Note 2. Loans and Allowance for Loan Losses

The major components of loans in the Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 are summarized below:


	2011			2010

Commercial	$	6,304		$	7,230
Real estate
Construction and land development		11,083			13,110
Residential, 1-4 families		27,126			29,961
Residential, 5 or more families		4,749			4,277
Farmland		1,205			1,274
Nonfarm, nonresidential		83,024			85,049
Agricultural		5			72
Consumer		2,715			2,923
Other		4,814			5,388

Gross loans		141,025			149,284
Unearned discount and net deferred loan fees and costs		(333	)		(368	)

Total loans	$	140,692		$	148,916

As a part of the ongoing monitoring of the credit quality of the loan portfolio, management tracts certain credit quality indicators including trends related to (i) the risk grade assigned to commercial and consumer loans, (ii) the level of classified commercial loans, (iii) net charge-offs, (iv) nonperforming loans, and (v) the general economic conditions in the Company's geographic markets.

The Company uses a risk grading system to assign a risk grad to each of its loans. Loans are graded on a quantitative scale ranging from one through four levels of pass through doubtful.

The following table presents the loan portfolio by credit quality indicator (risk grade) as of September 30, 2011 and December 31, 2010. Those loans with a risk grade above special mention have been combined in the pass column for presentation purposes.

		0000000		0000000		0000000		0000000		0000000
September 30, 2011 (In thousands)	Pass		Special Mention		Sub- Standard		Doubtful		Total Loans

Commercial	$	3,441	$	—	$	2,863	$	—	$	6,304
Real Estate		104,764		2,542		19,881		—		127,187
Agriculture		5		—		—		—		5
Consumer		2,715		—		—		—		2,715
Other		4,814		—		—		—		4,814

Total loans	$	115,739	$	2,542	$	22,744	$	—	$	141,025

		0000000		0000000		0000000		0000000		0000000
December 31, 2010 (In thousands)	Pass		Special Mention		Sub- Standards		Doubtful		Total Loans

Commercial	$	7,077	$	—	$	153	$	—	$	7,230
Real Estate		120,313		4,940		5,421		2,997		133,671
Agriculture		72		—		—		—		72
Consumer		2,923		—		—		—		2,923
Other		5,388		—		—		—		5,388

Total loans	$	135,773	$	4,940	$	5,574	$	2,997	$	149,284

A loan's risk grade is assigned at the inception of the loan and is based on the financial strength of the borrower and the type of collateral. Loan risk grades are subject to reassessment at various times throughout the year as part of the Company's ongoing loan review process. Loans with an assigned risk grade of substandard or below and an outstanding amount of $500,000.00 or more are reassessed on a quarterly basis. During this reassessment process individual reserves may be identified and placed against certain loans which are not considered impaired.

Loans are considered past due if the required principal and interest payments have nit been received as of the date such payments were due. Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due or when, in management's opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provision. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due.

The following table represents an age analysis of past due loans and nonaccrual loans, segregated by class of loans, as of September 30, 2011 and December 31, 2010.

		0000000000		0000000000		0000000000		0000000000		0000000000		0000000000
	Accruing Loans
September 30, 2011 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total Accruing Loans Past Due		Nonaccrual Loans		Current Loans		Total Loans

Commercial	$	2	$	174	$	176	$	—	$	6,128	$	6,304
Real Estate		2,138		—		2,138		12,327		112,722		127,187
Agriculture		—		—		—		—		5		5
Consumer		3		—		3		—		2,712		2,715
Other		—		—		—		—		4,814		4,814

Total loans	$	2,143	$	174	$	2,317	$	12,327	$	126,381	$	141,025

		0000000000		0000000000		0000000000		0000000000		0000000000		0000000000
	Accruing Loans
December 31, 2010 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total Accruing Loans Past Due		Nonaccrual Loans		Current Loans		Total Loans

Commercial	$	50	$	—	$	50	$	—	$	7,180	$	7,230
Real Estate		2,546		—		2,546		7,471		123,654		133,671
Agriculture		—		—		—		—		72		72
Consumer		—		—		—		—		2,923		2,923
Other		—		—		—		—		5,388		5,388

Total loans	$	2,596	$	—	$	2,596	$	7,471	$	139,217	$	149,284

The following table details impaired loan data as of September 30, 2011 and December 31, 2010:

		0000000000		0000000000		0000000000		0000000000		0000000000
September 30, 2011 (In thousands)	Impaired Balance		Related Allowance		Average Recorded Investment		Interest Income Recorded		Interest Income Collected

With No Related Allowance Recorded
Commercial	$	—	$	—	$	—	$	—	$	—
Real Estate		11,042		—		11,087		264		326
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

		11,042		—		11,087		264		326


With an Allowance Recorded
Commercial		185		53		182		10		4
Real Estate		9,479		1,424		9,967		43		95
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

		9,664		1,477		10,149		53		99


Total
Commercial		185		53		182		10		4
Real Estate		20,521		1,424		21,054		307		421
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

	$	20,706	$	1,477	$	21,236	$	317	$	425

		0000000000		0000000000		0000000000		0000000000		0000000000
December 31, 2010 (In thousands)	Impaired Balance		Related Allowance		Average Recorded Investment		Interest Income Recorded		Interest Income Collected

With No Related Allowance Recorded
Commercial	$	—	$	—	$	—	$	—	$	—
Real Estate		4,291		—		4,293		169		210
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

		4,291		—		2,293		169		210


With an Allowance Recorded
Commercial		152		17		167		12		12
Real Estate		5,564		1,372		6,556		33		36
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

		5,716		1,389		6,723		45		48


Total
Commercial		152		17		167		12		12
Real Estate		9,855		1,372		9,130		202		281
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

	$	10,007	$	1,389	$	9,297	$	214	$	293

Note 2. Loans and Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses, segregated by class of loan, for September 30, 2011 and September 30, 2010. Allocation portion of the allowance to one category of loans does not preclude its activity to absorb losses in other loan categories and periodically may result in reallocation within the provision categories.


September 30, 2011 (In thousands)	Beginning Balance		Charge- Offs		Recoveries		Provision		Ending Balance

Commercial	$	99	$	50	$	1	$	35	$	85
Real Estate		2,877		419		42		480		2,980
Agriculture		2		—		—		—		2
Consumer		34		—		3		—		37
Other		61		—		4		—		65

	$	3,073	$	469	$	50	$	515	$	3,169


September 30, 2010 (In thousands)	Beginning Balance		Charge- Offs		Recoveries		Provision			Ending Balance

Commercial	$	127	$	19	$	4	$	(33	)	$	79
Real Estate		2,373		243		—		394			2,524
Agriculture		3		—		—		—			3
Consumer		52		5		—		—			47
Other		115		—		4		—			119

	$	2,670	$	267	$	8	$	361		$	2,772