Loans

9 Months Ended

Mar. 31, 2012

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

Loans

NOTE 6 – Loans

The following table sets forth the composition of our loan portfolio at March 31, 2012 and June 30, 2011:

	March 31,			June 30,
	2012			2011
	(in thousands)
Mortgage Loans:
Residential (1)	$	199,285		$	193,084
Commercial real estate		45,909			53,248
Residential construction		4,104			2,824
Commercial		3,563			7,356
Consumer and other		869			1,070
Total loans		253,730			257,582
Unadvanced construction loans		(1,098	)		(1,476	)
		252,632			256,106
Net deferred loan costs		416			191
Allowance for loan losses		(3,042	)		(3,072	)
Loans, net	$	250,006		$	253,225

(1) Residential mortgage loans include one- to four-family mortgage loans, second mortgage loans, and home equity lines of credit.

Credit Quality Information

The Company utilizes a nine grade internal loan rating system as follows:

 Loans rated 1 -5:  Loans in these categories are considered “pass” rated loans with low to average risk.

 Loans rated 6:  Loans in this category are considered “special mention.”  These loans are starting to show signs of potential weakness and are being closely monitored by management.

 Loans rated 7:  Loans in this category are considered “substandard.”  Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged.  There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

 Loans rated 8:  Loans in this category are considered “doubtful.”  Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

 Loans rated 9:  Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

 On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial loans.  Annually, the Company engages an independent third-party to review a significant portion of loans within these segments.  Management uses the results of these reviews as part of its annual review process.

The following table presents the Company’s loan segments by internally assigned grades at March 31, 2012:

	Residential		Commercial		Residential				Consumer
March 31, 2012	Real Estate		Real Estate		Construction		Commercial		and other		Total
(in thousands)
Grade:
Pass	$	196,215	$	32,131	$	2,380	$	2,872	$	869	$	234,467
Special Mention		340		2,015		450		561		-		3,366
Substandard		2,421		10,966		973		130		-		14,490
Doubtful		309		-		-		-		-		309
Loss		-		-		-		-		-		-
Total	$	199,285	$	45,112	$	3,803	$	3,563	$	869	$	252,632

The following table represents modifications that were deemed to be troubled debt restructures for the nine months ended March 31, 2012:

			Pre-Modifcation		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investment		Investment
(Dollars in thousands)
Real Estate:
Residential		6	$	827	$	828
Commercial		13		1,602		1,605
		19	$	2,429	$	2,433

The modification on one commercial loan provided a reduced rate for five years and the capitalization of real estate taxes.  A tax escrow account has also been established.  The other commercial loan modifications provided for reduced rates from six months to five years.  Management performs a discounted cash flow calculation to determine the valuation allowance required for each troubled debt restructure.  Residential loan modifications included restructurings that provided a reduced rate for five years, an extended amortization period with no change in rate, six months of interest-only payments along with a reduction in rate, an interest-only period of one year and a reduction in rate, substitution of collateral on a second mortgage, and the conversion a line of credit to an amortizing  fixed rate home equity loan.  Any reserve required is recorded through the provision for loan losses.

The following is a summary of troubled debt restructurings that have subsequently defaulted within one year of modification:

	Number of		Recorded
	Contracts		Investment
(Dollars in thousands)
Real Estate:
Residential		2	$	209
Commercial		1		223
Total		3	$	432

The defaults on the commercial and residential troubled debt restructures were the result of the borrower’s delinquent loan payments during the period.  As of March 31, 2012 the commercial loan was greater than 90 days past due and on non-accrual.  One residential loan was 29 days past due but on nonaccrual and the other residential loan was charged off during the quarter ended March 31, 2012.  The Company evaluates the levels/trends in delinquencies and non-accruals as part of the qualitative factors within the allowance for loan loss framework