personnel with expertise in commercial real estate develop- ments. If additional expertise is needed, an independent review appraiser is hired to assist in the evaluation of the appraisal. The Bancorp is not aware of any significant time lapses during this process. Periodically, the Bancorp’s management may make adjustments to the external appraisal assumptions if additional known quantifiable data becomes available that materially impacts the value of a project. Examples of adjustments that may occur are changes in property tax assumptions or changes in capitalization rates. The Bancorp’s management relies on up-to-date external appraisals to determine the current value of its commercial real estate participation loans. These values are appropriately adjusted to reflect changes in market value and, when neces- sary, are the basis for establishing the appropriate allowance for loan losses. If an updated external appraisal for a commercial real estate participation loan is received after  the balance sheet date, but before the annual or quarterly financial statements are issued, material changes in appraised values are “pushed back” in the yet to be issued financial statements in order that appropriate loan loss provision is recorded for the current reporting period. The Bancorp’s management consistently records loan charge-offs based  on the fair value or income approach of the collateral as presented in the current external appraisal. Non-performing loans include those loans that are  90 days or more past due and those loans that have been placed on non-accrual status. Non-performing loans totaled $24.1 million at December 31, 2010, compared to $18.6 million at December 31, 2009, an increase of $5.5 million  or 29.9%. The current level of non-performing loans is concentrated with five commercial real estate participation loans in the aggregate of $14.5 million. As previously reported, one commercial real estate participation loan is  a condominium construction project in Orlando, Florida, with a current balance of $1.5 million, which is classified as substandard. The carrying value of this loan is based on the current fair value of the project’s collateral, less estimated selling costs. The second commercial real estate participation loan is an end loan for a hotel located in Dundee, Michigan, with a current balance of $1.2 million, which is classified as substandard. The carrying value of this loan is based on the current fair value of the hotel, less estimated selling costs. The third commercial real estate participation loan is an end loan for a hotel located in Fort Worth, Texas, with a balance of $5.0 million, which is classified as substandard. The carrying value of this loan is based on the current fair value of the hotel, less estimated selling costs. The fourth commer- cial real estate participation loan was placed on non-accrual status during the third quarter of 2010. This loan is a hotel construction project located in Clearwater, Florida, with a balance of $4.4 million, which is classified as substandard. The carrying value of this loan is based on the current fair value of the project, less estimated selling costs. The fifth commercial real estate participation loan was placed on non- accrual status during the third quarter of 2010. This loan is  a land development project located in Crown Point, Indiana, with a balance of $2.4 million, which is classified as substan- dard. The carrying value of this loan is based on the current fair value of the project, less estimated selling costs. For these commercial real estate participation loans, to the extent that actual cash flows, collateral values and strength of personal guarantees differ from current estimates, additional provi- sions to the allowance for loan losses may be required. The ratio of non-performing loans to total loans was 5.77% at December 31, 2010, compared to 4.05% at December 31, 2009. The increase is primarily attributable  to the previously mentioned five commercial real estate participation loans. The ratio of non-performing loans to total assets was 3.82% at December 31, 2010, compared to 2.81% at December 31, 2009. The December 31, 2010, non-performing loan balances include $24.0 million in loans accounted for on a non-accrual basis and $148 thousand in accruing loans, which were contractually past due 90 days or more. Loans, internally classified as substandard, totaled $32.7 million at December 31, 2010, compared to $22.7 million at December 31, 2009. The current level of  substandard loans includes the previously mentioned five non-accruing commercial real estate participation loans and one accruing commercial real estate hotel loan in the amount of $5.0 million. During October 2010, a $4.9 million accruing commercial real estate participation hotel loan that was classified as substandard and non-accrual received signif- icant collateral enhancements. Additional liquid collateral was received in the amount of $1.4 million along with $2.0 million in payment reserves. As a result of sustained perfor- mance for principal and interest payments and the enhanced collateral position, management moved this loan from substandard to watch and accrual status during the fourth quarter of 2010. Substandard loans include non-performing loans and potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms. No loans were internally classified as doubtful or loss at December 31, 2010 or December 31, 2009. In addition to identifying and  monitoring non-performing and other classified loans, management maintains a list of watch loans. Watch loans represent loans management is closely monitoring due to one or more factors that may cause the loan to become classified. Watch loans totaled $24.3 million at December 31, 2010, compared to $26.7 million at December 31, 2009. A loan is considered impaired when, based on current information and events, it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement. At December 31, 2010, impaired loans totaled $26.0 million, compared to $17.0 million at December 31, 2009. The December 31, 2010, impaired loan balances consist of twenty-five commercial real estate and commercial business loans that are secured by business assets and real estate, and are personally guaranteed by the owners of the businesses. The December 31, 2010 ALL contained $2.8 million in specific allowances for  collateral deficiencies, compared to $1.2 million in specific allowances at December 31, 2009. The increase in specific allowances is a result of the continued downward pressure  on market valuations that are based on projected cash flows. During the fourth quarter of 2010, one additional commer- cial real estate loan totaling $585 thousand was newly classified as impaired. Management’s current estimate  13