LOANS RECEIVABLE

3 Months Ended

Mar. 31, 2012

LOANS RECEIVABLE

LOANS RECEIVABLE

NOTE 7 - LOANS RECEIVABLE

Major classifications of loans receivable are summarized as follows for the periods ended March 31, 2012 and December 31, 2011:

	2012			2011
Real estate - construction	$	76,417,169		$	78,740,323
Real estate - mortgage	276,034,945			278,532,056
Commercial and industrial	18,482,052			19,841,301
Consumer and other	3,039,802			3,195,051
Total loans receivable, gross	373,973,968			380,308,731
Deferred origination fees, net	(190,372		)	(665,192		)
Total loans receivable, net of deferred origination fees	373,783,596			379,643,539
Less allowance for loan losses	8,984,887			10,320,259
Total loans receivable, net of allowance for loan loss	$	364,798,709		$	369,323,280

The composition of gross loans by rate type is as follows for the periods ended March 31, 2012 and December 31, 2011:

	2012		2011
Variable rate loans	$	169,421,868	$	170,461,433
Fixed rate loans	204,361,728		209,182,106
Total gross loans	$	373,783,596	$	379,643,539

The following is an analysis of our loan portfolio by credit quality indicators at March 31, 2012 and December 31, 2011:

	Commercial				Commercial Real Estate				Commercial Real Estate Construction
	2012		2011		2012		2011		2012		2011
Grade:
Pass	$	16,307,774	$	17,528,223	$	122,490,072	$	122,544,501	$	20,933,418	$	21,239,273
Special Mention	423,439		441,839		7,188,821		6,674,538		1,036,749		1,865,411
Substandard	1,750,839		1,871,239		30,345,682		30,533,228		8,770,897		8,157,357
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	18,482,052	$	19,841,301	$	160,024,575	$	159,752,267	$	30,741,064	$	31,262,041

	Residential Real Estate				Real Estate  Residential Construction				Consumer
	2012		2011		2012		2011		2012		2011
Grade:
Pass	$	92,071,898	$	92,682,611	$	32,388,757	$	33,057,874	$	2,416,182	$	2,870,438
Special Mention	4,962,188		5,943,049		1,884,718		1,884,768		154,906		177,417
Substandard	18,976,284		20,154,129		11,402,630		12,535,640		468,714		147,196
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	116,010,370	$	118,779,789	$	45,676,105	$	47,478,282	$	3,039,802	$	3,195,051

Loans are categorized 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   following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified 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 as doubtful have all the weaknesses inherent in those classified as substandard, with 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.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

The following is an aging analysis of our loan portfolio at March 31, 2012 and December 31, 2011:

	Commercial		Commercial Real Estate		Commercial Real Estate Construction		Residential Real Estate		Residential Real Estate Construction		Consumer		Total
March 31, 2012
Accruing Loans Paid Current	$	16,625,493	$	148,567,419	$	25,456,745	$	108,419,040	$	37,670,619	$	2,442,658	$	339,181,974
Accruing Loans Past Due:
30-59 Days	383,098		403,013		—		902,172		48,406		1,006		1,737,695
60-89 Days	30,445		366,398		—		238,077		—		229,636		864,556
>90 Days	—		—		—		—		—		—		—
Total Loans Past Due	413,543		769,411		—		1,140,249		48,406		230,642		2,602,251
Loans Receivable on Nonaccrual Status	$	1,443,016	$	10,687,745	$	5,284,319	$	6,451,081	$	7,957,080	$	366,502	$	32,189,743
Recorded Investment >90 Days and Accruing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Loans Receivable	$	18,482,052	$	160,024,575	$	30,741,064	$	116,010,370	$	45,676,105	$	3 ,039,802	$	373,973,968
December 31, 2011
Accruing Loans Paid Current	$	17,800,238	$	147,877,812	$	25,771,067	$	104,923,350	$	38,065,673	$	2,807,348	$	337,245,488
Accruing Loans Past Due:
30-59 Days	872,349		169,851		825,000		1,057,530		332,752		313,708		3,571,190
60-89 Days	308,511		1,372,600		—		1,497,206		1,988,433		33,499		5,200,249
>90 Days	—		—		—		—		—		—		—
Total Loans Past Due	1,180,860		1,542,451		825,000		2,554,736		2,321,185		347,207		8,771,439
Loans Receivable on Nonaccrual Status	$	860,203	$	10,332,004	$	4,665,974	$	11,301,703	$	7,091,424	$	40,496	$	34,291,804
Recorded Investment >90 Days and Accruing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Loans Receivable	$	19,841,301	$	159,752,267	$	31,262,041	$	118,779,789	$	47,478,282	$	3,195,051	$	380,308,731

The following is a summary of information pertaining to impaired and nonaccrual loans at March 31, 2012 and December 31, 2011:

	2012		2011
Impaired loans without a valuation allowance	$	49,735,076	$	48,263,225
Impaired loans with a valuation allowance	10,451,038		13,063,792
Total impaired loans	$	60,186,114	$	61,327,017
Valuation allowance related to impaired loans	$	1,907,921	$	2,876,022
Average of impaired loans during the period	65,261,278		67,899,940
Total nonaccrual loans	32,189,743		34,291,804
Total Loans past due 90 days and still accruing	—		—
Total loans considered impaired which are classified as troubled debt restructurings	$	34,757,588	$	33,705,357

The following is an analysis of our impaired loan portfolio detailing the related allowance recorded at March 31, 2012 and December 31, 2011:

	Commercial		Commercial Real Estate		Commercial Real Estate Construction		Residential Real Estate		Residential Real Estate Construction		Consumer		Total
March 31, 2012
With no related allowance recorded:
Recorded Investment	$	1,431,294	$	28,827,055	$	2,380,579	$	10,118,214	$	6,683,822	$	294,112	$	49,735,076
Unpaid Principal Balance	1,831,015		29,846,309		2,814,960		14,479,731		9,120,829		296,032		58,388,876
Related Allowance	—		—		—		—		—		—		—
Average Recorded Investment	1,798,060		29,016,500		2,635,325		12,919,000		8,426,902		296,023		55,091,810
Interest Income Recognized	—		—		—		—		—		—		—
With an allowance recorded:
Recorded Investment	$	11,722	$	2,316,307	$	5,233,188	$	1,449,373	$	1,368,058	$	72,390	$	10,451,038
Unpaid Principal Balance	11,722		2,316,307		5,233,188		1,449,373		1,431,830		72,390		10,514,810
Related Allowance	452		389,457		449,448		582,341		446,368		39,855		1,907,921
Average Recorded Investment	11,988		2,316,306		4,950,252		1,450,634		1,368,062		72,226		10,169,468
Interest Income Recognized	—		—		—		—		—		—		—
Total:
Recorded Investment	$	1,443,016	$	31,143,362	$	7,613,767	$	11,567,587	$	8,051,880	$	366,502	$	60,186,114
Unpaid Principal Balance	1,842,737		32,162,616		8,048,148		15,929,104		10,552,659		368,422		68,903,686
Related Allowance	452		389,457		449,448		582,341		446,368		39,855		1,907,921
Average Recorded Investment	1,810,048		31,332,806		7,585,577		14,369,634		9,794,964		368,249		65,261,278
Interest Income Recognized	—		—		—		—		—		—		—
December 31, 2011
With no related allowance recorded:
Recorded Investment	$	847,494	$	28,925,047	$	1,762,234	$	11,950,867	$	4,777,224	$	359	$	48,263,225
Unpaid Principal Balance	1,247,215		29,773,429		2,129,960		13,569,585		6,895,576		359		53,616,124
Related Allowance	—		—		—		—		—		—		—
Average Recorded Investment	1,265,499		30,003,945		2,546,418		13,511,155		7,195,411		774		54,523,202
Interest Income Recognized	—		—		—		—		—		—		—
With an allowance recorded:
Recorded Investment	$	12,708	$	1,890,087	$	5,233,188	$	3,478,621	$	2,409,049	$	40,139	$	13,063,792
Unpaid Principal Balance	12,708		1,890,087		5,233,188		3,738,621		2,472,821		40,138		13,387,563
Related Allowance	1,438		377,517		768,391		1,198,819		522,255		7,602		2,876,022
Average Recorded Investment	14,679		1,898,497		5,162,095		3,783,489		2,472,862		45,116		13,376,738
Interest Income Recognized	—		—		—		—		—		—
Total:
Recorded Investment	$	860,202	$	30,815,134	$	6,995,422	$	15,429,488	$	7,186,273	$	40,498	$	61,327,017
Unpaid Principal Balance	1,259,923		31,663,516		7,363,148		17,308,206		9,368,397		40,497		67,003,687
Related Allowance	1,438		377,517		768,391		1,198,819		522,255		7,602		2,876,022
Average Recorded Investment	1,280,178		31,902,442		7,708,513		17,294,644		9,668,273		45,890		67,899,940
Interest Income Recognized	—		—		—		—		—		—		—

Transactions in the allowance for loan losses are summarized below for the periods ended March 31, 2012 and 2011:

	2012			2011
Balance, beginning of period	$	10,320,259		$	11,459,047
Provision charged to operations	225,000			10,618,737
Gross loan charge offs	(1,613,873		)	(12,494,985		)
Gross loan recoveries	53,501			737,460
Balance, end of period	$	8,984,887		$	10,320,259
Gross loans outstanding, end of period	$	373,783,596		$	379,643,539

The following is a summary of information pertaining to our allowance for loan losses at March 31, 2012 and December 31, 2011:

	Commercial			Commercial Real Estate			Commercial Real Estate Construction			Residential Real Estate			Residential Real Estate Construction			Consumer			Unallocated			Total
March 31, 2012
Allowance for loan losses:
Beginning Balance	$	642,148		$	2,540,003		$	1,157,720		$	3,299,600		$	2,328,918		$	49,482		$	302,388		$	10,320,259
Charge-offs	—			(138,636		)	(66,655		)	(926,552		)	(481,615		)	(415		)	—			(1,613,873		)
Recoveries	9,679			5,743			—			26,253			6,076			5,750			—			53,501
Provision	(347,295		)	(156,366		)	(269,304		)	785,672			(164,041		)	17,165			359,169			225,000
Ending Balance	$	304,532		$	2,250,744		$	821,761		$	3,184,973		$	1,689,338		$	71,982		$	661,557		$	8,984,887
Loans Receivable:
Ending Balance	$	18,482,052		$	160,024,575		$	30,741,064		$	116,010,370		$	45,676,105		$	3,039,802					$	373,973,968
Individually evaluated for impairment	$	1,443,016		$	31,143,362		$	7,613,767		$	11,527,669		$	8,091,798		$	366,502					$	60,186,114
Collectively evaluated for impairment	$	17,039,036		$	128,881,213		$	23,127,297		$	104,482,701		$	37,584,307		$	2,673,300					$	313,787,854
December 31, 2011
Allowance for loan losses:
Beginning Balance	$	443,454		$	2,678,191		$	343,243		$	4,373,193		$	2,798,043		$	63,709		$	759,214		$	11,459,047
Charge-offs	(804,247		)	(2,356,709		)	(635,234		)	(5,667,661		)	(3,001,562		)	(29,572		)	—			(12,494,985		)
Recoveries	11,050			9,571			8,921			378,087			306,665			23,165			—			737,460
Provision	991,890			2,208,950			1,440,790			4,215,981			2,225,772			(7,820		)	(456,826		)	10,618,737
Ending Balance	$	642,148		$	2,540,003		$	1,157,720		$	3,299,600		$	2,328,918		$	49,482		$	302,388		$	10,320,259
Loans Receivable:
Ending Balance	$	19,841,301		$	159,752,267		$	31,262,041		$	118,779,789		$	47,478,282		$	3,195,051					$	380,308,731
Individually evaluated for impairment	$	860,203		$	30,815,134		$	6,995,422		$	15,429,488		$	7,186,273		$	40,497					$	61,327,017
Collectively evaluated for impairment	$	18,981,098		$	128,937,133		$	24,266,619		103,350,301			$	40,292,009		$	3,154,554					$	318,981,714

The allowance for loan losses, as a percent of gross loans outstanding, was 2.40% and 2.70% for periods ended March 31, 2012 and December 31, 2011, respectively.  At March 31, 2012, the Bank had 83 loans totaling $32,189,743 or 8.61% of gross loans, in nonaccrual status, of which $10,025,056 were deemed to be troubled debt restructurings.  There were 24 loans totaling $24,732,532 deemed to be troubled debt restructurings not in nonaccrual status at March 31, 2012. At December 31, 2011, the Bank had 95 impaired loans totaling $34,291,804 or 9.03% of loans, net of deferred origination fees, in nonaccrual status, of which $9,933,983 were deemed to be troubled debt restructurings. There were 23 loans totaling $23.8 million deemed to be troubled debt restructurings not in nonaccrual status at December 31, 2011.  There were no loans contractually past due 90 days or more and still accruing interest at March 31, 2012 or December 31, 2011.  Our analysis under generally accepted accounting principles indicates that the level of the allowance for loan losses is appropriate to cover estimated credit losses on individually evaluated loans as well as estimated credit losses inherent in the remainder of the portfolio.  We do not recognize interest income on loans that are impaired.  At March 31, 2012 and December 31, 2011, the Bank had $130,000 and $165,000, respectively, reserved for off-balance sheet credit exposure related to unfunded commitments included in other liabilities on our consolidated balance sheet.

At March 31, 2012, loans totaling $60.9 million were pledged as collateral at the Federal Home Loan Bank.