NOTE 5. Troubled Debt Restructurings

All loans deemed a troubled debt restructuring, or "TDR", are considered impaired, and are evaluated for collateral and cash-flow sufficiency. A loan is considered a TDR when the Company, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. All of the following factors are indicators that the Bank has granted a concession (one or multiple items may be present):

The borrower receives a reduction of the stated interest rate to a rate less than the institution is willing to accept at the time of the restructure for a new loan with comparable risk.
The borrower receives an extension of the maturity date or dates at a stated interest rate lower than the current market interest rate for new debt with similar risk characteristics.
The borrower receives a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.
The borrower receives a deferral of required payments (principal and/or interest).
The borrower receives a reduction of the accrued interest.

There were twenty-five troubled debt restructured loans at December 31, 2011 amounting to $10,706,000. There were thirty-one troubled debt restructured loans at December 31, 2010 amounting to $8,469,000. There were no outstanding commitments to lend additional amounts to troubled debt restructured borrowers at December 31, 2011.

The following table set forth information on the Company's troubled debt restructurings by class of financing receivable occurring during the year ended December 31, 2011.


	For the Year Ended December 31, 2011
	(in thousands)
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded		Impairment
	Contracts		Investment		Investment		Accrued

Commercial Real Estate:
Non-owner occupied	2	$	1,092	$	1,092	$	-

Construction and Farmland:
Commercial	1		1,530		1,530		713

Residential
Single family	8		3,657		3,389		393

Total	11	$	6,279	$	6,011	$	1,106

During the year ended December 31, 2011, the Company restructured eleven loans by granting concessions to borrowers experiencing financial difficulties. For each of the two commercial real estate loans above, two commercial real estate loans were combined into the one restructured commercial real estate loan. On one of the two loans, monthly payments were converted from principal and interest to interest only. The other loan remained on principal and interest payments, but the original loans were re-amortized. The residential construction loan was modified by granting a reduction in the required monthly payment. During the year ended December 31, 2011, eight single family residential loans were modified. Four of the loans were modified by granting interest rate reductions, another two had payment requirements modified from principal and interest to interest only, while the two remaining loans were modified by granting a reduction in the required monthly payment.

Loans by class of financing receivable modified as TDRs within the previous 12 months and for which there was a payment default during the year ended December 31, 2011 were:


	Year Ended December 31, 2011
	(in thousands)
	Number of		Recorded
	Contracts		Investment

Commercial Real Estate:
Owner occupied	2	$	613
Non-owner occupied	1		898
Construction and Farmland:
Commercial	1		99
Residential:
Single family	5		1,596

Total	9	$	3,206

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