LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 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 (in thousands):

	September 30,		December 31,
	2014		2013
Commercial, financial, and agricultural	$	23,275	$	20,292
Commercial Real Estate		121,226		120,180
Single-Family Residential		33,098		34,864
Construction and Development		2,271		3,626
Consumer		6,728		6,314
		186,598		185,276
Allowance for loan losses		2,554		3,157
	$	184,044	$	182,119

Activity in the allowance for loan losses for the nine months ended September 30, 2014 and 2013 and the year ended December 31, 2013 is summarized as follows (in thousands):

	September 30,			December 31,			September 30,
	2014			2013			2013
Balance at beginning of period	$	3,157		$	3,509		$	3,509
Provision for loan losses		—			425			450
Loans charged-off		(818	)		(1,485	)		(1,423	)
Recoveries on loans previously charged-off		215			708			580
Balance at end of period	$	2,554		$	3,157		$	3,116

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

	For the Three Month Period Ended September 30, 2014
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	251		$	1,913		$	508		$	139		$	147		$	2,958
Provision for loan losses		206			(140	)		(162	)		52			44			—
Loans charged-off		(7	)		(108	)		(162	)		(137	)		(46	)		(460	)
Recoveries on loans charged-off		6			9			23			—			18			56
Ending Balance		$ 4 56		$	1,674		$	207		$	54		$	163		$	2,554

	For the Nine Month Period Ended September 30, 2014
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	384		$	1,721		$	731		$	126		$	195		$	3,157
Provision for loan losses		49			167			(352	)		65			71			—
Loans charged-off		(7	)		(244	)		(286	)		(137	)		(144	)		(818	)
Recoveries on loans charged-off		30			30			114			—			41			215
Ending Balance	$	456		$	1,674		$	207		$	54		$	163		$	2,554

	For the Three Month Period Ended September 30, 2013
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development		Consumer			Total
Beginning balance	$	168		$	2,180		$	606		$	156	$	304		$	3,414
Provision for loan losses		(65	)		(64	)		243			139		(78	)		175
Loans charged-off		(16	)		(338	)		(234	)		—		(27	)		(615	)
Recoveries on loans charged-off		8			2			83			35		14			142
Ending Balance	$	95		$	1,780		$	698		$	330	$	213		$	3,116

	For the Nine Month Period Ended September 30, 2013
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	433		$	1,853		$	803			$ 1 77		$	243		$	3,509
Provision for loan losses		(342	)		281			302			148			61			450
Loans charged-off		(22	)		(711	)		(518	)		(30	)		(142	)		(1,423	)
Recoveries on loans charged-off		26			357			111			35			51			580
Ending Balance	$	95		$	1,780		$	698		$	330		$	213		$	3,116

	For the Year Ended December, 2013
	Commercial			Commercial Real Estate			Single-family Residential			Construction & 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

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. Consumer residential loans are evaluated as a homogeneous population and therefore loans are not evaluated individually for impairment. 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 September 30, 2014
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific reserves impaired loans	$	—	$	325	$	51	$	—	$	—	$	376
General reserves		456		1,349		156		54		163		2,178
Total	$	456	$	1,674	$	207	$	54	$	163	$	2,554
Loans individually evaluated for impairment	$	—	$	7,771	$	578	$	220	$	—	$	8,569
Loans collectively evaluated for impairment		23,275		113,455		32,520		2,051		6,728		178,029
Total	$	23,275	$	121,226	$	33,098	$	2,271	$	6,728	$	186,598

	At December 31, 2013
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific reserves impaired loans	$	—	$	3	$	—	$	—	$	—	$	3
General reserves		384		1,718		731		126		195		3,154
Total	$	384	$	1,721	$	731	$	126	$	195	$	3,157
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 September 30, 2014
							Impaired Loans - With
	Impaired Loans - With Allowance						no Allowance
	Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal		Recorded Investment
Residential:
First mortgages	$	—	$	—	$	—	$	231	$	231
HELOC’s and equity		102		102		51		256		245
Commercial
Secured		—		—		—		—		—
Unsecured		—		—		—		—		—
Commercial Real Estate:
Owner occupied		832		832		253		5,530		4,711
Non-owner occupied		853		799		62		1,582		1,333
Multi-family		96		96		10		—		—
Construction and Development:
Construction		—		—		—		357		220
Improved Land		—		—		—		—		—
Unimproved Land		—		—		—		—		—
Consumer and Other		—		—		—		—		—
Total	$	1,883	$	1,829	$	376	$	7,956	$	6,740

The following table presents the average recorded investment and interest income recognized on impaired loans by class of loan (in thousands):

	September 30, 2014				September 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residential:
First mortgages	$	231	$	—	$	231	$	—
HELOC’s and equity		274		24		128		2
Commercial
Secured		—		—		30		—
Unsecured		—		—		—		—
Commercial Real Estate:
Owner occupied		5,637		603		6,049		337
Non-owner occupied		2,216		79		2,367		83
Multi-family		97		51		363		16
Construction and Development:				.				.
Construction		292		27		—		—
Improved Land		—		—		—		—
Unimproved Land		—		—		—		—
Consumer and Other		—		—		—		—
Total	$	8,747	$	784	$	9,168	$	438

	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 September 30, 2014
	30- 59 Days Past Due		60- 89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and  Accruing		Nonaccrual
Residential:
First mortgages	$	—	$	326	$	1,144	$	1,470	$	23,950	$	25,420	$	35	$	1,905
HELOC’s and equity		164		400		423		987		6,691		7,678		—		525
Commercial:
Secured		—		28		2		30		18,262		18,292		—		2
Unsecured		—		—		—		—		4,983		4,983		—		—
Commercial Real Estate:
Owner occupied		14		107		528		649		61,750		62,399		—		1,546
Non-owner occupied		733		325		914		1,972		42,515		44,487		—		1,863
Multi-family		—		493		—		493		13,847		14,340		—		—
Construction and  Development:
Construction		—		—		—		—		2,077		2,077		—		—
Improved Land		—		—		—		—		194		194		—		—
Unimproved Land		—		—		—		—		—		—		—		—
Consumer and Other		45		28		26		99		6,629		6,728		—		26
Total	$	956	$	1,707	$	3,037	$	5,700	$	180,898	$	186,598	$	35	$	5,867

	At December 31, 2013
	30- 59 Days Past Due		60- 89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and  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 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 September 30, 2014
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Residential:
First mortgages	$	25,420	$	23,949	$	—	$	1,471	$	—
HELOC’s and equity		7,678		6,266		558		679		175
Commercial:
Secured		18,292		18,292		—		—		—
Unsecured		4,983		4,983		—		—		—
Commercial Real Estate:
Owner occupied		62,399		52,046		7,437		2,916		—
Non-owner occupied		44,487		37,947		4,482		1,997		61
Multi-family		14,340		12,835		1,371		134		—
Construction and Development:
Construction		2,077		1,857		—		220		—
Improved Land		194		153		—		41		—
Unimproved Land		—		—		—		—		—
Consumer and Other		6,728		6,681		—		37		10
Total	$	186,598	$	165,009	$	13,848	$	7,495	$	246

	At December 31, 2013
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Residential:
First mortgages	$	26,326	$	24,126	$	—	$	2,200	$	—
HELOC’s and equity		8,538		7,686		22		728		102
Commercial:
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 and Other		6,314		6,224		—		90		—
Total	$	185,276	$	166,627	$	7,417	$	11,130	$	102

During the three and nine months ended September 30, 2014 the bank modified 1 loans that was considered to be troubled debt restructurings. We extended the term and decreased the interest rate on the loan (dollars in thousands).

Extended Terms and Decreased Interest Rate

	Three months ended September 30, 2014
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Troubled Debt Restructurings
Residential mortgages		1	$	68	$	68
Total		1	$	68	$	68

	Nine months ended September 30, 2014
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential mortgages		1	$	68	$	68
Total		1	$	68	$	68

During the three and nine months ended September 30, 2013, the Bank modified 5 and 13 loans, respectively that were considered to be troubled debt restructurings. We extended the terms and decreased the interest rate on 3 and 9 loans during the three and nine months ended September 30, 2013. We decreased the interest rate on 2 loans during the nine months ended September 30, 2013. We extended the terms on two loans during each of the three and nine months ended September 30, 2013, respectively. (dollars in thousands)

Extended Terms and Decreased Interest Rate

	Three months ended September 30, 2013
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Troubled Debt Restructurings
Residential mortgages		1	$	82	$	82
Commercial Real Estate:
Non-owner occupied		2		390		390
Total		3	$	472	$	472

	Nine months ended September 30, 2013
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential mortgages		3	$	417	$	423
Commercial Real Estate:
Owner occupied		2		252		258
Non-owner occupied		4		1,586		1,571
Total		9	$	2,255	$	2,252

Decreased Interest Rate Only

There were no loans with a decreased interest rate only for the three months ended September 30, 2013.

	Nine months ended September 30, 2013
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential mortgages		2	$	140	$	140
Total		2	$	140	$	140

Extended Term Only

	Three months ended September 30, 2013
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Troubled Debt Restructurings
Residential mortgages		1	$	14	$	14
Commercial Real Estate:
Non-owner occupied		1		386		386
Total		2	$	400	$	400

	Nine months ended September 30, 2013
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential mortgages		1	$	14	$	14
Commercial Real Estate:
Non-owner occupied		1		386		386
Total		2	$	400	$	400

There were no loans restructured during the last twelve months that have experienced payment default subsequent to restructuring during the three and nine months ended September 30, 2014 and 2013, respectively.

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 restructure date.