Note 4. Loans Receivable and Allowance for Loan Losses

The Company’s loan portfolio is comprised of one segment – church loans. See “Note 1 – Loan Portfolio Segments and Classes” to the Financial Statements. The loans fall into four classes:

wholly-owned loans for which the Company possesses the first collateral position;

wholly-owned loans that are either unsecured or for which the Company possesses a junior collateral position;

participated loans purchased for which the Company possesses the first collateral position; and

participated loans purchased for which the Company possesses a junior collateral position.

The Company makes all of its loans to various evangelical churches and related organizations, primarily to purchase, construct, or improve facilities. Loan maturities extend through 2033. The loan portfolio had a weighted average rate of 0.07% and 6.31% as of December 31, 2019 and December 31, 2018, respectively.

The table below is a summary of the Company’s mortgage loans owned (dollars in thousands):



	December 31,		December 31,
	2019		2018
Loans to evangelical churches and related organizations:
Real estate secured	$	130,889	$	147,061
Unsecured		160		274
Total loans		131,049		147,335
Deferred loan fees, net		(631)		(848)
Loan discount		(182)		(627)
Allowance for loan losses		(1,393)		(2,480)
Loans, net	$	128,843	$	143,380

Allowance for Loan Losses

Management believes it has properly calculated the allowance for loan losses as of December 31, 2018 and December 31, 2018. The following table shows the changes in the allowance for loan losses for the years ended December 31, 2019 and 2018 (dollars in thousands):



	December 31,		December 31,
	2019		2018
Balance, beginning of period	$	2,480	$	2,097
Provision for loan loss		(544)		666
Chargeoffs		(923)		(283)
Recoveries		380		—
Balance, end of period	$	1,393	$	2,480

The table below presents loans by portfolio segment (church loans) and the related allowance for loan losses. In addition, the table segregates loans and the allowance for loan losses by impairment methodology (dollars in thousands).



	Loans and Allowance for Loan Losses (by segment)
	As of
	December 31,		December 31,
	2019		2018
Loans:
Individually evaluated for impairment	$	8,843	$	13,601
Collectively evaluated for impairment		122,206		133,734
Balance	$	131,049	$	147,335

Allowance for loan losses:
Individually evaluated for impairment	$	175	$	1,463
Collectively evaluated for impairment		1,218		1,017
Balance	$	1,393	$	2,480

The Company has established a loan grading system to assist management in their analysis and supervision of the loan portfolio. The following tables summarize the credit quality indicators by loan class (dollars in thousands):



Credit Quality Indicators (by class)
As of December 31, 2019
	Wholly-Owned First		Wholly-Owned Junior		Participation First		Participation Junior		Total
Grade:
Pass	$	96,674	$	3,557	$	1,882	$	—	$	102,113
Watch		19,870		32		191		—		20,093
Special mention		—		—		—		—		—
Substandard		7,103		—		1,230		—		8,333
Doubtful		510		—		—		—		510
Loss		—		—		—		—		—
Total	$	124,157	$	3,589	$	3,303	$	—	$	131,049



Credit Quality Indicators (by class)
As of December 31, 2018
	Wholly-Owned First		Wholly-Owned Junior		Participation First		Participation Junior		Total
Grade:
Pass	$	100,140	$	4,067	$	2,004	$	—	$	106,211
Watch		27,321		—		202		—		27,523
Special mention		1,208		—		—		—		1,208
Substandard		6,497		187		3,586		—		10,270
Doubtful		2,123		—		—		—		2,123
Loss		—		—		—		—		—
Total	$	137,289	$	4,254	$	5,792	$	—	$	147,335

The following table sets forth certain information with respect to the Company’s loan portfolio delinquencies by loan class and amount (dollars in thousands):


Age Analysis of Past Due Loans (by class)
As of December 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment 90 Days or more and Accruing
Church loans:
Wholly-Owned First	$	—	$	—	$	5,907	$	5,907	$	118,250	$	124,157	$	—
Wholly-Owned Junior		—		—		—		—		3,589		3,589		—
Participation First		—		—		—		—		3,303		3,303		—
Participation Junior		—		—		—		—		—		—		—
Total	$	—	$	—	$	5,907	$	5,907	$	125,142	$	131,049	$	—


Age Analysis of Past Due Loans (by class)
As of December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment 90 Days or more and Accruing
Church loans:
Wholly-Owned First	$	3,259	$	—	$	5,804	$	9,063	$	128,226	$	137,289	$	—
Wholly-Owned Junior		187		—		—		187		4,067		4,254		—
Participation First		2,293		—		1,292		3,585		2,207		5,792		—
Participation Junior		—		—		—		—		—		—		—
Total	$	5,739	$	—	$	7,096	$	12,835	$	134,500	$	147,335	$	—

Impaired Loans

Impaired loans include non-accrual loans, loans 90 days or more past due and still accruing, and restructured loans. Non-accrual loans are loans on which management has discontinued interest accruals. Restructured loans are loans in which the Company has granted the borrower a concession due to financial distress. Concessions are usually a reduction of the interest rate or a change in the original repayment terms.

The Company monitors impaired loans on an ongoing basis as part of management’s loan review and work out process. Management evaluates the potential risk of loss on these loans by comparing the loan balance to the fair value of any secured collateral or the present value of projected future cash flows.

In accordance with industry standards, loans that the Company has modified as part of a troubled debt restructuring are considered impaired. However, troubled debt restructures, upon meeting certain performance conditions, are eligible to receive non-classified loan ratings and to be moved out of non-accrual status. These loans continue to be included in total impaired loans but not necessarily in non-accrual or collateral-dependent loans.

The following tables are summaries of impaired loans by loan class as of and for the years ended December 31, 2019 and 2018, respectively. The unpaid principal balance reflects the contractual principal outstanding on the loan. The recorded balance reflects the unpaid principal balance less any interest payments that have been recorded against principal. The recorded investment reflects the recorded balance less discounts taken. The related allowance reflects specific reserves taken on the impaired loans (dollars in thousands):



Impaired Loans (by class) As of December 31, 2019									For the year ended December 31, 2019
	Unpaid Principal Balance		Recorded Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no allowance recorded:
Church loans:
Wholly-Owned First	$	12,497	$	12,404	$	12,304	$	—	$	12,343	$	1,202
Wholly-Owned Junior		—		—		—		—		—		—
Participation First		—		—		—		—		—		—
Participation Junior		—		—		—		—		—		—
With an allowance recorded:
Church loans:
Wholly-Owned First		290		290		290		110		973		—
Wholly-Owned Junior		—		—		—		—		—		—
Participation First		1,294		1,230		1,230		65		1,263		—
Participation Junior		—		—		—		—		—		—
Total:
Church loans	$	14,081	$	13,924	$	13,824	$	175	$	14,579	$	1,202



Impaired Loans (by class) As of December 31, 2018									For the year ended December 31, 2018
	Unpaid Principal Balance		Recorded Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no allowance recorded:
Church loans:
Wholly-Owned First	$	5,734	$	5,687	$	5,694	$	—	$	5,915	$	123
Wholly-Owned Junior		—		—		—		—		—		—
Participation First		2,293		2,293		2,316		—		2,312		—
Participation Junior		—		—		—		—		—		—
With an allowance recorded:
Church loans:
Wholly-Owned First		4,818		4,142		3,632		1,165		3,714		—
Wholly-Owned Junior		215		187		176		176		181		—
Participation First		1,302		1,292		1,292		122		1,299		10
Participation Junior		—		—		—		—		—		—
Total:
Church loans	$	14,362	$	13,601	$	13,110	$	1,463	$	13,421	$	133

A summary of nonaccrual loans by loan class is as follows (dollars in thousands):



Loans on Nonaccrual Status (by class)
	December 31, 2019		December 31, 2018
Church loans:
Wholly-Owned First	$	6,405	$	8,619
Wholly-Owned Junior		—		187
Participation First		1,230		1,292
Participation Junior		—		—
Total	$	7,635	$	10,098

The Company restructured six and four loans during the years ended December 31, 2019 and 2018. A summary of troubled debt restructures by loan class during the years ended December 31, 2019 and 2018 is as follows (dollars in thousands):



Troubled Debt Restructurings (by class)
For the year ended December 31, 2019
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Recorded Investment At Period End
Church loans:
Wholly-Owned First		5	$	6,270	$	6,458	$	6,167
Wholly-Owned Junior		—		—		—		—
Participation First		1		166		—		—
Participation Junior		—		—		—		—
Total		6	$	6,436	$	6,458	$	6,167



Troubled Debt Restructurings (by class)
For the year ended December 31, 2018
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Recorded Investment At Period End
Church loans:
Wholly-Owned First		2	$	1,748	$	1,668	$	1,668
Wholly-Owned Junior		—		—		—		—
Participation First		2		3,595		3,595		3,586
Participation Junior		—		—		—		—
Total		4	$	5,343	$	5,264	$	5,254

The Company had one previously restructured loan that was past maturity as of December 31, 2019. The Company has entered into a forbearance agreement with the borrowers and is evaluating what actions it should undertake to protect its investment on this loan.

The Company closely monitors delinquency in loans modified in a troubled debt restructuring as an early indicator for future default. Management regularly evaluates loans modified in a troubled debt restructuring for potential further impairment and will make adjustments to the risk ratings and specific reserves associated with troubled debt restructurings as deemed necessary.

No loans that were restructured during the years ended December 31, 2019 and 2018 subsequently defaulted during those respective years.

As of December 31, 2019, no additional funds were committed to be advanced in connection with loans modified as troubled debt restructurings.