Attached files

file filename
EX-32.2 - EXHIBIT 32.2 - PROVIDENT FINANCIAL HOLDINGS INCprov-20170331x10qxex322.htm
EX-32.1 - EXHIBIT 32.1 - PROVIDENT FINANCIAL HOLDINGS INCprov-20170331x10qxex321.htm
EX-31.2 - EXHIBIT 31.2 - PROVIDENT FINANCIAL HOLDINGS INCprov-20170331x10qxex312.htm
EX-31.1 - EXHIBIT 31.1 - PROVIDENT FINANCIAL HOLDINGS INCprov-20170331x10qxex311.htm
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
March 31, 2017
[     ]
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒    Non-accelerated filer ☐ Smaller reporting company ☐   Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 April 28, 2017
Common stock, $ 0.01 par value, per share
 
7,891,547 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 March 31, 2017 and June 30, 2016
 
Condensed Consolidated Statements of Operations
 
 
 
for the Quarters and Nine Months Ended March 31, 2017 and 2016
 
Condensed Consolidated Statements of Comprehensive Income
 
 
 
for the Quarters and Nine Months Ended March 31, 2017 and 2016
 
Condensed Consolidated Statements of Stockholders’ Equity
 
 
 
for the Quarters and Nine Months Ended March 31, 2017 and 2016
 
Condensed Consolidated Statements of Cash Flows
 
 
 
for the Nine Months Ended March 31, 2017 and 2016
 
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 March 31, 2017 and June 30, 2016
 
Comparison of Operating Results
 
 
 
for the Quarters and Nine Months Ended March 31, 2017 and 2016
 
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
(Unaudited)
In Thousands, Except Share Information
 
March 31,
2017
June 30,
2016
Assets
 
 
Cash and cash equivalents
$
125,298

$
51,206

Investment securities – held to maturity, at cost
41,035

39,979

Investment securities – available for sale, at fair value
9,862

11,543

Loans held for investment, net of allowance for loan losses of
$8,275 and $8,670, respectively; includes $6,250 and $5,159 at fair value, respectively
880,510

840,022

Loans held for sale, at fair value
105,531

189,458

Accrued interest receivable
2,724

2,781

Real estate owned, net
2,768

2,706

Federal Home Loan Bank (“FHLB”) – San Francisco stock
8,094

8,094

Premises and equipment, net
6,353

6,043

Prepaid expenses and other assets
17,270

19,549

 
 

 

Total assets
$
1,199,445

$
1,171,381

 
 

 

Liabilities and Stockholders’ Equity
 

 

 
 

 

Liabilities:
 

 

Non interest-bearing deposits
$
76,795

$
71,158

Interest-bearing deposits
861,511

855,226

Total deposits
938,306

926,384

 
 

 

Borrowings
111,244

91,299

Accounts payable, accrued interest and other liabilities
18,304

20,247

Total liabilities
1,067,854

1,037,930

 
 

 

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;
17,931,365 and 17,847,365 shares issued; 7,885,547 and
7,975,250 shares outstanding, respectively)
179

178

Additional paid-in capital
92,775

90,802

Retained earnings
192,816

191,666

Treasury stock at cost (10,045,818 and 9,872,115 shares, respectively)
(154,427
)
(149,508
)
Accumulated other comprehensive income, net of tax
248

313

 
 

 

Total stockholders’ equity
131,591

133,451

 
 

 

Total liabilities and stockholders’ equity
$
1,199,445

$
1,171,381



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    March 31,
Nine Months Ended   March 31,
 
2017
2016
2017
2016
Interest income:
 
 
 
 
Loans receivable, net
$
9,704

$
9,204

$
30,300

$
27,673

Investment securities
142

96

354

234

FHLB – San Francisco stock
184

163

827

542

Interest-earning deposits
250

183

406

417

Total interest income
10,280

9,646

31,887

28,866

 
 
 
 
 
Interest expense:
 
 
 
 
Checking and money market deposits
90

116

293

355

Savings deposits
144

170

434

507

Time deposits
686

807

2,189

2,500

Borrowings
713

641

2,151

1,937

Total interest expense
1,633

1,734

5,067

5,299

 
 
 
 
 
Net interest income
8,647

7,912

26,820

23,567

Recovery from the allowance for loan losses
(165
)
(694
)
(665
)
(1,094
)
Net interest income, after recovery from the allowance for loan losses
8,812

8,606

27,485

24,661

 
 
 
 
 
Non-interest income:
 
 
 
 
Loan servicing and other fees
362

383

939

800

Gain on sale of loans, net
5,395

7,145

19,869

22,113

Deposit account fees
562

590

1,664

1,790

Loss on sale and operations of real estate owned acquired in the settlement of loans, net
(74
)
(276
)
(240
)
(12
)
Card and processing fees
338

355

1,063

1,069

Other
208

227

580

711

Total non-interest income
6,791

8,424

23,875

26,471

 
 
 
 
 
Non-interest expense:
 
 
 
 
Salaries and employee benefits
10,370

10,630

32,033

31,393

Premises and occupancy
1,241

1,146

3,765

3,424

Equipment
352

349

1,054

1,158

Professional expenses
436

583

1,571

1,555

Sales and marketing expenses
421

356

970

952

     Deposit insurance premiums and regulatory assessments
189

252

614

764

Other
759

1,169

4,061

3,458

Total non-interest expense
13,768

14,485

44,068

42,704

 
 
 
 
 
Income before income taxes
1,835

2,545

7,292

8,428

Provision for income taxes
690

1,051

3,049

3,509

Net income
$
1,145

$
1,494

$
4,243

$
4,919

 
 
 
 
 
Basic earnings per share
$
0.14

$
0.18

$
0.53

$
0.58

Diluted earnings per share
$
0.14

$
0.18

$
0.52

$
0.57

Cash dividends per share
$
0.13

$
0.12

$
0.39

$
0.36


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    March 31,
 
For the Nine Months Ended   March 31,
 
2017
2016
 
2017
2016
Net income
$
1,145

$
1,494

 
$
4,243

$
4,919

 
 
 
 
 
 
Change in unrealized holding (loss) gain on securities available for sale
(28
)
28

 
(112
)
(119
)
Reclassification of (gains) losses to net income


 


Other comprehensive (loss) income, before income taxes
(28
)
28

 
(112
)
(119
)
 
 
 
 
 
 
Income tax (benefit) provision
(12
)
12

 
(47
)
(50
)
Other comprehensive (loss) income
(16
)
16

 
(65
)
(69
)
 
 
 
 
 
 
Total comprehensive income
$
1,129

$
1,510

 
$
4,178

$
4,850



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 Ended March 31, 2017 and 2016:
 
Common
Stock
Additional
Paid-In Capital
Retained Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 
Shares
Amount
Total
Balance at December 31, 2016
7,915,116

$
179

$
92,215

$
192,699

$
(152,802
)
$
264

$
132,555

 
 
 
 
 
 
 
 
Net income
 
 
 
1,145

 
 
1,145

Other comprehensive loss
 
 
 
 
 
(16
)
(16
)
Purchase of treasury stock
(89,819
)
 
 
 
(1,678
)
 
(1,678
)
Exercise of stock options
60,250


524

 
 
 
524

Amortization of restricted stock
 
 
139

 
 
 
139

Awards of restricted stock
 
 
(53
)
 
53

 

Stock options expense
 
 
115

 
 
 
115

Tax effect from stock-based compensation
 
 
(165
)
 
 
 
(165
)
Cash dividends(1)
 
 
 
(1,028
)
 
 
(1,028
)
 
 
 
 
 
 
 
 
Balance at March 31, 2017
7,885,547

$
179

$
92,775

$
192,816

$
(154,427
)
$
248

$
131,591


(1) Cash dividends of $0.13 per share were paid in the quarter ended March 31, 2017.
 
 
Common
Stock
Additional
Paid-In Capital
Retained Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Income,
Net of Tax
 
 
Shares
Amount
Total
Balance at December 31, 2015
8,345,723

$
178

$
89,604

$
189,590

$
(141,753
)
$
246

$
137,865

 
 
 
 
 
 
 
 
Net income
 
 
 
1,494

 
 
1,494

Other comprehensive income
 
 
 
 
 
16

16

Purchase of treasury stock(1)
(208,840
)
 
 
 
(3,634
)
 
(3,634
)
Exercise of stock options
57,500

1

420

 
 
 
421

Distribution of restricted stock
7,500

 
 
 
 
 

Amortization of restricted stock
 
 
152

 
 
 
152

Stock options expense
 
 
139

 
 
 
139

Tax effect from stock-based compensation
 
 
197

 
 
 
197

Cash dividends(2)
 
 
 
(1,000
)
 
 
(1,000
)
 
 
 
 
 
 
 
 
Balance at March 31, 2016
8,201,883

$
179

$
90,512

$
190,084

$
(145,387
)
$
262

$
135,650


(1) Includes the repurchase of 3,090 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2) Cash dividends of $0.12 per share were paid in the quarter ended March 31, 2016.



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

4



For the Nine Months Ended March 31, 2017 and 2016:

 
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, 2016
7,975,250

$
178

$
90,802

$
191,666

$
(149,508
)
$
313

$
133,451

 
 
 
 
 
 
 
 
Net income
 
 
 
4,243

 
 
4,243

Other comprehensive loss
 
 
 
 
 
(65
)
(65
)
Purchase of treasury stock(1)
(261,453
)
 
 
 
(4,999
)
 
(4,999
)
Exercise of stock options
84,000

1

808

 
 
 
809

Distribution of restricted stock
87,750

 
 
 
 
 

Amortization of restricted stock
 
 
634

 
 
 
634

Awards of restricted stock
 
 
(214
)
 
214

 

Forfeitures of restricted stock
 
 
134

 
(134
)
 

Stock options expense
 
 
597

 
 

 
597

Tax effect from stock-based compensation
 
 
14

 
 
 
14

Cash dividends(2)
 
 
 

(3,093
)
 
 
(3,093
)
 
 
 
 
 
 
 
 
Balance at March 31, 2017
7,885,547

$
179

$
92,775

$
192,816

$
(154,427
)
$
248

$
131,591


(1) Includes the repurchase of 25,598 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2) Cash dividends of $0.39 per share were paid during the nine months ended March 31, 2017.

 
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, 2015
8,634,607

$
177

$
88,893

$
188,206

$
(136,470
)
$
331

$
141,137

 
 
 
 
 
 
 
 
Net income
 
 
 
4,919

 
 
4,919

Other comprehensive loss
 
 
 
 
 
(69
)
(69
)
Purchase of treasury stock(1)
(520,224
)
 
 
 
(8,917
)
 
(8,917
)
Exercise of stock options
77,500

2

567

 
 
 
569

Distribution of restricted stock
10,000

 
 
 
 
 

Amortization of restricted stock
 
 
446

 
 
 
446

Stock options expense
 
 
394

 
 
 
394

Tax effect from stock-based compensation
 
 
212

 
 
 
212

Cash dividends(2)
 
 
 
(3,041
)
 
 
(3,041
)
 
 
 
 
 
 
 
 
Balance at March 31, 2016
8,201,883

$
179

$
90,512

$
190,084

$
(145,387
)
$
262

$
135,650


(1) Includes the repurchase of 4,500 shares from a cashless stock option exercise and the repurchase of 3,090 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2) Cash dividends of $0.36 per share were paid during the nine months ended March 31, 2016.


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)
 
Nine Months Ended   March 31,
 
2017
2016
Cash flows from operating activities:
 
 
Net income
$
4,243

$
4,919

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
1,948

1,332

Recovery from the allowance for loan losses
(665
)
(1,094
)
Provision (recovery) of losses on real estate owned
145

(80
)
Gain on sale of loans, net
(19,869
)
(22,113
)
Gain on sale of real estate owned, net
(84
)
(12
)
Stock-based compensation
1,231

840

Provision (benefit) for deferred income taxes
1,335

(188
)
Tax effect from stock based compensation
(14
)
(212
)
Increase in accounts payable, accrued interest and other liabilities
1,006

420

Increase in prepaid expenses and other assets
(572
)
(701
)
Loans originated for sale
(1,507,162
)
(1,405,671
)
Proceeds from sale of loans
1,609,636

1,471,958

Net cash provided by operating activities
91,178

49,398

 
 
 
Cash flows from investing activities:
 
 
(Increase) decrease in loans held for investment, net
(42,052
)
3,015

Principal payments from investment securities held to maturity
9,398

513

Principal payments from investment securities available for sale
1,434

1,896

Purchase of investment securities held to maturity
(10,970
)
(20,769
)
Proceeds from sale of real estate owned
1,497

4,971

Purchase of premises and equipment
(991
)
(698
)
Net cash used for investing activities
(41,684
)
(11,072
)
 
 
 
Cash flows from financing activities:
 
 
Increase in deposits, net
11,922

2,979

Proceeds from long-term borrowings
20,000


Repayments of long-term borrowings
(55
)
(50
)
Exercise of stock options
809

569

Tax effect from stock based compensation
14

212

Cash dividends
(3,093
)
(3,041
)
Treasury stock purchases
(4,999
)
(8,917
)
Net cash provided by (used for) financing activities
24,598

(8,248
)
 
 
 
Net increase in cash and cash equivalents
74,092

30,078

Cash and cash equivalents at beginning of period
51,206

81,403

Cash and cash equivalents at end of period
$
125,298

$
111,481

Supplemental information:
 
 
Cash paid for interest
$
5,043

$
5,306

Cash paid for income taxes
$
2,384

$
3,845

Transfer of loans held for sale to held for investment
$
2,280

$
3,758

Real estate acquired in the settlement of loans
$
1,845

$
5,083


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

March 31, 2017

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 statement of financial condition at June 30, 2016 is 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, 2016.  The results of operations for the quarter and nine months ended March 31, 2017 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2017.


Note 2: Accounting Standard Updates (“ASU”)

There have been no accounting standard updates or changes in the status of their adoption that are applicable to the Corporation as previously disclosed in Note 1 of the Corporation's Annual Report on Form 10-K for the year ended June 30, 2016, except the adoption of ASU 2015-05, ASU 2015-10 and ASU 2015-12 beginning in fiscal 2017 which did not have a material impact on its condensed consolidated financial statements and as set forth below.
 
ASU 2017-07:
In March 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost." This ASU requires an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Corporation's adoption of this ASU is not expected to have a material impact on its condensed consolidated financial statements.

ASU 2017-03:
In January 2017, the FASB issued ASU 2017-03, "Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323) and Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings." The SEC staff announcement provided the view that a registrant should evaluate ASUs that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those ASUs on the financial statements when adopted.  This announcement applies to Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)"; ASU No. 2016-02, "Leases (Topic 842)"; and ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments in this ASU is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. The Corporation has adopted the amendments in this ASU and appropriate disclosures have been included in this Note for each recently issued accounting standard.

ASU 2016-19:
In December 2016, the FASB issued ASU 2016-19, "Technical Corrections and Improvements." The amendments in this ASU cover a wide range of topics in the Codification. The reason is provided before each amendment for clarity and ease of understanding. The amendments in this ASU are generally related to: (1) differences between original guidance and the codification, (2) guidance clarification and reference corrections, (3) simplification and (4) minor improvements. These amendments improve the guidance and are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most

7



entities. The amendments in this ASU are effective upon issuance and the Corporation's adoption of this ASU did not have a material impact on its condensed consolidated financial statements.

ASU 2016-13:
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This ASU requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Corporation is in the process of identifying required changes to the loan loss estimation models and processes and evaluating the impact of this new guidance. Upon adoption, the Corporation expects the allowance for loan losses to increase, however, until the evaluation is complete the magnitude of the increase will be unknown.

ASU 2016-02:
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." This ASU introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard, ASC 606, Revenue From Contracts With Customers. The new leases standard represents a wholesale change to lease accounting and will most likely result in significant implementation challenges during the transition period and beyond. This ASU will be effective for annual periods beginning after December 15, 2018, and interim periods therein, early adoption is permitted. The Corporation is currently evaluating the provisions of ASU No. 2016-02 to determine the potential impact the new standard will have on the Company's Consolidated Financial Statements. The Corporation leases buildings and offices under non-cancelable operating leases, the majority of which will be subject to this ASU. While the Corporation has not quantified the impact to its balance sheet, upon adoption of this ASU, the Corporation expects to report increased assets and increased liabilities on its Consolidated Statements of Financial Condition as a result of recognizing right-of-use assets and lease liabilities related to these leases and certain equipment under non-cancelable operating lease agreements, which currently are not reflected in its Consolidated Statements of Financial Condition.

ASU 2015-14:
In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606)," which defers the effective date of ASU No. 2014-09 one year. ASU No. 2014-09 created Topic 606 and supersedes Topic 605, Revenue Recognition. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU No. 2015-14 is effective for public entities for interim and annual periods beginning after December 15, 2017; early adoption is permitted for interim and annual periods beginning after December 15, 2016. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. A significant amount of the Corporation's revenues are derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance. With respect to noninterest income, the Corporation is in its preliminary stages of identifying and evaluating the revenue streams and underlying revenue contracts within the scope of the guidance. The Corporation is expecting to begin developing processes and procedures during 2017 to ensure it is fully compliant with these amendments. To date, the Corporation has not yet identified any significant changes in the timing of revenue recognition when considering the amended accounting guidance; however, the Corporation's implementation efforts are ongoing and such assessments may change prior to the July 1, 2018 implementation date.



8



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 March 31, 2017 and 2016, there were outstanding options to purchase 683,250 shares and 943,500 shares of the Corporation’s common stock, respectively, of which 76,000 shares and 216,500 shares, respectively, were excluded from the diluted EPS computation as their effect was anti-dilutive. As of March 31, 2017 and 2016, there were outstanding restricted stock awards of 111,000 shares and 190,000 shares, respectively, all of which had a dilutive effect.

The following table provides the basic and diluted EPS computations for the quarters and nine months ended March 31, 2017 and 2016, respectively.
 
(In Thousands, Except Earnings Per Share)
For the Quarters Ended
March 31,
For the Nine Months Ended
March 31,
 
2017
2016
2017
2016
Numerator:
 
 
 
 
Net income – numerator for basic earnings per share and diluted earnings per share - available to common stockholders
$
1,145

$
1,494

$
4,243

$
4,919

 
 
 
 
 
Denominator:
 

 

 

 

Denominator for basic earnings per share:
 

 

 

 

 Weighted-average shares
7,926

8,318

7,943

8,427

 
 
 
 
 
   Effect of dilutive shares:
 
 
 
 
Stock options
142

132

153

129

Restricted stock
26

66

30

64

 
 
 
 
 
Denominator for diluted earnings per share:
 

 

 

 

Adjusted weighted-average shares and assumed conversions
8,094

8,516

8,126

8,620

 
 
 
 
 
Basic earnings per share
$
0.14

$
0.18

$
0.53

$
0.58

Diluted earnings per share
$
0.14

$
0.18

$
0.52

$
0.57




9



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 nine months ended March 31, 2017 and 2016, respectively.
 
For the Quarter Ended March 31, 2017
(In Thousands)
Provident
Bank
Provident
Bank
Mortgage
Consolidated
Totals
Net interest income
$
7,940

$
707

$
8,647

Recovery from the allowance for loan losses
(121
)
(44
)
(165
)
Net interest income, after recovery from the allowance for loan losses
8,061

751

8,812

 
 
 
 
Non-interest income:
 
 
 
     Loan servicing and other fees (1)
125

237

362

     Gain on sale of loans, net (2)
1

5,394

5,395

Deposit account fees
562


562

     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(68
)
(6
)
(74
)
Card and processing fees
338


338

Other
208


208

Total non-interest income
1,166

5,625

6,791

 
 
 
 
Non-interest expense:
 
 
 
Salaries and employee benefits
4,662

5,708

10,370

Premises and occupancy
784

457

1,241

Operating and administrative expenses
1,333

824

2,157

Total non-interest expense
6,779

6,989

13,768

Income (loss) before income taxes
2,448

(613
)
1,835

Provision (benefit) for income taxes
948

(258
)
690

Net income (loss)
$
1,500

$
(355
)
$
1,145

Total assets, end of period
$
1,093,715

$
105,730

$
1,199,445


(1) 
Includes an inter-company charge of $173 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 $48 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 Quarter Ended March 31, 2016
(In Thousands)
Provident
Bank
Provident
Bank
Mortgage
Consolidated
Totals
Net interest income
$
6,915

$
997

$
7,912

Recovery from the allowance for loan losses
(690
)
(4
)
(694
)
Net interest income after recovery from the allowance for loan losses
7,605

1,001

8,606

 
 
 
 
Non-interest income:
 
 
 
     Loan servicing and other fees (1)
126

257

383

     Gain on sale of loans, net (2)
34

7,111

7,145

Deposit account fees
590


590

     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(231
)
(45
)
(276
)
Card and processing fees
355


355

Other
227


227

Total non-interest income
1,101

7,323

8,424

 
 
 
 
Non-interest expense:
 
 
 
Salaries and employee benefits
4,761

5,869

10,630

Premises and occupancy
720

426

1,146

Operating and administrative expenses
1,232

1,477

2,709

Total non-interest expense
6,713

7,772

14,485

Income before income taxes
1,993

552

2,545

Provision for income taxes
819

232

1,051

Net income
$
1,174

$
320

$
1,494

Total assets, end of period
$
989,538

$
184,213

$
1,173,751


(1) 
Includes an inter-company charge of $135 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 $53 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 Nine Months Ended March 31, 2017
(In Thousands)
Provident
Bank
Provident
Bank
Mortgage
Consolidated
Totals
Net interest income
$
23,336

$
3,484

$
26,820

Recovery from the allowance for loan losses
(431
)
(234
)
(665
)
Net interest income, after recovery from the allowance for loan losses
23,767

3,718

27,485

 
 
 
 
Non-interest income:
 
 
 
     Loan servicing and other fees (1)
444

495

939

     Gain on sale of loans, net (2)
39

19,830

19,869

Deposit account fees
1,664


1,664

     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(231
)
(9
)
(240
)
Card and processing fees
1,063


1,063

Other
580


580

Total non-interest income
3,559

20,316

23,875

 
 
 
 
Non-interest expense:
 
 
 
Salaries and employee benefits
14,198

17,835

32,033

Premises and occupancy
2,432

1,333

3,765

Operating and administrative expenses
3,632

4,638

8,270

Total non-interest expense
20,262

23,806

44,068

Income before income taxes
7,064

228

7,292

Provision for income taxes
2,953

96

3,049

Net income
$
4,111

$
132

$
4,243

Total assets, end of period
$
1,093,715

$
105,730

$
1,199,445


(1) 
Includes an inter-company charge of $396 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 $216 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.


12



 
For the Nine Months Ended March 31, 2016
(In Thousands)
Provident
Bank
Provident
Bank
Mortgage
Consolidated
Totals
Net interest income
$
20,519

$
3,048

$
23,567

Recovery from the allowance for loan losses
(1,031
)
(63
)
(1,094
)
Net interest income, after recovery from the allowance for loan losses
21,550

3,111

24,661

 
 
 
 
Non-interest income:
 
 
 
     Loan servicing and other fees (1)
458

342

800

     Gain on sale of loans, net (2)
34

22,079

22,113

Deposit account fees
1,790


1,790

     Gain (loss) on sale and operations of real estate owned
        acquired in the settlement of loans, net
28

(40
)
(12
)
Card and processing fees
1,069


1,069

Other
711


711

Total non-interest income
4,090

22,381

26,471

 
 
 
 
Non-interest expense:
 
 
 
Salaries and employee benefits
13,569

17,824

31,393

Premises and occupancy
2,164

1,260

3,424

Operating and administrative expenses
3,467

4,420

7,887

Total non-interest expense
19,200

23,504

42,704

Income before income taxes
6,440

1,988

8,428

Provision for income taxes
2,673

836

3,509

Net income
$
3,767

$
1,152

$
4,919

Total assets, end of period
$
989,538

$
184,213

$
1,173,751


(1) 
Includes an inter-company charge of $303 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 $352 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.



13



Note 5: Investment Securities

The amortized cost and estimated fair value of investment securities as of March 31, 2017 and June 30, 2016 were as follows:
March 31, 2017
 
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair
Value
 
Carrying
Value
(In Thousands)
 
 
 
 
 
Held to maturity:
 
 
 
 
 
Certificates of deposit
$
800

$

$

$
800

$
800

U.S. government sponsored enterprise MBS (1)
40,235

241

(6
)
40,470

40,235

Total investment securities - held to maturity
$
41,035

$
241

$
(6
)
$
41,270

$
41,035

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
U.S. government agency MBS
$
5,499

$
201

$

$
5,700

$
5,700

U.S. government sponsored enterprise MBS
3,474

187


3,661

3,661

Private issue CMO (2)
497

4


501

501

Total investment securities - available for sale
$
9,470

$
392

$

$
9,862

$
9,862

Total investment securities
$
50,505

$
633

$
(6
)
$
51,132

$
50,897


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

June 30, 2016
 
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair
Value
 
Carrying
Value
(In Thousands)
 
 
 
 
 
Held to maturity:
 
 
 
 
 
Certificates of deposit
$
800

$

$

$
800

$
800

U.S. government sponsored enterprise MBS
39,179

459


39,638

39,179

Total investment securities - held to maturity
$
39,979

$
459

$

$
40,438

$
39,979

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
U.S. government agency MBS
$
6,308

$
264

$

$
6,572

$
6,572

U.S. government sponsored enterprise MBS
3,998

225


4,223

4,223

Private issue CMO
598

4

(1
)
601

601

Common stock - community development financial institution
147



147

147

Total investment securities - available for sale
$
11,051

$
493

$
(1
)
$
11,543

$
11,543

Total investment securities
$
51,030

$
952

$
(1
)
$
51,981

$
51,522


In the third quarters of fiscal 2017 and 2016, the Corporation received MBS principal payments of $3.5 million and $1.1 million, respectively, and there were no sales of investment securities during these periods. In the third quarters of fiscal 2017 and 2016, the Corporation purchased U.S. government sponsored enterprise MBS totaling $11.0 million and $10.6 million to be held to maturity, respectively. For the first nine months of fiscal 2017 and 2016, the Corporation received MBS principal payments of $10.8 million and $2.4 million, respectively, and there were no sales of investment securities during these periods. In the first nine months of fiscal 2017 and 2016, the Corporation purchased U.S. government sponsored enterprise MBS totaling $11.0 million and $20.8 million to be held to maturity, respectively. In July 2016, the Corporation received the cash proceeds from its equity investment in a community development financial institution, consistent with the purchase agreement between the acquiring institution and the community development financial institution.
  

14



The Corporation held investments with an unrealized loss position of $6,000 at March 31, 2017 and $1,000 at June 30, 2016.
As of March 31, 2017
Unrealized Holding Losses
 
Unrealized Holding Losses
 
Unrealized Holding Losses
(In Thousands)
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Unrealized
 
Fair
Unrealized
 
Fair
Unrealized
Description of Securities
Value
Losses
 
Value
Losses
 
Value
Losses
Held to maturity:
 
 
 
 
 
 
 
 
U.S. government sponsored enterprise MBS
$
11,548

$
6

 
$

$

 
$
11,548

$
6

Total investment securities
$
11,548

$
6

 
$

$


$
11,548

$
6


As of June 30, 2016
Unrealized Holding Losses
 
Unrealized Holding Losses
 
Unrealized Holding Losses
(In Thousands)
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Unrealized
 
Fair
Unrealized
 
Fair
Unrealized
Description of Securities
Value
Losses
 
Value
Losses
 
Value
Losses
Available for sale:
 
 
 
 
 
 
 
 
Private issue CMO
$
103

$
1

 
$

$

 
$
103

$
1

Total investment securities
$
103

$
1

 
$

$


$
103

$
1


The Corporation evaluates individual investment securities quarterly for other-than-temporary declines in market value.  As of March 31, 2017 and June 30, 2016, the unrealized holding loss was less than 12 months. The Corporation does not believe that there are any other-than-temporary impairments on the investment securities at March 31, 2017 and 2016; therefore, no impairment losses were recorded for the quarters and nine months ended March 31, 2017 and 2016.

Contractual maturities of investment securities as of March 31, 2017 and June 30, 2016 were as follows:
 
March 31, 2017
 
June 30, 2016
(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
25,286

25,290

 
18,904

19,203

Due after ten years
14,949

15,180

 
20,275

20,435

Total investment securities - held to maturity
$
41,035

$
41,270

 
$
39,979

$
40,438

 
 
 
 
 
 
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
9,470

9,862

 
10,904

11,396

No stated maturity (common stock)


 
147

147

Total investment securities - available for sale
$
9,470

$
9,862

 
$
11,051

$
11,543

Total investment securities
$
50,505

$
51,132

 
$
51,030

$
51,981




15



Note 6: Loans Held for Investment
 
Loans held for investment, net of fair value adjustments, consisted of the following:
(In Thousands)
March 31,
2017
June 30,
2016
Mortgage loans:
 
 
Single-family
$
319,714

$
324,497

Multi-family
459,180

415,627

Commercial real estate
96,364

99,528

Construction
16,552

14,653

Other
241

332

Commercial business loans
668

636

Consumer loans
126

203

Total loans held for investment, gross
892,845

855,476

 
 
 
Undisbursed loan funds
(9,468
)
(11,258
)
Advance payments of escrows
165

56

Deferred loan costs, net
5,243

4,418

Allowance for loan losses
(8,275
)
(8,670
)
Total loans held for investment, net
$
880,510

$
840,022


As of March 31, 2017, the Corporation had $9.1 million in mortgage loans that are subject to negative amortization, consisting of $6.3 million in multi-family loans, $2.7 million in single-family loans and $125,000 in commercial real estate loans.  This compares to $10.2 million of negative amortization mortgage loans at June 30, 2016, consisting of $6.9 million in multi-family loans, $3.1 million in single-family loans and $170,000 in commercial real estate loans.  During the third quarters and nine months of fiscal 2017 and 2016, no loan interest income was added to the negative amortization loan balance.  Negative amortization involves a greater risk to the Corporation because the loan principal balance may increase by a range of 110% to 115% of the original loan amount during the period of negative amortization and because the loan payment may increase beyond the means of the borrower when loan principal amortization is required.  Also, the Corporation has originated interest-only adjustable rate mortgage ("ARM") loans, which typically have a fixed interest rate for the first two to five years coupled with an interest only payment, followed by a periodic adjustable rate and a fully amortizing loan payment.  As of March 31, 2017 and June 30, 2016, the interest-only ARM loans were $23.8 million and $64.7 million, or 2.7% and 7.6% of loans held for investment, respectively. As of March 31, 2017, the Corporation had $6.3 million of single-family loans, 19 loans, held for investment which were originated for sale but were subsequently transferred to loans held for investment and are carried at fair value. This compares to $5.2 million of single-family loans, 18 loans, held for investment at June 30, 2016 which were originated for sale but were subsequently transferred to loans held for investment and carried at fair value.

The following table sets forth information at March 31, 2017 regarding the dollar amount of loans held for investment that are contractually repricing during the periods indicated, segregated between adjustable rate loans and fixed rate loans.  Fixed-rate loans comprised 3% of loans held for investment at both March 31, 2017 and June 30, 2016.  Adjustable rate loans having no stated repricing dates that reprice when the index they are tied to reprices (e.g. prime rate index) and checking account overdrafts are reported as repricing within one year.  The table does not include any estimate of prepayments which may cause the Corporation’s actual repricing experience to differ materially from that shown.


16



 
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
$
196,477

$
18,222

$
65,837

$
26,031

$
13,147

$
319,714

Multi-family
83,750

176,173

172,985

23,626

2,646

459,180

Commercial real estate
20,923

39,087

34,256


2,098

96,364

Construction
12,774




3,778

16,552

Other




241

241

Commercial business loans
167




501

668

Consumer loans
126





126

Total loans held for investment, gross
$
314,217

$
233,482

$
273,078

$
49,657

$
22,411

$
892,845


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

The Corporation categorizes all of the loans held for investment into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows:
 
Pass - These loans range from minimal credit risk to average, but still acceptable, credit risk. The likelihood of loss is considered remote.
Special Mention - A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the bank is currently protected and loss is considered unlikely and not imminent.
Substandard - A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful - A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.
Loss - A loss loan is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.


17



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, 2017
(In Thousands)
Single-family
Multi-family
Commercial Real Estate
Construction
Other Mortgage
Commercial Business
Consumer
Total
 
 
 
 
 
 
 
 
 
 
Pass
$
307,365

$
455,543

$
96,163

$
16,552

$
241

$
585

$
126

$
876,575

Special Mention
3,816

3,265






7,081

Substandard
8,533

372

201



83


9,189

 
Total loans held for
   investment, gross
$
319,714

$
459,180

$
96,364

$
16,552

$
241

$
668

$
126

$
892,845


 
 
June 30, 2016
(In Thousands)
Single-family
Multi-family
Commercial Real Estate
Construction
Other Mortgage
Commercial Business
Consumer
Total
 
 
 
 
 
 
 
 
 
 
Pass
$
309,380

$
410,804

$
99,528

$
14,653

$
332

$
540

$
203

$
835,440

Special Mention
4,858

3,974






8,832

Substandard
10,259

849




96


11,204

 
Total loans held for
   investment, gross
$
324,497

$
415,627

$
99,528

$
14,653

$
332

$
636

$
203

$
855,476


The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment and upon management’s continuing analysis of the factors underlying the quality of the loans held for investment.  These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic conditions, detailed analysis of individual loans for which full collectability may not be assured, and determination of the realizable value of the collateral securing the loans.  The provision (recovery) for (from) the allowance for loan losses is charged (credited) against operations on a quarterly basis, as necessary, to maintain the allowance at appropriate levels.  Although management believes it uses the best information available to make such determinations, there can be no assurance that regulators, in reviewing the Corporation’s loans held for investment, will not request a significant increase in its allowance for loan losses.  Future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected as a result of economic, operating, regulatory, and other conditions beyond the Corporation’s control.

Non-performing loans are charged-off to their fair market values in the period the loans, or portion thereof, are deemed uncollectible, generally after the loan becomes 150 days delinquent for real estate secured first trust deed loans and 120 days delinquent for commercial business or real estate secured second trust deed loans.  For loans that were modified from their original terms, were re-underwritten and identified in the Corporation’s asset quality reports as troubled debt restructurings (“restructured loans”), the charge-off occurs when the loan becomes 90 days delinquent; and where borrowers file bankruptcy, the charge-off occurs when the loan becomes 60 days delinquent.  The amount of the charge-off is determined by comparing the loan balance to the estimated fair value of the underlying collateral, less disposition costs, with the loan balance in excess of the estimated fair value charged-off against the allowance for loan losses.  The allowance for loan losses for non-performing loans is determined by applying Accounting Standards Codification (“ASC”) 310, “Receivables.”  For restructured loans that are less than 90 days delinquent, the allowance for loan losses are segregated into (a) individually evaluated allowances for those loans with applicable discounted cash flow calculations still in their restructuring period, classified lower than pass, and containing an embedded loss component or (b) collectively evaluated allowances based on the aggregated pooling method.  For non-performing loans less than 60 days delinquent where the borrower has filed bankruptcy, the collectively evaluated allowances are assigned based on the aggregated pooling method. For non-performing commercial real estate loans, an individually evaluated allowance is derived based on the loan's discounted cash flow fair value (for restructured loans) or collateral fair value less estimated selling costs and if the fair value is higher than the loan balance, no allowance is required.


18



The following table summarizes the Corporation’s allowance for loan losses at March 31, 2017 and June 30, 2016:
(In Thousands)
March 31, 2017
June 30, 2016
Collectively evaluated for impairment:
 
 
Mortgage loans:
 
 
Single-family
$
3,909

$
4,933

Multi-family
3,367

2,800

Commercial real estate
868

848

Construction
80

31

Other
5

7

Commercial business loans
24

23

Consumer loans
7

8

Total collectively evaluated allowance
8,260

8,650

 
 
 
Individually evaluated for impairment:
 
 
Commercial business loans
15

20

Total individually evaluated allowance
15

20

Total loan loss allowance
$
8,275

$
8,670



19



The following table is provided to disclose additional details on the Corporation’s allowance for loan losses:
 
For the Quarters Ended
March 31,
For the Nine Months Ended
March 31,
(Dollars in Thousands)
2017
2016
2017
2016
 
 
 
 
 
Allowance at beginning of period
$
8,391

$
8,768

$
8,670

$
8,724

 
 
 
 
 
Recovery from the allowance for loan losses
(165
)
(694
)
(665
)
(1,094
)
 
 
 
 
 
Recoveries:
 

 

 

 

Mortgage loans:
 

 

 

 

Single-family
83

129

379

356

Multi-family
3

53

16

167

Commercial real estate



216

Commercial business loans
75


75

85

Consumer loans
1

1

2

1

Total recoveries
162

183

472

825

 
 
 
 
 
Charge-offs:
 

 

 

 

Mortgage loans:
 

 

 

 

Single-family
(112
)
(57
)
(199
)
(253
)
Consumer loans
(1
)

(3
)
(2
)
Total charge-offs
(113
)
(57
)
(202
)
(255
)
 
 
 
 
 
Net recoveries
49

126

270

570

Balance at end of period
$
8,275

$
8,200

$
8,275

$
8,200

 
 

 

 

 

Allowance for loan losses as a percentage of gross loans held for investment at the end of the period
0.93
 %
1.01
 %
0.93
 %
1.01
 %
Net recoveries as a percentage of average loans receivable, net, during the period (annualized)
(0.02
)%
(0.05
)%
(0.03
)%
(0.08
)%



20



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, 2017
(In Thousands)
Current
30-89 Days Past Due
Non-Accrual (1)
Total Loans Held for Investment
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
Single-family
$
310,203

$
978

$
8,533

$
319,714

 
Multi-family
458,808


372