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:



	June 30, 2015				December 31, 2014
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	30,781	4.0	%	$	33,050	4.4	%
Secured by farmland	19,505		2.5		19,708		2.6
Secured by 1-4 family residential	272,198		35.2		265,216		35.1
Other real estate loans	265,892		34.4		255,236		33.8
Commercial loans	167,542		21.7		163,269		21.6
Consumer loans	17,172		2.2		18,367		2.5
Total Gross Loans ⁽¹⁾	$	773,090	100.0	%	$	754,846	100.0	%
Less allowance for loan losses	11,894				11,786
Net loans	$	761,196			$	743,060


⁽¹⁾	Includes net deferred loan costs and premiums of $3.1 million and $3.0 million, respectively.

The following tables present a contractual aging of the recorded investment in past due loans by class of loans:



	June 30, 2015
(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	$	—	$	—	$	—	$	—	$	30,781	$	30,781
Secured by farmland	—		—		—		—		19,505		19,505
Secured by 1-4 family residential	374		463		623		1,460		270,738		272,198
Other real estate loans	331		—		85		416		265,476		265,892
Commercial loans	22		—		88		110		167,432		167,542
Consumer loans	93		—		—		93		17,079		17,172
Total	$	820	$	463	$	796	$	2,079	$	771,011	$	773,090



	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

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans:



	June 30, 2015				December 31, 2014
(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	$	223	$	—	$	247	$	—
Secured by 1-4 family residential	4,491		—		4,932		—
Other real estate loans	1,187		85		1,472		—
Commercial loans	73		88		290		30
Consumer loans	2,034		—		3,003		—
Total	$	8,008	$	173	$	9,944	$	30

If interest on nonaccrual loans had been accrued, such income would have approximated $187,000 and $544,000 for the six months ended June 30, 2015 and the year ended December 31, 2014, respectively.

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:



June 30, 2015
(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	$	23,788	$	11,004	$	262,946	$	251,176	$	165,897	$	15,066	$	729,877
Special Mention	6,433		—		1,572		6,607		1,429		34		16,075
Substandard	560		8,501		6,782		6,922		216		2,068		25,049
Doubtful	—		—		898		1,187		—		4		2,089
Loss	—		—		—		—		—		—		—
Ending Balance	$	30,781	$	19,505	$	272,198	$	265,892	$	167,542	$	17,172	$	773,090



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

The following tables present loans individually evaluated for impairment by class of loan:



	June 30, 2015
(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	$	114	$	114	$	—	$	123	$	—
Secured by farmland	7,903		7,903		—		7,903		113
Secured by 1-4 family residential	642		642		—		667		—
Other real estate loans	—		—		—		—		—
Commercial loans	468		468		—		473		9
Consumer loans	—		—		—		—		—
Total with no related allowance	$	9,127	$	9,127	$	—	$	9,166	$	122
With an allowance recorded:
Real estate loans:
Construction	$	109	$	109	$	60	$	112	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	4,081		4,133		1,412		4,111		8
Other real estate loans	4,230		4,230		454		4,241		78
Commercial loans	327		327		43		344		8
Consumer loans	2,033		2,033		1,003		2,522		—
Total with a related allowance	$	10,780	$	10,832	$	2,972	$	11,330	$	94
Total	$	19,907	$	19,959	$	2,972	$	20,496	$	216



	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

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 June 30, 2015 was $15.7 million of which $3.6 million were included in the Company’s nonaccrual loan totals at that date and $12.1 million represented loans performing as agreed according to the restructured terms. This compares with $6.9 million in total restructured loans at December 31, 2014. The amount of the valuation allowance related to TDRs was $1.62 million and $517,000 as of June 30, 2015 and December 31, 2014, respectively.

Loan modifications that were classified as TDRs during the three and six months ended June 30, 2015 and 2014 were as follows:



	Loans Modified as TDRs
	For the Three Months Ended June 30,
(Dollars in thousands)	2015					2014
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	—	$	—	$	—	—	$	—	$	—
Secured by farmland	1	7,903		7,903		—	—		—
Secured by 1-4 family residential	—	—		—		1	409		409
Other real estate loans	—	—		—		—	—		—
Total real estate loans	1	$	7,903	$	7,903	1	$	409	$	409
Commercial loans	—	—		—		—	—		—
Consumer loans	1	3,000		3,000		—	—		—
Total	2	$	10,903	$	10,903	1	$	409	$	409



	Loans Modified as TDRs
	For the Six Months Ended June 30,
(Dollars in thousands)	2015					2014
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	—	$	—	$	—	—	$	—	$	—
Secured by farmland	1	7,903		7,903		—	—		—
Secured by 1-4 family residential	—	—		—		4	1,190		1,142
Other real estate loans	—	—		—		1	200		173
Total real estate loans	1	$	7,903	$	7,903	5	$	1,390	$	1,315
Commercial loans	—	—		—		—	—		—
Consumer loans	1	3,000		3,000		—	—		—
Total	2	$	10,903	$	10,903	5	$	1,390	$	1,315

There were no outstanding commitments to lend additional amounts to troubled debt restructured borrowers at June 30, 2015.

TDR payment defaults during three and six months ended June 30, 2015 and 2014 were as follows:



	For the Three Months Ended June 30,
(Dollars in thousands)	2015			2014
Class of Loan	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Real estate loans:
Construction	—	$	—	—	$	—
Secured by farmland	—	—		—	—
Secured by 1-4 family residential	—	—		2	200
Other real estate loans	—	—		1	94
Total real estate loans	—	$	—	3	$	294
Commercial loans	—	—		1	49
Consumer loans	—	—		—	—
Total	—	$	—	4	$	343



	For the Six Months Ended June 30,
(Dollars in thousands)	2015			2014
Class of Loan	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Real estate loans:
Construction	—	$	—	—	$	—
Secured by farmland	—	—		—	—
Secured by 1-4 family residential	—	—		4	376
Other real estate loans	—	—		1	94
Total real estate loans	—	$	—	5	$	470
Commercial loans	—	—		1	49
Consumer loans	—	—		—	—
Total	—	$	—	6	$	519

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.