	2011			2010

	(Dollars in thousands)
Loans held-for-sale:
Loans held-for-sale — SBA	$	753		$	8,750
Loans held-for-sale — other		413			2,260

Total loans held-for-sale	$	1,166		$	11,010

Loans held-for-investment:
Commercial	$	366,590		$	378,412
Real estate:
Commercial and residential		311,479			337,457
Land and construction		23,016			62,356
Home equity		52,017			53,697
Consumer		11,166			13,244

Loans		764,268			845,166
Deferred loan origination costs and fees, net		323			883

Loans, including deferred costs		764,591			846,049
Allowance for loan losses		(20,700	)		(25,204	)

Loans, net	$	743,891		$	820,845

Prior to February 15, 2011, SBA loans that were sold were subject to a warranty for a period of 90 days. In accordance with generally accepted accounting principles, the Company treated sold SBA loans as secured borrowings during the warranty period. The secured borrowings were classified as "short-term borrowings" on the consolidated balance sheets. At December 31, 2010, the balance of loans held-for-sale included $2,445,000 of SBA loans that were transferred to third parties, with associated deferred gains of $194,000, which are included in other liabilities on the consolidated balance sheet. Effective February 15, 2011, the SBA no longer required a warranty period in loan sales agreements. Therefore, gains on loan sales completed after February 15, 2011 are recognized upon completion of the transaction, thus there are no short-term borrowings or deferred gains associated with the SBA loans held-for-sale at December 31, 2011.

During the second quarter of 2010, the Company identified $31,005,000 of problem real estate loans for sale. These loans were written down by $13,926,000 to reflect the estimated proceeds from the sale, resulting in a net balance of $17,079,000 which was transferred into the loans held-for-sale portfolio. The following table shows the detail of the problem loans transferred to the loans held-for-sale portfolio from June 30, 2010 to December 31, 2010:

	Balance Prior to Transfer		Amount Charged-off			June 30, 2010 Balance Transferred to Loans Held-for-Sale		Paydowns / Sales			Writedowns			December 31, 2010 Balance

	(Dollars in thousands)
Real estate:
Commercial and residential	$	9,893	$	(2,781	)	$	7,112	$	(5,032	)	$	(917	)	$	1,163
Land and construction		21,112		(11,145	)		9,967		(8,707	)		(163	)		1,097

Total	$	31,005	$	(13,926	)	$	17,079	$	(13,739	)	$	(1,080	)	$	2,260

During 2011, activity in the loans held-for-sale — other portfolio included $38,000 in paydowns, $29,000 in writedowns, and $1,780,000 of loan sales, resulting in a balance of $413,000 at December 31, 2011.

	For the Year Ended December 31, 2011												For the Year Ended December 31, 2010 Total			For the Year Ended December 31, 2009 Total

	Commercial			Real Estate			Consumer			Total			For the Year Ended December 31, 2010 Total			For the Year Ended December 31, 2009 Total
	(Dollars in thousands)
Balance, beginning of year	$	13,952		$	10,363		$	889		$	25,204		$	28,768		$	25,007
Charge-offs		(7,559	)		(3,356	)		(8	)		(10,923	)		(32,167	)		(31,534	)
Recoveries		678			1,269			3			1,950			1,799			1,367

Net charge-offs		(6,881	)		(2,087	)		(5	)		(8,973	)		(30,368	)		(30,167	)
Provision for loan losses		6,144			(938	)		(737	)		4,469			26,804			33,928

Balance, end of year	$	13,215		$	7,338		$	147		$	20,700		$	25,204		$	28,768

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment, based on the impairment method as follows at year-end:

	December 31, 2011

	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,249	$	76	$	2	$	2,327
Collectively evaluated for impairment		10,966		7,262		145		18,373

Total allowance balance	$	13,215	$	7,338	$	147	$	20,700

Loans:
Individually evaluated for impairment	$	11,954	$	5,948	$	12	$	17,914
Collectively evaluated for impairment		354,636		380,564		11,154		746,354

Total loan balance	$	366,590	$	386,512	$	11,166	$	764,268


	December 31, 2010
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,427	$	1,855	$	778	$	6,060
Collectively evaluated for impairment		10,525		8,508		111		19,144

Total allowance balance	$	13,952	$	10,363	$	889	$	25,204

Loans:
Individually evaluated for impairment	$	14,374	$	16,041	$	898	$	31,313
Collectively evaluated for impairment		364,038		437,469		12,346		813,853

Total loan balance	$	378,412	$	453,510	$	13,244	$	845,166

The following table presents loans held-for-investment individually evaluated for impairment by class of loans as of December 31, 2011 and December 31, 2010. The recorded investment included in the following table represents loan principal net of any partial charge-offs recognized on the loans. The unpaid principal balance represents the recorded balance prior to any partial charge-offs.

	December 31, 2011						December 31, 2010

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(Dollars in thousands)
With no related allowance recorded:
Commercial	$	7,644	$	5,972	$	—	$	5,557	$	5,125	$	—
Real estate:
Commercial and residential		2,916		2,057		—		4,392		2,431		—
Land and construction		3,491		3,039		—		6,138		3,429		—

Total with no related allowance recorded		14,051		11,068		—		16,087		10,985		—
With an allowance recorded:
Commercial		6,526		5,982		2,249		9,695		9,249		3,427
Real estate:
Commercial and residential		80		80		44		4,753		4,753		1,002
Land and construction		817		740		32		6,862		5,428		853
Home Equity		32		32		—		—		—		—
Consumer		12		12		2		898		898		778

Total with an allowance recorded		7,467		6,846		2,327		22,208		20,328		6,060

Total	$	21,518	$	17,914	$	2,327	$	38,295	$	31,313	$	6,060

The following table presents interest recognized and cash-basis interest earned on impaired loans for the periods indicated:

	For the Year Ended December 31, 2011

			Real Estate
	Commercial		Commercial and Residential		Land and Construction		Home Equity		Consumer		Total		For the Year Ended December 31, 2010 Total
	(Dollars in thousands)
Average of impaired loans during the period	$	12,613	$	2,976	$	5,726	$	1,390	$	680	$	23,385	$	51,023
Interest income during impairment	$	2	$	—	$	1	$	1	$	2	$	6	$	41
Cash-basis interest earned	$	—	$	—	$	—	$	1	$	—	$	1	$	27

Nonperforming loans include both smaller dollar balance homogenous loans that are collectively evaluated for impairment and individually classified loans. Nonperforming loans were as follows at year-end:

	2011		2010

	(Dollars in thousands)
Nonaccrual loans — held-for-sale	$	186	$	2,026
Nonaccrual loans — held-for-investment		14,353		28,821
Restructured and loans over 90 days past due and still accruing		2,291		2,256

Total nonperforming loans	$	16,830	$	33,103

Other restructured loans	$	1,270	$	236
Impaired loans, excluding loans held-for-sale	$	17,914	$	31,313

	2011						2010

	Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total		Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total
	(Dollars in thousands)
Commercial	$	8,876	$	1,803	$	10,679	$	13,545	$	593	$	14,138
Real estate:
Commercial and residential		2,137		—		2,137		6,450		1,663		8,113
Land and construction		3,514		456		3,970		9,954		—		9,954
Home equity		—		32		32		—		—		—
Consumer		12		—		12		898		—		898

Total	$	14,539	$	2,291	$	16,830	$	30,847	$	2,256	$	33,103

The following table presents the aging of past due loans as of December 31, 2011 by class of loans:

	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total

	(Dollars in thousands)
Commercial	$	1,999	$	508	$	3,394	$	5,901	$	360,689	$	366,590
Real estate:
Commercial and residential		2,293		—		—		2,293		309,186		311,479
Land and construction		—		—		1,532		1,532		21,484		23,016
Home equity		753		—		32		785		51,232		52,017
Consumer		—		—		—		—		11,166		11,166

Total	$	5,045	$	508	$	4,958	$	10,511	$	753,757	$	764,268

The following table presents the aging of past due loans as of December 31, 2010 by class of loans:

	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total

	(Dollars in thousands)
Commercial	$	3,176	$	807	$	14,138	$	18,121	$	360,291	$	378,412
Real estate:
Commercial and residential		1,078		1,595		7,184		9,857		327,600		337,457
Land and construction		—		—		8,857		8,857		53,499		62,356
Home equity		80		—		—		80		53,617		53,697
Consumer		—		—		898		898		12,346		13,244

Total	$	4,334	$	2,402	$	31,077	$	37,813	$	807,353	$	845,166

Past due loans 30 days or greater totaled $10,511,000 and $38,049,000 at December 31, 2011 and December 31, 2010, respectively, of which $6,312,000 and $28,821,000 were on nonaccrual. At December 31, 2011, there were also $8,041,000 loans less than 30 days past due included in nonaccrual loans held-for-investment. There were no current loans included in nonaccrual loans held-for-investment at December 31, 2010. Management's classification of a loan as "nonaccrual" is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company begins recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt. The loans may or may not be collateralized, and collection efforts are pursued.

Concentrations of credit risk arise when a number of clients are engaged in similar business activities, or activities in the same geographic region, or have similar features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Company's loan portfolio is concentrated in commercial (primarily manufacturing, wholesale, and service) and real estate lending, with the balance in consumer loans. While no specific industry concentration is considered significant, the Company's lending operations are located in the Company's market areas that are dependent on the technology and real estate industries and their supporting companies. Thus, the Company's borrowers could be adversely impacted by a continued downturn in these sectors of the economy which could reduce the demand for loans and adversely impact the borrowers' ability to repay their loans.

The Company categorizes loans 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 Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loans terms. Classified loans are those loans that are assigned a substandard, substandard-nonaccrual, or doubtful risk rating using the following definitions:

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.

Substandard-Nonaccrual. Loans classified as substandard-nonaccrual 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. In addition, the Company no longer accrues interest on the loan because of the underlying weaknesses.

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.

The following table provides a summary of the loan portfolio by loan type and credit quality classification for the periods indicated:

	December 31, 2011						December 31, 2010

	Nonclassified		Classified		Total		Nonclassified		Classified		Total
	(Dollars in thousands)
Commercial	$	333,506	$	33,084	$	366,590	$	338,164	$	40,248	$	378,412
Real estate:
Commercial and residential		294,653		16,826		311,479		320,867		16,590		337,457
Land and construction		15,343		7,673		23,016		32,664		29,692		62,356
Home equity		51,368		649		52,017		50,757		2,940		53,697
Consumer		10,853		313		11,166		12,346		898		13,244

Total	$	705,723	$	58,545	$	764,268	$	754,798	$	90,368	$	845,166

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company's underwriting policy.

For the year ended December 31, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included a reduction of the stated interest rate of the loan, or an extension of maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.

As a result of adopting the amended guidance in determining whether a restructuring is a troubled debt restructuring, the Company reassessed all restructurings that occurred on or after January 1, 2011 for identification as troubled debt restructurings. The Company did not identify any loans as troubled debt restructurings for which the allowance for loan losses had previously been measured under a general allowance for loan losses methodology.

The book balance of troubled debt restructurings at December 31, 2011 was $7,396,000, which included $4,323,000 of nonaccrual loans and $3,073,000 of accruing loans. The book balance of troubled debt restructurings at December 31, 2010 was $7,924,000, which included $5,432,000 of nonaccrual loans and $2,492,000 of accruing loans. Approximately $574,000 and $1,134,000 in specific reserves were established with respect to these loans as of December 31, 2011 and December 31, 2010. As of December 31, 2011 and December 31, 2010, the Company had no additional amounts committed on any loan classified as a troubled debt restructuring.

The following table presents loans by class modified as troubled debt restructurings during the twelve month period ended December 31, 2011:

The troubled debt restructurings described above increased the allowance for loan losses by $462,000 through the allocation of specific reserves, and resulted in net charge-offs of $93,000 for the year ended December 31, 2011.

A loan is considered to be in payment default when it is 30 days contractually past due under the modified terms. There were no defaults on troubled debt restructurings within twelve months following the modification, during the year ended December 31, 2011.

HBC makes loans to executive officers, directors, and their affiliates. The following table presents the loans outstanding to these related parties for the periods indicated:

At December 31, 2011 and 2010, the Company serviced SBA loans sold to the secondary market of approximately $170,969,000, and $168,913,000.

Servicing assets represent the servicing spread generated from the sold guaranteed portions of SBA loans. The weighted average servicing rate for all loans serviced was 1.36% and 1.37% at December 31, 2011 and 2010, respectively.

Servicing rights are included in "accrued interest receivable and other assets" on the consolidated balance sheets. Activity for loan servicing rights follows:

There was no valuation allowance for servicing rights as of December 31, 2011 and 2010, because the fair value of the servicing rights was greater than the carrying value. The estimated fair value of loan servicing rights was $3,200,000 at December 31, 2011 and 2010. The fair value of servicing rights at December 31, 2011 was estimated using a weighted average constant prepayment rate ("CPR") assumption of 7.00%, and a weighted average discount rate assumption of 14.82%. The fair value of servicing rights at December 31, 2010 was estimated using a weighted average constant prepayment rate assumption of 10.02%, and a weighted average discount rate assumption of 12.32%.

The weighted average discount rate and CPR assumptions used to estimate the fair value of the I/O strip receivables are the same as for the servicing rights. Management reviews the key economic assumptions used to estimate the fair value of I/O strip receivables on a quarterly basis. The fair value of the I/O strip can be adversely impacted by a significant increase in either the prepayment speed of the portfolio or the discount rate. At December 31, 2011, key economic assumptions and the sensitivity of the fair value of the I/O strip receivables to immediate 10% and 20% changes to the CPR assumption, and 1% and 2% changes to the discount rate assumption, are as follows:

	(Dollars in thousands)

Carrying amount/fair value of Interest-Only (I/O) strip	$	2,094
Prepayment speed assumption (annual rate)		7.0	%
Impact on fair value of 10% adverse change in prepayment speed (CPR 7.7%)	$	(47	)
Impact on fair value of 20% adverse change in prepayment speed (CPR 8.4%)	$	(92	)
Residual cash flow discount rate assumption (annual)		14.8	%
Impact on fair value of 1% adverse change in discount rate (16.3% discount rate)	$	(70	)
Impact on fair value of 2% adverse change in discount rate (17.8% discount rate)	$	(136	)

I/O strip receivables are included in "accrued interest receivable and other assets" on the consolidated balance sheets. Activity for I/O strip receivables follows: