Loans

Loans, net of unearned discount and net deferred origination fees and costs were as follows:



In thousands	September 30, 2011		December 31, 2010
Commercial	$	31,456	$	38,225
Real estate	186,350		206,072
Installment	751		718
Total loans	218,557		245,015
Less: Unearned income	53		60
Loans	$	218,504	$	244,955

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. For non-homogeneous loans, such as commercial and commercial real estate loans, the Corporation analyzes the loans individually by classifying the loans as to credit risk and assesses the probability of collection for each type of class. The Corporation uses the following definitions for risk ratings:

Pass - Pass assets are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

Special Mention - A special mention asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard - A substandard asset 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 we will sustain some loss if the deficiencies are not corrected.

Doubtful - An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.

Loss - An asset or portion thereof, classified loss is considered uncollectible and of such little value that its continuance on the institution's books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is significant doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.

The risk category of loans by class of loans is as follows:



September 30, 2011			Special Mention
In thousands	Pass				Substandard		Doubtful		Loss		Total
Commercial loans	$	28,226	$	1,263	$	1,899	$	68	$	—	$	31,456
Real estate loans
Church	33,102		4,578		20,643		—		—		58,323
Construction - other than third-party originated	2,975		—		7,392		—		—		10,367
Construction - third-party originated	—		—		7,660		1,945		—		9,605
Multifamily	10,760		542		1,133		273				12,708
Other	45,854		4,427		20,184		959		—		71,424
Residential	21,069		—		2,854		—		—		23,923
Installment	726		25		—		—		—		751
	$	142,712	$	10,835	$	61,765	$	3,245	$	—	$	218,557



December 31, 2010			Special Mention
In thousands	Pass				Substandard		Doubtful		Loss		Total
Commercial loans	$	35,776	$	916	$	1,384	$	149	$	—	$	38,225
Real estate loans
Church	38,785		8,893		15,106		—		—		62,784
Construction - other than third-party originated	1,879		598		10,593		579		—		13,649
Construction - third-party originated	—		—		9,514		4,017		—		13,531
Multifamily	11,742		1,578		1,240		273				14,833
Other	46,544		5,064		20,973		1,202		—		73,783
Residential	24,286		—		2,714		492		—		27,492
Installment	696		16		1		5		—		718
	$	159,708	$	17,065	$	61,525	$	6,717	$	—	$	245,015

The following tables present the aging of the recorded investment in past due loans.



September 30, 2011			30-60 Days		60-90 Days		More than 90 Days		Total Past Due
In thousands	0-30 Days										Current		Total
Commercial loans	$	1,458	$	3,151	$	743	$	3,935	$	9,287	$	22,169	$	31,456
Real estate loans
Church	3,274		7,596		6,592		5,511		22,973		35,350		58,323
Construction - other than third-party originated	—		454		—		5,754		6,208		4,159		10,367
Construction - third-party originated	—		612		780		8,213		9,605		—		9,605
Multifamily	—		650		68		1,406		2,124		10,584		12,708
Other	2,581		2,188		1,259		9,674		15,702		55,722		71,424
Residential	223		712		128		2,344		3,407		20,516		23,923
Installment	4		5		1		—		10		741		751
	$	7,540	$	15,368	$	9,571	$	36,837	$	69,316	$	149,241	$	218,557



December 31, 2010			30-60 Days		60-90 Days		More than 90 Days		Total Past Due
In thousands	0-30 Days										Current		Total
Commercial loans	$	3,251	$	1,336	$	1,449	$	2,308	$	8,344	$	29,881	$	38,225
Real estate loans
Church	339		13,096		7,630		4,909		25,974		36,810		62,784
Construction - other than third-party originated	4,025		—		—		8,057		12,082		1,567		13,649
Construction - third-party originated	454		1,531		530		9,253		11,768		1,763		13,531
Multifamily			2,608		1,248		273		4,129		10,704		14,833
Other	2,837		2,109		4,861		6,375		16,182		57,601		73,783
Residential	564		809		118		2,333		3,824		23,668		27,492
Installment	31		17				6		54		664		718
	$	11,501	$	21,506	$	15,836	$	33,514	$	82,357	$	162,658	$	245,015

The following tables present the recorded investment in impaired loans by class of loans.



September 30, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance
In thousands
Commercial loans	$	351	$	360	$	—
Real estate loans
Church	9,290		8,788		582
Construction - other than third-party originated	5,663		7,055		464
Construction - third-party originated	9,605		13,331		346
Multifamily	1,308		1,951		—
Other	11,819		11,575		323
Residential	2,179		2,078		1
Installment	—		—		—
	$	40,215	$	45,138	$	1,716



December 31, 2010	Recorded Investment		Unpaid Principal Balance		Related Allowance
In thousands
Commercial loans	$	10	$	10	$	—
Real estate loans
Church	5,460		5,624		—
Construction - other than third-party originated	6,689		7,067		242
Construction - third-party originated	13,078		16,315		1,123
Multifamily	273		824
Other	7,024		7,798		102
Residential	2,227		2,394		35
Installment	—		—		—
	$	34,761	$	40,032	$	1,502

Nonperforming loans include loans which are contractually past due 90 days or more for which interest income is still being accrued, and nonaccrual loans. Nonperforming loans were as follows:



In thousands	September 30, 2011		December 31, 2010
Nonaccrual loans	$	39,585	$	35,916
Loans with interest or principal 90 days or more past due and still accruing	3,313		2,343
Total nonperforming loans	$	42,898	$	38,259

Nonperforming assets are generally secured by residential and small commercial real estate properties, except for church loans, which are generally secured by the church buildings.

At September 30, 2011, there were no commitments to lend additional funds to borrowers for loans that were on nonaccrual or contractually past due in excess of 90 days and still accruing interest, or to borrowers whose loans have been restructured. A majority of the Bank's loan portfolio is concentrated in the New York City metropolitan area and is secured by commercial properties. The borrowers' abilities to repay their obligations are dependent upon various factors including the borrowers' income, net worth, cash flows generated by the underlying collateral, the value of the underlying collateral and priority of the Bank's lien on the related property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Bank's control. Accordingly, the Bank may be subject to risk of credit losses.

Impaired loans totaled $40.2 million at September 30, 2011, up from $34.8 million at December 31, 2010. The related allocation of the allowance for loan losses amounted to $1.7 million and $1.5 million. Charge-offs of impaired loans in the first nine months of 2011 totaled $1.9 million. $32.8 million of impaired loans have no allowance allocated to them as sufficient collateral exists. The average balance of impaired loans in the third quarter and first nine months of 2011 was $39.5 million and $37.7 million, respectively, compared to $25.4 million and $20.7 million in the similar periods of 2010. Most of the impaired loans are secured by commercial real estate properties. There was no interest income recognized on impaired loans during the first nine months of either 2011 or 2010.

We may extend, restructure or otherwise modify the terms of existing loans on a case-by-case basis to remain competitive or to assist other customers who may be experiencing financial difficulty. If a concession has been made to a borrower experiencing financial difficulty, the loan is then classified as a troubled debt restructuring ("TDR"). The majority of concessions made for TDRs involve lowering the monthly payments on the loans either through a reduction in interest rate below a market rate, an extension of the term of the loan, or a combination of the two methods. They seldom result in the forgiveness of principal or accrued interest. In addition, we attempt to obtain additional collateral or guarantees when modifying such loans. If the borrower demonstrates the ability to perform under the restructured terms, the loan will continue to accrue interest. Nonaccruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are considered collectible.

As a result of the adoption of ASU 2011-02, CNB reassessed all loan restructurings that occurred on or after January 1, 2011 for potential identification as TDRs and has concluded that the adoption of ASU 2011-02 did not materially impact the number of TDRs or the specific reserves for such loans included in our allowance for loan losses at September 30, 2011.

Troubled debt restructured loans (“TDRs”) totaled $5.4 million at September 30, 2011 and $2.9 million at December 31, 2010, with a related allowance of $342,000 and no related allowance at December 31, 2010 and included seven borrowers at September 30, 2011. TDRs to four borrowers amounting to $3.7 million were accruing. The remainder are on nonaccrual status due to delinquent payments. All TDRs are included in the balance of impaired loans. Three TDRs totaling 1.8 million defaulted on the modified terms during 2011.

The following tables present loans by loan class modified as TDRs during the three and nine months ended September 30, 2011. The pre-modification and post-modification outstanding recorded investments disclosed in the tables below, represent carrying amounts immediately prior to the modification and at September 30, 2011, respectively. There were no chargeoffs resulting from loans modified as TDRs during the three and nine months ended September 30, 2011.



	Three Months Ended September 30, 2011
Troubled Debt Restructurings	Number of Borrowers	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Churches	1	$	921	$	921
Commercial real estate	—	—		—
Construction	—	—		—
Total commercial real estate	1	921		921
Residential mortgage	—	—		—
Total	1	$	921	$	921



	Nine Months Ended September 30, 2011
Troubled Debt Restructurings	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Churches	1	$	921	$	921
Commercial real estate:
Other	1	1,492		1,492
Total commercial real estate	2	2,413		2,413
Residential mortgage	2	389		389
Total	4	$	2,802	$	2,802

TDRs totaling $1.8 million defaulted as to the modified terms during the third quarter of 2011.

The following tables present the allowance for loan losses by portfolio segment along with the related recorded investment in loans based on impairment method.




	Allowance for Loan Losses						Recorded Investments
September 30, 2011	Individually Evaluated		Collectively Evaluated		Total Allowance		Individually Evaluated		Collectively Evaluated		Total Recorded Investment
In thousands
Commercial loans	$	—	2,166		$	2,166	$	351	31,105		$	31,456
Real estate loans
Church	582		2,075		2,657		9,290		49,033		58,323
Construction - other than third-party originated	464		949		1,413		5,663		4,704		10,367
Construction - third-party originated	346		—		346		9,605		—		9,605
Multifamily	—		353		353		1,308		11,400		12,708
Commercial	323		1,934		2,257		11,819		59,605		71,424
Residential	1		959		960		2,179		21,744		23,923
Installment	—		42		42		—		751		751
Unallocated	—		409		409						—
	$	1,716	$	8,887	$	10,603	$	40,215	$	178,342	$	218,557



December 31, 2010	Individually Evaluated		Collectively Evaluated		Total Allowance
In thousands
Commercial loans	$	—	$	2,770	$	2,770
Real estate loans
Church	—		1,559		1,559
Construction - other than third-party originated	242		220		462
Construction - third-party Originated	1,123		452		1,575
Multifamily	—		633		633
Other	102		2,231		2,333
Residential	35		701		736
Installment	—		55		55
Unallocated	—		503		503
	$	1,502	$	9,124	$	10,626