Loans, Net

The Company segregates its loan portfolio into three primary loan segments: Real Estate Loans, Commercial Loans, and Consumer Loans. Real estate loans are further segregated into the following classes: construction loans, loans secured by farmland, loans secured by 1-4 family residential real estate, and other real estate loans. Other real estate loans include commercial real estate loans. The consolidated loan portfolio was composed of the following:



	2014				2013
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	33,050	4.4	%	$	36,025	5.0	%
Secured by farmland	19,708		2.6		16,578		2.3
Secured by 1-4 family residential	265,216		35.1		273,384		37.5
Other real estate loans	255,236		33.8		260,333		35.7
Commercial loans	163,269		21.6		129,554		17.8
Consumer loans	18,367		2.5		12,606		1.7
Total Gross Loans ⁽¹⁾	754,846		100.0	%	728,480		100.0	%
Less allowance for loan losses	11,786				13,320
Net loans	$	743,060			$	715,160


⁽¹⁾	Includes net deferred loan costs and premiums of $3.0 million and $2.4 million, respectively.

Loans presented in the table above exclude loans held for sale. The Company had no mortgages held for sale at December 31, 2014 and $33.2 million at December 31, 2013.

During the year ended December 31, 2014, the Company sold $6.6 million in portfolio loans on a non-recourse basis. Of this amount, $5.9 million were on nonaccrual status and $6.3 million were classified as TDRs. Specific reserves associated with these loans totaled $655,000.

The following tables present a contractual aging of the recorded investment in past due loans by class of loans as of December 31, 2014 and December 31, 2013, respectively:



	December 31, 2014
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	—	$	—	$	—	$	—	$	33,050	$	33,050
Secured by farmland	—		—		—		—		19,708		19,708
Secured by 1-4 family residential	819		—		548		1,367		263,849		265,216
Other real estate loans	—		—		—		—		255,236		255,236
Commercial loans	138		—		320		458		162,811		163,269
Consumer loans	16		1		3,003		3,020		15,347		18,367
Total	$	973	$	1	$	3,871	$	4,845	$	750,001	$	754,846



	December 31, 2013
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	76	$	1,649	$	554	$	2,279	$	33,746	$	36,025
Secured by farmland	—		—		—		—		16,578		16,578
Secured by 1-4 family residential	590		3,751		1,022		5,363		268,021		273,384
Other real estate loans	116		—		4,197		4,313		256,020		260,333
Commercial loans	162		1,513		27		1,702		127,852		129,554
Consumer loans	31		9		38		78		12,528		12,606
Total	$	975	$	6,922	$	5,838	$	13,735	$	714,745	$	728,480

The following table presents the recorded investment in nonaccrual loans and loans past due ninety days or more and still accruing by class of loans as of December 31, 2014 and 2013, respectively:



	2014				2013
(Dollars in thousands)	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
Real estate loans:
Construction	$	247	$	—	$	2,368	$	268
Secured by 1-4 family residential	4,932		—		9,458		539
Other real estate loans	1,472		—		6,045		—
Commercial loans	290		30		1,844		—
Consumer loans	3,003		—		37		1
Total	$	9,944	$	30	$	19,752	$	808

If interest on nonaccrual loans had been accrued, such income would have approximated $544,000, $1.1 million, and $1.4 million for the years ended December 31, 2014, 2013, and 2012, respectively. The Company sold $6.6 million in loans during 2014, of which, $5.9 million were on nonaccrual status.

The Company utilizes an internal asset classification system as a means of measuring and monitoring credit risk in the loan portfolio. Under the Company’s classification system, problem and potential problem loans are classified as “Special Mention”, “Substandard”, and “Doubtful”.

Special Mention: Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.

Substandard: Loans with well-defined weakness that jeopardize the liquidation of the debt. Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.

Doubtful: Loans with a very high possibility of loss. However, because of important and reasonably specific pending factors, classification as a loss is deferred until a more exact status may be determined.

Loss: Loans are deemed uncollectible and are charged off immediately.

The following tables present the recorded investment in loans by class of loan that have been classified according to the internal classification system as of December 31, 2014 and 2013, respectively:



December 31, 2014
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	25,637	$	11,203	$	255,898	$	232,169	$	159,595	$	15,310	$	699,812
Special Mention	6,764		7,903		1,518		15,687		3,059		18		34,949
Substandard	649		602		7,348		7,380		369		3,019		19,367
Doubtful	—		—		452		—		246		3		701
Loss	—		—		—		—		—		17		17
Ending Balance	$	33,050	$	19,708	$	265,216	$	255,236	$	163,269	$	18,367	$	754,846



December 31, 2013
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	31,143	$	8,067	$	253,654	$	238,811	$	126,246	$	12,510	$	670,431
Special Mention	2,245		7,903		1,732		9,475		775		15		22,145
Substandard	2,090		608		16,158		12,047		2,419		44		33,366
Doubtful	547		—		1,840		—		114		37		2,538
Loss	—		—		—		—		—		—		—
Ending Balance	$	36,025	$	16,578	$	273,384	$	260,333	$	129,554	$	12,606	$	728,480

The following tables present loans individually evaluated for impairment by class of loan as of and for the year ended December 31, 2014 and 2013:



	December 31, 2014
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	131	$	131	$	—	$	138	$	—
Secured by farmland	7,903		7,903		—		7,903		454
Secured by 1-4 family residential	1,919		2,047		—		2,032		16
Other real estate loans	3,289		3,289		—		3,352		104
Commercial loans	448		448		—		454		18
Consumer loans	—		—		—		—		—
Total with no related allowance	$	13,690	$	13,818	$	—	$	13,879	$	592
With an allowance recorded:
Real estate loans:
Construction	$	115	$	115	$	66	$	124	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,694		3,746		1,370		3,704		11
Other real estate loans	1,242		1,242		294		1,260		69
Commercial loans	398		1,248		292		783		7
Consumer loans	3,019		3,019		647		3,021		2
Total with a related allowance	$	8,468	$	9,370	$	2,669	$	8,892	$	89
Total	$	22,158	$	23,188	$	2,669	$	22,771	$	681



	December 31, 2013
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,924	$	2,475	$	—	$	1,975	$	13
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,930		4,452		—		4,415		6
Other real estate loans	4,458		4,458		—		4,552		104
Commercial loans	2,115		2,115		—		2,267		—
Consumer loans	—		—		—		—		—
Total with no related allowance	$	12,427	$	13,500	$	—	$	13,209	$	123
With an allowance recorded:
Real estate loans:
Construction	$	712	$	712	$	486	$	878	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	6,481		6,428		3,045		6,632		47
Other real estate loans	4,684		4,684		812		4,840		71
Commercial loans	355		377		275		399		10
Consumer loans	37		37		37		39		—
Total with a related allowance	$	12,269	$	12,238	$	4,655	$	12,788	$	128
Total	$	24,696	$	25,738	$	4,655	$	25,997	$	251

The “Recorded Investment” amounts in the table above represent the outstanding principal balance net of charge-offs and nonaccrual payments to interest on each loan represented in the table. The “Unpaid Principal Balance” represents the outstanding principal balance on each loan represented in the table plus any amounts that have been charged-off on each loan and nonaccrual payments applied to principal.

Included in certain loan categories of impaired loans are troubled debt restructurings (“TDRs”). The total balance of TDRs at December 31, 2014 was $6.9 million of which $2.6 million were included in the Company’s nonaccrual loan totals at that date and $4.3 million represented loans performing as agreed according to the restructured terms. This compares with $15.6 million in total restructured loans at December 31, 2013. The amount of the valuation allowance related to TDRs was $517,000 and $2.8 million as of December 31, 2014 and 2013 respectively.

Loan modifications that were classified as TDRs during the years ended December 31, 2014 and 2013 were as follows:



	Year Ended December 31,
(Dollars in thousands)	2014					2013
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	4	$	765	$	698
Secured by farmland	—	—		—		—	—		—
Secured by 1-4 family residential	4	1,190		1,190		12	3,627		3,207
Other real estate loans	1	200		200		5	869		805
Total real estate loans	5	1,390		1,390		21	5,261		4,710
Commercial loans	—	—		—		2	516		509
Consumer loans	—	—		—		—	—		—
Total	5	$	1,390	$	1,390	23	$	5,777	$	5,219

Of the five contracts classified as TDRs during 2014, two were sold and two were paid off totaling $907,000. The interest rate was lowered for the one remaining contract outstanding. There were no outstanding commitments to lend additional amounts to troubled debt restructured borrowers at December 31, 2014. During 2013, of the 23 loans that were considered to be TDRs, the terms were extended for 18 loans, the interest rates were lowered for 18 loans and 12 loans were placed on interest only payment methods.

During the year ended December 31, 2014, the Company identified as TDRs two loans for which the allowance for loan losses had previously been measured under a general allowance methodology. Upon identifying these loans as TDRs, the Company evaluated them for impairment. The accounting amendments require prospective application of the impairment measurement guidance for those loans newly identified as impaired. As of December 31, 2014, the recorded investment in the loans restructured during 2014 for which the allowance was previously measured under a general allowance methodology was $916,000, and there was no allowance for loan losses associated with those loans on the basis of a current evaluation of loss.

During the year ended December 31, 2013, the Company identified as TDRs, 13 loans for which the allowance for loan losses had previously been measured under a general allowance methodology. Upon identifying these loans as TDRs, the Company evaluated them for impairment. As of December 31, 2013, the recorded investment in the loans restructured during 2013 for which the allowance was previously measured under a general allowance methodology was $3.5 million, and the allowance for loan losses associated with those loans, on the basis of a current evaluation of loss was $1.3 million.

TDR payment defaults as of December 31, 2014 and December 31, 2013 were as follows:



	Year Ended December 31,
(Dollars in thousands)	2014			2013
Class of Loan	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Real estate loans:
Construction	—	$	—	1	$	132
Secured by farmland	—	—		—	—
Secured by 1-4 family residential	—	—		—	—
Other real estate loans	—	—		—	—
Total real estate loans	—	—		1	132
Commercial loans	1	44		—	—
Consumer loans	—	—		—	—
Total	1	$	44	1	$	132

For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.