XML 83 R13.htm IDEA: XBRL DOCUMENT

Note 6: Loans Held For Investment

3 Months Ended

Dec. 31, 2012

Note 6: Loans Held for Investment

Loans held for investment consisted of the following:

	December 31, 2012	June 30, 2012

Mortgage loans:
Single-family	$422,457	$439,024
Multi-family	261,580	278,057
Commercial real estate	101,621	95,302
Other	390	755
Commercial business loans	2,199	2,580
Consumer loans	383	506
Total loans held for investment, gross	788,630	816,224

Deferred loan costs, net	1,957	2,095
Allowance for loan losses	(18,530)	(21,483)
Total loans held for investment, net	$772,057	$796,836

As of December 31, 2012, the Corporation had $36.4 million in mortgage loans that are subject to negative amortization, consisting of $25.6 million in multi-family loans, $5.8 million in single-family loans and $5.0 million in commercial real estate loans. This compares to $40.2 million of negative amortization mortgage loans at June 30, 2012, consisting of $26.7 million in multi-family loans, $6.5 million in single-family loans and $7.0 million in commercial real estate loans. During the second quarter of fiscal 2013 and 2012, no loan interest income was added to the negative amortization loan balance. For the first six months of fiscal 2013, no loan interest income was added to the negative amortization loan balance, as compared to $13,000 of loan interest income in the comparable period of fiscal 2012. Negative amortization involves a greater risk to the Corporation 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 Corporation 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, 2012 and June 30, 2012, the interest-only ARM loans were $201.9 million and $214.2 million, or 25.6% and 26.2% of loans held for investment, respectively.

The following table sets forth information at December 31, 2012 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, 2012, unchanged from June 30, 2012. 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 Corporation’s actual repricing experience to differ materially from that shown.

	Adjustable Rate
		After	After	After
		One Year	3 Years	5 Years
	Within	Through	Through	Through	Fixed
	One Year	3 Years	5 Years	10 Years	Rate	Total
(In Thousands)
Mortgage loans:
Single-family	$382,617	$17,907	$8,605	$1,834	$11,494	$422,457
Multi-family	162,736	14,039	67,035	6,118	11,652	261,580
Commercial real estate	57,821	2,461	17,991	8,311	15,037	101,621
Other	159	-	-	-	231	390
Commercial business loans	988	-	-	-	1,211	2,199
Consumer loans	363	-	-	-	20	383
Total loans held for investment, gross	$604,684	$34,407	$93,631	$16,263	$39,645	$788,630

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 quarterly 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 Corporation’s loans held for investment, will not request the Corporation 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 Corporation’s control.

In compliance with the regulatory reporting requirements of the Office of the Comptroller of the Currency (“OCC”), the Bank’s primary federal regulator, non-performing loans are charged-off to their fair market values in the period the loans, or portion thereof, are deemed uncollectible, generally after the loan becomes 150 days delinquent for real estate secured first trust deed loans and 120 days delinquent for commercial business or real estate secured second trust deed loans. For loans that were modified from their original terms, were re-underwritten and identified in the Corporation’s asset quality reports as troubled debt restructurings (“restructured loans”), the charge-off occurs when the loan becomes 90 days delinquent; and where borrowers file bankruptcy, the charge-off occurs when the loan becomes 60 days delinquent. The amount of the charge-off is determined by comparing the loan balance to the estimated fair value of the underlying collateral, less disposition costs, with the loan balance in excess of the estimated fair value charged-off against the allowance for loan losses. The allowance for loan losses for non-performing loans is determined by applying Accounting Standards Codification (“ASC”) 310, “Receivables.”. For restructured loans that are less than 90 days delinquent, the allowance for loan losses are segregated into (a) individually evaluated allowances for those loans with applicable discounted cash flow calculations or (b) collectively evaluated allowances based on the aggregated pooling method. For non-performing loans less than 60 days delinquent where the borrower has filed bankruptcy, the collectively evaluated allowances are assigned based on the aggregated pooling method.

The following tables summarize the Corporation’s allowance for loan losses at December 31, 2012 and June 30, 2012:

	December 31,	June 30,
	2012	2012
(In Thousands)
Collectively evaluated for impairment:
Mortgage loans:
Single-family	$12,201	$15,189
Multi-family	3,660	3,524
Commercial real estate	1,852	1,810
Other	7	7
Commercial business loans	101	169
Consumer loans	13	13
Total collectively evaluated allowance	17,834	20,712

Individually evaluated for impairment:
Mortgage loans:
Single-family	503	744
Multi-family	27	27
Other	159	-
Commercial business loans	7	-
Total individually evaluated allowance	696	771
Total loan loss allowance	$18,530	$ 21,483

The following table is provided to disclose additional details on the Corporation’s allowance for loan losses (dollars in thousands):

	For the Quarter Ended		For the Six Months Ended
	December 31,		December 31,
	2012	2011	2012	2011
(Dollars in Thousands)
Allowance at beginning of period	$20,118	$28,704	$21,483	$30,482

Provision for loan losses	23	1,132	556	2,104

Recoveries:
Mortgage loans:
Single-family	93	191	163	304
Consumer loans	1	-	2	-
Total recoveries	94	191	165	304

Charge-offs:
Mortgage loans:
Single-family	(1,704)	(3,101)	(3,671)	(5,962)
Multi-family	-	-	-	-
Consumer loans	(1)	(25)	(3)	(27)
Total charge-offs	(1,705)	(3,126)	(3,674)	(5,989)

Net charge-offs	(1,611)	(2,935)	(3,509)	(5,685)
Balance at end of period	$18,530	$26,901	$18,530	$26,901

Allowance for loan losses as a percentage of gross loans held for
investment	2.34%	3.08%	2.34%	3.08%

Net charge-offs as a percentage of average loans outstanding
during the period (annualized)	0.62%	1.02%	0.67%	1.03%

Allowance for loan losses as a percentage of gross non-performing
loans at the end of the period	64.40%	62.71%	64.40%	62.71%

The following tables identify the Corporation’s total recorded investment in non-performing loans by type, net of allowance for loan losses at December 31, 2012 and June 30, 2012:

	December 31, 2012
		Allowance
	Recorded	for Loan	Net
	Investment	Losses ⁽¹⁾	Investment
(In Thousands)
Mortgage loans:
Single-family:
With a related allowance	$12,513	$(3,078)	$9,435
Without a related allowance ⁽²⁾	8,950	-	8,950
Total single-family loans	21,463	(3,078)	18,385

Multi-family:
With a related allowance	1,988	(397)	1,591
Total multi-family loans	1,988	(397)	1,591

Commercial real estate:
With a related allowance	4,958	(744)	4,214
Total commercial real estate loans	4,958	(744)	4,214

Other:
With a related allowance	159	(159)	-
Total other loans	159	(159)	-

Commercial business loans:
With a related allowance	204	(29)	175
Total commercial business loans	204	(29)	175

Total non-performing loans	$28,772	$(4,407)	$24,365

	June 30, 2012
		Allowance
	Recorded	for Loan	Net
	Investment	Losses ⁽¹⁾	Investment
(In Thousands)
Mortgage loans:
Single-family:
With a related allowance	$26,214	$(5,476)	$20,738
Without a related allowance ⁽²⁾	8,352		8,352
Total single-family loans	34,566	(5,476)	29,090

Multi-family:
With a related allowance	1,806	(349)	1,457
Total multi-family loans	1,806	(349)	1,457

Commercial real estate:
With a related allowance	3,820	(573)	3,247
Total commercial real estate loans	3,820	(573)	3,247

Other:
Without a related allowance ⁽²⁾	522		522
Total other loans	522		522

Commercial business loans:
With a related allowance	246	(74)	172
Total commercial business loans	246	(74)	172

Total non-performing loans	$40,960	$(6,472)	$34,488

⁽¹⁾Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.

⁽²⁾There was no related allowance for loan losses because the loans have been charged-off to their fair value and/or the fair value of the collateral is higher than the loan balance.

At December 31, 2012 and June 30, 2012, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing.

The following table describes the aging analysis (length of time on non-performing status) of non-performing loans, net of allowance for loan losses, as of December 31, 2012:

	3 Months or	Over 3 to	Over 6 to	Over 12
	Less	6 Months	12 Months	Months	Total
(In Thousands)
Mortgage loans:
Single-family	$5,406	$1,694	$3,517	$7,768	$18,385
Multi-family	194	-	917	480	1,591
Commercial real estate	214	1,271	2,729	-	4,214
Commercial business loans	-	-	150	25	175
Total	$5,814	$2,965	$7,313	$8,273	$24,365

For the quarters ended December 31, 2012 and 2011, the Corporation’s average investment in non-performing loans was $26.2 million and $35.3 million, respectively. The Corporation records payments on non-performing loans utilizing the cash basis or cost recovery method of accounting during the periods when the loans are on non-performing status. For the quarters ended December 31, 2012 and 2011, interest income of $1.5 million and $1.5 million, respectively, was recognized, based on cash receipts from loan payments on non-performing loans. Foregone interest income, which would have been recorded had the non-performing loans been current in accordance with their original terms, amounted to $145,000 and $261,000 for the quarters ended December 31, 2012 and 2011, respectively, and was not included in the results of operations.

For the six months ended December 31, 2012 and 2011, the Corporation’s average investment in non-performing loans was $27.7 million and $36.0 million, respectively. For the six months ended December 31, 2012 and 2011, interest income of $3.0 million and $3.1 million, respectively, was recognized, based on cash receipts from loan payments on non-performing loans. Foregone interest income amounted to $246,000 and $574,000 for the six months ended December 31, 2012 and 2011, respectively, and was not included in the results of operations.

For the quarter ended December 31, 2012, there were no new loans that were modified from their original terms, re-underwritten or identified in the Corporation’s asset quality reports as restructured loans. For the quarter ended December 31, 2011, four loans for $1.0 million were re-underwritten and identified as restructured loans during the quarter ended December 31, 2011. During the quarter ended December 31, 2012 and 2011, no restructured loans were in default within a 12-month period subsequent to their original restructuring. Additionally, during the quarter ended December 31, 2012, there was one loan for $131,000 whose modification was extended beyond the initial maturity of the modification. For the quarter ended December 31, 2011, four loans for $3.0 million had their modification extended beyond the initial maturity of the modification.

For the six months ended December 31, 2012, there were no new loans that were modified from their original terms, re-underwritten or identified in the Corporation’s asset quality reports as restructured loans. This compares to 16 loans for $5.8 million that were re-underwritten and identified as restructured loans during the six months ended December 31, 2011. During the six months ended December 31, 2012, one restructured loan with a balance of $437,000 was in default within a 12-month period subsequent to its original restructuring and required an additional provision of $226,000. This compares to two restructured loans with a total balance of $771,000 during the six months ended December 31, 2011 that were in default within a 12-month period subsequent to their original restructuring and required an additional provision of $200,000. Additionally, during the six months ended December 31, 2012, there was one loan for $131,000 whose modification was extended beyond the initial maturity of the modification. For the six months ended December 31, 2011, five loans for $3.2 million had their modification extended beyond the initial maturity of the modification.

As of December 31, 2012, the net outstanding balance of the 42 restructured loans was $18.1 million: six were classified in accordance with the Corporation’s risk rating system as pass and remain on accrual status ($2.7 million); four were classified as special mention and remain on accrual status ($1.7 million); and 32 were classified as substandard ($13.6 million total, with 31 of the 32 loans or $10.8 million on non-accrual status). Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Assets that do not currently expose the Corporation to sufficient risk to warrant adverse classification but possess weaknesses are designated as special mention and are closely monitored by the Corporation. As of December 31, 2012, $9.8 million, or 54 percent, of the restructured loans were current with respect to their payment 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; 12 months for those loans that were restructured more than once; and if the borrower has demonstrated satisfactory contractual payments beyond 12 consecutive months, the loan is no longer categorized as a restructured loan for the United States Securities and Exchange Commission (“SEC”) reporting purposes. 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: 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 Corporation. The Corporation 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 loan balances, net of allowance for loan losses, by loan type and non-accrual versus accrual status:


	December 31, 2012	June 30, 2012
(In Thousands)
Restructured loans on non-accrual status:
Mortgage loans:
Single-family	$7,708	$11,995
Multi-family	480	490
Commercial real estate	2,477	2,483
Other	-	522
Commercial business loans	168	165
Total	10,833	15,655

Restructured loans on accrual status:
Mortgage loans:
Single-family	4,252	6,148
Multi-family	2,755	3,266
Other	232	-
Commercial business loans	-	33
Total	7,239	9,447
Total restructured loans	$18,072	$25,102

The following table shows the restructured loans by type, net of allowance for loan losses, at December 31, 2012 and June 30, 2012:

	December 31, 2012
		Allowance
	Recorded	for Loan	Net
	Investment	Losses ⁽¹⁾	Investment
(In Thousands)
Mortgage loans:
Single-family:
With a related allowance	$3,466	$(372)	$3,094
Without a related allowance ⁽²⁾	8,866	-	8,866
Total single-family loans	12,332	(372)	11,960

Multi-family:
With a related allowance	506	(26)	480
Without a related allowance ⁽²⁾	2,755	-	2,755
Total multi-family loans	3,261	(26)	3,235

Commercial real estate:
With a related allowance	2,914	(437)	2,477
Total commercial real estate loans	2,914	(437)	2,477

Other:
With a related allowance	159	(159)	-
Without a related allowance ⁽²⁾	232	-	232
Total other loans	391	(159)	232

Commercial business loans:
With a related allowance	195	(27)	168
Total commercial business loans	195	(27)	168

Total restructured loans	$19,093	$(1,021)	$18,072

	June 30, 2012
		Allowance
	Recorded	for Loan	Net
	Investment	Losses ⁽¹⁾	Investment
(In Thousands)
Mortgage loans:
Single-family:
With a related allowance	$9,465	$(486)	$8,979
Without a related allowance ⁽²⁾	9,164	-	9,164
Total single-family loans	18,629	(486)	18,143

Multi-family:
With a related allowance	517	(27)	490
Without a related allowance ⁽²⁾	3,266	-	3,266
Total multi-family loans	3,783	(27)	3,756

Commercial real estate:
With a related allowance	2,921	(438)	2,483
Total commercial real estate loans	2,921	(438)	2,483

Other:
Without a related allowance ⁽²⁾	522	-	522
Total other loans	522	-	522

Commercial business loans:
With a related allowance	236	(71)	165
Without a related allowance ⁽²⁾	33	-	33
Total commercial business loans	269	(71)	198
Total restructured loans	$26,124	$(1,022)	$25,102

⁽¹⁾ Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.

⁽²⁾ There was no related allowance for loan losses because the loans have been charged-off to their fair value and/or the fair value of the collateral is higher than the loan balance.

During the quarter ended December 31, 2012, five properties were acquired in the settlement of loans, while 11 previously foreclosed upon properties were sold. For the six months ended December 31, 2012, sixteen properties were acquired in the settlement of loans, while 28 previously foreclosed upon properties were sold. As of December 31, 2012, real estate owned was comprised of 12 properties with a net fair value of $2.4 million, primarily located in Southern California. This compares to 24 real estate owned properties, primarily located in Southern California, with a net fair value of $5.5 million at June 30, 2012. 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.