Loans Receivable, Net

3 Months Ended

Jun. 30, 2012

Notes

Loans Receivable, Net

10.  Loans Receivable, Net

Loans receivable, net, at June 30, 2012 and March 31, 2012 consisted of the following:

	June 30, 2012	March 31, 2012
Residential Real Estate	$95,674,036	$97,807,917
Consumer	57,310,488	58,685,000
Commercial Business	8,893,669	9,552,575
Commercial Real Estate	262,203,015	276,317,897
Total Loans Held For Investment	424,081,208	442,363,389
Loans Held For Sale	3,158,501	2,671,771
Total Loans Receivable, Gross	427,239,709	445,035,160
Less:
Allowance For Possible Loan Loss	12,684,327	14,615,198
Loans In Process	1,472,379	1,886,652
Deferred Loan Fees	16,108	22,704
	14,172,814	16,524,554
Total Loans Receivable, Net	$413,066,895	$428,510,606

The Company uses a risk based approach based on the following credit quality measures when analyzing the loan portfolio: pass, caution, special mention, and substandard. These indicators are used to rate the credit quality of loans for the purposes of determining the Company’s allowance for loan losses. Pass loans are loans that are performing and are deemed adequately protected by the net worth of the borrower or the underlying collateral value. These loans are considered the least risky in terms of determining the allowance for loan losses. Substandard loans are considered the most risky category. These loans typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans 60 days or more past due are automatically classified in this category. The other two categories fall in between these two grades.

The following tables list the loan grades used by the Company as credit quality indicators and the balance in each category, excluding loans held for sale, for the periods indicated.

	June 30, 2012
	Credit Quality Measures
			Special		Total
	Pass	Caution	Mention	Substandard	Loans
Residential Real Estate	$87,436,807	$225,553	$295,572	$7,716,104	$95,674,036
Consumer	55,352,127	177,115	103,146	1,678,100	57,310,488
Commercial Business	7,932,730	395,763	177,500	387,676	8,893,669
Commercial Real Estate	181,617,951	18,860,609	17,022,335	44,702,120	262,203,015
Total	$332,339,615	$19,659,040	$17,598,553	$54,484,000	$424,081,208

	March 31, 2012
	Credit Quality Measures
			Special		Total
	Pass	Caution	Mention	Substandard	Loans
Residential Real Estate	$88,536,685	$-	$573,887	$8,697,345	$97,807,917
Consumer	57,113,676	159,805	27,604	1,383,915	58,685,000
Commercial Business	8,608,378	446,815	-	497,382	9,552,575
Commercial Real Estate	190,230,745	21,874,264	19,783,230	44,429,658	276,317,897
Total	$344,489,484	$22,480,884	$20,384,721	$55,008,300	$442,363,389

The following tables present an age analysis of past due balances by category, excluding loans held for sale, at the periods indicated.

	June 30, 2012
			90 Day
			or More	Total		Total
	30-59 Days	60-89 Days	Past	Past		Loans
	Past Due	Past Due	Due	Due	Current	Receivable
Residential Real Estate	$1,463,721	$166,352	$3,353,517	$4,983,590	$90,690,446	$95,674,036
Consumer	935,040	188,277	549,203	1,672,520	55,637,968	57,310,488
Commercial Business	230,448	224,071	45,888	500,407	8,393,262	8,893,669
Commercial Real Estate	21,559,130	2,466,893	24,292,887	48,318,910	213,884,105	262,203,015
Total	$24,188,339	$3,045,593	$28,241,495	$55,475,427	$368,605,781	$424,081,208

	March 31, 2012
			90 Day
			or More	Total		Total
	30-59 Days	60-89 Days	Past	Past		Loans
	Past Due	Past Due	Due	Due	Current	Receivable
Residential Real Estate	$2,778,235	$742,345	$3,638,929	$7,159,509	$90,648,408	$97,807,917
Consumer	659,028	352,421	620,358	1,631,807	57,053,193	58,685,000
Commercial Business	174,420	209,418	20,808	404,646	9,147,929	9,552,575
Commercial Real Estate	18,332,136	4,682,891	18,378,165	41,393,192	234,924,705	276,317,897
Total	$21,943,819	$5,987,075	$22,658,260	$50,589,154	$391,774,235	$442,363,389

At June 30, 2012, the Company did not have any loans that were 90 days or more past due and still accruing interest. Our strategy is to work with our borrowers to reach acceptable payment plans while protecting our interests in the existing collateral.  In the event an acceptable arrangement cannot be reached, we may have to acquire these properties through foreclosure or other means and subsequently sell, develop, or liquidate them. The following table shows non-accrual loans by category at June 30, 2012 compared to March 31, 2012.

					$	%
	At June 30, 2012		At March 31, 2012		Increase	Increase
	Amount	Percent (1)	Amount	Percent (1)	(Decrease)	(Decrease)
Non-accrual loans:
Residential real estate	$3,353,517	0.8%	$3,638,929	0.8%	$(285,412)	7.8%
Commercial business	45,888	0.1%	20,808	-%	25,080	120.5%
Commercial real estate	24,292,887	5.7%	18,378,165	4.2%	5,914,722	32.2%
Consumer	549,203	0.1%	620,358	0.1%	(71,155)	11.5%
Total non-accrual loans	$28,241,495	6.7%	$22,658,260	5.1%	$5,583,235	24.6%

(1) Percent of gross loans receivable, net of deferred fees and loans in process and loans held for sale

The following tables show the activity in the allowance for loan losses by category for the periods indicated.

	For the Three Months Ended June 30, 2012
	Residential		Commercial	Commercial
	Real Estate	Consumer	Business	Real Estate	Total
Allowance For Loan Losses
Beginning Balance	$1,928,625	$1,498,111	$644,855	$10,543,607	$14,615,198
Provision	319,110	(134,166)	16,574	523,482	725,000
Charge-Offs	(226,972)	(120,427)	(188,730)	(2,285,896)	(2,822,025)
Recoveries	9,759	8,281	525	147,589	166,154
Ending Balance	$2,030,522	$1,251,799	$473,224	$8,928,782	$12,684,327

	For the Three Months Ended June 30, 2011
	Residential		Commercial	Commercial
	Real Estate	Consumer	Business	Real Estate	Total
Allowance For Loan Losses
Beginning Balance	$1,702,864	$1,122,055	$924,149	$8,752,732	$12,501,800
Provision	231,632	24,893	(211,990)	2,255,465	2,300,000
Charge-Offs	(171,039)	(54,738)	(72,811)	(1,023,274)	(1,321,862)
Recoveries	-	10,557	12,078	-	22,635
Ending Balance	$1,763,457	$1,102,767	$651,426	$9,984,923	$13,502,573

The following tables present information related to impaired loans evaluated individually for impairment and collectively evaluated for impairment in the allowance for loan losses for the periods indicated.

	June 30, 2012
	Allowance For Loan Losses
	Individually	Collectively
	Evaluated For	Evaluated For
	Impairment	Impairment	Total
Residential Real Estate	$34,917	$1,995,605	$2,030,522
Consumer	-	1,251,799	1,251,799
Commercial Business	-	473,224	473,224
Commercial Real Estate	9,624	8,919,158	8,928,782
Total	$44,541	$12,639,786	$12,684,327

	March 31, 2012
	Allowance For Loan Losses
	Individually	Collectively
	Evaluated For	Evaluated For
	Impairment	Impairment	Total
Residential Real Estate	$155,000	$1,773,625	$1,928,625
Consumer	19,568	1,478,543	1,498,111
Commercial Business	148,610	496,245	644,855
Commercial Real Estate	1,313,670	9,229,937	10,543,607
Total	$1,636,848	$12,978,350	$14,615,198

The following tables present information related to impaired loans evaluated individually for impairment and collectively evaluated for impairment in loans receivable for the periods indicated.

	June 30, 2012
	Loans Receivable
	Individually	Collectively
	Evaluated For	Evaluated For
	Impairment	Impairment	Total
Residential Real Estate	$3,405,599	$92,268,437	$95,674,036
Consumer	449,577	56,860,911	57,310,488
Commercial Business	14,143	8,879,526	8,893,669
Commercial Real Estate	38,761,301	223,441,714	262,203,015
Total	$42,630,620	$381,450,588	$424,081,208

	March 31, 2012
	Loans Receivable
	Individually	Collectively
	Evaluated For	Evaluated For
	Impairment	Impairment	Total
Residential Real Estate	$3,544,061	$94,263,856	$97,807,917
Consumer	1,849,046	56,835,954	58,685,000
Commercial Business	172,362	9,380,213	9,552,575
Commercial Real Estate	35,231,717	241,086,180	276,317,897
Total	$40,797,186	$401,566,203	$442,363,389

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired management measures impairment and records the loan at fair value. Fair value is estimated using one of the following methods: fair value of the collateral less estimated costs to sale, discounted cash flows, or market value of the loan based on similar debt. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisal and if it is over 24 months old will request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, management may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis.

The following tables are a summary of information related to impaired loans as of periods indicated.

	June 30, 2012
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
	Investment	Balance	Allowance	Investment	Recognized
Impaired Loans
With no related allowance recorded:
Residential Real Estate	$2,570,235	$2,625,235	$-	$2,385,897	$19,202
Consumer Loans	449,577	513,577	-	1,139,528	3,498
Commercial Business	14,143	14,143	-	18,948	161
Commercial Real Estate	38,506,851	43,446,649	-	32,966,362	211,447
With an allowance recorded:
Residential Real Estate	835,364	1,547,364	34,917	1,088,933	-
Consumer Loans	-	-	-	9,784	-
Commercial Business	-	-	-	74,305	-
Commercial Real Estate	254,450	700,374	9,624	4,030,147	-
Total
Residential Real Estate	3,405,599	4,172,599	34,917	3,474,830	19,202
Consumer Loans	449,577	513,577	-	1,149,312	3,498
Commercial Business	14,143	14,143	-	93,253	161
Commercial Real Estate	38,761,301	44,147,023	9,624	36,996,509	211,447
Total	$42,630,620	$48,847,342	$44,541	$41,713,904	$234,308

	March 31, 2012
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
	Investment	Balance	Allowance	Investment	Recognized
Impaired Loans
With no related allowance recorded:
Residential Real Estate	$2,201,560	$2,456,960	$-	$2,066,066	$65,818
Consumer Loans	1,829,478	1,879,478	-	2,398,298	86,180
Commercial Business	23,752	47,752	-	294,894	1,677
Commercial Real Estate	27,425,873	29,175,328	-	24,020,047	1,186,679
With an allowance recorded:
Residential Real Estate	1,342,501	1,954,501	155,000	586,109	6,137
Consumer Loans	19,568	60,668	19,568	28,181	-
Commercial Business	148,610	148,610	148,610	207,135	5,608
Commercial Real Estate	7,805,844	9,945,912	1,313,670	4,687,210	228,483
Total
Residential Real Estate	3,544,061	4,411,461	155,000	2,652,175	71,955
Consumer Loans	1,849,046	1,940,146	19,568	2,426,479	86,180
Commercial Business	172,362	196,362	148,610	502,029	7,285
Commercial Real Estate	35,231,717	39,121,240	1,313,670	28,707,257	1,415,162
Total	$40,797,186	$45,669,209	$1,636,848	$34,287,940	$1,580,582

The Company considers a loan to be a TDR when the debtor experiences financial difficulties and the Company provides concessions such that we will not collect all principal and interest in accordance with the original terms of the loan agreement.  Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note.  As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment.  TDRs included in impaired loans at June 30, 2012 and March 31, 2012 amounted to $16.8 million and $18.0 million, respectively.

During the quarter ended June 30, 2012, there were no loan modifications that were considered to be TDRs. During the quarter ended June 30, 2012, four loans with a recorded investment of $879,000 that had been restructured during the last 12 months subsequently defaulted during the period.  The Bank considers any loan 30 days or more past due to be in default.

Our policy with respect to accrual of interest on loans restructured in a TDR follows relevant supervisory guidance.  That is, if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms, continued accrual of interest at the restructured interest rate is likely.  If a borrower was materially delinquent on payments prior to the restructuring but shows capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward.  Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status.

We will continue to closely monitor these loans and will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms.  If, after previously being classified as a TDR, a loan is restructured a second time, then that loan is automatically placed on nonaccrual status.  Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status.  Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.