LOANS AND ALLOWANCE

6 Months Ended

Jun. 30, 2013

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

LOANS AND ALLOWANCE

NOTE 8: LOANS AND ALLOWANCE

The Corporation’s loan and allowance policies are as follows:

Loans

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances, adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term.

Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

Generally, loans are placed on nonaccrual status at 90 days past due and interest is considered a loss, unless the loan is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the contractual due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Corporation’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except one-to-four family residential properties and consumer, the Corporation promptly charges off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Corporation charges off one-to-four family residential and consumer loans, or portions thereof, when the Corporation reasonably determines the amount of the loss. The Corporation adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of one-to-four family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge-off of unsecured open-end loans when the loan is 180 days past due, and charge-down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Corporation can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

For all loan classes, when loans are placed on nonaccrual, or charged off, interest accrued but not collected is reversed against interest income. Subsequent payments on nonaccrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. In general, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. However, for impaired loans and troubled debt restructured, which is included in impaired loans, the Corporation requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

When cash payments are received on impaired loans in each loan class, the Corporation records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical charge-off experience by segment. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation over the prior three years. Management believes the three-year historical loss experience methodology is appropriate in the current economic environment. Other adjustments (qualitative/environmental considerations) for each segment may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. For impaired loans where the Corporation utilizes the discounted cash flows to determine the level of impairment, the Corporation includes the entire change in the present value of cash flows as provision expense.

Segments of loans with similar risk characteristics, including individually evaluated loans not determined to be impaired, are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment measurements.

The following table presents the breakdown of loans as of June 30, 2013 and December 31, 2012.

	June 30, 2013			December 31, 2012
	(Unaudited)
	(In Thousands)
Construction / Land	$	26,493		$	26,506
One-to-four family residential		144,745			137,402
Multi-family residential		17,828			19,988
Nonresidential and agricultural land		103,640			106,433
Commercial		20,853			19,549
Consumer		4,496			4,906
		318,055			314,784
Unamortized deferred loan costs		493			484
Undisbursed loans in process		(20,146	)		(6,186	)
Allowance for loan losses		(4,036	)		(3,564	)
Total loans	$	294,366		$	305,518

The risk characteristics of each loan portfolio segment are as follows:

Construction/Land

The Construction/Land segment includes loans for raw land, loans to develop raw land preparatory to building construction, and construction loans of all types. Construction and development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction and development loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Corporation until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest-rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Land loans are secured by raw land held as an investment, for future development, or as collateral for other use. Management monitors and evaluates these loans based on collateral, geography and risk grade criteria. These loans are underwritten based on the underlying purpose of the loan with repayment primarily from the sale or use of the underlying collateral.

One-to-Four Family Residential and Consumer

With respect to residential loans that are secured by one-to-four family residences and are generally owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. This segment also includes residential loans secured by non-owner occupied one-to-four family residences. Management tracks the level of owner-occupied residential loans versus non-owner occupied loans as a portion of our recent loss history relates to these loans. Home equity loans are typically secured by a subordinate interest in one-to-four family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Nonresidential (including agricultural land) and Multi-family Residential Real Estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Nonresidential and multi-family residential real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Nonresidential and multi-family residential real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Corporation’s nonresidential and multi-family real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates these loans based on collateral, geography and risk grade criteria. As a general rule, the Corporation avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied real estate loans versus non-owner occupied loans.

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

The following tables present the activity in the allowance for loan losses for the three and six months ended June 30, 2013 and 2012 and information regarding the breakdown of the balance in the allowance for loan losses and the recorded investment in loans, both presented by portfolio segment and impairment method, as of June 30, 2013 and December 31, 2012.

	Construction / Land			1-4 Family			Multi-Family		Nonresidential and Agricultural Land			Commercial			Consumer			Total
	(Unaudited; In Thousands)
Three Months Ended June 30, 2013
Balances at beginning of period:	$	757		$	1,534		$	278	$	1,179		$	135		$	1		$	3,884
Provision for losses		(84	)		305			19		(97	)		144			31			318
Loans charged off		-			(21	)		-		-			(138	)		(43	)		(202	)
Recoveries on loans		-			3			-		20			-			13			36
Balances at end of period	$	673		$	1,821		$	297	$	1,102		$	141		$	2		$	4,036
Six Months Ended June 30, 2013
Balances at beginning of period	$	649		$	1,423		$	281	$	1,077		$	132		$	2		$	3,564
Provision for losses		67			482			16		(114	)		146			39			636
Loans charged off		(61	)		(87	)		-		(175	)		(137	)		(74	)		(534	)
Recoveries on loans		18			3			-		314			-			35			370
Balances at end of period	$	673		$	1,821		$	297	$	1,102		$	141		$	2		$	4,036
As of June 30, 2013
Allowance for losses:
Individually evaluated for impairment:	$	196		$	526		$	196	$	97		$	91		$	-		$	1,106
Collectively evaluated for impairment:		477			1,295			101		1,005			50			2			2,930
Loans acquired with a deteriorated credit quality:		-			-			-		-			-			-			-
Balances at end of period		673			1,821			297		1,102			141			2			4,036
Loans:
Individually evaluated for impairment:	$	4,530		$	5,491		$	1,088	$	4,127		$	377		$	11		$	15,624
Collectively evaluated for impairment:		21,625			137,814			16,255		98,814			20,472			4,462			299,442
Loans acquired with a deteriorated credit quality:		338			1,440			485		699			4			23			2,989
Balances at end of period		26,493			144.745			17,828		103,640			20,853			4,496			318,055

	Construction / Land			1-4 Family			Multi-Family		Nonresidential and Agricultural Land			Commercial			Consumer			Total
	(In Thousands)
Three Months Ended June 30, 2012
Balances at beginning of period:	$	430		$	1,472		$	17	$	1,226			6		$	27		$	3,178
Provision for losses		304			(115	)		266		(135	)		2			-			322
Loans charged off		-			(46	)		-		-			-			(19	)		(65	)
Recoveries on loans		-			79			-		-			-			7			86
Balances at end of period	$	734		$	1,390		$	283	$	1,091		$	8		$	15		$	3,521
Six Months Ended
June 30, 2012
Balances at beginning of period:	$	1,016		$	1,986		$	65	$	822			70		$	44		$	4,003
Provision for losses		54			286			218		298			(62	)		2			796
Loans charged off		(340	)		(962	)		-		(29	)		-			(44	)		(1,375	)
Recoveries on loans		4			80			-		-			-			13			97
Balances at end of period	$	734		$	1,390		$	283	$	1,091		$	8		$	15		$	3,521

	Construction / Land		1-4 Family		Multi-Family		Nonresidential and Agricultural Land		Commercial		Consumer		Total
	(In Thousands)
As of December 31, 2012
Allowance for losses:
Individually evaluated for impairment:	$	195	$	310	$	196	$	-	$	93	$	-	$	794
Collectively evaluated for impairment:		453		1,113		85		1,078		40		1		2,770
Loans acquired with a deteriorated credit quality:		-		-		-		-		-		-		-
Balances at end of period	$	648	$	1,423	$	281	$	1,078	$	133	$	1	$	3,564
Loans:
Individually evaluated for impairment:	$	4,752	$	4,517	$	1,104	$	3,278	$	565	$	12	$	14,228
Collectively evaluated for impairment:		21,453		131,465		18,433		102,292		18,946		4,864		297,453
Loans acquired with a deteriorated credit quality:		301		1,420		451		863		38		30		3,103
Balances at end of period	$	26,506	$	137,402	$	19,988	$	106,433	$	19,549	$	4,906	$	314,784

The following tables present the credit risk profile of the Corporation’s loan portfolio based on rating category as of June 30, 2013 and December 31, 2012. Loans acquired from Dupont State Bank in the November 2012 acquisition have been adjusted to fair value for the periods ended December 31, 2012 and June 30, 2013.

June 30, 2013	Total Portfolio		Pass		Special Mention		Substandard		Doubtful
	(Unaudited; In Thousands)
Construction / Land	$	26,493	$	21,739	$	121	$	4,633	$	-
1-4 family residential		144,745		132,333		4,416		7,075		921
Multi-family residential		17,828		16,208		44		1,576		-
Nonresidential and agricultural land		103,640		93,413		4,651		5,024		552
Commercial		20,853		20,031		12		732		78
Consumer		4,496		4,442		2		52		-
Total Loans	$	318,055	$	288,166	$	9,246	$	19,092	$	1,551

December 31, 2012	Total Portfolio		Pass		Special Mention		Substandard		Doubtful
	(In Thousands)
Construction / Land	$	26,506	$	20,952	$	314	$	4,909	$	331
1-4 family residential		137,402		123,705		6,597		5,885		1,215
Multi-family residential		19,988		17,546		186		2,256		-
Nonresidential and agricultural land		106,433		97,307		4,931		2,793		1,402
Commercial		19,549		18,869		15		414		251
Consumer		4,906		4,863		14		29		-
Total Loans	$	314,784	$	283,242	$	12,057	$	16,286	$	3,199

Credit Quality Indicators

The Corporation categorizes loans into risk categories based on relevant information about the ability of the 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 on an ongoing basis by classifying the loans as to credit risk, assigning grade classifications. Loan grade classifications of special mention, substandard, doubtful, or loss are reported to the Corporation’s board of directors monthly. The Corporation uses the following definitions for credit risk grade classifications:

Pass: Loans not meeting the criteria below are considered to be pass rated loans.

Special Mention: These assets are currently protected, but potentially weak. They have credit deficiencies deserving a higher degree of attention by management. These assets do not presently exhibit a sufficient degree of risk to warrant adverse classification. Concerns may lie with cash flow, liquidity, leverage, collateral, or industry conditions. These are graded special mention so that the appropriate level of attention is administered to prevent a move to a “substandard” rating.

Substandard: By regulatory definition, “substandard” loans are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged. These types of loans have well defined weaknesses that jeopardize the liquidation of the debt. A distinct possibility exists that the institution will sustain some loss if the deficiencies are not corrected. These loans are considered workout credits. They exhibit at least one of the following characteristics.

· An expected loan payment is in excess of 90 days past due (non-performing), or non-earning.

· The financial condition of the borrower has deteriorated to such a point that close monitoring is necessary. Payments do not necessarily have to be past due.

· Repayment from the primary source of repayment is gone or impaired.

· The borrower has filed for bankruptcy protection.

· The loans are inadequately protected by the net worth and cash flow of the borrower.

· The guarantors have been called upon to make payments.

· The borrower has exhibited a continued inability to reduce principal (although interest payment may be current).

· The Corporation is considering a legal action against the borrower.

· The collateral position has deteriorated to a point where there is a possibility the Corporation may sustain some loss. This may be due to the financial condition, improper documentation, or to a reduction in the value of the collateral.

· Although loss may not seem likely, the Corporationhas gone to extraordinary lengths (restructuring with extraordinary lengths) to protect its position in order to maintain a high probability of repayment.

· Flaws in documentation leave the Corporationin a subordinated or unsecured position.

Doubtful: These loans exhibit the same characteristics as those rated “substandard,” plus weaknesses that make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. This would include inadequately secured loans that are being liquidated, and inadequately protected loans for which the likelihood of liquidation is high. This classification is temporary. Pending events are expected to materially reduce the amount of the loss. This means that the “doubtful” classification will result in either a partial or complete loss on the loan (write-down or specific reserve), with reclassification of the asset as “substandard,” or removal of the asset from the classified list, as in foreclosure or full loss.

The Corporation evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the quarter or fiscal year.

The following tables present the Corporation’s loan portfolio aging analysis as of June 30, 2013 and December 31, 2012:

June 30, 2013	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Purchased Credit Impaired Loans		Total Loans Receivable
	(Unaudited; In Thousands)
Construction / Land	$	7	$	85	$	49	$	141	$	26,014	$	338	$	26,493
1-4 family residential		772		602		2,303		3,677		139,628		1,440		144,745
Multi-family residential		-		-		-		-		17,343		485		17,828
Nonresidential and agricultural land		763		71		909		1,743		101,198		699		103,640
Commercial		85		32		470		587		20,262		4		20,853
Consumer		52		10		28		90		4,383		23		4,496
	$	1,679	$	800	$	3,759	$	6,238	$	308,828	$	2,989	$	318,055

December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Purchased Credit Impaired Loans		Total Loans Receivable
	(In Thousands)
Construction / Land	$	63	$	-	$	556	$	619	$	25,586	$	301	$	26,506
1-4 family residential		1,347		768		1,408		3,523		132,459		1,420		137,402
Multi-family residential		-		-		-		-		19,537		451		19,988
Nonresidential and agricultural land		276		-		753		1,029		104,541		863		106,433
Commercial		100		-		251		351		19,160		38		19,549
Consumer		36		-		2		38		4,838		30		4,906
	$	1,822	$	768	$	2,970	$	5,560	$	306,121	$	3,103	$	314,784

At June 30, 2013 and December 31, 2012, there were no loans past due 90 days or more and accruing.

The following table presents the Corporation’s nonaccrual loans as of June 30, 2013 and December 31, 2012, which includes both non-performing troubled debt restructured and loans contractually delinquent 90 days or more.

	June 30, 2013			December 31, 2012
	(Unaudited)
	(In Thousands)
Construction / Land	$	4,492		$	4,798
One-to-four family residential		3,257			2,687
Multi-family residential		1,088			1,104
Nonresidential and agricultural land		2,419			1,678
Commercial		379			567
Consumer		28			16
Total nonaccrual loans	$	11,663		$	10,850
Nonaccrual loans as a percent of total loans		3.67	%		3.45	%

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The following tables present information pertaining to the principal balances and specific valuation allocations for impaired loans, as of June 30, 2013 (unaudited; in thousands):

Impaired loans without a specific allowance:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction / Land	$	2,653	$	2,842	$	-
1-4 family residential		3,897		3,969		-
Multi-family residential		52		54		-
Nonresidential and agricultural land		3,213		3,740		-
Commercial		199		370		-
Consumer		11		11		-
	$	10,025	$	10,986	$	-

Impaired loans with a specific allowance:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction / Land	$	1,877	$	1,891	$	196
1-4 family residential		1,594		1,612		526
Multi-family residential		1,036		1,052		196
Nonresidential and agricultural land		914		914		97
Commercial		178		186		91
Consumer		-		-		-
	$	5,599	$	5,655	$	1,106

Total impaired loans:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction / Land	$	4,530	$	4,733	$	196
1-4 family residential		5,491		5,581		526
Multi-family residential		1,088		1,106		196
Nonresidential and agricultural land		4,127		4,654		97
Commercial		377		556		91
Consumer		11		11		-
	$	15,624	$	16,641	$	1,106

The following is a summary by class of information related to the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2013 and 2012.

	Six Months Ended June 30, 2013				Six Months Ended June 30, 2012
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
	(Unaudited; In Thousands)
Construction / Land	$	4,597	$	72	$	4,604	$	1
1-4 family residential		4,770		90		4,825		52
Multi-family residential		1,090		13		2,534		50
Nonresidential and agricultural land		3,745		136		3,703		33
Commercial		480		20		456		17
Consumer		11		1		16		-
	$	14,693	$	332	$	16,138	$	153

	Three Months Ended June 30, 2013				Three Months Ended June 30, 2012
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
	(Unaudited; In Thousands)
Construction / Land	$	4,834	$	67	$	4,627	$	1
1-4 family residential		5,243		58		3,793		31
Multi-family residential		1,088		13		3,086		27
Nonresidential and agricultural land		4,726		120		3,741		15
Commercial		417		20		515		9
Consumer		11		-		15		-
	$	16,319	$	278	$	15,777	$	83

For the three and six months ended June 30, 2013, interest income recognized on a cash basis included above was $149,000 and $216,000, respectively. For the three and six months ended June 30, 2012, interest income recognized on a cash basis included above was immaterial.

The following tables present information pertaining to the principal balances and specific valuation allocations for impaired loans, as of December 31, 2012:

Impaired loans without a specific allowance:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction / Land	$	2,870	$	3,379	$	-
1-4 family residential		3,562		3,612		-
Multi-family residential		53		54		-
Nonresidential and agricultural land		3,278		4,439		-
Commercial		386		418		-
Consumer		12		12		-
	$	10,161	$	11,914	$	-

Impaired loans with a specific allowance:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction / Land	$	1,882	$	1,882	$	195
1-4 family residential		955		957		310
Multi-family residential		1,051		1,061		196
Nonresidential and agricultural land		-		-		-
Commercial		179		186		93
Consumer		-		-		-
	$	4,067	$	4,086	$	794

Total impaired loans:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction / Land	$	4,752	$	5,261	$	195
1-4 family residential		4,517		4,569		310
Multi-family residential		1,104		1,115		196
Nonresidential and agricultural land		3,278		4,439		-
Commercial		565		604		93
Consumer		12		12		-
	$	14,228	$	16,000	$	794

Troubled Debt Restructurings

In the course of working with borrowers, the Corporation may choose to restructure the contractual terms of certain loans. In restructuring the loan, the Corporation attempts to work out an alternative payment schedule with the borrower in order to optimize collectability of the loan. Any loans that are modified, whether through a new agreement replacing the old or via changes to an existing loan agreement, are reviewed by the Corporation to identify if a troubled debt restructuring (“TDR”) has occurred. A troubled debt restructuring occurs when, for economic or legal reasons related to a borrower’s financial difficulties, the Corporation grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status, and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. If such efforts by the Corporation do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Corporation may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

As a result of adopting the amendments in Accounting Standards Update No. 2011-02, the Corporation reassessed all restructurings that occurred on or after the beginning of its prior fiscal year (January 1, 2011) for identification as troubled debt restructurings. As a result of this reassessment, the Corporation did not identify as troubled debt restructurings any additional receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology.

Nonaccrual loans, including TDRs that have not met the six month minimum performance criterion, are reported in this report as non-performing loans. For all loan classes, it is the Corporation’s policy to have any restructured loans which are on nonaccrual status prior to being restructured remain on nonaccrual status until six months of satisfactory borrower performance, at which time management would consider its return to accrual status. A loan is generally classified as nonaccrual when the Corporation believes that receipt of principal and interest is questionable under the terms of the loan agreement. Most generally, this is at 90 or more days past due.

The balance of nonaccrual restructured loans, which is included in total nonaccrual loans, was $8.1 million at June 30, 2013. If the restructured loan is on accrual status prior to being restructured, it is reviewed to determine if the restructured loan should remain on accrual status. The balance of accruing restructured loans was $4.0 million at June 30, 2013. Loans that are considered TDR are classified as performing, unless they are on nonaccrual status or greater than 90 days past due, as of the end of the most recent quarter. All TDRs are considered impaired by the Corporation, unless it is determined that the borrower has met the six month satisfactory performance period under the modified terms. On at least a quarterly basis, the Corporation reviews all TDR loans to determine if the loan meets this criterion.

With regard to determination of the amount of the allowance for credit losses, all accruing restructured loans are considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously above.

At June 30, 2013, the Corporation had a number of loans that were modified in troubled debt restructurings and impaired. The modification of terms of such loans included one or a combination of the following:  an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.

The following tables present information regarding troubled debt restructurings by class for the three-month and six-month periods ended June 30, 2013 and June 30, 2012:

	For the Six-Month Period Ended  June 30, 2013						For the Six-Month Period Ended  June 30, 2012
	# of Loans		Pre-Modification Recorded Balance		Post-Modification Recorded Balance		# of Loans		Pre-Modification Recorded Balance		Post-Modification Recorded Balance
	(Unaudited; Dollars In Thousands)
Construction / Land		3	$	103	$	272		-	$	-	$	-
One-to-four family residential		8		416		434		6		1,103		1,169
Multi-family residential		-		-		-		1		1,068		1,083
Nonresidential and agricultural land		2		935		935		1		40		40
Commercial		4		37		98		3		169		174
Consumer		-		-		-		-		-		-
		17	$	1,491	$	1,739		11	$	2,380	$	2,466

	For the Three-Month Period Ended  June 30, 2013						For the Three-Month Period Ended  June 30, 2012
	# of Loans		Pre-Modification Recorded Balance		Post-Modification Recorded Balance		# of Loans		Pre-Modification Recorded Balance		Post-Modification Recorded Balance
	(Unaudited;DollarsInThousands)
Construction / Land		1	$	103	$	101		-	$	-	$	-
One-to-four family residential		2		176		190		2		63		71
Multi-family residential		-		-		-		-		-		-
Nonresidential and agricultural land		-		-		-		-		-		-
Commercial		-		-		-		1		104		104
Consumer		-		-		-		-		-		-
		3	$	279	$	291		3	$	167	$	175

The following tables present information regarding newly restructured troubled debt by type of modification as of June 30, 2013 and 2012.

June 30, 2013	Interest Only		Term		Combination		Total Modifications
Construction / Land	$	-	$	101	$	171	$	272
One-to-four family residential		-		204		230		434
Multi-family residential		-		-		-		-
Nonresidential and agricultural land		-		-		935		935
Commercial		-		-		98		98
Consumer		-		-		-		-
	$	-	$	305	$	1,434	$	1,739

June 30, 2012	Interest Only		Term		Combination		Total Modifications
Construction / Land	$	-	$	-	$	-	$	-
One-to-four family residential		-		529		559		1,088
Multi-family residential		-		1,075		-		1,075
Nonresidential and agricultural land		-		-		-		-
Commercial		-		-		135		135
Consumer		-		-		-		-
	$	-	$	1,604	$	694	$	2,298

One loan totaling $79,000, classified and reported as a troubled debt restructuring within the twelve months prior to June 30, 2013, defaulted during the six-month period ended June 30, 2013. The loan was reported as one-to-four family residential real estate. No loans classified as troubled debt restructuring during the twelve-month period prior to June 30, 2012 defaulted during the six months ended June 30, 2012. The Corporation defines default in this instance as being either past due 90 days or more at the end of the quarter or in the legal process of foreclosure.

Financial impact of these restructurings was immaterial to the financials of the Corporation at December 31, 2012.