Note 10 - Loans Receivable

Loans receivable, included unfunded commitments consist of the following:

	March 31			December 31
	2015			2014
	(dollars in thousands)
Residential mortgage, total	$	309,904		$	309,461
Individually evaluated for impairment		28,880			28,535
Collectively evaluated for impairment		281,024			280,926

Construction, land acquisition and development, total		81,418			84,325
Individually evaluated for impairment		919			917
Collectively evaluated for impairment		80,499			83,408

Land, total		30,043			30,426
Individually evaluated for impairment		1,948			2,039
Collectively evaluated for impairment		28,095			28,387

Lines of credit, total		17,651			19,251
Individually evaluated for impairment		453			454
Collectively evaluated for impairment		17,198			18,797

Commercial real estate, total		185,367			198,539
Individually evaluated for impairment		4,462			6,309
Collectively evaluated for impairment		180,905			192,230

Commercial non-real estate, total		10,042			10,167
Individually evaluated for impairment		269			274
Collectively evaluated for impairment		9,773			9,893

Home equity, total		26,233			28,750
Individually evaluated for impairment		3,147			3,551
Collectively evaluated for impairment		23,086			25,199

Consumer, total		990			1,040
Individually evaluated for impairment		12			12
Collectively evaluated for impairment		978			1,028
Total Loans		661,648			681,959
Less
Unfunded commitments included above		(31,429	)		(36,162	)
		630,219			645,797
Individually evaluated for impairment		40,090			42,091
Collectively evaluated for impairment		590,129			603,706
		630,219			645,797
Allowance for loan losses		(8,964	)		(9,435	)
Deferred loan origination fees and costs, net		(2,628	)		(2,480	)
Net Loans	$	618,627		$	633,882

The inherent credit risks within the portfolio vary depending upon the loan class as follows:

Residential mortgage loans are secured by one to four family dwelling units. The loans have limited risk as they are secured by first mortgages on the unit, which are generally the primary residence of the borrower, at a loan to value ratio of 80% or less.

Construction, land acquisition and development loans are underwritten based upon a financial analysis of the developers and property owners and construction cost estimates, in addition to independent appraisal valuations. These loans will rely on the value associated with the project upon completion. These cost and valuation estimates may be inaccurate. Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially dependent upon the success of the completed project rather than the ability of the borrower or guarantor to repay principal and interest. If the Bank is forced to foreclose on a project prior to or at completion, due to a default, there can be no assurance that the Bank will be able to recover all of the unpaid balance of the loan as well as related foreclosure and holding costs. In addition, the Bank may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time. Sources of repayment of these loans typically are permanent financing expected to be obtained upon completion or sales of developed property. These loans are closely monitored by onsite inspections and are considered to be of a higher risk than other real estate loans due to their ultimate repayment being sensitive to general economic conditions, availability of long-term financing, interest rate sensitivity, and governmental regulation of real property.

Land loans are underwritten based upon the independent appraisal valuations as well as the estimated value associated with the land upon completion of development. These cost and valuation estimates may be inaccurate. These loans are considered to be of a higher risk than other real estate loans due to their ultimate repayment being sensitive to general economic conditions, availability of long-term financing, interest rate sensitivity, and governmental regulation of real property.

Line of credit loans are subject to the underwriting standards and processes similar to commercial non-real estate loans, in addition to those underwriting standards for real estate loans. These loans are viewed primarily as cash flow dependent and secondarily as loans secured by real-estate and/or other assets. Repayment of these loans is generally dependent upon the successful operation of the property securing the loan or the principal business conducted on the property securing the loan. Line of credit loans may be adversely affected by conditions in the real estate markets or the economy in general. Management monitors and evaluates line of credit loans based on collateral and risk-rating criteria.

Commercial real estate loans are subject to the underwriting standards and processes similar to commercial and industrial loans, in addition to those underwriting standards for real-estate loans. These loans are viewed primarily as cash flow dependent and secondarily as loans secured by real estate. Repayment of these loans is generally dependent upon the successful operation of the property securing the loan or the principal business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or the economy in general. Management monitors and evaluates commercial real estate loans based on collateral and risk-rating criteria. The Bank also utilizes third-party experts to provide environmental and market valuations. The nature of commercial real estate loans makes them more difficult to monitor and evaluate.

Commercial non-real estate loans are underwritten after evaluating historical and projected profitability and cash flow to determine the borrower's ability to repay their obligation as agreed. Commercial and industrial loans are made primarily based on the identified cash flow of the borrower and secondarily on the underlying collateral supporting the loan facility. Accordingly, the repayment of a commercial and industrial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.

Home equity loans are subject to the underwriting standards and processes similar to residential mortgages and are secured by one to four family dwelling units. Home equity loans have greater risk than residential mortgages as a result of the Bank being in a second lien position in the event collateral is liquidated.

Consumer loans consist of loans to individuals through the Bank's retail network and are typically unsecured or secured by personal property. Consumer loans have a greater credit risk than residential loans because of the difference in the underlying collateral, if any. The application of various federal and state bankruptcy and insolvency laws may limit the amount that can be recovered on such loans.

The loan portfolio segments and loan classes disclosed above are the same because this is the level of detail management uses when the original loan is recorded and is the level of detail used by management to assess and monitor the risk and performance of the portfolio. Management has determined that this level of detail is adequate to understand and manage the inherent risks within each portfolio segment and loan class.

Allowance for Loan Losses - An allowance for loan losses is provided through charges to income in an amount that management believes will be adequate to absorb losses on existing loans that may become uncollectible, based on evaluations of the collectability of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrowers' ability to pay. Determining the amount of the allowance for loan losses requires the use of estimates and assumptions, which is permitted under GAAP. Actual results could differ significantly from those estimates. Management believes the allowance for losses on loans is adequate. While management uses available information to estimate losses on loans, future additions to the allowances may be necessary based on changes in economic conditions, particularly in the state of Maryland. In addition, various regulatory agencies, periodically review the Bank's allowance for losses on loans as an integral part of their examination process. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. When a real estate secured loan becomes impaired, a decision is made as to whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

For such loans that are classified as impaired, an allowance is established when the current market value of the underlying collateral less its estimated disposal costs is lower than the carrying value of that loan. For loans that are not solely collateral dependent, an allowance is established when the present value of the expected future cash flows of the impaired loan is lower than the carrying value of that loan. The general component relates to loans that are classified as doubtful, substandard or special mention that are not considered impaired, as well as non-classified loans. The general reserve is based on historical loss experience adjusted for qualitative factors. These qualitative factors include:

Levels and trends in delinquencies and nonaccruals;

Inherent risk in the loan portfolio;

Trends in volume and terms of the loan;

Effects of any change in lending policies and procedures;

Experience, ability and depth of management;

National and local economic trends and conditions;

Effect of any changes in concentration of credit; and

Industry conditions.

A loan is considered impaired if it meets either of the following two criteria:

Loans that are 90 days or more in arrears (nonaccrual loans); or

Loans where, based on current information and events, it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement.

Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

A loan is considered a troubled debt restructuring when for economic or legal reasons relating to the borrowers financial difficulties Bancorp grants a concession to the borrower that it would not otherwise consider. Loan modifications made with terms consistent with current market conditions that the borrower could obtain in the open market are not considered troubled debt restructurings.

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 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.

With respect to all loan segments, management does not charge off a loan, or a portion of a loan, until one of the following conditions have been met:

The loan has been foreclosed on. Once the loan has been transferred from the Loans Receivable to Foreclosed Real Estate, a charge off is recorded for the difference between the recorded amount of the loan and the net value of the underlying collateral.

An agreement to accept less than the recorded balance of the loan has been made with the borrower. Once an agreement has been finalized, and any proceeds from the borrower are received, a charge off is recorded for the difference between the recorded amount of the loan and the net value of the underlying collateral.

The loan is considered to be impaired collateral dependent and its collateral valuation is less than the recorded balance. The loan is written down for accounting purposes by the amount of the difference between the recorded balance and collateral value.

Prior to the above conditions, a loan is assessed for impairment when: (i) a loan becomes 90 days or more in arrears or (ii) based on current information and events, it is probable that the borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement. If a loan is considered to be impaired, it is then determined to be either cash flow or collateral dependent. For a cash flow dependent loan, if based on management’s calculation of discounted cash flows, a reserve is needed, a specific reserve is recorded. That reserve is included in the Allowance for Loan Losses in the Consolidated Statement of Financial Condition.

Over the last several years, Bancorp has experienced an increase in the number of extension requests for commercial real estate and construction loans, some of which have related repayment guarantees. An extension may be granted to allow for the completion of the project, marketing or sales of completed units, or to provide for permanent financing, and is based on a re-underwriting of the loan and management's assessment of the borrower's ability to perform according to the agreed-upon terms. Typically, at the time of an extension, borrowers are performing in accordance with contractual loan terms. Extension terms generally do not exceed 12 to 18 months and typically require that the borrower provide additional economic support in the form of partial repayment, additional collateral or guarantees. In cases where the fair value of the collateral or the financial resources of the borrower are deemed insufficient to repay the loan, reliance may be placed on the support of a guarantee, if applicable. However, such guarantees are not relied on when evaluating a loan for impairment and never considered the sole source of repayment.

Bancorp evaluates the financial condition of guarantors based on the most current financial information available. Most often, such information takes the form of (i) personal financial statements of net worth, cash flow statements and tax returns (for individual guarantors) and (ii) financial and operating statements, tax returns and financial projections (for legal entity guarantors). Bancorp’s evaluation is primarily focused on various key financial metrics, including net worth, leverage ratios, and liquidity. It is Bancorp's policy to update such information annually, or more frequently as warranted, over the life of the loan.

While Bancorp does not specifically track the frequency with which it has pursued guarantor performance under a guarantee, its underwriting process, both at origination and upon extension, as applicable, includes an assessment of the guarantor's reputation, creditworthiness and willingness to perform. Historically, when Bancorp has found it necessary to seek performance under a guarantee, it has been able to effectively mitigate its losses. As stated above, Bancorp’s ability to seek performance under a guarantee is directly related to the guarantor's reputation, creditworthiness and willingness to perform. When a loan becomes impaired, repayment is sought from both the underlying collateral and the guarantor (as applicable). In the event that the guarantor is unwilling or unable to perform, a legal remedy is pursued.

Construction loans are funded, at the request of the borrower, typically not more than once per month, based on the extent of work completed, and are monitored, throughout the life of the project, by independent professional construction inspectors and Bancorp's commercial real estate lending department. Interest is advanced to the borrower, upon request, based upon the progress of the project toward completion. The amount of interest advanced is added to the total outstanding principal under the loan commitment. Should the project not progress as scheduled, the adequacy of the interest reserve necessary to carry the project through to completion is subject to close monitoring by management. Should the interest reserve be deemed to be inadequate, the borrower is required to fund the deficiency. Similarly, once a loan is fully funded, the borrower is required to fund all interest payments.

Construction loans are reviewed for extensions upon expiration of the loan term. Provided the loan is performing in accordance with contractual terms, extensions may be granted to allow for the completion of the project, marketing or sales of completed units, or to provide for permanent financing. Extension terms generally do not exceed 12 to 18 months.

In general, Bancorp's construction loans are used to finance improvements to commercial, industrial or residential property. Repayment is typically derived from the sale of the property as a whole, the sale of smaller individual units, or by a take-out from a permanent mortgage. The term of the construction period generally does not exceed two years. Loan commitments are based on established construction budgets which represent an estimate of total costs to complete the proposed project including both hard (direct) costs (building materials, labor, etc.) and soft (indirect) costs (legal and architectural fees, etc.). In addition, project costs may include an appropriate level of interest reserve to carry the project through to completion. If established, such interest reserves are determined based on (i) a percentage of the committed loan amount, (ii) the loan term, and (iii) the applicable interest rate. Regardless of whether a loan contains an interest reserve, the total project cost statement serves as the basis for underwriting and determining which items will be funded by the loan and which items will be funded through borrower equity. Bancorp has not advanced additional interest reserves to keep a loan from becoming nonperforming.

Bancorp recognized $57,000 and $5,000 of interest income and capitalized interest in its loan portfolio from interest reserves during the three months ended March 31, 2015 and 2014, respectively. None of the loans where interest reserves were recorded as capitalized interest were non-performing.

The following is a summary of the allowance for loan losses for the three month periods ended March 31, 2015 and 2014 (dollars in thousands):

	Total			Residential Mortgage			Construction Acquisition Development		Land			Lines of Credit			Commercial Real Estate		Commercial Non-Real Estate			Home Equity			Consumer
Three months March 2015
Beginning Balance	$	9,435		$	4,664		$	362	$	646		$	12		$	2,504	$	280		$	963		$	4
Provision		100			(22	)		6		(308	)		(5	)		294		78			58			(1	)
Charge-offs		(626	)		(168	)		-		-			-			-		(1	)		(457	)		-
Recoveries		55			17			-		-			10			-		25			3			-
Ending Balance	$	8,964		$	4,491		$	368	$	338		$	17		$	2,798	$	382		$	567		$	3

Ending balance related to:

Allowance on loans individually evaluated for impairment	$	2,254		$	1,969		$	-	$	49		$	-		$	220	$	14		$	-		$	2
Allowance on loans collectively evaluated for impairment	$	6,710		$	2,522		$	368	$	289		$	17		$	2,578	$	368		$	567		$	1

Three months March 2014

Beginning Balance	$	11,739		$	6,282		$	411	$	1,345		$	35		$	2,527	$	135		$	1,002		$	2
Provision		200			(161	)		196		(176	)		2			349		43			(53	)		-
Charge-offs		(752	)		(587	)		-		-			-			-		(1	)		(164	)		-
Recoveries		38			11			-		-			-			25		2			-			-
Ending Balance	$	11,225		$	5,545		$	607	$	1,169		$	37		$	2,901	$	179		$	785		$	2
Ending balance related to:
Allowance on loans individually evaluated for impairment	$	2,546		$	2,245		$	-	$	64		$	-		$	237	$	-		$	-		$	-
Allowance on loans collectively evaluated for impairment	$	8,679		$	3,300		$	607	$	1,105		$	37		$	2,664	$	179		$	785		$	2

The accrual of interest on loans is discontinued at the time the loan is 90 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on non-accrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Bancorp’s policy for recording payments received on non-accrual financing receivables is to record the payment towards principal and interest on a cash basis until such time as the loan is returned to accrual status.

The following tables summarize impaired loans at March 31, 2015 and December 31, 2014 (dollars in thousands):

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
March 31, 2015
Residential mortgage	$	13,626	$	1,969	$	15,254	$	28,880	$	29,765
Construction, acquisition and development		-		-		919		919		919
Land		353		49		1,595		1,948		2,065
Lines of credit		-		-		453		453		545
Commercial real estate		2,513		220		1,949		4,462		4,580
Commercial non-real estate		269		14		-		269		269
Home equity		-		-		3,147		3,147		4,109
Consumer		12		2		-		12		12
Total impaired loans	$	16,773	$	2,254	$	23,317	$	40,090	$	40,264

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
December 31, 2014
Residential mortgage	$	14,094	$	2,113	$	14,441	$	28,535	$	29,487
Construction, acquisition and development		-		-		917		917		917
Land		355		53		1,684		2,039		2,157
Lines of credit		-		-		454		454		545
Commercial real estate		2,529		224		3,780		6,309		6,533
Commercial non-real estate		274		15		-		274		274
Home equity		1,472		370		2,079		3,551		4,274
Consumer		12		2		-		12		12
Total impaired loans	$	18,736	$	2,777	$	23,355	$	42,091	$	44,199

The following tables summarize average impaired loans for the three month periods ended March 31, 2015 and 2014 (dollars in thousands):

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance				Total Impaired Loans
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Three months ended March 31, 2015
Residential mortgage	$	13,648	$	136	$	15,343	$	148	$	28,991	$	284
Construction, acquisition and development		-		-		1,157		9		1,157		9
Land		354		3		1,676		22		2,030		25
Lines of credit		-		-		454		13		454		13
Commercial real estate		2,518		31		1,953		40		4,471		71
Commercial non-real estate		270		2		-		13		270		15
Home equity		352		-		3,077		38		3,429		38
Consumer		12		-		-		-		12		-
Total impaired loans		17,154	$	172	$	23,660	$	283	$	40,814	$	455

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance				Total Impaired Loans
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

Three months ended March 31, 2014
Residential mortgage	$	15,076	$	167	$	18,702	$	225	$	33,778	$	392
Construction, acquisition and development		-		-		2,735		19		2,735		19
Land		362		3		1,187		14		1,549		17
Lines of credit		-		-		1,937		20		1,937		20
Commercial real estate		2,083		29		4,157		68		6,240		97
Commercial non-real estate		-		-		530		7		530		7
Home equity		-		-		1,732		15		1,732		15
Consumer		-		-		-		-		-		-
Total impaired loans		17,521	$	199	$	30,980	$	368	$	48,501	$	567

Bancorp recognized $455,000 and $567,000 of interest income on impaired loans using a cash-basis method of accounting for the three months ended March 31, 2015 and 2014, respectively. Bancorp did not record any interest income attributable to the change in present value due to the passage of time. Bancorp evaluates its impaired loans and assesses them based on either discounted cash flows or if it deems its loans to be collateral based, assesses impairment based on the net value of the underlying collateral.

Included in the above impaired loans amount at March 31, 2015 was $26,773,000 of loans that are not in non-accrual status. In addition, there was a total of $28,880,000 of residential real estate loans included in impaired loans at March 31, 2015, of which $24,040,000 were to consumers and $4,840,000 to builders. The collateral supporting impaired collateral dependent loans is individually reviewed by management to determine its estimated fair market value, less estimated disposal cost and a charge off is taken, if necessary, for the difference between the carrying amount of any loan and the estimated fair value of the collateral less estimated disposal cost.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of March 31, 2015 and December 31, 2014. Included in the Pass column were $31,429,000 and $36,162,000 in unfunded commitments at March 31, 2015 and December 31, 2014, respectively (dollars in thousands):

	Pass		Special Mention		Substandard		Doubtful		Total

March 31, 2015
Residential mortgage	$	291,830	$	2,825	$	15,249	$	-	$	309,904
Construction, acquisition and development		79,780		-		1,638		-		81,418
Land		29,903		-		140		-		30,043
Lines of credit		14,486		2,449		716		-		17,651
Commercial real estate		168,981		6,868		9,518		-		185,367
Commercial non-real estate		9,421		621		-		-		10,042
Home equity		23,404		-		2,829		-		26,233
Consumer		935		-		55		-		990
Total loans	$	618,740	$	12,763	$	30,145	$	-	$	661,648

	Pass		Special Mention		Substandard		Doubtful		Total

December 31, 2014
Residential mortgage	$	295,589	$	1,331	$	12,541	$	-	$	309,461
Construction, acquisition and development		82,778		-		1,547		-		84,325
Land		30,285		-		141		-		30,426
Lines of credit		16,112		2,479		660		-		19,251
Commercial real estate		181,686		7,172		9,681		-		198,539
Commercial non-real estate		9,275		637		255		-		10,167
Home equity		25,769		-		2,981		-		28,750
Consumer		985		-		55		-		1,040
Total loans	$	642,479	$	11,619	$	27,861	$	-	$	681,959

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. Included in the Current column were $31,429,000 and $36,162,000 in unfunded commitments at March 31, 2015 and December 31, 2014, respectively. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2015 and December 31, 2014 (dollars in thousands):

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans		Non- Accrual
March 31, 2015
Residential mortgage	$	1,737	$	1,937	$	1,951	$	5,625	$	304,279	$	309,904	$	7,085
Construction, acquisition and development		-		-		-		-		81,418		81,418		116
Land		-		101		6		107		29,936		30,043		820
Lines of credit		66		238		-		304		17,347		17,651		388
Commercial real estate		406		-		-		406		184,961		185,367		274
Commercial non-real estate		125		-		-		125		9,917		10,042		1,768
Home equity		-		188		1,769		1,957		24,276		26,233		2,866
Consumer		-		-		-		-		990		990		-
Total loans	$	2,334	$	2,464	$	3,726	$	8,524	$	653,124	$	661,648	$	13,317

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans		Non- Accrual
December 31, 2014
Residential mortgage	$	2,549	$	2,333	$	3,095	$	7,977	$	301,484	$	309,461	$	6,052
Construction, acquisition and development		-		-		-		-		84,325		84,325		115
Land		-		-		6		6		30,420		30,426		847
Lines of credit		-		-		-		-		19,251		19,251		388
Commercial real estate		447		45		375		867		197,672		198,539		652
Commercial non-real estate		-		-		-		-		10,167		10,167		1,775
Home equity		174		242		2,417		2,833		25,917		28,750		3,016
Consumer		-		-		-		-		1,040		1,040		-
Total loans	$	3,170	$	2,620	$	5,893	$	11,683	$	670,276	$	681,959	$	12,845

Bancorp does not have any greater than 90 days and still accruing loans as of the periods ended March 31, 2015 and December 31, 2014.

Bancorp offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:

Rate Modification – A modification in which the interest rate is changed.

Term Modification – A modification in which the maturity date, timing of payments or frequency of payments is changed.

Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification above.

Loan Balance Modification – A modification in which a portion of the outstanding loan balance is forgiven.

Combination Modification – Any other type of modification, including the use of multiple categories above.

Bancorp has not purchased, sold or reclassified any loans to held for sale during the periods discussed. Only loans originated specifically for sale are recorded as held for sale at the period ended March 31, 2015 and December 31, 2014.

Bancorp considers a modification of a loan term a troubled debt restructuring or “TDR” if Bancorp for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the debtor that it would not otherwise consider. Prior to entering into a loan modification, Bancorp assesses the borrower’s financial condition to determine if the borrower has the means to meet the terms of the modification. This includes obtaining a credit report on the borrower as well as the borrower’s tax returns and financial statements.

There were 84 restructured loans at March 31, 2015 totaling $28,795,000, of which 75 loans totaling $26,175,000 were performing as agreed. Of those performing loans, 60 loans totaling $22,343,000 have not been late on a payment during the last 2 years.

There were 85 restructured loans at December 31, 2014 totaling $30,365,000, of which 76 loans totaling $27,724,000 were performing as agreed.

In the first quarter of 2015 and 2014 there were no TDR’s that subsequently defaulted during the 12 month period ended March 31, 2015 and 2014.

The following table presents loans that were restructured during the three months ended March 31, 2015 (dollars in thousands):

	Three months ended March 31, 2015
	Rate Modification		Contracts		Combination Modifications		Contracts		Total		Total Contracts

Pre-Modification Outstanding Recorded Investment:

Residential mortgage		-		-	$	91		1	$	91		1
Construction, acquisition and development		-		-		-		-		-		-
Land		-		-		-		-		-		-
Lines of credit		-		-		-		-		-		-
Commercial real estate		-		-		-		-		-		-
Commercial non-real estate		-		-		-		-		-		-
Home equity		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total loans		-		-	$	91		1	$	91		1

Post-Modification Outstanding Recorded Investment:

Residential mortgage	-	-	$	91	1	$	91	1
Construction, acquisition and development	-	-		-	-		-	-
Land	-	-		-	-		-	-
Lines of credit	-	-		-	-		-	-
Commercial real estate	-	-		-	-		-	-
Commercial non-real estate	-	-		-	-		-	-
Home equity	-	-		-	-		-	-
Consumer	-	-		-	-		-	-
Total loans	-	-	$	91	1	$	91	1

The following table presents restructured loans that occurred during the three months ended March 31, 2014 (dollars in thousands):

	Three months ended March 31, 2014
	Rate Modification		Contracts		Combination Modifications		Contracts		Total		Total Contracts

Pre-Modification Outstanding Recorded Investment:

Residential mortgage		-		-	$	598		2	$	598		2
Construction, acquisition and development		-		-		-		-		-		-
Land		-		-		-		-		-		-
Lines of credit		-		-		-		-		-		-
Commercial real estate		-		-		351		1		351		1
Commercial non-real estate		-		-		-		-		-		-
Home equity		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total loans		-		-	$	949		3	$	949		3

Post-Modification Outstanding Recorded Investment:

Residential mortgage	-	-	$	446	2	$	446	2
Construction, acquisition and development	-	-		-	-		-	-
Land	-	-		-	-		-	-
Lines of credit	-	-		-	-		-	-
Commercial real estate	-	-		345	1		345	1
Commercial non-real estate	-	-		-	-		-	-
Home equity	-	-		-	-		-	-
Consumer	-	-		-	-		-	-
Total loans	-	-	$	791	3	$	791	3

In addition, the TDR is evaluated for impairment. A determination is made as to whether an impaired TDR is cash flow or collateral dependent. If the TDR is cash flow dependent, an allowance for loan losses specific reserve is calculated based on the difference in net present value of future cash flows between the original and modified loan terms. If the TDR is collateral dependent, the collateral securing the TDR, which is always real estate, is evaluated for impairment based on either an appraisal or broker price opinion. If a TDR’s collateral valuation is less than its current loan balance, the TDR is written down for accounting purposes by the amount of the difference between the current loan balance and the collateral value. If the borrower performs under the terms of the modification, generally six consecutive months, and the ultimate collectability of all amounts contractually due under the modified terms is not in doubt, the loan is returned to accrual status. There are no loans that have been modified due to the financial difficulties of the borrower that are not considered a TDR. There were no TDR defaults during the quarters ended March 31, 2015 and 2014.

Interest on TDRs was accounted for under the following methods as of March 31, 2015 and December 31, 2014 (dollars in thousands):

	Number of Contracts		Accrual Status		Number of Contracts		Non- Accrual Status		Total Number of Contracts		Total Modifications
March 31, 2015
Residential mortgage		57	$	21,730		5	$	2,382		62	$	24,112
Construction, acquisition and development		2		802		-		-		2		802
Land		5		973		1		6		6		979
Lines of credit		-		-		-		-		-		-
Commercial real estate		5		2,513		1		108		6		2,621
Commercial non-real estate		5		145		2		124		7		269
Home equity		-		-		-		-		-		-
Consumer		1		12		-		-		1		12
Total loans		75	$	26,175		9	$	2,620		84	$	28,795

December 31, 2014
Residential mortgage		57	$	22,154		5	$	2,402		62	$	24,556
Construction, acquisition anddevelopment		2		803		-		-		2		803
Land		5		982		1		6		6		988
Lines of credit		-		-		-		-		-		-
Commercial real estate		6		3,623		1		109		7		3,732
Commercial non-real estate		5		150		2		124		7		274
Home equity		-		-		-		-		-		-
Consumer		1		12		-		-		1		12
Total loans		76	$	27,724		9	$	2,641		85	$	30,365

Unless otherwise noted, the Bank requires collateral or other security to support financial instruments with off-balance-sheet credit risk (dollars in thousands).

Financial Instruments Whose Contract	Contract Amount At
Amounts Represent Credit Risk	March 31, 2015		December 31, 2014
Standby letters of credit	$	6,751	$	7,357
Home equity lines of credit		8,310		8,571
Unadvanced construction commitments		31,429		36,162
Mortgage loan commitments		345		2,120
Lines of credit		24,570		23,844
Loans sold with limited repurchase provisions		41,022		38,247

Standby letters of credit are conditional commitments issued by the Bank guaranteeing performance by a customer to various municipalities. These guarantees are issued primarily to support performance arrangements, limited to real estate transactions. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit as deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of March 31, 2015 and December 31, 2014 for guarantees under standby letters of credit issued was $115,000 and $314,000, respectively.

Home equity lines of credit are loan commitments to individuals as long as there is no violation of any condition established in the contract. Commitments under home equity lines expire ten years after the date the loan closes and are secured by real estate. The Bank evaluates each customer's credit worthiness on a case-by-case basis.

Unadvanced construction commitments are loan commitments made to borrowers for both residential and commercial projects that are either in process or are expected to begin construction shortly.

Mortgage loan commitments not reflected in the accompanying statements of financial condition at March 31, 2015 included $345,000 at a fixed range of 3.875% to 4.00% and none at floating interest rates and at December 31, 2014 included $2,120,000 at a fixed interest rate range of 3.750% to 4.50% and none at floating interest rates.

Lines of credit are loan commitments to individuals and companies as long as there is no violation of any condition established in the contract. Lines of credit have a fixed expiration date. The Bank evaluates each customer's credit worthiness on a case-by-case basis.

The Bank has entered into several agreements to sell mortgage loans to third parties. The loans sold under these agreements for the three month period ended March 31, 2015 and year ended December 31, 2014 were $29,003,000 and $90,560,000, respectively. These agreements contain limited provisions that require the Bank to repurchase a loan if the loan becomes delinquent within the terms specified by the agreement. The credit risk involved in these financial instruments is essentially the same as that involved in extending loan facilities to customers.

Only loans originated specifically for sale are recorded as held for sale at the period ended March 31, 2015 and December 31, 2014.

No amount was recognized in the consolidated statement of financial condition at March 31, 2015 and December 31, 2014 as a liability for credit loss related to these loans.

Except for the liability recorded for standby letters of credit at March 31, 2015, liabilities for credit loss associated with these commitments were not material at March 31, 2015 and December 31, 2014.