NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 -
Principles of Consolidation
BCSB Bancorp, Inc. (the Company) owns 100% of Baltimore County Savings Bank, and its subsidiaries (the
Bank). The Bank owns 100% of Ebenezer Road, Inc. and Lyons Properties, LLC. The accompanying consolidated financial statements include the accounts and transactions of these companies on a consolidated basis since the date of inception.
All intercompany transactions have been eliminated in the consolidated financial statements. Ebenezer Road, Inc. sells insurance products and Lyons Properties, LLC holds real estate owned through foreclosure or deeds in lieu of foreclosure.
Note 2 -
Basis for Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and the instructions to Form 10-Q. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments, (none of which were other than normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations for the periods presented have been
included. The financial statements of the Company are presented on a consolidated basis with those of the Bank. The results for the three months ended December 31, 2012 are not necessarily indicative of the results of operations that may be
expected for the year ending September 30, 2013 or any other period. The consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes which are incorporated by reference in BCSB
Bancorp, Inc.s Annual Report on Form 10-K for the year ended September 30, 2012.
The preparation of the financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to
significant change in the near-term related to the determination of the allowance for loan losses (the Allowance), other-than-temporary impairment of investment securities and deferred tax assets.
Note 3 -
Organization
The Company is a Maryland corporation which was organized to be the stock holding company for the Bank in connection
with our second-step conversion and reorganization completed on April 10, 2008. The Bank operates as a state chartered commercial bank. The Banks deposit accounts are insured up to a maximum of $250,000 by the Federal Deposit Insurance
Corporation (FDIC).
Note 4 -
Cash Flow Presentation
For purposes of the statements of cash flows, cash and cash equivalents include cash and amounts due from depository
institutions, investments in federal funds, and certificates of deposit with original maturities of 90 days or less.
8
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 5 -
Investment Securities
The amortized cost and estimated fair values of investment securities are as follows as of December 31, 2012 and
September 30, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
$
|
4,880
|
|
|
|
|
|
|
|
(179
|
)
|
|
$
|
4,701
|
|
Equity Investments
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,980
|
|
|
$
|
|
|
|
$
|
(179
|
)
|
|
$
|
4,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
|
4,880
|
|
|
|
|
|
|
|
(352
|
)
|
|
|
4,528
|
|
Equity Investments
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,980
|
|
|
$
|
|
|
|
$
|
(352
|
)
|
|
$
|
4,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of available for sale securities during the three months ended December 31,
2012. During the year ended September 30, 2012 there was one sale of an available for sale mortgage-backed security. The security was sold for $1.2 million with a loss of $6,000.
The equity investments consist of an investment in one local bank, whose stock is not listed or widely traded. Therefore, the investment
is carried at cost.
Below is a schedule of investment securities with unrealized losses as of December 31, 2012 and the
length of time the individual security has been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
(in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,701
|
|
|
$
|
(179
|
)
|
|
$
|
4,701
|
|
|
$
|
(179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
4,701
|
|
|
$
|
(179
|
)
|
|
$
|
4,701
|
|
|
$
|
(179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below is a schedule of investment securities with unrealized losses as of September 30, 2012 and the
length of time the individual security has been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
(in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,528
|
|
|
$
|
(352
|
)
|
|
$
|
4,528
|
|
|
$
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,528
|
|
|
$
|
(352
|
)
|
|
$
|
4,528
|
|
|
$
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 and September 30, 2012 the Company had two investment securities in an
unrealized loss position.
9
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6 -
Mortgage-Backed Securities- available for sale
The amortized cost and estimated fair values of mortgage-backed securities available for sale are as follows as of December 31,
2012 and September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA certificates
|
|
$
|
3,392
|
|
|
$
|
77
|
|
|
$
|
|
|
|
$
|
3,469
|
|
Private label collateralized mortgage obligations
|
|
|
10,615
|
|
|
|
6
|
|
|
|
(2,162
|
)
|
|
|
8,459
|
|
Collateralized mortgage obligations
|
|
|
177,154
|
|
|
|
3,281
|
|
|
|
(20
|
)
|
|
|
180,415
|
|
FNMA certificates
|
|
|
10,926
|
|
|
|
736
|
|
|
|
|
|
|
|
11,662
|
|
FHLMC participating certificates
|
|
|
4,644
|
|
|
|
369
|
|
|
|
|
|
|
|
5,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
206,731
|
|
|
$
|
4,469
|
|
|
$
|
(2,182
|
)
|
|
$
|
209,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA certificates
|
|
$
|
3,416
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
3,417
|
|
Private label collateralized mortgage obligations
|
|
|
11,259
|
|
|
|
10
|
|
|
|
(2,235
|
)
|
|
|
9,034
|
|
Collateralized mortgage obligations
|
|
|
178,948
|
|
|
|
3,781
|
|
|
|
|
|
|
|
182,729
|
|
FNMA certificates
|
|
|
11,690
|
|
|
|
840
|
|
|
|
|
|
|
|
12,530
|
|
FHLMC participating certificates
|
|
|
5,403
|
|
|
|
450
|
|
|
|
|
|
|
|
5,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
210,716
|
|
|
$
|
5,082
|
|
|
$
|
(2,235
|
)
|
|
$
|
213,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended December 31, 2012, and the fiscal year ended September 30, 2012
there were no sales of available for sale mortgage-backed securities.
10
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6 -
Mortgage-Backed Securities available for sale - continued
Below is a schedule of mortgage-backed securities with unrealized losses as of
December 31, 2012 and September 30, 2012 and the length of time the individual security has been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
(in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
Private label collateralized mortgage obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,240
|
|
|
$
|
(2,162
|
)
|
|
|
7,240
|
|
|
$
|
(2,162
|
)
|
Collateralized mortgage obligations
|
|
|
4,002
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
4,002
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
4,002
|
|
|
$
|
(20
|
)
|
|
$
|
7,240
|
|
|
$
|
(2,162
|
)
|
|
$
|
11,242
|
|
|
$
|
(2,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
(in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Private label collateralized mortgage obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,673
|
|
|
$
|
(2,235
|
)
|
|
$
|
7,673
|
|
|
$
|
(2,235
|
)
|
Collateralized mortgage obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,673
|
|
|
$
|
(2,235
|
)
|
|
$
|
7,673
|
|
|
$
|
(2,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 and September 30, 2012 the Company had four and two mortgage-backed
securities in unrealized loss positions, respectively.
During the three months ended December 31, 2012, we determined
that, based on our most recent estimate of cash flows, there was no additional other-than-temporary-impairment (OTTI). At December 31, 2012, we had $2.2 million of gross unrealized losses related to private label collateralized
mortgage obligations with an amortized cost of $10.6 million as of that date. These securities contain mortgages with Alt-A characteristics. Gross unrealized losses for these same securities were approximately $2.2 million as of September 30,
2012. We recorded other-than-temporary impairment (OTTI) charges of $370,000 on these securities during the year ended September 30, 2012 and $0 for the three months ended December 31, 2012.
The Company has one private label security for approximately $3.5 million that is not receiving full contractual payments. We are
recognizing interest income on a cash basis on this security. Any shortages above interest due are applied against the corresponding OTTI reserve.
We do not intend to sell, nor is it more likely than not we will be required to sell these securities before maturity or recovery. If in the future it is determined that future declines in market values
or credit losses with respect to these or any other securities are other than temporary, the Company would be required to recognize additional losses in its Consolidated Statement of Operations. Under guidance for recognition and presentation of
other-than-temporary-impairments, the amount of other-than-temporary-impairment that is recognized through earnings is determined by comparing the present value of the expected cash flows to the amortized cost of the security. The discount rate used
to determine the credit loss is the expected book yield on the security.
11
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6 -
Mortgage-Backed Securities - continued
The following shows the activity in OTTI related to credit losses for the
three months ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Balance at Beginning of Period
|
|
$
|
733
|
|
|
$
|
400
|
|
Additional OTTI taken for credit losses
|
|
|
|
|
|
|
|
|
Charge-offs due to payment shortages
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of Period
|
|
$
|
681
|
|
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
The Company engages the service of independent third party valuation professionals to analyze the OTTI status of the
non-agency mortgage-backed securities. The OTTI methodology is formulated within FASB ASC. The valuation is meant to be Level Three pursuant to FASB ASC
Topic 820 Fair Value Measurements and Disclosures
.
As part of the valuation process and OTTI determination, assumptions related to prepayment, default and loss severity on the collateral supporting the non-agency mortgage-backed securities are input into an industry standard valuation model.
Prepayment Assumptions
Estimates of prepayment speeds begins with the prepayment rates provided by the Securities Industry & Financial Markets Association (SIFMA) as of the valuation date to approximate a measure of
the borrowers
incentive
to prepay based on market interest rates. In order to incorporate the borrowers
ability
to prepay, we then make adjustments to the base rate to reflect the borrowers ability to qualify for
a new loan based on their credit. We also make adjustments based on the location of the property to capture the appreciation or depreciation by MSA and thus reflect the likelihood the property will appraise at an amount sufficient to repay the
existing loan. These adjustments factor prepay speeds down as credit quality and home prices deteriorate, reflecting the diminished ability to refinance.
In addition, assumptions are based on evaluation of the conditional prepayment rates (CPR) and conditional repayment rates (CRR) over a 1 month, 3 month, 6 month, 1 year and lifetime basis- to the extent
these values are provided by the servicer, and forecasts from other industry experts.
Default Rates
Estimates for the conditional default rate (CDR) vectors are based on the status of the loans at the valuation date
current, 30- 59 days delinquent, 60-89 days delinquent, 90+ days delinquent, foreclosure or REO and proprietary loss migration models (
e.g
. percentage of 30 day delinquents that will ultimately migrate to default, percentage of 60 day
delinquents that will ultimately migrate to default, etc.). The model assumes that the 60 day plus population will move to repossession inventory subject to our loss migration assumptions and liquidate over the next 24 months. Defaults vector from
month 25 to month 36 to our month 37 CDR value and ultimately vector to zero over an extended period of time of at least 15 years. Default assumptions are benchmarked to the recent results experienced by major servicers of non-Agency MBS for
securities with similar attributes and forecasts from other industry experts and industry research.
Loss Severity
Estimates for loss severity are based on the initial loan to value ratio, the loans lien position, private mortgage insurance
proceeds available (if any), and the estimated change in the price of the property since origination. The historical change in the value of the property is estimated using the
Housing Pricing Indices by Metropolitan Statistical Area
(MSA)
produced by the Federal Housing Finance Agency (FHFA). Estimates for future changes in the prices of the residences collateralizing the mortgages is based on the Case Shiller forecasts and forecasts by MSA provided
by the Housing Predictor website.
The loss severity assumption is static for twelve months then decreases monthly based on
future market appreciation. The annual market appreciation assumption is 2.50% after 12 months. The loss severity is subject to a floor value of 23.00%.
Loss severity is benchmarked to the recent results of the loan collateral supporting the securities and the results experienced by major servicers of non-agency mortgage-backed-securities for securities
with similar attributes.
12
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6 -
Mortgage-Backed Securities available for sale - continued
The prepayment, default and loss severity assumptions result in forecasted cumulative
loss rates. These cumulative loss rates are benchmarked to the projected cumulative losses by product, by year of origination, released by other industry experts.
The collateral cash flows that result from the prepayment, default and loss severity assumptions are applied to securities supporting the collateral by priority based upon the cash flow waterfall rules
provided in the prospectus supplement. The cash flows are then discounted at the appropriate interest rate in order to determine if the impairment on a security is other than temporary.
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans
Loans Receivable
Loans receivable at December 31, 2012 and September 30, 2012 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
(in thousands)
|
|
2012
|
|
|
2012
|
|
Single-family residential mortgages
|
|
$
|
73,404
|
|
|
$
|
76,823
|
|
Single-family rental property loans
|
|
|
62,556
|
|
|
|
62,111
|
|
Commercial real estate loans
|
|
|
142,394
|
|
|
|
141,364
|
|
Construction loans
|
|
|
18,593
|
|
|
|
21,396
|
|
Commercial loans secured
|
|
|
241
|
|
|
|
71
|
|
Commercial loans unsecured
|
|
|
58
|
|
|
|
60
|
|
Commercial lease loans
|
|
|
6
|
|
|
|
20
|
|
Commercial lines of credit
|
|
|
8,160
|
|
|
|
9,952
|
|
Automobile loans
|
|
|
351
|
|
|
|
437
|
|
Home equity lines of credit
|
|
|
32,104
|
|
|
|
32,840
|
|
Other consumer loans
|
|
|
1,367
|
|
|
|
1,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,234
|
|
|
|
346,788
|
|
|
|
|
|
|
Less
|
|
|
|
undisbursed portion of loans in process
|
|
|
(5,084
|
)
|
|
|
(6,467
|
)
|
|
|
|
|
unearned interest
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
deferred loan origination fees and costs
|
|
|
26
|
|
|
|
(38
|
)
|
|
|
|
|
allowance for losses on loans
|
|
|
(5,488
|
)
|
|
|
(5,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
328,686
|
|
|
$
|
334,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classes
For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: residential real estate
loans, residential rental loans, commercial, construction, home equity loans, automobile loans and other consumer loans. The company also separates these segments into classes based on the associated risks within these segments. Commercial loans are
divided into the following five classes: construction, land acquisition and development, commercial loans secured by real estate, commercial loans unsecured and leases. Residential loans are divided into two classes, residential owner occupied and
residential rental properties. Each class of loan requires significant judgment to determine the estimation method that fits the credit risk characteristics of its portfolio segment. Management must use judgment in establishing additional input
metrics for the modeling process. Historical loss percentages are also utilized to assist in projecting potential future losses.
Based on credit risk assessment and managements analysis of leading predictors of losses, additional loss multipliers are applied to loan balances. During the period, management has applied
additional loss estimations based on the current environmental factors, geographical concentrations, residential property values, commercial vacancy rates, unemployment rate and the Companys internal delinquency trends.
13
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
Impaired loans are reviewed individually for potential loss. In instances where loan balances exceed
estimated realizable values, specific loss allocations are identified.
Under our methodology for calculating the allowance for loan losses,
loss rates are determined for the following loan pools: construction, residential owner occupied, residential rental, home equity loans, loan acquisition and development, secured commercial loans, unsecured commercial loans, leases and consumer
loans. Loss rates are then applied to loan balances of these portfolio segments exclusive of loans with specific loss allocations that were reviewed individually. This methodology provides an in-depth analysis of the Banks portfolio and
reflects the probable inherent losses within it. Reserve allocations are then reviewed and consolidated. This process is performed on a quarterly basis.
During the fiscal year ended September 30, 2012, we modified our loss reserve assessment approach to expand analysis of loss rates from a period of the previous one year to the prior two years on a
rolling quarter-to-quarter basis. The result was then annualized and applied to loan pools specified above. Also during the fiscal year ended September 30, 2012, the Company isolated a segment of the loan portfolio, residential rental loans, to
perform more detailed analysis for potential losses.
A two year look back period of charge-off experience is considered to more reasonably
approximate current loss exposure within the portfolio. As mentioned above, we also began employing a more detailed approach in reviewing residential rental loans during the fiscal year ended September 30, 2012. Loss rates for this category
have been noticeably higher than other types of loans. Additionally, geographic concentration is considered to be more of a risk factor for this type of product. Loans within this category are segregated by internal risk ratings, with higher
reserves allocated as risk ratings reflect more potential for loss.
14
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
The Allowance for Loan Losses and Recorded Investment in loans as of and for the three
months ended December 31, 2012 are as follows:
Allowance for Losses on Loans
For the period ended December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Loans
|
|
|
Residential
Rental
Loans
|
|
|
Commercial
Loans
|
|
|
Construction
Loans
|
|
|
Home
Equity
Loans
|
|
|
Automobile
Loans
|
|
|
Other
Consumer
Loans
|
|
|
Total
Loans
|
|
Three Months ended December 31, 2012 Allowance for losses on loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
140
|
|
|
$
|
2,232
|
|
|
$
|
1,477
|
|
|
$
|
1,492
|
|
|
$
|
119
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
5,470
|
|
Charge-Offs
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(505
|
)
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
23
|
|
Provisions
|
|
|
(39
|
)
|
|
|
398
|
|
|
|
(59
|
)
|
|
|
212
|
|
|
|
(2
|
)
|
|
|
(20
|
)
|
|
|
10
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
101
|
|
|
$
|
2,629
|
|
|
$
|
1,421
|
|
|
$
|
1,200
|
|
|
$
|
117
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
5,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
2,112
|
|
|
$
|
7,227
|
|
|
$
|
6,996
|
|
|
$
|
4,942
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,277
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively evaluated for impairment
|
|
$
|
71,292
|
|
|
$
|
55,329
|
|
|
$
|
143,863
|
|
|
$
|
13,651
|
|
|
$
|
32,104
|
|
|
$
|
351
|
|
|
$
|
1,367
|
|
|
$
|
317,957
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance balance for loans individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,224
|
|
|
$
|
98
|
|
|
$
|
586
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance balance for loans collectively evaluated for impairment
|
|
$
|
101
|
|
|
$
|
1,405
|
|
|
$
|
1,323
|
|
|
$
|
614
|
|
|
$
|
117
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
3,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances are not adjusted for undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
15
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
The Allowance for Loan Losses and Recorded Investment in loans as of and for the three months ended
December 31, 2011 are as follows:
Allowance for Losses on Loans
For the period ended December 31, 2011
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Loans
|
|
|
Residential
Rental
Loans
|
|
|
Commercial
Loans
|
|
|
Construction
Loans
|
|
|
Home
Equity
Loans
|
|
|
Automobile
Loans
|
|
|
Other
Consumer
Loans
|
|
|
Total
Loans
|
|
Three Months ended December 31, 2011
Allowance for
losses on loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
205
|
|
|
$
|
1,594
|
|
|
$
|
1,514
|
|
|
$
|
1,267
|
|
|
$
|
168
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
4,768
|
|
Charge-Offs
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(16
|
)
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Provisions
|
|
|
(79
|
)
|
|
|
72
|
|
|
|
506
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
5
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
126
|
|
|
$
|
1,655
|
|
|
$
|
2,020
|
|
|
$
|
1,075
|
|
|
$
|
168
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
5,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
1,151
|
|
|
$
|
6,955
|
|
|
$
|
4,980
|
|
|
$
|
8,523
|
|
|
$
|
299
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
21,928
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively evaluated for impairment
|
|
$
|
85,834
|
|
|
$
|
56,892
|
|
|
$
|
141,194
|
|
|
$
|
20,816
|
|
|
$
|
33,592
|
|
|
$
|
819
|
|
|
$
|
1,909
|
|
|
$
|
341,056
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance balance for loans individually evaluated for impairment
|
|
$
|
|
|
|
$
|
566
|
|
|
$
|
125
|
|
|
$
|
314
|
|
|
$
|
|
|
|
$
|
|
|
|
|
20
|
|
|
$
|
1,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance balance for loans collectively evaluated for impairment
|
|
$
|
126
|
|
|
$
|
1,089
|
|
|
$
|
1,895
|
|
|
$
|
761
|
|
|
$
|
168
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances are not adjusted for undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
16
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
Credit Quality Indicators
The Company has several credit quality indicators to manage credit risk in an ongoing manner. The Companys primary credit quality indicators are to use an internal credit risk rating system that
categorizes loans and leases into pass, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans and leases that have significant or unique credit characteristics that benefit from a
case-by-case evaluation. These are typically loans and leases to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans and leases that are underwritten and structured using standardized criteria
and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk rated and monitored collectively. These are typically loans and leases to individuals in the classes which comprise the consumer
portfolio segment. Loan classifications are generated on a monthly basis.
The following are the definitions of the Companys credit
quality indicators:
Pass
Asset is of sufficient quality to not warrant any mention whatsoever.
Special Mention
These credit facilities have potential developing weaknesses that deserve extra attention from management. This classification may be
warranted if a developing weakness is evident that is associated with the ability of the borrower to repay. If a developing weakness is not corrected or mitigated, there may be deterioration in the ability of the borrower to repay the banks
debt in the future. This grade should not be assigned to loans that bear certain peculiar risks normally associated with the type of financing involved, unless circumstances have caused the risk to increase to a level higher than would have been
acceptable when the credit was originally approved.
Substandard
Loans and other credit extensions bearing this grade are considered to be inadequately protected by the current net worth and debt service capacity of the borrower or of any pledged collateral. These
obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions that have clearly jeopardized repayment of principal and interest as
originally intended. Furthermore, there is the possibility that some future loss will be sustained by the bank if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assets classified as
substandard.
Doubtful
Loans and other credit extensions classified as doubtful have all the weaknesses inherent in those substandard with the added characteristic that the
severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions and values. The probability of some loss is extremely high, but because of certain important and
reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral. Loans in this
classification should be placed in non-accrual status, with collections applied to principal on the banks books.
Loss
Loans in this classification are considered uncollectible and cannot be justified as a viable asset of the Bank. This classification
does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future. A portion of a loan may also be assigned this rating
since the Bank may determine that the balance of the loan is collectable.
17
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
The classification of loans as of December 31, 2012 and September 30, 2012 are as follows:
December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Loans
|
|
|
Residential
Rental
Loans
|
|
|
Commercial
Loans
|
|
|
Construction
Loans
|
|
|
Home
Equity
Loans
|
|
|
Automobile
Loans
|
|
|
Other
Consumer
Loans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
70,719
|
|
|
$
|
55,065
|
|
|
$
|
138,304
|
|
|
$
|
13,303
|
|
|
$
|
31,980
|
|
|
$
|
351
|
|
|
$
|
1,367
|
|
|
$
|
311,089
|
|
Special Mention
|
|
|
573
|
|
|
|
264
|
|
|
|
5,559
|
|
|
|
348
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
6,868
|
|
Substandard
|
|
|
2,112
|
|
|
|
7,227
|
|
|
|
6,996
|
|
|
|
4,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,277
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73,404
|
|
|
$
|
62,556
|
|
|
$
|
150,859
|
|
|
$
|
18,593
|
|
|
$
|
32,104
|
|
|
$
|
351
|
|
|
$
|
1,367
|
|
|
$
|
339,234
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Loans
|
|
|
Residential
Rental
Loans
|
|
|
Commercial
Loans
|
|
|
Construction
Loans
|
|
|
Home
Equity
Loans
|
|
|
Automobile
Loans
|
|
|
Other
Consumer
Loans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
76,166
|
|
|
$
|
49,817
|
|
|
$
|
141,413
|
|
|
$
|
13,129
|
|
|
$
|
32,840
|
|
|
$
|
437
|
|
|
$
|
1,714
|
|
|
$
|
315,516
|
|
Special Mention
|
|
|
119
|
|
|
|
3,824
|
|
|
|
2,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,408
|
|
Substandard
|
|
|
538
|
|
|
|
8,470
|
|
|
|
7,589
|
|
|
|
8,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,864
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,823
|
|
|
$
|
62,111
|
|
|
$
|
151,467
|
|
|
$
|
21,396
|
|
|
$
|
32,840
|
|
|
$
|
437
|
|
|
$
|
1,714
|
|
|
$
|
346,788
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances are not adjusted for undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
Single-Family Residential Real Estate Lending.
The Bank historically has been and continues to be an originator
of single-family, residential real estate loans in its market area. The Bank has never participated in the origination of sub-prime lending and, accordingly, has no direct exposure to this type of lending within its loan portfolio. The Bank
originates fixed-rate mortgage loans at competitive interest rates. Due to interest rate risk considerations, the Bank has employed a strategy of selling most fixed-rate single-family residential mortgage loans originated into the secondary market.
A small portion of the Banks single-family mortgage loans carry adjustable rates. After the initial term, the rate adjustments on the
Banks adjustable-rate loans are indexed to a rate which adjusts per loan terms based upon changes in an index based on the weekly average yield on U.S. Treasury securities adjusted to a constant comparable maturity of one year, as made
available by the Federal Reserve Board. The interest rates on most of the Banks adjustable-rate mortgage loans are adjusted once a year, and these loans have an initial adjustment period of one, three or five years. The maximum adjustment is
2% per adjustment period with a maximum aggregate adjustment of 6% over the life of the loan. All of the Banks adjustable-rate loans require that any payment adjustment resulting from a change in the interest rate be sufficient to result
in full amortization of the loan by the end of the loan term and, thus, do not permit any of the increased payment to be added to the principal amount of the loan, known as negative amortization.
18
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
The retention of adjustable-rate loans in the Banks portfolio helps reduce the Banks
exposure to increases in prevailing market interest rates. However, there are unquantifiable credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of adjustable-rate loans. It is possible that during
periods of rising interest rates, the risk of default on adjustable-rate loans may increase due to increases in interest costs to borrowers. Further, although adjustable-rate loans allow the Bank to increase the sensitivity of its interest-earning
assets to changes in interest rates, the extent of this interest sensitivity is limited by the initial fixed-rate period before the first adjustment and the lifetime interest rate adjustment limitations. Accordingly, there can be no assurance that
yields on the Banks adjustable-rate loans will fully adjust to compensate for increases in the Banks cost of funds. Finally, adjustable-rate loans increase the Banks exposure to decreases in prevailing market interest rates,
although decreases in the Banks cost of funds tend to offset this effect.
Single-Family Rental Property Loans.
The Bank
also offers single-family residential mortgage loans secured by properties that are not owner-occupied, although management has decided to limit future origination volume for this loan product. Single-family residential mortgage loans secured by
rental properties are made on a fixed-rate or an adjustable-rate basis and carry interest rates generally from 1.5% to 2.0% above the rates charged on comparable loans secured by owner-occupied properties. The maximum term on such loans is 10 years
with amortizations up to 25 years.
Commercial Real Estate Lending.
The Banks commercial real estate loan portfolio
includes loans to finance the acquisition of office buildings, churches, commercial office condominiums, shopping centers, hospitality, and commercial and industrial buildings. Such loans generally range in size from $100,000 to $5 million.
Commercial real estate loans are originated on a fixed-rate or adjustable-rate basis with terms of 5 to 10 years and with amortizations of up to 30 years.
Commercial real estate lending entails significant additional risks as compared with single-family residential property lending. Commercial real estate loans typically involve larger loan balances to
single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the real estate project, retail establishment or business. These risks can be significantly impacted by
supply and demand conditions in the market for office and retail space and, as such, may be subject to a greater extent to adverse conditions in the economy generally. To minimize these risks, the Bank generally limits itself to its market area or
to borrowers with which it has prior experience or who are otherwise known to the Bank. It is the Banks policy generally to obtain annual financial statements of the business of the borrower or the project for which commercial real estate
loans are made. In addition, in the case of commercial real estate loans made to a legal entity, the Bank seeks, whenever possible, to obtain personal guarantees and annual financial statements of the principals of the legal entity. As a result of
the economic downturn, the Bank has experienced a decline in its pipeline for this product type within the loan portfolio.
Construction
Lending.
A substantial portion of the Banks construction loans are originated for the construction of owner-occupied, single-family dwellings in the Banks primary market area. Residential construction loans are offered primarily
to individuals building their primary or secondary residence, as well as to selected local developers to build single-family dwellings. Generally, loans to owner/occupants for the construction of owner-occupied, single-family residential properties
are originated in connection with the permanent loan on the property and have a construction term of up to 12 months. Such loans are offered on fixed rate terms. Interest rates on residential construction loans made to the owner/occupant have
interest rates during the construction period equal to the same rate on the permanent loan selected by the customer. Interest rates on residential construction loans to builders are set at the prime rate plus a margin of between 0% and 1.5%,
typically with interest rate floors. Interest rates on commercial construction loans are based on the prime rate plus a negotiated margin of between 0% and 1.5% and adjust monthly, typically with interest rate floors with construction terms
generally not exceeding 18 months
.
Advances are made on a percentage of completion basis. Prior to making a commitment to fund a loan, the Bank requires both an appraisal of the property by appraisers approved by the Board of Directors and a
study of projected construction costs. The Bank also reviews and inspects each project at the commencement of construction and as needed prior to disbursements during the term of the construction loan.
19
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
On occasion, the Bank makes acquisition and development loans to local developers to acquire and develop
land for sale to builders who will construct single-family residences. Acquisition and development loans, which are considered by the Bank to be construction loans, are made at a rate that adjusts monthly, based on the prime rate plus a negotiated
margin, typically with interest rate floors for terms of up to three years. Interest only is paid during the term of the loan, and the principal balance of the loan is paid down as developed lots are sold to builders. Generally, in connection with
acquisition and development loans, the Bank issues a letter of credit to secure the developers obligation to local governments to complete certain work. If the developer fails to complete the required work, the Bank would be required to fund
the cost of completing the work up to the amount of the letter of credit. Letters of credit generate fee income for the Bank but create additional risk.
Construction financing generally is considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the propertys value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result
in delays and cost overruns. If the estimate of construction costs proves to be inaccurate and the borrower is unable to meet the Banks requirements of putting up additional funds to cover extra costs or change orders, then the Bank will
demand that the loan be paid off and, if necessary, institute foreclosure proceedings, or refinance the loan. If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with collateral
having a value which is insufficient to assure full repayment. The Bank has sought to minimize this risk by limiting construction lending to qualified borrowers (
i.e.
, borrowers who satisfy all credit requirements and whose loans satisfy all
other underwriting standards which would apply to the Banks permanent mortgage loan financing for the subject property) in the Banks market area. On loans to builders, the Bank works only with selected builders and carefully monitors the
creditworthiness of the builders.
Commercial Lines of Credit.
The Bank provides commercial lines of credit to businesses within
the Banks market area. These loans are secured by business assets, including real property, equipment, automobiles and consumer leases. Generally, all loans are further personally guaranteed by the owners of the business. The commercial lines
have adjustable interest rates tied to the prime rate, typically with interest rate floors and are offered at rates from prime plus 0% to prime plus 3.5%.
Consumer Lending
.
The consumer loans currently in the Banks loan portfolio consist of automobile loans, home equity lines of credit and loans secured by savings deposits.
Automobile loans are secured by both new and used cars and, depending on the creditworthiness of the borrower, may be made for up to 110% of
the invoice price or clean black book value, whichever is lower, or, with respect to used automobiles, the loan values as published by a wholesale value listing utilized by the automobile industry. Automobile loans are made
directly to the borrower-owner. New and used cars are financed for a period generally of up to five years, or less, depending on the age of the car. Collision insurance is required for all automobile loans. The Bank also maintains a blanket
collision insurance policy that provides insurance for any borrower who allows their insurance to lapse.
The Bank originates second mortgage
loans and home equity lines of credit. Second mortgage loans are made at fixed rates and for terms of up to 15 years. The Banks home equity lines of credit currently have adjustable interest rates tied to the prime rate and are currently
offered at the prime rate with a floor of 3.25%. The interest rate may not adjust to a rate higher than 24%. The home equity lines of credit require monthly payments until the loan is paid in full, with a loan term not to exceed 30 years. The
minimum monthly payment is the outstanding interest. Home equity lines of credit are secured by subordinate liens against residential real property. The Bank requires that fire and extended coverage casualty insurance (and, if appropriate, flood
insurance) be maintained in an amount at least sufficient to cover its loan.
The Bank makes savings account loans for up to 90% of the
depositors savings account balance. The interest rate is normally 3.0% above the rate paid on the related savings account, and the account must be pledged as collateral to secure the loan. Interest generally is billed on a quarterly basis.
20
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
As part of the Banks loan strategy, the Bank has diversified its lending portfolio to afford the
Bank the opportunity to earn higher yields and to provide a fuller range of banking services. These products have generally been in the consumer area and include boat loans and loans for the purchase of recreational vehicles.
Consumer lending usually affords the Bank the opportunity to earn yields higher than those obtainable on single-family residential lending. However,
consumer loans entail greater risk than residential mortgage loans, particularly in the case of loans which are unsecured or secured by rapidly depreciable assets. Repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition,
consumer loan collections are dependent on the borrowers continuing financial stability, and thus are more likely to be adversely affected by events such as job loss, divorce, illness or personal bankruptcy.
21
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
Impaired loans as of December 31, 2012 are as follows:
Impaired Loans
As of December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Investment
|
|
|
Unpaid Principal
Balance
|
|
|
Related
Allowance
|
|
Loans without specific valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loan
|
|
$
|
2,112
|
|
|
$
|
2,112
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
1,532
|
|
|
|
1,532
|
|
|
|
|
|
Commercial Loans
|
|
|
5,374
|
|
|
|
5,374
|
|
|
|
|
|
Construction Loans
|
|
|
1,759
|
|
|
|
1,759
|
|
|
|
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,777
|
|
|
$
|
10,777
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
5,695
|
|
|
|
5,695
|
|
|
|
1,224
|
|
Commercial Loans
|
|
|
1,622
|
|
|
|
1,622
|
|
|
|
98
|
|
Construction Loans
|
|
|
3,183
|
|
|
|
3,183
|
|
|
|
586
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,500
|
|
|
$
|
10,500
|
|
|
$
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
The following presents information related to the average recorded investment and interest income
recognized on impaired loans for the three months ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2012
|
|
(dollars in thousands)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Loans without specific valuation allowances:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
2,114
|
|
|
$
|
20
|
|
Residential Rental Loans
|
|
|
1,532
|
|
|
|
4
|
|
Commercial Loans
|
|
|
5,616
|
|
|
|
76
|
|
Construction Loans
|
|
|
2,189
|
|
|
|
65
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,451
|
|
|
$
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance recorded:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
5,697
|
|
|
|
66
|
|
Commercial Loans
|
|
|
1,624
|
|
|
|
16
|
|
Construction Loans
|
|
|
3,183
|
|
|
|
32
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,504
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
23
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
Impaired loans as of September 30, 2012 are as follows:.
Impaired Loans
As of September 30, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Investment
|
|
|
Unpaid Principal
Balance
|
|
|
Related
Allowance
|
|
Loans without specific valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
1,163
|
|
|
$
|
1,163
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
2,123
|
|
|
|
2,123
|
|
|
|
|
|
Commercial Loans
|
|
|
3,925
|
|
|
|
3,925
|
|
|
|
|
|
Construction Loans
|
|
|
2,775
|
|
|
|
2,775
|
|
|
|
|
|
Home Equity Loans
|
|
|
210
|
|
|
|
210
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,196
|
|
|
$
|
10,196
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
5,012
|
|
|
|
5,012
|
|
|
|
840
|
|
Commercial Loans
|
|
|
1,635
|
|
|
|
1,635
|
|
|
|
111
|
|
Construction Loans
|
|
|
5,492
|
|
|
|
5,492
|
|
|
|
1,071
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,139
|
|
|
$
|
12,139
|
|
|
$
|
2,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Credit Losses on Loans -
continued
The following presents information related to the average recorded investment and interest income
recognized on impaired loans for the three months ended December 31,2011:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2011
|
|
(dollars in thousands)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Loans without specific valuation allowances:
|
|
|
|
|
|
|
|
|
Residential Loans (1)
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
6,178
|
|
|
|
75
|
|
Commercial Loans
|
|
|
4,191
|
|
|
|
6
|
|
Construction Loans
|
|
|
2,866
|
|
|
|
37
|
|
Home Equity Loans
|
|
|
138
|
|
|
|
1
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,373
|
|
|
$
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance recorded:
|
|
|
|
|
|
|
|
|
Residential Loans (1)
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
1,520
|
|
|
|
3
|
|
Commercial Loans
|
|
|
295
|
|
|
|
|
|
Construction Loans
|
|
|
2,017
|
|
|
|
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,852
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
25
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
Past due loans as of December 31, 2012 and September 30, 2012 are as follows
:
Credit Quality Information
Age Analysis of Past Due Loans
As of December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
past due
|
|
|
60-89
Days past
due
|
|
|
Non-Accrual
|
|
|
Total
past
due
and Non-Accrual
|
|
|
Current
|
|
|
Total Loans
|
|
|
Non-
Accrual
Loans that
are
Current
|
|
|
Loans Greater
than 90 days
and Accruing
|
|
Residential Loans
|
|
$
|
508
|
|
|
$
|
424
|
|
|
$
|
711
|
|
|
$
|
1,643
|
|
|
$
|
71,761
|
|
|
$
|
73,404
|
|
|
$
|
196
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
|
|
|
|
|
|
|
|
2,775
|
|
|
|
2,775
|
|
|
|
59,781
|
|
|
|
62,556
|
|
|
|
357
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
290
|
|
|
|
2,441
|
|
|
|
2,731
|
|
|
|
148,128
|
|
|
|
150,859
|
|
|
|
1,222
|
|
|
|
|
|
Construction Loans
|
|
|
537
|
|
|
|
|
|
|
|
3,353
|
|
|
|
3,890
|
|
|
|
14,703
|
|
|
|
18,593
|
|
|
|
3,353
|
|
|
|
|
|
Home Equity Loans
|
|
|
179
|
|
|
|
|
|
|
|
81
|
|
|
|
260
|
|
|
|
31,844
|
|
|
|
32,104
|
|
|
|
|
|
|
|
|
|
Automobile Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,367
|
|
|
|
1,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1)
|
|
$
|
1,224
|
|
|
$
|
714
|
|
|
$
|
9,361
|
|
|
$
|
11,299
|
|
|
$
|
327,935
|
|
|
$
|
339,234
|
|
|
$
|
5,128
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances are not adjusted for undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
Credit Quality Information
Age Analysis of Past Due Loans
As of September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
past due
|
|
|
60-89
Days past
due
|
|
|
Non-Accrual
|
|
|
Total
past
due
and Non-Accrual
|
|
|
Current
|
|
|
Total Loans
|
|
|
Non-
Accrual
Loans that
are
Current
|
|
|
Loans Greater
than 90 days
and Accruing
|
|
Residential Loans
|
|
$
|
360
|
|
|
$
|
82
|
|
|
$
|
472
|
|
|
$
|
914
|
|
|
$
|
75,909
|
|
|
$
|
76,823
|
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
180
|
|
|
|
340
|
|
|
|
2,128
|
|
|
|
2,648
|
|
|
|
59,463
|
|
|
|
62,111
|
|
|
|
741
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
2,994
|
|
|
|
2,994
|
|
|
|
148,473
|
|
|
|
151,467
|
|
|
|
1,311
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
7,551
|
|
|
|
7,551
|
|
|
|
13,845
|
|
|
|
21,396
|
|
|
|
294
|
|
|
|
|
|
Home Equity Loans
|
|
|
119
|
|
|
|
81
|
|
|
|
|
|
|
|
200
|
|
|
|
32,640
|
|
|
|
32,840
|
|
|
|
|
|
|
|
|
|
Automobile Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
437
|
|
|
|
437
|
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1,711
|
|
|
|
1,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1)
|
|
$
|
662
|
|
|
$
|
503
|
|
|
$
|
13,145
|
|
|
$
|
14,310
|
|
|
$
|
332,478
|
|
|
$
|
346,788
|
|
|
$
|
2,346
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances exclude undisbursed portion of loans in process, unearned interest, deferred loan origination fees and costs and allowance for loan losses.
|
Nonperforming Loans and Other Problem Assets
.
It is managements policy to continually monitor its
loan portfolio to anticipate and address potential and actual delinquencies. When a borrower fails to make a payment on a loan, the Bank takes immediate steps to have the delinquency cured and the loan restored to current status. Loans which are
past due 15 days incur a late fee of 5% of principal and interest due. As a matter of policy, the Bank will send a late notice to the borrower after the loan has been past due 15 days and again after 30 days. If payment is not promptly received, the
borrower is contacted again, and efforts are made to formulate an affirmative plan to cure the delinquency. Generally, after any loan is delinquent 90 days or more, formal legal proceedings are commenced to collect amounts owed. In the case of
automobile loans, late notices are sent after loans are ten days delinquent, and the collateral is seized after a loan is delinquent 60 days. Repossessed cars subsequently are sold at auction.
26
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
Loans generally are placed on nonaccrual status if the loan becomes past due more than 90 days, except
in instances where in managements judgment there is no doubt as to full collectability of principal and interest. Consumer loans are generally charged-off, or any expected loss is reserved for, after they become more than 120 days past due.
All other loans are charged-off, or any expected loss is reserved for when management concludes that they are uncollectible.
Troubled Debt
Restructurings (TDRs) are placed on nonaccrual status when loan modifications take place. The interest component of subsequent payment receipts is recognized as income on a cash basis. TDRs are removed from nonaccrual status after performing in
accordance with modified terms for a sustained period.
Real estate acquired by the Bank as a result of foreclosure is classified as
foreclosed real estate until such time as it is sold. When such property is acquired, it is initially recorded at the lower of cost or estimated fair value and subsequently at the lower of book value or fair value less estimated costs to sell. Costs
relating to holding such real estate are charged against income in the current period, while costs relating to improving such real estate are capitalized until a saleable condition is reached. Any required write-down of the loan to its fair value
less estimated selling costs upon foreclosure is charged against the allowance for loan losses.
Charge-off Policies
The Companys loan charge-off policies are as follows:
When loans begin to demonstrate collectability issues the Bank performs an analysis to determine if a loss is expected. Loans are generally charged down to the fair value of collateral securing the asset,
less estimated cost to sell, when management judges the asset to be uncollectible, repayment is deemed to be protracted beyond reasonable time frames, the asset has been classified as loss by either the internal loan review process or external
examiners, or when the borrower has filed bankruptcy and the loss becomes evident based on a lack of assets.
27
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
Loans on Nonaccrual Status
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
September 30,
2012
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
711
|
|
|
$
|
472
|
|
Residential Rental Loans
|
|
|
1,532
|
|
|
|
2,039
|
|
Commercial Loans
|
|
|
2,441
|
|
|
|
2,994
|
|
Constructions Loans
|
|
|
359
|
|
|
|
4,557
|
|
Home Equity Loans
|
|
|
81
|
|
|
|
|
|
Automobile Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,124
|
|
|
$
|
10,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
|
|
|
$
|
|
|
Residential Rental Loans
|
|
|
1,243
|
|
|
|
89
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
Constructions Loans
|
|
|
2,994
|
|
|
|
2,994
|
|
Home Equity Loans
|
|
|
|
|
|
|
|
|
Automobile Loans
|
|
|
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,237
|
|
|
$
|
3,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nonaccrual Loans
|
|
$
|
9,361
|
(1)
|
|
$
|
13,145
|
(1)
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes Troubled Debt Restructurings (TDRs) of $799,000 and $700,000 at December 31, 2012 and September 30, 2012, respectively, which were not
delinquent. Reporting guidance requires disclosure of these loans as nonaccrual even though they may be current in terms of principal and interest payments. As of December 31, 2012 and September 30, 2012, the Company had total TDRs
of $6.5 million and $9.3 million, respectively.
|
28
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 -
Disclosures About Credit Quality and the Allowance for Losses on Loans - continued
Modifications
During the three months ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Number of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investments
|
|
|
Post-
Modification
Outstanding
Recorded
Investments
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investments
|
|
|
Post-
Modification
Outstanding
Recorded
Investments
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-Prime
|
|
|
2
|
|
|
$
|
111
|
|
|
$
|
110
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer-Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings are considered to be in default after 90 days of non-payment. During the three months ended
December 31, 2012, there were two TDRs totaling $235,000 that were considered to be in default. During the three months ended December 31, 2011 there were no TDRs considered to be in default.
Loans identified as Troubled Debt Restructurings are also included as nonperforming assets. TDRs are represented by borrowers experiencing some
form of financial difficulty, resulting in the Bank granting a concession as part of a loan modification. Loans modified as TDRs were primarily comprised of loans for which payments were either deferred or reduced. Reporting guidance requires
disclosure of these loans as nonperforming even though they may be current in terms of principal and interest payments. As of December 31, 2012, $6.5 million in TDRs were included in non performing loans, $6.2 million of which were not
delinquent.
As previously stated, TDRs are included as nonperforming assets, although payments may be current in conjunction with
modified loan terms. Typical loan modifications include lowering interest rates, deferring payments or extending repayment terms. As of December 31, 2012 specific loan loss reserves on TDRs totaled $949,000.
29
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 8 -
Earnings Per Share
Basic earnings per share amounts are based on the weighted average shares of common stock outstanding. Diluted earnings per share
assume the conversion, exercise or issuance of all potential common stock instruments such as options and warrants, unless the effect is to reduce a loss or increase earnings per share. The basic and diluted weighted average common shares
outstanding for the three month periods ended December 31, 2012 and 2011, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands except per share data)
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
639
|
|
|
|
3,103
|
|
|
$
|
0.21
|
|
|
$
|
462
|
|
|
|
3,102
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
639
|
|
|
|
3,103
|
|
|
$
|
0.21
|
|
|
$
|
462
|
|
|
|
3,102
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
639
|
|
|
|
3,103
|
|
|
$
|
0.21
|
|
|
$
|
462
|
|
|
|
3,102
|
|
|
$
|
0.15
|
|
Effect of dilutive shares
|
|
|
|
|
|
|
132
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders plus assumed conversions
|
|
$
|
639
|
|
|
|
3,235
|
|
|
$
|
0.20
|
|
|
$
|
462
|
|
|
|
3,156
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 15,792 shares and 67,595 shares which were outstanding at December 31, 2012 and
December 31, 2011, respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
30
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 9 -
Preferred Stock
On December 23, 2008, as part of the Troubled Asset Relief Program (TARP) Capital Purchase Program, the Company
entered into a Letter Agreement, and the related Securities Purchase Agreement Standard Terms (collectively, the Purchase Agreement), with the United States Department of the Treasury (Treasury), pursuant to which the
Company issued (i) 10,800 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, liquidation preference $1,000 per share (Series A preferred stock), and (ii) a warrant to purchase 183,465 shares of the
Companys common stock, par value $0.01 per share, for an aggregate purchase price of $10,800,000 in cash. The Series A preferred stock and the warrants were issued in a transaction exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended. The warrant is not subject to any contractual restrictions on transfer.
On January 26, 2011 the
Company repurchased all $10.8 million of Series A Preferred Stock issued to the U.S. Treasury in December 2008 pursuant to the TARP Capital Purchase Program. BCSB completed the repayment without raising additional capital. As a result of the
redemption, the Company accelerated the accretion of the remaining discount of approximately $310,000 on the preferred stock and recorded a reduction in retained earnings. The warrant issued to the U.S. Treasury has not been repurchased and remains
outstanding.
The warrant is exercisable at $8.83 per share at any time on or before December 23, 2018. The number of shares of common
stock issuable upon exercise of the warrant and the exercise price per share will be adjusted if specific events occur. The relative fair value method was used to allocate the proceeds between the preferred stock and warrants. A discount rate of 12%
was used in valuing the preferred stock and the Black-Scholes-Merton option pricing model was used to value the warrants. For further information, see Liquidity and Capital Resources.
31
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 10 -
Regulatory Capital
The following table sets forth the Banks capital position at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
% of
Assets
|
|
|
Required
Amount
|
|
|
% of
Assets
|
|
|
Required
Amount
|
|
|
% of
Assets
|
|
|
|
(Unaudited)
(dollars in thousands)
|
|
Tier 1 leverage ratio (1)
|
|
$
|
64,942
|
|
|
|
10.06
|
%
|
|
$
|
25,810
|
|
|
|
4.00
|
%
|
|
$
|
32,262
|
|
|
|
5.00
|
%
|
Tier 1 risk based capital ratio (2)
|
|
|
64,942
|
|
|
|
17.33
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
22,841
|
|
|
|
6.00
|
|
Total risk based capital ratio (2)
|
|
|
68,483
|
|
|
|
18.28
|
|
|
|
29,975
|
|
|
|
8.00
|
|
|
|
37,468
|
|
|
|
10.00
|
|
(1)
|
To average total assets
|
(2)
|
To risk-weighted assets
|
The following table
sets forth BCSB Bancorp Inc.s capital position at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
% of
Assets
|
|
|
Required
Amount
|
|
|
% of
Assets
|
|
|
Required
Amount
|
|
|
% of
Assets
|
|
|
|
(Unaudited)
(dollars in thousands)
|
|
Tier 1 leverage ratio (1)
|
|
$
|
53,049
|
|
|
|
8.26
|
%
|
|
$
|
25,697
|
|
|
|
4.00
|
%
|
|
$
|
32,121
|
|
|
|
5.00
|
%
|
Tier 1 risk based capital ratio (2)
|
|
|
53,049
|
|
|
|
14.10
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
22,567
|
|
|
|
6.00
|
|
Total risk based capital ratio (2)
|
|
|
56,589
|
|
|
|
15.05
|
|
|
|
30,088
|
|
|
|
8.00
|
|
|
|
37,611
|
|
|
|
10.00
|
|
(1)
|
To average total assets
|
(2)
|
To risk-weighted assets
|
32
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 11 -
Stock Option Plans
The 1999 Plan
On
July 15, 1999, the Company established a Stock Option Plan whereby 120,366 shares of common stock have been reserved for issuance. Options granted under the plan may be Incentive Stock Options within the meaning of Section 422 of the
Internal Revenue Code of 1986 as amended or Non-Qualified Stock Options. Options are exercisable in four or five annual installments at the market price of common stock at the date of grant. The Options must be exercised within ten years from the
date of grant. There were 43,428 options granted during the year ended September 30, 2002. There were 15,792 options granted during the year ended September 30, 2007, 22,193 options granted during the year ended September 30, 2008 and
11,796 options granted during the year ended September 30, 2009. No options were granted during the years ended September 30, 2003 through 2006. Also, there were no options granted during the years ended September 30, 2012 and 2010,
or during the three months ended December 31, 2012.
The 2009 Plan
At the annual shareholders meeting held in May 2009 the Company approved an additional Stock Option Plan whereby 191,740 shares of common stock were reserved for issuance. Options granted may be Incentive
Stock Options within the meaning of Section 422 of the Internal Revenue Code of 1986 as amended or Non-Qualified Stock Options. Options are exercisable in four annual installments at the market price of common stock at the date of grant. The
Options must be exercised within ten years from the date of grant. In some cases options can be reissued from forfeitures when employees leave the Company. There were no options granted during the years ended September 30, 2009 or 2010. There
were 177,930 options granted during the year ended September 30, 2011 and 15,052 options granted during the year ended September 30, 2012. There were no options granted during the three months ended December 31, 2012.
The following table summarizes the shares under the Companys outstanding stock options at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Price
|
|
|
Weighted Average
Contractual Life
(Years)
|
|
|
|
|
|
10,528
|
|
|
$
|
28.41
|
|
|
|
4.0
|
|
|
5,264
|
|
|
|
17.95
|
|
|
|
4.9
|
|
|
22,193
|
|
|
|
11.61
|
|
|
|
5.0
|
|
|
11,296
|
|
|
|
8.25
|
|
|
|
6.5
|
|
|
176,320
|
|
|
|
10.29
|
|
|
|
7.8
|
|
|
15,052
|
|
|
|
13.74
|
|
|
|
9.2
|
|
The total exercisable shares of 134,617 have a weighted average contractual life of 6.9 years, and an
aggregate intrinsic value of $453,000 as of December 31, 2012.
33
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 11 -
Stock Option Plans - continued
The following table presents the activity related to options under all plans for the three months ended
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at September 30, 2012
|
|
|
240,653
|
|
|
$
|
11.49
|
|
Options exercised
|
|
|
|
|
|
|
|
|
Options Expired
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
240,653
|
|
|
$
|
11.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2012
|
|
|
134,617
|
|
|
$
|
12.10
|
|
|
|
|
|
|
|
|
|
|
During the three months ended December 31, 2012 and December 31, 2011 there were no stock options granted.
Option expense recognized during the three month periods ended December 31, 2012 and December 31, 2011 was $46,587 and $57,252, respectively. As of December 31, 2012, $330,657 of total unrecognized pretax expense related to stock
options is expected to be recognized from January 1, 2013 through March 31, 2016.
34
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 12 -
Recent Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11,
Disclosures About Offsetting Assets and
Liabilities.
This project began as an attempt to converge the offsetting requirements under U.S. GAAP and IFRS. However, as the Boards were not able to reach a converged solution with regards to offsetting requirements, the
Boards developed convergent disclosure requirements to assist in reconciling differences in the offsetting requirements under U.S. GAAP and IFRS. The new disclosure requirements mandate that entities disclose both gross and net information
about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. ASU No. 2011-11 also requires disclosure
of collateral received and posted in connection with master netting agreements or similar arrangements. ASU No. 2011-11 is effective for interim and annual reporting periods beginning on or after January 1, 2013. As the
provisions of ASU No. 2011-11 only impact the disclosure requirements related to the offsetting of assets and liabilities, the adoption will have no impact on the Companys Consolidated Financial Statements.
Note 13 -
Guarantees
The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of
credit. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit
risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company has
$656,000 of standby letters of credit as of December 31, 2012. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future
payment required under the corresponding guarantees. The current amount of the liability as of December 31, 2012 for guarantees under standby letters of credit issued is not considered to be material.
35
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 14 -
Fair Value Measurements
The Company applies guidance issued by FASB regarding fair value measurements which provided a framework for measuring and disclosing
fair value under generally accepted accounting principles. This guidance applies only to fair value measurements required or permitted under current accounting pronouncements, but does not require any new fair value measurements. Fair value is
defined as
t
he price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. The statement also expands disclosures about financial instruments that are measured at
fair value and eliminates the use of large position discounts for financial instruments quoted in active markets. The disclosures emphasis is on the inputs used to measure fair value and the effect on the measurement on earnings for the
period. The adoption of this guidance did not have any effect on the Companys financial position or results of operations.
GAAP
establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based on the inputs used to value the particular asset or liability at the measurement date. The three levels are defined as follows:
|
|
|
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices of
identical or similar assets or liabilities in markets that are not active, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
Each financial instruments level assignment with the valuation hierarchy is based upon the lowest level of input that is significant to the fair
value measurement for the particular category. Management reviews and updates the fair value hierarchy classifications of the Companys assets and liabilities on a quarterly basis.
There were no transfers between levels during the three months ended December 31, 2012. The Companys policy is to recognize transfers in and transfers out at the actual date of the event or
change in the circumstances that caused the transfer. The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of each instrument under the valuation hierarchy.
36
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 14 -
Fair Value Measurements - continued
Fair values of investment securities are estimated by using pricing models, quoted prices of securities
with similar characteristics, or discounted cash flows and are generally classified within Level 2 of the valuation hierarchy.
The following
tables present the financial instruments measured at fair value by class on the recurring basis as of December 31, 2012 and September 30, 2012 on the Consolidated Statement of Financial Condition utilizing the hierarchy discussed above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
At December 31, 2012
|
|
|
Total changes
In fair
values
Included in
Period
Earnings
|
|
($ in thousands)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Loans available for sale
|
|
$
|
612
|
|
|
$
|
|
|
|
$
|
612
|
|
|
$
|
|
|
|
$
|
|
|
Equity Investments
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
Corporate Bonds available for sale
|
|
|
4,701
|
|
|
|
|
|
|
|
4,701
|
|
|
|
|
|
|
|
|
|
GNMA certificates available for sale
|
|
|
3,469
|
|
|
|
|
|
|
|
3,469
|
|
|
|
|
|
|
|
|
|
FNMA certificates available for sale
|
|
|
11,662
|
|
|
|
|
|
|
|
11,662
|
|
|
|
|
|
|
|
|
|
FHLMC certificates available for sale
|
|
|
5,013
|
|
|
|
|
|
|
|
5,013
|
|
|
|
|
|
|
|
|
|
Private label collateralized mortgage obligations available for sale
|
|
|
8,459
|
|
|
|
|
|
|
|
8,459
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations available for sale
|
|
|
180,415
|
|
|
|
|
|
|
|
180,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
214,431
|
|
|
$
|
|
|
|
$
|
214,331
|
|
|
$
|
100
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 14 -
Fair Value Measurements
- continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2012
|
|
|
Total changes
In fair values
Included in
Period
Earnings
|
|
($ in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Loans available for sale
|
|
$
|
806
|
|
|
$
|
|
|
|
$
|
806
|
|
|
$
|
|
|
|
$
|
|
|
Equity Investments
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
Corporate Bonds available for sale
|
|
|
4,528
|
|
|
|
|
|
|
|
4,528
|
|
|
|
|
|
|
|
|
|
GNMA certificates available for sale
|
|
|
3,417
|
|
|
|
|
|
|
|
3,417
|
|
|
|
|
|
|
|
|
|
FNMA certificates available for sale
|
|
|
12,530
|
|
|
|
|
|
|
|
12,530
|
|
|
|
|
|
|
|
|
|
FHLMC certificates available for sale
|
|
|
5,853
|
|
|
|
|
|
|
|
5,853
|
|
|
|
|
|
|
|
|
|
Private label collateralized mortgage obligations available for sale
|
|
|
9,034
|
|
|
|
|
|
|
|
9,034
|
|
|
|
|
|
|
|
370
|
(1)
|
Collateralized mortgage obligations available for sale
|
|
|
182,729
|
|
|
|
|
|
|
|
182,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
218,997
|
|
|
$
|
|
|
|
$
|
218,897
|
|
|
$
|
100
|
|
|
$
|
370
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents other-than-temporary impairment charges taken during the fiscal year ended September 30, 2012.
|
Nonrecurring fair value changes
Certain assets and liabilities are measured at fair value on a nonrecurring basis. These instruments are not measured at fair value on an ongoing basis,
but are subject to fair value in certain circumstances, such as when there is evidence of impairment that may require write-downs. The write-downs for the Companys more significant assets or liabilities measured on a non-recurring basis are
based on the lower of amortized cost or estimated fair value.
Impaired Loans
The Company considers loans to be impaired when it becomes probable that the Company will be unable to collect all amounts due in accordance with the
contractual terms of the loan agreement. All non-accrual loans are considered impaired. The measurement of impaired loans is based on the present value of the expected cash flows discounted at the historical effective interest rate, the market price
of the loan, or the fair value of the underlying collateral asset.
38
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 14 -
Fair Value Measurements
- continued
Foreclosed Real Estate and Repossessed Assets
Once a loan is determined to be uncollectible, the underlying collateral is repossessed and reclassified to Foreclosed Real Estate. These assets are
carried at lower of cost or fair value of the collateral, less estimated costs to sell. There was $3.4 million in foreclosed real estate at December 31, 2012.
Impaired loans, Foreclosed Real Estate and Repossessed Assets are classified as Level 3 within the valuation hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2012
|
|
($ in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Impaired Residential Loans
|
|
$
|
2,112
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,112
|
|
Impaired Residential Rental Loans
|
|
|
6,003
|
|
|
|
|
|
|
|
|
|
|
|
6,003
|
|
Impaired Commercial and Lease Loans
|
|
|
6,898
|
|
|
|
|
|
|
|
|
|
|
|
6,898
|
|
Impaired Construction Loans
|
|
|
4,356
|
|
|
|
|
|
|
|
|
|
|
|
4,356
|
|
Impaired Home Equity Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment held for sale
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
Foreclosed Real Estate
|
|
|
3,370
|
|
|
|
|
|
|
|
|
|
|
|
3,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,947
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
2012
|
|
($ in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Impaired Residential Loans
|
|
$
|
1,163
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,163
|
|
Impaired Residential Rental Loans
|
|
|
6,295
|
|
|
|
|
|
|
|
|
|
|
|
6,295
|
|
Impaired Commercial and Lease Loans
|
|
|
5,449
|
|
|
|
|
|
|
|
|
|
|
|
5,449
|
|
Impaired Construction Loans
|
|
|
7,196
|
|
|
|
|
|
|
|
|
|
|
|
7,196
|
|
Impaired Home Equity Loans
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
210
|
|
Premises and equipment held for sale
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
Foreclosed Real Estate
|
|
|
1,674
|
|
|
|
|
|
|
|
|
|
|
|
1,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,195
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 15 -
Disclosures About Fair Value of Financial Instruments
The estimated fair values of the Banks financial instruments are summarized below. The fair values of a significant portion of
these financial instruments are estimates derived using present value techniques prescribed by the FASB and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market
conditions at a specific point in time and may not reflect current or future fair values.
The carrying amount is a reasonable estimate of
fair value for cash, federal funds and interest-bearing deposits in other banks. Fair value is based on bid prices and pricing models received from third party pricing services for investment securities and mortgage backed securities. The carrying
amount of Federal Home Loan Bank of Atlanta and Federal Reserve Bank stock is a reasonable estimate of fair value. Loans receivable were discounted using a single discount rate, comparing the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities. The fair value of Bank owned life insurance is based upon its current cash surrender value. The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at the reporting date. The Junior Subordinated Debentures are considered to be at fair value. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered on deposits of similar
remaining maturities. The fair value of Federal Home Loan Bank advances is estimated using rates currently offered on advances of similar remaining maturities. The carrying amounts of accrued interest receivable, accrued interest payable, and
mortgage servicing rights approximate fair value. Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements
and the counterparties credit standing.
The Company charges fees for commitments to extend credit. Interest rates on loans for which
these commitments are extended are normally committed for periods of less than one month. Fees charged on standby letters of credit and other financial guarantees are deemed to be immaterial and these guarantees are expected to be settled at face
amount or expire unused. It is impractical to assign any fair value to these commitments.
40
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 15 -
Disclosures About Fair Value of Financial Instruments
- Continued
The estimated fair values of the Banks financial instruments are as follows as of
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
|
|
(dollars in thousands)
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,180
|
|
|
$
|
9,180
|
|
|
$
|
9,180
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing deposits in other banks
|
|
|
11,513
|
|
|
|
11,513
|
|
|
|
11,513
|
|
|
|
|
|
|
|
|
|
Federal Funds sold
|
|
|
38,677
|
|
|
|
38,677
|
|
|
|
38,677
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
4,801
|
|
|
|
4,801
|
|
|
|
|
|
|
|
4,701
|
|
|
|
100
|
|
Loans available for sale
|
|
|
612
|
|
|
|
612
|
|
|
|
|
|
|
|
612
|
|
|
|
|
|
Loan Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans
|
|
|
326,971
|
|
|
|
356,130
|
|
|
|
|
|
|
|
|
|
|
|
356,130
|
|
Share Loans
|
|
|
216
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
Consumer Loans
|
|
|
1,499
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
1,432
|
|
Mortgage-backed securities-available for sale
|
|
|
209,018
|
|
|
|
209,018
|
|
|
|
|
|
|
|
209,018
|
|
|
|
|
|
Federal Home Loan Bank of Atlanta Stock
|
|
|
959
|
|
|
|
959
|
|
|
|
959
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock
|
|
|
1,381
|
|
|
|
1,381
|
|
|
|
1,381
|
|
|
|
|
|
|
|
|
|
Bank owned life insurance
|
|
|
17,007
|
|
|
|
17,007
|
|
|
|
17,007
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
1,820
|
|
|
|
1,820
|
|
|
|
|
|
|
|
1,820
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
42
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
563,992
|
|
|
$
|
563,740
|
|
|
|
|
|
|
|
563,740
|
|
|
|
|
|
Junior Subordinated Debt
|
|
|
17,011
|
|
|
|
17,011
|
|
|
|
|
|
|
|
17,011
|
|
|
|
|
|
Accrued interest payable
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
41
BCSB BANCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 15 -
Disclosures About Fair Value of Financial Instruments
- Continued
The estimated fair values of the Banks financial instruments are as follows as of
September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Fair Value Measurement
|
|
(dollars in thousands)
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,389
|
|
|
$
|
8,389
|
|
|
$
|
8,389
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing deposits in other banks
|
|
|
11,501
|
|
|
|
11,501
|
|
|
|
11,501
|
|
|
|
|
|
|
|
|
|
Federal Funds sold
|
|
|
31,034
|
|
|
|
31,034
|
|
|
|
31,034
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
4,628
|
|
|
|
4,628
|
|
|
|
|
|
|
|
4,528
|
|
|
|
100
|
|
Loans available for sale
|
|
|
806
|
|
|
|
806
|
|
|
|
|
|
|
|
806
|
|
|
|
|
|
Loan Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans
|
|
|
332,665
|
|
|
|
358,297
|
|
|
|
|
|
|
|
|
|
|
|
358,297
|
|
Share Loans
|
|
|
290
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
290
|
|
Consumer Loans
|
|
|
1,855
|
|
|
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
1,816
|
|
Mortgage-backed securities-available for sale
|
|
|
213,563
|
|
|
|
213,563
|
|
|
|
|
|
|
|
213,563
|
|
|
|
|
|
Federal Home Loan Bank of Atlanta Stock
|
|
|
959
|
|
|
|
959
|
|
|
|
959
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock
|
|
|
1,381
|
|
|
|
1,381
|
|
|
|
1,381
|
|
|
|
|
|
|
|
|
|
Bank owned life insurance
|
|
|
16,869
|
|
|
|
16,869
|
|
|
|
16,869
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
2,024
|
|
|
|
2,024
|
|
|
|
|
|
|
|
2,024
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
566,356
|
|
|
$
|
567,848
|
|
|
|
|
|
|
$
|
567,848
|
|
|
|
|
|
Junior Subordinated Debt
|
|
|
17,011
|
|
|
|
17,011
|
|
|
|
|
|
|
|
17,011
|
|
|
|
|
|
Accrued interest payable
|
|
|
63
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
42