NOTE (4) – Loans Receivable Held for Investment

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

	June 30, 2016		December 31, 2015
	(In thousands)
Real estate:
Single family (1)	$	115,388	$	130,891
Multi-family	173,438		118,616
Commercial real estate	10,733		11,442
Church	44,175		46,390
Construction	320		343
Commercial – other	304		270
Consumer	15		4

Gross loans receivable before deferred loan costs and premiums	344,373		307,956
Unamortized net deferred loan costs and premiums	1,436		1,043

Gross loans receivable	345,809		308,999
Allowance for loan losses	(4,545)		(4,828)

Loans receivable, net	$	341,264	$	304,171

______

(1)Includes $89.0 million and $99.5 million of non-impaired purchased loans at June 30, 2016 and December 31, 2015, respectively, which are accounted for under ASC 310-20.

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


	Three Months Ended June 30, 2016
	Real Estate
	Single family			Multi- family		Commercial real estate			Church			Construction		Commercial - other			Consumer		Total
	(In thousands)
Beginning balance	$	528		$	1,866	$	444		$	1,676		$	3	$	17		$	-	$	4,534
Provision for (recapture of) loan losses	(87		)	381		(452		)	(86		)	-		(7		)	1		(250		)
Recoveries	-			-		248			6			-		7			-		261
Loans charged off	-			-		-			-			-		-			-		-

Ending balance	$	441		$	2,247	$	240		$	1,596		$	3	$	17		$	1	$	4,545


	Six Months Ended June 30, 2016
	Real Estate
	Single family			Multi- family		Commercial real estate			Church			Construction		Commercial - other			Consumer		Total
	(In thousands)
Beginning balance	$	597		$	1,658	$	469		$	2,083		$	3	$	18		$	-	$	4,828
Provision for (recapture of) loan losses	(156		)	589		(477		)	(499		)	-		(8		)	1		(550		)
Recoveries	-			-		248			12			-		7			-		267
Loans charged off	-			-		-			-			-		-			-		-
Ending balance	$	441		$	2,247	$	240		$	1,596		$	3	$	17		$	1	$	4,545


	Three Months Ended June 30, 2015
	Real Estate
	Single family			Multi- family			Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,164		$	2,741		$	436		$	3,314	$	4	$	11	$	1		$	7,671
Provision for (recapture of) loan losses	(11		)	(896		)	(32		)	189		-		1		(1		)	(750		)
Recoveries	-			-			-			5		-		-		-			5
Loans charged off	(3		)	-			-			-		-		-		-			(3		)

Ending balance	$	1,150		$	1,845		$	404		$	3,508	$	4	$	12	$	-		$	6,923


	Six Months Ended June 30, 2015
	Real Estate
	Single family			Multi- family			Commercial real estate			Church			Construction			Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,174		$	2,726		$	496		$	4,047		$	7		$	12	$	3		$	8,465
Provision for (recapture of) loan losses	(21		)	(881		)	(92		)	(500		)	(3		)	-		(3		)	(1,500		)
Recoveries	-			-			-			11			-			-		-			11
Loans charged off	(3		)	-			-			(50		)	-			-		-			(53		)

Ending balance	$	1,150		$	1,845		$	404		$	3,508		$	4		$	12	$	-		$	6,923

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:


	June 30, 2016
	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	$	129	$	-	$	-	$	555	$	-	$	15	$	-	$	699
Collectively evaluated for impairment	312		2,247		240		1,041		3		2		1		3,846

Total ending allowance balance	$	441	$	2,247	$	240	$	1,596	$	3	$	17	$	1	$	4,545

Loans:
Loans individually evaluated for impairment	$	915	$	961	$	1,697	$	10,838	$	-	$	66	$	-	$	14,477
Loans collectively evaluated for impairment	115,075		173,926		9,043		32,715		320		238		15		331,332

Total ending loans balance	$	115,990	$	174,887	$	10,740	$	43,553	$	320	$	304	$	15	$	345,809


			December 31, 2015
	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	$	134		$	1	$	88	$	756	$	-	$	16	$		-	$	995
Collectively evaluated for impairment	463			1,657		381		1,327		3		2			-		3,833
Total ending allowance balance	$	597		$	1,658	$	469	$	2,083	$	3	$	18	$		-	$	4,828
Loans:
Loans individually evaluated for impairment	$	963		$	1,440	$	1,924	$	11,390	$	-	$	67	$		-	$	15,784
Loans collectively evaluated for impairment	130,632			118,186		9,488		34,359		343		203			4		293,215
Total ending loans balance	$	131,595		$	119,626	$	11,412	$	45,749	$	343	$	270	$		4	$	308,999

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

	June 30, 2016						December 31, 2015
	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	$	870	$	262	$	-	$	877	$	302	$	-
Multi-family	1,036		961		-		912		779		-
Commercial real estate	1,697		1,697		-		636		259		-
Church	6,011		3,797		-		5,615		3,542		-
With an allowance recorded:
Single family	653		653		129		662		661		134
Multi-family	-		-		-		661		661		1
Commercial real estate	-		-		-		1,702		1,665		88
Church	7,424		7,041		555		8,245		7,848		756
Commercial -other	66		66		15		67		67		16
Total	$	17,757	$	14,477	$	699	$	19,377	$	15,784	$	995

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.

	Three Months Ended June 30, 2016				Six Months Ended June 30, 2016
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	927	$	7	$	939	$	14
Multi-family	966		11		1,102		52
Commercial real estate	1,746		211		1,825		267
Church	10,915		121		11,061		247
Commercial -other	66		2		67		2

Total	$	14,620	$	352	$	14,994	$	582


	Three Months Ended June 30, 2015				Six Months Ended June 30, 2015

	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized

	(In thousands)
Single family	$	1,346	$	8	$	1,364	$	15
Multi-family	1,974		99		2,305		115
Commercial real estate	2,897		55		3,639		161
Church	13,695		144		14,191		286
Commercial -other	82		1		89		3


Total	$	19,994	$	307	$	21,588	$	580

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.

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

	June 30, 2016
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current
					(In thousands)
Loans receivable held for investment:
Single family	$	69	$	-	$	-	$	69	$	115,921
Multi-family	310		-		-		310		174,577
Commercial real estate	1,697		-		-		1,697		9,043
Church	-		-		-		-		43,553
Construction	-		-		-		-		320
Commercial - other	-		-		-		-		304
Consumer	-		-		-		-		15

Total	$	2,076	$	-	$	-	$	2,076	$	343,733

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current
					(In thousands)
Loans receivable held for investment:
Single family	$	103	$	-	$	-	$	103	$	131,492
Multi-family	291		-		-		291		119,335
Commercial real estate	-		-		-		-		11,412
Church	595		-		456		1,051		44,698
Construction	-		-		-		-		343
Commercial - other	-		-		-		-		270
Consumer	-		-		-		-		4

Total	$	989	$	-	$	456	$	1,445	$	307,554

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

	June 30, 2016		December 31, 2015
	(In thousands)
Loans receivable held for investment:
Single family	$	261	$	302
Multi-family	310		779
Commercial real estate	-		259
Church	3,147		2,887

Total non-accrual loans	$	3,718	$	4,227

There were no loans 90 days or more delinquent that were accruing interest as of June 30, 2016 or December 31, 2015.

Troubled Debt Restructurings

At June 30, 2016, loans classified as troubled debt restructurings (“TDRs”) totaled $14.0 million, of which $3.3 million were included in non-accrual loans and $10.7 million were on accrual status. At December 31, 2015, loans classified as TDRs totaled $15.3 million, of which $3.8 million were included in non-accrual loans and $11.5 million were on accrual status. The Company has allocated $699 thousand and $995 thousand of specific reserves for accruing TDRs as of June 30, 2016 and December 31, 2015, 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 June 30, 2016 and December 31, 2015, 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 and six months ended June 30, 2016 and 2015.

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:

	June 30, 2016
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	115,596	$	-	$	133	$	261	$	-	$	-
Multi-family	170,936		490		347		3,114		-		-
Commercial real estate	7,077		-		-		3,663		-		-
Church	34,051		721		832		7,949		-		-
Construction	320		-		-		-		-		-
Commercial - other	238		-		-		66		-		-
Consumer	15		-		-		-		-		-

Total	$	328,233	$	1,211	$	1,312	$	15,053	$	-	$	-


	December 31, 2015

	Pass		Watch		Special Mention		Substandard		Doubtful		Loss

	(In thousands)
Single family	$	128,736	$	-	$	2,557	$	302	$	-	$	-
Multi-family	117,602		-		352		1,672		-		-
Commercial real estate	7,509		-		-		3,903		-		-
Church	35,013		776		1,431		8,529		-		-
Construction	343		-		-		-		-		-
Commercial - other	203		-		-		67		-		-
Consumer	4		-		-		-		-		-

Total	$	289,410	$	776	$	4,340	$	14,473	$	-	$	-