Loans and Leases

12 Months Ended

Dec. 31, 2011

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories


	At December 31,
(Dollars in thousands)	2011			2010

Commercial, financial and agricultural	$	484,687		$	463,518
Real estate-commercial		514,953			496,357
Real estate-construction		90,397			139,958
Real estate-residential secured for business purpose		32,481			42,459
Real estate-residential secured for personal purpose		125,220			121,876
Real estate-home equity secured for personal purpose		80,478			80,875
Loans to individuals		44,965			44,087
Lease financings		73,225			82,056

Total loans and leases, net of deferred income	$	1,446,406		$	1,471,186


Unearned lease income, included in the above table	$	(9,965	)	$	(10,561	)
Net deferred costs (fees), included in the above table	$	876		$	(228	)
Overdraft deposits included in the above table	$	123		$	199

Overdraft deposits are re-classified as loans and are included in the total loans and leases on the balance sheet.

The Corporation is a lessor of primarily small-ticket equipment under agreements expiring at various dates through the year 2018. At December 31, 2011 and 2010, the schedule of minimum lease payments is as follows:


	At December 31
(Dollars in thousands)	2011			2010

Within 1 year	$	37,552		$	42,310
After 1 year through 2 years		22,670			27,071
After 2 years through 3 years		13,688			13,595
After 3 years through 4 years		6,769			7,460
After 4 years through 5 years		2,461			2,132
Thereafter		50			49

Total future minimum lease payments receivable		83,190			92,617
Less: Unearned income		(9,965	)		(10,561	)

Total lease financing receivables, net of unearned income	$	73,225		$	82,056

Age Analysis of Past Due Loans and Leases

The following presents, by class of loans and leases, an aging of past due loans and leases, loans and leases which are current and the recorded investment in loans and leases greater than 90 days past due which are accruing interest at December 31, 2011 and 2010:


													Recorded
													Investment
													Greater than
					Greater								90 Days
					Than								Past Due
	30-59 Days		60-89 Days		90 Days		Total				Total Loans		and Accruing
(Dollars in thousands)	Past Due*		Past Due*		Past Due*		Past Due*		Current*		and Leases		Interest*

At December 31, 2011

Commercial, financial and agricultural	$	3,741	$	33	$	—	$	3,774	$	476,222	$	484,687	$	—
Real estate-commercial real estate and construction:
Commercial real estate		2,212		723		—		2,935		491,498		514,953		—
Construction		—		—		—		—		74,656		90,397		—
Real estate-residential and home equity:
Residential secured for business purpose		340		—		—		340		32,026		32,481		—
Residential secured for personal purpose		1,783		—		—		1,783		123,380		125,220		—
Home equity secured for personal purpose		298		68		117		483		79,968		80,478		117
Loans to individuals		386		236		204		826		44,089		44,965		204
Lease financings		1,203		544		44		1,791		70,535		73,225		44

Total	$	9,963	$	1,604	$	365	$	11,932	$	1,392,374	$	1,446,406	$	365


At December 31, 2010

Commercial, financial and agricultural	$	924	$	—	$	—	$	924	$	454,792	$	463,518	$	—
Real estate-commercial real estate and construction:
Commercial real estate		1,377		—		—		1,377		477,230		496,357		—
Construction		2,615		—		—		2,615		120,036		139,958		—
Real estate-residential and home equity:
Residential secured for business purpose		—		—		—		—		42,008		42,459		—
Residential secured for personal purpose		92		—		270		362		120,250		121,876		270
Home equity secured for personal purpose		118		74		44		236		80,639		80,875		44
Loans to individuals		537		153		382		1,072		42,934		44,087		382
Lease financings		1,071		421		—		1,492		79,437		82,056		—

Total	$	6,734	$	648	$	696	$	8,078	$	1,417,326	$	1,471,186	$	696


*		Excludes impaired loans and leases.

Nonaccrual and Troubled Debt Restructured Loans and Leases

The following presents by class of loans and leases, nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and leases), and accruing troubled debt restructured loans and leases at December 31, 2011 and 2010:


	At December 31,
	2011						2010
			Accruing						Accruing
			Troubled Debt		Total				Troubled Debt		Total
	Nonaccrual		Restructured		Impaired		Nonaccrual		Restructured		Impaired
	Loans and		Loans and		Loans and		Loans and		Loans and		Loans and
(Dollars in thousands)	Leases		Leases		Leases		Leases		Leases		Leases

Commercial, financial and agricultural	$	4,614	$	77	$	4,691	$	7,627	$	175	$	7,802
Real estate-commercial real estate and construction:
Commercial real estate		18,085		2,435		20,520		17,750		—		17,750
Construction		14,479		1,262		15,741		17,307		—		17,307
Real estate-residential and home equity:
Residential secured for business purpose		107		8		115		361		90		451
Residential secured for personal purpose		57		—		57		1,264		—		1,264
Home equity secured for personal purpose		27		—		27		—		—		—
Loans to individuals		—		50		50		21		60		81
Lease financings		838		61		899		902		225		1,127

Total	$	38,207	$	3,893	$	42,100	$	45,232	$	550	$	45,782

Credit Quality Indicators

The following tables present by class, the recorded investment in loans and leases by credit quality indicator at December 31, 2011 and 2010.

The Corporation employs a ten (10) grade risk rating system related to the credit quality of commercial loans and residential real estate loans secured for a business purpose of which the first six categories are pass categories (credits not adversely rated). The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating. Loans with risk ratings of one through five are reviewed based on the relationship dollar amount with the borrower: loans with a relationship total of $2.5 million or greater are reviewed quarterly; loans with a relationship balance of less than $2.5 million but greater than $500 thousand are reviewed annually based on the borrower’s fiscal year; loans with a relationship balance of less than $500 thousand are reviewed only if the loan becomes 60 days or more past due. Loans with risk ratings of six are also reviewed based on the relationship dollar amount with the borrower: loans with a relationship balance of $2.0 million or greater are reviewed quarterly; loans with a relationship balance of less than $2.0 million but greater than $500 thousand are reviewed annually; loans with a relationship balance of less than $500 thousand are reviewed only if the loan becomes 60 days or more past due. Loans with risk ratings of seven are reviewed at least quarterly, and as often as monthly, at management’s discretion. Loans with risk ratings of eight through ten are reviewed monthly.

	1.		Cash Secured — No credit risk

	2.		Fully Secured — Negligible credit risk

	3.		Strong — Minimal credit risk

	4.		Satisfactory — Nominal credit risk

	5.		Acceptable — Moderate credit risk

	6.		Pre-Watch — Marginal, but stable credit risk

	7.		Special Mention — Potential weakness

	8.		Substandard — Well-defined weakness

	9.		Doubtful — Collection in-full improbable

	10.		Loss — Considered uncollectible

Commercial Credit Exposure Credit Risk by Internally Assigned Grades


													Real Estate—Residential
	Commercial, Financial												Secured for Business
	and Agricultural				Real Estate—Commercial				Real Estate—Construction				Purpose
	At December 31,				At December 31,				At December 31,				At December 31,
(Dollars in thousands)	2011		2010		2011		2010		2011		2010		2011		2010

Grade:
1. Cash secured/ 2. Fully secured	$	2,426	$	2,714	$	—	$	—	$	—	$	—	$	—	$	—
3. Strong		4,441		16,350		9,365		10,268		1,124		3,948		—		28
4. Satisfactory		32,730		71,258		28,517		47,755		89		12,217		1,309		1,836
5. Acceptable		296,860		254,422		296,499		256,788		35,207		82,848		18,990		24,987
6. Pre-watch		79,402		70,259		100,581		108,784		33,993		12,005		8,853		6,322
7. Special Mention		26,162		8,476		29,055		17,596		1,715		684		663		700
8. Substandard		40,634		36,933		49,943		53,905		18,269		28,256		2,666		8,586
9. Doubtful		2,032		3,106		993		1,261		—		—		—		—
10.Loss		—		—		—		—		—		—		—		—

Total	$	484,687	$	463,518	$	514,953	$	496,357	$	90,397	$	139,958	$	32,481	$	42,459

The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: residential real estate loans secured for a personal purpose, home equity loans secured for a personal purpose, loans to individuals and lease financings by payment activity. Nonperforming loans and leases are loans past due 90 days or more and loans and leases on non-accrual of interest as well as troubled debt restructured loans. Performing loans and leases are reviewed only if the loan becomes 60 days or more past due. Nonperforming loans and leases are reviewed monthly. Performing loans and leases have a nominal to moderate risk of loss. Nonperforming loans and leases are loans with a well-defined weakness as well as loans where collection in-full is improbable.

Credit Exposure — Real Estate- Residential Secured for Personal Purpose, Real Estate-Home Equity Secured for Personal Purpose, Loans to individuals, Lease Financing Credit Risk Profile by Payment Activity


	Real Estate—Residential				Real Estate—Home Equity
	Secured for				Secured for
	Personal Purpose				Personal Purpose				Loans to individuals				Lease Financing
	At December 31,				At December 31,				At December 31,				At December 31,
(Dollars in thousands)	2011		2010		2011		2010		2011		2010		2011		2010

Performing	$	125,163	$	120,342	$	80,334	$	80,831	$	44,711	$	43,624	$	72,282	$	80,929
Nonperforming		57		1,534		144		44		254		463		943		1,127

Total	$	125,220	$	121,876	$	80,478	$	80,875	$	44,965	$	44,087	$	73,225	$	82,056

Risks associated with lending activities include, among other things, the impact of changes in interest rates and economic conditions, which may adversely impact the ability of borrowers to repay outstanding loans, and impact the value of the associated collateral.

Commercial, financial and agricultural loans, commercial real estate loans, construction loans and residential real estate loans with a business purpose are generally perceived as having more risk of default than residential real estate loans with a personal purpose and consumer loans. These types of loans involve larger loan balances to a single borrower or groups of related borrowers. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties, as well as the factors affecting residential real estate borrowers.

Commercial, financial and agricultural business loans are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses. These loans may involve greater risk because the availability of funds to repay each loan depends substantially on the success of the business itself. In addition, the collateral securing the loans often depreciates over time, is difficult to appraise and liquidate and fluctuates in value based on the success of the business.

Risk of loss on a construction loan depends largely upon whether our initial estimate of the property’s value at completion of construction equals or exceeds the cost of the property construction (including interest). During the construction phase, a number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan or by seizure of collateral. Included in real estate-construction is track development financing. Risk factors related to track development financing include the demand for residential housing and the real estate valuation market. When projects move slower than anticipated, the properties may have significantly lower values than when the original underwriting was completed, resulting in lower collateral values to support the loan. Extended time frames also cause the interest carrying cost for a project to be higher than the builder projected, negatively impacting the builder’s profit and cash flow and, therefore, their ability to make principal and interest payments.

Commercial real estate loans and residential real estate loans with a business purpose secured by owner-occupied properties are dependent upon the successful operation of the borrower’s business. If the operating company suffers difficulties in terms of sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured by properties where repayment is dependent upon payment of rent by third party tenants or the sale of the property may be impacted by loss of tenants, lower lease rates needed to attract new tenants or the inability to sell a completed project in a timely fashion and at a profit.

Commercial, financial and agricultural loans, commercial real estate loans, construction loans and residential real estate loans secured for a business purpose are more susceptible to a risk of loss during a downturn in the business cycle. The Corporation has strict underwriting, review, and monitoring procedures in place, however, these procedures cannot eliminate all of the risks related to these loans.

The Corporation focuses on both assessing the borrower’s capacity and willingness to repay and on obtaining sufficient collateral. Commercial, financial and agricultural loans are generally secured by the borrower’s assets and by personal guarantees. Commercial real estate and residential real estate loans secured for a business purpose are originated primarily within the Eastern Pennsylvania market area at conservative loan-to-value ratios and often by a guarantee of the borrowers. Management closely monitors the composition and quality of the total commercial loan portfolio to ensure that any credit concentrations by borrower or industry are closely monitored.

The Corporation originates fixed-rate and adjustable-rate real estate-residential mortgage loans that are secured by the underlying 1- to 4-family residential properties for personal purposes. Credit risk exposure in this area of lending is minimized by the evaluation of the credit worthiness of the borrower, including debt-to-equity ratios, credit scores and adherence to underwriting policies that emphasize conservative loan-to-value ratios of generally no more than 80%. Residential mortgage loans granted in excess of the 80% loan-to-value ratio criterion are generally insured by private mortgage insurance.

In the real estate-home equity loan portfolio secured for a personal purpose, combined loan-to-value ratios at origination are generally limited to 80%. Other credit considerations may warrant higher combined loan-to-value ratios and are generally insured by private mortgage insurance.

Credit risk in the loans to individuals portfolio, which includes, direct consumer loans and credit cards, is controlled by strict adherence to conservative underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values.

The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting, review, and monitoring procedures in place to mitigate this risk. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk by using $1.00 buyout leases, in which the entire cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease terms.

Reserve for Loan and Lease Losses and Recorded Investment in Loans and Leases

The following presents, by portfolio segment, a summary of the activity in the reserve for loan and lease losses, the balance in the reserve for loan and leases losses disaggregated on the basis of impairment method and the recorded investment in loans and leases disaggregated on the basis of impairment method for the years ended December 31, 2011 and 2010.


										Real Estate—
										Residential
							Real Estate—			and
	Commercial,			Real Estate—			Residential			Home Equity
	Financial			Commercial			Secured for			Secured for			Loans
	and			and			Business			Personal			to			Lease
(Dollars in thousands)	Agricultural			Construction			Purpose			Purpose			Individuals			Financings			Unallocated		Total

For the Year Ended December 31, 2011

Reserve for loan and lease losses:

Beginning balance	$	9,630		$	15,288		$	1,333		$	544		$	734		$	1,950		$	1,419	$	30,898

Charge-offs		(6,784	)		(10,033	)		(323	)		(79	)		(968	)		(1,516	)				(19,703	)

Recoveries		318			151			43			19			174			491					1,196
Provision (recovery of provision)		8,098			7,911			(230	)		251			790			419			240		17,479

Ending balance	$	11,262		$	13,317		$	823		$	735		$	730		$	1,344		$	1,659	$	29,870


For the Year Ended December 31, 2010

Reserve for loan and lease losses:

Beginning balance	$	12,148		$	7,975		$	1,058		$	501		$	887		$	1,175		$	1,054	$	24,798

Charge-offs		(3,436	)		(9,267	)		(1,298	)		(8	)		(883	)		(2,213	)		—		(17,105	)

Recoveries		129			651			45			76			227			512			—		1,640
Provision (recovery of provision)		789			15,929			1,528			(25	)		503			2,476			365		21,565

Ending balance	$	9,630		$	15,288		$	1,333		$	544		$	734		$	1,950		$	1,419	$	30,898

Real Estate—

Residential

Real Estate—

and

Commercial,

Real Estate—

Residential

Home Equity

Financial

Commercial

Secured for

Loans

and

Business

Personal

Lease

(Dollars in thousands)

Agricultural

Construction

Purpose

Individuals

Financings

Unallocated

Total

At December 31, 2011

Reserve for loan and lease losses:

Ending balance: individually evaluated for impairment

510

743

—

N/A

1,253

Ending balance: collectively evaluated for impairment

10,752

12,574

823

735

730

1,344

1,659

28,617

Ending balance

11,262

13,317

823

735

730

1,344

1,659

29,870

Loans and leases:

Ending balance: individually evaluated for impairment

4,691

36,261

115

—

41,201

Ending balance: collectively evaluated for impairment

479,996

569,089

32,366

205,614

44,915

73,225

1,405,205

Ending balance

484,687

605,350

32,481

205,698

44,965

73,225

1,446,406


							Real Estate—
							Residential
					Real Estate—		and
	Commercial,		Real Estate—		Residential		Home Equity
	Financial		Commercial		Secured for		Secured for		Loans
	and		and		Business		Personal		to		Lease
(Dollars in thousands)	Agricultural		Construction		Purpose		Purpose		Individuals		Financings		Unallocated		Total

At December 31, 2010

Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment	$	650	$	942	$	29	$	2	$	—	$	—	$	N/A	$	1,623
Ending balance: collectively evaluated for impairment		9,160		14,166		1,304		542		734		1,950		1,419		29,275

Ending balance	$	9,810	$	15,108	$	1,333	$	544	$	734	$	1,950	$	1,419	$	30,898


Loans and leases:
Ending balance: individually evaluated for impairment	$	7,802	$	35,057	$	451	$	1,264	$	81	$	—			$	44,655
Ending balance: collectively evaluated for impairment		455,716		601,258		42,008		201,487		44,006		82,056				1,426,531


Ending balance	$	463,518	$	636,315	$	42,459	$	202,751	$	44,087	$	82,056			$	1,471,186

A summary of the activity in the reserve for loan and lease losses is as follows:


	For the Years Ended December 31,
	2011			2010			2009
Balance at beginning of year	$	30,898		$	24,798		$	13,118
Provision for loan and lease losses		17,479			21,565			20,886
Loans and leases charged off		(19,703	)		(17,105	)		(10,448	)
Recoveries		1,196			1,640			1,242

Balance at end of year	$	29,870		$	30,898		$	24,798

Impaired Loans

The following presents, by class of loans, the recorded investment and unpaid principal balance of impaired loans, the amounts of the impaired loans for which there is not an allowance for credit losses and the amounts for which there is an allowance for credit losses at December 31, 2011 and 2010.


	At December 31,
	2011						2010
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(Dollars in thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance

Impaired loans with no related allowance recorded:
Commercial, financial and agricultural	$	3,384	$	4,422			$	4,761	$	5,074
Real estate—commercial real estate		19,453		27,146				13,634		14,610
Real estate—construction		15,741		17,268				13,994		16,509
Real estate—residential secured for business purpose		115		631				361		730
Real estate—residential secured for personal purpose		57		57				632		632
Real estate—home equity secured for personal purpose		27		27				—		—
Loans to individuals		50		58				81		81

Total impaired loans with no related allowance recorded:	$	38,827	$	49,609			$	33,463	$	37,636


Impaired loans with an allowance recorded:
Commercial, financial and agricultural	$	1,307	$	1,700	$	510	$	3,041	$	3,058	$	650
Real estate—commercial real estate		1,067		1,067		743		4,116		5,231		765
Real estate—construction		—		—		—		3,313		3,739		177
Real estate—residential secured for business purpose		—		—		—		90		90		29
Real estate—residential secured for personal purpose		—		—		—		632		632		2

Total impaired loans with an allowance recorded	$	2,374	$	2,767	$	1,253	$	11,192	$	12,750	$	1,623


Total impaired loans:
Commercial, financial and agricultural	$	4,691	$	6,122	$	510	$	7,802	$	8,132	$	650
Real estate—commercial real estate		20,520		28,213		743		17,750		19,841		765
Real estate—construction		15,741		17,268		—		17,307		20,248		177
Real estate—residential secured for business purpose		115		631		—		451		820		29
Real estate—residential secured for personal purpose		57		57		—		1,264		1,264		2
Real estate—home equity secured for personal purpose		27		27		—		—		—		—
Loans to individuals		50		58		—		81		81		—

Total impaired loans:	$	41,201	$	52,376	$	1,253	$	44,655	$	50,386	$	1,623

The following presents by class of loans, the average recorded investment in impaired loans and an analysis of interest on impaired loans for the years ended December 31, 2011 and 2010:


	For the Years Ended December 31,
	2011						2010
					Interest Income						Interest Income
					That Would						That Would
					Have Been						Have Been
	Average		Interest		Recognized		Average		Interest		Recognized
	Recorded		Income		Under		Recorded		Income		Under
(Dollars in thousands)	Investment		Recognized*		Original Terms		Investment		Recognized*		Original Terms

Commercial, financial and agricultural	$	6,357	$	30	$	377	$	3,790	$	13	$	234
Real estate—commercial real estate		18,850		130		1,300		8,280		63		744
Real estate—construction		16,720		64		886		20,228		—		1,062
Real estate—residential secured for business purpose		306		6		14		928		29		63
Real estate—residential secured for personal purpose		491		25		25		1,201		13		62
Real estate—home equity secured for personal purpose		25		1		1		231		—		9
Loans to individuals		57		5		1		62		4		—


Total	$	42,806	$	261	$	2,604	$	34,720	$	122	$	2,174


*		Includes interest income recognized on accruing troubled debt restructured loans of $196 thousand and $97 thousand for the years ended December 31, 2011 and 2010, respectively.

Any income accrued on one-to-four family residential properties after the loan becomes 90 days past due is held in a reserve for uncollected interest. The reserve for uncollected interest was $0 and $42 thousand at December 31, 2011 and 2010, respectively. Other real estate owned was $6.6 million and $2.4 million at December 31, 2011 and 2010, respectively.

The Bank maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded. The reserve for off-balance sheet credits was $220 thousand and $178 thousand at December 31, 2011 and 2010, respectively.

Troubled Debt Restructured Loans and Leases

The following presents, by class of loans and leases, information regarding accruing and non-accrual loans and leases that were restructured during the year ended December 31, 2011:


	For the Year Ended December 31, 2011
			Pre-		Post-
			Restructuring		Restructuring
	Number		Outstanding		Outstanding
	Of		Recorded		Recorded		Related
(Dollars in thousands)	Loans		Investment		Investment		Allowance

Accruing Troubled Debt Restructured Loans and Leases:

Commercial, financial and agricultural		2	$	80	$	80	$	—
Real estate—commercial real estate		5		2,438		2,435		—
Real estate—construction		5		2,182		2,182		—
Real estate—residential secured for business purpose		1		98		98		—
Real estate—residential secured for personal purpose		1		156		156		—
Real estate—home equity secured for personal purpose		1		31		31		—


Total		15	$	4,985	$	4,982	$	—


Nonaccrual Troubled Debt Restructured Loans and Leases:
Real estate—commercial real estate		3	$	11,368	$	11,368	$	—
Real estate—residential secured for personal purpose		1		61		61		—

Total		4	$	11,429	$	11,429	$	—

The Corporation grants concessions primarily related to extensions of interest-only payment periods and an occasional payment modification. These modifications typically are on a short-term basis up to one year. Our goal when restructuring a credit is to afford the customer a reasonable period of time to provide cash flow relief to customers experiencing cash flow difficulties.

Accruing loans totaling $5.0 million were restructured during the year ended December 31, 2011. Accruing troubled debt restructured loans were primarily comprised of two categories of loans on which interest is being accrued under the restructured terms, and the loans were current or less than ninety days past due. The first category included four commercial real estate loans totaling $1.2 million, which had their interest only payment terms extended due to reduced cash flows, and one loan with a balance of $1.2 million, which had an interest rate reduction and maturity date extension due to inability to make payments because of reduced cash flows caused by economic conditions. The second category consisted of five construction loans totaling $2.2 million, which had interest only payment terms extended due to stalled land development projects. Accruing troubled debt restructured loans charged-off during the year ended December 31, 2011, subsequent to the restructuring, totaled approximately $241 thousand, primarily due to declines in collateral values.

Nonaccrual loans totaling $11.4 million were restructured during the year ended December 31, 2011. Nonaccrual troubled debt restructured loans were primarily comprised of two commercial real estate loans totaling $8.6 million. The first restructure was necessary due to the customer’s declining revenue and inability to raise additional capital needed to fund future projects, placing a strain on cash flow. To allow payments to be made, based on projected cash flows, two loans were restructured into one loan with a balance of $6.7 million at a reduced interest rate, with repayment beginning in October of 2011. Periodic review of the financial performance of the company has been included in the covenants of the restructure, requiring additional payments on the loans as the company’s financial condition improves. At December 31, 2011 the balance of this loan was $6.5 million. The second restructure was necessary due to a bankruptcy filing. This loan has been modified to allow interest only payments at a reduced interest rate. At December 31, 2011, the balance of this loan was $1.9 million.

The following presents, by class of loans and leases, information regarding accruing and nonaccrual troubled debt restructured loans and leases, included in the table above, for which there was a payment default during the year ended December 31, 2011.


	For the Year Ended
	December 31, 2011
	Number of		Recorded
(Dollars in thousands)	Loans		Investment

Accruing Troubled Debt Restructured Loans and Leases:
Real estate-residential secured for personal purpose		1	$	158
Real estate-home equity secured for personal purpose		1		31

Total		2	$	189


Nonaccrual Troubled Debt Restructured Loans and Leases:
Real estate-commercial real estate		1	$	2,761

Total		1	$	2,761

Accruing troubled debt restructured loans, restructured during 2011, totaling $189 thousand, had payment defaults subsequent to restructuring in 2011. As a result of the payment default, these loans have been placed on nonaccrual status.

Nonaccrual troubled debt restructured loans, restructured during 2011, totaling $2.8 million, had payment defaults subsequent to restructuring in 2011. The commercial real estate loan for $2.8 million was foreclosed on and $1.0 million was charged-off based on the appraised value of the property and the remaining $1.8 million was transferred to other real estate owned during the third quarter of 2011.