Note 4 - Loans Receivable

Loans receivable consist of the following:

	December 31,
	2012			2011
	(dollars in thousands)
Residential mortgage, total	$	269,405		$	295,876
Individually evaluated for impairment		46,218			51,007
Collectively evaluated for impairment		223,187			244,869

Construction, land acquisition and development, total		71,523			99,122
Individually evaluated for impairment		11,003			35,398
Collectively evaluated for impairment		60,520			63,724

Land, total		50,900			59,649
Individually evaluated for impairment		8,953			11,384
Collectively evaluated for impairment		41,947			48,265

Lines of credit, total		31,428			34,278
Individually evaluated for impairment		2,107			5,735
Collectively evaluated for impairment		29,321			28,543

Commercial real estate, total		222,038			203,010
Individually evaluated for impairment		16,433			24,354
Collectively evaluated for impairment		205,605			178,656

Commercial non-real estate, total		6,120			5,599
Individually evaluated for impairment		108			32
Collectively evaluated for impairment		6,012			5,567

Home equity, total		34,609			41,309
Individually evaluated for impairment		1,776			2,340
Collectively evaluated for impairment		32,833			38,969

Consumer, total		858			897
Individually evaluated for impairment		24			24
Collectively evaluated for impairment		834			873

Total Loans		686,881			739,740
Individually evaluated for impairment		86,622			130,274
Collectively evaluated for impairment		600,259			609,466

Less
Loans in process		(15,647	)		(18,014	)
Allowance for loan losses		(17,478	)		(25,938	)
Deferred loan origination fees and costs, net		(2,047	)		(2,485	)

	$	651,709		$	693,303

The following is a summary of the allowance for loan losses for the year ended December 31, 2012 and 2011 (dollars in thousands):

2012	Total			Residential Mortgage			Acquisition and Development			Land			Lines of Credit			Commercial Real Estate			Commercial Non-Real Estate			Home Equity			Consumer
Beginning Balance	$	25,938		$	12,303		$	3,916		$	2,405		$	725		$	4,157		$	169		$	2,257		$	6
Provision		765			396			(401	)		1,464			(456	)		(446	)		(213	)		404			17
Charge-offs		(9,353	)		(4,299	)		(1,395	)		(1,624	)		(182	)		(416	)		(20	)		(1,407	)		(10	)
Recoveries		128			18			-			-			-			-			110			-			-
Ending Balance	$	17,478		$	8,418		$	2,120		$	2,245		$	87		$	3,295		$	46		$	1,254		$	13

Loans individually evaluated for impairment	$	7,594		$	4,196		$	1,663		$	551		$	32		$	975		$	5		$	160		$	12
Loans collectively evaluated for impairment	$	9,884		$	4,222		$	457		$	1,694		$	55		$	2,320		$	41		$	1,094		$	1

2011

Beginning Balance	$	29,871		$	16,339		$	3,997		$	4,225		$	458		$	3,949		$	131		$	762		$	10
Provision		4,612			385			1,422			(766	)		267			1,019			38			1,534			713
Charge-offs		(8,545	)		(4,421	)		(1,503	)		(1,054	)		(-	)		(811	)		(-	)		(39	)		(717	)
Recoveries		-			-			-			-			-			-			-			-			-
Ending Balance	$	25,938		$	12,303		$	3,916		$	2,405		$	725		$	4,157		$	169		$	2,257		$	6
Loans individually evaluated for impairment	$	12,994		$	5,509		$	2,624		$	1,365		$	510		$	960		$	28		$	1,998		$	-
Loans collectively evaluated for impairment	$	12,944		$	6,794		$	1,292		$	1,040		$	215		$	3,197		$	141		$	259		$	6

The following is a summary of the allowance for loan losses for the year ended December 31, 2010 (dollars in thousands):

2010

Beginning Balance	$	34,693		$	19,621		$	1,492		$	5,539		$	20		$	5,506		$	82		$	2,425		$	8
Provision		5,744			3,443			2,505			1,782			438			(1,034	)		49			(1,446	)		7
Charge-offs		(10,666	)		(6,825	)		(-	)		(3,096	)		(-	)		(523	)		(-	)		(217	)		(5	)
Recoveries		100			100			-			-			-			-			-			-			-
Ending Balance	$	29,871		$	16,339		$	3,997		$	4,225		$	458		$	3,949		$	131		$	762		$	10
Loans individually evaluated for impairment	$	14,540		$	8,149		$	2,645		$	2,282		$	264		$	766		$	-		$	434		$	-
Loans collectively evaluated for impairment	$	15,331		$	8,190		$	1,352		$	1,943		$	194		$	3,183		$	131		$	328		$	10

The allowance for loan losses is based on management's judgment and evaluation of the loan portfolio. Management assesses the adequacy of the allowance for loan losses and the need for any addition thereto, by considering the nature and size of the loan portfolio, overall portfolio quality, review of specific problem loans, economic conditions that may affect the borrowers' ability to pay or the value of property securing loans, and other relevant factors. While management believes the allowance was adequate as December 31, 2012, changing economic and market conditions may require future adjustments to the allowance for loan losses.

The following table presents Bancorp's non-performing assets as of December 31, 2012 and 2011 (dollars in thousands):

	December 31, 2012			Number of loans		December 31, 2011			Number of loans

Loans accounted for on a non-accrual basis:
Residential mortgage	$	14,436			46	$	8,912			25
Acquisition and development		8,564			17		10,997			11
Land		4,688			13		6,813			14
Lines of credit		1,877			4		2,019			4
Commercial real estate		5,793			10		2,140			5
Commercial non-real estate		111			3		5			1
Home equity		2,000			9		343			3
Consumer		26			2		203			4
Total non-accrual loans	$	37,495			104	$	31,432			67
Accruing loans greater than 90 days past due		-					-
Foreclosed real-estate		11,441					19,932
Total non-performing assets	$	48,936				$	51,364
Nonaccrual troubled debt restructures (included above)	$	5,635			28	$	19,351			38
Accruing troubled debt restructurings	$	56,448			119	$	40,424			77
Total non-accrual loans to net loans		5.8	%				4.5	%
Allowance for loan losses	$	17,478				$	25,938
Allowance to total loans		2.6	%				3.6	%
Allowance for loan losses to total non-performing loans,
including loans contractually past due 90 days or more		46.6	%				82.5	%
Total non-accrual and accruing loans greater than
90 days past due to total assets		4.4	%				3.5	%
Total non-performing assets to total assets		5.7	%				5.7	%

The following tables summarize impaired loans at December 31, 2012 (dollars in thousands):

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance

Residential mortgage	$	33,300	$	4,196	$	12,918	$	46,218	$	48,239
Acquisition and development		5,204		1,663		5,799		11,003		11,614
Land		2,583		551		6,370		8,953		9,373
Lines of credit		149		32		1,958		2,107		2,119
Commercial real estate		10,304		975		6,129		16,433		16,504
Commercial non-real estate		5		5		103		108		138
Home equity		259		160		1,517		1,776		3,100
Consumer		24		12		-		24		23
Total Impaired loans	$	51,828	$	7,594	$	34,794	$	86,622	$	91,110

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance				Total Impaired Loans
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

Residential mortgage	$	33,864	$	1,415	$	13,747	$	516	$	47,611	$	1,931
Acquisition and development		5,660		211		7,224		210		12,884		421
Land		3,207		138		7,725		144		10,932		282
Lines of credit		149		7		1,961		6		2,110		13
Commercial real estate		10,450		556		6,236		305		16,686		861
Commercial non-real estate		26		-		106		-		132		-
Home equity		259		4		1,519		39		1,778		43
Consumer		23		-		-		-		23		-
Total Impaired loans	$	53,638	$	2,331	$	38,518	$	1,220	$	92,156	$	3,551

Changes in impaired loans during 2012 are as follows (dollars in thousands):

Impaired loans at December 31, 2011	$	130,274
Added to impaired loans		23,272
Gross loans transferred to foreclosed real estate		(16,515	)
Transferred out of impaired loans		(50,409	)
Impaired loans at December 31, 2012	$	86,622

The following tables summarize impaired loans at December 31, 2011 (dollars in thousands):

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance

Residential mortgage	$	26,736	$	5,509	$	24,271	$	51,007	$	50,310
Acquisition and development		18,023		2,624		17,375		35,398		34,535
Land		2,850		1,365		8,534		11,384		9,949
Lines of credit		1,548		510		4,187		5,735		5,735
Commercial real estate		4,694		960		19,660		24,354		24,354
Commercial non-real estate		28		28		4		32		32
Home equity		2,170		1,998		170		2,340		2,340
Consumer		-		-		24		24		24
Total Impaired loans	$	56,049	$	12,994	$	74,225	$	130,274	$	127,279

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance				Total Impaired Loans
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

Residential mortgage	$	26,826	$	1,080	$	25,659	$	1,201	$	52,485	$	2,281
Acquisition and development		19,968		793		19,199		696		39,167		1,489
Land		3,770		236		9,143		261		12,913		497
Lines of credit		590		87		4,187		143		4,777		230
Commercial real estate		4,723		191		19,821		1,185		24,544		1,376
Commercial non-real estate		28		-		5		-		33		-
Home equity		1,772		66		170		4		1,942		70
Consumer		-		-		23		-		23		-
Total Impaired loans	$	57,677	$	2,453	$	78,207	$	3,490	$	135,884	$	5,943

Changes in impaired loans during 2011 are as follows (dollars in thousands):

Impaired loans at December 31, 2010	$	120,910
Added to impaired loans		53,134
Gross loans transferred to foreclosed real estate		(19,820	)
Transferred out of impaired loans		(23,950	)
Impaired loans at December 31, 2011	$	130,274

Included in the above impaired loans amount at December 31, 2012 is $53,732,000 of loans that are not in non-accrual status. Also there are 11 loans totaling $4,605,000 not included in impaired loans that were non-accrual as of December 31, 2012. In addition, there was a total of $46,218,000 of residential real estate loans included in impaired loans at December 31, 2012, of which $35,660,000 were to consumers and $10,558,000 to builders. The collateral supporting impaired loans is individually reviewed by management to determine its estimated fair market value, less estimated disposal cost and a specific allowance is established, if necessary, for the difference between the carrying amount of any loan and the estimated fair value of the collateral less estimated disposal cost.

Of the impaired loans, $51,828,000 and $56,049,000 had a specific valuation allowance of $7,594,000 and $12,994,000 at December 31, 2012 and 2011, respectively. Impaired loans averaged $92,156,000 during 2012, $135,884,000 during 2011 and $126,058,000 during 2010. Interest income recognized on these loans totaled $3,551,000 during 2012, $5,943,000 during 2011 and $6,893,000 during 2010.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of December 31, 2012 and 2011 (dollars in thousands):

	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2012
Residential mortgage	$	228,200	$	15,338	$	25,818	$	49	$	269,405
Acquisition and development		41,165		7,750		22,598		10		71,523
Land		29,830		13,317		7,753		-		50,900
Lines of credit		24,059		2,270		5,099		-		31,428
Commercial real estate		197,752		10,399		13,887		-		222,038
Commercial non-real estate		5,990		-		22		108		6,120
Home equity		32,163		496		1,950		-		34,609
Consumer		835		-		-		23		858
Total loans	$	559,994	$	49,570	$	77,127	$	190	$	686,881

	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2011
Residential mortgage	$	259,359	$	8,624	$	27,689	$	204	$	295,876
Acquisition and development		62,054		6,521		30,547		-		99,122
Land		44,443		4,909		10,297		-		59,649
Lines of credit		27,067		1,708		5,503		-		34,278
Commercial real estate		180,635		10,702		11,673		-		203,010
Commercial non-real estate		5,567		-		4		28		5,599
Home equity		38,456		712		2,141		-		41,309
Consumer		874		-		23		-		897
Total loans	$	618,455	$	33,176	$	87,877	$	232	$	739,740

Interest income that would have been recorded under the original terms of non-accrual loans and the interest income actually recognized for the years ended December 31, 2012, 2011 and 2010 are summarized below (dollars in thousands):

	2012		2011		2010

Interest income that would have been recorded	$	3,148	$	2,905	$	4,905
Interest income recognized		1,184		822		2,599
Interest income not recognized	$	1,964	$	2,083	$	2,306

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2012 and 2011 (dollars in thousands):

	Current		30-59 Days Past Due		60-89 Days Past Due		Total Past Due		Non- Accrual		Total Loans
December 31, 2012
Residential mortgage	$	245,193	$	8,202	$	1,574	$	9,776	$	14,436	$	269,405
Acquisition and development		62,091		868		-		868		8,564		71,523
Land		45,961		251		-		251		4,688		50,900
Lines of credit		27,635		440		1,476		1,916		1,877		31,428
Commercial real estate		212,468		3,777		-		3,777		5,793		222,038
Commercial non-real estate		5,746		263		-		263		111		6,120
Home equity		32,301		308		-		308		2,000		34,609
Consumer		821		11		-		11		26		858
Total Impaired loans	$	632,216	$	14,120	$	3,050	$	17,170	$	37,495	$	686,881

	Current		30-59 Days Past Due		60-89 Days Past Due		Total Past Due		Non- Accrual		Total Loans
December 31, 2011
Residential mortgage	$	272,543	$	9,696	$	4,725	$	14,421	$	8,912	$	295,876
Acquisition and development		87,756		369		-		369		10,997		99,122
Land		51,094		1,517		225		1,742		6,813		59,649
Lines of credit		32,221		-		38		38		2,019		34,278
Commercial real estate		198,049		2,535		286		2,821		2,140		203,010
Commercial non-real estate		5,584		10		-		10		5		5,599
Home equity		40,021		945		-		945		343		41,309
Consumer		694		-		-		-		203		897
Total Impaired loans	$	687,962	$	15,072	$	5,274	$	20,346	$	31,432	$	739,740

Mortgage loans serviced for others not included in the accompanying consolidated statements of financial condition totaled $95,474,000 and $84,745,000 at December 31, 2012 and 2011, respectively.

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statements of financial condition. The contract amounts of these instruments express the extent of involvement the Bank has in each class of financial instruments.

The Bank's exposure to credit loss from non-performance by the other party to the above mentioned financial instruments is represented by the contractual amount of those instruments.

The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Unless otherwise noted, the Bank requires collateral or other security to support financial instruments with off-balance-sheet credit risk.

Financial Instruments Whose Contract Amounts Represent Credit Risk	Contract Amount At December 31,
	2012		2011
	(dollars in thousands)
Standby letters of credit	$	16,309	$	15,319
Home equity lines of credit		13,025		14,623
Unadvanced construction commitments		15,598		18,014
Mortgage loan commitments		13,601		1,059
Lines of credit		31,480		31,525
Loans sold with limited repurchase provisions		31,591		17,558

Standby letters of credit are conditional commitments issued by the Bank guaranteeing performance by a customer to various municipalities. These guarantees are issued primarily to support performance arrangements, limited to real estate transactions. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit as deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of December 31, 2012 and 2011 for guarantees under standby letters of credit issued is not material.

Home equity lines of credit are loan commitments to individuals as long as there is no violation of any condition established in the contract. Commitments under home equity lines expire ten years after the date the loan closes and are secured by real estate. The Bank evaluates each customer's credit worthiness on a case-by-case basis.

Unadvanced construction commitments are loan commitments made to borrowers for both residential and commercial projects that are either in process or are expected to begin construction shortly.

Mortgage loan commitments not reflected in the accompanying statements of financial condition at December 31, 2012 include $13,601,000 at a fixed interest rate range of 2.75% to 4.875% and none at floating interest rates.

Lines of credit are loan commitments to individuals and companies as long as there is no violation of any condition established in the contract. Lines of credit have a fixed expiration date. The Bank evaluates each customer's credit worthiness on a case-by-case basis.

The Bank has entered into several agreements to sell mortgage loans to third parties. The loans sold under these agreements for the years ended December 31, 2012, 2011 and 2010 were $105,674,000, $43,403,000 and $59,113,000, respectively. These agreements contain limited provisions that require the Bank to repurchase a loan if the loan becomes delinquent within the terms specified by the agreement. The credit risk involved in these financial instruments is essentially the same as that involved in extending loan facilities to customers. No amount has been recognized in the consolidated statement of financial condition at December 31, 2012 and 2011 as a liability for credit loss related to these loans. The Bank had to repurchase one loan under these agreements in 2012 and one loan in 2011.

Bancorp has not purchased, sold or reclassified any loans to held for sale during the periods discussed. Only loans originated specifically for sale are recorded as held for sale at the period ended December 31, 2012 and December 31, 2011.

Bancorp offers a variety of modifications to borrowers. The modification categories offered 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.

·	Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

·	Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification above.

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

Bancorp considers a modification of a loan term a TDR if Bancorp for economic or legal reasons related to the borrower's financial difficulties grants a concession to the debtor that it would not otherwise consider. Prior to entering into a loan modification, Bancorp assesses the borrower's financial condition to determine if the borrower has the means to meet the terms of the modification. This includes obtaining a credit report on the borrower as well as the borrower's tax returns and financial statements.

The following tables summarize troubled debt restructurings at December 31, 2012 and 2011 (dollars in thousands):

December 31, 2012	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Residential mortgage		85	$	34,257	$	31,310
Acquisition and development		7		9,523		7,183
Land		16		5,130		4,127
Lines of credit		3		362		280
Commercial real estate		14		20,032		12,842
Commercial non-real estate		-		-		-
Home equity		1		100		100
Consumer		-		-		-
Total loans		126	$	69,404	$	55,842

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings That Subsequently Defaulted:
Residential mortgage		17	$	5,095	$	4,112
Acquisition and development		1		2,090		1,550
Land		2		455		443
Lines of credit		1		140		136
Commercial real estate		-		-		-
Commercial non-real estate		-		-		-
Home equity		-		-		-
Consumer		-		-		-
Total loans		21	$	7,780	$	6,241

December 31, 2011	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Residential mortgage		68	$	30,372	$	29,815
Acquisition and development		8		11,152		10,260
Land		9		3,985		3,802
Lines of credit		2		332		332
Commercial real estate		8		8,215		8,046
Commercial non-real estate		-		-		-
Home equity		-		-		-
Consumer		-		-		-
Total loans		95	$	54,056	$	52,255

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings That Subsequently Defaulted:
Residential mortgage		14	$	4,568	$	4,542
Acquisition and development		1		2,090		2,090
Land		3		464		462
Lines of credit		1		140		140
Commercial real estate		1		288		286
Commercial non-real estate		-		-		-
Home equity		-		-		-
Consumer		-		-		-
Total loans		20	$	7,550	$	7,520

The following tables present newly restructured loans that occurred during the year ended December 31, 2012 and 2011 (dollars in thousands):

	Year ended December 31, 2012
	Rate Modification		Contracts		Term Modifications		Contracts		Combination Modifications		Contracts		Total		Total Contracts

Pre-Modification Outstanding Recorded Investment:

Residential mortgage	$	694		1	$	659		3	$	12,367		37	$	13,720		41
Acquisition and development		-		-		-		-		-		-		-		-
Land		-		-		176		1		816		4		992		5
Lines of credit		-		-		-		-		-		-		-		-
Commercial real estate		-		-		704		3		13,074		3		13,778		6
Commercial non-real estate		-		-		-		-		-		-		-		-
Home equity		-		-		-		-		-		-		-		-
Consumer		-		-		-		-		-		-		-		-
Total loans	$	694		1	$	1,539		7	$	26,257		44	$	28,490		52

Post-Modification Outstanding Recorded Investment:

Residential mortgage	$	694		1	$	657		3	$	11,388		37	$	12,739		41
Acquisition and development		-		-		-		-		-		-		-		-
Land		-		-		176		1		809		4		985		5
Lines of credit		-		-		-		-		-		-		-		-
Commercial real estate		-		-		689		3		6,530		3		7,219		6
Commercial non-real estate		-		-		-		-		-		-		-		-
Home equity		-		-		-		-		-		-		-		-
Consumer		-		-		-		-		-		-		-		-
Total loans	$	694		1	$	1,522		7	$	18,727		44	$	20,943		52

In addition, the TDR is evaluated for impairment. A determination is made as to whether an impaired TDR is cash flows or collateral dependent. If the TDR is cash flows dependent, an allowance for loan losses specific reserve is calculated based on the difference in net present value of future cash flows between the original and modified loan terms. If the TDR is collateral dependent, the collateral securing the TDR, which is always real estate, is evaluated for impairment based on either an appraisal or broker price opinion. If a TDR's collateral valuation is less than its current loan balance, the TDR is written down for accounting purposes by the amount of the difference between the current loan balance and the collateral. If the borrower performs under the terms of the modification, generally six consecutive months, and the ultimate collectability of all amounts contractually due under the modified terms is not in doubt, the loan is returned to accrual status. There are no loans that have been modified due to the financial difficulties of the borrower that are not considered a TDR.

	Year ended December 31, 2011
	Rate Modification	Contracts	Combination Modifications	Contracts	Total	Total Contracts

Pre-Modification Outstanding Recorded Investment:

Residential mortgage	$817	2	$22,282	43	$23,099	45
Acquisition and development	3,930	1	5,580	5	9,510	6
Land	552	1	1,927	6	2,479	7
Lines of credit	-	-	332	2	332	2
Commercial real estate	262	1	7,427	6	7,689	7
Commercial non-real estate	-	-	-	-	-	-
Home equity	-	-	-	-	-	-
Consumer	-	-	-	-	-	-
Total loans	$5,561	5	$37,548	62	$43,109	67

Post-Modification Outstanding Recorded Investment:

Residential mortgage	$738	2	$21,861	43	$22,599	45
Acquisition and development	3,930	1	4,914	5	8,844	6
Land	551	1	1,916	6	2,467	7
Lines of credit	-	-	332	2	332	2
Commercial real estate	262	1	7,433	6	7,695	7
Commercial non-real estate	-	-	-	-	-	-
Home equity	-	-	-	-	-	-
Consumer	-	-	-	-	-	-
Total loans	$5,481	5	$36,456	62	$41,937	67

Interest on TDRs was accounted for under the following methods as of December 31, 2012 and December 31, 2011 (dollars in thousands):

	Number of Contracts		Accrual Status		Number of Contracts		Non-Accrual Status		Total Number of Contracts		Total Modifications
December 31, 2012
Residential mortgage		88	$	33,143		14	$	2,279		102	$	35,422
Acquisition and development		4		7,075		4		1,658		8		8,733
Land		14		3,783		5		787		19		4,570
Lines of credit		3		280		1		136		4		416
Commercial real estate		10		12,167		3		675		13		12,842
Commercial non-real estate		-		-		-		-		-		-
Home equity		-		-		1		100		1		100
Consumer		-		-		-		-		-		-
Total loans		119	$	56,448		28	$	5,635		147	$	62,083
December 31, 2011
Residential mortgage		57	$	22,820		25	$	11,537		82	$	34,357
Acquisition and development		8		11,962		1		388		9		12,350
Land		6		2,333		6		1,931		12		4,264
Lines of credit		1		140		2		332		3		472
Commercial real estate		5		3,169		4		5,163		9		8,332
Commercial non-real estate		-		-		-		-		-		-
Home equity		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total loans		77	$	40,424		38	$	19,351		115	$	59,775

Management does not charge off a TDR, or a portion of a TDR, until one of the following conditions has been met:

·	The loan has been foreclosed on. Once the loan has been transferred from the loans receivable to foreclosed real estate, a charge off is recorded for the difference between the recorded amount of the loan and the net value of the underlying collateral.

An agreement to accept less than the face value of the loan has been made with the borrower. Once an agreement has been finalized, and any proceeds from the borrower are received, a charge off is recorded for the difference between the recorded amount of the loan and the net value of the underlying collateral.

Prior to either of the above conditions, a loan is assessed for impairment when a loan becomes a TDR. If, based on management's assessment of the underlying collateral of the loan, it is determined that a reserve is needed, a specific reserve is recorded. That reserve is included in the allowance for loan losses in the Consolidated Statement of Financial Condition.

Bancorp performs A note/B note workout structures as a subset of Bancorp's troubled debt restructuring strategy. The amount of loans restructured using this structure were $1,457,000 and $1,505,000 as of December 31, 2012 and December 31, 2011, respectively.

Under an A note/B note workout structure, the new A note is underwritten in accordance with customary troubled debt restructuring underwriting standards and is reasonably assured of full repayment while the B note is not. The B note is immediately charged off upon restructuring.

If the loan was on accrual status prior to the troubled debt restructuring being documented with the loan legally bifurcated into an A note fully supporting accrual status and a B note or amount contractually forgiven and charged off, the A note may remain on accrual status. If the loan was on nonaccrual status at the time the troubled debt restructuring was documented with the loan legally bifurcated into an A note fully supporting accrual status and a B note or amount contractually forgiven and fully charged off, the A note may be returned to accrual status, and risk rated accordingly, after a reasonable period of performance under the troubled debt restructuring terms. Six months of payment performance is generally required to return these loans to accrual status.

The A note will continue to be classified as a troubled debt restructuring and may only be removed from impaired status in years after the restructuring if (a) the restructuring agreement specifies an interest rate equal to or greater than the rate that Bancorp was willing to accept at the time of the restructuring for a new loan with a comparable risk and (b) the loan is not impaired based on the terms specified by the restructuring agreement.