Note 4—Loans Receivable

Loans at year-end were as follows:


	December 31,
	2011			2010
	(In thousands)
Real estate:
One to four units	$	76,954		$	82,764
Five or more units		108,161			128,534
Commercial real estate		54,599			72,770
Church		90,935			97,634
Construction		3,790			5,421
Commercial:
Sports		1,996			5,768
Other		4,900			6,410
Consumer:
Loan on savings		821			3,259
Other		108			29

Total gross loans receivable		342,264			402,589
Less:
Loans in process		202			371
Net deferred loan fees (costs)		(473	)		(889	)
Unamortized discounts		18			33
Allowance for loan losses		16,194			20,458

Loans receivable, net	$	326,323		$	382,616

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2011:


	For the year ended December 31, 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		(99	)		901			3,747			957			(13	)		2,796			311			8,600
Recoveries		-			2			15			4			-			67			24			112
Loans charged off		(624	)		(438	)		(4,205	)		(1,950	)		-			(3,916	)		(1,843	)		(12,976	)

Ending balance	$	3,856		$	2,934		$	3,050		$	5,920		$	61		$	247		$	126		$	16,194

Activity in the allowance for loan losses for the year ended December 31, 2010 was as follows:


	2010
Beginning balance	$	20,460
Provision for loan losses		4,465
Recoveries		5
Loans charged off		(4,472	)

Ending balance	$	20,458

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 December 31, 2011 and 2010:


	December 31, 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	$	764	$	126	$	212	$	1,813	$	-	$	-	$	70	$	2,985
Collectively evaluated for impairment		3,092		2,808		2,838		4,107		61		247		56		13,209

Total ending allowance balance	$	3,856	$	2,934	$	3,050	$	5,920	$	61	$	247	$	126	$	16,194

Loans:
Loans individually evaluated for impairment	$	13,204	$	3,837	$	7,736	$	31,393	$	302	$	-	$	70	$	56,542
Loans collectively evaluated for impairment		63,750		104,324		46,863		59,542		3,488		6,896		859		285,722

Total ending loans balance	$	76,954	$	108,161	$	54,599	$	90,935	$	3,790	$	6,896	$	929	$	342,264


	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 year ended December 31, 2011:


	December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no related allowance recorded:
One to four units	$	5,669	$	4,017	$	-	$	4,719	$	71
Five or more units		2,946		2,871		-		2,405		89
Commercial real estate		9,471		6,190		-		10,603		416
Church		19,379		17,592		-		17,047		605
Construction		302		302		-		314		23
Commercial:
Sports		4,000		-		-		2,566		-
Other		285		-		-		243		10
Consumer:
Loan on savings		-		-		-		796		-
With an allowance recorded:
One to four units		9,531		9,187		764		6,113		407
Five or more units		966		966		126		794		64
Commercial real estate		1,580		1,546		212		1,110		67
Church		14,298		13,801		1,813		13,093		706
Commercial:
Other		70		70		70		54		6

Total	$	68,497	$	56,542	$	2,985	$	59,858	$	2,464

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 that would have been recognized for the year ended December 31, 2011 had loans performed in accordance with their original terms was $5.0 million.

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
Consumer:
Loan on savings		2,249		2,249		1,525
Other		16		16		16

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

The average recorded investment in impaired loans for the year ended December 31, 2010 was $49.2 million. Interest income recognized on impaired loans for the year ended December 31, 2010 was $2.2 million.

The following table presents the recorded investment in non-accrual loans by class of loans as of December 31, 2011 and 2010:


	December 31,
	2011		2010
	(In thousands)
Loans receivable, held for sale:
Five or more units	$	1,540	$	385
Commercial real estate		498		-
Church		3,230		5,533
Loans receivable, net:
One to four-units		7,931		6,227
Five or more units		3,450		1,865
Commercial real estate		5,790		10,321
Church		20,251		12,748
Construction		302		320
Commercial:
Sports		-		3,768
Other		-		-
Consumer:
Loan on Savings		-		2,249
Other		70		16

Total nonaccrual loans	$	43,062	$	43,432

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

The following tables present the aging of the recorded investment in past due loans, including loans held for sale, as of December 31, 2011 and 2010 by class of loans:


	December 31, 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	$	987	$	-	$	1,540	$	2,527	$	3,900
Commercial real estate		-		-		498		498		1,374
Church		-		-		3,230		3,230		2,772
Loans receivable, net:
One to four units		921		2,464		7,931		11,316		65,638
Five or more units		1,324		63		3,450		4,837		103,324
Commercial real estate		2,248		525		5,790		8,563		46,036
Church		4,259		2,421		20,251		26,931		64,004
Construction		-		264		302		566		3,224
Commercial:
Sports		-		-		-		-		1,996
Other		125		-		-		125		4,775
Consumer:
Loan on savings		-		-		-		-		821
Other		-		-		70		70		38

Total	$	9,864	$	5,737	$	43,062	$	58,663	$	297,902


	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

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 December 31, 2011 and 2010. At December 31, 2011, loans classified as a TDR totaled $37.6 million, of which $17.4 million were included in non-accrual loans and $20.2 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 non-accrual 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 December 31, 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 year ended December 31, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 18 months to 10 years. Modifications involving an extension of the maturity date were for periods ranging from 10 years to 14 years.

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2011:


	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
One to four units		9	$	7,711	$	7,745
Five or more units		1		494		459
Church		11		8,828		8,298
Other		1		70		70

Total		23	$	17,103	$	16,572

The troubled debt restructurings described above increased the allowance for loan losses by $1.5 million and resulted in charge offs of $795 thousand during the year ended December 31, 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 year ended December 31, 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 restructuring that subsequently defaulted described above resulted in a charge off of $207 thousand during the year ended December 31, 2011.

The terms of certain other loans were modified during the year ended December 31, 2011 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of December 31, 2011 of $7.2 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 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 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. For one-to-four family residential, consumer and other smaller balance homogeneous 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 class of loans as of December 31, 2011 and December 31, 2010 is as follows:


	December 31, 2011
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One to four units	$	63,797	$	3,044	$	10,113	$	-	$	-
Five or more units		95,622		7,450		5,089		-		-
Commercial real estate		36,097		6,721		11,705		76		-
Church		37,532		13,100		40,262		41		-
Construction		500		2,988		302		-		-
Commercial:
Sports		-		1,996		-		-		-
Other		2,363		2,369		168		-		-
Consumer:
Loan on savings		821		-		-		-		-
Other		108		-		-		-		-

Total	$	236,840	$	37,668	$	67,639	$	117	$	-


	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		-		0		-		16

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