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BEAR STATE FINANCIAL, INC. 10-Q 2011

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
firstfederalbanc_10q-063011.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, 2011
   
  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 0-28312

                      FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.           
(Exact name of registrant as specified in its charter)

Arkansas
 
71-0785261
(State or other jurisdiction of incorporation
or organization)
 
(I.R.S. Employer
Identification Number)

1401 Highway 62-65 North
Harrison, Arkansas
 
 
72601
(Address of principal executive office)
 
(Zip Code)

                           (870) 741-7641                          
(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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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.  (Check one):
 
Large Accelerated Filer o
Accelerated Filer o
Non-accelerated Filer o
Smaller reporting company x
 
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:  As of July 25, 2011, there were issued and outstanding 19,302,603 shares of the Registrant's Common Stock, par value $.01 per share.
 
 
 

 
 
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

TABLE OF CONTENTS

Part I.
 
Financial Information
Page
Item 1.
Condensed Consolidated Financial Statements
 
     
 
Condensed Consolidated Statements of Financial Condition as of
June 30, 2011 and December 31, 2010 (unaudited)
 
 1
     
 
Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 2011 and 2010 (unaudited)
 
 2
     
 
Condensed Consolidated Statement of Stockholders’ Equity for the six months ended
June 30, 2011 (unaudited)
 
 3
     
 
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2011 and 2010 (unaudited)
 
 4
     
 
Notes to Unaudited Condensed Consolidated Financial Statements
 6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 22
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 44
     
Item 4.
Controls and Procedures
 44
     
Part II.
Other Information
 
     
Item 1.
Legal Proceedings
 45
Item 1A.
Risk Factors
 45
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 45
Item 3.
Defaults Upon Senior Securities
 45
Item 4.
Removed and Reserved
 45
Item 5.
Other Information
 45
Item 6.
Exhibits
 45
     
Signatures
   
     
Exhibits
   

 
 

 
 
Part I.    Financial Information

Item 1.  Financial Statements.

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
(In thousands, except share data)
 
(Unaudited)
 
             
   
June 30,
   
December 31,
 
ASSETS
 
2011
   
2010
 
             
Cash and cash equivalents
  $ 96,055     $ 36,407  
Interest bearing time deposits in banks
    14,921       --  
Investment securities - available for sale
    67,426       83,106  
Federal Home Loan Bank stock—at cost
    1,893       1,257  
Loans receivable, net of allowance of $29,598 and $31,084, respectively
    347,682       381,343  
Loans held for sale
    1,972       4,502  
Accrued interest receivable
    2,095       2,545  
Real estate owned - net
    39,973       44,706  
Office properties and equipment - net
    21,712       22,237  
Cash surrender value of life insurance
    21,828       21,444  
Prepaid expenses and other assets
    768       2,499  
                 
TOTAL ASSETS
  $ 616,325     $ 600,046  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
LIABILITIES:
               
  Deposits
  $ 515,199     $ 541,800  
  Other borrowings
    11,788       18,193  
  Advance payments by borrowers for taxes and insurance
    493       726  
  Other liabilities
    5,780       3,207  
                 
           Total liabilities
  $ 533,260     $ 563,926  
                 
STOCKHOLDERS’ EQUITY:
               
Preferred stock, no par value, 5,000,000 shares
    authorized; Series A fixed rate cumulative perpetual; liquidation preference
    of $1,000 per share; none issued and outstanding at June 30, 2011 and 16,500
    shares issued and outstanding at December 31, 2010
  $  --     $  16,261  
  Common stock, $.01 par value—30,000,000 shares authorized; 19,302,603  and
969,357 shares issued and outstanding at June 30, 2011 and December 31,
2010, respectively
    193       10  
  Additional paid-in capital
    90,576       26,834  
  Other comprehensive loss
    (238 )     (2,320 )
  Accumulated deficit
    (7,466 )     (4,665 )
           Total stockholders’ equity
    83,065       36,120  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 616,325     $ 600,046  
                 
See notes to unaudited condensed consolidated financial statements.
               

 
1

 
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(In thousands, except earnings per share)
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
INTEREST INCOME:
                       
  Loans receivable
  $ 5,050     $ 6,371     $ 10,364     $ 13,200  
  Investment securities:
                               
    Taxable
    504       1,051       1,218       2,365  
    Nontaxable
    204       271       410       543  
  Other
    70       16       84       32  
           Total interest income
    5,828       7,709       12,076       16,140  
                                 
INTEREST EXPENSE:
                               
  Deposits
    1,639       2,417       3,346       4,966  
  Other borrowings
    95       161       207       403  
                                 
           Total interest expense
    1,734       2,578       3,553       5,369  
                                 
NET INTEREST INCOME
    4,094       5,131       8,523       10,771  
                                 
PROVISION FOR LOAN LOSSES
    631       63       791       116  
                                 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    3,463       5,068       7,732       10,655  
                                 
NONINTEREST INCOME:
                               
  Net loss on sale of investment securities
    (439 )     --       (439 )     --  
  Deposit fee income
    1,191       1,316       2,259       2,506  
  Earnings on life insurance policies
    188       203       384       401  
  Gain on sale of loans
    134       70       284       206  
  Other
    256       267       522       563  
                                 
           Total noninterest income
    1,330       1,856       3,010       3,676  
                                 
NONINTEREST EXPENSES:
                               
  Salaries and employee benefits
    2,936       2,765       5,580       5,564  
  Net occupancy expense
    613       644       1,248       1,313  
  Real estate owned, net
    1,634       913       3,606       1,714  
  FDIC insurance
    324       509       757       1,023  
  Supervisory assessments
    95       106       189       212  
  Data processing
    381       368       741       746  
  Professional fees
    222       321       726       727  
  Advertising and public relations
    53       64       101       127  
  Postage and supplies
    138       178       300       340  
  Other
    618       510       1,224       1,212  
                                 
           Total noninterest expenses
    7,014       6,378       14,472       12,978  
                                 
INCOME (LOSS) BEFORE INCOME TAXES
    (2,221 )     546       (3,730 )     1,353  
                                 
INCOME TAX BENEFIT
    --       (91 )     --       (190 )
                                 
NET INCOME (LOSS)
  $ (2,221 )   $ 637     $ (3,730 )   $ 1,543  
                                 
PREFERRED STOCK DIVIDENDS, ACCRETION OF DISCOUNT
  AND GAIN ON REDEMPTION OF PREFERRED STOCK
    (10,724 )     223       (10,500 )     446  
                                 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
  $ 8,503     $ 414     $ 6,770     $ 1,097  
                                 
  Basic earnings per common share
  $ 0.77     $ 0.43     $ 1.12     $ 1.13  
                                 
  Diluted earnings per common share
  $ 0.73     $ 0.43     $ 1.07     $ 1.13  
                                 
Basic weighted average shares outstanding
    11,034,208       969,357       6,029,586       969,357  
Effect of dilutive securities
    567,949       --       296,458       --  
Diluted weighted average shares outstanding
    11,602,157       969,357       6,326,044       969,357  
                                 
See notes to unaudited condensed consolidated financial statements.
                               
 
 
2

 
 
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
FOR THE SIX MONTHS ENDED JUNE 30, 2011
 
(In thousands, except share data)
 
(Unaudited)
 
   
   
Issued
   
Issued
   
Additional
   
Accumulated Other
       
Total
 
   
Preferred Stock
   
Common Stock
   
Paid-In
   
Comprehensive
   
Accumulated
 
Stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Deficit
 
Equity
 
BALANCE – January 1, 2011
    16,500     $ 16,261       969,357     $ 10     $ 26,834     $ (2,320 )   $ (4,665 )   $ 36,120  
                                                                 
Net loss
    --       --       --       --       --       --       (3,730 )     (3,730 )
Change in unrealized gain/loss on investment securities available for sale arising during the period
    --       --       --       --       --       2,082       --       2,082  
Total comprehensive income (loss)
                                                            (1,648 )
Redemption of preferred stock and warrants
    (16,500 )     (16,261 )     --       --       16,261       --       --       --  
Cancellation of preferred stock dividends
    --       --       --       --       --       --       929       929  
Common stock issued, net of offering costs of $1.3 million
    --       --       18,333,246       183       44,861       --       --       45,044  
Issuance of 2 million warrants
    --       --       --       --       2,620       --       --       2,620  
                                                                 
BALANCE – June 30, 2011
    --     $ --       19,302,603     $ 193     $ 90,576     $ (238 )   $ (7,466 )   $ 83,065  
 
See notes to unaudited condensed consolidated financial statements.
 
 
3

 
 
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands)
 
(Unaudited)
 
   
Six Months Ended June 30,
 
   
2011
   
2010
 
             
OPERATING ACTIVITIES:
           
  Net income (loss)
  $ (3,730 )   $ 1,543  
  Adjustments to reconcile net income (loss) to net cash
               
    provided by operating activities:
               
    Provision for loan losses
    791       116  
    Provision for real estate losses
    2,999       1,141  
    Deferred tax provision
    1,107       206  
    Change in deferred tax valuation allowance
    (1,107 )     (396 )
    Accretion of discounts on investment securities, net
    (14 )     (48 )
    Federal Home Loan Bank stock dividends
    (3 )     (6 )
    Gain on disposition of property and equipment
    (16 )     (1 )
    Loss on sale of repossessed assets, net
    188       86  
    Loss on sales of investment securities, net
    439       --  
    Originations of loans held for sale
    (12,068 )     (11,581 )
    Proceeds from sales of loans held for sale
    14,882       11,171  
    Gain on sale of loans originated to sell
    (284 )     (206 )
    Depreciation
    682       703  
    Amortization of deferred loan costs, net
    121       184  
    Earnings on life insurance policies
    (384 )     (401 )
    Changes in operating assets and liabilities:
               
      Accrued interest receivable
    450       1,286  
      Prepaid expenses and other assets
    1,722       426  
      Other liabilities
    (73 )     (21 )
                 
           Net cash provided by operating activities
    5,702       4,202  
                 
INVESTING ACTIVITIES:
               
  Purchases of interest bearing time deposits in banks
    (14,921 )     --  
  Purchases of investment securities, held to maturity
    --       (1,999 )
  Proceeds from maturities and calls of investment securities, held to maturity
    --       59,285  
  Purchases of investment securities, available for sale
    (9,999 )     --  
  Proceeds from sales, maturities and calls of investment securities, available for sale
    30,911       --  
  Federal Home Loan Bank stock purchased
    (633 )     (522 )
  Federal Home Loan Bank stock redeemed
    --       2,080  
  Loan repayments, net of originations
    29,919       39,878  
  Loan participations purchased
    (417 )     (1,188 )
  Proceeds from sales of real estate owned
    4,828       4,563  
  Improvements to real estate owned
    (26 )     (291 )
  Proceeds from dispositions of office properties and equipment
    20       --  
  Purchases of office properties and equipment
    (161 )     (61 )
                 
           Net cash provided by investing activities
    39,521       101,745  
                 
           
(Continued)
 
 
 
4

 
 
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands)
 
(Unaudited)
 
             
   
Six Months Ended June 30,
 
   
2011
   
2010
 
FINANCING ACTIVITIES:
           
  Net decrease in deposits
  $ (26,601 )   $ (25,326 )
  Repayment of advances from Federal Home Loan Bank
    (6,405 )     (14,625 )
  Short-term FHLB advances, net
    --       (24,000 )
  Net decrease in advance payments by borrowers
               
      for taxes and insurance
    (233 )     (349 )
  Proceeds from issuance of common stock
    47,664       --  
                 
           Net cash provided by (used in) financing activities
    14,425       (64,300 )
                 
NET INCREASE IN CASH AND
               
  CASH EQUIVALENTS
    59,648       41,647  
                 
CASH AND CASH EQUIVALENTS:
               
  Beginning of year
    36,407       22,149  
 
               
  End of year
  $ 96,055     $ 63,796  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
               
  INFORMATION—
               
  Cash paid for:
               
    Interest
  $ 3,618     $ 5,515  
                 
    Income taxes
  $ --     $ 38  
                 
SUPPLEMENTAL SCHEDULE OF NONCASH
               
  INVESTING AND FINANCING ACTIVITIES:
               
  Real estate and other assets acquired in settlement of loans
  $ 5,613     $ 12,563  
 
               
  Loans to facilitate sales of real estate owned
  $ 2,366     $ 7,807  
 
               
  Investment securities purchased – not settled
  $ 3,575     $ 9,997  
 
               
  Preferred stock dividends accrued, not paid
  $ --     $ 413  
 
               
  Preferred dividends cancelled
  $ 929     $ --  
                 
 
See notes to unaudited condensed consolidated financial statements.
         
(Concluded)
 
 
 
5

 
 
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation—>First Federal Bancshares of Arkansas, Inc. (the “Company”) is a unitary holding company that owns all of the stock of First Federal Bank (the “Bank”). The Company is substantially in the business of community banking and therefore is considered a banking operation with no separately reportable segments. The Bank provides a broad line of financial products to individuals and small- to medium-sized businesses. The consolidated financial statements also include the accounts of the Bank’s wholly owned subsidiary, First Harrison Service Corporation (“FHSC”), which is inactive.
 
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  However, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and the Bank.  Intercompany transactions have been eliminated in consolidation.

The results of operations for the six months ended June 30, 2011, are not necessarily indicative of the results to be expected for the year ending December 31, 2011.  The unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2010, contained in the Company’s 2010 Annual Report to Stockholders.
 
2.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances, and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and nonrecurring fair value measurements. The Company’s disclosures about fair value measurements are presented in Note 10. These new disclosure requirements were effective beginning with the period ended March 31, 2010, except for the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010. There was no significant effect on the Company’s financial statement disclosures upon adoption of this ASU.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, including factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibits creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and adds factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 are effective for the Company’s reporting period ending September 30, 2011. The Company is currently evaluating the provisions of ASU No. 2011-02 for their effect on the Company’s financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The ASU expands ASC 820’s disclosure requirements, particularly for Level 3 inputs, including (1) a quantitative disclosure of the unobservable inputs and assumptions used, (2) a description of the valuation process in place and (3) a narrative description of the sensitivity of the fair value to changes in unobservable inputs. The ASU is effective for the Company’s reporting periods beginning after December 15, 2011. As this ASU amends only the disclosure requirements for fair value measurements, the adoption is not expected to have a material impact on the Company’s financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The ASU removes the options in ASC 220 and requires the reporting of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The ASU does not amend the components that must be reported in other comprehensive income. The ASU is effective for the Company’s reporting periods beginning after December 15, 2011. As this ASU amends only the disclosure requirements for comprehensive income, the adoption is not expected to have a material impact on the Company’s financial statements.
 
 
6

 
 
3.
RECAPITALIZATION
On January 27, 2011, the Company and the Bank entered into an Investment Agreement (the “Investment Agreement”) with Bear State Financial Holdings, LLC (“Bear State”) which set forth the terms and conditions of the Company’s recapitalization (the “Recapitalization”), which was completed in the second quarter of 2011.  The Recapitalization consisted of the following:

 
·
The Company amended its Articles of Incorporation to effect a 1-for-5 reverse split (the “Reverse Split”) of the Company’s issued and outstanding shares of common stock. The Reverse Split was effective May 3, 2011. All periods presented in this Form 10-Q have been retroactively restated to reflect the Reverse Split.
 
 
·
Bear State purchased from the United States Department of the Treasury (“Treasury”) for $6 million aggregate consideration, the Company’s 16,500 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), including accrued but unpaid dividends thereon, and related warrant dated March 6, 2009 to purchase 321,847 pre-Reverse Split shares of the Company’s common stock at an exercise price of $7.69 per share (pre-Reverse Split) (the “TARP Warrant”), both of which were previously issued to the Treasury through the Troubled Asset Relief Program — Capital Purchase Program. Bear State surrendered these shares and the TARP Warrant to the Company. As a result, the Company recorded a $10.5 million discount related to the difference between the fair value of the consideration paid for the preferred stock and the book value.
 
 
·
The Company sold to Bear State (i) 15,425,262 post-Reverse Split shares (the “First Closing Shares”) of the Company’s common stock at $3.00 per share (or $0.60 per share pre-Reverse Split) in a private placement, and (ii) a warrant (the “Investor Warrant”) to purchase 2 million post-Reverse Split shares of our common stock at an exercise price of $3.00 per share (or $0.60 per share pre-Reverse Split) (the date on which such sale occurs, the “First Closing”).  The First Closing occurred on May 3, 2011.  The Investor Warrant has not been exercised as of June 30, 2011.
 
 
·
Bear State paid the Company aggregate consideration of approximately $46.3 million for the First Closing Shares and Investor Warrant, consisting of (i) $40.3 million in cash, and (ii) Bear State’s surrendering to the Company the Series A Preferred Stock and TARP Warrant for a $6 million credit against the purchase price of the First Closing Shares.
 
 
·
The Company completed a stockholder rights offering (the “Rights Offering”) pursuant to which stockholders who held shares of our common stock on the record date for the Rights Offering received the right to purchase three (3) post-Reverse Split shares of the Company’s common stock for each one (1) post-Reverse Split share held by such stockholder at $3.00 per share (or $0.60 per share pre-Reverse Split). The Rights Offering was completed June 21, 2011, resulting in the issuance of 2,908,071 post-Reverse Split shares.  Because the Rights Offering was fully subscribed, Bear State was not required to backstop the Rights Offering by purchasing any unsubscribed shares from the Company in a second private placement.
 
 
·
Upon closing of the Investment Agreement, Bear State appointed four individuals to serve on the Boards of Directors of the Company and the Bank.  Further, after the First Closing and Rights Offering, Bear State owns approximately 80% of the Company’s common stock.
 
 
7

 
 
4.
INTEREST BEARING TIME DEPOSITS IN BANKS
Interest bearing time deposits in banks mature within two to five years and are carried at cost. The scheduled maturities of these deposits at June 30, 2011, by contractual maturity are shown below (in thousands):
 
 
 
Weighted
Average Rate
   
Amount
 
             
2012
    0.82 %   $ 497  
2013
    0.96       3,485  
2014
    1.33       5,475  
2015
    1.85       745  
2016
    2.18       4,719  
                 
Total
    1.52 %   $ 14,921  


5.
INVESTMENT SECURITIES
Investment securities consisted of the following (in thousands):

   
June 30, 2011
 
         
Gross
   
Gross
   
 
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
Available for Sale
 
Cost
   
Gains
   
Losses
   
Value
 
                         
Municipal securities
  $ 24,477     $ 317     $ (129 )   $ 24,665  
U.S. Government sponsored agencies
    43,186       21       (446 )     42,761  
                                 
Total
  $ 67,663     $ 338     $ (575 )   $ 67,426  

   
December 31, 2010
 
         
Gross
   
Gross
   
 
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
Available for Sale
 
Cost
   
Gains
   
Losses
   
Value
 
                         
Municipal securities
  $ 33,095     $ 116     $ (1,073 )   $ 32,138  
U.S. Government sponsored agencies
    52,331       49       (1,412 )     50,968  
                                 
Total
  $ 85,426     $ 165     $ (2,485 )   $ 83,106  

The following tables summarize the gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other-than-temporarily impaired (“OTTI”) (in thousands), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
    June 30, 2011  
   
Less than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
                                     
Municipal securities
  $ 5,778     $ 111     $ 157     $ 18     $ 5,935     $ 129  
U.S. Government
                                               
  sponsored agencies
    31,741       446       --       --       31,741       446  
                                                 
Total
  $ 37,519     $ 557     $ 157     $ 18     $ 37,676     $ 575  
 
 
8

 
 
    December 31, 2010  
   
Less than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
                                     
Municipal securities
  $ 18,931     $ 1,054     $ 156     $ 19     $ 19,087     $ 1,073  
U.S. Government
                                               
  sponsored agencies
    41,775       1,412       --       --       41,775       1,412  
                                                 
Total
  $ 60,706     $ 2,466     $ 156     $ 19     $ 60,862     $ 2,485  

On a quarterly basis, management conducts a formal review of securities for the presence of OTTI.  Management assesses whether an OTTI is present when the fair value of a security is less than its amortized cost basis at the balance sheet date.  For such securities, OTTI is considered to have occurred if the Company intends to sell the security, if it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis or if the present values of expected cash flows is not sufficient to recover the entire amortized cost.

The unrealized losses are primarily a result of increases in market yields from the time of purchase.  In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired.  Additionally, the unrealized losses are also considered temporary because scheduled coupon payments have been made, it is anticipated that the entire principal balance will be collected as scheduled, and management neither intends to sell the securities and it is not more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount.

The Company has pledged investment securities available for sale with carrying values of approximately $7.1 million and $27.9 million at June 30, 2011 and December 31, 2010 as collateral for certain deposits in excess of $250,000.
 
The scheduled maturities of debt securities at June 30, 2011, by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

   
June 30, 2011
 
   
Amortized
   
Fair
 
 
 
Cost
   
Value
 
             
Within one year
  $ 395     $ 397  
Due from one year to five years
    15,054       15,092  
Due from five years to ten years
    4,973       5,019  
Due after ten years
    47,241       46,918  
                 
Total
  $ 67,663     $ 67,426  

As of June 30, 2011 and December 31, 2010, investments with amortized cost of approximately $64.2 million and $77.9 million, respectively, have call options held by the issuer, of which approximately $45.2 million and $56.8 million, respectively, are or were callable within one year.

Sales of the Company’s investment securities available for sale are summarized as follows:

   
Three and Six Months Ended
 
   
June 30, 2011
 
       
Sales proceeds
  $ 18,931  
         
Gross realized gains
  $ 128  
Gross realized losses
    (567 )
Net losses on sales of
  investment securities
  $ (439 )
 
 
9

 
 
6.
LOANS RECEIVABLE

The tables below summarize past due and nonaccrual loans as of June 30, 2011 and December 31, 2010 (in thousands):

June 30, 2011
 
30-89 Days
Past Due and Accruing
   
Nonaccrual
Loans
   
Current
   
Total (1)
 
                         
One- to four-family residential
  $ 1,652     $ 21,700     $ 178,603     $ 201,955  
Home equity and second mortgage
    207       1,272       14,202       15,681  
Speculative one- to four-family
    --       --       1,936       1,936  
Multifamily residential
    --       8,857       25,685       34,542  
Land development
    --       510       2,102       2,612  
Land
    222       7,229       12,146       19,597  
Commercial real estate
    214       15,111       70,165       85,490  
Commercial
    182       600       6,637       7,419  
Consumer
    38       227       9,689       9,954  
Total (1)
  $ 2,515     $ 55,506     $ 321,165     $ 379,186  

 
(1)
Gross of undisbursed loan funds, unearned discounts and net loan fees and the allowance for loan losses.

December 31, 2010
 
30-89 Days
Past Due and Accruing
   
Nonaccrual
Loans
   
Current
   
Total (1)
 
                         
One- to four-family residential
  $ 2,274     $ 24,025     $ 189,909     $ 216,208  
Home equity and second mortgage
    108       1,469       16,846       18,423  
Speculative one- to four-family
    --       28       1,133       1,161  
Multifamily residential
    --       9,142       27,085       36,227  
Land development
    --       595       2,101       2,696  
Land
    17       6,987       15,586       22,590  
Commercial real estate
    103       13,057       81,717       94,877  
Commercial
    41       1,665       8,670       10,376  
Consumer
    53       376       11,624       12,053  
Total (1)
  $ 2,596     $ 57,344     $ 354,671     $ 414,611  
 

 
(1)
Gross of undisbursed loan funds, unearned discounts and net loan fees and the allowance for loan losses.

There were no loans over 90 days past due and still accruing at June 30, 2011 or December 31, 2010.  Restructured loans totaled $21.4 million and $20.4 million as of June 30, 2011 and December 31, 2010, respectively, with $17.1 million and $15.1 million of such restructured loans on nonaccrual status at June 30, 2011 and December 31, 2010, respectively.
 
 
10

 
 
The following is a summary of information pertaining to impaired loans as of June 30, 2011 and for the three and six months then ended (in thousands):
 
   
June 30, 2011
 
   
Unpaid Principal Balance
   
Recorded
 Investment
   
Valuation
Allowance
   
Average Recorded Investment
   
Average Recorded Investment
   
Interest Income Recognized
   
Interest Income Recognized
 
Impaired loans with a valuation allowance:
                   
(Three Months)
   
(Six Months)
   
(Three Months)
   
(Six Months)
 
  One- to four-family residential
  $ 5,152     $ 4,380     $ 772     $ 4,478     $ 4,013     $ 5     $ 20  
  Home equity and second mortgage
    475       132       343       155       217       1       3  
  Speculative one- to four-family
    --       --       --       --       3       --       --  
  Multifamily residential
    8,119       4,925       3,194       4,997       5,073       --       --  
  Land development
    510       462       48       462       486       --       --  
  Land
    4,488       3,423       1,065       3,752       3,517       1       12  
  Commercial real estate
    2,788       1,941       847       1,542       2,341       --       13  
  Commercial
    169       106       63       107       180       --       --  
  Consumer
    169       --       169       10       16       --       1  
      21,870       15,369       6,501       15,503       15,846       7       49  
                                                         
Impaired loans without a valuation allowance:
                                                       
  One- to four-family residential
    17,242       17,242       --       18,153       19,398       82       158  
  Home equity and second mortgage
    921       921       --       932       903       19       36  
  Speculative one- to four-family
    --       --       --       --       --       --       --  
  Multifamily residential
    4,161       4,161       --       4,130       3,967       45       85  
  Land development
    --       --       --       --       --       --       --  
  Land
    2,763       2,763       --       2,740       3,300       13       30  
  Commercial real estate
    12,323       12,323       --       12,735       10,757       62       137  
  Commercial
    431       431       --       431       407       1       3  
  Consumer
    91       91       --       91       93       1       3  
      37,932