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Loans and Servicing

Loans

A summary of loans is as follows:

	At						At
	June 30,						December 31,
	2011						2010
	Amount			Percent			Amount			Percent
	(Dollars in thousands)

Residential loans:
One-to-four family	$	67,014			38.44	%	$	70,685			39.25	%
Home equity loans
and lines of credit		16,904			9.69			17,305			9.61
Total residential mortgage loans		83,918			48.13			87,990			48.86

Commercial loans:
One-to-four family investment property		12,769			7.32			11,892			6.60
Multi-family real estate		14,514			8.32			14,121			7.84
Commercial real estate		25,085			14.39			27,688			15.38
Commercial business		11,219			6.43			12,475			6.93
Total commercial loans		63,587			36.46			66,176			36.75

Construction loans:
One-to-four family		16,773			9.62			16,725			9.29
Multi-family		8,859			5.08			7,730			4.29
Non-residential		629			0.36			733			0.41
Total construction loans		26,261			15.06			25,188			13.99

Consumer		618			0.35			726			0.40

Total loans:		174,384			100.00	%		180,080			100.00	%

Other items:
Net deferred loan costs		122						95
Allowance for loan losses		(1,660	)					(1,651	)

Total loans, net	$	172,846					$	178,524

An analysis of the allowance for loan losses at June 30, 2011 and December 31, 2010 is below. For additional information please refer to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

	Residential						Commercial											Construction
	One-to-four family			Home equity loans and lines of credit			One-to-four family investment property		Multi-family real estate		Commercial real estate				Commercial business			One-to-four family		Multi-family		Non-residential		Consumer			Total
	(In thousands)
At June 30, 2011

Allowance for loan losses

Beginning Balance	$	233		$	320		$	60	$	106		$	431		$	304		$	93	$	83	$	6	$	15		$	1,651
Charge-offs		-			(741	)		-		-			-			(2	)		-		-		-		(1	)		(744	)
Recoveries		5			-			-		-			-			1			-		-		-		2			8
Provision		(11	)		704			17		10			(25	)		(21	)		37		33		5		(4	)		745
Ending Balance	$	227		$	283		$	77	$	116		$	406		$	282		$	130	$	116	$	11	$	12		$	1,660

Ending balance:
individually evaluated
for impairment	$	41		$	13		$	-	$	-		$	-		$	-		$	-	$	-	$	-	$	-		$	54

Ending balance:
collectively evaluated
for impairment	$	186		$	270		$	77	$	116		$	406		$	282		$	130	$	116	$	11	$	12		$	1,606

Loans

Ending Balance	$	67,014		$	16,904		$	12,769	$	14,514		$	25,085		$	11,219		$	16,773	$	8,859	$	629	$	618		$	174,384

Ending balance:
individually evaluated
for impairment	$	296		$	13		$	-	$	-		$	-		$	-		$	-	$	-	$	-	$	-		$	309

Ending balance:
collectively evaluated
for impairment	$	66,718		$	16,891		$	12,769	$	14,514		$	25,085		$	11,219		$	16,773	$	8,859	$	629	$	618		$	174,075

At December 31, 2010

Allowance for loan losses

Ending Balance	$	233		$	320		$	60	$	106		$	431		$	304		$	93	$	83	$	6	$	15		$	1,651

Ending balance:
individually evaluated
for impairment	$	-		$	36		$	-	$	-		$	-		$	-		$	-	$	-	$	-	$	-		$	36

Ending balance:
collectively evaluated
for impairment	$	233		$	284		$	60	$	106		$	431		$	304		$	93	$	83	$	6	$	15		$	1,615

Loans

Ending Balance	$	70,685		$	17,305		$	11,892	$	14,121		$	27,688		$	12,475		$	16,725	$	7,730	$	733	$	726		$	180,080

Ending balance:
individually evaluated
for impairment	$	208		$	45		$	-	$	-		$	-		$	-		$	-	$	-	$	-	$	-		$	253

Ending balance:
collectively evaluated
for impairment	$	70,477		$	17,260		$	11,892	$	14,121		$	27,688		$	12,475		$	16,725	$	7,730	$	733	$	726		$	179,827

The following is a summary of past-due and non-accrual loans at June 30, 2011 and December 31, 2010. For additional information please refer to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

	Loans delinquent for:
					90 days		Total		Total		Total		90 days or more		Non-accrual
	30 - 59 Days		60 - 89 Days		or more		Past Due		Current		Loans		and accruing		Loans
	(In thousands)
At June 30, 2011:

Residential loans:
One-to-four family	$	364	$	296	$	-	$	660	$	66,354	$	67,014	$	-	$	296
Home equity loans and lines of credit		19		-		-		19		16,885		16,904		-		13

Commercial loans:
One-to-four family investment property		-		-		-		-		12,769		12,769		-		-
Multi-family real estate		-		-		-		-		14,514		14,514		-		-
Commercial real estate		312		-		-		312		24,773		25,085		-		-
Commercial business		-		-		825		825		10,394		11,219		-		825

Construction loans:
One-to-four family		-		732		-		732		16,041		16,773		-		317
Multi-family		1,517		-		-		1,517		7,342		8,859		-		-
Non-residential		-		-		-		-		629		629		-		-

Consumer		7		-		-		7		611		618		-		-

Total	$	2,219	$	1,028	$	825	$	4,072	$	170,312	$	174,384	$	-	$	1,451

At December 31, 2010:

Residential loans:
One-to-four family	$	391	$	138	$	-	$	529	$	70,156	$	70,685	$	-	$	-
Home equity loans and lines of credit		19		-		45		64		17,241		17,305		-		45

Commercial loans:
One-to-four family investment property		-		-		-		-		11,892		11,892		-		-
Multi-family real estate		-		-		-		-		14,121		14,121		-		-
Commercial real estate		314		-		-		314		27,374		27,688		-		-
Commercial business		-		-		-		-		12,475		12,475		-		-

Construction loans:
One-to-four family		-		-		-		-		16,725		16,725		-		-
Multi-family		-		-		-		-		7,730		7,730		-		-
Non-residential		-		-		-		-		733		733		-		-

Consumer		9		1		-		10		716		726		-		-

Total	$	733	$	139	$	45	$	917	$	179,163	$	180,080	$	-	$	45

The following is an analysis of impaired loans at June 30, 2011 and December 31, 2010.

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)

At June 30, 2011

Impaired loans without a valuation allowance

Residential loans:
One-to-four family	$	-	$	-	$	-	$	-	$	-
Home equity loans and lines of credit		-		-		-		-		-
Commercial loans:
One-to-four family investment property		-		-		-		-		-
Multi-family real estate		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Commercial business		-		-		-		-		-

Construction loans:
One-to-four family		-		-		-		-		-
Multi-family		-		-		-		-		-
Non-residential		-		-		-		-		-

Consumer		-		-		-		-		-

Total impaired with no related allowance	$	-	$	-	$	-	$	-	$	-

Impaired loans with a valuation allowance

Residential loans:
One-to-four family	$	296	$	296	$	41	$	42	$	1
Home equity loans and lines of credit		13		13		13		2		-

Commercial loans:
One-to-four family investment property		-		-		-		-		-
Multi-family real estate		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Commercial business		-		-		-		-		-

Construction loans:
One-to-four family		-		-		-		-		-
Multi-family		-		-		-		-		-
Non-residential		-		-		-		-		-
Consumer		-		-		-		-		-

Total with an allowance recorded	$	309	$	309	$	54	$	44	$	1

At December 31, 2010

Impaired loans without a valuation allowance

Residential loans:
One-to-four family	$	208	$	208	$	-	$	209	$	5
Home equity loans and lines of credit		-		-		-		-		-

Commercial loans:
One-to-four family investment property		-		-		-		-		-
Multi-family real estate		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Commercial business		-		-		-		-		-

Construction loans:
One-to-four family		-		-		-		-		-
Multi-family		-		-		-		-		-
Non-residential		-		-		-		-		-

Consumer		-		-		-		-		-

Total impaired with no related allowance	$	208	$	208	$	-	$	209	$	5

Impaired loans with a valuation allowance

Residential loans:
One-to-four family	$	-	$	-	$	-	$	-	$	-
Home equity loans and lines of credit		45		45		36		47		1

Commercial loans:
One-to-four family investment property		-		-		-		-		-
Multi-family real estate		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Commercial business		-		-		-		-		-

Construction loans:
One-to-four family		-		-		-		-		-
Multi-family		-		-		-		-		-
Non-residential		-		-		-		-		-

Consumer		-		-		-		-		-

Total with an allowance recorded	$	45	$	45	$	36	$	47	$	1

The following table represents the Company's loans by risk rating at June 30, 2011 and December 31, 2010. For additional information please refer to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

	Residential				Commercial								Construction
	One-to-four family		Home equity loans and lines of credit		One-to-four family investment property		Multi-family real estate		Commercial real estate		Commercial business		One-to-four family		Multi-family		Non-residential		Consumer		Total
	(In thousands)
At June 30, 2011:

Classification:
Pass	$	66,718	$	16,891	$	12,375	$	14,514	$	21,301	$	9,456	$	15,234	$	7,342	$	629	$	618	$	165,078
Special mention		-		-		394		-		464		298		-		1,517		-		-		2,673
Substandard		296		13		-		-		3,320		1,465		1,539		-		-		-		6,633
Doubtful		-		-		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-		-		-
Total loans	$	67,014	$	16,904	$	12,769	$	14,514	$	25,085	$	11,219	$	16,773	$	8,859	$	629	$	618	$	174,384

At December 31, 2010:

Classification:
Pass	$	70,477	$	17,260	$	11,495	$	14,121	$	24,119	$	12,475	$	16,725	$	7,730	$	733	$	726	$	175,861
Special mention		-		-		397		-		3,569		-		-		-		-		-		3,966
Substandard		208		45		-		-		-		-		-		-		-		-		253
Doubtful		-		-		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-		-		-
Total loans	$	70,685	$	17,305	$	11,892	$	14,121	$	27,688	$	12,475	$	16,725	$	7,730	$	733	$	726	$	180,080

Credit Quality Information

The Company utilizes an eleven grade internal loan rating system for commercial real estate, construction and residential mortgages and commercial business loans 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 “marginally acceptable.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 6.5: Loans in this category are considered “management attention.” These loans are placed on a “watch list” and are being closely monitored by management because of some borrower management weaknesses and non-monetary defaults.

Loans rated 7: 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 8: Loans in this category are considered “substandard.” These loans have a well defined weakness that jeopardize the liquidation of the debt and is inadequately protected by the current sound worth and paying capacity of the borrower or pledged collateral. There is a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Loans rated 9: 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 10: Loans in this category are considered uncollectible “loss” and it has been determined uncollectible and the chance of loss in inevitable. Loans in this category will be charged-off.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial business loans.

Loans serviced for others and mortgage servicing rights

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others were $49,092,000 and $45,028,000 at June 30, 2011 and December 31, 2010, respectively.

The risks inherent in the mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The fair value of servicing rights was $455,000 at June 30, 2011 and was determined using the quarterly average 10-year, U.S. Treasury rate plus 5.0%, adjusted to reflect the current credit spreads and conditions in the market as a discount rate. Prepayment assumptions, which are impacted by loan rates and terms, are calculated using a moving average of prepayment data published by the Public Securities Association.

The following summarizes mortgage servicing rights capitalized and amortized, along with the aggregate activity-related valuation allowances:

	Six Months Ended
	June 30,
	2011			2010
	(In thousands)

Mortgage servicing rights:
Balance at beginning of period	$	424		$	183
Additions		54			47
Disposals		-			-
Amortization		(51	)		(8	)
Balance at end of period		427			222

Valuation allowances:
Balance at beginning of period		4			-
Additions		12			-
Recoveries		-			-
Write-downs		-			-
Balance at end of period		16			-

Mortgage servicing assets, net	$	411		$	222

Fair value of mortgage servicing assets	$	455		$	237