XNAS:WSB Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

 

 

For The Quarterly Period Ended: June 30, 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            

 

Commission File No. 000-53003

 


 

WSB HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE

 

26-1219088

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

4201 Mitchellville Road, Suite 200, Bowie, Maryland 20716

(Address of principal executive offices, Zip Code)

 

(301) 352-3120

(Registrant’s telephone number, including area code)

 

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 (§223.405 of this chapter) 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

 

There were 7,995,232 shares of Common Stock ($0.0001 Par Value) outstanding as of August 4, 2012.

 

 

 



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

 

 

 

Page

 

 

Number

 

 

 

PART I.  FINANCIAL INFORMATION

 

 

 

 

Item 1.  Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition (Unaudited) as of June 30, 2012 and December 31, 2011

3

 

 

 

 

Consolidated Statements of Operations — (Unaudited) For the Three and Six months ended June 30, 2012 and 2011

4

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Six months ended June 30, 2012 and 2011

5

 

 

 

 

Consolidated Statements of Cash Flows — (Unaudited) For the Six months ended June 30, 2012 and 2011

6

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

 

 

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

42

 

 

Item 4.  Controls and Procedures

42

 

 

PART II.

 

 

 

Item 1.  Legal Proceedings

42

 

 

Item 1A.  Risk Factors

42

 

 

Item 6.  Exhibits

42

 

 

Signatures

44

 

2



Table of Contents

 

Item 1.  Financial Statments

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Cash

 

$

11,459,541

 

$

437,414

 

Federal funds sold and interest bearing deposits at FHLB - Atlanta

 

6,231,939

 

3,964,439

 

Total cash and cash equivalents

 

17,691,480

 

4,401,853

 

 

 

 

 

 

 

Loans receivable:

 

 

 

 

 

Held for sale

 

10,579,611

 

10,245,483

 

Held for investment (net of allowance for loan losses of $3,549,571 and $6,124,116 respectively)

 

186,268,382

 

205,353,588

 

 

 

 

 

 

 

Investment securities - available for sale at fair value

 

28,713,555

 

44,937,185

 

Mortgage-backed securities - available for sale at fair value

 

93,463,661

 

80,808,257

 

Investment in Federal Home Loan Bank stock, at cost

 

3,829,300

 

4,503,700

 

Accrued interest receivable on loans

 

788,504

 

1,023,847

 

Accrued interest receivable on investments

 

646,461

 

693,967

 

Real estate acquired in settlement of loans

 

5,210,970

 

4,820,634

 

Bank owned life insurance

 

12,595,163

 

12,368,974

 

Premises and equipment - net

 

4,920,085

 

4,807,206

 

Income taxes receivable

 

149,812

 

 

Deferred income taxes

 

6,559,452

 

8,574,590

 

Other assets

 

2,230,187

 

2,422,102

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

373,646,623

 

$

384,961,386

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

 

$

5,652,102

 

$

5,256,111

 

Interest bearing

 

242,285,794

 

239,794,477

 

Total deposits

 

247,937,896

 

245,050,588

 

 

 

 

 

 

 

Federal Home Loan Bank borrowings

 

68,000,000

 

84,000,000

 

Advances from borrowers for taxes and insurance

 

1,129,664

 

426,238

 

Accounts payable, accrued expenses and other liabilities

 

1,440,036

 

1,211,550

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

318,507,596

 

330,688,376

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Preferred stock, no stated par value; 10,000,000 shares authorized; none issued and outstanding

 

 

 

Common stock authorized, 20,000,000 shares at $.0001 par value, 7,995,232 and 7,995,232 issued and outstanding as of June 30, 2012 and December 31, 2011, respectively

 

799

 

799

 

Additional paid-in capital

 

11,095,646

 

11,095,646

 

Retained earnings - substantially restricted

 

42,682,788

 

42,230,566

 

Accumulated other comprehensive income

 

1,359,794

 

945,999

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

 

55,139,027

 

54,273,010

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

373,646,623

 

$

384,961,386

 

 

See notes to consolidated financial statements.

 

3



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Three Months ended

 

Six Months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

2,894,484

 

$

3,461,710

 

$

5,902,098

 

$

7,177,105

 

Interest on mortgage-backed securities

 

798,496

 

702,752

 

1,576,844

 

1,356,836

 

Interest and dividends on investments

 

308,528

 

451,491

 

712,453

 

744,194

 

 

 

 

 

 

 

 

 

 

 

Total interest income

 

4,001,508

 

4,615,953

 

8,191,395

 

9,278,135

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

Interest on deposits

 

712,110

 

1,007,024

 

1,505,135

 

2,122,226

 

Interest on other borrowings

 

500,711

 

525,152

 

1,014,168

 

1,044,582

 

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

1,212,821

 

1,532,176

 

2,519,303

 

3,166,808

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

2,788,687

 

3,083,777

 

5,672,092

 

6,111,327

 

Provision for loan losses

 

 

100,000

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

2,788,687

 

2,983,777

 

5,672,092

 

6,011,327

 

 

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

 

 

Loan related fees

 

109,015

 

100,406

 

198,020

 

212,526

 

Gain on sale of loans

 

395,643

 

316,432

 

673,637

 

680,574

 

Gain on sale of investment securities - available for sale

 

3,742

 

231,427

 

162,695

 

414,275

 

Gain on sale of real estate acquired in settlement of loans

 

9,414

 

28,359

 

151,679

 

41,502

 

Service charges on deposits

 

28,991

 

27,673

 

60,888

 

52,669

 

Rental income

 

160,937

 

93,179

 

283,563

 

187,424

 

Other income

 

164,025

 

165,322

 

323,968

 

321,133

 

 

 

 

 

 

 

 

 

 

 

Total non-interest income

 

871,767

 

962,798

 

1,854,450

 

1,910,103

 

 

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

1,774,503

 

1,732,913

 

3,569,603

 

3,693,138

 

Occupancy expense

 

175,459

 

163,320

 

340,663

 

336,118

 

Depreciation

 

114,161

 

111,840

 

228,841

 

226,764

 

Advertising

 

89,361

 

81,651

 

169,689

 

168,164

 

Service bureau charges

 

141,731

 

120,517

 

268,827

 

254,641

 

Service charges from banks

 

6,887

 

8,247

 

13,563

 

17,257

 

Stationary, printing and supplies

 

37,001

 

42,345

 

79,538

 

87,190

 

Professional services

 

130,369

 

240,971

 

259,551

 

340,028

 

FDIC Insurance

 

161,151

 

219,861

 

313,115

 

439,783

 

Provision for losses on real estate acquired in settlement of loans

 

 

50,920

 

90,502

 

82,799

 

Other taxes

 

66,563

 

79,163

 

134,125

 

159,960

 

Other

 

715,991

 

637,636

 

1,391,302

 

1,372,300

 

 

 

 

 

 

 

 

 

 

 

Total non-interest expense

 

3,413,177

 

3,489,384

 

6,859,319

 

7,178,142

 

 

 

 

 

 

 

 

 

 

 

EARNINGS BEFORE INCOME TAXES

 

247,277

 

457,191

 

667,222

 

743,288

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

73,100

 

136,600

 

215,000

 

187,100

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

$

174,177

 

$

320,591

 

$

452,222

 

$

556,188

 

OTHER COMPREHENSIVE INCOME (NET OF TAX):

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities

 

723,346

 

(96,071

)

512,323

 

789,947

 

Less reclassification adjustment for gain on sale of securities realized in net income

 

(2,266

)

(140,152

)

(98,528

)

(250,885

)

TOTAL COMPREHENSIVE INCOME

 

$

895,257

 

$

84,368

 

$

866,017

 

$

1,095,250

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER COMMON SHARE

 

$

0.02

 

$

0.04

 

$

0.06

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER COMMON SHARE

 

$

0.02

 

$

0.04

 

$

0.06

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

CASH DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.00

 

$

0.00

 

$

0.00

 

$

0.00

 

 

 

 

 

 

 

 

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

 

7,995,232

 

7,993,683

 

7,995,232

 

7,980,207

 

 

 

 

 

 

 

 

 

 

 

AVERAGE DILUTED COMMON SHARES OUTSTANDING

 

7,995,232

 

7,994,742

 

7,995,232

 

7,981,065

 

 

See notes to consolidated financial statements.

 

4



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2012 AND 2011 (Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Total

 

 

 

Common

 

Paid-In

 

Retained

 

Comprehensive

 

Stockholders’

 

 

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, JANUARY 1, 2011

 

$

792

 

$

10,872,561

 

$

40,981,757

 

$

(236,217

)

$

51,618,893

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of Stock Options

 

7

 

220,635

 

 

 

220,642

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax effect of stock options exercised

 

 

2,450

 

 

 

2,450

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

556,188

 

 

556,188

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain-unrealized, gain on available for sale securities

 

 

 

 

 

539,062

 

539,062

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, JUNE 30, 2011

 

$

799

 

$

11,095,646

 

$

41,537,945

 

$

302,845

 

$

52,937,235

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, JANUARY 1, 2012

 

$

799

 

$

11,095,646

 

$

42,230,566

 

$

945,999

 

$

54,273,010

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

452,222

 

 

452,222

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain-unrealized, gain on available for sale securities

 

 

 

 

413,795

 

413,795

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, JUNE 30, 2012

 

$

799

 

$

11,095,646

 

$

42,682,788

 

$

1,359,794

 

$

55,139,027

 

 

See notes to consolidated financial statements

 

5



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Six months ending

 

 

 

June 30,

 

 

 

2012

 

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

452,222

 

$

556,188

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

 

100,000

 

Provision for losses on real estate acquired in settlement of loans

 

90,502

 

82,799

 

Depreciation

 

228,841

 

226,764

 

Amortization of premiums and accretion of discounts, net

 

249,471

 

315,963

 

Gain on sale of MBS- available for sale

 

 

(401,052

)

Gain on sale of investment securities- available for sale

 

(162,695

)

(13,223

)

Gain on sale of other real estate owned

 

(151,679

)

(41,502

)

Gain on sale of loans

 

(673,637

)

(680,574

)

Loans originated for sale

 

(53,574,505

)

(54,548,609

)

Proceeds from sale of loans originated for sale

 

53,240,377

 

74,681,721

 

Increase in cash surrender value of bank owned life insurance

 

(226,189

)

(227,104

)

Decrease in other assets

 

191,914

 

617,968

 

Decrease (Increase) in accrued interest receivable

 

282,849

 

(186,559

)

Change in deferred income taxes

 

1,745,652

 

75,756

 

Change in federal income taxes receivable

 

(149,812

)

516,344

 

Excess tax benefits from stock-based compensation

 

 

(2,450

)

Decrease in accounts payable, accrued expenses and other liabilities

 

228,487

 

500,369

 

Decrease in accrued interest payable

 

(4,171

)

(11,361

)

(Decrease) Increase in net deferred loan fees

 

(50,618

)

71,387

 

 

 

 

 

 

 

Net cash provided by operating activities

 

1,717,009

 

21,632,825

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Net decrease in loans receivable- held for investment

 

18,381,236

 

4,142,789

 

Purchase of mortgage-backed securities - available for sale

 

(20,479,072

)

(30,971,549

)

Purchase of investment securities - available for sale

 

(9,993,750

)

(43,539,673

)

Proceeds from sales, calls, and maturities of mortgage-backed securities

 

8,661,156

 

29,597,115

 

Proceeds from sales, calls and maturities of investment securities-available for sale

 

25,976,398

 

5,648,404

 

Redemption of Federal Home Loan Bank Stock

 

674,400

 

511,200

 

Purchase of premises and equipment

 

(341,720

)

(63,441

)

Development of real estate acquired in settlement of loans

 

(172,759

)

(33,222

)

Proceeds from sale of real estate acquired in settlement of loans

 

1,271,824

 

2,186,035

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

23,977,713

 

(32,522,342

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Net increase in demand deposits, NOW accounts and savings accounts

 

8,931,310

 

16,206,952

 

Proceeds from issuance of certificates of deposit

 

16,718,572

 

3,057,944

 

Payments for maturing certificates of deposit

 

(22,758,403

)

(30,187,000

)

Net increase in advance payments by borrowers for taxes and insurance

 

703,426

 

408,715

 

(Decrease) Increase in FHLB Advances

 

(16,000,000

)

3,000,000

 

Proceeds from exercise of stock options

 

 

220,642

 

Excess tax benefits from stock-based compensation

 

 

2,450

 

 

 

 

 

 

 

Net cash used in financing activities

 

(12,405,095

)

(7,290,297

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

13,289,627

 

(18,179,814

)

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

4,401,853

 

23,534,036

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

17,691,480

 

$

5,354,222

 

 

 

 

 

 

 

CASH PAID DURING THE PERIOD FOR:

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

$

 

$

 

Interest

 

$

2,495,156

 

$

3,182,117

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

Real estate acquired in settlement of loans

 

$

1,428,224

 

$

1,019,610

 

 

See notes to consolidated financial statements.

 

6


 


Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

1.      Financial Statements

 

The Consolidated Financial Statements for the three and six month periods ended June 30, 2012 and 2011 have been prepared by WSB Holdings, Inc. (“WSB” or the “Company”) without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2012, and for all periods presented, have been made.  All significant intercompany transactions have been eliminated.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.   Management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Annual Report”), a copy of which is available at www.twsb.com and www.sec.gov.  The results of operations for the six month period ended June 30, 2012, are not necessarily indicative of the operating results for the full year, or any other period.

 

Certain prior year’s amounts have been reclassified to conform with the current year’s presentation.

 

2.      Earnings Per Common Share

 

The following is the reconciliation of the numerators and denominators of the basic and diluted Earnings Per Common Share (“EPS”) computation for all periods presented in the Consolidated Statements of Operations.

 

 

 

Three Months Ended June 30,

 

 

 

2012

 

2011

 

 

 

Net Income

 

Shares

 

Per Share

 

Net Income

 

Shares

 

Per Share

 

 

 

(Numerator)

 

(Denominator)

 

Amount

 

(Numerator)

 

(Denominator)

 

Amount

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Common Stockholders

 

$

174,178

 

7,995,232

 

$

0.02

 

$

320,591

 

7,993,683

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of Dilutive Options Incremental Shares

 

 

 

 

 

 

 

 

1,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Common Stockholders

 

$

174,178

 

7,995,232

 

$

0.02

 

$

320,591

 

7,994,742

 

$

0.04

 

 

7



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

 

 

Net Income

 

Shares

 

Per Share

 

Net Income

 

Shares

 

Per Share

 

 

 

(Numerator)

 

(Denominator)

 

Amount

 

(Numerator)

 

(Denominator)

 

Amount

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Common Stockholders

 

$

452,222

 

7,995,232

 

$

0.06

 

$

556,188

 

7,980,207

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of Dilutive Options Incremental Shares

 

 

 

 

 

 

 

 

858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Common Stockholders

 

$

452,222

 

7,995,232

 

$

0.06

 

$

556,188

 

7,981,065

 

$

0.07

 

 

Options to purchase 33,875 shares of common stock were excluded in the computation of diluted EPS for the three and six months ended June 30, 2012 because their effect would have been antidilutive.

 

Options to purchase 260,375 shares of common stock were excluded in the computation of diluted EPS for the three and six months ended June 30, 2011 because their effect would have been antidilutive.

 

3.                  Stock-Based Compensation

 

We have incentive compensation plans that permit the granting of incentive and non-qualified awards in the form of stock options.  Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of WSB’s common stock on the date the options are granted.  Options predominantly vest over a two year period from the date of grant, and expire not later than ten years from the date of grant.

 

There were no awards granted during 2012 or 2011.  There was no pre-tax stock-based compensation during the three and six months ending June 30, 2012 and 2011.

 

All outstanding options are vested and there is currently no unrealized compensation cost related to non-vested share based compensation arrangements.

 

Equity Incentive Plans — On April 27, 2011, the stockholders of WSB Holdings, Inc. approved the adoption of the WSB Holdings, Inc. 2011 Equity Incentive Plan, which reserve shares of common stock for issuance to certain key employees and non-employee directors.  The maximum number of shares of our common stock that be issued with respect to awards granted under the plan is 500,000 plus (i) any shares of common stock that are available under the Washington Savings Bank 2001 Stock Option and Incentive Plan (the “2001 Plan”) as of its termination date (which was April 27, 2011) and (ii) shares of common stock subject to options granted under the 2001 Plan that expire or terminate without having been fully exercised.  In no event, however, may the number of shares issuable pursuant to incentive stock options exceed 500,000.  The period during which an option granted under the Plan will be exercisable, as determined by the Administrator, will be

 

8



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

set forth in the agreement evidencing the option award.  However, an incentive stock option may not be exercisable for more than ten years from its date of grant.

 

The following table summarizes stock option activity for the six month period ended June 30, 2012:

 

 

 

 

 

Weighted

 

Weighted

 

 

 

 

 

 

 

Average

 

Average

 

Aggregate

 

 

 

 

 

Exercise

 

Remaining

 

Intrinsic

 

 

 

Shares

 

Price

 

Life (Years)

 

Value

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2011

 

33,875

 

$

5.71

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2012

 

33,875

 

$

5.71

 

1.0

 

$

0

 

Exercisable at June 30, 2012

 

33,875

 

$

5.71

 

1.0

 

$

0

 

 

4.                  Fair Value Measurements

 

The Company applies guidance issued by FASB regarding fair value measurements which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. This guidance requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans). This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  This guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

We utilize fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

 

9



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

Under the fair value measurement guidance, we group assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These hierarchy levels are:

 

Level 1 inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

 

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

 

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

 

An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  Management reviews and updates the fair value hierarchy classifications of our assets and liabilities on a quarterly basis.

 

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

 

Investment Securities Available-for-Sale

 

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.  With the exception of our private labeled mortgage-backed securities, all securities available for sale are classified as Level 2.

 

Loans

 

We do not record loans held-for-investment at fair value on a recurring basis, however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principle will not be made in accordance with the contractual terms of the loan are considered impaired.  Once a loan is identified as individually impaired, management measures impairment in accordance with the FASB’s Accounting Standards Codification Receivables Topic.  The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar

 

10



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At June 30, 2012, all of the totally impaired loans were evaluated based upon the fair value of the collateral and/or discounted cash flows. In accordance with guidance regarding fair value measurements, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the loan as nonrecurring Level 3.

 

Loans Held for Sale- Loans held for sale are valued based on quotations from the secondary market for similar instruments and is classified as level 2 of the fair value hierarchy.

 

Foreclosed Assets

 

Foreclosed assets are adjusted for fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value and fair value. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the foreclosed asset at nonrecurring Level 3.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis at June 30, 2012 and December 31, 2011:

 

 

 

At June 30, 2012 (In thousands)

 

 

 

 

 

Quoted Prices in

 

Other

 

Significant

 

Total Changes

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

in Fair Values

 

 

 

Carrying Value

 

Identical Assets

 

Inputs

 

Inputs

 

Included in

 

 

 

June 30, 2012

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Period Earnings

 

Loans held-for-sale

 

$

10,580

 

 

 

$

10,580

 

 

 

$

 

 

Available-for-sale, FHLB Agencies callable

 

21,457

 

 

21,457

 

 

 

Available-for-Sale, Municipal Bonds

 

2,342

 

 

2,342

 

 

 

Available-for-Sale, Corporate Bonds

 

4,914

 

 

4,914

 

 

 

 

 

Available-for-Sale Residential MBS

 

93,464

 

 

79,981

 

13,483

 

 

 

 

$

132,757

 

$

 

$

119,274

 

$

13,483

 

$

 

 

11



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

 

 

At December 31, 2011 (In thousands)

 

 

 

 

 

Quoted Prices in

 

Other

 

Significant

 

Total Changes

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

in Fair Values

 

 

 

Carrying Value

 

Identical Assets

 

Inputs

 

Inputs

 

Included in

 

 

 

December 31, 2011

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Period Earnings

 

Loans held-for-sale

 

$

10,245

 

 

 

$

10,245

 

 

 

$

 

 

Available-for-sale, FHLB Agencies callable

 

37,660

 

 

37,660

 

 

 

Available-for-Sale, Municipal Bonds

 

2,330

 

 

2,330

 

 

 

Available-for-Sale, Corporate Bonds

 

4,947

 

 

4,947

 

 

 

 

 

Available-for-Sale Residential MBS

 

80,808

 

 

64,449

 

16,359

 

 

 

 

$

135,990

 

$

 

$

119,631

 

$

16,359

 

$

0

 

 

Loans held-for-sale, which are carried at the lower of cost or market, did not have any impairment charge at June 30, 2012.

 

Assets included in Level 3 include our private-labeled mortgage-backed securities (“MBS”) due to lack of observable market data due to decreases in market activity for these securities.  Our policy is to recognize transfers in and out as of the actual date of the event or change in circumstances that caused the transfer.  No assets were transferred to Level 3 during the period ending June 30, 2012.  The change in the assets included in Level 3 was due to principal repayments and the change in unrealized gains/losses for the twelve month period ending June 30, 2012.  The following assumptions were used for the Level 3 valuations on the five remaining private-labeled MBS:

 

·                  Estimated future defaults are derived by an analysis of the performance of the underlying collateral as well as obtaining models from a third party.  The model addresses each component of the net present value calculation, which includes loss severity rate, current default rate and current voluntary prepayment rate.

 

·                  Each individual security is reviewed and an analysis is prepared for specific credit characteristics of the underlying collateral including recent developments specific to each organization issuing the security, market liquidity, extension risks and credit rating downgrades and an estimate of future defaults is derived.

 

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2012 and year ended December 31, 2011.

 

12



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

 

 

Fair Value Measurements

 

 

 

Using Significant Unobservable Inputs

 

 

 

(Level 3)

 

 

 

Private Labeled Mortgage-Backed

 

 

 

Securities-Available for Sale at

 

 

 

June 30, 2012

 

December 31, 2011

 

 

 

 

 

 

 

Beginning Balance

 

$

16,359

 

$

23,365

 

Accretion/Amortization of Discount/Premiums

 

3

 

9

 

Payments received

 

(3,131

)

(7,926

)

Difference in Unrealized gain (loss)

 

252

 

911

 

Other than temporary impairment

 

 

 

 

 

 

 

 

 

Ending Balance

 

$

13,483

 

$

16,359

 

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

 

We may be required from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis at June 30, 2012 and December 31, 2011 is included in the tables below:

 

 

 

At June 30, 2012 (In thousands)

 

 

 

 

 

Quoted Prices in

 

Other

 

Significant

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Carrying Value

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

June 30, 2012

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Impaired Loans:

 

 

 

 

 

 

 

 

 

Residential Real estate

 

$

13,984

 

$

 

$

13,984

 

$

 

Construction

 

 

 

 

 

Land and land Acquisition

 

5,024

 

 

5,024

 

 

Commercial Real Estate and Commercial

 

12,321

 

 

12,321

 

 

Consumer

 

 

 

 

 

Total Impaired Loans

 

31,329

 

 

31,329

 

 

 

 

 

 

 

 

 

 

 

 

Real estate acquired in settlement of loans:

 

 

 

 

 

 

 

 

 

Residential Real estate

 

$

527

 

$

 

$

527

 

$

 

Construction

 

896

 

 

896

 

 

Land and land Acquisition

 

1,699

 

 

1,699

 

 

Commercial Real Estate and Commercial

 

2,089

 

 

2,089

 

 

Total Real estate acquired in settlement of loans:

 

5,211

 

 

5,211

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

36,540

 

$

 

$

36,540

 

$

 

 

13


 


Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

 

 

At December 31, 2011 (In thousands)

 

 

 

 

 

Quoted Prices in

 

Other

 

Significant

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Carrying Value

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

December 31, 2011

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Impaired Loans:

 

 

 

 

 

 

 

 

 

Residential Real estate

 

$

12,531

 

$

 

$

12,531

 

$

 

Construction

 

 

 

 

 

Land and land Acquisition

 

3,203

 

 

3,203

 

 

Commercial Real Estate and Commercial

 

12,661

 

 

12,661

 

 

Consumer

 

 

 

 

 

Total Impaired Loans

 

28,395

 

 

28,395

 

 

 

 

 

 

 

 

 

 

 

 

Real estate acquired in settlement of loans:

 

 

 

 

 

 

 

 

 

Residential Real estate

 

$

739

 

$

 

$

739

 

$

 

Construction

 

744

 

 

744

 

 

Land and land Acquisition

 

2,176

 

 

2,176

 

 

Commercial Real Estate and Commercial

 

1,162

 

 

1,162

 

 

Total Real estate acquired in settlement of loans:

 

4,821

 

 

4,821

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

33,216

 

$

 

$

33,216

 

$

 

 

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $32.3 million, with a related valuation allowance of $980,000, at June 30, 2012 compared to principal balance of $31.3 million, with a related valuation allowance of $2.9 million, at December 31, 2011.

 

Real estate acquired in settlement of loans is carried at the lower of our recorded investment or fair value at the date of acquisition.  Write-downs to fair value at the date of acquisition are charged to the allowance for loan losses.  Subsequent write downs are included in non-interest expense.  Costs relating to the development and improvement of a property are capitalized, whereas those relating to holding the property are charged to expense when incurred.  The real estate is carried at the lower of acquisition or fair value net of estimated costs to sell subsequent to acquisition.  Operating expenses of real estate owned are reflected in other non-interest expenses.  The value of OREO properties held due to foreclosures at June 30, 2012 was $5.2 million compared to $4.8 million at December 31, 2011.

 

Impaired loans and real estate acquired in settlement of loans are classified as Level 2 within the valuation hierarchy.

 

14



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

The following disclosures of the estimated fair value of financial instruments are made in accordance with the requirements of FASB’s Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures”.           We have determined the fair value amounts by using available market information and appropriate valuation methodologies.  However, considerable judgment is required in interpreting market data to develop the estimates of fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amount we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

 

 

June 30, 2012

 

December 31, 2011

 

 

 

 

 

Quoted Prices

 

Significant

 

Significant

 

 

 

 

 

 

 

 

 

in Active

 

Other

 

Other

 

 

 

Estimated

 

 

 

Carrying

 

Markets for

 

Observable

 

Unobservable

 

Carrying

 

Fair

 

 

 

Amount

 

Identical Assets

 

Inputs

 

Inputs

 

Amount

 

Value

 

 

 

(000’s)

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

(000’s)

 

(000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,691

 

 

 

$

17,691

 

 

 

$

4,402

 

$

4,402

 

Loans receivable, net

 

196,848

 

 

 

199,138

 

 

 

215,599

 

219,198

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale

 

93,464

 

 

 

79,981

 

13,483

 

80,808

 

80,808

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale

 

28,714

 

 

 

28,714

 

 

 

44,937

 

44,937

 

Investment in Federal Home Loan Bank stock

 

3,829

 

 

 

3,829

 

 

 

4,504

 

4,504

 

Bank Owned Life Insurance

 

12,595

 

 

 

12,595

 

 

 

12,369

 

12,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing

 

5,652

 

 

 

5,652

 

 

 

5,256

 

5,256

 

Interest bearing

 

242,286

 

 

 

243,872

 

 

 

239,795

 

240,958

 

Borrowings

 

68,000

 

 

 

69,486

 

 

 

84,000

 

84,315

 

 

Cash and Cash Equivalents - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

 

Loans Receivable, Net - Loans not having quoted market prices are priced using the discounted cash flow method.  The discount rate used is the rate currently offered on similar products.  The estimated fair value of loans held-for-sale is based on the terms of the related sale commitments.

 

Mortgage-Backed Securities - Fair values are based on quoted market prices or dealer quotes.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

 

Investment Securities - Fair values are based on quoted market prices or dealer quotes.  If a quoted market price is not available, fair values are estimated using quoted market prices for similar securities.

 

15



Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

Investment in Federal Home Loan Bank Stock - The carrying amount of Federal Home Loan Bank (FHLB) Stock is a reasonable estimate of fair value as FHLB stock does not have a readily available market and can only be sold back to the FHLB at its par value of $100 per share.

 

Bank Owned Life Insurance - The carrying amount of Bank Owned Life Insurance (“BOLI”) purchased on a group of officers is a reasonable estimate of fair value.   BOLI is an insurance product that provides an effective way to offset current employee benefit costs.

 

Deposits - The fair value of non-interest bearing accounts is the amount payable on demand at the reporting date.  The fair value of interest-bearing deposits is determined using the discounted cash flow method.  The discount rate used is the rate currently offered on similar products.

 

Borrowings — The fair value of borrowings is determined using the discounted cash flow method.  The discount rate used is the rate currently offered on similar products.

 

Commitments to Grant Loans and Standby Letters of Credit and Financial Guarantees Written - The majority of our commitments to grant loans and standby letters of credit and financial guarantees written carry current market interest rates if converted to loans.  Because commitments to extend credit and letters of credit are generally un-assignable by either the Bank or the borrower, they only have value to the Bank and the borrower and therefore it is impractical to assign any value to these commitments.

 

The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2012 and December 31, 2011.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively reevaluated for purposes of these financial statements since reporting period ending June 30, 2012 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

 

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

5.                  Loans

 

The following table summarizes loans at June 30, 2012 and December 31, 2011.

 

 

 

June 30, 2012

 

December 31, 2011

 

 

 

 

 

 

 

FIRST MORTGAGE LOANS:

 

 

 

 

 

Secured by single-family residences

 

$

71,943,600

 

$

79,719,713

 

Secured by 5 or more- residential

 

2,244,174

 

3,068,229

 

Secured by other properties

 

34,424,770

 

35,357,446

 

Construction loans

 

4,419,156

 

3,984,630

 

Land and land development loans

 

6,958,928

 

7,450,684

 

Land acquisition loans

 

297,733

 

492,120

 

 

 

 

 

 

 

 

 

120,288,361

 

130,072,822

 

 

 

 

 

 

 

SECOND MORTGAGE LOANS

 

1,811,232

 

1,977,851

 

 

 

 

 

 

 

COMMERCIAL AND OTHER LOANS:

 

 

 

 

 

Commercial -secured by real estate

 

66,297,485

 

76,607,916

 

Commercial

 

1,295,139

 

2,735,036

 

Loans secured by savings accounts

 

192,803

 

149,992

 

Consumer installment loans

 

302,545

 

354,317

 

 

 

 

 

 

 

 

 

190,187,565

 

211,897,934

 

 

 

 

 

 

 

LESS:

 

 

 

 

 

Allowance for loan losses

 

(3,549,571

)

(6,124,116

)

Deferred loan fees, net

 

(369,612

)

(420,230

)

 

 

 

 

 

 

TOTAL LOANS RECEIVABLE HELD-FOR-INVESTMENT

 

$

186,268,382

 

$

205,353,588

 

 

The risks associated with each portfolio class are as follows:

 

First mortgage loans secured by single family residences,  secured by 5 or more residential, secured by other properties and second mortgage loans — The primary risks related to this type of lending include; unemployment, deterioration in real estate values, our ability to access the creditworthiness of the customer, deterioration in the borrower’s financial condition (whether the result of personal issues or general economic downturn), the inability of the borrower to maintain occupancy for investment properties, and an appraisal on a property is not reflective of the true property value.  Portfolio risk includes condition of the economy, changing demand for these types of loans, large concentration of these types of loans and geographic concentration of these types of loans.

 

Construction loans — Since this portfolio is substantially owner occupied residential construction loans, the loan specific risks and portfolio risks are the same as described above as first mortgage loans secured by single family residences.  However these loans carry the additional risk associated with the builder and the

 

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WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

potential for builder cost overruns and/or the builder being unable to complete the construction.

 

Land development loans and land acquisition loans — The primary loan-specific risk in land and land development are: unemployment, deterioration of the business and/or collateral values, deterioration of the financial condition of the borrowers and/or guarantors creates a risk of default, and that an appraisal on the collateral is not reflective of the true property value. These loans usually include funding for the acquisition and development of unimproved properties to be used for residential or non-residential construction.  We may provide permanent financing on the same projects for which we have provided the development and construction financing.  Portfolio risk includes condition of the economy, changing demand for these types of loans, large concentration of these types of loans, and geographic concentrations of these types of loans.

 

Commercial loans and commercial loans secured by real estate — The primary loan-specific risks in these types of loans are: unemployment, general deterioration in the economy, deterioration of the business and/or business cash flows, financial condition of the guarantors, deterioration of collateral values, and that an appraisal on any real estate collateral is not reflective of the true property value.  Portfolio risk includes condition of the economy, changing demand for these types of loans, large concentration of these types of loans, and geographic concentration of these types of loans.

 

Loans secured by savings accounts and consumer installment loans- The primary risks of these loans are unemployment and deterioration of the borrower’s financial condition, whether the result of personal issues or a general economic downturn.  The portfolio risks for these types of loans is the same as for first mortgage loans secured by single family residences as described above.

 

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Table of Contents

 

WSB HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

 

Allowance for loan losses and recorded investment in loans for the period ended June 30, 2012 and December 31, 2011 is summarized as follows:

 

 

 

Six Months Ended June 30, 2012

 

 

 

Residential
Real Estate

 

Construction

 

Land and Land
Acquisition

 

Commercial
Real Estate and
Commercial

 

Consumer

 

Total

 

 

 

(dollars in thousands)

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

2,740

 

$

67

 

$

395

 

$

2,914

 

$

8

 

$

6,124

 

Charge-offs