PORTFOLIO LOANS

Below is a summary of Portfolio loans by category at December 31, 2013 and 2012:



(in thousands)	December 31, 2013		December 31, 2012
Real Estate Loans:
Construction and land development	$	117,032	$	160,911
Commercial real estate - investor owned	437,688		486,467
Commercial real estate - owner occupied	341,631		333,242
Residential real estate	158,527		145,558
Total real estate loans	$	1,054,878	$	1,126,178
Commercial and industrial	1,041,576		962,884
Consumer and other	39,838		16,966
Portfolio loans	$	2,136,292	$	2,106,028
Unearned loan costs, net	1,021		11
Portfolio loans, including unearned loan costs	$	2,137,313	$	2,106,039

Following is a summary of activity for the years ended December 31, 2013, 2012, and 2011 of loans to executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director. Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectability.



(in thousands)	2013			2012			2011
Balance at beginning of year	$	16,875		$	13,413		$	13,887
New loans and advances	6,519			8,162			9,927
Payments and other reductions	(11,642		)	(4,700		)	(10,401		)
Balance at end of year	$	11,752		$	16,875		$	13,413

During the year ended December 31, 2013 the Company refined its methodology for determining its allowance for loan losses. The enhancements specifically allocated the Company's qualitative reserve to each loan type and thus the amounts previously disclosed as "Unallocated" were reduced to $0. A summary of activity in the allowance for loan losses and the recorded investment in Portfolio loans by class and category based on impairment method for the years ended indicated below is as follows:



(in thousands)	Commercial & Industrial			Commercial Real Estate Owner Occupied			Commercial Real Estate Investor Owned			Construction and Land Development			Residential Real Estate			Consumer & Other			Unallocated			Total
Balance at December 31, 2013
Allowance for Loan Losses:
Balance, beginning of year	$	10,064		$	4,192		$	10,403		$	5,239		$	2,026		$	31		$	2,375		$	34,330
Provision charged to expense	3,810			410			(94		)	(2,695		)	107			195			(2,375		)	(642		)
Losses charged off	(3,404		)	(550		)	(4,441		)	(896		)	(1,053		)	(34		)	—			(10,378		)
Recoveries	1,776			44			732			488			939			—			—			3,979
Balance, end of year	$	12,246		$	4,096		$	6,600		$	2,136		$	2,019		$	192		$	—		$	27,289

Balance at December 31, 2012
Allowance for Loan Losses:
Balance, beginning of year	$	11,945		$	6,297		$	6,751		$	5,847		$	3,931		$	14		$	3,204		$	37,989
Provision charged to expense	774			1,173			6,294			3,081			(1,751		)	15			(829		)	8,757
Losses charged off	(3,233		)	(3,326		)	(2,728		)	(4,384		)	(1,605		)	—			—			(15,276		)
Recoveries	578			48			86			695			1,451			2			—			2,860
Balance, end of year	$	10,064		$	4,192		$	10,403		$	5,239		$	2,026		$	31		$	2,375		$	34,330

Balance at December 31, 2011
Allowance for Loan Losses:
Balance, beginning of year	$	12,727		$	5,060		$	5,629		$	8,407		$	5,485		$	93		$	5,358		$	42,759
Provision charged to expense	4,123			1,878			2,181			7,652			(244		)	(136		)	(2,154		)	13,300
Losses charged off	(5,488		)	(955		)	(1,474		)	(10,627		)	(1,613		)	(5		)	—			(20,162		)
Recoveries	583			314			415			415			303			62			—			2,092
Balance, end of year	$	11,945		$	6,297		$	6,751		$	5,847		$	3,931		$	14		$	3,204		$	37,989



(in thousands)	Commercial & Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Investor Owned		Construction and Land Development		Residential Real Estate		Consumer & Other		Unallocated		Total
Balance at December 31, 2013
Allowance for Loan Losses - Ending Balance:
Individually evaluated for impairment	$	736	$	107	$	—	$	703	$	4	$	—	$	—	$	1,550
Collectively evaluated for impairment	11,510		3,989		6,600		1,433		2,015		192		—		25,739
Total	$	12,246	$	4,096	$	6,600	$	2,136	$	2,019	$	192	$	—	$	27,289
Loans - Ending Balance:
Individually evaluated for impairment	$	3,380	$	606	$	6,811	$	9,484	$	559	$	—	$	—	$	20,840
Collectively evaluated for impairment	1,038,196		341,025		430,877		107,548		157,968		40,859		—		2,116,473
Total	$	1,041,576	$	341,631	$	437,688	$	117,032	$	158,527	$	40,859	$	—	$	2,137,313

Balance at December 31, 2012
Allowance for Loan Losses - Ending Balance:
Individually evaluated for impairment	$	3,446	$	339	$	3,400	$	732	$	259	$	—	$	—	$	8,176
Collectively evaluated for impairment	6,618		3,853		7,003		4,507		1,767		31		2,375		26,154
Total	$	10,064	$	4,192	$	10,403	$	5,239	$	2,026	$	31	$	2,375	$	34,330
Loans - Ending Balance:
Individually evaluated for impairment	$	8,934	$	5,772	$	16,762	$	4,695	$	2,564	$	—	$	—	$	38,727
Collectively evaluated for impairment	953,950		327,470		469,705		156,216		142,994		16,977		—		2,067,312
Total	$	962,884	$	333,242	$	486,467	$	160,911	$	145,558	$	16,977	$	—	$	2,106,039

A summary of Portfolio loans individually evaluated for impairment by category at December 31, 2013 and 2012, is as follows:



	December 31, 2013
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial & Industrial	$	4,377	$	—	$	3,384	$	3,384	$	736	$	6,574
Real Estate:
Commercial - Owner Occupied	606		201		421		622		107		1,868
Commercial - Investor Owned	8,033		7,190		—		7,190		—		11,348
Construction and Land Development	10,668		7,383		2,419		9,802		703		5,770
Residential	559		348		221		569		4		1,930
Consumer & Other	—		—		—		—		—		—
Total	$	24,243	$	15,122	$	6,445	$	21,567	$	1,550	$	27,490



	December 31, 2012
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial & Industrial	$	9,005	$	96	$	8,838	$	8,934	$	3,446	$	6,379
Real Estate:
Commercial - Owner Occupied	6,726		2,178		3,594		5,772		339		7,985
Commercial - Investor Owned	19,864		185		16,577		16,762		3,400		10,500
Construction and Land Development	6,491		1,560		3,135		4,695		732		10,259
Residential	3,132		1,626		938		2,564		259		4,368
Consumer & Other	—		—		—		—		—		—
Total	$	45,218	$	5,645	$	33,082	$	38,727	$	8,176	$	39,491

There were no loans over 90 days past due and still accruing interest at December 31, 2013 and one loan over 90 days and still accruing interest at December 31, 2012. If interest on impaired loans would have been accrued based upon the original contractual terms, such income would have been $1.5 million, $2.7 million and $3.0 million for the years ended December 31, 2013, 2012, and 2011, respectively. The cash amount collected and recognized as interest income on impaired loans was $0.3 million, $0.4 million and $0.5 million for the years ended December 31, 2013, 2012, and 2011, respectively. The amount recognized as interest income on impaired loans continuing to accrue interest was $16,000, $0.5 million and $0.4 million for the years ended December 31, 2013, 2012, and 2011, respectively. At December 31, 2013, there were $0.1 million of unadvanced commitments on impaired loans. Other liabilities include approximately $0.2 million for estimated losses attributable to the unadvanced commitments.

The recorded investment in impaired Portfolio loans by category at December 31, 2013 and 2012, is as follows:



	December 31, 2013
(in thousands)	Non-accrual		Restructured		Loans over 90 days past due and still accruing interest		Total
Commercial & Industrial	$	3,384	$	—	$	—	$	3,384
Real Estate:
Commercial - Investor Owned	6,511		678		—		7,189
Commercial - Owner Occupied	622		—		—		622
Construction and Land Development	9,802		—		—		9,802
Residential	569		—		—		569
Consumer & Other	—		—		—		—
Total	$	20,888	$	678	$	—	$	21,566



	December 31, 2012
(in thousands)	Non-accrual		Restructured		Loans over 90 days past due and still accruing interest		Total
Commercial & Industrial	$	8,929	$	5	$	—	$	8,934
Real Estate:
Commercial - Investor Owned	16,762		—		—		16,762
Commercial - Owner Occupied	5,772		—		—		5,772
Construction and Land Development	3,260		1,435		—		4,695
Residential	2,564		—		—		2,564
Consumer & Other	—		—		—		—
Total	$	37,287	$	1,440	$	—	$	38,727

The recorded investment by category for the Portfolio loans that have been restructured during the years ended December 31, 2013 and 2012, is as follows:



	Year ended December 31, 2013					Year ended December 31, 2012
(in thousands, except for number of loans)	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial & Industrial	—	$	—	$	—	1	$	5	$	5
Real Estate:
Commercial - Owner Occupied	1	207		207		—	—		—
Commercial - Investor Owned	1	678		678		—	—		—
Construction and Land Development	—	—		—		1	1,800		1,435
Residential	2	2,308		2,308		—	—		—
Consumer & Other	—	—		—		—	—		—
Total	4	$	3,193	$	3,193	2	$	1,805	$	1,440

The restructured Portfolio loans primarily resulted from interest rate concessions and changing the terms of the loans. As of December 31, 2013, the Company allocated $0 of specific reserves to the loans that have been restructured.

The recorded investment by category for Portfolio loans that have been restructured and subsequently defaulted during 2013 and 2012 is as follows:



	Year ended December 31, 2013			Year ended December 31, 2012
(in thousands, except for number of loans)	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Commercial & Industrial	—	$	—	2	$	166
Real Estate:
Commercial - Owner Occupied	1	192		—	—
Commercial - Investor Owned	—	—		—	—
Construction and Land Development	—	—		—	—
Residential	2	1,579		—	—
Consumer & Other	—	—		—	—
Total	3	$	1,771	2	$	166

The aging of the recorded investment in past due Portfolio loans by portfolio class and category at December 31, 2013 and 2012 is shown below.



	December 31, 2013
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial & Industrial	$	229	$	—	$	229	$	1,041,347	$	1,041,576
Real Estate:
Commercial - Owner Occupied	—		428		428		341,203		341,631
Commercial - Investor Owned	—		6,132		6,132		431,556		437,688
Construction and Land Development	464		7,344		7,808		109,224		117,032
Residential	237		213		450		158,077		158,527
Consumer & Other	—		—		—		40,859		40,859
Total	$	930	$	14,117	$	15,047	$	2,122,266	$	2,137,313



	December 31, 2012
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial & Industrial	$	14	$	—	$	14	$	962,870	$	962,884
Real Estate:
Commercial - Owner Occupied	1,352		2,081		3,433		329,809		333,242
Commercial - Investor Owned	—		4,045		4,045		482,422		486,467
Construction and Land Development	1,201		1,559		2,760		158,151		160,911
Residential	616		593		1,209		144,349		145,558
Consumer & Other	34		—		34		16,943		16,977
Total	$	3,217	$	8,278	$	11,495	$	2,094,544	$	2,106,039

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, and current economic factors among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:


•	Grades 1, 2, and 3 – These grades include loans to borrowers with a continuous record of strong earnings, sound balance sheet condition and capitalization, ample liquidity with solid cash flow and whose management team has experience and depth within their industry.


•	Grade 4 – This grade includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow.


•	Grade 5 – This grade includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow.


•	Grade 6 – This grade includes loans to borrowers where an adverse change or perceived weakness has occurred, but may be correctable in the near future. Alternatively, this rating category may also include circumstances where the company is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating.


•	Grade 7 – Watch credits are companies that have experienced financial setback of a nature that are not determined to be severe or influence ‘ongoing concern’ expectations. Borrowers within this category are expected to turnaround within a 12-month period of time. Although possible, no loss is anticipated, due to strong collateral and/or guarantor support.


•	Grade 8 – Substandard credits will include those companies that are characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow. Repayment reliance may have shifted to secondary sources. Collateral exposure may exist and additional reserves may be warranted.


•	Grade 9 – Doubtful credits include borrowers that may show deteriorating trends that are unlikely to be corrected. Collateral values may appear insufficient for full recovery, therefore requiring a partial charge-off, or debt renegotiation with the borrower. Borrower may have declared bankruptcy or bankruptcy is likely in the near term. All doubtful rated credits will be on non-accrual.

The recorded investment by risk category of the Portfolio loans by portfolio class and category at December 31, 2013, which is based upon the most recent analysis performed, and December 31, 2012 is as follows:



	December 31, 2013
(in thousands)	Pass (1-6)		Watch (7)		Substandard (8)		Doubtful (9)		Total
Commercial & Industrial	$	977,199	$	40,265	$	23,934	$	178	$	1,041,576
Real Estate:
Commercial - Owner Occupied	306,321		26,500		8,810		—		341,631
Commercial - Investor Owned	368,433		42,227		27,028		—		437,688
Construction and Land Development	87,812		17,175		11,582		463		117,032
Residential	143,613		8,240		6,674		—		158,527
Consumer & Other	40,852		3		4		—		40,859
Total	$	1,924,230	$	134,410	$	78,032	$	641	$	2,137,313



	December 31, 2012
(in thousands)	Pass (1-6)		Watch (7)		Substandard (8)		Doubtful (9)		Total
Commercial & Industrial	$	912,766	$	29,524	$	18,546	$	2,048	$	962,884
Real Estate:
Commercial - Owner Occupied	290,850		26,336		15,898		158		333,242
Commercial - Investor Owned	389,886		64,707		31,874		—		486,467
Construction and Land Development	124,857		9,543		26,012		499		160,911
Residential	130,159		5,921		9,478		—		145,558
Consumer & Other	16,972		5		—		—		16,977
Total	$	1,865,490	$	136,036	$	101,808	$	2,705	$	2,106,039