Edgar Filing: Home Federal Bancorp, Inc.

HOME-3.31.2014-10Q

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, 2014



[ ]	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, 14,831,109 shares outstanding as of May 6, 2014.

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	40
Item 4.	Controls and Procedures	41

PART II- OTHER INFORMATION		41
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
Signatures		43

Item 1. Financial Statements



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY	March 31,			December 31,
CONSOLIDATED BALANCE SHEETS	2014			2013
(In thousands, except share data) (unaudited)
ASSETS
Cash and cash equivalents	$	123,208		$	107,000
Investments available-for-sale, at fair value	369,711			390,648
FHLB stock, at cost	16,615			16,771
Loans receivable, net of allowance for loan losses of $8,075 and $9,046	393,107			407,451
Accrued interest receivable	2,590			2,764
Property and equipment, net	25,312			25,943
Bank owned life insurance (“BOLI”)	15,860			15,751
Real estate owned and other repossessed assets (“REO”)	5,464			4,756
FDIC indemnification receivable, net	2,861			4,914
Core deposit intangible	1,960			2,062
Deferred tax assets, net	14,853			16,844
Other assets	7,482			7,470
TOTAL ASSETS	$	979,023		$	1,002,374

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposit accounts:
Noninterest-bearing demand	$	158,908		$	160,602
Interest-bearing demand	245,260			245,271
Money market	144,227			158,364
Savings	87,024			85,775
Certificates	159,566			168,439
Total deposit accounts	794,985			818,451

Advances by borrowers for taxes and insurance	800			383
Accrued interest payable	115			122
Deferred compensation	6,584			6,504
Other liabilities	4,349			7,916
Total liabilities	806,833			833,376

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:	148			148
Mar. 31, 2014 - 17,182,734 issued; 14,832,478 outstanding
Dec. 31, 2013 - 17,183,013 issued; 14,832,757 outstanding
Additional paid-in capital	137,617			137,252
Retained earnings	42,268			42,752
Unearned shares issued to employee stock ownership plan (“ESOP”)	(5,875		)	(6,065		)
Accumulated other comprehensive income (loss)	(1,968		)	(5,089		)
Total stockholders’ equity	172,190			168,998
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	979,023		$	1,002,374

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,
	2014			2013
Interest and dividend income:
Loans	$	7,644		$	8,238
Investments	2,433			2,575
Other interest and dividend income	56			54
Total interest income	10,133			10,867
Interest expense:
Deposits	606			796
Repurchase agreements	—			16
Total interest expense	606			812
Net interest income	9,527			10,055
Provision for loan losses	(1,480		)	(227		)
Net interest income after provision for loan losses	11,007			10,282
Noninterest income:
Service charges and fees	1,943			1,983
Gain (loss) on sale of investments ($681 of losses and $254 of gains during the three months ended March 31, 2014 and 2013, respectively, are comprised of accumulated other comprehensive income reclassifications)	(681		)	254
Increase in cash surrender value of BOLI	109			116
FDIC indemnification provision	(739		)	(41		)
Impairment of FDIC indemnification asset, net	(1,565		)	(1,994		)
Other income	63			180
Total noninterest income	(870		)	498
Noninterest expense:
Compensation and benefits	5,607			6,010
Occupancy and equipment	1,321			1,420
Data processing	834			928
Advertising	88			123
Postage and supplies	194			206
Professional services	536			524
Insurance and taxes	381			351
Amortization of intangibles	101			124
Provision for REO	12			95
Other expenses	394			316
Total noninterest expense	9,468			10,097
Income before income taxes	669			683
Income tax provision	300			222
Net income	$	369		$	461

Earnings per common share:
Basic	$	0.03		$	0.03
Diluted	0.03			0.03
Weighted average number of shares outstanding:
Basic	14,174,765			13,648,523
Diluted	14,286,499			13,714,084

Dividends declared per share:	$	0.06		$	0.06

See accompanying notes.



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (unaudited)	Three Months Ended March 31,
	2014		2013
Comprehensive income (loss):
Net income	$	369	$	461
Other comprehensive income (loss):
Change in unrealized holding gain (loss) on securities available-for-sale, net of taxes of $1,726 and $(742), respectively	2,705		(1,165		)
Adjustment for realized losses (gains), net of taxes of $265 and $(99), respectively	416		(155		)
Other comprehensive income (loss)	3,121		(1,320		)
Comprehensive income (loss)	$	3,490	$	(859	)

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 January 1, 2014	14,832,757		$	148	$	137,252		$	42,752		$	(6,065	)	$	(5,089	)	$	168,998
Repurchased restricted stock to pay taxes	(5,106	)			(73		)										(73		)
ESOP shares committed to be released					101						190						291
Exercise of stock options	4,827				53												53
Share-based compensation					284												284
Dividends paid ($0.06 per share)								(853		)							(853		)
Net income								369									369
Other comprehensive loss														3,121			3,121
Balance at March 31, 2014	14,832,478		$	148	$	137,617		$	42,268		$	(5,875	)	$	(1,968	)	$	172,190

See accompanying notes.



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)	Three Months Ended March 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	369		$	461
Adjustments to reconcile net income to cash provided from operating activities:
Depreciation and amortization	634			725
Amortization of core deposit intangible	101			124
Impairment of FDIC indemnification receivable	1,565			1,994
Net amortization of premiums and discounts on investments	468			531
Loss (gain) on sale of investments available-for-sale ("AFS")	681			(254		)
Gain on sale of fixed assets and repossessed assets	(23		)	(105		)
ESOP shares committed to be released	291			240
Share based compensation expense	284			346
Provision for loan losses	(1,480		)	(227		)
Valuation allowance on real estate and other property owned	12			95
Accrued deferred compensation expense, net	80			93
Net deferred loan fees	(67		)	22
Deferred income tax benefit	—			(671		)
Net increase in cash surrender value of BOLI	(109		)	(116		)
Change in assets and liabilities:
Interest receivable	174			(194		)
Other assets	(295		)	843
Interest payable	(7		)	(23		)
Other liabilities	(2,714		)	(1,526		)
Net cash provided from operating activities	(36		)	2,358
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments, maturities and calls of investments AFS	11,768			26,924
Proceeds from sales of investments AFS	13,132			3,901
Purchase of investments AFS	—			(46,580		)
Proceeds from redemption of FHLB stock	156			158
Repayment of loan losses under loss share agreement	(112		)	(260		)
Net decrease in loans	14,751			12,506
Proceeds from sales of fixed assets and repossessed assets	471			2,192
Purchases of fixed assets	—			(44		)
Net cash provided from (used by) investing activities	40,166			(1,203		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	(23,466		)	4,303
Net increase in advances by borrowers for taxes and insurance	417			378
Net increase in repurchase agreements	—			16
Repurchased restricted stock to pay taxes	(73		)	(50		)
Proceeds from exercise of stock options	53			24
Dividends paid	(853		)	(827		)
Net cash provided from (used by) financing activities	(23,922		)	3,844
NET INCREASE IN CASH AND CASH EQUIVALENTS	16,208			4,999
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	107,000			115,529
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	123,208		$	120,528

See accompanying notes.



HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) (unaudited)	Three Months Ended March 31,
	2014		2013
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	613	$	835
Income taxes	79		61

NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of real estate and other assets in settlement of loans	$	1,138	$	1,382
Fair value adjustment to securities AFS, net of taxes	3,121		(1,320		)
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 (“Company”), and its wholly-owned subsidiary, Home Federal Bank (“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, 2014 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 shared-loss 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 year ended December 31, 2013 (“2013 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on March 17, 2014.

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 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 became effective for the Company on January 1, 2014 and did not have a significant impact on the Company's Consolidated Financial Statements.

Table of Contents

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 March 31,
	2014			2013
Net income	$	369		$	461
Allocated to participating securities	(1		)	(4		)
Net income allocated to common stock	$	368		$	457

Weighted average common shares outstanding, gross	14,842,117			14,470,748
Less: Average unearned ESOP shares	(612,991		)	(690,831		)
Less: Average participating securities	(54,361		)	(131,394		)
Weighted average common shares outstanding, net	14,174,765			13,648,523
Net effect of dilutive stock options	111,734			65,561
Weighted average shares and common stock equivalents	14,286,499			13,714,084
Income per common share:
Basic	$	0.03		$	0.03
Diluted	0.03			0.03
Options excluded from the calculation due to their anti-dilutive effect on EPS	109,719			507,193

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”) or the U.S. Treasury, municipal bonds, certificates of deposit and marketable corporate debt obligations.

Investments available-for-sale consisted of the following at March 31, 2014 and December 31, 2013 (dollars in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Percent of Total
March 31, 2014
Obligations of U.S. GSE	$	49,579	$	316	$	(1,356	)	$	48,539	13.1	%
Obligations of states and political subdivisions	41,824		714		(1,054		)	41,484		11.2
Mortgage-backed securities, GSE-issued	281,532		4,372		(6,216		)	279,688		75.7
Total	$	372,935	$	5,402	$	(8,626	)	$	369,711	100.0	%

December 31, 2013
Obligations of U.S. GSE	$	50,545	$	248	$	(1,588	)	$	49,205	12.6	%
Obligations of states and political subdivisions	41,924		396		(1,892		)	40,428		10.3
U.S. Treasury bonds	9,606		—		(1,502		)	8,104		2.1
Mortgage-backed securities, GSE-issued	296,672		4,634		(8,626		)	292,680		74.9
Mortgage-backed securities, private label	236		—		(5		)	231		0.1
Total	$	398,983	$	5,278	$	(13,613	)	$	390,648	100.0	%

For the three months ended March 31, 2014 and 2013, proceeds from sales of investments available-for-sale amounted to $13.1 million and $3.9 million, respectively. Gross realized gains for the three months ended March 31, 2014 and 2013 were $199,000 and $254,000 respectively, against gross realized losses of ($880,000) 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 March 31, 2014 and December 31, 2013, 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, 2014
Obligations of U.S. GSE	$	17,695	$	(401	)	$	11,546	$	(955	)	$	29,241	$	(1,356	)
Obligations of states and political subdivisions	25,245		(960		)	1,343		(94		)	26,588		(1,054		)
Mortgage-backed securities, GSE-issued	129,535		(5,077		)	16,098		(1,139		)	145,633		(6,216		)
Total	$	172,475	$	(6,438	)	$	28,987	$	(2,188	)	$	201,462	$	(8,626	)

December 31, 2013
Obligations of U.S. GSE	$	30,834	$	(1,588	)	$	—	$	—		$	30,834	$	(1,588	)
Obligations of states and political subdivisions	28,048		(1,892		)	—		—			28,048		(1,892		)
U.S. Treasury bonds	8,104		(1,502		)	—		—			8,104		(1,502		)
Mortgage-backed securities, GSE-issued	144,754		(7,523		)	11,894		(1,103		)	156,648		(8,626		)
Mortgage-backed securities, private label	—		—			231		(5		)	231		(5		)
Total	$	211,740	$	(12,505	)	$	12,125	$	(1,108	)	$	223,865	$	(13,613	)

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 generally 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. However, during the first quarter of 2014, we sold $13.2 million of investments due to a significant increase in bond values during the quarter. While we sold the investments at a loss, we sold them to reduce the sensitivity of the portfolio and the impact of a possible further reduction in equity if the rally in the bond market ended before the merger with Cascade is completed.

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, 2014				December 31, 2013
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	3,995	$	4,006	$	3,998	$	4,017
Due after one year through five years	4,708		4,880		4,833		5,003
Due after five years through ten years	23,759		23,806		23,832		23,564
Due after ten years	58,941		57,331		69,412		65,153

Mortgage-backed securities	281,532		279,688		296,908		292,911
Total	$	372,935	$	369,711	$	398,983	$	390,648

As of March 31, 2014, and December 31, 2013, the Bank pledged investments for the following obligations or potential obligations (in thousands):



	March 31, 2014				December 31, 2013
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
FHLB borrowings	$	14,875	$	16,072	$	15,828	$	16,983
Federal Reserve Bank	662		688		726		755
Repurchase agreements	—		—		5,066		5,263
Deposits of municipalities and public units	6,667		7,155		6,968		7,459
Total	$	22,204	$	23,915	$	28,588	$	30,460

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

Loans and leases receivable are summarized as follows at March 31, 2014 and December 31, 2013 (dollars in thousands):



	March 31, 2014					December 31, 2013
	Amount			Percent of Gross		Amount			Percent of Gross
Real estate:
One-to-four family residential	$	63,701		15.9	%	$	68,755		16.5	%
Multifamily residential	43,981			11.0		41,819			10.0
Commercial	164,613			41.0		168,294			40.4
Total real estate	272,295			67.9		278,868			66.9
Real estate construction:
One-to-four family residential	25,268			6.3		26,567			6.4
Multifamily residential	2,357			0.6		3,769			0.9
Commercial and land development	30,120			7.5		30,688			7.4
Total real estate construction	57,745			14.4		61,024			14.7
Consumer:
Home equity	34,108			8.5		37,506			9.0
Automobile	881			0.2		928			0.2
Other consumer	2,899			0.7		2,941			0.7
Total consumer	37,888			9.4		41,375			9.9
Commercial business	33,333			8.3		35,376			8.5
Gross loans	401,261			100.0	%	416,643			100.0	%
Deferred loan fees, net	(79		)			(146		)
Allowance for loan losses	(8,075		)			(9,046		)
Loans receivable, net	$	393,107				$	407,451

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, 2014 and December 31, 2013.

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, 2014 and December 31, 2013 (in thousands):



	March 31, 2014
	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	$	1,657	$	—	$	1,657	$	609	$	—	$	57,259	$	59,525
Multifamily residential	750		—		750		—		—		41,536		42,286
Commercial real estate	106		—		106		—				130,217		130,323
Total real estate	2,513		—		2,513		609		—		229,012		232,134
Real estate construction:
One-to-four family residential	512		—		512		—		—		24,725		25,237
Multifamily residential	—		—		—		—		—		2,354		2,354
Commercial real estate	107		—		107		—		—		27,306		27,413
Total real estate construction	619		—		619		—		—		54,385		55,004
Consumer:
Home equity	381		—		381		109		—		28,199		28,689
Automobile	—		—		—		11		—		773		784
Other consumer	3		—		3		1		—		2,411		2,415
Total consumer	384		—		384		121		—		31,383		31,888
Commercial business	175		—		175		—		—		29,539		29,714
Total noncovered loans	3,691		—		3,691		730		—		344,319		348,740
Covered loans
Real estate:
One-to-four family residential	273		—		273		—		—		3,949		4,222
Multifamily residential	229		—		229		—		—		2,275		2,504
Commercial real estate	594		—		594		—				33,668		34,262
Total real estate	1,096		—		1,096		—		—		39,892		40,988
Commercial real estate construction	—		—		—		—		—		2,659		2,659
Consumer:
Home equity	—		—		—		—		—		5,622		5,622
Automobile	—		—		—		—		—		97		97
Other consumer	—		—		—		—		—		515		515
Total consumer	—		—		—		—		—		6,234		6,234
Commercial business	—		—		—		—		—		3,630		3,630
Total covered loans	1,096		—		1,096		—		—		52,415		53,511
Total gross loans	$	4,787	$	—	$	4,787	$	730	$	—	$	396,734	$	402,251



	December 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	$	1,998	$	—	$	1,998	$	420	$	274	$	59,827	$	62,519
Multifamily residential	765		—		765		—		—		39,493		40,258
Commercial real estate	111		—		111		—				133,312		133,423
Total real estate	2,874		—		2,874		420		274		232,632		236,200
Real estate construction:
One-to-four family residential	528		—		528		504		—		25,445		26,477
Multifamily residential	—		—		—		—		—		3,772		3,772
Commercial real estate	128		—		128		—		—		27,149		27,277
Total real estate construction	656		—		656		504		—		56,366		57,526
Consumer:
Home equity	342		—		342		40		62		28,878		29,322
Automobile	1		—		1		—		—		826		827
Other consumer	3		—		3		11		—		2,402		2,416
Total consumer	346		—		346		51		62		32,106		32,565
Commercial business	199		—		199		—		—		30,719		30,918
Total noncovered loans	4,075		—		4,075		975		336		351,823		357,209
Covered loans
Real estate:
One-to-four family residential	233		—		233		—		—		6,054		6,287
Multifamily residential	228		—		228		—		—		2,153		2,381
Commercial real estate	1,713		—		1,713		—				33,160		34,873
Total real estate	2,174		—		2,174		—		—		41,367		43,541
Commercial real estate construction	219		—		219		—		—		3,127		3,346
Consumer:
Home equity	—		—		—		—		—		8,394		8,394
Automobile	—		—		—		—		—		101		101
Other consumer	—		—		—		—		—		556		556
Total consumer	—		—		—		—		—		9,051		9,051
Commercial business	—		—		—		17		—		4,448		4,465
Total covered loans	2,393		—		2,393		17		—		57,993		60,403
Total gross loans	$	6,468	$	—	$	6,468	$	992	$	336	$	409,816	$	417,612

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, 2014 and December 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans was as follows (in thousands):



	March 31, 2014
	Pass		Watch		Special Mention		Substandard		Doubtful		Total Loans
Noncovered loans
Real estate:
One-to-four family residential	$	57,809	$	60	$	—	$	1,656	$	—	$	59,525
Multifamily residential	41,383		20		45		838		—		42,286
Commercial real estate	109,450		6,338		8,923		5,612		—		130,323
Total real estate	208,642		6,418		8,968		8,106		—		232,134
Real estate construction:
One-to-four family residential	23,419		1,305		—		513		—		25,237
Multifamily residential	2,354		—		—		—		—		2,354
Commercial real estate	27,306		—		—		107		—		27,413
Total real estate construction	53,079		1,305		—		620		—		55,004
Consumer:
Home equity	28,237		71		—		381		—		28,689
Automobile	784		—		—		—		—		784
Other consumer	2,211		—		4		200		—		2,415
Total consumer	31,232		71		4		581		—		31,888
Commercial business	27,497		610		1,404		203		—		29,714
Total noncovered loans	320,450		8,404		10,376		9,510		—		348,740
Covered loans
Real estate:
One-to-four family residential	2,466		537		—		1,219		—		4,222
Multifamily residential	2,053		62		—		389		—		2,504
Commercial real estate	26,517		953		2,379		4,413		—		34,262
Total real estate	31,036		1,552		2,379		6,021		—		40,988
Commercial real estate construction	2,644		—		—		15		—		2,659
Consumer:
Home equity	5,516		1		—		105		—		5,622
Automobile	87		10		—		—		—		97
Other consumer	514		1		—		—		—		515
Total consumer	6,117		12		—		105		—		6,234
Commercial business	2,399		676		187		368		—		3,630
Total covered loans	42,196		2,240		2,566		6,509		—		53,511
Total gross loans	$	362,646	$	10,644	$	12,942	$	16,019	$	—	$	402,251



	December 31, 2013
	Pass		Watch		Special Mention		Substandard		Doubtful		Total Loans
Noncovered loans
Real estate:
One-to-four family residential	$	60,345	$	60	$	—	$	2,114	$	—	$	62,519
Multifamily residential	39,339		20		45		854		—		40,258
Commercial real estate	109,190		8,837		9,004		6,392		—		133,423
Total real estate	208,874		8,917		9,049		9,360		—		236,200
Real estate construction:
One-to-four family residential	25,118		831		—		528		—		26,477
Multifamily residential	3,772		—		—		—		—		3,772
Commercial real estate	27,149		—		—		128		—		27,277
Total real estate construction	56,039		831		—