Document And Entity Information

Document And Entity Information	6 Months Ended
Document And Entity Information	Jun. 30, 2011	Aug. 05, 2011
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Entity Registrant Name	SURREY BANCORP
Entity Central Index Key	0001229146
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,215,764

Consolidated Balance Sheets

Consolidated Balance Sheets (USD $)	6 Months Ended	12 Months Ended
Consolidated Balance Sheets (USD $)	Jun. 30, 2011	Dec. 31, 2010
Assets
Cash and due from banks	$ 2,641,584	$ 2,398,433
Interest-bearing deposits with banks	37,255,803	22,792,088
Federal funds sold	705,453	702,121
Investment securities available for sale	2,516,590	2,012,132
Restricted equity securities	892,304	941,379
Loans, net of allowance for loan losses of $4,468,475 at June 30, 2011 and $6,683,922 at December 31, 2010	172,005,516	171,794,247
Property and equipment, net	4,694,516	4,726,483
Foreclosed assets	186,730	450,532
Accrued income	925,856	955,516
Goodwill	120,000	120,000
Bank owned life insurance	3,337,525	3,284,990
Other assets	3,062,606	3,474,563
Total assets	228,344,483	213,652,484
Liabilities and Stockholders' Equity
Noninterest-bearing	33,666,556	27,954,669
Interest-bearing	153,884,442	146,005,404
Total deposits	187,550,998	173,960,073
Long-term debt	9,100,000	9,450,000
Dividends payable	45,729	35,515
Accrued interest payable	247,017	227,887
Other liabilities	1,556,053	1,334,854
Total liabilities	198,499,797	185,008,329
Commitments and contingencies
Stockholders' equity
Common stock, 10,000,000 shares authorized at no par value; 3,213,230 and 3,206,495 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively	9,487,704	9,464,178
Retained earnings	16,552,494	15,380,083
Accumulated other comprehensive loss	(64,319)	(68,913)
Total stockholders' equity	29,844,686	28,644,155
Total liabilities and stockholders' equity	228,344,483	213,652,484
Convertible Preferred Stock Series A [Member]
Stockholders' equity
Preferred stock	2,620,325	2,620,325
Preferred Stock Series D [Member]
Stockholders' equity
Preferred stock	$ 1,248,482	$ 1,248,482

Consolidated Balance Sheets (Parenthetical)

Consolidated Balance Sheets (Parenthetical) (USD $)	6 Months Ended	12 Months Ended
Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
Allowance for loan losses	$ 4,468,475	$ 6,683,922
Common stock, no par value
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	3,213,230	3,206,495
Common stock, shares outstanding	3,213,230	3,206,495
Convertible Preferred Stock Series A [Member]
Preferred stock, no par value
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	189,356	189,356
Preferred stock, shares outstanding	189,356	189,356
Preferred stock, liquidation value	$ 14	$ 14
Preferred stock, fixed percentage rate	4.50%	4.50%
Preferred Stock Series D [Member]
Preferred stock, no par value
Preferred stock, shares issued	181,154	181,154
Preferred stock, shares outstanding	181,154	181,154
Preferred stock, liquidation value	$ 7.08	$ 7.08
Preferred stock, fixed percentage rate	5.00%	5.00%

Consolidated Statements Of Income

Consolidated Statements Of Income (USD $)	3 Months Ended		6 Months Ended
Consolidated Statements Of Income (USD $)	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Interest income
Loans and fees on loans	$ 2,652,444	$ 2,774,256	$ 5,376,596	$ 5,539,444
Federal funds sold	458	248	795	404
Investment securities, taxable	13,944	12,035	26,358	25,663
Deposits with banks	2,673	7,558	8,004	11,711
Total interest income	2,669,519	2,794,097	5,411,753	5,577,222
Interest expense
Deposits	459,353	516,011	933,423	1,042,286
Short-term debt		13,959		17,720
Long-term debt	91,364	104,387	182,900	203,463
Total interest expense	550,717	634,357	1,116,323	1,263,469
Net interest income	2,118,802	2,159,740	4,295,430	4,313,753
Provision for loan losses	(279,825)	254,485	(120,928)	1,203,842
Net interest income after provision for loan losses	2,398,627	1,905,255	4,416,358	3,109,911
Noninterest income
Service charges on deposit accounts	260,994	270,302	508,885	532,477
Gain on sale of government guaranteed loans		32,865		244,924
Fees and yield spread premiums on loans delivered to correspondents	26,442	23,054	53,618	49,737
Other service charges and fees	128,068	123,914	247,027	223,049
Other operating income	160,527	164,754	359,979	369,462
Total noninterest income	576,031	614,889	1,169,509	1,419,649
Noninterest expense
Salaries and employee benefits	883,412	852,390	1,761,997	1,723,400
Occupancy expense	101,720	87,921	197,180	197,230
Equipment expense	61,634	72,347	120,497	136,383
Data processing	98,757	100,215	185,588	196,774
Foreclosed assets, net	120,908	11,490	140,332	15,682
Postage, printing and supplies	60,251	68,497	102,754	118,508
Professional fees	67,253	68,683	190,460	152,578
FDIC insurance premiums	56,287	66,399	139,577	118,281
Other expense	352,231	309,173	694,440	635,019
Total noninterest expense	1,802,453	1,637,115	3,532,825	3,293,855
Net income before income taxes	1,172,205	883,029	2,053,042	1,235,705
Income tax expense	461,028	332,256	789,674	455,156
Net income	711,177	550,773	1,263,368	780,549
Preferred stock dividends and accretion of discount	(45,729)	(65,753)	(90,957)	(128,813)
Net income available to common stockholders	$ 665,448	$ 485,020	$ 1,172,411	$ 651,736
Basic earnings per common share	$ 0.21	$ 0.15	$ 0.37	$ 0.20
Diluted earnings per common share	$ 0.19	$ 0.14	$ 0.33	$ 0.20
Basic weighted average common shares outstanding	3,212,247	3,206,495	3,210,498	3,206,263
Diluted weighted average common shares outstanding	3,788,549	3,605,146	3,786,800	3,604,913

Consolidated Statements Of Cash Flows

Consolidated Statements Of Cash Flows (USD $)	6 Months Ended
Consolidated Statements Of Cash Flows (USD $)	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities
Net income	$ 1,263,368	$ 780,549
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	120,055	127,763
Gain on sale of property and equipment	(670)	(300)
Loss on the sale of foreclosed assets	50,254	9,411
Stock-based compensation, net of tax benefit	11,213	14,516
Provision for loan losses	(120,928)	1,203,842
Deferred income taxes	(1,156)	12,724
Accretion of discount on securities, net of amortization of premiums	870	1,944
Increase in cash surrender value of life insurance	(52,535)	(55,308)
Changes in assets and liabilities:
Accrued income	29,660	(12,829)
Other assets	410,231	(868,538)
Accrued interest payable	19,130	(3,996)
Other liabilities	221,198	494,029
Net cash provided by operating activities	1,950,690	1,703,807
Cash flows from investing activities
Net increase in interest-bearing deposits with banks	(14,463,715)	(6,105,763)
Net increase in federal funds sold	(3,332)	(88,085)
Purchases of investment securities	(1,502,500)	(1,500,000)
Sales and maturities of investment securities	1,004,648	1,505,051
Redemption of restricted equity securities	49,100	10
Purchase of restricted equity securities	(25)
Net (increase) decrease in loans	(315,466)	4,219,857
Proceeds from the sale of foreclosed assets	438,673	54,890
Purchases of property and equipment	(88,088)	(32,727)
Proceeds from the sale of property and equipment	670	300
Net cash (used in) investing activities	(14,880,035)	(1,946,467)
Cash flows from financing activities
Net increase in deposits	13,590,925	3,598,122
Net decrease in short-term debt		(3,750,000)
Net (decrease) increase in long-term debt	(350,000)	750,000
Dividends paid	(80,742)	(113,984)
Common stock options exercised	12,313	34,450
Net cash provided by financing activities	13,172,496	518,588
Net increase (decrease) in cash and cash equivalents	243,151	275,928
Cash and due from banks, beginning	2,398,433	1,923,621
Cash and due from banks, ending	2,641,584	2,199,549
Supplemental disclosures of cash flow information
Interest paid	1,097,193	1,267,465
Taxes paid	424,019	819,457
Loans transferred to foreclosed properties	$ 225,125	$ 305,490

Consolidated Statements Of Changes In Stockholders' Equity And Comprehensive Income

Consolidated Statements Of Changes In Stockholders' Equity And Comprehensive Income (USD $)	Preferred Stock [Member]	Convertible Preferred Stock Series A [Member]	Preferred Stock Series D [Member]	Common Stock [Member]	Retained Earnings [Member]	Unrealized Appreciation (Depreciation) On Securities [Member]	Total
Balance, value at Dec. 31, 2009	$ 4,626,830			$ 9,406,429	$ 14,468,089	$ (75,996)	$ 28,425,352
Balance, shares at Dec. 31, 2009				3,198,105
Comprehensive income
Net income					780,549		780,549
Net change in unrealized gain (loss) on investment securities available for sale,net of income tax						15,564	15,564
Total comprehensive income							796,113
Common stock options exercised, value				34,450			34,450
Common stock options exercised, shares				8,390
Stock-based compensation, net of tax benefit				14,516			14,516
Dividends declared on convertible preferred stock		(59,157)
Dividends declared and accrued on Series B and Series C preferred stock, net of discount accretion and (premium) amortization	15,762				(69,656)		(53,894)
Balance, value at Jun. 30, 2010	4,642,592			9,455,395	15,119,825	(60,432)	29,157,380
Balance, shares at Jun. 30, 2010				3,206,495
Balance, value at Dec. 31, 2010	3,868,807			9,464,178	15,380,083	(68,913)	28,644,155
Balance, shares at Dec. 31, 2010				3,206,495
Comprehensive income
Net income					1,263,368		1,263,368
Net change in unrealized gain (loss) on investment securities available for sale,net of income tax						4,594	4,594
Total comprehensive income							1,267,962
Common stock options exercised, value				12,313			12,313
Common stock options exercised, shares				6,735
Stock-based compensation, net of tax benefit				11,213			11,213
Dividends declared on convertible preferred stock		(59,157)	(31,800)
Balance, value at Jun. 30, 2011	$ 3,868,807			$ 9,487,704	$ 16,552,494	$ (64,319)	$ 29,844,686
Balance, shares at Jun. 30, 2011				3,213,230

Consolidated Statements Of Changes In Stockholders' Equity And Comprehensive Income (Parenthetical)

Consolidated Statements Of Changes In Stockholders' Equity And Comprehensive Income (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Net change in unrealized gain (loss) on investment securities available for sale, income tax	$ 2,882	$ 9,764
Convertible Preferred Stock Series A [Member]
Dividends declared	$ 0.31	$ 0.31
Preferred Stock Series D [Member]
Dividends declared	$ 0.18

Basis Of Presentation

6 Months Ended

Jun. 30, 2011

Basis Of Presentation

Basis Of Presentation

NOTE 1.

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and therefore, do not include all disclosures required by generally accepted accounting principles for a complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the financial condition of Surrey Bancorp, (the "Company), as of June 30, 2011, the results of operations for the six and three months ended June 30, 2011 and 2010, and its changes in stockholders' equity and comprehensive income and cash flows for the six months ended June 30, 2011 and 2010. The results of operations for the three and six months ended June 30, 2011, are not necessarily indicative of the results expected for the full year. These consolidated financial statements should be read in conjunction with the Company's audited financial statements and related disclosures for the year ended December 31, 2010, included in the Company's Form 10-K. The balance sheet at December 31, 2010, has been taken from the audited financial statements at that date.

Organization

Surrey Bancorp began operation on May 1, 2003 and was created for the purpose of acquiring all the outstanding shares of common stock of Surrey Bank & Trust. Stockholders of the bank received six shares of Surrey Bancorp common stock for every five shares of Surrey Bank & Trust common stock owned. The Company is subject to regulation by the Federal Reserve.

Surrey Bank & Trust (the "Bank") was organized and incorporated under the laws of the State of North Carolina on July 15, 1996 and commenced operations on July 22, 1996. The Bank currently serves Surry County, North Carolina and Patrick County, Virginia and surrounding areas through five banking offices. As a state chartered bank, which is not a member of the Federal Reserve, the Bank is subject to regulation by the State of North Carolina Banking Commission and the Federal Deposit Insurance Corporation.

Surrey Investment Services, Inc., ("Subsidiary") was organized and incorporated under the laws of the State of North Carolina on February 10, 1998. The subsidiary provides insurance services through SB&T Insurance and investment advice and brokerage services through LPL Financial.

On July 31, 2000, Surrey Bank & Trust formed Freedom Finance, LLC, a subsidiary operation specializing in the purchase of sales finance contracts from local automobile dealers.

The accounting and reporting policies of the Company, the Bank, and its subsidiaries follow generally accepted accounting principles and general practices within the financial services industry. Following is a summary of the more significant policies.

Critical Accounting Policies

The notes to the audited consolidated financial statements for the year ended December 31, 2010 contain a summary of the significant accounting policies. The Company believes our policies with respect to the methodology for the determination of the allowance for loan losses, and asset impairment judgments, including the recoverability of intangible assets involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. These critical policies and their application are periodically reviewed with the Audit Committee and our Board of Directors. See our Annual Report for full details on critical accounting policies.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Bank and the subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Presentation of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents includes cash and amounts due from depository institutions (including cash items in process of collection). Overnight interest bearing deposits and federal funds sold are shown separately. Federal funds purchased are shown with securities sold under agreements to repurchase.

Investment Securities

Investments classified as available for sale are intended to be held for indefinite periods of time and include those securities that management may employ as part of asset/liability strategy or that may be sold in response to changes in interest rates, prepayments, regulatory capital requirements or similar factors. These securities are carried at fair value and are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or significant other observable inputs.

Investment securities classified as held to maturity are those debt securities that the Bank has the ability and intent to hold to maturity. Accordingly, these securities are carried at cost adjusted for amortization of premiums and accretion of discount, computed by the interest-method over their contractual lives. At June 30, 2011 and December 31, 2010, the Bank had no investments classified as held to maturity.

Loans Held for Sale

The Bank originates and holds Small Business Administration (SBA) and United States Department of Agriculture (USDA) guaranteed loans in its portfolio in the normal course of business. Occasionally, the Bank sells the guaranteed portions of these loans into the secondary market. The loans are generally variable rate loans, which eliminates the market risk to the Bank and are therefore carried at cost. The Bank recognizes gains on the sale of the guaranteed portion upon the consummation of the transaction. The Bank plans to continue to originate guaranteed loans for sales, however no such loans were funded at June 30, 2011 and December 31, 2010.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal amount adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or cost on originated loans and unamortized premiums or discounts on purchased loans.

Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan using the interest method. Discounts and premiums on any purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on any purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

Interest is accrued and credited to income based on the principal amount outstanding. The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When the interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Payments received on nonaccrual loans are first applied to principal and any residual amounts are then applied to interest. When facts and circumstances indicate the borrower has regained the ability to meet the required payments, the loan is returned to accrual status. Past due loans are determined on the basis of contractual terms.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures.

Recent Accounting Pronouncements

The following is a summary of recent authoritative pronouncements:

In July 2010, the Receivables topic of the Accounting Standards Codification ("ASC") was amended by Accounting Standards Update ("ASU") 2010-20 to require expanded disclosures related to a company's allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis. The Company is required to include these disclosures in their interim and annual financial statements. See Note 6.

Disclosures about Troubled Debt Restructurings ("TDRs") required by ASU 2010-20 were deferred by the Financial Accounting Standards Board ("FASB") in ASU 2011-01 issued in January 2011. In April 2011 FASB issued ASU 2011-02 to assist creditors with their determination of when a restructuring is a TDR. The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present.

Recent Accounting Pronouncements, continued

Disclosures related to TDRs under ASU 2010-20 will be effective for reporting periods beginning after June 15, 2011.

In December 2010, the Intangibles topic of the ASC was amended to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings upon adoption. Impairments occurring subsequent to adoption should be included in earnings. The amendment was effective for the Company beginning January 1, 2011 and had no effect on the financial statements.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03. The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control. The other criteria to assess effective control were not changed. The amendments are effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments will be effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders' equity. The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The amendments will be applicable to the Company on January 1, 2012 and will be applied retrospectively.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations or cash flows.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events have occurred requiring accrual or disclosure.

- Definition

Description containing the entire organization, consolidation and basis of presentation of financial statements disclosure. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.

+ References+ Details

Securities

6 Months Ended

Jun. 30, 2011

Securities

Securities

NOTE 2. SECURITIES

Debt and equity securities have been classified in the balance sheets according to management's intent. The amortized costs of securities available for sale and their approximate fair values at June 30, 2011 and December 31, 2010 follow:


	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value

June 30, 2011
Government-sponsored enterprises	$	2,001,656	$	10,184	$	—	$	2,011,840
Mortgage-backed securities		69,603		2,022		—		71,625
Corporate bonds		550,000		—		116,875		433,125

	$	2,621,259	$	12,206	$	116,875	$	2,516,590


December 31, 2010
Government-sponsored enterprises	$	1,500,000	$	1,770	$	—	$	1,501,770
Mortgage-backed securities		74,278		1,584		—		75,862
Corporate bonds		550,000		—		115,500		434,500

	$	2,124,278	$	3,354	$	115,500	$	2,012,132

At June 30, 2011 and December 31, 2010, substantially all government-sponsored enterprises securities were pledged as collateral on public deposits and for other purposes as required or permitted by law. The mortgage-backed securities were pledged to the Federal Home Loan Bank.

Maturities of mortgage-backed bonds are stated based on contractual maturities. Actual maturities of these bonds may vary as the underlying mortgages are prepaid. The scheduled maturities of securities (all available for sale) at June 30, 2011, were as follows:


	Amortized Cost		Fair Value

Due in one year or less	$	—	$	—
Due after one year through five years		2,001,656		2,011,840
Due after five years through ten years		605,061		489,693
Due after ten years		14,542		15,057

	$	2,621,259	$	2,516,590

The following table shows investments' gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2011 and December 31, 2010. These unrealized losses on investment securities are a result of volatility in interest rates and primarily relate to corporate bonds issued by other banks at June 30, 2011 and December 31, 2010.


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

June 30, 2011
Corporate bonds	$	—	$	—	$	433,125	$	116,875	$	433,125	$	116,875

	$	—	$	—	$	433,125	$	116,875	$	433,125	$	116,875


December 31, 2010
Corporate bonds	$	—	$	—	$	434,500	$	115,500	$	434,500	$	115,500

	$	—	$	—	$	434,500	$	115,500	$	434,500	$	115,500

Management considers the nature of the investment, the underlying causes of the decline in the market value and the severity and duration of the decline in market value in determining if impairment is other than temporary. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based upon this evaluation, there are two securities in the portfolio with unrealized losses for a period greater than 12 months. We have analyzed each individual security for Other Than Temporary Impairment ("OTTI") purposes by reviewing delinquencies, loan-to-value ratios, and credit quality and concluded that all unrealized losses presented in the tables above are not related to an issuer's financial condition but are due to changes in the level of interest rates and no declines are deemed to be other than temporary in nature.

The Company had no gross realized gains or losses from the sales of investment securities for the six and three month periods ended June 30, 2011 and 2010.

- Definition

This item represents the entire disclosure related to Available-for-sale Securities which consist of all investments in certain debt and equity securities neither classified as trading or held-to-maturity securities. A debt security represents a creditor relationship with an enterprise. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities which are categorized as Available-for-sale.

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Earnings Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share

Earnings Per Share

NOTE 3.

EARNINGS PER SHARE

Basic earnings per share for the six and three months ended June 30, 2011 and 2010 were calculated by dividing net income available to common stockholders by the weighted average number of shares outstanding during the period.

The computation of diluted earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of those potential common shares. The potential dilutive shares are represented by common stock options and by the Series A and D convertible preferred stock. Each share of the Series A preferred is convertible into 2.0868 shares of common stock. Each share of Series D preferred is convertible into one share of common stock.

Commitments And Letters Of Credit

6 Months Ended

Jun. 30, 2011

Commitments And Letters Of Credit

Commitments And Letters Of Credit

NOTE 4.

COMMITMENTS AND LETTERS OF CREDIT

At June 30, 2011, the Company had commitments to extend credit, including unused lines of credit of approximately $37,364,000. Letters of credit totaling $1,341,974 were outstanding.

Loans

6 Months Ended

Jun. 30, 2011

Loans

Loans

NOTE 5.

LOANS

The major components of loans in the balance sheets at June 30, 2011 and December 31, 2010 are below.


	2011			2010

Commercial	$	67,791,434		$	66,377,076
Real estate:
Construction and land development		5,544,068			5,986,045
Residential, 1-4 families		42,991,762			46,356,711
Residential, 5 or more families		2,257,358			1,853,346
Farmland		2,735,521			2,854,481
Nonfarm, nonresidential		48,365,786			48,170,698
Agricultural		50,088			73,852
Consumer, net of discounts of $16,063 in 2011 and $14,770 in 2010		6,697,606			6,759,770

		176,433,623			178,431,979

Deferred loan origination costs, net of fees		40,368			46,190

		176,473,991			178,478,169
Allowance for loan losses		(4,468,475	)		(6,683,922	)

	$	172,005,516		$	171,794,247

Residential, 1-4 family loans pledged as collateral against FHLB advances approximated $24,288,000 and $25,141,000 at June 30, 2011 and December 31, 2010.

Allowance For Loan Losses

6 Months Ended

Jun. 30, 2011

Allowance For Loan Losses

Allowance For Loan Losses

NOTE 6. ALLOWANCE FOR LOAN LOSSES

The allocation of the allowance for loan losses by loan components at June 30, 2011 and 2010 was as follows:


	Construction									Commercial
	&			1-4 Family			Nonfarm,			&
	Development			Residential			Nonresidential			Industrial			Consumer			Other			Total

2011

*Allowance for credit losses:*
Beginning balance	$	118,797		$	1,696,068		$	1,199,292		$	3,411,403		$	205,662		$	52,700		$	6,683,922
Charge-offs		(27,468	)		(1,105,516	)		(203,418	)		(959,152	)		(27,387	)		—			(2,322,941	)
Recoveries		996			54,285			83,772			71,500			17,869			—			228,422
Provision		6,720			77,596			(204,924	)		(537	)		(3,383	)		3,600			(120,928	)

Ending balance	$	99,045		$	722,433		$	874,722		$	2,523,214		$	192,761		$	56,300		$	4,468,475


Ending balance: individually evaluated for impairment	$	645		$	42,233		$	301,922		$	1,468,614		$	—		$	—		$	1,813,414

Ending balance: collectively evaluated for impairment	$	98,400		$	680,200		$	572,800		$	1,054,600		$	192,761		$	56,300		$	2,655,061

Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—		$	—


*Loans Receivable:*
Ending balance	$	5,544,068		$	42,991,762		$	48,365,786		$	67,791,434		$	6,697,606		$	5,042,967		$	176,433,623


Ending balance: individually evaluated for impairment	$	95,121		$	1,052,398		$	4,094,870		$	6,998,129		$	16,896		$	—		$	12,257,414

Ending balance: collectively evaluated for impairment	$	5,448,947		$	41,939,364		$	44,270,916		$	60,793,305		$	6,680,710		$	5,042,967		$	164,176,209

Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—		$	—


2010

*Allowance for credit losses:*
Beginning balance	$	106,397		$	628,963		$	696,044		$	2,903,267		$	281,134		$	54,100		$	4,669,905
Charge-offs		—			(26,728	)		(109,948	)		(82,830	)		(48,427	)		—			(267,933	)
Recoveries		—			—			20,501			—			16,672			—			37,173
Provision		(23,497	)		17,173			54,634			1,153,274			5,358			(3,100	)		1,203,842

Ending balance	$	82,900		$	619,408		$	661,231		$	3,973,711		$	254,737		$	51,000		$	5,642,987


Ending balance: individually evaluated for impairment	$	—		$	54,908		$	87,331		$	3,068,511		$	—		$	—		$	3,210,750

Ending balance: collectively evaluated for impairment	$	82,900		$	564,500		$	573,900		$	905,200		$	254,737		$	51,000		$	2,432,237

Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—		$	—


*Loans Receivable:*
Ending balance	$	6,897,511		$	46,751,717		$	46,438,718		$	68,522,853		$	7,038,277		$	4,636,669		$	180,285,745


Ending balance: individually evaluated for impairment	$	18,144		$	652,749		$	499,457		$	6,543,616		$	17,224		$	5,813		$	7,737,003

Ending balance: collectively evaluated for impairment	$	6,879,367		$	46,098,968		$	45,939,261		$	61,979,237		$	7,021,053		$	4,630,856		$	172,548,742

Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—		$	—

The following table presents impaired loans individually evaluated by class of loan as of June 30, 2011 and December 31, 2010:


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized

June 30, 2011
With no related allowance recorded:
Construction and development	$	78,500	$	78,500	$	—	$	79,635	$	—
1-4 family residential		865,148		922,961		—		933,245		15,566
Nonfarm, nonresidential		2,437,161		2,599,892		—		2,619,716		49,880
Commercial and industrial		2,645,793		2,645,794		—		2,722,209		70,210
Consumer		16,896		16,896		—		18,437		301
Other loans		—		—		—		—		—

		6,043,498		6,264,043		—		6,373,242		135,957


With an allowance recorded:
Construction and development	$	16,622	$	16,622	$	645	$	17,194	$	—
1-4 family residential		187,249		215,624		42,233		198,000		372
Nonfarm, nonresidential		1,657,709		1,657,709		301,992		1,691,991		8,004
Commercial and industrial		4,352,336		4,478,247		1,468,614		4,723,398		76,791
Consumer		—		—		—		—		—
Other loans		—		—		—		—		—

		6,213,916		6,368,202		1,813,414		6,630,583		85,167


Combined:
Construction and development	$	95,122	$	95,122	$	645	$	96,829	$	—
1-4 family residential		1,052,397		1,138,585		42,233		1,131,245		15,938
Nonfarm, nonresidential		4,094,870		4,257,601		301,922		4,311,707		57,884
Commercial and industrial		6,998,129		7,124,041		1,468,614		7,445,607		147,001
Consumer		16,896		16,896		—		18,437		301
Other loans		—		—		—		—		—

	$	12,257,414	$	12,632,245	$	1,813,414	$	13,003,825	$	221,124


December 31, 2010
With no related allowance recorded:
Construction and development	$	97,436	$	97,436	$	—	$	173,163	$	5,758
1-4 family residential		931,920		931,920		—		938,365		55,516
Nonfarm, nonresidential		2,098,860		2,098,860		—		2,136,591		110,297
Commercial and industrial		2,246,985		2,246,985		—		2,289,276		123,804
Consumer		10,439		10,439		—		10,439		—
Other loans		—		—		—		—		—

		5,385,640		5,385,640		—		5,547,834		295,375


With an allowance recorded:
Construction and development	$	39,267	$	39,267	$	12,097	$	38,893	$	1,357
1-4 family residential		1,240,144		1,240,144		1,118,468		1,243,083		39,709
Nonfarm, nonresidential		2,169,536		2,169,536		604,692		2,216,160		126,030
Commercial and industrial		5,803,125		5,803,125		2,334,003		6,076,005		276,677
Consumer		—		—		—		—		—
Other loans		—		—		—		—		—

		9,252,072		9,252,072		4,069,260		9,574,141		443,773


Combined:
Construction and development	$	136,703	$	136,703	$	12,097	$	212,056	$	7,115
1-4 family residential		2,172,064		2,172,064		1,118,468		2,181,448		95,225
Nonfarm, nonresidential		4,268,396		4,268,396		604,692		4,352,751		236,327
Commercial and industrial		8,050,110		8,050,110		2,334,003		8,365,281		400,481
Consumer		10,439		10,439		—		10,439		—
Other loans		—		—		—		—		—

	$	14,637,712	$	14,637,712	$	4,069,260	$	15,121,975	$	739,148

Nonperforming loans and impaired loans are defined differently. As such, some loans may be included in both categories, whereas other loans may only be included in one category. The following presents by class, an aging analysis of the recorded investment in loans.


											Recorded
											Investment
											> 90 Days
	30-89 Days		90 Days Plus		Total						and
	Past Due		Past Due		Past Due		Current		Total		Accruing

June 30, 2011

Construction and development	$	180,544	$	—	$	180,544	$	5,363,524	$	5,544,068	$	—
1-4 family residential		943,179		264,167		1,207,346		41,784,416		42,991,762		23,549
Nonfarm, nonresidential		552,023		—		552,023		47,813,763		48,365,786		—
Commercial and industrial		893,742		1,727,612		2,621,354		65,170,080		67,791,434		43,268
Consumer		53,130		8,463		61,593		6,636,013		6,697,606		2,742
Other loans		—		—		—		5,042,967		5,042,967		—

Total	$	2,622,618	$	2,000,242	$	4,622,860	$	171,810,763	$	176,433,623	$	69,559

Non-accruals included above	$	494,212	$	1,930,683	$	2,424,895	$	2,453,363	$	4,878,258


December 31, 2010

Construction and development	$	67,993	$	39,267	$	107,260	$	5,878,785	$	5,986,045	$	—
1-4 family residential		766,017		272,405		1,038,422		45,318,289		46,356,711		—
Nonfarm, nonresidential		229,393		220,321		449,714		47,720,984		48,170,698		—
Commercial and industrial		567,740		1,351,710		1,919,450		64,457,626		66,377,076		—
Consumer		143,832		—		143,832		6,615,938		6,759,770		—
Other loans		3,472		—		3,472		4,778,207		4,781,679		—

Total	$	1,778,447	$	1,883,703	$	3,662,150	$	174,769,829	$	178,431,979	$	—

Non-accruals included above	$	369,103	$	1,883,703	$	2,252,806	$	4,109,322	$	6,362,128

Credit Quality Indicators:

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 analyzes loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company for further impairment or improvement to determine if appropriately classified. All other loans greater than $500,000, commercial lines greater than $250,000 and personal lines of credit greater than $100,000, and unsecured loans greater than $100,000 are specifically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as when a loan becomes past due, the Company will evaluate the loan grade.

Loans excluded from the scope of the annual review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged off. The Company uses the following definitions for risk ratings:

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 payment 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 by credit quality indicator are provided in the following table.


							Special
	Total			Pass Credits			Mention			Substandard			Doubtful

June 30, 2011

Construction and development	$	5,544,068		$	5,448,947		$	95,121		$	—		$	—
1-4 family residential		42,991,762			41,870,311			1,121,451			—			—
Nonfarm, nonresidential		48,365,786			47,987,952			377,834			—			—
Commercial and industrial		67,791,434			62,937,773			4,853,661			—			—
Consumer		6,697,606			6,683,255			11,638			2,713			—
Other loans		5,042,967			5,042,967			—			—			—

	$	176,433,623		$	169,971,205		$	6,459,705		$	2,713		$	—


		100.0	%		96.3	%		3.7	%		0.0	%		0.0	%


Guaranteed portion of loans	$	35,638,702		$	32,665,430		$	2,973,272		$	—		$	—


							Special
	Total			Pass Credits			Mention			Substandard			Doubtful

December 31, 2010

Construction and development	$	5,986,045		$	5,779,959		$	206,086		$	—		$	—
1-4 family residential		46,356,711			43,990,930			1,333,354			65,143			967,284
Nonfarm, nonresidential		48,170,698			45,750,435			2,420,263			—			—
Commercial and industrial		66,377,076			59,501,127			6,094,833			—			781,116
Consumer		6,759,770			6,743,029			13,864			2,877			—
Other loans		4,781,679			4,781,679			—			—			—

	$	178,431,979		$	166,547,159		$	10,068,400		$	68,020		$	1,748,400


		100.0	%		93.3	%		5.7	%		0.0	%		1.0	%


Guaranteed portion of loans	$	32,259,668		$	29,142,378		$	3,117,290		$	—		$	—

Fair Value

6 Months Ended

Jun. 30, 2011

Fair Value

Fair Value

NOTE 7. FAIR VALUE

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale, trading securities and derivatives, if present, are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under the Fair Value Measurements and Disclosures Topic of FASB ASC, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:


Level 1		Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2		Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3		Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with the Receivables Topic of FASB ASC. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2011 substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with the Fair Value and Measurement Topic of the FASB ASC, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Servicing Assets

A valuation of loan servicing rights is performed on an individual basis due to the small number of loans serviced. Loans are evaluated on a discounted earnings basis to determine the present value of future earnings. The present value of the future earnings is the estimated market value for the loan, calculated using consensus assumptions that a third party purchaser would utilize in evaluating a potential acquisition of the servicing. As such, the Company classifies loan servicing rights as Level 3.

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.


*(in thousands)*
June 30, 2011	Total		Level 1		Level 2		Level 3
Government-sponsored enterprises	$	2,012	$	—	$	2,012	$	—
Mortgage-backed securities		72		—		72		—
Corporate bonds		433		—		433		—
Servicing assets		93		—		—		93

Total assets at fair value	$	2,610	$	—	$	2,517	$	93


Total liabilities at fair value	$	—	$	—	$	—	$	—


*(in thousands)*
December 31, 2010	Total		Level 1		Level 2		Level 3
Government-sponsored enterprises	$	1,502	$	—	$	1,502	$	—
Mortgage-backed securities		76		—		76		—
Corporate bonds		434		—		434		—
Servicing assets		95		—		—		95


Total assets at fair value	$	2,107	$	—	$	2,012	$	95


Total liabilities at fair value	$	—	$	—	$	—	$	—

For the six months ended June 30, 2011 and 2010, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:


	Level 3
	2011			2010
	Fair Value			Fair Value

*Balance, January 1*	$	94,878		$	—
Capitalized		—			64,115
Amortization included in other income		(1,427	)		(101	)

*Balance, June 30*	$	93,451		$	64,014

Changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three month period ended June 30, 2011 was $732, which was amortized to other income. Gains on the sale of government guaranteed loans are presented as a separate component of noninterest income on the consolidated statements of income for the six and three months ended June 30, 2011 and 2010.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets or liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets and liabilities that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets and liabilities measured at fair value on a nonrecurring basis are included in the table below.


*(in thousands)*
June 30, 2011	Total		Level 1		Level 2		Level 3
Loans-commercial and industrial	$	2,884	$	—	$	2,884	$	—
Loans-nonfarm, non-residential		1,734		—		1,734		—
Loans-other		207		—		207		—
Foreclosed assets		187		—		187		—

Total assets at fair value	$	5,012	$	—	$	5,012	$	—

Total liabilities at fair value	$	—	$	—	$	—	$	—


*(in thousands)*
December 31, 2010	Total		Level 1		Level 2		Level 3
Loans-commercial and industrial	$	3,469	$	—	$	3,469	$	—
Loans-nonfarm, non-residential		1,565		—		1,565		—
Loans- 1- 4 family residential		90		—		90		—
Loans-other		56		—		56		—
Foreclosed assets		451		—		451		—

Total assets at fair value	$	5,631	$	—	$	5,631	$	—

Total liabilities at fair value	$	—	$	—	$	—	$	—

The Company had no Level 3 assets or liabilities measured at fair value on a non-recurring basis at June 30, 2011 or December 31, 2010.

Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and due from banks: The carrying amounts reported in the balance sheet for cash and due from banks approximate their fair values.

Interest-bearing deposits with banks: Fair values for time deposits are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits.

Federal funds sold: Due to the short-term nature of these assets, the carrying value approximates fair value.

Securities: Fair values for securities, excluding restricted equity securities, are based on quoted market prices, where available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. The carrying values of restricted equity securities approximate fair values.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows.

Bank owned life insurance: The carrying amount reported in the balance sheet approximates the fair value as it represents the cash surrender value of the life insurance.

Deposit liabilities: The fair values disclosed for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits.

Federal funds purchased, securities sold under agreements to repurchase and short-term debt: The carrying amounts of federal funds purchased, securities sold under agreements to repurchase and short-term debt approximate their fair values.

Long-term debt: The fair value of long-term debt is estimated using a discounted cash flow calculation that applies interest rates currently available on similar instruments.

Other liabilities: For fixed-rate loan commitments, fair value considers the difference between current levels of interest rates and the committed rates. The carrying amounts of other liabilities approximate fair value.

The estimated fair values of the Company's financial instruments are as follows (dollars in thousands):


	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

*Financial Assets*
Cash and due from banks	$	2,642	$	2,642	$	2,398	$	2,398
Federal funds sold and interest-bearing deposits with banks		37,961		37,961		23,494		23,494
Securities, available for sale		2,517		2,517		2,012		2,012
Restricted equity securities		892		892		941