NOTE (4) – Loans Receivable Held for Investment

Loans at September 30, 2014 and December 31, 2013 were as follows:

	September 30, 2014				December 31, 2013
		(In thousands)
Real estate:
Single family (one-to-four units)		$	41,659			$	46,459
Multi-family (five or more units)		167,653				113,218
Commercial real estate		21,589				26,697
Church		56,992				67,934
Construction		394				424
Commercial – other		532				2,067
Consumer		6				38
Total gross loans receivable		288,825				256,837
Unamortized net deferred loan costs and premium		1,772				1,156
Allowance for loan losses		(9,067		)		(10,146		)
Loans receivable, net		$	281,530			$	247,847

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30, 2014
	Real Estate
	Single family		Multi- family		Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,849	$	2,304	$	1,081		$	4,112	$	7	$	19	$	4		$	9,376
Provision for (recapture of) loan losses	(465)		327		(96)			(724)		-		10		(2)			(950)
Recoveries	-		-		-			682		-		-		-			682
Loans charged off	(40)		-		-			(1)		-		-		-			(41)
Ending balance	$	1,344	$	2,631	$	985		$	4,069	$	7	$	29	$	2		$	9,067


	Nine Months Ended September 30, 2014
	Real Estate
	Single family		Multi- family		Commercial real estate			Church		Construction		Commercial - other		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	(455)		905		(479)			(1,408)		-		(1,091)		(4)			(2,532)
Recoveries	2		-		-			851		-		1,083		-			1,936
Loans charged off	(133)		-		(9)			(323)		-		(18)		-			(483)
Ending balance	$	1,344	$	2,631	$		985	$	4,069	$	7	$	29	$		2	$		9,067

	Three Months Ended September 30, 2013
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		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
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		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

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, 2014 and December 31, 2013:

	September 30, 2014
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	137	$	124	$	185	$	1060	$	-	$	22	$	-	$	1,528
Collectively evaluated for impairment	1,207		2,507		800		3,009		7		7		2		7,539
Total ending allowance balance	$	1,344	$	2,631	$	985	$	4,069	$	7	$	29	$	2	$	9,067
Loans:
Loans individually evaluated for impairment	$	1,436	$	3,141	$	4,692	$	15,595	$	-	$	110	$	-	$	24,974
Loans collectively evaluated for impairment	40,223		164,512		16,897		41,397		394		422		6		263,851
Total ending loans balance	$	41,659	$	167,653	$	21,589	$	56,992	$	394	$	532	$	6	$	288,825

	December 31, 2013
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		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		109,055		21,803		46,691		424		1,917		38		223,334
Total ending loans balance	$	46,459	$	113,218	$	26,697	$	67,934	$	424	$	2,067	$	38	$	256,837

The following table presents information related to loans individually evaluated for impairment by type of loans as of September 30, 2014 and December 31, 2013:

	September 30, 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:
Single family	$	1,453	$	754	$	-	$	2,114	$	1,441	$	-
Multi-family	1,768		1,623		-		2,690		2,598		-
Commercial real estate	4,841		1,210		-		4,867		1,391		-
Church	7,894		5,635		-		11,806		8,446		-
Commercial - other	-		-		-		3,850		-		-
With an allowance recorded:
Single family	682		682		137		1,612		1,612		382
Multi-family	1,551		1,518		124		1,578		1,565		143
Commercial real estate	3,482		3,482		185		3,503		3,503		206
Church	10,196		9,960		1,060		12,862		12,797		1,444
Commercial -other	110		110		22		150		150		12
Total	$	31,977	$	24,974	$	1,528	$	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 and nine months ended September 30, 2014 and 2013.


	Three Months Ended September 30, 2014						Nine Months Ended September 30, 2014
	Average Recorded Investment			Cash Basis Interest Income Recognized			Average Recorded Investment			Cash Basis Interest Income Recognized
	(In thousands)
Single family		$	2,038		$	25		$	2,601		$	60
Multi-family		3,250			20			3,554			66
Commercial real estate		4,716			106			4,792			295
Church		16,419			158			17,882			491
Commercial- other		117			3			130			8
Total		$	26,540		$	312		$	28,959		$	920


	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)
Single family		$	3,699		$	30		$	3,822		$	91
Multi-family		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

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans. 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. Foregone interest income that would have been recognized had loans performed in accordance with their original terms amounted to $337 thousand and $668 thousand for the three months ended September 30, 2014 and 2013, respectively, and $1.2 million and $1.5 million for the nine months ended September 30, 2014 and 2013, 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 as of September 30, 2014 and December 31, 2013 by type of loans:

	September 30, 2014
	30-59 Days Past Due			60-89 Days Past Due			Greater than 90 Days Past Due			Total Past Due			Current
	(In thousands)
Single family		$	885		$	-		$	-		$	885		$	40,774
Multi-family		-			-			-			-			167,653
Commercial real estate		-			-			-			-			21,589
Church		-			-			898			898			56,094
Construction		-			-			-			-			394
Commercial - other		-			-			-			-			532
Consumer		-			-			-			-			6
Total		$	885		$	-		$	898		$	1,783		$	287,042

	December 31, 2013
	30-59 Days Past Due			60-89 Days Past Due			Greater than 90 Days Past Due			Total Past Due			Current
	(In thousands)
Single family		$	802		$	-		$	585		$	1,387		$	45,072
Multi-family		-			-			545			545			112,673
Commercial real estate		346			-			1,016			1,362			25,335
Church		2,557			323			4,877			7,757			60,177
Construction		-			-			-			-			424
Commercial - other		82			-			-			82			1,985
Consumer		-			-			-			-			38
Total		$	3,787		$	323		$	7,023		$	11,133		$	245,704

The following table presents the recorded investment in non-accrual loans by type of loans as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(In thousands)
Single family		$	769		$	1,441
Multi-family		1,991			2,985
Commercial real estate		1,207			1,391
Church		5,786			11,735
Commercial - other		110			150
Total non-accrual loans		$	9,863		$	17,702

There were no loans 90 days or more delinquent that were accruing interest as of September 30, 2014 or December 31, 2013.

Troubled Debt Restructurings

At September 30, 2014, loans classified as troubled debt restructurings (“TDRs”) totaled $22.0 million, of which $6.9 million were included in non-accrual loans and $15.1 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 $1.4 million and $1.9 million of specific reserves for accruing TDRs as of September 30, 2014 and December 31, 2013, 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 September 30, 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 September 30, 2014 and 2013 and the nine months ended September 30, 2014. The terms of certain loans were modified as TDRs during the nine months ended September 30, 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 table presents loans by type modified as troubled debt restructurings during the nine months ended September 30, 2013:

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

The troubled debt restructurings described above increased the allowance for loan losses by $57 thousand and resulted in charge-offs of $23 thousand during the nine months ended September 30, 2013.

At September 30, 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 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:

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 or by the value of the underlying collateral. Pass rated assets 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 category of loans by type of loans as of September 30, 2014 and December 31, 2013 is as follows:

	September 30, 2014
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	37,447	$	3,453	$	759	$	-	$	-
Multi-family	162,192		612		4,849		-		-
Commercial real estate	15,714		524		5,351		-		-
Church	36,950		7,875		12,167		-		-
Construction	394		-		-		-		-
Commercial - other	422		-		110		-		-
Consumer	6		-		-		-		-
Total	$	253,125	$	12,464	$	23,236	$	-	$	-

	December 31, 2013
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	41,481	$	3,537	$	1,441	$	-	$	-
Multi-family	105,377		2,305		5,536		-		-
Commercial real estate	18,154		529		8,014		-		-
Church	34,367		17,657		15,910		-		-
Construction	424		-		-		-		-
Commercial - other	490		1,427		150		-		-
Consumer	38		-		-		-		-
Total	$	200,331	$	25,455	$	31,051	$	-	$	-