(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include the accounts of NASB Financial, Inc.
(the Company), its wholly-owned subsidiary, North American Savings Bank, F.S.B. (North American or the Bank), and the Banks wholly-owned subsidiary, Nor-Am Service Corporation. All significant inter-company
transactions have been eliminated in consolidation. The consolidated financial statements do not include the accounts of our wholly-owned statutory trust, NASB Preferred Trust I (the Trust). The Trust qualifies as a special purpose
entity that is not required to be consolidated in the financial statements of NASB Financial, Inc. The Trust Preferred Securities issued by the Trust are included in Tier I capital for regulatory capital purposes. See Footnote 10, Subordinated
Debentures.
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with
instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. All adjustments are of a
normal and recurring nature, and, in the opinion of management, the statements include all adjustments considered necessary for fair presentation. These statements should be read in conjunction with the consolidated financial statements and notes
thereto included in the Companys Annual Report on Form 10-K for the year ended September 30, 2013, filed with the Securities and Exchange Commission on December 16, 2013. Operating results for the nine month period ended
June 30, 2014, are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2014. The condensed consolidated balance sheet of the Company as of September 30, 2013, has been derived from
the audited balance sheet of the Company as of that date.
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Material estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the allowances for losses on loans, valuation of foreclosed assets held for sale, accruals for loan recourse provisions, and fair values of financial instruments, among other items. Management believes that
these estimates are adequate; however, future additions to the allowance or changes in the estimates may be necessary based on changes in economic conditions.
The Companys critical accounting policies involving the more significant judgments and assumptions used in the preparation of the condensed consolidated financial statements as of June 30,
2014, have remained unchanged from September 30, 2013. These policies relate to the allowance for loan losses, the valuation of foreclosed assets held for sale, the valuation of derivative instruments, and the valuation of equity method
investments.
Certain quarterly amounts for previous periods have been reclassified to conform to the current quarters
presentation.
(2) RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU)
No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting reclassification out of accumulated other comprehensive income. The new
standard is effective for fiscal years beginning after December 15, 2012, including interim periods within those years. The amendments should be prospectively applied. The amendments do not change the current requirement for reporting net
income or other comprehensive income. The amendments require an organization to present on the face of the financial statements, or in the footnotes, the effects on the line items of net income of significant amounts reclassified out of accumulated
other comprehensive income if the item reclassified is required to be reclassified to net income in its entirety in the same reporting period. Additionally, for other amounts that are not required to be reclassified in their entirety to net income
in the same reporting period, an entity is required to cross-reference other disclosures required to provide additional detail about those amounts. The adoption of this standard during the quarter ended December 31, 2013, did not have a
material impact on the Companys consolidated financial statements.
In January 2014, the Financial Accounting Standards
Board issued Accounting Standards Update No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. ASU No. 2014-04 clarifies when an in substance repossession or foreclosure occurs,
that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property
recognized. For public companies, this standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Management does not believe that the adoption of this standard will have a
material impact on the Companys consolidated financial statements.
7
(3) RECONCILIATION OF BASIC EARNINGS PER SHARE TO DILUTED EARNINGS PER SHARE
The following table presents a reconciliation of basic earnings per share to diluted earnings per share for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
6/30/14
|
|
|
6/30/13
|
|
|
6/30/14
|
|
|
6/30/13
|
|
Net income (in thousands)
|
|
$
|
4,588
|
|
|
|
1,775
|
|
|
|
12,768
|
|
|
|
21,110
|
|
Average common shares outstanding
|
|
|
7,867,614
|
|
|
|
7,867,614
|
|
|
|
7,867,614
|
|
|
|
7,867,614
|
|
Average common share stock options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average diluted common shares
|
|
|
7,867,614
|
|
|
|
7,867,614
|
|
|
|
7,867,614
|
|
|
|
7,867,614
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.58
|
|
|
|
0.23
|
|
|
|
1.62
|
|
|
|
2.68
|
|
Diluted
|
|
|
0.58
|
|
|
|
0.23
|
|
|
|
1.62
|
|
|
|
2.68
|
|
At June 30, 2014 and 2013, options to purchase 35,138 and 41,138 shares of the Companys stock
were outstanding, respectively. These options were not included in the calculation of diluted earnings per share because the option exercise price was greater than the average market price of the common shares for the period, thus making the options
anti-dilutive.
(4) SECURITIES AVAILABLE FOR SALE
The following table presents a summary of securities available for sale at June 30, 2014. Dollar amounts are
expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
Corporate debt securities
|
|
$
|
76,151
|
|
|
|
2,803
|
|
|
|
|
|
|
|
78,954
|
|
U.S. government sponsored agency securities
|
|
|
161,014
|
|
|
|
820
|
|
|
|
1,314
|
|
|
|
160,520
|
|
Municipal securities
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
237,587
|
|
|
|
3,623
|
|
|
|
1,314
|
|
|
|
239,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of securities available for sale at September 30, 2013.
Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
Fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
Value
|
|
Corporate debt securities
|
|
$
|
67,320
|
|
|
|
2,482
|
|
|
|
692
|
|
|
|
69,110
|
|
U.S. government sponsored agency securities
|
|
|
187,087
|
|
|
|
322
|
|
|
|
4,245
|
|
|
|
183,164
|
|
Municipal securities
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
254,829
|
|
|
|
2,804
|
|
|
|
4,937
|
|
|
|
252,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
During the nine month period ended June 30, 2014 the Company recognized gross gains of
$544,000 and no gross losses on the sale of securities available for sale. There were no sales of securities available for sale during the nine month period ended June 30, 2013.
The following table presents a summary of the fair value and gross unrealized losses of those securities available for sale which had
unrealized losses at June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
fair
|
|
|
unrealized
|
|
|
fair
|
|
|
Unrealized
|
|
|
|
value
|
|
|
losses
|
|
|
value
|
|
|
Losses
|
|
U.S. government sponsored agency securities
|
|
$
|
|
|
|
|
|
|
|
$
|
59,186
|
|
|
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
|
|
|
$
|
59,186
|
|
|
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management monitors the securities portfolio for impairment on an ongoing basis by evaluating market
conditions and other relevant information, including external credit ratings, to determine whether or not a decline in value is other-than-temporary. When the fair value of a security is less than its amortized cost, an other-than-temporary
impairment is considered to have occurred if the present value of expected cash flows is not sufficient to recover the entire amortized cost, or if the Company intends to, or will be required to, sell the security prior to the recovery of its
amortized cost. The unrealized losses at June 30, 2014, are primarily the result of changes in market yields from the time of purchase. Management generally views changes in fair value caused by changes in interest rates as temporary. In
addition, all scheduled payments for securities with unrealized losses at June 30, 2014, have been made, and it is anticipated that the Company will hold such securities to maturity and that the entire principal balance will be collected.
The scheduled maturities of securities available for sale at June 30, 2014 are presented in the following table. Dollar
amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair
value
|
|
Due in less than one year
|
|
$
|
30,035
|
|
|
|
80
|
|
|
|
|
|
|
|
30,115
|
|
Due from one to five years
|
|
|
88,902
|
|
|
|
2,826
|
|
|
|
|
|
|
|
91,728
|
|
Due from five to ten years
|
|
|
58,150
|
|
|
|
717
|
|
|
|
|
|
|
|
58,867
|
|
Due after ten years
|
|
|
60,500
|
|
|
|
|
|
|
|
1,314
|
|
|
|
59,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
237,587
|
|
|
|
3,623
|
|
|
|
1,314
|
|
|
|
239,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) SECURITIES HELD TO MATURITY
The following table presents a summary of securities held to maturity at June 30, 2014. Dollar amounts are
expressed in thousands. The Bank did not have any securities classified as held to maturity at September 30, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
Corporate debt securities
|
|
$
|
36,013
|
|
|
|
348
|
|
|
|
45
|
|
|
|
36,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,013
|
|
|
|
348
|
|
|
|
45
|
|
|
|
36,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of securities held to maturity during the nine month period ended June 30, 2014
and 2013.
9
The following table presents a summary of the fair value and gross unrealized losses of
those securities held to maturity which had unrealized losses at June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
fair
|
|
|
unrealized
|
|
|
fair
|
|
|
Unrealized
|
|
|
|
value
|
|
|
losses
|
|
|
value
|
|
|
Losses
|
|
Corporate debt securities
|
|
$
|
9,647
|
|
|
|
45
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,647
|
|
|
|
45
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management monitors the securities portfolio for impairment on an ongoing basis by evaluating market
conditions and other relevant information, including external credit ratings, to determine whether or not a decline in value is other-than-temporary. When the fair value of a security is less than its amortized cost, an other-than-temporary
impairment is considered to have occurred if the present value of expected cash flows is not sufficient to recover the entire amortized cost, or if the Company intends to, or will be required to, sell the security prior to the recovery of its
amortized cost. The unrealized losses at June 30, 2014, are primarily the result of changes in market yields from the time of purchase. Management generally views changes in fair value caused by changes in interest rates as temporary. In
addition, all scheduled payments for securities with unrealized losses at June 30, 2014, have been made, and it is anticipated that the Company will hold such securities to maturity and that the entire principal balance will be collected.
The scheduled maturities of securities held to maturity at June 30, 2014 are presented in the following table. Dollar
amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair
value
|
|
Due from one to five years
|
|
$
|
4,995
|
|
|
|
15
|
|
|
|
|
|
|
|
5,010
|
|
Due from five to ten years
|
|
|
31,018
|
|
|
|
333
|
|
|
|
45
|
|
|
|
31,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,013
|
|
|
|
348
|
|
|
|
45
|
|
|
|
36,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
The following table presents a summary of mortgage-backed securities available for sale at June 30, 2014. Dollar
amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
Pass-through certificates guaranteed by GNMA fixed rate
|
|
$
|
61
|
|
|
|
2
|
|
|
|
|
|
|
|
63
|
|
Pass-through certificates guaranteed by FNMA adjustable rate
|
|
|
105
|
|
|
|
6
|
|
|
|
|
|
|
|
111
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
71
|
|
|
|
3
|
|
|
|
|
|
|
|
74
|
|
Adjustable rate
|
|
|
89
|
|
|
|
5
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
326
|
|
|
|
16
|
|
|
|
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
The following table presents a summary of mortgage-backed securities available for sale at
September 30, 2013. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
Pass-through certificates guaranteed by GNMA fixed rate
|
|
$
|
68
|
|
|
|
2
|
|
|
|
|
|
|
|
70
|
|
Pass-through certificates guaranteed by FNMA adjustable rate
|
|
|
119
|
|
|
|
7
|
|
|
|
|
|
|
|
126
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
122
|
|
|
|
5
|
|
|
|
|
|
|
|
127
|
|
Adjustable rate
|
|
|
105
|
|
|
|
5
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
414
|
|
|
|
19
|
|
|
|
|
|
|
|
433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the quarter ended December 31, 2013, the Bank transferred one collateralized mortgage
obligation security with an amortized cost of $4.4 million and an unrealized gain of $79,000 from held to maturity to available for sale. The security was transferred after it was determined that it was not an allowable investment under provisions
of the Volcker Rule. Management determined that it did not have the ability to hold the security to maturity, as the Volcker Rule requires banks to bring their activities into compliance on or before July 21, 2015. This security was sold during
the quarter ended March 31, 2014, and the Company recognized a gain of $72,000. There were no other sales of securities available for sale during the nine month period ended June 30, 2014 and 2013.
The scheduled maturities of mortgage-backed securities available for sale at June 30, 2014 are presented in the following table.
Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair
value
|
|
Due from one to five years
|
|
$
|
71
|
|
|
|
3
|
|
|
|
|
|
|
|
74
|
|
Due after ten years
|
|
|
255
|
|
|
|
13
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
326
|
|
|
|
16
|
|
|
|
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities and pay-downs of mortgage-backed securities available for sale will differ from
scheduled maturities depending on the repayment characteristics and experience of the underlying financial instruments, on which borrowers have the right to prepay certain obligations.
(7) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The following table presents a summary of mortgage-backed securities held to maturity at June 30, 2014. Dollar
amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
FNMA pass-through certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balloon maturity and adjustable rate
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Collateralized mortgage obligations
|
|
|
37,286
|
|
|
|
704
|
|
|
|
8
|
|
|
|
37,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,311
|
|
|
|
704
|
|
|
|
8
|
|
|
|
38,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
The following table presents a summary of mortgage-backed securities held to maturity at
September 30, 2013. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
30
|
|
|
|
2
|
|
|
|
|
|
|
|
32
|
|
FNMA pass-through certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Balloon maturity and adjustable rate
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Collateralized mortgage obligations
|
|
|
43,029
|
|
|
|
94
|
|
|
|
27
|
|
|
|
43,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43,074
|
|
|
|
96
|
|
|
|
27
|
|
|
|
43,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine month period ended June 30, 2014, the Bank recognized a loss of $10,000 on the sale
of one mortgage backed security which was classified as held to maturity. This security had an amortized cost of $518,000 at the time of sale. During the nine month period ended June 30, 2013, the Bank recognized a gain of $295,000 and a loss
of $38,000 on the sale of two mortgage backed securities which were classified as held to maturity. The securities had a combined amortized cost of $10.5 million at the time of sale. The decision was made to sell these securities after it was
determined that there was a significant deterioration in the issuers creditworthiness.
The following table presents a
summary of the fair value and gross unrealized losses of those mortgage-backed securities held to maturity which had unrealized losses at June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
fair
|
|
|
unrealized
|
|
|
Fair
|
|
|
unrealized
|
|
|
|
value
|
|
|
losses
|
|
|
Value
|
|
|
losses
|
|
Collateralized mortgage obligations
|
|
$
|
|
|
|
|
|
|
|
$
|
2,058
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
|
|
|
$
|
2,058
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management monitors the securities portfolio for impairment on an ongoing basis by evaluating market
conditions and other relevant information, including external credit ratings, to determine whether or not a decline in value is other-than-temporary. When the fair value of a security is less than its amortized cost, an other-than-temporary
impairment is considered to have occurred if the present value of expected cash flows is not sufficient to recover the entire amortized cost, or if the Company intends to, or will be required to, sell the security prior to the recovery of its
amortized cost. The unrealized losses at June 30, 2014, are primarily the result of changes in market yields from the time of purchase. Management generally views changes in fair value caused by changes in interest rates as temporary. In
addition, all scheduled payments for securities with unrealized losses at June 30, 2014, have been made, and it is anticipated that the Company will hold such securities to maturity and that the entire principal balance will be collected.
The scheduled maturities of mortgage-backed securities held to maturity at June 30, 2014, are presented in the following
table. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair
value
|
|
Due from one to five years
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Due after ten years
|
|
|
37,286
|
|
|
|
704
|
|
|
|
8
|
|
|
|
37,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,311
|
|
|
|
704
|
|
|
|
8
|
|
|
|
38,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Actual maturities and pay-downs of mortgage-backed securities held to maturity will differ
from scheduled maturities depending on the repayment characteristics and experience of the underlying financial instruments, on which borrowers have the right to prepay certain obligations.
(8) LOANS RECEIVABLE
The Bank has traditionally concentrated its lending activities on mortgage loans secured by residential and business
property and, to a lesser extent, development lending. Residential mortgage loans have either long-term fixed or adjustable rates. The Bank also has a portfolio of mortgage loans that are secured by multifamily, construction, development, and
commercial real estate properties. The remaining part of the Banks loan portfolio consists of non-mortgage commercial loans and installment loans.
The following table presents the Banks total loans receivable. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
6/30/14
|
|
|
9/30/13
|
|
HELD FOR INVESTMENT
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Permanent loans on:
|
|
|
|
|
|
|
|
|
Residential properties
|
|
$
|
377,520
|
|
|
|
365,248
|
|
Business properties
|
|
|
256,293
|
|
|
|
268,641
|
|
Partially guaranteed by VA or insured by FHA
|
|
|
15,932
|
|
|
|
7,694
|
|
Construction and development
|
|
|
143,696
|
|
|
|
91,451
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
793,441
|
|
|
|
733,034
|
|
Commercial loans
|
|
|
11,961
|
|
|
|
12,226
|
|
Installment loans and lease financing to individuals
|
|
|
5,629
|
|
|
|
5,599
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable held for investment
|
|
|
811,031
|
|
|
|
750,859
|
|
Less:
|
|
|
|
|
|
|
|
|
Undisbursed loan funds
|
|
|
(58,889
|
)
|
|
|
(30,749
|
)
|
Unearned discounts and fees on loans, net of deferred costs
|
|
|
(4,004
|
)
|
|
|
(4,397
|
)
|
|
|
|
|
|
|
|
|
|
Net loans receivable held for investment
|
|
$
|
748,138
|
|
|
|
715,713
|
|
|
|
|
|
|
|
|
|
|
HELD FOR SALE
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Permanent loans on:
|
|
|
|
|
|
|
|
|
Residential properties
|
|
$
|
78,204
|
|
|
|
69,079
|
|
|
|
|
|
|
|
|
|
|
Included in the loans receivable balances at June 30, 2014, are participating interests in mortgage
loans and wholly-owned mortgage loans serviced by other institutions in the amount of $711,000. Loans and participations serviced for others amounted to approximately $26.4 million at June 30, 2014. Loans serviced for others are not
included in the accompanying condensed consolidated balance sheets.
Lending Practices and Underwriting Standards
Residential real estate loansThe Bank offers a range of residential loan programs, including programs offering loans guaranteed by
the Veterans Administration (VA) and loans insured by the Federal Housing Administration (FHA). The Banks residential loans come from several sources. The loans that the Bank originates are generally a result of direct
solicitations of real estate brokers, builders, developers, or potential borrowers via the internet. North American periodically purchases real estate loans from other financial institutions or mortgage bankers.
The Banks residential real estate loan underwriters are grouped into three different levels, based upon each underwriters
experience and proficiency. Underwriters within each level are authorized to approve loans up to prescribed dollar amounts. Any loan over $1 million must also be approved by either the Board Chairman, CEO or EVP/Residential Lending. Conventional
residential real estate loans are underwritten using FNMAs Desktop Underwriter or FHLMCs Loan Prospector automated underwriting systems, which analyze credit history, employment and income information, qualifying ratios, asset reserves,
and loan-to-value ratios. If a loan does not meet the automated underwriting standards, it is underwritten manually. Full documentation to support each applicants credit history, income, and sufficient funds for
13
closing is required on all loans. An appraisal report, performed in conformity with the Uniform Standards of Professional Appraisers Practice by an approved outside licensed appraiser, is
required for substantially all loans. Typically, the Bank requires borrowers to purchase private mortgage insurance when the loan-to-value ratio exceeds 80%.
NASB originates Adjustable Rate Mortgages (ARMs), which fully amortize and typically have initial rates that are fixed for one to seven years before becoming adjustable. Such loans are
underwritten based on the initial interest rate and the borrowers ability to repay based on the maximum first adjustment rate. Each underwriting decision takes into account the type of loan and the borrowers ability to pay at higher
rates. While lifetime rate caps are taken into consideration, qualifying ratios may not be calculated at this level due to an extended number of years required to reach the fully-indexed rate.
At the time a potential borrower applies for a residential mortgage loan, it is designated as either a portfolio loan, which is held for
investment and carried at amortized cost, or a loan held-for-sale in the secondary market and carried at fair value. All the loans on single family property that the Bank holds for sale conform to secondary market underwriting criteria established
by various institutional investors. All loans originated, whether held for sale or held for investment, conform to internal underwriting guidelines, which consider, among other things, a propertys value and the borrowers ability to repay
the loan.
Construction and development loans - Construction and land development loans are made primarily to
builders/developers, who construct properties for resale. The Banks requirements for a construction loan are similar to those of a mortgage on an existing residence. In addition, the borrower must submit accurate plans, specifications, and
cost projections of the property to be constructed. All construction and development loans are manually underwritten using NASBs internal underwriting standards. All construction and development loans require two approvals, from either the
Board Chairman, CEO, or SVP/Construction Lending. Prior approval is required from the Banks Board of Directors for newly originated construction and development loans with a proposed balance of $2.5 million or greater. The bank has
adopted internal loan-to-value limits consistent with regulations, which are 65% for raw land, 75% for land development, and 85% for residential and non-residential construction. An appraisal report performed in conformity with the Uniform Standards
of Professional Appraisers Practice by an approved outside licensed appraiser is required on all loans in excess of $250,000. Generally, the Bank will commit to an initial term of 12 to 18 months on construction loans, and an initial term of 24 to
48 months on land acquisition and development loans, with six month renewals thereafter. Interest rates on construction loans typically adjust daily and are tied to a predetermined index. NASBs staff regularly performs inspections of each
property during its construction phase to help ensure adequate progress is achieved before making scheduled loan disbursements.
When construction and development loans mature, the Bank typically considers extensions for short, six-month term periods. This allows
the Bank to more frequently evaluate the loan, including creditworthiness and current market conditions and, if management believes it is in the best interest of the Company, to modify the terms accordingly. This portfolio consists primarily of
assets with rates tied to the prime rate and, in most cases, the conditions for loan renewal include an interest rate floor in accordance with the market conditions that exist at the time of renewal. Such extensions are accounted for as
Troubled Debt Restructurings (TDRs) if the restructuring was related to the borrowers financial difficulty, and if the Bank made concessions that it would not otherwise consider. In order to determine whether or not a renewal
should be accounted for as a TDR, management reviewed the borrowers current financial information, including an analysis of income and liquidity in relation to debt service requirements. During the nine month period ended June 30, 2014,
the Bank renewed fifty-three loans within its construction and development loan portfolio, ten of which were considered TDRs.
Commercial real estate loans - The Bank purchases and originates several different types of commercial real estate loans. Permanent
multifamily mortgage loans on properties of 5 to 36 dwelling units have a 50% risk-weight for risk-based capital requirements if they have an initial loan-to-value ratio of not more than 80% and if their annual average occupancy rate exceeds 80%.
All other performing commercial real estate loans have 100% risk-weights.
The Banks commercial real estate loans are
secured primarily by multi-family and nonresidential properties. Such loans are manually underwritten using NASBs internal underwriting standards, which evaluate the sources of repayment, including the ability of income producing property to
generate sufficient cash flow to service the debt, the capacity of the borrower or guarantors to cover any shortfalls in operating income, and, as a last resort, the ability to liquidate the collateral in such a manner as to completely protect the
Banks investment. All commercial real estate loans require two approvals, from either the Board Chairman, CEO, or EVP/Chief Lending Officer. Prior approval is required from the Banks Board of
14
Directors for newly originated commercial loans with a proposed balance of $2.5 million or greater. Typically, loan-to-value ratios do not exceed 80%; however, exceptions may be made when it
is determined that the safety of the loan is not compromised, and the rationale for exceeding this limit is clearly documented. An appraisal report performed in conformity with the Uniform Standards of Professional Appraisers Practice by an approved
outside licensed appraiser is required on all loans in excess of $250,000. Interest rates on commercial loans may be either fixed or tied to a predetermined index and adjusted daily.
The Bank typically obtains full personal guarantees from the primary individuals involved in the transaction. Guarantor financial
statements and tax returns are reviewed annually to determine their continuing ability to perform under such guarantees. The Bank typically pursues repayment from guarantors when the primary source of repayment is not sufficient to service the debt.
However, the Bank may decide not to pursue a guarantor if, given the guarantors financial condition, it is likely that the estimated legal fees would exceed the probable amount of any recovery. Although the Bank does not typically release
guarantors from their obligation, the Bank may decide to delay the decision to pursue civil enforcement of a deficiency judgment.
At least once during each calendar year, a review is prepared for each borrower relationship in excess of $1 million and for each individual loan over $1 million. Collateral inspections are
obtained on an annual basis for each loan over $1 million, and on a triennial basis for each loan between $500,000 and $1 million. Financial information, such as tax returns, is requested annually for all commercial real estate loans over
$500,000, which is consistent with industry practice, and the Bank believes it has sufficient monitoring procedures in place to identify potential problem loans. A loan is deemed impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement. Any loans deemed impaired, regardless of their balance, are reviewed by management at the time of the impairment
determination, and monitored on a quarterly basis thereafter, including calculation of specific valuation allowances, if applicable.
Installment Loans - These loans consist primarily of loans on savings accounts and consumer lines of credit that are secured by a customers equity in their primary residence.
Allowance for Loan Losses
The Allowance for Loan and Lease Losses (ALLL) recognizes the inherent risks associated with lending activities for individually identified problem assets as well as the entire homogenous and
non-homogenous loan portfolios. ALLLs are established by charges to the provision for loan losses and carried as contra assets. Management analyzes the adequacy of the allowance on a quarterly basis and appropriate provisions are made to maintain
the ALLLs at adequate levels. At any given time, the ALLL should be sufficient to absorb at least all estimated credit losses on outstanding balances over the next twelve months. While management uses information currently available to determine
these allowances, they can fluctuate based on changes in economic conditions and changes in the information available to management. Also, regulatory agencies review the Banks allowances for loan loss as part of their examination, and they may
require the Bank to recognize additional loss provisions, within their regulatory filings, based on the information available at the time of their examinations.
The ALLL is determined based upon two components. The first is made up of specific reserves for loans which have been deemed impaired in accordance with GAAP. The second component is made up of general
reserves for loans that are not impaired. A loan becomes impaired when management believes it will be unable to collect all principal and interest due according to the contractual terms of the loan. Once a loan has been deemed impaired, the
impairment must be measured by comparing the recorded investment in the loan to the present value of the estimated future cash flows discounted at the loans effective rate, or to the fair value of the loan based on the loans observable
market price, or to the fair value of the collateral if the loan is collateral dependent. Any measured impairments that are deemed confirmed losses are charged-off and netted from their respective loan balances. For impaired loans that
are collateral dependent, a confirmed loss is generally the amount by which the loans recorded investment exceeds the fair value of its collateral. If a loan is considered uncollectible, the entire balance is deemed a
confirmed loss and is fully charged-off.
Loans that are not impaired are evaluated based upon the Banks
historical loss experience, as well as various subjective factors, to estimate potential unidentified losses within the various loan portfolios. These loans are categorized into pools based upon certain characteristics such as loan type, collateral
type and repayment source. In addition to analyzing historical losses, the Bank also evaluates the following subjective factors for each loan pool to estimate future losses: changes in lending policies and procedures, changes in economic and
business conditions, changes in the nature and volume of the portfolio, changes in management and other relevant staff, changes in the volume and severity of past due loans,
15
changes in the quality of the Banks loan review system, changes in the value of the underlying collateral for collateral dependent loans, changes in the level of lending concentrations, and
changes in other external factors such as competition and legal and regulatory requirements. Historical loss ratios are adjusted accordingly, based upon the effect that the subjective factors have in estimated future losses. These adjusted ratios
are applied to the balances of the loan pools to determine the adequacy of the ALLL each quarter
The Bank does not routinely
obtain updated appraisals for their collateral dependent loans that are not adversely classified. However, when analyzing the adequacy of its allowance for loan losses, the Bank considers potential changes in the value of the underlying collateral
for such loans as one of the subjective factors used to estimate future losses in the various loan pools.
The following table
presents the balance in the allowance for loan losses for the three and nine month periods ended June 30, 2014 and 2013. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For
|
|
|
Real
|
|
|
Construction &
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Sale
|
|
|
Estate
|
|
|
Development
|
|
|
Commercial
|
|
|
Installment
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2014
|
|
$
|
6,407
|
|
|
|
|
|
|
|
3,193
|
|
|
|
3,883
|
|
|
|
10
|
|
|
|
178
|
|
|
|
13,671
|
|
Provision for loan losses
|
|
|
(72
|
)
|
|
|
|
|
|
|
426
|
|
|
|
(313
|
)
|
|
|
(4
|
)
|
|
|
(37
|
)
|
|
|
|
|
Losses charged off
|
|
|
(86
|
)
|
|
|
|
|
|
|
(538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(624
|
)
|
Recoveries
|
|
|
304
|
|
|
|
|
|
|
|
52
|
|
|
|
725
|
|
|
|
|
|
|
|
62
|
|
|
|
1,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014
|
|
$
|
6,553
|
|
|
|
|
|
|
|
3,133
|
|
|
|
4,295
|
|
|
|
6
|
|
|
|
203
|
|
|
|
14,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2013
|
|
$
|
7,380
|
|
|
|
|
|
|
|
7,253
|
|
|
|
5,627
|
|
|
|
60
|
|
|
|
406
|
|
|
|
20,726
|
|
Provision for loan losses
|
|
|
886
|
|
|
|
|
|
|
|
(315
|
)
|
|
|
(476
|
)
|
|
|
|
|
|
|
(95
|
)
|
|
|
|
|
Losses charged off
|
|
|
(203
|
)
|
|
|
|
|
|
|
(420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(623
|
)
|
Recoveries
|
|
|
307
|
|
|
|
|
|
|
|
174
|
|
|
|
21
|
|
|
|
|
|
|
|
45
|
|
|
|
547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
$
|
8,370
|
|
|
|
|
|
|
|
6,692
|
|
|
|
5,172
|
|
|
|
60
|
|
|
|
356
|
|
|
|
20,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 1, 2013
|
|
$
|
8,642
|
|
|
|
|
|
|
|
6,561
|
|
|
|
4,841
|
|
|
|
58
|
|
|
|
281
|
|
|
|
20,383
|
|
Provision for loan losses
|
|
|
(387
|
)
|
|
|
|
|
|
|
(3,706
|
)
|
|
|
(639
|
)
|
|
|
(52
|
)
|
|
|
(216
|
)
|
|
|
(5,000
|
)
|
Losses charged off
|
|
|
(2,228
|
)
|
|
|
|
|
|
|
(902
|
)
|
|
|
(651
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,781
|
)
|
Recoveries
|
|
|
526
|
|
|
|
|
|
|
|
1,180
|
|
|
|
744
|
|
|
|
|
|
|
|
138
|
|
|
|
2,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014
|
|
$
|
6,553
|
|
|
|
|
|
|
|
3,133
|
|
|
|
4,295
|
|
|
|
6
|
|
|
|
203
|
|
|
|
14,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 1, 2012
|
|
$
|
6,941
|
|
|
|
|
|
|
|
7,086
|
|
|
|
16,590
|
|
|
|
513
|
|
|
|
699
|
|
|
|
31,829
|
|
Provision for loan losses
|
|
|
2,232
|
|
|
|
|
|
|
|
177
|
|
|
|
(11,129
|
)
|
|
|
(453
|
)
|
|
|
(427
|
)
|
|
|
(9,600
|
)
|
Losses charged off
|
|
|
(1,359
|
)
|
|
|
|
|
|
|
(994
|
)
|
|
|
(669
|
)
|
|
|
|
|
|
|
(87
|
)
|
|
|
(3,109
|
)
|
Recoveries
|
|
|
556
|
|
|
|
|
|
|
|
423
|
|
|
|
380
|
|
|
|
|
|
|
|
171
|
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
$
|
8,370
|
|
|
|
|
|
|
|
6,692
|
|
|
|
5,172
|
|
|
|
60
|
|
|
|
356
|
|
|
|
20,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
The following table presents the balance in the allowance for loan losses and the recorded
investment in loans based on portfolio segment and impairment method at June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For
|
|
|
Real
|
|
|
Construction &
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Sale
|
|
|
Estate
|
|
|
Development
|
|
|
Commercial
|
|
|
Installment
|
|
|
Total
|
|
Allowance for loan losses
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of allowance for loan losses related to loans at June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
15
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
6,340
|
|
|
|
|
|
|
|
3,133
|
|
|
|
4,294
|
|
|
|
5
|
|
|
|
188
|
|
|
|
13,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired with deteriorated credit quality *
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014
|
|
$
|
391,317
|
|
|
|
78,204
|
|
|
|
254,982
|
|
|
|
84,261
|
|
|
|
11,961
|
|
|
|
5,617
|
|
|
|
826,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
14,028
|
|
|
|
|
|
|
|
10,684
|
|
|
|
12,715
|
|
|
|
11,250
|
|
|
|
37
|
|
|
|
48,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
$
|
377,289
|
|
|
|
78,204
|
|
|
|
244,298
|
|
|
|
71,546
|
|
|
|
711
|
|
|
|
5,580
|
|
|
|
777,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated credit quality **
|
|
$
|
4,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the balance in the allowance for loan losses and the recorded investment in
loans based on portfolio segment and impairment method at September 30, 2013. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For
|
|
|
Real
|
|
|
Construction &
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Sale
|
|
|
Estate
|
|
|
Development
|
|
|
Commercial
|
|
|
Installment
|
|
|
Total
|
|
Allowance for loan losses
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of allowance for loan losses related to loans at September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
333
|
|
|
|
|
|
|
|
35
|
|
|
|
4
|
|
|
|
25
|
|
|
|
|
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for Impairment
|
|
$
|
8,309
|
|
|
|
|
|
|
|
6,526
|
|
|
|
4,837
|
|
|
|
33
|
|
|
|
281
|
|
|
|
19,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired with deteriorated credit quality *
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2013
|
|
$
|
370,296
|
|
|
|
69,079
|
|
|
|
266,895
|
|
|
|
60,697
|
|
|
|
12,226
|
|
|
|
5,599
|
|
|
|
784,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
18,864
|
|
|
|
|
|
|
|
10,235
|
|
|
|
23,917
|
|
|
|
11,250
|
|
|
|
3
|
|
|
|
64,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
$
|
351,432
|
|
|
|
69,079
|
|
|
|
256,660
|
|
|
|
36,780
|
|
|
|
976
|
|
|
|
5,596
|
|
|
|
720,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated credit quality **
|
|
$
|
4,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Included in ending balance of allowance for loan losses related to loans individually evaluated for impairment.
|
**
|
Included in ending balance of loans individually evaluated for impairment.
|
17
Classified Assets, Delinquencies, and Non-accrual Loans
Classified assets
-
In accordance with the Banks asset classification system, problem assets are classified with risk ratings
of either substandard, doubtful, or loss. An asset is considered substandard if it is inadequately protected by the borrowers ability to repay, or the value of collateral. Substandard assets include those
characterized by a possibility that the institution will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have the same weaknesses of those classified as substandard with the added characteristic that the
weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as loss are considered uncollectible and of little value. Such assets
are charged-off against the ALLL at the time they are deemed to be a confirmed loss.
In addition to the risk
rating categories for problem assets noted above, loans may be assigned a risk rating of pass, pass-watch, or special mention. The pass category includes loans with borrowers and/or collateral that is of average
quality or better. Loans in this category are considered average risk and satisfactory repayment is expected. Assets classified as pass-watch are those in which the borrower has the capacity to perform according to the terms and repayment is
expected. However, one or more elements of uncertainty exist. Assets classified as special mention have a potential weakness that deserves managements close attention. If left undetected, the potential weakness may result in deterioration of
repayment prospects.
Each quarter, management reviews the problem loans in its portfolio to determine whether changes to the
asset classifications or allowances are needed. The following table presents the credit risk profile of the Companys loan portfolio based on risk rating category as of June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For
|
|
|
Real
|
|
|
Construction &
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Sale
|
|
|
Estate
|
|
|
Development
|
|
|
Commercial
|
|
|
Installment
|
|
|
Total
|
|
Rating
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
353,290
|
|
|
|
78,204
|
|
|
|
195,445
|
|
|
|
58,359
|
|
|
|
|
|
|
|
5,595
|
|
|
|
690,893
|
|
Pass Watch
|
|
|
19,993
|
|
|
|
|
|
|
|
45,105
|
|
|
|
19,939
|
|
|
|
11,961
|
|
|
|
|
|
|
|
96,998
|
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
18,034
|
|
|
|
|
|
|
|
14,432
|
|
|
|
5,963
|
|
|
|
|
|
|
|
22
|
|
|
|
38,451
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
391,317
|
|
|
|
78,204
|
|
|
|
254,982
|
|
|
|
84,261
|
|
|
|
11,961
|
|
|
|
5,617
|
|
|
|
826,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the credit risk profile of the Companys loan portfolio based on risk
rating category as of September 30, 2013. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For
|
|
|
Real
|
|
|
Construction &
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Sale
|
|
|
Estate
|
|
|
Development
|
|
|
Commercial
|
|
|
Installment
|
|
|
Total
|
|
Rating
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
320,090
|
|
|
|
69,079
|
|
|
|
194,070
|
|
|
|
20,789
|
|
|
|
|
|
|
|
5,595
|
|
|
|
609,623
|
|
Pass Watch
|
|
|
24,449
|
|
|
|
|
|
|
|
56,640
|
|
|
|
20,698
|
|
|
|
976
|
|
|
|
|
|
|
|
102,763
|
|
Special Mention
|
|
|
227
|
|
|
|
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810
|
|
Substandard
|
|
|
25,397
|
|
|
|
|
|
|
|
15,567
|
|
|
|
19,210
|
|
|
|
11,250
|
|
|
|
4
|
|
|
|
71,428
|
|
Doubtful
|
|
|
133
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
370,296
|
|
|
|
69,079
|
|
|
|
266,895
|
|
|
|
60,697
|
|
|
|
12,226
|
|
|
|
5,599
|
|
|
|
784,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table presents the Companys loan portfolio aging analysis as of
June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
|
60-90 Days
Past Due
|
|
|
Greater Than
90 Days
Past
Due
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
|
Total Loans
> 90 Days &
Accruing
|
|
Residential
|
|
$
|
1,021
|
|
|
|
966
|
|
|
|
4,669
|
|
|
|
6,656
|
|
|
|
384,661
|
|
|
|
391,317
|
|
|
|
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
78,203
|
|
|
|
78,204
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
252
|
|
|
|
1,328
|
|
|
|
1,580
|
|
|
|
253,402
|
|
|
|
254,982
|
|
|
|
272
|
|
Construction & development
|
|
|
|
|
|
|
|
|
|
|
714
|
|
|
|
714
|
|
|
|
83,547
|
|
|
|
84,261
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,961
|
|
|
|
11,961
|
|
|
|
|
|
Installment
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
|
|
5,601
|
|
|
|
5,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,021
|
|
|
|
1,234
|
|
|
|
6,712
|
|
|
|
8,967
|
|
|
|
817,375
|
|
|
|
826,342
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys loan portfolio aging analysis as of September 30,
2013. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
|
60-90 Days
Past Due
|
|
|
Greater Than
90 Days
Past
Due
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
|
Total Loans
> 90 Days &
Accruing
|
|
Residential
|
|
$
|
1,044
|
|
|
|
1,308
|
|
|
|
7,079
|
|
|
|
9,431
|
|
|
|
360,865
|
|
|
|
370,296
|
|
|
|
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,079
|
|
|
|
69,079
|
|
|
|
|
|
Commercial real estate
|
|
|
4,195
|
|
|
|
334
|
|
|
|
328
|
|
|
|
4,857
|
|
|
|
262,038
|
|
|
|
266,895
|
|
|
|
|
|
Construction & development
|
|
|
|
|
|
|
|
|
|
|
774
|
|
|
|
774
|
|
|
|
59,923
|
|
|
|
60,697
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,226
|
|
|
|
12,226
|
|
|
|
|
|
Installment
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
5,598
|
|
|
|
5,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,239
|
|
|
|
1,642
|
|
|
|
8,182
|
|
|
|
15,063
|
|
|
|
769,729
|
|
|
|
784,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
When a loan becomes 90 days past due, or when full payment of interest and principal is not expected, the
Bank stops accruing interest and establishes a reserve for the unpaid interest accrued-to-date. In some instances, a loan may become 90 days past due if it has exceeded its maturity date but the Bank and borrower are still negotiating the terms of
an extension agreement. In those instances, the Bank typically continues to accrue interest, provided the borrower has continued making interest payments after the maturity date and full payment of interest and principal is expected.
The following table presents the Companys loans meeting the regulatory definition of nonaccrual, which includes certain
loans that are current and paying as agreed. This table does not include purchased impaired loans or troubled debt restructurings that are performing. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
6/30/14
|
|
|
9/30/13
|
|
Residential
|
|
$
|
10,756
|
|
|
|
18,073
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
6,132
|
|
|
|
8,354
|
|
Construction & development
|
|
|
2,349
|
|
|
|
5,195
|
|
Commercial
|
|
|
|
|
|
|
|
|
Installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,237
|
|
|
|
31,622
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014, $12.2 million (63.3%) of the loans classified as nonaccrual were
current and paying as agreed.
19
A loan becomes impaired when management believes it will be unable to collect all principal
and interest due according to the contractual terms of the loan. A restructuring of debt is considered a TDR if, because of a debtors financial difficulty, a creditor grants concessions that it would not otherwise consider. Loans modified in
troubled debt restructurings are also considered impaired. Concessions granted in a TDR could include a reduction in interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize
collection. Once a loan has been deemed impaired, the impairment must be measured by comparing the recorded investment in the loan to the present value of the estimated future cash flows discounted at the loans effective rate, or to the fair
value of the loan based on the loans observable market price, or to the fair value of the collateral if the loan is collateral dependent. Unless the loan is performing prior to the restructuring, TDRs are placed in non-accrual status at the
time of restructuring and may only be returned to performing status after the borrower demonstrates sustained repayment performance for a reasonable period, generally six months.
The following table presents the recorded balance of troubled debt restructurings. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
6/30/14
|
|
|
9/30/13
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
6,240
|
|
|
|
9,381
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
5,881
|
|
|
|
6,079
|
|
Construction & development
|
|
|
12,002
|
|
|
|
23,144
|
|
Commercial
|
|
|
11,250
|
|
|
|
11,250
|
|
Installment
|
|
|
37
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,410
|
|
|
|
49,857
|
|
|
|
|
|
|
|
|
|
|
Performing troubled debt restructurings:
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,461
|
|
|
|
1,626
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
3,618
|
|
|
|
1,036
|
|
Construction & development
|
|
|
10,367
|
|
|
|
18,722
|
|
Commercial
|
|
|
11,250
|
|
|
|
11,250
|
|
Installment
|
|
|
37
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,733
|
|
|
|
32,637
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2014, the Bank had outstanding commitments of $1,000 to be advanced in connection with
TDRs.
20
The following table presents the number of loans and the Companys recorded investment
in TDRs modified during the nine month period ended June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Increase in
|
|
|
|
Number
|
|
|
Prior to
|
|
|
After
|
|
|
ALLL or
|
|
|
|
of Loans
|
|
|
Modification
|
|
|
Modification
|
|
|
Charge-offs
|
|
Residential
|
|
|
6
|
|
|
$
|
1,138
|
|
|
$
|
1,138
|
|
|
$
|
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
1
|
|
|
|
990
|
|
|
|
990
|
|
|
|
|
|
Construction & development
|
|
|
10
|
|
|
|
6,163
|
|
|
|
6,163
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
2
|
|
|
|
39
|
|
|
|
39
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19
|
|
|
$
|
8,330
|
|
|
$
|
8,330
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the number of loans and the Companys recorded investment in TDRs
modified during the nine month period ended June 30, 2013. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Increase in
|
|
|
|
Number
|
|
|
Prior to
|
|
|
After
|
|
|
ALLL or
|
|
|
|
of Loans
|
|
|
Modification
|
|
|
Modification
|
|
|
Charge-offs
|
|
Residential
|
|
|
18
|
|
|
$
|
7,526
|
|
|
$
|
7,468
|
|
|
$
|
19
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
3
|
|
|
|
1,471
|
|
|
|
1,338
|
|
|
|
133
|
|
Construction & development
|
|
|
21
|
|
|
|
23,484
|
|
|
|
23,484
|
|
|
|
|
|
Commercial
|
|
|
1
|
|
|
|
16,251
|
|
|
|
13,751
|
|
|
|
25
|
|
Installment
|
|
|
2
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
45
|
|
|
$
|
48,737
|
|
|
$
|
46,046
|
|
|
$
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents TDRs restructured during the nine month period ended June 30, 2014 by
type of modification. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
Extension
|
|
|
|
|
|
Combination
|
|
|
Investment
|
|
|
|
of
|
|
|
Interest Only
|
|
|
of Terms
|
|
|
Prior to
|
|
|
|
Maturity
|
|
|
Period
|
|
|
Modified
|
|
|
Modification
|
|
Residential
|
|
$
|
769
|
|
|
|
|
|
|
|
369
|
|
|
|
1,138
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
990
|
|
|
|
990
|
|
Construction & development
|
|
|
2,920
|
|
|
|
|
|
|
|
3,243
|
|
|
|
6,163
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
15
|
|
|
|
|
|
|
|
24
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,704
|
|
|
|
|
|
|
|
4,626
|
|
|
|
8,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table presents TDRs restructured during the nine month period ended
June 30, 2013 by type of modification. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
Extension
|
|
|
|
|
|
Combination
|
|
|
Investment
|
|
|
|
of
|
|
|
Interest Only
|
|
|
of Terms
|
|
|
Prior to
|
|
|
|
Maturity
|
|
|
Period
|
|
|
Modified
|
|
|
Modification
|
|
Residential
|
|
$
|
6,529
|
|
|
|
|
|
|
|
997
|
|
|
|
7,526
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
1,471
|
|
|
|
1,471
|
|
Construction & development
|
|
|
23,484
|
|
|
|
|
|
|
|
|
|
|
|
23,484
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
16,251
|
|
|
|
16,251
|
|
Installment
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,013
|
|
|
|
|
|
|
|
18,724
|
|
|
|
48,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys recorded investment and number of loans considered TDRs
at June 30, 2014 and 2013, that defaulted during the nine month period. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
Number
|
|
|
Recorded
|
|
|
Number
|
|
|
Recorded
|
|
|
|
of Loans
|
|
|
Investment
|
|
|
of Loans
|
|
|
Investment
|
|
Residential
|
|
|
14
|
|
|
$
|
3,907
|
|
|
|
22
|
|
|
$
|
5,023
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
|
|
322
|
|
Construction & development
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1,485
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
3
|
|
|
|
37
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18
|
|
|
$
|
3,944
|
|
|
|
29
|
|
|
$
|
6,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
The following table presents impaired loans, including troubled debt restructurings, as of
June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Specific
|
|
|
|
Balance
|
|
|
Balance
|
|
|
Allowance
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
12,851
|
|
|
|
17,095
|
|
|
|
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
10,684
|
|
|
|
17,674
|
|
|
|
|
|
Construction & development
|
|
|
10,936
|
|
|
|
13,492
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
22
|
|
|
|
398
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,177
|
|
|
|
1,203
|
|
|
|
213
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
|
1,779
|
|
|
|
1,779
|
|
|
|
1
|
|
Commercial
|
|
|
11,250
|
|
|
|
11,250
|
|
|
|
1
|
|
Installment
|
|
|
15
|
|
|
|
15
|
|
|
|
15
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
14,028
|
|
|
|
18,298
|
|
|
|
213
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
10,684
|
|
|
|
17,674
|
|
|
|
|
|
Construction & development
|
|
|
12,715
|
|
|
|
15,271
|
|
|
|
1
|
|
Commercial
|
|
|
11,250
|
|
|
|
11,250
|
|
|
|
1
|
|
Installment
|
|
|
37
|
|
|
|
413
|
|
|
|
15
|
|
The following table presents impaired loans, including troubled debt restructurings, as of
September 30, 2013. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Specific
|
|
|
|
Balance
|
|
|
Balance
|
|
|
Allowance
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
17,063
|
|
|
|
20,053
|
|
|
|
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
9,199
|
|
|
|
16,925
|
|
|
|
|
|
Construction & development
|
|
|
22,138
|
|
|
|
25,377
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
3
|
|
|
|
457
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,801
|
|
|
|
1,828
|
|
|
|
333
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
1,036
|
|
|
|
1,036
|
|
|
|
35
|
|
Construction & development
|
|
|
1,779
|
|
|
|
1,779
|
|
|
|
4
|
|
Commercial
|
|
|
11,250
|
|
|
|
11,250
|
|
|
|
25
|
|
Installment
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
18,864
|
|
|
|
21,881
|
|
|
|
333
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
10,235
|
|
|
|
17,961
|
|
|
|
35
|
|
Construction & development
|
|
|
23,917
|
|
|
|
27,156
|
|
|
|
4
|
|
Commercial
|
|
|
11,250
|
|
|
|
11,250
|
|
|
|
25
|
|
Installment
|
|
|
3
|
|
|
|
457
|
|
|
|
|
|
23
The following table presents the average recorded investment and interest income recognized
on impaired loans for the three and nine month periods ended June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 6/30/14
|
|
|
Nine Months Ended 6/30/14
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
12,880
|
|
|
|
171
|
|
|
|
13,827
|
|
|
|
488
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
11,090
|
|
|
|
259
|
|
|
|
11,481
|
|
|
|
870
|
|
Construction & development
|
|
|
11,414
|
|
|
|
179
|
|
|
|
12,360
|
|
|
|
598
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
23
|
|
|
|
5
|
|
|
|
24
|
|
|
|
18
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,179
|
|
|
|
15
|
|
|
|
1,189
|
|
|
|
57
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
|
1,779
|
|
|
|
30
|
|
|
|
1,779
|
|
|
|
91
|
|
Commercial
|
|
|
11,250
|
|
|
|
192
|
|
|
|
11,250
|
|
|
|
576
|
|
Installment
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
|
|
1
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
13,659
|
|
|
|
186
|
|
|
|
15,016
|
|
|
|
545
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
11,090
|
|
|
|
259
|
|
|
|
11,481
|
|
|
|
870
|
|
Construction & development
|
|
|
13,193
|
|
|
|
209
|
|
|
|
14,139
|
|
|
|
689
|
|
Commercial
|
|
|
11,250
|
|
|
|
192
|
|
|
|
11,250
|
|
|
|
576
|
|
Installment
|
|
|
38
|
|
|
|
5
|
|
|
|
39
|
|
|
|
19
|
|
The following table presents the average recorded investment and interest income recognized on impaired
loans for the three and nine month periods ended June 30, 2013. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 6/30/13
|
|
|
Nine Months Ended 6/30/13
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
16,703
|
|
|
|
203
|
|
|
|
17,014
|
|
|
|
606
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
10,172
|
|
|
|
248
|
|
|
|
10,627
|
|
|
|
810
|
|
Construction & development
|
|
|
28,685
|
|
|
|
441
|
|
|
|
31,231
|
|
|
|
1,483
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
5
|
|
|
|
6
|
|
|
|
41
|
|
|
|
36
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
4,922
|
|
|
|
68
|
|
|
|
5,526
|
|
|
|
255
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
137
|
|
|
|
|
|
|
|
138
|
|
|
|
6
|
|
Construction & development
|
|
|
1,779
|
|
|
|
30
|
|
|
|
1,779
|
|
|
|
91
|
|
Commercial
|
|
|
11,250
|
|
|
|
192
|
|
|
|
13,195
|
|
|
|
702
|
|
Installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
21,625
|
|
|
|
271
|
|
|
|
22,540
|
|
|
|
861
|
|
Residential held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
10,309
|
|
|
|
248
|
|
|
|
10,765
|
|
|
|
816
|
|
Construction & development
|
|
|
30,464
|
|
|
|
471
|
|
|
|
33,010
|
|
|
|
1,574
|
|
Commercial
|
|
|
11,250
|
|
|
|
192
|
|
|
|
13,195
|
|
|
|
702
|
|
Installment
|
|
|
5
|
|
|
|
6
|
|
|
|
41
|
|
|
|
36
|
|
24
(9) FORECLOSED ASSETS HELD FOR SALE
The carrying value of real estate owned and other repossessed property was $10.3 million and $11.3 million at
June 30, 2014, and September 30, 2013, respectively
Foreclosed assets held for sale are initially recorded at fair
value as of the date of foreclosure less any estimated selling costs (the new basis) and are subsequently carried at the lower of the new basis or fair value less selling costs on the current measurement date. When foreclosed assets are
acquired, any excess of the loan balance over the new basis of the foreclosed asset is charged to the allowance for loan losses. Subsequent adjustments for estimated losses are charged to operations when the fair value declines to an amount less
than the carrying value. Costs and expenses related to major additions and improvements are capitalized, while maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. Applicable gains and losses on the
sale of real estate owned are realized when the asset is disposed of, depending on the adequacy of the down payment and other requirements.
(10) SUBORDINATED DEBENTURES
On December 13, 2006, the Company, through its wholly-owned statutory trust, NASB Preferred Trust I (the
Trust), issued $25 million of pooled Trust Preferred Securities. The Trust used the proceeds from the offering to purchase a like amount of the Companys subordinated debentures. The debentures, which have a variable rate of
1.65% over the 3-month LIBOR and a 30-year term, are the sole assets of the Trust. In exchange for the capital contributions made to the Trust by the Company upon formation, the Company owns all the common securities of the Trust.
In accordance with Financial Accounting Standards Board ASC 810-10, the Trust qualifies as a special purpose entity that is not required
to be consolidated in the financial statements of the Company. The $25.0 million Trust Preferred Securities issued by the Trust will remain on the records of the Trust. The Trust Preferred Securities are included in Tier I capital for
regulatory capital purposes.
The Trust Preferred Securities have a variable interest rate of 1.65% over the 3-month LIBOR,
and are mandatorily redeemable upon the 30-year term of the debentures, or upon earlier redemption as provided in the Indenture. The debentures are callable, in whole or in part, after five years of the issuance date. The Company did not incur a
placement or annual trustee fee related to the issuance. The securities are subordinate to all other debt of the Company and interest may be deferred up to five years.
In accordance with the Companys written agreement with the Federal Reserve Bank of Kansas City (FRB), dated November 29, 2012, the Company is prohibited from making any
distributions of principal or interest on its Trust Preferred Securities without the prior written non-objection of the FRB. On July 11, 2012, the Company notified security holders that it was exercising its right to defer the payment of
interest on its Trust Preferred Securities for a period of up to five years. On December 18, 2013, the Company received written non-objection from the FRB to pay all accrued interest on Trust Preferred Securities, and on December 23, 2013,
the Company notified security holders that it intended to end the elective deferral period and pay all accrued interest at the next regularly scheduled payment date in January 2014. On January 30, 2014, the Company paid $893,000 of accrued
interest on Trust Preferred Securities, which brought all payments current. The Board intends to continue making quarterly interest payments on Trust Preferred Securities; however, while the Company is operating under the regulatory written
agreement, each interest payment must first receive prior written non-objection from its regulators. On April 24, 2014, Company received regulatory written non-objection to pay accrued interest on its outstanding Trust Preferred Securities on
the April 30, 2014, payment date, which amounted to $122,000. On June 27, 2014, Company received regulatory written non-objection to pay accrued interest on its outstanding Trust Preferred Securities on the July 30, 2014, payment
date, which amounted to $122,000.
(11) INCOME TAXES
The Companys federal and state income tax returns for fiscal years 2011 through 2013 remain subject to
examination by the Internal Revenue Service and various state jurisdictions, based on the statute of limitations.
25
(12) SEGMENT INFORMATION
The Company has identified two principal operating segments for purposes of financial reporting: Banking and Mortgage
Banking. These segments were determined based on the Companys internal financial accounting and reporting processes and are consistent with the information that is used to make operating decisions and to assess the Companys performance
by the Companys key decision makers.
The Mortgage Banking segment originates mortgage loans for sale to investors and
for the portfolio of the Banking segment. The Banking segment provides a full range of banking services through the Banks branch network, exclusive of mortgage loan originations. A portion of the income presented in the Mortgage Banking
segment is derived from sales of loans to the Banking segment based on a transfer pricing methodology that is designed to approximate economic reality. The Other and Eliminations segment includes financial information from the parent company plus
inter-segment eliminations.
The following table presents financial information from the Companys operating segments for
the periods indicated. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
Other and
|
|
|
|
|
Three months ended June 30, 2014
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
11,229
|
|
|
|
|
|
|
|
(119
|
)
|
|
|
11,110
|
|
Provision for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
1,107
|
|
|
|
10,626
|
|
|
|
(854
|
)
|
|
|
10,879
|
|
General and administrative expenses
|
|
|
6,593
|
|
|
|
8,648
|
|
|
|
(311
|
)
|
|
|
14,930
|
|
Income tax expense
|
|
|
2,010
|
|
|
|
692
|
|
|
|
(231
|
)
|
|
|
2,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,733
|
|
|
|
1,286
|
|
|
|
(431
|
)
|
|
|
4,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
Other and
|
|
|
|
|
Three months ended June 30, 2013
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
10,398
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
10,273
|
|
Provision for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
830
|
|
|
|
11,408
|
|
|
|
(1,241
|
)
|
|
|
10,997
|
|
General and administrative expenses
|
|
|
7,448
|
|
|
|
11,268
|
|
|
|
(332
|
)
|
|
|
18,384
|
|
Income tax expense (benefit)
|
|
|
1,455
|
|
|
|
54
|
|
|
|
(398
|
)
|
|
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,325
|
|
|
|
86
|
|
|
|
(636
|
)
|
|
|
1,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
Other and
|
|
|
|
|
Nine months ended June 30, 2014
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
33,050
|
|
|
|
|
|
|
|
(362
|
)
|
|
|
32,688
|
|
Provision for loan losses
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
Other income
|
|
|
3,387
|
|
|
|
25,918
|
|
|
|
(2,360
|
)
|
|
|
26,945
|
|
General and administrative expenses
|
|
|
20,647
|
|
|
|
24,918
|
|
|
|
(570
|
)
|
|
|
44,995
|
|
Income tax expense
|
|
|
7,277
|
|
|
|
350
|
|
|
|
(757
|
)
|
|
|
6,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,513
|
|
|
|
650
|
|
|
|
(1,395
|
)
|
|
|
12,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
Other and
|
|
|
|
|
Nine months ended June 30, 2013
|
|
Banking
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
32,722
|
|
|
|
|
|
|
|
(377
|
)
|
|
|
32,345
|
|
Provision for loan losses
|
|
|
(9,600
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,600
|
)
|
Other income
|
|
|
1,615
|
|
|
|
47,210
|
|
|
|
(2,366
|
)
|
|
|
46,459
|
|
General and administrative expenses
|
|
|
20,666
|
|
|
|
34,100
|
|
|
|
(687
|
)
|
|
|
54,079
|
|
Income tax expense
|
|
|
8,959
|
|
|
|
5,047
|
|
|
|
(791
|
)
|
|
|
13,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14,312
|
|
|
|
8,063
|
|
|
|
(1,265
|
)
|
|
|
21,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
(13) DERIVATIVE INSTRUMENTS
The Company enters into derivative contracts to manage interest rate and pricing risk associated with its mortgage
banking activities. In accordance with GAAP, derivative instruments are recorded in the Companys balance sheet at fair value. As the Company enters into commitments to originate loans, it also enters into commitments to sell certain loans in
the secondary market. These derivative commitments to sell loans, which may include best efforts commitments, mandatory commitments, and forward sales of mortgage-backed securities, are used to hedge the risks resulting from interest rate movements
on the Companys outstanding commitments to originate loans held for sale and its portfolio of loans held for sale.
The
Company has commitments outstanding to extend credit that have not closed prior to the end of the period. Commitments to originate loans held for sale are also considered derivative instruments in accordance with GAAP. As a result of marking to
market commitments to originate loans held for sale, the Company recorded an increase in other assets of $227,000, a decrease in other liabilities of $715,000, and an increase in other income of $942,000 for the quarter ended June 30, 2014. The
Company recorded a decrease in other assets of $940,000, an increase in other liabilities of $1,000, and a decrease in other income of $941,000 for the nine month period ended June 30, 2014. As a result of marking to market commitments to
originate loans held for sale, the Company recorded a decrease in other assets of $909,000, an increase in other liabilities of $4.4 million, and a decrease in other income of $5.3 million for the quarter ended June 30, 2013. The Company
recorded a decrease in other assets of $2.5 million, an increase in other liabilities of $4.4 million, and a decrease in other income of $6.9 million for the nine month period ended June 30, 2013.
The Company also has best-efforts commitments to sell loans that have closed prior to the end of the period. Due to the mark to market
adjustment on commitments to sell such loans held for sale, the Company recorded a decrease in other assets of $746,000, an increase in other liabilities of $269,000, and a decrease in other income of $1.0 million during the quarter ended
June 30, 2014. The Company recorded an increase in other assets of $17,000, a decrease in other liabilities of $75,000, and an increase in other income of $92,000 during the nine month period ended June 30, 2014. Due to the mark to
market adjustment on commitments to sell loans held for sale on a best-efforts basis, the Company recorded an increase in other assets of $3.8 million, a decrease in other liabilities of $37,000, and an increase in other income of $3.9 million
during the quarter ended June 30, 2013. The Company recorded an increase in other assets of $3.5 million, a decrease in other liabilities of $133,000, and an increase in other income of $3.6 million during the nine month period ended
June 30, 2013.
In addition, the Company has forward sales commitments of mortgage-backed securities that have not
settled prior to the end of the period. Due to the mark to market adjustment on forward sales of mortgage-backed securities, the Company recorded an increase in other assets of $4,000, an increase in other liabilities of $126,000, and a decrease in
other income of $122,000 during the quarter ended June 30, 2014. The Company did not have any such commitments prior to the quarter ended June 30, 2014.
The balance of derivative instruments related to commitments to originate and sell loans at June 30, 2014, and September 30, 2013, is disclosed in Footnote 14, Fair Value Measurements.
(14) FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would likely be received to sell an asset, or paid to transfer a liability, in
an orderly transaction between market participants at the measurement date. GAAP identifies three primary measurement techniques: the market approach, the income approach, and the cost approach. The market approach uses prices and other relevant
information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuations or techniques to convert future amounts, such as cash flows or earnings, to a single present amount. The cost
approach is based on the amount that currently would be required to replace the service capability of an asset.
GAAP
establishes a fair value hierarchy and prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required. Classification
within the fair value hierarchy is based upon the objectivity of the inputs that are significant to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
27
|
|
|
Level 2 Inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are
observable for the asset or liability; and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.
|
|
|
|
Level 3 Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the
measurement date. Unobservable inputs reflect the Companys own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow
methodologies, as well as instruments for which the fair value determination requires significant management judgment.
|
The Company measures certain financial assets and liabilities at fair value in accordance with GAAP. These measurements involve various valuation techniques and assume that the transactions would occur
between market participants in the most advantageous market for the Company.
The following is a summary of valuation
techniques utilized by the Company for its significant financial assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets and
liabilities pursuant to the valuation hierarchy:
Available for sale securities
Securities available for sale consist of corporate debt, U. S. government sponsored agency, and municipal securities. Such securities are
valued using market prices in an active market, if available. This measurement is classified as Level 1 within the hierarchy. Less frequently traded securities are valued using industry standard models which utilize various assumptions such as
historical prices of the same or similar securities, and observation of market prices of securities of the same issuer, market prices of same-sector issuers, and fixed income indexes. Substantially all of these assumptions are observable in the
marketplace or can be derived from observable data. These measurements are classified as Level 2 within the hierarchy.
Mortgage-backed securities available for sale, which consist of collateralized mortgage obligations and agency pass-through and
participation certificates issued by GNMA, FNMA, and FHLMC, were valued by using industry standard models which utilize various inputs and assumptions such as historical prices of benchmark securities, prepayment estimates, loan type, and year of
origination. Substantially all of these assumptions are observable in the marketplace or can be derived from observable data. These measurements are classified as Level 2 within the hierarchy.
Loans held for sale
Loans held for sale are valued using quoted market prices for loans with similar characteristics. This measurement is classified as
Level 2 within the hierarchy.
Commitments to Originate Loans and Forward Sales Commitments
Commitments to originate loans and forward loan sales commitments are valued using a valuation model which considers differences between
current market interest rates and committed rates. The model also includes assumptions, which estimate fall-out percentages, for commitments to originate loans, and average lives. Fall-out percentages, which range from ten to forty percent, are
estimated based upon the difference between current market rates and committed rates. Average lives are based upon estimates for similar types of loans. These measurements use significant unobservable inputs and are classified as Level 3 within
the hierarchy. Forward commitments to sell mortgage-backed securities are valued based upon the gain or loss that would occur if the Bank were to pair-off the transaction. This value is obtained by using industry standard models which utilize
various inputs and assumptions such as historical prices of benchmark securities, prepayment estimates, loan type, and year of origination. Substantially all of these assumptions are observable in the marketplace or can be derived from observable
data. This measurement is classified as Level 2 within the hierarchy.
28
The following table presents the fair value measurements of assets recognized in the
accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall at June 30, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Other
|
|
|
Unobservable
|
|
|
|
Fair
|
|
|
Identical Assets
|
|
|
Observable
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
Inputs (Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored agency securities
|
|
$
|
160,520
|
|
|
|
|
|
|
|
160,520
|
|
|
|
|
|
Corporate debt securities
|
|
|
78,954
|
|
|
|
|
|
|
|
78,954
|
|
|
|
|
|
Municipal securities
|
|
|
422
|
|
|
|
|
|
|
|
422
|
|
|
|
|
|
Mortgage-backed securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass through certificates guaranteed by GNMA fixed rate
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
Pass through certificates guaranteed by FNMA adjustable rate
|
|
|
111
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
74
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
Adjustable rate
|
|
|
94
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
Loans held for sale
|
|
|
78,204
|
|
|
|
|
|
|
|
78,204
|
|
|
|
|
|
Commitments to originate loans
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
447
|
|
Forward loan sales commitments
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
234
|
|
Forward sales commitments of mortgage- backed securities
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
319,127
|
|
|
|
|
|
|
|
318,446
|
|
|
|
681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to originate loans
|
|
$
|
214
|
|
|
|
|
|
|
|
|
|
|
|
214
|
|
Forward loan sales commitments
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
288
|
|
Forward sales commitments of mortgage- backed securities
|
|
|
126
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
628
|
|
|
|
|
|
|
|
126
|
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
The following table presents the fair value measurements of assets recognized in the
accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall at September 30, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Other
|
|
|
Unobservable
|
|
|
|
Fair
|
|
|
Identical Assets
|
|
|
Observable
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
Inputs (Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored agency securities
|
|
$
|
183,164
|
|
|
|
110,982
|
|
|
|
72,182
|
|
|
|
|
|
Corporate debt securities
|
|
|
69,110
|
|
|
|
|
|
|
|
69,110
|
|
|
|
|
|
Municipal securities
|
|
|
422
|
|
|
|
|
|
|
|
422
|
|
|
|
|
|
Mortgage-backed securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass through certificates guaranteed by GNMA fixed rate
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
Pass through certificates guaranteed by FNMA adjustable rate
|
|
|
126
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
FHLMC participation certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
127
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
Adjustable rate
|
|
|
110
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
Loans held for sale
|
|
|
69,079
|
|
|
|
|
|
|
|
69,079
|
|
|
|
|
|
Commitments to originate loans
|
|
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
1,387
|
|
Forward sales commitments
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
323,812
|
|
|
|
110,982
|
|
|
|
211,226
|
|
|
|
1,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to originate loans
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
Forward sales commitments
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
575
|
|
|
|
|
|
|
|
|
|
|
|
575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present a reconciliation of the beginning and ending balances of recurring fair
value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs for the nine month periods ended June 30, 2014 and 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
to Originate
|
|
|
Forward Sales
|
|
|
|
Loans
|
|
|
Commitments
|
|
Balance at October 1, 2013
|
|
$
|
1,174
|
|
|
|
(145
|
)
|
Total realized and unrealized gain (losses):
|
|
|
|
|
|
|
|
|
Included in net income
|
|
|
(941
|
)
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014
|
|
$
|
233
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
to Originate
|
|
|
Forward Sales
|
|
|
|
Loans
|
|
|
Commitments
|
|
Balance at October 1, 2012
|
|
$
|
2,047
|
|
|
|
2,061
|
|
Total realized and unrealized gain (losses):
|
|
|
|
|
|
|
|
|
Included in net income
|
|
|
(6,912
|
)
|
|
|
3,613
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
$
|
(4,865
|
)
|
|
|
5,674
|
|
|
|
|
|
|
|
|
|
|
30
Realized and unrealized gains and losses noted in the table above and included in net income
for the nine month period ended June 30, 2014, are reported in the condensed consolidated statements of income as follows (in thousands):
|
|
|
|
|
|
|
Other
Income
|
|
Total losses
|
|
$
|
(850
|
)
|
|
|
|
|
|
Changes in unrealized losses relating to assets still held at the balance sheet date
|
|
$
|
|
|
|
|
|
|
|
Realized and unrealized gains and losses noted in the table above and included in net income for the nine
month period ended June 30, 2013, are reported in the consolidated statements of income as follows (in thousands):
|
|
|
|
|
|
|
Other
Income
|
|
Total losses
|
|
$
|
(3,299
|
)
|
|
|
|
|
|
Changes in unrealized losses relating to assets still held at the balance sheet date
|
|
$
|
|
|
|
|
|
|
|
The following is a summary of valuation techniques utilized by the Company for its significant financial
assets and liabilities measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy:
Impaired loans
Loans
for which it is probable that the Company will not collect principal and interest due according to contractual terms are measured for impairment. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the
amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and other internal assessments of value. Appraisals are obtained when an impaired loan is deemed to be collateral dependent and at
least annually thereafter. Fair value is generally the appraised value less estimated selling costs and may be discounted further if management believes any other factors or events have affected the fair value. Impaired loans are classified within
Level 3 of the fair value hierarchy.
The carrying value of impaired loans that were re-measured during the nine month period
ended June 30, 2014, was $8.7 million. The carrying value of impaired loans that were re-measured during the nine month period ended June 30, 2013, was $26.1 million.
Foreclosed Assets Held For Sale
Foreclosed assets held for sale are
initially recorded at fair value as of the date of foreclosure less any estimated selling costs (the new basis) and are subsequently carried at the lower of the new basis or fair value less selling costs on the current measurement date.
Fair value is estimated through current appraisals, broker price opinions, or listing prices. Appraisals are obtained when the real estate is acquired and at least annually thereafter. Foreclosed assets held for sale are classified within Level 3 of
the fair value hierarchy.
The carrying value of foreclosed assets held for sale was $10.3 million at June 30, 2014.
Charge-offs related to foreclosed assets held for sale that were re-measured during the nine month period ended June 30, 2014, totaled $165,000. Charge-offs and increases in specific reserves related to foreclosed assets held for sale that were
re-measured during the nine month period ended June 30, 2013, totaled $478,000.
31
Investment in LLCs
Investments in LLCs are accounted for using the equity method of accounting. On a quarterly basis, these investments are analyzed for impairment in accordance with ASC 323-10-35-32, which states that an
other than temporary decline in value of an equity method investment should be recognized. The Company utilizes a multi-faceted approach to measure the potential impairment. The internal model utilizes the following valuation methods: 1) liquidation
or appraised values determined by an independent third party appraisal; 2) an on-going business, or discounted cash flows method wherein the cash flows are derived from the sale of fully-developed lots, the development and sale of
partially-developed lots, the operation of the homeowners association, and the value of raw land obtained from an independent third party appraiser; and 3) an on-going business method, which utilizes the same inputs as method 2, but presumes
that cash flows will first be generated from the sale of raw ground and then from the sale of fully-developed and partially-developed lots and the operation of the homeowners association. The significant inputs include raw land values,
absorption rates of lot sales, and a market discount rate. Management believes this multi-faceted approach is reasonable given the highly subjective nature of the assumptions and the differences in valuation techniques that are utilized within each
approach (e.g., order of distribution of assets upon potential liquidation). As a result of this analysis, the Company determined that its investment in Central Platte was materially impaired and recorded an impairment charge of $2.0 million
($1.2 million, net of tax) during the year ended September 30, 2010. During the quarter ended March 31, 2012, list prices of fully-developed lots in Central Plattes residential development were reduced. The Company incorporated
these lower prices into its internal valuation model, which resulted in an additional impairment charge of $200,000 ($123,000, net of tax) during the quarter ended March 31, 2012. No other events have occurred that would indicate any additional
impairment of the Companys investment in Central Platte. Investment in LLCs is classified within Level 3 of the fair value hierarchy.
The carrying value of the Companys investment in LLCs was $16.6 million at June 30, 2014, and $16.5 million at September 30, 2013.
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance
sheets at amounts other than fair value:
Cash and cash equivalents
The carrying amount reported in the condensed consolidated balance sheets is a reasonable estimate of fair value.
Securities and mortgage-backed securities held to maturity
Securities that trade in an active market are valued using market prices, if available. Securities that do not trade in an active market were valued by using industry standard models which utilize various
inputs and assumptions such as historical prices of similar securities, estimated delinquencies, defaults, and loss severity.
Stock in Federal Home Loan Bank (FHLB)
The carrying value of stock in Federal Home Loan Bank approximates its fair value.
Loans receivable held for investment
Fair values are computed for each loan category using market spreads to treasury securities for similar existing loans in the portfolio and managements estimates of prepayments.
Customer and brokered deposit accounts
The estimated fair values of demand deposits and savings accounts are equal to the amount payable on demand at the reporting date. Fair values of certificates of deposit are computed at fixed spreads to
treasury securities with similar maturities.
Advances from FHLB
The estimated fair values of advances from FHLB are determined by discounting the future cash flows of existing advances using rates
currently available for new advances with similar terms and remaining maturities.
Subordinated debentures
Fair values are based on quotes from broker-dealers that reflect estimated offer prices.
32
Commitments to originate, purchase and sell loans
The estimated fair value of commitments to originate, purchase, or sell loans is based on the difference between current levels of
interest rates and the committed rates.
The following table presents estimated fair values of the Companys financial
instruments and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Carrying
Value
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
`
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,627
|
|
|
|
8,627
|
|
|
|
|
|
|
|
|
|
Stock in Federal Home Loan Bank
|
|
|
9,994
|
|
|
|
|
|
|
|
9,994
|
|
|
|
|
|
Corporate debt securities held to maturity
|
|
|
36,013
|
|
|
|
|
|
|
|
36,316
|
|
|
|
|
|
Mortgage-backed securities held to maturity
|
|
|
37,311
|
|
|
|
|
|
|
|
38,007
|
|
|
|
|
|
Loans receivable held for investment
|
|
|
733,948
|
|
|
|
|
|
|
|
|
|
|
|
757,605
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposit accounts
|
|
|
744,406
|
|
|
|
|
|
|
|
|
|
|
|
745,602
|
|
Advances from FHLB
|
|
|
215,000
|
|
|
|
|
|
|
|
|
|
|
|
216,532
|
|
Subordinated debentures
|
|
|
25,774
|
|
|
|
|
|
|
|
|
|
|
|
17,526
|
|
The following table presents estimated fair values of the Companys financial instruments and the
level within the fair value hierarchy in which the fair value measurements fall at September 30, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Carrying
Value
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
`
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,347
|
|
|
|
6,347
|
|
|
|
|
|
|
|
|
|
Stock in Federal Home Loan Bank
|
|
|
7,679
|
|
|
|
|
|
|
|
7,679
|
|
|
|
|
|
Mortgage-backed securities held to maturity
|
|
|
43,074
|
|
|
|
|
|
|
|
43,143
|
|
|
|
|
|
Loans receivable held for investment
|
|
|
695,330
|
|
|
|
|
|
|
|
|
|
|
|
726,408
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposit accounts
|
|
|
748,193
|
|
|
|
|
|
|
|
|
|
|
|
749,561
|
|
Advances from FHLB
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
156,885
|
|
Subordinated debentures
|
|
|
25,774
|
|
|
|
|
|
|
|
|
|
|
|
10,310
|
|
The following tables present the carrying values and fair values of the Companys unrecognized
financial instruments. Dollar amounts are expressed in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
September 30, 2013
|
|
|
|
Contract or
notional
amount
|
|
|
Estimated
unrealized
gain (loss)
|
|
|
Contract or
notional
amount
|
|
|
Estimated
unrealized
gain (loss)
|
|
Unrecognized financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending commitments fixed rate, net
|
|
$
|
41,022
|
|
|
|
(33
|
)
|
|
$
|
17,421
|
|
|
|
(73
|
)
|
Lending commitments floating rate
|
|
|
11,422
|
|
|
|
(17
|
)
|
|
|
5,813
|
|
|
|
34
|
|
Commitments to sell loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
The fair value estimates presented are based on pertinent information available to
management as of June 30, 2014, and September 30, 2013. Although management is not aware of any factors that would significantly affect the estimated fair values, such amounts have not been comprehensively revalued for purposes of these
condensed consolidated financial statements since that date. Therefore, current estimates of fair value may differ significantly from the amounts presented above.
(15) INVESTMENT IN LLCs
The Company is a partner in two limited liability companies, Central Platte Holdings LLC (Central Platte)
and NBH, LLC (NBH), which were formed for the purpose of purchasing and developing vacant land in Platte County, Missouri. These investments are accounted for using the equity method of accounting.
The Companys investment in Central Platte consists of a 50% ownership interest in an entity that develops land for residential real
estate sales. Sales of lots have not met previous expectations and, as a result, the Company evaluated its investment for impairment, in accordance with ASC 323-10-35-32, which provides guidance related to a loss in value of an equity method
investment. The Company utilizes a multi-faceted approach to measure the potential impairment. The internal model utilizes the following valuation methods: 1) liquidation or appraised values determined by an independent third party appraisal; 2) an
on-going business, or discounted cash flows method wherein the cash flows are derived from the sale of fully-developed lots, the development and sale of partially-developed lots, the operation of the homeowners association, and the value of
raw land obtained from an independent third party appraiser; and 3) another on-going business method, which utilizes the same inputs as method 2, but presumes that cash flows will first be generated from the sale of raw ground and then from the sale
of fully-developed and partially-developed lots and the operation of the homeowners association. The internal model also includes method 4, an on-going business method wherein the cash flows are derived from the sale of fully-developed lots,
the development and sale of partially-developed lots, the operation of the homeowners association, and the development and sale of lots from the property that is currently raw land. However, management does not feel the results from this
method provide a reliable indication of value because the time to build-out the development exceeds 18 years. Because of this unreliability, the results from method 4 are given a zero weighting in the final impairment analysis. The
significant inputs include raw land values, absorption rates of lot sales, and a market discount rate. Management believes this multi-faceted approach is reasonable given the highly subjective nature of the assumptions and the differences in
valuation techniques that are utilized within each approach (e.g., order of distribution of assets upon potential liquidation). It is managements opinion that no one valuation method within the model is preferable to the other and that no one
method is more likely to occur than the other. Therefore, the final estimate of value is determined by assigning an equal weight to the values derived from each of the first three methods described above.
As a result of this analysis, the Company determined that its investment in Central Platte was materially impaired and recorded an
impairment charge of $2.0 million ($1.2 million, net of tax) during the year ended September 30, 2010. During the quarter ended March 31, 2012, list prices of fully-developed lots in Central Plattes residential development
were reduced. The Company incorporated these lower prices into its internal valuation model, which resulted in an additional impairment charge of $200,000 ($123,000, net of tax) during the quarter ended March 31, 2012. No other events have
occurred that would indicate any additional impairment of the Companys investment in Central Platte.
The following
table displays the results derived from the Companys internal valuation model at June 30, 2014, and the carrying value of its investment in Central Platte at June 30, 2014. Dollar amounts are expressed in thousands.
|
|
|
|
|
Method 1
|
|
$
|
15,639
|
|
Method 2
|
|
|
17,013
|
|
Method 3
|
|
|
18,457
|
|
Average of methods 1, 2, and 3
|
|
$
|
17,036
|
|
|
|
|
|
|
Carrying value of investment in Central Platte Holdings, LLC
|
|
$
|
15,155
|
|
|
|
|
|
|
34
The Companys investment in NBH consists of a 50% ownership interest in an entity that
holds raw land, which is currently zoned as agricultural. The general managers intend to rezone this property for commercial and/or residential development. The raw land was purchased in 2002. The Company accounts for its investment in NBH under the
equity method. Due to the overall economic conditions surrounding real estate, the Company evaluated its investment for impairment in accordance with ASC 323-10-35-32, which provides guidance related to a loss in value of an equity method
investment. Potential impairment was measured based on liquidation or appraised values determined by an independent third party appraisal. As a result of this analysis, the Company determined that its investment in NBH was materially impaired and
recorded an impairment charge of $1.1 million ($693,000, net of tax) during the year ended September 30, 2010. The results of this analysis as of September 30, 2013, did not indicate any additional impairment of the Companys
investment in NBH. No events have occurred during the nine month period ended June 30, 2014, that would indicate any additional impairment of the Companys investment. The carrying value of the Companys investment in NBH was
$1.4 million at June 30, 2014.
(16) REGULATORY AGREEMENTS
On April 30, 2010, the Board of Directors of North American Savings Bank, F.S.B. (the Bank), a
wholly-owned subsidiary of the Company, entered into a Supervisory Agreement with the Office of Thrift Supervision (OTS), the Banks primary regulator at that time. The agreement required, among other things, that the Bank revise
its policies regarding internal asset review, obtain an independent assessment of its allowance for loan and lease losses methodology and conduct an independent third-party review of a portion of its commercial and construction loan portfolios. The
agreement also directed the Bank to provide a plan to reduce its classified assets and its reliance on brokered deposits, and restricted the payment of dividends or other capital distributions by the Bank during the period of the agreement. The
agreement did not direct the Bank to raise capital, make management or board changes, revise any loan policies or restrict lending growth.
On May 22, 2012, the Board of Directors of the Bank agreed to a Consent Order with the Office of the Comptroller of the Currency (OCC), which replaced and terminated a previous
Supervisory Agreement. The Consent Order required that the Bank establish various plans and programs to improve its asset quality, including board approval for loans over certain limits, and to ensure the adequacy of allowances for loan and lease
losses. It required the Bank to obtain an independent third-party review of its non-homogenous loan portfolios and to enhance its credit administration systems. Among other items, it also required a written capital maintenance plan to ensure that
the Banks Tier 1 leverage capital and total risk-based capital ratios remain equal to or greater than 10% and 13%, respectively. The Consent Order did not direct the Bank to raise capital, make management or board changes, or restrict lending.
On February 25, 2014, the Board of Directors of the Bank was notified by the OCC that they were terminating their Consent Order with the Bank, dated May 22, 2012, effective immediately. In achieving compliance with the Consent Order, the
Bank established, among other things, various processes and programs that improved the asset quality of the Bank and ensured the adequacy of allowances for loan and lease losses.
On February 1, 2013, the Board of Directors of the Bank signed an additional Consent Order with the OCC, which requires the Bank to
take corrective action to enhance its program for compliance with the Bank Secrecy Act (BSA) and other anti-money laundering requirements. The BSA Consent Order requires, among other things, that the Bank improve its processes to better
identify and monitor accounts and transactions that pose a greater than normal risk for compliance with the BSA. The Consent Order also requires the Bank to maintain an effective risk assessment process, monitoring mechanisms, training programs and
appropriate systems to review the activities of customer accounts.
On November 29, 2012, the Companys Board of
Directors entered into a formal written agreement with the Federal Reserve Bank of Kansas City (FRB), which replaced and terminated a previous written agreement. The agreement with FRB prohibits the Company from making distributions of
capital, including the payment of shareholder dividends or other capital distributions or the purchase or redemption of Company stock, unless the Company receives prior written non-objection from the FRB. The agreement also restricts the
Companys ability to incur, increase, or guarantee any debt and restricts the Company and its wholly-owned statutory trust, NASB Preferred Trust I, from making distributions of interest, principal, or other sums on subordinated debentures or
trust preferred securities without prior written non-objection from the FRB.
35
Upon receipt of written non-objection from the FRB, the Companys Board of Directors
declared a special cash dividend of $0.60 per share on December 20, 2013, payable on January 17, 2014, to shareholders of record as of January 3, 2014. The special dividend, which amounted to $4.7 million, was accrued within the
December quarter. In addition, the Company received regulatory written non-objection to pay all accrued interest on its outstanding Trust Preferred Securities at the January 30, 2014, payment date, which amounted to $893,000.
Upon receipt of written non-objection from the FRB, the Companys Board of Directors declared a cash dividend of $0.10 per share on
April 25, 2014, payable on May 20, 2014, to shareholders of record as of May 9, 2014. In addition, the Company received regulatory written non-objection to pay accrued interest on its outstanding Trust Preferred Securities on the
April 30, 2014, payment date, which amounted to $122,000.
The Board intends to continue making quarterly interest
payments on the Companys Trust Preferred Securities and to consider some level of quarterly cash dividend to the Companys shareholders; however, while the Company is operating under the regulatory written agreement, each interest payment
on Trust Preferred Securities and dividend distribution to shareholders must first receive prior written non-objection from regulators.
(17) CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME
Amounts reclassified from Accumulated Other Comprehensive Income (AOCI) and the affected line items in the
statement of operations during the three month periods ending June 30, 2014 and 2013, were as follows (in thousands):
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Amounts reclassified
from AOCI
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Affected line item in the
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6/30/14
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6/30/13
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Statement of Operations
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Unrealized gains (losses) on available for sale securities:
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Gain (loss) on sale of securities
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$
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available for sale
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Impairment loss on securities
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Total reclassified before tax
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Income tax expense (benefit)
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$
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Net reclassified amount
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Amounts reclassified from Accumulated Other Comprehensive Income (AOCI) and the affected line
items in the statement of operations during the nine month periods ending June 30, 2014 and 2013, were as follows (in thousands):
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Amounts reclassified
from AOCI
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Affected line item in the
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6/30/14
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6/30/13
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Statement of Operations
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Unrealized gains (losses) on available for sale Securities:
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|
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|
|
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Gain (loss) on sale of securities
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$
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616
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available for sale
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Impairment loss on securities
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|
|
|
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616
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|
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Total reclassified before tax
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216
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Income tax expense (benefit)
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$
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400
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Net reclassified amount
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36
(18) SUBSEQUENT EVENTS
Upon receipt of written non-objection from the FRB, the Companys Board of Directors declared a cash dividend of
$0.10 per share on July 1, 2014, payable on July 25, 2014, to shareholders of record as of July 11, 2014. In addition, the Company received regulatory written non-objection to pay accrued interest on its outstanding Trust Preferred
Securities on the July 30, 2014, payment date, which amounted to $122,000.
On July 22, 2014, the Federal Reserve
Bank of Kansas City, NASB Financial Inc.s primary regulator, announced that their written agreement with the Company dated November 29, 2012, was terminated.