Add
LBCP to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| LBCP > SEC Filings for LBCP > Form 10-K on 29-Dec-2008 | All Recent SEC Filings |
29-Dec-2008
Annual Report
Overview
Income. Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and securities, and interest expense, which is the interest that we pay on our deposits and borrowings. Other significant sources of pre-tax income are service charges on deposit accounts, gains on sales of loans and other loan service charges. In addition, we recognize income or losses from the sale of investments in years that we have such sales.
Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. Provisions for loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and value of the portfolio, information about specific borrower situations, and estimated collateral values, economic conditions and other factors. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged off.
Expenses. The noninterest expenses we incur in operating our business consist of compensation and employee benefit expenses, occupancy expense, equipment and data processing expenses, advertising expenses, federal deposit insurance premiums and various other miscellaneous expenses.
Compensation and employee benefits consist primarily of salaries and wages paid to our employees, director and committee fees, payroll taxes, expenses for health insurance and other employee benefits.
Occupancy and equipment expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of depreciation charges, furniture and equipment expenses, rent expense, maintenance, real estate taxes and costs of utilities. Depreciation of premises and equipment is computed using the straight-line method based on the useful lives of the related assets, which range from three to 40 years.
Data processing expenses include fees paid to our third party data processing service and ATM expense.
Advertising expenses include expenses for print, radio and television advertisements, promotions, third-party marketing services and premium items.
Federal deposit insurance premiums are primarily payments we make to the Federal Deposit Insurance Corporation for insurance of our deposit accounts.
Other expenses include correspondent banking charges, operations from foreclosed real estate, professional and regulatory services, expenses for supplies, telephone and postage, contributions and donations, insurance and surety bond premiums and other fees and expenses.
We expect that noninterest expenses will increase as a result of our strategy to expand our branch network. These additional expenses will consist primarily of salaries and employee benefits and occupancy and equipment expenses. Initially, we expect that these expenses will be greater than the additional income that we generate through our new facilities. Over time, we anticipate that we will generate sufficient income to offset the expenses related to our new facilities and new employees, but we cannot provide assurances as to when or if our branch expansion strategy will be accretive to our earnings.
Critical Accounting Policies
Our accounting and reporting policies were prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") and to general practices within the financial services industry. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Management has identified the accounting policies described below as those that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of our financial statements and management's discussion and analysis.
Income Recognition. We recognize interest income by methods conforming to US GAAP that include general accounting practices within the financial services industry. Interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding, including yield adjustments resulting from the amortization of loan costs and premiums on investment securities and accretion of loan fees and discounts on investment securities.
In the event management believes collection of all or a portion of contractual interest on a loan has become doubtful, which generally occurs after the loan is 90 days past due, the accrual of interest is discontinued. In addition, previously accrued interest deemed uncollectible that was recognized in income is reversed. Interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured. A non-accrual loan is restored to accrual status when it is brought current or has performed in accordance with contractual terms for a reasonable period of time, and the collectibility of the total contractual principal and interest is no longer doubtful.
Allowance for Loan Losses. Valuation allowances are established for impaired loans for the difference between the loan amount and the fair value of collateral less estimated selling costs. We consider a loan to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement on a timely basis. The types of loans for which impairment is measured include nonaccrual income property loans (excluding those loans included in the homogenous portfolio which are collectively reviewed for impairment), large, non-accrual single-family loans and troubled debt restructurings. Such loans are generally placed on non-accrual status at the point deemed uncollectible. Impairment losses are recognized through an increase in the allowance for loan losses. See note 5 of the notes to consolidated financial statements for information regarding impaired loans at September 30, 2008 and 2007.
Allowances for loan losses are available to absorb losses incurred on loans and represent additions charged to expense, less net charge-offs. The allowances are evaluated on a regular basis by management and are based on management's periodic review of the collectibility of loans, in light of historical experience, fair value of the underlying collateral, changes in the types and mix of loans originated and prevailing economic conditions.
Operating Strategy
Our mission is to operate and further expand a profitable and diversified community banking franchise. We plan to achieve this by executing our strategy of:
· expanding through de novo branching in the Kansas City metropolitan area; and
· continuing to transform our balance sheet to emphasize assets and liabilities that allow us to increase our net interest margin while reducing our exposure to risk from interest rate fluctuations.
Expansion Through De Novo Branching. In 2004, the Board of Directors, with the assistance of our Chief Executive Officer hired in September 2003, determined to pursue a strategic plan to enhance long-term shareholder value through franchise growth. The strategic plan calls for expansion through de novo branching in the Kansas City metropolitan area to enable us to take advantage of the opportunities afforded by recent and forecasted economic growth in that market. We believe that the increased asset size to be achieved through the planned expansion will enable us to leverage better efficiencies and technology but still attract customers based on personal service and relationships. Our first new branch was opened in Independence, Missouri in May 2005, a second new branch was opened in Kansas City, Missouri in January 2006, and a third new branch was opened in Gladstone, Missouri in September 2007. We anticipate that over the next three to five years, based on and subject to local market conditions, we will open additional branch offices in suburban Kansas City growth areas that complement our existing branch network.
While we anticipate that this expansion strategy will enhance long-term shareholder value, w e cannot assure you when or if our branch expansion strategy will be accretive to our earnings. New branches generally require a significant initial capital investment and take approximately three years or longer to become profitable. New branches require an upfront investment of between $2.0 million and $3.0 million each for land and building expenses. Accordingly, we anticipate that, in the short term, net income will be negatively affected as we incur significant capital expenditures and noninterest expense in opening and operating new branches before the new branches can produce sufficient net interest income to offset the increased expense. In addition, the need to use capital to fund de novo branching may limit our ability to pay or increase dividends on our common stock. There also is implementation risk associated with new branches. Numerous factors will determine whether our branch expansion strategy will be successful, such as our ability to select suitable branch locations, real estate acquisition costs, competition, interest rates, managerial resources, our ability to hire and retain qualified personnel, the effectiveness of our marketing strategy and our ability to attract deposits.
Continued Transformation of Our Balance Sheet. Our strategic plan also calls for us to transform our balance sheet to emphasize assets and liabilities that allow us to increase our net interest margin while reducing our exposure to risk from interest rate fluctuations.
With respect to our assets, our strategy has been, and continues to be, to increase the percentage of assets invested in commercial business, commercial real estate and multi-family loans, which tend to have higher yields than traditional single-family residential mortgage loans and which have shorter terms to maturity or adjustable interest rates. In addition, in recent years we have sought to increase our originations of real estate construction loans, which also have short terms and adjustable interest rates, although in the future we will seek to maintain construction loans approximately at current levels so as not to unduly concentrate credit risk in the real estate construction market. At the same time, we have sought to decrease our reliance on single-family residential mortgage loans. Currently, we sell substantially all new, fixed-rate conforming single-family loans in the secondary market.
Commercial real estate, commercial business and multi-family real estate loans provide us with the opportunity to earn more income because they tend to have higher interest rates than residential mortgage loans. In addition, these loans are beneficial for interest rate risk management because they typically have shorter terms and adjustable interest rates. There are many multi-family and commercial properties and businesses located in our market area, and with the additional capital raised in the offering we intend to pursue the larger lending relationships associated with these opportunities. To facilitate our growth, we have added expertise in our commercial loan department in recent years through the hiring of experienced personnel, including a new chief lending officer.
As a result of these efforts, our commercial real estate loans have increased from $16.2 million, or 12.18% of total loans, at September 30, 2001 to $102.3 million, or 36.73% of total loans, at September 30, 2008. In addition, commercial business loans have increased from $2.7 million, or 2.04% of total loans, at September 30, 2001 to $17.8 million, or 6.39% of total loans, at September 30, 2008, and multi-family real estate loans have increased from $3.4 million, or 2.56% of total loans, at September 30, 2001 to $17.4 million, or 6.23% of total loans, at September 30, 2008. The percentage of our total loan portfolio comprised of residential mortgage loans has decreased in recent years, amounting to 28.71%, 20.71%, 18.48%, 15.64% and 14.62% at September 30, 2004, 2005, 2006, 2007 and 2008, respectively.
With respect to liabilities, our strategy is to emphasize transaction and money market accounts, as well as shorter term certificates of deposit. We value these types of deposits because they represent longer-term customer relationships and a lower cost of funding compared to longer-term certificates of deposit. We aggressively seek transaction and money market deposits through competitive products and pricing and targeted advertising. In addition, we offer business checking accounts for our commercial customers. We also hope to increase core deposits through our de novo branching strategy.
Balance Sheet Analysis
Loans. Our primary lending activity is the origination of loans secured by real estate. We originate construction loans, single-family residential loans and multi-family and commercial real estate loans. To a lesser extent, we also originate commercial business and consumer loans.
At September 30, 2008, construction loans totaled $90.5 million and represented 32.47% of total loans, compared to $125.8 million, or 47.12% of total loans, at September 30, 2007. The size of our real estate construction loan portfolio has decreased $35.3 million over this period due primarily to the soft real estate market. Commercial real estate construction loans decreased by $17.6 million, or 34.54%, from $51.0 million at September 30, 2007 to $33.4 million at September 30, 2008. Development loans increased by $262,000, or .72%, from $36.4 million at September 30, 2007 to $36.7 million at September 30, 2008. Single-family - spec loans decreased by $16.1 million, or 54.84%, from $29.3 million at September 30, 2007 to $13.2 million at September 30, 2008. Single-family - custom construction loans decreased by $751,000, or 10.59%, from $7.1 million at September 30, 2007 to $6.3 million at September 30, 2008. Decreases in single-family spec and custom construction loans reflect loan portfolio adjustments to current market conditions.
Single-family residential loans totaled $40.7 million and represented 14.62% of total loans at September 30, 2008, compared to $41.7 million, or 15.64% of total loans, at September 30, 2007. The Bank has pursued the strategy of selling substantially all new, fixed-rate residential loans we originate because of the relatively low yields that have been attainable on residential loans over the last several years and to decrease the interest rate risk resulting from the retention of longer term fixed-rate loans.
Commercial real estate loans increased by $45.1 million, or 78.83%, to $102.3 million and represented 36.73% of total loans at September 30, 2008, compared to $57.2 million, or 21.44% of total loans, at September 30, 2007. These increases were due to our strategic decision to emphasize lending on income producing property projects. Currently, the Bank offers a variety of commercial real estate products to owner occupants and investors. Our primary commercial real estate lending focus areas are retail, office and industrial uses.
Multi-family loans totaled $17.4 million and represented 6.23% of total loans at September 30, 2008, compared to $12.2 million, or 4.57% of total loans, at September 30, 2007.
We also originate a variety of consumer loans and home equity loans, as well as loans secured by deposit accounts, automobile loans and other miscellaneous loans. Consumer loans totaled $9.9 million and represented 3.56% of total loans at September 30, 2008, compared to $12.0 million, or 4.51% of total loans, at September 30, 2007. The decrease in consumer loans was due primarily to a decrease in home equity loans.
Commercial business loans decreased to $17.8 million or 6.39% of total loans at September 30, 2008 from $18.0 million, or 6.72% of total loans at September 30, 2007.
Set forth below is selected data relating to the composition of our loan portfolio at the dates indicated.
At September 30,
2008 2007 2006 2005 2004
Amount % Amount % Amount % Amount % Amount %
(Dollars in thousands)
Type of Loan:
Real estate
loans:
Single-family
1-4 units $ 40,727 14.62 % $ 41,749 15.64 % $ 42,623 18.48 % $ 39,435 20.71 % $ 53,098 28.71 %
Multi-family,
5 or more
units 17,368 6.23 12,198 4.57 10,416 4.52 15,603 8.20 12,877 6.96
Real estate
construction
loans 90,482 32.47 125,797 47.12 99,759 43.25 79,979 42.01 71,875 38.86
Commercial
real estate
loans 102,364 36.73 57,241 21.44 53,360 23.13 37,568 19.74 30,294 16.38
Total real
estate loans 250,941 90.05 236,985 88.77 206,158 89.38 172,585 90.66 168,144 90.91
Consumer
loans:
Loans secured
by deposit
accounts 142 0.05 228 0.09 211 0.09 128 0.07 167 0.09
Automobile
loans 446 0.16 477 0.18 608 0.26 867 0.46 1,097 0.59
Home equity
loans 8,722 3.13 10,713 4.01 11,662 5.06 10,266 5.39 9,764 5.28
Other 610 0.22 620 0.23 738 0.32 1,129 0.59 1,037 0.56
Total consumer
loans 9,920 3.56 12,038 4.51 13,219 5.73 12,390 6.51 12,065 6.52
Commercial
business loans 17,805 6.39 17,951 6.72 11,270 4.89 5,397 2.83 4,754 2.57
Total gross % % % % %
loans 278,666 100.00 266,974 100.00 230,647 100.00 190,372 100.00 184,963 100.00
Loans in
process (19,028 ) (31,316 ) (27,962 ) (24,444 ) (22,549 )
Deferred loan
fees, net (279 ) (339 ) (314 ) (316 ) (368 )
Unearned
discounts, net (13 ) - (5 ) (7 ) (182 )
Allowance for
loan losses (2,633 ) (3,011 ) (2,144 ) (1,762 ) (2,024 )
Total $ 256,713 $ 232,308 $ 200,222 $ 163,843 $ 159,840
|
The following table sets forth certain information at September 30, 2008, regarding the dollar amount of loan principal repayments coming due during the years indicated. The table below does not include any estimate of prepayments, which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.
Due After
Due After 3 Due After 5 10 through
Due during the Year through 5 through 10 15 years Due After 15
Ended September 30, years after years after after years after
2009 2010 2011 9/30/08 9/30/08 9/30/08 9/30/08 Total
(Dollars in thousands)
Single-family mortgage
loans $ 1,288 $ 1,368 $ 1,454 $ 3,180 $ 9,872 $ 13,368 $ 10,197 $ 40,727
Multi-family mortgage
loans 549 584 620 1,356 4,210 5,701 4,348 17,368
Real estate
construction loans 71,865 18,617 - - - - - 90,482
Commercial real estate
loans 2,462 2,636 2,825 6,249 20,013 28,264 39,915 102,364
Loans secured by
deposit accounts 142 - - - - - - 142
Other consumer loans 2,164 2,341 2,533 2,740 - - - 9,778
Commercial business
loans 3,095 3,312 3,545 7,853 - - - 17,805
Total gross loans $ 81,565 $ 28,858 $ 10,977 $ 21,378 $ 34,095 $ 47,333 $ 54,460 $ 278,666
|
The following table sets forth the dollar amount of all loans at September 30, 2008, that are due after September 30, 2009 which have either fixed interest rates or adjustable interest rates.
Fixed Rates Adjustable Rates Total
(Dollars in thousands)
Single-family mortgage loans $ 25,056 $ 14,383 $ 39,439
Multi-family mortgage loans 14,623 2,196 16,819
Real estate construction loans 8,157 10,460 18,617
Commercial real estate loans 78,715 21,187 99,902
Loans secured by deposit accounts - - -
Other consumer loans 1,048 6,566 7,614
Commercial business loans 7,828 6,882 14,710
Total gross loans $ 135,427 $ 61,674 $ 197,101
|
The following table shows our loan origination, sale and other activity during the years indicated.
For theYears Ended September 30,
2008 2007 2006
(In thousands)
Total net loans at the beginning of year $ 232,308 $ 200,222 $ 163,843
Loans originated for portfolio:
Single and multi-family mortgage loans 22,752 25,703 17,437
Real estate construction loans 50,600 64,541 74,792
Commercial real estate loans 47,339 27,002 33,167
Commercial business loans 4,047 16,657 9,179
Loans secured by deposit accounts 78 212 295
Home equity loans 1,452 3,460 4,277
Automobile and other consumer loans 300 1,036 1,028
Total loans originated $ 126,568 $ 138,611 $ 140,175
Deduct:
Principal loan repayment and other, net 99,904 106,790 103,326
Loan charge-offs, net of (recoveries) 2,259 (265 ) 470
Total net loans at end of year $ 256,713 $ 232,308 $ 200,222
Loans originated for sale $ 24,739 $ 20,354 $ 17,656
Loans sold in secondary market $ 24,581 $ 20,094 $ 19,281
|
Loans Held for Sale. Loans held for sale increased $158,000 to $877,000 at September 30, 2008.
Securities. Our securities portfolio consists primarily of government agency securities, municipal securities and mortgage-backed securities. Although municipal securities generally have greater credit risk than government agency securities, they generally have higher yields than government securities of similar duration. Securities available for sale decreased from $48.0 million at September 30, 2007 to $26.1 million at September 30, 2008 due to sales, maturities and calls, partially offset by purchases. Mortgage-backed securities available for sale decreased from $19.3 million at September 30, 2007 to $14.0 million at September 30, 2008 due to principal repayments.
The following table sets forth the Bank's mortgage-backed securities purchases and sales for the years indicated.
Year Ended September 30,
2008 2007 2006
(In thousands)
Purchased $ - $ - $ 3,452
Sold - - -
|
The following table sets forth the carrying values and fair values of our securities and mortgage-backed securities portfolio at the dates indicated.
At September 30,
2008 2007 2006
Amortized Fair Amortized Amortized Fair
Cost Value Cost Fair Value Cost Value
(Dollars in thousands)
Securities available
for sale:
Federal agency
obligations $ 13,422 $ 13,903 $ 34,555 $ 34,848 $ 29,711 $ 29,543
State and municipal
obligations 11,715 11,679 12,839 12,741 6,435 6,340
Mortgage-backed
securities 14,007 13,989 19,621 19,277 24,863 24,217
Equity securities 544 471 395 394 ¾ ¾
. . .
|
|
|