home10q63012.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q

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

For the quarterly period ended June 30, 2012

or

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
        For the transition period from  __________ to __________

Commission File Number: 001-33795
 
HOME FEDERAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

 
Maryland   68-0666697
(State or other jurisdiction of incorporation 
or organization)
 
(I.R.S. Employer
Identification Number)
     
    83651
(Address of principal executive offices)     (Zip Code) 
     
Registrant’s telephone number, including area code:    (208) 466-4634
     

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer                                 [   ]                   Accelerated filer                                        [X]
Non-accelerated filer                                   [   ]                   Smaller reporting company                      [   ]
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  Common Stock, $.01 par value per share, 15,117,416 shares outstanding as of August 3, 2012.

 
 

 

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

PART I – FINANCIAL INFORMATION
 
     
 
ITEM 1.  FINANCIAL STATEMENTS
2
     
 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
30
     
 
ITME 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
49
     
 
ITEM 4. CONTROLS AND PROCEDURES
51
   
PART II – OTHER INFORMATION
 
     
 
ITEM 1. LEGAL PROCEEDINGS
53
     
 
ITEM 1A. RISK FACTORS
53
     
 
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
53
     
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
53
     
 
ITEM 4. MINE SAFETY DISCLOSURES
53
     
 
ITEM 5. OTHER INFORMATION
53
     
 
SIGNATURES
55
 
 
 

 

Item 1.  Financial Statements

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (Unaudited)

   
June 30, 2012
   
December 31, 2011
 
             
ASSETS
           
Cash and cash equivalents
  $ 83,193     $ 144,293  
Investments available-for-sale, at fair value
    443,025       399,877  
Loans and leases receivable, net of allowance for loan and lease losses of $12,620 and $14,171
    430,903       449,908  
Accrued interest receivable
    2,967       2,857  
Federal Deposit Insurance Corporation (“FDIC”)
indemnification receivable, net
    18,370       23,676  
Bank owned life insurance
    15,693       15,450  
Real estate owned and other repossessed assets (“REO”)
    16,323       19,827  
Federal Home Loan Bank (“FHLB”) stock, at cost
    17,717       17,717  
Property and equipment, net
    30,219       31,522  
Core deposit intangible
    2,790       3,086  
Other assets
    13,394       8,221  
TOTAL ASSETS
  $ 1,074,594     $ 1,116,434  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
LIABILITIES
               
Deposit accounts:
               
Noninterest-bearing demand
  $ 131,746     $ 127,553  
Interest-bearing demand
    247,836       249,215  
Money market
    178,175       178,377  
Savings
    81,175       78,492  
Certificates
    228,833       272,462  
Total deposit accounts
    867,765       906,099  
                 
Advances by borrowers for taxes and insurance
    845       358  
Accrued interest payable
    178       219  
Repurchase agreements
    4,742       4,913  
Deferred compensation
    5,995       5,871  
Other liabilities
    5,932       7,704  
Total liabilities
    885,457       925,164  
                 
STOCKHOLDERS’ EQUITY
               
Serial preferred stock, $.01 par value; 10,000,000 authorized;
     issued and outstanding: none
    --       --  
Common stock, $.01 par value; 90,000,000 authorized; issued
and outstanding:
    153       157  
      Jun. 30, 2012 - 17,512,197 issued; 15,255,366 outstanding
               
      Dec. 31, 2011 - 17,512,197 issued; 15,664,706 outstanding
               
Additional paid-in capital
    139,623       143,280  
Retained earnings
    49,084       49,443  
Unearned shares issued to employee stock ownership plan
    (7,202 )     (7,581 )
Accumulated other comprehensive income
    7,479       5,971  
Total stockholders’ equity
    189,137       191,270  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 1,074,594     $ 1,116,434  
 
See accompanying notes.
 
 

2
 


HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data) (Unaudited)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2012
 
2011
   
2012
   
2011
 
                       
Interest income:
                     
Loans and leases
  $ 9,033   $ 8,824     $ 20,250     $ 17,219  
Investment securities
    2,209     2,450       4,413       4,706  
Other interest
    71     118       141       252  
Total interest income
    11,313     11,392       24,804       22,177  
                               
Interest expense:
                             
Deposits
    991     1,452       2,093       3,144  
FHLB advances and other borrowings
    16     547       37       1,105  
Total interest expense
    1,007     1,999       2,130       4,249  
Net interest income
    10,306     9,393       22,674       17,928  
Provision for loan losses
    (434 )   2,811       (1,217 )     5,811  
Net interest income after provision for loan losses
    10,740     6,582       23,891       12,117  
                               
Noninterest income:
                             
Service charges and fees
    2,274     2,446       4,381       4,678  
Gain on sale of loans
    --     120       1       307  
Gain on sale of securities
    603     --       1,138       --  
Gain on sale of fixed assets and REO
    152     196       372       144  
FDIC indemnification recovery (provision)
    (411 )   2,389       (1,230 )     5,239  
Accretion (impairment) of FDIC indemnification asset
    (1,705 )   355       (5,048 )     1,004  
Other
    223     201       415       429  
Total noninterest income
    1,136     5,707       29       11,801  
                               
Noninterest expense:
                             
Compensation and benefits
    6,175     6,780       12,312       13,961  
Occupancy and equipment
    1,514     1,518       3,077       3,395  
Data processing
    942     1,152       1,947       2,102  
Advertising
    223     173       377       435  
Postage and supplies
    247     298       553       647  
Professional services
    630     863       1,269       1,899  
Insurance and taxes
    561     716       1,082       1,742  
Amortization of intangibles
    144     176       296       362  
Provision for REO
    291     296       398       653  
Other
    379     451       755       950  
Total noninterest expense
    11,106     12,423       22,066       26,146  
Income (loss) before income taxes
    770     (134 )     1,854       (2,228 )
Income tax provision (benefit)
    211     (56 )     593       (948 )
                               
Net income (loss)
  $ 559   $ (78 )   $ 1,261     $ (1,280 )
                               
Earnings (loss) per common share:
                             
Basic
  $ 0.04   $ (0.01 )   $ 0.09     $ (0.08 )
Diluted
    0.04     (0.01 )     0.09       (0.08 )
                               
Weighted average number of shares outstanding:
                             
Basic
    14,638,663     15,536,539       14,705,256       15,592,630  
Diluted
    14,638,663     15,536,539       14,705,256       15,592,630  
                               
Dividends declared per share:
  $ 0.055   $ 0.055     $ 0.11     $ 0.11  
 
See accompaying notes.
 
 

3
 

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (Unaudited)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2012
 
2011
   
2012
   
2011
 
                       
Net income (loss)
  $ 559   $ (78 )   $ 1,261     $ (1,280 )
                               
Other comprehensive income:
                             
Change in unrealized holding gain on investments
    available-for-sale, net of taxes of $1,013, $1,861,
    $1,406, and $1,909, respectively
    1,587     2,917       2,203       2,992  
Adjustment for realized gains on sales of investments,
    net of taxes of  ($236), $0, ($445) and $0, respectively
    (368 )   --       (695 )     --  
Other comprehensive income
    1,219     2,917       1,508       2,992  
Comprehensive income
  $ 1,778   $ 2,839     $ 2,769     $ 1,712  

 
 
 
 
 
 
See accompaying notes.
 
 

4
 


HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data) (Unaudited)

 
Common Stock
  Additional      
Unearned
Shares
 
Accumulated
Other
Comprehensive
     
 
Shares
 
Shares
 
Paid-In
Capital
 
Retained
Earnings
 
Issued to
ESOP
 
 Income
(Loss)
 
Total
 
                             
Balance at January 1, 2012
  15,664,706   $ 157   $ 143,280   $ 49,443   $ (7,581 ) $ 5,971   $ 191,270  
                                           
Restricted stock issued, net of forfeitures
and redemption for taxes
  37,929           (38 )                     (38 )
ESOP shares committed to be released
              10           379           389  
Share-based compensation
              473                       473  
Stock repurchase
  (447,269 )   (4 )   (4,102 )                     (4,106 )
Dividends paid ($0.11 per share)
                    (1,620 )               (1,620 )
Net income
                    1,261                 1,261  
Other comprehensive income
                                1,508     1,508  
Balance at June 30, 2012
  15,255,366   $ 153   $ 139,623   $ 49,084   $ (7,202 ) $ 7,479   $ 189,137  







See accompaying notes.
 
 

5
 

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

   
Six Months Ended
June 30,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
  $ 1,261     $ (1,280 )
Adjustments to reconcile net income (loss) to cash provided by operating activities:
               
Depreciation and amortization
    1,539       1,189  
Amortization of core deposit intangible
    296       362  
Impairment (accretion) of FDIC indemnification receivable
    5,048       (1,004 )
Net amortization of premiums and discounts on investments
    2,765       2,983  
Gain on sale of loans, net
    (1 )     (307 )
Gain on sale of securities available-for-sale, net
    (1,138 )     --  
Gain on sale of fixed assets and repossessed assets, net
    (372 )     (144 )
ESOP shares committed to be released
    389       620  
Share based compensation expense
    473       437  
Provision for loan losses
    (1,217 )     5,811  
Valuation provision on real estate and other property owned
    398       653  
Accrued deferred compensation expense, net
    124       68  
Net deferred loan fees
    (936 )     73  
Deferred income tax (provision) benefit
    (3,222 )     26  
Proceeds from sale of loans held for sale
    1       10,777  
Originations of loans held for sale
    --       (7,730 )
Net increase in cash surrender value of bank owned life insurance
    (242 )     (204 )
Change in assets and liabilities:
               
Interest receivable
    (110 )     134  
Other assets
    (2,251 )     896  
Interest payable
    (41 )     (120 )
Other liabilities
    (1,809 )     (2,050 )
Net cash provided from operating activities
    955       11,190  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Principal repayments, maturities and calls of securities available-for-sale
    47,109       60,532  
Proceeds from sales of securities available-for-sale
    56,110       --  
Purchase of securities available–for-sale
    (145,524 )     (54,672 )
Reimbursement of loan losses under loss share agreement
    442       15,289  
Net decrease in loans
    13,287       62,205  
Proceeds from sales of fixed assets and repossessed assets
    10,739       12,044  
Purchases of property and equipment
    (473 )     (6,537 )
Net cash provided from (used by) investing activities
    (18,310 )     88,861  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net decrease in deposits
    (38,334 )     (96,143 )
Net increase in advances by borrowers for taxes and insurance
    487       172  
Repayment of FHLB borrowings
    --       (3,998 )
Net decrease in securities sold under obligation to repurchase
    (172 )     (2,949 )
Proceeds from exercise of stock options
    --       355  
Repurchases of common stock
    (4,106 )     (6,067 )
Dividends paid
    (1,620 )     (1,723 )
Net cash used by financing activities
    (43,745 )     (110,353 )
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (61,100 )     (10,302 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    144,293       212,246  
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 83,193     $ 201,944  

(Continued)
 
See accompaying notes.
 
 

6
 

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands) (Unaudited)

   
Six Months Ended
June 30,
 
   
2012
   
2011
 
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
           
Cash paid (received) during the period for:
           
Interest
  $ 2,171     $ 4,369  
Taxes
    7,064       (110 )
                 
NONCASH INVESTING AND FINANCING ACTIVITIES:
               
Acquisition of real estate owned and other assets in settlement of loans
  $ 7,917     $ 13,495  
Fair value adjustment to securities available-for-sale, net of taxes
    1,508       2,988  
 
 
 

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

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

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

Certain information and note disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted. Therefore, these consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011 (“2011 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on December 14, 2011.

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

Note 2 - Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-12, Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers changes in ASU 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income
 
 
 

8
 
on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by ASU 2011-12.  ASU 2011-12 did not have a significant impact on the Company’s Consolidated Financial Statements.

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

Note 3 - Earnings (Loss) Per Share

The Company has granted stock compensation awards with non-forfeitable dividend rights, which are considered participating securities. Accordingly, earnings (loss) per share (“EPS”) is computed using the two-class method as required by ASC 260-10-45. Basic EPS is computed by dividing net income (or loss) allocated to common stock by the weighted average number of common shares outstanding during the period which excludes the participating securities. Diluted EPS includes the dilutive effect of additional potential common shares from stock compensation awards, but excludes awards considered participating securities. ESOP shares are not considered outstanding for EPS until they are committed to be released. The following table presents the computation of basic and diluted EPS for the periods indicated (in thousands, except share and per share data):

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Net income (loss)
  $ 559     $ (78 )   $ 1,261     $ (1,280 )
Allocated to participating securities
    (4 )     --       (11 )     12  
Net income (loss) allocated to common shareholders
  $ 555     $ (78 )   $ 1,250     $ (1,268 )
                                 
Weighted average common shares outstanding, gross
    15,531,981       16,510,383       15,588,611       16,567,798  
Less:  Average unearned ESOP shares
    (749,210 )     (823,472 )     (758,941 )     (837,349 )
Less:  Average participating securities
    (144,108 )     (150,372 )     (124,414 )     (137,819 )
Weighted average common shares outstanding, net
    14,638,663       15,536,539       14,705,256       15,592,630  
Net effect of dilutive restricted stock
    --       --       --       --  
Weighted average shares and common stock equivalents
    14,638,663       15,536,539       14,705,256       15,592,630  
                                 
Income (loss) per common share:
                               
Basic
  $ 0.04     $ (0.01 )   $ 0.09     $ (0.08 )
Diluted
    0.04       (0.01 )     0.09       (0.08 )
                                 
Options excluded from the calculation due to their anti-dilutive effect on EPS
    986,590       878,460       986,590       878,460  


 
 

9
 
Note 4 - Investment securities

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

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
   
Percent of
Total
 
                               
June 30, 2012
                             
Obligations of U.S. Government-sponsored enterprises (“GSE”)
$ 65,842     $ 1,184     $ --     $ 67,026       15.1 %
Obligations of states and political subdivisions
    35,625       1,614       (97 )     37,142       8.4  
Mortgage-backed securities, GSE-issued
    328,973       9,892       (308 )     338,557       76.4  
Mortgage-backed securities, private label
    334       --       (34 )     300       0.1  
                                         
Total
  $ 430,774     $ 12,690     $ (439 )   $ 443,025       100.0 %
                                         
December 31, 2011
                                       
Obligations of U.S. GSE
  $ 65,345     $ 650     $ (11 )   $ 65,984       16.5 %
Obligations of states and political subdivisions
    20,850       992       (33 )     21,809       5.4  
Corporate note, FDIC-guaranteed
    1,005       2       --       1,007       0.3  
Mortgage-backed securities, GSE-issued
    302,539       8,480       (253 )     310,766       77.7  
Mortgage-backed securities, private label
    357       --       (46 )     311       0.1  
                                         
Total
  $ 390,096     $ 10,124     $ (343 )   $ 399,877       100.0 %

For the quarter ended June 30, 2012, proceeds from sales of securities available-for-sale amounted to $30.4 million.  Gross realized gains on these sales totaled $603,000, partially offset by a tax provision of $236,000.  There were no gross realized losses during the period.  For the six months ended June 30, 2012, proceeds from sales of securities available-for-sale were $56.1 million.  Gross realized gains on these sales totaled $1.1 million, partially offset by a tax provision of $445,000.  There were no gross realized losses during the period.  We did not sell any securities during the quarter or six months periods ended June 30, 2011.

The fair value of impaired securities, the amount of unrealized losses and the length of time these unrealized losses existed for the periods indicated were as follows (in thousands):

   
Less Than 12 Months
   
12 Months or Longer
   
Total
 
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
 
                                     
June 30, 2012
                                   
Obligations of states and political subdivisions
  $ 8,954     $ (97 )   $ --     $ --     $ 8,954     $ (97 )
Mortgage-backed securities, GSE-issued
    19,060       (308 )     10       --       19,070       (308 )
Mortgage-backed securities, private label
    --       --       300       (34 )     300       (34 )
                                                 
Total
  $ 28,014     $ (405 )   $ 310     $ (34 )   $ 28,324     $ (439 )
                                                 
December 31, 2011
                                               
Obligations of U.S. GSE
  $ 1,739     $ (11 )   $ --     $ --     $ 1,739     $ (11 )
Obligations of states and political subdivisions
    2,802       (33 )     --       --       2,802       (33 )
Mortgage-backed securities, GSE-issued
    38,732       (245 )     4,010       (8 )     42,742       (253 )
Mortgage-backed securities, private label
    --       --       311       (46 )     311       (46 )
                                                 
Total
  $ 43,273     $ (289 )   $ 4,321     $ (54 )   $ 47,594     $ (343 )

Management has evaluated these securities and has determined that the decline in fair value is not other than temporary. These securities have contractual maturity dates and management believes it is probable that principal
 
 
 

10
 
and interest balances on these securities will be collected based on the performance, underwriting, credit support and vintage of the loans underlying the securities. However, continued deteriorating economic conditions may result in degradation in the performance of the loans underlying these securities in the future. The Company has the ability and intent to hold these securities for a reasonable period of time for a forecasted recovery of the amortized cost. The Company does not intend to sell these securities and it is not likely that the Company would be required to sell securities in an unrealized loss position before recovery of its cost basis.

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

   
June 30, 2012
   
December 31, 2011
 
   
Amortized
Cost
   
Fair Value
   
Amortized
Cost
   
Fair Value
 
                         
Due within one year
  $ 13,453     $ 13,481     $ 13,418     $ 13,455  
Due after one year through five years
    20,388       20,548       23,982       24,175  
Due after five years through ten years
    20,530       21,547       12,457       13,046  
Due after ten years
    47,096       48,592       37,343       38,124  
Mortgage-backed securities
    329,307       338,857       302,896       311,077  
    Total
  $ 430,774     $ 443,025     $ 390,096     $ 399,877  

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

   
June 30, 2012
   
December 31, 2011
 
   
Amortized
Cost
   
Fair
 Value
   
Amortized
Cost
   
Fair
 Value
 
                         
FHLB borrowing line of credit
  $ 28,403     $ 30,684     $ 33,782     $ 36,460  
Federal Reserve Bank
    1,457       1,529       1,787       1,874  
Repurchase agreements
    5,888       6,207       7,458       7,858  
Deposits of municipalities and public units
    12,518       13,390       15,499       16,513  
Total
  $ 48,266     $ 51,810     $ 58,526     $ 62,705  
 
 
 
 
 

 
 

11
 

Note 5 - Loans Receivable and Allowance for Loan Losses

Loans receivable are summarized by collateral type as follows (dollars in thousands):

   
June 30, 2012
   
December 31, 2011
 
   
Amount
   
Percent
of Gross
   
Amount
   
Percent
of Gross
 
                         
Real estate:
                       
One-to-four family residential
  $ 101,252       22.8 %   $ 115,403       24.8 %
Multifamily residential
    29,492       6.7       21,036       4.5  
Commercial real estate
    192,688       43.5       206,215       44.4  
Total real estate
    323,432       73.0       342,654       73.7  
                                 
Real estate construction:
                               
One-to-four family residential
    11,556       2.6       9,355       2.0  
Commercial and land development
    23,583       5.3       16,928       3.6  
Total real estate construction
    35,139       7.9       26,283       5.6  
                                 
Consumer:
                               
Home equity
    45,821       10.3       47,192       10.2  
Automobile
    856       0.2       946       0.2  
Other consumer
    4,095       0.9       4,580       1.0  
Total consumer
    50,772       11.4       52,718       11.4  
                                 
Commercial business
    32,819       7.4       40,953       8.8  
Leases
    1,113       0.3       2,159       0.5  
Gross loans
    443,275       100.0 %     464,767       100.0 %
Deferred loan costs (fees), net
    248               (688 )        
Allowance for loan losses
    (12,620 )             (14,171 )        
Loans receivable, net
  $ 430,903             $ 449,908          
 
 

 
 
 

12
 

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

Delinquent and nonaccrual loans. The following tables present the recorded investment in nonperforming loans and an aging of performing loans by class as of June 30, 2012 and December 31, 2011 (in thousands):

 
June 30, 2012
 
 
Nonperforming Loans
                 
 
Nonaccrual
 
Past Due 90
or More
Days, Still
Accruing
 
Total
 
Loans
Delinquent
30-59 Days
 
Loans
Delinquent
60-89 Days
 
Loans Not
Past Due
 
Total
Loans
 
                             
Noncovered loans
                           
Real estate:
                           
One-to-four family residential
$ 3,805   $ --   $ 3,805   $ --   $ 187   $ 85,677   $ 89,669  
Multifamily residential
  854     --     854     --     --     23,391     24,245  
Commercial real estate
  9,342     --     9,342     317     --     129,677     139,336  
Total real estate
  14,001     --     14,001     317     187     238,745     253,250  
                                           
Real estate construction:
                                         
One-to-four family residential
  633     --     633     --     --     10,923     11,556  
Commercial real estate
  608     --     608     --     --     16,037     16,645  
Total real estate construction
  1,241     --     1,241     --     --     26,960     28,201  
                                           
Consumer:
                                         
Home equity
  725     --     725     114     24     33,334     34,197  
Automobile
  --     --     --     --     --     614     614  
Other consumer
  --     --     --     3     --     3,261     3,264  
Total consumer
  725     --     725     117     24     37,209     38,075  
                                           
Commercial business
  354     --     354     --     55     13,867     14,276  
Leases
  --     --     --     --     --     201     201  
Total noncovered loans
  16,321     --     16,321     434     266     316,982     334,003  
                                           
Covered loans
                                         
Real estate:
                                         
One-to-four family residential
  298     --     298     --     63     11,307     11,668  
Multifamily residential
  --     --     --     --     --     5,247     5,247  
Commercial real estate
  6,118     --     6,118     --     --     47,235     53,353  
Total real estate
  6,416     --     6,416     --     63     63,789     70,268  
                                           
Real estate construction:
                                         
One-to-four family residential
  --     --     --     --     --     --     --  
Commercial real estate
  272     --     272     --     --     6,666     6,938  
Total real estate construction
  272     --     272     --     --     6,666     6,938  
                                           
Consumer:
                                         
Home equity
  111     --     111     101     --     11,563     11,775  
Automobile
  --     --     --     --     --     242     242  
Other consumer
  --     --     --     --     35     824     859  
Total consumer
  111     --     111     101     35     12,629     12,876  
                                           
Commercial business
  139     --     139     --     --     19,550     19,689  
Leases
  --     --     --     --     --     912     912  
Total covered loans
  6,938     --     6,938     101     98     103,546     110,683  
Total gross loans
$ 23,259   $ --   $ 23,259   $ 535   $ 364   $ 420,528   $ 444,686  


 
 

13
 


 
December 31, 2011
 
 
Nonperforming Loans
                 
 
Nonaccrual
 
Past Due 90
or More
Days, Still
Accruing
 
Total
 
Loans
Delinquent
30-59 Days
 
Loans
Delinquent
60-89 Days
 
Loans Not
Past Due
 
Total
Loans
 
                             
Noncovered loans
                           
Real estate:
                           
One-to-four family residential
$ 5,446   $ --   $ 5,446   $ 1,435   $ 149   $ 96,307   $ 103,337  
Multifamily residential
  --     --     --     --     --     13,184     13,184  
Commercial real estate
  7,601     --     7,601     --     --     137,480     145,081  
Total real estate
  13,047     --     13,047     1,435     149     246,971     261,602  
                                           
Real estate construction:
                                         
One-to-four family residential
  415     --     415     --     --     7,921     8,336  
Commercial real estate
  1,132     --     1,132     --     --     8,778     9,910  
Total real estate construction
  1,547     --     1,547     --     --     16,699     18,246  
                                           
Consumer:
                                         
Home equity
  676     --     676     55     114     33,894     34,739  
Automobile
  --     --     --     --     --     665     665  
Other consumer
  2     --     2     6     8     3,620     3,636  
Total consumer
  678     --     678     61     122     38,179     39,040  
                                           
Commercial business
  422     --     422     --     --     5,796     6,218  
Leases
  --     --     --     --     --     257     257  
Total noncovered loans
  15,694     --     15,694     1,496     271     307,902     325,363  
                                           
Covered loans
                                         
Real estate:
                                         
One-to-four family residential
  753     --     753     --     --     11,416     12,169  
Multifamily residential
  1,372     --     1,372     --     --     6,480     7,852  
Commercial real estate
  5,934     --     5,934     --     --     55,200     61,134  
Total real estate
  8,059     --     8,059     --     --     73,096     81,155