(4) Loans and Allowance for Loan Losses  Loans consist of the following:  The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to  meet customers’ financing needs. These financial instruments consist principally of commitments to extend credit. The  Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet  instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party is represented by the  contractual amount of those instruments. In the normal course of business, there are various commitments and contingent  liabilities, such as commitments to extend credit, letters of credit, and lines of credit, the balance of which are not recorded  in the accompanying consolidated financial statements. The Company generally requires collateral or other security on  unfunded loan commitments and irrevocable letters of credit. Unfunded commitments to extend credit, excluding standby  letters of credit, aggregated to $53.5 million and $57.8 million at December 31, 2012 and 2011, respectively, and are  generally at variable interest rates. Standby letters of credit totaled $1.8 million and $1.7 million at December 31, 2012 and  2011, respectively.  The Company is exposed to varying risks associated with concentrations of credit relating primarily to lending  activities in specific geographic areas. The Company’s principal lending area consists of the cities of Manhattan, Auburn,  Dodge City, Garden City, Great Bend, Hoisington, Junction City, LaCrosse, Lawrence, Osage City, Topeka, Wamego,  Paola, Osawatomie, Louisburg, Fort Scott, and Wellsville, Kansas and the surrounding communities, and substantially all of  the Company’s loans are to residents of or secured by properties located in its principal lending area. Accordingly, the  ultimate collectability of the Company’s loan portfolio is dependent in part upon market conditions in those areas. These  geographic concentrations are considered in management’s establishment of the allowance for loan losses.  77  (Dollars in thousands) 2012 2011 One-to-four family residential real estate 88,454 $ 79,108 $ Construction and land 23,435 21,672 Commercial real estate 88,790 93,786 Commercial loans 64,570 57,006 Agriculture loans 31,935 39,052 Municipal loans 9,857 10,366 Consumer loans 13,417 13,584 Total gross loans 320,458 314,574 Net deferred loan costs and loans in process 37 214 Allowance for loan losses (4,581) (4,707) Loans, net 315,914 $ 310,081 $ As of December 31,