LOANS

The loan portfolio consisted of the following (in thousands):

	December 31,
	2013			2012
Commercial, financial and agricultural	$	403,976		$	315,655
Real estate – construction		82,691			75,334
Real estate – commercial		397,135			414,384
Real estate – residential		146,841			142,858
Installment loans to individuals		97,459			90,561
Lease financing receivable		5,542			5,769
Other		3,910			2,379
		1,137,554			1,046,940
Less allowance for loan losses		(8,779	)		(7,370	)
	$	1,128,775		$	1,039,570

The amounts reported in other loans at December 31, 2013 and 2012 includes the overdrawn demand deposit accounts and loans primarily made to non-profit entities reported for each period.

An analysis of the activity in the allowance for loan losses is as follows (in thousands):

	December 31,
	2013			2012			2011
Balance, beginning of year	$	7,370		$	7,276		$	8,813
Provision for loan losses		3,050			2,050			3,925
Recoveries		265			300			310
Loans charged-off		(1,906	)		(2,256	)		(5,772	)
Balance, end of year	$	8,779		$	7,370		$	7,276

During the years ended December 31, 2013, 2012, and 2011, there were approximately $1.1 million, $879,000, and $7.3 million, respectively, of transfers from loans to ORE. Included in the $7.3 million added to ORE in 2011 is one credit totaling $4.9 million secured by a condominium complex. The credit is currently producing positive cash flow from net rental income on a monthly basis.

The Company monitors loan concentrations and evaluates individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity for each major standard industry classification segment. At December 31, 2013, one industry segment concentration, the oil and gas industry, aggregate more than 10% of the loan portfolio. The Company’s exposure in the oil and gas industry, including related service and manufacturing industries, totaled approximately $202.1 million, or 17.8% of total loans. Additionally, the Company’s exposure to loans secured by commercial real estate is monitored. At December 31, 2013, loans secured by commercial real estate (including commercial construction and multifamily loans) totaled approximately $462.0 million. Of the $462.0 million, $352.6 million represent CRE loans, 63% of which are secured by owner-occupied commercial properties. Of the $352.6 million in loans secured by commercial real estate, $2.4 million or 0.7% were on nonaccrual status at December 31, 2013.

A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans for the years ended December 31, 2013 and 2012 is as follows (in thousands):

	December 31, 2013
				Real Estate
	Coml, fin, and agric			Construction			Commercial			Residential			Installment loans to individuals			Lease financing receivable			Other		Total
Allowance for loan losses:
Beginning balance	$	1,535		$	2,147		$	2,166		$	936		$	543		$	41		$	2	$	7,370
Charge-offs		(935	)		-			(18	)		(129	)		(824	)		-			-		(1,906	)
Recoveries		80			8			29			39			109			-			-		265
Provision		3,226			(1,109	)		(788	)		295			1,445			(20	)		1		3,050
Ending balance	$	3,906		$	1,046		$	1,389		$	1,141		$	1,273		$	21		$	3	$	8,779
Ending balance: individually evaluated for impairment	$	168		$	3		$	54		$	60		$	120		$	-		$	-	$	405
Ending balance: collectively evaluated for impairment	$	3,738		$	1,043		$	1,335		$	1,081		$	1,153		$	21		$	3	$	8,374

Loans:
Ending balance	$	403,976		$	82,691		$	397,135		$	146,841		$	97,459		$	5,542		$	3,910	$	1,137,554
Ending balance: individually evaluated for impairment	$	1,241		$	100		$	2,213		$	900		$	271		$	-		$	-	$	4,725
Ending balance: collectively evaluated for impairment	$	402,735		$	82,591		$	394,218		$	145,773		$	97,188		$	5,542		$	3,910	$	1,131,957
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	704		$	168		$	-		$	-		$	-	$	872

	December 31, 2012
				Real Estate
	Coml, fin, and agric			Construction		Commercial			Residential			Installment loans to individuals			Lease financing receivable		Other		Total
Allowance for loan losses:
Beginning balance	$	1,734		$	1,661	$	2,215		$	936		$	710		$	19	$	1	$	7,276
Charge-offs		(1,054	)		-		(550	)		(126	)		(526	)		-		-		(2,256	)
Recoveries		181			18		1			2			98			-		-		300
Provision		674			468		500			124			261			22		1		2,050
Ending balance	$	1,535		$	2,147	$	2,166		$	936		$	543		$	41	$	2	$	7,370
Ending balance: individually evaluated for impairment	$	391		$	57	$	35		$	30		$	114		$	-	$	-	$	627
Ending balance: collectively evaluated for impairment	$	1,144		$	2,090	$	2,131		$	906		$	429		$	41	$	2	$	6,743

Loans:
Ending balance	$	315,655		$	75,334	$	414,384		$	142,858		$	90,561		$	5,769	$	2,379	$	1,046,940
Ending balance: individually evaluated for impairment	$	1,636		$	936	$	2,911		$	1,627		$	330		$	-	$	-	$	7,440
Ending balance: collectively evaluated for impairment	$	313,937		$	74,398	$	407,267		$	140,777		$	90,231		$	5,769	$	2,379	$	1,034,758
Ending balance: loans acquired with deteriorated credit quality	$	82		$	-	$	4,206		$	454		$	-		$	-	$	-	$	4,742

An age analysis of past due loans (including both accruing and non-accruing loans) is as follows (in thousands):

	December 31, 2013
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 days and Accruing
Commercial, financial, and agricultural	$	4,350	$	208	$	1,256	$	5,814	$	398,162	$	403,976	$	26
Commercial real estate - construction		36		-		63		99		64,794		64,893		-
Commercial real estate - other		1,230		1,447		2,395		5,072		392,063		397,135		141
Residential - construction		149		-		-		149		17,649		17,798		-
Residential - prime		2,984		870		307		4,161		142,680		146,841		-
Consumer - credit card		36		-		7		43		6,163		6,206		7
Consumer - other		767		102		269		1,138		90,115		91,253		4
Lease financing receivable		-		-		-		-		5,542		5,542		-
Other loans		125		-		-		125		3,785		3,910		-
	$	9,677	$	2,627	$	4,297	$	16,601	$	1,120,953	$	1,137,554	$	178

	December 31, 2012 ⁽¹⁾
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 days and Accruing
Commercial, financial, and agricultural	$	2,220	$	321	$	2,580	$	5,121	$	310,534	$	315,655	$	1,019
Commercial real estate - construction		66		96		101		263		58,087		58,350		-
Commercial real estate - other		4,123		2,108		3,577		9,808		404,576		414,384		952
Residential - construction		-		-		-		-		16,984		16,984		-
Residential - prime		1,140		239		1,121		2,500		140,358		142,858		-
Consumer - credit card		24		2		15		41		6,766		6,807		15
Consumer - other		421		134		186		741		83,013		83,754		-
Lease financing receivable		-		-		-		-		5,769		5,769		-
Other loans		87		-		-		87		2,292		2,379		-
	$	8,081	$	2,900	$	7,580	$	18,561	$	1,028,379	$	1,046,940	$	1,986

⁽¹⁾Balances have been adjusted from previously reported amounts for discounts associated with purchase credit impaired loans.

Non-accrual loans are as follows (in thousands):

	December 31, 2013		December 31, 2012 ⁽¹⁾
Commercial, financial, and agricultural	$	1,272	$	1,777
Commercial real estate - construction		100		941
Commercial real estate - other		2,290		3,009
Residential - construction		-		-
Residential - prime		1,153		2,505
Consumer - credit card		-		-
Consumer - other		284		409
Lease financing receivable		-		-
Other	-		-
	$	5,099	$	8,276

The amount of interest that would have been recorded on nonaccrual loans, had the loans not been classified as nonaccrual, totaled approximately $518,000, $582,000, and $749,000 for the years ended December 31, 2013, 2012, and 2011. Interest actually received on nonaccrual loans at December 31, 2013, 2012, and 2011 was $312,000, $70,000, and $256,000 respectively.

Loans that are individually evaluated for impairment are as follows (in thousands):

	December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial, financial, and agricultural	$	671	$	1,107	$	-	$	617	$	3
Commercial real estate – construction		61		61		-		416		-
Commercial real estate – other		1,850		2,324		-		2,190		8
Residential – prime		525		525		-		1,050		14
Consumer – other		66		66		-		90		1
Subtotal:		3,173		4,083		-		4,363		26
With an allowance recorded:
Commercial, financial, and agricultural		570		570		168		821		3
Commercial real estate – construction		39		39		3		102		1
Commercial real estate – other		363		363		54		372		11
Residential – prime		375		395		60		214		4
Consumer – other		205		205		120		211		2
Subtotal:		1,552		1,572		405		1,720		21
Totals:
Commercial		3,554		4,464		225		4,518		26
Residential		900		920		60		1,264		18
Consumer		271		271		120		301		3
Grand total:	$	4,725	$	5,655	$	405	$	6,083	$	47

⁽¹⁾Balances have been adjusted from previously reported amounts for discounts associated with purchase credit impaired loans.

	December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial, financial, and agricultural	$	564	$	675	$	-	$	861	$	5
Commercial real estate – construction		771		770		-		834		1
Commercial real estate – other		2,530		3,059		-		1,780		38
Residential – prime		1,575		1,575		-		1,213		26
Consumer – other		114		122		-		81		1
Subtotal:		5,554		6,201		-		4,769		71
With an allowance recorded:
Commercial, financial, and agricultural		1,072		1,072		391		1,128		21
Commercial real estate – construction		165		165		57		85		7
Commercial real estate – other		381		381		35		811		3
Residential – prime		52		52		30		172		4
Consumer – other		216		216		114		228		6
Subtotal:		1,886		1,886		627		2,424		41
Totals:
Commercial		5,483		6,122		483		5,499		75
Residential		1,627		1,627		30		1,385		30
Consumer		330		338		114		309		7
Grand total:	$	7,440	$	8,087	$	627	$	7,193	$	112

The following tables present the classes of loans by risk rating (in thousands):

	December 31, 2013
Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category
			Commercial, financial, and agricultural		Commercial real estate –construction		Commercial real estate – other		Percentage of Total
Pass			$	397,513	$	63,577	$	371,618		96.15	%
Special mention				2,962		49		8,781		1.36	%
Substandard				3,272		1,267		16,736		2.46	%
Doubtful				229		-		-		0.03	%
			$	403,976	$	64,893	$	397,135		100.00	%

Consumer Credit Exposure
Credit Risk Profile by Creditworthiness Category
			Residential – construction		Residential – prime		Residential – subprime		Percentage of Total
Pass			$	17,798	$	143,790	$	-		98.15	%
Special mention				-		548		-		0.33	%
Substandard				-		2,503		-		1.52	%
			$	17,798	$	146,841	$	-		100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer - credit card		Consumer – other		Lease financing receivable		Other		Percentage of Total
Performing	$	6,196	$	90,978	$	5,542	$	3,910		99.73	%
Nonperforming		10		275		-		-		0.27	%
	$	6,206	$	91,253	$	5,542	$	3,910		100.00	%

			December 31, 2012
Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category
			Commercial, financial, and agricultural		Commercial real estate –construction		Commercial real estate – other		Percentage of Total
Pass			$	304,219	$	54,737	$	396,077		95.76	%
Special mention				5,748		684		6,224		1.61	%
Substandard				4,503		2,925		7,514		1.90	%
Doubtful				1,185		4		4,569		0.73	%
			$	315,655	$	58,350	$	414,384		100.00	%

Consumer Credit Exposure
Credit Risk Profile by Creditworthiness Category
			Residential – construction		Residential – prime		Residential – subprime		Percentage of Total
Pass			$	16,785	$	137,681	$	-		96.64	%
Special mention				-		1,612		-		1.01	%
Substandard				199		3,565		-		2.35	%
			$	16,984	$	142,858	$	-		100.00	%

Consumer and Commercial Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer - credit card		Consumer – other		Lease financing receivable		Other		Percentage of Total
Performing	$	6,792	$	83,347	$	5,769	$	2,379		99.57	%
Nonperforming		15		407		-		-		0.43	%
	$	6,807	$	83,754	$	5,769	$	2,379		100.00	%

Troubled Debt Restructurings

A troubled debt restructuring (“TDR”) is a restructuring of a debt made by the Company to a debtor for economic or legal reasons related to the debtor’s financial difficulties that it would not otherwise consider. The Company grants the concession in an attempt to protect as much of its investment as possible.

Information about the Company’s TDRs is as follows (in thousands):

	December 31, 2013
	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Commercial, financial and agricultural	$	-	$	23	$	233	$	256
Real estate - commercial		156		-		-		156
	$	156	$	23	$	233	$	412

	December 31, 2012
	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Commercial, financial and agricultural	$	-	$	-	$	232	$	232
Real estate - commercial		3,905		-		-		3,905
	$	3,905	$	-	$	232	$	4,137

The $3.7 million decrease from December 31, 2012 resulted primarily from payoffs related to two commercial credits previously classified as TDRs. During the year ended December 31, 2013, one loan with a pre-modification balance of $27,000 was identified as a TDR through modification of the original loan terms, and there were no defaults on any loans that were modified as TDRs during the preceding twelve months. Of the $4.1 million of TDRs at December 31, 2012, $3.9 million was acquired from PSB and included four credits, two of which were large commercial credits. There were no loans added to TDR status during the year ended December 31, 2012. Four TDRs totaling $259,000 defaulted during the year ended December 31, 2012. For purposes of the determination of an allowance for loan losses on these TDRs, as an identified TDR, the Company considers a loss probable on the loan and, as a result is reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it is determined losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans. As of December 31, 2013, there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs.

In the opinion of management, all transactions entered into between the Company and such related parties have been and are made in the ordinary course of business, on substantially the same terms and conditions, including interest rates and collateral, as similar transactions with unaffiliated persons and do not involve more than the normal risk of collection.

An analysis of the 2013 activity with respect to these related party loans and commitments to extend credit is as follows (in thousands):

Balance, beginning of year	$	6,921
New loans		-
Repayments and adjustments		(3,807	)
Balance, end of year	$	3,114