Commitments and Contingencies

Periodically, there have been various claims and lawsuits involving the Corporation, such as claims to enforce liens, condemnation proceedings on properties in which the Corporation holds security interests, claims involving the making and servicing of real property loans and other issues in the ordinary course of and incident to the Corporation’s business. The Corporation is not a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition, operations or cash flows of the Corporation, except as set forth below.

On December 17, 2012, a lawsuit was filed against the Bank claiming damages, restitution and injunctive relief for alleged misclassification of certain employees as exempt rather than non-exempt, the resulting failure to pay appropriate overtime compensation, to provide meal and rest periods, to pay waiting penalties and to provide accurate wage statements. The plaintiff seeks unspecified monetary relief. The Bank believes that there are substantial defenses to this lawsuit and has defended vigorously. The Bank has an outstanding $275,000 litigation reserve in the event the Bank is subjected to an unfavorable litigation result.

The Corporation conducts a portion of its operations in leased facilities and has maintenance contracts under non-cancelable agreements classified as operating leases. The following is a schedule of the Corporation’s operating lease obligations:



	Amount
Year Ending June 30,	(In Thousands)

2016	$	2,107
2017	1,455
2018	964
2019	629
2020	168
Thereafter	37
Total minimum payments required	$	5,360

Lease expense under operating leases was approximately $2.3 million, $2.4 million and $2.2 million for the years ended June 30, 2015, 2014 and 2013, respectively.

The Bank sold single-family mortgage loans to unrelated third parties with standard representation and warranty provisions in the ordinary course of its mortgage banking activities. Under these provisions, the Bank is required to repurchase any previously sold loan for which the representations or warranties of the Bank prove to be inaccurate, incomplete or misleading. In the event of a borrower default or fraud, pursuant to a breeched representation or warranty, the Bank may be required to reimburse the investor for any losses suffered. As of June 30, 2015, the Bank maintained a recourse liability related to these representations and warranties of $456,000, which consisted of $300,000 in non-contingent recourse liability and $156,000 in contingent recourse liability. This compares to a recourse liability of $584,000 at June 30, 2014, comprised of $300,000 in non-contingent recourse liability and $284,000 in contingent recourse liability. In addition, the Bank maintained a recourse liability of $267,000 and $274,000 at June 30, 2015 and 2014, respectively, for loans sold to the FHLB – San Francisco under the MPF program, and a recourse liability of $45,000 and $46,000 at June 30, 2015 and 2014, respectively, for lender paid FHA mortgage insurance commitments.

In the ordinary course of business, the Corporation enters into contracts with third parties under which the third parties provide services on behalf of the Corporation. In many of these contracts, the Corporation agrees to indemnify the third party service provider under certain circumstances. The terms of the indemnity vary from contract to contract and the amount of the indemnification liability, if any, cannot be determined. The Corporation also enters into other contracts and agreements; such as, loan sale agreements, litigation settlement agreements, confidentiality agreements, loan servicing agreements, leases and subleases, among others, in which the Corporation agrees to indemnify third parties for acts by the Corporation’s agents, assignees and/or sub-lessees, and employees. Due to the nature of these indemnification provisions, the Corporation cannot calculate its aggregate potential exposure.

Pursuant to their bylaws, the Corporation and its subsidiaries provide indemnification to directors, officers and, in some cases, employees and agents against certain liabilities incurred as a result of their service on behalf of or at the request of the Corporation and its subsidiaries. It is not possible for the Corporation to determine the aggregate potential exposure resulting from the obligation to provide this indemnity.