NOTE 7 — LOANS RECEIVABLE, NET

The following table presents the Company’s loans receivable, net as of:


(Dollars in thousands)	March 31, 2013			December 31, 2012
Residential real estate loans:
Unpaid principal balance	$	44,401		$	44,904
Discount		(22,545	)		(22,695	)

Recorded investment		21,856			22,209
Allowance for loan losses		—			—

Total residential real estate loans		21,856			22,209

Commercial real estate loans:
Unpaid principal balance		1,685			1,734
Discount		(12	)		(12	)

Recorded investment		1,673			1,722
Allowance for loan losses		(50	)		(50	)

Total commercial real estate loans		1,623			1,672

Commercial loans:
Revolving lines of credit		1,965			—
Term note unpaid principal balance		1,000			1,000
Term note discount		(489	)		(509	)

Recorded investment		2,476			491
Allowance for loan losses		—			—

Total commercial loans		2,476			491

Loans receivable, net	$	25,955		$	24,372

Loans receivable, net due within one year consists of the following as of:


(Dollars in thousands)	March 31, 2013		December 31, 2012
Contractual principal payments due within one year⁽¹⁾:
Residential real estate loans	$	472	$	527
Commercial real estate loans		92		93

		564		620
Revolving lines of credit		1,965		—

Loans receivable, net due within one year	$	2,529	$	620

(1)	Excludes loans ninety or more days past due.

Residential real estate loans are generally comprised of loans with original maturities of up to thirty years and are typically secured by first deeds of trust on single-family residences. Many of the loans have principal amortization terms in excess of thirty years or no principal amortization (interest-only loans). The loans were generally made to borrowers who did not satisfy all of the credit, documentation and other underwriting standards prescribed by conventional mortgage lenders and loan buyers, such as Fannie Mae and Freddie Mac, and are commonly referred to as “subprime” or “non-prime” borrowers. The discount on residential real estate loans is accreted to interest income using the interest method over the contractual life, using the contractual terms of each loan.

Commercial real estate loans consist primarily of a participation interest in a pool of adjustable rate multi-family loans.

Commercial loans are comprised of senior debt of a manufacturing company that specializes in retail store fixtures and merchandise displays and includes a revolving line of credit and term note that are secured by the assets of the borrower. The line of credit provides for maximum borrowings of $7.0 million, has an interest rate of prime plus 2.75%, with a floor of 5.75%, and matures on March 31, 2017. The $1.0 million term note has an interest rate of prime plus 2.75%, with a floor of 5.75%, and matures on March 31, 2017, with interest due monthly. Draws on the revolving line of credit are subject to a borrowing base, with any outstanding balance due at maturity. Principal on the term note is due monthly beginning on April 1, 2015, with a final balloon payment due on March 31, 2017. At March 31, 2013 and December 31, 2012, the commercial loans were current and the borrower was in compliance with all loan covenants.

The following table presents information about the Company’s loans receivable that were in nonaccrual status as of March 31, 2013 and December 31, 2012:


	March 31, 2013							December 31, 2012
(Dollars in thousands)	Recorded Investment of Nonaccrual Loans		Recorded Investment of Total Portfolio		Percentage of Nonaccrual			Recorded Investment of Nonaccrual Loans		Recorded Investment of Total Portfolio		Percentage of Nonaccrual
Residential real estate loans	$	4,405	$	21,856		20.2	%	$	2,233	$	22,209		10.1	%
Commercial real estate loans		—		1,673		0.0	%		—		1,722		0.0	%
Commercial loans:
Revolving lines of credit		—		1,965		0.0	%		—		—		0.0	%
Term note		—		511		0.0	%		—		491		0.0	%

Total commercial loans		—		2,476		0.0	%		—		491		0.0	%

Total	$	4,405	$	26,005		16.9	%	$	2,233	$	24,422		9.1	%

The following table presents the unpaid principal balance and recorded investment of impaired loans receivable as of March 31, 2013 and December 31, 2012:


	Unpaid Principal		Recorded Investment of Impaired Loans				Total Recorded
(Dollars in thousands)	Balance of Impaired Loans		With Allowance		Without Allowance		Investment of Impaired Loans
March 31, 2013
Residential real estate loans	$	27,246	$	—	$	12,018	$	12,018
Commercial real estate loans		50		—		38		38
Commercial loans		—		—		—		—

	$	27,296	$	—	$	12,056	$	12,056

December 31, 2012
Residential real estate loans	$	26,997	$	—	$	11,906	$	11,906
Commercial real estate loans		50		—		38		38
Commercial loans		—		—		—		—

	$	27,047	$	—	$	11,944	$	11,944

The average recorded investment of impaired loans receivable was $11.8 million and $11.9 million during the three months ended March 31, 2013 and the year ended December 31, 2012, respectively. Interest income recognized on impaired loans receivable was $0.2 million and $1.2 million during the three months ended March 31, 2013 and the year ended December 31, 2012, respectively.

Four loans aggregating $0.4 million, classified as loans receivable, net at March 31, 2013, were modified under TDRs in the twelve months ended March 31, 2013, and three loans aggregating $0.2 million, classified as loans receivable, net at December 31, 2012, were modified under TDRs in 2012. The following table presents the unpaid principal balance and recorded investment of loans modified and classified as TDRs during the three months ended March 31, 2013:


	Unpaid		Recorded Investment of TDRs				Total
(Dollars in thousands)	Principal Balance of TDRs		With Allowance		Without Allowance		Recorded Investment of TDRs
Residential real estate loans	$	749	$	—	$	227	$	227
Commercial real estate loans		—		—		—		—
Commercial loans		—		—		—		—

	$	749	$	—	$	227	$	227

There were no losses on TDRs in the three months ended March 31, 2013 or in the year ended December 31, 2012. None of the loans modified under TDRs during the twelve months ended March 31, 2013 reached ninety or more days past due.

Credit quality indicator

A credit quality indicator is a statistic used by management to monitor and assess the credit quality of loans receivable. Management monitors delinquencies as its primary credit quality indicator and the following table presents delinquency information for loans receivable as of March 31, 2013 and December 31, 2012, based on recorded investment:


(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total
March 31, 2013
Residential real estate loans	$	1,097	$	1,833	$	4,131	$	7,061	$	14,795	$	21,856
Commercial real estate loans		—		—		—		—		1,673		1,673
Commercial loans:
Revolving lines of credit		—		—		—		—		1,965		1,965
Term note		—		—		—		—		511		511

Total commercial loans		—		—		—		—		2,476		2,476

Total	$	1,097	$	1,833	$	4,131	$	7,061	$	18,944	$	26,005

December 31, 2012
Residential real estate loans	$	2,457	$	569	$	2,816	$	5,842	$	16,367	$	22,209
Commercial real estate loans		—		—		—		—		1,722	$	1,722
Commercial loans:
Revolving lines of credit		—		—		—		—		—		—
Term note		—		—		—		—		491		491

Total commercial loans		—		—		—		—		491		491

Total	$	2,457	$	569	$	2,816	$	5,842	$	18,580	$	24,422