Note 5 - Troubled Debt Restructures

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. The Company offers various types of concessions when modifying loans to troubled borrowers, however, forgiveness of principal is rarely granted. Concessions offered are term extensions, capitalizing accrued interest, reducing interest rates to below current market rates or a combination of any of these. Combinations from time to time may include allowing a customer to be placed on interest-only payments. The presentations below in the “other” category are TDR’s with a combination of concessions. At the time of a TDR, additional collateral or a guarantor may be requested.

Loans modified as TDRs are typically already on nonaccrual status and in some cases, partial chargeoffs may have already been taken against the outstanding loan balance. The Company classifies TDR loans as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis. An allowance is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent.

For the twelve months ended December 31, 2014, 2013 and 2012, the following table presents a breakdown of the types of concessions made by loan class:


	Year ended December 31, 2014
			Pre-Modification		Post-Modification
	Number		Outstanding Recorded		Outstanding Recorded
	of Contracts		Investment		Investment
			(dollars in thousands)
Extend payment terms:
Commercial		—	$	—	$	—
Real estate – commercial		—		—		—
Other real estate construction		—		—		—
Real estate 1-4 family construction		—		—		—
Real estate – residential		—		—		—
Home equity		—		—		—
Consumer loans		1		32		32
Other loans		—		—		—

		1	$	32	$	32


Other:
Commercial		—	$	—	$	—
Real estate – commercial		3		424		424
Other real estate construction		—		—		—
Real estate 1-4 family construction		—		—		—
Real estate – residential		6		870		870
Home equity		—		—		—
Consumer loans		—		—		—
Other loans		—		—		—

		9	$	1,294	$	1,294

Total		10	$	1,326	$	1,326


	Year ended December 31, 2013
			Pre-Modification		Post-Modification
	Number		Outstanding Recorded		Outstanding Recorded
	of Contracts		Investment		Investment
			(dollars in thousands)
Extend payment terms:
Commercial		—	$	—	$	—
Real estate – commercial		—		—		—
Other real estate construction		—		—		—
Real estate 1-4 family construction		—		—		—
Real estate – residential		—		—		—
Home equity		—		—		—
Consumer loans		—		—		—
Other loans		—		—		—

		—	$	—	$	—


Other:
Commercial		—	$	—	$	—
Real estate – commercial		1		356		341
Other real estate construction		—		—		—
Real estate 1-4 family construction		—		—		—
Real estate – residential		8		895		875
Home equity		1		18		18
Consumer loans		—		—		—
Other loans		—		—		—

		10	$	1,269	$	1,234

Total		10	$	1,269	$	1,234


	Year ended December 31, 2012
			Pre-Modification		Post-Modification
	Number		Outstanding Recorded		Outstanding Recorded
	of Contracts		Investment		Investment
			(dollars in thousands)
Extend payment terms:
Commercial		1	$	33	$	32
Real estate – commercial		—		—		—
Other real estate construction		1		49		49
Real estate 1-4 family construction		—		—		—
Real estate – residential		2		30		30
Home equity		—		—		—
Consumer loans		1		45		42
Other loans		—		—		—

		5	$	157	$	153

Other:
Commercial		1	$	68	$	68
Real estate – commercial		1		116		112
Other real estate construction		—		—		—
Real estate 1-4 family construction		1		32		31
Real estate – residential		6		939		933
Home equity		—		—		—
Consumer loans		1		17		17
Other loans		—		—		—

		10	$	1,172	$	1,161

Total		15	$	1,329	$	1,314

The following table presents loans that were modified as troubled debt restructurings within the previous twelve months and for which there was a payment default during the twelve months ended December 31, 2014, 2013 and 2012:

Year ended

December 31, 2014

December 31, 2013

Number

Recorded

Number

Recorded

of Loans

Investment

of Loans

Income

Extend payment terms:

Commercial

—

Real estate – commercial

—

Other real estate construction

—

Real estate 1-4 family construction

—

Real estate – residential

—

Home equity

—

Consumer loans

—

Other loans

—

Total

—

Year ended
December 31, 2014

Year ended
December 31, 2013

Number
of Loans

Recorded
Investment

Number
of Loans

Recorded
Income

Other:

Commercial

—

Real estate – commercial

—

Other real estate construction

—

Real estate 1-4 family construction

—

Real estate – residential

—

Home equity

—

Consumer loans

—

Other loans

—

Total

—


	Year ended December 31, 2012
	Number of Loans		Recorded Investment
Extend payment terms:
Commercial		1	$	31
Real estate – commercial		—		—
Other real estate construction		1		49
Real estate 1-4 family construction		—		—
Real estate – residential		2		30
Home equity		—		—
Consumer loans		—		—
Other loans		—		—

Total	$	4	$	110


Other:
Commercial		—	$	—
Real estate – commercial		—		—
Other real estate construction		—		—
Real estate 1-4 family construction		—		—
Real estate – residential		1		238
Home equity		—		—
Consumer loans		1		17
Other loans		—		—

	$	2	$	255

Total	$	6	$	365

A default on a troubled debt restructure is defined as being past due 90 days or being out of compliance with the modification agreement. As previously mentioned, the Company considers TDRs to be impaired loans and has $373,000 in the allowance for loan loss as of December 31, 2014, as a direct result of these TDRs. At December 31, 2013 there was $420,000 in the allowance for loan loss related to TDRs.

The following table presents the successes and failures of the types of modifications within the previous twelve months as of December 31, 2014, 2013 and 2012:


	Paid In Full				Paying as restructured				Converted to nonaccrual				Foreclosure/ Default
	Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments
	(dollars in thousands)

December 31, 2014
Extended payment terms		—	$	—		1	$	32		—	$	—		—	$	—
Other		1		112		8		1,182		—		—		—		—

Total		1	$	112		9	$	1,214		—	$	—		—	$	—


	Paid In Full				Paying as restructured				Converted to nonaccrual				Foreclosure/ Default
	Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments
	(dollars in thousands)

December 31, 2013
Extended payment terms		—	$	—		—	$	—		—	$	—		—	$	—
Other		—		—		10		1,234		—		—		—		—

Total		—	$	—		10	$	1,234		—	$	—		—	$	—


	Paid In Full				Paying as restructured				Converted to nonaccrual				Foreclosure/ Default
	Number of		Recorded		Number of		Recorded		Number of		Recorded		Number of		Recorded
	Loans		Investments		Loans		Investments		Loans		Investments		Loans		Investments
	(dollars in thousands)

December 31, 2012
Extended payment terms		—	$	—		—	$	—		—	$	—		4	$	110
Other		—		—		9		949		—		—		2		255

Total		—	$	—		9	$	949		—	$	—		6	$	365