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 is 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)	2014		2013
Commercial and industrial	$	203,350	$	171,304
Real estate
Commercial:
Mortgage		117,754		128,358
Construction		—		6,632
Church, church-related:
Mortgage		305,887		326,832
Construction		18,612		9,817
Industrial Revenue Bond		23,348		9,167
Other		395		67
Total loans	$	669,346	$	652,177

The following table presents the aging of loans by loan categories at December 31, 2014:

	Performing						Nonperforming
								90 Days
				30-59		60-89		and		Non-		Total
(In thousands)	Current		Days		Days		Over		accrual		Loans
Commercial and industrial	$	203,350	$	—	$	—	$	—	$	—	$	203,350
Real estate
Commercial:
Mortgage		117,393		—		—		—		361		117,754
Construction		—		—		—		—		—		—
Church, church-related:
Mortgage		305,760		—		—		—		127		305,887
Construction		18,612		—		—		—		—		18,612
Industrial Revenue Bond		23,348		—		—		—		—		23,348
Other		395		—		—		—		—		395
Total	$	668,858	$	—	$	—	$	—	$	488	$	669,346

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 credit exposure of the loan portfolio by internally assigned credit grade as of December 31, 2014:

	Loans		Performing		Nonperforming
	Subject to		Loans Subject to		Loans Subject
	Normal		Special		to Special
(In thousands)	Monitoring¹		Monitoring²		Monitoring²		Total Loans
Commercial and industrial	$	199,837	$	3,513	$	—	$	203,350
Real estate
Commercial:
Mortgage		103,097		14,296		361		117,754
Construction		—		—		—		—
Church, church-related:
Mortgage		304,219		1,541		127		305,887
Construction		18,612		—		—		18,612
Industrial Revenue Bond		23,348		—		—		23,348
Other		395		—		—		395
Total	$	649,508	$	19,350	$	488	$	669,346

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, 2013:

	Loans		Performing		Nonperforming
	Subject to		Loans Subject to		Loans Subject to
	Normal		Special		Special		Total
(In thousands)	Monitoring¹		Monitoring²		Monitoring²		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

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

²Loans 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 $127,000 and $318,000 at December 31, 2014 and 2013, respectively. Nonaccrual loans were $488,000 and $1,797,000 at December 31, 2014 and 2013, respectively. Loans delinquent 90 days or more and still accruing interest were $0 at December 31, 2014 and 2013. At December 31, 2014 and 2013, there were no loans classified as troubled debt restructuring. The average balances of impaired loans during 2014, 2013 and 2012 were $1,262,000, $1,381,000 and $5,451,000, respectively. Income that would have been recognized on non-accrual loans under the original terms of the contract was $108,000, $180,000 and $381,000 for 2014, 2013 and 2012, respectively. Income that was recognized on nonaccrual loans was $77,000, $131,000 and $141,000 for 2014, 2013 and 2012 respectively. There were no foreclosed assets as of December 31, 2014 and December 31, 2013.

The following table presents the recorded investment and unpaid principal balance for impaired loans at December 31, 2014:

					Related
			Unpaid		Allowance
	Recorded		Principal		for Loan
(In thousands)	Investment		Balance		Losses
Commercial and industrial:
Nonaccrual	$	—	$	—	$	—
Real estate
Commercial Mortgage:
Nonaccrual		361		361		—
Church Mortgage:
Nonaccrual		127		127		127
Total impaired loans	$	488	$	488	$	127

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 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, 2014, all impaired loans were evaluated based on the fair value of the collateral or present value of expected future cash flow. 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)	2013		Offs		Recoveries		Provision			2014
Commercial and industrial	$	3,139	$	—	$	41	$	335		$	3,515
Real estate
Commercial:
Mortgage		3,064		—		222		(226	)		3,060
Construction		—		—		—		—			—
Church, church-related:
Mortgage		4,375		76		30		(313	)		4,016
Construction		124		—		—		16			140
Industrial Revenue Bond		155		—		—		239			394
Other		822		3		1		(51	)		769
Total	$	11,679	$	79	$	294	$	—		$	11,894

As of December 31, 2014 there were no loans to affiliates of executive officers or directors.