NOTE F - IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES

During the three months ending March 31, 2014 and 2013, newly identified troubled debt restructurings ("TDRs") totaled $0.4 million and $4.4 million, respectively. Loans that are modified, but where full collection under the modified terms is doubtful are classified as nonaccrual loans from the date of modification.

The Company's TDR concessions granted generally do not include forgiveness of principal balances. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.

When a loan is modified as a TDR, there is not a direct, material impact on the loans within the Consolidated Balance Sheet, as principal balances are generally not forgiven. Most loans prior to modification were classified as an impaired loan and the allowance for loan losses is determined in accordance with Company policy.

No accruing loans that were restructured within the twelve months preceding March 31, 2014 defaulted during the three months ended March 31, 2014. The Company considers a loan to have defaulted when it becomes 60 days or more delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual and specific allowance for loan loss is assigned in accordance with the Company's policy.

As of March 31, 2014 and December 31, 2013, the Company's recorded investment in impaired loans and the related valuation allowance were as follows:

	March 31, 2014
			Unpaid		Related
	Recorded		Principal		Valuation
(Dollars in thousands)	Investment		Balance		Allowance
Impaired Loans with No Related Allowance Recorded:
Construction and land development	$	1,949	$	2,082	$	0
Commercial real estate		758		861		0
Residential real estate		13,083		18,096		0
Commercial and financial		0		0		0
Consumer		312		353		0
Impaired Loans with an Allowance Recorded:
Construction and land development		1,527		2,044		136
Commercial real estate		10,386		11,822		507
Residential real estate		22,044		23,445		3,649
Commercial and financial		163		163		11
Consumer		535		583		104
Total:
Construction and land development		3,476		4,126		136
Commercial real estate		11,144		12,683		507
Residential real estate		35,127		41,541		3,649
Commercial and financial		163		163		11
Consumer		847		936		104
	$	50,757	$	59,449	$	4,407

	December 31, 2013
			Unpaid		Related
	Recorded		Principal		Valuation
(Dollars in thousands)	Investment		Balance		Allowance
Impaired Loans with No Related Allowance Recorded:
Construction and land development	$	2,561	$	3,180	$	0
Commercial real estate		4,481		6,577		0
Residential real estate		12,366		17,372		0
Commercial and financial		153		153		0
Consumer		425		569		0
Impaired Loans with an Allowance Recorded:
Construction and land development		1,120		1,197		149
Commercial real estate		7,937		8,046		638
Residential real estate		23,365		24,766		4,528
Commercial and financial		13		13		13
Consumer		548		573		118
Total:
Construction and land development		3,681		4,377		149
Commercial real estate		12,418		14,623		638
Residential real estate		35,731		42,138		4,528
Commercial and financial		166		166		13
Consumer		973		1,142		118
	$	52,969	$	62,446	$	5,446

For the three months ended March 31, 2014 and 2013, the Company's average recorded investments in impaired loans and related interest income were as follows:

	Three Months Ended				Three Months Ended
	March 31, 2014				March 31, 2013
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
Impaired Loans with No Related Allowance Recorded:
Construction & land development	$	2,357	$	27	$	1,675	$	25
Commercial real estate		3,240		21		10,806		2
Residential real estate		12,605		127		15,338		2
Commercial and financial		102		0		0		0
Consumer		387		5		178		0
Impaired Loans with an Allowance Recorded:
Construction & land development		1,256		13		2,196		6
Commercial real estate		8,753		151		26,154		299
Residential real estate		22,925		213		23,854		140
Commercial and financial		63		2		0		0
Consumer		544		9		526		6
Total:
Construction & land development		3,613		40		3,871		31
Commercial real estate		11,993		172		36,960		301
Residential real estate		35,530		340		39,192		142
Commercial and financial		165		2		0		0
Consumer		931		14		704		6
	$	52,232	$	568	$	80,727	$	480

Impaired loans also include loans that have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulties have been granted. At March 31, 2014 and December 31, 2013, accruing TDRs totaled $24.5 million and $25.1 million, respectively.

Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions to principal. For the three months ended March 31, 2014 and 2013, the Company recorded $568,000 and $480,000, respectively, in interest income on impaired loans.

For impaired loans whose impairment is measured based on the present value of expected future cash flows, a total of $65,000 and $240,000, respectively, was included in interest income for the three months ended March 31, 2014 and 2013, and represents the change in present value attributable to the passage of time.

Activity in the allowance for loan losses for the three-month periods ended March 31, 2014 and 2013 is summarized as follows:

	Allowance for Loan Losses for the Three Months Ended March 31, 2014
			Provision								Net
	Beginning		for Loan			Charge-					Charge-			Ending
(Dollars in thousands)	Balance		Losses			Offs			Recoveries		Offs			Balance
Construction & land development	$	808	$	(36	)	$	(3	)	$	27	$	24		$	796
Commercial real estate		6,160		441			(84	)		236		152			6,753
Residential real estate		11,659		(1,378	)		(112	)		189		77			10,358
Commercial and financial		710		220			(108	)		31		(77	)		853
Consumer		731		18			(57	)		20		(37	)		712
	$	20,068	$	(735	)	$	(364	)	$	503	$	139		$	19,472

	Allowance for Loan Losses for the Three Months Ended March 31, 2013
			Provision							Net
	Beginning		for Loan		Charge-					Charge-			Ending
(Dollars in thousands)	Balance		Losses		Offs			Recoveries		Offs			Balance
Construction & land development	$	1,134	$	193	$	(334	)	$	115	$	(219	)	$	1,108
Commercial real estate		8,849		49		(529	)		79		(450	)		8,448
Residential real estate		11,090		481		(946	)		97		(849	)		10,722
Commercial and financial		468		70		(60	)		80		20			558
Consumer		563		160		(27	)		8		(19	)		704
	$	22,104	$	953	$	(1,896	)	$	379	$	(1,517	)	$	21,540

The allowance for loan losses is composed of specific allowances for certain impaired loans and general allowances grouped into loan pools based on similar characteristics. The Company's loan portfolio and related allowance at March 31, 2014 and 2013 is shown in the following tables:

	At March 31, 2014
	Individually Evaluated for				Collectively Evaluated for
	Impairment				Impairment				Total
	Carrying		Associated		Carrying		Associated		Carrying		Associated
(Dollars in thousands)	Value		Allowance		Value		Allowance		Value		Allowance
Construction & land development	$	3,476	$	136	$	63,721	$	660	$	67,197	$	796
Commercial real estate		11,144		507		517,300		6,246		528,444		6,753
Residential real estate		35,127		3,649		557,456		6,709		592,583		10,358
Commercial and financial		163		11		79,238		842		79,401		853
Consumer		847		104		43,984		608		44,831		712
	$	50,757	$	4,407	$	1,261,699	$	15,065	$	1,312,456	$	19,472

	At March 31, 2013
	Individually Evaluated for				Collectively Evaluated for
	Impairment				Impairment				Total
	Carrying		Associated		Carrying		Associated		Carrying		Associated
(Dollars in thousands)	Value		Allowance		Value		Allowance		Value		Allowance
Construction & land development	$	3,561	$	183	$	59,290	$	925	$	62,851	$	1,108
Commercial real estate		33,908		1,938		444,335		6,510		478,243		8,448
Residential real estate		38,137		4,410		536,386		6,312		574,523		10,722
Commercial and financial		0		0		64,752		558		64,752		558
Consumer		772		182		42,669		522		43,441		704
	$	76,378	$	6,713	$	1,147,432	$	14,827	$	1,223,810	$	21,540