LOANS

6 Months Ended

Jun. 30, 2013

LOANS

LOANS

4.     LOANS

The composition of loans is as follows (dollars in thousands):

	June 30,		December 31,		June 30,
	2013		2012		2012
Commercial real estate	$	243,363	$	244,966	$	211,506
Commercial, financial, and agricultural	84,145		80,646		85,099
One to four family residential real estate	94,254		87,948		84,665
Construction :
Consumer	4,305		7,465		5,595
Commerical	16,053		17,229		22,793
Consumer	13,435		10,923		9,795
Total loans	$	455,555	$	449,177	$	419,453

An analysis of the allowance for loan losses for the six months ended June 30, 2013, the year ended December 31, 2012, and the six months ended June 30, 2012 is as follows (dollars in thousands):

	June 30,			December 31,			June 30,
	2013			2012			2012
Balance at beginning of period	$	5,218		$	5,251		$	5,251
Recoveries on loans previously charged off	100			278			219
Loans charged off	(616		)	(1,256		)	(1,032		)
Provision	475			945			645
Balance at end of period	$	5,177		$	5,218		$	5,083

In the first half of 2013, net charge off activity was $.516 million, or .23% of average loans outstanding compared to net charge-offs of $.813 million, or .40% of average loans, in the same period in 2012.   In the first half of 2013, the Corporation recorded a provision for loan loss of $.475 million compared to $.645 million in the first half of 2012.  The Corporation’s allowance for loan loss reserve policy calls for a measurement of the adequacy of the reserve at each quarter end.  This process includes an analysis of the loan portfolio to take into account increases in loans outstanding and portfolio composition, historical loss rates, and specific reserve requirements of nonperforming loans.

A breakdown of the allowance for loan losses and recorded balances in loans at June 30, 2013 is as follows (dollars in thousands):

				Commercial,						One to four
	Commercial			financial and			Commercial			family residential			Consumer
	real estate			agricultural			construction			real estate			construction		Consumer			Unallocated			Total
Three Months Ended June 30, 2013
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,964		$	847		$	118		$	990		$	—	$	13		$	105		$	5,037
Charge-offs	(21		)	(4		)	—			(6		)	—		(5		)	—			(36		)
Recoveries	29			30			1			6			—		10			—			76
Provision	(311		)	217			(22		)	(113		)	—		(5		)	334			100
Ending balance ALLR	$	2,661		$	1,090		$	97		$	877		$	—	$	13		$	439		$	5,177
Six Months Ended June 30, 2013
Allowance for loan loss reserve:
Beginning balance ALLR	$	3,267		$	692		$	125		$	980		$	—	$	—		$	154		$	5,218
Charge-offs	(456		)	(76		)	—			(13		)	—		(71		)	—			(616		)
Recoveries	41			33			2			11			—		13			—			100
Provision	(191		)	441			(30		)	(101		)	—		71			285			475
Ending balance ALLR	$	2,661		$	1,090		$	97		$	877		$	—	$	13		$	439		$	5,177
At June 30,2013
Loans:
Ending balance	$	243,363		$	84,145		$	16,053		$	94,254		$	4,305	$	13,435		$	—		$	455,555
Ending balance ALLR	(2,661		)	(1,090		)	(97		)	(877		)	—		(13		)	(439		)	(5,177		)
Net loans	$	240,702		$	83,055		$	15,956		$	93,377		$	4,305	$	13,422		$	(439	)	$	450,378
Ending balance ALLR:
Individually evaluated	$	1,396		$	643		$	8		$	148		$	—	$	13		$	—		$	2,208
Collectively evaluated	1,265			447			89			729			—		—			439			2,969
Total	$	2,661		$	1,090		$	97		$	877		$	—	$	13		$	439		$	5,177
Ending balance Loans:
Individually evaluated	$	14,499		$	6,668		$	917		$	640		$	—	$	22		$	—		$	22,746
Collectively evaluated	228,864			77,477			15,136			93,614			4,305		13,413			—			432,809
Total	$	243,363		$	84,145		$	16,053		$	94,254		$	4,305	$	13,435		$	—		$	455,555

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at December 31, 2012 is as follows (dollars in thousands):

	Commercial			Commercial, financial and			Commercial			One to four family residential			Consumer
	real estate			agricultural			construction			real estate			construction			Consumer			Unallocated			Total
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,823		$	1,079		$	207		$	1,114		$	—		$	—		$	28		5,251
Charge-offs	(729		)	(40		)	(6		)	(399		)	—			(82		)	—			(1,256		)
Recoveries	52			201			—			7			—			18			—			278
Provision	1,121			(548		)	(76		)	258			—			64			126			945
Ending balance ALLR	$	3,267		$	692		$	125		$	980		$	—		$	—		$	154		$	5,218
Loans:
Ending balance	$	244,966		$	80,646		$	17,229		$	87,948		$	7,465		$	10,923		$	—		$	449,177
Ending balance ALLR	(3,267		)	(692		)	(125		)	(980		)	—			—			(154		)	(5,218		)
Net loans	$	241,699		$	79,954		$	17,104		$	86,968		$	7,465		$	10,923		$	(154	)	$	443,959
Ending balance ALLR:
Individually evaluated	$	1,662		$	155		$	10		$	112		$	—		$	—		$	—		$	1,939
Collectively evaluated	1,605			537			115			868			—			—			154			3,279
Total	$	3,267		$	692		$	125		$	980		$	—		$	—		$	154		$	5,218
Ending balance Loans:
Individually evaluated	$	22,910		$	6,070		$	858		$	796		$	—		$	—		$	—		$	30,634
Collectively evaluated	222,056			74,576			16,371			87,152			7,465			10,923			—			418,543
Total	$	244,966		$	80,646		$	17,229		$	87,948		$	7,465		$	10,923		$	—		$	449,177
A breakdown of the allowance for loan losses and recorded balances in loans at June 30, 2012 is as follows (dollars in thousands):
	Commercial			Commercial, financial and			Commercial			One to four family residential			Consumer
	real estate			agricultural			construction			real estate			construction			Consumer			Unallocated			Total
Three Months Ended June 30, 2012
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,785		$	1,126		$	230		$	1,083		$	—		$	—		$	158		$	5,382
Charge-offs	(518		)	(4		)	(6		)	(106		)	5			(7		)	—			(636		)
Recoveries	10			169			—			4			—			4						187
Provision	507			(403		)	(6		)	102			(5		)	3			(48		)	150
Ending balance ALLR	$	2,784		$	888		$	218		$	1,083		$	—		$	—		$	110		$	5,083
Six Months Ended June 30, 2012
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,823		$	1,079		$	207		$	1,114		$	—		$	—		$	28		$	5,251
Charge-offs	(691		)	(24		)	(6		)	(296		)	—			(15		)	—			(1,032		)
Recoveries	18			187			—			5			—			9			—			219
Provision	634			(354		)	17			260			—			6			82			645
Ending balance ALLR	$	2,784		$	888		$	218		$	1,083		$	—		$	—		$	110		$	5,083
At June 30,2012
Loans:
Ending balance	$	211,506		$	85,099		$	22,793		$	84,665		$	5,595		$	9,795		$	—		$	419,453
Ending balance ALLR	(2,784		)	(888		)	(218		)	(1,083		)	—			—			(110		)	(5,083		)
Net loans	$	208,722		$	84,211		$	22,575		$	83,582		$	5,595		$	9,795		$	(110	)	$	414,370
Ending balance ALLR:
Individually evaluated	$	1,000		$	148		$	12		$	36		$	—		$	—		$	—		$	1,196
Collectively evaluated	1,784			740			206			1,047			—			—			110			3,887
Total	$	2,784		$	888		$	218		$	1,083		$	—		$	—		$	110		$	5,083
Ending balance Loans:
Individually evaluated	$	22,119		$	6,150		$	1,534		$	764		$	15		$	—		$	—		$	30,582
Collectively evaluated	189,387			78,949			21,259			83,901			5,580			9,795			—			388,871
Total	$	211,506		$	85,099		$	22,793		$	84,665		$	5,595		$	9,795		$	—		$	419,453

Impaired loans, by definition, are individually evaluated.

As part of the management of the loan portfolio, risk ratings are assigned to all commercial loans.  Through the loan review process, ratings are modified as believed to be appropriate to reflect changes in the credit.  Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans.  To do so, we operate a credit risk rating system under which our credit management personnel assign a credit risk rating to each loan at the time of origination and review loans on a regular basis to determine each loan’s credit risk rating on a scale of 1 through 8, with higher scores indicating higher risk.  The credit risk rating structure used is shown below.

In the context of the credit risk rating structure, the term Classified is defined as a problem loan which may or may not be in a nonaccrual status, dependent upon current payment status and collectability.

Excellent (1)

Borrower is not vulnerable to sudden economic or technological changes and is in a non-seasonal business or industry.  These loans generally would be characterized by having good experienced management and a strong liquidity position with minimal leverage.

Good (2)

Borrower shows limited vulnerability to sudden economic change with modest seasonal effect.  Borrower has “above average” financial statements and an acceptable repayment history with minimal leverage and a profitability that exceeds peers.

Average (3)

Generally, a borrower rated as average may be susceptible to unfavorable changes in the economy and somewhat affected by seasonal factors.  Some product lines may be affected by technological change.  Borrowers in this category exhibit stable earnings, with a satisfactory payment history.

Acceptable (4)

The loan is an otherwise acceptable credit that warrants a higher level of administration due to various underlying weaknesses.  These weaknesses, however, have not and may never deteriorate to the point of a Special Mention rating or Classified status.  This rating category may include new businesses not yet having established a firm performance record.

Special Mention (5)

The loan is not considered as a Classified status, however may exhibit material weaknesses that, if not corrected, may cause future problems.  Borrowers in this category warrant special attention but have not yet reached the point of concern for loss.  The borrower may have deteriorated to the point that they would have difficulty refinancing elsewhere.   Similarly, purchasers of these businesses would not be eligible for bank financing unless they represent a significantly lessened credit risk.

Substandard (6)

The loan is Classified and exhibits a number of well-defined weaknesses that jeopardize normal repayment.  The assets are no longer adequately protected due to declining net worth, lack of earning capacity or insufficient collateral offering the distinct possibility of the loss of a portion of the loan principal.  Loans within this category clearly represent troubled and deteriorating credit situations requiring constant supervision and an action plan must be developed and approved by the appropriate officers to mitigate the risk.

Doubtful (7)

Loans in this category exhibit the same weaknesses used to describe the substandard credit; however, the traits are more pronounced.  Loans are frozen with collection improbable.  Such loans are not yet rated as Charge-off because certain actions may yet occur which would salvage the loan.

Charge-off/Loss (8)

Loans in this category are largely uncollectible and should be charged against the loan loss reserve immediately.

General Reserves:

For loans with a credit risk rating of 5 or better and any loans with a risk rating of 6 or 7 with no specific reserve, reserves are established based on the type of loan collateral, if any, and the assigned credit risk rating.  Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogenous loans based on historical loss experience, and consideration of current environmental factors and economic trends, all of which may be susceptible to significant change.

Using a historical average loss by loan type as a base, each loan graded as higher risk is assigned a specific percentage.  Within the commercial loan portfolio, the historical loss rates are used for specific industries such as hospitality, gaming, petroleum, and forestry.  The residential real estate and consumer loan portfolios are assigned a loss percentage as a homogenous group.  If, however, on an individual loan the projected loss based on collateral value and payment histories are in excess of the computed allowance, the allocation is increased for the higher anticipated loss.  These computations provide the basis for the allowance for loan losses as recorded by the Corporation.

Commercial construction loans in the amount of $3.394 million, $3.468 million and $3.407 million for the periods ended June 30, 2013, December 31, 2012 and June 30, 2012, respectively did not receive a specific risk rating.  These amounts represent loans made for land development and unimproved land purchases.  Below is a breakdown of loans by risk category as of June 30, 2013 (dollars in thousands):

	(1)		(2)		(3)		(4)		(5)		(6)		(7)		Rating
	Excellent		Good		Average		Acceptable		Sp. Mention		Substandard		Doubtful		Unassigned		Total
Commercial real estate	$	2,294	$	22,319	$	86,404	$	111,180	$	16,446	$	4,531	$	189	$	—	$	243,363
Commercial, financial and agricultural	4,997		5,253		21,780		46,214		4,176		1,725		—		—		84,145
Commercial construction	—		723		5,119		5,660		755		402		—		3,394		16,053
One to four family residential real estate	—		1,954		2,465		4,565		—		—		—		85,270		94,254
Consumer construction	—		—				—		—		—		—		4,305		4,305
Consumer	—		109		36		470		—		—		—		12,820		13,435
Total loans	$	7,291	$	30,358	$	115,804	$	168,089	$	21,377	$	6,658	$	189	$	105,789	$	455,555

Below is a breakdown of loans by risk category as of December 31, 2012 (dollars in thousands):

	(1)		(2)		(3)		(4)		(5)		(6)		(7)		Rating
	Excellent		Good		Average		Acceptable		Sp. Mention		Substandard		Doubtful		Unassigned		Total
Commercial real estate	$	4,807	$	20,491	$	84,164	$	113,379	$	16,754	$	5,189	$	182	$	—	$	244,966
Commercial, financial and agricultural	5,026		3,936		23,821		41,785		4,296		1,782		—		—		80,646
Commercial construction	—		1,038		5,103		5,784		759		1,077		—		3,468		17,229
One-to-four family residential real estate	—		1,969		3,635		4,791		—		646		—		76,907		87,948
Consumer construction	—		—		—		—		—		—		—		7,465		7,465
Consumer	—		359		71		257		—		6		—		10,230		10,923
Total loans	$	9,833	$	27,793	$	116,794	$	165,996	$	21,809	$	8,700	$	182	$	98,070	$	449,177

Below is a breakdown of loans by risk category as of June 30, 2012 (dollars in thousands):

	(1)		(2)		(3)		(4)		(5)		(6)		(7)		Rating
	Excellent		Good		Average		Acceptable		Sp. Mention		Substandard		Doubtful		Unassigned		Total
Commercial real estate	$	4,394	$	16,806	$	56,024	$	111,719	$	16,917	$	5,452	$	194	$	—	$	211,506
Commercial, financial and agricultural	4,316		5,827		20,866		47,912		4,468		1,710		—		—		85,099
Commercial construction	205		849		5,582		10,892		766		1,092		—		3,407		22,793
One to four family residential real estate	—		1,987		3,774		5,789		—		790		—		72,325		84,665
Consumer construction	—		—		—		—		—		—		—		5,595		5,595
Consumer	—		—		77		582		—		—		—		9,136		9,795
Total loans	$	8,915	$	25,469	$	86,323	$	176,894	$	22,151	$	9,044	$	194	$	90,463	$	419,453

Impaired Loans

Nonperforming loans are those which are contractually past due 90 days or more as to interest or principal payments, on nonaccrual status, or loans, the terms of which have been renegotiated to provide a reduction or deferral on interest or principal.  There was no interest income recorded during impairment for the three and six months ended June 30, 2013.  Interest income that would have been recognized during these periods was $.059 million and $.117 million, respectively.  For the three and six months ended June 30, 2012, the amounts that would have been recognized were $.037 million and $.174 million, respectively.

The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions.  When interest accrual is discontinued, all unpaid accrued interest is reversed.  Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans are considered impaired when, based on current information and events, it is probable the Corporation will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.  Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loans basis for other loans.  If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.  Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.  Impaired loans, or portions thereof, are charged off when deemed uncollectible.

The following is a summary of impaired loans and their effect on interest income (dollars in thousands):

											Three Months Ended				Six Months Ended
					QTD		YTD				Interest Income		Interest Income		Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Average		Related		Recognized		on		Recognized		on
	Basis		Basis		Investment		Investment		Valuation Reserve		During Impairment		Accrual Basis		During Impairment		Accrual Basis
June  30, 2013
With no valuation reserve:
Commercial real estate	$	728	$	—	$	733	$	797	$	—	$	—	$	14	$	—	$	26
Commercial, financial and agricultural	176		—		206		248		—		—		3		—		6
Commercial construction	—		—		—		275		—		—		—		—		3
One to four family residential real estate	94		—		133		165		—		—		3		—		5
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	9		—		2		1		—		—		—		—		—
With a valuation reserve:
Commercial real estate	$	2,329	$	—	$	2,308	$	2,298	$	1,240	$	—	$	30	$	—	$	60
Commercial, financial and agricultural	341		—		267		199		106		—		4		—		6
Commercial construction	—		—		—		—		—		—		—		—		—
One to four family residential real estate	306		—		303		289		126		—		5		—		11
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—
Total:
Commercial real estate	$	3,057	$	—	$	3,041	$	3,095	$	1,240	$	—	$	44	$	—	$	86
Commercial, financial and agricultural	517		—		473		447		106		—		7		—		12
Commercial construction	—		—		—		275		—		—		—		—		3
One to four family residential real estate	400		—		436		454		126		—		8		—		16
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	9		—		2		1		—		—		—		—		—
Total	$	3,983	$	—	$	3,952	$	4,272	$	1,472	$	—	$	59	$	—	$	117

									Interest Income		Interest Income
For the Year Ended:	Nonaccrual		Accrual		Average		Related		Recognized		on
December 31, 2012	Basis		Basis		Investment		Valuation Reserve		During Impairment		Accrual Basis
With no valuation reserve:
Commercial real estate	$	132	$	—	$	1,550	$	—	$	—	$	37
Commercial, financial and agricultural	—		—		1,063		—		—		19
Commercial construction	675		—		675		—		—		15
One to four family residential real estate	230		—		1,074		—		—		41
Consumer construction	—		—		16		—		—		1
Consumer	—		—		3		—		—		—
With a valuation reserve:
Commercial real estate	$	2,939	$	—	$	3,173	$	1,315	$	54	$	177
Commercial, financial and agricultural	436		—		504		109		—		17
Commercial construction	—		—		—		—		—		—
One to four family residential real estate	275		—		281		95		—		6
Consumer construction	—		—		—		—		—		—
Consumer	—		—		—		—		—		—
Total:
Commercial real estate	$	3,071	$	—	$	4,723	$	1,315	$	54	$	214
Commercial, financial and agricultural	436		—		1,567		109		—		36
Commercial construction	675		—		675		—		—		15
One to four family residential real estate	505		—		1,355		95		—		47
Consumer construction	—		—		16		—		—		1
Consumer	—		—		3		—		—		—
Total	$	4,687	$	—	$	8,339	$	1,519	$	54	$	313

											Three Months Ended				Six Months Ended
					QTD		YTD				Interest Income		Interest Income		Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Average		Related		Recognized		on		Recognized		on
	Basis		Basis		Investment		Investment		Valuation Reserve		During Impairment		Accrual Basis		During Impairment		Accrual Basis
June  30, 2012
With no valuation reserve:
Commercial real estate	$	535	$	—	$	655	$	1,138	$	—	$	—	$	9	$	—	$	23
Commercial, financial and agricultural	—		—		780		1,063		—		—		7		—		18
Commercial construction	676		—		338		676		—		—		4		—		4
One to four family residential real estate	543		—		613		874		—		—		9		—		24
Consumer construction	15		—		15		16		—		—		1		—		1
Consumer	—		—		—		—		—		—		—		—		—
With a valuation reserve:
Commercial real estate	$	3,214	$	—	$	3,604	$	3,916	$	708	$	17	$	80	$	37	$	94
Commercial, financial and agricultural	278		—		429		459		84		—		—		—		8
Commercial construction	—		—		—		—		—		—		—		—		—
One to four family residential real estate	114		—		93		114		18		—		2		—		2
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—
Total:
Commercial real estate	$	3,749	$	—	$	4,259	$	5,054	$	708	$	17	$	89	$	37	$	117
Commercial, financial and agricultural	278		—		1,209		1,522		84		—		7		—		26
Commercial construction	676		—		338		676		—		—		4		—		4
One to four family residential real estate	657		—		706		988		18		—		11		—		26
Consumer construction	15		—		15		16		—		—		1		—		1
Consumer	—		—		—		—		—		—		—		—		—
Total	$	5,375	$	—	$	6,527	$	8,256	$	810	$	17	$	112	$	37	$	174

A summary of past due loans at June 30, 2013, December 31, 2012 and June 30, 2012 is as follows (dollars in thousands):

	June 30,						December 31,						June 30,
	2013						2012						2012
	30-89 days		90+ days				30-89 days		90+ days				30-89 days		90+ days
	Past Due		Past Due/				Past Due		Past Due/				Past Due		Past Due/
	(accruing)		Nonaccrual		Total		(accruing)		Nonaccrual		Total		(accruing)		Nonaccrual		Total
Commercial real estate	$	146	$	3,057	$	3,203	$	575	$	3,071	$	3,646	$	—	$	3,749	$	3,749
Commercial, financial and agricultural	92		517		609		71		436		507		—		278		278
Commercial construction	—		—		—		—		675		675		—		676		676
One to four family residential real estate	100		400		500		291		505		796		286		657		943
Consumer construction	—		—		—		—		—		—		—		15		15
Consumer	18		9		27		14		—		14		14		—		14
Total past due loans	$	356	$	3,983	$	4,339	$	951	$	4,687	$	5,638	$	300	$	5,375	$	5,675

A roll-forward of nonaccrual activity for the three months ended June 30, 2013 (dollars in thousands):

	For the Three Months Ended June  30, 2013
				Commercial,					One to four
	Commercial			Financial and			Commercial		family residential			Consumer
	Real Estate			Agricultural			Construction		real estate			Construction		Consumer			Total
NONACCRUAL
Beginning balance	$	2,963		$	424		$	—	$	446		$	—	$	—		$	3,833
Principal payments	(31		)	(66		)	—		(16		)	—		—			(113		)
Charge-offs	—			—			—		(6		)	—		(4		)	(10		)
Advances	—			—			—		—			—		—			—
Class transfers	—			—			—		—			—		—			—
Transfers to OREO	—			—			—		(38		)	—		—			(38		)
Transfers to accruing	—			—			—		—			—		—			—
Transfers from accruing	126			179			—		14			—		13			332
Other	(1		)	(20		)	—		—			—		—			(21		)
Ending balance	$	3,057		$	517		$	—	$	400		$	—	$	9		$	3,983

A roll-forward of nonaccrual activity for the three months ended June 30, 2012 (dollars in thousands):

	For the Three Months Ended June  30, 2012
				Commercial,					One to four
	Commercial			Financial and			Commercial		family residential			Consumer
	Real Estate			Agricultural			Construction		real estate			Construction		Consumer		Total
NONACCRUAL
Beginning balance	$	1,954		$	1,626		$	—	$	862		$	15	$	—	$	4,457
Principal payments	(646		)	(1,351		)	—		(4		)	—		—		(2,001		)
Charge-offs	(417		)	—			—		(106		)	—		—		(523		)
Advances	—			—			—		—			—		—		—
Class transfers	—			—			—		—			—		—		—
Transfers to OREO	(139		)	—			—		(186		)	—		—		(325		)
Transfers to accruing	—			—			—		—			—		—		—
Transfers from accruing	2,978			—			676		88			—		—		3,742
Other	19			3			—		3			—		—		25
Ending balance	$	3,749		$	278		$	676	$	657		$	15	$	—	$	5,375

A roll-forward of nonaccrual activity for the first six months ended June 30, 2013 (dollars in thousands):

	For the Six Months Ended June 30, 2013
				Commercial,						One to four
	Commercial			Financial and			Commercial			family residential			Consumer
	Real Estate			Agricultural			Construction			real estate			Construction		Consumer			Total
NONACCRUAL
Beginning balance	$	3,071		$	436		$	675		$	505		$	—	$	—		$	4,687
Principal payments	(148		)	(68		)	(100		)	(65		)	—		—			(381		)
Charge-offs	(329		)	(72		)	—			(13		)	—		(4		)	(418		)
Advances	—			—			—			—			—		—			—
Class transfers	—			—			—			—			—		—			—
Transfers to OREO	—			—			(580		)	(107		)	—		—			(687		)
Transfers to accruing	—			—			—			—			—		—			—
Transfers from accruing	443			241			—			76			—		13			773
Other	20			(20		)	5			4			—		—			9
Ending balance	$	3,057		$	517		$	—		$	400		$	—	$	9		$	3,983

A roll-forward of nonaccrual activity for the first six months ended June 30, 2012 (dollars in thousands):

	For the Six Months Ended June 30, 2012
				Commercial,					One to four
	Commercial			Financial and			Commercial		family residential			Consumer
	Real Estate			Agricultural			Construction		real estate			Construction			Consumer		Total
NONACCRUAL
Beginning balance	$	2,362		$	1,111		$	—	$	1,997		$	20		$	—	$	5,490
Principal payments	(1,012		)	(1,382		)	—		(1,052		)	—			—		(3,446		)
Charge-offs	(463		)	—			—		(293		)	(5		)	—		(761		)
Advances	—			—			—		—			—			—		—
Class transfers	—			—			—		—			—			—		—
Transfers to OREO	(466		)	—			—		(219		)	—			—		(685		)
Transfers to accruing	—			—			—		—			—			—		—
Transfers from accruing	3,288			559			676		220			—			—		4,743
Other	40			(10		)	—		4			—			—		34
Ending balance	$	3,749		$	278		$	676	$	657		$	15		$	—	$	5,375

A roll-forward of nonaccrual activity during the year ended December 31, 2012 (dollars in thousands):

				Commercial,					One to four
	Commercial			Financial and			Commercial		family residential			Consumer
	Real Estate			Agricultural			Construction		real estate			Construction			Consumer			Total
NONACCRUAL
Beginning balance	$	2,362		$	1,111		$	—	$	1,997		$	20		$	—		$	5,490
Principal payments	(1,569		)	(1,385		)	—		(1,068		)	—			—			(4,022		)
Charge-offs	(463		)	—			—		(387		)	(5		)	(3		)	(858		)
Advances	—			—			—		—			—			—			—
Class transfers	—			—			—		—			—			—			—
Transfers to OREO	(675		)	—			—		(662		)	(15		)	—			(1,352		)
Transfers to accruing	—			—			—		—			—			—			—
Transfers from accruing	3,377			716			675		617			—			3			5,388
Other	39			(6		)	—		8			—			—			41
Ending balance	$	3,071		$	436		$	675	$	505		$	—		$	—		$	4,687

Troubled Debt Restructuring

Troubled debt restructurings (“TDR”) are determined on a loan-by-loan basis.  Generally restructurings are related to interest rate reductions, loan term extensions and short term payment forbearance as means to maximize collectability of troubled credits.  If a portion of the TDR loan is uncollectible (including forgiveness of principal), the uncollectible amount will be charged off against the allowance at the time of the restructuring.  In general, a borrower must make at least six consecutive timely payments before the Corporation would consider a return of a restructured loan to accruing status in accordance with FDIC guidelines regarding restoration of credits to accrual status.

The Corporation has, in accordance with generally accepted accounting principles and per recently enacted accounting standard updates, evaluated all loan modifications to determine the fair value impact of the underlying asset.  The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan’s original rate, or for collateral dependent loans, to the fair value of the collateral.

A summary of troubled debt restructurings for the periods indicated is as follows (dollars in thousands):

	June 30,			December 31,			June 30,
	2013			2012			2012
	Number of	Recorded		Number of	Recorded		Number of	Recorded
	Modifications	Investment		Modifications	Investment		Modifications	Investment
Commercial real estate	—	$	—	3	$	4,614	—	$	—
Commercial, financial and agricultural	—	—		1	1,221		—	—
Commercial construction	—	—		3	860		—	—
One to four family residential real estate	—	—		1	102		—	—
Consumer construction	—	—		—	—		—	—
Consumer	—	—		—	—		—	—
Total troubled debt restructurings	—	$	—	8	$	6,797	—	$	—

A roll-forward of troubled debt restructuring during the three months ended June 30, 2013 (dollars in thousands):

				Commercial,				One to four		Consumer and
	Commercial			Financial and		Commercial		family residential		Consumer
	Real Estate			Agricultural		Construction		real estate		Construction		Total
ACCRUING
Beginning balance	$	3,588		$	2,174	$	858	$	100	$	—	$	6,720
Principal payments	(25		)	—		—		—		—		(25		)
Charge-offs	—			—		—		—		—		—
Advances	—			—		—		—		—		—
New restructured	—			—		—		—		—		—
Transferred out of TDR	—			—		—		—		—		—
Transfers to nonaccrual	—			—		—		—		—		—
Ending Balance	$	3,563		$	2,174	$	858	$	100	$	—	$	6,695
NONACCRUAL
Beginning balance	$	2,169		$	—	$	—	$	106	$	—	$	2,275
Principal payments	—			—		—		—		—		—
Charge-offs	—			—		—		—		—		—
Advances	—			—		—		—		—		—
New restructured	—			—		—		—		—		—
Transfers to foreclosed properties	—			—		—		—		—		—
Transfers from accruing	—			—		—		—		—		—
Ending Balance	$	2,169		$	—	$	—	$	106	$	—	$	2,275
TOTALS
Beginning balance	$	5,757		$	2,174	$	858	$	206	$	—	$	8,995
Principal payments	(25		)	—		—		—		—		(25		)
Charge-offs	—			—		—		—		—		—
Advances	—			—		—		—		—		—
New restructured	—			—		—		—		—		—
Transfers out of TDRs	—			—		—		—		—		—
Tansfers to nonaccrual	—			—		—		—		—		—
Transfers to foreclosed properties	—			—		—		—		—		—
Transfers from accruing	—			—		—		—		—		—
Ending Balance	$	5,732		$	2,174	$	858	$	206	$	—	$	8,970

A roll-forward of troubled debt restructuring during the three months ended June 30, 2012 (dollars in thousands):

				Commercial,						One to four			Consumer and
	Commercial			Financial and			Commercial			family residential			Consumer
	Real Estate			Agricultural			Construction			real estate			Construction		Total
ACCRUING
Beginning balance	$	3,672		$	1,221		$	859		$	103		$	—	$	5,855
Principal payments	(19		)	—			(1		)	(1		)	—		(21		)
Charge-offs	—			—			—			—			—		—
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transferred out of TDRs	—			—			—			—			—		—
Transfers to nonaccrual	—			—			—			—			—		—
Ending Balance	$	3,653		$	1,221		$	858		$	102		$	—	$	5,834
NONACCRUAL
Beginning balance	$	3,235		$	1,072		$	—		$	293		$	—	$	4,600
Principal payments	(615		)	(1,072		)	—			—			—		(1,687		)
Charge-offs	(426		)	—			—			(100		)	—		(526		)
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transfers to foreclosed properties	—			—			—			(187		)	—		(187		)
Transfers from accruing	—			—			—			—			—		—
Ending Balance	$	2,194		$	—		$	—		$	6		$	—	$	2,200
TOTALS
Beginning balance	$	6,907		$	2,293		$	859		$	396		$	—	$	10,455
Principal payments	(634		)	(1,072		)	(1		)	(1		)	—		(1,708		)
Charge-offs	(426		)	—			—			(100		)	—		(526		)
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transfers out of TDRs	—			—			—			—			—		—
Tansfers to nonaccrual	—			—			—			—			—		—
Transfers to foreclosed properties	—			—			—			(187		)	—		(187		)
Transfers from accruing	—			—			—			—			—		—
Ending Balance	$	5,847		$	1,221		$	858		$	108		$	—	$	8,034

A roll-forward of troubled debt restructuring during the six months ended June 30, 2013 (dollars in thousands):

				Commercial,				One to four			Consumer and
	Commercial			Financial and		Commercial		family residential			Consumer
	Real Estate			Agricultural		Construction		real estate			Construction		Total
ACCRUING
Beginning balance	$	3,611		$	1,221	$	858	$	102		$	—	$	5,792
Principal payments	(48		)	—		—		(2		)	—		(50		)
Charge-offs	—			—		—		—			—		—
Advances	—			—		—		—			—		—
New restructured	—			953		—		—			—		953
Transferred out of TDRs	—			—		—		—			—		—
Transfers to nonaccrual	—			—		—		—			—		—
Ending Balance	$	3,563		$	2,174	$	858	$	100		$	—	$	6,695
NONACCRUAL
Beginning balance	$	2,162		$	—	$	—	$	102		$	—	$	2,264
Principal payments	—			—		—		—			—		—
Charge-offs	—			—		—		—			—		—
Advances	—			—		—		—			—		—
New restructured	7			—		—		4			—		11
Transfers to foreclosed properties	—			—		—		—			—		—
Transfers from accruing	—			—		—		—			—		—
Ending Balance	$	2,169		$	—	$	—	$	106		$	—	$	2,275
TOTALS
Beginning balance	$	5,773		$	1,221	$	858	$	204		$	—	$	8,056
Principal payments	(48		)	—		—		(2		)	—		(50		)
Charge-offs	—			—		—		—			—		—
Advances	—			—		—		—			—		—
New restructured	7			953		—		4			—		964
Transfers out of TDR	—			—		—		—			—		—
Transfers to nonaccrual	—			—		—		—			—		—
Transfers to foreclosed properties	—			—		—		—			—		—
Transfer from accruing	—			—		—		—			—		—
Ending Balance	$	5,732		$	2,174	$	858	$	206		$	—	$	8,970

A roll-forward of troubled debt restructuring during the six months ended June 30, 2012 (dollars in thousands):

				Commercial,						One to four			Consumer and
	Commercial			Financial and			Commercial			family residential			Consumer
	Real Estate			Agricultural			Construction			real estate			Construction		Total
ACCRUING
Beginning balance	$	2,400		$	—		$	—		$	103				$	2,503
Principal payments	(19		)	—			(1		)	(1		)	—		(21		)
Charge-offs	—			—			—			—			—		—
Advances	—			—			—			—			—		—
New restructured	3,672			1,221			859			—			—		5,752
Transferred out of TDRs	—			—			—			—			—		—
Transfers to nonaccrual	(2,400		)	—			—			—			—		(2,400		)
Ending Balance	$	3,653		$	1,221		$	858		$	102		$	—	$	5,834
NONACCRUAL
Beginning balance	$	—		$	—		$	—		$	—		$	—	$	—
Principal payments	(615		)	(1,072		)	—			—			—		(1,687		)
Charge-offs	(426		)	—			—			(100		)	—		(526		)
Advances	—			—			—			—			—		—
New restructured	835			1,072			—			293			—		2,200
Transfers to foreclosed properties	—			—			—			(187		)	—		(187		)
Transfers from accruing	2,400			—			—			—			—		2,400
Ending Balance	$	2,194		$	—		$	—		$	6		$	—	$	2,200
TOTALS
Beginning balance	$	2,400		$	—		$	—		$	103		$	—	$	2,503
Principal payments	(634		)	(1,072		)	(1		)	(1		)	—		(1,708		)
Charge-offs	(426		)	—			—			(100		)	—		(526		)
Advances	—			—			—			—			—		—
New restructured	4,507			2,293			859			293			—		7,952
Transfers out of TDRs	—			—			—			—			—		—
Transfers to nonaccrual	(2,400		)	—			—			—			—		(2,400		)
Transfers to foreclosed properties	—			—			—			(187		)	—		(187		)
Transfers from accruing	2,400			—			—			—			—		2,400
Ending Balance	$	5,847		$	1,221		$	858		$	108		$	—	$	8,034

A roll-forward of troubled debt restructuring during the year ended December 31, 2012 (dollars in thousands):

				Commercial,					One to four			Consumer and
	Commercial			Financial and		Commercial			family residential			Consumer
	Real Estate			Agricultural		Construction			real estate			Construction		Total
ACCRUING
Beginning balance	$	2,400		$	—	$	—		$	103		$	—	$	2,503
Principal payments	(84		)	—		(2		)	(1		)	—		(87		)
Charge-offs	—			—		—			—			—		—
Advances	—			—		—			—			—		—
New restructured	3,695			1,221		860			—			—		5,776
Transferred out of TDR	—			—		—			—			—		—
Transfers to nonaccrual	(2,400		)	—		—			—			—		(2,400		)
Ending Balance	$	3,611		$	1,221	$	858		$	102		$	—	$	5,792
NONACCRUAL
Beginning balance	$	—		$	—	$	—		$	—		$	—	$	—
Principal payments	(432		)	—		—			—			—		(432		)
Charge-offs	(772		)	—		—			—			—		(772		)
Advances	47			—		—			—			—		47
New restructured	919			—		—			102			—		1,021
Transfers to foreclosed properties	—			—		—			—			—		—
Transfers from accruing	2,400			—		—			—			—		2,400
Ending Balance	$	2,162		$	—	$	—		$	102		$	—	$	2,264
TOTALS
Beginning balance	$	2,400		$	—	$	—		$	103		$	—	$	2,503
Principal payments	(516		)	—		(2		)	(1		)	—		(519		)
Charge-offs	(772		)	—		—			—			—		(772		)
Advances	47			—		—			—			—		47
New restructured	4,614			1,221		860			102			—		6,797
Transfers out of TDRs	—			—		—			—			—		—
Tansfers to nonaccrual	(2,400		)	—		—			—			—		(2,400		)
Transfers to foreclosed properties	—			—		—			—			—		—
Transfers from accruing	2,400			—		—			—			—		2,400
Ending Balance	$	5,773		$	1,221	$	858		$	204		$	—	$	8,056

Insider Loans

The Bank, in the ordinary course of business, grants loans to the Corporation’s executive officers and directors, including their families and firms in which they are principal owners. Activity in such loans is summarized below (dollars in thousands):

	June 30,			December 31,			June 30,
	2013			2012			2012
Loans outstanding, beginning of period	$	11,297		$	8,827		$	8,827
New loans	496			3,911			936
Net activity on revolving lines of credit	(25		)	233			41
Principal payments	(1,298		)	(1,674		)	(419		)
Loans outstanding, end of period	$	10,470		$	11,297		$	9,385

There were no loans to related parties classified substandard as of June 30, 2013, December 31, 2012 or June 30, 2012.  In addition to the outstanding balances above, there were unfunded commitments of $.055 million to related parties at June 30, 2013.