Loans Held for Investment

Loans held for investment, net of fair value adjustments, consisted of the following:



(In Thousands)	December 31, 2016			June 30, 2016
Mortgage loans:
Single-family	$	316,595		$	324,497
Multi-family	448,465			415,627
Commercial real estate	98,044			99,528
Construction	16,872			14,653
Other	265			332
Commercial business loans	610			636
Consumer loans	184			203
Total loans held for investment, gross	881,035			855,476

Undisbursed loan funds	(9,953		)	(11,258		)
Advance payments of escrows	99			56
Deferred loan costs, net	5,195			4,418
Allowance for loan losses	(8,391		)	(8,670		)
Total loans held for investment, net	$	867,985		$	840,022

As of December 31, 2016, the Corporation had $9.9 million in mortgage loans that are subject to negative amortization, consisting of $6.8 million in multi-family loans, $3.0 million in single-family loans and $140,000 in commercial real estate loans. This compares to $10.2 million of negative amortization mortgage loans at June 30, 2016, consisting of $6.9 million in multi-family loans, $3.1 million in single-family loans and $170,000 in commercial real estate loans. During the second quarters and six months of fiscal 2017 and 2016, no loan interest income was added to the negative amortization loan balance. 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 adjustable rate mortgage ("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, 2016 and June 30, 2016, the interest-only ARM loans were $35.8 million and $64.7 million, or 4.1% and 7.6% of loans held for investment, respectively. As of December 31, 2016, the Corporation had $6.0 million of single-family loans, 19 loans, held for investment which were originated for sale but were subsequently transferred to loans held for investment and are carried at fair value. This compares to $5.2 million of single-family loans, 18 loans, held for investment at June 30, 2016 which were originated for sale but were subsequently transferred to loans held for investment and carried at fair value.

The following table sets forth information at December 31, 2016 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 3% of loans held for investment at both December 31, 2016 and June 30, 2016. 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
(In Thousands)	Within One Year		After One Year Through 3 Years		After 3 Years Through 5 Years		After 5 Years Through 10 Years		Fixed Rate		Total
Mortgage loans:
Single-family	$	212,860	$	18,008	$	61,426	$	11,151	$	13,150	$	316,595
Multi-family	74,859		181,691		168,987		20,002		2,926		448,465
Commercial real estate	17,909		40,959		36,270		—		2,906		98,044
Construction	11,217		—		—		—		5,655		16,872
Other	—		—		—		—		265		265
Commercial business loans	96		—		—		—		514		610
Consumer loans	184		—		—		—		—		184
Total loans held for investment, gross	$	317,125	$	240,658	$	266,683	$	31,153	$	25,416	$	881,035

The Corporation has developed an internal loan grading system to evaluate and quantify the Bank’s loans held for investment portfolio with respect to quality and risk. Management continually evaluates the credit quality of the Corporation’s loan portfolio and conducts a quarterly review of the adequacy of the allowance for loan losses using quantitative and qualitative methods. The Corporation has adopted an internal risk rating policy in which each loan is rated for credit quality with a rating of pass, special mention, substandard, doubtful or loss. The two primary components that are used during the loan review process to determine the proper allowance levels are individually evaluated allowances and collectively evaluated allowances. Quantitative loan loss factors are developed by determining the historical loss experience, expected future cash flows, discount rates and collateral fair values, among others. Qualitative loan loss factors are developed by assessing general economic indicators such as gross domestic product, retail sales, unemployment rates, employment growth, California home sales and median California home prices. The Corporation assigns individual factors for the quantitative and qualitative methods for each loan category and each internal risk rating.

The Corporation categorizes all of the loans held for investment into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows:


▪	Pass - These loans range from minimal credit risk to average, but still acceptable, credit risk. The likelihood of loss is considered remote.


▪	Special Mention - A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the bank is currently protected and loss is considered unlikely and not imminent.

▪

Substandard - A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.


▪	Doubtful - A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.


▪	Loss - A loss loan is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.

The following tables summarize gross loans held for investment, net of fair value adjustments, by loan types and risk category at the dates indicated:



		December 31, 2016
(In Thousands)		Single-family		Multi-family		Commercial Real Estate		Construction		Other Mortgage		Commercial Business		Consumer		Total

Pass		$	301,958	$	444,303	$	98,044	$	16,872	$	265	$	525	$	184	$	862,151
Special Mention		4,710		3,511		—		—		—		—		—		8,221
Substandard		9,927		651		—		—		—		85		—		10,663
	Total loans held for investment, gross	$	316,595	$	448,465	$	98,044	$	16,872	$	265	$	610	$	184	$	881,035



		June 30, 2016
(In Thousands)		Single-family		Multi-family		Commercial Real Estate		Construction		Other Mortgage		Commercial Business		Consumer		Total

Pass		$	309,380	$	410,804	$	99,528	$	14,653	$	332	$	540	$	203	$	835,440
Special Mention		4,858		3,974		—		—		—		—		—		8,832
Substandard		10,259		849		—		—		—		96		—		11,204
	Total loans held for investment, gross	$	324,497	$	415,627	$	99,528	$	14,653	$	332	$	636	$	203	$	855,476

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. The provision (recovery) for (from) the allowance for loan losses is charged (credited) 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 a significant increase in 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.

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 still in their restructuring period, classified lower than pass, and containing an embedded loss component 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. For non-performing commercial real estate loans, an individually evaluated allowance is derived based on the loan's discounted cash flow fair value (for restructured loans) or collateral fair value less estimated selling costs and if the fair value is higher than the loan balance, no allowance is required.

The following table summarizes the Corporation’s allowance for loan losses at December 31, 2016 and June 30, 2016:



(In Thousands)	December 31, 2016		June 30, 2016
Collectively evaluated for impairment:
Mortgage loans:
Single-family	$	4,186	$	4,933
Multi-family	3,156		2,800
Commercial real estate	836		848
Construction	65		31
Other	6		7
Commercial business loans	22		23
Consumer loans	8		8
Total collectively evaluated allowance	8,279		8,650

Individually evaluated for impairment:
Mortgage loans:
Single-family	97		—
Commercial business loans	15		20
Total individually evaluated allowance	112		20
Total loan loss allowance	$	8,391	$	8,670

The following table is provided to disclose additional details on the Corporation’s allowance for loan losses:



	For the Quarters Ended December 31,						For the Six Months Ended December 31,
(Dollars in Thousands)	2016			2015			2016			2015

Allowance at beginning of period	$	8,725		$	9,034		$	8,670		$	8,724

Recovery from the allowance for loan losses	(350		)	(362		)	(500		)	(400		)

Recoveries:
Mortgage loans:
Single-family	33			158			296			227
Multi-family	6			58			13			114
Commercial real estate	—			—			—			216
Commercial business loans	—			—			—			85
Consumer loans	—			—			1			—
Total recoveries	39			216			310			642

Charge-offs:
Mortgage loans:
Single-family	(21		)	(118		)	(87		)	(196		)
Consumer loans	(2		)	(2		)	(2		)	(2		)
Total charge-offs	(23		)	(120		)	(89		)	(198		)

Net recoveries	16			96			221			444
Balance at end of period	$	8,391		$	8,768		$	8,391		$	8,768

Allowance for loan losses as a percentage of gross loans held for investment at the end of the period	0.96		%	1.07		%	0.96		%	1.07		%
Net recoveries as a percentage of average loans receivable, net, during the period (annualized)	(0.01		)%	(0.04		)%	(0.04		)%	(0.09		)%
Allowance for loan losses as a percentage of gross non-performing loans at the end of the period	78.69		%	67.35		%	78.69		%	67.35		%

The following tables denote the past due status of the Corporation's gross loans held for investment, net of fair value adjustments, at the dates indicated.



		December 31, 2016
(In Thousands)		Current		30-89 Days Past Due		Non-Accrual ⁽¹⁾		Total Loans Held for Investment

Mortgage loans:
	Single-family	$	305,371	$	1,297	$	9,927	$	316,595
	Multi-family	447,814		—		651		448,465
	Commercial real estate	98,044		—		—		98,044
	Construction	16,872		—		—		16,872
	Other	265		—		—		265
Commercial business loans		525		—		85		610
Consumer loans		183		1		—		184
	Total loans held for investment, gross	$	869,074	$	1,298	$	10,663	$	881,035

⁽¹⁾ All loans 90 days or greater past due are placed on non-accrual status.



		June 30, 2016
(In Thousands)		Current		30-89 Days Past Due		Non-Accrual ⁽¹⁾		Total Loans Held for Investment

Mortgage loans:
	Single-family	$	312,595	$	1,644	$	10,258	$	324,497
	Multi-family	414,777		—		850		415,627
	Commercial real estate	99,528		—		—		99,528
	Construction	14,653		—		—		14,653
	Other	332		—		—		332
Commercial business loans		540		—		96		636
Consumer loans		203		—		—		203
	Total loans held for investment, gross	$	842,628	$	1,644	$	11,204	$	855,476

⁽¹⁾ All loans 90 days or greater past due are placed on non-accrual status.

The following tables summarize the Corporation’s allowance for loan losses and recorded investment in gross loans, by portfolio type, at the dates and for the periods indicated.



		Quarter Ended December 31, 2016
(In Thousands)		Single-family			Multi-family			Commercial Real Estate			Construction			Other Mortgage			Commercial Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period		$	4,575		$	3,186		$	854		$	53		$	7		$	42		$	8		$	8,725
(Recovery) provision for loan losses		(304		)	(36		)	(18		)	12			(1		)	(5		)	2			(350		)
Recoveries		33			6			—			—			—			—			—			39
Charge-offs		(21		)	—			—			—			—			—			(2		)	(23		)
	Allowance for loan losses, end of period	$	4,283		$	3,156		$	836		$	65		$	6		$	37		$	8		$	8,391

Allowance for loan losses:
Individually evaluated for impairment		$	97		$	—		$	—		$	—		$	—		$	15		$	—		$	112
Collectively evaluated for impairment		4,186			3,156			836			65			6			22			8			8,279
	Allowance for loan losses, end of period	$	4,283		$	3,156		$	836		$	65		$	6		$	37		$	8		$	8,391

Loans held for investment:
Individually evaluated for impairment		$	7,844		$	374		$	—		$	—		$	—		$	85		$	—		$	8,303
Collectively evaluated for impairment		308,751			448,091			98,044			16,872			265			525			184			872,732
	Total loans held for investment, gross	$	316,595		$	448,465		$	98,044		$	16,872		$	265		$	610		$	184		$	881,035
Allowance for loan losses as a percentage of gross loans held for investment		1.35		%	0.70		%	0.85		%	0.39		%	2.26		%	6.07		%	4.35		%	0.96		%



		Quarter Ended December 31, 2015
(In Thousands)		Single-family			Multi-family			Commercial Real Estate			Construction			Other Mortgage			Commercial Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period		$	6,310		$	1,943		$	697		$	40		$	2		$	33		$	9		$	9,034
(Recovery) provision for loan losses		(630		)	(82		)	81			264			(1		)	4			2			(362		)
Recoveries		158			58			—			—			—			—			—			216
Charge-offs		(118		)	—			—			—			—			—			(2		)	(120		)
	Allowance for loan losses, end of period	$	5,720		$	1,919		$	778		$	304		$	1		$	37		$	9		$	8,768

Allowance for loan losses:
Individually evaluated for impairment		$	—		$	—		$	—		$	—		$	—		$	20		$	—		$	20
Collectively evaluated for impairment		5,720			1,919			778			304			1			17			9			8,748
	Allowance for loan losses, end of period	$	5,720		$	1,919		$	778		$	304		$	1		$	37		$	9		$	8,768

Loans held for investment:
Individually evaluated for impairment		$	7,436		$	1,953		$	—		$	—		$	—		$	100		$	—		$	9,489
Collectively evaluated for impairment		336,563			370,147			98,574			10,173			72			387			241			816,157
	Total loans held for investment, gross	$	343,999		$	372,100		$	98,574		$	10,173		$	72		$	487		$	241		$	825,646
Allowance for loan losses as a percentage of gross loans held for investment		1.66		%	0.52		%	0.79		%	2.99		%	1.39		%	7.60		%	3.73		%	1.07		%



		Six Months Ended December 31, 2016
(In Thousands)		Single-family			Multi-family			Commercial Real Estate			Construction			Other Mortgage			Commercial Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period		$	4,933		$	2,800		$	848		$	31		$	7		$	43		$	8		$	8,670
(Recovery) provision for loan losses		(859		)	343			(12		)	34			(1		)	(6		)	1			(500		)
Recoveries		296			13			—			—			—			—			1			310
Charge-offs		(87		)	—			—			—			—			—			(2		)	(89		)
	Allowance for loan losses, end of period	$	4,283		$	3,156		$	836		$	65		$	6		$	37		$	8		$	8,391

Allowance for loan losses:
Individually evaluated for impairment		$	97		$	—		$	—		$	—		$	—		$	15		$	—		$	112
Collectively evaluated for impairment		4,186			3,156			836			65			6			22			8			8,279
	Allowance for loan losses, end of period	$	4,283		$	3,156		$	836		$	65		$	6		$	37		$	8		$	8,391

Loans held for investment:
Individually evaluated for impairment		$	7,844		$	374		$	—		$	—		$	—		$	85		$	—		$	8,303
Collectively evaluated for impairment		308,751			448,091			98,044			16,872			265			525			184			872,732
	Total loans held for investment, gross	$	316,595		$	448,465		$	98,044		$	16,872		$	265		$	610		$	184		$	881,035
Allowance for loan losses as a percentage of gross loans held for investment		1.35		%	0.70		%	0.85		%	0.39		%	2.26		%	6.07		%	4.35		%	0.96		%



		Six Months Ended December 31, 2015
(In Thousands)		Single-family			Multi-family			Commercial Real Estate			Construction			Other Mortgage			Commercial Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period		$	5,280		$	2,616		$	734		$	42		$	—		$	43		$	9		$	8,724
Provision (recovery) for loan losses		409			(811		)	(172		)	262			1			(91		)	2			(400		)
Recoveries		227			114			216			—			—			85			—			642
Charge-offs		(196		)	—			—			—			—			—			(2		)	(198		)
	Allowance for loan losses, end of period	$	5,720		$	1,919		$	778		$	304		$	1		$	37		$	9		$	8,768

Allowance for loan losses:
Individually evaluated for impairment		$	—		$	—		$	—		$	—		$	—		$	20		$	—		$	20
Collectively evaluated for impairment		5,720			1,919			778			304			1			17			9			8,748
	Allowance for loan losses, end of period	$	5,720		$	1,919		$	778		$	304		$	1		$	37		$	9		$	8,768

Loans held for investment:
Individually evaluated for impairment		$	7,436		$	1,953		$	—		$	—		$	—		$	100		$	—		$	9,489
Collectively evaluated for impairment		336,563			370,147			98,574			10,173			72			387			241			816,157
	Total loans held for investment, gross	$	343,999		$	372,100		$	98,574		$	10,173		$	72		$	487		$	241		$	825,646
Allowance for loan losses as a percentage of gross loans held for investment		1.66		%	0.52		%	0.79		%	2.99		%	1.39		%	7.60		%	3.73		%	1.07		%

The following tables identify the Corporation’s total recorded investment in non-performing loans by type at the dates and for the periods indicated. Generally, a loan is placed on non-accrual status when it becomes 90 days past due as to principal or interest or if the loan is deemed impaired, after considering economic and business conditions and collection efforts, where the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. In addition, interest income is not recognized on any loan where management has determined that collection is not reasonably assured. A non-performing loan may be restored to accrual status when delinquent principal and interest payments are brought current and future monthly principal and interest payments are expected to be collected on a timely basis. Loans with a related allowance reserve have been individually evaluated for impairment using either a discounted cash flow analysis or, for collateral dependent loans, current appraisals less costs to sell, to establish realizable value. This analysis may identify a specific impairment amount needed or may conclude that no reserve is needed. Loans that are not individually evaluated for impairment are included in pools of homogeneous loans for evaluation of related allowance reserves.



			At December 31, 2016
			Unpaid										Net
			Principal		Related			Recorded					Recorded
(In Thousands)			Balance		Charge-offs			Investment		Allowance⁽¹⁾			Investment

Mortgage loans:
	Single-family:
		With a related allowance	$	2,571	$	—		$	2,571	$	(538	)	$	2,033
		Without a related allowance⁽²⁾	8,453		(1,059		)	7,394		—			7,394
	Total single-family		11,024		(1,059		)	9,965		(538		)	9,427

	Multi-family:
		With a related allowance	277		—			277		(83		)	194
		Without a related allowance⁽²⁾	380		(6		)	374		—			374
	Total multi-family		657		(6		)	651		(83		)	568

Commercial business loans:
	With a related allowance		85		—			85		(15		)	70
Total commercial business loans			85		—			85		(15		)	70

Consumer loans:
	Without a related allowance⁽²⁾		12		(12		)	—		—			—
Total consumer loans			12		(12		)	—		—			—

Total non-performing loans			$	11,778	$	(1,077	)	$	10,701	$	(636	)	$	10,065

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

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



			At June 30, 2016
			Unpaid										Net
			Principal		Related			Recorded					Recorded
(In Thousands)			Balance		Charge-offs			Investment		Allowance⁽¹⁾			Investment

Mortgage loans:
	Single-family:
		With a related allowance	$	3,328	$	—		$	3,328	$	(773	)	$	2,555
		Without a related allowance⁽²⁾	8,339		(1,370		)	6,969		—			6,969
	Total single-family		11,667		(1,370		)	10,297		(773		)	9,524

	Multi-family:
		With a related allowance	468		—			468		(141		)	327
		Without a related allowance⁽²⁾	400		(18		)	382		—			382
	Total multi-family		868		(18		)	850		(141		)	709

Commercial business loans:
	With a related allowance		96		—			96		(20		)	76
Total commercial business loans			96		—			96		(20		)	76

Consumer loans:
	Without a related allowance⁽²⁾		13		(13		)	—		—			—
Total consumer loans			13		(13		)	—		—			—

Total non-performing loans			$	12,644	$	(1,401	)	$	11,243	$	(934	)	$	10,309

⁽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 or the fair value of the collateral is higher than the loan balance.

At both December 31, 2016 and June 30, 2016, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing.

For the quarters ended December 31, 2016 and 2015, the Corporation’s average recorded investment in non-performing loans was $10.6 million and $13.9 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 both quarters ended December 31, 2016 and 2015, interest income of $34,000 and $36,000, respectively, was recognized, based on cash receipts from loan payments on non-performing loans and $68,000 and $125,000, respectively, was collected and applied to reduce the loan balances under the cost recovery method. Foregone interest income, which would have been recorded had the non-performing loans been current in accordance with their original terms, amounted to $37,000 for both the quarters ended December 31, 2016 and 2015, respectively, and was not included in the results of operations.

For the six months ended December 31, 2016 and 2015, the Corporation’s average investment in non-performing loans was $11.0 million and $14.6 million, respectively. For the six months ended December 31, 2016 and 2015, interest income of $103,000 and $137,000, respectively, was recognized, based on cash receipts from loan payments on non-performing loans; and $136,000 and $189,000, respectively, was collected and applied to the net loan balances under the cost recovery method. Foregone interest income, which would have been recorded had the non-performing loans been current in accordance with their original terms, amounted to $76,000 and $104,000 for the six months ended December 31, 2016 and 2015, respectively, and was not included in the results of operations.

The following table presents the average recorded investment in non-performing loans and the related interest income recognized for the quarters and six months ended December 31, 2016 and 2015:



			Quarter Ended December 31,
			2016				2015
			Average		Interest		Average		Interest
			Recorded		Income		Recorded		Income
			Investment		Recognized		Investment		Recognized

Without related allowances:
	Mortgage loans:
		Single-family	$	7,458	$	1	$	7,525	$	—
		Multi-family	375		—		1,961		—
		Commercial real estate	—		—		676		10
			7,833		1		10,162		10

With related allowances:
	Mortgage loans:
		Single-family	2,578		19		3,669		24
		Multi-family	92		12		—		—
	Commercial business loans		88		2		100		2
			2,758		33		3,769		26

	Total		$	10,591	$	34	$	13,931	$	36



			Six Months Ended December 31,
			2016				2015
			Average		Interest		Average		Interest
			Recorded		Income		Recorded		Income
			Investment		Recognized		Investment		Recognized

Without related allowances:
	Mortgage loans:
		Single-family	$	7,771	$	37	$	8,272	$	3
		Multi-family	377		—		2,013		66
		Commercial real estate	—		—		999		28
			8,148		37		11,284		97

With related allowances:
	Mortgage loans:
		Single-family	2,517		46		3,241		36
		Multi-family	279		17		—		—
	Commercial business loans		91		3		104		4
			2,887		66		3,345		40

	Total		$	11,035	$	103	$	14,629	$	137

For the quarters and six months ended December 31, 2016 and 2015, there were no loans that were newly modified from their original terms, re-underwritten or identified in the Corporation’s asset quality reports as restructured loans. During the quarters and six months ended December 31, 2016 and 2015, no restructured loans were in default within a 12-month period subsequent to their original restructuring. Additionally, during the quarters and six months ended December 31, 2016 and 2015, there were no loans whose modification was extended beyond the initial maturity of the modification, except for one commercial business loan with an outstanding balance of $85,000 which was extended for two years during the second quarter of fiscal 2017. At both December 31, 2016 and June 30, 2016, there were no commitments to lend additional funds to those borrowers whose loans were restructured.

As of December 31, 2016, the Corporation held 11 restructured loans with a net outstanding balance of $3.8 million: all were classified as substandard and non-accrual. As of June 30, 2016, the Corporation held 13 restructured loans with a net outstanding balance of $4.6 million: three were classified as special mention on accrual status ($1.3 million); and 10 were classified as substandard ($3.3 million, all 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, 2016 and June 30, 2016, $1.7 million or 46%, and $1.9 million or 41%, respectively, of the restructured loans were current with respect to their modified payment terms.

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. 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:



	At		At
(In Thousands)	December 31, 2016		June 30, 2016
Restructured loans on non-accrual status:
Mortgage loans:
Single-family	$	3,711	$	3,232
Commercial business loans	70		76
Total	3,781		3,308

Restructured loans on accrual status:
Mortgage loans:
Single-family	—		1,290
Total	—		1,290

Total restructured loans	$	3,781	$	4,598

The following tables identify the Corporation’s total recorded investment in restructured loans by type at the dates and for the periods indicated.



			At December 31, 2016
			Unpaid										Net
			Principal		Related			Recorded					Recorded
(In Thousands)			Balance		Charge-offs			Investment		Allowance⁽¹⁾			Investment

Mortgage loans:
	Single-family:
		With a related allowance	$	930	$	—		$	930	$	(186	)	$	744
		Without a related allowance⁽²⁾	3,531		(564		)	2,967		—			2,967
	Total single-family		4,461		(564		)	3,897		(186		)	3,711

Commercial business loans:
	With a related allowance		85		—			85		(15		)	70
Total commercial business loans			85		—			85		(15		)	70

Total restructured loans			$	4,546	$	(564	)	$	3,982	$	(201	)	$	3,781

⁽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 or the fair value of the collateral is higher than the loan balance.



			At June 30, 2016
			Unpaid										Net
			Principal		Related			Recorded					Recorded
(In Thousands)			Balance		Charge-offs			Investment		Allowance⁽¹⁾			Investment

Mortgage loans:
	Single-family
		With a related allowance	$	999	$	—		$	999	$	(200	)	$	799
		Without a related allowance⁽²⁾	4,507		(784		)	3,723		—			3,723
	Total single-family		5,506		(784		)	4,722		(200		)	4,522

Commercial business loans:
	With a related allowance		96		—			96		(20		)	76
Total commercial business loans			96		—			96		(20		)	76

Total restructured loans			$	5,602	$	(784	)	$	4,818	$	(220	)	$	4,598

⁽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 or the fair value of the collateral is higher than the loan balance.

During the quarter ended December 31, 2016, no properties were acquired in the settlement of loans, while two previously foreclosed upon properties were sold. This compares to the quarter ended December 31, 2015 when four properties were acquired in the settlement of loans, while one previously foreclosed upon property was sold. For the six months ended December 31, 2016, three properties were acquired in the settlement of loans, while three previously foreclosed upon properties were sold. This compares to the six months ended December 31, 2015 when six properties were acquired in the settlement of loans, while three previously foreclosed upon properties were sold. As of December 31, 2016, the net fair value of real estate owned was $2.9 million, comprised of three properties located in California and one property located in Arizona. This compares to the real estate owned net fair value of $2.7 million at June 30, 2016, comprised of three properties located in California and one property located in Arizona. A new appraisal was obtained on each of the properties at the time of foreclosure and fair value was derived by using the lower of the appraised value or the listing price of the property, net of selling costs. Any initial loss was recorded as a charge to the allowance for loan losses before being transferred to real estate owned. Subsequent to transfer to real estate owned, 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.