The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired and is established when the discounted cash flows or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non - classified loans and is based on historical loss experience adjusted for qualitative factors reflecting current conditions.  An unallocated component is maintained to cover uncertainties that could affect management’ s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. The allowance is subject to change based on the outcome of financial examinations by bank regulators.  A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case -by -case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’ s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan -by-  loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’ s effective interest rate, the loan’ s obtainable market price or the fair value of the collateral if the loan is collateral dependent.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.  In the normal course of business, the Bank modifies loan terms for various reasons. A modified loan is considered a troubled debt restructuring ( TDR) if the Bank, for economic or legal reasons related to a borrower’ s financial difficulties, grants a concession to the debtor that it would not otherwise consider. In evaluating whether a modification constitutes a TDR, the Bank concludes that the borrower is experiencing financial difficulty and the modification constitutes a concession.  When the Bank restructures a loan to a troubled borrower, the loan terms ( i. e., interest rate,  payment, amortization period and /or maturity date) are modified in such a way to enable the borrower to cover the modified payments based on current cash flow adequacy. If a borrower’ s hardship is thought to be temporary, then modified terms are only offered for that time period.  Where possible, the Bank obtains additional collateral and /or secondary payment sources at the time of the restructure in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms.  To date,  the Bank has not forgiven any principal as a restructuring concession.  All loans designated as TDRs are considered impaired loans and may be in either accruing or non -  accruing status. The Bank’ s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. A loan designated as a TDR is no longer reported as a TDR following the modification if the interest rate at the time of modification was consistent with the interest rate for a loan with comparable credit risk and the loan has performed according to its modified terms for at least twelve months.  14