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EX-31 - EXHIBIT 31.1 - TECHE HOLDING COex31-1.htm
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EX-32 - EXHIBIT 32 - TECHE HOLDING COex-32.htm

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

December 31, 2009

 

 

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 number 1-13712

 

 

TECHE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

 

Louisiana

 

72-128746

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

211 Willow Street, Franklin, Louisiana

 

 

70538

 

(Address of principal executive offices)

 

 

(Zip Code)

 

 

Registrant’s telephone number, including area code (337) 365-0366

 

N/A

Former name, former 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 (Section 232.405 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 o 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

(Do not check if a smaller reporting company)

Smaller reporting company x

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: February 9, 2010.

 

Class

 

2,100,388

$.01 par value common stock

 

Outstanding Shares

 

 


 

TECHE HOLDING COMPANY

 

QUARTERLY REPORT ON FORM 10-Q

 

INDEX

 

 

 

 

Page

 

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2009 (Unaudited) and September 30, 2009

 

3

 

Consolidated Statements of Income - (Unaudited) for the three months ended December 31, 2009 and 2008

 

4

 

Consolidated Statements of Cash Flows - (Unaudited) for the three months ended December 31, 2009 and 2008

 

5

 

Notes to Consolidated Financial Statements (Unaudited)

 

6

 

 

 

 

 

 

Item 2.

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

 

17

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

 

24

 

 

 

 

 

 

Item 4T.

Controls and Procedures

 

24

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

24

 

 

 

 

 

 

Item 1A.

Risk Factors

 

25

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

25

 

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

25

 

 

 

 

 

 

Item 5.

Other Information

 

25

 

 

 

 

 

 

Item 6.

Exhibits

 

25

 

 

 

 

 

 

Signatures

 

 

 

 

 

 

 

2

 


TECHE HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

 

 

 

 

December 31, 2009

 

September 30,
2009*

 

ASSETS

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

13,329

 

$

13,958

 

Interest-bearing deposits

 

 

8,341

 

 

9,717

 

Securities available-for-sale - at estimated fair value (amortized cost of $18,435 and $20,277)

 

 

18,934

 

 

20,936

 

Securities held-to-maturity—at amortized cost (estimated fair
value of $63,988 and $76,887)

 

 

62,549

 

 

75,384

 

Loans receivable—net of allowance for loan losses of $7,744 and $6,806

 

 

594,543

 

 

588,527

 

Accrued interest receivable

 

 

2,597

 

 

2,622

 

Investment in Federal Home Loan Bank stock, at cost

 

 

5,129

 

 

5,063

 

Real estate owned, net

 

 

1,128

 

 

1,953

 

Prepaid expenses and other assets

 

 

6,840

 

 

3,321

 

Goodwill

 

 

3,647

 

 

3,647

 

Life insurance contracts

 

 

12,873

 

 

12,724

 

Premises and equipment, net

 

 

27,354

 

 

27,219

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

757,264

 

$

765,071

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

575,491

 

$

585,469

 

Advances from Federal Home Loan Bank

 

 

103,451

 

 

100,628

 

Advance payments by borrowers for taxes and insurance

 

 

1,611

 

 

2,433

 

Accrued interest payable

 

 

457

 

 

743

 

Accounts payable and other liabilities

 

 

3,932

 

 

4,313

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

684,942

 

 

693,586

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Preferred stock, 5,000,000 shares authorized, none issued

 

 

 

 

 

Common stock, $.01 par value, 10,000,000 shares authorized; 4,668,934 and 4,666,950 shares issued

 

 

47

 

 

47

 

Additional paid-in capital

 

 

52,335

 

 

52,285

 

Retained earnings

 

 

70,786

 

 

69,786

 

Unearned ESOP shares

 

 

(521

)

 

(586

)

Treasury stock 2,570,296 and 2,570,296 shares - at cost

 

 

(50,234

)

 

(50,234

)

Accumulated other comprehensive loss on held-to-maturity securities

 

 

(420

)

 

(247

)

Accumulated other comprehensive income on available for sale securities

 

 

329

 

 

434

 

 

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

72,322

 

 

71,485

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

757,264

 

$

765,071

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

* derived from audited financial statements

 

 

3

 


TECHE HOLDING COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

 

 

Three Months Ended

 

 

December 31,

 

 

2009

 

2008

 

INTEREST INCOME

 

 

 

 

 

 

 

Interest and fees on loans

 

$

9,730

 

$

10,148

 

Interest and dividends on investments

 

 

695

 

 

1,032

 

Other interest income

 

 

75

 

 

34

 

TOTAL INTEREST INCOME

 

 

10,500

 

 

11,214

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

 

 

1,930

 

 

3,179

 

Advances from Federal Home Loan Bank

 

 

1,137

 

 

1,199

 

TOTAL INTEREST EXPENSE

 

 

3,067

 

 

4,378

 

NET INTEREST INCOME

 

 

7,433

 

 

6,836

 

 

 

 

 

 

 

 

 

PROVISION FOR LOAN LOSSES

 

 

1,196

 

 

155

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

 

6,237

 

 

6,681

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Total other-than temporary impairment losses

 

 

(366

)

 

(312

)

Portion of impairment losses recognized in other
comprehensive loss

 

 

262

 

 

-

 

Net impairment losses recognized in earnings

 

 

(104

)

 

(312

)

Service charges and other

 

 

3,816

 

 

3,726

 

Gain on sale of premises and equipment

 

 

-

 

 

1

 

Gain (loss) on securities

 

 

68

 

 

(124

)

Other income

 

 

198

 

 

225

 

TOTAL NON-INTEREST INCOME

 

 

3,978

 

 

3,516

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Compensation and employee benefits

 

 

3,998

 

 

4,011

 

Occupancy expense

 

 

1,523

 

 

1,503

 

Marketing and professional

 

 

661

 

 

852

 

FDIC premiums and assessment

 

 

394

 

 

47

 

Other operating expenses

 

 

1,065

 

 

1,182

 

TOTAL NON-INTEREST EXPENSE

 

 

7,641

 

 

7,595

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

2,574

 

 

2,602

 

INCOME TAXES

 

 

841

 

 

838

 

NET INCOME

 

$

1,733

 

$

1,764

 

BASIC EARNINGS PER COMMON SHARE

 

$

0.83

 

$

0.83

 

DILUTED EARNINGS PER COMMON SHARE

 

$

0.82

 

$

0.83

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

4

 


TECHE HOLDING COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 

 

 

 

For the Three Months
Ended December 31,

 

 

 

2009

 

 

2008

 

CASH FLOWS (USED) PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

1,733

 

 

$

1,764

 

Adjustments to reconcile net income to net cash used by operating activities:

 

 

 

 

 

 

 

 

Accretion of discount and amortization of premium on investments
and mortgage-backed securities

 

 

(38

)

 

 

(73

)

Impairment of debt securities

 

 

104

 

 

 

312

 

Provision for loan losses

 

 

1,196

 

 

 

155

 

(Gain) Loss on sale of OREO

 

 

(22

)

 

 

1

 

(Gain) Loss on sale and impairment of equity securities

 

 

(68

)

 

 

124

 

Depreciation

 

 

384

 

 

 

400

 

Excess tax benefits from share-based payment arrangements

 

 

(36

)

 

 

--

 

Change in accounts payable and other liabilities

 

 

(381

)

 

 

(1,076

)

Change in life insurance contracts

 

 

(149

)

 

 

(156

)

Change in prepaid expenses and other assets

 

 

(3,519

)

 

 

818

 

Change in accrued interest payable

 

 

(286

)

 

 

(20

)

Other items– net

 

 

743

 

 

 

(34

)

Net cash (used) provided by operating activities

 

 

(339

)

 

 

2,215

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from sale of equity securities

 

 

355

 

 

 

--

 

Principal repayments of mortgage-backed securities available for sale

 

 

1,539

 

 

 

1,387

 

Principal repayments of securities held to maturity

 

 

12,527

 

 

 

2,012

 

Net loan originations

 

 

(6,487

)

 

 

(14,918

)

Purchase of loans

 

 

(725

)

 

 

--

 

Purchase of FHLB stock

 

 

(66

)

 

 

(23

)

Proceeds from sale of fixed assets

 

 

--

 

 

 

1

 

Proceeds from sale of OREO

 

 

384

 

 

 

153

 

Purchase of premises and equipment

 

 

(519

)

 

 

(255

)

Net cash provided (used) by investing activities

 

 

7,008

 

 

 

(11,643

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Net decrease in deposits

 

 

(9,978

)

 

 

(446

)

Net increase (decrease) in FHLB advances

 

 

2,823

 

 

 

(1,386

)

Net decrease in advance payments by borrowers for taxes and insurance

 

 

(822

)

 

 

(230

)

Dividends paid

 

 

(733

)

 

 

(745

)

Excess tax benefits from share-based payment arrangements

 

 

36

 

 

 

--

 

Purchase of common stock for treasury

 

 

--

 

 

 

(126

)

Net cash (used) provided by financing activities

 

 

(8,674

)

 

 

(2,933

)

 

 

 

 

 

 

 

 

 

NET DECREASE IN CASH

 

 

(2,005

)

 

 

(12,361

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

23,675

 

 

 

50,112

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

21,670

 

 

$

37,751

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of noncash investing activities:

 

 

 

 

 

 

 

 

Transfer from loans to real estate owned

 

$

726

 

 

$

483

 

Loans originated to finance sale of real estate owned

 

 

1,311

 

 

 

--

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

5

 


TECHE HOLDING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements as of December 31, 2009 and September 30, 2009 and for the three month periods ended December 31, 2009 and 2008, include the accounts of Teche Holding Company (the “Company”) and its subsidiary, Teche Federal Bank (the “Bank”). The Company’s business is conducted principally through the Bank. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

NOTE 2 - BASIS OF PRESENTATION

 

The accompanying consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other period. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2009. Certain items related to the financial statements dated September 30, 2009 and December 31, 2008 were reclassified to conform to the December 31, 2009 financial statements. The items reclassified were immaterial. The reclassification had no impact on net income or stockholders’ equity.

 

NOTE 3 - INCOME PER SHARE

 

Basic and diluted net income per share is computed based on the weighted average number of shares outstanding during each period. Diluted net income per share reflects the potential dilution that could occur if stock options were exercised, resulting in the issuance of common stock that then shared in the net income of the Company.

 

Following is a summary of the information used in the computation of basic and diluted income per common share for the three months ended December 31, 2009 and 2008 (in thousands).

 

 

Three Months Ended

 

December 31,

 

2009

 

2008

Weighted average number of common shares outstanding - used in computation of basic income per common share

 

 

2,098

 

 

2,118

Effect of dilutive securities:

 

 

 

 

 

 

Stock options

 

 

18

 

 

11

Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted net income per common share

 

 

2,116

 

 

2,129

 

 

 

6

 


For the three month periods ending December 31, 2009 and 2008, net income for determining diluted earnings per share was equivalent to net income. Options to purchase shares that have been excluded from the determination of diluted earnings per share because they are antidilutive (the exercise price is higher than the current market price) amount to approximately 192,000 for the three months ended December 31, 2009 and 197,000 for the three months ended December 31, 2008.

 

NOTE 4 - COMPREHENSIVE INCOME

 

Comprehensive income includes net income and other comprehensive income which includes unrealized gains and losses on securities. Following is a summary of the Company’s comprehensive income for the three months ended December 31, 2009 and 2008 (in thousands).

 

 

 

For Three Months

 

 

 

Ended December 31,

 

 

 

2009

 

 

2008

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,733

 

 

$

1,764

 

Reclassification of realized losses

(gains), net of tax

 

 

(45)

 

 

 

287

 

Noncredit portion of OTTI losses on held-to-maturity securities, net of tax

 

 

(173

)

 

 

--

 

Unrealized gains (losses), net of tax

 

 

(61

)

 

 

54

 

Total comprehensive income

 

$

1,454

 

 

$

2,105

 

 

 

NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS

 

On June 29, 2009, the FASB issued an accounting pronouncement establishing the FASB Accounting Standards CodificationTM (the “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities. This pronouncement was effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities. On the effective date, all non-SEC accounting and reporting standards were superceded. The Company adopted this new accounting pronouncement for the year ended September 30, 2009, as required, and adoption did not have a material impact on the Company’s financial statements taken as a whole.

ASC (805) Business Combinations, changes the way that acquiring entities will account for business combinations. Some of the more significant changes are that the equity securities issued as consideration will be valued at the date that the acquirer takes control of assets and assumes liabilities of the acquired company (typically would be the date of closing), and that direct costs of the acquisition will be expensed as incurred rather than capitalized. This statement was effective for the Company beginning October 1, 2009. Adoption of this standard did not have an impact on the consolidated financial statements but will impact the accounting for future business combinations.

ASC (810) Non-controlling Interests in Consolidated Financial Statements, which improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report non-controlling (minority) interests in subsidiaries in the same way as equity in the consolidated financial statements. Moreover, this guidance eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. This statement is effective for fiscal years, and interim periods within those fiscal

 

 

7

 


years, beginning on or after December 15, 2008. Earlier adoption is prohibited. This statement shall be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. Adoption of this standard had no impact on the consolidated financial statements.

ASC (860) Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. This guidance also eliminates the concept of a qualifying special-purpose entity, and changes the requirements for derecognizing financial assets and requires additional disclosures.

ASC (810) Consolidation of Variable Interest Entities, changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.

Both ASC (860) and ASC (810) will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The recognition and measurement provisions shall be applied to transfers that occur on or after the effective date. Adoption of these standards had no impact on the consolidated financial statements.

NOTE 6 – FAIR VALUE MEASUREMENTS

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as securities held-to-maturity, 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, other than temporary impairment accounting or impairments of individual assets.

A three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 - Observable inputs such as quoted prices in active markets;

 

Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Following is a description of valuation methodologies used for assets recorded at fair value.

Investment Securities

Securities available for sale are valued at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S.

 

 

8

 


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. Securities classified as Level 3 include asset-backed securities in less liquid markets. Securities held to maturity are valued using discounted cash flow models that use assumptions about prepayment speeds, coupon default rates, discount rates and timing and other assumptions that may affect the amounts of cash flows.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC (310), “Accounting by Creditors for Impairment of a Loan”. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2009, substantially all of the impaired loans were evaluated based on the fair value of the collateral less estimated costs to sell. 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, the Company records the impaired 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, the Company records the impaired loan as nonrecurring Level 3.

 

 

 

Fair Value

 

Fair Value Hierarchy

 

 

At December 31, 2009

 

Level 1

 

Level 2

 

Level 3

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government National Mortgage Assoc.

 

$

2,326

 

$

-

 

$

2,326

 

$

-

 

Federal Home Loan Mortgage Corp.

 

 

7,576

 

 

-

 

 

7,576

 

 

-

 

Federal National Mortgage Assoc.

 

 

5,618

 

 

-

 

 

5,618

 

 

-

 

 

 

 

15,520

 

 

-

 

 

15,520

 

 

-

 

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government National Mortgage Assoc.

 

 

3,043

 

 

-

 

 

3, 043

 

 

-

 

Other equity securities

 

 

370

 

 

370

 

 

-

 

 

-

 

Total AFS securities

 

$

18,933

 

$

370

 

$

18,563

 

$

-

 

Assets valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s: Private label

 

$

428

 

$

-

 

$

428

 

$

-

 

Impaired loans

 

 

7,796

 

 

-

 

 

7,796

 

 

-

 

Total non-recurring

 

$

8,224

 

$

-

 

$

8,224

 

$

-

 

 

 

 

9

 


 

 

 

Fair Value At September

 

Fair Value Hierarchy

 

 

30, 2009

 

Level 1

 

Level 2

 

Level 3

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government National Mortgage Assoc.

 

$

2,549

 

$

-

 

$

2,549

 

$

-

 

Federal Home Loan Mortgage Corp.

 

 

8,322

 

 

-

 

 

8,322

 

 

-

 

Federal National Mortgage Assoc.

 

 

6,020

 

 

-

 

 

6,020

 

 

-

 

 

 

 

16,891

 

 

-

 

 

16,891

 

 

-

 

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government National Mortgage Assoc.

 

 

3,317

 

 

-

 

 

3,317

 

 

-

 

Marketable equity securities

 

 

728

 

 

728

 

 

-

 

 

-

 

Total recurring

 

$

20,936

 

$

728

 

$

20,208

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s: Private label

 

$

164

 

$

-

 

$

164

 

$

-

 

Impaired loans

 

 

2,988

 

 

-

 

 

2,988

 

 

-

 

Total non-recurring

 

$

3,152

 

$

-

 

$

3,152

 

$

-

 

 

 

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

 

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

 

Cash - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

 

Investment Securities – See discussion in the beginning of Note 6 on the evaluation of fair value of investment securities. Investment securities’ fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

 

 

10

 


Loans - See discussion in the beginning of Note 6 on the evaluation of fair value of impaired loans. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers for the same remaining maturities.

 

Federal Home Loan Bank Stock - Federal Home Loan Bank (FHLB) stock is recorded at cost and is periodically reviewed for impairment. No ready market exists for the FHLB stock. It has no quoted market value and is carried at cost. Cost approximates fair market value based upon the redemption requirements of the FHLB, and this investment is not considered impaired at December 31, 2009. FHLB of Dallas is still redeeming stock.

 

Bank owned life insurance- The carrying amounts of bank owned life insurance contracts approximate fair value.

 

Accrued Interest - The carrying amounts of accrued interest receivable and payable approximate fair value.

 

Deposits - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturities certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

 

Advances from Federal Home Loan Bank - The fair value of advances is estimated using rates currently available for advances of similar remaining maturities.

 

Commitments - The fair value of commitments to extend credit was not significant.

 

 

11

 


The estimated fair values of the Company’s financial instruments are as follows at December 31, 2009 and September 30, 2009:

 

 

 

December 31, 2009

 

 

 

September 30, 2009

 

 

Carrying

 

Estimated

 

 

 

Carrying

 

 

Estimated

 

 

Amount

 

Fair Value

 

 

 

Amount

 

 

Fair Value

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,670

 

$

 

21,670

 

 

 

 

$            23,675

 

 

 

 

$            23,675

Investment securities

 

 

81,483

 

 

82,922

 

 

 

96,320

 

 

97,823

FHLB stock

 

 

5,129

 

 

5,129

 

 

 

5,063

 

 

5,063

Accrued interest receivable

 

 

2,597

 

 

2,597

 

 

 

2,622

 

 

2,622

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Life Insurance contracts

 

 

12,873

 

 

12,873

 

 

 

12,724

 

 

12,724

Loans receivable, net

 

 

594,543

 

 

621,501

 

 

 

588,527

 

 

617,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

575,491

 

 

581,984

 

 

 

585,469

 

 

593,273

Advances from Federal Home Loan Bank

 

 

103,451

 

 

109,219

 

 

 

 

100,628

 

 

 

107,931

Accrued interest payable

 

 

457

 

 

457

 

 

 

743

 

 

743

 

NOTE 7 – SECURITIES

 

The amortized cost and estimated fair values of securities available-for-sale are as follows:

 

 

 

 

December 31, 2009

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized Cost

 

Unrealized Gains

 

Unrealized Losses

 

Fair

Value

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government National Mortgage Assoc.

 

$

2,294

 

$

33

 

$

-

 

$

2,327

 

Federal Home Loan Mortgage Corp.

 

 

7,430

 

 

146

 

 

-

 

 

7,576

 

Federal National Mortgage Assoc.

 

 

5,476

 

 

142

 

 

-

 

 

5,618

 

 

 

 

15,200

 

 

321

 

 

-

 

 

15,521

 

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government National Mortgage Assoc.

 

 

2,926

 

 

117

 

 

-

 

 

3,043

 

Other equity securities

 

 

309

 

 

61

 

 

-

 

 

370

 

Total

 

$

18,435

 

$

499

 

$

-

 

$

18,934

 

 

 

 

12

 


 

 

 

 

September 30, 2009

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized Cost

 

Unrealized Gains

 

Unrealized Losses

 

Fair

Value

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government National Mortgage Assoc.

 

$

2,508

 

$

41

 

$

-

 

$

2,549

 

Federal Home Loan Mortgage Corp.

 

 

8,187

 

 

139

 

 

(4)

 

 

8,322

 

Federal National Mortgage Assoc.

 

 

5,809

 

 

211

 

 

-

 

 

6,020

 

 

 

 

16,504

 

 

391

 

 

(4)

 

 

16,891

 

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government National Mortgage Assoc.

 

 

3,181

 

 

136

 

 

-

 

 

3,317

 

Other equity securities

 

 

592

 

 

159

 

 

(23)

 

 

728

 

Total

 

$

20,277

 

$

686

 

$

(27)

 

$

20,936

 

 

 

The amortized cost and estimated fair values of securities held-to-maturity are as follows:

 

 

 

December 31, 2009

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized Cost

 

Unrealized Gains

 

Unrealized Losses

 

Fair

Value

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank Bonds

 

$

16,436

 

$

71

 

$

-

 

$

16,507

 

Time deposits other banks

 

 

7,299

 

 

-

 

 

-

 

 

7,299

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Assoc.

 

 

23,011

 

 

916

 

 

(2)

 

 

23,925

 

Federal Home Loan Mortgage Corp.

 

 

10,085

 

 

589

 

 

-

 

 

10,674

 

Private Label

 

 

2,168

 

 

203

 

 

(386)

 

 

1,985

 

CMO’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Mortgage Corp.

 

 

313

 

 

-

 

 

(17)

 

 

296

 

Federal National Mortgage Assoc.

 

 

1,768

 

 

43

 

 

(24)

 

 

1,787

 

Private Label

 

 

1,469

 

 

59

 

 

(13)

 

 

1,515

 

Total

 

$

62,549

 

$

1,881

 

$

(442)

 

$

63,988

 

 

 

 

 

13

 


 

 

 

September 30, 2009

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized Cost

 

Unrealized Gains

 

Unrealized Losses

 

Fair

Value

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank

 

$

16,476

 

$

97

 

$

-

 

$

16,573

 

Time deposits other banks

 

 

17,049

 

 

24

 

 

-

 

 

17,073

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Assoc.

 

 

24,658

 

 

1,212

 

 

(1)

 

 

25,869

 

Federal Home Loan Mortgage Corp.

 

 

10,770

 

 

709

 

 

-

 

 

11,479

 

Private Label

 

 

2,572

 

 

146

 

 

(588)

 

 

2,130

 

CMO’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Mortgage Corp.

 

 

341

 

 

6

 

 

-

 

 

347

 

Federal National Mortgage Assoc.

 

 

1,843

 

 

63

 

 

-

 

 

1,906

 

Private Label

 

 

1,675

 

 

40

 

 

(205)

 

 

1,510

 

Total

 

$

75,384

 

$

2,297

 

$

(794)

 

$

76,887

 

 

 

Details concerning securities with unrealized losses as of December 31, 2009 are as follows:

 

 

 

Securities with losses

 

Securities with losses

 

 

 

 

 

 

 

under 12 months

 

over 12 months

 

Total

 

(In thousands)

 

Fair Value

 

Unrealized

 

Fair value

 

Unrealized

 

Fair value

 

Unrealized

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan
Mortgage Corp.

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

14

 


Details concerning securities with unrealized losses as of December 31, 2009 are as follows:

 

 

 

Securities with losses

 

Securities with losses

 

 

 

 

 

 

 

under 12 months

 

over 12 months

 

Total

 

(In thousands)

 

Fair value

 

Unrealized

 

Fair value

 

Unrealized

 

Fair value

 

Unrealized

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

Time Deposits Other Banks

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National
Mortgage Assoc.

 

 

44

 

 

(1)

 

 

102

 

 

(1)

 

 

146

 

 

(2)

 

Federal Home Loan

Mortgage Corp

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Private Label

 

 

34

 

 

(4)

 

 

895

 

 

(344)

 

 

929

 

 

(348)

 

CMO’s:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Mortgage

Corporation

 

 

296

 

 

(17)

 

 

-

 

 

-

 

 

296

 

 

(17)

 

Federal National Mortgage Assoc.

 

 

706

 

 

(24)

 

 

32

 

 

-

 

 

738

 

 

(24)

 

Private Label

 

 

17

 

 

(44)

 

 

424

 

 

(7)

 

 

441

 

 

(51)

 

 

 

$

1,097

 

$

(90)

 

$

1,453

 

$

(352)

 

$

2,550

 

$

(442)

 

 

 

 

Details concerning securities with unrealized losses as of September 30, 2009 are as follows:

 

 

 

Securities with losses

 

Securities with losses

 

 

 

 

 

 

 

under 12 months

 

over 12 months

 

Total

 

(In thousands)

 

Fair value

 

Unrealized

 

Fair value

 

Unrealized

 

Fair value

 

Unrealized

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan
Mortgage Corp.

 

$

1,463

 

$

(4)

 

$

-

 

$

-

 

$

1,463

 

$

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

 

64

 

 

(12)

 

 

11

 

 

(11)

 

 

75

 

 

(23)

 

 

 

$

1,527

 

$

(16)

 

$

11

 

$

(11)

 

$

1,538

 

$

(27)

 

 

 

 

 

 

15

 


Details concerning securities with unrealized losses as of September 30, 2009 are as follows:

 

 

 

Securities with losses

 

Securities with losses

 

 

 

 

 

 

 

under 12 months

 

over 12 months

 

Total

 

(In thousands)

 

Fair value

 

Unrealized

 

Fair value

 

Unrealized

 

Fair value

 

Unrealized

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

Time deposits other banks

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National
Mortgage Assoc.

 

 

272

 

 

-

 

 

122

 

 

(1)

 

 

394

 

 

(1)

 

Federal Home Loan Mortgage Corporation

Private

 

 

459