NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES

Categories of loans at December 31, 2011 and 2010 include:

	December 31,
	2011			2010
Real estate - residential mortgage:
One to four family units	$	98,030,718		$	103,052,035
Multi-family		43,165,695			44,138,034
Real estate - construction		44,912,049			63,308,397
Real estate - commercial		194,856,374			195,889,801
Commercial loans		88,088,580			85,427,589
Consumer and other loans		20,758,027			23,425,843
Total loans		489,811,443			515,241,699
Less:
Allowance for loan losses		(10,613,145	)		(13,082,703	)
Deferred loan fees/costs, net		(237,562	)		(178,611	)
Net loans	$	478,960,736		$	501,980,385

Classes of loans by aging at December 31, 2011 and 2010 were as follows:

As of December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	5	$	206	$	33	$	244	$	97,787	$	98,031	$	-
Multi-family		-		-		-		-		43,166		43,166		-
Real estate - construction		728		-		157		885		44,027		44,912		-
Real estate - commercial		167		-		1,193		1,360		193,496		194,856		-
Commercial loans		32		-		548		580		87,508		88,088		-
Consumer and other loans		14		18		20		52		20,706		20,758		-
Total	$	946	$	224	$	1,951	$	3,121	$	486,690	$	489,811	$	-

As of December 31, 2010
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	1,158	$	562	$	1,591	$	3,311	$	99,741	$	103,052	$	-
Multi-family		-		-		-		-		44,138		44,138		-
Real estate - construction		1,969		89		311		2,369		60,939		63,308		-
Real estate - commercial		-		234		-		234		195,656		195,890		-
Commercial loans		2,571		-		2,021		4,592		80,836		85,428		-
Consumer and other loans		100		25		29		154		23,272		23,426		-
Total	$	5,798	$	910	$	3,952	$	10,660	$	504,582	$	515,242	$	-

Nonaccruing loans are summarized as follows:

	December 31,
	2011		2010

Real estate - residential mortgage:
One to four family units	$	1,671,245	$	3,119,760
Multi-family		-		-
Real estate - construction		8,514,187		8,934,666
Real estate - commercial		4,082,416		2,980,117
Commercial loans		2,377,081		7,743,116
Consumer and other loans		357,060		234,475
Total	$	17,001,989	$	23,012,134

Activity in the allowance for loan losses was as follows:

	Years ended
	December 31,
	2011			2010			2009

Balance, beginning of year	$	13,082,703		$	14,076,123		$	16,728,492
Provision charged to expense		3,350,000			5,200,000			6,900,000
Losses charged off, net of recoveries of $1,955,578, $1,191,644 and $217,288 for the years ended December 31, 2011, 2010 and 2009, respectively		(5,819,558	)		(6,193,420	)		(9,552,369	)
Balance, end of year	$	10,613,145		$	13,082,703		$	14,076,123

The following table presents the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the years ended December 31, 2011 and 2010:

As of December 31, 2011
	Construction			Commercial Real Estate			One to four family			Multi-family			Commercial			Consumer and Other			Unallocated		Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of year	$	4,547		$	3,125		$	1,713		$	528		$	2,483		$	687		$	-	$	13,083
Provision charged to expense		265			2,123			943			(138	)		505			(1,283	)		935	$	3,350
Losses charged off		(2,381	)		(2,744	)		(966	)		-			(1,362	)		(322	)		-	$	(7,775	)
Recoveries		77			221			45			-			322			1,290			-	$	1,955
Balance, end of year	$	2,508		$	2,725		$	1,735		$	390		$	1,948		$	372		$	935	$	10,613
Ending balance: individually evaluated for impairment	$	1,355		$	659		$	127		$	-		$	399		$	72		$	-	$	2,612
Ending balance: collectively evaluated for impairment	$	1,153		$	2,066		$	1,608		$	390		$	1,549		$	300		$	935	$	8,001
Loans:
Ending balance: individually evaluated for impairment	$	8,515		$	5,019		$	1,819		$	-		$	3,048		$	653		$	-	$	19,054
Ending balance: collectively evaluated for impairment	$	36,397		$	189,837		$	96,212		$	43,166		$	85,040		$	20,105		$	-	$	470,757

As of December 31, 2010
	Construction			Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of year	$	2,810		$	2,923		$	1,646		$	393	$	3,554		$	2,750		$	-	$	14,076
Provision charged to expense		5,620			563			948			135		716			(2,782	)		-	$	5,200
Losses charged off		(3,893	)		(373	)		(906	)		-		(1,847	)		(366	)		-	$	(7,385	)
Recoveries		10			12			25			-		60			1,085			-	$	1,192
Balance, end of year	$	4,547		$	3,125		$	1,713		$	528	$	2,483		$	687		$	-	$	13,083
Ending balance: individually evaluated for impairment	$	3,134		$	1,384		$	149		$	-	$	1,052		$	307		$	-	$	6,026
Ending balance: collectively evaluated for impairment	$	1,413		$	1,741		$	1,564		$	528	$	1,431		$	380		$	-	$	7,057
Loans:
Ending balance: individually evaluated for impairment	$	9,281		$	5,150		$	3,363		$	-	$	8,409		$	1,008		$	-	$	27,211
Ending balance: collectively evaluated for impairment	$	54,027		$	190,740		$	99,689		$	44,138	$	77,019		$	22,418		$	-	$	488,031

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC-310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted 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 following summarizes impaired loans at and for the years ended December 31, 2011 and 2010:

As of December 31, 2011
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,424	$	1,424	$	-	$	2,373	$	50
Multi-family		-		-		-		-		-
Real estate - construction		1,181		1,181		-		3,705		-
Real estate - commercial		4,646		5,985		-		4,609		57
Commercial loans		1,148		1,459		-		1,573		55
Consumer and other loans		376		376		-		458		37
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	395	$	421	$	127	$	1,396	$	-
Multi-family		-		-		-		-		-
Real estate - construction		7,334		7,854		1,355		7,697		-
Real estate - commercial		373		373		659		2,189		-
Commercial loans		1,900		1,900		399		2,790		-
Consumer and other loans		277		277		72		381		-
Total

Real estate - residential mortgage:
One to four family units	$	1,819	$	1,845	$	127	$	3,769	$	50
Multi-family		-		-		-		-		-
Real estate - construction		8,515		9,035		1,355		11,402		-
Real estate - commercial		5,019		6,358		659		6,798		57
Commercial loans		3,048		3,359		399		4,363		55
Consumer and other loans		653		653		72		839		37
Total	$	19,054	$	21,250	$	2,612	$	27,171	$	199

As of December 31, 2010
	Recorded		Unpaid		Specific		Average		Interest
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,691	$	1,708	$	-	$	3,011	$	185
Multi-family		-		-		-		1,007		-
Real estate - construction		601		2,003		-		4,418		9
Real estate - commercial		2,881		2,881		-		2,674		30
Commercial loans		2,897		4,852		-		3,516		41
Consumer and other loans		369		372		-		2,253		93
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,672	$	1,672	$	357	$	1,570	$	-
Multi-family		-		-		-		-		-
Real estate - construction		8,680		8,680		3,134		2,804		-
Real estate - commercial		2,269		2,269		1,384		997		-
Commercial loans		5,512		5,512		1,052		4,867		-
Consumer and other loans		639		639		99		1,879		-
Total
Real estate - residential mortgage:
One to four family units	$	3,363	$	3,380	$	357	$	4,581	$	185
Multi-family		-		-		-		1,007		-
Real estate - construction		9,281		10,683		3,134		7,222		9
Real estate - commercial		5,150		5,150		1,384		3,671		30
Commercial loans		8,409		10,364		1,052		8,383		41
Consumer and other loans		1,008		1,011		99		4,132		93
Total	$	27,211	$	30,588	$	6,026	$	28,996	$	358

Interest of approximately $1,223,789 was recognized on average impaired loans of $39,642,406 for the year ended December 31, 2009.

At December 31, 2011, the Bank's impaired loans shown in the table above included loans that were classified as troubled debt restructurings (TDR). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Bank considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor's projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the loan without a modification.

The Bank considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Bank include the debtor's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by the Bank generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction of the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.

As a result of adopting the amendments in Accounting Standards Update No. 2011-02 (the ASU), the Bank reassessed all restructurings that occurred on or after the beginning of its current fiscal year December 31, 2011 for identification as troubled debt restructurings. The Bank identified as troubled debt restructurings certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology. Upon identifying those receivables as troubled debt restructurings, the Bank identified them as impaired under the guidance in Accounting Standards Codification (ASC) 310-10-35. The ASU requires prospective application of the impairment measurement guidance in ASC 310-10-35 for those receivables newly identified as impaired

The following table presents information regarding troubled debt restructurings by class for the year ended December 31, 2011:

	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate - residential mortgage:
One to four family units		-	$	-	$	-
Multi-family		-		-		-
Real estate - construction		3		8,526,970		8,925,340
Real estate - commercial		3		6,526,382		4,591,406
Commercial loans		-		-		-
Consumer and other loans		-		-		-
Total		6	$	15,053,352	$	13,516,746

The troubled debt restructurings described above increased the allowance for loan losses by $1,299,226 and resulted in charge offs of $1,859,100 during the year ended December 31, 2011.

The following table presents the troubled debt restructurings by type of modification:

	Interest Rate		Term		Combination		Total Modification
Real estate - residential mortgage:
One to four family units	$	-	$	-	$	-	$	-
Multi-family		-		-		-		-
Real estate - construction		6,884,800		2,040,540		-		8,925,340
Real estate - commercial		-		-		4,591,406		4,591,406
Commercial loans		-		-		-		-
Consumer and other loans		-		-		-		-
Total	$	6,884,800	$	2,040,540	$	4,591,406	$	13,516,746

At December 31, 2010, the Bank did not have any troubled debt restructurings.

As part of the on-going monitoring of the credit quality of the Bank's loan portfolio, management tracks loans by an internal rating system. All loans are assigned an internal credit quality rating based on an analysis of the borrower's financial condition. The criteria used to assign quality ratings to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Bank's safety and soundness. The following are the internally assigned ratings:

Pass-This rating represents loans that have strong asset quality and liquidity along with a multi-year track record of profitability.

Special mention-This rating represents loans that are currently protected but are potentially weak. The credit risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.

Substandard-This rating represents loans that show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

The following table provides information about the credit quality of the loan portfolio using the Bank's internal rating system as of December 31, 2011 and 2010:

As of December 31, 2011
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	27,646	$	162,019	$	91,503	$	42,668	$	80,529	$	19,522	$	423,887
Special Mention		6,372		20,406		3,214		498		2,183		309		32,982
Substandard		10,894		12,431		3,314		-		5,376		927		32,942
Total	$	44,912	$	194,856	$	98,031	$	43,166	$	88,088	$	20,758	$	489,811

As of December 31, 2010
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	45,307	$	173,210	$	93,816	$	44,138	$	73,291	$	21,580	$	451,342
Special Mention		4,621		7,604		2,962		-		1,028		4		16,219
Substandard		13,380		15,076		6,274		-		11,109		1,842		47,681
Total	$	63,308	$	195,890	$	103,052	$	44,138	$	85,428	$	23,426	$	515,242

The weighted average interest rate on loans as of December 31, 2011 and 2010 was 5.82% and 5.61%, respectively.

The Bank serviced mortgage loans for others amounting to $199,256 and $237,605 as of December 31, 2011 and 2010, respectively. The Bank serviced commercial loans for others amounting to $4,143,374 and $6,555,843 as of December 31, 2011 and 2010, respectively.