Congaree Bancshares Inc - FORM 10-Q

Attached files

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EX-32 - Congaree Bancshares Inc	i00310_ex32.htm
EX-31.2 - Congaree Bancshares Inc	i00310_ex31-2.htm
EX-31.1 - Congaree Bancshares Inc	i00310_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

	(MARK ONE)

	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended June 30, 2015

	o	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. 000-52592

CONGAREE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

South Carolina	20-3863936
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

1201 Knox Abbott Drive

Cayce, South Carolina 29033

(Address of principal executive offices)

(803) 794-2265

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 x No o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer o		Accelerated filer o
	Non-accelerated o	(do not check if smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

1,764,439 shares of common stock, par value $0.01 per share, were issued and outstanding as of August 3, 2015.

INDEX

PART I - FINANCIAL INFORMATION		Page No.

Item 1.	Financial Statements

	Consolidated Balance Sheets - June 30, 2015 (Unaudited) and December 31, 2014	2

	Consolidated Statements of Income - Six months and three months ended June 30, 2015 and 2014 (Unaudited)	3

	Consolidated Statements of Comprehensive Income (Loss) - Six months and three months ended June 30, 2015 and 2014 (Unaudited)	4

	Consolidated Statements of Changes in Shareholders’ Equity - Six months ended June 30, 2015 and 2014 (Unaudited)	5

	Consolidated Statements of Cash Flows - Six months ended June 30, 2015 and 2014 (Unaudited)	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

Part I - Financial Information

Item 1. Financial Statements

CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Consolidated Balance Sheets

	June 30, 2015			December 31, 2014
	(unaudited)
Assets:
Cash and due from banks	$	2,671,930		$	3,034,889
Securities available-for-sale		17,581,647			21,173,560
Securities held-to-maturity (estimated fair value of $3,334,739 and $3,472,710 at June 30, 2015 and December 31, 2014, respectively)		3,428,635			3,444,699
Non-marketable equity securities		734,700			720,800
Loans receivable		82,251,262			78,426,868
Less allowance for loan losses		1,215,667			1,006,794
Loans, net		81,035,595			77,420,074

Premises, furniture and equipment, net		2,876,715			2,959,222
Accrued interest receivable		377,050			363,444
Other real estate owned		1,293,362			1,441,095
Deferred tax asset		2,128,179			2,156,902
Other assets		129,594			207,401
Total assets	$	112,257,407		$	112,922,086
Liabilities:
Deposits:
Noninterest-bearing transaction accounts	$	15,430,244		$	14,555,810
Interest-bearing transaction accounts		10,565,187			8,005,384
Savings and money market		40,685,220			43,484,515
Time deposits $100,000 and over		11,127,504			12,199,291
Other time deposits		8,500,586			9,713,312
Total deposits		86,308,741			87,958,312

Federal Funds purchased		811,600			—
Federal Home Loan Bank advances		11,500,000			11,500,000
Accrued interest payable		13,888			13,766
Other liabilities		207,532			105,060
Total liabilities		98,841,761			99,577,138

Shareholders’ equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized:
Series A cumulative perpetual preferred stock 1,400 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively		1,400,000			1,400,000
Series B cumulative perpetual preferred stock 164 shares issued and outstanding at June 30, 2015 and December 31, 2014		164,000			164,000
Common stock, $0.01 par value, 10,000,000 shares authorized; 1,764,439 shares issued and outstanding at June 30, 2015 and December 31, 2014		17,644			17,644
Capital surplus		17,705,024			17,693,644
Accumulated deficit		(5,740,303	)		(5,850,277	)
Accumulated other comprehensive loss		(130,719	)		(80,063	)

Total shareholders’ equity		13,415,646			13,344,948
Total liabilities and shareholders’ equity	$	112,257,407		$	112,922,086

See notes to consolidated financial statements.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

	Six months ended					Three months ended
	June 30,					June 30
	2015		2014			2015		2014
Interest income:
Loans, including fees	$	1,973,008	$	1,947,277		$	999,345	$	968,740
Investment securities, taxable		259,867		330,453			131,513		165,699
Federal funds sold and other		17,499		12,840			8,291		5,847
Total interest income		2,250,374		2,290,570			1,139,149		1,140,286
Interest expense:
Time deposits $100,000 and over		50,939		65,132			24,445		32,044
Other deposits		90,264		116,075			44,122		58,046
Other borrowings		31,479		27,708			16,177		13,914
Total interest expense		172,682		208,915			84,744		104,004
Net interest income		2,077,692		2,081,655			1,054,405		1,036,282
Provision for loan losses		130,000		178,000			55,000		56,000
Net interest income after provision for loan losses		1,947,692		1,903,655			999,465		980,282
Noninterest income:
Service charges on deposit accounts		186,837		138,858			96,910		68,942
Residential mortgage origination fees		37,999		18,386			22,991		12,235
Gain (loss) on sale of securities available for sale		111,077		(4,478	)		—		419
Other		23,486		12,957			14,325		8,250
Total noninterest income		359,399		165,723			134,226		89,846
Noninterest expenses:
Salaries and employee benefits		953,331		945,962			474,326		470,593
Net occupancy		152,630		153,102			75,477		73,560
Furniture and equipment		192,414		176,001			97,343		89,591
Professional fees		146,725		116,400			80,120		62,763
Regulatory fees and FDIC assessment		65,262		60,564			31,531		30,432
Net (profit) cost of operation of other real estate owned		170,908		(7,609	)		17,100		11,217
Other operating		374,415		415,453			207,200		232,751
Total noninterest expense		2,055,685		1,859,873			983,097		970,907
Income before income taxes		251,406		209,505			150,534		99,221
Income tax expense		71,052		1,366			65,964		—
Net income		180,354		208,139			84,570		99,221
Net accretion of preferred stock to redemption value		—		8,896			—		4,447
Preferred dividends		70,380		68,098			35,190		37,794
Net income available to common shareholders	$	109,974	$	131,145		$	49,380	$	56,980
Income per common share
Basic and diluted income per common share	$	0.06	$	0.07		$	0.03	$	0.03
Weighted average common shares outstanding		1,764,439		1,764,439			1,764,439		1,764,439

See notes to consolidated financial statements.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

	Six months ended June 30,
	2015			2014
Net Income	$	180,354		$	208,139
Other comprehensive income (loss), net of tax:
Unrealized holding gain on securities available for sale, net of tax expense of $8,349 at June 30, 2015 and $192,007 at June 30, 2014.		22,655			372,718
Reclassification adjustment for (gains) losses included in net income, net of tax benefit (expense) of ($37,766) at June 30, 2015 and $1,523 at June 30, 2014		(73,311	)		2,955
Other comprehensive income (loss)	$	(50,656	)	$	375,673
Comprehensive Income	$	129,698		$	583,812

	Three months ended June 30,
	2015			2014
Net Income	$	84,570		$	99,221
Other comprehensive income (loss), net of tax:
Unrealized holding gain (losses) on securities available for sale, net of tax (expense) benefit of $61,557 at June 30, 2015 and ($93,639) at June 30, 2014.		(119,493	)		181,770
Reclassification adjustment for gains included in net income, net of tax expense of $0 at June 30, 2015 and $142 at June 30, 2014		—			(277	)
Other comprehensive income (loss)	$	(119,493	)	$	181,493
Comprehensive Income (loss)	$	(34,923	)	$	280,714

See notes to consolidated financial statements.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders’ Equity

Six months ended June 30, 2015 and 2014 (Unaudited)

																Accumulated Other
	Preferred Stock						Common Stock				Capital		Accumulated			Comprehensive
	Shares			Amount			Shares		Amount		Surplus		Deficit			Loss			Total
Balance, December 31, 2013		2,293		$	2,283,499			1,764,439	$	17,644	$	17,688,324	$	(7,049,470	)	$	(531,380	)	$	12,408,617
Accretion of Series A discount on preferred stock					10,426									(10,426	)					—
Amortization of Series B premium on preferred stock					(1,530	)								1,530						—
Dividends on preferred stock														(68,098	)					(68,098	)
Repurchase of preferred stock		(729	)		(739,566	)														(739,566	)
Net income														208,139						208,139
Other comprehensive income																	375,673			375,673
Balance, June 30, 2014		2,293		$	1,552,829			1,764,439	$	17,644	$	17,688,324	$	(6,918,325	)	$	(155,707	)	$	12,184,765

Balance, December 31, 2014		1,564		$	1,564,000			1,764,439	$	17,644	$	17,693,644	$	(5,850,277	)	$	(80,063	)	$	13,344,948

Dividends on preferred stock														(70,380	)					(70,380	)
Stock option compensation expense												11,380								11,380
Net income														180,354						180,354
Other comprehensive loss																	(50,656	)		(50,656	)
Balance, June 30, 2015		1,564		$	1,564,000			1,764,439	$	17,644	$	17,705,024	$	(5,740,303	)	$	(130,719	)	$	13,415,646

See notes to consolidated financial statements.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended June 30,
	2015			2014
Cash flow from operating activities
Net income	$	180,354		$	208,139
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		130,000			178,000
Stock based compensation expense		11,380			—
Depreciation and amortization expense		96,171			85,165
Discount accretion and premium amortization		60,384			58,769
Decrease in accrued interest receivable		(13,606	)		32,849
Increase in accrued interest payable		122			(2,664	)
Loss (gain) from sale of securities available-for-sale		(111,077	)		4,478
Write downs on other real estate owned		111,000			—
(Gain) loss on sales of other real estate owned		7,868			(23,531	)
Decrease in other assets		135,945			72,950
Increase in other liabilities		102,472			47,109
Net cash provided by operating activities		711,013			661,263

Cash flow from investing activities
Purchase of securities available-for-sale		(2,651,606	)		(3,289,565	)
Proceeds from maturities, calls and paydowns of securities available-for-sale		1,100,167			414,186
Proceeds from sales of securities available-for-sale		5,130,038			3,684,111
Proceeds from (purchase) sale of other investments		(13,900	)		34,900
Net (increase) decrease in loans receivable		(3,745,521	)		1,825,870
Purchase of premises, furniture and equipment		(13,664	)		(25,711	)
Proceeds from sale of other real estate owned		28,865			283,852
Net cash (used) provided by investing activities		(165,621	)		2,927,643

Cash flow from financing activities
Increase in noninterest-bearing deposits		874,434			1,056,069
Increase (decrease) in interest-bearing deposits		(2,524,005	)		28,785
Increase (decrease) in federal funds purchased		811,600			(1,768,000	)
Dividends paid on preferred stock		(70,380	)		(68,098	)

Net cash used by financing activities		(908,351	)		(1,490,810	)

Net increase (decrease) in cash and cash equivalents		(362,959	)		2,098,096

Cash and cash equivalents at beginning of the period		3,034,889			1,638,635

Cash and cash equivalents at end of the period	$	2,671,930		$	3,736,731

Supplemental cash flow information:
Interest paid on deposits and borrowed funds	$	172,560		$	206,251
Transfer of loans to other real estate	$	—		$	534,561
Cash paid for taxes	$	12,253		$	1,366

See notes to consolidated financial statements.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Note 1 – Business and Basis of Presentation

Business Activity and Organization

Congaree Bancshares, Inc. (the “Company”) is a South Carolina corporation organized to operate as a bank holding company pursuant to the Federal Bank Holding Company Act of 1956 and the South Carolina Banking and Branching Efficiency Act and to own and control all of the capital stock of Congaree State Bank (the “Bank”). The Bank is a state chartered bank organized under the laws of South Carolina. The Bank primarily is engaged in the business of accepting deposits insured by the Federal Deposit Insurance Corporation (the “FDIC”) and providing commercial, consumer and mortgage loans to the general public.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six and three month periods ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2015.

Note 2 – Summary of Significant Accounting Policies

A summary of these policies is included in our Annual Report on Form 10-K for the year ended December 31, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in our 2014 Annual Report on Form 10-K. Accounting standards that have been issued or proposed by the Financial Accounting Standards Board that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Statements of Cash Flows

For purposes of reporting cash flows, the Company considers certain highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include amounts due from banks, federal funds sold and certificates of deposit with other banks. Generally, federal funds are sold for one-day periods.

Income Per Common Share

All income per share calculations have been made using the weighted average number of shares outstanding during the period. The potentially dilutive securities are incentive stock options and unvested shares of restricted stock granted to certain key members of management and warrants granted to the organizers of the Bank. The number of dilutive shares is calculated using the treasury method, assuming that all options and warrants were exercisable at the end of each period. Options and warrants that are out-of-the-money are not considered in the calculation of dilutive earnings per share as the effect is not deemed to be dilutive.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 2 – Summary of Significant Accounting Policies - continued

Basic and diluted net income per common share are computed below for the six and three months ended June 30, 2015 and 2014:

	Six months ended				Three months ended
	June 30,				June 30,
	2015		2014		2015		2014
Basic net income per common share computation:
Net income available to common shareholders	$	109,974	$	131,145	$	49,380	$	56,980
Average common shares outstanding — basic		1,764,439		1,764,439		1,764,439		1,764,439
Basic net income per common share	$	0.06	$	0.07	$	0.03	$	0.03

Diluted net income per common share computation:
Net income available to common shareholders	$	109,974	$	131,145	$	49,380	$	56,980
Average common shares outstanding — basic		1,764,439		1,764,439		1,764,439		1,764,439
Incremental shares from assumed conversions: Stock options		—		—		—		—
Average common shares outstanding — diluted		1,764,439		1,764,439		1,764,439		1,764,439
Diluted net income per common share	$	0.06	$	0.07	$	0.03	$	0.07

Comprehensive Income

GAAP requires that recognized income, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management performed an evaluation to determine whether there have been any subsequent events since the balance sheet date, or June 30, 2015, and determined that no subsequent events occurred requiring accrual or disclosure.

Note 3 - Recently Issued Accounting Pronouncements

The following is a summary of recent authoritative pronouncements:

In May 2014, the Financial Accounting Standards Board (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, 2016. 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 June 2014, the FASB issued guidance which clarifies that performance targets associated with stock compensation should be treated as a performance condition and should not be reflected in the grant date fair value of the stock award. The amendments will be effective for the Company for fiscal years that begin after December 15, 2015. The Company will apply the guidance to all stock awards granted or modified after the amendments are effective. The Company does not expect these amendments to have a material effect on its financial statements.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 3 - Recently Issued Accounting Pronouncements - continued

In January 2015, the FASB issued guidance that eliminated the concept of extraordinary items from U.S. Generally Accepted Accounting Principles (“GAAP”). Existing U.S. GAAP required that an entity separately classify, present, and disclose extraordinary events and transactions. The amendments will eliminate the requirements for reporting entities to consider whether an underlying event or transaction is extraordinary, however, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments may be applied either prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. 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 amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted (including during an interim period), provided that the guidance is applied as of the beginning of the annual period containing the adoption date. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2015, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.

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.

Note 4 - Fair Value Measurements

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Cash and Due from Banks and Certificates of Deposit - The carrying amount is a reasonable estimate of fair value, due to the short-term nature of such items and is classified as Level 1.

Investment Securities - The fair values of securities held-to-maturity are based on quoted market prices or dealer quotes. The fair values of securities available-for-sale equal the carrying amounts, which are the quoted market prices and classified as Level 2. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. The carrying value of nonmarketable equity securities approximates the fair value since no ready market exists for the stocks resulting in a Level 2 classification.

Loans Receivable – The fair value of loans is calculated using discounted cash flows by loan type resulting in a Level 3 classification. For certain categories of loans, such as variable rate loans which are repriced frequently and have no significant change in credit risk, fair values are based on the carrying amounts. The fair value of other types of 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 and for the same remaining maturities.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 4 - Fair Value Measurements - continued

Deposits - The fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting date. The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities and are classified as Level 2.

FHLB Advances - For disclosure purposes, the fair value of the Federal Home Loan Bank (the “FHLB”) fixed rate borrowing is estimated using discounted cash flows, based on the current incremental borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued Interest Receivable and Payable - The carrying value of these instruments is a reasonable estimate of fair value.

Federal Funds Purchased - Federal funds purchased are for a term of one day, and the carrying amount approximates the fair value and is classified as Level 1.

Off-Balance Sheet Financial Instruments - In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Because these commitments are made using variable rates and have short maturities, the contract value is a reasonable estimate of fair value.

The carrying values and estimated fair values of the Company’s financial instruments at the dates indicated are as follows:

	Fair Value Measurements

					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying				Liabilities		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)

June 30, 2015
Financial Instruments - Assets
Cash and due from banks	$	2,671,930	$	2,671,930	$	2,671,930	$	—	$	—
Securities available-for-sale		17,581,647		17,581,647		—		16,197,458		1,384,189
Securities held-to-maturity		3,428,635		3,334,739		—		3,334,739		—
Nonmarketable equity securities		734,700		734,700		—		734,700		—
Loans, net		81,035,595		80,391,000		—		—		80,391,000
Accrued interest receivable		377,050		377,050		377,050		—		—

Financial Instruments – Liabilities
Demand deposit, interest-bearing transaction, and savings accounts		66,680,651		66,680,651		66,680,651		—		—
Time Deposits		19,628,090		19,636,000		—		19,636,000		—
Federal Funds Purchased		811,600		811,600		—		811,600		—
Federal Home Loan Bank advances		11,500,000		11,500,000		—		11,500,000		—
Accrued interest payable		13,888		13,888		13,888		—		—

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 4 - Fair Value Measurements - continued

					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying				Liabilities		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)

December 31, 2014
Financial Instruments – Assets:
Cash and due from banks	$	3,034,889	$	3,034,889	$	3,034,889	$	—	$	—
Securities available-for-sale		21,173,560		21,173,560		—		19,670,647		1,502,913
Securities held-to-maturity		3,444,699		3,472,710		—		3,472,710		—
Nonmarketable equity securities		720,800		720,800		—		720,800		—
Loans, net		77,420,074		77,254,000		—		—		77,254,000
Accrued interest receivable		363,444		363,444		363,444		—		—

Financial Instruments – Liabilities:
Demand deposit, interest-bearing transaction, and savings accounts		66,045,709		66,045,709		66,045,709		—		—
Time Deposits		21,912,603		21,963,707		—		21,963,707		—
Federal Home Loan Bank advances		11,500,000		11,513,800		—		11,513,800		—
Accrued interest payable		13,766		13,766		13,766		—		—


	June 30, 2015				December 31, 2014
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Off-Balance Sheet Financial Instruments:
Commitments to extend credit	$	12,455,000	$	—	$	13,267,090	$	—
Financial standby letters of credit		40,000		—		48,000		—

GAAP provides a framework for measuring and disclosing fair value which requires disclosures about the fair value of assets and liabilities recognized in the balance sheet, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans).

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Vale Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These levels are:

Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 4 - Fair Value Measurements – continued

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

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.

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, enterprise value, liquidation value 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, 2015 and December 31, 2014, 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. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 3. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Other Real Estate Owned

Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charges to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 3. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

The table below presents the balances of assets measured at fair value on a recurring basis by level within the hierarchy at the dates indicated.

	June 30, 2015
	Total		Level 1		Level 2		Level 3
Securities available-for-sale
Government sponsored enterprises	$	1,475,135	$	—	$	1,475,135	$	—
Corporate bonds		762,307		—		280,180		482,127
Small Business Administration Securities		8,328,763		—		8,328,763		—
Mortgage-backed securities		3,479,961		—		2,577,899		902,062
State, county and municipals		3,535,481		—		3,535,481		—

Total assets	$	17,581,647	$	—	$	16,197,458	$	1,384,189

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 4 - Fair Value Measurements - continued

	December 31, 2014
	Total		Level 1		Level 2		Level 3
Securities available-for-sale
Government sponsored enterprises	$	6,596,536	$	—	$	6,596,536	$	—
Corporate bonds		798,477		—		298,477		500,000
Small Business Administration Securities		8,700,577		—		8,700,577		—
Mortgage-backed securities		1,948,933		—		946,020		1,002,913
State, county and municipals		3,129,037		—		3,129,037		—
Total assets	$	21,173,560	$	—	$	19,670,647	$	1,502,913

There were no liabilities measured at fair value on a recurring basis at June 30, 2015 and December 31, 2014.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the balance of assets measured at fair value on a nonrecurring basis aggregated by level in the fair value hierarchy within which those measurements fall at the dates indicated.

	June 30, 2015
	Total		Level 1		Level 2		Level 3
Impaired loans	$	1,975,680	$	—	$	—	$	1,975,680
Other real estate owned		1,293,362		—		—		1,293,362
Total assets	$	3,269,042	$	—	$	—	$	3,269,042

	December 31, 2014
	Total		Level 1		Level 2		Level 3
Impaired loans	$	2,426,332	$	—	$	—	$	2,426,332
Other real estate owned		1,441,095		—		—		1,441,095
Total assets	$	3,867,427	$	—	$	—	$	3,867,427

For Level 3 assets measured at fair value on a recurring basis at the dates indicated, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value as of				General
	June 30, 2015		Valuation Technique	Unobservable Input	Range
Nonrecurring Measurements:
Impaired loans	$	1,975,680	Discounted appraisals	Collateral discounts	0 – 10%
Other real estate owned		1,293,362	Discounted appraisals	Collateral discounts and
				Estimated costs to sell	0 – 10%
Recurring Measurements:				Pricing yield	5.03%
				Pricing spread	+200
Mortgage-backed securities	$	902,062	Fundamental Analysis	Pricing term	9.8 years estimated avg life
Corporate bonds		482,127	Estimation based on comparable non-listed securities	Comparable transactions	N/A

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 4 - Fair Value Measurements - continued

	Fair Value as of				General
	December 31, 2014		Valuation Technique	Unobservable Input	Range
Nonrecurring Measurements:
Impaired loans	$	2,426,332	Discounted appraisals	Collateral discounts	0 – 10%
Other real estate owned		1,441,095	Discounted appraisals	Collateral discounts and
				Estimated costs to sell	0 – 10%
Recurring Measurements:				Pricing yield	5.03%
				Pricing spread	+200
Mortgage-backed securities	$	1,002,913	Fundamental Analysis	Pricing term	4.69 years estimated avg life
Corporate bonds		500,000	Estimation based on	Comparable transactions	N/A
			comparable non-listed
			securities

There were no liabilities measured at fair value on a nonrecurring basis at June 30, 2015 and December 31, 2014.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 5 - Investment Securities

The amortized cost and estimated fair values of securities available-for-sale were:

	Amortized		Gross Unrealized				Estimated
	Costs		Gains		Losses		Fair Value
June 30, 2015
Government sponsored enterprises	$	1,499,079	$	—	$	23,944	$	1,475,135
Corporate Bonds		782,537		—		20,230		762,307
Small Business Administration Securities		8,427,321		—		98,558		8,328,763
Mortgage-backed securities		3,519,790		304		40,133		3,479,961
State, county and municipal		3,560,332		11,457		36,308		3,535,481
	$	17,789,059	$	11,761	$	219,173	$	17,581,647

December 31, 2014
Government sponsored enterprises	$	6,613,080	$	6,300	$	22,844	$	6,596,536
Corporate Bonds		800,706		—		2,229		798,477
Small Business Administration Securities		8,787,157		15,390		101,970		8,700,577
Mortgage-backed securities		1,948,070		7,420		6,557		1,948,933
State, county and municipal		3,151,886		—		22,849		3,129,037
	$	21,300,899	$	29,110	$	156,449	$	21,173,560

The amortized cost and estimated fair values of securities held-to-maturity were:

	Amortized		Gross Unrealized				Estimated
	Costs		Gains		Losses		Fair Value
June 30, 2015
State, county and municipal	$	3,428,635	$	—	$	93,896	$	3,334,739
December 31, 2014
State, county and municipal	$	3,444,699	$	31,830	$	3,819	$	3,472,710

Proceeds from sales of available-for-sale securities were $5,130,038 and $3,684,111 for the six month periods ended June 30, 2015 and 2014, respectively. Gross gains of $111,077 were recognized on those sales for the six month period ended June 30, 2015 and gross gains of $4,574 and gross losses of $9,051 were recognized on those sales for the six month period ended June 30, 2014. There were no losses recognized on sales during the six months ended June 30, 2015.

There were no sales of available-for-sale securities during the three months ended June 30, 2015. Proceeds from sales of available-for-sale securities were $1,599,446 for the three months ended June 30, 2014. Gross gains of $419 were recognized on those sales for the three months ended June 30, 2014. There were no losses recognized on those sales for the three months ended June 30, 2014.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 5 - Investment Securities – continued

The amortized costs and fair values of investment securities at June 30, 2015, by contractual maturity, are shown in the following table. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Callable securities and mortgage-backed securities are included in the year of their contractual maturity date.

	Securities Available-for-Sale				Securities Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due within one year	$	6,159	$	6,269	$	—	$	—
Due after one through five years		6,464,643		6,391,087		—		—
Due after five through ten years		11,318,257		11,184,291		1,613,480		1,587,245
Due after ten years		—		—		1,815,155		1,747,494

Total securities	$	17,789,059	$	17,581,647	$	3,428,635	$	3,334,739

The following table shows gross unrealized losses and fair value of securities available-for-sale, aggregated by investment category, and length of time that individual securities have been in a continuous realized loss position at June 30, 2015.


	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Government sponsored enterprises	$	1,475,135	$	23,944	$	—	$	—	$	1,475,135	$	23,944
Corporate Bonds		762,307		20,230		—		—		762,307		20,230
Mortgage-backed securities		1,574,384		38,984		902,062		1,149		2,476,446		40,133
Small Business Administration Securities		7,108,133		39,882		1,220,630		58,676		8,328,763		98,558
State, county and municipal		1,450,297		23,194		963,519		13,114		2,413,816		36,308
	$	12,370,256	$	146,234	$	3,086,211	$	72,939	$	15,456,467	$	219,173

	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Government sponsored enterprises	$	5,016,725	$	2,403	$	978,439	$	20,441	$	5,995,164	$	22,844
Corporate Bonds		298,477		2,229		—		—		298,477		2,229
Mortgage-backed securities		—		—		934,730		6,557		934,730		6,557
Small Business Administration Securities		—		—		4,090,318		101,970		4,090,318		101,970
State, county and municipal		1,292,753		8,418		1,836,284		14,431		3,129,037		22,849
	$	6,607,955	$	13,050	$	7,839,771	$	143,399	$	14,447,726	$	156,449

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 5 - Investment Securities – continued

The following table shows gross unrealized losses and fair value of securities held-to-maturity, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2015.

	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
State, county and municipal	$	3,334,739	$	93,896	$	—	$	—	$	3,334,739	$	93,896

	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
State, county and municipal	$	518,456	$	3,819	$	—	$	—	$	518,456	$	3,819

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other than temporary.

At June 30, 2015 and December 31, 2014, securities with estimated fair value of $7,123,889 and $10,119,786, respectively, were pledged to secure public deposits as required by law.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 6 – Loans Receivable

Major classifications of loans receivable at the dates indicated are summarized as follows:

	June 30, 2015						December 31, 2014
	Amount			Percentage of Total			Amount			Percentage of Total
Real Estate:
Commercial Real Estate	$	31,611,804			38	%	$	30,280,899			39	%
Construction, Land Development & Other Land		10,658,941			13	%		7,973,835			10	%
Residential Mortgages		11,354,532			14	%		11,560,614			15	%
Residential Home Equity Lines of Credit (HELOCs)		15,974,162			19	%		16,995,363			21	%
Total Real Estate		69,599,439			84	%		66,810,711			85	%

Commercial		11,313,428			14	%		10,308,132			13	%
Consumer		1,338,395			2	%		1,308,025			2	%
Gross loans		82,251,262			100	%		78,426,868			100	%
Less allowance for loan losses		(1,215,667	)					(1,006,794	)
Total loans, net	$	81,035,595					$	77,420,074

The credit quality indicator utilized by the Company to internally analyze the loan portfolio is the internal risk rating. Loans classified as pass credits have no material weaknesses and are performing as agreed. 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. Loans classified as substandard or worse are inadequately protected by the current net worth and paying 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.

The following is an analysis of our loan portfolio by credit quality indicators at the dates indicated:

June 30, 2015	Commercial		Commercial Real Estate		Construction, Land Development, and Other Land		Consumer		Residential		Residential HELOCs		Total
Grade
Pass	$	10,441,150	$	30,609,251	$	10,229,581	$	1,234,897	$	9,510,661	$	13,999,704	$	76,025,244
Special Mention		694,595		312,745		327,412		103,498		654,209		867,440		2,959,899
Substandard or Worse		177,683		689,808		101,948		—		1,189,662		1,107,018		3,266,119
Total	$	11,313,428	$	31,611,804	$	10,658,941	$	1,338,395	$	11,354,532	$	15,974,162	$	82,251,262

December 31, 2014	Commercial		Commercial Real Estate		Construction, Land Development, and Other Land		Consumer		Residential		Residential HELOCs		Total
Grade:
Pass	$	9,410,911	$	28,455,409	$	7,637,360	$	1,202,892	$	10,162,188	$	15,305,931	$	72,174,691
Special Mention		712,318		1,133,160		336,475		67,312		252,524		581,249		3,083,038
Substandard or Worse		184,903		692,330		—		37,821		1,145,902		1,108,183		3,169,139
Total	$	10,308,132	$	30,280,899	$	7,973,835	$	1,308,025	$	11,560,614	$	16,995,363	$	78,426,868

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 6 – Loans Receivable – continued

The following is an aging analysis of our loan portfolio at the dates indicated:

June 30, 2015	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing
Commercial	$	349	$	108,893	$	—	$	109,242	$	11,204,186	$	11,313,428	$	—
Commercial Real Estate		—		—		459,000		459,000		31,152,804		31,611,804		—
Construction, Land Development, & Other Land		69,083		101,948		—		171,031		10,487,910		10,658,941		—
Consumer		317		—		—		317		1,338,078		1,338,395		—
Residential		138,198		—		—		138,198		11,216,334		11,354,532		—
Residential HELOC		—		—		319,090		319,090		15,655,072		15,974,162		—
Total	$	207,947	$	210,841	$	778,090	$	1,196,878	$	81,054,384	$	82,251,262	$	—

December 31, 2014	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing
Commercial	$	644,594	$	113,434	$	—	$	758,028	$	9,550,104	$	10,308,132	$	—
Commercial Real Estate		481,604		—		459,000		940,604		29,340,295		30,280,899		—
Construction, Land Development, & Other Land		—		—		—		—		7,973,835		7,973,835		—
Consumer		2,385		—		—		2,385		1,305,640		1,308,025		—
Residential		225,847		—		—		225,847		11,334,767		11,560,614		—
Residential HELOC		—		157,747		162,236		319,983		16,675,380		16,995,363		—
Total	$	1,354,430	$	271,181	$	621,236	$	2,246,847	$	76,180,021	$	78,426,868	$	—

The following is an analysis of loans receivables on nonaccrual status as of the dates indicated:

	June 30, 2015		December 31, 2014
Commercial	$	145,914	$	152,255
Commercial Real Estate		459,000		459,000
Construction, Land Development, & Other Land		101,948		—
Consumer		—		—
Residential		366,292		380,500
Residential HELOCs		319,090		162,236
Total	$	1,392,244	$	1,153,991

Generally, a loan will be placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is applied against the principal balance. During the six months ended June 30, 2015 and 2014, we received approximately $3,567 and $7,016 in interest income in relation to loans on non-accrual status, respectively, and forgone interest income related to loans on non-accrual status was approximately $34,749 and $12,402, respectively.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 6 – Loans Receivable – continued

The following table summarizes the allowance for loan losses and recorded investment in gross loans, by portfolio segment, at and for the six months ended June 30, 2015:

	Commercial		Commercial Real Estate			Construction, Land Development & Other Land		Consumer			Residential			Residential - HELOCs		Unallocated			Total
Allowance for Loan Losses
Beginning Balance	$	174,737	$	62,460		$	13,157	$	42,299		$	64,651		$	476,045	$	173,445		$	1,006,794
Charge Offs		—		—			—		(540	)		—			—		—			(540	)
Recoveries		8,615		70,000			—		—			—			798		—			79,413
Provision		94,828		(73,070	)		18,287		(287	)		(4,961	)		135,935		(40,732	)		130,000
Ending Balance	$	278,180	$	59,390		$	31,444	$	41,472		$	59,690		$	612,778	$	132,713		$	1,215,667

Ending Balances:
Individually evaluated for impairment	$	146,756	$	—		$	—	$	18,427		$	1,445		$	278,233	$	—		$	444,861
Collectively evaluated for impairment	$	131,424	$	59,390		$	31,444	$	23,045		$	58,245		$	334,545	$	132,713		$	770,806

Loans Receivable:
Ending Balance - Total	$	11,313,428	$	31,611,804		$	10,658,941	$	1,338,395		$	11,354,532		$	15,974,162	$	—		$	82,251,262

Ending Balances:
Individually evaluated for impairment	$	177,683	$	779,806		$	101,948	$	96,335		$	667,445		$	597,324	$	—		$	2,420,541
Collectively evaluated for impairment	$	11,135,745	$	30,831,998		$	10,556,993	$	1,242,060		$	10,687,087		$	15,376,838	$	—		$	79,830,721

The following table summarizes the allowance for loan losses and recorded investment in gross loans, by portfolio segment, at and for the three months ended June 30, 2015:

	Commercial			Commercial Real Estate			Construction, Land Development & Other Land		Consumer			Residential			Residential - HELOCs		Unallocated		Total
Allowance for Loan Losses
Beginning Balance	$	275,515		$	72,213		$	27,781	$	36,224		$	75,789		$	486,174	$	109,247	$	1,082,943
Charge Offs		—			—			—		(540	)		—			—		—		(540	)
Recoveries		7,865			70,000			—		—			—			399		—		78,264
Provision		(5,200	)		(82,823	)		3,663		5,788			(16,099	)		126,205		23,466		55,000
Ending Balance	$	278,180		$	59,390		$	31,444	$	41,472		$	59,690		$	612,778	$	132,713	$	1,215,667

Ending Balances:
Individually evaluated for impairment	$	146,756		$	—		$	—	$	18,427		$	1,445		$	278,233	$	—	$	444,861
Collectively evaluated for impairment	$	131,424		$	59,390		$	31,444	$	23,045		$	58,245		$	334,545	$	132,713	$	770,806

Loans Receivable:
Ending Balance - Total	$	11,313,428		$	31,611,804		$	10,658,941	$	1,338,395		$	11,354,532		$	15,974,162	$	—	$	82,251,262

Ending Balances:
Individually evaluated for impairment	$	177,683		$	779,806		$	101,948	$	96,335		$	667,445		$	597,324	$	—	$	2,420,541
Collectively evaluated for impairment	$	11,135,745		$	30,831,998		$	10,556,993	$	1,242,060		$	10,687,087		$	15,376,838	$	—	$	79,830,721

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 6 – Loans Receivable – continued

The following table summarizes the allowance for loan losses and recorded investment in gross loans, by portfolio segment, at and for the six months ended June 30, 2014:

	Commercial			Commercial Real Estate			Construction, Land Development & Other Land		Consumer			Residential			Residential - HELOCs			Unallocated		Total
Allowance for Loan Losses
Beginning Balance	$	234,069		$	104,705		$	80,213	$	39,792		$	228,771		$	624,739		$	22	$	1,312,311
Charge Offs		(3,821	)		—			—		(7,572	)		(4,209	)		(262,661	)		—		(278,263	)
Recoveries		4,040			—			—		—			181			798			—		5,019
Provision		(45,121	)		(22,545	)		2,872		4,583			(51,443	)		129,865			159,789		178,000
Ending Balance	$	189,167		$	82,160		$	83,085	$	36,803		$	173,300		$	492,741		$	159,811	$	1,217,067

Ending Balances:
Individually evaluated for impairment	$	48,446		$	6,773		$	—	$	14,039		$	103,697		$	165,535		$	—	$	338,490
Collectively evaluated for impairment	$	140,721		$	75,387		$	83,085	$	22,764		$	69,603		$	327,206		$	159,811	$	878,577

Loans Receivable:
Ending Balance - Total	$	8,959,193		$	28,336,998		$	8,156,019	$	1,555,731		$	11,641,445		$	16,679,400		$	—	$	75,328,786

Ending Balances:
Individually evaluated for impairment	$	235,821		$	1,334,121		$	498,415	$	100,868		$	1,174,799		$	278,217		$	—	$	3,622,241
Collectively evaluated for impairment	$	8,723,372		$	27,002,877		$	7,657,604	$	1,454,863		$	10,466,646		$	16,401,183		$	—	$	71,706,545

The following table summarizes the allowance for loan losses and recorded investment in gross loans, by portfolio segment, at and for the three months ended June 30, 2014:

	Commercial			Commercial Real Estate		Construction, Land Development & Other Land			Consumer			Residential			Residential - HELOCs			Unallocated		Total
Allowance for Credit Losses
Beginning Balance	$	212,958		$	81,102	$	86,942		$	24,947		$	184,860		$	618,823		$	125,881	$	1,335,513
Charge Offs		(3,821	)		—		—			(7,238	)		—			(165,536	)		—		(176,595	)
Recoveries		1,750			—		—			—			—			399			—		2,149
Provision		(21,720	)		1,058		(3,857	)		19,094			(11,560	)		39,055			33,930		56,000
Ending Balance	$	189,167		$	82,160	$	83,085		$	36,803		$	173,300		$	492,741		$	159,811	$	1,217,067

Ending Balances:
Individually evaluated for impairment	$	48,446		$	6,773	$	—		$	14,039		$	103,697		$	165,535		$	—	$	338,490
Collectively evaluated for impairment	$	140,721		$	75,387	$	83,085		$	22,764		$	69,603		$	327,206		$	159,811	$	878,577

Loans Receivable:
Ending Balance - Total	$	8,959,193		$	28,336,998	$	8,156,019		$	1,555,731		$	11,641,445		$	16,679,400		$	—	$	75,328,786

Ending Balances:
Individually evaluated for impairment	$	235,821		$	1,334,121	$	498,415		$	100,868		$	1,174,799		$	278,217		$	—	$	3,622,241
Collectively evaluated for impairment	$	8,723,372		$	27,002,877	$	7,657,604		$	1,454,863		$	10,466,646		$	16,401,183		$	—	$	71,706,545

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 6 – Loans Receivable – continued

The following table summarizes the allowance for loan losses and recorded investment in gross loans, by portfolio segment, at and for the year ended December 31, 2014.

	Commercial			Commercial Real Estate			Construction, Land Development & Other Land			Consumer			Residential			Residential - HELOCs			Unallocated		Total
Allowance for Credit Losses
Beginning Balance	$	234,069		$	104,705		$	80,213		$	39,792		$	228,771		$	624,739		$	22	$	1,312,311
Charge Offs		(46,916	)		(332,299	)		—			(7,572	)		(11,034	)		(290,696	)		—		(688,517	)
Recoveries		5,540			—			—			—			181			19,279			—		25,000
Provision		(17,956	)		290,054			(67,056	)		10,079			(153,267	)		122,723			173,423		358,000
Ending Balance	$	174,737		$	62,460		$	13,157		$	42,299		$	64,651		$	476,045		$	173,445	$	1,006,794

Ending Balances:
Individually evaluated for impairment	$	40,706		$	—		$	—		$	24,234		$	1,669		$	165,535		$	—	$	232,144
Collectively evaluated for impairment	$	134,031		$	62,460		$	13,157		$	18,065		$	62,982		$	310,510		$	173,445	$	774,650

Loans Receivable:
Ending Balance - Total	$	10,308,132		$	30,280,899		$	7,973,835		$	1,308,025		$	11,560,614		$	16,995,363		$	—	$	78,426,868

Ending Balances:
Individually evaluated for impairment	$	184,903		$	784,527		$	—		$	98,258		$	1,150,335		$	440,453		$	—	$	2,658,476
Collectively evaluated for impairment	$	10,123,229		$	29,496,372		$	7,973,835		$	1,209,767		$	10,410,279		$	16,554,910		$	—	$	75,768,392

The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts of principal and interest due according to the original terms of the loan agreement. The Company’s analysis under GAAP indicates that the level of the allowance for loan losses is appropriate to cover estimated credit losses on individually evaluated loans as well as estimated credit losses inherent in the remainder of the portfolio. For the six months ended June 30, 2015 and 2014, we recognized $27,808 and $77,732, respectively, in interest income on loans that were impaired. We recognized $13,295 and $34,599 in interest income on loans that were impaired during the quarter ended June 30, 2015 and 2014, respectively.

At June 30, 2015, the Company had 14 impaired loans totaling $2,420,541 or 2.9% of gross loans. At December 31, 2014, the Company had 13 impaired loans totaling $2,658,476 or 3.4% of gross loans. There were no loans that were contractually past due 90 days or more and still accruing interest at June 30, 2015 or December 31, 2014. There were eight loans restructured or otherwise impaired totaling $1,589,488 not already included in nonaccrual status at June 30, 2015. There were six loans restructured or otherwise impaired totaling $1,176,190 not already included in nonaccrual status at December 31, 2014. During the six months ended June 30, 2015 and 2014, we received approximately $3,567 and $7,016 in interest income in relation to loans on non-accrual status, respectively, and forgone interest was approximately $34,749 and $12,402, respectively. During the quarter ended June 30, 2015 and 2014, we received approximately $1,137 and $1,071 in interest income in relation to loans on non-accrual status, respectively, and forgone interest was approximately $20,986 and $9,221, respectively.

The Company’s analysis under GAAP indicates that the level of the allowance for loan losses is appropriate to cover estimated credit losses on individually evaluated loans as well as estimated credit losses inherent in the remainder of the portfolio.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 6 – Loans Receivable – continued

The following is an analysis of our impaired loan portfolio detailing the related allowance recorded at June 30, 2015.

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial Real Estate		779,806		899,741		—		781,952		10,554
Construction, Land Development, & Other Land		101,948		101,948		—		101,963		2,322
Consumer		—		—		—		—		—
Residential		454,001		454,001		—		460,029		1,608
Residential HELOC		319,091		319,091		—		319,612		1,245

With an allowance recorded
Commercial	$	177,683	$	177,683	$	146,756	$	181,780	$	1,131
Commercial Real Estate		—		—		—		—		—
Construction, Land Development, & Other Land		—		—		—		—		—
Consumer		96,335		225,647		18,427		97,253		1,545
Residential		213,444		220,178		1,445		219,475		6,299
Residential HELOC		278,233		278,233		278,233		278,233		3,104

Total
Commercial	$	177,683	$	177,683	$	146,756	$	181,780	$	1,131
Commercial Real Estate		779,806		899,741		—		781,952		10,554
Construction, Land Development, & Other Land		101,948		101,948		—		101,963		2,322
Consumer		96,335		225,647		18,427		97,253		1,545
Residential		667,445		674,179		1,445		679,504		7,907
Residential HELOC		597,324		597,324		278,233		597,845		4,349
	$	2,420,541	$	2,676,522	$	444,861	$	2,440,297	$	27,808

The following is an analysis of our impaired loan portfolio detailing the related allowance recorded at June 30, 2014.

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial	$	43,095	$	43,095	$	—	$	71,122	$	—
Commercial Real Estate		329,691		329,691		—		336,454		10,866
Construction, Land Development, & Other Land		498,415		498,415		—		498,473		12,594
Consumer		—		—		—		—		—
Residential		451,242		451,242		—		576,276		8,750
Residential HELOC		—		—		—		—		—

With an allowance recorded
Commercial	$	192,726	$	192,726	$	48,446	$	170,387	$	1,188
Commercial Real Estate		1,004,430		1,024,454		6,773		1,377,871		14,468
Construction, Land Development, & Other Land		—		—		—		—		—
Consumer		100,868		230,180		14,039		106,198		1,623
Residential		723,557		748,949		103,697		929,221		25,139
Residential HELOC		278,217		278,217		165,535		278,264		3,104

Total
Commercial	$	235,821	$	235,821	$	48,446	$	241,509	$	1,188
Commercial Real Estate		1,334,121		1,354,145		6,773		1,714,325		25,334
Construction, Land Development, & Other Land		498,415		498,415		—		498,473		12,594
Consumer		100,868		230,180		14,039		106,198		1,623
Residential		1,174,799		1,200,191		103,697		1,505,497		33,889
Residential HELOC		278,217		278,217		165,535		278,264		3,104
	$	3,622,241	$	3,796,969	$	338,490	$	4,344,266	$	77,732

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 6 – Loans Receivable – continued

The following is an analysis of our impaired loan portfolio detailing the related allowance recorded at and for the year ended December 31, 2014:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial Real Estate		784,527		902,746		—		1,222,163		36,050
Construction, Land Development, & Other Land		—		—		—		—		—
Consumer		—		—		—		—		—
Residential		936,667		936,667		—		1,028,010		39,938
Residential HELOC		162,236		162,236		—		204,071		564

With an allowance recorded
Commercial		184,903		184,903		40,706		192,328		9,500
Commercial Real Estate		—		—		—		—		—
Construction, Land Development, & Other Land		—		—		—		—		—
Consumer		98,258		227,570		24,234		100,914		3,231
Residential		213,668		220,256		1,669		220,987		12,792
Residential HELOC		278,217		278,217		165,535		278,255		6,260

Total
Commercial		184,903		184,903		40,706		192,328		9,500
Commercial Real Estate		784,527		902,746		—		1,222,163		36,050
Construction, Land Development, & Other Land		—		—		—		—		—
Consumer		98,258		227,570		24,234		100,914		3,231
Residential		1,150,335		1,156,923		1,669		1,248,997		52,730
Residential HELOC		440,453		440,453		165,535		482,326		6,824
	$	2,658,476	$	2,912,595	$	232,144	$	3,246,728	$	108,335

Troubled Debt Restructuring

The Company considers a loan to be a troubled debt restructuring (a “TDR”) when the debtor experiences financial difficulties and the Company provides concessions such that we will not collect all principal and interest in accordance with the original terms of the loan agreement. Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note. As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment. At June 30, 2015 and June 30, 2014, we had eight loans totaling $768,066 and 10 loans totaling $2,145,505, respectively, which we considered to be TDRs. During the six and three months ended June 30, 2015, we did not modify any loans that were considered to be TDRs.

Our policy with respect to accrual of interest on loans restructured in a TDR follows relevant supervisory guidance. That is, if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms, continued accrual of interest at the restructured interest rate is likely. If a borrower was materially delinquent on payments prior to the restructuring but shows capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward. Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status.

We will continue to closely monitor these loans and will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms. If, after previously being classified as a TDR, a loan is restructured a second time, then that loan is automatically placed on nonaccrual status.

Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status. Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.

There were no loans restructured within the last twelve months that defaulted during the three and six months ended June 30, 2015. There was one loan restructured within the previous twelve months totaling $118,761 that defaulted during the six months ended June 30, 2014. The Bank considers any loans that are 30 days or more past due to be in default.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Note 7 – Other Real Estate Owned

Transactions in other real estate owned for the periods ended June 30, 2015 and December 31, 2014 are summarized below:

	2015			2014
Balance, beginning of period	$	1,441,095		$	1,544,234
Additions		—			788,921
Sales		(36,733	)		(892,060	)
Write downs		(111,000	)		—
Balance, end of period	$	1,293,362		$	1,441,095

Note 8 - Dividends on Series A Preferred Stock Issued to the U.S. Treasury

On January 9, 2009, as part of the Capital Purchase Program established by the U.S. Department of the Treasury (the “Treasury”) under the Emergency Economic Stabilization Act of 2009, the Company entered into a Letter Agreement with Treasury dated January 9, 2010, pursuant to which the Company issued and sold to Treasury 3,285 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share (the “Series A Preferred Stock”), and a ten-year warrant (the “Warrant”) to purchase 164 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B, having a liquidation preference of $1,000 per share (the “Series B Preferred Stock”), at an initial exercise price of $0.01 per share, for an aggregate purchase price of $3,285,000 in cash. The Warrant was immediately exercised. On February 15, 2014, the dividend rate on the Series A Preferred Stock increased from 5% per year (approximately $121,210 annually) to 9% per year (approximately $206,370 annually). The Series B Preferred Stock has a dividend rate of 9% per year (approximately $14,760 annually).

On October 31, 2012, the Treasury sold its Series A and Series B preferred stock of the Company through a private offering structured as a modified Dutch auction. The Company bid on a portion of the preferred stock in the auction after receiving approval from its regulators to do so. The clearing price per share for the Series A Preferred Stock was $825.26 (compared to a stated value of $1,000 per share) and the clearing price per share for the Series B Preferred Stock was $801.00 (compared to a stated value of $1,000 per share). The Company was successful in repurchasing 1,156 shares of the 3,285 shares of Series A Preferred Stock outstanding through the auction process. This repurchase saved the Company approximately $58,000 and $104,000 in dividend expenses for the years ended 2014 and 2013, respectively. The remaining 2,129 shares of Series A Preferred Stock and 164 shares of Series B Preferred Stock held by Treasury were sold to unrelated third-parties through the auction process. The net balance sheet impact was a reduction to shareholders’ equity of $954,001 which is comprised of a decrease in preferred stock of $1,135,412 and a $181,411 increase to retained earnings related to the discount on the shares repurchased.

On April 14, 2014, the Company repurchased 729 shares of the 2,129 shares of Series A Preferred Stock outstanding at par. The repurchase will save the Company approximately $66,000 in dividend expenses annually. As of June 30, 2015, 1,400 shares of Series A Preferred Stock and 164 shares of Series B Preferred Stock were outstanding. The outstanding shares of preferred stock will receive preferential treatment in the event of liquidation, dissolution or winding up of the Company.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion reviews our results of operations and assesses our financial condition. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements. The commentary should be read in conjunction with the discussion of forward-looking statements, the financial statements, and the related notes and the other statistical information included in this report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “will,” “expect,” “anticipate,” “believe,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Our actual results may differ materially from the results discussed in the forward-looking statements, and our operating performance each quarter is subject to various risks and uncertainties that include, without limitation, those described under the heading “Risk Factors” in our Annual Report for the year ended December 31, 2014 filed with the SEC, and the following:

credit losses as a result of, among other potential factors, declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors;

restrictions or conditions imposed by our regulators on our operations;

our ability to maintain appropriate levels of capital including levels required under the capital rules under Basel III;

our ability to retain our existing customers, including our deposit relationships;

changes in deposit flows;

increases in competitive pressure in the banking and financial services industries;

changes in the interest rate environment, which could reduce anticipated or actual margins;

our expectations regarding our operating revenues, expenses, effective tax rates and other results of operations;

examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for loan losses or write-down assets;

changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry;

general economic conditions resulting in, among other things, a deterioration in credit quality;

changes occurring in business conditions and inflation;

changes in access to funding or increased regulatory requirements with regard to funding;

cybersecurity risk, including potential business disruptions or financial losses;

changes in technology;

our current and future products, services, applications and functionality and plans to promote them:

changes in monetary and tax policies;

the adequacy of the level of our allowance for loan losses and the amount of loan loss provisions required in future periods;

the rate of delinquencies and amounts of loan charge-offs;

the rates of loan growth;

the amount of our loan portfolio collateralized by real estate, and the weakness in the real estate market;

our reliance on available secondary funding sources such as FHLB advances, Federal Reserve Discount Window borrowings, sales of securities and loans, and federal funds lines of credit from correspondent banks to meet our liquidity needs;

our ability to maintain effective internal control over financial reporting;

adverse changes in asset quality and resulting credit risk-related losses and expenses;

changes in monetary and tax policies;

loss of consumer confidence and economic disruptions resulting from terrorist activities or other military activity;

changes in the securities markets; and

other risks and uncertainties detailed in Part I, Item 1A of the Annual Report on Form 10-K and from time to time in our filings with the SEC.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

If any of these risks or uncertainties materialize, or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by, such forward-looking statements. For information with respect to factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. We make these forward-looking statements as of the date of this document, and we do not intend, and assume no obligation, to update the forward-looking statements or to update the reasons why actual results could differ from those expressed in, or implied or projected by, the forward-looking statements.

Overview

2014 was a very challenging year for the Bank, the banking industry, and the U.S. economy in general, and these challenges have continued into 2015. The impact of the recession is continuing to be felt by the banking industry as a whole and by us as well. Accordingly, our focus has been and continues to be centered on managing through the effects of these economic times to position the Bank to continue being profitable as the economy continues to recover. It is our expectation that our hard work, reduced operating expenses, and the eventual improvement in the economy and the real estate markets will help our borrowers and us weather this storm and continue our road to recovery. Our primary focus has been and will continue to be to increase our net interest margin. We are reducing our reliance on wholesale deposits and placing emphasis on acquiring core deposits, specifically small business operating accounts. Additionally, we are taking steps to increase noninterest income through allocating resources to mortgage loan production, insurance income and investment referrals. Reducing our level of nonperforming assets will also lower our operating costs, thus increasing the Bank’s profitability.

The Company recorded net income, after tax expense, of $180,354 and net income available to common shareholders of $109,974 for the six months ended June 30, 2015 compared to net income, after tax expense, of $208,139 and net income available to common shareholders of $131,145 for the six months ended June 30, 2014. Basic and diluted income per common share were $0.06 for the first six months of 2015 compared to basic and diluted income per common share of $0.07 in the first six months of 2014. The decrease in net income for the first six months of 2015 as compared to the first six months of 2014 is primarily attributable to the income tax expense of $71,052. As a result of the full reversal of the valuation allowance in 2014, income tax expense is now being booked against the valuation allowance. For the period ended June 30, 2015, our net interest margin was 4.06% compared to 4.00% at June 30, 2014.

The Company recorded net income, after tax expense, of $84,570 and net income available to common shareholders of $49,380 for the three months ended June 30, 2015, compared to net income, after tax expense, of $99,221 and net income available to common shareholders of $56,980 for the three months ended June 30, 2014. Basic and diluted earnings per share were $0.03 and $0.03 for the second quarter of 2015 and 2014, respectively. The decrease in net income for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 is primarily attributable to the income tax expense of $65,964.

At June 30, 2015, total assets were $112,257,407, compared to $112,922,086 at December 31, 2014, a decrease of $664,679, or 0.59%. Interest-earning assets comprised approximately 92.6% and 91% of total assets at June 30, 2015 and December 31, 2014, respectively. Gross loans totaled $82,251,262 and investment securities were $21,010,282 at June 30, 2015, compared to gross loans of $78,426,868 and investment securities of $25,339,059 at December 31, 2014.

Deposits totaled $86,308,741 at June 30, 2015 and $87,958,312 at December 31, 2014. FHLB advances were $11,500,000 at June 30, 2015 and December 31, 2014. Shareholders’ equity was $13,415,646 and $13,344,948 at June 30, 2015 and December 31, 2014, respectively.

As of June 30, 2015, the Bank’s ratios are sufficient to satisfy the standard regulatory criteria for being a “well capitalized” bank. Management has developed a plan to increase and preserve our capital with the goal of developing and maintaining a strong capital position. These initiatives include, among other things, restructuring the Bank’s balance sheet by controlling new loan activity and aggressively attempting to sell other real estate owned. Additionally, we are actively evaluating a number of capital sources and balance sheet management strategies to ensure that our projected level of regulatory capital can support our balance sheet and meet or exceed minimum requirements.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Critical Accounting Policies

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America and with general practices within the banking industry in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to our audited consolidated financial statements as of December 31, 2014, as filed on our Annual Report on Form 10-K.

Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgment and assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Allowance for Loan Losses

We believe the allowance for loan losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements. Some of the more critical judgments supporting the amount of our allowance for loan losses include judgments about the credit worthiness of borrowers, the estimated value of the underlying collateral, the assumptions about cash flow, determination of loss factors for estimating credit losses, the impact of current events and conditions, and other factors impacting the level of probable inherent losses. Under different conditions or using different assumptions, the actual amount of credit losses incurred by us may be different from management’s estimates provided in our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses.

Income Taxes

We use assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax liabilities and assets for events recognized differently in our financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. Management exercises judgment in evaluating the amount and timing of recognition of resulting tax liabilities and assets. These judgments and estimates are reevaluated on a continual basis as regulatory and business factors change. No assurance can be given that either the tax returns submitted by us or the income tax reported on the financial statements will not be adjusted by either adverse rulings by the United States Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service. We are subject to potential adverse adjustments, including, but not limited to, an increase in the statutory federal or state income tax rates, the permanent non deductibility of amounts currently considered deductible either now or in future periods, and the dependency on the generation of future taxable income, including capital gains, in order to ultimately realize deferred income tax assets.

Results of Operations

Three and six months ended June 30, 2015 and 2014

Net Interest Income

Our primary source of revenue is net interest income. Net interest income is the difference between income earned on interest-earning assets and interest paid on deposits and borrowings used to support such assets. The level of net interest income is determined by the balances of interest-earning assets and interest-bearing liabilities and corresponding interest rates earned and paid on those assets and liabilities, respectively. In addition to the volume of and corresponding interest rates associated with these interest-earning assets and interest-bearing liabilities, net interest income is affected by the timing of the repricing of these interest-earning assets and interest-bearing liabilities. Our annualized net interest margins for the six months ended June 30, 2015 and 2014 were 4.06% and 4.00%, respectively. Our annualized net interest margins for the three months ended June 30, 2015 and 2014 were 4.09% and 4.01%, respectively.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Net interest income was $2,077,692 during the six months ended June 30, 2015, compared to $2,081,655 for the same period in 2014. The slight decrease in net interest income is primarily attributable to the decrease in interest income on investments as the balance has declined. Interest income of $2,250,374 for the six months ended June 30, 2015 included $1,973,008 on loans, $259,867 on investment securities and $17,499 on federal funds sold and other. This represented a decrease of $40,196 in interest income for the six months ended June 30, 2015 compared to the same period last year which was primarily due to a 19.14% reduction in the average investment portfolio. Total interest expense of $172,682 during the six months ended June 30, 2015 included $141,203 related to deposit accounts and $31,479 on FHLB advances and other borrowings. Interest expense decreased from $208,915 for the six months ended June 30, 2014, largely due to higher interest bearing deposits being replaced by lower interest bearing deposits and a 9.6% decrease in the average interest bearing deposits and a 21.6% increase in the average non-interest bearing deposits.

Net interest income was $1,054,405 for the quarter ended June 30, 2015, compared to $1,036,282 for the same period in 2014. Interest income of $1,139,149 for the quarter ended June 30, 2015 included $999,345 on loans, $131,513 on investment securities and $8,291 on federal funds sold and other. Total interest expense of $84,744 for the quarter ended June 30, 2015 included $68,567 related to deposit accounts and $16,177 on FHLB advances and other borrowings. The slight increase in net interest income for this period is primarily attributable to the decrease in interest expense for the quarter.

While nonperforming loans continue to be treated as interest-earning assets for purposes of calculating the net interest margin, the interest lost on these loans reduces net interest income, particularly in the quarter the loans first are considered nonperforming, as any interest income accrued on the loans is reversed at that point.

Provision for Loan Losses

We have established an allowance for loan losses through a provision for loan losses charged as a non-cash expense to our statement of operations. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses. Please see the discussion below under “Provision and Allowance for Loan Losses” for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.

Our provision for loan losses for the six months ended June 30, 2015 was $130,000 a decrease of $48,000 or 27%, from our provision for loan losses of $178,000 for the six months ended June 30, 2014. Our provision for loan losses for the three months ended June 30, 2015 was $55,000 a decrease of $1,000 or 1.8%, from our provision for loan losses of $56,000 for the three months ended June 30, 2014. The provision continues to be maintained at a level based on management’s evaluation of the adequacy of the reserve for probable loan losses given the size, mix, and quality of the current loan portfolio. Management also relies on our history of past-dues and charge-offs to determine our loan loss allowance. See below under “Balance Sheet Review” for further information.

Noninterest Income

Noninterest income during the six months ended June 30, 2015 was $359,399, compared to $165,723 for the same period in 2014. Noninterest income for the six months ended June 30, 2015 consisted primarily of service charges on deposit accounts of $186,837, residential mortgage origination fees of $37,999, gain on sale of securities available for sale of $111,077 and other noninterest income of $23,486. Noninterest income for the six months ended June 30, 2014 consisted primarily of service charges on deposit accounts of $138,858, residential mortgage origination fees of $18,386, and other noninterest income of $12,957. The increase of $193,676 in noninterest income compared to the same period in 2014 is primarily the result of the gain on sale of securities available for sale, an increase in service charges on deposit accounts, and a slight increase in mortgage origination fees and other non interest income.

Noninterest income for the three months ended June 30, 2015 was $134,226, compared to $89,846 for the three months ended June 30, 2014. Noninterest income for the quarter ended June 30, 2015 consisted primarily of service charges on deposit accounts, and mortgage loan origination fees. The increase of $44,380 in noninterest income compared to the same period in 2014 is primarily the result of an increase in service charges on deposit accounts and increase in mortgage origination fees.

In response to competition to retain deposits, institutions in the financial services industry have increasingly been providing services for free in an effort to lure deposits away from competitors and retain existing balances. Services that were initially developed as fee income opportunities, such as Internet banking and bill payment service, are now provided to customers free of charge. Consequently, opportunities to earn additional income from service charges for such services have been more limited. In addition, recent focus on the level of deposit service charges within the banking industry by the media and the U.S. Government may result in future legislation limiting the amount and type of services charges within the banking industry. For example, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), in June 2011, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) approved a final debit card interchange rule that caps an issuer’s base fee at $0.21 per transaction and allows an additional 5 basis point charge per transaction to help cover fraud losses. Though the rule technically does not apply to institutions with less than $10 billion in assets, such as the Bank, there is concern that the price controls may harm community banks, which could be pressured by the marketplace to lower their own interchange rates. The Federal Reserve also adopted requirements for issuers to include two unaffiliated networks for debit card transactions – one signature-based and one PIN-based. Our ATM/debit card fee income is included in service charges on deposit accounts and was $69,802 and $68,194 for the six months ended June 30, 2015 and 2014, respectively. We will continue to monitor the regulations as they are implemented and will review our policies, products and procedures to ensure full compliance but also attempt to minimize any negative impact on our operations.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Noninterest Expenses

The following table sets forth information related to our noninterest expenses for the six and three months ended June 30, 2015 and 2014.

	Six months ended					Three months ended
	June 30,					June 30,
	2015		2014			2015		2014
Compensation and benefits	$	953,331	$	945,962		$	474,326	$	470,593
Occupancy and equipment		345,044		329,103			172,820		163,151
Data processing and related costs		177,135		160,488			93,824		82,046
Marketing, advertising and shareholder communications		34,070		50,915			21,162		30,248
Legal and audit		143,367		113,136			78,328		61,165
Other professional fees		3,358		3,264			1,792		1,598
Supplies, postage and telephone		31,020		30,000			15,952		14,932
Insurance		24,089		23,623			12,250		11,811
Credit related expenses		4,114		3,822			4,253		1,669
Regulatory fees and FDIC insurance		65,262		60,564			31,531		30,432
Net (profit) cost of operation of real estate owned		170,908		(7,609	)		17,100		11,217
Other		103,987		146,605			59,759		92,045
Total noninterest expense	$	2,055,685	$	1,859,873		$	983,097	$	970,907

The most significant component of noninterest expense is compensation and benefits, which totaled $953,331 for the six months ended June 30, 2015, compared to $945,962 for the six months ended June 30, 2014. The increase is primarily related to increase in salaries due to employee performance. Occupancy and equipment increased from $329,103 for the six months ended June 30, 2014 to $345,044 for the six months ended June 30, 2015 due to routine maintenance of our banking offices. Data processing and related costs increased from $160,488 for the six months ended June 30, 2014 to $177,135 for the six months ended June 30, 2015 due to annual cost increases in the data processing contract and increase in volume. Marketing and advertising decreased from $50,915 for the six months ended June 30, 2014, to $34,070 for the six months ended June 30, 2015 due to decreased print ad advertising and utilizing billboard advertising. Legal fees increased from $113,136 for the six months ended June 30, 2014, to $143,367 for the six months ended June 30, 2015 due to foreclosures involving other real estate. Other real estate expenses increased from a profit of $7,609 for the six months ended June 30, 2014, to an expense of $170,908 for the six months ended June 30, 2015 as a result of write downs on other real estate.

Compensation and benefits remained essentially unchanged with $470,593 for the three months ended June 30, 2014 compared to $474,326 for the three months ended June 30, 2015. Legal expense slightly increased from $61,165 for the three months ended June 30, 2014 to $78,328 for the three months ended June 30, 2015. Other real estate expenses increased from $11,217 for the three months ended June 30, 2014, to $17,100 for the three months ended June 30, 2015 as a result of maintaining other real estate.

Income Tax Expenses

The Company reported taxable income for the six months ended June 30, 2015 and June 30, 2014. The valuation allowance was established in 2009 based on management’s analysis of the continued losses incurred by the Company and likelihood of recovery of those assets. Management’s judgment is based on estimates concerning future income earned and historical earnings for the year ended December 31, 2014. Management has concluded that sufficient positive evidence exists to overcome any and all negative evidence in order to meet the “more likely than not” standard regarding the realization of its net deferred tax assets. The Company recorded income tax expense of $71,052 and $65,964 for six and three months ended June 30, 2015, respectively.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Balance Sheet Review

Loans

Since loans typically provide higher interest yields than other interest-earning assets, it is our goal to ensure that the highest percentage of our earning assets is invested in our loan portfolio. Gross loans outstanding at June 30, 2015 were $82,251,262, or 79.1% of interest-earning assets and 73.2% of total assets, compared to $78,426,868, or 75.5% of interest-earning assets and 69.4 % of total assets, at December 31, 2014.

Loans secured by real estate mortgages comprised approximately 84% of loans outstanding at June 30, 2015 and 85% at December 31, 2014. Most of our real estate loans are secured by residential and commercial properties. We do not generally originate traditional long-term residential mortgages, but we do issue traditional second mortgage residential real estate loans and home equity lines of credit. We obtain a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans we make to 85%. Commercial loans and lines of credit represented approximately 14% of our loan portfolio at June 30, 2015 and 13% at December 31, 2014. Our construction, development, and land loans represented approximately 13% and 10% of our loan portfolio at June 30, 2015 and December 31, 2014, respectively.

Due to the short time our portfolio has existed, the loan mix shown below may not be indicative of the ongoing portfolio mix. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration of certain types of collateral.

The following table summarizes the composition of our loan portfolio as of June 30, 2015 and December 31, 2014.

	June 30, 2015						December 31, 2014
	Amount			Percentage of Total			Amount			Percentage of Total
Real Estate:
Commercial Real Estate	$	31,611,804			38	%	$	30,280,899			39	%
Construction, Land Development, & Other Land		10,658,941			13	%		7,973,835			10	%
Residential Mortgages		11,354,532			14	%		11,560,614			15	%
Residential Home Equity Lines of Credit (HELOCs)		15,974,162			19	%		16,995,363			21	%
Total Real Estate		69,599,439			84	%		66,810,711			85	%

Commercial		11,313,428			14	%		10,308,132			13	%
Consumer		1,338,395			2	%		1,308,025			2	%
Gross loans		82,251,262			100	%		78,426,868			100	%
Less allowance for loan losses		(1,215,667	)					(1,006,794	)
Total loans, net	$	81,035,595					$	77,420,074

Provision and Allowance for Loan Losses

We have established an allowance for loan losses through a provision for loan losses charged to expense on our consolidated statements of operations. The allowance for loan losses for the six months ended June 30, 2015 and 2014 is presented below:

	Six Months Ended
	June 30,
	2015			2014
Balance at beginning of the period	$	1,006,794		$	1,312,311
Provision for loan losses		130,000			178,000
Loans charged-off		(540	)		(278,263	)
Recoveries of loans previously charged-off		79,413			5,019
Balance at end of the period	$	1,215,667		$	1,217,067

The allowance for loan losses was $1,215,667 and $1,006,794 as of June 30, 2015 and December 31, 2014, respectively, and represented 1.48% and 1.28% of outstanding loans at June 30, 2015 and December 31, 2014, respectively.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. Our determination of the allowance for loan losses is based on evaluations of the collectability of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may affect the borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans. We also consider subjective issues such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits, changes in volume/severity of problem loans, quality of loan review and board of director oversight, concentrations of credit, and peer group comparisons. We adjust the amount of the allowance periodically based on changing circumstances as a component of the provision for loan losses.

We calculate the allowance for loan losses for specific types of loans and evaluate the adequacy on an overall portfolio basis utilizing our credit grading system which we apply to each loan. We combine our estimates of the reserves needed for each component of the portfolio, including loans analyzed on a pool basis and loans analyzed individually. The allowance is divided into two portions: (1) an amount for specific allocations on significant individual credits and (2) a general reserve amount.

Specific Reserve

We analyze individual loans within the portfolio and make allocations to the allowance based on each individual loan’s specific factors and other circumstances that affect the collectability of the credit. Significant individual credits classified as doubtful or substandard/special mention within our credit grading system require both individual analysis and specific allocation.

Loans in the substandard category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action such as declining or negative earnings trends and declining or inadequate liquidity. Loans in the doubtful category exhibit the same weaknesses found in the substandard loan; however, the weaknesses are more pronounced. These loans, however, are not yet rated as loss because certain events may occur which could salvage the debt such as injection of capital, alternative financing, or liquidation of assets.

In these situations where a loan is determined to be impaired (primarily because it is probable that all principal and interest due according to the terms of the loan agreement will not be collected as scheduled), the loan is excluded from the general reserve calculations described below and is assigned a specific reserve. These reserves are based on a thorough analysis of the most probable source of repayment, which is usually the liquidation of the underlying collateral, but may also include discounted future cash flows or, in rare cases, the market value of the loan itself.

Generally, for larger collateral dependent loans, current market appraisals are ordered to estimate the current fair value of the collateral. Third party appraisals are ordered through and independently reviewed by our appraisal management company. Those appraisals are generally ordered to provide the current “as is” market value of the collateral. However, in situations where a current market appraisal is not available, management uses the best available information (including recent appraisals for similar properties, communications with qualified real estate professionals, information contained in reputable trade publications and other observable market data) to estimate the current fair value. The estimated costs to sell the subject property are then deducted from the estimated fair value to arrive at the “net realizable value” of the loan and to determine the specific reserve on each impaired loan reviewed. An outside credit review firm periodically reviews the fair value assigned to each impaired loan and adjusts the specific reserve accordingly.

General Reserve

We calculate our general reserve based on a percentage allocation for each of the effective categories of unclassified loan types. We apply our historical trend loss factors to each category and adjust these percentages for qualitative or environmental factors, as discussed below. The general estimate is then added to the specific allocations made to determine the amount of the total allowance for loan losses.

We maintain a general reserve in accordance with December 2006 regulatory interagency guidance in our assessment of the loan loss allowance. This general reserve considers qualitative or environmental factors that are likely to cause estimated credit losses including, but not limited to, changes in delinquent loan trends, trends in risk grades and net charge offs, concentrations of credit, trends in the nature and volume of the loan portfolio, general and local economic trends, collateral valuations, the experience and depth of lending management and staff, lending policies and procedures, the quality of loan review systems, and other external factors.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

The current economic conditions have improved but management believes real estate values have not yet rebounded to a level seen prior to the beginning of the recession in 2008. In some cases, the lack of a complete rebound in those values may result in a significant impairment to the value of our collateral and our ability to sell the collateral upon foreclosure. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If the economy were to deteriorate in the future and suffer a subsequent decline in real estate values it may make it more likely that we would be required to increase our allowance for loan losses. Based on present information, and an ongoing evaluation, management considers the allowance for loan losses to be adequate to meet presently known and inherent losses in the loan portfolio. Management’s judgment about the adequacy of the allowance is based upon a number of assumptions about future events which it believes to be reasonable but which may or may not be accurate. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required. Management believes the estimates of the required level of allowance for loan losses have been appropriate and the expectation is that the primary factors considered in the provision calculation will continue to be consistent with prior trends.

The Company identifies impaired loans through its normal internal loan review process. Loans on the Company’s potential problem loan list are considered potentially impaired loans. These loans are evaluated in determining whether all outstanding principal and interest are expected to be collected. Loans are not considered impaired if a minimal payment delay occurs and all amounts due, including accrued interest at the contractual interest rate for the period of delay, are expected to be collected. Management has determined that the Company had $2,420,541 and $2,658,476 in impaired loans at June 30, 2015 and December 31, 2014, respectively. The valuation allowances related to impaired loans totaled $444,861 and $232,144 at June 30, 2015 and December 31, 2014, respectively.

At June 30, 2015 and December 31, 2014, nonaccrual loans totaled $1,392,244 and $1,153,991, respectively. Generally, a loan will be placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is applied against the principal balance.

Deposits

Our primary source of funds for our loans and investments is our deposits. Total deposits as of June 30, 2015 and December 31, 2014 were $86,308,741 and $87,958,312, respectively. The following table shows the average balance outstanding and the average rates paid on deposits for the six months ended June 30, 2015 (annualized) and the year ended December 31, 2014.

	June 30, 2015					December 31, 2014
	Average Amount		Rate			Average Amount		Rate
Non-interest bearing demand deposits	$	15,633,436		—	%	$	13,832,579		—	%
Interest-bearing checking		8,705,102		0.19			6,786,089		0.18
Money market		40,060,018		0.25			42,915,814		0.27
Savings		1,980,588		0.17			1,329,634		0.18
Time deposits less than $100,000		8,777,715		0.70			11,617,528		0.76
Time deposits $100,000 and over		11,387,656		0.89			14,060,312		0.88
Total	$	86,544,515		0.40	%	$	90,541,956		0.45	%

Core deposits, which exclude time deposits of $100,000 or more and brokered certificates of deposit, provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were approximately $75,181,237 and $75,759,021 at June 30, 2015 and December 31, 2014, respectively. Our loan-to-deposit ratio was 95.3% and 89.2% at June 30, 2015 and December 31, 2014, respectively. Due to the competitive interest rate environment in our market, from time to time we will utilize internet certificates of deposit as a funding source when we are able to procure these certificates at interest rates less than those in the local market to balance our funding mix. All of our time deposits are certificates of deposits.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Liquidity

Liquidity is the ability to meet current and future obligations through liquidation or maturity of existing assets or the acquisition of liabilities. We manage both assets and liabilities to achieve appropriate levels of liquidity. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.

Cash and short-term investments are our primary sources of asset liquidity. These funds provide a cushion against short-term fluctuations in cash flow from both deposits and loans. The investment portfolio is our principal source of secondary asset liquidity. However, the availability of this source of funds is influenced by market conditions and pledging agreements. Individual and commercial deposits, wholesale deposits and borrowings are our primary source of funds for credit activities. In addition, we will receive cash upon the maturities and sales of loans and maturities, calls and prepayments on investment securities. We maintain federal funds purchased lines of credit with correspondent banks totaling $15,050,000. Availability on these lines of credit was $14,238,400 at June 30, 2015.

We are a member of the FHLB of Atlanta, from which applications for borrowings can be made. The FHLB requires that investment securities or qualifying mortgage loans be pledged to secure advances from them. We are also required to purchase FHLB stock in a percentage of each advance. At June 30, 2015 and December 31, 2014, we had $11,500,000 outstanding. The Bank borrowed the funds to reduce the cost of funds on money used to fund loans. The Bank has remaining credit availability of $10,830,000 at the FHLB. We believe that our existing stable base of core deposits along with continued growth in this deposit base will enable us to successfully meet our long term liquidity needs.

The following table shows the amount outstanding, grant date, maturity date, and interest rate at June 30, 2015.

Amount		Grant Date	Maturity Date	Interest Rate

$	2,000,000	6/18/2015	7/17/2015	0.19	%
$	1,500,000	4/24/2015	7/24/2015	0.23	%
$	1,000,000	8/11/2011	8/11/2015	1.07	%
$	2,500,000	9/24/2013	9/24/2015	0.51	%
$	2,000,000	5/06/2015	11/06/2015	0.27	%
$	2,500,000	9/24/2013	9/23/2016	0.95	%

Like all banks, we are subject to the FHLB’s credit risk rating policy which assigns member institutions a rating which is reviewed quarterly. The rating system utilizes key factors such as loan quality, capital, liquidity, profitability, etc. Our ability to access our available borrowing capacity from the FHLB in the future is subject to our rating and any subsequent changes based on our financial performance as compared to factors considered by the FHLB in their assignment of our credit risk rating each quarter. In addition, the Federal Reserve Bank of Richmond as well as our correspondent banks review our financial results and could limit our credit availability based on their review.

At June 30, 2015, the Bank had short-term lines of credit with correspondent banks to purchase a maximum of $5,800,000 in unsecured federal funds on a one to 14 day basis, $6,750,000 in unused federal funds on a one to 20 day basis for general corporate purposes, and $2,500,000 in unused federal funds on a one to 30 day basis for general corporate purposes. The interest rate on borrowings under these lines is the prevailing market rate for federal funds purchased. These accommodation lines of credit are renewable annually and may be terminated at any time at the correspondent banks’ sole discretion. At June 30, 2015, we had $811,600 in borrowings outstanding on these lines.

The Bank’s level of liquidity is measured by the cash, cash equivalents, and investment securities available for sale to total assets ratio, which was at 18% at June 30, 2015 compared to 21.4% as of December 31, 2014. At June 30, 2015, $7,123,889 of our investment securities were pledged to secure public entity deposits. We continue to carefully focus on liquidity management during 2015.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Capital Resources

Total shareholders’ equity was $13,415,646 at June 30, 2015, an increase of $70,698 from $13,344,948 at December 31, 2014. The increase is primarily due to net income for the period of $180,354.

The Federal Reserve and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. The Federal Reserve guidelines contain an exemption from the capital requirements for “small bank holding companies,” which in 2006 were amended to cover most bank holding companies with less than $500 million in total assets that do not have a material amount of debt or equity securities outstanding registered with the SEC. Although our class of common stock is registered under Section 12 of the Securities Exchange Act, we believe that because our stock is not listed on any exchange or otherwise actively traded, the Federal Reserve will interpret its new guidelines to mean that we qualify as a small bank holding company. Nevertheless, our Bank remains subject to these capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Under the capital adequacy guidelines, regulatory capital is classified into two tiers. These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for loan losses, subject to certain limitations. We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio.

In July 2013, federal bank regulatory agencies issued final rules to revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (“Basel III”). On January 1, 2015, the Basel III rules became effective and include transition provisions which implement certain portions of the rules through January 1, 2019. The rules will apply to all national and state banks, such as the Bank, and savings associations and most bank holding companies and savings and loan holding companies. Bank holding companies with less than $500 million in total consolidated assets, such as the Company, are not subject to the final rules, nor are savings and loan holding companies substantially engaged in commercial activities or insurance underwriting. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank, which acts as a financial cushion to absorb losses, taking into account the impact of risk. The approved rule includes a new minimum ratio of common equity Tier 1 capital to risk-weighted assets (“CET1”) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to the risk weights for certain assets and off-balance sheet exposures. Management expects that the capital ratios for the Bank under Basel III will continue to exceed the well-capitalized minimum capital requirements.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

The following table sets forth the Bank’s capital ratios at June 30, 2015 and December 31, 2014:

											To Be Well-
											Capitalized Under
						For Capital					Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2015
Total capital (to risk-weighted assets)	$	12,980		15.23	%	$	6,817		8.00	%	$	8,522		10.00	%
Tier 1 capital (to risk-weighted assets)		11,903		13.97	%		5,113		6.00	%		6,817		8.00	%
Tier 1 capital (to average assets)		11,903		10.86	%		4,384		4.00	%		5,480		5.00	%
CET1 (to risk weighted assets)		11,903		13.97	%		3,835		4.50	%		5,539		6.50	%

December 31, 2014
Total capital (to risk-weighted assets)	$	12,697		15.87	%	$	6,400		8.00	%	$	8,071		10.00	%
Tier 1 capital (to risk-weighted assets)		11,697		14.62	%		3,200		4.00	%		4,800		6.00	%
Tier 1 capital (to average assets)		11,697		10.57	%		4,427		4.00	%		5,533		5.00	%

Off-Balance Sheet Arrangements

Through the Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our clients at predetermined interest rates for a specified period of time. We evaluate each client’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes.

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, negotiable instruments, inventory, property, plant and equipment, and real estate. At June 30, 2015 and December 31, 2014, we had issued commitments to extend credit of approximately $12,455,000 and $13,267,000, respectively, through various types of lending arrangements.

Standby letters of credit represent an obligation of the Company to a third party contingent upon the failure of the Company’s customer to perform under the terms of an underlying contract with the third party or obligates the Company to guarantee or stand as surety for the benefit of the third party. The underlying contract may entail either financial or nonfinancial obligations and may involve such things as the shipment of goods, performance of a contract, or repayment of an obligation. Under the terms of a standby letter, generally drafts will be drawn only when the underlying event fails to occur as intended. The Company can seek recovery of the amounts paid from the borrower. The majority of these standby letters of credit are unsecured. Commitments under standby letters of credit are usually for one year or less. At June 30, 2015 and December 31, 2014, the Company has recorded no liability for the current carrying amount of the obligation to perform as a guarantor; as such amounts are not considered material. There were standby letters of credit included in the commitments for $40,000 and $48,000 at June 30, 2015 and December 31, 2014, respectively.

Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. A significant portion of the unfunded commitments relate to consumer equity lines of credit and commercial lines of credit. Based on historical experience, we anticipate that a portion of these lines of credit will not be funded.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Except as disclosed in this report, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that significantly impact earnings.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the six months ended June 30, 2015, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

Part II - Other Information

Item 1. Legal Proceedings

We are a party to claims and lawsuits arising in the course of normal business activities. Management is not aware of any material pending legal proceedings against the Company which, if determined adversely, the Company believes would have a material adverse impact on the Company’s financial position, results of operations or cash flows.

Item 1.A Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Default Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.

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CONGAREE BANCSHARES, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 11, 2015	By:	/s/ Charles A. Kirby
		Charles A. Kirby
		President and Chief Executive Officer (Principal Executive Officer)

Date: August 11, 2015	By:	/s/ Charlie T. Lovering
		Charlie T. Lovering
		Chief Financial Officer and Executive Vice President (Principal Financial and Accounting Officer)

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CONGAREE BANCSHARES, INC. AND SUBSIDIARY

EXHIBIT INDEX

Exhibit Number		Description

31.1		Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2

Rule 13a-14(a) Certification of the Principal Financial Officer.

Section 1350 Certifications.

101

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in eXtensible Business Reporting Language (XBRL); (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

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Congaree Bancshares Inc - FORM 10-Q - August 11, 2015

Attached files

Congaree Bancshares Inc Reports