4.LOANS

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

	March 31,		December 31,		March 31,
	2015		2014		2014

Commercial real estate	$	310,924	$	315,387	$	267,153
Commercial, financial, and agricultural	99,496		101,895		83,461
One to four family residential real estate	142,283		139,553		104,376
Construction :
Consumer	9,733		9,431		6,383
Commerical	18,019		16,284		10,685
Consumer	17,276		18,385		13,804

Total loans	$	597,731	$	600,935	$	485,862

The Corporation completed the acquisition of Peninsula Financial Corporation on December 5, 2014. The acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC 310-30 (“acquired impaired”) and loans that do not meet that criteria, which are accounted for under ASC 310-20 (“acquired nonimpaired”). The acquired impaired loans totaled $10.312 million. The Corporation recorded these loans at fair value taking into account a number of factors, including remaining life, estimated loss, estimated value of the underlying collateral and net present values of cash flows. In the first quarter of 2015, the Corporation had positive resolution of one acquired nonperforming loan which resulted in the recognition of approximately $.429 million of the accretable interest.

The table below details the acquired portfolio at March 31, 2015 (dollars in thousands):

	Acquired			Acquired			Acquired
	Impaired			Non-impaired			Total

Loans acquired - contractual payments	$	12,711		$	53,849		$	66,560
Nonaccretable difference	(1,857		)	—			(1,857		)
Expected cash flows	10,854			53,849			64,703
Accretable yield	(619		)	(1,867		)	(2,486		)
Carrying balance at March 31, 2015	$	10,235		$	51,982		$	62,217

The table below presents a rollforward of the accretable yield on acquired loans for the three months ended March 31, 2015 (dollars in thousands):

	Acquired			Acquired			Acquired
	Impaired			Non-impaired			Total

Balance, December 31, 2014	$	744		$	2,042		$	2,611
Accretion	(429		)	(175		)	(440		)
Reclassification from nonaccretable difference	304			—			315
Balance at March 31, 2015	$	619		$	1,867		$	2,486

An analysis of the allowance for loan losses for the three months ended March 31, 2015, the year ended December 31, 2014, and the three months ended March 31, 2014 is as follows (dollars in thousands):

	March 31,			December 31,			March 31,
	2015			2014			2014

Balance at beginning of period	$	5,140		$	4,661		$	4,661
Recoveries on loans previously charged off	93			325			121
Loans charged off	(11		)	(1,046		)	(82		)
Provision	305			1,200			183

Balance at end of period	$	5,527		$	5,140		$	4,883

In the first quarter of 2015 the Corporation recorded net recoveries of $83,000, compared to net recoveries of $39,000 in the same period in 2014. In the first quarter of 2015, the Corporation recorded a provision for loan loss of $.305 million, compared to $.183 million in the first quarter of 2014. 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 March 31, 2015 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	$	2,813		$	1,539		$	142		$	285		$	6		$	13		$	342		$	5,140
Charge-offs	—			—			—			—			—			(11		)	—			(11		)
Recoveries	81			—			—			—			1			11			—			93
Provision	(124		)	814			2			(41		)	(1		)	6			(351		)	305
Ending balance ALLR	$	2,770		$	2,353		$	144		$	244		$	6		$	19		$	(9	)	$	5,527

Loans:
Ending balance	$	310,924		$	99,496		$	18,019		$	142,283		$	9,733		$	17,276					$	597,731
Ending balance ALLR	(2,770		)	(2,353		)	(144		)	(244		)	(6		)	(19		)	(9		)	(5,527		)
Net loans	$	308,154		$	97,143		$	17,875		$	142,039		$	9,727		$	17,257		$	(9	)	$	592,204

Ending balance ALLR:
Individually evaluated	$	792		$	1,380		$	—		$	21		$	—		$	10		$	—		$	2,203
Collectively evaluated	1,978			973			144			223			6			9			(9		)	3,324
Acquired with deteriorated credit quality	—			—			—			—			—			—			—			—
Total	$	2,770		$	2,353		$	144		$	244		$	6		$	19		$	(9	)	$	5,527

Ending balance Loans:
Individually evaluated	$	2,334		$	6,793		$	—		$	271		$	—		$	37		$	—		$	9,435
Collectively evaluated	303,256			92,342			17,613			137,883			9,733			17,234						578,061
Acquired with deteriorated credit quality	5,334			361			406			4,129			—			5			—			10,235
Total	$	310,924		$	99,496		$	18,019		$	142,283		$	9,733		$	17,276		$	—		$	597,731

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at December 31, 2014 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	$	1,849		$	1,378		$	80		$	516		$	25		$	148		$	665		$	4,661
Charge-offs	(19		)	(663		)	—			(290		)	—			(74		)	—			(1,046		)
Recoveries	131			78			50			22			—			44			—			325
Provision	852			746			12			37			(19		)	(105		)	(323		)	1,200
Ending balance ALLR	$	2,813		$	1,539		$	142		$	285		$	6		$	13		$	342		$	5,140

Loans:
Ending balance	$	315,387		$	101,895		$	16,284		$	139,553		$	9,431		$	18,385		$	—		$	600,935
Ending balance ALLR	(2,813		)	(1,539		)	(142		)	(285		)	(6		)	(13		)	(342		)	(5,140		)
Net loans	$	312,574		$	100,356		$	16,142		$	139,268		$	9,425		$	18,372		$	(342	)	$	595,795

Ending balance ALLR:
Individually evaluated	$	704		$	492		$	—		$	19		$	—		$	1		$	—		$	1,216
Collectively evaluated	2,109			1,047			142			266			6			12			342			3,924
Acquired with deteriorated credit quality	—			—			—			—			—			—			—			—
Total	$	2,813		$	1,539		$	142		$	285		$	6		$	13		$	342		$	5,140

Ending balance Loans:
Individually evaluated	$	1,374		$	863		$	—		$	768		$	—		$	72		$	—		$	3,077
Collectively evaluated	308,661			100,330			16,126			134,908			9,216			18,305			—			587,546
Acquired with deteriorated credit quality	5,352			702			158			3,877			215			8			—			10,312
Total	$	315,387		$	101,895		$	16,284		$	139,553		$	9,431		$	18,385		$	—		$	600,935

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at March 31, 2014 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	$	1,849		$	1,378		$	80		$	516		$	25		$	148		$	665		$	4,661
Charge-offs	(1		)	(62		)	—			(3		)	—			(16		)	—			(82		)
Recoveries	54			44			3			6			—			14			—			121
Provision	(146		)	212			(42		)	(128		)	(9		)	(32		)	328			183
Ending balance ALLR	$	1,756		$	1,572		$	41		$	391		$	16		$	114		$	993		$	4,883

Loans:
Ending balance	$	267,153		$	83,461		$	10,685		$	104,376		$	6,383		$	13,804		$	—		$	485,862
Ending balance ALLR	(1,756		)	(1,572		)	(41		)	(391		)	(16		)	(114		)	(993		)	(4,883		)
Net loans	$	265,397		$	81,889		$	10,644		$	103,985		$	6,367		$	13,690		$	(993	)	$	480,979

Ending balance ALLR:
Individually evaluated	$	189		$	1,111		$	—		$	98		$	—		$	8		$	—		$	1,406
Collectively evaluated	1,567			461			41			293			16			106			993			3,477
Total	$	1,756		$	1,572		$	41		$	391		$	16		$	114		$	993		$	4,883

Ending balance Loans:
Individually evaluated	$	610		$	1,748		$	—		$	513		$	—		$	25		$	—		$	2,896
Collectively evaluated	266,543			81,713			10,685			103,863			6,383			13,779			—			482,966
Total	$	267,153		$	83,461		$	10,685		$	104,376		$	6,383		$	13,804		$	—		$	485,862

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.

Strong (1)

Borrower is not vulnerable to sudden economic or technological changes. They have “strong” balance sheets and are within an industry that is very typical for our markets or type of lending culture. Borrowers also have “strong” financial and cash flow performance and excellent collateral (low loan to value or readily available to liquidate collateral) in conjunction with an impeccable repayment history.

Good (2)

Borrower shows limited vulnerability to sudden economic change. These borrowers have “above average” financial and cash flow performance and a very good repayment history. The balance sheet of the company is also very good as compared to peer and the company is in an industry that is familiar to our markets or our type of lending. The collateral securing the deal is also very good in terms of its type, loan to value, etc.

Average (3)

Borrower is typically a well-seasoned business, however may be susceptible to unfavorable changes in the economy, and could be somewhat affected by seasonal factors. The borrowers within this category exhibit financial and cash flow performance that appear “average” to “slightly above average” when compared to peer standards and they show an adequate payment history. Collateral securing this type of credit is good, exhibiting above average loan to values, etc.

Acceptable/Acceptable Watch (4)

A borrower within this category exhibits financial and cash flow performance that appear adequate and satisfactory when compared to peer standards and they show a satisfactory payment history. The collateral securing the request is within supervisory limits and overall is acceptable. Borrowers rated acceptable could also be newer businesses that are typically susceptible to unfavorable changes in the economy, and more than likely could be affected by seasonal factors.

Special Mention (5)

The borrower may have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Examples of this type of credit include a start-up company fully based on projections, a documentation issue that needs to be corrected or a general market condition that the borrower is working through to get corrected.

Substandard (6)

Substandard loans are classified assets exhibiting 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 classified as substandard clearly represent troubled and deteriorating credit situations requiring constant supervision.

Doubtful (7)

Loans in this category exhibit the same, if not more pronounced weaknesses used to describe the substandard credit. 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 $2.761 million, $3.251 million and $3.323 million for the periods ended March 31, 2015, December 31, 2014 and March 31, 2014, 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 March 31, 2015 (dollars in thousands):

							(4)
	(1)		(2)		(3)		Acceptable/		(5)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable Watch		Sp. Mention		Substandard		Doubtful		Unassigned		Total

Commercial real estate	$	2,610	$	27,471	$	128,172	$	144,634	$	—	$	8,037	$	—	$	—	$	310,924
Commercial, financial and agricultural	4,711		4,047		34,255		53,492		—		2,991		—		—		99,496
Commercial construction	110		425		2,618		11,212		—		893		—		2,761		18,019
One to four family residential real estate	415		1,049		3,983		4,078		—		5,449		—		127,309		142,283
Consumer construction	—		—		—		—		—		—		—		9,733		9,733
Consumer	45		23		—		6		—		5		—		17,197		17,276

Total loans	$	7,891	$	33,015	$	169,028	$	213,422	$	—	$	17,375	$	—	$	157,000	$	597,731

Below is a breakdown of loans by risk category as of December 31, 2014 (dollars in thousands):

							(4)
	(1)		(2)		(3)		Acceptable/		(5)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable Watch		Sp. Mention		Substandard		Doubtful		Unassigned		Total

Commercial real estate	$	859	$	28,740	$	129,791	$	147,624	$	—	$	8,373	$	—	$	—	$	315,387
Commercial, financial and agricultural	3,227		4,577		33,794		57,295		—		3,002		—		—		101,895
Commercial construction	80		441		2,282		9,324		—		906		—		3,251		16,284
One-to-four family residential real estate	297		1,074		3,207		5,882		—		5,745		—		123,348		139,553
Consumer construction	—		—		—		—		—		—		—		9,431		9,431
Consumer	53		—		3		10		—		11		—		18,308		18,385

Total loans	$	4,516	$	34,832	$	169,077	$	220,135	$	—	$	18,037	$	—	$	154,338	$	600,935

Below is a breakdown of loans by risk category as of March 31, 2014 (dollars in thousands):

							(4)
	(1)		(2)		(3)		Acceptable/		(5)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable Watch		Sp. Mention		Substandard		Doubtful		Unassigned		Total

Commercial real estate	$	3,039	$	24,678	$	117,113	$	120,167	$	—	$	2,156	$	—	$	—	$	267,153
Commercial, financial and agricultural	3,634		3,388		28,004		45,309		—		3,126		—		—		83,461
Commercial construction	30		463		3,513		2,954		—		402		—		3,323		10,685
One to four family residential real estate	—		3,360		1,246		4,339		—		—		—		95,431		104,376
Consumer construction	—		—		—		—		—		—		—		6,383		6,383
Consumer	—		—		—		25		—		—		—		13,779		13,804

Total loans	$	6,703	$	31,889	$	149,876	$	172,794	$	—	$	5,684	$	—	$	118,916	$	485,862

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 months ended March 31, 2015. Interest income that would have been recognized during this period was $.072 million. For the three months ended March 31, 2014, the income that would have been recorded was $.024 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.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. In determining the estimated fair value of purchased loans, management considers a number of factors including the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, net present value of cash flows expected to be received, among others. Purchased loans are accounted for in accordance with guidance for certain loans acquired in a transfer (ASC 310-30), when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income. The ASC 310-30 mark on impaired loans totaled $2.978 million. The accretable yield in this impaired loans was estimated at $.619 million. The Corporation recorded $.429 million due to the positive resolution of one large acquired nonperforming commercial loan relationship in the first quarter of 2015 and no accretable yield of the loan mark in 2014.

The following table reflects the contractually required payments receivable, cash flows expected to be collected, and fair value of the credit impaired Peninsula loans at March 31, 2015:

Contractually required payments including interest	$	12,711
Less: nonaccretable difference	(1,857		)
Cash flows expected to be collected	10,854
Less: accretable yield	(619		)
Fair value of credit impaired loans acquired	$	10,235

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

									Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Related		Recognized		on
	Basis		Basis		Investment		Valuation Reserve		During Impairment		Accrual Basis
March 31, 2015

With no valuation reserve:
Commercial real estate	$	2,248	$	3,537	$	4,888	$	—	$	—	$	16
Commercial, financial and agricultural	72		128		200		—		—		1
Commercial construction	266		110		367		—		—		4
One to four family residential real estate	1,950		2,727		4,635		—		—		25
Consumer construction	23		—		24		—		—		—
Consumer	29		5		—		—		—		—

With a valuation reserve:
Commercial real estate	$	170	$	—	$	379	$	570	$	—	$	5
Commercial, financial and agricultural	6,926		—		2,327		1,517		—		19
Commercial construction	—		—		—		—		—		—
One to four family residential real estate	117		—		15		11		—		2
Consumer construction	—		—		—		—		—		—
Consumer	—		—		—		9		—		—

Total:
Commercial real estate	$	2,418	$	3,537	$	5,267	$	570	$	—	$	21
Commercial, financial and agricultural	6,998		128		2,527		1,517		—		20
Commercial construction	266		110		367		—		—		4
One to four family residential real estate	2,067		2,727		4,650		11		—		27
Consumer construction	23		—		24		—		—		—
Consumer	29		5		—		9		—		—
Total	$	11,801	$	6,507	$	12,835	$	2,107	$	—	$	72

									Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Related		Recognized		on
	Basis		Basis		Investment		Valuation Reserve		During Impairment		Accrual Basis
December 31, 2014

With no valuation reserve:
Commercial real estate	$	632	$	5,352	$	532	$	—	$	—	$	7
Commercial, financial and agricultural	74		702		685		—		—		27
Commercial construction	—		158		11		—		—		—
One to four family residential real estate	1,844		3,877		656		—		—		25
Consumer construction	274		215		15		—		—		—
Consumer	—		8		1		—		—		1

With a valuation reserve:
Commercial real estate	$	227	$	—	$	229	$	227	$	—	$	18
Commercial, financial and agricultural	774		—		1,109		484		—		45
Commercial construction	—		—		—		—		—		—
One to four family residential real estate	114		—		116		9		—		7
Consumer construction	—		—		—		—		—		—
Consumer	—		—		—		—		—		—

Total:
Commercial real estate	$	859	$	5,352	$	761	$	227	$	—	$	25
Commercial, financial and agricultural	848		702		1,794		484		—		72
Commercial construction	—		158		11		—		—		—
One to four family residential real estate	1,958		3,877		772		9		—		32
Consumer construction	274		215		15		—		—		—
Consumer	—		8		1		—		—		1
Total	$	3,939	$	10,312	$	3,354	$	720	$	—	$	130

									Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Related		Recognized		on
	Basis		Basis		Investment		Valuation Reserve		During Impairment		Accrual Basis
March 31, 2014

With no valuation reserve:
Commercial real estate	$	279	$	—	$	322	$	—	$	—	$	4
Commercial, financial and agricultural	142		—		183		—		—		2
Commercial construction	—		—		—		—		—		—
One to four family residential real estate	67		—		235		—		—		3
Consumer construction	—		—		—		—		—		—
Consumer	—		—		9		—		—		—

With a valuation reserve:
Commercial real estate	$	176	$	—	$	176	$	104	$	—	$	4
Commercial, financial and agricultural	588		—		597		271		—		7
Commercial construction	—		—		—		—		—		—
One to four family residential real estate	232		—		215		44		—		4
Consumer construction	—		—		—		—		—		—
Consumer	7		—		8		1		—		—

Total:
Commercial real estate	$	455	$	—	$	498	$	104	$	—	$	8
Commercial, financial and agricultural	730		—		780		271		—		9
Commercial construction	—		—		—		—		—		—
One to four family residential real estate	299		—		450		44		—		7
Consumer construction	—		—		—		—		—		—
Consumer	7		—		17		1		—		—
Total	$	1,491	$	—	$	1,745	$	420	$	—	$	24

A summary of past due loans at March 31, 2015, December 31, 2014 and March 31, 2014 is as follows (dollars in thousands):

	March 31, 2015						December 31, 2014						March 31, 2014
	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	$	746	$	2,418	$	3,164	$	1,857	$	859	$	2,716	$	729	$	455	$	1,184
Commercial, financial and agricultural	25		6,998		7,023		104		848		952		18		730		748
Commercial construction	—		266		266		—		—		—		—		—		—
One to four family residential real estate	1,075		2,116		3,191		1,412		1,958		3,370		471		299		770
Consumer construction	273		23		296		38		274		312		—		—		—
Consumer	29		29		58		88		—		88		18		7		25

Total past due loans	$	2,148	$	11,850	$	13,998	$	3,499	$	3,939	$	7,438	$	1,236	$	1,491	$	2,727

A roll-forward of nonaccrual activity for the three months ended March 31, 2015 (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	$	859		$	848		$	—	$	1,958		$	274		$	—	$	3,939

Principal payments	(75		)	(3		)	—		(21		)	—			—		(99		)
Charge-offs	—			—			—		—			—			—		—
Advances	—			—			—		—			—			—		—
Class transfers	—			—			250		—			(250		)	—		—
Transfers to OREO	—			—			—		(79		)	—			—		(79		)
Transfers to accruing	(419		)	—			—		(60		)	—			—		(479		)
Transfers from accruing	2,030			6,153			—		263			—			29		8,475
Other	23			—			16		6			(1		)	—		44

Ending balance	$	2,418		$	6,998		$	266	$	2,067		$	23		$	29	$	11,801

A roll-forward of nonaccrual activity during the year ended December 31, 2014 (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	$	572		$	811		$	—	$	611		$	—	$	30		$	2,024

Principal payments	(104		)	(692		)	—		(35		)	—		(4		)	(835		)
Charge-offs	(18		)	(435		)	—		(206		)	—		(32		)	(691		)
Advances	—			—			—		—			—		—			—
Transfers to OREO	(233		)	—			—		(357		)	—		—			(590		)
Transfers to accruing	—			(10		)	—		(127		)	—		—			(137		)
Transfers from accruing	—			1,167			—		685			—		6			1,858
Acquired impaired loans	632			—			—		1,375			274		—			2,281
Other	10			7			—		12			—		—			29

Ending balance	$	859		$	848		$	—	$	1,958		$	274	$	—		$	3,939

A roll-forward of nonaccrual activity for the three months ended March 31, 2014 (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	$	572		$	811		$	—	$	611		$	—	$	30		$	2,024

Principal payments	(99		)	(18		)	—		(7		)	—		(4		)	(128		)
Charge-offs	—			(53		)	—		(3		)	—		(19		)	(75		)
Advances	—			—			—		—			—		—			—
Class transfers	—			—			—		—			—		—			—
Transfers to OREO	(26		)	—			—		(257		)	—		—			(283		)
Transfers to accruing	—			(10		)	—		(127		)	—		—			(137		)
Transfers from accruing	—			—			—		82			—		—			82
Other	8			—			—		—			—		—			8

Ending balance	$	455		$	730		$	—	$	299		$	—	$	7		$	1,491

Loans accounted for under ASC 310-30 accrue interest as any nonpayment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period loan loss provision or prospective yield adjustments.

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):

	Three Months Ended			Year Ended			Three Months Ended
	March 31,			December 31,			March 31,
	2015			2014			2014
	Number of	Recorded		Number of	Recorded		Number of	Recorded
	Modifications	Investment		Modifications	Investment		Modifications	Investment

Commercial real estate	3	$	1,216	—	$	—	—	$	—
Commercial, financial and agricultural	3	268		—	—		—	—
Commercial construction	4	266		—	—		—	—
One to four family residential real estate	20	1,538		—	—		—	—
Consumer construction	—	—		—	—		—	—
Consumer	—	—		—	—		—	—

Total troubled debt restructurings	30	$	3,288	—	$	—	—	$	—

A roll-forward of troubled debt restructuring during the period ended March 31, 2015 (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	$	1,007	$	1,186	$	852		$	60	$	—	$	3,105

Principal payments	—		—		(3		)	—		—		(3		)
Charge-offs	—		—		—			—		—		—
Advances	—		—		—			—		—		—
New restructured	647		268		—			1,243		—		2,158
Transferred out of TDR	—		—		—			—		—		—
Transfer from nonaccrual	—		—		—			—		—		—
Transfers to nonaccrual	—		—		—			—		—		—

Ending Balance	$	1,654	$	1,454	$	849		$	1,303	$	—	$	5,260

NONACCRUAL

Beginning balance	$	—	$	—	$	—		$	—	$	—	$	—

Principal payments	—		—		—			—		—		—
Charge-offs	—		—		—			—		—		—
Advances	—		—		—			—		—		—
New restructured	569		—		266			295		—		1,130
Transfer to accruing	—		—		—			—		—		—
Transfers from accruing	—		—		—			—		—		—

Ending Balance	$	569	$	—	$	266		$	295	$	—	$	1,130

TOTALS

Beginning balance	$	1,007	$	1,186	$	852		$	60	$	—	$	3,105

Principal payments	—		—		(3		)	—		—		(3		)
Charge-offs	—		—		—			—		—		—
Advances	—		—		—			—		—		—
New restructured	1,216		268		266			1,538		—		3,288
Transfers out of TDRs	—		—		—			—		—		—
Tansfers from nonaccrual	—		—		—			—		—		—
Transfers to accruing	—		—		—			—		—		—

Ending Balance	$	2,223	$	1,454	$	1,115		$	1,598	$	—	$	6,390

A roll-forward of troubled debt restructuring during the year ended December 31, 2014 (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	$	3,520		$	1,186		$	858		$	99		$	—	$	5,663

Principal payments	(2,513		)	—			(6		)	(4		)	—		(2,523		)
Charge-offs	—			—			—			(37		)	—		(37		)
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transferred out of TDR	—			—			—			91			—		91
Transfers to nonaccrual	—			—			—			(89		)	—		(89		)

Ending Balance	$	1,007		$	1,186		$	852		$	60		$	—	$	3,105

NONACCRUAL

Beginning balance	$	—		$	523		$	—		$	91		$	—	$	614

Principal payments	—			(319		)	—			—			—		(319		)
Charge-offs	—			(204		)	—			(37		)	—		(241		)
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transfers to foreclosed properties	—			—			—			(143		)	—		(143		)
Transfers from accruing	—			—			—			89			—		89

Ending Balance	$	—		$	—		$	—		$	—		$	—	$	—

TOTALS

Beginning balance	$	3,520		$	1,709		$	858		$	190		$	—	$	6,277

Principal payments	(2,513		)	(319		)	(6		)	(4		)	—		(2,842		)
Charge-offs	—			(204		)	—			(74		)	—		(278		)
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transfers out of TDRs	—			—			—			91			—		91
Tansfers to nonaccrual	—			—			—			(89		)	—		(89		)
Transfers to foreclosed properties	—			—			—			(143		)	—		(143		)
Transfers from accruing	—			—			—			89			—		89

Ending Balance	$	1,007		$	1,186		$	852		$	60		$	—	$	3,105

A roll-forward of troubled debt restructuring during the year ended March 31, 2014 (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	$	3,520		$	1,186		$	858	$	99		$	—	$	5,663

Principal payments	(2,511		)	—			—		(3		)	—		(2,514		)
Charge-offs	—			—			—		—			—		—
Advances	—			—			—		—			—		—
New restructured	—			—			—		—			—		—
Transferred out of TDR	—			—			—		—			—		—
Transfer from nonaccrual	—			—			—		91			—		91
Transfers to nonaccrual	—			—			—		—			—		—

Ending Balance	$	1,009		$	1,186		$	858	$	187		$	—	$	3,240

NONACCRUAL

Beginning balance	$	—		$	523		$	—	$	91		$	—	$	614

Principal payments	—			(15		)	—		—			—		(15		)
Charge-offs	—			—			—		—			—		—
Advances	—			—			—		—			—		—
New restructured	—			—			—		—			—		—
Transfer to accruing	—			—			—		(91		)	—		(91		)
Transfers from accruing	—			—			—		—			—		—

Ending Balance	$	—		$	508		$	—	$	—		$	—	$	508

TOTALS

Beginning balance	$	3,520		$	1,709		$	858	$	190		$	—	$	6,277

Principal payments	(2,511		)	(15		)	—		(3		)	—		(2,529		)
Charge-offs	—			—			—		—			—		—
Advances	—			—			—		—			—		—
New restructured	—			—			—		—			—		—
Transfers out of TDRs	—			—			—		—			—		—
Tansfers from nonaccrual	—			—			—		91			—		91
Transfers to accruing	—			—			—		(91		)	—		(91		)

Ending Balance	$	1,009		$	1,694		$	858	$	187		$	—	$	3,748

The above includes loans with revolving privileges which are scoped out of 310-30 and certain loans which the Corporation elected to treat under the cost recovery method of accounting.

Loans were recorded at fair value in accordance with FASB ASC 805, Business Combinations. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC 820. The fair value estimated associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

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):

	March 31,			December 31,			March 31,
	2015			2014			2014

Loans outstanding, beginning of period	$	8,789		$	9,043		$	9,043
New loans	—			33			—
Net activity on revolving lines of credit	117			1,390			760
Repayment	(2,412		)	(1,677		)	(1,436		)

Loans outstanding, end of period	$	6,494		$	8,789		$	8,367

There were no loans to related parties classified substandard as of March 31, 2015, December 31, 2014 or March 31, 2014. In addition to the outstanding balances above, there were unfunded commitments of $.255 million to related parties at March 31, 2015.