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Note 4 - Loans Receivable and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2014

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 4 .

Loan Receivables and Allowance for Loan Losses

Loans receivable, net, consists of the following at December 31, 2014 and 2013:

(in thousands)	December 31,			December 31,
	2014			2013
Real Estate
Commercial	$	254,505		$	222,772
Residential		108,543			106,968
Construction		3,096			260
Construction to permanent		10,627			11,372
Commercial		53,973			35,137
Consumer home equity		41,631			44,315
Consumer installment		4,533			3,005
Total Loans		476,908			423,829
Allowance for loan losses		(4,924	)		(5,681	)
Loans receivable, net	$	471,984		$	418,148

A summary of changes in the allowance for loan losses for the years ended December 31, 2014, 2013 and 2012 are as follows:

(in thousands)	2014			2013			2012

Balance, beginning of period	$	5,681		$	6,016		$	9,385
Provision for loan losses		-			970			(2,379	)
Loans charged-off		(867	)		(1,668	)		(1,070	)
Recoveries of loans previously charged-off		110			363			80
Balance, end of period	$	4,924		$	5,681		$	6,016

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 consumer loans. In addition, the Company previously had originated loans on residential real estate. 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 and up to 80% for multi–family real estate. In the case of construction loans, the maximum loan-to-value is 65% of the “as completed” appraised value. The appraised value of collateral is monitored on an ongoing basis and additional collateral is requested 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.

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 decline in general economic conditions. Where the owner occupies the property, the Company also evaluates the business 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 accounts receivable, 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, where obtained, 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 markets for the borrower’s products or services.

Residential Real Estate Loans – Home equity loans secured by real estate properties are offered by the Company. The Company no longer offers residential mortgages, 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 both residential and 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 decline in general economic conditions.

Other/Consumer Loans – The Company also offers installment loans, credit cards, consumer overdraft 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 a high 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 twelve months ended December 31, 2014. 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.

(in thousands)

Twelve months ended December 31, 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		(49	)		(297	)		(260	)		-		(195	)		(66	)		-			(867	)
Recoveries		6			60			10			-		30			4			-			110
Provision		(324	)		71			53			190		201			6			(197	)		-

Ending Balance	$	1,918		$	1,419		$	63		$	215	$	831		$	478		$	-		$	4,924
Ending balance: individually evaluated for impairment	$	-		$	-		$	-		$	-	$	-		$	7		$	-		$	7
Ending balance: collectively evaluated for impairment		1,918			1,419			63			215		831			471			-			4,917

Total Allowance for Loan Losses	$	1,918		$	1,419		$	63		$	215	$	831		$	478		$	-		$	4,924


Total Loans ending balance	$	53,973		$	254,505		$	3,096		$	10,627	$	108,543		$	46,164		$	-		$	476,908

Ending balance: individually evaluated for impairment		2			7,398			-			-		3,764			560			-			11,724

Ending balance: collectively evaluated for impairment	$	53,971		$	247,107		$	3,096		$	10,627	$	104,779		$	45,604		$	-		$	465,184

The following tables set forth activity in our allowance for loan losses, by loan type, for the twelve months ended December 31, 2013. 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.

(in thousands)
Twelve months ended December 31, 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		(63	)		(403	)		(205	)		-		(919	)		(78	)		-		(1,668	)
Recoveries		4			335			20			-		1			3			-		363
Provision		1,402			(1,856	)		134			6		816			392			76		970

Ending Balance	$	2,285		$	1,585		$	260		$	25	$	795		$	534		$	197	$	5,681
Ending balance: individually evaluated for impairment	$	1,500		$	31		$	260		$	-	$	98		$	2		$	-	$	1,891
Ending balance: collectively evaluated for impairment		785			1,554			-			25		697			532			197		3,790

Total Allowance for Loan Losses	$	2,285		$	1,585		$	260		$	25	$	795		$	534		$	197	$	5,681


Total Loans ending balance	$	35,137		$	222,772		$	260		$	11,372	$	106,968		$	47,320		$	-	$	423,829

Ending balance: individually evaluated for impairment		6,152			7,766			260			1,189		6,060			594			-		22,021

Ending balance: collectively evaluated for impairment	$	28,985		$	215,006		$	-		$	10,183	$	100,908		$	46,726		$	-	$	401,808

The Company monitors the credit quality of its loans receivable in an ongoing manner. Credit quality is monitored by reviewing certain credit quality indicators, including loan to value ratios, debt service coverage ratios and credit scores.

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, property taxes, etc.).

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 when 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. Similarly, the Loan Committee can adjust a risk rating. The Company employs a loan officer whose responsibility is to independently review the ratings annually for all commercial credits over $250,000.

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. Any upgrades to classified loans must be approved by the Management 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 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. That amount is recognized as a recovery after 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, 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	$	41,200	$	6,878	$	240,926	$	7,206	$	2,936	$	160	$	10,627	$	-	$	93,238	$	14,586	$	43,820	$	1,627	$	710	$	463,914
Special Mention		121		-		1,945		1,983		-		-		-		-		-		-		-		-		-		4,049
Substandard		5,774		-		2,445		-		-		-		-		-		339		380		7		-		-		8,945
	$	47,095	$	6,878	$	245,316	$	9,189	$	2,936	$	160	$	10,627	$	-	$	93,577	$	14,966	$	43,827	$	1,627	$	710	$	476,908

CREDIT RISK PROFILE

			Commercial				Construction		Residential
*(in thousands)*	Commercial		Real Estate		Construction		to Permanent		Real Estate		Consumer		Totals

Performing	$	53,971	$	254,367	$	3,096	$	10,627	$	107,824	$	46,157	$	476,042
Non Performing		2		138		-		-		719		7		866
Total	$	53,973	$	254,505	$	3,096	$	10,627	$	108,543	$	46,164	$	476,908

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 CREDITWORTHINESS CATEGORY

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	$	23,671	$	3,868	$	198,787	$	7,940	$	-	$	-	$	10,183	$	-	$	83,252	$	20,778	$	42,780	$	3,849	$	650	$	395,758
Special Mention		170		-		6,551		2,496		-		-		-		-		-		-		-		-		-		9,217
Substandard		7,428		-		3,684		3,314		60		200		1,189		-		1,981		957		10		31		-		18,854
	$	31,269	$	3,868	$	209,022	$	13,750	$	60	$	200	$	11,372	$	-	$	85,233	$	21,735	$	42,790	$	3,880	$	650	$	423,829

CREDIT RISK PROFILE

			Commercial				Construction		Residential
*(in thousands)*	Commercial		Real Estate		Construction		to Permanent		Real Estate		Consumer		Totals

Performing	$	28,985	$	221,007	$	-	$	10,183	$	104,030	$	47,287	$	411,492
Non Performing		6,152		1,765		260		1,189		2,938		33		12,337
Total	$	35,137	$	222,772	$	260	$	11,372	$	106,968	$	47,320	$	423,829

Non-accrual and past due loans

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 $866,000 and $12.3 million at December 31, 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. 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 $279,000 and $866,000 at December 31, 2014, and December 31, 2013 respectively. Loans over 90 days past due were comprised of four commercial loans as of December 31, 2014. All four loans were mature lines of credit with acceptable risk ratings awaiting renewal. These loans were past the loan’s maturity date and were current within 60 days as to interest payments. 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.

The following table sets forth the detail, and delinquency status, of non-accrual loans and past due loans at December 31, 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
Pass	$	-	$	-	$	-	$	-	$	-	$	279	$	279
Substandard		-		-		2		2		-		-		2
Total Commercial	$	-	$	-	$	2	$	2	$	-	$	279	$	281
Commercial Real Estate
Substandard	$	-	$	-	$	-	$	-	$	138	$	-	$	138
Total Commercial Real Estate	$	-	$	-	$	-	$	-	$	138	$	-	$	138
Residential Real Estate
Substandard	$	-	$	-	$	719	$	719	$	-	$	-	$	719
Total Residential Real Estate	$	-	$	-	$	719	$	719	$	-	$	-	$	719
Consumer
Substandard	$	-	$	-	$	7	$	7	$	-	$	-	$	7
Total Consumer	$	-	$	-	$	7	$	7	$	-	$	-	$	7

Total	$	-	$	-	$	728	$	728	$	138	$	279	$	1,145

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	$	-	$	-	$	1,765	$	1,765	$	-	$	841	$	2,606
Total Commercial Real Estate	$	-	$	-	$	1,765	$	1,765	$	-	$	841	$	2,606
Construction
Substandard	$	-	$	-	$	260	$	260	$	-	$	-	$	260
Total Construction	$	-	$	-	$	260	$	260	$	-	$	-	$	260
Construction to Permanent
Substandard	$	-	$	-	$	-	$	-	$	1,189	$	-	$	1,189
Total Construction to Permanent	$	-	$	-	$	-	$	-	$	1,189	$	-	$	1,189
Residential Real Estate
Substandard	$	-	$	-	$	2,553	$	2,553	$	385	$	-	$	2,938
Total Residential Real Estate	$	-	$	-	$	2,553	$	2,553	$	385	$	-	$	2,938
Consumer
Substandard	$	-	$	-	$	2	$	2	$	31	$	-	$	33
Total Consumer	$	-	$	-	$	2	$	2	$	31	$	-	$	33

Total	$	-	$	-	$	4,582	$	4,582	$	7,755	$	866	$	13,203

If non-accrual loans as of December 31 of each year had been performing in accordance with their original terms, the Company would have recorded $23,000, $310,000 and $1.2 million of additional income during the years ended December 31, 2014, 2013 and 2012, respectively.

During 2014, 2013 and 2012, interest income collected and recognized on non-accrual loans as of December 31 of each year was approximately $0, $198,000 and $0 respectively.

The following table sets forth the detail and delinquency status of loans receivable, by performing and non-performing loans at December 31, 2014.

(in thousands)	Performing (Accruing) Loans

2014	31-60 Days Past Due		61-90 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Performing Loans		Total Non- Accrual and Past Due Loans		Total Loans
Commercial
Pass	$	1,520	$	-	$	-	$	1,520	$	46,279	$	47,799	$	279	$	48,078
Special Mention		-		-		-		-		121		121		-		121
Substandard		-		-		-		-		5,772		5,772		2		5,774
Total Commercial	$	1,520	$	-	$	-	$	1,520	$	52,172	$	53,692	$	281	$	53,973
Commercial Real Estate
Pass	$	-	$	-	$	-	$	-	$	248,132	$	248,132	$	-	$	248,132
Special Mention		1,041		-		-		1,041		2,887		3,928		-		3,928
Substandard		-		815		-		815		1,492		2,307		138		2,445
Total Commercial Real Estate	$	1,041	$	815	$	-	$	1,856	$	252,511	$	254,367	$	138	$	254,505
Construction
Pass	$	-	$	-	$	-	$	-	$	3,096	$	3,096	$	-	$	3,096
Total Construction	$	-	$	-	$	-	$	-	$	3,096	$	3,096	$	-	$	3,096
Construction to Permanent
Pass	$	-	$	-	$	-	$	-	$	10,627	$	10,627	$	-	$	10,627
Total Construction to Permanent	$	-	$	-	$	-	$	-	$	10,627	$	10,627	$	-	$	10,627
Residential Real Estate
Pass	$	172	$	87	$	1,553	$	1,812	$	106,012	$	107,824	$	-	$	107,824
Substandard		-		-		-		-		-		-		719		719
Total Residential Real Estate	$	172	$	87	$	1,553	$	1,812	$	106,012	$	107,824	$	719	$	108,543
Consumer
Pass	$	-	$	2	$	-	$	2	$	46,155	$	46,157	$	-	$	46,157
Substandard		-		-		-		-		-		-		7		7
Total Consumer	$	-	$	2	$	-	$	2	$	46,155	$	46,157	$	7	$	46,164
Total
Pass	$	1,692	$	89	$	1,553	$	3,334	$	460,301	$	463,635	$	279	$	463,914
Special Mention		1,041		-		-		1,041		3,008		4,049		-		4,049
Substandard		-		815		-		815		7,264		8,079		866		8,945
Grand Total	$	2,733	$	904	$	1,553	$	5,190	$	470,573	$	475,763	$	1,145	$	476,908

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		Greater Than 90 Days		Total Past Due		Current		Total Loan Balances		Total Non-Accrual and Past Due Loans		Total Loans Receivable
Commercial
Pass	$	725	$	-	$	-	$	725	$	26,790	$	27,515	$	25	$	27,540
Special Mention		-		-		-		-		170		170		-		170
Substandard		-		-		-		-		1,275		1,275		6,152		7,427
Total Commercial	$	725	$	-	$	-	$	725	$	28,235	$	28,960	$	6,177	$	35,137
Commercial Real Estate
Pass	$	1,845	$	266	$	-	$	2,111	$	204,615	$	206,726	$	-	$	206,726
Special Mention		-		-		-		-		9,047		9,047		-		9,047
Substandard		-		-		-		-		4,394		4,394		2,605		6,999
Total Commercial Real Estate	$	1,845	$	266	$	-	$	2,111	$	218,056	$	220,167	$	2,605	$	222,772
Construction
Substandard	$	-	$	-	$	-	$	-	$	-	$	-	$	260	$	260
Total Construction	$	-	$	-	$	-	$	-	$	-	$	-	$	260	$	260
Construction to Permanent
Pass	$	-	$	-	$	-	$	-	$	10,183	$	10,183	$	-	$	10,183
Substandard		-		-		-		-		-		-		1,189		1,189
Total Construction to Permanent	$	-	$	-	$	-	$	-	$	10,183	$	10,183	$	1,189	$	11,372
Residential Real Estate
Pass	$	32	$	-	$	-	$	32	$	103,998	$	104,030	$	-	$	104,030
Substandard		-		-		-		-		-		-		2,938		2,938
Total Residential Real Estate	$	32	$	-	$	-	$	32	$	103,998	$	104,030	$	2,938	$	106,968
Consumer
Pass	$	350	$	561	$	-	$	911	$	46,368	$	47,279	$	-	$	47,279
Substandard		7		-		-		7		-		7		34		41
Total Consumer	$	357	$	561	$	-	$	918	$	46,368	$	47,286	$	34	$	47,320
Total
Pass	$	2,952	$	827	$	-	$	3,779	$	391,954	$	395,733	$	25	$	395,758
Special Mention		-		-		-		-		9,217		9,217		-		9,217
Substandard		7		-		-		7		5,669		5,676		13,178		18,854
Grand Total	$	2,959	$	827	$	-	$	3,786	$	406,840	$	410,626	$	13,203	$	423,829

Impaired Loans

Impaired loans consist of non-accrual loans, TDRs, and loans previously classified as TDRs that have been upgraded. The Company’s most recent impairment analysis resulted in identification of $11.7 million of impaired loans, for which specific reserves of $7,000 were required at December 31, 2014, compared to $22.0 million of impaired loans at December 31, 2013, for which specific reserves of $1.9 million were required. The $11.7 million of impaired loans at December 31, 2014 was comprised of exposure to 14 borrowers, compared to the $22.0 million of impaired loans at December 31, 2013 which was comprised of exposure to 22 borrowers. In all cases, the Bank has obtained current appraisal reports from independent licensed appraisal firms and reduced those values for estimated selling expenses to determine estimated impairment. The average recorded investment in impaired loans for the years ending December 31, 2014, 2013 and 2012 were $20.5 million, $30.8 million and $35.0 million respectively.

The following table summarizes impaired loans as of December 31, 2014:

(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance


With no related allowance recorded:
Commercial	$	2	$	104	$	-
Commercial Real Estate		7,398		8,249		-
Construction		-		732		-
Construction to Permanent		-		-		-
Residential		3,764		3,793		-
Consumer		553		633		-
Total:	$	11,717	$	13,511	$	-

With an allowance recorded:
Consumer	$	7	$	7	$	7
Total:	$	7	$	7	$	7

Commercial	$	2	$	104	$	-
Commercial Real Estate		7,398		8,249		-
Construction		-		732		-
Construction to Permanent		-		-		-
Residential		3,764		3,793		-
Consumer		560		640		7
Total:	$	11,724	$	13,518	$	7

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		7,596		8,316		-
Construction to Permanent		1,189		1,417		-
Residential		5,103		7,636		-
Consumer		592		671		-
Total:	$	14,482	$	18,191	$	-

With an allowance recorded:
Commercial	$	6,150	$	6,150	$	1,500
Commercial Real Estate		170		214		31
Construction		260		732		260
Residential		957		1,097		98
Consumer		2		2		2
Total:	$	7,539	$	8,195	$	1,891

Commercial	$	6,152	$	6,301	$	1,500
Commercial Real Estate		7,766		8,530		31
Construction		260		732		260
Construction to Permanent		1,189		1,417		-
Residential		6,060		8,733		98
Consumer		594		673		2
Total:	$	22,021	$	26,386	$	1,891

Included in the tables above at December 31, 2014 and 2013, are loans with carrying balances of $11.7 million and $14.5 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.

Troubled Debt Restructurings

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

At December 31, 2014, there was one loan totaling $1.1 million that was considered a “troubled debt restructuring”, as compared to 2 loans totaling $2.2 million that were considered “troubled debt restructurings” at December 31, 2013, all of which are included in impaired loans. At December 31, 2014, the one loan was accruing. 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, 2014 and 2013, there were no commitments to advance additional funds under troubled debt restructured loans.

The following table presents the total troubled debt restructured loans as of December 31, 2014 which are included in impaired loans:

	Accrual				Non-accrual				Total
(dollars in thousands)	# of				# of				# of
	Loans		Amount		Loans		Amount		Loans		Amount
Commercial Real Estate		1	$	1,131		-	$	-		1	$	1,131
Total Troubled Debt Restructurings		1	$	1,131		-	$	-		1	$	1,131

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

The following table summarizes loans that were modified in troubled debt restructurings during the twelve months ended December 31, 2014

	Twelve months ended December 31, 2014
(dollars in thousands)	Number of Relationships		Pre-Modification Outstanding Recorded Investment		Number of Relationships		Post-Modification Outstanding Recorded Investment
Commercial Real Estate		2	$	2,439		2	$	2,430
Total Troubled Debt Restructurings		2	$	2,439		2	$	2,430

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

	Twelve months ended December 31, 2013
(dollars in thousands)	Number of Relationships		Post-Modification Outstanding Recorded Investment		Number of Relationships		Post-Modification Outstanding Recorded Investment
Construction to permanent		2		4,730		1		991
Total Troubled Debt Restructurings		2	$	4,730		1	$	991

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, 2014, one loan in amount of $1.2 million was restructured again, and another loan in the amount of $1.3 million was upgraded to pass impaired.

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.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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