UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2014

Commission File Number 0-16759

FIRST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter) 

INDIANA	35-1546989
(State or other jurisdiction	(I.R.S. Employer
incorporation or organization)	Identification No.)
One First Financial Plaza, Terre Haute, IN	47807
(Address of principal executive office)	(Zip Code)
(812)238-6000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes x   No  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x.

As of May 5, 2014, the registrant had outstanding 13,355,272 shares of common stock, without par value.

FIRST FINANCIAL CORPORATION

FORM 10-Q

INDEX 

	Page No.
PART I.  Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets	3
Consolidated Statements of Income and Comprehensive Income	4
Consolidated Statements of Shareholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.  Controls and Procedures	30
PART II. Other Information:
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	31
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.  Defaults upon Senior Securities	31
Item 4.  Mine Safety Disclosures	31
Item 5.  Other Information	31
Item 6.  Exhibits	32
Signatures	33

2

Part I – Financial Information

Item 1. Financial Statements

FIRST FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)

	March 31, 2014			December 31, 2013
	(unaudited)
ASSETS
Cash and due from banks	$	83,988		$	71,033
Federal funds sold	9,791			4,276
Securities available-for-sale	921,165			914,560
Loans:
Commercial	1,037,518			1,042,138
Residential	481,663			482,377
Consumer	265,428			268,033
	1,784,609			1,792,548
Less:
Unearned Income	(635		)	(1,120		)
Allowance for loan losses	(20,408		)	(20,068		)
	1,763,566			1,771,360
Restricted Stock	21,057			21,057
Accrued interest receivable	11,451			11,554
Premises and equipment, net	50,655			51,449
Bank-owned life insurance	79,444			79,035
Goodwill	39,489			39,489
Other intangible assets	4,656			4,935
Other real estate owned	4,806			5,291
FDIC Indemnification Asset	754			1,055
Other assets	41,720			43,624
TOTAL ASSETS	$	3,032,542		$	3,018,718
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest-bearing	$	535,333		$	506,815
Interest-bearing:
Certificates of deposit of $100 or more	171,165			179,177
Other interest-bearing deposits	1,800,516			1,772,799
	2,507,014			2,458,791
Short-term borrowings	35,710			59,592
Other borrowings	38,214			58,288
Other liabilities	52,275			55,852
TOTAL LIABILITIES	2,633,213			2,632,523
Shareholders’ equity
Common stock, $.125 stated value per share;
Authorized shares-40,000,000
Issued shares-14,538,132 in 2014 and 14,516,113 in 2013
Outstanding shares-13,355,272 in 2014 and 13,343,029 in 2013	1,812			1,811
Additional paid-in capital	71,315			71,074
Retained earnings	364,914			357,083
Accumulated other comprehensive loss	(8,551		)	(13,969		)
Less: Treasury shares at cost-1,182,860 in 2014 and 1,173,084 in 2013	(30,161		)	(29,804		)
TOTAL SHAREHOLDERS’ EQUITY	399,329			386,195
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,032,542		$	3,018,718

See accompanying notes.

3

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Dollar amounts in thousands, except per share data) 

	Three Months Ended   March 31,
	2014		2013
	(unaudited)		(unaudited)
INTEREST INCOME:
Loans, including related fees	$	22,218	$	23,454
Securities:
Taxable	4,444		3,214
Tax-exempt	1,746		1,770
Other	416		504
TOTAL INTEREST INCOME	28,824		28,942
INTEREST EXPENSE:
Deposits	1,290		1,742
Short-term borrowings	14		20
Other borrowings	378		1,007
TOTAL INTEREST EXPENSE	1,682		2,769
NET INTEREST INCOME	27,142		26,173
Provision for loan losses	1,960		3,021
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES	25,182		23,152
NON-INTEREST INCOME:
Trust and financial services	1,489		1,526
Service charges and fees on deposit accounts	2,484		2,254
Other service charges and fees	2,839		2,500
Securities gains/(losses), net	—		4
Insurance commissions	1,913		1,963
Gain on sales of mortgage loans	376		963
Other	1,010		667
TOTAL NON-INTEREST INCOME	10,111		9,877
NON-INTEREST EXPENSE:
Salaries and employee benefits	14,096		13,596
Occupancy expense	1,925		1,522
Equipment expense	1,658		1,501
FDIC Expense	487		557
Other	5,539		5,023
TOTAL NON-INTEREST EXPENSE	23,705		22,199
INCOME BEFORE INCOME TAXES	11,588		10,830
Provision for income taxes	3,757		3,137
NET INCOME	7,831		7,693
OTHER COMPREHENSIVE INCOME
Change in unrealized gains/losses on securities, net of reclassifications and taxes	5,303		(1,667		)
Change in funded status of post retirement benefits, net of taxes	115		214
COMPREHENSIVE INCOME	$	13,249	$	6,240
PER SHARE DATA
Basic and Diluted Earnings per Share	$	0.59	$	0.58
Weighted average number of shares outstanding (in thousands)	13,349		13,300

See accompanying notes.

4

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended

March 31, 2014, and 2013

(Dollar amounts in thousands, except per share data)

(Unaudited)

	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance, January 1, 2013	$	1,808	$	69,989	$	338,342	$	(7,472	)	$	(30,545	)	$	372,122
Net income	—		—		7,693		—			—			7,693
Other comprehensive income (loss)	—		—		—		(1,453		)	—			(1,453		)
Omnibus Equity Incentive Plan	1		182		—		—			—			183
Treasury shares purchased (5,354 shares)	—		—		—		—			(162		)	(162		)
Balance, March 31, 2013	$	1,809	$	70,171	$	346,035	$	(8,925	)	$	(30,707	)	$	378,383
Balance, January 1, 2014	$	1,811	$	71,074	$	357,083	$	(13,969	)	$	(29,804	)	$	386,195
Net income	—		—		7,831		—			—			7,831
Other comprehensive income	—		—		—		5,418			—			5,418
Omnibus Equity Incentive Plan	1		241		—		—			—			242
Treasury shares purchased (9,776 shares)	—		—		—		—			(357		)	(357		)
Balance, March 31, 2014	$	1,812	$	71,315	$	364,914	$	(8,551	)	$	(30,161	)	$	399,329

See accompanying notes.

5

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands, except per share data)  

	Three Months Ended   March 31,
	2014			2013
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	7,831		$	7,693
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization (accretion) of premiums and discounts on investments	646			652
Provision for loan losses	1,960			3,021
Securities (gains) losses	—			(4		)
(Gain) loss on sale of other real estate	47			51
Restricted stock compensation	242			183
Depreciation and amortization	1,346			1,352
Other, net	1,627			3,014
NET CASH FROM OPERATING ACTIVITIES	13,699			15,962
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale	—			4,369
Calls, maturities and principal reductions on securities available-for-sale	34,724			44,334
Purchases of securities available-for-sale	(33,387		)	(131,176		)
Loans made to customers, net of repayment	5,765			30,338
Proceeds from sales of other real estate owned	516			362
Net change in federal funds sold	(5,515		)	(33,584		)
Additions to premises and equipment	(273		)	(692		)
NET CASH FROM INVESTING ACTIVITIES	1,830			(86,049		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits	48,070			73,395
Net change in short-term borrowings	(23,882		)	(599		)
Maturities of other borrowings	(20,000		)	(5,000		)
Purchase of treasury stock	(357		)	(162		)
Dividends paid	(6,405		)	(6,378		)
NET CASH FROM FINANCING ACTIVITIES	(2,574		)	61,256
NET CHANGE IN CASH AND CASH EQUIVALENTS	12,955			(8,831		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	71,033			87,230
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	83,988		$	78,399

See accompanying notes.

6

FIRST FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying March 31, 2014 and 2013 consolidated financial statements are unaudited. The December 31, 2013 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2013 annual report. The information presented does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The following notes should be read together with notes to the consolidated financial statements included in the 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2013. 

1. Significant Accounting Policies

The significant accounting policies followed by the Corporation and its subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments which are, in the opinion of management, necessary for a fair statement of the results for the periods reported have been included in the accompanying consolidated financial statements and are of a normal recurring nature. The Corporation reports financial information for only one segment, banking. Some items in the prior year financials were reclassified to conform to the current presentation.

The Omnibus Equity Incentive Plan is a long-term incentive plan that was designed to align the interests of participants with the interests of shareholders. Under the plan, awards may be made based on certain performance measures. The grants are made in restricted stock units that are subject to a vesting schedule. These shares vest over 3 years in increments of 33%, 33%, and 34% respectively. In 2014 and 2013, 22,019 and 30,219 shares were awarded, respectively. These shares had a grant date value of $708 thousand and $923 thousand for 2014 and 2013, vest over three years and their grant is not subject to future performance measures. Outstanding shares are increased at the award date for the total shares awarded. 

2. Allowance for Loan Losses

The following table presents the activity of the allowance for loan losses by portfolio segment for the three months

ended March 31. 

Allowance for Loan Losses:	March 31, 2014
(Dollar amounts in thousands)	Commercial			Residential			Consumer			Unallocated		Total
Beginning balance	$	12,450		$	1,585		$	3,650		$	2,383	$	20,068
Provision for loan losses*	732			66			800			127		1,725
Loans charged -off	(936		)	(172		)	(1,053		)	—		(2,161		)
Recoveries	207			102			467			—		776
Ending Balance	$	12,453		$	1,581		$	3,864		$	2,510	$	20,408

* Provision before increase of $235 thousand in 2014 for decrease in FDIC indemnification asset

Allowance for Loan Losses:	March 31, 2013
(Dollar amounts in thousands)	Commercial			Residential			Consumer			Unallocated		Total
Beginning balance	$	10,987		$	5,426		$	3,879		$	1,666	$	21,958
Provision for loan losses*	1,264			197			233			581		2,275
Loans charged -off	(450		)	(272		)	(1,026		)	—		(1,748		)
Recoveries	2,343			49			395			—		2,787
Ending Balance	$	14,144		$	5,400		$	3,481		$	2,247	$	25,272

* Provision before increase of $746 thousand in 2013 for decrease in FDIC indemnification asset

7

The following table presents the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method at March 31, 2014 and December 31, 2013. 

Allowance for Loan Losses	March 31, 2014
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment	$	3,223	$	—	$	—	$	—	$	3,223
Collectively evaluated for impairment	8,376		1,419		3,864		2,510		16,169
Acquired with deteriorated credit quality	854		162		—		—		1,016
Ending Balance	$	12,453	$	1,581	$	3,864	$	2,510	$	20,408

Loans:	March 31, 2014
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment	$	16,768	$	36	$	—	$	16,804
Collectively evaluated for impairment	1,018,111		480,682		266,615		1,765,408
Acquired with deteriorated credit quality	7,839		2,393		—		10,232
Ending Balance	$	1,042,718	$	483,111	$	266,615	$	1,792,444

Allowance for Loan Losses:	December 31, 2013
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment	3,158		—		—		—		3,158
Collectively evaluated for impairment	8,421		1,408		3,650		2,383		15,862
Acquired with deteriorated credit quality	871		177		—		—		1,048
Ending Balance	$	12,450	$	1,585	$	3,650	$	2,383	$	20,068

Loans	December 31, 2013
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment	18,825		37		—		18,862
Collectively evaluated for impairment	1,020,771		481,439		269,352		1,771,562
Acquired with deteriorated credit quality	8,001		2,397		—		10,398
Ending Balance	$	1,047,597	$	483,873	$	269,352	$	1,800,822

8

The following tables present loans individually evaluated for impairment by class of loans. 

					March 31, 2014
	Unpaid Principal		Recorded		Allowance for Loan Losses		Average Recorded		Interest Income		Cash Basis Interest
(Dollar amounts in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	2,096	$	1,894	$	—	$	1,906	$	—	$	—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	268		102		—		104		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	—		—		—		—		—		—
Residential
First Liens	—		—		—		—		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	9,064		7,550		2,032		8,085		—		—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	6,276		6,276		1,075		6,740		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	1,030		1,030		116		1,046		—		—
Residential
First Liens	36		36		—		37		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
TOTAL	$	18,770	$	16,888	$	3,223	$	17,918	$	—	$	—

9

					December 31, 2013
	Unpaid Principal		Recorded		Allowance for Loan Losses		Average Recorded		Interest Income		Cash Basis Interest Income
(Dollar amounts in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	2,120	$	1,918	$	—	$	1,555	$	—	$	—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	271		105		—		26		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	—		—		—		—		—		—
Residential
First Liens	—		—		—		7		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	10,134		8,620		1,612		13,029		217		217
Farmland	—		—		—		356		113		113
Non Farm, Non Residential	7,664		7,204		1,500		7,921		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	1,062		1,062		46		2,979		—		—
Residential
First Liens	37		37		—		524		—		—
Home Equity	—		—		—		113		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		2,216		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
TOTAL	$	21,288	$	18,946	$	3,158	$	28,726	$	330	$	330

10

The table below presents the recorded investment in non-performing loans.

	March 31, 2014						December 31, 2013
	Loans Past Due Over 90 Day Still		Troubled Debt				Loans Past Due Over 90 Day Still		Troubled Debt
(Dollar amounts in thousands)	Accruing		Restructurings		Nonaccrual		Accruing		Restructurings		Nonaccrual
Commercial
Commercial & Industrial	$	—	$	4,774	$	7,343	$	240	$	6,578	$	6,861
Farmland	—		—		92		—		—		99
Non Farm, Non Residential	14		4,569		4,417		489		5,687		4,918
Agriculture	—		—		121		—		—		134
All Other Commercial	—		—		1,375		—		—		1,412
Residential
First Liens	781		4,318		4,254		1,100		4,283		4,047
Home Equity	142		—		194		40		—		195
Junior Liens	195		—		344		147		—		390
Multifamily	—		58		404		—		61		433
All Other Residential	2		—		124		1		—		130
Consumer
Motor Vehicle	142		16		191		187		626		186
All Other Consumer	1		604		939		3		17		974
TOTAL	$	1,277	$	14,339	$	19,798	$	2,207	$	17,252	$	19,779

Loans covered by loss share agreements with the FDIC included in loans past due over 90 days still on accrual are $25 thousand at March 31, 2014 and $580 thousand at December 31, 2013. Covered loans included in non-accrual loans are $1.0 million at March 31, 2014 and $1.1 million at December 31, 2013. Covered loans of $84 thousand at March 31, 2014 and December 31, 2013 are deemed impaired and have no allowance for loan loss allocated to them, respectively for March 31, 2014 and December 31, 2013. Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The commercial and industrial loans and non farm, non residential loans included in restructured loans above are also on non-accrual.

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

11

The following table presents the aging of the recorded investment in loans by past due category and class of loans. 

	March 31, 2014
	30-59 Days		60-89 Days		Greater than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	634	$	428	$	3,929	$	4,991	$	480,103	$	485,094
Farmland	225		—		—		225		91,629		91,854
Non Farm, Non Residential	91		731		780		1,602		237,360		238,962
Agriculture	192		33		—		225		107,137		107,362
All Other Commercial	163		168		293		624		118,822		119,446
Residential
First Liens	4,751		543		1,829		7,123		319,636		326,759
Home Equity	134		8		142		284		40,396		40,680
Junior Liens	210		159		312		681		32,013		32,694
Multifamily	—		—		419		419		73,532		73,951
All Other Residential	138		—		2		140		8,887		9,027
Consumer
Motor Vehicle	1,541		409		142		2,092		243,903		245,995
All Other Consumer	117		30		1		148		20,472		20,620
TOTAL	$	8,196	$	2,509	$	7,849	$	18,554	$	1,773,890	$	1,792,444

	December 31, 2013
	30-59 Days		60-89 Days		Greater than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	1,076	$	266	$	7,900	$	9,242	$	459,076	$	468,318
Farmland	—		—		—		—		92,602		92,602
Non Farm, Non Residential	362		—		2,042		2,404		239,183		241,587
Agriculture	31		32		—		63		136,388		136,451
All Other Commercial	50		217		188		455		108,184		108,639
Residential
First Liens	5,594		1,513		1,701		8,808		324,141		332,949
Home Equity	307		7		40		354		41,350		41,704
Junior Liens	392		170		471		1,033		32,269		33,302
Multifamily	103		19		400		522		66,138		66,660
All Other Residential	88		—		1		89		9,169		9,258
Consumer
Motor Vehicle	3,579		612		227		4,418		243,146		247,564
All Other Consumer	123		22		7		152		21,636		21,788
TOTAL	$	11,705	$	2,858	$	12,977	$	27,540	$	1,773,282	$	1,800,822

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During the three months ended March 31, 2014 and 2013, the terms of certain loans were modified as troubled debt restructurings (TDRs). The following tables present the activity for TDR's.

			2014
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
January 1,	12,327		4,330		644		17,301
Added	—		133		68		201
Charged Off	(1,069	)	—		(20	)	(1,089	)
Payments	(1,915	)	(101	)	(72	)	(2,088	)
March 31,	9,343		4,362		620		14,325

			2013
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
January 1,	16,474		4,107		704		21,285
Added	—		780		73		853
Charged Off	—		—		(9	)	(9	)
Payments	(404	)	(140	)	(68	)	(612	)
March 31,	16,070		4,747		700		21,517

Modification of the terms of such loans typically include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No modification in 2014 or 2013 resulted in the permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from twelve months to five years. Modifications involving an extension of the maturity date were for periods ranging from twelve months to ten years.

During the three months ended March 31, 2014 and 2013 the Corporation modified 12 and 8 loans respectively. In both of these periods all of the loans modified were smaller balance consumer and residential loans.

The Corporation has allocated $1.1 million and $3.1 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings at both March 31, 2014 and 2013, respectively. The Corporation has not committed to lend additional amounts as of March 31, 2014 and 2013 to customers with outstanding loans that are classified as troubled debt restructurings

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial loans, with an outstanding balance greater than $100 thousand. Any consumer loans outstanding to a borrower who had commercial loans analyzed will be similarly risk rated. This analysis is performed on a quarterly basis. The Corporation uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and debt service capacity of the borrower or of any pledged collateral. These loans have a well-defined weakness or weaknesses which have clearly jeopardized repayment of principal and interest as originally intended. They are characterized by the distinct possibility that the institution will sustain some future loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those graded substandard, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values.

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 Furthermore, non-homogeneous loans which were not individually analyzed, but are 90+ days past due or on non-accrual are classified as substandard. Loans included in homogeneous pools, such as residential or consumer may be classified as substandard due to 90+ days delinquency, non-accrual status, bankruptcy, or loan restructuring.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 thousand or are included in groups of homogeneous loans. As of March 31, 2014 and December 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans are as follows:

	March 31, 2014
(Dollar amounts in thousands)	Pass		Special Mention		Substandard		Doubtful		Not Rated		Total
Commercial
Commercial & Industrial	$	431,610	$	18,977	$	26,280	$	3,780	$	3,290	$	483,937
Farmland	86,493		3,699		325		—		20		90,537
Non Farm, Non Residential	200,698		15,687		21,641		426		—		238,452
Agriculture	100,036		5,598		103		—		33		105,770
All Other Commercial	99,580		8,064		10,165		41		972		118,822
Residential
First Liens	111,840		3,987		9,563		974		199,320		325,684
Home Equity	12,470		331		1,326		111		26,373		40,611
Junior Liens	8,649		57		517