3.	LOANS HELD FOR INVESTMENT

The composition of the Company’s loans held for investment loan portfolio follows:

	September 30,			December 31,
	2016			2015
	(in thousands)
Manufactured housing	$	191,946		$	177,891
Commercial real estate		225,572			179,491
Commercial		85,711			77,349
SBA		11,427			13,744
HELOC		10,789			10,934
Single family real estate		14,334			19,073
Consumer		82			123
		539,861			478,605
Allowance for loan losses		(7,190	)		(6,916	)
Deferred (fees) costs, net		(160	)		560
Discount on SBA loans		(180	)		(191	)
Total loans held for investment, net	$	532,331		$	472,058

The following table presents the contractual aging of the recorded investment in past due held for investment loans by class of loans:

	September 30, 2016
	Current		30-59 Days* Past Due		60-89 Days* Past Due		Over 90 Days* Past Due		Total Past Due		Total		Recorded Investment Over 90 Days and Accruing
	(in thousands)
Manufactured housing	$	191,837	$	109	$	-	$	-	$	109	$	191,946	$	-
Commercial real estate:
Commercial real estate		172,756		-		-		-		-		172,756		-
SBA 504 1st trust deed		21,651		-		-		-		-		21,651		-
Land		3,982		-		-		-		-		3,982		-
Construction		27,183		-		-		-		-		27,183		-
Commercial		85,711		-		-		-		-		85,711		-
SBA		11,126		301		-		-		301		11,427		-
HELOC		10,690		99		-		-		99		10,789		-
Single family real estate		14,334		-		-		-		-		14,334		-
Consumer		82		-		-		-		-		82		-
Total	$	539,352	$	509	$	-	$	-	$	509	$	539,861	$	-

* Table reports past dues based on Call Report definitions of number of payments past due.

	December 31, 2015
	Current		30-59 Days* Past Due		60-89 Days* Past Due		Over 90 Days* Past Due		Total Past Due		Total		Recorded Investment Over 90 Days and Accruing
	(in thousands)
Manufactured housing	$	177,480	$	-	$	372	$	39	$	411	$	177,891	$	-
Commercial real estate:
Commercial real estate		138,004		-		-		612		612		138,616		-
SBA 504 1st trust deed		25,099		-		-		463		463		25,562		-
Land		2,895		-		-		-		-		2,895		-
Construction		12,016		-		402		-		402		12,418		-
Commercial		77,305		-		-		44		44		77,349		-
SBA		13,743		1		-		-		1		13,744		-
HELOC		10,934		-		-		-		-		10,934		-
Single family real estate		19,073		-				-		-		19,073		-
Consumer		123		-		-		-		-		123		-
Total	$	476,672	$	1	$	774	$	1,158	$	1,933	$	478,605	$	-

* Table reports past dues based on Call Report definitions of number of payments past due.

Allowance for Loan Losses

The following table summarizes the changes in the allowance for loan losses:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(in thousands)
Beginning balance	$	7,028		$	7,243		$	6,916		$	7,877
Charge-offs		(100	)		(33	)		(162	)		(258	)
Recoveries		240			247			600			1,390
Net recoveries		140			214			438			1,132
Provision (credit)		22			(445	)		(164	)		(1,997	)
Ending balance	$	7,190		$	7,012		$	7,190		$	7,012

As of September 30, 2016 and December 31, 2015, the Company had reserves for credit losses on undisbursed loans of $83,000 and $61,000 which were included in Other liabilities.

The following tables summarize allowance for loan losses by portfolio type:

	For the Three Months Ended September 30,
	Manufactured Housing			Commercial Real Estate		Commercial		SBA			HELOC			Single Family Real Estate			Consumer		Total
2016	(in thousands)
Beginning balance	$	2,188		$	3,078	$	1,251	$	322		$	62		$	126		$	1	$	7,028
Charge-offs		-			-		-		(100	)		-			-			-		(100	)
Recoveries		121			-		40		12			66			1			-		240
Net (charge-offs) recoveries		121			-		40		(88	)		66			1			-		140
Provision (credit)		(102	)		194		66		(142	)		(25	)		31			-		22
Ending balance	$	2,207		$	3,272	$	1,357	$	92		$	103		$	158		$	1	$	7,190

2015
Beginning balance	$	3,808		$	1,779	$	795	$	686		$	45		$	129		$	1	$	7,243
Charge-offs		(33	)		-		-		-			-			-			-		(33	)
Recoveries		38			13		40		153			3			-			-		247
Net (charge-offs) recoveries		5			13		40		153			3			-			-		214
Provision (credit)		(220	)		43		35		(284	)		(5	)		(15	)		1		(445	)
Ending balance	$	3,593		$	1,835	$	870	$	555		$	43		$	114		$	2	$	7,012

	For The Nine Months Ended September 30,
	Manufactured Housing			Commercial Real Estate			Commercial			SBA			HELOC			Single Family Real Estate			Consumer			Total
2016	(in thousands)
Beginning balance	$	3,525		$	1,853		$	939		$	451		$	43		$	103		$	2		$	6,916
Charge-offs		(41	)		-			-			(121	)		-			-			-			(162	)
Recoveries		126			13			120			196			74			71			-			600
Net (charge-offs) recoveries		85			13			120			75			74			71			-			438
Provision (credit)		(1,403	)		1,406			298			(434	)		(14	)		(16	)		(1	)		(164	)
Ending balance	$	2,207		$	3,272		$	1,357		$	92		$	103		$	158		$	1		$	7,190

2015
Beginning balance	$	4,032		$	1,459		$	986		$	1,066		$	140		$	192		$	2		$	7,877
Charge-offs		(258	)		-			-			-			-			-			-			(258	)
Recoveries		103			533			383			361			8			2			-			1,390
Net (charge-offs) recoveries		(155	)		533			383			361			8			2			-			1,132
Provision (credit)		(284	)		(157	)		(499	)		(872	)		(105	)		(80	)		-			(1,997	)
Ending balance	$	3,593		$	1,835		$	870		$	555		$	43		$	114		$	2		$	7,012

The following tables present impairment method information related to loans and allowance for loan losses by loan portfolio segment:

	Manufactured Housing		Commercial Real Estate		Commercial		SBA		HELOC		Single Family Real Estate		Consumer		Total Loans
Loans Held for Investment as of September 30, 2016:	(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded	$	6,109	$	1,340	$	3,485	$	327	$	46	$	2,049	$	-	$	13,356
Impaired loans with no allowance recorded		2,771		76		-		2,041		490		195		-		5,573
Total loans individually evaluated for impairment		8,880		1,416		3,485		2,368		536		2,244		-		18,929
Loans collectively evaluated for impairment		183,066		224,156		82,226		9,059		10,253		12,090		82		520,932
Total loans held for investment	$	191,946	$	225,572	$	85,711	$	11,427	$	10,789	$	14,334	$	82	$	539,861
Unpaid Principal Balance
Impaired loans with an allowance recorded	$	6,203	$	1,514	$	3,485	$	420	$	58	$	2,049	$	-	$	13,729
Impaired loans with no allowance recorded		4,316		1,035		-		2,455		507		228		-		8,541
Total loans individually evaluated for impairment		10,519		2,549		3,485		2,875		565		2,277		-		22,270
Loans collectively evaluated for impairment		183,066		224,156		82,226		9,059		10,253		12,090		82		520,932
Total loans held for investment	$	193,585	$	226,705	$	85,711	$	11,934	$	10,818	$	14,367	$	82	$	543,202
Related Allowance for Credit Losses
Impaired loans with an allowance recorded	$	511	$	20	$	164	$	-	$	-	$	27	$	-	$	722
Impaired loans with no allowance recorded		-		-		-		-		-		-		-		-
Total loans individually evaluated for impairment		511		20		164		-		-		27		-		722
Loans collectively evaluated for impairment		1,696		3,252		1,193		92		103		131		1		6,468
Total loans held for investment	$	2,207	$	3,272	$	1,357	$	92	$	103	$	158	$	1	$	7,190

	Manufactured Housing		Commercial Real Estate		Commercial		SBA		HELOC		Single Family Real Estate		Consumer		Total Loans
Loans Held for Investment as of December 31, 2015:	(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded	$	4,914	$	376	$	2,966	$	1,695	$	19	$	1,970	$	-	$	11,940
Impaired loans with no allowance recorded		3,672		2,247		44		1,052		294		282		-		7,591
Total loans individually evaluated for impairment		8,586		2,623		3,010		2,747		313		2,252		-		19,531
Loans collectively evaluated for impairment		169,305		176,868		74,339		10,997		10,621		16,821		123		459,074
Total loans held for investment	$	177,891	$	179,491	$	77,349	$	13,744	$	10,934	$	19,073	$	123	$	478,605
Unpaid Principal Balance
Impaired loans with an allowance recorded	$	4,964	$	439	$	2,966	$	1,909	$	19	$	1,970	$	-	$	12,267
Impaired loans with no allowance recorded		3,975		2,734		50		1,553		309		352		-		8,973
Total loans individually evaluated for impairment		8,939		3,173		3,016		3,462		328		2,322		-		21,240
Loans collectively evaluated for impairment		169,305		176,868		74,339		10,997		10,621		16,821		123		459,074
Total loans held for investment	$	178,244	$	180,041	$	77,355	$	14,459	$	10,949	$	19,143	$	123	$	480,314
Related Allowance for Credit Losses
Impaired loans with an allowance recorded	$	483	$	3	$	45	$	25	$	-	$	17	$	-	$	573
Impaired loans with no allowance recorded		-		-		-		-		-		-		-		-
Total loans individually evaluated for impairment		483		3		45		25		-		17		-		573
Loans collectively evaluated for impairment		3,042		1,850		894		426		43		86		2		6,343
Total loans held for investment	$	3,525	$	1,853	$	939	$	451	$	43	$	103	$	2	$	6,916

Included in impaired loans are $2.0 million and $2.2 million of loans guaranteed by government agencies at September 30, 2016 and December 31, 2015, respectively. A valuation allowance is established for an impaired loan when the fair value of the loan is less than the recorded investment. In certain cases, portions of impaired loans are charged-off to realizable value instead of establishing a valuation allowance and are included, when applicable in the table below as “Impaired loans without specific valuation allowance under ASC 310.” The valuation allowance disclosed above is included in the allowance for loan losses reported in the consolidated balance sheets as of September 30, 2016 and December 31, 2015.

The table below reflects recorded investment in loans classified as impaired:

	September 30,		December 31,
	2016		2015
	(in thousands)
Impaired loans with a specific valuation allowance under ASC 310	$	13,356	$	11,940
Impaired loans without a specific valuation allowance under ASC 310		5,573		7,591
Total impaired loans	$	18,929	$	19,531
Valuation allowance related to impaired loans	$	722	$	573

The following table summarizes impaired loans by class of loans:

	September 30,		December 31,
	2016		2015
	(in thousands)
Manufactured housing	$	8,880	$	8,586
Commercial real estate		223		875
SBA 504 1st trust deed		1,193		1,748
Commercial		3,485		3,010
SBA		2,368		2,747
HELOC		536		313
Single family real estate		2,244		2,252
Total	$	18,929	$	19,531

The following tables summarize average investment in impaired loans by class of loans and the related interest income recognized:

	Three Months Ended September 30,
	2016				2015
	Average Investment in Impaired Loans		Interest Income		Average Investment in Impaired Loans		Interest Income
	(in thousands)
Manufactured housing	$	8,306	$	174	$	7,490	$	197
Commercial real estate:
Commercial real estate		510		-		860		-
SBA 504 1st trust deed		1,148		5		1,712		31
Land		-		-		-		-
Construction		-		-		-		-
Commercial		3,346		49		2,825		-
SBA		1,266		41		663		17
HELOC		510		-		190		8
Single family real estate		2,134		26		2,284		24
Consumer		-		-		-		-
Total	$	17,220	$	295	$	16,024	$	277

	Nine Months Ended September 30,
	2016				2015
	Average Investment in Impaired Loans		Interest Income		Average Investment in Impaired Loans		Interest Income
	(in thousands)
Manufactured housing	$	8,482	$	499	$	7,346	$	448
Commercial real estate:
Commercial real estate		682		3		1,548		-
SBA 504 1st		1,625		33		1,417		65
Land		-		-		-		-
Construction		-		-		-		-
Commercial		3,190		148		2,895		-
SBA		891		97		1,226		53
HELOC		410		7		137		8
Single family real estate		2,173		83		1,441		57
Consumer		-		-		-		-
Total	$	17,453	$	870	$	16,010	$	631

The Company is not committed to lend additional funds on these impaired loans.

The following table reflects the recorded investment in certain types of loans at the periods indicated:

	September 30,			December 31,
	2016			2015
	(in thousands)
Nonaccrual loans	$	4,187		$	6,956
Government guaranteed portion of loans included above	$	1,161		$	1,943

Troubled debt restructured loans, gross	$	14,425		$	13,741
Loans 30 through 89 days past due with interest accruing	$	-		$	-
Allowance for loan losses to gross loans held for investment		1.33	%		1.44	%

The accrual of interest is discontinued when substantial doubt exists as to collectability of the loan; generally at the time the loan is 90 days delinquent. Any unpaid but accrued interest is reversed at that time. Thereafter, interest income is no longer recognized on the loan. Interest income may be recognized on impaired loans to the extent they are not past due by 90 days. Interest on nonaccrual loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Foregone interest on nonaccrual and TDR loans for the three months ended September 30, 2016 and 2015 was $0.1 million, respectively. Foregone interest on nonaccrual and TDR loans for the nine months ended September 30, 2016 and 2015 was $0.3 million and $0.6 million, respectively.

The following table presents the composition of nonaccrual loans by class of loans:

	September 30,		December 31,
	2016		2015
	(in thousands)
Manufactured housing	$	1,006	$	1,615
Commercial real estate		223		875
SBA 504 1st trust deed		933		1,481
Commercial		-		44
SBA		1,294		2,346
HELOC		536		313
Single family real estate		195		282
Consumer		-		-
Total	$	4,187	$	6,956

Included in nonaccrual loans are $1.2 million of loans guaranteed by government agencies at September 30, 2016 and $1.9 million at December 31, 2015.

The guaranteed portion of each SBA loan is repurchased from investors when those loans become past due 120 days by either CWB or the SBA directly. After the foreclosure and collection process is complete, the principal balance of loans repurchased by CWB are reimbursed by the SBA. Although these balances do not earn interest during this period, they generally do not result in a loss of principal to CWB; therefore a repurchase reserve has not been established related to these loans.

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention,” “Substandard,” “Doubtful” and “Loss”. For a detailed discussion on these risk classifications see “Note 1 Summary of Significant Accounting Policies - Allowance for Loan Losses and Provision for Loan Losses” of this Form 10-Q. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution's credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Risk ratings are updated as part of our normal loan monitoring process, at a minimum, annually.

The following tables present gross loans by risk rating:

	September 30, 2016
	Pass		Special Mention		Substandard		Doubtful		Total
	(in thousands)
Manufactured housing	$	188,821	$	-	$	3,125	$	-	$	191,946
Commercial real estate:
Commercial real estate		170,521		2,012		223		-		172,756
SBA 504 1st trust deed		20,458		-		1,193		-		21,651
Land		3,982		-		-		-		3,982
Construction		27,183		-		-		-		27,183
Commercial		75,775		7,038		2,898		-		85,711
SBA		8,580		109		430		-		9,119
HELOC		10,005		-		784		-		10,789
Single family real estate		14,133		-		201		-		14,334
Consumer		82		-		-		-		82
Total, net		519,540		9,159		8,854		-		537,553
SBA guarantee		-		-		2,308		-		2,308
Total	$	519,540	$	9,159	$	11,162	$	-	$	539,861

	December 31, 2015
	Pass		Special Mention		Substandard		Doubtful		Total
	(in thousands)
Manufactured housing	$	173,971	$	-	$	3,920	$	-	$	177,891
Commercial real estate:
Commercial real estate		131,857		2,481		4,278		-		138,616
SBA 504 1st trust deed		23,231		583		1,748		-		25,562
Land		2,895		-		-		-		2,895
Construction		12,418		-		-		-		12,418
Commercial		66,788		6,805		3,756		-		77,349
SBA		10,733		158		547		64		11,502
HELOC		10,115		-		819		-		10,934
Single family real estate		18,678		-		395		-		19,073
Consumer		123		-		-		-		123
Total, net		450,809		10,027		15,463		64		476,363
SBA guarantee		-		-		2,242		-		2,242
Total	$	450,809	$	10,027	$	17,705	$	64	$	478,605

Troubled Debt Restructured Loan (TDR)

A TDR is a loan on which the bank, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the bank would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, extensions, deferrals, renewals and rewrites. The majority of the bank’s modifications are extensions in terms or deferral of payments which result in no lost principal or interest followed by reductions in interest rates or accrued interest. A TDR is also considered impaired. Generally, a loan that is modified at an effective market rate of interest may no longer be disclosed as a troubled debt restructuring in years subsequent to the restructuring if it is not impaired based on the terms specified by the restructuring agreement.

The following tables summarize the financial effects of TDR loans by loan class for the periods presented:

	For the Three Months Ended September 30, 2016
	Number of Loans		Pre- Modification Recorded Investment		Post Modification Recorded Investment		Balance of Loans with Rate Reduction		Balance of Loans with Term Extension		Effect on Allowance for Loan Losses
	(dollars in thousands)
Manufactured housing		10	$	735	$	735	$	735	$	735	$	40
Total		10	$	735	$	735	$	735	$	735	$	40

	For the Nine Months Ended September 30, 2016
	Number of Loans		Pre- Modification Recorded Investment		Post Modification Recorded Investment		Balance of Loans with Rate Reduction		Balance of Loans with Term Extension		Effect on Allowance for Loan Losses
	(dollars in thousands)
Manufactured housing		20	$	1,619	$	1,619	$	1,619	$	1,619	$	98
SBA		1		92		92		-		92		-
HELOC		1		257		257		-		257		-
Single family real estate		1		105		105		105		105		7
Commercial		3		718		718		-		718		7
Total		26	$	2,791	$	2,791	$	1,724	$	2,791	$	112

	For the Three Months Ended September 30, 2015
	Number of Loans		Pre- Modification Recorded Investment		Post Modification Recorded Investment		Balance of Loans with Rate Reduction		Balance of Loans with Term Extension		Effect on Allowance for Loan Losses
	(dollars in thousands)
Manufactured housing		11	$	1,292	$	1,292	$	1,292	$	1,292	$	58
Total		11	$	1,292	$	1,292	$	1,292	$	1,292	$	58

	For the Nine Months Ended September 30, 2015
	Number of Loans		Pre- Modification Recorded Investment		Post Modification Recorded Investment		Balance of Loans with Rate Reduction		Balance of Loans with Term Extension		Effect on Allowance for Loan Losses
	(dollars in thousands)
Manufactured housing		19	$	1,756	$	1,746	$	1,443	$	1,599	$	73
SBA		1		297		297		-		297		5
HELOC		1		54		54		54		54		-
Single family real estate		1		1,917		1,917		1,917		1,917		35
Total		22	$	4,024	$	4,014	$	3,414	$	3,867	$	113

The average rate concessions were 100 basis points and 81 basis points, respectively, for the three and nine months ended September 30, 2016 and 100 basis points and 76 basis points for the three and nine months ended September 30, 2015, respectively. The average term extension in months was 179 and 152 for the third quarter and year to date 2016, and 180 and 149 for the third quarter and year to date 2015, respectively.

A TDR loan is deemed to have a payment default when the borrower fails to make two consecutive payments or the collateral is transferred to repossessed assets. The Company had no TDR’s with payment defaults for the nine months ended September 30, 2016 or 2015.

At September 30, 2016 there were no material loan commitments outstanding on TDR loans.