Note 4 - Loans

6 Months Ended

Jun. 30, 2015

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 4.     Loans

The following table summarizes loans receivable, net, by category at June 30, 2015 and December 31, 2014:

	June 30,			December 31,
(in thousands)	2015			2014
Residential real estate	$	130,360		$	122,832
Commercial real estate		226,884			233,473
Construction, land acquisition and development		21,856			18,835
Commercial and industrial		134,367			132,057
Consumer		127,732			122,092
State and political subdivisions		41,025			40,205
Total loans, gross		682,224			669,494
Unearned income		(110	)		(98	)
Net deferred loan costs		1,474			871
Allowance for loan and lease losses		(10,328	)		(11,520	)
Loans, net	$	673,260		$	658,747

The Company has granted loans, letters of credit and lines of credit to certain executive officers and directors of the Company as well as to certain related parties of executive officers and directors. These loans, letters of credit and lines of credit were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and, when made, did not involve more than the normal risk of collectability. See Note 11 to these consolidated financial statements for more information about related party transactions.

The Company originates one- to four-family mortgage loans for sale in the secondary market. During the three and six month periods ended June 30, 2015, the Company sold $0.6 million and $1.6 million, respectively, of one- to four-family mortgages. The Company retains servicing rights on these mortgages. As part of its current asset/liability management strategy, the Company is retaining up to $10.0 million in residential mortgages in the loan portfolio. The Company had $138 thousand and $603 thousand in residential mortgage loans held-for-sale at June 30, 2015 and December 31, 2014, respectively.

The Company sold substantially all of its education loans, which are categorized as consumer loans, to a third party during the six months ended June 30, 2014. The education loans had a recorded investment of $2.6 million at the time of sale. The Company recognized a loss of $13 thousand upon the sale of these loans which is included in non-interest income for the six months ended June 30, 2014.

The Company does not have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios.

See Note 2 to the Company’s consolidated financial statements included in the 2014 Form 10-K for information about the risk characteristics related to the Company’s loan segments.

The Company provides for loan losses based on the consistent application of its documented ALLL methodology. Loan losses are charged to the ALLL and recoveries are credited to it. Additions to the ALLL are provided by charges against income based on various factors which, in management’s judgment, deserve current recognition of estimated probable losses. Loan losses are charged-off in the period the loans, or portions thereof, are deemed uncollectible. Generally, the Company will record a loan charge-off (including a partial charge-off) to reduce a loan to the estimated recoverable amount based on its methodology detailed below. The Company regularly reviews the loan portfolio and makes adjustments for loan losses in order to maintain the ALLL in accordance with GAAP. The ALLL consists primarily of the following two components:

(1) Specific allowances are established for impaired loans, which are defined by the Company as all loan relationships with an aggregate outstanding balance greater than $100 thousand that are rated substandard and on non-accrual status, rated doubtful or loss, and all troubled debt restructured loans (“TDRs”). The amount of impairment provided for as an allowance is represented by the deficiency, if any, between the carrying value of the loan and either (a) the present value of expected future cash flows discounted at the loan’s effective interest rate, (b) the loan’s observable market price, or (c) the fair value of the underlying collateral, less estimated costs to sell, for collateral dependent loans. Impaired loans that have no impairment losses are not considered for general valuation allowances described below. If the Company determines that collection of the impairment amount is remote, the Company will record a charge-off.

(2) General allowances are established for loan losses on a portfolio basis for loans that do not meet the definition of impaired. The Company divides its portfolio into loan segments for loans exhibiting similar characteristics. Loans rated special mention or substandard and accruing, which are embedded in these loan segments, are then separated from these loan segments. These loans are then subject to an analysis placing increased emphasis on the credit risk associated with these specific loans. The Company applies an estimated loss rate to each loan segment. The loss rates applied are based on the Company’s own historical loss experience based on the loss rate for each segment of loans with similar risk characteristics in its portfolio. In addition, management evaluates and applies certain qualitative or environmental factors that are likely to cause estimated credit losses associated with the Company’s existing portfolio to differ from historical experience, which are discussed below. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be significantly more than the ALLL that is established, which could have a material negative effect on the Company’s operating results or financial condition.

Management makes adjustments for loan losses based on its evaluation of several qualitative and environmental factors, including but not limited to:

● changes in national, local, and business economic conditions and developments, including the condition of various market segments;

● changes in the nature and volume of the Company’s loan portfolio;

● changes in the Company’s lending policies and procedures, including underwriting standards, collection, charge-off and recovery practices and results;

● changes in the experience, ability and depth of the Company’s lending management and staff;

● changes in the quality of the Company's loan review system and the degree of oversight by the Company’s Board of Directors;

● changes in the trend of the volume and severity of past due and classified loans, including trends in the volume of non-accrual loans, troubled debt restructurings and other loan modifications;

● the existence and effect of any concentrations of credit and changes in the level of such concentrations;

● the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company's current loan portfolio; and

● analysis of customers’ credit quality, including knowledge of their operating environment and financial condition.

Each quarter, management evaluates the ALLL and adjusts the ALLL as appropriate through a provision for loan losses. While the Company uses the best information available to make evaluations, future adjustments to the ALLL may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of its examination process, the OCC periodically reviews the Company’s ALLL. The OCC may require the Company to adjust the ALLL based on its analysis of information available to it at the time of its examination.

Based on its evaluation of the ALLL, management established an unallocated reserve of $45 thousand at December 31, 2014. As previously mentioned, as part of its evaluation, management applies loss rates to each loan segment of the loan portfolio for each quarter over the previous three years, which have resulted in overall negative historical loss factors and consequently related negative provisions for the construction, land acquisition and development loan segment at December 31, 2014. Based on the higher risk characteristics inherent in this segment of the portfolio, management reversed the negative provisions related to the negative historical loss factors and established the unallocated reserves. As of June 30, 2015, the unallocated reserves had been reversed as the loss history for this segment is no longer negative.

The following table summarizes activity in the ALLL, by loan category, for the three and six months ended June 30, 2015 and 2014:

	Real Estate
(in thousands)	Residential Real Estate			Commercial Real Estate			Construction, Land Acquisition and Development			Commercial and Industrial			Consumer			State and Political Subdivisions			Unallocated			Total
Three months ended June 30, 2015:
Allowance for loan losses:
Beginning balance, April 1, 2015	$	1,531		$	4,331		$	764		$	1,998		$	1,698		$	583		$	39		$	10,944
Charge-offs		(1	)		(912	)		(6	)		(72	)		(201	)		-			-			(1,192	)
Recoveries		5			16			-			102			108			-			-			231
Provisions (credits)		(51	)		606			20			(150	)		38			(79	)		(39	)		345
Ending balance, June 30, 2015	$	1,484		$	4,041		$	778		$	1,878		$	1,643		$	504		$	-		$	10,328
Three months ended June 30, 2014:
Allowance for loan losses:
Beginning balance, April 1, 2014	$	2,114		$	5,530		$	875		$	1,812		$	1,655		$	603		$	-		$	12,589
Charge-offs		(76	)		-			-			(127	)		(130	)		-			-			(333	)
Recoveries		62			349			3,299			63			151			-			-			3,924
Provisions (credits)		12			(746	)		(3,251	)		10			5			(35	)		-			(4,005	)
Ending balance, June 30, 2014	$	2,112		$	5,133		$	923		$	1,758		$	1,681		$	568		$	-		$	12,175
Six months ended June 30, 2015:
Allowance for loan losses:
Beginning balance, January 1, 2015	$	1,772		$	4,663		$	665		$	2,104		$	1,673		$	598		$	45		$	11,520
Charge-offs		(69	)		(912	)		(6	)		(142	)		(340	)		-			-			(1,469	)
Recoveries		11			18			-			167			230			-			-			426
Provisions (credits)		(230	)		272			119			(251	)		80			(94	)		(45	)		(149	)
Ending balance, June 30, 2015	$	1,484		$	4,041		$	778		$	1,878		$	1,643		$	504		$	-		$	10,328
Six months ended June 30, 2014:
Allowance for loan losses:
Beginning balance, January 1, 2014	$	2,287		$	6,017		$	924		$	2,321		$	1,789		$	679		$	-		$	14,017
Charge-offs		(85	)		-			-			(150	)		(367	)		-			-			(602	)
Recoveries		70			355			3,539			126			245			-			-			4,335
Provisions (credits)		(160	)		(1,239	)		(3,540	)		(539	)		14			(111	)		-			(5,575	)
Ending balance, June 30, 2014	$	2,112		$	5,133		$	923		$	1,758		$	1,681		$	568		$	-		$	12,175

The following table represents the allocation of the ALLL and the related loan balance, by loan category, disaggregated based on the impairment methodology at June 30, 2015 and December 31, 2014:

	Real Estate
(in thousands)	Residential Real Estate		Commercial Real Estate		Construction, Land Acquisition and Development		Commercial and Industrial		Consumer		State and Political Subdivisions		Unallocated		Total
June 30, 2015
Allowance for loan losses:
Individually evaluated for impairment	$	8	$	306	$	-	$	-	$	1	$	-	$	-	$	315
Collectively evaluated for impairment		1,476		3,735		778		1,878		1,642		504		-		10,013
Total	$	1,484	$	4,041	$	778	$	1,878	$	1,643	$	504	$	-	$	10,328
Loans receivable:
Individually evaluated for impairment	$	2,673	$	6,811	$	338	$	29	$	356	$	-	$	-	$	10,207
Collectively evaluated for impairment		127,687		220,073		21,518		134,338		127,376		41,025		-		672,017
Total	$	130,360	$	226,884	$	21,856	$	134,367	$	127,732	$	41,025	$	-	$	682,224
December 31, 2014
Allowance for loan losses:
Individually evaluated for impairment	$	51	$	331	$	1	$	-	$	1	$	-	$	-	$	384
Collectively evaluated for impairment		1,721		4,332		664		2,104		1,672		598		45		11,136
Total	$	1,772	$	4,663	$	665	$	2,104	$	1,673	$	598	$	45	$	11,520
Loans receivable:
Individually evaluated for impairment	$	2,487	$	6,660	$	256	$	32	$	361	$	-	$	-	$	9,796
Collectively evaluated for impairment		120,345		226,813		18,579		132,025		121,731		40,205		-		659,698
Total	$	122,832	$	233,473	$	18,835	$	132,057	$	122,092	$	40,205	$	-	$	669,494

Credit Quality Indicators – Commercial Loans

Management continuously monitors the credit quality of the Company’s commercial loans by regularly reviewing certain credit quality indicators. Management utilizes credit risk ratings as the key credit quality indicator for evaluating the credit quality of the Company’s loan receivables.

The Company’s commercial loan classification and credit grading processes are part of the lending, underwriting, and credit administration functions to ensure an ongoing assessment of credit quality. Accurate and timely loan classification and credit grading is a critical component of loan portfolio management. Loan officers are required to review their loan portfolio risk ratings regularly for accuracy. The loan review function uses the same risk rating system in the loan review process. Quarterly, the Company engages an independent third party to assess the quality of the loan portfolio and evaluate the accuracy of ratings with the loan officer’s and management’s assessment.

A formal loan classification and credit grading system reflects the risk of default and credit losses. A written description of the risk ratings is maintained that includes a discussion of the factors used to assign appropriate classifications of credit grades to loans. The process identifies groups of loans that warrant the special attention of management. The risk grade groupings provide a mechanism to identify risk within the loan portfolio and provide management and the Board with periodic reports by risk category. The credit risk ratings play an important role in the establishment and evaluation of the provision for loan and lease losses and the ALLL. After determining the historical loss factor which is adjusted for qualitative and environmental factors for each portfolio segment, the portfolio segment balances that have been collectively evaluated for impairment are multiplied by the general reserve loss factor for the respective portfolio segments to determine the general reserve. Loans that have an internal credit rating of special mention or substandard follow the same process; however, the qualitative and environmental factors are further adjusted for the increased risk.

The Company utilizes a loan rating system that assigns a degree of risk to commercial loans based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. Management analyzes these non-homogeneous loans individually by grading the loans as to credit risk and probability of collection for each type of loan. Commercial loans include commercial indirect auto loans which are not individually risk rated, and construction, land acquisition and development loans include residential construction loans which are also not individually risk rated. These loans are monitored on a pool basis due to their homogeneous nature as described in “Credit Quality Indicators – Other Loans” below. The Company risk rates certain residential real estate loans and consumer loans that are part of a larger commercial relationship using its credit grading system as described in “Credit Quality Indicators – Commercial Loans.” The grading system contains the following basic risk categories:

1. Minimal Risk

2. Above Average Credit Quality

3. Average Risk

4. Acceptable Risk

5. Pass - Watch

6. Special Mention

7. Substandard - Accruing

8. Substandard - Non-Accrual

9. Doubtful

10. Loss

This analysis is performed on a quarterly basis using the following definitions for risk ratings:

Pass - Assets rated 1 through 5 are considered pass ratings. These assets show no current or potential problems and are considered fully collectible. All such loans are considered collectively for ALLL calculation purposes. However, accruing TDRs that have been performing for an extended period of time, do not represent a higher risk of loss, and have been upgraded to a pass rating are evaluated individually for impairment.

Special Mention – Assets classified as special mention assets do not currently expose the Company to a sufficient degree of risk to warrant an adverse classification but do possess credit deficiencies or potential weaknesses deserving close attention.  Special Mention assets have a potential weakness or pose an unwarranted financial risk which, if not corrected, could weaken the asset and increase risk in the future.

Substandard - Assets classified as substandard have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful - Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable based on current circumstances.

Loss - Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted.

Credit Quality Indicators – Other Loans

Certain residential real estate loans, consumer loans, and commercial indirect auto loans are monitored on a pool basis due to their homogeneous nature. Loans that are delinquent 90 days or more are placed on non-accrual status unless the collection of the loan is in process and reasonably assured. The Company utilizes accruing versus non-accrual status as the credit quality indicator for these loan pools. The following table presents the recorded investment in loans receivable by loan category and credit quality indicator at June 30, 2015 and December 31, 2014:

Credit Quality Indicators June 30, 2015
	Commercial Loans												Other Loans
			Special								Subtotal		Accruing		Non-accrual		Subtotal		Total
	Pass		Mention		Substandard		Doubtful		Loss		Commercial		Loans		Loans		Other		Loans
Residential real estate	$	20,046	$	414	$	1,057	$	-	$	-	$	21,517	$	108,247	$	596	$	108,843	$	130,360
Commercial real estate		199,826		15,659		11,399		-		-		226,884		-		-		-		226,884
Construction, land acquisition and development		14,023		365		6,658		-		-		21,046		810		-		810		21,856
Commercial and industrial		127,045		1,701		1,035		-		-		129,781		4,581		5		4,586		134,367
Consumer		3,075		20		118		-		-		3,213		124,341		178		124,519		127,732
State and political subdivisions		40,376		120		529		-		-		41,025		-		-		-		41,025
Total	$	404,391	$	18,279	$	20,796	$	-	$	-	$	443,466	$	237,979	$	779	$	238,758	$	682,224

Credit Quality Indicators
December 31, 2014
	Commercial Loans												Other Loans
			Special								Subtotal		Accruing		Non-accrual		Subtotal		Total
	Pass		Mention		Substandard		Doubtful		Loss		Commercial		Loans		Loans		Other		Loans
Residential real estate	$	19,892	$	451	$	1,077	$	-	$	-	$	21,420	$	100,576	$	836	$	101,412	$	122,832
Commercial real estate		204,252		13,217		16,004		-		-		233,473		-		-		-		233,473
Construction, land acquisition and development		10,910		1,423		5,566		-		-		17,899		936		-		936		18,835
Commercial and industrial		122,261		1,962		2,397		-		-		126,620		5,437		-		5,437		132,057
Consumer		3,414		-		125		-		-		3,539		118,377		176		118,553		122,092
State and political subdivisions		38,685		925		595		-		-		40,205		-		-		-		40,205
Total	$	399,414	$	17,978	$	25,764	$	-	$	-	$	443,156	$	225,326	$	1,012	$	226,338	$	669,494

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment in these non-accrual loans was $5.8 million and $5.5 million at June 30, 2015 and December 31, 2014, respectively. Generally, loans are placed on non-accrual status when they become 90 days or more delinquent, and remain on non-accrual status until they are brought current, have six months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accrual status. There were no loans past due 90 days or more and still accruing at June 30, 2015 and December 31, 2014.

The following tables present the delinquency status of past due and non-accrual loans at June 30, 2015 and December 31, 2014:

	June 30, 2015
	Delinquency Status
	0-29 Days		30-59 Days		60-89 Days		>/= 90 Days
(in thousands)	Past Due		Past Due		Past Due		Past Due		Total
Performing (accruing) loans:
Real estate:
Residential real estate	$	129,084	$	346	$	81	$	-	$	129,511
Commercial real estate		220,851		1,384		-		-		222,235
Construction, land acquisition and development		21,830		-		26		-		21,856
Total real estate		371,765		1,730		107		-		373,602
Commercial and industrial		133,954		263		69		-		134,286
Consumer		126,293		1,084		177		-		127,554
State and political subdivisions		41,025		-		-		-		41,025
Total performing (accruing) loans		673,037		3,077		353		-		676,467
Non-accrual loans:
Real estate:
Residential real estate		409		159		-		281		849
Commercial real estate		205		760		104		3,580		4,649
Construction, land acquisition and development		-		-		-		-		-
Total real estate		614		919		104		3,861		5,498
Commercial and industrial		10		1		-		70		81
Consumer		42		22		20		94		178
State and political subdivisions		-		-		-		-		-
Total non-accrual loans		666		942		124		4,025		5,757
Total loans receivable	$	673,703	$	4,019	$	477	$	4,025	$	682,224

	December 31, 2014
	Delinquency Status
	0-29 Days		30-59 Days		60-89 Days		>/= 90 Days
(in thousands)	Past Due		Past Due		Past Due		Past Due		Total
Performing (accruing) loans:
Real estate:
Residential real estate	$	121,407	$	420	$	-	$	-	$	121,827
Commercial real estate		229,207		136		-		-		229,343
Construction, land acquisition and development		18,740		-		95		-		18,835
Total real estate		369,354		556		95		-		370,005
Commercial and industrial		131,621		90		135		-		131,846
Consumer		120,204		1,334		378		-		121,916
State and political subdivisions		40,205		-		-		-		40,205
Total peforming (accruing) loans		661,384		1,980		608		-		663,972
Non-accrual loans:
Real estate:
Residential real estate		495		99		17		394		1,005
Commercial real estate		288		3,628		19		195		4,130
Construction, land acquisition and development		-		-		-		-		-
Total real estate		783		3,727		36		589		5,135
Commercial and industrial		55		-		52		104		211
Consumer		42		-		58		76		176
State and political subdivisions		-		-		-		-		-
Total non-accrual loans		880		3,727		146		769		5,522
Total loans receivable	$	662,264	$	5,707	$	754	$	769	$	669,494

The following tables present a distribution of the recorded investment, unpaid principal balance and the related allowance for the Company’s impaired loans, which have been analyzed for impairment under ASC 310, at June 30, 2015 and December 31, 2014. Non-accrual loans, other than TDRs, with aggregate loan relationship balances less than the $100 thousand loan relationship threshold are not evaluated individually for impairment and are accordingly not included in the following tables. However, these loans are evaluated collectively for impairment as homogenous pools in the general allowance under ASC Topic 450. Total non-accrual loans, other than TDRs, with balances less than the $100 thousand loan relationship threshold, that were evaluated under ASC Topic 450 amounted to $0.8 million and $1.0 million at June 30, 2015 and December 31, 2014, respectively.

	June 30, 2015
			Unpaid
	Recorded		Principal		Related
(in thousands)	Investment		Balance		Allowance
With no allowance recorded:
Real estate:
Residential real estate	$	761	$	827	$	-
Commercial real estate		4,788		6,397		-
Construction, land acquisition and development		338		338		-
Total real estate		5,887		7,562		-
Commercial and industrial		29		58		-
Consumer		-		-		-
State and political subdivisions		-		-		-
Total impaired loans with no related allowance recorded		5,916		7,620		-
With a related allowance recorded:
Real estate:
Residential real estate		1,912		1,912		8
Commercial real estate		2,023		2,023		306
Construction, land acquisition and development		-		-		-
Total real estate		3,935		3,935		314
Commercial and industrial		-		-		-
Consumer		356		356		1
State and political subdivisions		-		-		-
Total impaired loans with a related allowance recorded		4,291		4,291		315
Total impaired loans:
Real estate:
Residential real estate		2,673		2,739		8
Commercial real estate		6,811		8,420		306
Construction, land acquisition and development		338		338		-
Total real estate		9,822		11,497		314
Commercial and industrial		29		58		-
Consumer		356		356		1
State and political subdivisions		-		-		-
Total impaired loans	$	10,207	$	11,911	$	315

	December 31, 2014
			Unpaid
	Recorded		Principal		Related
(in thousands)	Investment		Balance		Allowance
With no allowance recorded:
Real estate:
Residential real estate	$	385	$	410	$	-
Commercial real estate		4,401		5,024		-
Construction, land acquisition and development		68		68		-
Total real estate		4,854		5,502		-
Commercial and industrial		32		59		-
Consumer		-		-		-
State and political subdivisions		-		-		-
Total impaired loans with no related allowance recorded		4,886		5,561		-
With a related allowance recorded:
Real estate:
Residential real estate		2,102		2,137		51
Commercial real estate		2,259		2,259		331
Construction, land acquisition and development		188		188		1
Total real estate		4,549		4,584		383
Commercial and industrial		-		-		-
Consumer		361		361		1
State and political subdivisions		-		-		-
Total impaired loans with a related allowance recorded		4,910		4,945		384
Total impaired loans:
Real estate:
Residential real estate		2,487		2,547		51
Commercial real estate		6,660		7,283		331
Construction, land acquisition and development		256		256		1
Total real estate		9,403		10,086		383
Commercial and industrial		32		59		-
Consumer		361		361		1
State and political subdivisions		-		-		-
Total impaired loans	$	9,796	$	10,506	$	384

The total recorded investment in impaired loans, which consists of non-accrual loans with an aggregate loan relationship of greater than $100,000 and TDRs, amounted to $10.2 million and $9.8 million at June 30, 2015 and December 31, 2014, respectively. The related allowance recorded for impaired loans was $0.3 million and $0.4 million at June 30, 2015 and December 31, 2014, respectively.

The following table presents the average balance and interest income recognized on impaired loans by loan category for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended June 30,								Six Months Ended June 30,
	2015				2014				2015				2014
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
(in thousands)	Balance		Income (1)		Balance		Income (1)		Balance		Income (1)		Balance		Income (1)
Residential real estate	$	2,666	$	31	$	2,135	$	21	$	2,782	$	64	$	1,971	$	37
Commercial real estate		6,601		28		6,658		24		6,584		58		6,606		55
Construction, land acquisition and development		343		5		302		4		346		9		303		8
Total real estate		9,610		64		9,095		49		9,712		131		8,880		100
Commercial and industrial		30		-		99		-		30		-		114		-
Consumer		357		3		331		3		358		6		323		5
State and political subdivisions		-		-		-		-		-		-		-		-
Total impaired loans	$	9,997	$	67	$	9,525	$	52	$	10,100	$	137	$	9,317	$	105

(1) Interest income represents income recognized on performing TDRs.

The additional interest income that would have been earned on non-accrual and restructured loans in accordance with their original terms approximated $96 thousand and $187 thousand for the three and six months ended June 30, 2015, respectively, and $104 thousand and $207 thousand for the three and six months ended June 30, 2014, respectively.

Troubled Debt Restructured Loans

TDRs at June 30, 2015 and December 31, 2014 were $9.7 million and $9.0 million, respectively. Accruing and non-accruing TDRs were $5.3 million and $4.4 million, respectively at June 30, 2015 and $5.3 million and $3.7 million, respectively at December 31, 2014. Approximately $315 thousand and $346 thousand in specific reserves have been established for these loans as of June 30, 2015 and December 31, 2014, respectively.

The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan, an extension of the maturity date, capitalization of real estate taxes, or a permanent reduction of the recorded investment in the loan.

The following tables show the pre- and post- modification recorded investment in loans modified as TDRs by loan category during the three and six months ended June 30, 2015 and 2014:

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
(dollars in thousands)	Number of Contracts		Pre-Modification  Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments		Number of Contracts		Pre-Modification  Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments
Troubled debt restructurings:
Residential real estate		3	$	154	$	171		5	$	810	$	827
Commercial real estate		1		1,654		1,654		1		1,654		1,654
Construction, land acquisition and development		-		-		-		1		96		96
Commercial and industrial		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
State and political subdivisions		-		-		-		-		-		-
Total new troubled debt restructurings		4	$	1,808	$	1,825		7	$	2,560	$	2,577

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
(dollars in thousands)	Contracts		Investments		Investments		Contracts		Investments		Investments
Troubled debt restructurings:
Residential real estate		4	$	186	$	209		6	$	369	$	449
Commercial real estate		-		-		-		4		238		238
Construction, land acquisition and development		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-
Consumer		1		47		52		2		182		187
State and political subdivisions
Total new troubled debt restructurings		5	$	233	$	261		12	$	789	$	874

During the three and six months ended June 30, 2015, there was one commercial real estate loan that was modified with a recorded investment after modification of $1.7 million. Pursuant to the modification, management conducted an analysis and determined that there was impairment on the loan. Accordingly, the Company recorded a $912 thousand partial charge-off related to this TDR.

Although the seven loans modified as TDRs during the six months ended June 30, 2015 did not result in an increase to the specific reserve in the ALLL at June 30, 2015, charge-offs resulting from the modified TDRs totaled $912 thousand for the six months ended June 30, 2015. 

The following tables present the types of modifications made during the three and six months ended June 30, 2015 and 2014:

	Three Months Ended June 30, 2015										Six Months Ended June 30, 2015
(in thousands)	Extension of Term		Extension of Term and Capitalization of Taxes		Capitalization of Taxes		Principal Forbearance		Total Modifications		Extension of Term		Extension of Term and Capitalization of Taxes		Capitalization of Taxes		Principal Forbearance		Total Modifications
Type of modification:
Residential real estate	$	53	$	118	$	-	$	-	$	171	$	709	$	118	$	-	$	-	$	827
Commercial real estate		-		-		-		1,654		1,654		-		-		-		1,654		1,654
Construction, land acquisition and development		-		-		-		-		-		96		-		-		-		96
Commercial and industrial		-		-		-		-		-		-		-		-		-		-
Consumer		-		-		-		-		-		-		-		-		-		-
State and political subdivisions		-		-		-		-		-		-		-		-		-		-
Total modifications	$	53	$	118	$	-	$	1,654	$	1,825	$	805	$	118	$	-	$	1,654	$	2,577

	Three Months Ended June 30, 2014										Six Months Ended June 30, 2014
(in thousands)	Extension of Term		Extension of Term and Capitalization of Taxes		Capitalization of Taxes		Principal Forbearance		Total Modifications		Extension of Term		Extension of Term and Capitalization of Taxes		Capitalization of Taxes		Principal Forbearance		Total Modifications
Type of modification:
Residential real estate	$	115	$	59	$	35	$	-	$	209	$	115	$	299	$	35	$	-	$	449
Commercial real estate		-		-		-		-		-		238		-		-		-		238
Construction, land acquisition and development		-		-		-		-		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-		-		-		-		-
Consumer		-		52		-		-		52		135		52		-		-		187
State and political subdivisions		-		-		-		-		-		-		-		-		-		-
Total modifications	$	115	$	111	$	35	$	-	$	261	$	488	$	351	$	35	$	-	$	874

There was one TDR with a recorded investment of $3.5 million that re-defaulted (defined as past due 90 days) during the three and six months ended June 30, 2015. The re-default did not occur within one year of the original modification.There were no TDRs which re-defaulted during the three and six months ended June 30, 2014 and for which the payment re-default occurred within one year of the modification.