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## NOTES TO FINANCIAL STATEMENTS 

## 5. ALLOWANCE FOR LOAN LOSSES  (Continued) 

## Troubled Debt Restructurings 

The Bank has allocated $446,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2011. No specific reserves were allocated to troubled debt restructurings at December 31, 2010. The Bank has committed to lend additional amounts totaling up to $495,231 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; 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. 

One modification was made involving a reduction of the stated interest rate of the loan for a period of 14 months. The remaining nine modifications involved an extension of the maturity date and were for periods ranging from 3 months to 12 months. 

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ending December 31, 2011: 

<img src='content_image/189699.jpg'>

The troubled debt restructurings described above increased the allowance for loan losses by $446,000 and resulted in charge offs of $418,000 during the year ending December 31, 2011. 

There were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ending December 31, 2011. 

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

## Purchased Loans 

Although the Bank purchased various loans under loan participation agreements with other banks during 2011, none were purchased for which there was at acquisition evidence of deterioration of credit quality or, with knowledge that all contractually required payments would not be collected. 

