LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2014

Loans and Leases Receivable Disclosure [Abstract]

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans outstanding, by classification, are summarized as follows (amounts in thousands):

	December 31,
	2014		2013
Commercial, financial, and agricultural	$	33,308	$	20,292
Commercial Real Estate		116,437		120,180
Single-Family Residential		31,940		34,864
Construction and Development		2,925		3,626
Consumer		6,428		6,314
		191,038		185,276
Allowance for loan losses		2,299		3,157
Loans receivable-net	$	188,739	$	182,119

Concentrations—The Company’s concentrations of credit risk are as follows:

A substantial portion of the Company’s loan portfolio is collateralized by real estate in metropolitan Atlanta and Birmingham markets. Accordingly, the ultimate collectability of a substantial portion of the Company’s loan portfolio is susceptible to changes in market conditions in the metropolitan Atlanta and Birmingham areas.

· The Company’s loans to area churches were approximately $41.9 million and $40.9 million at December 31, 2014 and 2013, respectively, which are generally secured by real estate.

· The Company’s loans to area convenience stores were approximately $7.3 million and $9.2 million at December 31, 2014 and 2013, respectively. Loans to convenience stores are generally secured by real estate.

· The Company’s loans to area hotels were approximately $21.3 million and $25.7 million at December 31, 2014 and 2013, respectively, which are generally secured by real estate.

Activity in the allowance for loan losses by portfolio segment is summarized as follows (in thousands):

	For the Year Ended December, 2014
				Commercial			Single-family			Construction
	Commercial			Real Estate			Residential			& Development			Consumer			Total
Beginning balance	$	384		$	1,721		$	731		$	126		$	195		$	3,157
Provision for loan losses		(12	)		27			(129	)		69			120			75
Loans charged-off		(9	)		(562	)		(468	)		(137	)		(182	)		(1,358	)
Recoveries on loans charged-off		52			180			120			14			59			425
Ending Balance	$	415		$	1,366		$	254		$	72		$	192		$	2,299

	For the Year Ended December, 2013
				Commercial			Single-family			Construction
	Commercial			Real Estate			Residential			& Development			Consumer			Total
Beginning balance	$	433		$	1,853		$	803		$	177		$	243		$	3,509
Provision for loan losses		(68	)		127			361			(56	)		61			425
Loans charged-off		(22	)		(710	)		(554	)		(30	)		(169	)		(1,485	)
Recoveries on loans charged-off		41			451			121			35			60			708
Ending Balance	$	384		$	1,721		$	731		$	126		$	195		$	3,157

	For the Year Ended December, 2012
				Commercial			Single-family			Construction
	Commercial			Real Estate			Residential			& Development			Consumer			Total
Beginning balance	$	394		$	2,206		$	696		$	449		$	211		$	3,956
Provision for loan losses		27			1,761			646			(140	)		106			2,400
Loans charged-off		(21	)		(2,138	)		(625	)		(136	)		(149	)		(3,069	)
Recoveries on loans charged-off		33			24			86			4			75			222
Ending Balance	$	433		$	1,853		$	803		$	177		$	243		$	3,509

Portions of the allowance for loan losses may be allocated for specific loans or portfolio segments. However, the entire allowance for loan losses is available for any loan that, in the judgment of management, should be charged-off.

In determining our allowance for loan losses, we regularly review loans for specific reserves based on the appropriate impairment assessment methodology. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. At December 31, 2014 and 2013, substantially all of the total impaired loans were evaluated based on the fair value of the underlying collateral. General reserves are determined using historical loss trends measured over a rolling four quarter average for consumer loans, and a three year average loss factor for commercial loans which is applied to risk rated loans grouped by Federal Financial Examination Council (“FFIEC”) call code. For commercial loans, the general reserves are calculated by applying the appropriate historical loss factor to the loan pool. Impaired loans greater than a minimum threshold established by management are excluded from this analysis.   The sum of all such amounts determines our total allowance for loan losses.

The allocation of the allowance for loan losses by portfolio segment was as follows (in thousands): 

	At December 31, 2014
	Commercial		Commercial Real Estate		Single- family Residential		Construction & Development		Consumer		Total
Allowance for loan losses:
Specific Reserves:
Impaired loans	$	—	$	91	$	51	$	—	$	—	$	142
Total specific reserves		—		91		51		—		—		142
General reserves		415		1,275		203		72		192		2,157
Total	$	415	$	1,366	$	254	$	72	$	192	$	2,299
Loans outstanding:
Loans individually evaluated for impairment	$	—	$	9,787	$	280	$	219	$	—	$	10,286
Loans collectively evaluated for impairment		33,308		106,650		31,660		2,706		6,428		180,752
Total	$	33,308	$	116,437	$	31,940	$	2,925	$	6,428	$	191,038

	At December 31, 2013
	Commercial		Commercial Real Estate		Single- family Residential		Construction & Development		Consumer		Total
Allowance for loan losses:
Specific Reserves:
Impaired loans	$	—	$	3	$	—	$	—	$	—	$	3
Total specific reserves		—		3		—		—		—		3
General reserves		384		1,718		731		126		195		3,154
Total	$	384	$	1,721	$	731	$	126	$	195	$	3,157
Loans outstanding:
Loans individually evaluated for impairment	$	—	$	10,705	$	360	$	—	$	—	$	11,065
Loans collectively evaluated for impairment		20,292		109,475		34,504		3,626		6,314		174,211
Total	$	20,292	$	120,180	$	34,864	$	3,626	$	6,314	$	185,276

The following table presents impaired loans by class of loan (in thousands):

	At December 31, 2014
							Impaired Loans - With
	Impaired Loans - With Allowance						no Allowance
	Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal		Recorded Investment		Average Recorded Investment		Interest Income Recognized
Residential:
First mortgages	$	—	$	—	$	—	$	—	$	—	$	—	$	—
HELOC’s and equity		102		102		51		178		178		86		35
Commercial
Secured		—		—		—		—		—		—		—
Unsecured		—		—		—		—		—		—		—
Commercial Real Estate:
Owner occupied		81		81		81		8,014		7,457		7,575		717
Non-owner occupied		—		—		—		2,388		2,154		2,228		165
Multi-family		95		95		10		—		—		97		69
Construction and Development:														.
Construction		—		—		—		356		219		292		30
Improved Land		—		—		—		—		—		—		—
Unimproved Land		—		—		—		—		—		—		—
Consumer and Other		—		—				—		—		—		—
Total	$	278	$	278	$	142	$	10,936	$	10,008	$	10,278	$	1,016

	At December 31, 2013
							Impaired Loans - With
	Impaired Loans - With Allowance						no Allowance
	Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal		Recorded Investment		Average Recorded Investment		Interest Income Recognized
Residential:
First mortgages	$	—	$	—	$	—	$	231	$	231	$	231	$	—
HELOC’s and equity		—		—		—		129		129		128		2
Commercial
Secured		—		—		—		—		—		—		—
Unsecured		—		—		—		—		—		—		—
Commercial Real Estate:
Owner occupied		—		—		—		10,300		7,968		8,049		534
Non-owner occupied		—		—		—		2,924		2,407		2,516		108
Multi-family		386		330		3		—		—		359		28
Construction and Development:
Construction		—		—		—		—		—		—		—
Improved Land		—		—		—		—		—		—		—
Unimproved Land		—		—		—		—		—		—		—
Consumer and Other		—		—				—		—		—		—
Total	$	386	$	330	$	3	$	13,584	$	10,735	$	11,283	$	672

The following table is an aging analysis of our loan portfolio (in thousands):

	At December 31, 2014
													Recorded
													Investment
	30- 59		60- 89		Over 90						Total		> 90 Days
	Days Past		Days Past		Days Past		Total				Loans		and
	Due		Due		Due		Past Due		Current		Receivable		Accruing		Nonaccrual
Residential:
First mortgages	$	2,273	$	1,190	$	1,036	$	4,499	$	19,960	$	24,459	$	35	$	1,513
HELOC’s and equity		60		550		184		794		6,687		7,481		—		286
Commercial:
Secured		—		187		—		187		28,232		28,419		—		—
Unsecured		—		—		—		—		4,889		4,889		—		—
Commercial Real Estate:
Owner occupied		767		—		228		995		59,065		60,060		—		1,222
Non-owner occupied		1,429		588		84		2,101		42,425		44,526		—		1,026
Multi-family		35		327		95		457		11,394		11,851		—		95
Construction and Development:
Construction		—		—		—		—		2,759		2,759		—		—
Improved Land		103		—		—		103		63		166		—		—
Unimproved Land		—		—		—		—		—		—		—		—
Consumer and Other		6		22		18		46		6,382		6,428		—		18
Total	$	4,673	$	2,864	$	1,645	$	9,182	$	181,856	$	191,038	$	35	$	4,160

	At December 31, 2013
													Recorded
													Investment
	30- 59		60- 89		Over 90						Total		> 90 Days
	Days Past		Days Past		Days Past		Total				Loans		and
	Due		Due		Due		Past Due		Current		Receivable		Accruing		Nonaccrual
Residential:
First mortgages	$	1,778	$	360	$	1,840	$	3,978	$	22,348	$	26,326	$	—	$	3,334
HELOC’s and equity		444		19		466		929		7,609		8,538		—		821
Commercial:
Secured		125		—		2		127		14,906		15,033		—		2
Unsecured		—		—		—		—		5,259		5,259		—		—
Commercial Real Estate:
Owner occupied		715		753		81		1,549		60,090		61,639		—		1,038
Non-owner occupied		38		199		286		523		43,287		43,810		—		1,550
Multi-family		747		—		—		747		13,984		14,731		—		330
Construction and Development:
Construction		477		—		—		477		2,542		3,019		—		—
Improved Land		—		—		—		—		242		242		—		—
Unimproved Land		—		—		—		—		365		365		—		—
Consumer and Other		6		30		45		81		6,233		6,314		—		45
Total	$	4,330	$	1,361	$	2,720	$	8,411	$	176,865	$	185,276	$	—	$	7,120

Each of our portfolio segments and the classes within those segments are subject to risks that could have an adverse impact on the credit quality of our loan and lease portfolio. Management has identified the most significant risks as described below which are generally similar among our segments and classes. While the list in not exhaustive, it provides a description of the risks that management has determined are the most significant.

Commercial, financial and agricultural loans—We centrally underwrite each of our commercial loans based primarily upon the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. We endeavor to gain a complete understanding of our borrower’s businesses including the experience and background of the principals. To the extent that the loan is secured by collateral, which is a predominant feature of the majority of our commercial loans, we gain an understanding of the likely value of the collateral and what level of strength the collateral brings to the loan transaction. To the extent that the principals or other parties provide personal guarantees, we analyze the relative financial strength and liquidity of each guarantor. Common risks to each class of commercial loans include risks that are not specific to individual transactions such as general economic conditions within our markets, as well as risks that are specific to each transaction including demand for products and services, personal events such as disability or change in marital status, and reductions in the value of our collateral. Due to the concentration of loans in the metro Atlanta and Birmingham areas, we are susceptible to changes in market and economic conditions of these areas.

Consumer—The installment loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination in excess of principal repayment.

Commercial Real Estate—Real estate commercial loans consist of loans secured by multifamily housing, commercial non-owner and owner occupied and other commercial real estate loans. The primary risk associated with multifamily loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result in our customer having to provide rental rate concessions to achieve adequate occupancy rates. Commercial owner-occupied and other commercial real estate loans are primarily dependent on the ability of our customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s business results are significantly unfavorable versus the original projections, the ability for our loan to be serviced on a basis consistent with the contractual terms may be at risk. These loans are primarily secured by real property and can include other collateral such as personal guarantees, personal property, or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation. Also, due to the concentration of loans in the metro Atlanta and Birmingham areas, we are susceptible to changes in market and economic conditions of these areas.

Single-Family Residential— Real estate residential loans are to individuals and are secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral. Such a decline in values has led to unprecedented levels of foreclosures and losses during 2008-2012 within the banking industry.

Construction and Development—Real estate construction loans are highly dependent on the supply and demand for residential and commercial real estate in the markets we serve as well as the demand for newly constructed commercial space and residential homes and lots that our customers are developing. Continuing deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our customers. Real estate construction loans can experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can routinely result in foreclosure of partially completed and unmarketable collateral.

Risk categories—The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if appropriately classified and impairment, if any. All other loan relationships greater than $750,000 are reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as if a loan becomes past due, the Company will evaluate the loan grade.

Loans excluded from the scope of the annual review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged off. The Company uses the following definitions for risk ratings:

Special Mention Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following table presents our loan portfolio by risk rating (in thousands):

	At December 31, 2014
					Special
	Total		Pass Credits		Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	24,459	$	22,168	$	—	$	2,291	$	—
HELOC’s and equity		7,481		6,346		557		476		102
Commercial, financial, and agricultural:
Secured		28,419		28,419		—		—		—
Unsecured		4,889		4,889		—		—		—
Commercial Real Estate:
Owner occupied		60,060		50,603		4,673		4,702		82
Non-owner occupied		44,526		37,750		4,805		1,971		—
Multi-family		11,851		10,353		1,368		130		—
Construction and Development:
Construction		2,759		2,540		—		219		—
Improved Land		166		127		39		—		—
Unimproved Land		—		—		—		—		—
Consumer		6,428		6,392		5		13		18
Total	$	191,038	$	169,587	$	11,447	$	9,802	$	202

	At December 31, 2013
					Special
	Total		Pass Credits		Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	26,326	$	24,126	$	—	$	2,200	$	—
HELOC’s and equity		8,538		7,686		22		728		102
Commercial, financial, and agricultural:
Secured		15,033		15,009		—		24		—
Unsecured		5,259		5,259		—		—		—
Commercial Real Estate:
Owner occupied		61,639		50,921		5,929		4,789		—
Non-owner occupied		43,810		40,482		819		2,509		—
Multi-family		14,731		13,704		647		380		—
Construction and Development:
Construction		3,019		3,019		—		—		—
Improved Land		242		197		—		45		—
Unimproved Land		365		—		—		365		—
Consumer		6,314		6,224		—		90		—
Total	$	185,276	$	166,627	$	7,417	$	11,130	$	102

The Bank identified as TDRs certain loans for which the allowance for loan losses had previously been measured under a general allowance methodology. Upon identifying those loans as TDRs, the Bank identified them as impaired under the guidance in ASC 310-10-35. The amendments in ASU 2011-02 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those loans newly identified as impaired. As of December 31, 2014, the Company did not identify any loans as TDRs under the amended guidance for which the loan was previously measured under a general allowance methodology.

During the year ended December 31, 2014, the Bank modified 2 loans that were considered to be troubled debt restructurings. We extended the terms and decreased the interest rate on both loans (dollar in thousands).

	December 31, 2014
			Pre-Modification		Post-Modification
	Number of		Recorded		Recorded
	Loans		Investment		Investment
Troubled Debt Restructurings
Residential:
HELOC’s and equity		2	$	90	$	94
Total		2	$	90	$	94

During the year ended December 31, 2013, the Bank modified 11 loans that were considered to be troubled debt restructurings. We extended the terms on 4 loans and decreased the interest rate on 7 loans (dollar in thousands).

	December 31, 2013
			Pre-Modification		Post-Modification
	Number of		Recorded		Recorded
	Loans		Investment		Investment
Troubled Debt Restructurings
Residential:
HELOC’s and equity		5	$	339	$	340
Commercial Real Estate:
Owner occupied		3		408		414
Non-owner occupied		3		766		740
Total		11	$	1,513	$	1,494

During 2013, one loan that had previously been restructured within the previous twelve months was in default. There were no loans in default that had been restructured within the previous twelve months during 2014.

In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings by performing the usual process for all loans in determining the allowance for loan loss. The Company considers a default as failure to comply with the restructured loan agreement. This would include the restructured loan being past due greater than 90 days, failure to comply with financial covenants, or failure to maintain current insurance coverage or real estate taxes after the loan restructured date.