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Loans Held For Investment
 12 Months Ended
Jun. 30, 2018
Loans and Leases Receivable Disclosure [Abstract]  
Loans Held For Investment
Loans Held for Investment
 
Loans held for investment consisted of the following at June 30, 2018 and 2017 :
(In Thousands)
June 30, 2018
June 30,
2017
Mortgage loans:
 
 
Single-family
$
314,808

$
322,197

Multi-family
476,008

479,959

Commercial real estate
109,726

97,562

Construction
7,476

16,009

Other
167

—

Commercial business loans
500

576

Consumer loans
109

129

Total loans held for investment, gross
908,794

916,432

 
 
 
Undisbursed loan funds
(4,302
)
(9,015
)
Advance payments of escrows
18

61

Deferred loan costs, net
5,560

5,480

Allowance for loan losses
(7,385
)
(8,039
)
Total loans held for investment, net
$
902,685

$
904,919



The following table sets forth information at June 30, 2018 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 2% of loans held for investment at both dates, June 30, 2018 and June 30, 2017.  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
$
126,899

$
28,186

$
89,091

$
58,105

$
12,527

$
314,808

Multi-family
139,424

163,687

161,118

11,559

220

476,008

Commercial real estate
30,771

44,413

33,990

—

552

109,726

Construction
5,793

—

—

—

1,683

7,476

Other
—

—

—

—

167

167

Commercial business loans
84

—

—

—

416

500

Consumer loans
109

—

—

—

—

109

Total loans held for investment, gross
$
303,080

$
236,286

$
284,199

$
69,664

$
15,565

$
908,794



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, among others. 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 however 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 by loan types and risk category at the dates indicated:
 
 
June 30, 2018
(In Thousands)
Single-family
Multi-family
Commercial Real Estate
Construction
Other Mortgage
Commercial Business
Consumer
Total
 
 
 
 
 
 
 
 
 
 
Pass
$
304,619

$
472,061

$
108,786

$
7,476

$
167

$
430

$
109

$
893,648

Special Mention
2,548

3,947

940

—

—

—

—

7,435

Substandard
7,641

—

—

—

—

70

—

7,711

 
Total loans held for
   investment, gross
$
314,808

$
476,008

$
109,726

$
7,476

$
167

$
500

$
109

$
908,794


 
 
June 30, 2017
(In Thousands)
Single-family
Multi-family
Commercial Real Estate
Construction
Commercial Business
Consumer
Total
 
 
 
 
 
 
 
 
 
Pass
$
310,738

$
479,687

$
97,361

$
16,009

$
496

$
129

$
904,420

Special Mention
3,443

272

—

—

—

—

3,715

Substandard
8,016

—

201

—

80

—

8,297

 
Total loans held for
   investment, gross
$
322,197

$
479,959

$
97,562

$
16,009

$
576

$
129

$
916,432



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 (recoveries) for loan losses are 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 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.

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 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 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, individually evaluated allowances are calculated based on their fair values and if their fair values are higher than their loan balances, no allowances are required.

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.
 
 
Year Ended June 30, 2018
(In Thousands)
Single-family
Multi-family
Commercial Real Estate
Construction
Other Mortgage
Commercial Business
Consumer
Total
 
 
 
 
 
 
 
 
 
 
Allowance at beginning of period
$
3,601

$
3,420

$
879

$
96

$
—

$
36

$
7

$
8,039

(Recovery) provision for loan losses
(704
)
72

151

(49
)
3

(12
)
3

(536
)
Recoveries
278

—

—

—

—

—

—

278

Charge-offs
(392
)
—

—

—

—

—

(4
)
(396
)
 
Allowance for loan losses, end of
  period
$
2,783

$
3,492

$
1,030

$
47

$
3

$
24

$
6

$
7,385

 
 
 
 
 
 
 
 
 
 
Allowance:
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
151

$
—

$
—

$
—

$
—

$
6

$
—

$
157

Collectively evaluated for impairment
2,632

3,492

1,030

47

3

18

6

7,228

 
Allowance for loan losses, end of
  period
$
2,783

$
3,492

$
1,030

$
47

$
3

$
24

$
6

$
7,385

 
 
 
 
 
 
 
 
 
 
Gross Loans:
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
7,072

$
—

$
—

$
—

$
—

$
70

$
—

$
7,142

Collectively evaluated for impairment
307,736

476,008

109,726

7,476

167

430

109

901,652

 
Total loans held for investment,
  gross
$
314,808

$
476,008

$
109,726

$
7,476

$
167

$
500

$
109

$
908,794

Allowance for loan losses as a
  percentage of gross loans held for
  investment
0.88
%
0.73
%
0.94
%
0.63
%
1.80
%
4.80
%
5.50
%
0.81
%

 
 
Year Ended June 30, 2017
(In Thousands)
Single-family
Multi-family
Commercial Real Estate
Construction
Other Mortgage
Commercial Business
Consumer
Total
 
 
 
 
 
 
 
 
 
 
Allowance at beginning of period
$
4,933

$
2,800

$
848

$
31

$
7

$
43

$
8

$
8,670

(Recovery) provision for loan losses
(1,640
)
602

31

65

(7
)
(82
)
(11
)
(1,042
)
Recoveries
507

18

—

—

—

75

13

613

Charge-offs
(199
)
—

—

—

—

—

(3
)
(202
)
 
Allowance for loan losses, end of
  period
$
3,601

$
3,420

$
879

$
96

$
—

$
36

$
7

$
8,039

 
 
 
 
 
 
 
 
 
 
Allowance:
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
86

$
—

$
—

$
—

$
—

$
15

$
—

$
101

Collectively evaluated for impairment
3,515

3,420

879

96

—

21

7

7,938

 
Allowance for loan losses, end of
  period
$
3,601

$
3,420

$
879

$
96

$
—

$
36

$
7

$
8,039

 
 
 
 
 
 
 
 
 
 
Gross Loans:
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
6,933

$
—

$
201

$
—

$
—

$
80

$
—

$
7,214

Collectively evaluated for impairment
315,264

479,959

97,361

16,009

—

496

129

909,218

 
Total loans held for investment,
  gross
$
322,197

$
479,959

$
97,562

$
16,009

$
—

$
576

$
129

$
916,432

Allowance for loan losses as a
  percentage of gross loans held for
  investment
1.12
%
0.71
%
0.90
%
0.60
%
—
%
6.25
%
5.43
%
0.88
%



The following summarizes the components of the net change in the allowance for loan losses for the periods indicated:
(In Thousands)
Year Ended June 30,
2018
 
2017
 
2016
 
 
 
 
 
 
 
 
Balance, beginning of year
$
8,039

 
$
8,670

 
$
8,724

 
Recovery from the allowance for loan losses
(536
)
 
(1,042
)
 
(1,715
)
 
Recoveries
278

 
613

 
2,069

 
Charge-offs
(396
)
 
(202
)
 
(408
)
 
Balance, end of year
$
7,385

 
$
8,039

 
$
8,670

 


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. These 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 or For the Year Ended June 30, 2018
 
 
 
Unpaid
 
 
 
Net
Average
Interest
 
 
 
Principal
Related
Recorded
 
Recorded
Recorded
Income
(In Thousands)
Balance
Charge-offs
Investment
Allowance(1)
Investment
Investment
Recognized
 
 
 
 
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
 
 
Single-family:
 
 
 
 
 
 
 
 
 
With a related allowance
$
1,333

$
—

$
1,333

$
(185
)
$
1,148

$
871

$
51

 
 
Without a related allowance(2)
5,569

(724
)
4,845

—

4,845

6,767

203

 
Total single-family
6,902

(724
)
6,178

(185
)
5,993

7,638

254

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
Without a related allowance(2)
—

—

—

—

—

17

13

 
Total commercial real estate
—

—

—

—

—

17

13

 
 
 
 
 
 
 
 
 
 
Commercial business loans:
 
 
 
 
 
 
 
 
With a related allowance
70

—

70

(6
)
64

75

5

Total commercial business loans
70

—

70

(6
)
64

75

5

 
 
 
 
 
 
 
 
 
 
Total non-performing loans
$
6,972

$
(724
)
$
6,248

$
(191
)
$
6,057

$
7,730

$
272


(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 or For the Year Ended June 30, 2017
 
 
 
Unpaid
 
 
 
Net
Average
Interest
 
 
 
Principal
Related
Recorded
 
Recorded
Recorded
Income
(In Thousands)
Balance
Charge-offs
Investment
Allowance(1)
Investment
Investment
Recognized
 
 
 
 
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
 
 
Single-family:
 
 
 
 
 
 
 
 
 
With a related allowance
$
1,821

$
—

$
1,821

$
(325
)
$
1,496

$
1,702

$
82

 
 
Without a related allowance(2)
7,119

(886
)
6,233

—

6,233

7,726

249

 
Total single-family
8,940

(886
)
8,054

(325
)
7,729

9,428

331

 
 
 
 
 
 
 
 
 
 
 
Multi-family:
 
 
 
 
 
 
 
 
 
With a related allowance
—

—

—

—

—

140

21

 
 
Without a related allowance(2)
—

—

—

—

—

312

29

 
Total multi-family
—

—

—

—

—

452

50

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
Without a related allowance(2)
201

—

201

—

201

84

2

 
Total commercial real estate
201

—

201

—

201

84

2

 
 
 
 
 
 
 
 
 
 
Commercial business loans:
 
 
 
 
 
 
 
 
With a related allowance
80

—

80

(15
)
65

87

6

Total commercial business loans
80

—

80

(15
)
65

87

6

 
 
 
 
 
 
 
 
 
 
Total non-performing loans
$
9,221

$
(886
)
$
8,335

$
(340
)
$
7,995

$
10,051

$
389


(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, 2018 and 2017, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing.

The following tables denote the past due status of the Corporation's loans held for investment, gross, at the dates indicated.
 
 
June 30, 2018
(In Thousands)
Current
30-89 Days Past Due
Non-Accrual(1)
Total Loans Held for Investment, Gross
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
Single-family
$
307,863

$
804

$
6,141

$
314,808

 
Multi-family
476,008

—

—

476,008

 
Commercial real estate
109,726

—

—

109,726

 
Construction
7,476

—

—

7,476

 
Other
167

—

—

167

Commercial business loans
430

—

70

500

Consumer loans
108

1

—

109

 
Total loans held for investment, gross
$
901,778

$
805

$
6,211

$
908,794


(1) All loans 90 days or greater past due are placed on non-accrual status.
 
 
June 30, 2017
(In Thousands)
Current
30-89 Days Past Due
Non-Accrual(1)
Total Loans Held for Investment, Gross
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
Single-family
$
313,146

$
1,035

$
8,016

$
322,197

 
Multi-family
479,959

—

—

479,959

 
Commercial real estate
97,361

—

201

97,562

 
Construction
16,009

—

—

16,009

Commercial business loans
496

—

80

576

Consumer loans
129

—

—

129

 
Total loans held for investment, gross
$
907,100

$
1,035

$
8,297

$
916,432

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

During the fiscal years ended June 30, 2018, 2017 and 2016, the Corporation’s average investment in non-performing loans was $7.7 million, $10.1 million and $13.5 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 fiscal years ended June 30, 2018, 2017 and 2016, interest income of $272,000, $389,000 and $766,000, 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 $88,000, $68,000 and $118,000 for the fiscal years ended June 30, 2018, 2017 and 2016, respectively, and was not included in the loan interest income; while $292,000, $327,000 and $298,000, respectively, was collected and applied to reduce the net loan balances.

The effect of the non-performing loans on interest income for the years ended June 30, 2018, 2017 and 2016 is presented below:
(In Thousands)
Year Ended June 30,
2018
 
2017
 
2016
 
 
 
 
 
 
 
 
Contractual interest due
$
400

 
$
517

 
$
724

 
Interest collected
(312
)
 
(449
)
 
(606
)
 
Net foregone interest
$
88

 
$
68

 
$
118

 


For the fiscal year ended June 30, 2018, there were two loans that were newly modified from their original terms, re-underwritten or identified as a restructured loan; two loans (previously modified) were downgraded; while two loans were upgraded to the pass category; and one loan was converted to a REO.  For the fiscal year ended 2017, there were no loans that were newly modified from their original terms, re-underwritten or identified as a restructured loan; while three loans were converted to REOs. During the fiscal years ended June 30, 2018 and 2017, no restructured loans were in default within a 12-month period subsequent to their original restructuring.  Additionally, during the fiscal year ended June 30, 2018, no restructured loan was extended beyond the initial maturity of the modification; while in fiscal 2017, there was one restructured loan with a total balance of $85,000 that had its modification extended beyond the initial maturity of the modification.

As of June 30, 2018, the net outstanding balance of the Corporation's 11 restructured loans was $5.2 million:  one was classified as special mention and remains on accrual status ($389,000); one was classified as substandard on accrual status ($1.4 million); and nine were classified as substandard on non-accrual status ($3.4 million).  As of June 30, 2018, $2.9 million, or 56 percent, of the restructured loans were current with respect to their payment status. As of June 30, 2017, the net outstanding balance of the Corporation's 10 restructured loans was $3.6 million: one loan was classified as special mention on accrual status ($506,000); and nine loans were classified as substandard ($3.1 million, all on non-accrual status). As of June 30, 2017, $1.7 million, 46 percent, of the restructured loans had a current payment status.

The following table summarizes at the dates indicated the restructured loan balances, net of allowance for loan losses or charge-offs, by loan type and non-accrual versus accrual status at June 30, 2018 and 2017 :
(In Thousands)
June 30, 2018
June 30, 2017
Restructured loans on non-accrual status:
 
 
Mortgage loans:
 
 
Single-family
$
3,328

$
3,061

Commercial business loans
64

65

Total
3,392

3,126

 
 
 
Restructured loans on accrual status:
 

 

Mortgage loans:
 

 

Single-family
1,788

506

Total
1,788

506

Total restructured loans
$
5,180

$
3,632

The following table shows the restructured loans by type, net of allowance for loan losses or charge-offs, at June 30, 2018 and 2017:
 
 
 
At June 30, 2018
 
 
 
Unpaid
 
 
 
Net
 
 
 
Principal
Related
Recorded
 
Recorded
(In Thousands)
Balance
Charge-offs
Investment
Allowance(1)
Investment
 
 
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
Single-family:
 
 
 
 
 
 
 
With a related allowance
$
2,228

$
—

$
2,228

$
(151
)
$
2,077

 
 
Without a related allowance(2)
3,450

(411
)
3,039

—

3,039

 
Total single-family
5,678

(411
)
5,267

(151
)
5,116

 
 
 
 
 
 
 
 
Commercial business loans:
 
 
 
 
 
 
With a related allowance
70

—

70

(6
)
64

Total commercial business loans
70

—

70

(6
)
64

 
 
 
 
 
 
 
 
Total restructured loans
$
5,748

$
(411
)
$
5,337

$
(157
)
$
5,180


,
(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, 2017
 
 
 
Unpaid
 
 
 
Net
 
 
 
Principal
Related
Recorded
 
Recorded
(In Thousands)
Balance
Charge-offs
Investment
Allowance(1)
Investment
 
 
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
Single-family
 
 
 
 
 
 
 
With a related allowance
$
485

$
—

$
485

$
(97
)
$
388

 
 
Without a related allowance(2)
3,618

(439
)
3,179

—

3,179

 
Total single-family
4,103

(439
)
3,664

(97
)
3,567

 
 
 
 
 
 
 
 
Commercial business loans:
 
 
 
 
 
 
With a related allowance
80

—

80

(15
)
65

Total commercial business loans
80

—

80

(15
)
65

 
 
 
 
 
 
 
 
Total restructured loans
$
4,183

$
(439
)
$
3,744

$
(112
)
$
3,632


(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.

In the ordinary course of business, the Bank makes loans to its directors, officers and employees on substantially the same terms prevailing at the time of origination for comparable transactions with unaffiliated borrowers. The following is a summary of related-party loan activity:
(In Thousands)
Year Ended June 30,
2018
 
2017
 
2016
 
 
 
 
 
 
 
 
Balance, beginning of year
$
578

 
$
1,861

 
$
2,367

 
Originations
2,415

 
3,844

 
3,500

 
Sales and payments
(2,316
)
 
(5,127
)
 
(4,006
)
 
Balance, end of year
$
677

 
$
578

 
$
1,861

 


As of June 30, 2018 and 2017, all of the related-party loans were performing in accordance with their original contractual terms.