NOTE (7) – Loans Receivable Held for Investment

Loans at March 31, 2013 and December 31, 2012 were as follows:


	March 31, 2013			December 31, 2012
	(In thousands)
Real estate:
One-to-four units	$	55,196		$	57,733
Five or more units		78,321			83,350
Commercial real estate		35,060			41,124
Church		72,321			76,254
Construction		456			735
Commercial:
Sports		1,701			1,711
Other		1,922			2,115
Consumer:
Other		130			104

Total gross loans receivable		245,107			263,126
Loans in process		(46	)		(74	)
Net deferred loan costs		513			557
Unamortized discounts		(17	)		(17	)
Allowance for loan losses		(10,450	)		(11,869	)

Loans receivable, net	$	235,107		$	251,723

The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2013 and 2012:


	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	$	98		$	78	$	11,869
Provision for loan losses		(449	)		(361	)		(207	)		1,029			0		(12	)		0		0
Recoveries		259			0			15			7			0		95			0		376
Loans charged off		(36	)		(638	)		(944	)		(177	)		0		0			0		(1,795	)

Ending balance	$	1,834		$	1,123		$	1,549		$	5,677		$	8	$	181		$	78	$	10,450


	Three Months Ended March 31, 2012
	One-to- four units			Five or more units		Commercial real estate			Church			Construction			Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	4,855		$	2,972	$	3,108		$	5,742		$	249		$	247		$	126		$	17,299
Provision for loan losses		336			41		(206	)		979			(16	)		(133	)		(42	)		959
Recoveries		0			0		15			4			0			117			2			138
Loans charged off		(355	)		0		(58	)		(231	)		0			0			0			(644	)

Ending balance	$	4,836		$	3,013	$	2,859		$	6,494		$	233		$	231		$	86		$	17,752

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, 2013 and December 31, 2012:


	March 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	$	587	$	26	$	59	$	1,333	$	0	$	97	$	69	$	2,171
Collectively evaluated for impairment		1,247		1,097		1,490		4,344		8		84		9		8,279

Total ending allowance balance	$	1,834	$	1,123	$	1,549	$	5,677	$	8	$	181	$	78	$	10,450

Loans:
Loans individually evaluated for impairment	$	3,760	$	2,382	$	6,136	$	22,230	$	0	$	97	$	69	$	34,674
Loans collectively evaluated for impairment		51,436		75,939		28,924		50,091		456		3,526		61		210,433

Total ending loans balance	$	55,196	$	78,321	$	35,060	$	72,321	$	456	$	3,623	$	130	$	245,107


	December 31, 2012
	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	$	719	$	125	$	543	$	1,276	$	0	$	0	$	69	$	2,732
Collectively evaluated for impairment		1,341		1,997		2,142		3,542		8		98		9		9,137

Total ending allowance balance	$	2,060	$	2,122	$	2,685	$	4,818	$	8	$	98	$	78	$	11,869

Loans:
Loans individually evaluated for impairment	$	4,576	$	3,766	$	10,364	$	25,328	$	273	$	0	$	69	$	44,376
Loans collectively evaluated for impairment		53,157		79,584		30,760		50,926		462		3,826		35		218,750

Total ending loans balance	$	57,733	$	83,350	$	41,124	$	76,254	$	735	$	3,826	$	104	$	263,126

The following table presents information related to loans individually evaluated for impairment by class of loans as of March 31, 2013 and December 31, 2012:


	March 31, 2013						December 31, 2012
	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	$	1,989	$	1,444	$	0	$	1,986	$	1,484	$	0
Five or more units		2,049		2,049		0		2,038		1,819		0
Commercial real estate		8,080		4,765		0		10,184		6,423		0
Church		14,717		12,598		0		18,664		15,689		0
Construction		0		0		0		279		273		0
Commercial:
Sports		3,888		0		0		3,888		0		0
With an allowance recorded:
One-to-four units		2,316		2,316		587		3,092		3,092		719
Five or more units		333		333		26		1,947		1,947		125
Commercial real estate		1,371		1,371		59		3,941		3,941		543
Church		9,632		9,632		1,333		9,677		9,639		1,276
Commercial:
Other		97		97		97		0		0		0
Consumer:
Other		69		69		69		69		69		69

Total	$	44,541	$	34,674	$	2,171	$	55,765	$	44,376	$	2,732

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 table presents monthly average of individually impaired loans by class of loans and the related interest income for the three months ended March 31, 2013 and 2012.


	Three Months Ended
	March 31, 2013				March 31, 2012
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
One-to-four units	$	3,987	$	32	$	13,477	$	124
Five or more units		3,507		16		3,826		22
Commercial real estate		9,154		81		7,476		84
Church		24,139		137		31,768		291
Construction		202		5		300		5
Commercial:
Other		73		0		0		0
Consumer:
Other		69		0		70		1

Total	$	41,131	$	271	$	56,917	$	527

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, 2013 and 2012 had loans performed in accordance with their original terms were $762 thousand and $1.2 million.

The following table presents the recorded investment in non-accrual loans by class of loans as of March 31, 2013 and December 31, 2012:


	March 31, 2013		December 31, 2012
	(In thousands)
Loans receivable held for sale:
One-to-four units	$	0	$	6,656
Five or more units		3,033		1,956
Commercial real estate		3,004		0
Church		2,023		1,556
Loans receivable held for investment:
One-to-four units		1,444		1,489
Five or more units		1,676		2,312
Commercial real estate		2,874		7,090
Church		12,598		15,689
Construction		0		273
Commercial:
Other		97		0
Consumer:
Other		69		69

Total non-accrual loans	$	26,818	$	37,090

There were no loans 90 days or more delinquent that were accruing interest as of March 31, 2013 and December 31, 2012.

The following tables present the aging of the recorded investment in past due loans, including loans receivable held for sale, as of March 31, 2013 and December 31, 2012 by class of loans:


	March 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)
Loans receivable held for sale:
Five or more units	$	0	$	0	$	3,033	$	3,033	$	3,824
Commercial real estate		0		0		3,004		3,004		1,004
Church		0		0		2,023		2,023		2,735
Loans receivable held for investment:
One-to-four units		949		0		1,444		2,393		52,803
Five or more units		0		0		1,676		1,676		76,645
Commercial real estate		0		0		2,874		2,874		32,186
Church		279		3,192		12,598		16,069		56,252
Construction		0		0		0		0		456
Commercial:
Sports		0		0		0		0		1,701
Other		0		0		97		97		1,825
Consumer:
Other		0		0		69		69		61

Total	$	1,228	$	3,192	$	26,818	$	31,238	$	229,492


	December 31, 2012
	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:
One-to-four units	$	0	$	871	$	6,656	$	7,527	$	389
Five or more units		0		0		1,956		1,956		3,839
Commercial real estate		0		0		0		0		1,358
Church		0		0		1,556		1,556		2,744
Loans receivable held for investment:
One-to-four units		1,077		0		1,489		2,566		55,167
Five or more units		587		554		2,312		3,453		79,897
Commercial real estate		0		0		7,090		7,090		34,034
Church		1,617		0		15,689		17,306		58,948
Construction		0		0		273		273		462
Commercial:
Sports		0		0		0		0		1,711
Other		0		0		0		0		2,115
Consumer:
Other		0		0		69		69		35

Total	$	3,281	$	1,425	$	37,090	$	41,796	$	240,699

Troubled Debt Restructurings

During the three months ended March 31, 2013, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included payments of delinquent property taxes, which the borrower would be required to repay over a six to twelve month period.

The Company has allocated $2.1 million and $2.5 million of specific reserves for loans for which the terms have been modified in troubled debt restructurings (“TDRs”) and were performing as of March 31, 2013 and December 31, 2012. At March 31, 2013, loans classified as TDRs totaled $34.4 million, of which $18.0 million were included in non-accrual loans and $16.4 million were on accrual status. Pro forma for a bulk sale of multi-family and commercial real estate loans that we completed in the second quarter, our TDRs totaled $32.4 million at such date. At December 31, 2012, loans classified as TDRs totaled $41.1 million, of which $22.8 million were included in non-accrual loans and $18.3 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 March 31, 2013 and December 31, 2012, the Company has no commitment to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2013 and 2012:


	Three Months Ended March 31, 2013						Three Months Ended March 31, 2012
	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		0	$	0	$	0
Commercial real estate		0		0		0		1		229		229
Church		0		0		0		3		1,013		1,013

Total		5	$	715	$	765		4	$	1,242	$	1,242

The troubled debt restructurings described above increased the allowance for loan losses by $23 thousand and $87 thousand for the three months ended March 31, 2013 and 2012 and resulted in charge-offs of $23 thousand and $0 during the first quarter of 2013 and 2012.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. 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 three months ended March 31, 2013 and 2012:


	Three Months Ended March 31, 2013				Three Months Ended March 31, 2012
	Number of Loans		Pre- Modification Outstanding Recorded Investment		Number of Loans		Pre- Modification Outstanding Recorded Investment
	(Dollars in thousands)
Church		0	$	0		1	$	100

Total		0	$	0		1	$	100

All loan modifications during the three months ended March 31, 2013 were considered troubled debt restructurings. The terms of certain other loans were modified during the three months ended March 31, 2012 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment of $3.2 million as of March 31, 2012. 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 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 class of loans as of March 31, 2013 and December 31, 2012 is as follows:


	March 31, 2013
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One-to-four units	$	53,126	$	626	$	1,444	$	0	$	0
Five or more units		71,139		3,234		3,948		0		0
Commercial real estate		24,417		1,903		8,740		0		0
Church		33,259		16,237		22,729		96		0
Construction		456		0		0		0		0
Commercial:
Sports		0		1,701		0		0		0
Other		1,805		20		97		0		0
Consumer:
Other		61		0		69		0		0

Total	$	184,263	$	23,721	$	37,027	$	96	$	0


	December 31, 2012
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One-to-four units	$	55,613	$	631	$	1,489	$	0	$	0
Five or more units		73,673		5,250		4,427		0		0
Commercial real estate		25,605		2,541		12,921		57		0
Church		33,532		19,502		23,220		0		0
Construction		462		0		273		0		0
Commercial:
Sports		0		1,711		0		0		0
Other		1,877		141		97		0		0
Consumer:
Other		35		0		69		0		0

Total	$	190,797	$	29,776	$	42,496	$	57	$	0