Exhibit 99.2

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

($ in thousands, except per share amounts) (Unaudited)

	At September 30, 2013			At December 31, 2012
Assets
Cash and due from banks	$	6,550			6,033
Interest-earning deposits		26,801			28,286
Total cash and cash equivalents		33,351			34,319
Securities available for sale		159,497			169,462
Loans, net of allowance for loan losses of $8,204 and $10,952		481,338			455,479
Premises and equipment, net		36,601			37,540
Federal Home Loan Bank stock		8,309			8,639
Accrued interest receivable		2,342			2,306
Deferred tax asset, net		19,152			17,164
Mortgage servicing rights, net		114			147
Foreclosed assets		7,400			11,024
Other assets		5,001			5,628
Total assets	$	753,105			741,708
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing deposits		153,905			132,971
Savings, NOW and money-market deposits		207,772			205,157
Time deposits		125,578			139,241
Total deposits		487,255			477,369
Federal Home Loan Bank advances		165,000			165,000
Other borrowings		43,011			41,780
Junior subordinated debentures		30,415			30,415
Accrued interest payable		8,148			7,177
Other liabilities		4,453			2,002
Total liabilities		738,282			723,743
Commitments and contingencies (Notes 5, 15, 18 and 19)
Stockholders’ equity:
Nonvoting common stock; $.01 par value, 57,000,000 shares authorized, none issued or outstanding		—			—
Voting common stock; $.01 par value, 3,000,000 shares authorized, 377,960 shares issued and outstanding		4			4
Additional paid-in capital		16,463			16,373
Retained earnings		2,386			2,297
Accumulated other comprehensive loss		(4,030	)		(709	)
Total stockholders’ equity		14,823			17,965
Total liabilities and stockholders’ equity	$	753,105			741,708

See accompanying notes to consolidated financial statements.

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Consolidated Statements of Operations

($ in thousands, except per share amounts) (Unaudited)

	September 30,
	2013			2012
Interest income:
Loans	$	18,489			20,336
Securities		2,483			3,352
Other		26			43
Total interest income		20,998			23,731
Interest expense:
Deposits		821			1,358
Other borrowings		4,969			5,518
Total interest expense		5,790			6,876
Net interest income		15,208			16,855
Provision for loan losses		2,131			1,808
Net interest income after provision for loan losses		13,077			15,047
Noninterest income:
Fees and service charges on deposit accounts		4,539			5,267
Gain on sale of loans		—			—
Gain on sale of securities available for sale		(101	)		606
Loss on sale of foreclosed assets		(1,422	)		(1,337	)
Write-down of foreclosed assets		(733	)		(1,983	)
Other		455			584
Other-than-temporary impairment on other assets		—			—
Total noninterest income		2,738			3,137
Noninterest expenses:
Salaries and employee benefits		6,944			8,050
Occupancy and equipment		2,222			2,826
Professional fees		598			530
Telephone		439			470
Data processing		586			570
ATM fees		641			623
Expenses of foreclosed assets		75			344
Regulatory assessments		1,298			1,388
Other		2,907			2,582
Total noninterest expenses		15,710			17,383
Earnings (loss) before income tax benefit		105			801
Income tax benefit		16			(593	)
Net earnings (loss)	$	89			1,394
Basic and diluted earnings (loss) per share	$	0.24			3.69
Diluted and diluted earnings (loss) per share	$	0.24			3.69

See accompanying notes to consolidated financial statements.

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

($ in thousands) (Unaudited)

	Nine Months Ended September 30,
	2013			2012
Net earnings (loss)	$	89			1,394
Other comprehensive income:
Change in unrealized loss on investments:
Unrealized gain (loss) arising during the year		(5,452	)		1,266
Reclassification adjustment for realized gains		101			(606	)
Net change in unrealized (loss) gain		(5,324	)		660
Deferred income taxes on above change		2,003			(248	)
Total other comprehensive (loss) income		(3,321	)		412
Comprehensive income (loss)	$	(3,232	)		1,806

See accompanying notes to consolidated financial statements.

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

($ in thousands) (Unaudited)

					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total
	Voting
	Common Stock
	Shares		Amount
Balance at December 31, 2011		377,960	$	4		16,254		1,129		(636	)		16,751
Net loss		—		—		—		1,394		—			1,394
Change in net unrealized loss on securities available for sale, net of taxes		—		—		—		—		412			412
Stock compensation expense		—		—		89		—		—			89
Balance at September 30, 2012		377,960		4		16,343		2,523		(224	)		18,646
Balance at December 31, 2012		377,960		4		16,373		2,297		(709	)		17,965
Net earnings		—		—		—		89		—			89
Change in net unrealized loss on securities available for sale, net of taxes		—		—		—		—		(3,321	)		(3,321	)
Stock compensation expense		—		—		90		—		—			90
Balance at September 30, 2013		377,960	$	4		16,463		2,386		(4,030	)		14,823

See accompanying notes to consolidated financial statements.

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net earnings (loss)	$	89			1,394
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization		1,120			1,363
Provision for loan losses		2,131			1,808
Deferred income tax benefit		16			(710	)
Amortization of core deposit intangible		47			63
Amortization of deferred loan origination fees and costs		87			99
Amortization of premiums and discounts on securities		2,051			2,016
Amortization of mortgage servicing rights		33			26
Proceeds from sale of loans		—			—
Gain on sale of loans		—			—
Write-down of foreclosed assets		733			1,983
Loss on sale of foreclosed assets		1,422			1,337
Gain on sale of premises and equipment		(4	)		—
Net gain on sale of securities available for sale		101			(606	)
Other-than-temporary impairment on other assets		—			—
Net decrease in accrued interest receivable and other assets		544			1,462
Net (decrease) increase in accrued interest payable and other liabilities		3,422			2,648
Stock compensation expense		90			89
Net cash provided by operating activities		11,882			12,972
Cash flows from investing activities:
Purchases of securities available for sale		(84,961	)		(163,930	)
Proceeds from sales, maturities and principal repayments of securities available for sale		87,450			147,838
Net (increase) decrease in loans		(30,535	)		3,354
Redemption of Federal Home Loan Bank stock		330			263
Purchases of premises and equipment		(181	)		(417	)
Proceeds from the sale of premises and equipment		4			—
Capital improvements on foreclosed assets		—			(15	)
Net proceeds from sales of foreclosed assets		3,926			4,341
Net cash provided by investing activities		(23,967	)		(8,566	)
Cash flows from financing activities:
Net decrease in deposits		9,886			(22,877	)
Net increase (decrease) in other borrowings		1,231			3,299
Net cash used in financing activities		11,117			(19,578	)
Net decrease in cash and cash equivalents		(968	)		(15,172	)
Cash and cash equivalents at beginning of period		34,319			41,336
Cash and cash equivalents at end of period	$	33,351			26,164

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

(In thousands)

	Nine Months Ended September 30,
	2013			2012
Supplemental disclosure of cash flow information-
Cash paid during the year for:
Interest	$	2,891			8,003
Supplemental disclosure of noncash transactions:
Other comprehensive loss - change in unrealized loss on securities available for sale, net	$	(3,321	)		412
Loans transferred to foreclosed assets	$	3,297			2,681
Foreclosed assets transferred to loans	$	1,469			2,249

See accompanying notes to consolidated financial statements.

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2013

(Unaudited)

(1) Summary of Significant Accounting Policies

General. The Prosperity Banking Company (the “Holding Company”) is a one-bank holding company. The Holding Company’s wholly-owned subsidiaries are Prosperity Bank (the “Bank”) and Prosperity Land Holdings, LLC (“PLH”). The Bank is state-(Florida) chartered and its deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation. The Bank offers a variety of community banking services to individuals and businesses through twelve banking offices located in St. Johns, Duval, Flagler, Bay, Putnam and Volusia Counties, Florida. PLH was organized to facilitate certain land acquisition transactions.

Basis of Presentation. The consolidated financial statements include the accounts of the Holding Company, the Bank and PLH (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting practices of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. The following summarizes the more significant of these policies and practices.

Use of Estimates. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, deferred tax assets, the valuation of foreclosed assets and the determination of whether an investment security is other-than-temporarily impaired.

Subsequent Events. On May 1, 2013 the Company announced the signing of a definitive merger agreement under which the Company will be acquired by Ameris Bancorp, the parent company of Ameris Bank. Upon completion of the holding company merger, the Bank will be merged with and into Ameris Bank. Under the terms of the merger agreement, shareholders will have the option to elect to receive either 3.125 shares of Ameris Bancorp common stock or $41.50 in cash for each share of common stock, subject to the requirement that no more than 50% of the overall consideration will be in the form of cash. The transaction is expected to close in the fourth quarter of 2013 and is subject to customary closing conditions, regulatory approvals and approval by the shareholders.

Fair Values of Financial Instruments. The following methods and assumptions were used by the Company in estimating fair values of financial instruments:

Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximate their fair value.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

Fair Values of Financial Instruments, Continued.

Securities. The fair values of securities are based on the framework for measuring fair value.

Loans. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate mortgage (e.g. one-to-four family residential), commercial real estate and commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for collateral dependent impaired loans are based on the framework for measuring fair value.

Federal Home Loan Bank Stock. Fair value of the Company’s investment in Federal Home Loan Bank stock is its redemption value, which is its cost of $100 per share.

Accrued Interest Receivable and Payable. The carrying amounts of accrued interest approximate their fair values.

Mortgage Servicing Rights. The fair value of mortgage servicing rights is based on the framework for measuring fair value.

Deposits. The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities of time deposits.

Federal Home Loan Bank Advances. Fair values are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Junior Subordinated debentures. The junior subordinated debentures are only transferrable in the case of a merger, therefore, the fair value is estimated to be their settlement value which approximates par.

Other Borrowings. The carrying amounts of other borrowings approximate fair value.

Off-Balance-Sheet Financial Instruments. Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

Comprehensive Income (Loss). Accounting principles generally require that recognized revenue, expenses, gains and losses be included in operations. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net earnings (loss), are components of comprehensive income (loss).

Fair Value Measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy describes three levels of inputs that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

The following describes valuation methodologies used for assets and liabilities measured at fair value:

Securities Available for Sale. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations and certain high-yield debt securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Securities classified within Level 3 include certain residual interests in securitizations and other less liquid securities.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1) Summary of Significant Accounting Policies, Continued

Fair Value Measurements, Continued.

Impaired Loans and Foreclosed Assets. Estimates of fair value are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company’s management related to values of properties in the Company’s market areas. Management takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans and foreclosed assets are classified as Level 3.

Mortgage Servicing Rights. Mortgage servicing rights (“MSRs”) do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available. Accordingly, the Company estimates the fair value of MSRs using discounted cash flow (“DCF”) models.

For MSRs, the Company uses an option adjusted spread (“OAS”) valuation model in conjunction with the Company proprietary prepayment model to project MSR cash flows over multiple interest rate scenarios, which are then discounted at risk-adjusted rates to estimate an expected fair value of the MSRs. The OAS model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenues, costs to service and other economic factors. Due to the nature of the valuation inputs, MSRs are classified as Level 3.

Recent Pronouncements. In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Comprehensive Income (Topic 220). The amendments in this update remove the option to present the components of other comprehensive income as part of the consolidated statements of stockholders’ equity. ASU No. 2011-05 was effective for annual periods, beginning on January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Reclassifications. Certain reclassifications of prior year amounts have been made to conform to the current year presentation.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(2) Securities

The amortized cost of securities available for sale and their fair value are as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
At September 30, 2013:
Mortgage-backed securities	$	150,114		1,013		(2,901	)		148,226
Collateralized mortgage obligations		11,231		56		(304	)		10,983
Trust preferred securities		4,543		—		(4,469	)		74
Corporate stock		70		144		—			214
	$	165,958		1,213		(7,674	)		159,497
At December 31, 2012:
Mortgage-backed securities		151,934		2,850		(68	)		154,716
Collateralized mortgage obligations		14,178		298		(47	)		14,429
Trust preferred securities		4,417		—		(4,270	)		147
Corporate stock		70		100		—			170
	$	170,599		3,248		(4,437	)		169,462

The following summarizes sales of securities available for sale (in thousands):

	Nine Months Ended September 30,
	2013			2012
Proceeds received from sales	$	60,826			120,588
Gross gains		101			844
Gross losses		(202	)		(238	)
Net gains (losses) from sale of securities	$	(101	)		606
Carrying value of securities pledged to secure Federal Home Loan
Bank advances, other borrowings, public deposits or for other purposes required or permitted by law, at period end	$	143,449			130,273

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(2) Securities, Continued

Information pertaining to securities with gross unrealized losses at September 30, 2013, December 31, 2012 and September 30, 2012, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (in thousands):

	Less Than Twelve Months					Twelve Months or Over
	Gross			Approximate		Gross			Approximate
	Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value
As of September 30, 2013:
Mortgage-backed securities	$	(2,901	)		92,966		—			—
Collateralized mortgage obligations		(304	)		4,834		—			—
Trust preferred securities		—			—		(4,468	)		74
Total	$	(3,205	)		97,800		(4,468	)		74
	Less Than Twelve Months					Twelve Months or Over
	Gross			Approximate		Gross			Approximate
	Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value
As of December 31, 2012:
Mortgage-backed securities	$	(68	)		62,996		—			—
Collateralized mortgage obligations		(47	)		1,918		—			—
Trust preferred securities		—			—		(4,270	)		147
Total	$	(115	)		64,914		(4,270	)		147
	Less Than Twelve Months					Twelve Months or Over
	Gross			Approximate		Gross			Approximate
	Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value
As of September 30, 2012:
Mortgage-backed securities	$	—			—		—
Collateralized mortgage obligations		(50	)		5,140		—			—
Trust preferred securities		—			—		(4,279	)		93
Total	$	(50	)		5,140		(4,279	)		93

There were no other-than-temporary impairments recognized on trust preferred securities during the periods ended September 30, 2013 and 2012. However, cumulative OTTI losses recognized in previous years total $5,522,000.

Management will continue to evaluate the investment ratings in the securities portfolio, severity in pricing declines, market price quotes along with timing and receipt of amounts contractually due. Based upon these and other factors, the securities portfolio may experience further impairment.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(2) Securities, Continued

The unrealized losses with respect to mortgage-backed securities, collateralized mortgage obligations and trust preferred securities that are not deemed other-than-temporarily impaired are considered by management to be principally attributable to changes in market interest rates, and not to credit risk or deterioration on the part of the issuer. Since the Company has the intent and ability to hold their investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

(3) Loans

Loans are summarized as follows (in thousands):

	September 30, 2013			December 31, 2012
Residential real estate	$	215,051			192,476
Commercial real estate		199,810			199,890
Construction and land development		34,777			34,158
Commercial		32,046			28,848
Consumer and other		5,919			7,998
Total loans		487,603			463,370
Allowance for loan losses		(7,122	)		(8,204	)
Net deferred loan costs		857			313
Loans, net	$	481,338			455,479

The Company has divided the loan portfolio into five portfolio segments and classes, each with different risk characteristics and methodologies for assessing risk. The portfolio segments and classes are identified by the Company as follows:

Residential Real Estate Loans. The Company originates adjustable-rate and fixed-rate, residential real estate loans for the construction, purchase or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in the Company’s market area. Residential real estate loans are underwritten in accordance with polices set forth and approved by the Company’s board of directors. Such standards include repayment capacity and source, value of the underlying property, credit history stability.

Commercial Real Estate Loans. Commercial real estate loans consist of loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. These loans are secured by first liens on office buildings, apartments, farms, retail and mixed-use properties, churches, warehouses and restaurants located within the market area. The Company’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower’s financial condition, and a detailed analysis of the borrower’s underlying cash flows. Commercial real estate loans are larger than residential loans and involve greater credit risk. The repayment of these loans largely depends on the results of operations and management of these properties. Adverse economic conditions also affect the repayment ability to a greater extent than residential real estate loans.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

Construction and Land Development Loans. Construction loans consist of loans to builders and commercial borrowers and, to a limited extent, loans to individuals for the construction of their primary residences. These loans are categorized as construction and land development loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Construction and land development loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. The funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. To the extent construction loans are not made to owner-occupants of single-family homes, they are more vulnerable to changes in economic conditions. Further, the nature of these loans is such that they are more difficult to evaluate and monitor. The risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value upon completion of the project and the estimated cost (including interest) of the project.

Commercial. Commercial loans consist of loans to small- and medium-sized companies in the Company’s market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Primarily all of the Company’s commercial loans are secured loans, along with a small amount of unsecured loans. The Company’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through our underwriting standards.

Consumer and Other. Consumer loans mainly consist of variable-rate and fixed-rate home equity lines-of-credit secured by a lien on the borrower’s primary residence. Most of the Company’s consumer loans share approximately the same level of risk as residential mortgages.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

An analysis of the change in allowance for loan losses follows (in thousands):

							Construction
	Residential			Commercial			and						Consumer
	Real			Real			Land						and
	Estate			Estate			Development			Commercial			Other			Total
Nine Months Ended September 30, 2013:
Beginning balance	$	4,080			979			2,561			488			96			8,204
Provision for loan losses		1,019			123			1,029			(209	)		171			2,133
Charge-offs		(1,465	)		(342	)		(1,761	)		(28	)		(406	)		(4,002	)
Recoveries		159			76			208			105			239			787
Ending balance	$	3,793			836			2,037			356			100			7,122
Individually evaluated for impairment:
Recorded investment	$	10,496			4,400			5,986			160			166			21,208
Balance in allowance for loan losses	$	968			392			357			135			54			1,906
Collectively evaluated for impairment:
Recorded investment	$	204,555			195,410			28,791			31,886			5,753			466,395
Balance in allowance for loan losses	$	2,825			444			1,680			221			46			5,216
Year Ended December 31, 2012:
Beginning balance		6,417			686			2,973			678			198			10,952
Provision for loan losses		147			1,386			1,647			91			312			3,583
Charge-offs		(2,692	)		(1,178	)		(2,188	)		(393	)		(836	)		(7,287	)
Recoveries		208			85			129			112			422			956
Ending balance	$	4,080			979			2,561			488			96			8,204
Individually evaluated for impairment:
Recorded investment	$	8,418			6,431			9,336			150			101			24,436
Balance in allowance for loan losses	$	1,134			436			1,003			136			2			2,711
Collectively evaluated for impairment:
Recorded investment	$	184,058			193,459			24,822			28,698			7,897			438,934
Balance in allowance for loan losses	$	2,946			543			1,558			352			94			5,493
Nine Months Ended September 30, 2012:
Beginning balance	$	6,417			686			2,973			678			198			10,952
Provision for loan losses		(376	)		882			1,128			(108	)		283			1,809
Charge-offs		(1,923	)		(477	)		(1,759	)		(212	)		(708	)		(5,079	)
Recoveries		169			83			57			109			357			775
Ending balance	$	4,287			1,174			2,399			467			130			8,457
Individually evaluated for impairment:
Recorded investment	$	8,008			5,436			8,079			150			99			21,772
Balance in allowance for loan losses	$	1,049			800			436			135			2			2,422
Collectively evaluated for impairment:
Recorded investment	$	184,266			203,515			27,357			27,878			8,301			451,317
Balance in allowance for loan losses	$	3,238			374			1,963			332			128			6,035

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

The following summarizes the loan credit quality (in thousands):

					Construction
	Residential		Commercial		and				Consumer
	Real		Real		Land				and
	Estate		Estate		Development		Commercial		Other		Total
Credit Risk Profile by Internally Assigned Grade:
At September 30, 2013:
Grade:
Pass	$	186,606		169,677		25,102		30,917		5,525		417,827
Special mention		14,943		13,203		2,536		694		284		31,660
Substandard		13,502		16,930		7,139		435		110		38,116
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	215,051		199,810		34,777		32,046		5,919		487,603
At December 31, 2012:
Grade:
Pass	$	161,584		169,115		19,674		28,032		7,341		385,746
Special mention		14,350		12,387		3,171		311		379		30,598
Substandard		16,542		18,388		11,313		505		278		47,026
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	192,476		199,890		34,158		28,848		7,998		463,370
At September 30, 2012:
Grade:
Pass	$	163,168		177,088		20,597		27,205		7,722		395,780
Special mention		13,290		12,945		2,879		608		378		30,100
Substandard		15,816		18,918		11,960		215		300		47,209
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	192,274		208,951		35,436		28,028		8,400		473,089

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if they are appropriately classified and whether there is any impairment. All loans are graded upon initial issuance. Further, commercial loans are typically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as if a loan becomes past due, the Company will determine the appropriate loan grade.

Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of a deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged-off. The Company uses the following definitions for risk ratings:

Pass – A Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

Special Mention – A Special Mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

Age analysis of past-due loans is as follows (in thousands):

	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
At September 30, 2013:
Residential real estate	$	762		1,396		—		2,158		205,736		7,157		215,051
Commercial real estate		869		188		—		1,057		197,078		1,675		199,810
Construction and land development		45		26		—		71		34,283		423		34,777
Commercial		169		—		—		169		31,867		10		32,046
Consumer and other		42		19		—		61		5,846		12		5,919
Total	$	1,887		1,629		—		3,516		474,810		9,277		487,603

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
At December 31, 2012:
Residential real estate	$	5,431		3,828		—		9,259		178,803		4,414		192,476
Commercial real estate		1,349		1,179		—		2,528		195,162		2,200		199,890
Construction and land development		840		193		—		1,033		28,218		4,907		34,158
Commercial		55		12		—		67		28,781		—		28,848
Consumer and other		220		21		—		241		7,735		22		7,998
Total	$	7,895		5,233		—		13,128		438,699		11,543		463,370

	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
At September 30, 2012:
Residential real estate	$	3,129		1,533		—		4,662		184,923		2,689		192,274
Commercial real estate		1,367		2,066		—		3,433		203,876		1,642		208,951
Construction and land development		449		1,700		—		2,149		29,896		3,391		35,436
Commercial		148		181		—		329		27,699		—		28,028
Consumer and other		87		18		—		105		8,276		19		8,400
Total	$	5,180		5,498		—		10,678		454,670		7,741		473,089

The following summarizes the amount of impaired loans (in thousands):

	With No Related
	Allowance Recorded				With an Allowance Recorded						Total
			Unpaid				Unpaid						Unpaid
			Contractual				Contractual						Contractual
	Recorded		Principal		Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Investment		Balance		Allowance		Investment		Balance		Allowance
At September 30, 2013:
Residential real estate	$	4,264		5,694		6,232		6,350		968		10,496		12,044		968
Commercial real estate		1,130		1,361		3,270		3,270		392		4,400		4,631		392
Construction and land development		1,406		1,848		4,580		4,604		357		5,986		6,452		357
Commercial		10		10		150		150		135		160		160		135
Consumer and other		89		89		77		77		54		166		166		54
	$	6,899		9,002		14,309		14,451		1,906		21,208		23,453		1,906

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

At December 31, 2012:
Residential real estate	$	3,181	4,166	5,237	5,237	1,134	8,418	9,403	1,134
Commercial real estate		1,372	1,705	5,059	5,059	436	6,431	6,764	436
Construction and land development		5,579	7,894	3,757	4,086	1,003	9,336	11,980	1,003
Commercial		—	—	150	150	136	150	150	136
Consumer and other		86	86	15	15	2	101	101	2
	$	10,218	13,851	14,218	14,547	2,711	24,436	28,398	2,711
At September 30, 2012:
Residential real estate	$	2,518	2,661	5,490	5,500	1,049	8,008	8,161	1,049
Commercial real estate		1,211	1,410	4,225	4,225	800	5,436	5,635	800
Construction and land development		5,363	7,371	2,716	3,045	436	8,079	10,416	436
Commercial		—	—	150	150	135	150	150	135
Consumer and other		83	83	16	16	2	99	99	2
	$	9,175	11,525	12,597	12,936	2,422	21,772	24,461	2,422

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):

	Average		Interest		Interest
	Recorded		Income		Income
	Investment		Recognized		Received
Quarter Ended September 30, 2013:
Residential real estate	$	8,101		107		199
Commercial real estate		4,683		122		113
Construction and land development		6,783		137		146
Commercial		17		4		4
Consumer and other		119		4		8
	$	19,703		374		470
Year Ended December 31, 2012:
Residential real estate	$	7,678		221		335
Commercial real estate		4,083		155		150
Construction and land development		8,197		181		237
Commercial		24		6		6
Consumer and other		143		4		9
	$	20,125		567		737
Quarter Ended September 30, 2012:
Residential real estate	$	7,704		167		262
Commercial real estate		3,713		104		106
Construction and land development		8,352		141		184
Commercial		27		5		5
Consumer and other		153		2		8
	$	19,949		419		565

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

The following is a summary of loans determined to be troubled debt restructuring during the periods ended September 30, 2013, December 31, 2012 and September 30, 2012 (dollars in thousands):

			Pre-		Post-
			Modification		Modification
	Number		Outstanding		Outstanding
	of		Recorded		Recorded
	Contracts		Investment		Investment
Troubled Debt Restructurings:
Period Ended September 30, 2013:
Residential real estate:
Modified interest rate and amortization		5		984		984
Modified amortization		2		191		191
Commercial:
Modified amortization		1		11		11
Consumer and other:
Modified amortization		1		21		21
Modified interest rate		1		11		11
		10	$	1,218		1,218
Year Ended December 31, 2012:
Residential real estate:
Modified interest rates		1	$	165		165
Modified interest rate and amortization		6		1,151		1,736
Modified principal		2		419		270
Commercial real estate:
Modified interest rates		1		713		713
Modified interest rate and amortization		5		2,875		2,875
Modified principal		2		1,154		660
Construction and land development:
Modified interest rate and amortization		5		1,386		1,386
Modified principal		1		701		450
Consumer and other:
Modified interest rate		1		90		90
		24	$	8,654		8,345

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

Period Ended September 30, 2012:
Residential real estate:
Modified interest rates	1	$	165	165
Modified interest rate and amortization	5		1,018	1,367
Modified principal	2		419	270
Commercial real estate:
Modified interest rates	1		713	713
Modified interest rate and amortization	4		1,640	1,640
Construction and land development:
Modified interest rate and amortization	5		1,386	1,386
Modified principal	1		701	450
Consumer and other:
Modified interest rate	1		90	90
	20	$	6,132	6,081

The allowance for loan losses on residential real estate, commercial real estate, construction and land development, commercial and consumer and other loans that have been restructured and are considered trouble debt restructurings (“TDR”) is included in the Company’s specific reserve. The specific reserve is determined on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral-dependent. TDR’s that have subsequently defaulted are considered collateral-dependent.

	Number
	of		Recorded
	Contracts		Investment
Troubled debt restructurings that subsequently defaulted which were restructured during the last twelve months (dollars in thousands)-
Year Ended December 31, 2012:
Residential real estate		1	$	369
Construction and land development		2		415
		3	$	784

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Loans, Continued

Loans serviced for other entities are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loans were approximately $24.8 million and $31.9 million at September 30, 2013 and December 31, 2012, respectively. Loan servicing income, net of amortization of mortgage servicing rights, was $37,000 and $24,000 for the periods ended September 30, 2013 and 2012, respectively, and is included in other noninterest income on the consolidated statements of operations.

The balance of capitalized servicing rights at September 30, 2013 and December 31, 2012 was $114,000 and $147,000, respectively. The fair value of servicing rights was determined from a third-party valuation as of December 31, 2012 using discount rates ranging from 8% to 10% and prepayment speeds ranging from 17.46% to 25.68%, depending upon the stratification of the specific right.

The following summarizes mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances (in thousands):

	September 30, 2013		December 31, 2012
Mortgage servicing rights capitalized	$	—		—
Mortgage servicing rights amortized	$	33		38
Valuation allowances	$	—		—

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) Federal Home Loan Bank Advances

Federal Home Loan Bank (“FHLB”) advances are as follows (in thousands):

	Interest			At September 30		At December 31,
Maturing in Year Ending December 31,	Rate			2013		2012
2015		2.54	%	$	5,000		5,000
2015		2.75	%		25,000		25,000
2015		2.54	%		25,000		25,000
2016		3.16	%		—		—
2016		2.41	%		—		—
2016		3.05	%		10,000		10,000
2016		2.30	%		25,000		25,000
2018		4.04	%(b)		15,000		15,000
2018		4.00	%(b)		25,000		25,000
2018		3.86	%(b)		10,000		10,000
2018		3.97	%(b)		25,000		25,000
				$	165,000		165,000

^(b)  Callable quarterly.

The advances are collateralized by the Company’s FHLB stock, mortgage-backed securities and qualifying residential and commercial real estate mortgages pledged as collateral under a blanket floating lien agreement. As of September 30, 2013 and December 31, 2012, the Company had $20 million and $20 million, respectively, available on their line with the FHLB.

(5) Other Borrowings

The Company offers retail repurchase agreements to its customers that sweep funds from deposit accounts to investment accounts. These investment accounts are not federally insured and are treated as borrowings. These agreements require the Company to pledge securities as collateral for borrowings under these agreements. The Company pledged securities with carrying values of approximately $32.3 million and $22.7 million at September 30, 2013 and December 31, 2012, respectively, as collateral for these agreements.

During 2006, the Company issued subordinated debt for Tier II capital. The debentures have a ten year term and mature in 2016. Interest is paid quarterly. The amount of subordinated debt qualifying for Tier II treatment is reduced by 20% in each year of the last five years of the debenture term.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(5) Other Borrowings, Continued

Provisions of a Consent Order issued by the Federal Deposit Insurance Corporation and the Florida Office of Financial Regulation, effective June 28, 2010, prevent the Bank from making any distributions of interest on subordinated debentures. As such, the Bank did not make the September 2010 and December 2010 quarterly payments or any of the 2011, 2012 or 2013 quarterly payments. Interest payments deferred on the Bank’s subordinated debt totaled $339,000 and $263,000 at September 30, 2013 and December 31, 2012, respectively. In addition, provisions of a Written Agreement issued by the Federal Reserve Bank of Atlanta, effective, July 26, 2010, prevent the Company from making any distributions of interest on subordinated debentures. As such, the Company did not make the December 2010 quarterly payment or any of the 2011, 2012 or 2013 quarterly payments for the holding company subordinated debt. Interest payments deferred on the holding company subordinated debt at September 30, 2013 and December 31, 2012, respectively, totaled $996,000 and $752,000, respectively.

The following summarizes the Company’s other borrowings ($ in thousands).

		Borrowings Outstanding at				Total Interest Expense For the Period Ended
	Interest					Sept 30,
Name	Rate	Sep 30, 2013		Dec 31, 2012		2013		2012
Retail repurchase agreements	0.13-0.17%(a)	$	23,011		21,780		19		18
Fed funds purchased	0.68-0.73%(a)		—		—		—		—
Subordinated debt (holding co.)	90-day LIBOR +1.75%		15,000		15,000		245		274
Subordinated debt (bank)	90-day LIBOR +1.60%		5,000		5,000		75		82
Total		$	43,011		41,780		339		374

^(a)  Average rate.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(6) Fair Value Measurement

Financial assets measured at fair value on a recurring basis, are summarized below (in thousands):

			Fair Value Measurements Using
	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2013:
Mortgage-backed securities	$	148,226		—		148,226		—
Collateralized mortgage obligations		10,983		—		10,983		—
Trust preferred securities		74		—		—		74
Corporate stock		214		214		—		—
	$	159,497		214		159,209		74
December 31, 2012:
Mortgage-backed securities	$	154,716		—		154,716		—
Collateralized mortgage obligations		14,429		—		14,429		—
Trust preferred securities		147		—		—		147
Corporate stock		170		170		—		—
	$	169,462		170		169,145		147
September 30, 2012:
Mortgage-backed securities		176,873		—		176,873		—
Collateralized mortgage obligations		14,765		—		14,765		—
Trust preferred securities		93		—		—		93
Corporate stock		150		150		—		—
	$	191,881		150		191,638		93

No securities were transferred in or out of Level 1, Level 2 or Level 3 during 2012 and 2013.

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(6) Fair Value Measurement, Continued

A reconciliation of all available for sale securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods ended September 30, 2013, December 31, 2012 and September 30, 2012 are as follows (in thousands):

	Trust Preferred Securities
Balance, December 31, 2012	$	147
Total gains or losses (realized/unrealized):
Included in operations		—
Included in other comprehensive loss		(199	)
Capitalized interest		126
Balance, September 30, 2013		74
Balance, December 31, 2011	$	92
Total gains or losses (realized/unrealized):
Included in operations		—
Included in other comprehensive loss		(129	)
Capitalized interest		184
Balance, December 31, 2012		147
Balance, December 31, 2011	$	92
Total gains or losses (realized/unrealized):
Included in operations		—
Included in other comprehensive loss		(138	)
Capitalized interest		139
Balance, September 30, 2012		93

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(6) Fair Value Measurement, Continued

Impaired loans measured at fair value or a nonrecurring basis are as follows (in thousands):

											Losses
	At Year End										Recorded
	Fair								Total		During the
	Value		Level 1		Level 2		Level 3		Losses		Year
September 30, 2013:
Residential real estate		5,365		—		—		5,365		2,516		1,387
Commercial real estate		2,706		—		—		2,706		1,118		278
Construction and land development		4,627		—		—		4,627		822		438
Commercial		14		—		—		14		135		—
Consumer and other		19		—		—		19		54		53
	$	12,731		—		—		12,731		4,645		2,156
December 31, 2012:
Residential real estate	$	5,963		—		—		5,963		2,269		1,537
Commercial real estate		5,834		—		—		5,834		1,263		793
Construction and land development		5,005		—		—		5,005		3,898		1,948
Commercial		13		—		—		13		136		1
Consumer and other		12		—		—		12		2		—
	$	16,827		—		—		16,827		7,568		4,279
September 30, 2012:
Residential real estate		5,633		—		—		5,633		1,723		1,053
Commercial real estate		4,475		—		—		4,475		999		529
Construction and land development		4,563		—		—		4,563		2,773		1,004
Commercial		15		—		—		15		135		1
Consumer and other		14		—		—		14		2		1
	$	14,700		—		—		14,700		5,632		2,588

(continued)

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(6) Fair Value Measurement, Continued

Foreclosed assets are recorded at fair value less estimated selling costs. Foreclosed assets which are measured at fair value on a nonrecurring basis are as follows (in thousands):

											Losses
	At Period End										Recorded
	Fair								Total		During the
	Value		Level 1		Level 2		Level 3		Losses		Period
September 30, 2013-
Foreclosed assets	$	7,400		—		—		7,400		3,132		602
December 31, 2012-
Foreclosed assets	$	11,024		—		—		11,024		6,349		1,369
September 30, 2012-
Foreclosed assets	$	11,709		—		—		11,709		4,842		1,090

Fair Value of Financial Instruments

The approximate carrying amounts and estimated fair values of the Company’s financial instruments are as follows (in thousands):

	At September 30, 2013				At December 31, 2012
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	33,351		33,351		34,319		34,319
Securities		159,497		159,497		169,462		169,462
Loans, net		481,338		498,450		455,479		471,673
Federal Home Loan Bank stock		8,309		8,309		8,639		8,639
Accrued interest receivable		2,342		2,342		2,306		2,306
Mortgage servicing rights, net		114		114		147		147
Financial liabilities:
Deposits		487,255		487,872		477,369		477,974
Federal Home Loan Bank advances		165,000		178,841		165,000		181,258
Other borrowings		43,011		43,011		41,780		41,780
Junior subordinated debentures		30,415		30,415		30,415		30,415
Accrued interest payable		8,148		8,148		7,177		7,177
Off-balance-sheet financial instruments		—		—		—		—

THE PROSPERITY BANKING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(7) Off-Balance-Sheet Financial Instruments

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit, construction loans in process, unused lines of credit and standby letters of credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for available lines of credit, construction loans in process and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit and unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the counterparty.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support third-party borrowing arrangements and generally have expiration dates within one year of issuance. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

Standby letters of credit and commitments to extend credit typically result in loans with a market interest rate when funded.

A summary of the contractual amounts of the Company’s financial instruments with off-balance-sheet risk follows (in thousands):

	At September 30, 2013		At December 31, 2012
Commitments to extend credit	$	11,497		9,133
Construction loans in process	$	9,524		4,134
Unused lines of credit	$	14,091		13,816
Standby letters of credit	$	178		214