Note 5 - Loans Receivable

3 Months Ended

Dec. 31, 2012

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 5: Loans Receivable

Loans receivable are summarized as follows:

	December 31, 2012		September 30, 2012
Loans not covered by loss sharing agreements:
1-4 family residential real estate mortgage	$	103,707,236	$	105,514,544
Commercial real estate		249,612,987		251,379,010
Commercial		17,820,303		16,596,833
Real estate construction		46,772,520		45,369,190
Consumer and other		17,897,522		18,107,198
Loans receivable, net of undisbursed proceeds of loans in process		435,810,568		436,966,775
Less:
Unamortized loan origination fees, net		1,058,414		1,101,481
Allowance for loan losses		8,382,355		8,189,895
Total loans not covered, net	$	426,369,799	$	427,675,399

The carrying amount of covered loans at December 31, 2012 and September 30, 2012, consisted of impaired loans at acquisition date and all other acquired loans and are presented in the following tables.

	December 31, 2012
	Impaired Loans at Acquisition		All Other Acquired Loans		Total Covered Loans
Loans covered by loss sharing agreements
1-4 family residential real estate	$	4,691,507	$	8,977,666	$	13,669,173
Commercial real estate		65,219,748		78,715,378		143,935,126
Commercial		10,969,916		10,264,766		21,234,682
Real estate construction		1,304,345		130,000		1,434,345
Consumer and other		628,066		4,824,710		5,452,776
Loans receivable, gross		82,813,582		102,912,520		185,726,102
Less:
Non-accretable difference		11,931,593		4,501,132		16,432,725
Allowance for covered loan losses		1,210,566		7,748,436		8,959,002
Accretable discount		8,225,435		2,542,181		10,767,616
Discount on acquired performing loans		-		269,409		269,409
Unamortized loan origination fees, net		-		28,802		28,802
Total loans covered, net	$	61,445,988	$	87,822,560	$	149,268,548

	September 30, 2012
	Impaired Loans at Acquisition		All Other Acquired Loans		Total Covered Loans
Loans covered by loss sharing agreements:
1-4 family residential real estate mortgage	$	5,619,110	$	9,421,190	$	15,040,300
Commercial real estate		71,806,980		88,353,272		160,160,252
Commercial		12,081,845		13,885,559		25,967,404
Real estate construction		1,321,752		559,675		1,881,427
Consumer and other		708,832		5,458,309		6,167,141
Loans receivable, gross		91,538,519		117,678,005		209,216,524
Less:
Non-accretable difference		14,285,220		5,096,952		19,382,172
Allowance for covered loan losses		1,793,943		8,546,872		10,340,815
Accretable discount		9,869,297		3,055,050		12,924,347
Discount on acquired performing loans		—		308,728		308,728
Unamortized loan origination fees, net		—		32,146		32,146
Total loans covered, net	$	65,590,059	$	100,638,257	$	166,228,316

The following table documents changes in the accretable discount on acquired loans during the three months ended December 31, 2012 and the year ended September 30, 2012:

	Impaired Loans At Acquisition			All Other Acquired Loans			Total Covered Loans
Balance, September 30, 2011	$	16,893,100		$	4,705,432		$	21,598,532
Loan accretion		(7,023,803	)		(1,650,382	)		(8,674,185	)
Balance, September 30, 2012		9,869,297			3,055,050			12,924,347
Loan accretion		(1,730,145	)		(512,869	)		(2,243,014	)
Transfer from non-accretable difference		86,283			—			86,283
Balance, December 31, 2012	$	8,225,435		$	2,542,181		$	10,767,616

The following is a summary of transactions during the three months ended December 31, 2012 and 2011 in the allowance for loan losses on loans covered by loss sharing:

	Three Months Ended December 31,
	2012			2011
Balance, beginning of period	$	10,340,815		$	6,892,425
Loans charged-off (gross)		(2,717,463	)		(4,020,868	)
Recoveries on loans previously charged-off		10,650			-
Provision for loan losses charged to FDIC receivable		1,230,250			2,400,000
Provision for loan losses charged to operations		94,750			600,000
Balance, end of period	$	8,959,002		$	5,871,557

The following table documents changes in the carrying value of the FDIC receivable for loss sharing agreements relating to covered loans and other real estate owned during the three months ended December 31, 2012 and the year ended September 30, 2012:

	Three Months Ended December 31, 2012			Year Ended September 30, 2012
Balance, beginning of period	$	35,135,533		$	96,777,791
Payments made to (received from) FDIC		7,836,747			(80,528,485	)
Accretion of fair value adjustment		147,674			1,461,779
Recovery of previous loss reimbursements		(3,082,024	)		(3,252,736	)
Provision for estimated losses on covered assets recognized in noninterest expense		1,425,814			15,976,659
External expenses qualifying under loss sharing agreements		1,357,626			4,700,525
Balance, end of period	$	42,821,370		$	35,135,533

Loan Origination and Risk Management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial real estate loans are generally made by the Company to Georgia, Alabama or Florida panhandle entities and are secured by properties in these states. Commercial real estate lending involves additional risks compared to one- to four-family residential lending. Repayment of commercial real estate loans often depends on the successful operations and income stream of the borrowers, and commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. The Company’s underwriting criteria for commercial real estate loans include maximum loan-to-value ratios, debt coverage ratios, secondary sources of repayment, guarantor requirements, net worth requirements and quality of cash flow. As part of the loan approval and underwriting of commercial real estate loans, management undertakes a cash flow analysis, and requires a debt-service coverage ratio of at least 1.15 times. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2012, approximately 31.0% of the outstanding principal balance of the Company’s commercial real estate loans was secured by owner-occupied properties.

The Company makes construction and land development loans primarily for the construction of one- to four-family residences but also for multi-family and nonresidential real estate projects on a select basis. While current market conditions have suppressed demand for construction and land loans, there are opportunities to lend to quality borrowers in the Company’s market area for construction loans. The Company offers two principal types of construction loans: builder loans, including both speculative (unsold) and pre-sold loans to pre-approved local builders; and construction/permanent loans to property owners that are converted to permanent loans at the end of the construction phase. The number of speculative loans that management will extend to a builder at one time depends upon the financial strength and credit history of the builder. The Company’s construction loan program is expected to remain a modest portion of the loan volume and management generally limits the number of outstanding loans on unsold homes under construction within a specific area.

The Company also originates first and second mortgage loans secured by one- to four-family residential properties within Georgia, Alabama and the Florida Panhandle. Management currently originates mortgages at all branch locations, but utilizes a centralized processing location to reduce the underwriting risk. The Company originates both fixed rate and adjustable rate one- to four-family residential mortgage loans. Fixed rate 30-year conforming loans are generally originated for resale into the secondary market on a servicing-released basis and loans that are non-conforming due to property exceptions and that have adjustable rates are generally retained in the Company’s portfolio. The non-conforming loans originated are not considered to be subprime loans and the amount of subprime and low documentation loans held by the Company is not material.

The majority of the Company’s non-mortgage loans consist of consumer loans, including loans on deposits, second mortgage loans, home equity lines of credit, auto loans and various other installment loans. The Company primarily offers consumer loans (excluding second mortgage loans and home equity lines of credit) as an accommodation to customers. Consumer loans tend to have a higher credit risk than residential mortgage loans because they may be secured by rapidly depreciable assets, or may be unsecured. The Company’s consumer lending generally follows accepted industry standards for non sub-prime lending, including credit scores and debt to income ratios. The Company also offers home equity lines of credit as a complement to one- to four-family residential mortgage lending. The underwriting standards applicable to home equity credit lines are similar to those for one- to four-family residential mortgage loans, except for slightly more stringent credit-to-income and credit score requirements. Home equity loans are generally limited to 80% of the value of the underlying property unless the loan is covered by private mortgage insurance or a loss sharing agreement.  At December 31, 2012, the Company had $14.6 million of home equity lines of credit and second mortgage loans not covered by FDIC loss sharing agreements (“loss sharing”).

The Company’s commercial business loans are generally limited to terms of five years or less. Management typically collateralizes these loans with a lien on commercial real estate or, very rarely, with a lien on business assets and equipment. Management also generally requires the personal guarantee of the business owner. Interest rates on commercial business loans are generally higher than interest rates on residential or commercial real estate loans due to the risk inherent in this type of loan. Commercial business loans are generally considered to have more risk than residential mortgage loans or commercial real estate loans because the collateral may be in the form of intangible assets and/or readily depreciable inventory. Commercial business loans may also involve relatively large loan balances to single borrowers or groups of related borrowers, with the repayment of such loans typically dependent on the successful operation and income stream of the borrower. Such risks can be significantly affected by economic conditions. In addition, commercial business lending generally requires substantially greater supervision efforts by Management compared to residential mortgage or commercial real estate lending.

The Company maintains an internal loan review function that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures. The Company further engages an independent, external loan reviewer on an annual basis.

Nonaccrual and Past Due Loans. Nonaccrual loans not covered by loss sharing, segregated by class of loans were as follows:

	December 31, 2012		September 30, 2012
1-4 family residential real estate	$	2,103,104	$	2,038,340
Commercial real estate		780,987		771,711
Commercial		184,851		191,499
Real estate construction		—		—
Consumer and other		41,856		42,363
Total	$	3,110,798	$	3,043,913

An age analysis of past due loans not covered by loss sharing, segregated by class of loans at December 31, 2012 and September 30, 2012 were as follows:

December 31, 2012

	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days Accruing
1-4 family residential real estate	$	2,257,882	$	218,323	$	2,476,205	$	101,231,031	$	103,707,236	$	80,786
Commercial real estate		1,111,549		-		1,111,549		248,501,438		249,612,987		-
Commercial		175,418		-		175,418		17,644,885		17,820,303		-
Real estate construction		-		-		-		46,772,520		46,772,520		-
Consumer and other		172,986		13,564		186,550		17,710,972		17,897,522		-
	$	3,717,835	$	231,887	$	3,949,722	$	431,860,846	$	435,810,568	$	80,786

September 30, 2012

	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days Accruing
1-4 family residential real estate	$	1,460,017	$	621,257	$	2,081,274	$	103,433,270	$	105,514,544	$	401,726
Commercial real estate		1,459,472		-		1,459,472		249,919,538		251,379,010		-
Commercial		145,001		-		145,001		16,451,832		16,596,833		-
Real estate construction		-		-		-		45,369,190		45,369,190		-
Consumer and other		125,054		-		125,054		17,982,144		18,107,198		-
	$	3,189,544	$	621,257	$	3,810,801	$	433,155,974	$	436,966,775	$	401,726

An age analysis of past due loans covered by loss sharing, segregated by class of loans at December 31, 2012 and September 30, 2012 were as follows:

December 31, 2012

	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans [1]		Loans > 90 Days and Accruing [2]
1-4 family residential real estate	$	685,776	$	861,847	$	1,547,623	$	10,600,542	$	12,148,165	$	861,847
Commercial real estate		3,534,577		17,935,968		21,470,545		106,358,618		127,829,163		17,935,968
Commercial		391,024		2,291,399		2,682,423		12,076,792		14,759,215		2,291,399
Real estate construction		-		-		-		1,430,861		1,430,861		-
Consumer and other		43,684		160,577		204,261		3,962,710		4,166,971		160,577
	$	4,655,061	$	21,249,791	$	25,904,852	$	134,429,523	$	160,334,375	$	21,249,791

[1] Covered loan balances are net of non-accretable differences and allowance for covered loan losses and have not been reduced by $11,037,025 of accretable discounts and discounts on acquired performing loans.

[2] Covered loans contractually past due greater than ninety days are reported as accruing loans because of accretable discounts established at the time of acquisition.

September 30, 2012

	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans [1]		Loans > 90 Days Accruing [2]
1-4 family residential real estate	$	734,789	$	834,569	$	1,569,358	$	11,460,232	$	13,029,590	$	834,570
Commercial real estate		6,546,132		20,588,187		27,134,319		115,540,726		142,675,045		20,588,187
Commercial		917,019		2,984,197		3,901,216		13,723,435		17,624,651		2,984,197
Real estate construction		-		-		-		1,343,072		1,343,072		-
Consumer and other		55,441		391,755		447,196		4,373,983		4,821,179		391,754
	$	8,253,381	$	24,798,708	$	33,052,089	$	146,441,448	$	179,493,537	$	24,798,708

[1] Covered loan balances are net of non-accretable differences and allowance for covered loan losses and have not been reduced by $13,233,075 of accretable discounts and discounts on acquired performing loans.

[2] Covered loans contractually past due greater than ninety days are reported as accruing loans because of accretable discounts established at the time of acquisition.

Impaired Loans. The Company evaluates “impaired” loans, which includes nonperforming loans and accruing troubled debt restructured loans, having risk characteristics that are unique to an individual borrower on a loan-by-loan basis with balances above a specified level.  For smaller loans, the allowance is calculated based on the credit grade utilizing historical loss experience and other qualitative factors.

Impaired loans not covered by loss sharing, segregated by class of loans were as follows:

December 31, 2012

							Three Months Ended December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment in Impaired Loans		Interest Income Recognized
With no related allowance recorded:
1-4 family residential real estate	$	2,244,408	$	2,599,030	$	-	$	2,603,030	$	3,219
Commercial real estate		8,159,971		9,257,345		-		9,442,893		102,471
Commercial		184,851		200,831		-		203,097		-
Real estate construction		5,825		34,744		-		34,779		101
Subtotal:		10,595,056		12,091,950		-		12,283,799		105,791
With an allowance recorded:
1-4 family residential real estate	$	-	$	-	$	-	$	-	$	-
Commercial real estate		3,850,467		3,850,466		23,092		4,176,352		10,623
Commercial		2,522,943		2,522,943		14,923		2,608,525		5,172
Real estate construction		-		-		-		-		-
Subtotal:		6,373,409		6,373,409		38,015		6,784,877		15,795
Totals:
1-4 family residential real estate	$	2,244,408	$	2,599,030	$	-	$	2,603,030	$	3,219
Commercial real estate		12,010,438		13,107,811		23,092		13,619,245		113,094
Commercial		2,707,794		2,723,774		14,923		2,811,622		5,172
Real estate construction		5,825		34,744		-		34,779		101
Grand Total:	$	16,968,465	$	18,465,359	$	38,015	$	19,068,676	$	121,586

The recorded investment in accruing troubled debt restructured loans at December 31, 2012 totaled $13,818,737 and is included in the impaired loan table above.

September 30, 2012

							Year Ended September 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment in Impaired Loans		Interest Income Recognized
With no related allowance recorded:
1-4 family residential real estate	$	2,500,824	$	2,982,895	$	-	$	2,867,188	$	31,122
Commercial real estate		12,469,240		14,063,513		-		13,689,972		568,615
Commercial		2,847,862		2,860,935		-		2,908,659		95,676
Real estate construction		5,925		34,844		-		32,735		296
Grand Total:	$	17,823,851	$	19,942,187	$	-	$	19,498,554	$	695,709

There were no recorded allowances for impaired loans not covered by loss sharing at September 30, 2012.  The recorded investment in accruing troubled debt restructured loans at September 30, 2012 totaled $14,420,575 and is included in the impaired loan table above.

Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio for both loans covered and not covered by loss sharing agreements, management tracks certain credit quality indicators including the level of classified loans, net charge-offs, non-performing loans (see details above) and the general economic conditions in its market areas.

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. The risk grade for each individual loan is determined by the loan officer and other approving officers at the time of loan origination and is changed from time to time to reflect an ongoing assessment of loan risk. Risk grades are reviewed on specific loans monthly for all delinquent loans as a part of monthly meetings held by the Loan Committee, quarterly for all nonaccrual and special reserve loans, and annually as part of the Company's internal loan review process. In addition, individual loan risk grades are reviewed in connection with all renewals, extensions and modifications. Risk grades for covered loans are determined by officers within the Special Assets Division based on an ongoing assessment of loan risk.   Such risk grades are updated in a manner consistent with non-covered loans, except the grading of such loans are assessed quarterly, as applicable, relating to revised estimates of expected cash flows.

The following table presents the risk grades of the loan portfolio not covered by loss sharing, segregated by class of loans:

December 31, 2012

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Pass (1-4)	$	95,446,522	$	218,417,749	$	14,606,118	$	46,137,628	$	17,110,480	$	391,718,497
Special Mention (5)		3,257,546		6,182,683		87,734		34,424		554,267		10,116,654
Substandard (6)		5,003,168		25,012,555		3,126,451		600,468		232,775		33,975,417
Doubtful (7)		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-
Total not covered loans	$	103,707,236	$	249,612,987	$	17,820,303	$	46,772,520	$	17,897,522	$	435,810,568

September 30, 2012

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Pass (1-4)	$	97,045,428	$	217,582,908	$	13,252,993	$	44,075,754	$	17,357,541	$	389,314,624
Special Mention (5)		3,525,488		11,396,970		93,033		286,505		559,982		15,861,978
Substandard (6)		4,943,628		22,399,132		3,250,807		1,006,931		189,675		31,790,173
Doubtful (7)		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-
Total not covered loans	$	105,514,544	$	251,379,010	$	16,596,833	$	45,369,190	$	18,107,198	$	436,966,775

The following table presents the risk grades, ignoring grade enhancement provided by the FDIC loss sharing, of the loan portfolio covered by loss sharing agreements, segregated by class of loans at December 31, 2012 and September 30, 2012.  Numerical risk ratings 5-8 constitute classified assets for regulatory reporting; however regulatory authorities consider the FDIC loss sharing percentage of either 80% or 95%, as applicable, as a reduction of the regulatory classified balance for covered loans. With respect to classified assets covered by loss sharing agreements, numerical risk ratings 5-8, for regulatory reporting purposes are done under FDIC guidance reporting the bank’s non-reimbursable amount of the book balance of the loans as classified. The remaining reimbursable portion is classified as pass, numerical risk ratings 1-4.

December 31, 2012

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and Other		Total
Numerical risk rating (1-4)	$	6,638,498	$	53,369,622	$	5,526,168	$	126,516	$	3,611,096	$	69,271,900
Numerical risk rating (5)		1,987,139		22,401,745		3,716,210		1,304,345		219,579		29,629,018
Numerical risk rating (6)		3,322,792		49,007,557		4,861,955		-		333,639		57,525,943
Numerical risk rating (7)		199,736		3,050,239		654,882		-		2,657		3,907,514
Numerical risk rating (8)		-		-		-		-		-		-
Total covered loans [1]	$	12,148,165	$	127,829,163	$	14,759,215	$	1,430,861	$	4,166,971	$	160,334,375

[1]  Covered loan balances are net of non-accretable differences and allowances for covered loan losses and have not been reduced by $11,037,025 of accretable discounts and discounts on acquired performing loans.

September 30, 2012

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Numerical risk rating (1-4)	$	7,153,464	$	56,448,239	$	6,912,992	$	-	$	4,011,268	$	74,525,963
Numerical risk rating (5)		2,223,780		27,564,628		4,040,798		1,343,072		224,720		35,396,998
Numerical risk rating (6)		3,217,548		54,282,789		5,127,288		-		581,495		63,209,120
Numerical risk rating (7)		434,798		4,379,389		1,543,573		-		3,696		6,361,456
Numerical risk rating (8)		-		-		-		-		-		-
Total covered loans [1]	$	13,029,590	$	142,675,045	$	17,624,651	$	1,343,072	$	4,821,179	$	179,493,537

[1]  Covered loan balances are net of non-accretable differences and allowances for covered loan losses and have not been reduced by $13,233,075 of accretable discounts and discounts on acquired performing loans.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense and is an amount that management believes will be adequate to absorb losses on existing loans that become uncollectible, based on evaluations of the collectability of loans. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, historical loss rates, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect a borrower’s ability to repay. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely and subsequent recoveries are added to the allowance.

Management’s allowance for loan losses methodology is a loan classification-based system. Management bases the required reserve on a percentage of the loan balance for each type of loan and classification level. Loans may be classified manually and are automatically classified if they are not previously classified when they reach certain levels of delinquency. Unclassified loans are reserved at different percentages based on the loan loss history of the last two years. Reserve percentages are also adjusted based upon our estimate of the effect that the current economic environment will have on each type of loan.

Management segments its allowance for loan losses into the following four major categories:  (1) specific reserves; (2) general allowances for Classified/Watch loans; (3) general allowances for loans with satisfactory ratings; and (4) an unallocated amount. Risk ratings are initially assigned in accordance with CharterBank’s loan and collection policy. An organizationally independent department reviews risk grade assignments on an ongoing basis. Management reviews current information and events regarding a borrowers’ financial condition and strengths, cash flows available for debt repayment, the related collateral supporting the loan and the effects of known and expected economic conditions. When the evaluation reflects a greater than normal risk associated with the individual loan, management classifies the loan accordingly. If the loan is determined to be impaired, management allocates a portion of the allowance for loan losses for that loan based on the fair value of the collateral, if the loan is considered collateral-dependent, as the measure for the amount of the impairment. Impaired and Classified/Watch loans are aggressively monitored.

The allowances for loans by credit grade are further subdivided by loan type. Charter Financial has developed specific quantitative allowance factors to apply to each loan which considers loan charge-off experience over the most recent two years by loan type.  In addition, loss estimates are applied for certain qualitative allowance factors that are subjective in nature and require considerable judgment on the part of management. Such qualitative factors include economic and business conditions, the volume of past due loans, changes in the value of collateral of collateral-dependent loans, and other economic uncertainties.  An unallocated component of the allowance is also established for losses that specifically exist in the remainder of the portfolio, but have yet to be identified.

An unallocated allowance is generally maintained in a range of 4% to 12% of the total allowance in recognition of the imprecision of the estimates and other factors. In times of greater economic downturn and uncertainty, the higher end of this range is provided.

Through the FDIC-assisted acquisitions of the loans of Neighborhood Community Bank (“NCB”), McIntosh Commercial Bank (“MCB”) and First National Bank of Florida (“FNB”), management established non-accretable discounts for the acquired impaired loans and also for all other loans of MCB. These non-accretable discounts were based on estimates of future cash flows. Subsequent to the acquisition dates, management continues to assess the experience of actual cash flows compared to estimates. When management determines that non-accretable discounts are insufficient to cover expected losses in the applicable covered loan portfolios, the allowance for covered loans is increased with a corresponding provision for covered loan losses as a charge to earnings and an increase in the applicable FDIC receivable based on loss sharing indemnification.  During the quarters ended December 31, 2012 and 2011, the Company increased its allowance for loan losses on loans covered by loss sharing relating to NCB acquired loans by $1.0 million and $3.0 million, respectively, and recorded $52,000 and $600,000, respectively, as a charge to earnings with $993,000 and $2.4 million, respectively, recorded as an increase to the FDIC receivable.  Additionally, during the quarter ended December 31, 2012, the Company increased its allowance for loan losses on loans covered by loss sharing relating to FNB acquired loans by $30,000 and recorded $30,000 as a charge to earnings with no effect to the FDIC receivable. There were no such provisions in the quarter ended December 31, 2011. During the quarter ended December 31, 2012, the Company increased its allowance for loan losses on loans covered by loss sharing relating to MCB acquired loans by $250,000 and recorded $13,000 as a charge to earnings with $237,000 recorded as an increase to the FDIC receivable. There were no such provisions in the quarter ended December 31, 2011.The non-accretable discount that was established for a certain loan pool was determined at December 31, 2012 to not be required based on improvements in cash flows; therefore $86,000 was recorded to accretion income with $431,000 being deducted from the FDIC receivable.

The Company maintained its allowance for loan losses for the quarter ended December 31, 2012 in response to continued weak economic conditions, net charge-offs, financial indicators for borrowers in the real estate sectors, continuing low collateral values of commercial and residential real estate, and nonaccrual and impaired loans. The following table details the allowance for loan losses on loans not covered by loss sharing by portfolio segment as of the quarters ended December 31, 2012 and 2011. Allocation of a portion of the allowance to one category of loans does not preclude availability to absorb losses in other categories.

The following tables are a summary of transactions in the allowance for loan losses on loans not covered by loss sharing by portfolio segment:

	Three months ended December 31, 2012
	1-4 Family real estate			Commercial real estate			Commercial			Real Estate construction		Consumer and other			Unallocated			Total
Allowance for loan losses:
Balance at beginning of period	$	879,854		$	5,480,132		$	711,594		$	287,129	$	79,627		$	751,559		$	8,189,895
Charge-offs		(46,270	)		(124,365	)		-			-		(7,479	)		-			(178,114	)
Recoveries		7,606			57,856			4,334			-		778			-			70,574
Provision		137,418			276,825			(355,493	)		192,101		73,478			(24,329	)		300,000
Balance at end of period	$	978,608		$	5,690,448		$	360,435		$	479,230	$	146,404		$	727,230		$	8,382,355
Ending balance: individually evaluated for impairment	$	-		$	23,092		$	14,923		$	-	$	-					$	38,015
Loans:
Ending balance	$	103,707,236		$	249,612,987		$	17,820,303		$	46,772,520	$	17,897,522					$	435,810,568
Ending balance: individually evaluated for impairment	$	2,244,408		$	12,010,438		$	2,707,794		$	5,825	$	-					$	16,968,465

	Three months ended December 31, 2011
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Unallocated			Total
Allowance for loan losses:
Balance at beginning of period	$	633,364		$	5,972,310		$	821,830		$	1,065,512		$	48,276		$	828,545		$	9,369,837
Charge-offs		(161,558	)		(1,786,594	)		(81,574	)		-			(61,591	)		-			(2,091,317	)
Recoveries		3,914			359			34,681			-			2,402			-			41,356
Provision		104,035			2,173,200			(201,891	)		(476,103	)		74,312			(173,553	)		1,500,000
Balance at end of period	$	579,755		$	6,359,275		$	573,046		$	589,409		$	63,399		$	654,992		$	8,819,876
Ending balance: individually evaluated for impairment	$	-		$	617,544		$	66,818		$	-		$	-					$	684,362
Loans:
Ending balance	$	101,560,814		$	254,960,299		$	23,996,617		$	41,423,371		$	19,992,582					$	441,933,683
Ending balance: individually evaluated for impairment	$	5,340,489		$	7,149,582		$	3,092,629		$	-		$	-					$	15,582,700

The following tables detail the non-accretable discount and allowance for loan losses on loans covered by loss sharing by portfolio segment:

	Three Months Ended December 31, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total
Non-accretable differences [1]:
Balance at beginning of period	$	2,010,709		$	17,485,206		$	8,342,754		$	538,355		$	1,345,963		$	29,722,987
Charge-offs		(541,943	)		(1,913,367	)		(2,775,183	)		(536,407	)		(105,498	)		(5,872,398	)
Recoveries		2,652			207,303			4,629			1,000			554			216,138
Provision for loan losses charged to FDIC receivable		33,250			299,250			855,000			-			42,750			1,230,250
Provision for loan losses charged to operations		16,342			27,689			48,148			536			2,035			94,750
Balance at end of period	$	1,521,010		$	16,106,081		$	6,475,348		$	3,484		$	1,285,804		$	25,391,727
Covered loans:
Ending contractual balance	$	13,669,173		$	143,935,126		$	21,234,682		$	1,434,345		$	5,452,776		$	185,726,102

[1] Amounts include the allowance for covered loan losses.

	Three months ended December 31, 2011
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total
Non-accretable differences [1]:
Balance at beginning of period	$	3,430,280		$	64,169,400		$	7,706,431		$	2,970,506		$	764,924		$	79,041,541
Charge-offs		(296,058	)		(7,552,366	)		(715,250	)		(1,458,408	)		(24,371	)		(10,046,453	)
Recoveries		1,402			537,005			104,351			-			9,056			651,814
Provision for loan losses charged to FDIC receivable		(81,552	)		2,259,657			378,909			-			(157,014	)		2,400,000
Provision for loan losses charged to operations		(20,388	)		564,915			94,727			-			(39,254	)		600,000
Balance at end of period	$	3,033,684		$	59,978,611		$	7,569,168		$	1,512,098		$	553,341		$	72,646,902
Covered loans:
Ending contractual balance	$	18,980,760		$	245,975,123		$	27,748,162		$	7,322,825		$	8,061,733		$	308,088,603

[1]  Amounts include the allowance for covered loan losses.

For the three month periods ended December 31, 2012 and 2011 the following table presents a breakdown of the types of concessions determined to be troubled debt restructurings (“TDRs”) during the period by loan class:

	Accruing Loans						Nonaccrual Loans
	Three Months Ended December 31, 2012						Three Months Ended December 31, 2012
	Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Payment structure modification
Commercial Real Estate		-	$	-	$	-		1	$	80,462	$	41,080
Total		-	$	-	$	-		1	$	80,462	$	41,080
Grand Total		-	$	-	$	-		1	$	80,462	$	41,080

	Accruing Loans						Nonaccrual Loans
	Three Months Ended December 31, 2011						Three Months Ended December 31, 2011
	Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Below market interest rate
Commercial Real Estate		6	$	835,484	$	819,484		-	$	-	$	-
Total		6	$	835,484	$	819,484		-	$	-	$	-
Grand Total		6	$	835,484	$	819,484		-	$	-	$	-

Loans are classified as restructured by the Company when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. The Company only restructures loans for borrowers in financial difficulty that have designed a viable business plan to fully pay off all obligations, including outstanding debt, interest, and fees, either by generating additional income from the business or through liquidation of assets. Generally, these loans are restructured to provide the borrower additional time to execute upon their plans. The concessions granted on TDRs generally include terms to reduce the interest rate or extend the term of the debt obligation.

Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the loan is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower's financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

As of December 31, 2012 and 2011, loans with a balance of $42,000 and $0, respectively defaulted within twelve months after their restructure.