LOANS

9 Months Ended

Sep. 30, 2013

LOANS

LOANS

4. LOANS

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

	September 30,		December 31,		September 30,
	2013		2012		2012
Commercial real estate	$	257,961	$	244,966	$	224,061
Commercial, financial, and agricultural	79,511		80,646		84,073
One to four family residential real estate	98,770		87,948		86,643
Construction :
Consumer	5,734		7,465		6,803
Commerical	16,054		17,229		21,757
Consumer	14,465		10,923		10,621
Total loans	$	472,495	$	449,177	$	433,958

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

	September 30,			December 31,			September 30,
	2013			2012			2012
Balance at beginning of period	$	5,218		$	5,251		$	5,251
Recoveries on loans previously charged off	154			278			231
Loans charged off	(1,263		)	(1,256		)	(1,091		)
Provision	850			945			795
Balance at end of period	$	4,959		$	5,218		$	5,186

In the first nine months of 2013, net charge off activity was $1.109 million, or .32% of average loans outstanding compared to net charge-offs of $.860 million, or .28% of average loans, in the same period in 2012.   In the first nine months of 2013, the Corporation recorded a provision for loan loss of $.850 million compared to $.795 million in the first nine months 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 September 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 September 30, 2013
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,661		$	1,090		$	97		$	877		$	—		$	13		$	439		$	5,177
Charge-offs	(132		)	(476		)	—			(25		)	—			(14		)	—			(647		)
Recoveries	23			20			—			6			1			4			—			54
Provision	3			522			(16		)	44			(1		)	15			(192		)	375
Ending balance ALLR	$	2,555		$	1,156		$	81		$	902		$	—		$	18		$	247		$	4,959
Nine Months Ended September 30, 2013
Allowance for loan loss reserve:
Beginning balance ALLR	$	3,267		$	692		$	125		$	980		$	—		$	—		$	154		$	5,218
Charge-offs	(588		)	(552		)	—			(38		)	—			(85		)	—			(1,263		)
Recoveries	64			53			2			17			1			17			—			154
Provision	(188		)	963			(46		)	(57		)	(1		)	86			93			850
Ending balance ALLR	$	2,555		$	1,156		$	81		$	902		$	—		$	18		$	247		$	4,959
At September 30,2013
Loans:
Ending balance	$	257,961		$	79,511		$	16,054		$	98,770		$	5,734		$	14,465		$	—		$	472,495
Ending balance ALLR	(2,555		)	(1,156		)	(81		)	(902		)	—			(18		)	(247		)	(4,959		)
Net loans	$	255,406		$	78,355		$	15,973		$	97,868		$	5,734		$	14,447		$	(247	)	$	467,536
Ending balance ALLR:
Individually evaluated	$	1,407		$	802		$	6		$	246		$	—		$	18		$	—		$	2,479
Collectively evaluated	1,148			354			75			656			—			—			247			2,480
Total	$	2,555		$	1,156		$	81		$	902		$	—		$	18		$	247		$	4,959
Ending balance Loans:
Individually evaluated	$	13,475		$	7,638		$	798		$	450		$	—		$	35		$	—		$	22,396
Collectively evaluated	244,486			71,873			15,256			98,320			5,734			14,430			—			450,099
Total	$	257,961		$	79,511		$	16,054		$	98,770		$	5,734		$	14,465		$	—		$	472,495

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,						One to four
	Commercial			financial and			Commercial			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 September 30, 2012 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 September 30, 2012
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,784		$	888		$	218		$	1,083		$	—	$	—		$	110		$	5,083
Charge-offs	(36		)	—			—			(23		)	—		(1		)	—			(60		)
Recoveries	10			1			—			—			—		2			—			13
Provision	90			(114		)	(33		)	177			—		(1		)	31			150
Ending balance ALLR	$	2,848		$	775		$	185		$	1,237		$	—	$	—		$	141		$	5,186
Nine Months Ended September 30, 2012
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,823		$	1,079		$	207		$	1,114		$	—	$	—		$	28		$	5,251
Charge-offs	(726		)	(24		)	(6		)	(319		)	—		(16		)	—			(1,091		)
Recoveries	27			188			—			5			—		11			—			231
Provision	724			(468		)	(16		)	437			—		5			113			795
Ending balance ALLR	$	2,848		$	775		$	185		$	1,237		$	—	$	—		$	141		$	5,186
At September 30, 2012
Loans:
Ending balance	$	224,061		$	84,073		$	21,757		$	86,643		$	6,803	$	10,621		$	—		$	433,958
Ending balance ALLR	(2,848		)	(775		)	(185		)	(1,237		)	—		—			(141		)	(5,186		)
Net loans	$	221,213		$	83,298		$	21,572		$	85,406		$	6,803	$	10,621		$	(141	)	$	428,772
Ending balance ALLR:
Individually evaluated	$	1,198		$	145		$	11		$	277		$	—	$	—		$	—		$	1,631
Collectively evaluated	1,650			630			174			960			—		—			141			3,555
Total	$	2,848		$	775		$	185		$	1,237		$	—	$	—		$	141		$	5,186
Ending balance Loans:
Individually evaluated	$	22,571		$	5,997		$	858		$	1,248		$	—	$	10		$	—		$	30,684
Collectively evaluated	201,490			78,076			20,899			85,395			6,803		10,611			—			403,274
Total	$	224,061		$	84,073		$	21,757		$	86,643		$	6,803	$	10,621		$	—		$	433,958

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 $2.773 million, $3.468 million and $3.882 million for the periods ended September 30, 2013 and December 31, 2012, and September 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 September 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	$	2,240	$	23,675	$	88,105	$	123,373	$	16,117	$	4,451	$	—	$	—	$	257,961
Commercial, financial and agricultural	4,260		5,108		22,263		41,851		3,746		2,094		189		—		79,511
Commercial construction	—		676		5,283		6,167		753		402		—		2,773		16,054
One to four family residential real estate	—		1,951		2,186		4,522		—		6		—		90,105		98,770
Consumer construction	—		—		—		—		—		—		—		5,734		5,734
Consumer	—		102		34		632		—		—		—		13,697		14,465
Total loans	$	6,500	$	31,512	$	117,871	$	176,545	$	20,616	$	6,953	$	189	$	112,309	$	472,495

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 September 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	$	3,372	$	19,939	$	72,647	$	105,736	$	16,784	$	5,374	$	209	$	—	$	224,061
Commercial, financial and agricultural	4,306		5,517		25,932		42,097		4,320		1,901		—		—		84,073
Commercial construction	—		988		5,039		9,995		761		1,092		—		3,882		21,757
One to four family residential real estate	—		1,979		3,586		4,703		—		709		—		75,666		86,643
Consumer construction	—		—		—		—		—		—		—		6,803		6,803
Consumer	—		362		71		233		—		3		—		9,952		10,621
Total loans	$	7,678	$	28,785	$	107,275	$	162,764	$	21,865	$	9,079	$	209	$	96,303	$	433,958

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 and that which would have been recognized was $.060 million for the three months ended September 30, 2013, and no interest income recorded during impairment and that which would have been recognized of $.177 million for the nine months ended September 30, 2013.  For the three months ended September 30, 2012, the amounts were $.017 million and $.072 million and for the nine month period in 2012, the amounts were $.054 million and $.246 million.

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				Nine 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
September 30, 2013
With no valuation reserve:
Commercial real estate	$	238	$	—	$	412	$	501	$	—	$	—	$	—	$	—	$	26
Commercial, financial and agricultural	—		—		147		243		—		—		3		—		9
Commercial construction	—		—		—		193		—		—		—		—		3
One to four family residential real estate	67		—		86		140		—		—		2		—		7
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	10		—		9		4		—		—		—		—		—
With a valuation reserve:
Commercial real estate	$	2,589	$	—	$	2,581	$	2,557	$	1,272	$	—	$	42	$	—	$	102
Commercial, financial and agricultural	767		—		741		373		33		—		5		—		11
Commercial construction	—		—		—		—		—		—		—		—		—
One to four family residential real estate	642		—		560		396		250		—		8		—		19
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—
Total:
Commercial real estate	$	2,827	$	—	$	2,993	$	3,058	$	1,272	$	—	$	42	$	—	$	128
Commercial, financial and agricultural	767		—		888		616		33		—		8		—		20
Commercial construction	—		—		—		193		—		—		—		—		3
One to four family residential real estate	709		—		646		536		250		—		10		—		26
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	10		—		9		4		—		—		—		—		—
Total	$	4,313	$	—	$	4,536	$	4,407	$	1,555	$	—	$	60	$	—	$	177

									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				Nine 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
September 30, 2012
With no valuation reserve:
Commercial real estate	$	530	$	—	$	533	$	1,135	$	—	$	—	$	9	$	—	$	32
Commercial, financial and agricultural	—		—		—		1,063		—		—		—		—		18
Commercial construction	676		—		676		676		—		—		5		—		9
One to four family residential real estate	156		—		384		818		—		—		4		—		28
Consumer construction	15		—		15		16		—		—		—		—		1
Consumer	—		—		—		—		—		—		—		—		—
With a valuation reserve:
Commercial real estate	$	3,161	$	—	$	3,177	$	3,663	$	937	$	17	$	42	$	54	$	136
Commercial, financial and agricultural	287		—		281		398		90		—		4		—		12
Commercial construction	—		—		—		—		—		—		—		—		—
One to four family residential real estate	462		—		267		463		188		—		8		—		10
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	3		—		1		3		3		—		—		—		—
Total:
Commercial real estate	$	3,691	$	—	$	3,710	$	4,798	$	937	$	17	$	51	$	54	$	168
Commercial, financial and agricultural	287		—		281		1,461		90		—		4		—		30
Commercial construction	676		—		676		676		—		—		5		—		9
One to four family residential real estate	618		—		651		1,281		188		—		12		—		38
Consumer construction	15		—		15		16		—		—		—		—		1
Consumer	3		—		1		3		3		—		—		—		—
Total	$	5,290	$	—	$	5,334	$	8,235	$	1,218	$	17	$	72	$	54	$	246

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

	September 30,						December 31,						September 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	$	—	$	2,827	$	2,827	$	575	$	3,071	$	3,646	$	427	$	3,691	$	4,118
Commercial, financial and agricultural	100		767		867		71		436		507		64		287		351
Commercial construction	—		—		—		—		675		675		47		676		723
One to four family residential real estate	186		709		895		291		505		796		582		618		1,200
Consumer construction	—		—		—		—		—		—		—		15		15
Consumer	31		10		41		14		—		14		99		3		102
Total past due loans	$	317	$	4,313	$	4,630	$	951	$	4,687	$	5,638	$	1,219	$	5,290	$	6,509

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

	For the Three Months Ended September 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	$	3,057		$	517		$	—	$	400		$	—	$	9		$	3,983
Principal payments	(26		)	(224		)	—		(12		)	—		(1		)	(263		)
Charge-offs	(23		)	(476		)	—		(24		)	—		—			(523		)
Advances	—			—			—		—			—		—			—
Class transfers	—			—			—		—			—		—			—
Transfers to OREO	(208		)	(37		)	—		—			—		—			(245		)
Transfers to accruing	—			—			—		—			—		—			—
Transfers from accruing	—			966			—		344			—		2			1,312
Other	27			21			—		1								49
Ending balance	$	2,827		$	767		$	—	$	709		$	—	$	10		$	4,313

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

	For the Three Months Ended September 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	$	3,749		$	278		$	676	$	657		$	15	$	—	$	5,375
Principal payments	(89		)	(1		)	—		(2		)	—		—		(92		)
Charge-offs	—			—			—		(14		)	—		—		(14		)
Advances	—			—			—		—			—		—		—
Class transfers	—			—			—		(329		)	—		—		(329		)
Transfers to OREO	—			—			—		—			—		—		—
Transfers to accruing	—			—			—		—			—		—		—
Transfers from accruing	—			7			—		304			—		3		314
Other	31			3			—		2			—		—		36
Ending balance	$	3,691		$	287		$	676	$	618		$	15	$	3	$	5,290

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

	For the Nine Months Ended September 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	(174		)	(292		)	(100		)	(77		)	—		(1		)	(644		)
Charge-offs	(352		)	(548		)	—			(37		)	—		(4		)	(941		)
Advances	—			—			—			—			—		—			—
Class transfers	—			—			—			—			—		—			—
Transfers to OREO	(208		)	(37		)	(580		)	(107		)	—		—			(932		)
Transfers to accruing	—			—			—			—			—		—			—
Transfers from accruing	443			1,207			—			420			—		15			2,085
Other	47			1			5			5			—		—			58
Ending balance	$	2,827		$	767		$	—		$	709		$	—	$	10		$	4,313

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

	For the Nine Months Ended September 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	(1,101		)	(1,383		)	—		(1,054		)	—			—		(3,538		)
Charge-offs	(463		)	—			—		(307		)	(5		)	—		(775		)
Advances	—			—			—		—			—			—		—
Class transfers	—			—			—		—			—			—		—
Transfers to OREO	(465		)	—			—		(548		)	—			—		(1,013		)
Transfers to accruing	—			—			—		—			—			—		—
Transfers from accruing	3,288			566			676		524			—			3		5,057
Other	70			(7		)	—		6			—			—		69
Ending balance	$	3,691		$	287		$	676	$	618		$	15		$	3	$	5,290

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):

	September  30,			December 31,			September  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	4	$	5,799
Commercial, financial and agricultural	1	528		1	1,221		1	1,221
Commercial construction	—	—		3	860		3	858
One to four family residential real estate	—	—		1	102		1	102
Consumer construction	—	—		—	—		—	—
Consumer	—	—		—	—		—	—
Total troubled debt restructurings	1	$	528	8	$	6,797	9	$	7,980

A roll-forward of troubled debt restructuring during the three months ended September 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	$	3,563		$	2,174		$	858	$	100		$	—	$	6,695
Principal payments	(20		)	(25		)	—		(1		)			(46		)
Charge-offs	—			(400		)	—		—			—		(400		)
Advances	—			—			—		—			—		—
New restructured	—			—			—		—			—		—
Transferred out of TDR	—			—			—		—			—		—
Transfers to nonaccrual	—			(528		)	—		—			—		(528		)
Ending Balance	$	3,543		$	1,221		$	858	$	99		$	—	$	5,721
NONACCRUAL
Beginning balance	$	2,169		$	—		$	—	$	106		$	—	$	2,275
Principal payments	(87		)	—			—		(14		)	—		(101		)
Charge-offs	—			—			—		—			—		—
Advances	—			—			—		—			—		—
New restructured	—			—			—		—			—		—
Transfers to foreclosed properties	—			—			—		—			—		—
Transfers from accruing	—			528			—		—			—		528
Ending Balance	$	2,082		$	528		$	—	$	92		$	—	$	2,702
TOTALS
Beginning balance	$	5,732		$	2,174		$	858	$	206		$	—	$	8,970
Principal payments	(107		)	(25		)	—		(15		)	—		(147		)
Charge-offs	—			(400		)	—		—			—		(400		)
Advances	—			—			—		—			—		—
New restructured	—			—			—		—			—		—
Transfers out of TDRs	—			—			—		—			—		—
Tansfers to nonaccrual	—			(528		)	—		—			—		(528		)
Transfers to foreclosed properties	—			—			—		—			—		—
Transfers from accruing	—			528			—		—			—		528
Ending Balance	$	5,625		$	1,749		$	858	$	191		$	—	$	8,423

A roll-forward of troubled debt restructuring during the three months ended September 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	$	3,645		$	1,221	$	858	$	102	$	—	$	5,826
Principal payments	(14		)	—		—		—		—		(14		)
Charge-offs	—			—		—		—		—		—
Advances	—			—		—		—		—		—
New restructured	—			—		—		—		—		—
Transferred out of TDRs	—			—		—		—		—		—
Transfers to nonaccrual	—			—		—		—		—		—
Ending Balance	$	3,631		$	1,221	$	858	$	102	$	—	$	5,812
NONACCRUAL
Beginning balance	$	2,188		$	—	$	—	$	—	$	—	$	2,188
Principal payments	(47		)	—		—		—		—		(47		)
Charge-offs	—			—		—		—		—		—
Advances	27			—		—		—		—		27
New restructured	—			—		—		—		—		—
Transfers to foreclosed properties	—			—		—		—		—		—
Transfers from accruing	—			—		—		—		—		—
Ending Balance	$	2,168		$	—	$	—	$	—	$	—	$	2,168
TOTALS
Beginning balance	$	5,833		$	1,221	$	858	$	102	$	—	$	8,014
Principal payments	(61		)	—		—		—		—		(61		)
Charge-offs	—			—		—		—		—		—
Advances	27			—		—		—		—		27
New restructured	—			—		—		—		—		—
Transfers out of TDRs	—			—		—		—		—		—
Tansfers to nonaccrual	—			—		—		—		—		—
Transfers to foreclosed properties	—			—		—		—		—		—
Transfers from accruing	—			—		—		—		—		—
Ending Balance	$	5,799		$	1,221	$	858	$	102	$	—	$	7,980

A roll-forward of troubled debt restructuring during the nine months ended September 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	(68		)	(25		)	—		(3		)	—		(96		)
Charge-offs	—			(400		)	—		—			—		(400		)
Advances	—			—			—		—			—		—
New restructured	—			953			—		—			—		953
Transferred out of TDRs	—			—			—		—			—		—
Transfers to nonaccrual	—			(528		)	—		—			—		(528		)
Ending Balance	$	3,543		$	1,221		$	858	$	99		$	—	$	5,721
NONACCRUAL
Beginning balance	$	2,162		$	—		$	—	$	102		$	—	$	2,264
Principal payments	(87		)	—			—		(14		)	—		(101		)
Charge-offs	—			—			—		—			—		—
Advances	—			—			—		—			—		—
New restructured	7			—			—		4			—		11
Transfers to foreclosed properties	—			—			—		—			—		—
Transfers from accruing	—			528			—		—			—		528
Ending Balance	$	2,082		$	528		$	—	$	92		$	—	$	2,702
TOTALS
Beginning balance	$	5,773		$	1,221		$	858	$	204		$	—	$	8,056
Principal payments	(155		)	(25		)	—		(17		)	—		(197		)
Charge-offs	—			(400		)	—		—			—		(400		)
Advances	—			—			—		—			—		—
New restructured	7			953			—		4			—		964
Transfers out of TDR	—			—			—		—			—		—
Transfers to nonaccrual	—			(528		)	—		—			—		(528		)
Transfers to foreclosed properties	—			528			—		—			—		528
Transfer from accruing	—			—			—		—			—		—
Ending Balance	$	5,625		$	1,749		$	858	$	191		$	—	$	8,423

A roll-forward of troubled debt restructuring during the nine months ended September 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	(64		)	—		(2		)	(1		)	—		(67		)
Charge-offs	—			—		—			—			—		—
Advances	—			—		—			—			—		—
New restructured	3,695			1,221		860			—			—		5,776
Transferred out of TDRs	—			—		—			—			—		—
Transfers to nonaccrual	(2,400		)	—		—			—			—		(2,400		)
Ending Balance	$	3,631		$	1,221	$	858		$	102		$	—	$	5,812
NONACCRUAL
Beginning balance	$	—		$	—	$	—		$	—		$	—	$	—
Principal payments	(426		)	—		—			—			—		(426		)
Charge-offs	(772		)	—		—			—			—		(772		)
Advances	47			—		—			—			—		47
New restructured	919			—		—			—			—		919
Transfers to foreclosed properties	—			—		—			—			—		—
Transfers from accruing	2,400			—		—			—			—		2,400
Ending Balance	$	2,168		$	—	$	—		$	—		$	—	$	2,168
TOTALS
Beginning balance	$	2,400		$	—	$	—		$	103		$	—	$	2,503
Principal payments	(490		)	—		(2		)	(1		)	—		(493		)
Charge-offs	(772		)	—		—			—			—		(772		)
Advances	47			—		—			—			—		47
New restructured	4,614			1,221		860			—			—		6,695
Transfers out of TDRs	—			—		—			—			—		—
Transfers to nonaccrual	(2,400		)	—		—			—			—		(2,400		)
Transfers to foreclosed properties	—			—		—			—			—		—
Transfers from accruing	2,400			—		—			—			—		2,400
Ending Balance	$	5,799		$	1,221	$	858		$	102		$	—	$	7,980

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 TDRs	—			—		—			—			—		—
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	—			—		—			—			—		—
Transfers 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):

	September 30,			December 31,			September 30,
	2013			2012			2012
Loans outstanding, beginning of period	$	11,297		$	8,827		$	8,827
New loans	496			3,911			3,401
Net activity on revolving lines of credit	(263		)	233			17
Principal payments	(1,442		)	(1,674		)	(1,490		)
Loans outstanding, end of period	$	10,088		$	11,297		$	10,755

There were no loans to related parties classified substandard as of September 30, 2013, December 31, 2012 or September 30, 2012.  In addition to the outstanding balances above, there were unfunded commitments of $5,000 to related parties at September 30, 2013.