Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2011

Loans and Allowance for Loan Losses [Abstract]

Loans and Allowance for Loan Losses

Note 4. Loans and Allowance for Loan Losses

The Bank and Southland provide mortgage, consumer, and commercial lending services to individuals and businesses primarily in the East Tennessee area.

At December 31, 2011 and 2010, the Company’s loans consist of the following:

		September 30,			September 30,
	2011			2010
Mortgage loans on real estate:
Residential 1-4 family	$	80,667,349		$	79,373,610
Residential multifamily (5 or more units)		21,157,262			20,851,097
Commercial		47,899,766			43,733,879
Construction and land		21,057,612			19,837,210
		170,781,989			163,795,796
Commercial loans		12,616,219			12,765,618
Consumer and equity lines of credit		26,032,584			27,335,361
Total loans		209,430,792			203,896,775
Less: Allowance for loan losses		(4,166,468	)		(3,965,395	)
Unearned interest and fees		(361,943	)		(323,515	)
Net deferred loan origination fees		(203,769	)		(221,387	)
Loans, net	$	204,698,612		$	199,386,478

Activity in the allowance for loan losses for 2011 and 2010 are as follows:

		September 30,			September 30,
	Years Ended December 31,
	2011			2010
Beginning balance	$	3,965,395		$	3,412,963
Provision for loan losses		1,980,110			1,711,030
Loans charged-off		(1,882,012	)		(1,272,953	)
Recoveries		102,975			114,355
Ending balance	$	4,166,468		$	3,965,395

Loan impairment and any related valuation allowance is determined under the provisions established by ASC Topic 310. For all periods presented above, impaired loans without a valuation allowance represent loans for which management believes that the collateral value of the loan is higher than the carrying value of that loan.

The allocation of the allowance for loan losses and recorded investment in loans by portfolio segment at December 31, 2011 and December 31, 2010, is as follows:

		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,
	December 31, 2011
					Commercial
					Real Estate
			Residential		and Multi-		Construction		Consumer
	Commercial		1-4 Family		Family		and Land		and Other		Unallocated		Total
Specified reserves-impaired loans	$	341,260	$	645,765	$	145,428	$	329,925	$	207,734	$	—	$	1,670,112
General reserves		223,593		698,839		860,608		351,946		333,724		27,646		2,496,356
Total reserves	$	564,853	$	1,344,604	$	1,006,036	$	681,871	$	541,458	$	27,646	$	4,166,468
Loans individually evaluated for impairment	$	2,336,816	$	6,071,728	$	2,506,005	$	2,126,241	$	673,919	$	—	$	13,714,709
Loans collectively evaluated for impairment		10,279,403		74,595,621		66,551,023		18,931,371		25,358,665		—		195,716,083
Total	$	12,616,219	$	80,667,349	$	69,057,028	$	21,057,612	$	26,032,584	$	—	$	209,430,792

		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,
	December 31, 2010
					Commercial
					Real Estate
			Residential		and Multi-		Construction		Consumer
	Commercial		1-4 Family		Family		and Land		and Other		Unallocated		Total
Specified reserves-impaired loans	$	317,562	$	321,604	$	492,369	$	534,737	$	93,462	$	—	$	1,759,734
General reserves		206,428		742,610		807,249		198,709		225,809		24,856		2,205,661
Total reserves	$	523,990	$	1,064,214	$	1,299,618	$	733,446	$	319,271	$	24,856	$	3,965,395
Loans individually evaluated for impairment	$	2,641,736	$	2,445,307	$	2,648,507	$	1,701,657	$	241,627	$	—	$	9,678,834
Loans collectively evaluated for impairment		10,123,882		76,928,303		61,936,469		18,135,553		27,093,734		—		194,217,941
Total	$	12,765,618	$	79,373,610	$	64,584,976	$	19,837,210	$	27,335,361	$	—	$	203,896,775

The following table details the changes in the allowance for loan losses during the year ended December 31, 2011, by class of loan:

		Sept 30,			Sept 30,			Sept 30,			Sept 30,			Sept 30,			Sept 30,		Sept 30,
							Commercial
							Real Estate
				Residential			and Multi-			Construction			Consumer
	Commercial			1-4 Family			Family			and Land			and Other			Unallocated		Total
Balance, December 31, 2010	$	523,990		$	1,064,214		$	1,299,618		$	733,446		$	319,271		$	24,856	$	3,965,395
Provision for loan losses		314,740			377,348			(62,616	)		860,204			487,644			2,790		1,980,110
Loans charged-off		(278,227	)		(122,729	)		(244,051	)		(911,779	)		(325,226	)		—		(1,882,012	)
Recoveries		4,350			25,771			13,085			—			59,769			—		102,975
Balance, December 31, 2011	$	564,853		$	1,344,604		$	1,006,036		$	681,871		$	541,458		$	27,646	$	4,166,468

The following tables present loans individually evaluated for impairment by class of loans as of December 31, 2011 and December 31, 2010:

		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,
	December 31, 2011
					Commercial
					Real Estate
			Residential		and Multi-		Construction		Consumer
	Commercial		1-4 Family		Family		and Land		and Other		Total
Loans individually evaluated for impairment:
Without a valuation allowance	$	39,885	$	1,551,007	$	1,231,377	$	882,676	$	164,487	$	3,869,432
With a valuation allowance		2,296,931		4,520,721		1,274,628		1,243,565		509,432		9,845,277
Recorded investment in impaired loans	$	2,336,816	$	6,071,728	$	2,506,005	$	2,126,241	$	673,919	$	13,714,709
Unpaid principal balance of impaired loans	$	2,376,663	$	6,077,465	$	2,506,005	$	3,038,019	$	674,430	$	14,672,582
Valuation allowance related to impaired loans	$	341,260	$	645,765	$	145,428	$	329,925	$	207,734	$	1,670,112
Average investment in impaired loans	$	2,524,644	$	5,020,554	$	2,555,300	$	2,321,965	$	630,489	$	13,052,952
Interest income recognized on impaired loans	$	123,830	$	226,249	$	104,298	$	36,048	$	22,997	$	513,422

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	December 31, 2010
					Commercial
					Real Estate
			Residential		and Multi-		Construction		Consumer
	Commercial		1-4 Family		Family		and Land		and Other		Total
Loans individually evaluated for impairment:
Without a valuation allowance	$	29,662	$	807,6l6	$	729,037	$	154,035	$	—	$	1,720,350
With a valuation allowance		2,612,074		1,637,691		1,919,470		1,547,622		241,627		7,958,484
Recorded investment in impaired loans	$	2,641,736	$	2,445,307	$	2,648,507	$	1,701,657	$	241,627	$	9,678,834
Unpaid principal balance of impaired loans	$	2,681,583	$	2,445,307	$	2,648,507	$	1,701,657	$	245,929	$	9,722,983
Valuation allowance related to impaired loans	$	317,562	$	321,604	$	492,369	$	534,737	$	93,462	$	1,759,734

The following is a summary of information pertaining to average investment and interest income recognized on impaired loans as of December 31, 2010:

		September 30,
Average investment in impaired loans	$	9,022,095
Interest income recognized on impaired loans	$	600,000

The following tables present an aged analysis of past due loans as of December 31, 2011 and December 31, 2010:

		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,
	December 31, 2011
			Greater Than
			90 Days								Recorded
	30-89 Days		Past Due and Non-		Total						Investment ³ 90 Days and
	Past Due		Accrual		Past Due		Current Loans		Total Loans		Accruing
Residential 1-4 family	$	752,680	$	1,467,682	$	2,220,362	$	78,446,987	$	80,667,349	$	20,988
Commercial real estate and multifamily		163,457		—		163,457		68,893,571		69,057,028		—
Construction and land		—		1,748,523		1,748,523		19,309,089		21,057,612		—
Commercial		—		—		—		12,616,219		12,616,219		—
Consumer and other		276,747		82,647		359,394		25,673,190		26,032,584		23,765
Total	$	1,192,884	$	3,298,852	$	4,491,736	$	204,939,056	$	209,430,792	$	44,753

		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,
	December 31, 2010
	30-89 Days		Greater Than 90 Days		Total						Recorded Investment ³ 90 Days and
	Past Due		Past Due		Past Due		Current Loans		Total Loans		Accruing
Residential 1-4 family	$	689,195	$	632,421	$	1,321,616	$	78,051,994	$	79,373,610	$	63,740
Commercial real estate and multifamily		131,849		326,635		458,484		64,126,492		64,584,976		53,515
Construction and land		—		974,445		974,445		18,862,765		19,837,210		—
Commercial		6,618		38,000		44,618		12,721,000		12,765,618		—
Consumer and other		164,427		67,509		231,936		27,103,425		27,335,361		9,490
Total	$	992,089	$	2,039,010	$	3,031,099	$	200,865,676	$	203,896,775	$	126,745

Credit quality indicators:

Federal regulations require us to review and classify our assets on a regular basis. There are three classifications for problem assets: substandard, doubtful, and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose an institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving close attention. When we classify an asset as substandard or doubtful, we may establish a specific allowance for loan losses.

The following tables outline the amount of each loan classification and the amount categorized into each risk rating class as of December 31, 2011 and December 31, 2010:

		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,
	December 31, 2011
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
Residential 1-4 family	$	73,574,439	$	1,021,182	$	6,071,728	$	—	$	—	$	80,667,349
Commercial real estate and multifamily		66,167,335		383,688		2,506,005		—		—		69,057,028
Construction and land		18,866,263		65,108		2,126,241		—		—		21,057,612
Commercial		10,274,603		4,800		2,336,816		—		—		12,616,219
Consumer and other		25,143,601		215,064		673,919		—		—		26,032,584
Total	$	194,026,241	$	1,689,842	$	13,714,709	$	—	$	—	$	209,430,792

		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,		Sept 30,
	December 31, 2010
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
Residential 1-4 family	$	74,953,467	$	1,974,836	$	2,445,307	$	—	$	—	$	79,373,610
Commercial real estate and multifamily		61,936,469		—		2,648,507		—		—		64,584,976
Construction and land		17,714,246		421,307		1,701,657		—		—		19,837,210
Commercial		10,104,402		19,481		2,431,504		—		210,231		12,765,618
Consumer and other		26,982,454		111,279		226,622		—		15,006		27,335,361
Total	$	191,691,038	$	2,526,903	$	9,453,597	$	—	$	225,237	$	203,896,775

As a result of adopting the amendments in ASU 2011-02 during the third quarter of 2011, the Company reassessed all restructurings that occurred on or after January 1, 2011, for identification as a TDR. The Company’s reassessment resulted in no additional TDRs than those previously identified. A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. By granting the concession, the Company expects to increase the probability of collection by more than would be expected by not granting the concession. The Company’s determination of whether a modification is a TDR considers the facts and circumstances surrounding each respective modification.

The following presents information related to loans modified as a TDR during the year ended December 31, 2011:

		September 30,		September 30,		September 30,
	Year Ended December 31, 2011
	Number		Pre-Modification		Post-Modification
	Of		Outstanding		Outstanding
	Loans		Recorded Investment		Recorded Investment
Residential 1-4 family		6	$	648,556	$	648,556
Commercial real estate and multifamily		—		—		—
Construction and land		3		996,914		996,914
Commercial		—		—		—
Consumer and other		21		219,164		219,164
		30	$	1,864,634	$	1,864,634

The following table presents loans modified in a TDR from January 1, 2011, through December 31, 2011, that subsequently defaulted (i.e., 60 days or more past due following a modification) during the year ended December 31, 2011:

		September 30,		September 30,
	Year Ended December 31, 2011
	Number
	Of		Outstanding Recorded
	Loans		Investment at Default
Residential 1-4 family		1	$	41,736
Commercial real estate and multifamily		—		—
Construction and land		—		—
Commercial		—		—
Consumer and other		2		7,716
		3	$	49,452