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EX-31.1 - EXHIBIT 31.1 - PROVIDENT FINANCIAL HOLDINGS INCprov-20141231x10qxex311.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
[  ü ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
December 31, 2014
[     ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________ to _________________
 
Commission File Number 000-28304

PROVIDENT FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware  
 
33-0704889
(State or other jurisdiction of 
 
(I.R.S.  Employer 
incorporation or organization) 
 
Identification No.) 
 
3756 Central Avenue, Riverside, California 92506
(Address of principal executive offices and zip code)

(951) 686-6060
(Registrant’s telephone number, including area code)

_________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ü     No      .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ü     No      .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [   ] 
Accelerated filer [ ü ]
 
Non-accelerated filer [   ] 
Smaller reporting company [   ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
Yes            No  ü  .
APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of class:
 
As of February 2, 2015
Common stock, $ 0.01 par value, per share
 
8,995,149 shares



PROVIDENT FINANCIAL HOLDINGS, INC.

Table of Contents
PART 1  -
FINANCIAL INFORMATION
 
 
 
 
 
ITEM 1  -
Financial Statements.  The Unaudited Interim Condensed Consolidated Financial Statements of Provident Financial Holdings, Inc. filed as a part of the report are as follows:
 
 
 
 
Page
 
Condensed Consolidated Statements of Financial Condition
 
 
 
as of December 31, 2014 and June 30, 2014
 
Condensed Consolidated Statements of Operations
 
 
 
for the Quarters and Six Months Ended December 31, 2014 and 2013
 
Condensed Consolidated Statements of Comprehensive Income
 
 
 
for the Quarters and Six Months Ended December 31, 2014 and 2013
 
Condensed Consolidated Statements of Stockholders’ Equity
 
 
 
for the Quarters and Six Months Ended December 31, 2014 and 2013
 
Condensed Consolidated Statements of Cash Flows
 
 
 
for the Six Months Ended December 31, 2014 and 2013
 
Notes to Unaudited Interim Condensed Consolidated Financial Statements
 
 
 
 
ITEM 2  -
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
 
 
 
 
 
 
General
 
Safe-Harbor Statement
 
Critical Accounting Policies
 
Executive Summary and Operating Strategy
 
Off-Balance Sheet Financing Arrangements and Contractual Obligations
 
Comparison of Financial Condition at December 31, 2014 and June 30, 2014
 
Comparison of Operating Results
 
 
 
for the Quarters and Six Months Ended December 31, 2014 and 2013
 
Asset Quality
 
Loan Volume Activities
 
Liquidity and Capital Resources
 
Supplemental Information
 
 
 
 
ITEM 3  -
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
 
ITEM 4  -
Controls and Procedures
 
 
 
 
PART II  -
OTHER INFORMATION
 
 
 
 
 
ITEM 1  -
Legal Proceedings
ITEM 1A -
Risk Factors
ITEM 2  -
Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 3  -
Defaults Upon Senior Securities
ITEM 4  -
Mine Safety Disclosures
ITEM 5  -
Other Information
ITEM 6  -
Exhibits
 
 
 
 
SIGNATURES






PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Financial Condition
In Thousands, Except Share Information
 
(Unaudited)
 
 
December 31,
2014
June 30,
2014
Assets
 
 
Cash and cash equivalents
$
32,078

$
118,937

Investment securities – held to maturity (fair value $800 and $800, respectively)
800

800

Investment securities – available for sale, at fair value
15,377

16,347

Loans held for investment, net of allowance for loan losses of
$8,693 and $9,744, respectively
797,783

772,141

Loans held for sale, at fair value
228,783

158,883

Accrued interest receivable
2,554

2,483

Real estate owned, net
3,496

2,467

Federal Home Loan Bank (“FHLB”) – San Francisco stock
7,056

7,056

Premises and equipment, net
5,806

6,369

Prepaid expenses and other assets
18,657

20,146

 
 

 

Total assets
$
1,112,390

$
1,105,629

 
 

 

Liabilities and Stockholders’ Equity
 

 

 
 

 

Liabilities:
 

 

Non interest-bearing deposits
$
55,804

$
58,654

Interest-bearing deposits
849,708

839,216

Total deposits
905,512

897,870

 
 

 

Borrowings
41,400

41,431

Accounts payable, accrued interest and other liabilities
21,128

20,466

Total liabilities
968,040

959,767

 
 

 

Commitments and Contingencies




 
 

 

Stockholders’ equity:
 

 

Preferred stock, $.01 par value (2,000,000 shares authorized;
none issued and outstanding)


Common stock, $.01 par value (40,000,000 shares authorized;
17,716,365 and 17,714,365 shares issued; 8,995,149 and
9,312,269 shares outstanding, respectively)
177

177

Additional paid-in capital
87,153

88,259

Retained earnings
185,148

182,458

Treasury stock at cost (8,721,216 and 8,402,096 shares, respectively)
(128,560
)
(125,418
)
Accumulated other comprehensive income, net of tax
432

386

 
 

 

Total stockholders’ equity
144,350

145,862

 
 

 

Total liabilities and stockholders’ equity
$
1,112,390

$
1,105,629



The accompanying notes are an integral part of these condensed consolidated financial statements.

1



PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
In Thousands, Except Per Share Information
 
Quarter Ended  
 December 31,
Six Months Ended 
 December 31,
 
2014
2013
2014
2013
Interest income:
 
 
 
 
Loans receivable, net
$
9,376

$
9,085

$
18,571

$
18,791

Investment securities
72

86

148

178

FHLB – San Francisco stock
132

204

276

412

Interest-earning deposits
76

138

170

248

Total interest income
9,656

9,513

19,165

19,629

 
 
 
 
 
Interest expense:
 
 
 
 
Checking and money market deposits
110

96

214

198

Savings deposits
160

152

317

299

Time deposits
940

1,171

1,916

2,434

Borrowings
336

439

671

1,082

Total interest expense
1,546

1,858

3,118

4,013

 
 
 
 
 
Net interest income
8,110

7,655

16,047

15,616

Recovery from the allowance for loan losses
(354
)
(898
)
(1,172
)
(1,840
)
Net interest income, after recovery from the allowance for loan losses
8,464

8,553

17,219

17,456

 
 
 
 
 
Non-interest income:
 
 
 
 
Loan servicing and other fees
291

331

559

526

Gain on sale of loans, net
8,042

5,732

15,694

12,486

Deposit account fees
604

619

1,230

1,240

Loss on sale and operations of real estate owned acquired in the settlement of loans, net
(51
)
(82
)
(70
)
(30
)
Card and processing fees
336

317

692

661

Other
275

227

502

444

Total non-interest income
9,497

7,144

18,607

15,327

 
 
 
 
 
Non-interest expense:
 
 
 
 
Salaries and employee benefits
9,950

8,912

19,531

19,364

Premises and occupancy
1,150

1,104

2,498

2,263

Equipment
414

474

886

954

Professional expenses
493

507

957

931

Sales and marketing expenses
399

391

730

806

     Deposit insurance premiums and regulatory assessments
238

229

511

443

Other
1,268

1,254

2,538

2,640

Total non-interest expense
13,912

12,871

27,651

27,401

 
 
 
 
 
Income before income taxes
4,049

2,826

8,175

5,382

Provision for income taxes
1,721

1,223

3,457

2,266

Net income
$
2,328

$
1,603

$
4,718

$
3,116

 
 
 
 
 
Basic earnings per share
$
0.26

$
0.16

$
0.51

$
0.31

Diluted earnings per share
$
0.25

$
0.16

$
0.50

$
0.30

Cash dividends per share
$
0.11

$
0.10

$
0.22

$
0.20


The accompanying notes are an integral part of these condensed consolidated financial statements.

2



PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
In Thousands
 
For the Quarters Ended  
 December 31,
 
For the Six Months Ended 
 December 31,
 
2014
2013
 
2014
2013
Net income
$
2,328

$
1,603

 
$
4,718

$
3,116

 
 
 
 
 
 
Change in unrealized holding gain (loss) on securities available for sale
95

(45
)
 
79

(166
)
Reclassification of (gains) losses to net income


 


Other comprehensive income (loss), before income taxes
95

(45
)
 
79

(166
)
 
 
 
 
 
 
Income tax expense (benefit)
40

(19
)
 
33

(70
)
Other comprehensive income (loss)
55

(26
)
 
46

(96
)
 
 
 
 
 
 
Total comprehensive income
$
2,383

$
1,577

 
$
4,764

$
3,020



The accompanying notes are an integral part of these condensed consolidated financial statements.

3



PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
In Thousands, Except Share Information

For the Quarters and Six Months Ended December 31, 2014 and 2013:

 
Common
Stock
Additional
Paid-In Capital
Retained Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Income,
Net of Tax
 
 
Shares
Amount
Total
Balance at September 30, 2014
9,152,065

$
177

$
86,759

$
183,825

$
(126,175
)
$
377

$
144,963

 
 
 
 
 
 
 
 
Net income
 
 
 
2,328

 
 
2,328

Other comprehensive income
 
 
 
 
 
55

55

Purchase of treasury stock
(156,916
)
 
 
 
(2,385
)
 
(2,385
)
Amortization of restricted stock
 
 
182

 
 
 
182

Stock options expense
 
 
212

 
 
 
212

Cash dividends
 
 
 
(1,005
)
 
 
(1,005
)
 
 
 
 
 
 
 
 
Balance at December 31, 2014
8,995,149

$
177

$
87,153

$
185,148

$
(128,560
)
$
432

$
144,350

 
 
 
Common
Stock
Additional
Paid-In Capital
Retained Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 
Shares
Amount
Total
Balance at September 30, 2013
10,201,348

$
177

$
87,917

$
180,299

$
(111,719
)
$
484

$
157,158

 
 
 
 
 
 
 
 
Net income
 
 
 
1,603

 
 
1,603

Other comprehensive loss
 
 
 
 
 
(26
)
(26
)
Purchase of treasury stock
(385,083
)
 
 
 
(5,670
)
 
(5,670
)
Exercise of stock options
35,500


259

 
 
 
259

Amortization of restricted stock
 
 
51

 
 
 
51

Forfeiture of restricted stock
 
 
51

 
(51
)
 

Stock options expense
 
 
79

 
 
 
79

Tax effect from stock based compensation
 
 
1

 
 
 
1

Cash dividends
 
 
 
(1,005
)
 
 
(1,005
)
 
 
 
 
 
 
 
 
Balance at December 31, 2013
9,851,765

$
177

$
88,358

$
180,897

$
(117,440
)
$
458

$
152,450



The accompanying notes are an integral part of these condensed consolidated financial statements.

4



 
Common
Stock
Additional
Paid-In Capital
Retained Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Income,
Net of Tax
 
 
Shares
Amount
Total
Balance at June 30, 2014
9,312,269

$
177

$
88,259

$
182,458

$
(125,418
)
$
386

$
145,862

 
 
 
 
 
 
 
 
Net income
 
 
 
4,718

 
 
4,718

Other comprehensive income
 
 
 
 
 
46

46

Purchase of treasury stock
(319,120
)
 
 
 
(4,783
)
 
(4,783
)
Exercise of stock options
2,000


14

 
 
 
14

Amortization of restricted stock
 
 
241

 
 
 
241

Awards of restricted stock
 
 
(1,641
)
 
1,641

 

Stock options expense
 
 
296

 
 

 
296

Tax effect from stock based compensation
 
 
(16
)
 
 
 
(16
)
Cash dividends
 
 
 

(2,028
)
 
 
(2,028
)
 
 
 
 
 
 
 
 
Balance at December 31, 2014
8,995,149

$
177

$
87,153

$
185,148

$
(128,560
)
$
432

$
144,350



 
Common
Stock
Additional
Paid-In Capital
Retained Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 
Shares
Amount
Total
Balance at June 30, 2013
10,386,399

$
177

$
87,742

$
179,816

$
(108,315
)
$
554

$
159,974

 
 
 
 
 
 
 
 
Net income
 
 
 
3,116

 
 
3,116

Other comprehensive loss
 
 
 
 
 
(96
)
(96
)
Purchase of treasury stock
(575,134
)
 
 
 
(9,074
)
 
(9,074
)
Exercise of stock options
40,500


296

 
 
 
296

Amortization of restricted stock
 
 
102

 
 
 
102

Forfeitures of restricted stock
 
 
51

 
(51
)
 

Stock options expense
 
 
159

 
 
 
159

Tax effect from stock based compensation
 
 
8

 
 
 
8

Cash dividends
 
 
 
(2,035
)
 
 
(2,035
)
 
 
 
 
 
 
 
 
Balance at December 31, 2013
9,851,765

$
177

$
88,358

$
180,897

$
(117,440
)
$
458

$
152,450



The accompanying notes are an integral part of these condensed consolidated financial statements.

5



PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited - In Thousands)
 
Six Months Ended 
 December 31,
 
2014
2013
Cash flows from operating activities:
 
 
Net income
$
4,718

$
3,116

Adjustments to reconcile net income to net cash (used for) provided by operating activities:
 
 
Depreciation and amortization
1,041

863

Recovery from the allowance for loan losses
(1,172
)
(1,840
)
Recovery from the allowance for losses on real estate owned
(17
)
(17
)
Gain on sale of loans, net
(15,694
)
(12,486
)
Gain on sale of real estate owned, net
(6
)
(161
)
Stock-based compensation
537

261

Decrease (increase) in current and deferred income taxes
1,294

(3,922
)
Tax effect from stock based compensation
16

(8
)
Increase (decrease) in accounts payable and other liabilities
302

(3,217
)
(Increase) decrease in prepaid expenses and other assets
(258
)
150

Loans originated for sale
(1,079,427
)
(1,136,684
)
Proceeds from sale of loans
1,025,890

1,219,194

Net cash (used for) provided by operating activities
(62,776
)
65,249

 
 
 
Cash flows from investing activities:
 
 
Increase in loans held for investment, net
(26,544
)
(10,215
)
Principal payments from investment securities available for sale
1,297

1,619

Purchase of investment securities available for sale
(250
)

Redemption of FHLB – San Francisco stock

4,368

Proceeds from sale of real estate owned
883

2,530

Purchase of premises and equipment
(267
)
(510
)
Net cash used for investing activities
(24,881
)
(2,208
)
 
 
 
Cash flows from financing activities:
 
 
Increase (decrease) in deposits, net
7,642

(9,254
)
Repayments of long-term borrowings
(31
)
(55,029
)
Exercise of stock options
14

296

Tax effect from stock based compensation
(16
)
8

Cash dividends
(2,028
)
(2,035
)
Treasury stock purchases
(4,783
)
(9,074
)
Net cash provided by (used for) financing activities
798

(75,088
)
 
 
 
Net decrease in cash and cash equivalents
(86,859
)
(12,047
)
Cash and cash equivalents at beginning of period
118,937

193,839

Cash and cash equivalents at end of period
$
32,078

$
181,792

Supplemental information:
 
 
Cash paid for interest
$
3,129

$
4,342

Cash paid for income taxes
$
2,175

$
6,180

Transfer of loans held for sale to held for investment
$
1,762

$
2,259

Real estate acquired in the settlement of loans
$
2,292

$
3,972


The accompanying notes are an integral part of these condensed consolidated financial statements.

6



PROVIDENT FINANCIAL HOLDINGS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014

Note 1: Basis of Presentation

The unaudited interim condensed consolidated financial statements included herein reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results of operations for the interim periods presented.  All such adjustments are of a normal, recurring nature.  The condensed consolidated statements of financial condition at June 30, 2014 are derived from the audited consolidated financial statements of Provident Financial Holdings, Inc. and its wholly-owned subsidiary, Provident Savings Bank, F.S.B. (the “Bank”) (collectively, the “Corporation”).  Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) with respect to interim financial reporting.  It is recommended that these unaudited interim condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended June 30, 2014.  The results of operations for the quarter and six months ended December 31, 2014 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2015.


Note 2: Accounting Standard Updates (“ASU”)

ASU 2013-11:
In July 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Corporation's adoption of this ASU did not have a material impact on its consolidated financial statements.

ASU 2014-04:
In January 2014, the FASB issued ASU 2014-04, "Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure." The amendments in this ASU are intended to reduce diversity in practice by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized. Holding foreclosed real estate property presents different operational and economic risk to creditors compared with holding an impaired loan. Therefore, consistency in the timing of loan derecognition and presentation of foreclosed real estate properties is of qualitative significance to users of the creditor’s financial statements. Additionally, the disclosure of the amount of foreclosed residential real estate properties and of the recorded investment in consumer mortgage loans secured by residential real estate properties that are in the process of foreclosure is expected to provide decision-useful information to many users of the creditor’s financial statements. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Corporation's adoption of this ASU is not expected to have a material impact on its consolidated financial statements.
 

7



ASU 2014-14:
In August 2014, the FASB issued ASU 2014-14," Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure." Current GAAP provides classification and measurement guidance for situations in which a creditor obtains a debtor’s assets in satisfaction of a receivable, including receipt of assets through foreclosure, but does not provide specific guidance on how to classify and measure foreclosed loans that are government guaranteed. Current GAAP also does not provide guidance on how to determine the unit of account; that is, whether a single asset should be recognized or whether two separate assets should be recognized (real estate and a guarantee receivable). In practice, most creditors derecognize the loan and recognize a single asset. Some creditors recognize a nonfinancial asset (other real estate owned), while others recognize a financial asset (typically, a guarantee receivable). Regardless of the classification of the asset (or assets), measurement of the asset (or total measurement of the assets) in practice generally represents the amount recoverable under the guarantee. The amendments in this ASU should reduce variations in practice by providing guidance on how to classify and measure certain government-guaranteed mortgage loans upon foreclosure. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Corporation's adoption of this ASU is not expected to have a material impact on its consolidated financial statements.


Note 3: Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the entity.

As of December 31, 2014 and 2013, there were outstanding options to purchase 1.1 million shares and 974,200 shares of the Corporation’s common stock, respectively, of which 271,500 shares and 508,200 shares, respectively, were excluded from the diluted EPS computation as their effect was anti-dilutive. As of December 31, 2014 and 2013, there were outstanding restricted stock awards of 266,500 shares and 66,500 shares, respectively, all of which have dilutive effects.

The following table provides the basic and diluted EPS computations for the quarters and six months ended December 31, 2014 and 2013, respectively.
 
(In Thousands, Except Earnings Per Share)
For the Quarters Ended
December 31,
For the Six Months Ended
December 31,
 
2014
2013
2014
2013
Numerator:
 
 
 
 
Net income – numerator for basic earnings per share and diluted earnings per share - available to common stockholders
$
2,328

$
1,603

$
4,718

$
3,116

 
 
 
 
 
Denominator:
 

 

 

 

Denominator for basic earnings per share:
 

 

 

 

 Weighted-average shares
9,120

10,078

9,187

10,192

 
 
 
 
 
   Effect of dilutive shares:
 
 
 
 
Stock options
62

164

117

179

Restricted stock
56

29

49

27

 
 
 
 
 
Denominator for diluted earnings per share:
 

 

 

 

Adjusted weighted-average shares and assumed conversions
9,238

10,271

9,353

10,398

 
 
 
 
 
Basic earnings per share
$
0.26

$
0.16

$
0.51

$
0.31

Diluted earnings per share
$
0.25

$
0.16

$
0.50

$
0.30


8



Note 4: Operating Segment Reports

The Corporation operates in two business segments: community banking through the Bank and mortgage banking through Provident Bank Mortgage (“PBM”), a division of the Bank.

The following tables set forth condensed consolidated statements of operations and total assets for the Corporation’s operating segments for the quarters and six months ended December 31, 2014 and 2013, respectively.

 
For the Quarter Ended December 31, 2014
(In Thousands)
Provident
Bank
Provident
Bank
Mortgage
Consolidated
Totals
Net interest income
$
6,925

$
1,185

$
8,110

(Recovery) provision for loan losses
(373
)
19

(354
)
Net interest income, after (recovery) provision for loan losses
7,298

1,166

8,464

 
 
 
 
Non-interest income:
 
 
 
     Loan servicing and other fees (1)
85

206

291

     Gain on sale of loans, net (2)
75

7,967

8,042

Deposit account fees
604


604

     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(50
)
(1
)
(51
)
Card and processing fees
336


336

Other
275


275

Total non-interest income
1,325

8,172

9,497

 
 
 
 
Non-interest expense:
 
 
 
Salaries and employee benefits
4,528

5,422

9,950

Premises and occupancy
716

434

1,150

Operating and administrative expenses
1,093

1,719

2,812

Total non-interest expense
6,337

7,575

13,912

Income before income taxes
2,286

1,763

4,049

Provision for income taxes
988

733

1,721

Net income
$
1,298

$
1,030

$
2,328

Total assets, end of period
$
883,665

$
228,725

$
1,112,390


(1) 
Includes an inter-company charge of $144 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2) 
Includes an inter-company charge of $61 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.

9




 
For the Quarter Ended December 31, 2013
(In Thousands)
Provident
Bank
Provident
Bank
Mortgage
Consolidated
Totals
Net interest income
$
6,671

$
984

$
7,655

Recovery from the allowance for loan losses
(876
)
(22
)
(898
)
Net interest income after recovery from the allowance for loan losses
7,547

1,006

8,553

 
 
 
 
Non-interest income:
 
 
 
     Loan servicing and other fees (1)
210

121

331

     Gain on sale of loans, net (2)
86

5,646

5,732

Deposit account fees
619


619

     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(82
)

(82
)
Card and processing fees
317


317

Other
227


227

Total non-interest income
1,377

5,767

7,144

 
 
 
 
Non-interest expense:
 
 
 
Salaries and employee benefits
3,600

5,312

8,912

Premises and occupancy
630

474

1,104

Operating and administrative expenses
1,056

1,799

2,855

Total non-interest expense
5,286

7,585

12,871

Income (loss) before income taxes
3,638

(812
)
2,826

Provision (benefit) for income taxes
1,564

(341
)
1,223

Net income (loss)
$
2,074

$
(471
)
$
1,603

Total assets, end of period
$
1,003,275

$
130,787

$
1,134,062


(1) 
Includes an inter-company charge of $5 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2) 
Includes an inter-company charge of $39 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.

10




 
For the Six Months Ended December 31, 2014
(In Thousands)
Provident
Bank
Provident
Bank
Mortgage
Consolidated
Totals
Net interest income
$
13,820

$
2,227

$
16,047

(Recovery) provision for loan losses
(1,263
)
91

(1,172
)
Net interest income, after (recovery) provision for loan losses
15,083

2,136

17,219

 
 
 
 
Non-interest income:
 
 
 
     Loan servicing and other fees (1)
93

466

559

     Gain on sale of loans, net (2)
146

15,548

15,694

Deposit account fees
1,230


1,230

     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(69
)
(1
)
(70
)
Card and processing fees
692


692

Other
502


502

Total non-interest income
2,594

16,013

18,607

 
 
 
 
Non-interest expense:
 
 
 
Salaries and employee benefits
8,795

10,736

19,531

Premises and occupancy
1,588

910

2,498

Operating and administrative expenses
2,249

3,373

5,622

Total non-interest expense
12,632

15,019

27,651

Income before income taxes
5,045

3,130

8,175

Provision for income taxes
2,155

1,302

3,457

Net income
$
2,890

$
1,828

$
4,718

Total assets, end of period
$
883,665

$
228,725

$
1,112,390


(1) 
Includes an inter-company charge of $302 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2) 
Includes an inter-company charge of $75 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.


11



 
For the Six Months Ended December 31, 2013
(In Thousands)
Provident
Bank
Provident
Bank
Mortgage
Consolidated
Totals
Net interest income
$
13,238

$
2,378

$
15,616

(Recovery) provision for loan losses
(1,859
)
19

(1,840
)
Net interest income, after (recovery) provision for loan losses
15,097

2,359

17,456

 
 
 
 
Non-interest income:
 
 
 
     Loan servicing and other fees (1)
344

182

526

     Gain on sale of loans, net (2)
323

12,163

12,486

Deposit account fees
1,240


1,240

     (Loss) gain on sale and operations of real estate owned
        acquired in the settlement of loans, net
(31
)
1

(30
)
Card and processing fees
661


661

Other
444


444

Total non-interest income
2,981

12,346

15,327

 
 
 
 
Non-interest expense:
 
 
 
Salaries and employee benefits
7,555

11,809

19,364

Premises and occupancy
1,313

950

2,263

Operating and administrative expenses
2,070

3,704

5,774

Total non-interest expense
10,938

16,463

27,401

Income (loss) before income taxes
7,140

(1,758
)
5,382

Provision (benefit) for income taxes
3,005

(739
)
2,266

Net income (loss)
$
4,135

$
(1,019
)
$
3,116

Total assets, end of period
$
1,003,275

$
130,787

$
1,134,062


(1) 
Includes an inter-company charge of $13 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2) 
Includes an inter-company charge of $46 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.




12



Note 5: Investment Securities

The amortized cost and estimated fair value of investment securities as of December 31, 2014 and June 30, 2014 were as follows:

December 31, 2014
 
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair
Value
 
Carrying
Value
(In Thousands)
 
 
 
 
 
Held to maturity:
 
 
 
 
 
Certificates of deposit
$
800

$

$

$
800

$
800

Total investment securities - held to maturity
$
800

$

$

$
800

$
800

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
U.S. government agency MBS (1)
$
8,150

$
341

$

$
8,491

$
8,491

U.S. government sponsored enterprise MBS
5,503

334


5,837

5,837

Private issue CMO (2)
792

7


799

799

Common stock - community development financial institution
250



250

250

Total investment securities - available for sale
$
14,695

$
682

$

$
15,377

$
15,377

Total investment securities
$
15,495

$
682

$

$
16,177

$
16,177


(1) 
Mortgage-Backed Securities (“MBS”).
(2) 
Collateralized Mortgage Obligations (“CMO”).

June 30, 2014
 
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair
Value
 
Carrying
Value
(In Thousands)
 
 
 
 
 
Held to maturity:
 
 
 
 
 
Certificates of deposit
$
800

$

$

$
800

$
800

Total investment securities - held to maturity
$
800

$

$

$
800

$
800

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
U.S. government agency MBS
$
8,772

$
337

$

$
9,109

$
9,109

U.S. government sponsored enterprise MBS
6,128

257


6,385

6,385

Private issue CMO
841

12


853

853

Total investment securities - available for sale
$
15,741

$
606

$

$
16,347

$
16,347

Total investment securities
$
16,541

$
606

$

$
17,147

$
17,147


In the second quarters of fiscal 2015 and 2014, the Corporation received MBS principal payments of $517,000 and $799,000, respectively, and did not purchase or sell investment securities. For the first six months of fiscal 2015 and 2014, the Corporation received MBS principal payments of $1.3 million and $1.6 million, respectively, and did not purchase or sell investment securities, except the fiscal 2015 purchase of $250,000 in the common stock of a community development financial institution to help fulfill the Corporation's Community Reinvestment Act obligation.
  
The Corporation evaluates individual investment securities quarterly for other-than-temporary declines in market value.  As of December 31, 2014, no investment securities were in an unrealized loss position. This compares to December 31, 2013 when the gross unrealized holding losses related to two adjustable rate private issue CMOs, where one had been in an unrealized loss position for more than 12 months.  Based on the nature of the investments, management concluded that such unrealized losses were not

13



other than temporary as of December 31, 2013.  The Corporation does not believe that there are any other-than-temporary impairments at December 31, 2014 and 2013; therefore, no impairment losses have been recorded for the quarters and six months ended December 31, 2014 and 2013.  The Corporation intends and has the ability to hold these CMOs until maturity and will not likely be required to sell the CMOs before realizing a full recovery.

Contractual maturities of investment securities as of December 31, 2014 and June 30, 2014 were as follows:

 
December 31, 2014
 
June 30, 2014
(In Thousands)
Amortized
Cost
Estimated
Fair
Value
 
Amortized
Cost
Estimated
Fair
Value
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
Due in one year or less
$
800

$
800

 
$
800

$
800

Due after one through five years


 


Due after five through ten years


 


Due after ten years


 


Total investment securities - held to maturity
$
800

$
800

 
$
800

$
800

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
Due in one year or less
$

$

 
$

$

Due after one through five years


 


Due after five through ten years


 


Due after ten years
14,445

15,127

 
15,741

16,347

No stated maturity (common stock)
250

250

 


Total investment securities - available for sale
$
14,695

$
15,377

 
$
15,741

$
16,347

Total investment securities
$
15,495

$
16,177

 
$
16,541

$
17,147



Note 6: Loans Held for Investment
 
Loans held for investment consisted of the following:

(In Thousands)
December 31,
2014
June 30,
2014
Mortgage loans:
 
 
Single-family
$
377,262

$
377,997

Multi-family
322,302

301,211

Commercial real estate
100,859

96,803

Construction
4,378

2,869

Commercial business loans
859

1,237

Consumer loans
265

306

Total loans held for investment, gross
805,925

780,423

 
 
 
Undisbursed loan funds
(2,281
)
(1,090
)
Deferred loan costs, net
2,832

2,552

Allowance for loan losses
(8,693
)
(9,744
)
Total loans held for investment, net
$
797,783

$
772,141


As of December 31, 2014, the Corporation had $15.2 million in mortgage loans that are subject to negative amortization, consisting of $11.4 million in multi-family loans, $3.6 million in single-family loans and $254,000 in commercial real estate loans.  This

14



compares to $23.3 million of negative amortization mortgage loans at June 30, 2014, consisting of $18.7 million in multi-family loans, $3.7 million in single-family loans and $856,000 in commercial real estate loans.  During the second quarters and six months of fiscal 2015 and 2014, 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 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, 2014 and June 30, 2014, the interest-only ARM loans were $160.3 million and $170.7 million, or 20% and 22% of loans held for investment, respectively.

The following table sets forth information at December 31, 2014 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 4% of loans held for investment at December 31, 2014, unchanged from June 30, 2014.  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
$
305,453

$
19,393

$
32,575

$
4,233

$
15,608

$
377,262

Multi-family
85,070

64,281

157,330

10,677

4,944

322,302

Commercial real estate
28,238

11,143

50,560

1,336

9,582

100,859

Construction
2,569




1,809

4,378

Commercial business loans
388


122


349

859

Consumer loans
255




10

265

Total loans held for investment, gross
$
421,973

$
94,817

$
240,587

$
16,246

$
32,302

$
805,925


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.  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.

In compliance with the regulatory reporting requirements of the Office of the Comptroller of the Currency (“OCC”), the Bank’s primary federal regulator, 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

15



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 calculated based on the loan's fair value 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, 2014 and June 30, 2014:

(In Thousands)
December 31,
2014
June 30,
2014
Collectively evaluated for impairment:
 
 
Mortgage loans:
 
 
Single-family
$
4,483

$
5,476

Multi-family
2,998

3,142

Commercial real estate
1,075

989

Construction
17

35

Commercial business loans
33

51

Consumer loans
10

10

Total collectively evaluated allowance
8,616

9,703

 
 
 
Individually evaluated for impairment:
 
 
Mortgage loans:
 
 
Single-family
57


Commercial business loans
20

41

Total individually evaluated allowance
77

41

Total loan loss allowance
$
8,693

$
9,744



16



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)
2014
2013
2014
2013
 
 
 
 
 
Allowance at beginning of period
$
8,888

$
12,105

$
9,744

$
14,935

 
 
 
 
 
Recovery from the allowance for loan losses
(354
)
(898
)
(1,172
)
(1,840
)
 
 
 
 
 
Recoveries:
 

 

 

 

Mortgage loans:
 

 

 

 

Single-family
164

99

273

267

Multi-family
93

8

164

19

Construction

20


20

Consumer loans


1

1

Total recoveries
257

127

438

307

 
 
 
 
 
Charge-offs:
 

 

 

 

Mortgage loans:
 

 

 

 

Single-family
(98
)
(90
)
(317
)
(780
)
Multi-family

(199
)

(1,577
)
Consumer loans

(4
)

(4
)
Total charge-offs
(98
)
(293
)
(317
)
(2,361
)
 
 
 
 
 
Net recoveries (charge-offs)
159

(166
)
121

(2,054
)
Balance at end of period
$
8,693

$
11,041

$
8,693

$
11,041

 
 

 

 

 

Allowance for loan losses as a percentage of gross loans held for investment
1.08
 %
1.44
%
1.08
 %
1.44
%
Net (recoveries) charge-offs as a percentage of average loans receivable, net, during the period (annualized)
(0.07
)%
0.08
%
(0.03
)%
0.46
%
Allowance for loan losses as a percentage of gross non-performing loans at the end of the period
73.88
 %
57.17
%
73.88
 %
57.17
%


17



The following tables identify the Corporation’s total recorded investment in non-performing loans by type, net of allowance for loan losses at December 31, 2014 and June 30, 2014:

 
 
 
(In Thousands)
December 31, 2014
 
Recorded
Investment
Allowance
for Loan
Losses
(1)
 
Net
Investment
Mortgage loans:
 
 
 
Single-family:
 
 
 
With a related allowance
$
2,660

$
(514
)
$
2,146

Without a related allowance (2)
5,207


5,207

Total single-family loans
7,867

(514
)
7,353

 
 
 
 
Multi-family:
 
 
 
With a related allowance
264

(79
)
185

Without a related allowance (2)
1,995


1,995

Total multi-family loans
2,259

(79
)
2,180

 
 
 
 
Commercial real estate:
 
 
 
Without a related allowance (2)
1,520


1,520

Total commercial real estate loans
1,520


1,520

 
 
 
 
Commercial business loans:
 
 
 
With a related allowance
120

(22
)
98

Total commercial business loans
120

(22
)
98

 
 
 
 
Total non-performing loans
$
11,766

$
(615
)
$
11,151


(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 individual loan balance.

18



 
 
 
(In Thousands)
June 30, 2014
 
Recorded
Investment
Allowance
for Loan
Losses
(1)
 
Net
Investment
Mortgage loans:
 
 
 
Single-family:
 
 
 
With a related allowance
$
5,480

$
(1,148
)
$
4,332

Without a related allowance (2)
6,067


6,067

Total single-family loans
11,547

(1,148
)
10,399

 
 
 
 
Multi-family:
 
 
 
With a related allowance
956

(354
)
602

Without a related allowance (2)
2,491


2,491

Total multi-family loans
3,447

(354
)
3,093

 
 
 
 
Commercial real estate:
 
 
 
Without a related allowance (2)
2,352


2,352

Total commercial real estate loans
2,352


2,352

 
 
 
 
Commercial business loans:
 
 
 
With a related allowance
138

(46
)
92

Total commercial business loans
138

(46
)
92

 
 
 
 
Total non-performing loans
$
17,484

$
(1,548
)
$
15,936


(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 individual loan balance.

At December 31, 2014 and June 30, 2014, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing.

The following table describes the aging analysis (length of time on non-performing status) of non-performing loans, net of allowance for loan losses or charge offs, as of December 31, 2014:

 
(In Thousands)
3 Months or
Less
Over 3 to
6 Months
Over 6 to
12 Months
Over 12
Months
 
Total
Mortgage loans:
 
 
 
 
 
Single-family
$
791

$
22

$
684

$
5,856

$
7,353

Multi-family


404

1,776

2,180

Commercial real estate


448

1,072

1,520

Commercial business loans



98

98

Total
$
791

$
22

$
1,536

$
8,802

$
11,151


For the quarters ended December 31, 2014 and 2013, the Corporation’s average investment in non-performing loans was $11.8 million and $17.2 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 quarters ended December 31, 2014 and 2013, interest income of $151,000 and $251,000, respectively, was recognized, based on cash receipts from loan payments on non-performing loans; and $14,000 and $100,000, 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

19



loans been current in accordance with their original terms, amounted to $17,000 and $82,000 for the quarters ended December 31, 2014 and 2013, respectively, and was not included in the results of operations.  

For the six months ended December 31, 2014 and 2013, the Corporation’s average investment in non-performing loans was $13.4 million and $17.8 million, respectively. For the six months ended December 31, 2014 and 2013, interest income of $248,000 and $438,000, respectively, was recognized, based on cash receipts from loan payments on non-performing loans; and $161,000 and $203,000, 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 $36,000 and $202,000 for the six months ended December 31, 2014 and 2013, respectively, and was not included in the results of operations.

For the quarters and six months ended December 31, 2014 and 2013, 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, 2014 and 2013, no restructured loans were in default within a 12-month period subsequent to their original restructuring.  Additionally, during the quarter and six months ended December 31, 2014, there was one loan for $113,000 whose modification was extended beyond the initial maturity of the modification. This compares to the quarter and six months ended December 31, 2013 when there were two loans to a single borrower totaling $810,000 whose modifications were extended beyond the initial maturity of the modification.

As of December 31, 2014, the net outstanding balance of the 16 restructured loans was $6.0 million:  one was classified as special mention and remains on accrual status ($687,000); and 15 were classified as substandard ($5.3 million, all of which were on non-accrual status).  As of June 30, 2014, the net outstanding balance of the 17 restructured loans was $6.0 million:  one was classified as special mention on accrual status ($343,000); and 16 were classified as substandard ($5.6 million, all of which were 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, 2014 and June 30, 2014, $5.3 million or 89 percent, and $3.7 million or 62 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 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.


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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:

(In Thousands)
December 31, 2014
June 30, 2014
Restructured loans on non-accrual status:
 
 
Mortgage loans:
 
 
Single-family
$
2,792

$
2,957

Multi-family
1,591

1,760

Commercial real estate
792

800

Commercial business loans
98

92

Total
5,273

5,609

 
 
 
Restructured loans on accrual status:
 

 

Mortgage loans:
 

 

Single-family
687

343

Total
687

343

 
 
 
Total restructured loans
$
5,960

$
5,952



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The following tables show the restructured loans by type, net of allowance for loan losses, at December 31, 2014 and June 30, 2014:

 
 
 
(In Thousands)
December 31, 2014
 
Recorded
Investment
Allowance
for Loan
Losses
(1)
 
Net
Investment
Mortgage loans:
 
 
 
Single-family:
 
 
 
With a related allowance
$
751

$
(150
)
$
601

Without a related allowance (2)
2,878


2,878

Total single-family loans
3,629

(150
)
3,479

 
 
 
 
Multi-family:
 
 
 
Without a related allowance (2)
1,591


1,591

Total multi-family loans
1,591


1,591

 
 
 
 
Commercial real estate:
 
 
 
Without a related allowance (2)
792


792

Total commercial real estate loans
792


792

 
 
 
 
Commercial business loans:
 
 
 
With a related allowance
120

(22
)
98

Total commercial business loans
120

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