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Note 3 - Loans Receivable and Allowance for Loan Losses | 6 Months Ended
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Jun. 30, 2014
Receivables [Abstract] |
Loans, Notes, Trade and Other Receivables Disclosure [Text Block] | Note 3: Loans Receivable and Allowance for Loan Losses A summary of the Company’s loan portfolio at June 30, 2014 and December 31, 2013 is as follows:
(in thousands) |  | June 30, |  |  | December 31, |
|  | 2014 |  |  | 2013 |
Real Estate |  |  |  |  |  |  |  |
Commercial |  | $ | 219,762 |  |  | $ | 223,165 |
Residential |  |  | 89,517 |  |  |  | 106,198 |
Construction |  |  | - |  |  |  | 260 |
Construction to permanent |  |  | 14,436 |  |  |  | 11,303 |
Commercial |  |  | 37,849 |  |  |  | 35,061 |
Consumer home equity |  |  | 42,384 |  |  |  | 44,081 |
Consumer installment |  |  | 3,397 |  |  |  | 2,990 |
Total Loans |  |  | 407,345 |  |  |  | 423,058 |
Premiums on purchased loans |  |  | 160 |  |  |  | 200 |
Net deferred costs |  |  | 495 |  |  |  | 571 |
Allowance for loan losses |  |  | (5,214 | ) |  |  | (5,681 | )
Loans receivable, net |  | $ | 402,786 |  |  | $ | 418,148 |
The changes in the allowance for loan losses for the periods shown are as follows:
|  | Three months ended |  |  | Six months ended |
|  | June 30, |  |  | June 30, |
(in thousands) |  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
Balance, beginning of period |  | $ | 5,480 |  |  | $ | 5,717 |  |  | $ | 5,681 |  |  | $ | 6,016 |
Provision for loan losses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (30 | )
Loans charged-off |  |  | (285 | ) |  |  | (412 | ) |  |  | (502 | ) |  |  | (717 | )
Recoveries of loans previously charged-off |  |  | 19 |  |  |  | 17 |  |  |  | 35 |  |  |  | 53 |
Balance, end of period |  | $ | 5,214 |  |  | $ | 5,322 |  |  | $ | 5,214 |  |  | $ | 5,322 |
The unpaid principal balances of loans on nonaccrual status and considered impaired were $13.9 million at June 30, 2014 and $12.3 million at December 31, 2013. If non-accrual loans had been performing in accordance with their contractual terms, the Company would have recorded approximately $51,000 of additional income during the quarter ended June 30, 2014 and $373,000 during the quarter ended June 30, 2013. If non-accrual loans had been performing in accordance with their contractual terms, the Company would have recorded approximately $84,000 of additional income for the six months ended June 30, 2014 and $679,000 for the six month ended June 30, 2013. For the three months ended June 30, 2014 and 2013, the interest collected and recognized as income on impaired loans, which includes non-accrual loans, trouble debt restructurings ('TDRs') and loans that were previously classified as TDRs that have been upgraded, was approximately $184,000 and $96,000 respectively. For the six months ended June 30, 2014 and 2013, the interest collected on impaired loans was approximately $419,000 and $220,000 respectively. The average recorded investment in impaired loans for the three and six months ended June 30, 2014 was $22.1 million and $21.7 million respectively. At June 30, 2014, there were 3 loans totaling $3.4 million that were considered "TDRs", as compared to December 31, 2013 when there were 2 loans totaling $2.2 million, all of which were included in impaired loans. At June 30, 2014, 2 of the 3 loans aggregating $2.1 million were accruing loans and 1 loan of $1.3 million was a non-accruing loan. The non-accruing loan was an existing TDR at December 31, 2013 which was restructured again in the quarter ended March 31, 2014. The Company's lending activities are conducted principally in Fairfield and New Haven Counties in Connecticut and Westchester County in New York. The Company originates commercial real estate loans, commercial business loans, and a variety of other consumer loans. In addition, the Company previously had originated loans for residential real estate, the construction of residential homes, residential developments and for land development projects. A moratorium on all 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 substantial portion of the loan portfolio and the recovery of a substantial portion 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 deemed necessary. 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 the borrower default or 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. 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 business assets, 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. Payments on such loans are often dependent upon the successful operation of the underlying business involved. 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 which may take priority over the Company’s claims against assets, death or disability of the borrower or loss of market for the borrower’s products or services. Residential Real Estate Loans – Home equity loans secured by residential real estate properties are offered by the Company. The company no longer offers residential loans, having exited this business in 2013. Repayment of residential real estate loans may be negatively impacted should the borrower have financial difficulties, should there be a significant decline in the value of the property securing the loan or should there be decline in general economic conditions. Construction Loans – Construction loans are short-term loans (generally up to 18 months) secured by land for either residential or commercial development. The loans are generally made for acquisition and improvements. Funds are disbursed as phases of construction are completed. Included in this category are loans to construct single family homes where no contract of sale exists, 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 construction market, by a significant increase in interest rates or by a decline in general economic condition. Other Loans – The Company also offers installments loans and reserve 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. 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 table sets forth activity in our allowance for loan losses, by loan type, for the three months ended June 30, 2014. The following table also details 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.
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Three months ended June 30, 2014 |  | Commercial |  |  | Commercial Real Estate |  |  | Construction |  |  | Construction to Permanent |  |  | Residential |  |  | Consumer |  |  | Unallocated |  |  | Total |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 2,371 |  |  | $ | 1,320 |  |  | $ | 260 |  |  | $ | 34 |  |  | $ | 704 |  |  | $ | 539 |  |  | $ | 252 |  |  | $ | 5,480 |
Charge-offs |  |  | (2 | ) |  |  | - |  |  |  | (260 | ) |  |  | - |  |  |  | (18 | ) |  |  | (5 | ) |  |  |  |  |  |  | (285 | )
Recoveries |  |  | 4 |  |  |  | 15 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 19 |
Provision |  |  | 105 |  |  |  | (210 | ) |  |  | - |  |  |  | 115 |  |  |  | (56 | ) |  |  | 160 |  |  |  | (114 | ) |  |  | - |
Ending Balance |  | $ | 2,478 |  |  | $ | 1,125 |  |  | $ | - |  |  | $ | 149 |  |  | $ | 630 |  |  | $ | 694 |  |  | $ | 138 |  |  | $ | 5,214 |
Ending balance: individually evaluated for impairment |  | $ | 1,750 |  |  | $ | 307 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 5 |  |  | $ | - |  |  | $ | 2,062 |
Ending balance: collectively evaluated for impairment |  |  | 728 |  |  |  | 818 |  |  |  | - |  |  |  | 149 |  |  |  | 630 |  |  |  | 689 |  |  |  | 138 |  |  |  | 3,152 |
Total Allowance for Loan Losses |  | $ | 2,478 |  |  | $ | 1,125 |  |  | $ | - |  |  | $ | 149 |  |  | $ | 630 |  |  | $ | 694 |  |  | $ | 138 |  |  | $ | 5,214 |
Total Loans ending balance |  | $ | 37,849 |  |  | $ | 219,762 |  |  | $ | - |  |  | $ | 14,436 |  |  | $ | 89,517 |  |  | $ | 45,781 |  |  | $ | - |  |  | $ | 407,345 |
Ending balance: individually evaluated for impairment |  | $ | 7,291 |  |  | $ | 11,610 |  |  | $ | - |  |  | $ | - |  |  | $ | 5,115 |  |  | $ | 588 |  |  | $ | - |  |  | $ | 24,604 |
Ending balance: collectively evaluated for impairment |  | $ | 30,558 |  |  | $ | 208,152 |  |  | $ | - |  |  | $ | 14,436 |  |  | $ | 84,402 |  |  | $ | 45,193 |  |  | $ | - |  |  | $ | 382,741 |
The following table sets forth activity in our allowance for loan losses, by loan type, for the six months ended June 30, 2014. The following table also details 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.
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Six months ended June 30, 2014 |  | Commercial |  |  | Commercial Real Estate |  |  | Construction |  |  | Construction to Permanent |  |  | Residential |  |  | Consumer |  |  | Unallocated |  |  | Total |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 2,285 |  |  | $ | 1,585 |  |  | $ | 260 |  |  | $ | 25 |  |  | $ | 795 |  |  | $ | 534 |  |  | $ | 197 |  |  | $ | 5,681 |
Charge-offs |  |  | (11 | ) |  |  | - |  |  |  | (260 | ) |  |  | - |  |  |  | (195 | ) |  |  | (36 | ) |  |  | - |  |  |  | (502 | )
Recoveries |  |  | 4 |  |  |  | 30 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | 35 |
Provision |  |  | 200 |  |  |  | (490 | ) |  |  | - |  |  |  | 124 |  |  |  | 30 |  |  |  | 195 |  |  |  | (59 | ) |  |  | - |
Ending Balance |  | $ | 2,478 |  |  | $ | 1,125 |  |  | $ | - |  |  | $ | 149 |  |  | $ | 630 |  |  | $ | 694 |  |  | $ | 138 |  |  | $ | 5,214 |
Ending balance: individually evaluated for impairment |  | $ | 1,750 |  |  | $ | 307 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 5 |  |  | $ | - |  |  | $ | 2,062 |
Ending balance: collectively evaluated for impairment |  |  | 728 |  |  |  | 818 |  |  |  | - |  |  |  | 149 |  |  |  | 630 |  |  |  | 689 |  |  |  | 138 |  |  |  | 3,152 |
Total Allowance for Loan Losses |  | $ | 2,478 |  |  | $ | 1,125 |  |  | $ | - |  |  | $ | 149 |  |  | $ | 630 |  |  | $ | 694 |  |  | $ | 138 |  |  | $ | 5,214 |
Total Loans ending balance |  | $ | 37,849 |  |  | $ | 219,762 |  |  | $ | - |  |  | $ | 14,436 |  |  | $ | 89,517 |  |  | $ | 45,781 |  |  | $ | - |  |  | $ | 407,345 |
Ending balance: individually evaluated for impairment |  | $ | 7,291 |  |  | $ | 11,610 |  |  | $ | - |  |  | $ | - |  |  | $ | 5,115 |  |  | $ | 588 |  |  | $ | - |  |  | $ | 24,604 |
Ending balance: collectively evaluated for impairment |  | $ | 30,558 |  |  | $ | 208,152 |  |  | $ | - |  |  | $ | 14,436 |  |  | $ | 84,402 |  |  | $ | 45,193 |  |  | $ | - |  |  | $ | 382,741 |
The following table sets forth activity in our allowance for loan losses, by loan type, for the three months ended June 39, 2013. The following table also details 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. (in thousands)
Three months ended June 30, 2013 |  | Commercial |  |  | Commercial Real Estate |  |  | Construction |  |  | Construction to Permanent |  |  | Residential |  |  | Consumer |  |  | Unallocated |  |  | Total |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 1,847 |  |  | $ | 2,492 |  |  | $ | 307 |  |  | $ | 31 |  |  | $ | 746 |  |  | $ | 118 |  |  | $ | 176 |  |  | $ | 5,717 |
Charge-offs |  |  | - |  |  |  | (275 | ) |  |  | (23 | ) |  |  | - |  |  |  | (95 | ) |  |  | (19 | ) |  |  |  |  |  |  | (412 | )
Recoveries |  |  | 1 |  |  |  | 15 |  |  |  | - |  |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | 17 |
Provision |  |  | (126 | ) |  |  | (279 | ) |  |  | (48 | ) |  |  | (7 | ) |  |  | 282 |  |  |  | 145 |  |  |  | 33 |  |  |  | - |
Ending Balance |  | $ | 1,722 |  |  | $ | 1,953 |  |  | $ | 236 |  |  | $ | 24 |  |  | $ | 934 |  |  | $ | 244 |  |  | $ | 209 |  |  | $ | 5,322 |
Ending balance: individually |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  | $ | 1,251 |  |  | $ | 539 |  |  | $ | 236 |  |  | $ | - |  |  | $ | 158 |  |  | $ | 2 |  |  | $ | - |  |  | $ | 2,186 |
Ending balance: collectively |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  |  | 471 |  |  |  | 1,414 |  |  |  | - |  |  |  | 24 |  |  |  | 776 |  |  |  | 242 |  |  |  | 209 |  |  |  | 3,136 |
Total Allowance for Loan Losses |  | $ | 1,722 |  |  | $ | 1,953 |  |  | $ | 236 |  |  | $ | 24 |  |  | $ | 934 |  |  | $ | 244 |  |  | $ | 209 |  |  | $ | 5,322 |
Total Loans ending balance |  | $ | 36,278 |  |  | $ | 236,224 |  |  | $ | 3,471 |  |  | $ | 9,904 |  |  | $ | 117,416 |  |  | $ | 49,090 |  |  | $ | - |  |  | $ | 452,383 |
Ending balance: individually evaluated for impairment |  | $ | 6,349 |  |  | $ | 15,615 |  |  | $ | 3,471 |  |  | $ | 1,228 |  |  | $ | 8,754 |  |  | $ | 600 |  |  | $ | - |  |  | $ | 36,017 |
Ending balance: collectively evaluated for impairment |  | $ | 29,929 |  |  | $ | 220,609 |  |  | $ | - |  |  | $ | 8,676 |  |  | $ | 108,662 |  |  | $ | 48,490 |  |  | $ | - |  |  | $ | 416,366 |
The following table sets forth activity in our allowance for loan losses, by loan type, for the six months ended June 30, 2013. The following table also details 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. (in thousands)
Six months ended June 30, 2013 |  | Commercial |  |  | Commercial Real Estate |  |  | Construction |  |  | Construction to Permanent |  |  | Residential |  |  | Consumer |  |  | Unallocated |  |  | Total |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 942 |  |  | $ | 3,509 |  |  | $ | 311 |  |  | $ | 19 |  |  | $ | 897 |  |  | $ | 217 |  |  | $ | 121 |  |  | $ | 6,016 |
Charge-offs |  |  | - |  |  |  | (290 | ) |  |  | (23 | ) |  |  | - |  |  |  | (385 | ) |  |  | (19 | ) |  |  | - |  |  |  | (717 | )
Recoveries |  |  | 2 |  |  |  | 30 |  |  |  | 20 |  |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | 53 |
Provision |  |  | 778 |  |  |  | (1,296 | ) |  |  | (72 | ) |  |  | 5 |  |  |  | 421 |  |  |  | 46 |  |  |  | 88 |  |  |  | (30 | )
Ending Balance |  | $ | 1,722 |  |  | $ | 1,953 |  |  | $ | 236 |  |  | $ | 24 |  |  | $ | 934 |  |  | $ | 244 |  |  | $ | 209 |  |  | $ | 5,322 |
Ending balance: individually |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  | $ | 1,251 |  |  | $ | 539 |  |  | $ | 236 |  |  | $ | - |  |  | $ | 158 |  |  | $ | 2 |  |  | $ | - |  |  | $ | 2,186 |
Ending balance: collectively |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  |  | 471 |  |  |  | 1,414 |  |  |  | - |  |  |  | 24 |  |  |  | 776 |  |  |  | 242 |  |  |  | 209 |  |  |  | 3,136 |
Total Allowance for Loan Losses |  | $ | 1,722 |  |  | $ | 1,953 |  |  | $ | 236 |  |  | $ | 24 |  |  | $ | 934 |  |  | $ | 244 |  |  | $ | 209 |  |  | $ | 5,322 |
Total Loans ending balance |  | $ | 36,278 |  |  | $ | 236,224 |  |  | $ | 3,471 |  |  | $ | 9,904 |  |  | $ | 117,416 |  |  | $ | 49,090 |  |  | $ | - |  |  | $ | 452,383 |
Ending balance: individually evaluated for impairment |  | $ | 6,349 |  |  | $ | 15,615 |  |  | $ | 3,471 |  |  | $ | 1,228 |  |  | $ | 8,754 |  |  | $ | 600 |  |  | $ | - |  |  | $ | 36,017 |
Ending balance: collectively evaluated for impairment |  | $ | 29,929 |  |  | $ | 220,609 |  |  | $ | - |  |  | $ | 8,676 |  |  | $ | 108,662 |  |  | $ | 48,490 |  |  | $ | - |  |  | $ | 416,366 |
The following table details for the year ended December 31, 2013 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. (in thousands)
2013 |  | Commercial |  |  | Commercial Real Estate |  |  | Construction |  |  | Construction to Permanent |  |  | Residential |  |  | Consumer |  |  | Unallocated |  |  | Total |
Total Loans ending balance |  | $ | 35,061 |  |  | $ | 223,165 |  |  | $ | 260 |  |  | $ | 11,303 |  |  | $ | 106,198 |  |  | $ | 47,071 |  |  | $ | - |  |  | $ | 423,058 |
Ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
individually evaluated for |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
impairment |  |  | 6,152 |  |  |  | 7,767 |  |  |  | 260 |  |  |  | 1,197 |  |  |  | 6,024 |  |  |  | 593 |  |  |  | - |  |  |  | 21,993 |
Ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
collectively evaluated for |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
impairment |  | $ | 28,909 |  |  | $ | 215,398 |  |  | $ | - |  |  | $ | 10,106 |  |  | $ | 100,174 |  |  | $ | 46,478 |  |  | $ | - |  |  | $ | 401,065 |
The Company monitors the credit quality of its loans receivable on an ongoing manner. 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 non-performing loans and Other Real Estate Owned (“OREO”) are updated annually. We update our impairment analysis monthly based on the most recent appraisal as well as other factors (such as senior lien positions, i.e. property taxes). The majority of the Company’s impaired loans have been resolved through courses of action other than through foreclosure. 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. Included in the allowance for loan losses are disposition discount adjustments made to real estate appraisals on collateral dependent impaired loans anticipated to become OREO in the coming quarter. The appraisal adjustments percentage is reviewed quarterly and modified based on an analysis of actual variances between appraised values as of the date prior loans were transferred into OREO and the actual average sales prices of these loans. The difference is the 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. 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 ten-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 as 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.” 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. In lieu of charging off the entire loan balance, loans with collateral may be written down to the value of the collateral less the cost to sell. The following table details the credit risk exposure of loans receivable, by loan type and credit quality indicator at June 30, 2014: CREDIT RISK PROFILE BY CREDIT WORTHINESS CATEGORY
(in thousands) |  | 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 |  | $ | 26,290 |  |  | $ | 3,944 |  |  | $ | 199,352 |  |  | $ | 6,471 |  |  | $ | - |  |  | $ | - |  |  | $ | 12,674 |  |  | $ | 1,762 |  |  | $ | 67,516 |  |  | $ | 19,970 |  |  | $ | 43,547 |  |  | $ | 1,543 |  |  | $ | 659 |  |  | $ | 383,728 |
Special Mention |  |  | 150 |  |  |  | - |  |  |  | 3,926 |  |  |  | 3,096 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7,172 |
Substandard |  |  | 7,465 |  |  |  | - |  |  |  | 3,634 |  |  |  | 3,283 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,549 |  |  |  | 482 |  |  |  | 32 |  |  |  | - |  |  |  | - |  |  |  | 16,445 |
|  | $ | 33,905 |  |  | $ | 3,944 |  |  | $ | 206,912 |  |  | $ | 12,850 |  |  | $ | - |  |  | $ | - |  |  | $ | 12,674 |  |  | $ | 1,762 |  |  | $ | 69,065 |  |  | $ | 20,452 |  |  | $ | 43,579 |  |  | $ | 1,543 |  |  | $ | 659 |  |  | $ | 407,345 |
CREDIT RISK PROFILE
(in thousands) |  |  | Commercial |  |  |  | Commercial Real Estate |  |  |  | Construction |  |  |  | Construction to Permanent |  |  | Residential Real Estate |  |  | Consumer |  |  | Totals |
Performing |  | $ | 30,558 |  |  | $ | 215,205 |  |  | $ | - |  |  | $ | 14,436 |  |  | $ | 87,486 |  |  | $ | 45,749 |  |  | $ | 393,434 |
Non Performing |  |  | 7,291 |  |  |  | 4,557 |  |  |  | - |  |  |  | - |  |  |  | 2,031 |  |  |  | 32 |  |  |  | 13,911 |
Total |  | $ | 37,849 |  |  | $ | 219,762 |  |  | $ | - |  |  | $ | 14,436 |  |  | $ | 89,517 |  |  | $ | 45,781 |  |  | $ | 407,345 |
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
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 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 |  | $ | 23,493 |  |  | $ | 3,898 |  |  | $ | 199,118 |  |  | $ | 7,951 |  |  | $ | - |  |  | $ | - |  |  | $ | 10,106 |  |  | $ | - |  |  | $ | 82,704 |  |  | $ | 20,592 |  |  | $ | 42,542 |  |  | $ | 3,839 |  |  | $ | 650 |  |  | $ | 394,893 |
Special Mention |  |  | 167 |  |  |  | - |  |  |  | 6,573 |  |  |  | 2,502 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 9,242 |
Substandard |  |  | 7,503 |  |  |  | - |  |  |  | 3,690 |  |  |  | 3,331 |  |  |  | 60 |  |  |  | 200 |  |  |  | 1,197 |  |  |  | - |  |  |  | 1,976 |  |  |  | 926 |  |  |  | 9 |  |  |  | 31 |  |  |  | - |  |  |  | 18,923 |
|  | $ | 31,163 |  |  | $ | 3,898 |  |  | $ | 209,381 |  |  | $ | 13,784 |  |  | $ | 60 |  |  | $ | 200 |  |  | $ | 11,303 |  |  | $ | - |  |  | $ | 84,680 |  |  | $ | 21,518 |  |  | $ | 42,551 |  |  | $ | 3,870 |  |  | $ | 650 |  |  | $ | 423,058 |
CREDIT RISK PROFILE
(in thousands) |  |  | Commercial |  |  |  | Commercial Real Estate |  |  |  | Construction |  |  |  | Construction to Permanent |  |  | Residential Real Estate |  |  | Consumer |  |  | Totals |
Performing |  | $ | 28,909 |  |  | $ | 221,401 |  |  | $ | - |  |  | $ | 10,106 |  |  | $ | 103,296 |  |  | $ | 47,038 |  |  | $ | 410,750 |
Non Performing |  |  | 6,152 |  |  |  | 1,764 |  |  |  | 260 |  |  |  | 1,197 |  |  |  | 2,902 |  |  |  | 33 |  |  |  | 12,308 |
Total |  | $ | 35,061 |  |  | $ | 223,165 |  |  | $ | 260 |  |  | $ | 11,303 |  |  | $ | 106,198 |  |  | $ | 47,071 |  |  | $ | 423,058 |
The following table sets forth the detail, and delinquency status, of non-accrual loans and past due loans at June 30, 2014:
|  | Non-Accrual and Past Due Loans |
(in thousands) |  | Non-Accrual Loans |  |  |  |  |  |  |  |
2014 |  | 31-60 Days Past Due |  |  | 61-90 Days Past Due |  |  | Greater Than 90 Days |  |  | Total Past Due |  |  | Current |  |  | >90 Days Past Due and Accruing |  |  | Total Non-Accrual and Past Due Loans |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  | $ | 1,300 |  |  | $ | 3 |  |  | $ | 5 |  |  | $ | 1,308 |  |  | $ | 5,983 |  |  | $ | - |  |  | $ | 7,291 |
Total Commercial |  | $ | 1,300 |  |  | $ | 3 |  |  | $ | 5 |  |  | $ | 1,308 |  |  | $ | 5,983 |  |  | $ | - |  |  | $ | 7,291 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  | $ | - |  |  | $ | - |  |  | $ | 313 |  |  | $ | 313 |  |  | $ | 4,244 |  |  | $ | - |  |  | $ | 4,557 |
Total Commercial Real Estate |  | $ | - |  |  | $ | - |  |  | $ | 313 |  |  | $ | 313 |  |  | $ | 4,244 |  |  | $ | - |  |  | $ | 4,557 |
Residential Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  | $ | - |  |  | $ | - |  |  | $ | 2,031 |  |  | $ | 2,031 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,031 |
Total Residential Real Estate |  | $ | - |  |  | $ | - |  |  | $ | 2,031 |  |  | $ | 2,031 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,031 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  | $ | - |  |  | $ | - |  |  | $ | 5 |  |  | $ | 5 |  |  | $ | 27 |  |  | $ | - |  |  | $ | 32 |
Total Consumer |  | $ | - |  |  | $ | - |  |  | $ | 5 |  |  | $ | 5 |  |  | $ | 27 |  |  | $ | - |  |  | $ | 32 |
Total |  | $ | 1,300 |  |  | $ | 3 |  |  | $ | 2,354 |  |  | $ | 3,657 |  |  | $ | 10,254 |  |  | $ | - |  |  | $ | 13,911 |
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 non-accrual loans was $13.9 million and $12.3 million at June 30, 2014, and December 31, 2013 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. At June 30, 2014, $10.3 million or 74% of the non-accruing loan balance of $13.9 million was current. There were no loans past due ninety days or more, and still accruing interest at June 30, 2014. There were two such loans at December 31, 2013, totaling $866,000. One loan had a balance of $841,000 and 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 at December 31, 2013. The following table sets forth the detail, and delinquency status, of non-accrual loans and past due loans at December 31, 2013:
|  | Non-Accrual and Past Due Loans |
(in thousands) |  | Non-Accrual Loans |  |  |  |  |  |  |  |  |
2013 |  | 31-60 Days Past Due |  |  | 61-90 Days Past Due |  |  | Greater Than 90 Days |  |  | Total Past Due |  |  | Current |  |  | >90 Days Past Due and Accruing |  |  | Total Non-Accrual and Past Due Loans |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 25 |  |  | $ | 25 |
Substandard |  | $ | - |  |  | $ | - |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 6,150 |  |  | $ | - |  |  | $ | 6,152 |
Total Commercial |  | $ | - |  |  | $ | - |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 6,150 |  |  | $ | 25 |  |  | $ | 6,177 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  | $ | - |  |  | $ | - |  |  | $ | 1,764 |  |  | $ | 1,764 |  |  | $ | - |  |  | $ | 841 |  |  | $ | 2,605 |
Total Commercial Real Estate |  | $ | - |  |  | $ | - |  |  | $ | 1,764 |  |  | $ | 1,764 |  |  | $ | - |  |  | $ | 841 |  |  | $ | 2,605 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  | $ | - |  |  | $ | - |  |  | $ | 260 |  |  | $ | 260 |  |  | $ | - |  |  | $ | - |  |  | $ | 260 |
Total Construction |  | $ | - |  |  | $ | - |  |  | $ | 260 |  |  | $ | 260 |  |  | $ | - |  |  | $ | - |  |  | $ | 260 |
Construction to Permanent |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 1,197 |  |  | $ | - |  |  | $ | 1,197 |
Total Construction to Permanent |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 1,197 |  |  | $ | - |  |  | $ | 1,197 |
Residential Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  | $ | - |  |  | $ | - |  |  | $ | 2,523 |  |  | $ | 2,523 |  |  | $ | 379 |  |  | $ | - |  |  | $ | 2,902 |
Total Residential Real Estate |  | $ | - |  |  | $ | - |  |  | $ | 2,523 |  |  | $ | 2,523 |  |  | $ | 379 |  |  | $ | - |  |  | $ | 2,902 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  | $ | - |  |  | $ | - |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 31 |  |  | $ | - |  |  | $ | 33 |
Total Consumer |  | $ | - |  |  | $ | - |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 31 |  |  | $ | - |  |  | $ | 33 |
Total |  | $ | - |  |  | $ | - |  |  | $ | 4,551 |  |  | $ | 4,551 |  |  | $ | 7,757 |  |  | $ | 866 |  |  | $ | 13,174 |
The following table sets forth the detail and delinquency status of loans receivable, by performing and non-performing loans at June 30, 2014.
(in thousands) |  | Performing (Accruing) Loans |  |  |  |  |  |  |  |  |
2014 |  | 31-60 Days Past Due |  |  | 61-90 Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Total Performing Loans |  |  | Total Non-Accrual and Past Due Loans |  |  | Total Loans |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 1,002 |  |  | $ | - |  |  | $ | 1,002 |  |  | $ | 29,231 |  |  | $ | 30,233 |  |  | $ | - |  |  | $ | 30,233 |
Special Mention |  |  | - |  |  |  | 15 |  |  |  | 15 |  |  |  | 135 |  |  |  | 150 |  |  |  | - |  |  |  | 150 |
Substandard |  |  | - |  |  |  | 25 |  |  |  | 25 |  |  |  | 150 |  |  |  | 175 |  |  |  | 7,291 |  |  |  | 7,466 |
Total Commercial |  | $ | 1,002 |  |  | $ | 40 |  |  | $ | 1,042 |  |  | $ | 29,516 |  |  | $ | 30,558 |  |  | $ | 7,291 |  |  | $ | 37,849 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 205,823 |  |  | $ | 205,823 |  |  | $ | - |  |  | $ | 205,823 |
Special Mention |  |  | 1,816 |  |  |  | - |  |  |  | 1,816 |  |  |  | 5,206 |  |  |  | 7,022 |  |  |  | - |  |  |  | 7,022 |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,360 |  |  |  | 2,360 |  |  |  | 4,557 |  |  |  | 6,917 |
Total Commercial Real Estate |  | $ | 1,816 |  |  | $ | - |  |  | $ | 1,816 |  |  | $ | 213,389 |  |  | $ | 215,205 |  |  | $ | 4,557 |  |  | $ | 219,762 |
Construction to Permanent |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 14,436 |  |  | $ | 14,436 |  |  | $ | - |  |  | $ | 14,436 |
Total Construction to Permanent |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 14,436 |  |  | $ | 14,436 |  |  | $ | - |  |  | $ | 14,436 |
Residential Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 155 |  |  | $ | - |  |  | $ | 155 |  |  | $ | 87,331 |  |  | $ | 87,486 |  |  | $ | - |  |  | $ | 87,486 |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,031 |  |  |  | 2,031 |
Total Residential Real Estate |  | $ | 155 |  |  | $ | - |  |  | $ | 155 |  |  | $ | 87,331 |  |  | $ | 87,486 |  |  | $ | 2,031 |  |  | $ | 89,517 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 11 |  |  | $ | 100 |  |  | $ | 111 |  |  | $ | 45,638 |  |  | $ | 45,749 |  |  | $ | - |  |  | $ | 45,749 |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 32 |  |  |  | 32 |
Total Consumer |  | $ | 11 |  |  | $ | 100 |  |  | $ | 111 |  |  | $ | 45,638 |  |  | $ | 45,749 |  |  | $ | 32 |  |  | $ | 45,781 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 1,168 |  |  | $ | 100 |  |  | $ | 1,268 |  |  | $ | 382,459 |  |  | $ | 383,727 |  |  | $ | - |  |  | $ | 383,727 |
Special Mention |  |  | 1,816 |  |  |  | 15 |  |  |  | 1,831 |  |  |  | 5,341 |  |  |  | 7,172 |  |  |  | - |  |  |  | 7,172 |
Substandard |  |  | - |  |  |  | 25 |  |  |  | 25 |  |  |  | 2,510 |  |  |  | 2,535 |  |  |  | 13,911 |  |  |  | 16,446 |
Grand Total |  | $ | 2,984 |  |  | $ | 140 |  |  | $ | 3,124 |  |  | $ | 390,310 |  |  | $ | 393,434 |  |  | $ | 13,911 |  |  | $ | 407,345 |
The following table sets forth the detail and delinquency status of loans receivable by performing and non-performing loans at December 31, 2013.
(in thousands) |  | 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 Past Due Loans |  |  | Total Loans Receivable |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 725 |  |  | $ | - |  |  | $ | 725 |  |  | $ | 26,641 |  |  | $ | 27,366 |  |  | $ | 25 |  |  | $ | 27,391 |
Special Mention |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 167 |  |  |  | 167 |  |  |  | - |  |  |  | 167 |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,351 |  |  |  | 1,351 |  |  |  | 6,152 |  |  |  | 7,503 |
Total Commercial |  | $ | 725 |  |  | $ | - |  |  | $ | 725 |  |  | $ | 28,159 |  |  | $ | 28,884 |  |  | $ | 6,177 |  |  | $ | 35,061 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 1,858 |  |  | $ | 266 |  |  | $ | 2,124 |  |  | $ | 204,944 |  |  | $ | 207,068 |  |  | $ | - |  |  | $ | 207,068 |
Special Mention |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 9,075 |  |  |  | 9,075 |  |  |  | - |  |  |  | 9,075 |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,417 |  |  |  | 4,417 |  |  |  | 2,605 |  |  |  | 7,022 |
Total Commercial Real Estate |  | $ | 1,858 |  |  | $ | 266 |  |  | $ | 2,124 |  |  | $ | 218,436 |  |  | $ | 220,560 |  |  | $ | 2,605 |  |  | $ | 223,165 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 260 |  |  |  | 260 |
Total Construction |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 260 |  |  | $ | 260 |
Construction to Permanent |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 10,106 |  |  | $ | 10,106 |  |  | $ | - |  |  | $ | 10,106 |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,197 |  |  |  | 1,197 |
Total Construction to Permanent |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 10,106 |  |  | $ | 10,106 |  |  | $ | 1,197 |  |  | $ | 11,303 |
Residential Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 32 |  |  | $ | - |  |  | $ | 32 |  |  | $ | 103,264 |  |  | $ | 103,296 |  |  | $ | - |  |  | $ | 103,296 |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,902 |  |  |  | 2,902 |
Total Residential Real Estate |  | $ | 32 |  |  | $ | - |  |  | $ | 32 |  |  | $ | 103,264 |  |  | $ | 103,296 |  |  | $ | 2,902 |  |  | $ | 106,198 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 350 |  |  | $ | 560 |  |  | $ | 910 |  |  | $ | 46,121 |  |  | $ | 47,031 |  |  | $ | - |  |  | $ | 47,031 |
Substandard |  |  | 7 |  |  |  | - |  |  |  | 7 |  |  |  | - |  |  |  | 7 |  |  |  | 33 |  |  |  | 40 |
Total Consumer |  | $ | 357 |  |  | $ | 560 |  |  | $ | 917 |  |  | $ | 46,121 |  |  | $ | 47,038 |  |  | $ | 33 |  |  | $ | 47,071 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 2,965 |  |  | $ | 826 |  |  | $ | 3,791 |  |  | $ | 391,076 |  |  | $ | 394,867 |  |  | $ | 25 |  |  | $ | 394,892 |
Special Mention |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 9,242 |  |  |  | 9,242 |  |  |  | - |  |  |  | 9,242 |
Substandard |  |  | 7 |  |  |  | - |  |  |  | 7 |  |  |  | 5,768 |  |  |  | 5,775 |  |  |  | 13,149 |  |  |  | 18,924 |
Grand Total |  | $ | 2,972 |  |  | $ | 826 |  |  | $ | 3,798 |  |  | $ | 406,086 |  |  | $ | 409,884 |  |  | $ | 13,174 |  |  | $ | 423,058 |
The following table summarizes impaired loans as of June 30, 2014:
(in thousands) |  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 1,308 |  |  | $ | 1,374 |  |  | $ | - |
Commercial Real Estate |  |  | 8,640 |  |  |  | 9,467 |  |  |  | - |
Construction |  |  | - |  |  |  | 510 |  |  |  | - |
Construction to Permanent |  |  | - |  |  |  | - |  |  |  | - |
Residential |  |  | 4,746 |  |  |  | 7,316 |  |  |  | - |
Consumer |  |  | 583 |  |  |  | 662 |  |  |  | - |
Total: |  | $ | 15,277 |  |  | $ | 19,329 |  |  | $ | - |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 5,983 |  |  | $ | 5,983 |  |  | $ | 1,750 |
Commercial Real Estate |  |  | 2,970 |  |  |  | 3,013 |  |  |  | 307 |
Construction |  |  | - |  |  |  | - |  |  |  | - |
Construction to Permanent |  |  | - |  |  |  | - |  |  |  | - |
Residential |  |  | 369 |  |  |  | 397 |  |  |  | - |
Consumer |  |  | 5 |  |  |  | 5 |  |  |  | 5 |
Total: |  | $ | 9,327 |  |  | $ | 9,398 |  |  | $ | 2,062 |
Commercial |  | $ | 7,291 |  |  | $ | 7,357 |  |  | $ | 1,750 |
Commercial Real Estate |  |  | 11,610 |  |  |  | 12,480 |  |  |  | 307 |
Construction |  |  | - |  |  |  | 510 |  |  |  | - |
Construction to Permanent |  |  | - |  |  |  | - |  |  |  | - |
Residential |  |  | 5,115 |  |  |  | 7,713 |  |  |  | - |
Consumer |  |  | 588 |  |  |  | 667 |  |  |  | 5 |
Total: |  | $ | 24,604 |  |  | $ | 28,727 |  |  | $ | 2,062 |
Impaired loans consist of non-accrual loans, TDRs and loans that were previously classified as TDRs that have been upgraded from non-accrual. The following table summarizes impaired loans as of December 31, 2013:
(in thousands) |  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 2 |  |  | $ | 151 |  |  | $ | - |
Commercial Real Estate |  |  | 7,597 |  |  |  | 8,316 |  |  |  | - |
Construction |  |  | - |  |  |  | - |  |  |  | - |
Construction to Permanent |  |  | 1,197 |  |  |  | 1,425 |  |  |  | - |
Residential |  |  | 5,098 |  |  |  | 7,632 |  |  |  | - |
Consumer |  |  | 591 |  |  |  | 670 |  |  |  | - |
Total: |  | $ | 14,485 |  |  | $ | 18,194 |  |  | $ | - |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 6,150 |  |  | $ | 6,150 |  |  | $ | 1,500 |
Commercial Real Estate |  |  | 170 |  |  |  | 215 |  |  |  | 31 |
Construction |  |  | 260 |  |  |  | 487 |  |  |  | 260 |
Construction to Permanent |  |  | - |  |  |  | - |  |  |  | - |
Residential |  |  | 926 |  |  |  | 1,066 |  |  |  | 98 |
Consumer |  |  | 2 |  |  |  | 2 |  |  |  | 2 |
Total: |  | $ | 7,508 |  |  | $ | 7,920 |  |  | $ | 1,891 |
Commercial |  | $ | 6,152 |  |  | $ | 6,301 |  |  | $ | 1,500 |
Commercial Real Estate |  |  | 7,767 |  |  |  | 8,531 |  |  |  | 31 |
Construction |  |  | 260 |  |  |  | 487 |  |  |  | 260 |
Construction to Permanent |  |  | 1,197 |  |  |  | 1,425 |  |  |  | - |
Residential |  |  | 6,024 |  |  |  | 8,698 |  |  |  | 98 |
Consumer |  |  | 593 |  |  |  | 672 |  |  |  | 2 |
Total: |  | $ | 21,993 |  |  | $ | 26,114 |  |  | $ | 1,891 |
The recorded investment of impaired loans at June 30, 2014 and December 31, 2013 was $24.6 million and $22.0 million, with related allowances of $2.1 million and $1.9 million, respectively. Included in the tables above at June 30, 2014 and December 31, 2013 are loans with carrying balances of $15.2 million and $14.5 million 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 to 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 June 30, 2014:
|  | Accrual |  |  | Non-accrual |  |  | Total |
(Dollars in thousands) |  | # of |  |  |  |  |  |  | # of |  |  |  |  |  |  | # of |  |  |  |  |
|  | Loans |  |  | Amount |  |  | Loans |  |  | Amount |  |  | Loans |  |  | Amount |
Commercial Real Estate |  |  | 2 |  |  | $ | 2,109 |  |  |  | 1 |  |  | $ | 1,274 |  |  |  | 3 |  |  | $ | 3,383 |
Total Troubled Debt Restructurings |  |  | 2 |  |  | $ | 2,109 |  |  |  | 1 |  |  | $ | 1,274 |  |  |  | 3 |  |  | $ | 3,383 |
The following table presents the total troubled debt restructured loans as of December 31, 2013:
|  | Accrual |  |  | Non-accrual |  |  | Total |
(Dollars in thousands) |  | # of |  |  |  |  |  |  | # of |  |  |  |  |  |  | # of |  |  |  |  |
|  | Loans |  |  | Amount |  |  | Loans |  |  | Amount |  |  | Loans |  |  | Amount |
Commercial Real Estate |  |  | 1 |  |  | $ | 991 |  |  |  | - |  |  | $ | - |  |  |  | 1 |  |  | $ | 991 |
Construction to Permanent |  |  | - |  |  |  | - |  |  |  | 1 |  |  |  | 1,197 |  |  |  | 1 |  |  |  | 1,197 |
Total Troubled Debt Restructurings |  |  | 1 |  |  | $ | 991 |  |  |  | 1 |  |  | $ | 1,197 |  |  |  | 2 |  |  | $ | 2,188 |
No loans were modified in a troubled debt restructuring during the three months ended June 30, 2014. The following table summarizes loans that were modified in a troubled debt restructuring during the six months ended June 30, 2014.
|  | Six months ended June 30, 2014 |
|  |  |  |  |  | Pre-Modification |  |  |  |  |  |  | Post-Modification |
|  | Number of |  |  | Outstanding Recorded |  |  | Number of |  |  | Outstanding Recorded |
(Dollars in thousands) |  | Relationships |  |  | Investment |  |  | Relationships |  |  | Investment |
Commercial Real Estate |  |  | 2 |  |  | $ | 2,439 |  |  |  | 2 |  |  | $ | 2,430 |
Total Troubled Debt Restructurings |  |  | 2 |  |  | $ | 2,439 |  |  |  | 2 |  |  | $ | 2,430 |
Substantially all of our troubled debt restructured loan modifications involve lowering the monthly payments on such loans through either a reduction in interest 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. All troubled debt restructurings are impaired loans, which are individually evaluated for impairment.

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