NOTE (6) – Loans Receivable

Loans at September 30, 2011 and December 31, 2010 were as follows:


	September 30, 2011			December 31, 2010
	(In thousands)
Real estate:
One to four units	$	77,876		$	82,764
Five or more units		111,294			128,534
Commercial real estate		64,094			72,770
Church		92,149			97,634
Construction		4,230			5,421
Commercial:
Sports		2,000			5,768
Other		5,876			6,410
Consumer:
Loan on savings		1,006			3,259
Other		13			29

Total gross loans receivable		358,538			402,589
Less:
Loans in process		119			371
Net deferred loan fees (costs)		(883	)		(889	)
Unamortized discounts		18			33
Allowance for loan losses		19,805			20,458

Loans receivable, net	$	339,479		$	382,616

The following table presents the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2011:


	For the three months ended September 30, 2011
	One to four units			Five or more units			Commercial real estate			Church			Construction			Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	4,229		$	2,892		$	6,253		$	7,197		$	68		$	1,538		$	68		$	22,245
Provision for loan losses		181			249			204			564			(1	)		2,627			(10	)		3,814
Recoveries		—			—			—			—			—			—			15			15
Loans charged off		(519	)		(289	)		(207	)		(1,623	)		—			(3,631	)		—			(6,269	)

Ending balance	$	3,891		$	2,852		$	6,250		$	6,138		$	67		$	534		$	73		$	19,805


	For the nine months ended September 30, 2011
	One to four units			Five or more units			Commercial real estate			Church			Construction			Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	4,579		$	2,469		$	3,493		$	6,909		$	74		$	1,300		$	1,634		$	20,458
Provision for loan losses		(64	)		821			3,573			1,041			(7	)		2,865			259			8,488
Recoveries		—			—			—			—			—			—			23			23
Loans charged off		(624	)		(438	)		(816	)		(1,812	)		—			(3,631	)		(1,843	)		(9,164	)

Ending balance	$	3,891		$	2,852		$	6,250		$	6,138		$	67		$	534		$	73		$	19,805

Activity in the allowance for loan losses for the three and nine months ended September 30, 2010 was as follows:


	For the three months ended September 30, 2010			For the nine months ended September 30, 2010
	(In thousands)
Beginning balance	$	18,462		$	20,460
Provision for loan losses		1,740			2,623
Recoveries		3			3
Loans charged off		(1,723	)		(4,604	)

Ending balance	$	18,482		$	18,482

The following table presents 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, 2011 and December 31, 2010:


	September 30, 2011
	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	$	858	$	139	$	3,259	$	1,927	$	—	$	285	$	—	$	6,468
Collectively evaluated for impairment		3,033		2,713		2,991		4,211		67		249		73		13,337

Total ending allowance balance	$	3,891	$	2,852	$	6,250	$	6,138	$	67	$	534	$	73	$	19,805

Loans:
Loans individually evaluated for impairment	$	13,393	$	4,277	$	12,340	$	30,169	$	313	$	285	$	—	$	60,777
Loans collectively evaluated for impairment		64,483		107,017		51,754		61,980		3,917		7,591		1,019		297,761

Total ending loans balance	$	77,876	$	111,294	$	64,094	$	92,149	$	4,230	$	7,876	$	1,019	$	358,538


	December 31, 2010
	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	$	423	$	69	$	935	$	2,118	$	—	$	942	$	1,541	$	6,028
Collectively evaluated for impairment		4,156		2,400		2,558		4,791		74		358		93		14,430

Total ending allowance balance	$	4,579	$	2,469	$	3,493	$	6,909	$	74	$	1,300	$	1,634	$	20,458

Loans:
Loans individually evaluated for impairment	$	9,962	$	2,260	$	13,206	$	26,251	$	320	$	3,768	$	2,265	$	58,032
Loans collectively evaluated for impairment		72,802		126,274		59,564		71,383		5,101		8,410		1,023		344,557

Total ending loans balance	$	82,764	$	128,534	$	72,770	$	97,634	$	5,421	$	12,178	$	3,288	$	402,589

The following table presents information related to impaired loans by class of loans as of and for the nine months ended September 30, 2011:


	September 30, 2011
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
	(In thousands)
With no related allowance recorded:
One to four units	$	5,686	$	4,082	$	—	$	4,922	$	—	$	—
Five or more units		3,393		3,306		—		2,239		—		—
Commercial real estate		7,586		7,221		—		10,444		134		132
Church		17,286		15,324		—		15,660		93		92
Construction		313		313		—		317		—		—
Commercial:
Sports		4,000		—		—		3,336		—		—
Consumer:
Loan on savings		—		—		—		1,035		—		—
With an allowance recorded:
One to four units		9,649		9,311		858		5,236		227		227
Five or more units		971		971		139		742		18		18
Commercial real estate		5,119		5,119		3,259		2,173		—		—
Church		15,099		14,845		1,927		14,130		486		464
Commercial:
Other		285		285		285		259		—		—

Total	$	69,387	$	60,777	$	6,468	$	60,493	$	958	$	933

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. Interest income recognized during impairment represents interest income earned on performing TDRs. Cash-basis interest income recognized represents cash received for interest payments on performing TDRs.

The following table presents information related to impaired loans by class of loans as of December 31, 2010:


	December 31, 2010
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)
With no related allowance recorded:
One to four units	$	7,953	$	5,991	$	—
Five or more units		600		586		—
Commercial real estate		8,409		8,133		—
Church		11,782		11,161		—
Construction		320		320		—
With an allowance recorded:
One to four units		4,129		3,971		423
Five or more units		1,674		1,674		69
Commercial real estate		5,072		5,073		935
Church		15,183		15,090		2,118
Commercial:
Sports		4,000		3,768		942
Other		—		—		—
Consumer:
Loan on savings		2,249		2,249		1,525
Other		16		16		16

Total	$	61,387	$	58,032	$	6,028


	For the nine months ended September 30, 2010
	(In thousands)
Average recorded investment in impaired loans	$	49,146
Interest income recognized during impairment		1,062
Cash basis interest income recognized		826

The following table presents the recorded investment in nonaccrual loans by class of loans as of September 30, 2011 and December 31, 2010:


	September 30, 2011		December 31, 2010
	(In thousands)
Loans receivable, held for sale:
Five or more units	$	1,559	$	385
Commercial real estate		413		—
Church		4,436		5,533
Loans receivable, net:
One to four-units		8,095		6,227
Five or more units		3,888		1,865
Commercial real estate		9,487		10,321
Church		19,481		12,748
Construction		313		320
Commercial:
Sports		—		3,768
Other		285		—
Consumer:
Loan on Savings		—		2,249
Other		—		16

Total nonaccrual loans	$	47,957	$	43,432

There were no loans 90 days or more delinquent that were accruing interest as of September 30, 2011 or December 31, 2010.

The following tables present the aging of the recorded investment in past due loans, including loans held for sale, as of September 30, 2011 and December 31, 2011 by class of loans:


	September 30, 2011
	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:
Five or more units	$	991	$	—	$	1,559	$	2,550	$	3,913
Commercial real estate		274		—		413		687		1,377
Church		778		—		4,436		5,214		2,779

Loans receivable, net:
One to four units		1,643		1,926		8,095		11,664		66,212
Five or more units		172		—		3,888		4,060		107,234
Commercial real estate		2,776		—		9,487		12,263		51,831
Church		3,339		2,757		19,481		25,577		66,572
Construction		120		—		313		433		3,797
Commercial:
Sports		—		—		—		—		2,000
Other		131		27		285		443		5,433
Consumer:
Loan on savings		—		—		—		—		1,006
Other		—		—		—		—		13

Total	$	10,224	$	4,710	$	47,957	$	62,891	$	312,167


	December 31, 2010
	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:
Five or more units	$	1,209	$	—	$	385	$	1,594	$	14,623
Commercial real estate		—		—		—		—		5,067
Church		—		—		5,533		5,533		3,875

Loans receivable, net:
One to four units	$	2,716	$	71	$	6,227	$	9,014	$	73,750
Five or more units		805		1,068		1,865		3,738		124,796
Commercial real estate		769		1,287		10,321		12,377		60,393
Church		12,914		5,230		12,748		30,892		66,742
Construction		898		—		320		1,218		4,203
Commercial:
Sports		—		—		3,768		3,768		2,000
Other		325		—		—		325		6,085
Consumer:
Loan on savings		—		—		2,249		2,249		1,010
Other		—		—		16		16		13

Total	$	19,636	$	7,656	$	43,432	$	70,724	$	362,557

Troubled Debt Restructurings

On July 1, 2011, the Company adopted the guidance in ASU, 2011-02, "A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring" which clarifies the guidance on a creditor's evaluation of whether it has granted a concession in a debt restructuring and whether the debtor is experiencing financial difficulties in evaluating whether the debt restructuring constitutes a troubled debt restructuring. The guidance in ASU 2011-02 was effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying this guidance, the Company did not identify receivables that were newly considered impaired.

The Company has allocated $1.4 million and $1.6 million of specific reserves for loans the terms of which have been modified in troubled debt restructurings and were performing as of September 30, 2011 and December 31, 2010. At September 30, 2011, loans classified as a TDR totaled $36.4 million, of which $15.6 million were included in nonaccrual loans and $20.8 million were on accrual status. At December 31, 2010, loans classified as a TDR totaled $37.1 million, of which $14.6 million were included in nonaccrual loans and $22.5 million were on accrual status. 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 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, 2011 and December 31, 2010, the Company has no commitment to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the nine months ending September 30, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans involved a reduction of the stated interest rate of the loan for periods ranging from 18 months to 5 years.

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ending September 30, 2011:


	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
One to four units		6	$	4,354	$	4,360
Five or more units		1		494		459
Commercial real estate		1		418		418
Church		7		7,441		6,915

Total		15	$	12,707	$	12,152

The troubled debt restructurings described above increased the allowance for loan losses by $652 thousand and resulted in charge offs of $1.0 million during the nine months ending September 30, 2011.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ending September 30, 2011:


	Number of Loans		Pre-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Commercial real estate		1	$	418

Total		1	$	418

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above resulted in a charge off of $207 thousand during the nine months ending September 30, 2011.

The terms of certain other loans were modified during the nine months ending September 30, 2011 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of September 30, 2011 of $3.2 million. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or an extension of the maturity date for periods ranging from 3 months to 10 years at a stated rate of interest equal to the current market rate for new debt with similar risk.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability 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. The Company analyzes 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 class of loans as of September 30, 2011 and December 31, 2010 is as follows:


	As of September 30, 2011
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One to four units	$	64,553	$	3,058	$	10,265	$	—	$	—
Five or more units		99,247		6,515		5,532		—		—
Commercial real estate		42,146		6,379		15,491		79		—
Church		38,443		11,611		42,054		41		—
Construction		1,046		2,871		313		—		—
Commercial:
Sports		—		2,000		—		—		—
Other		2,600		2,892		384		—		—
Consumer:
Loan on savings		1,006		—		—		—		—
Other		13		—		—		—		—

Total	$	249,053	$	35,326	$	74,039	$	120	$	—


	As of December 31, 2010
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One to four units	$	71,846	$	2,440	$	8,478	$	—	$	—
Five or more units		118,490		6,412		3,632		—		—
Commercial real estate		46,692		5,281		20,797		—		—
Church		42,931		14,229		40,204		270		—
Construction		4,203		320		898		—		—
Commercial:
Sports		—		2,000		3,768		—		—
Other		925		4,870		615		—		—
Consumer:
Loan on savings		1,010		—		2,249		—		—
Other		13		—		—		—		16

Total	$	286,110	$	35,552	$	80,641	$	270	$	16