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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)
 9 Months Ended
Sep. 30, 2014
LOANS AND ALLOWANCE FOR LOAN LOSSES [Abstract]  
Loans
Loans as of September 30, 2014 and December 31, 2013 were as follows:
 
(Dollars in thousands)
 
September 30, 2014
  
December 31, 2013
 
Commercial loans
 
$
48,113
  
$
43,855
 
Real estate mortgage loans:
        
Residential
  
72,113
   
71,192
 
Commercial
  
217,346
   
223,182
 
Construction and land
  
21,614
   
30,355
 
Consumer and other loans
  
1,883
   
2,041
 
Loans, gross
  
361,069
   
370,625
 
Less:
        
Net deferred loan fees
  
(407
)
  
(273
)
Allowance for loan losses
  
(15,170
)
  
(15,760
)
Loans, net
 
$
345,492
  
$
354,592
 
Summary of Loans Acquired, Contractual Amount Less Discount to Principal Balances
Loans acquired as a result of the merger with ABI were recorded at fair value on the date of acquisition.  The amounts reported in the table above are net of the fair value adjustments.  The table below reflects the contractual amount of purchased loans less the discount to principal balances remaining from these fair value adjustments by class of loan as of September 30, 2014 and December 31, 2013.  This discount will be accreted into interest income as deemed appropriate over the remaining term of the related loans.

(Dollars in thousands)
      
September 30, 2014
 
Gross Contractual
Amount Receivable
  
Discount
  
Carrying Balance
 
Commercial loans
 
$
1,817
  
$
152
  
$
1,665
 
Real estate mortgage loans:
            
Residential
  
16,363
   
881
   
15,482
 
Commercial
  
38,121
   
2,229
   
35,892
 
Construction and land
  
3,622
   
347
   
3,275
 
Consumer and other loans
  
409
   
4
   
405
 
Total
 
$
60,332
  
$
3,613
  
$
56,719
 
 
December 31, 2013
 
Gross Contractual
Amount Receivable
  
Discount
  
Carrying Balance
 
Commercial loans
 
$
2,165
  
$
175
  
$
1,990
 
Real estate mortgage loans:
            
Residential
  
20,614
   
1,282
   
19,332
 
Commercial
  
44,249
   
3,026
   
41,223
 
Construction and land
  
4,763
   
412
   
4,351
 
Consumer and other loans
  
468
   
6
   
462
 
Total
 
$
72,259
  
$
4,901
  
$
67,358
 
Activity in Allowance for Loan Losses by Portfolio Segment
Activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2014 and 2013 was as follows:
 
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
(Dollars in thousands)
 
2014
  
2013
  
2014
  
2013
 
Allowance at beginning of period
 
$
14,616
  
$
17,303
  
$
15,760
  
$
20,198
 
                 
Charge-offs:
                
Commercial loans
  
70
   
57
   
272
   
121
 
Real estate mortgage loans
  
545
   
724
   
2,034
   
3,313
 
Consumer and other loans
  
154
   
1
   
170
   
174
 
Total charge-offs
  
769
   
782
   
2,476
   
3,608
 
                 
Recoveries:
                
Commercial loans
  
10
   
11
   
37
   
81
 
Real estate mortgage loans
  
1,306
   
68
   
1,545
   
165
 
Consumer and other loans
  
7
   
7
   
17
   
38
 
Total recoveries
  
1,323
   
86
   
1,599
   
284
 
                 
Net charge-offs
  
(554
)
  
696
   
877
   
3,324
 
                 
Provision for loan losses charged to operating expenses:
                
Commercial loans
  
(26
)
  
(70
)
  
102
   
145
 
Real estate mortgage loans
  
(312
)
  
436
   
(73
)
  
(193
)
Consumer and other loans
  
338
   
1
   
258
   
148
 
Total provision
  
-
   
367
   
287
   
100
 
                 
Allowance at end of period
 
$
15,170
  
$
16,974
  
$
15,170
  
$
16,974
 
Schedule of Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment and Based on Impairment Method
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of September 30, 2014 and December 31, 2013:
 
(Dollars in thousands)
        
September 30, 2014
 
Commercial
Loans
  
Real Estate
Mortgage Loans
  
Consumer and
Other Loans
  
Total
 
Allowance for loan losses:
        
Ending allowance balance attributable to loans:
        
Individually evaluated for impairment
 
$
17
  
$
1,920
  
$
302
  
$
2,239
 
Collectively evaluated for impairment
  
1,064
   
11,343
   
430
   
12,837
 
Loans acquired with deteriorated credit quality
  
-
   
94
   
-
   
94
 
Total ending allowance balance
 
$
1,081
  
$
13,357
  
$
732
  
$
15,170
 
Loans:
                
Loans individually evaluated for impairment
 
$
58
  
$
21,093
  
$
332
  
$
21,483
 
Loans collectively evaluated for impairment
  
47,951
   
275,374
   
1,551
   
324,876
 
Loans acquired with deteriorated credit quality
  
104
   
14,606
   
-
   
14,710
 
Total ending loans balance
 
$
48,113
  
$
311,073
  
$
1,883
  
$
361,069
 
 
December 31, 2013
 
Commercial
Loans
  
Real Estate
Mortgage Loans
  
Consumer and
Other Loans
  
Total
 
Allowance for loan losses:
        
Ending allowance balance attributable to loans:
        
Individually evaluated for impairment
 
$
223
  
$
1,608
  
$
323
  
$
2,154
 
Collectively evaluated for impairment
  
992
   
11,919
   
303
   
13,214
 
Loans acquired with deteriorated credit quality
  
-
   
392
   
-
   
392
 
Total ending allowance balance
 
$
1,215
  
$
13,919
  
$
626
  
$
15,760
 
Loans:
                
Loans individually evaluated for impairment
 
$
304
  
$
19,783
  
$
364
  
$
20,451
 
Loans collectively evaluated for impairment
  
43,449
   
286,188
   
1,676
   
331,313
 
Loans acquired with deteriorated credit quality
  
102
   
18,758
   
1
   
18,861
 
Total ending loans balance
 
$
43,855
  
$
324,729
  
$
2,041
  
$
370,625
 
Summary of Loans Individually Evaluated for Impairment, by Class of Loans
The following table presents loans individually evaluated for impairment, by class of loans as of September 30, 2014 and December 31, 2013:
 
  
September 30, 2014
  
December 31, 2013
 
(Dollars in thousands)
 
Unpaid Principal Balance
  
Recorded Investment
  
Allowance for Loan Losses Allocated
  
Unpaid Principal Balance
  
Recorded Investment
  
Allowance for Loan Losses Allocated
 
With no related allowance recorded:
            
Commercial loans
 
$
43
  
$
41
  
$
-
  
$
43
  
$
43
  
$
-
 
Real estate mortgage loans:
                        
Residential
  
2,037
   
1,972
   
-
   
2,341
   
2,286
   
-
 
Commercial
  
12,909
   
10,235
   
-
   
4,643
   
4,395
   
-
 
Construction and land
  
1,498
   
1,227
   
-
   
8,586
   
4,806
   
-
 
Consumer and other loans
  
32
   
30
   
-
   
40
   
40
   
-
 
With an allowance recorded:
                        
Commercial loans
 
$
18
  
$
17
  
$
17
  
$
264
  
$
261
  
$
223
 
Real estate mortgage loans:
                        
Residential
  
940
   
871
   
173
   
1,597
   
1,574
   
209
 
Commercial
  
6,386
   
6,198
   
1,466
   
7,910
   
6,062
   
1,001
 
Construction and land
  
601
   
590
   
281
   
667
   
660
   
398
 
Consumer and other loans
  
335
   
302
   
302
   
341
   
324
   
323
 
                         
Total
 
$
24,799
  
$
21,483
  
$
2,239
  
$
26,432
  
$
20,451
  
$
2,154
 
Average of Impaired Loans and Related Interest Income and Cash-Basis Interest Income Recognized During Impairment
The following tables present the average recorded investment in impaired loans and the related interest income recognized during impairment for the three and nine months ended September 30, 2014 and 2013.
 
  
Three Months Ended
September 30, 2014
  
Nine Months Ended
September 30, 2014
 
(Dollars in thousands)
 
Average Impaired
Loans
  
Interest
Income
  
Cash-Basis
  
Average Impaired Loans
  
Interest
Income
  
Cash-Basis
 
Commercial loans
 
$
84
  
$
-
  
$
-
  
$
209
  
$
-
  
$
-
 
Real estate mortgage loans:
                        
Residential
  
2,893
   
25
   
25
   
3,237
   
84
   
84
 
Commercial
  
16,052
   
55
   
55
   
14,943
   
164
   
164
 
Construction and land
  
3,094
   
10
   
10
   
4,663
   
31
   
31
 
Consumer and other loans
  
340
   
-
   
-
   
349
   
-
   
-
 
Total
 
$
22,463
  
$
90
  
$
90
  
$
23,401
  
$
279
  
$
279
 

  
Three Months Ended
September 30, 2013
  
Nine Months Ended
September 30, 2013
 
(Dollars in thousands)
 
Average Impaired
Loans
  
Interest
 Income
  
Cash-Basis
  
Average Impaired
Loans
  
Interest
Income
  
Cash-Basis
 
Commercial loans
 
$
266
  
$
-
  
$
-
  
$
218
  
$
-
  
$
-
 
Real estate mortgage loans:
                        
Residential
  
2,735
   
-
   
-
   
2,069
   
-
   
-
 
Commercial
  
8,675
   
50
   
50
   
9,144
   
149
   
150
 
Construction and land
  
5,344
   
6
   
6
   
4,609
   
15
   
14
 
Consumer and other loans
  
232
   
-
   
-
   
240
   
-
   
-
 
Total
 
$
17,252
  
$
56
  
$
56
  
$
16,280
  
$
164
  
$
164
 
Summary of Recorded Investment in Nonaccrual Loans by Class of Loans
The following table presents the recorded investment in nonaccrual loans by class of loans as of September 30, 2014 and December 31, 2013:
 
(Dollars in thousands)
 
September 30, 2014
  
December 31, 2013
 
Commercial loans
 
$
58
  
$
304
 
Real estate mortgage loans:
        
Residential
  
773
   
3,716
 
Commercial
  
12,180
   
7,105
 
Construction and land
  
787
   
5,517
 
Consumer and other loans
  
332
   
366
 
Total(1)
 
$
14,130
  
$
17,008
 
 
(1)Includes loans acquired in the merger with ABI.  As of September 30, 2014 and December 31, 2013, these amounts totaled $3,678 and $4,537, respectively.
Summary of Aging of Recorded Investment in Past Due Loans by Class of Loans
The following table presents the aging of the recorded investment in past due loans by class of loans as of September 30, 2014 and December 31, 2013:
 
  
Past Due Loans
     
(Dollars in thousands)
September 30, 2014
 
30-59
Days
  
60-89
Days
  
90 Days and Greater
  
Total
  
Loans Not
Past Due
  
Total
 
Commercial loans
 
$
-
  
$
-
  
$
-
  
$
-
  
$
48,113
  
$
48,113
 
Real estate mortgage loans:
                        
Residential
  
523
   
57
   
295
   
875
   
71,238
   
72,113
 
Commercial
  
118
   
1,922
   
4,729
   
6,769
   
210,577
   
217,346
 
Construction and land
  
-
   
218
   
405
   
623
   
20,991
   
21,614
 
Consumer and other loans
  
-
   
75
   
-
   
75
   
1,808
   
1,883
 
Total
 
$
641
  
$
2,272
  
$
5,429
  
$
8,342
  
$
352,727
  
$
361,069
 

  
Past Due Loans
     
December 31, 2013
 
30-59
Days
  
60-89
Days
  
90 Days and Greater
  
Total
  
Loans Not
Past Due
  
Total
 
Commercial loans
 
$
-
  
$
138
  
$
86
  
$
224
  
$
43,631
  
$
43,855
 
Real estate mortgage loans:
                        
Residential
  
359
   
134
   
1,648
   
2,141
   
69,051
   
71,192
 
Commercial
  
2,558
   
3,103
   
6,475
   
12,136
   
211,046
   
223,182
 
Construction and land
  
-
   
119
   
4,470
   
4,589
   
25,766
   
30,355
 
Consumer and other loans
  
321
   
10
   
39
   
370
   
1,671
   
2,041
 
Total
 
$
3,238
  
$
3,504
  
$
12,718
  
$
19,460
  
$
351,165
  
$
370,625
 
Summary of Past due Loans Acquired
Included in the past due loan table above are loans acquired in the merger with ABI.  As of September 30, 2014 and December 31, 2013, the amounts of such loans were as follows:
 
(Dollars in thousands)
 
September 30, 2014
  
December 31, 2013
 
30-59 days past due
 
$
236
  
$
87
 
60-89 days past due
  
-
   
167
 
90 days past due and greater
  
532
   
2,709
 
Total past due
 
$
768
  
$
2,963
 
Summary of Recorded Investment and Specific Reserves Allocated to Loans Modified as Troubled Debt Restructurings
The following table presents the recorded investment and specific reserves allocated to loans modified as troubled debt restructurings (“TDRs”) as of September 30, 2014 and December 31, 2013.
 
(Dollars in thousands)
 
September 30, 2014
  
December 31, 2013
 
Recorded investment(1)
 
$
11,544
  
$
12,535
 
Specific reserves allocated(2)
  
504
   
953
 
 
(1)Of the total recorded investment in loans modified as TDRs, $1,160 and $1,256, respectively, were for customers whose loans were collateral dependent with collateral shortfalls.
(2)Of the specific reserves allocated to customers whose loan terms were modified as TDRs, $222 and $622, respectively, were allocated to customers whose loans were collateral dependent with collateral shortfalls.
Summary of Loans by Class Modified as Troubled Debt Restructuring
The following table represents loans by class modified as TDRs that occurred during the three and nine months ended September 30, 2014 and 2013, respectively:
 
  
Three Months Ended
September 30, 2014
  
Nine Months Ended
September 30, 2014
 
(Dollars in thousands)
 
Number
of Loans
  
Pre-Modification Outstanding Recorded Investment
  
Post-Modification Outstanding Recorded Investment
  
Number
of Loans
  
Pre-Modification Outstanding Recorded Investment
  
Post-Modification Outstanding Recorded Investment
 
Commercial loans
  
-
  
$
-
  
$
-
   
1
  
$
62
   
62
 
Real estate mortgage loans:
                        
Residential
  
-
   
-
   
-
   
2
   
171
   
151
 
Commercial
  
-
   
-
   
-
   
6
   
3,579
   
3,629
 
Construction and land
  
-
   
-
   
-
   
2
   
281
   
219
 
Consumer and other loans
  
1
   
208
   
208
   
2
   
447
   
447
 
Total
  
1
  
$
208
  
$
208
   
13
  
$
4,540
   
4,508
 

  
Three Months Ended
September 30, 2013
  
Nine Months Ended
September 30, 2013
 
  
Number
of Loans
  
Pre-Modification Outstanding Recorded Investment
  
Post-Modification Outstanding Recorded Investment
  
Number
of Loans
  
Pre-Modification Outstanding Recorded Investment
  
Post-Modification Outstanding Recorded Investment
 
Commercial loans
  
-
  
$
-
  
$
-
   
1
  
$
66
   
66
 
Real estate mortgage loans:
                        
Residential
  
-
   
-
   
-
   
2
   
1,277
   
1,474
 
Commercial
  
1
   
341
   
341
   
1
   
341
   
341
 
Construction and land
  
2
   
996
   
996
   
4
   
4,280
   
4,260
 
Consumer and other loans
  
-
   
-
   
-
   
-
   
-
   
-
 
Total
  
3
  
$
1,337
  
$
1,337
   
8
  
$
5,964
   
6,141
 
Summary of Risk Category of Loans by Class of Loans
Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass-rated loans.  As of September 30, 2014 and December 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans was as follows:
 
(Dollars in thousands)
          
September 30, 2014
 
Pass
  
Special
Mention
  
Substandard
  
Doubtful
  
Total
 
Commercial loans
 
$
47,943
  
$
51
  
$
119
  
$
-
  
$
48,113
 
Real estate mortgage loans:
                    
Residential
  
62,943
   
4,331
   
4,839
   
-
   
72,113
 
Commercial
  
191,267
   
4,088
   
21,991
   
-
   
217,346
 
Construction and land
  
19,881
   
-
   
1,733
   
-
   
21,614
 
Consumer and other loans
  
1,522
   
29
   
332
   
-
   
1,883
 
Total
 
$
323,556
  
$
8,499
  
$
29,014
  
$
-
  
$
361,069
 

December 31, 2013
 
Pass
  
Special
Mention
  
Substandard
  
Doubtful
  
Total
 
Commercial loans
 
$
42,945
  
$
295
  
$
615
  
$
-
  
$
43,855
 
Real estate mortgage loans:
                    
Residential
  
59,003
   
5,301
   
6,888
   
-
   
71,192
 
Commercial
  
198,447
   
10,836
   
13,899
   
-
   
223,182
 
Construction and land
  
21,652
   
350
   
8,353
   
-
   
30,355
 
Consumer and other loans
  
1,633
   
32
   
376
   
-
   
2,041
 
Total
 
$
323,680
  
$
16,814
  
$
30,131
  
$
-
  
$
370,625
 
Summary of Risk Category of Loans Acquired by Class of Loans
Included in the risk category of loans by class of loans table above are loans acquired in the merger with ABI.  As of September 30, 2014 and December 31, 2013, the amounts of such loans were as follows:

(Dollars in thousands)
 
September 30,
2014
  
December 31,
2013
 
Special mention
 
$
351
  
$
711
 
Substandard
  
7,718
   
9,170
 
Doubtful
  
-
   
-
 
Total
 
$
8,069
  
$
9,881
 
Schedule of Financing Receivables Sold
On December 28, 2012, the Bank entered into an Asset Purchase Agreement with a real estate investment firm for the sale of $25,134 in assets, including non-accrual loans, loans with a history of being past due, and other loans that were part of an overall customer relationship for a total of $24,601 and other real estate owned (“OREO”) of $533, for a purchase price of $11,705.  The Asset Sale was completed on December 31, 2012, immediately prior to the closing of the Private Placement.  The carrying amount and composition of loans sold in the Asset Sale, as well as total net charge-offs that occurred on the date of sale, were as follows:
 
(Dollars in thousands)
 
Recorded Investment
  
Total Net Charge-Offs(1)
 
     
Loans originated by the Company:
    
Commercial loans
 
$
113
  
$
(53
)
Real estate mortgage loans:
        
Residential
  
2,584
   
1,435
 
Commercial
  
13,159
   
7,394
 
Construction and land
  
3,162
   
2,042
 
Consumer and other loans
  
-
   
-
 
         
Loans acquired:
        
Commercial loans
 
$
111
  
$
46
 
Real estate mortgage loans:
        
Residential
  
546
   
185
 
Commercial
  
4,926
   
2,157
 
Construction and land
  
-
   
-
 
Consumer and other loans
  
-
   
-
 
         
Total loans:
        
Commercial loans
 
$
224
  
$
(7
)
Real estate mortgage loans:
        
Residential
  
3,130
   
1,620
 
Commercial
  
18,085
   
9,551
 
Construction and land
  
3,162
   
2,042
 
Consumer and other loans
  
-
   
-
 
         
Total loans sold
 
$
24,601
  
$
13,206
 
 
(1)Includes any specific reserve that existed prior to the date of sale (if applicable).
Summary of Loans Acquired with Evidence of Deterioration of Credit Quality since Origination
The Company has purchased loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.  The carrying amounts of these loans were as follows as of September 30, 2014 and December 31, 2013:
 
(Dollars in thousands)
 
September 30,
2014
  
December 31,
2013
 
Commercial loans
 
$
151
  
$
160
 
Real estate mortgage loans:
        
Residential
  
3,653
   
5,137
 
Commercial
  
12,042
   
14,359
 
Construction and land
  
370
   
1,398
 
Consumer and other loans
  
-
   
2
 
Unpaid principal balance
 
$
16,216
  
$
21,056
 
         
Carrying amount
 
$
14,710
  
$
18,861
 
Summary of Accretable Yield, or Income Expected to be Collected, on Loans Acquired
Accretable yield, or income collected, from these loans was as follows:
 
(Dollars in thousands)
  
Balance as of December 31, 2012
 
$
11,827
 
New loans purchased, including loans classified as held for sale
  
-
 
Accretion of income
  
(1,548
)
Reduction for loans sold, paid off and other
  
(1,018
)
Loans charged off
  
(935
)
Reclassifications from nonaccretable difference
  
-
 
Disposals
  
-
 
Balance as of September 30, 2013
 
$
8,326
 
Balance as of December 31, 2013
 
$
8,993
 
New loans purchased, including loans classified as held for sale
  
-
 
Accretion of income
  
(766
)
Reduction for loans sold, paid off and other
  
(1,837
)
Loans charged off
  
(28
)
Reclassifications from nonaccretable difference
  
-
 
Disposals
  
-
 
Balance as of September 30, 2014
 
$
6,362