TFSL 12-31-2013 MASTER 10Q
Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2013
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from              to             
Commission File Number 001-33390
__________________________
TFS FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
__________________________
United States of America
 
52-2054948
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
7007 Broadway Avenue
Cleveland, Ohio
 
44105
(Address of Principal Executive Offices)
 
(Zip Code)
(216) 441-6000
Registrant’s telephone number, including area code:
Not Applicable
(Former name or former address, if changed since last report)
__________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý
 
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
(do not check if a smaller reporting company)
  
Smaller Reporting Company
 
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý.
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of the latest practicable date.
As of February 3, 2014 there were 307,148,024 shares of the Registrant’s common stock, par value $0.01 per share, outstanding, of which 227,119,132 shares, or 73.9% of the Registrant’s common stock, were held by Third Federal Savings and Loan Association of Cleveland, MHC, the Registrant’s mutual holding company.
 

Table of Contents


TFS Financial Corporation
INDEX
 
 
Page
 
 
 
 
 
 
 
PART l – FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended December 31, 2013 and 2012
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 


2
Table of Contents


GLOSSARY OF TERMS
TFS Financial Corporation provides the following list of acronyms as a tool for the reader. The acronyms identified below are used in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements and in the Notes to Consolidated Financial Statements.
AOCI:  Accumulated Other Comprehensive Income
GAAP:  Generally Accepted Accounting Principles
ARM: Adjustable Rate Mortgage
GVA:  General Valuation Allowances
ASC: Accounting Standards Codification
HARP:  Home Affordable Refinance Program
ASU: Accounting Standards Update
High LTV: High loan-to-value
AVM:  Automated Valuation Model
HPI:  Home Price Index
Association: Third Federal Savings and Loan
IRR:  Interest Rate Risk
Association of Cleveland
IRS:  Internal Revenue Service
BAAS:  OCC Bank Accounting Advisory Series
IVA:  Individual Valuation Allowance
CDs:  Certificates of Deposit
LIP:  Loans-in-Process
CFPB:  Consumer Financial Protection Bureau
MGIC:  Mortgage Guaranty Insurance Corporation
CLTV:  Combined Loan-to-Value
MOU:  Memorandum of Understanding
Company: TFS Financial Corporation and its
MVA:  Market Valuation Allowances
subsidiaries
NOW:  Negotiable Order of Withdrawal
DFA: Dodd-Frank Wall Street Reform and Consumer
OCC:  Office of the Comptroller of the Currency
Protection Act of 2010
OCI:  Other Comprehensive Income
DIF:  Depository Insurance Fund
OTS:  Office of Thrift Supervision
EaR:  Earnings at Risk
PMI:  Private Mortgage Insurance
ESOP:  Third Federal Employee (Associate) Stock
PMIC:  Private Mortgage Insurance Co.
      Ownership Plan
QTL:  Qualified Thrift Lender
EVE:  Economic Value of Equity
REMICs:  Real Estate Mortgage Investment Conduits
FASB:  Financial Accounting Standards Board
REIT:  Real Estate Investment Trust
FDIC:  Federal Deposit Insurance Corporation
SEC:  United States Securities and Exchange
FHFA:  Federal Housing Finance Agency
Commission
FHLB:  Federal Home Loan Bank
SVA:  Specific Valuation Allowances
FNMA:  Federal National Mortgage Association
TDR:  Troubled Debt Restructuring
FRB-Cleveland: Federal Reserve Bank of Cleveland
Third Federal Savings, MHC: Third Federal Savings
FRS:  Board of Governors of the Federal Reserve System
and Loan Association of Cleveland, MHC
 
 




3
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Item 1. Financial Statements
TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
(In thousands, except share data)
 
December 31,
2013
 
September 30,
2013
ASSETS
 
 
 
Cash and due from banks
$
30,843

 
$
34,694

Other interest-earning cash equivalents
286,067

 
251,302

Cash and cash equivalents
316,910

 
285,996

Investment securities:
 
 
 
Available for sale (amortized cost $493,802 and $480,664, respectively)
487,519

 
477,376

Mortgage loans held for sale, at lower of cost or market ($3,369 measured at fair value, September 30, 2013)
1,497

 
4,179

Loans held for investment, net:
 
 
 
Mortgage loans
10,250,656

 
10,185,674

Other loans
3,980

 
4,100

Deferred loan fees, net
(11,454
)
 
(13,171
)
Allowance for loan losses
(85,282
)
 
(92,537
)
Loans, net
10,157,900

 
10,084,066

Mortgage loan servicing assets, net
13,391

 
14,074

Federal Home Loan Bank stock, at cost
36,899

 
35,620

Real estate owned
21,853

 
22,666

Premises, equipment, and software, net
58,198

 
58,517

Accrued interest receivable
31,331

 
31,489

Bank owned life insurance contracts
185,326

 
183,724

Other assets
70,623

 
71,639

TOTAL ASSETS
$
11,381,447

 
$
11,269,346

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits
$
8,314,232

 
$
8,464,499

Borrowed funds
986,022

 
745,117

Borrowers’ advances for insurance and taxes
68,882

 
71,388

Principal, interest, and related escrow owed on loans serviced
59,978

 
75,745

Accrued expenses and other liabilities
89,893

 
41,120

Total liabilities
9,519,007

 
9,397,869

Commitments and contingent liabilities


 


Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding
—

 
—

Common stock, $0.01 par value, 700,000,000 shares authorized; 332,318,750 shares issued; 307,128,353 and 309,230,591 outstanding at December 31, 2013 and September 30, 2013, respectively
3,323

 
3,323

Paid-in capital
1,697,701

 
1,696,370

Treasury stock, at cost; 25,190,397 and 23,088,159 shares at December 31, 2013 and September 30, 2013, respectively
(303,596
)
 
(278,215
)
Unallocated ESOP shares
(69,334
)
 
(70,418
)
Retained earnings—substantially restricted
544,849

 
529,021

Accumulated other comprehensive loss
(10,503
)
 
(8,604
)
Total shareholders’ equity
1,862,440

 
1,871,477

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
11,381,447

 
$
11,269,346

See accompanying notes to unaudited interim consolidated financial statements.

4
Table of Contents


TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In thousands, except share and per share data)
 
For the Three Months Ended
 
December 31,
 
2013
 
2012
INTEREST AND DIVIDEND INCOME:
 
 
 
Loans, including fees
$
90,401

 
$
98,689

Investment securities available for sale
2,100

 
1,113

Other interest and dividend earning assets
518

 
586

Total interest and dividend income
93,019

 
100,388

INTEREST EXPENSE:
 
 
 
Deposits
23,262

 
31,135

Borrowed funds
1,962

 
837

Total interest expense
25,224

 
31,972

NET INTEREST INCOME
67,795

 
68,416

PROVISION FOR LOAN LOSSES
6,000

 
18,000

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
61,795

 
50,416

NON-INTEREST INCOME:
 
 
 
Fees and service charges, net of amortization
2,289

 
2,303

Net gain on the sale of loans
339

 
3,022

Increase in and death benefits from bank owned life insurance contracts
1,613

 
1,605

Other
837

 
1,317

Total non-interest income
5,078

 
8,247

NON-INTEREST EXPENSE:
 
 
 
Salaries and employee benefits
22,082

 
20,603

Marketing services
3,253

 
3,125

Office property, equipment and software
4,989

 
5,021

Federal insurance premium and assessments
2,547

 
3,714

State franchise tax
1,687

 
1,663

Real estate owned expense, net
1,945

 
1,165

Other operating expenses
6,356

 
7,243

Total non-interest expense
42,859

 
42,534

INCOME BEFORE INCOME TAXES
24,014

 
16,129

INCOME TAX EXPENSE
7,990

 
4,976

NET INCOME
$
16,024

 
$
11,153

Earnings per share—basic and diluted
$
0.05

 
$
0.04

Weighted average shares outstanding
 
 
 
Basic
300,634,212

 
301,576,327

Diluted
301,868,676

 
302,244,741


See accompanying notes to unaudited interim consolidated financial statements.

5
Table of Contents


TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(In thousands)
 
For the Three Months Ended
 
December 31,
 
2013
 
2012
Net income
$
16,024

 
$
11,153

Other comprehensive (loss) income, net of tax
 
 
 
Change in net unrealized losses on securities available for sale
(1,947
)
 
(710
)
Change in pension obligation
48

 
90

Total other comprehensive loss
(1,899
)
 
(620
)
Total comprehensive income
$
14,125

 
$
10,533

See accompanying notes to unaudited interim consolidated financial statements.


6
Table of Contents


TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
Three Months Ended December 31, 2013 and 2012
(In thousands)
 
 
 
Common
stock
 
Paid-in
capital
 
Treasury
stock
 
Unallocated
common stock
held by ESOP
 
Retained
earnings
 
Accumulated other
comprehensive
loss
 
Total
shareholders’
equity
Balance at September 30, 2012
 
$
3,323

 
$
1,691,884

 
$
(280,937
)
 
$
(74,751
)
 
$
473,247

 
$
(5,916
)
 
$
1,806,850

Net income
 
—

 
—

 
—

 
—

 
11,153

 
—

 
11,153

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
(620
)
 
(620
)
ESOP shares allocated or committed to be released
 
—

 
(137
)
 
—

 
1,083

 
—

 
—

 
946

Compensation costs for stock-based plans
 
—

 
1,715

 
—

 
—

 
—

 
—

 
1,715

Treasury stock allocated to restricted stock plan
 
—

 
(222
)
 
315

 
—

 
(93
)
 
—

 
—

Balance at December 31, 2012
 
$
3,323

 
$
1,693,240

 
$
(280,622
)
 
$
(73,668
)
 
$
484,307

 
$
(6,536
)
 
$
1,820,044

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2013
 
$
3,323

 
$
1,696,370

 
$
(278,215
)
 
$
(70,418
)
 
$
529,021

 
$
(8,604
)
 
$
1,871,477

Net income
 
—

 
—

 
—

 
—

 
16,024

 
—

 
16,024

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
(1,899
)
 
(1,899
)
ESOP shares allocated or committed to be released
 
—

 
212

 
—

 
1,084

 
—

 
—

 
1,296

Compensation costs for stock-based plans
 
—

 
1,797

 
—

 
—

 
—

 
—

 
1,797

Excess tax effect from stock-based compensation
 
—

 
49

 
—

 
—

 
—

 
—

 
49

Purchase of treasury stock (2,156,250 shares)
 
 
 
 
 
(26,058
)
 
 
 
 
 
 
 
(26,058
)
Treasury stock allocated to restricted stock plan
 
—

 
(727
)
 
677

 
—

 
(196
)
 
—

 
(246
)
Balance at December 31, 2013
 
$
3,323

 
$
1,697,701

 
$
(303,596
)
 
$
(69,334
)
 
$
544,849

 
$
(10,503
)
 
$
1,862,440

See accompanying notes to unaudited interim consolidated financial statements.


7
Table of Contents


TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)
 
 
For the Three Months Ended
 
 
December 31,
 
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
16,024

 
$
11,153

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
ESOP and stock-based compensation expense
 
2,847

 
2,661

Excess tax effect related to stock-based compensation
 
49

 
—

Depreciation and amortization
 
3,129

 
6,221

Provision for loan losses
 
6,000

 
18,000

Net gain on the sale of loans
 
(339
)
 
(3,022
)
Other net losses (gains)
 
679

 
(415
)
Principal repayments on and proceeds from sales of loans held for sale
 
10,022

 
22,197

Loans originated for sale
 
(7,143
)
 
(15,757
)
Increase in bank owned life insurance contracts
 
(1,619
)
 
(1,613
)
Net decrease in interest receivable and other assets
 
1,951

 
7,998

Net increase in accrued expenses and other liabilities
 
48,853

 
44,751

Other
 
139

 
33

Net cash provided by operating activities
 
80,592

 
92,207

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Loans originated
 
(535,266
)
 
(511,600
)
Principal repayments on loans
 
437,672

 
606,535

Proceeds from principal repayments and maturities of:
 
 
 
 
Securities available for sale
 
30,015

 
57,918

Proceeds from sale of:
 
 
 
 
Loans
 
11,079

 
61,231

Real estate owned
 
6,993

 
6,519

Purchases of:
 
 
 
 
FHLB stock
 
(1,279
)
 
—

Securities available for sale
 
(44,147
)
 
(90,305
)
Premises and equipment
 
(1,070
)
 
(1,158
)
Other
 
18

 
5

Net cash (used in) provided by investing activities
 
(95,985
)
 
129,145

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Net decrease in deposits
 
(150,267
)
 
(176,924
)
Net decrease in borrowers’ advances for insurance and taxes
 
(2,506
)
 
(442
)
Net (decrease) increase in principal and interest owed on loans serviced
 
(15,767
)
 
1,497

Net increase (decrease) in short term borrowed funds
 
124,225

 
(84,926
)
Proceeds from long term borrowed funds
 
130,000

 
70,000

Repayment of long term borrowed funds
 
(13,320
)
 
(5,265
)
Purchase of treasury shares
 
(26,058
)
 
—

Net cash provided by (used in) financing activities
 
46,307

 
(196,060
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
 
30,914

 
25,292

CASH AND CASH EQUIVALENTS—Beginning of period
 
285,996

 
308,262

CASH AND CASH EQUIVALENTS—End of period
 
$
316,910

 
$
333,554

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
Cash paid for interest on deposits
 
$
23,470

 
$
31,673

Cash paid for interest on borrowed funds
 
1,737

 
763

Cash paid for income taxes
 
508

 
6,600

SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
 
Transfer of loans to real estate owned
 
6,503

 
4,992

Transfer of loans from held for investment to held for sale
 
11,095

 
264,908

See accompanying notes to unaudited interim consolidated financial statements.

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Table of Contents


TFS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
 
 
 
 
 

1.
BASIS OF PRESENTATION
TFS Financial Corporation, a federally chartered stock holding company, conducts its principal activities through its wholly owned subsidiaries. The principal line of business of the Company is retail consumer banking, including mortgage lending, deposit gathering, and, to a much lesser extent other financial services. On December 31, 2013, approximately 74% of the Company’s outstanding shares were owned by a federally chartered mutual holding company, Third Federal Savings and Loan Association of Cleveland, MHC. The thrift subsidiary of TFS Financial Corporation is Third Federal Savings and Loan Association of Cleveland.
The accounting and reporting policies followed by the Company conform in all material respects to accounting principles generally accepted in the United States of America and to general practices in the financial services industry. The preparation of financial statements in conformity with U.S. GAAP 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. Actual results could differ from those estimates. The allowance for loan losses, the valuation of mortgage loan servicing rights, the valuation of deferred tax assets, and the determination of pension obligations and stock-based compensation are particularly subject to change.
The unaudited interim consolidated financial statements were prepared without an audit and reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial condition of the Company at December 31, 2013, and its results of operations and cash flows for the periods presented. In accordance with Regulation S-X for interim financial information, these statements do not include certain information and footnote disclosures required for complete audited financial statements. The Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013 contains consolidated financial statements and related notes, which should be read in conjunction with the accompanying interim consolidated financial statements. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2014 or for any other period.
2.
EARNINGS PER SHARE
Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. For purposes of computing earnings per share amounts, outstanding shares include shares held by the public, shares held by the ESOP that have been allocated to participants or committed to be released for allocation to participants, the 227,119,132 shares held by Third Federal Savings, MHC, and, for purposes of computing dilutive earnings per share, stock options and restricted stock units with a dilutive impact. At December 31, 2013 and 2012, respectively, the ESOP held 6,933,435 and 7,366,775 shares that were neither allocated to participants nor committed to be released to participants.

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The following is a summary of the Company's earnings per share calculations.
 
 
For the Three Months Ended December 31,
 
 
2013
 
2012
 
 
Income
 
Shares
 
Per share
amount
 
Income
 
Shares
 
Per share
amount
 
 
(Dollars in thousands, except per share data)
Net income
 
$
16,024

 
 
 
 
 
$
11,153

 
 
 
 
Less: income allocated to restricted stock units
 
77

 
 
 
 
 
58

 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common shareholders
 
$
15,947

 
300,634,212

 
$
0.05

 
$
11,095

 
301,576,327

 
$
0.04

Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
Effect of dilutive potential common shares
 
 
 
1,234,464

 
 
 
 
 
668,414

 
 
Income available to common shareholders
 
$
15,947

 
301,868,676

 
$
0.05

 
$
11,095

 
302,244,741

 
$
0.04

The following is a summary of outstanding stock options and restricted stock units that are excluded from the computation of diluted earnings per share because their inclusion would be anti-dilutive.
 
For the Three Months Ended December 31,
 
2013
 
2012
Options to purchase shares
3,486,500

 
6,654,525

Restricted stock units
—

 
226,500

3.
INVESTMENT SECURITIES
Investments available for sale are summarized as follows:
 
 
December 31, 2013
 
 
Amortized
Cost
 
Gross
Unrealized
 
Fair
Value
 
 
Gains
 
Losses
 
U.S. government and agency obligations
 
$
2,000

 
$
33

 
$
—

 
$
2,033

Freddie Mac certificates
 
611

 
28

 
—

 
639

Ginnie Mae certificates
 
11,024

 
340

 
—

 
11,364

REMICs
 
464,061

 
1,432

 
(8,607
)
 
456,886

FNMA certificates
 
11,293

 
767

 
(276
)
 
11,784

Money market accounts
 
4,813

 
—

 
—

 
4,813

Total
 
$
493,802

 
$
2,600

 
$
(8,883
)
 
$
487,519

    
 
 
September 30, 2013
 
 
Amortized
Cost
 
Gross
Unrealized
 
Fair
Value
 
 
Gains
 
Losses
 
U.S. government and agency obligations
 
$
2,000

 
$
37

 
$
—

 
$
2,037

Freddie Mac certificates
 
894

 
56

 
—

 
950

Ginnie Mae certificates
 
11,919

 
423

 
—

 
12,342

REMICs
 
448,881

 
1,506

 
(5,810
)
 
444,577

FNMA certificates
 
11,495

 
805

 
(305
)
 
11,995

Money market accounts
 
5,475

 
—

 
—

 
5,475

Total
 
$
480,664

 
$
2,827

 
$
(6,115
)
 
$
477,376


 
 
 
 
 
 
 
 
 

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Gross unrealized losses on securities and the estimated fair value of the related securities, aggregated by investment category and length of time the individual securities have been in a continuous loss position, at December 31, 2013 and September 30, 2013, were as follows:
 
December 31, 2013
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated Fair Value
 
Unrealized Loss
 
Estimated Fair Value
 
Unrealized Loss
 
Estimated Fair Value
 
Unrealized Loss
Available for sale—
 
 
 
 
 
 
 
 
 
 
 
  REMICs
$
257,074

 
$
6,593

 
$
68,459

 
$
2,014

 
$
325,533

 
$
8,607

FNMA certificates
4,805

 
276

 
—

 
—

 
4,805

 
276

Total
$
261,879

 
$
6,869

 
$
68,459

 
$
2,014

 
$
330,338

 
$
8,883

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated Fair Value
 
Unrealized Loss
 
Estimated Fair Value
 
Unrealized Loss
 
Estimated Fair Value
 
Unrealized Loss
Available for sale—
 
 
 
 
 
 
 
 

 

  REMICs
$
237,774

 
$
4,984

 
$
45,768

 
$
826

 
$
283,542

 
$
5,810

FNMA certificates
4,806

 
305

 
—

 
—

 
4,806

 
305

Total
$
242,580

 
$
5,289

 
$
45,768

 
$
826

 
$
288,348

 
$
6,115


 
 
 
 
 
 
 
 
 
 
 
The unrealized losses on investment securities were attributable to market rate increases. The contractual terms of U.S. government and agency obligations do not permit the issuer to settle the security at a price less than the par value of the investment. The contractual cash flows of mortgage-backed securities are guaranteed by FNMA, Freddie Mac and Ginnie Mae. REMICs are issued by or backed by securities issued by these governmental agencies. It is expected that the securities would not be settled at a price substantially less than the amortized cost of the investment. During the financial market upheaval of 2008, concern arose about the financial health of FNMA and Freddie Mac and, therefore, the viability of the payment guarantees issued by the agencies. This market was preserved when, in September 2008, the Federal Housing Finance Agency placed FNMA and Freddie Mac into conservatorship. Shortly after taking control, the U.S. Treasury Department established financing agreements to ensure FNMA and Freddie Mac meet their obligations to holders of mortgage-backed securities that they have issued or guaranteed.
Since the decline in value is attributable to changes in interest rates and not credit quality and because the Association has neither the intent to sell the securities nor is it more likely than not the Association will be required to sell the securities for the time periods necessary to recover the amortized cost, these investments are not considered other-than-temporarily impaired.
At December 31, 2013, the amortized cost and fair value of U.S. government and agency obligations available for sale due in more than one year but less than five years are $2,000 and $2,033, respectively as compared to $2,000 and $2,037 at September 30, 2013.


11
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4.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans held for investment consist of the following:
 
 
December 31,
2013
 
September 30,
2013
Real estate loans:
 
 
 
 
Residential non-Home Today
 
$
8,239,255

 
$
8,118,511

Residential Home Today
 
171,410

 
178,353

Home equity loans and lines of credit
 
1,807,002

 
1,858,398

Construction
 
75,314

 
72,430

Real estate loans
 
10,292,981

 
10,227,692

Consumer and other loans
 
3,980

 
4,100

Less:
 
 
 
 
Deferred loan fees—net
 
(11,454
)
 
(13,171
)
LIP
 
(42,325
)
 
(42,018
)
Allowance for loan losses
 
(85,282
)
 
(92,537
)
Loans held for investment, net
 
$
10,157,900

 
$
10,084,066

At December 31, 2013 and September 30, 2013, respectively, $1,497 and $4,179 of long-term loans were classified as mortgage loans held for sale.
A large concentration of the Company’s lending is in Ohio and Florida. As of December 31, 2013 and September 30, 2013, the percentages of residential real estate loans held in Ohio were 73% and 74%, and the percentages held in Florida were 17% and 18%, respectively. As of both December 31, 2013 and September 30, 2013, home equity loans and lines of credit were concentrated in the states of Ohio (39%), Florida (29%) and California (12%), respectively. The economic conditions and market for real estate in those states, including to a greater extent Florida, have impacted the ability of borrowers in those areas to repay their loans.
Home Today is an affordable housing program targeted to benefit low- and moderate-income home buyers. Through this program the Association provided the majority of loans to borrowers who would not otherwise qualify for the Association’s loan products, generally because of low credit scores. Although the credit profiles of borrowers in the Home Today program might be described as sub-prime, Home Today loans generally contain the same features as loans offered to our non-Home Today borrowers. Borrowers in the Home Today program must complete financial management education and counseling and must be referred to the Association by a sponsoring organization with which the Association has partnered as part of the program. Borrowers must also meet a minimum credit score threshold. Because the Association applied less stringent underwriting and credit standards to the majority of Home Today loans, loans originated under the program have greater credit risk than its traditional residential real estate mortgage loans. While effective March 27, 2009, the Home Today underwriting guidelines were changed to be substantially the same as the Association’s traditional first mortgage product, the majority of loans in this program were originated prior to that date. As of December 31, 2013 and September 30, 2013, the principal balance of Home Today loans originated prior to March 27, 2009 was $168,025 and $174,974, respectively. The Association does not offer, and has not offered, loan products frequently considered to be designed to target sub-prime borrowers containing features such as higher fees or higher rates, negative amortization, a loan-to-value ratio greater than 100%, or pay option adjustable-rate mortgages.

12
Table of Contents


The recorded investment of loan receivables in non-accrual status is summarized in the following table. Balances are net of deferred fees.
 
December 31,
2013
 
September 30,
2013
Real estate loans:
 
 
 
Residential non-Home Today
$
85,309

 
$
91,048

Residential Home Today
33,062

 
34,813

Home equity loans and lines of credit
29,539

 
29,943

Construction
—

 
41

Total real estate loans
147,910

 
155,845

Consumer and other loans
—

 
—

Total non-accrual loans
$
147,910

 
$
155,845

Loans are placed in non-accrual status when they are contractually 90 days or more past due. Loans modified in troubled debt restructurings that were in non-accrual status prior to the restructurings remain in non-accrual status for a minimum of six months after restructuring. Additionally, home equity loans and lines of credit where the customer has a severely delinquent first mortgage and loans in Chapter 7 bankruptcy status where all borrowers have been discharged of their obligation are placed in non-accrual status. At December 31, 2013 and September 30, 2013, respectively, the recorded investment in non-accrual loans includes $55,955 and $54,311 in troubled debt restructurings which are current according to the terms of their agreement, of which $33,720 and $34,001 are performing loans in Chapter 7 bankruptcy status primarily where all borrowers have been discharged of their obligations. Additionally, at December 31, 2013 and September 30, 2013, the recorded investment in non-accrual status loans includes $3,783 and $5,277, respectively, of performing second lien loans subordinate to first mortgages delinquent greater than 90 days.
Interest on loans in accrual status, including certain loans individually reviewed for impairment, is recognized in interest income as it accrues, on a daily basis. Accrued interest on loans in non-accrual status is reversed by a charge to interest income and income is subsequently recognized only to the extent cash payments are received. Cash payments on loans in non-accrual status are applied to the oldest scheduled, unpaid payment first. Cash payments on loans with a partial charge-off are applied fully to principal, then to recovery of the charged off amount prior to interest income being recognized. A non-accrual loan is generally returned to accrual status when contractual payments are less than 90 days past due. However, a loan may remain in non-accrual status when collectability is uncertain, such as a troubled debt restructuring that has not met minimum payment requirements, a loan with a partial charge-off, an equity loan or line of credit with a delinquent first mortgage greater than 90 days, or a loan in Chapter 7 bankruptcy status where all borrowers have been discharged of their obligations. The number of days past due is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment.
An age analysis of the recorded investment in loan receivables that are past due at December 31, 2013 and September 30, 2013 is summarized in the following tables. When a loan is more than one month past due on its scheduled payments, the loan is considered 30 days or more past due. Balances are net of deferred fees and any applicable loans-in-process.
 
30-59
Days
Past Due
 
60-89
Days
Past Due
 
90 Days or
More Past
Due
 
Total Past
Due
 
Current
 
Total
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Residential non-Home Today
$
10,791

 
$
7,894

 
$
48,170

 
$
66,855

 
$
8,157,318

 
$
8,224,173

Residential Home Today
9,679

 
5,447

 
17,479

 
32,605

 
136,160

 
168,765

Home equity loans and lines of credit
7,452

 
2,989

 
12,490

 
22,931

 
1,790,854

 
1,813,785

Construction
—

 
—

 
—

 
—

 
32,479

 
32,479

Total real estate loans
27,922

 
16,330

 
78,139

 
122,391

 
10,116,811

 
10,239,202

Consumer and other loans
—

 
—

 
—

 
—

 
3,980

 
3,980

Total
$
27,922

 
$
16,330

 
$
78,139

 
$
122,391

 
$
10,120,791

 
$
10,243,182


13
Table of Contents


 
30-59
Days
Past Due
 
60-89
Days
Past Due
 
90 Days or
More Past
Due
 
Total Past
Due
 
Current
 
Total
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Residential non-Home Today
$
15,398

 
$
4,874

 
$
56,484

 
$
76,756

 
$
8,024,657

 
$
8,101,413

Residential Home Today
8,597

 
5,989

 
18,341

 
32,927

 
142,666

 
175,593

Home equity loans and lines of credit
7,495

 
4,776

 
12,042

 
24,313

 
1,841,111

 
1,865,424

Construction
—

 
—

 
41

 
41

 
30,032

 
30,073

Total real estate loans
31,490

 
15,639

 
86,908

 
134,037

 
10,038,466

 
10,172,503

Consumer and other loans
—

 
—

 
—

 
—

 
4,100

 
4,100

Total
$
31,490

 
$
15,639

 
$
86,908

 
$
134,037

 
$
10,042,566

 
$
10,176,603

 
 
 
 
 
 
 
 
 
 
During the quarter ended December 31, 2013, $5,321 of residential loans were deemed uncollectible and fully charged-off as a result of implementing a new practice of charging off the remaining balance on loans that had remained delinquent and stalled in the foreclosure process for greater than 1,500 days. These loans previously were recorded at estimated net realizable value, with the potential for additional loss recognized within the allowance for loan losses. Any future foreclosure proceeds on these loans would result in recoveries of prior charge-offs. Activity in the allowance for loan losses is summarized as follows:
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended December 31, 2013
 
Beginning
Balance
 
Provisions
 
Charge-offs
 
Recoveries
 
Ending
Balance
Real estate loans:
 
 
 
 
 
 
 
 
 
Residential non-Home Today
$
35,427

 
$
5,081

 
$
(7,476
)
 
$
430

 
$
33,462

Residential Home Today
24,112

 
(807
)
 
(2,933
)
 
107

 
20,479

Home equity loans and lines of credit
32,818

 
1,757

 
(4,677
)
 
1,329

 
31,227

Construction
180

 
(31
)
 
(41
)
 
6

 
114

Total real estate loans
92,537

 
6,000

 
(15,127
)
 
1,872

 
85,282

Consumer and other loans
—

 
—

 
—

 
—

 
—

Total
$
92,537

 
$
6,000

 
$
(15,127
)
 
$
1,872

 
$
85,282


 
For the Three Months Ended December 31, 2012
 
Beginning
Balance
 
Provisions
 
Charge-offs
 
Recoveries
 
Ending
Balance
Real estate loans:
 
 
 
 
 
 
 
 
 
Residential non-Home Today
$
31,618

 
$
5,777

 
$
(4,635
)
 
$
331

 
$
33,091

Residential Home Today
22,588

 
5,238

 
(3,534
)
 
91

 
24,383

Home equity loans and lines of credit
45,508

 
7,259

 
(6,308
)
 
787

 
47,246

Construction
750

 
(274
)
 
(5
)
 
10

 
481

Total real estate loans
100,464

 
18,000

 
(14,482
)
 
1,219

 
105,201

Consumer and other loans
—

 
—

 
—

 
—

 
—

Total
$
100,464

 
$
18,000

 
$
(14,482
)
 
$
1,219

 
$
105,201



14
Table of Contents


The recorded investment in loan receivables at December 31, 2013 and September 30, 2013 is summarized in the following table. The table provides details of the recorded balances according to the method of evaluation used for determining the allowance for loan losses, distinguishing between determinations made by evaluating individual loans and determinations made by evaluating groups of loans not individually evaluated. Balances of recorded investments are net of deferred fees and any applicable loans-in-process.
 
 
December 31, 2013
 
September 30, 2013
 
 
Individually
 
Collectively
 
Total
 
Individually
 
Collectively
 
Total
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
Residential non-Home Today
 
$
141,944

 
$
8,082,229

 
$
8,224,173

 
$
149,102

 
$
7,952,311

 
$
8,101,413

Residential Home Today
 
75,117

 
93,648

 
168,765

 
79,065

 
96,528

 
175,593

Home equity loans and lines of credit
 
35,470

 
1,778,315

 
1,813,785

 
34,387

 
1,831,037

 
1,865,424

Construction
 
528

 
31,951

 
32,479

 
487

 
29,586

 
30,073

Total real estate loans
 
253,059

 
9,986,143

 
10,239,202

 
263,041

 
9,909,462

 
10,172,503

Consumer and other loans
 
—

 
3,980

 
3,980

 
—

 
4,100

 
4,100

Total
 
$
253,059

 
$
9,990,123

 
$
10,243,182

 
$
263,041

 
$
9,913,562

 
$
10,176,603

An analysis of the allowance for loan losses at December 31, 2013 and September 30, 2013 is summarized in the following table. The analysis provides details of the allowance for loan losses according to the method of evaluation, distinguishing between allowances for loan losses determined by evaluating individual loans and allowances for loan losses determined by evaluating groups of loans not individually evaluated.
 
 
December 31, 2013
 
September 30, 2013
 
 
Individually
 
Collectively
 
Total
 
Individually
 
Collectively
 
Total
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
Residential non-Home Today
 
$
8,458

 
$
25,004

 
$
33,462

 
$
7,138

 
$
28,289

 
$
35,427

Residential Home Today
 
6,285

 
14,194

 
20,479

 
7,677

 
16,435

 
24,112

Home equity loans and lines of credit
 
572

 
30,655

 
31,227

 
1,018

 
31,800

 
32,818

Construction
 
—

 
114

 
114

 
5

 
175

 
180

Total real estate loans
 
15,315

 
69,967

 
85,282

 
15,838

 
76,699

 
92,537

Consumer and other loans
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
15,315

 
$
69,967

 
$
85,282

 
$
15,838

 
$
76,699

 
$
92,537

At December 31, 2013 and September 30, 2013, individually evaluated loans that required an allowance were comprised only of loans evaluated for impairment based on the present value of cash flows, such as performing troubled debt restructurings, and loans with a further deterioration in the fair value of collateral not yet identified as uncollectible. All other individually evaluated loans received a charge-off if applicable.
Because many variables are considered in determining the appropriate level of general valuation allowances, directional changes in individual considerations do not always align with the directional change in the balance of a particular component of the general valuation allowance. At December 31, 2013 and September 30, 2013, respectively, allowances on individually reviewed loans evaluated for impairment based on the present value of cash flows, such as performing troubled debt restructurings were $15,113 and $15,749; and allowances on loans with further deteriorations in the fair value of collateral not yet identified as uncollectible were $202 and $89.
Residential non-Home Today mortgage loans represent the largest portion of the residential real estate portfolio. The Company believes overall credit risk is low based on the nature, composition, collateral, products, lien position and performance of the portfolio. The portfolio does not include loan types or structures that have recently experienced severe performance problems at other financial institutions (sub-prime, no documentation or pay option adjustable rate mortgages).
As described earlier in this footnote, Home Today loans have greater credit risk than traditional residential real estate mortgage loans. At December 31, 2013 and September 30, 2013, respectively, approximately 49% and 50% of Home Today loans include private mortgage insurance coverage. The majority of the coverage on these loans was provided by PMI

15
Table of Contents


Mortgage Insurance Co., which the Arizona Department of Insurance seized in 2011 and indicated that all claims payments would be reduced by 50%. In March 2013, PMIC notified the Association that all payments would be paid at 55% of the claim with the remainder deferred. Appropriate adjustments have been made to the Association’s affected valuation allowances and charge-offs, and estimated loss severity factors were adjusted accordingly for loans evaluated collectively. The amount of loans in our owned portfolio covered by mortgage insurance provided by PMIC as of December 31, 2013 and September 30, 2013, respectively, was $225,145 and $236,713 of which $204,365 and $214,920 was current. The amount of loans in our owned portfolio covered by mortgage insurance provided by Mortgage Guaranty Insurance Corporation as of December 31, 2013 and September 30, 2013, respectively, was $87,785 and $91,478 of which $86,533 and $90,099 was current. As of December 31, 2013, MGIC's long-term debt rating, as published by the major credit rating agencies, did not meet the requirements to qualify as "high credit quality"; however, MGIC continues to make claims payments in accordance with its contractual obligations and the Association has not increased its estimated loss severity factors related to MGIC's claim paying ability. No other loans were covered by mortgage insurers that were deferring claim payments or which were assessed as being non-investment grade.
Home equity lines of credit represent a significant portion of the residential real estate portfolio. The state of the economy and low housing prices continue to have an adverse impact on this portfolio since the home equity lines generally are in a second lien position. When the Association began to offer new home equity lines of credit again, the product was designed with prudent property and credit performance conditions to reduce future risk.
Construction loans generally have greater credit risk than traditional residential real estate mortgage loans. The repayment of these loans depends upon the availability of permanent financing upon completion of all improvements. In the event the Association makes a loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Construction loans also expose the Association to the risk that improvements will not be completed on time in accordance with specifications and projected costs.
Consumer loans are comprised of loans secured by certificate of deposit accounts, which are fully recoverable in the event of non-payment.

16
Table of Contents


The recorded investment and the unpaid principal balance of impaired loans, including those reported as troubled debt restructurings, as of December 31, 2013 and September 30, 2013 are summarized as follows. Balances of recorded investments are net of deferred fees.
 
 
December 31, 2013
 
September 30, 2013
 
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Residential non-Home Today
 
$
80,381

 
$
112,800

 
$
—

 
$
86,040

 
$
114,799

 
$
—

Residential Home Today
 
31,715

 
66,046

 
—

 
33,163

 
66,366

 
—

Home equity loans and lines of credit
 
28,579

 
61,843

 
—

 
27,494

 
58,267

 
—

Construction
 
528

 
547

 
—

 
422

 
544

 
—

Consumer and other loans
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
141,203

 
$
241,236

 
$
—

 
$
147,119

 
$
239,976

 
$
—

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Residential non-Home Today
 
$
61,563

 
$
62,842

 
$
8,458

 
$
63,062

 
$
64,468

 
$
7,138

Residential Home Today
 
43,402

 
44,088

 
6,285

 
45,902

 
46,698

 
7,677

Home equity loans and lines of credit
 
6,891

 
6,935

 
572

 
6,893

 
6,996

 
1,018

Construction
 
—

 
—

 
—

 
65

 
65

 
5

Consumer and other loans
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
111,856

 
$
113,865

 
$
15,315

 
$
115,922

 
$
118,227

 
$
15,838

Total impaired loans:
 
 
 
 
 
 
 
 
 
 
 
 
Residential non-Home Today
 
$
141,944

 
$
175,642

 
$
8,458

 
$
149,102

 
$
179,267

 
$
7,138

Residential Home Today
 
75,117

 
110,134

 
6,285

 
79,065

 
113,064

 
7,677

Home equity loans and lines of credit
 
35,470

 
68,778

 
572

 
34,387

 
65,263

 
1,018

Construction
 
528

 
547

 
—

 
487

 
609

 
5

Consumer and other loans
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
253,059

 
$
355,101

 
$
15,315

 
$
263,041

 
$
358,203

 
$
15,838

At December 31, 2013 and September 30, 2013, respectively, the recorded investment in impaired loans includes $194,958 and $201,692 of loans modified in troubled debt restructurings of which $27,871 and $30,550 were 90 days or more past due.
For all classes of loans, a loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest according to the contractual terms of the loan agreement. Factors considered in determining that a loan is impaired may include the deteriorating financial condition of the borrower indicated by missed or delinquent payments, a pending legal action, such as bankruptcy or foreclosure, or the absence of adequate security for the loan.

Charge-offs on residential mortgage loans, home equity loans and lines of credit, and construction loans are recognized when triggering events, such as foreclosure actions, short sales, or deeds accepted in lieu of repayment, result in less than full repayment of the recorded investment in the loans.

Partial or full charge-offs are also recognized for the amount of impairment on loans considered collateral dependent that meet the conditions described below.

•
For residential mortgage loans, payments are greater than 180 days delinquent;
•
For home equity lines of credit, equity loans, and residential loans modified in a troubled debt restructuring, payments are greater than 90 days delinquent;
•
For all classes of loans, a sheriff sale is scheduled within 60 days to sell the collateral securing the loan;
•
For all classes of loans, all borrowers have been discharged of their obligation through a chapter 7 bankruptcy;
•
For all classes of loans, a borrower obligated on a loan has filed bankruptcy and the loan is greater than 30 days delinquent;

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Table of Contents


•
For all classes of loans, it becomes evident that a loss is probable.

Collateral dependent residential mortgage loans and construction loans are charged off to the extent the recorded investment in a loan, net of anticipated mortgage insurance claims, exceeds the fair value less costs to dispose of the underlying property. Management can determine the loan is uncollectible for reasons such as foreclosures exceeding a reasonable time frame and recommend a full charge-off. Home equity loans or lines of credit are charged off to the extent the recorded investment in the loan plus the balance of any senior liens exceeds the fair value less costs to dispose of the underlying property or management determines the collateral is not sufficient to satisfy the loan. A loan in any portfolio that is identified as collateral dependent will continue to be reported as impaired until it is no longer considered collateral dependent, is less than 30 days past due and does not have a prior charge-off. A loan in any portfolio that has a partial charge-off consequent to impairment evaluation will continue to be individually evaluated for impairment until, at a minimum, the impairment has been recovered.

The following summarizes the effective dates of charge-off policies that changed or were first implemented during the current and previous four fiscal years and the portfolios to which those policies apply.
Effective Date
Policy
Residential
Non-Home Today
Residential Home Today
Home Equity Lines of Credit
Home Equity Loans
Construction
9/30/2012
Pursuant to an OCC directive, a loan is considered collateral dependent and any collateral shortfall is charged off when all borrowers obligated on a loan are discharged through Chapter 7 bankruptcy
X
X
X
X
X
6/30/2012
Loans in any form of bankruptcy greater than 30 days past due are considered collateral dependent and any collateral shortfall is charged off
X
X
X
X
X
12/31/2011
Pursuant to an OCC directive, impairment on collateral dependent loans previously recognized as SVAs were charged off. Charge-offs are recorded to recognize confirmed collateral shortfalls on impaired loans. (1)
X
X
X
X
X
9/30/2010
Timing of impairment evaluation was accelerated to include equity loans greater than 90 days delinquent (2)
 
 
 
X
 
____________________________

(1)
Prior to 12/31/2011, partial charge-offs were not used, but a SVA was established when the recorded investment in the loan exceeded the fair value of the collateral less costs to dispose. Individual loans were only charged off when a triggering event occurred, such as a foreclosure action was culminated, a short sale was approved, or a deed was accepted in lieu of repayment.
(2)
Prior to 9/30/2010, impairment evaluations on equity loans were performed when the loan was greater than 180 days delinquent.
Loans modified in troubled debt restructurings that are not evaluated based on collateral are separately evaluated for impairment on a loan by loan basis at the time of restructuring and at each subsequent reporting date for as long as they are reported as troubled debt restructurings. The impairment evaluation is based on the present value of expected future cash flows discounted at the effective interest rate of the original loan. Expected future cash flows include a discount factor representing a potential for default. Valuation allowances are recorded for the excess of the recorded investments over the result of the cash flow analysis. Loans discharged in Chapter 7 bankruptcy are reported as troubled debt restructurings and also evaluated based on the present value of expected future cash flows unless evaluated based on collateral. We evaluate these loans using the expected future cash flows because we expect the borrower, not liquidation of the collateral, to be the source of repayment for the loan. Consumer loans are not considered for restructuring. A loan modified in a troubled debt restructuring is classified as an impaired loan for a minimum of one year. After one year, a loan is no longer included in the balance of impaired loans if the loan was modified to yield a market rate for loans of similar credit risk at the time of restructuring and the loan is not impaired based on the terms of the restructuring agreement. No troubled debt restructurings were reclassified from impaired loans during

18
Table of Contents


the quarters ended December 31, 2013 or December 31, 2012.
 
 
 
 
 
 
 
 
 
The average recorded investment in impaired loans and the amount of interest income recognized during the period that the loans were impaired are summarized below.
 
 
For the Three Months Ended December 31,
 
 
2013
 
2012
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
 
Residential non-Home Today
 
$
83,211

 
$
281

 
$
94,944

 
$
399

Residential Home Today
 
32,439

 
87

 
36,456

 
68

Home equity loans and lines of credit
 
28,037

 
92

 
27,003

 
182

Construction
 
475

 
5

 
875

 
4

Consumer and other loans
 
—

 
—

 
—

 
—

Total
 
$
144,162

 
$
465

 
$
159,278

 
$
653

With an allowance recorded:
 
 
 
 
 
 
 
 
Residential non-Home Today
 
$
62,313

 
$
743

 
$
68,151

 
$
842

Residential Home Today
 
44,652

 
553

 
57,037

 
642

Home equity loans and lines of credit
 
6,892

 
60

 
10,653

 
74

Construction
 
33

 
—

 
406

 
4

Consumer and other loans
 
—

 
—

 
—

 
—

Total
 
$
113,890

 
$
1,356

 
$
136,247

 
$
1,562

Total impaired loans:
 
 
 
 
 
 
 
 
Residential non-Home Today
 
$
145,524

 
$
1,024

 
$
163,095

 
$
1,241

Residential Home Today
 
77,091

 
640

 
93,493

 
710

Home equity loans and lines of credit
 
34,929

 
152

 
37,656

 
256

Construction
 
508

 
5

 
1,281

 
8

Consumer and other loans
 
—

 
—

 
—

 
—

Total
 
$
258,052

 
$
1,821

 
$
295,525

 
$
2,215

The amounts of interest income on impaired loans recognized using a cash-basis method were $344 for the quarter ended December 31, 2013, and $599 for the quarter ended December 31, 2012.

19
Table of Contents


The recorded investment in troubled debt restructurings as of December 31, 2013 and September 30, 2013 is shown in the tables below.    
December 31, 2013
 
Reduction in
Interest Rates
 
Payment
Extensions
 
Forbearance or
Other Actions
 
Multiple
Concessions
 
Multiple
Modifications
 
Bankruptcy
 
Total
Residential non-Home Today
 
$
17,424