9. NON-PERFORMING ASSETS INCLUDING TROUBLED DEBT RESTRUCTURINGS

Non-performing assets are comprised of (i) loans which are on a non-accrual basis, (ii) loans which are contractually past due 90 days or more as to interest or principal payments, (iii) performing loans classified as TDR and (iv) OREO (real estate acquired through foreclosure, in-substance foreclosures and repossessed assets).

The following table presents information concerning non-performing assets including TDR:


	AT DECEMBER 31,
	2019			2018
	(IN THOUSANDS, EXCEPT
	PERCENTAGES)
Non-accrual loans:
Commercial loans secured by non-owner occupied real estate	$	8		$	11
Real estate – residential mortgage		1,479			1,210
Total		1,487			1,221

Other real estate owned:
Commercial loans secured by owner occupied real estate		—			157
Real estate – residential mortgage		37			—
Total		37			157

TDR’s not in non-accrual		815			—
Total non-performing assets including TDR	$	2,339		$	1,378
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned		0.26	%		0.16	%

The Company had no loans past due 90 days or more for the periods presented which were accruing interest.

Consistent with accounting and regulatory guidance, the Bank recognizes a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Bank’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loan.

To be considered a TDR, both of the following criteria must be met:

the borrower must be experiencing financial difficulties; and

the Bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would not otherwise be considered.

Factors that indicate a borrower is experiencing financial difficulties include, but are not limited to:

the borrower is currently in default on their loan(s);

the borrower has filed for bankruptcy;

the borrower has insufficient cash flows to service their loan(s); or

the borrower is unable to obtain refinancing from other sources at a market rate similar to rates available to a non-troubled debtor.

Factors that indicate that a concession has been granted include, but are not limited to:

the borrower is granted an interest rate reduction to a level below market rates for debt with similar risk; or

the borrower is granted a material maturity date extension, or extension of the amortization plan to provide payment relief. For purposes of this policy, a material maturity date extension will generally include any maturity date extension, or the aggregate of multiple consecutive maturity date extensions, that exceed 120 days. A restructuring that results in an insignificant delay in payment, i.e. 120 days or less, is not necessarily a TDR. Insignificant payment delays occur when the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value, and will result in an insignificant shortfall in the originally scheduled contractual amount due, and/or the delay in timing of the restructured payment period is insignificant relative to the frequency of payments, the original maturity or the original amortization.

The determination of whether a restructured loan is a TDR requires consideration of all of the facts and circumstances surrounding the modification. No single factor is determinative of whether a restructuring is a TDR. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean that the borrower is experiencing financial difficulty. Accordingly, determination of whether a modification is a TDR involves a large degree of judgment.

Any loan modification where the loan currently maintains a criticized or classified risk rating, i.e. Special Mention, Substandard or Doubtful, or where the loan will be assigned a criticized or classified rating after the modification is evaluated to determine the need for TDR classification. The specific ALL reserve for loans modified as TDR’s was $92,000 and $11,000 as of December 31, 2019 and 2018, respectively.

The following table details the loans modified in TDRs during the year ended December 31, 2019 (dollars in thousands).



Loans in accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	2	$	816	Extension of maturity date with a below market interest rate
Loans in non-accrual status
Commercial loan secured by non-owner occupied real estate	1		8	Extension of maturity date

The following table details the loans modified in TDRs during the year ended December 31, 2018 (dollars in thousands).



Loans in non-accrual status	# of Loans	Current Balance		Concession Granted
Commercial loan secured by non-owner occupied real estate	1	$	11	Extension of maturity date

In all instances where loans have been modified in troubled debt restructurings the pre- and post-modified balances are the same.

Once a loan is classified as a TDR, this classification will remain until documented improvement in the financial position of the borrower supports confidence that all principal and interest will be paid according to terms. Additionally, the customer must have re-established a track record of timely payments according to the restructured contract terms for a minimum of six consecutive months prior to consideration for removing the loan from non-accrual TDR status. However, a loan will continue to be on non-accrual status until, consistent with our policy, the borrower has made a minimum of six consecutive payments in accordance with the terms of the loan.

There were no loans that were modified as TDR’s in the previous 12 months and defaulted during the reporting periods ending December 31, 2019, 2018 or 2017, respectively

All TDRs are individually evaluated for impairment and a related allowance is recorded, as needed.

The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above. OREO is recorded at the lower of (1) fair value minus estimated costs to sell or (2) carrying cost.

Foreclosed assets acquired in settlement of loans carried at fair value less estimated costs to sell are included in Other assets on the Consolidated Balance Sheets. As of December 31, 2019, a total of $37,000 of residential real estate foreclosed assets were included in Other assets. As of December 31, 2018, there were no residential real estate foreclosed assets included in Other assets. As of December 31, 2019, the Company had initiated formal foreclosure procedures on $267,000 of consumer residential mortgages.