Audited Financial Statements NOTE 6: LOANS AND ALLOWANCE FOR LOAN LOSSES Loans secured by real estate were approximately 82.1% of the total loan portfolio at December 31, 2011. Due to  declines in economic indicators and real estate values, loans secured by real estate may have a greater risk of non-collection  than other loans. At December 31, 2011, the Company’s geographic loan distribution was concentrated primarily in Lee  County, Alabama and surrounding areas. In accordance with ASC 310, a portfolio segment is defined as the level at which an entity develops and documents a  systematic method for determining its allowance for loan losses. As part of the Company’s quarterly assessment of the  allowance, the loan portfolio is disaggregated into the following portfolio segments: commercial and industrial, construction and land development, commercial real estate, residential real estate and consumer installment. Where appropriate, the  Company’s loan portfolio segments are further disaggregated into classes. A class is generally determined based on the initial measurement attribute, risk characteristics of the loan, and an entity’s method for monitoring and determining credit risk. The following describe the risk characteristics relevant to each of the portfolio segments. Commercial and industrial (“C&I”) — includes loans to finance business operations, equipment purchases, or other  needs for small and medium-sized commercial customers. Also included in this category are loans to finance agricultural  production. Generally the primary source of repayment is the cash flow from business operations and activities of the  borrower. Construction and land development (“C&D”) — includes both loans and credit lines for the purpose of purchasing,  carrying and developing land into commercial developments or residential subdivisions. Also included are loans and lines for  construction of residential, multi-family and commercial buildings. Generally the primary source of repayment is dependent  upon the sale or refinance of the real estate collateral. Commercial real estate (“CRE”) — includes loans disaggregated into two classes: (1) owner occupied and (2) other. • Owner occupied – includes loans secured by business facilities to finance business operations, equipment and  owner-occupied facilities primarily for small and medium-sized commercial customers. Generally the primary  source of repayment is the cash flow from business operations and activities of the borrower, who owns the  property. • Other – primarily includes loans to finance income-producing commercial and multi-family properties. Loans in this class include loans for neighborhood retail centers, hotels, medical and professional offices, single retail  stores, industrial buildings, warehouses and apartments leased generally to local businesses and residents.  Generally the primary source of repayment is dependent upon income generated from the real estate collateral.  The underwriting of these loans takes into consideration the occupancy and rental rates as well as the financial  health of the borrower.  page 51 December 31 (In thousands) 2011 2010 Commercial and industrial $ 54,988 $ 53,288 Construction and land development 39,814 47,850 Commercial real estate: Owner occupied 70,202 76,252 Other 92,233 89,989 Total commercial real estate 162,435 166,241 Residential real estate: Consumer mortgage 57,958 57,562 Investment property 43,767 38,679 Total residential real estate 101,725 96,241 Consumer installment 11,454 10,676 Total loans 370,416 374,296 Less: unearned income (153) (81) Loans, net of unearned income $ 370,263 $ 374,215