10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 – Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2016
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the transition period from  ____________ to  _____________

Commission File No: 0 - 14535

CITIZENS BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)

Georgia	58 – 1631302
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)
230 Peachtree Street, N.W., Atlanta, Georgia	30303
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:      (404) 659-5959

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       ☒ Yes      ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.       ☒ Yes      ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐       Accelerated filer ☐      Non-accelerated filer ☐       Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)      ☐ Yes      ☒ No

SEC 1296 (08-03)      Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding for each of the issuer’s classes of common stock as of the latest practicable date: 2,079,997 shares of Common Stock, $1.00 par value and 90,000 shares of Non-Voting Common Stock, $1.00 par value were outstanding on August 11, 2016.

PART 1.      FINANCIAL INFORMATION

ITEM 1.      Financial Statements

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2016 AND DECEMBER 31, 2015

(In thousands, except share data)

ASSETS	2016			2015
	(Unaudited)
Cash and due from banks	$	2,948		$	2,577
Federal funds sold		16,537			16,500
Interest-bearing deposits with banks		53,098			29,820
Certificates of deposit		900			900
Investment securities available for sale, at fair value		114,732			123,258
Other investments		958			965
Loans receivable, net		197,097			184,836
Premises and equipment, net		6,649			6,136
Cash surrender value of life insurance		10,224			10,090
Other real estate owned		2,849			4,463
Other assets		8,184			9,075
Total assets	$	414,176		$	388,620
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Noninterest-bearing deposits	$	91,919		$	88,543
Interest-bearing deposits		259,326			240,319
Total deposits		351,245			328,862
Accrued expenses and other liabilities		4,843			4,147
Advances from Federal Home Loan Bank		5,225			5,235
Total liabilities		361,313			338,244
STOCKHOLDERS’ EQUITY:
Preferred stock - No par value; 10,000,000 shares authorized;
Series B, 7,462 shares issued and outstanding		7,462			7,462
Series C, 4,379 shares issued and outstanding		4,379			4,379
Common stock - $1 par value; 20,000,000 shares authorized; 2,330,028 and 2,308,228 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively		2,330			2,308
Nonvoting common stock - $1 par value; 5,000,000 shares authorized; 90,000 issued and outstanding		90			90
Nonvested restricted common stock		(58	)		(147	)
Additional paid-in capital		8,322			8,344
Retained earnings		30,756			29,941
Treasury stock at cost, 250,030 and 241,454 shares at June 30, 2016 and December 31, 2015, respectively		(1,991	)		(1,930	)
Accumulated other comprehensive income (loss), net of income taxes		1,573			(71	)
Total stockholders’ equity		52,863			50,376
	$	414,176		$	388,620

See notes to condensed consolidated financial statements.

Page 1 of 47

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - In thousands, except per share data)

	Three Months  Ended June 30,					Six Months  Ended June 30,
	2016			2015		2016			2015
Interest income:
Loans, including fees	$	2,406		$	2,439	$	4,703		$	4,842
Investment securities:
Taxable		466			470		976			977
Tax-exempt		199			218		408			453
Federal funds sold		28			—		56			—
Interest-bearing deposits		56			37		115			66
Total interest income		3,155			3,164		6,258			6,338
Interest expense:
Deposits		159			179		325			363
Other borrowings		6			—		9			—
Total interest expense		165			179		334			363
Net interest income		2,990			2,985		5,924			5,975
Provision for (recovery of)  loan losses		(175	)		50		(100	)		125
Net interest income after provision for loan losses		3,165			2,935		6,024			5,850
Noninterest income:
Service charges on deposits		659			665		1,303			1,333
Gain on sales of securities		—			121		—			312
Other operating income		544			273		803			578
Total noninterest income		1,203			1,059		2,106			2,223
Noninterest expense:
Salaries and employee benefits		1,685			1,689		3,419			3,365
Net occupancy and equipment		506			524		981			1,025
Amortization of core deposit intangible		—			118		118			236
FDIC insurance		61			75		147			168
Other real estate owned, net		(3	)		92		(136	)		111
Other operating expenses		1,086			1,082		2,134			2,233
Total noninterest expense		3,335			3,580		6,663			7,138
Income before income taxes		1,033			414		1,467			935
Income tax expense		284			66		360			159
Net income	$	749		$	348	$	1,107		$	776
Preferred dividends		59			59		118			118
Net income available to common shareholders	$	690		$	289	$	989		$	658
Net income per common share - basic	$	0.31		$	0.13	$	0.45		$	0.30
Net income per common share - diluted	$	0.31		$	0.13	$	0.45		$	0.30
Weighted average common outstanding shares - basic		2,207			2,183		2,205			2,180
Weighted average common outstanding shares - diluted		2,209			2,212		2,207			2,209

See notes to condensed consolidated financial statements.

Page 2 of 47

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited - In thousands)

	Three Months Ended
	June 30,
	2016		2015
Net Income	$	749	$	348
Other Comprehensive Income:
Unrealized holding gain (loss) on investment securities available for sale, net of tax of$217 for 2016 and ($397) for 2015		422		(765	)
Reclassification adjustment for realized gains (loss) included in net income, net of tax of $ - for 2016 and ($41) for 2015		—		(80	)
Other Comprehensive Income (loss)	$	422	$	(845	)
Total Comprehensive Income (loss)	$	1,171	$	(497	)

	Six Months Ended
	June 30,
	2016		2015
Net Income	$	1,107	$	776
Other Comprehensive Income:
Unrealized holding gain (loss) on investment securities available for sale, net of tax of $848 for 2016 and ($126) for 2015		1,644		(236	)
Reclassification adjustment for realized gains (loss) included in net income,  net of tax of $ - and $106 for 2016 and 2015, respectively		—		(206	)
Other Comprehensive Income (loss)	$	1,644	$	(442	)
Total Comprehensive Income	$	2,751	$	334

See notes to condensed consolidated financial statements.

Page 3 of 47

																												Accumulated
									Nonvoting				Nonvested			Additional												Other
	Preferred Stock				Common Stock				Common Stock				Restricted			Paid-in			Retained			Treasury Stock						Comprehensive
	Shares		Amount		Shares		Amount		Shares		Amount		Stock			Capital			Earnings			Shares			Amount			Income (Loss)			Total
Balance—December 31, 2014		12	$	11,841		2,303	$	2,303		90	$	90	$	(107	)	$	8,119		$	28,532			(236	)	$	(1,882	)	$	670		$	49,566
Net income		—		—		—		—		—		—		—			—			776			—			—			—			776
Other comprehensive loss		—		—		—		—		—		—		—			—			—			—			—			(442	)		(442	)
Issuance of common stock		—		—		5		5		—		—		—			38			—			(5	)		(48	)		—			(5	)
Nonvested restricted stock		—		—		—		—		—		—		(160	)		187			—			—			—			—			27
Dividends declared - preferred		—		—		—		—		—		—		—			—			(118	)		—			—			—			(118	)
Dividends declared - common		—		—		—		—		—		—		—			—			(174	)		—			—			—			(174	)
Balance—June 30, 2015		12	$	11,841		2,308	$	2,308		90	$	90	$	(267	)	$	8,344		$	29,016			(241	)	$	(1,930	)	$	228		$	49,630
Balance—December 31, 2015		12	$	11,841		2,308	$	2,308		90	$	90	$	(147	)	$	8,344		$	29,941			(241	)	$	(1,930	)	$	(71	)	$	50,376
Net income		—		—		—		—		—		—		—			—			1,107			—			—			—			1,107
Other comprehensive income		—		—		—		—		—		—		—			—			—			—			—			1,644			1,644
Issuance of common stock		—		—		22		22		—		—		—			(157	)		—			(9	)		(61	)		—			(196	)
Nonvested restricted stock		—		—		—		—		—		—		89			135			—			—			—			—			224
Dividends declared - preferred		—		—		—		—		—		—		—			—			(118	)		—			—			—			(118	)
Dividends declared - common		—		—		—		—		—		—		—			—			(174	)		—			—			—			(174	)
Balance—June 30, 2016		12	$	11,841		2,330	$	2,330		90	$	90	$	(58	)	$	8,322		$	30,756			(250	)	$	(1,991	)	$	1,573		$	52,863

See notes to condensed consolidated financial statements.

Page 4 of 47

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(In thousands)

	2016			2015
	(Unaudited)
OPERATING ACTIVITIES:
Net income	$	1,107		$	776
Adjustments to reconcile net income to net cash provided by operating activities:
(Recovery of) Provision for loan losses		(100	)		125
Depreciation		293			273
Amortization and accretion, net		318			512
Provision for deferred income tax		199			477
Gains on sale of securities		—			(312	)
Restricted stock based compensation plan		224			27
Decrease in carrying value of other real estate owned		98			53
Net gain on sale of other real estate owned		(269	)		(12	)
Bank owned life insurance income		(134	)		(106	)
Change in other assets		(272	)		118
Change in accrued expenses and other liabilities		696			(920	)
Net cash provided by operating activities		2,160			1,011
INVESTING ACTIVITIES:
Proceeds from calls of investment securities held to maturity		—			240
Proceeds from sales, maturities, and paydowns of investment securities available for sale		11,376			22,602
Purchases of investment securities available for sale		(650	)		(19,316	)
Net change in other investments		7			(7	)
Net change in loans receivable		(12,561	)		(6,037	)
Proceeds from the sale of other real estate owned		2,140			545
Redemption of bank owned life insurance		—			2,232
Purchases of premises and equipment, net		(806	)		(126	)
Net cash provided by (used in) investing activities		(494	)		133
FINANCING ACTIVITIES:
Net change in deposits		22,383			(3,787	)
Net change in advances from Federal Home Loan Bank		(10	)		(10	)
Restricted stock remitted by employees for taxes		(61	)		(5	)
Dividends paid - preferred		(118	)		(118	)
Dividends paid - common		(174	)		(174	)
Net cash provided by (used in) financing activities		22,020			(4,094	)
Net change in cash and cash equivalents		23,686			(2,950	)
Cash and  cash equivalents, beginning of period		48,897			48,411
Cash and  cash equivalents at end of period	$	72,583		$	45,461
Supplemental disclosures of cash paid during the period for:
Interest	$	337		$	359
Income taxes	$	30		$	20
Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure	$	355			94
Change in unrealized gain on investment securities available for sale, net of taxes	$	1,644		$	(442	)

See notes to condensed consolidated financial statements.

Page 5 of 47

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Citizens Bancshares Corporation (the “Company”) is a holding company that provides a full range of commercial and personal banking services to individual and corporate customers in metropolitan Atlanta and Columbus, Georgia, and in Birmingham and Eutaw, Alabama, through its wholly owned subsidiary, Citizens Trust Bank (the “Bank”). The Bank operates under a state charter and serves its customers through seven full-service financial centers in metropolitan Atlanta, Georgia, one full-service financial center in Columbus, Georgia, one full-service financial center in Birmingham, Alabama, and one full-service financial center in Eutaw, Alabama.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by generally accepted accounting principles are not included herein. These interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2015. The results of operations for the interim periods reported herein are not necessarily representative of the results expected for the full 2016 fiscal year.

The consolidated financial statements of the Company for the three and six month periods ended June 30, 2016 are unaudited.  In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations and cash flows for the three month period have been included.  All adjustments are of a normal recurring nature.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Accounting Policies

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which often require the judgment of management in the selection and application of certain accounting principles and methods. Reference is made to the accounting policies of the Company described in the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Company has followed those policies in preparing this report. Management believes that the quality and reasonableness of its most critical policies enable the fair presentation of its financial position and of its results of operations.

Troubled Asset Relief Program

On August 13, 2010, as part of the U.S. Department of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Community Development Capital Initiative, the Company entered into a Letter Agreement, and an Exchange Agreement–Standard Terms (“Exchange Agreement”), with the Treasury, pursuant to which the Company agreed to exchange 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Shares”), issued on March 6, 2009, pursuant to the Company’s participation in the TARP Capital Purchase Program, for 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred Shares”) issued pursuant to the TARP Community Development Capital Initiative, both of which have a liquidation preference of $1,000 (the “Exchange Transaction”). No new monetary consideration was exchanged in connection with the Exchange Transaction. The Exchange Transaction closed on August 13, 2010 (the “Closing Date”).

Page 6 of 47

On September 17, 2010, the Company issued 4,379 shares of its Series C Preferred Shares to the Treasury as part of its TARP Community Development Capital Initiative for a total of 11,841 shares of Series B and C Preferred Shares issued to Treasury. The issuance of the Series B and Series C Preferred Shares was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

The Series B and Series C Preferred Shares qualify as Tier 1 capital and will pay cumulative dividends at a rate of 2% per annum for the first eight years after the Closing Date and 9% per annum thereafter. The Company may, subject to consultation with the Federal Reserve Bank of Atlanta, redeem the Series B and Series C Preferred Shares at any time for its aggregate liquidation amount plus any accrued and unpaid dividends.

Recently Issued Accounting Standards

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendment was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. These amendments did not have a material effect on its financial statements.

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2015, the FASB amended the Income Taxes topic of the Accounting Standards Codification to simplify the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments will be effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted as of the beginning of an interim or annual reporting period. The Company will apply the guidance prospectively. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

Page 7 of 47

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments will be effective for the Company for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

2. INVESTMENTS

Investment securities available for sale are summarized as follows (in thousands):

At June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State, county, and municipal securities	$	26,972	$	1,382	$	—	$	28,354
Mortgage-backed securities		85,376		1,119		117		86,378
Totals	$	112,348	$	2,501	$	117	$	114,732

Page 8 of 47

At December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State, county, and municipal securities	$	28,248	$	1,223	$	14	$	29,457
Mortgage-backed securities		93,118		65		1,383		91,800
Corporate securities		2,000		1		—		2,001
Totals	$	123,366	$	1,289	$	1,397	$	123,258

At June 30, 2016 and December 31, 2015, there were no investment securities held to maturity.

The amortized costs and fair values of investment securities at June 30, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with and without call or prepayment penalties (in thousands).

	Available for Sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	822	$	824
Due after one year through five years		4,237		4,418
Due after five years through ten years		30,276		31,743
Due after ten years		77,013		77,747
	$	112,348	$	114,732

Securities with carrying values of $81,735,000 and $93,161,000 as of June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, FHLB advances and a $28,227,000 line of credit at the Federal Reserve Bank discount window and for other purposes as required by law.

There were no sales of securities during the three or six months ended June 30, 2016. During the first half of 2015, proceeds from the sale of securities were $12,385,000 and gross realized gains on sales of securities were $312,000. For the three month period ended June 30, 2015, gross realized gains on securities were $121,000. There were no gross realized losses on sales of securities during the three and six month periods ended June 30, 2016 and 2015.

The Company’s investment portfolio consists principally of obligations of the United States, its agencies, or its corporations, general obligation and revenue municipals and corporate securities. In the opinion of management, there is no concentration of credit risk in its investment portfolio. The company places its deposits and correspondent accounts with and sells its federal funds to high quality institutions. Management believes credit risk associated with correspondent accounts is not significant.

Page 9 of 47

The following tables show investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2016 and December 31, 2015. Except as explicitly identified below, all unrealized losses on investment securities are considered by management to be temporarily impaired given the credit ratings on these investment securities and the short duration of the unrealized loss (in thousands):

At June 30, 2016

Securities Available for Sale

	Securities in a loss position  for				Securities in a loss position  for
	less than twelve months				twelve months or more					Total
			Unrealized				Unrealized					Unrealized
	Fair value		losses		Fair value		losses			Fair value		losses
Mortgage-backed securities	$	—	$	—	$	17,877	$	(117	)	$	17,877	$	(117	)
Municipal securities		—		—		—		—			—		—
Total	$	—	$	—	$	17,877	$	(117	)	$	17,877	$	(117	)

At December 31, 2015

Securities Available for Sale

	Securities in a loss position  for					Securities in a loss position  for
	less than twelve months					twelve months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair value		losses			Fair value		losses			Fair value		losses
Mortgage-backed securities	$	63,533	$	(723	)	$	21,333	$	(660	)	$	84,866	$	(1,383	)
Municipal securities		2,587		(14	)		—		—			2,587		(14	)
Total	$	66,120	$	(737	)	$	21,333	$	(660	)	$	87,453	$	(1,397	)

The Company’s available for sale portfolio had thirteen (13) investment securities at June 30, 2016 that were in an unrealized loss position for longer than twelve months. At December 31, 2015, the Company had fifteen (15) investment securities that were in an unrealized loss position for longer than twelve months. The Company reviews these securities for other-than-temporary impairment on a quarterly basis by monitoring their credit support and coverage, constant payment of the contractual principal and interest, loan to value and delinquencies ratios.

We use prices from third party pricing services and, to a lesser extent, indicative (non-binding) quotes from third party brokers, to measure fair value of our investment securities. Fair values of the investment securities portfolio could decline in the future if the underlying performance of the collateral for collateralized mortgage obligations or other securities deteriorates and the levels do not provide sufficient protection for contractual principal and interest. As a result, there is risk that an other-than-temporary impairment may occur in the future particularly in light of the current economic environment.

As of the date of its evaluation, the Company did not intend to sell and has the ability to hold these securities and it is more likely than not that the Company will not be required to sell those securities before recovery of its amortized cost or the security matures. The Company believes, based on industry analyst reports and credit ratings, that it will continue to receive scheduled interest payments as well as the entire principal balance, and the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary.

Page 10 of 47

3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

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

	June 30,		December 31,
	2016		2015
Commercial, financial, and agricultural	$	44,345	$	42,748
Commercial Real Estate		108,436		104,092
Single-Family Residential		32,184		31,096
Construction and Development		6,838		2,220
Consumer		7,352		6,804
		199,155		186,960
Allowance for loan losses		2,058		2,124
	$	197,097	$	184,836

Page 11 of 47

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

	For the Three Month Period Ended June 30, 2016
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development		Consumer			Total
Beginning balance	$	604		$	952		$	364		$	6	$	226		$	2,152
Recovery of loan losses		(181	)		(164	)		176			3		(9	)		(175	)
Loans charged-off		—			(179	)		(58	)		—		(19	)		(256	)
Recoveries on loans charged-off		5			316			1			—		15			337
Ending Balance	$	428		$	925		$	483		$	9	$	213		$	2,058

	For the Six Month Period Ended June 30, 2016
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development		Consumer			Total
Beginning balance	$	342		$	1,170		$	435		$	3	$	174		$	2,124
Recovery of loan losses		105			(386	)		70			6		105			(100	)
Loans charged-off		(30	)		(179	)		(101	)		—		(97	)		(407	)
Recoveries on loans charged-off		11			320			79			—		31			441
Ending Balance	$	428		$	925		$	483		$	9	$	213		$	2,058

	For the Three Month Period Ended June 30, 2015
	Commercial		Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	289	$	1,308		$	350		$	52		$	227		$	2,226
Provision for loan losses		346		(228	)		(10	)		(48	)		(10	)		50
Loans charged-off		—		—			(73	)		—			(56	)		(129	)
Recoveries on loans charged-off		5		111			23			5			30			174
Ending Balance	$	640	$	1,191		$	290		$	9		$	191		$	2,321

	For the Six Month Period Ended June 30, 2015
	Commercial		Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	415	$	1,366		$	254		$	72		$	192		$	2,299
Provision for loan losses		215		(268	)		182			(69	)		65			125
Loans charged-off		—		(83	)		(170	)		—			(111	)		(364	)
Recoveries on loans charged-off		10		176			24			6			45			261
Ending Balance	$	640	$	1,191		$	290		$	9		$	191		$	2,321

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.

Page 12 of 47

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 June 30, 2016
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific Reserves:
Impaired loans	$	74	$	426	$	180	$	—	$	—	$	680
Total specific reserves		74		426		180		—		—		680
General reserves		354		499		303		9		213		1,378
Total	$	428	$	925	$	483	$	9	$	213	$	2,058
Loans individually evaluated for impairment	$	150	$	9,884	$	426	$	—	$	—	$	10,460
Loans collectively evaluated for impairment		44,195		98,552		31,758		6,838		7,352		188,695
Total	$	44,345	$	108,436	$	32,184	$	6,838	$	7,352	$	199,155

	At December 31, 2015
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific Reserves:
Impaired loans	$	—	$	550	$	100	$	—	$	—	$	650
Total specific reserves		—		550		100		—		—		650
General reserves		342		620		335		3		174		1,474
Total	$	342	$	1,170	$	435	$	3	$	174	$	2,124
Loans individually evaluated for impairment	$	—	$	9,392	$	417	$	—	$	—	$	9,809
Loans collectively evaluated for impairment		42,748		94,700		30,679		2,220		6,804		177,151
Total	$	42,748	$	104,092	$	31,096	$	2,220	$	6,804	$	186,960

Page 13 of 47

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

	At June 30, 2016
							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	$	—	$	—	$	—	$	—	$	—
HELOC’s and equity		263		217		180		296		209
Commercial
Secured		150		150		74		—		—
Unsecured		—		—		—		—		—
Commercial Real Estate:
Owner occupied		406		406		416		8,516		7,901
Non-owner occupied		608		10		10		1,627		1,567
Multi-family		—		—		—		—		—
Construction and Development:
Construction		—		—		—		—		—
Improved Land		—		—		—		—		—
Unimproved Land		—		—		—		—		—
Consumer and Other		—		—		—		—		—
Total	$	1,427	$	783	$	680	$	10,439	$	9,677

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

	Six Months Ended				Six Months Ended
	June 30, 2016				June 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residential:
First mortgages	$	—	$	—	$	—	$	—
HELOC’s and equity		388		5		214		26
Commercial:
Secured		150		—		—		—
Unsecured		—		—		—		—
Commercial Real Estate:
Owner occupied		8,593		129		8,526		200
Non-owner occupied		1,997		13		2,841		127
Multi-family		—		—		50		30
Construction and Development:
Construction		—		—		—		—
Improved Land		—		—		—		—
Unimproved Land		—		—		—		—
Consumer and Other		—		—		—		—
Total	$	11,128	$	147	$	11,631	$	383

Page 14 of 47

	At December 31, 2015
							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		134		134		100		304		283		209		43
Commercial
Secured		—		—		—		—		—		—		—
Unsecured		—		—		—		—		—		—		—
Commercial Real Estate:
Owner occupied		4,115		4,115		356		4,456		3,972		8,666		391
Non-owner occupied		691		691		194		667		614		1,679		193
Multi-family		—		—		—		—		—		—		—
Construction and Development
Construction		—		—		—		—		—		—		—
Improved Land		—		—		—		—		—		—		—
Consumer and Other		—		—				—		—		—		—
Total	$	4,940	$	4,940	$	650	$	5,427	$	4,869	$	10,554	$	627

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

	At June 30, 2016
	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	$	—	$	368	$	664	$	1,032	$	19,345	$	20,377	$	—	$	1,160
HELOC’s and equity		303		106		139		548		11,259		11,807		—		278
Commercial:
Secured		—		1		150		151		39,669		39,820		—		150
Unsecured		—		—		—		—		4,525		4,525		—		—
Commercial Real Estate:
Owner occupied		728		209		293		1,230		49,406		50,636		—		846
Non-owner occupied		414		27		606		1,047		52,067		53,114		—		699
Multi-family		—		—		—		—		4,686		4,686		—		—
Construction and  Development		—		—		—		—		6,838		6,838		—		—
Consumer and Other		1		12		12		25		7,327		7,352		1		11
Total	$	1,446	$	723	$	1,864	$	4,033	$	195,122	$	199,155	$	1	$	3,144

Page 15 of 47

	At December 31, 2015
	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	$	1,581	$	824	$	745	$	3,150	$	19,253	$	22,403	$	—	$	1,246
HELOC’s and equity		224		59		173		456		8,237		8,693		—		250
Commercial:
Secured		49		—		30		79		36,144		36,223		—		30
Unsecured		—		—		—		—		6,525		6,525		—		—
Commercial Real Estate:
Owner occupied		931		336		—		1,267		51,180		52,447		—		933
Non-owner occupied		441		691		—		1,132		45,684		46,816		—		551
Multi-family		—		—		—		—		4,829		4,829		—		—
Construction and  Development:
Construction		—		—		—		—		2,220		2,220		—		—
Consumer and Other		29		41		6		76		6,728		6,804		—		6
Total	$	3,255	$	1,951	$	954	$	6,160	$	180,800	$	186,960	$	—	$	3,016

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 is 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.

Page 16 of 47

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.

Page 17 of 47

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

	At June 30, 2016
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	20,377	$	19,240	$	—	$	1,137	$	—
HELOC’s and equity		11,807		11,253		—		404		150
Commercial, financial, and agricultural:
Secured		39,820		39,670		—		150		—
Unsecured		4,525		4,525		—		—		—
Commercial Real Estate:
Owner occupied		50,636		43,791		1,003		5,842		—
Non-owner occupied		53,114		51,510		—		1,604		—
Multi-family		4,686		4,387		299		—		—
Construction and Development		6,838		6,838		—		—		—
Consumer		7,352		7,329		11		10		2
Total	$	199,155	$	188,543	$	1,313	$	9,147	$	152

	At December 31, 2015
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	22,403	$	20,729	$	—	$	1,651	$	23
HELOC’s and equity		8,693		8,004		66		547		76
Commercial, financial, and agricultural:
Secured		36,223		36,193		—		—		30
Unsecured		6,525		6,525		—		—		—
Commercial Real Estate:
Owner occupied		52,447		45,274		1,604		5,569		—
Non-owner occupied		46,816		45,458		107		1,251		—
Multi-family		4,829		4,524		305		—		—
Construction and Development		2,220		2,220		—		—		—
Consumer		6,804		6,749		—		16		39
Total	$	186,960	$	175,676	$	2,082	$	9,034	$	168

Page 18 of 47

During the three and six months ended June 30, 2016, the Company did not modify any loan that was considered to be a troubled debt restructuring. During the three and six months ended June 30, 2015, the Company modified two (2) and four (4) loans, respectively, that were considered to be troubled debt restructurings. We extended the terms and decreased the interest rate on these loans (dollars in thousands).

Extended Terms and Decreased Interest Rate
	Three Months Ended June 30, 2015
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Troubled Debt Restructurings
Residential mortgages		2	$	86	$	86
Total		2	$	86	$	86

Decreased Interest Rate Only
	Six Months Ended June 30, 2015
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential mortgages		4	$	120	$	120
Total		4	$	120	$	120

There was one (1) loan restructured during the last twelve months that experienced payment default subsequent to restructuring during the three and six month periods ended June 30, 2016. During the three and six month periods ended June 30, 2015, there was one (1) loan restructured during the last twelve months that experienced payment default subsequent to restructuring.

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.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures or monitors certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities that are elected to be accounted for under ASC guidance as well as certain assets and liabilities in which fair value is the primary basis of accounting. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value, which are in accordance with the guidance for determining the fair value of a financial asset when the market for that asset is not active.

In accordance with ASC guidance, the Company applied the following fair value hierarchy:

Level 1—Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other highly liquid investments that are actively traded in over-the-counter markets.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities, certain derivative contracts and impaired loans.

Page 19 of 47

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Investment Securities Available for Sale—Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Other Real Estate Owned— Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. The fair value of other real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. In addition, the Company may further adjust an appraised amount given its knowledge of a specific property or market.

Loans—The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired, and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment. The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At June 30, 2016 and December 31, 2015, substantially all of the impaired loans were evaluated based upon the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. In addition, the Company may further adjust an appraised amount given its knowledge of a specific property or market. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Page 20 of 47

The following tables present financial assets measured at fair value on a recurring and nonrecurring basis and the change in fair value for those specific financial instruments in which fair value has been elected. (there were no financial liabilities measured at fair value for the periods being reported) (in thousands):

	Fair Value Measurements at June 30, 2016
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	28,354	$	—	$	28,354	$	—
Mortgage-backed securities		86,378		—		86,378		—
		114,732		—		114,732		—
Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	9,458	$	—	$	—	$	9,458
Single-family Residential		246		—		—		246
Commercial		76		—		—		76
Other real estate owned		2,849		—		—		2,849
		12,629		—		—		12,629

	Fair Value Measurements at December 31, 2015
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	29,457	$	—	$	29,457	$	—
Mortgage-backed securities		91,800		—		91,800		—
Corporate securities		2,001		—		2,001		—
		123,258		—		123,258		—
Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	8,842	$	—	$	—	$	8,842
Single-family Residential		317		—		—		317
Other real estate owned		4,463		—		—		4,463
		13,622		—		—		13,622

Page 21 of 47

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2016, the significant unobservable inputs used in the fair value measurements were as follows (dollars in thousands):

		Fair Value at		Valuation	Unobservable
(Dollars in thousands)		June 30, 2016		Technique	Inputs	Range
Impaired Loans:
	Commercial Real Estate	$	9,458	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
	Single-family Residential	$	246	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
	Commercial	$	76	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
OREO		$	2,849	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%

As of December 31, 2015, the significant unobservable inputs used in the fair value measurements were as follows

(dollars in thousands):

		Fair Value at		Valuation	Unobservable
(Dollars in thousands)		December 31, 2015		Technique	Inputs	Range
Impaired Loans:
	Commercial Real Estate	$	8,842	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
	Single-family Residential	$	317	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
OREO		$	4,463	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%

Following are disclosures of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered an estimate of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance.

Page 22 of 47

Cash, Due from Banks, Federal Funds Sold, Interest-Bearing Deposits with Banks and Certificates of Deposits—Fair value equals the carrying value of such assets due to their nature and is classified as Level 1.

Investment Securities—Fair value of investment securities is based on quoted market prices and is classified as Level 2.

Other Investments—The carrying amount of other investments approximates its fair value and is classified as Level 1.

Loans—The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings resulting in a Level 3 classification. For variable rate loans, the carrying amount is a reasonable estimate of fair value. The methods utilized to estimate the fair values of loans do not necessarily represent an exit price. The carrying amount of related accrued interest receivable, due to its short-term nature, approximates its fair value, is not significant and is not disclosed.

Cash Surrender Value of Life Insurance—Cash values of life insurance policies are carried at the value for which such policies may be redeemed for cash and are classified as Level 1.

Deposits—The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed rate certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities and is classified as Level 2.

Advances from Federal Home Loan Bank—The fair values of advances from the Federal Home Loan Bank are estimated by discounting the future cash flows using the rates currently available to the Bank for debt with similar remaining maturities and terms and are classified as Level 2.

Commitments to Extend Credit and Commercial Letters of Credit—Because commitments to extend credit and commercial letters of credit are made using variable rates, or are recently executed, the contract value is a reasonable estimate of fair value.

Limitations—Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments; for example, premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Page 23 of 47

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2016 (in thousands):

	June 30, 2016
	Fair Value Measurements
	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	2,948	$	2,948	$	2,948	$	—	$	—
Interest-bearing deposits with banks		53,098		53,098		53,098		—		—
Federal funds sold		16,537		16,537		16,537		—		—
Certificates of deposit		900		900		900		—		—
Investment securities		114,732		114,732		—		114,732		—
Other investments		958		958		958		—		—
Loans-net		197,097		196,522		—		—		196,522
Cash surrender value of life insurance		10,224		10,224		10,224		—		—
Financial liabilities:
Deposits		351,245		352,022		228,113		123,909
Advances from Federal Home Loan Bank		5,225		5,225		—		5,225		—
	Notional		Estimated
	Amount		Fair Value
Off-balance-sheet financial instruments:
Commitments to extend credit	$	28,885	$	—
Commercial letters of credit		1,889		—

The carrying values and estimated fair values of the Company’s financial instruments at December 31, 2015 are as follows:

	December 31, 2015
	Fair Value Measurements
	Carrying
	Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	2,577	$	2,577	$	2,577	$	—	$	—
Interest-bearing deposits with banks		29,820		29,820		29,820		—		—
Federal funds sold		16,500		16,500		16,500		—		—
Certificates of deposit		900		900		900		—		—
Investment securities		123,258		123,258		—		123,258		—
Other investments		965		965		965		—		—
Loans-net		184,836		183,929		—		—		183,929
Cash surrender value of life insurance		10,090		10,090		10,090		—		—
Financial liabilities:
Deposits		328,862		329,211		212,820		116,391		—
Advances from Federal Home Loan Bank		5,235		5,235		—		5,235		—
	Notional		Estimated
	Amount		Fair Value
Off-balance-sheet financial instruments:
Commitments to extend credit	$	35,843	$	—
Commercial letters of credit		1,889		—

Page 24 of 47

5. OTHER REAL ESTATE OWNED

Other real estate owned is reported at the lower of cost or fair value less estimated disposal costs, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. Any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a charge-off against the allowance for loan losses. Any subsequent declines in value are charged to earnings. Transactions in other real estate owned are summarized below (in thousands):

	June 30,			December 31,
	2016			2015
Balance—beginning of period	$	4,463		$	4,668
Additions		355			976
Sales		(1,871	)		(964	)
Write downs		(98	)		(217	)
Balance—end of period	$	2,849		$	4,463

6. INTANGIBLE ASSETS

Finite lived intangible assets of the Company represent deposit assumption premiums recorded upon the purchase of certain assets and liabilities from other financial institutions. Deposit assumption premiums are amortized over seven years, the estimated average lives of the deposit bases acquired, using the straight-line method and are included within other assets on the Condensed Consolidated Balance Sheets. During the first quarter of 2016, the deposit premium became fully amortized.

The Company applies a fair value-based impairment test to the carrying value of goodwill on an annual basis and on an interim basis if certain events or circumstances indicate that an impairment loss may have been incurred.

The following table presents information about the Company’s intangible assets (in thousands):

	June 30, 2016				December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Unamortized intangible asset:
Goodwill	$	362	$	—	$	362	$	—
Amortized intangible assets:
Core deposit intangibles	$	3,303	$	3,303	$	3,303	$	3,185

Page 25 of 47

The following table presents information about aggregate amortization expense (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Aggregate amortization expense of core deposit intangibles:	$	—	$	118	$	118	$	236
Estimated aggregate amortization expense of core deposit intangibles for the years ending December 31:
2016	$	118
2017 and thereafter	$	—

7. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Basic and diluted net income per share available to common and potential common stockholders has been calculated based on the weighted average number of shares outstanding.

Options with exercise prices greater than the average market price of the Company’s stock during the periods are excluded from computation of diluted earnings per share. Options with exercise prices lower than the average market price of the Company’s stock during the periods are considered dilutive and are therefore included in the computation of diluted earnings per share.

The following table presents the number of options that are considered antidilutive and dilutive in the computation of diluted earnings per share:

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Options excluded from calculation of diluted earnings per share		32,500		24,877		32,500		24,877
Dilutive options included in calculation of diluted earnings per share		—		16,500		—		16,500
Total number of options outstanding		32,500		41,377		32,500		41,377

Page 26 of 47

The following schedule reconciles the numerator and denominator of the basic and diluted net income per share available to common and potential common stockholders for the three and six months ended June 30, 2016 and 2015 (in thousands, except per share data):

	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
Three Months ended June 30, 2016
Basic earnings per share available to common stockholders	$	690		2,207	$	0.31
Nonvested restricted stock grant		—		2		—
Effect of dilutive securities: options to purchase common shares		—		—		—
Diluted earnings per share	$	690		2,209	$	0.31
Six Months ended June 30, 2016
Basic earnings per share available to common stockholders	$	989		2,205	$	0.45
Nonvested restricted stock grant		—		2		—
Effect of dilutive securities: options to purchase common shares		—		—		—
Diluted earnings per share	$	989		2,207	$	0.45
Three Months ended June 30, 2015
Basic earnings per share available to common stockholders	$	289		2,183	$	0.13
Nonvested restricted stock grant		—		12		—
Effect of dilutive securities: options to purchase common shares		—		17		—
Diluted earnings per share	$	289		2,212	$	0.13
Six Months ended June 30, 2015
Basic earnings per share available to common stockholders	$	658		2,180	$	0.30
Nonvested restricted stock grant		—		12		—
Effect of dilutive securities: options to purchase common shares		—		17		—
Diluted earnings per share	$	658		2,209	$	0.30

8. SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date its financial statements were issued.

9. RECLASSIFICATIONS

Certain amounts in the 2015 consolidated financial statements were reclassified to conform to the 2016 presentation. These reclassifications had no effect on shareholders’ equity or the results of operations as previously presented.

Page 27 of 47

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION

Citizens Bancshares Corporation (the “Company”) is a holding company that provides a full range of commercial and personal banking services to individuals and corporate customers in its primary market areas, metropolitan Atlanta and Columbus, Georgia, and Birmingham and Eutaw, Alabama through its wholly owned subsidiary, Citizens Trust Bank (the “Bank”). The Bank is a member of the Federal Reserve System and operates under a state charter. The Company serves its customers through 10 full-service financial centers in Georgia and Alabama.

Forward Looking Statements

In addition to historical information, this report on Form 10-Q may contain forward-looking statements. For this purpose, any statements contained herein, including documents incorporated by reference, that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Without limiting the foregoing, the words “believe,” “anticipates,” “plan,” expects,” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are based on current management expectations and, by their nature, are subject to risk and uncertainties because of the possibility of changes in underlying factors and assumptions. Actual conditions, events or results could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons, including: sharp and/or rapid changes in interest rates; significant changes in the economic scenario from the current anticipated scenario which could materially change anticipated credit quality trends and the ability to generate loans and gather deposits; significant delay in or inability to execute strategic initiatives designed to grow revenues and/or control expenses; unanticipated issues during the integration of acquisitions; and significant changes in accounting, tax or regulatory practices or requirements. The Company undertakes no obligation to, nor does it intend to, update forward-looking statements to reflect circumstances or events that occur after the date hereof or to reflect the occurrence of unanticipated events.

The following discussion is of the Company’s financial condition as of June 30, 2016 and December 31, 2015, and the changes in the financial condition and results of operations for the three and six month periods ended June 30, 2016 and 2015.

Critical Accounting Policies

In response to the Securities and Exchange Commission’s (“SEC”) Release No. 33-8040, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, the Company has identified the following as the most critical accounting policies upon which its financial status depends. The critical policies were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. The Company’s most critical accounting policies relate to:

Investment Securities - The Company classifies investments in one of three categories based on management’s intent upon purchase: held to maturity securities which are reported at amortized cost, trading securities which are reported at fair value with unrealized holding gains and losses included in earnings, and available for sale securities which are recorded at fair value with unrealized holding gains and losses included as a component of accumulated other comprehensive income. The Company had no investment securities classified as trading securities during 2016 or 2015.

Page 28 of 47

Premiums and discounts on available for sale and held to maturity securities are amortized or accreted using a method which approximates a level yield.

Gains and losses on sales of investment securities are recognized upon disposition, based on the adjusted cost of the specific security. A decline in market value of any security below cost that is deemed other than temporary is charged to earnings or OCI resulting in the establishment of a new cost basis for the security.

Loans - Loans are reported at principal amounts outstanding less unearned income and the allowance for loan losses. Interest income on loans is recognized on a level-yield basis. Loan fees and certain direct origination costs are deferred and amortized over the estimated terms of the loans using the level-yield method. Discounts on loans purchased are accreted using the level-yield method over the estimated remaining life of the loan purchased.

Allowance for Loan Losses - The Company provides for estimated losses on loans receivable when any significant and permanent decline in value occurs. These estimates for losses are based, not only on individual assets and their related cash flow forecasts, sales values, and independent appraisals, but also on the volatility of certain real estate markets, and the concern for disposing of real estate in distressed markets. For loans that are pooled for purposes of determining the necessary provisions, estimates are based on loan types, history of charge-offs, and other delinquency analyses. Therefore, the value used to determine the provision for losses is subject to the reasonableness of these estimates. The adequacy of the allowance for loan losses is reviewed on a monthly basis by management and the Board of Directors. On a semi-annual basis an independent comprehensive review of the methodology and allocation of the allowance for loan losses is performed. This assessment is made in the context of historical losses as well as existing economic conditions, and individual concentrations of credit. Loans are charged against the allowance when, in the opinion of management, such loans are deemed uncollectible and subsequent recoveries are added to the allowance.

Other Real Estate Owned - Other real estate owned is reported at the lower of cost or fair value less estimated disposal costs, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. Any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a charge-off against the allowance for loan losses. Any subsequent declines in value are charged to earnings.

Income Taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required. A valuation allowance is provided for the portion of a deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.

Page 29 of 47

The Company believes that its income tax filing positions taken or expected to be taken in its tax returns will more likely than not be sustained upon audit by the taxing authorities and does not anticipate any adjustments that will result in a material adverse impact on the Company’s financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded.

A description of other accounting policies are summarized in Note 1, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Company has followed those policies in preparing this report.

FINANCIAL CONDITION

At June 30, 2016, the Company had total assets of $414,176,000 compared to $388,620,000 at December 31, 2015. The $25,556,000 increase is primarily related to an increase in interest-bearing deposits with banks of $23,278,000 and net loans of $12,261,000; offset by declines in available for sale investments securities of $8,526,000, and other real estate owned (OREO) of $1,614,000. Interest-bearing deposits with banks primarily represent funds maintained on deposit at the Federal Reserve Bank (FRB) and the Federal Home Loan Bank (FHLB). These funds fluctuate daily and are used to manage the Company’s liquidity. The decrease in available for sale securities is primarily attributed to securities called/matured and paydowns. At June 30, 2016, total assets consisted primarily of $114,732,000 in investment securities and $197,097,000 in net loans representing 28% and 48% of total assets, respectively. Investment securities and net loans represented 32% and 48% of total assets at December 31, 2015.

Loans typically provide higher interest yields than other types of interest-earning assets and, therefore, continue to be the largest component of the Company’s assets. We saw meaningful growth in our net loans receivable which increased by $12,261,000 at June 30, 2016 compared to December 31, 2015, reflecting the additional resources we added to our lending area. The increases were in all categories principally in commercial real estate of $4,344,000, construction and development of $4,618,000, commercial, financial and agriculture of $1,597,000, single-family residential loans of $1,088,000 and consumer loans of $548,000 coupled with a net decrease in allowance for loan losses of $66,000. The Company continues to pursue opportunities to enhance its lending as well as investing in the resources needed to strengthen these efforts.

At June 30, 2016, OREO decreased by $1,614,000 to $2,849,000 compared to $4,463,000 reported at the year-end of 2015. This decrease is primarily related to the sale of OREO properties totaling $1,871,000 and $98,000 in write-downs, partially offset by $355,000 in additions to the OREO balance during the first half of 2016.

Cash value of life insurance, a comprehensive compensation program for directors and certain senior managers of the Company, increased by $134,000 to $10,224,000 at June 30, 2016. The increase is primarily due to the earnings on the premiums paid over the life of the insurance contract during the first half of 2016.

The Company’s liabilities at June 30, 2016 totaled $361,313,000 and consisted primarily of $351,245,000 in deposits, which increased by $22,383,000 compared to total deposits of $328,862,000 at December 31, 2015. Accrued expenses and other liabilities were $4,843,000, representing an increase of $696,000 compared to $4,147,000 at December 31, 2015 primarily in deferred income taxes and accrued other expenses. FHLB advances totaled $5,225,000 at June 30, 2016 compared to $5,235,000 at December 31, 2015.

The Company’s asset/liability management program, which monitors the Company’s interest rate sensitivity as well as volume and mix changes in earning assets and interest bearing liabilities, may impact the growth of the Company’s balance sheet as it seeks to maximize net interest income and minimize its interest rate risk.

Page 30 of 47

INVESTMENT SECURITIES

The composition of the Company’s investment securities portfolio reflects the Company’s investment strategy of maximizing portfolio yields commensurate with risk and liquidity considerations. The primary objective of the Company’s investment strategy is to maintain an appropriate level of liquidity and provide a tool to assist in controlling the Company’s interest rate sensitivity position, while at the same time producing adequate levels of interest income.

At June 30, 2016, and December 31, 2015, the investment securities portfolio represented approximately 28% and 32%, respectively, of the Company’s total assets.

LOANS

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

	June 30,		December 31,
	2016		2015
Commercial, Financial, and Agricultural	$	44,345	$	42,748
Commercial Real Estate		108,436		104,092
Single-Family Residential		32,184		31,096
Construction and Development		6,838		2,220
Consumer		7,352		6,804
		199,155		186,960
Allowance for loan losses		2,058		2,124
	$	197,097	$	184,836

The Company does not have any concentrations of loans exceeding 10% of total loans of which management is aware and which are not otherwise disclosed as a category of loans in the table above or in other sections of this Quarterly Report on Form 10-Q. A substantial portion of the Company’s loan portfolio is secured by real estate in metropolitan Atlanta and Birmingham.

The largest component of loans in the Company’s loan portfolio is real estate loans.  At June 30, 2016 and December 31, 2015, real estate loans, which represent commercial and industrial real estate and other loans secured by single-family properties, totaled $140.6 million and $135.2 million, respectively, and represented 70.6% and 72.3% of loans, respectively, net of unearned income for the period.

As stated above, 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, which are generally secured by real estate, were approximately $46.8 million and $42.0 million at June 30, 2016 and December 31, 2015, respectively.

· The Company’s loans to area convenience stores were approximately $5.5 million and $6.1 million at June 30, 2016 and December 31, 2015, respectively. Loans to convenience stores are generally secured by real estate.

· The Company’s loans to area hotels, which are generally secured by real estate, were approximately $14.6 million and $15.6 million at June 30, 2016 and December 31, 2015, respectively.

Page 31 of 47

NONPERFORMING ASSETS

Nonperforming assets include nonperforming loans, real estate acquired through foreclosure, and repossessed assets. Nonperforming loans generally include loans and leases whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties or are past due with respect to principal or interest more than 90 days and have been placed on nonaccrual status.

Accrued interest income is reversed when a loan is placed on nonaccrual status. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Nonperforming loans may be restored to accrual status when all principal and interest is current and the full repayment of the remaining contractual principal and interest is expected, or when the loan becomes well-secured and is in the process of collection.

With the exception of the loans included within nonperforming assets in the table below, management is not aware of any loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been disclosed which (1) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources, or (2) represent any information on material credits of which management is aware that causes management to have serious doubts as to the abilities of such borrowers to comply with the loan repayment terms.

During the first half of 2016, nonperforming assets decreased by $1,486,000, or 19.9%, to $5,993,000 when compared to December 31, 2015. The year-to-date decrease is primarily attributed to a $1,614,000 decline in other real estate owned (OREO); offset by an increase in nonperforming loans of $128,000. The Company charged-off $407,000 in nonperforming loans during the first half of 2016 which is a increase of $43,000 compared to $364,000 charged-off for the same period last year. Charged-offs, net of recoveries, for the same period decreased by $137,000. At June 30, 2016, nonperforming assets represent 1.45% of total assets compared to 1.92% at December 31, 2015. There was one (1) loan greater than 90 days past due and still accruing interest at June 30, 2016 and none at December 31, 2015.

Page 32 of 47

The table below presents a summary of the Company’s nonperforming assets at June 30, 2016 and December 31, 2015.

	June 30,			December 31,
	2016			2015
	(in thousands, except
	financial ratios)
Nonperforming assets:
Nonperforming loans:
Restructured nonperforming loans (TDRs)	$	2,117		$	2,497
Other nonaccrual loans		1,026			519
Past-due loans of 90 days or more and still accruing		1			—
Nonperforming loans		3,144			3,016
Real estate acquired through foreclosure		2,849			4,463
Total nonperforming assets	$	5,993		$	7,479
Ratios:
Nonperforming loans to loans, net of unearned income		1.58	%		1.61	%
Nonperforming assets to loans, net of unearned income,and real estate acquired through foreclosure		2.97	%		3.91	%
Nonperforming assets to total assets		1.45	%		1.92	%
Allowance for loan losses to nonperforming loans		65.46	%		70.42	%
Allowance for loan losses to nonperforming assets		34.34	%		28.40	%

TROUBLED DEBT RESTRUCTURINGS

Loans to be restructured are identified based on an assessment of the borrower’s credit status, which involves, but is not limited to, a review of financial statements, payment delinquency, non-accrual status, and risk rating. Determining the borrower’s credit status is a continual process that is performed by the Company’s staff with periodic participation from an independent external loan review group.

Troubled debt restructurings (“TDR”) generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term and it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company seeks to assist these borrowers by working with them to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan while ensuring compliance with the Federal Financial Institutions Examination Council (FFIEC) guidelines. To facilitate this process, a formal concessionary modification that would not otherwise be considered may be granted resulting in classification of the loan as a TDR. All concessionary modifications are considered troubled debt restructurings.

The modification may include a change in the interest rate or the payment amount or a combination of both. Substantially all modifications completed under a formal restructuring agreement are considered TDRs. Modifications can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accruing status, depending on the individual facts and circumstances of the borrower. These restructurings rarely result in the forgiveness of principal or interest.

Page 33 of 47

With respect to commercial TDRs, an analysis of the credit evaluation, in conjunction with an evaluation of the borrower’s performance prior to the restructuring, are considered when evaluating the borrower’s ability to meet the restructured terms of the loan agreement. Nonperforming commercial TDRs may be returned to accrual status based on a current, well-documented credit evaluation of the borrower’s financial condition and prospects for repayment under the modified terms. This evaluation must include consideration of the borrower’s sustained historical repayment performance for a reasonable period (generally a minimum of six months) prior to the date on which the loan is returned to accrual status.

In connection with consumer loan TDRs, a nonperforming loan will be returned to accruing status when current as to principal and interest and upon a sustained historical repayment performance (generally a minimum of six months).

The following table summarizes the Company’s TDRs and loans modifications (in thousands):

	June 30, 2016		December 31, 2015
Troubled Debt Restructured Loans:
Restructured loans still accruing		$ 5,098	$	5,285
Restructured loans nonaccruing		2,117		2,497
Total restructured and modified loans		$ 7,215	$	7,782

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is primarily available to absorb losses inherent in the loan portfolio. Credit exposures deemed uncollectible are charged against the allowance for loan losses.

The Company provides for estimated losses on loans receivable when any significant and permanent decline in value occurs. These estimates for losses are based on individual assets and their cash flow forecasts, sales values, independent appraisals, the volatility of certain real estate markets, and concern for disposing of real estate in distressed markets. For loans that are pooled for purposes of determining the necessary provisions, estimates are based on loan types, history of charge-offs, and other delinquency analyses. Therefore, the value used to determine the provision for losses is subject to the reasonableness of these estimates. The adequacy of the allowance for loan losses is reviewed on a monthly basis by management and the Board of Directors. On a semi-annual basis an independent review of the adequacy of allowance for loan losses is performed. This assessment is made in the context of historical losses as well as existing economic conditions, and individual concentrations of credit.

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. For the first half of 2016, the Company was able to recapture previous provision for loan losses of $100,000 due to the receipt of two large recoveries in the second quarter of 2016. For the first half of 2015, provision for loan losses of $125,000 was charged against operating earnings based on growth of the loan portfolio and the Company’s evaluation of the loan portfolio. Approximately $680,000 of the allowance for loan losses was allocated to loans management considered impaired at June 30, 2016 compared to $650,000 at December 31, 2015.

At June 30, 2016, management believes the allowance for loan losses is adequate. Management uses available information to recognize losses on loans; however, future additions to the allowance may be necessary based on changes in economic conditions, particularly in the metropolitan Atlanta, Georgia and Birmingham, Alabama areas. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Page 34 of 47

The following table summarizes loans, changes in the allowance for loan losses arising from loans charged off, recoveries on loans previously charged off by loan category, and additions to the allowance which have been charged to operating expense as of and for the six months ended June 30, 2016 and 2015 (amount in thousands, except financial ratios):

	2016			2015
Loans, net of unearned income	$	199,155		$	196,829
Average loans, net of unearned income and the allowance for loan losses	$	189,112		$	191,256
Allowance for loan losses at the beginning of period	$	2,124		$	2,299
Loans charged-off:
Commercial, financial, and agricultural		30			—
Real estate - loans		280			253
Installment loans to individuals		97			111
Total loans charged-off		407			364
Recoveries of loans previously charged off:
Commercial, financial, and agricultural		11			10
Real estate - loans		399			206
Installment loans to individuals		31			45
Total loans recovered		441			261
Net loans charged-off (recovered)		(34	)		103
(Recovery of) Provisions for loan losses		(100	)		125
Allowance for loan losses at period end	$	2,058		$	2,321
Ratio of net loans charged-off (recovered) to average loans, net of unearned income and the allowance for loan losses		-0.02	%		0.05	%
Ratio of allowance for loan losses to loans, net of unearned income		1.03	%		1.18	%

Page 35 of 47

The following table presents the allocation of the allowance for loan losses. The allocation is based on an evaluation of defined loan problems, historical ratios of loan losses, and other factors that may affect future loan losses in the categories of loans shown (amount in thousands):

	June 30, 2016					December 31, 2015
			Percent of					Percent of
	Amount		Total Loans			Amount		Total Loans
Commercial, financial, and agricultural	$	428		22	%	$	342		23	%
Commercial Real Estate		925		54	%		1,170		56	%
Single-family Residential		483		16	%		435		17	%
Construction and Development		9		3	%		3		1	%
Consumer		213		5	%		174		3	%
Total allowance for loan losses	$	2,058		100	%	$	2,124		100	%

DEPOSITS

Deposits are the Company’s primary source of funding loan growth. Total deposits at June 30, 2016 increased by 6.8% or $22,383,000 to $351,245,000 compared to December 31, 2015. The bank has a stable core deposit base with a high percentage of non-interest bearing deposits. Noninterest-bearing deposits increased by $3,376,000, or approximately 3.8% to $91,919,000 and interest-bearing deposits increased by $19,007,000, or 7.9%, to $259,326,000 for the six months period ending June 30, 2016. On an average basis, noninterest-bearing deposits increased by $3,487,000 to $91,457,000 during the first half of 2016 compared to $87,970,000 for the year ended December 31, 2015. Average interest-bearing deposits decreased by $732,000 to $250,762,000 at June 30, 2016 compared to $251,494,000 for the year ended December 31, 2015. At June 30, 2016, the Company’s cost of funds was approximately 0.18% compared to 0.20% for the same period last year.

The Company participates in Certificate of Deposit Account Registry Services (“CDARS”), a program that allows its customers the ability to benefit from the FDIC insurance coverage on their time deposits over the $250,000 limit. At June 30, 2016 and December 31, 2015, the Company had $21,481,000 and $21,020,000, respectively, in CDARS deposits. Participation in this program has enhanced the Company’s ability to retain customers with time deposits higher than the FDIC $250,000 insurance coverage limit.

Time deposits that meet or exceed the FDIC Insurance limit of $250,000 were $42,613,000 and $35,020,000 at June 30, 2016 and December 31, 2015, respectively.

The following is a summary of interest-bearing deposits (in thousands):

	June 30,		December 31,
	2016		2015
NOW and money market accounts	$	98,542	$	89,470
Savings accounts		37,291		34,807
Time deposits of $100,000 or more		95,431		86,914
Other time deposits		28,062		29,128
	$	259,326	$	240,319

Page 36 of 47

OTHER BORROWED FUNDS

The Company continues to emphasize funding earning asset growth through core deposits; however, the Company has relied on other borrowings as a supplemental funding source. Other borrowings consist of Federal funds purchased, short-term borrowings, and FHLB advances.

These advances are collateralized by FHLB stock, a blanket lien on 1-4 family and multifamily mortgage loans, certain commercial real estate loans and investment securities. As of June 30, 2016 and December 31, 2015, total loans pledged as collateral were $28,013,000 and $27,033,000, respectively.

Maturity	Callable	Type	June 30, 2016		December 31, 2015
			(in thousands)
July 2016(1)			$	5,000	$	5,000
August 2026(2)				225		235
Total Principal Outstanding			$	5,225	$	5,235

(1) This FHLB advance had a fixed rate of 0.40% as of June 30, 2016.

(2) Represents an Affordable Housing Program (AHP) award used to subsidize loans for homeownership or rental initiatives. The AHP is a principal reducing credit, scheduled to mature on August 17, 2026 with an interest rate of zero.

At June 30, 2016 the Company had approximately a $80.7 million line of credit facility at the FHLB of which $25.2 million was committed consisting of advances of $5,225,000 and a letter of credit to secure public deposits in the amount of $20.0 million. The Company also had approximately $28.2 million of borrowing capacity at the Federal Reserve Bank discount window and an unsecured $4.0 million fed funds line of credit.

RESULTS OF OPERATIONS

Net Interest Income:

Net interest income is the principal component of a financial institution’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates as well as volume and mix changes in earning assets and interest bearing liabilities can materially impact net interest income.

For the three-month period ended June 30, 2016, net interest income increased by $5,000 or 0.17% to $2,990,000 compared to $2,985,000 reported for the same period last year. Total interest income decreased by $9,000, or 0.28%, to $3,155,000 compared to $3,164,000 for the same three months period in 2015. Interest income on loans decreased by $33,000 due to a 7 bps decrease in yields earned on loans while the average loan balances remained the same compared to the same period last year. Interest income on investment securities decreased by $23,000 primarily due to a 2 bps decrease in investment yields and lower average balances compared to second quarter of 2015. This decline was offset by an increase in interest earned on federal funds sold and interest-bearing deposits of $47,000 compared to the same period last year. Total interest expense for the period decreased by $14,000 or 7.82% compared to the same three month period in 2015 as the Company continues to manage the funding cost and deposit mix. At June 30, 2016, the Company’s cost of funds was approximately 0.18% compared to 0.20% for the same period last year.

Page 37 of 47

On a year-to-date basis, net interest income decreased by $51,000 or 0.85% to $5,924,000 compared to $5,975,000 reported for the same period last year. Total interest income decreased by $80,000 or 1.26% to $6,258,000 compared to the same six month period in 2015. Interest income on loans decreased by $139,000 while interest income on federal funds sold and interest bearing deposits increased by $105,000 compared to the same period in 2015. Interest income on investment securities decreased by $46,000 primarily due to a 3 bps decrease in investment yields compared to the first half of 2015 and the investment portfolio having a lower average investment balance compared to the first half of 2015. Total interest expense for the six month period ended June 30, 2016, decreased by $29,000 or 7.99% compared to the same period in 2015 as the Company lowered its funding cost and improved its deposit mix.

For the six months ended June 30, 2016, the Company maintained an annualized net interest margin on a fully tax equivalent basis of 3.29% compared to 3.36% reported at June 30, 2015. The decrease in the net interest margin on a fully tax equivalent basis compared to the same period last year is primarily due to the paydown of higher rate legacy loans that are being replaced by lower yielding loans. Similarly, interest income on investment securities declined due to lower investment yields caused by higher yielding bonds being paid down, maturing or being called and being replaced with lower yielding securities. The Company is mindful of the interest rate risk of investing in a low rate environment which would negatively impact its liquidity and capital position in a rising rate environment.

The Company has an asset/liability management program which monitors the Company’s interest rate sensitivity and ensures the Company is competitive in the loan and deposit market. The Company continues to monitor its asset/liability mix and will make changes as appropriate to ensure it is properly positioned to react to changing interest rates and inflationary trends.

Provision for loan losses

For the three months ended June 30, 2016, the Company was able to recapture previous provision for loan losses of $175,000 due to the receipt of two large recoveries during the quarter. For the three months ended June 30, 2015, the Company charged against operating earnings a provision for loan losses of $50,000.

For the six months ended June 30, 2016, the Company was able to recapture previous provision for loan losses of $100,000 due to the receipt of the previously mentioned two large recoveries. For the six months ended June 30, 2015, the Company charged against operating earnings a provision for loan losses of $125,000.

The allowance for loan losses was $2,058,000, $2,124,000, and $2,321,000 at June 30, 2016, December 31, 2015, and June 30, 2015, respectively. The allowance for loan losses was 65.46%, 70.42%, and 40.58% of nonperforming loans at June 30, 2016, December 31, 2015, and June 30, 2015, respectively. The provision for loan losses and the resulting allowance for loan losses are based on changes in the size and character of the Company’s loan portfolio, changes in nonperforming and past due loans, the existing risk of individual loans, concentrations of loans to specific borrowers or industries, and economic conditions. At June 30, 2016, the Company considered its allowance for loan losses to be adequate.

Noninterest income:

Noninterest income consists of revenues generated from a broad range of financial services and activities, including fee-based services and commissions earned through insurance sales. In addition, gains and losses realized from the sale of investment portfolio securities and sales of assets are included in noninterest income.

Noninterest income totaled $1,203,000 for the three months period ended June 30, 2016, an increase of $144,000, or 13.60% compared with the same period last year. This increase is primarily due to a $186,000 legal judgment that the Company collected and a $78,000 recovery; offset by gains on the sale of investment securities of $121,000 reported for the second quarter of 2015. There were no gains on sale of investment securities for the same period in 2016. The service charges on deposits income decreased by $6,000 and other operating income increased by $271,000 compared to the same period last year.

Page 38 of 47

For the year-to-date, noninterest income decreased by $117,000 or 5.26% to $2,106,000 compared to the same period last year. This decrease is primarily due the fact that there were no gains on the sale of investments for the first half of 2016 compared to $312,000 in 2015. Service charges on deposits declined by $30,000 while other operating income increased by $225,000. The increase is primarily due to the aforementioned legal judgment and recovery.

Noninterest expense:

Noninterest expense includes compensation and benefits, occupancy expenses, advertising and marketing, professional fees, office supplies, data processing, telephone expenses, miscellaneous items, and other losses.

Non-interest expense in the second quarter of 2016 decreased by $245,000 to $3,335,000 compared to $3,580,000 for the same quarter last year primarily due to a decrease of $118,000 in the amortization of core deposit intangible which was fully amortized in the first quarter of 2016. Salaries and employee benefits expense decreased by $4,000. Net occupancy and equipment expense decreased by $18,000 compared to the same period of last year. OREO related expenses decreased by $95,000 compared to the same period last year primarily due to a gain on sale of OREO. FDIC insurance expenses decreased by $14,000 compared to the same period in the prior year. Other operating expenses increased by $4,000 compared to the same period in the prior year.

For the six months period ended June 30, 2016, non-interest expense decreased by $475,000 to $6,663,000 compared to $7,138,000 for the same period last year. Salaries and employee benefits expense increased by $54,000 due to the hiring of additional lending officers to enhance loan production, and the filling of one officer level position that was vacant in early 2015. Net occupancy and equipment expense decreased by $44,000 primarily due to lower rent expense, building maintenance expense and insurance costs compared to the same period of last year. OREO related expenses declined by $247,000 compared to the same period last year due to gain on sale of OREO of $269,000 during 2016. Amortization of core deposit intangible decreased by $118,000 which was fully amortized in the first quarter of 2016. FDIC insurance expenses decreased by $21,000 compared to the same period in the prior year. Other operating expenses decreased by $99,000 compared to the same period in the prior year. The decline in other operating expenses is in multiple expense categories as the Company continues to manage its expenses in line with the decline in interest income caused by the prolonged low interest rate environment.

INTEREST RATE SENSITIVITY MANAGEMENT

Interest rate sensitivity management involves managing the potential impact of interest rate movements on net interest income within acceptable levels of risk. The Company seeks to accomplish this by structuring the balance sheet so that repricing opportunities exist for both assets and liabilities in equivalent amounts and time intervals. Imbalances in these repricing opportunities at any point in time constitute a financial institution’s interest rate risk. The Company’s ability to reprice assets and liabilities in the same dollar amounts and at the same time minimizes interest rate risk.

Page 39 of 47

One method of measuring the impact of interest rate sensitivity is the cumulative gap analysis. The difference between interest rate sensitive assets and interest rate sensitive liabilities at various time intervals is referred to as the gap. The Company is liability sensitive on a short-term basis as reflected in the following table. Generally, a net liability sensitive position indicates that there would be a negative impact on net interest income in an increasing rate environment. However, interest rate sensitivity gap does not necessarily indicate the impact of general interest rate movements on the net interest margin, since all interest rates and yields do not adjust at the same velocity and the repricing of various categories of assets and liabilities is subject to competitive pressures and the needs of the Company’s customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within such period and at different rates. The following table shows the contractual maturities of all interest rate sensitive assets and liabilities at June 30, 2016. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Taking a conservative approach, the Company has included demand deposits such as NOW, money market, and savings accounts in the three month category. However, the actual repricing of these accounts may extend beyond twelve months. The interest rate sensitivity gap is only a general indicator of potential effects of interest rate changes on net interest income.

The following table sets forth the distribution of the repricing of the Company’s interest rate sensitive assets and interest rate sensitive liabilities as of June 30, 2016.

	Cumulative amounts as of June 30, 2016
	Maturing and repricing within
	3			3 to 12			1 to 5			Over
	Months			Months			Years			5 Years			Total
				(amounts in thousands, except ratios)
Interest-sensitive assets:
Interest-bearing deposits with other banks	$	53,098		$	—		$	—		$	—		$	53,098
Federal funds sold		16,537			—			—			—			16,537
Certificates of deposit		—			900			—			—			900
Investments		—			824			4,418			109,490			114,732
Loans		82,130			19,589			74,622			22,814			199,155
Total interest-sensitive assets	$	151,765		$	21,313		$	79,040		$	132,304		$	384,422
Interest-sensitive liabilities:
Interest bearing deposits(a)	$	167,762		$	67,980		$	23,584		$	—		$	259,326
Other borrowings		—			5,000			—			225			5,225
Total interest-sensitive liabilities	$	167,762		$	72,980		$	23,584		$	225		$	264,551
Interest-sensitivity gap	$	(15,997	)	$	(51,667	)	$	55,456		$	132,079		$	119,871
Cumulative interest-sensitivity gap		(15,997	)		(67,664	)		(12,208	)		119,871			119,871
Cumulative interest-sensitivity gap to total interest-sensitive assets		(4.16	)%		(17.60	)%		(3.18	)%		31.18	%		31.18	%

(a) Savings, NOW, and money market deposits totaling $135,833 are included in the maturing in 3 months classification.

LIQUIDITY

Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves. Additionally, the Company requires cash for various operating needs including: dividends to shareholders; business combinations; capital injections to its subsidiary; the servicing of debt; and the payment of general corporate expenses. The Company has access to various capital markets and on March 6, 2009, the Company issued 7,462 shares of a Fixed Rate Cumulative Perpetual Preferred Stock, Series A, to the U.S. Department of the Treasury (“Treasury”) under the TARP Program for an investment of $7,462,000. On August 13, 2010, the Company exchanged the outstanding 7,462 shares of Series A Preferred Stock for 7,462 shares of Series B Preferred Stock. No monetary consideration was given in connection with this exchange. The Company also issued 4,379 shares of Series C Preferred Stock for $4,379,000 to the Treasury on September 17, 2010. However, the primary source of liquidity for the Company is dividends from its bank subsidiary. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Company as well as the Company’s payment of dividends to its stockholders. The Georgia Department of Banking and Finance regulates the Bank’s dividend payments and must approve dividend payments that exceed 50 percent of the Bank’s prior year net income. The payment of dividends may also be affected or limited by other factors, such as the requirement by federal agencies to maintain adequate capital above regulatory guidelines and that bank holding companies and insured banks pay dividends out of current earnings.

Page 40 of 47

Asset and liability management functions not only serve to assure adequate liquidity in order to meet the needs of the Company’s customers, but also to maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities so that the Company can earn a return that meets the investment requirements of its shareholders. Daily monitoring of the sources and uses of funds is necessary to maintain an acceptable cash position that meets both requirements.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities of investment securities and, to a lesser extent, sales or paydowns of investment securities available for sale and held to maturity. Other short-term investments such as federal funds sold and maturing interest bearing deposits with other banks are additional sources of liquidity funding.

The liability portion of the balance sheet provides liquidity through various customers’ interest bearing and noninterest bearing deposit accounts. Federal funds purchased and other short-term borrowings from the Federal Reserve Bank Discount Window and the Federal Home Loan Bank are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. At June 30, 2016 the Company had approximately a $80.7 million line of credit facility at the FHLB of which $25.2 million was committed consisting of advances of $5,225,000 and a letter of credit to secure public deposits in the amount of $20.0 million. The Company also had approximately $28.2 million of borrowing capacity at the Federal Reserve Bank discount window and an unsecured $4.0 million fed funds line of credit. These sources of liquidity are short-term in nature and are used as necessary to fund asset growth and meet short-term liquidity needs. The Company does not anticipate any liquidity requirements in the near future that it will not be able to meet.

CAPITAL RESOURCES

Stockholders’ equity increased by $2,487,000 during the six months period ended June 30, 2016 due to multiple factors. Accumulated other comprehensive income, net of income taxes, increased by $1,644,000. This increase is attributed to the volatility in interest rates and swings in credit spreads, and their impact on the fair value of the Company’s available for sale securities portfolio. Retained earnings increased by $815,000 primarily due to a net income of $1,107,000; offset by $118,000 of preferred dividends paid to the U.S. Treasury and $174,000 in cash dividends paid to common stockholders. Additional paid-in-capital decreased by $22,000 due to issuance of common stock associated with restricted stock.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amount and ratios of total and Tier 1 capital to risk weighted assets, and Tier 1 capital to average assets. Effective January 1, 2015, the regulation now also requires the Company to maintain a minimum amount and ratio of common equity Tier 1 capital to risk weighted assets. Furthermore, effective January 1, 2016, in addition to the minimum risk-based capital and leverage ratios, banking organizations must maintain a “capital conservation buffer” consisting of CET1 in an amount equal to 2.5% of risk-weighted assets in order to avoid restrictions on their ability to make capital distributions and to pay certain discretionary bonus payments to executive officers. At June 30, 2016, the Company and the Bank met all capital adequacy requirements to which they are subject and considered to be “well capitalized” under regulatory standards.

Page 41 of 47

The following table presents regulatory capital adequacy ratios for the Company and the Bank as at June 30, 2016 and December 31, 2015:

	June 30,						December 31,
	2016						2015
	The Company			The Bank			The Company			The Bank
Tier 1 Capital (to average assets)		12	%		12	%		12	%		13	%
Tier 1 Capital (to risk weighted assets)		19	%		19	%		20	%		20	%
Tier 1 Common Equity (to risk weighted assets)		N/A			19	%		N/A			20	%
Total Capital (to risk weighted assets)		20	%		20	%		20	%		21	%

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is not required since the Company qualifies as a smaller reporting company.

ITEM 4.      CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we conducted, under the supervision of and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2016 in accumulating and communicating information to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures of that information under the SEC’s rules and forms and that the Company’s disclosure controls and procedures are designed to ensure that the information required to be disclosed in reports filed or submitted by the Company under the Securities Exchange Act is recorded, processed, summarized and reported within the specified time periods. During the quarter ended June 30, 2016, there have been no changes in the Company’s internal controls over financial reporting or, to the Company’s knowledge, in other factors that could significantly change those internal controls subsequent to the date the Company carried out its evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Page 42 of 47

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS
	The Company and the Bank are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, based in part on the advice of counsel, the ultimate disposition of these matters will not have a material adverse impact on the Company’s consolidated financial position.
ITEM 1A.	RISK FACTORS
	We believe there have been no material changes from the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015.  You should carefully consider the factors discussed in our Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2.	UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
	None
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
	None
ITEM 4.	MINE SAFETY DISCLOSURES
	Not Applicable
ITEM 5.	OTHER INFORMATION
	None
ITEM 6.	EXHIBITS
	Exhibit 31
	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit 32
	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	Exhibit 101
	Interactive data files providing financial information from the Registrant’s Report on Form 10-Q as of and for the three and nine months ended June 30, 2016 in XBRL.  Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

Page 43 of 47

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CITIZENS BANCSHARES CORPORATION
Date:   August 15, 20160	By:	/s/ Cynthia N. Day
		Cynthia N. Day
		President and Chief Executive Officer
Date:   August 15, 2016	By:	/s/ Samuel J. Cox
		Samuel J. Cox
		Executive Vice President and
		Chief Financial Officer

Page 44 of 47

EX-31

Exhibit 31	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
	Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

We, Cynthia N. Day, and Samuel J. Cox certify that:

1. We have reviewed this quarterly report of Citizens Bancshares Corporation on Form 10-Q for the quarterly period ended June 30, 2016;

2. Based on our knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on our knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. We are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. We have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Page 45 of 47

Date:   August 15, 2016	By:	/s/ Cynthia N. Day
		Cynthia N. Day
		President and Chief Executive Officer
Date:   August 15, 2016	By:	/s/ Samuel J. Cox
		Samuel J. Cox
		Executive Vice President and
		Chief Financial Officer

Page 46 of 47

EX-32

Exhibit 32	CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
	PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certifications set forth below are hereby submitted to the Securities and Exchange Commission pursuant to, and solely for the purpose of complying with, Section 1350 of Chapter 63 of Title 18 of the United States Code in connection with the filing on the date hereof with the Securities and Exchange Commission of the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2016.

Each of the undersigned hereby certifies in their capacity as an officer of Citizens Bancshares Corporation and subsidiary (the “Company”) that, to their knowledge on the date of this certification, the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2016 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

Date:   August 15, 2016	By:	/s/ Cynthia N. Day
		Cynthia N. Day
		President and Chief Executive Officer
Date:   August 15, 2016	By:	/s/ Samuel J. Cox
		Samuel J. Cox
		Executive Vice President and
		Chief Financial Officer

Page 47 of 47

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 11, 2016
Entity Registrant Name	CITIZENS BANCSHARES CORP /GA/
Entity Central Index Key	0000813640
Document Type	10-Q
Trading Symbol	CZBS
Document Period End Date	Jun. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity a Well-known Seasoned Issuer	No
Entity a Voluntary Filer	No
Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2016
Common Stock [Member]
Entity Common Stock, Shares Outstanding		2,079,997
Nonvoting Common Stock [Member]
Entity Common Stock, Shares Outstanding		90,000

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
ASSETS
Cash and due from banks	$ 2,948	$ 2,577
Federal funds sold	16,537	16,500
Interest-bearing deposits with banks	53,098	29,820
Certificates of deposit	900	900
Investment securities available for sale, at fair value	114,732	123,258
Other investments	958	965
Loans receivable, net	197,097	184,836
Premises and equipment, net	6,649	6,136
Cash surrender value of life insurance	10,224	10,090
Other real estate owned	2,849	4,463
Other assets	8,184	9,075
Total assets	414,176	388,620
LIABILITIES:
Noninterest-bearing deposits	91,919	88,543
Interest-bearing deposits	259,326	240,319
Total deposits	351,245	328,862
Accrued expenses and other liabilities	4,843	4,147
Advances from Federal Home Loan Bank	5,225	5,235
Total liabilities	361,313	338,244
STOCKHOLDERS' EQUITY:
Additional paid-in capital	8,322	8,344
Retained earnings	30,756	29,941
Treasury stock at cost, 250,030 and 241,454 shares at June 30, 2016 and December 31, 2015, respectively	(1,991)	(1,930)
Accumulated other comprehensive income (loss), net of income taxes	1,573	(71)
Total stockholders' equity	52,863	50,376
Total liabilities and stockholders' equity	414,176	388,620
Series B Preferred Stock [Member]
STOCKHOLDERS' EQUITY:
Preferred stock	7,462	7,462
Series C Preferred Stock [Member]
STOCKHOLDERS' EQUITY:
Preferred stock	4,379	4,379
Common Stock [Member]
STOCKHOLDERS' EQUITY:
Common stock	2,330	2,308
Nonvoting Common Stock [Member]
STOCKHOLDERS' EQUITY:
Common stock	90	90
Nonvested Restricted Stock [Member]
STOCKHOLDERS' EQUITY:
Common stock	$ (58)	$ (147)

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
Treasury stock, shares	250,030	241,454
Series B Preferred Stock [Member]
Preferred stock, no par value (in dollars per share)
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	7,462	7,462
Preferred stock, shares outstanding	7,462	7,462
Series C Preferred Stock [Member]
Preferred stock, no par value (in dollars per share)
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	4,379	4,379
Preferred stock, shares outstanding	4,379	4,379
Common Stock [Member]
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	2,330,028	2,308,228
Common stock, shares outstanding	2,330,028	2,308,228
Nonvoting Common Stock [Member]
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized	5,000,000	5,000,000
Common stock, shares issued	90,000	90,000
Common stock, shares outstanding	90,000	90,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Interest income:
Loans, including fees	$ 2,406	$ 2,439	$ 4,703	$ 4,842
Investment securities:
Taxable	466	470	976	977
Tax-exempt	199	218	408	453
Federal funds sold	28		56
Interest-bearing deposits	56	37	115	66
Total interest income	3,155	3,164	6,258	6,338
Interest expense:
Deposits	159	179	325	363
Other borrowings	6		9
Total interest expense	165	179	334	363
Net interest income	2,990	2,985	5,924	5,975
Provision for (recovery of) loan losses	(175)	50	(100)	125
Net interest income after provision for loan losses	3,165	2,935	6,024	5,850
Noninterest income:
Service charges on deposits	659	665	1,303	1,333
Gain on sales of securities		121		312
Other operating income	544	273	803	578
Total noninterest income	1,203	1,059	2,106	2,223
Noninterest expense:
Salaries and employee benefits	1,685	1,689	3,419	3,365
Net occupancy and equipment	506	524	981	1,025
Amortization of core deposit intangible		118	118	236
FDIC insurance	61	75	147	168
Other real estate owned, net	(3)	92	(136)	111
Other operating expenses	1,086	1,082	2,134	2,233
Total noninterest expense	3,335	3,580	6,663	7,138
Income before income taxes	1,033	414	1,467	935
Income tax expense	284	66	360	159
Net income	749	348	1,107	776
Preferred dividends	59	59	118	118
Net income available to common stockholders	$ 690	$ 289	$ 989	$ 658
Net income per common share - basic (in dollars per share)	$ 0.31	$ 0.13	$ 0.45	$ 0.3
Net income per common share - diluted (in dollars per share)	$ 0.31	$ 0.13	$ 0.45	$ 0.3
Weighted average common outstanding shares - basic (in shares)	2,207	2,183	2,205	2,180
Weighted average common outstanding shares - diluted (in shares)	2,209	2,212	2,207	2,209

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Condensed Consolidated Statements Of Comprehensive Income
Net Income	$ 749	$ 348	$ 1,107	$ 776
Other Comprehensive Income
Unrealized holding gain (loss) on investment securities available for sale, net of tax	422	(765)	1,644	(236)
Reclassification adjustment for realized gains (loss) included in net income, net of tax		(80)		(206)
Other Comprehensive Income (loss)	422	(845)	1,644	(442)
Total Comprehensive Income (loss)	$ 1,171	$ (497)	$ 2,751	$ 334

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Condensed Consolidated Statements Of Comprehensive Income Parenthetical
Unrealized holding gain (loss) on investment securities available for sale, tax	$ 217	$ (397)	$ 848	$ (126)
Reclassification adjustment for holding gains included in net income, tax	$ 0	$ (41)		$ (106)

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Preferred Stock [Member]	Common Stock [Member]	Nonvoting Common Stock [Member]	Nonvested Restricted Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at beginning at Dec. 31, 2014	$ 11,841	$ 2,303	$ 90	$ (107)	$ 8,119	$ 28,532	$ (1,882)	$ 670	$ 49,566
Balance at beginning (in shares) at Dec. 31, 2014	12	2,303	90				(236)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income						776			776
Other comprehensive loss								(442)	$ (442)
Issuance of common stock		$ 5			38		$ (48)
Issuance of common stock (in shares)		5					(5)		(5)
Nonvested restricted stock				(160)	187				$ 27
Dividends declared - preferred						(118)			(118)
Dividends declared - common						(174)			(174)
Balance at end at Jun. 30, 2015	$ 11,841	$ 2,308	$ 90	(267)	8,344	29,016	$ (1,930)	228	49,630
Balance at end (in shares) at Jun. 30, 2015	12	2,308	90				(241)
Balance at beginning at Dec. 31, 2015	$ 11,841	$ 2,308	$ 90	(147)	8,344	29,941	$ (1,930)	(71)	50,376
Balance at beginning (in shares) at Dec. 31, 2015	12	2,308	90				(241)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income						1,107			1,107
Other comprehensive loss								1,644	1,644
Issuance of common stock		$ 22			(157)		$ (61)		(196)
Issuance of common stock (in shares)		22					(9)
Nonvested restricted stock				89	135				224
Dividends declared - preferred						(118)			(118)
Dividends declared - common						(174)			(174)
Balance at end at Jun. 30, 2016	$ 11,841	$ 2,330	$ 90	$ (58)	$ 8,322	$ 30,756	$ (1,991)	$ 1,573	$ 52,863
Balance at end (in shares) at Jun. 30, 2016	12	2,330	90				(250)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
OPERATING ACTIVITIES:
Net income	$ 749	$ 348	$ 1,107	$ 776
Adjustments to reconcile net income to net cash provided by operating activities:
(Recovery of) Provision for loan losses	(175)	50	(100)	125
Depreciation			293	273
Amortization and accretion, net			318	512
Provision for deferred income tax			199	477
Gains on sales of securities				(312)
Restricted stock based compensation plan			224	27
Decrease in carrying value of other real estate owned			98	53
Net gain on sale of other real estate owned			(269)	(12)
Bank owned life insurance income			(134)	(106)
Change in other assets			(272)	118
Change in accrued expenses and other liabilities			696	(920)
Net cash provided by operating activities			2,160	1,011
INVESTING ACTIVITIES:
Proceeds from calls of investment securities held to maturity				240
Proceeds from the sales, maturities and paydowns of securities available for sale			11,376	22,602
Purchases of investment securities available for sale			(650)	(19,316)
Net change in other investments			7	(7)
Net change in loans receivable			(12,561)	(6,037)
Proceeds from the sale of other real estate owned			2,140	545
Redemption of bank owned life insurance				2,232
Purchases of premises and equipment, net			(806)	(126)
Net cash provided by (used in) investing activities			(494)	133
FINANCING ACTIVITIES:
Net change in deposits			22,383	(3,787)
Net change in advances from Federal Home Loan Bank			(10)	(10)
Restricted stock remitted by employees for taxes			(61)	(5)
Dividends paid - preferred			(118)	(118)
Dividends paid - common			(174)	(174)
Net cash provided by (used in) financing activities			22,020	(4,094)
Net change in cash and cash equivalents			23,686	(2,950)
Cash and cash equivalents, beginning of period			48,897	48,411	$ 48,411
Cash and cash equivalents at end of period	$ 72,583	$ 45,461	72,583	45,461	48,897
Supplemental disclosures of cash paid during the period for:
Interest			337	359
Income taxes			30	20
Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure			355	94	$ 976
Change in unrealized gain on investment securities available for sale, net of taxes			$ 1,644	$ (442)

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Citizens Bancshares Corporation (the “Company”) is a holding company that provides a full range of commercial and personal banking services to individual and corporate customers in metropolitan Atlanta and Columbus, Georgia, and in Birmingham and Eutaw, Alabama, through its wholly owned subsidiary, Citizens Trust Bank (the “Bank”). The Bank operates under a state charter and serves its customers through seven full-service financial centers in metropolitan Atlanta, Georgia, one full-service financial center in Columbus, Georgia, one full-service financial center in Birmingham, Alabama, and one full-service financial center in Eutaw, Alabama.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by generally accepted accounting principles are not included herein. These interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2015. The results of operations for the interim periods reported herein are not necessarily representative of the results expected for the full 2016 fiscal year.

The consolidated financial statements of the Company for the three and six month periods ended June 30, 2016 are unaudited.  In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations and cash flows for the three month period have been included.  All adjustments are of a normal recurring nature.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Accounting Policies

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which often require the judgment of management in the selection and application of certain accounting principles and methods. Reference is made to the accounting policies of the Company described in the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Company has followed those policies in preparing this report. Management believes that the quality and reasonableness of its most critical policies enable the fair presentation of its financial position and of its results of operations.

Troubled Asset Relief Program

On August 13, 2010, as part of the U.S. Department of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Community Development Capital Initiative, the Company entered into a Letter Agreement, and an Exchange Agreement–Standard Terms (“Exchange Agreement”), with the Treasury, pursuant to which the Company agreed to exchange 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Shares”), issued on March 6, 2009, pursuant to the Company’s participation in the TARP Capital Purchase Program, for 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred Shares”) issued pursuant to the TARP Community Development Capital Initiative, both of which have a liquidation preference of $1,000 (the “Exchange Transaction”). No new monetary consideration was exchanged in connection with the Exchange Transaction. The Exchange Transaction closed on August 13, 2010 (the “Closing Date”).

On September 17, 2010, the Company issued 4,379 shares of its Series C Preferred Shares to the Treasury as part of its TARP Community Development Capital Initiative for a total of 11,841 shares of Series B and C Preferred Shares issued to Treasury. The issuance of the Series B and Series C Preferred Shares was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

The Series B and Series C Preferred Shares qualify as Tier 1 capital and will pay cumulative dividends at a rate of 2% per annum for the first eight years after the Closing Date and 9% per annum thereafter. The Company may, subject to consultation with the Federal Reserve Bank of Atlanta, redeem the Series B and Series C Preferred Shares at any time for its aggregate liquidation amount plus any accrued and unpaid dividends.

Recently Issued Accounting Standards

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendment was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. These amendments did not have a material effect on its financial statements.

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2015, the FASB amended the Income Taxes topic of the Accounting Standards Codification to simplify the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments will be effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted as of the beginning of an interim or annual reporting period. The Company will apply the guidance prospectively. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments will be effective for the Company for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

XML

INVESTMENT

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS

2. INVESTMENTS

Investment securities available for sale are summarized as follows (in thousands):

At June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State, county, and municipal securities	$	26,972	$	1,382	$	—	$	28,354
Mortgage-backed securities		85,376		1,119		117		86,378
Totals	$	112,348	$	2,501	$	117	$	114,732

At December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State, county, and municipal securities	$	28,248	$	1,223	$	14	$	29,457
Mortgage-backed securities		93,118		65		1,383		91,800
Corporate securities		2,000		1		—		2,001
Totals	$	123,366	$	1,289	$	1,397	$	123,258

At June 30, 2016 and December 31, 2015, there were no investment securities held to maturity.

The amortized costs and fair values of investment securities at June 30, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with and without call or prepayment penalties (in thousands).

	Available for Sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	822	$	824
Due after one year through five years		4,237		4,418
Due after five years through ten years		30,276		31,743
Due after ten years		77,013		77,747
	$	112,348	$	114,732

Securities with carrying values of $81,735,000 and $93,161,000 as of June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, FHLB advances and a $28,227,000 line of credit at the Federal Reserve Bank discount window and for other purposes as required by law.

There were no sales of securities during the three or six months ended June 30, 2016. During the first half of 2015, proceeds from the sale of securities were $12,385,000 and gross realized gains on sales of securities were $312,000. For the three month period ended June 30, 2015, gross realized gains on securities were $121,000. There were no gross realized losses on sales of securities during the three and six month periods ended June 30, 2016 and 2015.

The Company’s investment portfolio consists principally of obligations of the United States, its agencies, or its corporations, general obligation and revenue municipals and corporate securities. In the opinion of management, there is no concentration of credit risk in its investment portfolio. The company places its deposits and correspondent accounts with and sells its federal funds to high quality institutions. Management believes credit risk associated with correspondent accounts is not significant.

The following tables show investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2016 and December 31, 2015. Except as explicitly identified below, all unrealized losses on investment securities are considered by management to be temporarily impaired given the credit ratings on these investment securities and the short duration of the unrealized loss (in thousands):

At June 30, 2016

Securities Available for Sale

	Securities in a loss position  for				Securities in a loss position  for
	less than twelve months				twelve months or more					Total
			Unrealized				Unrealized					Unrealized
	Fair value		losses		Fair value		losses			Fair value		losses
Mortgage-backed securities	$	—	$	—	$	17,877	$	(117	)	$	17,877	$	(117	)
Municipal securities		—		—		—		—			—		—
Total	$	—	$	—	$	17,877	$	(117	)	$	17,877	$	(117	)

At December 31, 2015

Securities Available for Sale

	Securities in a loss position  for					Securities in a loss position  for
	less than twelve months					twelve months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair value		losses			Fair value		losses			Fair value		losses
Mortgage-backed securities	$	63,533	$	(723	)	$	21,333	$	(660	)	$	84,866	$	(1,383	)
Municipal securities		2,587		(14	)		—		—			2,587		(14	)
Total	$	66,120	$	(737	)	$	21,333	$	(660	)	$	87,453	$	(1,397	)

The Company’s available for sale portfolio had thirteen (13) investment securities at June 30, 2016 that were in an unrealized loss position for longer than twelve months. At December 31, 2015, the Company had fifteen (15) investment securities that were in an unrealized loss position for longer than twelve months. The Company reviews these securities for other-than-temporary impairment on a quarterly basis by monitoring their credit support and coverage, constant payment of the contractual principal and interest, loan to value and delinquencies ratios.

We use prices from third party pricing services and, to a lesser extent, indicative (non-binding) quotes from third party brokers, to measure fair value of our investment securities. Fair values of the investment securities portfolio could decline in the future if the underlying performance of the collateral for collateralized mortgage obligations or other securities deteriorates and the levels do not provide sufficient protection for contractual principal and interest. As a result, there is risk that an other-than-temporary impairment may occur in the future particularly in light of the current economic environment.

As of the date of its evaluation, the Company did not intend to sell and has the ability to hold these securities and it is more likely than not that the Company will not be required to sell those securities before recovery of its amortized cost or the security matures. The Company believes, based on industry analyst reports and credit ratings, that it will continue to receive scheduled interest payments as well as the entire principal balance, and the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary.

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2016

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):

	June 30,		December 31,
	2016		2015
Commercial, financial, and agricultural	$	44,345	$	42,748
Commercial Real Estate		108,436		104,092
Single-Family Residential		32,184		31,096
Construction and Development		6,838		2,220
Consumer		7,352		6,804
		199,155		186,960
Allowance for loan losses		2,058		2,124
	$	197,097	$	184,836

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

	For the Three Month Period Ended June 30, 2016
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development		Consumer			Total
Beginning balance	$	604		$	952		$	364		$	6	$	226		$	2,152
Recovery of loan losses		(181	)		(164	)		176			3		(9	)		(175	)
Loans charged-off		—			(179	)		(58	)		—		(19	)		(256	)
Recoveries on loans charged-off		5			316			1			—		15			337
Ending Balance	$	428		$	925		$	483		$	9	$	213		$	2,058

	For the Six Month Period Ended June 30, 2016
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development		Consumer			Total
Beginning balance	$	342		$	1,170		$	435		$	3	$	174		$	2,124
Recovery of loan losses		105			(386	)		70			6		105			(100	)
Loans charged-off		(30	)		(179	)		(101	)		—		(97	)		(407	)
Recoveries on loans charged-off		11			320			79			—		31			441
Ending Balance	$	428		$	925		$	483		$	9	$	213		$	2,058

	For the Three Month Period Ended June 30, 2015
	Commercial		Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	289	$	1,308		$	350		$	52		$	227		$	2,226
Provision for loan losses		346		(228	)		(10	)		(48	)		(10	)		50
Loans charged-off		—		—			(73	)		—			(56	)		(129	)
Recoveries on loans charged-off		5		111			23			5			30			174
Ending Balance	$	640	$	1,191		$	290		$	9		$	191		$	2,321

	For the Six Month Period Ended June 30, 2015
	Commercial		Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	415	$	1,366		$	254		$	72		$	192		$	2,299
Provision for loan losses		215		(268	)		182			(69	)		65			125
Loans charged-off		—		(83	)		(170	)		—			(111	)		(364	)
Recoveries on loans charged-off		10		176			24			6			45			261
Ending Balance	$	640	$	1,191		$	290		$	9		$	191		$	2,321

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 June 30, 2016
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific Reserves:
Impaired loans	$	74	$	426	$	180	$	—	$	—	$	680
Total specific reserves		74		426		180		—		—		680
General reserves		354		499		303		9		213		1,378
Total	$	428	$	925	$	483	$	9	$	213	$	2,058
Loans individually evaluated for impairment	$	150	$	9,884	$	426	$	—	$	—	$	10,460
Loans collectively evaluated for impairment		44,195		98,552		31,758		6,838		7,352		188,695
Total	$	44,345	$	108,436	$	32,184	$	6,838	$	7,352	$	199,155

	At December 31, 2015
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific Reserves:
Impaired loans	$	—	$	550	$	100	$	—	$	—	$	650
Total specific reserves		—		550		100		—		—		650
General reserves		342		620		335		3		174		1,474
Total	$	342	$	1,170	$	435	$	3	$	174	$	2,124
Loans individually evaluated for impairment	$	—	$	9,392	$	417	$	—	$	—	$	9,809
Loans collectively evaluated for impairment		42,748		94,700		30,679		2,220		6,804		177,151
Total	$	42,748	$	104,092	$	31,096	$	2,220	$	6,804	$	186,960

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

	At June 30, 2016
							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	$	—	$	—	$	—	$	—	$	—
HELOC’s and equity		263		217		180		296		209
Commercial
Secured		150		150		74		—		—
Unsecured		—		—		—		—		—
Commercial Real Estate:
Owner occupied		406		406		416		8,516		7,901
Non-owner occupied		608		10		10		1,627		1,567
Multi-family		—		—		—		—		—
Construction and Development:
Construction		—		—		—		—		—
Improved Land		—		—		—		—		—
Unimproved Land		—		—		—		—		—
Consumer and Other		—		—		—		—		—
Total	$	1,427	$	783	$	680	$	10,439	$	9,677

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

	Six Months Ended				Six Months Ended
	June 30, 2016				June 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residential:
First mortgages	$	—	$	—	$	—	$	—
HELOC’s and equity		388		5		214		26
Commercial:
Secured		150		—		—		—
Unsecured		—		—		—		—
Commercial Real Estate:
Owner occupied		8,593		129		8,526		200
Non-owner occupied		1,997		13		2,841		127
Multi-family		—		—		50		30
Construction and Development:
Construction		—		—		—		—
Improved Land		—		—		—		—
Unimproved Land		—		—		—		—
Consumer and Other		—		—		—		—
Total	$	11,128	$	147	$	11,631	$	383

	At December 31, 2015
							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		134		134		100		304		283		209		43
Commercial
Secured		—		—		—		—		—		—		—
Unsecured		—		—		—		—		—		—		—
Commercial Real Estate:
Owner occupied		4,115		4,115		356		4,456		3,972		8,666		391
Non-owner occupied		691		691		194		667		614		1,679		193
Multi-family		—		—		—		—		—		—		—
Construction and Development
Construction		—		—		—		—		—		—		—
Improved Land		—		—		—		—		—		—		—
Consumer and Other		—		—				—		—		—		—
Total	$	4,940	$	4,940	$	650	$	5,427	$	4,869	$	10,554	$	627

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

	At June 30, 2016
	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	$	—	$	368	$	664	$	1,032	$	19,345	$	20,377	$	—	$	1,160
HELOC’s and equity		303		106		139		548		11,259		11,807		—		278
Commercial:
Secured		—		1		150		151		39,669		39,820		—		150
Unsecured		—		—		—		—		4,525		4,525		—		—
Commercial Real Estate:
Owner occupied		728		209		293		1,230		49,406		50,636		—		846
Non-owner occupied		414		27		606		1,047		52,067		53,114		—		699
Multi-family		—		—		—		—		4,686		4,686		—		—
Construction and  Development		—		—		—		—		6,838		6,838		—		—
Consumer and Other		1		12		12		25		7,327		7,352		1		11
Total	$	1,446	$	723	$	1,864	$	4,033	$	195,122	$	199,155	$	1	$	3,144

	At December 31, 2015
	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	$	1,581	$	824	$	745	$	3,150	$	19,253	$	22,403	$	—	$	1,246
HELOC’s and equity		224		59		173		456		8,237		8,693		—		250
Commercial:
Secured		49		—		30		79		36,144		36,223		—		30
Unsecured		—		—		—		—		6,525		6,525		—		—
Commercial Real Estate:
Owner occupied		931		336		—		1,267		51,180		52,447		—		933
Non-owner occupied		441		691		—		1,132		45,684		46,816		—		551
Multi-family		—		—		—		—		4,829		4,829		—		—
Construction and  Development:
Construction		—		—		—		—		2,220		2,220		—		—
Consumer and Other		29		41		6		76		6,728		6,804		—		6
Total	$	3,255	$	1,951	$	954	$	6,160	$	180,800	$	186,960	$	—	$	3,016

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 is 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 June 30, 2016
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	20,377	$	19,240	$	—	$	1,137	$	—
HELOC’s and equity		11,807		11,253		—		404		150
Commercial, financial, and agricultural:
Secured		39,820		39,670		—		150		—
Unsecured		4,525		4,525		—		—		—
Commercial Real Estate:
Owner occupied		50,636		43,791		1,003		5,842		—
Non-owner occupied		53,114		51,510		—		1,604		—
Multi-family		4,686		4,387		299		—		—
Construction and Development		6,838		6,838		—		—		—
Consumer		7,352		7,329		11		10		2
Total	$	199,155	$	188,543	$	1,313	$	9,147	$	152

	At December 31, 2015
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	22,403	$	20,729	$	—	$	1,651	$	23
HELOC’s and equity		8,693		8,004		66		547		76
Commercial, financial, and agricultural:
Secured		36,223		36,193		—		—		30
Unsecured		6,525		6,525		—		—		—
Commercial Real Estate:
Owner occupied		52,447		45,274		1,604		5,569		—
Non-owner occupied		46,816		45,458		107		1,251		—
Multi-family		4,829		4,524		305		—		—
Construction and Development		2,220		2,220		—		—		—
Consumer		6,804		6,749		—		16		39
Total	$	186,960	$	175,676	$	2,082	$	9,034	$	168

During the three and six months ended June 30, 2016, the Company did not modify any loan that was considered to be a troubled debt restructuring. During the three and six months ended June 30, 2015, the Company modified two (2) and four (4) loans, respectively, that were considered to be troubled debt restructurings. We extended the terms and decreased the interest rate on these loans (dollars in thousands).

Extended Terms and Decreased Interest Rate
	Three Months Ended June 30, 2015
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Troubled Debt Restructurings
Residential mortgages		2	$	86	$	86
Total		2	$	86	$	86

Decreased Interest Rate Only
	Six Months Ended June 30, 2015
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential mortgages		4	$	120	$	120
Total		4	$	120	$	120

There was one (1) loan restructured during the last twelve months that experienced payment default subsequent to restructuring during the three and six month periods ended June 30, 2016. During the three and six month periods ended June 30, 2015, there was one (1) loan restructured during the last twelve months that experienced payment default subsequent to restructuring.

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.

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures or monitors certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities that are elected to be accounted for under ASC guidance as well as certain assets and liabilities in which fair value is the primary basis of accounting. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value, which are in accordance with the guidance for determining the fair value of a financial asset when the market for that asset is not active.

In accordance with ASC guidance, the Company applied the following fair value hierarchy:

Level 1—Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other highly liquid investments that are actively traded in over-the-counter markets.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities, certain derivative contracts and impaired loans.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Investment Securities Available for Sale—Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Other Real Estate Owned— Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. The fair value of other real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. In addition, the Company may further adjust an appraised amount given its knowledge of a specific property or market.

Loans—The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired, and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment. The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At June 30, 2016 and December 31, 2015, substantially all of the impaired loans were evaluated based upon the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. In addition, the Company may further adjust an appraised amount given its knowledge of a specific property or market. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

The following tables present financial assets measured at fair value on a recurring and nonrecurring basis and the change in fair value for those specific financial instruments in which fair value has been elected. (there were no financial liabilities measured at fair value for the periods being reported) (in thousands):

	Fair Value Measurements at June 30, 2016
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	28,354	$	—	$	28,354	$	—
Mortgage-backed securities		86,378		—		86,378		—
		114,732		—		114,732		—
Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	9,458	$	—	$	—	$	9,458
Single-family Residential		246		—		—		246
Commercial		76		—		—		76
Other real estate owned		2,849		—		—		2,849
		12,629		—		—		12,629

	Fair Value Measurements at December 31, 2015
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	29,457	$	—	$	29,457	$	—
Mortgage-backed securities		91,800		—		91,800		—
Corporate securities		2,001		—		2,001		—
		123,258		—		123,258		—
Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	8,842	$	—	$	—	$	8,842
Single-family Residential		317		—		—		317
Other real estate owned		4,463		—		—		4,463
		13,622		—		—		13,622

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2016, the significant unobservable inputs used in the fair value measurements were as follows (dollars in thousands):

		Fair Value at		Valuation	Unobservable
(Dollars in thousands)		June 30, 2016		Technique	Inputs	Range
Impaired Loans:
	Commercial Real Estate	$	9,458	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
	Single-family Residential	$	246	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
	Commercial	$	76	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
OREO		$	2,849	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%

As of December 31, 2015, the significant unobservable inputs used in the fair value measurements were as follows

(dollars in thousands):

		Fair Value at		Valuation	Unobservable
(Dollars in thousands)		December 31, 2015		Technique	Inputs	Range
Impaired Loans:
	Commercial Real Estate	$	8,842	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
	Single-family Residential	$	317	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
OREO		$	4,463	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%

Following are disclosures of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered an estimate of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance.

Cash, Due from Banks, Federal Funds Sold, Interest-Bearing Deposits with Banks and Certificates of Deposits—Fair value equals the carrying value of such assets due to their nature and is classified as Level 1.

Investment Securities—Fair value of investment securities is based on quoted market prices and is classified as Level 2.

Other Investments—The carrying amount of other investments approximates its fair value and is classified as Level 1.

Loans—The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings resulting in a Level 3 classification. For variable rate loans, the carrying amount is a reasonable estimate of fair value. The methods utilized to estimate the fair values of loans do not necessarily represent an exit price. The carrying amount of related accrued interest receivable, due to its short-term nature, approximates its fair value, is not significant and is not disclosed.

Cash Surrender Value of Life Insurance—Cash values of life insurance policies are carried at the value for which such policies may be redeemed for cash and are classified as Level 1.

Deposits—The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed rate certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities and is classified as Level 2.

Advances from Federal Home Loan Bank—The fair values of advances from the Federal Home Loan Bank are estimated by discounting the future cash flows using the rates currently available to the Bank for debt with similar remaining maturities and terms and are classified as Level 2.

Commitments to Extend Credit and Commercial Letters of Credit—Because commitments to extend credit and commercial letters of credit are made using variable rates, or are recently executed, the contract value is a reasonable estimate of fair value.

Limitations—Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments; for example, premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2016 (in thousands):

	June 30, 2016
	Fair Value Measurements
	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	2,948	$	2,948	$	2,948	$	—	$	—
Interest-bearing deposits with banks		53,098		53,098		53,098		—		—
Federal funds sold		16,537		16,537		16,537		—		—
Certificates of deposit		900		900		900		—		—
Investment securities		114,732		114,732		—		114,732		—
Other investments		958		958		958		—		—
Loans-net		197,097		196,522		—		—		196,522
Cash surrender value of life insurance		10,224		10,224		10,224		—		—
Financial liabilities:
Deposits		351,245		352,022		228,113		123,909
Advances from Federal Home Loan Bank		5,225		5,225		—		5,225		—
	Notional		Estimated
	Amount		Fair Value
Off-balance-sheet financial instruments:
Commitments to extend credit	$	28,885	$	—
Commercial letters of credit		1,889		—

The carrying values and estimated fair values of the Company’s financial instruments at December 31, 2015 are as follows:

	December 31, 2015
	Fair Value Measurements
	Carrying
	Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	2,577	$	2,577	$	2,577	$	—	$	—
Interest-bearing deposits with banks		29,820		29,820		29,820		—		—
Federal funds sold		16,500		16,500		16,500		—		—
Certificates of deposit		900		900		900		—		—
Investment securities		123,258		123,258		—		123,258		—
Other investments		965		965		965		—		—
Loans-net		184,836		183,929		—		—		183,929
Cash surrender value of life insurance		10,090		10,090		10,090		—		—
Financial liabilities:
Deposits		328,862		329,211		212,820		116,391		—
Advances from Federal Home Loan Bank		5,235		5,235		—		5,235		—
	Notional		Estimated
	Amount		Fair Value
Off-balance-sheet financial instruments:
Commitments to extend credit	$	35,843	$	—
Commercial letters of credit		1,889		—

XML

OTHER REAL ESTATE OWNED

6 Months Ended

Jun. 30, 2016

Real Estate [Abstract]

OTHER REAL ESTATE OWNED

5. OTHER REAL ESTATE OWNED

Other real estate owned is reported at the lower of cost or fair value less estimated disposal costs, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. Any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a charge-off against the allowance for loan losses. Any subsequent declines in value are charged to earnings. Transactions in other real estate owned are summarized below (in thousands):

	June 30,			December 31,
	2016			2015
Balance—beginning of period	$	4,463		$	4,668
Additions		355			976
Sales		(1,871	)		(964	)
Write downs		(98	)		(217	)
Balance—end of period	$	2,849		$	4,463

XML

INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

6. INTANGIBLE ASSETS

Finite lived intangible assets of the Company represent deposit assumption premiums recorded upon the purchase of certain assets and liabilities from other financial institutions. Deposit assumption premiums are amortized over seven years, the estimated average lives of the deposit bases acquired, using the straight-line method and are included within other assets on the Condensed Consolidated Balance Sheets. During the first quarter of 2016, the deposit premium became fully amortized.

The Company applies a fair value-based impairment test to the carrying value of goodwill on an annual basis and on an interim basis if certain events or circumstances indicate that an impairment loss may have been incurred.

The following table presents information about the Company’s intangible assets (in thousands):

	June 30, 2016				December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Unamortized intangible asset:
Goodwill	$	362	$	—	$	362	$	—
Amortized intangible assets:
Core deposit intangibles	$	3,303	$	3,303	$	3,303	$	3,185

The following table presents information about aggregate amortization expense (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Aggregate amortization expense of core deposit intangibles:	$	—	$	118	$	118	$	236
Estimated aggregate amortization expense of core deposit intangibles for the years ending December 31:
2016	$	118
2017 and thereafter	$	—

XML

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

7. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Basic and diluted net income per share available to common and potential common stockholders has been calculated based on the weighted average number of shares outstanding.

Options with exercise prices greater than the average market price of the Company’s stock during the periods are excluded from computation of diluted earnings per share. Options with exercise prices lower than the average market price of the Company’s stock during the periods are considered dilutive and are therefore included in the computation of diluted earnings per share.

The following table presents the number of options that are considered antidilutive and dilutive in the computation of diluted earnings per share:

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Options excluded from calculation of diluted earnings per share		32,500		24,877		32,500		24,877
Dilutive options included in calculation of diluted earnings per share		—		16,500		—		16,500
Total number of options outstanding		32,500		41,377		32,500		41,377

The following schedule reconciles the numerator and denominator of the basic and diluted net income per share available to common and potential common stockholders for the three and six months ended June 30, 2016 and 2015 (in thousands, except per share data):

	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
Three Months ended June 30, 2016
Basic earnings per share available to common stockholders	$	690		2,207	$	0.31
Nonvested restricted stock grant		—		2		—
Effect of dilutive securities: options to purchase common shares		—		—		—
Diluted earnings per share	$	690		2,209	$	0.31
Six Months ended June 30, 2016
Basic earnings per share available to common stockholders	$	989		2,205	$	0.45
Nonvested restricted stock grant		—		2		—
Effect of dilutive securities: options to purchase common shares		—		—		—
Diluted earnings per share	$	989		2,207	$	0.45
Three Months ended June 30, 2015
Basic earnings per share available to common stockholders	$	289		2,183	$	0.13
Nonvested restricted stock grant		—		12		—
Effect of dilutive securities: options to purchase common shares		—		17		—
Diluted earnings per share	$	289		2,212	$	0.13
Six Months ended June 30, 2015
Basic earnings per share available to common stockholders	$	658		2,180	$	0.30
Nonvested restricted stock grant		—		12		—
Effect of dilutive securities: options to purchase common shares		—		17		—
Diluted earnings per share	$	658		2,209	$	0.30

XML

SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

8. SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date its financial statements were issued.

XML

RECLASSIFICATIONS

6 Months Ended

Jun. 30, 2016

Accounting Changes and Error Corrections [Abstract]

RECLASSIFICATIONS

9. RECLASSIFICATIONS

Certain amounts in the 2015 consolidated financial statements were reclassified to conform to the 2016 presentation. These reclassifications had no effect on shareholders’ equity or the results of operations as previously presented.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

Citizens Bancshares Corporation (the “Company”) is a holding company that provides a full range of commercial and personal banking services to individual and corporate customers in metropolitan Atlanta and Columbus, Georgia, and in Birmingham and Eutaw, Alabama, through its wholly owned subsidiary, Citizens Trust Bank (the “Bank”). The Bank operates under a state charter and serves its customers through seven full-service financial centers in metropolitan Atlanta, Georgia, one full-service financial center in Columbus, Georgia, one full-service financial center in Birmingham, Alabama, and one full-service financial center in Eutaw, Alabama.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by generally accepted accounting principles are not included herein. These interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2015. The results of operations for the interim periods reported herein are not necessarily representative of the results expected for the full 2016 fiscal year.

The consolidated financial statements of the Company for the three and six month periods ended June 30, 2016 are unaudited.  In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations and cash flows for the three month period have been included.  All adjustments are of a normal recurring nature.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Accounting Policies

Accounting Policies

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which often require the judgment of management in the selection and application of certain accounting principles and methods. Reference is made to the accounting policies of the Company described in the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Company has followed those policies in preparing this report. Management believes that the quality and reasonableness of its most critical policies enable the fair presentation of its financial position and of its results of operations.

Troubled Asset Relief Program

Troubled Asset Relief Program

On August 13, 2010, as part of the U.S. Department of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Community Development Capital Initiative, the Company entered into a Letter Agreement, and an Exchange Agreement–Standard Terms (“Exchange Agreement”), with the Treasury, pursuant to which the Company agreed to exchange 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Shares”), issued on March 6, 2009, pursuant to the Company’s participation in the TARP Capital Purchase Program, for 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred Shares”) issued pursuant to the TARP Community Development Capital Initiative, both of which have a liquidation preference of $1,000 (the “Exchange Transaction”). No new monetary consideration was exchanged in connection with the Exchange Transaction. The Exchange Transaction closed on August 13, 2010 (the “Closing Date”).

On September 17, 2010, the Company issued 4,379 shares of its Series C Preferred Shares to the Treasury as part of its TARP Community Development Capital Initiative for a total of 11,841 shares of Series B and C Preferred Shares issued to Treasury. The issuance of the Series B and Series C Preferred Shares was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

The Series B and Series C Preferred Shares qualify as Tier 1 capital and will pay cumulative dividends at a rate of 2% per annum for the first eight years after the Closing Date and 9% per annum thereafter. The Company may, subject to consultation with the Federal Reserve Bank of Atlanta, redeem the Series B and Series C Preferred Shares at any time for its aggregate liquidation amount plus any accrued and unpaid dividends.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendment was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. These amendments did not have a material effect on its financial statements.

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2015, the FASB amended the Income Taxes topic of the Accounting Standards Codification to simplify the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments will be effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted as of the beginning of an interim or annual reporting period. The Company will apply the guidance prospectively. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments will be effective for the Company for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

XML

INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Schedule of investment securities available for sale

Investment securities available for sale are summarized as follows (in thousands):

At June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State, county, and municipal securities	$	26,972	$	1,382	$	—	$	28,354
Mortgage-backed securities		85,376		1,119		117		86,378
Totals	$	112,348	$	2,501	$	117	$	114,732

At December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State, county, and municipal securities	$	28,248	$	1,223	$	14	$	29,457
Mortgage-backed securities		93,118		65		1,383		91,800
Corporate securities		2,000		1		—		2,001
Totals	$	123,366	$	1,289	$	1,397	$	123,258

Schedule of amortized costs and fair values of investment securities, by contractual maturity

The amortized costs and fair values of investment securities at June 30, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with and without call or prepayment penalties (in thousands).

	Available for Sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	822	$	824
Due after one year through five years		4,237		4,418
Due after five years through ten years		30,276		31,743
Due after ten years		77,013		77,747
	$	112,348	$	114,732

Schedule of investments' gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealzied loss position

The following tables show investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2016 and December 31, 2015. Except as explicitly identified below, all unrealized losses on investment securities are considered by management to be temporarily impaired given the credit ratings on these investment securities and the short duration of the unrealized loss (in thousands):

At June 30, 2016

Securities Available for Sale

	Securities in a loss position  for				Securities in a loss position  for
	less than twelve months				twelve months or more					Total
			Unrealized				Unrealized					Unrealized
	Fair value		losses		Fair value		losses			Fair value		losses
Mortgage-backed securities	$	—	$	—	$	17,877	$	(117	)	$	17,877	$	(117	)
Municipal securities		—		—		—		—			—		—
Total	$	—	$	—	$	17,877	$	(117	)	$	17,877	$	(117	)

At December 31, 2015

Securities Available for Sale

	Securities in a loss position  for					Securities in a loss position  for
	less than twelve months					twelve months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair value		losses			Fair value		losses			Fair value		losses
Mortgage-backed securities	$	63,533	$	(723	)	$	21,333	$	(660	)	$	84,866	$	(1,383	)
Municipal securities		2,587		(14	)		—		—			2,587		(14	)
Total	$	66,120	$	(737	)	$	21,333	$	(660	)	$	87,453	$	(1,397	)

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Tables)

6 Months Ended

Jun. 30, 2016

Loans and Leases Receivable Disclosure [Abstract]

Summary of loans outstanding, by classification

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

	June 30,		December 31,
	2016		2015
Commercial, financial, and agricultural	$	44,345	$	42,748
Commercial Real Estate		108,436		104,092
Single-Family Residential		32,184		31,096
Construction and Development		6,838		2,220
Consumer		7,352		6,804
		199,155		186,960
Allowance for loan losses		2,058		2,124
	$	197,097	$	184,836

Summary of activity in the allowance for loan losses by portfolio segment

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

	For the Three Month Period Ended June 30, 2016
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development		Consumer			Total
Beginning balance	$	604		$	952		$	364		$	6	$	226		$	2,152
Recovery of loan losses		(181	)		(164	)		176			3		(9	)		(175	)
Loans charged-off		—			(179	)		(58	)		—		(19	)		(256	)
Recoveries on loans charged-off		5			316			1			—		15			337
Ending Balance	$	428		$	925		$	483		$	9	$	213		$	2,058

	For the Six Month Period Ended June 30, 2016
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development		Consumer			Total
Beginning balance	$	342		$	1,170		$	435		$	3	$	174		$	2,124
Recovery of loan losses		105			(386	)		70			6		105			(100	)
Loans charged-off		(30	)		(179	)		(101	)		—		(97	)		(407	)
Recoveries on loans charged-off		11			320			79			—		31			441
Ending Balance	$	428		$	925		$	483		$	9	$	213		$	2,058

	For the Three Month Period Ended June 30, 2015
	Commercial		Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	289	$	1,308		$	350		$	52		$	227		$	2,226
Provision for loan losses		346		(228	)		(10	)		(48	)		(10	)		50
Loans charged-off		—		—			(73	)		—			(56	)		(129	)
Recoveries on loans charged-off		5		111			23			5			30			174
Ending Balance	$	640	$	1,191		$	290		$	9		$	191		$	2,321

	For the Six Month Period Ended June 30, 2015
	Commercial		Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	415	$	1,366		$	254		$	72		$	192		$	2,299
Provision for loan losses		215		(268	)		182			(69	)		65			125
Loans charged-off		—		(83	)		(170	)		—			(111	)		(364	)
Recoveries on loans charged-off		10		176			24			6			45			261
Ending Balance	$	640	$	1,191		$	290		$	9		$	191		$	2,321

Schedule of allocation of allowance for loan losses by portfolio segment

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

	At June 30, 2016
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific Reserves:
Impaired loans	$	74	$	426	$	180	$	—	$	—	$	680
Total specific reserves		74		426		180		—		—		680
General reserves		354		499		303		9		213		1,378
Total	$	428	$	925	$	483	$	9	$	213	$	2,058
Loans individually evaluated for impairment	$	150	$	9,884	$	426	$	—	$	—	$	10,460
Loans collectively evaluated for impairment		44,195		98,552		31,758		6,838		7,352		188,695
Total	$	44,345	$	108,436	$	32,184	$	6,838	$	7,352	$	199,155

	At December 31, 2015
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific Reserves:
Impaired loans	$	—	$	550	$	100	$	—	$	—	$	650
Total specific reserves		—		550		100		—		—		650
General reserves		342		620		335		3		174		1,474
Total	$	342	$	1,170	$	435	$	3	$	174	$	2,124
Loans individually evaluated for impairment	$	—	$	9,392	$	417	$	—	$	—	$	9,809
Loans collectively evaluated for impairment		42,748		94,700		30,679		2,220		6,804		177,151
Total	$	42,748	$	104,092	$	31,096	$	2,220	$	6,804	$	186,960

Schedule of impaired loans by class of loan

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

	At June 30, 2016
							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	$	—	$	—	$	—	$	—	$	—
HELOC’s and equity		263		217		180		296		209
Commercial
Secured		150		150		74		—		—
Unsecured		—		—		—		—		—
Commercial Real Estate:
Owner occupied		406		406		416		8,516		7,901
Non-owner occupied		608		10		10		1,627		1,567
Multi-family		—		—		—		—		—
Construction and Development:
Construction		—		—		—		—		—
Improved Land		—		—		—		—		—
Unimproved Land		—		—		—		—		—
Consumer and Other		—		—		—		—		—
Total	$	1,427	$	783	$	680	$	10,439	$	9,677

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

	Six Months Ended				Six Months Ended
	June 30, 2016				June 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residential:
First mortgages	$	—	$	—	$	—	$	—
HELOC’s and equity		388		5		214		26
Commercial:
Secured		150		—		—		—
Unsecured		—		—		—		—
Commercial Real Estate:
Owner occupied		8,593		129		8,526		200
Non-owner occupied		1,997		13		2,841		127
Multi-family		—		—		50		30
Construction and Development:
Construction		—		—		—		—
Improved Land		—		—		—		—
Unimproved Land		—		—		—		—
Consumer and Other		—		—		—		—
Total	$	11,128	$	147	$	11,631	$	383

	At December 31, 2015
							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		134		134		100		304		283		209		43
Commercial
Secured		—		—		—		—		—		—		—
Unsecured		—		—		—		—		—		—		—
Commercial Real Estate:
Owner occupied		4,115		4,115		356		4,456		3,972		8,666		391
Non-owner occupied		691		691		194		667		614		1,679		193
Multi-family		—		—		—		—		—		—		—
Construction and Development
Construction		—		—		—		—		—		—		—
Improved Land		—		—		—		—		—		—		—
Consumer and Other		—		—				—		—		—		—
Total	$	4,940	$	4,940	$	650	$	5,427	$	4,869	$	10,554	$	627

Schedule of aging analysis of loan portfolio

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

	At June 30, 2016
	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	$	—	$	368	$	664	$	1,032	$	19,345	$	20,377	$	—	$	1,160
HELOC’s and equity		303		106		139		548		11,259		11,807		—		278
Commercial:
Secured		—		1		150		151		39,669		39,820		—		150
Unsecured		—		—		—		—		4,525		4,525		—		—
Commercial Real Estate:
Owner occupied		728		209		293		1,230		49,406		50,636		—		846
Non-owner occupied		414		27		606		1,047		52,067		53,114		—		699
Multi-family		—		—		—		—		4,686		4,686		—		—
Construction and  Development		—		—		—		—		6,838		6,838		—		—
Consumer and Other		1		12		12		25		7,327		7,352		1		11
Total	$	1,446	$	723	$	1,864	$	4,033	$	195,122	$	199,155	$	1	$	3,144

	At December 31, 2015
	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	$	1,581	$	824	$	745	$	3,150	$	19,253	$	22,403	$	—	$	1,246
HELOC’s and equity		224		59		173		456		8,237		8,693		—		250
Commercial:
Secured		49		—		30		79		36,144		36,223		—		30
Unsecured		—		—		—		—		6,525		6,525		—		—
Commercial Real Estate:
Owner occupied		931		336		—		1,267		51,180		52,447		—		933
Non-owner occupied		441		691		—		1,132		45,684		46,816		—		551
Multi-family		—		—		—		—		4,829		4,829		—		—
Construction and  Development:
Construction		—		—		—		—		2,220		2,220		—		—
Consumer and Other		29		41		6		76		6,728		6,804		—		6
Total	$	3,255	$	1,951	$	954	$	6,160	$	180,800	$	186,960	$	—	$	3,016

Schedule of loan portfolio by risk rating

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

	At June 30, 2016
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	20,377	$	19,240	$	—	$	1,137	$	—
HELOC’s and equity		11,807		11,253		—		404		150
Commercial, financial, and agricultural:
Secured		39,820		39,670		—		150		—
Unsecured		4,525		4,525		—		—		—
Commercial Real Estate:
Owner occupied		50,636		43,791		1,003		5,842		—
Non-owner occupied		53,114		51,510		—		1,604		—
Multi-family		4,686		4,387		299		—		—
Construction and Development		6,838		6,838		—		—		—
Consumer		7,352		7,329		11		10		2
Total	$	199,155	$	188,543	$	1,313	$	9,147	$	152

	At December 31, 2015
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	22,403	$	20,729	$	—	$	1,651	$	23
HELOC’s and equity		8,693		8,004		66		547		76
Commercial, financial, and agricultural:
Secured		36,223		36,193		—		—		30
Unsecured		6,525		6,525		—		—		—
Commercial Real Estate:
Owner occupied		52,447		45,274		1,604		5,569		—
Non-owner occupied		46,816		45,458		107		1,251		—
Multi-family		4,829		4,524		305		—		—
Construction and Development		2,220		2,220		—		—		—
Consumer		6,804		6,749		—		16		39
Total	$	186,960	$	175,676	$	2,082	$	9,034	$	168

Schedule of troubled debt restructurings

During the three and six months ended June 30, 2016, the Company did not modify any loan that was considered to be a troubled debt restructuring. During the three and six months ended June 30, 2015, the Company modified two (2) and four (4) loans, respectively, that were considered to be troubled debt restructurings. We extended the terms and decreased the interest rate on these loans (dollars in thousands).

Extended Terms and Decreased Interest Rate
	Three Months Ended June 30, 2015
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Troubled Debt Restructurings
Residential mortgages		2	$	86	$	86
Total		2	$	86	$	86

Decreased Interest Rate Only
	Six Months Ended June 30, 2015
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential mortgages		4	$	120	$	120
Total		4	$	120	$	120

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of financial assets measured at fair value on a recurring and nonrecurring basis and the change in fair value for those specific financial instruments in which fair value has been elected

The following tables present financial assets measured at fair value on a recurring and nonrecurring basis and the change in fair value for those specific financial instruments in which fair value has been elected. (there were no financial liabilities measured at fair value for the periods being reported) (in thousands):

	Fair Value Measurements at June 30, 2016
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	28,354	$	—	$	28,354	$	—
Mortgage-backed securities		86,378		—		86,378		—
		114,732		—		114,732		—
Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	9,458	$	—	$	—	$	9,458
Single-family Residential		246		—		—		246
Commercial		76		—		—		76
Other real estate owned		2,849		—		—		2,849
		12,629		—		—		12,629

	Fair Value Measurements at December 31, 2015
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	29,457	$	—	$	29,457	$	—
Mortgage-backed securities		91,800		—		91,800		—
Corporate securities		2,001		—		2,001		—
		123,258		—		123,258		—
Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	8,842	$	—	$	—	$	8,842
Single-family Residential		317		—		—		317
Other real estate owned		4,463		—		—		4,463
		13,622		—		—		13,622

Significant unobservable inputs used for assets and liabilities measured at fair value on a recurring or non-recurring basis

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2016, the significant unobservable inputs used in the fair value measurements were as follows (dollars in thousands):

		Fair Value at		Valuation	Unobservable
(Dollars in thousands)		June 30, 2016		Technique	Inputs	Range
Impaired Loans:
	Commercial Real Estate	$	9,458	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
	Single-family Residential	$	246	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
	Commercial	$	76	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
OREO		$	2,849	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%

As of December 31, 2015, the significant unobservable inputs used in the fair value measurements were as follows

		Fair Value at		Valuation	Unobservable
(Dollars in thousands)		December 31, 2015		Technique	Inputs	Range
Impaired Loans:
	Commercial Real Estate	$	8,842	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
	Single-family Residential	$	317	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%
OREO		$	4,463	Appraised Value	Negative adjustment for selling costs and changes in market conditions since appraisal	5% - 20%

Schedule of carrying values and estimated fair values of the Company's financial instruments

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2016 (in thousands):

	June 30, 2016
	Fair Value Measurements
	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	2,948	$	2,948	$	2,948	$	—	$	—
Interest-bearing deposits with banks		53,098		53,098		53,098		—		—
Federal funds sold		16,537		16,537		16,537		—		—
Certificates of deposit		900		900		900		—		—
Investment securities		114,732		114,732		—		114,732		—
Other investments		958		958		958		—		—
Loans-net		197,097		196,522		—		—		196,522
Cash surrender value of life insurance		10,224		10,224		10,224		—		—
Financial liabilities:
Deposits		351,245		352,022		228,113		123,909
Advances from Federal Home Loan Bank		5,225		5,225		—		5,225		—
	Notional		Estimated
	Amount		Fair Value
Off-balance-sheet financial instruments:
Commitments to extend credit	$	28,885	$	—
Commercial letters of credit		1,889		—

The carrying values and estimated fair values of the Company’s financial instruments at December 31, 2015 are as follows:

	December 31, 2015
	Fair Value Measurements
	Carrying
	Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	2,577	$	2,577	$	2,577	$	—	$	—
Interest-bearing deposits with banks		29,820		29,820		29,820		—		—
Federal funds sold		16,500		16,500		16,500		—		—
Certificates of deposit		900		900		900		—		—
Investment securities		123,258		123,258		—		123,258		—
Other investments		965		965		965		—		—
Loans-net		184,836		183,929		—		—		183,929
Cash surrender value of life insurance		10,090		10,090		10,090		—		—
Financial liabilities:
Deposits		328,862		329,211		212,820		116,391		—
Advances from Federal Home Loan Bank		5,235		5,235		—		5,235		—
	Notional		Estimated
	Amount		Fair Value
Off-balance-sheet financial instruments:
Commitments to extend credit	$	35,843	$	—
Commercial letters of credit		1,889		—

XML

OTHER REAL ESTATE OWNED (Tables)

6 Months Ended

Jun. 30, 2016

Real Estate [Abstract]

Summary of transactions in other real estate owned

Transactions in other real estate owned are summarized below (in thousands):

	June 30,			December 31,
	2016			2015
Balance—beginning of period	$	4,463		$	4,668
Additions		355			976
Sales		(1,871	)		(964	)
Write downs		(98	)		(217	)
Balance—end of period	$	2,849		$	4,463

XML

INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible assets

The following table presents information about the Company’s intangible assets (in thousands):

	June 30, 2016				December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Unamortized intangible asset:
Goodwill	$	362	$	—	$	362	$	—
Amortized intangible assets:
Core deposit intangibles	$	3,303	$	3,303	$	3,303	$	3,185

Schedule of aggregate amortization expense

The following table presents information about aggregate amortization expense (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Aggregate amortization expense of core deposit intangibles:	$	—	$	118	$	118	$	236
Estimated aggregate amortization expense of core deposit intangibles for the years ending December 31:
2016	$	118
2017 and thereafter	$	—

XML

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE (Tables)

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Schedule of antidilutive and dilutive in the computation of diluted earnings per share

The following table presents the number of options that are considered antidilutive and dilutive in the computation of diluted earnings per share:

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Options excluded from calculation of diluted earnings per share		32,500		24,877		32,500		24,877
Dilutive options included in calculation of diluted earnings per share		—		16,500		—		16,500
Total number of options outstanding		32,500		41,377		32,500		41,377

Schedule of reconciliation of the numerators and denominator of the basic and diluted net income per common and potential common share

The following schedule reconciles the numerator and denominator of the basic and diluted net income per share available to common and potential common stockholders for the three and six months ended June 30, 2016 and 2015 (in thousands, except per share data):

	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
Three Months ended June 30, 2016
Basic earnings per share available to common stockholders	$	690		2,207	$	0.31
Nonvested restricted stock grant		—		2		—
Effect of dilutive securities: options to purchase common shares		—		—		—
Diluted earnings per share	$	690		2,209	$	0.31
Six Months ended June 30, 2016
Basic earnings per share available to common stockholders	$	989		2,205	$	0.45
Nonvested restricted stock grant		—		2		—
Effect of dilutive securities: options to purchase common shares		—		—		—
Diluted earnings per share	$	989		2,207	$	0.45
Three Months ended June 30, 2015
Basic earnings per share available to common stockholders	$	289		2,183	$	0.13
Nonvested restricted stock grant		—		12		—
Effect of dilutive securities: options to purchase common shares		—		17		—
Diluted earnings per share	$	289		2,212	$	0.13
Six Months ended June 30, 2015
Basic earnings per share available to common stockholders	$	658		2,180	$	0.30
Nonvested restricted stock grant		—		12		—
Effect of dilutive securities: options to purchase common shares		—		17		—
Diluted earnings per share	$	658		2,209	$	0.30

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Thousands		6 Months Ended
	Aug. 13, 2010	Jun. 30, 2016	Dec. 31, 2015	Sep. 17, 2010
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Number of preferred shares issued	7,462	7,462	7,462
Monetary consideration exchanged in connection with the Exchange Transaction	$ 1
Series A Preferred Stock [Member]
Class of Stock [Line Items]
Number of preferred shares exchanged	7,462
Monetary consideration exchanged in connection with the Exchange Transaction	$ 1
Series B and Series C Preferred Stock [Member]
Class of Stock [Line Items]
Number of preferred shares issued				11,841
Cumulative dividend payment for first eight years after closing date (as a percent)		2.00%
Period for which preferred stock dividend rate is 2%		8 years
Cumulative dividend payment after the first eight years of closing date (as a percent)		9.00%
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Number of preferred shares issued		4,379	4,379	4,379

XML

INVESTMENTS (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Amortized Cost	$ 112,348	$ 123,366
Gross Unrealized Gains	2,501	1,289
Gross Unrealized Losses	117	1,397
Total	114,732	123,258
State, county and municipal securities [Member]
Amortized Cost	26,972	28,248
Gross Unrealized Gains	1,382	1,223
Gross Unrealized Losses		14
Total	28,354	29,457
Mortgage Backed Securities [Member]
Amortized Cost	85,376	93,118
Gross Unrealized Gains	1,119	65
Gross Unrealized Losses	117	1,383
Total	$ 86,378	91,800
Corporate Securities [Member]
Amortized Cost		2,000
Gross Unrealized Gains		1
Gross Unrealized Losses
Total		$ 2,001

XML

INVESTMENTS (Details 2) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Available for Sale, Amortized Cost
Due in one year or less	$ 822
Due after one year through five years	4,237
Due after five years through ten years	30,276
Due after ten years	77,013
Total	112,348
Available for Sale, Fair Value
Due in one year or less	824
Due after one year through five years	4,418
Due after five years through ten years	31,743
Due after ten years	77,747
Total	$ 114,732	$ 123,258

XML

INVESTMENTS (Details 3) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Available-for-sale securities
Less Than 12 Months, Fair Value		$ 66,120
Less Than 12 Months, Unrealized Losses		(737)
12 Months Or Longer, Fair Value	17,877	21,333
12 Months Or Longer, Unrealized Losses	(117)	(660)
Total Fair Value	17,877	87,453
Total Unrealized Losses	(117)	(1,397)
Mortgage Backed Securities [Member]
Available-for-sale securities
Less Than 12 Months, Fair Value		63,533
Less Than 12 Months, Unrealized Losses		(723)
12 Months Or Longer, Fair Value	17,877	21,333
12 Months Or Longer, Unrealized Losses	(117)	(660)
Total Fair Value	17,877	84,866
Total Unrealized Losses	(117)	(1,383)
State, county and municipal securities [Member]
Available-for-sale securities
Less Than 12 Months, Fair Value		2,587
Less Than 12 Months, Unrealized Losses		(14)
12 Months Or Longer, Fair Value
12 Months Or Longer, Unrealized Losses
Total Fair Value		2,587
Total Unrealized Losses		$ (14)

XML

INVESTMENTS (Details Narrative) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2015 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) Number	Dec. 31, 2015 USD ($) Number
Securities pledged as collateral
Securities pledged to secure public funds on deposit and for other purposes as required by law, FHLB advances			$ 81,735	$ 93,161
Line of credit at Federal Reserve Bank discount window			$ 28,227
Gross realized gains (losses) on securities
Proceeds from sale of securities		$ 12,385
Gross realized gains	$ 121	$ 312
Number of securities unrealized loss position for longer than twelve months | Number			13	15

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Loans, gross	$ 199,155	$ 186,960
Allowance for loan losses	2,058	2,124
Loans, net	197,097	184,836
Commercial Financial and Agricultural Portfolio Segment [Member]
Loans, gross	44,345	42,748
Commercial Real Estate Portfolio Segment [Member]
Loans, gross	108,436	104,092
Single Family Residential Mortgage [Member]
Loans, gross	32,184	31,096
Construction and Development Portfolio Segment [Member]
Loans, gross	6,838	2,220
Consumer Portfolio Segment [Member]
Loans, gross	$ 7,352	$ 6,804

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Activity in allowance for loan losses by portfolio segment
Beginning balance	$ 2,152	$ 2,226	$ 2,124	$ 2,299
Provision for loan losses	(175)	50	(100)	125
Loans charged-off	(256)	(129)	(407)	(364)
Recoveries on loans charged-off	337	174	441	261
Ending Balance	2,058	2,321	2,058	2,321
Commercial Financial and Agricultural Portfolio Segment [Member]
Activity in allowance for loan losses by portfolio segment
Beginning balance	604	289	342	415
Provision for loan losses	(181)	346	105	215
Loans charged-off			(30)
Recoveries on loans charged-off	5	5	11	10
Ending Balance	428	640	428	640
Commercial Real Estate Portfolio Segment [Member]
Activity in allowance for loan losses by portfolio segment
Beginning balance	952	1,308	1,170	1,366
Provision for loan losses	(164)	(228)	(386)	(268)
Loans charged-off	(179)		(179)	(83)
Recoveries on loans charged-off	316	111	320	176
Ending Balance	925	1,191	925	1,191
Single Family Residential Mortgage [Member]
Activity in allowance for loan losses by portfolio segment
Beginning balance	364	350	435	254
Provision for loan losses	176	(10)	70	182
Loans charged-off	(58)	(73)	(101)	(170)
Recoveries on loans charged-off	1	23	79	24
Ending Balance	483	290	483	290
Construction and Development Portfolio Segment [Member]
Activity in allowance for loan losses by portfolio segment
Beginning balance	6	52	3	72
Provision for loan losses	3	(48)	6	(69)
Loans charged-off
Recoveries on loans charged-off		5		6
Ending Balance	9	9	9	9
Consumer Portfolio Segment [Member]
Activity in allowance for loan losses by portfolio segment
Beginning balance	226	227	174	192
Provision for loan losses	(9)	(10)	105	65
Loans charged-off	(19)	(56)	(97)	(111)
Recoveries on loans charged-off	15	30	31	45
Ending Balance	$ 213	$ 191	$ 213	$ 191

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Details 3) - USD ($) $ in Thousands	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014
Allocation of allowance for loan losses by portfolio segment
Specific Reserves, Impaired loans	$ 680		$ 650
Total specific reserves	680		650
General reserves	1,378		1,474
Total	2,058	$ 2,152	2,124	$ 2,321	$ 2,226	$ 2,299
Loans individually evaluated for impairment	10,460		9,809
Loans collectively evaluated for impairment	188,695		177,151
Total	199,155		186,960
Commercial Financial and Agricultural Portfolio Segment [Member]
Allocation of allowance for loan losses by portfolio segment
Specific Reserves, Impaired loans	74
Total specific reserves	74
General reserves	354		342
Total	428	604	342	640	289	415
Loans individually evaluated for impairment	150
Loans collectively evaluated for impairment	44,195		42,748
Total	44,345		42,748
Commercial Real Estate Portfolio Segment [Member]
Allocation of allowance for loan losses by portfolio segment
Specific Reserves, Impaired loans	426		550
Total specific reserves	426		550
General reserves	499		620
Total	925	952	1,170	1,191	1,308	1,366
Loans individually evaluated for impairment	9,884		9,392
Loans collectively evaluated for impairment	98,552		94,700
Total	108,436		104,092
Single Family Residential Mortgage [Member]
Allocation of allowance for loan losses by portfolio segment
Specific Reserves, Impaired loans	180		100
Total specific reserves	180		100
General reserves	303		335
Total	483	364	435	290	350	254
Loans individually evaluated for impairment	426		417
Loans collectively evaluated for impairment	31,758		30,679
Total	32,184		31,096
Construction and Development Portfolio Segment [Member]
Allocation of allowance for loan losses by portfolio segment
Specific Reserves, Impaired loans
Total specific reserves
General reserves	9		3
Total	9	6	3	9	52	72
Loans individually evaluated for impairment
Loans collectively evaluated for impairment	6,838		2,220
Total	6,838		2,220
Consumer Portfolio Segment [Member]
Allocation of allowance for loan losses by portfolio segment
Specific Reserves, Impaired loans
Total specific reserves
General reserves	213		174
Total	213	$ 226	174	$ 191	$ 227	$ 192
Loans individually evaluated for impairment
Loans collectively evaluated for impairment	7,352		6,804
Total	$ 7,352		$ 6,804

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Details 4) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended	24 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015	Dec. 31, 2016
Impaired Loans - With Allowance, Unpaid Principal	$ 1,427		$ 4,940
Impaired Loans - With Allowance, Recorded Investment	783		4,940
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated	680		650
Impaired Loans - With no Allowance, Unpaid Principal	10,439		5,427
Impaired Loans - With no Allowance, Recorded Investment	9,677		4,869
Average Recorded Investment	11,128	$ 11,631	10,554
Interest Income Recognized	147	383	627
Single Family Residential Mortgage [Member]
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated	180		100
Single Family Residential Mortgage [Member] | First Mortgage [Member]
Impaired Loans - With Allowance, Unpaid Principal
Impaired Loans - With Allowance, Recorded Investment
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated
Impaired Loans - With no Allowance, Unpaid Principal
Impaired Loans - With no Allowance, Recorded Investment
Average Recorded Investment
Interest Income Recognized
Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member]
Impaired Loans - With Allowance, Unpaid Principal	263		134
Impaired Loans - With Allowance, Recorded Investment	217		134
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated	180		100
Impaired Loans - With no Allowance, Unpaid Principal	296		304
Impaired Loans - With no Allowance, Recorded Investment	209		283
Average Recorded Investment	388	214	209
Interest Income Recognized	5	26	43
Commercial Financial and Agricultural Portfolio Segment [Member]
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated	74
Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member]
Impaired Loans - With Allowance, Unpaid Principal	150
Impaired Loans - With Allowance, Recorded Investment	150
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated	74
Impaired Loans - With no Allowance, Unpaid Principal
Impaired Loans - With no Allowance, Recorded Investment
Average Recorded Investment	150
Interest Income Recognized
Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member]
Impaired Loans - With Allowance, Unpaid Principal
Impaired Loans - With Allowance, Recorded Investment
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated
Impaired Loans - With no Allowance, Unpaid Principal
Impaired Loans - With no Allowance, Recorded Investment
Average Recorded Investment
Interest Income Recognized
Commercial Real Estate Portfolio Segment [Member]
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated	426		550
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member]
Impaired Loans - With Allowance, Unpaid Principal	406		4,115
Impaired Loans - With Allowance, Recorded Investment	406		4,115
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated	416		356
Impaired Loans - With no Allowance, Unpaid Principal	8,516		4,456
Impaired Loans - With no Allowance, Recorded Investment	7,901		3,972
Average Recorded Investment	8,593	8,526	8,666
Interest Income Recognized	129	200	391
Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member]
Impaired Loans - With Allowance, Unpaid Principal	608		691
Impaired Loans - With Allowance, Recorded Investment	10		691
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated	10		194
Impaired Loans - With no Allowance, Unpaid Principal	1,627		667
Impaired Loans - With no Allowance, Recorded Investment	1,567		614
Average Recorded Investment	1,997	2,841	1,679
Interest Income Recognized	13	127	193
Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member]
Impaired Loans - With Allowance, Unpaid Principal
Impaired Loans - With Allowance, Recorded Investment
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated
Impaired Loans - With no Allowance, Unpaid Principal
Impaired Loans - With no Allowance, Recorded Investment
Average Recorded Investment		50
Interest Income Recognized		30
Construction and Development Portfolio Segment [Member]
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated
Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member]
Impaired Loans - With Allowance, Unpaid Principal
Impaired Loans - With Allowance, Recorded Investment
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated
Impaired Loans - With no Allowance, Unpaid Principal
Impaired Loans - With no Allowance, Recorded Investment
Average Recorded Investment
Interest Income Recognized
Construction and Development Portfolio Segment [Member] | Improved Land Financing Receivable [Member]
Impaired Loans - With Allowance, Unpaid Principal
Impaired Loans - With Allowance, Recorded Investment
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated
Impaired Loans - With no Allowance, Unpaid Principal
Impaired Loans - With no Allowance, Recorded Investment
Average Recorded Investment
Interest Income Recognized
Construction and Development Portfolio Segment [Member] | Unimproved Land Financing Receivable [Member]
Impaired Loans - With Allowance, Unpaid Principal
Impaired Loans - With Allowance, Recorded Investment
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated
Impaired Loans - With no Allowance, Unpaid Principal
Impaired Loans - With no Allowance, Recorded Investment
Average Recorded Investment
Interest Income Recognized
Consumer Portfolio Segment [Member]
Impaired Loans - With Allowance, Unpaid Principal
Impaired Loans - With Allowance, Recorded Investment
Impaired Loans - With Allowance, Allowance for Loan Losses Allocated
Impaired Loans - With no Allowance, Unpaid Principal
Impaired Loans - With no Allowance, Recorded Investment
Average Recorded Investment
Interest Income Recognized

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Details 5) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Total Past Due	$ 4,033	$ 6,160
Current	195,122	180,800
Total	199,155	186,960
Recorded Investment > 90 Days and Accruing	1
Nonaccrual	3,144	3,016
30 to 59 Days Past Due [Member]
Total Past Due	1,446	3,255
60 to 89 Days Past Due [Member]
Total Past Due	723	1,951
Equal to Greater than 90 Days Past Due [Member]
Total Past Due	1,864	954
Single Family Residential Mortgage [Member]
Total	32,184	31,096
Single Family Residential Mortgage [Member] | First Mortgage [Member]
Total Past Due	1,032	3,150
Current	19,345	19,253
Total	20,377	22,403
Recorded Investment > 90 Days and Accruing
Nonaccrual	1,160	1,246
Single Family Residential Mortgage [Member] | First Mortgage [Member] | 30 to 59 Days Past Due [Member]
Total Past Due		1,581
Single Family Residential Mortgage [Member] | First Mortgage [Member] | 60 to 89 Days Past Due [Member]
Total Past Due	368	824
Single Family Residential Mortgage [Member] | First Mortgage [Member] | Equal to Greater than 90 Days Past Due [Member]
Total Past Due	664	745
Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member]
Total Past Due	548	456
Current	11,259	8,237
Total	11,807	8,693
Recorded Investment > 90 Days and Accruing
Nonaccrual	278	250
Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member] | 30 to 59 Days Past Due [Member]
Total Past Due	303	224
Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member] | 60 to 89 Days Past Due [Member]
Total Past Due	106	59
Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member] | Equal to Greater than 90 Days Past Due [Member]
Total Past Due	139	173
Commercial Financial and Agricultural Portfolio Segment [Member]
Total	44,345	42,748
Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member]
Total Past Due	151	79
Current	39,669	36,144
Total	39,820	36,223
Recorded Investment > 90 Days and Accruing
Nonaccrual	150	30
Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member] | 30 to 59 Days Past Due [Member]
Total Past Due		49
Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member] | 60 to 89 Days Past Due [Member]
Total Past Due	1
Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member] | Equal to Greater than 90 Days Past Due [Member]
Total Past Due	150	30
Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member]
Total Past Due
Current	4,525	6,525
Total	4,525	6,525
Recorded Investment > 90 Days and Accruing
Nonaccrual
Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member] | 30 to 59 Days Past Due [Member]
Total Past Due
Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member] | 60 to 89 Days Past Due [Member]
Total Past Due
Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member] | Equal to Greater than 90 Days Past Due [Member]
Total Past Due
Commercial Real Estate Portfolio Segment [Member]
Total	108,436	104,092
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member]
Total Past Due	1,230	1,267
Current	49,406	51,180
Total	50,636	52,447
Recorded Investment > 90 Days and Accruing
Nonaccrual	846	933
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member] | 30 to 59 Days Past Due [Member]
Total Past Due	728	931
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member] | 60 to 89 Days Past Due [Member]
Total Past Due	209	336
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member] | Equal to Greater than 90 Days Past Due [Member]
Total Past Due	293
Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member]
Total Past Due	1,047	1,132
Current	52,067	45,684
Total	53,114	46,816
Recorded Investment > 90 Days and Accruing
Nonaccrual	699	551
Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member] | 30 to 59 Days Past Due [Member]
Total Past Due	414	441
Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member] | 60 to 89 Days Past Due [Member]
Total Past Due	27	691
Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member] | Equal to Greater than 90 Days Past Due [Member]
Total Past Due	606
Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member]
Total Past Due
Current	4,686	4,829
Total	4,686	4,829
Recorded Investment > 90 Days and Accruing
Nonaccrual
Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member] | 30 to 59 Days Past Due [Member]
Total Past Due
Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member] | 60 to 89 Days Past Due [Member]
Total Past Due
Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member] | Equal to Greater than 90 Days Past Due [Member]
Total Past Due
Construction and Development Portfolio Segment [Member]
Total	6,838	2,220
Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member]
Total Past Due
Current	6,838	2,220
Total	6,838	2,220
Recorded Investment > 90 Days and Accruing
Nonaccrual
Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member] | 30 to 59 Days Past Due [Member]
Total Past Due
Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member] | 60 to 89 Days Past Due [Member]
Total Past Due
Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member] | Equal to Greater than 90 Days Past Due [Member]
Total Past Due
Consumer Portfolio Segment [Member]
Total Past Due	25	76
Current	7,327	6,728
Total	7,352	6,804
Recorded Investment > 90 Days and Accruing	1
Nonaccrual	11	6
Consumer Portfolio Segment [Member] | 30 to 59 Days Past Due [Member]
Total Past Due	1	29
Consumer Portfolio Segment [Member] | 60 to 89 Days Past Due [Member]
Total Past Due	12	41
Consumer Portfolio Segment [Member] | Equal to Greater than 90 Days Past Due [Member]
Total Past Due	$ 12	$ 6

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Details 6) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Total	$ 199,155	$ 186,960
Single Family Residential Mortgage [Member]
Total	32,184	31,096
Single Family Residential Mortgage [Member] | First Mortgage [Member]
Total	20,377	22,403
Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member]
Total	11,807	8,693
Commercial Financial and Agricultural Portfolio Segment [Member]
Total	44,345	42,748
Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member]
Total	39,820	36,223
Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member]
Total	4,525	6,525
Commercial Real Estate Portfolio Segment [Member]
Total	108,436	104,092
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member]
Total	50,636	52,447
Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member]
Total	53,114	46,816
Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member]
Total	4,686	4,829
Construction and Development Portfolio Segment [Member]
Total	6,838	2,220
Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member]
Total	6,838	2,220
Consumer Portfolio Segment [Member]
Total	7,352	6,804
Pass [Member]
Total	188,543	175,676
Pass [Member] | Single Family Residential Mortgage [Member] | First Mortgage [Member]
Total	19,240	20,729
Pass [Member] | Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member]
Total	11,253	8,004
Pass [Member] | Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member]
Total	39,670	36,193
Pass [Member] | Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member]
Total	4,525	6,525
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member]
Total	43,791	45,274
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member]
Total	51,510	45,458
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member]
Total	4,387	4,524
Pass [Member] | Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member]
Total	6,838	2,220
Pass [Member] | Consumer Portfolio Segment [Member]
Total	7,329	6,749
Special Mention [Member]
Total	1,313	2,082
Special Mention [Member] | Single Family Residential Mortgage [Member] | First Mortgage [Member]
Total
Special Mention [Member] | Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member]
Total		66
Special Mention [Member] | Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member]
Total
Special Mention [Member] | Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member]
Total
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member]
Total	1,003	1,604
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member]
Total		107
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member]
Total	299	305
Special Mention [Member] | Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member]
Total
Special Mention [Member] | Consumer Portfolio Segment [Member]
Total	11
Substandard [Member]
Total	9,147	9,034
Substandard [Member] | Single Family Residential Mortgage [Member] | First Mortgage [Member]
Total	1,137	1,651
Substandard [Member] | Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member]
Total	404	547
Substandard [Member] | Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member]
Total	150
Substandard [Member] | Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member]
Total
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member]
Total	5,842	5,569
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member]
Total	1,604	1,251
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member]
Total
Substandard [Member] | Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member]
Total
Substandard [Member] | Consumer Portfolio Segment [Member]
Total	10	16
Doubtful [Member]
Total	152	168
Doubtful [Member] | Single Family Residential Mortgage [Member] | First Mortgage [Member]
Total		23
Doubtful [Member] | Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member]
Total	150	76
Doubtful [Member] | Commercial Financial and Agricultural Portfolio Segment [Member] | Secured Financing Receivable [Member]
Total		30
Doubtful [Member] | Commercial Financial and Agricultural Portfolio Segment [Member] | Unsecured Financing Receivable [Member]
Total
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Financing Receivable [Member]
Total
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Non Owner Occupied Financing Receivable [Member]
Total
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Multi Family Financing Receivable [Member]
Total
Doubtful [Member] | Construction and Development Portfolio Segment [Member] | Construction Financing Receivable [Member]
Total
Doubtful [Member] | Consumer Portfolio Segment [Member]
Total	$ 2	$ 39

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Details 7) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2015 USD ($) Number	Jun. 30, 2015 USD ($) Number
Number of Contracts | Number	2	4
Troubled Debt Restructuring [Member]
Number of Contracts | Number	2	4
Pre-Modification Outstanding Recorded Investment	$ 86	$ 120
Post-Modification Outstanding Recorded Investment	$ 86	$ 120
Single Family Residential Mortgage [Member] | Home Equity Line of Credit [Member] | Troubled Debt Restructuring [Member]
Number of Contracts | Number	2	4
Pre-Modification Outstanding Recorded Investment	$ 86	$ 120
Post-Modification Outstanding Recorded Investment	$ 86	$ 120

XML

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Details Narrative) - Number	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Loans Receivable And Allowance For Loan Losses Details Narrative
Number of modifications contracts		2		4
Troubled debt restructurings that subsequently defaulted	1	1	1	1
Minimum period of restructured loan past due			90 days

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:	$ 114,732	$ 123,258
Other real estate owned	2,849	4,463	$ 4,668
State, county and municipal securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:	28,354	29,457
Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:	86,378	91,800
Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:		2,001
Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate Portfolio Segment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	9,458	8,842
Fair Value, Inputs, Level 3 [Member] | Single Family Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	246	317
Fair Value, Inputs, Level 3 [Member] | Commercial [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	76
Fair Value, Inputs, Level 3 [Member] | Other real estate owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	2,849	4,463
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:	114,732	123,258
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | State, county and municipal securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:	28,354	29,457
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:	86,378	91,800
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:		2,001
Fair Value, Measurements, Recurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:	114,732	123,258
Fair Value, Measurements, Recurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member] | State, county and municipal securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:	28,354	29,457
Fair Value, Measurements, Recurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member] | Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:	86,378	91,800
Fair Value, Measurements, Recurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member] | Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale:		2,001
Fair Value, Measurements, Nonrecurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral dependent impaired loans and Other real estate owned	12,629	13,622
Fair Value, Measurements, Nonrecurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member] | Commercial Real Estate Portfolio Segment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	9,458	8,842
Fair Value, Measurements, Nonrecurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member] | Single Family Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	246	317
Fair Value, Measurements, Nonrecurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member] | Commercial [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	76
Fair Value, Measurements, Nonrecurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member] | Other real estate owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other real estate owned	2,849	4,463
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral dependent impaired loans and Other real estate owned	12,629	13,622
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate Portfolio Segment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	9,458	8,842
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Single Family Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	246	317
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Commercial [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired loans	76
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Other real estate owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other real estate owned	$ 2,849	$ 4,463

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2) - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Commercial Real Estate Portfolio Segment [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Collateral Dependent Impaired loans	$ 9,458	$ 8,842
Commercial Real Estate Portfolio Segment [Member] | Minimum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Negative adjustment for selling costs and changes in market conditions since appraisal (as a percent)	5.00%	5.00%
Commercial Real Estate Portfolio Segment [Member] | Maximum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Negative adjustment for selling costs and changes in market conditions since appraisal (as a percent)	20.00%	20.00%
Single Family Residential Mortgage [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Collateral Dependent Impaired loans	$ 246	$ 317
Single Family Residential Mortgage [Member] | Minimum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Negative adjustment for selling costs and changes in market conditions since appraisal (as a percent)	5.00%	5.00%
Single Family Residential Mortgage [Member] | Maximum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Negative adjustment for selling costs and changes in market conditions since appraisal (as a percent)	20.00%	20.00%
Other real estate owned [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Collateral Dependent Impaired loans	$ 2,849	$ 4,463
Other real estate owned [Member] | Minimum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Negative adjustment for selling costs and changes in market conditions since appraisal (as a percent)	5.00%	5.00%
Other real estate owned [Member] | Maximum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Negative adjustment for selling costs and changes in market conditions since appraisal (as a percent)	20.00%	20.00%
Commercial [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Collateral Dependent Impaired loans	$ 76
Commercial [Member] | Minimum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Negative adjustment for selling costs and changes in market conditions since appraisal (as a percent)	5.00%
Commercial [Member] | Maximum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Negative adjustment for selling costs and changes in market conditions since appraisal (as a percent)	20.00%

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financial assets:
Cash and due from banks	$ 2,948	$ 2,577
Interest-bearing deposits with banks	53,098	29,820
Federal funds sold	16,537	16,500
Certificates of deposit	900	900
Other investments	958	965
Loans-net	197,097	184,836
Cash surrender value of life insurance	10,224	10,090
Financial liabilities:
Deposits	351,245	328,862
Advances from Federal Home Loan Bank	5,225	5,235
Commitments to Extend Credit [Member]
Off-balance-sheet financial instruments:
Notional amount	28,885	35,843
Estimated fair value
Letter of Credit [Member]
Off-balance-sheet financial instruments:
Notional amount	1,889	1,889
Estimated fair value
Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and due from banks	2,948	2,577
Interest-bearing deposits with banks	53,098	29,820
Federal funds sold	16,537	16,500
Certificates of deposit	900	900
Investment securities
Other investments	958	965
Cash surrender value of life insurance	10,224	10,090
Financial liabilities:
Deposits	228,113	212,820
Advances from Federal Home Loan Bank
Fair Value, Inputs, Level 2 [Member]
Financial assets:
Cash and due from banks
Interest-bearing deposits with banks
Federal funds sold
Certificates of deposit
Investment securities	114,732	123,258
Other investments
Loans-net
Cash surrender value of life insurance
Financial liabilities:
Deposits	123,909	116,391
Advances from Federal Home Loan Bank	5,225	5,235
Fair Value, Inputs, Level 3 [Member]
Financial assets:
Cash and due from banks
Interest-bearing deposits with banks
Federal funds sold
Certificates of deposit
Investment securities
Other investments
Loans-net	196,522	183,929
Cash surrender value of life insurance
Financial liabilities:
Deposits
Advances from Federal Home Loan Bank
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Financial assets:
Cash and due from banks	2,948	2,577
Interest-bearing deposits with banks	53,098	29,820
Federal funds sold	16,537	16,500
Certificates of deposit	900	900
Investment securities	114,732	123,258
Other investments	958	965
Loans-net	197,097	184,836
Cash surrender value of life insurance	10,224	10,090
Financial liabilities:
Deposits	351,245	328,862
Advances from Federal Home Loan Bank	5,225	5,235
Estimate of Fair Value, Fair Value Disclosure [Member]
Financial assets:
Cash and due from banks	2,948	2,577
Interest-bearing deposits with banks	53,098	29,820
Federal funds sold	16,537	16,500
Certificates of deposit	900	900
Investment securities	114,732	123,258
Other investments	958	965
Loans-net	196,522	183,929
Cash surrender value of life insurance	10,224	10,090
Financial liabilities:
Deposits	352,022	329,211
Advances from Federal Home Loan Bank	$ 5,225	$ 5,235

XML

OTHER REAL ESTATE OWNED (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Transactions in other real estate owned
Balance-beginning of period	$ 4,463	$ 4,668	$ 4,668
Additions	355	$ 94	976
Sales	(1,871)		(964)
Write downs	(98)		(217)
Balance-end of period	$ 2,849		$ 4,463

XML

INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
Period over which the deposit assumption premiums are amortized			7 years
Gross Carrying Amount, Goodwill	$ 362		$ 362		$ 362
Amortized intangible asset:
Gross Carrying Amount, Core deposit intangibles	3,303		3,303		3,303
Accumulated Amortization, Core deposit intangibles	3,303		3,303		$ 3,185
Aggregate amortization expense of core deposit intangibles		$ 118	$ 118	$ 236

XML

INTANGIBLE ASSETS (Details 1) $ in Thousands	Jun. 30, 2016 USD ($)
Estimated aggregate amortization expense of core deposit intangibles
2016	$ 118
2017 and thereafter

XML

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE (Details 2) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Net Income Per Common And Common Equivalent Share Details 2
Options excluded from calculation of diluted earnings per share	32,500	24,877	32,500	24,877
Dilutive options included in calculation of diluted earnings per share		16,500		16,500
Total number of options outstanding	32,500	41,377	32,500	41,377

XML

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Net Income (Numerator)
Basic earnings available to common stockholders	$ 690	$ 289	$ 989	$ 658
Nonvested restricted stock grant
Effect of dilutive securities: options to purchase common shares
Diluted earnings	$ 690	$ 289	$ 989	$ 658
Shares (Denominator)
Basic (in shares)	2,207	2,183	2,205	2,180
Nonvested restricted stock grant (in shares)	2	12	2	12
Effect of dilutive securities: options to purchase common shares (in shares)		17		17
Diluted (in shares)	2,209	2,212	2,207	2,209
Per Share Amount
Basic earnings per share available to common stockholders (in dollars per share)	$ 0.31	$ 0.13	$ 0.45	$ 0.3
Nonvested resticted stock grant (in dollars per share)
Effect of dilutive securities: options to purchase common shares (in dollars per shares)
Diluted earnings per share (in dollars per share)	$ 0.31	$ 0.13	$ 0.45	$ 0.3