Annual Reports

 
Quarterly Reports

  • 10-Q (Aug 8, 2014)
  • 10-Q (May 9, 2014)
  • 10-Q (Nov 12, 2013)
  • 10-Q (Aug 9, 2013)
  • 10-Q (May 10, 2013)
  • 10-Q (Nov 9, 2012)

 
8-K

 
Other

ESB Financial 10-Q 2012

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15 (d) of

the Securities Exchange Act of 1934

For Quarter Ended: March 31, 2012

Commission File Number: 0-19345

 

 

ESB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Pennsylvania   25-1659846

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

600 Lawrence Avenue, Ellwood City, PA   16117
(Address of principal executive offices)   (Zip Code)

(724) 758-5584

(Registrant’s telephone number, including area code)

 

 

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 website, 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 definition 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   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act)    Yes  ¨    No  x

Number of shares of common stock outstanding as of April 30, 2012:

 

Common Stock, $0.01 par value   14,640,564 shares
(Class)   (Outstanding)

 

 

 


Table of Contents

ESB FINANCIAL CORPORATION

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

 

Item 1.

  

Financial Statements

  
  

Consolidated Statements of Financial Condition as of March 31, 2012 and December 31, 2011 (Unaudited)

   1
  

Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (Unaudited)

   2
  

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011 (Unaudited)

   3
  

Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2012 (Unaudited)

   4
  

Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (Unaudited)

   5
  

Notes to Unaudited Consolidated Financial Statements

   7

Item 2.

  

Management’s Discussion and Analysis of Results of Operations and Financial Condition

   37

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

   49

Item 4.

  

Controls and Procedures

   49
PART II - OTHER INFORMATION

Item 1.

  

Legal Proceedings

   49

Item 1A.

  

Risk Factors

   49

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

   50

Item 3.

  

Defaults Upon Senior Securities

   50

Item 4.

  

Mine Safety Disclosures

   50

Item 5.

  

Other Information

   50

Item 6.

  

Exhibits

   50
  

Signatures

   51


Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ESB Financial Corporation and Subsidiaries

Consolidated Statements of Financial Condition

As of March 31, 2012 (Unaudited) and December 31, 2011

(Dollar amounts in thousands)

 

     March 31,     December 31,  
     2012     2011  
Assets     

Cash on hand and in banks

   $ 3,517      $ 4,720   

Interest-earning deposits

     40,569        34,117   

Federal funds sold

     3        11   
  

 

 

   

 

 

 

Cash and cash equivalents

     44,089        38,848   

Securities available for sale; cost of $1,087,740 and $1,091,497

     1,130,874        1,130,116   

Loans receivable, net of allowance for loan losses of $6,633 and $6,537

     660,008        648,921   

Accrued interest receivable

     8,677        9,227   

Federal Home Loan Bank (FHLB) stock

     20,193        21,256   

Premises and equipment, net

     15,026        15,071   

Real estate acquired through foreclosure, net

     3,612        3,883   

Real estate held for investment

     15,164        15,268   

Goodwill

     41,599        41,599   

Intangible assets

     484        554   

Bank owned life insurance

     30,960        30,802   

Securities receivable

     1,236        1,148   

Prepaid expenses and other assets

     7,326        8,098   
  

 

 

   

 

 

 

Total assets

   $ 1,979,248      $ 1,964,791   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Liabilities:

    

Deposits

   $ 1,190,329      $ 1,156,410   

FHLB advances

     199,297        207,355   

Repurchase agreements

     318,000        343,000   

Other borrowings

     9,421        10,212   

Junior subordinated notes

     46,393        46,393   

Advance payments by borrowers for taxes and insurance

     2,597        2,519   

Accounts payable for land development

     2,373        2,634   

Accrued expenses and other liabilities

     25,062        17,193   
  

 

 

   

 

 

 

Total liabilities

     1,793,472        1,785,716   
  

 

 

   

 

 

 

Stockholders’ Equity:

    

Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued

     —          —     

Common stock, $.01 par value, 30,000,000 shares authorized; 16,278,045 and 16,278,045 shares issued; 14,640,987 and 14,600,871 shares outstanding

     163        163   

Additional paid-in capital

     102,719        102,667   

Treasury stock, at cost; 1,637,058 and 1,677,174 shares

     (19,094     (19,537

Unearned Employee Stock Ownership Plan (ESOP) shares

     (3,917     (4,184

Retained earnings

     82,457        80,231   

Accumulated other comprehensive income, net

     24,451        20,904   
  

 

 

   

 

 

 

Total ESB Financial Corporation’s stockholders’ equity

     186,779        180,244   

Noncontrolling interest

     (1,003     (1,169
  

 

 

   

 

 

 

Total stockholders’ equity

     185,776        179,075   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,979,248      $ 1,964,791   
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

1


Table of Contents

ESB Financial Corporation and Subsidiaries

Consolidated Statements of Operations

For the three months ended March 31, 2012 and 2011 (Unaudited)

(Dollar amounts in thousands, except share data)

 

     Three Months Ended
March 31,
 
     2012     2011  

Interest income:

    

Loans receivable

   $ 8,349      $ 8,661   

Taxable securities available for sale

     8,846        9,735   

Tax free securities available for sale

     1,647        1,556   

FHLB Stock

     10        —     

Deposits with banks and federal funds sold

     18        3   
  

 

 

   

 

 

 

Total interest income

     18,870        19,955   
  

 

 

   

 

 

 

Interest expense:

    

Deposits

     2,551        3,233   

Borrowed funds

     4,710        5,305   

Junior subordinated notes and guaranteed preferred beneficial interest in subordinated debt

     612        600   
  

 

 

   

 

 

 

Total interest expense

     7,873        9,138   
  

 

 

   

 

 

 

Net interest income

     10,997        10,817   

Provision for loan losses

     200        300   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     10,797        10,517   
  

 

 

   

 

 

 

Noninterest income:

    

Fees and service charges

     835        820   

Net gain on sale of loans

     —          7   

Increase of cash surrender value of bank owned life insurance

     158        171   

Net realized gain on sale of securities available for sale

     267        —     

Net realized loss on derivatives

     (131     (125

Income from real estate joint ventures

     419        464   

Other

     175        152   
  

 

 

   

 

 

 

Total noninterest income

     1,723        1,489   
  

 

 

   

 

 

 

Noninterest expense:

    

Compensation and employee benefits

     4,358        4,145   

Premises and equipment

     717        724   

Federal deposit insurance premiums

     407        468   

Data processing

     589        572   

Amortization of intangible assets

     68        88   

Advertising

     139        78   

Other

     1,444        1,107   
  

 

 

   

 

 

 

Total noninterest expense

     7,722        7,182   
  

 

 

   

 

 

 

Income before income taxes

     4,798        4,824   

Provision for income taxes

     845        896   
  

 

 

   

 

 

 

Net income before noncontrolling interest

     3,953        3,928   

Less: net income attributable to the noncontrolling interest

     168        268   
  

 

 

   

 

 

 

Net income attributable to ESB Financial Corporation

   $ 3,785      $ 3,660   
  

 

 

   

 

 

 

Net income per share

    

Basic

   $ 0.26      $ 0.25   

Diluted

   $ 0.26      $ 0.25   

Cash dividends declared per share

   $ 0.10      $ 0.08   

Weighted average shares outstanding

     14,293,442        14,440,697   

Weighted average shares and share equivalents outstanding

     14,439,949        14,553,265   

See accompanying notes to unaudited consolidated financial statements.

 

2


Table of Contents

ESB Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

For the three months ended March 31, 2012 and 2011 (Unaudited)

(Dollar amounts in thousands)

 

     Three Months Ended  
     March 31,  
     2012     2011  

Net Income before noncontrolling interest

   $ 3,953      $ 3,928   

Other comprehensive income (net of tax and reclassifications)

    

Net change in unrealized gains (losses):

    

Securities available for sale not other-than-temporarily impaired:

    

Gains (losses) arising during the year

     4,834        (679

Income tax effect

     (1,643     231   
  

 

 

   

 

 

 
     3,191        (448
  

 

 

   

 

 

 

Gains recognized in earnings

     267        —     

Income tax effect

     (91     —     
  

 

 

   

 

 

 
     176        —     
  

 

 

   

 

 

 

Unrealized holding gains (losses) on securities available for sale not other-than-temporarily-impaired, net of tax

     3,367        (448
  

 

 

   

 

 

 

Unrealized holding gain (loss) on securities, net

     3,367        (448
  

 

 

   

 

 

 

Pension and Postretirement Amortization

     52        46   

Income tax effect

     (17     (16
  

 

 

   

 

 

 
     35        30   
  

 

 

   

 

 

 

Fair Value adjustment on derivatives

     220        375   

Income tax effect

     (75     (128
  

 

 

   

 

 

 
     145        247   
  

 

 

   

 

 

 

Other comprehensive income (loss)

     3,547        (171
  

 

 

   

 

 

 

Net comprehensive income before noncontrolling interest

     7,500        3,757   

Less: net income attributable to the noncontrolling interest

     168        268   
  

 

 

   

 

 

 

Net comprehensive income attributable to ESB Financial Corporation

   $ 7,332      $ 3,489   
  

 

 

   

 

 

 

 

3


Table of Contents

ESB Financial Corporation and Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity

For the three months ended March 31, 2012 (Unaudited)

(Dollar amounts in thousands, except share data)

 

    Common
stock
    Additional
paid-in
capital
    Treasury
stock
    Unearned
ESOP
shares
    Retained
earnings
    Accumulated
other
comprehensive
income,

net of tax
    Noncontrolling
Interest
    Total
stockholders’
equity
 

Balance at January 1, 2012

  $ 163      $ 102,667      $ (19,537   $ (4,184   $ 80,231      $ 20,904      $ (1,169   $ 179,075   

Comprehensive results:

               

Net income

    —          —          —          —          3,785        —          168        3,953   

Other comprehensive results, net

    —          —          —          —          —          3,371        —          3,371   

Reclassification adjustment

    —          —          —          —          —          176        —          176   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive results

    —          —          —          —          3,785        3,547        168        7,500   

Cash dividends at $0.10 per share

    —          —          —          —          (1,431     —          —          (1,431

Purchase of treasury stock, at cost (3,112 shares)

    —          —          (42     —          —          —          —          (42

Reissuance of treasury stock for stock option exercises (43,228 shares)

    —          —          485        —          (128     —          —          357   

Compensation expense ESOP

    —          108        —          267        —          —          —          375   

Additional ESOP shares purchased

    —          (88     —          —          —          —          —          (88

Tax effect of compensatory stock options

    —          32        —          —          —          —          —          32   

Capital disbursement for noncontrolling interest

    —          —          —          —          —          —          (2     (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

  $ 163      $ 102,719      $ (19,094   $ (3,917   $ 82,457      $ 24,451      $ (1,003   $ 185,776   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

4


Table of Contents

ESB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

For the three months ended March 31, 2012 and 2011 (Unaudited)

(Dollar amounts in thousands)

 

     Three months ended  
     March 31,  
     2012     2011  

Operating activities:

    

Net income

   $ 3,953      $ 3,928   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization for premises and equipment

     258        228   

Provision for loan losses

     200        300   

Amortization of premiums and accretion of discounts

     849        570   

Origination of loans available for sale

     —          (325

Proceeds from sale of loans available for sale

     —          412   

Gain on sale of loans available for sale

     —          (7

Net gain on sale of securities available for sale

     (267     —     

Net realized loss on derivatives

     131        125   

Amortization of intangible assets

     68        88   

Compensation expense on ESOP and MRP

     375        390   

Increases in Bank owned life insurance

     (158     (171

Decrease in accrued interest receivable

     550        666   

Decrease in prepaid FDIC assessment

     377        440   

Decrease (increase) in prepaid expenses and other assets

     178        (587

Increase in accrued expenses and other liabilities

     2,095        1,214   

Gain on sale of real estate acquired through foreclosure

     (9     (5

Other

     279        (425
  

 

 

   

 

 

 

Net cash provided by operating activities

     8,879        6,841   
  

 

 

   

 

 

 

Investing activities:

    

Loan originations

     (55,084     (42,541

Purchases of:

    

Securities available for sale

     (52,396     (108,618

Premises and equipment

     (213     (555

Principal repayments of:

    

Loans receivable

     44,178        45,569   

Securities available for sale

     59,802        70,659   

Proceeds from the sale of:

    

Securities available for sale

     767        —     

Real estate acquired through foreclosure

     473        150   

Redemption of FHLB stock

     1,063        1,305   

Funding of real estate held for investment

     (2,057     (2,074

Proceeds from real estate held for investment

     960        2,017   
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,507     (34,088
  

 

 

   

 

 

 

Financing activities:

    

Net increase in deposits

     33,919        42,086   

Proceeds from long-term borrowings

     2,628        7,198   

Repayments of long-term borrowings

     (36,476     (50,000

Net (decrease) increase in short-term borrowings

     (1     8,741   

Proceeds received from exercise of stock options

     389        94   

Dividends paid

     (1,460     (1,203

Payments to acquire treasury stock

     (42     (374

Stock purchased by ESOP

     (88     (381
  

 

 

   

 

 

 

Net cash (used in ) provided by financing activities

     (1,131     6,161   
  

 

 

   

 

 

 

Net increase (decrease) in cash equivalents

     5,241        (21,086

Cash equivalents at beginning of period

     38,848        35,707   
  

 

 

   

 

 

 

Cash equivalents at end of period

   $ 44,089      $ 14,621   
  

 

 

   

 

 

 

 

5


Table of Contents

ESB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows, (Continued)

For the three months ended March 31, 2012 and 2011 (Unaudited)

(Dollar amounts in thousands)

 

     Three months ended  
     March 31,  
     2012      2011  

Supplemental information:

     

Interest paid

   $ 7,274       $ 9,118   

Income taxes paid

     504         518   

Supplemental schedule of non-cash investing and financing activities:

     

Transfers from loans receivable to real estate acquired through foreclosure

     366         —     

Transfers from loan originations to proceeds on real estate held for investment

     940         654   

Dividends declared but not paid

     1,431         1,267   

Unfunded security commitments

     4,804         —     

See accompanying notes to unaudited consolidated financial statements.

 

6


Table of Contents

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

1. Summary of Significant Accounting Policies

Principles of Consolidation

ESB Financial Corporation (the Company) is a publicly traded Pennsylvania thrift holding company. The consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned subsidiaries, which are ESB Bank (ESB or the Bank), THF, Inc. (THF), ESB Financial Services, Inc. (EFS) and AMSCO, Inc. (AMSCO). ESB is a Pennsylvania chartered, Federal Deposit Insurance Corporation (FDIC) insured stock savings bank.

AMSCO is engaged in real estate development and construction of 1-4 family residential units independently or in conjunction with its joint ventures. AMSCO is currently involved in nine real estate joint ventures, all of which are owned 51% or greater by AMSCO. The Bank has provided all development and construction financing. These joint ventures have been included in the consolidated financial statements and reflected within the consolidated statements of financial condition as real estate held for investment and related operating income and expenses reflected within other non-interest income or expense. The Bank’s loans to AMSCO and related interest have been eliminated in consolidation.

In addition to the elimination of the loans and interest to the joint ventures described above, all other significant intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements for the interim periods include all adjustments, consisting only of normal recurring accruals, which are necessary, in the opinion of management, to fairly reflect the Company’s financial position and results of operations. Additionally, these consolidated financial statements for the interim periods have been prepared in accordance with instructions for the Securities and Exchange Commission’s Form 10-Q and therefore do not include all information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with U.S. generally accepted accounting principles (GAAP). For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2011, as contained in the Company’s 2011 Annual Report to Stockholders.

The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the entire year. Certain amounts previously reported have been reclassified to conform to the current periods’ reporting format, such reclassifications did not have an effect on stockholders’ equity or net income.

The accounting principles followed by the Company and the methods of applying these principles conform with GAAP and with general practice within the banking industry. In preparing the consolidated financial statements management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Statement of Financial Condition date and revenues and expenses for the period. Actual results could differ significantly from those estimates.

Operating Segments

An operating segment is defined as a component of an enterprise that engages in business activities that generate revenue and incur expense, the operating results of which are reviewed by management. At March 31, 2012, the Company was doing business through 25 full service banking branches, one loan production office and through its various other subsidiaries. Loans and deposits are primarily generated from the areas where banking branches are located. The Company derives its income predominantly from interest on loans and securities and to a lesser extent, non-interest income. The Company’s principal expenses are interest paid on deposits and borrowed funds and normal operating costs. The Company’s operations are principally in the banking industry. Consistent with

 

7


Table of Contents

internal reporting, the Company’s operations are reported in one operating segment, which is community banking.

Stock Based Compensation

During the three months ended March 31, 2012 and 2011, the Company recorded approximately $107,000 and $100,000, respectively, in compensation expense and a tax benefit of $9,000 and $6,500, respectively, related to its share-based compensation awards that are expected to vest in 2012. As of March 31, 2012, there was approximately $790,000 of unrecognized compensation cost related to unvested share-based compensation awards granted. That cost is expected to be recognized over the next four years.

As required by GAAP, cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess tax benefits) are classified as financing cash flows.

Financial Instruments

As part of its overall interest rate risk management activities, the Company utilizes derivative instruments to manage its exposure to various types of interest rate risk. Interest rate swaps and interest rate caps are the primary instruments the Company uses for interest rate risk management. Derivative instruments are recorded at fair value as either part of prepaid expenses and other assets or accrued expenses and other liabilities on the consolidated statements of financial condition. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

The Company formally documents the relationship between the hedging instruments and hedged items, as well as the risk management objective and strategy, before undertaking an accounting hedge. To qualify for hedge accounting, the derivatives and related hedged items must be designated as a hedge at inception of the hedge relationship. For accounting hedge relationships, we formally assess, both at the inception of the hedge and on an ongoing basis, if the derivatives are highly effective in offsetting designated changes in the fair value or cash flows of the hedged item. If it is determined that the derivative instrument is not highly effective, hedge accounting is discontinued.

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. To the extent the change in fair value of the derivative does not offset the change in fair value of the hedged item, the difference or ineffectiveness is reflected in earnings in the same financial statement category as the hedged item.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (OCI) and subsequently reclassified to earnings when the hedged transaction affects earnings and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.

At March 31, 2012, there were sixteen interest rate cap contracts outstanding with notional amounts totaling $170.0 million. These derivative instruments are not hedged and therefore adjustments to fair value are recorded in current earnings.

The Company entered into two interest rate swap contracts to manage its exposure to interest rate risk. These interest rate swap transactions involved the exchange of the Company’s interest payment on $35.0 million in junior subordinated notes which became floating rate notes in 2011 for a fixed rate interest payment without the exchange of the underlying principal amount. Entering into interest rate derivatives potentially exposes the Company to the risk of counterparties’ failure to fulfill their legal obligations including, but not limited to,

 

8


Table of Contents

potential amounts due or payable under each derivative contract. Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. Management utilizes the Change in Variable Cash Flows Method to measure hedge ineffectiveness. To the extent that the cumulative change in anticipated cash flows from the hedging derivative offsets from 80% to 125% of the cumulative change in anticipated cash flows from the hedged exposure, the hedged is deemed effective. As of March 31, 2012 the interest rate swaps were deemed to be effective, therefore no amounts were charged to current earnings. The Company also does not expect to reclassify any hedge related amounts from OCI to earnings over the next twelve months.

The pay fixed interest rate swap contract outstanding at March 31, 2012 is being utilized to hedge $35.0 million in floating rate junior subordinated notes. Below is a summary of the interest rate swap contract and the terms at March 31, 2012:

 

     Notional      Effective      Pay     Receive     Maturity      Unrealized  

(Dollars in thousands)

   Amount      Date      Rate     Rate (*)     Date      Gain      Loss  

Cash Flow Hedge

   $ 20,000         2/10/2011         4.18     0.51     2/10/2018         —         $ 3,121   

Cash Flow Hedge

     15,000         2/10/2011         3.91     0.51     2/10/2018         —           2,107   
  

 

 

              

 

 

    

 

 

 
   $ 35,000                   —         $ 5,228   
  

 

 

              

 

 

    

 

 

 

 

* Variable receive rate based upon contract rates in effect at March 31, 2012

Recent Accounting and Regulatory Pronouncements

In December 2011, the FASB issued ASU 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. The amendments in this Update affect entities that cease to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The amendments in this Update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this Update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An

 

9


Table of Contents

entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. This ASU is not expected to have a significant impact on the Company’s financial statements.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. In order to defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. Entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The Company has provided the necessary disclosure in Statement of Comprehensive Income.

In September 2011, the FASB issued ASU 2011-09, Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan. The amendments in this Update will require additional disclosures about an employer’s participation in a multiemployer pension plan to enable users of financial statements to assess the potential cash flow implications relating to an employer’s participation in multiemployer pension plans. The disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside the financial statements. For public entities, the amendments in this Update are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. For nonpublic entities, the amendments are effective for annual periods of fiscal years ending after December 15, 2012, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented. This ASU did not have a significant impact on the Company’s financial statements.

In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other Topics (Topic 350), Testing Goodwill for Impairment. The objective of this update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this Update apply to all entities, both public and nonpublic, that have goodwill reported in their financial statements and are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. This ASU did not have a significant impact on the Company’s financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. The amendments in this Update improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this update. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after

 

10


Table of Contents

December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The amendments in this Update should be applied retrospectively, and early adoption is permitted. The Company has provided the necessary disclosure in the Statement of Comprehensive Income.

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. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company has included the disclosure requirements in Footnote Nine.

In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The main objective in developing this Update is to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this Update apply to all entities, both public and nonpublic. The amendments affect all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The guidance in this Update is effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. This ASU did not have a significant impact on the Company’s financial statements.

 

11


Table of Contents
2. Securities

The Company’s securities available for sale portfolio is summarized as follows:

 

(Dollar amounts in thousands)    Amortized      Unrealized      Unrealized     Fair  
     cost      gains      losses     value  

March 31, 2012:

          

Trust preferred securities

   $ 45,895       $ 340       $ (8,199   $ 38,036   

Municipal securities

     173,590         11,934         (300     185,224   

Equity securities

     1,254         519         (16     1,757   

Corporate bonds

     171,984         3,721         (2,514     173,191   

Mortgage-backed securities

          

U.S. sponsored entities

     686,899         37,617         (64     724,452   

Private label

     8,118         251         (155     8,214   
  

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal mortgage-backed securities

     695,017         37,868         (219     732,666   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 1,087,740       $ 54,382       $ (11,248   $ 1,130,874   
  

 

 

    

 

 

    

 

 

   

 

 

 

December 31, 2011:

          

Trust preferred securities

   $ 45,894       $ 265       $ (8,615   $ 37,544   

Municipal securities

     174,288         10,427         (230     184,485   

Equity securities

     1,754         351         (2     2,103   

Corporate bonds

     165,923         1,784         (2,928     164,779   

Mortgage-backed securities

          

U.S. sponsored entities

     694,674         37,636         (8     732,302   

Private label

     8,964         241         (302     8,903   
  

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal mortgage-backed securities

     703,638         37,877         (310     741,205   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 1,091,497       $ 50,704       $ (12,085   $ 1,130,116   
  

 

 

    

 

 

    

 

 

   

 

 

 

The following table shows the Company’s investments gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2012:

 

As of March 31, 2012                                                      
(Dollar amounts in thousands)   Less than 12 Months     12 Months or more     Total  
    # of
Securities
    Fair
Value
    Unrealized
losses
    # of
Securities
    Fair
Value
    Unrealized
losses
    # of
Securities
    Fair Value     Unrealized
losses
 

Trust preferred securities

    —        $ —        $ —          9      $ 36,208      $ 8,199        9      $ 36,208      $ 8,199   

Municipal securities

    3        3,953        300        —          —          —          3        3,953        300   

Equity securities

    —          —          —          1        116        16        1        116        16   

Corporate bonds

    13        43,574        2,514        —          —          —          13        43,574        2,514   

Mortgage-backed securities

                 

U.S. sponsored entities

    5        22,651        64        —          —          —          5        22,651        64   

Private label

    1        1,292        118        1        708        37        2        2,000        155   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal mortgage-backed securities

    6        23,943        182        1        708        37        7        24,651        219   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    22      $ 71,470      $ 2,996        11      $ 37,032      $ 8,252        33      $ 108,502      $ 11,248   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

12


Table of Contents

The following table shows the Company’s investments gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2011:

 

As of December 31, 2011                                                      
(Dollar amounts in thousands)   Less than 12 Months     12 Months or more     Total  
    # of
Securities
    Fair Value     Unrealized
losses
    # of
Securities
    Fair
Value
    Unrealized
losses
    # of
Securities
    Fair Value     Unrealized
losses
 

Trust preferred securities

    —        $ —        $ —          9      $ 35,789      $ 8,615        9      $ 35,789      $ 8,615   

Municipal securities

    2        3,094        149        3        2,627        81        5        5,721        230   

Equity securities

    —          —          —          1        130        2        1        130        2   

Corporate bonds

    27        91,046        2,928        —          —          —          27        91,046        2,928   

Mortgage-backed securities

                 

U.S. sponsored entities

    1        4,596        8        —          —          —          1        4,596        8   

Private label

    3        3,084        302        —          —          —          3        3,084        302   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal mortgage-backed securities

    4        7,680        310        —          —          —          4        7,680        310   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    33      $ 101,820      $ 3,387        13      $ 38,546      $ 8,698        46      $ 140,366      $ 12,085   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Company primarily invests in mortgage-backed securities, variable and fixed rate corporate bonds, municipal bonds, government bonds and to a lesser extent equity securities. The policy of the Company is to recognize other than temporary impairment (OTTI) on equity securities where the fair value has been significantly below cost for three consecutive quarters. Declines in the fair value of the debt securities that can be attributed to specific adverse conditions affecting the credit quality of the investment would be recorded as OTTI and charged to earnings. In order to determine if a decline in fair value is other than temporary, the Company reviews corporate ratings of the investment, analyst reports and SEC filings of the issuers. For fixed maturity investments with unrealized losses due to interest rates where the Company expects to recover the entire amortized cost basis of the security, declines in value below cost are not assumed to be other than temporary. The Company reviews its position quarterly and has asserted that at March 31, 2012, the declines outlined in the above table represent temporary declines due to changes in interest rates and are not reflections of impairment in the credit quality of the securities. Additionally, the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of its amortized cost basis.

The Company reviews investment debt securities on an ongoing basis for the presence of OTTI with formal reviews performed quarterly. Credit-related OTTI losses on individual securities are recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in accumulated other comprehensive income. There were no OTTI charges during the quarter ended March 31, 2012.

One pooled trust preferred security has previously been determined to be other than temporarily impaired due solely to credit related factors. This security is a collateralized debt obligation currently comprised of trust preferred securities of 16 financial institutions and has a Moody’s rating of Ca, which is below investment grade. The Company utilized a discounted cash flow method to determine the amount of impairment. During this analysis, the Company determined that four of these financial institutions are currently deferring interest payments. In addition, four financial institutions have defaulted. Currently eight of the sixteen financial institutions are performing. Two of the four financial institutions that are deferring interest payments as of March 2012 either lost money or broke even for the most recently reported quarter. There were three financial institutions (including two of the four deferrals) that had a Tier 1 Risk Ratio at or less than the required well capitalized institution level under prompt corrective action provisions of 6%. Also, there were three financial institutions (including two of the four deferrals) within this pool that the non-performing assets to loans plus real estate owned ratio was greater than 10%. However, during the fourth quarter of 2010, two financial institutions that are currently deferring interest payments were able to raise capital to further strengthen their capital positions and were able to make money during the most recently reported quarter. The Company has factored this into the current quarter analysis and has found no additional credit impairment as of March 31, 2012.

 

13


Table of Contents

Because of the subprime crisis current markets for variable rate corporate trust preferred securities are illiquid. This includes the Company’s eight stand alone trust preferred securities and the Company’s one pooled trust preferred security. The Company used a discounted cash flow method to price these securities due to the lack of liquidity for resale of this investment type and the absence of reliable pricing information. This method is described more fully in footnote 9, “Fair Value”.

The following table summarizes scheduled maturities of the Company’s securities as of March 31, 2012 and December 31, 2011 excluding equity securities which have no maturity dates:

 

As of March 31, 2012                    
(Dollar amounts in thousands)    Available for sale  
     Weighted     Amortized      Fair  
     Average Yield     cost      value  

Due in one year or less

     5.18   $ 35,961       $ 36,364   

Due from one year to five years

     3.56     123,972         127,645   

Due from five to ten years

     5.05     94,715         97,967   

Due after ten years

     3.69     831,838         867,141   
  

 

 

   

 

 

    

 

 

 
     3.84   $ 1,086,486       $ 1,129,117   
  

 

 

   

 

 

    

 

 

 

 

As of December 31, 2011                    
(Dollar amounts in thousands)    Available for sale  
     Weighted     Amortized      Fair  
     Average Yield     cost      value  

Due in one year or less

     4.65   $ 43,232       $ 43,644   

Due from one year to five years

     3.62     106,858         107,452   

Due from five to ten years

     5.03     102,525         106,384   

Due after ten years

     3.74     837,128         870,533   
  

 

 

   

 

 

    

 

 

 
     3.89   $ 1,089,743       $ 1,128,013   
  

 

 

   

 

 

    

 

 

 

For purposes of the maturity table, mortgage backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on weighted-average contractual maturities of underlying collateral. The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

The proceeds from the sale of securities for the period ended March 31, 2012 was $767,000 resulting in gross realized gains of $267,000. There were no security sales in the period ended March 31, 2011.

 

14


Table of Contents
3. Loans Receivable

The Company’s loans receivable as of the respective dates are summarized as follows:

 

     March 31,     December 31,  

(In thousands)

   2012     2011  

Mortgage loans:

    

Residential real estate

    

Single family

   $ 321,026      $ 312,723   

Multi family

     32,386        32,370   

Construction

     45,221        45,363   
  

 

 

   

 

 

 

Total residential real estate

     398,633        390,456   

Commercial real estate

    

Commercial

     80,971        83,447   

Construction

     17,321        17,307   
  

 

 

   

 

 

 

Total commercial real estate

     98,292        100,754   
  

 

 

   

 

 

 

Subtotal mortgage loans

     496,925        491,210   
  

 

 

   

 

 

 

Other loans:

    

Consumer loans

    

Home equity loans

     71,486        72,493   

Dealer auto and RV loans

     46,991        47,039   

Other loans

     8,623        9,255   
  

 

 

   

 

 

 

Total consumer loans

     127,100        128,787   

Commercial business

     54,290        50,337   
  

 

 

   

 

 

 

Subtotal other loans

     181,390        179,124   
  

 

 

   

 

 

 

Total loans receivable

     678,315        670,334   

Less:

    

Allowance for loan losses

     6,633        6,537   

Deferred loan fees and net discounts

     (1,835     (1,852

Loans in process

     13,509        16,728   
  

 

 

   

 

 

 

Subtotal

     18,307        21,413   

Net loans receivable

   $ 660,008      $ 648,921   
  

 

 

   

 

 

 

At March 31, 2012 and December 31, 2011, the Company conducted its business through 25 offices in Allegheny, Beaver, Butler and Lawrence counties in Pennsylvania which also serves as its primary lending area. Management does not believe it has significant concentrations of credit risk to any one group of borrowers given its underwriting and collateral requirements.

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: commercial business loans, commercial real estate loans, residential real estate loans and consumer loans. The Company sub-segments residential real estate loans into the following three classes: single family, construction and multi-family. Commercial real estate is sub-segmented into commercial and construction classes. The Company also sub-segments the consumer loan portfolio into the following three classes: home equity, dealer automobile and recreational vehicle (RV) and other consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a three year period for all portfolio segments. Certain qualitative factors are then added to the historical loss percentages to get the adjusted factor to be applied to non classified loans. The following qualitative factors are analyzed for each portfolio segment:

 

15


Table of Contents
   

Levels of and trends in delinquencies and nonaccruals

 

   

Changes in lending policies and procedures

 

   

Volatility of losses within each risk category

 

   

Loans and Lending staff acquired through acquisition

 

   

Economic trends

 

   

Concentrations of credit

 

   

Trends in volume and terms

 

   

Experience depth and ability of management

These qualitative factors are reviewed each quarter and adjusted based upon relevant changes within the portfolio. During the first three months of 2012, the qualitative factors for levels of and trends in delinquencies & nonaccruals were increased for residential mortgages. Trends in volume and terms were also increased for residential mortgages.

In terms of the Company’s loan portfolio, the consumer, commercial business and commercial real estate loans are deemed to have more risk than the residential real estate loans in the portfolio. The commercial loans not secured by real estate are highly dependent on the borrowers’ financial condition and are more dependent on economic conditions. The commercial loans secured by real estate are also dependent on economic conditions but generally have stronger forms of collateral. Within the consumer loan portfolio, the dealer auto and RV loans have historically carried more risk than the other segments of the consumer portfolio.

Loans by Segment

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the statement of financial condition date. The Company considers the allowance for loan losses of $6.6 million adequate to cover loan losses inherent in the loan portfolio, at March 31, 2012. The following tables present by portfolio segment, the changes in the allowance for loan losses for the periods ended March 31, 2012 and 2011.

 

As of March 31, 2012                                       
(Dollar amounts in thousands)    Commercial      Commercial
Real Estate
    Consumer     Residential      Unallocated     Total  

Allowance for loan losses:

              

Beginning balance

   $ 384       $ 2,442      $ 1,045      $ 2,115       $ 551      $ 6,537   

Charge-offs

     —           —          107        39         —          146   

Recoveries

     —           —          25        17         —          42   

Provision

     —           —          —          200         —          200   

Reallocations

     22         (103     (8     147         (58     —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Ending Balance

   $ 406       $ 2,339      $ 955      $ 2,440       $ 493      $ 6,633   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 3       $ 1,424      $ 49      $ —         $ —        $ 1,476   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 403       $ 915      $ 906      $ 2,440       $ 493      $ 5,157   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Ending balance: loans acquired with deteriorated credit quality

   $ —         $ —        $ —        $ —         $ —        $ —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

16


Table of Contents
As of March 31, 2011                                        
(Dollar amounts in thousands)    Commercial     Commercial
Real Estate
     Consumer     Residential      Unallocated      Total  

Allowance for loan losses:

               

Beginning balance

   $ 784      $ 1,831       $ 1,125      $ 2,573       $ 234       $ 6,547   

Charge-offs

     177        —           133        —           —           310   

Recoveries

     12        —           48        —           —           60   

Provision

     —          —           125        100         75         300   

Reallocations

     (281     180         (11     3         109         —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 338      $ 2,011       $ 1,154      $ 2,676       $ 418       $ 6,597   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 2      $ 850       $ 51      $ 271       $ —         $ 1,174   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 336      $ 1,161       $ 1,103      $ 2,405       $ 418       $ 5,423   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Ending balance: loans acquired with deteriorated credit quality

   $ —        $ —         $ —        $ —         $ —         $ —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

The following tables present by portfolio segment, the recorded investment in loans at March 31, 2012 and December 31, 2011.

 

As of March 31, 2012                                          
(Dollar amounts in thousands)    Commercial      Commercial
Real Estate
     Consumer      Residential      Unallocated      Total  

Loans Receivable:

                 

Ending Balance

   $ 54,290       $ 98,292       $ 127,100       $ 398,633       $ —         $ 678,315   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 40       $ 13,880       $ 153       $ 1,362       $ —         $ 15,435   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 54,250       $ 84,412       $ 126,947       $ 397,271       $ —         $ 662,880   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: loans acquired with deteriorated credit quality

   $ —         $ —         $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents
As of December 31, 2011                                          
(Dollar amounts in thousands)    Commercial      Commercial
Real Estate
     Consumer      Residential      Unallocated      Total  

Loans Receivable:

                 

Ending Balance

   $ 50,337       $ 100,754       $ 128,787       $ 390,456       $ —         $ 670,334   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 63       $ 14,023       $ 153       $ 1,364       $ —         $ 15,603   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 50,274       $ 86,731       $ 128,634       $ 389,092       $ —         $ 654,731   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: loans acquired with deteriorated credit quality

   $ —         $ —         $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of March 31, 2012 and December 31, 2011. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

 

 

18


Table of Contents
As of March 31, 2012                                   
(Dollar amounts in thousands)                                   
     Residential
Real Estate
Multi - family
     Residential
Real Estate
Construction
     Commercial
Real Estate
Commercial
     Commercial
Real Estate
Construction
     Commercial  

Pass

   $ 32,386       $ 38,812       $ 64,877       $ 17,321       $ 54,204   

Special Mention

     —           6,409         2,163         —           49   

Substandard

     —           —           13,931         —           37   

Doubtful

     —           —           —           —           —     

Loss

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 32,386       $ 45,221       $ 80,971       $ 17,321       $ 54,290   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

As of December 31, 2011                                   
(Dollar amounts in thousands)                                   
     Residential
Real Estate
Multi - family
     Residential
Real Estate
Construction
     Commercial
Real Estate
Commercial
     Commercial
Real Estate
Construction
     Commercial  

Pass

   $ 32,370       $ 38,219       $ 67,119       $ 17,307       $ 50,232   

Special Mention

     —           7,144         2,319         —           57   

Substandard

     —           —           14,009         —           39   

Doubtful

     —           —           —           —           —     

Loss

     —           —           —           —           9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 32,370       $ 45,363       $ 83,447       $ 17,307       $ 50,337   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following tables present performing and nonperforming single family residential and consumer loans based on payment activity as of March 31, 2012 and December 31, 2011. Payment activity is reviewed by management on a monthly basis to determine how loans are performing. Loans are considered to be nonperforming when they become 90 days delinquent.

 

As of March 31, 2012                            
(Dollar amounts in thousands)                            
     Residential Real Estate
Single Family
     Consumer
Home Equity
     Dealer
Auto and RV
     Other
Consumer
 

Performing

   $ 316,507       $ 71,105       $ 46,865       $ 8,542   

Nonperforming

     4,519         381         126         82   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 321,026       $ 71,486       $ 46,991       $ 8,624   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

As of December 31, 2011                            
(Dollar amounts in thousands)                            
     Residential Real Estate
Single Family
     Consumer
Home Equity
     Dealer
Auto and RV
     Other
Consumer
 

Performing

   $ 310,263       $ 72,091       $ 46,907       $ 9,162   

Nonperforming

     2,460         402         132         93   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 312,723       $ 72,493       $ 47,039       $ 9,255   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

Nonperforming loans also include certain loans that have been modified and classified as troubled debt restructuring (TDR) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

Non-performing loans, which include non-accrual loans and TDRs, were $16.0 million and $13.4 million at March 31, 2012 and December 31, 2011. The TDRs amounted to $7.8 million at both March 31, 2012 and December 31, 2011. The Company is not committed to lend additional funds to debtors whose loans are on non-accrual status.

Age Analysis of Past Due Loans Receivable by Class

Following tables are an aging analysis of the investment of past due loans receivable as of March 31, 2012 and December 31, 2011.

 

(Dollar amounts in thousands)                                              Recorded  
As of March 31, 2012                                              Investment >  
     30-59 Days      60-89 Days      90 Days      Total Past             Total Loans      90 Days and  
     Past Due      Past Due      Or Greater      Due      Current      Receivable      Accruing  

Residential real estate

                    

Single family

   $ 600       $ 499       $ 4,519       $ 5,618       $ 315,408       $ 321,026       $ —     

Construction

     —           —           —           —           45,221         45,221         —     

Multi-family

     —           —           —           —           32,386         32,386         —     

Commercial Real Estate

                    

Commercial

     —           861         3,241         4,102         76,869         80,971         —     

Construction

     —           —           —           —           17,321         17,321         —     

Consumer

                    

Consumer - home equity

     107         —           228         335         71,151         71,486         —     

Consumer - dealer auto and RV

     421         85         126         632         46,359         46,991         —     

Consumer - other

     72         48         82         202         8,421         8,623         —     

Commercial

     12         1         40         53         54,237         54,290         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,212       $ 1,494       $ 8,236       $ 10,942       $ 667,373       $ 678,315       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents
(Dollar amounts in thousands)                                              Recorded  
As of December 31, 2011                                              Investment >  
     30-59 Days      60-89 Days      90 Days      Total Past             Total Loans      90 Days and  
     Past Due      Past Due      Or Greater      Due      Current      Receivable      Accruing  

Residential real estate

                    

Single family

   $ 464       $ 2,933       $ 2,460       $ 5,857       $ 306,866       $ 312,723       $ —     

Construction

     —           —           —           —           45,363         45,363         —     

Multi-family

     —           —           —           —           32,370         32,370         —     

Commercial Real Estate

                    

Commercial

     48         1,507         2,629         4,184         79,263         83,447         —     

Construction

     —           —           —           —           17,307         17,307         —     

Consumer

                    

Consumer - home equity

     143         9         249         401         72,092         72,493         —     

Consumer - dealer auto and RV

     698         101         132         931         46,108         47,039         —     

Consumer - other

     98         23         93         214         9,041         9,255         —     

Commercial

     59         —           54         113         50,224         50,337         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,510       $ 4,573       $ 5,617       $ 11,700       $ 658,634       $ 670,334       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired Loans

Management considers commercial loans, commercial real estate loans and development loans which are 90 days or more past due to be impaired. Larger commercial loans, commercial real estate loans and development loans which are 60 days or more past due, including any troubled debt restructuring, are selected for impairment testing in accordance with GAAP. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the fair value of the impaired loan is less than the recorded investment in the loan, impairment is recognized through a provision for loan loss estimate or a charge-off to the allowance for loan losses. The Company collectively reviews all residential real estate and consumer loans for impairment.

The following tables summarize impaired loans:

 

(Dollar amounts in thousands)                                          
     March 31, 2012      December 31, 2011  
            Unpaid                    Unpaid         
     Recorded      Principal      Related      Recorded      Principal      Related  
     Investment      Balance      Allowance      Investment      Balance      Allowance  

With no related allowance recorded:

                 

Commercial Real Estate:

                 

Commercial Real Estate

   $ 5,492       $ 5,599       $ —         $ 5,568       $ 5,675       $ —     

Commercial business loans

     —           —           —           39         39         —     

Residential loans

     1,362         1,362         —           1,364         1,364         —     

With an allowance recorded:

                 

Commercial Real Estate:

                 

Commercial Real Estate

   $ 8,388         8,388         1,424       $ 8,454         8,454         1,489   

Consumer Loans:

                 

Home Equity

     153         153         49         153         153         50   

Commercial business loans

     40         40         3         25         25         10   

Total:

                 

Commercial Real Estate

   $ 13,880       $ 13,987       $ 1,424       $ 14,023       $ 14,129       $ 1,489   

Consumer

     153         153         49         153         153         50   

Residential

     1,362         1,362         —           1,364         1,364         —     

Commercial

     40         40         3         63         63         10   

 

21


Table of Contents
(Dollar amounts in thousands)                            
     Three months ended
March 31, 2012
     Three months ended
March 31, 2011
 
     Average      Interest      Average      Interest  
     Recorded      Income      Recorded      Income  
     Investment      Recognized      Investment      Recognized  

With no related allowance recorded:

           

Commercial Real Estate:

           

Commercial Real Estate

   $ 5,529       $ 50       $ 1,159       $ 6   

Commercial business loans

     —           —           112         2   

Residential loans

     1,363         3         —           —     

With an allowance recorded:

           

Residential Real Estate

           

Construction

     —           —           1,825         —     

Commercial Real Estate:

           

Commercial Real Estate

     8,421         106         7,318         138   

Consumer Loans:

           

Home Equity

     153         2         155         2   

Commercial business loans

     46         —           354         —     

Total:

           

Commercial Real Estate

   $ 13,950       $ 156       $ 8,477       $ 144   

Consumer

     153         2         155         2   

Residential

     1,363         3         1,825         —     

Commercial

     46         —           466         2   

Nonaccrual Loans

Loans are considered nonaccrual upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed in nonaccrual status, previously accrued but unpaid interest is deducted from interest income.

On the following table are the loans receivable on nonaccrual status as of March 31, 2012 and December 31, 2011. The balances are presented by class of loans:

 

(Dollar amounts in thousands)    March 31,      December 31,  
     2012      2011  

Commercial

   $ 40       $ 54   

Commercial Real Estate

     10,846         10,237   

Consumer

     

Consumer - Home Equity

     381         402   

Consumer - Dealer auto and RV

     126         132   

Consumer - other

     81         93   

Residential

     4,519         2,460   
  

 

 

    

 

 

 

Total

   $ 15,993       $ 13,378   
  

 

 

    

 

 

 

Modifications

The Company’s loan portfolio also includes TDR’s, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

 

22


Table of Contents

When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination.

The following table includes the recorded investment and number of modifications for modified loans, as of March 31, 2012 and December 31, 2011. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.

 

(Dollar amounts in thousands)                                    
    As of March 31, 2012     As of December 31, 2011  
    Number of
Contracts
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded
Investment
    Number
of
Contracts
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded
Investment
 

Troubled Debt Restructurings

           

Commercial Real Estate

    —          —          —          3      $ 7,368      $ 7,528   

Consumer

    —          —          —          —          —          —     

Troubled Debt Restructurings That Subsequently Defaulted

    —          —          —          —          —          —     

Troubled Debt Restructurings

           

Commercial Real Estate

    —          —          —          —          —          —     

 

23


Table of Contents
4. Deposits

The Company’s deposits as of the respective dates are summarized as follows:

 

(Dollar amounts in thousands)    March 31, 2012     December 31, 2011  

Type of accounts

   Amount      %     Amount      %  

Noninterest-bearing deposits

   $ 103,721         8.7   $ 95,691         8.3

NOW account deposits

     218,966         18.4     208,975         18.1

Money Market deposits

     40,485         3.4     34,484         3.0

Passbook account deposits

     164,956         13.9     153,644         13.3

Time deposits

     662,201         55.6     663,616         57.3
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 1,190,329         100.0   $ 1,156,410         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Time deposits mature as follows:

          

Within one year

   $ 397,417         60.0   $ 387,857         58.5

After one year through two years

     129,004         19.5     118,470         17.9

After two years through three years

     67,380         10.2     81,282         12.2

After three years through four years

     34,865         5.3     33,395         5.0

After four years through five years

     28,332         4.3     37,235         5.6

Thereafter

     5,203         0.7     5,377         0.8
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 662,201         100.0   $ 663,616         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

24


Table of Contents
5. Borrowed Funds

The Company’s borrowed funds as of the respective dates are summarized as follows:

 

(Dollar amounts in thousands)    March 31, 2012      December 31, 2011  
     Weighted            Weighted        
     average            average        
     rate     Amount      rate     Amount  

FHLB advances:

         

Due within 12 months

     2.95   $ 21,755         2.80   $ 30,684   

Due beyond 12 months but within 2 years

     3.56     83,082         3.62     72,647   

Due beyond 2 years but within 3 years

     2.83     59,202         2.88     71,392   

Due beyond 3 years but within 4 years

     3.25     16,811         3.36     14,613   

Due beyond 4 years but within 5 years

     1.77     8,447         2.15     8,019   

Due beyond 5 years

     3.61     10,000         3.61     10,000   
    

 

 

      

 

 

 
     $ 199,297         $ 207,355