LOANS

12 Months Ended

Dec. 31, 2011

LOANS

LOANS

3. LOANS

The following table sets forth the major classifications of loans:

December 31,	2011			2010
(In thousands)
Commercial real estate mortgage loans	$	283,917		$	236,048
Multi-family mortgage loans	21,402			9,217
Residential real estate mortgage loans	141,027			140,986
Commercial, financial and agricultural loans	116,319			97,663
Real estate construction and land loans	40,543			9,928
Installment/consumer loans	8,565			9,659
Total loans	611,773			503,501
Net deferred loan costs and fees	370			559
	612,143			504,060
Allowance for loan losses	(10,837		)	(8,497		)
Net loans	$	601,306		$	495,563

Lending Risk

The principal business of the Bank is lending, primarily in commercial real estate mortgage loans, multi-family mortgage loans, residential real estate mortgage loans, construction loans, home equity loans, commercial and industrial loans, land loans and consumer loans. The Bank considers its primary lending area to be eastern Long Island in Suffolk County, New York, and a substantial portion of the Bank’s loans are secured by real estate in this area. Accordingly, the ultimate collectibility of such a loan portfolio is susceptible to changes in market and economic conditions in this region.

Allowance for Loan Losses

The allowance for loan losses is established and maintained through a provision for loan losses based on probable incurred losses inherent in the Bank’s loan portfolio. Management evaluates the adequacy of the allowance on a quarterly basis. The allowance is comprised of both individual valuation allowances and loan pool valuation allowances.

The Bank monitors its entire loan portfolio on a regular basis, with consideration given to detailed analysis of classified loans, repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of credit. Additions to the allowance are charged to expense and realized losses, net of recoveries, are charged to the allowance.

Individual valuation allowances are established in connection with specific loan reviews and the asset classification process including the procedures for impairment testing under FASB Accounting Standard Codification (“ASC”) No. 310, “Receivables”. Such valuation, which includes a review of loans for which full collectibility in accordance with contractual terms is not reasonably assured, considers the estimated fair value of the underlying collateral less the costs to sell, if any, or the present value of expected future cash flows, or the loan’s observable market value. Any shortfall that exists from this analysis results in a specific allowance for the loan. Pursuant to our policy, loan losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectible. Assumptions and judgments by management, in conjunction with outside sources, are used to determine whether full collectibility of a loan is not reasonably assured. These assumptions and judgments are also used to determine the estimates of the fair value of the underlying collateral or the present value of expected future cash flows or the loan’s observable market value. Individual valuation allowances could differ materially as a result of changes in these assumptions and judgments. Individual loan analyses are periodically performed on specific loans considered impaired. The results of the individual valuation allowances are aggregated and included in the overall allowance for loan losses.

Loan pool valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with our lending activities, but which, unlike individual allowances, have not been allocated to particular problem assets. Pool evaluations are broken down into loans with homogenous characteristics by loan type and include commercial real estate mortgages, multi-family mortgage loans, home equity loans, residential real estate mortgages, commercial and industrial loans, real estate construction and land loans and consumer loans.  The determination of the adequacy of the valuation allowance is a process that takes into consideration a variety of factors. The Bank has developed a range of valuation allowances necessary to adequately provide for probable incurred losses inherent in each pool of loans. We consider our own charge-off history along with the growth in the portfolio as well as the Bank’s credit administration and asset management philosophies and procedures when determining the allowances for each pool. In addition, we evaluate and consider the credit’s risk rating which includes management’s evaluation of: cash flow, collateral, guarantor support, financial disclosures, industry trends and strength of borrowers’ management, the impact that economic and market conditions may have on the portfolio as well as known and inherent risks in the portfolio. Finally, we evaluate and consider the allowance ratios and coverage percentages of both peer group and regulatory agency data. These evaluations are inherently subjective because, even though they are based on objective data, it is management’s interpretation of that data that determines the amount of the appropriate allowance. If the evaluations prove to be incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in the loan portfolio, resulting in additions to the allowance for loan losses.

The Credit Risk Committee is comprised of members of both management and the Board of Directors. The adequacy of the allowance is analyzed quarterly, with any adjustment to a level deemed appropriate by the Credit Risk Committee, based on its risk assessment of the entire portfolio. Based on the Credit Risk Committee’s review of the classified loans and the overall allowance levels as they relate to the entire loan portfolio at December 31, 2011, management believes the allowance for loan losses has been established at levels sufficient to cover the probable incurred losses in the Bank’s loan portfolio. Future additions or reductions to the allowance may be necessary based on changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance for loan losses. Such agencies may require the Bank to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination.

The following table sets forth changes in the allowance for loan losses:

December 31,	2011			2010			2009
(In thousands)
Allowance for loan losses balance at beginning of period	$	8,497		$	6,045		$	3,953
Charge-offs	(1,681		)	(1,120		)	(2,093		)
Recoveries	121			72			35
Net charge-offs	(1,560		)	(1,048		)	(2,058		)
Provision for loan losses charged to operations	3,900			3,500			4,150
Balance at end of period	$	10,837		$	8,497		$	6,045

The following table represents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment, as defined under ASC 310-10, and based on impairment method as of December 31, 2011. The loan segment represents the categories that the Bank develops to determine its allowance for loan losses.

December 31, 2011	Commercial Real Estate Mortgage Loans		Multi-family Loans		Residential Real Estate Mortgage Loans			Commercial, Financial and Agricultural Loans			Installment/ Consumer Loans			Real Estate Construction and Land Loans			Total
(In thousands)
Originated loans
Allowance for loan losses
Beginning balance	$	3,310	$	133	$	1,642		$	2,804		$	423		$	185		$	8,497
Charge-offs	—		—		(259		)	(372		)	(186		)	(864		)	(1,681		)
Recoveries	—		—		6			96			19			—			121
Provision	220		262		891			367			16			2,144			3,900
	$	3,530	$	395	$	2,280		$	2,895		$	272		$	1,465		$	10,837
Ending balance: individually evaluated for impairment	$	—	$	—	$	105		$	162		$	—		$	—		$	267
Ending balance: collectively evaluated for impairment	$	3,530	$	395	$	2,175		$	2,733		$	272		$	1,465		$	10,570
Loans	$	267,378	$	21,402	$	131,155		$	111,673		$	7,971		$	40,279		$	579,858
Ending balance: individually evaluated for impairment	$	5,079	$	—	$	2,942		$	752		$	—		$	250		$	9,023
Ending balance: collectively evaluated for impairment	$	262,299	$	21,402	$	128,213		$	110,921		$	7,971		$	40,029		$	570,835
Ending balance: loans acquired with deteriorated credit quality	$	—	$	—	$	—		$	—		$	—		$	—		$	—

December 31, 2011	Commercial Real Estate Mortgage Loans		Multi-family Loans		Residential Real Estate Mortgage Loans			Commercial, Financial and Agricultural Loans			Installment/ Consumer Loans			Real Estate Construction and Land Loans			Total
(In thousands)
Acquired loans
Allowance for Loan Losses
Beginning balance	$	—	$	—	$	—		$	—		$	—		$	—		$	—
Charge-offs	—		—		—			—			—			—			—
Recoveries	—		—		—			—			—			—			—
Provision	—		—		—			—			—			—			—
Ending balance	$	—	$	—	$	—		$	—		$	—		$	—		$	—
Ending balance: individually evaluated for impairment	$	—	$	—	$	—		$	—		$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	—	$	—	$	—		$	—		$	—		$	—		$	—
Loans	$	16,539	$	—	$	9,872		$	4,646		$	594		$	264		$	31,915
Ending balance: individually evaluated for impairment	$	—	$	—	$	—		$	—		$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	15,903	$	—	$	9,872		$	4,443		$	594		$	—		$	30,812
Ending balance: loans acquired with deteriorated credit quality	$	636	$	—	$	—		$	203		$	—		$	264		$	1,103
Total loans
Allowance for Loan Losses
Beginning balance	$	3,310	$	133	$	1,642		$	2,804		$	423		$	185		$	8,497
Charge-offs	—		—		(259		)	(372		)	(186		)	(864		)	(1,681		)
Recoveries	—		—		6			96			19			—			121
Provision	220		262		891			367			16			2,144			3,900
Ending balance	$	3,530	$	395	$	2,280		$	2,895		$	272		$	1,465		$	10,837
Ending balance: individually evaluated for impairment	$	—	$	—	$	105		$	162		$	—		$	—		$	267
Ending balance: collectively evaluated for impairment	$	3,530	$	395	$	2,175		$	2,733		$	272		$	1,465		$	10,570
Loans	$	283,917	$	21,402	$	141,027		$	116,319		$	8,565		$	40,543		$	611,773
Ending balance: individually evaluated for impairment	$	5,079	$	—	$	2,942		$	752		$	—		$	250		$	9,023
Ending balance: collectively evaluated for impairment	$	278,202	$	21,402	$	138,085		$	115,364		$	8,565		$	40,029		$	601,647
Ending balance: loans acquired with deteriorated credit quality	$	636	$	—	$	—		$	203		$	—		$	264		$	1,103

December 31, 2010	Commercial Real Estate Mortgage Loans		Multi-family Loans		Residential Real Estate Mortgage Loans		Commercial, Financial and Agricultural Loans		Installment/ Consumer Loans		Real Estate Construction and Land Loans		Total
(In thousands)
Allowance for loan losses	$	3,310	$	133	$	1,642	$	2,804	$	423	$	185	$	8,497
Ending balance: individually evaluated for impairment	$	—	$	—	$	7	$	—	$	—	$	—	$	7
Ending balance: collectively evaluated for impairment	$	3,310	$	133	$	1,635	$	2,804	$	423	$	185	$	8,490
Loans	$	236,048	$	9,217	$	140,986	$	97,663	$	9,659	$	9,928	$	503,501
Ending balance: individually evaluated for impairment	$	3,414	$	—	$	3,434	$	82	$	—	$	2,936	$	9,866
Ending balance: collectively evaluated for impairment	$	232,634	$	9,217	$	137,552	$	97,581	$	9,659	$	6,992	$	493,635

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt including repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of credit. Assigned risk rating grades are continuously updated as new information is obtained. Loans risk rated special mention, substandard and doubtful are reviewed on a quarterly basis. The Company uses the following definitions for risk rating grades:

Pass: Loans classified as pass include current loans performing in accordance with contractual terms, pools of homogenous residential real estate and installment/consumer loans that are not individually risk rated and loans which exhibit certain risk factors that require greater than usual monitoring by management.

Special mention: Loans classified as special mention, while generally not delinquent, have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit position at some future date.

Substandard: Loans classified as substandard have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in a substandard loan, and may also be at delinquency status and have defined weaknesses based on currently existing facts, conditions and values making collection or liquidation in full highly questionable and improbable.

The following table represents loans by class categorized by internally assigned risk grades:

	Grades:
December 31, 2011	Pass		Special Mention		Substandard		Doubtful		Total
(In thousands)
Originated loans
Commercial real estate:
Owner occupied	$	107,659	$	14,752	$	9,433	$	—	$	131,844
Non-owner occupied	123,602		8,950		2,982		—		135,534
Multi-family loans	21,402		—		—		—		21,402
Residential real estate:
First lien	64,725		—		1,351		1,223		67,299
Home equity	61,075		584		1,972		225		63,856
Commercial:
Secured	50,671		4,135		3,090		—		57,896
Unsecured	51,253		1,435		1,080		9		53,777
Real estate construction and land loans	35,979		—		4,050		250		40,279
Installment/consumer loans	7,689		264		18		—		7,971
Total loans	$	524,055	$	30,120	$	23,976	$	1,707	$	579,858
Acquired loans
Commercial real estate:
Owner occupied	$	13,003	$	223	$	406	$	—	$	13,632
Non-owner occupied	2,414		493		—		—		2,907
Multi-family loans	—		—		—		—		—
Residential real estate:
First lien	—		—		—		—		—
Home equity	9,872		—		—		—		9,872
Commercial:
Secured	2,015		123		118		—		2,256
Unsecured	2,168		178		44		—		2,390
Real estate construction and land loans	—		—		264		—		264
Installment/consumer loans	594		—		—		—		594
Total loans	$	30,066	$	1,017	$	832	$	—	$	31,915
Total loans
Commercial real estate:
Owner occupied	$	120,662	$	14,975	$	9,839	$	—	$	145,476
Non-owner occupied	126,016		9,443		2,982		—		138,441
Multi-family loans	21,402		—		—		—		21,402
Residential real estate:
First lien	64,725		—		1,351		1,223		67,299
Home equity	70,947		584		1,972		225		73,728
Commercial:
Secured	52,686		4,258		3,208		—		60,152
Unsecured	53,421		1,613		1,124		9		56,167
Real estate construction and land loans	35,979		—		4,314		250		40,543
Installment/consumer loans	8,283		264		18		—		8,565
Total loans	$	554,121	$	31,137	$	24,808	$	1,707	$	611,773

	Grades:
December 31, 2010	Pass		Special Mention		Substandard		Doubtful		Total
(In thousands)
Commercial real estate:
Owner occupied	$	110,395	$	4,892	$	4,298	$	—	$	119,585
Non-owner occupied	97,878		7,652		10,683		250		116,463
Multi-family loans	9,217		—		—		—		9,217
Residential real estate:
First lien	71,686		—		1,194		1,269		74,149
Home equity	64,708		—		1,834		295		66,837
Commercial:
Secured	49,146		1,949		3,212		—		54,307
Unsecured	41,058		1,072		1,226		—		43,356
Real estate construction and land loans	6,020		223		3,685		—		9,928
Installment/consumer loans	9,484		175		—		—		9,659
Total loans	$	459,592	$	15,963	$	26,132	$	1,814	$	503,501

Past Due and Nonaccrual Loans

The following table represents the aging of the recorded investment in past due loans as of December 31, 2011 and December 31, 2010 by class of loans, as defined by ASC 310-10:

December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due And Accruing		Nonaccrual Including 90 Days or More Past Due		Total Past Due and Nonaccrual		Current		Total Loans
(In thousands)
Originated loans
Commercial real estate:
Owner occupied	$	485	$	1,281	$	—	$	449	$	2,215	$	129,629	$	131,844
Non-owner occupied	—		—		—		—		—		135,534		135,534
Multi-family loans	—		—		—		—		—		21,402		21,402
Residential real estate:
First lien	—		—		—		1,561		1,561		65,738		67,299
Home equity	448		255		—		1,382		2,085		61,771		63,856
Commercial:
Secured	—		—		—		479		479		57,417		57,896
Unsecured	—		53		—		40		93		53,684		53,777
Real estate construction and land loans	—		—		—		250		250		40,029		40,279
Installment/consumer loans	1		—		—		—		1			7,970	7,971
Total loans	$	934	$	1,589	$	—	$	4,161	$	6,684	$	573,174	$	579,858
Acquired loans
Commercial real estate:
Owner occupied	$	—	$	—	$	406	$	—	$	406	$	13,226	$	13,632
Non-owner occupied	—		—		—		—		—		2,907		2,907
Multi-family loans	—		—		—		—		—		—		—
Residential real estate:
First lien	—		—		—		—		—		—		—
Home equity	—		—		—		—		—		9,872		9,872
Commercial:
Secured	—		—		—		—		—		2,256		2,256
Unsecured	—		—		—		—		—		2,390		2,390
Real estate construction and land loans	—		—		—		—		—		264		264
Installment/consumer loans	—		—		5		—		5			589	594
Total loans	$	—	$	—	$	411	$	—	$	411	$	31,504	$	31,915
Total loans
Commercial real estate:
Owner occupied	$	485	$	1,281	$	406	$	449	$	2,621	$	142,855	$	145,476
Non-owner occupied	—		—		—		—		—		138,441		138,441
Multi-family loans	—		—		—		—		—		21,402		21,402
Residential real estate:
First lien	—		—		—		1,561		1,561		65,738		67,299
Home equity	448		255		—		1,382		2,085		71,643		73,728
Commercial:
Secured	—		—		—		479		479		59,673		60,152
Unsecured	—		53		—		40		93		56,074		56,167
Real estate construction and land loans	—		—		—		250		250		40,293		40,543
Installment/consumer loans	1		—		5		—		6			8,559	8,565
Total loans	$	934	$	1,589	$	411	$	4,161	$	7,095	$	604,678	$	611,773

December 31, 2010	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Including 90 Days or More Past Due		Total Past Due and Nonaccrual		Current		Total Loans
(In thousands)
Commercial real estate:
Owner occupied	$	—	$	511	$	—	$	511	$	119,074	$	119,585
Non-owner occupied	—		—		478		478		115,985		116,463
Multi-family loans	—		—		—		—		9,217		9,217
Residential real estate:
First lien	151		165		1,747		2,063		72,086		74,149
Home equity	782		298		1,696		2,776		64,061		66,837
Commercial:
Secured	10		—		—		10		54,297		54,307
Unsecured	105		—		32		137		43,219		43,356
Real estate construction and land loans	—		—		2,686		2,686		7,242		9,928
Installment/consumer loans	10		5		86		101		9,558		9,659
Total loans	$	1,058	$	979	$	6,725	$	8,762	$	494,739	$	503,501

All loans 90 days or more past due that are still accruing interest represent loans that were acquired from Hamptons State Bank on May 27, 2011 and were recorded at fair value upon acquisition. These loans are considered to be accruing as management can reasonably estimate future cash flows on these acquired loans and expect to fully collect the carrying value of these loans. Therefore, the difference between the carrying value of these loans and their expected cash flows is being accreted into income. There were no loans 90 days or more past due that were still accruing interest at December 31, 2010.

Impaired Loans

As of December 31, 2011 and December 31, 2010, the Company had impaired loans as defined by FASB ASC No. 310, “Receivables” of $9.0 million and $9.9 million, respectively. For a loan to be considered impaired, management determines after review whether it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified nonaccrual loans and troubled debt restructured (“TDR”) loans. For impaired loans, the Bank evaluates the impairment of the loan in accordance with FASB ASC 310-10-35-22.  Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based upon recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required. These methods of fair value measurement for impaired loans are considered level 3 within the fair value hierarchy described in FASB ASC 820-10-50-5.

The following table sets forth impaired loans by loan type:

December 31,	2011		2010
(In thousands)
Nonaccrual Loans:
Commercial real estate mortgage loans	$	449	$	228
Multi-family loans	—		—
Residential real estate mortgage loans	1,156		1,397
Commercial, financial and agricultural loans	260		—
Real estate construction and land loans	250		250
Installment/consumer loans	—		82
Total	2,115		1,957
Restructured Loans - Nonaccrual:
Commercial real estate mortgage loans	—		—
Multi-family loans	—		—
Residential real estate mortgage loans	1,786		2,037
Commercial, financial and agricultural loans	218		—
Real estate construction and land loans	—		2,686
Installment/consumer loans	—		—
Total	2,004		4,723
Restructured Loans - Performing:
Commercial real estate mortgage loans	4,630		3,186
Multi-family loans	—		—
Residential real estate mortgage loans	—		—
Commercial, financial and agricultural loans	274		—
Real estate construction and land loans	—		—
Installment/consumer loans	—		—
Total	4,904		3,186
Total Impaired Loans	$	9,023	$	9,866

The Bank had no foreclosed real estate at December 31, 2011, 2010 and 2009, respectively.

The following table represents impaired loans by class at December 31, 2011:

December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allocated Allowance		Average Recorded Investment		Interest Income Recognized
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	4,163	$	4,206	$	—	$	4,208	$	415
Non-owner occupied	916		916		—		929		15
Multi-family loans	—		—		—		—		—
Residential real estate:
First lien	338		344		—		346		—
Home equity	688		860		—		778		—
Commercial:
Secured	533		533		—		535		7
Unsecured	—		—		—		—		—
Real estate construction and land loans	250		371				250		—
Installment/consumer loans	—		—		—		—		—
Total with no related allowance recorded	6,888		7,230		—		7,046		437
With an allowance recorded:
Residential real estate – First lien	1,223		1,329		76		1,241		—
Residential real estate – Home equity	693		700		29		694		—
Commercial – Secured	219		229		162		235		—
Total with an allowance recorded	2,135		2,258		267		2,170		—
Total:
Commercial real estate:
Owner occupied	4,163		4,206		—		4,208		415
Non-owner occupied	916		916		—		929		15
Multi-family loans	—		—		—		—		—
Residential real estate:
First lien	1,561		1,673		76		1,587		—
Home equity	1,381		1,560		29		1,472		—
Commercial:
Secured	752		762		162		770		7
Unsecured	—		—		—		—		—
Real estate construction and land loans	250		371		—		250		—
Installment/consumer loans	—		—		—		—		—
Total	$	9,023	$	9,488	$	267	$	9,216	$	437

December 31, 2010	Recorded Investment		Unpaid Principal Balance		Related Allocated Allowance
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	3,186	$	3,186	$	—
Non-owner occupied	228		228		—
Multi-family loans	—		—		—
Residential real estate:
First lien	1,742		1,829		—
Home equity	992		988		—
Commercial:
Secured	—		—		—
Unsecured	—		—		—
Real estate construction and land loans	2,936		3,171		—
Installment/consumer loans	82		82		—
Total with no related allowance recorded	9,166		9,484		—
With an allowance recorded:
Residential real estate - Home equity	700		700		7
Total with an allowance recorded	700		700		7
Total:
Commercial real estate:
Owner occupied	3,186		3,186		—
Non-owner occupied	228		228		—
Multi-family loans	—		—		—
Residential real estate:
First lien	1,742		1,829		—
Home equity	1,692		1,688		7
Commercial:
Secured	—		—		—
Unsecured	—		—		—
Real estate construction and land loans	2,936		3,171		—
Installment/consumer loans	82		82		—
Total	$	9,866	$	10,184	$	7

Individually impaired loans were as follows:

December 31,	2010		2009
(In thousands)
Average of individually impaired loans during the year	$	10,124	$	7,406
Interest income recognized during impairment	122		135
Cash basis interest income recognized	—		—

Troubled Debt Restructurings

The terms of certain loans were modified and are considered troubled debt restructurings (“TDR”). The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. The modification of these loans involved a loan to borrowers who were experiencing financial difficulties.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed to determine if that borrower is currently in payment default under any of its obligations or whether there is a 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 internal underwriting policy.

The terms of certain other loans were modified during the year ending December 31, 2011 that did not meet the definition of a TDR. These loans have a total recorded investment as of December 31, 2011 of $15.0 million. The modification of these loans involved a modification of the terms of loans to borrowers who were not experiencing financial difficulties.

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2011:

	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(In thousands)
Troubled Debt Restructurings
Originated loans
Commercial real estate:
Owner occupied	2	$	538	$	538
Non-owner occupied	1	916		916
Multi-Family	—	—		—
Residential real estate:
First lien	—	—		—
Home equity	1	347		338
Commercial:
Secured	2	273		273
Unsecured	1	241		219
Real estate construction and land loans	—	—		—
Installment/consumer loans	—	—		—
Total loans	7	$	2,315	$	2,284

The TDRs described above increased the allowance for loan losses by $0.2 million and resulted in charge offs of $0.9 million during the year ended December 31, 2011.

There were two loans modified as TDRs for which there was a payment default within twelve months following the modification.  These loans have since made the required payments and are current with the terms of the agreements. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

As of December 31, 2011 and December 31, 2010, the Company had $2.0 million and $4.7 million, respectively of nonaccrual TDR loans. As of December 31, 2011 two of the borrowers with loans totaling $0.5 million are complying with the modified terms of the loans and are currently making payments. Another borrower with loans totaling $1.5 million is past due but currently making payments.  The decrease in nonaccrual TDR loans at December 31, 2011 was due to $2.3 million in nonaccrual TDR loans that were reported as held for sale at December 31, 2011. These loans were subsequently sold in January 2012 with no additional gain or loss recognized. Total nonaccrual TDR loans are secured with collateral that has an appraised value of $4.2 million. Furthermore, the Bank has no commitment to lend additional funds to these debtors.

In addition, the Company has four borrowers with performing TDR loans of $4.9 million at December 31, 2011 that are current and secured with collateral that has an appraised value of approximately $11.5 million.  At December 31, 2010, the Company had one borrower with TDR loans of $3.2 million that was current and secured with collateral that had an appraised value of approximately $5.4 million as well as personal guarantees. Management believes that the ultimate collection of principal and interest is reasonably assured and therefore continues to recognize interest income on an accrual basis. Two of the loans were restructured during the third quarter of 2011 and one of the loans in the second quarter of 2011 and since that time the interest income recognized has been immaterial. The fourth loan was restructured during the third quarter of 2008 and since that time $0.4 million of interest income has been recognized. In addition, the Bank has no commitment to lend additional funds to these debtors.

Loans Acquired with Deteriorated Credit Quality

In connection with the Hamptons State Bank merger, the Company acquired loans with deteriorated credit quality. Acquired loans for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

(In thousands)	2011
Contractually required payments receivable of loans purchased during the year:
Commercial real estate mortgage loans	$	1,169
Multi-family loans	—
Residential real estate mortgage loans	—
Commercial, financial and agricultural loans	773
Real estate construction and land loans	340
Installment/consumer loans	7
	$	2,289
Cash flows expected to be collected at acquisition	$	1,770
Fair value of acquired loans at acquisition	1,052

Accretable yield, or income expected to be collected, is as follows:

(In thousands)
Balance at January 1, 2011	$	—
Hamptons State Bank Acquisition	(718		)
Accretion of income	86
Reclassifications from nonaccretable yield	—
Disposals	—
Balance at December 31, 2011	$	(632	)

Income is not recognized on certain acquired loans if the Company cannot reasonably estimate cash flows expected to be collected.

Related Party Loans

Certain directors, executive officers, and their related parties, including their immediate families and companies in which they are principal owners, were loan customers of the Bank during 2011 and 2010.

The following table sets forth selected information about related party loans at December 31, 2011:

	Balance Outstanding
(In thousands)
Balance at December 31, 2010	$	1,074
New loans	—
Effective change in related parties	—
Advances	4
Repayments	(28		)
Balance at December 31, 2011	$	1,050