Credit Quality Indicators The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the  standard asset classification system used by the federal banking agencies. The following table presents credit quality  indicators for the loan portfolio segments and classes. These categories are utilized to develop the associated allowance for  loan losses using historical losses adjusted for current economic conditions and are defined as follows:  • Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if  any) or by the fair value, less cost to acquire and sell, of any underlying collateral. • Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or  inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not  expose an institution to sufficient risk to warrant an adverse classification. • Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes debt repayment,  even though they are currently performing. These loans are characterized by the distinct possibility that the  Company may incur a loss in the future if these weaknesses are not corrected; • Nonaccrual – includes loans where management has determined that full payment of principal and interest is in  doubt. page 56 December 31, 2011 (In thousands) Pass Special  Mention Substandard  Accruing Nonaccrual Total loans Commercial and industrial $ 52,833 1,359 719 76 $ 54,988 Construction and land development 33,373 266 1,080 5,095 39,814 Commercial real estate: Owner occupied 62,543 4,951 1,057 1,651 70,202 Other 81,584 622 8,221 1,806 92,233 Total commercial real estate 144,127 5,573 9,278 3,457 162,435 Residential real estate: Consumer mortgage 50,156 1,575 5,279 948 57,958 Investment property 38,732 2,225 2,032 778 43,767 Total residential real estate 88,888 3,800 7,311 1,726 101,725 Consumer installment 11,078 248 128 — 11,454 Total $ 330,299 11,246 18,516 10,354 $ 370,416 December 31, 2010 (In thousands) Pass Special  Mention Substandard  Accruing Nonaccrual Total loans Commercial and industrial $ 51,632 722 413 521 $ 53,288 Construction and land development 38,301 4,372 1,075 4,102 47,850 Commercial real estate: Owner occupied 67,702 716 5,001 2,833 76,252 Other 84,354 3,718 15 1,902 89,989 Total commercial real estate 152,056 4,434 5,016 4,735 166,241 Residential real estate: Consumer mortgage 48,620 2,700 4,124 2,118 57,562 Investment property 34,221 1,626 2,476 356 38,679 Total residential real estate 82,841 4,326 6,600 2,474 96,241 Consumer installment 10,426 133 116 1 10,676 Total $ 335,256 13,987 13,220 11,833 $ 374,296