ALLOWANCE FOR LOAN LOSSES | NOTE 5. ALLOWANCE FOR LOAN LOSSES The table below shows a summary of the activity in the allowance for loan losses for the three and six months ended June 30, 2015 and 2014 (dollars in thousands). Three months ended Six months ended June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014 Balance, beginning of period $ 5,379 $ 3,530 $ 4,630 $ 3,380 Provision for loan losses 400 448 1,100 693 Charge-offs (96 ) (110 ) (238 ) (218 ) Recoveries 45 14 236 27 Balance, end of period $ 5,728 $ 3,882 $ 5,728 $ 3,882 The following tables outline the activity in the allowance for loan losses by collateral type for the three and six months ended June 30, 2015 and 2014, and show both the allowances and portfolio balances for loans individually and collectively evaluated for impairment as of June 30, 2015 and 2014 (dollars in thousands). Three months ended June 30, 2015 Construction & Commercial Commercial & Development Farmland 1‑4 Multifamily Real Estate Industrial Consumer Total Allowance for loan losses: Beginning balance $ 638 $ 23 $ 1,024 $ 164 $ 1,958 $ 409 $ 1,163 5,379 Provision (12 ) (2 ) 93 16 184 (34 ) 155 400 Charge-offs (4 ) - - - - - (92 ) (96 ) Recoveries 14 - 1 - - 17 13 45 Ending balance $ 636 $ 21 $ 1,118 $ 180 $ 2,142 $ 392 $ 1,239 $ 5,728 Three months ended June 30, 2014 Construction & Commercial Commercial & Development Farmland 1‑4 Multifamily Real Estate Industrial Consumer Total Allowance for loan losses: Beginning balance $ 435 $ 11 $ 619 $ 124 $ 1,070 $ 374 $ 897 3,530 Provision 32 - 59 (4 ) 348 (65 ) 78 448 Charge-offs - - - - - (16 ) (94 ) (110 ) Recoveries - - 1 - - - 13 14 Ending balance $ 467 $ 11 $ 679 $ 120 $ 1,418 $ 293 $ 894 $ 3,882 Six months ended June 30, 2015 Construction & Commercial Commercial & Development Farmland 1-4 Multifamily Real Estate Industrial Consumer Total Allowance for loan losses: Beginning balance $ 526 $ 18 $ 909 $ 137 $ 1,571 $ 390 $ 1,079 4,630 Provision 104 3 205 43 571 (139 ) 313 1,100 Charge-offs (9 ) - - - - (56 ) (173 ) (238 ) Recoveries 15 - 4 - - 197 20 236 Ending balance $ 636 $ 21 $ 1,118 $ 180 $ 2,142 $ 392 $ 1,239 $ 5,728 Ending allowance balance for loans individually evaluated for impairment - - - - - - 153 153 Ending allowance balance for loans collectively evaluated for impairment $ 636 $ 21 $ 1,118 $ 180 $ 2,142 $ 392 $ 1,086 $ 5,575 Ending allowance balance for loans acquired with deteriorated credit quality $ - $ - $ - $ - $ - $ - $ - $ - Loans receivable: Balance of loans individually evaluated for impairment $ 1,141 $ - $ 1,844 $ 856 $ 1,383 $ 39 $ 835 $ 6,098 Balance of loans collectively evaluated for impairment 69,786 3,001 151,274 20,404 247,763 56,446 118,814 667,488 Total period-end balance $ 70,927 $ 3,001 $ 153,118 $ 21,260 $ 249,146 $ 56,485 $ 119,649 $ 673,586 Balance of loans acquired with deteriorated credit quality $ 748 $ - $ 849 $ 1,070 $ - $ - $ 42 $ 2,709 Six months ended June 30, 2014 Construction & Commercial Commercial & Development Farmland 1-4 Multifamily Real Estate Industrial Consumer Total Allowance for loan losses: Beginning balance $ 420 $ 4 $ 567 $ 101 $ 992 $ 397 $ 899 3,380 Provision 46 7 141 19 429 (88 ) 139 693 Charge-offs - - (30 ) - (3 ) (16 ) (169 ) (218 ) Recoveries 1 - 1 - - - 25 27 Ending balance $ 467 $ 11 $ 679 $ 120 $ 1,418 $ 293 $ 894 $ 3,882 Ending allowance balance for loans individually evaluated for impairment - - - - - - 64 64 Ending allowance balance for loans collectively evaluated for impairment $ 467 $ 11 $ 679 $ 120 $ 1,418 $ 293 $ 830 $ 3,818 Ending allowance balance for loans acquired with deteriorated credit quality $ - $ - $ - $ - $ - $ - $ - $ - Loans receivable: Balance of loans individually evaluated for impairment $ 1,079 $ - $ 1,481 $ 1,034 $ 244 $ 193 $ 207 $ 4,238 Balance of loans collectively evaluated for impairment 59,254 2,282 123,765 16,672 191,576 34,585 131,603 559,737 Total period-end balance $ 60,333 $ 2,282 $ 125,246 $ 17,706 $ 191,820 $ 34,778 $ 131,810 $ 563,975 Balance of loans acquired with deteriorated credit quality $ 1,162 $ - $ 1,021 $ 1,034 $ - $ - $ 48 $ 3,265 Impaired Loans The Company considers a loan to be impaired when, based on current information and events, the Company determines that it will not be able to collect all amounts due according to the loan agreement, including scheduled interest payments. Generally, those loans rated substandard or special mention are evaluated for impairment each quarter. Determination of impairment is treated the same across all classes of loans. When the Company identifies a loan as impaired, it measures the impairment based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole (remaining) source of repayment for the loans is the operation or liquidation of the collateral. In these cases when foreclosure is probable, the Company uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If the Company determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), the Company recognizes impairment through an allowance estimate or a charge-off to the allowance for loan losses. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual, contractual interest is credited to interest income when received, under the cash basis method. As of June 30, 2015 and December 31, 2014, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired. The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, as of the dates indicated. The Company determined the specific allowance based on the present values of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less estimated selling cost, was used to determine the specific allowance recorded (dollars in thousands). June 30, 2015 Unpaid Recorded Principal Related Investment Balance Allowance With no related allowance recorded: Construction and development $ 1,283 $ 1,282 $ - 1-4 Family 1,288 1,284 - Commercial real estate 737 737 - Total mortgage loans on real estate 3,308 3,303 - Commercial and industrial 39 39 - Consumer 105 105 - Total 3,452 3,447 - With related allowance recorded: Consumer 356 356 153 Total 356 356 153 Total loans: Construction and development 1,283 1,282 - 1-4 Family 1,288 1,284 - Commercial real estate 737 737 - Total mortgage loans on real estate 3,308 3,303 - Commercial and industrial 39 39 - Consumer 461 461 153 Total $ 3,808 $ 3,803 $ 153 December 31, 2014 Unpaid Recorded Principal Related Investment Balance Allowance With no related allowance recorded: Construction and development $ 1,543 $ 1,543 $ - 1-4 Family 837 837 - Commercial real estate 749 749 - Total mortgage loans on real estate 3,129 3,129 - Commercial and industrial 179 179 - Consumer 79 79 - Total 3,387 3,387 - With related allowance recorded: Consumer 180 180 70 Total 180 180 70 Total loans: Construction and development 1,543 1,543 - 1-4 Family 837 837 - Commercial real estate 749 749 - Total mortgage loans on real estate 3,129 3,129 - Commercial and industrial 179 179 - Consumer 260 259 70 Total $ 3,568 $ 3,567 $ 70 Presented in the tables below is the average recorded investment of the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired. The average balances are calculated based on the month-end balances of the loans during the periods reported (dollars in thousands). For the three months ended June 30, 2015 June 30, 2014 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized With no related allowance recorded: Construction and development $ 1,309 $ 4 $ 1,084 $ 13 1-4 Family 1,305 9 1,477 12 Multifamily - - 1,031 13 Commercial real estate 737 2 248 2 Total mortgage loans on real estate 3,351 15 3,840 40 Commercial and industrial 93 1 395 - Consumer 121 8 79 4 Total 3,565 24 4,314 44 With related allowance recorded: Consumer 304 10 132 - Total 304 10 132 - Total loans: Construction and development 1,309 4 1,084 13 1-4 Family 1,305 9 1,477 12 Multifamily - - 1,031 13 Commercial real estate 737 2 248 2 Total mortgage loans on real estate 3,351 15 3,840 40 Commercial and industrial 93 1 395 - Consumer 425 18 211 4 Total $ 3,869 $ 34 $ 4,446 $ 44 For the six months ended June 30, 2015 June 30, 2014 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized With no related allowance recorded: Construction and development $ 1,447 $ 8 $ 1,091 $ 21 1-4 Family 1,290 23 1,470 30 Multifamily - - 1,012 31 Commercial real estate 739 2 249 6 Total mortgage loans on real estate 3,476 33 3,822 88 Commercial and industrial 126 2 448 - Consumer 157 9 81 4 Total 3,759 44 4,351 92 With related allowance recorded: Consumer 240 10 137 - Total 240 10 137 - Total loans: Construction and development 1,447 8 1,091 21 1-4 Family 1,290 23 1,470 30 Multifamily - - 1,012 31 Commercial real estate 739 2 249 6 Total mortgage loans on real estate 3,476 33 3,822 88 Commercial and industrial 126 2 448 - Consumer 397 19 218 4 Total $ 3,999 $ 54 $ 4,488 $ 92 Troubled Debt Restructurings In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession for other than an insignificant period of time to the borrower that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring (“TDR”). The Company strives to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before such loans reach nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where the Company grants the borrower new terms that provide for a reduction of either interest or principal, the Company measures any impairment on the restructuring as previously noted for impaired loans. Loans classified as TDRs, consisting of ten credits, totaled approximately $1.5 million at June 30, 2015 compared to seven credits totaling approximately $0.6 million at December 31, 2014. Nine of the ten TDRs were acquired from FCB. Nine of the ten credits were considered TDRs due to modification of terms through adjustments to maturity and one was considered a TDR due to modification of terms through principal payment forbearance, paying interest only for a specified period of time. Eight of the ten credits are currently performing in accordance with their modified terms. Two TDRs were in default of their modified terms as of the date these financial statements were issued and are included in nonaccrual loans. The Company individually evaluates each TDR for allowance purposes, primarily based on collateral value, and excludes these loans from the loan population that is evaluated by applying qualitative factors. As of June 30, 2015 and December 31, 2014, the Company was not committed to lend additional funds to any customer whose loan was classified as a TDR. The table below presents the TDR pre- and post-modification outstanding recorded investments by loan categories for loans modified during the six month periods ended June 30, 2015 and 2014 (dollars in thousands). June 30, 2015 June 30, 2014 Pre- Post- Pre- Post- Modification Modification Modification Modification Outstanding Outstanding Outstanding Outstanding Number Recorded Recorded Number Recorded Recorded Troubled debt restructurings Contracts Investment Investment Contracts Investment Investment Construction and development 1 $ 30 $ 30 1 $ 19 $ 19 1-4 Family 2 892 892 - - - Consumer - - - 1 48 48 Total $ 922 $ 922 $ 67 $ 67 There were no TDRs which were modified during the three months ended June 30, 2015. There were no loans modified under troubled debt restructurings during the previous twelve month period that subsequently defaulted during the three and six months ended June 30, 2015 and 2014. |