Loans Receivable

Loans not covered by loss share agreements are summarized as follows:



	March 31, 2015		September 30, 2014
Loans not covered by loss sharing agreements:
1-4 family residential real estate	$	172,131,248	$	152,810,501
Commercial real estate	340,171,680		300,556,023
Commercial	29,431,806		24,759,682
Real estate construction	70,758,469		63,485,411
Consumer and other	4,559,832		4,959,103
Loans receivable, net of undisbursed proceeds of loans in process	617,053,035		546,570,720
Less:
Unamortized loan origination fees, net	1,471,715		1,364,853
Allowance for loan losses	8,463,104		8,473,373
Total loans not covered, net	$	607,118,216	$	536,732,494

The carrying amount of covered loans at March 31, 2015 and September 30, 2014, consisted of impaired loans at acquisition date and all other acquired loans and are presented in the following tables.



	March 31, 2015
	Impaired Loans at Acquisition		All Other Acquired Loans		Total Covered Loans
Loans covered by loss sharing agreements:
1-4 family residential real estate	$	3,141,212	$	5,256,205	$	8,397,417
Commercial real estate	27,761,821		19,617,148		47,378,969
Commercial	1,281,174		650,067		1,931,241
Real estate construction	—		—		—
Consumer and other	—		72,570		72,570
Loans receivable, gross	32,184,207		25,595,990		57,780,197
Less:
Nonaccretable difference	3,161,562		249,204		3,410,766
Allowance for covered loan losses	—		946,314		946,314
Accretable discount	2,765,732		1,443,969		4,209,701
Discount on acquired performing loans	—		112,361		112,361
Unamortized loan origination fees, net	—		7,149		7,149
Total loans covered, net	$	26,256,913	$	22,836,993	$	49,093,906



	September 30, 2014
	Impaired Loans at Acquisition		All Other Acquired Loans		Total Covered Loans
Loans covered by loss sharing agreements:
1-4 family residential real estate	$	4,841,705	$	6,800,846	$	11,642,551
Commercial real estate	33,053,228		34,354,816		67,408,044
Commercial	1,871,879		1,800,989		3,672,868
Real estate construction	—		—		—
Consumer and other	1,418		177,228		178,646
Loans receivable, gross	39,768,230		43,133,879		82,902,109
Less:
Nonaccretable difference	5,993,661		273,024		6,266,685
Allowance for covered loan losses	—		997,524		997,524
Accretable discount	3,073,198		2,770,499		5,843,697
Discount on acquired performing loans	—		142,731		142,731
Unamortized loan origination fees, net	—		17,253		17,253
Total loans covered, net	$	30,701,371	$	38,932,848	$	69,634,219

The following table documents changes in the accretable discount on acquired credit impaired loans during the six months ended March 31, 2015 and the year ended September 30, 2014:



	Impaired Loans at Acquisition			All Other Acquired Loans			Total Covered Loans
Balance, September 30, 2013	$	3,508,430		$	1,164,941		$	4,673,371
Loan accretion	(3,979,390		)	(2,579,144		)	(6,558,534		)
Transfer from nonaccretable difference	3,544,158			4,184,702			7,728,860
Balance, September 30, 2014	3,073,198			2,770,499			5,843,697
Loan accretion	(1,507,466		)	(1,391,669		)	(2,899,135		)
Transfer from nonaccretable difference	1,200,000			65,139			1,265,139
Balance, March 31, 2015	$	2,765,732		$	1,443,969		$	4,209,701

The following is a summary of transactions during the three and six months ended March 31, 2015 and 2014 in the allowance for loan losses on loans covered by loss sharing:



	Three Months Ended March 31,						Six Months Ended March 31,
	2015			2014			2015			2014
Balance, beginning of period	$	1,012,679		$	3,434,733		$	997,524		$	3,924,278
Loans charged off, gross	—			(168,861		)	(64,853		)	(138,885		)
Recoveries on loans previously charged off	13,635			75,988			13,643			84,150
Provision (benefit) for loan losses charged (reversed) to FDIC receivable	(76,000		)	(1,020,167		)	—			(1,549,966		)
Provision for loan losses charged to operations	(4,000		)	(53,693		)	—			(51,577		)
Balance, end of period	$	946,314		$	2,268,000		$	946,314		$	2,268,000

The following table documents changes in the carrying value of the FDIC receivable for loss sharing agreements relating to covered loans and other real estate owned during the six months ended March 31, 2015 and the year ended September 30, 2014:



	Six Months Ended March 31, 2015			Year Ended September 30, 2014
Balance, beginning of period	$	10,531,809		$	29,941,862
Payments received from FDIC	(1,900,158		)	(10,954,707		)
Accretion of fair value adjustment	74,519			347,347
Impairment	—			(521,637		)
Amortization	(1,790,514		)	(3,507,017		)
Recovery of previous loss reimbursements	(1,675,654		)	(6,762,304		)
Reduction in previous loss estimates	—			(1,549,967		)
Provision for estimated losses on covered assets recognized in noninterest expense	789,792			1,426,762
External expenses qualifying under loss sharing agreements	719,565			2,111,470
Balance, end of period	$	6,749,359		$	10,531,809

During the quarterly reevaluation of cash flows on acquired loans, the Company revised its estimate of cash flows related to covered loans, resulting in a transfer of $1.3 million from nonaccretable discount to accretable yield related to the MCB and FNB acquisitions. In accordance with accounting guidance, the transferred amount will be accreted into income prospectively over the estimated remaining life of the loan pools. Concurrently, approximately $818,000, which previously represented cash flows receivable from the FDIC and included in the FDIC receivable for loss sharing agreements on the balance sheet will be amortized into interest income over the remaining life of the loan pools or the agreements with the FDIC, whichever is shorter.

Loan Origination and Risk Management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial real estate loans are generally made by the Company to Georgia, Alabama or Florida panhandle entities and are secured by properties in these states. Commercial real estate lending involves additional risks compared to one- to four-family residential lending. Repayment of commercial real estate loans often depends on the successful operations and income stream of the borrowers, and commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. The Company’s underwriting criteria for commercial real estate loans include maximum loan-to-value ratios, debt coverage ratios, secondary sources of repayment, guarantor requirements, net worth requirements and quality of cash flow. As part of the loan approval and underwriting of commercial real estate loans, management undertakes a cash flow analysis, and generally requires a debt-service coverage ratio of at least 1.15 times. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At March 31, 2015, approximately 21.8% of the outstanding principal balance of the Company’s commercial real estate loans was secured by owner-occupied properties.

The Company makes construction and land development loans primarily for the construction of one- to four-family residences but also for multi-family and nonresidential real estate projects on a select basis. The Company offers construction loans to builders including both speculative (unsold) and pre-sold loans to pre-approved local builders. The number of speculative loans that management will extend to a builder at one time depends upon the financial strength and credit history of the builder. The Company’s construction loan program is expected to remain a modest portion of the loan volume and management generally limits the number of outstanding loans on unsold homes under construction within a specific area.

The Company also originates first and second mortgage loans and home equity lines of credit secured by one- to four-family residential properties within Georgia, Alabama and the Florida panhandle. Management currently originates mortgages at all branch locations, but utilizes a centralized processing location to reduce the underwriting risk. The Company originates both fixed rate and adjustable rate one- to four-family residential mortgage loans. Fixed rate 30 year conforming loans are generally originated for resale into the secondary market and loans that are non-conforming due to property exceptions and that have adjustable rates are generally retained in the Company’s portfolio. The non-conforming loans originated are not considered to be subprime loans and the amount of subprime and low documentation loans held by the Company is not material. The Company also offers home equity lines of credit as a complement to one- to four-family residential mortgage lending. The underwriting standards applicable to home equity credit lines are similar to those for one- to four-family residential mortgage loans, except for slightly more stringent credit-to-income and credit score requirements. Home equity loans are generally limited to 80% of the value of the underlying property unless the loan is covered by private mortgage insurance or a loss sharing agreement. At March 31, 2015, the Company had $13.4 million of home equity lines of credit and second mortgage loans not covered by FDIC loss sharing agreements (“loss sharing”).

The Company originates consumer loans that consist of loans on deposits, auto loans and various other installment loans. The Company primarily offers consumer loans as an accommodation to customers. Consumer loans tend to have a higher credit risk than residential mortgage loans because they may be secured by rapidly depreciable assets, or may be unsecured. The Company’s consumer lending generally follows accepted industry standards for non-subprime lending, including credit scores and debt to income ratios.

The Company’s commercial business loans are generally limited to terms of five years or less. Management typically collateralizes these loans with a lien on commercial real estate or, much less frequently, with a lien on business assets and equipment. Management also generally requires the personal guarantee of the business owner. Interest rates on commercial business loans are generally higher than interest rates on residential or commercial real estate loans due to the risk inherent in this type of loan. Commercial business loans are generally considered to have more risk than residential mortgage loans or commercial real estate loans because the collateral may be in the form of intangible assets and/or readily depreciable inventory. Commercial business loans may also involve relatively large loan balances to single borrowers or groups of related borrowers, with the repayment of such loans typically dependent on the successful operation and income stream of the borrower. Such risks can be significantly affected by economic conditions. In addition, commercial business lending generally requires substantially greater supervision efforts by management compared to residential mortgage or commercial real estate lending.

The Company maintains an internal loan review function that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Nonaccrual and Past Due Loans. Nonaccrual loans not covered by loss sharing, segregated by class of loans were as follows:



	March 31, 2015 ₍₁₎		September 30, 2014 ₍₁₎
1-4 family residential real estate	$	1,465,996	$	982,087
Commercial real estate	1,869,036		2,369,520
Commercial	75,225		156,474
Real estate construction	—		—
Consumer and other	—		—
Total	$	3,410,257	$	3,508,081

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(1)

Acquired Neighborhood Community Bank and McIntosh Commercial Bank FAS ASC 310-30 loans that are no longer covered under their respective commercial loss sharing agreements with the FDIC in the amount of $3.6 million at March 31, 2015 are excluded. Additionally, acquired Neighborhood Community Bank FAS ASC 310-30 loans that are no longer covered under the commercial loss sharing agreement with the FDIC in the amount of $1.3 million at September 30, 2014 are excluded. Due to the recognition of accretion income established at the time of acquisition, the FAS ASC 310-30 loans that are greater than 90 days delinquent are regarded as accruing loans.

An age analysis of past due loans not covered by loss sharing, segregated by class of loans at March 31, 2015 and September 30, 2014 were as follows:

March 31, 2015



	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days Accruing ₍₁₎
1-4 family residential real estate	$	1,630,392	$	339,613	$	1,970,005	$	170,161,243	$	172,131,248	$	—
Commercial real estate	1,112,426		711,494		1,823,920		338,347,760		340,171,680		488,170
Commercial	111,131		2,225		113,356		29,318,450		29,431,806		2,225
Real estate construction	—		—		—		70,758,469		70,758,469		—
Consumer and other	7,312		—		7,312		4,552,520		4,559,832		—
Total	$	2,861,261	$	1,053,332	$	3,914,593	$	613,138,442	$	617,053,035	$	490,395

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(1)	Previously covered loans in the amount of $490,395 are now reflected in the Greater than 90 Days Accruing column. These loans which are accounted for under ASC 310-30 are reported as accruing loans because of accretable discounts established at the time of acquisition.

September 30, 2014



	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days Accruing ₍₁₎
1-4 family residential real estate	$	1,927,860	$	545,179	$	2,473,039	$	150,337,462	$	152,810,501	$	516,659
Commercial real estate	254,423		1,943,161		2,197,584		298,358,439		300,556,023		1,218,188
Commercial	62,479		1,000		63,479		24,696,203		24,759,682		—
Real estate construction	—		—		—		63,485,411		63,485,411		—
Consumer and other	31,306		4,354		35,660		4,923,443		4,959,103		4,354
Total	$	2,276,068	$	2,493,694	$	4,769,762	$	541,800,958	$	546,570,720	$	1,739,201

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(1)	Previously covered loans in the amount of $1,003,007 are now reflected in the Greater than 90 Days Accruing column. These loans which are accounted for under ASC 310-30 are reported as accruing loans because of accretable discounts established at the time of acquisition.

An age analysis of past due loans covered by loss sharing, segregated by class of loans at March 31, 2015 and September 30, 2014 were as follows:

March 31, 2015



	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans ₍₁₎		Loans > 90 Days Accruing ₍₂₎
1-4 family residential real estate	$	51,688	$	12,235	$	63,923	$	7,390,674	$	7,454,597	$	12,235
Commercial real estate	601,010		2,541,537		3,142,547		40,969,610		44,112,157		2,541,537
Commercial	57,700		83,997		141,697		1,672,941		1,814,638		83,997
Real estate construction	—		—		—		—		—		—
Consumer and other	—		—		—		41,725		41,725		—
Total	$	710,398	$	2,637,769	$	3,348,167	$	50,074,950	$	53,423,117	$	2,637,769

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(1)	Covered loan balances are net of nonaccretable differences and allowance for covered loan losses and have not been reduced by $4,322,062 of accretable discounts and discounts on acquired performing loans.


(2)	Covered loans contractually past due greater than ninety days are reported as accruing loans because of accretable discounts established at the time of acquisition.

September 30, 2014



	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans ₍₁₎		Loans > 90 Days Accruing ₍₂₎
1-4 family residential real estate	$	414,699	$	814,238	$	1,228,937	$	9,448,399	$	10,677,336	$	814,238
Commercial real estate	1,399,520		3,949,083		5,348,603		55,950,984		61,299,587		3,949,083
Commercial	387,641		551,721		939,362		2,573,517		3,512,879		551,721
Real estate construction	—		—		—		—		—		—
Consumer and other	—		—		—		148,098		148,098		—
Total	$	2,201,860	$	5,315,042	$	7,516,902	$	68,120,998	$	75,637,900	$	5,315,042

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(1)	Covered loan balances are net of nonaccretable differences and allowance for covered loan losses and have not been reduced by $5,986,428 of accretable discounts and discounts on acquired performing loans.


(2)	Covered loans contractually past due greater than ninety days are reported as accruing loans because of accretable discounts established at the time of acquisition.

Impaired Loans. The Company evaluates “impaired” loans, which includes nonperforming loans and accruing troubled debt restructured loans, having risk characteristics that are unique to an individual borrower on a loan-by-loan basis with balances above a specified level. For smaller loans, the allowance is calculated based on the credit grade utilizing historical loss experience and other qualitative factors.

Impaired loans not covered by loss sharing, segregated by class of loans were as follows:

March 31, 2015



							Three Months Ended March 31, 2015				Six Months Ended March 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
With no related allowance recorded:
1-4 family residential real estate	$	1,517,435	$	2,009,879	$	—	$	1,534,541	$	548	$	1,550,559	$	3,999
Commercial real estate	7,881,126		9,116,027		—		7,900,032		87,259		7,928,631		175,555
Commercial	75,225		96,305		—		81,043		—		84,807		—
Total:	$	9,473,786	$	11,222,211	$	—	$	9,515,616	$	87,807	$	9,563,997	$	179,554

There were no recorded allowances for impaired loans not covered by loss sharing at March 31, 2015. The recorded investment in accruing troubled debt restructured loans at March 31, 2015 totaled $6,063,530 and is included in the impaired loan table above.

September 30, 2014



							Year Ended September 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment in Impaired Loans		Interest Income Recognized
With no related allowance recorded:
1-4 family residential real estate	$	1,550,777	$	2,077,942	$	—	$	1,737,505	$	31,656
Commercial real estate	8,687,088		10,510,893		—		9,196,747		373,711
Commercial	156,474		205,625		—		188,458		—
Total:	$	10,394,339	$	12,794,460	$	—	$	11,122,710	$	405,367

There were no recorded allowances for impaired loans not covered by loss sharing at September 30, 2014. The recorded investment in accruing troubled debt restructured loans at September 30, 2014 totaled $6,154,420 and is included in the impaired loan table above.

Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio for both loans covered and not covered by loss sharing agreements with the FDIC, management tracks certain credit quality indicators including the level of classified loans, net charge-offs, nonperforming loans (see details above) and the general economic conditions in its market areas.

The Company utilizes a risk grading to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. The risk grade for each individual loan is determined by the loan officer and other approving officers at the time of loan origination and is adjusted from time to time to reflect an ongoing assessment of loan risk. Risk grades are reviewed on specific loans monthly for all delinquent loans as a part of monthly meetings held by the Loan Committee, quarterly for all nonaccrual and special reserve loans, and annually as part of the Company’s internal loan review process. In addition, individual loan risk grades are reviewed in connection with all renewals, extensions and modifications. Risk grades for covered loans are determined by officers within the Special Assets Division based on an ongoing assessment of loan risk. Such risk grades are updated in a manner consistent with non-covered loans, except the grading of such loans are assessed quarterly, as applicable, relating to revised estimates of expected cash flows.

The following table presents the risk grades of the loan portfolio not covered by loss sharing, segregated by class of loans:

March 31, 2015



	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Pass (1-4)	$	169,257,202	$	311,500,448	$	28,911,206	$	70,758,469	$	4,526,366	$	584,953,691
Special Mention (5)	750,553		2,055,331		13,459		—		—		2,819,343
Substandard (6)	2,123,493		26,615,901		507,141		—		33,466		29,280,001
Doubtful (7)	—		—		—		—		—		—
Loss (8)	—		—		—		—		—		—
Total not covered loans	$	172,131,248	$	340,171,680	$	29,431,806	$	70,758,469	$	4,559,832	$	617,053,035

September 30, 2014



	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Pass (1-4)	$	151,661,479	$	273,587,373	$	23,205,880	$	63,485,411	$	4,954,661	$	516,894,804
Special Mention (5)	—		3,325,324		91,000		—		—		3,416,324
Substandard (6)	1,149,022		23,643,326		1,462,802		—		4,442		26,259,592
Doubtful (7)	—		—		—		—		—		—
Loss (8)	—		—		—		—		—		—
Total not covered loans	$	152,810,501	$	300,556,023	$	24,759,682	$	63,485,411	$	4,959,103	$	546,570,720

The following table presents the risk grades, ignoring grade enhancement provided by the FDIC loss sharing, of the loan portfolio covered by loss sharing agreements, segregated by class of loans at March 31, 2015 and September 30, 2014. Numerical risk ratings 5-8 constitute classified assets for regulatory reporting; however, regulatory authorities consider the FDIC loss sharing percentage of either 80% or 95%, as applicable, as a reduction of the regulatory classified balance for covered loans. With respect to classified assets covered by loss sharing agreements, numerical risk ratings 5-8, for regulatory reporting purposes are done under FDIC guidance reporting the Bank’s non-reimbursable amount of the book balance of the loans as classified. The remaining reimbursable portion is classified as pass, numerical risk ratings 1-4.

March 31, 2015



	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Numerical risk rating (1-4)	$	6,086,210	$	23,739,341	$	1,483,044	$	—	$	41,725	$	31,350,320
Numerical risk rating (5)	63,123		6,403,968		—		—		—		6,467,091
Numerical risk rating (6)	1,305,264		13,968,848		331,594		—		—		15,605,706
Numerical risk rating (7)	—		—		—		—		—		—
Numerical risk rating (8)	—		—		—		—		—		—
Total covered loans ₍₁₎	$	7,454,597	$	44,112,157	$	1,814,638	$	—	$	41,725	$	53,423,117

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(1)	Covered loan balances are net of nonaccretable differences and allowances for covered loan losses and have not been reduced by $4,322,062 of accretable discounts and discounts on acquired performing loans.

September 30, 2014



	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Numerical risk rating (1-4)	$	7,392,585	$	34,017,713	$	1,982,382	$	—	$	74,392	$	43,467,072
Numerical risk rating (5)	693,038		8,411,973		448,957		—		—		9,553,968
Numerical risk rating (6)	2,591,713		18,869,901		1,081,540		—		73,706		22,616,860
Numerical risk rating (7)	—		—		—		—		—		—
Numerical risk rating (8)	—		—		—		—		—		—
Total covered loans ₍₁₎	$	10,677,336	$	61,299,587	$	3,512,879	$	—	$	148,098	$	75,637,900

__________________________________


(1)	Covered loan balances are net of nonaccretable differences and allowances for covered loan losses and have not been reduced by $5,986,428 of accretable discounts and discounts on acquired performing loans.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense and is an amount that management believes will be adequate to absorb losses on existing loans that become uncollectible, based on evaluations of the collectability of loans. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, historical loss rates, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect a borrower’s ability to repay. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely and subsequent recoveries are added to the allowance.

Management’s allowance for loan losses methodology is a loan classification-based system. Management bases the required reserve on a percentage of the loan balance for each type of loan and classification level. Loans may be classified manually and are automatically classified if they are not previously classified when they reach certain levels of delinquency. Unclassified loans are reserved at different percentages based on the loan loss history of the last seven years. Reserve percentages are also adjusted based upon our estimate of the effect that the current economic environment will have on each type of loan.

Management segments its allowance for loan losses into the following four major categories: (1) specific reserves; (2) general allowances for Classified/Watch loans; (3) general allowances for loans with satisfactory ratings; and (4) an unallocated amount. Risk ratings are initially assigned in accordance with CharterBank’s loan and collection policy. An organizationally independent department reviews risk grade assignments on an ongoing basis. Management reviews current information and events regarding a borrowers’ financial condition and strengths, cash flows available for debt repayment, the related collateral supporting the loan and the effects of known and expected economic conditions. When the evaluation reflects a greater than normal risk associated with the individual loan, management classifies the loan accordingly. If the loan is determined to be impaired, management allocates a portion of the allowance for loan losses for that loan based on the fair value of the collateral, if the loan is considered collateral-dependent, as the measure for the amount of the impairment. Impaired and Classified/Watch loans are aggressively monitored.

The allowances for loans by credit grade are further subdivided by loan type. The Company has developed specific quantitative allowance factors to apply to each loan which considers loan charge-off experience over the most recent seven years by loan type. In addition, loss estimates are applied for certain qualitative allowance factors that are subjective in nature and require considerable judgment on the part of management. Such qualitative factors include economic and business conditions, the volume of past due loans, changes in the value of collateral of collateral-dependent loans, and other economic uncertainties. An unallocated component of the allowance is also established for potential losses that exist in the remainder of the portfolio, but have yet to be identified.

The Company incorporates certain refinements and improvements to its allowance for loan losses methodology from time to time. During the previous fiscal year, the Company made certain refinements in its allowance methodology. The Company increased the look back period of historical losses from 24 months to 84 months as net charge-offs were not reflective of a full credit cycle for the two year period ended March 31, 2015 as compared with the seven year period ended March 31, 2015. In addition, some qualitative factors were removed and the loss allocation for qualitative risk factors was decreased. The change in the historical look back period more closely aligns the quantitative aspect of the Company's allowance methodology with the risks inherent in a full credit cycle.

An unallocated allowance is generally maintained in a range of 4% to 12% of the total allowance in recognition of the imprecision of the estimates and other factors. In times of greater economic downturn and uncertainty, the higher end of this range is provided.

Through the FDIC-assisted acquisitions of the loans of Neighborhood Community Bank (“NCB”), McIntosh Commercial Bank (“MCB”) and First National Bank of Florida (“FNB”), management established nonaccretable discounts for the acquired impaired loans and also for all other loans of MCB. These nonaccretable discounts were based on estimates of future cash flows. Subsequent to the acquisition dates, management continues to assess the experience of actual cash flows compared to estimates. When management determines that nonaccretable discounts are insufficient to cover expected losses in the applicable covered loan portfolios, the allowance for covered loans is increased with a corresponding provision for covered loan losses as a charge to earnings and an increase in the applicable FDIC receivable based on loss sharing indemnification.

The Company maintained its allowance for loan losses for non-covered loans for the quarter ended March 31, 2015 in response to inconsistent economic conditions, net charge-offs, financial indicators for borrowers in the real estate sectors, continuing low collateral values of commercial and residential real estate, and nonaccrual and impaired loans. However, the Company did not make a provision in the quarter ended March 31, 2015 due to the long term trend of declining net charge-offs and overall improvement in the credit quality of the loan portfolio. The following table details the allowance for loan losses on loans not covered by loss sharing by portfolio segment for the quarters ended March 31, 2015 and 2014. Allocation of a portion of the allowance to one category of loans does not preclude availability to absorb losses in other categories.

The following tables are a summary of transactions in the allowance for loan losses on loans not covered by loss sharing by portfolio segment:



	Three Months Ended March 31, 2015
	1-4 family real estate			Commercial real estate			Commercial			Real estate construction			Consumer and other			Unallocated		Total
Allowance for loan losses:
Balance at beginning of period	$	810,797		$	5,887,208		$	391,617		$	470,369		$	14,144		$	920,062	$	8,494,197
Charge-offs	(4,921		)	(53,181		)	—			—			(1,000		)	—		(59,102		)
Recoveries	—			325			23,129			—			4,555			—		28,009
Provision	(180,370		)	236,779			(17,135		)	(50,388		)	(3,680		)	14,794		—
Balance at end of period	$	625,506		$	6,071,131		$	397,611		$	419,981		$	14,019		$	934,856	$	8,463,104



	Six Months Ended March 31, 2015
	1-4 family real estate			Commercial real estate			Commercial			Real estate construction			Consumer and other			Unallocated		Total
Allowance for loan losses:
Balance at beginning of period	$	812,130		$	5,969,819		$	400,883		$	492,903		$	13,990		$	783,648	$	8,473,373
Charge-offs	(83,591		)	(53,180		)	—			—			(10,622		)	—		(147,393		)
Recoveries	4,000			94,623			32,607			—			5,894			—		137,124
Provision	(107,033		)	59,869			(35,879		)	(72,922		)	4,757			151,208		—
Balance at end of period	$	625,506		$	6,071,131		$	397,611		$	419,981		$	14,019		$	934,856	$	8,463,104
Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—				$	—
Loans:
Ending balance: individually evaluated for impairment	$	1,517,435		$	7,881,126		$	75,225		$	—		$	—				$	9,473,786
Ending balance: collectively evaluated for impairment	170,613,813			332,290,554			29,356,581			70,758,469			4,559,832					607,579,249
Ending balance	$	172,131,248		$	340,171,680		$	29,431,806		$	70,758,469		$	4,559,832				$	617,053,035



	Three Months Ended March 31, 2014
	1-4 family real estate			Commercial real estate			Commercial			Real estate construction		Consumer and other			Unallocated			Total
Allowance for loan losses:
Balance at beginning of period	$	739,764		$	6,002,964		$	684,585		$	362,591	$	54,067		$	650,441		$	8,494,412
Charge-offs	(58,970		)	(30,437		)	—			—		(3,099		)	—			(92,506		)
Recoveries	—			9,111			19,052			—		548			—			28,711
Provision	(9,298		)	516,781			(262,314		)	42,909		64			(288,142		)	—
Balance at end of period	$	671,496		$	6,498,419		$	441,323		$	405,500	$	51,580		$	362,299		$	8,430,617



	Six Months Ended March 31, 2014
	1-4 family real estate			Commercial real estate			Commercial			Real estate construction		Consumer and other			Unallocated			Total
Allowance for loan losses:
Balance at beginning of period	$	862,043		$	5,446,357		$	455,833		$	387,302	$	124,717		$	912,644		$	8,188,896
Charge-offs	(100,379		)	(30,437		)	(22,035		)	—		(7,648		)	—			(160,499		)
Recoveries	—			70,231			29,062			—		2,927			—			102,220
Provision	(90,168		)	1,012,268			(21,537		)	18,198		(68,416		)	(550,345		)	300,000
Balance at end of period	$	671,496		$	6,498,419		$	441,323		$	405,500	$	51,580		$	362,299		$	8,430,617
Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—	$	—					$	—
Loans:
Ending balance: individually evaluated for impairment	$	1,301,330		$	10,800,578		$	194,656		$	—	$	—					$	12,296,564
Ending balance: collectively evaluated for impairment	133,879,683			260,355,853			21,306,110			47,111,623		16,531,561						479,184,830
Ending balance	$	135,181,013		$	271,156,431		$	21,500,766		$	47,111,623	$	16,531,561					$	491,481,394

There were no new troubled debt restructurings (“TDRs”) in the six month period ended March 31, 2015. For the six month period ended March 31, 2014, the following table presents a breakdown of the types of concessions determined to be troubled debt restructurings (“TDRs”) during the period by loan class:



	Accruing Loans					Nonaccrual Loans
	Six Months Ended March 31, 2014					Six Months Ended March 31, 2014
	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
Payment structure modification:
Commercial real estate	1	$	552,961	$	552,961	—	$	—	$	—
Total	1	$	552,961	$	552,961	—	$	—	$	—

Loans are classified as restructured by the Company when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. The Company only restructures loans for borrowers in financial difficulty that have presented a viable business plan to fully pay off all obligations, including outstanding debt, interest, and fees, either by generating additional income from the business or through liquidation of assets. Generally, these loans are restructured to provide the borrower additional time to execute upon their plans. The concessions granted on TDRs generally include terms to reduce the interest rate or extend the term of the debt obligation.

Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the loan is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower’s financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

As of March 31, 2015 and 2014, there were no loans that defaulted within twelve months after their restructure.