Note 4: Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2012

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 4:  Loans and Allowance for Loan Losses

Categories of loans at June 30, 2012 and December 31, 2011 include:

	June 30, 2012			December 31, 2011
Real estate - residential mortgage:
One to four family units	$	98,456,130		$	98,030,718
Multi-family		45,815,849			43,165,695
Real estate - construction		48,043,307			44,912,049
Real estate - commercial		176,017,859			194,856,374
Commercial loans		96,790,395			88,088,580
Consumer and other loans		20,653,059			20,758,027
Total loans		485,776,599			489,811,443
Less:
Allowance for loan losses		(13,126,138	)		(10,613,145	)
Deferred loan fees/costs, net		(220,184	)		(237,562	)
Net loans	$	472,430,277		$	478,960,736

Classes of loans by aging at June 30, 2012 and December 31, 2011 were as follows:

	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	$	439	$	-	$	-	$	439	$	98,017	$	98,456	$	-
Multi-family		-		-		-		-		45,816		45,816		-
Real estate - construction		200		706		-		906		47,137		48,043		-
Real estate - commercial		763		1,481		-		2,244		173,774		176,018		-
Commercial loans		6,815		492		1,416		8,723		88,068		96,791		-
Consumer and other loans		-		-		17		17		20,636		20,653		-
Total	$	8,217	$	2,679	$	1,433	$	12,329	$	473,448	$	485,777	$	-

	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	$	-

Nonaccruing loans are summarized as follows:

	June 30, 2012		December 31, 2011
Real estate - residential mortgage:
One to four family units	$	1,542,914	$	1,671,245
Multi-family		-		-
Real estate - construction		7,676,776		8,514,187
Real estate - commercial		14,735,720		4,082,416
Commercial loans		9,670,942		2,377,081
Consumer and other loans		355,782		357,060
Total	$	33,982,134	$	17,001,989

The following tables present the activity in the allowance for loan losses based on portfolio segment for the three months and six months ended June 30, 2012 and 2011:

	Construction			Commercial Real Estate		One to four family			Multi-family		Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	3,239		$	2,620	$	1,606		$	389	$	1,816		$	387		$	917		$	10,974
Provision charged to expense		(877	)		1,736		(34	)		26		2,156			(25	)		(882	)	$	2,100
Losses charged off		-			-		-			-		(20	)		(15	)		-		$	(35	)
Recoveries		6			24		2			-		45			10			-		$	87
Balance, end of period	$	2,368		$	4,380	$	1,574		$	415	$	3,997		$	357		$	35		$	13,126

	Construction			Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	2,508		$	2,725		$	1,735		$	390	$	1,948		$	372		$	935		$	10,613
Provision charged to expense		(156	)		2,095			(58	)		25		1,993			1			(900	)	$	3,000
Losses charged off		-			(478	)		(108	)		-		(20	)		(34	)		-		$	(640	)
Recoveries		16			38			5			-		76			18			-		$	153
Balance, end of period	$	2,368		$	4,380		$	1,574		$	415	$	3,997		$	357		$	35		$	13,126

	Construction			Commercial Real Estate		One to four family		Multi-family		Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	5,291		$	1,926	$	1,966	$	521	$	2,011		$	409		$	785		$	12,909
Provision charged to expense		(250	)		1,113		188		1		224			68			(344	)	$	1,000
Losses charged off		(6	)		-		-		-		(8	)		(24	)		-		$	(38	)
Recoveries		1			14		2		-		43			17			-		$	77
Balance, end of period	$	5,036		$	3,053	$	2,156	$	522	$	2,270		$	470		$	441		$	13,948

	Construction			Commercial Real Estate			One to four family			Multi-family			Commercial			Consumer and Other			Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	4,547		$	3,125		$	1,713		$	528		$	2,483		$	687		$	-	$	13,083
Provision charged to expense		554			1,386			706			(6	)		236			(1,417	)		441	$	1,900
Losses charged off		(76	)		(1,475	)		(265	)		-			(526	)		(64	)		-	$	(2,406	)
Recoveries		11			17			2			-			77			1,264			-	$	1,371
Balance, end of period	$	5,036		$	3,053		$	2,156		$	522		$	2,270		$	470		$	441	$	13,948

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2012 and December 31, 2011:

	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	454	$	2,247	$	73	$	-	$	2,595	$	43	$	-	$	5,412
Ending balance: collectively evaluated for impairment	$	1,913	$	2,134	$	1,501	$	415	$	1,402	$	314	$	35	$	7,714
Loans:
Ending balance: individually evaluated for impairment	$	7,677	$	15,833	$	1,624	$	-	$	10,587	$	410	$	-	$	36,131
Ending balance: collectively evaluated for impairment	$	40,366	$	160,185	$	96,832	$	45,816	$	86,204	$	20,243	$	-	$	449,646

	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
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

The following table summarizes the recorded investment in impaired loans at June 30, 2012 and December 31, 2011:

	June 30, 2012						December 31, 2011
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,539	$	1,539	$	-	$	1,424	$	1,424	$	-
Multi-family		-		-		-		-		-		-
Real estate - construction		7,137		7,137		-		1,181		1,181		-
Real estate - commercial		4,940		5,265		-		4,646		5,985		-
Commercial loans		3,383		3,694		-		1,148		1,459		-
Consumer and other loans		159		159		-		376		376		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	85	$	111	$	73	$	395	$	421	$	127
Multi-family		-		-		-		-		-		-
Real estate - construction		540		1,060		454		7,334		7,854		1,355
Real estate - commercial		10,893		10,893		2,247		373		373		659
Commercial loans		7,204		7,204		2,595		1,900		1,900		399
Consumer and other loans		251		251		43		277		277		72
Total
Real estate - residential mortgage:
One to four family units	$	1,624	$	1,650	$	73	$	1,819	$	1,845	$	127
Multi-family		-		-		-		-		-		-
Real estate - construction		7,677		8,197		454		8,515		9,035		1,355
Real estate - commercial		15,833		16,158		2,247		5,019		6,358		659
Commercial loans		10,587		10,898		2,595		3,048		3,359		399
Consumer and other loans		410		410		43		653		653		72
Total	$	36,131	$	37,313	$	5,412	$	19,054	$	21,250	$	2,612

The following tables summarize average impaired loans and related interest recognized on impaired loans for the three months and six months ended June 30, 2012 and 2011:

	For the Three Months Ended				For the Three Months Ended
	June 30, 2012				June 30, 2011
	Average Investment in Impaired Loans		Interest Income Recognized		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	$	1,410	$	7	$	2,648	$	25
Multi-family		-		-		-		-
Real estate - construction		3,200		-		7,730		1
Real estate - commercial		3,956		18		2,571		28
Commercial loans		2,403		5		2,848		34
Consumer and other loans		157		2		589		18
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	290	$	-	$	2,480	$	-
Multi-family		-		-		-		-
Real estate - construction		4,543		-		4,221		-
Real estate - commercial		10,803		-		5,128		-
Commercial loans		4,035		-		947		-
Consumer and other loans		265		-		588		-
Total
Real estate - residential mortgage:
One to four family units	$	1,700	$	7	$	5,128	$	25
Multi-family		-		-		-		-
Real estate - construction		7,743		-		11,951		1
Real estate - commercial		14,759		18		7,699		28
Commercial loans		6,438		5		3,795		34
Consumer and other loans		422		2		1,177		18
Total	$	31,062	$	32	$	29,750	$	106

	For the Six Months Ended				For the Six Months Ended
	June 30, 2012				June 30, 2011
	Average Investment in Impaired Loans		Interest Income Recognized		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	$	1,409	$	12	$	2,531	$	59
Multi-family		-		-		-		-
Real estate - construction		2,093		-		3,934		2
Real estate - commercial		4,803		31		3,876		39
Commercial loans		2,153		11		2,730		69
Consumer and other loans		270		10		523		36
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	447	$	-	$	1,931	$	-
Multi-family		-		-		-		-
Real estate - construction		5,782		-		7,643		-
Real estate - commercial		7,158		-		2,426		-
Commercial loans		3,153		-		2,871		-
Consumer and other loans		265		-		612		-
Total
Real estate - residential mortgage:
One to four family units	$	1,856	$	12	$	4,462	$	59
Multi-family		-		-		-		-
Real estate - construction		7,875		-		11,577		2
Real estate - commercial		11,961		31		6,302		39
Commercial loans		5,306		11		5,601		69
Consumer and other loans		535		10		1,135		36
Total	$	27,533	$	64	$	29,077	$	205

At June 30, 2012, 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 on 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.

During the three months ended June 30, 2012, there were two new one-to-four family residential mortgage loans modified that met the definition of a troubled debt restructuring that totaled $390,898.  The concession granted on these two loans was temporary interest-only payments.  As of June 30, 2012 the Bank also had $7.6 million of construction loans and $1.9 million of commercial real estate loans that were classified as troubled debt restructurings.

The Bank has allocated $511,023 and $1.3 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2012 and December 31, 2011, respectively.

There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the six months ending June 30, 2012.  A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

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.

Doubtful-This rating represents loans that have all the weaknesses of substandard classified loans with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The following tables provide information about the credit quality of the loan portfolio using the Bank’s internal rating system as of June 30, 2012 and December 31, 2011:

	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	30,134	$	155,922	$	93,605	$	45,007	$	85,594	$	19,589	$	429,851
Special Mention		8,089		3,068		1,992		492		586		101		14,328
Substandard		9,820		17,028		2,859		317		6,481		963		37,468
Doubtful		-		-		-		-		4,130		-		4,130
Total	$	48,043	$	176,018	$	98,456	$	45,816	$	96,791	$	20,653	$	485,777

	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