Note 4.Loans and Leases

Major classifications of loans are as follows:


	June 30,		December 31,
(In thousands)	2015		2014
Commercial real estate	$	206,139	$	175,038
Construction and land development		33,786		45,662
Commercial and industrial		83,825		76,489
Multi-family		16,172		13,823
Residential real estate		42,166		42,992
Leases		58,090		51,583
Tax certificates		4,804		7,191
Consumer		2,665		2,354
Total loans, net of unearned income	$	447,647	$	415,132

We use a nine point grading risk classification system commonly used in the financial services industry as the credit quality indicator. The first four classifications are rated Pass. The riskier classifications include Pass-Watch, Special Mention, Substandard, Doubtful and Loss. The risk rating is related to the underlying credit quality and probability of default. These risk ratings are used in the calculation of the allowance for loan and lease losses.

Pass: includes credits that demonstrate a low probability of default;

Pass-watch: a classification which includes currently performing credits that are beginning to demonstrate above average risk through declining earnings, strained cash flows, increased leverage and/or weakening market fundamentals. This class may also include new loan originations which warrant approval but may contain certain risks that require closer than usual monitoring and supervision, such as construction loans;

Special mention: includes credits that have potential weaknesses that if left uncorrected could weaken the credit or result in inadequate protection of our position at some future date. While potentially weak, credits in this classification are marginally acceptable and loss of principal or interest is not anticipated;

Substandard accrual: includes credits that exhibit a well-defined weakness which currently jeopardizes the repayment of debt and liquidation of collateral even though they are currently performing. These credits are characterized by the distinct possibility that we may incur a loss in the future if these weaknesses are not corrected;

Non-accrual (substandard non-accrual, doubtful, loss): includes credits that demonstrate serious problems to the point that it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement.

All loans, at the time of presentation to the appropriate loan committee, are assigned an initial loan risk rating by the Chief Credit Officer (“CCO”). From time to time, and at the general direction of any of the various loan committees, the ratings may be changed based on the findings of that committee. Items considered in assigning ratings include the financial strength of the borrower and/or guarantors, the type of collateral, the collateral lien position, the type of loan and loan structure, any potential risk inherent in the specific loan type, higher than normal monitoring of the loan or any other factor deemed appropriate by any of the various committees for changing the rating of the loan. Any such change in rating is reflected in the minutes of that committee.

The following tables present risk ratings for each loan portfolio classification at June 30, 2015 and December 31, 2014.


As of June 30, 2015
(In thousands)	Pass		Pass-Watch		Special Mention		Substandard		Non-accrual		Total
Commercial real estate	$	167,043	$	35,440	$	1,705	$	316	$	1,635	$	206,139
Construction and land development		3,900		29,342		—		—		544		33,786
Commercial and industrial		58,698		15,991		4,839		3,378		919		83,825
Multi-family		15,374		289		509		—		—		16,172
Residential real estate		41,231		—		—		—		935		42,166
Leases		57,496		171		85		—		338		58,090
Tax certificates		3,791		—		—		—		1,013		4,804
Consumer		2,537		128		—		—		—		2,665
Total loans, net of unearned income	$	350,070	$	81,361	$	7,138	$	3,694	$	5,384	$	447,647


As of December 31, 2014
(In thousands)	Pass		Pass-Watch		Special Mention		Substandard		Non-accrual		Total
Commercial real estate	$	140,045	$	27,229	$	2,512	$	1,568	$	3,684	$	175,038
Construction and land development		12,861		32,165		—		—		636		45,662
Commercial and industrial		60,500		8,527		1,608		3,337		2,517		76,489
Multi-family		12,995		310		518		—		—		13,823
Residential real estate		42,033		—		—		—		959		42,992
Leases		51,113		152		1		—		317		51,583
Tax certificates		5,491		—		—		—		1,700		7,191
Consumer		2,194		160		—		—		—		2,354
Total loans, net of unearned income	$	327,232	$	68,543	$	4,639	$	4,905	$	9,813	$	415,132

The following tables present an aging analysis of past due payments for each loan portfolio classification at June 30, 2015 and December 31, 2014.


As of June 30, 2015	30-59 Days		60-89 Days		Accruing
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	—	$	992	$	—	$	1,635	$	203,512	$	206,139
Construction and land development		333		—		—		544		32,909		33,786
Commercial and industrial		156		—		—		919		82,750		83,825
Multi-family		—		—		—		—		16,172		16,172
Residential real estate		146		146		—		935		40,939		42,166
Leases		171		85		—		338		57,496		58,090
Tax certificates		—		—		—		1,013		3,791		4,804
Consumer		29		—		—		—		2,636		2,665
Total loans, net of unearned income	$	835	$	1,223	$	—	$	5,384	$	440,205	$	447,647


As of December 31, 2014	30-59 Days		60-89 Days		Accruing
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	311	$	533	$	—	$	3,684	$	170,510	$	175,038
Construction and land development		—		—		—		636		45,026		45,662
Commercial and industrial		92		449		—		2,517		73,431		76,489
Multi-family		—		—		—		—		13,823		13,823
Residential real estate		165		162		—		959		41,706		42,992
Leases		152		1		—		317		51,113		51,583
Tax certificates		—		—		—		1,700		5,491		7,191
Consumer		—		—		—		—		2,354		2,354
Total loans, net of unearned income	$	720	$	1,145	$	—	$	9,813	$	403,454	$	415,132

If interest had accrued on non-accrual loans, such income would have been approximately $193,000 and $397,000 for the three months and six months ended June 30, 2015, respectively, and $213,000 and $488,000 for the three and six months ended June 30, 2014, respectively.

Impaired Loans

Total cash collected on impaired loans during the six months ended June 30, 2015 and 2014 was $3.6 million and $3.0 million respectively, of which $2.7 million and $2.6 million was credited to the principal balance outstanding on such loans, respectively.

Troubled Debt Restructurings (“TDRs”)

The following table details our TDRs that are on an accrual status and non-accrual status at June 30, 2015 and December 31, 2014.


	As of June 30, 2015
				Non-
	Number of	Accrual		Accrual
(In thousands)	loans	Status		Status		Total TDRs
Commercial real estate	3	$	2,841	$	—	$	2,841
Construction and land development	2		—		544		544
Commercial and industrial	4		3,634		—		3,634
Residential real estate	1		—		98		98
Total	10	$	6,475	$	642	$	7,117


	As of December 31, 2014
				Non-
	Number of	Accrual		Accrual
(In thousands)	loans	Status		Status		Total TDRs
Commercial real estate	3	$	2,883	$	—	$	2,883
Construction and land development	3		47		636		683
Commercial and industrial	5		3,643		1,448		5,091
Residential real estate	1		—		102		102
Total	12	$	6,573	$	2,186	$	8,759

At June 30, 2015, the two construction and land development TDRs, cited in the above table, were not in compliance with their restructured terms due to payment defaults. We did not classify any loan modifications as TDRs during the first two quarters of 2015. The following table presents restructured loans that occurred during the six months ended June 30, 2014.


	Modifications by type for the six months ended June 30, 2014
												Pre-		Post-
												Modification		Modification
												Outstanding		Outstanding
	Number of							Combination				Recorded		Recorded
(Dollars in thousands)	loans	Rate		Term		Payment		of types		Total		Investment		Investment
Commercial and industrial	2	$	—	$	45	$	—	$	28	$	73	$	73	$	73
Total	2	$	—	$	45	$	—	$	28	$	73	$	73	$	73