The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1
Principles of Consolidation
BCSB Bancorp, Inc. (the Company) owns 100% of Baltimore County Savings Bank, and its subsidiaries (the
Bank). The Bank owns 100% of Ebenezer Road, Inc. and Lyons Properties, LLC. The accompanying consolidated financial statements include the accounts and transactions of these companies on a consolidated basis since the date of inception.
All intercompany transactions have been eliminated in the consolidated financial statements. Ebenezer Road, Inc. sells insurance products and Lyons Properties, LLC holds real estate owned through foreclosure or deeds in lieu of foreclosure.
Note 2
Basis for Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and the instructions to Form 10-Q. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments, (none of which were other than normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations for the periods presented have been
included. The financial statements of the Company are presented on a consolidated basis with those of the Bank. The results for the three months ended December 31, 2013 are not necessarily indicative of the results of operations that may be
expected for the year ending September 30, 2014 or any other period. The consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes which are incorporated by reference in BCSB
Bancorp, Inc.s Annual Report on Form 10-K for the year ended September 30, 2013.
The preparation of the financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant
change in the near-term related to the determination of the allowance for loan losses (the Allowance), other-than-temporary impairment of investment securities and deferred tax assets.
Note 3
Organization
The Company is a Maryland corporation which was organized to be the stock holding company for the Bank in connection with
our second-step conversion and reorganization completed on April 10, 2008. The Bank operates as a state chartered commercial bank. The Banks deposit accounts are insured up to a maximum of $250,000 by the Federal Deposit Insurance
Corporation (FDIC).
Recent Developments
On June 13, 2013, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with F.N.B. Corporation
(FNB), the parent company of First National Bank of Pennsylvania (FNB Bank). Pursuant to the Merger Agreement, the Company will merge with and into FNB (the Merger). Promptly following consummation of the Merger,
it is expected that Baltimore County Savings Bank will merge with and into FNB Bank. In the Merger, shareholders of the Company will receive 2.080 shares (the Exchange Ratio) of FNB common stock for each common share of the Company they
own. Outstanding Company stock options and share awards relating to Company common shares will be converted into options and share awards relating to shares of FNB common stock upon consummation of the Merger, subject to adjustments based on the
Exchange Ratio. Consummation of the Merger is subject to certain conditions, including, among others, approval of the Merger by the Companys shareholders, the receipt of all required governmental filings and regulatory approvals and expiration
of applicable waiting periods, accuracy of specified representations and warranties of each party, the performance in all material respects by each party of its obligations under the Merger Agreement, effectiveness of the registration statement to
be filed by FNB with the SEC to register shares of FNB common stock to be offered to Company shareholders, receipt of tax opinions, and the absence of any injunctions or other legal restraints. Currently, the Merger is expected to have an effective
closing date of February 15, 2014.
Note 4
Cash Flow Presentation
For purposes of the statements of cash flows, cash and cash equivalents include cash and amounts due from depository
institutions, investments in federal funds, and certificates of deposit with original maturities of 90 days or less.
9
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 5
Investment Securities
The amortized cost and estimated fair values of investment securities are as follows as of December 31, 2013 and
September 30, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
$
|
4,880
|
|
|
|
|
|
|
|
(80
|
)
|
|
$
|
4,800
|
|
Equity Investments
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,980
|
|
|
$
|
|
|
|
$
|
(80
|
)
|
|
$
|
4,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
|
4,880
|
|
|
|
|
|
|
|
(226
|
)
|
|
|
4,654
|
|
Equity Investments
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,980
|
|
|
$
|
|
|
|
$
|
(226
|
)
|
|
$
|
4,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of available for sale securities during the three months ended December 31, 2013 and
the fiscal year ended September 30, 2013.
The equity investments consist of an investment in one local bank, whose stock is not
listed or widely traded. Therefore, the investment is carried at cost.
Below is a schedule of investment securities with unrealized
losses as of December 31, 2013 and the length of time the individual security has been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
(in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Corporate Bonds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,418
|
|
|
$
|
(82
|
)
|
|
$
|
3,418
|
|
|
$
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
|
|
|
$
|
|
|
|
|
3,418
|
|
|
$
|
(82
|
)
|
|
$
|
3,418
|
|
|
$
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below is a schedule of investment securities with unrealized losses as of September 30, 2013 and the
length of time the individual security has been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months
or more
|
|
|
Total
|
|
|
|
|
(in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Corporate Bonds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,654
|
|
|
$
|
(226
|
)
|
|
$
|
4,654
|
|
|
$
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,654
|
|
|
$
|
(226
|
)
|
|
$
|
4,654
|
|
|
$
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2013 and September 30, 2013 the Company had two investment securities in an
unrealized loss position.
10
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6
Mortgage-Backed Securities- available for sale
The amortized cost and estimated fair values of mortgage-backed securities available for sale are as follows as of December 31, 2013
and September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA certificates
|
|
$
|
3,288
|
|
|
$
|
34
|
|
|
$
|
(1
|
)
|
|
$
|
3,321
|
|
Private label collateralized mortgage obligations
|
|
|
5,061
|
|
|
|
|
|
|
|
(458
|
)
|
|
|
4,603
|
|
Collateralized mortgage obligations
|
|
|
182,417
|
|
|
|
363
|
|
|
|
(7,216
|
)
|
|
|
175,564
|
|
FNMA certificates
|
|
|
21,341
|
|
|
|
471
|
|
|
|
(783
|
)
|
|
|
21,029
|
|
FHLMC participating certificates
|
|
|
7,913
|
|
|
|
222
|
|
|
|
(274
|
)
|
|
|
7,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
220,020
|
|
|
$
|
1,090
|
|
|
$
|
(8,732
|
)
|
|
$
|
212,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA certificates
|
|
$
|
3,313
|
|
|
$
|
71
|
|
|
$
|
|
|
|
$
|
3,384
|
|
Private label collateralized mortgage obligations
|
|
|
5,542
|
|
|
|
|
|
|
|
(928
|
)
|
|
|
4,614
|
|
Collateralized mortgage obligations
|
|
|
188,426
|
|
|
|
399
|
|
|
|
(7,000
|
)
|
|
|
181,825
|
|
FNMA certificates
|
|
|
22,168
|
|
|
|
492
|
|
|
|
(620
|
)
|
|
|
22,040
|
|
FHLMC participating certificates
|
|
|
8,194
|
|
|
|
234
|
|
|
|
(241
|
)
|
|
|
8,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
227,643
|
|
|
$
|
1,196
|
|
|
$
|
(8,789
|
)
|
|
$
|
220,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended December 31, 2013, there were no sales of available for sale
mortgage-backed securities. During the fiscal year ended September 30, 2013 there were 17 available for sale CMOs sold, for $39.3 million, at a gross gain of $658,000 and one private label CMO sold for $3.4 million with a loss of
$589,000, for a net gain of $69,000.
11
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6
Mortgage-Backed Securities available for salecontinued
Below is a schedule of mortgage-backed securities with unrealized losses as of
December 31, 2013 and September 30, 2013 and the length of time the individual security has been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
(in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Private label collateralized mortgage obligations
|
|
$
|
654
|
|
|
$
|
(5
|
)
|
|
$
|
3,949
|
|
|
$
|
(453
|
)
|
|
|
4,603
|
|
|
$
|
(458
|
)
|
Collateralized mortgage obligations
|
|
|
130,734
|
|
|
|
(5,983
|
)
|
|
|
17,580
|
|
|
|
(1,233
|
)
|
|
|
148,314
|
|
|
|
(7,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA Certificates
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
(1
|
)
|
FNMA Certificates
|
|
|
13,405
|
|
|
|
(783
|
)
|
|
|
|
|
|
|
|
|
|
|
13,405
|
|
|
|
(783
|
)
|
FHLMC Certificates
|
|
|
4,504
|
|
|
|
(274
|
)
|
|
|
|
|
|
$
|
|
|
|
|
4,504
|
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
149,308
|
|
|
$
|
(7,046
|
)
|
|
$
|
21,529
|
|
|
$
|
(1,686
|
)
|
|
$
|
170,837
|
|
|
$
|
(8,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
(in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Private label collateralized mortgage obligations
|
|
$
|
875
|
|
|
$
|
(2
|
)
|
|
$
|
3,739
|
|
|
|
(926
|
)
|
|
$
|
4,614
|
|
|
$
|
(928
|
)
|
Collateralized mortgage obligations
|
|
|
161,504
|
|
|
|
(7,000
|
)
|
|
|
|
|
|
|
|
|
|
|
161,504
|
|
|
|
(7,000
|
)
|
FNMA Certificates
|
|
|
13,862
|
|
|
|
(620
|
)
|
|
|
|
|
|
|
|
|
|
|
13,862
|
|
|
|
(620
|
)
|
FHLMC Certificates
|
|
|
4,592
|
|
|
|
(241
|
)
|
|
|
|
|
|
$
|
|
|
|
|
4,592
|
|
|
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
180,833
|
|
|
$
|
(7,863
|
)
|
|
$
|
3,739
|
|
|
$
|
(926
|
)
|
|
$
|
184,572
|
|
|
$
|
(8,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2013 and September 30, 2013 the Company had 68 mortgage-backed securities in
unrealized loss positions, respectively.
During the three months ended December 31, 2013, we determined that, based on our most
recent estimate of cash flows, there was no additional other-than-temporary-impairment (OTTI) charge-offs required. At December 31, 2013, we had $458,000 of gross unrealized losses related to private label collateralized mortgage
obligations with an amortized cost of $5.0 million as of that date. These securities contain mortgages with Alt-A characteristics. Gross unrealized losses for these same securities were approximately $928,000 as of September 30, 2013. We
recorded no other-than-temporary impairment (OTTI) charges on these securities during the year ended September 30, 2013.
The Company has one private label security for approximately $3.9 million that is not receiving full contractual payments. We are recognizing
interest income on a cash basis on this security. Any payment shortages greater than interest due are applied against the corresponding OTTI reserve.
We do not intend to sell, nor is it more likely than not we will be required to sell these securities before maturity or recovery. If in the
future it is determined that future declines in market values or credit losses with respect to these or any other securities are other than temporary, the Company would be required to recognize additional losses in its Consolidated Statement of
Operations. Under guidance for recognition and presentation of other-than-temporary-impairments, the amount of other-than-temporary-impairment that is recognized through earnings is determined by comparing the present value of the expected cash
flows to the amortized cost of the security. The discount rate used to determine the credit loss is the expected book yield on the security.
12
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6
Mortgage-Backed Securitiescontinued
The following shows the activity in OTTI related to credit losses for the three
months ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Balance at Beginning of Period
|
|
$
|
243
|
|
|
$
|
733
|
|
Additional OTTI taken for credit losses
|
|
|
|
|
|
|
|
|
Charge-offs due to payment shortages
|
|
|
(64
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of Period
|
|
$
|
179
|
|
|
$
|
681
|
|
|
|
|
|
|
|
|
|
|
The Company engages the service of independent third party valuation professionals to analyze the OTTI status of the
non-agency mortgage-backed securities. The OTTI methodology is formulated within FASB ASC. The valuation is meant to be Level Three pursuant to FASB ASC
Topic 820 Fair Value Measurements and Disclosures
.
As part of the valuation process and OTTI determination, assumptions related to prepayment, default and loss severity on the collateral supporting the non-agency mortgage-backed securities are input into an industry standard valuation model.
Prepayment Assumptions
Estimates of
prepayment speeds begins with the prepayment rates assembled by Mortgage Industry Advisory Corporation as of the valuation date to approximate a measure of the borrowers
incentive
to prepay based on market interest rates. In order
to incorporate the borrowers
ability
to prepay, we then make adjustments to the base rate to reflect the borrowers ability to qualify for a new loan based on their credit. We also make adjustments based on the location of the
property to capture the appreciation or depreciation by MSA and thus reflect the likelihood the property will appraise at an amount sufficient to repay the existing loan. These adjustments factor prepay speeds down as credit quality and home
prices deteriorate, reflecting the diminished ability to refinance.
In addition, assumptions are based on evaluation of the conditional
prepayment rates (CPR) and conditional repayment rates (CRR) over a 1 month, 3 month, 6 month, 1 year and lifetime basis- to the extent these values are provided by the servicer, and forecasts from other industry experts.
Default Rates
Estimates for the
conditional default rate (CDR) vectors are based on the status of the loans at the valuation date current, 30- 59 days delinquent, 60-89 days delinquent, 90+ days delinquent, foreclosure or REO and proprietary loss
migration models (
e.g
. percentage of 30 day delinquents that will ultimately migrate to default, percentage of 60 day delinquents that will ultimately migrate to default, etc.). The model assumes that the 60 day plus population will move to
repossession inventory subject to our loss migration assumptions and liquidate over the next 24 months. Defaults vector from month 25 to month 36 to our month 37 CDR value and ultimately vector to zero over an extended period of time of at least 14
years. Default assumptions are benchmarked to the recent results experienced by major servicers of non-Agency MBS for securities with similar attributes and forecasts from other industry experts and industry research.
Loss Severity
Estimates for loss
severity are based on the initial loan to value ratio, the loans lien position, private mortgage insurance proceeds available (if any), and the estimated change in the price of the property since origination. The historical change in the value
of the property is estimated using the
Housing Pricing Indices by Metropolitan Statistical Area (MSA)
produced by the Federal Housing Finance Agency (FHFA). Estimates for future changes in the prices of the residences
collateralizing the mortgages, is based on the Case Shiller forecasts and other industry forecasts by MSA.
The loss severity assumption is
static for one month then decreases monthly based on future market appreciation. The annual market appreciation assumption is 3.50% after 1 month. The loss severity is subject to a floor value of 23.00%.
Loss severity is benchmarked to the recent results of the loan collateral supporting the securities and the results experienced by major
servicers of non-agency mortgage-backed-securities for securities with similar attributes.
13
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6
Mortgage-Backed Securities available for salecontinued
The prepayment, default and loss severity assumptions result in forecasted cumulative loss
rates. These cumulative loss rates are benchmarked to the projected cumulative losses by product, by year of origination, released by other industry experts.
The collateral cash flows that result from the prepayment, default and loss severity assumptions are applied to securities supporting the
collateral by priority based upon the cash flow waterfall rules provided in the prospectus supplement. The cash flows are then discounted at the appropriate interest rate in order to determine if the impairment on a security is other than temporary.
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loans
Loans Receivable
Loans
receivable at December 31, 2013 and September 30, 2013 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
(in thousands)
|
|
2013
|
|
|
2013
|
|
Single-family residential mortgages
|
|
$
|
64,176
|
|
|
$
|
63,769
|
|
Single-family rental property loans
|
|
|
58,103
|
|
|
|
59,272
|
|
Commercial real estate loans
|
|
|
144,111
|
|
|
|
145,672
|
|
Construction loans
|
|
|
23,643
|
|
|
|
25,917
|
|
Commercial loans secured
|
|
|
124
|
|
|
|
161
|
|
Commercial loans unsecured
|
|
|
50
|
|
|
|
52
|
|
Commercial lines of credit
|
|
|
7,323
|
|
|
|
7,521
|
|
Automobile loans
|
|
|
127
|
|
|
|
132
|
|
Home equity lines of credit
|
|
|
34,266
|
|
|
|
33,443
|
|
Other consumer loans
|
|
|
1,412
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,335
|
|
|
|
337,435
|
|
Less undisbursed portion of loans in process
|
|
|
(7,760
|
)
|
|
|
(7,966
|
)
|
- unearned interest
|
|
|
(1
|
)
|
|
|
(1
|
)
|
- net deferred loan origination costs
|
|
|
360
|
|
|
|
272
|
|
- allowance for losses on loans
|
|
|
(5,619
|
)
|
|
|
(5,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
320,315
|
|
|
$
|
324,136
|
|
|
|
|
|
|
|
|
|
|
Classes
For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loans are
segmented into the following pools: residential real estate loans, residential rental loans, commercial, construction, home equity loans, automobile loans and other consumer loans. The company also separates these segments into classes based on the
associated risks within these segments. Commercial loans are divided into the following five classes: construction, land acquisition and development, commercial loans secured by real estate, commercial loans unsecured and leases. Residential loans
are divided into two classes, residential owner occupied and residential rental properties. Each class of loan requires significant judgment to determine the estimation method that fits the credit risk characteristics of its portfolio segment.
Management must use judgment in establishing additional input metrics for the modeling process. Historical loss percentages are also utilized to assist in projecting potential future losses.
Based on credit risk assessment and managements analysis of leading predictors of losses, additional loss multipliers are applied to
loan balances. During the period, management has applied additional loss estimations based on the current environmental factors, geographical concentrations, residential property values, commercial vacancy rates, unemployment rate and the
Companys internal delinquency trends.
14
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
Impaired loans are reviewed individually for potential loss. In instances where loan balances exceed
estimated realizable values, specific loss allocations are identified.
Under our methodology for calculating the allowance for loan losses, loss rates
are determined for the following loan pools: construction, residential owner occupied, residential rental, home equity loans, loan acquisition and development, secured commercial loans, unsecured commercial loans, leases and consumer loans. Loss
rates are then applied to loan balances of these portfolio segments exclusive of loans with specific loss allocations that were reviewed individually. This methodology provides an in-depth analysis of the Banks portfolio and reflects the
probable inherent losses within it. Reserve allocations are then reviewed and consolidated. This process is performed on a quarterly basis.
15
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
The Allowance for Loan Losses and Recorded Investment in loans as of and for the three months
ended December 31, 2013 are as follows:
Allowance for Losses on Loans
For the period ended December 31, 2013
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Loans
|
|
|
Residential
Rental
Loans
|
|
|
Commercial
Loans
|
|
|
Construction
Loans
|
|
|
Home
Equity
Loans
|
|
|
Automobile
Loans
|
|
|
Other
Consumer
Loans
|
|
|
Total
Loans
|
|
Three Months ended December 31, 2013 Allowance for losses on loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
66
|
|
|
$
|
2,543
|
|
|
$
|
1,819
|
|
|
$
|
1,101
|
|
|
$
|
75
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,604
|
|
Charge-Offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
Provisions
|
|
|
(1
|
)
|
|
|
(110
|
)
|
|
|
149
|
|
|
|
(26
|
)
|
|
|
3
|
|
|
|
(17
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
65
|
|
|
$
|
2,433
|
|
|
$
|
1,968
|
|
|
$
|
1,075
|
|
|
$
|
78
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
1,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,040
|
|
|
$
|
5,861
|
|
|
$
|
2,994
|
|
|
$
|
680
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,341
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively evaluated for impairment
|
|
$
|
62,410
|
|
|
$
|
47,063
|
|
|
$
|
145,747
|
|
|
$
|
20,649
|
|
|
$
|
33,586
|
|
|
$
|
127
|
|
|
$
|
1,412
|
|
|
$
|
310,994
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance balance for loans individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,409
|
|
|
$
|
57
|
|
|
$
|
634
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance balance for loans collectively evaluated for impairment
|
|
$
|
65
|
|
|
$
|
1,024
|
|
|
$
|
1,911
|
|
|
$
|
441
|
|
|
$
|
78
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances are not adjusted for undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
16
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
The Allowance for Loan Losses and Recorded Investment in loans as of and for the three months ended
December 31, 2012 are as follows:
Allowance for Losses on Loans
For the period ended December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Loans
|
|
|
Residential
Rental
Loans
|
|
|
Commercial
Loans
|
|
|
Construction
Loans
|
|
|
Home
Equity
Loans
|
|
|
Automobile
Loans
|
|
|
Other
Consumer
Loans
|
|
|
Total
Loans
|
|
Three Months ended December 31, 2012 Allowance for losses on loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
140
|
|
|
$
|
2,232
|
|
|
$
|
1,477
|
|
|
$
|
1,492
|
|
|
$
|
119
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
5,470
|
|
Charge-Offs
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(505
|
)
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
23
|
|
Provisions
|
|
|
(39
|
)
|
|
|
398
|
|
|
|
(59
|
)
|
|
|
212
|
|
|
|
(2
|
)
|
|
|
(20
|
)
|
|
|
10
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
101
|
|
|
$
|
2,629
|
|
|
$
|
1,421
|
|
|
$
|
1,200
|
|
|
$
|
117
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
5,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
2,112
|
|
|
$
|
7,227
|
|
|
$
|
6,996
|
|
|
$
|
4,942
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,277
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively evaluated for impairment
|
|
$
|
71,292
|
|
|
$
|
55,329
|
|
|
$
|
143,863
|
|
|
$
|
13,651
|
|
|
$
|
32,104
|
|
|
$
|
351
|
|
|
$
|
1,367
|
|
|
$
|
317,957
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance balance for loans individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,224
|
|
|
$
|
98
|
|
|
$
|
586
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance balance for loans collectively evaluated for impairment
|
|
$
|
101
|
|
|
$
|
1,405
|
|
|
$
|
1,323
|
|
|
$
|
614
|
|
|
$
|
117
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
3,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances are not adjusted for undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
17
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
Credit Quality Indicators
The Company has several credit quality indicators to manage credit risk in an ongoing manner. The Companys primary credit quality indicators are to use
an internal credit risk rating system that categorizes loans and leases into pass, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans and leases that have significant or unique credit
characteristics that benefit from a case-by-case evaluation. These are typically loans and leases to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans and leases that are underwritten and
structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk rated and monitored collectively. These are typically loans and leases to individuals in the
classes which comprise the consumer portfolio segment. Loan classifications are generated on a monthly basis.
The following are the definitions of the
Companys credit quality indicators:
Pass
Asset is of sufficient quality to not warrant any mention whatsoever.
Transitional
Loans and other credit extensions bearing
this grade exhibit some or all the characteristics of a loan graded a Pass and one or more of the following traits: higher LTVs than expected for loans within their loan type, industry or economic issues that might cause future problems, the
potential of loan default, declining financial trends that are emerging, reduced liquidity, history of late payments, failure to provide requested financial information, or deteriorating value of collateral. Loans in this category may exhibit signs
of weakness as a going concern, e.g. poor management of the company; change in ownership/management; negative economic impact; or an adverse affect in the Banks collateral position. While no specific loss amount may be anticipated at this
point there is sufficient concern regarding these loans, and closer monitoring is required by the Loan Officer and other management personnel. Loans in this category will be discussed quarterly at the Watch Committee meeting.
Special Mention
These credit facilities have
potential developing weaknesses that deserve extra attention from management. This classification may be warranted if a developing weakness is evident that is associated with the ability of the borrower to repay. If a developing weakness is not
corrected or mitigated, there may be deterioration in the ability of the borrower to repay the banks debt in the future. This grade should not be assigned to loans that bear certain peculiar risks normally associated with the type of financing
involved, unless circumstances have caused the risk to increase to a level higher than would have been acceptable when the credit was originally approved.
Substandard
Loans and other credit extensions
bearing this grade are considered to be inadequately protected by the current net worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined
weaknesses related to adverse financial, managerial, economic, market, or political conditions that have clearly jeopardized repayment of principal and interest as originally intended. Furthermore, there is the possibility that some future loss will
be sustained by the bank if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assets classified as substandard.
Doubtful
Loans and other credit extensions
classified as doubtful have all the weaknesses inherent in those substandard with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing
facts, conditions and values. The probability of some loss is extremely high, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation,
additional capital injection, refinancing plans, or perfection of liens on additional collateral. Loans in this classification should be placed in non-accrual status, with collections applied to principal on the banks books.
Loss
Loans in this classification are considered
uncollectible and cannot be justified as a viable asset of the Bank. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial
recovery may be obtained in the future. A portion of a loan may also be assigned this rating since the Bank may determine that the balance of the loan is collectable.
18
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
The classification of loans as of December 31, 2013 and September 30, 2013 are as follows:
December 31, 2013
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Loans
|
|
|
Residential
Rental
Loans
|
|
|
Commercial
Loans
|
|
|
Construction
Loans
|
|
|
Home
Equity
Loans
|
|
|
Automobile
Loans
|
|
|
Other
Consumer
Loans
|
|
|
Total
|
|
Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
61,384
|
|
|
$
|
45,782
|
|
|
$
|
140,978
|
|
|
$
|
19,249
|
|
|
$
|
33,586
|
|
|
$
|
127
|
|
|
$
|
1,377
|
|
|
$
|
302,483
|
|
Special Mention
|
|
|
1,026
|
|
|
|
1,281
|
|
|
|
4,769
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,476
|
|
Substandard
|
|
|
1,766
|
|
|
|
11,040
|
|
|
|
5,861
|
|
|
|
2,994
|
|
|
|
680
|
|
|
|
|
|
|
|
35
|
|
|
|
22,376
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64,176
|
|
|
$
|
58,103
|
|
|
$
|
151,608
|
|
|
$
|
23,643
|
|
|
$
|
34,266
|
|
|
$
|
127
|
|
|
$
|
1,412
|
|
|
$
|
333,335
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
(Dollars in thousands)
|
|
|
|
Residential
Loans
|
|
|
Residential
Rental
Loans
|
|
|
Commercial
Loans
|
|
|
Construction
Loans
|
|
|
Home
Equity
Loans
|
|
|
Automobile
Loans
|
|
|
Other
Consumer
Loans
|
|
|
Total
|
|
Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
61,533
|
|
|
$
|
50,531
|
|
|
$
|
139,171
|
|
|
$
|
21,523
|
|
|
$
|
32,534
|
|
|
$
|
132
|
|
|
$
|
1,461
|
|
|
$
|
306,885
|
|
Special Mention
|
|
|
782
|
|
|
|
991
|
|
|
|
5,736
|
|
|
|
1,400
|
|
|
|
644
|
|
|
|
|
|
|
|
35
|
|
|
|
9,588
|
|
Substandard
|
|
|
1,454
|
|
|
|
7,750
|
|
|
|
8,499
|
|
|
|
2,994
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
20,962
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
63,769
|
|
|
$
|
59,272
|
|
|
$
|
153,406
|
|
|
$
|
25,917
|
|
|
$
|
33,443
|
|
|
$
|
132
|
|
|
$
|
1,496
|
|
|
$
|
337,435
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances are not adjusted for undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
(2)
|
Transitional loans are included in the Pass category for classification purposes.
|
Single-Family
Residential Real Estate Lending.
The Bank historically has been and continues to be an originator of single-family, residential real estate loans in its market area. The Bank has never participated in the origination of sub-prime lending
and, accordingly, has no direct exposure to this type of lending within its loan portfolio. The Bank originates fixed-rate mortgage loans at competitive interest rates. Due to interest rate risk considerations, the Bank has employed a strategy of
selling most fixed-rate single-family residential mortgage loans originated into the secondary market.
A small portion of the Banks single-family
mortgage loans carry adjustable rates. After the initial term, the rate adjustments on the Banks adjustable-rate loans are indexed to a rate which adjusts per loan terms based upon changes in an index based on the weekly average yield on U.S.
Treasury securities adjusted to a constant comparable maturity of one year, as made available by the Federal Reserve Board. The interest rates on most of the Banks adjustable-rate mortgage loans are adjusted once a year, and these loans have
an initial adjustment period of one, three or five years. The maximum adjustment is 2% per adjustment period with a maximum aggregate adjustment of 6% over the life of the loan. All of the Banks adjustable-rate loans require that any
payment adjustment resulting from a change in the interest rate be sufficient to result in full amortization of the loan by the end of the loan term and, thus, do not permit any of the increased payment to be added to the principal amount of the
loan, known as negative amortization.
19
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
The retention of adjustable-rate loans in the Banks portfolio helps reduce the Banks exposure to
increases in prevailing market interest rates. However, there are unquantifiable credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of adjustable-rate loans. It is possible that during periods of
rising interest rates, the risk of default on adjustable-rate loans may increase due to increases in interest costs to borrowers. Further, although adjustable-rate loans allow the Bank to increase the sensitivity of its interest-earning assets to
changes in interest rates, the extent of this interest sensitivity is limited by the initial fixed-rate period before the first adjustment and the lifetime interest rate adjustment limitations. Accordingly, there can be no assurance that yields on
the Banks adjustable-rate loans will fully adjust to compensate for increases in the Banks cost of funds. Finally, adjustable-rate loans increase the Banks exposure to decreases in prevailing market interest rates, although
decreases in the Banks cost of funds tend to offset this effect.
Single-Family Rental Property Loans.
The Bank also offers
single-family residential mortgage loans secured by properties that are not owner-occupied, although management has decided to limit future origination volume for this loan product. Single-family residential mortgage loans secured by rental
properties are made on a fixed-rate or an adjustable-rate basis and carry interest rates generally from 1.5% to 2.0% above the rates charged on comparable loans secured by owner-occupied properties. The maximum term on such loans is 10 years with
amortizations up to 25 years.
Commercial Real Estate Lending.
The Banks commercial real estate loan portfolio includes loans to
finance the acquisition of office buildings, churches, commercial office condominiums, shopping centers, hospitality, and commercial and industrial buildings. Such loans generally range in size from $100,000 to $5 million. Commercial real estate
loans are originated on a fixed-rate or adjustable-rate basis with terms of 5 to 10 years and with amortizations of up to 30 years.
Commercial real
estate lending entails significant additional risks as compared with single-family residential property lending. Commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. The payment
experience on such loans typically is dependent on the successful operation of the real estate project, retail establishment or business. These risks can be significantly impacted by supply and demand conditions in the market for office and retail
space and, as such, may be subject to a greater extent to adverse conditions in the economy generally. To minimize these risks, the Bank generally limits itself to its market area or to borrowers with which it has prior experience or who are
otherwise known to the Bank. It is the Banks policy generally to obtain annual financial statements of the business of the borrower or the project for which commercial real estate loans are made. In addition, in the case of commercial real
estate loans made to a legal entity, the Bank seeks, whenever possible, to obtain personal guarantees and annual financial statements of the principals of the legal entity. As a result of the economic downturn, the Bank has experienced a decline in
its pipeline for this product type within the loan portfolio.
Construction Lending.
A substantial portion of the Banks construction
loans are originated for the construction of owner-occupied, single-family dwellings in the Banks primary market area. Residential construction loans are offered primarily to individuals building their primary or secondary residence, as well
as to selected local developers to build single-family dwellings. Generally, loans to owner/occupants for the construction of owner-occupied, single-family residential properties are originated in connection with the permanent loan on the property
and have a construction term of up to 12 months. Such loans are offered on fixed rate terms. Interest rates on residential construction loans made to the owner/occupant have interest rates during the construction period equal to the same rate on the
permanent loan selected by the customer. Interest rates on residential construction loans to builders are set at the prime rate plus a margin of between 0% and 1.5%, typically with interest rate floors. Interest rates on commercial construction
loans are based on the prime rate plus a negotiated margin of between 0% and 1.5% and adjust monthly, typically with interest rate floors with construction terms generally not exceeding 18 months
.
Advances are made on a percentage of
completion basis. Prior to making a commitment to fund a loan, the Bank requires both an appraisal of the property by appraisers approved by the Board of Directors and a study of projected construction costs. The Bank also reviews and inspects each
project at the commencement of construction and as needed prior to disbursements during the term of the construction loan.
20
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
On occasion, the Bank makes acquisition and development loans to local developers to acquire and develop land
for sale to builders who will construct single-family residences. Acquisition and development loans, which are considered by the Bank to be construction loans, are made at a rate that adjusts monthly, based on the prime rate plus a negotiated
margin, typically with interest rate floors for terms of up to three years. Interest only is paid during the term of the loan, and the principal balance of the loan is paid down as developed lots are sold to builders. Generally, in connection with
acquisition and development loans, the Bank issues a letter of credit to secure the developers obligation to local governments to complete certain work. If the developer fails to complete the required work, the Bank would be required to fund
the cost of completing the work up to the amount of the letter of credit. Letters of credit generate fee income for the Bank but create additional risk.
Construction financing generally is considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of
loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the propertys value at completion of construction or development and the estimated cost (including interest) of construction. During the construction
phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate and the borrower is unable to meet the Banks requirements of putting up additional funds to cover extra costs or
change orders, then the Bank will demand that the loan be paid off and, if necessary, institute foreclosure proceedings, or refinance the loan. If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity
of the loan, with collateral having a value which is insufficient to assure full repayment. The Bank has sought to minimize this risk by limiting construction lending to qualified borrowers (
i.e.
, borrowers who satisfy all credit requirements
and whose loans satisfy all other underwriting standards which would apply to the Banks permanent mortgage loan financing for the subject property) in the Banks market area. On loans to builders, the Bank works only with selected
builders and carefully monitors the creditworthiness of the builders.
Commercial Lines of Credit.
The Bank provides commercial lines of
credit to businesses within the Banks market area. These loans are secured by business assets, including real property, equipment, automobiles and consumer leases. Generally, all loans are further personally guaranteed by the owners of the
business. The commercial lines have adjustable interest rates tied to the prime rate, typically with interest rate floors and are offered at rates from prime plus 0% to prime plus 3.5%.
Consumer Lending
.
The consumer loans currently in the Banks loan portfolio consist of automobile loans, home equity lines of credit
and loans secured by savings deposits.
Automobile loans are secured by both new and used cars and, depending on the creditworthiness of the borrower, may
be made for up to 110% of the invoice price or clean black book value, whichever is lower, or, with respect to used automobiles, the loan values as published by a wholesale value listing utilized by the automobile industry.
Automobile loans are made directly to the borrower-owner. New and used cars are financed for a period generally of up to five years, or less, depending on the age of the car. Collision insurance is required for all automobile loans. The Bank also
maintains a blanket collision insurance policy that provides insurance for any borrower who allows their insurance to lapse.
The Bank originates second
mortgage loans and home equity lines of credit. Second mortgage loans are made at fixed rates and for terms of up to 15 years. The Banks home equity lines of credit currently have adjustable interest rates tied to the prime rate and are
currently offered at the prime rate with a floor of 3.25%. The interest rate may not adjust to a rate higher than 24%. The home equity lines of credit require monthly payments until the loan is paid in full, with a loan term not to exceed 30 years.
The minimum monthly payment is the outstanding interest. Home equity lines of credit are secured by subordinate liens against residential real property. The Bank requires that fire and extended coverage casualty insurance (and, if appropriate, flood
insurance) be maintained in an amount at least sufficient to cover its loan.
The Bank makes savings account loans for up to 90% of the depositors
savings account balance. The interest rate is normally 3.0% above the rate paid on the related savings account, and the account must be pledged as collateral to secure the loan. Interest generally is billed on a quarterly basis.
21
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
As part of the Banks loan strategy, the Bank has diversified its lending portfolio to afford the Bank
the opportunity to earn higher yields and to provide a fuller range of banking services. These products have generally been in the consumer area and include boat loans and loans for the purchase of recreational vehicles.
Consumer lending usually affords the Bank the opportunity to earn yields higher than those obtainable on single-family residential lending. However, consumer
loans entail greater risk than residential mortgage loans, particularly in the case of loans which are unsecured or secured by rapidly depreciable assets. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan
collections are dependent on the borrowers continuing financial stability, and thus are more likely to be adversely affected by events such as job loss, divorce, illness or personal bankruptcy.
22
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
Impaired loans as of December 31, 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
As of December 31, 2013
(Dollars in thousands)
|
|
|
|
Recorded
Investment
|
|
|
Unpaid Principal
Balance
|
|
|
Related
Allowance
|
|
Loans without specific valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loan
|
|
$
|
1,766
|
|
|
$
|
1,766
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
4,611
|
|
|
|
4,611
|
|
|
|
|
|
Commercial Loans
|
|
|
4,280
|
|
|
|
4,280
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity Loans
|
|
|
680
|
|
|
|
680
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
35
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,372
|
|
|
$
|
11,372
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
6,429
|
|
|
|
6,429
|
|
|
|
1,420
|
|
Commercial Loans
|
|
|
1,581
|
|
|
|
1,581
|
|
|
|
46
|
|
Construction Loans
|
|
|
2,994
|
|
|
|
2,994
|
|
|
|
634
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,004
|
|
|
$
|
11,004
|
|
|
$
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
The following presents information related to the average recorded investment and interest income recognized
on impaired loans for the three months ended December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2013
|
|
(dollars in thousands)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Loans without specific valuation allowances:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
1,769
|
|
|
$
|
29
|
|
Residential Rental Loans
|
|
|
4,618
|
|
|
|
40
|
|
Commercial Loans
|
|
|
4,297
|
|
|
|
38
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
Home Equity Loans
|
|
|
690
|
|
|
|
6
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,409
|
|
|
$
|
113
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance recorded:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
6,435
|
|
|
|
66
|
|
Commercial Loans
|
|
|
1,588
|
|
|
|
23
|
|
Construction Loans
|
|
|
2,994
|
|
|
|
32
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,017
|
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
24
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
Impaired loans as of September 30, 2013 are as follows:.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
As of September 30, 2013
(Dollars in thousands)
|
|
|
|
Recorded
Investment
|
|
|
Unpaid Principal
Balance
|
|
|
Related
Allowance
|
|
Loans without specific valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
1,454
|
|
|
$
|
1,454
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
1,296
|
|
|
|
1,296
|
|
|
|
|
|
Commercial Loans
|
|
|
6,897
|
|
|
|
6,897
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity Loans
|
|
|
265
|
|
|
|
265
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,912
|
|
|
$
|
9,912
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
6,507
|
|
|
|
6,507
|
|
|
|
1,441
|
|
Commercial Loans
|
|
|
1,602
|
|
|
|
1,602
|
|
|
|
118
|
|
Construction Loans
|
|
|
2,994
|
|
|
|
2,994
|
|
|
|
634
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,103
|
|
|
$
|
11,103
|
|
|
$
|
2,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Credit Losses on
Loanscontinued
The following presents information related to the average recorded investment and interest income recognized
on impaired loans for the three months ended December 31,2012:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2012
|
|
(dollars in thousands)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Loans without specific valuation allowances:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
2,114
|
|
|
$
|
20
|
|
Residential Rental Loans
|
|
|
1,532
|
|
|
|
4
|
|
Commercial Loans
|
|
|
5,616
|
|
|
|
76
|
|
Construction Loans
|
|
|
2,189
|
|
|
|
65
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,451
|
|
|
$
|
165
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance recorded:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
5,697
|
|
|
|
66
|
|
Commercial Loans
|
|
|
1,624
|
|
|
|
16
|
|
Construction Loans
|
|
|
3,183
|
|
|
|
32
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,504
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
26
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
Past due loans as of December 31, 2013 and September 30, 2013 are as
follows
:
Credit Quality Information
Age Analysis of Past Due Loans
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59
Days past
due
|
|
|
60-89
Days past
due
|
|
|
Non-Accrual
|
|
|
Total
past due
and Non-Accrual
|
|
|
Current
|
|
|
Total Loans
|
|
|
Non-
Accrual
Loans that
are Current
|
|
|
Loans
Greater than
90 days and
Accruing
|
|
Residential Loans
|
|
$
|
1,022
|
|
|
$
|
527
|
|
|
$
|
779
|
|
|
$
|
2,328
|
|
|
$
|
61,848
|
|
|
$
|
64,176
|
|
|
$
|
308
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
67
|
|
|
|
277
|
|
|
|
3,476
|
|
|
|
3,820
|
|
|
|
54,283
|
|
|
|
58,103
|
|
|
|
1,195
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
1,553
|
|
|
|
1,553
|
|
|
|
150,055
|
|
|
|
151,608
|
|
|
|
374
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
2,994
|
|
|
|
2,994
|
|
|
|
20,649
|
|
|
|
23,643
|
|
|
|
|
|
|
|
|
|
Home Equity Loans
|
|
|
247
|
|
|
|
|
|
|
|
231
|
|
|
|
478
|
|
|
|
33,788
|
|
|
|
34,266
|
|
|
|
|
|
|
|
|
|
Automobile Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
35
|
|
|
|
1,377
|
|
|
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1)
|
|
$
|
1,336
|
|
|
$
|
804
|
|
|
$
|
9,068
|
|
|
$
|
11,208
|
|
|
$
|
322,127
|
|
|
$
|
333,335
|
|
|
$
|
1,877
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances are not adjusted for undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
Credit Quality Information
Age Analysis of Past Due Loans
As of September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59
Days past
due
|
|
|
60-89
Days past
due
|
|
|
Non-Accrual
|
|
|
Total
past due
and Non-Accrual
|
|
|
Current
|
|
|
Total Loans
|
|
|
Non-
Accrual
Loans that
are Current
|
|
|
Loans
Greater than
90 days and
Accruing
|
|
Residential Loans
|
|
$
|
753
|
|
|
|
89
|
|
|
|
718
|
|
|
|
1,560
|
|
|
|
62,209
|
|
|
|
63,769
|
|
|
|
347
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
|
|
|
|
|
|
|
|
3,013
|
|
|
|
3,013
|
|
|
|
56,259
|
|
|
|
59,272
|
|
|
|
792
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
1,573
|
|
|
|
1,573
|
|
|
|
151,833
|
|
|
|
153,406
|
|
|
|
378
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
2,994
|
|
|
|
2,994
|
|
|
|
22,923
|
|
|
|
25,917
|
|
|
|
2,994
|
|
|
|
|
|
Home Equity Loans
|
|
|
381
|
|
|
|
|
|
|
|
142
|
|
|
|
523
|
|
|
|
32,920
|
|
|
|
33,443
|
|
|
|
82
|
|
|
|
|
|
Automobile Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
2
|
|
|
|
35
|
|
|
|
|
|
|
|
37
|
|
|
|
1,459
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1)
|
|
$
|
1,136
|
|
|
|
124
|
|
|
|
8,440
|
|
|
|
9,700
|
|
|
|
327,735
|
|
|
|
337,435
|
|
|
|
4,593
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances exclude undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
Nonperforming Loans and Other Problem Assets
.
It is managements policy to continually monitor its loan portfolio to anticipate and
address potential and actual delinquencies. When a borrower fails to make a payment on a loan, the Bank takes immediate steps to have the delinquency cured and the loan restored to current status. Loans which are past due 15 days incur a late fee of
5% of principal and interest due. As a matter of policy, the Bank will send a late notice to the borrower after the loan has been past due 15 days and again after 30 days. If payment is not promptly received, the borrower is contacted again, and
efforts are made to formulate an affirmative plan to cure the delinquency. Generally, after any loan is delinquent 90 days or more, formal legal proceedings are commenced to collect amounts owed. In the case of automobile loans, late notices are
sent after loans are ten days delinquent, and the collateral is seized after a loan is delinquent 60 days. Repossessed cars subsequently are sold at auction.
27
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
Loans generally are placed on nonaccrual status if the loan becomes past due more than 90 days, except in
instances where in managements judgment there is no doubt as to full collectability of principal and interest. Consumer loans are generally charged-off, or any expected loss is reserved for, after they become more than 120 days past due. All
other loans are charged-off, or any expected loss is reserved for when management concludes that they are uncollectible.
Troubled Debt Restructurings
(TDRs) are placed on nonaccrual status when loan modifications take place. The interest component of subsequent payment receipts is recognized as income on a cash basis. TDRs are removed from nonaccrual status after performing in accordance with
modified terms for a sustained period.
Real estate acquired by the Bank as a result of foreclosure is classified as foreclosed real estate until such
time as it is sold. When such property is acquired, it is initially recorded at the lower of cost or estimated fair value and subsequently at the lower of book value or fair value less estimated costs to sell. Costs relating to holding such real
estate are charged against income in the current period, while costs relating to improving such real estate are capitalized until a saleable condition is reached. Any required write-down of the loan to its fair value less estimated selling costs
upon foreclosure is charged against the allowance for loan losses.
Charge-off Policies
The Companys loan charge-off policies are as follows:
When
loans begin to demonstrate collectability issues the Bank performs an analysis to determine if a loss is expected. Loans are generally charged down to the fair value of collateral securing the asset, less estimated cost to sell, when management
judges the asset to be uncollectible, repayment is deemed to be protracted beyond reasonable time frames, the asset has been classified as loss by either the internal loan review process or external examiners, or when the borrower has filed
bankruptcy and the loss becomes evident based on a lack of assets. Once foreclosure takes place, or when foreclosure is imminent, specific reserves are charged off and the asset is transferred to Foreclosed Real Estate based upon its estimated fair
value less estimated disposal cost.
28
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
Loans on Nonaccrual Status
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
|
September 30,
2013
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
779
|
|
|
$
|
718
|
|
Residential Rental Loans
|
|
|
1,759
|
|
|
|
1,296
|
|
Commercial Loans
|
|
|
1,507
|
|
|
|
1,573
|
|
Constructions Loans
|
|
|
|
|
|
|
|
|
Home Equity Loans
|
|
|
231
|
|
|
|
|
|
Automobile Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,311
|
|
|
$
|
3,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
1,717
|
|
|
|
1,717
|
|
Commercial Loans
|
|
|
46
|
|
|
|
|
|
Constructions Loans
|
|
|
2,994
|
|
|
|
2,994
|
|
Home Equity Loans
|
|
|
|
|
|
|
142
|
|
Automobile Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,757
|
|
|
$
|
4,853
|
|
|
|
|
|
|
|
|
|
|
Total Nonaccrual Loans
|
|
$
|
9,068
|
(1)
|
|
$
|
8,440
|
(1)
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes Troubled Debt Restructurings (TDRs) of $1.2 million at December 31, 2013 and $3.2 million at September 30, 2013, which were not delinquent. Reporting guidance requires disclosure of these loans
as nonaccrual even though they may be current in terms of principal and interest payments. As of December 31, 2013 and September 30, 2013, the Company had total TDRs of $7.2 million.
|
29
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7
Disclosures About Credit Quality and the Allowance for Losses on Loanscontinued
Modifications
During the three months ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Number of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investments
|
|
|
Post-
Modification
Outstanding
Recorded
Investments
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investments
|
|
|
Post-
Modification
Outstanding
Recorded
Investments
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential- Prime
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
2
|
|
|
$
|
111
|
|
|
$
|
110
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer-Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings are considered to be in default after 90 days of non-payment. During the three months ended
December 31, 2013 there were no TDRs that were considered to be in default. During the three months ended December 31, 2012, there were two TDRs totaling $235,000 that were considered to be in default.
Loans identified as Troubled Debt Restructurings are also included as nonperforming assets. TDRs are represented by borrowers experiencing some form of
financial difficulty, resulting in the Bank granting a concession as part of a loan modification. Loans modified as TDRs were primarily comprised of loans for which payments were either deferred or reduced. Reporting guidance requires
disclosure of these loans as nonperforming even though they may be current in terms of principal and interest payments. As of December 31, 2013, $7.2 million in TDRs were included in non performing loans, $3.2 million of which were not
delinquent.
As previously stated, TDRs are included as nonperforming assets, although payments may be current in conjunction with modified loan
terms. Typical loan modifications include lowering interest rates, deferring payments or extending repayment terms. As of December 31, 2013 specific loan loss reserves on TDRs totaled $1.2 million.
30
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 8
Earnings Per Share
Basic earnings per share amounts are based on the weighted average shares of common stock outstanding. Diluted earnings per share assume the
conversion, exercise or issuance of all potential common stock instruments such as options and warrants, unless the effect is to reduce a loss or increase earnings per share. The basic and diluted weighted average common shares outstanding for the
three month periods ended December 31, 2013 and 2012, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands except per share data)
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
202
|
|
|
|
3,120
|
|
|
$
|
0.06
|
|
|
$
|
639
|
|
|
|
3,103
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
202
|
|
|
|
3,120
|
|
|
$
|
0.06
|
|
|
$
|
639
|
|
|
|
3,103
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
202
|
|
|
|
3,120
|
|
|
$
|
0.06
|
|
|
$
|
639
|
|
|
|
3,103
|
|
|
$
|
0.21
|
|
Effect of dilutive shares
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders plus assumed conversions
|
|
$
|
202
|
|
|
|
3,206
|
|
|
$
|
0.06
|
|
|
$
|
639
|
|
|
|
3,235
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 10,528 shares and 15,792 shares which were outstanding at December 31, 2013 and December 31,
2012, respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
31
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 9
Preferred Stock
On December 23, 2008, as part of the Troubled Asset Relief Program (TARP) Capital Purchase Program, the Company entered
into a Letter Agreement, and the related Securities Purchase Agreement Standard Terms (collectively, the Purchase Agreement), with the United States Department of the Treasury (Treasury), pursuant to which the Company
issued (i) 10,800 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, liquidation preference $1,000 per share (Series A preferred stock), and (ii) a warrant to purchase 183,465 shares of the Companys
common stock, par value $0.01 per share, for an aggregate purchase price of $10,800,000 in cash. The Series A preferred stock and the warrants were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933, as amended.
On January 26, 2011 the Company repurchased all $10.8 million of Series A Preferred Stock issued to the U.S. Treasury in
December 2008 pursuant to the TARP Capital Purchase Program. BCSB completed the repayment without raising additional capital. As a result of the redemption, the Company accelerated the accretion of the remaining discount of approximately $310,000 on
the preferred stock and recorded a reduction in retained earnings.
On April 19, 2013, the Company repurchased the warrant to purchase 183,465 shares
of the Companys common stock at an exercise price of $8.83 per share. The warrant was exercisable at any time on or before March 23, 2018. The Company paid an aggregate price of $1,442,000 for the repurchase of the warrant, which has been
cancelled. The purchase price was based on the fair market value of the warrant as agreed upon by the Company and the U.S. Treasury. The repurchase transaction resulted in a reduction in total Stockholders Equity of $1,442,000. As a result of
the purchase of the warrant the Company has now completely exited the TARP Capital Purchase Program.
32
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 10
Regulatory Capital
The following table sets forth the Banks capital position at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
To Be Well
Capitalized Under
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
% of
Assets
|
|
|
Required
Amount
|
|
|
% of
Assets
|
|
|
Required
Amount
|
|
|
% of
Assets
|
|
|
|
(Unaudited)
(dollars in thousands)
|
|
Tier 1 leverage ratio (1)
|
|
$
|
67,345
|
|
|
|
11.03
|
%
|
|
$
|
24,421
|
|
|
|
4.00
|
%
|
|
$
|
30,526
|
|
|
|
5.00
|
%
|
Tier 1 risk based capital ratio (2)
|
|
|
67,345
|
|
|
|
18.06
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
22,368
|
|
|
|
6.00
|
|
Total risk based capital ratio (2)
|
|
|
70,771
|
|
|
|
18.98
|
|
|
|
29,824
|
|
|
|
8.00
|
|
|
|
37,280
|
|
|
|
10.00
|
|
(1)
|
To average total assets
|
(2)
|
To risk-weighted assets
|
The following table sets forth BCSB Bancorp Inc.s capital position at
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
To Be Well
Capitalized Under
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
% of
Assets
|
|
|
Required
Amount
|
|
|
% of
Assets
|
|
|
Required
Amount
|
|
|
% of
Assets
|
|
|
|
(Unaudited)
(dollars in thousands)
|
|
Tier 1 leverage ratio (1)
|
|
$
|
54,359
|
|
|
|
8.94
|
%
|
|
$
|
24,321
|
|
|
|
4.00
|
%
|
|
$
|
30,402
|
|
|
|
5.00
|
%
|
Tier 1 risk based capital ratio (2)
|
|
|
54,359
|
|
|
|
14.52
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
22,458
|
|
|
|
6.00
|
|
Total risk based capital ratio (2)
|
|
|
57,785
|
|
|
|
15.44
|
|
|
|
29,944
|
|
|
|
8.00
|
|
|
|
37,430
|
|
|
|
10.00
|
|
(1)
|
To average total assets
|
(2)
|
To risk-weighted assets
|
33
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 11
Stock Option Plans
The 1999 Plan
On July 15, 1999, the Company established a Stock Option Plan (the 1999 Plan) whereby 120,366 shares of common stock were
reserved for issuance under the 1999 Plan. Options granted under the 1999 Plan may be Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code of 1986 as amended or Non-Qualified Stock Options. Options are
exercisable in four or five annual installments at the market price of common stock at the date of grant. The Options must be exercised within ten years from the date of grant. There were 42,119 options granted during the year ended
September 30, 1999, 43,428 options granted during the year ended September 30, 2002, 15,792 options granted during the year ended September 30, 2007, 22,193 options granted during the year ended September 30, 2008 and, 11,796
options granted during the year ended September 30, 2009. No options were granted during the years ended September 30, 2003 through 2006,or, during the years ended September 30, 2011 through September 30, 2013. Also, there were
no options granted during the three months ended December 31, 2013. Unexercised options granted during the years ended September 30, 1999 and September 30, 2002 have expired.
The 2009 Plan
At the
annual shareholders meeting held in May 2009 the Company approved an additional Stock Option Plan (the 2009 Plan) whereby 191,740 shares of common stock were reserved for issuance under the 2009 Plan. Options granted under the 2009 Plan
may be Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code of 1986 as amended or Non-Qualified Stock Options. Options are exercisable in four annual installments at the market price of common stock at the date
of grant. The Options must be exercised within ten years from the date of grant. There were no options granted during the years ended September 30, 2009 or 2010. There were 177,930 options granted during the year ended September 30, 2011.
There were 15,052 options granted during the year ended September 30, 2012. There were no options granted during the year ended September 30, 2013 or the three months ended December 31, 2013.
The following table summarizes the shares under the Companys outstanding stock options at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Price
|
|
|
Weighted Average
Contractual Life
(Years)
|
|
|
10,528
|
|
|
$
|
28.41
|
|
|
|
3.0
|
|
|
12,055
|
|
|
|
11.61
|
|
|
|
4.0
|
|
|
4,825
|
|
|
|
8.25
|
|
|
|
5.5
|
|
|
108,174
|
|
|
|
10.29
|
|
|
|
6.8
|
|
|
15,052
|
|
|
|
13.74
|
|
|
|
8.2
|
|
The total exercisable shares of 95,264 have a weighted average contractual life of 5.7 years, and an aggregate intrinsic value
of $1.3 million as of December 31, 2013.
34
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 11
Stock Option Planscontinued
The following table presents the activity related to options under all plans for the three months ended
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at September 30, 2013
|
|
|
239,875
|
|
|
$
|
11.50
|
|
Options exercised
|
|
|
(89,241
|
)
|
|
|
(10.75
|
)
|
Options Expired
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
150,634
|
|
|
$
|
11.94
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2013
|
|
|
95,264
|
|
|
$
|
12.49
|
|
|
|
|
|
|
|
|
|
|
During the three months ended December 31, 2013 and December 31, 2012 there were no stock options granted. Option
expense recognized during the three month periods ended December 31, 2013 and December 31, 2012 was $43,018 and $57,252, respectively. As of December 31, 2013, $143,844 of total unrecognized pretax expense related to stock options is
expected to be recognized from January 1, 2014 through March 31, 2022.
35
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 12
Recent Accounting Pronouncements
In January 2014, the Financial Accounting Standards Board issued ASU No. 2014-04,
Receivables Troubled Debt Restructurings by
Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure
. The amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to
have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the
borrower conveying all interest in the residential real estate to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual
disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure
according to local requirements of the applicable jurisdiction. ASU 2014-04 is effective for interim and annual periods beginning after December 15, 2014. Adoption of ASU 2014-04 is not expected to have a significant impact on the Companys
financial statements.
Note 13
Guarantees
The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.
Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk
involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company has
$424,000 of standby letters of credit as of December 31, 2013. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future
payment required under the corresponding guarantees. The current amount of the liability as of December 31, 2013 for guarantees under standby letters of credit issued is not considered to be material.
36
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 14
Fair Value Measurements
The Company applies guidance issued by FASB regarding fair value measurements which provided a framework for measuring and disclosing fair
value under generally accepted accounting principles. This guidance applies only to fair value measurements required or permitted under current accounting pronouncements, but does not require any new fair value measurements. Fair value is defined as
t
he price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. The statement also expands disclosures about financial instruments that are measured at fair value
and eliminates the use of large position discounts for financial instruments quoted in active markets. The disclosures emphasis is on the inputs used to measure fair value and the effect on the measurement on earnings for the period. The
adoption of this guidance did not have any effect on the Companys financial position or results of operations.
GAAP establishes a three-level
valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based on the inputs used to value the particular asset or liability at the measurement date. The three levels are defined as follows:
|
|
|
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices of identical or similar assets or liabilities in markets that are not active,
and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
Each financial instruments level assignment with the valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement for the particular category. Management reviews and updates the fair value hierarchy classifications of the Companys assets and liabilities on a quarterly basis.
There were no transfers between levels during the three months ended December 31, 2013. The Companys policy is to recognize transfers in and
transfers out at the actual date of the event or change in the circumstances that caused the transfer. The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification
of each instrument under the valuation hierarchy.
37
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 14
Fair Value Measurementscontinued
Fair values of investment securities are estimated by using pricing models, quoted prices of securities with
similar characteristics, or discounted cash flows and are generally classified within Level 2 of the valuation hierarchy.
The following tables present
the financial instruments measured at fair value by class on the recurring basis as of December 31, 2013 and September 30, 2013 on the Consolidated Statement of Financial Condition utilizing the hierarchy discussed above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2013
|
|
|
Total changes
In fair values
Included
in
Period
|
|
($ in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Earnings
|
|
Loans available for sale
|
|
$
|
324
|
|
|
$
|
|
|
|
$
|
324
|
|
|
$
|
|
|
|
$
|
|
|
Equity Investments
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
Corporate Bonds available for sale
|
|
|
4,800
|
|
|
|
|
|
|
|
4,800
|
|
|
|
|
|
|
|
|
|
GNMA certificates available for sale
|
|
|
3,321
|
|
|
|
|
|
|
|
3,321
|
|
|
|
|
|
|
|
|
|
FNMA certificates available for sale
|
|
|
21,029
|
|
|
|
|
|
|
|
21,029
|
|
|
|
|
|
|
|
|
|
FHLMC certificates available for sale
|
|
|
7,861
|
|
|
|
|
|
|
|
7,861
|
|
|
|
|
|
|
|
|
|
Private label collateralized mortgage obligations available for sale
|
|
|
4,603
|
|
|
|
|
|
|
|
4,603
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations available for sale
|
|
|
175,564
|
|
|
|
|
|
|
|
175,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
217,602
|
|
|
$
|
|
|
|
$
|
217,502
|
|
|
$
|
100
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 14
Fair Value Measurementscontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2013
|
|
|
Total changes
In fair values
Included
in
Period
|
|
($ in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Earnings
|
|
Loans available for sale
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Equity Investments
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
Corporate Bonds available for sale
|
|
|
4,654
|
|
|
|
|
|
|
|
4,654
|
|
|
|
|
|
|
|
|
|
GNMA certificates available for sale
|
|
|
3,384
|
|
|
|
|
|
|
|
3,384
|
|
|
|
|
|
|
|
|
|
FNMA certificates available for sale
|
|
|
22,040
|
|
|
|
|
|
|
|
22,040
|
|
|
|
|
|
|
|
|
|
FHLMC certificates available for sale
|
|
|
8,187
|
|
|
|
|
|
|
|
8,187
|
|
|
|
|
|
|
|
|
|
Private label collateralized mortgage obligations available for sale
|
|
|
4,614
|
|
|
|
|
|
|
|
4,614
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations available for sale
|
|
|
181,825
|
|
|
|
|
|
|
|
181,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
224,804
|
|
|
$
|
|
|
|
$
|
224,704
|
|
|
$
|
100
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring fair value changes
Certain assets and liabilities are measured at fair value on a nonrecurring basis. These instruments are not measured at fair value on an ongoing basis, but
are subject to fair value in certain circumstances, such as when there is evidence of impairment that may require write-downs. The write-downs for the Companys more significant assets or liabilities measured on a non-recurring basis are based
on the lower of amortized cost or estimated fair value.
Impaired Loans
The Company considers loans to be impaired when it becomes probable that the Company will be unable to collect all amounts due in accordance with the
contractual terms of the loan agreement. All non-accrual loans are considered impaired. The measurement of impaired loans is based on the present value of the expected cash flows discounted at the historical effective interest rate, the market price
of the loan, or the fair value of the underlying collateral asset.
39
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 14
Fair Value Measurementscontinued
Foreclosed Real Estate and Repossessed Assets
Once a loan is determined to be uncollectible, the underlying collateral is repossessed and reclassified to Foreclosed Real Estate. These assets are carried at
lower of cost or fair value of the collateral, less estimated costs to sell. There was $2.8 million in foreclosed real estate at December 31, 2013.
Impaired loans, Foreclosed Real Estate and Repossessed Assets are classified as Level 3 within the valuation hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2013
|
|
($ in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Impaired Residential Loans
|
|
$
|
1,766
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,766
|
|
Impaired Residential Rental Loans
|
|
|
11,040
|
|
|
|
|
|
|
|
|
|
|
|
11,040
|
|
Impaired Commercial and Lease Loans
|
|
|
5,861
|
|
|
|
|
|
|
|
|
|
|
|
5,861
|
|
Impaired Construction Loans
|
|
|
2,994
|
|
|
|
|
|
|
|
|
|
|
|
2,994
|
|
Impaired Home Equity Loans
|
|
|
680
|
|
|
|
|
|
|
|
|
|
|
|
680
|
|
Impaired Other Loans
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Foreclosed Real Estate
|
|
|
2,783
|
|
|
|
|
|
|
|
|
|
|
|
2,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,159
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2013
|
|
($ in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Impaired Residential Loans
|
|
$
|
1,454
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,454
|
|
Impaired Residential Rental Loans
|
|
|
6,362
|
|
|
|
|
|
|
|
|
|
|
|
6,362
|
|
Impaired Commercial and Lease Loans
|
|
|
8,381
|
|
|
|
|
|
|
|
|
|
|
|
8,381
|
|
Impaired Construction Loans
|
|
|
2,360
|
|
|
|
|
|
|
|
|
|
|
|
2,360
|
|
Impaired Home Equity Loans
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
Premises and equipment held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed Real Estate
|
|
|
2,861
|
|
|
|
|
|
|
|
|
|
|
|
2,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,683
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 15
Disclosures About Fair Value of Financial Instruments
The estimated fair values of the Banks financial instruments are summarized below. The fair values of a significant portion of these
financial instruments are estimates derived using present value techniques prescribed by the FASB and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market conditions at
a specific point in time and may not reflect current or future fair values.
The carrying amount is a reasonable estimate of fair value for cash, federal
funds and interest-bearing deposits in other banks. Fair value is based on bid prices and pricing models received from third party pricing services for investment securities and mortgage backed securities. The carrying amount of Federal Home Loan
Bank of Atlanta and Federal Reserve Bank stock is a reasonable estimate of fair value. Loans receivable were discounted using a single discount rate, comparing the current rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. The fair value of Bank owned life insurance is based upon its current cash surrender value. The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand
at the reporting date. The Junior Subordinated Debentures are considered to be at fair value. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered on deposits of similar remaining maturities. The
fair value of Federal Home Loan Bank advances is estimated using rates currently offered on advances of similar remaining maturities. The carrying amounts of accrued interest receivable, accrued interest payable, and mortgage servicing rights
approximate fair value. Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the
counterparties credit standing.
The Company charges fees for commitments to extend credit. Interest rates on loans for which these commitments are
extended are normally committed for periods of less than one month. Fees charged on standby letters of credit and other financial guarantees are deemed to be immaterial and these guarantees are expected to be settled at face amount or expire unused.
It is impractical to assign any fair value to these commitments.
41
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 15
Disclosures About Fair Value of Financial InstrumentsContinued
The estimated fair values of the Banks financial instruments are as follows as of December 31,
2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
Fair Value Measurement
|
|
(dollars in thousands)
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets or
Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,794
|
|
|
$
|
8,794
|
|
|
$
|
8,794
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing deposits in other banks
|
|
|
11,545
|
|
|
|
11,545
|
|
|
|
11,545
|
|
|
|
|
|
|
|
|
|
Federal Funds sold
|
|
|
4,227
|
|
|
|
4,227
|
|
|
|
4,227
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
4,900
|
|
|
|
4,900
|
|
|
|
|
|
|
|
4,900
|
|
|
|
|
|
Loans available for sale
|
|
|
324
|
|
|
|
324
|
|
|
|
|
|
|
|
324
|
|
|
|
|
|
Loan Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans
|
|
|
318,903
|
|
|
|
332,543
|
|
|
|
|
|
|
|
|
|
|
|
332,543
|
|
Share Loans
|
|
|
413
|
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
413
|
|
Consumer Loans
|
|
|
999
|
|
|
|
999
|
|
|
|
|
|
|
|
|
|
|
|
999
|
|
Mortgage-backed securities-available for sale
|
|
|
212,378
|
|
|
|
212,378
|
|
|
|
|
|
|
|
212,378
|
|
|
|
|
|
Federal Home Loan Bank of Atlanta Stock
|
|
|
771
|
|
|
|
771
|
|
|
|
771
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock
|
|
|
1,394
|
|
|
|
1,394
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
Bank owned life insurance
|
|
|
17,637
|
|
|
|
17,637
|
|
|
|
17,637
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
1,618
|
|
|
|
1,618
|
|
|
|
|
|
|
|
1,618
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
34
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
531,563
|
|
|
$
|
529,073
|
|
|
|
|
|
|
|
529,073
|
|
|
|
|
|
Junior Subordinated Debt
|
|
|
17,011
|
|
|
|
17,011
|
|
|
|
|
|
|
|
17,011
|
|
|
|
|
|
Accrued interest payable
|
|
|
133
|
|
|
|
133
|
|
|
|
|
|
|
|
133
|
|
|
|
|
|
42
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 15
Disclosures About Fair Value of Financial InstrumentsContinued
The estimated fair values of the Banks financial instruments are as follows as of September 30,
2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
Fair Value Measurement
|
|
(dollars in thousands)
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,073
|
|
|
$
|
8,073
|
|
|
$
|
8,073
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing deposits in other banks
|
|
|
11,534
|
|
|
|
11,534
|
|
|
|
11,534
|
|
|
|
|
|
|
|
|
|
Federal Funds sold
|
|
|
6,847
|
|
|
|
6,847
|
|
|
|
6,847
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
4,754
|
|
|
|
4,754
|
|
|
|
|
|
|
|
4,654
|
|
|
|
100
|
|
Loans available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans
|
|
|
322,508
|
|
|
|
338,046
|
|
|
|
|
|
|
|
|
|
|
|
338,046
|
|
Share Loans
|
|
|
439
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
|
439
|
|
Consumer Loans
|
|
|
1,189
|
|
|
|
1,189
|
|
|
|
|
|
|
|
|
|
|
|
1,189
|
|
Mortgage-backed securities-available for sale
|
|
|
220,050
|
|
|
|
220,050
|
|
|
|
|
|
|
|
220,050
|
|
|
|
|
|
Federal Home Loan Bank of Atlanta Stock
|
|
|
771
|
|
|
|
771
|
|
|
|
771
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock
|
|
|
1,394
|
|
|
|
1,394
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
Bank owned life insurance
|
|
|
17,473
|
|
|
|
17,473
|
|
|
|
17,473
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
|
|
|
|
1,700
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
543,769
|
|
|
$
|
541,527
|
|
|
|
|
|
|
$
|
541,527
|
|
|
|
|
|
Junior Subordinated Debt
|
|
|
17,011
|
|
|
|
17,011
|
|
|
|
|
|
|
|
17,011
|
|
|
|
|
|
Accrued interest payable
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
43
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 16
Changes in Accumulated Other Comprehensive Income (Loss) by Component.
The following table presents each component of accumulated other comprehensive income (loss), net of tax, for the three months ended
December 31, 2013 and the twelve months ended September 30, 2013:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net Unrealized
Gains
and Losses on
Investment
Securities
|
|
|
Total
|
|
October 1, 2013
|
|
$
|
(4,686
|
)
|
|
$
|
(4,686
|
)
|
Other Comprehensive Income Before Reclassifications
|
|
|
11
|
|
|
|
11
|
|
Amounts Reclassified from Accumulated Other Comprehensive Income net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Current-Period Other Comprehensive Income
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
$
|
(4,675
|
)
|
|
$
|
(4,675
|
)
|
|
|
|
|
|
|
|
|
|
1
|
Amounts in parenthesis indicate debits
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net Unrealized
Gains
and Losses on
Investment
Securities
|
|
|
Total
|
|
October 1, 2012
|
|
$
|
1,511
|
|
|
$
|
1,511
|
|
Other Comprehensive Loss Before Reclassifications
|
|
|
(6,155
|
)
|
|
|
(6,155
|
)
|
Amounts Reclassified from Accumulated Other Comprehensive Income net of tax $(27)
|
|
|
(42
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
Net Current-Period Other Comprehensive Loss
|
|
|
(6,197
|
)
|
|
|
(6,197
|
)
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
$
|
(4,686
|
)
|
|
$
|
(4,686
|
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BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 17
Merger
On June 13, 2013, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with F.N.B.
Corporation (FNB), the parent company of First National Bank of Pennsylvania (FNB Bank). Pursuant to the Merger Agreement, the Company will merge with and into FNB (the Merger). Promptly following consummation of
the Merger, it is expected that Baltimore County Savings Bank will merge with and into FNB Bank. In the Merger, shareholders of the Company will receive 2.080 shares (the Exchange Ratio) of FNB common stock for each common share of the
Company they own. Outstanding Company stock options and share awards relating to Company common shares will be converted into options and share awards relating to shares of FNB common stock upon consummation of the Merger, subject to adjustments
based on the Exchange Ratio. Consummation of the Merger is subject to certain conditions, including, among others, approval of the Merger by the Companys shareholders, the receipt of all required governmental filings and regulatory approvals
and expiration of applicable waiting periods, accuracy of specified representations and warranties of each party, the performance in all material respects by each party of its obligations under the Merger Agreement, effectiveness of the registration
statement to be filed by FNB with the SEC to register shares of FNB common stock to be offered to Company shareholders, receipt of tax opinions, and the absence of any injunctions or other legal restraints. Currently, the Merger is expected to have
an effective closing date of February 15, 2014..
F.N.B. and BCSB Bancorp recently became aware that on December 9, 2013, a purported
stockholder of BCSB Bancorp filed a putative class action and derivative complaint in the Circuit Court for Baltimore County, Maryland, captioned
Darr v. BCSB Bancorp, Inc., et al.
, at Case No. 03-C-13-014034, and naming as defendants
BCSB Bancorp, its board of directors and F.N.B. The lawsuit makes various allegations against the defendants relating to F.N.B.s proposed acquisition of BCSB Bancorp, including that the Registration Statement on Form S-4 filed on
November 19, 2013 in connection with the proposed acquisition omits certain information allegedly necessary for BCSB Bancorps shareholders to make an informed vote on the proposed transaction, that the director defendants breached their
fiduciary duties to BCSB Bancorp in approving the proposed transaction and that F.N.B. aided and betted those alleged breaches. On January 30, 2014, the plaintiff voluntarily dismissed the complaint.
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