Edgar Filing: Home Federal Bancorp, Inc.

homeq93012.htm

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, 2012

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 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 Number)

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 Exchange 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, $.01 par value per share, 14,536,829 shares outstanding as of November 2, 2012.

HOME FEDERAL BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

	ITEM 1. FINANCIAL STATEMENTS	2

	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30

	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	51

	ITEM 4. CONTROLS AND PROCEDURES	52

PART II – OTHER INFORMATION

	ITEM 1. LEGAL PROCEEDINGS	53

	ITEM 1A. RISK FACTORS	53

	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	53

	ITEM 3. DEFAULTS UPON SENIOR SECURITIES	53

	ITEM 4. MINE SAFETY DISCLOSURES	53

	ITEM 5. OTHER INFORMATION	53

	ITEM 6. EXHIBITS	54

Item 1. Financial Statements

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data) (Unaudited)

	September 30, 2012			December 31, 2011

ASSETS
Cash and cash equivalents	$	86,234		$	144,293
Investments available-for-sale, at fair value		444,449			399,877
Loans and leases receivable, net of allowance for loan and lease losses of $12,588 and $14,171		420,232			449,908
Accrued interest receivable		3,062			2,857
Federal Deposit Insurance Corporation (“FDIC”) indemnification receivable, net		14,024			23,676
Bank owned life insurance		15,815			15,450
Real estate owned and other repossessed assets (“REO”)		14,185			19,827
Federal Home Loan Bank (“FHLB”) stock, at cost		17,559			17,717
Property and equipment, net		29,672			31,522
Core deposit intangible		2,653			3,086
Other assets		12,302			8,221
TOTAL ASSETS	$	1,060,187		$	1,116,434

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposit accounts:
Noninterest-bearing demand	$	141,381		$	127,553
Interest-bearing demand		245,901			249,215
Money market		174,008			178,377
Savings		80,050			78,492
Certificates		217,042			272,462
Total deposit accounts		858,382			906,099

Advances by borrowers for taxes and insurance		1,321			358
Accrued interest payable		173			219
Repurchase agreements		4,758			4,913
Deferred compensation		6,057			5,871
Other liabilities		5,854			7,704
Total liabilities		876,545			925,164

STOCKHOLDERS’ EQUITY
Serial preferred stock, $.01 par value; 10,000,000 authorized; issued and outstanding: none		--			--
Common stock, $.01 par value; 90,000,000 authorized; issued and outstanding:		145			157
Sep. 30, 2012 - 17,512,197 issued; 14,536,029 outstanding
Dec. 31, 2011 - 17,512,197 issued; 15,664,706 outstanding
Additional paid-in capital		132,523			143,280
Retained earnings		48,547			49,443
Unearned shares issued to employee stock ownership plan		(7,013	)		(7,581	)
Accumulated other comprehensive income		9,440			5,971
Total stockholders’ equity		183,642			191,270
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,060,187		$	1,116,434

See accompanying notes.

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data) (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Interest income:
Loans and leases	$	10,150		$	15,416		$	30,400		$	32,635
Investments		2,249			2,116			6,662			6,822
Other interest		38			115			179			367
Total interest income		12,437			17,647			37,241			39,824

Interest expense:
Deposits		891			1,381			2,984			4,525
FHLB advances and other borrowings		17			508			54			1,613
Total interest expense		908			1,889			3,038			6,138
Net interest income		11,529			15,758			34,203			33,686
Provision for loan losses		105			2,585			(1,112	)		8,396
Net interest income after provision for loan losses		11,424			13,173			35,315			25,290

Noninterest income:
Service charges and fees		2,110			2,685			6,491			7,363
Gain on sale of loans		--			194			1			501
Gain on sale of investments		79			607			1,217			607
Gain on sale of fixed assets and REO		182			61			554			205
FDIC indemnification recovery (provision)		50			2,078			(1,180	)		7,317
Impairment of FDIC indemnification asset		(2,994	)		(6,915	)		(8,042	)		(5,911	)
Prepayment penalty on borrowings		--			(2,007	)		--			(2,007	)
Other		222			238			637			667
Total noninterest income		(351	)		(3,059	)		(322	)		8,742

Noninterest expense:
Compensation and benefits		5,717			7,081			18,029			21,042
Occupancy and equipment		1,466			1,656			4,543			5,051
Data processing		920			964			2,867			3,066
Advertising		219			474			596			909
Postage and supplies		210			351			763			998
Professional services		678			587			1,947			2,486
Insurance and taxes		503			502			1,585			2,244
Amortization of intangibles		137			168			433			530
Provision for REO		56			86			454			739
Other		580			1,675			1,335			2,626
Total noninterest expense		10,486			13,544			32,552			39,691

Income (loss) before income taxes		587			(3,430	)		2,441			(5,659	)
Income tax provision (benefit)		265			(1,413	)		858			(2,361	)
Net income (loss)	$	322		$	(2,017	)	$	1,583		$	(3,298	)

Earnings (loss) per common share:
Basic	$	0.02		$	(0.13	)	$	0.11		$	(0.21	)
Diluted		0.02			(0.13	)		0.11			(0.21	)

Weighted average number of shares outstanding:
Basic		14,109,468			15,199,958			14,505,210			15,425,397
Diluted		14,117,621			15,199,958			14,505,210			15,425,397

Dividends declared per share:	$	0.06		$	0.055		$	0.17		$	0.165

See accompanying notes.

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,
	2012			2011			2012			2011

Net income (loss)	$	322		$	(2,017	)	$	1,583		$	(3,298	)

Other comprehensive income:
Change in unrealized holding gain on investments available-for-sale, net of taxes of $1,282, $1,085, $2,687, and $2,992, respectively		2,009			1,701			4,212			4,690
Adjustment for realized gains on sales of investments, net of taxes of ($31), ($236), ($474) and ($236), respectively		(48	)		(371	)		(743	)		(371	)
Other comprehensive income		1,961			1,330			3,469			4,319
Comprehensive income (loss)	$	2,283		$	(687	)	$	5,052		$	1,021

See accompanying notes.

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share data) (Unaudited)

					Additional Paid-In Capital		Retained Earnings		Unearned Shares Issued to ESOP		Accumulated Other Comprehensive Income	Total
	Common Stock
	Shares		Amount

Balance at January 1, 2012	15,664,706		$ 157		$143,280		$49,443		$(7,581	)	$ 5,971	$191,270

Restricted stock issued, net of forfeitures and redemption for taxes	39,836				(38	)						(38)
ESOP shares committed to be released					24				568			592
Share-based compensation					758							758
Stock repurchase	(1,168,513	)	(12	)	(11,452	)						(11,464)
Dividends paid ($0.17 per share)							(2,479	)				(2,479)
Tax adjustment from equity compensation plans					(49	)						(49)

Net income							1,583					1,583
Other comprehensive income											3,469	3,469

Balance at September 30, 2012	14,536,029		$ 145		$132,523		$48,547		$(7,013	)	$ 9,440	$183,642

See accompanying notes.

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,583		$	(3,298	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		2,292			1,840
Amortization of core deposit intangible		433			530
Impairment of FDIC indemnification receivable		8,042			5,911
Net amortization of premiums and discounts on investments		4,311			4,381
Gain on sale of loans, net		(1	)		(501	)
Gain on sale of investments available-for-sale, net		(1,217	)		(607	)
Gain on sale of fixed assets and repossessed assets, net		(554	)		(205	)
ESOP shares committed to be released		592			896
Share based compensation expense		758			659
Provision for loan losses		(1,112	)		8,396
Valuation provision on real estate and other property owned		454			739
Accrued deferred compensation expense, net		186			141
Net deferred loan fees		203			287
Deferred income tax provision		(4,495	)		(7,400	)
Proceeds from sale of loans held for sale		1			17,733
Originations of loans held for sale		--			(16,058	)
Net increase in cash surrender value of bank owned life insurance		(365	)		(307	)
Change in assets and liabilities:
Interest receivable		(205	)		105
Other assets		(2,315	)		1,057
Interest payable		(46	)		(329	)
Other liabilities		(1,938	)		1,919
Net cash provided from operating activities		6,607			15,889

CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments, maturities and calls of investments available-for-sale		77,602			88,642
Proceeds from sales of investments available-for-sale		62,849			28,172
Purchase of investments available-for-sale		(182,435	)		(68,279	)
Proceeds from sale of FHLB stock		158			--
Reimbursement of loan losses under loss share agreement		2,932			35,009
Net decrease in loans		28,493			78,962
Purchase of loans		(7,711	)		--
Proceeds from sales of fixed assets and repossessed assets		14,980			17,921
Purchases of property and equipment		(682	)		(7,422	)
Net cash provided from (used by) investing activities		(3,814	)		173,005

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits		(47,717	)		(146,103	)
Net increase in advances by borrowers for taxes and insurance		963			794
Repayment of FHLB borrowings		--			(52,248	)
Net decrease in securities sold under obligation to repurchase		(155	)		(3,228	)
Proceeds from exercise of stock options		--			356
Repurchases of common stock		(11,464	)		(7,420	)
Dividends paid		(2,479	)		(2,557	)
Net cash used by financing activities		(60,852	)		(210,406	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(58,059	)		(21,512	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		144,293			212,246
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	86,234		$	190,734

(Continued)

See accompanying notes.

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2012		2011

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest	$	3,084	$	6,467
Taxes		7,489		208

NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of real estate owned and other assets in settlement of loans	$	9,851	$	16,547
Fair value adjustment to investments available-for-sale, net of taxes		3,469		4,318

See accompanying notes.

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 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 month periods ended September 30, 2012, are not necessarily indicative of the results that may be expected for future periods.

On January 24, 2012, the Company reported its decision to change its fiscal year end to December 31 from a fiscal year ending on September 30. This change in fiscal year end makes the Company’s year-end coincide with the regulatory reporting periods now effective with the Company’s reorganization to a bank holding company and the Bank’s conversion to a commercial bank that occurred on May 31, 2011. As a result of the change in fiscal year, the Company filed a transition report on Form 10-QT covering the transition period from October 1, 2011 to December 31, 2011. References the Company makes to a particular year (for example, 2010) in this report applies to the Company’s fiscal year and not the calendar year, unless otherwise noted.

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 (the “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 (the “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 September 30, 2011 (“2011 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on December 14, 2011.

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 (loss) or equity.

Note 2 - Recent Accounting Pronouncements

In October 2011, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. This update is effective for fiscal years and interim periods

beginning on or after December 15, 2012. Early adoption is permitted, and adoption should be applied prospectively to indemnification assets existing as of the date of adoption. This update is not expected to have a significant impact on the Company’s Consolidated Financial Statements at the date of adoption.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers changes in ASU 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by ASU 2011-12. ASU 2011-12 did not have a significant impact on the Company’s Consolidated Financial Statements.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (International Financial Reporting Standards). This guidance is effective for the first interim or annual period beginning on or after December 15, 2011, and will be applied prospectively beginning in the period of adoption. The amendments change the wording used to describe requirements for measuring fair value under U.S. GAAP to be more consistent with IFRSs. The adoption of this guidance did not have a material effect on the Company’s Consolidated Financial Statements, however, the additional disclosures are included in this Form 10-Q.

Note 3 - Earnings (Loss) Per Share

The Company has granted stock compensation awards with non-forfeitable dividend rights, which are considered participating securities. Accordingly, earnings (loss) per share (“EPS”) is computed using the two-class method as required by ASC 260-10-45. Basic EPS is computed by dividing net income (or loss) allocated to common stock by the weighted average number of common shares outstanding during the period which excludes the participating securities. Diluted EPS 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 EPS until they are committed to be released. The following table presents the computation of basic and diluted EPS for the periods indicated (in thousands, except share and per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011

Net income (loss)	$	322		$	(2,017	)	$	1,583		$	(3,298	)
Allocated to participating securities		(3	)		16			(14	)		28
Net income (loss) allocated to common shareholders	$	319		$	(2,001	)	$	1,569		$	(3,270	)

Weighted average common shares outstanding, gross		14,964,693			16,124,943			15,377,013			16,383,706
Less: Average unearned ESOP shares		(729,749	)		(795,718	)		(749,210	)		(823,471	)
Less: Average participating securities		(125,476	)		(129,267	)		(122,593	)		(134,838	)
Weighted average common shares outstanding, net		14,109,468			15,199,958			14,505,210			15,425,397
Net effect of dilutive stock options		8,153			--			--			--
Weighted average shares and common stock equivalents		14,117,621			15,199,958			14,505,210			15,425,397

Income (loss) per common share:
Basic	$	0.02		$	(0.13	)	$	0.11		$	(0.21	)
Diluted		0.02			(0.13	)		0.11			(0.21	)

Options excluded from the calculation due to their anti-dilutive effect on EPS		968,092			904,853			968,092			904,853

Note 4 - Investments

Investments available-for-sale consisted of the following at the dates indicated (dollars in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Percent of Total

September 30, 2012
Obligations of U.S. Government-sponsored enterprises (“GSE”)	$	57,801	$	1,388	$	--		$	59,189		13.3	%
U. S. Treasury bonds		9,410		425		--			9,835		2.2
Obligations of states and political subdivisions		40,670		2,038		(88	)		42,620		9.6
Mortgage-backed securities, GSE-issued		320,795		11,827		(124	)		332,498		74.8
Mortgage-backed securities, private label		310		--		(3	)		307		0.1
Total	$	428,986	$	15,678	$	(215	)	$	444,449		100.0	%

December 31, 2011
Obligations of U.S. GSE	$	65,345	$	650	$	(11	)	$	65,984		16.5	%
Obligations of states and political subdivisions		20,850		992		(33	)		21,809		5.4
Corporate note, FDIC-guaranteed		1,005		2		--			1,007		0.3
Mortgage-backed securities, GSE-issued		302,539		8,480		(253	)		310,766		77.7
Mortgage-backed securities, private label		357		--		(46	)		311		0.1
Total	$	390,096	$	10,124	$	(343	)	$	399,877		100.0	%

For the quarter ended September 30, 2012, proceeds from sales of investments available-for-sale amounted to $6.8 million. Gross realized gains on these sales totaled $79,000, partially offset by a tax provision of $31,000. There were no gross realized losses during the period. For the nine months ended September 30, 2012, proceeds from sales of investments available-for-sale were $62.8 million. Gross realized gains on these sales totaled $1.2 million, partially offset by a tax provision of $474,000. There were no gross realized losses during the period. We did not sell any investments during the three months ended March 31, 2011 or June 30, 2011; however, during the three months ended September 30, 2011, we sold $28.2 million of investments for a gross gain of $607,000. There were no gross realized losses during that period.

The fair value of impaired investments, the amount of unrealized losses and the length of time these unrealized losses existed for the periods indicated 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, 2012
Obligations of states and political subdivisions	$	7,338	$	(88	)	$	--	$	--		$	7,338	$	(88	)
Mortgage-backed securities, GSE-issued		10,442		(124	)		19		--			10,461		(124	)
Mortgage-backed securities, private label		--		--			307		(3	)		307		(3	)
Total	$	17,780	$	(212	)	$	326	$	(3	)	$	18,106	$	(215	)

December 31, 2011
Obligations of U.S. GSE	$	1,739	$	(11	)	$	--	$	--		$	1,739	$	(11	)
Obligations of states and political subdivisions		2,802		(33	)		--		--			2,802		(33	)
Mortgage-backed securities, GSE-issued		38,732		(245	)		4,010		(8	)		42,742		(253	)
Mortgage-backed securities, private label		--		--			311		(46	)		311		(46	)
Total	$	43,273	$	(289	)	$	4,321	$	(54	)	$	47,594	$	(343	)

Management has evaluated these investments and has determined that the decline in fair value is not other than temporary. These investments have contractual maturity dates and management believes it is probable that principal and interest balances on these investments will be collected based on the performance, underwriting, credit support and vintage of the loans underlying the investments. However, continued deteriorating economic conditions may result in degradation in the performance of the loans underlying these investments in the future. The Company has the ability and intent to hold these investments for a reasonable period of time for a forecasted recovery of the amortized cost. The Company does not intend to sell these investments and it is not likely that the Company would be required to sell investments in an unrealized loss position before recovery of its cost basis.

The contractual maturities of investments available-for-sale at the dates indicated are shown below (in thousands). Expected maturities may differ from the contractual maturities of such investments because borrowers have the right to prepay obligations without prepayment penalties.

	September 30, 2012				December 31, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due within one year	$	14,168	$	14,206	$	13,418	$	13,455
Due after one year through five years		12,283		12,418		23,982		24,175
Due after five years through ten years		21,417		22,605		12,457		13,046
Due after ten years		60,013		62,415		37,343		38,124
Mortgage-backed securities		321,105		332,805		302,896		311,077
Total	$	428,986	$	444,449	$	390,096	$	399,877

As of September 30, 2012 and December 31, 2011, the Bank pledged investments for the following obligations (in thousands):

	September 30, 2012				December 31, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

FHLB borrowing line of credit	$	25,985	$	28,332	$	33,782	$	36,460
Federal Reserve Bank		1,305		1,380		1,787		1,874
Repurchase agreements		5,307		5,633		7,458		7,858
Deposits of municipalities and public units		11,364		12,239		15,499		16,513
Total	$	43,961	$	47,584	$	58,526	$	62,705

Note 5 - Loans Receivable and Allowance for Loan Losses

Loans receivable at the dates indicated are summarized by collateral type as follows (dollars in thousands):

	September 30, 2012						December 31, 2011
	Amount			Percent of Gross			Amount			Percent of Gross

Real estate:
One-to-four family residential	$	95,070			22.0	%	$	115,403			24.8	%
Multifamily residential		35,449			8.2			21,036			4.5
Commercial real estate		184,464			42.6			206,215			44.4
Total real estate		314,983			72.8			342,654			73.7

Real estate construction:
One-to-four family residential		13,627			3.1			9,355			2.0
Multifamily residential		98			--			--			--
Commercial and land development		25,914			6.0			16,928			3.6
Total real estate construction		39,639			9.1			26,283			5.6

Consumer:
Home equity		43,220			10.0			47,192			10.2
Automobile		940			0.2			946			0.2
Other consumer		3,797			0.9			4,580			1.0
Total consumer		47,957			11.1			52,718			11.4

Commercial business		29,356			6.8			40,953			8.8
Leases		771			0.2			2,159			0.5
Gross loans		432,706			100.0	%		464,767			100.0	%
Deferred loan costs (fees), net		114						(688	)
Allowance for loan losses		(12,588	)					(14,171	)
Loans receivable, net	$	420,232					$	449,908

The following tables present loans at their recorded investment; therefore, the balances in the tables below may differ from the loan portfolio table above. Recorded investment includes the unpaid principal balance or the carrying amount of loans plus accrued interest less charge offs and net deferred loan fees. Accrued interest on loans was $1.2 million and $1.3 million as of September 30, 2012 and December 31, 2011, respectively.

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, 2012 and December 31, 2011 (in thousands):

	September 30, 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	$	3,671	$	--	$	3,671	$	3	$	110	$	81,290	$	85,074
Multifamily residential		839		--		839		--		--		30,837		31,676
Commercial real estate		7,859		--		7,859		309		--		125,308		133,476
Total real estate		12,369		--		12,369		312		110		237,435		250,226

Real estate construction:
One-to-four family residential		613		--		613		--		--		13,014		13,627
Multifamily residential		--		--		--		--		--		98		98
Commercial real estate		253		--		253		--		--		19,170		19,423
Total real estate construction		866		--		866		--		--		32,282		33,148

Consumer:
Home equity		693		--		693		27		--		31,845		32,565
Automobile		--		--		--		--		--		709		709
Other consumer		149		--		149		1		3		2,879		3,032
Total consumer		842		--		842		28		3		35,433		36,306

Commercial business		370		--		370		3		--		14,569		14,942
Leases		--		--		--		--		--		175		175
Total noncovered loans		14,447		--		14,447		343		113		319,894		334,797

Covered loans
Real estate:
One-to-four family residential		348		--		348		--		--		9,726		10,074
Multifamily residential		--		--		--		--		--		3,772		3,772
Commercial real estate		5,934		--		5,934		226		--		44,827		50,987
Total real estate		6,282		--		6,282		226		--		58,325		64,833

Real estate construction:
Commercial real estate		254		--		254		--		--		6,238		6,492
Total real estate construction		254		--		254		--		--		6,238		6,492

Consumer:
Home equity		89		--		89		--		--		10,715		10,804
Automobile		--		--		--		--		--		231		231
Other consumer		--		--		--		23		--		772		795
Total consumer		89		--		89		23		--		11,718		11,830

Commercial business		7		--		7		--		--		15,449		15,456
Leases		--		--		--		--		--		596		596
Total covered loans		6,632		--		6,632		249		--		92,326		99,207
Total gross loans	$	21,079	$	--	$	21,079	$	592	$	113	$	412,220	$	434,004

	December 31, 2011
	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	$	5,446	$	--	$	5,446	$	1,435	$	149	$	96,307	$	103,337
Multifamily residential		--		--		--		--		--		13,184		13,184
Commercial real estate		7,601		--		7,601		--		--		137,480		145,081
Total real estate		13,047		--		13,047		1,435		149		246,971		261,602

Real estate construction:
One-to-four family residential		415		--		415		--		--		7,921		8,336
Commercial real estate		1,132		--		1,132		--		--		8,778		9,910
Total real estate construction		1,547		--		1,547		--		--		16,699		18,246

Consumer:
Home equity		676		--		676		55		114		33,894		34,739
Automobile		--		--		--		--		--		665		665
Other consumer		2		--		2		6		8		3,620		3,636
Total consumer		678		--		678		61		122		38,179		39,040

Commercial business		422		--		422		--		--		5,796		6,218
Leases		--		--		--		--		--		257		257
Total noncovered loans		15,694		--		15,694		1,496		271		307,902		325,363

Covered loans
Real estate:
One-to-four family residential		753		--		753		--		--		11,416		12,169
Multifamily residential		1,372		--		1,372		--		--		6,480		7,852
Commercial real estate		5,934		--		5,934		--		--		55,200		61,134
Total real estate		8,059		--		8,059		--		--		73,096		81,155

Real estate construction: