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:



	September 30, 2015				December 31, 2014
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	33,381	4.3	%	$	33,050	4.4	%
Secured by farmland	19,391		2.5		19,708		2.6
Secured by 1-4 family residential	273,176		35.0		265,216		35.1
Other real estate loans	258,012		33.0		255,236		33.8
Commercial loans	179,907		23.0		163,269		21.6
Consumer loans	17,000		2.2		18,367		2.5
Total Gross Loans ⁽¹⁾	$	780,867	100.0	%	$	754,846	100.0	%
Less allowance for loan losses	11,400				11,786
Net loans	$	769,467			$	743,060


⁽¹⁾	Includes net deferred loan costs and premiums of $3.3 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:



	September 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	$	—	$	54	$	—	$	54	$	33,327	$	33,381
Secured by farmland	—		—		—		—		19,391		19,391
Secured by 1-4 family residential	181		233		1,818		2,232		270,944		273,176
Other real estate loans	592		—		—		592		257,420		258,012
Commercial loans	130		—		—		130		179,777		179,907
Consumer loans	56		2		20		78		16,922		17,000
Total	$	959	$	289	$	1,838	$	3,086	$	777,781	$	780,867



	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:



	September 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	$	212	$	—	$	247	$	—
Secured by 1-4 family residential	5,058		224		4,932		—
Other real estate loans	1,187		—		1,472		—
Commercial loans	68		—		290		30
Consumer loans	2,302		—		3,003		—
Total	$	8,827	$	224	$	9,944	$	30

If interest on nonaccrual loans had been accrued, such income would have approximated $305,300 and $544,000 for the nine months ended September 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:



September 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	$	27,034	$	10,892	$	264,332	$	243,540	$	178,301	$	14,644	$	738,743
Special Mention	5,800		—		1,078		6,223		1,410		16		14,527
Substandard	547		8,499		6,608		7,062		196		2,338		25,250
Doubtful	—		—		1,158		1,187		—		—		2,345
Loss	—		—		—		—		—		2		2
Ending Balance	$	33,381	$	19,391	$	273,176	$	258,012	$	179,907	$	17,000	$	780,867



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:



	September 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	$	105	$	105	$	—	$	118	$	—
Secured by farmland	7,903		7,903		—		7,903		177
Secured by 1-4 family residential	1,083		1,083		—		1,094		2
Other real estate loans	—		—		—		—		—
Commercial loans	461		461		—		470		13
Consumer loans	—		—		—		—		—
Total with no related allowance	$	9,552	$	9,552	$	—	$	9,585	$	192
With an allowance recorded:
Real estate loans:
Construction	$	107	$	107	$	57	$	111	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	4,445		4,496		1,376		4,480		9
Other real estate loans	4,220		4,220		463		4,236		118
Commercial loans	307		307		46		334		12
Consumer loans	2,302		2,302		1,020		2,662		—
Total with a related allowance	$	11,381	$	11,432	$	2,962	$	11,823	$	139
Total	$	20,933	$	20,984	$	2,962	$	21,408	$	331



	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 September 30, 2015 was $15.9 million of which $3.8 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 September 30, 2015 and December 31, 2014, respectively.

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



	Loans Modified as TDRs
	For the Three Months Ended September 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	—	—		—		—	—		—
Secured by 1-4 family residential	—	—		—		1	409		409
Other real estate loans	—	—		—		—	—		—
Total real estate loans	—	$	—	$	—	1	$	409	$	409
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		—	—		—
Total	—	$	—	$	—	1	$	409	$	409



	Loans Modified as TDRs
	For the Nine Months Ended September 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		2,282		—	—		—
Total	2	$	10,903	$	10,185	5	$	1,390	$	1,315

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

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



	For the Three Months Ended September 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 Nine Months Ended September 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.