NOTE 4 - LOANS AND ALLOWANCE

Loans were as follows:

	March 31, 2015			December 31, 2014
Commercial
Commercial and industrial	$	287,524		$	275,646
Agricultural	45,514			46,784
Commercial Real Estate
Farm	74,172			76,849
Hotel	62,742			74,962
Construction and development	75,942			61,640
Other	669,394			666,417
Residential
1-4 family	435,667			435,336
Home equity	273,276			274,159
Consumer
Direct	44,675			45,360
Indirect	557			612
Total loans	1,969,463			1,957,765
Allowance for loan losses	(22,638		)	(23,250		)
Net loans	$	1,946,825		$	1,934,515

The Company purchased some financing receivables in the fourth quarter of 2014. The investment by portfolio class at March 31, 2015 is as follows. These loans are included in the above table and all other tables below in the recorded investment amount. No allowance for loan losses is provided for these loans at March 31, 2015.

Commercial and industrial	$	23,050
Construction and development	2,886
Other real estate	96,571
1-4 family	34,536
Home equity	15,359
Direct	1,508
	$	173,910

The Company also purchased some credit impaired loans during 2014. These loans had a net balance of under $1,000 so additional disclosures were not made due to their immateriality.

Activity in the allowance for loan losses for the three months ended March 31, 2015 and 2014 and the recorded investment of loans and allowances by portfolio segment and impairment method as of March 31, 2015 and December 31, 2014 were as follows:

	Commercial			Commercial Real Estate			Residential			Consumer			Total
Allowance for loan loss
Balance, January 1, 2015	$	2,977		$	15,605		$	3,501		$	1,167		$	23,250
Provision charged to expense	773			(1,005		)	173			59			—
Losses charged off	(107		)	(58		)	(494		)	(697		)	(1,356		)
Recoveries	32			176			148			388			744
Balance, March 31, 2015	$	3,675		$	14,718		$	3,328		$	917		$	22,638

	Commercial			Commercial Real Estate			Residential			Consumer			Total
Allowance for loan loss
Balance, January 1, 2014	$	3,291		$	20,210		$	3,409		$	699		$	27,609
Provision charged to expense	(163		)	393			245			275			750
Losses charged off	(146		)	(608		)	(543		)	(743		)	(2,040		)
Recoveries	27			444			85			372			928
Balance, March 31, 2014	$	3,009		$	20,439		$	3,196		$	603		$	27,247

	Commercial			Commercial Real Estate			Residential			Consumer			Total
As of March 31, 2015
Ending Balance individually evaluated for impairment	$	130		$	675		$	179		$	—		$	984
Ending Balance collectively evaluated for impairment	3,545			14,043			3,149			917			21,654
Total ending allowance balance	$	3,675		$	14,718		$	3,328		$	917		$	22,638
Loans
Ending Balance individually evaluated for impairment	$	1,113		$	13,297		$	10,421		$	194		$	25,025
Ending Balance collectively evaluated for impairment	331,925			868,953			698,522			45,038			1,944,438
Total ending loan balance excludes $5,838 of accrued interest	$	333,038		$	882,250		$	708,943		$	45,232		$	1,969,463

As of December 31, 2014	Commercial		Commercial Real Estate		Residential		Consumer		Total
Ending Balance individually evaluated for impairment	$	162	$	705	$	183	$	—	$	1,050
Ending Balance collectively evaluated for impairment	2,815		14,900		3,318		1,167		22,200
Total ending allowance balance	$	2,977	$	15,605	$	3,501	$	1,167	$	23,250

Loans
Ending Balance individually evaluated for impairment	$	705	$	24,722	$	10,662	$	220	$	36,309
Ending Balance collectively evaluated for impairment	321,725		855,146		698,833		45,752		1,921,456
Total ending loan balance excludes $5,605 of accrued interest	$	322,430	$	879,868	$	709,495	$	45,972	$	1,957,765

The allowance for loans collectively evaluated for impairment consists of reserves on groups of similar loans based on historical loss experience adjusted for other factors, as well as reserves on certain loans that are classified but determined not to be impaired based on an analysis which incorporates probability of default with a loss given default scenario. The reserves on these loans totaled $2,268 at March 31, 2015 and $2,426 at December 31, 2014.

The recorded investment in loans excludes accrued interest receivable due to immateriality.

The following tables present loans individually evaluated for impairment by class of loans as of March 31, 2015 and December 31, 2014. Performing troubled debt restructurings totaling $7,268 and $7,499 were excluded as allowed by ASC 310-40.

March 31, 2015	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded
Commercial
Commercial and industrial	$	357	$	336	$	130
Agricultural	—		—		—
Commercial Real Estate
Farm	76		76		22
Hotel	—		—		—
Construction and development	—		—		—
Other	1,938		1,831		653
Residential
1-4 Family	1,532		1,454		174
Home Equity	165		165		5
Consumer
Direct	—		—		—
Subtotal — impaired with allowance recorded	4,068		3,862		984
With no related allowance recorded
Commercial
Commercial & industrial	1,062		777
Agricultural	—		—
Commercial Real Estate
Farm	858		607
Hotel	—		—
Construction and development
Other	5,187		3,515
Residential
1-4 Family	7,084		6,092
Home Equity	2,981		2,710
Consumer
Direct	207		194
Indirect	—		—
Subtotal — impaired with allowance recorded	17,379		13,895
Total impaired loans	$	21,447	$	17,757	$	984

December 31, 2014	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded
Commercial
Commercial and industrial	$	82	$	64	$	12
Agriculture	397		150		150
Commercial Real Estate
Farm	76		76		21
Hotel	—		—		—
Construction and development	—		—		—
Other	979		889		684
Residential
1-4 Family	1,543		1,478		178
Home Equity	167		167		5
Consumer
Direct	—		—		—
Indirect	—		—		—
Subtotal — impaired with allowance recorded	3,244		2,824		1,050
With no related allowance recorded
Commercial
Commercial & industrial	761		491
Agricultural	—		—
Commercial Real Estate
Farm	864		616
Hotel	11,423		11,377
Construction and development	84		78
Other	5,848		4,186
Residential
1-4 Family	7,325		6,400
Home Equity	2,847		2,618
Consumer
Direct	238		213
Indirect	7		7
Subtotal — impaired with allowance recorded	29,397		25,986		—
Total impaired loans	$	32,641	$	28,810	$	1,050

The following tables present the average balance of impaired loans and interest income and cash basis interest recognized for the quarters ending March 31, 2015 and March 31, 2014, excluding performing troubled debt restructurings as allowed by ASC 310-40.

March 31, 2015	Average Balance Impaired Loans		Interest Income Recognized		Cash Basis Income Recognized
Commercial
Commercial & Industrial	$	834	$	2	$	2
Agricultural	75		—		—
Commercial Real Estate
Farm	444		4		4
Hotel	7,126		—		—
Construction and development	38		47		47
Other	5,210		25		25
Residential
1-4 Family	7,712		21		21
Home Equity	1,734		4		4
Consumer
Direct	106		4		4
Indirect	4		3		3
	$	23,283	$	110	$	110

March 31, 2014	Average Balance Impaired Loans		Interest Income Recognized		Cash Basis Income Recognized
Commercial
Commercial & Industrial	$	282	$	4	$	4
Agricultural	—		—		—
Commercial Real Estate
Farm	990		—		—
Hotel	—		—		—
Construction and development	558		—		—
Other	11,955		48		48
Residential
1-4 Family	8,766		4		4
Home Equity	2,316		1		1
Consumer
Direct	449		3		3
Indirect	10		1		1
	$	25,326	$	61	$	61

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2015 and December 31, 2014:

	Non-accrual				Past due over 90 days and still accruing
	March 31, 2015		December 31, 2014		March 31, 2015		December 31, 2014
Commercial
Commercial and industrial	$	1,062	$	479	$	—	$	—
Agricultural	—		150
Commercial Real Estate			—
Farm	682		692
Hotel	—
Construction and development	—		78
Other	3,863		3,744
Residential
1-4 Family	6,258		6,428
Home Equity	1,952		1,841
Consumer
Direct	160		177
Indirect	—		7
Total	$	13,977	$	13,596	$	—	$	—

The following tables present the aging of the recorded investment in past due loans as of March 31, 2015 and December 31, 2014 by class of loans:

March 31, 2015	Total Loans		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due
Commercial
Commercial and industrial	$	287,524	$	101	$	—	$	626	$	727	$	286,797
Agricultural	45,514		—		—		—		—		45,514
Commercial Real Estate
Farm	74,172		—		—		327		327		73,845
Hotel	62,742		—		—		—		—		62,742
Construction and development	75,942		—		—		—		—		75,942
Other	669,394		728		432		1,999		3,159		666,235
Residential
1-4 Family	435,667		5,827		696		2,927		9,450		426,217
Home Equity	273,276		532		315		1,466		2,313		270,963
Consumer
Direct	44,675		66		22		137		225		44,450
Indirect	557		—		2		—		2		555
Total — excludes $5,838 of accrued interest	$	1,969,463	$	7,254	$	1,467	$	7,482	$	16,203	$	1,953,260

December 31, 2014	Total Loans		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due
Commercial
Commercial and industrial	$	275,646	$	441	$	75	$	210	$	726	$	274,920
Agricultural	46,784		—		—		—		—		46,784
Commercial Real Estate
Farm	76,849		—		—		327		327		76,522
Hotel	74,962		—		—		—		—		74,962
Construction and development	61,640		—		78		—		78		61,562
Other	666,417		933		755		1,919		3,607		662,810
Residential
1-4 Family	435,336		6,217		1,719		3,186		11,122		424,214
Home Equity	274,159		751		250		1,521		2,522		271,637
Consumer
Direct	45,360		91		17		162		270		45,090
Indirect	612		6		7		—		13		599
Total — excludes $5,605 of accrued interest	$	1,957,765	$	8,439	$	2,901	$	7,325	$	18,665	$	1,939,100

Troubled Debt Restructurings

From time to time, the terms of certain loans are modified as troubled debt restructurings. The modification of the terms of such loans include one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.

The total of troubled debt restructurings at March 31, 2015 and December 31, 2014 was $11,586 and $23,325 respectively. Included in the TDR totals are non-accrual loans of $545 and $575 at March 31, 2015 and December 31, 2014 and performing loans of $7,268 at March 31, 2015 and $7,499 at December 31, 2014. The Company has allocated $466 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2015. The Company has committed to lend additional amounts totaling $0 to customers with outstanding loans that are classified as troubled debt restructurings. At December 31, 2014, the comparable numbers were $485 of specific reserves and $0 of commitments.

There were no new TDRs that occurred during the three month periods ending March 31, 2015 and 2014.

There were no troubled debt restructurings where there was a payment default during the three month period ending March 31, 2015. The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three month period ending March 31, 2014:

March 31, 2014	Number of Loans	Recorded Investment
Commercial real estate:
Other	1	$	1,431
Residential
1-4 Family	1	53

Total	2	$	1,484

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $0 and $0 and resulted in charge offs of $0 and $0 during the three month period ending March 31, 2015 and 2014, respectively.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

The terms of certain other loans were modified during the three month period ending March 31, 2015 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of March 31, 2015 of $151. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be significant.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of the borrower to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial and commercial real estate loans individually by classifying the loans as to credit risk. This analysis includes credit relationships with an outstanding balance greater than $1 million on an annual basis. The Company uses the following definitions for risk ratings:

Special Mention — Loans classified as special mention have above average risk that requires management’s ongoing attention. The borrower may have demonstrated the inability to generate profits or to maintain net worth, chronic delinquency and/or a demonstrated lack of willingness or capacity to meet obligations.

Substandard — Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are classified by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Non-accrual — Loans classified as non-accrual are loans where the further accrual of interest is stopped because payment in full of principal and interest is not expected. In most cases, the principal and interest has been in default for a period of 90 days or more.

As of March 31, 2015, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

March 31, 2015	Pass		Special Mention		Substandard		Non-accrual
Commercial
Commercial and industrial	$	236,930	$	11,505	$	2,485	$	630
Agricultural	45,514		—		—		—
Commercial Real Estate
Farm	73,221		269		—		682
Hotel	59,955		2,787		—		—
Construction and development	75,942		—		—		—
Other	533,610		16,262		10,584		2,231
Total	$	1,025,172	$	30,823	$	13,069	$	3,543

At December 31, 2014, the risk category of loans by class of loans was as follows:

December 31, 2014	Pass		Special Mention		Substandard		Non-accrual
Commercial
Commercial and industrial	$	226,731	$	9,926	$	1,596	$	35
Agricultural	46,634		—		—		150
Commercial Real Estate
Farm	75,191		966		—		692
Hotel	60,704		2,835		11,423		—
Construction and development	60,971		372		219		78
Other	525,758		20,823		9,689		2,323
Total	$	995,989	$	34,922	$	22,927	$	3,278

Loans not analyzed individually as part of the above described process are classified by delinquency. These loans are primarily smaller (<$250) commercial, smaller commercial real estate (<$250), residential mortgage and consumer loans. All commercial, commercial real estate, consumer loans fully or partially secured by 1-4 family residential real estate that are 60-89 days will be classified as Watch. If loans are greater than 90 days past due, they will be classified as Substandard. Smaller commercial and commercial real estate loans on non-accrual are included in the non-accrual tables above. Consumer loans not secured by 1-4 family residential real estate that are 60-119 days past due will be classified Substandard while loans greater than 119 days will be classified as Loss. As of March 31, 2015 and December 31, 2014, the grading of loans by category of loans is as follows:

March 31, 2015	Performing		Watch		Substandard
Commercial
Commercial and industrial	$	35,542	$	—	$	432
Commercial Real Estate
Other	104,988		87		1,632
Total	$	140,530	$	87	$	2,064

December 31, 2014	Performing		Watch		Substandard
Commercial
Commercial and industrial	$	36,839	$	75	$	444
Commercial Real Estate
Other	106,247		156		1,421
Total	$	143,086	$	231	$	1,865

March 31, 2015	Performing		Watch		Substandard
Residential
1-4 Family	$	432,044	$	696	$	2,927
Home Equity	271,496		314		1,466
Total	$	703,540	$	1,010	$	4,393

December 31, 2014	Performing		Watch		Substandard
Residential
1-4 Family	$	430,431	$	1,719	$	3,186
Home Equity	272,388		250		1,521
Total	$	702,819	$	1,969	$	4,707

March 31, 2015	Performing		Substandard		Loss
Consumer
Direct	$	44,516	$	22	$	137
Indirect	555		2		—
Total	$	45,071	$	24	$	137

December 31, 2014	Performing		Substandard		Loss
Consumer
Direct	$	45,181	$	142	$	37
Indirect	605		7		—
Total	$	45,786	$	149	$	37