In 2011, the Company paid cash dividends of $2.9 million, or $0.80 per share. The Company remains well capitalized  under current regulatory guidelines with a total risk-based capital ratio of 16.66%, a tier one risk-based capital ratio of  15.40%, and a tier one leverage capital ratio of 8.82% at December 31, 2011.  The accounting and financial reporting policies of the Company conform with U.S. generally accepted accounting  principles, or GAAP, and with general practices within the banking industry. In connection with the application of those  principles, we have made judgments and estimates which, in the case of the determination of our allowance for loan losses,  our assessment of other-than-temporary impairment, recurring and non-recurring fair value measurements, valuation of  OREO, and the valuation of deferred tax assets, were critical to the determination of our financial position and results of  operations. Other policies also require subjective judgment and assumptions and may accordingly impact our financial  position and results of operations.  The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter. The level  of the allowance is based upon management’s evaluation of the loan portfolios, past loan loss experience, current asset  quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay  (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan loss rates and other pertinent factors, including regulatory  recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing  of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loan losses are  charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off  after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is  unlikely. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, is deemed to be uncollectible.  The Company deems loans impaired when, based on current information and events, it is probable that the Company  will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as  scheduled in the loan agreement.  An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan. The  impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future  cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs.  The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the  portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge- offs, net of recoveries of amounts previously charged-off.  In assessing the adequacy of the allowance, the Company also considers the results of its ongoing independent loan  review process. The Company’s loan review process assists in determining whether there are loans in the portfolio whose  credit quality has weakened over time and evaluating the risk characteristics of the entire loan portfolio. The Company’s loan page 4 Allowance for Loan Losses  CRITICAL ACCOUNTING POLICIES  in total construction and land development loans outstanding as well as a decline in adversely risk-graded construction and  land development loans.  Noninterest income was $5.2 million in 2011, compared to $6.7 million in 2010. The decrease in noninterest income  was primarily due to a decrease in mortgage lending income of $0.6 million, a decrease in net securities gains of $0.5 million,  and an increase in losses related to affordable housing investments of $0.3 million. Noninterest expense was $16.4 million in 2011, compared to $15.9 million in 2010. The increase in noninterest  expense was primarily due to an increase in salaries and benefits expense of $0.8 million and an increase in net expenses  related to OREO of $0.6 million. These increases were partially offset by a decrease in FDIC and other regulatory  assessments of $0.3 million and a decrease in prepayment penalties on long-term debt of $0.7 million. Income tax expense for 2011 was $0.1 million, compared to $0.8 million in 2010. The Company’s effective income  tax rate was 1.02% in 2011, compared to 12.99% in 2010. The decrease in the Company’s effective tax rate during 2011  compared to 2010 was due to a decline in the level of earnings before taxes and an increase in federal tax credits related to  the Company’s investments in affordable housing limited partnerships, which increased in 2011.