Note 4. Loan Receivables and Allowance for Loan Losses

Loans receivable, net, consists of the following at December 31, 2013 and 2012:


	December 31,			December 31,
	2013			2012
Real Estate:
Commercial	$	223,165,092		$	247,495,321
Residential		106,198,275			119,033,025
Construction		260,000			4,997,991
Construction-to-permanent		11,303,002			4,851,768
Commercial		35,061,249			36,428,751
Consumer home equity		44,080,895			49,180,908
Consumer installment		2,989,662			2,162,718

Total loans		423,058,175			464,150,482
Premiums on purchased loans		200,180			219,649
Net deferred costs		570,657			439,041
Allowance for loan losses		(5,680,689	)		(6,015,636	)

Loans receivable, net	$	418,148,323		$	458,793,536

During 2013, the Bank completed bulk loan sales of $10.5 million of residential loans consummated for a cash purchase price of $10.7 million, which represented 101.5% of the Bank’s net book value for these assets. During 2012, the Bank completed bulk loan sales of $97.0 million of residential loans consummated for a cash purchase price of $98.5 million, which represented 101.5% of the Bank’s net book value for these assets.

A summary of changes in the allowance for loan losses for the years ended December 31, 2013, 2012 and 2011 are as follows:


	2013			2012			2011
Balance, beginning of year	$	6,015,636		$	9,384,672		$	15,374,101
Provision for loan losses		970,214			(2,379,223	)		7,464,427
Transferred to loans held-for-sale		—			—			(6,054,660	)
Recoveries of loans previously charged-off		363,225			80,543			853,578
Loans charged-off		(1,668,386	)		(1,070,356	)		(8,252,774	)

Balance, end of year	$	5,680,689		$	6,015,636		$	9,384,672

At December 31, 2013 and 2012, the unpaid principal balances of loans 90 days or more past due, and still accruing interest were $866,000 and $2.2 million respectively, and the unpaid principal balances of loans on non-accrual status and considered impaired were $12.3 million and $23.8 million respectively. Loans over 90 days past due were comprised of two loans as of December 31, 2013. One loan for $841,000 was current and a second loan for $25,000 was current within 60 days as to interest payments, both were past the loan’s maturity date and in the process of being renewed. Four of the five loans as of December 31, 2012, totaling $1,667,000, were making payments, but past the loan’s maturity date and were in the process of being renewed. The other loan totaling $567,000 was over 90 days past due as to payments and past the loan’s maturity date, but was subsequently paid off.

At December 31, 2013, there were two loans totaling $2.2 million that were considered “troubled debt restructurings”, as compared to 8 loans totaling $11.6 million that were considered “troubled debt restructurings” at December 31, 2012, all of which are included in impaired loans. At December 31, 2013, one of the two loans for $991,000 was accruing and the other for $1.2 million was a non-accruing loan. At December 31, 2012, 1 of the 8 loans aggregating $0.5 million was accruing and 7 loans aggregating $11.1 million were non-accruing loans. Loan modifications, which resulted in these loans being considered troubled debt restructurings, are primarily in the form of rate concessions or term extensions. At December 31, 2013 and 2012, there were no commitments to advance additional funds under troubled debt restructured loans.

If non-accrual loans had been performing in accordance with their original terms, the Company would have recorded $1.2 million, $1.5 million and $2.3 million of additional income during the years ended December 31, 2013, 2012 and 2011, respectively.

During 2013, 2012 and 2011, interest income collected and recognized on non-accrual loans was approximately $774,000, $231,000 and $465,000 respectively. The average recorded investment in impaired loans for the years ending December 31, 2013, 2012 and 2011 were $30.8 million, $35.0 million and $49.8 million respectively.

The Company’s lending activities are conducted principally in Fairfield and New Haven Counties in Connecticut and Westchester County and New York City. The Company originates commercial real estate loans, commercial business loans, residential real estate loans and a variety of consumer loans. In addition, the Company had originated loans for the construction of residential homes, residential developments and for land development projects. A moratorium on new speculative construction loans was instituted by management in July 2008. All residential and commercial mortgage loans are collateralized primarily by first or second mortgages on real estate. The ability and willingness of borrowers to satisfy their loan obligations is dependent to some degree on the status of the regional economy as well as upon the regional real estate market. Accordingly, the ultimate collectability of a portion of the loan portfolio and the recovery of any resulting real estate acquired is susceptible to changes in market conditions.

The Company has established credit policies applicable to each type of lending activity in which it engages, evaluates the creditworthiness of each customer and, in most cases, extends credit of up to 75% of the market value of the collateral for commercial real estate at the date of the credit extension depending on the Company’s evaluation of the borrowers’ creditworthiness and type of collateral. In the case of construction loans, the maximum loan-to-value was 65% of the “as completed” market value. The market value of collateral is monitored on an ongoing basis and additional collateral is obtained when warranted. Real estate is the primary form of collateral. Other important forms of collateral are accounts receivable, inventory, other business assets, marketable securities and time deposits. While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment to be based on the borrower’s ability to generate continuing cash flows on all loans not related to construction.

Risk characteristics of the Company’s portfolio classes include the following:

Commercial Real Estate Loans – In underwriting commercial real estate loans, the Company evaluates both the prospective borrower’s ability to make timely payments on the loan and the value of the property securing the loans. Repayment of such loans may be negatively impacted should there be a substantial decline in the value of the property securing the loan or a decline in the general economic conditions. Where the owner occupies the property, the Company also evaluates the business’s ability to repay the loan on a timely basis. In addition, the Company may require personal guarantees, lease assignments and/or the guarantee of the operating company when the property is owner occupied. These types of loans involve different risks because payments on such loans are dependent upon the successful operation of the business involved, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions affecting the borrowers’ businesses.

Commercial and Industrial Loans – The Company’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are usually made to finance the purchase of inventory or new or used equipment and for other short or long-term working capital purposes. These loans are generally secured by corporate assets, often with real estate as secondary collateral, but are also occasionally offered on an unsecured basis. In granting this type of loan, the Company primarily looks to the borrower’s cash flow as the source of repayment with collateral and personal guarantees as a secondary source as needed. Commercial loans are often larger and may involve greater risks than other type of loans offered by the Company. Payments on such loans are often dependent upon the successful operation of the underlying business. Repayment of such loans may therefore be negatively impacted by adverse changes in economic conditions, management’s inability to effectively manage the business, claims of others against the borrower’s assets, death or disability of the borrower or loss of market for the borrower’s products or services.

Residential Real Estate Loans – Various loans secured by residential real estate properties are offered by the Company, including 1-4 family residential mortgages, multi-family residential loans and a variety of home equity line of credit products. Repayment of such loans may be negatively impacted should the borrower default, should there be a significant decline in the value of the property securing the loan or should there be a decline in general economic conditions.

Construction Loans – Construction loans are short-term loans (generally up to 18 months) secured by land for both residential and commercial development. The loans are generally made for acquisition and improvements. Funds are disbursed as phases of construction are completed. In the past, the Company funded construction of single family homes, when no contract of sale existed, based upon the experience and the financial strength of the builder, the type and location of the property and other factors. Construction loans are generally personally guaranteed by the principal(s). Repayment of such loans may be negatively impacted by the builders’ inability to complete construction, by a downturn in the new home sales market, by a significant increase in interest rates or by decline in general economic conditions. The Company has had a moratorium in place since mid-2008 on new speculative construction loans.

Other Loans – The Company also offers installment loans and reserves lines of credit to individuals. Repayments of such loans are often dependent on the personal income of the borrower which may be negatively impacted by adverse changes in economic conditions or personal circumstances. The Company does not place an emphasis on originating these types of loans.

The Company does not have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burdened ratios.

The following tables set forth activity in our allowance for loan losses, by loan type, for the years ended December 31, 2013 and 2012. The following tables also detail the amount of loans receivable, net, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan portfolio segment.


2013	Commercial			Commercial Real Estate			Construction			Construction to Permanent		Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	941,456		$	3,509,395		$	311,297		$	18,720	$	897,368		$	216,698		$	120,702	$	6,015,636
Charge-offs		(62,779	)		(403,124	)		(204,868	)		—		(918,853	)		(78,762	)		—		(1,668,386	)
Recoveries		3,920			334,951			20,000			—		612			3,742			—		363,225
Provision		1,402,088			(1,855,894	)		133,571			6,659		815,829			392,117			75,844		970,214

Ending Balance	$	2,284,685		$	1,585,328		$	260,000		$	25,379	$	794,956		$	533,795		$	196,546	$	5,680,689

Ending balance: individually evaluated for impairment	$	1,500,000		$	31,097		$	260,000		$	—	$	97,829		$	1,811		$	—	$	1,890,737
Ending balance: collectively evaluated for impairment		784,685			1,554,231			—			25,379		697,127			531,984			196,546		3,789,952

Total Allowance for Loan Losses	$	2,284,685		$	1,585,328		$	260,000		$	25,379	$	794,956		$	533,795		$	196,546	$	5,680,689

Total Loans ending balance	$	35,061,249		$	223,165,092		$	260,000		$	11,303,002	$	106,198,275		$	47,070,557		$	—	$	423,058,175

Ending balance:
individually evaluated for impairment		6,151,799			7,767,224			260,000			1,197,474		6,024,266			592,636			—		21,993,399

Ending balance :
collectively evaluated for impairment	$	28,909,450		$	215,397,868		$	—		$	10,105,528	$	100,174,009		$	46,477,921		$	—	$	401,064,776


2012	Commercial			Commercial Real Estate			Construction			Construction to Permanent			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	882,062		$	4,018,746		$	867,159		$	547,333		$	2,550,588		$	458,762		$	60,022	$	9,384,672
Charge-offs		(48,414	)		(49,922	)		(101,391	)		—			(84,711	)		(785,918	)		—		(1,070,356	)
Recoveries		10,861			66,951			—			—			—			2,731			—		80,543
Provision		96,947			(526,380	)		(454,471	)		(528,613	)		(1,568,509	)		541,123			60,680		(2,379,223	)

Ending Balance	$	941,456		$	3,509,395		$	311,297		$	18,720		$	897,368		$	216,698		$	120,702	$	6,015,636

Ending balance: individually evaluated for impairment	$	33,280		$	728,607		$	120,616		$	—		$	83,543		$	2,368		$	—	$	968,414
Ending balance: collectively evaluated for impairment		908,176			2,780,788			190,681			18,720			813,825			214,330			120,702		5,047,222

Total Allowance for Loan Losses	$	941,456		$	3,509,395		$	311,297		$	18,720		$	897,368		$	216,698		$	120,702	$	6,015,636

Total Loans ending balance	$	36,428,751		$	247,495,321		$	4,997,991		$	4,851,768		$	119,033,025		$	51,343,626		$	—	$	464,150,482

Ending balance:
individually evaluated for impairment		219,509			15,909,103			1,862,038			1,258,710			13,567,175			566,543			—		33,383,078

Ending balance :
collectively evaluated for impairment	$	36,209,242		$	231,586,218		$	3,135,953		$	3,593,058		$	105,465,850		$	50,777,083		$	—	$	430,767,404

The Company monitors the credit quality of its loans receivable on an ongoing basis. Credit quality is monitored by reviewing certain credit quality indicators. Management has determined that internally assigned risk ratings and loan-to-value ratios (LTVs), at period end, are the key credit quality indicators that best help management monitor the credit quality of the Company’s loans receivable. Loan-to-value ratios used by management in monitoring credit quality are based on current period loan balances and original values at time of origination (unless a current appraisal has been obtained as a result of the loan being deemed impaired or the loan is a maturing construction loan).

Appraisals on properties securing impaired loans and Other Real Estate Owned (“OREO”) are updated annually. Additionally, appraisals on construction loans are updated four months in advance of scheduled maturity dates. We update our impairment analysis monthly based on the most recent appraisal as well as other factors (such as senior lien positions, e.g. property taxes). We are subscribers to a national real estate valuation database service and use published information regarding home sales prices in the towns/counties where our collateral is located in CT and NY.

The majority of the Company’s impaired loans have been resolved through courses of action other than via bank liquidations of real estate collateral through OREO. These include normal loan payoffs, the traditional workout process, triggering personal guarantee obligations, and troubled debt restructurings. However, as loan workout efforts progress to a point where the bank’s liquidation of real estate collateral is the likely outcome, the impairment analysis is updated to reflect actual recent experience with bank sales of OREO properties.

A disposition discount is built into our impairment analysis and reflected in our allowance once a property is determined to be a likely OREO (e.g. foreclosure is probable). To determine the discount we compare the average sales prices of our prior OREO properties to the appraised value that was obtained as of the date we took title to the property. The difference is the bank-owned disposition discount.

The Company has a risk rating system as part of the risk assessment of its loan portfolio. The Company’s lending officers are required to assign an Obligor and a Facility risk rating to each loan in their portfolio at origination, which is ratified or modified by the Committee to which the loan is submitted for approval. When the lender learns of important financial developments, the risk rating is reviewed accordingly, and adjusted if necessary. All loans are reviewed annually. Similarly, the Loan Committee can adjust a risk rating.

In addition, the Company engages a third party independent loan reviewer that performs quarterly reviews of a sample of loans, validating the Bank’s risk ratings assigned to such loans. The risk ratings play an important role in the establishment of the loan loss provision and to confirm the adequacy of the allowance for loan losses. Any upgrades to classified loans must be approved by the Board Loan Committee.

When assigning a risk rating to a loan, management utilizes the Bank’s internal eleven-point risk rating system.

An asset is considered “special mention” when it has a potential weakness based on objective evidence, but does not currently expose the Company to sufficient risk to warrant classification in one of the following categories: An asset is considered “substandard” if it is not adequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets have well defined weaknesses based on objective evidence, and are characterized by the “distinct possibility” that the Company will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”

During the quarter ended June 30, 2012, the Bank implemented changes to the allowance methodology, resulting in a reduction of the allowance for loan losses of $1.1 million for that period. In making this transition, the changes served to update the methodology to reflect the direction of the current loan portfolio. The changes were threefold:

•

First, the Bank adopted a two year, instead of a three year, weighted average historical loss factor as the basis for the calculation of its historical loss experience. This is used to calculate expected losses in the pools identified in the Accounting Standards Codification (“ASC”) (Topic 450-20), “Loss Contingencies” pools prior to the application of qualitative risk adjustment factors. This change was made to be more responsive to the changing credit environment. This shorter average historical loss period will produce results more indicative of the current period and expected behavior of the portfolio.

•

Second, the Bank adopted an Internal Risk Ratings Based (IRB) approach to calculating historical loss rates. This approach calibrates expected losses with actual risk assessment and equates the likelihood of loss to the level of risk in a credit facility rating. Previously, loss history was applied to categories of loans and adjusted by qualitative factors apportioned by risk rating within the categories.

•

Third, the Bank increased the detail of analysis within the segments, particularly within Commercial Real Estate lending, which is currently the Bank’s largest concentration overall, by expanding the number of ASC 450-20 pools. In all, ten sub-concentrations have been added to the analysis. The greater level of detail enables the Bank to better apply qualitative risk adjustment factors to the segments affected and to monitor changes in credit risk within the portfolio.

Charge-off generally commences after the loan is classified “doubtful” to reduce the loan to its recoverable balance. If the account is classified as “loss”, the full balance is charged off regardless of the potential recovery from the sale of the collateral. This amount is recognized as a recovery once the collateral is sold.

In accordance with FFIEC (“Federal Financial Institutions Examination Council”) published policies establishing uniform criteria for the classification of retail credit based on delinquency status, “Open-end” credits are charged-off when 180 days delinquent and “Closed-end” credits are charged-off when 120 days delinquent.

The following table details the credit risk exposure of loans receivable, by loan type and credit quality indicator at December 31, 2013:

CREDIT RISK PROFILE BY CREDIT WORTHINESS CATEGORY


	Commercial				Commercial Real Estate				Construction				Construction to Permanent				Residential Real Estate				Consumer
LTVs:	< 75%		>= 75%		< 75%		>= 75%		< 75%		>= 75%		< 75%		>= 75%		< 75%		>= 75%		< 75%		>= 75%		Other		Total
Internal Risk Rating
Pass	$	23,492,659	$	3,898,173	$	199,117,577	$	7,950,793	$	—	$	—	$	10,105,528	$	—	$	82,704,363	$	20,592,131	$	42,541,721	$	3,839,030		650,234	$	394,892,209
Special Mention		167,095		—		6,573,089		2,502,204		—		—		—		—		—		—		—		—		—		9,242,388
Substandard		7,503,322		—		3,690,308		3,331,121		60,000		200,000		1,197,474		—		1,975,907		925,874		8,696		30,876		—		18,923,578

	$	31,163,076	$	3,898,173	$	209,380,974	$	13,784,118	$	60,000	$	200,000	$	11,303,002	$	—	$	84,680,270	$	21,518,005	$	42,550,417	$	3,869,906	$	650,234	$	423,058,175

CREDIT RISK PROFILE


	Commercial		Commercial Real Estate		Construction		Construction to Permanent		Residential Real Estate		Consumer		Totals
Performing	$	28,909,450	$	221,400,483	$	—	$	10,105,528	$	103,296,494	$	47,037,870	$	410,749,825
Non Performing		6,151,799		1,764,609		260,000		1,197,474		2,901,781		32,687		12,308,350

Total	$	35,061,249	$	223,165,092	$	260,000	$	11,303,002	$	106,198,275	$	47,070,557	$	423,058,175

The following table details the credit risk exposure of loans receivable, by loan type and credit quality indicator at December 31, 2012:

CREDIT RISK PROFILE BY CREDIT WORTHINESS CATEGORY


	Commercial				Commercial Real Estate				Construction				Construction to Permanent				Residential Real Estate				Consumer
LTVs:	< 75%		>= 75%		< 75%		>= 75%		< 75%		>= 75%		< 75%		>= 75%		< 75%		>= 75%		< 75%		>= 75%		Other		Total
Internal Risk Rating
Pass	$	25,563,777	$	1,241,109	$	203,149,356	$	9,182,622	$	—	$	—	$	3,593,058	$	—	$	77,368,459	$	25,617,355	$	46,102,332	$	3,752,752		765,469	$	396,336,289
Special Mention		7,234,814		164,191		11,554,971		5,374,265		3,135,953		—		—		—		5,310,178		—		98,530		564,175		—		33,437,077
Substandard		2,014,401		210,459		8,503,630		9,730,477		—		1,862,038		—		1,258,710		2,524,186		8,212,847		2,368		58,000		—		34,377,116

	$	34,812,992	$	1,615,759	$	223,207,957	$	24,287,364	$	3,135,953	$	1,862,038	$	3,593,058	$	1,258,710	$	85,202,823	$	33,830,202	$	46,203,230	$	4,374,927	$	765,469	$	464,150,482

CREDIT RISK PROFILE


	Commercial		Commercial Real Estate		Construction		Construction to Permanent		Residential Real Estate		Consumer		Totals
Performing	$	36,209,242	$	237,764,844	$	3,135,953	$	3,593,058	$	108,295,992	$	51,341,258	$	440,340,347
Non Performing		219,509		9,730,477		1,862,038		1,258,710		10,737,033		2,368		23,810,135

Total	$	36,428,751	$	247,495,321	$	4,997,991	$	4,851,768	$	119,033,025	$	51,343,626	$	464,150,482

The following table sets forth the detail, and delinquency status, of non-accrual loans and past due matured loans at December 31, 2013:


	Non-Accrual and Past Due Loans
	Non-Accrual Loans										>90 Days		Total Non-
2013	31-60 Days Past Due		61-90 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Past Due and Accruing		Accrual and Past Due Loans
Commercial
Pass	$	—	$	—	$	—	$	—	$	—	$	25,000	$	25,000
Substandard		—		—		1,799		1,799		6,150,000		—		6,151,799

Total Commercial	$	—	$	—	$	1,799	$	1,799	$	6,150,000	$	25,000	$	6,176,799

Commercial Real Estate
Substandard	$	—	$	—	$	1,764,609	$	1,764,609	$	—	$	840,962	$	2,605,571

Total Commercial Real Estate	$	—	$	—	$	1,764,609	$	1,764,609	$	—	$	840,962	$	2,605,571

Construction
Substandard	$	—	$	—	$	260,000	$	260,000	$	—	$	—	$	260,000

Total Construction	$	—	$	—	$	260,000	$	260,000	$	—	$	—	$	260,000

Construction to Permanent
Substandard	$	—	$	—	$	—	$	—	$	1,197,474	$	—	$	1,197,474

Total Construction to Permanent	$	—	$	—	$	—	$	—	$	1,197,474	$	—	$	1,197,474

Residential Real Estate
Substandard	$	—	$	—	$	2,523,233	$	2,523,233	$	378,548	$	—	$	2,901,781

Total Residential Real Estate	$	—	$	—	$	2,523,233	$	2,523,233	$	378,548	$	—	$	2,901,781

Consumer
Substandard	$	—	$	—	$	1,811	$	1,811	$	30,876	$	—	$	32,687

Total Consumer	$	—	$	—	$	1,811	$	1,811	$	30,876	$	—	$	32,687

Total	$	—	$	—	$	4,551,452	$	4,551,452	$	7,756,898	$	865,962	$	13,174,312

The following table sets forth the detail, and delinquency status, of non-accrual loans and past due matured loans at December 31, 2012:


	Non-Accrual and Past Due Loans
	Non-Accrual Loans										>90 Days		Total Non-
2012	31-60 Days Past Due		61-90 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Past Due and Accruing		Accrual and Past Due Loans
Commercial
Pass	$	—	$	—	$	—	$	—	$	—	$	300,000	$	300,000
Substandard		—		—		182,258		182,258		37,251		500,000		719,509

Total Commercial	$	—	$	—	$	182,258	$	182,258	$	37,251	$	800,000	$	1,019,509

Commercial Real Estate
Pass	$	—	$	—	$	—	$	—	$	—	$	566,936	$	566,936
Substandard		—		—		7,629,819		7,629,819		2,100,658		867,361		10,597,838

Total Commercial Real Estate	$	—	$	—	$	7,629,819	$	7,629,819	$	2,100,658	$	1,434,297	$	11,164,774

Construction
Substandard	$	—	$	—	$	1,862,038	$	1,862,038	$	—	$	—	$	1,862,038

Total Construction	$	—	$	—	$	1,862,038	$	1,862,038	$	—	$	—	$	1,862,038

Construction to Permanent
Substandard	$	—	$	—	$	—	$	—	$	1,258,710	$	—	$	1,258,710

Total Construction to Permanent	$	—	$	—	$	—	$	—	$	1,258,710	$	—	$	1,258,710

Residential Real Estate
Substandard	$	—	$	358,123	$	10,231,542	$	10,589,665	$	147,368	$	—	$	10,737,033

Total Residential Real Estate	$	—	$	358,123	$	10,231,542	$	10,589,665	$	147,368	$	—	$	10,737,033

Consumer
Substandard	$	—	$	—	$	—	$	—	$	2,368	$	—	$	2,368

Total Consumer	$	—	$	—	$	—	$	—	$	2,368	$	—	$	2,368

Total	$	—	$	358,123	$	19,905,657	$	20,263,780	$	3,546,355	$	2,234,297	$	26,044,432

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded balance of these nonaccrual loans was $12.3 million and $23.8 million at December 31, 2013, and December 31, 2012 respectively. Generally, loans are placed on non-accruing status when they become 90 days or more delinquent, and remain on non-accrual status until they are brought current, have six months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing status. Additionally, certain loans that cannot demonstrate sufficient global cash flow to continue loan payments in the future and certain troubled debt restructures (TDRs) are placed on non-accrual status.

Loans past due ninety days or more, and still accruing interest, were $866,000 and $2.2 million at December 31, 2013, and December 31, 2012 respectively. Loans over 90 days past due were comprised of two loans as of December 31, 2013. One loan for $841,000 was current and the second loan for $25,000 was current within 60 days as to interest payments, both were past the loan’s maturity date and in the process of being renewed. At December 31, 2012, four of the five loans totaling $1,667,000, were making payments, but past the loan’s maturity date and were in the process of being renewed. The other loan totaling $567,000 was over 90 days past due as to payments and past the loan’s maturity date, but was subsequently paid off.

The following table sets forth the detail and delinquency status of loans receivable, net, by performing and non-performing loans at December 31, 2013.


	Performing (Accruing) Loans
2013	31-60 Days Past Due		61-89 Days Past Due		Total Past Due		Current		Total Loan Balances		Total Non- Accrual and > 90 Days Past Due Loans		Total Loans Receivable
Commercial
Pass	$	725,000	$	—	$	725,000	$	26,640,833	$	27,365,833	$	25,000	$	27,390,833
Special Mention		—		—		—		167,095		167,095		—		167,095
Substandard		—		—		—		1,351,522		1,351,522		6,151,799		7,503,321

Total Commercial	$	725,000	$	—	$	725,000	$	28,159,450	$	28,884,450	$	6,176,799	$	35,061,249

Commercial Real Estate
Pass	$	1,858,402	$	266,250	$	2,124,652	$	204,943,717	$	207,068,369	$	—	$	207,068,369
Special Mention		—		—		—		9,075,293		9,075,293		—		9,075,293
Substandard		—		—		—		4,415,859		4,415,859		2,605,571		7,021,430

Total Commercial Real Estate	$	1,858,402	$	266,250	$	2,124,652	$	218,434,869	$	220,559,521	$	2,605,571	$	223,165,092

Construction
Substandard	$	—	$	—	$	—	$	—	$	—	$	260,000	$	260,000

Total Construction	$	—	$	—	$	—	$	—	$	—	$	260,000	$	260,000

Construction to Permanent
Pass	$	—	$	—	$	—	$	10,105,528	$	10,105,528	$	—	$	10,105,528
Substandard		—		—		—		—		—		1,197,474		1,197,474

Total Construction to Permanent	$	—	$	—	$	—	$	10,105,528	$	10,105,528	$	1,197,474	$	11,303,002

Residential Real Estate
Pass	$	31,951	$	—	$	31,951	$	103,264,543	$	103,296,494	$	—	$	103,296,494
Substandard		—		—		—		—		—		2,901,781		2,901,781

Total Residential Real Estate	$	31,951	$	—	$	31,951	$	103,264,543	$	103,296,494	$	2,901,781	$	106,198,275

Consumer
Pass	$	349,999	$	559,949	$	909,948	$	46,121,037	$	47,030,985	$	—	$	47,030,985
Substandard		6,885		—		6,885		—		6,885		32,687		39,572

Total Consumer	$	356,884	$	559,949	$	916,833	$	46,121,037	$	47,037,870	$	32,687	$	47,070,557

Total	$	2,972,237	$	826,199	$	3,798,436	$	406,085,427	$	409,883,863	$	13,174,312	$	423,058,175

The following table sets forth the detail and delinquency status of loans receivable, net, by performing and non-performing loans at December 31, 2012.


	Performing (Accruing) Loans
2012	31-60 Days Past Due		61-89 Days Past Due		Total Past Due		Current		Total Loan Balances		Total Non- Accrual and > 90 Days Past Due Loans		Total Loans Receivable
Commercial
Pass	$	10,171	$	—	$	10,171	$	26,494,715	$	26,504,886	$	300,000	$	26,804,886
Special Mention		—		—		—		7,399,006		7,399,006		—		7,399,006
Substandard		—		—		—		1,505,350		1,505,350		719,509		2,224,859

Total Commercial	$	10,171	$	—	$	10,171	$	35,399,071	$	35,409,242	$	1,019,509	$	36,428,751

Commercial Real Estate
Pass	$	—	$	—	$	—	$	211,765,042	$	211,765,042	$	566,936	$	212,331,978
Special Mention		—		—		—		16,929,236		16,929,236		—		16,929,236
Substandard		—		—		—		7,636,269		7,636,269		10,597,838		18,234,107

Total Commercial Real Estate	$	—	$	—	$	—	$	236,330,547	$	236,330,547	$	11,164,774	$	247,495,321

Construction
Special Mention	$	—	$	—	$	—	$	3,135,953	$	3,135,953	$	—	$	3,135,953
Substandard		—		—		—		—		—		1,862,038		1,862,038

Total Construction	$	—	$	—	$	—	$	3,135,953	$	3,135,953	$	1,862,038	$	4,997,991

Construction to Permanent
Pass	$	—	$	—	$	—	$	3,593,058	$	3,593,058	$	—	$	3,593,058
Substandard		—		—		—		—		—		1,258,710		1,258,710

Total Construction to Permanent	$	—	$	—	$	—	$	3,593,058	$	3,593,058	$	1,258,710	$	4,851,768

Residential Real Estate
Pass	$	40,838	$	—	$	40,838	$	102,944,976	$	102,985,814	$	—	$	102,985,814
Special Mention		—		—		—		5,310,178		5,310,178		—		5,310,178
Substandard		—		—		—		—		—		10,737,033		10,737,033

Total Residential Real Estate	$	40,838	$	—	$	40,838	$	108,255,154	$	108,295,992	$	10,737,033	$	119,033,025

Consumer
Pass	$	—	$	12,443	$	12,443	$	50,608,110	$	50,620,553	$	—	$	50,620,553
Special Mention		—		—		—		662,705		662,705		—		662,705
Substandard		—		—		—		58,000		58,000		2,368		60,368

Total Consumer	$	—	$	12,443	$	12,443	$	51,328,815	$	51,341,258	$	2,368	$	51,343,626

Total	$	51,009	$	12,443	$	63,452	$	438,042,598	$	438,106,050	$	26,044,432	$	464,150,482

The following table summarizes impaired loans as of December 31, 2013:


	Recorded Investment		Unpaid Principal Balance		Related Allowance
2013
With no related allowance recorded:
Commercial	$	1,799	$	150,969	$	—
Commercial Real Estate		7,596,817		8,316,412		—
Construction		—		—		—
Construction to Permanent		1,197,474		1,425,000
Residential		5,098,392		7,631,751		—
Consumer		590,825		669,584		—

Total:	$	14,485,307	$	18,193,716	$	—
With an allowance recorded:
Commercial	$	6,150,000	$	6,150,000	$	1,500,000
Commercial Real Estate		170,406		215,219		31,097
Construction		260,000		486,625		260,000
Construction to Permanent		—		—		—
Residential		925,874		1,065,974		97,829
Consumer		1,811		2,062		1,811

Total:	$	7,508,091	$	7,919,880	$	1,890,737
Commercial	$	6,151,799	$	6,300,969	$	1,500,000
Commercial Real Estate		7,767,223		8,531,631		31,097
Construction		260,000		486,625		260,000
Construction to Permanent		1,197,474		1,425,000		—
Residential		6,024,266		8,697,725		97,829
Consumer		592,636		671,646		1,811

Total:	$	21,993,398	$	26,113,596	$	1,890,737

Impaired loans consist of non-accrual loans, TDRs and loans that were previously classified as TDRs that have been upgraded.

The following table summarizes impaired loans as of December 31, 2012:


	Recorded Investment		Unpaid Principal Balance		Related Allowance
2012
With no related allowance recorded:
Commercial	$	46,301	$	131,195	$	—
Commercial Real Estate		12,328,103		13,369,985		—
Construction		—		—		—
Construction to Permanent		1,258,710		1,425,000
Residential		10,760,965		12,786,388		—
Consumer		564,175		564,175		—

Total:	$	24,958,254	$	28,276,743	$	—
With an allowance recorded:
Commercial	$	173,208	$	350,000	$	33,280
Commercial Real Estate		3,581,000		3,606,947		728,607
Construction		1,862,038		2,013,663		120,616
Construction to Permanent		—		—		—
Residential		2,806,210		2,806,766		83,543
Consumer		2,368		2,506		2,368

Total:	$	8,424,824	$	8,779,882	$	968,414
Commercial	$	219,509	$	481,195	$	33,280
Commercial Real Estate		15,909,103		16,976,932		728,607
Construction		1,862,038		2,013,663		120,616
Construction to Permanent		1,258,710		1,425,000		—
Residential		13,567,175		15,593,154		83,543
Consumer		566,543		566,681		2,368

Total:	$	33,383,078	$	37,056,625	$	968,414

At December 31, 2013 and 2012, the recorded investment of impaired loans was $22.0 million and $33.4 million, with related allowances of $1.9 million and $1.0 million, respectively.

Included in the tables above at December 31, 2013 and 2012, are loans with carrying balances of $14.5 million and $25.0 million respectively that required no specific reserves in our allowance for loan losses. Loans that did not require specific reserves have sufficient collateral values, less costs to sell, supporting the carrying balances of the loans. In some cases, there may be no specific reserves because the Company already charged-off the specific impairment. Once a borrower is in default, the Company is under no obligation to advance additional funds on unused commitments.

On a case-by-case basis, the Company may agree to modify the contractual terms of a borrower’s loan to remain competitive and assist customers who may be experiencing financial difficulty, as well as preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made, the loan is classified as a troubled debt restructured loan.

The following table presents the total troubled debt restructured loans as of December 31, 2013 which are included in impaired loans:


	Accrual				Non-accrual				Total
	# of Loans		Amount		# of Loans		Amount		# of Loans		Amount
Construction to permanent		1	$	990,913		1	$	1,197,474		2	$	2,188,387

Total Troubled Debt Restructurings		1	$	990,913		1	$	1,197,474		2	$	2,188,387

The following table presents the total troubled debt restructured loans as of December 31, 2012:


	Accrual				Non-accrual				Total
	# of Loans		Amount		# of Loans		Amount		# of Loans		Amount
Commercial Real Estate		—	$	—		2	$	4,255,658		2	$	4,255,658
Residential Real Estate		—		—		3		5,519,232		3		5,519,232
Construction to permanent		—		—		1		1,258,710		1		1,258,710
Commercial		—		—		1		37,251		1		37,251
Consumer home equity		1		564,175		—		—		1		564,175

Total Troubled Debt Restructurings		1	$	564,175		7	$	11,070,851		8	$	11,635,026

The following table summarizes the two loans that were modified in a troubled debt restructuring during the year ended December 31, 2013 and are included in total impaired loans.


	Twelve months ended December 31, 2013
	Number of Relationships		Pre-Modification Outstanding Recorded Investment		Number of Relationships		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Construction to permanent		2	$	4,730,324		1	$	990,913

Total Troubled Debt Restructurings		2	$	4,730,324		1	$	990,913

The following table summarizes the six loans that were modified in a troubled debt restructuring during the year ended December 31, 2012.


	Twelve months ended December 31, 2012
	Number of Relationships		Pre-Modification Outstanding Recorded Investment		Number of Relationships		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential Real Estate		3	$	8,529,624		3	$	5,524,800
Construction to permanent		1		4,905,000		—		—
Commercial		1		37,251		1		37,251
Consumer home equity		1		564,175		1		564,175

Total Troubled Debt Restructurings		6	$	14,036,050		5	$	6,126,226

Substantially all of our troubled debt restructured loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below market rate, an extension of the term of the loan, or a combination of these two methods. These modifications rarely result in the forgiveness of principal or accrued interest. In addition, we frequently obtain additional collateral or guarantor support when modifying commercial loans. If the borrower had demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

During the year ended December 31, 2013, two construction to permanent loans to one borrower in the amount of $3.7 million and $1.0 million were downgraded due to the financial hardship of the borrower. The loan for $3.7 million has since been upgraded as to risk rating. Four troubled debt restructured loans, a commercial loan for $37,000, a residential real estate loan for $4.4 million and two commercial real estate loans aggregating $3.9 million have since paid off. Two troubled debt restructured loans, a home equity installment loan for $563,000 and a residential real estate loan for $347,000 were upgraded due to the improvement in the borrower’s financial condition. One residential real estate loan for $500,000 was charged off, due to the uncertainty of the collectability of the loan.

During the year ended December 31, 2012, four of the troubled debt restructured loans were upgraded and are no longer classified as troubled debt restructurings as compared to December 31, 2011. The upgrades, due to performance, were a commercial construction loan for $1.2 million where the bank received additional collateral, a commercial real estate loan for $234,000 due to increased cash flow generated from the borrower’s business and a residential real estate loan for $2.8 million due to increased liquidity of the borrower. The fourth loan, a construction to permanent troubled debt restructured loan for $4.9 million was restructured into two loans, both of which have been upgraded. One loan was upgraded to pass, due to increased liquidity from additional tenants and is now classified as commercial real estate. The other loan for $1.1 million was upgraded to special mention, due to increased liquidity of the borrower. There was another troubled debt restructuring of a residential loan for $4.7 million that was upgraded to special mention due to increased liquidity of the borrower during the first quarter of 2012, which has since been downgraded to substandard, due to financial hardship of the borrower in the second quarter. Two troubled debt restructurings had a payment default, a commercial real estate loan which became an OREO in the second quarter and has since been sold, and a construction loan that is currently an OREO. There was one troubled debt restructuring of a residential loan for $364,000 due to the discharge from bankruptcy of the borrower. There were two troubled debt restructurings due to forbearance agreements of the borrowers, a commercial loan for $37,000 and a home equity installment loan for $564,000. There was an additional troubled debt restructuring for $500,000 due to foreclosure action of a residential real estate loan. The Bank obtained a judgment lien on another property of the borrower, resulting in additional collateral of $500,000.