HOME-9.30.2013-10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-33795
HOME FEDERAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
68-0666697
(State or other jurisdiction of incorporation or organization)
 
 (I.R.S. Employer Identification No.)
500 12th Avenue South, Nampa, Idaho
 
83651
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(208) 466-4634
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]
No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]
No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[ ]
Accelerated filer
[X]
Non-accelerated filer
[ ]
Smaller reporting company
[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
Yes [ ]
No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value per share, 14,523,315 shares outstanding as of November 1, 2013.




HOME FEDERAL BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
Page Number
 
 
 
 


1




Item 1. Financial Statements

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
September 30,
 
December 31,
CONSOLIDATED BALANCE SHEETS
2013
 
2012
(In thousands, except share data) (unaudited)
 
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
102,269

 
$
115,529

Investments available-for-sale, at fair value
414,026

 
420,505

FHLB stock, at cost
16,929

 
17,401

Loans receivable, net of allowance for loan losses of $10,583 and $12,528
401,842

 
409,846

Accrued interest receivable
2,852

 
2,776

Property and equipment, net
26,592

 
29,057

Bank owned life insurance (“BOLI”)
15,635

 
15,938

Real estate owned and other repossessed assets (“REO”)
6,513

 
10,386

FDIC indemnification receivable, net
6,129

 
10,846

Core deposit intangible
2,168

 
2,523

Deferred tax assets, net
15,853

 
9,022

Other assets
5,022

 
4,791

TOTAL ASSETS
$
1,015,830

 
$
1,048,620

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
LIABILITIES
 
 
 
Deposit accounts:
 
 
 
Noninterest-bearing demand
$
161,335

 
$
142,207

Interest-bearing demand
247,099

 
248,836

Money market
158,231

 
167,202

Savings
86,792

 
83,401

Certificates
178,319

 
209,242

Total deposit accounts
831,776

 
850,888

 
 
 
 
Advances by borrowers for taxes and insurance
1,334

 
490

Accrued interest payable
127

 
167

Deferred compensation
6,422

 
6,149

Repurchase agreements
511

 
4,775

Other liabilities
5,490

 
6,366

Total liabilities
845,660

 
868,835

 
 
 
 
STOCKHOLDERS’ EQUITY
 
 
 
Serial preferred stock, $0.01 par value; 10,000,000 authorized;
issued and outstanding: none

 

Common stock, $0.01 par value; 90,000,000 authorized; issued and outstanding:
145

 
145

Sep. 30, 2013 - 17,542,217 issued; 14,522,196 outstanding
 
 
 
Dec. 31, 2012 - 17,512,997 issued; 14,453,399 outstanding
 
 
 
Additional paid-in capital
133,354

 
131,934

Retained earnings
45,942

 
46,337

Unearned shares issued to employee stock ownership plan (“ESOP”)
(6,254
)
 
(6,823
)
Accumulated other comprehensive income (loss)
(3,017
)
 
8,192

Total stockholders’ equity
170,170

 
179,785

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,015,830

 
$
1,048,620


See accompanying notes.


2



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data) (unaudited)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Interest income:
 
 
 
 
 
 
 
Loans
$
7,762

 
$
10,150

 
$
24,751

 
$
30,400

Investments
2,661

 
2,249

 
7,841

 
6,662

Other interest income
51

 
38

 
167

 
179

Total interest income
10,474

 
12,437

 
32,759

 
37,241

Interest expense:
 
 
 
 
 
 
 
Deposits
707

 
891

 
2,253

 
2,984

Repurchase agreements
0

 
17

 
19

 
54

Total interest expense
707

 
908

 
2,272

 
3,038

Net interest income
9,767

 
11,529

 
30,487

 
34,203

Provision for loan losses
(970
)
 
105

 
(1,553
)
 
(1,112
)
Net interest income after provision for loan losses
10,737

 
11,424

 
32,040

 
35,315

Noninterest income:
 
 
 
 
 
 
 
Service charges and fees
2,120

 
2,110

 
6,234

 
6,491

Gain on sale of investments ($485 of gains during the nine months ended September 30, 2013, are comprised of accumulated other comprehensive income reclassifications)

 
79

 
485

 
1,217

Increase in cash surrender value of BOLI
116

 
122

 
350

 
365

FDIC indemnification recovery (provision)
(648
)
 
50

 
(695
)
 
(1,180
)
Impairment of FDIC indemnification asset, net
(1,164
)
 
(2,994
)
 
(5,480
)
 
(8,042
)
Other income
331

 
282

 
591

 
827

Total noninterest income
755

 
(351
)
 
1,485

 
(322
)
Noninterest expense:
 
 
 
 
 
 
 
Compensation and benefits
5,822

 
5,717

 
17,491

 
18,029

Occupancy and equipment
1,302

 
1,466

 
4,096

 
4,543

Data processing
860

 
920

 
2,723

 
2,867

Advertising
138

 
219

 
427

 
596

Postage and supplies
195

 
210

 
616

 
763

Professional services
702

 
678

 
1,821

 
1,947

Insurance and taxes
427

 
503

 
1,231

 
1,585

Amortization of intangibles
112

 
137

 
354

 
433

Provision for REO
1

 
56

 
644

 
454

Other expenses
374

 
580

 
1,024

 
1,335

Total noninterest expense
9,933

 
10,486

 
30,427

 
32,552

Income before income taxes
1,559

 
587

 
3,098

 
2,441

Income tax provision
506

 
265

 
1,009

 
858

Net income
$
1,053

 
$
322

 
$
2,089

 
$
1,583

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.08

 
$
0.02

 
$
0.15

 
$
0.11

Diluted
0.08

 
0.02

 
0.15

 
0.11

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
13,742,613

 
14,109,468

 
13,696,484

 
14,505,210

Diluted
13,836,734

 
14,117,621

 
13,776,096

 
14,505,210

 
 
 
 
 
 
 
 
Dividends declared per share:
$
0.06

 
$
0.06

 
$
0.18

 
$
0.17


See accompanying notes.

3



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (unaudited)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
Comprehensive income (loss):
 
 
 
 
 
 
 
Net income
$
1,053

 
$
322

 
$
2,089

 
$
1,583

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in unrealized holding gain (loss) on
securities available-for-sale, net of taxes of
$(847), $1,282, $(6,963) and $2,687, respectively
(1,328
)
 
2,009

 
(10,913
)
 
4,212

Adjustment for realized gains, net of taxes of
$0, $(31), $(189) and $(474), respectively

 
(48
)
 
(296
)
 
(743
)
Other comprehensive income (loss)
(1,328
)
 
1,961

 
(11,209
)
 
3,469

Comprehensive income (loss)
$
(275
)
 
$
2,283

 
$
(9,120
)
 
$
5,052


See accompanying notes.

4



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
(In thousands, except share data) (unaudited)
 
Additional Paid-In Capital
 
Retained Earnings
 
Unearned Shares Issued to ESOP
 
Accumulated Other Comprehensive Income (Loss)
 
Total
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2012
14,453,399

 
$
145

 
$
131,934

 
$
46,337

 
$
(6,823
)
 
$
8,192

 
$
179,785

Restricted stock issued, net of forfeitures
45,457

 

 


 
 
 
 
 
 
 

Repurchased restricted stock to pay taxes
(5,880
)
 
 
 
(73
)
 
 
 
 
 
 
 
(73
)
ESOP shares committed to be released
 
 
 
 
172

 
 
 
569

 
 
 
741

Exercise of stock options
29,220

 


 
341

 
 
 
 
 
 
 
341

Share-based compensation
 
 
 
 
982

 
 
 
 
 
 
 
982

Dividends paid ($0.18 per share)
 
 
 
 
 
 
(2,484
)
 
 
 
 
 
(2,484
)
Tax adjustments for equity comp. plans
 
 
 
 
(2
)
 
 
 
 
 
 
 
(2
)
Net income
 
 
 
 
 
 
2,089

 
 
 
 
 
2,089

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
(11,209
)
 
(11,209
)
Balance at September 30, 2013
14,522,196

 
$
145

 
$
133,354

 
$
45,942

 
$
(6,254
)
 
$
(3,017
)
 
$
170,170


See accompanying notes.


5



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (unaudited)
Nine Months Ended
September 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
2,089

 
$
1,583

Adjustments to reconcile net income to cash provided from operating activities:
 
 
 
Depreciation and amortization
2,111

 
2,292

Amortization of core deposit intangible
354

 
433

Impairment of FDIC indemnification receivable
5,480

 
8,042

Net amortization of premiums and discounts on investments
2,102

 
4,311

Gain on sale of investments available-for-sale (“AFS”)
(485
)
 
(1,217
)
Gain on insurance proceeds
(161
)
 

Gain on sale of fixed assets and repossessed assets
(233
)
 
(554
)
ESOP shares committed to be released
741

 
592

Share based compensation expense
982

 
758

Provision for loan losses
(1,553
)
 
(1,112
)
Valuation allowance on real estate and other property owned
644

 
454

Accrued deferred compensation expense, net
273

 
185

Net deferred loan fees
130

 
203

Deferred income tax provision (benefit)
321

 
(4,495
)
Net increase in cash surrender value of BOLI
(350
)
 
(365
)
Change in assets and liabilities:
 
 
 
Interest receivable
(76
)
 
(205
)
Other assets
(250
)
 
(2,227
)
Interest payable
(39
)
 
(46
)
Other liabilities
(879
)
 
(1,938
)
Net cash provided from operating activities
11,201

 
6,694

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Principal repayments, maturities and calls of investments AFS
78,166

 
77,602

Proceeds from sales of investments AFS
19,460

 
62,849

Purchase of investments AFS
(111,124
)
 
(182,435
)
Proceeds from redemption of FHLB stock
473

 
158

Reimbursement (repayment) of loan losses under loss share agreement
(492
)
 
2,932

Net decrease in loans
7,864

 
28,493

Loans purchased

 
(7,711
)
Proceeds from sales of fixed assets and repossessed assets
5,444

 
14,980

Purchases of fixed assets
(318
)
 
(682
)
Proceeds from BOLI policies
814

 

Net cash provided from (used by) investing activities
287

 
(3,814
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net decrease in deposits
(19,112
)
 
(47,717
)
Net increase in advances by borrowers for taxes and insurance
844

 
963

Net decrease in repurchase agreements
(4,264
)
 
(155
)
Repurchased restricted stock to pay taxes
(73
)
 
(87
)
Proceeds from exercise of stock options
341

 

Repurchases of common stock

 
(11,464
)
Dividends paid
(2,484
)
 
(2,479
)
Net cash used by financing activities
(24,748
)
 
(60,939
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(13,260
)
 
(58,059
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
115,529

 
144,293

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
102,269

 
$
86,234


See accompanying notes.



6



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands) (unaudited)
Nine Months Ended
September 30,
 
2013
 
2012
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the year for:
 
 
 
Interest
$
2,312

 
$
3,084

Income taxes
865

 
7,489

 
 
 
 
NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Acquisition of real estate and other assets in settlement of loans
$
1,630

 
$
9,851

Fair value adjustment to securities AFS, net of taxes
(11,209
)
 
3,469

Transfer of fixed assets into REO
609

 


See accompanying notes.

7



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – Basis of Presentation

The consolidated financial statements presented in this report include the accounts of Home Federal Bancorp, Inc., a Maryland corporation (the “Company”), and its wholly-owned subsidiary, Home Federal Bank (the “Bank”), which is a state-chartered commercial bank headquartered in Nampa, Idaho. As used throughout this report, the term the “Company” refers to Home Federal Bancorp, Inc., and its consolidated subsidiary, unless the context otherwise requires.

The consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are unaudited. All significant intercompany transactions and balances have been eliminated. In the opinion of the Company's management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the financial condition and results of operations for the interim periods included herein have been made. Operating results for the three and nine months ended September 30, 2013, are not necessarily indicative of the results that may be expected for future periods.

On July 30, 2010, the Bank entered into a purchase and assumption agreement with the FDIC to assume all of the deposits and acquire certain assets of LibertyBank, headquartered in Eugene, Oregon (“LibertyBank Acquisition”). In August 2009, the Bank entered into a purchase and assumption agreement with the FDIC to assume all of the deposits and certain assets of Community First Bank, headquartered in Prineville, Oregon ( “CFB Acquisition”). All of the loans purchased in the CFB Acquisition and the majority of loans and leases purchased in the LibertyBank Acquisition are included under the loss sharing agreements with the FDIC and are referred to as “covered loans.” Real estate owned and repossessed assets (“REO”) acquired in the CFB Acquisition and the LibertyBank Acquisition that are also included in the loss sharing agreements are referred to as “covered REO.” The covered loans and covered REO are collectively referred to as “covered assets.” Loans and foreclosed and repossessed assets not subject to loss sharing agreements with the FDIC are referred to as “noncovered loans” or “noncovered assets.”

Certain information and note disclosures normally included in the Company's annual consolidated financial statements have been condensed or omitted. Therefore, these consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (“2012 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on March 15, 2013.

Certain reclassifications have been made to prior year's financial statements in order to conform to the current year presentation. The reclassifications had no effect on previously reported net income or equity.

Note 2 – Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about these amounts. The new guidance was effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this guidance did not have a significant impact on the Company's Consolidated Financial Statements but the disclosures are included.

In October 2012, the FASB issued ASU 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. ASU 2012-06 addresses the diversity in practice about how to interpret the terms “on the same basis” and “contractual limitations” when subsequently measuring an indemnification asset. The adoption of this ASU was effective for fiscal years and interim periods beginning on or after December 15, 2012. This ASU did not have a

8



significant impact on the Company’s Consolidated Financial Statements as the Company accounted for its indemnification asset in a manner consistent with this ASU.

Note 3 – Earnings Per Share (“EPS”)

Basic earnings per common share is computed by dividing net income allocated to common stock by the weighted average number of common shares outstanding during the period, which excludes the participating securities (securities that may participate in undistributed earnings with common stock). Diluted earnings per common share includes the dilutive effect of additional potential common shares from stock compensation awards, but excludes awards considered participating securities. ESOP shares are not considered outstanding for earnings per share purposes until they are committed to be released.

The following table presents the computation of basic and diluted earnings per share for the periods indicated (in thousands, except share and per share data):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
1,053

 
$
322

 
$
2,089

 
$
1,583

Allocated to participating securities
(7
)
 
(3
)
 
(15
)
 
(14
)
Net income allocated to common stock
$
1,046

 
$
319

 
$
2,074

 
$
1,569

 
 
 
 
 
 
 
 
Weighted average common shares outstanding, gross
14,485,554

 
14,964,693

 
14,468,721

 
15,377,013

Less: Average unearned ESOP shares
(651,909
)
 
(729,749
)
 
(671,370
)
 
(749,210
)
Less: Average participating securities
(91,032
)
 
(125,476
)
 
(100,867
)
 
(122,593
)
Weighted average common shares outstanding, net
13,742,613

 
14,109,468

 
13,696,484

 
14,505,210

Net effect of dilutive stock options
94,121

 
8,153

 
79,612

 

Weighted average shares and common stock equivalents
13,836,734

 
14,117,621

 
13,776,096

 
14,505,210

Income per common share:
 
 
 
 
 
 
 
Basic
$
0.08

 
$
0.02

 
$
0.15

 
$
0.11

Diluted
0.08

 
0.02

 
0.15

 
0.11

Options excluded from the calculation due to their anti-dilutive effect on EPS
322,349

 
968,092

 
361,399

 
968,092





9



Note 4 – Investments

The Company’s investment policies are designed to provide and maintain adequate liquidity and to generate favorable rates of return without incurring undue interest rate or credit risk, and generally limit investments to mortgage-backed securities, securities issued by U.S. Government-sponsored enterprises (“GSE”), municipal bonds, certificates of deposit and marketable corporate debt obligations. Investments available-for-sale consisted of the following at September 30, 2013 and December 31, 2012 (dollars in thousands):
 
   Amortized
   Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
Percent of Total
September 30, 2013
 
 
 
 
 
 
 
 
 
Obligations of U.S. GSE
$
57,157

 
$
331

 
$
(1,417
)
 
$
56,071

 
13.5
%
Obligations of states and political subdivisions
42,025

 
578

 
(1,315
)
 
41,288

 
10.0

U.S. Treasury bonds
9,604

 

 
(1,117
)
 
8,487

 
2.1

Mortgage-backed securities, GSE-issued
309,933

 
5,155

 
(7,152
)
 
307,936

 
74.3

Mortgage-backed securities, private label
249

 

 
(5
)
 
244

 
0.1

Total
$
418,968

 
$
6,064

 
$
(11,006
)
 
$
414,026

 
100.0
%
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
Obligations of U.S. GSE
$
56,179

 
$
1,481

 
$

 
$
57,660

 
13.7
%
Obligations of states and political subdivisions
38,932

 
2,009

 
(51
)
 
40,890

 
9.7

Mortgage-backed securities, GSE-issued
311,690

 
10,116

 
(134
)
 
321,672

 
76.5

Mortgage-backed securities, private label
287

 

 
(4
)
 
283

 
0.1

Total
$
407,088

 
$
13,606

 
$
(189
)
 
$
420,505

 
100.0
%

For the nine months ended September 30, 2013 and 2012, proceeds from sales of investments available-for-sale amounted to $19.5 million and $62.8 million, respectively. Gross realized gains for the nine months ended September 30, 2013 and 2012 were $518,000 and $1.2 million respectively, against gross realized losses of $33,000 and $0, respectively. All gains and losses were included in noninterest income on the Consolidated Statements of Operations.

The fair value of investments with unrealized losses, the amount of unrealized losses and the length of time these unrealized losses existed as of September 30, 2013 and December 31, 2012, were as follows (in thousands):
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Obligations of U.S. GSE
$
31,276

 
$
(1,417
)
 
$

 
$

 
$
31,276

 
$
(1,417
)
Obligations of states and political subdivisions
27,639

 
(1,315
)
 

 

 
27,639

 
(1,315
)
U.S. Treasury bonds
8,487

 
(1,117
)
 

 

 
8,487

 
(1,117
)
Mortgage-backed securities, GSE-issued
144,722

 
(7,150
)
 
111

 
(2
)
 
144,833

 
(7,152
)
Mortgage-backed securities, private label

 

 
244

 
(5
)
 
244

 
(5
)
Total
$
212,124

 
$
(10,999
)
 
$
355

 
$
(7
)
 
$
212,479

 
$
(11,006
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
6,117

 
$
(51
)
 
$

 
$

 
$
6,117

 
$
(51
)
Mortgage-backed securities, GSE-issued
20,461

 
(131
)
 
114

 
(3
)
 
20,575

 
(134
)
Mortgage-backed securities, private label

 

 
283

 
(4
)
 
283

 
(4
)
Total
$
26,578

 
$
(182
)
 
$
397

 
$
(7
)
 
$
26,975

 
$
(189
)


10



Management has evaluated these investments and has determined that the decline in value is not other than temporary and not related to the underlying credit quality of the issuers or an industry specific event. The declines in value are on investments that have contractual maturity dates and future principal payments that will be sufficient to recover the current amortized cost of the investments. The Company does not have the intent to sell these investments and it is likely that it will not be required to sell these investments before their anticipated recovery.

The contractual maturities of investments available-for-sale at the dates indicated are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties.
 
September 30, 2013
 
December 31, 2012
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due within one year
$
10,006

 
$
10,047

 
$
14,136

 
$
14,206

Due after one year through five years
3,333

 
3,506

 
7,051

 
7,280

Due after five years through ten years
23,725

 
23,760

 
20,719

 
21,908

Due after ten years
71,722

 
68,533

 
53,205

 
55,156

 
 
 
 
 
 
 
 
Mortgage-backed securities
310,182

 
308,180

 
311,977

 
321,955

Total
$
418,968

 
$
414,026

 
$
407,088

 
$
420,505


As of September 30, 2013, and December 31, 2012, the Bank pledged investments for the following obligations (in thousands):
 
September 30, 2013
 
December 31, 2012
 
Amortized Cost
 
Fair
Value
 
Amortized Cost
 
Fair
Value
FHLB borrowings
$
17,076

 
$
18,408

 
$
23,482

 
$
25,397

Federal Reserve Bank
805

 
836

 
1,166

 
1,222

Repurchase agreements
5,421

 
5,632

 
4,607

 
4,855

Deposits of municipalities and public units
7,605

 
8,111

 
9,871

 
10,573

Total
$
30,907

 
$
32,987

 
$
39,126

 
$
42,047





11



Note 5 – Loans and Leases Receivable and the Allowance for Loan Losses

Loans and leases receivable are summarized as follows at September 30, 2013, and December 31, 2012 (dollars in thousands):
 
September 30, 2013
 
December 31, 2012
 
Amount
 
Percent of Gross
 
Amount
 
Percent of Gross
Real estate:
 
 
 
 
 
 
 
One-to-four family residential
$
72,039

 
17.5
%
 
$
87,833

 
20.8
%
Multifamily residential
38,532

 
9.3

 
34,377

 
8.1

Commercial
176,467

 
42.8

 
185,132

 
43.8

Total real estate
287,038

 
69.6

 
307,342

 
72.7

Real estate construction:
 
 
 
 
 
 
 
One-to-four family residential
24,362

 
5.9

 
13,016

 
3.1

Multifamily residential
4,598

 
1.1

 
520

 
0.1

Commercial and land development
25,169

 
6.1

 
25,391

 
6.0

Total real estate construction
54,129

 
13.1

 
38,927

 
9.2

Consumer:
 
 
 
 
 
 
 
Home equity
37,970

 
9.2

 
41,793

 
9.9

Automobile
844

 
0.2

 
966

 
0.2

Other consumer
3,067

 
0.8

 
4,012

 
1.1

Total consumer
41,881

 
10.2

 
46,771

 
11.2

Commercial business
29,422

 
7.1

 
29,249

 
6.9

Gross loans
412,470

 
100.0
%
 
422,289

 
100.0
%
Deferred loan (fees) costs, net
(45
)
 
 
 
85

 
 
Allowance for loan losses
(10,583
)
 
 
 
(12,528
)
 
 
Loans receivable, net
$
401,842

 
 
 
$
409,846

 
 

The following tables present loans at their recorded investment. Recorded investment includes the unpaid principal balance, net of purchase adjustments, plus accrued interest less charge offs and net deferred loan fees. Accrued interest on loans was $1.1 million at both September 30, 2013, and December 31, 2012.


12


Delinquent and nonaccrual loans. The following tables present the recorded investment in nonperforming loans and an aging of performing loans by class as of September 30, 2013 and December 31, 2012 (in thousands):
 
September 30, 2013
 
Nonperforming Loans
 
 
 
 
 
 
 
 
 
Nonaccrual
 
Past Due 90 or More Days, Still Accruing
 
Total
 
Loans Delinquent 30-59 Days
 
Loans Delinquent 60-89 Days
 
Loans Not Past Due
 
Total
Loans
Noncovered loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
2,790

 
$

 
$
2,790

 
$

 
$
117

 
$
62,470

 
$
65,377

Multifamily residential
780

 

 
780

 

 

 
36,013

 
36,793

Commercial real estate
114

 

 
114

 

 


 
134,279

 
134,393

Total real estate
3,684

 

 
3,684

 

 
117

 
232,762

 
236,563

Real estate construction:
 
 
 
 
 
 
 
 
 
 


 
 
One-to-four family residential
596

 

 
596

 

 

 
23,676

 
24,272

Multifamily residential

 

 

 

 

 
4,598

 
4,598

Commercial real estate
185

 

 
185

 

 

 
21,066

 
21,251

Total real estate construction
781

 

 
781

 

 

 
49,340

 
50,121

Consumer:
 
 
 
 
 
 
 
 
 
 


 
 
Home equity
473

 

 
473

 

 
29

 
29,135

 
29,637

Automobile
6

 

 
6

 

 

 
733

 
739

Other consumer

 

 

 
5

 

 
2,527

 
2,532

Total consumer
479

 

 
479

 
5

 
29

 
32,395

 
32,908

Commercial business
223

 

 
223

 

 

 
23,164

 
23,387

Total noncovered loans
5,167

 

 
5,167

 
5

 
146

 
337,661

 
342,979

Covered loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
243

 

 
243

 

 
332

 
6,144

 
6,719

Multifamily residential
68

 

 
68

 

 

 
2,516

 
2,584

Commercial real estate
3,301

 

 
3,301

 

 


 
38,809

 
42,110

Total real estate
3,612

 

 
3,612

 

 
332

 
47,469

 
51,413

Commercial real estate construction
223

 

 
223

 

 

 
3,655

 
3,878

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
34

 

 
34

 

 

 
8,515

 
8,549

Automobile

 

 

 
9

 

 
96

 
105

Other consumer

 

 

 

 

 
566

 
566

Total consumer
34

 

 
34

 
9

 

 
9,177

 
9,220

Commercial business

 

 

 

 

 
6,029

 
6,029

Total covered loans
3,869

 

 
3,869

 
9

 
332

 
66,330

 
70,540

Total gross loans
$
9,036

 
$

 
$
9,036

 
$
14

 
$
478

 
$
403,991

 
$
413,519



13


 
December 31, 2012
 
Nonperforming Loans
 
 
 
 
 
 
 
 
 
Nonaccrual
 
Past Due 90 or More Days, Still Accruing
 
Total
 
Loans Delinquent 30-59 Days
 
Loans Delinquent 60-89 Days
 
Loans Not Past Due
 
Total
Loans
Noncovered loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
3,240

 
$

 
$
3,240

 
$
498

 
$
217

 
$
75,741

 
$
79,696

Multifamily residential
825

 

 
825

 

 

 
30,228

 
31,053

Commercial real estate
3,727

 

 
3,727

 

 


 
132,825

 
136,552

Total real estate
7,792

 

 
7,792

 
498

 
217

 
238,794

 
247,301

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
593

 

 
593

 

 

 
12,423

 
13,016

Multifamily residential

 

 

 

 

 
520

 
520

Commercial real estate
218

 

 
218

 

 

 
19,756

 
19,974

Total real estate construction
811

 

 
811

 

 

 
32,699

 
33,510

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
643

 

 
643

 
31

 
7

 
30,979

 
31,660

Automobile

 

 

 

 
3

 
752

 
755

Other consumer

 

 

 
13

 

 
3,257

 
3,270

Total consumer
643

 

 
643

 
44

 
10

 
34,988

 
35,685

Commercial business
351

 

 
351

 

 

 
17,183

 
17,534

Total noncovered loans
9,597

 

 
9,597

 
542

 
227

 
323,664

 
334,030

Covered loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
338

 

 
338

 

 

 
7,835

 
8,173

Multifamily residential

 

 

 

 

 
3,325

 
3,325

Commercial real estate
4,108

 

 
4,108

 

 


 
44,471

 
48,579

Total real estate
4,446

 

 
4,446

 

 

 
55,631

 
60,077

Commercial real estate construction
248

 

 
248

 

 

 
5,169

 
5,417

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
85

 

 
85

 
30

 

 
10,164

 
10,279

Automobile

 

 

 

 

 
210

 
210

Other consumer
10

 

 
10

 
5

 
5

 
742

 
762

Total consumer
95

 

 
95

 
35

 
5

 
11,116

 
11,251

Commercial business

 

 

 

 

 
12,699

 
12,699

Total covered loans
4,789

 

 
4,789

 
35

 
5

 
84,615

 
89,444

Total gross loans
$
14,386

 
$

 
$
14,386

 
$
577

 
$
232

 
$
408,279

 
$
423,474


Loan classification. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk classification ratings:
    
Watch. A loan is categorized as watch if it possesses some reason for additional management oversight, such as correctable documentation deficiencies, recent financial setbacks, deteriorating financial position, industry concerns, and failure to perform on other borrowing obligations. Loans with this classification are to be monitored in an effort to correct deficiencies and upgrade the credit if warranted. At the time of this classification, they are not believed to expose the Company to significant risk.

Special Mention. Performing loans that have developed minor credit weaknesses since origination are categorized as special mention. Evidence of credit weakness include the primary source of repayment has deteriorated and no longer meets debt service requirements as defined in Company policy, the borrower may have a short track record and little depth of management, inadequate current financial information, marginal capitalization, and susceptibility to negative industry trends. The primary source of repayment remains viable but there is increasing reliance on collateral or guarantor support.


14


Substandard. A loan is considered substandard if it is inadequately protected by the current net worth, liquidity and paying capacity of the borrower or collateral pledged. Substandard assets include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values.
    
Loss. This classification of loans includes loans that are considered uncollectible and of such little value that their continuance as an active asset is not warranted. This does not mean the loan has no salvage value, however, is neither desirable nor practical to defer writing off this asset at this time. Once a determination has been made that a loss exists, the loss amount will be charged-off. As a result, generally, the Company will not report loan balances as “Loss.”

Pass. Loans not meeting the criteria above are considered to be pass rated loans. The pass classification also includes homogeneous loans (such as one-to-four family residential and consumer loans) unless the borrower experiences a delinquency or requests a modification, at which point the loan is graded as specified above.

As of September 30, 2013, and December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans was as follows (in thousands):
 
September 30, 2013
 
Pass
 
Watch
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
Loans
Noncovered loans
 
 
 
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
61,729

 
$

 
$

 
$
3,648

 
$

 
$
65,377

Multifamily residential
35,859

 
20

 
45

 
869

 

 
36,793

Commercial real estate
108,234

 
9,672

 
9,577

 
6,910

 

 
134,393

Total real estate
205,822

 
9,692

 
9,622

 
11,427

 

 
236,563

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
21,606

 
2,070

 

 
596

 

 
24,272

Multifamily residential
4,598

 

 

 

 

 
4,598

Commercial real estate
20,897

 
169

 

 
185

 

 
21,251

Total real estate construction
47,101

 
2,239

 

 
781

 

 
50,121

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Home equity
29,120

 
44

 

 
473

 

 
29,637

Automobile
723

 
10

 

 
6

 

 
739

Other consumer
2,477

 
32

 
15

 
8

 

 
2,532

Total consumer
32,320

 
86