Note 3. Loans

The composition of the loan portfolio by loan classification at June 30, 2019 and December 31, 2018 appears below (dollars in thousands).

	June 30,			December 31,
	2019			2018
Commercial
Commercial and industrial - organic	$	39,376		$	41,526
Commercial and industrial - government guaranteed		35,143			31,367
Commercial and industrial - syndicated		12,091			12,134
Total commercial and industrial		86,610			85,027
Real estate construction and land
Residential construction		1,021			1,552
Commercial construction		3,663			5,078
Land and land development		9,636			10,894
Total construction and land		14,320			17,524
Real estate mortgages
1-4 family residential, first lien, investment		40,807			40,311
1-4 family residential, first lien, owner occupied		16,304			16,775
1-4 family residential, junior lien		2,894			3,169
1-4 family residential - purchased		18,451			18,647
Home equity lines of credit, first lien		8,544			8,325
Home equity lines of credit, junior lien		9,472			10,912
Farm		9,298			10,397
Multifamily		24,432			27,328
Commercial owner occupied		95,286			93,800
Commercial non-owner occupied		116,890			123,214
Total real estate mortgage		342,378			352,878
Consumer
Consumer revolving credit		24,341			21,540
Consumer all other credit		4,196			5,530
Student loans purchased		49,918			54,691
Total consumer		78,455			81,761
Total loans		521,763			537,190
Less: Allowance for loan losses		(4,817	)		(4,891	)
Net loans	$	516,946		$	532,299

The balances in the table above include unamortized premiums and net deferred loan costs and fees. As of June 30, 2019, and December 31, 2018, unamortized premiums on loans purchased were $2.6 million and $2.5 million, respectively. Net deferred loan costs (fees) totaled $95 thousand and $129 thousand as of June 30, 2019 and December 31, 2018, respectively.

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 when due 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.

Following is a breakdown by class of the loans classified as impaired loans as of June 30, 2019 and December 31, 2018. 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 six months ended June 30, 2019 or the twelve months ended December 31, 2018. Interest income recognized is for the six months ended June 30, 2019 or the twelve months ended December 31, 2018. (Dollars below reported in thousands.)

June 30, 2019			Unpaid				Average		Interest
	Recorded		Principal		Associated		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Land and land development	$	28	$	88	$	-	$	29	$	-
1-4 family residential mortgages, first lien, owner occupied		-		-		-		40		-
1-4 family residential mortgages, junior lien		122		122				124		3
Commercial non-owner occupied real estate		903		903		-		913		24
Total impaired loans without a valuation allowance		1,053		1,113		-		1,106		27

Impaired loans with a valuation allowance
Student loans purchased		1,591		1,591		51		1,597		37
Total impaired loans with a valuation allowance		1,591		1,591		51		1,597		37
Total impaired loans	$	2,644	$	2,704	$	51	$	2,703	$	64

December 31, 2018			Unpaid				Average		Interest
	Recorded		Principal		Associated		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Land and land development	$	32	$	90	$	-	$	37	$	-
1-4 family residential mortgages, first lien, owner occupied		82		127		-		90		-
1-4 family residential mortgages, junior lien		127		127				248		15
Commercial non-owner occupied real estate		923		923		-		947		51
Total impaired loans without a valuation allowance		1,164		1,267		-		1,322		66

Impaired loans with a valuation allowance
Student loans purchased		1,602		1,602		90		1,387		86
Total impaired loans with a valuation allowance		1,602		1,602		90		1,387		86
Total impaired loans	$	2,766	$	2,869	$	90	$	2,709	$	152

Included in the impaired loans above are non-accrual loans. 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. The recorded investment in non-accrual loans is shown below by class (dollars in thousands):

	June 30, 2019		December 31, 2018
Land and land development	$	27	$	32
1-4 family residential mortgages, first lien, owner occupied		-		82
Student loans purchased		363		445
Commercial and industrial - organic		-		56
Total non-accrual loans	$	390	$	615

Additionally, 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.

Based on regulatory guidance on Student Lending, the Company has classified 68 of its student loans purchased as TDRs for a total of $1.2 million as of June 30, 2019. These borrowers that should have been in repayment have requested and been granted payment extensions or reductions exceeding the maximum lifetime allowable payment forbearance of twelve months (36 months lifetime allowance for military service), as permitted under the regulatory guidance, and are therefore considered restructurings. Student loan borrowers are allowed in-school deferments, plus an automatic six-month grace period post in-school status, before repayment is scheduled to begin, and these deferments do not count toward the maximum allowable forbearance. Initially, all student loans were fully insured by a surety bond, and the Company did not expect to experience a loss on these loans. Based on the loss of insurance after July 27, 2018 due to the insolvency of the insurer, management has evaluated these loans individually for impairment and included any potential loss in the allowance for loan losses; interest continues to accrue on these TDRs during any deferment and forbearance periods.

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

Troubled debt restructurings (TDRs)	June 30, 2019			December 31, 2018
	No. of	Recorded		No. of	Recorded
	Loans	Investment		Loans	Investment
Performing TDRs
1-4 family residential mortgages, junior lien	-	$	-	1	$	127
Commercial non-owner occupied real estate	1		903	1		923
Student loans purchased	68		1,229	65		1,157
Total performing TDRs	69	$	2,132	67	$	2,207

Nonperforming TDRs
Student loans purchased	-	$	-	1	$	4
Land and land development	1		16	1		19
Total nonperforming TDRs	1	$	16	2	$	23
Total TDRs	70	$	2,148	69	$	2,230

A summary of loans shown above that were modified under the terms of a TDR during the three and six months ended June 30, 2019 and 2018 is shown below by class (dollars in thousands). The Post-Modification Recorded Balance reflects the period end balances, inclusive of any interest capitalized to principal, partial principal paydowns, and principal charge-offs since the modification date. Loans modified as TDRs that were fully paid down, charged-off, or foreclosed upon by period end are not reported.

	For three months ended					For three months ended
	June 30, 2019					June 30, 2018
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number	Recorded		Recorded		Number	Recorded		Recorded
	of Loans	Balance		Balance		of Loans	Balance		Balance
Student loans purchased	10	$	78	$	78	4	$	41	$	41
Total loans modified during the period	10	$	78	$	78	4	$	41	$	41

	For six months ended					For six months ended
	June 30, 2019					June 30, 2018
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number	Recorded		Recorded		Number	Recorded		Recorded
	of Loans	Balance		Balance		of Loans	Balance		Balance
Student loans purchased	12	$	133	$	133	7	$	120	$	120
Total loans modified during the period	12	$	133	$	133	7	$	120	$	120

During the six months ended June 30, 2019, there were two loans modified as TDRs that subsequently defaulted which had been modified as TDRs during the twelve months prior to default. These student loans had a balance of $2 thousand prior to being charged off. There was one loan modified as a TDR that subsequently defaulted during the year ending December 31, 2018 which had been modified as a TDR during the twelve months prior to default. This student loan had a balance of $33 thousand prior to being charged off.

There were no loans secured by 1-4 family residential property that were in the process of foreclosure at either June 30, 2019 or December 31, 2018.