(3)Loans

A summary of net loans held for investment by loan type at the dates indicated is as follows:



		March 31,		December 31,
		2014		2013

		(In thousands)
Commercial and residential real estate	$	904,124	$	866,507
Construction		67,862		77,657
Commercial		288,865		271,843
Agricultural		10,917		10,772
Consumer		60,010		60,932
SBA		30,839		31,010
Other		570		2,039
Total gross loans		1,363,187		1,320,760
Unearned loan fees		(875)		(843)
Loans, held for investment, net of unearned loan fees		1,362,312		1,319,917
Less allowance for loan losses		(21,550)		(21,005)
Net loans, held for investment	$	1,340,762	$	1,298,912

Activity in the allowance for loan losses for the period indicated is as follows:



		Three Months Ended March 31,
		2014		2013

		(In thousands)
Balance, beginning of period	$	21,005	$	25,142
Provision (credit) for loan losses		(6)		-
Loans charged-off		(407)		(1,523)
Recoveries on loans previously
charged-off		958		441
Balance, end of period	$	21,550	$	24,060

The Company’s additional disclosures relating to loans and the allowance for loan losses are broken out into two subsets: portfolio segment and class. The portfolio segment level is defined as the level where financing receivables are aggregated in developing the Company’s systematic method for calculating its allowance for loan losses. The class level is the second level at which credit information is presented and represents the categorization of financing related receivables at a slightly less aggregated level than the portfolio segment level. Because data presented according to class is dependent upon the underlying purpose of the loan, whereas loan data organized by portfolio segment is determined by the loan’s underlying collateral, disclosures broken out by portfolio segment versus class may not be in agreement.

The following tables provide detail for the ending balances in the Company’s allowance for loan losses and loans held for investment, broken down by portfolio segment as of the dates indicated. In addition, the tables also provide a rollforward by portfolio segment of the allowance for loan losses for the three months ended March 31, 2014 and March 31, 2013. The detail provided for the amount of the allowance for loan losses and loans individually versus collectively evaluated for impairment (i.e., the general component versus the specific component of the allowance for loan losses) corresponds to the Company’s systematic methodology for estimating its allowance for loan losses.



		Real Estate		Consumer and Installment		Commercial and Other		Total
		(In thousands)
Allowance for Loan Losses
Balance as of December 31, 2013	$	18,475	$	52	$	2,478	$	21,005
Charge-offs		(8)		(11)		(388)		(407)
Recoveries		890		5		63		958
Provision (credit)		(615)		4		605		(6)
Balance as of March 31, 2014	$	18,742	$	50	$	2,758	$	21,550



Balances at March 31, 2014:

Allowance for Loan Losses
Individually evaluated	$	98	$	1	$	5	$	104
Collectively evaluated		18,644		49		2,753		21,446
Total	$	18,742	$	50	$	2,758	$	21,550

Loans
Individually evaluated	$	20,158	$	27	$	177	$	20,362
Collectively evaluated		1,085,032		3,569		253,349		1,341,950
Total	$	1,105,190	$	3,596	$	253,526	$	1,362,312



		Real Estate		Consumer and Installment		Commercial and Other		Total
		(In thousands)
Allowance for Loan Losses
Balance as of December 31, 2012	$	19,550	$	76	$	5,516	$	25,142
Charge-offs		(742)		(8)		(773)		(1,523)
Recoveries		372		25		44		441
Provision (credit)		483		115		(598)		-
Balance as of March 31, 2013	$	19,663	$	208	$	4,189	$	24,060



Balances at December 31, 2013:

Allowance for Loan Losses
Individually evaluated	$	352	$	1	$	212	$	565
Collectively evaluated		18,123		51		2,266		20,440
Total	$	18,475	$	52	$	2,478	$	21,005

Loans
Individually evaluated	$	21,045	$	27	$	631	$	21,703
Collectively evaluated		1,075,051		3,929		219,234		1,298,214
Total	$	1,096,096	$	3,956	$	219,865	$	1,319,917

The following tables provide additional detail with respect to impaired loans broken out according to class as of the dates indicated. The recorded investment included in the following table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. The unpaid balance represents the recorded balance prior to any partial charge-offs. Interest income recognized year-to-date may exclude an immaterial amount of interest income on matured loans that are 90 days or more past due, but that are in the process of being renewed and thus are still accruing.



March 31, 2014		Recorded Investment		Unpaid Balance		Related Allowance		Average Recorded Investment YTD		Interest Income Recognized YTD
		(In thousands)
Impaired loans with no related allowance:
Commercial and residential real estate	$	16,068	$	17,216	$	-	$	16,268	$	57
Construction		-		-		-		-		-
Commercial		160		160		-		227		3
Consumer		166		168		-		272		3
Other		191		472		-		197		-
Total	$	16,585	$	18,016	$	-	$	16,964	$	63

Impaired loans with a related allowance:
Commercial and residential real estate	$	2,758	$	3,778	$	69	$	2,736	$	13
Construction		-		-		-		-		-
Commercial		205		774		6		436		2
Consumer		728		783		27		772		2
Other		86		173		2		126		-
Total	$	3,777	$	5,508	$	104	$	4,070	$	17

Total impaired loans:
Commercial and residential real estate	$	18,826	$	20,994	$	69	$	19,004	$	70
Construction		-		-		-		-		-
Commercial		365		934		6		663		5
Consumer		894		951		27		1,044		5
Other		277		645		2		323		-
Total impaired loans	$	20,362	$	23,524	$	104	$	21,034	$	80



December 31, 2013		Recorded Investment		Unpaid Balance		Related Allowance		Average Recorded Investment YTD		Interest Income Recognized YTD
		(In thousands)
Impaired loans with no related allowance:
Commercial and residential real estate	$	16,467	$	17,497	$	-	$	12,516	$	244
Construction		-		-		-		2,703		-
Commercial		294		294		-		362		15
Consumer		378		379		-		515		11
Other		202		472		-		774		-
Total	$	17,341	$	18,642	$	-	$	16,870	$	270

Impaired loans with a related allowance:
Commercial and residential real estate	$	2,714	$	3,699	$	182	$	6,677	$	73
Construction		-		-		-		2,735		-
Commercial		666		1,236		220		1,453		9
Consumer		816		862		93		738		7
Other		166		359		70		286		-
Total	$	4,362	$	6,156	$	565	$	11,889	$	89

Total impaired loans:
Commercial and residential real estate	$	19,181	$	21,196	$	182	$	19,193	$	317
Construction		-		-		-		5,438		-
Commercial		960		1,530		220		1,815		24
Consumer		1,194		1,241		93		1,253		18
Other		368		831		70		1,060		-
Total impaired loans	$	21,703	$	24,798	$	565	$	28,759	$	359

The gross year-to-date interest income that would have been recorded had the nonaccrual loans been current in accordance with their original terms was $199,000 for the three months ended March 31, 2014 and $273,000 for the three months ended March 31, 2013.

The following tables summarize by class loans classified as past due in excess of 30 days or more in addition to those loans classified as nonaccrual:



March 31, 2014		30-89 Days Past Due		90 Days + Past Due and Still Accruing		Nonaccrual Loans		Total Past Due		Total Loans, Held for Investment
		(In thousands)
Commercial and residential
real estate	$	176	$	-	$	13,624	$	13,800	$	903,551
Construction		-		-		-		-		67,812
Commercial		39		-		112		151		288,679
Consumer		55		-		592		647		59,971
Other		162		-		277		439		42,299
Total	$	432	$	-	$	14,605	$	15,037	$	1,362,312



December 31, 2013		30-89 Days Past Due		90 Days + Past Due and Still Accruing		Nonaccrual Loans		Total Past Due		Total Loans, Held for Investment
		(In thousands)
Commercial and residential
real estate	$	590	$	-	$	13,560	$	14,150	$	865,960
Construction		277		-		-		277		77,601
Commercial		616		-		624		1,240		271,670
Consumer		146		-		924		1,070		60,893
Other		494		-		368		862		43,793
Total	$	2,123	$	-	$	15,476	$	17,599	$	1,319,917

The Company categorizes loans into risk categories based on relevant information about the ability of a particular borrower to service its debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance:

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral, if any, pledged to secure the loan. Loans so classified have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above are considered to be non-classified loans.

The following tables provide detail for the risk categories of loans by class of loans based on the most recent credit analysis performed as of the dates indicated:



March 31, 2014		Commercial & Residential Real Estate		Construction		Commercial Loans		Consumer		Other		Total
		(In thousands)
Non-classified	$	885,526	$	67,862	$	288,267	$	58,388	$	40,387	$	1,340,430
Substandard		18,598		-		598		1,622		1,939		22,757
Doubtful		-		-		-		-		-		-
Subtotal		904,124		67,862		288,865		60,010		42,326		1,363,187
Less: Unearned loan fees		(573)		(50)		(186)		(39)		(27)		(875)
Loans, held for investment, net
of unearned loan fees	$	903,551	$	67,812	$	288,679	$	59,971	$	42,299	$	1,362,312



December 31, 2013		Commercial & Residential Real Estate		Construction		Commercial Loans		Consumer		Other		Total
		(In thousands)
Non-classified	$	847,231	$	77,657	$	270,511	$	58,868	$	41,771	$	1,296,038
Substandard		19,276		-		1,332		2,064		2,050		24,722
Doubtful		-		-		-		-		-		-
Subtotal		866,507		77,657		271,843		60,932		43,821		1,320,760
Less: Unearned loan fees		(547)		(56)		(173)		(39)		(28)		(843)
Loans, held for investment, net
of unearned loan fees	$	865,960	$	77,601	$	271,670	$	60,893	$	43,793	$	1,319,917

The book balance of troubled debt restructurings (“TDRs”) at March 31, 2014 and December 31, 2013 was

$8,530,000 and $9,332,000, respectively. Management has established approximately $74,000 and $335,000 in specific reserves with respect to these loans as of March 31, 2014 and December 31, 2013. As of both March 31, 2014 and December 31, 2013, the Company had no material additional amounts committed on loans classified as TDRs.

During the first quarter 2014, management made six loan modifications with respect to outstanding TDRs. The modifications involved the extension of maturity on six substandard graded loans.

The following tables present loans by class modified as TDRs that occurred during the three months ended March 31, 2014 and March 31, 2013 (in thousands):



Three Months Ended March 31, 2014:
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

			(In thousands)
Commercial and residential
real estate	4	$	211	$	211
Construction	-		-		-
Commercial	-		-		-
Consumer	1		35		35
Other	1		86		86
Total	6	$	332	$	332



Three Months Ended March 31, 2013:
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

			(In thousands)
Commercial and residential
real estate	1	$	1,050	$	876
Construction	-		-		-
Commercial	-		-		-
Consumer	-		-		-
Other	-		-		-
Total	1	$	1,050	$	876

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no defaults on TDRs during the three months ended March 31, 2014. A single default occurred on a TDR during the three months ended March 31, 2013, a specific reserve of $121,000 was set aside for this loan as of March 31, 2013.