NOTE

NOTE RECEIVABLE

Pursuant to the terms of a note receivable held by the Holding Company in conjunction with our disposal of the former mortgage subsidiary, we received note payments

(the “Note”) that commenced in

2013

and were due quarterly over a consecutive

five

year period. The Note carried a

zero

rate of interest and the obligation was guaranteed by the continuing shareholder of the Mortgage Company. As of

March

31,

2014,

we had received all principal amounts due through that date under the original Note agreement, and the Note carried an outstanding principal balance of

$2.7

million.

During the

first

quarter of

2014,

we became increasingly concerned about whether remaining principal due under the original terms of the Note would be collectible. As a result, during

April

2014,

we executed a promissory note compromise settlement agreement (the “Agreement”) with the Mortgage Company. The Agreement settled and determined all the respective rights and obligations under the Note.

Under the terms of the Agreement, the Mortgage Company paid cash in the amount of

$686

thousand and transferred a

family mortgage note with a principal balance of

$560

thousand to the Company. Simultaneously, we applied a portion of the cash proceeds to pay off the outstanding balance of the Mortgage Company’s warehouse line of credit held with the Bank. The Mortgage Company’s line of credit was subsequently closed during

2014.

As a result of the Agreement, we recognized a loss of

$1.4

million in other noninterest expense

in the

Consolidated Statements of Income

in full and complete satisfaction of the Note during the

first

quarter of

2014.

The table below presents the details of the closing transaction.

(Amounts in thousands)	Amount
Proceeds:
Cash received	$	686
1-4 family mortgage note (fair value)		560
Net proceeds received		1,246
Assets derecognized:
Note due from the mortgage company		2,753
Discount on the note		(374	)
Warehouse line of credit		259
Total assets derecognized		2,638
Loss on settlement of the note	$	1,392