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Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2011
Allowance for Loan Losses  
Allowance for Loan Losses

5.  Allowance for Loan Losses

 

The Company’s Allowance for Loan Losses (“ALLL”) covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated credit losses inherent in the remainder of the loan portfolio.  The ALLL is prepared using the information provided by the Company’s credit and investment review process along with data from peer institutions and economic information gathered from published sources.

 

The loan portfolio is segmented into groups of loans with similar risk characteristics.   Each segment possesses varying degrees of risk based on, among other things, the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions.  An estimated loss rate calculated using the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

 

The following provides a summary of the ALLL calculation for the major segments within the Company’s loan portfolio.

 

Multi-Family, Non-Owner Occupied Commercial Real Estate, Land and Construction Loans

 

The Company’s base ALLL factor for multi-family and non-owner occupied commercial real estate loans is determined by management using the Bank’s actual trailing thirty-six month, trailing twenty-four month, trailing twelve month and annualized trailing six month charge-off data.  Adjustments to those base factors are made for relevant internal and external factors.  For multi-family and non-owner occupied commercial real estate loans, those factors include:

 

·      Changes in national, regional and local economic conditions, including trends in real estate values and the interest rate environment,

 

·      Changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, and

 

·      The existence and effect of concentrations of credit, and changes in the level of such concentrations.

 

The resulting total ALLL factor is compared for reasonableness against the 10-year average, 15-year average, and trailing twelve month total charge-off data for all FDIC insured commercial banks and savings institutions based in California.  This factor is applied to balances graded pass-1 through pass-5.  For loans risk graded as watch or worse, progressively higher potential loss factors are applied based on management’s judgment, taking into consideration the specific characteristics of the Bank’s portfolio and analysis of results from a select group of the Company’s peers.

 

Owner Occupied Commercial Real Estate Loans, Commercial Business Loans and SBA Loans

 

The Company’s base ALLL factor for owner occupied commercial real estate loans, commercial business loans and SBA loans is determined by management using the Bank’s actual trailing thirty-six month, trailing twenty-four month, trailing twelve month and annualized trailing six month charge-off data.  Adjustments to those base factors are made for relevant internal and external factors.  For owner occupied commercial real estate loans, commercial business loans and SBA loans, those factors include:

 

·      Changes in national, regional and local economic conditions, including trends in real estate values and the interest rate environment,

 

·      Changes in the nature and volume of the loan portfolio, including new types of lending,

 

·      Changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, and

 

·      The existence and effect of concentrations of credit, and changes in the level of such concentrations.

 

The resulting total ALLL factor is compared for reasonableness against the 10-year average, 15-year average, and trailing twelve month total charge-off data for all FDIC insured commercial banks and savings institutions based in California.  This factor is applied to balances graded pass-1 through pass-5.  For loans risk graded as watch or worse, progressively higher potential loss factors are applied based on management’s judgment, taking into consideration the specific characteristics of the Bank’s portfolio and analysis of results from a select group of the Company’s peers.

 

Single Family and Consumer Loans and Warehouse Repurchase Facilities

 

The Company’s base ALLL factor for single family and consumer loans and warehouse repurchase facilities is determined by management using the Bank’s actual trailing thirty-six month, trailing twenty-four month, trailing twelve month and annualized trailing six month charge-off data.  Adjustments to those base factors are made for relevant internal and external factors.  For single family and consumer loans and warehouse repurchase facilities, those factors include:

 

·      Changes in national, regional and local economic conditions, including trends in real estate values and the interest rate environment.

 

The resulting total ALLL factor is compared for reasonableness against the 10-year average, 15-year average, and trailing twelve month total charge-off data for all FDIC insured commercial banks and savings institutions based in California.  This factor is applied to balances graded pass-1 through pass-5.  For loans risk graded as watch or worse, progressively higher potential loss factors are applied based on management’s judgment, taking into consideration the specific characteristics of the Bank’s portfolio and analysis of results from a select group of the Company’s peers.

 

The following tables summarize the allocation of the allowance as well as the activity in the allowance attributed to various segments in the loan portfolio as of and for the periods indicated:

 

 

 

Multi-family

 

Commercial
non-owner
occupied

 

One-to
four family

 

Land

 

Commercial
owner
occupied

 

Commercial
and
industrial

 

Warehouse

 

SBA

 

Other
loans

 

Total

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2010

 

$

2,729

 

$

1,580

 

$

332

 

$

—

 

$

1,687

 

$

2,018

 

$

338

 

$

145

 

$

50

 

$

8,879

 

Charge-offs

 

(489

)

(43

)

(1,408

)

(164

)

(307

)

(1,285

)

—

 

(90

)

(228

)

(4,014

)

Recoveries

 

—

 

—

 

142

 

23

 

—

 

9

 

—

 

211

 

17

 

402

 

Provisions for (reduction in) loan losses

 

41

 

(250

)

1,865

 

180

 

(261

)

619

 

1,009

 

(186

)

238

 

3,255

 

Balance, December 31, 2011

 

$

2,281

 

$

1,287

 

$

931

 

$

39

 

$

1,119

 

$

1,361

 

$

1,347

 

$

80

 

$

77

 

$

8,522

 

Amount of allowance attributed to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specifically evaluated impaired loans

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

General portfolio allocation

 

2,281

 

1,287

 

931

 

39

 

1,119

 

1,361

 

1,347

 

80

 

77

 

8,522

 

Loans individually evaluated for impairment

 

1,423

 

1,495

 

521

 

—

 

1,641

 

1,138

 

—

 

773

 

—

 

6,991

 

Specific reserves to total loans individually evaluated for impairment

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Loans collectively evaluated for impairment

 

$

192,407

 

$

162,846

 

$

59,506

 

$

6,438

 

$

150,658

 

$

85,546

 

$

67,518

 

$

3,954

 

$

3,390

 

$

732,263

 

General reserves to total loans collectively evaluated for impairment

 

1.19

%

0.79

%

1.56

%

0.61

%

0.74

%

1.59

%

2.00

%

2.02

%

2.27

%

1.16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gross loans

 

$

193,830

 

$

164,341

 

$

60,027

 

$

6,438

 

$

152,299

 

$

86,684

 

$

67,518

 

$

4,727

 

$

3,390

 

$

739,254

 

Total allowance to gross loans

 

1.18

%

0.78

%

1.55

%

0.61

%

0.73

%

1.57

%

2.00

%

1.69

%

2.27

%

1.15

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

Commercial
non-owner
occupied

 

One-to
four family

 

Land

 

Commercial
owner
occupied

 

Commercial
and
industrial

 

Warehouse

 

SBA

 

Other
loans

 

Total

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2009

 

$

3,386

 

$

1,602

 

$

272

 

$

—

 

$

907

 

$

2,410

 

$

—

 

$

326

 

$

2

 

$

8,905

 

Charge-offs

 

(334

)

(512

)

(123

)

—

 

(264

)

(708

)

—

 

(398

)

—

 

(2,339

)

Recoveries

 

—

 

—

 

40

 

—

 

—

 

13

 

—

 

154

 

14

 

221

 

Provisions for (reduction in) loan losses

 

(323

)

490

 

143

 

—

 

1,044

 

303

 

338

 

63

 

34

 

2,092

 

Balance, December 31, 2010

 

$

2,729

 

$

1,580

 

$

332

 

$

—

 

$

1,687

 

$

2,018

 

$

338

 

$

145

 

$

50

 

$

8,879

 

Amount of allowance attributed to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specifically evaluated impaired loans

 

$

—

 

$

47

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

47

 

General portfolio allocation

 

$

2,729

 

$

1,533

 

$

332

 

$

—

 

$

1,687

 

$

2,018

 

$

338

 

$

145

 

$

50

 

$

8,832

 

Loans individually evaluated for impairment

 

$

1,156

 

$

2,068

 

$

223

 

$

—

 

$

2,225

 

$

54

 

$

—

 

$

1,092

 

$

—

 

$

6,818

 

Specific reserves to total loans individually evaluated for impairment

 

0.00

%

2.27

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.69

%

Loans collectively evaluated for impairment

 

$

242,428

 

$

128,457

 

$

20,095

 

$

—

 

$

110,800

 

$

42,023

 

$

12,610

 

$

2,996

 

$

1,417

 

$

560,826

 

General reserves to total loans collectively evaluated for impairment

 

1.13

%

1.19

%

1.65

%

0.00

%

1.52

%

4.80

%

2.68

%

4.84

%

3.53

%

1.57

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gross loans

 

$

243,584

 

$

130,525

 

$

20,318

 

$

—

 

$

113,025

 

$

42,077

 

$

12,610

 

$

4,088

 

$

1,417

 

$

567,644

 

Total allowance to gross loans

 

1.12

%

1.21

%

1.63

%

0.00

%

1.49

%

4.80

%

2.68

%

3.55

%

3.53

%

1.56

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

Commercial
non-owner
occupied

 

One-to-
four family

 

Land

 

Commercial
owner
occupied

 

Commercial
and
industrial

 

Warehouse

 

SBA

 

Other
loans

 

Total

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2008

 

$

1,958

 

$

1,373

 

$

231

 

$

—

 

$

935

 

$

1,123

 

$

—

 

$

177

 

$

84

 

$

5,881

 

Charge-offs

 

(1,527

)

(317

)

(125

)

—

 

(59

)

(1,409

)

—

 

(906

)

(468

)

(4,811

)

Recoveries

 

—

 

—

 

26

 

—

 

—

 

4

 

—

 

31

 

39

 

100

 

Provisions for (reduction in) loan losses

 

2,955

 

546

 

140

 

—

 

31

 

2,692

 

—

 

1,024

 

347

 

7,735

 

Balance, December 31, 2009

 

$

3,386

 

$

1,602

 

$

272

 

$

—

 

$

907

 

$

2,410

 

$

—

 

$

326

 

$

2

 

$

8,905

 

Amount of allowance attributed to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specifically evaluated impaired loans

 

$

—

 

$

103

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

76

 

$

—

 

$

179

 

General portfolio allocation

 

$

3,386

 

$

1,499

 

$

272

 

$

—

 

$

907

 

$

2,410

 

$

—

 

$

250

 

$

2

 

$

8,726

 

Loans individually evaluated for impairment

 

$

3,253

 

$

3,486

 

$

300

 

$

—

 

$

996

 

$

955

 

$

—

 

$

696

 

$

—

 

$

9,686

 

Specific reserves to total loans individually evaluated for impairment

 

0.00

%

2.95

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

10.92

%

0.00

%

1.85

%

Loans collectively evaluated for impairment

 

$

275,491

 

$

146,091

 

$

8,191

 

$

—

 

$

102,023

 

$

30,154

 

$

—

 

$

2,641

 

$

1,991

 

$

566,582

 

General reserves to total loans collectively evaluated for impairment

 

1.23

%

1.03

%

3.32

%

0.00

%

0.89

%

7.99

%

0.00

%

9.47

%

0.10

%

1.54

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gross loans

 

$

278,744

 

$

149,577

 

$

8,491

 

$

—

 

$

103,019

 

$

31,109

 

$

—

 

$

3,337

 

$

1,991

 

$

576,268

 

Total allowance to gross loans

 

1.21

%

1.07

%

3.20

%

0.00

%

0.88

%

7.75

%

0.00

%

9.77

%

0.10

%

1.55

%