Note 3. Loans

The composition of the loan portfolio by loan classification at March 31, 2014 and December 31, 2013 appears below.

	March 31, 2014			December 31, 2013
	(dollars in thousands)
Commercial & industrial loans	$	49,441		$	48,060
Real estate construction and land
Residential construction		937			794
Other construction and land		18,068			17,667
Total construction and land		19,005			18,461
Real estate mortgage:
1-4 family		53,575			54,300
Home equity loans		28,494			29,612
Multifamily mortgages		18,961			22,560
Commercial owner occupied		56,877			58,802
Commercial non-owner occupied		52,181			54,635
Total real estate mortgage		210,088			219,909
Consumer
Consumer revolving credit		2,042			2,254
Consumer all other credit		11,482			11,350
Total consumer loans		13,524			13,604
Total loans		292,058			300,034
Less: Allowance for loan losses		(3,373	)		(3,360	)
Net loans	$	288,685		$	296,674

Accounting guidance requires certain disclosures about investments in impaired loans, the allowance for loan losses and interest income recognized on impaired loans. A loan is considered impaired when it is probable that the Company will be unable to collect all principal and interest amounts according to the contractual terms of the loan agreement. Factors involved in determining impairment include, but are not limited to, expected future cash flows, financial condition of the borrower, and current economic conditions.

Generally, loans are placed on non-accrual when a loan is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other non-accrual loans is recognized only to the extent of interest payments received.

Troubled Debt Restructurings ("TDRs") are considered impaired loans. TDRs occur when the Company agrees to modify the original terms of a loan by granting a concession that it would not otherwise consider due to the deterioration in the financial condition of the borrower. These concessions are done in an attempt to improve the paying capacity of the borrower, and in some cases to avoid foreclosure, and are made with the intent to restore the loan to a performing status once sufficient payment history can be demonstrated. These concessions could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.

Following is a breakdown by class of the loans classified as impaired loans as of March 31, 2014 and December 31, 2013. These loans are reported at their recorded investment, which is the carrying amount of the loan as reflected on the Company's balance sheet, net of charge-offs and other amounts applied to reduce the net book balance. Average recorded investment in impaired loans is computed using an average of month-end balances for these loans for either the three months ended March 31, 2014 or the twelve months ended December 31, 2013. Interest income recognized is for the three months ended March 31, 2014 or the twelve months ended December 31, 2013.

March 31, 2014			Unpaid				Average		Interest
	Recorded		Principal		Associated		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(dollars in thousands)
Impaired loans without a valuation allowance:
Other real estate construction and land	$	102	$	137	$	-	$	84	$	-
1-4 family residential mortgages		430		527		-		333		2
Home equity loans		35		35		-		12		-
Commercial owner occupied real estate		1,134		1,134		-		1,140		12
Commercial non-owner occupied real estate		138		164		-		138		-
Impaired loans with a valuation allowance		-		-		-		-		-
Total impaired loans	$	1,839	$	1,997	$	-	$	1,707	$	14

December 31, 2013			Unpaid				Average		Interest
	Recorded		Principal		Associated		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(dollars in thousands)
Impaired loans without a valuation allowance:
Other real estate construction and land	$	77	$	110	$	-	$	81	$	-
1-4 family residential mortgages		285		380		-		293		11
Commercial owner occupied real estate		1,144		1,144		-		1,414		50
Commercial non-owner occupied real estate		230		274		-		202		-
Impaired loans with a valuation allowance		-		-		-		-		-
Total impaired loans	$	1,736	$	1,908	$	-	$	1,990	$	61

Non-accruals are shown below by class:

	March 31, 2014		December 31, 2013
	(dollars in thousands)
Other real estate construction and land	$	102	$	77
1-4 family residential mortgages		206		60
Home equity loans		35		-
Commercial non-owner occupied real estate		138		230
Total non-accrual loans	$	481	$	367

The following provides a summary, by class, of modified loans that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and modified loans that have been placed in non-accrual status, which are considered to be nonperforming.

Troubled Debt Restructuring (TDRs)	March 31, 2014			December 31, 2013
(dollars in thousands)	No. of	Recorded		No. of	Recorded
	Loans	Investment		Loans	Investment
Performing TDRs
1-4 family residential mortgages	1	$	224	1	$	225
Commercial owner occupied real estate	1		1,134	1		1,144
Total performing TDRs	2	$	1,358	2	$	1,369

Nonperforming TDRs
1-4 family residential mortgages	-	$	-	-	$	-
Commercial owner occupied real estate	-		-	-		-
Total nonperforming TDRs	-	$	-	-	$	-
Total TDRs	2	$	1,358	2	$	1,369

No loans were modified under the terms of a TDR during the three months ended March 31, 2014 and 2013.

The following tables present, by class of loans, information related to loans modified as TDRs that subsequently defaulted during the three months ended March 31, 2014 and 2013 and were modified as TDRs during the twelve months prior to default:

	For three months ended			For three months ended
(dollars in thousands)	March 31, 2014			March 31, 2013
	No. of	Recorded		No. of	Recorded
	Loans	Investment		Loans	Investment
1-4 family residential mortgages	-	$	-	1	$	65
Commercial owner occupied real estate	-		-	1		183
Total	-	$	-	2	$	248