NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED
SEPTEMBER 30,
2017
AND
2016
(Dollars in thousands, except per share data)
(Unaudited)
The condensed consolidated financial statements include the accounts of BofI Holding, Inc. and its wholly owned subsidiary, BofI Federal Bank (the “Bank” and collectively with BofI Holding, Inc., the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications were made to previously reported amounts in the unaudited condensed consolidated financial statements and notes thereto to make them consistent with the current period presentation.
The accompanying interim condensed consolidated financial statements, presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), are unaudited and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of financial condition and results of operations for the interim periods. All adjustments are of a normal and recurring nature. Results for the
three
months ended
September 30, 2017
are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”)
with respect to interim financial reporting. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended
June 30, 2017
included in our Annual Report on Form 10-K.
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2.
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SIGNIFICANT ACCOUNTING POLICIES
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Securities
.
Debt securities are classified as held-to-maturity and carried at amortized cost when management has both the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when they might be sold before maturity. Trading securities refer to certain types of assets that banks hold for resale at a profit or when the Company elects to account for certain securities at fair value. Increases or decreases in the fair value of trading securities are recognized in earnings as they occur. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.
Gains and losses on securities sales are based on a comparison of sales proceeds and the amortized cost of the security sold using the specific identification method. Purchases and sales are recognized on the trade date. Interest income includes amortization of purchase premiums or discounts. Premiums and discounts on securities are amortized or accreted using the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. The Company’s portfolios of held-to-maturity and available-for-sale securities are reviewed quarterly for other-than-temporary impairment. In performing this review, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) how to record an impairment by assessing whether the Company intends to sell or it is more likely than not that it will be required to sell a security in an unrealized loss position before the Company recovers the security’s amortized cost. If either of these criteria for (4) is met, the entire difference between amortized cost and fair value is recognized in earnings. Alternatively, if the criteria for (4) is not met, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
Loans and Leases
. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred purchase premiums and discounts, deferred loan origination fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Premiums and discounts on loans purchased as well as loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method.
The Company provides equipment financing to its customers through a variety of lease arrangements. The most common arrangement is a direct financing (capital) lease. For direct financing leases, lease receivables are recorded on the balance sheet but the leased property is not, although the Company generally retains legal title to the leased property until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized over the weighted average life of the lease portfolio. Leases acquired in an acquisition are initially measured and recorded at their
fair value on the acquisition date. Purchase discounts or premiums on acquired leases are recognized as an adjustment to interest income over the contractual life of the leases using the effective interest method or taken into income when the related leases are paid off. Direct financing leases are subject to our allowance for loans and leases.
Recognition of interest income on all portfolio segments is generally discontinued at the time the loan or lease is 90 days delinquent unless the loan or lease is well secured and in process of collection. Past due status is based on the contractual terms of the loan or lease. In all cases, loans or leases are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not received for loans or leases placed on nonaccrual, is reversed against interest income. Interest received on such loans or leases is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans and leases are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Loans Held for Sale.
U.S government agency (“agency”) loans originated and intended for sale in the secondary market are carried at fair value. Net unrealized gains and losses are recognized through the income statement. The Bank sells its mortgage loans with either servicing released or servicing retained depending upon market pricing. Gains and losses on loan sales are recorded as mortgage banking income, based on the difference between sales proceeds and carrying value. Non-agency loans held for sale are carried at the lower of cost or fair value.
Loans that were originated with the intent and ability to hold for the foreseeable future (loans held in portfolio) but which have been subsequently designated as being held for sale for risk management or liquidity needs are carried at the lower of cost or fair value calculated on an individual loan by loan basis.
There may be times when loans have been classified as held for sale and for some reason cannot be sold. Loans transferred to a long-term-investment classification from held-for-sale are transferred at the lower of cost or market value on the transfer date. Any difference between the carrying amount of the loan and its outstanding principal balance is recognized as an adjustment to yield by the interest method. A loan cannot be classified as a long-term investment unless the Bank has both the ability and the intent to hold the loan for the foreseeable future or until maturity.
Allowance for Loan and Lease Losses.
The allowance for loan and lease losses is maintained at a level estimated to provide for probable incurred losses in the loan and lease portfolio. Management determines the adequacy of the allowance based on reviews of individual loans and leases and pools of loans, recent loss experience, current economic conditions, the risk characteristics of the various categories of loans and other pertinent factors. This evaluation is inherently subjective and requires estimates that are susceptible to significant revision as more information becomes available. The allowance is increased by the provision for loan and lease losses, which is charged against current period operating results and recoveries of loans previously charged-off. The allowance is decreased by the amount of charge-offs of loans deemed uncollectible. Allocations of the allowance may be made for specific loans but the entire allowance is available for any loan that, in management’s judgment, should be charged off. See Note 5 of these financial statement footnotes and the financial statement footnotes for the year ended
June 30, 2017
included in our Annual Report on Form 10-K for further information.
Brand Partnership Products.
The Bank has agreements with H&R Block, Inc. (“H&R Block”) and its wholly-owned subsidiaries that allow the Bank to provide H&R Block-branded financial products and services. The products and services that represent the primary focus and the majority of transactional volume that the Bank processes are described in detail below.
The first product is Emerald Prepaid Mastercard® services (“EPC”). The Bank entered into agreements to offer this product in August 2015. Under the agreements, the Bank is responsible for the primary oversight and control of the prepaid card programs of a wholly-owned subsidiary of H&R Block. The Bank holds the prepaid card customer deposits for those cards issued under the prepaid programs in non-interest bearing accounts and earns a fixed fee paid by H&R Block’s subsidiary for each automated clearing house (“ACH”) transaction processed through the prepaid card customer accounts. A portion of H&R Block’s customers use the Emerald Card as an option to receive federal and state income tax refunds. The prepaid customer deposits are included in non-interest bearing deposit liabilities on the balance sheet of the Company and the ACH fee income is included in the income statement under the line banking service fees and other income.
The second product is Refund Transfer (“RT”). The Bank entered into agreements to offer this product in August 2015. The Bank is responsible for the primary oversight and control of the refund transfer program of a wholly-owned subsidiary of H&R Block. The Bank opens a temporary bank account for each H&R Block customer who is receiving an income tax refund and elects to defer payment of his or her tax preparation fees. After the Internal Revenue Service and any state income tax authorities transfer the refund into the customer’s account, the net funds are transferred to the customer and the temporary deposit account is closed. The Bank earns a fixed fee paid by H&R Block for each of the H&R Block customers electing a Refund Transfer. The fees are
earned primarily in the quarters ending March 31st and are included in the income statement under the line banking service fees and other income.
The third product is Emerald Advance. The Bank entered into agreements to offer this product in August 2015. Under the agreements the Bank is responsible for the underwriting guidelines and credit policies for unsecured consumer lines of credit offered to H&R Block customers. The Bank offers and funds unsecured lines of credit to consumers primarily through the H&R Block tax preparation offices and earns interest income and fee income. The Bank retains
10%
of the Emerald Advance and sells the remainder to H&R Block. The lines of credit are included in loans and leases on the balance sheet of the Company and the interest income and fee income are included in the income statement under the line loans and leases interest and dividend income.
The fourth product is an interest-free Refund Advance loan. The Bank will exclusively originate and fund all of H&R Block’s interest-free Refund Advance loans to tax preparation clients for the 2018 tax season. The Bank will perform the credit underwriting, loan origination, funding, and loan servicing associated with the interest-free Refund Advance loan in the upcoming tax season and receive fees from H&R Block for providing those services. This agreement is an expansion of the services BofI provided to H&R Block in the 2017 tax season when the Bank participated through purchases of the loans with other providers in the Refund Advance loan program. The Bank will be originating these interest-free loans to customers and the income generated from H&R Block will show on the income statement through the banking and service fees category of non-interest income.
The H&R Block-branded financial services products introduce seasonality into the unaudited condensed consolidated income statements through the banking and service fees category of non-interest income and the other general and administrative category of non-interest expense, with the peak income and expense in these categories typically occurring during our third fiscal quarter ending March 31.
New Accounting Pronouncements.
In March 2016, the FASB issued ASU 2016-09 Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several areas of accounting for share-based payment transactions, including tax provision, classification in the cash-flow statement, forfeitures, and statutory tax withholding requirements. Under ASU 2016-09, all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates in the applicable jurisdictions. The adoption at July 1, 2017 of ASU 2016-09 did not have a significant impact on our financial position, results of operations or cash flows.
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accounting Standards Codification Topic 820,
Fair Value Measurement
, also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
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Level 1:
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Quoted prices in active markets for
identical
assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 1 assets and liabilities include debt and equity securities that are actively traded in an exchange or over-the-counter market and are highly liquid, such as, among other assets and securities, certain U.S. treasury and other U.S. government debt.
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Level 2:
|
Observable inputs other than Level 1 prices such as quoted prices for
similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets include securities with quoted prices that are traded less frequently than exchange-traded instruments and whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
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Level 3:
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined
|
using pricing models such as discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
When available, the Company generally uses quoted market prices to determine fair value, in which case the items are classified in Level 1. In some cases where a market price is available, the Company will make use of acceptable practical expedients (such as matrix pricing) to calculate fair value, in which case the items are classified in Level 2.
The Company considers relevant and observable market prices in its valuations where possible. The frequency of transactions, the size of the bid-ask spread and the nature of the participants are some of the factors the Company uses to help determine whether a market is active and orderly or inactive and not orderly. Price quotes based upon transactions that are not orderly are not considered to be determinative of fair value and should be given little, if any, weight in measuring fair value.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, credit spreads, housing value forecasts, etc. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified:
Securities—trading, available-for-sale, and held-to-maturity
.
Trading securities are recorded at fair value. Available-for-sale (“AFS”) securities are recorded at fair value and consist of residential mortgage-backed securities (“RMBS”) issued by U.S. agencies, non-agencies, collateralized loan obligations, and municipals. Held-to-maturity (“HTM”) securities are recorded at amortized cost. Fair value for U.S. agency securities is generally based on quoted market prices of similar securities used to form a dealer quote or a pricing matrix. There continues to be significant illiquidity in the market for RMBS issued by non-agencies, impacting the availability and reliability of transparent pricing. As orderly quoted market prices are not available, the Level 3 fair values for these securities are determined by the Company utilizing industry-standard tools to calculate the net present value of the expected cash flows available to the securities from the underlying mortgage assets. The Company computes Level 3 fair values for each non-agency RMBS in the same manner (as described below) whether available-for-sale or held-to-maturity.
To determine the performance of the underlying mortgage loan pools, the Company estimates prepayments, defaults, and loss severities based on a number of macroeconomic factors, including housing price changes, unemployment rates, interest rates and borrower attributes such as credit score and loan documentation at the time of origination. For each security, the Company inputs a projection of monthly default rates, loss severity rates and voluntary prepayment rates for the underlying mortgages for the remaining life of each security to determine the expected cash flows. The projections of default rates are derived by the Company from the historic default rate observed in the pool of loans collateralizing the security, increased by and decreased by the forecasted increase or decrease in the national unemployment rate. The projections of loss severity rates are derived by the Company from the historic loss severity rate observed in the pool of loans, increased by (and decreased by) the forecasted decrease or increase in the national home price appreciation (“HPA”) index. The largest factors influencing the Company’s modeling of the monthly default rate are unemployment and HPA, as a strong correlation exists. The national unemployment rate announced prior to the end of the period covered by this report (reported for August 2017) was
4.4%
, down from the high of
10.0%
in October 2009. Going forward, the Company is projecting lower monthly default rates. The range of loss severity rates applied to each default used in the Company’s projections at
September 30, 2017
are from
40.0%
up to
68.5%
based upon individual bond historical performance. The default rates and the severities are projected for every non-agency RMBS security held by the Company and will vary monthly based upon the actual performance of the security and the macroeconomic factors discussed above.
To determine the discount rates used to compute the present value of the expected cash flows for these non-agency RMBS securities, the Company separates the securities by the borrower characteristics in the underlying pool. Specifically, “prime” securities generally have borrowers with higher FICO scores and better documentation of income. “Alt-A” securities generally have borrowers with a lower FICO and less documentation of income. “Pay-option ARMs” are Alt-A securities with borrowers that tend to pay the least amount of principal (or increase their loan balance through negative amortization). The Company calculates separate discount rates for prime, Alt-A and Pay-option ARM non-agency RMBS securities using market-participant assumptions for risk, capital and return on equity. The range of annual default rates used in the Company’s projections at
September 30, 2017
are from
1.5%
up to
14.1%
with prime securities tending toward the lower end of the range and Alt-A and Pay-option ARMs tending toward the higher end of the range. The Company applies its discount rates to the projected monthly cash flows which already reflect the full impact of all forecasted losses using the assumptions described above. When calculating present value of the expected cash flows at
September 30, 2017
, the Company computed its discount rates as a spread between
260
and
633
basis points over the interpolated swap curve with prime securities tending toward the lower end of the range and Alt-A and Pay-option ARMs tending toward the higher end of the range.
The Bank’s estimate of fair value for non-agency securities using Level 3 pricing is highly subjective and is based on the Bank’s estimate of voluntary prepayments, default rates, severities and discount margins, which are forecasted monthly over the remaining life of the security. Changes in one or more of these assumptions can cause a significant change in the estimated fair value. For further details see the table later in this note that summarizes quantitative information about Level 3 fair value measurements.
Loans Held for Sale.
Loans held for sale at fair value are primarily single-family and multifamily residential loans. The fair value of residential loans held for sale is determined by pricing for comparable assets or by existing forward sales commitment prices with investors.
Impaired Loans.
Impaired loans are loans which are inadequately protected by the current net worth and paying capacity of the borrowers or the collateral pledged. The accrual of interest income has been discontinued for impaired loans. The impaired loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. The Company assesses loans individually and identifies impairment when the loan is classified as impaired, has been restructured, or management has serious doubts about the future collectibility of principal and interest, even though the loans may currently be performing. The fair value of an impaired loan is determined based on an observable market price or current appraised value of the underlying collateral. The fair value of impaired loans with specific write-offs or allocations of the allowance for loan losses are generally based on recent real estate appraisals or internal valuation analyses consistent with the methodology used in real estate appraisals and include other third-party valuations and analysis of cash flows. These appraisals and analyses are updated at least on an annual basis. The Company primarily obtains real estate appraisals and in the rare cases where an appraisal cannot be obtained, the Company performs an internal valuation analysis. These appraisals and analyses may utilize a single valuation approach or a combination of approaches including comparable sales and income approaches. The sales comparison approach uses at least three recent similar property sales to help determine the fair value of the property being appraised. The income approach is calculated by taking the net operating income generated by the collateral property of the rent collected and dividing it by an assumed capitalization rate. Adjustments are routinely made in the process by the appraisers to account for differences between the comparable sales and income data available. When measuring the fair value of the impaired loan based upon the projected sale of the underlying collateral, the Company subtracts the costs expected to be incurred for the transfer of the underlying collateral, which includes items such as sales commissions, delinquent taxes and insurance premiums. These adjustments to the estimated fair value of non-performing loans may result in increases or decreases to the provision for loan losses recorded in current earnings. Such adjustments are typically significant and result in a Level 3 classification for the inputs for determining fair value.
Other Real Estate Owned and Repossessed Vehicles
. Non-recurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO”) are measured at the lower of carrying amount or fair value, less estimated costs to sell. Fair values are generally based on third-party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.
Mortgage Servicing Rights.
The Company initially records all mortgage servicing rights (“MSRs”) at fair value and accounts for MSRs at fair value during the life of the MSR, with changes in fair value recorded through current period earnings. Fair value adjustments encompass market-driven valuation changes as well as modeled amortization involving the run-off of value that occurs due to the passage of time as individual loans are paid by borrowers. Market expectations about loan duration, and correspondingly the expected term of future servicing cash flows, may vary from time to time due to changes in expected prepayment activity, especially when interest rates rise or fall. Market expectations of increased loan prepayment speeds may negatively impact the fair value of the single family MSRs. Fair value is also dependent on the discount rate used in calculating present value, which is imputed from observable market activity and market participants and results in Level 3 classification. Management reviews and adjusts the discount rate on an ongoing basis. An increase in the discount rate would reduce the estimated fair value of the MSRs asset.
Mortgage Banking Derivatives.
Fair value for mortgage banking derivatives are either based upon prices in active secondary markets for identical securities or based on quoted market prices of similar assets used to form a dealer quote or a pricing matrix. If no such quoted price exists, the fair value of a commitment is determined by quoted prices for a similar commitment or commitments, adjusted for the specific attributes of each commitment. These fair values are then adjusted for items such as fallout and estimated costs to originate the loan.
The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with or, in some cases, more conservative than other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the relevant reporting date.
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at
September 30, 2017
and
June 30, 2017
. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
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September 30, 2017
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(Dollars in thousands)
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Securities—Available-for-Sale:
|
|
|
|
|
|
|
|
|
Agency RMBS
|
$
|
—
|
|
|
$
|
23,461
|
|
|
$
|
—
|
|
|
$
|
23,461
|
|
|
Non-Agency RMBS
|
—
|
|
|
—
|
|
|
66,619
|
|
|
66,619
|
|
|
Municipal
|
—
|
|
|
15,646
|
|
|
—
|
|
|
15,646
|
|
|
Other Debt Securities
|
—
|
|
|
113,987
|
|
|
—
|
|
|
113,987
|
|
|
Total—Securities—Available-for-Sale
|
$
|
—
|
|
|
$
|
153,094
|
|
|
$
|
66,619
|
|
|
$
|
219,713
|
|
|
Loans Held for Sale
|
$
|
—
|
|
|
$
|
21,532
|
|
|
$
|
—
|
|
|
$
|
21,532
|
|
|
Mortgage Servicing Rights
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,044
|
|
|
$
|
8,044
|
|
|
Other assets – Derivative Instruments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,429
|
|
|
$
|
1,429
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Other liabilities – Derivative Instruments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
241
|
|
|
$
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
(Dollars in thousands)
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Securities—Trading: Collateralized Debt Obligations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,327
|
|
|
$
|
8,327
|
|
|
Securities—Available-for-Sale:
|
|
|
|
|
|
|
|
|
Agency RMBS
|
$
|
—
|
|
|
$
|
27,206
|
|
|
$
|
—
|
|
|
$
|
27,206
|
|
|
Non-Agency RMBS
|
—
|
|
|
—
|
|
|
71,503
|
|
|
71,503
|
|
|
Municipal
|
—
|
|
|
27,163
|
|
|
—
|
|
|
27,163
|
|
|
Other Debt Securities
|
—
|
|
|
138,598
|
|
|
—
|
|
|
138,598
|
|
|
Total—Securities—Available-for-Sale
|
$
|
—
|
|
|
$
|
192,967
|
|
|
$
|
71,503
|
|
|
$
|
264,470
|
|
|
Loans Held for Sale
|
$
|
—
|
|
|
$
|
18,738
|
|
|
$
|
—
|
|
|
$
|
18,738
|
|
|
Mortgage Servicing Rights
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,200
|
|
|
$
|
7,200
|
|
|
Other assets – Derivative Instruments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,194
|
|
|
$
|
1,194
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Other liabilities – Derivative Instruments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
168
|
|
|
$
|
168
|
|
The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 30, 2017
|
|
(Dollars in thousands)
|
Securities – Trading: Collateralized Debt Obligations
|
|
Securities – Available-for-Sale: Non-Agency RMBS
|
|
Mortgage Servicing Rights
|
|
Derivative Instruments, net
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Balance
|
$
|
8,327
|
|
|
$
|
71,503
|
|
|
$
|
7,200
|
|
|
$
|
1,026
|
|
|
$
|
88,056
|
|
|
Transfers into Level 3
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Transfers out of Level 3
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total gains or losses for the period:
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings—Sale of securities
|
282
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
282
|
|
|
Included in earnings—Fair value gain (loss) on trading securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Included in earnings—Mortgage banking income
|
—
|
|
|
—
|
|
|
281
|
|
|
162
|
|
|
443
|
|
|
Included in other comprehensive income
|
—
|
|
|
(1,763
|
)
|
|
—
|
|
|
—
|
|
|
(1,763
|
)
|
|
Purchases, originations, issues, sales and settlements:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases/originations
|
—
|
|
|
—
|
|
|
563
|
|
|
—
|
|
|
563
|
|
|
Issues
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Sales
|
(8,609
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,609
|
)
|
|
Settlements
|
—
|
|
|
(2,972
|
)
|
|
—
|
|
|
—
|
|
|
(2,972
|
)
|
|
Other-than-temporary impairment
|
—
|
|
|
(149
|
)
|
|
—
|
|
|
—
|
|
|
(149
|
)
|
|
Closing balance
|
$
|
—
|
|
|
$
|
66,619
|
|
|
$
|
8,044
|
|
|
$
|
1,188
|
|
|
$
|
75,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
281
|
|
|
$
|
162
|
|
|
$
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 30, 2016
|
|
(Dollars in thousands)
|
Securities – Trading: Collateralized Debt Obligations
|
|
Securities – Available-for-Sale: Non-Agency RMBS
|
|
Mortgage Servicing Rights
|
|
Derivative Instruments, net
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Balance
|
$
|
7,584
|
|
|
$
|
9,364
|
|
|
$
|
3,943
|
|
|
$
|
1,318
|
|
|
$
|
22,209
|
|
|
Transfers into Level 3
|
—
|
|
|
124,547
|
|
|
—
|
|
|
—
|
|
|
124,547
|
|
|
Total gains or losses for the period:
|
|
|
|
|
|
|
|
|
|
|
Included in earnings—Sale of securities
|
—
|
|
|
701
|
|
|
—
|
|
|
—
|
|
|
701
|
|
|
Included in earnings—Fair value gain (loss) on trading securities
|
111
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
111
|
|
|
Included in earnings—Mortgage banking income
|
—
|
|
|
—
|
|
|
(221
|
)
|
|
868
|
|
|
647
|
|
|
Included in other comprehensive income
|
—
|
|
|
7,533
|
|
|
—
|
|
|
—
|
|
|
7,533
|
|
|
Purchases, originations, issues, sales and settlements:
|
|
|
|
|
|
|
|
|
|
|
Purchases/originations
|
—
|
|
|
—
|
|
|
1,133
|
|
|
—
|
|
|
1,133
|
|
|
Sales
|
—
|
|
|
(6,399
|
)
|
|
—
|
|
|
—
|
|
|
(6,399
|
)
|
|
Settlements
|
—
|
|
|
(2,457
|
)
|
|
—
|
|
|
—
|
|
|
(2,457
|
)
|
|
Other-than-temporary impairment
|
—
|
|
|
(120
|
)
|
|
—
|
|
|
—
|
|
|
(120
|
)
|
|
Closing balance
|
$
|
7,695
|
|
|
$
|
133,169
|
|
|
$
|
4,855
|
|
|
$
|
2,186
|
|
|
$
|
147,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period
|
$
|
111
|
|
|
$
|
701
|
|
|
$
|
(221
|
)
|
|
$
|
868
|
|
|
$
|
1,459
|
|
The table below summarizes the quantitative information about level 3 fair value measurements at the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
(Dollars in thousands)
|
Fair Value
|
Valuation Technique
|
Unobservable Input
|
Range (Weighted Average)
|
|
Securities – Available-for-Sale:
Non-agency RMBS
|
$
|
66,619
|
|
Discounted Cash Flow
|
Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
|
2.5 to 25.4% (13.4%)
1.5 to 14.1% (5.5%)
40.0 to 68.5% (57.8%)
2.6 to 6.3% (3.4%)
|
|
Mortgage Servicing Rights
|
$
|
8,044
|
|
Discounted Cash Flow
|
Projected Constant Prepayment Rate,
Life (in years),
Discount Rate
|
6.8 to 27.9% (9.8%)
2.5 to 7.7 (6.5)
9.5 to 13.0% (9.6%)
|
|
Derivative Instruments, net
|
$
|
1,188
|
|
Sales Comparison Approach
|
Projected Sales Profit of Underlying Loans
|
0.4 to 0.6% (0.5%)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
(Dollars in thousands)
|
Fair Value
|
Valuation Technique
|
Unobservable Input
|
Range (Weighted Average)
|
|
Securities – Trading:
Collateralized Debt Obligations
|
$
|
8,327
|
|
Discounted Cash Flow
|
Total Projected Defaults,
Discount Rate over Treasury
|
12.2 to 21.8% (16.8%)
4.5 to 4.5% (4.5%)
|
|
Securities – Available-for-Sale:
Non-agency RMBS
|
$
|
71,503
|
|
Discounted Cash Flow
|
Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
|
2.5 to 23.4% (12.5%)
1.5 to 18.9% (5.3%)
40.0 to 68.8% (57.9%)
2.6 to 5.8% (3.3%)
|
|
Mortgage Servicing Rights
|
$
|
7,200
|
|
Discounted Cash Flow
|
Projected Constant Prepayment Rate,
Life (in years),
Discount Rate
|
6.3 to 26.9% (9.5%)
2.5 to 7.8 (6.6)
9.5 to 13.0% (9.7%)
|
|
Derivative Instruments, net
|
$
|
1,026
|
|
Sales Comparison Approach
|
Projected Sales Profit of Underlying Loans
|
0.3 to 0.6% (0.5%)
|
The significant unobservable inputs used in the fair value measurement of the Company’s residential mortgage-backed securities are prepayment rates, probability of default, and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.
The table below summarizes changes in unrealized gains and losses and interest income recorded in earnings for level 3 trading assets and liabilities that are still held at the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 30,
|
|
(Dollars in thousands)
|
2017
|
|
2016
|
|
Interest income on investments
|
$
|
—
|
|
|
$
|
73
|
|
|
Fair value adjustment
|
—
|
|
|
111
|
|
|
Total
|
$
|
—
|
|
|
$
|
184
|
|
The table below summarizes assets measured for impairment on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
(Dollars in thousands)
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Balance
|
|
Impaired Loans:
|
|
|
|
|
|
|
|
|
Single family real estate secured:
|
|
|
|
|
|
|
|
|
Mortgage
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,496
|
|
|
$
|
27,496
|
|
|
Home equity
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
|
Multifamily real estate secured
|
—
|
|
|
—
|
|
|
4,197
|
|
|
4,197
|
|
|
Auto and RV secured
|
—
|
|
|
—
|
|
|
130
|
|
|
130
|
|
|
Other
|
—
|
|
|
—
|
|
|
262
|
|
|
262
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,101
|
|
|
$
|
32,101
|
|
|
Other real estate owned and foreclosed assets:
|
|
|
|
|
|
|
|
|
Single family real estate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,308
|
|
|
$
|
1,308
|
|
|
Autos and RVs
|
—
|
|
|
—
|
|
|
81
|
|
|
81
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,389
|
|
|
$
|
1,389
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
(Dollars in thousands)
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Balance
|
|
Impaired Loans:
|
|
|
|
|
|
|
|
|
Single family real estate secured:
|
|
|
|
|
|
|
|
|
Mortgage
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,377
|
|
|
$
|
23,377
|
|
|
Home equity
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
|
Multifamily real estate secured
|
—
|
|
|
—
|
|
|
4,255
|
|
|
4,255
|
|
|
Auto and RV secured
|
—
|
|
|
—
|
|
|
157
|
|
|
157
|
|
|
Commercial & Industrial
|
—
|
|
|
—
|
|
|
314
|
|
|
314
|
|
|
Other
|
—
|
|
|
—
|
|
|
274
|
|
|
274
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,393
|
|
|
$
|
28,393
|
|
|
Other real estate owned and foreclosed assets:
|
|
|
|
|
|
|
|
|
Single family real estate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,353
|
|
|
$
|
1,353
|
|
|
Autos and RVs
|
—
|
|
|
—
|
|
|
60
|
|
|
60
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,413
|
|
|
$
|
1,413
|
|
Impaired loans measured for impairment on a non-recurring basis using the fair value of the collateral for collateral-dependent loans have a carrying amount of
$32,101
, after charge-offs of
$13
for the
three months ended
September 30, 2017
, life to date charge-offs of
$2,428
, life to date interest payments applied to principal of
$1,291
for total life to date principal balance adjustments of
$3,719
. Impaired loans had a related allowance of
$904
at
September 30, 2017
.
Other real estate owned and foreclosed assets, which are measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of
$1,389
after charge-offs of
$45
for the three months ended
September 30, 2017
.
There were
no
held-to-maturity securities at
September 30, 2017
and
June 30, 2017
.
The Company has elected the fair value option for Agency loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan. None of these loans are
90 days
or more past due nor on nonaccrual as of
September 30, 2017
and
June 30, 2017
.
As of
September 30, 2017
and
June 30, 2017
, the aggregate fair value, contractual balance (including accrued interest), and unrealized gain was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2017
|
|
June 30, 2017
|
|
Aggregate fair value
|
$
|
21,532
|
|
|
$
|
18,738
|
|
|
Contractual balance
|
21,066
|
|
|
18,311
|
|
|
Unrealized gain
|
$
|
466
|
|
|
$
|
427
|
|
The total amount of unrealized gains and losses from changes in fair value included in earnings for the period indicated below for loans held for sale were:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 30,
|
|
(Dollars in thousands)
|
2017
|
|
2016
|
|
Interest income
|
$
|
147
|
|
|
$
|
137
|
|
|
Change in fair value
|
(201
|
)
|
|
(946
|
)
|
|
Total
|
$
|
(54
|
)
|
|
$
|
(809
|
)
|
The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
(Dollars in thousands)
|
Fair Value
|
Valuation Technique(s)
|
Unobservable Input
|
Range (Weighted Average)
1
|
|
Impaired loans:
|
|
|
|
|
|
Single family real estate secured:
|
|
|
|
|
|
Mortgage
|
$
|
27,496
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-39.2 to 79.8% (5.7%)
|
|
Home equity
|
$
|
16
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-2.3 to 7.4% (2.6%)
|
|
Multifamily real estate secured
|
$
|
4,197
|
|
Sales comparison approach, income approach,
Discounted cash flows
|
Adjustment for differences between the comparable sales and adjustments for differences in net operating income expectations
|
-24.2 to 48.7% (2.4%)
|
|
Auto and RV secured
|
$
|
130
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-17.2 to 18.7% (-5.7%)
|
|
Other
|
$
|
262
|
|
Discounted cash flow
|
Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate
|
0.0 to 0.0% (0.0%)
0.0 to 10.0% (5.0%)
100.0 to 100.0% (100.0%)
4.2 to 5.3% (4.8%)
|
|
Other real estate owned and foreclosed assets:
|
|
|
|
|
|
Single family real estate
|
$
|
1,308
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-34.5 to 29.6% (0.1%)
|
|
Autos and RVs
|
$
|
81
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-9.9 to 24.3% (4.2%)
|
1
For impaired loans, other real estate owned and foreclosed assets the ranges shown may vary positively or negatively based on the comparable sales reported in the current appraisal. In certain instances, the range can be significant due to small sample sizes and in some cases the property being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
(Dollars in thousands)
|
Fair Value
|
Valuation Technique(s)
|
Unobservable Input
|
Range (Weighted Average)
1
|
|
Impaired loans:
|
|
|
|
|
|
Single family real estate secured:
|
|
|
|
|
|
Mortgage
|
$
|
23,377
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-38.5 to 79.8% (6.4%)
|
|
Home equity
|
$
|
16
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-6.1 to 26.1% (7.8%)
|
|
Multifamily real estate secured
|
$
|
4,255
|
|
Sales comparison approach and income approach
|
Adjustment for differences between the comparable sales and adjustments for differences in net operating income expectations, capitalization rate
|
-24.2 to 48.7% (2.4%)
|
|
Auto and RV secured
|
$
|
157
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-17.2 to 42.4% (-5.5%)
|
|
Commercial and Industrial
|
$
|
314
|
|
Discounted cash flow
|
Discount Rate
|
34.8 to 34.8% (34.8)
|
|
Other
|
$
|
274
|
|
Discounted cash flow
|
Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate
|
0.0 to 0.0% (0.0%)
0.0 to 10.0% (5.0%)
100.0 to 100.0% (100.0%)
4.5 to 5.2% (4.9%)
|
|
Other real estate owned and foreclosed assets:
|
|
|
|
|
|
Single family real estate
|
$
|
1,353
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-10.5 to 12.5% (0.1%)
|
|
Autos and RVs
|
$
|
60
|
|
Sales comparison approach
|
Adjustment for differences between the comparable sales
|
-17.0 to 20.5% (6.2%)
|
1
For impaired loans, other real estate owned and foreclosed assets the ranges shown may vary positively or negatively based on the comparable sales reported in the current appraisal. In certain instances, the range can be significant due to small sample sizes and in some cases the property being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.
Fair value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments at
September 30, 2017
and
June 30, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
Fair Value
|
|
|
|
(Dollars in thousands)
|
Carrying
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
631,921
|
|
|
$
|
631,921
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
631,921
|
|
|
Securities available-for-sale
|
219,713
|
|
|
—
|
|
|
153,094
|
|
|
66,619
|
|
|
219,713
|
|
|
Loans held for sale, at fair value
|
21,532
|
|
|
—
|
|
|
21,532
|
|
|
—
|
|
|
21,532
|
|
|
Loans held for sale, at lower of cost or fair value
|
7,470
|
|
|
—
|
|
|
—
|
|
|
7,836
|
|
|
7,836
|
|
|
Loans and leases held for investment—net
|
7,512,999
|
|
|
—
|
|
|
—
|
|
|
7,676,828
|
|
|
7,676,828
|
|
|
Accrued interest receivable
|
25,183
|
|
|
—
|
|
|
—
|
|
|
25,183
|
|
|
25,183
|
|
|
Mortgage servicing rights
|
8,044
|
|
|
—
|
|
|
—
|
|
|
8,044
|
|
|
8,044
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits and savings
|
7,178,800
|
|
|
—
|
|
|
6,824,694
|
|
|
—
|
|
|
6,824,694
|
|
|
Securities sold under agreements to repurchase
|
10,000
|
|
|
—
|
|
|
10,035
|
|
|
—
|
|
|
10,035
|
|
|
Advances from the Federal Home Loan Bank
|
400,000
|
|
|
—
|
|
|
404,325
|
|
|
—
|
|
|
404,325
|
|
|
Subordinated notes and debentures and other
|
54,479
|
|
|
—
|
|
|
52,965
|
|
|
—
|
|
|
52,965
|
|
|
Accrued interest payable
|
1,325
|
|
|
—
|
|
|
1,325
|
|
|
—
|
|
|
1,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
Fair Value
|
|
(Dollars in thousands)
|
Carrying
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
643,541
|
|
|
$
|
643,541
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
643,541
|
|
|
Securities trading
|
8,327
|
|
|
—
|
|
|
—
|
|
|
8,327
|
|
|
8,327
|
|
|
Securities available-for-sale
|
264,470
|
|
|
—
|
|
|
192,967
|
|
|
71,503
|
|
|
264,470
|
|
|
Loans held for sale, at fair value
|
18,738
|
|
|
—
|
|
|
18,738
|
|
|
—
|
|
|
18,738
|
|
|
Loans held for sale, at lower of cost or fair value
|
6,669
|
|
|
—
|
|
|
—
|
|
|
7,328
|
|
|
7,328
|
|
|
Loans and leases held for investment—net
|
7,374,493
|
|
|
—
|
|
|
—
|
|
|
7,521,281
|
|
|
7,521,281
|
|
|
Accrued interest receivable
|
20,781
|
|
|
—
|
|
|
—
|
|
|
20,781
|
|
|
20,781
|
|
|
Mortgage servicing rights
|
7,200
|
|
|
—
|
|
|
—
|
|
|
7,200
|
|
|
7,200
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Time deposits and savings
|
6,899,507
|
|
|
—
|
|
|
6,544,056
|
|
|
—
|
|
|
6,544,056
|
|
|
Securities sold under agreements to repurchase
|
20,000
|
|
|
—
|
|
|
20,152
|
|
|
—
|
|
|
20,152
|
|
|
Advances from the Federal Home Loan Bank
|
640,000
|
|
|
—
|
|
|
645,339
|
|
|
—
|
|
|
645,339
|
|
|
Subordinated notes and debentures and other
|
54,463
|
|
|
—
|
|
|
52,930
|
|
|
—
|
|
|
52,930
|
|
|
Accrued interest payable
|
1,284
|
|
|
—
|
|
|
1,284
|
|
|
—
|
|
|
1,284
|
|
The methods and assumptions, not previously presented, used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans, deposits, borrowings or subordinated debt and for variable rate loans, deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available for sale securities and loans held for sale can be found earlier in this footnote. The carrying amount of stock of the Federal Home Loan Bank (“FHLB”) approximates the estimated fair value of this investment. The fair value of off-balance sheet items is not considered material.
The amortized cost, carrying amount and fair value for the major categories of securities: trading, available-for-sale, and held-to-maturity at
September 30, 2017
and
June 30, 2017
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
Trading
|
|
Available-for-sale
|
|
(Dollars in thousands)
|
Fair
Value
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Mortgage-backed securities (RMBS):
|
|
|
|
|
|
|
|
|
|
|
U.S. agencies
1
|
$
|
—
|
|
|
$
|
23,617
|
|
|
$
|
245
|
|
|
$
|
(401
|
)
|
|
$
|
23,461
|
|
|
Non-agency
2
|
—
|
|
|
62,326
|
|
|
5,597
|
|
|
(1,304
|
)
|
|
66,619
|
|
|
Total mortgage-backed securities
|
—
|
|
|
85,943
|
|
|
5,842
|
|
|
(1,705
|
)
|
|
90,080
|
|
|
Other debt securities:
|
|
|
|
|
|
|
|
|
|
|
Municipal
|
—
|
|
|
16,103
|
|
|
19
|
|
|
(476
|
)
|
|
15,646
|
|
|
Non-agency
|
—
|
|
|
112,425
|
|
|
1,600
|
|
|
(38
|
)
|
|
113,987
|
|
|
Total other debt securities
|
—
|
|
|
128,528
|
|
|
1,619
|
|
|
(514
|
)
|
|
129,633
|
|
|
Total debt securities
|
$
|
—
|
|
|
$
|
214,471
|
|
|
$
|
7,461
|
|
|
$
|
(2,219
|
)
|
|
$
|
219,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
Trading
|
|
Available-for-sale
|
|
(Dollars in thousands)
|
Fair
Value
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Mortgage-backed securities (RMBS):
|
|
|
|
|
|
|
|
|
|
|
U.S. agencies
1
|
$
|
—
|
|
|
$
|
27,379
|
|
|
$
|
286
|
|
|
$
|
(459
|
)
|
|
$
|
27,206
|
|
|
Non-agency
2
|
—
|
|
|
65,401
|
|
|
7,406
|
|
|
(1,304
|
)
|
|
71,503
|
|
|
Total mortgage-backed securities
|
—
|
|
|
92,780
|
|
|
7,692
|
|
|
(1,763
|
)
|
|
98,709
|
|
|
Other debt securities:
|
|
|
|
|
|
|
|
|
|
|
Municipal
|
—
|
|
|
27,568
|
|
|
19
|
|
|
(424
|
)
|
|
27,163
|
|
|
Non-agency
|
8,327
|
|
|
137,172
|
|
|
1,517
|
|
|
(91
|
)
|
|
138,598
|
|
|
Total other debt securities
|
8,327
|
|
|
164,740
|
|
|
1,536
|
|
|
(515
|
)
|
|
165,761
|
|
|
Total debt securities
|
$
|
8,327
|
|
|
$
|
257,520
|
|
|
$
|
9,228
|
|
|
$
|
(2,278
|
)
|
|
$
|
264,470
|
|
|
|
|
|
1
|
U.S. government-backed or government sponsored enterprises including Fannie Mae, Freddie Mac and Ginnie Mae.
|
|
|
|
|
2
|
Private sponsors of securities collateralized primarily by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by prime, Alt-A or pay-option ARM mortgages.
|
The Company’s non-agency RMBS available-for-sale portfolio with a total fair value of
$66,619
at
September 30, 2017
consists of
thirty-eight
different issues of super senior securities with a fair value of
$65,893
,
two
mezzanine z-tranche securities, negative-amortizing support tranches, with a fair value of
$8
collateralized by seasoned prime and Alt-A first-lien mortgages and
one
senior support security that it acquired at a significant discount that evidenced credit deterioration at acquisition, with a fair value of
$718
. The Company acquired its mezzanine z-tranche securities in fiscal 2010 and accounts for them by measuring the excess of cash flows expected at acquisition over the purchase price (accretable yield) and recognizes interest income over the remaining life of the security.
Debt securities with evidence of credit quality deterioration since issuance and for which it is probable at purchase that the Company will be unable to collect all of the par value of the security are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC Topic 310-30”). Under ASC Topic 310-30, the excess of cash flows expected at acquisition over the purchase price is referred to as the accretable yield and is recognized in interest income over the remaining life of the security. The Company has
one
senior support security that it acquired at a significant discount that evidenced credit deterioration at acquisition and is accounted for under ASC Topic 310-30. For a cost of
$17,740
the Company acquired the senior support security with a contractual par value of
$30,560
and accretable and non-accretable discounts that were projected to be
$9,015
and
$3,805
, respectively. Since acquisition, repayments from the security have been received more rapidly than projected at acquisition, but expected total payments have declined, resulting in a determination that the security was other-than-temporarily impaired. The security realized an other-than-temporary loss of
$149
for the
three months
ended
September 30, 2017
and a
$1,461
charge was recorded for the fiscal
2017
year. At
September 30, 2017
the security had a remaining contractual par value of
zero
and amortizable and non-amortizable premium are currently projected to be
zero
and
$861
, respectively.
The current face amounts of debt securities available-for-sale that were pledged to secure borrowings at
September 30, 2017
and
June 30, 2017
were
$5,298
and
$6,183
respectively.
The securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
Available-for-sale securities in loss position for
|
|
|
Less Than
12 Months
|
|
More Than
12 Months
|
|
Total
|
|
(Dollars in thousands)
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agencies
|
$
|
4,094
|
|
|
$
|
(115
|
)
|
|
$
|
12,044
|
|
|
$
|
(286
|
)
|
|
$
|
16,138
|
|
|
$
|
(401
|
)
|
|
Non-agency
|
440
|
|
|
(45
|
)
|
|
23,358
|
|
|
(1,259
|
)
|
|
23,798
|
|
|
(1,304
|
)
|
|
Total RMBS securities
|
4,534
|
|
|
(160
|
)
|
|
35,402
|
|
|
(1,545
|
)
|
|
39,936
|
|
|
(1,705
|
)
|
|
Other Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Debt
|
10,129
|
|
|
(444
|
)
|
|
3,149
|
|
|
(32
|
)
|
|
13,278
|
|
|
(476
|
)
|
|
Non-agency
|
9,192
|
|
|
(38
|
)
|
|
—
|
|
|
—
|
|
|
9,192
|
|
|
(38
|
)
|
|
Total Other Debt
|
19,321
|
|
|
(482
|
)
|
|
3,149
|
|
|
(32
|
)
|
|
22,470
|
|
|
(514
|
)
|
|
Total debt securities
|
$
|
23,855
|
|
|
$
|
(642
|
)
|
|
$
|
38,551
|
|
|
$
|
(1,577
|
)
|
|
$
|
62,406
|
|
|
$
|
(2,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
Available-for-sale securities in loss position for
|
|
|
Less Than
12 Months
|
|
More Than
12 Months
|
|
Total
|
|
(Dollars in thousands)
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agencies
|
$
|
17,161
|
|
|
$
|
(374
|
)
|
|
$
|
2,348
|
|
|
$
|
(85
|
)
|
|
$
|
19,509
|
|
|
$
|
(459
|
)
|
|
Non-agency
|
2,487
|
|
|
(16
|
)
|
|
25,097
|
|
|
(1,288
|
)
|
|
27,584
|
|
|
(1,304
|
)
|
|
Total RMBS securities
|
19,648
|
|
|
(390
|
)
|
|
27,445
|
|
|
(1,373
|
)
|
|
47,093
|
|
|
(1,763
|
)
|
|
Other Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Debt
|
13,431
|
|
|
(420
|
)
|
|
1,757
|
|
|
(4
|
)
|
|
15,188
|
|
|
(424
|
)
|
|
Non-agency
|
27,750
|
|
|
(91
|
)
|
|
—
|
|
|
—
|
|
|
27,750
|
|
|
(91
|
)
|
|
Total Other Debt
|
41,181
|
|
|
(511
|
)
|
|
1,757
|
|
|
(4
|
)
|
|
42,938
|
|
|
(515
|
)
|
|
Total debt securities
|
$
|
60,829
|
|
|
$
|
(901
|
)
|
|
$
|
29,202
|
|
|
$
|
(1,377
|
)
|
|
$
|
90,031
|
|
|
$
|
(2,278
|
)
|
There were
17
securities that were in a continuous loss position at
September 30, 2017
for a period of more than
12 months
. There were
16
securities that were in a continuous loss position at
June 30, 2017
for a period of more than
12 months
.
The following table summarizes amounts of credit loss recognized in the income statement through other-than-temporary impairment charges which reduced non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 30,
|
|
(Dollars in thousands)
|
2017
|
|
2016
|
|
Beginning balance
|
$
|
(15,528
|
)
|
|
$
|
(20,865
|
)
|
|
Additions for the amounts related to credit loss for which an other-than-temporary impairment was not previously recognized
|
—
|
|
|
—
|
|
|
Increases to the amount related to the credit loss for which other-than-temporary impairment was previously recognized
|
(149
|
)
|
|
(120
|
)
|
|
Credit losses realized for securities sold
|
—
|
|
|
374
|
|
|
Ending balance
|
$
|
(15,677
|
)
|
|
$
|
(20,611
|
)
|
At
September 30, 2017
, non-agency RMBS with a total carrying amount of
$40,029
were determined to have cumulative credit losses of
$15,677
of which
$149
was recognized in earnings during the three months ended
September 30, 2017
. This quarter’s other-than-temporary impairment of
$149
is related to
one
non-agency RMBS with a total carrying amount of
$718
. The Company measures its non-agency RMBS in an unrecognized loss position at the end of the reporting period for other-than-temporary impairment by comparing the present value of the cash flows currently expected to be collected from the security with its amortized cost basis. If the calculated present value is lower than the amortized cost, the difference is the credit component of an other-than-temporary impairment of its debt securities. The excess of present value over the fair value of the security (if any) is the non-credit component only if the Company does not intend to sell the security and will not be required to sell the security before recovery of its amortized cost basis. The credit component of the other-than-temporary impairment is recorded as a loss in earnings and the non-credit component as a charge to other comprehensive income, net of the related income tax benefit.
To determine the cash flow expected to be collected and to calculate the present value for purposes of testing for other-than-temporary impairment, the Company utilizes the same industry-standard tool and the same cash flows as those calculated for Level 3 fair values as discussed in Note 3 – Fair Value. The discount rates used to compute the present value of the expected cash flows for purposes of testing for the credit component of the other-than-temporary impairment are either the implicit rate calculated in each of the Company’s securities at acquisition or the last accounting yield. The Company calculates the implicit rate at acquisition based on the contractual terms of the security, considering scheduled payments (and minimum payments in the case of pay-option ARMs) without prepayment assumptions. Once the discount rate (or discount margin in the case of floating rate securities) is calculated as described above, the discount is used in the industry-standard model to calculate the present value of the cash flows.
Total proceeds of
$8,700
and net realized gains of
$282
were realized from the sale of trading securities during the
three
months ended
September 30, 2017
. The gross gains and losses realized through earnings upon the sale of available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 30,
|
|
(Dollars in thousands)
|
2017
|
|
2016
|
|
Proceeds
|
$
|
—
|
|
|
$
|
25,675
|
|
|
Gross realized gains
|
—
|
|
|
990
|
|
|
Gross realized losses
|
—
|
|
|
—
|
|
|
Net realized gain on securities
|
$
|
—
|
|
|
$
|
990
|
|
The Company had recorded unrealized gains and unrealized losses in accumulated other comprehensive loss as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30,
2017
|
|
June 30,
2017
|
|
Available-for-sale debt securities—net unrealized gains
|
$
|
5,243
|
|
|
$
|
6,949
|
|
|
Available-for-sale debt securities—non-credit related losses
|
(6,070
|
)
|
|
(6,115
|
)
|
|
Subtotal
|
(827
|
)
|
|
834
|
|
|
Tax (expense) benefit
|
354
|
|
|
(347
|
)
|
|
Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss)
|
$
|
(473
|
)
|
|
$
|
487
|
|
The expected maturity distribution including repayments of the Company’s mortgage-backed securities and other debt securities classified as trading, available-for-sale and held-to-maturity at
September 30, 2017
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
Available for sale
|
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Fair
Value
|
|
RMBS—U.S. agencies
1
:
|
|
|
|
|
Due within one year
|
$
|
1,314
|
|
|
$
|
1,300
|
|
|
Due one to five years
|
4,506
|
|
|
4,479
|
|
|
Due five to ten years
|
4,450
|
|
|
4,455
|
|
|
Due after ten years
|
13,347
|
|
|
13,227
|
|
|
Total RMBS—U.S. agencies
1
|
23,617
|
|
|
23,461
|
|
|
RMBS—Non-agency:
|
|
|
|
|
Due within one year
|
9,032
|
|
|
9,536
|
|
|
Due one to five years
|
27,219
|
|
|
28,790
|
|
|
Due five to ten years
|
17,449
|
|
|
18,754
|
|
|
Due after ten years
|
8,626
|
|
|
9,539
|
|
|
Total RMBS—Non-agency
|
62,326
|
|
|
66,619
|
|
|
Other debt:
|
|
|
|
|
Due within one year
|
33,617
|
|
|
34,929
|
|
|
Due one to five years
|
81,082
|
|
|
81,338
|
|
|
Due five to ten years
|
—
|
|
|
—
|
|
|
Due after ten years
|
13,829
|
|
|
13,366
|
|
|
Total other debt
|
128,528
|
|
|
129,633
|
|
|
Total
|
$
|
214,471
|
|
|
$
|
219,713
|
|
1
Residential mortgage-backed security (RMBS) distributions include impact of expected prepayments and other timing factors.
|
|
|
|
5.
|
LOANS, LEASES & ALLOWANCE FOR LOAN AND LEASE LOSSES
|
The following table sets forth the composition of the loan and lease portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2017
|
|
June 30, 2017
|
|
Single family real estate secured:
|
|
|
|
|
Mortgage
|
$
|
3,906,494
|
|
|
$
|
3,901,754
|
|
|
Home equity
|
2,314
|
|
|
2,092
|
|
|
Warehouse and other
1
|
577,148
|
|
|
452,390
|
|
|
Multifamily real estate secured
|
1,610,078
|
|
|
1,619,404
|
|
|
Commercial real estate secured
|
166,832
|
|
|
162,715
|
|
|
Auto and RV secured
|
188,909
|
|
|
154,246
|
|
|
Factoring
|
183,182
|
|
|
160,674
|
|
|
Commercial & Industrial
|
954,565
|
|
|
992,232
|
|
|
Other
|
7,733
|
|
|
3,754
|
|
|
Total gross loans and leases
|
7,597,255
|
|
|
7,449,261
|
|
|
Allowance for loan and lease losses
|
(42,099
|
)
|
|
(40,832
|
)
|
|
Unaccreted discounts and loan and lease fees
|
(42,157
|
)
|
|
(33,936
|
)
|
|
Total net loans and leases
|
$
|
7,512,999
|
|
|
$
|
7,374,493
|
|
|
|
|
|
1
|
The balance of single family warehouse loans was
$204,494
at
September 30, 2017
and
$187,034
at
June 30, 2017
. The remainder of the balance was attributable to single family real estate secured commercial specialty and lender finance loans.
|
Allowance for Loan and Lease Losses.
We are committed to maintaining the allowance for loan and lease losses (sometimes referred to as the “allowance”) at a level that is considered to be commensurate with estimated probable incurred credit losses in the portfolio. Although the adequacy of the allowance is reviewed quarterly, management performs an ongoing assessment of the risks inherent in the portfolio. While the Company believes that the allowance for loan and lease losses is adequate at
September 30, 2017
, future additions to the allowance will be subject to continuing evaluation of estimated and known, as well as inherent risks in the loan and lease portfolio.
Allowance for Loan and Lease Loss Disclosures.
The assessment of the adequacy of the Company’s allowance for loan and lease losses is based upon a number of quantitative and qualitative factors, including levels and trends of past due and nonaccrual loans and leases, change in volume and mix of loans and leases, collateral values and charge-off history.
The Company provides general loan loss reserves for its automobile (“auto”) and recreational vehicle (“RV”) loans based upon the borrower credit score and the Company’s loss experience to date. The allowance for loan loss for the auto and RV loan portfolio at
September 30, 2017
was determined by classifying each outstanding loan according to semi-annually refreshed FICO score and providing loss rates. The Company had
$188,779
of auto and RV loan balances subject to general reserves as follows: FICO greater than or equal to 770:
$93,829
; 715 – 769:
$63,753
; 700 – 714:
$15,378
; 660 – 699:
$14,179
and less than 660:
$1,640
.
The Company provides general loan loss reserves for mortgage loans based upon the size and class of the mortgage loan and the loan-to-value ratio (“LTV”) at date of origination. The Company divides the LTV analysis into
two
classes, separating the purchased loans from the loans underwritten directly by the Company. Based on historical performance, the Company concluded that originated loans require lower estimated loss rates than purchased loans. The allowance for each class is determined by dividing the outstanding unpaid balance for each loan by the loan-to-value and applying a loss rate. The LTV groupings for each significant mortgage class are as follows:
The Company had
$3,878,998
of single family mortgage portfolio loan balances subject to general reserves as follows: LTV less than or equal to 60%:
$2,155,261
; 61% – 70%:
$1,354,719
; 71% – 80%:
$368,822
; and greater than 80%:
$196
.
The Company had
$1,605,881
of multifamily mortgage portfolio loan balances subject to general reserves as follows: LTV less than or equal to 55%:
$791,834
; 56% – 65%:
$514,507
; 66% – 75%:
$289,329
; 76% – 80%:
$10,211
and greater than 80%:
$0
.
The Company had
$166,832
of commercial real estate loan balances subject to general reserves as follows: LTV less than or equal to 50%:
$73,540
; 51% – 60%:
$36,204
; 61% – 70%:
$46,871
; and 71% – 80%:
$10,217
.
The Company’s commercial secured portfolio consists of business loans well-collateralized by residential real estate. The Company’s other portfolio consists of receivables factoring for businesses and consumers. The Company allocates its allowance for loan loss for these asset types based on qualitative factors which consider the value of the collateral and the financial position of the issuer of the receivables.
The following tables summarize activity in the allowance for loan and lease losses by portfolio classes for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2017
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home Equity
|
|
Warehouse & Other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Balance at July 1, 2017
|
$
|
19,972
|
|
|
$
|
19
|
|
|
$
|
2,298
|
|
|
$
|
4,638
|
|
|
$
|
1,008
|
|
|
$
|
2,379
|
|
|
$
|
401
|
|
|
$
|
9,881
|
|
|
$
|
236
|
|
|
$
|
40,832
|
|
|
Provision for loan and lease loss
|
(76
|
)
|
|
(2
|
)
|
|
834
|
|
|
200
|
|
|
(94
|
)
|
|
625
|
|
|
61
|
|
|
(267
|
)
|
|
(281
|
)
|
|
1,000
|
|
|
Charge-offs
|
(85
|
)
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(148
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(234
|
)
|
|
Recoveries
|
4
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
102
|
|
|
—
|
|
|
—
|
|
|
392
|
|
|
501
|
|
|
Balance at September 30, 2017
|
$
|
19,815
|
|
|
$
|
20
|
|
|
$
|
3,132
|
|
|
$
|
4,838
|
|
|
$
|
914
|
|
|
$
|
2,958
|
|
|
$
|
462
|
|
|
$
|
9,614
|
|
|
$
|
346
|
|
|
$
|
42,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2016
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home Equity
|
|
Warehouse & Other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Balance at July 1, 2016
|
$
|
18,666
|
|
|
$
|
23
|
|
|
$
|
2,685
|
|
|
$
|
3,938
|
|
|
$
|
882
|
|
|
$
|
1,615
|
|
|
$
|
245
|
|
|
$
|
7,630
|
|
|
$
|
142
|
|
|
$
|
35,826
|
|
|
Provision for loan and lease loss
|
799
|
|
|
(5
|
)
|
|
(131
|
)
|
|
(16
|
)
|
|
58
|
|
|
326
|
|
|
49
|
|
|
781
|
|
|
39
|
|
|
1,900
|
|
|
Charge-offs
|
(27
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
(73
|
)
|
|
—
|
|
|
—
|
|
|
(102
|
)
|
|
(225
|
)
|
|
Recoveries
|
45
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
95
|
|
|
Balance at September 30, 2016
|
$
|
19,483
|
|
|
$
|
22
|
|
|
$
|
2,554
|
|
|
$
|
3,922
|
|
|
$
|
917
|
|
|
$
|
1,914
|
|
|
$
|
294
|
|
|
$
|
8,411
|
|
|
$
|
79
|
|
|
$
|
37,596
|
|
The following tables present our loans and leases evaluated individually for impairment by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
(Dollars in thousands)
|
Unpaid
Principal Balance
|
|
Principal Balance Adjustment
1
|
|
Unpaid Book Balance
|
|
Accrued Interest /
Origination Fees
|
|
Recorded Investment
|
|
Related Allocation of General Allowance
|
|
Related Allocation of Specific Allowance
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single Family Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
$
|
4,240
|
|
|
$
|
1,032
|
|
|
$
|
3,208
|
|
|
$
|
262
|
|
|
$
|
3,470
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Purchased
|
4,179
|
|
|
1,882
|
|
|
2,297
|
|
|
—
|
|
|
2,297
|
|
|
—
|
|
|
—
|
|
|
Multifamily Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
489
|
|
|
223
|
|
|
266
|
|
|
—
|
|
|
266
|
|
|
—
|
|
|
—
|
|
|
Auto and RV Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
388
|
|
|
289
|
|
|
99
|
|
|
3
|
|
|
102
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single Family Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
20,496
|
|
|
11
|
|
|
20,485
|
|
|
—
|
|
|
20,485
|
|
|
789
|
|
|
—
|
|
|
Purchased
|
1,540
|
|
|
34
|
|
|
1,506
|
|
|
22
|
|
|
1,528
|
|
|
49
|
|
|
—
|
|
|
Home Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
16
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
|
1
|
|
|
—
|
|
|
Multifamily Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
4,170
|
|
|
239
|
|
|
3,931
|
|
|
280
|
|
|
4,211
|
|
|
18
|
|
|
—
|
|
|
Auto and RV Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
40
|
|
|
9
|
|
|
31
|
|
|
2
|
|
|
33
|
|
|
1
|
|
|
—
|
|
|
Other
|
262
|
|
|
—
|
|
|
262
|
|
|
—
|
|
|
262
|
|
|
46
|
|
|
—
|
|
|
Total
|
$
|
35,820
|
|
|
$
|
3,719
|
|
|
$
|
32,101
|
|
|
$
|
569
|
|
|
$
|
32,670
|
|
|
$
|
904
|
|
|
$
|
—
|
|
|
As a % of total gross loans and leases
|
0.47
|
%
|
|
0.05
|
%
|
|
0.42
|
%
|
|
0.01
|
%
|
|
0.43
|
%
|
|
0.01
|
%
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
(Dollars in thousands)
|
Unpaid Principal Balance
|
|
Principal Balance Adjustment
1
|
|
Unpaid Book Balance
|
|
Accrued Interest /
Origination Fees
|
|
Recorded Investment
|
|
Related Allocation of General Allowance
|
|
Related Allocation of Specific Allowance
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single Family Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
$
|
4,240
|
|
|
$
|
1,032
|
|
|
$
|
3,208
|
|
|
$
|
205
|
|
|
$
|
3,413
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Purchased
|
4,563
|
|
|
1,903
|
|
|
2,660
|
|
|
—
|
|
|
2,660
|
|
|
—
|
|
|
—
|
|
|
Multifamily Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
492
|
|
|
215
|
|
|
277
|
|
|
—
|
|
|
277
|
|
|
—
|
|
|
—
|
|
|
Auto and RV Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
418
|
|
|
295
|
|
|
123
|
|
|
3
|
|
|
126
|
|
|
—
|
|
|
—
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single Family Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
16,124
|
|
|
12
|
|
|
16,112
|
|
|
—
|
|
|
16,112
|
|
|
643
|
|
|
—
|
|
|
Purchased
|
1,429
|
|
|
32
|
|
|
1,397
|
|
|
17
|
|
|
1,414
|
|
|
37
|
|
|
—
|
|
|
Home Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
18
|
|
|
2
|
|
|
16
|
|
|
—
|
|
|
16
|
|
|
1
|
|
|
—
|
|
|
Multifamily Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
4,170
|
|
|
192
|
|
|
3,978
|
|
|
186
|
|
|
4,164
|
|
|
19
|
|
|
—
|
|
|
Auto and RV Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
42
|
|
|
8
|
|
|
34
|
|
|
2
|
|
|
36
|
|
|
1
|
|
|
—
|
|
|
Commercial & Industrial
|
314
|
|
|
—
|
|
|
314
|
|
|
—
|
|
|
314
|
|
|
314
|
|
|
—
|
|
|
Other
|
274
|
|
|
—
|
|
|
274
|
|
|
—
|
|
|
274
|
|
|
43
|
|
|
—
|
|
|
Total
|
$
|
32,084
|
|
|
$
|
3,691
|
|
|
$
|
28,393
|
|
|
$
|
413
|
|
|
$
|
28,806
|
|
|
$
|
1,058
|
|
|
$
|
—
|
|
|
As a % of total gross loans and leases
|
0.43
|
%
|
|
0.05
|
%
|
|
0.38
|
%
|
|
0.01
|
%
|
|
0.39
|
%
|
|
0.01
|
%
|
|
—
|
%
|
|
|
|
|
1
|
Impaired loans with an allowance recorded do not have any charge-offs. Principal balance adjustments on impaired loans with an allowance recorded represent interest payments that have been applied to the book balance as a result of the loans’ non-accrual status.
|
The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment and based on impairment evaluation method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home
Equity
|
|
Warehouse and other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment – general allowance
|
$
|
838
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46
|
|
|
$
|
904
|
|
|
Collectively evaluated for impairment
|
18,977
|
|
|
19
|
|
|
3,132
|
|
|
4,820
|
|
|
914
|
|
|
2,957
|
|
|
462
|
|
|
9,614
|
|
|
300
|
|
|
41,195
|
|
|
Total ending allowance balance
|
$
|
19,815
|
|
|
$
|
20
|
|
|
$
|
3,132
|
|
|
$
|
4,838
|
|
|
$
|
914
|
|
|
$
|
2,958
|
|
|
$
|
462
|
|
|
$
|
9,614
|
|
|
$
|
346
|
|
|
$
|
42,099
|
|
|
Loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases individually evaluated for impairment
1
|
$
|
27,496
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
4,197
|
|
|
$
|
—
|
|
|
$
|
130
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
262
|
|
|
$
|
32,101
|
|
|
Loans and leases collectively evaluated for impairment
|
3,878,998
|
|
|
2,298
|
|
|
577,148
|
|
|
1,605,881
|
|
|
166,832
|
|
|
188,779
|
|
|
183,182
|
|
|
954,565
|
|
|
7,471
|
|
|
7,565,154
|
|
|
Principal loan and lease balance
|
3,906,494
|
|
|
2,314
|
|
|
577,148
|
|
|
1,610,078
|
|
|
166,832
|
|
|
188,909
|
|
|
183,182
|
|
|
954,565
|
|
|
7,733
|
|
|
7,597,255
|
|
|
Unaccreted discounts and loan and lease fees
|
9,550
|
|
|
43
|
|
|
(1,415
|
)
|
|
4,146
|
|
|
686
|
|
|
2,493
|
|
|
(57,165
|
)
|
|
(151
|
)
|
|
(344
|
)
|
|
(42,157
|
)
|
|
Accrued interest receivable
|
9,706
|
|
|
2
|
|
|
2,210
|
|
|
5,009
|
|
|
454
|
|
|
375
|
|
|
369
|
|
|
5,171
|
|
|
38
|
|
|
23,334
|
|
|
Total recorded investment in loans and leases
|
$
|
3,925,750
|
|
|
$
|
2,359
|
|
|
$
|
577,943
|
|
|
$
|
1,619,233
|
|
|
$
|
167,972
|
|
|
$
|
191,777
|
|
|
$
|
126,386
|
|
|
$
|
959,585
|
|
|
$
|
7,427
|
|
|
$
|
7,578,432
|
|
1
Loans and leases evaluated for impairment include Troubled Debt Restructurings (“TDRs”) that have been performing for more than
six months
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home
Equity
|
|
Warehouse and other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate
Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment – general allowance
|
$
|
680
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
314
|
|
|
$
|
43
|
|
|
$
|
1,058
|
|
|
Collectively evaluated for impairment
|
19,292
|
|
|
18
|
|
|
2,298
|
|
|
4,619
|
|
|
1,008
|
|
|
2,378
|
|
|
401
|
|
|
9,567
|
|
|
193
|
|
|
39,774
|
|
|
Total ending allowance balance
|
$
|
19,972
|
|
|
$
|
19
|
|
|
$
|
2,298
|
|
|
$
|
4,638
|
|
|
$
|
1,008
|
|
|
$
|
2,379
|
|
|
$
|
401
|
|
|
$
|
9,881
|
|
|
$
|
236
|
|
|
$
|
40,832
|
|
|
Loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases individually evaluated for impairment
1
|
$
|
23,377
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
4,255
|
|
|
$
|
—
|
|
|
$
|
157
|
|
|
$
|
—
|
|
|
$
|
314
|
|
|
$
|
274
|
|
|
$
|
28,393
|
|
|
Loans and leases collectively evaluated for impairment
|
3,878,377
|
|
|
2,076
|
|
|
452,390
|
|
|
1,615,149
|
|
|
162,715
|
|
|
154,089
|
|
|
160,674
|
|
|
991,918
|
|
|
3,480
|
|
|
7,420,868
|
|
|
Principal loan and lease balance
|
3,901,754
|
|
|
2,092
|
|
|
452,390
|
|
|
1,619,404
|
|
|
162,715
|
|
|
154,246
|
|
|
160,674
|
|
|
992,232
|
|
|
3,754
|
|
|
7,449,261
|
|
|
Unaccreted discounts and loan and lease fees
|
10,486
|
|
|
34
|
|
|
(1,702
|
)
|
|
4,586
|
|
|
744
|
|
|
2,054
|
|
|
(49,350
|
)
|
|
(640
|
)
|
|
(148
|
)
|
|
(33,936
|
)
|
|
Accrued interest receivable
|
8,831
|
|
|
1
|
|
|
(766
|
)
|
|
4,946
|
|
|
377
|
|
|
284
|
|
|
213
|
|
|
4,757
|
|
|
13
|
|
|
18,656
|
|
|
Total recorded investment in loans and leases
|
$
|
3,921,071
|
|
|
$
|
2,127
|
|
|
$
|
449,922
|
|
|
$
|
1,628,936
|
|
|
$
|
163,836
|
|
|
$
|
156,584
|
|
|
$
|
111,537
|
|
|
$
|
996,349
|
|
|
$
|
3,619
|
|
|
$
|
7,433,981
|
|
1
Loans and leases evaluated for impairment include TDRs that have been performing for more than
six months
.
Credit Quality Disclosures.
Non-performing loans and leases consisted of the following as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30,
2017
|
|
June 30,
2017
|
|
Single Family Real Estate Secured:
|
|
|
|
|
Mortgage:
|
|
|
|
|
In-house originated
|
$
|
23,693
|
|
|
$
|
19,320
|
|
|
Purchased
|
3,803
|
|
|
4,057
|
|
|
Home Equity:
|
|
|
|
|
In-house originated
|
16
|
|
|
16
|
|
|
Multifamily Real Estate Secured:
|
|
|
|
|
In-house originated
|
3,931
|
|
|
3,978
|
|
|
Purchased
|
266
|
|
|
277
|
|
|
Total non-performing loans secured by real estate
|
31,709
|
|
|
27,648
|
|
|
Auto and RV Secured
|
130
|
|
|
157
|
|
|
Commercial and Industrial
|
—
|
|
|
314
|
|
|
Other
|
262
|
|
|
274
|
|
|
Total non-performing loans and leases
|
$
|
32,101
|
|
|
$
|
28,393
|
|
|
Non-performing loans and leases to total loans and leases
|
0.42
|
%
|
|
0.38
|
%
|
The Company has
no
loans and leases over
90 days
delinquent that are still accruing interest at
September 30, 2017
. Approximately
85.65%
of the Company’s non-performing loans and leases are single family first mortgages already written down to
49.98%
in aggregate, of the original appraisal value of the underlying properties.
The following tables present the outstanding unpaid balance of loans and leases that are performing and non-performing by portfolio class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home
Equity
|
|
Warehouse & other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Performing
|
$
|
3,878,998
|
|
|
$
|
2,298
|
|
|
$
|
577,148
|
|
|
$
|
1,605,881
|
|
|
$
|
166,832
|
|
|
$
|
188,779
|
|
|
$
|
183,182
|
|
|
$
|
954,565
|
|
|
$
|
7,471
|
|
|
$
|
7,565,154
|
|
|
Non-performing
|
27,496
|
|
|
16
|
|
|
—
|
|
|
4,197
|
|
|
—
|
|
|
130
|
|
|
—
|
|
|
—
|
|
|
262
|
|
|
32,101
|
|
|
Total
|
$
|
3,906,494
|
|
|
$
|
2,314
|
|
|
$
|
577,148
|
|
|
$
|
1,610,078
|
|
|
$
|
166,832
|
|
|
$
|
188,909
|
|
|
$
|
183,182
|
|
|
$
|
954,565
|
|
|
$
|
7,733
|
|
|
$
|
7,597,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home
Equity
|
|
Warehouse & other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Performing
|
$
|
3,878,377
|
|
|
$
|
2,076
|
|
|
$
|
452,390
|
|
|
$
|
1,615,149
|
|
|
$
|
162,715
|
|
|
$
|
154,089
|
|
|
$
|
160,674
|
|
|
$
|
991,918
|
|
|
$
|
3,480
|
|
|
$
|
7,420,868
|
|
|
Non-performing
|
23,377
|
|
|
16
|
|
|
—
|
|
|
4,255
|
|
|
—
|
|
|
157
|
|
|
—
|
|
|
314
|
|
|
274
|
|
|
28,393
|
|
|
Total
|
$
|
3,901,754
|
|
|
$
|
2,092
|
|
|
$
|
452,390
|
|
|
$
|
1,619,404
|
|
|
$
|
162,715
|
|
|
$
|
154,246
|
|
|
$
|
160,674
|
|
|
$
|
992,232
|
|
|
$
|
3,754
|
|
|
$
|
7,449,261
|
|
The Company divides loan balances when determining general loan loss reserves between purchases and originations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
Single Family Real Estate Secured: Mortgage
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
(Dollars in thousands)
|
Origination
|
|
Purchase
|
|
Total
|
|
Origination
|
|
Purchase
|
|
Total
|
|
Origination
|
|
Purchase
|
|
Total
|
|
Performing
|
$
|
3,832,201
|
|
|
$
|
46,797
|
|
|
$
|
3,878,998
|
|
|
$
|
1,522,881
|
|
|
$
|
83,000
|
|
|
$
|
1,605,881
|
|
|
$
|
155,716
|
|
|
$
|
11,116
|
|
|
$
|
166,832
|
|
|
Non-performing
|
23,693
|
|
|
3,803
|
|
|
27,496
|
|
|
3,931
|
|
|
266
|
|
|
4,197
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
3,855,894
|
|
|
$
|
50,600
|
|
|
$
|
3,906,494
|
|
|
$
|
1,526,812
|
|
|
$
|
83,266
|
|
|
$
|
1,610,078
|
|
|
$
|
155,716
|
|
|
$
|
11,116
|
|
|
$
|
166,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
Single Family Real Estate Secured: Mortgage
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
(Dollars in thousands)
|
Origination
|
|
Purchase
|
|
Total
|
|
Origination
|
|
Purchase
|
|
Total
|
|
Origination
|
|
Purchase
|
|
Total
|
|
Performing
|
$
|
3,827,649
|
|
|
$
|
50,728
|
|
|
$
|
3,878,377
|
|
|
$
|
1,528,912
|
|
|
$
|
86,237
|
|
|
$
|
1,615,149
|
|
|
$
|
150,880
|
|
|
$
|
11,835
|
|
|
$
|
162,715
|
|
|
Non-performing
|
19,320
|
|
|
4,057
|
|
|
23,377
|
|
|
3,978
|
|
|
277
|
|
|
4,255
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
3,846,969
|
|
|
$
|
54,785
|
|
|
$
|
3,901,754
|
|
|
$
|
1,532,890
|
|
|
$
|
86,514
|
|
|
$
|
1,619,404
|
|
|
$
|
150,880
|
|
|
$
|
11,835
|
|
|
$
|
162,715
|
|
From time to time the Company modifies loan terms temporarily for borrowers who are experiencing financial stress. These loans are performing and accruing and will generally return to the original loan terms after the modification term expires.
Approximately
4.74%
of our non-performing loans and leases at
September 30, 2017
were considered TDRs, compared to
5.56%
at
June 30, 2017
. Borrowers that make timely payments after TDRs are considered non-performing for at least
six months
. Generally, after
six months
of timely payments, those TDRs are reclassified from the non-performing loan and lease category to the performing loan and lease category and any previously deferred interest income is recognized.
The Company classifies these loans as performing loans temporarily modified as TDR and are included in impaired loans and leases as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home
Equity
|
|
Warehouse & other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Performing loans temporarily modified as TDR
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Non-performing loans and leases
|
27,496
|
|
|
16
|
|
|
—
|
|
|
4,197
|
|
|
—
|
|
|
130
|
|
|
—
|
|
|
—
|
|
|
262
|
|
|
32,101
|
|
|
Total impaired loans and leases
|
$
|
27,496
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
4,197
|
|
|
$
|
—
|
|
|
$
|
130
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
262
|
|
|
$
|
32,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home
Equity
|
|
Warehouse & other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Performing loans temporarily modified as TDR
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Non-performing loans and leases
|
23,377
|
|
|
16
|
|
|
—
|
|
|
4,255
|
|
|
—
|
|
|
157
|
|
|
—
|
|
|
314
|
|
|
274
|
|
|
28,393
|
|
|
Total impaired loans and leases
|
$
|
23,377
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
4,255
|
|
|
$
|
—
|
|
|
$
|
157
|
|
|
$
|
—
|
|
|
$
|
314
|
|
|
$
|
274
|
|
|
$
|
28,393
|
|
The Company recognizes interest on performing loans temporarily modified as TDR, which is shown in conjunction with average balances as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2017
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home
Equity
|
|
Warehouse & other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Interest income recognized on performing TDRs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Average balances of performing TDRs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Average balances of impaired loans
|
$
|
25,436
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
4,226
|
|
|
$
|
—
|
|
|
$
|
144
|
|
|
$
|
—
|
|
|
$
|
157
|
|
|
$
|
268
|
|
|
$
|
30,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2016
|
|
|
Single Family Real Estate Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Mortgage
|
|
Home
Equity
|
|
Warehouse & other
|
|
Multifamily Real Estate Secured
|
|
Commercial Real Estate Secured
|
|
Auto and RV Secured
|
|
Factoring
|
|
Commercial & Industrial
|
|
Other
|
|
Total
|
|
Interest income recognized on performing TDRs
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Average balances of performing TDRs
|
$
|
209
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
209
|
|
|
Average balances of impaired loans
|
$
|
31,985
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
3,976
|
|
|
$
|
243
|
|
|
$
|
293
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
626
|
|
|
$
|
37,156
|
|
The Company’s loan modifications primarily included single family, multifamily and commercial loans of which included one or a combination of the following: a reduction of the stated interest rate or delinquent property taxes that were paid by the Bank and either repaid by the borrower over a
one year
period or capitalized and amortized over the remaining life of the loan. The Company’s loan modifications also included RV loans in which borrowers were able to make interest-only payments for a period of
six months
to
one year
which then reverted back to fully amortizing.
Credit Quality Indicators
The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans and leases based on credit risk. The Company uses the following definitions for risk ratings.
Pass.
Loans and leases classified as pass are well protected by the current net worth and paying capacity of the obligor or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
Special Mention
. Loans and leases classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or of the institution’s credit position at some future date.
Substandard
. Loans and leases classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful
. Loans and leases classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The Company reviews and grades loans and leases following a continuous review process, featuring coverage of all loan and lease types and business lines at least quarterly. Continuous reviewing provides more effective risk monitoring because it immediately tests for potential impacts caused by changes in personnel, policy, products or underwriting standards.
The following table presents the composition of the Company’s loan and lease portfolio by credit quality indicators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
(Dollars in thousands)
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
Single Family Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
Mortgage:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
$
|
3,812,623
|
|
|
$
|
19,579
|
|
|
$
|
23,692
|
|
|
$
|
—
|
|
|
$
|
3,855,894
|
|
|
Purchased
|
46,424
|
|
|
373
|
|
|
3,803
|
|
|
—
|
|
|
50,600
|
|
|
Home Equity:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
2,298
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
2,314
|
|
|
Warehouse and other:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
577,148
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
577,148
|
|
|
Multifamily Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
1,521,175
|
|
|
1,706
|
|
|
3,931
|
|
|
—
|
|
|
1,526,812
|
|
|
Purchased
|
81,547
|
|
|
450
|
|
|
1,269
|
|
|
—
|
|
|
83,266
|
|
|
Commercial Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
155,716
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
155,716
|
|
|
Purchased
|
9,161
|
|
|
1,955
|
|
|
—
|
|
|
—
|
|
|
11,116
|
|
|
Auto and RV Secured:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
188,697
|
|
|
65
|
|
|
147
|
|
|
—
|
|
|
188,909
|
|
|
Factoring
|
183,182
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
183,182
|
|
|
Commercial & Industrial
|
945,873
|
|
|
7,000
|
|
|
1,692
|
|
|
—
|
|
|
954,565
|
|
|
Other
|
7,471
|
|
|
—
|
|
|
262
|
|
|
—
|
|
|
7,733
|
|
|
Total
|
$
|
7,531,315
|
|
|
$
|
31,128
|
|
|
$
|
34,812
|
|
|
$
|
—
|
|
|
$
|
7,597,255
|
|
|
As a % of total gross loans and leases
|
99.1
|
%
|
|
0.4
|
%
|
|
0.5
|
%
|
|
—
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
(Dollars in thousands)
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
Single Family Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
Mortgage:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
$
|
3,808,886
|
|
|
$
|
18,763
|
|
|
$
|
19,320
|
|
|
$
|
—
|
|
|
$
|
3,846,969
|
|
|
Purchased
|
49,893
|
|
|
538
|
|
|
4,354
|
|
|
—
|
|
|
54,785
|
|
|
Home Equity:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
2,076
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
2,092
|
|
|
Warehouse and other:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
452,390
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
452,390
|
|
|
Multifamily Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
1,526,931
|
|
|
1,981
|
|
|
3,978
|
|
|
—
|
|
|
1,532,890
|
|
|
Purchased
|
84,775
|
|
|
452
|
|
|
1,287
|
|
|
—
|
|
|
86,514
|
|
|
Commercial Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
150,880
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
150,880
|
|
|
Purchased
|
9,868
|
|
|
1,967
|
|
|
—
|
|
|
—
|
|
|
11,835
|
|
|
Auto and RV Secured:
|
|
|
|
|
|
|
|
|
|
|
In-house originated
|
153,994
|
|
|
77
|
|
|
175
|
|
|
—
|
|
|
154,246
|
|
|
Factoring
|
160,674
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
160,674
|
|
|
Commercial & Industrial
|
991,918
|
|
|
—
|
|
|
314
|
|
|
—
|
|
|
992,232
|
|
|
Other
|
3,480
|
|
|
—
|
|
|
274
|
|
|
—
|
|
|
3,754
|
|
|
Total
|
$
|
7,395,765
|
|
|
$
|
23,778
|
|
|
$
|
29,718
|
|
|
$
|
—
|
|
|
$
|
7,449,261
|
|
|
As a % of total gross loans and leases
|
99.3
|
%
|
|
0.3
|
%
|
|
0.4
|
%
|
|
—
|
%
|
|
100.0
|
%
|
The Company considers the performance of the loan and lease portfolio and its impact on the allowance for loan and lease losses. The Company also evaluates credit quality based on the aging status of its loans and leases. During the year, the Company holds certain short-term loans that do not have a fixed maturity date that are treated as delinquent if not paid in full
90 days
after the origination date. The following table provides the outstanding unpaid balance of loans and leases that are past due
30 days
or more by portfolio class as of the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
(Dollars in thousands)
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
90+ Days Past Due
|
|
Total
|
|
Single family real estate secured:
|
|
|
|
|
|
|
|
|
Mortgage:
|
|
|
|
|
|
|
|
|
In-house originated
|
$
|
4,100
|
|
|
$
|
1,696
|
|
|
$
|
22,268
|
|
|
$
|
28,064
|
|
|
Purchased
|
90
|
|
|
475
|
|
|
1,781
|
|
|
2,346
|
|
|
Home equity:
|
|
|
|
|
|
|
|
|
In-house originated
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
|
Multifamily real estate secured:
|
|
|
|
|
|
|
|
|
In-house originated
|
—
|
|
|
—
|
|
|
3,931
|
|
|
3,931
|
|
|
Auto and RV secured
|
270
|
|
|
110
|
|
|
44
|
|
|
424
|
|
|
Commercial and industrial
|
7,000
|
|
|
—
|
|
|
—
|
|
|
7,000
|
|
|
Other
|
—
|
|
|
—
|
|
|
262
|
|
|
262
|
|
|
Total
|
$
|
11,460
|
|
|
$
|
2,281
|
|
|
$
|
28,302
|
|
|
$
|
42,043
|
|
|
As a % of total gross loans and leases
|
0.15
|
%
|
|
0.03
|
%
|
|
0.37
|
%
|
|
0.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
(Dollars in thousands)
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
90+ Days Past Due
|
|
Total
|
|
Single family real estate secured:
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
|
|
In-house originated
|
$
|
4,892
|
|
|
$
|
2,325
|
|
|
$
|
19,297
|
|
|
$
|
26,514
|
|
|
Purchased
|
244
|
|
|
101
|
|
|
1,751
|
|
|
2,096
|
|
|
Home equity
|
|
|
|
|
|
|
|
|
In-house originated
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
|
Multifamily real estate secured
|
|
|
|
|
|
|
|
|
In-house originated
|
—
|
|
|
—
|
|
|
3,978
|
|
|
3,978
|
|
|
Auto and RV secured
|
|
|
|
|
|
|
|
|
In-house originated
|
149
|
|
|
77
|
|
|
3
|
|
|
229
|
|
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
314
|
|
|
314
|
|
|
Other
|
—
|
|
|
—
|
|
|
274
|
|
|
274
|
|
|
Total
|
$
|
5,285
|
|
|
$
|
2,503
|
|
|
$
|
25,633
|
|
|
$
|
33,421
|
|
|
As a % of total gross loans and leases
|
0.07
|
%
|
|
0.03
|
%
|
|
0.35
|
%
|
|
0.45
|
%
|
6. EQUITY AND STOCK-BASED COMPENSATION
During the
three months
ended
September 30, 2017
and
2016
, the Company granted
506,716
and
659,298
restricted stock units, to employees and directors, respectively. Restricted stock unit awards (“RSUs”) granted during these quarters generally vest over
three
years, one-third on each anniversary date, except for any RSUs granted to our CEO, which vest one-fourth on each fiscal year end.
The Company’s income before income taxes and net income for the three months ended
September 30, 2017
and
September 30, 2016
include stock award expense of
$3,659
and
$3,037
, with total income tax benefit of
$1,499
and
$1,273
, respectively. The Company recognizes compensation expense based upon the grant-date fair value divided by the vesting and the service period between each vesting date. At
September 30, 2017
, unrecognized compensation expense related to non-vested awards aggregated to
$30,675
and is expected to be recognized in future periods as follows:
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Stock Award
Compensation
Expense
|
|
For the fiscal year remainder:
|
|
|
2018
|
$
|
11,609
|
|
|
2019
|
11,506
|
|
|
2020
|
6,294
|
|
|
2021
|
1,266
|
|
|
Total
|
$
|
30,675
|
|
The following table presents the status and changes in restricted stock unit grants for the periods indicated
:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Unit Shares
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
Non-vested balance at June 30, 2016
|
1,059,726
|
|
|
$
|
22.53
|
|
|
Granted
|
843,611
|
|
|
21.13
|
|
|
Vested
|
(570,764
|
)
|
|
20.86
|
|
|
Canceled
|
(92,251
|
)
|
|
20.26
|
|
|
Non-vested balance at June 30, 2017
|
1,240,322
|
|
|
$
|
22.52
|
|
|
Granted
|
506,716
|
|
|
25.33
|
|
|
Vested
|
(218,421
|
)
|
|
20.85
|
|
|
Canceled
|
(27,896
|
)
|
|
22.56
|
|
|
Non-vested balance at September 30, 2017
|
1,500,721
|
|
|
$
|
23.71
|
|
The total fair value of shares vested for the
three
months ended
September 30, 2017
and
September 30, 2016
was
$5,646
and
$2,996
, respectively.
|
|
|
|
7.
|
EARNINGS PER SHARE (“EPS”)
|
Basic EPS excludes dilution and is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted to common stock that would then share in the Company’s earnings.
The following table presents the calculation of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
(Dollars in thousands, except per share data)
|
2017
|
|
2016
|
|
Earnings Per Common Share
|
|
|
|
|
Net income
|
$
|
32,383
|
|
|
$
|
28,897
|
|
|
Preferred stock dividends
|
(77
|
)
|
|
(77
|
)
|
|
Net income attributable to common shareholders
|
$
|
32,306
|
|
|
$
|
28,820
|
|
|
|
|
|
|
|
Average common shares outstanding
|
63,626,512
|
|
|
63,284,174
|
|
|
Average unvested RSU shares
|
1,418,563
|
|
|
1,305,159
|
|
|
Total basic weighted-average number of shares outstanding
|
65,045,075
|
|
|
64,589,333
|
|
|
Total dilutive weighted-average number of shares outstanding
|
65,045,075
|
|
|
64,589,333
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.50
|
|
|
$
|
0.45
|
|
|
Diluted earnings per common share
|
$
|
0.50
|
|
|
$
|
0.45
|
|
|
|
|
|
8.
|
COMMITMENTS AND CONTINGENCIES
|
Credit-Related Financial Instruments
. The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.
At
September 30, 2017
, the Company had commitments to originate
$94,838
in fixed rate loans and leases and
$453,815
in variable rate loans, totaling an aggregate outstanding principal balance of
$548,653
. Our fixed rate loan and lease commitments to originate had rates ranging from
1.83%
to
7.66%
. At
September 30, 2017
, the Company also had commitments to sell
$82,159
in fixed rate loans and
$1,831
in variable rate loans, totaling an aggregate outstanding principal balance of
$83,990
.
Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.
Litigation.
On October 15, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled
Golden v. BofI Holding, Inc., et al
, and brought in United States District Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a second putative class action lawsuit styled
Hazan v. BofI Holding, Inc., et al
, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as
In re BofI Holding, Inc. Securities Litigation
, Case #: 3:15-cv-02324-GPC-KSC (the “First Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The First Class Action complaint was amended by a certain Consolidated Amended Class Complaint filed on April 11, 2016. On September 27, 2016, the Court dismissed the First Class Action, with leave to amend, as to defendants Andrew Micheletti, Paul Grinberg, Nicholas Mosich and James Argalas. The Court denied the Motion to Dismiss with respect to the Company and Gregory Garrabrants. On November 25, 2016, the putative class action plaintiff filed a Second Amended Class Action Complaint (the “Second Amended Complaint”), which includes the previously dismissed defendants. On December 23, 2016, the Company and other defendants filed a motion to dismiss such Second Amended Complaint. On May 23, 2017, the Court granted in part and
denied in part the defendants; motion to dismiss the Second Amended Complaint. On September 28, 2017, the Company and other defendants filed a motion for judgment on the pleadings, which is currently pending. The First Class Action seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The Second Amended Complaint alleges that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. The Company and the other defendants named in the Employment Matter dispute the allegations of wrongdoing advanced by the plaintiff in that case, including plaintiff’s statement of the underlying factual circumstances, and are vigorously defending against the complaint filed in connection therewith. Moreover, the Company and the other named defendants dispute the allegations advanced by the plaintiffs in the First Class Action and are vigorously defending against the Second Amended Complaint.
On April 3, 2017, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled
Mandalevy v. BofI Holding, Inc., et al
, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article
.
The Mandalevy Case has not been consolidated into the First Class Action. On June 2, 2017, lead plaintiff motions were filed on behalf of
three
members of the putative class and on July 17, 2017, the Company and other defendants filed an opposition to such motions. The Mandalevy Complaint has yet to be served upon the Company or the other named defendants. The Company and the other named defendants dispute the allegations advanced by the plaintiffs in the Mandalevy Case, and are vigorously defending against the Mandalevy Complaint.
The complaints filed in the Golden Case, the Hazan Case, and the Mandalevy Case allege that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose the wrongful conduct that is alleged in a complaint that was filed in a wrongful termination of employment lawsuit (the “Employment Matter”), and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. The Company and the other named defendants dispute the allegations of wrongdoing advanced by the plaintiffs in the Class Action, the Mandalevy Case, and in the Employment Matter, as well as those plaintiffs’ statement of the underlying factual circumstances, and are vigorously defending each case.
In addition to the First Class Action and the Mandalevy Case,
two
separate shareholder derivative actions were filed in December, 2015, purportedly on behalf of the Company. The first derivative action,
Calcaterra v. Garrabrants, et al
, was filed in the United States District Court for the Southern District of California on December 3, 2015. The second derivative action,
Dow v. Micheletti, et al
, was filed in the San Diego County Superior Court on December 16, 2015. A third derivative action,
DeYoung v. Garrabrants, et al
, was filed in the United States District Court for the Southern District of California on January 22, 2016, a fourth derivative action,
Yong v. Garrabrants, et al
, was filed in the United States District Court for the Southern District of California on January 29, 2016, a fifth derivative action,
Laborers Pension Trust Fund of Northern Nevada v. Allrich et al
, was filed in the United States District Court for the Southern District of California on February 2, 2016, and a sixth derivative action,
Garner v. Garrabrants, et al
, was filed in the San Diego County Superior Court on August 10, 2017. Each of these
six
derivative actions names the Company as a nominal defendant, and certain of its officers and directors as defendants. Each complaint sets forth allegations of breaches of fiduciary duties, gross mismanagement, abuse of control, and unjust enrichment against the defendant officers and directors. The plaintiffs in these derivative actions seek damages in unspecified amounts on the Company’s behalf from the officer and director defendants, certain corporate governance actions, and an award of their costs and attorney’s fees.
On June 9, 2016, the United States District Court for the Southern District of California ordered the
four
above-referenced cases pending before it to be consolidated, appointed lead counsel in the consolidated action, and ordered the parties to meet and confer regarding a schedule for the filing of a consolidated complaint and defendants’ response to the complaint. Pursuant to the June 9, 2016 order, counsel have met and conferred regarding proposals for (a) the time for plaintiffs to file a consolidated complaint or provide notice of plaintiffs’ intent to rely upon the original Complaint in Case No. 3:15-cv-02722-GPC-KSC (the “Operative Complaint”); (b) the time for defendants to respond to the Operative Complaint; and (c) a schedule for briefing any motion to dismiss that may be filed by a defendant. A stipulation setting forth the agreed litigation schedule has been submitted to the Court. On April 10, 2017, the plaintiffs filed an amended complaint (the “Amended Operative Complaint”).
The first to be filed of
two
derivative actions pending before the San Diego County Superior Court,
Dow v. Micheletti, et al,
is stayed by agreement of the parties. Due to the recency of its filing, no action has yet been taken, or agreement reached, with respect to
Garner v. Garrabrants, et al.
|
|
|
|
9.
|
RELATED PARTY TRANSACTIONS
|
In the ordinary course of business, the Company has granted related party loans collateralized by real property to principal officers, directors and their affiliates that are considered to be insiders by regulation. There were
no
new related party loans granted under the provisions of the employee loan program and
no
refinances of existing loans during the three months ended
September 30, 2017
, and
no
new loans and
no
refinances of existing loans during the
three months
ended
September 30, 2016
.