ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

9 Months Ended

Sep. 30, 2012

Allowance For Loan Losses and Credit Quality [Abstract]

ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

NOTE 4. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

The following table presents the activity in the allowance for loan losses by portfolio segment for the three-month and nine-month periods ended September 30, 2012, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2012:

				Commercial
				Real Estate									Consumer
	Commercial			and Multifamily			Agri-business			Other			1-4 Family			Other
	and Industrial			Residential			and Agricultural			Commercial			Mortgage			Consumer			Unallocated			Total
Three Months Ended September 30, 2012		(in thousands)
Balance July 1,	$	19,696		$	24,083		$	1,419		$	176		$	2,412		$	523		$	3,508		$	51,817
Provision for loan losses		1,532			(1,236	)		(76	)		(207	)		356			114			(483	)		0
Loans charged-off		(98	)		(112	)		0			0			(196	)		(77	)		0			(483	)
Recoveries		224			120			1			182			21			30			0			578
Net loans charged-off		126			8			1			182			(175	)		(47	)		0			95
Balance September 30,	$	21,354		$	22,855		$	1,344		$	151		$	2,593		$	590		$	3,025		$	51,912
Nine Months Ended September 30, 2012
Balance January 1,	$	22,830		$	23,489		$	695		$	65		$	2,322		$	645		$	3,354		$	53,400
Provision for loan losses		380			158			648			(100	)		417			125			(329	)		1,299
Loans charged-off		(2,552	)		(959	)		0			0			(288	)		(268	)		0			(4,067	)
Recoveries		696			167			1			186			142			88			0			1,280
Net loans charged-off		(1,856	)		(792	)		1			186			(146	)		(180	)		0			(2,787	)
Balance September 30,	$	21,354		$	22,855		$	1,344		$	151		$	2,593		$	590		$	3,025		$	51,912
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6,571		$	8,869		$	67		$	0		$	459		$	18		$	0		$	15,984
Collectively evaluated for impairment		14,783			13,986			1,277			151			2,134			572			3,025			35,928
Total ending allowance balance	$	21,354		$	22,855		$	1,344		$	151		$	2,593		$	590		$	3,025		$	51,912
Loans:
Loans individually evaluated for impairment	$	20,319		$	37,924		$	820		$	0		$	2,194		$	46		$	0		$	61,303
Loans collectively evaluated for impairment		808,700			746,439			213,350			44,974			284,027			44,595			0			2,142,085
Total ending loans balance	$	829,019		$	784,363		$	214,170		$	44,974		$	286,221		$	44,641		$	0		$	2,203,388

The recorded investment in loans does not include accrued interest.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three-month and nine-month periods ended September 30, 2011:

				Commercial
				Real Estate									Consumer
	Commercial			and Multifamily			Agri-business			Other			1-4 Family			Other
	and Industrial			Residential			and Agricultural			Commercial			Mortgage			Consumer			Unallocated			Total
	(in thousands)
Three Months Ended September 30, 2011
Balance July 1,	$	22,999		$	20,032		$	948		$	560		$	2,658		$	605		$	3,458		$	51,260
Provision for loan losses		1,171			2,134			(194	)		(536	)		(272	)		294			(197	)		2,400
Loans charged-off		(883	)		(557	)		(103	)		0			(292	)		(264	)		0			(2,099	)
Recoveries		465			10			0			0			5			32			0			512
Net loans charged-off		(418	)		(547	)		(103	)		0			(287	)		(232	)		0			(1,587	)
Balance September 30,	$	23,752		$	21,619		$	651		$	24		$	2,099		$	667		$	3,261		$	52,073
Nine Months Ended September 30, 2011
Balance January 1,	$	21,479		$	15,893		$	1,318		$	270		$	1,694		$	682		$	3,671		$	45,007
Provision for loan losses		3,048			7,362			(564	)		(246	)		1,390			320			(410	)		10,900
Loans charged-off		(1,470	)		(1,973	)		(103	)		0			(1,009	)		(493	)		0			(5,048	)
Recoveries		695			337			0			0			24			158			0			1,214
Net loans charged-off		(775	)		(1,636	)		(103	)		0			(985	)		(335	)		0			(3,834	)
Balance September 30,	$	23,752		$	21,619		$	651		$	24		$	2,099		$	667		$	3,261		$	52,073

The recorded investment in loans does not include accrued interest.

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2011 and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011:

				Commercial
				Real Estate									Consumer
	Commercial			and Multifamily			Agri-business			Other			1-4 Family			Other
	and Industrial			Residential			and Agricultural			Commercial			Mortgage			Consumer			Unallocated			Total
	(in thousands)
Balance January 1	$	21,479		$	15,893		$	1,318		$	270		$	1,694		$	682		$	3,671		$	45,007
Provision for loan losses		3,112			9,748			(520	)		(205	)		1,632			350			(317	)		13,800
Loans charged-off		(2,587	)		(2,514	)		(103	)		0			(1,050	)		(575	)		0			(6,829	)
Recoveries		826			362			0			0			46			188			0			1,422
Net loans charged-off		(1,761	)		(2,152	)		(103	)		0			(1,004	)		(387	)		0			(5,407	)
Balance December 31	$	22,830		$	23,489		$	695		$	65		$	2,322		$	645		$	3,354		$	53,400
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	9,443		$	8,382		$	213		$	-		$	288		$	0		$	0		$	18,326
Collectively evaluated for impairment		13,387			15,107			482			65			2,034			645			3,354			35,074
Total ending allowance balance	$	22,830		$	23,489		$	695		$	65		$	2,322		$	645		$	3,354		$	53,400
Loans:
Loans individually evaluated for impairment	$	24,204		$	35,794		$	853		$	0		$	2,665		$	0		$	0		$	63,516
Loans collectively evaluated for impairment		727,160			815,883			237,150			58,249			285,791			45,960			0			2,170,193
Total ending loans balance	$	751,364		$	851,677		$	238,003		$	58,249		$	288,456		$	45,960		$	0		$	2,233,709

The recorded investment in loans does not include accrued interest.

The allowance for loan losses to total loans at September 30, 2012 and 2011 was 2.36% and 2.39%, respectively. The allowance for loan losses to total loans at December 31, 2011 was 2.39%.

The following table presents loans individually evaluated for impairment as of and for the three-month and nine-month periods ended September 30, 2012 and 2011:

							Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
											Cash Basis						Cash Basis
	Unpaid				Allowance for		Average		Interest		Interest		Average		Interest		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Income		Recorded		Income		Income
	Balance		Investment		Allocated		Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial and industrial loans:
Non-working capital loans	$	70	$	70	$	0	$	70	$	0	$	0	$	136	$	0	$	0
Commercial real estate and multi-family residential loans:
Owner occupied loans		781		601		0		611		0		0		513		0		0
Nonowner occupied loans		385		385		0		385		10		13		217		10		13
Agri-business and agricultural loans:
Loans secured by farmland		666		487		0		489		0		0		252		0		0
Loans for ag production		0		0		0		0		0		0		68		0		0
Consumer 1-4 family loans:
Closed end first mortgage loans		277		276		0		417		1		0		432		1		0
Open end and junior lien loans		0		0		0		0		0		0		20		0		0
Other consumer loans		1		1		0		0		0		0		0		0		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		5,915		3,074		1,417		3,059		13		10		4,420		42		38
Non-working capital loans		19,357		17,175		5,154		17,072		171		168		17,353		528		528
Commercial real estate and multi-family residential loans:
Construction and land development loans		3,786		3,396		672		2,436		18		13		1,814		35		30
Owner occupied loans		6,900		6,287		1,527		5,702		30		19		4,859		48		35
Nonowner occupied loans		27,957		27,255		6,670		27,382		78		77		28,115		280		281
Agri-business and agricultural loans:
Loans secured by farmland		654		333		67		343		0		0		437		0		0
Loans for agricultural production		0		0		0		63		0		0		91		0		0
Other commercial loans		0		0		0		0		0		0		0		0		0
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans		1,562		1,564		267		1,730		12		10		1,787		32		32
Open end and junior lien loans		354		354		192		353		0		0		340		0		0
Other consumer loans		45		45		18		30		1		1		14		1		1
Total	$	68,710	$	61,303	$	15,984	$	60,142	$	334	$	311	$	60,868	$	977	$	958

The recorded investment in loans does not include accrued interest.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2011:

											Cash Basis
	Unpaid				Allowance for		Average		Interest		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Income
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial and industrial loans:
Non-working capital loans	$	116	$	116	$	0	$	30	$	0	$	0
Commercial real estate and multi-family residential loans:
Nonowner occupied loans		0		0		0		425		0		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		7,831		5,969		3,206		5,649		23		25
Non-working capital loans		20,867		18,119		6,237		17,202		616		625
Commercial real estate and multi-family residential loans:
Construction and land development loans		816		429		125		1,319		0		0
Owner occupied loans		5,874		5,082		1,566		3,082		41		45
Nonowner occupied loans		30,769		30,283		6,691		24,108		246		252
Multifamily loans		0		0		0		0		0		0
Agri-business and agricultural loans:
Loans secured by farmland		1,126		628		195		610		0		0
Loans for agricultural production		225		225		18		410		0		0
Other commercial loans		0		0		0		129		0		0
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans		2,461		2,256		285		1,872		44		48
Open end and junior lien loans		409		409		3		118		0		0
Residential construction loans		0		0		0		0		0		0
Other consumer loans		0		0		0		0		0		0
Total	$	70,494	$	63,516	$	18,326	$	54,954	$	970	$	995

The recorded investment in loans does not include accrued interest.

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2012 and December 31, 2011:

	September 30, 2012				December 31, 2011
			Loans Past Due				Loans Past Due
			Over 90 Days				Over 90 Days
			Still				Still
	Nonaccrual		Accruing		Nonaccrual		Accruing
Commercial and industrial loans:
Working capital lines of credit loans	$	2,012	$	0	$	4,743	$	0
Non-working capital loans		5,349		0		5,433		0
Commercial real estate and multi-family residential loans:
Construction and land development loans		1,890		0		429		0
Owner occupied loans		2,876		0		4,371		0
Nonowner occupied loans		19,575		0		21,971		0
Multifamily loans		0		0		0		0
Agri-business and agricultural loans:
Loans secured by farmland		820		0		628		0
Loans for agricultural production		0		0		225		0
Other commercial loans		0		0		0		0
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans		459		107		1,193		52
Open end and junior lien loans		424		2		452		0
Residential construction loans		0		0		0		0
Other consumer loans		54		0		7		0
Total	$	33,459	$	109	$	39,452	$	52

The recorded investment in loans does not include accrued interest.

The following table presents the aging of the recorded investment in past due loans as of September 30, 2012 by class of loans:

	30-89		Greater than
	Days		90 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Total
Commercial and industrial loans:
Working capital lines of credit loans	$	332	$	2,012	$	2,344	$	443,804	$	446,148
Non-working capital loans		246		5,349		5,595		377,276		382,871
Commercial real estate and multi-family residential loans:
Construction and land development loans		0		1,890		1,890		85,856		87,746
Owner occupied loans		860		2,876		3,736		359,747		363,483
Nonowner occupied loans		0		19,575		19,575		288,125		307,700
Multifamily loans		0		0		0		25,434		25,434
Agri-business and agricultural loans:
Loans secured by farmland		0		820		820		118,717		119,537
Loans for agricultural production		0		0		0		94,633		94,633
Other commercial loans		0		0		0		44,974		44,974
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans		2,123		566		2,689		103,210		105,899
Open end and junior lien loans		197		426		623		168,424		169,047
Residential construction loans		44		0		44		11,231		11,275
Other consumer loans		235		54		289		44,352		44,641
Total	$	4,037	$	33,568	$	37,605	$	2,165,783	$	2,203,388

The recorded investment in loans does not include accrued interest.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

	30-89		Greater than
	Days		90 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Total
					(in thousands)
Commercial and industrial loans:
Working capital lines of credit loans	$	1,051	$	4,743	$	5,794	$	368,098	$	373,892
Non-working capital loans		21		5,433		5,454		372,018		377,472
Commercial real estate and multi-family residential loans:
Construction and land development loans		0		429		429		81,650		82,079
Owner occupied loans		104		4,371		4,475		342,068		346,543
Nonowner occupied loans		0		21,971		21,971		362,710		384,681
Multifamily loans		0		0		0		38,374		38,374
Agri-business and agricultural loans:
Loans secured by farmland		0		628		628		117,619		118,247
Loans for agricultural production		0		225		225		119,531		119,756
Other commercial loans		0		0		0		58,249		58,249
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans		2,569		1,245		3,814		102,970		106,784
Open end and junior lien loans		254		452		706		175,517		176,223
Residential construction loans		34		0		34		5,415		5,449
Other consumer loans		192		7		199		45,761		45,960
Total	$	4,225	$	39,504	$	43,729	$	2,189,980	$	2,233,709

The recorded investment in loans does not include accrued interest.

Troubled Debt Restructurings:

Troubled debt restructured loans are included in the totals for impaired loans. The Company has allocated $14.7 million and $15.7 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2012 and December 31, 2011. The Company is not committed to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring.

	September 30,		December 31,
	2012		2011
Accruing troubled debt restructured loans	$	26,106	$	22,177
Nonaccrual troubled debt restructured loans		28,979		34,273
Total troubled debt restructured loans	$	55,085	$	56,450

During the three and nine months ending September 30, 2012 certain loans were modified as troubled debt restructurings. The modified terms of these loans include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a reduction in the interest rate on a loan to one that would not be readily available in the marketplace for borrowers with a similar risk profile; a modification of the repayment terms which delays principal repayment for some period; or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal.

There were renewal terms on several loans offered to borrowers under financial distress which did not require additional compensation or consideration and would not have been readily available in the marketplace for loans bearing similar risk profiles. In this instance, it was determined that a concession had been granted. It is difficult to quantify the concession granted due to an absence in market terms to be used for comparison. The renewals during the first three months were to one borrower engaged in construction and land development, where the aggregate recorded investment totaled $1.6 million. The renewal during the three months ended June 30, 2012, was a non-working capital term loan with a recorded investment of $1.1 million. During the three months ended September 30, 2012, the Bank renegotiated terms on a loan where the collateral securing the original note was sold for an amount that did not satisfy the balance. The Bank agreed to release its collateral interest to facilitate the sale, and renegotiated another consumer loan with a recorded investment of $17,000 for the remaining balance of the loan. The terms offered in the renegotiated unsecured loan were an exception to bank policy, therefore it was determined that a concession had been granted. These loans are included in the table of all modifications below.

Renegotiated interest rates include loans with a reduction in rate for a short-term (part of the remaining life of the loan) or long-term (life of loan). There were modifications to borrowers at rates that were readily available in the market, but to borrowers who would not have qualified for the terms offered in the modification without a concession being granted. Also included are borrowers who received interest rate concessions that were below market rates.

Delays in principal repayment include loans which were intended to be amortizing during the period, but due to financial hardship the borrowers under these loans were unable to meet the original or intended repayment terms. These include loans with principal deferrals for a prolonged period or those with modified payments which are an exception to bank policy.

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine month and three month periods ending September 30, 2012:

	Modifications
	Nine Months Ended September 30, 2012
	All Modifications
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Loans		Investment		Investment
Troubled Debt Restructurings
Commercial and industrial loans:
Non-working capital loans		1	$	942	$	1,060
Commercial real estate and multi-family residential loans:
Construction and land development loans		5		1,638		1,638
Owner occupied loans		2		2,260		2,260
Nonowner occupied loans		1		385		385
Consumer 1-4 family loans:
Closed end first mortgage loans		1		39		39
Other consumer loans		1		17		17
Total		11	$	5,281	$	5,399

	Interest Rate Reductions						Modified Repayment Terms
			Interest at		Interest at				Extension
	Number of		Pre-Modification		Post-Modification		Number of		Period or
	Loans		Rate		Rate		Loans		Range
									(in months)
Troubled Debt Restructurings
Commercial and industrial loans:
Non-working capital loans		0	$	0	$	0		0		0
Commercial real estate and multi-family residential loans:
Owner occupied loans		1		440		117		1		18
Nonowner occupied loans		0		0		0		1		14
Consumer 1-4 family loans:
Closed end first mortgage loans		1		76		15		0		0
Other consumer loans		0		0		0		0		0
Total		2	$	516	$	132		2		14-18

	Modifications
	Three Months Ended September 30, 2012
	All Modifications
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Loans		Investment		Investment
Troubled Debt Restructurings
Commercial real estate and multi-family residential loans:
Owner occupied loans		1	$	1,411	$	1,411
Other consumer loans		1		17		17
Total		2	$	1,428	$	1,428

	Modified Repayment Terms
			Extension
	Number of		Period or
	Loans		Range
			(in months)
Troubled Debt Restructurings
Commercial real estate and multi-family residential loans:
Owner occupied loans		1		18
Other consumer loans		0		0
Total		1		18

For the three month period ending September 30, 2012 the commercial and industrial loan troubled debt restructurings described above decreased the allowance for loan losses by $15,000, the commercial real estate and multi-family residential loan troubled debt restructuring described above increased the allowance for loan losses by $11,000, the consumer 1-4 family loan troubled debt restructurings described above decreased the allowance for loan losses by $1,000 and the other consumer loan troubled debt restructuring described above increased the allowance for loan losses by $4,000.

For the nine month period ending September 30, 2012 the commercial and industrial loan troubled debt restructurings described above decreased the allowance for loan losses by $534,000, the commercial real estate and multi-family residential loan troubled debt restructurings described above decreased the allowance for loan losses by $18,000, the consumer 1-4 family loan troubled debt restructurings described above increased the allowance for loan losses by $5,000 and other consumer loan trouble debt restructuring described above increased the allowance for loan losses by $4,000.

No charge offs resulted from any troubled debt restructurings described above during the three and nine month periods ending September 30, 2012.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification which occurred during the three month and nine month periods ending September 30, 2012:

	Modifications
	Three months ended September 30, 2012				Nine months ended September 30, 2012
	Number of		Recorded		Number of		Recorded
	Loans		Investment		Loans		Investment
Troubled Debt Restructurings that Subsequently Defaulted
Consumer 1-4 family loans:
Closed end first mortgage loans		0	$	0		1	$	65
Total		0	$	0		1	$	65

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $17,000 and did not result in any charge offs during the three and nine month periods ending September 30, 2012.

During the year ending December 31, 2011, the terms of certain loans were modified as troubled debt restructurings. The modified terms of these loans included one or a combination of the following: a reduction of the stated interest rate of the loan below market rates; principal and interest forgiveness; a modification of repayment terms that delays principal repayment for some period; or inadequate compensation for the terms of the restructure. Clarifications in the accounting guidance for troubled debt restructurings that became effective in the third quarter of 2011 resulted in $15.6 million being added to total troubled debt restructured loans in 2011. Of the $15.6 million added, $15.3 million was included in nonperforming and impaired loans at December 31, 2010.

Loans with renegotiated interest rates include reductions in rate for a short-term (part of the remaining life of the loan) or long-term (life of loan). Included are modifications to borrowers at a rate that is readily available in the market, but for borrowers who would not have otherwise qualified for the terms offered in the modification without a concession being granted. Also included are borrowers who received interest rate concessions that are below market rates.

Delays in principal repayment include loans that were intended to be amortizing during the period, but, due to financial hardship, these borrowers were unable to meet the original or intended repayment terms. These include loans with principal deferrals for a prolonged period or those with modified payments, which are an exception to bank policy.

Inadequate compensation for the terms of the restructure were identified in some loans where terms offered would not have been readily available in the marketplace for loans bearing similar risk profiles, including loans that were renewed under terms similar to original terms. In some instances it was determined that a concession had been granted; however, it is difficult to quantify these concessions due to an absence in market terms to be used for comparison. These loans included two non-working capital loans with a recorded investment of $636,000, one non-owner occupied loan with a recorded investment of $642,000 and one loan secured by farmland with a recorded investment of $413,000. These loans are included in the table of all modifications below.

The following tables present loans by class modified as troubled debt restructurings that occurred during the period ending December 31, 2011:

	All Modifications Classified as Troubled Debt Restructurings
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Loans		Investment		Investment
Troubled Debt Restructurings
Commercial and industrial loans:
Working capital lines of credit loans		3	$	639	$	639
Non-working capital loans		6		6,187		6,261
Commercial real estate and multi-family residential loans:
Construction and land development loans
Owner occupied loans		8		6,648		6,651
Nonowner occupied loans		8		23,767		23,767
Agri-business and agricultural loans:
Loans secured by farmland		2		683		683
Consumer 1-4 family loans:
Closed end first mortgage loans		6		942		849
Total		33	$	38,866	$	38,850

	Interest Rate Reductions						Principal and Interest Forgiveness										Modified Repayment Terms
			Interest at		Interest at				Principal at		Principal at		Interest at		Interest at				Extension
	Number of		Pre-Modification		Post-Modification		Number of		Pre-Modification		Post-Modification		Pre-Modification		Post-Modification		Number of		Period or
	Loans		Rate		Rate		Loans		Rate		Rate		Rate		Rate		Loans		Range
									(in thousands)										(in months)
Troubled Debt Restructurings
Commercial and industrial loans:
Working capital lines of credit loans		0	$	0	$	0		0	$	0	$	0	$	0	$	0		3		11-60
Non-working capital loans		0		0		0		0		0		0		0		0		4		12-36
Commercial real estate and
multi-family residential loans:
Owner occupied loans		0		0		0		1		2,125		2,125		641		429		7		20-70
Nonowner occupied loans		0		0		0		0		0		0		0		0		7		6-36
Agri-business and agricultural loans:
Loans secured by farmland		0		0		0		0		0		0		0		0		1		22
Consumer 1-4 family loans:
Closed end first mortgage loans		5		402		324		1		550		450		66		57		0		0
Total		5	$	402	$	324		2	$	2,675	$	2,575	$	707	$	486		22		6-70

All of the commercial and industrial loan troubled debt restructurings described above also had inadequate compensation of additional collateral as part of the restructuring.

For the period ending December 31, 2011, the commercial and industrial loan troubled debt restructurings described above decreased the allowance for loan losses by $112,000, the commercial real estate and multi-family residential loan troubled debt restructurings described above increased the allowance for loan losses by $3.2 million, the agri-business and agricultural loan troubled debt restructurings described above decreased the allowance for loan losses by $11,000 and the consumer 1-4 family loan troubled debt restructurings described above increased the allowance for loan losses by $76,000. The five commercial and industrial loans and one agri-business and agricultural loan that decreased the provision during 2011 had modifications during the first five months of the year and had improved their positions during the remainder of the year warranting the decrease in allocation.

The commercial real estate and multi-family residential loan troubled debt restructurings described above also resulted in charge offs of $667,000 during the period ending December 31, 2011. No charge offs resulted from any other troubled debt restructurings described above during the period ending December 31, 2011.

Credit Quality Indicators:

The Company 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. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis for Special Mention, Substandard and Doubtful grade loans and annually on Pass grade loans over $250,000.

The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans with the exception of consumer troubled debt restructurings which are evaluated and listed with Substandard commercial grade loans. Loans listed as Not Rated are consumer loans included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status. As of September 30, 2012 and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

				Special						Not
	Pass			Mention		Substandard		Doubtful		Rated
			(in thousands)
Commercial and industrial loans:
Working capital lines of credit loans	$	420,757		$	12,274	$	13,117	$	0	$	0
Non-working capital loans		342,447			7,664		31,484		0		1,276
Commercial real estate and multi-family residential loans:
Construction and land development loans		71,130			5,520		11,096		0		0
Owner occupied loans		334,835			7,161		21,437		0		50
Nonowner occupied loans		271,419			9,827		26,454		0		0
Multifamily loans		24,235			1,199		0		0		0
Agri-business and agricultural loans:
Loans secured by farmland		118,012			70		1,436		0		19
Loans for agricultural production		94,633			0		0		0		0
Other commercial loans		44,856			0		118		0		0
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans		21,380			329		423		0		83,767
Open end and junior lien loans		11,494			300		0		0		157,253
Residential construction loans		0			0		0		0		11,275
Other consumer loans		8,282			356		497		0		35,506
Total	$	1,763,480		$	44,700	$	106,062	$	0	$	289,146

The recorded investment in loans does not include accrued interest.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans with the exception of consumer troubled debt restructurings which are evaluated and listed with Substandard commercial grade loans. Loans listed as Not Rated are consumer loans included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status. As of December 31, 2011 and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
			(in thousands)
Commercial and industrial loans:
Working capital lines of credit loans	$	352,055	$	5,625	$	16,212	$	0	$	0
Non-working capital loans		331,881		7,437		36,751		0		1,403
Commercial real estate and multi-family residential loans:
Construction and land development loans		64,808		3,296		13,976		0		0
Owner occupied loans		318,191		5,913		22,400		0		38
Nonowner occupied loans		337,090		8,875		38,716		0		0
Multifamily loans		37,127		1,247		0		0		0
Agri-business and agricultural loans:
Loans secured by farmland		116,742		70		1,415		0		20
Loans for agricultural production		119,531		0		225		0		0
Other commercial loans		58,061		66		120		0		2
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans		17,307		53		974		0		88,450
Open end and junior lien loans		11,569		319		0		0		164,335
Residential construction loans		0		0		0		0		5,449
Other consumer loans		7,416		375		497		0		37,672
Total	$	1,771,778	$	33,276	$	131,286	$	0	$	297,369

The recorded investment in loans does not include accrued interest.