Note 4: Loans and Allowance For Loan Losses

3 Months Ended

Sep. 30, 2012

Notes

Note 4: Loans and Allowance For Loan Losses

Note 4:  Loans and Allowance for Loan Losses

Classes of loans are summarized as follows:

	September 30,	June 30,
	2012	2012
Real Estate Loans:
Conventional	$206,916,266	$201,012,698
Construction	31,279,237	40,181,979
Commercial	221,912,242	200,957,429
Consumer loans	28,349,963	28,985,905
Commercial loans	140,553,260	137,004,222
Total real estate loans	629,010,968	608,142,233
Loans in process	(12,400,777)	(17,370,404)
Deferred loan fees, net	160,127	184,746
Allowance for loan losses	(8,080,838)	(7,492,054)
Total loans	$608,689,480	$583,464,521

The Company’s lending activities consist of origination of loans secured by mortgages on one- to four-family residences and commercial and agricultural real estate, construction loans on residential and commercial properties, commercial and agricultural business loans and consumer loans. The Company has also occasionally purchased loan participation interests originated by other lenders and secured by properties generally located in the states of Missouri and Arkansas.

Residential Mortgage Lending. The Company actively originates loans for the acquisition or refinance of one- to four-family residences.  This category includes both fixed-rate and adjustable-rate mortgage (“ARM”) loans amortizing over periods of up to 30 years, and the properties securing such loans may be owner-occupied or non-owner-occupied.  Single-family residential loans do not generally exceed 90% of the lower of the appraised value or purchase price of the secured property.  Substantially all of the one- to four-family residential mortgage originations in the Company’s portfolio are located within the Company’s primary market area.

The Company also originates loans secured by multi-family residential properties that are generally located in the Company’s primary market area. The majority of the multi-family residential loans that are originated by the Bank are amortized over periods generally up to 20 years, with balloon maturities typically up to five years. Both fixed and adjustable interest rates are offered and it is typical for the Company to include an interest rate “floor” in the loan agreement. Generally, multi-family residential loans do not exceed 85% of the lower of the appraised value or purchase price of the secured property.

Commercial Real Estate Lending. The Company actively originates loans secured by commercial real estate including land (improved, unimproved, and farmland), strip shopping centers, retail establishments and other businesses generally located in the Company’s primary market area.

Most commercial real estate loans originated by the Company generally are based on amortization schedules of up to 20 years with monthly principal and interest payments. Generally, the interest rate received on these loans is fixed for a maturity for up to five years, with a balloon payment due at maturity. Alternatively, for some loans, the interest rate adjusts at least annually after an initial period up to five years. The Company typically includes an interest rate “floor” in the loan agreement. Generally, improved commercial real estate loan amounts do not exceed 80% of the lower of the appraised value or the purchase price of the secured property. Agricultural real estate terms offered differ slightly, with amortization schedules of up to 25 years with an 80% loan-to-value ratio, or 30 years with a 75% loan-to-value ratio.

Construction Lending. The Company originates real estate loans secured by property or land that is under construction or development. Construction loans originated by the Company are generally secured by mortgage loans for the construction of owner occupied residential real estate or to finance speculative construction secured by residential real estate, land development, or owner-operated or non-owner occupied commercial real estate.  During construction, these loans typically require monthly interest-only payments and have maturities ranging from six to twelve months. Once construction is completed, permanent construction loans may be converted to monthly payments using amortization schedules of up to 30 years on residential and generally up to 20 years on commercial real estate.

While the Company typically utilizes maturity periods ranging from 6 to 12 months to closely monitor the inherent risks associated with construction loans for these loans, weather conditions, change orders, availability of materials and/or labor, and other factors may contribute to the lengthening of a project, thus necessitating the need to renew the construction loan at the balloon maturity.  Such extensions are typically executed in incremental three month periods to facilitate project completion.  The Company’s average term of construction loans is approximately 14 months.  During construction, loans typically require monthly interest only payments which may allow the Company an opportunity to monitor for early signs of financial difficulty should the borrower fail to make a required monthly payment.  Additionally, during the construction phase, the Company typically obtains interim inspections completed by an independent third party.  This monitoring further allows the Company opportunity to assess risk.  At September 30, 2012, construction loans outstanding included 16 loans, totaling $5.8 million, for which a modification had been agreed to; At June 30, 2012, construction loans outstanding included 18 loans, totaling $11.0 million, for which a modification had been agreed to. All modifications were solely for the purpose of extending the maturity date due to conditions described above.  None of these modifications were executed due to financial difficulty on the part of the borrower and, therefore, were not accounted for as TDRs.

Consumer Lending. The Company offers a variety of secured consumer loans, including home equity, direct and indirect automobile loans, second mortgages, mobile home loans and loans secured by deposits. The Company originates substantially all of its consumer loans in its primary market area. Usually, consumer loans are originated with fixed rates for terms of up to five years, with the exception of home equity lines of credit, which are variable, tied to the prime rate of interest and are for a period of ten years.

Home equity lines of credit (HELOCs) are secured with a deed of trust and are issued up to 100% of the appraised or assessed value of the property securing the line of credit, less the outstanding balance on the first mortgage and are typically issued for a term of ten years. Interest rates on the HELOCs are generally adjustable.  Interest rates are based upon the loan-to-value ratio of the property with better rates given to borrowers with more equity.

Automobile loans originated by the Company include both direct loans and a smaller amount of loans originated by auto dealers. The Company generally pays a negotiated fee back to the dealer for indirect loans. Typically, automobile loans are made for terms of up to 60 months for new and used vehicles. Loans secured by automobiles have fixed rates and are generally made in amounts up to 100% of the purchase price of the vehicle.

Commercial Business Lending. The Company’s commercial business lending activities encompass loans with a variety of purposes and security, including loans to finance accounts receivable, inventory, equipment and operating lines of credit, including agricultural production and equipment loans.  The Company offers both fixed and adjustable rate commercial business loans. Generally, commercial loans secured by fixed assets are amortized over periods up to five years, while commercial operating lines of credit or agricultural production lines are generally for a one year period.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans (excluding loans in process and deferred loan fees) based on portfolio segment and impairment methods as of September 30, 2012, and June 30, 2012, and activity in the allowance for loan losses for the three-month periods ended September 30, 2012 and 2011:

	At period end for the three months ended
	September 30, 2012
	Conventional	Construction	Commercial
	Real Estate	Real Estate	Real Estate	Consumer	Commercial	Unallocated	Total
Allowance for loan losses:
Balance, beginning of period	$1,635,346	$243,169	$2,985,838	$483,597	$2,144,104	$-	$7,492,054
Provision charged to expense	92,776	(51,385)	469,519	45,363	54,416	-	610,689
Losses charged off	(13,872)	-	(227)	(8,589)	(3,244)	-	(25,932)
Recoveries	113	-	1,630	2,284	-	-	4,027
Balance, end of period	$1,714,363	$191,784	$3,456,760	$522,655	$2,195,276	$-	$8,080,838
Ending Balance: individually
evaluated for impairment	$-	$-	$347,815	$-	$-	$-	$347,815
Ending Balance: collectively
evaluated for impairment	$1,714,363	$191,784	$3,097,996	$522,655	$1,685,289	$-	$7,212,087
Ending Balance: loans acquired
with deteriorated credit quality	$-	$-	$10,949	$-	$509,987	$-	$520,936
Loans:
Ending Balance: individually
evaluated for impairment	$-	$-	$963,384	$-	$-	$-	$963,384
Ending Balance: collectively
evaluated for impairment	$205,329,331	$18,878,460	$219,261,405	$28,349,963	$139,241,974	$-	$611,061,133
Ending Balance: loans acquired
with deteriorated credit quality	$1,586,935	$-	$1,687,453	$-	$1,311,286	$-	$4,585,674

	For three months ended
	September 30, 2011
	Conventional	Construction	Commercial
	Real Estate	Real Estate	Real Estate	Consumer	Commercial	Unallocated	Total
Allowance for loan losses:
Balance, beginning of period	$1,618,285	$192,752	$2,671,482	$441,207	$1,514,725	$-	$6,438,451
Provision charged to expense	165,494	182,546	(389,686)	174,723	383,606	-	516,683
Losses charged off	(76,918)	-	(24,825)	(96,604)	(11,156)	-	(209,503)
Recoveries	4,605	233	-	1,592	-	-	6,430
Balance, end of period	$1,711,466	$375,531	$2,256,971	$520,918	$1,887,175	$-	$6,752,061
Ending Balance: individually
evaluated for impairment	$-	$-	$109,481	$-	$-	$-	$109,481
Ending Balance: collectively
evaluated for impairment	$1,711,466	$375,531	$2,024,010	$520,918	$1,775,054	$-	$6,406,979
Ending Balance: loans acquired
with deteriorated credit quality	$-	$-	$123,480	$-	$112,121	$-	$235,601

	June 30, 2012
	Conventional	Construction	Commercial
	Real Estate	Real Estate	Real Estate	Consumer	Commercial	Unallocated	Total
Allowance for loan losses:
Balance, end of period	$1,635,346	$243,169	$2,985,838	$483,597	$2,144,104	$-	$7,492,054
Ending Balance: individually
evaluated for impairment	$-	$-	$347,815	$-	$-	$-	$347,815
Ending Balance: collectively
evaluated for impairment	$1,635,346	$243,169	$2,632,679	$483,597	$1,767,967	$-	$6,762,758
Ending Balance: loans acquired
with deteriorated credit quality	$-	$-	$5,344	$-	$376,137	$-	$381,481
Loans:
Ending Balance: individually
evaluated for impairment	$-	$-	$976,881	$-	$-	$-	$976,881
Ending Balance: collectively
evaluated for impairment	$205,418,257	$18,878,460	$219,251,243	$28,349,963	$139,198,551	$-	$611,096,474
Ending Balance: loans acquired
with deteriorated credit quality	$1,498,009	$-	$1,684,118	$-	$1,354,709	$-	$4,536,836

Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral.  These estimates are affected by changing economic conditions and the economic prospects of borrowers.

The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to cover probable credit losses inherent in the loan portfolio at the balance sheet date.  The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.  Loan losses are charged against the allowance when an amount is determined to be uncollectible, based on management’s analysis of expected cash flow (for non-collateral-dependent loans) or collateral value (for collateral-dependent loans).  Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components.  The allocated component relates to loans that are classified as impaired.  For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

Under the Company’s methodology, loans are first segmented into 1) those comprising large groups of smaller-balance homogeneous loans, including single-family mortgages and installment loans, which are collectively evaluated for impairment, and 2) all other loans which are individually evaluated.  Those loans in the second category are further segmented utilizing a defined grading system which involves categorizing loans by severity of risk based on conditions that may affect the ability of the borrowers to repay their debt, such as current financial information, collateral valuations, historical payment experience, credit documentation, public information, and current trends.  The loans subject to credit classification represent the portion of the portfolio subject to the greatest credit risk and where adjustments to the allowance for losses on loans as a result of provisions and charge offs are most likely to have a significant impact on operations.

During fiscal 2011, the Company changed its allowance methodology to consider, as the primary quantitative factor, average net charge offs over the most recent twelve-month period.  The Company had previously considered average net charge offs over the most recent five-year period as the primary quantitative factor.  The impact of the modification was minimal.

A loan is considered impaired when, based on current information and events, it is probable that the scheduled payments of principal or interest will not be able to be collected when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.  Accordingly, individual consumer and residential loans are not separately identified for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

The general component covers non-impaired loans and is based on quantitative and qualitative factors.  The loan portfolio is stratified into homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for qualitative factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio.  

Included in the Company’s loan portfolio are certain loans accounted for in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.  These loans were written down at acquisition to an amount estimated to be collectible.  As a result, certain ratios regarding the Company’s loan portfolio and credit quality cannot be used to compare the Company to peer companies or to compare the Company’s current credit quality to prior periods.  The ratios particularly affected by accounting under ASC 310-30 include the allowance for loan losses as a percentage of loans, nonaccrual loans, and nonperforming assets, and nonaccrual loans and nonperforming loans as a percentage of total loans.

The following tables present the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category and payment activity as of September 30 and June 30, 2012.  These tables include purchased credit impaired loans, which are reported according to risk categorization after acquisition based on the Company’s standards for such classification:

	September 30, 2012
	Conventional	Construction	Commercial
	Real Estate	Real Estate	Real Estate	Consumer	Commercial
Pass	$203,819,521	$18,878,460	$213,507,013	$28,300,076	$133,830,481
Special Mention	1,845,891	-	1,319,007	32,451	5,167,861
Substandard	1,250,854	-	7,086,222	17,436	1,554,918
Doubtful	-	-	-	-	-
Total	$206,916,266	$18,878,460	$221,912,242	$28,349,963	$140,553,260

	June 30, 2012
	Conventional	Construction	Commercial
	Real Estate	Real Estate	Real Estate	Consumer	Commercial
Pass	$198,847,363	$22,811,575	$194,280,920	$28,967,594	$129,572,873
Special Mention	1,561,263	-	149,940	-	5,398,255
Substandard	604,072	-	6,526,569	18,311	2,033,094
Doubtful	-	-	-	-	-
Total	$201,012,698	$22,811,575	$200,957,429	$28,985,905	$137,004,222

The above amounts include purchased credit impaired loans.  At September 30, 2012, these loans comprised $1.6 million of credits rated “Pass”; no credits rated “Special Mention”; $3.0 million of loans rated “Substandard”; and no credits rated “Doubtful”.  At June 30, 2012, these loans comprised $1.5 million of credits rated “Pass”; no credits rated “Special Mention”; $3.0 million of credits rated “Substandard”; and no credits rated “Doubtful”.

Credit Quality Indicators. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk.  This analysis is performed on all loans at origination, and is updated on a quarterly basis for loans risk rated “Special Mention”, “Substandard”, or “Doubtful”.  In addition, lending relationships over $250,000 are subject to an independent loan review following origination, and lending relationships in excess of $2.5 million are subject to an independent loan review annually, as are a sample of lending relationships between $1.0 million and $2.5 million, in order to verify risk ratings. 

The Company uses the following definitions for risk ratings:

Watch – Loans classified as watch exhibit weaknesses that require more than usual monitoring.  Issues may include deteriorating financial condition, payments made after due date but within 30 days, adverse industry conditions or management problems.

Special Mention – Loans classified as special mention exhibit signs of further deterioration but still generally make payments within 30 days.  This is a transitional rating and loans should typically not be rated Special Mention for more than 12 months

Substandard – Loans classified as substandard possess weaknesses that jeopardize the ultimate collection of the principal and interest outstanding.  These loans exhibit continued financial losses, ongoing delinquency, overall poor financial condition, and insufficient collateral.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses of substandard loans, and have deteriorated to the level that there is a high probability of substantial loss.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.

The following tables present the Company’s loan portfolio aging analysis (excluding loans in process and deferred loan fees) as of September 30 and June 30, 2012.  These tables include purchased credit impaired loans, which are reported according to aging analysis after acquisition based on the Company’s standards for such classification:

	September 30, 2012
	30-59 Days	60-89 Days	Greater Than	Total		Total Loans	Total Loans > 90
	Past Due	Past Due	90 Days	Past Due	Current	Receivable	Days & Accruing
Real Estate Loans:
Conventional	$1,237,723	$-	$476,979	$1,714,702	$205,201,564	$206,916,266	$-
Construction	-	-	-	-	18,878,460	18,878,460	-
Commercial	577,110	-	2,855,511	3,432,621	218,479,621	221,912,242	-
Consumer loans	202,316	14,287	-	216,603	28,133,360	28,349,963	-
Commercial loans	135,168	10,346	-	145,514	140,407,746	140,553,260	-
Total loans	$2,152,317	$24,633	$3,332,490	$5,509,440	$611,100,751	$616,610,191	$-

	June 30, 2012
	30-59 Days	60-89 Days	Greater Than	Total		Total Loans	Total Loans > 90
	Past Due	Past Due	90 Days	Past Due	Current	Receivable	Days & Accruing
Real Estate Loans:
Conventional	$310,046	$66,586	$59,142	$435,774	$200,576,924	$201,012,698	$-
Construction	-	-	-	-	22,811,575	22,811,575	-
Commercial	176,642	41,187	796,794	1,014,623	199,942,806	200,957,429	-
Consumer loans	78,762	-	-	78,762	28,907,143	28,985,905	-
Commercial loans	694,044	-	80,000	774,044	136,230,178	137,004,222	-
Total loans	$1,259,494	$107,773	$935,936	$2,303,203	$588,468,626	$590,771,829	$-

The above amounts include purchased credit impaired loans.  At September 30, 2012, these loans comprised $487,000 credits 30-59 Days Past Due; $0 credits 60-89 Days Past Due; $0 credits Greater Than 90 Days Past Due; $487,000 of Total Past Due credits; $4.1 million of credits Current; and $0 Loans > 90 Days & Accruing.  At June 30, 2012, there were no purchased credit impaired loans that were past due. 

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 Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  Impaired loans include nonperforming loans, as well as performing 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 tables below present impaired loans (excluding loans in process and deferred loan fees) as of September 30 and June 30, 2012.  These tables include purchased credit impaired loans.  Purchased credit impaired loans are those for which it was deemed probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable.  In an instance where, subsequent to the acquisition, the Company determines it is probable, for a specific loan, that cash flows received will exceed the amount previously expected, the Company will recalculate the amount of accretable yield in order to recognize the improved cash flow expectation as additional interest income over the remaining life of the loan.  These loans, however, will continue to be reported as impaired loans.  In an instance where, subsequent to the acquisition, the Company determines it is probable, for a specific loan, that cash flows received will be less than the amount previously expected, the Company will allocate a specific allowance under the terms of ASC 310-10-35. 

	September 30, 2012
	Recorded	Unpaid Principal	Specific
	Balance	Balance	Allowance
Loans without a specific valuation allowance:
Conventional real estate	$1,586,935	$2,122,666	$-
Construction real estate	99,200	99,200	-
Commercial real estate	2,931,965	3,261,015	-
Consumer loans	-	-	-
Commercial loans	754,139	770,277	-
Loans with a specific valuation allowance:
Conventional real estate	$-	$-	$-
Construction real estate	-	-	-
Commercial real estate	1,029,330	1,085,684	358,764
Consumer loans	-	-	-
Commercial loans	896,773	1,466,650	509,987
Total:
Conventional real estate	$1,586,935	$2,122,666	$-
Construction real estate	$99,200	$99,200	$-
Commercial real estate	$3,961,295	$4,346,699	$358,764
Consumer loans	$-	$-	$-
Commercial loans	$1,650,912	$2,236,927	$509,987

	June 30, 2012
	Recorded	Unpaid Principal	Specific
	Balance	Balance	Allowance
Loans without a specific valuation allowance:
Conventional real estate	$1,531,881	$2,160,350	$-
Construction real estate	-	-	-
Commercial real estate	2,563,744	2,935,620	-
Consumer loans	-	-	-
Commercial loans	845,692	868,844	-
Loans with a specific valuation allowance:
Conventional real estate	$-	$-	$-
Construction real estate	-	-	-
Commercial real estate	982,884	1,014,082	353,159
Consumer loans	-	-	-
Commercial loans	930,123	1,500,000	376,137
Total:
Conventional real estate	$1,531,881	$2,160,350	$-
Construction real estate	$-	$-	$-
Commercial real estate	$3,546,628	$3,949,702	$353,159
Consumer loans	$-	$-	$-
Commercial loans	$1,775,815	$2,368,844	$376,137

The above amounts include purchased credit impaired loans.  At September 30, 2012, these loans comprised $3.6 million of impaired loans without a specific valuation allowance; $963,000  of loans with a specific valuation allowance; and $4.6 million of total impaired loans.  At June 30, 2012, these loans comprised $3.6 million of impaired loans without a specific valuation allowance; $935,000 of loans with a specific valuation allowance; and $4.5 million of total impaired loans. 

The following tables present information regarding interest income recognized on impaired loans:

	For the three-month period ended
	September 30, 2012
	Average
	Investment in	Interest Income
	Impaired Loans	Recognized
Conventional Real Estate	$1,543	$128
Construction Real Estate	-	-
Commercial Real Estate	2,656	50
Consumer Loans	-	-
Commercial Loans	1,333	25
Total Loans	$5,532	$203

	For the period three-months ended
	September 30, 2011
	Average
	Investment in	Interest Income
	Impaired Loans	Recognized
Conventional Real Estate	$1,556	$79
Construction Real Estate	-	-
Commercial Real Estate	3,173	121
Consumer Loans	-	-
Commercial Loans	2,723	329
Total Loans	$7,451	$529

Interest income on impaired loans recognized on a cash basis in the three-month periods ended September 30, 2012 and 2011, was immaterial.

For the three-month period ended September 30, 2012, the amount of interest income recorded for impaired loans that represented a change in the present value of cash flows attributable to the passage of time was approximately $117,000, as compared to $386,000 for the three-month period ended September 30, 2011.

The following table presents the Company’s nonaccrual loans at September 30 and June 30, 2012.  This table includes purchased impaired loans.  Purchased credit impaired loans are placed on nonaccrual status in the event the Company cannot reasonably estimate cash flows expected to be collected.  The table excludes performing troubled debt restructurings.

	September 30, 2012	June 30, 2012
Conventional real estate	$1,090,106	$395,374
Construction real estate	99,200	-
Commercial real estate	3,229,790	976,881
Consumer loans	14,765	15,971
Commercial loans	1,060,789	1,010,123
Total loans	$5,494,650	$2,398,349

The above amounts include purchased credit impaired loans.  At September 30, 2012, and June 30, 2012, these loans comprised $900,000 and $930,000 of nonaccrual loans, respectively.

Included in certain loan categories in the impaired loans are troubled debt restructurings (TDRs), where economic concessions have been granted to borrowers who have experienced financial difficulties.  These concessions typically result from our loss mitigation activities, and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions.  Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months. 

When loans and leases are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, and uses the current fair value of the collateral, less selling costs, for collateral dependent loans.  If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs, and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.  In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.

During the three-month periods ended September 30, 2011 and 2012, certain loans were classified as TDRs. They are show, segregated by class, in the table below.

	For the three-month periods ended
	September 30, 2012		June 30, 2012
	Number of	Recorded	Number of	Recorded
	modifications	Investment	modifications	Investment
Conventional real estate	-	$-	1	$97,783
Construction real estate	1	99,200	-	-
Commercial real estate	2	600,000	5	1,005,830
Consumer loans	-	-	-	-
Commercial loans	4	304,016	3	1,019,712
Total	7	$1,003,216	9	$2,123,326

At September 30 and June 30, 2012, the Company had $3.5 and $3.1, respectively, of commercial real estate loans, $1.6 and $1.7, respectively, of commercial loans, and $99,000 and $0, respectively, of  construction loans, and $6,000 and $40,000 respectively, of conventional real estate loans that were modified in TDRs and considered impaired.  All loans classified as TDRs at September 30, 2012, and June 30, 2012, were so classified due to interest rate concessions.

Performing loans classified as troubled debt restructurings and outstanding at September 30 and June 30, 2012, segregated by class, are shown in the table below.  Nonperforming TDRs are shown as nonaccrual loans.

	September 30, 2012		June 30, 2012
	Number of	Recorded	Number of	Recorded
	modifications	Investment	modifications	Investment
Conventional real estate	1	$5,691	2	$39,835
Construction real estate	-	-	-	-
Commercial real estate	11	2,711,221	10	2,290,986
Consumer loans	-	-	-	-
Commercial loans	7	553,927	6	807,386
Total	19	$3,270,839	18	$3,138,207