Note 8 – 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 TDRs 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 charge-offs 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.

At September 30, 2018, the Company had $3.8 million in TDRs outstanding, of which one was on a non-accruing basis.

For the three and nine months ended September 30, 2018 and 2017, the following table presents a breakdown of the types of concessions made by loan class:

	For the three months ended September 30, 2018
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)

Other:
Commercial		—	$	—	$	—
Real estate - commercial		—		—		—
Other real estate construction		—		—		—
Real estate 1 – 4 family construction		—		—		—
Real estate – residential		3		218		203
Home equity		—		—		—
Consumer loans		—		—		—
Other loans		—		—		—

Total		3	$	218	$	203

	For the three months ended September 30, 2017
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)

Other:
Commercial		—	$	—	$	—
Real estate - commercial		—		—		—
Other real estate construction		—		—		—
Real estate 1 – 4 family construction		—		—		—
Real estate – residential		1		186		186
Home equity		—		—		—
Consumer loans		1		9		7
Other loans		—		—		—

Total		2	$	195	$	193

	For the nine months ended September 30, 2018
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)

Other:
Commercial		—	$	—	$	—
Real estate - commercial		—		—		—
Other real estate construction		—		—		—
Real estate 1 – 4 family construction		—		—		—
Real estate – residential		6		434		390
Home equity		—		—		—
Consumer loans		—		—		—
Other loans		—		—		—

Total		6	$	434	$	390

	For the nine months ended September 30, 2017
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)

Other:
Commercial		1	$	12	$	11
Real estate - commercial		1		166		163
Other real estate construction		—		—		—
Real estate 1 – 4 family construction		—		—		—
Real estate – residential		5		661		630
Home equity		—		—		—
Consumer loans		1		9		7
Other loans		—		—		—

Total		8	$	848	$	811

During the twelve months ended September 30, 2018, there was one TDR for which there was a payment default. During the twelve months ended September 30, 2017, there were three TDRs for which there was a payment default.

A default on a TDR 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 $139,000 in the allowance for loan losses as of September 30, 2018, as a direct result of these TDRs. At September 30, 2017, there was $123,000 in the allowance for loan losses related to TDRs.

The following table presents the successes and failures of the types of loan modifications within the previous twelve months as of September 30, 2018 and 2017:

	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)
September 30, 2018

Below market
Interest rate		—	$	—		—	$	—		—	$	—		—	$	—
Extended payment Terms		—		—		—		—		—		—		—		—
Forgiveness of Principal/Other		8		742		8		447		—		—		1		156

Total		8	$	742		8	$	447		—	$	—		1	$	156

September 30, 2017

Below market
Interest rate		—	$	—		—	$	—		—	$	—		—	$	—
Extended payment Terms		—		—		—		—		—		—		—		—
Forgiveness of Principal/Other		5		562		8		811		—		—		1		15

Total		5	$	562		8	$	811		—	$	—		1	$	15

The Company has not committed to fund any additional disbursements for TDRs.