Loans

12 Months Ended

Dec. 31, 2015

Debt [Abstract]

LOANS

NOTE 3 — LOANS

The composition of net loans by major category is as follows:

	December 31,
	2015			2014
Real estate:
Commercial	$	25,559,943		$	25,246,396
Construction and development		7,286,459			8,425,453
Single and multifamily residential		16,434,722			18,073,429
Total real estate loans		49,281,124			51,745,278
Commercial business		17,027,054			16,059,082
Consumer		1,369,224			1,372,906
Deferred origination fees, net		(135,647	)		(149,823	)
Gross loans, net of deferred fees		67,541,755			69,027,443
Less allowance for loan losses		(1,139,509	)		(1,032,776	)
Loans, net	$	66,402,246		$	67,994,667

The Company, through the Bank, makes loans to individuals and small- to mid-sized businesses for various personal and commercial purposes primarily in Greenville County, South Carolina. Credit concentrations can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, certain loan products, or certain regions of the country. Credit risk associated with these concentrations could arise when a significant amount of loans, related by similar characteristics, are simultaneously impacted by changes in economic or other conditions that cause their probability of repayment to be adversely affected. The Company regularly monitors its credit concentrations. The Company does not have a significant concentration to any individual client. The major concentrations of credit arise by collateral type. As of December 31, 2014, management has determined that the Company has a concentration in commercial real estate loans, including construction and development loans. At December 31, 2015, the Company had $32.8 million in commercial real estate loans, representing 48.6% of gross loans. Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened portfolio monitoring and reporting, and strong underwriting criteria with respect to its commercial real estate portfolio.

During the year ended December 31, 2014, the two loans which were previously classified as held for sale and previously classified as TDRs in 2013 were sold for total proceeds of $1,033,000. A success fee of approximately $41,000 and a gain of approximately $118,000 was recognized as a result of this sale. During 2014, the one remaining loan held for sale by the Company was transferred into other real estate owned at its remaining outstanding principal balance at the time of transfer of approximately $809,000. There were no loans classified as held for sale at December 31, 2014 or 2015.

In addition to monitoring potential concentrations of loans to a particular borrower or groups of borrowers, industries and geographic regions, management monitors exposure to credit risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc.) and loans with high loan-to-value ratios. Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life. For example, the Company makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e. balloon payment loans). These loans are underwritten and monitored to manage the associated risks. Management has determined that there is no concentration of credit risk associated with its lending policies or practices.

The composition of gross loans, before the deduction for deferred origination fees, by rate type is as follows:

	December 31, 2015
Variable rate loans		$	43,744,860
Fixed rate loans			23,932,542
		$	67,677,402

Directors, executive officers and associates of such persons are customers of and have transactions with the Bank in the ordinary course of business. Included in such transactions are outstanding loans and commitments, all of which were made under substantially the same credit terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these outstanding loans was $2.8 million and $3.2 million at December 31, 2015 and 2014, respectively. During 2015, there were approximately $266,000 in new loans and advances on these lines of credit and repayments were approximately $557,000. During 2014, there were $1.6 million new loans and advances on these lines of credit and repayments were approximately $67,000. At December 31, 2015 and 2014, there were commitments to extend additional credit to related parties in the amount of approximately $140,000 and $158,000, respectively. The Bank has a line of credit with the FHLB to borrow funds, subject to the pledge of qualified collateral. Acceptable collateral includes certain types of commercial real estate, consumer residential and home equity loans. At December 31, 2015, approximately $39.9 million of first and second mortgage loans, commercial loans and home equity lines of credit were specifically pledged to the FHLB, resulting in $13.0 million in lendable collateral. At December 31, 2015, the Bank had also pledged $15.3 million of commercial loans to the FRB’s Borrower-in-Custody of Collateral program, resulting in $10.5 million in lendable collateral. In July 2014, the Bank obtained $5,000,000 in new FLHB advances in order to fund future loan growth. These advances were secured by $13.9 million in collateralized loans. The terms of this note required monthly interest payments through the January 2015 maturity date. The advance was repaid in its entirety upon maturity. The Bank had no outstanding borrowings from the FRB or FHLB as of December 31, 2015.

Credit Quality

The following table summarizes delinquencies and nonaccruals, by portfolio class, as of December 31, 2015 and 2014.

	Single and
	multifamily		Construction		Commercial
	residential		and		real estate —		Commercial
	real estate		development		other		business		Consumer		Total
December 31, 2015
30–59 days past due	$	75,890	$	—	$	—	$	—	$	—	$	75,890
60–89 days past due		63,702		250,378		—		—		—		314,080
Nonaccrual		168,879		40,500		1,390,013		65,798		—		1,665,190
Total past due
and nonaccrual		308,471		290,878		1,390,013		65,798		—		2,055,160
Current		16,126,251		6,995,581		24,169,930		16,961,256		1,369,224		65,622,242
Total loans	$	16,434,722	$	7,286,459	$	25,559,943	$	17,027,054	$	1,369,224	$	67,677,402
December 31, 2014
30–59 days past due	$	188,033	$	39,561	$	—	$	23,938	$	—	$	251,532
60–89 days past due		—		—		—		9,129		—		9,129
Nonaccrual		—		—		534,057		—		—		534,057
Total past due
and nonaccrual		188,033		39,561		534,057		33,067		—		794,718
Current		17,885,396		8,385,892		24,712,339		16,026,015		1,372,906		68,382,548
Total loans	$	18,073,429	$	8,425,453	$	25,246,396	$	16,059,082	$	1,372,906	$	69,177,266

At December 31, 2015 and 2014, there were nonaccrual loans of $1.7 million and $534,057, respectively, included in the above loan balances. Foregone interest income related to nonaccrual loans equaled $129,066 and $77,639 for the years ended December 31, 2015 and 2014, respectively. No interest income was recognized on nonaccrual loans during 2015 and 2014. At both December 31, 2015 and 2014, there were no accruing loans which were contractually past due 90 days or more as to principal or interest payments.

As part of the loan review process, loans are given individual credit grades, representing the risk the Company believes is associated with the loan balance. Credit grades are assigned based on factors that impact the collectability of the loan, the strength of the borrower, the type of collateral, and loan performance. Commercial loans are individually graded at origination and credit grades are reviewed on a regular basis in accordance with our loan policy. Consumer loans are assigned a “pass” credit rating unless something within the loan warrants a specific classification grade.

The following table summarizes management’s internal credit risk grades, by portfolio class, as of December 31, 2015 and 2014.

	Single and
	multifamily		Construction		Commercial
	residential		and		real estate —		Commercial
	real estate		development		other		business		Consumer		Total
December 31, 2015
Pass Loans (Consumer)	$	8,340,816	$	1,350,332	$	—	$	—	$	1,369,224	$	11,060,372
Grade 1 — Prime		—		—		—		—		—		—
Grade 2 — Good		—		—		—		—		—		—
Grade 3 — Acceptable		4,479,116		809,004		8,121,125		7,667,706		—		21,076,951
Grade 4 — Acceptable w/Care		3,382,209		4,759,864		14,724,468		8,199,385		—		31,065,926
Grade 5 — Special Mention		63,702		76,381		611,189		846,106		—		1,597,378
Grade 6 — Substandard		168,879		290,878		2,103,161		313,857		—		2,876,775
Grade 7 — Doubtful		—		—		—		—		—		—
Total loans	$	16,434,722	$	7,286,459	$	25,559,943	$	17,027,054	$	1,369,224	$	67,677,402

	Single and
	multifamily		Construction		Commercial
	residential		and		real estate —		Commercial
	real estate		development		other		business		Consumer		Total
December 31, 2014
Pass Loans (Consumer)	$	10,739,155	$	1,362,322	$	—	$	—	$	1,341,699	$	13,443,176
Grade 1 — Prime		—		—		—		—		—		—
Grade 2 — Good		—		—		—		1,652,739		—		1,652,739
Grade 3 — Acceptable		2,594,126		1,284,107		9,123,260		4,629,684		31,207		17,662,384
Grade 4 — Acceptable w/Care		3,792,456		5,277,692		14,184,482		9,754,850		—		33,009,480
Grade 5 — Special Mention		—		82,413		648,152		—		—		730,565
Grade 6 — Substandard		947,692		418,919		1,290,502		21,809		—		2,678,922
Grade 7 — Doubtful		—		—		—		—		—		—
Total loans	$	18,073,429	$	8,425,453	$	25,246,396	$	16,059,082	$	1,372,906	$	69,177,266

Loans graded one through four are considered “pass” credits. At December 31, 2015, approximately 93% of the loan portfolio had a credit grade of “pass” compared to 95% at December 31, 2014. For loans to qualify for this grade, they must be performing relatively close to expectations, with no significant departures from the intended source and timing of repayment. Loans totaling $1.6 million and $730,565, respectively, were classified as special mention at December 31, 2015 and 2014. This classification is utilized when an initial concern is identified about the financial health of a borrower. Loans are designated as such in order to be monitored more closely than other credits in the loan portfolio. At December 31, 2015 and 2014, substandard loans totaled $2.9 million and $2.7 million, respectively, with the vast majority of these loans being collateralized by real estate. Substandard credits are evaluated for impairment on a quarterly basis.

The following table summarizes information relative to impaired loans, by portfolio class, at December 31, 2015 and 2014.

	Unpaid principal balance		Recorded investment		Related allowance		Average impaired investment		Interest income
December 31, 2015
With no related allowance recorded:
Single and multifamily residential real estate	$	—	$	—	$	—	$	411,430	$	21,667
Construction and development		—		—		—		177,047		—
Commercial real estate — other		905,968		905,968		—		415,488		29,423
Commercial business		—		—		—		62,015		—
Consumer		—		—		—		—		—
With related allowance recorded:
Single and multifamily residential real estate		236,938		236,938		163,138		270,668		—
Construction and development		40,500		40,500		10,500		239,206		727
Commercial real estate — other		1,197,193		1,197,193		201,793		805,654		46,761
Commercial business		—		—		—		18,139		2,119
Consumer		—		—		—		—		—
Total:
Single and multifamily residential real estate		236,938		236,938		163,138		682,098		21,667
Construction and development		40,500		40,500		10,500		416,253		727
Commercial real estate — other		2,103,161		2,103,161		201,793		1,221,142		76,184
Commercial business		—		—		—		80,154		2,119
Consumer		—		—		—		—		—
	$	2,380,599	$	2,380,599	$	375,431	$	2,399,647	$	100,697

	Unpaid						Average
	principal		Recorded		Related		impaired		Interest
	balance		investment		allowance		investment		income
December 31, 2014
With no related allowance recorded:
Single and multifamily residential real estate	$	725,090	$	725,090	$	—	$	604,851	$	44,239
Construction and development		—		—		—		332,954		—
Commercial real estate — other		190,791		190,791		—		229,385		—
Commercial business		—		—		—		—		—
Consumer		—		—		—		—		—
With related allowance recorded:
Single and multifamily residential real estate		—		—		—		442,094		—
Construction and development		—		—		—		649,560		—
Commercial real estate — other		1,099,712		1,099,712		88,712		645,833		42,321
Commercial business		—		—		—		17,156		—
Consumer		—		—		—		—		—
Total:
Single and multifamily residential real estate		725,090		725,090		—		1,046,945		44,239
Construction and development		—		—		—		982,514		—
Commercial real estate — other		1,290,503		1,290,503		88,712		875,218		42,321
Commercial business		—		—		—		17,156		—
Consumer		—		—		—		—		—
	$	2,015,593	$	2,015,593	$	88,712	$	2,921,833	$	86,560

TDRs are loans which have been restructured from their original contractual terms and include concessions that would not otherwise have been granted outside of the financial difficulty of the borrower. Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note. As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment. The purpose of a TDR is to facilitate ultimate repayment of the loan.

At December 31, 2014, the principal balance of TDRs was approximately $343,000. At December 31, 2015, the principal balance of TDRs was zero as the one loan constituting our sole TDR had been transferred to other real estate owned. During the year ended December 31, 2014, the two loans classified as held for sale and previously classified as TDRs in 2013 were sold for total proceeds of $1,033,000. A success fee of approximately $41,000 and a gain of approximately $118,000 was recognized as a result of this sale. No TDRs went into default during the years ended December 31, 2014 and 2015. A TDR can be removed from “troubled” status once there is sufficient history of demonstrating the borrower can service the credit under market terms. We currently consider sufficient history to be approximately six months. As of December 31, 2014, the carrying balance consisted of one performing loan within one relationship which was restructured and granted a period of interest only payments during January 2014.

Provision and Allowance for Loan Losses

The provision, reversal of provision and allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The following table summarizes activity related to our allowance for loan losses for the years ended December 31, 2015 and 2014, by portfolio segment.

	Single and
	multifamily			Construction			Commercial
	residential			and			real estate —			Commercial
	real estate			development			other			business			Consumer			Total
December 31, 2015
Allowance for loan losses:
Balance, beginning of year	$	160,797		$	234,130		$	363,097		$	184,679		$	90,073		$	1,032,776
Provision (reversal of
provision) for loan losses		105,000			(50,000	)		120,000			60,000			(85,000	)		150,000
Loan charge-offs		—			—			(43,267	)		—			—			(43,267	)
Loan recoveries		—			—			—			—			—			—
Net loans charged-off		—			—			(43,267	)		—			—			(43,267	)
Balance, end of year	$	265,797		$	184,130		$	439,830		$	244,679		$	5,073		$	1,139,509
Individually reviewed for
impairment	$	163,138		$	10,500		$	201,793		$	—		$	—		$	375,431
Collectively reviewed for
impairment		102,659			173,630			238,037			244,679			5,073			764,078
Total allowance for
loan losses	$	265,797		$	184,130		$	439,830		$	244,679		$	5,073		$	1,139,509
Gross loans, end of period:
Individually reviewed for
impairment	$	236,938		$	40,500		$	2,103,161		$	—		$	—		$	2,380,599
Collectively reviewed for
impairment		16,197,784			7,245,959			23,456,782			17,027,054			1,369,224			65,296,803
Total gross loans	$	16,434,722		$	7,286,959		$	25,559,943		$	17,027,054		$	1,369,224		$	67,677,402
	Single and
	multifamily			Construction			Commercial
	residential			and			real estate —			Commercial
	real estate			development			other			business			Consumer			Total
December 31, 2014
Allowance for loan losses:
Balance, beginning of year	$	237,230		$	485,010		$	360,564		$	129,009		$	90,073		$	1,301,886
Provision (reversal of
provision) for loan losses		(150,000	)		(295,265	)		100,106			315,159			—			(30,000	)
Loan charge-offs		—			(118,577	)		(101,000	)		(297,889	)		—			(517,466	)
Loan recoveries		73,567			162,962			3,427			38,400			—			278,356
Net loans charged-off		73,567			44,385			(97,573	)		(259,489	)		—			(239,110	)
Balance, end of year	$	160,797		$	234,130		$	363,097		$	184,679		$	90,073		$	1,032,776
Individually reviewed for
impairment	$	—		$	—		$	88,712		$	—		$	—		$	88,712
Collectively reviewed for
impairment		160,797			234,130			274,385			184,679			90,073			944,064
Total allowance for loan losses	$	160,797		$	234,130		$	363,097		$	184,679		$	90,073		$	1,032,776
Gross loans, end of period:
Individually reviewed for
impairment	$	725,090		$	—		$	1,290,503		$	—		$	—		$	2,015,593
Collectively reviewed for
impairment		17,348,339			8,425,453			23,955,893			16,059,082			1,372,906			67,161,673
Total gross loans	$	18,073,429		$	8,425,453		$	25,246,396		$	16,059,082		$	1,372,906		$	69,177,266