XNAS:FFCO Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

For the quarterly period ended March 31, 2012

 

OR

 

                        £   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

 

Commission file number: 0-54124

 

 

FEDFIRST FINANCIAL CORPORATION

 

 

(Exact name of registrant as specified in its charter)

 

 

Maryland

 

80-0578993

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

565 Donner Avenue, Monessen, Pennsylvania

 

15062

(Address of principal executive offices)

 

(Zip Code)

 

 

(724) 684-6800

 

 

(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 T     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 T     No £

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

 

Large accelerated filer £

Accelerated filer £

Non-accelerated filer £  (Do not check if a smaller reporting company)

Smaller reporting company T

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes £   No T

 

As of May 7, 2012, the issuer had 2,908,542 shares of common stock outstanding.

 



 

 

 

 

FORM 10-Q

 

INDEX

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

1

 

 

Consolidated Statements Of Financial Condition at March 31, 2012 (Unaudited) and December 31, 2011

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 Statements Of Changes In Stockholders’ Equity for the Three Months Ended March 31, 2012 and 2011 (Unaudited)

3

 

 

Consolidated Statements Of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (Unaudited)

4

 

 

Notes to the Unaudited Consolidated Financial Statements

5

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

35

 

 

Item 4. Controls and Procedures

35

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

35

 

 

Item 1A. Risk Factors

35

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

Item 3. Defaults Upon Senior Securities

36

 

 

Item 4. Mine Safety Disclosures

36

 

 

Item 5. Other Information

36

 

 

Item 6. Exhibits

36

 

 

SIGNATURES

 

 


 


 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT
MARCH 31, 2012 (UNAUDITED) AND DECEMBER 31, 2011

 

 

 

March 31,

 

December 31,

 

(Dollars in thousands, except share data)

 

2012

 

2011

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Cash and due from banks

 

$    1,530

 

$    1,491

 

Interest-earning deposits

 

21,574

 

13,080

 

Total cash and cash equivalents

 

23,104

 

14,571

 

 

 

 

 

 

 

Securities available-for-sale

 

51,553

 

52,448

 

Loans, net

 

245,873

 

245,277

 

Federal Home Loan Bank (“FHLB”) stock, at cost

 

5,073

 

5,340

 

Accrued interest receivable - loans

 

976

 

1,008

 

Accrued interest receivable - securities

 

251

 

236

 

Premises and equipment, net

 

2,083

 

2,164

 

Bank-owned life insurance

 

8,332

 

8,267

 

Goodwill

 

1,080

 

1,080

 

Real estate owned

 

374

 

544

 

Deferred tax assets

 

3,225

 

3,096

 

Other assets

 

1,176

 

1,243

 

Total assets

 

$ 343,100

 

$ 335,274

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Noninterest-bearing

 

$   25,901

 

$   20,536

 

Interest-bearing

 

206,160

 

201,004

 

Total deposits

 

232,061

 

221,540

 

 

 

 

 

 

 

Borrowings

 

47,080

 

49,289

 

Advance payments by borrowers for taxes and insurance

 

652

 

514

 

Accrued interest payable - deposits

 

200

 

228

 

Accrued interest payable - borrowings

 

192

 

202

 

Other liabilities

 

4,489

 

4,700

 

Total liabilities

 

284,674

 

276,473

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

FedFirst Financial Corporation stockholders’ equity:

 

 

 

 

 

Preferred stock $0.01 par value; 10,000,000 shares authorized; none issued

 

-   

 

-   

 

Common stock $0.01 par value; 20,000,000 shares authorized; 2,912,302 and 2,957,302 shares issued and outstanding

 

29

 

30

 

Additional paid-in-capital

 

41,018

 

41,630

 

Retained earnings - substantially restricted

 

19,021

 

18,650

 

Accumulated other comprehensive loss, net of deferred tax benefit of $(224) and $(107)

 

(348

)

(167

)

Unearned Employee Stock Ownership Plan (“ESOP”)

 

(1,339

)

(1,382

)

Total FedFirst Financial Corporation stockholders’ equity

 

58,381

 

58,761

 

Noncontrolling interest in subsidiary

 

45

 

40

 

Total stockholders’ equity

 

58,426

 

58,801

 

Total liabilities and stockholders’ equity

 

$ 343,100

 

$ 335,274

 

 

 

 

See Notes to the Unaudited Consolidated Financial Statements.

 

 

1



 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

 

 

 

Three Months

 

 

 

Ended March 31,

 

(Dollars in thousands, except per share data)

 

2012

 

2011

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

Loans

 

$      3,150

 

$      3,219

 

Securities - taxable

 

428

 

710

 

Securities - tax exempt

 

35

 

-    

 

Other interest-earning assets

 

6

 

3

 

Total interest income

 

3,619

 

3,932

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Deposits

 

602

 

711

 

Borrowings

 

454

 

621

 

Total interest expense

 

1,056

 

1,332

 

Net interest income

 

2,563

 

2,600

 

 

 

 

 

 

 

Provision for loan losses

 

160

 

250

 

Net interest income after provision for loan losses

 

2,403

 

2,350

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

Fees and service charges

 

155

 

124

 

Insurance commissions

 

626

 

629

 

Income from bank-owned life insurance

 

65

 

68

 

Net loss on sales of available-for-sale securities

 

-    

 

(1

)

Net loss on sales of real estate owned

 

(18

)

(3

)

Other

 

11

 

17

 

Total noninterest income

 

839

 

834

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

Compensation and employee benefits

 

1,377

 

1,601

 

Occupancy

 

317

 

354

 

FDIC insurance premiums

 

58

 

86

 

Data processing

 

137

 

124

 

Professional services

 

252

 

179

 

Other

 

363

 

393

 

Total noninterest expense

 

2,504

 

2,737

 

 

 

 

 

 

 

Income before income tax expense and noncontrolling interest in net income of consolidated subsidiary

 

738

 

447

 

Income tax expense

 

265

 

161

 

Net income before noncontrolling interest in net income of consolidated subsidiary

 

473

 

286

 

Noncontrolling interest in net income of consolidated subsidiary

 

17

 

18

 

Net income of FedFirst Financial Corporation

 

$        456

 

$         268

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic and diluted

 

$       0.16

 

$        0.09

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

Basic

 

2,855,926

 

2,905,642

 

Diluted

 

2,860,753

 

2,911,768

 

 

 

 

See Notes to the Unaudited Consolidated Financial Statements.

 

 

2



 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR

THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

 

 

 

Three Months

 

 

 

Ended March 31,

 

(Dollars in thousands)

 

2012

 

2011

 

 

 

 

 

 

 

Net income before noncontrolling interest in net income of consolidated subsidiary

 

$        473

 

$        286

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

Unrealized (loss) gain on securities available-for-sale,
net of income tax (benefit) expense

 

(181

)

586

 

Reclassification adjustment on sales of securities available-for-sale,
net of income tax (benefit) expense

 

-     

 

(35

)

Other comprehensive (loss) income, net of income tax (benefit) expense

 

(181

)

551

 

Comprehensive income

 

292

 

837

 

Less: Comprehensive income attributable to the noncontrolling interest in subsidiary

 

17

 

18

 

Comprehensive income attributable to FedFirst Financial Corporation

 

$        275

 

$        819

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

Noncontrolling

 

Total

 

 

 

Common

 

Paid-in-

 

Retained

 

Comprehensive

 

Unearned

 

Interest in

 

Stockholders’

 

(Dollars in thousands, except per share data)

 

Stock

 

Capital

 

Earnings

 

Gain (Loss)

 

ESOP

 

Subsidiary

 

Equity

 

Balance at January 1, 2011

 

$

30

 

$

42,016

 

$

18,140

 

$

(128

)

$

(1,555

)

$

84

 

$

58,587

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-      

 

-      

 

268

 

-      

 

-      

 

18

 

286

 

Other comprehensive income, net of tax of $354

 

-      

 

-      

 

-      

 

551

 

-      

 

-      

 

551

 

ESOP shares committed to be released

 

-      

 

(15

)

-      

 

-      

 

43

 

-      

 

28

 

Stock-based compensation expense

 

-      

 

73

 

-      

 

-      

 

-      

 

-      

 

73

 

Distribution to noncontrolling shareholder

 

-      

 

-      

 

-      

 

-      

 

-      

 

(56)  

 

(56

)

Dividends paid ($0.03 per share)

 

-      

 

-      

 

(87

)

-      

 

-      

 

-      

 

(87

)

Balance at March 31, 2011

 

$

30

 

$

42,074

 

$

18,321

 

$

423

 

$

(1,512

)

$

46

 

$

59,382

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

Noncontrolling

 

Total

 

 

 

Common

 

Paid-in-

 

Retained

 

Comprehensive

 

Unearned

 

Interest in

 

Stockholders’

 

(Dollars in thousands, except per share data)

 

Stock

 

Capital

 

Earnings

 

Loss

 

ESOP

 

Subsidiary

 

Equity

 

Balance at January 1, 2012

 

$

30

 

$

41,630

 

$

18,650

 

$

(167

)

$

(1,382

)

$

40

 

$

58,801

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-     

 

-     

 

456

 

-     

 

-     

 

17

 

473

 

Other comprehensive loss, net of tax of $(117)

 

-     

 

-     

 

-     

 

(181

)

-     

 

-     

 

(181

)

Purchase and retirement of common stock

 

(1

)

(625

)

-     

 

-     

 

-     

 

-     

 

(626

)

ESOP shares committed to be released

 

-     

 

(15

)

-     

 

-     

 

43

 

-     

 

28

 

Stock-based compensation expense

 

-     

 

28

 

-     

 

-     

 

-     

 

-     

 

28

 

Distribution to noncontrolling shareholder

 

-     

 

-     

 

-     

 

-     

 

-     

 

(12)  

 

(12

)

Dividends paid ($0.03 per share)

 

-     

 

-     

 

(85

)

-     

 

-     

 

-     

 

(85

)

Balance at March 31, 2012

 

$

29

 

$

41,018

 

$

19,021

 

$

(348

)

$

(1,339

)

$

45

 

$

58,426

 

 

 

 

See Notes to the Unaudited Consolidated Financial Statements.

 

 

3


 


 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE

MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

 

 

 

Three Months

 

 

 

Ended March 31,

 

(Dollars in thousands)

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net income of FedFirst Financial Corporation

 

$          456

 

$          268

 

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

 

 

 

 

 

Noncontrolling interest in net income of consolidated subsidiary

 

17

 

18

 

Provision for loan losses

 

160

 

250

 

Depreciation

 

107

 

128

 

Amortization of intangibles

 

27

 

27

 

Net loss on sales of available-for-sale securities

 

-     

 

1

 

Net loss on sale of real estate owned

 

18

 

3

 

Net amortization of security premiums and loan costs

 

163

 

88

 

Noncash expense for ESOP

 

28

 

28

 

Noncash expense for stock-based compensation

 

28

 

73

 

Increase in bank-owned life insurance

 

(65

)

(68

)

Decrease in other assets

 

52

 

727

 

Decrease in other liabilities

 

(249

)

(310

)

Net cash provided by operating activities

 

742

 

1,233

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Net loan originations

 

(808

)

(7,994

)

Proceeds from maturities of and principal repayments of securities available-for-sale

 

5,673

 

7,293

 

Proceeds from sales of securities available-for-sale

 

-     

 

2,006

 

Purchases of securities available-for-sale

 

(5,187

)

-     

 

Purchases of premises and equipment

 

(26

)

(158

)

Decrease in FHLB stock, at cost

 

267

 

328

 

Proceeds from sales of real estate owned

 

145

 

105

 

Net cash provided by investing activities

 

64

 

1,580

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net decrease in short-term borrowings

 

-     

 

(4,200

)

Repayments of long-term borrowings

 

(2,209

)

(14,312

)

Net increase in deposits

 

10,521

 

14,128

 

Decrease in advance payments by borrowers for taxes and insurance

 

138

 

187

 

Purchase and retirement of common stock

 

(626

)

-     

 

Dividends paid

 

(85

)

(87

)

Distribution to noncontrolling shareholder

 

(12

)

(56

)

Net cash provided by (used in) financing activities

 

7,727

 

(4,340

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

8,533

 

(1,527

)

Cash and cash equivalents, beginning of period

 

14,571

 

9,320

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$    23,104

 

$      7,793

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings (including interest credited to deposit accounts of $630 and $764 respectively)

 

$      1,094

 

$      1,447

 

Income tax expense

 

284

 

31

 

 

 

 

 

 

 

Real estate acquired in settlement of loans

 

-     

 

155

 

 

 

See Notes to the Unaudited Consolidated Financial Statements.

 

 

4



 

 

 

 

Notes to the Unaudited Consolidated Financial Statements

 

Note 1.  Basis of Presentation/Nature of Operations

 

The accompanying unaudited Consolidated Financial Statements include the accounts of FedFirst Financial Corporation (“FedFirst Financial” or the “Company”), a stock holding company established in 2010, whose wholly owned subsidiary is First Federal Savings Bank (“First Federal” or the “Bank”), a federally chartered stock savings bank, which owns FedFirst Exchange Corporation (“FFEC”). FFEC has an 80% controlling interest in Exchange Underwriters, Inc. (“Exchange Underwriters”). Exchange Underwriters is a full-service, independent insurance agency that offers property and casualty, commercial liability, surety and other insurance products. All significant intercompany transactions have been eliminated.

 

First Federal operates as a community-oriented financial institution offering residential, multi-family and commercial mortgages, consumer loans and commercial business loans as well as a variety of deposit products for individuals and businesses from eight locations in southwestern Pennsylvania. First Federal conducts insurance brokerage activities through Exchange Underwriters. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

 

The unaudited consolidated financial statements were prepared in accordance with instructions to Form 10-Q and, therefore, do not include information or notes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary to make the consolidated financial statements not misleading have been included. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the full year or any other interim period.

 

The Company evaluated subsequent events through the date the consolidated financial statements were filed with the Securities and Exchange Commission and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification (“ASC”) Topic 855, Subsequent Events, to be recognizable events.

 

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, evaluation of securities for other-than-temporary impairment including related cash flow projections, goodwill impairment, and the valuation of deferred tax assets.

 

 

 

 

5



 

 

 

 

Note 2.  Recent Accounting Pronouncements

 

ASU 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The ASU is the result of joint efforts by the FASB and International Accounting Standards Board (“IASB”) to develop a single, converged fair value framework on how (not when) to measure fair value and on what disclosures to provide about fair value measurements. While the ASU is largely consistent with existing fair value measurement principles in U.S. GAAP, it expands existing disclosure requirements for fair value measurements and makes other amendments to ASC 820, Fair Value Measurement. Many of these amendments were made to eliminate unnecessary wording differences between U.S. GAAP and IFRSs. However, some could change how the fair value measurement guidance in ASC 820 is applied. The ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s financial condition and results of operation.

 

ASU 2011-05 Presentation of Comprehensive Income. In September 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which revises the manner in which entities present comprehensive income in their financial statements. The new guidance eliminates the option to present components of other comprehensive income as part of the Statements of Changes to Stockholders’ Equity and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used today, and the second statement would include components of other comprehensive income (“OCI”). The ASU does not change the items that must be reported in OCI. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Guidance must be applied retrospectively for all periods presented in the financial statements. The adoption of this ASU did not have a material impact on the Company’s financial condition and results of operation.

 

ASU 2011-08 Testing for Goodwill for Impairment. In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment, which amends the guidance on testing goodwill impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e. step 1 of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. The ASU does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. In addition, the ASU does not amend the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, it does revise the examples of events and circumstances that an entity should consider. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU will not have a material impact on the Company’s financial condition and results of operation.

 

ASU 2011-12 Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05. In December, 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05. In response to concerns regarding the operational ramifications of the presentation requirements for reclassification of items out of accumulated other comprehensive income for current and previous years, the FASB has deferred the implementation date of this provision in ASU 2011-05, Presentation of Comprehensive Income, to allow time for further consideration. The requirement in ASU 2011-05 for the presentation of a combined statement of comprehensive income or separate, but consecutive, statements of net income and other comprehensive income is still effective for fiscal years and interim periods beginning after December 15, 2011 for public companies. The adoption of this ASU did not have a material impact on the Company’s financial condition and results of operation.

 

 

 

 

6



 

 

 

 

Note 3.  Securities

 

The following table sets forth the amortized cost and fair value of securities available-for-sale at the dates indicated (dollars in thousands).

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

March 31, 2012

 

Cost

 

Gains

 

Losses

 

Value

 

Municipal bonds

 

   $

8,806

 

   $

420

 

  $

84

 

   $

9,142

 

Mortgage-backed

 

15,303

 

952

 

-     

 

16,255

 

REMICs

 

24,017

 

899

 

3

 

24,913

 

Corporate debt

 

3,995

 

-     

 

2,756

 

1,239

 

Equities

 

4

 

-     

 

-     

 

4

 

Total securities available-for-sale

 

   $

52,125

 

   $

2,271

 

  $

2,843

 

   $

51,553

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

Government-Sponsored Enterprises

 

   $

2,000

 

   $

3

 

  $

-     

 

   $

2,003

 

Municipal bonds

 

6,738

 

391

 

4

 

7,125

 

Mortgage-backed

 

16,572

 

972

 

-     

 

17,544

 

REMICs

 

23,413

 

916

 

11

 

24,318

 

Corporate debt

 

3,995

 

-     

 

2,541

 

1,454

 

Equities

 

4

 

-     

 

-     

 

4

 

Total securities available-for-sale

 

   $

52,722

 

   $

2,282

 

  $

2,556

 

   $

52,448

 

 

The amortized cost and fair value of securities at March 31, 2012 by contractual maturity were as follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

 

 

 

Amortized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Value

 

Due in one year or less

 

  $

701

 

   $

730

 

Due from one to five years

 

2,022

 

2,377

 

Due from five to ten years

 

6,850

 

7,020

 

Due after ten years

 

42,548

 

41,422

 

No scheduled maturity

 

4

 

4

 

Total

 

  $

52,125

 

   $

51,553

 

 

The following table presents gross unrealized losses and fair value of securities aggregated by category and length of time that individual securities have been in a continuous loss position at the dates indicated (dollars in thousands)

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

Number of

 

Fair

 

Unrealized

 

Number of

 

Fair

 

Unrealized

 

Number of

 

Fair

 

Unrealized

 

March 31, 2012

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Municipal bonds

 

2

 

$   2,652

 

$       84

 

-    

 

$      -    

 

$      -    

 

2

 

$   2,652

 

$       84

 

REMICs

 

1

 

1,449

 

3

 

-    

 

-    

 

-    

 

1

 

1,449

 

3

 

Corporate debt

 

-    

 

-    

 

-    

 

3

 

1,239

 

2,756

 

3

 

1,239

 

2,756

 

Total securities temporarily impaired

 

3

 

$   4,101

 

$       87

 

3

 

$   1,239

 

$   2,756

 

6

 

$   5,340

 

$  2,843

 

 

 

 

 

7



 

 

 

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

Number of

 

Fair

 

Unrealized

 

Number of

 

Fair

 

Unrealized

 

Number of

 

Fair

 

Unrealized

 

December 31, 2011

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Municipal bonds

 

1

 

$     572

 

$        4

 

-    

 

$      -    

 

$      -    

 

1

 

$      572

 

$         4

 

REMICs

 

1

 

1,531

 

11

 

-    

 

-    

 

-    

 

1

 

1,531

 

11

 

Corporate debt

 

-    

 

-    

 

-    

 

3

 

1,454

 

2,541

 

3

 

1,454

 

2,541

 

Total securities temporarily impaired

 

2

 

$   2,103

 

$      15

 

3

 

$   1,454

 

$  2,541

 

5

 

$   3,557

 

$  2,556

 

 

The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer including any specific events that may influence the operations of the issuer, and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market.

 

Corporate Debt – At March 31, 2012, the Company had three securities that were in an unrealized loss position for 12 months or greater at an amount of $2.8 million. These securities consist of two pools of insurance company-issued preferred trust obligations. These securities were downgraded from their original rating issuance to below investment grade. The lack of liquidity in the market for this type of security, credit rating downgrades and market uncertainties are factors contributing to the unrealized losses on these securities.

 

The following table provides additional information related to the Company’s pooled preferred trust obligations at March 31, 2012 (dollars in thousands):

 

Pool

 

Class

 

Tranche

 

Amortized 
Cost

 

Fair Value

 

Unrealized 
Loss

 

S&P /
Fitch
Rating

 

Current
Number of 
Insurance
Companies

 

Total
Collateral

 

Current
Deferrals and
Defaults

 

Performing
Collateral

 

Additional
Immediate
Deferrals /
Defaults Before
Causing an
Interest
Shortfall (a)

 

Additional
Immediate
Deferrals /
Defaults
Before
Causing a
Break in Yield
(b)

 

I-PreTSL I

 

Mezzanine

 

B-3

 

$     1,500

 

$          356

 

$     (1,144

)

B+/CCC

 

16

 

$    188,500

 

$            32,500

 

$      156,000

 

$               93,251

 

$               42,000

 

I-PreTSL II

 

Mezzanine

 

B-3

 

2,495

 

883

 

(1,612

)

B+/B

 

25

 

340,500

 

17,500

 

323,000

 

156,787

 

122,500

 

 

 

 

 

 

 

$      3,995

 

$       1,239

 

$     (2,756

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)       A temporary interest shortfall is caused by an amount of deferrals/defaults high enough such that there is insufficient cash flow available to pay current interest on the given tranche or by breaching the principal coverage test of the tranche immediately senior to the given tranche. Amounts presented represent additional deferrals/defaults beyond those currently existing that must occur before the security would experience an interest shortfall.

 

(b)       A break in yield for a given tranche means that deferrals/defaults have reached such a level that the tranche would not receive all of its contractual cash flows (principal and interest) by maturity (so not just a temporary interest shortfall, but an actual loss in yield on the investment). In other words, the magnitude of the defaults/deferrals has depleted the entire credit enhancement (excess interest and over-collateralization) beneath the given tranche. Amounts presented represent additional deferrals/defaults beyond those currently existing that must occur before the security would experience a break in yield.

 

8


 

 

 


 

 

 

These securities are evaluated for other-than-temporary impairment (“OTTI”) by determining whether it is probable that an adverse change in estimated cash flows has occurred. Determining whether there has been an adverse change in estimated cash flows involves the calculation of the present value of remaining cash flows compared to previously projected cash flows. We consider the discounted cash flow analysis to be our primary evidence when determining whether credit-related OTTI exists. Additionally, reports are reviewed that provide information for the amount of deferral/defaults that would have to occur to prevent the tranche from collecting contractual cash flows (principal and interest). None of these securities are projecting a cash flow disruption, nor have any of these securities experienced a cash flow disruption. The Company also reviewed each of the issues’ collateral participants, including their financial condition, ratings provided by A. M. Best (for insurance companies), and adverse conditions specifically related to industry or geographic area. This information did not suggest additional deferrals or defaults in the future that would result in the securities not receiving all of their contractual cash flows. Based on the analysis performed and the fact that the Company does not expect to sell these securities, and because it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost basis, the Company concluded that there is no OTTI on these securities at March 31, 2012.

 

Other Securities – This category may include Government-Sponsored Enterprises (“GSE”) municipal bonds, mortgage-backed securities and REMICS.  At March 31, 2012, the Company had a total of three securities with an unrealized loss of $87,000 in these categories, including two municipal bonds with an unrealized loss of $84,000 and one REMIC with an unrealized loss of $3,000. These securities were in an unrealized loss position for less than 12 months. An evaluation of the individual securities was performed, including a review of all credit ratings, which remain at investment grade. The REMIC security is issued and backed by a Government-Sponsored Enterprise (“FHLMC”). The Company believes the unrealized loss of these securities is due to changes in market interest rates or changes in market conditions as there was no indication that the issuer was having financial difficulties. The Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before their recovery. The Company expects to recover the entire amortized cost basis of these securities and concluded that there is no OTTI on these securities at March 31, 2012.

 

FHLB Stock – The Company is a member of the FHLB of Pittsburgh. As a member, the Company is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements in order to obtain low cost products and services offered by the FHLB. Unlike investment securities, FHLB stock does not provide its holders with an opportunity for appreciation because by regulation FHLB stock can only be purchased, redeemed and transferred at par value. At March 31, 2012 and December 31, 2011, the Company’s FHLB stock totaled $5.1 million and $5.3 million, respectively.

 

The Company evaluates impairment in FHLB stock when certain conditions warrant further consideration. In 2008, the FHLB voluntarily suspended dividend payments on its stock as well as the repurchase of excess stock from members. The FHLB stated that this was due to a reduction in core earnings and concern over the FHLB’s capital position. In October 2010, the FHLB initiated a repurchase program based on outstanding excess capital stock. The amount of excess capital stock repurchased from any member was the lesser of five percent of the member’s total capital stock outstanding or its excess capital stock outstanding. Based on this evaluation, the FHLB repurchased 5% of our capital stock on a quarterly basis since the fourth quarter of 2010. In February 2012, the FHLB resumed payments of dividends. Future repurchases of excess capital stock and dividend declarations will be determined on a quarterly basis going forward.  After evaluating such factors as the capital adequacy of the FHLB, its overall operating performance and the FHLB’s liquidity and funding position, the Company concluded that the par value was ultimately recoverable and no impairment charge was recognized at March 31, 2012.

 

 

 

 

9



 

 

 

Note 4.  Loans

 

The following table sets forth the composition of our loan portfolio at the dates indicated (dollars in thousands).

 

 

 

March 31, 2012

 

December 31, 2011

 

 

 

Amount

 

Percent

 

Amount

 

Percent

 

Real estate-mortgage:

 

 

 

 

 

 

 

 

 

One-to four- family residential

 

 

 

 

 

 

 

 

 

Originated

 

$

114,284

 

45.2

%

 

$

117,622

 

46.0

%

 

Purchased

 

15,055

 

6.0

 

 

16,304

 

6.4

 

 

Total one-to four- family residential

 

129,339

 

51.2

 

 

133,926

 

52.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

 

 

 

 

 

 

 

 

 

 

Originated

 

12,381

 

4.9

 

 

13,122

 

5.1

 

 

Purchased

 

5,086

 

2.0

 

 

5,121

 

2.0

 

 

Total multi-family

 

17,467

 

6.9

 

 

18,243

 

7.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

38,008

 

15.0

 

 

35,307

 

13.8

 

 

Total real estate-mortgage

 

184,814

 

73.1

 

 

187,476

 

73.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate-construction:

 

 

 

 

 

 

 

 

 

 

 

Residential

 

3,916

 

1.5

 

 

3,874

 

1.5

 

 

Commercial

 

8,308

 

3.3

 

 

8,308

 

3.3

 

 

Total real estate-construction

 

12,224

 

4.8

 

 

12,182

 

4.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

 

 

 

 

Loan-to-value ratio of 80% or less

 

33,511

 

13.2

 

 

30,679

 

12.0

 

 

Loan-to-value ratio of greater than 80%

 

7,658

 

3.1

 

 

7,758

 

3.1

 

 

Total home equity

 

41,169

 

16.3

 

 

38,437

 

15.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

1,820

 

0.7

 

 

1,892

 

0.7

 

 

Total consumer

 

42,989

 

17.0

 

 

40,329

 

15.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

12,996

 

5.1

 

 

15,445

 

6.1

 

 

Total loans

 

$

253,023

 

100.0

%

 

$

255,432

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums on loans purchased

 

127

 

 

 

 

127

 

 

 

 

Net deferred loan costs

 

554

 

 

 

 

606

 

 

 

 

Loans in process

 

(4,728

)

 

 

 

(7,790

)

 

 

 

Allowance for loan losses

 

(3,103

)

 

 

 

(3,098

)

 

 

 

Loans, net

 

$

245,873

 

 

 

 

$

245,277

 

 

 

 

 

 

 

 

10



 

 

 

Nonperforming Assets.  The following table provides information with respect to our nonperforming assets at the dates indicated (dollars in thousands).

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Nonaccrual loans:

 

 

 

 

 

 

 

Real estate - mortgage loans

 

 

 

 

 

 

 

One-to four- family residential

 

 

 

 

 

 

 

Originated

 

$    695

 

 

$    128

 

 

Purchased

 

1,323

 

 

1,416

 

 

Total one-to four- family residential

 

2,018

 

 

1,544

 

 

 

 

 

 

 

 

 

 

Multi-family

 

 

 

 

 

 

 

Originated

 

-

 

 

-

 

 

Purchased

 

-

 

 

-

 

 

Total multi-family

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

Commercial

 

641

 

 

568

 

 

Total real estate - mortgage

 

2,659

 

 

2,112

 

 

 

 

 

 

 

 

 

 

Real estate - construction loans

 

 

 

 

 

 

 

Residential

 

-

 

 

-

 

 

Commercial

 

-

 

 

-

 

 

Total real estate - construction

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

Loan-to-value ratio of 80% or less

 

-

 

 

-

 

 

Loan-to-value ratio of greater than 80%

 

-

 

 

33

 

 

Total home equity

 

-

 

 

33

 

 

 

 

 

 

 

 

 

 

Other

 

-

 

 

-

 

 

Total consumer

 

-

 

 

33

 

 

 

 

 

 

 

 

 

 

Commercial business

 

-

 

 

-

 

 

Total nonaccrual loans

 

2,659

 

 

2,145

 

 

 

 

 

 

 

 

 

 

Accruing loans past due 90 days or more

 

-

 

 

-

 

 

Total nonaccrual loan and accruing loans past due 90 days or more

 

2,659

 

 

2,145

 

 

Real estate owned

 

374

 

 

544

 

 

Total nonperforming assets

 

$  3,033

 

 

$  2,689

 

 

 

 

 

 

 

 

 

 

Troubled debt restructurings

 

 

 

 

 

 

 

In nonaccrual status

 

384

 

 

465

 

 

Performing under modified terms

 

1,543

 

 

1,565

 

 

Troubled debt restructurings

 

$  1,927

 

 

$  2,030

 

 

 

 

 

 

 

 

 

 

Total nonperforming loans to total loans

 

1.05

%

 

0.84

%

 

Total nonperforming assets to total assets

 

0.88

 

 

0.80

 

 

 

 

 

 

11



 

 

 

At March 31, 2012 nonaccrual loans consisted primarily of 15 purchased residential mortgage loans that totaled $2.0 million, of which six were originated internally in the amount of $695,000 and nine were purchased in the amount of $1.3 million. 12 of the nonaccrual residential mortgage loans were in the process of foreclosure at March 31, 2012. The nonaccrual purchased residential loans include one relationship comprised of five loans totaling $1.2 million. Additionally, nonaccrual loans included six commercial real estate loans in the amount of $641,000.

 

At December 31, 2011 nonaccrual loans consisted primarily of nine residential mortgage loans that totaled $1.5 million, of which one was originated internally in the amount of $128,000 and eight were purchased in the amount of $1.4 million. Of these loans, the eight purchased residential properties were in the process of foreclosure at December 31, 2011. The nonaccrual purchased residential loans included one relationship comprised of six loans totaling $1.3 million. Additionally, nonaccrual loans included two commercial real estate relationships, which consisted of three loans in the amount of $568,000, and one home equity loan in the amount of $33,000.

 

Loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties are considered troubled debt restructurings (“TDRs”). TDRs typically are the result of our loss mitigation activities and could include rate reductions, principal forgiveness, forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral.

 

The Bank had three relationships classified as TDRs at March 31, 2012 and December 31, 2011 summarized as follows:

 

·                One relationship comprised of two commercial real estate loans with a total balance of $384,000 and $465,000 at March 31, 2012 and December 31, 2011, respectively. The borrower was experiencing financial difficulties and was given a six month interest-only payment concession in 2010. After conclusion of the interest-only period in 2011, the borrower was unable to consistently make regular loan payments and defaulted on the loans, which resulted in the Bank beginning the foreclosure process on the collateral securing the loans. To halt foreclosure, the borrower signed a forbearance agreement and, in 2012, paid off one of the loans and began making monthly payments. If a payment is missed the foreclosure process will restart. This relationship was evaluated for impairment and it was determined based on an appraisal of the underlying loan collateral that a specific allowance was not necessary because there was sufficient collateral to cover the outstanding loan balance. These loans are included in total nonaccrual loans in the previous table.

 

·                One commercial real estate participation loan with a balance of $650,000 and $654,000 at March 31, 2012 and December 31, 2011, respectively. Because the borrower believed it would be unable to obtain financing to pay the loan in full upon original maturity in 2010, the loan was modified through a forbearance agreement in 2010 by extending the maturity date by three years to 2013. This loan has demonstrated performance under the modified terms and therefore was in a performing (accrual) status at March 31, 2012. This relationship was evaluated for impairment and it was determined that a $170,000 specific allowance was necessary due to a decline in the underlying collateral as determined by an appraisal on the property.

 

·               One relationship with a total balance of $893,000 and $911,000 at March 31, 2012 and December 31, 2011, respectively. The relationship consisted of three commercial real estate loans and two consumer loans that have been deemed impaired based on the current financial standing of the borrower. In the fourth quarter of 2011, the three commercial business loans were consolidated into one commercial real estate loan and additional collateral was obtained. After enhancing the collateral position and reviewing the updated property appraisals of the underlying loan collateral and the updated valuation of the other business assets securing the loan, it was determined that there was sufficient collateral to cover the outstanding loan balance and, therefore, a specific allowance was not necessary.

 

 

 

 

12



 

 

 

The following tables summarize information in regards to impaired loans by loan portfolio class at the dates indicated (dollars in thousands).

 

 

 

 

 

Unpaid

 

 

 

Average

 

Interest

 

 

 

Recorded

 

Principal

 

Related

 

Recorded

 

Income

 

March 31, 2012

 

Investment

 

Balance

 

Allowance

 

Investment

 

Recognized

 

Impaired loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

 

 

One-to four- family purchased residential

 

$  1,171

 

$  1,171

 

$    -

 

$  1,229

 

$    -

 

Commercial real estate

 

1,127

 

1,196

 

-

 

1,176

 

10

 

Home equity (loan-to-value ratio of 80% or less)

 

139

 

139

 

-

 

140

 

2

 

Other consumer

 

10

 

10

 

-

 

10

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with an allowance recorded Commercial real estate

 

650

 

650

 

170

 

652

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four- family purchased residential

 

$  1,171

 

$  1,171

 

$    -

 

$  1,229

 

$    -

 

Commercial real estate

 

1,777

 

1,846

 

170

 

1,828

 

18

 

Home equity (loan-to-value ratio of 80% or less)

 

139

 

139

 

-

 

140

 

2

 

Other consumer

 

10

 

10

 

-

 

10

 

-

 

Total impaired loans

 

$  3,097

 

$  3,166

 

$    170

 

$  3,207

 

$      20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

Average

 

Interest

 

 

 

Recorded

 

Principal

 

Related

 

Recorded

 

Income

 

December 31, 2011

 

Investment

 

Balance

 

Allowance

 

Investment

 

Recognized

 

Impaired loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

 

 

One-to four- family purchased residential

 

$  1,287

 

$  1,287

 

$    -

 

$  1,290

 

$      11

 

Commercial real estate

 

1,447

 

1,510

 

-

 

1,484

 

60

 

Home equity (loan-to-value ratio of 80% or less)

 

140

 

140

 

-

 

143

 

9

 

Other consumer

 

11

 

11

 

-

 

12

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with an allowance recorded Commercial real estate

 

654

 

654

 

170

 

663

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four- family purchased residential

 

$  1,287

 

$  1,287

 

$    -

 

$  1,290

 

$      11

 

Commercial real estate

 

2,101

 

2,164

 

170

 

2,147

 

92

 

Home equity (loan-to-value ratio of 80% or less)

 

140

 

140

 

-

 

143

 

9

 

Other consumer

 

11

 

11

 

-

 

12

 

1

 

Total impaired loans

 

$  3,539

 

$  3,602

 

$    170

 

$  3,592

 

$    113

 

 

 

 

 

13



 

 

 

Federal regulations require us to review and classify our assets on a regular basis. In addition, the OCC has the authority to identify problem assets and, if appropriate, require them to be classified. There are four classifications for problem assets: special mention, substandard, doubtful and loss. The following table presents the classes of the loan portfolio and shows our credit risk profile by internally assigned risk rating at the dates indicated (dollars in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - mortgage

 

 

Real estate-
construction

 

 

Consumer

 

 

 

 

 

 

 

 

 

One-to

 

One-to-

 

 

 

 

 

 

 

 

 

 

 

 

 

Home

 

Home

 

 

 

 

 

 

 

 

 

 

 

four-

 

four

 

 

 

 

 

 

 

 

 

 

 

 

 

equity (loan-

 

equity (loan-

 

 

 

 

 

 

 

 

 

 

 

family

 

family

 

Multi-

 

Multi-

 

 

 

 

 

 

 

 

 

to-value

 

to-value ratio

 

 

 

 

Com-

 

 

 

 

 

 

residential

 

residential

 

family

 

family

 

Com-

 

 

Resi-

 

Com-

 

 

ratio of

 

of greater

 

Other

 

 

mercial

 

Loans