Note 4, Loans and the Allowance for Loan Losses

The following is a summary of the balances in each class of the Company's loan portfolio as of the dates indicated:

	December 31, 2013			December 31, 2012
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	$ 84,500		$	77,267
Commercial		287,071			274,613
Construction		14,505			12,005
Second mortgages		13,232			14,315
Equity lines of credit		32,163			32,327
Total mortgage loans on real estate		431,471			410,527
Commercial loans		30,702			25,341
Consumer loans		19,791			13,146
Other		18,735			22,119
Total loans		500,699			471,133
Less: Allowance for loan losses		(6,831	)		(7,324	)
Loans, net of allowance and deferred fees	$	493,868		$	463,809

Overdrawn deposit accounts are reclassified as loans and included in the Other category in the table above. Overdrawn deposit accounts totaled $641 thousand and $1.6 million at December 31, 2013 and December 31, 2012, respectively.

CREDIT QUALITY INFORMATION

The Company uses internally-assigned risk grades to estimate the capability of borrowers to repay the contractual obligations of their loan agreements as scheduled or at all. The Company's internal risk grade system is based on experiences with similarly graded loans. Credit risk grades are updated at least quarterly as additional information becomes available, at which time management analyzes the resulting scores to track loan performance.

The Company's internally assigned risk grades are as follows:

·	Pass: Loans are of acceptable risk.

·	Other Assets Especially Mentioned (OAEM): Loans have potential weaknesses that deserve management's close attention.

·	Substandard: Loans reflect significant deficiencies due to several adverse trends of a financial, economic or managerial nature.

·	Doubtful: Loans have all the weaknesses inherent in a substandard loan with added characteristics that make collection or liquidation in full based on currently existing facts, conditions and values highly questionable or improbable.

·	Loss: Loans have been charged off because they are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

The following table presents credit quality exposures by internally assigned risk ratings as of the dates indicated:

Credit Quality Information

As of December 31, 2013

(in thousands)

	Pass		OAEM		Substandard		Total
Mortgage loans on real estate:
Residential 1-4 family	$	78,612	$	1,167	$	4,721	$	84,500
Commercial		274,749		5,693		6,629		287,071
Construction		10,319		640		3,546		14,505
Second mortgages		12,994		0		238		13,232
Equity lines of credit		31,690		0		473		32,163
Total mortgage loans on real estate		408,364		7,500		15,607		431,471
Commercial loans		30,164		319		219		30,702
Consumer loans		19,723		0		68		19,791
Other		18,735		0		0		18,735
Total	$	476,986	$	7,819	$	15,894	$	500,699

Credit Quality Information

As of December 31, 2012

(in thousands)

	Pass		OAEM		Substandard		Total
Mortgage loans on real estate:
Residential 1-4 family	$	70,961	$	1,711	$	4,595	$	77,267
Commercial		258,195		6,781		9,637		274,613
Construction		8,651		254		3,100		12,005
Second mortgages		13,488		242		585		14,315
Equity lines of credit		31,704		239		384		32,327
Total mortgage loans on real estate		382,999		9,227		18,301		410,527
Commercial loans		23,997		209		1,135		25,341
Consumer loans		13,042		0		104		13,146
Other		22,119		0		0		22,119
Total	$	442,157	$	9,436	$	19,540	$	471,133

As of December 31, 2013 and December 31, 2012 the Company did not have any loans internally classified as Loss or Doubtful.

AGE ANALYSIS OF PAST DUE LOANS BY CLASS

All classes of loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Interest and fees continue to accrue on past due loans until the date the loan is placed in nonaccrual status, if applicable. The following table includes an aging analysis of the recorded investment in past due loans as of the dates indicated. Also included in the table below are loans that are 90 days or more past due as to interest and principal and still accruing interest, because they are well-secured and in the process of collection. Loans in nonaccrual status that are also past due are included in the aging categories in the table below.

Age Analysis of Past Due Loans as of December 31, 2013

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Total Past Due		Total Current Loans (1)		Total Loans		Recorded Investment > 90 Days Past Due and Accruing
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	324	$	82	$	4,304	$	4,710	$	79,790	$	84,500	$	493
Commercial		120		704		53		877		286,194		287,071		0
Construction		0		0		2,545		2,545		11,960		14,505		0
Second mortgages		0		10		34		44		13,188		13,232		34
Equity lines of credit		139		0		0		139		32,024		32,163		0
Total mortgage loans on real estate		583		796		6,936		8,315		423,156		431,471		527
Commercial loans		15		80		0		95		30,607		30,702		0
Consumer loans		929		5		5		939		18,852		19,791		5
Other		51		15		14		80		18,655		18,735		14
Total	$	1,578	$	896	$	6,955	$	9,429	$	491,270	$	500,699	$	546

(1) For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

In the table above, the consumer category includes student loans that are 97 - 98% guaranteed by the government. These guaranteed loans totaled $744 thousand at December 31, 2013.

Age Analysis of Past Due Loans as of December 31, 2012

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Total Past Due		Total Current Loans (1)		Total Loans		Recorded Investment > 90 Days Past Due and Accruing
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	1,115	$	0	$	3,783	$	4,898	$	72,369	$	77,267	$	348
Commercial		207		0		724		931		273,682		274,613		0
Construction		140		0		2,925		3,065		8,940		12,005		0
Second mortgages		113		0		544		657		13,658		14,315		60
Equity lines of credit		90		0		287		377		31,950		32,327		0
Total mortgage loans on real estate		1,665		0		8,263		9,928		400,599		410,527		408
Commercial loans		275		13		122		410		24,931		25,341		25
Consumer loans		85		22		11		118		13,028		13,146		11
Other		54		7		3		64		22,055		22,119		3
Total	$	2,079	$	42	$	8,399	$	10,520	$	460,613	$	471,133	$	447

(1) For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

NONACCRUAL LOANS

The Company generally places non-consumer loans in nonaccrual status when the full and timely collection of interest or principal becomes uncertain, part of the principal balance has been charged off and no restructuring has occurred or the loan reaches 90 days past due, unless the credit is well-secured and in the process of collection. Under regulatory rules, consumer loans, which are loans to individuals for household, family and other personal expenditures, and loans secured by 1-4 family residential properties are not required to be placed in nonaccrual status. Although consumer loans and loans secured by 1-4 family residential property are not required to be placed in nonaccrual status, the Company may place a consumer loan or loan secured by 1-4 family residential property in nonaccrual status, if necessary to avoid a material overstatement of interest income.

Generally, consumer loans not secured by real estate are placed in nonaccrual status only when part of the principal has been charged off. These loans are charged off or written down to the net realizable value of the collateral when deemed uncollectible, due to bankruptcy or other factors, or when they are past due based on loan product, industry practice, terms and other factors.

When management places a loan in nonaccrual status, the accrued unpaid interest receivable is reversed against interest income and the loan is accounted for by the cash or cost recovery method, until it qualifies for return to accrual status or is charged off. Generally, management returns a loan to accrual status if (a) all delinquent interest and principal payments become current under the terms of the loan agreement or (b) the loan is both well-secured and in the process of collection and collectability is no longer doubtful.

The following table presents loans in nonaccrual status by class of loan as of the dates indicated:

Nonaccrual Loans by Class

	December 31, 2013		December 31, 2012
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	4,024	$	3,663
Commercial		4,606		3,037
Construction		2,545		3,065
Second mortgages		0		484
Equity lines of credit		0		286
Total mortgage loans on real estate		11,175		10,535
Commercial loans		149		97
Total	$	11,324	$	10,632

Reduction in interest income due to nonaccrual loans	$	511	$	552

TROUBLED DEBT RESTRUCTURINGS

The Company's loan portfolio includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic concessions have been granted to borrowers who are experiencing financial difficulties. These concessions typically result from the Company's loss mitigation activities and could include reduction in the interest rate below current market rates for borrowers with similar risk profiles, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The Company defines a TDR as nonperforming if the TDR is in nonaccrual status or is 90 days or more past due and still accruing interest at the report date.

When the Company modifies a loan, management evaluates any possible impairment as discussed further under Impaired Loans below.

The following table presents TDRs during the period indicated, by class of loan:

Troubled Debt Restructurings by Class

For the Year Ended December 31, 2013

(dollars in thousands)

	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on December 31, 2013
Mortgage loans on real estate:
Residential 1-4 family		8	$	1,633	$	1,633	$	1,620
Commercial		3		3,665		3,665		3,657
Second mortgages		2		231		231		203
Total		13	$	5,529	$	5,529	$	5,480

Troubled Debt Restructurings by Class

For the Year Ended December 31, 2012

(dollars in thousands)

	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on December 31, 2012
Mortgage loans on real estate:
Residential 1-4 family		1	$	93	$	87	$	80
Commercial		4		5,548		4,836		4,683
Second mortgages		1		111		145		138
Total		6	$	5,752	$	5,068	$	4,901

The thirteen loans restructured in 2013 were all given below-market rates for debt with similar risk characteristics. During 2012, two restructurings were given principal reductions totaling $1.0 million, two loans were given below-market rates for debt with similar risk characteristics; and two loans were given both principal reductions and below-market rates.

At December 31, 2013 and 2012, the Company had no outstanding commitments to disburse additional funds on any TDR.

The following table presents TDRs for the years indicated for which there was a payment default where the default occurred within twelve months of restructuring. The Company considers a TDR in default when any of the following occurs: the loan becomes 90 days or more past due; the loan is returned to non-accrual status; the loan is restructured again under terms that would qualify it as a TDR if it were not already so classified; or any portion of the loan is charged off.

Restructurings that Subsequently Defaulted
(in thousands)
	For the Years Ended December 31,
	2013			2012
Mortgage loans on real estate:
Residential 1-4 family		$	181		$	0
Commercial			2,062			0
Total mortgage loans on real estate			2,243			0

The TDRs in the tables above are factored into the determination of the allowance for loan losses as of the periods indicated. These loans are included in the impaired loan analysis, as discussed below.

IMPAIRED LOANS

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans and loans modified in a TDR. When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, except when the sole or remaining source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, when foreclosure is probable, instead of the discounted cash flows. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.

When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is in nonaccrual status, all payments are applied to principal under the cost-recovery method. For financial statement purposes, the recorded investment in the loan is the actual principal balance reduced by payments that would otherwise have been applied to interest. When reporting information on these loans to the applicable customers, the unpaid principal balance is reported as if payments were applied to principal and interest under the original terms of the loan agreements. Therefore, the unpaid principal balance reported to the customer would be higher than the recorded investment in the loan for financial statement purposes. When the ultimate collectability of the total principal of the impaired loan is not in doubt and the loan is in nonaccrual status, contractual interest is credited to interest income when received under the cash-basis method.

The following table includes the recorded investment and unpaid principal balances (a portion of which may have been charged off) for impaired loans with the associated allowance amount, if applicable, as of the dates presented. Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized for the periods presented. The average balances are calculated based on daily average balances.

Impaired Loans by Class

(in thousands)

	As of December 31, 2013								For the year ended December 31, 2013
			Recorded Investment
	Unpaid Principal Balance		Without Valuation Allowance		With Valuation Allowance		Associated Allowance		Average Recorded Investment		Interest Income Recognized
Mortgage loans on real estate:
Residential 1-4 family	$	5,713	$	1,542	$	4,009	$	1,383	$	5,152	$	102
Commercial		12,905		6,882		4,300		307		10,631		591
Construction		3,309		2,545		0		0		2,798		0
Second mortgages		374		296		47		3		462		(19	)
Equity lines of credit		0		0		0		0		97		0
Total mortgage loans on real estate	$	22,301	$	11,265	$	8,356	$	1,693	$	19,140	$	674
Commercial loans		150		149		0		0		44		6
Consumer loans		15		0		15		0		17		1
Total	$	22,466	$	11,414	$	8,371	$	1,693	$	19,201	$	681

Impaired Loans by Class

(in thousands)

	As of December 31, 2012												For the year ended December 31, 2012

				Recorded Investment
	Unpaid Principal Balance			Without Valuation Allowance			With Valuation Allowance			Associated Allowance			Average Recorded Investment			Interest Income Recognized
Mortgage loans on real estate:
Residential 1-4 family		$	4,100		$	681		$	3,235		$	226		$	2,354		$	136
Commercial			12,459			3,741			5,817			180			10,151			242
Construction			3,782			3,064			0			0			3,320			(9	)
Second mortgages			695			583			47			5			542			12
Equity lines of credit			370			286			0			0			391			(2	)
Total mortgage loans on real estate		$	21,406		$	8,355		$	9,099		$	$ 411		$	16,758		$	379
Commercial loans			117			0			97			33			104			(14	)
Consumer loans			17			17			0			0			26			1
Total		$	21,540		$	8,372		$	9,196		$	444		$	$ 16,888		$	366

MONITORING OF LOANS AND EFFECT OF MONITORING FOR THE ALLOWANCE FOR LOAN LOSSES

Loan officers are responsible for continual portfolio analysis and prompt identification and reporting of problem loans, which includes assigning a risk grade to each applicable loan at its origination and revising such grade as the situation dictates. Loan officers maintain frequent contact with borrowers, which should enable the loan officer to identify potential problems before other personnel. In addition, meetings with loan officers and upper management are held to discuss problem loans and review risk grades. Nonetheless, in order to avoid over-reliance upon loan officers for problem loan identification, the Company's loan review system provides for review of loans and risk grades by individuals who are independent of the loan approval process. Risk grades and migration analysis by risk grades are used as a component of the calculation of the allowance for loan losses.

ALLOWANCE FOR LOAN LOSSES

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. Prior to the September 30, 2013 calculation of the allowance for loan losses, the Company segmented certain loans in the portfolio by product type according to internally established criteria. Beginning with the September 30, 2013 calculation and continuing for the December 31, 2013 calculation, the Company segmented the loans in the portfolio by the categories defined by Schedule RC-C of the Federal Financial Institutions Examination Council Consolidated Reports of Condition and Income Form 041 (Call Report). Management believes that using the Call Report categories to segment loans for this purpose results in increased efficiency and accuracy in the determination of the adequacy of the allowance for loan losses. Loans were and continue to be segmented into the following pools: commercial, real estate-construction, real estate-mortgage, consumer and other loans. The Company also sub-segments the real estate-mortgage segment into four classes: residential 1-4 family, commercial real estate, second mortgages and equity lines of credit. While the pools remain the same, management believes the use of the Call Report criteria to categorize loans within the pools results in loans being placed in the pool that most closely reflects each loan's risk profile.

The Company uses an internally developed risk evaluation model in the estimation of the credit risk process. The model and assumptions used to determine the allowance are independently validated and reviewed to ensure that the theoretical foundation, assumptions, data integrity, computational processes and reporting practices are appropriate and properly documented.

The use of the Call Report categories did not result in any change to the segments' risk characteristics. Each portfolio segment has risk characteristics as follows:

Commercial: Commercial loans carry risks associated with the successful operation of a business or project, in addition to other risks associated with the ownership of a business. The repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.

Real estate-construction: Construction loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may at any point in time be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be the loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.

Real estate-mortgage: Residential mortgage loans and equity lines of credit carry risks associated with the continued credit-worthiness of the borrower and changes in the value of the collateral. Commercial real estate loans carry risks associated with the successful operation of a business if owner occupied. If non-owner occupied, the repayment of these loans may be dependent upon the profitability and cash flow from rent receipts.

·	Consumer loans: Consumer loans carry risks associated with the continued credit-worthiness of the borrowers and the value of the collateral. Consumer loans are more likely than real estate loans to be immediately adversely affected by job loss, divorce, illness or personal bankruptcy.

Other loans: Other loans are loans to mortgage companies, loans for purchasing or carrying securities, and loans to insurance, investment and finance companies. These loans carry risks associated with the successful operation of a business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time, depend on interest rates or fluctuate in active trading markets.

Prior to September 30, 2013, management pooled each segment by risk grade and applied a historical loss percentage to determine the balance of the allowance account for each segment of the loan portfolio. Beginning with the calculation for September 30, 2013 and continuing for the December 31, 2013 calculation, the Company converted the analysis of the adequacy of the allowance for loan loss to a software program that uses migration analysis on pooled segments by risk grade or by days past due. Loans not secured by real estate and made to individuals for household, family and other personal expenditures are segmented into pools based on days past due, while all other loans, including loans to consumers that are secured by real estate, are segmented by risk grades. The migration analysis applied to all pools is able to track the risk grading and historical performance of individual loans throughout a number of periods set by management, which provides management with more information regarding trends (or migrations) in a particular loan segment. At September 30, 2013 and December 31, 2013, management used an eight-quarter period and nine-quarter period, respectively. Management believes the additional information provided by the extended migration analysis results in more accurate historical loss information.

THE COMPANY'S ESTIMATION PROCESS

Loans are either individually evaluated for impairment or pooled with like loans and collectively evaluated for impairment. Also, various qualitative factors are applied to each segment of the loan portfolio. The allowance for loan losses is the accumulation of these components. Management's estimate is based on certain observable, historical data that management believes are most reflective of the underlying credit losses being estimated.

Management provides an allocated component of the allowance for loans that are individually evaluated for impairment. An allocated allowance is established when the discounted value of future cash flows from the impaired loan (or the collateral value or observable market price of the impaired loan) is lower than the carrying value of that loan. This allocation represents the sum of management's estimated losses on each loan.

Loans collectively evaluated for impairment are pooled, with a historical loss rate applied to each pool. This historical loss rate at December 31, 2013 was based on a migration analysis of the portfolio over the previous nine quarters. At December 31, 2012, the historical loss percentage was based on losses sustained in each segment of the portfolio over the previous eight quarters. See the discussion of changes in accounting methodology below for additional explanation.

Based on credit risk assessments and management's analysis of qualitative factors, additional loss factors are applied to loan balances. These additional qualitative factors include: economic conditions, trends in growth, loan concentrations, changes in certain loans, changes in underwriting, changes in management and changes in the legal and regulatory environment.

ALLOWANCE FOR LOAN LOSSES BY SEGMENT

The total allowance reflects management's estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Company considers the allowance for loan losses of $6.8 million adequate to cover loan losses inherent in the loan portfolio at .

The following table presents, by portfolio segment, the changes in the allowance for loan losses and the recorded investment in loans for the periods presented. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

ALLOWANCE FOR LOAN LOSSES AND RECORDED INVESTMENT IN LOANS

(in thousands)

For the Twelve Months Ended December 31, 2013	Commercial			Real Estate - Construction			Real Estate - Mortgage			Consumer			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	677		$	187		$	6,179		$	204		$	77		$	7,324
Charge-offs		(200	)		(501	)		(1,548	)		(141	)		(316	)		(2,706	)
Recoveries		76			6			513			111			207			913
Provision for loan losses		(203	)		970			213			120			200			1,300
Ending balance	$	350		$	662		$	5,357		$	294		$	168		$	6,831
Ending balance individually evaluated for impairment	$	0		$	0		$	1,693		$	0		$	0		$	1,693
Ending balance collectively evaluated for impairment		350			662			3,664			294			168			5,138
Ending balance	$	350		$	662		$	5,357		$	294		$	168		$	6,831
Loan Balances:
Ending balance individually evaluated for impairment	$	149		$	2,545		$	17,076		$	15		$	0		$	19,785
Ending balance collectively evaluated for impairment		30,553			11,960			399,890			19,776			18,735			480,914
Ending balance	$	30,702		$	14,505		$	416,966		$	19,791		$	18,735		$	500,699

For the Year Ended December 31, 2012	Commercial			Real Estate - Construction			Real Estate - Mortgage			Consumer			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	1,011		$	323		$	6,735		$	300		$	129		$	8,498
Charge-offs		(138	)		(831	)		(2,554	)		(259	)		(187	)		(3,969	)
Recoveries		67			30			162			70			66			395
Provision for loan losses		(263	)		665			1,836			93			69			2,400
Ending balance	$	677		$	187		$	6,179		$	204		$	77		$	7,324
Ending balance individually evaluated for impairment	$	33		$	0		$	411		$	0		$	0		$	444
Ending balance collectively evaluated for impairment		644			187			5,768			204			77			6,880
Ending balance	$	677		$	187		$	6,179		$	204		$	77		$	7,324
Loan Balances:
Ending balance individually evaluated for impairment	$	97		$	3,064		$	14,390		$	17		$	0		$	17,568
Ending balance collectively evaluated for impairment		25,244			8,941			384,132			13,129			22,119			453,565
Ending balance	$	25,341		$	12,005		$	398,522		$	13,146		$	22,119		$	471,133

CHANGES IN ACCOUNTING METHODOLOGY

On September 30, 2013, the Company converted the analysis of the adequacy of the allowance for loan loss from a manual input process using Excel spreadsheets to a more automated process using information downloaded from the loan subsystem to a software program. The program streamlines reserve estimation with a consistent and defensible methodology, automates a cumbersome, manual process to allow more time for analysis, and minimizes the risk of human error which ensures better and more accurate calculations. The automation is primarily used to input and aggregate information and to provide the analysis regarding migration trends. It enhances but does not replace management's subjective analysis of historical loss rates, credit risk and qualitative factors.

The change in the calculation is in the method by which the historic loss on balances collectively evaluated for impairment is determined. Prior to September 30, 2013, management pooled each segment by risk grade and applied a historical loss percentage to determine the balance of the allowance account for each segment of the loan portfolio. Beginning with the September 30, 2013 calculation, the Company uses migration analysis on pooled segments by risk grade or by days past due. In addition, the collectively evaluated impairment pools were based on internally defined product types under the previous method. Beginning with the September 30, 2013, calculation, the collectively evaluated impairment pools are categorized using federal Call Report definitions.

Under the previous method, the pass loan pool actual loss experience was 0% but this experience was given an override in a very conservative manner by using the loss experience for the entire loan portfolio for the average of the past eight quarters. This method included the historical loss experience for the riskier OAEM and Substandard rated credits which were already accounted for in their own allocations. Under the current method, which uses migration analysis, an override is no longer needed because migration analysis tracks the movement of loans through the various loan classifications in order to estimate the percentage of losses likely to be incurred in the Company's current portfolio.

The following table represents the effect on the loan loss provision for the year ended December 31, 2013 as a result of the changes to the methodology from that used in prior periods.

	Calculated Provision Based on Current Methodology			Calculated Provision Based on Prior Methodology			Difference
	(in thousands)
Portfolio Segment:
Commercial	$	(203	)	$	(217	)	$	14
Real estate - construction		970			452			518
Real estate - mortgage		213			669			(456	)
Consumer loans		120			3			117
Other		200			108			92
Total	$	1,300		$	1,015		$	285

Under the previous method, the provisions for real estate – construction and real estate – mortgage were calculated on the same pool of loans, with loss rates for that aggregated pool applied to the loan balances in those segments, even though the two segments have different risk characteristics and performance history. Under the current method, the historical loss rate on construction loans is calculated separately from other real estate loans, providing a more precise estimate of the Company's true historical losses.

The other loans segment in the table above includes overdrafts on deposit accounts. The new method allows management to perform a more granular analysis of overdrawn accounts.