Form 10-K

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE YEAR ENDED DECEMBER 31, 2002

 

Commission File Number: 1-11515


 

 

COMMERCIAL FEDERAL CORPORATION


(Exact Name of Registrant as Specified in its Charter)

 

Nebraska


    

47-0658852


(State or Other Jurisdiction of Incorporation

or Organization)

    

(I.R.S. Employer

Identification No.)

13220 California Street, Omaha, Nebraska


    

68154


(Address of Principal Executive Offices)

    

(Zip Code)

 

Registrant’s telephone number, including area code:    (402) 554-9200

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, Par Value $.01 Per Share

  

New York Stock Exchange

Shareholder Rights Plan

  

New York Stock Exchange

7.95% Subordinated Notes due December 2006


  

New York Stock Exchange


Title of Each Class

  

Name of Each Exchange on Which Registered

 

Securities registered pursuant to Section 12(g) of the Act:   None

 

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 is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes ¨  No x

 

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 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. x

 

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the average high and low sales price of the registrant’s common stock as quoted on the New York Stock Exchange on June 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter, was $1,255,891,676. As of March 14, 2003, there were issued and outstanding 43,744,050 shares of the registrant’s common stock.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Proxy Statement for the 2003 Annual Meeting of Stockholders—See Part III.



 

COMMERCIAL FEDERAL CORPORATION

 

FORM 10-K INDEX

 


              

Page No.


PART I

  

Item 1.

  

Business

  

3

    

Item 2.

  

Properties

  

45

    

Item 3.

  

Legal Proceedings

  

45

    

Item 4.

  

Submission of Matters to a Vote of Security Holders

  

46


  

PART II

  

Item 5.

  

Market for Commercial Federal Corporation’s Common Equity and Related Stockholder Matters

  

46

    

Item 6.

  

Selected Financial Data

  

47

    

Item 7.

  

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

  

49

    

Item 7A.

  

Quantitative and Qualitative Disclosures

About Market Risk

  

79

    

Item 8.

  

Financial Statements and Supplementary Data

  

80

    

Item 9.

  

Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure

  

139


  

PART III

  

Item 10.

  

Directors and Executive Officers of

Commercial Federal Corporation

  

139

    

Item 11.

  

Executive Compensation

  

140

    

Item 12.

  

Security Ownership of Certain

Beneficial Owners and Management

and Related Stockholder Matters

  

140

    

Item 13.

  

Certain Relationships and Related Transactions

  

140


  

PART IV

  

Item 14.

  

Controls and Procedures

  

141

    

Item 15.

  

Exhibits, Financial Statement Schedules, and

Reports on Form 8-K

  

141


  

SIGNATURES

  

143

CERTIFICATIONS

  

145


  

 

2


PART I

 

ITEM 1.     BUSINESS

 

Forward Looking Statements

 

This document contains certain statements that are not historical fact but are forward-looking statements that involve inherent risks and uncertainties. Management cautions readers that a number of important factors could cause actual results to differ materially from those in the forward looking statements. Factors that might cause a difference include, but are not limited to: fluctuations in interest rates, inflation, the effect of regulatory or government legislative changes, expected cost savings and revenue growth not fully realized, the progress of strategic initiatives and whether realized within expected time frames, general economic conditions, adequacy of allowance for credit losses, costs or difficulties associated with restructuring initiatives, technology changes and competitive pressures in the geographic and business areas where Commercial Federal Corporation conducts its operations. These forward-looking statements are based on management’s current expectations. Actual results in future periods may differ materially from those currently expected because of various risks and uncertainties.

 

General

 

Commercial Federal Corporation (the “Corporation”) was incorporated in the state of Nebraska on August 18, 1983, as a unitary non-diversified savings and loan holding company. The primary purpose of the Corporation was to acquire all of the capital stock of Commercial Federal Bank, a Federal Savings Bank (the “Bank”) in connection with the Bank’s 1984 conversion from mutual to stock ownership. A secondary purpose was to provide the structure to expand and diversify the Corporation’s financial services to activities allowed by regulation to a unitary savings and loan holding company. The general offices of the Corporation are located at 13220 California Street, Omaha, Nebraska 68154.

 

The primary subsidiary of the Corporation is the Bank. The Bank was originally chartered in 1887 and converted to a federally chartered mutual savings and loan association in 1972. On December 31, 1984, the Bank completed its conversion from mutual to stock ownership and became a wholly-owned subsidiary of the Corporation. On August 27, 1990, the Bank’s federal charter was amended from a savings and loan to a federal savings bank.

 

The assets of the Corporation, on an unconsolidated basis, substantially consist of 100% of the Bank’s common stock. The Corporation has no significant independent source of income, and therefore depends almost exclusively on cash distributions from the Bank to meet its funding requirements. During the calendar year ended December 31, 2002, the Corporation incurred interest expense on its subordinated extendible notes, cumulative trust preferred securities and unsecured term notes and revolving line of credit. Interest was payable monthly on the subordinated extendible notes, and quarterly on the cumulative trust preferred securities, the unsecured term note and the line of credit. On December 31, 2002, the Corporation redeemed the $45.0 million of cumulative trust preferred securities of the CFC Preferred Trust. These securities were callable after May 14, 2002. The redemption price totaling $46.1 million consisted of the $45.0 million plus accrued interest of $1.1 million. In addition, on December 30, 2002, the Corporation entered into a term and revolving credit agreement totaling $104.0 million. This credit facility is in the form of an unsecured, five-year term note due December 31, 2007, totaling $94.0 million and an unsecured revolving note totaling $10.0 million due December 31, 2003, renewable annually. On December 30, 2002, the $94.0 million term note was drawn down to repay the term note due June 30, 2004, for $49.4 million including accrued interest. The remaining proceeds of $44.6 million were used to redeem the 9.375% cumulative trust preferred securities that were paid off in full by the Corporation on December 31, 2002. This term note had an outstanding principal balance of $94.0 million at December 31, 2002. Terms of the note require quarterly principal payments of $2.4 million and quarterly interest payable at a monthly adjustable rate priced at 100 basis points below the lender’s national base rate, or 3.25% at December 31, 2002. For additional information on the debt of the Corporation see Note 13 “Other Borrowings” to the Consolidated Financial Statements that are filed under Item 8 of this Form 10-K Annual Report for the year ended December 31, 2002 (the “Report”).

 

3


 

The Corporation began repurchasing its common stock in April 1999. For the year ended December 31, 2002, the Corporation purchased and cancelled 1,057,700 shares of its common stock at a cost of $25.7 million. Since the first repurchase was announced in April 1999, the Corporation has purchased and canceled 16,759,200 shares of its common stock through December 31, 2002, at a cost of $355.7 million. The Corporation also pays operating expenses primarily for shareholder and stock related expenditures such as the annual report, proxy, corporate filing fees and assessments and certain costs directly attributable to the holding company. In addition, common stock cash dividends totaling $15.8 million, or $.35 per common share, were declared during the year ended December 31, 2002.

 

The Bank pays cash distributions to the Corporation on a periodic basis primarily to cover the amount of the principal and interest payments on the Corporation’s debt, to fund the Corporation’s common stock repurchases and to repay the Corporation for the common stock cash dividends paid to the Corporation’s shareholders. During the year ended December 31, 2002, the Corporation received cash distributions totaling $85.0 million from the Bank. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) — Liquidity and Capital Resources” under Item 7 of this Report for additional information.

 

The Bank operates as a federally chartered savings institution with deposits insured by the Savings Association Insurance Fund (“SAIF”) and the Bank Insurance Fund (“BIF”) both administered by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a community banking institution offering commercial and consumer banking services including mortgage loan origination and servicing, commercial and industrial lending, small business banking, construction lending, cash management, brokerage and insurance services, and Internet banking.

 

At December 31, 2002, the Corporation had assets of $13.1 billion and stockholders’ equity of $756.5 million, and operated 189 branches located in Colorado (44), Iowa (40), Nebraska (40), Kansas (26), Oklahoma (19), Missouri (14) and Arizona (6). The Bank is one of the largest retail financial institutions in the Midwest and, based upon total assets at December 31, 2002, the Corporation was the 8th largest publicly-held thrift institution holding company in the United States. In addition, the Corporation serviced a loan portfolio totaling $15.6 billion at December 31, 2002, with approximately $11.5 billion in loans serviced for third parties and $4.1 billion in loans serviced for the Bank. See “MD&A — General” under Item 7 of this Report.

 

The operations of the Corporation are significantly influenced by general economic conditions, by inflation and changing prices, by the related monetary, fiscal and regulatory policies of the federal government and by the policies of financial institution regulatory authorities, including the Office of Thrift Supervision (“OTS”), the Board of Governors of the Federal Reserve System and the FDIC. Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for mortgage and commercial financing, consumer loans and other types of loans, which, in turn, are affected by the interest rates at which such financings may be offered, the availability of funds, and other factors, such as the supply of housing for mortgage loans and regional economic situations.

 

The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Topeka, which is one of the 12 regional banks comprising the FHLB System. The Bank is further subject to regulations of the Federal Reserve Board, which governs reserves required to be maintained against deposits and certain other matters. As a federally chartered savings bank, the Bank is subject to numerous restrictions on operations and investments imposed by applicable statutes and regulations. See “Regulation” section of this Report.

 

Corporate Highlights

 

The Corporation’s business and earnings are sensitive to general business and economic conditions in the United States and, in particular, the Midwestern states where it has significant operations. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, the strength of the national and local economies and consumer spending, borrowing and savings habits. A continued economic downturn, an increase in unemployment or higher interest rates could decrease the demand for loans and other products and services and result in a deterioration in credit quality and loan performance and collectibility. Higher interest rates also could increase the Corporation’s cost to borrow funds and increase the rate the Corporation pays on deposits.

 

4


 

The long-term economic and political effects of terrorism and international hostilities are uncertain which could result in a further economic slowdown that could negatively affect the Corporation’s financial condition. These events could adversely affect the Corporation’s business and operating results in other ways that presently cannot be predicted. In addition, a continued economic slowdown could negatively impact the purchasing and decision making activities of the Corporation’s customers. If terrorist activity, international hostilities or other factors cause a further economic decline, the financial condition and operating results of the Corporation could be materially adversely affected.

 

The Corporation’s earnings also are significantly affected by the fiscal and monetary policies of the federal government and its agencies. The policies of the Federal Reserve Board impact the Corporation significantly. The Federal Reserve Board regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments the Corporation holds. Those policies determine to a significant extent the Corporation’s cost of funds for lending and investing. Changes in those policies are beyond the Corporation’s control and are difficult to predict.

 

Accounting for Goodwill

 

Effective January 1, 2002, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”), which required that the amortization of goodwill cease, and that goodwill be evaluated for impairment at the reporting unit level. No impairment losses were recognized in 2002. For calendar year 2002, amortization of goodwill totaling $7.8 million that would have been recorded prior to the implementation of this statement, was not recorded against current operations. See Note 10 “Intangible Assets” to the Consolidated Financial Statements under Item 8 of this Report for additional information.

 

Mortgage Banking Operations

 

Historically low interest rates in 2002 generated record volumes of mortgage loan demand contributing to pre-tax gains on the sales of mortgage loans totaling $36.2 million in 2002. These low interest rates also increased mortgage loan pay-downs which in turn caused an increase in amortization expense of mortgage servicing rights and the valuation allowances for impairment losses on mortgage servicing rights during 2002. The amortization expense of mortgage servicing rights increased $13.9 million over 2001 to $31.0 million for 2002. In addition, valuation adjustments for impairment losses totaling $60.4 million were recorded during the year ended December 31, 2002, compared to $19.1 million during 2001. During the year ended December 31, 2002, the Corporation sold available-for-sale investment and mortgage-backed securities totaling approximately $1.1 billion resulting in pre-tax gains of $35.9 million. These net gains were recognized to partially offset the valuation adjustment losses recognized on the mortgage servicing rights portfolio during 2002.

 

Redemption of Cumulative Trust Preferred Securities

 

On December 31, 2002, the Corporation redeemed the $45.0 million fixed-rate 9.375% cumulative trust preferred securities of the CFC Preferred Trust. The redemption price totaling $46.1 million consisted of 1,800,000 shares (liquidation amount of $25.00 per security) totaling $45.0 million plus accrued interest totaling approximately $1.1 million. These cumulative trust preferred securities were originally issued on May 14, 1997, and were due May 15, 2027. The redemption of the cumulative trust preferred securities resulted in the Corporation recognizing $1.8 million in expense on the write-off on the related deferred debt issuance costs. These costs are classified in other operating expenses in the Consolidated Statement of Operations for 2002.

 

Segment Reporting

 

Effective January 1, 2002, the Corporation’s operations were realigned into four lines of business operations for management reporting purposes: Commercial Banking, Mortgage Banking, Retail Banking and Treasury. Before this realignment, the Corporation identified and utilized two lines of business: Community Banking and Mortgage Banking. This realignment was made to allow management to make more well-informed operating decisions, to focus resources to benefit both the Corporation and its customers, and to assess performance and

 

5


products on a continuous basis. See “MD&A — Operating Results by Segment” under Item 7 of this Report and Note 24 “Segment Information” to the Consolidated Financial Statements under Item 8 of this Report for additional information.

 

Dissolution of Mortgage Banking Subsidiary

 

Effective October 1, 2002, Commercial Federal Mortgage Corporation (“CFMC”), the Bank’s wholly-owned full-service mortgage banking subsidiary, was dissolved. All real estate lending, secondary marketing, mortgage servicing and foreclosure activities are now conducted through the Bank. This dissolution had no effect on the Corporation’s financial position, liquidity or results of operations.

 

Common Stock Repurchases

 

During the year ended December 31, 2002, the Corporation continued to repurchase its outstanding common stock. On February 28, 2002, and on November 25, 2002, the Board of Directors authorized repurchases for 500,000 shares and 5,000,000 shares, respectively, of the Corporation’s outstanding common stock. During 2002, the Corporation purchased 1,057,700 shares of its common stock at a cost of $25.7 million.

 

Regulatory Capital Compliance

 

The Bank is subject to various regulatory capital requirements administered by the 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 Corporation’s financial position and results of operations. The regulations require the Bank to meet specific capital adequacy guidelines. Prompt corrective action provisions contained in the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) require specific capital ratios to be considered well-capitalized. At December 31, 2002, the Bank exceeded the minimum requirements for the well-capitalized category. As of December 31, 2002, the most recent notification from the OTS categorized the Bank as “well-capitalized” under the regulatory framework for prompt corrective action provisions under FDICIA. There are no conditions or events since such notification that management believes have changed the Bank’s classification. See “Regulation — Regulatory Capital Requirements” and Note 17 “Regulatory Capital” to the Consolidated Financial Statements under Item 8 of this Report.

 

Supervisory Goodwill Lawsuit

 

On September 12, 1994, the Bank and the Corporation commenced litigation relating to supervisory goodwill against the United States in the United States Court of Federal Claims seeking to recover monetary relief for the government’s refusal to honor certain contracts that it had entered into with the Bank. The suit alleges that such governmental action constitutes a breach of contract and an unlawful taking of property by the United States without just compensation or due process in violation of the Constitution of the United States. The Corporation and the Bank are pursuing alternative damage claims of up to approximately $230 million. The Bank also assumed a lawsuit in the merger with Mid Continent Bancshares, Inc. (“Mid Continent”), a fiscal year 1998 acquisition, against the United States also relating to a supervisory goodwill claim filed by the former company. The litigation status and process of these legal actions, as well as that of numerous actions brought by others alleging similar claims with respect to supervisory goodwill and regulatory capital credits, make the value of the claims asserted by the Bank (including the Mid Continent claim) uncertain as to their ultimate outcome, and contingent on a number of factors and future events which are beyond the control of the Bank, both as to substance, timing and the dollar amount of damages that may be awarded to the Bank and the Corporation if they finally prevail in this litigation.

 

On March 25, 1998, the Corporation filed a motion for summary judgment and the United States filed a cross motion for summary judgment on the question of liability for breach of contract. On March 24, 2003, the Corporation received an order from the United States Court of Federal Claims denying its motion for summary

 

6


judgment seeking to establish liability for breach of contract and granting the United States government’s cross motion seeking to establish no liability for breach of contract with respect to the Corporation’s acquisition of Empire Savings Building and Loan (“Empire”). In the litigation, the Corporation alleged that with respect to its 1987 acquisition of Empire, the Federal Home Loan Bank Board promised that $190 million of goodwill (the amount by which Empire’s liabilities exceeded its assets) would be included in the Bank’s regulatory capital as well as the $60 million of preferred stock issued by the Bank to fund the acquisition of Empire. The United States Court of Federal Claims granted the Corporation’s motion for summary judgment and denied the United States government’s cross-motion for summary judgment on the question of liability for breach of contract with respect to the Corporation’s acquisition of the savings deposits of Territory Savings and Loan Association (“Territory”) whereby the Bank accepted a five year $20 million promissory note from the Federal Savings and Loan Insurance Corporation (“FSLIC”) as part of the FSLIC’s payment for the Bank’s assumption of Territory’s savings deposits. In the litigation, the Corporation alleged that the FSLIC promised that the Bank could include the promissory note in its regulatory capital. The Corporation is currently considering its options in light of the order recently issued by the United States Court of Federal Claims.

 

Other Information

 

Additional information concerning the general business of the Corporation during the year ended December 31, 2002, is included in the following sections of this Report and under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under Item 8 “Notes to the Consolidated Financial Statements” of this Report. Additional information concerning the Bank’s regulatory capital requirements and other regulations which affect the Corporation is included in the “Regulation” section of this Report.

 

Additional Information

 

The Corporation makes its annual, current and quarterly reports available, free of charge, on its corporate web site, www.comfedbank.com, as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. Other information on the Corporation and the Bank are also available on this web site. All information and reports on the Corporation’s web site is not incorporated by reference to this annual report Form 10-K.

 

Lending Activities

 

General

 

The Corporation’s lending activities focus on the origination of first mortgage loans for the purpose of financing or refinancing single-family residential properties, single-family residential construction loans, commercial real estate loans, commercial operating loans, consumer and home improvement loans. Commercial real estate loans, commercial operating and consumer loans have been emphasized during the year ended December 31, 2002. The origination activity of these loans has increased significantly over 2001. Management plans to continue to expand the Corporation’s commercial lending activity in 2003 and beyond. Residential loan origination activity, including activity through correspondents, increased significantly in calendar year 2002 due to the low interest rate environment generating new residential loan volumes as well as a large volume of loan refinancing activity compared to prior years. See “Loan Activity” section of this Report.

 

The functions of processing and servicing real estate loans, including responsibility for servicing the Corporation’s loan portfolio, had been conducted by CFMC, the Bank’s wholly-owned mortgage banking subsidiary. Effective October 1, 2002, CFMC was dissolved. All real estate lending, secondary marketing, mortgage servicing and foreclosure activities are now conducted through the Bank. The Corporation conducts loan origination activities primarily through its branch office network to increase the volume of single-family residential loan originations and take advantage of its extensive branch network. The Corporation will continue to originate real estate loans through its branches, loan offices and through its nationwide correspondent network.

 

7


 

At December 31, 2002, the Corporation’s total loan and mortgage-backed securities portfolio was $10.2 billion, representing 78.0% of its $13.1 billion of total assets. Mortgage-backed securities totaled $1.6 billion at December 31, 2002, representing 16.0% of the Corporation’s total loan and mortgage-backed securities portfolio. The Corporation’s total loan and mortgage-backed securities portfolio was secured primarily by real estate at December 31, 2002.

 

Commercial real estate and land loans are secured by various types of commercial properties including office buildings, shopping centers, warehouses and other income producing properties. Commercial lending increased during 2002 and is expected to significantly expand for the Corporation in the future. The Corporation’s single-family residential construction lending activity is primarily attributable to operations in Las Vegas, Nevada and in its primary market areas. Multi-family residential loans consist of loans secured by various types of properties, including townhomes, condominiums and apartment projects with more than four dwelling units.

 

The Corporation’s primary area of loan production is the origination of loans secured by existing single-family residences. Adjustable-rate single-family residential loans are originated for retention in the Corporation’s loan portfolio to match more closely the repricing of the Corporation’s interest-bearing liabilities as a result of changes in interest rates and for sale in the secondary market. Fixed-rate single-family residential loans are originated using underwriting guidelines, appraisals and documentation which are acceptable to the Federal Home Loan Mortgage Corporation (“FHLMC”), the Government National Mortgage Association (“GNMA”) and the Federal National Mortgage Association (“FNMA”) to facilitate the sale of such loans to such agencies in the secondary market. The Corporation also originates fixed-rate single-family residential loans using internal lending policies in accordance with what management believes are prudent underwriting standards but which may not strictly adhere to FHLMC, GNMA and FNMA guidelines. Fixed-rate single-family residential loans are originated or purchased for the Corporation’s loan portfolio if such loans have characteristics which are consistent with the Corporation’s asset and liability goals and long-term interest rate yield requirements. At December 31, 2002, fixed-rate single-family residential loans remained consistent at $2.5 billion compared to December 31, 2001. The adjustable-rate portfolio decreased to $2.1 billion at December 31, 2002, compared to $2.2 billion at December 31, 2001. The net decrease in adjustable-rate residential loans is due to the low mortgage rate environment in 2002 where many adjustable-rate loans were refinanced into low interest fixed-rate loans.

 

The Corporation’s commercial and multi-family real estate loans are primarily secured by properties located within the Corporation’s primary market areas. The Corporation continues to build on its commercial relationships. In the fourth quarter of 2001, the Corporation started a new internet-based full-service cash management program. This service allows businesses access to electronic banking features such as funds transfers, debit consumer accounts, payment of vendors, direct payroll deposit, wire transfers and other services. These loans, which are subject to prudent credit review and other underwriting standards and collection procedures, are expected to constitute a greater portion of the Corporation’s lending business in the future.

 

In addition to real estate loans, the Corporation originates consumer, automobile, home improvement, agricultural, commercial business and savings account loans as well as consumer credit cards through the Corporation’s branch and loan office network and direct mail solicitation. Management intends to continue to increase its consumer loan origination activity with strict adherence to prudent underwriting and credit review procedures.

 

Regulatory guidelines generally limit loans and extensions of credit to one borrower. At December 31, 2002, all loans were within the regulatory limitation of $210.9 million to one borrower.

 

8


 

Composition of Loan Portfolio

 

The following table sets forth the composition of the Corporation’s loan and mortgage-backed securities portfolios (including loans held for sale and mortgage-backed securities available for sale) as of the dates indicated below. Other than as disclosed below, there were no concentrations of loans which exceeded 10% of total loans at December 31, 2002.

 

    

December 31,


    

June 30,


 
    

2002


    

2001


    

2000


    

2000


    

1999


    

1998


 
    

Amount


  

Percent


    

Amount


  

Percent


    

Amount


  

Percent


    

Amount


  

Percent


    

Amount


  

Percent


    

Amount


  

Percent


 
    

(Dollars in Thousands)

 

Loan Portfolio

                                                                                   

Conventional real estate mortgage loans:

                                                                                   

Loans on existing properties—  

                                                                                   

Single-family residential

  

$

4,334,628

  

41.4

%

  

$

4,437,766

  

42.1

%

  

$

5,015,369

  

47.0

%

  

$

6,684,993

  

56.4

%

  

$

6,268,958

  

57.8

%

  

$

5,476,608

  

60.2

%

Multi-family residential

  

 

273,071

  

2.6

 

  

 

324,602

  

3.1

 

  

 

232,203

  

2.2

 

  

 

193,711

  

1.6

 

  

 

182,510

  

1.7

 

  

 

169,860

  

1.9

 

Land

  

 

53,920

  

.5

 

  

 

38,797

  

.4

 

  

 

32,558

  

.3

 

  

 

30,138

  

.3

 

  

 

105,504

  

.9

 

  

 

22,582

  

.2

 

Commercial real estate

  

 

1,455,864

  

13.9

 

  

 

1,324,748

  

12.6

 

  

 

1,138,038

  

10.7

 

  

 

985,008

  

8.3

 

  

 

756,412

  

7.0

 

  

 

494,325

  

5.4

 

    

  

  

  

  

  

  

  

  

  

  

  

Total

  

 

6,117,483

  

58.4

 

  

 

6,125,913

  

58.2

 

  

 

6,418,168

  

60.2

 

  

 

7,893,850

  

66.6

 

  

 

7,313,384

  

67.4

 

  

 

6,163,375

  

67.7

 

Construction loans—

                                                                                   

Single-family residential

  

 

294,962

  

2.9

 

  

 

304,638

  

2.9

 

  

 

258,972

  

2.4

 

  

 

245,302

  

2.1

 

  

 

241,548

  

2.2

 

  

 

279,437

  

3.1

 

Multi-family residential

  

 

133,248

  

1.3

 

  

 

120,826

  

1.1

 

  

 

99,041

  

.9

 

  

 

51,845

  

.4

 

  

 

25,893

  

.2

 

  

 

2,979

  

-—  

 

Land

  

 

182,261

  

1.7

 

  

 

178,675

  

1.7

 

  

 

143,602

  

1.4

 

  

 

121,396

  

1.0

 

  

 

-—  

  

-—  

 

  

 

2,803

  

-—  

 

Commercial real estate

  

 

159,627

  

1.5

 

  

 

179,312

  

1.7

 

  

 

215,979

  

2.0

 

  

 

152,260

  

1.3

 

  

 

78,908

  

.8

 

  

 

40,479

  

.5

 

    

  

  

  

  

  

  

  

  

  

  

  

Total

  

 

770,098

  

7.4

 

  

 

783,451

  

7.4

 

  

 

717,594

  

6.7

 

  

 

570,803

  

4.8

 

  

 

346,349

  

3.2

 

  

 

325,698

  

3.6

 

FHA and VA loans

  

 

270,825

  

2.6

 

  

 

270,193

  

2.6

 

  

 

351,376

  

3.3

 

  

 

579,021

  

4.9

 

  

 

463,437

  

4.3

 

  

 

468,503

  

5.1

 

    

  

  

  

  

  

  

  

  

  

  

  

Total real estate loans

  

 

7,158,406

  

68.4

 

  

 

7,179,557

  

68.2

 

  

 

7,487,138

  

70.2

 

  

 

9,043,674

  

76.3

 

  

 

8,123,170

  

74.9

 

  

 

6,957,576

  

76.4

 

Mortgage-backed securities

  

 

1,632,622

  

15.6

 

  

 

1,829,728

  

17.4

 

  

 

1,514,510

  

14.2

 

  

 

1,221,831

  

10.3

 

  

 

1,277,575

  

11.8

 

  

 

1,083,789

  

11.9

 

    

  

  

  

  

  

  

  

  

  

  

  

Total real estate loans and mortgage-backed securities

  

 

8,791,028

  

84.0

 

  

 

9,009,285

  

85.6

 

  

 

9,001,648

  

84.4

 

  

 

10,265,505

  

86.6

 

  

 

9,400,745

  

86.7

 

  

 

8,041,365

  

88.3

 

Consumer, commercial and other loans—  

                                                                                   

Home improvement and
other consumer loans

  

 

1,480,486

  

14.1

 

  

 

1,330,877

  

12.6

 

  

 

1,361,354

  

12.8

 

  

 

1,292,806

  

10.9

 

  

 

1,114,583

  

10.3

 

  

 

809,671

  

8.9

 

Commercial loans

  

 

187,647

  

1.8

 

  

 

170,280

  

1.6

 

  

 

228,426

  

2.1

 

  

 

179,703

  

1.5

 

  

 

186,242

  

1.7

 

  

 

155,617

  

1.8

 

Savings account loans

  

 

10,450

  

.1

 

  

 

18,598

  

.2

 

  

 

22,589

  

.2

 

  

 

21,297

  

.2

 

  

 

19,125

  

.2

 

  

 

21,948

  

.2

 

Leases

  

 

117

  

—  

 

  

 

160

  

—  

 

  

 

53,836

  

.5

 

  

 

94,694

  

.8

 

  

 

122,704

  

1.1

 

  

 

73,395

  

.8

 

    

  

  

  

  

  

  

  

  

  

  

  

Total consumer and other loans

  

 

1,678,700

  

16.0

 

  

 

1,519,915

  

14.4

 

  

 

1,666,205

  

15.6

 

  

 

1,588,500

  

13.4

 

  

 

1,442,654

  

13.3

 

  

 

1,060,631

  

11.7

 

    

  

  

  

  

  

  

  

  

  

  

  

Total loans

  

$

10,469,728

  

100.0

%

  

$

10,529,200

  

100.0

%

  

$

10,667,853

  

100.0

%

  

$

11,854,005

  

100.0

%

  

$

10,843,399

  

100.0

%

  

$

9,101,996

  

100.0

%

    

  

  

  

  

  

  

  

  

  

  

  

 

(Continued on next page)

 

9


 

Composition of Loan Portfolio (continued)

 

    

December 31,


    

June 30,


 
    

2002


    

2001


    

2000


    

2000


    

1999


    

1998


 
    

Amount


    

Percent


    

Amount


    

Percent


    

Amount


    

Percent


    

Amount


    

Percent


    

Amount


    

Percent


    

Amount


    

Percent


 
    

(Dollars in Thousands)

 

Balance forward of total loans

Add (subtract):

  

$

10,469,728

 

  

100.0

%

  

$

10,529,200

 

  

100.0

%

  

$

10,667,853

 

  

100.0

%

  

$

11,854,005

 

  

100.0

%

  

$

10,843,399

 

  

100.0

%

  

$

9,101,996

 

  

100.0

%

Unamortized premiums, net of discounts

  

 

16,055

 

         

 

8,984

 

         

 

160

 

         

 

(670

)

         

 

10,138

 

         

 

14,161

 

      

Unearned income

  

 

—  

 

         

 

—  

 

         

 

—  

 

         

 

(16,730

)

         

 

(22,543

)

         

 

(13,253

)

      

Deferred loan costs, net

  

 

8,617

 

         

 

5,819

 

         

 

20,250

 

         

 

26,374

 

         

 

11,809

 

         

 

24,178

 

      

Fair market valuation

  

 

17,867

 

         

 

1,175

 

         

 

—  

 

         

 

—  

 

         

 

—  

 

         

 

—  

 

      

Loans in process

  

 

(201,769

)

         

 

(209,574

)

         

 

(196,940

)

         

 

(164,313

)

         

 

(153,124

)

         

 

(112,781

)

      

Allowance for loan losses

  

 

(106,291

)

         

 

(102,451

)

         

 

(83,439

)

         

 

(70,556

)

         

 

(80,419

)

         

 

(64,757

)

      

Allowance for losses on mortgage-backed securities

  

 

—  

 

         

 

—  

 

         

 

—  

 

         

 

(280

)

         

 

(322

)

         

 

(419

)

      
    


         


         


         


         


         


      

Loan portfolio

  

$

10,204,207

 

         

$

10,233,153

 

         

$

10,407,884

 

         

$

11,627,830

 

         

$

10,608,938

 

         

$

8,949,125

 

      
    


         


         


         


         


         


      

 

For additional information regarding the Corporation’s loan portfolio and mortgage-backed securities, see Note 3 “Mortgage-Backed Securities,” Note 4 “Loans Held for Sale” and Note 5 “Loans Receivable” to the Consolidated Financial Statements under Item 8 of this Report.

 

 

10


 

The table below sets forth the geographic distribution of the Corporation’s total real estate loan portfolio (excluding mortgage-backed securities, consumer and other loans, and before any reduction for unamortized premiums (net of discounts), undisbursed loan proceeds, deferred loan costs, unearned income and allowance for loan losses) as of the dates indicated:

 

    

December 31,


    

June 30,


 
    

2002


    

2001


    

2000


    

2000


    

1999


    

1998


 

State


  

Amount


  

Percent


    

Amount


  

Percent


    

Amount


  

Percent


    

Amount


  

Percent


    

Amount


  

Percent


    

Amount


  

Percent


 
    

(Dollars in Thousands)

 

Colorado

  

$

1,165,297

  

16.3

%

  

$

1,302,407

  

18.1

%

  

$

1,436,156

  

19.2

%

  

$

1,647,963

  

18.2

%

  

$

1,686,667

  

20.8

%

  

$

1,710,256

  

24.6

%

Iowa

  

 

829,101

  

11.6

 

  

 

776,131

  

10.8

 

  

 

716,499

  

9.6

 

  

 

818,293

  

9.0

 

  

 

737,677

  

9.1

 

  

 

676,099

  

9.7

 

Nebraska

  

 

718,466

  

10.0

 

  

 

735,495

  

10.2

 

  

 

723,068

  

9.7

 

  

 

1,073,664

  

11.9

 

  

 

1,014,198

  

12.5

 

  

 

985,906

  

14.2

 

Kansas

  

 

625,109

  

8.7

 

  

 

668,161

  

9.3

 

  

 

658,366

  

8.8

 

  

 

954,020

  

10.5

 

  

 

860,740

  

10.6

 

  

 

678,734

  

9.8

 

Arizona

  

 

464,294

  

6.5

 

  

 

437,640

  

6.1

 

  

 

381,628

  

5.1

 

  

 

351,001

  

3.9

 

  

 

253,480

  

3.1

 

  

 

180,740

  

2.6

 

Massachusetts

  

 

424,513

  

5.9

 

  

 

156,477

  

2.2

 

  

 

203,742

  

2.7

 

  

 

188,500

  

2.1

 

  

 

62,233

  

.8

 

  

 

55,902

  

.8

 

Missouri

  

 

391,314

  

5.5

 

  

 

395,378

  

5.5

 

  

 

345,931

  

4.6

 

  

 

380,653

  

4.2

 

  

 

329,985

  

4.1

 

  

 

185,282

  

2.7

 

Oklahoma

  

 

353,780

  

4.9

 

  

 

363,114

  

5.1

 

  

 

378,789

  

5.1

 

  

 

459,315

  

5.1

 

  

 

382,474

  

4.7

 

  

 

318,198

  

4.6

 

Nevada

  

 

226,695

  

3.2

 

  

 

232,017

  

3.2

 

  

 

253,057

  

3.4

 

  

 

207,364

  

2.3

 

  

 

160,643

  

2.0

 

  

 

130,159

  

1.9

 

Georgia

  

 

180,924

  

2.5

 

  

 

198,719

  

2.8

 

  

 

254,097

  

3.4

 

  

 

302,929

  

3.3

 

  

 

232,128

  

2.9

 

  

 

227,971

  

3.3

 

Virginia

  

 

179,119

  

2.5

 

  

 

159,396

  

2.2

 

  

 

153,731

  

2.0

 

  

 

240,818

  

2.7

 

  

 

206,814

  

2.5

 

  

 

161,793

  

2.3

 

California

  

 

151,489

  

2.1

 

  

 

196,487

  

2.7

 

  

 

180,254

  

2.4

 

  

 

192,598

  

2.1

 

  

 

247,835

  

3.0

 

  

 

148,401

  

2.1

 

Minnesota

  

 

144,629

  

2.0

 

  

 

120,501

  

1.7

 

  

 

120,579

  

1.6

 

  

 

125,979

  

1.4

 

  

 

92,964

  

1.1

 

  

 

62,765

  

.9

 

Texas

  

 

132,126

  

1.9

 

  

 

185,555

  

2.6

 

  

 

188,700

  

2.5

 

  

 

205,783

  

2.3

 

  

 

184,313

  

2.3

 

  

 

158,614

  

2.3

 

Maryland

  

 

129,417

  

1.8

 

  

 

121,036

  

1.7

 

  

 

123,827

  

1.7

 

  

 

208,833

  

2.3

 

  

 

183,460

  

2.2

 

  

 

157,180

  

2.3

 

Florida

  

 

123,334

  

1.7

 

  

 

170,526

  

2.4

 

  

 

191,265

  

2.6

 

  

 

268,492

  

3.0

 

  

 

242,972

  

3.0

 

  

 

123,528

  

1.8

 

Ohio

  

 

90,880

  

1.3

 

  

 

100,478

  

1.4

 

  

 

110,181

  

1.5

 

  

 

143,992

  

1.6

 

  

 

122,146

  

1.5

 

  

 

93,325

  

1.3

 

Washington

  

 

88,694

  

1.2

 

  

 

89,053

  

1.2

 

  

 

99,303

  

1.3

 

  

 

113,932

  

1.3

 

  

 

93,956

  

1.2

 

  

 

91,670

  

1.3

 

Illinois

  

 

80,768

  

1.1

 

  

 

72,156

  

1.0

 

  

 

102,066

  

1.3

 

  

 

137,217

  

1.5

 

  

 

131,098

  

1.6

 

  

 

111,142

  

1.6

 

North Carolina

  

 

79,401

  

1.1

 

  

 

115,151

  

1.6

 

  

 

148,086

  

2.0

 

  

 

135,085

  

1.5

 

  

 

118,207

  

1.4

 

  

 

60,634

  

.9

 

Michigan

  

 

68,453

  

1.0

 

  

 

41,601

  

.6

 

  

 

66,295

  

.9

 

  

 

55,349

  

.6

 

  

 

29,505

  

.4

 

  

 

38,495

  

.5

 

Alabama

  

 

63,028

  

.9

 

  

 

74,949

  

1.0

 

  

 

86,709

  

1.1

 

  

 

125,767

  

1.4

 

  

 

90,675

  

1.1

 

  

 

50,285

  

.7

 

Connecticut

  

 

61,480

  

.9

 

  

 

57,582

  

.8

 

  

 

66,068

  

.9

 

  

 

83,567

  

.9

 

  

 

71,696

  

.9

 

  

 

64,975

  

.9

 

Utah

  

 

35,396

  

.5

 

  

 

37,459

  

.5

 

  

 

36,510

  

.5

 

  

 

53,060

  

.6

 

  

 

39,336

  

.5

 

  

 

25,444

  

.4

 

New Jersey

  

 

28,439

  

.4

 

  

 

38,876

  

.5

 

  

 

54,139

  

.7

 

  

 

71,352

  

.8

 

  

 

82,068

  

1.0

 

  

 

98,061

  

1.4

 

Pennsylvania

  

 

27,313

  

.4

 

  

 

31,376

  

.5

 

  

 

40,319

  

.5

 

  

 

51,811

  

.6

 

  

 

55,130

  

.7

 

  

 

59,083

  

.8

 

Indiana

  

 

21,066

  

.3

 

  

 

28,293

  

.4

 

  

 

38,986

  

.5

 

  

 

63,255

  

.7

 

  

 

66,727

  

.8

 

  

 

40,357

  

.6

 

New York

  

 

16,318

  

.2

 

  

 

21,296

  

.3

 

  

 

27,439

  

.4

 

  

 

31,548

  

.3

 

  

 

39,146

  

.5

 

  

 

38,382

  

.5

 

Other states

  

 

257,563

  

3.6

 

  

 

252,247

  

3.6

 

  

 

301,348

  

4.0

 

  

 

351,534

  

3.9

 

  

 

304,897

  

3.7

 

  

 

224,195

  

3.2

 

    

  

  

  

  

  

  

  

  

  

  

  

Total

  

$

7,158,406

  

100.0

%

  

$

7,179,557

  

100.0

%

  

$

7,487,138

  

100.0

%

  

$

9,043,674

  

100.0

%

  

$

8,123,170

  

100.0

%

  

$

6,957,576

  

100.0

%

    

  

  

  

  

  

  

  

  

  

  

  

 

11


 

The following table presents the composition of the Corporation’s total real estate portfolio (excluding mortgage-backed securities, consumer and other loans, and before any reduction for unamortized premiums (net of discounts), undisbursed loan proceeds, deferred loan costs, unearned income and allowance for loan losses) by state and property type at December 31, 2002:

 

State


  

Conventional Residential 1-4 Units


    

FHA/VA Residential Loans


    

Multi- Family


    

Land Loans


    

Sub

Total


    

Commercial Real Estate Loans


    

Total


    

% of Total


 
    

(Dollars in Thousands)

 

 

Colorado

  

$

611,720

 

  

$

17,972

 

  

$

85,165

 

  

$

36,154

 

  

$

751,011

 

  

$

414,286

 

  

$

1,165,297

 

  

16.3

%

Iowa

  

 

433,705

 

  

 

11,485

 

  

 

68,235

 

  

 

60,403

 

  

 

573,828

 

  

 

255,273

 

  

 

829,101

 

  

11.6

 

Nebraska

  

 

501,175

 

  

 

41,394

 

  

 

36,652

 

  

 

16,131

 

  

 

595,352

 

  

 

123,114

 

  

 

718,466

 

  

10.0

 

Kansas

  

 

401,572

 

  

 

52,021

 

  

 

31,616

 

  

 

7,902

 

  

 

493,111

 

  

 

131,998

 

  

 

625,109

 

  

8.7

 

Arizona

  

 

242,331

 

  

 

14,829

 

  

 

18,919

 

  

 

34,487

 

  

 

310,566

 

  

 

153,728

 

  

 

464,294

 

  

6.5

 

Massachusetts

  

 

422,960

 

  

 

—  

 

  

 

474

 

  

 

—  

 

  

 

423,434

 

  

 

1,079

 

  

 

424,513

 

  

5.9

 

Missouri

  

 

202,431

 

  

 

21,017

 

  

 

46,100

 

  

 

6,038

 

  

 

275,586

 

  

 

115,728

 

  

 

391,314

 

  

5.5

 

Oklahoma

  

 

184,753

 

  

 

12,656

 

  

 

55,633

 

  

 

7,321

 

  

 

260,363

 

  

 

93,417

 

  

 

353,780

 

  

4.9

 

Nevada

  

 

65,676

 

  

 

2,592

 

  

 

26,675

 

  

 

65,465

 

  

 

160,408

 

  

 

66,287

 

  

 

226,695

 

  

3.2

 

Georgia

  

 

154,687

 

  

 

9,795

 

  

 

—  

 

  

 

—  

 

  

 

164,482

 

  

 

16,442

 

  

 

180,924

 

  

2.5

 

Virginia

  

 

172,478

 

  

 

6,641

 

  

 

—  

 

  

 

—  

 

  

 

179,119

 

  

 

—  

 

  

 

179,119

 

  

2.5

 

California

  

 

74,058

 

  

 

2,769

 

  

 

7,174

 

  

 

52

 

  

 

84,053

 

  

 

67,436

 

  

 

151,489

 

  

2.1

 

Minnesota

  

 

121,501

 

  

 

4,380

 

  

 

6,675

 

  

 

184

 

  

 

132,740

 

  

 

11,889

 

  

 

144,629

 

  

2.0

 

Texas

  

 

60,744

 

  

 

7,531

 

  

 

3,746

 

  

 

—  

 

  

 

72,021

 

  

 

60,105

 

  

 

132,126

 

  

1.9

 

Maryland

  

 

117,257

 

  

 

11,945

 

  

 

—  

 

  

 

—  

 

  

 

129,202

 

  

 

215

 

  

 

129,417

 

  

1.8

 

Florida

  

 

90,508

 

  

 

3,198

 

  

 

6,931

 

  

 

—  

 

  

 

100,637

 

  

 

22,697

 

  

 

123,334

 

  

1.7

 

Ohio

  

 

86,399

 

  

 

2,814

 

  

 

1,198

 

  

 

—  

 

  

 

90,411

 

  

 

469

 

  

 

90,880

 

  

1.3

 

Washington

  

 

75,167

 

  

 

9,044

 

  

 

793

 

  

 

—  

 

  

 

85,004

 

  

 

3,690

 

  

 

88,694

 

  

1.2

 

Illinois

  

 

76,033

 

  

 

4,433

 

  

 

—  

 

  

 

24

 

  

 

80,490

 

  

 

278

 

  

 

80,768

 

  

1.1

 

North Carolina

  

 

66,029

 

  

 

861

 

  

 

—  

 

  

 

—  

 

  

 

66,890

 

  

 

12,511

 

  

 

79,401

 

  

1.1

 

Michigan

  

 

64,423

 

  

 

3,490

 

  

 

—  

 

  

 

—  

 

  

 

67,913

 

  

 

540

 

  

 

68,453

 

  

1.0

 

Alabama

  

 

55,838

 

  

 

7,190

 

  

 

—  

 

  

 

—  

 

  

 

63,028

 

  

 

—  

 

  

 

63,028

 

  

.9

 

Connecticut

  

 

56,701

 

  

 

107

 

  

 

2,417

 

  

 

2,006

 

  

 

61,231

 

  

 

249

 

  

 

61,480

 

  

.9

 

Utah

  

 

20,992

 

  

 

7,514

 

  

 

935

 

  

 

—  

 

  

 

29,441

 

  

 

5,955

 

  

 

35,396

 

  

.5

 

New Jersey

  

 

27,923

 

  

 

516

 

  

 

—  

 

  

 

—  

 

  

 

28,439

 

  

 

—  

 

  

 

28,439

 

  

.4

 

Pennsylvania

  

 

25,123

 

  

 

1,970

 

  

 

206

 

  

 

14

 

  

 

27,313

 

  

 

—  

 

  

 

27,313

 

  

.4

 

Indiana

  

 

16,265

 

  

 

4,801

 

  

 

—  

 

  

 

—  

 

  

 

21,066

 

  

 

—  

 

  

 

21,066

 

  

.3

 

New York

  

 

11,967

 

  

 

54

 

  

 

—  

 

  

 

—  

 

  

 

12,021

 

  

 

4,297

 

  

 

16,318

 

  

.2

 

Other states

  

 

189,174

 

  

 

7,806

 

  

 

6,775

 

  

 

—  

 

  

 

203,755

 

  

 

53,808

 

  

 

257,563

 

  

3.6

 

    


  


  


  


  


  


  


  

Total

  

$

4,629,590

 

  

$

270,825

 

  

$

406,319

 

  

$

236,181

 

  

$

5,542,915

 

  

$

1,615,491

 

  

$

7,158,406

 

  

100.0

%

    


  


  


  


  


  


  


  

% of Total

  

 

64.7

%

  

 

3.8

%

  

 

5.6

%

  

 

3.3

%

  

 

77.4

%

  

 

22.6

%

  

 

100.0

%

      
    


  


  


  


  


  


  


      

 

12


 

Contractual Principal Repayments

 

The following table sets forth certain information at December 31, 2002, regarding the dollar amount of all loans and mortgage-backed securities maturing in the Corporation’s portfolio based on contractual terms to maturity. This repayment information excludes scheduled payments or an estimate of possible prepayments. Demand loans (loans having no stated schedule of repayments and no stated maturity) and overdrafts are reported as due in one year or less. Since prepayments significantly shorten the average life of loans and mortgage-backed securities, management believes that the following table will bear little resemblance to what will be the actual repayments. Loan balances have not been reduced for (1) unamortized premiums (net of discounts), undisbursed loan proceeds, deferred loan costs and allowance for loan losses or (2) nonperforming loans.

 

    

Due During the Year Ended December 31,


    

2003


  

2004-2007


  

After

2007


  

Total


    

(In Thousands)

Principal Repayments

                           

Real estate loans:

                           

Single-family residential (1)—  

                           

Fixed-rate

  

$

73,390

  

$

184,939

  

$

2,288,951

  

$

2,547,280

Adjustable-rate

  

 

23,689

  

 

36,259

  

 

1,998,225

  

 

2,058,173

Multi-family residential, land and

    commercial real estate—  

                           

Fixed-rate

  

 

74,533

  

 

472,665

  

 

200,403

  

 

747,601

Adjustable-rate

  

 

71,987

  

 

103,915

  

 

859,352

  

 

1,035,254

    

  

  

  

    

 

243,599

  

 

797,778

  

 

5,346,931

  

 

6,388,308

    

  

  

  

Construction loans:

                           

Fixed-rate

  

 

108,821

  

 

12,487

  

 

6,488

  

 

127,796

Adjustable-rate

  

 

613,380

  

 

6,495

  

 

22,427

  

 

642,302

    

  

  

  

    

 

722,201

  

 

18,982

  

 

28,915

  

 

770,098

    

  

  

  

Consumer and other loans:

                           

Fixed-rate

  

 

74,349

  

 

735,960

  

 

555,108

  

 

1,365,417

Adjustable-rate

  

 

76,919

  

 

23,124

  

 

213,240

  

 

313,283

    

  

  

  

    

 

151,268

  

 

759,084

  

 

768,348

  

 

1,678,700

    

  

  

  

Mortgage-backed securities:

                           

Fixed-rate

  

 

100,786

  

 

473,190

  

 

906,056

  

 

1,480,032

Adjustable-rate

  

 

3,640

  

 

16,666

  

 

132,284

  

 

152,590

    

  

  

  

    

 

104,426

  

 

489,856

  

 

1,038,340

  

 

1,632,622

    

  

  

  

Total principal repayments

  

$

1,221,494

  

$

2,065,700

  

$

7,182,534

  

$

10,469,728

    

  

  

  


(1)   Includes conventional, FHA and VA mortgage loans.

 

Scheduled contractual principal repayments do not reflect the actual maturities of the assets. The average maturity of loans is substantially less than their average contractual terms. This is due primarily to prepayments and, in the case of conventional mortgage loans, due-on-sale clauses, which generally give the Corporation the right to declare a loan immediately due and payable in the event that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgage loans are substantially higher than current mortgage loan rates. Under the latter circumstances, the weighted average yield on loans decreases as higher yielding loans are repaid.

 

13


 

The following table sets forth the amount of all loans and mortgage-backed securities due after December 31, 2003 (January 1, 2004, and thereafter), which have fixed interest rates and those which have adjustable interest rates. These loans and mortgage-backed securities have not been reduced for (1) unamortized premiums (net of discounts), undisbursed loan proceeds, deferred loan costs and allowance for loan losses or (2) nonperforming loans.

 

    

Fixed-Rate


  

Adjustable Rate


  

Total


    

(In Thousands)

Real estate loans:

                    

Single-family residential

  

$

2,473,890

  

$

2,034,484

  

$

4,508,374

Multi-family residential, land and commercial real estate

  

 

673,068

  

 

963,267

  

 

1,636,335

Construction loans

  

 

18,975

  

 

28,922

  

 

47,897

Consumer and other loans

  

 

1,291,068

  

 

236,364

  

 

1,527,432

Mortgage-backed securities

  

 

1,379,246

  

 

148,950

  

 

1,528,196

    

  

  

Total principal repayments due after December 31, 2003

  

$

5,836,247

  

$

3,411,987

  

$

9,248,234

    

  

  

 

Residential Loans

 

The Corporation originates and purchases both fixed-rate and adjustable-rate mortgage loans secured by single-family units through its branch network, its loan offices and a nationwide correspondent network. Such residential mortgage loans are either:

 

    conventional mortgage loans which comply with the requirements for sale to, or conversion into, securities issued by FNMA or FHLMC (“conforming loans”),

 

    mortgage loans which exceed the maximum loan amount allowed by FNMA or FHLMC but which otherwise generally comply with FNMA and FHLMC loan requirements, or mortgage loans not exceeding the maximum loan amount allowed by FNMA or FHLMC but do not meet all of the conformity requirements of FNMA and FHLMC (“nonconforming loans”) or

 

    FHA/VA loans which qualify for sale in the form of securities guaranteed by GNMA.

 

The Corporation originates substantially all conforming or nonconforming loans with loan-to-value ratios at or below 80.0% unless the borrower obtains private mortgage insurance (which premium the borrower pays with their mortgage payment) for the Corporation’s benefit covering that portion of the loan in excess of 80.0% of the appraised value or purchase price, whichever is less. Occasional exceptions to the 80.0% loan-to-value ratio for mortgage loans are made for loans to facilitate the resolution of nonperforming assets.

 

Fixed-rate residential mortgage loans generally are originated with terms of 15 and 30 years and are amortized on a monthly basis with principal and interest due each month. Adjustable-rate residential mortgage loans are also originated with terms of 15 and 30 years. However, certain adjustable-rate loans contain provisions which permit the borrower, at the borrower’s option, to convert at certain periodic intervals over the life of the loan to a long-term fixed-rate loan. The adjustable-rate loans generally have interest rates which are scheduled to adjust at six and 12 month intervals based upon various indices, including the Treasury Constant Maturity Index or the Eleventh District Federal Home Loan Bank Cost of Funds Index. The amount of any such interest rate increase is limited to one or two percentage points annually and four to six percentage points over the life of the loan. Certain adjustable-rate loans are also offered which have interest rates fixed over annual periods ranging from two through seven years, in addition to ten years, with such loans repricing annually after the fixed interest-rate term. The Corporation applies its underwriting criteria to such loans based on the amount of the loan for which the borrower could qualify at the indexed rate. At December 31, 2002, approximately ..90%, or $43.9 million, of the Corporation’s residential real estate loan portfolio was 90 days or more delinquent compared to .99%, or $49.9 million, at December 31, 2001.

 

14


 

Construction Loans

 

During the years ended December 31, 2002 and 2001, the six months ended December 31, 2000, and the fiscal year ended June 30, 2000, the Corporation originated $792.3 million, $728.4 million, $342.1 million and $608.1 million, respectively, of construction loans. The Corporation conducts its construction lending operations in its primary market areas and Las Vegas, Nevada. The residential construction lending operations, which loans are subject to prudent credit review and other underwriting standards and procedures, are expected to continue to increase over prior periods. At December 31, 2002, approximately .52%, or $2.3 million, of the Corporation’s residential construction loan portfolio was 90 days or more delinquent compared to .53%, or $3.0 million, at December 31, 2001.

 

Construction financing is considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the total estimated cost, including interest. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Corporation may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves to be inaccurate, the Corporation may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment.

 

Commercial Real Estate and Land Loans

 

The Corporation originated commercial real estate and land loans totaling $805.6 million, $768.6 million, $291.2 million and $347.0 million, respectively, during the years ended December 31, 2002 and 2001, the six months ended December 31, 2000, and the fiscal year ended June 30, 2000. Commercial real estate lending entails significant additional risks compared with residential real estate lending. These additional risks are due to larger loan balances which are more sensitive to economic conditions, business cycle downturns and construction related risks. The payment of principal and interest due on the Corporation’s commercial real estate loans is substantially dependent upon the performance of the projects securing the loans. As an example, to the extent that the occupancy and rental rates on the secured commercial real estate are not high enough to generate the income necessary to make payments, the Corporation could experience an increased rate of delinquency and could be required either to declare the loans in default and foreclose upon the properties or to make concessions on the terms of the repayment of the loans. At December 31, 2002, approximately .98%, or $18.1 million, of the Corporation’s commercial real estate and land loans were 90 days or more delinquent compared to 1.36%, or $23.3 million, at December 31, 2001.

 

The aggregate amount of loans which a federal savings institution may make on the security of liens on nonresidential real property may not exceed 400.0% of the institution’s total risk-based capital as determined under current regulatory capital standards. This limitation totaled approximately $3.5 billion at December 31, 2002, compared to $1.9 billion of commercial real estate and land loans outstanding at December 31, 2002. This restriction has not and is not expected to materially affect the Corporation’s business.

 

Consumer Loans

 

Federal regulations permit federal savings institutions to make secured and unsecured consumer loans up to 35.0% of an institution’s total regulatory assets. Any loans in excess of 30.0% of assets may only be made directly to the borrower and cannot involve the payment of any finders or referral fees. In addition, a federal savings institution has lending authority above the 35.0% category for certain consumer loans, such as home equity loans, property improvement loans, mobile home loans and savings account secured loans. Consumer loans originated by the Corporation are primarily second mortgage loans, loans to depositors on the security of their savings accounts and loans secured by automobiles. The Corporation has increased its secured consumer lending activities in order to meet its customers’ financial needs and will continue to increase such lending activities in the future in its primary market areas.

 

15


 

Consumer loans entail greater risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. Such loans may also give rise to claims and defenses by a consumer loan borrower against an assignee of such loans such as the Corporation, and a borrower may be able to assert against such assignee claims and defenses which it has against the seller of the underlying collateral. At December 31, 2002, approximately ..48%, or $8.1 million, of the Corporation’s consumer loans are 90 days or more delinquent compared to .44%, or $6.9 million, at December 31, 2001.

 

Loan Sales

 

In addition to originating loans for its portfolio, the Corporation participates in secondary mortgage market activities by selling whole and securitized loans to institutional investors or other financial institutions with the Corporation generally retaining the right to service such loans. Substantially all of the Corporation’s secondary mortgage market activity is with GNMA, FNMA and FHLMC. Conventional conforming loans are either sold for cash as individual whole loans to FNMA or FHLMC, or pooled in exchange for securities issued by FNMA or FHLMC which are then sold to investment banking firms. FHA and VA loans are originated or purchased by the Corporation and either are retained for the Corporation’s real estate loan portfolio or are pooled to form GNMA securities which are subsequently sold to investment banking firms or retained by the Bank.

 

During the years ended December 31, 2002 and 2001, the six months ended December 31, 2000, and the fiscal year ended June 30, 2000, the Corporation sold an aggregate of $3.4 billion, $2.7 billion, $2.3 billion and $762.1 million, respectively, in mortgage loans. These sales resulted in net realized gains during calendar years 2002 and 2001 totaling $28.5 million and $4.8 million, respectively, and net losses of $18.0 million and $110,000, respectively, during the six months ended December 31, 2000, and the fiscal year ended June 30, 2000. Of the amount of mortgage loans sold during the years ended December 31, 2002 and 2001, the six months ended December 31, 2000, and fiscal year 2000, $3.3 billion, $2.3 billion, $2.2 billion and $742.4 million, respectively, were sold in the secondary market, and the remaining balances were sold to other institutional investors. At December 31, 2002, the carrying value of loans held for sale totaled $868.6 million compared to $337.1 million at December 31, 2001.

 

Mortgage loans are generally sold in the secondary mortgage market without recourse to the Corporation in the event of borrower default, subject to certain limitations applicable to VA loans. Historical losses realized by the Corporation as a result of limitations applicable to VA loans have been immaterial on an annual basis. However, in connection with a 1987 acquisition of a financial institution, the Bank assumed agreements providing for recourse in the event of default on obligations transferred in connection with sales of certain securities by such institution. At December 31, 2002 and 2001, the remaining balance of these loans sold with recourse totaled $4.3 million and $8.8 million, respectively.

 

16


 

Loan Activity

 

The following table sets forth the Corporation’s loan and mortgage-backed securities activity for the periods as indicated:

 

              

Six Months

Ended

December 31,

2000


  

Year Ended

June 30,

2000


                 
    

Year Ended December 31,


     
    

2002


  

2001


     
    

(In Thousands)

Originations:

                           

Real estate loans-

                           

Residential loans

  

$

1,601,121

  

$

1,201,279

  

$

357,465

  

$

672,295

Construction loans

  

 

792,290

  

 

728,432

  

 

342,102

  

 

608,145

Commercial real estate and land loans

  

 

805,639

  

 

768,578

  

 

291,237

  

 

346,979

Consumer and other loans

  

 

1,058,210

  

 

1,343,577

  

 

530,862

  

 

1,289,878

    

  

  

  

Loans originated

  

$

4,257,260

  

$

4,041,866

  

$

1,521,666

  

$

2,917,297

    

  

  

  

Purchases:

                           

Mortgage loans-

                           

Residential loans

  

$

3,611,685

  

$

2,569,630

  

$

718,495

  

$

1,697,395

Bulk residential loan purchases

  

 

—  

  

 

—  

  

 

—  

  

 

207,494

Commercial loans

  

 

—  

  

 

19,075

  

 

9,968

  

 

51,267

Mortgage-backed securities

  

 

818,299

  

 

1,074,215

  

 

909,599

  

 

160,073

    

  

  

  

Loans purchased

  

$

4,429,984

  

$

3,662,920

  

$

1,638,062

  

$

2,116,229

    

  

  

  

Securitizations:

                           

Mortgage loans securitized into mortgage-backed securities held by the Bank

  

$

76,947

  

$

41,910

  

$

3,543

  

$

42,635

    

  

  

  

Sales:

                           

Mortgage loans

  

$

3,361,384

  

$

2,736,379

  

$

2,282,895

  

$

762,070

Mortgage-backed securities

  

 

50,739

  

 

93,281

  

 

549,834

  

 

—  

    

  

  

  

Loans sold

  

$

3,412,123

  

$

2,829,660

  

$

2,832,729

  

$

762,070

    

  

  

  

 

Loan Servicing for Other Institutions

 

The Corporation services substantially all of the mortgage loans that it originates and purchases (whether retained for the Bank’s portfolio or sold in the secondary market), thereby generating ongoing loan servicing fees. The Corporation also periodically purchases mortgage servicing rights. At December 31, 2002, the Corporation was servicing approximately 136,200 loans and participations for others with principal balances aggregating $11.5 billion, compared to 133,400 loans and participations for others with principal balances totaling $9.5 billion at December 31, 2001.

 

Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, holding escrow (impound funds) for payment of taxes and insurance, making inspections as required of the mortgage premises, collecting amounts due from delinquent mortgagors, supervising foreclosures in the event of unremedied defaults and generally administering the loans for the investors to whom they have been sold.

 

17


 

The Corporation receives fees for servicing mortgage loans for others, ranging generally from .18% to .57% per annum on the declining principal balances of the loans. The average service fee collected by the Corporation was .33%, .35%, .36% and .39%, respectively, for the years ended December 31, 2002 and 2001, the six months ended December 31, 2000, and the fiscal year ended June 30, 2000. The Corporation’s servicing portfolio is subject to reduction primarily by reason of normal amortization and prepayment of outstanding mortgage loans. In general, the value of the Corporation’s loan servicing portfolio may also be adversely affected as mortgage interest rates decline and loan prepayments increase. It is expected that income generated from the Corporation’s loan servicing portfolio also will decline in such an environment. This negative effect on the Corporation’s income may be offset somewhat by a rise in origination and servicing fee income attributable to new loan originations, which historically have increased in periods of low mortgage interest rates. The weighted average mortgage loan note rate of the Corporation’s servicing portfolio at December 31, 2002, was 6.82% compared to 7.16% at December 31, 2001.

 

At December 31, 2002 and 2001, approximately 95.3% and 92.9%, respectively, of the Corporation’s mortgage servicing portfolio for other institutions was covered by servicing agreements pursuant to the mortgage-backed securities programs of GNMA, FNMA and FHLMC. Under these agreements, the Corporation may be required to advance funds temporarily to make scheduled payments of principal, interest, taxes or insurance if the borrower fails to make such payments. Although the Corporation cannot charge any interest on these advanced funds, the Corporation typically recovers the advances within a reasonable number of days upon receipt of the borrower’s payment, or in the absence of such payment, advances are recovered through FHA insurance, VA guarantees or FNMA or FHLMC reimbursement provisions in connection with loan foreclosures. During the years ended December 31, 2002 and 2001, the average amount of funds advanced by the Corporation pursuant to servicing agreements totaled approximately $4.3 million and $2.4 million, respectively.

 

Interest Rates and Loan Fees

 

Interest rates charged by the Corporation on its loans are primarily determined by secondary market yield requirements and competitive loan rates offered in its lending areas. In addition to interest earned on loans, the Corporation receives loan origination fees for originating certain loans. These fees are a percentage of the principal amount of the mortgage loan and are charged to the borrower.

 

Loan Commitments

 

At December 31, 2002, the Corporation had issued commitments totaling $1.4 billion, excluding the undisbursed portion of loans in process, to fund and purchase loans and to extend credit on consumer and commercial unused lines of credit. These commitments are generally expected to settle within three months following December 31, 2002. These outstanding loan commitments to extend credit do not necessarily represent future cash requirements since many of the commitments may expire without being drawn. Additionally, mortgage loan commitments included in total commitments include loans in the process of approval for which the Corporation has rate lock commitments. The Corporation anticipates that normal amortization and prepayments of loan and mortgage-backed security principal will be sufficient to fund these loan commitments. See “MD&A — Liquidity and Capital Resources” under Item 7 of this Report.

 

Collection Procedures

 

If a borrower fails to make required payments on a loan, the Corporation generally will take immediate action to satisfy its claim against the security on the loan. If a delinquency cannot otherwise be cured, the Corporation records a notice of default and commences foreclosure proceedings. When a trustee sale is held, the Corporation generally acquires title to the property. The property may then be sold for cash or with financing conforming to normal loan requirements, or it may be sold or financed with a “loan to facilitate” involving terms more favorable to the borrower than those permitted by applicable regulations for new loans.

 

18


 

Asset Quality

 

Nonperforming Assets

 

Loans are reviewed on a regular basis and, except for first mortgage loans and credit cards, are placed on a nonaccruing status when either principal or interest is 90 days or more past due. Interest accrued and unpaid at the time a loan is placed on nonaccruing status is charged against interest income. Subsequent payments are generally first applied to interest income up to the amount charged off and then to the outstanding principal balance. First mortgage loans are placed on a nonaccruing status if four or more monthly payments are missed. Credit cards continue to accrue interest up to 120 days past due at which time the credit card balance plus accrued interest are charged off.

 

Real estate acquired by the Corporation as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned. At foreclosure, such property is stated at the lower of cost or fair value, minus estimated costs to sell. Subsequent impairment losses are recorded when the carrying value exceeds the fair value minus estimated costs to sell the property.

 

In certain circumstances the Corporation does not immediately foreclose when a delinquency is not cured promptly, particularly when the borrower does not intend to abandon the collateral, since by not foreclosing the risk of ownership would still be retained by the borrower. The evaluation of borrowers and collateral may involve determining that the most economic way to reduce the Corporation’s risk of loss may be to allow the borrower to remain in possession of the property and to restructure the debt as a troubled debt restructuring. In these circumstances, the Corporation would strive to ensure that the borrower’s continued participation in and management of the collateral does not put the Corporation at further risk of loss. In situations in which the borrower is not performing under the restructured terms, foreclosure proceedings are commenced when legally allowable.

 

A troubled debt restructuring is a loan on which the Corporation, for reasons related to the debtor’s financial difficulties, grants a concession to the debtor, such as a reduction in the loan’s interest rate, a reduction in the face amount of the debt, or an extension of the maturity date of the loan, that the Corporation would not otherwise consider. A loan classified as a troubled debt restructuring may be reclassified as current if such loan has returned to a performing status at a market rate of interest for at least eight to twelve months, the loan-to-value ratio is 80.0% or less, the cash flows generated from the collateralized property support the loan amount subject to minimum debt service coverage as defined and overall applicable economic conditions are favorable. Such loan balances decreased to $1.5 million at December 31, 2002, compared to $3.1 million at December 31, 2001, and $4.3 million at December 31, 2000.

 

The Corporation’s nonperforming assets totaled $114.0 million at December 31, 2002, a decrease of $17.5 million, or 13.3%, compared to December 31, 2001. This decrease is due to decreases totaling $10.7 million in nonperforming loans, $5.2 million in real estate owned and $1.6 million in troubled debt restructurings. At December 31, 2001, nonperforming assets totaled $131.5 million, an increase of $17.7 million, or 15.6%, compared to December 31, 2000. This increase is the result of a net increase totaling $19.2 million in real estate owned partially offset by net decreases in troubled debt restructurings and nonperforming loans totaling $1.2 million and $299,000, respectively. At December 31, 2000, nonperforming assets totaled $113.8 million, an increase of $25.1 million, or 28.3% compared to June 30, 2000, primarily as a result of an increase of $29.9 million in nonperforming loans partially offset by decreases of $3.6 million in real estate owned and $1.1 million in troubled debt restructurings. For a discussion of the major components of the changes in nonperforming assets at December 31, 2002, compared to December 31, 2001, see “MD&A — Provision for Loan Losses” and “Real Estate Operations” under Item 7 of this Report.

 

19


 

The following table sets forth information with respect to the Corporation’s nonperforming assets as follows:

 

   

December 31,


   

June 30,


 
   

2002


   

2001


   

2000


   

2000


   

1999


   

1998


 
   

(Dollars in Thousands)

 

Loans accounted for on a nonaccrual basis: (1)

                                               

Real estate—  

                                               

Residential (2)

 

$

46,394

 

 

$

52,792

 

 

$

68,978

 

 

$

37,535

 

 

$

49,061

 

 

$

43,212

 

Commercial

 

 

17,890

 

 

 

23,423

 

 

 

4,446

 

 

 

2,550

 

 

 

12,220

 

 

 

1,369

 

Consumer and other loans

 

 

8,130

 

 

 

6,929

 

 

 

10,019

 

 

 

13,466

 

 

 

8,734

 

 

 

4,785

 

   


 


 


 


 


 


Total nonperforming loans

 

 

72,414

 

 

 

83,144

 

 

 

83,443

 

 

 

53,551

 

 

 

70,015

 

 

 

49,366

 

   


 


 


 


 


 


Real estate:

                                               

Commercial

 

 

2,550

 

 

 

8,762

 

 

 

10,198

 

 

 

12,862

 

 

 

8,880

 

 

 

8,945

 

Residential

 

 

37,458

 

 

 

36,446

 

 

 

15,824

 

 

 

16,803

 

 

 

14,384

 

 

 

8,821

 

   


 


 


 


 


 


Total

 

 

40,008

 

 

 

45,208

 

 

 

26,022

 

 

 

29,665

 

 

 

23,264

 

 

 

17,766

 

   


 


 


 


 


 


Troubled debt restructurings: (3)

                                               

Commercial

 

 

1,547

 

 

 

3,057

 

 

 

4,195

 

 

 

5,259

 

 

 

9,534

 

 

 

3,524

 

Residential

 

 

—  

 

 

 

84

 

 

 

90

 

 

 

172

 

 

 

195

 

 

 

778

 

   


 


 


 


 


 


Total

 

 

1,547

 

 

 

3,141

 

 

 

4,285

 

 

 

5,431

 

 

 

9,729

 

 

 

4,302

 

   


 


 


 


 


 


Nonperforming assets

 

$

113,969

 

 

$

131,493

 

 

$

113,750

 

 

$

88,647

 

 

$

103,008

 

 

$

71,434

 

   


 


 


 


 


 


Nonperforming loans to total loans (4)

 

 

.82

%

 

 

.96

%

 

 

.91

%

 

 

.50

%

 

 

.73

%

 

 

.62

%

Nonperforming assets to total assets

 

 

.87

%

 

 

1.02

%

 

 

.91

%

 

 

.64

%

 

 

.81

%

 

 

.69

%

Allowance for loan losses

 

$

106,291

 

 

$

102,451

 

 

$

83,439

 

 

$

70,556

 

 

$

80,419

 

 

$

64,757

 

Allowance for loan losses to:

                                               

Total loans (4)

 

 

1.20

%

 

 

1.18

%

 

 

.91

%

 

 

.66

%

 

 

.84

%

 

 

.81

%

Total nonperforming assets

 

 

93.26

%

 

 

77.91

%

 

 

73.35

%

 

 

79.59

%

 

 

78.07

%

 

 

90.65

%

Total nonperforming loans

 

 

146.78

%

 

 

123.22

%

 

 

100.00

%

 

 

131.75

%

 

 

114.86

%

 

 

131.18

%

Nonresidential nonperforming assets

 

 

352.93

%

 

 

242.94

%

 

 

289.14

%

 

 

206.68

%

 

 

204.28

%

 

 

347.73

%


(1)   No interest income was recorded on loans contractually past due 90 days or more during the years ended December 31, 2002 and 2001, the six months ended December 31, 2000, or during the fiscal years ended June 30, 2000, 1999 and 1998. Had these nonaccruing loans been current in accordance with their original terms and outstanding throughout this year or since origination, the Corporation would have recorded gross interest income on these loans totaling $6.5 million, $6.4 million, $5.3 million, $3.8 million, $4.2 million and $4.3 million, respectively, during the aforementioned periods.
(2)   Nonperforming residential real estate loans at December 31, 2001 and 2000, and June 30, 2000, have been restated due to a change in determining past due loans. During 2002, the Corporation changed its method of determining delinquent residential real estate loans to a method where the number of days past due are determined by the number of contractually delinquent loan payments. Previous to this change, the Corporation utilized a methodology where the loan system converted monthly loan payments missed on a loan to days past due. This change in determining these delinquent loans conforms the Corporation’s reporting with the Bank’s regulatory thrift financial reporting. This change in methods reduced nonperforming residential real estate loans previously reported by $10.7 million, $12.4 million and $11.5 million, respectively, at December 31, 2001 and 2000, and June 30, 2000. The June 30, 1999 and 1998, balances have not been restated.
(3)   During the years ended December 31, 2002 and 2001, the six months ended December 31, 2000, and the fiscal years ended June 30, 2000, 1999 and 1998, the Corporation recognized interest income on loans classified as troubled debt restructurings aggregating $224,000, $236,000, $176,000, $430,000, $470,000 and $380,000, respectively, whereas under their original terms the Corporation would have recognized interest income of $255,000, $268,000, $194,000, $494,000, $526,000 and $499,000, respectively. At December 31, 2002, the Corporation had no commitments to lend additional funds to borrowers whose loans were subject to troubled debt restructuring.
(4)   Based on the total balance of loans receivable (before any adjustments for unamortized premiums net of discounts, undisbursed loan proceeds, deferred loan costs and allowance for loan losses) at the respective dates.

 

 

20


The geographic concentration of nonperforming loans as of the dates indicated was as follows:

 

    

December 31,


  

June 30,


State


  

2002


  

2001


  

2000


  

2000


  

1999


  

1998


    

(In Thousands)

Iowa

  

$

9,716

  

$

8,589

  

$

11,367

  

$

12,135

  

$

6,111

  

$

4,013

Oklahoma

  

 

9,622

  

 

2,440

  

 

3,000

  

 

2,070

  

 

3,568

  

 

3,178

Kansas

  

 

9,074

  

 

15,542

  

 

5,528

  

 

3,966

  

 

15,552

  

 

6,030

Nevada

  

 

6,650

  

 

10,122

  

 

23,932

  

 

1,656

  

 

1,651

  

 

1,198

Nebraska

  

 

3,525

  

 

5,028

  

 

2,999

  

 

2,140

  

 

2,455

  

 

2,595

Maryland

  

 

3,134

  

 

3,667

  

 

2,925

  

 

3,334

  

 

2,712

  

 

2,258

Florida

  

 

3,093

  

 

2,999

  

 

3,422

  

 

3,628

  

 

4,356

  

 

1,502

Colorado

  

 

2,242

  

 

5,527

  

 

1,725

  

 

1,712

  

 

2,646

  

 

4,065

Texas

  

 

2,058

  

 

2,236

  

 

1,304

  

 

1,524

  

 

1,378

  

 

2,028

Arizona

  

 

1,953

  

 

2,423

  

 

1,111

  

 

572

  

 

450

  

 

1,195

Alabama

  

 

1,939

  

 

2,075

  

 

1,741

  

 

1,145

  

 

863

  

 

1,307

Virginia

  

 

1,901

  

 

1,741

  

 

1,864

  

 

2,126

  

 

1,691

  

 

1,479

Ohio

  

 

1,852

  

 

1,986

  

 

2,651

  

 

2,271

  

 

1,818

  

 

722

Georgia

  

 

1,686

  

 

2,854

  

 

3,127

  

 

2,036

  

 

2,752

  

 

2,127

North Carolina

  

 

1,314

  

 

656

  

 

1,479

  

 

1,056

  

 

907

  

 

293

Missouri

  

 

1,296

  

 

1,841

  

 

1,433

  

 

900

  

 

3,241

  

 

1,944

Illinois

  

 

1,209

  

 

1,048

  

 

1,212

  

 

866

  

 

1,325

  

 

1,579

California

  

 

1,100

  

 

1,159

  

 

2,505

  

 

2,082

  

 

3,988

  

 

3,377

Pennsylvania

  

 

671

  

 

943

  

 

646

  

 

814

  

 

844

  

 

852

Minnesota

  

 

633

  

 

804

  

 

499

  

 

313

  

 

590

  

 

1,004

Michigan

  

 

527

  

 

442

  

 

471

  

 

497

  

 

725

  

 

310

Washington

  

 

473

  

 

830

  

 

588

  

 

509

  

 

690

  

 

182

Connecticut

  

 

365

  

 

1,013

  

 

432

  

 

253

  

 

605

  

 

752

New Jersey

  

 

361

  

 

556

  

 

934

  

 

972

  

 

1,414

  

 

1,277

New York

  

 

276

  

 

457

  

 

980

  

 

771

  

 

686

  

 

671

Other states

  

 

5,744

  

 

6,166

  

 

5,568

  

 

4,203

  

 

6,997

  

 

3,428

    

  

  

  

  

  

Nonperforming loans

  

$

72,414

  

$

83,144

  

$

83,443

  

$

53,551

  

$

70,015

  

$

49,366

    

  

  

  

  

  

 

Nonperforming loans at December 31, 2002, consisted of the following types and number of loans:

 

    

Amount


  

Number of Loans


    

(Dollars in Thousands)

Residential real estate loans

  

$

43,939

  

750

Commercial real estate loans

  

 

15,306

  

40

Residential construction loans

  

 

2,243

  

10

Commercial construction loans

  

 

2,796

  

3

Consumer loans

  

 

4,820

  

467

Agricultural loans

  

 

1,865

  

23

Commercial and other operating loans

  

 

1,334

  

28

Small business loans

  

 

111

  

3

    

  
    

$

72,414

  

1,324

    

  

 

21


 

The geographic concentration of nonperforming real estate as of the dates indicated was as follows:

 

    

December 31,


  

June 30,


 

State


  

2002


  

2001


  

2000


  

2000


    

1999


    

1998


 
    

(In Thousands)

 

Nevada

  

$

22,182

  

$

21,892

  

$

167

  

$

333

 

  

$

657

 

  

$

138

 

Iowa

  

 

2,799

  

 

2,167

  

 

1,905

  

 

2,016

 

  

 

3,595

 

  

 

1,345

 

Missouri

  

 

2,427

  

 

4,593

  

 

4,147

  

 

8,725

 

  

 

4,811

 

  

 

465

 

Kansas

  

 

1,980

  

 

1,580

  

 

6,997

  

 

5,753

 

  

 

1,809

 

  

 

1,876

 

Nebraska

  

 

1,685

  

 

1,691

  

 

944

  

 

796

 

  

 

1,196

 

  

 

5,417

 

Illinois

  

 

1,465

  

 

1,539

  

 

1,955

  

 

2,179

 

  

 

2,069

 

  

 

373

 

Oklahoma

  

 

1,257

  

 

955

  

 

770

  

 

1,913

 

  

 

1,292

 

  

 

1,299

 

Georgia

  

 

694

  

 

1,051

  

 

451

  

 

386

 

  

 

301

 

  

 

140

 

Colorado

  

 

591

  

 

444

  

 

791

  

 

1,119

 

  

 

2,768

 

  

 

2,825

 

Florida

  

 

583

  

 

702

  

 

1,410

  

 

1,422

 

  

 

1,180

 

  

 

297

 

Arizona

  

 

462

  

 

4,417

  

 

401

  

 

171

 

  

 

582

 

  

 

—  

 

Maryland

  

 

446

  

 

823

  

 

839

  

 

531

 

  

 

471

 

  

 

1,315

 

Ohio

  

 

345

  

 

706

  

 

967

  

 

550

 

  

 

678

 

  

 

—  

 

Pennsylvania

  

 

199

  

 

336

  

 

79

  

 

126

 

  

 

377

 

  

 

111

 

Minnesota

  

 

89

  

 

78

  

 

99

  

 

163

 

  

 

627

 

  

 

456

 

New Jersey

  

 

80

  

 

21

  

 

269

  

 

102

 

  

 

122

 

  

 

317

 

Indiana

  

 

68

  

 

62

  

 

431

  

 

559

 

  

 

395

 

  

 

29

 

California

  

 

67

  

 

69

  

 

443

  

 

626

 

  

 

1,098

 

  

 

52

 

Texas

  

 

5

  

 

9

  

 

525

  

 

503

 

  

 

85

 

  

 

445

 

Other states

  

 

2,584

  

 

2,073

  

 

2,432

  

 

1,917

 

  

 

2,224

 

  

 

1,338

 

Reserves

  

 

—  

  

 

—  

  

 

—  

  

 

(225

)

  

 

(3,073

)

  

 

(472

)

    

  

  

  


  


  


Nonperforming real estate

  

$

40,008

  

$

45,208

  

$

26,022

  

$

29,665

 

  

$

23,264

 

  

$

17,766

 

    

  

  

  


  


  


 

At December 31, 2002, nonperforming real estate totaling $40.0 million (432 properties) consisted of residential real estate totaling $37.5 million (418 properties) or 93.6% of the total and commercial real estate totaling $2.5 million (14 properties). The real estate located in Nevada primarily consists of a residential master planned community property totaling $22.2 million at December 31, 2002. The Corporation continues to develop and manage this property while listing such property for sale.

 

Under the Corporation’s credit policies and practices, certain real estate loans meet the definition of impaired loans under Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan” and Statement of Financial Accounting Standards No. 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures.” A loan is considered impaired when it is probable that the Corporation, based upon current information, will not collect amounts due, both principal and interest, according to the contractual terms of the loan agreement. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. Certain loans are exempt from the provisions of the aforementioned accounting statements, including large groups of smaller-balance homogenous loans that are collectively evaluated for impairment which, for the Corporation, include one-to-four family first mortgage loans and consumer loans.

 

Loans reviewed for impairment by the Corporation are primarily commercial loans and loans modified in a troubled debt restructuring. The Corporation’s impaired loan identification and measurement processes are conducted in conjunction with the Corporation’s review of classified assets and adequacy of its allowance for possible loan losses. Specific factors utilized in the impaired loan identification process include, but are not limited to, delinquency status, loan-to-value ratio, debt coverage and certain other conditions pursuant to the

 

22


Corporation’s classification policy. At December 31, 2002, the Corporation had impaired loans totaling $13.3 million, net of specific reserves. Troubled debt restructurings totaling $1.1 million, net of specific reserves totaling $475,000, are classified as impaired loans and included in the table for nonperforming assets. At December 31, 2001, impaired loans totaled approximately $17.3 million.

 

Classification of Assets

 

Savings institutions are required to review their assets on a regular basis and, as warranted, classify them as “substandard,” “doubtful,” or “loss” as defined by OTS regulations. Adequate valuation allowances are required to be established for assets classified as substandard or doubtful. If an asset is classified as a loss, the institution must either establish a specific valuation allowance equal to the amount classified as loss or charge off such amount. An asset which does not currently warrant classification as substandard but which possesses credit deficiencies or potential weaknesses deserving close attention is required to be designated as “special mention.” In addition, a savings institution is required to set aside adequate valuation allowances to the extent that any affiliate possesses assets which pose a risk to the savings institution. The OTS has the authority to approve, disapprove or modify any asset classification or any amount established as an allowance pursuant to such classification. The Corporation generally charges off the amount of loans classified as loss. At December 31, 2002, the Corporation had $75.3 million in assets classified as special mention, $146.6 million in assets classified as substandard, $3.6 million in assets classified as doubtful and no assets classified as loss. Substantially all nonperforming assets at December 31, 2002, are classified as substandard pursuant to applicable asset classification standards. Of the Corporation’s loans which were not classified at December 31, 2002, there were no loans where known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of the borrowers to comply with present loan repayment terms.

 

Loan and Real Estate Review Policy

 

Management of the Corporation has the responsibility for establishing policies and procedures for the timely evaluation of the credit risk in the Corporation’s loan and real estate portfolios. Management is also responsible for the determination of all specific and estimated provisions for loan losses and impairments for real estate losses, taking into consideration a number of factors, including changes in the composition of the Corporation’s loan portfolio and real estate balances, current economic conditions, including real estate market conditions in the Corporation’s lending areas that may affect the borrower’s ability to make payments on loans, regular examinations by the Corporation’s credit review team of the quality of the overall loan and real estate portfolios, and regular review of specific problem loans and real estate.

 

Management also has the responsibility of ensuring timely charge-offs of loan and real estate balances, as appropriate, when general and economic conditions warrant a change in the value of these loans and real estate. To ensure that credit risk is properly and timely monitored, this responsibility has been delegated to a credit review team which consists of key personnel of the Corporation knowledgeable in the specific areas of loan and real estate valuation.

 

The objectives of the credit review team are:

 

    to examine the risk of collectibility of the Corporation’s loans and the likelihood of liquidation of real estate and other assets and their book value,

 

    to confirm problem assets at the earliest possible time,

 

    to assure an adequate level of allowances for loan losses to cover identified and anticipated credit risks,

 

    to monitor the Corporation’s compliance with established policies and procedures, and

 

    to provide the Corporation’s management with information obtained through the asset review process.

 

23


 

Effective January 1, 2002, the Corporation amended its policy for calculating reserves on the loan portfolio by classifying the credit risk of the portfolio into eight categories compared to six at December 31, 2001. Classes one through four represent varying degrees of pass rated credits, or minimal credit risk. Classes five (special mention), six (substandard), seven (doubtful) and eight (loss), mirror regulatory definitions and are consistent between all commercial loan types. Also, due to the increase in the size of the small business loan portfolio, such loans have been broken out from consumer loans and are subject to new reserve percentages. These changes were designed to more accurately reflect the inherent risk in the Corporation’s loan portfolio and the current economic environment.

 

The credit review team analyzes all significant loans and real estate of the Corporation for appropriate levels of reserves on loans and impairment losses on real estate based on varying degrees of loan or real estate value weakness. These types of loans and real estate are assigned a credit risk rating as follows:

 

Credit Risk Rating Class


 

Credit Quality


One

 

Excellent

Two

 

Good

Three

 

Satisfactory

Four

 

Acceptable

Five

 

Special Mention

Six

 

Substandard

Seven

 

Doubtful

Eight

 

Loss

 

Loans with minimal credit risk (not adversely classified or with a credit risk rating of one to five) generally have reserves established on the basis of the Corporation’s historical loss experience and various other factors. Loans adversely classified (substandard, doubtful, loss or with a credit risk rating of six to eight) have greater levels of reserves established, including specific reserves if applicable, to recognize impairment in the value of loans. Impairment losses are recorded on real estate when the fair value less estimated selling costs of the property is less than the carrying value of the property.

 

It is management’s responsibility to maintain a reasonable allowance for loan losses applicable to all categories of loans through periodic charges to operations. Management employs a systematic methodology to determine the amount of specific allowances allocated to specific loans. Specific loans that are impaired, or any portion impaired, may be allocated a specific allowance equal to the amount of impairment or, instead of establishing a specific allowance, the impaired portion also may be 100% charged off when management determines such amount to be uncollectable. The estimated allowances established on each of the Corporation’s specific pools of outstanding loan portfolios is based on a minimum and maximum percentage range of the specific portfolios as follows:

 

Type of Loan and Status


  

Minimum Loan Loss Percentage


    

Maximum Loan Loss Percentage


 

Residential real estate loans:

             

Current

  

.15

%

  

.25

%

90 days delinquent (or classified substandard)

  

7.50

 

  

10.00

 

Commercial real estate loans:

             

Class 1—excellent

  

.25

 

  

.50

 

Class 2—good

  

.60

 

  

1.20

 

Class 3—satisfactory

  

.85

 

  

1.70

 

Class 4—acceptable

  

1.35

 

  

2.70

 

Class 5—special mention

  

5.00

 

  

10.00

 

Class 6—substandard

  

10.00

 

  

20.00

 

Class 7—doubtful

  

50.00

 

  

100.00

 

Class 8—loss

  

100.00

 

  

100.00

 

 

24


Type of Loan and Status


  

Minimum Loan Loss Percentage


    

Maximum Loan Loss Percentage


 

Construction loans:

             

Class 1—excellent

  

.30

%

  

.60

%

Class 2—good

  

.65

 

  

1.30

 

Class 3—satisfactory

  

.90

 

  

1.80

 

Class 4—acceptable

  

1.40

 

  

2.80

 

Class 5—special mention

  

5.00

 

  

10.00

 

Class 6—substandard

  

10.00

 

  

20.00

 

Class 7—doubtful

  

50.00

 

  

100.00

 

Class 8—loss

  

100.00

 

  

100.00

 

Commercial operating loans:

             

Class 1—excellent

  

.45

 

  

.90

 

Class 2—good

  

.80

 

  

1.60

 

Class 3—satisfactory

  

1.05

 

  

2.10

 

Class 4—acceptable

  

1.55

 

  

3.10

 

Class 5—special mention

  

5.00

 

  

10.00

 

Class 6—substandard

  

10.00

 

  

20.00

 

Class 7—doubtful

  

50.00

 

  

100.00

 

Class 8—loss

  

100.00

 

  

100.00

 

Agricultural loans:

             

Class 1—excellent

  

.55

 

  

1.10

 

Class 2—good

  

.90

 

  

1.80

 

Class 3—satisfactory

  

1.15

 

  

2.30

 

Class 4—acceptable

  

1.65

 

  

3.30

 

Class 5—special mention

  

5.00

 

  

10.00

 

Class 6—substandard

  

10.00

 

  

20.00

 

Class 7—doubtful

  

50.00

 

  

100.00

 

Class 8—loss

  

100.00

 

  

100.00

 

Consumer loans:

             

Current—auto

  

1.75

 

  

2.50

 

Current—indirect

  

2.75

 

  

3.50

 

Current—home equity

  

.75

 

  

1.50

 

Current—all other

  

2.75

 

  

3.50

 

Substandard and 90 days delinquent

  

20.00

 

  

30.00

 

120 days delinquent (unsecured balances of consumer loans 120 days delinquent are generally written off)

  

100.00

 

  

100.00

 

Small business loans:

             

Pass

  

2.00

 

  

4.00

 

Special mention

  

2.00

 

  

10.00

 

Substandard

  

30.00

 

  

50.00

 

Doubtful/loss

  

100.00

 

  

100.00

 

Credit card/taxsaver:

             

Current standard

  

4.00

 

  

5.00

 

Current taxsaver

  

.75

 

  

1.50

 

Substandard and 90 days delinquent

  

20.00

 

  

30.00

 

120 days delinquent (credit cards 120 days delinquent are generally written off)

  

100.00

 

  

100.00

 

Commercial leases:

             

Pass

  

2.00

 

  

4.00

 

Special mention

  

2.00

 

  

10.00