Loans and Allowance for Loan Losses | Note 5. Loans and Allowance for Loan Losses Loan Portfolio Segments The following describe the risk characteristics relevant to each of the portfolio segments. Each loan category is assigned a risk grade during the origination and closing process based on criteria described later in this section. Commercial and Industrial Commercial and industrial loans (C&I) receive similar underwriting treatment as commercial real estate loans in that the repayment source is analyzed to determine its ability to meet cash flow coverage requirements as set forth by Bank policies. Repayment of the Bank’s C&I loans generally comes from the generation of cash flow as the result of the borrower’s business operations. This business cycle itself brings a certain level of risk to the portfolio. In some instances, these loans may carry a higher degree of risk due to a variety of reasons – illiquid collateral, specialized equipment, highly depreciable assets, uncollectable accounts receivable, revolving balances, or simply being unsecured. As a result of these characteristics, the SBA guarantee on these loans is an important factor in mitigating risk. Construction and Development Construction and development loans are for the purpose of acquisition and development of land to be improved through the construction of commercial buildings. Such loans are usually paid off through the conversion to permanent financing for the long-term benefit of the borrower’s ongoing operations. At the completion of the project, if the loan is converted to permanent financing or if scheduled loan amortization begins, it is then reclassified to the “Owner Occupied Commercial Real Estate” segment. Underwriting of construction and development loans typically includes analysis of not only the borrower’s financial condition and ability to meet the required debt obligations, but also the general market conditions associated with the area and type of project being funded. Owner Occupied Commercial Real Estate Owner occupied commercial real estate loans are extensions of credit secured by owner occupied collateral. Underwriting generally involves intensive analysis of the financial strength of the borrower and guarantor, liquidation value of the subject collateral, the associated unguaranteed exposure, and any available secondary sources of repayment, with the greatest emphasis given to a borrower’s capacity to meet cash flow coverage requirements as set forth by Bank policies. Such repayment of owner-occupied loans is commonly derived from the successful ongoing operations of the business occupying the property. These typically include small businesses and professional practices. Commercial Land Commercial land loans are extensions of credit secured by farmland. Such loans are often for land improvements related to agricultural endeavors that may include construction of new specialized facilities. These loans are usually repaid through the conversion to permanent financing, or if scheduled loan amortization begins, for the long-term benefit of the borrower’s ongoing operations. Underwriting generally involves intensive analysis of the financial strength of the borrower and guarantor, liquidation value of the subject collateral, the associated unguaranteed exposure, and any available secondary sources of repayment, with the greatest emphasis given to a borrower’s capacity to meet cash flow coverage requirements as set forth by Bank policies. Each of the loan types referenced in the sections above is further segmented into verticals in which the Bank chooses to operate - Death Care, Healthcare (medical, dental, ophthalmic), Pharmacy, Investment Advisors, Veterinary, Family Entertainment, Agriculture, Wine & Craft Beverages, Self-Storage and Hotels. Hotels is a new area of emphasis for which there was no loan activity as of June 30, 2015. The Bank chooses to finance businesses operating in these industries because of certain similarities. The similarities range from historical default and loss characteristics to business operations. However, there are differences that create the necessity to underwrite these loans according to varying criteria and guidelines. When underwriting a loan, the Bank considers numerous factors such as cash flow coverage, the credit scores of the guarantors, revenue growth and practice ownership experience and debt service capacity. Minimum guidelines have been set with regard to these various factors and deviations from those guidelines requiring compensating strengths when considering a proposed loan. Loans consist of the following: June 30, December 31, Commercial & Industrial $ 90,213 $ 81,057 Death Care Management 4,274 3,603 Family Entertainment Centers 488 333 Healthcare 12,464 12,319 Independent Pharmacies 37,379 34,079 Registered Investment Advisors 14,312 9,660 Veterinary Industry 21,070 20,902 Wine & Craft Beverage 75 — Other Industries 151 161 Construction & Development 18,282 9,526 Agriculture 7,092 3,910 Death Care Management 484 92 Family Entertainment Centers 122 — Healthcare 7,061 2,957 Independent Pharmacies 483 215 Veterinary Industry 2,698 2,207 Wine & Craft Beverage 159 — Other Industries 183 145 Owner Occupied Commercial Real Estate 124,634 111,620 Agriculture 3,127 259 Death Care Management 19,510 18,879 Family Entertainment Centers 1,294 872 Healthcare 30,343 26,173 Independent Pharmacies 5,179 4,750 Registered Investment Advisors 2,463 2,161 Self Storage 167 — Veterinary Industry 61,225 57,934 Wine & Craft Beverage 1,016 — Other Industries 310 592 Commercial Land 4,264 1,248 Agriculture 4,264 1,248 Total Loans 1 237,393 203,451 Net Deferred Costs 2,491 2,060 Discount on SBA 7(a) Unguaranteed 2 (2,272 ) (1,575 ) Loans, Net of Unearned $ 237,612 $ 203,936 1 Total loans include $21.8 million and $21.3 million of U.S. government guaranteed loans as of June 30, 2015 and December 31, 2014, respectively. 2 The Company measures the carrying value of the retained portion of loans sold at fair value under ASC Subtopic 825-10. The value of these retained loan balances is discounted based on the estimates derived from comparable unguaranteed loan sales. Credit Risk Profile The Bank uses internal loan reviews to assess the performance of individual loans by industry segment. An independent review of the loan portfolio is performed annually by an external firm. The goal of the Bank’s annual review of each borrower’s financial performance is to validate the adequacy of the risk grade assigned. The Bank uses a grading system to rank the quality of each loan. The grade is periodically evaluated and adjusted as performance dictates. Loan grades 1 through 4 are passing grades and grade 5 is special mention. Collectively, grades 6 through 8 represent classified loans in the Bank’s portfolio. The following guidelines govern the assignment of these risk grades: Exceptional Loans (1 Rated): These loans are of the highest quality, with strong, well-documented sources of repayment. Debt service coverage (“DSC”) is over 1.75X based on historical results. Secondary source of repayment is strong, with a loan to value (“LTV”) of 65% or less if secured solely by commercial real estate (“CRE”). Discounted collateral coverage from all sources should exceed 125%. Guarantors have credit scores above 740. Quality Loans (2 Rated): These loans are of good quality, with good, well-documented sources of repayment. DSC is over 1.25X based on historical or pro-forma results. Secondary source of repayment is good, with a LTV of 75% or less if secured solely by CRE. Discounted collateral coverage should exceed 100%. Guarantors have credit scores above 700. Acceptable Loans (3 rated): These loans are of acceptable quality, with acceptable sources of repayment. DSC of over 1.00X based on historical or pro-forma results. Companies that do not meet these credit metrics must be evaluated to determine if they should be graded below this level. Acceptable Loans (4 rated): These loans are considered very weak pass. These loans are riskier than a 3-rated credit, but due to various mitigating factors are not considered a Special Mention or worse. The mitigating factors must clearly be identified to offset further downgrade. Examples of loans that may be put in this category include start-up loans and loans with less than 1:1 cash flow coverage with other sources of repayment. Special mention (5 rated): These loans are considered as emerging problems, with potentially unsatisfactory characteristics. These loans require greater management attention. A loan may be put into this category if the Bank is unable to obtain financial reporting from a company to fully evaluate its position. Substandard (6 rated): Loans graded Substandard are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. They typically have unsatisfactory characteristics causing more than acceptable levels of risk, and have one or more well-defined weaknesses that could jeopardize the repayment of the debt. Doubtful (7 rated): Loans graded Doubtful have inherent weaknesses that make collection or liquidation in full questionable. Loans graded Doubtful must be placed on non-accrual status. Loss (8 rated): Loss rated loans are considered uncollectible and of such little value that their continuance as an active Bank asset is not warranted. The asset should be charged off, even though partial recovery may be possible in the future. The following tables summarize the risk grades of each category: Risk Grades Risk Grade Risk Grades Total 1 June 30, 2015 Commercial & Industrial $ 73,965 $ 3,144 $ 13,104 $ 90,213 Death Care Management 4,170 104 — 4,274 Family Entertainment Centers 488 — — 488 Healthcare 7,355 920 4,189 12,464 Independent Pharmacies 31,554 1,441 4,384 37,379 Registered Investment Advisors 14,312 — — 14,312 Veterinary Industry 16,011 528 4,531 21,070 Wine & Craft Beverage 75 — — 75 Other Industries — 151 — 151 Construction & Development 18,282 — — 18,282 Agriculture 7,092 — — 7,092 Death Care Management 484 — — 484 Family Entertainment Centers 122 — — 122 Healthcare 7,061 — — 7,061 Independent Pharmacies 483 — — 483 Veterinary Industry 2,698 — — 2,698 Wine & Craft Beverage 159 — — 159 Other Industries 183 — — 183 Owner Occupied Commercial Real Estate 99,812 4,679 20,143 124,634 Agriculture 3,127 — — 3,127 Death Care Management 16,812 1,022 1,676 19,510 Family Entertainment Centers 1,294 — — 1,294 Healthcare 26,060 1,725 2,558 30,343 Independent Pharmacies 4,987 192 — 5,179 Registered Investment Advisors 2,463 — — 2,463 Self Storage 167 — — 167 Veterinary Industry 43,586 1,740 15,899 61,225 Wine & Craft Beverage 1,016 — — 1,016 Other Industries 300 — 10 310 Commercial Land 4,264 — — 4,264 Agriculture 4,264 — — 4,264 Total $ 196,323 $ 7,823 $ 33,247 $ 237,393 Risk Grades Risk Grade Risk Grades Total 1 December 31, 2014 Commercial & Industrial $ 63,777 $ 4,546 $ 12,734 $ 81,057 Death Care Management 3,603 — — 3,603 Family Entertainment Centers 333 — — 333 Healthcare 6,995 538 4,786 12,319 Independent Pharmacies 27,673 2,726 3,680 34,079 Registered Investment Advisors 9,660 — — 9,660 Veterinary Industry 15,513 1,121 4,268 20,902 Other Industries — 161 — 161 Construction & Development 9,526 — — 9,526 Agriculture 3,910 — — 3,910 Death Care Management 92 — — 92 Healthcare 2,957 — — 2,957 Independent Pharmacies 215 — — 215 Veterinary Industry 2,207 — — 2,207 Other Industries 145 — — 145 Owner Occupied Commercial Real Estate 87,883 5,219 18,518 111,620 Agriculture 259 — — 259 Death Care Management 16,519 639 1,721 18,879 Family Entertainment Centers 872 — — 872 Healthcare 22,778 938 2,457 26,173 Independent Pharmacies 4,709 41 — 4,750 Registered Investment Advisors 2,161 — — 2,161 Veterinary Industry 40,281 3,601 14,052 57,934 Other Industries 304 — 288 592 Commercial Land 1,248 — — 1,248 Agriculture 1,248 — — 1,248 Total $ 162,434 $ 9,765 $ 31,252 $ 203,451 1 Total loans include $21.8 million of U.S. government guaranteed loans as of June 30, 2015, segregated by risk grade as follows: Risk Grades 1 – 4 = $0, Risk Grade 5 = $378 thousand, Risk Grades 6 – 8 = $21.5 million. As of December 31, 2014 total loans include $21.3 million of U.S. government guaranteed loans, segregated by risk grade as follows: Risk Grades 1 – 4 = $0, Risk Grade 5 = $1.1 million, Risk Grades 6 – 8 = $20.2 million. Past Due Loans Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Also, loans less than 30 days past due and accruing are included within current loans shown below. The following tables show an age analysis of past due loans as of the dates presented. Less Than 30 30-89 Days 30-89 Days Greater Total Not Current Total Loans Loans 90 June 30, 2015 Commercial & Industrial $ 779 $ 1,029 $ 281 $ 5,372 $ 7,461 $ 82,752 $ 90,213 $ — Death Care Management — — — — — 4,274 4,274 — Family Entertainment Centers — — — — — 488 488 — Healthcare — 346 135 1,626 2,107 10,357 12,464 — Independent Pharmacies — 631 140 1,541 2,312 35,067 37,379 — Registered Investment Advisors — — — — — 14,312 14,312 — Veterinary Industry 779 52 6 2,205 3,042 18,028 21,070 — Wine & Craft Beverage — — — — — 75 75 — Other Industries — — — — — 151 151 — Construction & Development — — — — — 18,282 18,282 — Agriculture — — — — — 7,092 7,092 — Death Care Management — — — — — 484 484 — Family Entertainment Centers — — — — — 122 122 — Healthcare — — — — — 7,061 7,061 — Independent Pharmacies — — — — — 483 483 — Veterinary Industry — — — — — 2,698 2,698 — Wine & Craft Beverage — — — — — 159 159 — Other Industries — — — — — 183 183 — Owner Occupied Commercial Real Estate 1,541 4,201 1,355 10,333 17,430 107,204 124,634 — Agriculture — — — — — 3,127 3,127 — Death Care Management — — — 1,677 1,677 17,833 19,510 — Family Entertainment Centers — — — — — 1,294 1,294 — Healthcare 181 — 24 2,224 2,429 27,914 30,343 — Independent Pharmacies — — — — — 5,179 5,179 — Registered Investment Advisors — — — — — 2,463 2,463 — Self Storage — — — — — 167 167 Veterinary Industry 1,360 4,201 1,331 6,432 13,324 47,901 61,225 — Wine & Craft Beverage — — — — — 1,016 1,016 — Other Industries — — — — — 310 310 — Commercial Land — — — — — 4,264 4,264 — Agriculture — — — — — 4,264 4,264 — Total 1 $ 2,320 $ 5,230 $ 1,636 $ 15,705 $ 24,891 $ 212,502 $ 237,393 $ — Less Than 30 30-89 Days 30-89 Days Greater Total Not Current Total Loans Loans 90 December 31, 2014 Commercial & Industrial $ 1,025 $ 1,433 $ 236 $ 5,872 $ 8,566 $ 72,491 $ 81,057 $ — Death Care Management — — — — — 3,603 3,603 — Family Entertainment Centers — — — — — 333 333 — Healthcare — 1,059 232 2,420 3,711 8,608 12,319 — Independent Pharmacies — 98 — 1,224 1,322 32,757 34,079 — Registered Investment Advisors — — — — — 9,660 9,660 — Veterinary Industry 1,025 276 4 2,228 3,533 17,369 20,902 — Other Industries — — — — — 161 161 — Construction & Development — — — — — 9,526 9,526 — Agriculture — — — — — 3,910 3,910 — Death Care Management — — — — — 92 92 — Healthcare — — — — — 2,957 2,957 — Independent Pharmacies — — — — — 215 215 — Veterinary Industry — — — — — 2,207 2,207 — Other Industries — — — — — 145 145 — Owner Occupied Commercial Real Estate 2,464 5,246 2,181 6,914 16,805 94,815 111,620 — Agriculture — — — — — 259 259 — Death Care Management — — — 1,721 1,721 17,158 18,879 — Family Entertainment Centers — — — — — 872 872 — Healthcare — 145 230 2,082 2,457 23,716 26,173 — Independent Pharmacies — — — — — 4,750 4,750 — Registered Investment Advisors — — — — — 2,161 2,161 — Veterinary Industry 2,464 5,101 1,951 2,836 12,352 45,582 57,934 — Other Industries — — — 275 275 317 592 — Commercial Land — — — — — 1,248 1,248 — Agriculture — — — — — 1,248 1,248 — Total 1 $ 3,489 $ 6,679 $ 2,417 $ 12,786 $ 25,371 $ 178,080 $ 203,451 $ — 1 Total loans include $21.8 million of U.S. government guaranteed loans as of June 30, 2015, of which $14.1 million is greater than 90 days past due, $3.5 million is 30-89 days past due and $4.3 million is included in current loans as presented above. As of December 31, 2014, total loans include $21.3 million of U.S. government guaranteed loans, of which $11.7 million is greater than 90 days past due, $3.5 million is 30-89 days past due and $6.1 million is included in current loans as presented above. Nonaccrual Loans Loans that become 90 days delinquent, or in cases where there is evidence that the borrower’s ability to make the required payments is impaired, are placed in nonaccrual status and interest accrual is discontinued. If interest on nonaccrual loans had been accrued in accordance with the original terms, interest income would have increased by approximately $102 thousand and $75 thousand for the three months ended June 30, 2015 and 2014, respectively and for the six months ended June 30, 2015 and 2014 would have increased approximately $261 thousand and $127 thousand, respectively. All nonaccrual loans are included in the held for investment portfolio. Nonaccrual loans as of June 30, 2015 and December 31, 2014 are as follows: June 30, 2015 Loan Guaranteed Unguaranteed Commercial & Industrial $ 6,432 $ 5,931 $ 501 Healthcare 1,761 1,586 175 Independent Pharmacies 1,681 1,456 225 Veterinary Industry 2,990 2,889 101 Owner Occupied Commercial Real Estate 13,229 10,641 2,588 Death Care Management 1,677 1,469 208 Healthcare 2,429 1,918 511 Veterinary Industry 9,123 7,254 1,869 Total $ 19,661 $ 16,572 $ 3,089 December 31, 2014 Loan Guaranteed Unguaranteed Commercial & Industrial $ 7,133 $ 6,620 $ 513 Healthcare 2,652 2,368 284 Independent Pharmacies 1,224 1,139 85 Veterinary Industry 3,257 3,113 144 Owner Occupied Commercial Real Estate 11,559 8,935 2,624 Death Care Management 1,721 1,505 216 Healthcare 2,312 1,919 393 Veterinary Industry 7,251 5,236 2,015 Other Industries 275 275 — Total $ 18,692 $ 15,555 $ 3,137 Allowance for Loan Loss Methodology The methodology and the estimation process for calculating the Allowance for Loan Losses (“ALL”) is described below: Estimated credit losses should meet the criteria for accrual of a loss contingency, i.e., a provision to the allowance for loan losses (“ALL”), set forth in GAAP. The Company’s methodology for determining the ALL is based on the requirements of GAAP, the Interagency Policy Statement on the ALL and other regulatory and accounting pronouncements. The ALL is determined by the sum of three separate components: (i) the impaired loan component, which addresses specific reserves for impaired loans; (ii) the general reserve component, which addresses reserves for pools of homogeneous loans; and (iii) an unallocated reserve component (if any) based on management’s judgment and experience. The loan pools and impaired loans are mutually exclusive; any loan that is impaired is excluded from its homogenous pool for purposes of that pool’s reserve calculation, regardless of the level of impairment. The ALL policy for pooled loans is governed in accordance with banking regulatory guidance for homogenous pools of non-impaired loans that have similar risk characteristics. The Company follows a consistent and structured approach for assessing the need for reserves within each individual loan pool. Loans are considered impaired when, based on current information and events, it is probable that the creditor will be unable to collect all interest and principal payments due according to the originally contracted, or reasonably modified, terms of the loan agreement. The Company has determined that loans that meet the criteria defined below must be reviewed quarterly to determine if they are impaired. • All commercial loans classified substandard or worse. • Any other delinquent loan that is in a nonaccrual status, or any loan that is delinquent more than 89 days and still accruing interest. • Any loan which has been modified such that it meets the definition of a Troubled Debt Restructuring (TDR). Any loan determined to be impaired is subjected to an impairment analysis, which is a calculation of the probable loss on the loan. This portion is the loan’s “impairment,” and is established as a specific reserve against the loan, or charged against the ALL. Individual specific reserve amounts imply probability of loss and may not be carried in the reserve indefinitely. When the amount of the actual loss becomes reasonably quantifiable, the amount of the loss is charged off against the ALL, whether or not all liquidation and recovery efforts have been completed. If the total amount of the individual specific reserve that will eventually be charged off cannot yet be sufficiently quantified, but some portion of the impairment can be viewed as a confirmed loss then the confirmed loss portion should be charged off against the ALL and the individual specific reserve reduced by a corresponding amount. For impaired loans, the reserve amount is calculated on a loan-specific basis. The Company utilizes two methods of analyzing impaired loans not guaranteed by the SBA: • The Fair Market Value of Collateral method utilizes the value at which the collateral could be sold considering the appraised value, appraisal discount rate, prior liens and selling costs. The amount of the reserve is the deficit of the estimated collateral value compared to the loan balance. • The Present Value of Future Cash Flows method takes into account the amount and timing of cash flows and the effective interest rate used to discount the cash flows. The following tables detail activity in the allowance for loan losses by portfolio segment allowance for the periods presented: Three months ended: Construction & Owner Commercial Commercial Total June 30, 2015 Beginning Balance $ 755 $ 2,062 $ 2,063 $ 354 $ 5,234 Charge offs — (42 ) (186 ) — (228 ) Recoveries — 87 40 — 127 Provision 89 239 (264 ) (14 ) 50 Ending Balance $ 844 $ 2,346 $ 1,653 $ 340 $ 5,183 June 30, 2014 Beginning Balance $ 480 $ 1,921 $ 812 $ — $ 3,213 Charge offs — (119 ) (8 ) — (127 ) Recoveries — 5 2 — 7 Provision (180 ) 124 506 25 475 Ending Balance $ 300 $ 1,931 $ 1,312 $ 25 $ 3,568 Six months ended: Construction & Owner Commercial Commercial Total June 30, 2015 Beginning Balance $ 586 $ 2,291 $ 1,369 $ 161 $ 4,407 Charge offs — (121 ) (358 ) — (479 ) Recoveries — 88 40 — 128 Provision 258 88 602 179 1,127 Ending Balance $ 844 $ 2,346 $ 1,653 $ 340 $ 5,183 June 30, 2014 Beginning Balance $ 350 $ 1,511 $ 862 $ — $ 2,723 Charge offs — (119 ) (8 ) — (127 ) Recoveries — 67 6 — 73 Provision (50 ) 472 452 25 899 Ending Balance $ 300 $ 1,931 $ 1,312 $ 25 $ 3,568 The following tables detail the recorded allowance for loan losses and the investment in loans related to each portfolio segment, disaggregated on the basis of impairment evaluation methodology: June 30, 2015 Construction & Owner Commercial Commercial Total Allowance for Loan Losses: Loans individually evaluated for impairment $ — $ 1,092 $ 677 $ — $ 1,769 Loans collectively evaluated for impairment 844 1,254 976 340 3,414 Total allowance for loan losses $ 844 $ 2,346 $ 1,653 $ 340 $ 5,183 Loans receivable 1 Loans individually evaluated for impairment $ — $ 16,694 $ 9,023 $ — $ 25,717 Loans collectively evaluated for impairment 18,282 107,940 81,190 4,264 211,676 Total loans receivable $ 18,282 $ 124,634 $ 90,213 $ 4,264 $ 237,393 December 31, 2014 Construction Owner Commercial Commercial Total Allowance for Loan Losses: Loans individually evaluated for impairment $ — $ 1,051 $ 676 $ — $ 1,727 Loans collectively evaluated for impairment 586 1,240 693 161 2,680 Total allowance for loan losses $ 586 $ 2,291 $ 1,369 $ 161 $ 4,407 Loans Receivable 1 Loans individually evaluated for impairment $ — $ 16,551 $ 10,226 $ — $ 26,777 Loans collectively evaluated for impairment 9,526 95,069 70,831 1,248 176,674 Total loans receivable $ 9,526 $ 111,620 $ 81,057 $ 1,248 $ 203,451 1 Loans receivable includes $21.8 million of U.S. government guaranteed loans as of June 30, 2015, of which $20.3 million are included in loans individually evaluated for impairment and $1.6 million are included in loans collectively evaluated for impairment, as presented above. As of December 31, 2014, loans receivable includes $21.3 million of U.S. government guaranteed loans, of which $19.5 million are included in loans individually evaluated for impairment and $2.0 million are included in loans collectively evaluated for impairment, as presented above. Loans individually evaluated for impairment as of the dates presented are summarized in the following tables. June 30, 2015 Unpaid Guaranteed Unguaranteed Commercial & Industrial $ 9,023 $ 7,434 $ 1,589 Healthcare 3,311 2,746 565 Independent Pharmacies 2,492 1,799 693 Veterinary Industry 3,220 2,889 331 Owner Occupied Commercial Real Estate 16,694 12,837 3,857 Death Care Management 1,677 1,469 208 Healthcare 2,429 1,919 510 Veterinary Industry 12,588 9,449 3,139 Total $ 25,717 $ 20,271 $ 5,446 December 31, 2014 Unpaid Guaranteed Unguaranteed Commercial & Industrial $ 10,226 $ 8,341 $ 1,885 Healthcare 4,217 3,540 677 Independent Pharmacies 2,203 1,492 711 Veterinary Industry 3,806 3,309 497 Owner Occupied Commercial Real Estate 16,551 11,155 5,396 Death Care Management 1,721 1,505 216 Healthcare 2,312 1,919 393 Veterinary Industry 12,243 7,456 4,787 Other Industries 275 275 — Total $ 26,777 $ 19,496 $ 7,281 The following table presents evaluated balances of loans classified as impaired at the dates presented that carried an associated reserve as compared to those with no reserve. The recorded investment includes accrued interest, net deferred loan fees or costs and any non-accreted loan discount. Three months ended June 30, 2015: Unpaid Recorded Total Average Interest Loans with no allowance $ 1,020 $ 1,008 $ — $ 2,852 $ 7 Commercial & Industrial 331 327 — 1,622 5 Healthcare 97 95 — 352 1 Independent Pharmacies 191 190 — 1,150 2 Veterinary Industry 43 42 — 120 2 Owner Occupied Commercial Real Estate 689 681 — 1,230 2 Healthcare 166 164 — 143 — Veterinary Industry 523 517 — 1,087 2 Loans with an allowance 24,697 24,649 1,769 24,533 87 Commercial & Industrial 8,693 8,686 677 8,313 38 Healthcare 3,213 3,215 298 2,968 24 Independent Pharmacies 2,303 2,299 345 2,601 11 Veterinary Industry 3,177 3,172 34 2,744 3 Owner Occupied Commercial Real Estate 16,004 15,963 1,092 16,220 49 Death Care Management 1,677 1,675 11 1,418 — Healthcare 2,263 2,260 78 2,359 — Veterinary Industry 12,064 12,028 1,003 12,443 49 Total $ 25,717 $ 25,657 $ 1,769 $ 27,385 $ 94 Three months ended June 30, 2014: Unpaid Recorded Total Average Interest Loans with no allowance $ 1,051 $ 1,037 $ — $ 6,220 $ 8 Commercial & Industrial 211 208 — 3,690 3 Healthcare 91 89 — 705 1 Veterinary Industry 120 119 — 2,985 2 Owner Occupied Commercial Real Estate 840 829 — 2,530 5 Veterinary Industry 840 829 — 2,530 5 Loans with an allowance 17,397 17,560 436 11,774 101 Commercial & Industrial 6,374 6,462 245 3,444 24 Healthcare 2,148 2,183 8 2,831 — Independent Pharmacies 372 371 137 — 17 Veterinary Industry 3,854 3,908 100 613 7 Construction & Development 1,996 1,997 12 2,952 32 Veterinary Industry 1,996 1,997 12 2,952 32 Owner Occupied Commercial Real Estate 9,027 9,101 179 5,378 45 Healthcare 1,127 1,152 2 1,054 — Veterinary Industry 7,900 7,949 177 4,324 45 Total $ 18,448 $ 18,597 $ 436 $ 17,994 $ 109 Six months ended June 30, 2015: Unpaid Recorded Total Average Interest Loans with no allowance $ 1,020 $ 1,008 $ — $ 2,428 $ 12 Commercial & Industrial 331 327 — 1,000 8 Healthcare 97 95 — 224 1 Independent Pharmacies 191 190 — 618 5 Veterinary Industry 43 42 — 158 2 Owner Occupied Commercial Real Estate 689 681 — 1,428 4 Healthcare 166 164 — 146 — Veterinary Industry 523 517 — 1,282 4 Loans with an allowance 24,697 24,649 1,769 23,686 159 Commercial & Industrial 8,693 8,686 677 8,652 73 Healthcare 3,213 3,215 298 3,310 47 Independent Pharmacies 2,303 2,299 345 2,166 20 Veterinary Industry 3,177 3,172 34 3,176 6 Owner Occupied Commercial Real Estate 16,004 15,963 1,092 15,034 86 Death Care Management 1,677 1,675 11 1,475 — Healthcare 2,263 2,260 78 2,173 — Veterinary Industry 12,064 12,028 1,003 11,386 86 Total $ 25,717 $ 25,657 $ 1,769 $ 26,114 $ 171 December 31, 2014 Unpaid Recorded Total Average Interest Loans with no allowance $ 1,213 $ 1,197 $ — $ 1,998 $ 113 Commercial & Industrial 239 237 — 363 64 Healthcare 3 3 — 88 2 Independent Pharmacies 194 194 — 86 57 Veterinary Industry 42 40 — 189 5 Owner Occupied Commercial Real Estate 974 960 — 1,635 49 Death Care Management — — — 66 — Healthcare 41 41 — 147 — Veterinary Industry 933 919 — 1,422 49 Loans with an allowance 25,564 23,805 1,727 20,076 361 Commercial & Industrial 9,987 9,747 676 6,583 97 Healthcare 4,214 4,202 361 3,333 38 Independent Pharmacies 2,009 2,005 206 621 17 Veterinary Industry 3,764 3,540 109 2,629 42 Owner Occupied Commercial Real Estate 15,577 14,058 1,051 13,493 264 Death Care Management 1,721 1,720 20 414 — Healthcare 2,271 2,268 82 1,967 — Veterinary Industry 11,310 9,796 947 11,036 264 Other Industries 275 274 2 76 — Total $ 26,777 $ 25,002 $ 1,727 $ 22,074 $ 474 Six months ended June 30, 2014: Unpaid Recorded Total Average Interest Loans with no allowance $ 1,051 $ 1,037 $ — $ 3,680 $ 26 Commercial & Industrial 211 208 — 1,919 11 Healthcare 91 89 — 373 1 Veterinary Industry 120 119 — 1,546 10 Owner Occupied Commercial Real Estate 840 829 — 1,761 15 Veterinary Industry 840 829 — 1,761 15 Loans with an allowance 17,397 17,560 436 13,920 183 Commercial & Industrial 6,374 6,462 245 4,403 40 Healthcare 2,148 2,183 8 2,210 — Independent Pharmacies 372 371 137 — 17 Veterinary Industry 3,854 3,908 100 2,193 23 Construction & Development 1,996 1,997 12 1,476 67 Veterinary Industry 1,996 1,997 12 1,476 67 Owner Occupied Commercial Real Estate 9,027 9,101 179 8,041 77 Healthcare 1,127 1,152 2 1,054 — Veterinary Industry 7,900 7,949 177 6,987 77 Total $ 18,448 $ 18,597 $ 436 $ 17,600 $ 209 There were no new TDRs made during the three months ended June 3, 2015. The following table represent the types of TDRs that were made during the periods presented: Three months ended June 30, 2014: Number of Loan Guaranteed Unguaranteed Commercial & Industrial 2 $ 372 $ — $ 372 Independent Pharmacies 2 372 — 372 Extend Amortization 2 372 — 372 Owner Occupied Commercial Real Estate 1 8 — 8 Veterinary Industry 1 8 — 8 Interest Only 1 8 — 8 Total Loans 3 $ 380 $ — $ 380 Six months ended June 30, 2015: Number of Loan Guaranteed Unguaranteed Commercial & Industrial 3 $ 133 $ — $ 133 Healthcare 3 133 — 133 Interest Only 3 133 — 133 Owner Occupied Commercial Real Estate 1 24 — 24 Healthcare 1 24 — 24 Interest Only 1 24 — 24 Total Loans 4 $ 157 $ — $ 157 Six months ended June 30, 2014: Number of Loan Guaranteed Unguaranteed Commercial & Industrial 5 $ 588 $ — $ 588 Independent Pharmacies 2 372 — 372 Extend Amortization 2 372 — 372 Veterinary Industry 3 216 — 216 Payment Deferral 3 216 — 216 Owner Occupied Commercial Real Estate 1 8 — 8 Veterinary Industry 1 8 — 8 Interest Only 1 8 — 8 Total Loans 6 $ 596 $ — $ 596 The following tables represent the recorded investment in TDR loans entered into during the six months ended: June 30, 2015 Number of Pre-modification Investment Post-modification Commercial & Industrial 3 $ 229 $ 133 Healthcare 3 229 133 Interest Only 3 229 133 Owner Occupied Commercial Real Estate 1 41 24 Healthcare 1 41 24 Interest Only 1 41 24 Total Loans 4 $ 270 $ 157 June 30, 2014 Number of Pre-modification Post-modification Commercial & Industrial 5 $ 598 $ 588 Independent Pharmacies 2 379 372 Extend Amortization 2 379 372 Veterinary Industry 3 219 216 Payment Deferral 3 219 216 Owner Occupied Commercial Real Estate 1 8 8 Veterinary Industry 1 8 8 Payment Deferral 1 8 8 Total Loans 6 $ 606 $ 596 Concessions made to improve a loan’s performance have varying degrees of success. The following tables present loans that were modified as TDRs within the twelve months ending June 30, 2015 and 2014, for which there was a payment default during the subsequent months: June 30, 2015 Post-modification Number of Recorded Default (Charge-Off) Owner Occupied Commercial Real Estate 2 $ 1,675 Death Care Management 1 1,675 Payment Deferral 1 1,675 Veterinary Industry 1 — Interest Only 1 — Default (Nonaccrual) Commercial & Industrial 4 272 Healthcare 3 133 Interest Only 3 133 Independent Pharmacies 1 139 Interest Only 1 139 Owner Occupied Commercial Real Estate 1 24 Healthcare 1 24 Interest Only 1 24 No Defaults (paying as restructured) Commercial & Industrial 1 165 Independent Pharmacies 1 165 Extend Amortization 1 165 Total Loans 8 2,136 Total TDRs paying as restructured 1 165 Total TDRs 8 $ 2,136 June 30, 2014 Post-modification Number of Recorded No Defaults (p |