4. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

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

	September 30, 2011			December 31, 2010
First mortgage loans:
Secured by:
One-to four-family residences	$	135,652,156		$	141,061,321
Multifamily properties		51,830,217			57,461,170
Commercial properties		61,659,444			69,253,792
Construction and land development loans		2,090,560			4,193,756
Total first mortgage loans		251,232,377			271,970,039

Consumer loans:
Automobile		13,770,676			13,548,710
Second mortgage		46,615,734			51,349,053
Other		3,875,990			4,282,717
Total consumer loans		64,262,400			69,180,480

Total loans		315,494,777			341,150,519

Undisbursed portion of construction loans		(1,711,322	)		(295,609	)
Unearned premiums, net		53,926			83,528
Net deferred loan origination fees		(331,690	)		(331,010	)
	$	313,505,691		$	340,607,428

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

	For the Three Months Ended September 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	$	2,531,734		$	277,362	$	572,505		$	1,017,879		$	1,472,978		$	5,872,458
Charge-offs		(913,540	)		-		-			(88,563	)		(161,408	)		(1,163,511	)
Recoveries		-			-		-			-			7,365			7,365
Provisions		214,875			8,624		(25,947	)		104,292			48,156			350,000
Ending balance	$	1,833,069		$	285,986		546,558		$	1,033,608		$	1,367,091		$	5,066,312

	For the Nine Months Ended September 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		(1,286,350	)		(70,000	)		(278,387	)		(129,769	)		(470,664	)		(2,235,170	)
Recoveries		-			-			-			127			19,494			19,621
Provisions		564,325			1,075			21,095			153,620			394,885			1,135,000
Ending balance	$	1,833,069		$	285,986		$	546,558		$	1,033,608		$	1,367,091		$	5,066,312

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

	Three Months			Nine Months
	Ended September 30,			Ended September 30,
	2010			2010

Balance at beginning of period	$	8,992,716		$	7,170,595
Charge-offs		(1,496,146	)		(2,090,121	)
Recoveries		6,976			13,072
Provision charged to operations		168,000			2,578,000
Balance at end of period	$	7,671,546		$	7,671,546

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 September 30, 2011 and December 31, 2010.

	September 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	$	210,800	$	177,000	$	-	$	91,400	$	111,041	$	590,241
Collectively evaluated for impairment		1,622,269		108,986		546,558		942,208	$	1,256,050		4,476,071
Total ending allowance balance	$	1,833,069		285,986		546,558		1,033,608	$	1,367,091	$	5,066,312

Loans:
Individually evaluated for impairment	$	7,571,823	$	1,839,186	$	-	$	3,977,405	$	660,836	$	14,049,250
Collectively evaluated for impairment		54,087,621		251,374		51,830,217		131,674,751		63,601,564		301,445,527
Total ending allowance balance	$	61,659,444	$	2,090,560	$	51,830,217	$	135,652,156	$	64,262,400	$	315,494,777

	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 September 30, 2011 and December 31, 2010.

	September 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	$	1,564,681	$	2,433,148	$	-	$	1,584,352	$	1,852,852	$	-
Construction and Land Development		-		-		-		892,017		2,962,017		-
Multi-Family Real Estate		-		-		-		-		-		-
1-4 Family Residential Real Estate		3,269,042		3,492,673		-		4,560,823		4,872,752		-
Consumer		430,612		439,605		-		433,793		442,786		-
With an allowance recorded:
Commercial Real Estate		6,007,142		6,007,142		210,800		10,610,496		10,610,496		1,121,500
Construction and Land Development		1,839,186		1,839,186		177,000		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		708,363		708,363		91,400		606,546		606,546		85,111
Consumer		230,224		230,224		111,041		173,271		173,271		115,683
Total:
Commercial Real Estate		7,571,823		8,440,290		210,800		12,194,848		12,463,348		1,121,500
Construction and Land Development		1,839,186		1,839,186		177,000		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		3,977,405		4,201,036		91,400		5,167,369		5,479,298		85,111
Consumer		660,836		669,829		111,041		607,064		616,057		115,683
	$	14,049,250	$	15,150,341	$	590,241	$	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 nine months ended September 30, 2011.

	Average Balance		Interest Income
Commercial Real Estate	$	9,524,040	$	321,853
Construction and Loan Development		2,689,228		-
Multi-Family Real Estate		519,543		-
1-4 Family Residential Real Estate		5,080,837		205,366
Consumer		882,549		32,816
	$	18,696,197	$	560,035

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 September 30, 2011 and December 31, 2010. Past due status is reported as of September 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

	September 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	$	46,381,751	$	251,374	$	47,595,337	$	94,228,462	$	53,092,384	$	892,411	$	53,291,156	$	107,275,951
Watch		5,257,137		-		4,234,880		9,492,017		3,966,560		-		2,611,386		6,577,946
Special Mention		2,448,733		-		-		2,448,733		-		-		-		-
Substandard		7,361,023		1,662,186		-		9,023,209		11,073,348		3,064,345		1,357,128		15,494,821
Doubtful		210,800		177,000		-		387,800		1,121,500		237,000		201,500		1,560,000
	$	61,659,444	$	2,090,560	$	51,830,217	$	115,580,221	$	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

	September 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	$	132,486,662	$	46,043,455	$	17,374,361	$	195,904,478	$	137,430,650	$	50,136,653	$	17,590,417	$	205,157,720
Past due 30-89 days		868,253		318,076		221,844		1,408,173		1,473,094		786,900		203,341		2,463,335
Past due 90 days and greater		2,297,241		254,203		50,461		2,601,905		2,157,577		425,500		37,669		2,620,746
	$	135,652,156	$	46,615,734	$	17,646,666	$	199,914,556	$	141,061,321	$	51,349,053	$	17,831,427	$	210,241,801

An aging analysis of the recorded investment in loans by segment at September 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
September 30, 2011 Commercial Loans:
Commercial Real Estate	$	-	$	1,162,500	$	1,162,500	$	60,496,944	$	61,659,444
Construction and Land Development		-		-		-		2,090,560		2,090,560
Multi-Family Real Estate		-		-		-		51,830,217		51,830,217
1-4 Family Residential Real Estate Consumer:		868,253		2,297,241		3,165,494		132,486,662		135,652,156
Second mortgage		318,076		254,203		572,279		46,043,455		46,615,734
Other consumer loans		221,844		50,461		272,305		17,374,361		17,646,666
	$	1,408,173	$	3,764,405	$	5,172,578	$	310,322,199	$	315,494,777

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 Consumer:		1,473,094		2,157,577		3,630,671		137,430,650		141,061,321
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 September 30, 2011 and December 31, 2010 by segment are summarized below:

	September 30, 2011		December 31, 2010
Commercial Loans:
Commercial Real Estate	$	1,312,549	$	5,408,650
Construction and Land Development		1,839,186		1,679,839
Multi-Family Real Estate		-		1,558,628
1-4 Family Residential Real Estate Consumer:		2,115,931		2,459,406
Second mortgage		434,548		425,500
Other consumer loans		50,461		37,669
	$	5,752,675	$	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.