5. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans receivable at June 30, 2011 and December 31, 2010 are summarized as follows:

	June 30, 2011			December 31, 2010
First mortgage loans:
Secured by:
One-to four-family residences	$	136,088,957		$	141,061,321
Multifamily properties		54,843,887			57,461,170
Commercial properties		62,765,758			69,253,792
Construction and land development loans		3,091,562			4,193,756
Total first mortgage loans		256,790,164			271,970,039

Consumer loans:
Automobile		13,420,343			13,548,710
Second mortgage		48,405,196			51,349,053
Other		4,091,681			4,282,717
Total consumer loans		65,917,220			69,180,480

Total loans		322,707,384			341,150,519

Undisbursed portion of construction loans		(1,421,434	)		(295,609	)
Unearned premiums, net		(33,918	)		83,528
Net deferred loan origination fees		(330,827	)		(331,010	)
	$	320,921,205		$	340,607,428

Activity in the allowance for loan losses by segment for the three and six months ended June 30, 2011 is summarized in the following table.


	For the Three Months Ended June 30, 2011
	Commercial Real Estate			Construction and Land Development			Multi-Family Real Estate			1-4 Family Residential Real Estate			Consumer			Total
Allowance for Loan Losses:
Beginning balance	$	2,490,162		$	289,260		$	870,437		$	1,015,455		$	1,575,760		$	6,241,074
Charge-offs		(271,687	)		-			(278,387	)		(26,250	)		(283,907	)		(860,231	)
Recoveries		-			-			-			-			6,615			6,615
Provisions		313,259			(11,898	)		(19,545	)		28,674			174,510			485,000
Ending balance	$	2,531,734		$	277,362			572,505		$	1,017,879		$	1,472,978		$	5,872,458

	For the Six Months Ended June 30, 2011
	Commercial Real Estate			Construction and Land Development			Multi-Family Real Estate			1-4 Family Residential Real Estate			Consumer			Total
Allowance for Loan Losses:
Beginning balance	$	2,555,094		$	354,911		$	803,850		$	1,009,630		$	1,423,376		$	6,146,861
Charge-offs		(372,810	)		(70,000	)		(278,387	)		(41,205	)		(309,256	)		(1,071,658	)
Recoveries		-			-			-			127			12,128			12,255
Provisions		349,450			(7,549	)		47,042			49,327			346,730			785,000
Ending balance	$	2,531,734		$	277,362		$	572,505		$	1,017,879		$	1,472,978		$	5,872,458

Activity in the allowance for loan losses for the three and six months ended June 30, 2010 is summarized as follows:

	Three Months			Six Months
	Ended June 30,			Ended June 30,
	2010			2010

Balance at beginning of period	$	7,760,897		$	7,170,595
Charge-offs		(379,781	)		(593,975	)
Recoveries		1,600			6,096
Provision charged to operations		1,610,000			2,410,000
Balance at end of period	$	8,992,716		$	8,992,716

The following table presents the balance in the allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2011 and December 31, 2010.


	June 30, 2011
	Commercial Real Estate		Construction and Land Development		Multi-Family Real Estate		1-4 Family Residential Real Estate		Consumer		Total
Allowance for Loan Losses:
Individually evaluated for impairment	$	1,080,843	$	151,600	$	-	$	135,250	$	208,132	$	1,575,825
Collectively evaluated for impairment		1,450,891		125,762		572,505		882,629		1,264,846		4,296,633
Total ending allowance balance	$	2,531,734		277,362		572,505		1,017,879	$	1,472,978	$	5,872,458

Loans:
Individually evaluated for impairment	$	8,580,917	$	2,767,333	$	-	$	5,300,853	$	860,026	$	17,509,129
Collectively evaluated for impairment		54,184,841		324,229		54,843,887		130,788,104		65,057,194		305,198,255
Total ending allowance balance	$	62,765,758	$	3,091,562	$	54,843,887	$	136,088,957	$	65,917,220	$	322,707,384

	December 31, 2010
	Commercial Real Estate		Construction and Land Development		Multi-Family Real Estate		1-4 Family Residential Real Estate		Consumer		Total
Allowance for Loan Losses:
Individually evaluated for impairment	$	1,121,500	$	237,000	$	201,500	$	85,111	$	115,683	$	1,760,794
Collectively evaluated for impairment		1,433,594		117,911		602,350		924,519		1,307,693		4,386,067
Total ending allowance balance	$	2,555,094	$	354,911	$	803,850	$	1,009,630	$	1,423,376	$	6,146,861

Loans:
Individually evaluated for impairment	$	12,194,848	$	3,301,345	$	1,558,628	$	5,167,369	$	607,064	$	22,829,254
Collectively evaluated for impairment		57,058,944		892,411		55,902,542		135,893,952		68,573,416		318,321,265
Total ending allowance balance	$	69,253,792	$	4,193,756	$	57,461,170	$	141,061,321	$	69,180,480	$	341,150,519

The following table summarizes the recorded investment in impaired loans by segment, including loans for which no impairment is recorded, loans for which an impairment is recorded, and the resulting allowance for the impairment by segment as of June 30, 2011 and December 31, 2010.


	June 30, 2011						December 31, 2010
	Carrying Amount		Unpaid Principal Balance		Associated Allowance		Carrying Amount		Unpaid Principal Balance		Associated Allowance
With no specific allowance recorded:
Commercial Real Estate	$	510,248	$	510,248	$	-	$	1,584,352	$	1,852,852	$	-
Construction and Land Development		892,017		2,962,017		-		892,017		2,962,017		-
Multi-Family Real Estate		-		-		-		-		-		-
1-4 Family Residential Real Estate		4,348,861		4,572,492		-		4,560,823		4,872,752		-
Consumer		484,631		484,631		-		433,793		442,786		-
With an allowance recorded:
Commercial Real Estate		8,070,669		8,070,669		1,080,843		10,610,496		10,610,496		1,121,500
Construction and Land Development		1,875,316		1,875,316		151,600		2,409,328		2,409,328		237,000
Multi-Family Real Estate		-		-		-		1,558,628		1,558,628		201,500
1-4 Family Residential Real Estate		951,992		951,992		135,250		606,546		606,546		85,111
Consumer		375,395		375,395		208,132		173,271		173,271		115,683
Total:
Commercial Real Estate		8,580,917		8,580,917		1,080,843		12,194,848		12,463,348		1,121,500
Construction and Land Development		2,767,333		4,837,333		151,600		3,301,345		5,371,345		237,000
Multi-Family Real Estate		-		-		-		1,558,628		1,558,628		201,500
1-4 Family Residential Real Estate		5,300,853		5,524,484		135,250		5,167,369		5,479,298		85,111
Consumer		860,026		860,026		208,132		607,064		616,057		115,683
	$	17,509,129	$	19,802,760	$	1,575,825	$	22,829,254	$	25,488,676	$	1,760,794

The following table summarizes the average balances and interest income recognized related to impaired loans for the six months ended June 30, 2011.

	Average Balance		Interest Income
Commercial Real Estate	$	10,331,802	$	237,602
Construction and Loan Development		2,857,988		-
Multi-Family Real Estate		779,314		-
1-4 Family Residential Real Estate		5,190,938		139,239
Consumer		941,855		23,267
	$	20,101,897	$	400,108

Credit Quality Indicators

Credit quality indicators are used by management in determining the allowance for loan losses. The primary credit quality indicators used by management include loan classification and delinquency status. These indicators are used to identify and evaluate trends and deterioration in the loan portfolio.

The primary credit quality indicator used by management in the commercial real estate, construction and land development, and multi-family real estate loan portfolios is the internal classification of the loans. Loans in these portfolios that are over $500,000 are reviewed annually at which time they are assigned a classification. Loans may also be reviewed prior to the annual review cycle based on current information that becomes available regarding the borrower's ability to service the loan. Loans may be classified as watch, special mention, substandard, or doubtful. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets that do not expose the Bank to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve management's close attention are designated as special mention. If left uncorrected, these potential weaknesses could increase the level of risk to the Bank in the future. Commercial loans to borrowers whose most recent financial information shows deterioration in the earliest stages and warrant greater than routine attention and monitoring by management are designated as watch.

The primary credit quality indicator used by management in the residential real estate and consumer loan portfolios is the delinquency status of the loans.

The following table summarizes the recorded investment in loan segments by credit quality indicator as of June 30, 2011 and December 31, 2010. Past due status is reported as of June 30, 2011 and December 31, 2010. Internal classification ratings reflect the most recent classification assigned generally based on an annual review.


Commercial Loans
Credit risk profile by internally assigned grade

	June 30, 2011								December 31, 2010
	Commercial Real Estate		Construction and Land Development		Multi-Family Real Estate		Total		Commercial Real Estate		Construction and Land Development		Multi-Family Real Estate		Total
Grade:
Pass	$	47,121,335	$	324,229	$	51,050,837	$	98,496,401	$	53,092,384	$	892,411	$	53,291,156	$	107,275,951
Watch		6,590,308		-		3,793,050		10,383,358		3,966,560		-		2,611,386		6,577,946
Special Mention		473,198		-		-		473,198		-		-		-		-
Substandard		7,500,074		2,615,733		-		10,115,807		11,073,348		3,064,345		1,357,128		15,494,821
Doubtful		1,080,843		151,600		-		1,232,443		1,121,500		237,000		201,500		1,560,000
	$	62,765,758	$	3,091,562	$	54,843,887	$	120,701,207	$	69,253,792	$	4,193,756	$	57,461,170	$	130,908,718


Residential Real Estate and Consumer Loans
Credit risk profile based on delinquency status

	June 30, 2011								December 31, 2010
	1-4 Family Residential Real Estate		Second Mortgage		Other Consumer Loans		Total		1-4 Family Residential Real Estate		Second Mortgage		Other Consumer Loans		Total
Current	$	131,463,843	$	47,558,068	$	17,172,949	$	196,194,860	$	137,430,650	$	50,136,653	$	17,590,417	$	205,157,720
Past due 30-89 days		2,438,477		313,040		281,675		3,033,192		1,473,094		786,900		203,341		2,463,335
Past due 90 days and greater		2,186,637		534,088		57,400		2,778,125		2,157,577		425,500		37,669		2,620,746
	$	136,088,957	$	48,405,196	$	17,512,024	$	202,006,177	$	141,061,321	$	51,349,053	$	17,831,427	$	210,241,801

An aging analysis of the recorded investment in loans by segment at June 30, 2011 and December 31, 2010 is summarized as follows.

	30-89 Days		90 Days Past Due
	Past Due		and Greater		Total Past Due		Current		Total
June 30, 2011
Commercial Loans:
Commercial Real Estate	$	1,855,149	$	179,773	$	2,034,922	$	60,730,836	$	62,765,758
Construction and Land Development		-		1,620,394		1,620,394		1,471,168		3,091,562
Multi-Family Real Estate		-		-		-		54,843,887		54,843,887
1-4 Family Residential Real Estate		2,438,477		2,186,637		4,625,114		131,463,843		136,088,957
Consumer:
Second mortgage		313,040		534,088		847,128		47,558,068		48,405,196
Other consumer loans		281,675		57,400		339,075		17,172,949		17,512,024
	$	4,888,341	$	4,578,292	$	9,466,633	$	313,240,751	$	322,707,384

December 31, 2010
Commercial Loans:
Commercial Real Estate	$	-	$	440,193	$	440,193	$	68,813,599	$	69,253,792
Construction and Land Development		-		1,411,752		1,411,752		2,782,004		4,193,756
Multi-Family Real Estate		373,518		1,558,628		1,932,146		55,529,024		57,461,170
1-4 Family Residential Real Estate		1,473,094		2,157,577		3,630,671		137,430,650		141,061,321
Consumer:
Second mortgage		786,900		425,500		1,212,400		50,136,653		51,349,053
Other consumer loans		203,341		37,669		241,010		17,590,417		17,831,427
	$	2,836,853	$	6,031,319	$	8,868,172	$	332,282,347	$	341,150,519

Nonaccrual loans at June 30, 2011 and December 31, 2010 by segment are summarized below:


	June 30, 2011		December 31, 2010
Commercial Loans:
Commercial Real Estate	$	332,822	$	5,408,650
Construction and Land Development		2,767,333		1,679,839
Multi-Family Real Estate		-		1,558,628
1-4 Family Residential Real Estate		2,437,212		2,459,406
Consumer:
Second mortgage		534,089		425,500
Other consumer loans		57,400		37,669
	$	6,128,856	$	11,569,692

The Company had loans renegotiated in troubled debt restructurings of $15.1 million as of June 30, 2011, of which $3.1 million were included in nonaccrual loans and $12.0 million were on accrual status. The Company had loans renegotiated in troubled debt restructurings of $17.4 million as of December 31, 2010, of which $5.2 million were included in nonaccrual loans and $12.2 million were on accrual status.