Edgar Filing: Home Federal Bancorp, Inc.

HOME-3.31.2013-10Q

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 March 31, 2013



[ ]	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, 14,492,288 shares outstanding as of May 1, 2013.

HOME FEDERAL BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS



		Page Number
PART I- FINANCIAL INFORMATION
Item 1.	Financial Statements	2
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43

PART II- OTHER INFORMATION		44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
Signatures		46

Item 1. Financial Statements



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY	March 31,			December 31,
CONSOLIDATED BALANCE SHEETS	2013			2012
(In thousands, except share data) (unaudited)
ASSETS
Cash and cash equivalents	$	120,528		$	115,529
Investments available-for-sale, at fair value	433,822			420,505
FHLB stock, at cost	17,243			17,401
Loans receivable, net of allowance for loan losses of $12,573 and $12,528	396,232			409,846
Accrued interest receivable	2,970			2,776
Property and equipment, net	27,767			29,057
Bank owned life insurance	16,054			15,938
Real estate owned and other repossessed assets	10,064			10,386
FDIC indemnification receivable, net	9,416			10,846
Core deposit intangible	2,399			2,523
Other assets	14,288			13,813
TOTAL ASSETS	$	1,050,783		$	1,048,620

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposit accounts:
Noninterest-bearing demand	$	158,231		$	142,207
Interest-bearing demand	249,338			248,836
Money market	166,335			167,202
Savings	87,435			83,401
Certificates	193,852			209,242
Total deposit accounts	855,191			850,888

Advances by borrowers for taxes and insurance	868			490
Accrued interest payable	144			167
Deferred compensation	6,242			6,149
Repurchase agreements	4,791			4,775
Other liabilities	4,890			6,366
Total liabilities	872,126			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
Mar. 31, 2013 - 17,514,997 issued; 14,492,288 outstanding
Dec. 31, 2012 - 17,512,997 issued; 14,453,399 outstanding
Additional paid-in capital	132,303			131,934
Retained earnings	45,971			46,337
Unearned shares issued to employee stock ownership plan ("ESOP")	(6,634		)	(6,823		)
Accumulated other comprehensive income	6,872			8,192
Total stockholders’ equity	178,657			179,785
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,050,783		$	1,048,620

See accompanying notes.



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (unaudited)	Three Months Ended March 31,
	2013			2012
Interest and dividend income:
Loans and leases	$	8,238		$	11,217
Securities	2,575			2,204
Other interest and dividends	54			70
Total interest and dividend income	10,867			13,491
Interest expense:
Deposits	796			1,102
FHLB advances and borrowed funds	16			21
Total interest expense	812			1,123
Net interest income	10,055			12,368
Provision for loan losses	(227		)	(783		)
Net interest income after provision for loan losses	10,282			13,151
Noninterest income:
Service charges and fees	1,983			2,107
Gain on sale of investments ($254 of gains during the three months ended March 31, 2013, is comprised of accumulated other comprehensive income reclassifications)	254			535
Increase in cash surrender value of BOLI	116			120
FDIC indemnification provision	(41		)	(819		)
Impairment of FDIC indemnification asset	(1,994		)	(3,343		)
Other	180			293
Total noninterest income	498			(1,107		)
Noninterest expense:
Compensation and benefits	6,010			6,137
Occupancy and equipment	1,420			1,563
Data processing	928			1,005
Advertising	123			154
Postage and supplies	206			306
Professional services	524			639
Insurance and taxes	351			521
Amortization of intangibles	124			152
Provision for REO	95			107
Other	316			376
Total noninterest expense	10,097			10,960
Income before income taxes	683			1,084
Income tax provision	222			382
Net income	$	461		$	702

Earnings per common share:
Basic	$	0.03		$	0.05
Diluted	0.03			0.05
Weighted average number of shares outstanding:
Basic	13,648,523			14,771,849
Diluted	13,714,084			14,771,849

Dividends declared per share:	$	0.06		$	0.055

See accompanying notes.



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (unaudited)	Three Months Ended March 31,
	2013			2012
Comprehensive income (loss):
Net income	$	461		$	702
Other comprehensive income (loss):
Change in unrealized holding gain on securities available-for-sale, net of taxes of $(742) and $393, respectively	(1,165		)	616
Adjustment for realized gains, net of taxes of $(99) and $(209), respectively	(155		)	(327		)
Other comprehensive income (loss)	(1,320		)	289
Comprehensive income (loss)	$	(859	)	$	991

See accompanying notes.



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	36,889	—		(50		)										(50		)
ESOP shares committed to be released				51						189						240
Exercise of stock options	2,000			24												24
Share-based compensation				346												346
Dividends paid ($0.06 per share)							(827		)							(827		)
Tax adjustments for equity comp. plans				(2		)										(2		)
Net income							461									461
Other comprehensive loss													(1,320		)	(1,320		)
Balance at March 31, 2013	14,492,288	$	145	$	132,303		$	45,971		$	(6,634	)	$	6,872		$	178,657

See accompanying notes.

Amou



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)	Three Months Ended March 31,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	461		$	702
Adjustments to reconcile net income to cash provided from operating activities:
Depreciation and amortization	725			780
Amortization of core deposit intangible	124			152
Impairment of FDIC indemnification receivable	1,994			3,343
Net amortization of premiums and discounts on investments	531			1,327
Gain on sale of investments available-for-sale ("AFS")	(254		)	(535		)
Gain on sale of fixed assets and repossessed assets	(105		)	(220		)
ESOP shares committed to be released	240			202
Share based compensation expense	346			251
Provision for loan losses	(227		)	(783		)
Valuation allowance on real estate and other property owned	95			107
Accrued deferred compensation expense, net	93			62
Net deferred loan fees	22			(25		)
Deferred income tax provision	(671		)	(2,011		)
Net increase in cash surrender value of BOLI	(116		)	(120		)
Change in assets and liabilities:
Interest receivable	(194		)	(140		)
Other assets	793			(2,521		)
Interest payable	(23		)	(22		)
Other liabilities	(1,526		)	(2,114		)
Net cash provided from (used by) operating activities	2,308			(1,565		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments, maturities and calls of investments AFS	26,924			23,853
Proceeds from sales of investments AFS	3,901			25,712
Purchase of investments AFS	(46,580		)	(62,676		)
Proceeds from redemption of FHLB stock	158			—
Reimbursement (repayment) of loan losses under loss share agreement	(260		)	636
Net decrease in loans	12,506			11,910
Proceeds from sales of fixed assets and repossessed assets	2,192			6,411
Purchases of fixed assets	(44		)	(50		)
Net cash provided from (used by) investing activities	(1,203		)	5,796
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	4,303			(7,367		)
Net increase in advances by borrowers for taxes and insurance	378			474
Net increase (decrease) in investments sold under obligation to repurchase	16			(238		)
Proceeds from exercise of stock options	24			—
Repurchases of common stock	—			(55		)
Dividends paid	(827		)	(821		)
Net cash provided from (used by) financing activities	3,894			(8,007		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	4,999			(3,776		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	115,529			144,293
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	120,528		$	140,517

See accompanying notes.



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) (unaudited)	Three Months Ended March 31,
	2013			2012
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest	$	835		$	1,145
Income taxes	61			4,914

NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of real estate and other assets in settlement of loans	$	1,382		$	3,086
Fair value adjustment to securities AFS, net of taxes	(1,320		)	289
Transfer of fixed assets into REO	609			—

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 ("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 months ended March 31, 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 (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 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

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

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. 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 March 31,
	2013			2012
Net income	$	461		$	702
Allocated to participating securities	(4		)	(7		)
Net income allocated to common stock	$	457		$	695

Weighted average common shares outstanding, gross	14,470,748			15,672,016
Less: Average unearned ESOP shares	(690,831		)	(758,941		)
Less: Average participating securities	(131,394		)	(141,226		)
Weighted average common shares outstanding, net	13,648,523			14,771,849
Net effect of dilutive stock options	65,561			—
Weighted average shares and common stock equivalents	13,714,084			14,771,849
Income per common share:
Basic	$	0.03		$	0.05
Diluted	0.03			0.05
Options excluded from the calculation due to their anti-dilutive effect on EPS	974,618			1,002,233

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 March 31, 2013, and December 31, 2012 (dollars in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Percent of Total
March 31, 2013
Obligations of U.S. GSE	$	66,397	$	1,336	$	(109	)	$	67,624	15.6	%
Obligations of states and political subdivisions	43,256		2,079		(61		)	45,274		10.4
U.S. Treasury bonds	14,021		8		(126		)	13,903		3.2
Mortgage-backed securities, GSE-issued	298,612		8,631		(498		)	306,745		70.7
Mortgage-backed securities, private label	280		—		(4		)	276		0.1
Total	$	422,566	$	12,054	$	(798	)	$	433,822	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 three months ended March 31, 2013 and 2012 proceeds from sales of investments available-for-sale amounted to $3.9 million and $25.7 million, respectively. Gross realized gains for the three months ended March 31, 2013, and 2012 were $254,000 and $535,000, respectively, against no gross realized losses. All gain 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 March 31, 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
March 31, 2013
Obligations of U.S. GSE	$	13,030	$	(109	)	$	—	$	—		$	13,030	$	(109	)
Obligations of states and political subdivisions	7,750		(61		)	—		—			7,750		(61		)
U.S. Treasury bonds	9,269		(126		)	—		—			9,269		(126		)
Mortgage-backed securities, GSE-issued	51,959		(495		)	113		(3		)	52,072		(498		)
Mortgage-backed securities, private label	—		—			276		(4		)	276		(4		)
Total	$	82,008	$	(791	)	$	389	$	(7	)	$	82,397	$	(798	)

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	)

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.



	March 31, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	12,046	$	12,096	$	14,136	$	14,206
Due after one year through five years	6,795		7,013		7,051		7,280
Due after five years through ten years	26,244		27,390		20,719		21,908
Due after ten years	78,589		80,302		53,205		55,156

Mortgage-backed securities	298,892		307,021		311,977		321,955
Total	$	422,566	$	433,822	$	407,088	$	420,505

As of March 31, 2013, and December 31, 2012, the Bank pledged investment securities for the following obligations (in thousands):



	March 31, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
FHLB borrowings	$	21,213	$	22,978	$	23,482	$	25,397
Federal Reserve Bank	1,028		1,077		1,166		1,222
Repurchase agreements	6,530		6,931		4,607		4,855
Deposits of municipalities and public units	8,665		9,286		9,871		10,573
Total	$	37,436	$	40,272	$	39,126	$	42,047

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

Loans and leases receivable are summarized as follows at March 31, 2013, and December 31, 2012 (dollars in thousands):



	March 31, 2013					December 31, 2012
	Amount			Percent of Gross		Amount			Percent of Gross
Real estate:
One-to-four family residential	$	81,817		20.0	%	$	87,833		20.8	%
Multifamily residential	33,290			8.1		34,377			8.1
Commercial	185,408			45.4		185,132			43.8
Total real estate	300,515			73.5		307,342			72.7
Real estate construction:
One-to-four family residential	16,594			4.1		13,016			3.1
Multifamily residential	1,044			0.3		520			0.1
Commercial and land development	19,751			4.8		25,391			6.0
Total real estate construction	37,389			9.2		38,927			9.2
Consumer:
Home equity	40,524			9.9		41,793			9.9
Automobile	815			0.2		966			0.2
Other consumer	3,576			0.9		4,012			1.1
Total consumer	44,915			11.0		46,771			11.2
Commercial business	25,924			6.3		29,249			6.9
Gross loans	408,743			100.0	%	422,289			100.0	%
Deferred loan costs, net	62					85
Allowance for loan losses	(12,573		)			(12,528		)
Loans receivable, net	$	396,232				$	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 March 31, 2013, and December 31, 2012.

Delinquent and nonaccrual loans. The following tables present the recorded investment in nonperforming loans and an aging of performing loans by class as of March 31, 2013, and December 31, 2012 (in thousands):



	March 31, 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	$	2,929	$	—	$	2,929	$	1,283	$	—	$	70,261	$	74,473
Multifamily residential	810		—		810		—		—		29,299		30,109
Commercial real estate	3,661		—		3,661		—				134,742		138,403
Total real estate	7,400		—		7,400		1,283		—		234,302		242,985
Real estate construction:
One-to-four family residential	574		—		574		—		—		16,020		16,594
Multifamily residential	—		—		—		—		—		1,044		1,044
Commercial real estate	198		—		198		—		—		14,625		14,823
Total real estate construction	772		—		772		—		—		31,689		32,461
Consumer:
Home equity	621		—		621		16		48		30,351		31,036
Automobile	6		—		6		—		—		671		677
Other consumer	—		—		—		8		—		2,890		2,898
Total consumer	627		—		627		24		48		33,912		34,611
Commercial business	316		—		316		55		—		16,858		17,229
Total noncovered loans	9,115		—		9,115		1,362		48		316,761		327,286
Covered loans
Real estate:
One-to-four family residential	324		—		324		—		—		7,060		7,384
Multifamily residential	—		—		—		—		—		3,181		3,181
Commercial real estate	4,036		—		4,036		—				42,969		47,005
Total real estate	4,360		—		4,360		—		—		53,210		57,570
Commercial real estate construction	233		—		233		—		—		4,695		4,928
Consumer:
Home equity	134		—		134		30		—		9,468		9,632
Automobile	—		—		—		—		—		138		138
Other consumer	—		—		—		—		—		701		701
Total consumer	134		—		134		30		—		10,307		10,471
Commercial business	—		—		—		72		—		9,582		9,654
Total covered loans	4,727		—		4,727		102		—		77,794		82,623
Total gross loans	$	13,842	$	—	$	13,842	$	1,464	$	48	$	394,555	$	409,909



	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.

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 March 31, 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):



	March 31, 2013
	Pass		Watch		Special Mention		Substandard		Doubtful		Total Loans
Noncovered loans
Real estate:
One-to-four family residential	$	69,720	$	595	$	—	$	4,158	$	—	$	74,473
Multifamily residential	29,145		—		39		925		—		30,109
Commercial real estate	94,270		11,773		10,228		22,132		—		138,403
Total real estate	193,135		12,368		10,267		27,215		—		242,985
Real estate construction:
One-to-four family residential	13,482		2,481		—		631		—		16,594
Multifamily residential	1,044		—		—		—		—		1,044
Commercial real estate	14,160		465		—		198		—		14,823
Total real estate construction	28,686		2,946		—		829		—		32,461
Consumer:
Home equity	30,331		84		—		621		—		31,036
Automobile	671		—		—		6		—		677
Other consumer	2,827		35		18		18		—		2,898
Total consumer	33,829		119		18		645		—		34,611
Commercial business	15,836		812		206		375		—		17,229
Total noncovered loans	271,486		16,245		10,491		29,064		—		327,286
Covered loans
Real estate:
One-to-four family residential	3,375		150		—		3,859		—		7,384
Multifamily residential	2,590		198		—		393		—		3,181
Commercial real estate	28,652		1,617		2,236		14,500		—		47,005
Total real estate	34,617		1,965		2,236		18,752		—		57,570
Commercial real estate construction	837		3,668		—		423		—		4,928
Consumer:
Home equity	9,392		—		106		134		—		9,632
Automobile	138		—		—		—		—		138
Other consumer	673		13		—		15		—		701
Total consumer	10,203		13		106		149		—		10,471
Commercial business	6,663		663		1,341		987		—		9,654
Total covered loans	52,320		6,309		3,683		20,311		—		82,623
Total gross loans	$	323,806	$	22,554	$	14,174	$	49,375	$	—	$	409,909



	December 31, 2012
	Pass		Watch		Special Mention		Substandard		Doubtful		Total Loans
Noncovered loans
Real estate:
One-to-four family residential	$	74,974	$	603	$	—	$	4,119	$	—	$	79,696
Multifamily residential	30,073		—		39		941		—		31,053
Commercial real estate	91,684		11,477		11,456		21,935		—		136,552
Total real estate	196,731		12,080		11,495		26,995		—		247,301
Real estate construction:
One-to-four family residential	11,771		594		—		651		—		13,016
Multifamily residential	520		—