LOANS

12 Months Ended

Dec. 31, 2012

LoansAbstract

LOANS

3. LOANS

Major classifications of loans are as follows:

	DECEMBER 31,
	2012			2011
Commercial loans	$	54,664,286		$	55,565,525
Commercial Real Estate:
Commercial real estate construction		2,276,532			3,564,327
Commercial real estate other		108,575,415			106,408,621
Consumer:
Consumer real estate		46,703,454			43,185,861
Consumer other		4,908,937			4,984,778
		217,128,624			213,709,112
Allowance for loan losses		(3,432,844	)		(3,106,884	)
Loans, net	$	213,695,780		$	210,602,228

Changes in the Allowance for Loan Losses are summarized as follows:

	YEARS ENDED DECEMBER 31,
	2012			2011			2010
Balance at beginning of year	$	3,106,884		$	2,938,588		$	3,026,997
Provision for loan losses		350,000			480,000			670,000
Charge offs		(172,288	)		(383,714	)		(778,820	)
Recoveries		148,248			72,010			20,411
Balance at end of year	$	3,432,844		$	3,106,884		$	2,938,588

The Bank had impaired loans totaling $11,498,279 as of December 31, 2012 compared to $7,417,892 at December 31, 2011. The impaired loans include non-accrual loans with balances at December 31, 2012 and 2011 of $3,993,816 and $923,671, respectively. The Bank had five restructured loans (“TDR”) at December 31, 2012, and two restructured loans at December 31, 2011. According to GAAP, the Company is required to account for certain loan modifications or restructuring as a troubled debt restructuring (“TDR”). In general, the modification or restructuring of a debt is considered a TDR if the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. At December 31, 2012 and 2011 troubled debt restructurings had an aggregate balance of $1,618,278 and $491,153, respectively.

There were no loans over 90 days past due and still accruing interest at December 31, 2012. There was one loan at December 31, 2011, that was over 90 days past due and still accruing interest.

The accrual of interest is generally discontinued on loans, which become 90 days past due as to principal or interest. The accrual of interest on some loans, however, may continue even though they are 90 days past due if the loans are well secured, in the process of collection, and management deems it appropriate. Non-accrual loans are reviewed individually by management to determine if they should be returned to accrual status.

The following is a summary of the non-accrual loans as of December 31, 2012 and December 31, 2011.

Loans Receivable on Non-Accrual
December 31, 2012
Commercial	$	4,085
Commercial Real Estate:
Commercial Real Estate - Construction		—
Commercial Real Estate - Other		3,921,750
Consumer:
Consumer - Real Estate		67,981
Consumer - Other		—
Total	$	3,993,816

Loans Receivable on Non-Accrual
December 31, 2011
Commercial	$	4,018
Commercial Real Estate:
Commercial Real Estate - Construction		—
Commercial Real Estate - Other		851,672
Consumer:		—
Consumer - Real Estate		67,981
Consumer - Other		—
Total	$	923,671

The following is a schedule of the Bank’s delinquent loans, excluding mortgage loans held for sale, as of December 31, 2012 and December 31, 2011.

December 31, 2012
		30-59 Days Past Due	60-89 Days Past Due	Greater Than 90 Days	Total Past Due	Current	Total Loans Receivable	Recorded Investment > 90 Days and Accruing
Commercial	$	104,766	—	—	104,766	54,559,520	54,664,286	—
Commercial Real Estate:
Commercial Real Estate - Construction		—	—	—	—	2,276,532	2,276,532	—
Commercial Real Estate - Other		93,487	336,315	3,074,397	3,504,199	105,071,216	108,575,415	—
Consumer:
Consumer Real Estate		—	—	—	—	46,703,454	46,703,454	—
Consumer - Other		6,549	—	985	7,534	4,901,403	4,908,937	—
Total	$	204,802	336,315	3,075,382	3,616,499	213,512,125	217,128,624	—

December 31, 2011
		30-59 Days Past Due	60-89 Days Past Due	Greater Than 90 Days	Total Past Due	Current	Total Loans Receivable	Recorded Investment > 90 Days and Accruing
Commercial	$	50,892	—	—	50,892	55,514,633	55,565,525	—
Commercial Real Estate:
Commercial Real Estate - Construction		—	—	—	—	3,564,327	3,564,327	—
Commercial Real Estate - Other		1,268,321	—	788,167	2,056,488	104,352,133	106,408,621	282,173
Consumer:
Consumer Real Estate		—	—	—	—	43,185,861	43,185,861	—
Consumer- Other		4,401	30,319	605	35,325	4,949,453	4,984,778	—
Total	$	1,323,614	30,319	788,772	2,142,705	211,566,407	213,709,112	282,173

The Company grants short to intermediate term commercial and consumer loans to customers throughout its primary market area of Charleston, Berkeley and Dorchester counties, South Carolina. The Company’s primary market area is heavily dependent on tourism and medical services. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent upon the stability of the economic environment in their primary market including the government, tourism and medical industries. The majority of the loan portfolio is located in the Bank’s immediate market area with a concentration in Real Estate Related (38.4%), Offices and Clinics of Medical Doctors (5.53%), Real Estate Agents and Managers (3.78%), Legal services (3.20%), and Offices of Dentists (1.46%).Management is satisfied with these levels of concentrations.

As of December 31, 2012 and 2011, loans individually evaluated and considered impaired are presented in the following table:

Impaired and Restructured Loans For the Year Ended December 31, 2012
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Commercial	$	296,350	$	140,575	$	—	$	150,913	$	51,151
Commercial Real Estate		8,733,779		5,578,231		—		6,499,933		2,019,907
Consumer Real Estate		319,536		311,543		—		315,763		61,381
Consumer Other		—		—		—		—		—
Total	$	9,349,665	$	6,030,349	$	—	$	6,966,609	$	2,132,439
With an allowance recorded:
Commercial	$	1,360,535	$	1,251,462	$	1,251,462	$	1,287,204	$	168,739
Commercial Real Estate		3,355,954		3,287,773		169,243		3,295,385		363,187
Consumer Real Estate		882,750		879,252		528,510		879,391		344,262
Consumer Other		50,000		49,443		49,443		49,570		6,009
Total	$	5,649,239	$	5,467,930	$	1,998,658	$	5,511,550	$	882,197
Grand Total	$	14,998,904	$	11,498,279	$	1,998,658	$	12,478,159	$	3,014,636

Impaired and Restructured Loans For the Year Ended December 31, 2011
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Commercial	$	83,350	$	4,018	$	—	$	8,625	$	315
Commercial Real Estate		4,289,820		4,321,755		—		4,299,045		99,046
Consumer Real Estate		319,536		315,926		—		317,776		12,596
Consumer-Other		—		—		—		—		—
Total	$	4,692,706	$	4,641,699	$	—	$	4,625,446	$	111,957
With an allowance recorded:
Commercial	$	1,360,535	$	1,281,462	$	1,281,462	$	1,298,891	$	57,458
Commercial Real Estate Construction		668,950		625,648		187,713		634,511		9,957
Consumer Real Estate		822,750		819,341		345,494		819,423		34,636
Consumer Other		50,000		49,742		49,742		49,742		—
Total	$	2,902,235	$	2,776,193	$	1,864,411	$	2,802,567	$	102,051
Grand Total	$	7,594,941	$	7,417,892	$	1,864,411	$	7,428,013	$	214,008

The following table illustrates credit risks by category and internally assigned grades at December 31, 2012 and December 31, 2011.

December 31, 2012
		Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer – Real Estate		Consumer – Other		Total
Pass	$	47,803,837	$	1,806,765	$	94,779,321	$	41,738,572	$	4,197,256	$	190,325,751
Watch		4,551,804		—		2,554,099		2,971,631		344,583		10,422,117
OAEM		561,563		469,767		4,957,130		650,412		205,638		6,844,510
Sub-Standard		1,747,082		—		6,284,865		1,342,839		161,460		9,536,246
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	54,664,286	$	2,276,532	$	108,575,415	$	46,703,454	$	4,908,937	$	217,128,624

December 31, 2011
		Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer – Real Estate		Consumer – Other		Total
Pass	$	48,160,256	$	3,088,190	$	93,889,871	$	38,551,256	$	4,390,391	$	188,079,964
Watch		4,000,123		476,137		4,581,885		3,312,679		214,617		12,585,441
OAEM		2,071,137		—		1,905,745		212,545		311,905		4,501,332
Sub-Standard		1,334,009		—		6,031,120		1,109,381		67,865		8,542,375
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	55,565,525	$	3,564,327	$	106,408,621	$	43,185,861	$	4,984,778	$	213,709,112

The following table sets forth the changes in the allowance and an allocation of the allowance by loan category at December 31, 2012 and December 31, 2011. The allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors described above.

December 31, 2012
		Commercial			Commercial Real Estate			Consumer Real Estate			Consumer Other			Unallocated		Total
Allowance for Loan Losses
Beginning Balance	$	1,586,510		$	420,367		$	450,338		$	91,402		$	558,267	$	3,106,884
Charge-offs		(60,042	)		(43,734	)		(56,487	)		(12,025	)		—		(172,288	)
Recoveries		109,569			13,228			10,000			15,451			—		148,248
Provisions		(321,502	)		(109,086	)		340,476			(6,762	)		446,874		350,000
Ending Balance		1,314,535			280,775			744,327			88,066			1,005,141		3,432,844
Ending Balances:
Individually evaluated for impairment		1,392,037			8,866,004			1,190,795			49,443			—		11,498,279
Collectively evaluated for impairment	$	53,272,249		$	101,985,943		$	45,512,659		$	4,859,494		$	—	$	205,630,345

December 31, 2011
		Commercial			Commercial Real Estate			Consumer Real Estate		Consumer Other			Unallocated			Total
Allowance for Loan Losses
Beginning Balance	$	1,502,298		$	128,334		$	218,897	$	27,200		$	1,061,859		$	2,938,588
Charge-offs		(17,943	)		(303,403	)		—		(62,368	)		—			(383,714	)
Recoveries		42,662			28,838			—		510			—			72,010
Provisions		59,493			566,598			231,441		126,060			(503,592	)		480,000
Ending Balance		1,586,510			420,367			450,338		91,402			558,267			3,106,884
Ending Balances:
Individually evaluated for impairment		1,285,480			4,947,403			1,135,267		49,742			—			7,417,892
Collectively evaluated for impairment	$	54,280,045		$	105,025,545		$	42,050,594	$	4,935,036		$	—		$	206,291,220

Restructured loans (loans, still accruing interest, which have been renegotiated at below-market interest rates or for which other concessions have been granted) were $1,618,278 and $491,153 at December 31, 2012 and December 31, 2011, respectively, and are illustrated in the following table. This amount at December 31, 2012 includes the two restructured loans identified at December 31, 2011, with an outstanding balance of $486,804, and three additional loans that totaled $1,101,474. December 31, 2012 and December 31, 2011 all restructured loans were performing as agreed. There was one restructured loan at December 31, 2010 in the amount of $153,015 that failed to continue to perform as agreed upon and, as a result, the loan was charged off in March 2011.

Modification
As of December 31, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial		1	$	134,814	$	134,814
Commercial Real Estate		3	$	1,371,983	$	1,371,983
Commercial Real Estate Construction			$		$
Consumer Real Estate-Prime		1	$	111,481	$	111,481
Consumer Real Estate-Subprime		—	$	—	$	—
Consumer Other		—	$	—	$	—
Troubled Debt Restructurings That Subsequently Defaulted
Commercial		—	$	—	$	—
Commercial Real Estate		—	$	—	$	—
Commercial Real Estate Construction		—	$	—	$	—
Consumer Real Estate-Prime		—	$	—	$	—
Consumer Real Estate-Subprime		—	$	—	$	—
Consumer Other		—	$	—	$	—

Modification
As of December 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial		—		—		—
Commercial Real Estate		1	$	375,323	$	375,323
Commercial Real Estate Construction		—	$	—	$	—
Consumer Real Estate-Prime		1	$	153,830	$	153,830
Consumer Real Estate-Subprime		—	$	—	$	—
Consumer Other		—	$	—	$	—
Troubled Debt Restructurings That Subsequently Defaulted
Commercial		—	$	—	$	—
Commercial Real Estate		1	$	153,015	$	153,015
Commercial Real Estate Construction		—	$	—	$	—
Consumer Real Estate-Prime		—	$	—	$	—
Consumer Real Estate-Subprime		—	$	—	$	—
Consumer Other		—	$	—	$	—