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Loans Held For Investment
 12 Months Ended
Jun. 30, 2019
Loans and Leases Receivable Disclosure [Abstract]  
Loans Held For Investment
Note 3: Loans Held for Investment
 
Loans held for investment consisted of the following at June 30, 2019 and 2018 :
(In Thousands)
June 30,
2019
June 30,
2018
Mortgage loans:
    
    Single-family
$
324,952
  
$
314,808
  
    Multi-family
439,041
  
476,008
  
    Commercial real estate
111,928
  
109,726
  
    Construction
4,638
  
3,174
  
    Other
167
  
167
  
Commercial business loans
478
  
500
  
Consumer loans
134
  
109
  
    Total loans held for investment, gross
881,338
  
904,492
  
     
Advance payments of escrows
53
  
18
  
Deferred loan costs, net
5,610
  
5,560
  
Allowance for loan losses
(7,076
)
(7,385
)
    Total loans held for investment, net
$
879,925
  
$
902,685
  
 
The following table sets forth information at June 30, 2019 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 June 30, 2019 and June 30, 2018.  Adjustable rate loans having no stated repricing date 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
$
97,426
  
$
38,371
  
$
117,809
  
$
59,230
  
$
12,116
  
$
324,952
  
    Multi-family
116,357
  
164,462
  
135,239
  
22,795
  
188
  
439,041
  
    Commercial real estate
40,053
  
32,331
  
37,815
  
1,280
  
449
  
111,928
  
    Construction
3,919
  
—
  
—
  
60
  
659
  
4,638
  
    Other
—
  
—
  
—
  
—
  
167
  
167
  
Commercial business loans
122
  
—
  
—
  
—
  
356
  
478
  
Consumer loans
134
  
—
  
—
  
—
  
—
  
134
  
    Total loans held for investment,
      gross
$
258,011
  
$
235,164
  
$
290,863
  
$
83,365
  
$
13,935
  
$
881,338
  
 
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 Bank is not warranted.
 
The following tables summarize gross loans held for investment by loan types and risk category at the dates indicated:
   
June 30, 2019
(In Thousands)
Single-
family
Multi-
family
Commercial
Real Estate
Construction
Other
Mortgage
Commercial
Business
Consumer
Total
                   
Pass
$
314,036
  
$
435,177
  
$
111,001
  
$
3,667
  
$
167
  
$
429
  
$
134
  
$
864,611
  
Special Mention
3,795
  
3,864
  
927
  
—
  
—
  
—
  
—
  
8,586
  
Substandard
7,121
  
—
  
—
  
971
  
—
  
49
  
—
  
8,141
  
 
Total loans held for
   investment, gross
$
324,952
  
$
439,041
  
$
111,928
  
$
4,638
  
$
167
  
$
478
  
$
134
  
$
881,338
  
 
 
   
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
  
$
3,174
  
$
167
  
$
430
  
$
109
  
$
889,346
  
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
  
$
3,174
  
$
167
  
$
500
  
$
109
  
$
904,492
  
 
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, 2019
(In Thousands)
Single-
family
Multi-
family
Commercial
Real Estate
Construction
Other
Mortgage
Commercial Business
Consumer
Total
                   
Allowance at beginning of period
$
2,783
  
$
3,492
  
$
1,030
  
$
47
  
$
3
  
$
24
  
$
6
  
$
7,385
  
Provision (recovery) for loan losses
(241
)
(273
)
20
  
14
  
—
  
—
  
5
  
(475
)
Recoveries
198
  
—
  
—
  
—
  
—
  
2
  
—
  
200
  
Charge-offs
(31
)
—
  
—
  
—
  
—
  
—
  
(3
)
(34
)
 
Allowance for loan losses, end of
  period
$
2,709
  
$
3,219
  
$
1,050
  
$
61
  
$
3
  
$
26
  
$
8
  
$
7,076
  
                   
Allowance:
                
Individually evaluated for impairment
$
122
  
$
—
  
$
—
  
$
—
  
$
—
  
$
8
  
$
—
  
$
130
  
Collectively evaluated for impairment
2,587
  
3,219
  
1,050
  
61
  
3
  
18
  
8
  
6,946
  
 
Allowance for loan losses, end of
  period
$
2,709
  
$
3,219
  
$
1,050
  
$
61
  
$
3
  
$
26
  
$
8
  
$
7,076
  
                   
Gross Loans:
                
Individually evaluated for impairment
$
5,199
  
$
—
  
$
—
  
$
971
  
$
—
  
$
49
  
$
—
  
$
6,219
  
Collectively evaluated for impairment
319,753
  
439,041
  
111,928
  
3,667
  
167
  
429
  
134
  
875,119
  
 
Total loans held for investment,
  gross
$
324,952
  
$
439,041
  
$
111,928
  
$
4,638
  
$
167
  
$
478
  
$
134
  
$
881,338
  
Allowance for loan losses as a
  percentage of gross loans held for
  investment
0.83
%
0.73
%
0.94
%
1.32
%
1.80
%
5.44
%
5.97
%
0.80
%

 
   
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
  
Provision (recovery) 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
  
3,174
  
167
  
430
  
109
  
897,350
  
 
Total loans held for investment,
  gross
$
314,808
  
$
476,008
  
$
109,726
  
$
3,174
  
$
167
  
$
500
  
$
109
  
$
904,492
  
Allowance for loan losses as a
  percentage of gross loans held for
  investment
0.88
%
0.73
%
0.94
%
1.48
%
1.80
%
4.80
%
5.50
%
0.81
%
 
 
The following summarizes the components of the net change in the allowance for loan losses for the periods indicated:
 
Year Ended June 30,
(In Thousands)
2019
    
2018
  
Balance, beginning of year
$
7,385
      
$
8,039
    
Recovery from the allowance for loan losses
(475
)
    
(536
)
  
Recoveries
200
      
278
    
Charge-offs
(34
)
    
(396
)
  
Balance, end of year
$
7,076
      
$
7,385
    
 
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, 2019
     
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
$
2,640
  
$
—
  
$
2,640
  
$
(434
)
$
2,206
  
$
1,583
  
$
110
  
   
Without a related allowance(2)
3,518
  
(518
)
3,000
  
—
  
3,000
  
4,301
  
293
  
 
Total single-family
6,158
  
(518
)
5,640
  
(434
)
5,206
  
5,884
  
403
  
                   
 
Construction:
              
   
Without a related allowance(2)
971
  
—
  
971
  
—
  
971
  
664
  
—
  
 
Total commercial real estate
971
  
—
  
971
  
—
  
971
  
664
  
—
  
                   
Commercial business loans:
              
 
With a related allowance
49
  
—
  
49
  
(8
)
41
  
58
  
5
  
 
Total commercial business loans
49
  
—
  
49
  
(8
)
41
  
58
  
5
  
                   
Total non-performing loans
$
7,178
  
$
(518
)
$
6,660
  
$
(442
)
$
6,218
  
$
6,606
  
$
408
  
 
(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, 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 June 30, 2019 and 2018, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing, except for one construction loan with undisbursed loan funds of $1.0 million at June 30, 2019.
 
During the fiscal years ended June 30, 2019 and 2018, the Corporation’s average investment in non-performing loans was $6.6 million and $7.7 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 year ended June 30, 2019, the Bank received $574,000 in interest payments from non-performing loans and $408,000 was recognized as interest income. The remaining $166,000 was applied to reduce the loan balances under the cost recovery method. In comparison, for the fiscal year ended June 30, 2018, the Bank received $564,000 in interest payments from non-performing loans and $272,000 was recognized as interest income. The remaining $292,000 was applied to reduce the loan balances under the cost recovery method.
The following tables denote the past due status of the Corporation's loans held for investment, gross, at the dates indicated.
   
June 30, 2019
(In Thousands)
Current
30-89 Days
Past Due
Non-Accrual(1)
Total Loans Held for
Investment, Gross
           
Mortgage loans:
        
 
Single-family
$
318,671
  
$
660
  
$
5,621
  
$
324,952
  
 
Multi-family
439,041
  
—
  
—
  
439,041
  
 
Commercial real estate
111,928
  
—
  
—
  
111,928
  
 
Construction
3,667
  
—
  
971
  
4,638
  
 
Other
167
  
—
  
—
  
167
  
Commercial business loans
429
  
—
  
49
  
478
  
Consumer loans
129
  
5
  
—
  
134
  
 
Total loans held for investment, gross
$
874,032
  
$
665
  
$
6,641
  
$
881,338
  
 
(1)  All loans 90 days or greater past due are placed on non-accrual status.
 
   
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
3,174
  
—
  
—
  
3,174
  
 
Other
167
  
—
  
—
  
167
  
Commercial business loans
430
  
—
  
70
  
500
  
Consumer loans
108
  
1
  
—
  
109
  
 
Total loans held for investment, gross
$
897,476
  
$
805
  
$
6,211
  
$
904,492
  
 
(1)  All loans 90 days or greater past due are placed on non-accrual status.
 
For the fiscal year ended June 30, 2019, there were no loans that were newly modified from their original terms, re-underwritten or identified as a restructured loan; one loan (previously modified) was downgraded; three loans were upgraded to the pass category; one loan was paid off; and no loans were converted to real estate owned.  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 real estate owned.  During the fiscal years ended June 30, 2019 and 2018, no restructured loans were in default within a 12-month period subsequent to their original restructuring.  Additionally, during the fiscal year ended June 30, 2019, there was one restructured loan of $56,000 that was extended beyond the initial maturity of the modification; while in fiscal 2018, there were no restructured loans that were extended beyond the initial maturity of the modification.
As of June 30, 2019, the net outstanding balance of the Corporation’s eight restructured loans was $3.8 million:  one was classified as special mention and remains on accrual status ($437,000); one was classified as substandard on accrual status ($1.4 million); and six were classified as substandard on non-accrual status ($1.9 million).  As of June 30, 2019, $2.4 million, or 63 percent, of the restructured loans were current with respect to their payment status.  As of June 30, 2018, the net outstanding balance of the Corporation’s 11 restructured loans was $5.2 million: one loan was classified as special mention on accrual status ($389,000); one was classified as substandard on accrual status ($1.4 million); and nine loans were classified as substandard ($3.4 million, all on non-accrual status).  As of June 30, 2018, $2.9 million, or 56 percent, of the restructured loans had a current payment status, consistent with modified their terms. At both June 30, 2019 and June 30, 2018, there were no commitments to lend additional funds to those borrowers whose loans were restructured.
 
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, 2019 and 2018 :
 
At June 30,
(In Thousands)
2019
2018
Restructured loans on non-accrual status:
    
   Mortgage loans:
    
      Single-family
$
1,891
  
$
3,328
  
   Commercial business loans
41
  
64
  
      Total
1,932
  
3,392
  
     
Restructured loans on accrual status:
    
   Mortgage loans:
    
      Single-family
1,861
  
1,788
  
      Total
1,861
  
1,788
  
      Total restructured loans
$
3,793
  
$
5,180
  
 
The following tables show the restructured loans by type, net of allowance for loan losses or charge-offs, at June 30, 2019 and 2018:
     
At June 30, 2019
     
Unpaid
      
Net
     
Principal
Related
Recorded
  
Recorded
(In Thousands)
Balance
Charge-offs
Investment
Allowance(1)
Investment
               
Mortgage loans:
          
 
Single-family:
          
   
With a related allowance
$
2,199
  
$
—
  
$
2,199
  
$
(122
)
$
2,077
  
   
Without a related allowance(2)
2,040
  
(365
)
1,675
  
—
  
1,675
  
 
Total single-family
4,239
  
(365
)
3,874
  
(122
)
3,752
  
               
Commercial business loans:
          
 
With a related allowance
49
  
—
  
49
  
(8
)
41
  
Total commercial business loans
49
  
—
  
49
  
(8
)
41
  
               
Total restructured loans
$
4,288
  
$
(365
)
$
3,923
  
$
(130
)
$
3,793
  
 
(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
     
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.
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:
 
Year Ended June 30,
(In Thousands)
2019
  
2018
Balance, beginning of year
$
677
    
$
578
  
Originations
—
    
2,415
  
Sales and payments
(675
)
  
(2,316
)
Balance, end of year
$
2
    
$
677
  
 
As of June 30, 2019 and 2018, all of the related-party loans were performing in accordance with their original contractual terms.