HOME-6.30.2013-10Q


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 June 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, 14,490,376 shares outstanding as of July 31, 2013.



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


1



Item 1. Financial Statements

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
June 30,
 
December 31,
CONSOLIDATED BALANCE SHEETS
2013
 
2012
(In thousands, except share data) (unaudited)
 
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
76,116

 
$
115,529

Investments available-for-sale, at fair value
440,886

 
420,505

FHLB stock, at cost
17,086

 
17,401

Loans receivable, net of allowance for loan losses of $11,099 and $12,528
388,847

 
409,846

Accrued interest receivable
2,870

 
2,776

Property and equipment, net
27,112

 
29,057

Bank owned life insurance (“BOLI”)
16,172

 
15,938

Real estate owned and other repossessed assets (“REO”)
8,822

 
10,386

FDIC indemnification receivable, net
7,359

 
10,846

Core deposit intangible
2,281

 
2,523

Deferred tax assets, net
16,618

 
9,022

Other assets
3,579

 
4,791

TOTAL ASSETS
$
1,007,748

 
$
1,048,620

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
LIABILITIES
 
 
 
Deposit accounts:
 
 
 
Noninterest-bearing demand
$
154,023

 
$
142,207

Interest-bearing demand
246,284

 
248,836

Money market
151,925

 
167,202

Savings
85,801

 
83,401

Certificates
186,035

 
209,242

Total deposit accounts
824,068

 
850,888

 
 
 
 
Advances by borrowers for taxes and insurance
734

 
490

Accrued interest payable
136

 
167

Deferred compensation
6,332

 
6,149

Repurchase agreements
612

 
4,775

Other liabilities
5,513

 
6,366

Total liabilities
837,395

 
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

Jun. 30, 2013 - 17,514,997 issued; 14,490,376 outstanding
 
 
 
Dec. 31, 2012 - 17,512,997 issued; 14,453,399 outstanding
 
 
 
Additional paid-in capital
132,622

 
131,934

Retained earnings
45,719

 
46,337

Unearned shares issued to employee stock ownership plan (“ESOP”)
(6,444
)
 
(6,823
)
Accumulated other comprehensive income (loss)
(1,689
)
 
8,192

Total stockholders’ equity
170,353

 
179,785

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,007,748

 
$
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 June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Interest income:
 
 
 
 
 
 
 
Loans
$
8,751

 
$
9,033

 
$
16,989

 
$
20,250

Investments
2,605

 
2,209

 
5,180

 
4,413

Other interest income
62

 
71

 
116

 
141

Total interest income
11,418

 
11,313

 
22,285

 
24,804

Interest expense:
 
 
 
 
 
 
 
Deposits
750

 
991

 
1,546

 
2,093

Repurchase agreements
3

 
16

 
19

 
37

Total interest expense
753

 
1,007

 
1,565

 
2,130

Net interest income
10,665

 
10,306

 
20,720

 
22,674

Provision for loan losses
(356
)
 
(434
)
 
(583
)
 
(1,217
)
Net interest income after provision for loan losses
11,021

 
10,740

 
21,303

 
23,891

Noninterest income:
 
 
 
 
 
 
 
Service charges and fees
2,131

 
2,274

 
4,114

 
4,381

Gain on sale of investments ($231 and $485 of gains during the three and six months ended June 30, 2013, respectively, are comprised of accumulated other comprehensive income reclassifications)
231

 
603

 
485

 
1,138

Increase in cash surrender value of BOLI
118

 
122

 
234

 
242

FDIC indemnification provision
(6
)
 
(411
)
 
(47
)
 
(1,230
)
Impairment of FDIC indemnification asset, net
(2,322
)
 
(1,705
)
 
(4,316
)
 
(5,048
)
Other income
80

 
253

 
260

 
546

Total noninterest income
232

 
1,136

 
730

 
29

Noninterest expense:
 
 
 
 
 
 
 
Compensation and benefits
5,659

 
6,175

 
11,669

 
12,312

Occupancy and equipment
1,374

 
1,514

 
2,794

 
3,077

Data processing
935

 
942

 
1,863

 
1,947

Advertising
166

 
223

 
289

 
377

Postage and supplies
215

 
247

 
421

 
553

Professional services
595

 
630

 
1,119

 
1,269

Insurance and taxes
453

 
561

 
804

 
1,082

Amortization of intangibles
118

 
144

 
242

 
296

Provision for REO
548

 
291

 
643

 
398

Other expenses
334

 
379

 
650

 
755

Total noninterest expense
10,397

 
11,106

 
20,494

 
22,066

Income before income taxes
856

 
770

 
1,539

 
1,854

Income tax provision
281

 
211

 
503

 
593

Net income
$
575

 
$
559

 
$
1,036

 
$
1,261

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.04

 
$
0.04

 
$
0.07

 
$
0.09

Diluted
0.04

 
0.04

 
0.07

 
0.09

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
13,697,281

 
14,638,663

 
13,673,036

 
14,705,256

Diluted
13,763,806

 
14,638,663

 
13,738,501

 
14,705,256

 
 
 
 
 
 
 
 
Dividends declared per share:
$
0.06

 
$
0.055

 
$
0.12

 
$
0.11


See accompanying notes.

3


HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (unaudited)
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Comprehensive income (loss):
 
 
 
 
 
 
 
Net income
$
575

 
$
559

 
$
1,036

 
$
1,261

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in unrealized holding gain on securities
available-for-sale, net of taxes of $(5,372), $1,013, $(6,115) and $1,406, respectively
(8,420
)
 
1,587

 
(9,585
)
 
2,203

Adjustment for realized gains, net of taxes of
$(90), $(236), $(189) and $(445), respectively
(141
)
 
(368
)
 
(296
)
 
(695
)
Other comprehensive income (loss)
(8,561
)
 
1,219

 
(9,881
)
 
1,508

Comprehensive income (loss)
$
(7,986
)
 
$
1,778

 
$
(8,845
)
 
$
2,769


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
40,857

 
—

 


 
 
 
 
 
 
 
—

Repurchased restricted stock to pay taxes
(5,880
)
 
 
 
(73
)
 
 
 
 
 
 
 
(73
)
ESOP shares committed to be released
 
 
 
 
100

 
 
 
379

 
 
 
479

Exercise of stock options
2,000

 


 
24

 
 
 
 
 
 
 
24

Share-based compensation
 
 
 
 
639

 
 
 
 
 
 
 
639

Dividends paid ($0.12 per share)
 
 
 
 
 
 
(1,654
)
 
 
 
 
 
(1,654
)
Tax adjustments for equity comp. plans
 
 
 
 
(2
)
 
 
 
 
 
 
 
(2
)
Net income
 
 
 
 
 
 
1,036

 
 
 
 
 
1,036

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
(9,881
)
 
(9,881
)
Balance at June 30, 2013
14,490,376

 
$
145

 
$
132,622

 
$
45,719

 
$
(6,444
)
 
$
(1,689
)
 
$
170,353


See accompanying notes.


5


HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (unaudited)
Six Months Ended
June 30,

2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
1,036

 
$
1,261

Adjustments to reconcile net income to cash provided from operating activities:
 
 
 
Depreciation and amortization
1,423

 
1,539

Amortization of core deposit intangible
242

 
296

Impairment of FDIC indemnification receivable
4,316

 
5,048

Net amortization of premiums and discounts on investments
1,395

 
2,765

Gain on sale of investments available-for-sale (“AFS”)
(485
)
 
(1,138
)
Gain on sale of fixed assets and repossessed assets
(100
)
 
(372
)
ESOP shares committed to be released
479

 
389

Share based compensation expense
639

 
473

Provision for loan losses
(583
)
 
(1,217
)
Valuation allowance on real estate and other property owned
643

 
398

Accrued deferred compensation expense, net
183

 
124

Net deferred loan fees
96

 
(936
)
Deferred income tax provision
(1,292
)
 
(3,222
)
Net increase in cash surrender value of BOLI
(234
)
 
(242
)
Change in assets and liabilities:
 
 
 
Interest receivable
(94
)
 
(110
)
Other assets
866

 
(2,213
)
Interest payable
(30
)
 
(41
)
Other liabilities
(924
)
 
(1,809
)
Net cash provided from operating activities
7,576

 
993

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Principal repayments, maturities and calls of investments AFS
54,187

 
47,109

Proceeds from sales of investments AFS
19,460

 
56,110

Purchase of investments AFS
(111,124
)
 
(145,524
)
Proceeds from redemption of FHLB stock
315

 
—

Reimbursement (repayment) of loan losses under loss share agreement
(155
)
 
442

Net decrease in loans
19,994

 
13,287

Proceeds from sales of fixed assets and repossessed assets
2,890

 
10,739

Purchases of fixed assets
(114
)
 
(473
)
Net cash used by investing activities
(14,547
)
 
(18,310
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net decrease in deposits
(26,820
)
 
(38,334
)
Net increase in advances by borrowers for taxes and insurance
244

 
487

Net decrease in investments sold under obligation to repurchase
(4,163
)
 
(172
)
Repurchased restricted stock to pay taxes
(73
)
 
(38
)
Proceeds from exercise of stock options
24

 
—

Repurchases of common stock
—

 
(4,106
)
Dividends paid
(1,654
)
 
(1,620
)
Net cash used by financing activities
(32,442
)
 
(43,783
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(39,413
)
 
(61,100
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
115,529

 
144,293

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
76,116

 
$
83,193


See accompanying notes.





6


HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands) (unaudited)
Six Months Ended
June 30,
 
2013
 
2012
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the year for:
 
 
 
Interest
$
1,596

 
$
2,171

Income taxes
765

 
7,064

 
 
 
 
NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Acquisition of real estate and other assets in settlement of loans
$
1,562

 
$
7,917

Fair value adjustment to securities AFS, net of taxes
(9,881
)
 
1,508

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 six months ended June 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.

In June 2013, the FASB issued ASU 2013-08, Financial Services - Investment Companies (Topic 946) - Amendments to the Scope, Measurement and Disclosure Requirements. ASU 2013-08 sets forth the characteristics of investment companies and a new approach for determining whether a company is an investment company. The fundamental characteristics of an investment company include (i) the company obtains funds from investors and provides the investors with investment management services; (ii) the company commits to its investors that its business purpose and only substantive activities are investing the funds for returns solely from capital appreciation, investment income, or both; and (iii) the company or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income. ASU 2013-08 also sets forth the scope, measurement and disclosure requirements for investment companies. ASU 2013-08 will become effective for the Company on January 1, 2014 and is not expected to have a significant impact on the Company's Consolidated Financial Statements.

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815) - Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2013-10 permits the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to interest rates on direct U.S. Treasury obligations and the London Interbank Offered Rate (“LIBOR”). ASU 2013-10 is effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013 and is not expected to have a significant impact on the Company's Consolidated Financial Statements.

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
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
575

 
$
559

 
$
1,036

 
$
1,261

Allocated to participating securities
(4
)
 
(4
)
 
(8
)
 
(11
)
Net income allocated to common stock
$
571

 
$
555

 
$
1,028

 
$
1,250

 
 
 
 
 
 
 
 
Weighted average common shares outstanding, gross
14,473,548

 
15,531,981

 
14,460,002

 
15,588,611

Less: Average unearned ESOP shares
(671,370
)
 
(749,210
)
 
(681,100
)
 
(758,941
)
Less: Average participating securities
(104,897
)
 
(144,108
)
 
(105,866
)
 
(124,414
)
Weighted average common shares outstanding, net
13,697,281

 
14,638,663

 
13,673,036

 
14,705,256

Net effect of dilutive stock options
66,525

 
—

 
65,465

 
—

Weighted average shares and common stock equivalents
13,763,806

 
14,638,663

 
13,738,501

 
14,705,256

Income per common share:
 
 
 
 
 
 
 
Basic
$
0.04

 
$
0.04

 
$
0.07

 
$
0.09

Diluted
0.04

 
0.04

 
0.07

 
0.09

Options excluded from the calculation due to their anti-dilutive effect on EPS
966,854

 
986,590

 
967,914

 
986,590





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 June 30, 2013 and December 31, 2012 (dollars in thousands):
 
   Amortized
   Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
Percent of Total
June 30, 2013
 
 
 
 
 
 
 
 
 
Obligations of U.S. GSE
$
62,067

 
$
519

 
$
(909
)
 
$
61,677

 
14.0
%
Obligations of states and political subdivisions
42,124

 
753

 
(1,090
)
 
41,787

 
9.5

U.S. Treasury bonds
9,602

 
—

 
(752
)
 
8,850

 
2.0

Mortgage-backed securities, GSE-issued
329,602

 
5,433

 
(6,714
)
 
328,321

 
74.4

Mortgage-backed securities, private label
258

 
—

 
(7
)
 
251

 
0.1

Total
$
443,653

 
$
6,705

 
$
(9,472
)
 
$
440,886

 
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 six months ended June 30, 2013 and 2012, proceeds from sales of investments available-for-sale amounted to $19.5 million and $56.1 million, respectively. Gross realized gains for the six months ended June 30, 2013 and 2012 were $518,000 and $1.1 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 June 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
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Obligations of U.S. GSE
$
25,662

 
$
(909
)
 
$
—

 
$
—

 
$
25,662

 
$
(909
)
Obligations of states and political subdivisions
24,556

 
(1,090
)
 
—

 
—

 
24,556

 
(1,090
)
U.S. Treasury bonds
8,850

 
(752
)
 
—

 
—

 
8,850

 
(752
)
Mortgage-backed securities, GSE-issued
155,545

 
(6,712
)
 
113

 
(2
)
 
155,658

 
(6,714
)
Mortgage-backed securities, private label
—

 
—

 
251

 
(7
)
 
251

 
(7
)
Total
$
214,613

 
$
(9,463
)
 
$
364

 
$
(9
)
 
$
214,977

 
$
(9,472
)
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
June 30, 2013
 
December 31, 2012
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due within one year
$
11,042

 
$
11,078

 
$
14,136

 
$
14,206

Due after one year through five years
6,300

 
6,495

 
7,051

 
7,280

Due after five years through ten years
24,068

 
24,197

 
20,719

 
21,908

Due after ten years
72,383

 
70,544

 
53,205

 
55,156

 
 
 
 
 
 
 
 
Mortgage-backed securities
329,860

 
328,572

 
311,977

 
321,955

Total
$
443,653

 
$
440,886

 
$
407,088

 
$
420,505


As of June 30, 2013, and December 31, 2012, the Bank pledged investments for the following obligations (in thousands):
 
June 30, 2013
 
December 31, 2012
 
Amortized Cost
 
Fair
Value
 
Amortized Cost
 
Fair
Value
FHLB borrowings
$
18,902

 
$
20,241

 
$
23,482

 
$
25,397

Federal Reserve Bank
904

 
935

 
1,166

 
1,222

Repurchase agreements
5,868

 
6,059

 
4,607

 
4,855

Deposits of municipalities and public units
8,376

 
8,894

 
9,871

 
10,573

Total
$
34,050

 
$
36,129

 
$
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 June 30, 2013, and December 31, 2012 (dollars in thousands):
 
June 30, 2013
 
December 31, 2012
 
Amount
 
Percent of Gross
 
Amount
 
Percent of Gross
Real estate:
 
 
 
 
 
 
 
One-to-four family residential
$
76,567

 
19.1
%
 
$
87,833

 
20.8
%
Multifamily residential
33,250

 
8.3

 
34,377

 
8.1

Commercial
177,041

 
44.3

 
185,132

 
43.8

Total real estate
286,858

 
71.7

 
307,342

 
72.7

Real estate construction:
 
 
 
 
 
 
 
One-to-four family residential
21,780

 
5.4

 
13,016

 
3.1

Multifamily residential
2,726

 
0.7

 
520

 
0.1

Commercial and land development
21,739

 
5.4

 
25,391

 
6.0

Total real estate construction
46,245

 
11.5

 
38,927

 
9.2

Consumer:
 
 
 
 
 
 
 
Home equity
38,678

 
9.7

 
41,793

 
9.9

Automobile
780

 
0.2

 
966

 
0.2

Other consumer
3,527

 
0.9

 
4,012

 
1.1

Total consumer
42,985

 
10.8

 
46,771

 
11.2

Commercial business
23,869

 
6.0

 
29,249

 
6.9

Gross loans
399,957

 
100.0
%
 
422,289

 
100.0
%
Deferred loan (fees) costs, net
(11
)
 
 
 
85

 
 
Allowance for loan losses
(11,099
)
 
 
 
(12,528
)
 
 
Loans receivable, net
$
388,847

 
 
 
$
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 June 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 June 30, 2013 and December 31, 2012 (in thousands):
 
June 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
$
2,915

 
$
—

 
$
2,915

 
$
—

 
$
105

 
$
66,501

 
$
69,521

Multifamily residential
795

 
—

 
795

 
—

 
—

 
30,468

 
31,263

Commercial real estate
119

 
—

 
119

 
—

 


 
130,925

 
131,044

Total real estate
3,829

 
—

 
3,829

 
—

 
105

 
227,894

 
231,828

Real estate construction:
 
 
 
 
 
 
 
 
 
 


 
 
One-to-four family residential
631

 
—

 
631

 
—

 
—

 
21,031

 
21,662

Multifamily residential
—

 
—

 
—

 
—

 
—

 
2,715

 
2,715

Commercial real estate
192

 
—

 
192

 
—

 
—

 
17,491

 
17,683

Total real estate construction
823

 
—

 
823

 
—

 
—

 
41,237

 
42,060

Consumer:
 
 
 
 
 
 
 
 
 
 


 
 
Home equity
527

 
—

 
527

 
103

 
—

 
29,440

 
30,070

Automobile
6

 
—

 
6

 
—

 
—

 
646

 
652

Other consumer
—

 
—

 
—

 
—

 
—

 
2,938

 
2,938

Total consumer
533

 
—

 
533

 
103

 
—

 
33,024

 
33,660

Commercial business
248

 
—

 
248

 
—

 
—

 
15,757

 
16,005

Total noncovered loans
5,433

 
—

 
5,433

 
103

 
105

 
317,912

 
323,553

Covered loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
252

 
—

 
252

 
—

 
—

 
6,851

 
7,103

Multifamily residential
—

 
—

 
—

 
—

 
—

 
2,881

 
2,881

Commercial real estate
3,517

 
—

 
3,517

 
—

 


 
42,537

 
46,054

Total real estate
3,769

 
—

 
3,769

 
—

 
—

 
52,269

 
56,038

Commercial real estate construction
228

 
—

 
228

 
—

 
—

 
3,759

 
3,987

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
35

 
—

 
35

 
—

 
—

 
8,797

 
8,832

Automobile
—

 
—

 
—

 
—

 
—

 
130

 
130

Other consumer
—

 
—

 
—

 
—

 
—

 
627

 
627

Total consumer
35

 
—

 
35

 
—

 
—

 
9,554

 
9,589

Commercial business
—

 
—

 
—

 
—

 
—

 
7,866

 
7,866

Total covered loans
4,032

 
—

 
4,032

 
—

 
—

 
73,448

 
77,480

Total gross loans
$
9,465

 
$
—

 
$
9,465

 
$
103

 
$
105

 
$
391,360

 
$
401,033



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 June 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):
 
June 30, 2013
 
Pass
 
Watch
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
Loans
Noncovered loans
 
 
 
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
65,259

 
$
482

 
$
—

 
$
3,780

 
$
—

 
$
69,521

Multifamily residential
30,312

 
20

 
46

 
885

 
—

 
31,263

Commercial real estate
99,478

 
10,217

 
6,001

 
15,348

 
—

 
131,044

Total real estate
195,049

 
10,719

 
6,047

 
20,013

 
—

 
231,828

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
18,418

 
2,613

 
—

 
631

 
—

 
21,662

Multifamily residential
2,715

 
—

 
—

 
—

 
—

 
2,715

Commercial real estate
17,175

 
316

 
—

 
192

 
—

 
17,683

Total real estate construction
38,308

 
2,929

 
—

 
823

 
—

 
42,060

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Home equity
29,433

 
110

 
—

 
527

 
—

 
30,070

Automobile
647

 
—

 
—

 
5

 
—

 
652

Other consumer
2,859

 
52

 
18

 
9

 
—

 
2,938

Total consumer
32,939

 
162

 
18