(4) LOANS

The components of loans at March 31, 2013 and June 30, 2012 were as follows:

	March 31, 2013			June 30, 2012
Real estate loans:
One- to four-family	$	210,650		$	234,125
Multi-family	259			264
Home equity	304			395
Nonresidential	8,754			9,226
Construction and land	8,127			7,232
Total real estate loans	228,094			251,242
Consumer and other loans	869			987
Total loans	228,963			252,229
Net deferred loan fees	(1,277		)	(1,540		)
Allowance for loan losses	(747		)	(857		)
Loans, net	$	226,939		$	249,832

The following tables present the activity in the allowance for loan losses for the three and nine months ended March 31, 2013 and 2012 and the balances in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method at March 31, 2013 and 2012:

Three Months Ended March 31, 2013

	Real estate
	One-to-four family			Multi-family		Home Equity		Nonresidential			Construction and land			Consumer		Total
Beginning balance	$	778		$	4	$	1	$	54		$	26		$	3	$	866
Provision	183			—		—		(1		)	(2		)	—		180
Charge-offs	(299		)	—		—		—			—			—		(299		)
Recoveries	—			—		—		—			—			—		—
Ending balance	$	662		$	4	$	1	$	53		$	24		$	3	$	747

Allowance for loan losses:
Ending allowance attributed to loans:
Individually evaluated for impairment	$	60		$	—	$	—	$	—		$	—		$	—	$	60
Collectively evaluated for impairment	602			4		1		53			24			3		687
Total ending allowance balance	$	662		$	4	$	1	$	53		$	24		$	3	$	747

Loans:
Loans individually evaluated for impairment	$	2,680		$	—	$	—	$	—		$	—		$	—	$	2,680
Loans collectively evaluated for impairment	207,970			259		304		8,754			8,127			869		226,283
Total ending loans balance	$	210,650		$	259	$	304	$	8,754		$	8,127		$	869	$	228,963

Nine Months Ended March 31, 2013

	Real estate
	One-to-four family			Multi-family		Home Equity			Nonresidential			Construction and land			Consumer			Total
Beginning balance	$	773		$	4	$	1		$	56		$	21		$	2		$	857
Provision	256			—		—			(3		)	3			1			257
Charge-offs	(367		)	—		—			—			—			—			(367		)
Recoveries	—			—		—			—			—			—			—
Ending balance	$	662		$	4	$	1		$	53		$	24		$	3		$	747

Three Months Ended March 31, 2012

	Real estate
	One-to-four family			Multi-family		Home Equity			Nonresidential			Construction and land			Consumer			Total
Beginning balance	$	646		$	4	$	1		$	57		$	26		$	2		$	736
Provision	85			—		(1		)	—			(2		)	—			82
Charge-offs	—			—		—			—			—			—			—
Recoveries	—			—		—			—			—			—			—
Ending balance	$	731		$	4	$	—		$	57		$	24		$	2		$	818

Allowance for loan losses:
Ending allowance attributed to loans:
Individually evaluated for impairment	$	82		$	—	$	—		$	—		$	—		$	—		$	82
Collectively evaluated for impairment	649			4		—			57			24			2			736
Total ending allowance balance	$	731		$	4	$	—		$	57		$	24		$	2		$	818

Loans:
Loans individually evaluated for impairment	$	2,787		$	—	$	—		$	—		$	—		$	—		$	2,787
Loans collectively evaluated for impairment	236,130			266		446			9,388			8,181			936			255,347
Total ending loans balance	$	238,917		$	266	$	446		$	9,388		$	8,181		$	936		$	258,134

Nine Months Ended March 31, 2012

	Real estate
	One-to-four family			Multi-family		Home Equity			Nonresidential			Construction and land			Consumer			Total
Beginning balance	$	647		$	4	$	1		$	56		$	38		$	3		$	749
Provision	239			—		—			—			(14		)	(1		)	224
Charge-offs	(155		)	—		—			—			—			—			(155		)
Recoveries	—			—		—			—			—			—			—
Ending balance	$	731		$	4	$	1		$	56		$	24		$	2		$	818

The following table presents the balances in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method at June 30, 2012:

June 30, 2012

	Real estate
	One-to-four family		Multi-family		Home Equity		Nonresidential		Construction and land		Consumer		Total
Allowance for loan losses:
Ending allowance attributed to loans:
Individually evaluated for impairment	$	101	$	—	$	—	$	—	$	—	$	—	$	101
Collectively evaluated for impairment	672		4		1		56		21		2		756
Total ending allowance balance	$	773	$	4	$	1	$	56	$	21	$	2	$	857

Loans:
Loans individually evaluated for impairment	$	2,483	$	—	$	—	$	—	$	—	$	—	$	2,483
Loans collectively evaluated for impairment	231,642		264		395		9,226		7,232		987		249,746
Total ending loans balance	$	234,125	$	264	$	395	$	9,226	$	7,232	$	987	$	252,229

The following table presents loans individually evaluated for impairment by portfolio segment at March 31, 2013 and June 30, 2012, including the average recorded investment balance and interest earned for the nine months ended March 31, 2013 and year ended June 30, 2012:

	March 31, 2013										June 30, 2012
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no recorded allowance:
Real estate loans:
One- to four-family	$	1,961	$	1,961	$	—	$	1,316	$	48	$	670	$	670	$	—	$	1,135	$	—
Multi-family	—		—		—		—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—		—		—		—
Nonresidential	—		—		—		—		—		—		—		—		—		—
Construction and land	—		—		—		—		—		—		—		—		—		—
Total real estate loans	1,961		1,961		—		1,316		48		670		670		—		1,135		—
Consumer and other loans	—		—		—		—		—		—		—		—		—		—
Total	$	1,961	$	1,961	$	—	$	1,316	$	48	$	670	$	670	$	—	$	1,135	$	—

With recorded allowance:
Real estate loans:
One- to four-family	$	719	$	719	$	60	$	1,266	$	14	$	1,813	$	1,813	$	101	$	1,111	$	—
Multi-family	—		—		—		—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—		—		—		—
Nonresidential	—		—		—		—		—		—		—		—		—		—
Construction and land	—		—		—		—		—		—		—		—		—		—
Total real estate loans	719		719		60		1,266		14		1,813		1,813		101		1,111		—
Consumer and other loans	—		—		—		—		—		—		—		—		—		—
Total	$	719	$	719	$	60	$	1,266	$	14	$	1,813	$	1,813	$	101	$	1,111	$	—

Totals:
Real estate	$	2,680	$	2,680	$	60	$	2,582	$	62	$	2,483	$	2,483	$	101	$	2,246	$	—
Consumer and other loans	—		—		—		—		—		—		—		—		—		—
Total	$	2,680	$	2,680	$	60	$	2,582	$	62	$	2,483	$	2,483	$	101	$	2,246	$	—

The following table presents the aging of the recorded investment in past due loans at March 31, 2013 and June 30, 2012 by portfolio class of loans:

March 31,2013

													Accruing
	30-59		60-89		90 Days								Loans
	Days		Days		or More		Total				Total		Past Due 90
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Days or More
Real estate loans:
One- to four-family	$	5,216	$	611	$	1,472	$	7,299	$	203,351	$	210,650	$	207
Multi-family	—		—		—		—		259		259		—
Home equity	—		—		—		—		304		304		—
Nonresidential	—		—		—		—		8,754		8,754		—
Construction and land	232		18		—		250		7,877		8,127		—
Total real estate loans	5,448		629		1,472		7,549		220,545		228,094		207
Consumer and other loans	—		—		—		—		869		869		—
Total	$	5,448	$	629	$	1,472	$	7,549	$	221,414	$	228,963	$	207

June 30, 2012

													Accruing
	30-59		60-89		90 Days								Loans
	Days		Days		or More		Total				Total		Past Due 90
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Days or More
Real estate loans:
One- to four-family	$	4,305	$	140	$	2,302	$	6,747	$	227,378	$	234,125	$	145
Multi-family	—		—		—		—		264		264		—
Home equity	—		—		—		—		395		395		—
Nonresidential	—		—		—		—		9,226		9,226		—
Construction and land	163		—		—		163		7,069		7,232		—
Total real estate loans	4,468		140		2,302		6,910		244,332		251,242		145
Consumer and other loans	—		—		—		—		987		987		—
Total	$	4,468	$	140	$	2,302	$	6,910	$	245,319	$	252,229	$	145

At March 31, 2013, nonaccrual loans were $1,467, of which $1,265 were past due 90 days or more. There was $202 of nonaccrual loans that were 30-59 days past due. At June 30, 2012, there was $2,157 of nonaccrual loans, all of which were past due 90 days or more.

There were no troubled debt restructures at March 31, 2013 or June 30, 2012.

All loans graded pass, special mention, substandard and doubtful not specifically evaluated for impairment are collectively evaluated for impairment by portfolio segment. To develop and document a systematic methodology for determining the portion of the allowance for loan losses for loans evaluated collectively, the Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk, and utilizes a loan grading system whereby all loans within each portfolio segment are assigned a grade based on the risk profile of each loan. Loan grades are determined based on an evaluation of 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. All loans, regardless of size, are analyzed and assigned a grade based upon management’s assessment of the ability of borrowers to service their debts. The following describes each of the Company’s loan grades and general information as to the risk profile of each of the Company’s loan portfolio segments:

Loan Grades:

Pass: Loans not meeting any of the criteria listed below for special mention, substandard, or doubtful are graded “Pass.”

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. 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 inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Portfolio Segments:

One-to-four family: One-to-four family residential loans consist primarily of loans secured by first or second deeds of trust on primary residences, and are originated as adjustable-rate or fixed-rate loans for the construction, purchase or refinancing of a one-to-four family residence. These loans are collateralized by owner-occupied properties located in the Company’s market area. We currently originate residential mortgage loans for our portfolio with loan-to-value ratios of up to 80% for traditional owner-occupied homes.

Multi-family: Multi-family real estate loans generally have a maximum term of 30 years with a five year balloon payment and are secured by properties containing five or more units in the Company’s market area. These loans are generally made in amounts of up to 75% of the lesser of the appraised value or the purchase price of the property with an appropriate projected debt service coverage ratio. The Company’s underwriting analysis includes considering the borrower’s expertise and requires verification of the borrower’s credit history, income and financial statements, banking relationships, independent appraisals, references and income projections for the property. The Company generally obtains personal guarantees on these loans.

Multi-family real estate loans generally present a higher level of risk than loans secured by one-to-four family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family residential real estate is typically dependent upon the successful operation of the related real estate project.

Home Equity: We originate fixed-rate home equity loans secured by a lien on the borrower’s primary residence but only where we hold the first mortgage on the property. Our home equity loans are limited to an 80% loan-to-value ratio (including all prior liens), and have terms of up to 10 years with 10-year amortization periods. We use the same underwriting standards for home equity loans as we use for one- to four-family residential mortgage loans.

Nonresidential Real Estate: Our non-residential real estate loans are secured primarily by churches and, to a much lesser extent, office buildings, and retail and mixed-use properties located in our primary market area. The non-residential real estate loans that we originate generally have maximum terms of 5 years with amortization periods of 30 years. For loans secured by church property, our loans generally have maximum terms of 20 years with amortization periods of up to 20 years. The maximum loan-to-value ratio of our non-residential real estate loans is generally 75%.

Loans secured by non-residential real estate generally are larger than one- to four-family residential loans and involve greater credit risk. Non-residential real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general, including the current adverse conditions. In addition, because a church’s financial stability often depends on donations from congregation members, some of whom may not reside in our market area, rather than income from business operations, repayment may be affected by economic conditions that affect individuals located both in our market area and in other market areas with which we are not as familiar. In addition, due to the unique nature of church buildings and properties, the real estate securing church loans may be less marketable than other non-residential real estate.

Construction and Land: We make construction loans to individuals for the construction of their primary residences and interim construction loans for non-residential properties. These loans generally have maximum terms of eight months, and upon completion of construction convert to conventional amortizing mortgage loans. These construction loans have rates and terms comparable to one- to four-family residential mortgage loans that we originate. During the construction phase, the borrower generally pays interest only. The maximum loan-to-value ratio of our owner-occupied construction loans is 80%. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential mortgage loans. Finally, we make loans secured by land to complement our construction and non-residential lending activities. These loans have terms of up to 10 years, and maximum loan-to-value ratios of 75% for improved lots and 65% for unimproved land.

To the extent our construction loans are not made to owner-occupants of single-family homes, they are more vulnerable to changes in economic conditions and the concentration of credit with a limited number of borrowers. Further, the nature of these loans is such that they are more difficult to evaluate and monitor. Our risk of loss on a construction or land loan is dependent largely upon the accuracy of the initial estimate of the property’s value upon completion of the project and the estimated cost (including interest) of the project. If the estimate of value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project with a value which is insufficient to assure full repayment and/or the possibility of having to make substantial investments to complete and sell the project. Because defaults in repayment may not occur during the construction period, it may be difficult to identify problem loans at an early stage.

Consumer and Other Loans: We offer installment loans for various consumer purposes, including the purchase of automobiles, boats, appliances and recreational vehicles, and for other legitimate personal purposes. The maximum terms of consumer loans is 18 months for unsecured loans, 12 months for loans secured by marketable securities and 18-60 months for loans secured by a vehicle, depending on the age of the vehicle. We generally only extend consumer loans to existing customers or their immediate family members, and these loans generally have relatively low limits.

Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

At March 31, 2013 and June 30, 2012, and based on the most recent analyses performed, the loan grade for each loan by portfolio segment is as follows:

	Real estate
	One-to four family				Multi-family				Home Equity				Nonresidential
	March 31, 2013		June 30, 2012		March 31, 2013		June 30, 2012		March 31, 2013		June 30, 2012		March 31, 2013		June 30, 2012

Pass	$	207,970	$	231,642	$	259	$	264	$	304	$	395	$	8,754	$	9,226
Special mention	1,208		160		—		—		—		—		—		—
Substandard	1,472		2,323		—		—		—		—		—		—
Total	$	210,650	$	234,125	$	259	$	264	$	304	$	395	$	8,754	$	9,226

	Real estate
	Construction and Land				Consumer				Total
	March 31, 2013		June 30, 2012		March 31, 2013		June 30, 2012		March 31, 2013		June 30, 2012

Pass	$	8,127	$	7,232	$	869	$	987	$	226,283	$	249,746
Special mention	—		—		—		—		1,208		160
Substandard	—		—		—		—		1,472		2,323
Total	$	8,127	$	7,232	$	869	$	987	$	228,963	$	252,229