4.	LOANS AND ALLOWANCE FOR LOAN LOSSES

Portfolio Segments:

The Company has divided the loan portfolio into eight portfolio segments, each with different risk characteristics and methodologies for assessing the risk described as follows:

Construction, land development and other land loans – Commercial construction, land and land development loans include the development of residential housing projects, loans for the development of commercial and industrial use property and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowing entity.

Secured by 1-4 family residential properties – These loans include conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower’s primary residence, vacation home or investment property. Also included in this portfolio are home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their home.

Secured by multi-family residential properties – This portfolio segment includes mortgage loans secured by apartment buildings.

Secured by non-farm, non-residential properties – This portfolio segment includes real estate loans secured by commercial and industrial properties, office or mixed-use facilities, strip shopping centers or other commercial property. These loans are generally guaranteed by the principals of the borrowing entity.

Other real estate loans – Other real estate loans are loans primarily for agricultural production, secured by mortgages on farm land.

Commercial and industrial loans – This portfolio segment includes loans to commercial customers for use in the normal course of business. These credits may be loans and lines to financially strong borrowers, secured by inventories, equipment or receivables, and are generally guaranteed by the principals of the borrowing entity.

Consumer loans – This portfolio segment includes a variety of secured and unsecured personal loans, including automobile loans, loans for household and personal purposes and all other direct consumer installment loans.

Other loans – Other loans are comprised of credit cards, overdrawn checking accounts reclassified to loans and overdraft lines of credit.

As of December 31, 2014 and 2013, the composition of the loan portfolio by reporting segment and portfolio segment was as follows:


	December 31, 2014
	FUSB		ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	10,431	$	—	$	10,431
Secured by 1-4 family residential properties		30,795		21,309		52,104
Secured by multi-family residential properties		20,403		—		20,403
Secured by non-farm, non-residential properties		104,883		—		104,883
Other		58		—		58
Commercial and industrial loans		16,838		—		16,838
Consumer loans		7,188		61,833		69,021
Other loans		579		—		579

Total loans		191,175		83,142		274,317
Less: Unearned interest, fees and deferred cost		189		8,444		8,633
Allowance for loan losses		3,486		2,682		6,168

Net loans	$	187,500	$	72,016	$	259,516


	December 31, 2013
	FUSB		ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	11,348	$	—	$	11,348
Secured by 1-4 family residential properties		34,978		26,621		61,599
Secured by multi-family residential properties		22,095		—		22,095
Secured by non-farm, non-residential properties		122,430		—		122,430
Other		761		—		761
Commercial and industrial loans		37,772		—		37,772
Consumer loans		9,886		48,938		58,824
Other loans		604		—		604

Total loans		239,874		75,559		315,433
Less: Unearned interest, fees and deferred cost		149		4,961		5,110
Allowance for loan losses		6,272		3,124		9,396

Net loans	$	233,453	$	67,474	$	300,927

The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 68.5% and 69.2% of the portfolio was concentrated in loans secured by real estate located primarily within a single geographic region of the United States as of December 31, 2014 and 2013, respectively.

Related Party Loans:

In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with others. Management believes that such loans do not represent more than a normal risk of collectability, nor do they present other unfavorable features. The aggregate balances of such related party loans and commitments as of December 31, 2014 and 2013 were $3.1 million and $3.6 million, respectively. During the year ended December 31, 2014, there were no new loans to these related parties, and repayments by active related parties were $0.5 million. During the year ended December 31, 2013, new loans to these related parties totaled $1.7 million, and repayments by active related parties were $0.6 million.

Allowance for Loan Losses:

The following tables present changes in the allowance for loan losses by loan portfolio segment and loan type as of December 31, 2014 and 2013:


	FUSB
	December 31, 2014
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	592		$	4,852		$	180		$	635		$	13		$	6,272
Charge-offs		(289	)		(1,329	)		(147	)		(176	)		—			(1,941	)
Recoveries		307			587			129			51			1			1,075
Provision		(469	)		(1,300	)		(48	)		(89	)		(14	)		(1,920	)

Ending balance		141			2,810			114			421			—			3,486

Ending balance individually evaluated for impairment		—			762			—			—			—			762

Ending balance collectively evaluated for impairment	$	141		$	2,048		$	114		$	421		$	—		$	2,724

Loan receivables:
Ending balance		16,838			135,775			7,188			30,795			579			191,175

Ending balance individually evaluated for impairment		—			10,509			—			96			—			10,605

Ending balance collectively evaluated for impairment	$	16,838		$	125,266		$	7,188		$	30,699		$	579		$	180,570


	ALC
	December 31, 2014
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	—		$	—		$	2,667		$	457		$	—		$	3,124
Charge-offs		—			—			(2,778	)		(311	)		—			(3,089	)
Recoveries		—			—			772			29			—			801
Provision		—			—			1,675			171			—			1,846

Ending balance		—			—			2,336			346			—			2,682

Ending balance individually evaluated for impairment		—			—			—			—			—			—

Ending balance collectively evaluated for impairment	$	—		$	—		$	2,336		$	346		$	—		$	2,682

Loan receivables:
Ending balance		—			—			61,833			21,309			—			83,142

Ending balance individually evaluated for impairment		—			—			—			—			—			—

Ending balance collectively evaluated for impairment	$	—		$	—		$	61,833		$	21,309		$	—		$	83,142


	FUSB & ALC
	December 31, 2014
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	592		$	4,852		$	2,847		$	1,092			13		$	9,396
Charge-offs		(289	)		(1,329	)		(2,925	)		(487	)		—			(5,030	)
Recoveries		307			587			901			80			1			1,876
Provision		(469	)		(1,300	)		1,627			82			(14	)		(74	)

Ending balance		141			2,810			2,450			767			—			6,168

Ending balance individually evaluated for impairment		—			762			—			—			—			762

Ending balance collectively evaluated for impairment	$	141		$	2,048		$	2,450		$	767		$	—		$	5,406

Loan receivables:
Ending balance		16,838			135,775			69,021			52,104			579			274,317

Ending balance individually evaluated for impairment		—			10,509			—			96			—			10,605

Ending balance collectively evaluated for impairment	$	16,838		$	125,266		$	69,021		$	52,008		$	579		$	263,712


	FUSB
	December 31, 2013
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	977		$	14,216		$	168		$	338		$	66		$	15,765
Charge-offs		(537	)		(8,055	)		(350	)		(685	)		—			(9,627	)
Recoveries		141			2,747			96			8			4			2,996
Provision		11			(4,056	)		266			974			(57	)		(2,862	)

Ending balance		592			4,852			180			635			13			6,272

Ending balance individually evaluated for impairment		219			2,839			—			11			—			3,069

Ending balance collectively evaluated for impairment	$	373		$	2,013		$	180		$	624		$	13		$	3,203

Loan receivables:
Ending balance		37,772			156,634			9,886			34,978			604			239,874

Ending balance individually evaluated for impairment		753			28,813			—			2,985			—			32,551

Ending balance collectively evaluated for impairment	$	37,019		$	127,821		$	9,886		$	31,993		$	604		$	207,323


	ALC
	December 31, 2013
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	—		$	—		$	2,733		$	780		$	—		$	3,513
Charge-offs		—			—			(2,979	)		(525	)		—			(3,504	)
Recoveries		—			—			874			21			—			895
Provision		—			—			2,039			181			—			2,220

Ending balance		—			—			2,667			457			—			3,124

Ending balance individually evaluated for impairment		—			—			—			—			—			—

Ending balance collectively evaluated for impairment	$	—		$	—		$	2,667		$	457		$	—		$	3,124

Loan receivables:
Ending balance		—			—			48,938			26,621			—			75,559

Ending balance individually evaluated for impairment		—			—			—			—			—			—

Ending balance collectively evaluated for impairment	$	—		$	—		$	48,938		$	26,621		$	—		$	75,559


	FUSB & ALC
	December 31, 2013
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	977		$	14,216		$	2,901		$	1,118		$	66		$	19,278
Charge-offs		(537	)		(8,055	)		(3,329	)		(1,210	)		—			(13,131	)
Recoveries		141			2,747			970			29			4			3,891
Provision		11			(4,056	)		2,305			1,155			(57	)		(642	)

Ending balance		592			4,852			2,847			1,092			13			9,396

Ending balance individually evaluated for impairment		219			2,839			—			11			—			3,069

Ending balance collectively evaluated for impairment	$	373		$	2,013		$	2,847		$	1,081		$	13		$	6,327

Loan receivables:
Ending balance		37,772			156,634			58,824			61,599			604			315,433

Ending balance individually evaluated for impairment		753			28,813			—			2,985			—			32,551

Ending balance collectively evaluated for impairment	$	37,019		$	127,821		$	58,824		$	58,614		$	604		$	282,882

Credit Quality:

The Bank utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under the system, each loan is graded, based on pre-determined risk metrics, to evaluate the overall credit quality of the loan portfolio. Historically, loans have been categorized into one of eight risk grades that can be further summarized into categories described as pass, special mention, substandard, doubtful and loss, as described in further detail below. As of January 1, 2014, management established a nine-grade rating system, which had the effect of adding an additional risk grade to the pass category. The additional risk grade provides management with the ability to evaluate loans at a more granular level; however, it did not result in any change to the calculation of the allowance for loan losses as of December 31, 2014 and 2013, respectively.

The following summarizes the credit quality indicators used in the nine-grade system:

•

Pass (Risk Grades 1-5) – Loans in this category include obligations with respect to which the probability of default is considered low.

•

Special Mention (Risk Grade 6): Borrowers in this category exhibit potential credit weaknesses or downward trends deserving Bank management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Although a special mention asset has a higher probability of default than previously rated categories, its default is not imminent.

•

Substandard (Risk Grade 7): These are borrowers with defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard.

•

Doubtful (Risk Grade 8): Borrowers classified as doubtful have all the weaknesses found in substandard borrowers with the added provision that the weaknesses make collection of debt in full, based on currently existing facts, conditions and values, highly questionable and improbable. Serious problems exist such that partial loss of principal is likely. The possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. Management of borrowers classified doubtful may have demonstrated a history of failing to live up to agreements.

•

Loss (Risk Grade 9): Borrowers deemed incapable of repayment of unsecured debt. Loans to such borrowers are considered uncollectible and of such little value that continuance as active assets of the Bank is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not prudent to defer writing off these worthless assets, even though partial recovery may occur in the future.

At ALC, because the loan portfolio is more uniform in nature, each loan is categorized into one of two risk grades, depending on whether the loan is considered to be performing or nonperforming. Performing loans are loans that are paying principal and interest in accordance with contractual agreement. Nonperforming loans are loans that are either not paying as contractually agreed or that have demonstrated characteristics that indicate a probability of loss.

The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, 2014.


	FUSB
	Pass 1-5		Special Mention 6		Substandard 7		Doubtful 8		Total
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	5,326	$	2,515	$	2,590	$	—	$	10,431
Secured by 1-4 family residential properties		27,956		638		2,201		—		30,795
Secured by multi-family residential properties		18,033		—		2,370		—		20,403
Secured by non-farm, non-residential properties		86,812		10,905		7,166		—		104,883
Other		58		—		—		—		58
Commercial and industrial loans		14,915		1,222		701		—		16,838
Consumer loans		6,744		105		339		—		7,188
Other loans		577		—		2		—		579

Total	$	160,421	$	15,385	$	15,369	$	—	$	191,175


	ALC
	Performing		Nonperforming		Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	20,778	$	531	$	21,309
Consumer loans		60,459		1,374		61,833

Total	$	81,237	$	1,905	$	83,142

The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, 2013.


	FUSB
	Pass 1-5		Special Mention 6		Substandard 7		Doubtful 8		Total
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	4,785	$	—	$	6,563	$	—	$	11,348
Secured by 1-4 family residential properties		30,459		333		4,162		24		34,978
Secured by multi-family residential properties		14,569		—		7,526		—		22,095
Secured by non-farm, non-residential properties		101,468		3,316		17,595		51		122,430
Other		761		—		—		—		761
Commercial and industrial loans		30,403		936		6,433		—		37,772
Consumer loans		9,235		3		648		—		9,886
Other loans		601		—		3		—		604

Total	$	192,281	$	4,588	$	42,930	$	75	$	239,874


	ALC
	Performing		Nonperforming		Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	26,061	$	560	$	26,621
Consumer loans		47,644		1,294		48,938

Total	$	73,705	$	1,854	$	75,559

The following tables provide an aging analysis of past due loans by class as of December 31, 2014.


	FUSB
	As of December 31, 2014
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	41	$	—	$	86	$	127	$	10,304	$	10,431	$	—
Secured by 1-4 family residential properties		200		20		852		1,072		29,723		30,795		—
Secured by multi-family residential properties		—		—		—		—		20,403		20,403		—
Secured by non-farm, non-residential properties		268		159		1,743		2,170		102,713		104,883		—
Other		—		—		—		—		58		58		—
Commercial and industrial loans		—		8		—		8		16,830		16,838		—
Consumer loans		12		3		24		39		7,149		7,188		—
Other loans		4		—		12		16		563		579		11

Total	$	525	$	190	$	2,717	$	3,432	$	187,743	$	191,175	$	11


	ALC
	As of December 31, 2014
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		182		147		501		830		20,480		21,310		401
Secured by multi-family residential properties		—		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—
Commercial and industrial loans		—		—		—		—		—		—		—
Consumer loans		671		558		1,346		2,575		59,257		61,832		1,335
Other loans		—		—		—		—		—		—		—

Total	$	853	$	705	$	1,847	$	3,405	$	79,737	$	83,142	$	1,736

The following tables provide an aging analysis of past due loans by class as of December 31, 2013.


	FUSB
	As of December 31, 2013
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	38	$	2,000	$	2,038	$	9,310	$	11,348	$	—
Secured by 1-4 family residential properties		271		154		1,801		2,226		32,752		34,978		—
Secured by multi-family residential properties		—		—		1,286		1,286		20,809		22,095		—
Secured by non-farm, non-residential properties		719		93		4,434		5,246		117,184		122,430		—
Other		—		—		—		—		761		761		—
Commercial and industrial loans		902		—		480		1,382		36,390		37,772		—
Consumer loans		101		—		26		127		9,759		9,886		—
Other loans		11		—		8		19		585		604		—

Total	$	2,004	$	285	$	10,035	$	12,324	$	227,550	$	239,874	$	—


	ALC
	As of December 31, 2013
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		403		143		507		1,053		25,568		26,621		409
Secured by multi-family residential properties		—		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—
Commercial and industrial loans		—		—		—		—		—		—		—
Consumer loans		684		597		1,258		2,539		46,399		48,938		1,252
Other loans		—		—		—		—		—		—		—

Total	$	1,087	$	740	$	1,765	$	3,592	$	71,967	$	75,559	$	1,661

The following table provides an analysis of non-accruing loans by class as of December 31, 2014 and 2013.


	Loans on Non-Accrual Status
	December 31, 2014		December 31, 2013
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	956	$	2,337
Secured by 1-4 family residential properties		1,277		1,952
Secured by multi-family residential properties		—		1,286
Secured by non-farm, non-residential properties		2,314		4,435
Commercial and industrial loans		139		479
Consumer loans		140		76

Total loans	$	4,826	$	10,565

Impaired Loans:

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the related loan agreement. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. All loans of $0.5 million or more that have a credit quality risk grade of seven or above are identified for impairment analysis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

As of December 31, 2014, the carrying amount of impaired loans consisted of the following:


	December 31, 2014
Impaired loans with no related allowance recorded	Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	1,445	$	1,445	$	—
Secured by 1-4 family residential properties		96		96		—
Secured by multi-family residential properties		755		1,146		—
Secured by non-farm, non-residential properties		6,091		6,091		—
Commercial and industrial		—		—		—

Total loans with no related allowance recorded	$	8,387	$	8,778	$	—


Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	603	$	603	$	71
Secured by 1-4 family residential properties		—		—		—
Secured by multi-family residential properties		1,615		1,615		691
Secured by non-farm, non-residential properties		—		—		—
Commercial and industrial		—		—		—

Total loans with an allowance recorded	$	2,218	$	2,218	$	762


Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	2,048	$	2,048	$	71
Secured by 1-4 family residential properties		96		96		—
Secured by multi-family residential properties		2,370		2,761		691
Secured by non-farm, non-residential properties		6,091		6,091		—
Commercial and industrial		—		—		—

Total impaired loans	$	10,605	$	10,996	$	762

As of December 31, 2013, the carrying amount of impaired loans consisted of the following:


	December 31, 2013
Impaired loans with no related allowance recorded	Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	4,590	$	4,590	$	—
Secured by 1-4 family residential properties		103		103		—
Secured by multi-family residential properties		1,053		1,053		—
Secured by non-farm, non-residential properties		11,844		11,844		—
Commercial and industrial		534		534		—

Total loans with no related allowance recorded	$	18,124	$	18,124	$	—


Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	1,407	$	1,407	$	232
Secured by 1-4 family residential properties		185		185		11
Secured by multi-family residential properties		6,474		6,474		2,005
Secured by non-farm, non-residential properties		6,376		6,376		835
Commercial and industrial		219		219		219

Total loans with an allowance recorded	$	14,661	$	14,661	$	3,302


Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	5,997	$	5,997	$	232
Secured by 1-4 family residential properties		288		288		11
Secured by multi-family residential properties		7,527		7,527		2,005
Secured by non-farm, non-residential properties		18,220		18,220		835
Commercial and industrial		753		753		219

Total impaired loans	$	32,785	$	32,785	$	3,302

The average net investment in impaired loans and interest income recognized and received on impaired loans as of December 31, 2014 and 2013 were as follows:


	December 31, 2014
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	2,769	$	46	$	46
Secured by 1-4 family residential properties		143		3		3
Secured by multi-family residential properties		3,565		178		170
Secured by non-farm, non-residential properties		8,186		324		320
Commercial and industrial		80		1		1

Total	$	14,743	$	552	$	540


	December 31, 2013
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	10,249	$	177	$	179
Secured by 1-4 family residential properties		303		7		7
Secured by multi-family residential properties		8,690		438		446
Secured by non-farm, non-residential properties		22,272		918		935
Commercial and industrial		987		33		34

Total	$	42,501	$	1,573	$	1,601

Loans on which the accrual of interest has been discontinued amounted to $4.8 million and $10.6 million as of December 31, 2014 and 2013, respectively. If interest on those loans had been accrued, there would have been $0.1 million and $0.6 million accrued as of December 31, 2014 and 2013, respectively. Interest income recorded related to these loans as of December 31, 2014 and 2013 was $0.2 million and $0.1 million as of December 31, 2014 and 2013, respectively. Accruing loans past due 90 days or more amounted to $1.7 million as of both December 31, 2014 and 2013.

Troubled Debt Restructurings:

Troubled debt restructurings include loans with respect to which concessions have been granted to borrowers that generally would not have otherwise been considered had the borrowers not been experiencing financial difficulty. The concessions granted may include payment schedule modifications, interest rate reductions, maturity date extensions, modification of note structure, principal balance reductions or some combination of these concessions. Restructured loans may involve loans remaining on non-accrual, moving to non-accrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Non-accrual restructured loans are included with all other non-accrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings. Generally, restructured loans remain on non-accrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on non-accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on non-accrual. As of December 31, 2014 and 2013, respectively, the Company had $2.5 million and $5.7 million of non-accruing loans that were previously restructured and that remained on non-accrual status. During the year ended December 31, 2014, the Company had no restructured loans that were restored to accrual status based on a sustained period of repayment performance. During the year ended December 31, 2013, one loan totaling $2.0 million was returned to accrual status based on a sustained period of repayment performance. The balance of this loan as of December 31, 2014 was $1.4 million.

The following table provides the number of loans at the Bank modified in a troubled debt restructuring by loan portfolio as of December 31, 2014 and 2013, as well as the pre- and post-modification principal balance as of December 31, 2014 and 2013. There were no loans modified in a troubled debt restructuring at ALC.


	December 31, 2014						December 31, 2013
	Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance		Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans		4	$	3,282	$	2,365		10	$	7,551	$	3,837
Secured by 1-4 family residential properties		4		200		156		17		1,375		1,067
Secured by non-farm, non-residential properties		6		1,448		1,299		9		2,683		2,418
Commercial loans		4		159		109		4		416		344

Total		18	$	5,089	$	3,929		40	$	12,025	$	7,666

The following table provides the number of loans modified in a troubled debt restructuring that have subsequently defaulted, by loan portfolio, as of December 31, 2014 and 2013.


	December 31, 2014				December 31, 2013
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(Dollars in Thousands)
Construction, land development and other land loans		—	$	—		2	$	566
Secured by non-farm, non-residential properties		2		886		4		1,073

Total		2	$	886		6	$	1,639

Restructured loan modifications primarily included maturity date extensions and payment schedule modifications. There were no modifications to principal balances of the loans that were restructured. Accordingly, there was no impact on the Company’s allowance for loan losses resulting from the modifications.

All loans with a principal balance of $0.5 million or more that have been modified in a troubled debt restructuring are considered impaired and evaluated individually for impairment. The nature and extent of impairment of restructured loans, including those that have experienced a subsequent payment default, are considered in the determination of an appropriate level of allowance for loan losses. This evaluation resulted in an allowance for loan losses of $0.9 million and $0.8 million as of December 31, 2014 and 2013, respectively.