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Loans Held for Investment | 3 Months Ended
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Dec. 31, 2011
Loans Held for Investment |
Loans Held for Investment | Note 6: Loans Held for Investment
Loans held for investment consisted of the following:
| December 31, 2011 |  | June 30, 2011 |
Mortgage loans: |  |  |  |
| Single-family | $ 465,606 |  | $ 494,192 |
| Multi-family | 298,285 |  | 304,808 |
| Commercial real estate | 99,718 |  | 103,637 |
| Other | 1,528 |  | 1,530 |
Commercial business loans | 4,332 |  | 4,526 |
Consumer loans | 604 |  | 750 |
| Total loans held for investment, gross | 870,073 |  | 909,443 |
Deferred loan costs, net | 2,304 |  | 2,649 |
Allowance for loan losses | (26,901 | ) | (30,482 | )
| Total loans held for investment, net | $ 845,476 |  | $ 881,610 |
As of December 31, 2011, the Bank had $46.5 million in mortgage loans that are subject to negative amortization, consisting of $29.7 million in multi-family loans, $10.7 million in commercial real estate loans and $6.1 million in single-family loans. This compares to $50.4 million of negative amortization mortgage loans at June 30, 2011, consisting of $31.3 million in multi-family loans, $11.5 million in commercial real estate loans and $7.6 million in single-family loans. During the second quarter of fiscal 2012, no loan interest income was added to the negative amortization loan balance, as compared to $10,000 of loan interest income in the comparable period of fiscal 2011. For the first six months of fiscal 2012, approximately $13,000 of loan interest income was added to the negative amortization loan balance, down from $27,000 of loan interest income in the comparable six-month period of fiscal 2011. Negative amortization involves a greater risk to the Bank because the loan principal balance may increase by a range of 110% to 115% of the original loan amount during the period of negative amortization and because the loan payment may increase beyond the means of the borrower when loan principal amortization is required. Also, the Bank has originated interest-only ARM loans, which typically have a fixed interest rate for the first two to five years coupled with an interest only payment, followed by a periodic adjustable rate and a fully amortizing loan payment. As of December 31, 2011 and June 30, 2011, the interest-only ARM loans were $229.6 million and $247.8 million, or 26.3% and 27.2% of loans held for investment, respectively. The following table sets forth information at December 31, 2011 regarding the dollar amount of loans held for investment that are contractually repricing during the periods indicated, segregated between adjustable rate loans and fixed rate loans. Fixed-rate loans comprised 5% of loans held for investment at December 31, 2011, unchanged from June 30, 2011. Adjustable rate loans having no stated repricing dates that reprice when the index they are tied to reprices (e.g. prime rate index) and checking account overdrafts are reported as repricing within one year. The table does not include any estimate of prepayments which may cause the Bank’s actual repricing experience to differ materially from that shown below.
|  | Adjustable Rate |  |
|  |  | After | After | After |  |
|  |  | One Year | 3 Years | 5 Years |  |
|  | Within | Through | Through | Through | Fixed |
(In Thousands) | One Year | 3 Years | 5 Years | 10 Years | Rate | Total
Mortgage loans: |  |  |  |  |  |
| Single-family | $ 419,631 | $ 32,140 | $ 6,502 | $ 1,474 | $ 5,859 | $ 465,606
| Multi-family | 216,788 | 22,631 | 27,737 | 17,404 | 13,725 | 298,285
| Commercial real estate | 65,755 | 7,701 | 5,515 | 2,670 | 18,077 | 99,718
| Other | 1,292 | - | - | - | 236 | 1,528
Commercial business loans | 2,020 | - | - | - | 2,312 | 4,332
Consumer loans | 580 | - | - | - | 24 | 604
| Total loans held for investment, gross | $ 706,066 | $ 62,472 | $ 39,754 | $ 21,548 | $ 40,233 | $ 870,073
The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment and upon management’s continuing analysis of the factors underlying the quality of the loans held for investment. These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic conditions, detailed analysis of individual loans for which full collectability may not be assured, and determination of the realizable value of the collateral securing the loans. Provisions for loan losses are charged against operations on a monthly basis, as necessary, to maintain the allowance at appropriate levels. Although management believes it uses the best information available to make such determinations, there can be no assurance that regulators, in reviewing the Bank’s loans held for investment, will not request the Bank to significantly increase its allowance for loan losses. Future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected as a result of economic, operating, regulatory, and other conditions beyond the Bank’s control. The following tables summarize the Corporation’s allowance for loan losses at December 31, 2011 and June 30, 2011:
(In Thousands) | December 31, 2011 |  | June 30, 2011
General loan loss allowance: |  |  |
| Mortgage loans: |  |  |
|  | Single-family | $ 11,385 |  | $ 11,561
|  | Multi-family | 2,171 |  | 2,810
|  | Commercial real estate | 1,694 |  | 1,796
|  | Other | 5 |  | 5
| Commercial business loans | 197 |  | 178
| Consumer loans | 15 |  | 16
|  | Total general loan loss allowance | 15,467 |  | 16,366
Specific loan loss allowance: |  |  |
| Mortgage loans: |  |  |
|  | Single-family | 9,946 |  | 12,654
|  | Multi-family | 607 |  | 581
|  | Commercial real estate | 225 |  | 231
|  | Other | 320 |  | 321
| Commercial business loans | 336 |  | 329
|  | Total specific loan loss allowance | 11,434 |  | 14,116
Total loan loss allowance | $ 26,901 |  | $ 30,482
The following table is provided to disclose additional details on the Corporation’s allowance for loan losses:
|  | For the Quarter Ended |  |  | For the Six Months Ended |
|  | December 31, |  |  | December 31, |
(Dollars in Thousands) |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Allowance at beginning of period |  | $ | 28,704 |  |  | $ | 39,086 |  |  | $ | 30,482 |  |  | $ | 43,501 |
Provision for loan losses |  |  | 1,132 |  |  |  | 1,048 |  |  |  | 2,104 |  |  |  | 1,925 |
Recoveries: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single-family |  |  | 191 |  |  |  | - |  |  |  | 304 |  |  |  | 1 |
Total recoveries |  |  | 191 |  |  |  | - |  |  |  | 304 |  |  |  | 1 |
Charge-offs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single-family |  |  | (3,101 | ) |  |  | (3,199 | ) |  |  | (5,962 | ) |  |  | (8,490 | )
Multi-family |  |  | - |  |  |  | (3 | ) |  |  | - |  |  |  | (3 | )
Consumer loans |  |  | (25 | ) |  |  | (7 | ) |  |  | (27 | ) |  |  | (9 | )
Total charge-offs |  |  | (3,126 | ) |  |  | (3,209 | ) |  |  | (5,989 | ) |  |  | (8,502 | )
Net charge-offs |  |  | (2,935 | ) |  |  | (3,209 | ) |  |  | (5,685 | ) |  |  | (8,501 | )
Balance at end of period |  | $ | 26,901 |  |  | $ | 36,925 |  |  | $ | 26,901 |  |  | $ | 36,925 |
Allowance for loan losses as a percentage of gross loans held for investment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 3.08 | % |  |  | 3.81 | % |  |  | 3.08 | % |  |  | 3.81 | %
Net charge-offs as a percentage of average loans outstanding during the period (annualized) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 1.02 | % |  |  | 1.12 | % |  |  | 1.03 | % |  |  | 1.47 | %
Allowance for loan losses as a percentage of gross non-performing loans at the end of the period |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 62.71 | % |  |  | 56.18 | % |  |  | 62.71 | % |  |  | 56.18 | %
The following tables identify the Corporation’s total recorded investment in non-performing loans by type, net of specific allowances for loan losses, at December 31, 2011 and June 30, 2011:
(In Thousands) | December 31, 2011
Recorded Investment | Specific Allowance For Loan Losses | Net Investment
Mortgage loans: |  |  |  |  |
| Single-family: |  |  |  |  |
|  | With a related allowance | $ 36,246 |  | $ (9,946 | ) | $ 26,300
|  | Without a related allowance | 607 |  | - |  | 607
| Total single-family loans | 36,853 |  | (9,946 | ) | 26,907
| Multi-family: |  |  |  |  |
|  | With a related allowance | 2,534 |  | (607 | ) | 1,927
|  | Without a related allowance | 352 |  | - |  | 352
| Total multi-family loans | 2,886 |  | (607 | ) | 2,279
| Commercial real estate: |  |  |  |  |
|  | With a related allowance | 1,140 |  | (225 | ) | 915
|  | Without a related allowance | 388 |  | - |  | 388
| Total commercial real estate loans | 1,528 |  | (225 | ) | 1,303
| Other: |  |  |  |  |
|  | With a related allowance | 1,292 |  | (320 | ) | 972
| Total other loans | 1,292 |  | (320 | ) | 972
Commercial business loans: |  |  |  |  |
|  | With a related allowance | 336 |  | (336 | ) | -
| Total commercial business loans | 336 |  | (336 | ) | -
Total non-performing loans | $ 42,895 |  | $ (11,434 | ) | $ 31,461
(In Thousands) | June 30, 2011
Recorded Investment | Specific Allowance For Loan Losses | Net Investment
Mortgage loans: |  |  |  |  |
| Single-family: |  |  |  |  |
|  | With a related allowance | $ 42,957 |  | $ (12,654 | ) | $ 30,303
|  | Without a related allowance | 1,535 |  | - |  | 1,535
| Total single-family loans | 44,492 |  | (12,654 | ) | 31,838
| Multi-family: |  |  |  |  |
|  | With a related allowance | 2,534 |  | (581 | ) | 1,953
| Total multi-family loans | 2,534 |  | (581 | ) | 1,953
| Commercial real estate: |  |  |  |  |
|  | With a related allowance | 2,451 |  | (231 | ) | 2,220
| Total commercial real estate loans | 2,451 |  | (231 | ) | 2,220
| Other: |  |  |  |  |
|  | With a related allowance | 1,293 |  | (321 | ) | 972
| Total other loans | 1,293 |  | (321 | ) | 972
Commercial business loans: |  |  |  |  |
|  | With a related allowance | 331 |  | (329 | ) | 2
|  | Without a related allowance | 141 |  | - |  | 141
| Total commercial business loans | 472 |  | (329 | ) | 143
Total non-performing loans | $ 51,242 |  | $ (14,116 | ) | $ 37,126
At December 31, 2011 and June 30, 2011, there were no commitments to lend additional funds to those borrowers whose loans were classified as impaired. The following table describes the aging analysis (length of time on non-performing status) of non-performing loans, net of specific allowance for loan losses, as of December 31, 2011:
(In Thousands) | 3 Months or Less | Over 3 to 6 Months | Over 6 to 12 Months | Over 12 Months | Total
Mortgage loans: |  |  |  |  |
| Single-family | $ 5,798 | $ 6,282 | $ 5,491 | $ 9,336 | $ 26,907
| Multi-family | 352 | - | - | 1,927 | 2,279
| Commercial real estate | - | 388 | 915 | - | 1,303
| Other | - | - | 972 | - | 972
| Total | $ 6,150 | $ 6,670 | $ 7,378 | $ 11,263 | $ 31,461
During the quarters ended December 31, 2011 and 2010, the Corporation’s average investment in non-performing loans was $35.3 million and $52.1 million, respectively. Interest income of $1.5 million and $1.8 million was recognized, based on cash receipts, on non-performing loans during the quarters ended December 31, 2011 and 2010, respectively. The Corporation records interest on non-performing loans utilizing the cash basis method of accounting during the periods when the loans are on non-performing status. Foregone interest income, which would have been recorded had the non-performing loans been current in accordance with their original terms, amounted to $261,000 and $278,000 for the quarters ended December 31, 2011 and 2010, respectively, and was not included in the results of operations. For the six months ended December 31, 2011 and 2010, the Corporation’s average investment in non-performing loans was $36.0 million and $55.2 million, respectively. Interest income of $3.1 million and $3.5 million was recognized, based on cash receipts, on non-performing loans during the six months ended December 31, 2011 and 2010, respectively. The foregone interest income amounted to $574,000 and $641,000 and was not included in the results of operations for the six months ended December 31, 2011 and 2010, respectively. For the quarter ended December 31, 2011, four loans for $1.0 million were modified from their original terms, were re-underwritten and were identified in the Corporation’s asset quality reports as restructured loans. This compares to 15 loans for $7.2 million that were re-underwritten and were identified in the Corporation’s asset quality reports as restructured loans during the quarter ended December 31, 2010. During the quarter ended December 31, 2011 and 2010, no restructured loans were in default within a 12-month period subsequent to their original restructuring. Additionally, for the quarter ended December 31, 2011 and 2010, four loans for $3.0 million and six loans for $2.8 million, respectively, had their modification terms extended beyond the initial maturity of the modification. For the six months ended December 31, 2011, sixteen loans for $5.8 million were modified from their original terms, were re-underwritten and were identified in the Corporation’s asset quality reports as restructured loans. This compares to 29 loans for $14.2 million that were re-underwritten and were identified in the Corporation’s asset quality reports as restructured loans during the six months ended December 31, 2010. For the first six months ended December 31, 2011, two restructured loans with a total loan balance of $771,000 were in default within a 12-month period subsequent to their original restructuring and required a $200,000 additional provision for loan losses. This compares to one restructured loan with a total loan balance of $285,000 that was in default within a 12-month period subsequent to its original restructuring and required an additional provision for loan losses of $133,000 in the first six months ended December 31, 2010. Additionally, for the six months ended December 31, 2011 and 2010, five loans for $3.2 million and 13 loans for $5.0 million, respectively, had their modification terms extended beyond the initial maturity of the modification. As of December 31, 2011, the net outstanding balance of the 72 restructured loans was $30.5 million: 18 were classified as pass and remain on accrual status ($7.5 million); nine were classified as special mention and remain on accrual status ($6.3 million); and 45 were classified as substandard ($16.7 million total, with 38 of the 45 loans or $13.3 million on non-accrual status). The Corporation upgrades restructured single-family loans to the pass category if the borrower has demonstrated satisfactory contractual payments for at least six consecutive months; and if the borrower has demonstrated satisfactory contractual payments beyond 12 consecutive months, the loan is no longer categorized as a restructured loan. In addition to the payment history described above, multi-family, commercial real estate, construction and commercial business loans (which are sometimes referred to in this report as “preferred loans”) must also demonstrate a combination of the following characteristics to be upgraded, such as: satisfactory cash flow, satisfactory guarantor support, and additional collateral support, among others. To qualify for restructuring, a borrower must provide evidence of their creditworthiness such as, current financial statements, their most recent income tax returns, current paystubs, current W-2s, and most recent bank statements, among other documents, which are then verified by the Bank. The Bank re-underwrites the loan with the borrower’s updated financial information, new credit report, current loan balance, new interest rate, remaining loan term, updated property value and modified payment schedule, among other considerations, to determine if the borrower qualifies. The following table summarizes at the dates indicated the restructured loans by loan type and non-accrual versus accrual status:
(In Thousands) | December 31, 2011 |  | June 30, 2011 |
Restructured loans on non-accrual status: |  |  |  |
| Mortgage loans: |  |  |  |
|  | Single-family | $ 11,424 |  | $ 15,133 |
|  | Multi-family | 490 |  | 490 |
|  | Commercial real estate | 365 |  | 1,660 |
|  | Other | 972 |  | 972 |
| Commercial business loans | - |  | 143 |
|  | Total | 13,251 |  | 18,398 |
Restructured loans on accrual status: |  |  |  |
| Mortgage loans: |  |  |  |
|  | Single-family | 10,092 |  | 15,589 |
|  | Multi-family | 4,168 |  | 3,665 |
|  | Commercial real estate | 2,772 |  | 1,142 |
| Other | - |  | 237 |
| Commercial business loans | 219 |  | 125 |
|  | Total | 17,251 |  | 20,758 |
|  | Total restructured loans | $ 30,502 |  | $ 39,156 |
The following table shows the restructured loans by type, net of specific valuation allowances for loan losses, at December 31, 2011 and June 30, 2011:
(In Thousands) | December 31, 2011
Recorded Investment | Specific Allowance For Loan Losses | Net Investment
Mortgage loans: |  |  |  |  |
| Single-family: |  |  |  |  |
|  | With a related allowance | $ 13,895 |  | $ (2,471 | ) | $ 11,424
|  | Without a related allowance | 10,092 |  | - |  | 10,092
| Total single-family loans | 23,987 |  | (2,471 | ) | 21,516
| Multi-family: |  |  |  |  |
|  | With a related allowance | 517 |  | (27 | ) | 490
|  | Without a related allowance | 4,168 |  | - |  | 4,168
| Total multi-family loans | 4,685 |  | (27 | ) | 4,658
| Commercial real estate: |  |  |  |  |
|  | With a related allowance | 533 |  | (168 | ) | 365
|  | Without a related allowance | 2,772 |  | - |  | 2,772
| Total commercial real estate loans | 3,305 |  | (168 | ) | 3,137
| Other: |  |  |  |  |
|  | With a related allowance | 1,292 |  | (320 | ) | 972
| Total other loans | 1,292 |  | (320 | ) | 972
Commercial business loans: |  |  |  |  |
|  | With a related allowance | 336 |  | (336 | ) | -
|  | Without a related allowance | 219 |  | - |  | 219
| Total commercial business loans | 555 |  | (336 | ) | 219
Total restructured loans | $ 33,824 |  | $ (3,322 | ) | $ 30,502
(In Thousands) | June 30, 2011
Recorded Investment | Specific Allowance For Loan Losses | Net Investment
Mortgage loans: |  |  |  |  |
| Single-family: |  |  |  |  |
|  | With a related allowance | $ 19,092 |  | $ (3,959 | ) | $ 15,133
|  | Without a related allowance | 15,589 |  | - |  | 15,589
| Total single-family loans | 34,681 |  | (3,959 | ) | 30,722
| Multi-family: |  |  |  |  |
|  | With a related allowance | 517 |  | (27 | ) | 490
|  | Without a related allowance | 3,665 |  | - |  | 3,665
| Total multi-family loans | 4,182 |  | (27 | ) | 4,155
| Commercial real estate: |  |  |  |  |
|  | With a related allowance | 1,837 |  | (177 | ) | 1,660
|  | Without a related allowance | 1,142 |  | - |  | 1,142
| Total commercial real estate loans | 2,979 |  | (177 | ) | 2,802
| Other: |  |  |  |  |
|  | With a related allowance | 1,293 |  | (321 | ) | 972
|  | Without a related allowance | 237 |  | - |  | 237
| Total other loans | 1,530 |  | (321 | ) | 1,209
Commercial business loans: |  |  |  |  |
|  | With a related allowance | 53 |  | (51 | ) | 2
|  | Without a related allowance | 266 |  | - |  | 266
| Total commercial business loans | 319 |  | (51 | ) | 268
Total restructured loans | $ 43,691 |  | $ (4,535 | ) | $ 39,156
During the quarter ended December 31, 2011, twenty properties were acquired in the settlement of loans, while 40 previously foreclosed upon properties were sold. For the six months ended December 31, 2011, thirty-six properties were acquired in the settlement of loans, while 58 previously foreclosed upon properties were sold. As of December 31, 2011, real estate owned was comprised of 32 properties with a net fair value of $7.8 million, primarily located in Southern California. This compares to 54 real estate owned properties, primarily located in Southern California, with a net fair value of $8.3 million at June 30, 2011. A new appraisal was obtained on each of the properties at the time of foreclosure and fair value was calculated by using the lower of the appraised value or the listing price of the property, net of disposition costs. Any initial loss was recorded as a charge to the allowance for loan losses before being transferred to real estate owned. Subsequently, if there is further deterioration in real estate values, specific real estate owned loss reserves are established and charged to the statement of operations. In addition, the Corporation records costs to carry real estate owned as real estate operating expenses as incurred.

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