Provision for Loan LossesThe provision for loan losses was $9.7 million for the first nine months of 2011, a decrease of $13.2 million, from $22.8 million for the same nine-month period in 2010. The provision decreased primarily because fewer loan loss reserves on commercial real estate loans were needed due to the stabilization of values of non-performing real estate in the first nine months of 2011 when compared to the same nine-month period of 2010. The provision also decreased because of the $117 million decrease in the loan portfolio between the periods. Total non-performing assets were $60.0 million at September 30, 2011, a decrease of $24.5 million, or 29.0%, from $84.5 million at December 31, 2010. Non-performing loans decreased $29.2 million and foreclosed and repossessed assets increased $4.7 million during the nine-month period ended September 30, 2011. The non-performing loan and foreclosed and repossessed asset activity for the first nine months of 2011 was as follows:

 

(Dollars in thousands)
 
Non-performing loans         Foreclosed and repossessed asset activity
December 31, 2010 $ 68,074 December 31, 2010 $ 16,395
Classified as non-performing 16,651 Transferred from non-performing loans 8,543
Charge offs (27,707 ) Other foreclosures/repossessions 139
Principal payments received (4,613 ) Real estate sold (3,382 )
Classified as accruing (5,004 ) Net gain on sale of assets 153
Transferred to real estate owned   (8,543 ) Write downs   (704 )
September 30, 2011 $ 38,858   September 30, 2011 $ 21,144  
           

A reconciliation of the Company’s allowance for loan losses for the nine-month periods ended September 30, 2011 and 2010 is summarized as follows:
               
         
(in thousands) 2011 2010
Balance at January 1, $ 42,828 $ 23,811
Provision 9,669 22,839
Charge offs:
One-to-four family (450 ) (168 )
Consumer (230 ) (795 )
Commercial business (10,724 ) (5,803 )
Commercial real estate (16,303 ) (6,524 )
Recoveries   900     130  
Balance at September 30, $ 25,690   $ 33,490  
 
General allowance $ 15,906 $ 16,292
Specific allowance   9,784     17,198  
$ 25,690   $ 33,490  
                       

Non-Interest Income and ExpenseNon-interest income was $4.9 million for the first nine months of 2011, a decrease of $353,000, or 6.7%, from $5.2 million for the same period in 2010. Gains on sales of loans decreased $348,000 between the periods as a result of a decrease in single family loan originations. Loan servicing fees decreased $59,000 between the periods primarily because of a decrease in the number of commercial loans that are being serviced for others. Other non-interest income decreased $39,000 due primarily to a decrease in rental income on other real estate owned due to the sale of some properties that were being rented. Fees and service charges increased $93,000 between the periods primarily because of increases in debit card income and service charges.

Non-interest expense was $20.7 million for the first nine months of 2011, an increase of $1.4 million, or 7.0%, from $19.3 million for the same period in 2010. Other non-interest expense increased $1.4 million, because of increased real estate taxes and legal fees related to other real estate owned. Non-interest expense also increased $645,000 between the periods because of a $301,000 loss recognized on real estate owned in the first nine months of 2011 compared to a $344,000 gain recognized on real estate owned in the first nine months of 2010. Compensation and benefits expense increased $132,000 between the periods primarily because of an increase in health insurance costs between the periods. Deposit insurance expense decreased $493,000 between the periods primarily because of a change in the FDIC’s insurance cost structure and also because of a decrease in brokered deposits between the periods. Occupancy expense decreased $335,000 primarily because of a decrease in depreciation expense. Data processing expense increased $18,000 due to increased software maintenance costs.

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