Attached files
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EX-31.2 - EXHIBIT 31.2 - ALASKA PACIFIC BANCSHARES INC | ex312k10a.htm |
EX-32.1 - EXHIBIT 32.1 - ALASKA PACIFIC BANCSHARES INC | ex321k10a.htm |
EX-31.1 - EXHIBIT 31.1 - ALASKA PACIFIC BANCSHARES INC | ex311k10a.htm |
EX-32.2 - EXHIBIT 32.2 - ALASKA PACIFIC BANCSHARES INC | ex322k10a.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K/A
Amendment No.
1
[X]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2009
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______ to _________
Commission
File Number: 0-26003
ALASKA
PACIFIC BANCSHARES, INC.
(Exact
name of registrant as specified in its charter)
Alaska | 92-0167101 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2094
Jordan Avenue, Juneau, Alaska 99801
(Address
of principal executive offices) (Zip code)
Registrant’s
telephone number, including area code: (907)
789-4844
|
||
Securities
registered pursuant to Section 12(b) of the Exchange
Act: None
|
||
Securities registered pursuant to Section 12(g) of the Exchange Act: | Common Stock, par value $0.01 per share | |
(Title of Class) |
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act. Yes
[ ] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange
Act. Yes
[ ] No [X]
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES
[X] NO [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES [
X ] NO [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check
One.
Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [X ] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
As of
March 1, 2010, there were 655,415 issued and 654,486 outstanding shares of the
registrant’s Common Stock, which are traded on the over-the-counter market
through the OTC “Electronic Bulletin Board” under the symbol “AKPB.” Based on
the closing price of the Common Stock on June 30, 2009, the aggregate value of
the Common Stock outstanding held by nonaffiliates of the registrant
was $2.1
million
(512,035 shares at $4.05 per share). For purposes of this calculation, shares of
common stock held by each executive officer and director have been
excluded.
DOCUMENTS
INCORPORATED BY REFERENCE
1.
|
Portions
of the Proxy Statement for the 2009 Annual Meeting of Stockholders are
incorporated by reference in this Form 10-K in response to Part
III.
|
-2 -
EXPLANATORY
NOTE
This Amendment No. 1 on Form 10-K/A
amends our Annual Report on Form 10-K for the year ended December 31, 2009,
initially filed with the Securities and Exchange Commission on March 30, 2010.
(“Original Form 10-K”), is being filed to correct the auditor’s report provided
by the Company’s independent registered public accounting firm and included in
Item 8 of the Original Form 10-K. The auditor’s report from the prior
year-end was inadvertently included in the Original Form 10-K and has been
corrected in this amendment. No other changes to the Original Form
10-K have been made.
-3 -
Item 8. Financial Statements
and Supplementary Data
Index
to Consolidated Financial Statements
Page No. | ||
Report of Independent Registered Public Accounting Firm | 64 | |
Consolidated Balance Sheets as of December 31, 2009 and 2008 | 65 | |
Consolidated Statements of Operations For the Years Ended | ||
December 31, 2009 and 2008 | 66 | |
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) For the | ||
Years Ended December 31, 2009 and 2008 | 67 | |
Consolidated Statements of Cash Flows For the Years Ended | ||
December 31, 2009 and 2008 | 68 | |
Notes to Consolidated Financial Statements | 70 | |
- 63 -
[LETTERHEAD
OF MOSS ADAMS LLP]
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
Alaska
Pacific Bancshares, Inc. and Subsidiary
Juneau,
Alaska
We have
audited the accompanying consolidated balance sheets of Alaska Pacific
Bancshares, Inc. and Subsidiary (the Company) as of December 31, 2009 and 2008,
and the related consolidated statements of operations, changes in shareholders’
equity and comprehensive income (loss), and cash flows for the years then
ended. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Alaska Pacific
Bancshares, Inc. and Subsidiary as of December 31, 2009 and 2008, and the
results of their operations and their cash flows for the years then ended, in
conformity with United States of America generally accepted accounting
principles.
/s/Moss Adams LLP
Spokane,
Washington
March 30,
2010
- 64 -
Consolidated
Balance Sheets
(dollars in thousands)
December 31,
|
2009
|
2008
|
||
Assets
|
||||
Cash
and due from banks
|
$ 6,273
|
$ 6,344
|
||
Interest-earning
deposits in banks
|
669
|
3,058
|
||
Total
cash and cash equivalents
|
6,942
|
9,402
|
||
Investment
securities available for sale, at fair value (amortized cost:
2009 - $2,536; 2008 - $3,233)
|
2,606
|
3,243
|
||
Federal
Home Loan Bank stock, at cost
|
1,784
|
1,784
|
||
Loans
held for sale
|
55
|
2,586
|
||
Loans
|
158,108
|
168,982
|
||
Less
allowance for loan losses
|
(1,786
|
) |
(2,688
|
) |
Loans,
net
|
156,322
|
166,294
|
||
Accrued
interest receivable
|
698
|
822
|
||
Premises
and equipment, net
|
2,816
|
3,122
|
||
Repossessed
assets
|
2,598
|
408
|
||
Other
assets
|
4,487
|
3,190
|
||
Total
Assets
|
$178,308
|
$190,851
|
Liabilities
and Shareholders’ Equity
|
||||
Deposits:
|
||||
Noninterest-bearing
demand
|
$ 27,416
|
$ 25,707
|
||
Interest-bearing
demand
|
32,474
|
31,042
|
||
Money
market
|
28,982
|
33,072
|
||
Savings
|
19,170
|
17,536
|
||
Certificates
of deposit
|
40,175
|
54,818
|
||
Total
deposits
|
148,217
|
162,175
|
||
Federal
Home Loan Bank advances
|
9,834
|
10,320
|
||
Advance
payments by borrowers for taxes and insurance
|
751
|
733
|
||
Accounts
payable and accrued expenses
|
379
|
480
|
||
Accrued
interest payable
|
307
|
449
|
||
Other
liabilities
|
140
|
411
|
||
Total
liabilities
|
159,628
|
174,568
|
||
Commitments
and contingencies (Note 14)
|
||||
Shareholders’
Equity:
|
||||
Preferred
stock ($0.01 par value; 1,000,000 shares authorized; Series A –
Liquidation
preference $1,000
per share, 4,781 and –0- shares issued and
outstanding
at December 31, 2009 and December
31, 2008, respectively)
|
4,497
|
-
|
||
Common
stock ($0.01 par value; 20,000,000 shares authorized; 655,415
shares
issued; 654,486
shares outstanding at December 31, 2009 and at
December 31,
2008)
|
7
|
7
|
||
Additional
paid-in capital
|
6,446
|
6,121
|
||
Treasury
stock
|
(11
|
) |
(11
|
) |
Retained
earnings
|
7,699
|
10,161
|
||
Accumulated
other comprehensive income
|
42
|
5
|
||
Total
shareholders’ equity
|
18,680
|
16,283
|
||
Total
Liabilities and Shareholders’ Equity
|
$178,308
|
$190,851
|
||
See
notes to consolidated financial statements.
|
||||
- 65 -
Alaska
Pacific Bancshares, Inc. and Subsidiary
Consolidated
Statements of Operations
(in thousands, except per
share) Year ended December 31,
|
2009
|
2008
|
||
Interest
Income
|
||||
Loans,
including fees
|
$10,053
|
$11,838
|
||
Investment
securities
|
126
|
195
|
||
Interest-earning
deposits in banks
|
5
|
42
|
||
Total
interest income
|
10,184
|
12,075
|
||
Interest
Expense
|
||||
Deposits
|
1,369
|
2,585
|
||
Federal
Home Loan Bank advances
|
493
|
730
|
||
Total
interest expense
|
1,862
|
3,315
|
||
Net
Interest Income
|
8,322
|
8,760
|
||
Provision
for loan losses
|
2,947
|
5,034
|
||
Net
interest income after provision for loan losses
|
5,375
|
3,726
|
||
Noninterest
Income
|
||||
Mortgage
servicing income
|
186
|
161
|
||
Service
charges on deposit accounts
|
729
|
709
|
||
Other
service charges and fees
|
257
|
165
|
||
Gain
on sale of loans
|
712
|
251
|
||
Other
noninterest income
|
-
|
56
|
||
Total
noninterest income
|
1,884
|
1,342
|
||
Noninterest
Expense
|
||||
Compensation
and benefits
|
4,696
|
4,871
|
||
Occupancy
and equipment
|
1,393
|
1,537
|
||
Data
processing
|
258
|
255
|
||
Professional
and consulting fees
|
541
|
487
|
||
Marketing
and public relations
|
268
|
317
|
||
Repossessed
property, net
|
235
|
116
|
||
Loss
on sale or impairment of repossessed assets
|
503
|
-
|
||
Other
|
1,538
|
1,208
|
||
Total
noninterest expense
|
9,432
|
8,791
|
||
Loss
before income tax
|
(2,173
|
) |
(3,723
|
) |
Expense
(Benefit) for income tax
|
18
|
(1,405
|
) | |
Net
Loss
|
$
(2,191
|
) |
$
(2,318
|
) |
Preferred
stock dividend and discount accretion
|
||||
Preferred
stock dividend
|
$ 216
|
$ -
|
||
Preferred
stock discount accretion
|
55
|
-
|
||
Net
loss available to common shareholders
|
$
(2,462
|
) |
$
(2,318
|
) |
Net
loss per share:
|
||||
Basic
|
$(3.76
|
) |
$(3.54
|
) |
Diluted
|
(3.76
|
) |
(3.54
|
) |
See
notes to consolidated financial statements.
|
- 66 -
Alaska
Pacific Bancshares, Inc. and Subsidiary
Consolidated
Statements of Changes in Shareholders’ Equity and Comprehensive Loss
(in
thousands)
|
Preferred
Stock
|
Common
Stock
|
Additional
Paid-In
Capital
|
Treasury
Stock
|
Unearned
ESOP
Shares
|
Retained
Earnings
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Share-holders’
Equity
|
||||
Balance,
January 1, 2008
|
$-
|
$7
|
$6,067
|
$(30
|
) |
$(41)
|
$12,675
|
$(9)
|
$18,669
|
|||
Net loss
|
(2,318
|
) |
(2,318
|
) | ||||||||
Other comprehensive income:
|
||||||||||||
Change
in net unrealized losses on
securities available for sale, net of
related
income tax effect
|
14
|
14
|
||||||||||
Comprehensive
loss
|
(2,304
|
) | ||||||||||
Exercise of stock options
|
(4
|
) |
19
|
15
|
||||||||
Excess tax benefits from share-based payment arrangements
|
7
|
7
|
||||||||||
ESOP shares earned
|
25
|
41
|
66
|
|||||||||
Stock compensation expense
|
26
|
26
|
||||||||||
Cash dividends on common stock ($0.30 per share)
|
(196
|
) |
(196
|
) | ||||||||
Balance, December 31, 2008
|
-
|
7
|
6,121
|
(11
|
) |
-
|
10,161
|
5
|
16,283
|
|||
Net loss
|
(2,191
|
) |
(2,191
|
) | ||||||||
Other comprehensive income:
|
||||||||||||
Change in net unrealized gains on
securities
available for sale, net of
related income tax effect
|
37
|
37
|
||||||||||
Comprehensive
loss
|
(2,154
|
) | ||||||||||
Stock compensation expense
|
27
|
27
|
||||||||||
Issuance of preferred stock to U.S. Treasury
|
4,442
|
4,442
|
||||||||||
Issuance of common stock warrants to U.S.
Treasury
|
339
|
339
|
||||||||||
Accretion of preferred stock discount
|
55
|
(55
|
) | |||||||||
Preferred stock issuance costs
|
(41
|
) |
(41
|
) | ||||||||
Cash dividends on preferred stock
|
(216
|
) |
(216
|
) | ||||||||
Balance,
December 31, 2009
|
$4,497
|
$7
|
$6,446
|
$(11
|
) |
$-
|
$7,699
|
$42
|
$18,680
|
See
notes to consolidated financial statements.
|
-
67 -
Alaska
Pacific Bancshares, Inc. and Subsidiary
Consolidated
Statements of Cash Flows
(in thousands) Year
ended December 31,
|
2009
|
2008
|
||
Operating
Activities
|
||||
Net
loss
|
$(2,191
|
) |
$(2,318
|
) |
Adjustments
to reconcile net loss to net cash provided by
operating activities:
|
||||
Provision
for loan losses
|
2,947
|
5,034
|
||
Provision
for income tax benefit
|
905
|
-
|
||
Gain
on sale of loans
|
(712
|
) |
(251
|
) |
Depreciation
and amortization
|
335
|
462
|
||
Deferred
income tax benefit
|
(421
|
) |
(513
|
) |
Amortization
of fees, discounts, and premiums, net
|
(201
|
) |
(326
|
) |
ESOP
expense
|
-
|
66
|
||
Stock
compensation expense
|
27
|
26
|
||
Loans
originated for sale
|
(43,260
|
) |
(16,816
|
) |
Proceeds
from sale of loans originated for sale
|
46,503
|
17,401
|
||
Excess
tax benefits from share-based payments arrangements
|
-
|
(7
|
) | |
Loss
on sale or impairment of repossessed assets
|
503
|
-
|
||
Cash
provided by (used in) changes in operating assets and
liabilities:
|
||||
Accrued
interest receivable
|
124
|
156
|
||
Other
assets
|
(1,804
|
) |
(1,060
|
) |
Advance
payments by borrowers for taxes and insurance
|
18
|
2
|
||
Accrued
interest payable
|
(142
|
) |
(219
|
) |
Accounts
payable and accrued expenses
|
(101
|
) |
(54
|
) |
Other
liabilities
|
(302
|
) |
(19
|
) |
Net
cash provided by operating activities
|
2,228
|
1,564
|
||
Investing
Activities
|
||||
Maturities
and principal repayments of investment securities
available for sale
|
687
|
681
|
||
Loan
originations, net of principal repayments
|
3,728
|
(8,007
|
) | |
Purchase
of premises and equipment
|
(29
|
) |
(148
|
) |
Proceeds
from sale of repossessed assets
|
815
|
334
|
||
Net
cash used in investing activities
|
(5,201
|
) |
(7,140
|
) |
Financing
Activities
|
||||
Cash
dividends paid on preferred stock
|
(185
|
) |
-
|
|
Cash
dividends paid on common stock
|
-
|
(196
|
) | |
Proceeds
from issuance of preferred stock and common stock warrants
|
4,781
|
-
|
||
Stock
issuance costs paid
|
(41
|
) |
-
|
-
68 -
Net
decrease in Federal Home Loan Bank advances
|
(486
|
) |
(6,756
|
) |
Net
increase in demand and savings deposits
|
685
|
5,714
|
||
Net
increase (decrease) in certificates of deposit
|
(14,643
|
) |
7,094
|
|
Excess
tax benefits from share-based payments arrangements
|
-
|
7
|
||
Proceeds
from exercise of stock options
|
-
|
15
|
||
Net
cash provided by (used in) financing activities
|
(9,889
|
) |
5,878
|
|
Increase
(decrease) in cash and cash equivalents
|
(2,460
|
) |
302
|
|
Cash
and cash equivalents at beginning of year
|
9,402
|
9,100
|
||
Cash
and cash equivalents at end of year
|
$6,942
|
$9,402
|
||
Supplemental
information:
|
||||
Cash
paid for interest
|
$
2,004
|
$
3,534
|
||
Cash
paid for (received from) income taxes
|
(9
|
) |
344
|
|
Loans
repossessed and transferred to repossessed assets
|
3,508
|
742
|
||
Net
change in unrealized gains and losses on securities available for sale,
net of tax
|
37
|
14
|
||
See
notes to consolidated financial statements.
|
||||
- 69 -
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
Note
1 – Summary of Significant Accounting Policies
General: The
accompanying consolidated financial statements include the accounts of Alaska
Pacific Bancshares, Inc. (the “Company”) and its wholly owned subsidiary, Alaska
Pacific Bank (the “Bank”). The Company and the Bank are collectively referred to
as the “Company.” All significant intercompany transactions have been eliminated
in consolidation.
The
Company was formed in 1999 when the Bank converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank, issuing 655,415
shares in a subscription and community offering. Concurrent with the
conversion, the Bank changed its name from Alaska Federal Savings Bank to Alaska
Pacific Bank.
The Bank
provides a range of financial services to individuals and small businesses in
Southeast Alaska. The Bank’s financial services include accepting deposits from
the general public and making residential and commercial real estate loans,
consumer loans, and commercial loans. The Bank also originates, sells, and
services residential mortgage loans under several federal and state
mortgage-lending programs.
Subsequent
Events: The Company has evaluated subsequent events and there were no additional
events requiring disclosure.
Cash and Cash
Equivalents: Cash equivalents are any highly liquid investment
with a remaining maturity of three months or less at the date of
purchase. The Company has cash and cash equivalents on deposit with other
banks and financial institutions in amounts that periodically exceed the federal
insurance limit. The Company evaluates the credit quality of these banks
and financial institutions to mitigate its credit risk.
Investment
Securities: Securities available for sale, including
mortgage-backed and related securities, are carried at fair value with
unrealized gains and losses excluded from earnings and reported in a separate
component of equity. Any security that management determines may not be held to
maturity is classified as available for sale at the time the security is
acquired. Any gains and losses realized on the sale of these securities are
based on the specific identification method and included in
earnings.
Purchase
discounts and premiums on investment securities are amortized using the level
yield method.
Prior to
the adoption of the recent accounting guidance on April 1, 2009, management
considered in determining whether other-than-temporary impairment exits, (1) the
length of time and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the issuer, and (3) the
intent and ability of the Corporation to retain its investment in the issuer for
a period of time sufficient to allow for any anticipated recovery in fair
value.
For
equity securities, when the Company has decided to sell an impaired
available-for-sale security and the entity does not expect the fair value of the
security to fully recover before the expected time of sale, the security is
deemed other-than-temporarily impaired in the period of which the decision to
sell is made. The Company recognizes an impairment loss when the impairment is
deemed other than temporary even if a decision to sell has not been
made.
Loans: Loans
are reported at the principal amount outstanding, adjusted for net deferred loan
fees and costs and other unamortized premiums or discounts.
Interest
is accrued as earned unless management doubts the collectability of the loan or
the unpaid interest. Interest accrual is generally discontinued and loans are
transferred to nonaccrual status when they become 90 days past due or earlier if
the loan is impaired and collection is considered doubtful. All previously
accrued but uncollected interest is
-
70 -
deducted
from interest income upon transfer to nonaccrual status. Income from nonaccrual
loans is recorded only when interest payments are received.
Loans or
portions of loans are charged off against the allowance for loan losses when
considered uncollectible. Prior to charging a loan off, a loss allowance may be
recognized on impaired loans for an estimated probable loss.
Loan
origination fees and direct loan origination costs are deferred and recognized
as an adjustment to interest income over the contractual life of the loan using
the level yield method. When loans are sold, the related net unamortized loan
fees and costs are included in the determination of the gain on sale of
loans.
Loans Held for
Sale: Loans held for sale consist primarily of residential
mortgage loans and are individually valued at the lower of cost or market. Loans
are recorded as sold when the loan documents are sent to the investor. Net
unrealized losses, if any, are recognized through a valuation allowance by
charges to income.
Allowance for Loan
Losses: The allowance for loan losses is maintained at a level
believed to be sufficient to absorb losses probable and inherent in the loan
portfolio. Management’s determination of the adequacy of the allowance is based
on a number of factors, including the level of nonperforming loans, loan loss
experience, collateral values, a review of the credit quality of the loan
portfolio, and current economic conditions. Loans are categorized as either
pass-graded or problem-graded based on periodic reviews of the loan portfolio.
The allowance is evaluated quarterly based on an estimated range of probable
loss comprised of two elements:
General
component: The general allowance component is calculated by
loan category as a range of estimated loss by applying various loss factors to
pass-graded outstanding loans. The loss factors are based primarily on industry
loss statistics, adjusted for the Bank’s historical loss experience and other
significant factors that, in management’s judgment, affect the collectability of
the portfolio as of the evaluation date.
Specific
component: The specific allowance component is established in
cases where management has identified conditions or circumstances related to a
problem-graded loan that management believes indicate a probable
loss. A range of estimated loss is established for each such
loan.
Loans are
deemed to be impaired when management determines that it is probable that all
amounts due under the contractual terms of the loan agreements will not be
collectible in accordance with the original loan agreement. All problem-graded
loans are evaluated for impairment. Impairment is measured by comparing the fair
value of the collateral or present value of future cash flows to the recorded
investment in the loan. Impaired loans include loans modified in troubled debt
restructurings where concessions have been granted to borrowers experiencing
financial difficulties. These concessions could include a reduction in the
interest rate on the loan, payment extensions, forgiveness of principal,
forbearance or other actions intended to maximize collection.
Mortgage Servicing
Rights: Mortgage servicing rights are stated at amortized
cost. Cost is amortized in proportion to, and over the period of, future
expected net servicing income. Mortgage servicing rights are assessed for
impairment based on the fair value of those rights and any impairment is
recognized through a valuation allowance. In assessing impairment, the mortgage
servicing rights are stratified based on the nature and risk characteristics,
including coupon rates, of the underlying loans which, at December 31, 2009 and
2008, consisted primarily of one- to four-family residential mortgage
loans.
Premises and
Equipment: Bank premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed on the
straight-line method over the estimated useful lives of the
assets: 20 to 50 years for buildings, five to 10 years for leasehold
improvements depending on lease term, and three to 10 years for furniture and
equipment. Expenditures for improvements and major renewals are capitalized and
ordinary maintenance and repairs are charged to operations as
incurred.
Long-lived
assets are assessed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, estimated future cash flows
-
71 -
expected
to result from the use of the asset and its eventual disposition are compared
with the carrying value, and a direct writedown is recorded for the amount of
impairment, if any.
Repossessed
Assets: Real estate or other collateral acquired in
satisfaction of a loan is initially recorded in repossessed assets at the lower
of cost or estimated fair value less estimated selling costs, with any
difference from the loan balance charged to the allowance for loan losses.
Subsequent changes in estimated fair value result in writing down the
properties, directly or through valuation accounts. Such writedowns and gains
and losses on disposal, as well as operating income and costs incurred during
the period of ownership, are recognized currently in noninterest
expense.
Federal Home Loan Bank
Stock: The Bank’s investment in Federal Home Loan Bank of
Seattle (“FHLB”) stock is carried at cost because there is no active market for
the stock. As a member of the FHLB system, the Bank is required to maintain a
minimum level of investment in FHLB stock based on specified percentages of its
outstanding mortgages, total assets or FHLB advances. The Bank’s minimum
investment requirement was approximately $491,200 and $361,200 at December 31,
2009 and 2008, respectively. The Bank may request redemption at par value on any
stock in excess of the amount the Bank is required to hold. Stock redemptions
are granted at the discretion of the FHLB. This security is reported at par
value, which represents the Company’s cost. Management reviews for impairment
based on the ultimate recoverability of the cost basis in the FHLB
stock.
Management
periodically evaluates FHLB stock for other-than-temporary or permanent
impairment. Management’s determination of whether these investments are
impaired is based on its assessment of the ultimate recoverability of cost
rather than by recognizing temporary declines in value. The determination
of whether a decline affects the ultimate recoverability of cost is influenced
by criteria such as (1) the significance of any decline in net assets of the
FHLB as compared to the capital stock amount for the FHLB and the length of time
this situation has persisted, (2) commitments by the FHLB to make payments
required by law or regulation and the level of such payments in relation to the
operating performance of the FHLB, (3) the impact of legislative and regulatory
changes on institutions and, accordingly, the customer base of the FHLB, and (4)
the liquidity position of the FHLB. As of December 31, 2009, management has
concluded that our investment in FHLB stock is not impaired.
Advertising
Expense: Advertising costs are expensed as incurred.
Advertising expense was $185,000 and $200,000 for the years ended December 31,
2009 and 2008, respectively.
Income
Tax: The Company accounts for income tax using the asset and
liability method. The asset and liability method recognizes the amount of tax
payable at the date of the financial statements as a result of all events that
have been recognized in the financial statements, as measured by the provisions
of current enacted tax laws and rates. Net deferred tax assets are evaluated and
reduced through a valuation allowance to the extent that it is more likely than
not, those assets will not be fully recovered in the future.
Treasury
Stock: Treasury stock is accounted for on the basis of average
cost, or $12.375 per share at December 31, 2009 and 2008.
Employee Stock Ownership
Plan: Compensation expense under the Company’s Employee Stock
Ownership Plan (“ESOP”) is based upon the number of shares allocated to
employees each year multiplied by the average share price for the year. Expense
is reduced by the amount of dividends paid on unallocated shares. In
computing earnings per share, shares outstanding are reduced by shares held by
the ESOP that have not yet been allocated to employees.
Stock Option
Plan: The Company accounts for its stock option plans in
accordance with the provisions of FASB Accounting Standards Codification 718,
Stock Compensation which establishes accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans and requires that the compensation cost relating to
share-based payment transactions such as stock options be recognized in the
Company’s financial statements over the period the options are earned by
employees. The adoption of this standard using the modified prospective method,
resulted in $27,000 and $26,000 of compensation expense for the years ended
December 31, 2009 and 2008, respectively.
- 72 -
Fair Value
Measurements: FASB Accounting Standards Codification 820, Fair
Value Measurements and Disclosures, defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. This standard
establishes a consistent framework for measuring fair value and disclosure
requirements about fair value measurements. The standards require the Company to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect the
Company’s market assumptions. These two types of inputs create the
following fair value hierarchy:
Level 1 -
Unadjusted quoted prices for identical instruments in active
markets;
Level 2 -
Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable; and
Level 3 -
Instruments whose significant value drivers are unobservable.
A
financial instrument’s level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement.
Use of
Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions 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. Material estimates that
are particularly susceptible to change in the near term relate to the
determination of the allowance for loan losses, fair value of assets carried at
fair value, deferred income taxes, and useful lives for depreciation of premises
and equipment. Actual results could differ from these estimates.
Statement of Cash
Flows: The statement of cash flows has been prepared using the
“indirect” method for presenting cash flows from operating activities. For
purposes of this statement, cash and cash equivalents include cash and due from
banks and interest-bearing deposits with banks.
Segment
Reporting: The Company has identified a single segment at the
entity-wide level used by senior management to make operating
decisions.
Recent Accounting
Pronouncements: Significant recent accounting pronouncements
are described below.
On April
1, 2009, the FASB issued FSP FAS 141(R)-1 (codified in ASC 805), Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies. FSP FAS 141(R)-1 addresses concerns about the application
of Statement 141(R), Business
Combinations, to assets and liabilities arising from contingencies in a
business combination. Under the FSP, an acquirer is required to recognize at
fair value an asset acquired or a liability assumed in a business combination
that arises from a contingency if the acquisition-date fair value of that asset
or liability can be determined during the measurement period. If the
acquisition-date fair value cannot be determined, then the acquirer follows the
recognition criteria in Statement 54 and Interpretation 145 to determine whether the
contingency should be recognized as of the acquisition date or after it. Like
Statement 141(R), the FSP is effective for business combinations whose
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. FSP FAS 141(R)-1 did not have a
material impact on the Company’s financial condition or results of
operations.
On April
9, 2009, the FASB issued FSP FAS 157-4 (codified in ASC 820-10), Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. The FSP
provides additional guidance for estimating fair value of an asset or liability
in accordance with FASB Statement No. 157, Fair Value Measurements, when
the volume and level of activity for the asset or liability have significantly
decreased. FSP 157-4 also includes guidance on identifying circumstances that
indicate a
-
73 -
transaction
is not orderly. The FSP is effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009. The Company did not early adopt FSP 157-4 for the interim
period ended March 31, 2009. The FSP did not have a material impact on the
Company’s financial condition or results of
operations.
On April
9, 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (“APB”)
28-1 (codified in ASC 825-10-50), Interim Disclosures About Fair Value
of Financial Instruments. The FSP requires disclosure about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. The FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. The FSP is effective for interim and
annual periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. The Company did not early adopt FSP 107-1 and APB 28-1 for
the interim period ended March 31, 2009. The FSP did not have a
material impact on the Company’s financial condition or results of
operations.
On April
9, 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 (codified in ASC
320-10-35), Recognition and
Presentation of Other-Than-Temporary Impairments. The FSP amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. FSP 115-2 and 124-2 is effective for interim and annual periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. The Company did not early adopt FSP 115-2 and 124-2 for
the interim period ended March 31, 2009. The FSP did not have a
material impact on the Company’s financial condition or results of
operations.
On May
28, 2009, the FASB issued Statement No. 165, Subsequent Events (codified
in ASC 855-10). ASC 855-10 is intended to establish general standards
of accounting for, and disclosure of, events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
Entities are required to disclose the date through which subsequent events were
evaluated as well as the rationale for why that date was selected. ASC 855-10 is
effective for interim and annual periods ending after June 15, 2009. The
Statement did not
have a material impact on the Company’s financial condition or results of
operations.
On June
12, 2009, the FASB issued Statement No. 166 (codified in Accounting Standards
Update (“ASU”) 2009-16), Accounting for Transfers of
Financial Assets – an amendment of FASB Statement No. 140 (“SFAS
166”). SFAS 166 amends the derecognition guidance in Statement No.
140 and eliminates the exemption from consolidation for qualifying
special-purpose entities (“QSPEs”). As a result, a transferor will need to
evaluate all existing QSPEs to determine whether they must now be consolidated
in accordance with Statement No. 167. SFAS 166 is effective for financial asset
transfers occurring after the beginning of an entity’s first fiscal year that
begins after November 15, 2009. The Statement is not expected to have a
material impact on the Company’s financial condition or results of
operations.
On June
12, 2009, the FASB issued Statement No. 167 (codified in ASU 2009-17), Amendments to FASB Interpretation
No. 46(R) (“SFAS 167”). SFAS 167 amends the consolidation guidance
applicable to variable interest entities. The amendments will significantly
affect the overall consolidation analysis under Interpretation
46(R). SFAS 167 is effective as of the beginning of the first fiscal
year that begins after November 15, 2009. The Statement is not expected to have a
material impact on the Company’s financial condition or results of
operations.
On June
30, 2009, the FASB issued Statement No. 168 (codified in ASC 105), The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162. Statement No. 162 identified the
sources of accounting principles and the framework for selecting the principles
used in preparing the financial statements of nongovernmental entities that are
presented in conformity with U.S. generally accepted accounting principles
(“GAAP”). ASC 105 divides nongovernmental U.S. GAAP into the authoritative
Codification and guidance that is nonauthoritative, doing away with the previous
four-level hierarchy. ASC 105 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The
Statement did not
have a material impact on the Company’s financial condition or results of
operations.
On August
28, 2009, the FASB issued ASU 2009-05, Measuring Liabilities at Fair
Value. The
Update provides amendments to Subtopic 820-10, Fair Value Measurements and
Disclosures-Overall, for the fair value
-
74 -
measurement
of liabilities. ASU 2009-05 reaffirms that fair value measurement of a liability
assumes a liability is transferred to a market participant as of the measurement
date. The guidance in ASU 2009-05 is effective for the first reporting period
beginning after issuance. For the Company, ASU 2009-05 was effective on October
1, 2009. ASU 2009-05
did not have a material impact on the Company’s financial condition or results
of operations.
On
September 30, 2009, the FASB issued ASU 2009-12, Investments in Certain Entities That
Calculate Net Asset Value per Share (or its Equivalent). The Update
provides guidance on measuring the fair value of certain alternative investments
in entities that calculate net asset value per share. The guidance applies to
investments in which (1) the fair value of the investment is not readily
determinable and (2) the investment is in an entity that has all of the
attributes of an investment company that are specified in ASC 946-10-15-2 or is
in an entity that lacks one or more of the attributes specified in ASC
946-10-15-2. The guidance in ASU 2009-12 is effective for the first reporting
period ending after December 15, 2009. For the Company, ASU 2009-12
was effective on October 1, 2009. ASU 2009-12 did not have a
material impact on the Company’s financial condition or results of
operations.
On
January 21, 2010, the FASB issued ASU 2010-06, Improving Disclosures About Fair
Value Measurements. The Update amends ASC
820, Fair Value Measurements
and Disclosures, to add new requirements for disclosures about transfers
into and out of Levels 1 and 2 and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurements. It also clarifies
existing fair value disclosures about the level of disaggregation and about
inputs and valuation techniques used to measure fair values. The guidance in ASU
2010-06 is effective for the first reporting period beginning after December 15,
2009. ASU 2009-05 is
not expected to not have a material impact on the Company’s financial condition
or results of operations.
Note
2 – Cash and Cash Equivalents
The
Company is required to maintain prescribed reserves with the Federal Reserve
Bank in the form of cash. Cash reserve requirements are computed by
applying prescribed percentages to various types of deposits. The Company is
required to maintain a $25,000 minimum average daily balance with the Federal
Reserve Bank for purposes of settling financial transactions and charges for
Federal Reserve Bank services. The Company is also required to maintain cash
balances or deposits with the Federal Reserve Bank sufficient to meet its
statutory reserve requirements. The average reserve requirement for the
maintenance period, which included December 31, 2009 and 2008 was $1.3 million
and $1.2 million, respectively.
Note
3 – Regulatory Capital Requirements and Restrictions
The Bank
is restricted on the amount of dividends it may pay to the
Company. It is generally limited to the net income of the current
fiscal year and that of the two previous fiscal years, less dividends already
paid during those periods. Based on this calculation, at December 31, 2009, none
of the Bank’s retained earnings were available for dividends to the Company.
However, payment of dividends may be further restricted by the Bank’s regulatory
agency if such payment would reduce the Bank’s capital ratios below required
minimums or would otherwise be considered to adversely affect the safety and
soundness of the institution.
The Bank
is subject to various regulatory capital requirements administered by federal
banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Company’s financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action (“PCA”), the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank’s
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank’s capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative
measures have been established by regulation to ensure capital adequacy and
require the Bank to maintain minimum capital amounts and ratios (set forth in
the following table). The Bank’s primary regulatory agency, the Office of Thrift
Supervision (“OTS”), requires that the Bank maintain minimum amounts and ratios
(as defined in
-
75 -
the
regulations) of tangible capital of 1.5%, core capital of 4%, and total
risk-based capital of 8%. The Bank is also subject to PCA capital requirement
regulations set forth by the Federal Deposit Insurance Corporation (“FDIC”). The
FDIC requires the Bank to maintain minimum amounts and ratios (as defined in the
regulations) of total and Tier I capital to risk-weighted
assets.
- 76 -
Following
is a summary of the Bank’s capital ratios:
Minimum
Capital Required
|
|||||||||
(dollars
in thousands)
|
Actual
|
For
Capital Adequacy
Purposes
|
To
Be Categorized as
“Well
Capitalized”
Under
PCA Provisions
|
||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||
December
31, 2009:
|
|||||||||
Tangible
capital (to total assets)
|
$17,237
|
9.70%
|
$ 2,666
|
1.50%
|
N/A
|
N/A
|
|||
Core
capital (to total assets)
|
17,237
|
9.70
|
7,110
|
4.00
|
$ 8,887
|
5.00%
|
|||
Total
risk-based capital (to risk weighted assets)
|
18,508
|
12.84
|
11,531
|
8.00
|
14,413
|
10.00
|
|||
Tier I
risk-based capital (to risk weighted assets)
|
17,237
|
11.96
|
N/A
|
N/A
|
8,648
|
6.00
|
|||
December
31, 2008:
|
|||||||||
Tangible
capital (to total assets)
|
$16,053
|
8.43%
|
$ 2,857
|
1.50%
|
N/A
|
N/A
|
|||
Core
capital (to total assets)
|
16,053
|
8.43
|
7,618
|
4.00
|
$ 9,522
|
5.00%
|
|||
Total
risk-based capital (to risk weighted assets)
|
17,724
|
11.58
|
12,241
|
8.00
|
15,302
|
10.00
|
|||
Tier I
risk-based capital (to risk weighted assets)
|
16,053
|
10.49
|
N/A
|
N/A
|
9,181
|
6.00
|
On
January 7, 2009 the Office of Thrift Supervision (“OTS”) finalized a supervisory
agreement (a memorandum of understanding or “MOU”) which was reviewed and
approved by the Board of Directors of Alaska Pacific Bank on December 19,
2008. The MOU specifically requires the Bank to submit a business
plan that sets forth a plan for maintaining Tier 1 (Core) Leverage Ratio of 8%
and a minimum Total Risk-Based Capital Ratio of 12%. As of December 31, 2009,
the Bank’s Tier-1 (Core) Leverage Ratio was 9.70% (1.70% over the minimum
required under the MOU) and its Risk-Based Capital Ratio was 12.84%, (0.84% over
the minimum required under the MOU).
Note
4 – Investment Securities Available for Sale
Amortized
cost and fair values of investment securities available for sale, including
mortgage-backed securities, are summarized as follows:
(in
thousands)
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|
December
31, 2009:
|
|||||
Mortgage-backed
securities:
|
$2,445
|
$81
|
$(12
|
) |
$2,514
|
U.S.
government agencies
|
91
|
1
|
-
|
92
|
|
Total
|
$2,536
|
$82
|
$(12
|
) |
$2,606
|
December
31, 2008:
|
|||||
Mortgage-backed
securities:
|
$3,134
|
$49
|
$(38
|
) |
$3,145
|
U.S.
government agencies
|
99
|
-
|
(1
|
) |
98
|
Total
|
$3,233
|
$49
|
$(39
|
) |
$3,243
|
-
77 -
Impaired
securities (those with unrealized losses) at December 31, 2009 are summarized as
follows:
Impaired
less than
12
months
|
Impaired
12 months
or
more
|
Total
|
||||
(in
thousands)
|
Fair Value
|
Unrealized
Losses
|
Fair Value
|
Unrealized
Losses
|
Fair Value
|
Unrealized
Losses
|
Mortgage-backed
securities
|
$12
|
$(1)
|
$571
|
$(11)
|
$583
|
$(12)
|
U.S.
government
agencies
|
-
|
-
|
-
|
-
|
-
|
-
|
Total
|
$12
|
$(1)
|
$571
|
$(11)
|
$583
|
$(12)
|
Impaired
securities (those with unrealized losses) at December 31, 2008 are summarized as
follows:
Impaired
less than
12
months
|
Impaired
12 months
or
more
|
Total
|
||||
(in
thousands)
|
Fair Value
|
Unrealized
Losses
|
Fair Value
|
Unrealized
Losses
|
Fair Value
|
Unrealized
Losses
|
Mortgage-backed
securities
|
$-
|
$-
|
$1,180
|
$(38)
|
$1,180
|
$(38)
|
U.S.
agencies and
corporations
|
-
|
-
|
98
|
(1)
|
98
|
(1)
|
Total
|
$-
|
$-
|
$1,278
|
$(39)
|
$1,278
|
$(39)
|
Eight and
thirteen securities with unrealized losses at December 31, 2009 and 2008,
respectively, were mortgage-backed or other securities issued by the U.S.
government and agencies; collectability of principal and interest is considered
to be reasonably assured. The fair values of individual securities fluctuate
significantly with interest rates and with market demand for securities with
specific structures and characteristics. Management does not consider these
unrealized losses to be other than temporary.
No
securities were designated as held to maturity at December 31, 2009 or
2008.
All
investment securities at December 31, 2009 have final contractual maturities of
more than five years. Actual maturities may vary due to prepayment of the
underlying loans.
At
December 31, 2009 and 2008, investment securities with amortized cost of $2.5
million market value of $2.6 million and $3.2 million market value of $3.2
million, respectively, were pledged to secure public funds deposited with the
Bank.
There
were no sales of securities during 2009 or 2008. The Bank does not have a
securities trading portfolio or securities held to maturity.
-
78 -
Note
5 – Loans
Loans are
summarized as follows:
(in thousands) December
31,
|
2009
|
2008
|
Real
estate:
|
||
Permanent:
|
||
One-
to four-family
|
$ 33,787
|
$ 38,875
|
Multifamily
|
1,736
|
2,575
|
Commercial
nonresidential
|
64,453
|
56,019
|
Land
|
9,697
|
13,360
|
Construction:
|
||
One-
to four-family
|
3,050
|
4,179
|
Commercial
nonresidential
|
2,637
|
5,064
|
Commercial
business
|
19,856
|
24,429
|
Consumer:
|
||
Home
equity
|
16,522
|
18,661
|
Boat
|
4,287
|
4,060
|
Automobile
|
1,269
|
998
|
Other
|
814
|
762
|
Loans
|
$158,108
|
$168,982
|
Loans
held for sale
|
$55
|
$2,586
|
Loans are
net of deferred loan fees and other discounts amounting to $567,000 and $701,000
at December 31, 2009 and 2008, respectively.
Loans
include overdrawn balances of deposit accounts of $35,000 and $36,000 at
December 31, 2009 and 2008, respectively.
Interest
income from tax-exempt loans was $35,000 and $36,000 in 2009 and 2008,
respectively.
Real
estate loans are secured primarily by properties located in Southeast Alaska.
Commercial real estate loans are generally secured by warehouse, retail, and
other improved commercial properties. Commercial business loans are generally
secured by equipment, inventory, accounts receivable, or other business
assets.
Impaired
loans are summarized as follows:
(in thousands) Year
ended December 31,
|
2009
|
2008
|
Impaired
loans at end of year
|
$5,342
|
$10,685
|
Impaired
loans at end of year for which specific valuation allowances have been
provided
|
1,922
|
10,685
|
Amount
of allowances at end of year
|
514
|
875
|
(in thousands) Year
ended December 31,
|
2009
|
2008
|
Average
investment in impaired loans
|
$11,503
|
$8,892
|
Interest
income recognized on impaired loans
|
151
|
313
|
Interest
income recognized on a cash basis on impaired loans
|
151
|
313
|
-
79 -
Included
in impaired loans were certain loans that are troubled debt restructurings and
classified as impaired. At December 31, 2009, the Company had $845,000 of loans
that were modified in troubled debt restructurings and impaired. In addition to
these amounts, the Company had troubled debt restructurings of $538,000 that
were performing in accordance with their modified loan terms and were not
classified as impaired.
Nonaccrual
loans were $2.9 million and $6.1 million at December 31, 2009 and 2008,
respectively. As of December 31, 2009 and 2008, approximately $789,000 and
$665,000, respectively, of interest would have been recorded if these loans had
been current according to their original terms and had been outstanding
throughout the year. There were no loans greater than 90 days past due that were
accruing interest at December 31, 2009 and 2008, respectively.
Mortgage Loan
Servicing: The Bank services residential and other real estate
loans for the Alaska Housing Finance Corporation (“AHFC”), U.S. Government
agencies, and institutional and private investors totaling $119.6 million and
$101.3 million, as of December 31, 2009 and 2008, respectively. These loans
are the assets of the investors and, accordingly, are not included in the
accompanying balance sheets. Related servicing income, net of amortization of
mortgage servicing rights, amounted to $186,000 and $161,000 for 2009 and 2008,
respectively.
The
amortized cost of mortgage servicing rights was $813,000 and $646,000 at
December 31, 2009 and 2008, respectively. The amount of servicing assets
recognized during 2009 was $276,000 and amortization was $109,000 for the year.
The amount of servicing assets recognized during 2008 was $72,000 and
amortization was $101,000 for the year. Management has determined that a
valuation allowance for impairment was not required at December 31, 2009 or
2008.
Related Party
Loans: In the ordinary course of business, the Bank makes
loans to executive officers and directors of the Bank and to their affiliates.
These loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions. The
aggregate dollar amount of these loans was $3.2 million at December 31, 2009.
During the years ended December 31, 2009 and 2008, new loans of this
type were $388,000 and $196,000, respectively, and repayments were $359,000 and
$162,000, respectively.
Repossessed
Assets: The Company held repossessed assets of $2.6 million
and $408,000 at December 31, 2009 and 2008, respectively. During 2009, the
Company received $815,000 in proceeds from the sale of repossessed assets and
recognized $503,000 net loss on sales. During 2008, the Company received
$334,000 in proceeds from the sale of repossessed assets and did not recognize
any net gain on sales. The Company also incurred $235,000 and $116,000 in
operating expenses related to repossessed assets in 2009 and 2008,
respectively.
Note
6 – Allowance for Loan Losses
Following
is an analysis of the changes in the allowance for loan losses:
(in thousands) Year
ended December 31,
|
2009
|
2008
|
||
Balance
at beginning of year
|
$2,688
|
$1,783
|
||
Provision
for loan losses
|
2,947
|
5,034
|
||
Loans
charged off
|
(3,875
|
) |
(4,182
|
) |
Recoveries
|
26
|
53
|
||
Balance
at end of year
|
$1,786
|
$2,688
|
-
80 -
Note
7 – Premises and Equipment
Following
is a summary of premises and equipment:
(in thousands) December
31,
|
2009
|
2008
|
Land
|
$ 424
|
$ 424
|
Buildings
|
2,254
|
2,254
|
Leasehold
improvements
|
3,670
|
3,667
|
Furniture,
fixtures and equipment
|
3,021
|
2,998
|
9,369
|
9,343
|
|
Less
accumulated depreciation and amortization
|
(6,553)
|
(6,221)
|
$2,816
|
$3,122
|
Depreciation
and amortization expense for the years ended December 31, 2009 and 2008 amounted
to $335,000 and $462,000, respectively.
Note
8 – Deposits
Certificates
of deposit of $100,000 and more at December 31, 2009 and 2008 were $12.9
million and $23.7 million, respectively.
The
scheduled maturities of certificates of deposit as of December 31, 2009, are as
follows:
(in thousands) Year
ending December 31,
|
||
|
2010 |
$23,452
|
|
2011 |
11,371
|
|
2012 |
2,443
|
|
2013 |
240
|
|
2014 and thereafter |
2,669
|
$40,175
|
Interest
expense on deposits consists of the following:
(in thousands) Year
ended December 31,
|
2009
|
2008
|
Interest-bearing
demand
|
$
54
|
$
93
|
Money
market
|
218
|
545
|
Savings
|
47
|
64
|
Certificates
of deposit
|
1,050
|
1,883
|
|
$1,369
|
$2,585
|
The
weighted averages interest rates paid on deposits are as follows:
Year
ended December 31,
|
2009
|
2008
|
Interest-bearing
demand
|
0.17%
|
0.32%
|
Money
market
|
0.50
|
1.84
|
Savings
|
0.23
|
0.38
|
Certificates
of deposit
|
2.36
|
3.51
|
Deposits
from the Company’s executive officers, directors, and their related companies
were $2.9 million and $2.2 at December 31, 2009 and 2008,
respectively.
-
81 -
Note
9 – Federal Home Loan Bank Advances
FHLB
advances consist of the following:
(dollars in thousands)
December 31,
|
2009
|
2008
|
Overnight
advances, 0.64%
|
$4,800
|
$ -
|
Putable
advance, maturing in 2009, putable earlier
at discretion of FHLB, 6.13%
|
-
|
5,000
|
Seven-year
amortizing advance, final maturity in
2010, 3.62%
|
34
|
320
|
Four-year
advance, maturing in 2010, 5.24%
|
1,500
|
1,500
|
Five-year
advance, maturing in 2011, 5.26%
|
2,000
|
2,000
|
Seven-year
advance, maturing in 2013, 5.30%
|
1,500
|
1,500
|
$9,834
|
$10,320
|
FHLB
advances at December 31, 2009 with final maturities of more than one year have
scheduled maturities as follows:
(in
thousands)
Year
ending December 31,
|
|
2010
|
$1,534
|
2011
|
2,000
|
2012
|
-
|
2013
|
1,500
|
Total
|
$5,034
|
The
average balance of FHLB advances outstanding during 2009 and 2008 was $12.2
million and $14.6 million, respectively. The maximum amount of
advances outstanding at any month end during 2009 and 2008 was $13.4 million and
$23.7 million, respectively. Under a blanket pledge agreement, all
funds on deposit at the FHLB, as well as all unencumbered qualifying loans and
investment securities, are available to collateralize FHLB
advances.
The Bank
has available a line of credit with the FHLB generally equal to 25% of the
Bank’s total assets, or approximately $44.6 million at December 31, 2009.
The line is secured by a blanket pledge of the Company’s assets. At December 31,
2009, there was $9.8 million outstanding on the line of credit.
Note
10 – Stock-Based Compensation
Stock Option
Plan: In previous years, the Board of Directors, upon
stockholder approval, approved two stock option plans (the “Plans”); one for key
employees and one for directors of the Company. The Incentive and
Director Stock Option Plan permits the grant of stock options to authorized key
employees for up to 65,574 shares of common stock plus (i) the number of shares
repurchased by the Company in the open market or otherwise with an aggregate
price no greater than the cash proceeds received by the Company from the
exercise of options granted under the Plan; plus (ii) any shares surrendered to
the Company in payment of the exercise price of options granted under the Plan.
The Committee of the Plans shall determine the time or times at which an option
may be exercised. Previous option awards generally vest based on five years of
continuous service. The term of each option award shall be no greater
than 10 years in the case of an Incentive Stock Option or 15 years in the case
of a Non-Qualified Stock Option. Option awards under the Plans shall not be less
than 100% of the Market Value (as defined in the Plans) of a share on the date
of grant of such option. Stock options granted are eligible for adjustment in
the event that the outstanding common stock of the Company changes as a result
of a stock dividend, stock split, or other changes to existing stock. The 2000
Stock Option Plan and the 2003 Stock Option Plan will terminate on July 2, 2010
and May 22, 2013, respectively.
In 2000,
the Company’s shareholders approved the 2000 Stock Option Plan, providing for
the granting of options for up to 65,542 shares. Options for 65,542 shares were
granted in 2000, with an exercise price equal to the market price of the
-
82 -
stock at
the date of grant, or $9.75. Options on 3,400 shares were granted in 2003,
replacing forfeitures, with an exercise price of $17.50.
In 2003,
the Company’s shareholders approved the 2003 Stock Option Plan, providing for
the granting of options for up to 32,000 shares. Options for 22,600 shares were
granted in 2007, with an exercise price equal to the market price of the stock
at the date of grant, or $25.50. Options become exercisable in five equal annual
installments commencing one year after the date of grant, and unexercised
options expire ten years after the date of grant.
The
expected volatility is based on historical volatility. The risk-free interest
rates for periods within the contractual life of the awards are based on the
U.S. Treasury yield curve in effect at the time of the grant. The expected life
is based on historical exercise experience. The dividend yield assumption is
based on the Company’s history and expectation of dividend payouts.
Following
is a summary of the changes in stock options:
(in
thousands)
Year
ended December 31,
|
2009
|
2008
|
||
Number
of
Options
|
Weighted
Average
Exercise
Price
|
Number
of
Options
|
Weighted
Average
Exercise
Price
|
|
Stock
options outstanding at
beginning of year
|
54,188
|
$16.08
|
57,665
|
$16.25
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
(1,477)
|
$9.75
|
Forfeited
|
-
|
-
|
(2,000)
|
$25.50
|
Stock
options outstanding at
end of year
|
54,188
|
$16.08
|
54,188
|
$16.08
|
Options
exercisable at end of
year
|
45,288
|
$14.23
|
41,268
|
$13.13
|
There
were no options exercised during the year ended December 31, 2009. Options
exercised during the year ended December 31, 2008 had an aggregate intrinsic
value of $17,000. Stock options outstanding at December 31, 2009 are summarized
as follows:
Weighted-
Average
Exercise
Price
|
Number
Outstanding
at
End
of Year
|
Weighted-Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
Exercisable
|
|
Number
of
Shares
|
Aggregate
Intrinsic
Value
|
||||
$ 9.75
|
31,188
|
0.6
|
$
-
|
31,188
|
$
-
|
17.50
25.50
|
2,400
20,600
|
3.1
7.7
|
-
-
|
2,400
11,700
|
-
-
|
$16.08
|
54,188
|
3.4
|
$
-
|
45,288
|
$
-
|
ASC 718
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the consolidated income statement based on
their fair values. Compensation cost is recorded as if each vesting portion of
the award is a separate award. The adoption of this standard, as of January 1,
2006, using the modified prospective method, resulted in $27,000 and $26,000 of
compensation expense for the years ended December 31, 2009 and 2008, related to
the unvested portion of options granted in prior years. Net of taxes for the
years ended December 31, 2009 and 2008, respectively, this reduced net income by
$11,000 and $10,000, respectively. The basic and diluted earnings per
-
83 -
share
basis effect in December 31, 2009 and 2008, was zero. There was $51,000 in
unamortized stock-based compensation expense at December 31, 2009 with a
weighted average expense period of 2.3 years.
ASC 718
requires the recognition of stock-based compensation for the number of awards
that are expected to vest. Recognized stock compensation expense was not reduced
by estimated forfeitures because management believes the future effect to be
minimal. Estimated forfeitures will be continually evaluated in subsequent
periods and may change based on new facts and circumstances.
Note
11 – Retirement Plans
The Bank
has a salary deferral 401(k) plan. Employees who are at least 18 years of age
and have completed three months of service are eligible to participate in the
plan. Employees may contribute on a pretax basis a portion of their annual
salary up to a maximum limit under the law. Beginning in 2006, the Bank matches
100% of employee contributions of up to 4% of compensation. For the years ended
December 31, 2009 and 2008, the Bank contributed $111,000 and $109,000,
respectively, to the plan, including administrative expenses.
The
Company has an Employee Stock Ownership Plan (“ESOP”) that was established in
connection with the mutual to stock conversion. Eight percent of the shares
issued in the conversion, or 52,433 shares, were purchased by the ESOP in
exchange for a note payable to the Company. The shares are allocated to
employees over a ten-year period in proportion to the principal and interest
paid on the note at the end of each year. All employees who have completed one
year’s service automatically participate in the plan, and each year’s allocation
is distributed in proportion to total compensation of employees. Employees are
vested in the plan over a seven-year period. Dividends paid on allocated shares
are credited to employee’s accounts, but dividends on unallocated shares are
used to reduce the expense of the plan. At December 31, 2009 and 2008, 52,433
shares were allocated to employees. The Company’s expense for the plan,
including administrative expenses, amounted to $13,000 and $81,000 for the years
ended December 31, 2009 and 2008, respectively.
Note
12 – Operating Leases
The Bank
leases certain of its premises and equipment under noncancelable operating
leases with terms in excess of one year. Future minimum lease payments under
these leases at December 31, 2009, are summarized as follows:
(in thousands) Year
ending December 31,
|
||
|
2010 |
$ 479
|
|
2011 |
449
|
|
2012 |
449
|
|
2013 |
377
|
|
2014 |
271
|
|
2015 and thereafter |
1,107
|
$3,132
|
Rent
expense was $498,000 and $501,000 for the years ended December 31, 2009 and
2008, respectively. Rental income on owned premises amounted to $19,000 and
$21,000 for the years ended December 31, 2009 and 2008,
respectively.
- 84
-
Note
13 – Income Tax
The
expense (benefit) for income tax consisted of the following:
(in thousands) Year
ended December 31,
|
2009
|
2008
|
Current
tax expense (benefit):
|
||
Federal
|
$(397)
|
$(758)
|
State
|
(70)
|
(134)
|
Total
current
|
(467)
|
(892)
|
Deferred
tax expense (benefit):
|
||
Federal
|
(357)
|
(436)
|
State
|
(63)
|
(77)
|
Total
deferred
|
(420)
|
(513)
|
Increase
in deferred tax valuation allowance
|
905
|
|
Expense
(Benefit) for income tax
|
$18
|
$(1,405)
|
A
reconciliation of taxes computed at federal statutory corporate tax rates (34%
in 2009 and 2008) to tax expense, as shown in the accompanying statements of
operations and changes in shareholders’ equity and comprehensive income (loss),
is as follows:
(in thousands) Year
ended December 31,
|
2009
|
2008
|
Income
tax expense (benefit) at statutory rate
|
$(739)
|
$(1,266)
|
Income
tax effect of:
|
||
State
income tax
|
(134)
|
(223)
|
Tax-exempt
interest
|
(12)
|
(14)
|
Increase
in deferred tax valuation allowance
|
905
|
-
|
Other
|
(2)
|
98
|
Expense
(Benefit) for income tax
|
$18
|
$(1,405)
|
Effective
tax rate
|
(1%)
|
38%
|
-
85 -
Deferred
federal income tax is provided for the temporary differences between the tax
basis and financial statement carrying amounts of assets and liabilities.
Components of the Company’s net deferred tax assets consisted of the
following:
(in thousands) December
31,
|
2009
|
2008
|
||
Deferred
tax assets:
|
|
|
||
Bad
debt reserves
|
$929
|
$1,227
|
||
Nonaccrual
loan interest
|
308
|
252
|
||
Premises
and equipment
|
128
|
-
|
||
Accrued
vacation
|
68
|
68
|
||
Nondeductible
REO write-down
|
21
|
-
|
||
Net
operating loss carry-forward
|
524
|
|||
Other
|
29
|
28
|
||
Gross deferred tax
assets
|
2,007
|
1,575
|
||
Deferred
tax liabilities:
|
||||
Deferred
loan fees, net
|
(48
|
) |
(42
|
) |
FHLB
stock dividends
|
(610
|
) |
(610
|
) |
Prepaids
|
(94
|
) |
-
|
|
Premises
and equipment
|
-
|
(38
|
) | |
Other
|
-
|
(50
|
) | |
Gross deferred tax
liabilities
|
(752
|
) |
(740
|
) |
Net
deferred tax assets
|
1,255
|
835
|
||
Valuation
allowance for deferred tax asset
|
(905
|
) |
-
|
|
Net
deferred tax assets after valuation allowance
|
$350
|
$835
|
In August
1996, the Small Business Job Protection Act of 1996 (“the Act”) was signed into
law. Under the Act, the percentage of taxable income method of accounting for
tax basis bad debts is no longer available effective for the years ending after
December 31, 1995. As a result, the Bank is required to use the experience
method of accounting for tax basis bad debts for 1998 and later years. In
addition, the Act requires the recapture of post-1987 (the base year) additions
to the tax bad debt reserves made pursuant to the percentage of taxable income
method. The Bank is not subject to this recapture in 2009 or 2008, as its tax
bad debt reserves do not exceed its base year reserve. As a result of the bad
debt deductions, shareholders’ equity as of December 31, 2009, includes
accumulated earnings of approximately $1.8 million for which federal income tax
has not been provided. If, in the future, this portion of retained earnings is
used for any purpose other than to absorb losses on loans or on property
acquired through foreclosure, federal income tax may be imposed at
then-applicable rates.
On
January 1, 2007, the Bank adopted FASB ASC 740, Income Taxes. ASC 740
provides guidance on derecognition, classification, interest and penalties, and
accounting in interim periods; and requires expanded disclosure with respect to
the Company’s methodology for estimating and reporting uncertain tax
positions.
Currently,
the Company is subject to U.S. federal income tax and income tax in the
state of Alaska. The federal and state
income
taxes paid for the calendar years ending December 31, 2009, 2008, 2007, and 2006
may remain subject to examination by the applicable authorities.
The Company recognizes interest and penalties related to unrecognized
tax
benefits
as income tax expense in the Statements of operations. During the years ended
December 31, 2009 and 2008, the
Company
recognized no interest and penalties.
The Company
believes that it has appropriate support for the income tax positions taken and
to be taken on its tax returns and that its accruals for tax liabilities are
adequate for the open years based on an assessment of many factors, including
past experience and interpretations of tax law. The Company had no
unrecognized tax benefits which would require an adjustment to the January 1,
2009, beginning balance of retained earnings. The Company had no
unrecognized tax benefits at December 31, 2009 or 2008.
-
86 -
Note
14 – Commitments and Contingencies
Commitments: Commitments
to extend credit, including lines of credit, totaled $11.4 million and $10.5
million at December 31, 2009 and 2008, respectively. Commitments to extend
credit, generally at a variable interest rate, are arrangements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee by the customer. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates creditworthiness for commitments on an individual customer
basis.
There are
no commitments to lend additional funds to debtors loans whose terms have been
modified in troubled debt restructurings.
Undisbursed
loan proceeds, primarily for real estate construction loans, totaled $3.6
million and $1.8 million at December 31, 2009 and 2008, respectively. These
amounts are excluded from the balance of loans at year end.
Concentrations: More
than 75% of all loans in the Bank’s portfolio are secured by real estate located
in communities of Southeast Alaska.
Note
15 – Preferred Stock
On
February 6, 2009, as part of the Troubled Asset Relief Program (“TARP”) Capital
Purchase Program, the Company entered into a Letter Agreement and Securities
Purchase Agreement (collectively, the “Purchase Agreement”) with the United
States Department of the Treasury (“Treasury”), pursuant to which the Company
sold (i) 4,781 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred
Stock, Series A (the “Series A Preferred Stock”) and (ii) a warrant (the
“Warrant”) to purchase 175,772 shares of the Company’s common stock, par value
$0.01 per share (the “Common Stock”), for an aggregate issuance price of $4.8
million in cash.
The
Series A Preferred Stock qualifies as Tier 1 capital and is entitled to
cumulative dividends at a rate of 5% per annum for the first five years, and 9%
per annum thereafter. The Series A Preferred Stock may be redeemed by the
Company after three years. Prior to the end of three years, the Series A
Preferred Stock may be redeemed by the Company only with proceeds from the sale
of qualifying equity securities of the Company (a “Qualified Equity Offering”).
The restrictions on redemption are set forth in the Certificate of Designation
attached to the Statement of Establishment and Designation of Series of
Preferred Stock, which amends the Company’s Articles of Incorporation (the
“Certificate of Designation”).
The
Warrant has a 10-year term and is immediately exercisable upon its issuance,
with an exercise price, subject to anti-dilution adjustments, equal to $4.08 per
share of the Common Stock. Treasury has agreed not to exercise voting power with
respect to any shares of Common Stock issued upon exercise of the Warrant that
it holds.
Pursuant
to the terms of the Purchase Agreement, the ability of the Company to declare or
pay dividends or distributions on, or purchase, redeem or otherwise acquire for
consideration, shares of its Junior Stock (as defined below) and Parity Stock
(as defined below) is be subject to restrictions, including a restriction
against increasing dividends from the last quarterly cash dividend per share
($0.10) declared on the Common Stock prior to February 6, 2009. The redemption,
purchase or other acquisition of trust preferred securities of the Company or
its affiliates also is restricted. These restrictions will terminate on the
earlier of (a) the third anniversary of the date of issuance of the Series A
Preferred Stock, (b) the date on which the Series A Preferred Stock has been
redeemed in whole, and (c) the date Treasury has transferred all of the Series A
Preferred Stock to third parties.
In
addition, pursuant to the Certificate of Designation, the ability of the Company
to declare or pay dividends or distributions on, or repurchase, redeem or
otherwise acquire for consideration, shares of its Junior Stock and Parity Stock
will be subject to restrictions in the event that the Company fails to declare
and pay full dividends (or declare and set aside a sum sufficient for payment
thereof) on its Series A Preferred Stock.
-
87 -
“Junior
Stock” means the Common Stock and any other class or series of stock of the
Company the terms of which expressly provide that it ranks junior to the Series
A Preferred Stock as to dividend rights and/or rights on liquidation,
dissolution or winding up of the Company. “Parity Stock” means any class or
series of stock of the Company the terms of which do not expressly provide that
such class or series will rank senior or junior to the Series A Preferred Stock
as to dividend rights and/or rights on liquidation, dissolution or winding up of
the Company (in each case without regard to whether dividends accrue
cumulatively or non-cumulatively).
In
accordance with the relevant accounting pronouncements, the Company recorded the
Series A Preferred Stock and Warrants within Stockholders’ Equity on the
Consolidated Balance Sheets. The Series A Preferred Stock and Warrants were
initially recognized based on their relative fair values at the date of
issuance. As a result, the Series A Preferred Stock’s carrying value is at a
discount to the liquidation value or stated value. In accordance with the SEC’s
Staff Accounting Bulletin No. 68, Increasing Rate Preferred Stock, the discount
is considered an unstated dividend cost that is amortized over the period
preceding commencement of the perpetual dividend using the effective interest
method, by charging the imputed dividend cost against retained earnings and
increasing the carrying amount of the Series A Preferred Stock by a
corresponding amount. The discount is therefore being amortized over five years
using a 6.71% effective interest rate. The total stated dividends (whether or
not declared) and unstated dividend cost combined represents a period’s total
preferred stock dividend, which is deducted from net income (loss) to arrive at
net income (loss) available to common shareholders on the Consolidated
Statements of Operations.
The
Series A Preferred Stock and Warrants were initially recognized based on their
relative fair values at the date of issuance in accordance with Accounting
Principles Board (“APB”) Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants. As a result, the value allocated to
the Warrant is different than the estimated fair value of the Warrant as of the
grant date. The following assumptions were used to determine the fair value of
the Warrant as of the grant date:
Dividend
yield 1.50%
Expected
life (years) 10.0
Expected
volatility 37%
Risk-free
rate 3.05%
Fair
value per warrant at grant date $ 4.15
Note
16 – Earnings (Loss) per Share
Basic
earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by
the weighted-average number of common shares outstanding during the period less
treasury stock, unvested stock awards under the Management Recognition Plan
(“unvested stock awards”), and unallocated and not yet committed to be released
Employee Stock Ownership Plan shares (“unearned ESOP shares”). Diluted EPS is
calculated by dividing net income (loss) by the weighted-average number of
common shares used to compute basic EPS plus the incremental amount of potential
common stock from unvested stock awards and stock options, determined by the
treasury stock method. The following table shows the calculation of basic and
diluted EPS.
- 88 -
(in thousands)
December 31,
|
2009
|
2008
|
|
Net
loss
|
$ (2,191)
|
$ (2,318)
|
|
Preferred
stock dividend accrual
|
(216)
|
-
|
|
Preferred
stock discount accretion
|
(55)
|
-
|
|
Net
loss available to common shareholders
|
$ (2,462)
|
$ (2,318)
|
|
Average
shares issued
|
655,415
|
655,415
|
|
Less
treasury stock
|
(929)
|
(1,114)
|
|
Less
unallocated ESOP shares
|
-
|
-
|
|
Basic
weighted average shares outstanding
|
654,486
|
654,301
|
|
Net
incremental shares
|
-
|
-
|
|
Weighted
incremental shares
|
654,486
|
654,301
|
|
Loss
per common share
|
|||
Basic
|
$ (3.76)
|
$ (3.54)
|
|
Diluted
|
$ (3.76)
|
$ (3.54)
|
Because
the Company recorded a net loss for the year ended December 31, 2009 and 2008,
all potentially dilutive shares were anti-dilutive and basic and diluted loss
per share were the same.
Note
17 – Fair Value of Financial Instruments
The
following table sets forth the estimated fair values of the Company’s financial
instruments as of December 31, 2009 and 2008, whether or not recognized or
recorded at fair value in the Consolidated Balance Sheet.
(in thousands) December
31,
|
2009
|
2008
|
||
Carrying
Amount
|
Estimated
Fair
Value
|
Carrying
Amount
|
Estimated
Fair
Value
|
|
Financial
Assets
|
||||
Cash
and cash equivalents
|
$ 6,942
|
$ 6,942
|
$ 9,402
|
$ 9,402
|
Investment
securities available for sale
|
2,606
|
2,606
|
3,243
|
3,243
|
FHLB
stock
|
1,784
|
1,784
|
1,784
|
1,784
|
Loans,
including held for sale
|
158,163
|
166,184
|
171,568
|
179,691
|
Accrued
interest receivable
|
698
|
698
|
822
|
822
|
Mortgage
servicing rights
|
813
|
1,234
|
646
|
804
|
Financial
Liabilities
|
||||
Demand
and savings deposits
|
108,042
|
108,042
|
107,357
|
107,357
|
Certificates
of deposit
|
40,175
|
40,230
|
55,814
|
48,166
|
FHLB
Advances
|
9,834
|
10,082
|
10,320
|
10,915
|
Accrued
interest payable
|
307
|
307
|
449
|
449
|
-
89 -
The
following table presents information about the Company’s assets and liabilities
measured at fair value on a recurring basis at December 31, 2009.
Fair
Value Measurements Using
|
||||||||||||||||
Fair
Value
|
Quoted
Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
Significant
Other
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
December
31, 2009:
|
||||||||||||||||
Recurring:
|
||||||||||||||||
Available
for sale securities:
|
||||||||||||||||
Mortgage
backed securities
|
$
|
2,514
|
$
|
–
|
$
|
2,514
|
$
|
–
|
||||||||
U.S.
government agencies
|
92
|
92
|
||||||||||||||
Mortgage
servicing rights
|
1,234
|
–
|
1,234
|
–
|
||||||||||||
Non-recurring:
|
||||||||||||||||
Impaired
loans
|
1,408
|
–
|
–
|
1,408
|
||||||||||||
Repossessed
assets
|
2,598
|
–
|
2,598
|
–
|
||||||||||||
December
31, 2008:
|
||||||||||||||||
Recurring:
|
||||||||||||||||
Available
for sale securities:
|
||||||||||||||||
Mortgage
backed securities
|
$
|
3,145
|
$
|
–
|
$
|
3,145
|
$
|
–
|
||||||||
U.S.
government agencies
|
98
|
98
|
||||||||||||||
Mortgage
servicing rights
|
804
|
–
|
804
|
–
|
||||||||||||
Non-recurring:
|
||||||||||||||||
Impaired
loans
|
3,033
|
–
|
–
|
3,033
|
||||||||||||
Repossessed
assets
|
408
|
408
|
The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument:
Cash and cash
equivalents: The fair value of cash and cash equivalents and
accrued interest receivable is estimated to be equal to the carrying value, due
to their short-term nature.
Securities: The
fair value of investment securities is based upon estimated market prices
obtained from independent safekeeping agents. Securities available-for-sale are
recorded at fair value on a recurring basis. Fair values are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are estimated based on quoted market prices of comparable instruments
with similar characteristics or discounted cash flows. Changes in fair market
value are recorded in other comprehensive income, as the securities are
available for sale.
FHLB stock: The
fair value of FHLB stock is considered to be equal to its carrying value, since
it may be redeemed at that value.
Loans: The fair
value of loans is estimated using present value methods which discount the
estimated cash flows, including prepayments as well as contractual principal and
interest, using current interest rates appropriate for the type and maturity of
the loans.
-
90 -
Deposits: For
demand and savings deposits and accrued interest payable, fair value is
considered to be carrying value. The fair values of fixed-rate certificates of
deposit and FHLB advances are estimated using present value methods and current
offering rates for such deposits and advances.
Mortgage servicing
rights: Mortgage servicing rights (“MSR”) are measured at fair
value on a recurring basis. These assets are classified as Level 2 as
quoted prices are not available and the Company uses a model derived valuation
methodology to estimate the fair value of MSR obtained from an independent
broker on an annual basis. The model pools loans into buckets of
homogeneous characteristics and performs a present value analysis of the future
cash flows. The buckets are created by individual loan characteristics such as
note rate, product type, and the remittance schedule. Current market rates are
utilized for discounting the future cash flows. Significant assumptions used in
the valuation of MSR include discount rates, projected prepayment speeds, escrow
calculations, ancillary income, delinquencies and option adjusted spreads. These
assets are recorded at amortized cost.
Impaired
loans: Impaired loans are measured at fair value on a
non-recurring basis. These assets are classified as Level 3 where significant
value drivers are unobservable. The fair value of impaired loans are determined
using the fair value of each loan’s collateral for collateral-dependent loans as
determined, when possible, by an appraisal of the property, less estimated costs
related to liquidation of the collateral. The appraisal amount may also be
adjusted for current market conditions. Impaired loans were $5.3 million and
$10.7 million at December 31, 2009 and 2008, respectively, with estimated
reserves for impairment of $514,000 and $875,000, respectively.
Note
18 – Parent Company Financial Information
Summarized
financial information for Alaska Pacific Bancshares, Inc. (parent company only)
is presented below:
Parent
Company Condensed Balance Sheet
(in thousands) December
31,
|
2009
|
2008
|
Assets
|
||
Cash
|
$ 1,431
|
$ 224
|
Investment
in subsidiary
|
17,280
|
16,059
|
Total
Assets
|
$18,711
|
$16,283
|
Liabilities
and Shareholders’ Equity
|
||
Other
liabilities
|
$ 31
|
$ -
|
Shareholders’
equity
|
18,680
|
16,283
|
Total
Liabilities and Shareholders’ Equity
|
$18,711
|
$16,283
|
Parent
Company Condensed Income Statement
(in thousands) Year
ended December 31,
|
2009
|
2008
|
Deficit
in earnings of subsidiary
|
$(2,043)
|
$(2,174)
|
Total
loss
|
(2,043)
|
(2,174)
|
Operating
expenses, net
|
148
|
144
|
Net
loss
|
$(2,191)
|
$(2,318)
|
-
91 -
Parent
Company Condensed Statement of Cash Flows
(in thousands) Year
ended December 31,
|
2009
|
2008
|
||
Cash
flows from operating activities:
|
||||
Net
loss
|
$(2,191
|
) |
$(2,318
|
) |
Adjustments
to reconcile net loss to net cash used in
operating activities:
|
||||
Deficit
in earnings of subsidiary
|
2,043
|
2,174
|
||
Net
cash used in operating activities
|
(148
|
) |
(144
|
) |
Cash
flows from investing activities:
|
||||
Distributions
received from subsidiary
|
-
|
252
|
||
Investment
in subsidiary
|
(3,200
|
) |
-
|
|
Net
cash provided by (used in) investing activities
|
(3,200
|
) |
252
|
|
Cash
flows from financing activities:
|
||||
Proceeds
from issuance of preferred stock and common
stock warrants
|
4,781
|
-
|
||
Stock
issuance costs paid
|
(41
|
) |
-
|
|
Issuance
of common stock
|
-
|
15
|
||
Cash
dividends paid on preferred stock
|
(185
|
) |
-
|
|
Cash
dividends paid on common stock
|
-
|
(196
|
) | |
Net
cash provided by (used in) financing activities
|
4,555
|
(181
|
) | |
Net
increase (decrease) in cash
|
1,207
|
(73
|
) | |
Cash
at beginning of year
|
224
|
297
|
||
Cash
at end of year
|
$1,431
|
$224
|
-
92 -
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ALASKA
PACIFIC BANCSHARES, INC.
|
|
Date:
March 31, 2010
|
/s/
Craig E. Dahl
|
Craig
E. Dahl
|
|
President
and Chief Executive Officer
|
|
(Duly
Authorized Representative)
|
-
93 -
Exhibit
Index
Exhibit
No. Description
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|