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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 March 31, 2011

 

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 0-28312

 

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

(Exact name of registrant as specified in its charter)

 

Texas

 

71-0785261

(State or other jurisdiction of incorporation

or organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

1401 Highway 62-65 North

Harrison, Arkansas

 

72601

(Address of principal executive office)

 

(Zip Code)

 

(870) 741-7641

(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 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.  (Check one):

 

Large Accelerated Filer  o

 

Accelerated Filer  o

 

 

 

Non-accelerated Filer  o

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of April 25, 2011, there were issued and outstanding 4,846,785 shares of the Registrant’s Common Stock, par value $.01 per share.

 

 

 



Table of Contents

 

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

 

TABLE OF CONTENTS

 

 

 

Page

Part I.

Financial Information

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

 

 

 

 

Condensed Consolidated Statements of Financial Condition as of March 31, 2011 and December 31, 2010 (unaudited)

1

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited)

2

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2011 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)

4

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

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

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

 

 

 

Item 4.

Controls and Procedures

50

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Removed and Reserved

59

Item 5.

Other Information

59

Item 6.

Exhibits

59

 

 

 

Signatures

 

 

 

 

 

Exhibits

 

 

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1

Section 906 Certification of the CEO

 

32.2

Section 906 Certification of the CFO

 

 



Table of Contents

 

Part I.    Financial Information

 

Item 1.  Financial Statements.

 

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)

(Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2011

 

2010

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,383

 

$

36,407

 

Investment securities - available for sale

 

77,291

 

83,106

 

Federal Home Loan Bank stock—at cost

 

1,891

 

1,257

 

Loans receivable, net of allowance of $29,113 and $31,084, respectively

 

363,680

 

381,343

 

Loans held for sale

 

1,230

 

4,502

 

Accrued interest receivable

 

2,395

 

2,545

 

Real estate owned - net

 

43,850

 

44,706

 

Office properties and equipment - net

 

21,940

 

22,237

 

Cash surrender value of life insurance

 

21,640

 

21,444

 

Prepaid expenses and other assets

 

3,375

 

2,499

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

577,675

 

$

600,046

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Deposits

 

$

522,165

 

$

541,800

 

Other borrowings

 

15,973

 

18,193

 

Advance payments by borrowers for taxes and insurance

 

907

 

726

 

Other liabilities

 

3,837

 

3,207

 

 

 

 

 

 

 

Total liabilities

 

$

542,882

 

$

563,926

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Preferred stock, no par value, 5,000,000 shares authorized; Series A fixed rate cumulative perpetual; liquidation preference of $1,000 per share; 16,500 shares issued and outstanding

 

$

16,279

 

$

16,261

 

Common stock, $.01 par value—30,000,000 shares authorized; 4,846,785 shares issued and outstanding at March 31, 2011 and December 31, 2010

 

48

 

48

 

Additional paid-in capital

 

26,796

 

26,796

 

Other comprehensive loss

 

(1,931

)

(2,320

)

Accumulated deficit

 

(6,399

)

(4,665

)

Total stockholders’ equity

 

34,793

 

36,120

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

577,675

 

$

600,046

 

 

See notes to unaudited condensed consolidated financial statements.

 

1



Table of Contents

 

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2011

 

2010

 

INTEREST INCOME:

 

 

 

 

 

Loans receivable

 

$

5,314

 

$

6,829

 

Investment securities:

 

 

 

 

 

Taxable

 

714

 

1,315

 

Nontaxable

 

205

 

272

 

Other

 

15

 

15

 

Total interest income

 

6,248

 

8,431

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

Deposits

 

1,707

 

2,549

 

Other borrowings

 

112

 

242

 

 

 

 

 

 

 

Total interest expense

 

1,819

 

2,791

 

 

 

 

 

 

 

NET INTEREST INCOME

 

4,429

 

5,640

 

 

 

 

 

 

 

PROVISION FOR LOAN LOSSES

 

160

 

53

 

 

 

 

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

4,269

 

5,587

 

 

 

 

 

 

 

NONINTEREST INCOME:

 

 

 

 

 

Deposit fee income

 

1,068

 

1,190

 

Earnings on life insurance policies

 

196

 

198

 

Gain on sale of loans

 

150

 

136

 

Other

 

266

 

297

 

 

 

 

 

 

 

Total noninterest income

 

1,680

 

1,821

 

 

 

 

 

 

 

NONINTEREST EXPENSES:

 

 

 

 

 

Salaries and employee benefits

 

2,644

 

2,798

 

Net occupancy expense

 

635

 

670

 

Real estate owned, net

 

1,972

 

801

 

FDIC insurance

 

433

 

515

 

Supervisory assessments

 

95

 

106

 

Data processing

 

360

 

379

 

Professional fees

 

504

 

406

 

Advertising and public relations

 

48

 

64

 

Postage and supplies

 

162

 

161

 

Other

 

606

 

702

 

 

 

 

 

 

 

Total noninterest expenses

 

7,459

 

6,602

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

(1,510

)

806

 

 

 

 

 

 

 

INCOME TAX PROVISION (BENEFIT)

 

 

(99

)

 

 

 

 

 

 

NET INCOME (LOSS)

 

(1,510

)

905

 

 

 

 

 

 

 

PREFERRED STOCK DIVIDENDS AND ACCRETION OF PREFERRED STOCK DISCOUNT

 

224

 

222

 

 

 

 

 

 

 

NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS

 

$

(1,734

)

$

683

 

 

 

 

 

 

 

EARNINGS (LOSS) PER COMMON SHARE:

 

 

 

 

 

Basic

 

$

(0.36

)

$

0.14

 

 

 

 

 

 

 

Diluted

 

$

(0.36

)

$

0.14

 

 

See notes to unaudited condensed consolidated financial statements.

 

2



Table of Contents

 

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE  MONTHS ENDED MARCH 31, 2011

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Issued

 

Issued

 

Additional

 

Other

 

 

 

Total

 

 

 

Preferred Stock

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders’

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Income (Loss)

 

Deficit

 

Equity

 

BALANCE — January 1, 2011

 

16,500

 

$

16,261

 

4,846,785

 

$

48

 

$

26,796

 

$

(2,320

)

$

(4,665

)

$

36,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

(1,510

)

(1,510

)

Change in unrealized gain/loss on Investment securities available for sale arising during the period

 

 

 

 

 

 

389

 

 

389

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

(1,121

)

Preferred stock dividends accrued

 

 

 

 

 

 

 

(206

)

(206

)

Accretion of preferred stock discount

 

 

18

 

 

 

 

 

(18

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE — March 31, 2011

 

16,500

 

$

16,279

 

4,846,785

 

$

48

 

$

26,796

 

$

(1,931

)

$

(6,399

)

$

34,793

 

 

See notes to unaudited condensed consolidated financial statements.

 

3



Table of Contents

 

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

(1,510

)

$

905

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

160

 

53

 

Provision for real estate losses

 

1,644

 

579

 

Deferred tax provision (benefit)

 

(675

)

153

 

Deferred tax valuation allowance

 

675

 

(252

)

Accretion of discounts on investment securities, net

 

(11

)

(16

)

Federal Home Loan Bank stock dividends

 

(1

)

(3

)

Loss on sale of repossessed assets, net

 

116

 

51

 

Originations of loans held for sale

 

(4,260

)

(6,754

)

Proceeds from sales of loans held for sale

 

7,682

 

7,507

 

Gain on sale of loans originated to sell

 

(150

)

(136

)

Depreciation

 

339

 

363

 

Amortization of deferred loan costs, net

 

68

 

93

 

Earnings on life insurance policies

 

(196

)

(198

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accrued interest receivable

 

150

 

557

 

Prepaid expenses and other assets

 

(878

)

274

 

Other liabilities

 

424

 

383

 

 

 

 

 

 

 

Net cash provided by operating activities

 

3,577

 

3,559

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Proceeds from maturities and calls of investment securities, held to maturity

 

 

16,285

 

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

 

6,215

 

 

Federal Home Loan Bank stock purchased

 

(633

)

(475

)

Federal Home Loan Bank stock redeemed

 

 

1,181

 

Loan repayments, net of originations

 

14,800

 

21,243

 

Loan participations purchased

 

 

(783

)

Proceeds from sales of real estate owned

 

1,765

 

1,749

 

Improvements to real estate owned

 

(32

)

(159

)

Purchases of office properties and equipment

 

(42

)

(32

)

 

 

 

 

 

 

Net cash provided by investing activities

 

22,073

 

39,009

 

 

 

 

 

 

 

 

 

 

 

(Continued)

 

 

4



Table of Contents

 

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2011

 

2010

 

FINANCING ACTIVITIES:

 

 

 

 

 

Net decrease in deposits

 

$

(19,635

)

$

(11,520

)

Repayment of advances from Federal Home Loan Bank

 

(220

)

(6,020

)

Short-term FHLB advances, net

 

(2,000

)

(18,000

)

Net increase in advance payments by borrowers for taxes and insurance

 

181

 

210

 

 

 

 

 

 

 

Net cash used in financing activities

 

(21,674

)

(35,330

)

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

3,976

 

7,238

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

Beginning of year

 

36,407

 

22,149

 

 

 

 

 

 

 

End of year

 

$

40,383

 

$

29,387

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION—

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

1,923

 

$

2,806

 

 

 

 

 

 

 

Income taxes

 

$

 

$

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

Real estate and other assets acquired in settlement of loans

 

$

3,891

 

$

3,721

 

 

 

 

 

 

 

Loans to facilitate sales of real estate owned

 

$

1,256

 

$

2,889

 

 

 

 

 

 

 

Preferred stock dividends accrued, not paid

 

$

206

 

$

206

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

(Concluded)

 

 

5



Table of Contents

 

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation—First Federal Bancshares of Arkansas, Inc. (the “Company”) is a unitary holding company that owns all of the stock of First Federal Bank (the “Bank”). The Company is substantially in the business of community banking and therefore is considered a banking operation with no separately reportable segments. The Bank provides a broad line of financial products to individuals and small- to medium-sized businesses. The consolidated financial statements also include the accounts of the Bank’s wholly owned subsidiary, First Harrison Service Corporation (“FHSC”), which is inactive.

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  However, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods.

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and the Bank.  Intercompany transactions have been eliminated in consolidation.

 

The results of operations for the three months ended March 31, 2011, are not necessarily indicative of the results to be expected for the year ending December 31, 2011.  The unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2010, contained in the Company’s 2010 Annual Report to Stockholders.

 

2.                      GOING CONCERN

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. However, the events and circumstances described below create uncertainty about the Company’s ability to continue as a going concern.  The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

The Company recorded a net loss of $4.0 million in 2010, primarily due to the level of nonperforming assets, the provision for loan losses of $7.0 million, real estate owned expenses of $5.3 million, and FDIC insurance premiums of $1.9 million.  Our losses were largely a result of nonperforming loans and real estate owned.

 

On April 12, 2010, the Company and the Bank each consented to the terms of Cease and Desist Orders issued by the Office of Thrift Supervision (“OTS”) (the “Bank Order” and the “Company Order” and, together, the “Orders”).  The Orders impose certain operation restrictions on the Company and, to a greater extent, the Bank, including lending and dividend restrictions.  The Orders also require the Company and the Bank to take certain actions, including the submission to the OTS of capital plans and business plans to, among other things, preserve and enhance the capital of the Company and the Bank and strengthen and improve the consolidated Company’s operations, earnings and profitability.  The Bank Order specifically requires the Bank to achieve and maintain, by December 31, 2010, a Tier 1 (Core) Capital Ratio of at least 8% and a Total Risk-Based Capital Ratio of at least 12.0% and maintain these higher ratios for as long as the Bank Order is in effect.  At December 31, 2010, the Bank’s Core and Total Risk-Based Capital Ratios were 6.36% and 10.72%.  At March 31, 2011, the Bank’s Core and total Risk-Based Capital Ratios were 6.38% and 10.81%.  The Bank needed additional capital of approximately $9.4 million to meet these capital requirements at March 31, 2011.

 

On January 27, 2011, the Company and the Bank entered into an Investment Agreement (the “Investment Agreement”) with Bear State Financial Holdings, LLC (“Bear State”) which sets forth the terms and conditions of the recapitalization, which consists of the following:

 

·                  the Company will amend its Articles of Incorporation to effect a 1-for-5 reverse split  (the “Reverse Split”) of the Company’s issued and outstanding shares of common stock (the “Amendment”);

 

·                  Bear State will purchase from the United States Department of the Treasury (“Treasury”) for $6 million aggregate consideration, the Company’s 16,500 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), including any accrued but unpaid dividends thereon, and related warrant dated March 6, 2009 to purchase 321,847 shares of the Company’s common stock at an exercise price of $7.69 per share (the “TARP Warrant”), both of which were previously issued to the Treasury through the Troubled Asset Relief Program — Capital Purchase Program;

 

6



Table of Contents

 

·                  the Company will sell to Bear State (i) 15,425,262 post-Reverse Split shares (the “First Closing Shares”) of the Company’s common stock at $3.00 per share (or $0.60 per share pre-Reverse Split) in a private placement, and (ii) a warrant (the “Investor Warrant”) to purchase 2 million post-Reverse Split shares of our common stock at an exercise price of $3.00 per share (or $0.60 per share pre-Reverse Split) (the date on which such sale occurs, the “First Closing”);

 

·                  Bear State will pay the Company aggregate consideration of approximately $46.3 million for the First Closing Shares and Investor Warrant, consisting of (i) $40.3 million in cash, and (ii) Bear State’s surrendering to the Company the Series A Preferred Stock and TARP Warrant for a $6 million credit against the purchase price of the First Closing Shares;

 

·                  as promptly as practical following Bear State’s purchase of the First Closing Shares and Investor Warrant, the Company intends to commence a stockholder rights offering (the “Rights Offering”) pursuant to which stockholders who hold shares of our common stock on the record date for the Rights Offering will receive the right to purchase three (3) post-Reverse Split shares of the Company’s common stock for each one (1) post-Reverse Split share held by such stockholder at $3.00 per share (or $0.60 per share pre-Reverse Split); and

 

·                  on the closing date of the Rights Offering, the Company will sell to Bear State any unsold shares offered in the Rights Offering (the “Second Closing”), subject to the satisfaction of the conditions to the Second Closing, at a purchase price of $3.00 per share (or $0.60 per share pre-Reverse Split) in a private placement, subject to an overall limitation on Bear State’s ownership of 94.90% of our common stock (the “Second Closing Shares” and together with the First Closing Shares, the “Private Placement Shares”).

 

On April 20, 2011, the Company, the Bank and Bear State entered into Amendment No. 1 to the Investment Agreement (as amended, the “Investment Agreement”) pursuant to which the parties agreed that Bear State’s right to designate four (4) individuals to serve on the Boards of Directors of the Company and the Bank will cease following their initial appointment following the First Closing.  The Reverse Split, the Amendment, the Change of Control Issuance and the other transactions contemplated thereby are  sometimes collectively referred to in this Form 10-Q as the “Recapitalization.”

 

As a condition to Bear State’s investment in the Company, (i) the Company’s stockholders must approve the Amendment to the Company’s Articles of Incorporation to effect the Reverse Split, (ii) the Company’s stockholders must approve the issuance of more than 20% of the Company’s post-Reverse Split outstanding common stock in accordance with the terms of the Investment Agreement as required pursuant to NASDAQ Marketplace Rules 5635(b), 5635(c) and 5635(d), and (iii) Treasury must sell to Bear State the Series A Preferred Stock (including accrued and unpaid dividends) and TARP Warrant for $6 million.  As described in Note 14, the Company’s stockholders approved items (i) and (ii) on April 29, 2011.

 

After giving effect to Bear State’s investment in the Company, Bear State will own at least 81.80% of our common stock (after taking into account the exercise of the Investor Warrant and assuming the Rights Offering is fully subscribed), and could own as much as 94.90% of our common stock (after taking into account the overall limitation on Bear State’s ownership and the exercise of the Investor Warrant and assuming no current stockholders subscribe to the Rights Offering).  As a result, our current stockholders would own between approximately 5.10% and 18.20% of our common stock following Bear State’s investment in the Company and the Rights Offering.

 

Consummation of the above-described transactions is subject to regulatory non-objection from the OTS, which Bear State received on April 28, 2011.

 

The Company anticipates that Bear State’s purchase of the First Closing Shares and the Investor Warrant will take place during May 2011, subject to satisfying the conditions set forth in the Investment Agreement, which will bring the Company and the Bank into compliance with the capital requirements of the Orders.  However, uncertainty regarding the conditions which must to be met prior to closing and the Company’s current noncompliance with the capital requirements of the Orders at December 31, 2010, raises substantial doubt about the Company’s ability to continue as a going concern.

 

3.                      RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances, and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and nonrecurring fair value measurements. The Company’s disclosures about fair value

 

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measurements are presented in Note 11. These new disclosure requirements were effective beginning with the period ended March 31, 2010, except for the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010. There was no significant effect on the Company’s financial statement disclosures upon adoption of this ASU.

 

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, including factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibits creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and adds factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 are effective for the Company’s reporting period ending September 30, 2011. The Company is currently evaluating the provisions of ASU No. 2011-02 for their effect on the Company’s financial statements.

 

4.                      PREFERRED STOCK

On March 6, 2009, as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the Treasury, pursuant to which the Company, for a purchase price of $16.5 million in cash, (i) sold 16,500 shares of the Company’s Series A Preferred Stock and (ii) issued a warrant (the “Warrant”) to purchase 321,847 shares of the Company’s common stock, par value $.01 per share (the “Common Stock”), at an exercise price of $7.69 per share.  The Series A Preferred Stock qualifies as Tier 1 capital and is entitled to cumulative dividends. The preferred stock dividend reduces earnings available to common stockholders and is computed at an annual rate of 5% per annum for the first five years, and 9% per annum thereafter. The Series A Preferred Stock is non-voting, other than class voting rights on certain matters that could adversely affect the Series A Preferred Stock. The Series A Preferred Stock may be redeemed by the Company with regulatory approval and when such preferred shares are redeemed, the Treasury shall liquidate the Warrant associated with such preferred shares.  The Warrant has a 10-year term and was immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $7.69 per share of the Common Stock.   Treasury has agreed not to exercise voting power with respect to any shares of Common Stock issued upon exercise of the Warrant that it holds.

 

Upon receipt of the aggregate consideration from the Treasury on March 6, 2009, the Company allocated the $16.5 million proceeds on a pro rata basis to the Series A Preferred Stock and the Warrant based on relative fair values. In estimating the fair value of the Warrant, the Company utilized an option pricing model which includes assumptions regarding the Company’s common stock prices, stock price volatility, dividend yield, the risk free interest rate and the estimated life of the Warrant. The fair value of the Series A Preferred Stock was determined using a discounted cash flow methodology and a discount rate of 12%. As a result, the Company assigned $358,000 of the aggregate proceeds to the Warrant and $16.1 million to the Series A Preferred Stock. The value assigned to the Series A Preferred Stock will be accreted up to the $16.5 million liquidation value of such preferred stock, with the cost of such accretion being reported as additional preferred stock dividends. This results in a total dividend with a constant effective yield of 5.50% over a five-year period, which is the expected life of the Series A Preferred Stock. In addition, the Purchase Agreement (i) grants the holders of the Series A Preferred Stock, the Warrant and the Warrant Common Stock certain registration rights, (ii) subjects the Company to certain of the executive compensation limitations included in the EESA (which are discussed below) and (iii) allows the Treasury to unilaterally amend any of the terms of the Purchase Agreement to the extent required to comply with any changes after March 6, 2009 in applicable federal statutes. On April 2, 2009, the Company filed a “shelf” registration statement on Form S-3 with the Securities and Exchange Commission (the “Commission”) for the purpose of registering the Warrant and the Warrant Common Stock in order to permit the sale of such securities by the U.S. Treasury at any time after effectiveness of the registration statement. On April 28, 2009, the Company was notified by the Commission that the “shelf” registration statement was deemed effective.

 

Immediately prior to the execution of the Purchase Agreement, the Company amended its compensation, bonus, incentive and other benefit plans, arrangements and agreements to the extent necessary to comply with the executive compensation and corporate governance requirements of Section 111(b) of the EESA and applicable guidance or regulations issued by the Treasury on or prior to March 6, 2009. The applicable executive compensation requirements apply to the compensation of the Company’s chief executive officer, chief financial officer and three other most highly compensated executive officers (collectively, the “senior executive officers”). In addition, in connection with the closing of the Treasury’s purchase of the Series A Preferred Stock each of the senior executive officers was required to execute a waiver of any claim against the United States or the Company for any changes to his or her compensation or benefits that are required in order to comply with the regulation issued by the Treasury as published in the Federal Register on October 20, 2008.

 

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The Company’s ability to repurchase its shares is restricted. Consent of the Treasury generally is required for the Company to make any stock repurchase until the third anniversary of the investment by Treasury unless all of the Series A Preferred Stock has been redeemed or transferred to a third party. Further, common, junior preferred or pari passu preferred shares may not be repurchased if the Company is in arrears on the Series A Preferred Stock dividends. Under the terms of the Purchase Agreement, the Company’s ability to declare or pay dividends on any of its shares is restricted.  Specifically, the Company may not declare dividend payments on common, junior preferred or pari passu preferred shares if it is in arrears on the dividends on the Series A Preferred Stock.  In addition, the Company may not increase the dividends on its Common Stock above the amount of the last quarter cash dividend per share declared prior to October 14, 2008, which was $0.16 per share, without the Treasury’s approval until the third anniversary of the investment unless all of the Series A Preferred Stock has been redeemed or transferred to a third party.

 

The Company and the Bank are subject to a regulatory order which prohibits the Company and the Bank from paying dividends on any of its stock, including the Series A Preferred Stock, without prior written non-objection of the OTS.  As a result, the Company has not paid its Series A Preferred Stock dividends beginning with the dividend payment due February 15, 2010.  However, the Company will continue to accrue these dividends and at March 31, 2011 dividends of approximately $1.1 million were accrued in other liabilities on the consolidated statement of financial condition related to dividend payment due on February 15, 2010 and thereafter.

 

If the Company does not pay dividends payable on the Series A Preferred Stock for six or more periods, whether consecutive or not, the Purchase Agreement provides that the Company’s authorized number of directors will automatically be increased by two and the holders of the Series A Preferred Stock will have the right to elect these two directors.  These additional board seats will be terminated when the Company has paid all accrued and unpaid dividends for all past dividend periods.

 

On January 27, 2011, the Company and the Bank entered into an Investment Agreement with Bear State, which contemplates the purchase of the Company’s Series A Preferred Stock and related Warrant by Bear State from the Treasury.  The Company anticipates that Bear State’s purchase of the First Closing Shares and the Investor Warrant will occur during May 2011, subject to satisfying the conditions set forth in the Investment Agreement.

 

5.                      EARNINGS PER SHARE

 

 

 

Three Months Ended March 31, 2011

 

 

 

Income (Loss)

 

 

 

 

 

 

 

(In Thousands)

 

Shares

 

Per Share

 

 

 

(Numerator)

 

(Denominator)

 

Amount

 

Basic EPS— Loss available to common stockholders

 

$

(1,734

)

4,846,785

 

$

(0.36

)

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS—Income (loss) available to common stockholders and assumed conversions

 

$

(1,734

)

4,846,785

 

$

(0.36

)

 

The calculation of diluted earnings per share excludes 10,232 options outstanding for the three months ended March 31, 2011, which were antidilutive. In addition, the calculation excludes the Treasury Warrant to purchase 321,847 shares of common stock outstanding which was antidilutive.

 

 

 

Three Months Ended March 31, 2010

 

 

 

Income (Loss)

 

 

 

 

 

 

 

(In Thousands)

 

Shares

 

Per Share

 

 

 

(Numerator)

 

(Denominator)

 

Amount

 

Basic EPS— Income available to common stockholders

 

$

683

 

4,846,785

 

$

0.14

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS—Income (loss) available to common stockholders and assumed conversions

 

$

683

 

4,846,785

 

$

0.14

 

 

The calculation of diluted earnings per share excludes 15,482 options outstanding for the three months ended March 31, 2010, which were antidilutive.  In addition, the calculation excludes the Treasury Warrant to purchase 321,847 shares of common stock outstanding which was antidilutive.

 

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6.                      INVESTMENT SECURITIES

Investment securities consisted of the following (in thousands):

 

 

 

March 31, 2011

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Available for Sale

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

32,286

 

$

248

 

$

(575

)

$

31,959

 

U.S. Government sponsored agencies

 

46,936

 

 

(1,604

)

45,332

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

79,222

 

$

248

 

$

(2,179

)

$

77,291

 

 

 

 

December 31, 2010

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Available for Sale

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

33,095

 

$

116

 

$

(1,073

)

$

32,138

 

U.S. Government sponsored agencies

 

52,331

 

49

 

(1,412

)

50,968

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

85,426

 

$

165

 

$

(2,485

)

$

83,106

 

 

The following tables summarize the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired (“OTTI”) (in thousands), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

 

 

 

March 31, 2011

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

12,639

 

$

575

 

$

 

$

 

$

12,639

 

$

575

 

U.S. Government sponsored agencies

 

45,333

 

1,604

 

 

 

45,333

 

1,604

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

57,972

 

$

2,179

 

$

 

$

 

$

57,972

 

$

2,179

 

 

 

 

December 31, 2010

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

18,931

 

$

1,054

 

$

156

 

$

19

 

$

19,087

 

$

1,073

 

U.S. Government sponsored agencies

 

41,775

 

1,412

 

 

 

41,775

 

1,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

60,706

 

$

2,466

 

$

156

 

$

19

 

$

60,862

 

$

2,485

 

 

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On a quarterly basis, management conducts a formal review of securities for the presence of OTTI.  Management assesses whether an OTTI is present when the fair value of a security is less than its amortized cost basis at the balance sheet date.  For such securities, OTTI is considered to have occurred if the Company intends to sell the security, if it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis or if the present values of expected cash flows is not sufficient to recover the entire amortized cost.

 

The unrealized losses are primarily a result of increases in market yields from the time of purchase.  In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired.  Additionally, the unrealized losses are also considered temporary because scheduled coupon payments have been made, it is anticipated that the entire principal balance will be collected as scheduled, and management neither intends to sell the securities and it is not more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount.

 

The Company has pledged investment securities available for sale with carrying values of approximately $11.8 million and $27.9 million at March 31, 2011 and December 31, 2010 as collateral for certain deposits in excess of $250,000.

 

The scheduled maturities of debt securities at March 31, 2011, by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

March 31, 2011

 

 

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

 

 

 

 

 

 

Within one year

 

$

395

 

$

396

 

Due from one year to five years

 

2,055

 

2,075

 

Due from five years to ten years

 

6,647

 

6,661

 

Due after ten years

 

70,125

 

68,159

 

 

 

 

 

 

 

Total

 

$

79,222

 

$

77,291

 

 

As of March 31, 2011 and December 31, 2010, investments with amortized cost of approximately $71.6 million and $77.9 million, respectively, have call options held by the issuer, of which approximately $50.9 million and $56.8 million, respectively, are or were callable within one year.

 

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7.                      LOANS RECEIVABLE

 

The tables below summarize past due and nonaccrual loans as of March 31, 2011 and December 31, 2010 (in thousands):

 

March 31, 2011

 

30-89 Days
Past Due and
Accruing

 

Nonaccrual
Loans

 

Current

 

Total (1)

 

 

 

 

 

 

 

 

 

 

 

One- to four-family residential

 

$

1,856

 

$

22,969

 

$

183,451

 

$

208,276

 

Home equity and second mortgage

 

152

 

1,274

 

15,365

 

16,791

 

Speculative one- to four-family

 

 

 

1,979

 

1,979

 

Multifamily residential

 

 

9,045

 

25,976

 

35,021

 

Land development

 

 

510

 

2,102

 

2,612

 

Land

 

269

 

7,752

 

13,270

 

21,291

 

Commercial real estate

 

 

14,976

 

73,707

 

88,683

 

Commercial

 

119

 

606

 

7,430

 

8,155

 

Consumer

 

43

 

256

 

11,213

 

11,512

 

Total (1)

 

$

2,439

 

$

57,388

 

$

334,493

 

$

394,320

 

 


(1)     Gross of undisbursed loan funds, unearned discounts and net loan fees and the allowance for loan losses.

 

December 31, 2010

 

30-89 Days
Past Due and
Accruing

 

Nonaccrual
Loans

 

Current

 

Total (1)

 

 

 

 

 

 

 

 

 

 

 

One- to four-family residential

 

$

2,274

 

$

24,025

 

$

189,909

 

$

216,208

 

Home equity and second mortgage

 

108

 

1,469

 

16,846

 

18,423

 

Speculative one- to four-family

 

 

28

 

1,133

 

1,161

 

Multifamily residential

 

 

9,142

 

27,085

 

36,227

 

Land development

 

 

595

 

2,101

 

2,696

 

Land

 

17

 

6,987

 

15,586

 

22,590

 

Commercial real estate

 

103

 

13,057

 

81,717

 

94,877

 

Commercial

 

41

 

1,665

 

8,670

 

10,376

 

Consumer

 

53

 

376

 

11,624

 

12,053

 

Total (1)

 

$

2,596

 

$

57,344

 

$

354,671

 

$

414,611

 

 


(1)     Gross of undisbursed loan funds, unearned discounts and net loan fees and the allowance for loan losses.

 

There were no loans over 90 days past due and still accruing at March 31, 2011 or December 31, 2010.  Restructured loans totaled $21.5 million and $20.4 million as of March 31, 2011 and December 31, 2010, respectively, with $16.7 million and $15.1 million of such restructured loans on nonaccrual status at March 31, 2011 and December 31, 2010, respectively.

 

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The following is a summary of information pertaining to impaired loans as of March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and for the year ended December 31, 2010 (in thousands):

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Valuation
Allowance

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Valuation
Allowance

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family residential

 

$

5,153

 

$

4,575

 

$

578

 

$

3,830

 

$

11

 

$

3,414

 

$

3,085

 

$

329

 

$

4,505

 

$

131

 

Home equity and second mortgage

 

451

 

177

 

274

 

260

 

 

665

 

342

 

323

 

238

 

25

 

Speculative one- to four-family

 

 

 

 

5

 

 

28

 

9

 

19

 

382

 

2

 

Multifamily residential

 

8,287

 

5,068

 

3,219

 

5,147

 

 

8,274

 

5,226

 

3,048

 

3,743

 

63

 

Land development

 

510

 

462

 

48

 

498

 

 

595

 

534

 

61

 

1,322

 

5

 

Land

 

5,054

 

4,081

 

973

 

3,564

 

12

 

3,703

 

3,046

 

657

 

5,602

 

20

 

Commercial real estate

 

1,828

 

1,142

 

686

 

2,541

 

3

 

6,255

 

3,940

 

2,315

 

4,630

 

91

 

Commercial

 

176

 

107

 

69

 

217

 

 

1,303

 

327

 

976

 

348

 

10

 

Consumer

 

202

 

20

 

182

 

24

 

 

306

 

42

 

264

 

20

 

17

 

 

 

21,661

 

15,632

 

6,029

 

16,086

 

26

 

24,543

 

16,551

 

7,992

 

20,790

 

364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans without a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family residential

 

19,063

 

19,063

 

 

20,476

 

87

 

21,889

 

21,889

 

 

15,755

 

946

 

Home equity and second mortgage

 

942

 

942

 

 

894

 

19

 

845

 

845

 

 

1,119

 

69

 

Speculative one- to four-family

 

 

 

 

 

 

 

 

 

171

 

 

Multifamily residential

 

4,099

 

4,099

 

 

3,870

 

40

 

3,640

 

3,640

 

 

1,459

 

204

 

Land development

 

 

 

 

 

 

 

 

 

2,609

 

 

Land

 

2,717

 

2,717

 

 

3,568

 

14

 

4,419

 

4,419

 

 

7,065

 

181

 

Commercial real estate

 

13,147

 

13,147

 

 

9,975

 

81

 

6,802

 

6,802

 

 

7,416

 

231

 

Commercial

 

430

 

430

 

 

396

 

1

 

361

 

361

 

 

256

 

34

 

Consumer

 

90

 

90

 

 

95

 

2

 

99

 

99

 

 

137

 

10

 

 

 

40,488

 

40,488

 

 

39,274

 

244

 

38,055

 

38,055

 

 

35,987

 

1,675

 

Total impaired loans

 

$

62,149

 

$

56,120

 

$

6,029

 

$

55,360

 

$

270

 

$

62,598

 

$

54,606

 

$

7,992

 

$

56,777

 

$

2,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest based on original terms

 

 

 

 

 

 

 

 

 

$

852

 

 

 

 

 

 

 

 

 

$

3,511

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income recognized on a cash basis on impaired loans

 

 

 

 

 

 

 

 

 

$

163

 

 

 

 

 

 

 

 

 

$

351

 

 

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Table of Contents

 

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, the Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk on at least an annual basis for non-homogeneous loans over $250,000 and assigning a credit risk rating. The Company uses the following definitions for risk ratings:

 

Pass (Grades 1 to 5). Loans classified as pass generally meet or exceed normal credit standards and are classified on a scale from 1 to 5, with 1 being the highest quality loan and 5 being a pass/watch loan.  Factors influencing the level of pass grade include repayment source and strength, collateral, borrower cash flows, existence of and strength of guarantors, industry/business sector, financial trends, performance history, etc.

 

Special Mention (Grade 6). Loans classified as special mention, while still adequately protected by the borrower’s capital adequacy and payment capability, exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management’s close attention so as to avoid becoming undue or unwarranted credit exposures.

 

Substandard (Grade 7). Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged as security for the asset. These assets must have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

Doubtful (Grade 8). Loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

 

Loss (Grade 9). Loans classified as a loss are considered uncollectible and of such little value that continuance as an asset is not warranted. A loss classification does not mean that an asset has no recovery or salvage value, but that it is not practical or desirable to defer writing off or reserving all or a portion of the asset, even though partial recovery may be effected in the future.

 

Loans listed as not rated are either less than $250,000 or are included in groups of homogeneous loans.  Based on analyses performed at March 31, 2011 and December 31, 2010, the risk categories of loans are as follows:

 

 

 

March 31, 2011

 

 

 

Pass

 

Special
Mention

 

Substandard

 

Loss

 

Not Rated

 

Total

 

One- to four-family residential

 

$

24,278

 

$

11,551

 

$

38,380

 

$

578

 

$

133,489

 

$

208,276

 

Home equity and second mortgage

 

812

 

563

 

1,952

 

274

 

13,190

 

16,791

 

Speculative one- to four-family

 

 

 

1,979

 

 

 

1,979

 

Multifamily residential

 

15,752

 

4,897

 

10,713

 

3,219

 

440

 

35,021

 

Land development

 

 

 

2,564

 

48

 

 

2,612

 

Land

 

2,803

 

2,882

 

8,756

 

973

 

5,877

 

21,291

 

Commercial real estate

 

39,899

 

11,130

 

34,319

 

686

 

2,649

 

88,683

 

Commercial

 

4,406

 

1,540

 

1,559

 

69

 

581

 

8,155

 

Consumer

 

1,100

 

544

 

146

 

182

 

9,540

 

11,512

 

Total loans receivable

 

$

89,050

 

$

33,107

 

$

100,368

 

$

6,029

 

$

165,766

 

$

394,320

 

 

 

 

December 31, 2010

 

 

 

Pass

 

Special
Mention

 

Substandard

 

Loss

 

Not Rated

 

Total

 

One- to four-family residential

 

$

21,026

 

$

12,285

 

$

40,518

 

$

329

 

$

142,050

 

$

216,208

 

Home equity and second mortgage

 

862

 

395

 

3,114

 

323

 

13,729

 

18,423

 

Speculative one- to four-family

 

 

 

1,142

 

19

 

 

1,161

 

Multifamily residential

 

16,787

 

5,499

 

10,429

 

3,048

 

464

 

36,227

 

Land development

 

 

 

2,635

 

61

 

 

2,696

 

Land

 

2,488

 

3,319

 

9,893

 

657

 

6,233

 

22,590

 

Commercial real estate

 

41,002

 

12,731

 

35,800

 

2,315

 

3,029

 

94,877

 

Commercial

 

4,945

 

2,285

 

1,258

 

976

 

912

 

10,376

 

Consumer

 

1,178

 

52

 

167

 

264

 

10,392

 

12,053

 

Total loans receivable

 

$

88,288

 

$

36,566

 

$

104,956

 

$

7,992

 

$

176,809

 

$

414,611

 

 

As of March 31, 2011 and December 31, 2010, the Bank did not have any loans categorized as subprime or classified as doubtful.  Loss rated loans above are fully reserved with specific valuation allowances.

 

14



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8.                      ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES

 

The table below provides a rollforward of the allowance for loan losses by portfolio segment for the periods ended March 31, 2011 and December 31, 2010 (in thousands):

 

March 31, 2011

 

One- to four-
family
residential

 

Home
equity and
second
mortgage

 

Speculative
one- to four-
family

 

Multifamily
residential

 

Land
development

 

Land

 

Commercial
real estate

 

Commercial

 

Consumer

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year:

 

$

5,440

 

$

1,275

 

$

81

 

$

6,581

 

$

1,473

 

$

2,562

 

$

9,491

 

$

3,543

 

$

638

 

$

31,084

 

Provision charged to expense

 

429

 

108

 

18

 

67

 

(451

)

656

 

441

 

(1,064

)

(44

)

160

 

Losses charged off

 

(139

)

(164

)

(28

)

 

(12

)

(80

)

(1,759

)

(364

)

(114

)

(2,660

)

Recoveries

 

7

 

17

 

 

 

450

 

1

 

 

16

 

38

 

529

 

Balance, end of period

 

$

5,737

 

$

1,236

 

$

71

 

$

6,648

 

$

1,460

 

$

3,139

 

$

8,173

 

$

2,131

 

$

518

 

$

29,113

 

Ending balance: individually evaluated for impairment

 

$

578

 

$

274

 

$

 

$

3,219

 

$

48

 

$

973

 

$

686

 

$

69

 

$

182

 

$

6,029

 

Ending balance: collectively evaluated for impairment

 

$

5,159

 

$

962

 

$

71

 

$

3,429

 

$

1,412

 

$

2,166

 

$

7,487

 

$

2,062

 

$

336

 

$

23,084

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

208,276

 

$

16,791

 

$

1,979

 

$

35,021

 

$

2,612

 

$

21,291

 

$

88,683

 

$

8,155

 

$

11,512

 

$

394,320

 

Ending balance: individually evaluated for impairment

 

$

24,216

 

$

1,393

 

$

 

$

12,386

 

$

510

 

$

7,771

 

$

14,975

 

$

606

 

$

292

 

$

62,149

 

Ending balance: collectively evaluated for impairment

 

$

184,060

 

$

15,398

 

$

1,979

 

$

22,635

 

$

2,102

 

$

13,520

 

$

73,708

 

$

7,549

 

$

11,220

 

$

332,171

 

 

December 31, 2010

 

One- to four-
family
residential

 

Home
equity and
second
mortgage

 

Speculative
one- to four-
family

 

Multifamily
residential

 

Land
development

 

Land