Loans

3 Months Ended

Mar. 31, 2013

Loans [Abstract]

LOANS

(5) LOANS

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2013 and December 31, 2012. At March 31, 2013 and December 31, 2012, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:

	March 31, 2013			March 31, 2013			December 31, 2012			December 31, 2012
	Amount			Percent			Amount			Percent
	(Dollars in thousands, except percentages)
Real estate loans:
One-to-four family (closed end) first mortgages	$	160,171			29.6	%	$	162,335			30.3	%
Second mortgages (closed end)		4,188			0.8	%		4,336			0.8	%
Home equity lines of credit		35,822			6.6	%		37,083			6.9	%
Multi-family		33,010			6.1	%		33,056			6.2	%
Construction		14,548			2.7	%		18,900			3.5	%
Land		42,280			7.8	%		45,906			8.6	%
Farmland		49,199			9.1	%		46,799			8.7	%
Non-residential real estate		133,018			24.6	%		122,637			22.9	%
Total mortgage loans		472,236			87.3	%		471,052			87.9	%
Consumer loans		13,115			2.4	%		13,886			2.6	%
Commercial loans		56,058			10.3	%		50,549			9.5	%
Total other loans		69,173			12.7	%		64,435			12.1	%
Total loans, gross		541,409			100.0	%		535,487			100.0	%
Deferred loan cost, net of income		98						146
Less allowance for loan losses		(10,579	)					(10,648	)
Total loans	$	530,928					$	524,985

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 March 31, 2013, and December 31, 2012, the Bank’s non-residential real estate loan portfolio was made up of the following loan types:

	March 31, 2013		December 31, 2012
	(Dollars in Thousands)
Land	$	42,280		45,906
Manufacturing		3,517		3,856
Professional, Technical		2,156		2,025
Retail Trade		12,095		12,391
Other Services		18,278		18,303
Finance & Insurance		1,860		386
Agricultural, Forestry, Fishing & Hunting		46,199		42,420
Real Estate and Rental and Leasing		44,434		48,249
Wholesale Trade		15,294		8,891
Arts, Entertainment & Recreation		2,889		3,461
Accomodations / Food Service		20,181		17,152
Healthcare and Social Assistance		6,834		7,932
Educational Services		—		—
Transportation & Warehousing		1,236		1,295
Information		2,707		2,488
Non-industry		4,107		46
Admin Support / Waste Mgmt		430		541
Total	$	224,497		215,342

The allowance for loan losses totaled $10.6 million at March 31, 2013, December 31, 2012, and March 31, 2012, respectively. The ratio of the allowance for loan losses to total loans was 1.95% at March 31, 2013, 1.98% at December 31, 2012, and 1.89% at March 31, 2012.

The following table indicates the type and level of non-accrual loans at the dates indicated below:

	March 31, 2013		December 31, 2012		March 31, 2012
	(Dollars in Thousands)
One-to-four family mortgages	$	1,883		2,243		2,294
Home equity line of credit		66		66		100
Junior lien		3		4		—
Multi-family		—		38		—
Construction		177		—		—
Land		2,754		2,768		5,042
Non-residential real estate		1,496		1,782		3,630
Consumer loans		65		145		18
Commercial loans		592		617		132
Total non-accrual loans	$	7,036		7,663		11,216

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2013:

								Specific			General
	Balance		Charge off			Recovery		Provision			Provision			Balance
	12/31/2012		2013			2013		2013			2013			3/31/2013
	(Dollars in Thousands)
One-to-four family mortgages	$	2,490		(206	)		3		324			537			3,148
Home equity line of credit		374		—			1		6			97			478
Junior liens		230		(38	)		23		(50	)		(47	)		118
Multi-family		524		—			—		—			(24	)		500
Construction		256		—			—		(65	)		(60	)		131
Land		2,184		—			2		(435	)		(297	)		1,454
Non-residential real estate		3,633		(123	)		14		(110	)		(465	)		2,949
Consumer loans		338		(130	)		33		204			46			491
Commercial loans		619		(26	)		2		271			444			1,310
Total	$	10,648		(523	)		78		145			231			10,579

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, 2012:

								Specific			General
	Balance		Charge off			Recovery		Provision			Provision			Balance
	12/31/2011		2012			2012		2012			2012			12/31/2012
	(Dollars in Thousands)
One-to-four family mortgages	$	2,640		(379	)		81		324			(176	)		2,490
Home equity line of credit		408		(67	)		6		6			21			374
Junior liens		277		(1	)		4		—			(50	)		230
Multi-family		1,201		(417	)		—		429			(689	)		524
Construction		139		—			—		117			—			256
Land		1,332		(1,033	)		405		635			845			2,184
Non-residential real estate		3,671		(1,120	)		137		1,033			(88	)		3,633
Consumer loans		262		(510	)		150		404			32			338
Commercial loans		1,332		(157	)		12		(171	)		(397	)		619
Total	$	11,262		(3,684	)		795		2,777			(502	)		10,648

The table below presents past due and non-accrual balances at March 31, 2013, by loan classification allocated between performing and non-performing:

March 31, 2013	Currently		30 -89 Days		Non-accrual		Special		Impaired Loans Currently Performing
	Performing		Past Due		Loans		Mention		Substandard		Doubful		Total
	(Dollars in Thousands)
One-to-four family mortgages	$	155,077		673		1,883		654		1,884		—		160,171
Home equity line of credit		34,934		—		66		—		822		—		35,822
Junior liens		3,674		14		3		45		452		—		4,188
Multi-family		30,911		233		—		—		1,866		—		33,010
Construction		10,436		—		177		—		3,935		—		14,548
Land		13,663		981		1,496		8,917		17,223		—		42,280
Non-residential real estate		169,840		191		2,754		1,843		7,589		—		182,217
Consumer loans		12,675		168		65		—		207		—		13,115
Commercial loans		51,924		151		592		471		2,920		—		56,058
Total	$	483,134		2,411		7,036		11,930		36,898		—		541,409

The table below presents past due and non-accrual balances at December 31, 2012, by loan classification allocated between performing and non-performing:

	Currently		30 - 89 Days		Non-accrual		Special		Impaired Loans Currently Performing
December 31, 2012	Performing		Past Due		Loans		Mention		Substandard		Doubful		Total
	(Dollars in Thousands)
One-to-four family mortgages	$	155,936		1,339		2,243		779		2,038		—		162,335
Home equity line of credit		34,732		5		66		1,109		1,171		—		37,083
Junior liens		3,584		237		4		47		464		—		4,336
Multi-family		27,463		—		38		1,478		4,077		—		33,056
Construction		13,876		176		—		—		4,848		—		18,900
Land for development		14,237		137		2,768		7,683		21,081		—		45,906
Non-residential real estate		146,150		293		1,782		1,899		19,312		—		169,436
Consumer loans		13,266		74		145		—		401		—		13,886
Commercial loans		43,961		230		617		516		5,225		—		50,549
Total	$	453,205		2,491		7,663		13,511		58,617		—		535,487

All loans listed as 30-89 days past due and non-accrual are not performing as agreed. Loans listed as special mentioned, 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 three month periods ended March 31, 2013, March 31, 2012, and the year ended December 31, 2012, was 0.33%, 1.08% and 0.52%, respectively. The ratios of allowance for loan losses to non-accrual loans at March 31, 2013, March 31, 2012, and December 31, 2012, were 150.35%, 94.59%, and 138.99% respectively.

The table below sets forth an analysis of the Bank’s allowance for loan losses for the periods presented:

	Three month period ended			Year ended			Three month period ended
	March 31, 2013			December 31, 2012			March 31, 2012
	(Dollars in Thousands, Except Percentages)
Beginning balance, allowance for loan loss	$	10,648			11,262			11,262
Charge offs
One-to-four family mortgages		(206	)		(379	)		(122	)
Home equity line of credit		—			(67	)		(53	)
Junior liens		(38	)		(1	)		—
Multi-family		—			(417	)		—
Construction		—			—			—
Land		—			(1,033	)		(579	)
Non-residential real estate		(123	)		(1,120	)		(779	)
Consumer loans		(130	)		(510	)		(108	)
Commercial loans		(26	)		(157	)		(76	)
Total charge offs		(523	)		(3,684	)		(1,717	)
Recoveries
One-to-four family mortgages		3			81			39
Home equity line of credit		1			6			1
Junior liens		23			4			1
Multi-family		—			—			—
Construction		—			—			—
Land		2			405			100
Non-residential real estate		14			137			—
Consumer loans		33			150			52
Commercial loans		2			12			2
Total recoveries		78			795			195
Net Charge offs		(445	)		(2,889	)		(1,522	)
Provision for loan losses		376			2,275			869
Ending balance	$	10,579			10,648			10,609
Average loan balance, gross	$	533,172			533,081			562,866
Ratio of net charge offs to average outstanding loans during the period		0.33	%		0.52	%		1.08	%

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 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 24, 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 March 31, 2013, December 31, 2012, and March 31, 2012, the Company’s impaired loans totaled $43.7 million, $66.6 million and $82.2 million, respectively. At March 31, 2013, December 31, 2012, and March 31, 2012, the Company’s specific reserve for impaired loans totaled $2.7 million, $3.8 million and $4.6 million, respectively.

A summary of the Company’s impaired loans, including their respective regulatory classification and their respective specific reserve at March 31, 2013, were as follows:

											Specific		Allowance
											Allowance		for
			Special		Impaired Loans						for		Performing
	Pass		Mention		Substandard		Doubful		Total		Impairment		Loans
	(Dollars in Thousands)
One-to-four family mortgages	$	155,940		654		3,545		32		160,171		791		2,357
Home equity line of credit		34,934		—		888		—		35,822		144		334
Junior liens		3,688		45		455		—		4,188		70		48
Multi-family		31,144		—		1,866		—		33,010		—		500
Construction		10,436		—		4,112		—		14,548		—		131
Land		14,644		8,917		18,719		—		42,280		946		508
Non-residential real estate		125,959		1,489		5,570		—		133,018		117		2,108
Farmland		44,072		354		4,773		—		49,199		18		706
Consumer loans		12,843		—		272		—		13,115		56		435
Commercial loans		52,154		471		3,433		—		56,058		522		788
Total	$	485,814		11,930		43,633		32		541,409		2,664		7,915

A summary of the Company’s impaired loans and their respective reserve at December 31, 2012, were as follows:

											Specific		Allowance
											Allowance		for
			Special		Impaired Loans						for		Performing
	Pass		Mention		Substandard		Doubful		Total		Impairment		Loans
	(Dollars in Thousands)
One-to-four family mortgages	$	156,961		779		4,595		—		162,335		754		1,736
Home equity line of credit		34,737		1,109		1,237		—		37,083		76		298
Junior liens		3,821		47		468		—		4,336		188		42
Multi-family		27,463		1,478		4,115		—		33,056		38		486
Construction		14,052		—		4,848		—		18,900		—		256
Land		14,374		7,683		23,849		—		45,906		932		1,252
Non-residential real estate		107,947		669		14,021		—		122,637		1,240		1,681
Farmland		38,496		1,230		7,073		—		46,799		184		528
Consumer loans		13,330		—		556		—		13,886		121		217
Commercial loans		44,191		516		5,842		—		50,549		308		311
Total	$	455,372		13,511		66,604		—		535,487		3,841		6,807

Impaired loans by classification type and the related valuation allowance amounts at March 31, 2013, were as follows:

							For the three month period ended
	At March 31, 2013						March 31, 2013
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(Dollars in thousands)
Impaired loans with no recorded reserve:
One-to-four family mortgages	$	1,239		1,239		—		1,239		8
Home equity line of credit		545		545		—		545		3
Junior liens		370		370		—		370		2
Multi-family		1,866		1,866		—		1,866		16
Construction		4,112		4,112		—		4,112		18
Land		15,148		15,148		—		15,148		181
Farmland		4,320		4,320				4,320		76
Non-residential real estate		5,390		5,390		—		5,390		27
Consumer loans		49		49		—		49		2
Commercial loans		2,517		2,517		—		2,517		51
Total	$	35,556		35,556		—		35,556		384

							For the three month period ended
	At March 31, 2013						March 31, 2013
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(Dollars in thousands)
Impaired loans with recorded reserve:
One-to-four family mortgages	$	2,338		2,338		792		2,338		10
Home equity line of credit		343		343		144		343		2
Junior liens		85		85		70		85		1
Multi-family		—		—		—		—		—
Construction		—		—		—		—		—
Land		3,571		3,571		945		3,571		12
Farmland		452		452		18		452		1
Non-residential real estate		181		181		117		181		2
Consumer loans		223		223		56		223		—
Commercial loans		916		916		522		916		6
Total	$	8,109		8,109		2,664		8,109		34
Total impaired loans	$	43,665		43,665		2,664		43,665		418

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2012, were as follows:

							For the year ended
	At December 31, 2012						12/31/12
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(Dollars in thousands)
Impaired loans with no recorded reserve:
One-to-four family mortgages	$	1,759		1,759		—		5,279		107
Home equity line of credit		1,169		1,169		—		869		50
Junior liens		—		—		—		281		3
Multi-family		4,077		4,077		—		3,626		219
Construction		4,848		4,848		—		3,133		174
Land		20,279		20,279		—		19,857		504
Farmland		5,701		5,701				5,701		202
Non-residential real estate		9,662		9,662		—		14,235		653
Consumer loans		81		81		—		66		5
Commercial loans		1,617		1,617		—		2,701		165
Total	$	49,193		49,193		—		55,748		2,082

							For the year ended
	At December 31, 2012						12/31/12
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(Dollars in thousands)
Impaired loans with recorded reserve:
One-to-four family mortgages	$	2,836		2,836		754		3,135		145
Home equity line of credit		68		68		76		162		3
Junior liens		468		468		188		365		38
Multi-family		38		38		38		2,640		4
Construction		—		—		—		1,095		—
Land		3,570		3,570		932		4,848		213
Farmland		1,372		1,372		184		1,372		92
Non-residential real estate		4,359		4,359		1,240		5,206		231
Consumer loans		475		475		121		281		1
Commercial loans		4,225		4,225		308		4,470		28
Total	$	17,411		17,411		3,841		23,574		755
Total impaired loans	$	66,604		66,604		3,841		79,322		2,837

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 March 31, 2013 and December 31, 2012, is below:

	March 31, 2013			December 31, 2012
	(Dollars in Thousands)
TDR by Loan Type:
One-to-four family mortgages	$	70			1,888
Home equity line of credit		—			—
Junior lien		86			196
Multi-family		—			234
Construction		4,112			4,112
Land		2,754			3,424
Non-residential real estate		368			3,173
Farmland		—			909
Consumer loans		4			5
Commercial loans		232			128
Total TDR		7,626			14,069
Less:
TDR in non-accrual status
One-to-four family mortgages		(45	)		—
Home equity line of credit		—			(100	)
Junior lien		—			—
Multi-family		—			—
Construction		—			—
Land		(2,754	)		(2,768	)
Non-residential real estate		—			(44	)
Farmland		—			—
Consumer loans		—			—
Commercial loans		(128	)		(119	)
Total performing TDR	$	4,699			11,038