Loans Held-for-Sale

6 Months Ended

Jun. 30, 2012

Note E.

Loans Held-for-Sale

The Company originates loans that will be sold in the secondary market and other loans that it plans to hold to maturity. Loans to be held in the portfolio are classified as held-to-maturity at origination based on the Company's intent and ability to hold until maturity. These loans are reported at their outstanding balance. Loans held-for-sale are designated as such at origination and locked in with an approved investor by obtaining a forward commitment to purchase the loan, usually not to exceed 30 days from closing. Management has a clear intent to sell the loan based on the commitment it has obtained from the investor. These loans are carried at the lower of cost or market value.

Loans held-for-sale primarily consist of fifteen and thirty year fixed rate, one to four family real estate loans which are valued at the lower of cost or market, as determined by outstanding commitments from investors or current investor yield requirements, calculated on an individual basis. These loans are sold to protect earnings and equity from undesirable shifts in interest rates. Unrealized losses on loans held-for-sale, if any, are charged against income in the period of decline. Such declines are recorded in a valuation allowance account and deducted from the cost basis of the loans. There were no such losses at June 30, 2012. Gains on loans held-for-sale are recognized when realized and amounted to $91 thousand and $182 thousand for the three and six months ended June 30, 2012. Loans held-for-sale increased from $2.9 million at December 31, 2011 to $3.9 million at June 30, 2012.

Loans held in the portfolio have been analyzed in the past and compiled as to the individual characteristics of each loan. If at any time a decision is made to sell any loan in the portfolio, such analysis will take place and acceptable loans will be reclassified as held-for-sale and carried at the lower of cost or market.

BRITTON & KOONTZ CAPITAL CORP 10-Q