Note 2. Loans and Allowance for Loan Losses

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


	2010			2011
Commercial	$	6,573		$	7,230
Real estate
Construction and land development		11,310			13,110
Residential, 1-4 families		27,834			29,961
Residential, 5 or more families		4,048			4,277
Farmland		1,295			1,274
Nonfarm, nonresidential		83,098			85,049
Agricultural		52			72
Consumer		2,839			2,923
Other		5,162			5,388

Gross loans		142,211			149,284
Unearned discount and net deferred loan fees and costs		(347	)		(368	)

Total loans	$	141,864		$	148,916

As a part of the ongoing monitoring of the credit quality of the loan portfolio, management tracks 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 grade 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 June 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.


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

Commercial	$	6,405	$	—	$	168	$	—	$	6,573
Real Estate		106,665		8,211		11,297		1,412		127,585
Agriculture		52		—		—		—		52
Consumer		2,839		—		—		—		2,839
Other		5,162		—		—		—		5,162

Total loans	$	121,123	$	8,211	$	11,465	$	1,412	$	142,211


December 31, 2010 (In thousands)	Pass		Special Mention		Sub- Standard		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 thousand or more are reassessed on a quarterly basis. During this reassessment process individual reserves may be identified and placed against certain loans that are considered impaired.

Loans are considered past due if the required principal and interest payments have not 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 June 30, 2011 and December 31, 2010.


	Accruing Loans
June 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	$	168	$	—	$	168	$	—	$	6,405	$	6,573
Real Estate		4,060		—		4,060		8,417		115,108		127,585
Agriculture		—		—		—		—		52		52
Consumer		—		—		—		—		2,839		2,839
Other		—		—		—		—		5,162		5,162

Total loans	$	4,228	$	—	$	4,228	$	8,417	$	129,566	$	142,211


	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 June 30, 2011 and December 31, 2010:


June 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		10,072		—		10,071		128		175
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

		10,072		—		10,071		128		175


With an Allowance Recorded
Commercial		168		65		170		6		3
Real Estate		6,186		1,336		6,777		64		63
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

		6,354		1,401		6,947		70		66


Total
Commercial		168		65		170		6		3
Real Estate		16,258		1,336		16,848		192		238
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

	$	16,426	$	1,401	$	17,018	$	198	$	241


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		—		4,293		169		210


With an Allowance Recorded
Commercial		152		17		167		12		12
Real Estate		5,564		1,372		4,837		33		71
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other		—		—		—		—		—

		5,716		1,389		5,004		45		83


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

The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the six-month periods ended June 30, 2011 and June 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.


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

Commercial	$	99	$	50	$	1	$	47		$	97
Real Estate		2,877		418		4		392			2,855
Agriculture		2		—		—		—			2
Consumer		34		—		3		—			37
Other		61		—		2		—			63

	$	3,073	$	468	$	10	$	439		$	3,054


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

Commercial	$	127	$	19	$	3	$	(33	)	$	78
Real Estate		2,373		—		—		304			2,677
Agriculture		3		—		—		—			3
Consumer		52		5		—		—			47
Other		115		—		2		—			117

	$	2,670	$	24	$	5	$	271		$	2,922