LOANS AND ALLOWANCE

3 Months Ended

Mar. 31, 2014

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 uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated at least quarterly by management and is based upon management’s periodic review of the collectability of the loans in light of several factors, including 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 five years. Previously, management utilized a three-year historical loss experience methodology. Given the loss experiences of financial institutions over the last five years, management believes it is appropriate to utilize a five-year look-back period for loss history and made this change effective in 2013. Other adjustments (qualitative or 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 March 31, 2014 and December 31, 2013 (in thousands).

	March 31, 2014			December 31, 2013
	(Unaudited)
Construction/Land	$	25,978		$	24,307
One-to-four family residential		136,098			137,298
Multi-family residential		18,107			16,408
Nonresidential		112,067			118,946
Commercial		22,458			24,741
Consumer		3,667			4,326
		318,375			326,026
Unamortized deferred loan costs		494			487
Undisbursed loans in process		(2,063	)		(5,775	)
Allowance for loan losses		(4,196	)		(4,510	)
Total loans	$	312,610		$	316,228

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

Construction, Land and Land Development

The Construction, Land and Land Development segments include 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 usually 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 residential 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

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 residential 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 residential real estate loans versus non-owner-occupied residential 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-month periods ended March 31, 2014 and 2013, and information regarding the breakdown of the balance in the allowance for loan losses and the recorded investment in loans, both presented by portfolio class and impairment method, as of March 31, 2014 and December 31, 2013.

	Construction/ Land		1-4 Family			Multi-Family		Nonresidential			Commercial			Consumer			Total
	(Unaudited; In Thousands)
Three Months Ended March 31, 2014
Balances at beginning of period:	$	676	$	1,749		$	404	$	1,470		$	189		$	22		$	4,510
Provision for losses		18		256			10		(93	)		(20	)		3			174
Loans charged off		-		(484	)		-		(11	)		-			(38	)		(533	)
Recoveries on loans		-		3			-		12			7			23			45
Balances at end of period	$	694	$	1,524		$	414	$	1,378		$	176		$	10		$	4,196
As of March 31, 2014
Allowance for losses:
Individually evaluated for impairment:	$	195	$	302		$	196	$	97		$	88		$	-		$	878
Collectively evaluated for impairment:		499		1,139			110		1,208			88			10			3,054
Loans acquired with a deteriorated credit quality:		-		83			108		73			-			-			264
Balances at end of period	$	694	$	1,524		$	414	$	1,378		$	176		$	10		$	4,196
Loans:
Individually evaluated for impairment:	$	4,256	$	4,838		$	1,015	$	4,093		$	330		$	-		$	14,532
Collectively evaluated for impairment:		21,360		130,230			16,581		107,264			22,113			3,649			301,197
Loans acquired with a deteriorated credit quality:		362		1,030			511		710			15			18			2,646
Balances at end of period	$	25,978	$	136,098		$	18,107	$	112,067		$	22,458		$	3,667		$	318,375

	Construction/ Land			1-4 Family			Multi-Family			Nonresidential			Commercial		Consumer			Total
	(Unaudited; In Thousands)
Three Months Ended March 31, 2013
Balances at beginning of period:	$	648		$	1,423		$	281		$	1,078		$	133	$	1		$	3,564
Provision for losses		152			176			(3	)		(18	)		2		9			318
Loans charged off		(61	)		(65	)		-			(175	)		-		(31	)		(332	)
Recoveries on loans		18			-			-			294			-		22			334
Balances at end of period	$	757		$	1,534		$	278		$	1,179		$	135	$	1		$	3,884

	Construction/ Land		1-4 Family		Multi-Family		Nonresidential		Commercial		Consumer		Total
	(In Thousands)
As of December 31, 2013
Allowance for losses:
Individually evaluated for impairment:	$	195	$	552	$	196	$	97	$	68	$	-	$	1,108
Collectively evaluated for impairment:		481		1,101		110		1,305		120		21		3,138
Loans acquired with a deteriorated credit quality:		-		96		98		68		1		1		264
Balances at end of period	$	676	$	1,749	$	404	$	1,470	$	189	$	22	$	4,510
Loans:
Individually evaluated for impairment:	$	4,104	$	5,917	$	1,074	$	4,096	$	372	$	12	$	15,563
Collectively evaluated for impairment:		19,866		130,100		14,834		114,145		24,354		4,307		307,606
Loans acquired with a deteriorated credit quality:		337		1,281		500		705		15		19		2,857
Balances at end of period	$	24,307	$	137,298	$	16,408	$	118,946	$	24,741	$	4,326	$	326,026

The following tables present the credit risk profile of the Corporation’s loan portfolio based on rating category as of March 31, 2014 and December 31, 2013. Loans acquired from Dupont State Bank in the November 2012 acquisition have been adjusted to fair value for these periods.

March 31, 2014	Total Portfolio		Pass		Special Mention		Substandard		Doubtful
	(Unaudited; In Thousands)
Construction/Land	$	25,978	$	21,617	$	32	$	4,329	$	-
1-4 family residential		136,098		125,315		4,116		6,336		331
Multi-family residential		18,107		15,865		44		2,198		-
Nonresidential		112,067		104,975		2,663		4,017		412
Commercial		22,458		22,033		11		349		65
Consumer		3,667		3,637		-		30		-
Total loans	$	318,375	$	293,442	$	6,866	$	17,259	$	808

December 31, 2013	Total Portfolio		Pass		Special Mention		Substandard		Doubtful
	(In Thousands)
Construction/Land	$	24,307	$	20,023	$	33	$	4,251	$	-
1-4 family residential		137,298		124,765		4,144		7,691		698
Multi-family residential		16,408		14,798		44		1,566		-
Nonresidential		118,946		110,622		2,686		5,066		572
Commercial		24,741		24,341		8		316		76
Consumer		4,326		4,301		-		25		-
Total loans	$	326,026	$	298,850	$	6,915	$	18,915	$	1,346

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 March 31, 2014 and December 31, 2013:

March 31, 2014	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Purchased Credit Impaired Loans		Total Loans Receivables
	(Unaudited; In Thousands)
Construction/Land	$	37	$	83	$	159	$	279	$	25,337	$	362	$	25,978
1-4 family residential		1,016		318		790		2,124		132,944		1,030		136,098
Multi-family residential		-		-		-		-		17,596		511		18,107
Nonresidential		524		1,118		2,159		3,801		107,556		710		112,067
Commercial		96		-		207		303		22,140		15		22,458
Consumer		55		10		3		68		3,581		18		3,667
	$	1,728	$	1,529	$	3,318	$	6,575	$	309,154	$	2,646	$	318,375

December 31, 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 Receivables
	(In Thousands)
Construction/Land	$	207	$	-	$	71	$	278	$	23,692	$	337	$	24,307
1-4 family residential		458		671		2,322		3,451		132,566		1,281		137,298
Multi-family residential		-		-		-		-		15,908		500		16,408
Nonresidential		267		398		940		1,605		116,636		705		118,946
Commercial		66		-		96		162		24,564		15		24,741
Consumer		104		7		7		118		4,189		19		4,326
	$	1,102	$	1,076	$	3,436	$	5,614	$	317,555	$	2,857	$	326,026

At March 31, 2014, there were $58,000 of one-to-four family residential loans and $3,000 of consumer loans that were past due 90 days or more and accruing. At December 31, 2013, there was one consumer installment loan of $1,000 that was past due 90 days or more and accruing.

The following table presents the Corporation’s nonaccrual loans as of March 31, 2014 and December 31, 2013, which includes both non-performing troubled debt restructured and loans contractually delinquent 90 days or more (in thousands).

	March 31, 2014		December 31, 2013
	(Unaudited)
Construction/Land	$	3,834	$	3,864
One-to-four family residential		2,623		3,833
Multi-family residential		1,015		1,073
Nonresidential and agricultural land		3,592		2,377
Commercial		374		362
Consumer and other		-		5
Total nonaccrual loans	$	11,438	$	11,514

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 March 31, 2014 (unaudited; in thousands):

Impaired loans without a specific allowance:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction/Land	$	2,438	$	2,673	$	-
1-4 family residential		4,107		4,117		-
Multi-family residential		-		-		-
Nonresidential		3,193		4,028		-
Commercial		129		143		-
Consumer		-		-		-
	$	9,867	$	10,961	$	-

Impaired loans with a specific allowance:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction/Land	$	1,818	$	1,831	$	195
1-4 family residential		731		747		302
Multi-family residential		1,015		1,032		196
Nonresidential		900		900		97
Commercial		201		346		88
Consumer		-		-		-
	$	4,665	$	4,856	$	878

Total impaired loans:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction Land	$	4,256	$	4,504	$	195
1-4 family residential		4,838		4,864		302
Multi-family residential		1,015		1,032		196
Nonresidential		4,093		4,928		97
Commercial		330		489		88
Consumer		-		-		-
	$	14,532	$	15,817	$	878

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 months ended March 31, 2014 and 2013.

	Three Months Ended March 31, 2014				Three Months Ended March 31, 2013
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
	(Unaudited; In Thousands)
Construction/Land	$	4,195	$	33	$	4,820	$	4
1-4 family residential		5,649		47		4,673		32
Multi-family residential		1,038		5		1,091		-
Nonresidential		4,105		28		3,395		17
Commercial		330		1		606		1
Consumer		-		-		12		-
	$	15,317	$	114	$	14,597	$	54

For the three months ended March 31, 2014, interest income recognized on a cash basis included above was $74,000. For the three months ended March 31, 2013, 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, 2013 (in thousands).

Impaired loans without a specific allowance:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction/Land	$	2,286	$	2,516	$	-
1-4 family residential		4,154		4,184		-
Multi-family residential		52		53		-
Nonresidential		3,194		3,672		-
Commercial		237		395		-
Consumer		-		-		-
	$	9,923	$	10,820	$	-

Impaired loans with a specific allowance:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction/Land	$	1,818	$	1,831	$	195
1-4 family residential		1,763		1,784		552
Multi-family residential		1,022		1,038		196
Nonresidential		902		902		97
Commercial		135		143		68
Consumer		-		-		-
	$	5,640	$	5,698	$	1,108

Total impaired loans:	Recorded Investment		Unpaid Principal Balance		Specific Allowance
Construction/Land	$	4,104	$	4,347	$	195
1-4 family residential		5,917		5,968		552
Multi-family residential		1,074		1,091		196
Nonresidential		4,096		4,574		97
Commercial		372		538		68
Consumer		-		-		-
	$	15,563	$	16,518	$	1,108

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 collectibility 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.

Nonaccrual loans, including TDRs that have not met the six month minimum performance criterion, are reported in this report as non-performing loans. On at least a quarterly basis, the Corporation reviews all TDR loans to determine if the loan meets this criterion. 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.

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 their return to accrual status.

Loans reported as TDR as of March 31, 2014 totaled $9,730,000. TDR loans reported as nonaccrual (non-performing) loans, and included in total nonaccrual (non-performing) loans, were $6,972,000 at March 31, 2014. The remaining TDR loans, totaling $2,758,000, were accruing at March 31, 2014 and reported as performing loans.

All TDRs are considered impaired by the Corporation for the life of the loan and reflected so in the Corporation’s analysis of the allowance for credit losses. 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 March 31, 2014, the Corporation had five 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 as of the three-month periods ended March 31, 2014 and March 31, 2013, and new troubled debt restructuring for the three-month periods ended March 31, 2014 and March 31, 2013:

	At March 31, 2014				For the Three Months Ended March 31, 2014
	# of Loans		Total Troubled Debt Restructured		# of Loans		Pre-Modification Recorded Balance		Post-Modification Recorded Balance
	(Unaudited; In Thousands)
Construction/Land		11	$	4,124		1	$	219	$	218
One-to-four family residential		11		2,840		3		1,892		2,163
Multi-family residential		1		1,015		-		-		-
Nonresidential and agricultural land		4		1,487		-		-		-
Commercial		8		264		1		-		16
Consumer		-		-		-		-		-
		35	$	9,730		5	$	2,111	$	2,397

	At March 31, 2013				For the Three Months Ended March 31, 2013
	# of Loans		Total Troubled Debt Restructured		# of Loans		Pre-Modification Recorded Balance		Post-Modification Recorded Balance
	(Unaudited; In Thousands)
Construction/Land		6	$	4,285		2	$	-	$	170
One-to-four family residential		15		3,864		6		240		245
Multi-family residential		1		1,038		-		-		-
Nonresidential and agricultural land		7		2,455		2		935		935
Commercial		11		355		4		38		98
Consumer		-		-		-		-		-
		40	$	11,997		14	$	1,213	$	1,448

The following tables present information regarding post-modification balances of newly restructured troubled debt by type of modification as of March 31, 2014 and 2013.

March 31, 2014	Interest Only		Term		Combination		Total Modifications
	(Unaudited; In Thousands)
Construction/Land	$	-	$	218	$	-	$	218
One-to-four family residential		-		96		2,067		2,163
Multi-family residential		-		-		-		-
Nonresidential		-		-		-		-
Commercial		-		-		16		16
Consumer		-		-		-		-
	$	-	$	314	$	2,083	$	2,397

March 31, 2013	Interest Only		Term		Combination		Total Modifications
	(Unaudited; In Thousands)
Construction/Land	$	-	$	-	$	171	$	170
One-to-four family residential		-		14		231		245
Multi-family residential		-		-		-		-
Nonresidential		-		-		935		935
Commercial		-		-		98		98
Consumer		-		-		-		-
	$	-	$	14	$	1,434	$	1,448

One loan totaling $110,000 that was classified and reported as troubled debt restructured within the twelve months prior to March 31, 2014, defaulted during the three-month period ended March 31, 2014. The loan was reported as construction/land. Two loans totaling $122,000 that were classified and reported as troubled debt restructured within the twelve months prior to March 31, 2013, defaulted during the three-month period ended March 31, 2013. Both loans were reported as one-to-four family residential real estate.

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 March 31, 2014 and 2013.