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LOANS AND ALLOWANCE FOR LOAN LOSSES | 12 Months Ended
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Dec. 31, 2011
LOANS AND ALLOWANCE FOR LOAN LOSSES |
(4) | LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31, 2011 and 2010 consisted of the following:
(In thousands) |  | 2011 |  |  | 2010 |
Real estate mortgage loans: |  |  |  |  |  |  |  |
Residential |  | $ | 116,338 |  |  | $ | 130,143 |
Land |  |  | 9,910 |  |  |  | 9,534 |
Residential construction |  |  | 10,988 |  |  |  | 8,151 |
Commercial real estate |  |  | 57,680 |  |  |  | 59,901 |
Commercial real estate construction |  |  | 743 |  |  |  | 0 |
Commercial business loans |  |  | 20,722 |  |  |  | 21,911 |
Consumer loans: |  |  |  |  |  |  |  |
Home equity and second mortgage loans |  |  | 38,641 |  |  |  | 43,046 |
Automobile loans |  |  | 20,627 |  |  |  | 19,384 |
Loans secured by savings accounts |  |  | 767 |  |  |  | 1,042 |
Unsecured loans |  |  | 3,126 |  |  |  | 3,076 |
Other consumer loans |  |  | 5,312 |  |  |  | 5,732 |
Gross loans |  |  | 284,854 |  |  |  | 301,920 |
Deferred loan origination fees, net |  |  | 143 |  |  |  | 222 |
Undisbursed portion of loans in process |  |  | (4,768 | ) |  |  | (3,119 | )
Allowance for loan losses |  |  | (4,182 | ) |  |  | (4,473 | )
Loans, net |  | $ | 276,047 |  |  | $ | 294,550 |
At December 31, 2011, residential mortgage loans secured by residential properties without private mortgage insurance or government guarantee and with loan-to-value ratios exceeding 90% amounted to approximately $4.6 million. Mortgage loans serviced for the benefit of others amounted to $269,000 and $279,000 at December 31, 2011 and 2010, respectively. The Bank has entered into loan transactions with certain directors, officers and their affiliates (i.e., related parties). In the opinion of management, such indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated persons. The following table represents the aggregate activity for related party loans during the year ended December 31, 2011. The beginning balance has been adjusted to reflect new directors and officers, as well as directors and officers that are no longer with the Company.
(In thousands) |  |  |
Beginning balance, as adjusted |  |  | $6,441 |
New loans |  |  | 8,728 |
Payments |  |  | (9,309) |
Ending balance |  |  | $5,860 |
A director of the Bank is a shareholder of a farm implement dealership that contracts with the Bank to provide sales financing to the dealership’s customers. In the opinion of management, these transactions were made in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated parties. During the year ended December 31, 2011, the Bank purchased approximately $444,000 of loans to customers of the corporation and the aggregate outstanding balance of all loans purchased from the corporation was approximately $1.2 million and $1.4 million at December 31, 2011 and 2010, respectively. The following table provides the components of the Company’s recorded investment in loans for each portfolio segment at December 31, 2011 and 2010:
|  | Residential Real Estate |  |  | Land |  |  | Construction |  |  | Commercial Real Estate |  |  | Commercial Business |  |  | Home Equity and Second Mortgage |  |  | Other Consumer |  |  | Total |
|  | (In thousands) |
December 31, 2011: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal loan balance |  | $ | 116,338 |  |  | $ | 9,910 |  |  | $ | 6,963 |  |  | $ | 57,680 |  |  | $ | 20,722 |  |  | $ | 38,641 |  |  | $ | 29,832 |  |  | $ | 280,086 |
Accrued interest receivable |  |  | 463 |  |  |  | 60 |  |  |  | 16 |  |  |  | 160 |  |  |  | 64 |  |  |  | 162 |  |  |  | 202 |  |  |  | 1,127 |
Net deferred loan origination fees and costs |  |  | 67 |  |  |  | 2 |  |  |  | 0 |  |  |  | 0 |  |  |  | (10 | ) |  |  | 84 |  |  |  | 0 |  |  |  | 143 |
Recorded investment in loans |  | $ | 116,868 |  |  | $ | 9,972 |  |  | $ | 6,979 |  |  | $ | 57,840 |  |  | $ | 20,776 |  |  | $ | 38,887 |  |  | $ | 30,034 |  |  | $ | 281,356 |
December 31, 2010: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal loan balance |  | $ | 130,143 |  |  | $ | 9,534 |  |  | $ | 5,032 |  |  | $ | 59,901 |  |  | $ | 21,911 |  |  | $ | 43,046 |  |  | $ | 29,234 |  |  | $ | 298,801 |
Accrued interest receivable |  |  | 480 |  |  |  | 54 |  |  |  | 16 |  |  |  | 174 |  |  |  | 68 |  |  |  | 171 |  |  |  | 199 |  |  |  | 1,162 |
Net deferred loan origination fees and costs |  |  | 91 |  |  |  | 1 |  |  |  | — |  |  |  | 10 |  |  |  | — |  |  |  | 120 |  |  |  | — |  |  |  | 222 |
Recorded investment in loans |  | $ | 130,714 |  |  | $ | 9,589 |  |  | $ | 5,048 |  |  | $ | 60,085 |  |  | $ | 21,979 |  |  | $ | 43,337 |  |  | $ | 29,433 |  |  | $ | 300,185 |
An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended December 31, 2011 is as follows:
|  | Residential Real Estate |  |  | Land |  |  | Construction |  |  | Commercial Real Estate |  |  | Commercial Business |  |  | Home Equity and Second Mortgage |  |  | Other Consumer |  |  | Total |
|  | (In thousands) |
Allowance for Loan Losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 1,024 |  |  | $ | 55 |  |  | $ | 21 |  |  | $ | 1,051 |  |  | $ | 1,251 |  |  | $ | 606 |  |  | $ | 465 |  |  | $ | 4,473 |
Provisions |  |  | 609 |  |  |  | 38 |  |  |  | 8 |  |  |  | 614 |  |  |  | 197 |  |  |  | 322 |  |  |  | 37 |  |  |  | 1,825 |
Charge-offs |  |  | (819 | ) |  |  | 0 |  |  |  | 0 |  |  |  | (396 | ) |  |  | (333 | ) |  |  | (577 | ) |  |  | (302 | ) |  |  | (2,427 | )
Recoveries |  |  | 14 |  |  |  | 0 |  |  |  | 4 |  |  |  | 0 |  |  |  | 45 |  |  |  | 49 |  |  |  | 199 |  |  |  | 311 |
Ending balance |  | $ | 828 |  |  | $ | 93 |  |  | $ | 33 |  |  | $ | 1,269 |  |  | $ | 1,160 |  |  | $ | 400 |  |  | $ | 399 |  |  | $ | 4,182 |
Ending allowance balance attributable to loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 183 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 539 |  |  | $ | 936 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 1,658 |
Collectively evaluated for impairment |  |  | 645 |  |  |  | 93 |  |  |  | 33 |  |  |  | 730 |  |  |  | 224 |  |  |  | 400 |  |  |  | 399 |  |  |  | 2,524 |
Acquired with deteriorated credit quality |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Ending balance |  | $ | 828 |  |  | $ | 93 |  |  | $ | 33 |  |  | $ | 1,269 |  |  | $ | 1,160 |  |  | $ | 400 |  |  | $ | 399 |  |  | $ | 4,182 |
Recorded Investment in Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 2,281 |  |  | $ | 5 |  |  | $ | 247 |  |  | $ | 2,853 |  |  | $ | 1,928 |  |  | $ | 87 |  |  | $ | 0 |  |  | $ | 7,401 |
Collectively evaluated for impairment |  |  | 114,587 |  |  |  | 9,967 |  |  |  | 6,732 |  |  |  | 54,987 |  |  |  | 18,848 |  |  |  | 38,800 |  |  |  | 30,034 |  |  |  | 273,955 |
Acquired with deteriorated credit quality |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Ending balance |  | $ | 116,868 |  |  | $ | 9,972 |  |  | $ | 6,979 |  |  | $ | 57,840 |  |  | $ | 20,776 |  |  | $ | 38,887 |  |  | $ | 30,034 |  |  | $ | 281,356 |
An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended December 31, 2010 is as follows:
|  | Residential Real Estate |  |  | Land |  |  | Construction |  |  | Commercial Real Estate |  |  | Commercial Business |  |  | Home Equity and Second Mortgage |  |  | Other Consumer |  |  | Total |
|  | (In thousands) |
Allowance for Loan Losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 1,208 |  |  | $ | 121 |  |  | $ | 107 |  |  | $ | 1,633 |  |  | $ | 1,264 |  |  | $ | 217 |  |  | $ | 381 |  |  | $ | 4,931 |
Provisions |  |  | 427 |  |  |  | (6 | ) |  |  | (86 | ) |  |  | 680 |  |  |  | 7 |  |  |  | 648 |  |  |  | 367 |  |  |  | 2,037 |
Charge-offs |  |  | (620 | ) |  |  | (61 | ) |  |  | 0 |  |  |  | (1,265 | ) |  |  | (29 | ) |  |  | (299 | ) |  |  | (457 | ) |  |  | (2,731 | )
Recoveries |  |  | 9 |  |  |  | 1 |  |  |  | 0 |  |  |  | 3 |  |  |  | 9 |  |  |  | 40 |  |  |  | 174 |  |  |  | 236 |
Ending balance |  | $ | 1,024 |  |  | $ | 55 |  |  | $ | 21 |  |  | $ | 1,051 |  |  | $ | 1,251 |  |  | $ | 606 |  |  | $ | 465 |  |  | $ | 4,473 |
Ending allowance balance attributable to loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 458 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 607 |  |  | $ | 1,089 |  |  | $ | 338 |  |  | $ | 0 |  |  | $ | 2,492 |
Collectively evaluated for impairment |  |  | 566 |  |  |  | 55 |  |  |  | 21 |  |  |  | 444 |  |  |  | 162 |  |  |  | 268 |  |  |  | 465 |  |  |  | 1,981 |
Acquired with deteriorated credit quality |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Ending balance |  | $ | 1,024 |  |  | $ | 55 |  |  | $ | 21 |  |  | $ | 1,051 |  |  | $ | 1,251 |  |  | $ | 606 |  |  | $ | 465 |  |  | $ | 4,473 |
Recorded Investment in Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 2,951 |  |  | $ | 0 |  |  | $ | 279 |  |  | $ | 1,780 |  |  | $ | 2,148 |  |  | $ | 390 |  |  | $ | 0 |  |  | $ | 7,548 |
Collectively evaluated for impairment |  |  | 127,763 |  |  |  | 9,589 |  |  |  | 4,769 |  |  |  | 58,305 |  |  |  | 19,831 |  |  |  | 42,947 |  |  |  | 29,433 |  |  |  | 292,637 |
Acquired with deteriorated credit quality |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Ending balance |  | $ | 130,714 |  |  | $ | 9,589 |  |  | $ | 5,048 |  |  | $ | 60,085 |  |  | $ | 21,979 |  |  | $ | 43,337 |  |  | $ | 29,433 |  |  | $ | 300,185 |
At December 31, 2011 and 2010, for each loan portfolio segment management applied an overall qualitative factor of 1.15 to the Company’s historical loss factors based on the most eight recent calendar quarters. The overall qualitative factor is derived from management’s analysis of changes and trends in the following qualitative factors:
| • |  | Underwriting Standards – Management reviews the findings of periodic internal audit loan reviews, independent outsourced loan reviews and loan reviews performed by the banking regulators to evaluate the risk associated with changes in underwriting standards. At December 31, 2011 and 2010, management assessed the risk associated with this component as neutral, requiring no adjustment to the historical loss factors.
| • |  | Economic Conditions – Management analyzes trends in housing and unemployment data in the Harrison, Floyd and Clark counties of Indiana, the Company’s primary market area, to evaluate the risk associated with economic conditions. Due to a decrease in new home construction and an increase in unemployment in the Company’s primary market area, management assigned a risk factor of 1.20 for the component at December 31, 2011 and 2010.
| • |  | Past Due Loans – Management analyzes trends in past due loans for the Company to evaluate the risk associated with delinquent loans. In general, past due loan ratios have remained at elevated levels compared to historical amounts since 2007, and management assigned a risk factor of 1.20 for the component at December 31, 2011 and 2010.
| • |  | Other Internal and External Factors – This component includes management’s consideration of other qualitative factors such as loan portfolio composition. The Company has focused on the origination of commercial business and real estate loans in an effort to convert the Company’s balance sheet from that of a traditional thrift institution to a commercial bank. In addition, the Company has increased its investment in mortgage loans in which it does not hold a first lien position. Commercial loans and second mortgage loans generally entail greater credit risk than residential mortgage loans secured by a first lien. As a result of changes in the loan portfolio composition, management assigned a risk factor of 1.20 for this component at December 31, 2011 and 2010.
Each of the four factors above was assigned an equal weight to arrive at an average for the overall qualitative factor of 1.15 at December 31, 2011 and 2010. The effect of the overall qualitative factor was to increase the estimated allowance for loan losses by $317,000 and $258,000 at December 31, 2011 and 2010, respectively. Management also applies additional loss factor multiples to loans classified as watch, special mention and substandard that are not individually evaluated for impairment. The multiples consider the increased likelihood of loss on classified loans based on the Company’s historical experience. The multiples remained unchanged from December 31, 2010 to December 31, 2011, and the effect of the loss factor multiples for classified loans was to increase the estimated allowance for loan losses by $172,000 and $248,000 at December 31, 2011 and 2010, respectively. The following table summarizes the Company’s impaired loans by class of loans as of and for the year ended December 31, 2011:
|  |  |  |  | Unpaid |  |  |  |  |  | Average |  |  | Interest |  |  | Interest |
|  | Recorded |  |  | Principal |  |  | Related |  |  | Recorded |  |  | Income |  |  | Recognized – |
|  | Investment |  |  | Balance |  |  | Allowance |  |  | Investment |  |  | Recognized |  |  | Cash Method |
|  | (In thousands) |
Loans with no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential real estate |  | $ | 1,149 |  |  | $ | 1,507 |  |  | $ | 0 |  |  | $ | 978 |  |  | $ | 0 |  |  | $ | 29 |
Land |  |  | 5 |  |  |  | 6 |  |  |  | 0 |  |  |  | 5 |  |  |  | 0 |  |  |  | 0 |
Construction |  |  | 247 |  |  |  | 249 |  |  |  | 0 |  |  |  | 261 |  |  |  | 0 |  |  |  | 0 |
Commercial real estate |  |  | 1,215 |  |  |  | 1,280 |  |  |  | 0 |  |  |  | 514 |  |  |  | 0 |  |  |  | 9 |
Commercial business |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 14 |  |  |  | 0 |  |  |  | 0 |
Home equity and second mortgage |  |  | 87 |  |  |  | 94 |  |  |  | 0 |  |  |  | 32 |  |  |  | 0 |  |  |  | 1 |
Other consumer |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 4 |  |  |  | 0 |  |  |  | 0 |
|  |  | 2,703 |  |  |  | 3,136 |  |  |  | 0 |  |  |  | 1,808 |  |  |  | 0 |  |  |  | 39 |
Loans with an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential real estate |  |  | 1,132 |  |  |  | 1,233 |  |  |  | 183 |  |  |  | 2,035 |  |  |  | 0 |  |  |  | 9 |
Land |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Construction |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 56 |  |  |  | 0 |  |  |  | 0 |
Commercial real estate |  |  | 1,638 |  |  |  | 1,933 |  |  |  | 539 |  |  |  | 1,208 |  |  |  | 0 |  |  |  | 0 |
Commercial business |  |  | 1,928 |  |  |  | 2,023 |  |  |  | 936 |  |  |  | 2,036 |  |  |  | 0 |  |  |  | 0 |
Home equity and second mortgage |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 282 |  |  |  | 0 |  |  |  | 0 |
Other consumer |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 5 |  |  |  | 0 |  |  |  | 0 |
|  |  | 4,698 |  |  |  | 5,189 |  |  |  | 1,658 |  |  |  | 5,622 |  |  |  | 0 |  |  |  | 9 |
Total: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential real estate |  |  | 2,281 |  |  |  | 2,740 |  |  |  | 183 |  |  |  | 3,013 |  |  |  | 0 |  |  |  | 38 |
Land |  |  | 5 |  |  |  | 6 |  |  |  | 0 |  |  |  | 5 |  |  |  | 0 |  |  |  | 0 |
Construction |  |  | 247 |  |  |  | 249 |  |  |  | 0 |  |  |  | 317 |  |  |  | 0 |  |  |  | 0 |
Commercial real estate |  |  | 2,853 |  |  |  | 3,213 |  |  |  | 539 |  |  |  | 1,722 |  |  |  | 0 |  |  |  | 9 |
Commercial business |  |  | 1,928 |  |  |  | 2,023 |  |  |  | 936 |  |  |  | 2,050 |  |  |  | 0 |  |  |  | 0 |
Home equity and second mortgage |  |  | 87 |  |  |  | 94 |  |  |  | 0 |  |  |  | 314 |  |  |  | 0 |  |  |  | 1 |
Other consumer |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 9 |  |  |  | 0 |  |  |  | 0 |
|  | $ | 7,401 |  |  | $ | 8,325 |  |  | $ | 1,658 |  |  | $ | 7,430 |  |  | $ | 0 |  |  | $ | 48 |
The following table summarizes the Company’s impaired loans by class of loans as of and for the year ended December 31, 2010:
|  |  |  |  | Unpaid |  |  |  |  |  | Average |  |  | Interest |  |  | Interest |
|  | Recorded |  |  | Principal |  |  | Related |  |  | Recorded |  |  | Income |  |  | Recognized – |
|  | Investment |  |  | Balance |  |  | Allowance |  |  | Investment |  |  | Recognized |  |  | Cash Method |
|  | (In thousands) |
Loans with no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential real estate |  | $ | 703 |  |  | $ | 822 |  |  | $ | 0 |  |  | $ | 1,082 |  |  | $ | 0 |  |  | $ | 1 |
Land |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 68 |  |  |  | 0 |  |  |  | 0 |
Construction |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Commercial real estate |  |  | 398 |  |  |  | 412 |  |  |  | 0 |  |  |  | 1,107 |  |  |  | 0 |  |  |  | 0 |
Commercial business |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Home equity and second mortgage |  |  | 17 |  |  |  | 18 |  |  |  | 0 |  |  |  | 140 |  |  |  | 0 |  |  |  | 0 |
Other consumer |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 25 |  |  |  | 0 |  |  |  | 0 |
|  |  | 1,118 |  |  |  | 1,252 |  |  |  | 0 |  |  |  | 2,422 |  |  |  | 0 |  |  |  | 1 |
Loans with an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential real estate |  |  | 2,248 |  |  |  | 2,358 |  |  |  | 458 |  |  |  | 1,532 |  |  |  | 0 |  |  |  | 4 |
Land |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Construction |  |  | 279 |  |  |  | 281 |  |  |  | 0 |  |  |  | 140 |  |  |  | 0 |  |  |  | 0 |
Commercial real estate |  |  | 1,382 |  |  |  | 1,424 |  |  |  | 607 |  |  |  | 963 |  |  |  | 0 |  |  |  | 0 |
Commercial business |  |  | 2,148 |  |  |  | 2,175 |  |  |  | 1,089 |  |  |  | 2,190 |  |  |  | 0 |  |  |  | 0 |
Home equity and second mortgage |  |  | 373 |  |  |  | 379 |  |  |  | 338 |  |  |  | 347 |  |  |  | 0 |  |  |  | 2 |
Other consumer |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
|  |  | 6,430 |  |  |  | 6,617 |  |  |  | 2,492 |  |  |  | 5,172 |  |  |  | 0 |  |  |  | 6 |
Total: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential real estate |  |  | 2,951 |  |  |  | 3,180 |  |  |  | 458 |  |  |  | 2,614 |  |  |  | 0 |  |  |  | 5 |
Land |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 68 |  |  |  | 0 |  |  |  | 0 |
Construction |  |  | 279 |  |  |  | 281 |  |  |  | 0 |  |  |  | 140 |  |  |  | 0 |  |  |  | 0 |
Commercial real estate |  |  | 1,780 |  |  |  | 1,836 |  |  |  | 607 |  |  |  | 2,070 |  |  |  | 0 |  |  |  | 0 |
Commercial business |  |  | 2,148 |  |  |  | 2,175 |  |  |  | 1,089 |  |  |  | 2,190 |  |  |  | 0 |  |  |  | 0 |
Home equity and second mortgage |  |  | 390 |  |  |  | 397 |  |  |  | 338 |  |  |  | 487 |  |  |  | 0 |  |  |  | 2 |
Other consumer |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 25 |  |  |  | 0 |  |  |  | 0 |
|  | $ | 7,548 |  |  | $ | 7,869 |  |  | $ | 2,492 |  |  | $ | 7,594 |  |  | $ | 0 |  |  | $ | 7 |
Nonperforming loans consists of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans by class of loans at December 31, 2011 and 2010:
|  | December 31, 2011 |  |  | December 31, 2010 |
|  | Nonaccrual Loans |  |  | Loans 90+ Days Past Due Still Accruing |  |  | Total Nonperforming Loans |  |  | Nonaccrual Loans |  |  | Loans 90+ Days Past Due Still Accruing |  |  | Total Nonperforming Loans |
|  | (In thousands) |
Residential real estate |  | $ | 2,281 |  |  | $ | 143 |  |  | $ | 2,424 |  |  | $ | 2,951 |  |  | $ | 334 |  |  | $ | 3,285 |
Land |  |  | 5 |  |  |  | 38 |  |  |  | 43 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Construction |  |  | 247 |  |  |  | 0 |  |  |  | 247 |  |  |  | 279 |  |  |  | 0 |  |  |  | 279 |
Commercial real estate |  |  | 2,853 |  |  |  | 0 |  |  |  | 2,853 |  |  |  | 1,780 |  |  |  | 0 |  |  |  | 1,780 |
Commercial business |  |  | 1,928 |  |  |  | 0 |  |  |  | 1,928 |  |  |  | 2,148 |  |  |  | 20 |  |  |  | 2,168 |
Home equity and second mortgage |  |  | 87 |  |  |  | 159 |  |  |  | 246 |  |  |  | 390 |  |  |  | 8 |  |  |  | 398 |
Other consumer |  |  | 0 |  |  |  | 23 |  |  |  | 23 |  |  |  | 0 |  |  |  | 17 |  |  |  | 17 |
Total |  | $ | 7,401 |  |  | $ | 363 |  |  | $ | 7,764 |  |  | $ | 7,548 |  |  | $ | 379 |  |  | $ | 7,927 |
The following table presents the aging of the recorded investment loans by class of loans at December 31, 2011:
|  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | Over 90 Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Total Loans |
|  | (In thousands) |
Residential real estate |  | $ | 5,205 |  |  | $ | 1,068 |  |  | $ | 1,035 |  |  | $ | 7,308 |  |  | $ | 109,560 |  |  | $ | 116,868 |
Land |  |  | 442 |  |  |  | 43 |  |  |  | 43 |  |  |  | 528 |  |  |  | 9,444 |  |  |  | 9,972 |
Construction |  |  | 0 |  |  |  | 0 |  |  |  | 247 |  |  |  | 247 |  |  |  | 6,732 |  |  |  | 6,979 |
Commercial real estate |  |  | 676 |  |  |  | 0 |  |  |  | 1,258 |  |  |  | 1,934 |  |  |  | 55,906 |  |  |  | 57,840 |
Commercial business |  |  | 256 |  |  |  | 0 |  |  |  | 0 |  |  |  | 256 |  |  |  | 20,520 |  |  |  | 20,776 |
Home equity and second mortgage |  |  | 558 |  |  |  | 72 |  |  |  | 246 |  |  |  | 876 |  |  |  | 38,011 |  |  |  | 38,887 |
Other consumer |  |  | 306 |  |  |  | 37 |  |  |  | 23 |  |  |  | 366 |  |  |  | 29,668 |  |  |  | 30,034 |
Total |  | $ | 7,443 |  |  | $ | 1,220 |  |  | $ | 2,852 |  |  | $ | 11,515 |  |  | $ | 269,841 |  |  | $ | 281,356 |
The following table presents the aging of the recorded investment in loans by class of loans at December 31, 2010:
|  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | Over 90 Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Total Loans |
|  | (In thousands) |
Residential real estate |  | $ | 5,652 |  |  | $ | 581 |  |  | $ | 1,590 |  |  | $ | 7,823 |  |  | $ | 122,891 |  |  | $ | 130,714 |
Land |  |  | 143 |  |  |  | 6 |  |  |  | 0 |  |  |  | 149 |  |  |  | 9,440 |  |  |  | 9,589 |
Construction |  |  | 135 |  |  |  | 0 |  |  |  | 279 |  |  |  | 414 |  |  |  | 4,634 |  |  |  | 5,048 |
Commercial real estate |  |  | 788 |  |  |  | 337 |  |  |  | 678 |  |  |  | 1,803 |  |  |  | 58,282 |  |  |  | 60,085 |
Commercial business |  |  | 143 |  |  |  | 0 |  |  |  | 2,001 |  |  |  | 2,144 |  |  |  | 19,835 |  |  |  | 21,979 |
Home equity and second mortgage |  |  | 596 |  |  |  | 352 |  |  |  | 298 |  |  |  | 1,246 |  |  |  | 42,091 |  |  |  | 43,337 |
Other consumer |  |  | 362 |  |  |  | 93 |  |  |  | 17 |  |  |  | 472 |  |  |  | 28,961 |  |  |  | 29,433 |
Total |  | $ | 7,819 |  |  | $ | 1,369 |  |  | $ | 4,863 |  |  | $ | 14,051 |  |  | $ | 286,134 |  |  | $ | 300,185 |
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, public information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings: Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. 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 Company will sustain some loss if the deficiencies are not corrected. 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. Loss: Loans classified as loss are considered uncollectible and of such little value that their continuance on the Company’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following table presents the recorded investment in loans by risk category and class of loans as of the date indicated:
|  | Residential Real Estate |  |  | Land |  |  | Construction |  |  | Commercial Real Estate |  |  | Commercial Business |  |  | Home Equity and Second Mortgage |  |  | Other Consumer |  |  | Total |
|  | (In thousands) |
December 31, 2011: |  |  |  |  |  |  |  |
Pass |  | $ | 113,037 |  |  | $ | 7,578 |  |  | $ | 6,217 |  |  | $ | 46,544 |  |  | $ | 16,961 |  |  | $ | 38,513 |  |  | $ | 29,976 |  |  | $ | 225,826 |
Special mention |  |  | 862 |  |  |  | 255 |  |  |  | 307 |  |  |  | 5,392 |  |  |  | 1,462 |  |  |  | 63 |  |  |  | 44 |  |  |  | 8,385 |
Substandard |  |  | 688 |  |  |  | 2,134 |  |  |  | 208 |  |  |  | 3,051 |  |  |  | 425 |  |  |  | 224 |  |  |  | 14 |  |  |  | 6,744 |
Doubtful |  |  | 2,281 |  |  |  | 5 |  |  |  | 247 |  |  |  | 2,853 |  |  |  | 1,928 |  |  |  | 87 |  |  |  | 0 |  |  |  | 7,401 |
Loss |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | — |
Total |  | $ | 116,868 |  |  | $ | 9,972 |  |  | $ | 6,979 |  |  | $ | 57,840 |  |  | $ | 20,776 |  |  | $ | 38,887 |  |  | $ | 30,034 |  |  | $ | 281,356 |
December 31, 2010: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 121,604 |  |  | $ | 9,172 |  |  | $ | 4,588 |  |  | $ | 50,742 |  |  | $ | 18,568 |  |  | $ | 42,014 |  |  | $ | 29,275 |  |  | $ | 275,963 |
Special mention |  |  | 2,691 |  |  |  | 308 |  |  |  | 0 |  |  |  | 4,937 |  |  |  | 765 |  |  |  | 695 |  |  |  | 158 |  |  |  | 9,554 |
Substandard |  |  | 3,468 |  |  |  | 109 |  |  |  | 181 |  |  |  | 2,626 |  |  |  | 498 |  |  |  | 238 |  |  |  | 0 |  |  |  | 7,120 |
Doubtful |  |  | 2,951 |  |  |  | 0 |  |  |  | 279 |  |  |  | 1,780 |  |  |  | 2,148 |  |  |  | 390 |  |  |  | 0 |  |  |  | 7,548 |
Loss |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total |  | $ | 130,714 |  |  | $ | 9,589 |  |  | $ | 5,048 |  |  | $ | 60,085 |  |  | $ | 21,979 |  |  | $ | 43,337 |  |  | $ | 29,433 |  |  | $ | 300,185 |
The following table summarizes the Company’s TDRs by class of loan and accrual status as of December 31, 2011 and 2010:
|  | December 31, 2011 |  |  | December 31, 2010 |
|  | Accruing |  |  | Nonaccrual |  |  | Total |  |  | Related Allowance for Loan Losses |  |  | Accruing |  |  | Nonaccrual |  |  | Total |  |  | Related Allowance for Loan Losses |
|  | (In thousands) |
Residential real estate |  | $ | 112 |  |  | $ | 516 |  |  | $ | 628 |  |  | $ | 11 |  |  | $ | 0 |  |  | $ | 623 |  |  | $ | 623 |  |  | $ | 71 |
Land |  |  | 135 |  |  |  | 0 |  |  |  | 135 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Construction |  |  | 207 |  |  |  | 247 |  |  |  | 454 |  |  |  | 0 |  |  |  | 0 |  |  |  | 279 |  |  |  | 279 |  |  |  | 0 |
Commercial real estate |  |  | 0 |  |  |  | 1,603 |  |  |  | 1,603 |  |  |  | 211 |  |  |  | 0 |  |  |  | 1,057 |  |  |  | 1,057 |  |  |  | 444 |
Commercial business |  |  | 0 |  |  |  | 1,843 |  |  |  | 1,843 |  |  |  | 914 |  |  |  | 0 |  |  |  | 1,909 |  |  |  | 1,909 |  |  |  | 914 |
Home equity and second mortgage |  |  | 8 |  |  |  | 0 |  |  |  | 8 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Other consumer |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 75 |  |  |  | 75 |  |  |  | 75 |
Total |  | $ | 462 |  |  | $ | 4,209 |  |  | $ | 4,671 |  |  | $ | 1,136 |  |  | $ | 0 |  |  | $ | 3,943 |  |  | $ | 3,943 |  |  | $ | 1,504 |
At December 31, 2011 and 2010, commitments to lend additional funds to debtors whose loan terms have been modified in a TDR (both accruing and nonaccruing) totaled $192,000 and $61,000, respectively. These commitments represent the undisbursed portion of construction loans to borrowers that have outstanding loans classified as TDRs. The following table summarizes information in regard to TDRs that were restructured during the year ended December 31, 2011:
|  | Number of Contracts |  |  | Pre- Modification Outstanding Balance |  |  | Post- Modification Outstanding Balance |
|  | (In thousands) |
Residential real estate |  |  | 4 |  |  | $ | 331 |  |  | $ | 331 |
Land |  |  | 1 |  |  |  | 135 |  |  |  | 135 |
Construction |  |  | 2 |  |  |  | 454 |  |  |  | 454 |
Commercial real estate |  |  | 2 |  |  |  | 1,139 |  |  |  | 1,139 |
Home equity and second mortgage |  |  | 1 |  |  |  | 8 |  |  |  | 8 |
Total |  |  | 10 |  |  | $ | 2,067 |  |  | $ | 2,067 |
For the TDRs listed above, the terms of modification included temporary interest-only payment periods, reduction of the stated interest rate and the deferral of past due principal and interest until maturity, or the consolidation of outstanding loans at a reduced interest rate. There were no principal charge-offs recorded as a result of TDRs during 2011. There were no TDRs modified within the previous 12 months for which there was a subsequent payment default (defined as the loan becoming more than 90 days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) during the year ended December 31, 2011. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.

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