Loans

6 Months Ended

Jun. 30, 2012

Loans [Abstract]

Loans

(5) LOANS

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at June 30, 2012 and December 31, 2011. At June 30, 2012 and December 31, 2011, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:

	June 30, 2012		June 30, 2012			December 31, 2011		December 31, 2011
	Amount		Percent			Amount		Percent
	(Dollars in Thousands)
Real estate loans:
One-to-four family (closed end) first mortgages	$	167,617		30.5	%	$	171,192		30.2	%
Second mortgages (closed end)		5,562		1.0	%		6,209		1.1	%
Home equity lines of credit		38,185		6.9	%		38,694		6.8	%
Multi-family		32,605		5.9	%		33,739		5.9	%
Construction		15,272		2.8	%		11,931		2.1	%
Land for development		49,903		9.1	%		52,338		9.2	%
Farmland		37,655		6.8	%		34,841		6.1	%
Non-residential real estate		133,877		24.3	%		148,644		26.2	%
Total mortgage loans		480,676		87.3	%		497,588		87.6	%
Consumer loans		14,404		2.6	%		15,110		2.7	%
Commercial loans		55,608		10.1	%		54,673		9.7	%
Total other loans		70,012		12.7	%		69,783		12.4	%
Total loans, gross		550,688		100.0	%		567,371		100.0	%
Deferred loan cost, net of income		183					251
Less allowance for loan losses		10,568					11,262
Total loans	$	540,303				$	556,360

The Bank assigns an industry standard NAICS code to each loan in the Bank’s portfolio. By assigning a standard code to each type of loan, management can more readily determine concentrations in risk by industry, location and loan type. This information is most useful when analyzing the Bank’s non-residential real estate loan portfolio. At June 30, 2012, and December 31, 2011, the Bank’s non-residential real estate, land for development and farmland loan portfolio was made up of the following loan types:

	Balance June 30, 2012		Balance December 31, 2011
	(Dollars in Thousands)
Land & development	$	49,903		52,338
Construction		5,432		6,151
Manufacturing		3,945		4,172
Professional and Technical		2,113		2,300
Retail Trade		11,115		12,019
Other Services		18,643		17,767
Finance & Insurance		81		141
Agricultural, Forestry, Fishing & Hunting		37,750		33,473
Real Estate and Rental and Leasing		47,488		50,770
Wholesale Trade		5,867		6,235
Arts, Entertainment & Recreation		3,600		5,309
Accomodations / Food Service		23,397		25,255
Healthcare and Social Assistance		3,942		10,140
Educational Services		26		30
Transportation & Warehousing		1,511		1,638
Information		2,491		2,646
Non-industry		3,103		3,219
Admin Support / Waste Mgmt		1,028		2,220
Total	$	221,435		235,823

The allowance for loan losses totaled $10.6 million at June 30, 2012, $11.3 million at December 31, 2011, and $13.7 million at June 30, 2011. The ratio of the allowance for loan losses to total loans was 1.92% at June 30, 2012, 1.98% at December 31, 2011, and 2.34% at June 30, 2011. The following table indicates the type and level of non-accrual loans at the periods indicated below:

	June 30, 2012		December 31, 2011		June 30, 2011
	(Dollars in Thousands)
One-to-four family mortgages	$	2,577		2,074		2,178
Home equity line of credit		91		134		190
Junior lien		107		101		—
Multi-family		190		—		300
Construction		—		—		1,483
Land		4,290		1,330		851
Non-residential real estate		4,000		2,231		626
Farmland		727		—		—
Consumer loans		16		9		114
Commercial loans		121		254		347
Total non-accrual loans	$	12,119		6,133		6,089

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the year ended June 30, 2012:

Six month period ended June 30, 2012	Balance 12/31/2011		Charge off 2012			Recovery 2012		General Provision 2012			Specific Provision 2012			Ending Balance Period Ending 06/30/12
	(Table in Thousands)
One-to-four family mortgages	$	2,640		(264	)		43		70			(174	)		2,315
Home equity line of credit		408		(53	)		3		(43	)		71			386
Junior liens		277		(1	)		2		(181	)		(50	)		47
Multi-family		1,201		(416	)		—		1,057			(681	)		1,161
Construction		139		—			—		(14	)		13			138
Land		1,332		(779	)		234		846			434			2,067
Non-residential real estate		3,671		(579	)		100		58			204			3,454
Consumer loans		262		(130	)		79		103			52			366
Commercial loans		1,332		(206	)		4		(281	)		(215	)		634
	$	11,262		(2,428	)		465		1,615			(346	)		10,568

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the year ended December 31, 2011:

Year Ended December 31, 2011	Balance 12/31/2010		Charge off 2011			Recovery 2011		General Provision 2011			Specific Provision 2011			Ending Balance Year Ending 12/31/2011
	(Table in Thousands)
One-to-four family mortgages	$	1,097		(758	)		139		1,687			475			2,640
Home equity line of credit		212		(123	)		—		245			74			408
Junior liens		146		(27	)		1		79			78			277
Multi-family		2,022		(89	)		—		26			(758	)		1,201
Construction		657		(353	)		—		(91	)		(74	)		139
Land		865		(308	)		30		353			392			1,332
Non-residential real estate		4,025		(2,645	)		84		1,114			1,093			3,671
Consumer loans		108		(371	)		112		425			(12	)		262
Commercial loans		698		(201	)		20		305			510			1,332
	$	9,830		(4,875	)		386		4,143			1,778			11,262

The Company’s general provisions represent the current four quarter loss history of the Company by loan type. The loss history is weighted to place more emphasis on the most recent quarterly result and may be further adjusted for any adverse trends in the local or national markets. A negative general provision indicates that the Company’s recent loss history has improved over prior periods and that lower amounts of general provisions are necessary.

The table below presents past due and non-accrual balances at June 30, 2012, by loan classification allocated between performing and non-performing:

	Currently		30 - 89 Days		Non-accrual		Special		Impaired Loans Currently  Performing
June 30, 2012	Performing		Past Due		Loans		Mention		Substandard		Doubful		Total
	(Dollars in Thousands)
One-to-four family mortgages	$	155,776		887		2,577		2,251		6,126		—		167,617
Home equity line of credit		35,550		21		91		1,542		981		—		38,185
Junior liens		4,623		30		107		424		378		—		5,562
Multi-family		19,560		50		190		4,719		8,086		—		32,605
Construction		11,298		—		—		—		3,974		—		15,272
Land		13,714		22		4,290		7,742		24,135		—		49,903
Non-residential real estate		137,337		57		4,727		2,895		26,516		—		171,532
Consumer loans		14,102		49		16		28		209		—		14,404
Commercial loans		46,266		196		121		2,183		6,842		—		55,608
	$	438,226		1,312		12,119		21,784		77,247		—		550,688

All loans listed as 30-89 days past due and non-accrual are not performing as agreed. Loans listed as special mention, substandard and doubtful are paying as agreed. However, the customer’s financial statements may indicate weaknesses in their current cash flow, the customer’s industry may be in decline due to current economic conditions, collateral values used to secure the loan may be declining, or the Company may be concerned about the customer’s future business prospects.

The Bank does not originate loans it considers sub-prime and is not aware of any exposure to the additional credit concerns associated with sub-prime lending in either the Company’s loan or investment portfolios. The Company does have a significant amount of construction and land development loans. Management reports to the Company’s Board of Directors on the status of the Company’s specific construction and development loans as well as the market trends in those markets in which the Company actively participates.

The Company’s annualized net charge off ratios for the month periods ended June 30, 2012, June 30, 2011, and the year ended December 31, 2011, were 0.71%, 0.38% and 0.71%, respectively. The ratios of allowance for loan losses to non-accrual loans at June 30, 2012, June 30, 2011, and December 31, 2011, were 87.23%, 330.63%, and 183.62% respectively. The following table sets forth an analysis of the Bank’s allowance for loan losses for the periods ended:

	June 30, 2012			December 31, 2011			June 30, 2011
	(Dollars in Thousands, Except Percentages)
Beginning balance, allowance for loan loss	$	11,262			9,830			9,830
Charge offs
One-to-four family mortgages		(264	)		(758	)		(384	)
Home equity line of credit		(53	)		(123	)		—
Junior liens		(1	)		(27	)		—
Multi-family		(416	)		(89	)		(89	)
Construction		—			(353	)		(353	)
Land		(779	)		(308	)		(198	)
Non-residential real estate		(579	)		(2,645	)		(113	)
Consumer loans		(130	)		(371	)		(211	)
Commercial loans		(206	)		(201	)		(33	)
Total charge offs		(2,428	)		(4,875	)		(1,381	)
Recoveries
One-to-four family mortgages		43			139			89
Home equity line of credit		3			—			—
Junior liens		2			1			1
Multi-family		—			—			—
Construction		—			—			—
Land		234			30			—
Non-residential real estate		100			84			84
Consumer loans		79			112			61
Commercial loans		4			20			1
Total recoveries		465			386			236
Net Charge offs		(1,963	)		(4,489	)		(1,145	)
Provision for loan losses		1,269			5,921			4,970
Ending balance	$	10,568			11,262			13,655
Average loan balance, gross	$	550,871			638,378			597,519
Ratio of net charge offs to average outstanding loans during the period		0.71	%		0.71	%		0.38	%

The determination of the allowance for loan losses is based on management’s analysis, performed on a quarterly basis. Various factors are considered, including the market value of the underlying collateral, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, historical loss experience, delinquency trends and prevailing economic conditions. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred.

The Company conducts annual reviews on all loan relationships above $1.0 million to ascertain the borrowers continued ability to service their debt as agreed. In addition to the credit relationships mentioned above, management may classify any credit relationship once it becomes aware of adverse credit trends for that customer. Typically, the annual review consists of updated financial statements for borrowers and any guarantors, a review of the borrower’s credit history with the Company and other creditors, and current income tax information.

As a result of this review, management will classify loans based on their credit risk. Additionally, the Company provides a risk grade for all loans past due more than sixty days. The Company uses the following risk definitions for risk grades:

Satisfactory loans of average strength having some deficiency or vulnerability to changing economic or industry conditions. These customers should have reasonable amount of capital and operating ratios. Secured loans may lack in margin or liquidity. Loans to individuals, perhaps supported in dollars of net worth, but with supporting assets may be difficult to liquidate.

Watch loans are acceptable credits: (1) that need continual monitoring, such as out-of territory or asset-based loans (since the Bank does not have an asset-based lending department), or (2) with a marginal risk level to business concerns and individuals that; (a) have exhibited favorable performance in the past, though currently experiencing negative trends; (b) are in an industry that is experiencing volatility or is declining, and their performance is less than industry norms; and (c) are experiencing unfavorable trends in their financial position, such as one-time net losses or declines in asset values. These marginal borrowers may have early warning signs of problems such as occasional overdrafts and minor delinquency. If considered marginal, a loan would be a “watch” until financial data demonstrated improved performance or further deterioration to a “substandard” grade usually within a 12-month period. In the table on page 23, Watch loans are included with satisfactory loans and classified as Pass.

Other Loans Especially Mentioned are currently protected but are potentially weak. These loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan. These credit weaknesses, if not checked or corrected, will weaken the loan or inadequately protect the Bank’s credit position at some future date.

A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the credit. Examples of substandard loans include those to borrowers with insufficient or negative cash flow, negative net worth coupled with inadequate guarantor support, inadequate working capital, and/or significantly past-due loans and overdrafts.

A loan classified Doubtful has all the weaknesses inherent in a substandard credit except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. The possibility of loss is extremely high, but because of certain pending factors charge-off is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. The doubtful classification is applied to that portion of the credit in which the full collection of principal and interest is questionable.

A loan is considered to be impaired when management determines that it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments using the fair value of the collateral if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired. At June 30, 2012, December 31, 2011, and June 30, 2011, the Company’s impaired loans totaled $90.4 million, $49.3 million and $63.2 million, respectively. At June 30, 2012, December 31, 2011, and June 30, 2011, the Company’s specific reserve for impaired loans totaled $3.7 million, $4.1 million and $7.2 million, respectively.

A summary of the Company’s impaired loans, including their respective regulatory classification and their respective specific reserve at June 30, 2012, were as follows:

June 30, 2012	Pass		Special Mention		Impaired Loans				Total		Specific Reserve for Impairment		Reserve for Performing Loans
					Substandard		Doubful
					(Dollars in Thousands)
One-to-four family mortgages	$	156,113		2,251		9,253		—		167,617		698		1,617
Home equity line of credit		35,480		1,542		1,072		91		38,185		37		349
Junior liens		4,624		453		485		—		5,562		—		47
Multi-family		19,610		4,719		8,276		—		32,605		666		495
Construction		11,298		—		3,974		—		15,272		—		138
Land		13,714		7,764		28,425		—		49,903		1,205		862
Non-residential real estate		137,110		2,895		31,321		206		171,532		853		2,601
Consumer loans		14,151		28		225		—		14,404		57		309
Commercial loans		46,262		2,306		7,040		—		55,608		215		419
Total	$	438,362		21,958		90,071		297		550,688		3,731		6,837

A summary of the Company’s impaired loans, including respective regulatory classification and their respective specific reserve at December 31, 2011, is as follows:

December 31, 2011	Pass		Special Mention		Impaired Loans				Total		Specific Reserve for Impairment		Allowance for Performing Loans
					Substandard		Doubful
					(Dollars in Thousands)
One-to-four family mortgages	$	153,375		9,434		8,153		230		171,192		728		1,912
Home equity line of credit		36,528		1,694		233		239		38,694		131		277
Junior liens		4,778		622		809		—		6,209		180		97
Multi-family		20,715		7,073		5,951		—		33,739		26		1,175
Construction		9,943		213		1,775		—		11,931		14		125
Land		17,570		24,714		9,055		999		52,338		924		408
Non-residential real estate		142,190		25,077		16,101		117		183,485		1,374		2,297
Consumer loans		14,399		268		423		20		15,110		80		182
Commercial loans		45,509		4,009		5,034		121		54,673		623		709
Total	$	445,007		73,104		47,534		1,726		567,371		4,080		7,182

Impaired loans by classification type and the related valuation allowance amounts at June 30, 2012, were as follows:

							For the six month period ended
	At June 30, 2012						June 30, 2012
Impaired loans with no recorded allowance:	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
One-to-four family mortgages	$	6,081		6,108		—		7,498		170
Home equity line of credit		1,112		1,112		—		692		24
Junior liens		485		485		—		324		22
Multi-family		3,222		3,222		—		3,578		101
Construction		3,974		3,974		—		3,843		49
Land		23,432		24,773		—		21,093		578
Non-residential real estate		25,950		28,220		—		20,708		970
Consumer loans		4		4		—		35		1
Commercial loans		4,840		4,336		—		3,121		167
Total	$	69,100		72,234		—		60,892		2,082

							For the six month period ended
	At June 30, 2012						June 30, 2012
Impaired loans with recorded allowance:	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
One-to-four family mortgages	$	3,172		3,172		698		3,462		84
Home equity line of credit		51		51		37		126		1
Junior liens		—		—		—		444		0
Multi-family		5,054		5,054		666		3,521		165
Construction		—		—		—		146		—
Land		4,993		4,993		1,205		6,105		127
Non-residential real estate		5,577		5,577		853		7,414		186
Consumer loans		221		221		57		130		—
Commercial loans		2,200		2,200		215		3,788		33
Total	$	21,268		21,268		3,731		25,136		596
Total impaired loans	$	90,368		93,502		3,731		86,028		2,678

On a periodic basis, the Bank may modify the terms of certain loans. In evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), Financial Accounting Standards Board has issued Accounting Standards Update 310 (ASU 310), A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. In evaluating whether a restructuring constitutes a TDR, the Bank must separately conclude that both of the following exist:

• The restructuring constitutes a concession

• The debtor is experiencing financial difficulties

ASU 310 provides the following guidance for the Bank’s evaluation of whether it has granted a concession as follows:

• If a debtor does not otherwise have access to funds at a market interest rate for debt with similar risk characteristics as the restructured debt, the restructured debt would be considered a below market rate, which may indicate that the Bank may have granted a concession. In that circumstance, the Bank should consider all aspects of the restructuring in determining whether it has granted a concession, the creditor must make a separate assessment about whether the debtor is experiencing financial difficulties to determine whether the restructuring constitutes a TDR.

• A temporary or permanent increase in the interest rate on a loan as a result of a restructuring does not eliminate the possibility of the restructuring from being considered a concession if the new interest rate on the loan is below the market interest rate for loans of similar risk characteristics.

• A restructuring that results in a delay in payment that is insignificant is not a concession. However, the Bank must consider a variety of factors in assessing whether a restructuring resulting in a delay in payment is insignificant.

A summary of the Company’s loans classified as Troubled Debt Restructurings (TDR’s) that are reported as performing at June 30, 2012 and December 31, 2011, is below:

	June 30, 2012			December 31, 2011
TDR by Loan Type:	(Dollars in Thousands)
One-to-four family mortgages	$	2,084			2,521
Home equity line of credit		207			—
Junior lien		—			857
Multi-family		238			—
Construction		—			—
Land		7,175			941
Non-residential real estate		3,214			3,367
Farmland		956			—
Consumer loans		10			33
Commercial loans		381			125
Total TDR		14,265			7,844
Less:
TDR in non-accrual status
One-to-four family mortgages		(1,578	)		(1,410	)
Home equity line of credit		—			—
Junior lien		—			(100	)
Multi-family		—			—
Construction		—			—
Land		(2,325	)		—
Non-residential real estate		(690	)		(1	)
Consumer loans		—			(1	)
Commercial loans		0			(105	)
Total performing TDR	$	9,672			6,227