4.	LOANS HELD FOR INVESTMENT

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

	September 30,			December 31,
	2017			2016
	(in thousands)
Manufactured housing	$	216,572		$	194,222
Commercial real estate		343,771			272,142
Commercial		76,250			70,369
SBA		8,656			10,164
HELOC		9,656			10,292
Single family real estate		10,022			12,750
Consumer		34			87
		664,961			570,026
Allowance for loan losses		(8,312	)		(7,464	)
Deferred fees, net		(702	)		(453	)
Discount on SBA loans		(125	)		(170	)
Total loans held for investment, net	$	655,822		$	561,939

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

	September 30, 2017
	Current		30-59 Days* Past Due		60-89 Days* Past Due		Over 90 Days* Past Due		Total Past Due		Nonaccrual		Total		Recorded Investment Over 90 Days and Accruing
	(in thousands)
Manufactured housing	$	215,854	$	230	$	—	$	—	$	230	$	488	$	216,572	$	—
Commercial real estate:
Commercial real estate		268,400		—		—		—		—		127		268,527		—
SBA 504 1st trust deed		27,291		—		—		—		—		194		27,485		—
Land		5,010		—		—		—		—		—		5,010		—
Construction		42,749		—		—		—		—		—		42,749		—
Commercial		74,398		72		—		—		72		1,780		76,250		—
SBA		7,973		—		—		—		—		683		8,656		—
HELOC		9,437		—		—		—		—		219		9,656		—
Single family real estate		9,842		—		—		—		—		180		10,022		—
Consumer		34		—		—		—		—		—		34		—
Total	$	660,988	$	302	$	—	$	—	$	302	$	3,671	$	664,961	$	—

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

	December 31, 2016
	Current		30-59 Days* Past Due		60-89 Days* Past Due		Over 90 Days* Past Due		Total Past Due		Nonaccrual		Total		Recorded Investment Over 90 Days and Accruing
	(in thousands)
Manufactured housing	$	193,258	$	164	$	—	$	—	$	164	$	800	$	194,222	$	—
Commercial real estate:
Commercial real estate		214,248		—		—		—		—		141		214,389		—
SBA 504 1st trust deed		23,167		—		—		—		—		712		23,879		—
Land		3,167		—		—		—		—		—		3,167		—
Construction		30,707		—		—		—		—		—		30,707		—
Commercial		70,337		1		—		—		1		31		70,369		—
SBA		9,275		—		21		—		21		868		10,164		—
HELOC		9,919		—		—		—		—		373		10,292		—
Single family real estate		12,558		—		—		—		—		192		12,750		—
Consumer		87		—		—		—		—		—		87		—
Total	$	566,723	$	165	$	21	$	—	$	186	$	3,117	$	570,026	$	—

* 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,
	2017			2016			2017			2016
	(in thousands)
Beginning balance	$	7,994		$	7,028		$	7,464		$	6,916
Charge-offs		(33	)		(100	)		(203	)		(162	)
Recoveries		192			240			628			600
Net recoveries		159			140			425			438
Provision (credit)		159			22			423			(164	)
Ending balance	$	8,312		$	7,190		$	8,312		$	7,190

As of September 30, 2017 and December 31, 2016, the Company had reserves for credit losses on undisbursed loans of $96,000 and $125,000, respectively, which were included in other liabilities.

The following tables summarize the changes in the 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
2017	(in thousands)
Beginning balance	$	2,124		$	4,332	$	1,262		$	91		$	98		$	87		$	—	$	7,994
Charge-offs		—			—		—			—			—			(33	)		—		(33	)
Recoveries		38			—		43			104			7			—			—		192
Net (charge-offs) recoveries		38			—		43			104			7			(33	)		—		159
Provision (credit)		(15	)		359		(100	)		(108	)		(11	)		34			—		159
Ending balance	$	2,147		$	4,691	$	1,205		$	87		$	94		$	88		$	—	$	8,312

2016
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

	For the Nine Months Ended September 30,
	Manufactured Housing			Commercial Real Estate		Commercial			SBA			HELOC			Single Family Real Estate			Consumer			Total
2017	(in thousands)
Beginning balance	$	2,201		$	3,707	$	1,241		$	106		$	100		$	109		$	—		$	7,464
Charge-offs		(119	)		—		—			(30	)		—			(54	)		—			(203	)
Recoveries		105			227		116			168			11			1			—			628
Net (charge-offs) recoveries		(14	)		227		116			138			11			(53	)		—			425
Provision (credit)		(40	)		757		(152	)		(157	)		(17	)		32			—			423
Ending balance	$	2,147		$	4,691	$	1,205		$	87		$	94		$	88		$	—		$	8,312

2016
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

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, 2017:	(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded	$	6,195	$	574	$	3,357	$	—	$	—	$	2,009	$	—	$	12,135
Impaired loans with no allowance recorded		2,263		—		2,027		728		219		180		—		5,417
Total loans individually evaluated for impairment		8,458		574		5,384		728		219		2,189		—		17,552
Loans collectively evaluated for impairment		208,114		343,197		70,866		7,928		9,437		7,833		34		647,409
Total loans held for investment	$	216,572	$	343,771	$	76,250	$	8,656	$	9,656	$	10,022	$	34	$	664,961
Unpaid Principal Balance
Impaired loans with an allowance recorded	$	6,201	$	672	$	3,357	$	—	$	—	$	2,009	$	—	$	12,239
Impaired loans with no allowance recorded		3,666		—		2,035		1,046		249		221		—		7,217
Total loans individually evaluated for impairment		9,867		672		5,392		1,046		249		2,230		—		19,456
Loans collectively evaluated for impairment		208,114		343,197		70,866		7,928		9,437		7,833		34		647,409
Total loans held for investment	$	217,981	$	343,869	$	76,258	$	8,974	$	9,686	$	10,063	$	34	$	666,865
Related Allowance for Credit Losses
Impaired loans with an allowance recorded	$	457	$	12	$	140	$	—	$	—	$	27	$	—	$	636
Impaired loans with no allowance recorded		—		—		—		—		—		—		—		—
Total loans individually evaluated for impairment		457		12		140		—		—		27		—		636
Loans collectively evaluated for impairment		1,690		4,679		1,065		87		94		61		—		7,676
Total loans held for investment	$	2,147	$	4,691	$	1,205	$	87	$	94	$	88	$	—	$	8,312

	Manufactured Housing		Commercial Real Estate		Commercial		SBA		HELOC		Single Family Real Estate		Consumer		Total Loans
Loans Held for Investment as of December 31, 2016:	(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded	$	6,065	$	1,112	$	3,749	$	70	$	45	$	2,039	$	—	$	13,080
Impaired loans with no allowance recorded		2,846		—		31		1,067		328		191		—		4,463
Total loans individually evaluated for impairment		8,911		1,112		3,780		1,137		373		2,230		—		17,543
Loans collectively evaluated for impairment		185,311		271,030		66,589		9,027		9,919		10,520		87		552,483
Total loans held for investment	$	194,222	$	272,142	$	70,369	$	10,164	$	10,292	$	12,750	$	87	$	570,026
Unpaid Principal Balance
Impaired loans with an allowance recorded	$	6,133	$	1,253	$	3,749	$	70	$	57	$	2,039	$	—	$	13,301
Impaired loans with no allowance recorded		4,369		—		31		1,538		348		226		—		6,512
Total loans individually evaluated for impairment		10,502		1,253		3,780		1,608		405		2,265		—		19,813
Loans collectively evaluated for impairment		185,311		271,030		66,589		9,027		9,919		10,520		87		552,483
Total loans held for investment	$	195,813	$	272,283	$	70,369	$	10,635	$	10,324	$	12,785	$	87	$	572,296
Related Allowance for Credit Losses
Impaired loans with an allowance recorded	$	548	$	17	$	165	$	—	$	1	$	28	$	—	$	759
Impaired loans with no allowance recorded		—		—		—		—		—		—		—		—
Total loans individually evaluated for impairment		548		17		165		—		1		28		—		759
Loans collectively evaluated for impairment		1,653		3,690		1,076		106		99		81		—		6,705
Total loans held for investment	$	2,201	$	3,707	$	1,241	$	106	$	100	$	109	$	—	$	7,464

Included in impaired loans are $2.1 million and $1.0 million of loans guaranteed by government agencies at September 30, 2017 and December 31, 2016, 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, 2017 and December 31, 2016.

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

	September 30,			December 31,
	2017			2016
	(in thousands)
Impaired loans with a specific valuation allowance under ASC 310		$	12,135	$	13,080
Impaired loans without a specific valuation allowance under ASC 310			5,417		4,463
Total impaired loans		$	17,552	$	17,543
Valuation allowance related to impaired loans		$	636	$	759

The following table summarizes impaired loans by class of loans:

	September 30,		December 31,
	2017		2016
	(in thousands)
Manufactured housing	$	8,458	$	8,911
Commercial real estate :
Commercial real estate		127		142
SBA 504 1st trust deed		447		970
Land		—		—
Construction		—		—
Commercial		5,384		3,780
SBA		728		1,137
HELOC		219		373
Single family real estate		2,189		2,230
Total	$	17,552	$	17,543

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

	Three Months Ended September 30,
	2017				2016
	Average Investment in Impaired Loans		Interest Income		Average Investment in Impaired Loans		Interest Income
	(in thousands)
Manufactured housing	$	7,483	$	174	$	8,306	$	174
Commercial real estate:
Commercial real estate		120		1		510		—
SBA 504 1st trust deed		402		5		1,148		5
Land		—		—		—		—
Construction		—		—		—		—
Commercial		4,789		54		3,346		49
SBA		662		1		1,266		41
HELOC		214		—		510		—
Single family real estate		1,951		25		2,134		26
Consumer		—		—		—		—
Total	$	15,621	$	260	$	17,220	$	295

	Nine Months Ended September 30,
	2017				2016
	Average Investment in Impaired Loans		Interest Income		Average Investment in Impaired Loans		Interest Income
	(in thousands)
Manufactured housing	$	7,634	$	488	$	8,482	$	499
Commercial real estate:
Commercial real estate		123		1		682		3
SBA 504 1st		523		15		1,625		33
Land		—		—		—		—
Construction		—		—		—		—
Commercial		4,486		155		3,190		148
SBA		767		3		891		97
HELOC		273		—		410		7
Single family real estate		1,973		75		2,173		83
Consumer		—		—		—		—
Total	$	15,779	$	737	$	17,453	$	870

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,
	2017			2016
	(in thousands)
Nonaccrual loans	$	3,671		$	3,117
Government guaranteed portion of loans included above	$	1,834		$	742

Troubled debt restructured loans, gross	$	13,784		$	14,437
Loans 30 through 89 days past due with interest accruing	$	302		$	—
Loans 90 days or more past due with interest accruing	$	—		$	—
Allowance for loan losses to gross loans held for investment		1.25	%		1.31	%

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, 2017 and 2016 was $0.1 million. Foregone interest on nonaccrual and TDR loans for the nine months ended September 30, 2017 and 2016 was $0.3 million.

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

	September 30,		December 31,
	2017		2016
	(in thousands)
Manufactured housing	$	488	$	800
Commercial real estate:
Commercial real estate		127		141
SBA 504 1st trust deed		194		712
Land		—		—
Construction		—		—
Commercial		1,780		31
SBA		683		868
HELOC		219		373
Single family real estate		180		192
Consumer		—		—
Total	$	3,671	$	3,117

Included in nonaccrual loans are $1.8 million of loans guaranteed by government agencies at September 30, 2017 and $0.7 million at December 31, 2016.

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, 2017
	Pass		Special Mention		Substandard		Doubtful		Total
	(in thousands)
Manufactured housing	$	214,559	$	—	$	2,013	$	—	$	216,572
Commercial real estate:
Commercial real estate		268,399		—		127		—		268,526
SBA 504 1st trust deed		26,798		—		687		—		27,485
Land		5,010		—		—		—		5,010
Construction		39,535		3,215		—		—		42,750
Commercial		70,181		889		3,619		—		74,689
SBA		6,759		104		413		—		7,276
HELOC		9,437		—		219		—		9,656
Single family real estate		9,837		—		185		—		10,022
Consumer		34		—		—		—		34
Total, net		650,549		4,208		7,263		—		662,020
Government guarantee		—		—		2,941		—		2,941
Total	$	650,549	$	4,208	$	10,204	$	—	$	664,961

	December 31, 2016
	Pass		Special Mention		Substandard		Doubtful		Total
	(in thousands)
Manufactured housing	$	191,784	$	—	$	2,438	$	—	$	194,222
Commercial real estate:
Commercial real estate		212,259		1,988		142		—		214,389
SBA 504 1st trust deed		22,664		—		1,215		—		23,879
Land		3,167		—		—		—		3,167
Construction		30,707		—		—		—		30,707
Commercial		63,002		7,268		99		—		70,369
SBA		8,297		108		389				8,794
HELOC		9,671		—		621		—		10,292
Single family real estate		12,553		—		197		—		12,750
Consumer		87		—		—		—		87
Total, net		554,191		9,364		5,101	$	—		568,656
Government guarantee		—		—		1,370		—		1,370
Total	$	554,191	$	9,364	$	6,471	$	—	$	570,026

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, 2017
		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		2	$	363	$	363	$	363	$	363	$	24
Commercial		1		14		14		—		14		—
Total		3	$	377	$	377	$	363	$	377		24

	For the Nine Months Ended September 30, 2017
		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		9	$	807	$	807	$	807	$	807	$	45
Commercial		2		102		102		—		102		2
SBA		1		17		17		—		17		1
Total		12	$	926	$	926	$	807	$	926	$	48

	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

The average rate concessions were 100 basis points and 97 basis points, respectively, for the three and nine months ended September 30, 2017 and 100 basis points and 81 basis points for the three and nine months ended September 30, 2016. The average term extension in months was 126 and 138 for the third quarter and year-to-date 2017, and 179 and 152 for the third quarter and year-to-date 2016, respectively.

A TDR loan is deemed to have a payment default when the borrower fails to make 2 consecutive payments or the collateral is transferred to repossessed assets. The Company had no TDR’s with payment defaults for the three or nine months ended September 30, 2017 or 2016.

At September 30, 2017 there were no material loan commitments outstanding on TDR loans.