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Allowance for Loan Losses
 9 Months Ended
Sep. 30, 2012
Allowance for Loan Losses  
Allowance for Loan Losses

Note 5 — Allowance for Loan Losses

 

The Company’s 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 together 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 and Non-Owner Occupied Commercial Real Estate 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 24 month, trailing 12 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 12 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 and Industrial 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 24 month, trailing 12 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 12 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.

 

One-to-Four Family and Consumer Loans

 

The Company’s base ALLL factor for one-to-four family and consumer loans is determined by management using the Bank’s actual trailing 24 month, trailing 12 month and annualized trailing six month charge-off data.  Adjustments to those base factors are made for relevant internal and external factors.  For one-to-four family and consumer loans, 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 12 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.

 

Warehouse Facilities

 

The Company’s warehouse facilities are structured as repurchase facilities, whereby we purchase funded one-to-four family loans on an interim basis.  Therefore, the base ALLL factor for warehouse facilities is equal to that for one-to-four family and consumer loans as discussed above.  Adjustments to the base factor are made for relevant internal and external factors.  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 12 month total charge-off data for one-to-four family loans 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 ALLL as well as the activity in the ALLL attributed to various segments in the loan portfolio as of and for the nine months ended for the periods indicated:

 

 

 

Multi-family

 

Commercial

non-owner

occupied

 

One-to-four

family

 

Construction

 

Land

 

Commercial

owner

occupied

 

Commercial

and

industrial

 

Warehouse

 

SBA

 

Other

loans

 

Total

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2011

 

$

2,281

 

$

1,287

 

$

931

 

$

—

 

$

39

 

$

1,119

 

$

1,361

 

$

1,347

 

$

80

 

$

77

 

$

8,522

 

Charge-offs

 

—

 

(88

)

(305

)

—

 

(5

)

(405

)

(270

)

—

 

(132

)

(2

)

(1,207

)

Recoveries

 

—

 

2

 

7

 

—

 

—

 

—

 

2

 

—

 

162

 

25

 

198

 

Provisions for (reduction in) loan losses

 

(184

)

835

 

(215

)

—

 

(34

)

437

 

(269

)

(301

)

(44

)

(80

)

145

 

Balance, September 30, 2012

 

$

2,097

 

$

2,036

 

$

418

 

$

—

 

$

—

 

$

1,151

 

$

824

 

$

1,046

 

$

66

 

$

20

 

$

7,658

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of allowance attributed to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specifically evaluated impaired loans

 

$

—

 

$

—

 

$

153

 

$

—

 

$

—

 

$

—

 

$

36

 

$

—

 

$

—

 

$

—

 

$

189

 

General portfolio allocation

 

$

2,097

 

$

2,036

 

$

265

 

$

—

 

$

—

 

$

1,151

 

$

788

 

$

1,046

 

$

66

 

$

20

 

$

7,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

1,394

 

$

460

 

$

643

 

$

—

 

$

—

 

$

—

 

$

60

 

$

—

 

$

309

 

$

—

 

$

2,866

 

Specific reserves to total loans individually evaluated for impairment

 

0.00

%

0.00

%

23.79

%

0.00

%

0.00

%

0.00

%

60.00

%

0.00

%

0.00

%

0.00

%

6.59

%

Loans collectively evaluated for impairment

 

$

172,090

 

$

261,586

 

$

62,128

 

$

308

 

$

11,005

 

$

148,139

 

$

88,045

 

$

112,053

 

$

4,427

 

$

2,191

 

$

861,972

 

General reserves to total loans collectively evaluated for impairment

 

1.22

%

0.78

%

0.43

%

0.00

%

0.00

%

0.78

%

0.89

%

0.93

%

1.49

%

0.91

%

0.87

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gross loans

 

$

173,484

 

$

262,046

 

$

62,771

 

$

308

 

$

11,005

 

$

148,139

 

$

88,105

 

$

112,053

 

$

4,736

 

$

2,191

 

$

864,838

 

Total allowance to gross loans

 

1.21

%

0.78

%

0.67

%

0.00

%

0.00

%

0.78

%

0.94

%

0.93

%

1.39

%

0.91

%

0.89

%

 

 

 

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

 

$

2,730

 

$

1,580

 

$

332

 

$

—

 

$

1,687

 

$

2,356

 

$

—

 

$

145

 

$

49

 

$

8,879

 

Charge-offs

 

(489

)

(43

)

(1,080

)

(164

)

(98

)

(1,082

)

—

 

(76

)

(148

)

(3,180

)

Recoveries

 

—

 

—

 

—

 

—

 

—

 

1

 

—

 

17

 

11

 

95

 

Provisions for (reduction in) loan losses

 

872

 

(119

)

1,419

 

164

 

(378

)

(17

)

721

 

11

 

121

 

2,728

 

Balance, September 30, 2011

 

$

3,113

 

$

1,418

 

$

671

 

$

—

 

$

1,211

 

$

1,258

 

$

721

 

$

97

 

$

33

 

$

8,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of allowance attributed to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specifically evaluated impaired loans

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

General portfolio allocation

 

$

3,113

 

$

1,418

 

$

671

 

$

—

 

$

1,211

 

$

1,258

 

$

721

 

$

97

 

$

33

 

$

8,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

1,433

 

$

2,457

 

$

1,218

 

$

198

 

$

2,760

 

$

1,983

 

$

—

 

$

725

 

$

—

 

$

10,774

 

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

 

$

210,081

 

$

162,340

 

$

61,420

 

$

8,298

 

$

161,508

 

$

72,451

 

$

42,644

 

$

4,145

 

$

2,215

 

$

725,102

 

General reserves to total loans collectively evaluated for impairment

 

1.48

%

0.87

%

1.09

%

0.00

%

0.75

%

1.74

%

1.69

%

2.34

%

1.49

%

1.18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gross loans

 

$

211,514

 

$

164,797

 

$

62,638

 

$

8,496

 

$

164,268

 

$

74,434

 

$

42,644

 

$

4,870

 

$

2,215

 

$

735,876

 

Total allowance to gross loans

 

1.47

%

0.86

%

1.07

%

0.00

%

0.74

%

1.69

%

1.69

%

1.99

%

1.49

%

1.16

%