NOTE 5. ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses is as follows as of the dates presented (dollars in thousands):

	December 31,
	2014			2013			2012
Balance, beginning of period	$	3,380		$	2,722		$	1,746
Provision for loan losses		1,628			1,026			685
Loans charged-off		(459	)		(389	)		(181	)
Recoveries		81			21			472
Balance, end of period	$	4,630		$	3,380		$	2,722

The following tables outline the changes in the allowance for loan losses by collateral type, the allowances for loans individually and collectively evaluated for impairment, and the amount of loans individually and collectively evaluated for impairment for the years ended December 31, 2014, 2013 and 2012 (dollars in thousands):

Allowance for Loan Losses and Recorded Investment in Loans Receivable

	December 31, 2014
	Construction &									Nonfarm,			Commercial &
	Development		Farmland		1-4 Family			Multifamily		Nonresidential			Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	420	$	4	$	567		$	101	$	992		$	397		$	899		$	3,380
Charge-offs		-		-		(123	)		-		(3	)		(16	)		(317	)		(459	)
Recoveries		1		-		4			-		1			17			58			81
Provision		105		14		461			36		581			(8	)		439			1,628
Ending balance	$	526	$	18	$	909		$	137	$	1,571		$	390		$	1,079		$	4,630
Ending allowance balance for loans individually evaluated for impairment		-		-		-			-		-			-			70			70
Ending allowance balance for loans collectively evaluated for impairment	$	526	$	18	$	909		$	137	$	1,571		$	390		$	1,009		$	4,560
Ending allowance balance for loans acquired with deteriorated credit quality	$	-	$	-	$	-		$	-	$	-		$	-		$	-		$	-

Loans receivable:
Balance of loans individually evaluated for impairment	$	1,989	$	-	$	1,621		$	1,055	$	866		$	180		$	467		$	6,178
Balance of loans collectively evaluated for impairment		69,361		2,919		135,898			16,403		224,192			54,007			113,832			616,612
Total period-end balance	$	71,350	$	2,919	$	137,519		$	17,458	$	225,058		$	54,187		$	114,299		$	622,790

Balance of loans acquired with deteriorated credit quality	$	820	$	-	$	858		$	1,054	$	-		$	-		$	46		$	2,778

	December 31, 2013
	Construction &								Nonfarm,		Commercial &
	Development		Farmland		1-4 Family		Multifamily		Nonresidential		Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	276	$	-	$	415	$	18	$	977	$	332		$	704		$	2,722
Charge-offs		-		-		-		-		-		(118	)		(271	)		(389	)
Recoveries		-		-		-		-		-		-			21			21
Provision		144		4		152		83		15		183			445			1,026
Ending balance	$	420	$	4	$	567	$	101	$	992	$	397		$	899		$	3,380

Ending allowance balance for loans individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-		$	37		$	37
Ending allowance balance for loans collectively evaluated for impairment	$	420	$	4	$	567	$	101	$	992	$	397		$	862		$	3,343
Ending allowance balance for loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-		$	-		$	-

Loans receivable:
Balance of loans individually evaluated for impairment	$	1,409	$	-	$	1,018	$	967	$	545	$	122		$	151		$	4,212
Balance of loans collectively evaluated for impairment		61,761		830		103,667		13,319		156,818		32,543			130,945			499,883
Total period-end balance	$	63,170	$	830	$	104,685	$	14,286	$	157,363	$	32,665		$	131,096		$	504,095

Balance of loans acquired with deteriorated credit quality	$	1,477	$	-	$	996	$	967	$	545	$	-		$	47		$	4,032

	December 31, 2012
	Construction &										Nonfarm,		Commercial &
	Development			Farmland		1-4 Family		Multifamily			Nonresidential		Industrial		Consumer			Total
Allowance for loan losses:
Beginning balance	$	385		$	-	$	194	$	5		$	506	$	306	$	350		$	1,746
Charge-offs		-			-		-		(15	)		-		-		(166	)		(181	)
Recoveries		-			-		-		-			448		2		22			472
Provision		(109	)		-		221		28			23		24		498			685
Ending balance	$	276		$	-	$	415	$	18		$	977	$	332	$	704		$	2,722

Ending allowance balance for loans individually evaluated for impairment	$	-		$	-	$	-	$	-		$	-	$	114	$	5		$	119
Ending allowance balance for loans collectively evaluated for impairment	$	276		$	-	$	415	$	18		$	977	$	218	$	699		$	2,603
Ending allowance balance for loans acquired with deteriorated credit quality	$	-		$	-	$	-	$	-		$	-	$	-	$	-		$	-

Loans receivable:
Balance of loans individually evaluated for impairment	$	-		$	-	$	-	$	-		$	699	$	238	$	53		$	990
Balance of loans collectively evaluated for impairment		20,271			64		54,813		1,750			99,228		15,081		96,556			287,763
Total period-end balance	$	20,271		$	64	$	54,813	$	1,750		$	99,927	$	15,319	$	96,609		$	288,753

Impaired Loans

The Company considers a loan to be impaired when, based on current information and events, the Company determines that it will not be able to collect all amounts due according to the loan agreement, including scheduled interest payments. Determination of impairment is treated the same across all classes of loans. When the Company identifies a loan as impaired, it measures the impairment based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole (remaining) source of repayment for the loans is the operation or liquidation of the collateral. In these cases when foreclosure is probable, the Company uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If the Company determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), the Company recognizes impairment through an allowance estimate or a charge-off to the allowance.

When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual, contractual interest is credited to interest income when received, under the cash basis method.

The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable. The Company determined the specific allowance based on the present values of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling cost, was used to determine the specific allowance recorded.

Also presented is the average recorded investment of the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired. The average balances are calculated based on the month-end balances of the loans during the period reported (dollars in thousands).

Impaired Loans

	As of and for the year ended December 31, 2014
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Construction and development	$	1,543	$	1,543	$	-	$	1,530	$	41
1-4 Family residential		837		837		-		900		30
Multifamily		-		-		-		-		-
Nonfarm, nonresidential		749		749		-		764		24
Total mortgage loans on real estate		3,129		3,129		-		3,194		95
Commercial and industrial		179		179		-		312		1
Consumer		79		79		-		97		10
Total		3,387		3,387		-		3,603		106

With related allowance recorded:
Consumer		180		180		70		179		4
Total		180		180		70		179		4

Total loans:
Construction and development		1,543		1,543		-		1,530		41
1-4 Family residential		837		837		-		900		30
Multifamily		-		-		-		-		-
Nonfarm, nonresidential		749		749		-		764		24
Total mortgage loans on real estate		3,129		3,129		-		3,194		95
Commercial and industrial		179		179		-		312		1
Consumer		260		259		70		276		14
Total	$	3,568	$	3,567	$	70	$	3,782	$	110

	As of and for the year ended December 31, 2013
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Construction and development	$	1,649	$	1,409	$	-	$	1,425	$	25
1-4 Family residential		1,040		1,018		-		1,025		45
Multifamily		969		967		-		910		671
Nonfarm, nonresidential		555		545		-		563		19
Total mortgage loans on real estate		4,213		3,939		-		3,923		760
Commercial and industrial		140		122		-		133		-
Consumer		21		18		-		76		2
Total		4,374		4,079		-		4,132		762

With related allowance recorded:
Consumer		136		133		37		138		5
Total		136		133		37		138		5

Total loans:
Construction and development		1,649		1,409		-		1,425		25
1-4 Family residential		1,040		1,018		-		1,025		45
Multifamily		969		967		-		910		671
Nonfarm, nonresidential		555		545		-		563		19
Total mortgage loans on real estate		4,213		3,939		-		3,923		760
Commercial and industrial		140		122		-		133		-
Consumer		157		151		37		214		7
Total	$	4,510	$	4,212	$	37	$	4,270	$	767

	As of and for the year ended December 31, 2012
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Nonfarm, nonresidential	$	703	$	699	$	-	$	714	$	42
Consumer		37		37		-		58		-
Total		740		736		-		772		42

With related allowance recorded:
Commercial and industrial		240		238		114		239		17
Consumer		16		16		5		16		-
Total		256		254		119		255		17

Total loans:
Nonfarm, nonresidential		703		699		-		714		42
Commercial and industrial		240		238		114		239		17
Consumer		53		53		5		74		-
Total	$	996	$	990	$	119	$	1,027	$	59

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession for other than an insignificant period of time to the borrower that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring (“TDR”). The Company strives to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before such loans reach nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where the Company grants the borrower new terms that provide for a reduction of either interest or principal, the Company measures any impairment on the restructuring as previously noted for impaired loans.

Loans classified as TDRs, consisting of seven credits, totaled approximately $0.6 million at December 31, 2014 compared to $0.8 million at December 31, 2013. All of the Company’s TDRs were loans acquired from FCB. All seven credits were considered troubled debt restructurings due to a modification of term through adjustments to maturity. Six of the seven credits are currently performing in accordance with their modified terms. The remaining TDR was in default of its modified terms as of the date these financial statements were issued. The Company individually evaluates each TDR for allowance purposes, primarily based on collateral value, and excludes these loans from the loan population that is evaluated by applying qualitative factors.

The following table presents the TDR pre- and post-modification outstanding recorded investments by loan categories as of the dates presented (dollars in thousands):

	December 31, 2014					December 31, 2013
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number of	Recorded		Recorded		Number of	Recorded		Recorded
Troubled debt restructurings	Contracts	Investment		Investment		Contracts	Investment		Investment
Construction and development	4	$	180	$	180	2	$	454	$	454
Nonfarm, nonresidential	1		355		355	1		358		358
Commercial and industrial	1		1		1	1		3		3
Consumer	1		45		45	0		-		-
		$	581	$	581		$	815	$	815

The following is a summary of accruing and nonaccrual TDRs and the related loan losses by portfolio type as of the dates presented (dollars in thousands):

	TDRs

							Related
	Accruing		Nonaccrual		Total		Allowance
December 31, 2014
Construction and development	$	180	$	-	$	180	$	-
Nonfarm, nonresidential		-		355		355		-
Commercial and industrial		1		-		1		-
Consumer		45		-		45		-
Total	$	226	$	355	$	581	$	-

December 31, 2013
Construction and development	$	454	$	-	$	454	$	-
Nonfarm, nonresidential		358		-		358		-
Commercial and industrial		3		-		3		-
Total	$	815	$	-	$	815	$	-

The following table includes the average recorded investment and interest income recognized for TDRs for the years ended December 31, 2014 and December 31, 2013 (dollars in thousands). The Company did not have TDRs in 2012.

	TDRs
	Average Recorded Investment		Interest Income Recognized
December 31, 2014
Construction and development	$	187	$	11
Nonfarm, nonresidential		359		19
Total real estate loans		546		30
Commercial and industrial		2		-
Consumer		48		4
Total	$	596	$	34

December 31, 2013
Construction and development	$	459	$	19
Nonfarm, nonresidential		360		14
Total real estate loans		819		33
Commercial and industrial		4		-
Total	$	823	$	33