Note 4 – Loans Receivable Held for Investment

Loans receivable held for investment were as follows as of the periods indicated:


	December 31, 2018		December 31, 2017
	(In thousands)
Real estate:
Single family	$	91,835	$	111,085
Multi-family		231,870		187,455
Commercial real estate		5,802		6,089
Church		25,934		30,848
Construction		1,876		1,678
Commercial – other		226		192
Consumer		5		7
Gross loans receivable before deferred loan costs and premiums		357,548		337,354
Unamortized net deferred loan costs and premiums		937		1,566
Gross loans receivable		358,485		338,920
Allowance for loan losses		(2,929)		(4,069)
Loans receivable, net	$	355,556	$	334,851

The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:


	For the year ended December 31, 2018
	Real Estate
	Single		Multi-		Commercial						Commercial
	family		family		real estate		Church		Construction		– other		Consumer		Total
	(In thousands)
Beginning balance	$	594	$	2,300	$	71	$	1,081	$	17	$	6	$	—	$	4,069
Provision for (recapture of) loan losses		(225)		(420)		(19)		(592)		2		—		—		(1,254)
Recoveries		—		—		—		114		—		—		—		114
Loans charged off		—		—		—		—		—		—		—		—
Ending balance	$	369	$	1,880	$	52	$	603	$	19	$	6	$	—	$	2,929


	For the year ended December 31, 2017
	Real Estate
	Single		Multi-		Commercial						Commercial
	family		family		real estate		Church		Construction		– other		Consumer		Total
	(In thousands)
Beginning balance	$	367	$	2,659	$	215	$	1,337	$	8	$	17	$	—	$	4,603
Provision for (recapture of) loan losses		197		(359)		(144)		(792)		9		(11)		—		(1,100)
Recoveries		30		—		—		536		—		—		—		566
Loans charged off		—		—		—		—		—		—		—		—
Ending balance	$	594	$	2,300	$	71	$	1,081	$	17	$	6	$	—	$	4,069

The following tables present the balance in the allowance for loan losses and the recorded investment (unpaid contractual principal balance less charge-offs, less interest applied to principal, plus unamortized deferred costs and premiums) by loan type and based on impairment method as of and for the periods indicated:


	December 31, 2018
	Real Estate
	Single		Multi-		Commercial						Commercial
	family		family		real estate		Church		Construction		– other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	53	$	—	$	—	$	170	$	—	$	4	$	—	$	227
Collectively evaluated for impairment		316		1,880		52		433		19		2		—		2,702
Total ending allowance balance	$	369	$	1,880	$	52	$	603	$	19	$	6	$	—	$	2,929
Loans:
Loans individually evaluated for impairment	$	610	$	323	$	—	$	5,383	$	—	$	64	$	—	$	6,380
Loans collectively evaluated for impairment		91,567		232,986		5,800		19,713		1,872		162		5		352,105
Total ending loans balance	$	92,177	$	233,309	$	5,800	$	25,096	$	1,872	$	226	$	5	$	358,485


	December 31, 2017
	Real Estate
	Single		Multi-		Commercial						Commercial
	family		family		real estate		Church		Construction		– other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	100	$	1	$	—	$	479	$	—	$	5	$	—	$	585
Collectively evaluated for impairment		494		2,299		71		602		17		1		—		3,484
Total ending allowance balance	$	594	$	2,300	$	71	$	1,081	$	17	$	6	$	—	$	4,069
Loans:
Loans individually evaluated for impairment	$	627	$	333	$	—	$	8,280	$	—	$	65	$	—	$	9,305
Loans collectively evaluated for impairment		110,897		188,585		6,096		22,232		1,671		127		7		329,615
Total ending loans balance	$	111,524	$	188,918	$	6,096	$	30,512	$	1,671	$	192	$	7	$	338,920

The following table presents information related to loans individually evaluated for impairment by loan type as of the periods indicated:


	December 31, 2018						December 31, 2017
					Allowance						Allowance
	Unpaid				for Loan		Unpaid				for Loan
	Principal		Recorded		Losses		Principal		Recorded		Losses
	Balance		Investment		Allocated		Balance		Investment		Allocated
	(In thousands)
With no related allowance recorded:
Multi-family	$	323	$	323	$	—	$	—	$	—	$	—
Church		4,666		2,803		—		5,140		3,291		—
With an allowance recorded:
Single family		610		610		53		627		627		100
Multi-family		—		—		—		333		333		1
Church		2,580		2,580		170		5,028		4,989		479
Commercial – other		64		64		4		65		65		5
Total	$	8,243	$	6,380	$	227	$	11,193	$	9,305	$	585

The recorded investment in loans excludes accrued interest receivable due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.

The following tables present the monthly average of loans individually evaluated for impairment by loan type and the related interest income for the periods indicated:


	For the year ended December 31, 2018				For the year ended December 31, 2017
			Cash Basis				Cash Basis
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
		(In thousands)
Single family	$	618	$	30	$	636	$	28
Multi-family		329		23		589		44
Commercial real estate		—		—		305		104
Church		7,893		398		9,363		693
Commercial – other		64		4		65		6
Total	$	8,904	$	455	$	10,958	$	875

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans and interest recoveries on non-accrual loans that were paid off. Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible or paid off. When a loan is returned to accrual status, the interest payments that were previously applied to principal are deferred and amortized over the remaining life of the loan. Foregone interest income that would have been recognized had loans performed in accordance with their original terms amounted to $280 thousand and $126 thousand for the years ended December 31, 2018 and 2017, respectively, and were not included in the consolidated results of operations.

The following tables present the aging of the recorded investment in past due loans by loan type as of the periods indicated:


	December 31, 2018
	30-59		60-89		Greater than
	Days		Days		90 Days		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Loans receivable held for investment:
Single family	$	35	$	—	$	—	$	35	$	92,142	$	92,177
Multi-family		—		—		—		—		233,309		233,309
Commercial real estate		—		—		—		—		5,800		5,800
Church		—		—		—		—		25,096		25,096
Construction		—		—		—		—		1,872		1,872
Commercial – other		—		—		—		—		226		226
Consumer		—		—		—		—		5		5
Total	$	35	$	—	$	—	$	35	$	358,450	$	358,485


	December 31, 2017
	30-59		60-89		Greater than
	Days		Days		90 Days		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Loans receivable held for investment:
Single family	$	—	$	50	$	—	$	50	$	111,474	$	111,524
Multi-family		—		—		—		—		188,918		188,918
Commercial real estate		—		—		—		—		6,096		6,096
Church		341		—		—		341		30,171		30,512
Construction		—		—		—		—		1,671		1,671
Commercial – other		—		—		—		—		192		192
Consumer		—		—		—		—		7		7
Total	$	341	$	50	$	—	$	391	$	338,529	$	338,920

The following table presents the recorded investment in non-accrual loans by loan type as of the periods indicated:


	December 31, 2018		December 31, 2017
	(In thousands)
Loans receivable held for investment:
Church	$	911	$	1,766
Total non-accrual loans	$	911	$	1,766

There were no loans 90 days or more delinquent that were accruing interest as of December 31, 2018 or December 31, 2017.

Troubled Debt Restructurings

At December 31, 2018, loans classified as troubled debt restructurings (“TDRs”) totaled $6.4 million, of which $591 thousand were included in non-accrual loans and $5.8 million were on accrual status. At December 31, 2017, loans classified as TDRs totaled $8.9 million, of which $1.4 million were included in non-accrual loans and $7.5 million were on accrual status. The Company has allocated $227 thousand and $585 thousand of specific reserves for accruing TDRs as of December 31, 2018 and 2017, respectively. TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time and for which the Bank anticipates full repayment of both principal and interest. TDRs that are on non-accrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments, as modified. A well-documented credit analysis that supports a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms is also required. As of December 31, 2018 and 2017, the Company had no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs. No loans were modified during the years ended December 31, 2018 and 2017.

Credit Quality Indicators

The Company categorizes loans into risk categories based on 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. For single family residential, consumer and other smaller balance homogenous loans, a credit grade is established at inception, and generally only adjusted based on performance. Information about payment status is disclosed elsewhere herein. The Company analyzes all other loans individually by classifying the loans as to credit risk. This analysis is performed at least on a quarterly basis. The Company uses the following definitions for risk ratings:

Watch. Loans classified as watch exhibit weaknesses that could threaten the current net worth and paying capacity of the obligors. Watch graded loans are generally performing and are not more than 59 days past due. A watch rating is used when a material deficiency exists but correction is anticipated within an acceptable time frame.

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 the 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.

Loss. Loans classified as loss are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor and/or by the value of the underlying collateral. Pass rated loans are not more than 59 days past due and are generally performing in accordance with the loan terms. Based on the most recent analysis performed, the risk categories of loans by loan type as of the periods indicated were as follows:


	December 31, 2018
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	92,132	$	—	$	35	$	10	$	—	$	—
Multi-family		232,642		—		—		667		—		—
Commercial real estate		5,800		—		—		—		—		—
Church		19,678		672		—		4,746		—		—
Construction		1,872		—		—		—		—		—
Commercial – other		162		—		—		64		—		—
Consumer		5		—		—		—		—		—
Total	$	352,291	$	672	$	35	$	5,487	$	—	$	—


	December 31, 2017
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	111,513	$	—	$	—	$	11	$	—	$	—
Multi-family		187,946		—		—		972		—		—
Commercial real estate		5,974		122		—		—		—		—
Church		24,474		691		—		5,347		—		—
Construction		1,671		—		—		—		—		—
Commercial – other		127		—		—		65		—		—
Consumer		7		—		—		—		—		—
Total	$	331,712	$	813	$	—	$	6,395	$	—	$	—