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Note 7: Loans and Allowance For Loan Losses

3 Months Ended

Mar. 31, 2013

Note 7: Loans and Allowance For Loan Losses

NOTE 7: LOANS AND ALLOWANCE FOR LOAN LOSSES

	March 31,	December 31,
	2013	2012
(In Thousands)
One- to four-family residential construction	$38,953	$29,071
Subdivision construction	34,376	35,805
Land development	63,278	62,559
Commercial construction	143,043	150,515
Owner occupied one- to four-family residential	82,399	83,859
Non-owner occupied one- to four-family residential	144,552	145,458
Commercial real estate	699,421	692,377
Other residential	272,354	267,518
Commercial business	281,065	264,631
Industrial revenue bonds	48,768	43,762
Consumer auto	90,959	82,610
Consumer other	83,374	83,815
Home equity lines of credit	54,413	54,225
FDIC-supported loans, net of discounts (TeamBank)	70,906	77,615
FDIC-supported loans, net of discounts (Vantus Bank)	87,141	95,483
FDIC-supported loans, net of discounts (Sun Security Bank)	81,164	91,519
FDIC-supported loans, net of discounts (InterBank)	248,786	259,232
	2,524,952	2,520,054
Undisbursed portion of loans in process	(146,105)	(157,574)
Allowance for loan losses	(40,548)	(40,649)
Deferred loan fees and gains, net	(3,090)	(2,193)
	$2,335,209	$2,319,638

Weighted average interest rate	5.28%	5.39%

Classes of loans by aging were as follows:

	March 31, 2013
							Total Loans
	30-59 Days	60-89 Days	Over 90	Total Past		Total Loans	> 90 Days and
	Past Due	Past Due	Days	Due	Current	Receivable	Still Accruing
(In Thousands)
One- to four-family
residential construction	$--	$--	$--	$--	$38,953	$38,953	$--
Subdivision construction	49	37	2	88	34,288	34,376	--
Land development	--	--	635	635	62,643	63,278	--
Commercial construction	--	--	--	--	143,043	143,043	--
Owner occupied one- to four-
family residential	609	464	1,780	2,853	79,546	82,399	222
Non-owner occupied one- to
four-family residential	379	--	1,280	1,659	142,893	144,552	--
Commercial real estate	21	7,002	9,441	16,464	682,957	699,421	--
Other residential	--	--	3,822	3,822	268,532	272,354	--
Commercial business	575	265	5,194	6,034	275,031	281,065	--
Industrial revenue bonds	--	--	2,029	2,029	46,739	48,768	--
Consumer auto	342	54	95	491	90,468	90,959	13
Consumer other	847	315	605	1,767	81,607	83,374	173
Home equity lines of credit	336	55	314	705	53,708	54,413	--
FDIC-supported loans, net of
discounts (TeamBank)	867	47	9,404	10,318	60,588	70,906	--
FDIC-supported loans, net of
discounts (Vantus Bank)	1,148	2,347	5,622	9,117	78,024	87,141	--
FDIC-supported loans,
net of discounts
(Sun Security Bank)	1,078	2,284	10,403	13,765	67,399	81,164	--
FDIC-supported loans,
net of discounts
(InterBank)	5,075	207	27,705	32,987	215,799	248,786	--
	11,326	13,077	78,331	102,734	2,422,218	2,524,952	408
Less FDIC-supported loans,
net of discounts	8,168	4,885	53,134	66,187	421,810	487,997	--

Total	$3,158	$8,192	$25,197	$36,547	$2,000,408	$2,036,955	$408

	December 31, 2012
							Total Loans
	30-59 Days	60-89 Days	Over 90	Total Past		Total Loans	> 90 Days and
	Past Due	Past Due	Days	Due	Current	Receivable	Still Accruing
(In Thousands)
One- to four-family
residential construction	$178	$--	$--	$178	$28,893	$29,071	$--
Subdivision construction	478	--	3	481	35,324	35,805	--
Land development	--	--	2,471	2,471	60,088	62,559	--
Commercial construction	--	--	--	--	150,515	150,515	--
Owner occupied one- to four-
family residential	3,305	263	2,352	5,920	77,939	83,859	237
Non-owner occupied one- to
four-family residential	2,600	--	1,905	4,505	140,953	145,458	--
Commercial real estate	1,346	726	8,324	10,396	681,981	692,377	--
Other residential	3,741	--	--	3,741	263,777	267,518	--
Commercial business	2,094	153	4,139	6,386	258,245	264,631	--
Industrial revenue bonds	--	--	2,110	2,110	41,652	43,762	--
Consumer auto	690	73	120	883	81,727	82,610	26
Consumer other	1,522	242	834	2,598	81,217	83,815	449
Home equity lines of credit	185	146	220	551	53,674	54,225	--
FDIC-supported loans, net of
discounts (TeamBank)	1,608	2,077	8,020	11,705	65,910	77,615	173
FDIC-supported loans, net of
discounts (Vantus Bank)	1,545	669	5,641	7,855	87,628	95,483	--
FDIC-supported loans,
net of discounts
(Sun Security Bank)	1,539	384	21,342	23,265	68,254	91,519	1,274
FDIC-supported loans, net of
discounts (InterBank)	10,212	4,662	33,928	48,802	210,430	259,232	347
	31,043	9,395	91,409	131,847	2,388,207	2,520,054	2,506
Less FDIC-supported loans,
net of discounts	14,904	7,792	68,931	91,627	432,222	523,849	1,794

Total	$16,139	$1,603	$22,478	$40,220	$1,955,985	$1,996,205	$712

Nonaccruing loans (excluding FDIC-supported loans, net of discount) are summarized as follows:

	March 31,	December 31,
	2013	2012
(In Thousands)
One- to four-family residential construction	$--	$--
Subdivision construction	2	3
Land development	635	2,471
Commercial construction	--	--
Owner occupied one- to four-family residential	1,558	2,115
Non-owner occupied one- to four-family residential	1,280	1,905
Commercial real estate	9,441	8,324
Other residential	3,822	--
Commercial business	7,223	6,249
Consumer auto	82	94
Consumer other	432	385
Home equity lines of credit	314	220

Total	$24,789	$21,766

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2013 and 2012, respectively and as of December 31, 2012. Also presented are the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2013 and December 31, 2012:

	One- to Four-
	Family
	Residential and	Other	Commercial	Commercial	Commercial
	Construction	Residential	Real Estate	Construction	Business	Consumer	Total
(In Thousands)
Allowance for loan losses
Balance January 1, 2013	$6,822	$4,327	$17,441	$3,938	$5,096	$3,025	$40,649
Provision charged to expense	(337)	2,031	3,590	1,240	1,735	(34)	8,225
Losses charged off	(919)	(1,895)	(4,343)	(53)	(1,018)	(917)	(9,145)
Recoveries	9	19	124	5	25	637	819
Balance March 31, 2013	$5,575	$4,482	$16,812	$5,130	$5,838	$2,711	$40,548

Balance January 1, 2012	$11,424	$3,088	$18,390	$2,982	$2,974	$2,374	$41,232
Provision charged to expense	(1,703)	933	6,124	4,609	567	(453)	10,077
Losses charged off	(360)	--	(4,410)	(4,460)	(542)	(234)	(10,006)
Recoveries	52	2	5	24	60	86	229
Balance March 31, 2012	$9,413	$4,023	$20,109	$3,155	$3,059	$1,773	$41,532

Ending balance:
Individually evaluated for
impairment	$1,860	$1,585	$3,924	$955	$3,101	$164	$11,589
Collectively evaluated for
impairment	$3,709	$2,897	$12,872	$4,174	$2,730	$2,547	$28,929
Loans acquired and
accounted for under ASC
310-30	$6	$--	$16	$1	$7	$--	$30



Loans
Individually evaluated for
impairment	$11,808	$16,607	$46,543	$11,006	$10,334	$1,028	$97,326
Collectively evaluated for
impairment	$288,472	$255,747	$701,646	$195,315	$270,731	$227,718	$1,939,629
Loans acquired and
accounted for under ASC
310-30	$266,218	$50,754	$116,175	$9,465	$11,515	$33,870	$487,997

	One- to Four-
	Family
	Residential and	Other	Commercial	Commercial	Commercial
	Construction	Residential	Real Estate	Construction	Business	Consumer	Total
(In Thousands)
Allowance for loan losses
Individually evaluated for
impairment	$2,288	$1,089	$4,990	$96	$2,778	$156	$11,397
Collectively evaluated for
impairment	$4,532	$3,239	$12,443	$3,842	$2,315	$2,864	$29,235
Loans acquired and
accounted for under ASC
310-30	$1	$--	$9	$--	$4	$3	$17

Loans
Individually evaluated for
impairment	$14,691	$16,405	$48,476	$12,009	$10,064	$980	$102,625
Collectively evaluated for
impairment	$279,502	$251,113	$687,663	$201,065	$254,567	$219,670	$1,893,580
Loans acquired and
accounted for under ASC
310-30	$278,889	$53,280	$129,128	$7,997	$14,939	$39,616	$523,849

The portfolio segments used in the preceding two tables correspond to the loan classes used in all other tables in Note 7 as follows:

· The one-to four-family residential and construction segment includes the one- to four-family residential construction, subdivision construction, owner occupied one- to four-family residential and non-owner occupied one- to four-family residential classes

· The other residential segment corresponds to the other residential class

· The commercial real estate segment includes the commercial real estate and industrial revenue bonds classes

· The commercial construction segment includes the land development and commercial construction classes

· The commercial business segment corresponds to the commercial business class

· The consumer segment includes the consumer auto, consumer other and home equity lines of credit classes

Impaired loans are summarized as follows:

	At or for the three months ended March 31, 2013
				Average
		Unpaid		Investment	Interest
	Recorded	Principal	Specific	in Impaired	Income
	Balance	Balance	Allowance	Loans	Recognized
(In Thousands)
One- to four-family residential construction	$--	$--	$--	$--	$--
Subdivision construction	2,379	2,383	605	2,470	30
Land development	11,006	11,403	955	11,009	126
Commercial construction	--	--	--	--	--
Owner occupied one- to four-family residential	4,548	4,745	363	4,958	53
Non-owner occupied one- to four-family residential	4,881	5,289	892	5,841	61
Commercial real estate	46,543	47,709	3,924	46,227	376
Other residential	16,607	16,607	1,585	18,404	104
Commercial business	7,630	9,115	3,101	7,419	59
Industrial revenue bonds	2,704	2,784	--	2,704	--
Consumer auto	112	136	18	132	2
Consumer other	587	640	87	676	11
Home equity lines of credit	329	343	59	337	8

Total	$97,326	$101,154	$11,589	$100,177	$830

	At or for the Year Ended December 31, 2012
	Recorded Balance	Unpaid Principal Balance	Specific Allowance	Average Investment in Impaired Loans	Interest Income Recognized
(In Thousands)
One- to four-family residential construction	$410	$410	$239	$679	$22
Subdivision construction	2,577	2,580	688	8,399	143
Land development	12,009	13,204	96	12,614	656
Commercial construction	--	--	--	383	--
Owner occupied one- to four-family residential	5,627	6,037	550	5,174	295
Non-owner occupied one- to four-family residential	6,077	6,290	811	10,045	330
Commercial real estate	48,476	49,779	4,990	45,181	2,176
Other residential	16,405	16,405	1,089	16,951	836
Commercial business	7,279	8,615	2,778	4,851	329
Industrial revenue bonds	2,785	2,865	--	3,034	5
Consumer auto	143	170	22	157	17
Consumer other	602	682	89	654	65
Home equity lines of credit	235	248	45	162	15

Total	$102,625	$107,285	$11,397	$108,284	$4,889

At March 31, 2013, $39.4 million of impaired loans had specific valuation allowances totaling $11.6 million. At December 31, 2012, $43.4 million of impaired loans had specific valuation allowances totaling $11.4 million.

Included in certain loan categories in the impaired loans are troubled debt restructurings that were classified as impaired. Troubled debt restructurings are loans that are modified by granting concessions to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The types of concessions made are factored into the estimation of the allowance for loan losses for troubled debt restructurings primarily using a discounted cash flows or collateral adequacy approach.

The following table presents newly restructured loans during the three months ended March 31, 2013 by type of modification:

				Total
	Interest Only	Term	Combination	Modification
(In Thousands)
Mortgage loans on real estate:
Residential one- to four-family	$--	$337	$--	$337
Other residential	--	1,874	--	1,874
Consumer	--	165	--	165

Total	$--	$2,376	$--	$2,376

At March 31, 2013, the Company had $45.7 million of loans that were modified in troubled debt restructurings and impaired, as follows: $1.8 million of construction loans, $18.0 million of single family and multi-family residential mortgage loans, $23.7 million of commercial real estate loans, $1.9 million of commercial business loans and $331,000 of consumer loans. Of the total troubled debt restructurings at March 31, 2013, $42.1 million were accruing interest and $11.3 million were classified as substandard and $1.0 million were classified as doubtful using the Company’s internal grading system, which is described below. The Company had troubled debt restructurings which were modified in the previous 12 months and subsequently defaulted during the quarter ended March 31, 2013 of approximately $1.1 million, including three commercial real estate loans totaling $912,000, two non-owner occupied residential mortgage loans totaling $193,000, and one commercial business loan totaling $13,000. In addition, the Company had troubled debt restructurings which were modified in the previous 12 months, which subsequently defaulted and were transferred to foreclosed assets during the quarter ended March 31, 2013, of approximately $1.1 million, including one commercial real estate loan of $1.5 million, $1.0 million of which was charged-off, and two non-owner occupied residential mortgage loans totaling approximately $155,000. When loans modified as troubled debt restructuring have subsequent payment defaults, the defaults are factored into the determination of the allowance for loan losses to ensure specific valuation allowances reflect amounts considered uncollectible. At December 31, 2012, the Company had $2.8 million of construction loans, $7.1 million of residential mortgage loans, $26.9 million of commercial real estate loans, $7.9 million of other residential loans, $1.9 million of commercial business loans and $167,000 of consumer loans that were modified in troubled debt restructurings and impaired. Of the total troubled debt restructurings at December 31, 2012, $40.5 million were accruing interest and $14.6 million were classified as substandard and $1.0 million were classified as doubtful using the Company’s internal grading system.

During the three months ended March 31, 2013, borrowers with loans designated as troubled debt restructurings totaling $387,000, made up of residential mortgage loans, met the criteria for placement back on accrual status. This criteria is a minimum of six months of payment performance under existing or modified terms.

The Company reviews the credit quality of its loan portfolio using an internal grading system that classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if certain deficiencies are not corrected. Doubtful loans are those having all the weaknesses inherent to those classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Special mention loans possess potential weaknesses that deserve management’s close attention but do not expose the Bank to a degree of risk that warrants substandard classification. Loans classified as watch are being monitored because of indications of potential weaknesses or deficiencies that may require future classification as special mention or substandard. Loans not meeting any of the criteria previously described are considered satisfactory. The FDIC-covered loans are evaluated using this internal grading system. These loans are accounted for in pools and are currently substantially covered through loss sharing agreements with the FDIC. Minimal adverse classification in the loan pools was identified as of March 31, 2013 and December 31, 2012, respectively. See Note 8 for further discussion of the acquired loan pools and loss sharing agreements. The loan grading system is presented by loan class below:

		March 31, 2013
			Special
	Satisfactory	Watch	Mention	Substandard	Doubtful	Total
(In Thousands)
One- to four-family residential
construction	$38,953	$--	$--	$--	$--	$38,953
Subdivision construction	29,585	3,215	--	1,576	--	34,376
Land development	50,433	3,395	--	9,450	--	63,278
Commercial construction	143,043	--	--	--	--	143,043
Owner occupied one- to four-
family residential	79,602	502	--	2,295	--	82,399
Non-owner occupied one- to four-
family residential	136,021	4,223	--	4,308	--	144,552
Commercial real estate	636,611	33,818	--	28,992	--	699,421
Other residential	254,311	11,192	--	6,851	--	272,354
Commercial business	272,616	3,529	--	3,920	1,000	281,065
Industrial revenue bonds	46,064	675	--	2,029	--	48,768
Consumer auto	90,856	--	--	103	--	90,959
Consumer other	82,910	--	--	464	--	83,374
Home equity lines of credit	52,008	--	2,076	329	--	54,413
FDIC-supported loans, net of
Discounts (TeamBank)	70,872	--	--	34	--	70,906
FDIC-supported loans, net of
discounts (Vantus Bank)	86,937	--	--	204	--	87,141
FDIC-supported loans, net of
discounts (Sun Security Bank)	80,538	--	--	626	--	81,164
FDIC-supported loans, net of
discounts (InterBank)	248,786	--	--	--	--	248,786

Total	$2,400,146	$60,549	$2,076	$61,181	$1,000	$2,524,952

		December 31, 2012
			Special
	Satisfactory	Watch	Mention	Substandard	Doubtful	Total
(In Thousands)
One- to four-family residential
construction	$28,662	$--	$--	$409	$--	$29,071
Subdivision construction	31,156	2,993	--	1,656	--	35,805
Land development	47,388	3,887	--	11,284	--	62,559
Commercial construction	150,515	--	--	--	--	150,515
Owner occupied one- to four-
family residential	79,411	792	--	3,656	--	83,859
Non-owner occupied one- to four-
family residential	132,073	7,884	--	5,501	--	145,458
Commercial real estate	619,387	42,753	--	30,237	--	692,377
Other residential	252,238	6,793	--	8,487	--	267,518
Commercial business	253,165	4,286	--	6,180	1,000	264,631
Industrial revenue bonds	40,977	675	--	2,110	--	43,762
Consumer auto	82,467	--	--	143	--	82,610
Consumer other	83,250	--	--	565	--	83,815
Home equity lines of credit	52,076	--	1,913	236	--	54,225
FDIC-supported loans, net of
Discounts (TeamBank)	77,568	--	--	47	--	77,615
FDIC-supported loans, net of
discounts (Vantus Bank)	95,281	--	--	202	--	95,483
FDIC-supported loans, net of
discounts (Sun Security Bank)	91,519	--	--	--	--	91,519
FDIC-supported loans, net of
discounts (InterBank)	259,210	--	--	22	--	259,232

Total	$2,376,343	$70,063	$1,913	$70,735	$1,000	$2,520,054

- Definition

The entire disclosure for claims held for amounts due a company. Examples include trade accounts receivables, notes receivables, loans receivables.

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