SFST 10-Q Quarter ended March 31, 2012

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                      to
Commission file number 000-27719

Southern First Bancshares, Inc.

(Exact name of registrant as specified in its charter)

	South Carolina						58-2459561
	(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
	100 Verdae Boulevard, Suite 100
	Greenville, S.C.						29606
	(Address of principal executive offices)						(Zip Code)

864-679-9000
(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 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 x No o

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 (§232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 3,841,812 shares of common stock, par value $0.01 per share, were issued and outstanding as of May 1, 2012.

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
March 31, 2012 Form 10-Q

INDEX

	PART I – FINANCIAL INFORMATION						Page
	Item 1.			Financial Statements
				Consolidated Balance Sheets			3
				Consolidated Statements of Income			4
				Consolidated Statements of Comprehensive Income			5
				Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)			6
				Consolidated Statements of Cash Flows			7
				Notes to Unaudited Consolidated Financial Statements			8
	Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			25
	Item 3.			Quantitative and Qualitative Disclosures about Market Risk			42
	Item 4.			Controls and Procedures			42
	PART II – OTHER INFORMATION
	Item 1.			Legal Proceedings			42
	Item 1A.			Risk Factors			42
	Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			42
	Item 3.			Defaults upon Senior Securities			42
	Item 4.			Mine Safety Disclosures			42
	Item 5.			Other Information			42
	Item 6.			Exhibits			42

PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

				March 31,						December 31,
	(dollars in thousands, except share data)			2012						2011
				(Unaudited)						(Audited)
	ASSETS
	Cash and cash equivalents:
	Cash and due from banks			$    10,295						7,417
	Interest-bearing deposits with banks			16,498						15,588
	Federal funds sold and securities purchased under agreements to resell			19,580						-
	Total cash and cash equivalents			46,373						23,005
	Investment securities:
	Investment securities available for sale			70,691						100,660
	Other investments, at cost			7,924						7,924
	Total investment securities			78,615						108,584
	Loans			607,925						598,634
	Less allowance for loan losses			(9,196	)					(8,925	)
	Loans, net			598,729						589,709
	Bank owned life insurance			18,252						18,093
	Property and equipment, net			17,302						17,342
	Deferred income taxes			3,003						2,951
	Other assets			7,732						8,061
	Total assets			$  770,006						767,745
	LIABILITIES AND SHAREHOLDERS' EQUITY
	Deposits			$  566,722						562,912
	Federal Home Loan Bank advances and repurchase agreements			122,700						122,700
	Junior subordinated debentures			13,403						13,403
	Other liabilities			4,175						6,191
	Total liabilities			707,000						705,206
	Shareholders' equity:
	Preferred stock, par value $.01 per share, 10,000,000 shares authorized, 17,299 shares issued and outstanding			16,669						16,596
	Common stock, par value $.01 per share, 10,000,000 shares authorized, 3,841,812 and 3,820,830 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively			38						38
	Nonvested restricted stock			(77	)					(16	)
	Additional paid-in capital			39,759						39,546
	Accumulated other comprehensive income			900						1,041
	Retained earnings			5,717						5,334
	Total shareholders' equity			63,006						62,539
	Total liabilities and shareholders' equity			$  770,006						767,745

See notes to consolidated financial statements that are an integral part of these consolidated statements. Additional paid in capital, retained earnings and common shares outstanding as of December 31, 2011 have been adjusted to reflect the ten percent stock dividend issued in 2012.

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

				For the three months ended March 31,
	(dollars in thousands, except share data)			2012			2011
	Interest income
	Loans			$            7,986			8,123
	Investment securities			557			454
	Federal funds sold			14			28
	Total interest income			8,557			8,605
	Interest expense
	Deposits			1,262			1,977
	Borrowings			1,166			1,227
	Total interest expense			2,428			3,204
	Net interest income			6,129			5,401
	Provision for loan losses			1,200			725
	Net interest income after provision for loan losses			4,929			4,676
	Noninterest income
	Loan fee income			200			144
	Service fees on deposit accounts			181			138
	Income from bank owned life insurance			159			132
	Gain on sale of investment securities			72			-
	Other income			225			181
	Total noninterest income			837			595
	Noninterest expenses
	Compensation and benefits			2,425			2,065
	Occupancy			583			539
	Real estate owned activity			278			531
	Data processing and related costs			514			435
	Insurance			352			403
	Marketing			194			170
	Professional fees			180			142
	Other			253			221
	Total noninterest expenses			4,779			4,506
	Income before income tax expense			987			765
	Income tax expense			299			228
	Net income			688			537
	Preferred stock dividend			216			216
	Discount accretion (1)			73			68
	Net income available to common shareholders (1)			$              399			253
	Earnings per common share (1)
	Basic			$             0.10			0.07
	Diluted			$             0.10			0.06
	Weighted average common shares outstanding
	Basic			3,838,747			3,813,368
	Diluted			3,879,830			3,901,399

See notes to consolidated financial statements that are an integral part of these consolidated statements. Earnings per share and common shares outstanding for the 2011 period have been adjusted to reflect the ten percent stock dividend issued in 2012.

(1)	See Note 1 to financial statements for information related to a correction of an error.

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

				For the three months ended March 31,
	(dollars in thousands)			2012			2011
	Net income			$ 688			537
	Other comprehensive income (loss):
	Unrealized gain (loss) on securities available for sale:
	Unrealized holding gain (loss) arising during the period, pretax			(139	)		174
	Tax (expense) benefit			46			(59	)
	Reclassification to realized gain			(72	)		-
	Tax expense			24			-
	Other comprehensive income (loss)			(141	)		115
	Comprehensive income			$ 547			652

See notes to consolidated financial statements that are an integral part of these consolidated statements.

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(Unaudited)

				Common stock									Preferred stock									Nonvested restricted									Additional paid-in						Accumulated other comprehensive income						Retained
	(dollars in thousands, except share data)			Shares			Amount						Shares			Amount						stock									capital						(loss)						earnings						Total
	December 31, 2010 (1)			3,457,877					$	35			17,299					$	16,317					$	-								$	36,729					$	(707	)				$	6,842					$	59,216
	Net income			-			-						-			-						-									-						-						537						537
	Preferred stock transactions:
	Cash dividends on Series T preferred stock			-			-						-			-						-									-						-						(216				)		(216				)
	Discount accretion			-			-						-			68						-									-						-						(68				)		-
	Proceeds from exercise of stock options			13,236			-						-			-						-									77						-						-						77
	Issuance of restricted stock			2,500			-						-			-						(20							)		20						-						-						-
	Cash in lieu of fractional shares			-			-						-			-						-									-						-						(1				)		(1				)
	Amortization of deferred compensation on restricted stock			-			-						-			-						1									-						-						-						1
	Compensation expense related to stock options, net of tax			-			-						-			-						-									67						-						-						67
	Other comprehensive income			-			-						-			-						-									-						115						-						115
	March 31, 2011(1)			3,473,613		$	35						17,299			16,385					$	(19							)		36,893					$	(592				)		7,094					$	59,796
	December 31, 2011			3,820,830		$	38						17,299			16,596					$	(16							)		39,546					$	1,041						5,334					$	62,539
	Net income			-			-						-			-						-									-						-						688						688
	Preferred stock transactions:
	Cash dividends on Series T preferred stock			-			-						-			-						-									-						-						(216				)		(216				)
	Discount accretion			-			-						-			73						-									-						-						(73				)		-
	Proceeds from exercise of stock options			9,075			-						-			-						-									57						-						-						57
	Stock dividend on stock options and restricted stock (10%)			1,907			-						-			-						-									14						-						(14				)		-
	Issuance of restricted stock			10,000			-						-			-						(67							)		67						-						-						-
	Cash in lieu of fractional shares			-			-						-			-						-									-						-						(2				)		(2				)
	Amortization of deferred compensation on restricted stock			-			-						-			-						6									-						-						-						6
	Compensation expense related to stock options, net of tax			-			-						-			-						-									75						-						-						75
	Other comprehensive income (loss)																																				(141				)		-						(141				)
	March 31, 2012			3,841,812					$	38			17,299					$	16,669								$	(77	)				$	39,759					$	900					$	5,717					$	63,006

See notes to consolidated financial statements that are an integral part of these consolidated statements. Common shares outstanding as of December 31, 2010 and 2011 have been adjusted to reflect the ten percent stock dividends issued in 2011 and 2012.

(1)	See Note 1 to financial statements for information related to a correction of an error.

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

				For the three months ended March 31,
	(dollars in thousands)			2012			2011
	Operating activities
	Net income			$    688			$    537
	Adjustments to reconcile net income to cash provided by operating activities:
	Provision for loan losses			1,200			725
	Depreciation and other amortization			233			216
	Accretion and amortization of securities discounts and premium, net			304			274
	Gain on sale of investment securities			(72	)		-
	Loss on sale and write-down of real estate owned			256			512
	Compensation expense related to stock options and grants			81			68
	Increase in cash surrender value of bank owned life insurance			(159	)		(132	)
	(Increase) decrease in deferred tax asset			21			(333	)
	Decrease in other assets, net			375			142
	Decrease in other liabilities, net			(2,016	)		(689	)
	Net cash provided by operating activities			911			1,320
	Investing activities
	Increase (decrease) in cash realized from:
	Origination of loans, net			(11,276	)		(7,885	)
	Purchase of property and equipment			(193	)		(165	)
	Purchase of investment securities:
	Available for sale			(2,591	)		-
	Payments and maturity of investment securities:
	Available for sale			4,373			3,565
	Proceeds from sale of investment securities			27,742			-
	Proceeds from sale of real estate owned			753			1,243
	Net cash provided by (used for) investing activities			18,808			(3,242	)
	Financing activities
	Increase (decrease) in cash realized from:
	Increase in deposits, net			3,810			23,758
	Cash dividend on preferred stock			(216	)		(216	)
	Cash in lieu of fractional shares			(2	)		(1	)
	Proceeds from the exercise of stock options and warrants			57			77
	Net cash provided by financing activities			3,649			23,618
	Net increase in cash and cash equivalents			23,368			21,696
	Cash and cash equivalents at beginning of the period			23,005			53,850
	Cash and cash equivalents at end of the period			46,373			75,546
	Supplemental information
	Cash paid for
	Interest			$  2,814			$  3,317
	Income taxes			279			525
	Schedule of non-cash transactions
	Real estate acquired in settlement of loans			1,056			-
	Unrealized gain (loss) on securities, net of income taxes			(93	)		115

See notes to consolidated financial statements that are an integral part of these consolidated statements.

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – Nature of Business and Basis of Presentation

Business activity

Southern First Bancshares, Inc. (the "Company") is a South Carolina corporation that owns all of the capital stock of Southern First Bank, N.A. (the "Bank") and all of the stock of Greenville First Statutory Trust I and II (collectively, the "Trusts"). On July 2, 2007, the Company and Bank changed their names to Southern First Bancshares, Inc. and Southern First Bank, N.A., respectively. The Bank is a national bank organized under the laws of the United States located in Greenville County, South Carolina and operates as Greenville First Bank in Greenville County. The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the Federal Deposit Insurance Corporation (the "FDIC"), and providing commercial, consumer and mortgage loans to the general public. The Trusts are special purpose non-consolidated entities organized for the sole purpose of issuing trust preferred securities.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 (Registration Number 000-27719) as filed with the Securities and Exchange Commission on March 9, 2012. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, "Consolidation," the financial statements related to the special purpose subsidiaries, the Trusts, have not been consolidated.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other real estate owned, fair value of financial instruments, evaluating other-than-temporary-impairment of investment securities and valuation of deferred tax assets.

Correction of an Error

During the third quarter of 2011, the Company determined that it had been accounting for its preferred stock and related discount accretion in error since the issuance of the preferred stock in February 2009. All prior period amounts related to preferred stock, discount accretion, net income (loss) to common shareholders and earnings (loss) per common share have been restated. The error was not material to the interim or annual financial statements. Correction of this error also required reclassifications within shareholders' equity that increased preferred stock, decreased additional paid in capital, and decreased retained earnings.

The tables below quantify the differences between the amounts filed and restated for the respective periods presented in this Quarterly Report on Form 10-Q.

				March 31, 2011
	(dollars in thousands)			As filed			As restated
	Preferred stock			$14,846			16,385
	Additional paid-in capital			37,903			36,893
	Retained earnings			7,623			7,094
				$60,372			60,372
				Three months ended March 31, 2011
	(dollars in thousands)			As filed			As restated
	Net income			$     537			537
	Preferred stock dividend			216			216
	Discount accretion			113			68
	Net income (loss) to common shareholders			$     208			253
	Earnings (loss) per common share
	Basic			$     0.06			0.07
	Diluted			$     0.06			0.06

Reclassifications

Certain amounts, previously reported, have been reclassified to state all periods on a comparable basis that had no effect on shareholders' equity or net income.

Formal Agreement with the Office of the Comptroller of the Currency

On June 8, 2010, the Bank entered into a formal agreement (the "Formal Agreement") with its primary regulator, the Office of the Comptroller of the Currency (the "OCC"). The Formal Agreement seeks to enhance the Bank's existing practices and procedures in the areas of credit risk management, credit underwriting, liquidity, and funds management. The Board of Directors and management of the Bank have aggressively worked to address the findings of the exam and believe the Company is currently in compliance with substantially all of the requirements of the Formal Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more discussion of the Formal Agreement.

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 performed an evaluation to determine whether there have been any subsequent events since the balance sheet date and determined that no subsequent events occurred requiring accrual or disclosure.

Recently Adopted Accounting Pronouncements

The following is a summary of recently adopted authoritative pronouncements that could impact the accounting, reporting, and/or disclosure of financial information by the Company.

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 and requires consecutive presentation of the statement of net income and other comprehensive income. The amendments were applicable to the Company on January 1, 2012 and have been applied retrospectively. In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements. Companies should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the amendments while FASB redeliberates future requirements.

NOTE 2 – Investment Securities

The amortized costs and fair value of investment securities are as follows:

				March 31, 2012
				Amortized			Gross Unrealized						Fair
	(dollars in thousands)			Cost			Gains			Losses			Value
	Available for sale
	State and political subdivisions			$16,855			819			-			17,674
	Mortgage-backed securities:
	FHLMC			13,097			250			17			13,330
	FNMA			38,931			306			26			39,211
	GNMA			443			33			-			476
	Total mortgage-backed securities			52,471			589			43			53,017
	Total investment securities available for sale			$69,326			1,408			43			70,691
				December 31, 2011
				Amortized			Gross Unrealized						Fair
				Cost			Gains			Losses			Value
	Available for sale
	State and political subdivisions			$17,390			860			2			18,248
	Mortgage-backed securities:
	FHLMC			22,549			325			31			22,843
	FNMA			58,631			441			72			59,000
	GNMA			514			55			-			569
	Total mortgage-backed securities			81,694			821			103			82,412
	Total investment securities available for sale			$99,084			1,681			105			100,660

Other investments are comprised of the following and are recorded at cost which approximates fair value.

	(dollars in thousands)			March 31, 2012			December 31, 2011
	Federal Reserve Bank stock			$1,485			1,485
	Federal Home Loan Bank stock			5,937			5,937
	Certificates of deposit with other banks			99			99
	Investment in Trust Preferred securities			403			403
	Total other investments			$7,924			7,924

Contractual maturities and yields on our investment securities at March 31, 2012 and December 31, 2011 are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. We had no securities with maturities less than one year at March 31, 2012 or December 31, 2011.

																March 31, 2012
				One to Five Years						Five to Ten Years						Over Ten Years									Total
	(dollars in thousands)			Amount			Yield			Amount			Yield			Amount			Yield						Amount			Yield
	Available for Sale
	State and political subdivisions		$	-			-	%		5,777			2.81	%		11,897			3.34				%		17,674			3.17	%
	Mortgage-backed securities			-			-	%		-			-	%		53,017			2.53				%		53,017			2.53	%
	Total		$	-			-	%		5,777			2.81	%		64,914			2.68				%		70,691			2.69	%

		December 31, 2011
		One to Five Years									Five to Ten Years					Over Ten Years				Total
		Amount				Yield				Amount				Yield		Amount		Yield		Amount		Yield
Available for Sale
State and political subdivisions		$	527				1.35	%			5,845			2.81%		11,876		3.34%		18,248		3.11%
Mortgage-backed securities			—				—	%			11,318			1.89%		71,094		2.29%		82,412		2.24%
Total		$	527				1.35	%			17,163			2.19%		82,970		2.44%		100,660		2.39%

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at March 31, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

																										March 31, 2012
		Less than 12 months												12 months or longer												Total
(dollars in thousands)		#				Fair value				Unrealized losses			#					Fair value				Unrealized losses			#				Fair value					Unrealized losses
Available for sale
Mortgage-backed
FHLMC			1			$	2,174			$	17				—				—				—				1			$	2,174			$	17
FNMA			3				7,059				26				—				—				—				3				7,059				26
Total			4			$	9,233			$	43				—				—				—				4			$	9,233			$	43
																										December 31, 2012
		Less than 12 months												12 months or longer												Total
(dollars in thousands)		#			Fair value				Unrealized losses				#					Fair value				Unrealized losses			#				Fair value				Unrealized losses
Available for sale
State and political subdivisions			1			$	500			$	2				—				—				—				1			$	500			$	2
Mortgage-backed
FHLMC			1				2,602				31				—				—				—				1				2,602				31
FNMA			8				19,775				72				—				—				—				8				19,775				72
Total			10			$	22,877			$	105				—				—				—				10			$	22,877			$	105

NOTE 3 – Loans and Allowance for Loan Losses

The following table summarizes the composition of our loan portfolio.

				March 31, 2012									December 31, 2011
	(dollars in thousands)			Amount			% of Total						Amount			% of Total
	Commercial
	Owner occupied RE		$	151,275			24.9	%					149,426			25.0	%
	Non-owner occupied RE			165,215			27.2	%					164,776			27.5	%
	Construction			20,573			3.4	%					17,882			3.0	%
	Business			111,579			18.3	%					111,939			18.7	%
	Total commercial loans			448,642			73.8	%					444,023			74.2	%
	Consumer
	Real estate			65,529			10.8	%					57,906			9.7	%
	Home equity			80,606			13.3	%					82,664			13.8	%
	Construction			5,173			0.8	%					5,570			0.9	%
	Other			8,671			1.4	%					9,081			1.5	%
	Total consumer loans			159,979			26.3	%					155,221			25.9	%
	Deferred origination fees, net			(696	)		(0.1	)%					(610	)		(0.1	)%
	Total gross loans, net of deferred fees			607,925			100.0	%					598,634			100.0	%
	Less—allowance for loan losses			(9,196	)								(8,925	)
	Total loans, net		$	598,729									589,709

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.

							March 31, 2012
	(dollars in thousands)			One year or less			After one but within five years			After five years			Total
	Commercial
	Owner occupied RE		$	25,997			79,733			45,545			151,275
	Non-owner occupied RE			48,469			104,066			12,680			165,215
	Construction			8,087			6,122			6,364			20,573
	Business			63,435			44,021			4,123			111,579
	Total commercial loans			145,988			233,942			68,712			448,642
	Consumer
	Real estate			13,313			21,638			30,578			65,529
	Home equity			15,691			19,780			45,135			80,606
	Construction			3,937			-			1,236			5,173
	Other			4,834			3,259			578			8,671
	Total consumer loans			37,775			44,677			77,527			159,979
	Deferred origination fees, net			(210	)		(319	)		(167	)		(696	)
	Total gross loans, net of deferred fees		$	183,553			278,300			146,072			607,925
	Loans maturing after one year with:
	Fixed interest rates												254,326
	Floating interest rates												170,046

							December 31, 2011
				One year or less			After one but within five years			After five years			Total
	Commercial
	Owner occupied RE		$	28,095			85,114			36,217			149,426
	Non-owner occupied RE			49,123			105,276			10,377			164,776
	Construction			6,295			4,007			7,580			17,882
	Business			60,248			47,594			4,097			111,939
	Total commercial loans			143,761			241,991			58,271			444,023
	Consumer
	Real estate			16,198			20,022			21,686			57,906
	Home equity			15,221			21,369			46,074			82,664
	Construction			5,470			-			100			5,570
	Other			4,910			3,482			689			9,081
	Total consumer			41,799			44,873			68,549			155,221
	Deferred origination fees, net			(189	)		(292	)		(129	)		(610	)
	Total gross loan, net of deferred fees		$	185,371			286,572			126,691			598,634
	Loans maturing after one year with:
	Fixed interest rates											$	240,767
	Floating interest rates												172,496

Portfolio Segment Methodology

Commercial

Commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews. We apply historic grade-specific loss factors to each funded loan. In the development of our statistically derived loan grade loss factors, we observe historical losses over a relevant period for each loan grade. These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends. The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a troubled debt restructuring ("TDR"), whether on accrual or nonaccrual status.

Consumer

For consumer loans, we determine the allowance on a collective basis utilizing forecasted losses to represent our best estimate of inherent loss. We pool loans, generally by product types with similar risk characteristics. In addition, we establish an allowance for consumer loans that have been modified in a TDR, whether on accrual or nonaccrual status.

Credit Quality Indicators

Commercial

We manage a consistent process for assessing commercial loan credit quality by monitoring our loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our categories include Pass, Special Mention, Substandard, Doubtful, and Loss, each of which is defined by banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for credit losses.

The tables below provide a breakdown of outstanding commercial loans by risk category.

																March 31, 2012
	(dollars in thousands)			Owner occupied RE			Non-owner occupied RE			Construction						Business						Total
	Pass		$	142,097			138,771			14,926						103,254						399,048
	Special Mention			4,271			14,254			-						3,056						21,581
	Substandard			4,907			12,190			5,647						5,269						28,013
	Doubtful			-			-			-						-						-
	Loss			-			-			-						-						-
			$	151,275			165,215			20,573						111,579						448,642
																December 31, 2011
				Owner occupied RE			Non-owner occupied RE			Construction						Business						Total
	Pass		$	139,907			138,535			12,830						104,009						395,281
	Special Mention			4,294			12,733			-						2,323						19,350
	Substandard			5,225			13,508			5,052						5,607						29,392
	Doubtful			-			-			-						-						-
	Loss			-			-			-						-						-
			$	149,426			164,776			17,882						111,939						444,023

The following tables provide past due information for outstanding commercial loans and include loans on nonaccrual status.

																									March 31, 2012
	(dollars in thousands)						Owner occupied RE						Non-owner occupied RE						Construction						Business			Total
	Current					$	148,581						157,176						19,462						108,362			433,581
	30-59 days past due						135						6,037						64						690			6,926
	60-89 days past due						-						886						-						445			1,331
	Greater than 90 Days						2,559						1,116						1,047						2,082			6,804
						$	151,275						165,215						20,573						111,579			448,642
																									December 31, 2011
							Owner occupied RE						Non-owner occupied RE						Construction						Business			Total
	Current					$	145,089						161,922						16,566						107,713			431,290
	30-59 days past due						20						646						2						172			841
	60-89 days past due						3,007						294						-						790			4,090
	Greater than 90 Days						1,310						1,914						1,314						3,264			7,802
						$	149,426						164,776						17,882						111,939			444,023

Consumer

We manage a consistent process for assessing consumer loan credit quality by monitoring our loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our categories include Pass, Special Mention, Substandard, Doubtful, and Loss, each of which is defined by banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for credit losses.

The tables below provide a breakdown of outstanding consumer loans by risk category.

													March 31, 2012
	(dollars in thousands)			Real estate			Home equity			Construction			Other			Total
	Pass		$	63,136			76,949			5,173			8,237			153,495
	Special Mention			311			2,141			-			62			2,514
	Substandard			2,082			1,516			-			372			3,970
	Doubtful			-			-			-			-			-
	Loss			-			-			-			-			-
			$	65,529			80,606			5,173			8,671			159,979
													December 31, 2011
				Real estate			Home equity			Construction			Other			Total
	Pass		$	55,076			79,129			5,570			8,641			148,416
	Special Mention			526			2,142			-			65			2,733
	Substandard			2,304			1,393			-			375			4,072
	Doubtful			-			-			-			-			-
	Loss			-			-			-			-			-
			$	57,906			82,664			5,570			9,081			155,221

The following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status.

													March 31, 2012
	(dollars in thousands)			Real estate			Home equity			Construction			Other			Total
	Current		$	64,870			79,662			5,173			8,666			158,371
	30-59 days past due			169			601			-			5			775
	60-89 days past due			-			80			-			-			80
	Greater than 90 Days			490			263			-			-			753
			$	65,529			80,606			5,173			8,671			159,979
													December 31, 2011
				Real estate			Home equity			Construction			Other			Total
	Current		$	56,854			82,229			5,570			9,076			153,729
	30-59 days past due			344			80			-			5			429
	60-89 days past due			-			-			-			-			-
	Greater than 90 Days			708			355			-			-			1,063
			$	57,906			82,664			5,570			9,081			155,221

Nonperforming assets

Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. The following table shows our nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received.