NOTE 6: LOANS AND ALLOWANCE

The Corporation’s loan and allowance polices are as follows:

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term.

Generally, loans are placed on nonaccrual status at 90 days past due and interest is considered a loss, unless the loan is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the contractual due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Corporation’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except one-to-four family residential properties and consumer, the Corporation promptly charges off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Corporation charges off one-to-four family residential and consumer loans, or portions thereof, when the Corporation reasonably determines the amount of the loss. The Corporation adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of one-to-four family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge-off of unsecured open-end loans when the loan is 180 days past due, and charge-down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Corporation can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

For all loan classes, when loans are placed on nonaccrual, or charged off, interest accrued but not collected is reversed against interest income. Subsequent payments on nonaccrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. In general, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. However, for impaired loans and troubled debt restructured, which is included in impaired loans, the Corporation requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

When cash payments are received on impaired loans in each loan class, the Corporation records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms.

Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical charge-off experience by segment. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation over the prior three years. Management believes the three-year historical loss experience methodology is appropriate in the current economic environment. Other adjustments (qualitative/environmental considerations) for each segment may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. For impaired loans where the Corporation utilizes the discounted cash flows to determine the level of impairment, the Corporation includes the entire change in the present value of cash flows as provision expense.

Segments of loans with similar risk characteristics, including individually evaluated loans not determined to be impaired, are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment measurements.

The following table presents the breakdown of loans as of September 30, 2011 and December 31, 2010.

	September 30, 2011			December 31, 2010
	(In Thousands)
Residential real estate
Construction	$	8,637		$	6,975
One-to-four family residential		111,728			117,616
Multi-family residential		18,550			14,997
Nonresidential real estate and agricultural land		83,067			89,607
Land (not used for agricultural purposes)		17,884			21,016
Commercial		17,578			16,413
Consumer and other		4,445			4,533
		261,889			271,157
Unamortized deferred loan costs		480			485
Undisbursed loans in process		(3,454	)		(2,388	)
Allowance for loan losses		(3,780	)		(3,806	)
Total loans	$	255,135		$	265,448

The risk characteristics of each loan portfolio segment are as follows:

Construction

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Corporation until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest-rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

One-to-Four Family Residential and Consumer

With respect to residential loans that are secured by one-to-four family residences and are generally owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. This segment also includes residential loans secured by non-owner occupied one-to-four family residences. Management tracks the level of owner-occupied residential loans versus non-owner occupied loans as a portion of our recent loss history relates to these loans. Home equity loans are typically secured by a subordinate interest in one-to-four family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Nonresidential (including agricultural land), Land, and Multi-family Residential Real Estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Nonresidential and multi-family residential real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Nonresidential and multi-family residential real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Corporation’s nonresidential and multi-family real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates these loans based on collateral, geography and risk grade criteria. As a general rule, the Corporation avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied real estate loans versus non-owner occupied loans.

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

The following table presents the activity in the allowance for loan losses for the three and nine months ended September 30, 2011 and information regarding the breakdown of the balance in the allowance for loan losses and the recorded investment in loans, both presented by portfolio segment and impairment method, as of September 30, 2011 and December 31, 2010.

	Residential
	Construction			1-4 Family			Multi-Family			Nonresidential			Land			Commercial			Consumer			Total
	(In Thousands)
Three Months Ended September 30, 2011
Balances at beginning of period:	$	32		$	1,088		$	108		$	1,226		$	959		$	113		$	63		$	3,589
Provision for losses		(11	)		675			23			69			690			(27	)		30			1,449
Loans charged off		-			(116	)		-			(381	)		(736	)		-			(34	)		(1,267	)
Recoveries on loans		-			-			-			-			-			-			9			9
Balances at end of period	$	21		$	1,647		$	131		$	914		$	913		$	86		$	68		$	3,780

Nine Months Ended September 30, 2011
Balances at beginning of period:	$	35		$	746		$	138		$	1,632		$	976		$	157		$	122		$	3,806
Provision for losses		(14	)		1,354			(7	)		290			755			(71	)		(10	)		2,297
Loans charged off		-			(453	)		-			(1,008	)		(818	)		-			(77	)		(2,356	)
Recoveries on loans		-			-			-			-			-			-			33			33
Balances at end of period	$	21		$	1,647		$	131		$	914		$	913		$	86		$	68		$	3,780

As of September 30, 2011
Allowance for losses:
Individually evaluated for impairment:	$	-		$	691		$	36		$	-		$	403		$	-		$	-		$	1,130
Collectively evaluated for impairment:		21			956			95			914			510			86			68			2,650
Balances at end of period	$	21		$	1,647		$	131		$	914		$	913		$	86		$	68		$	3,780
Loans:
Individually evaluated for impairment:	$	169		$	6,026		$	2,317		$	3,641		$	5,138		$	342		$	19		$	17,652
Collectively evaluated for impairment:		8,468			105,702			16,233			79,426			12,746			17,236			4,426			244,237
Balances at end of period	$	8,637		$	111,728		$	18,550		$	83,067		$	17,884		$	17,578		$	4,445		$	261,889

	Residential
	Construction		1-4 Family		Multi-Family		Nonresidential		Land		Commercial		Consumer		Total
	(In Thousands)
As of December 31, 2010
Allowance for losses:
Individually evaluated for impairment:	$	14	$	200	$	34	$	351	$	578	$	37	$	-	$	1,214
Collectively evaluated for impairment:		21		546		104		1,281		398		120		122		2,592
Balances at end of period	$	35	$	746	$	138	$	1,632	$	976	$	157	$	122	$	3,806

Loans:
Individually evaluated for impairment:	$	278	$	7,769	$	910	$	6,493	$	6,341	$	901	$	-	$	22,692
Collectively evaluated for impairment:		6,697		109,847		14,087		83,114		14,675		15,512		4,533		248,465
Balances at end of period	$	6,975	$	117,616	$	14,997	$	89,607	$	21,016	$	16,413	$	4,533	$	271,157

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category as of September 30, 2011 and December 31, 2010:

September 30, 2011	Total Portfolio		Pass		Special Mention		Substandard		Doubtful
	(In Thousands)
Construction	$	8,637	$	8,468	$	-	$	169	$	-
1-4 family residential		111,728		103,652		1,136		6,717		223
Multi-family residential		18,550		16,233		-		2,317		-
Nonresidential		83,067		77,469		1,763		3,835		-
Land		17,884		12,371		229		5,284		-
Commercial		17,578		16,844		329		405		-
Consumer		4,445		3,840		295		310		-
Total Loans	$	261,889	$	238,877	$	3,752	$	19,037	$	223

December 31, 2010	Total Portfolio		Pass		Special Mention		Substandard		Doubtful
	(In Thousands)
Construction	$	6,975	$	6,681	$	16	$	278	$	-
1-4 family residential		117,616		107,010		5,256		5,224		126
Multi-family residential		14,997		14,087		-		334		576
Nonresidential		89,607		81,624		1,471		6,512		-
Land		21,016		14,199		2,845		3,972		-
Commercial		16,413		15,290		230		893		-
Consumer		4,533		4,188		25		320		-
Total Loans	$	271,157	$	243,079	$	9,843	$	17,533	$	702

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of the 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 on an ongoing basis by classifying the loans as to credit risk, assigning grade classifications. Loan grade classifications of special mention, substandard, doubtful, or loss are reported to the Company’s board of directors monthly. The Company uses the following definitions for credit risk grade classifications:

Pass: Loans not meeting the criteria below are considered to be pass rated loans.

Special Mention: These assets are currently protected, but potentially weak. They have credit deficiencies deserving a higher degree of attention by management. These assets do not presently exhibit a sufficient degree of risk to warrant adverse classification. Concerns may lie with cash flow, liquidity, leverage, collateral, or industry conditions. These are graded special mention so that the appropriate level of attention is administered to prevent a move to a “substandard” rating.

Substandard: By regulatory definition, “substandard” loans are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged. These types of loans have well defined weaknesses that jeopardize the liquidation of the debt. A distinct possibility exists that the institution will sustain some loss if the deficiencies are not corrected. These loans are considered workout credits. They exhibit at least one of the following characteristics.

·	An expected loan payment is in excess of 90 days past due (non-performing), or non-earning.

·	The financial condition of the borrower has deteriorated to such a point that close monitoring is necessary. Payments do not necessarily have to be past due.

·	Repayment from the primary source of repayment is gone or impaired.

·	The borrower has filed for bankruptcy protection.

·	The loans are inadequately protected by the net worth and cash flow of the borrower.

·	The guarantors have been called upon to make payments.

·	The borrower has exhibited a continued inability to reduce principal (although interest payment may be current).

·	The Company is considering a legal action against the borrower.

·	The collateral position has deteriorated to a point where there is a possibility the bank may sustain some loss. This may be due to the financial condition, improper documentation, or to a reduction in the value of the collateral.

·	Although loss may not seem likely, the Company has gone to extraordinary lengths (restructuring with extraordinary lengths) to protect its position in order to maintain a high probability of repayment.

·	Flaws in documentation leave the Company in a subordinated or unsecured position.

Doubtful: These loans exhibit the same characteristics as those rated “substandard,” plus weaknesses that make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. This would include inadequately secured loans that are being liquidated, and inadequately protected loans for which the likelihood of liquidation is high. This classification is temporary. Pending events are expected to materially reduce the amount of the loss. This means that the “doubtful” classification will result in either a partial or complete loss on the loan (write-down or specific reserve), with reclassification of the asset as “substandard,” or removal of the asset from the classified list, as in foreclosure or full loss.

The following tables present the Company’s loan portfolio aging analysis as of September 30, 2011 and December 31, 2010:

September 30, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivables		Total Loans 90 Days and Accruing
	(In Thousands)

Construction	$	-	$	-	$	169	$	169	$	8,468	$	8,637	$	-
1-4 family residential		381		853		2,448		3,682		108,046		111,728		-
Multi-family residential		-		-		343		343		18,207		18,550		-
Nonresidential		783		1,147		1,306		3,236		79,831		83,067		-
Land		229		-		3,080		3,309		14,575		17,884		-
Commercial		100		-		379		479		17,099		17,578		-
Consumer		48		-		289		337		4,108		4,445		-
	$	1,541	$	2,000	$	8,014	$	11,555	$	250,334	$	261,889	$	-

December 31, 2010	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivables		Total Loans 90 Days and Accruing
	(In Thousands)

Construction	$	-	$	-	$	165	$	165	$	6,810	$	6,975	$	-
1-4 family residential		132		839		2,304		3,275		114,341		117,616		-
Multi-family residential		-		-		910		910		14,087		14,997		-
Nonresidential		-		-		4,673		4,673		84,934		89,607		-
Land		-		372		1,749		2,121		18,895		21,016		-
Commercial		542		-		265		807		15,606		16,413		-
Consumer		37		-		315		352		4,181		4,533		-
	$	711	$	1,211	$	10,381	$	12,303	$	258,854	$	271,157	$	-

The following table presents the Company’s nonaccrual loans as of September 30, 2011. At December 31, 2010, the Company had nonaccruing loans totaling $10,381,000 which equaled loans delinquent 90 days or more.

	September 30, 2011
	(In Thousands)
Residential real estate
Construction	$	169
One-to-four family residential		3,451
Multi-family residential		343
Nonresidential real estate and agricultural land		2,262
Land (not used for agricultural purposes)		3,803
Commercial		379
Consumer and other		308
Total nonaccrual loans	$	9,992

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The following tables present information pertaining to the principal balances and specific reserve allocations for impaired loans as of September 30, 2011 (in thousands):

	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Impaired loans without a specific allowance:
Construction	$	169	$	169	$	-
1-4 family residential		2,635		2,740		-
Multi-family residential		1,974		1,974		-
Nonresidential		3,641		5,170		-
Land		2,329		2,329		-
Commercial		342		371		-
Consumer		19		19		-
	$	11,109	$	12,772	$	-

	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Impaired loans with a specific allowance:
Construction	$	-	$	-	$	-
1-4 family residential		3,391		3,391		691
Multi-family residential		343		343		36
Nonresidential		-		-		-
Land		2,809		2,809		403
Commercial		-		-		-
Consumer		-		-		-
	$	6,543	$	6,543	$	1,130

	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Total Impaired Loans:
Construction	$	169	$	169	$	-
1-4 family residential		6,026		6,131		691
Multi-family residential		2,317		2,317		36
Nonresidential		3,641		5,170		-
Land		5,138		5,138		403
Commercial		342		371		-
Consumer		19		19		-
	$	17,652	$	19,315	$	1,130

The following tables present information pertaining to the average balances of and interest recognized on impaired loans for the three- and nine-month periods ended September 30, 2011 (in thousands):

	For the nine months ended				For the three months ended
	September 30, 2011
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
Impaired loans without a specific allowance:
Construction	$	180	$	1	$	169	$	-
1-4 family residential		2,717		163		2,985		67
Multi-family residential		1,638		54		1,974		32
Nonresidential		4,708		120		4,758		49
Land		4,076		54		4,012		-
Commercial		542		10		342		2
Consumer		7		-		19		1
	$	13,868	$	402	$	14,259	$	151

	For the nine months ended				For the three months ended
	September 30, 2011
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
Impaired loans with a specific allowance:
Construction	$	-	$	-	$	-	$	-
1-4 family residential		3,187		43		3,391		24
Multi-family residential		340		-		343		-
Nonresidential		-		-		-		-
Land		2,366		32		2,809		11
Commercial		-		-		-		-
Consumer		-		-		-		-
	$	5,893	$	75	$	6,543	$	35

	For the nine months ended				For the three months ended
	September 30, 2011
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
Total impaired loans:
Construction	$	180	$	1	$	169	$	-
1-4 family residential		5,904		206		6,376		91
Multi-family residential		1,978		54		2,317		32
Nonresidential		4,708		120		4,758		49
Land		6,442		86		6,821		11
Commercial		542		10		342		2
Consumer		7		-		19		1
	$	19,761	$	477	$	20,802	$	186

The following tables present various breakdowns of impaired loans as of December 31, 2010 (in thousands):

	Recorded Investment		Unpaid Principal Balance		Specific Allowance		Average Investment		Interest Income Recognized
Impaired loans without a specific allowance:
Construction	$	113	$	113	$	-	$	260	$	9
1-4 family residential		5,834		6,011		-		2,602		67
Multi-family residential		334		334		-		875		16
Nonresidential		5,106		6,405		-		6,125		141
Land		2,856		3,366		-		1,609		51
Commercial		381		410		-		713		32
Consumer		-		-		-		-		-
	$	14,624	$	16,639	$	-	$	12,184	$	316

	Recorded Investment		Unpaid Principal Balance		Specific Allowance		Average Investment		Interest Income Recognized
Impaired loans with a specific allowance:
Construction	$	165	$	165	$	14		165	$	1
1-4 family residential		1,935		1,935		200		1,866		43
Multi-family residential		576		576		34		230		-
Nonresidential		1,387		1,387		351		792		-
Land		3,485		3,485		578		1,779		8
Commercial		520		520		37		520		34
Consumer		-		-		-		-		-
	$	8,068	$	8,068	$	1,214	$	5,352	$	86

	Recorded Investment		Unpaid Principal Balance		Specific Allowance		Average Investment		Interest Income Recognized
Total Impaired Loans:
Construction	$	278	$	278	$	14	$	425	$	10
1-4 family residential		7,769		7,946		200		4,468		110
Multi-family residential		910		910		34		1,105		16
Nonresidential		6,493		7,792		351		6,917		141
Land		6,341		6,851		578		3,388		59
Commercial		901		930		37		1,233		66
Consumer		-		-		-		-		-
	$	22,692	$	24,707	$	1,214	$	17,536	$	402

For 2010 and 2011, interest income recognized on a cash basis included above was immaterial.

Troubled Debt Restructurings

In the course of working with borrowers, the Corporation may choose to restructure the contractual terms of certain loans. In restructuring the loan, the Corporation attempts to work out an alternative payment schedule with the borrower in order to optimize collectability of the loan. Any loans that are modified, whether through a new agreement replacing the old or via changes to an existing loan agreement, are reviewed by the Corporation to identify if a troubled debt restructuring (“TDR”) has occurred.

A troubled debt restructuring occurs when, for economic or legal reasons related to a borrower’s financial difficulties, the Corporation grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status, and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. If such efforts by the Corporation do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Corporation may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

As a result of adopting the amendments in Accounting Standards Update No. 2011-02, the Corporation reassessed all restructurings that occurred on or after the beginning of its current fiscal year (January 1, 2011) for identification as troubled debt restructurings. As a result of this reassessment, the Corporation did not identify as troubled debt restructurings any additional receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology.

Nonaccrual loans, including TDRs that have not met the six month minimum performance criterion, are reported in this report as non-performing loans. For all loan classes, it is the Corporation’s policy to have any restructured loans which are on nonaccrual status prior to being restructured remain on nonaccrual status until six months of satisfactory borrower performance, at which time management would consider its return to accrual status. A loan is generally classified as nonaccrual when the Corporation believes that receipt of principal and interest is questionable under the terms of the loan agreement. Most generally, this is at 90 or more days past due.

The balance of nonaccrual restructured loans, which is included in total nonaccrual loans, was $2.0 million at September 30, 2011. If the restructured loan is on accrual status prior to being restructured, it is reviewed to determine if the restructured loan should remain on accrual status. The balance of accruing restructured loans was $7.4 million at September 30, 2011. Loans that are considered TDR are classified as performing, unless they are on nonaccrual status or greater than 90 days past due, as of the end of the most recent quarter. All TDRs are considered impaired by the Corporation, unless it is determined that the borrower has met the six month satisfactory performance period under the modified terms. On at least a quarterly basis, the Corporation reviews all TDR loans to determine if the loan meets this criterion.

With regard to determination of the amount of the allowance for credit losses, all accruing restructured loans are considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously above.

The following table presents information regarding troubled debt restructurings by class for the three- and nine-month periods ended September 30, 2011.

					Loans Restructured During
					9 Months Ending 9/30/11						3 Months Ending 9/30/11
	# of Loans		Total Troubled Debt Restructured		# of Loans		Balance at restructure		Current Balance		# of Loans		Balance at restructure		Current Balance
Residential Real Estate
Construction		-	$	-		-	$	-	$	-		-	$	-	$	-
One-to-four family residential		8		3,196,690		2		1,004,603		1,003,423		2		1,004,603	$	1,003,423
Multi-family residential		1		1,974,022		1		1,735,280		1,974,022		-		-		-
Nonresidential real estate and agricultural land		4		2,076,338		1		1,117,878		955,713		-		-		-
Land not agricultural		1		2,137,065				-		-		-		-		-
Commercial		2		71,114		1		45,815		23,169		-		-		-
Consumer		1		18,689		1		18,769		18,689		-		-		-
		17	$	9,473,917		6	$	3,922,345	$	3,975,015		2	$	1,004,603	$	1,003,423

Of the loans restructured during the nine months ended September 30, 2011, three loans, totaling $260,000, were refinanced after bankruptcy or foreclosure based on reaffirmation of the note or a deficiency note. All three were made at market rate or above and are listed as troubled debt due to borrower’s inability to cash flow. Two loans were refinanced at slightly below market rates, with taxes and insurance escrowed, one of which consolidated 28 individual loans and provided superior collateral coverage to the Corporation. These two loans totaled $2.9 million. Finally, one loan for an investment property was refinanced at a below market rate on an interest-only basis, for 12 months to provide an opportunity for the borrower to sell the property or recover. The total of this loan was $786,000.

Financial impact of these restructurings was immaterial to the financials of the Corporation at September 30, 2011.

No loans identified and reported as TDR during the nine and three months ended September 30, 2011 defaulted during either of those periods. The Corporation defines default in this instance as being either past due 90 days or more at the end of the quarter or in the legal process of foreclosure.