Note 5: Accounting For Certain Loans Acquired in A Transfer

3 Months Ended

Sep. 30, 2012

Notes

Note 5: Accounting For Certain Loans Acquired in A Transfer

Note 5: Accounting for Certain Loans Acquired in a Transfer

The Company acquired loans in a transfer during the fiscal year ended June 30, 2011.  At acquisition, certain transferred loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired.  Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages.  Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan.  Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date.  Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

The carrying amount of those loans is included in the balance sheet amounts of loans receivable at September 30 and June 30, 2012.  The amounts of these loans at September 30 and June 30, 2012, are as follows:

	September 30,	June 30,
	2012	2012
Real Estate Loans:
Conventional	$2,122,666	$2,126,478
Construction	-	-
Commercial	2,072,857	2,087,192
Consumer loans	-	-
Commercial loans	1,897,301	1,947,738
Outstanding balance	$6,092,824	$6,161,408
Carrying amount, net of fair value adjustment of $1,507,150 and $1,624,572 at September 30, 2012 and June 30, 2012, respectively	$4,585,674	$4,536,836

Accretable yield, or income expected to be collected, is as follows:

	Three-months period ending	Three-month period ending
	September 30, 2012	September 30, 2011
Balance at beginning of period	$489,356	$792,942
Additions	-	-
Accretion	(147,606)	(420,959)
Reclassification from nonaccretable difference	496,299	570,893
Disposals	-	-
Balance at end of period	$838,049	$942,876

During the three-month periods ended September 30, 2012 and 2011, the Company increased the allowance for loan losses by a charge to the income statement of $141,777 and $112,121, respectively, related to these purchased credit impaired loans.  During the same periods, allowance for loan losses of $2,000 and $0, respectively, was reversed.