Note 4
Loans

The Company originates commercial, industrial and real estate loans to businesses and churches throughout the metropolitan St. Louis, Missouri area, Orange County, California and other selected cities in the United States. The Company does not have any particular concentration of credit in any one economic sector; however, a substantial portion of the commercial and industrial loans are extended to privately-held commercial companies in these market areas, and are generally secured by the assets of the business. The Company also has a substantial portion of real estate loans secured by mortgages that are extended to churches in its market area and selected cities in the United States.

A summary of loan categories is as follows:

	December 31,
(In thousands)	2013		2012
Commercial and industrial	$	171,304	160,862
Real estate
Commercial:
Mortgage		128,358	134,843
Construction		6,632	7,025
Church, church-related:
Mortgage		326,832	368,118
Construction		9,817	16,450
Industrial Revenue Bond		9,167	-
Other		67	435
Total loans	$	652,177	687,733

The following table presents the aging of loans by loan categories at December 31, 2013:

	Performing						Nonperforming
							90 Days
			30-59		60-89		and		Non		Total
(In thousands)	Current		Days		Days		Over		Accrual		Loans
Commercial and industrial	$	171,293	$	-	$	-	$	-	$	11	$	171,304
Real estate
Commercial:
Mortgage		127,879				-		-		479		128,358
Construction		6,632		-		-		-		-		6,632
Church, church-related:
Mortgage		325,091		434		-		-		1,307		326,832
Construction		9,817		-		-		-		-		9,817
Industrial Revenue Bond		9,167		-		-		-		-		9,167
Other		67		-		-		-		-		67
Total	$	649,946	$	434	$	-	$	-	$	1,797	$	652,177

The following table presents the aging of loans by loan categories at December 31, 2012:

	Performing						Nonperforming
							90 Days
			30-59		60-89		and		Non		Total
(In thousands)	Current		Days		Days		Over		Accrual		Loans
Commercial and industrial	$	159,423	$	-	$	-	$	-	$	1,439	$	160,862
Real estate
Commercial:
Mortgage		129,884				-		-		4,959		134,843
Construction		7,025		-		-		-		-		7,025
Church, church-related:
Mortgage		367,944				-		-		174		368,118
Construction		16,450		-		-		-		-		16,450
Industrial Revenue Bond		-		-		-		-		-		-
Other		435		-		-		-		-		435
Total	$	681,161	$	-	$	-	$	-	$	6,572	$	687,733

The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of December 31, 2013:

	Loans		Performing		Nonperforming
	Subject to		Loans Subject to		Loans Subject
	Normal		Special		to Special
(In thousands)	Monitoring¹		Monitoring ²		Monitoring ²		Total Loans
Commercial and industrial	$	167,878	$	3,415	$	11	$	171,304
Real estate
Commercial:
Mortgage		119,521		8,358		479		128,358
Construction		6,632		-		-		6,632
Church, church-related:
Mortgage		323,291		2,234		1,307		326,832
Construction		9,817		-		-		9,817
Industrial Revenue Bond		9,167		-		-		9,167
Other		67		-		-		67
Total	$	636,373	$	14,007	$	1,797	$	652,177

¹ Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to satisfy their loan obligation.

² Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management attention.

The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of December 31, 2012:

	Loans		Performing		Nonperforming
	Subject to		Loans Subject to		Loans Subject to
	Normal		Special		Special			Total
(In thousands)	Monitoring¹		Monitoring ²		Monitoring ²			Loans
Commercial and industrial	$	155,838	$	3,585	$	1,439		$	160,862
Real estate
Commercial:
Mortgage		123,315		6,569		4,959	*		134,843
Construction		7,025		-		-			7,025
Church, church-related:
Mortgage		366,366		1,578		174			368,118
Construction		16,450		-		-			16,450
Industrial Revenue Bond		-		-		-			-
Other		435		-		-			435
Total	$	669,429	$	11,732	$	6,572		$	687,733

*	In February 2013, a payment of $4,115,000 was received for one nonaccrual loan with a balance of $4,198,000. $83,000 was charged off.
¹	Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to satisfy their loan obligation.
²	Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management attention.

Impaired loans consist primarily of nonaccrual loans, loans greater than 90 days past due and still accruing interest and troubled debt restructurings, both performing and non-performing. Troubled debt restructuring involves the granting of a concession to a borrower experiencing financial difficulty resulting in the modification of terms of the loan, such as changes in payment schedule or interest rate. The allowance for loan losses related to impaired loans was $318,000 and $1,404,000 at December 31, 2013 and 2012, respectively. There were no impaired loans without a valuation allowance at December 31, 2013 or 2012. Nonaccrual loans were $1,797,000 and $6,572,000 at December 31, 2013 and 2012, respectively. Loans delinquent 90 days or more and still accruing interest were $0 at December 31, 2013 and 2012. At December 31, 2013 and 2012, there were no loans classified as troubled debt restructuring. The average balances of impaired loans during 2013, 2012 and 2011 were $1,381,000, $5,451,000 and $5,276,000, respectively. Income that would have been recognized on non-accrual loans under the original terms of the contract was $180,000, $381,000 and $107,000 for 2013, 2012 and 2011, respectively. Income that was recognized on nonaccrual loans was $131,000, $141,000 and $102,000 for 2013, 2012 and 2011 respectively. There were no foreclosed loans as of December 31, 2013.

The following table presents the recorded investment and unpaid principal balance for impaired loans at December 31, 2013:

					Related
			Unpaid		Allowance
	Recorded		Principal		for Loan
(In thousands)	Investment		Balance		Losses
Commercial and industrial:
Nonaccrual	$	11	$	11	$	6
Real estate
Commercial - Mortgage:
Nonaccrual		479		479		89
Church - Mortgage:
Nonaccrual		1,307		1,307		223
Total impaired loans	$	1,797	$	1,797	$	318

The following table presents the recorded investment and unpaid principal balance for impaired loans at December 31, 2012:

							Related
				Unpaid			Allowance
	Recorded			Principal			for Loan
(In thousands)	Investment			Balance			Losses
Commercial and industrial:
Nonaccrual	$	1,439		$	1,439		$	657
Real estate
Commercial - Mortgage:
Nonaccrual		4,959	*		4,959	*		660
Church - Mortgage:
Nonaccrual		174			174			87
Total impaired loans	$	6,572		$	6,572		$	1,404

* In February 2013, a payment of $4,115,000 was received for one nonaccrual loan with a balance of $4,198,000. $83,000 was charged off.

The Company does not record loans at fair value on a recurring basis. Once a loan is identified as impaired, management measures impairment in accordance with FASB ASC 310, "Allowance for Credit Losses." At December 31, 2013, all impaired loans were evaluated based on the fair value of the collateral. The fair value of the collateral is based upon an observable market price or current appraised value and therefore, the Company classifies these assets as nonrecurring Level 3.

A summary of the activity in the allowance for loan losses is as follows:

	December 31,		Charge-							December 31,
(In thousands)	2012		Offs		Recoveries		Provision			2013
Commercial and industrial	$	3,192	$	1,307	$	47	$	1,104		$	3,036
Real estate
Commercial:
Mortgage		3,784		233		35		360			3,946
Construction		137		-		-		14			151
Church, church-related:
Mortgage		4,903		-		280		(829	)		4,354
Construction		333		-		-		(209	)		124
Industrial Revenue Bond		-		-		-		68			68
Other		8		-		-		(8	)		-
Total	$	12,357	$	1,540	$	362	$	500		$	11,679

As of December 31, 2012 one outside director had a loan balance of $559,000. During 2013, payments of $28,000 were made decreasing the balance to $531,000. The director passed away in October 2013 and as of December 31, 2013 there were no loans to affiliates of executive officers or directors.