Note 8 - Allowance for Loan Losses

6 Months Ended

Jun. 30, 2012

Allowance for Credit Losses [Text Block]

Note 8 - Allowance for Loan Losses

The Company has established a systematic methodology for determining the allowance for loan losses. This methodology is set forth in a formal policy and considers all non-covered loans in the portfolio. The two primary components of the Company’s loan loss methodology are as follows:

Quantitative Reserve Component. Quantitative reserves represent the current loss contingency estimate on pools of loans, which is an estimate of the amount for which it is probable that the Company will be unable to collect all amounts due on homogeneous groups of loans according to contractual terms should one or more events occur, excluding those loans specifically identified above. This component of the allowance for loan losses is based on the historical loss experience of the Company. This loss experience was collected by evaluating internal loss data. The historical loss rates are grouped by loan product type. The Company utilizes average historical losses over the prior eight quarters in evaluating this component for all loan types.

Qualitative Reserve Component. Qualitative reserves represent an estimate of the amount for which it is probable that environmental or other relevant factors will cause the loss contingency estimate to differ from the Company’s historical loss experience or other assumptions. The Company considers portfolio trends; portfolio concentrations; economic and market trends; changes in lending practices; and other factors to evaluate the need for qualitative adjustments.

A reconciliation of the allowance for loan losses for the three and six month periods ended June 30, 2012 and 2011 is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands)

Balance - Beginning of period	$	11,583		$	12,006		$	11,713		$	11,924
Charge-offs:
One-to-four family residential		(518	)		(312	)		(1,417	)		(1,137	)
Construction		-			(5	)		-			(41	)
Commercial land		(101	)		(291	)		(191	)		(2,244	)
Residential development		(313	)		(386	)		(2,805	)		(386	)
Other commercial real estate		(938	)		(256	)		(2,319	)		(256	)
Consumer real estate		(774	)		(35	)		(2,504	)		(91	)
Commercial business		(227	)		(35	)		(227	)		(188	)
Other consumer		(22	)		(5	)		(33	)		(18	)
Total charge-offs		(2,893	)		(1,325	)		(9,496	)		(4,361	)
Recoveries:
One-to-four family residential		35			4			68			7
Multifamily residential		4			-			4			-
Construction		2			181			-			231
Commercial land		119			-			119			-
Residential development		32			128			89			128
Other commercial real estate		235			30			314			14
Consumer real estate		59			2			61			9
Commercial business		1			10			3			13
Other consumer		3			6			5			77
Total recoveries		490			361			663			479
Provision for loan losses		2,555			1,700			8,855			4,700
Balance - End of period	$	11,735		$	12,742		$	11,735		$	12,742

Loans totaling $128.9 million that were covered under the FDIC loss-share agreements were not included in the Company’s evaluation of the adequacy of loan loss allowances since potential losses are covered up to at least 80% by the FDIC. These covered loans were recorded at their estimated fair value at the time of the acquisition. Management evaluates the adequacy of the fair value of these acquired loans on a periodic basis to ensure that the existing values remain reasonable. If the fair value of these loans is not considered adequate, then the principal balance of the loan is written down to the current fair value through a charge to the provision for loan losses on acquired loans. The Company recognized loan loss provision expense on acquired loans in the amount of $505,000 for the six months ended June 30, 2012. There was no such provision expense recognized during the six month period ended June 30, 2011.

The following table presents a disaggregated analysis of the activity in the allowance for loan losses and loan balances for non-covered loans for the three months ended June 30, 2012 and June 30, 2011.

	One-to-four family residential			Multifamily residential		Construction			Commercial land			Residential development			Other commercial real estate			Consumer real estate			Commercial business			Other consumer			Total
	(Dollars in thousands)
June 30, 2012
Allowance for loan losses
Balance - April 1, 2012	$	534		$	150	$	650		$	2,344		$	2,064		$	1,927		$	1,372		$	2,002		$	540		$	11,583
Charge-offs		(475	)		-		-			-			(232	)		(688	)		(759	)		(217	)		(11	)		(2,382	)
Recoveries		35			-		2			119			32			235			57			1			3			484
Provision		450			-		-			-			150			500			650			250			50			2,050
Balance - June 30, 2012	$	544		$	150	$	652		$	2,463		$	2,014		$	1,974		$	1,320		$	2,036		$	582		$	11,735

Loans individually evaluated for impairment	$	-		$	-	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Loans collectively evaluated for impairment	$	544		$	150	$	652		$	2,463		$	2,014		$	1,974		$	1,320		$	2,036		$	582		$	11,735

Loans
Loans individually evaluated for impairment	$	4,488		$	-	$	-		$	3,194		$	3,472		$	14,401		$	1,047		$	945		$	18		$	27,565
Loans collectively evaluated for impairment		109,833			17,074		27,114			19,691			6,596			233,874			98,115			42,690			4,946			559,933
Total non-covered loans	$	114,321		$	17,074	$	27,114		$	22,885		$	10,068		$	248,275		$	99,162		$	43,635		$	4,964		$	587,498



June 30, 2011
Allowance for loan losses
Balance - April 1, 2011	$	528		$	200	$	1,014		$	2,014		$	1,996		$	1,645		$	1,551		$	2,500		$	558		$	12,006
Charge-offs		(312	)		-		(5	)		(291	)		(386	)		(256	)		(35	)		(35	)		(5	)		(1,325	)
Recoveries		4			-		181			-			128			30			2			10			6			361
Provision		300			-		-			500			300			500			50			50			-			1,700
Balance - June 30, 2011	$	520		$	200	$	1,190		$	2,223		$	2,038		$	1,919		$	1,568		$	2,525		$	559		$	12,742

Loans individually evaluated for impairment	$	-		$	-	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Loans collectively evaluated for impairment		520			200		1,190			2,223			2,038			1,919			1,568			2,525			559			12,742
Total	$	520		$	200	$	1,190		$	2,223		$	2,038		$	1,919		$	1,568		$	2,525		$	559		$	12,742

December 31, 2011
Loans
Loans individually evaluated for impairment	$	2,739		$	-	$	-		$	2,826		$	8,262		$	12,657		$	2,630		$	169		$	89		$	29,372
Loans collectively evaluated for impairment		114,120			16,759		19,602			25,296			8,182			213,326			100,891			40,992			5,560			544,728
Total non-covered loans	$	116,859		$	16,759	$	19,602		$	28,122		$	16,444		$	225,983		$	103,521		$	41,161		$	5,649		$	574,100

The following tables present a disaggregated analysis of the activity in the allowance for loan losses and loan balances for non-covered loans for the six months ended June 30, 2012 and June 30, 2011.

	One-to-four family residential			Multifamily residential		Construction			Commercial land			Residential development			Other commercial real estate			Consumer real estate			Commercial business			Other consumer			Total
	(Dollars in thousands)
June 30, 2012
Allowance for loan losses
Balance - January 1, 2012	$	500		$	150	$	800		$	2,334		$	1,999		$	1,830		$	1,600		$	2,000		$	500		$	11,713
Charge-offs		(1,374	)		-		-			(90	)		(2,724	)		(2,069	)		(2,489	)		(217	)		(22	)		(8,985	)
Recoveries		68			-		-			119			89			314			59			3			5			657
Provision		1,350			-		(150	)		100			2,650			1,900			2,150			250			100			8,350
Balance - June 30, 2012	$	544		$	150	$	650		$	2,463		$	2,014		$	1,975		$	1,320		$	2,036		$	583		$	11,735

Loans individually evaluated for impairment	$	-		$	-	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Loans collectively evaluated for impairment	$	544		$	150	$	650		$	2,463		$	2,014		$	1,975		$	1,320		$	2,036		$	583		$	11,735

Loans
Loans individually evaluated for impairment	$	4,488		$	-	$	-		$	3,194		$	3,472		$	14,401		$	1,047		$	945		$	18		$	27,565
Loans collectively evaluated for impairment		109,833			17,074		27,114			19,691			6,596			233,874			98,115			42,690			4,946			559,933
Total non-covered loans	$	114,321		$	17,074	$	27,114		$	22,885		$	10,068		$	248,275		$	99,162		$	43,635		$	4,964		$	587,498



June 30, 2011
Allowance for loan losses
Balance - January 1, 2011	$	500		$	200	$	1,000		$	2,163		$	2,000		$	1,561		$	1,500		$	2,500		$	500		$	11,924
Charge-offs		(1,137	)		-		(41	)		(2,244	)		(386	)		(256	)		(91	)		(188	)		(18	)		(4,361	)
Recoveries		7			-		231			-			128			14			9			13			77			479
Provision		1,150			-		-			1,250			1,350			600			150			200			-			4,700
Balance - June 30, 2011	$	520		$	200	$	1,190		$	1,169		$	3,092		$	1,919		$	1,568		$	2,525		$	559		$	12,742

Loans individually evaluated for impairment	$	-		$	-	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Loans collectively evaluated for impairment		520			200		1,190			1,169			3,092			1,919			1,568			2,525			559			12,742
Total	$	520		$	200	$	1,190		$	1,169		$	3,092		$	1,919		$	1,568		$	2,525		$	559		$	12,742

December 31, 2011
Loans
Loans individually evaluated for impairment	$	2,739		$	-	$	-		$	2,826		$	8,262		$	12,657		$	2,630		$	169		$	89		$	29,372
Loans collectively evaluated for impairment		114,120			16,759		19,602			25,296			8,182			213,326			100,891			40,992			5,560			544,728
Total non-covered loans	$	116,859		$	16,759	$	19,602		$	28,122		$	16,444		$	225,983		$	103,521		$	41,161		$	5,649		$	574,100