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NOTE 4 - ALLOWANCE FOR LOAN LOSSES
 3 Months Ended
Mar. 31, 2013
Loans and Leases Receivable, Allowance [Abstract]  
ALLOWANCE FOR LOAN LOSSES

NOTE 4 – ALLOWANCE FOR LOAN LOSSES

 

The following table shows the changes in the allowance for loan losses were as follows (in thousands):

 

    For the three months ended March 31, 2013  
          Real Estate     Real Estate     Real Estate                          
    Commercial     Commercial     Construction     Mortgage     Installment     Other     Unallocated     Total  
                                                 
Allowance for Loan Losses                                                                
Balance December 31, 2012   $ 843     $ 6,295     $ 690     $ 982     $ 98     $ 721     $ 829     $ 10,458  
Charge-offs     (83 )     (437 )     (369 )     (156 )     (11 )                     (1,056 )
Recoveries     242       —       2       —       5       —       —       249  
Provisions for loan losses     168       (138 )     272       112       (5 )     (45 )     (364 )     —  
Balance March 31, 2013   $ 1,170     $ 5,720     $ 595     $ 938     $ 87     $ 676     $ 465     $ 9,651  

 

    As of March 31, 2013  
Reserve to impaired loans   $ 287     $ —     $ —     $ —     $ —     $ —     $ —     $ 287  
Reserve to non-impaired loans   $ 883     $ 5,720     $ 595     $ 938     $ 87     $ 676     $ 465     $ 9,364  

 

    For the three months ended March 31, 2012  
          Real Estate     Real Estate     Real Estate                          
    Commercial     Commercial     Construction     Mortgage     Installment     Other     Unallocated     Total  
                                                 
Allowance for Loan Losses                                                                
Balance December 31, 2011   $ 1,333     $ 7,528     $ 1,039     $ 935     $ 185     $ 736     $ 900     $ 12,656  
Charge-offs     (120 )     (439 )     (204 )     —       (97 )     (25 )     —       (885 )
Recoveries     12       61       —       —       24       6       —       103  
Provisions for loan losses     151       (303 )     515       110       42       94       (209 )     400  
Balance March 31, 2012   $ 1,376     $ 6,847     $ 1,350     $ 1,045     $ 154     $ 811     $ 691     $ 12,274  

 

    As of March 31, 2012  
Reserve to impaired loans   $ 371     $ 2     $ 520     $ 47     $ —     $ 34             $ 974  
Reserve to non-impaired loans   $ 1,005     $ 6,845     $ 830     $ 998     $ 154     $ 777     $ 691     $ 11,300  

 

    As of December 31, 2012  
Reserve to impaired loans   $ —     $ 171     $ 18     $ —     $ —     $ —             $ 189  
Reserve to non-impaired loans   $ 843     $ 6,124     $ 672     $ 982     $ 98     $ 721     $ 829     $ 10,269  

 

The following table shows the loan portfolio by segment as follows (in thousands):

 

    As of March 31, 2013  
          Real Estate     Real Estate     Real Estate                    
Loans   Commercial     Commercial     Construction     Mortgage     Installment     Other     Total  
                                                         
Total Loans   $ 48,300     $ 297,516     $ 21,438     $ 70,514     $ 6,012     $ 44,462     $ 488,242  
Impaired Loans   $ 563     $ 5,695     $ 1,186     $ 1,231     $ 121     $ 155     $ 8,951  
Non-impaired loans   $ 47,737     $ 291,821     $ 20,252     $ 69,283     $ 5,891     $ 44,307     $ 479,291  

 

    As of December 31, 2012  
          Real Estate     Real Estate     Real Estate                    
    Commercial     Commercial     Construction     Mortgage     Installment     Other     Total  
                                           
Total Loans   $ 46,078     $ 295,630     $ 23,003     $ 74,353     $ 6,689     $ 45,941     $ 491,694  
Impaired Loans   $ 585     $ 2,962     $ 1,371     $ 684     $ 122     $ 111     $ 5,835  
Non-impaired loans   $ 45,493     $ 292,668     $ 21,632     $ 73,669     $ 6,567     $ 45,830     $ 485,859  
 

The following table shows the loan portfolio allocated by management’s internal risk ratings as defined in Footnote 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (in thousands):

 

    As of March 31, 2013  
    Pass     Special Mention     Substandard     Doubtful     Total  
Commercial   $ 45,850     $ 989     $ 1,461     $ —     $ 48,300  
Real estate - commercial     280,970       2,815       13,731       —       297,516  
Real estate - construction     20,619       —       819       —       21,438  
Real estate - mortgage     69,437       —       1,077       —       70,514  
Installment     5,886       —       126       —       6,012  
Other     44,177       —       285       —       44,462  
Total   $ 466,939     $ 3,804     $ 17,499     $ —     $ 488,242  

 

    As of December 31, 2012  
    Pass     Special Mention     Substandard     Doubtful     Total  
Commercial   $ 44,486     $ 129     $ 1,463     $ —     $ 46,078  
Real estate - commercial     278,834       —       16,796       —       295,630  
Real estate - construction     21,386       —       1,617       —       23,003  
Real estate - mortgage     71,973       —       2,380       —       74,353  
Installment     6,562       —       127       —       6,689  
Other     45,658       —       283       —       45,941  
Total   $ 468,899     $ 129     $ 22,666     $ —     $ 491,694  

 

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the probable incurred losses in the loan portfolio. In determining levels of risk, management considers a variety of factors, including, but not limited to, asset classifications, economic trends, industry experience and trends, geographic concentrations, estimated collateral values, historical loan loss experience, and the Company’s underwriting policies. The Company utilizes a twelve rolling quarter look-back period to calculate its historical loss factors. For the period ended March 31, 2013, the loss look back period began in the first quarter of 2010 and ended with the most recent quarter. The allowance for loan losses is maintained at an amount management considers adequate to cover the probable incurred losses in loans receivable. While management uses the best information available to make these estimates, future adjustments to allowances may be necessary due to economic, operating, regulatory, and other conditions that may be beyond the Company’s control. The Company also engages a third party credit review consultant to analyze the Company’s loan loss adequacy periodically. In addition, the regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management.

 

The allowance for loan losses is comprised of several components including the specific, formula and unallocated allowance relating to loans in the loan portfolio. Our methodology for determining the allowance for loan losses consists of several key elements, which include:

 

● Specific Allowances. A specific allowance is established when management has identified unique or particular risks that were related to a specific loan that demonstrated risk characteristics consistent with impairment. Specific allowances are established when management can estimate the amount of an impairment of a loan.

 

● Formula Allowance. The formula allowance is calculated by applying loss factors through the assignment of loss factors to homogenous pools of loans. Changes in risk grades of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and such other data as management believes to be pertinent. Management, also, considers a variety of subjective factors, including regional economic and business conditions that impact important segments of our portfolio, loan growth rates, the depth and skill of lending staff, the interest rate environment, and the results of bank regulatory examinations and findings of our internal credit examiners to establish the formula allowance.

 

● Unallocated Allowance. The unallocated loan loss allowance represents an amount for imprecision or uncertainty that is inherent in estimates used to determine the allowance.

 

The Company also maintains a separate allowance for off-balance-sheet commitments. A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with commitments to lend funds under existing agreements, for example, the Bank’s commitment to fund advances under lines of credit. The reserve amount for unfunded commitments is determined based on our methodologies described above with respect to the formula allowance. The allowance for off-balance-sheet commitments is included in accrued interest payable and other liabilities on the consolidated balance sheet and was $143,000 for the periods ended March 31, 2013 and December 31, 2012, respectively.