ALLOWANCE FOR CREDIT LOSSES

Changes in the allowance for credit losses were as follows:



	Years Ended December 31,
	2011			2010			2009
	(In thousands)
Balance, beginning of year	$	11,014		$	10,200		$	7,223
Provision charged to operations	1,050			3,800			10,514
Losses charged to allowance	(1,532		)	(4,122		)	(7,926		)
Recoveries	864			1,136			389
Balance, end of year	$	11,396		$	11,014		$	10,200

The following table shows the allocation of the allowance for loan losses as of and for the year ended December 31, 2011 by class of loan and by impairment methodology (in thousands):



	Commercial			Real Estate			Consumer			Unallocated			Total
Allowance for credit losses:
Beginning balance	$	2,437		$	5,836		$	2,503		$	238		$	11,014
Provision charged to operations	(177		)	1,403			(77		)	(99		)	1,050
Losses charged to allowance	(280		)	(312		)	(940		)	—			(1,532		)
Recoveries	286			228			350			—			864
Balance, end of year	$	2,266		$	7,155		$	1,836		$	139		$	11,396
Ending balance: individually evaluated for impairment	$	231		$	3,764		$	373		$	—		$	4,368
Ending balance: collectively evaluated for impairment	$	2,035		$	3,391		$	1,463		$	139		$	7,028
Loans:
Balance, end of year	$	108,047		$	259,241		$	60,871		$	—		$	428,159
Ending balance: individually evaluated for impairment	$	3,857		$	17,359		$	2,428		$	—		$	23,644
Ending balance: collectively evaluated for impairment	$	104,190		$	241,882		$	58,443		$	—		$	404,515

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



	Commercial		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses:
Balance, end of year	$	2,437	$	5,836	$	2,503	$	238	$	11,014
Ending balance: individually evaluated for impairment	$	227	$	1,477	$	420	$	—	$	2,124
Ending balance: collectively evaluated for impairment	$	2,210	$	4,359	$	2,083	$	238	$	8,890
Loans:
Balance, end of year	$	101,922	$	260,053	$	70,121	$	—	$	432,096
Ending balance: individually evaluated for impairment	$	1,475	$	13,432	$	3,654	$	—	$	18,561
Ending balance: collectively evaluated for impairment	$	100,447	$	246,621	$	66,467	$	—	$	413,535

The following table shows the loan portfolio allocated by management’s internally assigned risk grade ratings at December 31, 2011 (in thousands):



	Pass		Special Mention		Substandard		Doubtful		Total
Commercial:
Commercial and industrial	$	70,093	$	2,595	$	5,401	$	—	$	78,089
Agricultural land and production	29,958		—		—		—		29,958
Real Estate:
Owner occupied	105,308		3,125		4,750		—		113,183
Real estate construction and other land loans	15,717		4,056		13,274		—		33,047
Commercial real estate	47,323		5,035		10,165		—		62,523
Agricultural real estate	40,808		1,788		—		—		42,596
Other real estate	7,672		220		—		—		7,892
Consumer:
Equity loans and lines of credit	46,939		1,047		3,120		—		51,106
Consumer and installment	9,570		105		90		—		9,765
	$	373,388	$	17,971	$	36,800	$	—	$	428,159

The following table shows the loan portfolio allocated by management’s internally assigned risk grade ratings at December 31, 2010 (in thousands):



	Pass		Special Mention		Substandard		Doubtful		Total
Commercial:
Commercial and industrial	$	70,877	$	3,827	$	6,614	$	—	$	81,318
Agricultural land and production	19,511		—		1,093		—		20,604
Real Estate:
Owner occupied	100,278		6,336		5,274		—		111,888
Real estate construction and other land loans	10,286		6,330		15,422		—		32,038
Commercial real estate	49,294		3,118		11,215		—		63,627
Agricultural real estate	39,791		1,903		2,703		—		44,397
Other real estate	8,103		—		—		—		8,103
Consumer:
Equity loans and lines of credit	52,004		1,900		4,956		—		58,860
Consumer and installment	11,126		—		135		—		11,261
	$	361,270	$	23,414	$	47,412	$	—	$	432,096

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



	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days (nonaccrual)		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days Accruing		Non-accrual
Commercial:
Commercial and industrial	$	57	$	—	$	236	$	293	$	77,796	$	78,089	$	—	$	267
Agricultural land and production	—		—		—		—		29,958		29,958		—		—
Real estate:
Owner occupied	—		—		122		122		113,061		113,183		—		1,372
Real estate construction and other land loans	1,532		—		—		1,532		31,515		33,047		—		6,823
Commercial real estate	—		—		3,544		3,544		58,979		62,523		—		3,544
Agricultural real estate	—		—		—		—		42,596		42,596		—		—
Other real estate	—		—		—		—		7,892		7,892		—		—
Consumer:													—
Equity loans and lines of credit	123		—		97		220		50,886		51,106		—		2,354
Consumer and installment	29		74		—		103		9,662		9,765		—		74
	$	1,741	$	74	$	3,999	$	5,814	$	422,345	$	428,159	$	—	$	14,434

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



	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days (nonaccrual)		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days Accruing		Non-accrual
Commercial:
Commercial and industrial	$	164	$	—	$	—	$	164	$	81,154	$	81,318	$	—	$	2,355
Agricultural land and production	—		—		—		—		20,604		20,604		—		—
Real estate:							0				0		0		0
Owner occupied	863		—		—		863		111,025		111,888		—		3,777
Real estate construction and other land loans	—		—		5,634		5,634		26,404		32,038		—		7,827
Commercial real estate	2,316		—		726		3,042		60,585		63,627		—		1,828
Agricultural real estate	—		—		—		—		44,397		44,397		—		—
Other real estate	—		—		—		—		8,103		8,103		—		2,286
Consumer:							0				0		—		0
Equity loans and lines of credit	—		—		180		180		58,680		58,860		—		—
Consumer and installment	78		—		—		78		11,183		11,261		—		488
	$	3,421	$	—	$	6,540	$	9,961	$	422,135	$	432,096	$	—	$	18,561

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



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial:
Commercial and industrial	$	2,140	$	2,160	$	—	$	1,090	$	—
Agricultural land and production	—		—		—		—		—
Total commercial	2,140		2,160		—		1,090		—
Real estate:
Owner occupied	231		243		—		59		—
Real estate construction and other land loans	1,532		1,906		—		1,378		—
Commercial real estate	1,801		1,801		—		251		—
Agricultural real estate	—		—		—		—		—
Other real estate	—		—		—		—		—
Total real estate	3,564		3,950		—		1,688		—
Consumer:
Equity loans and lines of credit	—		—		—		—		—
Consumer and installment	—		—		—		—		—
Total consumer	—		—		—		—		—
Total with no related allowance recorded	5,704		6,110		—		2,778		—
With an allowance recorded:
Commercial:
Commercial and industrial	1,717		1,718		231		669		181
Agricultural land and production	—		—		—		—		—
Total commercial	1,717		1,718		231		669		181
Real estate:
Owner occupied	1,141		1,216		268		1,057		—
Real estate construction and other land loans	10,911		11,490		2,130		5,985		230
Commercial real estate	1,743		1,743		1,366		277		—
Agricultural real estate	—		—		—		—		—
Other real estate	—		—		—		—		—
Total real estate	13,795		14,449		3,764		7,319		230
Consumer:
Equity loans and lines of credit	2,354		2,581		350		1,419		—
Consumer and installment	74		74		23		74		—
Total consumer	2,428		2,655		373		1,493		—
Total with an allowance recorded	17,940		18,822		4,368		9,481		411
Total	$	23,644	$	24,932	$	4,368	$	12,259	$	411

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



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial:
Commercial and industrial	$	410	$	435	$	—	$	495	$	—
Agricultural land and production	—		—		—		—		—
Total commercial	410		435		—		495		—
Real estate:
Owner occupied	1,775		2,147		—		1,115		—
Real estate construction and other land loans	1,885		2,056		—		2,667		—
Commercial real estate	1,828		1,834		—		1,521		—
Agricultural real estate	—		—		—		—		—
Other real estate	—		—		—		—		—
Total real estate	5,488		6,037		—		5,303		—
Consumer:
Equity loans and lines of credit	1,228		1,245		—		649		—
Consumer and installment	—		—		—		—		—
Total consumer	1,228		1,245		—		649		—
Total with no related allowance recorded	7,126		7,717		—		6,447		—
With an allowance recorded:
Commercial:
Commercial and industrial	1,065		1,140		227		1,575		—
Agricultural land and production	—		—		—		—		—
Total commercial	1,065		1,140		227		1,575		—
Real estate:									—
Owner occupied	1,276		1,284		260		1,672		—
Real estate construction and other land loans	5,942		6,290		1,170		5,995		—
Commercial real estate	726		824		47		243		—
Agricultural real estate	—		—		—		—		—
Other real estate	—		—		—		—		—
Total real estate	7,944		8,398		1,477		7,910		—
Consumer:
Equity loans and lines of credit	2,426		2,459		420		1,628		—
Consumer and installment	—		—		—		91		—
Total consumer	2,426		2,459		420		1,719		—
Total with an allowance recorded	11,435		11,997		2,124		11,204		—
Total	$	18,561	$	19,714	$	2,124	$	17,651	$	—

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.

Nonaccrual loans totaled $14,434,000 and $18,561,000 at December 31, 2011 and 2010, respectively. Foregone interest on nonaccrual loans totaled $954,000, $1,228,000, and $852,000 for the years ended December 31, 2011, 2010, and 2009, respectively. There were no accruing loans past due 90 days or more at December 31, 2011 or 2010.

Included in the impaired and nonaccrual loans above at December 31, 2011 are 11 loans considered troubled debt restructurings totaling $19,811,000.

Troubled Debt Restructurings:

The Company has allocated $3,217,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2011. The Company has committed to lend additional amounts totaling up to $302,000 as of December 31, 2011 to customers with outstanding loans that are classified as troubled debt restructurings.

During the year 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 or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. During the same period, there were no troubled debt restructurings in which the amount of principal or accrued interest owed from the borrower were forgiven.

Modifications involving a reduction of the stated interest rate occurred on one loan which will mature the first quarter of 2012. Modifications involving an extension of the maturity date were for periods ranging from one month to three years.

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2011 (in thousands):



	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification (2)		Post-Modification Outstanding Recorded Investment (3)		Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial:
Commercial and Industrial	2	$	3,089	$	—	$	3,089	$	2,791
Total commercial	2	3,089		—		3,089		2,791
Real Estate:
Owner occupied	1	1,074		—		1,074		1,019
Real estate-construction and other land loans	3	11,094		—		11,094		10,911
Commercial real estate	1	1,110				1,110		1,110
Total real estate	5	13,278		—		13,278		13,040
Consumer:
Equity loans and line of credit	1	2,271		—		2,271		1,648
Total Consumer	1	2,271		—		2,271		1,648
	8	$	18,638	$	—	$	18,638	$	17,479

(1) Amounts represent the recorded investment in loans before recognizing effects of the TDR, if any.

(2) Principal Modification includes principal forgiveness at the time of modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with zero percent contractual interest rate.

(3) Balance outstanding after principal modification, if any borrower reduction to recorded investment.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within 12 months following the modification during the year ended December 31, 2011 (in thousands):

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

The troubled debt restructurings described above resulted in an increase to the specific reserves added to the allowance for credit losses of $1,471,000 and resulted in no charge offs during the year ended December 31, 2011.

Number of Loans

Recorded Investment

Troubled Debt Restructurings That Subsequently Defaulted

Real Estate:

Commercial real estate