NOTE 7. LOANS AND LOANS HELD FOR SALE

The following table presents the composition of the loans at December 31:


	2011			2010
(in thousands)

Consumer
Home equity	$	411,404		$	441,096
Residential mortgage		358,846			359,536
Installment and other consumer		67,131			74,780
Consumer construction		2,440			4,019
Total Consumer Loans		839,821			879,431
Commercial
Commercial real estate		1,415,333			1,494,202
Commercial and industrial		685,753			722,359
Commercial construction		188,852			259,598
Total Commercial Loans		2,289,938			2,476,159
Total Portfolio Loans		3,129,759			3,355,590
Allowance for loan losses		(48,841	)		(51,387	)
Total Portfolio Loans, net		3,080,918			3,304,203
Loans held for sale		2,850			8,337
Total Loans, Net	$	3,083,768		$	3,312,540

We attempt to limit our exposure to credit risk by diversifying our loan portfolio and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by monitoring the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these classes. Commercial loans represent 73 percent and 74 percent of total portfolio loans at December 31, 2011 and 2010, respectively. Within the commercial portfolio, the CRE and commercial construction portfolios combined comprise 70 percent of commercial loans and 51 percent of total loans at December 31, 2011 and 71 percent of commercial loans and 52 percent of total loans at December 31, 2010. Further segmentation of the CRE and commercial construction portfolios by industry and collateral type reveal no concentration in excess of nine percent of total loans.

The vast majority of both commercial and consumer loans are made to businesses and individuals in our western Pennsylvania market, resulting in a geographic concentration. The conditions of the local and regional economies are monitored closely through publicly available data as well as information supplied by our customers. Only the CRE and commercial construction portfolios combined have any significant out-of-state exposure, with 19 percent of the combined portfolio and 10 percent of total loans being out-of-state loans at December 31, 2011 and 21 percent of the combined portfolio and 11 percent of total loans being out-of-state loans at December 31, 2010. Management believes underwriting guidelines and ongoing review by credit administration mitigates the concentration risk present in the loan portfolio.

The following table presents a summary of nonperforming assets for the periods stated:


	2011		2010
(in thousands)

Nonperforming Assets
Nonaccrual loans	$	37,931	$	31,104
Nonaccrual TDRs		18,184		32,779
Total nonperforming loans	$	56,115	$	63,883
OREO		3,967		5,820
Total Nonperforming Assets	$	60,082	$	69,703

OREO which is included in other assets in the Consolidated Balance Sheets consists of 18 properties with one property comprising $1.5 million or 37 percent of the balance. It is our policy to obtain OREO appraisals on an annual basis. All OREO properties at December 31, 2011 had current appraisals.

In situations where, for economic or legal reasons related to a borrower's financial difficulties, we may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a TDR. We strive to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before their loan reaches nonaccrual status. These modified terms generally include reductions in contractual interest rates, principal deferment and extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics. These modifications are generally for longer term periods that would not be considered insignificant. While unusual, there may be instances of loan principal forgiveness. We individually evaluate all substandard commercial loans that experienced a forbearance or change in terms, as well as all substandard consumer and residential mortgage loans that entered into an agreement to modify their existing loan.

All TDRs are considered to be impaired loans and will be reported as impaired loans for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement. Further, all impaired loans are reported as nonaccrual loans unless the loan is a TDR that has met the requirements to be returned to accruing status. TDRs can be returned to accruing status, if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring. During 2011, we returned $17.1 million of TDRs to accruing status.

Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place. During 2011, we had two commercial real estate loans totaling $0.9 million default. No other TDRs that existed at December 31, 2011 have defaulted.

During the year ended December 31, 2011, we modified $6.9 million of commercial and industrial loans, $6.6 million of commercial real estate loans, $4.5 million of commercial construction loans and $2.1 million of residential real estate for financially troubled borrowers that were not considered to be TDRs. These borrowers received modifications that represented insignificant delays in the timing of payments that were not considered to be concessions. TDRs increased significantly during 2011 as we are working closely with our customers during these challenging economic times.

The following table presents the restructured loans for the periods stated:


	2011						2010
	Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs
(in thousands)

Commercial real estate	$	22,284	$	10,871	$	33,155	$	1,194	$	29,636	$	30,830
Commercial and industrial		6,180		—		6,180		37		1,000		1,037
Commercial construction		19,682		2,943		22,625		—		2,143		2,143
Residential mortgage		1,570		4,370		5,940		908		—		908
Total	$	49,716	$	18,184	$	67,900	$	2,139	$	32,779	$	34,918

The following table include the number of TDRs, as well as both the pre-modification and post-modification recorded investments, by loan class, of those loans restructured identified during the year ended December 31:


	2011
	Number of Loans		Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment
(in thousands)

Commercial real estate		8	$	6,077	$	5,329	$	(748	)
Commercial and industrial		6		6,364		6,180		(184	)
Commercial construction		12		21,029		20,979		(50	)
Residential mortgage		9		5,612		5,173		(439	)
Total		35	$	39,082	$	37,661	$	(1,421	)

⁽¹⁾

Excludes loans that were paid off or charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end.

We have granted loans to certain officers and directors of S&T as well as to certain affiliates of the officers and directors in the ordinary course of business. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and did not involve more than normal risk of collectability.

The following table presents a summary of the aggregate amount of loans to any such persons as of December 31:


	2011			2010
(in thousands)

Balance at beginning of year	$	34,373		$	34,136
New loans		23,751			20,594
Repayments		(26,303	)		(20,357	)
Balance at End of Year	$	31,821		$	34,373