Note 4. Loans Receivable

The major components of loans in the Consolidated Balance Sheets are summarized below:


December 31, (In thousands)	2011			2010
Commercial	$	5,873		$	7,230
Real estate
Construction and land development		8,868			13,110
Residential, 1-4 families		26,568			29,961
Residential, 5 or more families		4,717			4,277
Farmland		1,306			1,274
Nonfarm, nonresidential		75,879			85,049
Agricultural		9			72
Consumer		2,487			2,923
Other		4,765			5,388

Gross loans		130,472			149,284
Unearned discount and net deferred loan fees and costs		(314	)		(368	)

Total loans		130,158			148,916
Allowance for loan losses		(2,867	)		(3,073	)

Net loans	$	127,291		$	145,843

Overdrafts that were reclassified as part of gross loans totaled $7 thousand and $12 thousand at December 31, 2011 and 2010, respectively.

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 categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans receivable as to credit risk. The Company uses the following definitions for risk ratings:

Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors.

Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower's operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company's credit position at some future date.

Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

The following table presents the loan portfolio by credit quality indicator (risk grade) as of December 31, 2011 and December 31, 2010.


December 31, 2011 (In thousands)	Pass		Special Mention		Sub- Standard		Doubtful		Total Loans
Commercial	$	3,161	$	—	$	2,712	$	—	$	5,873
Real Estate
Construction and land development		5,671		—		3,197		—		8,868
Residential, 1-4 families		25,730		—		838		—		26,568
Residential, 5 or more families		3,890		827		—		—		4,717
Farmland		1,306		—		—		—		1,306
Nonfarm, nonresidential		64,401		2,436		9,042		—		75,879
Agriculture		9		—		—		—		9
Consumer		2,487		—		—		—		2,487
Other		4,765		—		—		—		4,765

Total loans	$	111,420	$	3,263	$	15,789	$	—	$	130,472


December 31, 2010 (In thousands)	Pass		Special Mention		Sub- Standard		Doubtful		Total Loans
Commercial	$	7,077	$	—	$	153	$	—	$	7,230
Real Estate
Construction and land development		6,309		—		4,475		2,326		13,110
Residential, 1-4 families		29,028		—		621		312		29,961
Residential, 5 or more families		4,277		—		—		—		4,277
Farmland		1,274		—		—		—		1,274
Nonfarm, nonresidential		79,425		4,940		325		359		85,049
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 December 31, 2011 and December 31, 2010.


	Accruing Loans
December 31, 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	$	1	$	2,700	$	2,701	$	—	$	3,172	$	5,873
Real Estate
Construction and land development		—		—		—		3,197		5,671		8,868
Residential, 1-4 families		—		—		—		612		25,956		26,568
Residential, 5 or more families		—		—		—		—		4,717		4,717
Farmland		—		—		—		—		1,306		1,306
Nonfarm, nonresidential		107		—		107		5,489		70,283		75,879
Agriculture		—		—		—		—		9		9
Consumer		3		—		3		—		2,484		2,487
Other		—		—		—		—		4,765		4,765

Total loans	$	111	$	2,700	$	2,811	$	9,298	$	118,363	$	130,472


	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
Construction and land development		2,546		—		2,546		6,800		3,764		13,110
Residential, 1-4 families		—		—		—		312		29,649		29,961
Residential, 5 or more families		—		—		—		—		4,277		4,277
Farmland		—		—		—		—		1,274		1,274
Nonfarm, nonresidential		—		—		—		359		84,690		85,049
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 December 31, 2011 and December 31, 2010:


December 31, 2011 (In thousands)	Impaired Balance		Related Allowance		Average Recorded Investment		Interest Income Recorded			Interest Income Collected
With No Related Allowance Recorded
Commercial	$	—	$	—	$	—	$	—		$	—
Real Estate
Construction and land development		2,504		—		2,529		87			108
Nonfarm, nonresidential		2,500		—		2,500		(32	)		—

		5,004		—		5,029		55			108

With an Allowance Recorded
Commercial		12		12		12		—			—
Real Estate
Construction and land development		3,197		584		3,902		—			—
Residential, 1-4 families		612		73		791		13			16
Nonfarm, nonresidential		4,961		589		5,233		90			149

		8,782		1,258		9,938		103			165

Total
Commercial		12		12		12		—			—
Real Estate
Construction and land development		5,701		584		6,431		87			108
Residential, 1-4 families		612		73		791		13			16
Nonfarm, nonresidential		7,461		589		7,733		58			149

	$	13,786	$	1,258	$	14,967	$	158		$	273


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
Construction and land development		2,546		—		2,546		90		126
Nonfarm, nonresidential		1,745		—		1,747		79		84

		4,291		—		4,293		169		210

With an Allowance Recorded
Commercial		152		17		167		12		12
Real Estate
Construction and land development		4,618		1,053		4,087		—		—
Residential, 1-4 families		312		197		275		—		4
Nonfarm, nonresidential		634		122		475		33		67

		5,716		1,389		5,004		45		83

Total
Commercial		152		17		167		12		12
Real Estate
Construction and land development		7,164		1,053		6,633		90		126
Residential, 1-4 families		312		197		275		—		4
Nonfarm, nonresidential		2,379		122		2,222		112		151

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

The Company is generally not committed to advance additional funds in connection with impaired loans.

As a result of adopting the amendments in ASU 2011-02, the Bank reassessed all loan restructurings that occurred on or after the beginning of the fiscal year of adoption, January 1, 2011, to determine whether they are considered troubled debt restructurings ("TDRs") under the amended guidance. The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulty as both events must be present. The Bank identified as TDRs certain loans for which the allowance for loan losses had previously been measured under a general allowance methodology. Upon identifying those loans as TDRs, the Bank identified them as impaired under the guidance in ASC 310-10-35. The amendments in ASU 2011-02 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those loans newly identified as impaired. At December 31, 2011, the recorded investment in loans for which the allowance was previously measured under a general allowance methodology and are now impaired under ASC 310-10-35 was $6.6 million, and the allowance for loan losses associated with those loans, on the basis of a current evaluation of loss exposure was approximately $620 thousand.

The following is a schedule of loans that are considered Trouble Debt Restructurings at December 31, 2011.


	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(In thousands)
Real Estate		3	$	6,570	$	6,570

Total		3	$	6,570	$	6,570

During the twelve months ended December 31, 2011, the Bank modified two loans that were considered to be troubled debt restructurings. We extended the maturity date term for none of these loans, lowered the interest rate for two of these loans, and entered into forbearance agreements on none of these loans.

The following is a schedule of loans that had been previously restructured and have subsequently defaulted at December 31, 2011.

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

(In thousands)

Real Estate

—

Total

—

During the twelve months ended December 31, 2011, one loan that had previously been restructured, was in default, none of which went into default in the quarter. The Bank considers a loan in default when it is 90 days or more past due or on nonaccrual status.

In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings. All troubled debt restructurings are considered impaired loans. Loss exposure related to these loans are determined by management quarterly.

At December 31, 2011 there were $6.6 million in loans that are classified as trouble debt restructurings compared to $2.3 million at December 31, 2010.

The Company generally does not make commitments to lend additional funds to customers classified as trouble debt restructures.