5. Allowance for Loan Losses

The following table shows the allocation of the allowance for loan losses at December 31, 2011 and December 31, 2010 by portfolio segment and by impairment methodology (in thousands):

December 31, 2011	Commercial Real Estate			Agricultural Real Estate			Real Estate Construction			Residential 1st Mortgages			Home Equity			Agricultural			Commercial			Consumer & Other			Unallocated		Total

Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2011	$	7,631		$	1,539		$	2,160		$	1,164		$	3,724		$	6,733		$	9,084		$	216		$	10	$	32,261
Charge-Offs		(25	)		(384	)		-			(449	)		(751	)		(3,559	)		(788	)		(190	)		-		(6,146	)
Recoveries		-			18			-			4			13			10			21			61			-		127
Provision		(1,783	)		1,410			(227	)		532			760			4,943			416			120			604		6,775
Ending Balance- December 31, 2011	$	5,823		$	2,583		$	1,933		$	1,251		$	3,746		$	8,127		$	8,733		$	207		$	614	$	33,017
Ending Balance Individually Evaluated for Impairment		686			-			-			-			80			793			54			23			-		1,636
Ending Balance Collectively Evaluated for Impairment		5,137			2,583			1,933			1,251			3,666			7,334			8,679			184			614		31,381
Loans:
Ending Balance	$	305,704		$	280,139		$	29,607		$	107,421		$	50,956		$	217,227		$	165,089		$	6,935		$	-	$	1,163,078
Ending Balance Individually Evaluated for Impairment		4,562			954			-			1,194			576			1,337			292			23			-		8,938
Ending Balance Collectively Evaluated for Impairment		301,142			279,185			29,607			106,227			50,380			215,890			164,797			6,912			-		1,154,140

December 31, 2010	Commercial Real Estate			Agricultural Real Estate			Real Estate Construction			Residential 1st Mortgages			Home Equity			Agricultural			Commercial			Consumer & Other			Unallocated			Total

Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2010	$	12,845		$	1,099		$	4,089		$	552		$	1,349		$	2,298		$	6,449		$	325		$	807		$	29,813
Charge-Offs		(1,629	)		(559	)		(4,095	)		(759	)		(310	)		(916	)		(4,143	)		(112	)		-			(12,523	)
Recoveries		-			2			-			7			-			68			92			67			-			236
Provision		(3,585	)		997			2,166			1,364			2,685			5,283			6,686			(64	)		(797	)		14,735
Ending Balance- December 31, 2010	$	7,631		$	1,539		$	2,160		$	1,164		$	3,724		$	6,733		$	9,084		$	216		$	10		$	32,261
Ending Balance Individually Evaluated for Impairment		3,425			365			850			298			-			150			84			-			-			5,172
Ending Balance Collectively Evaluated for Impairment		4,206			1,174			1,310			866			3,724			6,583			9,000			216			10			27,089
Loans:
Ending Balance	$	316,271		$	254,575		$	37,486		$	103,574		$	58,971		$	231,150		$	165,263		$	8,712		$	-		$	1,176,002
Ending Balance Individually Evaluated for Impairment		22,107			1,797			6,193			1,824			13			750			277			-			-			32,961
Ending Balance Collectively Evaluated for Impairment		294,164			252,778			31,293			101,750			58,958			230,400			164,986			8,712			-			1,143,041

The following table shows the loan portfolio allocated by management's internal risk ratings at December 31, 2011 and December 31, 2010 (in thousands):

December 31, 2011	Pass		Special Mention		Substandard		Total Loans
Loans:
Commercial Real Estate	$	265,201	$	15,186	$	25,317	$	305,704
Agricultural Real Estate		254,181		21,657		4,301		280,139
Real Estate Construction		21,428		3,217		4,962		29,607
Residential 1st Mortgages		104,609		1,483		1,329		107,421
Home Equity		49,631		-		1,325		50,956
Agricultural		209,555		4,083		3,589		217,227
Commercial		158,273		5,240		1,576		165,089
Consumer & Other		6,528		-		407		6,935
Total	$	1,069,406	$	50,866	$	42,806	$	1,163,078

December 31, 2010	Pass		Special Mention		Substandard		Total Loans
Loans:
Commercial Real Estate	$	281,868	$	9,846	$	24,557	$	316,271
Agricultural Real Estate		237,127		14,563		2,885		254,575
Real Estate Construction		27,734		3,217		6,535		37,486
Residential 1st Mortgages		100,709		1,099		1,766		103,574
Home Equity		58,632		-		339		58,971
Agricultural		218,165		11,521		1,464		231,150
Commercial		160,045		2,965		2,253		165,263
Consumer & Other		8,498		-		214		8,712
Total	$	1,092,778	$	43,211	$	40,013	$	1,176,002

See Note 1. Significant Accounting Policies – Allowance for Loan Losses for a description of the internal risk ratings used by the Company. There were no loans outstanding at December 31, 2011 and 2010 rated doubtful or loss.

The following table shows an aging analysis of the loan portfolio by the time past due at December 31, 2011 and December 31, 2010 (in thousands):

December 31, 2011	30-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Loans:
Commercial Real Estate	$	-	$	-	$	1,354	$	1,354	$	304,350	$	305,704
Agricultural Real Estate		-		-		954		954		279,185		280,139
Real Estate Construction		-		-		-		-		29,607		29,607
Residential 1st Mortgages		108		-		284		392		107,029		107,421
Home Equity		566		-		194		760		50,196		50,956
Agricultural		284		-		1,202		1,486		215,741		217,227
Commercial		179		-		217		396		164,693		165,089
Consumer & Other		101		-		23		124		6,811		6,935
Total	$	1,238	$	-	$	4,228	$	5,466	$	1,157,612	$	1,163,078

December 31, 2010	30-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Loans:
Commercial Real Estate	$	-	$	-	$	2,348	$	2,348	$	313,923	$	316,271
Agricultural Real Estate		-		-		1,797		1,797		252,778		254,575
Real Estate Construction		-		-		-		-		37,486		37,486
Residential 1st Mortgages		797		-		954		1,751		101,823		103,574
Home Equity		526		-		-		526		58,445		58,971
Agricultural		47		-		-		47		231,103		231,150
Commercial		275		-		207		482		164,781		165,263
Consumer & Other		44		-		2		46		8,666		8,712
Total	$	1,689	$	-	$	5,308	$	6,997	$	1,169,005	$	1,176,002

Non-accrual loans at December 31, 2011 and 2010 were $4.2 million and $5.3 million, respectively. Interest income forgone on loans placed on non-accrual status was $385,000, $356,000, and $618,000 for the years ended December 31, 2011, 2010, and 2009, respectively.

The following table shows information related to impaired loans at and for the year ended December 31, 2011 and December 31, 2010 (in thousands):

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2011	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	1,555	$	1,547	$	-	$	729	$	-
Agricultural Real Estate		955		974		-		1,341		-
Real Estate Construction		-		-		-		-		-
Residential 1st Mortgages		1,219		1,272		-		936		13
Home Equity		469		484		-		290		2
Agricultural		262		372		-		149		9
Commercial		188		264		-		195		1
Consumer & Other		-		-		-		5		-
	$	4,648	$	4,913	$	-	$	3,645	$	25
With an allowance recorded:
Commercial Real Estate	$	3,017	$	3,015	$	686	$	2,281	$	89
Agricultural Real Estate		-		-		-		529		-
Real Estate Construction		-		-		-		-		-
Residential 1st Mortgages		-		-		-		-		-
Home Equity		113		119		80		117		2
Agricultural		1,076		1,791		793		1,818		25
Commercial		104		107		54		120		-
Consumer & Other		24		24		23		31		-
	$	4,334	$	5,056	$	1,636	$	4,896	$	116
Total	$	8,982	$	9,969	$	1,636	$	8,541	$	141

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2010	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	12,218	$	12,442	$	-	$	9,259	$	227
Agricultural Real Estate		975		974		-		867		-
Real Estate Construction		3,092		3,093		-		3,276		71
Residential 1st Mortgages		857		1,197		-		742		26
Home Equity		36		42		-		359		2
Agricultural		-		-		-		430		-
Commercial		140		140		-		1,124		-
Consumer & Other		-		-		-		1		-
	$	17,318	$	17,888	$	-	$	16,058	$	326
With an allowance recorded:
Commercial Real Estate	$	9,907	$	9,909	$	3,425	$	5,141	$	360
Agricultural Real Estate		826		823		365		417		27
Real Estate Construction		3,100		3,100		850		1,308		41
Residential 1st Mortgages		952		997		298		294		8
Home Equity		-		-		-		3		-
Agricultural		750		750		150		188		24
Commercial		137		136		84		34		3
Consumer & Other		-		-		-		-		-
	$	15,672	$	15,715	$	5,172	$	7,385	$	463
Total	$	32,990	$	33,603	$	5,172	$	23,443	$	789

Total recorded investment shown in the prior table will not equal the total ending balance of loans individually evaluated for impairment on the allocation of allowance table. This is because the calculation of recorded investment takes into account charge-offs, net unamortized loans fees & costs, unamortized premium or discount, and accrued interest.

At December 31, 2011, the Company allocated $759,000 of specific reserves to $4.9 million of troubled debt restructured loans, of which $4.7 million were performing. At December 31, 2010, the Company allocated $4.6 million of specific reserves to $28.2 million of troubled debt restructured loans, of which $27.7 million were performing. The Company had no commitments at December 31, 2011 and December 31, 2010 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 2 years to 8 years. Modifications involving an extension of the maturity date were for periods ranging from 3 years to 10 years.

The following table presents loans by class modified as troubled debt restructured loans for period ended December 31, 2011 (in thousands):

	December 31, 2011
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Real Estate		3	$	3,224	$	3,224
Agricultural Real Estate		-		-		-
Real Estate Construction		-		-		-
Residential 1st Mortgages		5		995		940
Home Equity Lines & Loans		7		381		362
Agricultural		1		140		140
Commercial		2		82		82
Consumer & Other		1		24		24
Total		19	$	4,846	$	4,772

The troubled debt restructurings described above increased the allowance for loan losses by $78,000 and resulted in charge-offs of $74,000 during the year ended December 31, 2011.

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 during the twelve months ended December 31, 2011 (in thousands):

	December 31, 2011
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment
Commercial Real Estate		-	$	-
Agricultural Real Estate		-		-
Real Estate Construction		-		-
Residential 1st Mortgages		-		-
Home Equity Lines & Loans		1		12
Agricultural		-		-
Commercial		-		-
Consumer & Other		-		-
Total		1	$	12

A loan is considered to be in payment default once it is greater than 90 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted did not increase the allowance for loan losses but did result in charge offs of $12,000 during the twelve month period ending December 31, 2011.