Accounting for Certain Loans Acquired in a Transfer

3 Months Ended

Sep. 30, 2011

Accounting for Certain Loans Acquired in a Transfer [Abstract]

Accounting for Certain Loans and Debt Securities Acquired in Transfer Disclosure [Text Block]

Note 6: Accounting for Certain Loans Acquired in a Transfer

The Company acquired loans in a transfer during the fiscal year ended June 30, 2011.  At acquisition, certain transferred loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired.  Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages.  Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan.  Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date.  Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

The carrying amount of those loans is included in the balance sheet amounts of loans receivable at September 30, 2011.  The amounts of loans at September 30, 2011, are as follows:

Real Estate Loans:
Conventional	$2,262,732
Construction	-
Commercial	3,836,589
Consumer loans	-
Commercial loans	3,134,272
Outstanding balance	$9,233,593
Carrying amount, net of fair value adjustment of $3,305,794	$5,927,799

Accretable yield, or income expected to be collected, is as follows:

Balance at June 30, 2011	$792,942
Additions	-
Accretion	(420,959)
Reclassification from nonaccretable difference	570,893
Disposals	-
Balance at September 30, 2011	$942,876

During the periods ended September 30, 2011 and 2010, the Company increased the allowance for loan losses by a charge to the income statement of $112,121, and $0, respectively, as a result of a decrease in expected cash flows for certain loans acquired with deteriorated credit quality.  No allowance for loan losses was reversed for the periods ended September 30, 2011 or 2010.

Certain of the loans acquired by the Company that are within the scope of this guidance (ASC 310-30) are not accounted for using the income recognition model for loans and debt securities acquired with deteriorated credit quality because the Company cannot reasonably estimate cash flows expected to be collected.  The carrying amounts of such loans (which are included in the carrying amount, net allowance, described above) are as follows:

Loans purchased during the year	$-
Loans at end of period	$155,000