(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include the accounts of NASB Financial, Inc.
(the Company), its wholly-owned subsidiary, North American Savings Bank, F.S.B. (North American or the Bank), and the Banks wholly-owned subsidiary, Nor-Am Service Corporation. All significant inter-company
transactions have been eliminated in consolidation. The consolidated financial statements do not include the accounts of our wholly-owned statutory trust, NASB Preferred Trust I (the Trust). The Trust qualifies as a special purpose
entity that is not required to be consolidated in the financial statements of NASB Financial, Inc. The Trust Preferred Securities issued by the Trust are included in Tier I capital for regulatory capital purposes. See Footnote 8, Subordinated
Debentures.
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with
instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. All adjustments are of a
normal and recurring nature, and, in the opinion of management, the statements include all adjustments considered necessary for fair presentation. These statements should be read in conjunction with the consolidated financial statements and notes
thereto included in the Companys Annual Report on Form 10-K for the year ended September 30, 2012, filed with the Securities and Exchange Commission on December 14, 2012. Operating results for the three month period ended
December 31, 2012, are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2013. The condensed consolidated balance sheet of the Company as of September 30, 2012, has been derived
from the audited balance sheet of the Company as of that date.
In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowances for losses on loans, valuation of foreclosed assets held for sale, accruals for loan recourse provisions, and fair values of financial instruments, among other items. Management believes
that these estimates are adequate; however, future additions to the allowance or changes in the estimates may be necessary based on changes in economic conditions.
The Companys critical accounting policies involving the more significant judgments and assumptions used in the preparation of the condensed consolidated financial statements as of December 31,
2012, have remained unchanged from September 30, 2012. These policies relate to the allowance for loan losses, the valuation of foreclosed assets held for sale, the valuation of derivative instruments, and the valuation of equity method
investments. Disclosure of these critical accounting policies is incorporated by reference under Item 8 Financial Statements and Supplementary Data in the Companys Annual Report on Form 10-K for the Companys year ended
September 30, 2012.
Certain quarterly amounts for previous periods have been reclassified to conform to the current
quarters presentation.
(2) RECONCILIATION OF BASIC EARNINGS PER SHARE TO DILUTED EARNINGS PER SHARE
The following table presents a reconciliation of basic earnings per share to diluted earnings per share for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
12/31/12
|
|
|
12/31/11
|
|
Net income (in thousands)
|
|
$
|
8,317
|
|
|
|
4,939
|
|
|
|
|
Average common shares outstanding
|
|
|
7,867,614
|
|
|
|
7,867,614
|
|
Average common share stock options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average diluted common shares
|
|
|
7,867,614
|
|
|
|
7,867,614
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.06
|
|
|
|
0.63
|
|
Diluted
|
|
|
1.06
|
|
|
|
0.63
|
|
7
At December 31, 2012 and 2011, options to purchase 47,538 shares of the Companys
stock were outstanding. These options were not included in the calculation of diluted earnings per share because the option exercise price was greater than the average market price of the common shares for the period, thus making the options
anti-dilutive.
(3) SECURITIES AVAILABLE FOR SALE
The following table presents a summary of securities available for sale at December 31, 2012. Dollar amounts are
expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
Corporate debt securities
|
|
$
|
69,464
|
|
|
|
3,310
|
|
|
|
|
|
|
|
72,774
|
|
U.S. government sponsored agency securities
|
|
|
192,710
|
|
|
|
580
|
|
|
|
166
|
|
|
|
193,124
|
|
Municipal securities
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
262,602
|
|
|
|
3,890
|
|
|
|
166
|
|
|
|
266,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of securities available for sale at September 30, 2012.
Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
Unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
Losses
|
|
|
value
|
|
Corporate debt securities
|
|
$
|
57,983
|
|
|
|
3,035
|
|
|
|
|
|
|
|
61,018
|
|
U.S. government sponsored agency securities
|
|
|
152,546
|
|
|
|
624
|
|
|
|
4
|
|
|
|
153,166
|
|
Municipal securities
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
210,535
|
|
|
|
3,659
|
|
|
|
4
|
|
|
|
214,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of securities available for sale during the three month period ended December 31, 2012. During
the three month period ended December 31, 2011, the Company realized gross gains of $227,000 and gross losses of $570,000 on the sale of securities available for sale.
The following table presents a summary of the fair value and gross unrealized losses of those securities available for sale which had unrealized losses at December 31, 2012. Dollar amounts are
expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
fair
|
|
|
unrealized
|
|
|
fair
|
|
|
unrealized
|
|
|
|
value
|
|
|
Losses
|
|
|
value
|
|
|
losses
|
|
U.S. government sponsored agency securities
|
|
$
|
60,307
|
|
|
|
166
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
60,307
|
|
|
|
166
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
The scheduled maturities of securities available for sale at December 31, 2012 are
presented in the following table. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair
value
|
|
Due in less than one year
|
|
$
|
11,734
|
|
|
|
13
|
|
|
|
|
|
|
|
11,747
|
|
Due from one to five years
|
|
|
164,484
|
|
|
|
3,706
|
|
|
|
1
|
|
|
|
168,189
|
|
Due from five to ten years
|
|
|
35,095
|
|
|
|
147
|
|
|
|
|
|
|
|
35,242
|
|
Due after ten years
|
|
|
51,289
|
|
|
|
24
|
|
|
|
165
|
|
|
|
51,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
262,602
|
|
|
|
3,890
|
|
|
|
166
|
|
|
|
266,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
The following table presents a summary of mortgage-backed securities available for sale at December 31, 2012. Dollar amounts are
expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
Pass-through certificates guaranteed by GNMA fixed rate
|
|
$
|
76
|
|
|
|
2
|
|
|
|
|
|
|
|
78
|
|
Pass-through certificates guaranteed by FNMA adjustable rate
|
|
|
137
|
|
|
|
7
|
|
|
|
|
|
|
|
144
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
161
|
|
|
|
13
|
|
|
|
|
|
|
|
174
|
|
Adjustable rate
|
|
|
120
|
|
|
|
8
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
494
|
|
|
|
30
|
|
|
|
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of mortgage-backed securities available for sale at September 30, 2012.
Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
Pass-through certificates guaranteed by GNMA fixed rate
|
|
$
|
78
|
|
|
|
3
|
|
|
|
|
|
|
|
81
|
|
Pass-through certificates guaranteed by FNMA adjustable rate
|
|
|
143
|
|
|
|
9
|
|
|
|
|
|
|
|
152
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
176
|
|
|
|
14
|
|
|
|
|
|
|
|
190
|
|
Adjustable rate
|
|
|
123
|
|
|
|
8
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
520
|
|
|
|
34
|
|
|
|
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of mortgage-backed securities available for sale during the three month periods ended
December 31, 2012 and 2011.
9
The scheduled maturities of mortgage-backed securities available for sale at
December 31, 2012 are presented in the following table. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair
value
|
|
Due from five to ten years
|
|
$
|
161
|
|
|
|
13
|
|
|
|
|
|
|
|
174
|
|
Due after ten years
|
|
|
333
|
|
|
|
17
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
494
|
|
|
|
30
|
|
|
|
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities and pay-downs of mortgage-backed securities available for sale will differ from scheduled maturities
depending on the repayment characteristics and experience of the underlying financial instruments, on which borrowers have the right to prepay certain obligations.
(5) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The following table presents a summary of mortgage-backed securities held to maturity at December 31, 2012. Dollar
amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
35
|
|
|
|
3
|
|
|
|
|
|
|
|
38
|
|
FNMA pass-through certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Balloon maturity and adjustable rate
|
|
|
23
|
|
|
|
1
|
|
|
|
|
|
|
|
24
|
|
Collateralized mortgage obligations
|
|
|
23,608
|
|
|
|
370
|
|
|
|
327
|
|
|
|
23,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,669
|
|
|
|
374
|
|
|
|
327
|
|
|
|
23,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of mortgage-backed securities held to maturity at
September 30, 2012. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
37
|
|
|
|
3
|
|
|
|
|
|
|
|
40
|
|
FNMA pass-through certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Balloon maturity and adjustable rate
|
|
|
24
|
|
|
|
1
|
|
|
|
|
|
|
|
25
|
|
Collateralized mortgage obligations
|
|
|
25,857
|
|
|
|
390
|
|
|
|
198
|
|
|
|
26,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,921
|
|
|
|
394
|
|
|
|
198
|
|
|
|
26,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
There were no sales of mortgage-backed securities held to maturity during the three month
periods ended December 31, 2012 and 2011.
The following table presents a summary of the fair value and gross unrealized
losses of those mortgage-backed securities held to maturity which had unrealized losses at December 31, 2012. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
|
Estimated
fair
value
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair
value
|
|
|
Gross
unrealized
losses
|
|
Collateralized mortgage obligations
|
|
$
|
9,587
|
|
|
|
197
|
|
|
$
|
1,345
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,587
|
|
|
|
197
|
|
|
$
|
1,345
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management monitors the securities portfolio for impairment on an ongoing basis by evaluating market conditions and
other relevant information, including external credit ratings, to determine whether or not a decline in value is other-than-temporary. When the fair value of a security is less than its amortized cost, an other-than-temporary impairment is
considered to have occurred if the present value of expected cash flows is not sufficient to recover the entire amortized cost, or if the Company intends to, or will be required to, sell the security prior to the recovery of its amortized cost. The
unrealized losses at December 31, 2012, are primarily the result of changes in market yields from the time of purchase. Management generally views changes in fair value caused by changes in interest rates as temporary. In addition, all
scheduled payments for securities with unrealized losses at December 31, 2012, have been made, and it is anticipated that the Company will hold such securities to maturity and that the entire principal balance will be collected.
The scheduled maturities of mortgage-backed securities held to maturity at December 31, 2012, are presented in the following table.
Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair
value
|
|
Due from one to five years
|
|
$
|
26
|
|
|
|
2
|
|
|
|
|
|
|
|
28
|
|
Due from five to ten years
|
|
|
1,115
|
|
|
|
2
|
|
|
|
28
|
|
|
|
1,089
|
|
Due after ten years
|
|
|
22,528
|
|
|
|
370
|
|
|
|
299
|
|
|
|
22,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,669
|
|
|
|
374
|
|
|
|
327
|
|
|
|
23,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities and pay-downs of mortgage-backed securities held to maturity will differ from scheduled maturities
depending on the repayment characteristics and experience of the underlying financial instruments, on which borrowers have the right to prepay certain obligations.
(6) LOANS RECEIVABLE
The Bank has traditionally concentrated its lending activities on mortgage loans secured by residential and business
property and, to a lesser extent, development lending. Residential mortgage loans have either long-term fixed or adjustable rates. The Bank also has a portfolio of mortgage loans that are secured by multifamily, construction, development, and
commercial real estate properties. The remaining part of North Americans loan portfolio consists of non-mortgage commercial loans and installment loans.
11
The following table presents the Banks total loans receivable. Dollar amounts are
expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
12/31/12
|
|
|
9/30/12
|
|
HELD FOR INVESTMENT
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Permanent loans on:
|
|
|
|
|
|
|
|
|
Residential properties
|
|
$
|
329,436
|
|
|
|
331,310
|
|
Business properties
|
|
|
291,487
|
|
|
|
321,559
|
|
Partially guaranteed by VA or insured by FHA
|
|
|
4,447
|
|
|
|
3,950
|
|
Construction and development
|
|
|
97,684
|
|
|
|
110,718
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
723,054
|
|
|
|
767,537
|
|
Commercial loans
|
|
|
14,986
|
|
|
|
17,570
|
|
Installment loans and lease financing to individuals
|
|
|
7,591
|
|
|
|
7,753
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable held for investment
|
|
|
745,631
|
|
|
|
792,860
|
|
Less:
|
|
|
|
|
|
|
|
|
Undisbursed loan funds
|
|
|
(18,013
|
)
|
|
|
(21,014
|
)
|
Unearned discounts and fees on loans, net of deferred costs
|
|
|
(4,964
|
)
|
|
|
(5,245
|
)
|
|
|
|
|
|
|
|
|
|
Net loans receivable held for investment
|
|
$
|
722,654
|
|
|
|
766,601
|
|
|
|
|
|
|
|
|
|
|
HELD FOR SALE
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Permanent loans on:
|
|
|
|
|
|
|
|
|
Residential properties
|
|
$
|
164,635
|
|
|
|
163,834
|
|
|
|
|
|
|
|
|
|
|
Included in the loans receivable balances at December 31, 2012, are participating interests in mortgage loans and
wholly-owned mortgage loans serviced by other institutions in the amount of $1.2 million. Loans and participations serviced for others amounted to approximately $27.4 million at December 31, 2012. Loans serviced for others are not included in
the accompanying condensed consolidated balance sheets.
Lending Practices and Underwriting Standards
Residential real estate loans - The Bank offers a range of residential loan programs, including programs offering loans guaranteed by the
Veterans Administration (VA) and loans insured by the Federal Housing Administration (FHA). The Banks residential loans come from several sources. The loans that the Bank originates are generally a result of direct
solicitations of real estate brokers, builders, developers, or potential borrowers via the internet. North American periodically purchases real estate loans from other financial institutions or mortgage bankers.
The Banks residential real estate loan underwriters are grouped into three different levels, based upon each underwriters
experience and proficiency. Underwriters within each level are authorized to approve loans up to prescribed dollar amounts. Any loan over $1 million must also be approved by either the CEO or the EVP/Chief Credit Officer. Conventional residential
real estate loans are underwritten using FNMAs Desktop Underwriter or FHLMCs Loan Prospector automated underwriting systems, which analyze credit history, employment and income information, qualifying ratios, asset reserves, and
loan-to-value ratios. If a loan does not meet the automated underwriting standards, it is underwritten manually. Full documentation to support each applicants credit history, income, and sufficient funds for closing is required on all loans.
An appraisal report, performed in conformity with the Uniform Standards of Professional Appraisers Practice by an outside licensed appraiser, is required for all loans. Typically, the Bank requires borrowers to purchase private mortgage insurance
when the loan-to-value ratio exceeds 80%.
NASB originates Adjustable Rate Mortgages (ARMs), which fully amortize and
typically have initial rates that are fixed for one to seven years before becoming adjustable. Such loans are underwritten based on the initial interest rate and the borrowers ability to repay based on the maximum first adjustment rate. Each
underwriting decision takes into account the type of loan and the borrowers ability to pay at higher rates. While lifetime rate caps are taken into consideration, qualifying ratios may not be calculated at this level due to an extended number
of years required to reach the fully-indexed rate. NASB does not originate any hybrid loans, such as payment option ARMs, nor does the Bank originate any subprime loans, generally defined as high risk or loans of substantially impaired quality.
12
At the time a potential borrower applies for a residential mortgage loan, it is designated
as either a portfolio loan, which is held for investment and carried at amortized cost, or a loan held-for-sale in the secondary market and carried at fair value. All the loans on single family property that the Bank holds for sale conform to
secondary market underwriting criteria established by various institutional investors. All loans originated, whether held for sale or held for investment, conform to internal underwriting guidelines, which consider, among other things, a
propertys value and the borrowers ability to repay the loan.
Construction and development loansConstruction
and land development loans are made primarily to builders/developers, who construct properties for resale. The Banks requirements for a construction loan are similar to those of a mortgage on an existing residence. In addition, the borrower
must submit accurate plans, specifications, and cost projections of the property to be constructed. All construction and development loans are manually underwritten using NASBs internal underwriting standards. All construction and development
loans must be approved by the CEO and either the EVP/ Chief Credit Officer or SVP/Construction Lending. Prior approval is required from the Banks Board of Directors for newly originated construction and development loans with a proposed
balance of $2.5 million or greater. The bank has adopted internal loan-to-value limits consistent with regulations, which are 65% for raw land, 75% for land development, and 85% for residential and non-residential construction. An appraisal
report performed in conformity with the Uniform Standards of Professional Appraisers Practice by an outside licensed appraiser is required on all loans in excess of $250,000. Generally, the Bank will commit to an initial term of 12 to 18 months on
construction loans, and an initial term of 24 to 48 months on land acquisition and development loans, with six month renewals thereafter. Interest rates on construction loans typically adjust daily and are tied to a predetermined index. NASBs
staff regularly performs inspections of each property during its construction phase to help ensure adequate progress is achieved before making scheduled loan disbursements.
When construction and development loans mature, the Bank typically considers extensions for short, six-month term periods. This allows the Bank to more frequently evaluate the loan, including
creditworthiness and current market conditions and, if management believes its in the best interest of the Company, to modify the terms accordingly. This portfolio consists primarily of assets with rates tied to the prime rate and, in most
cases, the conditions for loan renewal include an interest rate floor in accordance with the market conditions that exist at the time of renewal.
During the three month period ended December 31, 2012, the Bank renewed nineteen loans within its construction and land development portfolio due to slower home and lot sales in the current economic
environment. Such extensions were accounted for as Troubled Debt Restructurings (TDRs) if the restructuring was related to the borrowers financial difficulty, and if the Bank made concessions that it would not otherwise consider.
In order to determine whether or not a renewal should be accounted for as a TDR, management reviewed the borrowers current financial information, including an analysis of income and liquidity in relation to debt service requirements. The large
majority of these modifications did not result in a reduction in the contractual interest rate or a write-off of the principal balance (although the Bank does commonly require the borrower to make a principal reduction at renewal).
Commercial real estate loans - The Bank purchases and originates several different types of commercial real estate loans. Permanent
multifamily mortgage loans on properties of 5 to 36 dwelling units have a 50% risk-weight for risk-based capital requirements if they have an initial loan-to-value ratio of not more than 80% and if their annual average occupancy rate exceeds 80%.
All other performing commercial real estate loans have 100% risk-weights.
The Banks commercial real estate loans are
secured primarily by multi-family and nonresidential properties. Such loans are manually underwritten using NASBs internal underwriting standards, which evaluate the sources of repayment, including the ability of income producing property to
generate sufficient cash flow to service the debt, the capacity of the borrower or guarantors to cover any shortfalls in operating income, and, as a last resort, the ability to liquidate the collateral in such a manner as to completely protect the
Banks investment. All commercial real estate loans must be approved by the CEO and either the EVP/ Chief Credit Officer or SVP/Commercial Lending. Prior approval is required from the Banks Board of Directors for newly originated
commercial loans with a proposed balance of $2.5 million or greater. Typically, loan-to-value ratios do not exceed 80%; however, exceptions may be made when it is determined that the safety of the loan is not compromised, and the rationale for
exceeding this limit is clearly documented. An appraisal report performed in conformity with the Uniform Standards of Professional Appraisers Practice by an outside licensed appraiser is required on all loans in excess of $250,000. Interest rates on
commercial loans may be either fixed or tied to a predetermined index and adjusted daily.
13
The Bank typically obtains full personal guarantees from the primary individuals involved in
the transaction. Guarantor financial statements and tax returns are reviewed annually to determine their continuing ability to perform under such guarantees. The Bank typically pursues repayment from guarantors when the primary source of repayment
is not sufficient to service the debt. However, the Bank may decide not to pursue a guarantor if, given the guarantors financial condition, it is likely that the estimated legal fees would exceed the probable amount of any recovery. Although
the Bank does not typically release guarantors from their obligation, the Bank may decide to delay the decision to pursue civil enforcement of a deficiency judgment.
At least once during each calendar year, a review is prepared for each borrower relationship in excess of $5 million and for each individual loan over $1 million. Collateral inspections are
obtained on an annual basis for each loan over $1 million, and on a triennial basis for each loan between $500,000 and $1 million. Financial information, such as tax returns, is requested annually for all commercial real estate loans over
$500,000, which is consistent with industry practice, and the Bank believes it has sufficient monitoring procedures in place to identify potential problem loans. A loan is deemed impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement. Any loans deemed impaired, regardless of their balance, are reviewed by management at the time of the impairment
determination, and monitored on a quarterly basis thereafter, including calculation of specific valuation allowances, if applicable.
Installment Loans - These loans consist primarily of loans on savings accounts and consumer lines of credit that are secured by a customers equity in their primary residence.
Allowance for Loan Losses
The Allowance for Loan and Lease Losses (ALLL) recognizes the inherent risks associated with lending activities for individually identified problem assets as well as the entire homogenous and
non-homogenous loan portfolios. ALLLs are established by charges to the provision for loan losses and carried as contra assets. Management analyzes the adequacy of the allowance on a quarterly basis and appropriate provisions are made to maintain
the ALLLs at adequate levels. At any given time, the ALLL should be sufficient to absorb at least all estimated credit losses on outstanding balances over the next twelve months. While management uses information currently available to determine
these allowances, they can fluctuate based on changes in economic conditions and changes in the information available to management. Also, regulatory agencies review the Banks allowances for loan loss as part of their examination, and they may
require the Bank to recognize additional loss provisions, within their regulatory filings, based on the information available at the time of their examinations.
The ALLL is determined based upon two components. The first is made up of specific reserves for loans which have been deemed impaired in accordance with GAAP. The second component is made up of general
reserves for loans that are not impaired. A loan becomes impaired when management believes it will be unable to collect all principal and interest due according to the contractual terms of the loan. Once a loan has been deemed impaired, the
impairment must be measured by comparing the recorded investment in the loan to the present value of the estimated future cash flows discounted at the loans effective rate, or to the fair value of the loan based on the loans observable
market price, or to the fair value of the collateral if the loan is collateral dependent. Prior to the quarter ended March 31, 2012, the Bank recorded a specific allowance equal to the amount of measured impairment.
In July 2011, the Office of Thrift Supervision (OTS) merged with and into the Office of the Comptroller of the Currency
(OCC), and the OCC became the Banks primary regulator. Beginning with the quarter ended March 31, 2012, the Bank was required to file a Consolidated Report of Condition and Income (Call Report) instead of the
previously required Thrift Financial Report (TFR). With the adoption of the Call Report, the Bank was required to discontinue using specific valuation allowances on loans deemed impaired. The TFR had allowed any measured impairments to
be carried as specific valuation allowances, whereas the Call Report required any measured impairments that are deemed confirmed losses to be charged-off and netted from their respective loan balances. For impaired loans that are
collateral dependent, a confirmed loss is generally the amount by which the loans recorded investment exceeds the fair value of its collateral. If a loan is considered uncollectible, the entire balance is deemed a confirmed
loss and is fully charged-off. During the quarter ended March 31, 2012, the Bank charged-off against ALLL the aggregate confirmed losses that were carried as specific valuation allowances in prior periods, and netted them
against their respective loan balances for reporting purposes. This change had no impact on net loans receivable as presented in the consolidated balance sheet. In addition, this change did not materially impact the analysis of ALLL, which is
described in more detail in the following paragraph, as specific valuation allowances were previously considered in the determination of historical loss ratios.
14
Loans that are not impaired are evaluated based upon the Banks historical loss
experience, as well as various subjective factors, to estimate potential unidentified losses within the various loan portfolios. These loans are categorized into pools based upon certain characteristics such as loan type, collateral type and
repayment source. In addition to analyzing historical losses, the Bank also evaluates the following subjective factors for each loan pool to estimate future losses: changes in lending policies and procedures, changes in economic and business
conditions, changes in the nature and volume of the portfolio, changes in management and other relevant staff, changes in the volume and severity of past due loans, changes in the quality of the Banks loan review system, changes in the value
of the underlying collateral for collateral dependent loans, changes in the level of lending concentrations, and changes in other external factors such as competition and legal and regulatory requirements. Historical loss ratios are adjusted
accordingly, based upon the effect that the subjective factors have in estimated future losses. These adjusted ratios are applied to the balances of the loan pools to determine the adequacy of the ALLL each quarter. For purposes of calculating
historical loss ratios, specific valuation allowances established prior to March 31, 2012, are considered charge-offs during the periods in which they are established.
The Bank does not routinely obtain updated appraisals for their collateral dependent loans that are not adversely classified. However, when analyzing the adequacy of its allowance for loan losses, the
Bank considers potential changes in the value of the underlying collateral for such loans as one of the subjective factors used to estimate future losses in the various loan pools.
The following table presents the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment
and impairment method at December 31, 2012. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Residential
Held For
Sale
|
|
|
Commercial
Real Estate
|
|
|
Construction &
Development
|
|
|
Commercial
|
|
|
Installment
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 1, 2012
|
|
$
|
6,941
|
|
|
|
|
|
|
|
7,086
|
|
|
|
16,590
|
|
|
|
513
|
|
|
|
699
|
|
|
|
31,829
|
|
Provision for loan losses
|
|
|
1,956
|
|
|
|
|
|
|
|
166
|
|
|
|
(5,698
|
)
|
|
|
(448
|
)
|
|
|
24
|
|
|
|
(4,000
|
)
|
Losses charged off
|
|
|
(464
|
)
|
|
|
|
|
|
|
(69
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
(86
|
)
|
|
|
(659
|
)
|
Recoveries
|
|
|
60
|
|
|
|
|
|
|
|
246
|
|
|
|
353
|
|
|
|
|
|
|
|
24
|
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
8,493
|
|
|
|
|
|
|
|
7,429
|
|
|
|
11,205
|
|
|
|
65
|
|
|
|
661
|
|
|
|
27,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of allowance for loan losses related to loans at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for Impairment
|
|
$
|
605
|
|
|
|
|
|
|
|
25
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for Impairment
|
|
$
|
7,888
|
|
|
|
|
|
|
|
7,404
|
|
|
|
11,014
|
|
|
|
65
|
|
|
|
661
|
|
|
|
27,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired with deteriorated credit quality
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
331,640
|
|
|
|
164,635
|
|
|
|
289,359
|
|
|
|
79,078
|
|
|
|
14,986
|
|
|
|
7,591
|
|
|
|
887,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
23,398
|
|
|
|
|
|
|
|
19,806
|
|
|
|
39,560
|
|
|
|
13,751
|
|
|
|
62
|
|
|
|
96,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
$
|
308,242
|
|
|
|
164,635
|
|
|
|
269,553
|
|
|
|
39,518
|
|
|
|
1,235
|
|
|
|
7,529
|
|
|
|
790,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated credit quality
|
|
$
|
3,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The following table presents the balance in the allowance for loan losses and the recorded
investment in loans based on portfolio segment and impairment method at December 31, 2011. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Residential
Held For
Sale
|
|
|
Commercial
Real Estate
|
|
|
Construction &
Development
|
|
|
Commercial
|
|
|
Installment
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 1, 2011
|
|
$
|
6,663
|
|
|
|
12
|
|
|
|
13,201
|
|
|
|
41,863
|
|
|
|
7,682
|
|
|
|
845
|
|
|
|
70,266
|
|
Provision for loan losses
|
|
|
(731
|
)
|
|
|
6
|
|
|
|
9,640
|
|
|
|
(3,967
|
)
|
|
|
(2,577
|
)
|
|
|
129
|
|
|
|
2,500
|
|
Losses charged off
|
|
|
(587
|
)
|
|
|
|
|
|
|
(1,437
|
)
|
|
|
(10,246
|
)
|
|
|
(2,569
|
)
|
|
|
(19
|
)
|
|
|
(14,858
|
)
|
Recoveries
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
$
|
5,382
|
|
|
|
18
|
|
|
|
21,404
|
|
|
|
27,650
|
|
|
|
2,536
|
|
|
|
955
|
|
|
|
57,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of allowance for loan losses related to loans at December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for Impairment
|
|
$
|
1,742
|
|
|
|
18
|
|
|
|
7,011
|
|
|
|
16,927
|
|
|
|
335
|
|
|
|
660
|
|
|
|
26,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for Impairment
|
|
$
|
3,640
|
|
|
|
|
|
|
|
14,393
|
|
|
|
10,723
|
|
|
|
2,201
|
|
|
|
295
|
|
|
|
31,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired with deteriorated credit quality
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
$
|
325,417
|
|
|
|
116,133
|
|
|
|
378,585
|
|
|
|
144,434
|
|
|
|
73,970
|
|
|
|
9,185
|
|
|
|
1,047,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
13,614
|
|
|
|
18
|
|
|
|
33,771
|
|
|
|
89,244
|
|
|
|
800
|
|
|
|
722
|
|
|
|
138,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
$
|
311,803
|
|
|
|
116,115
|
|
|
|
344,814
|
|
|
|
55,190
|
|
|
|
73,170
|
|
|
|
8,463
|
|
|
|
909,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated credit quality
|
|
$
|
2,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified Assets, Delinquencies, and Non-accrual Loans
Classified assets
-
In accordance with the Banks asset classification system, problem assets are classified with risk
ratings of either substandard, doubtful, or loss. An asset is considered substandard if it is inadequately protected by the borrowers ability to repay, or the value of collateral. Substandard assets include
those characterized by a possibility that the institution will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have the same weaknesses of those classified as substandard with the added characteristic that the
weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as loss are considered uncollectible and of little value. Prior to the
quarter ended March 31, 2012, the Bank established a specific valuation allowance for such assets. In conjunction with the adoption of the Call Report during the quarter ended March 31, 2012, such assets are charged-off against the ALLL at
the time they are deemed to be a confirmed loss.
In addition to the risk rating categories for problem assets
noted above, loans may be assigned a risk rating of pass, pass-watch, or special mention. The pass category includes loans with borrowers and/or collateral that is of average quality or better. Loans in this
category are considered average risk and satisfactory repayment is expected. Assets classified as pass-watch are those in which the borrower has the capacity to perform according to the terms and repayment is expected. However, one or more elements
of uncertainty exist. Assets classified as special mention have a potential weakness that deserves managements close attention. If left undetected, the potential weakness may result in deterioration of repayment prospects.
16
Each quarter, management reviews the problem loans in its portfolio to determine whether
changes to the asset classifications or allowances are needed. The following table presents the credit risk profile of the Companys loan portfolio based on risk rating category as of December 31, 2012. Dollar amounts are expressed in
thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Residential
Held For
Sale
|
|
|
Commercial
Real
Estate
|
|
|
Construction &
Development
|
|
|
Commercial
|
|
|
Installment
|
|
|
Total
|
|
Rating
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
272,947
|
|
|
|
164,635
|
|
|
|
203,228
|
|
|
|
12,893
|
|
|
|
|
|
|
|
7,529
|
|
|
|
661,232
|
|
Pass Watch
|
|
|
24,253
|
|
|
|
|
|
|
|
57,868
|
|
|
|
20,048
|
|
|
|
1,235
|
|
|
|
|
|
|
|
103,404
|
|
Special Mention
|
|
|
229
|
|
|
|
|
|
|
|
4,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,978
|
|
Substandard
|
|
|
33,820
|
|
|
|
|
|
|
|
23,514
|
|
|
|
45,953
|
|
|
|
13,751
|
|
|
|
62
|
|
|
|
117,100
|
|
Doubtful
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
575
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
331,640
|
|
|
|
164,635
|
|
|
|
289,359
|
|
|
|
79,078
|
|
|
|
14,986
|
|
|
|
7,591
|
|
|
|
887,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the credit risk profile of the Companys loan portfolio based on risk rating category
as of September 30, 2012. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Residential
Held For
Sale
|
|
|
Commercial
Real Estate
|
|
|
Construction &
Development
|
|
|
Commercial
|
|
|
Installment
|
|
|
Total
|
|
Rating
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
283,771
|
|
|
|
163,834
|
|
|
|
256,158
|
|
|
|
14,370
|
|
|
|
1,318
|
|
|
|
7,621
|
|
|
|
727,072
|
|
Pass Watch
|
|
|
11,076
|
|
|
|
|
|
|
|
28,439
|
|
|
|
19,054
|
|
|
|
|
|
|
|
|
|
|
|
58,569
|
|
Special Mention
|
|
|
4,689
|
|
|
|
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,012
|
|
Substandard
|
|
|
32,011
|
|
|
|
|
|
|
|
34,352
|
|
|
|
56,261
|
|
|
|
16,249
|
|
|
|
132
|
|
|
|
139,005
|
|
Doubtful
|
|
|
773
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
777
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
332,320
|
|
|
|
163,834
|
|
|
|
319,272
|
|
|
|
89,689
|
|
|
|
17,567
|
|
|
|
7,753
|
|
|
|
930,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys loan portfolio aging analysis as of December 31, 2012. Dollar
amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater Than
90 Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
|
Total Loans
> 90 Days
& Accruing
|
|
Residential
|
|
$
|
2,064
|
|
|
|
1,131
|
|
|
|
7,738
|
|
|
|
10,933
|
|
|
|
320,707
|
|
|
|
331,640
|
|
|
|
156
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164,635
|
|
|
|
164,635
|
|
|
|
|
|
Commercial real estate
|
|
|
536
|
|
|
|
|
|
|
|
6,008
|
|
|
|
6,544
|
|
|
|
282,815
|
|
|
|
289,359
|
|
|
|
213
|
|
Construction & development
|
|
|
|
|
|
|
962
|
|
|
|
4,167
|
|
|
|
5,129
|
|
|
|
73,949
|
|
|
|
79,078
|
|
|
|
566
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,986
|
|
|
|
14,986
|
|
|
|
|
|
Installment
|
|
|
15
|
|
|
|
|
|
|
|
75
|
|
|
|
90
|
|
|
|
7,501
|
|
|
|
7,591
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,615
|
|
|
|
2,093
|
|
|
|
17,988
|
|
|
|
22,696
|
|
|
|
864,593
|
|
|
|
887,289
|
|
|
|
946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The following table presents the Companys loan portfolio aging analysis as of
September 30, 2012. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater Than
90 Days
Past
Due
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
|
Total Loans
> 90 Days
& Accruing
|
|
Residential
|
|
$
|
1,727
|
|
|
|
1,439
|
|
|
|
16,430
|
|
|
|
19,596
|
|
|
|
312,724
|
|
|
|
332,320
|
|
|
|
5,183
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,834
|
|
|
|
163,834
|
|
|
|
|
|
Commercial real estate
|
|
|
217
|
|
|
|
714
|
|
|
|
6,082
|
|
|
|
7,013
|
|
|
|
312,259
|
|
|
|
319,272
|
|
|
|
|
|
Construction & development
|
|
|
567
|
|
|
|
633
|
|
|
|
5,487
|
|
|
|
6,687
|
|
|
|
83,002
|
|
|
|
89,689
|
|
|
|
1,931
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,567
|
|
|
|
17,567
|
|
|
|
|
|
Installment
|
|
|
181
|
|
|
|
67
|
|
|
|
64
|
|
|
|
312
|
|
|
|
7,441
|
|
|
|
7,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,692
|
|
|
|
2,853
|
|
|
|
28,063
|
|
|
|
33,608
|
|
|
|
896,827
|
|
|
|
930,435
|
|
|
|
7,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
When a loan becomes 90 days past due, or when full payment of interest and principal is not expected, the Bank stops
accruing interest and establishes a reserve for the unpaid interest accrued-to-date. In some instances, a loan may become 90 days past due if it has exceeded its maturity date but the Bank and borrower are still negotiating the terms of an extension
agreement. In those instances, the Bank typically continues to accrue interest, provided the borrower has continued making interest payments after the maturity date and full payment of interest and principal is expected.
The following table presents the Companys loans meeting the regulatory definition of nonaccrual, which includes certain loans that
are current and paying as agreed. This table does not include purchased impaired loans or troubled debt restructurings that are performing. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
12/31/12
|
|
|
9/30/12
|
|
Residential
|
|
$
|
23,083
|
|
|
|
23,147
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
14,711
|
|
|
|
20,952
|
|
Construction & development
|
|
|
23,220
|
|
|
|
30,606
|
|
Commercial
|
|
|
|
|
|
|
|
|
Installment
|
|
|
62
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61,076
|
|
|
|
74,767
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012, $50.0 million (81.9%) of the loans classified as nonaccrual were current and paying
as agreed.
During the quarter ended March 31, 2012, the Companys nonaccrual loans increased $41.4 million. This
increase resulted from managements decision to move certain impaired collateral dependent loans secured by land development properties to nonaccrual, even though the majority of such loans were current and paying in accordance with their
contractual terms. Due to the continued deterioration in the real estate markets, further declines in the value of collateral securing these loans are possible. In accordance with GAAP, such loans have been charged-down to the fair value of their
underlying collateral, and therefore, the recorded investment in the loan is deemed fully collectable at December 31, 2012. Interest income is recognized on a cash-basis as payments are received.
A loan becomes impaired when management believes it will be unable to collect all principal and interest due according to the contractual
terms of the loan. A restructuring of debt is considered a TDR if, because of a debtors financial difficulty, a creditor grants concessions that it would not otherwise consider. Loans modified in troubled debt restructurings are also
considered impaired. Concessions granted in a TDR could include a reduction in interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Once a loan has been deemed
impaired, the impairment must be measured by comparing the recorded investment in the loan to the present value of the estimated future cash flows discounted at the loans effective rate, or to the fair value of the loan based on the
loans observable market price, or to the fair value of the collateral if the loan is collateral dependent.
18
During the quarter ended December 31, 2012, the Company modified five residential loans
to a single borrower with a recorded investment of $2.8 million prior to modification, which were deemed to be TDRs. These modifications extended the maturity date for four years and did not result in a reduction in the contractual interest rate or
a write-off of the principal balance. The loans were deemed collateral dependent, and the modification did not result in any measured impairment or specific allowances. In addition, the Company modified three residential loans to a single borrower
with a total recorded investment of $421,000 prior to modification, which were deemed to be TDRs. These modifications, which required a combined $39,000 principal payment, extended the maturity date for three years and did not result in a reduction
in the contractual interest rate. Prior to modification, the loans were deemed impaired and collateral dependent. Therefore, they were being carried at the fair value of the underlying collateral and no additional impairment of specific valuation
allowances were required.
During the quarter ended December 31, 2012, the Company modified five construction and land
development loans with a recorded investment of $3.7 million prior to modification which had previously been deemed TDRs and continued to be TDRs following the current modification. These modifications were the result of extensions, typically for a
six-month period, and did not result in a reduction in the contractual interest rate or a write-off of the principal balance. Such loans are considered collateral dependent and were being carried at the fair value of the underlying collateral prior
to modification. In addition, the Company modified three construction and land development loans with a recorded investment of $2.3 million prior to modification, which were deemed to be TDRs during the current period. These modifications were the
result of extensions, typically for a six-month period, and did not result in a reduction in the contractual interest rate or a write-off of the principal balance. The loans were deemed collateral dependent, and the modification did not result in
any measured impairment or specific allowances, based upon the fair value of the underlying collateral.
During the quarter
ended December 31, 2012, the Company modified two commercial real estate loans with a recorded investment of $746,000 prior to modification, which were deemed to be TDRs. The modifications restructured the payment terms and did not result in a
reduction in the contractual interest rate or a write-off of the principal balance. Prior to modification, such loans were considered impaired and collateral dependent. Therefore, they were being carried at the fair value of the underlying
collateral and no additional impairment or specific valuation allowances were required. In addition, the Company agreed to modify one commercial loan with a recorded investment of $16.3 million prior to modification, which was deemed to be a TDR.
The modification extended the maturity date by eighteen months and required a $2.5 million principal payment. The modification resulted in a measured impairment of $25,000, based upon the present value of the estimated future cash flows discounted
at the loans effective rate.
TDRs secured by residential properties with a recorded investment of $3.7 million, TDRs
secured by commercial properties with a recorded investment of $698,000, and TDRs secured by land development properties with a recorded investment of $1.7 million defaulted during the period ended December 31, 2012. Management considers the
level of defaults within the various portfolios when evaluating qualitative adjustments used to determine the adequacy of the Allowance for Loan and Lease Losses.
During the period ended December 31, 2011, the Company modified five land development loans, with a recorded investment of $3.2 million prior to modification, which had previously been deemed TDRs
and continued to be TDRs following the current modification. These modifications were the result of extensions, typically for a six-month period, and did not result in a reduction in the contractual interest rate or a write-off of the principal
balance. Such loans are considered collateral dependent, and the modifications resulted in specific loss allowances of $418,000, based upon the fair value of the collateral. Specific loss allowances are included in the calculation of estimated
future loss ratios, which are applied to the various loan portfolios for purposes of estimating future losses.
TDRs secured
by residential properties with a recorded investment of $3.1 million, TDRs secured by commercial properties with a recorded investment of $3.8 million, and TDRs secured by land development properties with a recorded investment of $4.7 million
defaulted during the period ended December 31, 2011.
19
The following table presents the recorded balance of troubled debt restructurings. Dollar
amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
12/31/12
|
|
|
9/30/12
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
9,084
|
|
|
|
6,156
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
14,168
|
|
|
|
17,384
|
|
Construction & development
|
|
|
38,303
|
|
|
|
39,844
|
|
Commercial
|
|
|
13,751
|
|
|
|
|
|
Installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,306
|
|
|
|
63,384
|
|
|
|
|
|
|
|
|
|
|
Performing troubled debt restructurings:
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
825
|
|
|
|
593
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
3,553
|
|
|
|
3,812
|
|
Construction & development
|
|
|
16,340
|
|
|
|
11,521
|
|
Commercial
|
|
|
13,751
|
|
|
|
|
|
Installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,469
|
|
|
|
15,926
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012, the Bank had outstanding commitments of $235,000 to be advanced in connection with TDRs.
The following table presents impaired loans, including troubled debt restructurings, as of December 31, 2012. Dollar
amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
YTD Average
Investment in
Impaired Loans
|
|
|
Interest
Income
Recognized
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
17,689
|
|
|
|
19,184
|
|
|
|
|
|
|
|
17,742
|
|
|
|
216
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
19,806
|
|
|
|
28,384
|
|
|
|
|
|
|
|
20,023
|
|
|
|
462
|
|
Construction & development
|
|
|
35,988
|
|
|
|
40,109
|
|
|
|
|
|
|
|
37,170
|
|
|
|
553
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
62
|
|
|
|
519
|
|
|
|
|
|
|
|
70
|
|
|
|
5
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
5,709
|
|
|
|
6,670
|
|
|
|
605
|
|
|
|
5,725
|
|
|
|
89
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
|
3,572
|
|
|
|
3,988
|
|
|
|
191
|
|
|
|
3,577
|
|
|
|
59
|
|
Commercial
|
|
|
13,751
|
|
|
|
13,751
|
|
|
|
25
|
|
|
|
15,417
|
|
|
|
280
|
|
Installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
23,398
|
|
|
|
25,854
|
|
|
|
605
|
|
|
|
23,467
|
|
|
|
305
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
19,806
|
|
|
|
28,384
|
|
|
|
|
|
|
|
20,023
|
|
|
|
462
|
|
Construction & development
|
|
|
39,560
|
|
|
|
44,097
|
|
|
|
191
|
|
|
|
40,747
|
|
|
|
612
|
|
Commercial
|
|
|
13,751
|
|
|
|
13,751
|
|
|
|
25
|
|
|
|
15,417
|
|
|
|
280
|
|
Installment
|
|
|
62
|
|
|
|
519
|
|
|
|
|
|
|
|
70
|
|
|
|
5
|
|
20
The following table presents impaired loans, including troubled debt restructurings, as of
September 30, 2012. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
YTD Average
Investment in
Impaired Loans
|
|
|
Interest
Income
Recognized
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
16,849
|
|
|
|
19,394
|
|
|
|
|
|
|
|
18,252
|
|
|
|
776
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
21,574
|
|
|
|
30,652
|
|
|
|
|
|
|
|
24,961
|
|
|
|
1,796
|
|
Construction & development
|
|
|
40,633
|
|
|
|
45,873
|
|
|
|
|
|
|
|
46,820
|
|
|
|
2,658
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
68
|
|
|
|
570
|
|
|
|
|
|
|
|
69
|
|
|
|
17
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
4,836
|
|
|
|
4,910
|
|
|
|
974
|
|
|
|
4,836
|
|
|
|
260
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
3,322
|
|
|
|
3,955
|
|
|
|
7
|
|
|
|
3,949
|
|
|
|
215
|
|
Construction & development
|
|
|
1,634
|
|
|
|
1,668
|
|
|
|
42
|
|
|
|
1,698
|
|
|
|
100
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
21,685
|
|
|
|
24,304
|
|
|
|
974
|
|
|
|
23,088
|
|
|
|
1,036
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
24,896
|
|
|
|
34,607
|
|
|
|
7
|
|
|
|
28,910
|
|
|
|
2,011
|
|
Construction & development
|
|
|
42,267
|
|
|
|
47,541
|
|
|
|
42
|
|
|
|
48,518
|
|
|
|
2,758
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
68
|
|
|
|
570
|
|
|
|
|
|
|
|
69
|
|
|
|
17
|
|
(7) FORECLOSED ASSETS HELD FOR SALE
The following table presents real estate owned and other repossessed property. Dollar amounts are expressed in
thousands.
|
|
|
|
|
|
|
|
|
|
|
12/31/12
|
|
|
9/30/12
|
|
Real estate acquired through (or deed in lieu of) foreclosure
|
|
$
|
15,314
|
|
|
|
17,040
|
|
Less: allowance for losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,314
|
|
|
|
17,040
|
|
|
|
|
|
|
|
|
|
|
Foreclosed assets held for sale are initially recorded at fair value as of the date of foreclosure less any estimated
selling costs (the new basis) and are subsequently carried at the lower of the new basis or fair value less selling costs on the current measurement date. When foreclosed assets are acquired, any excess of the loan balance over the new
basis of the foreclosed asset is charged to the allowance for loan losses. Subsequent adjustments for estimated losses are charged to operations when the fair value declines to an amount less than the carrying value. Costs and expenses related to
major additions and improvements are capitalized, while maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. Applicable gains and losses on the sale of real estate owned are realized when the asset
is disposed of, depending on the adequacy of the down payment and other requirements.
21
With the adoption of the Call Report during the quarter ended March 31, 2012, the Bank
was required to begin following regulatory guidance related to the Call Report requirements. One such requirement resulted in a change in the treatment of specific loss reserves for foreclosed assets held for sale. Previous Thrift Financial Report
guidance allowed banks to reduce an assets carrying value through a specific allowance when the fair value declined to an amount less than its carrying value. Call Report guidance requires that the carrying value of foreclosed assets held for
sale be written down to fair value through a charge to earnings. During the quarter ended March 31, 2012, the Bank charged-off the previously established specific allowances on such assets of $9.4 million. This change had no impact on net
foreclosed assets held for sale as presented in the consolidated balance sheet.
(8) SUBORDINATED DEBENTURES
On December 13, 2006, the Company, through its wholly-owned statutory trust, NASB Preferred Trust I (the
Trust), issued $25 million of pooled Trust Preferred Securities. The Trust used the proceeds from the offering to purchase a like amount of the Companys subordinated debentures. The debentures, which have a variable rate of 1.65%
over the 3-month LIBOR and a 30-year term, are the sole assets of the Trust. In exchange for the capital contributions made to the Trust by the Company upon formation, the Company owns all the common securities of the Trust.
In accordance with Financial Accounting Standards Board ASC 810-10, the Trust qualifies as a special purpose entity that is not required
to be consolidated in the financial statements of the Company. The $25.0 million Trust Preferred Securities issued by the Trust will remain on the records of the Trust. The Trust Preferred Securities are included in Tier I capital for regulatory
capital purposes.
The Trust Preferred Securities have a variable interest rate of 1.65% over the 3-month LIBOR, and are
mandatorily redeemable upon the 30-year term of the debentures, or upon earlier redemption as provided in the Indenture. The debentures are callable, in whole or in part, after five years of the issuance date. The Company did not incur a placement
or annual trustee fee related to the issuance. The securities are subordinate to all other debt of the Company and interest may be deferred up to five years.
On July 11, 2012, the Company notified security holders that it was exercising its right to defer the payment of interest on its Trust Preferred Securities for a period of up to five years.
(9) INCOME TAXES
The Companys federal and state income tax returns for fiscal years 2009 through 2011 remain subject to
examination by the Internal Revenue Service and various state jurisdictions, based on the statute of limitations.
(10) SEGMENT INFORMATION
The Company has identified two principal operating segments for purposes of financial reporting: Banking and Mortgage
Banking. These segments were determined based on the Companys internal financial accounting and reporting processes and are consistent with the information that is used to make operating decisions and to assess the Companys performance
by the Companys key decision makers.
The Mortgage Banking segment originates mortgage loans for sale to investors and
for the portfolio of the Banking segment. The Banking segment provides a full range of banking services through the Banks branch network, exclusive of mortgage loan originations. A portion of the income presented in the Mortgage Banking
segment is derived from sales of loans to the Banking segment based on a transfer pricing methodology that is designed to approximate economic reality. The Other and Eliminations segment includes financial information from the parent company plus
inter-segment eliminations.
22
The following table presents financial information from the Companys operating
segments for the periods indicated. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
Other and
|
|
|
|
|
Three months ended December 31, 2012
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
11,310
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
11,181
|
|
Provision for loan losses
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
Other income
|
|
|
50
|
|
|
|
17,021
|
|
|
|
(574
|
)
|
|
|
16,497
|
|
General and administrative expenses
|
|
|
6,750
|
|
|
|
11,688
|
|
|
|
(283
|
)
|
|
|
18,155
|
|
Income tax expense
|
|
|
3,315
|
|
|
|
2,053
|
|
|
|
(162
|
)
|
|
|
5,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,295
|
|
|
|
3,280
|
|
|
|
(258
|
)
|
|
|
8,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
Other and
|
|
|
|
|
Three months ended December 31, 2011
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
14,248
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
14,119
|
|
Provision for loan losses
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
Other income
|
|
|
(771
|
)
|
|
|
11,685
|
|
|
|
(365
|
)
|
|
|
10,549
|
|
General and administrative expenses
|
|
|
6,031
|
|
|
|
8,264
|
|
|
|
(158
|
)
|
|
|
14,137
|
|
Income tax benefit
|
|
|
1,904
|
|
|
|
1,317
|
|
|
|
(129
|
)
|
|
|
3,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
3,042
|
|
|
|
2,104
|
|
|
|
(207
|
)
|
|
|
4,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11) DERIVATIVE INSTRUMENTS
The Company has commitments outstanding to extend credit that have not closed prior to the end of the period. As the
Company enters into commitments to originate loans, it also enters into commitments to sell the loans in the secondary market on a best-efforts basis. Such commitments to originate loans held for sale are considered derivative
instruments in accordance with GAAP, which requires the Company to recognize all derivative instruments in the balance sheet and to measure those instruments at fair value. As a result of marking to market commitments to originate loans, the Company
recorded a decrease in other assets of $2.2 million, an increase in other liabilities of $623,000, and a decrease in other income of $2.9 million for the three month period ended December 31, 2012. The Company recorded a decrease in other
assets of $662,000, a decrease in other liabilities of $535,000, and a decrease in other income of $127,000 for the three month period ended December 31, 2011.
Additionally, the Company has commitments to sell loans that have closed prior to the end of the period. Due to the mark to market adjustment on commitments to sell loans held for sale, the Company
recorded an increase in other assets of $2.4 million, a decrease in other liabilities of $117,000, and an increase in other income of $2.6 million during the three month period ended December 31, 2012. The Company recorded a decrease in
other assets of $669,000, a decrease in other liabilities of $161,000, and a decrease in other income of $508,000 during the three month period ended December 31, 2011.
The balance of derivative instruments related to commitments to originate and sell loans at December 31, 2012, is disclosed in
Footnote 12, Fair Value Measurements.
(12) FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would likely be received to sell an asset, or paid to transfer a liability, in
an orderly transaction between market participants at the measurement date. GAAP identifies three primary measurement techniques: the market approach, the income approach, and the cost approach. The market approach uses prices and other relevant
information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuations or techniques to convert future amounts, such as cash flows or earnings, to a single present amount. The cost
approach is based on the amount that currently would be required to replace the service capability of an asset.
23
GAAP establishes a fair value hierarchy and prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required. Classification within the fair value hierarchy is based upon the objectivity of the inputs that are significant
to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows:
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
|
Level 2 Inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs
include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability;
and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.
|
|
|
Level 3 Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date.
Unobservable inputs reflect the Companys own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow methodologies, as well as
instruments for which the fair value determination requires significant management judgment.
|
The Company
measures certain financial assets and liabilities at fair value in accordance with GAAP. These measurements involve various valuation techniques and assume that the transactions would occur between market participants in the most advantageous market
for the Company.
The following is a summary of valuation techniques utilized by the Company for its significant financial
assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy:
Available for sale securities
Securities available for sale consist of corporate debt, trust preferred, U. S. government sponsored agency, and municipal securities. Such securities are valued using market prices in an active market,
if available. This measurement is classified as Level 1 within the hierarchy. Less frequently traded securities are valued using industry standard models which utilize various assumptions such as historical prices of the same or similar securities,
and observation of market prices of securities of the same issuer, market prices of same-sector issuers, and fixed income indexes. Substantially all of these assumptions are observable in the marketplace or can be derived from observable data. These
measurements are classified as Level 2 within the hierarchy.
At December 31, 2011, mortgage-backed securities available
for sale, which consist of agency pass-through and participation certificates issued by GNMA, FNMA, and FHLMC, were valued by using broker-dealer quotes for similar assets in markets that are not active. Although the Company did not validate these
quotes, they were reviewed by management for reasonableness in relation to current market conditions. Additionally, they were obtained from experienced brokers who had an established relationship with the Bank and deal regularly with these types of
securities. The Company did not make any adjustment to the quotes received from broker-dealers. These measurements are classified as Level 2. At December 31, 2012, mortgage-backed securities available for sale were valued by using industry
standard models which utilize various inputs and assumptions such as historical prices of benchmark securities, prepayment estimates, loan type, and year of origination. Substantially all of these assumptions are observable in the marketplace or can
be derived from observable data. These measurements are classified as Level 2 within the hierarchy.
24
Loans held for sale
Loans held for sale are valued using quoted market prices for loans with similar characteristics. This measurement is classified as Level 2 within the hierarchy.
Commitments to Originate Loans and Forward Sales Commitments
Commitments to originate loans and forward sales commitments are valued using a valuation model which considers differences between current market interest rates and committed rates. The model also
includes assumptions, which estimate fall-out percentages, for commitments to originate loans, and average lives. Fall-out percentages, which range from ten to forty percent, are estimated based upon the difference between current market rates and
committed rates. Average lives are based upon estimates for similar types of loans. These measurements use significant unobservable inputs and are classified as Level 3 within the hierarchy.
The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value
on a recurring basis and the level within the fair value hierarchy in which the measurements fall at December 31, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Other
|
|
|
Unobservable
|
|
|
|
Fair
|
|
|
Identical Assets
|
|
|
Observable
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
Inputs (Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored agency securities
|
|
$
|
193,124
|
|
|
|
156,850
|
|
|
|
36,274
|
|
|
|
|
|
Corporate debt securities
|
|
|
72,774
|
|
|
|
|
|
|
|
72,774
|
|
|
|
|
|
Municipal securities
|
|
|
428
|
|
|
|
|
|
|
|
428
|
|
|
|
|
|
Mortgage-backed securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass through certificates guaranteed by GNMA fixed rate
|
|
|
78
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
Pass through certificates guaranteed by FNMA adjustable rate
|
|
|
144
|
|
|
|
|
|
|
|
144
|
|
|
|
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
174
|
|
|
|
|
|
|
|
174
|
|
|
|
|
|
Adjustable rate
|
|
|
128
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
Loans held for sale
|
|
|
164,635
|
|
|
|
|
|
|
|
164,635
|
|
|
|
|
|
Commitments to originate loans
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
323
|
|
Forward sales commitments
|
|
|
4,636
|
|
|
|
|
|
|
|
|
|
|
|
4,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
436,444
|
|
|
|
156,850
|
|
|
|
274,635
|
|
|
|
4,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to originate loans
|
|
$
|
1,135
|
|
|
|
|
|
|
|
|
|
|
|
1,135
|
|
Forward sales commitments
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,151
|
|
|
|
|
|
|
|
|
|
|
|
1,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
The following table presents the fair value measurements of assets recognized in the
accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall at September 30, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Other
|
|
|
Unobservable
|
|
|
|
Fair
|
|
|
Identical Assets
|
|
|
Observable
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
Inputs (Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored agency securities
|
|
$
|
153,166
|
|
|
|
142,359
|
|
|
|
10,807
|
|
|
|
|
|
Corporate debt securities
|
|
|
61,018
|
|
|
|
|
|
|
|
61,018
|
|
|
|
|
|
Municipal securities
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Mortgage-backed securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass through certificates guaranteed by GNMA fixed rate
|
|
|
81
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
Pass through certificates guaranteed by FNMA adjustable rate
|
|
|
152
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
190
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
Adjustable rate
|
|
|
131
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
Loans held for sale
|
|
|
163,834
|
|
|
|
|
|
|
|
163,834
|
|
|
|
|
|
Commitments to originate loans
|
|
|
2,559
|
|
|
|
|
|
|
|
|
|
|
|
2,559
|
|
Forward sales commitments
|
|
|
2,194
|
|
|
|
|
|
|
|
|
|
|
|
2,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
383,331
|
|
|
|
142,359
|
|
|
|
236,219
|
|
|
|
4,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to originate loans
|
|
$
|
512
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
Forward sales commitments
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
645
|
|
|
|
|
|
|
|
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present a reconciliation of the beginning and ending balances of recurring fair value measurements
recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs for the three month periods ended December 31, 2012 and 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
to Originate
|
|
|
Forward Sales
|
|
|
|
Loans
|
|
|
Commitments
|
|
Balance at October 1, 2012
|
|
$
|
2,047
|
|
|
|
2,061
|
|
Total realized and unrealized gains (losses):
|
|
|
|
|
|
|
|
|
Included in net income
|
|
|
(2,859
|
)
|
|
|
2,559
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
(812
|
)
|
|
|
4,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
to Originate
|
|
|
Forward Sales
|
|
|
|
Loans
|
|
|
Commitments
|
|
Balance at October 1, 2011
|
|
$
|
360
|
|
|
|
1,328
|
|
Total realized and unrealized gains (losses):
|
|
|
|
|
|
|
|
|
Included in net income
|
|
|
(127
|
)
|
|
|
(508
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
$
|
233
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
26
Realized and unrealized gains and losses noted in the table above and included in net income
for the three month period ended December 31, 2012, are reported in the consolidated statements of income as follows (in thousands):
|
|
|
|
|
|
|
Other
|
|
|
|
Income
|
|
Total losses
|
|
$
|
(300
|
)
|
|
|
|
|
|
Changes in unrealized losses relating to assets still held at the balance sheet date
|
|
$
|
|
|
|
|
|
|
|
Realized and unrealized gains and losses noted in the table above and included in net income for the
three month period ended December 31, 2011, are reported in the consolidated statements of income as follows (in thousands):
|
|
|
|
|
|
|
Other
|
|
|
|
Income
|
|
Total losses
|
|
$
|
(635
|
)
|
|
|
|
|
|
Changes in unrealized losses relating to assets still held at the balance sheet date
|
|
$
|
|
|
|
|
|
|
|
The following is a summary of valuation techniques utilized by the Company for its significant financial assets and
liabilities measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy:
Impaired loans
Loans
for which it is probable that the Company will not collect principal and interest due according to contractual terms are measured for impairment. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the
amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and other internal assessments of value. Appraisals are obtained when an impaired loan is deemed to be collateral dependent and at
least annually thereafter. Fair value is generally the appraised value less estimated selling costs and may be discounted further if management believes any other factors or events have affected the fair value. Impaired loans are classified within
Level 3 of the fair value hierarchy.
The carrying value of impaired loans that were re-measured during the three month period
ended December 31, 2012, was $22.0 million. The carrying value of impaired loans that were re-measured during the three month period ended December 31, 2011, was $74.2 million.
Foreclosed Assets Held For Sale
Foreclosed assets held for sale are
initially recorded at fair value as of the date of foreclosure less any estimated selling costs (the new basis) and are subsequently carried at the lower of the new basis or fair value less selling costs on the current measurement date.
Fair value is estimated through current appraisals, broker price opinions, or listing prices. Appraisals are obtained when the real estate is acquired and at least annually thereafter. Foreclosed assets held for sale are classified within Level 3 of
the fair value hierarchy.
The carrying value of foreclosed assets held for sale was $15.3 million at December 31, 2012.
Charge-offs related to foreclosed assets held for sale that were re-measured during the three month period ended December 31, 2012, totaled $570,000. Charge-offs and increases in specific reserves related to foreclosed assets held for sale that
were re-measured during the three month period ended December 31, 2011, totaled $1.3 million.
27
Investment in LLCs
Investments in LLCs are accounted for using the equity method of accounting. These investments are analyzed for impairment in accordance with ASC 323-10-35-32, which states that an other than temporary
decline in value of an equity method investment should be recognized. The Company utilizes a multi-faceted approach to measure the potential impairment. The internal model utilizes the following valuation methods: 1) liquidation or appraised values
determined by an independent third party appraisal; 2) an on-going business, or discounted cash flows method wherein the cash flows are derived from the sale of fully-developed lots, the development and sale of partially-developed lots, the
operation of the homeowners association, and the value of raw land obtained from an independent third party appraiser; and 3) an on-going business method, which utilizes the same inputs as method 2, but presumes that cash flows will first be
generated from the sale of raw ground and then from the sale of fully-developed and partially-developed lots and the operation of the homeowners association. The significant inputs include raw land values, absorption rates of lot sales, and a
market discount rate. Management believes this multi-faceted approach is reasonable given the highly subjective nature of the assumptions and the differences in valuation techniques that are utilized within each approach (e.g., order of distribution
of assets upon potential liquidation). Investment in LLCs is classified within Level 3 of the fair value hierarchy.
The
carrying value of the Companys investment in LLCs was $17.1 million at December 31, 2012, and $17.2 million at September 30, 2012.
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value:
Cash and cash equivalents
The carrying amount reported in the consolidated balance sheets is a reasonable estimate of fair value.
Securities and mortgage-backed securities held to maturity
Securities that
trade in an active market are valued using market prices, if available. Securities that do not trade in an active market were valued by using industry standard models which utilize various inputs and assumptions such as historical prices of similar
securities, estimated delinquencies, defaults, and loss severity.
Stock in Federal Home Loan Bank (FHLB)
The carrying value of stock in Federal Home Loan Bank approximates its fair value.
Loans receivable held for investment
Fair values are computed for each loan category using market spreads to treasury securities for similar existing loans in the portfolio and managements estimates of prepayments.
Customer and brokered deposit accounts
The estimated fair values of demand deposits and savings accounts are equal to the amount payable on demand at the reporting date. Fair values of certificates of deposit are computed at fixed spreads to
treasury securities with similar maturities.
Advances from FHLB
The estimated fair values of advances from FHLB are determined by discounting the future cash flows of existing advances using rates
currently available for new advances with similar terms and remaining maturities.
Subordinated debentures
Fair values are based on quotes from broker-dealers that reflect estimated offer prices.
Commitments to originate, purchase and sell loans
The estimated fair value of commitments to originate, purchase, or sell loans is based on the difference between current levels of interest rates and the committed rates.
28
The following table presents estimated fair values of the Companys financial
instruments and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2012 (in thousands):
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Fair Value Measurements Using
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Quoted Prices in
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Significant
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Significant
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Active Markets for
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Other
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Unobservable
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Carrying
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Identical Assets
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Observable
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Inputs
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Value
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(Level 1)
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Inputs (Level 2)
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(Level 3)
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Financial Assets:
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Cash and cash equivalents
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$
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11,908
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11,908
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Stock in Federal Home Loan Bank
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8,097
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8,097
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Mortgage-backed securities held to maturity
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23,669
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23,716
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Loans receivable held for investment
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694,801
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711,431
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Financial Liabilities:
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Customer deposit accounts
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864,827
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866,266
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Brokered deposit accounts
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9,997
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9,992
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Advances from FHLB
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150,000
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153,203
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Subordinated debentures
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25,774
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9,021
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The following table presents estimated fair values of the Companys financial instruments and the
level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012 (in thousands):
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Fair Value Measurements Using
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Quoted Prices in
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Significant
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Significant
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Active Markets for
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Other
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Unobservable
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Carrying
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Identical Assets
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Observable
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Inputs
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Value
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(Level 1)
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Inputs (Level 2)
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(Level 3)
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Financial Assets:
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Cash and cash equivalents
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$
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8,716
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8,716
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Stock in Federal Home Loan Bank
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7,073
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7,073
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Mortgage-backed securities held to maturity
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25,921
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26,117
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Loans receivable held for investment
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734,772
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|
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|
|
|
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763,017
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Financial Liabilities:
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Customer deposit accounts
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870,946
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872,160
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Brokered deposit accounts
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21,367
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21,365
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Advances from FHLB
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127,000
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130,393
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Subordinated debentures
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25,774
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|
|
|
|
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9,021
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The following tables present the carrying values and fair values of the Companys unrecognized financial
instruments. Dollar amounts are expressed in thousands.
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December 31, 2012
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September 30, 2012
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Contract or
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Estimated
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Contract or
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Estimated
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notional
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unrealized
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notional
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unrealized
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amount
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gain (loss)
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amount
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gain
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Unrecognized financial instruments:
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Lending commitments fixed rate, net
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$
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12,547
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13
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$
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2,446
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11
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Lending commitments floating rate
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215
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926
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9
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Commitments to sell loans
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|
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29
The fair value estimates presented are based on pertinent information available to
management as of December 31, 2012, and September 30, 2012. Although management is not aware of any factors that would significantly affect the estimated fair values, such amounts have not been comprehensively revalued for purposes of
these consolidated financial statements since that date. Therefore, current estimates of fair value may differ significantly from the amounts presented above.
(13) INVESTMENT IN LLCs
The Company is a partner in two limited liability companies, Central Platte Holdings LLC (Central Platte)
and NBH, LLC (NBH), which were formed for the purpose of purchasing and developing vacant land in Platte County, Missouri. These investments are accounted for using the equity method of accounting.
The Companys investment in Central Platte consists of a 50% ownership interest in an entity that develops land for residential real
estate sales. Sales of lots have not met previous expectations and, as a result, the Company evaluated its investment for impairment, in accordance with ASC 323-10-35-32, which provides guidance related to a loss in value of an equity method
investment. The Company utilizes a multi-faceted approach to measure the potential impairment. The internal model utilizes the following valuation methods: 1) liquidation or appraised values determined by an independent third party appraisal; 2) an
on-going business, or discounted cash flows method wherein the cash flows are derived from the sale of fully-developed lots, the development and sale of partially-developed lots, the operation of the homeowners association, and the value of
raw land obtained from an independent third party appraiser; and 3) another on-going business method, which utilizes the same inputs as method 2, but presumes that cash flows will first be generated from the sale of raw ground and then from the sale
of fully-developed and partially-developed lots and the operation of the homeowners association. The internal model also includes method 4, an on-going business method wherein the cash flows are derived from the sale of fully-developed lots,
the development and sale of partially-developed lots, the operation of the homeowners association, and the development and sale of lots from the property that is currently raw land. However, management does not feel the results from this
method provide a reliable indication of value because the time to build-out the development exceeds 18 years. Because of this unreliability, the results from method 4 are given a zero weighting in the final impairment analysis. The
significant inputs include raw land values, absorption rates of lot sales, and a market discount rate. Management believes this multi-faceted approach is reasonable given the highly subjective nature of the assumptions and the differences in
valuation techniques that are utilized within each approach (e.g., order of distribution of assets upon potential liquidation). It is managements opinion that no one valuation method within the model is preferable to the other and that no one
method is more likely to occur than the other. Therefore, the final estimate of value is determined by assigning an equal weight to the values derived from each of the first three methods described above.
As a result of this analysis, the Company determined that its investment in Central Platte was materially impaired and recorded an
impairment charge of $2.0 million ($1.2 million, net of tax) during the year ended September 30, 2010. During the quarter ended March 31, 2012, list prices of fully-developed lots in Central Plattes residential development were
reduced. The Company incorporated these lower prices into its internal valuation model, which resulted in an additional impairment charge of $200,000 ($123,000, net of tax) during the quarter ended March 31, 2012. No other events have occurred
that would indicate any additional impairment of the Companys investment in Central Platte.
The following table
displays the results derived from the Companys internal valuation model at December 31, 2012, and the carrying value of its investment in Central Platte at December 31, 2012. Dollar amounts are expressed in thousands.
|
|
|
|
|
Method 1
|
|
$
|
14,922
|
|
Method 2
|
|
|
15,611
|
|
Method 3
|
|
|
17,682
|
|
Average of methods 1, 2, and 3
|
|
$
|
16,072
|
|
|
|
|
|
|
Carrying value of investment in Central Platte Holdings, LLC
|
|
$
|
15,771
|
|
|
|
|
|
|
30
The Companys investment in NBH consists of a 50% ownership interest in an entity that
holds raw land, which is currently zoned as agricultural. The general managers intend to rezone this property for commercial and/or residential development. The raw land was purchased in 2002. The Company accounts for its investment in NBH under the
equity method. Due to the overall economic conditions surrounding real estate, the Company evaluated its investment for impairment in accordance with ASC 323-10-35-32, which provides guidance related to a loss in value of an equity method
investment. Potential impairment was measured based on liquidation or appraised values determined by an independent third party appraisal. As a result of this analysis, the Company determined that its investment in NBH was materially impaired and
recorded an impairment charge of $1.1 million ($693,000, net of tax) during the year ended September 30, 2010. The results of this analysis as of September 30, 2012, did not indicate any additional impairment of the Companys
investment in NBH. No events have occurred during the three month period ended December 31, 2012, that would indicate any additional impairment of the Companys investment. The carrying value of the Companys investment in NBH was
$1.4 million at December 31, 2012.
(14) REGULATORY AGREEMENTS
On April 30, 2010, the Board of Directors of North American Savings Bank, F.S.B. (the Bank), a
wholly-owned subsidiary of the Company, entered into a Supervisory Agreement with the Office of Thrift Supervision (OTS), the Banks primary regulator at that time. The agreement required, among other things, that the Bank revise
its policies regarding internal asset review, obtain an independent assessment of its allowance for loan and lease losses methodology and conduct an independent third-party review of a portion of its commercial and construction loan portfolios. The
agreement also directed the Bank to provide a plan to reduce its classified assets and its reliance on brokered deposits, and restricted the payment of dividends or other capital distributions by the Bank during the period of the agreement. The
agreement did not direct the Bank to raise capital, make management or board changes, revise any loan policies or restrict lending growth.
On April 30, 2010, the Companys Board of Directors entered into an agreement with the OTS, the Companys primary regulator at that time. The agreement restricted the payment of
dividends or other capital distributions by the Company and restricted the Companys ability to incur, issue or renew any debt during the period of the agreement.
The Banks Supervisory Agreement and the Companys agreement with the OTS were assigned to their new primary regulators, the Office of the Comptroller of the Currency (OCC) and Board
of Governors of the Federal Reserve System (Federal Reserve Board or FRB), respectively, on July 21, 2011.
On May 22, 2012, the Board of Directors of the Bank agreed to a Consent Order with the OCC. This Consent Order replaces and terminates the previous Supervisory Agreement. The Consent Order
requires that the Bank establish various plans and programs to improve its asset quality and to ensure the adequacy of allowances for loan and lease losses. It requires the Bank to obtain an independent third-party review of its non-homogenous loan
portfolios and to enhance its credit administration systems. Among other items, it also requires a written capital maintenance plan to ensure that the Banks Tier 1 leverage capital and total risk-based capital ratios remain equal to or greater
than 10% and 13%, respectively. As of December 31, 2012, the Banks actual Tier 1 leverage capital and total risk-based capital ratios were 14.6% and 19.0%, respectively. The Consent Order does not direct the Bank to raise capital, make
management or board changes, or restrict lending.
On November 29, 2012 the Companys Board of Directors entered
into a formal written agreement with the Federal Reserve Bank of Kansas City, which replaces and terminates the Companys previous agreement with the OTS. The agreement with FRB restricts the payment of dividends or other capital distributions
by the Company, restricts the Companys ability to incur, increase, or guarantee any debt, and restricts the Companys ability to purchase or redeem any of its stock. In addition, the agreement restricts the Company and its wholly-owned
statutory trust, NASB Preferred Trust I, from making distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities.
31