Attached files
file | filename |
---|---|
EX-32.2 - EXHIBIT 32.2 - PROVIDENT FINANCIAL HOLDINGS INC | prov-20170930x10qxex322.htm |
EX-32.1 - EXHIBIT 32.1 - PROVIDENT FINANCIAL HOLDINGS INC | prov-20170930x10qxex321.htm |
EX-31.2 - EXHIBIT 31.2 - PROVIDENT FINANCIAL HOLDINGS INC | prov-20170930x10qxex312.htm |
EX-31.1 - EXHIBIT 31.1 - PROVIDENT FINANCIAL HOLDINGS INC | prov-20170930x10qxex311.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 | September 30, 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 October 31, 2017 | |
Common stock, $ 0.01 par value, per share | 7,609,552 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 September 30, 2017 and June 30, 2017 | |||
Condensed Consolidated Statements of Operations | |||
for the Quarters Ended September 30, 2017 and 2016 | |||
Condensed Consolidated Statements of Comprehensive Income | |||
for the Quarters Ended September 30, 2017 and 2016 | |||
Condensed Consolidated Statements of Stockholders’ Equity | |||
for the Quarters Ended September 30, 2017 and 2016 | |||
Condensed Consolidated Statements of Cash Flows | |||
for the Three Months Ended September 30, 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 September 30, 2017 and June 30, 2017 | |||
Comparison of Operating Results | |||
for the Quarters Ended September 30, 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
September 30, 2017 | June 30, 2017 | |||||
Assets | ||||||
Cash and cash equivalents | $ | 49,217 | $ | 72,826 | ||
Investment securities – held to maturity, at cost | 64,751 | 60,441 | ||||
Investment securities – available for sale, at fair value | 8,940 | 9,318 | ||||
Loans held for investment, net of allowance for loan losses of $8,063 and $8,039, respectively; includes $6,924 and $6,445 at fair value, respectively | 908,060 | 904,919 | ||||
Loans held for sale, at fair value | 127,234 | 116,548 | ||||
Accrued interest receivable | 2,989 | 2,915 | ||||
Real estate owned, net | — | 1,615 | ||||
Federal Home Loan Bank (“FHLB”) – San Francisco stock | 8,108 | 8,108 | ||||
Premises and equipment, net | 7,333 | 6,641 | ||||
Prepaid expenses and other assets | 17,154 | 17,302 | ||||
Total assets | $ | 1,193,786 | $ | 1,200,633 | ||
Liabilities and Stockholders’ Equity | ||||||
Liabilities: | ||||||
Non interest-bearing deposits | $ | 82,415 | $ | 77,917 | ||
Interest-bearing deposits | 844,601 | 848,604 | ||||
Total deposits | 927,016 | 926,521 | ||||
Borrowings | 121,206 | 126,226 | ||||
Accounts payable, accrued interest and other liabilities | 20,643 | 19,656 | ||||
Total liabilities | 1,068,865 | 1,072,403 | ||||
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; 17,970,865 and 17,949,365 shares issued; 7,609,552 and 7,714,052 shares outstanding, respectively) | 180 | 180 | ||||
Additional paid-in capital | 93,669 | 93,209 | ||||
Retained earnings | 191,451 | 192,754 | ||||
Treasury stock at cost (10,361,313 and 10,235,313 shares, respectively) | (160,609 | ) | (158,142 | ) | ||
Accumulated other comprehensive income, net of tax | 230 | 229 | ||||
Total stockholders’ equity | 124,921 | 128,230 | ||||
Total liabilities and stockholders’ equity | $ | 1,193,786 | $ | 1,200,633 |
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 September 30, | ||||||
2017 | 2016 | |||||
Interest income: | ||||||
Loans receivable, net | $ | 10,157 | $ | 10,480 | ||
Investment securities | 257 | 84 | ||||
FHLB – San Francisco stock | 141 | 185 | ||||
Interest-earning deposits | 190 | 55 | ||||
Total interest income | 10,745 | 10,804 | ||||
Interest expense: | ||||||
Checking and money market deposits | 103 | 98 | ||||
Savings deposits | 149 | 144 | ||||
Time deposits | 639 | 772 | ||||
Borrowings | 736 | 702 | ||||
Total interest expense | 1,627 | 1,716 | ||||
Net interest income | 9,118 | 9,088 | ||||
Provision (recovery) for loan losses | 169 | (150 | ) | |||
Net interest income, after provision (recovery) for loan losses | 8,949 | 9,238 | ||||
Non-interest income: | ||||||
Loan servicing and other fees | 363 | 267 | ||||
Gain on sale of loans, net | 4,847 | 7,996 | ||||
Deposit account fees | 558 | 550 | ||||
Loss on sale and operations of real estate owned acquired in the settlement of loans, net | (40 | ) | (103 | ) | ||
Card and processing fees | 381 | 364 | ||||
Other | 243 | 178 | ||||
Total non-interest income | 6,352 | 9,252 | ||||
Non-interest expense: | ||||||
Salaries and employee benefits | 9,269 | 11,314 | ||||
Premises and occupancy | 1,314 | 1,289 | ||||
Equipment | 362 | 362 | ||||
Professional expenses | 520 | 505 | ||||
Sales and marketing expenses | 203 | 296 | ||||
Deposit insurance premiums and regulatory assessments | 184 | 248 | ||||
Other(1) | 3,882 | 1,618 | ||||
Total non-interest expense | 15,734 | 15,632 | ||||
(Loss) income before income taxes | (433 | ) | 2,858 | |||
(Benefit) provision for income taxes | (208 | ) | 1,264 | |||
Net (loss) income | $ | (225 | ) | $ | 1,594 | |
Basic (loss) earnings per share | $ | (0.03 | ) | $ | 0.20 | |
Diluted (loss) earnings per share | $ | (0.03 | ) | $ | 0.20 | |
Cash dividends per share | $ | 0.14 | $ | 0.13 |
..
(1) Includes $2.75 million of litigation settlement expense for the quarter ended September 30, 2017.
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 September 30, | ||||||
2017 | 2016 | |||||
Net (loss) income | $ | (225 | ) | $ | 1,594 | |
Change in unrealized holding gain (loss) on securities available for sale | 2 | (57 | ) | |||
Reclassification of (gains) losses to net income | — | — | ||||
Other comprehensive income (loss), before income taxes | 2 | (57 | ) | |||
Income tax provision (benefit) | 1 | (24 | ) | |||
Other comprehensive income (loss) | 1 | (33 | ) | |||
Total comprehensive (loss) income | $ | (224 | ) | $ | 1,561 |
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 September 30, 2017 and 2016:
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income, Net of Tax | ||||||||||||||||
Shares | Amount | Total | ||||||||||||||||||
Balance at June 30, 2017 | 7,714,052 | $ | 180 | $ | 93,209 | $ | 192,754 | $ | (158,142 | ) | $ | 229 | $ | 128,230 | ||||||
Net loss | (225 | ) | (225 | ) | ||||||||||||||||
Other comprehensive income | 1 | 1 | ||||||||||||||||||
Purchase of treasury stock | (126,000 | ) | (2,450 | ) | (2,450 | ) | ||||||||||||||
Exercise of stock options | 21,500 | 177 | 177 | |||||||||||||||||
Amortization of restricted stock | 149 | 149 | ||||||||||||||||||
Forfeiture of restricted stock | 17 | (17 | ) | — | ||||||||||||||||
Stock options expense | 117 | 117 | ||||||||||||||||||
Cash dividends(1) | (1,078 | ) | (1,078 | ) | ||||||||||||||||
Balance at September 30, 2017 | 7,609,552 | $ | 180 | $ | 93,669 | $ | 191,451 | $ | (160,609 | ) | $ | 230 | $ | 124,921 |
(1) Cash dividends of $0.14 per share were paid in the quarter ended September 30, 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, 2016 | 7,975,250 | $ | 178 | $ | 90,802 | $ | 191,666 | $ | (149,508 | ) | $ | 313 | $ | 133,451 | ||||||
Net income | 1,594 | 1,594 | ||||||||||||||||||
Other comprehensive loss | (33 | ) | (33 | ) | ||||||||||||||||
Purchase of treasury stock(1) | (85,834 | ) | (1,662 | ) | (1,662 | ) | ||||||||||||||
Exercise of stock options | 1,000 | 17 | 17 | |||||||||||||||||
Distribution of restricted stock | 87,750 | — | ||||||||||||||||||
Amortization of restricted stock | 362 | 362 | ||||||||||||||||||
Awards of restricted stock | (136 | ) | 136 | — | ||||||||||||||||
Forfeiture of restricted stock | 61 | (61 | ) | — | ||||||||||||||||
Stock options expense | 340 | 340 | ||||||||||||||||||
Tax effect from stock-based compensation | 187 | 187 | ||||||||||||||||||
Cash dividends(2) | (1,033 | ) | (1,033 | ) | ||||||||||||||||
Balance at September 30, 2016 | 7,978,166 | $ | 178 | $ | 91,633 | $ | 192,227 | $ | (151,095 | ) | $ | 280 | $ | 133,223 |
(1) Includes the repurchase of 25,598 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2) Cash dividends of $0.13 per share were paid in the quarter ended September 30, 2016.
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited - In Thousands)
Three Months Ended September 30, | ||||||
2017 | 2016 | |||||
Cash flows from operating activities: | ||||||
Net (loss) income | $ | (225 | ) | $ | 1,594 | |
Adjustments to reconcile net (loss) income to net cash used for operating activities: | ||||||
Depreciation and amortization | 664 | 697 | ||||
Provision (recovery) for loan losses | 169 | (150 | ) | |||
(Recovery) provision of losses on real estate owned | (552 | ) | 100 | |||
Gain on sale of loans, net | (4,847 | ) | (7,996 | ) | ||
Loss (gain) on sale of real estate owned, net | 580 | (54 | ) | |||
Stock-based compensation | 266 | 702 | ||||
(Benefit) provision for deferred income taxes | (930 | ) | 1,420 | |||
Tax effect from stock based compensation | — | (187 | ) | |||
Increase in accounts payable, accrued interest and other liabilities | 1,039 | 1,828 | ||||
Decrease (increase) in prepaid expenses and other assets | 617 | (361 | ) | |||
Loans originated for sale | (392,292 | ) | (647,342 | ) | ||
Proceeds from sale of loans | 386,799 | 579,698 | ||||
Net cash used for operating activities | (8,712 | ) | (70,051 | ) | ||
Cash flows from investing activities: | ||||||
Increase in loans held for investment, net | (3,517 | ) | (15,097 | ) | ||
Principal payments from investment securities held to maturity | 5,570 | 3,481 | ||||
Principal payments from investment securities available for sale | 383 | 567 | ||||
Purchase of investment securities held to maturity | (10,102 | ) | — | |||
Proceeds from sale of real estate owned | 1,587 | 307 | ||||
Purchase of premises and equipment | (901 | ) | (78 | ) | ||
Net cash used for investing activities | (6,980 | ) | (10,820 | ) | ||
Cash flows from financing activities: | ||||||
Increase in deposits, net | 495 | 17,118 | ||||
(Repayments) proceeds from short-term borrowings, net | (5,000 | ) | 35,000 | |||
Proceeds from long-term borrowings | — | 20,000 | ||||
Repayments of long-term borrowings | (20 | ) | (18 | ) | ||
Exercise of stock options | 177 | 17 | ||||
Withholding taxes on stock based compensation | (41 | ) | (501 | ) | ||
Tax effect from stock based compensation | — | 187 | ||||
Cash dividends | (1,078 | ) | (1,033 | ) | ||
Treasury stock purchases | (2,450 | ) | (1,662 | ) | ||
Net cash (used for) provided by financing activities | (7,917 | ) | 69,108 | |||
Net decrease in cash and cash equivalents | (23,609 | ) | (11,763 | ) | ||
Cash and cash equivalents at beginning of period | 72,826 | 51,206 | ||||
Cash and cash equivalents at end of period | $ | 49,217 | $ | 39,443 | ||
Supplemental information: | ||||||
Cash paid for interest | $ | 1,606 | $ | 1,671 | ||
Cash paid for income taxes | $ | — | $ | 100 | ||
Transfer of loans held for sale to held for investment | $ | 521 | $ | 760 | ||
Real estate acquired in the settlement of loans | $ | — | $ | 1,298 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PROVIDENT FINANCIAL HOLDINGS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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, 2017 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, 2017. The results of operations for the quarter and three months ended September 30, 2017 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2018.
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, 2017, except the adoption of ASU 2016-09 beginning in fiscal 2018 which did not have a material impact on its condensed consolidated financial statements.
6
Note 3: (Loss) Earnings Per Share
Basic (loss) 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 September 30, 2017 and 2016, there were outstanding options to purchase 591,250 shares and 932,000 shares of the Corporation’s common stock, respectively. Of those shares, as of September 30, 2017 and 2016, there were 591,250 shares and 200,000 shares, respectively, which were excluded from the diluted EPS computation as their effect was anti-dilutive. As of September 30, 2017, there were outstanding restricted stock awards of 109,000 shares with no dilutive effect in the first quarter of fiscal 2018; and as of September 30, 2016, there were outstanding restricted stock awards of 110,250 shares which had a dilutive effect in the first quarter of fiscal 2017.
The following table provides the basic and diluted EPS computations for the quarters ended September 30, 2017 and 2016, respectively.
(In Thousands, Except Earnings Per Share) | For the Quarters Ended September 30, | |||||
2017 | 2016 | |||||
Numerator: | ||||||
Net (loss) income – numerator for basic earnings per share and diluted earnings per share - available to common stockholders | $ | (225 | ) | $ | 1,594 | |
Denominator: | ||||||
Denominator for basic earnings per share: | ||||||
Weighted-average shares | 7,694 | 7,948 | ||||
Effect of dilutive shares: | ||||||
Stock options | — | 158 | ||||
Restricted stock | — | 48 | ||||
Denominator for diluted earnings per share: | ||||||
Adjusted weighted-average shares and assumed conversions | 7,694 | 8,154 | ||||
Basic (loss) earnings per share | $ | (0.03 | ) | $ | 0.20 | |
Diluted (loss) earnings per share | $ | (0.03 | ) | $ | 0.20 |
7
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 ended September 30, 2017 and 2016, respectively.
For the Quarter Ended September 30, 2017 | |||||||||
(In Thousands) | Provident Bank | Provident Bank Mortgage | Consolidated Totals | ||||||
Net interest income | $ | 8,550 | $ | 568 | $ | 9,118 | |||
Provision for loan losses | 169 | — | 169 | ||||||
Net interest income, after provision for loan losses | 8,381 | 568 | 8,949 | ||||||
Non-interest income: | |||||||||
Loan servicing and other fees (1) | 47 | 316 | 363 | ||||||
Gain on sale of loans, net (2) | — | 4,847 | 4,847 | ||||||
Deposit account fees | 558 | — | 558 | ||||||
Loss on sale and operations of real estate owned acquired in the settlement of loans, net | (40 | ) | — | (40 | ) | ||||
Card and processing fees | 381 | — | 381 | ||||||
Other | 243 | — | 243 | ||||||
Total non-interest income | 1,189 | 5,163 | 6,352 | ||||||
Non-interest expense: | |||||||||
Salaries and employee benefits | 4,502 | 4,767 | 9,269 | ||||||
Premises and occupancy | 827 | 487 | 1,314 | ||||||
Operating and administrative expenses | 2,251 | 2,900 | 5,151 | ||||||
Total non-interest expense | 7,580 | 8,154 | 15,734 | ||||||
Income (loss) before income taxes | 1,990 | (2,423 | ) | (433 | ) | ||||
Provision (benefit) for income taxes | 811 | (1,019 | ) | (208 | ) | ||||
Net income (loss) | $ | 1,179 | $ | (1,404 | ) | $ | (225 | ) | |
Total assets, end of period | $ | 1,066,294 | $ | 127,492 | $ | 1,193,786 |
(1) | Includes an inter-company charge of $240 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 $59 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis. |
8
For the Quarter Ended September 30, 2016 | |||||||||
(In Thousands) | Provident Bank | Provident Bank Mortgage | Consolidated Totals | ||||||
Net interest income | $ | 7,575 | $ | 1,513 | $ | 9,088 | |||
Provision (recovery) for loan losses | 36 | (186 | ) | (150 | ) | ||||
Net interest income after provision (recovery) for loan losses | 7,539 | 1,699 | 9,238 | ||||||
Non-interest income: | |||||||||
Loan servicing and other fees (1) | 69 | 198 | 267 | ||||||
Gain on sale of loans, net (2) | 1 | 7,995 | 7,996 | ||||||
Deposit account fees | 550 | — | 550 | ||||||
Loss (gain) on sale and operations of real estate owned acquired in the settlement of loans, net | (105 | ) | 2 | (103 | ) | ||||
Card and processing fees | 364 | — | 364 | ||||||
Other | 178 | — | 178 | ||||||
Total non-interest income | 1,057 | 8,195 | 9,252 | ||||||
Non-interest expense: | |||||||||
Salaries and employee benefits | 4,894 | 6,420 | 11,314 | ||||||
Premises and occupancy | 856 | 433 | 1,289 | ||||||
Operating and administrative expenses | 1,147 | 1,882 | 3,029 | ||||||
Total non-interest expense | 6,897 | 8,735 | 15,632 | ||||||
Income before income taxes | 1,699 | 1,159 | 2,858 | ||||||
Provision for income taxes | 777 | 487 | 1,264 | ||||||
Net income | $ | 922 | $ | 672 | $ | 1,594 | |||
Total assets, end of period | $ | 977,964 | $ | 264,550 | $ | 1,242,514 |
(1) | Includes an inter-company charge of $95 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 $59 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis. |
9
Note 5: Investment Securities
The amortized cost and estimated fair value of investment securities as of September 30, 2017 and June 30, 2017 were as follows:
September 30, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Estimated Fair Value | Carrying Value | ||||||||||
(In Thousands) | |||||||||||||||
Held to maturity: | |||||||||||||||
Certificates of deposit | $ | 600 | $ | — | $ | — | $ | 600 | $ | 600 | |||||
U.S. government sponsored enterprise MBS (1) | 64,151 | 205 | (28 | ) | 64,328 | 64,151 | |||||||||
Total investment securities - held to maturity | $ | 64,751 | $ | 205 | $ | (28 | ) | $ | 64,928 | $ | 64,751 | ||||
Available for sale: | |||||||||||||||
U.S. government agency MBS | $ | 4,943 | $ | 199 | $ | — | $ | 5,142 | $ | 5,142 | |||||
U.S. government sponsored enterprise MBS | 3,186 | 164 | — | 3,350 | 3,350 | ||||||||||
Private issue CMO (2) | 442 | 6 | — | 448 | 448 | ||||||||||
Total investment securities - available for sale | $ | 8,571 | $ | 369 | $ | — | $ | 8,940 | $ | 8,940 | |||||
Total investment securities | $ | 73,322 | $ | 574 | $ | (28 | ) | $ | 73,868 | $ | 73,691 |
(1) | Mortgage-Backed Securities (“MBS”). |
(2) | Collateralized Mortgage Obligations (“CMO”). |
June 30, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Estimated Fair Value | Carrying Value | ||||||||||
(In Thousands) | |||||||||||||||
Held to maturity: | |||||||||||||||
Certificates of deposit | $ | 600 | $ | — | $ | — | $ | 600 | $ | 600 | |||||
U.S. government sponsored enterprise MBS | 59,841 | 265 | (77 | ) | 60,029 | 59,841 | |||||||||
Total investment securities - held to maturity | $ | 60,441 | $ | 265 | $ | (77 | ) | $ | 60,629 | $ | 60,441 | ||||
Available for sale: | |||||||||||||||
U.S. government agency MBS | $ | 5,197 | $ | 186 | $ | — | $ | 5,383 | $ | 5,383 | |||||
U.S. government sponsored enterprise MBS | 3,301 | 173 | — | 3,474 | 3,474 | ||||||||||
Private issue CMO | 456 | 5 | — | 461 | 461 | ||||||||||
Total investment securities - available for sale | $ | 8,954 | $ | 364 | $ | — | $ | 9,318 | $ | 9,318 | |||||
Total investment securities | $ | 69,395 | $ | 629 | $ | (77 | ) | $ | 69,947 | $ | 69,759 |
In the first quarters of fiscal 2018 and 2017, the Corporation received MBS principal payments of $6.0 million and $4.0 million, respectively, and there were no sales of investment securities during these periods. The Corporation purchased U.S. government sponsored enterprise MBS totaling $10.1 million, to be held to maturity, during the first quarter of fiscal 2018 and no purchases were made during the first quarter of fiscal 2017.
10
The Corporation held investments with an unrealized loss position of $28,000 at September 30, 2017 and $77,000 at June 30, 2017.
As of September 30, 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 | $ | 35,179 | $ | 28 | $ | — | $ | — | $ | 35,179 | $ | 28 | ||||||||
Total investment securities | $ | 35,179 | $ | 28 | $ | — | $ | — | $ | 35,179 | $ | 28 |
As of June 30, 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 | $ | 28,722 | $ | 77 | $ | — | $ | — | $ | 28,722 | $ | 77 | ||||||||
Total investment securities | $ | 28,722 | $ | 77 | $ | — | $ | — | $ | 28,722 | $ | 77 |
The Corporation evaluates individual investment securities quarterly for other-than-temporary declines in market value. As of September 30, 2017 and June 30, 2017, 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 September 30, 2017 and 2016; therefore, no impairment losses were recorded for the quarters ended September 30, 2017 and 2016.
Contractual maturities of investment securities as of September 30, 2017 and June 30, 2017 were as follows:
September 30, 2017 | June 30, 2017 | ||||||||||||
(In Thousands) | Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | |||||||||
Held to maturity: | |||||||||||||
Due in one year or less | $ | 600 | $ | 600 | $ | 600 | $ | 600 | |||||
Due after one through five years | 7,840 | 7,882 | 4,698 | 4,708 | |||||||||
Due after five through ten years | 44,245 | 44,236 | 41,404 | 41,374 | |||||||||
Due after ten years | 12,066 | 12,210 | 13,739 | 13,947 | |||||||||
Total investment securities - held to maturity | $ | 64,751 | $ | 64,928 | $ | 60,441 | $ | 60,629 | |||||
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 | 8,571 | 8,940 | 8,954 | 9,318 | |||||||||
Total investment securities - available for sale | $ | 8,571 | $ | 8,940 | $ | 8,954 | $ | 9,318 | |||||
Total investment securities | $ | 73,322 | $ | 73,868 | $ | 69,395 | $ | 69,947 |
11
Note 6: Loans Held for Investment
Loans held for investment, net of fair value adjustments, consisted of the following:
(In Thousands) | September 30, 2017 | June 30, 2017 | ||||
Mortgage loans: | ||||||
Single-family | $ | 322,363 | $ | 322,197 | ||
Multi-family | 482,617 | 479,959 | ||||
Commercial real estate | 96,863 | 97,562 | ||||
Construction | 16,290 | 16,009 | ||||
Commercial business loans | 466 | 576 | ||||
Consumer loans | 131 | 129 | ||||
Total loans held for investment, gross | 918,730 | 916,432 | ||||
Undisbursed loan funds | (8,189 | ) | (9,015 | ) | ||
Advance payments of escrows | 24 | 61 | ||||
Deferred loan costs, net | 5,558 | 5,480 | ||||
Allowance for loan losses | (8,063 | ) | (8,039 | ) | ||
Total loans held for investment, net | $ | 908,060 | $ | 904,919 |
The following table sets forth information at September 30, 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 2% of loans held for investment at both September 30, 2017 and June 30, 2017. Adjustable rate loans having no stated repricing dates that reprice when the index they are tied to reprices (e.g. prime rate index) and checking account overdrafts are reported as repricing within one year. The table does not include any estimate of prepayments which may cause the Corporation’s actual repricing experience to differ materially from that shown.
Adjustable Rate | ||||||||||||||||||
(In Thousands) | Within One Year | After One Year Through 3 Years | After 3 Years Through 5 Years | After 5 Years Through 10 Years | Fixed Rate | Total | ||||||||||||
Mortgage loans: | ||||||||||||||||||
Single-family | $ | 161,098 | $ | 21,404 | $ | 77,223 | $ | 48,293 | $ | 14,345 | $ | 322,363 | ||||||
Multi-family | 111,180 | 174,809 | 179,602 | 14,441 | 2,585 | 482,617 | ||||||||||||
Commercial real estate | 23,134 | 40,725 | 32,377 | — | 627 | 96,863 | ||||||||||||
Construction | 15,861 | — | — | — | 429 | 16,290 | ||||||||||||
Commercial business loans | 61 | — | — | — | 405 | 466 | ||||||||||||
Consumer loans | 131 | — | — | — | — | 131 | ||||||||||||
Total loans held for investment, gross | $ | 311,465 | $ | 236,938 | $ | 289,202 | $ | 62,734 | $ | 18,391 | $ | 918,730 |
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
12
product, retail sales, unemployment rates, employment growth, California home sales and median California home prices. The Corporation assigns individual factors for the quantitative and qualitative methods for each loan category and each internal risk rating.
The Corporation categorizes all of the loans held for investment into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows:
▪ | Pass - These loans range from minimal credit risk to average, but still acceptable, credit risk. The likelihood of loss is considered remote. |
▪ | Special Mention - A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the bank is currently protected and loss is considered unlikely and not imminent. |
▪ | Substandard - A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. |
▪ | Doubtful - A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable. |
▪ | Loss - A loss loan is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. |
The following tables summarize gross loans held for investment, net of fair value adjustments, by loan types and risk category at the dates indicated:
September 30, 2017 | ||||||||||||||||||||||
(In Thousands) | Single-family | Multi-family | Commercial Real Estate | Construction | Commercial Business | Consumer | Total | |||||||||||||||
Pass | $ | 309,744 | $ | 482,617 | $ | 96,863 | $ | 15,364 | $ | 387 | $ | 131 | $ | 905,106 | ||||||||
Special Mention | 4,267 | — | — | 926 | — | — | 5,193 | |||||||||||||||
Substandard | 8,352 | — | — | — | 79 | — | 8,431 | |||||||||||||||
Total loans held for investment, gross | $ | 322,363 | $ | 482,617 | $ | 96,863 | $ | 16,290 | $ | 466 | $ | 131 | $ | 918,730 |
June 30, 2017 | ||||||||||||||||||||||
(In Thousands) | Single-family | Multi-family | Commercial Real Estate | Construction | Commercial Business | Consumer | Total | |||||||||||||||
Pass | $ | 310,738 | $ | 479,687 | $ | 97,361 | $ | 16,009 | $ | 496 | $ | 129 | $ | 904,420 | ||||||||
Special Mention | 3,443 | 272 | — | — | — | — | 3,715 | |||||||||||||||
Substandard | 8,016 | — | 201 | — | 80 | — | 8,297 | |||||||||||||||
Total loans held for investment, gross | $ | 322,197 | $ | 479,959 | $ | 97,562 | $ | 16,009 | $ | 576 | $ | 129 | $ | 916,432 |
The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment and upon management’s continuing analysis of the factors underlying the quality of the loans held for investment. These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic conditions, detailed analysis of individual loans for which full collectability may not be assured, and determination of the realizable value of the collateral securing the loans. The provision (recovery) for (from) the allowance for loan losses is charged (credited) against operations on a quarterly basis, as necessary, to maintain the allowance at appropriate levels. Although management believes it uses the best information available to make such determinations, there can
13
be no assurance that regulators, in reviewing the Corporation’s loans held for investment, will not request a significant increase in its allowance for loan losses. Future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected as a result of economic, operating, regulatory, and other conditions beyond the Corporation’s control.
Non-performing loans are charged-off to their fair market values in the period the loans, or portion thereof, are deemed uncollectible, generally after the loan becomes 150 days delinquent for real estate secured first trust deed loans and 120 days delinquent for commercial business or real estate secured second trust deed loans. For loans that were modified from their original terms, were re-underwritten and identified in the Corporation’s asset quality reports as troubled debt restructurings (“restructured loans”), the charge-off occurs when the loan becomes 90 days delinquent; and where borrowers file bankruptcy, the charge-off occurs when the loan becomes 60 days delinquent. The amount of the charge-off is determined by comparing the loan balance to the estimated fair value of the underlying collateral, less disposition costs, with the loan balance in excess of the estimated fair value charged-off against the allowance for loan losses. The allowance for loan losses for non-performing loans is determined by applying Accounting Standards Codification (“ASC”) 310, “Receivables.” For restructured loans that are less than 90 days delinquent, the allowance for loan losses are segregated into (a) individually evaluated allowances for those loans with applicable discounted cash flow calculations still in their restructuring period, classified lower than pass, and containing an embedded loss component or (b) collectively evaluated allowances based on the aggregated pooling method. For non-performing loans less than 60 days delinquent where the borrower has filed bankruptcy, the collectively evaluated allowances are assigned based on the aggregated pooling method. For non-performing commercial real estate loans, an individually evaluated allowance is derived based on the loan's discounted cash flow fair value (for restructured loans) or collateral fair value less estimated selling costs and if the fair value is higher than the loan balance, no allowance is required.
The following table summarizes the Corporation’s allowance for loan losses at September 30, 2017 and June 30, 2017:
(In Thousands) | September 30, 2017 | June 30, 2017 | ||||
Collectively evaluated for impairment: | ||||||
Mortgage loans: | ||||||
Single-family | $ | 3,562 | $ | 3,515 | ||
Multi-family | 3,431 | 3,420 | ||||
Commercial real estate | 875 | 879 | ||||
Construction | 140 | 96 | ||||
Commercial business loans | 16 | 21 | ||||
Consumer loans | 7 | 7 | ||||
Total collectively evaluated allowance | 8,031 | 7,938 | ||||
Individually evaluated for impairment: | ||||||
Mortgage loans: | ||||||
Single-family | 17 | 86 | ||||
Commercial business loans | 15 | 15 | ||||
Total individually evaluated allowance | 32 | 101 | ||||
Total loan loss allowance | $ | 8,063 | $ | 8,039 |
14
The following table is provided to disclose additional details on the Corporation’s allowance for loan losses:
For the Quarters Ended September 30, | ||||||
(Dollars in Thousands) | 2017 | 2016 | ||||
Allowance at beginning of period | $ | 8,039 | $ | 8,670 | ||
Provision (recovery) for loan losses | 169 | (150 | ) | |||
Recoveries: | ||||||
Mortgage loans: | ||||||
Single-family | 84 | 263 | ||||
Multi-family | — | 7 | ||||
Consumer loans | — | 1 | ||||
Total recoveries | 84 | 271 | ||||
Charge-offs: | ||||||
Mortgage loans: | ||||||
Single-family | (229 | ) | (66 | ) | ||
Total charge-offs | (229 | ) | (66 | ) | ||
Net (charge-offs) recoveries | (145 | ) | 205 | |||
Balance at end of period | $ | 8,063 | $ | 8,725 | ||
Allowance for loan losses as a percentage of gross loans held for investment at the end of the period | 0.88 | % | 1.01 | % | ||
Net charge-offs (recoveries) as a percentage of average loans receivable, net, during the period (annualized) | 0.06 | % | (0.08 | )% |
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.
September 30, 2017 | |||||||||||||
(In Thousands) | Current | 30-89 Days Past Due | Non-Accrual (1) | Total Loans Held for Investment | |||||||||
Mortgage loans: | |||||||||||||
Single-family | $ | 312,499 | $ | 1,512 | $ | 8,352 | $ | 322,363 | |||||
Multi-family | 482,617 | — | — | 482,617 | |||||||||
Commercial real estate | 96,863 | — | — | 96,863 | |||||||||
Construction | 16,290 | — | — | 16,290 | |||||||||
Commercial business loans | 387 | — | 79 | 466 | |||||||||
Consumer loans | 131 | — | — | 131 | |||||||||
Total loans held for investment, gross | $ | 908,787 | $ | 1,512 | $ | 8,431 | $ | 918,730 |
(1) All loans 90 days or greater past due are placed on non-accrual status.
15
June 30, 2017 | |||||||||||||
(In Thousands) | Current | 30-89 Days Past Due | Non-Accrual (1) | Total Loans Held for Investment | |||||||||
Mortgage loans: | |||||||||||||
Single-family | $ | 313,146 | $ | 1,035 | $ | 8,016 | $ | 322,197 | |||||
Multi-family | 479,959 | — | — | 479,959 | |||||||||
Commercial real estate | 97,361 | — | 201 | 97,562 | |||||||||
Construction | 16,009 | — | — | 16,009 | |||||||||
Commercial business loans | 496 | — | 80 | 576 | |||||||||
Consumer loans | 129 | — | — | 129 | |||||||||
Total loans held for investment, gross | $ | 907,100 | $ | 1,035 | $ | 8,297 | $ | 916,432 |
(1) All loans 90 days or greater past due are placed on non-accrual status.
The following tables summarize the Corporation’s allowance for loan losses and recorded investment in gross loans, by portfolio type, at the dates and for the periods indicated.
Quarter Ended September 30, 2017 | ||||||||||||||||||||||
(In Thousands) | Single-family | Multi-family | Commercial Real Estate | Construction | Commercial Business | Consumer | Total | |||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||
Allowance at beginning of period | $ | 3,601 | $ | 3,420 | $ | 879 | $ | 96 | $ | 36 | $ | 7 | $ | 8,039 | ||||||||
Provision (recovery) for loan losses | 123 | 11 | (4 | ) | 44 | (5 | ) | — | 169 | |||||||||||||
Recoveries | 84 | — | — | — | — | — | 84 | |||||||||||||||
Charge-offs | (229 | ) | — | — | — | — | — | (229 | ) | |||||||||||||
Allowance for loan losses, end of period | $ | 3,579 | $ | 3,431 | $ | 875 | $ | 140 | $ | 31 | $ | 7 | $ | 8,063 | ||||||||
Allowance for loan losses: | ||||||||||||||||||||||
Individually evaluated for impairment | $ | 17 | $ | — | $ | — | $ | — | $ | 15 | $ | — | $ | 32 | ||||||||
Collectively evaluated for impairment | 3,562 | 3,431 | 875 | 140 | 16 | 7 | 8,031 | |||||||||||||||
Allowance for loan losses, end of period | $ | 3,579 | $ | 3,431 | $ | 875 | $ | 140 | $ | 31 | $ | 7 | $ | 8,063 | ||||||||
Loans held for investment: | ||||||||||||||||||||||
Individually evaluated for impairment | $ | 6,239 | $ | — | $ | — | $ | — | $ | 79 | $ | — | $ | 6,318 | ||||||||
Collectively evaluated for impairment | 316,124 | 482,617 | 96,863 | 16,290 | 387 | 131 | 912,412 | |||||||||||||||
Total loans held for investment, gross | $ | 322,363 | $ | 482,617 | $ | 96,863 | $ | 16,290 | $ | 466 | $ | 131 | $ | 918,730 | ||||||||
Allowance for loan losses as a percentage of gross loans held for investment | 1.11 | % | 0.71 | % | 0.90 | % | 0.86 | % | 6.65 | % | 5.34 | % | 0.88 | % |
16
Quarter Ended September 30, 2016 | |||||||||||||||||||||||||
(In Thousands) | Single-family | Multi-family | Commercial Real Estate | Construction | Other Mortgage | Commercial Business | Consumer | Total | |||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||||
Allowance at beginning of period | $ | 4,933 | $ | 2,800 | $ | 848 | $ | 31 | $ | 7 | $ | 43 | $ | 8 | $ | 8,670 | |||||||||
(Recovery) provision for loan losses | (555 | ) | 379 | 6 | 22 | — | (1 | ) | (1 | ) | (150 | ) | |||||||||||||
Recoveries | 263 | 7 | — | — | — | — | 1 | 271 | |||||||||||||||||
Charge-offs | (66 | ) | — | — | — | — | — | — | (66 | ) | |||||||||||||||
Allowance for loan losses, end of period | $ | 4,575 | $ | 3,186 | $ | 854 | $ | 53 | $ | 7 | $ | 42 | $ | 8 | $ | 8,725 | |||||||||
Allowance for loan losses: | |||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 20 | $ | — | $ | 20 | |||||||||
Collectively evaluated for impairment | 4,575 | 3,186 | 854 | 53 | 7 | 22 | 8 | 8,705 | |||||||||||||||||
Allowance for loan losses, end of period | $ | 4,575 | $ | 3,186 | $ | 854 | $ | 53 | $ | 7 | $ | 42 | $ | 8 | $ | 8,725 | |||||||||
Loans held for investment: | |||||||||||||||||||||||||
Individually evaluated for impairment | $ | 6,634 | $ | 377 | $ | — | $ | — | $ | — | $ | 94 | $ | — | $ | 7,105 | |||||||||
Collectively evaluated for impairment | 306,161 | 438,046 | 100,136 | 15,811 | 331 | 530 | 199 | 861,214 | |||||||||||||||||
Total loans held for investment, gross | $ | 312,795 | $ | 438,423 | $ | 100,136 | $ | 15,811 | $ | 331 | $ | 624 | $ | 199 | $ | 868,319 | |||||||||
Allowance for loan losses as a percentage of gross loans held for investment | 1.46 | % | 0.73 | % | 0.85 | % | 0.34 | % | 2.11 | % | 6.73 | % | 4.02 | % | 1.01 | % |
17
The following tables identify the Corporation’s total recorded investment in non-performing loans by type at the dates and for the periods indicated. Generally, a loan is placed on non-accrual status when it becomes 90 days past due as to principal or interest or if the loan is deemed impaired, after considering economic and business conditions and collection efforts, where the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. In addition, interest income is not recognized on any loan where management has determined that collection is not reasonably assured. A non-performing loan may be restored to accrual status when delinquent principal and interest payments are brought current, the borrower(s) has demonstrated sustained payment performance and future monthly principal and interest payments are expected to be collected on a timely basis. Loans with a related allowance reserve have been individually evaluated for impairment using either a discounted cash flow analysis or, for collateral dependent loans, current appraisals less costs to sell, to establish realizable value. This analysis may identify a specific impairment amount needed or may conclude that no reserve is needed. Loans that are not individually evaluated for impairment are included in pools of homogeneous loans for evaluation of related allowance reserves.
At September 30, 2017 | |||||||||||||||||
Unpaid | Net | ||||||||||||||||
Principal | Related | Recorded | Recorded | ||||||||||||||
(In Thousands) | Balance | Charge-offs | Investment | Allowance(1) | Investment | ||||||||||||
Mortgage loans: | |||||||||||||||||
Single-family: | |||||||||||||||||
With a related allowance | $ | 2,407 | $ | — | $ | 2,407 | $ | (463 | ) | $ | 1,944 | ||||||
Without a related allowance(2) | 7,013 | (1,030 | ) | 5,983 | — | 5,983 | |||||||||||
Total single-family | 9,420 | (1,030 | ) | 8,390 | (463 | ) | 7,927 | ||||||||||
Commercial business loans: | |||||||||||||||||
With a related allowance | 79 | — | 79 | (15 | ) | 64 | |||||||||||
Total commercial business loans | 79 | — | 79 | (15 | ) | 64 | |||||||||||
Total non-performing loans | $ | 9,499 | $ | (1,030 | ) | $ | 8,469 | $ | (478 | ) | $ | 7,991 |
(1) Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan, and fair value credit adjustments.
(2) There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.
18
At June 30, 2017 | |||||||||||||||||
Unpaid | Net | ||||||||||||||||
Principal | Related | Recorded | Recorded | ||||||||||||||
(In Thousands) | Balance | Charge-offs | Investment | Allowance(1) | Investment | ||||||||||||
Mortgage loans: | |||||||||||||||||
Single-family: | |||||||||||||||||
With a related allowance | $ | 1,821 | $ | — | $ | 1,821 | $ | (325 | ) | $ | 1,496 | ||||||
Without a related allowance(2) | 7,119 | (886 | ) | 6,233 | — | 6,233 | |||||||||||
Total single-family | 8,940 | (886 | ) | 8,054 | (325 | ) | 7,729 | ||||||||||
Commercial real estate: | |||||||||||||||||
Without a related allowance(2) | 201 | — | 201 | — | 201 | ||||||||||||
Total commercial real estate | 201 | — | 201 | — | 201 | ||||||||||||
Commercial business loans: | |||||||||||||||||
With a related allowance | 80 | — | 80 | (15 | ) | 65 | |||||||||||
Total commercial business loans | 80 | — | 80 |