Note 4. Loan Portfolio

The Company segregates its loan portfolio into three primary loan segments: Real Estate Loans, Commercial Loans, and Consumer Loans. Real estate loans are further segregated into the following classes: construction loans, loans secured by farmland, loans secured by 1-4 family residential real estate, and other real estate loans. Other real estate loans include commercial real estate loans. The consolidated loan portfolio was composed of the following on the dates indicated:

	June 30, 2011					December 31, 2010
	Outstanding		Percent of			Outstanding		Percent of
	Balance		Total Portfolio			Balance		Total Portfolio
	(In Thousands)					(In Thousands)
Real estate loans:
Construction	$	54,897		8.1	%	$	68,110		10.3	%
Secured by farmland		11,036		1.6			11,532		1.7
Secured by 1-4 family residential		238,108		35.1			242,620		36.8
Other real estate loans		276,701		40.8			268,262		40.7
Commercial loans		85,135		12.6			56,385		8.6
Consumer loans		12,438		1.8			12,403		1.9
		678,315		100.0	%		659,312		100.0	%
Less allowance for loan losses		15,073					14,967

Net loans	$	663,242				$	644,345

Loans presented in the table above exclude loans held for sale. The Company had $48.7 and $59.4 million in mortgages held for sale at June 30, 2011 and December 31, 2010, respectively.

The following table presents a contractual aging of the recorded investment in past due loans by class of loans as of June 30, 2011 and December 31, 2010.

	June 30, 2011 (In thousands)
	30-59 Days		60-89 Days		90 Days		Total Past				Total
	Past Due		Past Due		Or Greater		Due		Current		Loans

Real estate loans:
Construction	$	386	$	-	$	4,367	$	4,753	$	50,144	$	54,897
Secured by farmland		-		-		647		647		10,389		11,036
Secured by 1-4 family residential		2,163		2,201		14,994		19,358		218,750		238,108
Other real estate loans		7,203		3,115		3,243		13,561		263,140		276,701
Commercial loans		100		49		2,050		2,199		82,936		85,135
Consumer loans		18		3		-		21		12,417		12,438
		-		-		-		-		-		-
Total	$	9,870	$	5,368	$	25,301	$	40,539	$	637,776	$	678,315

	December 31, 2010 (In thousands)
	30-59 Days		60-89 Days		90 Days		Total Past				Total
	Past Due		Past Due		Or Greater		Due		Current		Loans

Real estate loans:
Construction	$	83	$	7,423	$	1,791	$	9,297	$	58,813	$	68,110
Secured by farmland		-		-		-		-		11,532		11,532
Secured by 1-4 family residential		2,938		-		7,729		10,667		231,953		242,620
Other real estate loans		4,438		3,887		1,385		9,710		258,552		268,262
Commercial loans		1,801		28		243		2,072		54,313		56,385
Consumer loans		22		41		242		305		12,098		12,403
		-		-		-		-		-		-
Total	$	9,282	$	11,379	$	11,390	$	32,051	$	627,261	$	659,312

The following table presents the recorded investment in nonaccrual loans and loans past due ninety days or more and still accruing by class of loans as of June 30, 2011 and December 31, 2010:

	June 30, 2011				December 31, 2010
			Past due 90				Past due 90
			days or more				days or more
	Nonaccrual		and still accruing		Nonaccrual		and still accruing
	(In Thousands)
Real estate loans:
Construction	$	4,076	$	291	$	8,871	$	-
Secured by farmland		-		647		-		-
Secured by 1-4 family residential		17,855		2,103		10,817		676
Other real estate loans		8,417		89		7,509		218
Commercial loans		1,950		100		1,950		12
Consumer loans		-		-		239		3


Total	$	32,298	$	3,230	$	29,386	$	909

If interest on nonaccrual loans had been accrued, such income would have approximated $1.1 million and $768,000 for the six months ended June 30, 2011 and 2010 respectively.

The Company utilizes an internal asset classification system as a means of measuring and monitoring credit risk in the loan portfolio. Under the Company's classification system, problem and potential problem loans are classified as “Special Mention”, “Substandard”, “Doubtful” and “Loss”.

Special Mention: Loans classified as special mention have potential weaknesses that deserve management's close attention. If left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.

Substandard: Loans classified as substandard have a well-defined weakness that jeopardizes the liquidation of the debt. Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.

Doubtful: Loans classified as doubtful have a very high possibility of loss. However, because of important and reasonably specific pending factors, classification as a loss is deferred until a more exact status may be determined.

Loss: Loans are classified as loss when they are deemed uncollectable and are charged off immediately.

The following tables present a summary of loan classifications by class of loan as of June 30, 2011 and December 31, 2010:

	June 30, 2011 (In thousands)
			Real Estate		Real Estate
	Real Estate		Secured by		Secured by 1-4		Other Real
	Construction		Farmland		Family Residential		Estate Loans		Commercial		Consumer		Total

Pass	$	32,386	$	9,577		203,297	$	243,879	$	77,892	$	12,357	$	579,388
Special Mention		6,546		812		10,748		20,169		4,606		73		42,954
Substandard		15,965		647		23,352		12,395		2,637		8		55,004
Doubtful		-		-		711		258		-		-		969
Loss		-		-		-		-		-		-		-
Ending Balance	$	54,897	$	11,036		238,108	$	276,701	$	85,135	$	12,438	$	678,315

	December 31, 2010 (In thousands)
			Real Estate		Real Estate
	Real Estate		Secured by		Secured by 1-4		Other Real
	Construction		Farmland		Family Residential		Estate Loans		Commercial		Consumer		Total

Pass	$	31,744	$	10,070		212,531	$	244,982	$	50,660	$	12,016	$	562,003
Special Mention		15,580		1,462		14,810		13,067		3,394		92		48,405
Substandard		20,561		-		14,616		9,939		2,331		295		47,742
Doubtful		225		-		663		274		-		-		1,162
Loss		-		-		-		-		-		-		-
Ending Balance	$	68,110	$	11,532		242,620	$	268,262	$	56,385	$	12,403	$	659,312

The following table presents loans identified as impaired by class of loan as of and for the six months ended June 30, 2011:


	June 30, 2011 (In thousands)
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	3,256	$	3,453	$	-	$	3,975	$	-
Secured by farmland		-		-		-		-
Secured by 1-4 family residential		6,233		7,599		-		6,502		-
Other real estate loans		1,481		1,481		-		1,427		-
Commercial loans		1,722		1,722		-		1,721		-
Consumer loans		-		-		-		-		-

Total with no related allowance		12,692		14,255		-		13,625		-

With an allowance recorded:
Real estate loans:
Construction		820		1,098		271		858		-
Secured by farmland		-		-		-		-
Secured by 1-4 family residential		11,734		12,982		2,997		12,190		2
Other real estate loans		6,936		6,979		1,256		7,058		-
Commercial loans		228		250		209		229		-
Consumer loans		-		-		-		-		-

Total with a related allowance		19,718		21,309		4,733		20,335		2

Total	$	32,410	$	35,564	$	4,733	$	33,960	$	2

The following table presents loans identified as impaired by class of loan as of and for the year ended December 31, 2010:

	December 31, 2010 (In thousands)
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	3,415	$	3,415	$	-	$	3,470	$	4
Secured by farmland		-		-		-		-
Secured by 1-4 family residential		5,450		6,281		-		5,992		-
Other real estate loans		1,303		1,303		-		1,316		-
Commercial loans		1,823		1,844		-		2,032		-
Consumer loans		-		-		-		28		-

Total with no related allowance		11,991		12,843		-		12,838		4

With an allowance recorded:
Real estate loans:
Construction		5,755		6,366		1,876		6,108		-
Secured by farmland		-		-		-		-
Secured by 1-4 family residential		5,422		6,518		1,099		6,076		-
Other real estate loans		7,056		7,201		2,010		7,235		48
Commercial loans		127		127		108		128		-
Consumer loans		239		239		239		240		-

Total with a related allowance		18,599		20,452		5,332		19,787		48

Total	$	30,590	$	33,295	$	5,332	$	32,625	$	52

The “Recorded Investment” amounts in the tables above represent the outstanding principal balance on each loan represented in the tables plus any accrued interest receivable on such loans. The “Unpaid Principal Balance” represents the outstanding principal balance on each loan represented in the tables plus any amounts that have been charged off on each loan.

Included in certain loan categories in the impaired loans are troubled debt restructurings (“TDR's”) that were classified as impaired. The total balance of TDR's at June 30, 2011 was $8.5 million of which $8.4 million were included in the Company's non-accrual loan totals at that date and $112,000 represented loans performing as agreed to the restructured terms. This compares with $4.5 million in total restructured loans at December 31, 2010, an increase of $4.0 million or 88.9%. The amount of the valuation allowance related to total TDR's was $1.4 million and $532,000 as of June 30, 2011 and December 31, 2010 respectively.

The $8.4 million in nonaccrual TDR's as of June 30, 2011 is comprised of $1.5 million in real estate construction loans, $1.7 million in 1-4 family real estate loans, and $5.2 million in non-residential real estate loans. The $112,000 in TDR's which were performing as agreed under restructured terms as of June 30, 2011 represents one 1-4 family real estate loan. All loans classified as TDR's are considered to be impaired as of June 30, 2011.