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Loans and Allowance for Loan Losses

9 Months Ended

Dec. 31, 2011

Note 4: Loans and Allowance for Loan Losses

Categories of loans as of the following dates:

	December 31, 2011		March 31, 2011
	(In thousands)

One-to-four family residential	$	153,064	$	162,435
Multi-family residential		8,589		8,308
Construction		753		160
Nonresidential real estate and land		62,864		62,508
Commercial		10,526		8,204
Consumer and other		2,257		2,414
		238,053		244,029
Less:
Undisbursed portion of loans in process		1,691		413
Deferred loan origination fees		409		420
Allowance for loan losses		3,854		3,203

Total loans	$	232,099	$	239,993

Activity in the allowance for loan losses for the fiscal periods ended December 31, 2011 and March 31, 2011, was as follows:

	December 31, 2011			March 31, 2011
	(In thousands)

Balance, beginning of period	$	3,203		$	2,826
Provision charged to expense		806			552
Losses charged off		(157	)		(199	)
Recoveries		2			24

Balance, end of period	$	3,854		$	3,203

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 commercial loans but also include 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.

Included in certain loan categories in the impaired loans are troubled debt restructurings that were classified as impaired. At December 31, 2011, the Company had $3.0 million of residential mortgages, $5.5 million of nonresidential mortgages and land and $57,000 of commercial loans that were modified in troubled debt restructurings. Included in these amounts, the Company had troubled debt restructurings that were performing in accordance with their modified terms of $2.4 million in residential mortgage loans, nonresidential real estate and land loans of $2.8 million and $40,000 of commercial loans at December 31, 2011.

At December 31, 2011 and March 31, 2011, there were no accruing loans delinquent 90 days or more.

December 31, 2011	One-to-four family residential			All other mortgage loans		Commercial business loans		Consumer loans		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance, March 31, 2011	$	1,073		$	1,967	$	158	$	5	$	—	$	3,203
Provision charged to expense		212			580		11		3		—		806
Losses charged off		(157	)		—		—		—		—		(157	)
Recoveries		—			—		—		2		—		2
Balance, December 31, 2011	$	1,128		$	2,547	$	169	$	10	$	—	$	3,854
Ending balance: individually evaluated for impairment	$	320		$	1,941	$	53	$	—	$	—	$	2,314
Ending balance: collectively evaluated for impairment	$	808		$	606	$	116	$	10	$	—	$	1,540

Loans:
Ending balance	$	153,064		$	72,206	$	10,526	$	2,257			$	238,053
Ending balance: individually evaluated for impairment	$	3,744		$	6,955	$	92	$	—			$	10,791
Ending balance: collectively evaluated for impairment	$	149,320		$	65,251	$	10,434	$	2,257			$	227,262

March 31, 2011	One-to-four family residential			All other mortgage loans			Commercial business loans			Consumer loans			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance, beginning of year	$	1,140		$	1,469		$	209		$	8		$	—	$	2,826
Provision charged to expense		37			488			30			(3	)		—		552
Losses charged off		(112	)		(5	)		(81	)		(1	)				(199	)
Recoveries		8			15			—			1			—		24
Balance, end of year	$	1,073		$	1,967		$	158		$	5		$	—	$	3,203
Ending balance: individually evaluated for impairment	$	149		$	1,158		$	59		$	—		$	—	$	1,366
Ending balance: collectively evaluated for impairment	$	924		$	809		$	99		$	5		$	—	$	1,837

Loans:
Ending balance	$	162,435		$	70,976		$	8,204		$	2,414				$	244,029
Ending balance: individually evaluated for impairment	$	3,183		$	6,017		$	123		$	—				$	9,323
Ending balance: collectively evaluated for impairment	$	159,252		$	64,959		$	8,081		$	2,414				$	234,706

The following table presents the credit risk profile of the Bank’s loan portfolio based on rating category and payment activity as of December 31, 2011 and March 31, 2011:

December 31, 2011	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans
			(In thousands)
Rating *
Pass (Risk 1-4)	$	145,061	$	61,970	$	10,268	$	2,257
Special Mention (Risk 5)		2,979		3,281		166		—
Substandard (Risk 6)		5,024		6,955		92		—
Total	$	153,064	$	72,206	$	10,526	$	2,257

March 31, 2011	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans
			(In thousands)
Rating *
Pass (Risk 1-4)	$	156,866	$	58,341	$	7,917	$	2,391
Special Mention (Risk 5)		834		6,601		164		—
Substandard (Risk 6)		4,735		6,034		123		23
Total	$	162,435	$	70,976	$	8,204	$	2,414

* Ratings are generally assigned to consumer and residential mortgage loans on a “pass” or “fail” basis, where “fail” results in a substandard classification. Commercial loans, both secured by real estate or other assets or unsecured are analyzed in accordance with an analytical matrix codified in the Bank’s loan policy that produces a risk rating as described below.

Risk 1 is unquestioned credit quality for any credit product. Loans are secured by cash and near cash collateral with immediate access to proceeds.

Risk 2 is very low risk with strong credit and repayment sources. Borrower is well capitalized in a stable industry, financial ratios exceed peers and financial trends are positive.

Risk 3 is very favorable risk with highly adequate credit strength and repayment sources. Borrower has good overall financial condition and adequate capitalization.

Risk 4 is acceptable, average risk with adequate credit strength and repayment sources. Collateral positions must be within Bank policies.

Risk 5 or “Special Mention,” also known as “watch,” has potential weakness that deserves Management’s close attention. This risk includes loans where the borrower has developed financial uncertainties or are resolving them. Bank credits have been secured or negotiations will be ongoing to secure further collateral. In accordance with regulatory guidance, this category is generally regarded as temporary, as successful remedial actions will either successfully move the credit back up to Risk 4 or unsuccessful remedial actions will result in the credit being downgraded to Risk 6.

Risk 6 or “Substandard” loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged. This risk category contains loans that exhibit a weakening of the borrower’s credit strength with limited credit access and all non-performing loans.

Risk 7 or “Doubtful” loans are significantly under protected by the current net worth and paying capacity of the borrower or of the collateral pledged. This risk category contains loans that are likely to experience a loss of some magnitude, but where the amount of the expected loss is not known with enough certainty to allow for an accurate calculation of a loss amount for charge off. This category is considered to be temporary until a charge off amount can be reasonably determined.

The following table presents the Bank’s loan portfolio aging analysis as of December 31, 2011 and March 31, 2011:

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 & Accruing
	(In thousands)

One-to-four family residential loans	$	1,513	$	280	$	844	$	2,637	$	150,427	$	153,064	$	—
All other mortgage loans		903		—		1,905		2,808		69,398		72,206		—
Commercial business loans		17		—		35		52		10,474		10,526		—
Consumer loans		17		9		—		26		2,231		2,257		—

Total	$	2,450	$	289	$	2,784	$	5,523	$	232,530	$	238,053	$	—

March 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 & Accruing
	(In thousands)

One-to-four family residential loans	$	1,306	$	113	$	1,782	$	3,201	$	159,234	$	162,435	$	—
All other mortgage loans		888		—		1,386		2,274		68,702		70,976		—
Commercial business loans		—		90		—		90		8,114		8,204		—
Consumer loans		—		—		20		20		2,394		2,414		—

Total	$	2,194	$	203	$	3,188	$	5,585	$	238,444	$	244,029	$	—

Non-accrual loans were comprised of the following at December 31, 2011 and March 31, 2011:

	December 31, 2011		March 31, 2011
Nonaccrual
	(In thousands)

One-to-four family residential loans	$	2,433	$	2,739
Nonresidential real estate loans		3,271		2,292
All other mortgage loans		—		70
Commercial business loans		92		33
Consumer loans		12		23

Total	$	5,808	$	5,157

The following table presents impaired loans as of and for the year ended December 31, 2011 and March 31, 2011:

December 31, 2011	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized

Loans without a specific valuation allowance
One-to-four family residential loans	$	1,613	$	1,613	$	—	$	1,966	$	35
All other mortgage loans		1,771		1,771		—		1,345		52

Loans with a specific valuation allowance
One-to-four family residential loans		250		250		224		557		15
All other mortgage loans		5,184		5,184		1,941		5,142		75
Commercial business loans		92		92		53		76		—

Total:
One-to-four family residential loans	$	1,863	$	1,863	$	224	$	2,523	$	50
All other mortgage loans		6,955		6,955		1,941		6,487		127
Commercial business loans		92		92		53		76		—
	$	8,910	$	8,910	$	2,218	$	9,086	$	177

March 31, 2011	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized

Loans without a specific valuation allowance
One-to-four family residential loans	$	2,319	$	2,319	$	—	$	1,781	$	91
All other mortgage loans		919		919		—		839		38

Loans with a specific valuation allowance
One-to-four family residential loans		863		863		149		505		7
All other mortgage loans		5,099		5,099		1,158		3,503		128
Commercial business loans		123		123		59		131		6

Total:
One-to-four family residential loans	$	3,182	$	3,182	$	149	$	2,286	$	98
All other mortgage loans		6,018		6,018		1,158		4,342		166
Commercial business loans		123		123		59		131		6
	$	9,323	$	9,323	$	1,366	$	6,759	$	270

	Quarter-to-Date						Year-to-Date
December 31, 2011	Number of loans		Pre- modification Unpaid Principal Balance		Post- modification Unpaid Principal Balance		Number of loans		Pre- modification Unpaid Principal Balance		Post- modification Unpaid Principal Balance
Troubled Debt Restructurings	(dollars in thousands)

One-to-four family residential loans		2	$	205	$	205		2	$	205	$	205
All other mortgage loans		1		1,051		1,051		2		1,366		1,366
Commercial business loans		—		—		—		2		162		162

All the above TDR classifications occurred due to an effective interest rate below the market interest rate of similar debt. Each TDR has been individually evaluated for impairment with the appropriate specific valuation allowance included in the allowance for loan losses calculation.

There were no TDR classifications which defaulted during fiscal period ended December 31, 2011.

As a result of adopting the amendments in Accounting Standards Update No. 2011-02 (the ASU), the Company reassessed all restructurings occurring on or after the beginning of its current fiscal year (April 1, 2011) for identification of TDRs. The Company identified no additional TDRs for which an allowance for credit losses had previously been measured under a general allowance for credit losses methodology.