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Credit Quality and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2012

Credit Quality and Allowance for Loan Losses [Abstract]

Credit Quality and Allowance for Loan Losses

5. Credit Quality and Allowance for Loan Losses

The allowance for loan losses and recorded investment in loans as of the dates indicated are as follows.

		As of June 30, 2012
(dollars in thousands)		Collectively Evaluated for Impairment				Individually Evaluated for Impairment				Loans Acquired with Deteriorated Credit Quality				Total
Allowance for loan losses:
One- to four-family first mortgage		$	756			$	46			$	—			$	802
Home equity loans and lines			336				—				—				336
Commercial real estate			1,929				89				—				2,018
Construction and land			702				135				—				837
Multi-family residential			103				—				—				103
Commercial and industrial			792				—				50				842
Consumer			376				—				—				376
Total allowance for loan losses		$	4,994			$	270			$	50			$	5,314
Loans:
One- to four-family first mortgage		$	160,749			$	1,415			$	11,063			$	173,227
Home equity loans and lines			37,441				77				4,017				41,535
Commercial real estate			232,542				7,364				28,539				268,445
Construction and land			59,781				2,130				4,131				66,042
Multi-family residential			17,189				528				2,424				20,141
Commercial and industrial			76,278				70				1,603				77,951
Consumer			31,802				—				629				32,431
Total loans		$	615,782			$	11,584			$	52,406			$	679,772

		As of December 31, 2011
(dollars in thousands)		Collectively Evaluated for Impairment				Individually Evaluated for Impairment				Loans Acquired with Deteriorated Credit Quality				Total
Allowance for loan losses:
One- to four-family first mortgage		$	706			$	72			$	—			$	778
Home equity loans and lines			321				15				—				336
Commercial real estate			1,626				129				—				1,755
Construction and land			708				196				—				904
Multi-family residential			64				—				—				64
Commercial and industrial			806				66				50				922
Consumer			345				—				—				345
Total allowance for loan losses		$	4,576			$	478			$	50			$	5,104
Loans:
One- to four-family first mortgage		$	168,943			$	1,090			$	12,784			$	182,817
Home equity loans and lines			38,406				94				5,165				43,665
Commercial real estate			190,553				2,249				34,197				226,999
Construction and land			71,207				2,305				5,481				78,993
Multi-family residential			16,392				529				3,204				20,125
Commercial and industrial			78,495				136				4,350				82,981
Consumer			29,529				—				1,262				30,791
Total loans		$	593,525			$	6,403			$	66,443			$	666,371

A summary of the activity in the allowance for loan losses during the six months ended June 30, 2012 and June 30, 2011 is as follows.

		For the Six Months Ended June 30, 2012
(dollars in thousands)		Beginning Balance				Charge-offs				Recoveries				Provision				Ending Balance
Allowance for loan losses:
One- to four-family first mortgage		$	778			$	—			$	—			$	24			$	802
Home equity loans and lines			336				(15	)			12				3				336
Commercial real estate			1,755				(1,452	)			—				1,715				2,018
Construction and land			904				(151	)			—				84				837
Multi-family residential			64				—				—				39				103
Commercial and industrial			922				(55	)			4				(29	)			842
Consumer			345				(11	)			6				36				376
Total allowance for loan losses		$	5,104			$	(1,684	)		$	22			$	1,872			$	5,314

		For the Six Months Ended June 30, 2011
(dollars in thousands)		Beginning Balance				Charge-offs				Recoveries				Provision				Ending Balance
Allowance for loan losses:
One- to four-family first mortgage		$	641			$	—			$	10			$	(43	)		$	608
Home equity loans and lines			296				—				—				13				309
Commercial real estate			1,258				—				4				209				1,471
Construction and land			666				—				—				(7	)			659
Multi-family residential			46				—				—				1				47
Commercial and industrial			746				(244	)			13				161				676
Consumer			267				(16	)			3				33				287
Total allowance for loan losses		$	3,920			$	(260	)		$	30			$	367			$	4,057

On March 12, 2010, the Bank acquired certain assets and liabilities of the former Statewide Bank in a Federal Deposit Insurance Corporation (“FDIC”) assisted transaction. In connection with the transaction, Home Bank entered into loss sharing agreements with the FDIC which cover the acquired loan portfolio (“Covered Loans”) and repossessed assets (collectively referred to as “Covered Assets”). Under the terms of the loss sharing agreements, the FDIC will, subject to the terms and conditions of the agreements, absorb 80% of the first $41,000,000 of losses incurred on Covered Assets and 95% of losses on Covered Assets exceeding $41,000,000 during the periods specified in the loss sharing agreements.

On July 15, 2011, the Company acquired GS Financial Corp. (“GSFC”), the former holding company of Guaranty Savings Bank of Metairie, Louisiana. Loans acquired in the transaction were accounted for under the purchase method of accounting. A portion of the GSFC loan portfolio was determined to have deteriorated credit quality and was recorded at their aggregate fair value of $6.2 million at the date of acquisition.

Over the life of the loans acquired with deteriorated credit quality, the Company continues to estimate cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics. The Company evaluates whether the present values of such loans have decreased and if so, a provision for loan loss is recognized. For any increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the remaining life of the applicable pool of loans.

Credit quality indicators on the Company’s loan portfolio, excluding loans acquired with deteriorated credit quality, as of the dates indicated are as follows.

		June 30, 2012
(dollars in thousands)		Pass				Special Mention				Substandard				Doubtful				Total
One- to four-family first mortgage		$	156,056			$	2,365			$	3,743			$	—			$	162,164
Home equity loans and lines			36,773				209				536				—				37,518
Commercial real estate			225,015				3,695				11,196				—				239,906
Construction and land			58,518				651				2,742				—				61,911
Multi-family residential			16,906				227				584				—				17,717
Commercial and industrial			72,975				3,280				93				—				76,348
Consumer			31,734				56				12				—				31,802
Total loans		$	597,977			$	10,483			$	18,906			$	—			$	627,366

		December 31, 2011
(dollars in thousands)		Pass				Special Mention				Substandard				Doubtful				Total
One- to four-family first mortgage		$	165,997			$	2,595			$	1,441			$	—			$	170,033
Home equity loans and lines			37,849				320				331				—				38,500
Commercial real estate			176,651				11,435				4,716				—				192,802
Construction and land			69,537				1,595				2,380				—				73,512
Multi-family residential			16,164				228				529				—				16,921
Commercial and industrial			74,823				3,621				187				—				78,631
Consumer			29,429				22				78				—				29,529
Total loans		$	570,450			$	19,816			$	9,662			$	—			$	599,928

The above classifications follow regulatory guidelines and can generally be described as follows:

• Pass loans are of satisfactory quality.

• Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values.

• Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial performance. Such loans may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

• Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.

In addition, residential loans are classified using an inter-agency regulatory methodology that incorporates the extent of delinquencies and loan-to-value ratios. These classifications were the most current available as of the dates indicated and were generally updated within the quarter. Loans acquired with deteriorated credit quality are excluded from the schedule of credit quality indicators.

Age analysis of past due loans, excluding loans acquired with deteriorated credit quality, as of the dates indicated is as follows.

		June 30, 2012
(dollars in thousands)		30-59 Days Past  Due				60-89 Days Past  Due				Greater Than  90 Days Past Due				Total Past Due				Current Loans				Total Loans
Real estate loans:
One- to four-family first mortgage		$	4,185			$	986			$	1,797			$	6,968			$	155,196			$	162,164
Home equity loans and lines			42				—				272				314				37,204				37,518
Commercial real estate			271				—				7,797				8,068				231,838				239,906
Construction and land			165				—				1,347				1,512				60,399				61,911
Multi-family residential			921				—				584				1,505				16,212				17,717
Total real estate loans			5,584				986				11,797				18,367				500,849				519,216
Other loans:
Commercial and industrial			308				75				—				383				75,965				76,348
Consumer			104				92				12				208				31,594				31,802
Total other loans			412				167				12				591				107,559				108,150
Total loans		$	5,996			$	1,153			$	11,809			$	18,958			$	608,408			$	627,366

		December 31, 2011
(dollars in thousands)		30-59 Days Past  Due				60-89 Days Past  Due				Greater Than  90 Days Past Due				Total Past Due				Current Loans				Total Loans
Real estate loans:
One- to four-family first mortgage		$	3,740			$	451			$	2,053			$	6,244			$	163,789			$	170,033
Home equity loans and lines			242				—				171				413				38,087				38,500
Commercial real estate			1,384				704				1,862				3,950				188,852				192,802
Construction and land			1,376				13				812				2,201				71,311				73,512
Multi-family residential			944				—				707				1,651				15,270				16,921
Total real estate loans			7,686				1,168				5,605				14,459				477,309				491,768
Other loans:
Commercial and industrial			309				95				—				404				78,227				78,631
Consumer			216				38				50				304				29,225				29,529
Total other loans			525				133				50				708				107,452				108,160
Total loans		$	8,211			$	1,301			$	5,655			$	15,167			$	584,761			$	599,928

Excluding acquired loans, as of June 30, 2012 and December 31, 2011, the Company did not have any loans greater than 90 days past due and accruing.

The following is a summary of information pertaining to impaired loans excluding acquired loans as of the dates indicated.

		For the Six Months Ended June 30, 2012
(dollars in thousands)		Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage		$	1,044			$	1,044			$	—			$	829			$	28
Home equity loans and lines			77				77				—				78				2
Commercial real estate			7,221				7,221				—				2,329				92
Construction and land			1,001				1,001				—				546				29
Multi-family residential			528				528				—				528				—
Commercial and industrial			70				70				—				60				1
Consumer			—				—				—				—				—
Total		$	9,941			$	9,941			$	—			$	4,370			$	152
With an allowance recorded:
One- to four-family first mortgage		$	371			$	371			$	46			$	522			$	12
Home equity loans and lines			—				—				—				6				—
Commercial real estate			143				143				89				447				—
Construction and land			1,129				1,129				135				1,469				22
Multi-family residential			—				—				—				—				—
Commercial and industrial			—				—				—				55				—
Consumer			—				—				—				—				—
Total		$	1,643			$	1,643			$	270			$	2,499			$	34
Total impaired loans:
One- to four-family first mortgage		$	1,415			$	1,415			$	46			$	1,351			$	40
Home equity loans and lines			77				77				—				84				2
Commercial real estate			7,364				7,364				89				2,776				92
Construction and land			2,130				2,130				135				2,015				51
Multi-family residential			528				528				—				528				—
Commercial and industrial			70				70				—				115				1
Consumer			—				—				—				—				—
Total		$	11,584			$	11,584			$	270			$	6,869			$	186

		For the Year Ended December 31, 2011
(dollars in thousands)		Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage		$	540			$	540			$	—			$	745			$	28
Home equity loans and lines			79				79				—				58				3
Commercial real estate			1,747				1,747				—				996				60
Construction and land			734				734				—				672				40
Multi-family residential			529				529				—				41				25
Commercial and industrial			70				70				—				55				4
Consumer			—				—				—				—				—
Total		$	3,699			$	3,699			$	—			$	2,567			$	160
With an allowance recorded:
One- to four-family first mortgage		$	550			$	550			$	72			$	78			$	38
Home equity loans and lines			15				15				15				10				1
Commercial real estate			501				501				129				301				14
Construction and land			1,572				1,572				196				510				88
Multi-family residential			—				—				—				25				—
Commercial and industrial			66				66				66				130				3
Consumer			—				—				—				2				—
Total		$	2,704			$	2,704			$	478			$	1,056			$	144
Total impaired loans:
One- to four-family first mortgage		$	1,090			$	1,090			$	72			$	823			$	66
Home equity loans and lines			94				94				15				68				4
Commercial real estate			2,249				2,249				129				1,297				74
Construction and land			2,305				2,305				196				1,182				128
Multi-family residential			529				529				—				66				25
Commercial and industrial			136				136				66				185				7
Consumer			—				—				—				2				—
Total		$	6,403			$	6,403			$	478			$	3,623			$	304

A summary of information pertaining to nonaccrual Noncovered Loans as of dates indicated is as follows.

(dollars in thousands)		June 30, 2012				December 31, 2011
Nonaccrual loans (1):
One- to four-family first mortgage		$	2,977			$	4,298
Home equity loans and lines			272				191
Commercial real estate			9,658				4,194
Construction and land			1,470				813
Multi-family residential			1,383				1,322
Commercial and industrial			70				139
Consumer			12				50
Total		$	15,842			$	11,007

⁽¹⁾ Includes $8.8 million and $7.2 million in acquired loans from GSFC as of June 30, 2012 and December 31, 2011, respectively.

As of June 30, 2012, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired.

Troubled Debt Restructurings

During the course of its lending operations, the Company periodically grants concessions to its customers in an attempt to protect as much of its investment as possible and to minimize risk of loss. These concessions may include restructuring the terms of a customer loan to alleviate the burden of the customer’s near-term cash requirements. Effective January 1, 2011, the Company adopted the provisions of ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, which provides clarification on the determination of whether loan restructurings are considered troubled debt restructurings (“TDRs”). In accordance with the ASU, in order to be considered a TDR, the Company must conclude that the restructuring of a loan to a borrower who is experiencing financial difficulties constitutes a “concession”. The Company defines a concession as a modification of existing terms granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties that the Company would otherwise not consider. The concession is either granted through an agreement with the customer or is imposed by a court or law. Concessions include modifying original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to:

• a reduction of the stated interest rate for the remaining original life of the debt,

• an extension of the maturity date or dates at an interest rate lower than the current market rate for new debt with similar risk characteristics,

• a reduction of the face amount or maturity amount of the debt, or

• a reduction of accrued interest receivable on the debt.

In its determination of whether the customer is experiencing financial difficulties, the Company considers numerous indicators, including, but not limited to:

• whether the customer is currently in default on its existing loan, or is in an economic position where it is probable the customer will be in default on its loan in the foreseeable future without a modification,

• whether the customer has declared or is in the process of declaring bankruptcy,

• whether there is substantial doubt about the customer’s ability to continue as a going concern,

• whether, based on its projections of the customer’s current capabilities, the Company believes the customer’s future cash flows will be insufficient to service the debt, including interest, in accordance with the contractual terms of the existing agreement for the foreseeable future, and

• whether, without modification, the customer cannot obtain sufficient funds from other sources at an effective interest rate equal to the current market rate for similar debt for a non-troubled debtor.

If the Company concludes that both a concession has been granted and the concession was granted to a customer experiencing financial difficulties, the Company identifies the loan as a TDR. For purposes of the determination of an allowance for loan losses on TDRs, such loans are reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicators, the Company specifically allocates a portion of the allowance for loan losses to these loans.

Information about the Company’s TDRs is presented in the following tables.

		As of June 30, 2012
(dollars in thousands)		Current				Past Due Greater Than 30 Days				Nonaccrual TDRs				Total TDRs
Real estate loans:
One- to four-family first mortgage		$	303			$	—			$	—			$	303
Home equity loans and lines			—				—				—				—
Commercial real estate			308				—				1,274				1,582
Construction and land			191				—				—				191
Multi-family residential			—				—				678				678
Total real estate loans			802				—				1,952				2,754
Other loans:
Commercial and industrial			12				—				—				12
Consumer			37				—				—				37
Total other loans			49				—				—				49
Total loans		$	851			$	—			$	1,952			$	2,803

		As of December 31, 2011
(dollars in thousands)		Current				Past Due Greater Than 30 Days				Nonaccrual TDRs				Total TDRs
Real estate loans:
One- to four-family first mortgage		$	—			$	—			$	—			$	—
Home equity loans and lines			15				—				—				15
Commercial real estate			319				—				117				436
Construction and land			198				—				—				198
Multi-family residential			—				—				—				—
Total real estate loans			532				—				117				649
Other loans:
Commercial and industrial			22				—				—				22
Consumer			44				—				—				44
Total other loans			66				—				—				66
Total loans		$	598			$	—			$	117			$	715

None of the TDRs defaulted subsequent to the restructuring through the date the financial statements were issued. The Company restructured as TDRs three loans totaling $2.3 million during the second quarter of 2012.

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- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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