NOTE 6. 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-four (24) troubled debt restructured loans totaling $8.4 million at September 30, 2012. At December 31, 2011, there were twenty-five (25) troubled debt restructured loans totaling $10.7 million. There were no outstanding commitments to lend additional amounts to troubled debt restructured borrowers at September 30, 2012.

The following tables set forth information on the Company's troubled debt restructurings by class of financing receivable occurring during the stated periods:


			Three Months Ended September 30, 2012							Three Months Ended September 30, 2011
			(in thousands)							(in thousands)
			Pre-Modification Post-Modification							Pre-Modification Post-Modification
			Outstanding		Outstanding					Outstanding		Outstanding
	Number of		Recorded		Recorded	Impairment		Number of		Recorded		Recorded	Impairment
	Contracts		Investment		Investment	Accrued		Contracts		Investment		Investment	Accrued


Construction and Farmland:
Commercial	1	$	95	$	95	$	-	-	$	-	$	-	$	-
Residential:
Single family	-		-		-		-	1		72		74		19

Total	1	$	95	$	95	$	-	1	$	72	$	74	$	19


			Nine Months Ended September 30, 2012							Nine Months Ended September 30, 2011
			(in thousands)							(in thousands)
			Pre-Modification Post-Modification							Pre-Modification Post-Modification
			Outstanding		Outstanding					Outstanding		Outstanding
	Number of		Recorded		Recorded		Impairment	Number of		Recorded		Recorded		Impairment
	Contracts		Investment		Investment		Accrued	Contracts		Investment		Investment		Accrued

Commercial Real Estate:
Owner occupied	1	$	162	$	162	$	-	-	$	-	$	-	$	-
Non-owner occupied	-		-		-		-	1		890		890		-
Construction and Farmland:
Residential	-		-		-		-	1		1,530		1,530		-
Commercial	1		95		95		-	-		-		-		-
Residential:
Single family	1		91		91		-	6		2,713		2,767		-

Total	3	$	348	$	348	$	-	8	$	5,133	$	5,187	$	-

During the three months ended September 30, 2012, the Company restructured one loan by granting concessions to a borrower experiencing financial difficulties. One construction and farmland loan was modified by changing the amortization period to reduce the payment amount. During the nine months ended September 30, 2012, the Company restructured three loans by granting concessions to borrowers experiencing financial difficulties. One residential loan was modified by granting an interest rate reduction. In addition, one owner occupied commercial real estate loan and one construction and farmland loan were modified by changing the amortization period to reduce the payment amount.

During the three months ended September 30, 2011, the Company restructured one loan by granting concessions to a borrower experiencing financial difficulties. A residential loan was modified by granting an interest rate reduction. During the nine months ended September 30, 2011, the Company restructured eight loans by granting concessions to borrowers experiencing financial difficulties. Two commercial real estate loans were combined into the one restructured commercial real estate loan reflected in the table above. Monthly payments on this loan were converted from principal and interest to interest only. The residential construction loan was modified by granting a reduction in the required monthly payment. Six single family residential loans were modified during the nine months ended September 30, 2011. Three 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 remaining loan was 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 stated periods were:


				Three Months Ended
	September 30, 2012				September 30, 2011
				(in thousands)
	Number of			Recorded	Number of		Recorded
	Contracts			Investment	Contracts		Investment


Commercial Real Estate:		1	$	93	-	$		-
Non-owner occupied
Residential:
Single family		3		512	3			983

Total		4	$	605	3	$		983


				Nine Months Ended
	September 30, 2012				September 30, 2011
				(in thousands)
	Number of			Recorded	Number of		Recorded
	Contracts			Investment	Contracts		Investment


Commercial Real Estate:
Owner occupied		-	$	-	2	$	613
Non-owner occupied		1		93	-		-
Residential:
Single family		4		870	5		1,904

Total		5	$	963	7	$	2,517

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