NOTE (6) – Loans Receivable Held for Investment

Loans at September 30, 2013 and December 31, 2012 were as follows:

	September 30, 2013			December 31, 2012
	(In thousands)
Real estate:
One-to-four units	$	50,296		$	57,733
Five or more units	104,301			83,350
Commercial real estate	32,944			41,124
Church	70,720			76,254
Construction	434			735
Commercial:
Sports	1,423			1,711
Other	670			2,184
Consumer:
Other	36			35
Total gross loans receivable	260,824			263,126
Loans in process	(25		)	(74		)
Net deferred loan costs	784			557
Unamortized premium (discounts)	260			(17		)
Allowance for loan losses	(10,339		)	(11,869		)
Loans receivable, net	$	251,504		$	251,723

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30, 2013
	One-to- four units			Five or more units			Commercial real estate			Church			Construction			Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	2,445		$	1,169		$	1,674		$	5,060		$	8		$	213		$	10		$	10,579
Provision for loan losses	(315		)	351			72			523			(1		)	(213		)	(3		)	414
Recoveries	-			-			16			5			-			59			-			80
Loans charged off	(51		)	(3		)	(190		)	(490		)	-			-			-			(734		)
Ending balance	$	2,079		$	1,517		$	1,572		$	5,098		$	7		$	59		$	7		$	10,339

	Nine Months Ended September 30, 2013
	One-to- four units			Five or more units			Commercial real estate			Church			Construction			Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	2,060		$	2,122		$	2,685		$	4,818		$	8		$	167		$	9		$	11,869
Provision for loan losses	(150		)	56			(96		)	929			(1		)	(322		)	(2		)	414
Recoveries	259			-			117			18			-			214			-			608
Loans charged off	(90		)	(661		)	(1,134		)	(667		)	-			-			-			(2,552		)
Ending balance	$	2,079		$	1,517		$	1,572		$	5,098		$	7		$	59		$	7		$	10,339

	Three Months Ended September 30, 2012
	One-to- four units			Five or more units			Commercial real estate			Church			Construction			Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	4,701		$	2,897		$	2,640		$	7,223		$	106		$	270		$	19		$	17,856
Provision for loan losses	453			(326		)	135			3			(1		)	(126		)	(9		)	129
Recoveries	-			1			15			3			-			97			3			119
Loans charged off	(539		)	(14		)	(346		)	(221		)	-			-			-			(1,120		)
Ending balance	$	4,615		$	2,558		$	2,444		$	7,008		$	105		$	241		$	13		$	16,984

	Nine Months Ended September 30, 2012
	One-to- four units			Five or more units			Commercial real estate			Church			Construction			Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	4,855		$	2,972		$	3,108		$	5,742		$	249		$	316		$	57		$	17,299
Provision for loan losses	654			(401		)	(305		)	1,864			(144		)	(427		)	(51		)	1,190
Recoveries	-			1			45			10			-			352			7			415
Loans charged off	(894		)	(14		)	(404		)	(608		)	-			-			-			(1,920		)
Ending balance	$	4,615		$	2,558		$	2,444		$	7,008		$	105		$	241		$	13		$	16,984

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2013 and December 31, 2012:

	September 30, 2013
	One-to- four units		Five or more units		Commercial real estate		Church		Construction		Commercial		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	508	$	147	$	293	$	1,486	$	-	$	16	$	-	$	2,450
Collectively evaluated for impairment	1,571		1,370		1,279		3,612		7		43		7		7,889
Total ending allowance balance	$	2,079	$	1,517	$	1,572	$	5,098	$	7	$	59	$	7	$	10,339
Loans:
Loans individually evaluated for impairment	$	3,674	$	4,226	$	7,936	$	22,552	$	-	$	162	$	-	$	38,550
Loans collectively evaluated for impairment	46,622		100,075		25,008		48,168		434		1,931		36		222,274
Total ending loans balance	$	50,296	$	104,301	$	32,944	$	70,720	$	434	$	2,093	$	36	$	260,824

	December 31, 2012
	One-to- four units		Five or more units		Commercial real estate		Church		Construction		Commercial		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	719	$	125	$	543	$	1,276	$	-	$	69	$	-	$	2,732
Collectively evaluated for impairment	1,341		1,997		2,142		3,542		8		98		9		9,137
Total ending allowance balance	$	2,060	$	2,122	$	2,685	$	4,818	$	8	$	167	$	9	$	11,869
Loans:
Loans individually evaluated for impairment	$	4,576	$	3,766	$	10,364	$	25,328	$	273	$	69	$	-	$	44,376
Loans collectively evaluated for impairment	53,157		79,584		30,760		50,926		462		3,826		35		218,750
Total ending loans balance	$	57,733	$	83,350	$	41,124	$	76,254	$	735	$	3,895	$	35	$	263,126

The following table presents information related to loans individually evaluated for impairment by type of loans as of September 30, 2013 and December 31, 2012:

	September 30, 2013						December 31, 2012
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)
With no related allowance recorded:
One-to-four units	$	2,348	$	1,694	$	-	$	1,986	$	1,484	$	-
Five or more units	2,703		2,647		-		2,038		1,819		-
Commercial real estate	4,869		1,451		-		10,184		6,423		-
Church	12,938		9,695		-		18,664		15,689		-
Construction	-		-		-		279		273		-
Commercial:
Sports	3,850		-		-		3,888		-		-
With an allowance recorded:
One-to-four units	1,980		1,980		508		3,092		3,092		719
Five or more units	1,586		1,579		147		1,947		1,947		125
Commercial real estate	6,491		6,485		293		3,941		3,941		543
Church	12,911		12,857		1,486		9,677		9,639		1,276
Commercial:
Other	162		162		16		69		69		69
Total	$	49,838	$	38,550	$	2,450	$	55,765	$	44,376	$	2,732

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net 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 type of loans and the related interest income for the three and nine months ended September 30, 2013 and 2012.

	Three Months Ended September 30, 2013				Nine Months Ended September 30, 2013
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
One-to-four units	$	3,699	$	30	$	3,822	$	91
Five or more units	3,347		15		3,215		55
Commercial real estate	6,986		182		7,778		405
Church	22,472		131		23,027		407
Construction	-		-		81		5
Commercial:
Other	165		2		156		8
Total	$	36,669	$	360	$	38,079	$	971

	Three Months Ended September 30, 2012				Nine Months Ended September 30, 2012
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
One-to-four units	$	14,143	$	120	$	13,844	$	354
Five or more units	2,266		10		3,047		50
Commercial real estate	8,251		115		7,847		260
Church	31,094		237		31,709		834
Construction	288		3		294		12
Commercial:
Other	70		2		70		4
Total	$	56,112	$	487	$	56,811	$	1,514

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans. Interest income that would have been recognized for the nine months ended September 30, 2013 and 2012 had loans performed in accordance with their original terms were $2.5 million and $3.4 million.

The following table presents the recorded investment in non-accrual loans by type of loans as of September 30, 2013 and December 31, 2012:

	September 30, 2013		December 31, 2012
	(In thousands)
Loans receivable held for sale:
One-to-four units	$	-	$	6,656
Five or more units	-		1,956
Church	785		1,556
Loans receivable held for investment:
One-to-four units	1,694		1,489
Five or more units	3,041		2,312
Commercial real estate	1,451		7,090
Church	13,002		15,689
Construction	-		273
Commercial:
Other	162		69
Total non-accrual loans	$	20,135	$	37,090

There were no loans 90 days or more delinquent that were accruing interest as of September 30, 2013 or December 31, 2012.

The following tables present the aging of the recorded investment in past due loans, including loans receivable held for sale, as of September 30, 2013 and December 31, 2012 by type of loans:

	September 30, 2013
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Loans Not Past Due
	(In thousands)
Loans receivable held for sale:
Church	$	-	$	-	$	785	$	785	$	300
Loans receivable held for investment:
One-to-four units	876		-		1,694		2,570		47,726
Five or more units	-		-		3,041		3,041		101,260
Commercial real estate	-		-		1,451		1,451		31,493
Church	419		-		13,002		13,421		57,299
Construction	-		-		-		-		434
Commercial:
Sports	-		-		-		-		1,423
Other	-		20		162		182		488
Consumer:
Other	-		-		-		-		36
Total	$	1,295	$	20	$	20,135	$	21,450	$	240,459

	December 31, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Loans Not Past Due
	(In thousands)
Loans receivable held for sale:
One-to-four units	$	-	$	871	$	6,656	$	7,527	$	389
Five or more units	-		-		1,956		1,956		3,839
Commercial real estate	-		-		-		-		1,358
Church	-		-		1,556		1,556		2,744
Loans receivable held for investment:
One-to-four units	1,077		-		1,489		2,566		55,167
Five or more units	587		554		2,312		3,453		79,897
Commercial real estate	-		-		7,090		7,090		34,034
Church	1,617		-		15,689		17,306		58,948
Construction	-		-		273		273		462
Commercial:
Sports	-		-		-		-		1,711
Other	-		-		69		69		2,115
Consumer:
Other	-		-		-		-		35
Total	$	3,281	$	1,425	$	37,090	$	41,796	$	240,699

Troubled Debt Restructurings

During the nine months ended September 30, 2013, the terms of certain loans were modified as troubled debt restructurings (“TDRs”). The modification of the terms of such loans included payments of delinquent property taxes, which the borrower would be required to repay over a period greater than six months.

At September 30, 2013, loans classified as TDRs totaled $32.2 million, of which $13.0 million were included in non-accrual loans and $19.2 million were on accrual status. At December 31, 2012, loans classified as TDRs totaled $41.1 million, of which $22.8 million were included in non-accrual loans and $18.3 million were on accrual status. The Company has allocated $2.1 million and $2.5 million of specific reserves for accruing TDRs as of September 30, 2013 and December 31, 2012. 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. As of September 30, 2013 and December 31, 2012, the Company has no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs.

The following tables present loans by type modified as troubled debt restructurings during the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30, 2013					Nine Months Ended September 30, 2013
	Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(Dollars in thousands)
One-to-four units	-	$	-	$	-	5	$	739	$	789
Commercial real estate	-	-		-		1	1,456		1,497
Total	-	$	-	$	-	6	$	2,195	$	2,286

	Three Months Ended September 30, 2012					Nine Months Ended September 30, 2012
	Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(Dollars in thousands)
One-to-four units	-	$	-	$	-	1	$	36	$	36
Commercial real estate	-	-		-		2	734		740
Church	1	503		503		9	3,902		3,907
Total	1	$	503	$	503	12	$	4,672	$	4,683

The troubled debt restructurings described above increased the allowance for loan losses by $0 thousand and $57 thousand for the three and nine months ended September 30, 2013 and by $0 thousand and $228 thousand for the same periods in 2012. These TDRs resulted in charge-offs of $23 thousand during the nine months ended September 30, 2013, compared to $100 thousand for the same period in 2012.

At September 30, 2013, there were no loans modified as troubled debt restructurings within the previous 12 months for which there was a payment default. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

All loan modifications during the nine months ended September 30, 2013 were considered troubled debt restructurings. The terms of certain other loans were modified during the nine months ended September 30, 2012 that did not meet the definition of a troubled debt restructuring. These loans had a total recorded investment of $2.2 million as of September 30, 2012. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed to determine the likelihood that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

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 one-to-four 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. 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:

· 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. Based on the most recent analysis performed, the risk category of loans by type of loans as of September 30, 2013 and December 31, 2012 is as follows:

	September 30, 2013
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One-to-four units	$	45,048	$	3,554	$	1,694	$	-	$	-
Five or more units	95,955		2,742		5,604		-		-
Commercial real estate	23,219		1,632		8,093		-		-
Church	35,389		16,898		18,433		-		-
Construction	434		-		-		-		-
Commercial:
Sports	-		1,423		-		-		-
Other	488		20		162		-		-
Consumer:
Other	36		-		-		-		-
Total	$	200,569	$	26,269	$	33,986	$	-	$	-

	December 31, 2012
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One-to-four units	$	55,613	$	631	$	1,489	$	-	$	-
Five or more units	73,673		5,250		4,427		-		-
Commercial real estate	25,605		2,541		12,921		57		-
Church	33,532		19,502		23,220		-		-
Construction	462		-		273		-		-
Commercial:
Sports	-		1,711		-		-		-
Other	1,877		141		166		-		-
Consumer:
Other	35		-		-		-		-
Total	$	190,797	$	29,776	$	42,496	$	57	$	-