Increase (Decrease) in borrowed funds		10,350			(2,740	)
Increase in repurchase agreements		4,633			-
Cash dividends paid		(2,522	)		(2,097	)
Payments of stock issuance costs		(23	)		-
Stock options exercised		672			229
Excess tax (benefit) provision from equity based compensation		(4	)		15
Net cash provided by (used in) financing activities		54,451			(40,470	)

Increase (Decrease) in cash and due from banks		15,660			(24,063	)

Cash and Cash Equivalents
Beginning of period		42,645			66,234
End of period	$	58,305		$	42,171

The accompanying notes are an integral part of these consolidated financial statements

SIERRA BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011

Note 1 – The Business of Sierra Bancorp

Sierra Bancorp (the “Company”), headquartered in Porterville, California, is a California corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. The Company was incorporated in November 2000 and acquired all of the outstanding shares of Bank of the Sierra (the “Bank”) in August 2001. The Company’s principal subsidiary is the Bank, and the Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. At the present time, the Company’s only other direct subsidiaries are Sierra Statutory Trust II and Sierra Capital Trust III, which were formed in March 2004 and June 2006, respectively, solely to facilitate the issuance of capital trust pass-through securities. Pursuant to the Financial Accounting Standards Board’s (FASB’s) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the financial statements of the Company. References herein to the “Company” include Sierra Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise.

The Bank is a California state-chartered bank headquartered in Porterville, California, that offers a full range of retail and commercial banking services to communities in the central and southern sections of the San Joaquin Valley. Our branch footprint stretches from Fresno on the north to Bakersfield on the south, and on the southern end extends east through the Tehachapi plateau and into the northwestern tip of the Mojave Desert. The Bank was incorporated in September 1977 and opened for business in January 1978, and in the ensuing years has grown to be the largest independent bank headquartered in the South San Joaquin Valley. Our growth has primarily been organic, but includes the acquisition of Sierra National Bank in 2000. We currently operate 25 full service branch offices throughout our geographic footprint, as well as an internet branch which provides the ability to open deposit accounts and submit certain loan applications online. The Bank’s newest “brick and mortar” branches opened for business in Selma in February 2011 and Farmersville in March 2010. In January 2011 we closed our first branch ever, in Bakersfield on California Avenue due to lease issues, and we are currently searching for a suitable location to replace that branch. In addition to our full-service branches, the Bank has an agricultural credit division and an SBA lending unit with staff located at our corporate headquarters, and offsite ATM’s at eight different non-branch locations. The Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to maximum insurable amounts.

Note 2 – Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in a condensed format, and therefore do not include all of the information and footnotes required by U.S. generally accepted accounting principles (GAAP) for complete financial statements. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for such period. Such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. In preparing the accompanying consolidated financial statements, management has taken subsequent events into consideration and recognized them where appropriate. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter, or for the full year. Certain amounts reported for 2010 have been reclassified to be consistent with the reporting for 2011. The interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission.

Note 3 – Current Accounting Developments

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, Intangibles—Goodwill and Other (Topic 350) - Testing Goodwill for Impairment. The objective of ASU 2011-08 is to simplify how entities test goodwill for impairment. Topic 350 requires an entity to test goodwill for impairment on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Pursuant to ASU 2011-08, an entity will not be required to calculate the fair value of a reporting unit and perform step one unless, after assessing qualitative factors, the entity determines that it is more likely than not that its fair value is less than its carrying amount. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. This update is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. Management expects that the adoption of ASU 2011-08 will not have an impact on the Company’s financial statements, as the Company has not yet been required to perform the second step of the goodwill impairment test since the first step has, thus far, always determined that the fair value of the reporting unit, Bank of the Sierra, is greater than its carrying amount.

In June 2011, the Financial FASB issued ASU 2011-05, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income. Current U.S. generally accepted accounting principles allow reporting entities several alternatives for displaying other comprehensive income and its components in financial statements, and ASU 2011-05 is intended to improve the consistency of this reporting issue. The amendments in this ASU require all non-owner changes in stockholders’ equity to be presented either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. Furthermore, the entity is required to present, on the face of the financial statements, adjustments for items that are reclassified from other comprehensive income to net income in the statements, where the components of net income and the components of other comprehensive income are presented. The amendments in the ASU do not change the following: 1) items that must be reported in other comprehensive income; 2) when an item of other comprehensive income must be reclassified to net income; 3) the option to present components of other comprehensive income either net of related tax effects or before related tax effects; or, 4) how earnings per share is calculated or presented. The amendments in ASU 2011-05 should be applied retrospectively. For public entities, such as the Company, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company’s adoption of this ASU will impact our presentation of comprehensive income, but not the calculation of such.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, to substantially converge the fair value measurement and disclosure guidance in U.S. GAAP with International Financial Reporting Standards (“IFRS”). The amended guidance changes several aspects of current fair value measurement guidance, including the following provisions: 1) the application of the concepts of “highest and best use” and “valuation premise”; 2) the introduction of an option to measure groups of offsetting assets and liabilities on a net basis; 3) the incorporation of certain premiums and discounts in fair value measurements; and, 4) the measurement of the fair value of certain instruments classified in shareholders’ equity. In addition, the amended guidance includes several new fair value disclosure requirements, including, among other things, information about valuation techniques and unobservable inputs used in Level 3 fair value measurements and a narrative description of Level 3 measurements’ sensitivity to changes in unobservable inputs. For public entities such as the Company, the provisions of ASU 2011-04 are effective for interim and annual periods beginning after December 15, 2011, and are to be applied prospectively. The implementation of ASU 2011-04 is not expected to change fair value measurements for any of the Company’s assets or liabilities carried at fair value, and thus should not impact the Company’s statements of income and condition.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, in an effort to improve financial reporting by creating greater consistency in the way GAAP is applied for various types of debt restructurings. ASU 2011-02 is intended to assist creditors in determining whether a modification of the terms of a loan meets the criteria to be considered a troubled debt restructuring (“TDR”), both for purposes of recording an impairment loss and for disclosure of TDR’s. In evaluating whether a restructuring constitutes a TDR, a creditor must separately conclude that both of the following exist: 1) the restructuring constitutes a concession; and 2) the debtor is experiencing financial difficulties. The amendments to Topic 310 clarify the guidance on a creditor’s evaluation of whether it has granted a concession, and likewise clarify the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties. In addition, the amendments to Topic 310 preclude creditors from using the effective interest rate test in the debtor’s guidance on restructuring of payables (paragraph 470-60-55-10) when evaluating whether a restructuring constitutes a TDR. For public companies, such as Sierra Bancorp, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Early adoption is permitted, and the Company adopted the provisions of ASU 2011-02 for the reporting period ended June 30, 2011. There was a total of $552,000 in loan balances that were added to performing TDR’s at June 30, 2011 as a direct result of the Company’s adoption of ASU 2011-02, with only a negligible impact on our allowance for loan and lease losses.

In July 2010, the FASB updated disclosure requirements with respect to the credit quality of financing receivables and the allowance for credit losses. According to the guidance, there are two levels of detail at which credit information must be presented - the portfolio segment level and class level. The portfolio segment level is defined as the level where financing receivables are aggregated in developing a company’s systematic method for calculating its allowance for credit losses. The class level is the second level at which credit information will be presented, and represents the categorization of financing receivables at a slightly less aggregated level than the portfolio segment level. Companies are required to provide the following disclosures as a result of this update: A roll-forward of the allowance for credit losses at the portfolio segment level, with the ending balances further categorized according to impairment method along with the balance reported in the related financing receivables at period-end; additional disclosures of nonaccrual and impaired financing receivables by class as of period-end; credit quality and past due/aging information by class as of period-end; information surrounding the nature and extent of loan modifications and troubled-debt restructurings and their effect on the allowance for credit losses during the period; and details on any significant purchases or sales of financing receivables during the period. The increased period-end disclosure requirements became effective for periods ending on or after December 15, 2010, with the exception of the additional period-end disclosures surrounding troubled-debt restructurings which were deferred in December 2010 and became effective for annual and interim reporting periods ending on or after June 15, 2011. The increased disclosures for activity within a reporting period become effective for periods beginning on or after June 15, 2011, with retrospective application to January 1, 2011. The provisions of this FASB update expanded the Company’s current disclosures with respect to our allowance for loan and lease losses and the credit quality of our financing receivables.

Note 4 – Supplemental Disclosure of Cash Flow Information

During the nine months ended September 30, 2011 and 2010, cash paid for interest due on interest-bearing liabilities was $3.991 million and $6.522 million, respectively. There was also $1.643 million in cash paid for income taxes during the nine months ended September 30, 2011, and $5.360 million in cash paid for income taxes during the nine months ended September 30, 2010. Assets totaling $4.663 million and $14.068 million were acquired in settlement of loans for the nine months ended September 30, 2011 and September 30, 2010, respectively, and we received $4.285 million in cash from the sale of foreclosed assets during the first nine months of 2011 relative to $4.520 million during the first nine months of 2010. The Company extended $1.506 million in loans to finance the sale of foreclosed assets during the nine months ended September 30, 2011, but none during the first nine months of 2010.

Note 5 – Share Based Compensation

The 2007 Stock Incentive Plan (the “2007 Plan”) was adopted by the Company in 2007. Our 1998 Stock Option Plan (the “1998 Plan”) was concurrently terminated, although options to purchase 276,630 shares that were granted prior to the termination of the 1998 Plan were still outstanding as of September 30, 2011 and remain unaffected by the termination. The 2007 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options to non-employee directors of the Company. The 2007 Plan also provides for the potential issuance of restricted stock awards to these same classes of eligible participants, on such terms and conditions as are established at the discretion of the Board of Directors or the Compensation Committee. The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2007 Plan was initially 1,500,000 shares, although options have been granted since the inception of the plan and the number remaining available for grant as of September 30, 2011 was 1,050,440. The dilutive impact of stock options outstanding is discussed below in Note 6, Earnings per Share. No restricted stock awards have been issued by the Company.

Pursuant to FASB’s standards on stock compensation, share-based compensation expense is reflected in our income statement for each option granted over the vesting period of such option. The Company is utilizing the Black-Scholes model to value stock options, and the “multiple option” approach is used to allocate the resulting valuation to actual expense. Under the multiple option approach, an employee’s options for each vesting period are separately valued and amortized. This appears to be the preferred method for option grants with multiple vesting periods, which is the case for most options granted by the Company. A pre-tax charge of $48,000 was reflected in the Company’s income statement during the third quarter of 2011 and $30,000 was charged during the third quarter of 2010, as compensation expense related to outstanding and unvested stock options. For the first nine months, these charges amounted to $166,000 in 2011 and $96,000 in 2010.

Note 6 – Earnings per Share

The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period. There were 14,051,614 weighted average shares outstanding during the third quarter of 2011, and 11,650,137 during the third quarter of 2010. There were 14,015,583 weighted average shares outstanding during the first nine months of 2011, and 11,642,517 during the first nine months of 2010. The increase for 2011 is due primarily to the Company’s issuance of 2,325,000 shares of its common stock at a price of $10 per share on October 19, 2010, in a registered direct offering to select institutional investors.

Diluted earnings per share include the effect of the potential issuance of common shares, which for the Company is limited to “in-the-money” shares that would be issued on the exercise of outstanding stock options. The dilutive effect of options outstanding was calculated using the treasury stock method, excluding anti-dilutive shares and adjusting for unamortized expense and windfall tax benefits. For the third quarter and first nine months of 2011, the dilutive effect of options outstanding calculated under the treasury stock method totaled 45,754 and 66,353, respectively, which were added to basic weighted average shares outstanding for purposes of calculating diluted earnings per share. Likewise, for the third quarter and first nine months of 2010, shares totaling 87,930 and 85,744, respectively, were added to basic weighted average shares outstanding in order to calculate diluted earnings per share.

Note 7 – Comprehensive Income

Comprehensive income includes net income and other comprehensive income. The Company’s only source of other comprehensive income is unrealized gains and losses on available-for-sale investment securities. Reclassification adjustments, resulting from gains or losses on investment securities that were realized and included in net income of the current period that also had been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose, are excluded from comprehensive income of the current period. The Company’s comprehensive income was as follows:

Comprehensive Income
(dollars in thousands, unaudited)	For the Quarter					For the Nine-Month Period
	Ended September 30,					Ended September 30,
	2011		2010			2011		2010
Net Income	$	2,526	$	887		$	6,239	$	5,771
Other comprehensive income:
Unrealized holding gain		1,825		27			7,114		2,577
Less: reclassification adjustment		-		2,639			-		2,639
Pre-tax other comprehensive income/(loss)		1,825		(2,612	)		7,114		(62	)
Less: tax impact of above		768		(1,098	)		2,991		(26	)
Net other comprehensive income		1,057		(1,514	)		4,123		(36	)

Comprehensive income	$	3,583	$	(627	)	$	10,362	$	5,735

Note 8 – Financial Instruments with Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business, in order to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit, and standby letters of credit. They involve, to varying degrees, elements of risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and issuing letters of credit as it does for making loans included on the balance sheet. The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):

	September 30, 2011		December 31, 2010
Commitments to extend credit	$	157,120	$	142,309
Standby letters of credit	$	11,967	$	7,761
Commercial letters of credit	$	8,995	$	9,435

Commitments to extend credit consist primarily of unfunded single-family residential construction loans and home equity lines of credit, and commercial real estate construction loans and commercial revolving lines of credit. Construction loans are established under standard underwriting guidelines and policies and are secured by deeds of trust, with disbursements made over the course of construction. Commercial revolving lines of credit have a high degree of industry diversification. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are generally unsecured and are issued by the Company to guarantee the performance of a customer to a third party, while commercial letters of credit represent the Company’s commitment to pay a third party on behalf of a customer upon fulfillment of contractual requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

Note 9 – Fair Value Disclosures and Reporting, the Fair Value Option and Fair Value Measurements

FASB’s standards on financial instruments, and on fair value measurements and disclosures, require all entities to disclose the estimated fair value of all financial instruments for which it is practicable to estimate fair values. In addition to those footnote disclosure requirements, FASB’s standard on investments requires that our debt securities, which are classified as available for sale, and our equity securities that have readily determinable fair values, be measured and reported at fair value in our statement of financial position. Certain impaired loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value. While the fair value option outlined under FASB’s standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, we have not elected the fair value option for any additional financial assets or liabilities.

Fair value measurements and disclosure standards also establish a framework for measuring fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Further, they establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standards describe three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would likely consider in pricing an asset or liability.

Fair value estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any estimates. Because no market exists for a significant portion of the Company’s financial instruments, fair value disclosures are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments disclosed at September 30, 2011 and December 31, 2010:

Cash and cash equivalents and short-term borrowings: For cash and cash equivalents and short-term borrowings, the carrying amount is estimated to be fair value.

Investment securities: The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on the securities’ relationship to other benchmark quoted securities when quoted prices for the specific securities are not readily available.

Loans and leases: For variable-rate loans and leases that re-price frequently with no significant change in credit risk or interest rate spread, fair values are based on carrying values. Fair values for other loans and leases are estimated by discounting projected cash flows at interest rates being offered at each reporting date for loans and leases with similar terms, to borrowers of comparable creditworthiness. Fair values of loans held for sale are estimated using quoted market prices for similar loans or the amount that has been committed to purchase the loan. The carrying amount of accrued interest receivable approximates its fair value.

Cash surrender value of life insurance policies: The fair values are based on cash surrender values at each reporting date.

Investment in, and capital commitments to, limited partnerships: The fair values of our investments in WNC Institutional Tax Credit Fund Limited Partnerships and any other limited partnerships are estimated using quarterly indications of value provided by the general partner. The fair values of undisbursed capital commitments are assumed to be the same as their book values.

Other investments: Included in other assets are certain long-term investments carried at cost, which approximates their estimated fair value.

Deposits: Fair values for demand deposits and other non-maturity deposits are equal to the amount payable on demand at the reporting date, which is the carrying amount. Fair values for fixed-rate certificates of deposit are estimated using a cash flow analysis, discounted at interest rates being offered at each reporting date by the Bank for certificates with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

Short-term borrowings: The carrying amounts approximate fair values for federal funds purchased, overnight FHLB advances, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days of the reporting dates. Fair values of other short-term borrowings are estimated by discounting projected cash flows at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Long-term borrowings: The fair values of the Company’s long-term borrowings are estimated using projected cash flows discounted at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Subordinated debentures: The fair values of subordinated debentures are determined based on the current market value for like instruments of a similar maturity and structure.

Commitments to extend credit and letters of credit: Commitments to extend credit are primarily for adjustable rate loans. Commitments to fund fixed rate loans and letters of credit, where such exist, are also at rates which approximate market rates at each reporting date. Thus, if funded, the carrying amounts would approximate fair values for the newly created financial assets at the funding date. However, because of the high degree of uncertainty with regard to whether or not these commitments will ultimately be funded, fair values for loan commitments and letters of credit in their current undisbursed state cannot reasonably be estimated, and only notional values are disclosed in the table below.

Estimated fair values for the Company’s financial instruments at September 30, 2011 and December 31, 2010 are as follows:

Fair Value of Financial Instruments
(dollars in thousands, unaudited)	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	58,305	$	58,305	$	42,645	$	42,645
Investment securities available for sale	$	429,828	$	429,828	$	331,730	$	331,730
Loans and leases, net	$	738,550	$	776,745	$	784,515	$	816,185
Cash surrender value of life insurance policies	$	37,129	$	37,129	$	31,591	$	31,591
Other investments	$	7,365	$	7,365	$	8,361	$	8,361
Investments in limited partnerships	$	10,242	$	10,242	$	10,899	$	10,899
Accrued interest receivable	$	5,371	$	5,371	$	5,677	$	5,677

Financial liabilities:
Deposits	$	1,093,619	$	1,094,721	$	1,052,274	$	1,052,085
Repurchase agreements	$	4,633	$	4,633	$	0	$	0
Overnight borrowings	$	25,000	$	25,000	$	9,650	$	9,650
Short-term borrowings	$	0	$	0	$	5,000	$	5,000
Long-term borrowings	$	15,000	$	10,409	$	15,000	$	15,736
Subordinated debentures	$	30,928	$	11,930	$	30,928	$	11,610
Limited partnership capital commitment	$	353	$	353	$	417	$	417
Accrued interest payable	$	398	$	398	$	678	$	678

	Notional Amount				Notional Amount
Off-balance-sheet financial instruments:
Commitments to extend credit	$	157,120			$	142,309
Standby letters of credit	$	11,967			$	7,761
Commercial letters of credit	$	8,995			$	9,435

For each financial asset category that was actually reported at fair value at September 30, 2011, the Company used the following methods and significant assumptions:

Investment Securities: The fair values of trading securities and securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on the their relationship to other benchmark quoted securities.

Loans held for sale: Since loans designated by the Company as available-for-sale are typically sold shortly after making the decision to sell them, realized gains or losses are usually recognized within the same period and fluctuations in fair values are thus not relevant for reporting purposes. If available-for-sale loans stay on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices.

Impaired loans: Impaired loans carried at fair value are those for which it is probable that the bank will be unable to collect all amounts due (including both interest and principal) according to the original contractual terms of the loan agreement, and for which the carrying value has been written down to the fair value of the loan. The carrying value is equivalent to the fair value of the collateral, net of expected disposition costs, for collateral-dependent loans, or the present value of anticipated future cash flows for other loans.

Foreclosed assets: Repossessed real estate (OREO) and other assets are carried at the lower of cost or fair value. Fair value is appraised value less expected selling costs for OREO and some other assets such as mobile homes, and estimated sales proceeds as determined by using reasonably available sources for all other assets. Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals. Other foreclosed assets are periodically re-evaluated by adjusting expected cash flows and timing of resolution, again using reasonably available sources. If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance.

Assets reported at fair value on a recurring basis are summarized below:

Fair Value Measurements - Recurring

(dollars in thousands, unaudited)

	Fair Value Measurements at September 30, 2011, Using
	Level 1		Level 2		Level 3		Total
Investment Securities
U.S. Government agencies	$	-	$	3,416	$	-	$	3,416
Obligations of states and political subdivisions		-		74,527		-		74,527
U.S. Government agencies collateralized by mortgage obligations		-		350,561		-		350,561
Other Securities		1,324		-		-		1,324
Total availabe-for-sale securities		1,324		428,504		-		429,828

Loans Held for Sale		855		-		-		855
Total	$	2,179	$	428,504	$	-	$	430,683

	Fair Value Measurements at December 31, 2010, Using
	Level 1		Level 2		Level 3		Total
Investment Securities
U.S. Government agencies	$	-	$	5,062	$	-	$	5,062
Obligations of states and political subdivisions		-		70,102		-		70,102
U.S. Government agencies collateralized by mortgage obligations		-		255,143		-		255,143
Other Securities		1,423		-		-		1,423
Total availabe-for-sale securities		1,423		330,307		-		331,730

Loans Held for Sale		914		-		-		914
Total	$	2,337	$	330,307	$	-	$	332,644

Assets for which a nonrecurring change in fair value has been recorded are summarized below:

Fair Value Measurements - Nonrecurring

(dollars in thousands, unaudited)

	Fair Value Measurements at September 30, 2011, Using
	Level 1		Level 2		Level 3		Total
Impaired Loans	$	-	$	34,317	$	17,608	$	51,925
Foreclosed Assets	$	-	$	8,867	$	9,318	$	18,185

	Fair Value Measurements at December 31, 2010, Using
	Level 1		Level 2		Level 3		Total
Impaired Loans	$	-	$	29,482	$	6,705	$	36,187
Foreclosed Assets	$	-	$	3,123	$	17,568	$	20,691

The table above only includes impaired loan balances for which a specific reserve has been established or on which a write-down has been taken. Information on the Company’s total impaired loan balances, and specific loss reserves associated with those balances, is included in Note 11 below, and in Management’s Discussion and Analysis of Financial Condition and Results of Operation in the “Nonperforming Assets” and “Allowance for Loan and Lease Losses” sections.

Note 10 – Investments

Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management. Pursuant to FASB’s guidance on accounting for debt and equity securities, available for sale securities are carried on the Company’s financial statements at their estimated fair market value, with monthly tax-effected “mark-to-market” adjustments made vis-à-vis accumulated other comprehensive income in shareholders’ equity. The Company’s available-for-sale investment securities totaled $430 million at September 30, 2011, and $332 million at December 31, 2010.

At September 30, 2011 and December 31, 2010, the Company had 59 securities and 141 securities, respectively, with unrealized losses. Management has evaluated these securities as of the respective dates, and does not believe that any of the associated unrealized losses are other than temporary. Information pertaining to these investment securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is disclosed in the table below.

Investment Portfolio - Unrealized Losses

(dollars in thousands, unaudited)	September 30, 2011
	Less than 12 Months					Over 12 Months
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
US Treasuries	$	-	$	-		$	-	$	-
US Government Agencies		-		-			-		-
Obligations of States and Political Subdivisions		1,181		(44	)		1,784		(88	)
Agency-Issued Mortgage-Backed Securities (MBS)		87,305		(689	)		1,446		(10	)
Private-Label MBS		-		-			256		(4	)
Other Securities		-		-			1,324		(1,381	)
TOTAL	$	88,486	$	(733	)	$	4,810	$	(1,483	)

	December 31, 2010
	Less than 12 Months					Over 12 Months
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
US Treasuries	$	-	$	-		$	-	$	-
US Government Agencies		-		-			-		-
Obligations of States and Political Subdivisions		24,728		(884	)		2,478		(283	)
Agency-Issued Mortgage-Backed Securities (MBS)		108,203		(1,009	)		-		-
Private-Label MBS		-		-			558		(21	)
Other Securities		-		-			1,408		(1,292	)
TOTAL	$	132,931	$	(1,893	)	$	4,444	$	(1,596	)

Note 11 – Credit Quality and Nonperforming Assets

Credit Quality Classifications

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired to characterize the associated credit risk. Balances classified as “loss” are immediately charged-off. The Company uses the following definitions of risk classifications:

Pass: Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans that are not assessed on an individual basis.

Special Mention: Loans classified as special mention have potential issues that deserve the close attention of management. If left uncorrected, these potential weaknesses could eventually diminish the prospects for full repayment of principal and interest according to the contractual terms of the loan agreement, or could result in deterioration of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are loans with at least one clear and well-defined weakness such as a highly leveraged position, unfavorable financial operating results and/or trends, uncertain repayment sources or poor financial condition, which could jeopardize ultimate recoverability of the debt.

Impaired: A loan is considered impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include all nonperforming loans, loans classified as restructured troubled debt, and certain other loans that are still being maintained on accrual status. If the Bank grants a concession to a borrower in financial difficulty, the loan falls into the category of a troubled debt restructuring (TDR). TDR’s may be classified as either nonperforming or performing loans depending on their accrual status.

Credit quality classifications for the Company’s loan balances were as follows, as of the dates indicated:

Credit Quality Classifications

(dollars in thousands, unaudited)

	September 30, 2011
	Pass		Special Mention		Substandard		Impaired		Total
Real Estate:
1-4 - family residential construction	$	4,965	$	2,658	$	-	$	3,846	$	11,469
Other construction/Land		18,044		9,580		1,563		13,076		42,263
1-4 Family - closed end		78,386		6,995		2,011		18,700		106,092
Equity Lines		62,489		380		1,673		2,481		67,023
Multi-family residential		4,037		439		-		2,945		7,421
Commercial RE - owner-occupied		143,182		19,335		12,439		10,150		185,106
Commercial RE - non-owner occupied		65,038		6,681		5,536		28,867		106,122
Farmland		42,907		1,887		4,638		7,509		56,941
Total Real Estate		419,048		47,955		27,860		87,574		582,437

Agricultural		14,472		1,609		28		13		16,122
Commercial and Industrial		75,700		7,250		4,200		5,654		92,804
Small Business Administration		14,232		1,461		562		3,886		20,141
Direct finance leases		6,791		77		-		706		7,574
Consumer loans		33,516		1,093		440		3,657		38,706
Total Gross Loans and Leases	$	563,759	$	59,445	$	33,090	$	101,490	$	757,784

	December 31, 2010
	Pass		Special Mention		Substandard		Impaired		Total
Real Estate:
1-4 - family residential construction	$	4,309	$	5,500	$	-	$	4,057	$	13,866
Other construction/Land		24,988		17,979		1,411		7,669		52,047
1-4 Family - closed end		83,543		6,345		2,326		12,331		104,545
Equity Lines		66,560		1,426		1,558		1,239		70,783
Multi-family residential		4,930		3,076		-		2,956		10,962
Commercial RE - owner-occupied		149,451		18,892		11,936		7,691		187,970
Commercial RE - non-owner occupied		79,842		7,498		6,051		27,109		120,500
Farmland		35,949		21,091		3,848		405		61,293
Total Real Estate		449,572		81,807		27,130		63,457		621,966

Agricultural		11,547		1,673		237		-		13,457
Commercial and Industrial		79,083		8,156		5,425		2,104		94,768
Small Business Administration		13,219		1,335		621		3,441		18,616
Direct finance leases		9,604		129		-		501		10,234
Consumer loans		42,436		830		775		1,544		45,585
Total Gross Loans and Leases	$	605,461	$	93,930	$	34,188	$	71,047	$	804,626

Past Due and Nonperforming Assets

Nonperforming assets are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets, including mobile homes and other real estate owned (“OREO”). OREO consists of properties acquired by foreclosure or similar means, which the Company is offering or will offer for sale. Nonperforming loans and leases result when reasonable doubt exists with regard to the ability of the Company to collect all principal and interest on a loan or lease. At that point, we stop accruing interest on the loan or lease in question, and reverse any previously-recognized interest to the extent that it is uncollected or associated with interest-reserve loans. Any asset for which principal or interest has been in default for a period of 90 days or more is also placed on non-accrual status, even if interest is still being received, unless the asset is both well secured and in the process of collection. An aging of the Company’s loan balances, by number of days past due as of the indicated dates, is presented in the following table:

Loan Portfolio Aging

(dollars in thousands, unaudited)

	September 30, 2011
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Financing Receivables		Non-Accrual Loans (1)
Real Estate:
1-4 family residential construction	$	175	$	-	$	323	$	498	$	10,971	$	11,469	$	3,846
Other construction/land		804		832		1,900		3,536		38,727		42,263		5,227
1-4 family - closed-end		1,765		39		2,196		4,000		102,092		106,092		6,412
Equity Lines		511		403		1,331		2,245		64,778		67,023		2,481
Multi-family residential		2,945		-		-		2,945		4,476		7,421		-
Commercial RE - owner occupied		4,427		1,748		6,823		12,998		172,108		185,106		8,921
Commercial RE - non-owner occupied		206		5,381		970		6,557		99,565		106,122		10,425
Farmland		7,253		-		188		7,441		49,500		56,941		492
Total Real Estate		18,086		8,403		13,731		40,220		542,217		582,437		37,804
Agricultural		-		-		-		-		16,122		16,122		-
Commercial and Industrial		1,241		901		4,061		6,203		86,601		92,804		4,432
Small Business		568		-		2,929		3,497		16,644		20,141		3,776
Direct finance leases		76		-		707		783		6,791		7,574		707
Consumer loans		1,087		531		820		2,438		36,268		38,706		1,825
Total Gross Loans and Leases	$	21,058	$	9,835	$	22,248	$	53,141	$	704,643	$	757,784	$	48,544

	December 31, 2010
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Financing Receivables		Non-Accrual Loans (1)
Real Estate:
1-4 family residential construction	$	4,075	$	-	$	-	$	4,075	$	9,791	$	13,866	$	4,057
Other construction/land		9,662		1,385		7,563		18,610		33,437		52,047		6,185
1-4 family - closed-end		5,902		80		2,210		8,192		96,353		104,545		4,894
Equity Lines		758		110		1,130		1,998		68,785		70,783		1,239
Multi-family residential		2,634		-		-		2,634		8,328		10,962		-
Commercial RE - owner occupied		1,141		1,255		6,788		9,184		178,786		187,970		7,412
Commercial RE - non-owner occupied		9,881		918		4,654		15,453		105,047		120,500		14,704
Farmland		-		-		214		214		61,079		61,293		405
Total Real Estate		34,053		3,748		22,559		60,360		561,606		621,966		38,896
Agricultural		-		-		-		-		13,457		13,457		-
Commercial and Industrial		1,977		669		1,281		3,927		90,841		94,768		2,005
Small Business		19		-		2,927		2,946		15,670		18,616		3,440
Direct finance leases		129		-		501		630		9,604		10,234		501
Consumer loans		954		319		850		2,123		43,462		45,585		1,112
Total Gross Loans and Leases	$	37,132	$	4,736	$	28,118	$	69,986	$	734,640	$	804,626	$	45,954

(1) Included in Total Financing Receivables

Troubled Debt Restructurings

A loan that is modified for a borrower who is experiencing financial difficulty is classified as a troubled debt restructuring (“TDR”), if the modification constitutes a concession. At September 30, 2011, the Company had a total of $54.3 million in TDR’s, including $19.9 million in TDR’s that were on non-accrual status. The Company typically places a TDR on non-accrual status and ceases accruing interest when loan payment performance is deemed unsatisfactory, generally at 90 days past due. Additionally, whenever a notice of default or disposition is filed on a loan the loan is placed on non-accrual. A TDR is generally considered to be in default when it appears likely that the customer will not be able to repay all principal and interest pursuant to the terms of the restructured agreement. TDR’s may be restored to accrual status when there has been satisfactory repayment performance for a period that is normally not less than 6 months, and the Company reasonably believes that it will continue to receive all future principal and interest pursuant to the terms of the agreement. TDR’s may be removed from TDR designation in the calendar year following the restructuring, if the loan is in compliance with all modified terms and is yielding a market rate of interest.

The Company may agree to different types of concessions when modifying a loan or lease. The table below summarizes TDR modifications by type of concession, for the noted periods:

Troubled Debt Restructurings, by Type of Loan Modification

(dollars in thousands, unaudited)

	Three Months Ended September 30, 2011
	Rate		Term		Interest- Only		Rate & Term		Rate & Interest- Only		Term & Interest- Only		Rate, Term & Interest- Only		Total
Trouble Debt Restructurings
Real Estate:
Other construction/Land	$	-	$	291	$	-	$	-	$	-	$	5,758	$	-	$	6,049
1-4 family - closed-end		-		6,455		-		-		-		-		382		6,837
Equity Lines		-		-		436		-		-		-		-		436
Commercial RE - owner-occupied		-		-		-		-		-		-		-		-
Comm'l RE - non-owner occupied		7,405		68		-		-		-		-		-		7,473
Subtotal Real Estate		7,405		6,814		436		-		-		5,758		382		20,795
Agricultural Products		-		-		-		-		-		-		15		15
Commercial and Industrial		20		181		24		753		-		51		-		1,029
Consumer loans		281		461		-		1,111		-		-		37		1,890
Small Business Admin Loans		-		247		106		-		-		-		-		353
	$	7,706	$	7,703	$	566	$	1,864	$	-	$	5,809	$	434	$	24,082