NOTE 4. Loans and Allowance

The Corporation’s primary lending focus is small business and middle market commercial, residential real estate, auto and small consumer lending, which results in portfolio diversification. The following tables show the composition in the loan portfolio, loan grades and the allowance for loan losses excluding loans held for sale. Residential real estate loans held for sale at September 30, 2012, and December 31, 2011, were $27,711,000 and $17,864,000, respectively.

Effective February 10, 2012, the Bank assumed $113.0 million in loans as part of the Purchase and Assumption Agreement discussed in NOTE 2. PURCHASE AND ASSUMPTION included in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q. This loan portfolio was acquired at a fair value discount of $19.2 million.

The following table shows the composition of the Corporation’s loan portfolio by loan class for the periods indicated:

	September 30,			December 31,
	2012			2011
Loans:
Commercial and industrial loans	$	592,517		$	532,523
Agricultural production financing and other loans to farmers		107,166			104,526
Real estate loans:
Construction		93,610			81,780
Commercial and farm land		1,241,054			1,194,230
Residential		475,272			481,493
Home Equity		204,888			191,631
Individual's loans for household and other personal expenditures		77,171			84,172
Lease financing receivables, net of unearned income		2,970			3,555
Other loans		41,676			39,505
		2,836,324			2,713,415
Allowance for loan losses		(69,493	)		(70,898	)
Total Loans	$	2,766,831		$	2,642,517

The Corporation maintains an allowance for loan losses to cover probable credit losses identified during its loan review process. The allowance is increased by the provision for loan losses and decreased by charge offs less recoveries. All charge offs are approved by the Bank’s senior loan officers or loan committees, depending on the amount of the charge off. The Bank charges off loans when a determination is made that all or a portion of a loan is uncollectible. The allowance for loan losses is maintained through the provision for loan losses, which is a charge against earnings.

The amount provided for loan losses in a given period may be greater than or less than net loan losses, and is based on management’s judgment as to the appropriate level of the allowance for loan losses. The determination of the provision amount in a given period is based on management’s continuing review and evaluation of the loan portfolio, including an internally administered loan "watch" list and an independent loan review. The evaluation takes into consideration identified credit problems, the possibility of losses inherent in the loan portfolio that are not specifically identified and management’s judgment as to the impact of current economic conditions on the portfolio.

Management believes that the allowance for loan losses is adequate to cover probable incurred losses inherent in the loan portfolio at September 30, 2012. The process for determining the adequacy of the allowance for loan losses is critical to the Corporation’s financial results. It requires management to make difficult, subjective and complex judgments, to estimate the effect of uncertain matters. The allowance for loan losses considers current factors, including economic conditions and ongoing internal and external examination processes, and will increase or decrease as deemed necessary to ensure the allowance for loan losses remains adequate. In addition, the allowance as a percentage of charge offs and nonperforming loans will change at different points in time based on credit performance, loan mix and collateral values.

The historical loss allocation for loans not deemed impaired according to ASC 310 is the product of the volume of loans within the non-impaired criticized and non-criticized risk grade classifications, each segmented by call code, and the historical loss factor for each respective classification and call code segment. The historical loss factors are based upon actual loss experience within each risk and call code classification. The historical look back period for non-criticized loans looks to the most recent rolling-four-quarter average and aligns with the look back period for non-impaired criticized loans. Each of the rolling four quarter periods used to obtain the average, include all charge offs for the previous twelve-month period, therefore the historical look back period includes seven quarters. The resulting allocation is reflective of current conditions. Criticized loans are grouped based on the risk grade assigned to the loan. Loans with a special mention grade are assigned a loss factor, and loans with a classified grade but not impaired are assigned a separate loss factor. The loss factor computation for this allocation includes a segmented historical loss migration analysis of criticized risk grades to charge off.

In addition to the specific reserves and historical loss components of the allowance, consideration is given to various environmental factors to help ensure that losses inherent in the portfolio are reflected in the allowance for loan losses. The environmental component adjusts the historical loss allocations for commercial and consumer loans to reflect relevant current conditions that, in management’s opinion, have an impact on loss recognition. Environmental factors that management reviews in the analysis include: national and local economic trends and conditions; trends in growth in the loan portfolio and growth in higher risk areas; levels of, and trends in, delinquencies and non-accruals; experience and depth of lending management and staff; adequacy of, and adherence to, lending policies and procedures including those for underwriting; industry concentrations of credit; and adequacy of risk identification systems and controls through the internal loan review and internal audit processes.

The risk characteristics of the Corporation’s material portfolio segments are as follows:

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate

These 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 on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Residential and Consumer

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

The following tables summarize changes in the allowance for loan losses by loan segment for the three and nine months ended September 30, 2012, and September 30, 2011:

	Three Months Ended September 30, 2012
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases	Total
Allowance for loan losses:
Balances, July 1	$	17,791		$	35,133		$	2,431		$	14,788			$	70,143
Provision for losses		5,431			(879	)		147			(90	)			4,609
Recoveries on loans		526			1,598			219			174				2,517
Loans charged off		(1,424	)		(4,439	)		(168	)		(1,745	)			(7,776	)
Balances, September 30, 2012	$	22,324		$	31,413		$	2,629		$	13,127			$	69,493

	Nine Months Ended September 30, 2012
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	17,731		$	37,919		$	2,902		$	12,343		$	3		$	70,898
Provision for losses		10,333			149			(14	)		3,565			(4	)		14,029
Recoveries on loans		1,193			3,462			595			968			1			6,219
Loans charged off		(6,933	)		(10,117	)		(854	)		(3,749	)					(21,653	)
Balances, September 30, 2012	$	22,324		$	31,413		$	2,629		$	13,127					$	69,493

	Three Months Ended September 30, 2011
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, April 1	$	23,715		$	38,668		$	2,859		$	11,877		$	14		$	77,133
Provision for losses		(903	)		3,042			281			3,142			(6	)		5,556
Recoveries on loans		1,176			378			163			237			1			1,955
Loans charged off		(4,344	)		(5,003	)		(266	)		(1,957	)					(11,570	)
Balances, September 30, 2011	$	19,644		$	37,085		$	3,037		$	13,299		$	9		$	73,074

	Nine Months Ended September 30, 2011
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	32,508		$	36,341		$	3,622		$	10,408		$	98		$	82,977
Provision for losses		(14,778	)		24,232			(187	)		7,601			(93	)		16,775
Recoveries on loans		8,174			1,244			781			934			4			11,137
Loans charged off		(6,260	)		(24,732	)		(1,179	)		(5,644	)					(37,815	)
Balances, September 30, 2011	$	19,644		$	37,085		$	3,037		$	13,299		$	9		$	73,074

The following table shows the Corporation’s allowance for credit losses and loan portfolio by loan segment for the periods indicated:

	September 30, 2012
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	1,775	$	4,157			$	319			$	6,251
Collectively evaluated for impairment		20,549		27,256	$	2,629		12,808				63,242
Total Allowance for Loan Losses	$	22,324	$	31,413	$	2,629	$	13,127			$	69,493

Loan Balances:
Individually evaluated for impairment	$	16,286	$	54,773			$	8,906			$	79,965
Collectively evaluated for impairment		725,073		1,279,891	$	77,171		671,254	$	2,970		2,756,359
Total Loans	$	741,359	$	1,334,664	$	77,171	$	680,160	$	2,970	$	2,836,324

	December 31, 2011
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	4,701	$	2,504			$	733			$	7,938
Collectively evaluated for impairment		13,030		35,415	$	2,902		11,610	$	3		62,960
Total Allowance for Loan Losses	$	17,731	$	37,919	$	2,902	$	12,343	$	3	$	70,898

Loan Balances:
Individually evaluated for impairment	$	18,793	$	51,980			$	12,546			$	83,319
Collectively evaluated for impairment		657,760		1,224,031	$	84,172		660,578	$	3,555		2,630,096
Total Loans	$	676,553	$	1,276,011	$	84,172	$	673,124	$	3,555	$	2,713,415

Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. Interest previously recorded, but not deemed collectible, is reversed and charged against current income. Payments subsequently received on nonaccrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance. Payments received on impaired accruing or delinquent loans are applied to interest income as accrued.

The following table summarizes the Corporation’s non-accrual loans by loan class for the periods indicated:

	September 30,		December 31,
	2012		2011
Commercial and Industrial	$	12,507	$	12,246
Real Estate Loans:
Construction		5,440		8,990
Commercial and farm land		24,501		31,093
Residential		12,444		14,805
Home Equity		1,761		1,896
Individuals loans for household and other personal expenditures		3		1
Lease financing receivables, net of unearned income		337
Other Loans		6		561
Total	$	56,999	$	69,592

Commercial impaired loans include all non-accrual loans, loans accounted for under SOP-03-3 and renegotiated loans, as well as substandard, doubtful and loss grade loans that were still accruing but deemed impaired according to guidance set forth in ASC 310. Also included in impaired loans are accruing loans that are contractually past due 90 days or more. A loan is deemed impaired when, based on current information or events, it is probable that all amounts due of principal and interest according to the contractual terms of the loan agreement will not be collected.

Impaired loans are measured by the present value of expected future cash flows or the fair value of the collateral of the loans, if collateral dependent. The fair value for impaired loans is measured based on the value of the collateral securing those loans and is determined using several methods. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral, such as business assets, is typically valued by using financial information such as financial statements and aging reports provided by the borrower and is discounted as considered appropriate.

The following table shows the composition of the Corporation’s commercial impaired loans by loan class as of September 30, 2012:

							Three Months Ended				Nine Months Ended
	September 30, 2012						September 30, 2012				September 30, 2012
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial	$	27,363	$	10,743			$	9,994	$	26	$	11,615	$	68
Agriculture production financing
and other loans to farmers		300		300				300				300
Real Estate Loans:
Construction		10,743		6,378				6,658		17		7,665		47
Commercial and farm land		52,953		35,606				31,081		250		33,459		706
Residential		9,307		6,716				6,936		20		7,342		54
Home equity		3,901		711				713		3		727		10
Other loans		87		16				17				18		1
Total	$	104,654	$	60,470			$	55,699	$	316	$	61,126	$	886

Impaired loans with related allowance:
Commercial and industrial	$	5,570	$	5,227	$	1,775	$	5,244	$	11	$	5,307	$	32
Real Estate Loans:
Construction		725		480		51		510				541
Commercial and farm land		13,021		12,309		4,106		12,326		32		12,371		95
Residential		1,578		1,479		319		1,485		19		1,485		56
Total	$	20,894	$	19,495	$	6,251	$	19,565	$	62	$	19,704	$	183
Total Impaired Loans	$	125,548	$	79,965	$	6,251	$	75,264	$	378	$	80,830	$	1,069

The following table shows the composition of the Corporation’s commercial impaired loans by loan class as of December 31, 2011:

	December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial	$	23,364	$	10,116			$	13,399	$	615
Real Estate Loans:
Construction		14,301		7,701				8,836
Commercial and farm land		49,242		34,571				39,032		591
Residential		7,491		6,185				6,539		20
Home equity		4,425		1,241				1,500		15
Other loans		99		21				24
Total	$	98,922	$	59,835			$	69,330	$	1,241

Impaired loans with related allowance:
Commercial and industrial	$	8,691	$	8,104	$	4,142	$	8,196	$	174
Real Estate Loans:
Construction		961		961		321		961
Commercial and farm land		12,115		8,748		2,183		10,028		140
Residential		1,888		1,575		391		1,687		7
Other loans		579		552		559		590
Total	$	24,234	$	19,940	$	7,596	$	21,462	$	321
Total Impaired Loans	$	123,156	$	79,775	$	7,596	$	90,792	$	1,562

As part of the ongoing monitoring of the credit quality of the Corporation’s loan portfolio, management tracks certain credit quality indicators including trends related to: (i) the level of criticized commercial loans, (ii) net charge offs, (iii) non-performing loans and (iv) the general national and local economic conditions.

The Corporation utilizes a risk grading of pass, special mention, substandard, doubtful and loss to assess the overall credit quality of large commercial loans. All large commercial credit grades are reviewed at a minimum of once a year for pass grade loans. Loans with grades below pass are reviewed more frequently depending on the grade. A description of the general characteristics of these grades is as follows:

●	Pass – Loans that are considered to be of acceptable credit quality.

●

Special Mention – Loans which possess some credit deficiency or potential weakness, which deserves close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification. The key distinctions of this category’s classification are that it is indicative of an unwarranted level of risk; and weaknesses are considered “potential”, not “defined”, impairments to the primary source of repayment. Examples include businesses that may be suffering from inadequate management, loss of key personnel or significant customer or litigation.

●

Substandard – A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Other characteristics may include:

o	the likelihood that a loan will be paid from the primary source of repayment is uncertain or financial deterioration is underway and very close attention is warranted to ensure that the loan is collected without loss,

o	the primary source of repayment is gone, and the Corporation is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees,

o	loans have a distinct possibility that the Corporation will sustain some loss if deficiencies are not corrected,

o	unusual courses of action are needed to maintain a high probability of repayment,

o	the borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments,

o	the Corporation is forced into a subordinated or unsecured position due to flaws in documentation,

o	loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms,

o	the Corporation is seriously contemplating foreclosure or legal action due to the apparent deterioration of the loan, and

o	there is significant deterioration in market conditions to which the borrower is highly vulnerable.

●

Doubtful – Loans that have all of the weaknesses of those classified as Substandard. However, based on currently existing facts, conditions and values, these weaknesses make full collection of principal highly questionable and improbable. Other credit characteristics may include the primary source of repayment is gone or there is considerable doubt as to the quality of the secondary sources of repayment. The possibility of loss is high, but because of certain important pending factors that may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

●

Loss – Loans that are considered uncollectible and of such little value that continuing to carry them as an asset is not warranted. Loans will be classified as Loss when it is neither practical not desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The following table summarizes the credit quality of the Corporation’s loan portfolio, by loan class for the periods indicated. Consumer Non-Performing loans include accruing consumer loans 90 plus days delinquent and consumer non-accrual loans. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified date.

	September 30, 2012
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Consumer Performing		Consumer Non-Performing		Total Loans
Commercial and industrial	$	524,180	$	25,143	$	36,564	$	6,630					$	592,517
Agriculture production financing and other loans		106,775		230		161								107,166
Real Estate Loans:
Construction		78,655		1,639		13,140					$	176		93,610
Commercial and farm land		1,105,407		48,344		86,500		475				328		1,241,054
Residential		142,394		4,909		14,709		1,360	$	304,255		7,645		475,272
Home equity		11,036		1,344		1,021				189,938		1,549		204,888
Individuals loans for household and other personal expenditures										77,168		3		77,171
Lease financing receivables, net of unearned income										2,633		337		2,970
Other loans		41,640				36								41,676
Total	$	2,010,087	$	81,609	$	152,131	$	8,465	$	573,994	$	10,038	$	2,836,324

	December 31, 2011
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Consumer Performing		Consumer Non Performing		Total Loans
Commercial and industrial	$	478,885	$	22,405	$	28,025	$	3,208					$	532,523
Agriculture production financing and other loans		101,289		1,582		1,655								104,526
Real Estate Loans:
Construction		47,611		3,672		22,376			$	7,762	$	359		81,780
Commercial and farm land		1,033,397		54,697		103,330		1,724		1,035		47		1,194,230
Residential		139,237		9,175		16,699		500		308,306		7,576		481,493
Home equity		15,912		499		3,317				170,776		1,127		191,631
Individuals loans for household and other personal expenditures										84,121		51		84,172
Lease financing receivables, net of unearned income										3,555				3,555
Other loans		38,917		15		21		552						39,505
Total	$	1,855,248	$	92,045	$	175,423	$	5,984	$	575,555	$	9,160	$	2,713,415

The following table shows a past due aging of the Corporation’s loan portfolio, by loan class for September 30, 2012, and December 31, 2011:

	September 30, 2012
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total Loans
Commercial and industrial	$	574,730	$	4,800	$	434	$	46	$	12,507	$	17,787	$	592,517
Agriculture production financing and other loans		106,782		74		10		300				384		107,166
Real Estate Loans:
Construction		87,829		341						5,440		5,781		93,610
Commercial and farm land		1,209,194		6,931		65		363		24,501		31,860		1,241,054
Residential		453,234		5,835		2,788		971		12,444		22,038		475,272
Home equity		200,402		1,532		899		294		1,761		4,486		204,888
Individuals loans for household and other personal expenditures		76,053		720		395				3		1,118		77,171
Lease financing receivables, net of unearned income		2,633								337		337		2,970
Other loans		41,670								6		6		41,676
Total	$	2,752,527	$	20,233	$	4,591	$	1,974	$	56,999	$	83,797	$	2,836,324

	December 31, 2011
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total Loans
Commercial and industrial	$	518,764	$	1,332	$	135	$	46	$	12,246	$	13,759	$	532,523
Agriculture production financing and other loans		104,464		62								62		104,526
Real Estate Loans:
Construction		69,305		328		3,126		31		8,990		12,475		81,780
Commercial and farm land		1,140,897		16,457		5,783				31,093		53,333		1,194,230
Residential		458,925		5,485		2,087		191		14,805		22,568		481,493
Home equity		187,788		1,096		590		261		1,896		3,843		191,631
Individuals loans for household and other personal expenditures		82,837		1,075		208		51		1		1,335		84,172
Lease financing receivables, net of unearned income		3,555												3,555
Other loans		38,944								561		561		39,505
Total	$	2,605,479	$	25,835	$	11,929	$	580	$	69,592	$	107,936	$	2,713,415

See the information regarding the analysis of loan loss experience in the Loan Quality/Provision for Loan Losses section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included as ITEM 2 of this Form 10-Q.

Given recent economic conditions, borrowers of all types have experienced declines in income and cash flow. As a result, borrowers are occasionally seeking to reduce contractual cash outlays including debt payments. Concurrently, in an effort to preserve and protect its earning assets, specifically troubled loans, the Corporation is working to maintain its relationship with certain customers who are experiencing financial difficulty by contractually modifying the borrower’s debt agreement with the Corporation. In certain loan restructuring situations, the Corporation may grant a concession to a debtor experiencing financial difficulty, resulting in a trouble debt restructuring. A concession is deemed to be granted when, as a result of the restructuring, the Corporation does not expect to collect all amounts due, including interest accrued at the original contract rate. If the payment of principal at original maturity is primarily dependent on the value of collateral, the current value of the collateral is considered in determining whether the principal will be paid.

The following tables summarize troubled debt restructurings that occurred during the periods indicated:

	Three Months Ended						Nine Months Ended
	September 30, 2012						September 30, 2012

	Pre-Modification		Post-Modification		Number		Pre-Modification		Post-Modification		Number
	Recorded Balance		Recorded Balance		of Loans		Recorded Balance		Recorded Balance		of Loans
Commercial and industrial	$	875	$	1,048		3	$	1,155	$	1,327		6
Real Estate Loans:
Construction		303		303		1		794		653		2
Commercial and farm land		875		875		2		2,967		2,828		7
Residential		239		241		4		2,196		2,063		19
Individuals loans for household and other personal expenditures		90		117		4		90		117		4
Total	$	2,382	$	2,584		14	$	7,202	$	6,988		38

	Three Months Ended						Nine Months Ended
	September 30, 2011						September 30, 2011

	Pre-Modification		Post-Modification		Number		Pre-Modification		Post-Modification		Number
	Recorded Balance		Recorded Balance		of Loans		Recorded Balance		Recorded Balance		of Loans
Commercial and Industrial	$	535	$	552		5	$	1,636	$	1,651		10
Real Estate Loans:
Construction		40		41		1		175		184		3
Commercial and farm land		379		379		1		4,357		4,346		6
Residential		1,034		1,407		10		2,690		3,115		30
Home Equity								82		87		8
Total	$	1,988	$	2,379		17	$	8,940	$	9,383		57

The following table shows the recorded investment, as of September 30, 2012, of troubled debt restructurings that occurred during the periods indicated:

	Three Months Ended
	September 30, 2012
	Term	Rate				Total
	Modification	Modification		Combination		Modification
Commercial and industrial				$	1,048	$	1,048
Real Estate Loans:
Construction					299		299
Commercial and farm land		$	680		195		875
Residential					167		167
Individuals loans for household and other personal expenditures			7		109		116
Total		$	687	$	1,818	$	2,505

	Nine Months Ended
	September 30, 2012
	Term		Rate				Total
	Modification		Modification		Combination		Modification
Commercial and industrial	$	230			$	1,072	$	1,302
Real Estate Loans:
Construction						639		639
Commercial and farm land		1,693	$	680		385		2,758
Residential		528		252		1,100		1,880
Individuals loans for household and other personal expenditures				7		109		116
Total	$	2,451	$	939	$	3,305	$	6,695

Residential real estate loans account for 29 percent and 48 percent of the troubled debt restructured loans made in the three and nine months ended September 30, 2012, respectively. Three and eleven troubled debt restructured loans made during the three and nine months ended September 30, 2012, respectively, are in non accrual status.

The following tables summarize troubled debt restructures that occurred during the twelve months ended September 30, 2012, and September 30, 2011, that subsequently defaulted during the period indicated:

	Three Months Ended				Nine Months Ended
	September 30, 2012				September 30, 2012

	Number of Loans		Recorded Balance		Number of Loans		Recorded Balance
Commercial and Industrial		3	$	1,415		3	$	1,415
Real Estate Loans:
Commercial and farm land		1		23		1		23
Residential		7		371		11		2,494
Total		11	$	1,809		15	$	3,932

	Three Months Ended				Nine Months Ended
	September 30, 2011				September 30, 2011

	Number of Loans		Recorded Balance		Number of Loans		Recorded Balance
Commercial and Industrial		1	$	66		2	$	553
Real Estate Loans:
Commercial and farm land						1
Residential		3		271		3		657
Home Equity		1		11		1		11
Total		5	$	348		7	$	1,221

For potential consumer loan restructures, impairment evaluation occurs prior to modification. Any subsequent impairment is typically addressed through the charge off process, or may be addressed through a specific reserve. Consumer troubled debt restructurings are generally included in the general historical allowance for loan loss at the post modification balance. Consumer non-accrual and delinquent troubled debt restructurings are also considered in the calculation of the non-accrual and delinquency trend environmental allowance allocation. Commercial troubled debt restructured loans risk graded special mention, substandard, doubtful and loss are individually evaluated for impairment under ASC 310. Any resulting specific reserves are included in the allowance for loan losses. Commercial 30 – 89 day delinquent troubled debt restructurings are included in the calculation of the delinquency trend environmental allowance allocation. All commercial non-impaired loans, including non-accrual and 90+ day delinquents, are included in the ASC 450 loss migration analysis.