XNAS:PULB Pulaski Financial Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

0-24571

Commission File Number

 

Pulaski Financial Corp.

(Exact name of registrant as specified in its charter)

 

Missouri

 

43-1816913

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

12300 Olive Boulevard

 

 

St. Louis, Missouri

 

63141-6434

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (314) 878-2210

 

Not Applicable

(Former name, address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

(Do not check if a smaller reporting company.)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes o  No x

 

Indicate the number of shares outstanding of the registrant’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at May 9, 2012

Common Stock, par value $.01 per share

 

11,259,923 shares

 

 

 



Table of Contents

 

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

 

FORM 10-Q

 

MARCH 31, 2012

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2012 and September 30, 2011 (Unaudited)

1

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended March 31, 2012 and 2011 (Unaudited)

2

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the Six Months Ended March 31, 2012 (Unaudited)

3

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2012 and 2011 (Unaudited)

4

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

50

 

 

 

Item 4.

Controls and Procedures

50

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

52

 

 

 

Item 1A.

Risk Factors

52

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

 

 

 

Item 3.

Defaults Upon Senior Securities

52

 

 

 

Item 4.

Mine Safety Disclosures

53

 

 

 

Item 5.

Other Information

53

 

 

 

Item 6.

Exhibits

53

 

 

 

 

Signatures

 

 



Table of Contents

 

PART I - FINANCIAL INFORMATION

 



Table of Contents

 

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2012 AND SEPTEMBER 30, 2011 (UNAUDITED)

 

 

 

March 31,

 

September 30,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

Cash and amounts due from depository institutions

 

$

15,092,615

 

$

16,433,765

 

Federal funds sold and overnight interest-bearing deposits

 

31,028,733

 

40,637,241

 

Total cash and cash equivalents

 

46,121,348

 

57,071,006

 

Debt securities available for sale, at fair value

 

10,931,777

 

14,457,072

 

Mortgage-backed securities held to maturity, at amortized cost (fair value of $6,828,377 and $7,727,314 at March 31, 2012 and September 30, 2011, respectively)

 

6,420,222

 

7,234,139

 

Mortgage-backed securities available for sale, at fair value

 

584,081

 

2,751,871

 

Capital stock of Federal Home Loan Bank, at cost

 

3,940,400

 

3,100,400

 

Mortgage loans held for sale, at lower of cost or market

 

149,977,758

 

100,718,753

 

Loans receivable (net of allowance for loan losses of $18,254,381 and $25,713,622 at March 31, 2012 and September 30, 2011, respectively)

 

998,389,793

 

1,021,272,809

 

Real estate acquired in settlement of loans (net of allowance for losses of $3,574,544 and $2,515,800 at March 31, 2012 and September 30, 2011, respectively)

 

17,035,528

 

18,717,814

 

Premises and equipment, net

 

18,440,360

 

18,458,166

 

Goodwill

 

3,938,524

 

3,938,524

 

Accrued interest receivable

 

3,851,419

 

3,852,790

 

Bank-owned life insurance

 

31,353,118

 

30,842,466

 

Deferred tax assets

 

10,040,471

 

12,772,637

 

Prepaid expenses, accounts receivable and other assets

 

16,262,597

 

14,020,189

 

Total assets

 

$

1,317,287,396

 

$

1,309,208,636

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits

 

$

1,110,824,058

 

$

1,122,524,913

 

Advances from Federal Home Loan Bank

 

49,000,000

 

29,000,000

 

Subordinated debentures

 

19,589,000

 

19,589,000

 

Advance payments by borrowers for taxes and insurance

 

2,775,379

 

4,945,918

 

Accrued interest payable

 

718,803

 

840,186

 

Other liabilities

 

11,731,288

 

12,138,433

 

Total liabilities

 

1,194,638,528

 

1,189,038,450

 

Stockholders’ Equity:

 

 

 

 

 

Preferred stock - $.01 par value per share, 1,000,000 shares authorized; 32,538 shares issued at March 31, 2012 and September 30, 2011, $1,000 per share liquidation value, net of discount

 

31,749,055

 

31,527,176

 

Common stock - $.01 par value per share, 18,000,000 shares authorized; 13,068,618 shares issued at March 31, 2012 and September 30, 2011

 

130,687

 

130,687

 

Treasury stock-at cost; 2,312,327 and 2,588,340 shares at March 31, 2012 and September 30, 2011, respectively

 

(16,531,362

)

(17,380,790

)

Additional paid-in capital from common stock

 

57,766,834

 

57,608,062

 

Accumulated other comprehensive income, net

 

19,483

 

310

 

Retained earnings

 

49,514,171

 

48,284,741

 

Total stockholders’ equity

 

122,648,868

 

120,170,186

 

Total liabilities and stockholders’ equity

 

$

1,317,287,396

 

$

1,309,208,636

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

1



Table of Contents

 

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

THREE AND SIX MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

Interest and Dividend Income:

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

12,648,909

 

$

13,512,863

 

$

25,849,908

 

$

27,097,712

 

Mortgage loans held for sale

 

1,277,343

 

1,135,092

 

2,587,840

 

4,364,200

 

Securities and other

 

84,495

 

169,689

 

196,635

 

480,153

 

Total interest and dividend income

 

14,010,747

 

14,817,644

 

28,634,383

 

31,942,065

 

Interest Expense:

 

 

 

 

 

 

 

 

 

Deposits

 

1,824,108

 

2,972,583

 

3,969,025

 

6,170,111

 

Advances from Federal Home Loan Bank

 

227,323

 

233,453

 

459,305

 

616,412

 

Subordinated debentures

 

138,514

 

125,417

 

270,666

 

253,156

 

Total interest expense

 

2,189,945

 

3,331,453

 

4,698,996

 

7,039,679

 

Net interest income

 

11,820,802

 

11,486,191

 

23,935,387

 

24,902,386

 

Provision for loan losses

 

5,500,000

 

3,500,000

 

8,500,000

 

7,800,000

 

Net interest income after provision for loan losses

 

6,320,802

 

7,986,191

 

15,435,387

 

17,102,386

 

Non-Interest Income:

 

 

 

 

 

 

 

 

 

Mortgage revenues

 

1,896,565

 

847,897

 

3,583,281

 

2,694,705

 

Retail banking fees

 

978,353

 

943,997

 

1,979,914

 

1,970,067

 

Investment brokerage revenues

 

396,601

 

601,971

 

770,928

 

1,048,455

 

Bank-owned life insurance

 

249,482

 

265,257

 

510,652

 

530,630

 

Other

 

33,724

 

31,742

 

125,375

 

95,178

 

Total non-interest income

 

3,554,725

 

2,690,864

 

6,970,150

 

6,339,035

 

Non-Interest Expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

3,780,550

 

4,079,540

 

7,523,999

 

7,481,542

 

Occupancy, equipment and data processing expense

 

2,329,166

 

2,234,218

 

4,509,818

 

4,306,537

 

Advertising

 

104,609

 

136,876

 

212,811

 

237,267

 

Professional services

 

402,775

 

445,837

 

829,212

 

890,547

 

FDIC deposit insurance premium expense

 

440,882

 

853,709

 

881,742

 

1,476,945

 

Real estate foreclosure losses and expense, net

 

388,088

 

726,564

 

1,133,273

 

1,811,689

 

Other

 

495,669

 

731,308

 

982,312

 

1,304,599

 

Total non-interest expense

 

7,941,739

 

9,208,052

 

16,073,167

 

17,509,126

 

Income before income taxes

 

1,933,788

 

1,469,003

 

6,332,370

 

5,932,295

 

Income tax expense

 

564,780

 

402,313

 

1,921,287

 

1,748,253

 

Net income

 

$

1,369,008

 

$

1,066,690

 

$

4,411,083

 

$

4,184,042

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities available for sale

 

8,326

 

(26,767

)

19,173

 

(44,154

)

Comprehensive income

 

$

1,377,334

 

$

1,039,923

 

$

4,430,256

 

$

4,139,888

 

Income available to common shares

 

$

851,149

 

$

550,379

 

$

3,375,754

 

$

3,151,804

 

Per Common Share Amounts:

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.08

 

$

0.05

 

$

0.32

 

$

0.30

 

Weighted average common shares outstanding - basic

 

10,659,123

 

10,532,730

 

10,632,225

 

10,519,803

 

Diluted earnings per common share

 

$

0.08

 

$

0.05

 

$

0.30

 

$

0.29

 

Weighted average common shares outstanding - diluted

 

11,132,612

 

10,986,206

 

11,069,306

 

10,967,170

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

2



Table of Contents

 

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED MARCH 31, 2012 (UNAUDITED)

 

 

 

Preferred

 

 

 

 

 

Additional

 

Accumulated

 

 

 

 

 

 

 

Stock,

 

 

 

 

 

Paid-In

 

Other

 

 

 

 

 

 

 

Net of

 

Common

 

Treasury

 

Capital From

 

Comprehensive

 

Retained

 

 

 

 

 

Discount

 

Stock

 

Stock

 

Common Stock

 

Income (Loss), Net

 

Earnings

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2011

 

$

31,527,176

 

$

130,687

 

$

(17,380,790

)

$

57,608,062

 

$

310

 

$

48,284,741

 

$

120,170,186

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

4,411,083

 

4,411,083

 

Other comprehensive income

 

 

 

 

 

19,173

 

 

19,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

19,173

 

4,411,083

 

4,430,256

 

Common stock dividends ($0.095 per share)

 

 

 

 

 

 

(2,146,324

)

(2,146,324

)

Preferred stock dividends

 

 

 

 

 

 

(813,450

)

(813,450

)

Accretion of discount on preferred stock

 

221,879

 

 

 

 

 

(221,879

)

 

Stock options excercised

 

 

 

136,945

 

72,986

 

 

 

209,931

 

Stock option and award expense

 

 

 

 

540,047

 

 

 

540,047

 

Commmon stock purchased under dividend reinvestment plan

 

 

 

 

(11,033

)

 

 

(11,033

)

Common stock issued under employee compensation plans, net (234,260 shares)

 

 

 

687,099

 

(740,381

)

 

 

(53,282

)

Issuance of equity trust shares from Treasury, net of forfeitures

 

 

 

 

179,973

 

 

 

179,973

 

Distribution of equity trust shares

 

 

 

25,384

 

(25,384

)

 

 

 

 

 

 

Amortization of equity trust expense

 

 

 

 

142,612

 

 

 

142,612

 

Tax cost from release of equity shares

 

 

 

 

(1,334

)

 

 

(1,334

)

Excess tax benefit from stock-based compensation

 

 

 

 

1,286

 

 

 

1,286

 

Balance, March 31, 2012

 

$

31,749,055

 

$

130,687

 

$

(16,531,362

)

$

57,766,834

 

$

19,483

 

$

49,514,171

 

$

122,648,868

 

 

See accompanying  notes to the unaudited consolidated financial statements.

 

3


 


Table of Contents

 

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

 

 

 

Six Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

 

$

4,411,083

 

$

4,184,042

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

Depreciation, amortization and accretion:

 

 

 

 

 

Premises and equipment

 

1,012,616

 

987,282

 

Net deferred loan costs

 

1,110,291

 

951,413

 

Debt and equity securities premiums and discounts, net

 

196,323

 

116,857

 

Equity trust expense, net

 

142,612

 

192,585

 

Stock option and award expense

 

540,047

 

326,751

 

Provision for loan losses

 

8,500,000

 

7,800,000

 

Provision for losses on real estate acquired in settlement of loans

 

1,364,244

 

1,317,200

 

Gains on sales of real estate acquired in settlement of loans

 

(308,287

)

(31,128

)

Originations of mortgage loans held for sale

 

(686,962,005

)

(838,052,074

)

Proceeds from sales of mortgage loans held for sale

 

640,646,666

 

1,046,511,870

 

Gain on sales of mortgage loans held for sale

 

(2,943,666

)

(2,859,870

)

Increase in cash value of bank-owned life insurance

 

(510,652

)

(530,630

)

Decrease (increase) in deferred tax asset

 

2,732,166

 

(120,413

)

Excess tax benefit from stock-based compensation

 

(1,286

)

(113,301

)

Tax expense for release of equity trust shares

 

1,334

 

43,731

 

Decrease in accrued expenses

 

(411,880

)

(406,677

)

Decrease in current income taxes payable

 

(2,641,967

)

(3,078,967

)

Changes in other assets and liabilities

 

272,484

 

(735,813

)

Net adjustments

 

(37,260,960

)

212,318,816

 

Net cash (used in) provided by operating activities

 

(32,849,877

)

216,502,858

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

Proceeds from:

 

 

 

 

 

Maturities of debt securities available for sale

 

23,300,000

 

28,500,000

 

Principal payments on mortgage-backed securities

 

2,953,539

 

4,894,371

 

Redemption of Federal Home Loan Bank stock

 

2,147,300

 

11,035,100

 

Sales of real estate acquired in settlement of loans receivable

 

3,329,080

 

6,126,568

 

Purchases of:

 

 

 

 

 

Debt securities available for sale

 

(19,911,937

)

(30,164,629

)

Federal Home Loan Bank stock

 

(2,987,300

)

(4,321,100

)

Premises and equipment

 

(994,810

)

(638,521

)

Net decrease (increase) in loans receivable

 

10,569,974

 

(19,762,173

)

Net cash provided by (used in) investing activities

 

$

18,405,846

 

$

(4,330,384

)

 

Continued on next page.

 

4



Table of Contents

 

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED MARCH 31, 2012 AND 2011, CONTINUED (UNAUDITED)

 

 

 

Six Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Cash Flows From Financing Activities:

 

 

 

 

 

Net (decrease) increase in deposits

 

$

(11,700,855

)

$

42,696,274

 

Proceeds from Federal Home Loan Bank advances, net

 

20,000,000

 

(152,000,000

)

Net decrease in advance payments by borrowers for taxes and insurance

 

(2,170,539

)

(4,980,206

)

Proceeds from stock options excercised

 

209,931

 

193,954

 

Issuance of equity trust shares, net

 

179,973

 

358,320

 

Excess tax benefit from stock based compensation

 

1,286

 

113,301

 

Tax expense for release of equity trust shares

 

(1,334

)

(43,731

)

Dividends paid on common stock

 

(2,146,324

)

(2,087,684

)

Dividends paid on preferred stock

 

(813,450

)

(813,450

)

Common stock issued under employee compensation plan

 

45,878

 

35,024

 

Common stock purchased under dividend reinvestment plan

 

(11,033

)

(15,541

)

Common stock surrendered to satisfy tax withholding obligations of stock-based compensation

 

(99,160

)

(82,400

)

Net cash provided by (used in) financing activities

 

3,494,373

 

(116,626,139

)

Net (decrease) increase in cash and cash equivalents

 

(10,949,658

)

95,546,335

 

Cash and cash equivalents at beginning of period

 

57,071,006

 

15,602,804

 

Cash and cash equivalents at end of period

 

$

46,121,348

 

$

111,149,139

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest on deposits

 

$

4,092,605

 

$

6,182,235

 

Interest on advances from Federal Home Loan Bank

 

458,961

 

616,412

 

Interest on subordinated debentures

 

268,218

 

272,304

 

Cash paid during the period for interest

 

4,819,784

 

7,070,951

 

Income taxes, net

 

1,842,887

 

4,851,000

 

 

 

 

 

 

 

Noncash Investing Activities:

 

 

 

 

 

Real estate acquired in settlement of loans receivable

 

2,702,751

 

4,886,007

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

5



Table of Contents

 

PULASKI FINANCIAL CORP. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.                     BASIS OF PRESENTATION

 

The unaudited consolidated financial statements include the accounts of Pulaski Financial Corp. (the “Company”) and its wholly owned subsidiary, Pulaski Bank (the “Bank”), and the Bank’s wholly owned subsidiaries, Pulaski Service Corporation and Priority Property Holdings, LLC.  All significant intercompany accounts and transactions have been eliminated.  The assets of the Company consist primarily of the investment in the outstanding shares of the Bank and its liabilities consist principally of obligations on its subordinated debentures.  Accordingly, the information set forth in this report, including the consolidated financial statements and related financial data, relates primarily to the Bank.  The Company, through the Bank, operates as a single business segment, providing traditional community banking services through its full service branch network.

 

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of March 31, 2012 and September 30, 2011 and its results of operations for the three- and six-month periods ended March 31, 2012 and 2011.  The results of operations for the three- and six-month period ended March 31, 2012 are not necessarily indicative of the operating results that may be expected for the entire fiscal year or for any other period.  These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended September 30, 2011 contained in the Company’s 2011 Annual Report to Stockholders, which was filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended September 30, 2011.

 

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements that affect the reported amounts of revenues and expenses during the reported periods.  Actual results could differ from those estimates.  The allowance for loan losses is a significant estimate reported within the consolidated financial statements.

 

Certain reclassifications have been made to fiscal 2011 amounts to conform to the fiscal 2012 presentation.

 

The Company has evaluated all subsequent events to ensure that the accompanying financial statements include the effects of any subsequent events that should be recognized in such financial statements as of March 31, 2012, and the appropriate disclosure of any subsequent events that were not recognized in the financial statements.

 

2.                     PREFERRED STOCK

 

In January 2009, as part of the U.S. Department of Treasury’s Capital Purchase Program, the Company issued 32,538 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 per share liquidation preference, and a warrant to purchase up to 778,421 shares of the Company’s common stock for a period of ten years at an exercise price of $6.27 per share in exchange for $32.5 million in cash from the U.S. Department of Treasury.  The proceeds, net of issuance costs consisting primarily of legal fees, were allocated between the preferred stock and the warrant on a pro rata basis based upon the estimated market values of the preferred stock and the warrant.  As a result, $2.2 million of the proceeds were allocated to the warrant, which increased additional paid in capital from common stock.  The amount allocated to the warrant is treated as a discount on the preferred stock and is being accreted using the level yield method over a five-year period through a charge to retained earnings.  Such accretion does not reduce net income, but reduces income available to common shares.

 

The fair value of the preferred stock was estimated on the date of issuance by computing the present value of expected future cash flows using a risk-adjusted rate of return for similar securities equal to 12%.  The fair value of the warrant

 

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was estimated on the date of grant using the Black-Scholes option pricing model assuming a risk-free interest rate of 4.30%, expected volatility of 35.53% and a dividend yield of 4.27%.

 

The preferred stock pays cumulative dividends of 5% per year for the first five years and 9% per year thereafter.  The Company may, at its option, redeem the preferred stock at its liquidation preference plus accrued and unpaid dividends.  The securities purchase agreement between the Company and the U.S. Treasury subjects the Company to certain executive compensation limitations included in the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009.

 

3.                     EARNINGS PER COMMON SHARE

 

Basic earnings per common share is computed using the weighted average number of common shares outstanding.  The dilutive effect of potential common shares outstanding is included in diluted earnings per share.  The computations of basic and diluted earnings per common share are presented in the following table.

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net income

 

$

1,369,008

 

$

1,066,690

 

$

4,411,083

 

$

4,184,042

 

Less:

 

 

 

 

 

 

 

 

 

Preferred dividends declared

 

(406,725

)

(406,725

)

(813,450

)

(813,450

)

Accretion of discount on preferred stock

 

(111,134

)

(109,586

)

(221,879

)

(218,788

)

Income available to common shares

 

$

851,149

 

$

550,379

 

$

3,375,754

 

$

3,151,804

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

10,659,123

 

10,532,730

 

10,632,225

 

10,519,803

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Treasury stock held in equity trust - unvested shares

 

303,890

 

311,810

 

303,141

 

301,599

 

Equivalent shares - employee stock options and awards

 

44,551

 

19,253

 

42,941

 

28,688

 

Equivalent shares - common stock warrant

 

125,048

 

122,413

 

90,999

 

117,080

 

Weighted average common shares outstanding - diluted

 

11,132,612

 

10,986,206

 

11,069,306

 

10,967,170

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

$

0.05

 

$

0.32

 

$

0.30

 

Diluted

 

$

0.08

 

$

0.05

 

$

0.30

 

$

0.29

 

 

Under the treasury stock method, outstanding stock options are dilutive when the average market price of the Company’s common stock, combined with the effect of any unamortized compensation expense, exceeds the option price during a period.  Proceeds from the assumed exercise of dilutive options along with the related tax benefit are assumed to be used to repurchase common shares at the average market price of such stock during the period.  Similarly, outstanding warrants are dilutive when the average market price of the Company’s common stock exceeds the exercise price during a period.  Proceeds from the assumed exercise of dilutive warrants are assumed to be used to repurchase common shares at the average market price of such stock during the period.

 

Options to purchase common shares totaling 595,090 and 635,195 during the three months ended March 31, 2012 and 2011, respectively, and 625,093 and 641,903 during the six months ended March 31, 2012 and 2011, respectively, were excluded from the computations of diluted earnings per share because the exercise price of the options, when combined with the effect of the unamortized compensation expense, were greater than the average market price of such stock during the periods.  There were no warrants determined to be anti-dilutive that were excluded from the respective computations of diluted earnings per share during the three- and six-month periods ended March 31, 2012 and 2011.

 

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4.    STOCK-BASED COMPENSATION

 

The Company maintains shareholder-approved, stock-based incentive plans, which permit the granting of options to purchase common stock of the Company and awards of restricted shares of common stock.  Employees, non-employee directors and consultants of the Company and its affiliates are eligible to receive awards under the plans.  The plans authorize the granting of awards in the form of options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code, options that do not so qualify (non-statutory stock options) and granting of restricted shares of common stock.  Stock option awards are generally granted with an exercise price equal to the market value of the Company’s shares at the date of grant and generally vest over a period of three to five years.  The exercise period for all stock options generally may not exceed 10 years from the date of grant.  Restricted stock awards generally vest over a period of two to five years. Generally, option and share awards provide for accelerated vesting if there is a change in control (as defined in the plans). As a participant in the U.S. Department of Treasury’s Capital Purchase Program, certain employees are prohibited from receiving golden parachute payments while the Company has any outstanding preferred stock related to the program.  Under the Treasury’s regulations, golden parachute payments are defined to include any payment due to a change in control of the Company, which includes the acceleration of vesting in stock-based incentive plans due to the departure of a covered employee or a change in control.  Accordingly, the affected employees have signed agreements to forfeit the right to accelerated vesting while any funds related to the Treasury’s program are outstanding.  Shares used to satisfy stock awards and stock option exercises are generally issued from treasury stock.  At March 31, 2012, the Company had 106,026 reserved but unissued shares that can be awarded in the form of stock options or restricted share awards.

 

A summary of the Company’s restricted stock awards as of March 31, 2012 and changes during the six-month period then ended, is presented below:

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Number

 

Grant-Date

 

 

 

Of Shares

 

Fair Value

 

Nonvested at September 30, 2011

 

115,078

 

$

6.89

 

Granted

 

241,227

 

6.92

 

Vested

 

(47,877

)

6.02

 

Forfeited

 

(758

)

6.59

 

Nonvested at March 31, 2012

 

307,670

 

$

7.05

 

 

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A summary of the Company’s stock option program as of March 31, 2012 and changes during the six-month period then ended, is presented below:

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

Average

 

 

 

 

 

Average

 

Aggregate

 

Remaining

 

 

 

Number

 

Exercise

 

Intrinsic

 

Contractual

 

 

 

Of Shares

 

Price

 

Value

 

Life (years)

 

Outstanding at September 30, 2011

 

759,684

 

$

10.56

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

(38,875

)

5.40

 

 

 

 

 

Forfeited

 

(15,042

)

10.30

 

 

 

 

 

Outstanding at March 31, 2012

 

705,767

 

$

10.85

 

$

204,220

 

4.9

 

Exercisable at March 31, 2012

 

615,467

 

$

10.74

 

$

198,001

 

4.7

 

 

As of March 31, 2012, the total unrecognized compensation expense related to non-vested stock options and restricted stock awards was approximately $145,000 and $1.5 million, respectively, and the related weighted average period over which it is expected to be recognized is approximately 0.98 and 2.2 years, respectively.  There were no stock options granted during the six-month periods ended March 31, 2012 and 2011.

 

The Company maintains a deferred compensation plan (“Equity Trust Plan”) for the benefit of key loan officers and sales staff.  The plan is designed to recruit and retain top-performing loan officers and other key revenue-producing employees who are instrumental to the Company’s success.  The plan allows the recipients to defer a percentage of commissions earned into a rabbi trust for the benefit of the participants.  The assets of the trust are limited to shares of Company common stock and cash.  Awards generally vest over a period of three to five years, and the participants will forgo any accrued but unvested benefits if they voluntarily leave the Company.  Vested shares in the plan are treated as issued and outstanding when computing basic and diluted earnings per share, whereas unvested shares are treated as issued and outstanding only when computing diluted earnings per share.  During the six months ended March 31, 2012, the Company purchased 27,211 shares on behalf of the participants at an average price of $6.67 and distributed 2,878 vested shares to participants with an aggregate market value at the time of distribution of $25,400.  At March 31, 2012, there were 530,796 shares in the plan with an aggregate market value of $4.7 million.  Such shares were included in treasury stock in the Company’s consolidated financial statements, including 255,657 shares that were not yet vested.

 

5.    INCOME TAXES

 

Deferred tax assets totaled $10.0 million at March 31, 2012 and $12.8 million at September 30, 2011, and resulted primarily from the temporary differences related to the allowance for loan losses.  Deferred tax assets are recognized only to the extent that they are expected to be used to reduce amounts that have been paid or will be paid to tax authorities.  Management believes, based on all positive and negative evidence, that the realization of the deferred tax asset at March 31, 2012 is more likely than not, and accordingly, no valuation allowance has been recorded.  The ultimate outcome of future facts and circumstances could require a valuation allowance and any charges to establish such valuation allowance could have a material adverse effect on the Company’s results of operations and financial position.

 

At March 31, 2012, the Company had $137,000 of unrecognized tax benefits, $129,000 of which would affect the effective tax rate if recognized.  The Company recognizes interest related to uncertain tax positions in income tax expense and classifies such interest and penalties in the liability for unrecognized tax benefits.  As of March 31, 2012, the Company had approximately $8,000 accrued for the payment of interest and penalties.  The tax years ended September 30, 2008 through 2011 remain open to examination by the taxing jurisdictions to which the Company is subject.

 

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6.    DEBT SECURITIES

 

The amortized cost and estimated fair value of debt securities available for sale at March 31, 2012 and September 30, 2011 are summarized as follows:

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

March 31, 2012:

 

 

 

 

 

 

 

 

 

Debt obligations of government-sponsored entities

 

$

10,930,824

 

$

1,269

 

$

(316

)

$

10,931,777

 

Weighted average yield at end of period

 

0.26

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2011:

 

 

 

 

 

 

 

 

 

Debt obligations of government-sponsored entities

 

$

14,456,776

 

$

3,245

 

$

(2,949

)

$

14,457,072

 

Weighted average yield at end of period

 

0.47

%

 

 

 

 

 

 

 

As of March 31, 2012 and September 30, 2011, the Company did not have any debt securities available for sale that were in a continuous loss position for twelve months or more.  Debt securities with carrying values totaling approximately $10.9 million at March 31, 2012 were pledged to secure deposits of public entities, trust funds, and for other purposes as required by law.

 

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Table of Contents

 

7.  MORTGAGE-BACKED SECURITIES

 

Mortgage-backed securities held to maturity and available for sale at March 31, 2012 and September 30, 2011 are summarized as follows:

 

 

 

March 31, 2012

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Ginnie Mae

 

$

112,316

 

$

16,038

 

$

 

$

128,354

 

Fannie Mae

 

6,302,161

 

392,057

 

 

6,694,218

 

Total mortgage-backed securities

 

6,414,477

 

408,095

 

 

6,822,572

 

Collateralized mortgage obligations - Freddie Mac

 

5,745

 

60

 

 

5,805

 

Total held to maturity

 

$

6,420,222

 

$

408,155

 

$

 

$

6,828,377

 

Weighted average yield at end of period

 

3.75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - Ginnie Mae

 

$

317,287

 

$

35,398

 

$

 

$

352,685

 

Collateralized mortgage obligations - Fannie Mae

 

236,322

 

 

(4,926

)

231,396

 

Total available for sale

 

$

553,609

 

$

35,398

 

$

(4,926

)

$

584,081

 

Weighted average yield at end of period

 

4.90

%

 

 

 

 

 

 

 

 

 

September 30, 2011

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Freddie Mac

 

$

12

 

$

 

$

(1

)

$

11

 

Ginnie Mae

 

122,417

 

18,738

 

 

141,155

 

Fannie Mae

 

7,104,972

 

474,378

 

 

7,579,350

 

Total

 

7,227,401

 

493,116

 

(1

)

7,720,516

 

Collateralized mortgage obligations - Freddie Mac

 

6,738

 

60

 

 

6,798

 

Total held to maturity

 

$

7,234,139

 

$

493,176

 

$

(1

)

$

7,727,314

 

Weighted average yield at end of period

 

3.84

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - Ginnie Mae

 

$

339,350

 

$

38,820

 

$

 

$

378,170

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

Freddie Mac

 

21,396

 

 

(38

)

21,358

 

Ginnie Mae

 

764,669

 

 

(11,515

)

753,154

 

Fannie Mae

 

1,626,250

 

 

(27,061

)

1,599,189

 

Total

 

2,412,315

 

 

(38,614

)

2,373,701

 

Total available for sale

 

$

2,751,665

 

$

38,820

 

$

(38,614

)

$

2,751,871

 

Weighted average yield at end of period

 

4.23

%

 

 

 

 

 

 

 

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As of March 31, 2012, the Company did not have any mortgage-backed securities held to maturity that were in a continuous loss position for 12 months or more.  The following summary below displays the length of time mortgage-backed securities available for sale were in a continuous unrealized loss position as of March 31, 2012.  The unrealized losses were not deemed to be other than temporary.  The Company does not have the intent to dispose of these investments and it is not more likely than not that the Company will be required to sell these investments prior to recovery of the unrealized losses.  Further, the Company believes the deterioration in value is attributable to changes in market interest rates and not the credit quality of the issuer.

 

 

 

Length of Time in Continuous Unrealized Loss Position at March 31, 2012

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

$

 

$

 

$

231,396

 

4,926

 

$

231,396

 

$

4,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total available for sale

 

$

 

$

 

$

231,396

 

$

4,926

 

$

231,396

 

$

4,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of total

 

 

 

100.0

%

100.0

%

100.0

%

100.0

%

 

As of September 30, 2011, the Company did not have any mortgage-backed securities held to maturity or available for sale that were in a continuous loss position for 12 months or more.  Mortgage-backed securities with carrying values totaling approximately $7.0 million at March 31, 2012 were pledged to secure deposits of public entities, trust funds, and for other purposes as required by law.

 

8.  LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

 

Loans receivable at March 31, 2012 and September 30, 2011 are summarized as follows: 

 

 

 

March 31,

 

September 30,

 

 

 

2012

 

2011

 

Single-family residential:

 

 

 

 

 

First mortgage

 

$

224,476,404

 

$

242,091,310

 

Second mortgage

 

45,376,384

 

51,535,399

 

Home equity lines of credit

 

158,895,763

 

176,324,206

 

Commercial:

 

 

 

 

 

Commercial and multi-family real estate

 

326,730,818

 

316,210,346

 

Land acquisition and development

 

49,974,767

 

51,497,056

 

Real estate construction and development

 

17,101,939

 

22,330,981

 

Commercial and industrial

 

189,193,963

 

180,821,164

 

Consumer and installment

 

2,220,741

 

3,116,742

 

 

 

1,013,970,779

 

1,043,927,204

 

Add (less):

 

 

 

 

 

Deferred loan costs

 

3,254,430

 

3,625,440

 

Loans in process

 

(581,035

)

(566,213

)

Allowance for loan losses

 

(18,254,381

)

(25,713,622

)

Total

 

$

998,389,793

 

$

1,021,272,809

 

 

 

 

 

 

 

Weighted average interest rate at end of period

 

5.12

%

5.30

%

 

 

 

 

 

 

Ratio of allowance to total outstanding loans

 

1.80

%

2.46

%

 

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Table of Contents

 

Allowance for Loan Losses

 

The Company maintains an allowance for loan losses to absorb probable losses in the Company’s loan portfolio.  Loan charge-offs are charged against and recoveries are credited to the allowance.  Provisions for loan losses are charged to income and credited to the allowance in an amount necessary to maintain an appropriate allowance given the risks identified in the portfolio.  The allowance is comprised of specific allowances on impaired loans (assessed for loans that have known credit weaknesses) and pooled or general allowances based on risk characteristics and historical loan loss experience for each loan type.  The allowance is based upon management’s quarterly estimates of probable losses inherent in the loan portfolio.

 

In general, impairment losses on all single-family residential real estate loans that become 180 days past due and all consumer loans that become 120 days past due are recognized through charge-offs to the allowance for loan losses.  For impaired single-family residential real estate and consumer loans that do not meet these criteria, management considers many factors before charging off a loan and might establish a specific reserve in lieu of a charge-off.  While the delinquency status of the loan is a primary factor in determining whether to establish a specific reserve or record a charge-off, other key factors are considered, including the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral.  For purposes of determining the allowance for loan losses, all residential and consumer loan charge-offs and changes in the level of specific reserves are included in the determination of historical loss rates for each pool of loans with similar risk characteristics, as described below.

 

For commercial loans, all or a portion of a loan is charged off when circumstances indicate that a loss is probable and there is no longer a reasonable expectation that a change in such circumstances will result in the collection of the full amount of the loan.  Similar to single-family residential real estate loans, management considers many factors before charging off a loan.  While the delinquency status of the loan is a primary factor, other key factors are considered and the Company does not charge off commercial loans based solely on a predetermined length of delinquency.  The other factors considered include the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral.  For purposes of determining the allowance for loan losses, all commercial loan charge-offs and changes in the level of specific reserves are included in the determination of historical loss rates for each pool of loans with similar risk characteristics, as described below.

 

As the result of the Company’s required change from the Office of Thrift Supervision’s (“OTS”) Thrift Financial Reports to the Office of the Comptroller of Currency’s (“OCC”) Call Reports that became effective March 31, 2012, the Company modified its charge-off policy during the three months ended March 31, 2012 to comply with the OCC’s guidelines.  As formerly permitted by the OTS, the Company had previously used specific loan loss reserves to recognize impairment charges on certain collateral dependent loans under certain circumstances.  In general under the Company’s previous policy, a specific reserve could have been recorded in lieu of a charge-off on an impaired collateral dependent loan when management believed that the borrower still had the ability to bring the loan current or could provide additional collateral.  The Company did not charge off loans based solely on a predetermined length of delinquency.  Also, to enhance tracking of payment performance and facilitate billing and collection efforts, specific reserves were generally established in lieu of partial charge-offs on single-family residential real estate loans.  Once collection efforts failed, all or a portion of the loan was generally charged off, as appropriate.  The OCC generally requires such impairment charges to be recognized through loan charge-offs.  For purposes of determining the allowance for loan losses, all charge-offs and changes in the level of specific reserves were included in the determination of historical loss rates for each pool of loans with similar risk characteristics.

 

As the result of the modifications to the loan charge-off policy to comply with the OCC’s guidance, the Company recorded $5.9 million of charge-offs during the March 2012 quarter for loans that it had established specific reserves in previous periods.  Because these losses had been recognized in prior periods, the charge-off of the $5.9 million of specific reserves had no impact on the Company’s provision for loan losses or stockholders’ equity during the three months ended March 31, 2012.

 

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During the three months ended March 31, 2012 and 2011, charge-offs of impaired loans totaled $13.2 million and $4.2 million, respectively, including partial charge-offs of $8.1 million and $0, respectively.  During the six months ended March 31, 2012 and 2011, charge-offs of impaired loans totaled $16.2 million and $8.3 million, respectively, including partial charge-offs of $8.1 million and $2.8 million, respectively.  At March 31, 2012 and September 30, 2011, the remaining principal balance of non-performing and impaired loans for which the Company previously recorded partial charge-offs totaled $17.1 million and $317,000, respectively.  For further information, see the discussion of impaired loans below.

 

For purposes of determining the allowance for loan losses, the Company has segmented its loan portfolio into the following pools (or segments) that have similar risk characteristics: residential loans, commercial loans and consumer loans.  Loans within these segments are further divided into subsegments, or classes, based on the associated risks within these subsegments. Residential loans are divided into three classes, including single-family first mortgage loans, single-family second mortgage loans and home equity lines of credit.  Commercial loans are divided into four classes, including land acquisition and development loans, real estate construction and development loans, commercial and multi-family real estate loans and commercial and industrial loans.  Consumer loans are not subsegmented because of the small balance in this segment.  The following is a summary of the significant risk characteristics for each segment of loans:

 

Residential mortgage loans are secured by one- to four-family residential properties with loan-to-value ratios at the time of origination generally equal to 80% or less.  Such loans with loan-to-value ratios of greater than 80% at the time of origination generally require private mortgage insurance.  Second mortgage loans and home equity lines of credit generally involve greater credit risk than first mortgage loans because they are secured by mortgages that are subordinate to the first mortgage on the property.  If the borrower is forced into foreclosure, the Company will receive no proceeds from the sale of the property until the first mortgage has been completely repaid.  Prior to 2008, the Company offered second mortgage loans that exceeded 80% combined loan-to-value ratios, which were priced with enhanced yields.  The Company continues to offer second mortgage loans up to 80% of the collateral values on a limited basis to credit-worthy borrowers.  However, the current underwriting guidelines are more stringent due to the current adverse economic environment.

 

Commercial loans represent loans to varying types of businesses, including municipalities, school districts and nonprofit organizations, to support working capital, operational needs and term financing of equipment.  Repayment of such loans is generally provided through operating cash flows of the business.  Commercial and multi-family real estate loans include loans secured by real estate occupied by the borrower for ongoing operations, non-owner occupied real estate leased to one or more tenants and greater-than-four family apartment buildings.  Land acquisition and development loans are made to borrowers for the purpose of infrastructure improvements to vacant land to create finished marketable residential and commercial lots or land.  Most land development loans are originated with the intention that the loans will be paid through the sale of developed lots or land by the developers generally within twelve months of the completion date.  Real estate construction and development loans include secured loans for the construction of residential properties by real estate professionals and, to a lesser extent, individuals, and business properties that often convert to a commercial real estate loan at the completion of the construction period.  Commercial and industrial loans include loans made to support working capital, operational needs and term financing of equipment and are generally secured by equipment, inventory, accounts receivable and personal guarantees of the owner.  Repayment of such loans is generally provided through operating cash flows of the business, with the liquidation of collateral as a secondary repayment source.

 

Consumer loans include primarily loans secured by savings accounts and automobiles.  Savings account loans are fully secured by restricted deposit accounts held at the Bank.  Automobile loans include loans secured by new and pre-owned automobiles.

 

In determining the allowance and the related provision for loan losses, the Company establishes valuation allowances or records loan charge-offs based upon probable losses identified during the review of impaired loans. These estimates are based upon a number of factors, such as payment history, financial condition of the borrower and discounted collateral exposure.  For further information, see the discussion of impaired loans below.  In addition, all loans that are not evaluated individually for impairment and any individually evaluated loans determined not to be impaired are segmented into groups based on similar risk characteristics as described above.  The Company’s methodology includes

 

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factors that allow management to adjust its estimates of losses based on the most recent information available.  Such risk factors are generally reviewed and updated quarterly, as appropriate.  Historical loss rates for each risk group, which are updated quarterly, are quantified using all recorded loan charge-offs, changes in specific allowances on loans and real estate acquired through foreclosure and any gains and losses on the final disposition of real estate acquired through foreclosure.  These historical loss rates for each risk group are used as the starting point to determine allowance provisions.  Such rates are then adjusted to reflect actual and anticipated changes in national and local economic conditions and developments, the volume and severity of internally classified loans, loan concentrations, assessment of trends in collateral values, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices.

 

In addition, the Company’s banking regulators, as an integral part of their examination process, periodically review the allowance for loan losses.  Such regulators may require the Company to modify its allowance for loan losses based on their judgment about information available to them at the time of their examination.

 

The following table summarizes the activity in the allowance for loan losses for the six months ended March 31, 2012 and 2011:

 

 

 

Six Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Balance, beginning of period

 

$

25,713,622

 

$

26,975,717

 

Provision charged to expense

 

8,500,000

 

7,800,000

 

Charge-offs:

 

 

 

 

 

Residential real estate first mortgage

 

5,052,599

 

1,719,918

 

Residential real estate second mortgage

 

1,428,006

 

698,433

 

Home equity lines of credit

 

3,837,273

 

1,699,834

 

Commercial & multi-family real estate

 

3,605,549

 

737,683

 

Land acquisition and development

 

261,725

 

2,915,515

 

Real estate construction & development

 

241,501

 

49,900

 

Commercial & industrial

 

1,234,631

 

388,327

 

Consumer and other

 

492,081

 

60,199

 

Total charge-offs

 

16,153,365

 

8,269,809

 

Recoveries:

 

 

 

 

 

Residential real estate first mortgage

 

10,967

 

62,050

 

Residential real estate second mortgage

 

20,414

 

33,730

 

Home equity lines of credit

 

79,816

 

20,629

 

Commercial and multi-family real estate

 

54,936

 

1,750

 

Land acquisition and development

 

6,431

 

2,415

 

Real estate construction & development

 

465

 

292

 

Commercial & industrial

 

13,363

 

30,832

 

Consumer and other

 

7,732

 

5,470

 

Total recoveries

 

194,124

 

157,168

 

Net charge-offs

 

15,959,241

 

8,112,641

 

Balance, end of period

 

$

18,254,381

 

$

26,663,076

 

 

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The following table summarizes, by loan portfolio segment, the changes in the allowance for loan losses for the six months ended March 31, 2012 and March 31, 2011, respectively.

 

 

 

Six Months Ended March 31, 2012

 

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

Commercial

 

Consumer

 

Unallocated

 

Total

 

Activity in allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

16,842,446

 

$

8,256,032

 

$

444,281

 

$

170,863

 

$

25,713,622

 

Provision charged to expense

 

4,929,593

 

3,442,492

 

212,553

 

(84,638

)

8,500,000

 

Charge offs

 

(10,317,878

)

(5,343,406

)

(492,080

)

 

(16,153,364

)

Recoveries

 

111,197

 

75,195

 

7,731

 

 

194,123

 

Balance, end of period

 

$

11,565,358

 

$

6,430,313

 

$

172,485

 

$

86,225

 

$

18,254,381

 

 

 

 

Six Months Ended March 31, 2011

 

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

Commercial

 

Consumer

 

Unallocated

 

Total

 

Activity in allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

11,192,096

 

$

15,533,915

 

$

149,578

 

$

100,128

 

$

26,975,717

 

Provision charged to expense

 

6,270,420

 

946,167

 

545,054

 

38,359

 

7,800,000

 

Charge offs

 

(4,118,184

)

(4,091,425

)

(60,200

)

 

(8,269,809

)

Recoveries

 

116,407

 

35,290

 

5,471

 

 

157,168

 

Balance, end of period

 

$

13,460,739

 

$

12,423,947

 

$

639,903

 

$

138,487

 

$

26,663,076

 

 

The following table summarizes the information regarding the balance in the allowance and the recorded investment in loans by impairment method at March 31, 2012 and September 30, 2011, respectively.

 

 

 

March 31, 2012

 

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

Commercial

 

Consumer

 

Unallocated

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance balance at end of period based on:

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

1,536,759

 

$

204,873

 

$

34,949

 

$

 

$

1,776,581

 

Loans collectively evaluated for impairment

 

10,028,599

 

6,225,440

 

137,536

 

86,225

 

16,477,800

 

Loans acquired with deteriorated credit quality

 

 

 

 

 

 

Total balance, end of period

 

$

11,565,358

 

$

6,430,313

 

$

172,485

 

$

86,225

 

$

18,254,381

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded investment in loans receivable at end of period:

 

 

 

 

 

 

 

 

 

 

 

Total loans receivable

 

$

430,545,678

 

$

583,874,021

 

$

2,224,475

 

 

 

$

1,016,644,174

 

Loans receivable individually evaluated for impairment

 

28,825,579

 

20,330,547

 

177,599

 

 

 

49,333,725

 

Loans receivable collectively evaluated for impairment

 

401,720,099

 

563,543,474

 

2,046,876

 

 

 

967,310,449

 

Loans receivable acquired with deteriorated credit quality

 

 

 

 

 

 

 

 

 

 

September 30, 2011

 

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

Commercial

 

Consumer

 

Unallocated

 

Total

 

Allowance balance at end of period based on:

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

6,823,235

 

$

1,761,301

 

$

391,497

 

$

 

$

8,976,033

 

Loans collectively evaluated for impairment

 

10,019,211

 

6,494,731

 

52,784

 

170,863

 

16,737,589

 

Loans acquired with deteriorated credit quality

 

 

 

 

 

 

Total balance, end of period

 

$

16,842,446

 

$

8,256,032

 

$

444,281

 

$

170,863