ALLOWANCE FOR LOAN LOSSES

The Company maintains an allowance for loan losses at a level management believes is appropriate to absorb credit losses inherent in the loan portfolio. The allowance for loan losses represents the Company’s estimate of probable incurred losses in the loan portfolio at each statement of condition date and is based on management’s review of available and relevant information as identified below.

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

Commercial and Industrial Loans (C&I)

C&I loans are primarily based on the identified historic and/or the projected cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, do fluctuate based on changes in the company’s internal and external environment including management, human and capital resources, economic conditions, competition, regulation, and product innovation/obsolescence. The collateral securing these loans may also fluctuate in value and generally has advance rates between 50-80% of the collateral value. Most C&I loans are secured by business assets being financed such as equipment, accounts receivable, and/or inventory and generally incorporate a secured or unsecured personal guarantee. Occasionally, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable and/or inventory, the collateral securing the advances is generally monitored through a Borrowing Base Certificate submitted by the borrower which may identify deterioration in collateral value. The ability of the borrower to collect amounts due from its customers may be affected by its customers’ economic and financial condition. The availability of funds for the repayment of these loans may be substantially dependent on each of the factors described above.

Commercial Real Estate – Owner Occupied, Non-Owner Occupied, and Multifamily

These types of commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent upon the cash flows from the successful operation of the property securing the loan or the cash flows from the owner occupied business conducted on the property securing the loan. A borrower’s business and/or the property securing the loan may be adversely affected by general business conditions, and fluctuations in the real estate markets or in the general economy, which if adverse, can negatively affect the borrower’s ability to repay the loan. The value and cash flow of the property can be influenced by changes in market rental rates, changes in interest rates or investors’ required rates of return, the condition of the property, zoning, or environmental issues. The properties securing the commercial real estate portfolio are diverse in terms of type and are generally located in the Chicagoland/Northwest Indiana market. Owner occupied loans are generally a borrower purchased building where the borrower occupies at least 50% of the space with the primary source of repayment dependent on sources other than the underlying collateral. Non-owner occupied and single tenant properties may have higher risk than owner occupied loans since the primary source of repayment is dependent upon the ability to lease out the collateral as well as the financial stability of the businesses occupying the collateral. Multifamily loans can also be impacted by vacancy/collection losses and tenant turnover due to generally shorter term leases or even month-to-month leases. Management monitors and evaluates commercial real estate loan portfolio concentrations based upon cash flow, collateral, geography, and risk grade criteria. As a general rule, management avoids financing single purpose projects unless other underwriting factors mitigate the credit risk to an acceptable level. The Company’s loan policy generally requires lower loan-to-value ratios against these types of properties.

Commercial Construction and Land Development Loans

Construction loans are underwritten utilizing feasibility studies, independent appraisals, sensitivity analysis of absorption and lease rates, presale or prelease/Letters of Intent analysis, and financial analysis of the developers and property owners. Construction loans are generally based on the estimated cost to construct and cash flows associated with the completed project or stabilized value. These estimates are subjective in nature and if erroneous, may preclude the borrower from being able to repay the loan. Construction loans often involve the disbursement of substantial funds with repayment dependent on the success of the completed project. 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, the ability to sell the property, and the availability of long-term financing.

Commercial Participation Loans

Participation loans generally have larger principal balances, portions of which are sold to multiple participant banks in order to spread credit risk. The collateral securing these loans is often real estate and is often located outside of the Company’s geographic footprint. Loans outside of the Company’s geographical footprint pose additional risk due to the lack of knowledge of general economic conditions where the project is located along with various project specific risks regarding buyer demand and project specific risks regarding project competition risks. The participant banks are required to underwrite these credits utilizing their own internal analysis techniques and to their own credit standards. However, the participant banks are reliant upon the information about the borrowers and the collateral provided by the lead bank. These loans carry higher levels of risk due to the participant banks being dependent on the lead bank for monitoring and managing the credit relationship, including the workout and/or foreclosure process should the borrower default.

Retail Loans

The Company’s retail loans include one-to-four family residential mortgage loans, home equity loans and lines of credit, retail construction, and other consumer loans. Management has established a maximum loan-to-value ratio (LTV) of 80% for one-to-four family residential mortgages and home equity loans and lines of credit that are secured by a first or second mortgage on owner and non-owner occupied residences. Loan applications exceeding 80% LTV require private mortgage insurance from a mortgage insurance company deemed acceptable by management. Residential construction loans are underwritten to the same standards and generally require an end loan financing commitment either from the Company or another financial institution acceptable to the Company. Other consumer loans are generally small dollar auto and personal loans based on the credit score and income of the applicant. These loans are very homogeneous in nature and are rated in pools based on similar characteristics.

Activity in the allowance for loan losses for 2011 is as follows:



				Commercial Real Estate —
	Commercial and Industrial			Owner Occupied			Non-Owner Occupied			Multifamily			Construction and Land Development			Commercial Participations			One-to-four Family Residential			HELOC			Retail Construction			Other			Total Loans Receivable
	(Dollars in thousands)
Allowance for loan losses:
Balance at beginning of year	$	1,279		$	1,090		$	6,906		$	350		$	188		$	4,559		$	1,356		$	1,309		$	7		$	135		$	17,179
Provision for loan losses	878			4,908			4,768			334			3,935			1,879			804			(453		)	(4		)	65			17,114
Loans charged-off:
Current year charge-offs	(936		)	(3,440		)	(3,349		)	(315		)	(2,943		)	(1,474		)	(648		)	(423		)	—			(107		)	(13,635		)
Previously established specific reserves	—			(433		)	(4,433		)	—			—			(3,497		)	—			—			—			—			(8,363		)
Total loans charged-off	(936		)	(3,873		)	(7,782		)	(315		)	(2,943		)	(4,971		)	(648		)	(423		)	—			(107		)	(21,998		)
Recoveries	15			4			43			1			18			—			9			9			—			30			129
Balance at end of year	$	1,236		$	2,129		$	3,935		$	370		$	1,198		$	1,467		$	1,521		$	442		$	3		$	123		$	12,424

Ending allowance balance:
Individually evaluated for impairment	$	—		$	—		$	718		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	718
Collectively evaluated for impairment	1,236			2,129			3,217			370			1,198			1,467			1,521			442			3			123			11,706
Total evaluated for impairment at end of year	$	1,236		$	2,129		$	3,935		$	370		$	1,198		$	1,467		$	1,521		$	442		$	3		$	123		$	12,424

Loans receivable:
Individually evaluated for impairment	$	2,479		$	11,203		$	25,518		$	673		$	2,781		$	2,355		$	—		$	—		$	—		$	—		$	45,009
Collectively evaluated for impairment	82,681			82,630			162,775			71,203			19,264			9,698			181,698			52,873			1,022			2,771			666,615
Balance at end of year	$	85,160		$	93,833		$	188,293		$	71,876		$	22,045		$	12,053		$	181,698		$	52,873		$	1,022		$	2,771		$	711,624

Activity in the allowance for loan losses for 2010 is as follows:



				Commercial Real Estate —
	Commercial and Industrial			Owner Occupied			Non-Owner Occupied			Multifamily			Construction and Land Development			Commercial Participations			One-to-four Family Residential			HELOC			Retail Construction			Other			Total Loans Receivable
	(Dollars in thousands)
Allowance for loan losses:
Balance at beginning of year	$	867		$	1,589		$	6,584		$	679		$	892		$	6,410		$	1,727		$	531		$	117		$	65		$	19,461
Provision for loan losses	1,251			(418		)	1,100			(261		)	(785		)	1,497			385			1,066			(110		)	152			3,877
Loans charged-off:
Current year charge-offs	(848		)	(82		)	(797		)	(85		)	(1		)	(1,076		)	(773		)	(310		)	—			(111		)	(4,083		)
Previously established specific reserves	—			—			—			—			—			(2,302		)	—			—			—			—			(2,302		)
Total loans charged-off	(848		)	(82		)	(797		)	(85		)	(1		)	(3,378		)	(773		)	(310		)	—			(111		)	(6,385		)
Recoveries	9			1			19			17			82			30			17			22			—			29			226
Balance at end of year	$	1,279		$	1,090		$	6,906		$	350		$	188		$	4,559		$	1,356		$	1,309		$	7		$	135		$	17,179

Ending allowance balance:
Individually evaluated for impairment	$	—		$	433		$	4,492		$	—		$	—		$	3,497		$	—		$	—		$	—		$	—		$	8,422
Collectively evaluated for impairment	1,279			657			2,414			350			188			1,062			1,356			1,309			7			135			8,757
Total evaluated for impairment at end of year	$	1,279		$	1,090		$	6,906		$	350		$	188		$	4,559		$	1,356		$	1,309		$	7		$	135		$	17,179

Loans receivable:
Individually evaluated for impairment	$	3,692		$	11,135		$	21,218		$	264		$	9,183		$	9,499		$	—		$	—		$	—		$	—		$	54,991
Collectively evaluated for impairment	71,248			88,300			170,780			71,816			15,127			14,095			185,321			56,177			3,176			2,122			678,162
Balance at end of year	$	74,940		$	99,435		$	191,998		$	72,080		$	24,310		$	23,594		$	185,321		$	56,177		$	3,176		$	2,122		$	733,153

Activity in the allowance for loan losses is summarized as follows for the year ended December 31, 2009:



	Year Ended December 31, 2009
	Year Ended December 31, 2009
	(Dollars in thousands)
Balance at beginning of year	$	15,558
Loans charged-off:
Current year charge-offs	(8,528		)
Previously established specific reserves	(442		)
Total loans charged-off	(8,970		)
Recoveries of loans previously charged-off	285
Net loans charged-off	(8,685		)
Provision for loan losses	12,588
Balance at end of year	$	19,461

The Company, as a matter of good risk management practices, utilizes objective loan grading matrices to assign risk ratings to all commercial loans. The risk rating criteria is clearly supported by core credit attributes that emphasize debt service coverage, operating trends, collateral, and guarantor liquidity, and further removes subjective criteria and bias from the analysis. Retail loans are rated pass until they become 90 days or more delinquent, put on non-accrual status, and generally rated substandard. The Company uses the following definitions for risk ratings:


•	Pass. Loans that meet the conservative underwriting guidelines that include core credit attributes noted above as measured by the loan grading matrices at levels that are in excess of the minimum amounts required to adequately service the loans.

•

Pass Watch. Loans which are performing per their contractual terms and are not necessarily demonstrating signs of credit or operational weakness, including but not limited to delinquency. Loans in this category are monitored by management for timely payments. Current financial information may be pending or, based upon the most recent analysis of the loan, possess credit attributes that are sufficient to adequately service the loan, but are less than the parameters required for a pass risk rating. This rating is considered transitional because management does not have current financial information to determine the appropriate risk grade or the quality of the loan appears to be changing. Loans may be graded as pass watch when a single event may have occurred that could be indicative of an emerging issue or indicate trending that would warrant a change in the risk rating.


•	Special Mention. Loans that have a potential weakness that will be closely monitored by management. A credit graded special mention does not expose the Company to elevated risk that would warrant an adverse classification.


•	Substandard. Loans that are inadequately protected by the current net worth and paying capacity of the borrower, guarantor, or the collateral pledged. Loans classified as substandard have a well-defined weakness or weaknesses, characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.


•	Doubtful. Loans that have the same weaknesses as 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.

The Company’s loans receivable portfolio is summarized by risk category as follows:



	Risk Rating at December 31, 2011
	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	76,554	$	6,534	$	1,476	$	596	$	—	$	85,160
Commercial real estate:
Owner occupied	69,029		12,036		1,540		11,228		—		93,833
Non-owner occupied	147,678		9,219		7,347		24,049		—		188,293
Multifamily	65,920		3,119		2,331		506		—		71,876
Commercial construction and land development	16,412		805		1,450		3,378		—		22,045
Commercial participations	9,698		—		—		2,355		—		12,053
Total commercial loans	385,291		31,713		14,144		42,112		—		473,260
Retail loans:
One-to-four family residential	176,763		—		—		4,935		—		181,698
Home equity lines of credit	52,332		—		—		541		—		52,873
Retail construction	853		—		—		169		—		1,022
Other	2,771		—		—		—		—		2,771
Total retail loans	232,719		—		—		5,645		—		238,364
Total loans	$	618,010	$	31,713	$	14,144	$	47,757	$	—	$	711,624



	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Current	$	610,129	$	29,528	$	11,670	$	9,310	$	—	$	660,637
Delinquent:
30-59 days	6,082		1,285		93		1,445		—		8,905
60-89 days	1,799		900		2,381		4,372		—		9,452
90 days or more	—		—		—		32,630		—		32,630
Total loans	$	618,010	$	31,713	$	14,144	$	47,757	$	—	$	711,624



	Risk Rating at December 31, 2010
	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	62,969	$	3,908	$	7,813	$	228	$	22	$	74,940
Commercial real estate:
Owner occupied	65,768		20,239		4,310		9,118		—		99,435
Non-owner occupied	142,636		25,191		2,448		21,723		—		191,998
Multifamily	61,822		8,238		708		1,312		—		72,080
Commercial construction and land development	10,138		4,989		—		9,183		—		24,310
Commercial participations	14,095		—		—		9,499		—		23,594
Total commercial loans	357,428		62,565		15,279		51,063		22		486,357
Retail loans:
One-to-four family residential	181,991		—		107		3,223		—		185,321
Home equity lines of credit	55,688		—		—		489		—		56,177
Retail construction	2,973		—		—		203		—		3,176
Other	2,118		—		—		4		—		2,122
Total retail loans	242,770		—		107		3,919		—		246,796
Total loans	$	600,198	$	62,565	$	15,386	$	54,982	$	22	$	733,153



	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Current	$	589,067	$	61,449	$	11,857	$	13,770	$	22	$	676,165
Delinquent:
30-59 days	5,347		457		415		540		—		6,759
60-89 days	5,322		536		768		321		—		6,947
90 days or more	462		123		2,346		40,351		—		43,282
Total loans	$	600,198	$	62,565	$	15,386	$	54,982	$	22	$	733,153

The Company’s loan portfolio delinquency status is summarized as follows:



	Delinquency at December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days And Accruing
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	615	$	24	$	88	$	727	$	84,433	$	85,160	$	—
Commercial real estate:
Owner occupied	551		297		10,362		11,210		82,623		93,833		—
Non-owner occupied	1,622		5,197		12,153		18,972		169,321		188,293		5
Multifamily	1,856		1,732		91		3,679		68,197		71,876		—
Commercial construction and land development	—		502		3,378		3,880		18,165		22,045		—
Commercial participations	—		—		2,355		2,355		9,698		12,053		—
Total commercial loans	4,644		7,752		28,427		40,823		432,437		473,260		5
Retail loans:
One-to-four family residential	3,890		1,501		3,743		9,134		172,564		181,698		—
Home equity lines of credit	371		199		291		861		52,012		52,873		—
Retail construction	—		—		169		169		853		1,022		—
Other	—		—		—		—		2,771		2,771		—
Total retail loans	4,261		1,700		4,203		10,164		228,200		238,364		—
Total loans receivable	$	8,905	$	9,452	$	32,630	$	50,987	$	660,637	$	711,624	$	5



	Delinquency at December 31, 2010
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days And Accruing
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	448	$	664	$	180	$	1,292	$	73,648	$	74,940	$	—
Commercial real estate:
Owner occupied	678		3,691		11,464		15,833		83,602		99,435		2,346
Non-owner occupied	361		216		9,081		9,658		182,340		191,998		123
Multifamily	656		—		436		1,092		70,988		72,080		—
Commercial construction and land development	—		536		9,023		9,559		14,751		24,310		—
Commercial participations	—		—		9,660		9,660		13,934		23,594		—
Total commercial loans	2,143		5,107		39,844		47,094		439,263		486,357		2,469
Retail loans:
One-to-four family residential	4,229		1,832		2,589		8,650		176,671		185,321		—
Home equity lines of credit	386		8		642		1,036		55,141		56,177		—
Retail construction	—		—		203		203		2,973		3,176		—
Other	1		—		4		5		2,117		2,122		—
Total retail loans	4,616		1,840		3,438		9,894		236,902		246,796		—
Total loans receivable	$	6,759	$	6,947	$	43,282	$	56,988	$	676,165	$	733,153	$	2,469

Non-accrual loans are summarized as follows:



	December 31,
	2011		2010
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	596	$	228
Commercial real estate:
Owner occupied	11,228		9,119
Non-owner occupied	22,294		21,512
Multifamily	91		1,071
Commercial construction and land development	3,378		9,183
Commercial participations	2,355		9,499
Total commercial loans	39,942		50,612
Retail loans:
One-to-four family residential	4,935		2,955
Home equity lines of credit	541		718
Retail construction	169		203
Other	—		4
Total retail loans	5,645		3,880
Total non-accrual loans	$	45,587	$	54,492

The Company’s impaired loans are summarized as follows with the majority of the interest income recognized on a cash basis at the time the payment is received:



	At December 31, 2011								Twelve Months Ended December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Partial Charge-offs to Date		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial and industrial	$	2,479	$	2,700	$	216	$	—	$	3,577	$	152
Commercial real estate:
Owner occupied	11,203		14,557		2,694		—		13,531		62
Non-owner occupied	22,280		34,130		10,553		—		33,189		282
Multifamily	673		673		—		—		677		36
Commercial construction and land development	2,781		2,781		—		—		2,781		—
Commercial participations	607		1,796		1,189		—		607		—
Retail	7,911		8,303		391		—		8,131		187
Total	$	47,934	$	64,940	$	15,043	$	—	$	62,493	$	719

Loans with a specific valuation allowance:
Commercial real estate – non-owner occupied	$	4,986	$	4,986	$	—	$	718	$	5,034	$	—

Total impaired loans:
Commercial	$	45,009	$	61,623	$	14,652	$	718	$	59,396	$	532
Retail	7,911		8,303		391		—		8,131		187
Total	$	52,920	$	69,926	$	15,043	$	718	$	67,527	$	719



	At December 31, 2010								Twelve Months Ended December 31, 2010
	Recorded Investment		Unpaid Principal Balance		Partial Charge-offs to Date		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial and industrial	$	3,692	$	3,976	$	1,506	$	—	$	4,738	$	128
Commercial real estate:
Owner occupied	5,041		5,082		—		—		5,059		—
Non-owner occupied	6,664		6,834		140		—		6,695		144
Multifamily	264		264		—		—		268		4
Commercial construction and land development	9,183		11,498		2,314		—		9,313		—
Commercial participations	4,197		8,012		3,753		—		4,397		—
Retail	2,847		2,891		90		—		2,758		122
Total	$	31,888	$	38,557	$	7,803	$	—	$	33,228	$	398

Loans with a specific valuation allowance:
Commercial real estate:
Owner occupied	$	2,798	$	3,168	$	—	$	433	$	2,900	$	—
Non-owner occupied	17,850		18,311		—		4,492		18,066		—
Commercial participations	5,302		5,443		—		3,497		5,302		—
Total	$	25,950	$	26,922	$	—	$	8,422	$	26,268	$	—

Total impaired loans:
Commercial	$	54,991	$	62,588	$	7,713	$	8,422	$	56,738	$	276
Retail	2,847		2,891		90		—		2,758		122
Total	$	57,838	$	65,479	$	7,803	$	8,422	$	59,496	$	398

The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring (TDR). The Company may modify loans through rate reductions, short-term extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrower’s operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses.

The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

For one-to-four family residential and home equity lines of credit, a restructure often occurs with past due loans and may be offered as an alternative to foreclosure. There are other situations where borrowers, who are not past due, experience a sudden job loss, become over-extended with credit obligations, or other problems, have indicated that they will be unable to make the required monthly payment and request payment relief.

When considering a loan restructure, management will determine if: (i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution.

When a loan is restructured, the new terms often require a reduced monthly debt service payment. For commercial loans, management completes an analysis of the operating entity’s ability to repay the debt. If the operating entity is capable of servicing the new debt service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a

future default, the new loan is generally placed on accrual status after a minimum period of six months performance under the restructured terms. During 2011, two commercial TDRs totaling $549,000 were returned to accrual status upon meeting the performance time period requirement. To date, there have been no commercial loans restructured and immediately placed on accrual status after the execution of the TDR.

For retail loans, an analysis of the individual’s ability to service the new required payments is performed. If the borrower is capable of servicing the newly restructured debt and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan is generally placed on accrual status. The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a temporary job loss, when determining whether a retail TDR loan could be returned to accrual status. Retail TDRs remain on non-accrual status until sufficient payments have been made to bring the past due principal and interest current, at which point the loan would be transferred to accrual status.

Effective July 1, 2011, the Company adopted the provisions of ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. As a result of adopting the provisions of ASU 2011-02, the Company reassessed all loan modifications that occurred since January 1, 2011 for identification as TDRs, resulting in one newly identified one-to-four family residential TDR totaling $33,000.

The following table summarizes the loans that have been restructured as TDRs during 2011:



	Year Ended December 31, 2011
	Count	Balance prior to TDR		Balance after TDR
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	5	$	1,160	$	1,160
Commercial real estate:
Owner occupied	4	2,864		2,832
Non-owner occupied	1	107		114
Total commercial loans	10	4,131		4,106

Retail loans:
One-to-four family residential	15	1,513		1,706
Total loans	25	$	5,644	$	5,812

The following table sets forth the Company’s TDRs that had payment defaults during 2011. Default occurs when a TDR is 90 days or more past due, transferred to non-accrual status, or transferred to other real estate owned within twelve months of restructuring. Of the total, a one-to-four family residential loan totaling $248,000 was subsequently foreclosed and is included in other real estate owned at December 31, 2011. Also, one commercial and industrial loan totaling $204,000 and a one-to-four family residential loan totaling $33,000 were fully charged-off.



	Count	Default Balance
	(Dollars in thousands)
Commercial loans:
Commercial real estate - owner occupied	1	$	297

Retail loans:
One-to-four family residential	5	573
Total troubled debt restructuring defaults	6	$	870

The tables below summarize the Company’s TDRs by loan category and accrual status:



	December 31, 2011						December 31, 2010
	Accruing		Non-accruing		Total		Accruing		Non-accruing		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	2,167	$	259	$	2,426	$	3,575	$	—	$	3,575
Commercial real estate:
Owner occupied	369		2,272		2,641		—		3,051		3,051
Non-owner occupied	3,814		11,095		14,909		3,296		19,234		22,530
Multifamily	259		—		259		264		—		264
Commercial construction and land development	—		—		—		—		2,012		2,012
Commercial participations	—		1,748		1,748		—		5,302		5,302
Total commercial	6,609		15,374		21,983		7,135		29,599		36,734

Retail loans:
One-to-four family residential	2,266		1,600		3,866		2,619		228		2,847
Total troubled debt restructurings	$	8,875	$	16,974	$	25,849	$	9,754	$	29,827	$	39,581

At December 31, 2011, $7.9 million TDRs were performing in accordance with their agreements and accruing. The Company’s TDRs which are performing in accordance with their agreements and on non-accrual status totaled $12.5 million at December 31, 2011.

Management monitors the TDRs based on the type of modification or concession granted to the borrower. These types of modifications may include rate reductions, payment/term extensions, forgiveness of principal, forbearance, and other applicable actions. Of the various concessions noted, management predominantly utilizes rate reductions and lower monthly payments, either from a longer amortization period or interest only repayment schedule, because these concessions provide needed payment relief without risking the loss of principal. Management will also agree to a forbearance agreement when it is deemed appropriate to avoid foreclosure.

The following tables set forth the Company’s TDRs by portfolio segment to quantify the type of modification or concession provided:



	December 31, 2011
			Commercial Real Estate										Total
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Commercial Participations		One-to-four Family Residential		Total
	(Dollars in thousands)
Rate reduction	$	—	$	—	$	—	$	—	$	—	$	805	$	805
Payment extension	2,426		2,297		2,210		—		—		948		7,881
Rate reduction and payment extension	—		—		542		259		—		1,858		2,659
Rate reduction and interest only	—		—		9,054		—		—		255		9,309
Payment extension and interest only	—		297		—		—		—		—		297
Forbearance	—		—		3,103		—		1,748		—		4,851
Rate reduction, payment extension, interest only, and forbearance	—		47		—		—		—		—		47
Total troubled debt restructurings	$	2,426	$	2,641	$	14,909	$	259	$	1,748	$	3,866	$	25,849



	December 31, 2010
			Commercial Real Estate												Total
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Construction and Land Development		Commercial Participations		One-to-four Family Residential		Total
	(Dollars in thousands)
Rate reduction	$	—	$	—	$	—	$	—	$	—	$	—	$	396	$	396
Payment extension	3,575		3,051		2,113		—		—		—		1,043		9,782
Rate reduction and payment extension	—		—		566		264		—		—		1,408		2,238
Rate reduction and interest only	—		—		12,955		—		—		—		—		12,955
Forbearance	—		—		6,896		—		2,012		5,302		—		14,210
Total troubled debt restructurings	$	3,575	$	3,051	$	22,530	$	264	$	2,012	$	5,302	$	2,847	$	39,581

At December 31, 2011, TDRs decreased $13.7 million to $25.8 million from $39.6 million at December 31, 2010. The 2011 activity related to the Company’s TDRs is presented in the following table:



	Year Ended December 31, 2011
	(Dollars in thousands)
Beginning balance	$	39,581
Restructured loans identified as TDRs	5,644
Protective advances and miscellaneous	369
Repayments and payoffs	(3,638		)
Charge-offs	(13,781		)
Transfers to other real estate owned	(2,326		)
Ending balance	$	25,849