Note 4: Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2012

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

Note 4:  Loans and Allowance for Loan Losses

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

	September 30, 2012			December 31, 2011
Real estate - residential mortgage:
One to four family units	$	100,146,009		$	98,030,718
Multi-family		45,096,600			43,165,695
Real estate - construction		45,275,141			44,912,049
Real estate - commercial		165,782,870			194,856,374
Commercial loans		93,852,117			88,088,580
Consumer and other loans		20,416,044			20,758,027
Total loans		470,568,781			489,811,443
Less:
Allowance for loan losses		(8,476,454	)		(10,613,145	)
Deferred loan fees/costs, net		(192,241	)		(237,562	)
Net loans	$	461,900,086		$	478,960,736

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

As of September 30, 2012

	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	$	-	$	63	$	-	$	63	$	100,083	$	100,146	$	-
Multi-family		-		-		-		-		45,097		45,097		-
Real estate - construction		145		20		693		858		44,417		45,275		-
Real estate - commercial		411		-		-		411		165,372		165,783		-
Commercial loans		259		-		1,840		2,099		91,753		93,852		-
Consumer and other loans		57		27		17		101		20,315		20,416		-
Total	$	872	$	110	$	2,550	$	3,532	$	467,037	$	470,569	$	-

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	$	-

Nonaccruing loans are summarized as follows:

	September 30, 2012		December 31, 2011
Real estate - residential mortgage:
One to four family units	$	2,664,448	$	1,671,245
Multi-family		-		-
Real estate - construction		5,741,099		8,514,187
Real estate - commercial		5,594,977		4,082,416
Commercial loans		3,964,625		2,377,081
Consumer and other loans		334,347		357,060
Total	$	18,299,496	$	17,001,989

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

Three months ended September 30, 2012	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	$	2,368		$	4,380		$	1,574		$	415		$	3,997		$	357		$	35	$	13,126
Provision charged to expense		732			(1,403	)		(251	)		(136	)		2,901			(59	)		816	$	2,600
Losses charged off		(1,295	)		(507	)		(22	)		-			(5,518	)		(15	)		-	$	(7,357	)
Recoveries		-			28			11			-			58			10			-	$	107
Balance, end of period	$	1,805		$	2,498		$	1,312		$	279		$	1,438		$	293		$	851	$	8,476

Nine months ended September 30, 2012	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		576			692			(309	)		(111	)		4,894			(58	)		(84	)	$	5,600
Losses charged off		(1,295	)		(985	)		(130	)		-			(5,538	)		(49	)		-		$	(7,997	)
Recoveries		16			66			16			-			134			28			-		$	260
Balance, end of period	$	1,805		$	2,498		$	1,312		$	279		$	1,438		$	293		$	851		$	8,476

Three months ended September 30, 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	$	5,036		$	3,053		$	2,156		$	522		$	2,270		$	470		$	441		$	13,948
Provision charged to expense		(146	)		949			(7	)		(141	)		354			(46	)		(63	)	$	900
Losses charged off		(7	)		(128	)		(637	)		-			(463	)		(131	)		-		$	(1,366	)
Recoveries		1			13			31			-			14			16			-		$	75
Balance, end of period	$	4,884		$	3,887		$	1,543		$	381		$	2,175		$	309		$	378		$	13,557

Nine months ended September 30, 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	$	4,547		$	3,125		$	1,713		$	528		$	2,483		$	687		$	-	$	13,083
Provision charged to expense		408			2,335			699			(147	)		590			(1,463	)		378	$	2,800
Losses charged off		(83	)		(1,603	)		(902	)		-			(989	)		(195	)		-	$	(3,772	)
Recoveries		12			30			33			-			91			1,280			-	$	1,446
Balance, end of period	$	4,884		$	3,887		$	1,543		$	381		$	2,175		$	309		$	378	$	13,557

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

As of September 30, 2012	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	$	313	$	97	$	-	$	355	$	48	$	-	$	1,267
Ending balance: collectively evaluated for impairment	$	1,351	$	2,185	$	1,215	$	279	$	1,083	$	245	$	851	$	7,209
Loans:
Ending balance: individually evaluated for impairment	$	5,742	$	7,460	$	2,744	$	-	$	3,726	$	477	$	-	$	20,149
Ending balance: collectively evaluated for impairment	$	39,533	$	158,323	$	97,402	$	45,097	$	90,126	$	19,939	$	-	$	450,420

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	$	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 September 30, 2012 and December 31, 2011:

	September 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	$	2,596	$	2,596	$	-	$	1,424	$	1,424	$	-
Multi-family		-		-		-		-		-		-
Real estate - construction		4,972		5,492		-		1,181		1,181		-
Real estate - commercial		2,697		3,022		-		4,646		5,985		-
Commercial loans		1,002		6,830		-		1,148		1,459		-
Consumer and other loans		147		147		-		376		376		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	148	$	174	$	97	$	395	$	421	$	127
Multi-family		-		-		-		-		-		-
Real estate - construction		770		770		454		7,334		7,854		1,355
Real estate - commercial		4,763		4,763		313		373		373		659
Commercial loans		2,724		2,724		355		1,900		1,900		399
Consumer and other loans		330		330		48		277		277		72
Total
Real estate - residential mortgage:
One to four family units	$	2,744	$	2,770	$	97	$	1,819	$	1,845	$	127
Multi-family		-		-		-		-		-		-
Real estate - construction		5,742		6,262		454		8,515		9,035		1,355
Real estate - commercial		7,460		7,785		313		5,019		6,358		659
Commercial loans		3,726		9,554		355		3,048		3,359		399
Consumer and other loans		477		477		48		653		653		72
Total	$	20,149	$	26,848	$	1,267	$	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 nine months ended September 30, 2012 and 2011:

	For the Three Months Ended September 30, 2012				For the Three Months Ended September 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	$	2,601	$	5	$	2,149	$	20
Multi-family		-		-		-		-
Real estate - construction		4,953		-		3,803		8
Real estate - commercial		4,273		18		5,533		21
Commercial loans		2,719		4		107		37
Consumer and other loans		151		1		545		20
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	106	$	-	$	1,491	$	-
Multi-family		-		-		-		-
Real estate - construction		770		-		7,794		-
Real estate - commercial		9,085		-		3,164		-
Commercial loans		4,774		-		2,861		-
Consumer and other loans		417		-		159		-
Total
Real estate - residential mortgage:
One to four family units	$	2,707	$	5	$	3,640	$	20
Multi-family		-		-		-		-
Real estate - construction		5,723		-		11,597		8
Real estate - commercial		13,358		18		8,697		21
Commercial loans		7,493		4		2,968		37
Consumer and other loans		568		1		704		20
Total	$	29,849	$	28	$	27,606	$	106

	For the Nine Months Ended September 30, 2012				For the Nine Months Ended September 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	$	1,807	$	17	$	2,404	$	79
Multi-family		-		-		-		-
Real estate - construction		3,046		-		3,890		10
Real estate - commercial		4,626		49		4,429		60
Commercial loans		2,342		15		1,855		106
Consumer and other loans		230		11		530		56
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	334	$	-	$	1,784	$	-
Multi-family		-		-		-		-
Real estate - construction		4,111		-		7,694		-
Real estate - commercial		7,800		-		2,672		-
Commercial loans		3,693		-		2,868		-
Consumer and other loans		316		-		461		-
Total
Real estate - residential mortgage:
One to four family units	$	2,141	$	17	$	4,188	$	79
Multi-family		-		-		-		-
Real estate - construction		7,157		-		11,584		10
Real estate - commercial		12,426		49		7,101		60
Commercial loans		6,035		15		4,723		106
Consumer and other loans		546		11		991		56
Total	$	28,305	$	92	$	28,587	$	311

At September 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 September 30, 2012, there was one new commercial real estate loan modified that met the definition of a troubled debt restructuring that totaled $389,993.  The concession granted on this loan was an extension of amortization.  As of September 30, 2012 the Bank also had $5.7 million of construction loans, $1.7 million of one-to-four family and $1.9 million of commercial real estate loans that were classified as troubled debt restructurings.

The Bank has allocated $680,287 and $1.3 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2012 and December 31, 2011, respectively.

There was one construction loan troubled debt restructuring for which there was a payment default within twelve months following the modification during the nine months ending September 30, 2012 that totaled $693,153.  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 September 30, 2012 and December 31, 2011:

September 30, 2012	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	32,665	$	146,483	$	94,368	$	43,015	$	88,872	$	19,295	$	424,698
Special Mention		6,860		4,362		1,983		1,767		483		98		15,553
Substandard		5,057		14,938		3,795		315		4,369		1,023		29,497
Doubtful		693		-		-		-		128		-		821
Total	$	45,275	$	165,783	$	100,146	$	45,097	$	93,852	$	20,416	$	470,569

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