NOTE (4) – Loans Receivable Held for Investment

Loans at March 31, 2014 and December 31, 2013 were as follows:

	March 31, 2014		December 31, 2013
	(In thousands)
Real estate:
One-to-four units	$	45,501	$	46,459
Five or more units	125,062		113,268
Commercial real estate	24,352		26,697
Church	62,774		67,934
Construction	418		424
Commercial:
Sports	-		1,408
Other	617		659
Consumer	21		38
Total gross loans receivable	258,745		256,887
Loans in process	(60)		(50)
Net deferred loan costs	1,109		901
Unamortized premium	251		255
Allowance for loan losses	(10,091)		(10,146)
Loans receivable, net	$	249,954	$	247,847

The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2014 and 2013:

	Three Months Ended March 31, 2014
	One-to- four units			Five or more units		Commercial real estate			Church			Construction		Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	1,930		$	1,726	$	1,473		$	4,949		$	7	$	55		$	6		$	10,146
Provision for (recapture of) loan losses	(55		)	381		(252		)	(55		)	-		(1,099		)	(2		)	(1,082		)
Recoveries	2			-		-			156			-		1,082			-			1,240
Loans charged off	(3		)	-		(9		)	(183		)	-		(18		)	-			(213		)
Ending balance	$	1,874		$	2,107	$	1,212		$	4,867		$	7	$	20		$	4		$	10,091

	Three Months Ended March 31, 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 (recapture of) loan losses	(449		)	(361		)	(207		)	1,029			-		(12		)	-		-
Recoveries	259			-			15			7			-		95			-		376
Loans charged off	(36		)	(638		)	(944		)	(177		)	-		-			-		(1,795		)
Ending balance	$	1,834		$	1,123		$	1,549		$	5,677		$	8	$	250		$	9	$	10,450

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 March 31, 2014 and December 31, 2013:

	March 31, 2014
	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	$	377	$	141	$	194	$	1,160	$	-	$	12	$	-	$	1,884
Collectively evaluated for impairment	1,497		1,966		1,018		3,707		7		8		4		8,207

Total ending allowance balance	$	1,874	$	2,107	$	1,212	$	4,867	$	7	$	20	$	4	$	10,091

Loans:

Loans individually evaluated for impairment	$	2,880	$	3,556	$	4,863	$	17,419	$	-	$	138	$	-	$	28,856
Loans collectively evaluated for impairment	42,621		121,506		19,489		45,355		418		479		21		229,889

Total ending loans balance	$	45,501	$	125,062	$	24,352	$	62,774	$	418	$	617	$	21	$	258,745

	December 31, 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	$	382	$	143	$	206	$	1,444	$	-	$	12	$	-	$	2,187
Collectively evaluated for impairment	1,548		1,583		1,267		3,505		7		43		6		7,959

Total ending allowance balance	$	1,930	$	1,726	$	1,473	$	4,949	$	7	$	55	$	6	$	10,146

Loans:

Loans individually evaluated for impairment	$	3,053	$	4,163	$	4,894	$	21,243	$	-	$	150	$	-	$	33,503
Loans collectively evaluated for impairment	43,406		109,105		21,803		46,691		424		1,917		38		223,384

Total ending loans balance	$	46,459	$	113,268	$	26,697	$	67,934	$	424	$	2,067	$	38	$	256,887

The following table presents information related to loans individually evaluated for impairment by type of loans as of March 31, 2014 and December 31, 2013:

	March 31, 2014						December 31, 2013
	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	$	1,962	$	1,276	$	-	$	2,114	$	1,441	$	-
Five or more units	1,783		1,698		-		2,690		2,598		-
Commercial real estate	4,864		1,368		-		4,867		1,391		-
Church	10,613		7,432		-		11,806		8,446		-
Commercial:
Sports	-		-		-		3,850		-		-
Other	18		-		-		-		-		-
With an allowance recorded:
One-to-four units	1,604		1,604		377		1,612		1,612		382
Five or more units	1,897		1,858		141		1,578		1,565		143
Commercial real estate	3,495		3,495		194		3,503		3,503		206
Church	10,064		9,987		1,160		12,862		12,797		1,444
Commercial:
Other	138		138		12		150		150		12
Total	$	36,438	$	28,856	$	1,884	$	45,032	$	33,503	$	2,187

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 months ended March 31, 2014 and 2013.

	Three Months Ended
	March 31, 2014				March 31, 2013
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
One-to-four units	$	3,000	$	17	$	3,987	$	32
Five or more units	3,861		23		3,507		16
Commercial real estate	4,881		93		9,154		81
Church	19,719		141		24,139		137
Construction	-		-		202		5
Commercial:
Other	144		3		142		-
Total	$	31,605	$	277	$	41,131	$	271

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans. Interest income that would have been recognized for the three months ended March 31, 2014 and 2013 had loans performed in accordance with their original terms were $770 thousand and $762 thousand.

The following tables present the aging of the recorded investment in past due loans as of March 31, 2014 and December 31, 2013 by type of loans:

	March 31, 2014
	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)
One-to-four units	$	957	$	-	$	457	$	1,414	$	44,087
Five or more units	-		-		-		-		125,062
Commercial real estate	-		-		1,007		1,007		23,345
Church	162		-		1,760		1,922		60,852
Construction	-		-		-		-		418
Commercial:
Other	70		-		-		70		547
Consumer	-		-		-		-		21
Total	$	1,189	$	-	$	3,224	$	4,413	$	254,332

	December 31, 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)
One-to-four units	$	802	$	-	$	585	$	1,387	$	45,072
Five or more units	-		-		545		545		112,723
Commercial real estate	346		-		1,016		1,362		25,335
Church	2,557		323		4,877		7,757		60,177
Construction	-		-		-		-		424
Commercial:
Sports	-		-		-		-		1,408
Other	82		-		-		82		577
Consumer	-		-		-		-		38
Total	$	3,787	$	323	$	7,023	$	11,133	$	245,754

The following table presents the recorded investment in non-accrual loans by type of loans as of March 31, 2014 and December 31, 2013:

	March 31, 2014		December 31, 2013
	(In thousands)
One-to-four units	$	1,291	$	1,441
Five or more units	2,083		2,985
Commercial real estate	1,366		1,391
Church	8,269		11,735
Commercial:
Other	138		150
Total non-accrual loans	$	13,147	$	17,702

There were no loans 90 days or more delinquent that were accruing interest as of March 31, 2014 and December 31, 2013.

Troubled Debt Restructurings

At March 31, 2014, loans classified as troubled debt restructurings (“TDRs”) totaled $24.4 million, of which $8.7 million were included in non-accrual loans and $15.7 million were on accrual status. At December 31, 2013, loans classified as TDRs totaled $27.3 million, of which $11.5 million were included in non-accrual loans and $15.8 million were on accrual status. The Company has allocated $1.9 million of specific reserves for accruing TDRs as of March 31, 2014 and December 31, 2013. 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 March 31, 2014 and December 31, 2013, 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 three months ended March 31, 2014. The terms of certain loans were modified as TDRs during the three months ended March 31, 2013. 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. The following tables present loans by type modified as troubled debt restructurings during the three months ended March 31, 2014 and 2013:

	Three Months Ended March 31, 2014					Three Months Ended March 31, 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	$	715	$	765
Total	-	$	-	$	-	5	$	715	$	765

The troubled debt restructurings described above increased the allowance for loan losses by $23 thousand for the three months ended March 31, 2013 and resulted in charge-offs of $23 thousand during the first quarter of 2013.

At March 31, 2014 and 2013, none of the loans modified as troubled debt restructurings within the previous 12 months experienced a payment default. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

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 March 31, 2014 and December 31, 2013 is as follows:

	March 31, 2014
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One-to-four units	$	40,699	$	3,521	$	1,281	$	-	$	-
Five or more units	117,196		2,940		4,926		-		-
Commercial real estate	18,054		527		5,771		-		-
Church	33,072		17,591		12,111		-		-
Construction	418		-		-		-		-
Commercial:
Other	479		-		138		-		-
Consumer	21		-		-		-		-
Total	$	209,939	$	24,579	$	24,227	$	-	$	-

	December 31, 2013
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One-to-four units	$	41,481	$	3,537	$	1,441	$	-	$	-
Five or more units	105,427		2,305		5,536		-		-
Commercial real estate	18,154		529		8,014		-		-
Church	34,367		17,657		15,910		-		-
Construction	424		-		-		-		-
Commercial:
Sports	-		1,408		-		-		-
Other	490		19		150		-		-
Consumer	38		-		-		-		-
Total	$	200,381	$	25,455	$	31,051	$	-	$	-