NOTE D—LOANS

The Bank grants commercial, residential and consumer loans to customers primarily within southcentral Pennsylvania and northern Maryland and the surrounding area. A large portion of the loan portfolio is secured by real estate. Although the Bank has a diversified loan portfolio, its debtors' ability to honor their contracts is influenced by the region's economy.

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Corporation's internal risk rating system as of December 31, 2011 and 2010:

In thousands	Pass		Special Mention		Substandard		Doubtful		Total

December 31, 2011
Commercial and industrial	$	48,284	$	4,596	$	3,265	$	—	$	56,145
Commercial real estate		200,834		19,872		15,311		—		236,017
Commercial real estate construction		7,400		12,743		2,614		—		22,757
Residential mortgage		304,627		4,261		2,378		—		311,266
Home equity lines of credit		50,083		2,364		85		—		52,532
Consumer		15,751		—		—		—		15,751

Total	$	626,979	$	43,836	$	23,653	$	—	$	694,468

December 31, 2010
Commercial and industrial	$	43,448	$	5,041	$	4,187	$	—	$	52,676
Commercial real estate		193,731		14,530		17,689		—		225,950
Commercial real estate construction		11,009		10,963		4,663		—		26,635
Residential mortgage		289,833		2,882		4,282		—		296,997
Home equity lines of credit		46,383		2,081		393		—		48,857
Consumer		14,176		—		—		—		14,176

Total	$	598,580	$	35,497	$	31,214	$	—	$	665,291

The following table summarizes information in regards to impaired loans by loan portfolio class as of December 31, 2011 and 2010:

	Impaired Loans with Allowance						Impaired Loans with No Allowance

In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
DECEMBER 31, 2011
Commercial and industrial	$	1,967	$	3,102	$	1,085	$	252	$	1,367
Commercial real estate		273		273		43		6,339		7,136
Commercial real estate construction		—		—		—		2,614		7,192
Residential mortgage		88		88		53		1,313		1,638

	$	2,328	$	3,463	$	1,181	$	10,518	$	17,333

	Impaired Loans with Allowance						Impaired Loans with No Allowance

In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
DECEMBER 31, 2010
Commercial and industrial	$	869	$	1,869	$	547	$	68	$	68
Commercial real estate		4,326		4,326		726		3,955		4,184
Commercial real estate construction		4,216		7,716		729		172		232
Residential mortgage		97		97		57		954		1,312

	$	9,508	$	14,008	$	2,059	$	5,149	$	5,796

The following table summarizes information in regards to average of impaired loans and related interest income by loan portfolio class:

	Impaired Loans with Allowance				Impaired Loans with No Allowance

In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
DECEMBER 31, 2011
Commercial and industrial	$	1,019	$	—	$	349	$	—
Commercial real estate		2,324		—		4,946		44
Commercial real estate construction		—		—		3,463		—
Residential mortgage		340		—		1,119		—

	$	3,683	$	—	$	9,877	$	44

	Impaired Loans with Allowance				Impaired Loans with No Allowance

In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
DECEMBER 31, 2010
Commercial and industrial	$	904	$	—	$	66	$	—
Commercial real estate		1,166		6		3,661		29
Commercial real estate construction		4,882		61		562		—
Residential mortgage		24		—		1,339		4

	$	6,976	$	67	$	5,628	$	33

The following table presents nonaccrual loans by classes of the loan portfolio as of December 31, 2011 and 2010:

In thousands	2011		2010

Commercial and industrial	$	2,219	$	937
Commercial real estate		6,612		8,281
Commercial real estate construction		2,614		4,388
Residential mortgage		1,401		1,051

Total	$	12,846	$	14,657

The following table summarizes information in regards to troubled debt restructurings at December 31, 2011 and 2010:

In thousands	Pre-Modification Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments		Recorded Investment

December 31, 2011
Commercial and industrial	$	490	$	485	$	234
Commercial real estate	$	656	$	656	$	412
Commercial real estate construction	$	1,548	$	1,541	$	850
December 31, 2010
Commercial and industrial	$	490	$	485	$	439
Commercial real estate	$	371	$	373	$	168
Commercial real estate construction	$	1,548	$	1,541	$	1,536

All of the Corporation's troubled debt restructured loans are also nonaccrual impaired loans, which resulted in a specific allocation and, subsequently, a charge-off as appropriate. As of December 31, 2011, charge-offs associated with troubled debt restructured loans while under a forbearance agreement totaled $589,000. As of December 31, 2011, there were no defaulted troubled debt restructures as all troubled debt restructured loans were current with respect to their associated forbearance agreements. One forbearance agreement was negotiated during 2009 and modified during 2011, two were negotiated during 2010, while the other one was negotiated during 2011.

There are forbearance agreements on all loans currently classified as troubled debt restructures, and all of these agreements have resulted in additional principal repayment. The terms of these forbearance agreements vary whereby principal payments have been decreased, interest rates have been reduced, and/or the loan will be repaid as collateral is sold.

As a result of adopting the amendments in Accounting Standards Update No. 2011-02, the Corporation reassessed all troubled debt restructurings that occurred on or after January 1, 2011, for identification as troubled debt restructurings. The Corporation identified no loans for which the allowance for loan losses had previously been measured under a general allowance of credit losses methodology that are now considered troubled debt restructurings in accordance with Accounting Standards Update No. 2011-02.

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.

The following table presents the classes of the loan portfolio summarized by the past due status as of December 31, 2011 and 2010:

In thousands	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing

December 31, 2011
Commercial and industrial	$	25	$	14	$	2,219	$	2,258	$	53,887	$	56,145	$	—
Commercial real estate		329		4,184		6,663		11,176		224,841		236,017		51
Commercial real estate construction		—		—		2,614		2,614		20,143		22,757		—
Residential mortgage		4,585		1,395		2,378		8,358		302,908		311,266		977
Home equity lines of credit		397		—		163		560		51,972		52,532		163
Consumer		20		8		—		28		15,723		15,751		—

Total	$	5,356	$	5,601	$	14,037	$	24,994	$	669,474	$	694,468	$	1,191

In thousands	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing

December 31, 2010
Commercial and industrial	$	105	$	—	$	937	$	1,042	$	51,634	$	52,676	$	—
Commercial real estate		1,903		744		8,281		10,928		215,022		225,950		—
Commercial real estate construction		—		—		4,388		4,388		22,247		26,635		—
Residential mortgage		3,182		492		2,035		5,709		291,288		296,997		984
Home equity lines of credit		115		13		13		141		48,716		48,857		13
Consumer		16		—		—		16		14,160		14,176		—

Total	$	5,321	$	1,249	$	15,654	$	22,224	$	643,067	$	665,291	$	997

The following table summarizes the allowance for loan losses and recorded investment in financing receivables:

In thousands	Commercial and Industrial			Commercial Real Estate			Commercial Real Estate Construction			Residential Mortgage			Home Equity Lines of Credit			Consumer			Unallocated		Total

December 31, 2011
Allowance for loan losses
Beginning balance- January 1, 2011	$	2,074		$	6,346		$	1,154		$	3,108		$	341		$	520		$	1,709	$	15,252
Charge offs		(1,861	)		(1,308	)		(1,242	)		(750	)		(52	)		(30	)		—		(5,243	)
Recoveries		34			—			—			2			—			2			—		38
Provisions		2,335			969			636			1,264			218			(73	)		86		5,435

Ending balance- December 31, 2011	$	2,582		$	6,007		$	548		$	3,624		$	507		$	419		$	1,795	$	15,482

Ending balance: individually evaluated for impairment	$	1,085		$	43		$	—		$	53		$	—		$	—		$	—	$	1,181

Ending balance: collectively evaluated for impairment	$	1,497		$	5,964		$	548		$	3,571		$	507		$	419		$	1,795	$	14,301

Loans receivables
Ending balance	$	56,145		$	236,017		$	22,757		$	311,266		$	52,532		$	15,751		$	—	$	694,468

Ending balance: individually evaluated for impairment	$	2,219		$	6,612		$	2,614		$	1,401		$	—		$	—		$	—	$	12,846

Ending balance: collectively evaluated for impairment	$	53,926		$	229,405		$	20,143		$	309,865		$	52,532		$	15,751		$	—	$	681,622

In thousands	Commercial and Industrial		Commercial Real Estate		Commercial Real Estate Construction		Residential Mortgage		Home Equity Lines of Credit		Consumer		Unallocated		Total

December 31, 2010
Allowance for loan losses
Ending balance	$	2,074	$	6,346	$	1,154	$	3,108	$	341	$	520	$	1,709	$	15,252

Ending balance: individually evaluated for impairment	$	547	$	726	$	729	$	57	$	—	$	—	$	—	$	2,059

Ending balance: collectively evaluated for impairment	$	1,527	$	5,620	$	425	$	3,051	$	341	$	520	$	1,709	$	13,193

Loans receivables
Ending balance	$	52,676	$	225,950	$	26,635	$	296,997	$	48,857	$	14,176	$	—	$	665,291

Ending balance: individually evaluated for impairment	$	937	$	8,281	$	4,388	$	1,051	$	—	$	—	$	—	$	14,657

Ending balance: collectively evaluated for impairment	$	51,739	$	217,669	$	22,247	$	295,946	$	48,857	$	14,176	$	—	$	650,634

Changes in the allowance for loan losses were as follows:

	Years Ended December 31,

In thousands	2011			2010			2009
Balance, beginning	$	15,252		$	11,981		$	7,393
Provision charged to operations		5,435			6,410			4,750
Recoveries on charged-off loans		38			42			186
Loans charged-off		(5,243	)		(3,181	)		(348	)

Balance, ending	$	15,482		$	15,252		$	11,981

If interest on all nonaccrual loans had been accrued at original contract rates, interest income would have increased by $652,000 in 2011, $464,000 in 2010, and $643,000 in 2009.

The following is a summary of information pertaining to impaired loans at December 31:

	Years Ended December 31,

In thousands	2011		2010		2009
Average investment in impaired loans	$	13,560	$	12,604	$	11,245

Interest income recognized on impaired loans	$	44	$	100	$	218

No additional funds are committed to be advanced in connection with impaired loans.