6. Loans

As of September 30, 2012, management made some enhancements to the calculation of the Allowance for Loan Losses (the “Allowance”) that affect the loan portfolio segments and classes. First, the Company increased the number of loan segments from four to eight based on its assessment of risk pockets within the loan portfolio and to better align the loan segments with regulatory reporting requirements. Prior to September 30, 2012, the loan segments were commercial, real estate construction, real estate term, and home equity lines and other consumer loans. As of September 30, 2012, the loan segments are commercial, real estate construction one-to-four family, real estate construction other, real estate term owner occupied, real estate term non-owner occupied, real estate term other, consumer loans secured by 1^st deeds of trust, and other consumer loans.

Second, the Company realigned its loan classes. Prior to September 30, 2012, the Company’s classes were its eight risk rating classifications. The Company utilizes these risk rating classifications as part of the on-going monitoring of the credit quality of the Company’s loan portfolio. The Company uses this system to track certain credit quality indicators including trends in past due and nonaccrual loans, gross and net charge offs, and movement in loan balances within the risk rating classifications. In the first quarter of 2011, the Company began utilizing a new loan risk grading system called the Asset Quality Rating (“AQR”) system that expanded the loan risk categories from eight to ten. Since the inception of the AQR system, it has been run concurrently with the legacy risk grading system in order to properly test its effect on the Company’s overall risk management process. As of September 30, 2012, the Company has determined that it is more appropriate to condense all pass grade loans (categories 1 – 4 in the legacy rating system and categories 1 – 6 in the AQR system) into one class based on management’s analysis of historical loss rates and the similarities in the risk profiles of these loans as compared to the other categories. As such, as of September 30, 2012, the Company has a total of five loan classes. These are loans graded as pass, special mention, substandard, doubtful, and loss.

While neither the change in loan portfolio segments nor classes resulted in a change in the Company’s financial position or its results of operations, these changes do affect loan and allowance disclosures throughout this Form 10-Q. Previous periods’ disclosures have been revised for comparative purposes.

A description of the general characteristics of the AQR risk classifications are as follows:

Pass grade loans, – 1 through 6: The borrower demonstrates sufficient cash flow to fund debt service, including acceptable profit margins, cash flows, liquidity and other balance sheet ratios. Historic and projected performance indicates that the borrower is able to meet obligations under most economic circumstances. The company has competent management with an acceptable track record. The category does not include loans with undue or unwarranted credit risks that constitute identifiable weaknesses.

Special Mention – 7: A "special mention" credit has weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of either the repayment prospects for the asset or the Bank's credit position at some future date. Special mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Loans are currently protected, but are weak due to negative trends in the balance sheet and income statement. Current cash flow may be insufficient to meet debt service, with prospects that the condition may not be temporary. Profitability and key balance sheet ratios are below peers. There is a lack of effective control over collateral or there are documentation deficiencies as well as a potential risk of payment default. Collateral coverage is minimal in gross dollars or due to quality issues. Financial information may be inadequate to show the recent condition of borrower. The loan would not be approved as a new credit, and new loans would not be granted. Management may not be adequately qualified or may have very limited prior experience with similar activities or markets. The ability of management to cope with current conditions is questionable. Internal conflict and turnover in key positions may be present. Succession is unclear. The borrower's asset quality is below average. The capital base may be insufficient to cover capital losses. Leverage is above average or increasing. The industry outlook is generally negative but there are reasonable expectations of a turnaround within 12-18 months. The firm may be new, resulting in competitive deficiencies in comparison to the older, more established firms in the industry. Over-capacity may be evident in the industry. Collateral and guarantor strength are comparable to Management Attention - 6, but agings and certifications of accounts receivable and inventory are required and are not being provided on a regular basis.

Substandard – 8: A "substandard" credit is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans have well-defined weaknesses where a payment default and/or a loss are possible, but not yet probable. Cash flow is insufficient to service debt, with prospects that the condition is permanent. Assets classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower, and there is a likelihood that collateral will have to be liquidated and/or the guarantor called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage. Loan(s) may have been restructured at less than market terms or have been partially charged off. If deficiencies are not corrected quickly, there is a probability of loss and the company's ability to operate as a going concern may be deemed questionable/is questionable. Management has no prior experience with similar activities, demonstrating inability to realistically address problems and meet commitments. The borrower’s asset quality is poor. The capital base is weak and insufficient to absorb continuing losses, and leverage is significantly above peers. Liquidity is poor with significant reliance on short-term borrowing to support trade debt. Key balance sheet ratios are substantially inferior to industry norms. The industry is currently trending downward or demonstrating recovery from an adverse cycle. The outlook is generally negative at this time. Timing of recovery is unclear, but expectations are that market conditions will improve within 18-24 months. The company has substantial competitive deficiencies when compared to other firms, such as excess capacity and over-supply, resulting in frequent and significant concessions and discounting. Business failures are prevalent. Collateral coverage is marginal or non-existent. Collateral may be located outside the company's market area. There are no agings or certifications of accounts receivable and inventory being received from the borrower, and collateral has doubtful marketability/convertibility. If guaranteed, the guarantor has limited outside worth and is highly leveraged with a poor credit report, which may reflect liens, collection problems, or lawsuits.

Doubtful – 9: An asset classified "doubtful" has all the weaknesses inherent in one that is classified "substandard - 8" with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. The loan has substandard characteristics, but available information suggests that it is unlikely that the loan will be repaid in its entirety. Cash flow is insufficient to service debt. The company has had a series of substantial losses. If the current material adverse trends continue, it is unlikely the borrower will have the ability to meet the terms of the loan agreement. It may be difficult to predict the exact amount of loss, but the probability of some loss is greater than 50%. Loans are to be placed on non-accrual status when any portion is classified as doubtful. Non-accrual loans would not be classified "doubtful" as long as the collateral appears adequate to retire the outstanding balance. Management is clearly unable to address problems and meet commitments, and there is little expectation either of improvement or for sustaining the relationship with current management. The company is highly illiquid with excessive leverage. Key balance sheet ratios are at unacceptable levels, and downturn is severe. Timing of recovery is undeterminable. The company is unable to compete; collateral and guarantees provide limited support.

Loss – 10: An asset classified "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future. The loan has doubtful characteristics, but the loan will definitely not be repaid in full. Debt service coverage clearly reflects the company's inability to service debt. The borrower cannot generate sufficient cash flow to cover fixed charges. All near-term and long-term trends concerning cash flow and earnings are negative. The damage to the financial condition of the company cannot be reversed at this point in time. Collateral and guarantees provide no support.

The following table presents total portfolio loans by portfolio segment and class of financing receivable:



	Commercial		Real estate construction one-to-four family		Real estate construction other		Real estate term owner occupied		Real estate term non-owner occupied		Real estate term other		Consumer secured by 1st deeds of trust		Consumer other		Total
		(In Thousands)
September 30, 2012
AQR Pass	$	243,897	$	28,295	$	15,595	$	75,226	$	225,126	$	29,461	$	16,959	$	18,238	$	652,797
AQR Special Mention		5,475		2,141		-		2,206		2,412		2,086		274		414		15,008
AQR Substandard		996		1,072		230		503		372		2,044		608		536		6,361
AQR Doubtful		604		-		-		-		-		-		-		-		604
AQR Loss		223		-		-		-		-		-		-		-		223
Subtotal	$	251,195	$	31,508	$	15,825	$	77,935	$	227,910	$	33,591	$	17,841	$	19,188	$	674,993
Less: Unearned origination fees, net of origination costs																		(3,349)
																	$	671,644

December 31, 2011
AQR Pass	$	242,491	$	21,859	$	12,071	$	79,084	$	192,533	$	35,667	$	19,533	$	18,200	$	621,438
AQR Special Mention		6,690		-		3,897		1,407		2,288		226		232		465		15,205
AQR Substandard		1,354		-		2,355		990		608		2,878		72		794		9,051
AQR Doubtful		1,612		-		-		-		25		154		375		163		2,329
AQR Loss		542		-		-		-		-		-		-		-		542
Subtotal	$	252,689	$	21,859	$	18,323	$	81,481	$	195,454	$	38,925	$	20,212	$	19,622	$	648,565
Less: Unearned origination fees, net of origination costs																		(3,003)
																	$	645,562

September 30, 2011
AQR Pass	$	217,126	$	25,483	$	12,015	$	79,608	$	193,670	$	33,830	$	20,308	$	19,303	$	601,343
AQR Special Mention		6,765		937		4,530		505		2,323		235		249		487		16,031
AQR Substandard		2,601		-		3,019		1,450		590		3,227		74		639		11,600
AQR Doubtful		1,170		-		-		837		30		158		379		170		2,744
AQR Loss		876		-		-		-		-		-		-		-		876
Subtotal	$	228,538	$	26,420	$	19,564	$	82,400	$	196,613	$	37,450	$	21,010	$	20,599	$	632,594
Less: Unearned origination fees, net of origination costs																		(2,930)
																	$	629,664

Loans are carried at their principal amount outstanding, net of charge-offs, unamortized fees and direct loan origination costs. Loan balances are charged to the Allowance when management believes that collection of principal is unlikely. Interest income on loans is accrued and recognized on the principal amount outstanding except for loans in a nonaccrual status. All classes of loans are placed on nonaccrual and considered impaired when management believes doubt exists as to the collectability of the interest or principal. Cash payments received on nonaccrual loans are directly applied to the principal balance. Generally, a loan may be returned to accrual status when the delinquent principal and interest are brought current in accordance with the terms of the loan agreement. Additionally, certain ongoing performance criteria, which generally includes a performance period of six months, must be met in order for a loan to be returned to accrual status. Loans are reported as past due when installment payments, interest payments, or maturity payments are past due based on contractual terms.

Nonaccrual loans totaled $4.9 million, $7.4 million and $7.9 million at September 30, 2012, December 31, 2011, and September 30, 2011, respectively. Nonaccrual loans at the periods indicated, by segment are presented below:



	September 30, 2012		December 31, 2011		September 30, 2011
		(In Thousands)
Commercial	$	1,553	$	3,360	$	4,058
Real estate construction one-to-four family		810		-		-
Real estate construction other		-		2,355		1,568
Real estate term owner occupied		-		924		1,305
Real estate term non-owner occupied		193		229		420
Real estate term other		2,021		324		336
Consumer secured by 1st deeds of trust		175		-		1
Consumer other		135		169		178
Total	$	4,887	$	7,361	$	7,866

Past due loans and nonaccrual loans at the periods indicated are presented below by loan class:



	30-59 Days Past Due Still Accruing		60-89 Days Past Due Still Accruing		Greater Than 90 Days Still Accruing		Nonaccrual		Total Past Due		Current		Total Financing Receivables
		(In Thousands)
September 30, 2012
AQR Pass	$	135	$	9	$	-	$	284	$	428	$	652,369	$	652,797
AQR Special Mention		17		-		-		293		310		14,698		15,008
AQR Substandard		13		-		-		3,483		3,496		2,865		6,361
AQR Doubtful		-		-		-		604		604		-		604
AQR Loss		-		-		-		223		223		-		223
Subtotal	$	165	$	9	$	-	$	4,887	$	5,061	$	669,932	$	674,993
Less: Unearned origination fees, net of origination costs														(3,349)
													$	671,644

December 31, 2011
AQR Pass	$	473	$	-	$	-	$	419	$	892	$	620,546	$	621,438
AQR Special Mention		-		21		-		1,016		1,037		14,168		15,205
AQR Substandard		-		170		-		3,750		3,920		5,131		9,051
AQR Doubtful		2		-		-		1,699		1,701		628		2,329
AQR Loss		-		-		-		477		477		65		542
Subtotal	$	475	$	191	$	-	$	7,361	$	8,027	$	640,538	$	648,565
Less: Unearned origination fees, net of origination costs														(3,003)
													$	645,562

September 30, 2011
AQR Pass	$	543	$	-	$	-	$	263	$	806	$	600,537	$	601,343
AQR Special Mention		53		-		-		808		861		15,170		16,031
AQR Substandard		3,064		-		-		4,605		7,669		3,931		11,600
AQR Doubtful		-		3		-		1,380		1,383		1,361		2,744
AQR Loss		-		-		-		810		810		66		876
Subtotal	$	3,660	$	3	$	-	$	7,866	$	11,529	$	621,065	$	632,594
Less: Unearned origination fees, net of origination costs														(2,930)
													$	629,664

The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, except that if the loan is collateral dependent, the impairment is measured by using the fair value of the loan’s collateral. Nonperforming loans greater than $50,000 are individually evaluated for impairment based upon the borrower’s overall financial condition, resources, and payment record, and the prospects for support from any financially responsible guarantors.

At September 30, 2012, December 31, 2011 and September 30, 2011, the recorded investment in loans that are considered to be impaired was $13.1 million, $9.5 million, and $10.9 million, respectively. The following table presents information about impaired loans by class as of the periods indicated:



(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2012
With no related allowance recorded
Commercial - AQR pass	$	125	$	125	$	-	$	226	$	9
Commercial - AQR special mention		328		328		-		325		21
Commercial - AQR substandard		722		722		-		888		4
Commercial - AQR doubtful		418		1,061		-		543		-
Real estate construction other - AQR pass		2,748		2,748		-		2,861		-
Real estate term owner occupied- AQR special mention		526		526		-		502		29
Real estate term non-owner occupied- AQR pass		1,568		1,568		-		1,614		95
Real estate term non-owner occupied- AQR special mention		388		388		-		401		21
Real estate term non-owner occupied- AQR substandard		355		355		-		376		33
Real estate term other - AQR special mention		2,032		2,111		-		2,044		99
Consumer secured by 1st deeds of trust - AQR pass		93		93		-		95		4
Consumer other - AQR pass		169		169		-		179		5
	$	9,472	$	10,194	$	-	$	10,054	$	320



With an allowance recorded
Commercial - AQR pass	$	106	$	106	$	28	$	86	$	4
Commercial - AQR special mention		154		154		78		170		-
Commercial - AQR doubtful		186		216		186		205		-
Commercial - AQR loss		201		201		173		212		-
Real estate construction one-to-four family - AQR substandard		810		810		230		908		-
Real estate term other - AQR substandard		2,044		2,324		34		2,461		20
Consumer secured by 1st deeds of trust - AQR pass		175		175		13		176		-
	$	3,676	$	3,986	$	742	$	4,218	$	24



Total
Commercial - AQR pass	$	231	$	231	$	28	$	312	$	13
Commercial - AQR special mention		482		482		78		495		21
Commercial - AQR substandard		722		722		-		888		4
Commercial - AQR doubtful		604		1,277		186		748		-
Commercial - AQR loss		201		201		173		212		-
Real estate construction one-to-four family - AQR substandard		810		810		230		908		-
Real estate construction other - AQR pass		2,748		2,748		-		2,861		-
Real estate term owner-occupied - AQR special mention		526		526		-		502		29
Real estate term non-owner occupied - AQR pass		1,568		1,568		-		1,614		95
Real estate term non-owner occupied - AQR special mention		388		388		-		401		21
Real estate term non-owner occupied - AQR substandard		355		355		-		376		33
Real estate term other - AQR special mention		2,032		2,111		-		2,044		99
Real estate term other - AQR substandard		2,044		2,324		34		2,461		20
Consumer secured by 1st deeds of trust - AQR pass		268		268		13		271		4
Consumer other - AQR pass		169		169		-		179		5
	$	13,148	$	14,180	$	742	$	14,272	$	344



(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2011
With no related allowance recorded
Commercial - AQR pass	$	327	$	327	$	-	$	430	$	23
Commercial - AQR special mention		140		140		-		153		-
Commercial - AQR substandard		908		908		-		1,006		-
Commercial - AQR doubtful		1,118		1,762		-		1,221		5
Real estate construction other - AQR substandard		1,349		1,527		-		1,463		-
Real estate term non-owner occupied - AQR pass		1,660		1,660		-		1,513		93
Real estate term non-owner occupied - AQR substandard		479		479		-		499		-
Real estate term other - AQR special mention		170		248		-		193		-
Real estate term other - AQR substandard		162		162		-		154		9
Real estate term other - AQR doubtful		154		244		-		205		-
Consumer secured by 1st deeds of trust - AQR pass		97		97		-		49		5
Consumer other - AQR doubtful		52		52		-		53		-
	$	6,616	$	7,606	$	-	$	6,939	$	135



With an allowance recorded
Commercial - AQR pass	$	185	$	185	$	19	$	195	$	-
Commercial - AQR special mention		258		258		20		258		-
Commercial - AQR substandard		68		68		5		234		-
Commercial - AQR doubtful		223		223		212		233		-
Commercial - AQR loss		446		446		364		474		-
Real estate construction other - AQR substandard		1,006		1,006		494		1,024		-
Real estate term non-owner occupied - AQR pass		204		204		5		215		-
Real estate term non-owner occupied - AQR special mention		446		446		62		447		-
	$	2,836	$	2,836	$	1,181	$	3,080	$	-



Total
Commercial - AQR pass	$	512	$	512	$	19	$	625	$	23
Commercial - AQR special mention		398		398		20		411		-
Commercial - AQR substandard		976		976		5		1,240		-
Commercial - AQR doubtful		1,341		1,985		212		1,454		5
Commercial - AQR loss		446		446		364		474		-
Real estate construction other - AQR substandard		2,355		2,533		494		2,487		-
Real estate term non-owner occupied - AQR pass		1,864		1,864		5		1,728		93
Real estate term non-owner occupied - AQR special mention		446		446		62		447		-
Real estate term non-owner occupied - AQR substandard		479		479		-		499		-
Real estate term other - AQR special mention		170		248		-		193		-
Real estate term other - AQR substandard		162		162		-		154		9
Real estate term other - AQR doubtful		154		244		-		205		-
Consumer secured by 1st deeds of trust - AQR pass		97		97		-		49		5
Consumer other - AQR doubtful		52		52		-		53		-
	$	9,452	$	10,442	$	1,181	$	10,019	$	135



(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2011
With no related allowance recorded
Commercial - AQR pass	$	379	$	379	$	-	$	394	$	23
Commercial - AQR special mention		374		374		-		453		18
Commercial - AQR substandard		1,408		2,006		-		1,508		4
Commercial - AQR doubtful		771		771		-		815		-
Real estate construction other - AQR substandard		431		431		-		432		-
Real estate term non-owner occupied - AQR pass		1,684		1,683		-		1,525		78
Real estate term non-owner occupied - AQR special mention		370		370		-		373		-
Real estate term non-owner occupied - AQR substandard		1,102		1,102		-		1,130		-
Real estate term other - AQR substandard		163		163		-		154		12
Real estate term other - AQR doubtful		158		248		-		207		-
Consumer secured by 1st deeds of trust - AQR pass		98		98		-		49		4
Consumer other - AQR special mention		57		57		-		60		3
Consumer other - AQR substandard		92		92		-		95		4
Consumer other - AQR doubtful		52		52		-		53		-
	$	7,139	$	7,826	$	-	$	7,248	$	146



With an allowance recorded
Commercial - AQR special mention	$	258	$	258	$	20	$	258	$	-
Commercial - AQR substandard		587		587		44		761		-
Commercial - AQR doubtful		229		229		218		236		-
Commercial - AQR loss		772		772		428		793		-
Real estate construction other - AQR substandard		1,568		1,613		50		1,573		-
Real estate term non-owner occupied - AQR pass		223		223		25		224		-
Consumer other - AQR substandard		91		91		5		91		4
	$	3,728	$	3,773	$	790	$	3,936	$	4



Total
Commercial - AQR pass	$	379	$	379	$	-	$	394	$	23
Commercial - AQR special mention		632		632		20		711		18
Commercial - AQR substandard		1,995		2,593		44		2,269		4
Commercial - AQR doubtful		1,000		1,000		218		1,051		-
Commercial - AQR loss		772		772		428		793		-
Real estate construction other - AQR substandard		1,999		2,044		50		2,005		-
Real estate term non-owner occupied - AQR pass		1,907		1,906		25		1,749		78
Real estate term non-owner occupied - AQR special mention		370		370		-		373		-
Real estate term non-owner occupied - AQR substandard		1,102		1,102		-		1,130		-
Real estate term other - AQR substandard		163		163		-		154		12
Real estate term other - AQR doubtful		158		248		-		207		-
Consumer secured by 1st deeds of trust - AQR pass		98		98		-		49		4
Consumer other - AQR special mention		57		57		-		60		3
Consumer other - AQR substandard		183		183		5		186		8
Consumer other - AQR doubtful		52		52		-		53		-
	$	10,867	$	11,599	$	790	$	11,184	$	150

The unpaid principal balance included in the table above represents the recorded investment at the dates indicated, plus amounts charged off for book purposes.

Loans classified as troubled debt restructurings (“TDR”) totaled $11.6 million, $4.5 million, and $4.1 million at September 30, 2012, December 31, 2011, and September 30, 2011, respectively. A troubled debt restructuring is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession of some kind. The Company has granted a variety of concessions to borrowers in the form of loan modifications. The modifications granted can generally be described in the following categories:

Rate Modification: A modification in which the interest rate is changed.

Term Modification: A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Payment Modification: A modification in which the dollar amount of the payment is changed, or in which a loan is converted to interest only payments for a period of time is included in this category.

Combination Modification: Any other type of modification, including the use of multiple categories above.

AQR pass graded loans included above in the impaired loan data are loans classified as TDRs. By definition, TDRs are considered impaired loans except in very rare circumstances. All of the Company’s TDRs are included in impaired loans.

The following table presents newly restructured loans that occurred during the nine months ended September 30, 2012 newly restructured loans that occurred during third quarter of 2012.



		Nine Months Ended September 30, 2012
	Accrual		Nonaccrual		Total
	Status		Status		Modifications
New Troubled Debt Restructurings		(In Thousands)
Commercial - AQR pass	$	106	$	-	$	106
Commercial - AQR special mention		83		-		83
Real estate construction one-to-four family - AQR substandard		-		810		810
Real estate construction other - AQR pass		2,748		-		2,748
Real estate term non-owner occupied - AQR special mention		388		-		388
Real estate term other - AQR special mention		1,896		1,885		3,781
Real estate term other - AQR substandard		-		-		-
Subtotal	$	5,221	$	2,695	$	7,916

Existing Troubled Debt Restructurings		2,658		984		3,642
Total	$	7,879	$	3,679	$	11,558

The following table presents newly restructured loans that occurred during the nine months ended September 30, 2012 by concession (terms modified):



			September 30, 2012
	Number of	Rate		Term		Payment		Combination		Total
	Contracts	Modification		Modification		Modification		Modification		Modifications
Pre-Modification Outstanding Recorded Investment:			(In Thousands)
Commercial - AQR pass	1	$	-	$	108	$	-	$	-	$	108
Commercial - AQR special mention	1		-		86		-		-		86
Real estate construction one-to-four family - AQR substandard	1		-		1,015		-		-		1,015
Real estate construction other - AQR pass	1		-		2,827						2,827
Real estate term non-owner occupied - AQR special mention	1		-		-		-		403		403
Real estate term other - AQR special mention	1		-		-		-		1,886		1,886
Real estate term other - AQR substandard	2		-		-		2,589		-		2,589
Total	8	$	-	$	4,036	$	2,589	$	2,289	$	8,914

Post-Modification Outstanding Recorded Investment:
Commercial - AQR pass	1	$	-	$	106	$	-	$	-	$	106
Commercial - AQR special mention	1		-		83		-		-		83
Real estate construction one-to-four family - AQR substandard	1		-		810		-		-		810
Real estate construction other - AQR pass	1		-		2,748		-				2,748
Real estate term non-owner occupied - AQR special mention	1		-		-		-		388		388
Real estate term other - AQR special mention	1		-		-		-		1,896		1,896
Real estate term other - AQR substandard	2		-		-		1,885		-		1,885
Total	8	$	-	$	3,747	$	1,885	$	2,284	$	7,916

The following table presents TDRs that occurred during the last twelve months that have defaulted in 2012. These loans are past due, and they are nonaccrual loans:



		September 30, 2012		September 30, 2011
	Number	Recorded		Recorded
	of Contracts	Investment		Investment
Troubled Debt Restructurings that Subsequently Defaulted:	(In Thousands)
Commercial - AQR pass	1	$	125	$	-
Commercial - AQR substandard	1		123		-
Commercial - AQR doubtful	2		506		-
Real estate construction one-to-four family - AQR substandard	1		810		-
Real estate term non-owner occupied - AQR pass	1		864		-
Consumer secured by 1st deeds of trust - AQR pass	1		93
Total	7	$	2,521	$	-

The Company had no commitments to extend additional credit to borrowers owing receivables whose terms have been modified in troubled debt restructurings. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the Allowance. There were two charge offs totaling $280,000 in the nine months ended September 30, 2012 on loans that were later classified as TDRs in the real estate term category. Seven TDRs with a total recorded investment of $3.5 million had a specific impairment amount totaling $729,000 at September 30, 2012.

At September 30, 2012, approximately 17% of the loan portfolio was scheduled to mature over the next 12 months, and 20% was scheduled to mature between October 1, 2013 and September 30, 2017.