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Mortgage Banking Activities

3 Months Ended

Sep. 30, 2011

Mortgage Banking Activities [Abstract]

Mortgage Banking Activities

NOTE 4 — MORTGAGE BANKING ACTIVITIES

Loans held for sale at September 30, 2011 and June 30, 2011 were $12,856,959 and $9,392,389, respectively.

The Bank adopted the fair value option for accounting for its loans held for sale effective July 1, 2008. The fair value of loans held for sale exceeded the unpaid principal balance of these loans by $413,016 and $181,964 as of September 30, 2011 and June 30, 2011, respectively. The gain on loans held for sale as of September 30, 2011 was reported as gain on sale of mortgage loans on the consolidated statement of operations. Interest on loans held for sale was reported in interest income.

The Bank services real estate loans for investors that are not included in the accompanying consolidated financial statements. Mortgage servicing rights are established based on the fair value of servicing rights retained on loans originated by the Bank and subsequently sold in the secondary market. Mortgage servicing rights are included in the consolidated statements of financial condition under the caption "Prepaid expenses and other assets." At September 30, 2011, the mortgage loan servicing portfolio was approximately $1.0 billion.

Originated mortgage servicing rights capitalized and amortized during the three months ended September 30, 2011 and 2010 were as follows:


		Three Months Ended September 30,
		2011				2010
Servicing rights:
Beginning of period		$	7,519,287			$	6,960,969
Additions			520,263				1,168,798
Amortized to expense			(773,379	)			(792,253	)
Valuation allowance for impairment			(698,468	)			(1,183,799	)

End of period		$	6,567,703			$	6,153,715

Activity in the valuation allowance for mortgage servicing rights over the three months ended September 30, 2011, as compared with the same periods during 2010, was as follows:


		Three months ended September 30, 2011				Three months ended September 30, 2010
Balance, beginning of period		$	(304,001	)		$	—
Impairment charges			(698,468	)			(1,183,799	)
Impairment recoveries			—				—


Balance, end of period		$	(1,002,469	)		$	(1,183,799	)

Mortgage banking activities, net consisted of the following:


		Three months ended September 30, 2011				Three months ended September 30, 2010
Mortgage loan servicing fees		$	654,577			$	642,355
Amortization of mortgage loan servicing rights			(773,379	)			(792,253	)
Impairment of mortgage loan servicing rights			(698,468	)			(1,183,799	)

Mortgage loan servicing loss, net			(817,270	)			(1,333,697	)
Changes in fair value of mortgage banking derivatives			979,828				1,214,076
Realized gains on sale of loans			847,607				2,533,916

Gain on the sale of mortgage loans			1,827,435				3,747,992

Mortgage banking activities, net		$	1,010,165			$	2,414,295

The above amounts do not include non-interest expense related to mortgage banking activities.

At September 30, 2011 and June 30, 2011, the Bank had interest rate-lock commitments on $47,760,075 and $17,625,864, respectively, of loans intended for sale in the secondary market. These commitments are considered to be free-standing derivatives and the change in fair value is recorded in the financial statements. The fair value of these commitments as of September 30, 2011 and June 30, 2011 was estimated to be $1,116,725 and $231,031, respectively, which is included in accrued expenses and other liabilities in the consolidated statements of financial position. To mitigate the interest rate risk represented by these interest rate-lock commitments, the Bank entered into contracts to sell mortgage loans of $35,764,050 and $21,679,521 as of September 30, 2011 and June 30, 2011, respectively. These contracts are also considered to be free-standing derivatives and the change in fair value also is recorded in the financial statements. The fair value of these contracts at September 30, 2011 and June 30, 2011 was estimated to be $(83,010) and $53,908 respectively. These amounts are added to (netted against) the fair value of interest rate-lock commitments recorded in prepaid and other assets. Changes in fair value for both types of derivatives are reported in mortgage banking activities in the consolidated statements of operations.

The entire disclosure for a mortgage banking entity related to capital requirements imposed by secondary market investors or state imposed regulatory mandates. The disclosure may include: (1) a description of the minimum net worth requirements related to (a) secondary market investors and (b) state-imposed regulatory mandates; (2) actual or possible material effects of noncompliance; (3) whether the entity is in compliance with the regulatory capital requirements, including (a) the entity's required and actual net worth amounts, (b) factors that may significantly affect adequacy of net worth such as potentially volatile components of capital, qualitative factors, or regulatory mandates; and (4) possible affects of noncompliance on amounts and disclosures in the notes to the financial statements. Servicers with net worth requirements from multiple sources may disclose (1) significant servicing covenants with secondary market investors with commonly defined servicing requirements (2) any other secondary market investor where violation of the requirement would have a significant adverse effect and (3) the most restrictive third party agreement, if not included above. The disclosure may also include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

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