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Loans Held For Investment
 9 Months Ended
Mar. 31, 2018
Loans and Leases Receivable Disclosure [Abstract]  
Loans Held For Investment
Note 6: Loans Held for Investment
 
Loans held for investment, net of fair value adjustments, consisted of the following at the dates indicated:
(In Thousands)
March 31, 2018
June 30, 2017
Mortgage loans:
 
 
Single-family
$
316,912

$
322,197

Multi-family
466,266

479,959

Commercial real estate
106,937

97,562

Construction
10,915

16,009

Commercial business loans
450

576

Consumer loans
130

129

Total loans held for investment, gross
901,610

916,432

 
 
 
Undisbursed loan funds
(5,591
)
(9,015
)
Advance payments of escrows
160

61

Deferred loan costs, net
5,519

5,480

Allowance for loan losses
(7,531
)
(8,039
)
Total loans held for investment, net
$
894,167

$
904,919



The following table sets forth information at March 31, 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 two percent of loans held for investment at both March 31, 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
$
140,839

$
30,990

$
74,783

$
57,090

$
13,210

$
316,912

Multi-family
130,608

166,749

157,761

10,914

234

466,266

Commercial real estate
29,657

40,992

35,740

—

548

106,937

Construction
9,011

—

—

—

1,904

10,915

Commercial business loans
26

—

—

—

424

450

Consumer loans
130

—

—

—

—

130

Total loans held for investment, gross
$
310,271

$
238,731

$
268,284

$
68,004

$
16,320

$
901,610



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 other components. 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:
 
 
March 31, 2018
(In Thousands)
Single-family
Multi-family
Commercial Real Estate
Construction
Commercial Business
Consumer
Total
 
 
 
 
 
 
 
 
 
Pass
$
306,519

$
466,266

$
106,937

$
9,989

$
377

$
130

$
890,218

Special Mention
1,913

—

—

926

—

—

2,839

Substandard
8,480

—

—

—

73

—

8,553

 
Total loans held for
   investment, gross
$
316,912

$
466,266

$
106,937

$
10,915

$
450

$
130

$
901,610


 
 
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.  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 March 31, 2018 and June 30, 2017:
(In Thousands)
March 31, 2018
June 30, 2017
Collectively evaluated for impairment:
 
 
Mortgage loans:
 
 
Single-family
$
2,960

$
3,515

Multi-family
3,312

3,420

Commercial real estate
966

879

Construction
94

96

Commercial business loans
16

21

Consumer loans
7

7

Total collectively evaluated allowance
7,355

7,938

 
 
 
Individually evaluated for impairment:
 
 
Mortgage loans:
 
 
Single-family
161

86

Commercial business loans
15

15

Total individually evaluated allowance
176

101

Total loan loss allowance
$
7,531

$
8,039


The following table is provided to disclose additional details on the Corporation’s allowance for loan losses for the quarters and nine months ended March 31, 2018 and 2017, respectively:
 
For the Quarters Ended
March 31,
For the Nine Months Ended
March 31,
(Dollars in Thousands)
2018
2017
2018
2017
 
 
 
 
 
Allowance at beginning of period
$
8,075

$
8,391

$
8,039

$
8,670

 
 
 
 
 
Recovery from the allowance for loan losses
(505
)
(165
)
(347
)
(665
)
 
 
 
 
 
Recoveries:
 

 

 

 

Mortgage loans:
 

 

 

 

Single-family
71

83

203

379

Multi-family
—

3

—

16

Commercial business loans
—

75

—

75

Consumer loans
—

1

—

2

Total recoveries
71

162

203

472

 
 
 
 
 
Charge-offs:
 

 

 

 

Mortgage loans:
 

 

 

 

Single-family
(110
)
(112
)
(364
)
(199
)
Consumer loans
—

(1
)
—

(3
)
Total charge-offs
(110
)
(113
)
(364
)
(202
)
 
 
 
 
 
Net (charge-offs) recoveries
(39
)
49

(161
)
270

Balance at end of period
$
7,531

$
8,275

$
7,531

$
8,275

 
 

 

 

 

Allowance for loan losses as a percentage of gross loans held for investment at the end of the period
0.84
%
0.93
 %
0.84
%
0.93
 %
Net charge-offs (recoveries) as a percentage of average loans receivable, net, during the period (annualized)
0.02
%
(0.02
)%
0.02
%
(0.03
)%


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.
 
 
March 31, 2018
(In Thousands)
Current
30-89 Days Past Due
Non-Accrual (1)
Total Loans Held for Investment
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
Single-family
$
309,932

$
157

$
6,823

$
316,912

 
Multi-family
466,266

—

—

466,266

 
Commercial real estate
106,937

—

—

106,937

 
Construction
10,915

—

—

10,915

Commercial business loans
377

—

73

450

Consumer loans
127

3

—

130

 
Total loans held for investment, gross
$
894,554

$
160

$
6,896

$
901,610



(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
 
 
 
 
 
 
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.

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 March 31, 2018
(In Thousands)
Single-family
Multi-family
Commercial Real Estate
Construction
Commercial Business
Consumer
Total
Allowance for loan losses:
 
 
 
 
 
 
 
Allowance at beginning of period
$
3,303

$
3,295

$
933

$
504

$
32

$
8

$
8,075

(Recovery) provision for loan losses
(143
)
17

33

(410
)
(1
)
(1
)
(505
)
Recoveries
71

—

—

—

—

—

71

Charge-offs
(110
)
—

—

—

—

—

(110
)
 
Allowance for loan losses,
  end of period
$
3,121

$
3,312

$
966

$
94

$
31

$
7

$
7,531

 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
161

$
—

$
—

$
—

$
15

$
—

$
176

Collectively evaluated for impairment
2,960

3,312

966

94

16

7

7,355

 
Allowance for loan losses,
  end of period
$
3,121

$
3,312

$
966

$
94

$
31

$
7

$
7,531

 
 
 
 
 
 
 
 
 
Loans held for investment:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
7,929

$
—

$
—

$
—

$
73

$
—

$
8,002

Collectively evaluated for impairment
308,983

466,266

106,937

10,915

377

130

893,608

 
Total loans held for investment,
  gross
$
316,912

$
466,266

$
106,937

$
10,915

$
450

$
130

$
901,610

Allowance for loan losses as
  a percentage of gross loans
  held for investment
0.98
%
0.71
%
0.90
%
0.86
%
6.89
%
5.38
%
0.84
%

 
 
Quarter Ended March 31, 2017
(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
$
4,283

$
3,156

$
836

$
65

$
6

$
37

$
8

$
8,391

(Recovery) provision for
  loan losses
(345
)
208

32

15

(1
)
(73
)
(1
)
(165
)
Recoveries
83

3

—

—

—

75

1

162

Charge-offs
(112
)
—

—

—

—

—

(1
)
(113
)
 
Allowance for loan losses,
  end of period
$
3,909

$
3,367

$
868

$
80

$
5

$
39

$
7

$
8,275

 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
Individually evaluated for
  impairment
$
—

$
—

$
—

$
—

$
—

$
15

$
—

$
15

Collectively evaluated for
  impairment
3,909

3,367

868

80

5

24

7

8,260

 
Allowance for loan losses,
  end of period
$
3,909

$
3,367

$
868

$
80

$
5

$
39

$
7

$
8,275

 
 
 
 
 
 
 
 
 
 
Loans held for investment:
 
 
 
 
 
 
 
 
Individually evaluated for
  impairment
$
6,849

$
372

$
201

$
—

$
—

$
83

$
—

$
7,505

Collectively evaluated for
  impairment
312,865

458,808

96,163

16,552

241

585

126

885,340

 
Total loans held for
  investment, gross
$
319,714

$
459,180

$
96,364

$
16,552

$
241

$
668

$
126

$
892,845

Allowance for loan losses as
  a percentage of gross loans
  held for investment
1.22
%
0.73
%
0.90
%
0.48
%
2.07
%
5.84
%
5.56
%
0.93
%
 
 
Nine Months Ended March 31, 2018
(In Thousands)
Single-family
Multi-family
Commercial Real Estate
Construction
Commercial Business
Consumer
Total
Allowance for loan losses:
 
 
 
 
 
 
 
Allowance at beginning of period
$
3,601

$
3,420

$
879

$
96

$
36

$
7

$
8,039

(Recovery) provision for loan losses
(319
)
(108
)
87

(2
)
(5
)
—

(347
)
Recoveries
203

—

—

—

—

—

203

Charge-offs
(364
)
—

—

—

—

—

(364
)
 
Allowance for loan losses,
  end of period
$
3,121

$
3,312

$
966

$
94

$
31

$
7

$
7,531

 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
161

$
—

$
—

$
—

$
15

$
—

$
176

Collectively evaluated for impairment
2,960

3,312

966

94

16

7

7,355

 
Allowance for loan losses,
  end of period
$
3,121

$
3,312

$
966

$
94

$
31

$
7

$
7,531

 
 
 
 
 
 
 
 
 
Loans held for investment:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
7,929

$
—

$
—

$
—

$
73

$
—

$
8,002

Collectively evaluated for impairment
308,983

466,266

106,937

10,915

377

130

893,608

 
Total loans held for investment, gross
$
316,912

$
466,266

$
106,937

$
10,915

$
450

$
130

$
901,610

Allowance for loan losses as
  a percentage of gross loans
  held for investment
0.98
%
0.71
%
0.90
%
0.86
%
6.89
%
5.38
%
0.84
%

 
 
Nine Months Ended March 31, 2017
(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
(1,204
)
551

20

49

(2
)
(79
)
—

(665
)
Recoveries
379

16

—

—

—

75

2

472

Charge-offs
(199
)
—

—

—

—

—

(3
)
(202
)
 
Allowance for loan losses, end of period
$
3,909

$
3,367

$
868

$
80

$
5

$
39

$
7

$
8,275

 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:








Individually evaluated for
  impairment
$
—

$
—

$
—

$
—

$
—

$
15

$
—

$
15

Collectively evaluated for
  impairment
3,909

3,367

868

80

5

24

7

8,260

 
Allowance for loan losses,
  end of period
$
3,909

$
3,367

$
868

$
80

$
5

$
39

$
7

$
8,275

 
 








Loans held for investment:
 
 
 
 
 
 
 
 
Individually evaluated for
  impairment
$
6,849

$
372

$
201

$
—

$
—

$
83

$
—

$
7,505

Collectively evaluated for
  impairment
312,865

458,808

96,163

16,552

241

585

126

885,340

 
Total loans held for
  investment, gross
$
319,714

$
459,180

$
96,364

$
16,552

$
241

$
668

$
126

$
892,845

Allowance for loan losses as
  a percentage of gross loans
  held for investment
1.22
%
0.73
%
0.90
%
0.48
%
2.07
%
5.84
%
5.56
%
0.93
%


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, the borrower(s) has demonstrated sustained payment performance 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 March 31, 2018
 
 
 
Unpaid
 
 
 
Net
 
 
 
Principal
Related
Recorded
 
Recorded
(In Thousands)
Balance
Charge-offs
Investment
Allowance(1)
Investment
 
 
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
Single-family:
 
 
 
 
 
 
 
With a related allowance
$
1,166

$
—

$
1,166

$
(152
)
$
1,014

 
 
Without a related allowance(2)
6,467

(773
)
5,694

—

5,694

 
Total single-family
7,633

(773
)
6,860

(152
)
6,708

 
 
 
 
 
 
 
 
Commercial business loans:
 
 
 
 
 
 
With a related allowance
73

—

73

(15
)
58

Total commercial business loans
73

—

73

(15
)
58

 
 
 
 
 
 
 
 
Total non-performing loans
$
7,706

$
(773
)
$
6,933

$
(167
)
$
6,766


(1) Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan, and fair value 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, 2017
 
 
 
Unpaid
 
 
 
Net
 
 
 
Principal
Related
Recorded
 
Recorded
(In Thousands)
Balance
Charge-offs
Investment
Allowance(1)
Investment
 
 
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
Single-family:
 
 
 
 
 
 
 
With a related allowance
$
1,821

$
—

$
1,821

$
(325
)
$
1,496

 
 
Without a related allowance(2)
7,119

(886
)
6,233

—

6,233

 
Total single-family
8,940

(886
)
8,054

(325
)
7,729

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

—

201

—

201

 
Total commercial real estate
201

—

201

—

201

 
 
 
 
 
 
 
 
Commercial business loans:
 
 
 
 
 
 
With a related allowance
80

—

80

(15
)
65

Total commercial business loans
80

—

80

(15
)
65

 
 
 
 
 
 
 
 
Total non-performing loans
$
9,221

$
(886
)
$
8,335

$
(340
)
$
7,995


(1) Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan, and fair value
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 both March 31, 2018 and June 30, 2017, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing.

For the quarters ended March 31, 2018 and 2017, the Corporation’s average recorded investment in non-performing loans was $7.6 million and $9.3 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 both quarters ended March 31, 2018 and 2017, interest income of $70,000 and $132,000, respectively, was recognized, based on cash receipts from loan payments on non-performing loans and $51,000 and $60,000, respectively, was collected and applied to reduce the loan balances under the cost recovery method. Forgone interest income, which would have been recorded had the non-performing loans been current in accordance with their original terms, amounted to $37,000 and $29,000 for the quarters ended March 31, 2018 and 2017, respectively, and was not included in the results of operations.

For the nine months ended March 31, 2018 and 2017, the Corporation’s average recorded investment in non-performing loans was $8.1 million and $10.5 million, respectively. For the nine months ended March 31, 2018 and 2017, interest income of $240,000 and $235,000, respectively, was recognized, based on cash receipts from loan payments on non-performing loans and $226,000 and $196,000, respectively, was collected and applied to reduce the loan balances under the cost recovery method. Forgone interest income, which would have been recorded had the non-performing loans been current in accordance with their original terms, amounted to $121,000 and $105,000 for the nine months ended March 31, 2018 and 2017, respectively, and was not included in the results of operations.

The following tables present the average recorded investment in non-performing loans and the related interest income recognized for the quarters and nine months ended March 31, 2018 and 2017:
 
 
 
Quarter Ended March 31,
 
 
 
2018
 
2017
 
 
 
Average
Interest
 
Average
Interest
 
 
 
Recorded
Income
 
Recorded
Income
(In Thousands)
Investment
Recognized
 
Investment
Recognized
 
 
 
 
 
 
 
 
Without related allowances:
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
 
Single-family
$
6,397

$
49

 
$
7,325

$
115

 
 
Multi-family
—

—

 
373

4

 
 
Commercial real estate
—

—

 
134

1

 
 
 
6,397

49

 
7,832

120

 
 
 
 
 
 
 
 
With related allowances:
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
 
Single-family
1,170

20

 
1,398

10

 
Commercial business loans
74

1

 
84

2

 
 
1,244

21

 
1,482

12

 
 
 
 
 
 
 
 
Total
$
7,641

$
70

 
$
9,314

$
132


 
 
 
Nine Months Ended March 31,
 
 
 
2018
 
2017
 
 
 
Average
Interest
 
Average
Interest
 
 
 
Recorded
Income
 
Recorded
Income
 
 
 
Investment
Recognized
 
Investment
Recognized
 
 
 
 
 
 
 
 
Without related allowances:
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
 
Single-family
$
7,296

$
184

 
$
8,480

$
152

 
 
Multi-family
—

—

 
406

4

 
 
Commercial real estate
22

13

 
45

1

 
 
 
7,318

197

 
8,931

157

 
 
 
 
 
 
 
 
With related allowances:
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
 
Single-family
738

39

 
1,287

56

 
 
Multi-family
—

—

 
156

17

 
Commercial business loans
76

4

 
88

5

 
 
814

43

 
1,531

78

 
 
 
 
 
 
 
 
Total
$
8,132

$
240

 
$
10,462

$
235



For the quarter and nine months ended March 31, 2018, there were two loans totaling $2.2 million that were newly modified from their original terms and re-underwritten or identified in the Corporation’s asset quality reports as restructured loans. This compares to no loans that were newly modified from their original terms during the quarter and the nine months ended March 31, 2017. During the quarters and nine months ended March 31, 2018 and 2017, no restructured loans were in default within a 12-month period subsequent to their original restructuring.  Additionally, during the quarters and nine months ended March 31, 2018 and 2017, 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 March 31, 2018 and June 30, 2017, there were no commitments to lend additional funds to those borrowers whose loans were restructured.

As of March 31, 2018, the Corporation held 12 restructured loans with a net outstanding balance of $5.4 million: two were classified as special mention on accrual status ($811,000); and 10 were classified as substandard ($4.5 million with $3.2 million on non-accrual status). As of June 30, 2017, the Corporation held 10 restructured loans with a net outstanding balance of $3.6 million:  one was classified as special mention on accrual status ($506,000); and nine were classified as substandard ($3.1 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 March 31, 2018 and June 30, 2017, $3.7 million or 68 percent, and $1.7 million or 46 percent, 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 other characteristics.

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)
March 31, 2018
June 30, 2017
Restructured loans on non-accrual status:
 
 
Mortgage loans:
 
 
Single-family
$
3,092

$
3,061

Commercial business loans
58

65

Total
3,150

3,126

 
 
 
Restructured loans on accrual status:
 

 

Mortgage loans:
 

 

Single-family
2,202

506

Total
2,202

506

 
 
 
Total restructured loans
$
5,352

$
3,632



The following tables identify the Corporation’s total recorded investment in restructured loans by type at the dates and for the periods indicated.
 
 
 
At March 31, 2018
 
 
 
Unpaid
 
 
 
Net
 
 
 
Principal
Related
Recorded
 
Recorded
(In Thousands)
Balance
Charge-offs
Investment
Allowance(1)
Investment
 
 
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
Single-family:
 
 
 
 
 
 
 
With a related allowance
$
2,235

$
—

$
2,235

$
(161
)
$
2,074

 
 
Without a related allowance(2)
$
3,610

$
(390
)
$
3,220

$
—

$
3,220

 
Total single-family
5,845

(390
)
5,455

(161
)
5,294

 
 
 
 
 
 
 
 
Commercial business loans:
 
 
 
 
 
 
With a related allowance
73

—

73

(15
)
58

Total commercial business loans
73

—

73

(15
)
58

 
 
 
 
 
 
 
 
Total restructured loans
$
5,918

$
(390
)
$
5,528

$
(176
)
$
5,352


(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.

During the quarter ended March 31, 2018, two properties were acquired in the settlement of loans, while one previously foreclosed upon property was sold.  This compares to the quarter ended March 31, 2017 when two properties were acquired in the settlement of loans, while one previously foreclosed upon property was sold. For the nine months ended March 31, 2018, three properties were acquired in the settlement of loans, while three previously foreclosed upon properties were sold.  This compares to the nine months ended March 31, 2017 when five properties were acquired in the settlement of loans, while four previously foreclosed upon properties were sold. As of March 31, 2018, there were two outstanding real estate owned properties located in California with a net fair value of $787,000. This compares to the real estate owned with a net fair value of $1.6 million at June 30, 2017, comprised of one property 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.