Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

9 Months Ended

Sep. 30, 2014

Disclosure Text Block Supplement [Abstract]

Allowance for Credit Losses [Text Block]

Note 4:    Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and to identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and the value of the underlying collateral.

Impaired loans are those loans that have been modified in a troubled debt restructure (“TDR” or “restructure”) and larger, non-homogeneous loans that are in nonaccrual or exhibit payment history or financial status that indicate the probability that collection will not occur according to the loan’s original terms. Generally, impaired loans are given risk ratings that indicate higher risk, such as “classified” or “other assets especially mentioned.” Impaired loans are individually evaluated to determine appropriate reserves and are measured at the lower of the invested amount or the fair market value. Impaired loans that are not troubled debt restructures and for which fair value measurement indicates an impairment loss are designated nonaccrual. A troubled debt restructure with an impairment loss may accrue interest if the loan shows a satisfactory repayment history for at least six months. Please refer to Note 1 of the Company’s 2013 Form 10-K, “Summary of Significant Accounting Policies” for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.

Troubled debt restructures impact the estimation of the appropriate level of the allowance for loan losses. If the restructuring included forgiveness of a portion of principal, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Further, restructured loans are individually evaluated for impairment and any amount of book value that exceeds fair value is accrued in the allowance for loan losses. TDRs that experience a payment default are examined to determine whether the default indicates collateral dependency or a decline in estimates of cash flow used in the fair value measurement. TDRs, as well as all impaired loans, that are determined to be collateral dependent are charged down to fair value. Deficiencies indicated by impairment measurements for TDRs that are not collateral dependent may be accrued in the allowance for loan losses or charged off if deemed uncollectible.

The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively-evaluated loans is applied at the class level.

Portfolio Segments and Classes

The segments and classes used in determining the allowance for loan losses are as follows.

Real Estate Construction Construction, residential Construction, other	Commercial Non Real Estate Commercial and Industrial
	Public Sector and IDA
Consumer Real Estate	Public sector and IDA
Equity lines Residential closed-end first liens Residential closed-end junior liens Investor-owned residential real estate	Consumer Non Real Estate Credit cards Automobile Other consumder loans
Commercial Real Estate
Multifamily real estate Commercial real estate, owner-occupied Commercial real estate, other

Historical Loss Rates

The Company’s allowance methodology for collectively-evaluated loans applies historical loss rates by class to current class balances as part of the process of determining required reserves. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The loss rate for the current quarter is averaged with that of prior periods to obtain the historical loss rate. Two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard” or higher. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified balances at the reporting date.

Risk Factors

In addition to historical loss rates, risk factors pertinent to credit risk for each class are analyzed to estimate reserves for collectively-evaluated loans. Factors include changes in national and local economic and business conditions, the nature and volume of classes within the portfolio, loan quality, loan officers’ experience, lending policies and the Company’s loan review system.

The analysis of certain factors results in standard allocations to all segments and classes. These factors include loan officers’ average years of experience, the risk from changes in lending policies, and the risk from changes in loan review. Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include levels of past due loans, nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans (defined to be junior lien mortgages, high loan-to-value loans, and interest only loans) within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment.

Real estate construction loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates.

The credit quality of consumer real estate is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, local housing market trends, and interest rates.

The commercial real estate segment includes loans secured by multifamily residential real estate, commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for multi-family housing and commercial buildings, business bankruptcy rates, local unemployment and interest rate trends that would impact the businesses housed by the commercial real estate.

Commercial non real estate loans are secured by collateral other than real estate, or are unsecured. Credit risk for commercial non real estate loans is subject to economic conditions, generally monitored by local business bankruptcy trends, and interest rates. Public sector and IDA loans are extended to municipalities and related entities. Credit risk is based upon the entity’s ability to repay and interest rate trends.

Consumer non real estate includes credit cards, automobile and other consumer loans. Credit cards and certain other consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay, measured by average unemployment, average personal bankruptcy rates and interest rates.

Factor allocations applied to each class are increased for loans rated special mention and classified. The Company allocates additional reserves for “high risk” loans.

A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows.

	Activity in the Allowance for Loan Losses for the Three Months Ended September 30, 2014
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate			Unallocated		Total
Balance, June 30, 2014	$	663		$	1,554		$	3,790		$	1,056	$	278	$	552		$	78	$	7,971
Charge-offs		---			(27	)		(172	)		---		---		(125	)		---		(324	)
Recoveries		---			---			8			1		---		19			---		28
Provision for loan losses		(79	)		151			49			7		2		163			63		356
Balance, September 30, 2014	$	584		$	1,678		$	3,675		$	1,064	$	280	$	609		$	141	$	8,031

	Activity in the Allowance for Loan Losses for the Nine Months Ended September 30, 2014
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, December 31, 2013	$	863		$	1,697		$	3,685		$	989		$	132	$	576		$	285		$	8,227
Charge-offs		(2	)		(97	)		(1,115	)		(79	)		---		(275	)		---			(1,568	)
Recoveries		---			---			33			132			---		47			---			212
Provision for loan losses		(277	)		78			1,072			22			148		261			(144	)		1,160
Balance, September 30, 2014	$	584		$	1,678		$	3,675		$	1,064		$	280	$	609		$	141		$	8,031

	Activity in the Allowance for Loan Losses for the Three Months Ended September 30, 2013
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate		Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Unallocated			Total
Balance, June 30, 2013	$	1,032		$	1,670		$	3,029	$	1,481		$	111		$	513		$	116		$	7,952
Charge-offs		---			(120	)		---		(8	)		---			(68	)		---			(196	)
Recoveries		---			---			8		2			---			21			---			31
Provision for loan losses		(11	)		334			553		(472	)		(6	)		(59	)		(36	)		303
Balance, September 30, 2013	$	1,021		$	1,884		$	3,590	$	1,003		$	105		$	407		$	80		$	8,090

	Activity in the Allowance for Loan Losses for the Nine Months Ended September 30, 2013
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Unallocated		Total
Balance, December 31, 2012	$	1,070		$	2,263		$	3,442		$	959		$	142		$	424		$	49	$	8,349
Charge-offs		(184	)		(219	)		(35	)		(968	)		---			(274	)		---		(1,680	)
Recoveries		---			1			12			18			---			61			---		92
Provision for loan losses		135			(161	)		171			994			(37	)		196			31		1,329
Balance, September 30, 2013	$	1,021		$	1,884		$	3,590		$	1,003		$	105		$	407		$	80	$	8,090

	Allowance for Loan Losses as of September 30, 2014
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	13	$	281	$	2	$	---	$	---	$	---	$	296
Collectively evaluated for impairment		584		1,665		3,394		1,062		280		609		141		7,735
Total	$	584	$	1,678	$	3,675	$	1,064	$	280	$	609	$	141	$	8,031

	Allowance for Loan Losses as of December 31, 2013
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	10	$	610	$	4	$	---	$	---	$	---	$	624
Collectively evaluated for impairment		863		1,687		3,075		985		132		576		285		7,603
Total	$	863	$	1,697	$	3,685	$	989	$	132	$	576	$	285	$	8,227

	Loans as of September 30, 2014
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	686	$	13,804	$	697	$	---	$	---	$	---	$	15,187
Collectively evaluated for impairment		42,067		143,626		299,133		31,527		36,398		28,735		---		581,486
Total loans	$	42,067	$	144,312	$	312,937	$	32,224	$	36,398	$	28,735	$	---	$	596,673

	Loans as of December 31, 2013
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	780	$	12,079	$	102	$	---	$	24	$	---	$	12,985
Collectively evaluated for impairment		45,925		144,719		299,187		31,160		34,220		28,399		---		583,610
Total	$	45,925	$	145,499	$	311,266	$	31,262	$	34,220	$	28,423	$	---	$	596,595

A summary of ratios for the allowance for loan losses follows.

	Nine Months Ended September 30,						Year Ended December 31,
	2014			2013			2013
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees		1.35	%		1.37	%		1.38	%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees(1)		0.31	%		0.36	%		0.28	%

⁽¹⁾ Net charge-offs are on an annualized basis.

A summary of nonperforming assets follows.

	September 30,						December 31,
	2014			2013			2013
Nonperforming assets:
Nonaccrual loans	$	5,366		$	10,194		$	5,732
Restructured loans in nonaccrual		2,360			1,042			852
Total nonperforming loans		7,726			11,236			6,584
Other real estate owned, net		5,145			973			4,712
Total nonperforming assets	$	12,871		$	12,209		$	11,296
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned		2.14	%		2.06	%		1.88	%
Ratio of allowance for loan losses to nonperforming loans(1)		103.95	%		72.00	%		124.95	%

⁽¹⁾     The Company defines nonperforming loans as nonaccrual loans. Loans 90 days or more past due and still accruing and accruing restructured loans are excluded.

A summary of loans past due 90 days or more and impaired loans follows.

	September 30,						December 31,
	2014			2013			2013
Loans past due 90 days or more and still accruing	$	485		$	149		$	190
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees		0.08	%		0.03	%		0.03	%
Accruing restructured loans	$	5,947		$	6,545		$	6,191
Impaired loans:
Impaired loans with no valuation allowance	$	9,223		$	14,874		$	10,372
Impaired loans with a valuation allowance		5,964			2,172			2,613
Total impaired loans	$	15,187		$	17,046		$	12,985
Valuation allowance		(296	)		(631	)		(624	)
Impaired loans, net of allowance	$	14,891		$	16,415		$	12,361
Average recorded investment in impaired loans(1)	$	15,974		$	17,357		$	16,654
Interest income recognized on impaired loans, after designation as impaired	$	384		$	159		$	267
Amount of income recognized on a cash basis	$	---		$	---		$	---

⁽¹⁾      Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

Nonaccrual loans that meet the Company’s balance threshold of $250 and TDRs are designated as impaired. No interest income was recognized on nonaccrual loans for the nine months ended September 30, 2014 or September 30, 2013 or for the year ended December 31, 2013.

A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, segregated by loan class follows.     

	Impaired Loans as of September 30, 2014
	Principal Balance		(A) Total Recorded Investment(1)		Recorded Investment(1) in (A) for Which There is No Related Allowance		Recorded Investment(1) in (A) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens	$	392	$	365	$	168	$	197	$	2
Residential closed-end junior liens		244		244		---		244		6
Investor-owned residential real estate		77		77		---		77		5
Commercial Real Estate(2)
Multifamily real estate		2,950		2,794		868		1,926		224
Commercial real estate, owner-occupied		5,036		4,942		4,483		459		25
Commercial real estate, other		6,068		6,068		3,094		2,974		32
Commercial Non Real Estate(2)
Commercial and Industrial		697		697		610		87		2
Consumer Non Real Estate(2)
Automobile		---		---		---		---		---
Total	$	15,464	$	15,187	$	9,223	$	5,964	$	296

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

	Impaired Loans as of December 31, 2013
	Principal Balance		(A) Total Recorded Investment(1)		Recorded Investment(1) in (A) for Which There is No Related Allowance		Recorded Investment(1) in (A) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens	$	440	$	442	$	232	$	210	$	3
Residential closed-end junior liens		259		261		---		261		7
Investor-owned residential real estate		81		82		82		---		---
Commercial Real Estate(2)
Multifamily real estate		3,278		3,274		3,274		---		---
Commercial real estate, owner occupied		5,643		5,645		3,864		1,781		610
Commercial real estate, other		3,158		3,158		3,158		---		---
Commercial Non Real Estate(2)
Commercial and Industrial		102		103		1		102		4
Consumer Non Real Estate(2)
Automobile		24		24		24		---		---
Total	$	12,985	$	12,989	$	10,635	$	2,354	$	624

⁽¹⁾     Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.

⁽²⁾    Only classes with impaired loans are shown.

The following tables show the average investment and interest income recognized for impaired loans.

	For the Nine Months Ended September 30, 2014
	Average Recorded Investment(1)		Interest Income Recognized
Consumer Real Estate(2)
Residential closed-end first liens	$	385	$	19
Residential closed-end junior liens		251		12
Investor-owned residential real estate		78		4
Commercial Real Estate(2)
Multifamily real estate		2,807		---
Commercial real estate, owner occupied		5,606		153
Commercial real estate, other		6,134		164
Commercial Non Real Estate(2)
Commercial and Industrial		713		32
Consumer Non Real Estate(2)
Automobile		---		---
Total	$	15,974	$	384

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

	For the Year Ended December 31, 2013
	Average Recorded Investment(1)		Interest Income Recognized
Real Estate Construction(2)
Construction, residential	$	40	$	---
Construction, other		2,885		---
Consumer Real Estate(2)
Residential closed-end first liens		364		3
Residential closed-end junior liens		280		9
Investor-owned residential real estate		131		6
Commercial Real Estate(2)
Multifamily real estate		4,172		---
Commercial real estate, owner occupied		5,265		136
Commercial real estate, other		3,369		110
Commercial Non Real Estate(2)
Commercial and Industrial		117		3
Consumer Non Real Estate(2)
Automobile		31		---
Total	$	16,654	$	267

⁽¹⁾     Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.

⁽²⁾     Only classes with impaired loans are shown.

The Company reviews nonaccrual loans on an individual loan basis to determine whether future payments are reasonably assured. To satisfy this criteria, the Company’s evaluation must determine that the underlying cause of the original delinquency or weakness that indicated nonaccrual status has been resolved, such as receipt of new guarantees, increased cash flows that cover the debt service or other resolution. Nonaccrual loans that demonstrate reasonable assurance of future payments and that have made at least six consecutive payments in accordance with repayment terms and timeframes may be returned to accrual status.

A restructured loan for which impairment measurement does not indicate a loss and that maintains current status for at least six months may be returned to accrual status.

An analysis of past due and nonaccrual loans follows.

September 30, 2014
	30 – 89 Days Past Due		90 or More Days Past Due		90 or More Days Past Due and Still Accruing		Nonaccruals (Including Impaired Nonaccruals)
Real Estate Construction(1)
Construction, other	$	29	$	---	$	---	$	---
Consumer Real Estate(1)
Equity lines		46		---		---		---
Residential closed-end first liens		1,605		556		457		176
Residential closed-end junior liens		67		---		---		---
Investor-owned residential real estate		284		---		---		15
Commercial Real Estate(1)
Multifamily real estate		715		868		---		2,794
Commercial real estate, owner-occupied		350		1,219		---		1,653
Commercial real estate, other		---		---		---		2,974
Commercial Non Real Estate(1)
Commercial and Industrial		1,102		---		---		114
Consumer Non Real Estate(1)
Credit cards		12		6		6		---
Automobile		234		20		20		---
Other consumer loans		64		2		2		---
Total	$	4,508	$	2,671	$	485	$	7,726

⁽¹⁾     Only classes with past-due or nonaccrual loans are shown.

An analysis of past due and nonaccrual loans follows.

December 31, 2013
	30 – 89 Days Past Due		90 or More Days Past Due		90 or More Days Past Due and Still Accruing		Nonaccruals (Including Impaired Nonaccruals)
Real Estate Construction(1)
Construction, residential	$	45	$	---	$	---	$	---
Construction, other		45		---		---		---
Consumer Real Estate(1)
Residential closed-end first liens		903		252		128		308
Residential closed-end junior liens		10		---		---		---
Investor-owned residential real estate		422		91		---		91
Commercial Real Estate(1)
Multifamily real estate		430		3,278		---		3,278
Commercial real estate, owner occupied		604		2,519		---		2,756
Commercial real estate, other		32		---		---		---
Commercial Non Real Estate(1)
Commercial and Industrial		196		43		---		128
Consumer Non Real Estate(1)
Credit cards		3		13		13		---
Automobile		217		26		2		23
Other consumer loans		49		46		47		---
Total	$	2,956	$	6,268	$	190	$	6,584

⁽¹⁾     Only classes with past-due or nonaccrual loans are shown.

The estimate of credit risk for non-impaired loans is obtained by applying allocations for internal and external factors. The allocations are increased for loans that exhibit greater credit quality risk.

Credit quality indicators, which the Company terms risk grades, are assigned through the Company’s credit review function for larger loans and selective review of loans that fall below credit review thresholds. Loans that do not indicate heightened risk are graded as “pass.” Loans that appear to have elevated credit risk because of frequent or persistent past due status, which is less than 75 days, or that show weakness in the borrower’s financial condition are risk graded “special mention.” Loans with frequent or persistent delinquency exceeding 75 days or that have a higher level of weakness in the borrower’s financial condition are graded “classified.” Classified loans have regulatory risk ratings of “substandard” and “doubtful.” Allocations are increased by 50% and by 100% for loans with grades of “special mention” and “classified,” respectively.

Determination of risk grades was completed for the portfolio as of September 30, 2014 and 2013 and December 31, 2013.

The following displays collectively-evaluated loans by credit quality indicator.

September 30, 2014

	Pass		Special Mention		Classified (Excluding Impaired)
Real Estate Construction
Construction, 1-4 family residential	$	18,253	$	---	$	---
Construction, other		23,786		28		---
Consumer Real Estate
Equity lines		16,432		15		46
Closed-end first liens		75,550		926		1,946
Closed-end junior liens		4,558		25		97
Investor-owned residential real estate		43,604		99		328
Commercial Real Estate
Multifamily residential real estate		66,451		---		715
Commercial real estate owner-occupied		138,110		230		936
Commercial real estate, other		91,484		1,186		21
Commercial Non Real Estate
Commercial and Industrial		30,994		121		412
Public Sector and IDA
States and political subdivisions		36,398		---		---
Consumer Non Real Estate
Credit cards		5,903		---		---
Automobile		11,677		128		114
Other consumer		10,904		2		7
Total	$	574,104	$	2,760	$	4,622

The following displays collectively-evaluated loans by credit quality indicator.

December 31, 2013

	Pass		Special Mention (Excluding Impaired)		Classified (Excluding Impaired)
Real Estate Construction
Construction, 1-4 family residential	$	17,702	$	163	$	45
Construction, other		27,971		29		15
Consumer Real Estate
Equity lines		16,146		16		---
Closed-end first liens		82,767		1,007		1,275
Closed-end junior liens		4,813		109		3
Investor-owned residential real estate		38,071		105		407
Commercial Real Estate
Multifamily residential real estate		67,573		---		958
Commercial real estate owner-occupied		134,137		2,206		701
Commercial real estate, other		89,340		1,209		3,063
Commercial Non Real Estate
Commercial and Industrial		29,987		878		295
Public Sector and IDA
States and political subdivisions		34,220		---		---
Consumer Non Real Estate
Credit cards		6,354		---		---
Automobile		11,428		253		34
Other consumer		10,253		17		60
Total	$	570,762	$	5,992	$	6,856

Sales, Purchases and Reclassification of Loans

The Company finances mortgages under “best efforts” contracts with mortgage purchasers. The mortgages are designated as held for sale upon initiation. There have been no reclassifications from portfolio loans to held for sale. There have been no loans held for sale transferred to portfolio loans. Occasionally, the Company purchases or sells participations in loans. All participation loans purchased met the Company’s normal underwriting standards at the time the participation was entered. Participation loans are included in the appropriate portfolio balances to which the allowance methodology is applied.

Troubled Debt Restructurings

The Company modifies loans in troubled debt restructurings. Total troubled debt restructurings amounted to $8,307 at September 30, 2014, $7,043 at December 31, 2013, and $7,587 at September 30, 2013. The Company did not modify any loans in a troubled debt restructuring during the three months ended September 30, 2014. The following tables present restructurings by class that occurred during the nine month period ended September 30, 2014, and the three and nine month periods ended September 30, 2013.

Note: Only classes with restructured loans are presented.

	Restructurings That Occurred During the Nine Months Ended September 30, 2014
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Commercial Real Estate
Multifamily real estate		1	$	2,484	$	2,484
Commercial real estate, owner occupied		1		184		209
Total		2	$	2,668	$	2,693

During the nine-month period ended September 30, 2014, the Company restructured two loans. One multifamily real estate loan was restructured to provide payment relief. The Company reduced the loan’s interest rate and re-amortized payments. One commercial real estate, owner occupied loan was restructured pursuant to bankruptcy court orders. The restructuring provided payment relief by capitalizing interest, reducing the interest rate and re-amortizing payments. The fair value measurements of the restructured loans as of September 30, 2014 resulted in specific allocations to the allowance for loan losses totaling $249. No loans were restructured for the three month period ending September 30, 2014.

	Restructurings That Occurred During the Three Months Ended September 30, 2013
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Consumer Real Estate
Residential closed-end first liens		1	$	241	$	309
Commercial Non Real Estate
Commercial and industrial		1		32		45
Total		2	$	273	$	354

The loans restructured during the three months ended September 30, 2013 were designated and reported as troubled debt restructures in previous quarters. The loans received additional modifications during the third quarter of 2013, transitioning payments from interest-only to amortizing, and capitalizing accrued interest. The interest rate for the consumer real estate loan remained unchanged, while the interest rate for the commercial non real estate loan decreased.

	Restructurings That Occurred During the Nine Months Ended September 30, 2013
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Consumer Real Estate
Residential closed-end first liens		2	$	453	$	525
Residential closed-end junior liens		1		262		267
Commercial Real Estate
Commercial real estate, owner-occupied		1		154		239
Commercial real estate, other		1		3,500		3,500
Commercial Non Real Estate
Commercial and industrial		1		32		45
Total		6	$	4,401	$	4,576

The modifications that resulted in troubled debt restructurings between January 1, 2013 and September 30, 2013 provided payment relief to the borrowers without forgiveness of principal or accrued interest. The date of conversion from interest-only to amortizing payments for one commercial real estate loan was extended beyond the date specified by the contract, resulting in designation as a troubled debt restructuring. During the third quarter of 2013, the loan was converted to amortizing payments and moved from Real Estate Construction to Commercial Real Estate. The other commercial real estate loan was modified to extend the term, lower the interest rate and provide debt consolidation to allow the borrower increased debt service ability. The modifications of the consumer real estate loans capitalized accrued interest and reduced interest rates. The term for one consumer real estate loan was shortened, resulting in a higher payment, while the term for the other consumer real estate loan was lengthened, resulting in a lower payment.

The Company analyzed its TDR portfolio for loans that defaulted during the three- and nine-month periods ended September 30, 2014 and September 30, 2013, and that were modified within 12 months prior to default. The Company defines default as one or more payments that occur more than 90 days past the due date, charge-offs, or foreclosure after the date of restructuring. There were no restructured loans that defaulted and were modified within 12 months prior to default for the three- or nine-month periods ended September 30, 2014.

The following table displays restructured loans that defaulted during the three and nine-month periods ended September 30, 2013 and that were modified within twelve months prior to default.

	Restructured Loans That Defaulted And Were Modified Within 12 Months Prior to Default
	Default During the 3 Month Period Ended September 30, 2013						Default During the 9 Month Period Ended September 30, 2013
	Number of Contracts		Principal Balance		Impairment Accrued		Number of Contracts		Principal Balance		Impairment Accrued
Consumer Real Estate
Residential closed-end first liens		1	$	26	$	1		1	$	26	$	1
Residential closed-end junior liens		1		47		---		1		47		---
Commercial Real Estate
Commercial real estate owner-occupied		2		664		352		3		857		352
Commercial Non Real Estate
Commercial and industrial		1		137		---		1		137		---
Total		5	$	874	$	353		6	$	1,067	$	353

Restructured loans are individually evaluated for impairment. The fair value measurements for most of the restructured loans that defaulted during the three-month and nine-month periods ended September 30, 2013 were based upon the fair value of collateral and as such were not significantly affected by the default. One of the commercial real estate restructurings that defaulted during the three months ended September 30, 2013 was measured using the present value of cash flows, resulting in an impairment allocation of $352. In previous quarters, no allocation was recognized. One of the commercial real estate loans that defaulted in the first quarter of 2013 was placed into other real estate owned, and the commercial non real estate loan was partially paid off by the borrower, with the remainder of the principal charged against the allowance for loan losses. All of the restructurings that defaulted during the three-month and nine-month periods ended September 30, 2013 and that remained active loans at September 30, 2013, were in nonaccrual status.