Note 7. Allowance for Loan Losses

3 Months Ended

Jun. 30, 2011

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

7.    Allowance for Loan Losses

The allowance for loan losses reflected in the accompanying consolidated financial statements represents the allowance available to absorb probable losses inherent in the loan portfolio.  An analysis of changes in the allowance is presented in the following table:

ALLOWANCE FOR LOAN LOSSES

	For Three Months Ended June 30,
	2011			2010
Balance at beginning of period	$	9,870,254		$	7,567,806
Charge-offs		(1,968,395	)		(1,103,748	)
Recoveries		52,524			862,170
Net loans charged-off		(1,915,871	)		(241,578	)
Additions to allowance charged to expense		1,920,000			950,000
Balance at end of period	$	9,874,383		$	8,276,228

	For Six Months Ended June 30,
	2011			2010
Balance at beginning of period	$	9,526,592		$	6,034,187
Charge-offs		(3,051,523	)		(1,463,834	)
Recoveries		79,314			975,875
Net loans charged-off		(2,972,209	)		(487,959	)
Additions to allowance charged to expense		3,320,000			2,730,000
Balance at end of period	$	9,874,383		$	8,276,228

The allowance for loan losses includes $5.3 million related to the purchased loans as of June 30, 2011, of which $1.5 million is specifically allocated to impaired loans.  As of December 31, 2010, the allowance for loan losses included $4.6 million related to purchased loans of which $1.7 million was specifically allocated to impaired loans.

Consistent with regulatory guidance, charge-offs are taken when specific loans, or portions thereof, are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. The Bank’s policy is to promptly charge these loans off in the period the uncollectible loss amount is reasonably determined.  The Bank promptly charges-off commercial and real estate loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations.  All consumer loans 120 days past due and all other loans with principal and interest 180 days or more past due will be reviewed for potential charge-off at least quarterly.