Loans Held For Investment | Loans Held for Investment Loans held for investment, net of fair value adjustments, consisted of the following: (In Thousands) March 31, June 30, 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. Adjustable Rate (In Thousands) Within One Year After After After 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. 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. 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 The following table is provided to disclose additional details on the Corporation’s allowance for loan losses: For the Quarters Ended For the Nine Months Ended (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 )% 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 — 372 459,180 Commercial real estate 96,163 — 201 96,364 Construction 16,552 — — 16,552 Other 241 — — 241 Commercial business loans 585 — 83 668 Consumer loans 126 — — 126 Total loans held for investment, gross $ 882,678 $ 978 $ 9,189 $ 892,845 (1) All loans 90 days or greater past due are placed on non-accrual status. June 30, 2016 (In Thousands) Current 30-89 Days Past Due Non-Accrual (1) Total Loans Held for Investment Mortgage loans: Single-family $ 312,595 $ 1,644 $ 10,258 $ 324,497 Multi-family 414,777 — 850 415,627 Commercial real estate 99,528 — — 99,528 Construction 14,653 — — 14,653 Other 332 — — 332 Commercial business loans 540 — 96 636 Consumer loans 203 — — 203 Total loans held for investment, gross $ 842,628 $ 1,644 $ 11,204 $ 855,476 (1) All loans 90 days or greater past due are placed on non-accrual status. The following tables summarize the Corporation’s allowance for loan losses and recorded investment in gross loans, by portfolio type, at the dates and for the periods indicated. Quarter Ended March 31, 2017 (In Thousands) Single-family Multi-family Commercial Real Estate Construction Other Mortgage Commercial Business Consumer Total Allowance for loan losses: Allowance at beginning of period $ 4,283 $ 3,156 $ 836 $ 65 $ 6 $ 37 $ 8 $ 8,391 (Recovery) provision for loan losses (345 ) 208 32 15 (1 ) (73 ) (1 ) (165 ) Recoveries 83 3 — — — 75 1 162 Charge-offs (112 ) — — — — — (1 ) (113 ) Allowance for loan losses, end of period $ 3,909 $ 3,367 $ 868 $ 80 $ 5 $ 39 $ 7 $ 8,275 Allowance for loan losses: Individually evaluated for impairment $ — $ — $ — $ — $ — $ 15 $ — $ 15 Collectively evaluated for impairment 3,909 3,367 868 80 5 24 7 8,260 Allowance for loan losses, end of period $ 3,909 $ 3,367 $ 868 $ 80 $ 5 $ 39 $ 7 $ 8,275 Loans held for investment: Individually evaluated for impairment $ 6,849 $ 372 $ 201 $ — $ — $ 83 $ — $ 7,505 Collectively evaluated for impairment 312,865 458,808 96,163 16,552 241 585 126 885,340 Total loans held for investment, gross $ 319,714 $ 459,180 $ 96,364 $ 16,552 $ 241 $ 668 $ 126 $ 892,845 Allowance for loan losses as a percentage of gross loans held for investment 1.22 % 0.73 % 0.90 % 0.48 % 2.07 % 5.84 % 5.56 % 0.93 % Quarter Ended March 31, 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 $ 5,720 $ 1,919 $ 778 $ 304 $ 1 $ 37 $ 9 $ 8,768 Recovery from the allowance for loan losses (285 ) (74 ) (37 ) (294 ) — (2 ) (2 ) (694 ) Recoveries 129 53 — — — — 1 183 Charge-offs (57 ) — — — — — — (57 ) Allowance for loan losses, end of period $ 5,507 $ 1,898 $ 741 $ 10 $ 1 $ 35 $ 8 $ 8,200 Allowance for loan losses: Individually evaluated for impairment $ — $ — $ — $ — $ — $ 20 $ — $ 20 Collectively evaluated for impairment 5,507 1,898 741 10 1 15 8 8,180 Allowance for loan losses, end of period $ 5,507 $ 1,898 $ 741 $ 10 $ 1 $ 35 $ 8 $ 8,200 Loans held for investment: Individually evaluated for impairment $ 7,638 $ 1,933 $ — $ — $ — $ 98 $ — $ 9,669 Collectively evaluated for impairment 328,159 376,938 93,384 9,679 72 354 230 808,816 Total loans held for investment, gross $ 335,797 $ 378,871 $ 93,384 $ 9,679 $ 72 $ 452 $ 230 $ 818,485 Allowance for loan losses as a percentage of gross loans held for investment 1.64 % 0.50 % 0.79 % 0.10 % 1.39 % 7.74 % 3.48 % 1.01 % Nine Months Ended March 31, 2017 (In Thousands) Single-family Multi-family Commercial Real Estate Construction Other Mortgage Commercial Business Consumer Total Allowance for loan losses: Allowance at beginning of period $ 4,933 $ 2,800 $ 848 $ 31 $ 7 $ 43 $ 8 $ 8,670 (Recovery) provision for loan losses (1,204 ) 551 20 49 (2 ) (79 ) — (665 ) Recoveries 379 16 — — — 75 2 472 Charge-offs (199 ) — — — — — (3 ) (202 ) Allowance for loan losses, end of period $ 3,909 $ 3,367 $ 868 $ 80 $ 5 $ 39 $ 7 $ 8,275 Allowance for loan losses: Individually evaluated for impairment $ — $ — $ — $ — $ — $ 15 $ — $ 15 Collectively evaluated for impairment 3,909 3,367 868 80 5 24 7 8,260 Allowance for loan losses, end of period $ 3,909 $ 3,367 $ 868 $ 80 $ 5 $ 39 $ 7 $ 8,275 Loans held for investment: Individually evaluated for impairment $ 6,849 $ 372 $ 201 $ — $ — $ 83 $ — $ 7,505 Collectively evaluated for impairment 312,865 458,808 96,163 16,552 241 585 126 885,340 Total loans held for investment, gross $ 319,714 $ 459,180 $ 96,364 $ 16,552 $ 241 $ 668 $ 126 $ 892,845 Allowance for loan losses as a percentage of gross loans held for investment 1.22 % 0.73 % 0.90 % 0.48 % 2.07 % 5.84 % 5.56 % 0.93 % Nine Months Ended March 31, 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 $ 5,280 $ 2,616 $ 734 $ 42 $ — $ 43 $ 9 $ 8,724 Provision (recovery) for loan 124 (885 ) (209 ) (32 ) 1 (93 ) — (1,094 ) Recoveries 356 167 216 — — 85 1 825 Charge-offs (253 ) — — — — — (2 ) (255 ) Allowance for loan losses, end of period $ 5,507 $ 1,898 $ 741 $ 10 $ 1 $ 35 $ 8 $ 8,200 Allowance for loan losses: Individually evaluated for impairment $ — $ — $ — $ — $ — $ 20 $ — $ 20 Collectively evaluated for impairment 5,507 1,898 741 10 1 15 8 8,180 Allowance for loan losses, end of period $ 5,507 $ 1,898 $ 741 $ 10 $ 1 $ 35 $ 8 $ 8,200 Loans held for investment: Individually evaluated for impairment $ 7,638 $ 1,933 $ — $ — $ — $ 98 $ — $ 9,669 Collectively evaluated for impairment 328,159 376,938 93,384 9,679 72 354 230 808,816 Total loans held for investment, gross $ 335,797 $ 378,871 $ 93,384 $ 9,679 $ 72 $ 452 $ 230 $ 818,485 Allowance for loan losses as a percentage of gross loans held for investment 1.64 % 0.50 % 0.79 % 0.10 % 1.39 % 7.74 % 3.48 % 1.01 % The following tables identify the Corporation’s total recorded investment in non-performing loans by type at the dates and for the periods indicated. Generally, a loan is placed on non-accrual status when it becomes 90 days past due as to principal or interest or if the loan is deemed impaired, after considering economic and business conditions and collection efforts, where the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. In addition, interest income is not recognized on any loan where management has determined that collection is not reasonably assured. A non-performing loan may be restored to accrual status when delinquent principal and interest payments are brought current, the borrower(s) has demonstrated sustained payment performance and future monthly principal and interest payments are expected to be collected on a timely basis. Loans with a related allowance reserve have been individually evaluated for impairment using either a discounted cash flow analysis or, for collateral dependent loans, current appraisals less costs to sell, to establish realizable value. This analysis may identify a specific impairment amount needed or may conclude that no reserve is needed. Loans that are not individually evaluated for impairment are included in pools of homogeneous loans for evaluation of related allowance reserves. At March 31, 2017 Unpaid Net Principal Related Recorded Recorded (In Thousands) Balance Charge-offs Investment Allowance (1) Investment Mortgage loans: Single-family: With a related allowance $ 1,722 $ — $ 1,722 $ (360 ) $ 1,362 Without a related allowance (2) 7,863 (1,014 ) 6,849 — 6,849 Total single-family 9,585 (1,014 ) 8,571 (360 ) 8,211 Multi-family: Without a related allowance (2) 374 (2 ) 372 — 372 Total multi-family 374 (2 ) 372 — 372 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 83 — 83 (15 ) 68 Total commercial business loans 83 — 83 (15 ) 68 Consumer loans: Without a related allowance (2) 11 (11 ) — — — Total consumer loans 11 (11 ) — — — Total non-performing loans $ 10,254 $ (1,027 ) $ 9,227 $ (375 ) $ 8,852 (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. At June 30, 2016 Unpaid Net Principal Related Recorded Recorded (In Thousands) Balance Charge-offs Investment Allowance (1) Investment Mortgage loans: Single-family: With a related allowance $ 3,328 $ — $ 3,328 $ (773 ) $ 2,555 Without a related allowance (2) 8,339 (1,370 ) 6,969 — 6,969 Total single-family 11,667 (1,370 ) 10,297 (773 ) 9,524 Multi-family: With a related allowance 468 — 468 (141 ) 327 Without a related allowance (2) 400 (18 ) 382 — 382 Total multi-family 868 (18 ) 850 (141 ) 709 Commercial business loans: With a related allowance 96 — 96 (20 ) 76 Total commercial business loans 96 — 96 (20 ) 76 Consumer loans: Without a related allowance (2) 13 (13 ) — — — Total consumer loans 13 (13 ) — — — Total non-performing loans $ 12,644 $ (1,401 ) $ 11,243 $ (934 ) $ 10,309 (1) Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan. (2) There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance. At both March 31, 2017 and June 30, 2016, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing. For the quarters ended March 31, 2017 and 2016, the Corporation’s average recorded investment in non-performing loans was $9.3 million and $12.8 million , respectively. The Corporation records payments on non-performing loans utilizing the cash basis or cost recovery method of accounting during the periods when the loans are on non-performing status. For both quarters ended March 31, 2017 and 2016, interest income of $132,000 and $50,000 , respectively, was recognized, based on cash receipts from loan payments on non-performing loans and $60,000 and $125,000 , respectively, was collected and applied to reduce the loan balances under the cost recovery method. Foregone interest income, which would have been recorded had the non-performing loans been current in accordance with their original terms, amounted to $29,000 and $19,000 for the quarters ended March 31, 2017 and 2016, respectively, and was not included in the results of operations. For the nine months ended March 31, 2017 and 2016, the Corporation’s average investment in non-performing loans was $10.5 million and $14.0 million , respectively. For the nine months ended March 31, 2017 and 2016, interest income of $235,000 and $187,000 , respectively, was recognized, based on cash receipts from loan payments on non-performing loans; and $196,000 and $314,000 , respectively, was collected and applied to the net loan balances under the cost recovery method. Foregone interest income, which would have been recorded had the non-performing loans been current in accordance with their original terms, amounted to $105,000 and $123,000 for the nine months ended March 31, 2017 and 2016, respectively, and was not included in the results of operations. The following table presents the average recorded investment in non-performing loans and the related interest income recognized for the quarters and nine months ended March 31, 2017 and 2016: Quarter Ended March 31, 2017 2016 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized Without related allowances: Mortgage loans: Single-family $ 7,325 $ 115 $ 7,870 $ 19 Multi-family 373 4 1,941 — Commercial real estate 134 1 — — 7,832 120 9,811 19 With related allowances: Mortgage loans: Single-family 1,398 10 2,529 22 Multi-family — — 314 7 Commercial business loans 84 2 98 2 1,482 12 2,941 31 Total $ 9,314 $ 132 $ 12,752 $ 50 Nine Months Ended March 31, 2017 2016 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized Without related allowances: Mortgage loans: Single-family $ 8,480 $ 152 $ 8,544 $ 22 Multi-family 406 4 1,988 66 Commercial real estate 45 1 666 28 8,931 157 11,198 116 With related allowances: Mortgage loans: Single-family 1,287 56 2,594 58 Multi-family 156 17 105 7 Commercial business loans 88 5 102 6 1,531 78 2,801 71 Total $ 10,462 $ 235 $ 13,999 $ 187 For the quarters and nine months ended March 31, 2017 and 2016, there were no loans that were newly modified from their original terms, re-underwritten or identified in the Corporation’s asset quality reports as restructured loans. During the quarters and nine months ended March 31, 2017 and 2016, no restructured loans were in default within a 12-month period subsequent to their original restructuring. Additionally, during the quarters and nine months ended March 31, 2017 and 2016, there were no loans whose modification was extended beyond the initial maturity of the modification, except for one commercial business loan with an outstanding balance of $85,000 which was extended for two years during the second quarter of fiscal 2017. At both March 31, 2017 and June 30, 2016, there were no commitments to lend additional funds to those borrowers whose loans were restructured. As of March 31, 2017, the Corporation held 10 restructured loans with a net outstanding balance of $3.6 million : all were classified as substandard and on non-accrual. As of June 30, 2016, the Corporation held 13 restructured loans with a net outstanding balance of $4.6 million : three were classified as special mention on accrual status ( $1.3 million ); and 10 were classified as substandard ( $3.3 million , all on non-accrual status). Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Assets that do not currently expose the Corporation to sufficient risk to warrant adverse classification but possess weaknesses are designated as special mention and are closely monitored by the Corporation. As of March 31, 2017 and June 30, 2016, $1.3 million or 38% , and $1.9 million or 41% , respectively, of the restructured loans were current with respect to their modified payment terms. The Corporation upgrades restructured single-family loans to the pass category if the borrower has demonstrated satisfactory contractual payments for at least six consecutive months; 12 months for those loans that were restructured more than once; and if the borrower has demonstrated satisfactory contractual payments beyond 12 consecutive months, the loan is no longer categorized as a restructured loan. In addition to the payment history described above, multi-family, commercial real estate, construction and commercial business loans (which are sometimes referred to in this report as “preferred loans”) must also demonstrate a combination of the following characteristics to be upgraded: satisfactory cash flow, satisfactory guarantor support, and additional collateral support, among others. To qualify for restructuring, a borrower must provide evidence of their creditworthiness such as, current financial statements, their most recent income tax returns, current paystubs, current W-2s, and most recent bank statements, among other documents, which are then verified by the Corporation. The Corporation re-underwrites the loan with the borrower’s updated financial information, new credit report, current loan balance, new interest rate, remaining loan term, updated property value and modified payment schedule, among other considerations, to determine if the borrower qualifies. The following table summarizes at the dates indicated the restructured loan balances, net of allowance for loan losses, by loan type and non-accrual versus accrual status: At At (In Thousands) March 31, 2017 June 30, 2016 Restructured loans on non-accrual status: Mortgage loans: Single-family $ 3,507 $ 3,232 Commercial business loans 68 76 Total 3,575 3,308 Restructured loans on accrual status: Mortgage loans: Single-family — 1,290 Total — 1,290 Total restructured loans $ 3,575 $ 4,598 The following tables identify the Corporation’s total recorded investment in restructured loans by type at the dates and for the periods indicated. At March 31, 2017 Unpaid Net Principal Related Recorded Recorded (In Thousands) Balance Charge-offs Investment Allowance (1) Investment Mortgage loans: Single-family: With a related allowance $ 923 $ — $ 923 $ (185 ) $ 738 Without a related allowance (2) 3,274 (505 ) 2,769 — 2,769 Total single-family 4,197 (505 ) 3,692 (185 ) 3,507 Commercial business loans: With a related allowance 83 — 83 (15 ) 68 Total commercial business loans 83 — 83 (15 ) 68 Total restructured loans $ 4,280 $ (505 ) $ 3,775 $ (200 ) $ 3,575 (1) Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan. (2) There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance. At June 30, 2016 Unpaid Net Principal Related Recorded Recorded (In Thousands) Balance Charge-offs Investment Allowance (1) Investment Mortgage loans: Single-family With a related allowance $ 999 $ — $ 999 $ (200 ) $ 799 Without a related allowance (2) 4,507 (784 ) 3,723 — 3,723 Total single-family 5,506 (784 ) 4,722 (200 ) 4,522 Commercial business loans: With a related allowance 96 — 96 (20 ) 76 Total commercial business loans 96 — 96 (20 ) 76 Total restructured loans $ 5,602 $ (784 ) $ 4,818 $ (220 ) $ 4,598 (1) Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan. (2) There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance. During the quarter ended March 31, 2017, two properties were acquired in the settlement of loans, while one previously foreclosed upon property was sold. This compares to the quarter ended March 31, 2016 when two properties were acquired in the settlement of loans, while three previously foreclosed upon properties were sold. For the nine months ended March 31, 2017, five properties were acquired in the settlement of loans, while four previously foreclosed upon properties were sold. This compares to the nine months ended March 31, 2016 when eight properties were acquired in the settlement of loans, while six previously foreclosed upon properties were sold. As of March 31, 2017, the net fair value of real estate owned was $2.8 million , comprised of four properties located in California and one property located in Arizona. This compares to the real estate owned net fair value of $2.7 million at June 30, 2016, comprised of three properties located in California and one property located in Arizona. A new appraisal was obtained on each of the properties at the time of foreclosure and fair value was derived by using the lower of the appraised value or the listing price of the property, net of selling costs. Any initial loss was recorded as a charge to the allowance for loan losses before being transferred to real estate owned. Subsequent to transfer to real estate owned, if there is further deterioration in real estate values, specific real estate owned loss reserves are established and charged to the statement of operations. In addition, the Corporation records costs to carry real estate owned as real estate operating expenses as incurred. |