NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of United Community Financial Corp. (United Community) and its subsidiary, The Home Savings and
Loan Company of Youngstown, Ohio (Home Savings) conform to U.S. Generally Accepted Accounting Principles (GAAP) and prevailing practices within the banking and thrift industries. A summary of the more significant accounting policies follows.
Nature of Operations
The business of Home Savings is providing consumer and business banking service to its market area in Ohio and western Pennsylvania. At the end of 2012, Home Savings was doing business through 33
full-service banking branches and eight loan production offices. Loans and deposits are primarily generated from the areas where banking branches are located. Substantially all loans are secured by specific items of collateral including business
assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However,
the customers ability to repay their loans is dependent on the real estate and general economic conditions in the market area. Home Savings derives its income predominantly from interest on loans, securities, and to a lesser extent,
non-interest income. Home Savings principal expenses are interest paid on deposits and Federal Home Loan Bank advances, loan loss provisions and normal operating costs. Consistent with internal reporting, Home Savings operations are
reported in one operating segment, which is banking services.
Basis of Presentation
The consolidated financial statements include the accounts of United Community and its subsidiaries. All material inter-company
transactions have been eliminated. Certain prior period data has been reclassified to conform to current period presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair value of financial instruments, fair value of
servicing rights, fair value of other real estate owned and other repossessed assets, realizability of deferred tax assets and status of contingencies are particularly subject to change.
Cash Flows
For purposes of the statement of cash flows, United Community considers all highly liquid investments with a term of three months or less to be cash equivalents. Net cash flows are reported for loan and
deposit transactions, short-term borrowings and advance payments by borrowers for taxes and insurance.
Securities
Securities are classified as available for sale or trading upon their acquisition. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale
are carried at estimated fair value with the unrealized holding gain or loss reported in other comprehensive income, net of tax. Restricted securities such as FHLB stock are carried at cost. Interest income includes amortization of purchase premium
or discount on debt securities. Premiums or discounts are amortized on the level-yield method without anticipating prepayments. Gains and losses on sales are recorded on the trade date and are determined using the specific identification method.
Management evaluates securities for other-than-temporary impairment (OTTI) at least quarterly, and more frequently when
economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer.
Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or
requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two
components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the
present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of OTTI is recognized through earnings.
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Loans Held for Sale
Loans held for sale primarily consist of residential mortgage loans originated for sale and other loans that have been identified for
sale. These loans are carried at the lower of cost or fair value, determined in the aggregate. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.
Mortgage loans held for sale are sold with either servicing rights retained or servicing released. The carrying value of mortgage loans
sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the outstanding principal balance, net of purchase premiums or discounts,
deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the
level-yield method without anticipating prepayments.
Interest income includes amortization of net deferred loan fees and
costs over the loan term. The accrual of interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is both well secured and in the process of collection. Consumer loans are typically
charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance
with the Companys policy, typically after 90 days of non-payment.
All interest accrued but not received for a loan
placed on nonaccrual is reversed against interest income. Nonaccrual loans are comprised principally of loans 90 days past due as well as certain loans which are less than 90 days past due, but where serious doubt exists as to the ability of the
borrowers to comply with the repayment terms. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when future payments are
reasonably assured.
When loans reach 90 days past due, they are placed on nonaccrual status and any interest accrued but not
received is reversed against interest income, unless the loan is both well secured and in the process of collection. A loan will also be placed on nonaccrual before it reaches 90 days past due if the Company determines that the borrowers
financial condition has deteriorated to the point that the Company no longer expects full repayment of the contractual principal and interest. Once a loan is on nonaccrual, it will remain on nonaccrual until the loan becomes current and the borrower
demonstrates the ability to pay the loan per the contractual terms for a minimum of six months.
Home Savings determines the
past due status of loans based on the number of calendar months the loan is past due. Impaired loans consist of loans that are non-homogenous and in a nonaccrual status; loans considered troubled debt restructurings and loans that have been
individually analyzed for impairment.
Real estate loans.
Mortgage loans are revalued at the time they reach 180 days
past due and any portion of the principal that exceeds the fair value is charged off. Mortgage loans are considered to be homogenous until the loan is individually valued and charged-down to the fair value, at which time the loan becomes
non-homogenous and is considered impaired.
Commercial real estate loans
. A commercial real estate loan is impaired
when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. At this time the loan is charged down to the fair value.
Construction loans.
A construction loan is impaired when, based on current information and events, it is probable that the Company
will be unable to collect all amounts due according to the contractual terms of the loan agreement. At this time the loan is charged down to the fair value.
Consumer loans
. Consumer loans that are secured by residential real estate are revalued once they reach 180 days past due and charged down to the fair value if necessary. Consumer loans that are
not secured by residential real estate are revalued once they reach 120 days past due and are charged down to the fair value if necessary. Consumer loans are considered to be homogenous until the loan is individually valued and charged-down to the
fair value, at which time the loan becomes non-homogenous and is considered impaired.
Commercial loan.
Commercial
loans are impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The repayment of commercial loans typically is
dependent on the income stream and successful operation of a business. If there is no underlying collateral to value, the company will calculate the present value of expected future cash flows to determine the amount of impairment, if any. Once a
commercial loan has been individually analyzed it is considered impaired.
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Concentration of Credit Risk
Most of the Companys business activity is with customers located within Home Savings market area. Therefore, the
Companys exposure to credit risk is significantly affected by changes in the economy in Northeast Ohio and Western Pennsylvania.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance
when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required based on an analysis using past loan loss experience, the
nature and volume of the portfolio, information about specific borrower situations, estimated collateral values, general economic conditions in the market area and other factors. Allocations of the allowance may be made for specific loans, but the
entire allowance is available for any loan that, in managements judgment, should be charged-off.
The allowance consists
of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on
historical loss experience adjusted for current factors.
A loan is impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are
considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the facts and circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record and the amount of shortfall in relation to the principal
and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate or the fair value of the
collateral if the loan is collateral dependent. Troubled debt restructurings (TDRs) are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loans effective rate at
inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting
policy for the allowance for loan losses.
The general component covers non-impaired loans and is based on historical loss
experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent one year. This actual loss experience is supplemented
with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and
recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other
relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. Historically, in determining quantitative factors the Company has evaluated two years worth of net charge
off history on a quarterly basis. The Company has averaged this information since 2006 in determining the quantitative factor. At December 31, 2010, the Company shortened this evaluation period to one year of net charge off history and averaged
this information over the current year period. These changes allow for the quantitative factors to be weighted to a more recent level of charge off experience due to current market conditions.
The Banks portfolio has the following segments: permanent real estate loans, construction loans, consumer loans and commercial
loans. The majority of the Banks loan portfolio is permanent real estate loans made to customers in Home Savings market area. These loans are secured by the underlying real estate as collateral. Repayment of these loans is dependent on
general economic conditions and unemployment levels in Home Savings market area.
Consumer loans represent Home
Savings next largest portfolio and primarily consist of home equity loans. Similar to permanent real estate loans, repayment of consumer loans depends on the general economic conditions and unemployment levels in Home Savings market
area.
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Multifamily and nonresidential real estate loans generally have a higher degree of risk than
loans secured by one-to four-family residences. These riskier loans can be affected by economic conditions, operating expenses, debt service and successful operation of income-producing properties. Home Savings tries to reduce this risk by
evaluating the credit history of the borrower, location of the real estate, the financial condition of the borrower, obtaining personal guarantees by the borrower, the characteristics of the income stream generated by the property and the appraisal
supporting the property. To reduce any risk on loans secured by one-to four-family residences, Home Savings underwrites all portfolio loans to Freddie Mac underwriting guidelines.
Construction loans involve a higher degree of underwriting and default risk than loans secured by mortgages on existing properties
because construction loans are more difficult to appraise and to monitor. Loan funds are advanced based upon the security of the project under construction.
The majority of Home Savings consumer loans consist of closed-end home equity loans in an amount that, when added to the prior indebtedness secured by the real estate, does not exceed 90% of the
estimated value of the real estate. Other consumer loans, such as automobiles and recreational vehicles, have a higher degree of risk than home equity loans as the collateral depreciates at a faster rate.
Commercial loans generally entail greater risk than real estate lending. The repayment of commercial loans typically is dependent on the
income stream and successful operation of a business, which can be affected by economic conditions. The collateral for commercial loans, if any, often consists of rapidly depreciating assets.
Home Savings has established a methodology to calculate the allowance for loan losses at a level it believes adequate to absorb probable
incurred losses in the loan portfolio. An analysis of individual credits, prior and current loss experience, loan portfolio delinquency levels, changes in the loan portfolio, current economic conditions and results of regulatory examinations is
completed on a regular basis to determine the adequacy of the allowance.
Impaired loans are individually evaluated based on
the borrowers ability to repay the loan given the availability of collateral, other sources of cash flow and legal options available to Home Savings. Once a review is completed, a specific reserve is determined and allocated to the loan. These
specific reserves on individual loans are reviewed periodically and adjusted as necessary based on subsequent collection, loan upgrades or downgrades, nonperforming trends or actual principal charge-offs.
Other loans not reviewed specifically by management are evaluated as a homogenous group of loans (generally single-family residential
mortgage loans and all consumer credits except marine loans) using a loss factor applied to the outstanding loan balance to determine the level of reserve required. This loss factor consists of two components, a quantitative and a qualitative
component. The quantitative component is based on a historical analysis of all charged-off loans, net of recovery. The Company evaluates one year of net charge off history and applies the information to the current period. This component is combined
with the qualitative component to arrive at the loss factor, which is applied to the outstanding balance of homogenous loans. In determining the qualitative factors, consideration is given to such attributes as economic conditions, changes in the
nature and volume of the portfolio, lending personnel, lending policies, past-due loan trends and trends in collateral values.
Servicing Assets
Servicing assets are recognized as separate assets when rights are acquired through purchase or sale of financial assets. Servicing rights are initially recorded at fair value with the income statement
effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net
servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, discount rate, the custodial earnings rate, an inflation rate, ancillary
income, prepayment speeds and default rates and losses. Capitalized servicing rights are reported in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the
underlying assets.
Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to
carrying amount. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such as original maturity, interest rate and loan type. Impairment is recognized through a valuation allowance for an individual
tranche. If Home Savings later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to income.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding
principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income.
56
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred
assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the
Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Real Estate Owned and Other Repossessed Assets
Real estate owned, including property acquired in settlement of foreclosed loans, is carried at fair value less estimated cost to sell
after foreclosure, establishing a new cost basis. If fair value declines after acquisition, a valuation allowance is recorded through expense. Costs relating to the development and improvement of real estate owned are capitalized, whereas costs
relating to holding and maintaining the properties are charged to expense. Other repossessed assets are carried at estimated fair value less estimated cost to sell after acquisition.
Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation and amortization. Buildings and related
components are depreciated and amortized using the straight-line method over the useful lives, generally ranging from 20 years to 40 years (or term of the lease, if shorter) of the related assets. Furniture and fixtures are depreciated using the
straight-line method with useful lives ranging from three to five years.
Federal Home Loan Bank (FHLB) stock
The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other
factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as
income.
Cash Surrender Value of Life Insurance
Life insurance is carried on the lives of certain employees where Home Savings is the beneficiary. Life insurance is recorded at its cash
surrender value, or the amount currently realizable. Increases in the Home Savings policy cash surrender value are tax exempt and death benefit proceeds received by Home Savings are tax-free. Income from these policies and changes in the cash
surrender value are recorded in other income.
Core Deposit Intangible
Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Home
Savings has no goodwill recorded as of December 31, 2012 or December 31, 2011.
Core deposit intangible assets arose
from whole bank acquisitions. They were initially measured at fair value and are being amortized on an accelerated method over their estimated useful lives.
Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing
derivatives. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest rate on the loan is locked. The Company enters into forward commitments for the future delivery of mortgage
loans when interest rate locks are entered into in order to hedge the change in interest rates resulting from its commitments to fund the loans. Changes in the fair values of these derivatives are included in mortgage banking income on the
consolidated statements of income and comprehensive income.
Long-term Assets
Premises and equipment and other longterm assets are reviewed for impairment when events indicate their carrying amounts may not be
recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Loan Fees
Loan origination fees received for loans, net of direct origination costs, are deferred and amortized to interest income over the contractual lives of the loans using the level yield method. Fees received
for loan commitments that are expected to be drawn, based on Home Savings experience with similar commitments, are deferred and amortized over the lives of the loans using the level-yield method. Fees for other loan commitments are deferred
and amortized over the loan commitment period on a straight-line basis. Unamortized deferred loan fees or costs related to loans paid off are included in income. Unamortized net fees or costs on loans sold are included in the basis of the loans in
calculating gains and losses. Amortization of net deferred fees is discontinued for loans that are deemed to be nonperforming.
57
Stock Compensation
Compensation cost is recognized for stock options and restricted stock awards issued to employees and nonemployee directors, based on the
fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporations common shares at the date of grant is used for restricted stock awards.
Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire
award.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax
amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is more likely than not that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the more
likely than not test, no tax benefit is recorded.
The Company recognizes interest and/or penalties related to income
tax matters in income tax expense.
401(k) Savings Plan
Employee 401(k) and profit sharing plan expense is the amount of matching contributions and administrative costs to administer the plan.
Postretirement Benefit Plans
In addition to Home Savings retirement plans, Home Savings sponsors a defined benefit health care plan that was curtailed in 2000 to
provide postretirement medical benefits for employees who worked 20 years and attained a minimum age of 60 by September 1, 2000, while in service with Home Savings. The plan is unfunded and, as such, has no assets. Furthermore, the plan is
contributory and contains minor cost-sharing features such as deductibles and coinsurance. In addition, postretirement life insurance coverage is provided for employees who were participants prior to December 10, 1976. The life insurance plan
is non-contributory. Home Savings policy is to pay premiums monthly, with no pre-funding. The benefit obligation is measured annually by a third-party actuary.
Employee Stock Ownership Plan
On June 29, 2010, all shares were allocated to Employee Stock Ownership Plan (ESOP) participants upon the full repayment of the ESOP
loan. Prior to June 29, 2010, the cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of shareholders equity. Compensation expense is based on the market price of shares as they are committed
to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares before June 30, 2010, when all remaining shares were allocated, reduced debt and accrued interest.
Dividend Restriction
Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders. Pursuant to the MOU and
Holding Company Order discussed in Notes 3 and 16, Home Savings must obtain regulatory approval prior to paying dividends to United Community and United Community must obtain regulatory approval prior to paying dividends to its shareholders.
Earnings Per Share
Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless
unearned. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share includes the dilutive effect of additional
potential common shares issuable under stock options.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably estimated. See further discussion at Note 13.
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Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in
Note 18. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or
in market conditions could significantly affect the estimates.
Comprehensive Income
Comprehensive income consists of net income and unrealized gains and losses on securities available for sale and changes in unrealized
gains and losses on postretirement liabilities, which are also recognized as separate components of equity.
Off Balance Sheet Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit,
issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
New Accounting Standards
In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and
International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing
information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance did not have a material effect on the
Companys operating results or financial condition.
In June 2011, the FASB amended existing guidance and eliminated the
option to present the components of other comprehensive income as part of the statement of changes in shareholders equity. The amendment requires that comprehensive income be presented either in a single continuous statement or in two separate
consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment had no impact on the
consolidated financial statements as the current presentation of comprehensive income is in compliance with this amendment.
Operating Segments
Internal financial information is primarily reported and aggregated in one line of business, which is banking services.
Reclassifications
Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no
effect on prior year consolidated statements of operations or shareholders equity.
2. CASH AND CASH EQUIVALENTS
Federal Reserve Board (FRB) regulations require depository institutions to maintain certain non-interest bearing
reserve balances. These reserves, which consisted of vault cash at Home Savings, totaled approximately $13.8 million and $11.6 million at December 31, 2012 and 2011, respectively.
3. REGULATORY ENFORCEMENT ACTION
United Community is a unitary thrift holding company, and is regulated by the Board of Governors of the Federal Reserve
System (FRB). On August 8, 2008, the board of directors of United Community approved a Stipulation and Consent to the Issuance of an Order with the OTS (the Holding Company Order). Simultaneously, the board of directors of Home Savings approved
a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the Bank Order) with the Federal Deposit Insurance Corporation (FDIC) and the Ohio Division of Financial Institutions (the Ohio Division), which was terminated as of
March 30, 2012 and replaced with a Consent Order (the Consent Order). The Consent Order was terminated on January 31, 2013 immediately after the directors consented to a Memorandum of Understanding (MOU), as described below. Although
United Community and Home Savings agreed to the issuance of the Holding Company Order, the Consent Order and the MOU, as the case may be, neither has admitted or denied any allegations of unsafe or unsound banking practices, or any legal or
regulatory violations. No monetary penalties were assessed by the OTS, the FDIC or the Ohio Division when these orders were issued.
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The Holding Company Order requires United Community to obtain FRB approval prior to:
(i) incurring or increasing its debt position; (ii) repurchasing any United Community stock; or (iii) paying any dividends. The Holding Company Order also required United Community to develop a debt reduction plan and submit the plan
to the OTS for approval. The Holding Company Order remains in effect and was amended November 5, 2010. The amendment removed the requirement in the original Holding Company Order to provide the OTS with a debt reduction plan and added a
requirement to provide the OTS with a capital plan. The capital plan was consistent with and incorporated into the strategic planning process that Home Savings undertook when the Bank Order was issued. The capital plan was submitted to the OTS in
December 2010. A revised capital plan was submitted to the FRB, FDIC and Ohio Division in December 2011 and a further revised capital plan was submitted in December 2012.
On March 30, 2012, Home Savings entered into a consent agreement with the FDIC and the Ohio Division that provided for the issuance of the Consent Order by the FDIC and Ohio Division. Immediately
following the issuance of the Consent Order, the FDIC and Ohio Division terminated the previous Bank Order issued by the FDIC and Ohio Division on August 13, 2008.
The Consent Order required Home Savings, within specified timeframes, to take or refrain from certain actions, including that it shall: (i) continue to retain qualified management; (ii) seek
regulatory approval prior to adding any individuals to the board of directors or employing any individual as a senior executive officer of Home Savings; (iii) not extend additional credit to classified borrowers; (iv) revise its plan to
reduce its classified assets, and, within six months, reduce total adversely classified assets to 75% of the level of classified assets as of May 31, 2011 (i.e., to $219.0 million by September 30, 2012) and, within twelve months, to 50% of
the level of classified assets as of May 31, 2011 (i.e., to $146.0 million by March 31, 2013) (v) establish a comprehensive policy and methodology for determining the adequacy of the allowance for loan and lease losses (ALLL);
(vi) adopt plans to reduce its classified assets and delinquent loans; (vii) adopt a plan to reduce certain loan concentrations; (viii) amend its strategic plan and budget and profit plan; (ix) increase its Tier 1 Leverage
Capital Ratio to 9.0% and its Total Risk Based Capital Ratio to 12.0% by June 30, 2012, and revise its capital plan to achieve such capital levels; and (x) seek regulatory approval prior to declaring or paying any cash dividend.
On September 21, 2012, Home Savings completed a bulk sale of a substantial amount of the Banks troubled loans,
along with other assets, to an unrelated party. As a result of the transaction, Home Savings exceeded the asset quality targets set forth in the Consent Order, as follows:
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Balance as of
December 31, 2012
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Required
Consent Order
Threshold
by
March 31, 2013
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(In thousands)
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Classified Assets
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$
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78,319
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$
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146,100
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Classified assets include classified loans and real estate owned and other repossessed assets. Refer to Note 5 for a
discussion of classified loans. Refer to Note 7 for a discussion of real estate owned and other repossessed assets.
The
Banks Tier 1 Leverage Capital Ratio at December 31, 2012, was 8.70%. While Home Savings was operating under a Consent Order as of December 31, 2012 requiring a minimum Tier 1 Leverage Capital Ratio of 9.0%, the Company worked closely
with its regulators to keep them informed of the transaction and obtained their concurrence to complete the sale along with the Banks commitment to once again meet the 9.0% requirement by March 31, 2013.
In keeping with its capital plan, the Company engaged an investment banking advisory firm in June 2011 to advise the board and management
on the Companys strategic alternatives, including raising outside capital. On January 15, 2013, the Company announced that it intends to raise approximately $47.0 million in capital through a private offering and a rights offering. The
Company has entered into Stock Purchase Agreements to issue approximately $39.9 million in securities through a private offering to accredited investors, and also has entered into Subscription Agreements to issue approximately $2.1 million in common
shares to the Companys directors, officers, consultants and affiliates. Following the closing of the private offering, the Company intends to commence a rights offering of approximately $5.0 million to existing shareholders at the same common
share purchase price of $2.75 as paid by the investors in the private offerings. The shares that the non-affiliated investors as a group are purchasing in the private offering will represent approximately 29.0% of the Companys outstanding
shares following the offering (assuming the rights offering is fully subscribed); however, none of these new investors will own more than 4.9% of the Company as a result of the private offering. A portion of any capital raised by United Community
will be contributed to Home Savings, with the remainder to be used for general corporate purposes.
On January 31, 2013,
the Consent Order issued to Home Savings by the FDIC and the Ohio Division on March 30, 2012 was terminated. On January 31, 2013, Home Savings entered into a MOU with the FDIC and Ohio Division that requires Home Savings to submit certain
plans and reports to the FDIC and the Ohio Division, to seek the FDICs and Ohio Divisions prior consent before issuing any dividends to United Community, and to maintain its Tier 1 Leverage Capital Ratio at 8.50% and its Total Risk Based
Capital Ratio at 12.0%.
60
As of December 31, 2011 and 2012, the FDIC categorized Home Savings as adequately
capitalized pursuant to the Bank Order and the Consent Order, respectively. However, because the Consent Order was terminated on January 31, 2013, Home Savings can now be considered well capitalized.
A failure to comply with the provisions of the MOU or the Holding Company Order could result in additional enforcement actions by the
FDIC, Ohio Division or the FRB.
The regulators, at their discretion, have the ability to place additional requirements on
both Home Savings and United Community.
4. SECURITIES
The components of securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
(Dollars in thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government sponsored entities securities
|
|
$
|
161,845
|
|
|
$
|
2,409
|
|
|
$
|
(562
|
)
|
|
$
|
163,692
|
|
Equity securities
|
|
|
101
|
|
|
|
212
|
|
|
|
|
|
|
|
313
|
|
Mortgage-backed GSE securities: residential
|
|
|
404,563
|
|
|
|
6,142
|
|
|
|
(148
|
)
|
|
|
410,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
566,509
|
|
|
$
|
8,763
|
|
|
$
|
(710
|
)
|
|
$
|
574,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
(Dollars in thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government sponsored entities securities
|
|
$
|
50,003
|
|
|
$
|
797
|
|
|
$
|
|
|
|
$
|
50,800
|
|
Equity securities
|
|
|
114
|
|
|
|
149
|
|
|
|
|
|
|
|
263
|
|
Mortgage-backed GSE securities: residential
|
|
|
403,943
|
|
|
|
4,592
|
|
|
|
|
|
|
|
408,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
454,060
|
|
|
$
|
5,538
|
|
|
$
|
|
|
|
$
|
459,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available for sale by contractual maturity, repricing or expected call date are shown below:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Amortized
cost
|
|
|
Fair
value
|
|
|
|
(Dollars in thousands)
|
|
Due in one year or less
|
|
$
|
|
|
|
$
|
|
|
Due after one year through five years
|
|
|
500
|
|
|
|
500
|
|
Due after five years through ten years
|
|
|
72,345
|
|
|
|
73,724
|
|
Due after ten years
|
|
|
89,000
|
|
|
|
89,468
|
|
Mortgage-backed GSE securities: residential
|
|
|
404,563
|
|
|
|
410,557
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
566,408
|
|
|
$
|
574,249
|
|
|
|
|
|
|
|
|
|
|
Since equity securities do not have a contractual maturity, they are excluded from the table above.
61
Proceeds, gross realized gains, losses and impairment charges of available for sale
securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Proceeds
|
|
$
|
343,000
|
|
|
$
|
428,396
|
|
|
$
|
396,291
|
|
Gross gains
|
|
|
6,325
|
|
|
|
8,662
|
|
|
|
8,970
|
|
Gross losses
|
|
|
|
|
|
|
(29
|
)
|
|
|
(167
|
)
|
Impairment charges
|
|
|
(13
|
)
|
|
|
(89
|
)
|
|
|
(58
|
)
|
The tax benefit (provision) related to net realized gains and losses was $0, $0, and $(380,000), respectively.
Securities pledged for the Companys participation in the VISA payment processing program were approximately $5.8
million at December 31, 2012 and $5.7 million at December 31, 2011. Securities pledged for participation in the Ohio Linked Deposit Program were approximately $417,000 and $418,000 at December 31, 2012 and 2011, respectively. See
further discussion regarding pledged securities in Note 12.
Securities available for sale in an unrealized loss position are
as follows at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair value
|
|
|
Unrealized
loss
|
|
|
Fair
value
|
|
|
Unrealized
loss
|
|
|
Fair value
|
|
|
Unrealized
loss
|
|
|
|
(Dollars in thousands)
|
|
Description of securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government sponsored entities
|
|
$
|
42,480
|
|
|
$
|
(562
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
42,480
|
|
|
$
|
(562
|
)
|
Mortgage-backed GSE securities: residential
|
|
|
72,020
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
72,020
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
114,500
|
|
|
$
|
(710
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
114,500
|
|
|
$
|
(710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the U.S. Treasury and government sponsored entities and mortgage-backed securities that were temporarily
impaired at December 31, 2012, were impaired due to the level of interest rates at that time.
United Community had no
securities available for sale in an unrealized loss position at December 31, 2011.
The Company evaluates its equity
securities for impairment on a quarterly basis. In general, if a security has been in an unrealized loss position for more than twelve months, the Company will recognize an OTTI charge on the security. The Companys equity security portfolio is
comprised of common stock of various financial institutions. If the security has been in an unrealized loss position for less than twelve months, the Company examines the capital levels, nonperforming asset ratios and liquidity position of the
issuer to determine whether or not an OTTI charge is appropriate.
The Company recognized a $13,000 OTTI charge on an equity
investment in one financial institution in 2012. The Company recognized an $89,000 OTTI charge on equity investments in four financial institutions in 2011. The Company recognized a $58,000 OTTI charge in 2010. Based upon reviews of the financial
institutions capital structure, nonperforming assets ratios and liquidity levels, the chance for recovery in the foreseeable future appeared remote.
62
5. LOANS
Portfolio loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
577,249
|
|
|
$
|
667,375
|
|
Multi-family residential
|
|
|
80,923
|
|
|
|
120,991
|
|
Nonresidential
|
|
|
138,188
|
|
|
|
276,198
|
|
Land
|
|
|
15,808
|
|
|
|
23,222
|
|
Construction:
|
|
|
|
|
|
|
|
|
One-to four-family residential and land development
|
|
|
28,318
|
|
|
|
59,339
|
|
Multi-family and nonresidential
|
|
|
4,534
|
|
|
|
4,528
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
845,020
|
|
|
|
1,151,653
|
|
Consumer
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
177,230
|
|
|
|
191,827
|
|
Auto
|
|
|
7,648
|
|
|
|
8,933
|
|
Marine
|
|
|
4,942
|
|
|
|
5,900
|
|
Recreational vehicles
|
|
|
22,250
|
|
|
|
28,530
|
|
Other
|
|
|
2,523
|
|
|
|
3,207
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
214,593
|
|
|
|
238,397
|
|
Commercial
|
|
|
|
|
|
|
|
|
Secured
|
|
|
24,243
|
|
|
|
25,120
|
|
Unsecured
|
|
|
2,300
|
|
|
|
5,026
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
26,543
|
|
|
|
30,146
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
1,086,156
|
|
|
|
1,420,196
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
21,130
|
|
|
|
42,271
|
|
Deferred loan costs, net
|
|
|
(1,214
|
)
|
|
|
(1,351
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,916
|
|
|
|
40,920
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
1,066,240
|
|
|
$
|
1,379,276
|
|
|
|
|
|
|
|
|
|
|
On September 21, 2012, Home Savings sold assets in a bulk sale transaction, which was comprised primarily of
loans. Loans included in the bulk sale had an unpaid principal balance of $147.3 million. These loans had a recorded investment as of the closing date of $117.4 million. Home Savings received proceeds of $77.4 million and recorded a total loss of
$30.2 million on the sale of these loans. Of these loans, $91.6 million were classified, $63.3 million were nonperforming and $53.0 million were noncurrent (all amounts are book balance prior to the effect of any reserves).
Loan commitments are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Commitments extend over various periods of time with the majority of such commitments disbursed within a sixty-day period. Commitments generally have fixed expiration dates or other termination clauses, may require payment of a fee and may expire
unused. Commitments to extend credit at fixed rates expose Home Savings to some degree of interest rate risk. Home Savings evaluates each customers creditworthiness on a case-by-case basis. The type or amount of collateral obtained varies and
is based on managements credit evaluation of the potential borrower. Home Savings normally has a number of outstanding commitments to extend credit.
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Fixed
Rate
|
|
|
Variable
Rate
|
|
|
Fixed
Rate
|
|
|
Variable
Rate
|
|
|
|
(Dollars in thousands)
|
|
Commitments to make loans
|
|
$
|
73,125
|
|
|
$
|
21,001
|
|
|
$
|
45,603
|
|
|
$
|
3,446
|
|
Undisbursed loans in process
|
|
|
731
|
|
|
|
23,502
|
|
|
|
875
|
|
|
|
22,463
|
|
Unused lines of credit
|
|
|
27,832
|
|
|
|
76,558
|
|
|
|
43,735
|
|
|
|
68,688
|
|
Terms of the commitments in both years extend up to six months, but are generally less than two months. The fixed rate
loan commitments have interest rates ranging from 2.50% to 18.00%; and maturities ranging from three months to thirty years. Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward
commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Companys practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate
lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated as hedge relationships.
At both December 31, 2012 and 2011, there were $702,000 and $1.1 million of outstanding standby letters of credit, respectively.
These are issued to guarantee the performance of a customer to a third party. Standby letters of credit are generally contingent upon the failure of the customer to perform according to the terms of an underlying contract with the third party.
At December 31, 2012 and 2011, there was $42.3 million and $43.1 million in outstanding commitments to fund the
OverdraftPrivlege Program at Home Savings. With OverdraftPrivlege, Home Savings pays non-sufficient funds checks and fees on checking accounts up to a preapproved limit.
64
The following tables present the balance in the allowance for loan losses and the recorded
investment in loans by portfolio segment and based on impairment method as of December 31, 2012 and December 31, 2011 and activity for the year ended December 31, 2012 and 2011. In accordance with GAAP, the net losses associated with
loans sold as part of the bulk asset sale were recorded as net chargeoffs through the allowance for loan losses.
Allowance For Loan Losses
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
Real Estate
Loans
|
|
|
Construction
Loans
|
|
|
Consumer
Loans
|
|
|
Commercial
Loans
|
|
|
Total
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
31,323
|
|
|
$
|
4,493
|
|
|
$
|
4,576
|
|
|
$
|
1,879
|
|
|
$
|
42,271
|
|
Provision
|
|
|
34,260
|
|
|
|
2,310
|
|
|
|
2,721
|
|
|
|
34
|
|
|
|
39,325
|
|
Chargeoffs
|
|
|
(16,790
|
)
|
|
|
(3,480
|
)
|
|
|
(2,740
|
)
|
|
|
(1,258
|
)
|
|
|
(24,268
|
)
|
Recoveries
|
|
|
770
|
|
|
|
215
|
|
|
|
724
|
|
|
|
251
|
|
|
|
1,960
|
|
Net (chargeoffs) recovery from asset sale
|
|
|
(35,744
|
)
|
|
|
(2,134
|
)
|
|
|
(822
|
)
|
|
|
542
|
|
|
|
(38,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net chargeoffs
|
|
|
(51,764
|
)
|
|
|
(5,399
|
)
|
|
|
(2,838
|
)
|
|
|
(465
|
)
|
|
|
(60,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,819
|
|
|
$
|
1,404
|
|
|
$
|
4,459
|
|
|
$
|
1,448
|
|
|
$
|
21,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end amount allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
2,380
|
|
|
$
|
478
|
|
|
$
|
|
|
|
$
|
166
|
|
|
$
|
3,024
|
|
Loans collectively evaluated for impairment
|
|
|
11,439
|
|
|
|
926
|
|
|
|
4,459
|
|
|
|
1,282
|
|
|
|
18,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,819
|
|
|
$
|
1,404
|
|
|
$
|
4,459
|
|
|
$
|
1,448
|
|
|
$
|
21,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
43,013
|
|
|
$
|
7,547
|
|
|
$
|
8,784
|
|
|
$
|
1,673
|
|
|
$
|
61,017
|
|
Loans collectively evaluated for impairment
|
|
|
769,155
|
|
|
|
25,305
|
|
|
|
205,809
|
|
|
|
24,870
|
|
|
|
1,025,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
812,168
|
|
|
$
|
32,852
|
|
|
$
|
214,593
|
|
|
$
|
26,543
|
|
|
$
|
1,086,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Allowance For Loan Losses
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
Real Estate
Loans
|
|
|
Construction
Loans
|
|
|
Consumer
Loans
|
|
|
Commercial
Loans
|
|
|
Total
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
28,066
|
|
|
$
|
8,533
|
|
|
$
|
5,260
|
|
|
$
|
9,024
|
|
|
$
|
50,883
|
|
Provision
|
|
|
17,073
|
|
|
|
8,126
|
|
|
|
2,171
|
|
|
|
(2,712
|
)
|
|
|
24,658
|
|
Chargeoffs
|
|
|
(14,734
|
)
|
|
|
(12,504
|
)
|
|
|
(3,446
|
)
|
|
|
(5,055
|
)
|
|
|
(35,739
|
)
|
Recoveries
|
|
|
918
|
|
|
|
338
|
|
|
|
591
|
|
|
|
622
|
|
|
|
2,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net chargeoffs
|
|
|
(13,816
|
)
|
|
|
(12,166
|
)
|
|
|
(2,855
|
)
|
|
|
(4,433
|
)
|
|
|
(33,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
31,323
|
|
|
$
|
4,493
|
|
|
$
|
4,576
|
|
|
$
|
1,879
|
|
|
$
|
42,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end amount allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
8,275
|
|
|
$
|
3,102
|
|
|
$
|
236
|
|
|
$
|
210
|
|
|
$
|
11,823
|
|
Loans collectively evaluated for impairment
|
|
|
23,048
|
|
|
|
1,391
|
|
|
|
4,340
|
|
|
|
1,669
|
|
|
|
30,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
31,323
|
|
|
$
|
4,493
|
|
|
$
|
4,576
|
|
|
$
|
1,879
|
|
|
$
|
42,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
115,290
|
|
|
$
|
30,587
|
|
|
$
|
3,734
|
|
|
$
|
3,956
|
|
|
$
|
153,567
|
|
Loans collectively evaluated for impairment
|
|
|
972,496
|
|
|
|
33,280
|
|
|
|
234,663
|
|
|
|
26,190
|
|
|
|
1,266,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,087,786
|
|
|
$
|
63,867
|
|
|
$
|
238,397
|
|
|
$
|
30,146
|
|
|
$
|
1,420,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses was as follows:
|
|
|
|
|
|
|
2010
|
|
Beginning balance
|
|
$
|
42,287
|
|
Provision for loan losses
|
|
|
62,427
|
|
Loans charged-off
|
|
|
(55,079
|
)
|
Recoveries
|
|
|
1,248
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
50,883
|
|
|
|
|
|
|
The unpaid principal balance is the total amount of the loan that is due to Home Savings. The recorded investment includes the unpaid
principal balance less any chargeoffs or partial chargeoffs applied to specific loans. The unpaid principal balance and the recorded investment both exclude accrued interest receivable and deferred loan costs, both of which are immaterial.
66
The following table presents loans individually evaluated for impairment by class of loans as of and for the
year ended December 31, 2012:
Impaired Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
for Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
With no specific allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
18,672
|
|
|
$
|
16,947
|
|
|
$
|
|
|
|
$
|
22,526
|
|
|
$
|
613
|
|
|
$
|
715
|
|
Multifamily residential
|
|
|
1,173
|
|
|
|
1,078
|
|
|
|
|
|
|
|
2,581
|
|
|
|
36
|
|
|
|
63
|
|
Nonresidential
|
|
|
13,240
|
|
|
|
12,638
|
|
|
|
|
|
|
|
19,425
|
|
|
|
21
|
|
|
|
68
|
|
Land
|
|
|
4,577
|
|
|
|
3,804
|
|
|
|
|
|
|
|
4,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
37,662
|
|
|
|
34,467
|
|
|
|
|
|
|
|
49,450
|
|
|
|
670
|
|
|
|
846
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
17,912
|
|
|
|
3,580
|
|
|
|
|
|
|
|
6,051
|
|
|
|
|
|
|
|
14
|
|
Multifamily and nonresidential
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,483
|
|
|
|
3,580
|
|
|
|
|
|
|
|
6,051
|
|
|
|
|
|
|
|
14
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
8,867
|
|
|
|
7,958
|
|
|
|
|
|
|
|
5,571
|
|
|
|
265
|
|
|
|
326
|
|
Auto
|
|
|
68
|
|
|
|
44
|
|
|
|
|
|
|
|
52
|
|
|
|
1
|
|
|
|
6
|
|
Marine
|
|
|
190
|
|
|
|
190
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
13
|
|
Recreational vehicle
|
|
|
887
|
|
|
|
592
|
|
|
|
|
|
|
|
659
|
|
|
|
|
|
|
|
35
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,012
|
|
|
|
8,784
|
|
|
|
|
|
|
|
6,555
|
|
|
|
266
|
|
|
|
380
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
2,122
|
|
|
|
1,212
|
|
|
|
|
|
|
|
1,480
|
|
|
|
|
|
|
|
124
|
|
Unsecured
|
|
|
2,861
|
|
|
|
38
|
|
|
|
|
|
|
|
261
|
|
|
|
2
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,983
|
|
|
|
1,250
|
|
|
|
|
|
|
|
1,741
|
|
|
|
2
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,140
|
|
|
$
|
48,081
|
|
|
$
|
|
|
|
$
|
63,797
|
|
|
$
|
938
|
|
|
$
|
1,375
|
|
67
(Continued)
Impaired Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
for Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
With a specific allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
735
|
|
|
$
|
735
|
|
|
$
|
260
|
|
|
$
|
1,242
|
|
|
$
|
|
|
|
$
|
|
|
Multifamily residential
|
|
|
996
|
|
|
|
981
|
|
|
|
57
|
|
|
|
2,390
|
|
|
|
|
|
|
|
17
|
|
Nonresidential
|
|
|
5,218
|
|
|
|
4,703
|
|
|
|
1,336
|
|
|
|
17,420
|
|
|
|
19
|
|
|
|
57
|
|
Land
|
|
|
3,913
|
|
|
|
2,127
|
|
|
|
727
|
|
|
|
2,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,862
|
|
|
|
8,546
|
|
|
|
2,380
|
|
|
|
23,655
|
|
|
|
19
|
|
|
|
74
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
6,455
|
|
|
|
3,967
|
|
|
|
478
|
|
|
|
9,511
|
|
|
|
|
|
|
|
2
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,455
|
|
|
|
3,967
|
|
|
|
478
|
|
|
|
9,511
|
|
|
|
|
|
|
|
2
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
798
|
|
|
|
423
|
|
|
|
166
|
|
|
|
487
|
|
|
|
|
|
|
|
3
|
|
Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
798
|
|
|
|
423
|
|
|
|
166
|
|
|
|
487
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,115
|
|
|
$
|
12,936
|
|
|
$
|
3,024
|
|
|
$
|
33,680
|
|
|
$
|
19
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
89,255
|
|
|
$
|
61,017
|
|
|
$
|
3,024
|
|
|
$
|
97,477
|
|
|
$
|
957
|
|
|
$
|
1,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
The following table presents loans individually evaluated for impairment by class of loans as of and for the
year ended December 31, 2011:
Impaired Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
for Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
With no specific allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
32,372
|
|
|
$
|
28,566
|
|
|
$
|
|
|
|
$
|
26,016
|
|
|
$
|
557
|
|
|
$
|
868
|
|
Multifamily residential
|
|
|
5,112
|
|
|
|
4,205
|
|
|
|
|
|
|
|
3,798
|
|
|
|
|
|
|
|
218
|
|
Nonresidential
|
|
|
29,120
|
|
|
|
28,327
|
|
|
|
|
|
|
|
26,911
|
|
|
|
391
|
|
|
|
1,006
|
|
Land
|
|
|
9,213
|
|
|
|
7,290
|
|
|
|
|
|
|
|
6,739
|
|
|
|
38
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
75,817
|
|
|
|
68,388
|
|
|
|
|
|
|
|
63,464
|
|
|
|
986
|
|
|
|
2,290
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
19,081
|
|
|
|
12,532
|
|
|
|
|
|
|
|
15,300
|
|
|
|
284
|
|
|
|
441
|
|
Multifamily and nonresidential
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,788
|
|
|
|
12,532
|
|
|
|
|
|
|
|
15,396
|
|
|
|
284
|
|
|
|
441
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
4,908
|
|
|
|
3,139
|
|
|
|
|
|
|
|
1,620
|
|
|
|
61
|
|
|
|
124
|
|
Auto
|
|
|
80
|
|
|
|
59
|
|
|
|
|
|
|
|
68
|
|
|
|
1
|
|
|
|
5
|
|
Marine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicle
|
|
|
26
|
|
|
|
11
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
2
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,021
|
|
|
|
3,216
|
|
|
|
|
|
|
|
1,733
|
|
|
|
62
|
|
|
|
131
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
3,875
|
|
|
|
3,084
|
|
|
|
|
|
|
|
1,627
|
|
|
|
35
|
|
|
|
531
|
|
Unsecured
|
|
|
22,716
|
|
|
|
371
|
|
|
|
|
|
|
|
370
|
|
|
|
7
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
26,591
|
|
|
|
3,455
|
|
|
|
|
|
|
|
1,997
|
|
|
|
42
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
127,217
|
|
|
$
|
87,591
|
|
|
$
|
|
|
|
$
|
82,590
|
|
|
$
|
1,374
|
|
|
$
|
3,521
|
|
69
(Continued)
Impaired Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
for Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
With a specific allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
2,487
|
|
|
$
|
1,721
|
|
|
$
|
152
|
|
|
$
|
2,993
|
|
|
$
|
|
|
|
$
|
35
|
|
Multifamily residential
|
|
|
4,077
|
|
|
|
2,387
|
|
|
|
187
|
|
|
|
3,594
|
|
|
|
10
|
|
|
|
61
|
|
Nonresidential
|
|
|
42,201
|
|
|
|
38,176
|
|
|
|
6,127
|
|
|
|
37,986
|
|
|
|
919
|
|
|
|
1,569
|
|
Land
|
|
|
5,074
|
|
|
|
4,618
|
|
|
|
1,809
|
|
|
|
3,049
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
53,839
|
|
|
|
46,902
|
|
|
|
8,275
|
|
|
|
47,622
|
|
|
|
929
|
|
|
|
1,840
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
35,759
|
|
|
|
18,055
|
|
|
|
3,102
|
|
|
|
24,089
|
|
|
|
47
|
|
|
|
221
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
35,759
|
|
|
|
18,055
|
|
|
|
3,102
|
|
|
|
24,089
|
|
|
|
47
|
|
|
|
221
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
|
|
|
482
|
|
|
|
482
|
|
|
|
218
|
|
|
|
121
|
|
|
|
|
|
|
|
19
|
|
Recreational vehicle
|
|
|
88
|
|
|
|
36
|
|
|
|
18
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
570
|
|
|
|
518
|
|
|
|
236
|
|
|
|
130
|
|
|
|
|
|
|
|
19
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
776
|
|
|
|
427
|
|
|
|
136
|
|
|
|
6,124
|
|
|
|
5
|
|
|
|
10
|
|
Unsecured
|
|
|
105
|
|
|
|
74
|
|
|
|
74
|
|
|
|
1,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
881
|
|
|
|
501
|
|
|
|
210
|
|
|
|
7,368
|
|
|
|
5
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
91,049
|
|
|
|
65,976
|
|
|
|
11,823
|
|
|
|
79,209
|
|
|
|
981
|
|
|
|
2,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
218,266
|
|
|
$
|
153,567
|
|
|
$
|
11,823
|
|
|
$
|
161,799
|
|
|
$
|
2,355
|
|
|
$
|
5,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information for impaired loans as of December 31:
|
|
|
|
|
|
|
2010
|
|
Average of individually impaired loans during the year
|
|
$
|
144,977
|
|
Interest income recognized during impairment
|
|
|
1,778
|
|
Cash-basis interest income recognized
|
|
|
4,570
|
|
70
The following tables present the recorded investment in nonaccrual and loans past due over 90 days and still
on accrual by class of loans as of December 31, 2012:
Nonaccrual Loans and Loans Past Due Over 90 Days and Still
Accruing
As of December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
|
|
|
Loans past due
over 90 days
and still
accruing
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
5,437
|
|
|
$
|
|
|
Multifamily residential
|
|
|
2,027
|
|
|
|
|
|
Nonresidential
|
|
|
17,065
|
|
|
|
3,678
|
|
Land
|
|
|
6,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30,576
|
|
|
|
3,678
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
7,466
|
|
|
|
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
3,298
|
|
|
|
|
|
Auto
|
|
|
105
|
|
|
|
|
|
Marine
|
|
|
176
|
|
|
|
|
|
Recreational vehicle
|
|
|
1,259
|
|
|
|
|
|
Other
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
Secured
|
|
|
1,194
|
|
|
|
|
|
Unsecured
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,109
|
|
|
$
|
3,678
|
|
|
|
|
|
|
|
|
|
|
71
Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing
As of December 31, 2011
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
|
|
|
Loans past due
over 90 days
and still
accruing
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
26,637
|
|
|
$
|
|
|
Multifamily residential
|
|
|
5,860
|
|
|
|
|
|
Nonresidential
|
|
|
42,902
|
|
|
|
|
|
Land
|
|
|
11,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
86,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
27,104
|
|
|
|
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
4,198
|
|
|
|
39
|
|
Auto
|
|
|
170
|
|
|
|
|
|
Marine
|
|
|
479
|
|
|
|
|
|
Recreational vehicle
|
|
|
1,725
|
|
|
|
|
|
Other
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,581
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
Secured
|
|
|
2,483
|
|
|
|
|
|
Unsecured
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
123,056
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
72
The following tables present an age analysis of past-due loans, segregated by class of loans as of
December 31, 2012:
Past Due Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59
Days Past
Due
|
|
|
60-89
Days Past
Due
|
|
|
Greater
than 90
Days Past
Due
|
|
|
Total Past
Due
|
|
|
Current
Loans
|
|
|
Total Loans
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
1,995
|
|
|
$
|
784
|
|
|
$
|
4,495
|
|
|
$
|
7,274
|
|
|
$
|
569,975
|
|
|
$
|
577,249
|
|
Multifamily residential
|
|
|
158
|
|
|
|
|
|
|
|
1,630
|
|
|
|
1,788
|
|
|
|
79,135
|
|
|
|
80,923
|
|
Nonresidential
|
|
|
|
|
|
|
176
|
|
|
|
19,942
|
|
|
|
20,118
|
|
|
|
118,070
|
|
|
|
138,188
|
|
Land
|
|
|
83
|
|
|
|
|
|
|
|
6,044
|
|
|
|
6,127
|
|
|
|
9,681
|
|
|
|
15,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,236
|
|
|
|
960
|
|
|
|
32,111
|
|
|
|
35,307
|
|
|
|
776,861
|
|
|
|
812,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
54
|
|
|
|
|
|
|
|
7,398
|
|
|
|
7,452
|
|
|
|
20,866
|
|
|
|
28,318
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,534
|
|
|
|
4,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54
|
|
|
|
|
|
|
|
7,398
|
|
|
|
7,452
|
|
|
|
25,400
|
|
|
|
32,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
1,135
|
|
|
|
475
|
|
|
|
2,071
|
|
|
|
3,681
|
|
|
|
173,549
|
|
|
|
177,230
|
|
Auto
|
|
|
35
|
|
|
|
7
|
|
|
|
83
|
|
|
|
125
|
|
|
|
7,523
|
|
|
|
7,648
|
|
Marine
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
4,934
|
|
|
|
4,942
|
|
Recreational vehicle
|
|
|
447
|
|
|
|
32
|
|
|
|
353
|
|
|
|
832
|
|
|
|
21,418
|
|
|
|
22,250
|
|
Other
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
4
|
|
|
|
2,519
|
|
|
|
2,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,617
|
|
|
|
515
|
|
|
|
2,518
|
|
|
|
4,650
|
|
|
|
209,943
|
|
|
|
214,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
16
|
|
|
|
|
|
|
|
23
|
|
|
|
39
|
|
|
|
24,204
|
|
|
|
24,243
|
|
Unsecured
|
|
|
|
|
|
|
728
|
|
|
|
6
|
|
|
|
734
|
|
|
|
1,566
|
|
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16
|
|
|
|
728
|
|
|
|
29
|
|
|
|
773
|
|
|
|
25,770
|
|
|
|
26,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,923
|
|
|
$
|
2,203
|
|
|
$
|
42,056
|
|
|
$
|
48,182
|
|
|
$
|
1,037,974
|
|
|
$
|
1,086,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
The following table presents an age analysis of past-due loans, segregated by class of loans as of
December 31, 2011:
Past Due Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59
Days Past
Due
|
|
|
60-89
Days Past
Due
|
|
|
Greater
than 90
Days Past
Due
|
|
|
Total Past
Due
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
2,878
|
|
|
$
|
1,928
|
|
|
$
|
20,124
|
|
|
$
|
24,930
|
|
|
$
|
642,445
|
|
|
$
|
667,375
|
|
Multifamily residential
|
|
|
1,405
|
|
|
|
|
|
|
|
4,564
|
|
|
|
5,969
|
|
|
|
115,022
|
|
|
|
120,991
|
|
Nonresidential
|
|
|
6,820
|
|
|
|
971
|
|
|
|
41,151
|
|
|
|
48,942
|
|
|
|
227,256
|
|
|
|
276,198
|
|
Land
|
|
|
167
|
|
|
|
530
|
|
|
|
9,705
|
|
|
|
10,402
|
|
|
|
12,820
|
|
|
|
23,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,270
|
|
|
|
3,429
|
|
|
|
75,544
|
|
|
|
90,243
|
|
|
|
997,543
|
|
|
|
1,087,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
979
|
|
|
|
1,718
|
|
|
|
24,608
|
|
|
|
27,305
|
|
|
|
32,034
|
|
|
|
59,339
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,528
|
|
|
|
4,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
979
|
|
|
|
1,718
|
|
|
|
24,608
|
|
|
|
27,305
|
|
|
|
36,562
|
|
|
|
63,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
1,485
|
|
|
|
601
|
|
|
|
2,749
|
|
|
|
4,835
|
|
|
|
186,992
|
|
|
|
191,827
|
|
Auto
|
|
|
73
|
|
|
|
13
|
|
|
|
87
|
|
|
|
173
|
|
|
|
8,760
|
|
|
|
8,933
|
|
Marine
|
|
|
184
|
|
|
|
|
|
|
|
479
|
|
|
|
663
|
|
|
|
5,237
|
|
|
|
5,900
|
|
Recreational vehicle
|
|
|
867
|
|
|
|
754
|
|
|
|
1,044
|
|
|
|
2,665
|
|
|
|
25,865
|
|
|
|
28,530
|
|
Other
|
|
|
57
|
|
|
|
1
|
|
|
|
7
|
|
|
|
65
|
|
|
|
3,142
|
|
|
|
3,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,666
|
|
|
|
1,369
|
|
|
|
4,366
|
|
|
|
8,401
|
|
|
|
229,996
|
|
|
|
238,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
554
|
|
|
|
|
|
|
|
96
|
|
|
|
650
|
|
|
|
24,470
|
|
|
|
25,120
|
|
Unsecured
|
|
|
69
|
|
|
|
|
|
|
|
237
|
|
|
|
306
|
|
|
|
4,720
|
|
|
|
5,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
623
|
|
|
|
|
|
|
|
333
|
|
|
|
956
|
|
|
|
29,190
|
|
|
|
30,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,538
|
|
|
$
|
6,516
|
|
|
$
|
104,851
|
|
|
$
|
126,905
|
|
|
$
|
1,293,291
|
|
|
$
|
1,420,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
The following table presents loans by class modified as troubled debt restructurings that occurred during
the year ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Recorded
Investment
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
|
114
|
|
|
$
|
6,618
|
|
|
$
|
5,574
|
|
Multifamily residential
|
|
|
6
|
|
|
|
1,439
|
|
|
|
1,438
|
|
Nonresidential
|
|
|
1
|
|
|
|
424
|
|
|
|
424
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
121
|
|
|
|
8,481
|
|
|
|
7,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
3
|
|
|
|
853
|
|
|
|
830
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
|
853
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
86
|
|
|
|
6,951
|
|
|
|
7,033
|
|
Auto
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
86
|
|
|
|
6,951
|
|
|
|
7,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
1
|
|
|
|
446
|
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
|
446
|
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructured Loans
|
|
|
211
|
|
|
$
|
16,731
|
|
|
$
|
15,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The troubled debt restructurings described above increased the allowance for loan losses by $584,000, and resulted in no chargeoffs
during the twelve months ended December 31, 2012.
75
The following table presents loans by class modified as troubled debt restructurings that occurred during
the year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Recorded
Investment
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
|
55
|
|
|
$
|
7,344
|
|
|
$
|
7,485
|
|
Multifamily residential
|
|
|
2
|
|
|
|
2,246
|
|
|
|
2,246
|
|
Nonresidential
|
|
|
3
|
|
|
|
1,271
|
|
|
|
1,271
|
|
Land
|
|
|
4
|
|
|
|
4,292
|
|
|
|
3,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
64
|
|
|
|
15,153
|
|
|
|
14,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
19
|
|
|
|
4,425
|
|
|
|
3,881
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19
|
|
|
|
4,425
|
|
|
|
3,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
54
|
|
|
|
1,847
|
|
|
|
1,841
|
|
Auto
|
|
|
1
|
|
|
|
21
|
|
|
|
21
|
|
Marine
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
55
|
|
|
|
1,868
|
|
|
|
1,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
3
|
|
|
|
9,104
|
|
|
|
9,098
|
|
Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
|
9,104
|
|
|
|
9,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructured Loans
|
|
|
141
|
|
|
$
|
30,550
|
|
|
$
|
29,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The troubled debt restructurings described above increased the allowance for loan losses by $344,000, and resulted in chargeoffs of
$796,000 during the twelve months ended December 31, 2011.
During the period ended December 31, 2012, the terms of
certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a
stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of a loan were for periods
ranging from six months to 28 years. Modifications involving an extension of the maturity date were for periods ranging from six months to three years.
Restructured loans were $25.4 million and $50.9 million at December 31, 2012 and December 31, 2011, respectively. The Company has allocated $1.0 million of specific reserves to customers whose
loan terms were modified in troubled debt restructurings as of December 31, 2012. The Company had allocated $2.0 million of specific reserves to customers whose loan terms were modified in troubled debt restructurings as of December 31,
2011. Troubled debt restructurings are considered impaired.
76
The following table presents loans by class modified as troubled debt restructurings for which there was a
payment default within twelve months following the modification during the period ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
Recorded Investment
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
|
9
|
|
|
$
|
851
|
|
Multifamily residential
|
|
|
|
|
|
|
|
|
Nonresidential
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
|
|
|
|
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
2
|
|
|
|
77
|
|
Auto
|
|
|
|
|
|
|
|
|
Marine
|
|
|
|
|
|
|
|
|
Recreational vehicle
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
Secured
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructured Loans
|
|
|
11
|
|
|
$
|
928
|
|
|
|
|
|
|
|
|
|
|
A troubled debt restructuring is considered to be in payment default once it is 30 days contractually past due under the modified
terms.
The troubled debt restructurings that subsequently defaulted described above resulted in no chargeoffs during the twelve months ended
December 31, 2012, and had no effect on the provision for loan losses.
The terms of certain other loans were modified during the period
ended December 31, 2012, but they did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of December 31, 2012 of $41.3 million. The modification of these loans involved either a
modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be significant.
In order to determine whether a borrower is experiencing financial difficulty an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the
foreseeable future without the modification. This evaluation is performed in accordance with the Companys internal underwriting policy.
77
The following table presents loans by class modified as troubled debt restructurings for which there was a
payment default within twelve months following the modification during the period ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
Recorded Investment
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
|
44
|
|
|
$
|
4,893
|
|
Multifamily residential
|
|
|
3
|
|
|
|
3,273
|
|
Nonresidential
|
|
|
5
|
|
|
|
7,278
|
|
Land
|
|
|
5
|
|
|
|
1,773
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
57
|
|
|
|
17,217
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
7
|
|
|
|
799
|
|
Multifamily and nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7
|
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
1
|
|
|
|
94
|
|
Auto
|
|
|
1
|
|
|
|
4
|
|
Marine
|
|
|
|
|
|
|
|
|
Recreational vehicle
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
Secured
|
|
|
2
|
|
|
|
2,682
|
|
Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
|
2,682
|
|
|
|
|
|
|
|
|
|
|
Total Restructured Loans
|
|
|
68
|
|
|
$
|
20,796
|
|
|
|
|
|
|
|
|
|
|
The troubled debt restructurings that subsequently defaulted described above resulted in $2.2 million during the year ended
December 31, 2011, and had no effect on the provision for loan losses.
The terms of certain other loans were modified during the period
ended December 31, 2011, but they did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of December 31, 2011 of $16.4 million. The modification of these loans involved either a
modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be significant.
78
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience,
credit documentation, public information and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes homogeneous loans past due 90 cumulative days, and
all non-homogeneous loans including commercial loans and commercial real estate loans. Smaller balance homogeneous loans are primarily monitored by payment status.
Asset quality ratings are divided into two groups: Pass (unclassified) and Classified. Within the unclassified group, loans that display potential weakness are risk rated as special mention. In addition,
there are three classified risk ratings: substandard, doubtful and loss. These specific credit risk categories are defined as follows:
Special Mention.
Loans classified as special mention have potential weakness that deserves managements close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or of the institutions credit position at some future date. Loans may be housed in this category for no longer than 12 months during which time information is obtained to determine if the
credit should be downgraded to the substandard category.
Substandard.
Loans classified as substandard are inadequately
protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the
distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful.
Loans
classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values,
highly questionable and improbable.
Loss.
Loans classified as loss are considered uncollectible and of such little
value, that continuance as assets is not warranted. Although there may be a chance of recovery on these assets, it is not practical or desirable to defer writing off the asset.
The Company monitors loans on a monthly basis to determine if they should be included in one of the categories listed above. All impaired non-homogeneous credits classified as Substandard, Doubtful or
Loss are analyzed on an individual basis for a specific reserve requirement. This analysis is performed on each individual credit at least annually or more frequently if warranted.
79
As of December 31, 2012 and December 31, 2011, and based on the most recent
analysis performed, the risk category of loans by class of loans is as follows:
Loans
December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unclassified
|
|
|
Classified
|
|
|
|
|
|
|
Unclassified
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
Classified
|
|
|
Total Loans
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
569,204
|
|
|
$
|
459
|
|
|
$
|
7,586
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,586
|
|
|
$
|
577,249
|
|
Multifamily Residential
|
|
|
69,060
|
|
|
|
8,409
|
|
|
|
3,454
|
|
|
|
|
|
|
|
|
|
|
|
3,454
|
|
|
|
80,923
|
|
Nonresidential
|
|
|
99,275
|
|
|
|
12,234
|
|
|
|
26,679
|
|
|
|
|
|
|
|
|
|
|
|
26,679
|
|
|
|
138,188
|
|
Land
|
|
|
9,596
|
|
|
|
280
|
|
|
|
5,932
|
|
|
|
|
|
|
|
|
|
|
|
5,932
|
|
|
|
15,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
747,135
|
|
|
|
21,382
|
|
|
|
43,651
|
|
|
|
|
|
|
|
|
|
|
|
43,651
|
|
|
|
812,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family Residential
|
|
|
20,577
|
|
|
|
196
|
|
|
|
7,545
|
|
|
|
|
|
|
|
|
|
|
|
7,545
|
|
|
|
28,318
|
|
Multifamily and Nonresidential
|
|
|
4,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,111
|
|
|
|
196
|
|
|
|
7,545
|
|
|
|
|
|
|
|
|
|
|
|
7,545
|
|
|
|
32,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
173,696
|
|
|
|
82
|
|
|
|
3,534
|
|
|
|
|
|
|
|
|
|
|
|
3,534
|
|
|
|
177,230
|
|
Auto
|
|
|
7,453
|
|
|
|
7
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
7,648
|
|
Marine
|
|
|
4,745
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
|
|
4,942
|
|
Recreational vehicle
|
|
|
20,859
|
|
|
|
|
|
|
|
1,391
|
|
|
|
|
|
|
|
|
|
|
|
1,391
|
|
|
|
22,250
|
|
Other
|
|
|
2,507
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
2,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
209,260
|
|
|
|
89
|
|
|
|
5,244
|
|
|
|
|
|
|
|
|
|
|
|
5,244
|
|
|
|
214,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
20,843
|
|
|
|
769
|
|
|
|
2,631
|
|
|
|
|
|
|
|
|
|
|
|
2,631
|
|
|
|
24,243
|
|
Unsecured
|
|
|
1,481
|
|
|
|
11
|
|
|
|
808
|
|
|
|
|
|
|
|
|
|
|
|
808
|
|
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22,324
|
|
|
|
780
|
|
|
|
3,439
|
|
|
|
|
|
|
|
|
|
|
|
3,439
|
|
|
|
26,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,003,830
|
|
|
$
|
22,447
|
|
|
$
|
59,879
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,879
|
|
|
$
|
1,086,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
Loans
December 31, 2011
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unclassified
|
|
|
Classified
|
|
|
|
|
|
|
Unclassified
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
Classified
|
|
|
Total Loans
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
626,072
|
|
|
$
|
4,094
|
|
|
$
|
37,209
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,209
|
|
|
$
|
667,375
|
|
Multifamily residential
|
|
|
90,820
|
|
|
|
8,392
|
|
|
|
21,779
|
|
|
|
|
|
|
|
|
|
|
|
21,779
|
|
|
|
120,991
|
|
Nonresidential
|
|
|
149,314
|
|
|
|
18,388
|
|
|
|
108,496
|
|
|
|
|
|
|
|
|
|
|
|
108,496
|
|
|
|
276,198
|
|
Land
|
|
|
10,475
|
|
|
|
1,200
|
|
|
|
11,547
|
|
|
|
|
|
|
|
|
|
|
|
11,547
|
|
|
|
23,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
876,681
|
|
|
|
32,074
|
|
|
|
179,031
|
|
|
|
|
|
|
|
|
|
|
|
179,031
|
|
|
|
1,087,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
28,396
|
|
|
|
2,394
|
|
|
|
28,520
|
|
|
|
29
|
|
|
|
|
|
|
|
28,549
|
|
|
|
59,339
|
|
Multifamily and nonresidential
|
|
|
4,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
32,924
|
|
|
|
2,394
|
|
|
|
28,520
|
|
|
|
29
|
|
|
|
|
|
|
|
28,549
|
|
|
|
63,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
187,153
|
|
|
|
269
|
|
|
|
4,405
|
|
|
|
|
|
|
|
|
|
|
|
4,405
|
|
|
|
191,827
|
|
Auto
|
|
|
8,738
|
|
|
|
12
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
8,933
|
|
Marine
|
|
|
5,418
|
|
|
|
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
482
|
|
|
|
5,900
|
|
Recreational vehicle
|
|
|
26,728
|
|
|
|
|
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
1,802
|
|
|
|
28,530
|
|
Other
|
|
|
3,192
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
3,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
231,229
|
|
|
|
281
|
|
|
|
6,887
|
|
|
|
|
|
|
|
|
|
|
|
6,887
|
|
|
|
238,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
20,895
|
|
|
|
263
|
|
|
|
3,962
|
|
|
|
|
|
|
|
|
|
|
|
3,962
|
|
|
|
25,120
|
|
Unsecured
|
|
|
2,861
|
|
|
|
166
|
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
1,999
|
|
|
|
5,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23,756
|
|
|
|
429
|
|
|
|
5,961
|
|
|
|
|
|
|
|
|
|
|
|
5,961
|
|
|
|
30,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,164,590
|
|
|
$
|
35,178
|
|
|
$
|
220,399
|
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
220,428
|
|
|
$
|
1,420,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and officers of United Community and Home Savings are customers of Home Savings in the ordinary course of
business. The following describes loans to officers and/or directors of United Community and Home Savings:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Balance as of December 31, 2011
|
|
$
|
926
|
|
New loans to officers and/or directors
|
|
|
492
|
|
Loan payments during 2012
|
|
|
(31
|
)
|
Reductions due to changes in officers and/or directors
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
$
|
1,387
|
|
|
|
|
|
|
81
6. MORTGAGE BANKING ACTIVITIES
Mortgage loans serviced for others, which are not reported in United Communitys assets, totaled $1.1 billion at
December 31, 2012 and 2011. Mortgage banking income is comprised of gains recognized on the sale of loans and changes in the fair value of mortgage banking derivatives.
Mortgage loans serviced for others are not reported as assets. The principal balance of these loans at year end are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Mortgage loan portfolios serviced for:
|
|
|
|
|
|
|
|
|
FHLMC
|
|
$
|
817,108
|
|
|
$
|
770,131
|
|
FNMA
|
|
|
316,142
|
|
|
|
361,535
|
|
Escrow balances are maintained at the FHLB in connection with serviced loans totaling $1.7 million and $2.1 million at
year-end 2012 and 2011.
Activity for capitalized mortgage servicing rights, included in other assets, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Balance, beginning of year
|
|
$
|
6,375
|
|
|
$
|
6,400
|
|
|
$
|
6,228
|
|
Originations
|
|
|
2,395
|
|
|
|
2,204
|
|
|
|
2,621
|
|
Amortized to expense
|
|
|
(2,584
|
)
|
|
|
(2,229
|
)
|
|
|
(2,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
6,186
|
|
|
|
6,375
|
|
|
|
6,400
|
|
Less valuation allowance
|
|
|
(680
|
)
|
|
|
(1,785
|
)
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance
|
|
$
|
5,506
|
|
|
$
|
4,590
|
|
|
$
|
6,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of mortgage servicing rights was $6.8 million, $5.6 million and $8.2 million at December 31, 2012,
2011, and 2010, respectively.
Activity in the valuation allowance for mortgage servicing rights was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Balance, beginning of year
|
|
$
|
(1,785
|
)
|
|
$
|
(285
|
)
|
|
$
|
(423
|
)
|
Impairment charges
|
|
|
(1,179
|
)
|
|
|
(1,727
|
)
|
|
|
(1,279
|
)
|
Recoveries
|
|
|
2,284
|
|
|
|
227
|
|
|
|
1,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
(680
|
)
|
|
$
|
(1,785
|
)
|
|
$
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key economic assumptions used in measuring the value of mortgage servicing rights at December 31, 2012 and 2011
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Weighted average prepayment rate
|
|
|
401 PSA
|
|
|
|
475 PSA
|
|
Weighted average life (in years)
|
|
|
3.93
|
|
|
|
3.70
|
|
Weighted average discount rate
|
|
|
8
|
%
|
|
|
8
|
%
|
Estimated amortization expense for each of the next five years is as follows:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2013
|
|
$
|
1,352
|
|
2014
|
|
|
1,252
|
|
2015
|
|
|
1,157
|
|
2016
|
|
|
1,107
|
|
2017
|
|
|
776
|
|
82
At year-end 2012, the Company had approximately $57.5 million of interest rate lock
commitments and $13.2 million of forward commitments for the future delivery of residential mortgage loans. At year-end 2011, the Company had approximately $39.5 million of interest rate lock commitments and $6.9 million of forward commitments for
the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was not material at year end 2012 or 2011.
Amounts held in custodial accounts for investors amounted to $18.1 million and $16.4 million at December 31, 2012 and 2011, respectively.
7. OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
Real estate owned and other repossessed assets at December 31, 2012 and 2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
Real estate owned and other repossessed assets
|
|
$
|
25,236
|
|
|
$
|
42,250
|
|
Valuation allowance
|
|
|
(6,796
|
)
|
|
|
(8,764
|
)
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
18,440
|
|
|
$
|
33,486
|
|
|
|
|
|
|
|
|
|
|
Activity in the valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Beginning of year
|
|
$
|
8,764
|
|
|
$
|
7,332
|
|
|
$
|
7,867
|
|
Additions charged to expense
|
|
|
2,248
|
|
|
|
4,684
|
|
|
|
4,572
|
|
Direct write-downs
|
|
|
(4,216
|
)
|
|
|
(3,252
|
)
|
|
|
(5,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
6,796
|
|
|
$
|
8,764
|
|
|
$
|
7,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses related to foreclosed and repossessed assets include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Net loss on sales
|
|
$
|
1,943
|
|
|
$
|
1,481
|
|
|
$
|
1,551
|
|
Provision for unrealized losses
|
|
|
2,248
|
|
|
|
4,684
|
|
|
|
4,572
|
|
Operating expenses, net of rental income
|
|
|
1,743
|
|
|
|
2,891
|
|
|
|
4,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
5,934
|
|
|
$
|
9,056
|
|
|
$
|
11,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
Land
|
|
$
|
7,054
|
|
|
$
|
6,763
|
|
Buildings
|
|
|
23,020
|
|
|
|
21,291
|
|
Leasehold improvements
|
|
|
1,114
|
|
|
|
746
|
|
Furniture and equipment
|
|
|
20,994
|
|
|
|
19,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,182
|
|
|
|
48,320
|
|
Less: Accumulated depreciation and amortization
|
|
|
30,633
|
|
|
|
29,145
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,549
|
|
|
$
|
19,175
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1.6 million for 2012, $1.7 million for 2011 and $2.0 million for 2010.
83
Rent expense was $779,000 for 2012, $719,000 for 2011 and $710,000 for 2010. Rent
commitments under noncancelable operating leases for offices were as follows, before considering renewal options that generally are present:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2013
|
|
$
|
484
|
|
2014
|
|
|
401
|
|
2015
|
|
|
310
|
|
2016
|
|
|
192
|
|
2017
|
|
|
161
|
|
Thereafter
|
|
|
1,587
|
|
|
|
|
|
|
Total
|
|
$
|
3,135
|
|
|
|
|
|
|
9. GOODWILL AND INTANGIBLE ASSETS
Goodwill
United Community had no goodwill recorded at December 31, 2012, 2011 or 2010.
Acquired
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
|
(Dollars in thousands)
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
$
|
8,952
|
|
|
$
|
8,714
|
|
|
$
|
8,952
|
|
|
$
|
8,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,952
|
|
|
$
|
8,714
|
|
|
$
|
8,952
|
|
|
$
|
8,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for the years ended December 31, 2012, 2011 and 2010, was $108,000; $139,000; and
$176,000, respectively.
10. DEPOSITS
Deposits consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
Checking accounts:
|
|
|
|
|
|
|
|
|
Interest bearing
|
|
$
|
132,947
|
|
|
$
|
119,298
|
|
Non-interest bearing
|
|
|
159,767
|
|
|
|
148,049
|
|
Savings accounts
|
|
|
264,411
|
|
|
|
234,828
|
|
Money market accounts
|
|
|
345,651
|
|
|
|
314,907
|
|
Certificates of deposit
|
|
|
559,298
|
|
|
|
771,415
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,462,074
|
|
|
$
|
1,588,497
|
|
|
|
|
|
|
|
|
|
|
84
Interest expense on deposits is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Interest bearing demand deposits and money market accounts
|
|
$
|
1,565
|
|
|
$
|
2,231
|
|
|
$
|
3,176
|
|
Savings accounts
|
|
|
332
|
|
|
|
501
|
|
|
|
792
|
|
Certificates of deposit
|
|
|
9,999
|
|
|
|
21,609
|
|
|
|
28,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,896
|
|
|
$
|
24,341
|
|
|
$
|
32,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of certificates of deposit by maturity follows:
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
(Dollars in thousands)
|
|
Within 12 months
|
|
$
|
214,733
|
|
12 months to 24 months
|
|
|
124,744
|
|
Over 24 months to 36 months
|
|
|
56,369
|
|
Over 36 months to 48 months
|
|
|
57,003
|
|
Over 48 months
|
|
|
106,449
|
|
|
|
|
|
|
Total
|
|
$
|
559,298
|
|
|
|
|
|
|
A summary of certificates of deposit with balances of $100,000 or more by maturity is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
|
|
(Dollars in thousands)
|
|
Three months or less
|
|
$
|
14,274
|
|
|
$
|
60,750
|
|
Over three months to six months
|
|
|
6,120
|
|
|
|
18,955
|
|
Over six months to twelve months
|
|
|
21,759
|
|
|
|
47,895
|
|
Over twelve months
|
|
|
102,552
|
|
|
|
62,301
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
144,705
|
|
|
$
|
189,901
|
|
|
|
|
|
|
|
|
|
|
A summary of certificates of deposit with balances of $250,000 or more by maturity is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
|
|
(Dollars in thousands)
|
|
Three months or less
|
|
$
|
1,379
|
|
|
$
|
3,440
|
|
Over three months to six months
|
|
|
|
|
|
|
309
|
|
Over six months to twelve months
|
|
|
2,744
|
|
|
|
1,776
|
|
Over twelve months
|
|
|
10,769
|
|
|
|
7,872
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,892
|
|
|
$
|
13,397
|
|
|
|
|
|
|
|
|
|
|
All funds on deposit at Home Savings that are in noninterest-bearing transaction accounts were insured in full by the
FDIC through December 31, 2012. This temporary unlimited coverage was in addition to, and separate from, the coverage of at least $250,000 available to depositors under the FDICs general deposit insurance rules. Brokered deposits
represent funds that Home Savings obtained, directly or indirectly, through a deposit broker. A deposit broker places deposits from third parties with insured depository institutions or places deposits with an institution for the purpose of selling
interest in those deposits to third parties. Home Savings had no brokered deposits at December 31, 2012 and 2011.
85
11. FEDERAL HOME LOAN BANK ADVANCES
The following is a summary of FHLB advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
Year of maturity
|
|
Amount
|
|
|
Weighted
average rate
|
|
|
Amount
|
|
|
Weighted
average rate
|
|
2012
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
51,269
|
|
|
|
0.26
|
%
|
2013
|
|
$
|
|
|
|
|
|
%
|
|
|
21,443
|
|
|
|
2.39
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
3.70
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
5,084
|
|
|
|
2.62
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
3.70
|
|
2017
|
|
|
50,000
|
|
|
|
4.20
|
|
|
|
50,052
|
|
|
|
4.20
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
3.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Federal Home Loan Bank advances
|
|
$
|
50,000
|
|
|
|
4.20
|
%
|
|
$
|
128,155
|
|
|
|
2.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Savings has available credit, subject to collateral requirements, with the FHLB of approximately $226.7 million,
of which $50.0 million in term advances was outstanding. At December 31, 2012, Home Savings would have incurred a prepayment penalty of $7.1 million if it had chosen to prepay such remaining term advances with the FHLB. All advances must be
secured by eligible collateral as specified by the FHLB. Accordingly, Home Savings has a blanket pledge of its one-to four-family mortgages as collateral for the advances outstanding at December 31, 2012. The required minimum ratio of
collateral to advances is 142% for one-to four-family loans. Additional changes in value can be applied to one-to four-family mortgage collateral based upon characteristics such as loan-to-value ratios and FICO scores.
12. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER BORROWINGS
The following is a summary of securities sold under an agreement to repurchase and other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
|
|
Amount
|
|
|
Weighted
average rate
|
|
|
Amount
|
|
|
Weighted
average rate
|
|
Securities sold under agreement to repurchase-term
|
|
$
|
90,000
|
|
|
|
4.01
|
%
|
|
$
|
90,000
|
|
|
|
4.01
|
%
|
Other borrowings
|
|
|
598
|
|
|
|
4.00
|
%
|
|
|
618
|
|
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchase agreements and other
|
|
$
|
90,598
|
|
|
|
4.01
|
%
|
|
$
|
90,618
|
|
|
|
4.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Average daily balance during the year
|
|
$
|
90,608
|
|
|
$
|
94,477
|
|
|
$
|
97,717
|
|
Average interest rate during the year
|
|
|
4.01
|
%
|
|
|
3.90
|
%
|
|
|
3.55
|
%
|
Maximum month end balance during the year
|
|
$
|
90,616
|
|
|
$
|
100,446
|
|
|
$
|
98,815
|
|
Weighted average interest rate at year end
|
|
|
4.01
|
%
|
|
|
4.01
|
%
|
|
|
3.79
|
%
|
The repurchase agreements are in three tranches of $30.0 million each which mature on January 26,
2016, September 26, 2016 and February 20, 2017. There are prepayment penalties on these repurchase agreements of $3.1 million, $4.1 million and $4.2 million, respectively
86
Securities sold under agreements to repurchase are secured primarily by mortgage-backed
securities with a fair value of approximately $125.5 million at December 31, 2012 and $115.4 million at December 31, 2011. Securities sold under agreements to repurchase are typically held by the brokerage firm in a wholesale transaction
and by an independent third party when they are for retail customers. At maturity, the securities underlying the agreements are returned to United Community. Other borrowings consist of a match-funding advance related to a commercial participation
loan aggregating $598,000 at December 31, 2012. At December 31, 2011, other borrowings consisted of the aforementioned match-funding advance of $618,000.
The Holding Company Order requires United Community to obtain regulatory approval at the holding company level prior to incurring debt. As of December 31, 2012, United Community had no debt
outstanding. United Community does not intend to seek approval to borrow additional funds in the near term.
13. LOSS CONTINGENCIES
United Community and Home Savings are parties to litigation arising in the normal course of business. While it is
difficult to determine the ultimate resolution of these matters, management believes any resulting liability would not have a material effect upon United Communitys financial statements.
14. INCOME TAXES
The income tax benefit consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Current
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3,881
|
)
|
Deferred
|
|
|
(7,522
|
)
|
|
|
(148
|
)
|
|
|
(10,652
|
)
|
Establish valuation allowance
|
|
|
6,634
|
|
|
|
148
|
|
|
|
14,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(888
|
)
|
|
$
|
|
|
|
$
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rates differ from the statutory federal income tax rate of 35% due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
Dollars
|
|
|
Rate
|
|
|
Dollars
|
|
|
Rate
|
|
|
Dollars
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
Tax (benefit) at statutory rate
|
|
$
|
(7,464
|
)
|
|
|
35.0
|
%
|
|
$
|
81
|
|
|
|
35.0
|
%
|
|
$
|
(13,126
|
)
|
|
|
35.0
|
%
|
Increase (decrease) due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt income
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
-0.4
|
|
|
|
(3
|
)
|
|
|
|
|
Life insurance
|
|
|
(575
|
)
|
|
|
2.7
|
|
|
|
(367
|
)
|
|
|
-159.5
|
|
|
|
(377
|
)
|
|
|
1.0
|
|
Other
|
|
|
517
|
|
|
|
-2.4
|
|
|
|
139
|
|
|
|
60.5
|
|
|
|
(1,027
|
)
|
|
|
2.7
|
|
Valuation allowance
|
|
|
6,634
|
|
|
|
-31.1
|
|
|
|
148
|
|
|
|
64.4
|
|
|
|
14,302
|
|
|
|
(38.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
(888
|
)
|
|
|
4.2
|
%
|
|
$
|
|
|
|
|
0.0
|
%
|
|
$
|
(231
|
)
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
Significant components of the deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Loan loss reserves
|
|
$
|
7,396
|
|
|
$
|
14,795
|
|
Postretirement benefits
|
|
|
1,254
|
|
|
|
1,292
|
|
Other real estate owned valuation
|
|
|
2,379
|
|
|
|
3,067
|
|
Tax credits carryforward
|
|
|
224
|
|
|
|
224
|
|
Securities impairment charges
|
|
|
153
|
|
|
|
244
|
|
Interest on nonaccrual loans
|
|
|
1,632
|
|
|
|
2,408
|
|
Net operating loss carryforward
|
|
|
27,701
|
|
|
|
10,879
|
|
Purchase accounting adjustment
|
|
|
51
|
|
|
|
25
|
|
Other
|
|
|
870
|
|
|
|
468
|
|
Less: Valuation allowance
|
|
|
(28,838
|
)
|
|
|
(22,204
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
12,822
|
|
|
|
11,198
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred loan fees
|
|
|
442
|
|
|
|
500
|
|
Federal Home Loan Bank stock dividends
|
|
|
6,715
|
|
|
|
6,715
|
|
Mortgage servicing rights
|
|
|
1,927
|
|
|
|
1,606
|
|
Unrealized gain on securities available for sale
|
|
|
2,819
|
|
|
|
1,938
|
|
Postretirement benefits accrual
|
|
|
605
|
|
|
|
121
|
|
Prepaid expenses
|
|
|
314
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
12,822
|
|
|
|
11,198
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012, the deferred tax asset was $28.8 million. Management recorded a valuation allowance
against deferred tax assets at December 31, 2012, 2011 and 2010 based primarily on its cumulative pre-tax losses during the past three years. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and
therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income and projected future reversals of
deferred tax items. Based on these criteria, the Company determined that it was necessary to establish a full valuation allowance against the entire net deferred tax asset.
In 2012, United Community generated a taxable loss of $48.1 million mainly due to the bulk asset sale. As of December 31, 2011, the Company had a net operating loss carryforward of $31.0 million. The
remaining net operating loss of $79.1 million will be carried forward to use against future tarable income. The net operating loss carryforwards begin to expire in the year ending December 31, 2030. In addition, United Community is carrying forward
$224,000 of alternative minimum tax credits. The alternative minimum tax credits are carried forward indefinitely.
Retained
earnings at December 31, 2012 included approximately $21.1 million for which no provision for federal income taxes has been made. This amount represents the tax bad debt reserve at December 31, 1987, which is the end of United
Communitys base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, the amount used will be added to future
taxable income. The unrecorded deferred tax liability on the above amount at December 31, 2012 was approximately $7.3 million. At December 31, 2012, Home Savings has a $10.7 million deficit in tax earnings and profits. As long as Home Savings
remains in a negative tax earnings and profits position, any distribution from Home Savings to United Community, including an distributions made by Home Savings in direct redemption of stock from United Community, will result in recapture of
proportionate amounts of these bad debt reserves and, as a result, recording of the related tax liability.
As of
December 31, 2012 and December 31, 2011, United Community had no unrecognized tax benefits or accrued interest and penalties recorded. United Community does not expect the total amount of unrecognized tax benefits to significantly increase
within the next twelve months. United Community will record interest and penalties as a component of income tax expense.
United Community and Home Savings are subject to U.S. federal income tax, and United Community is subject to Ohio income tax. Home
Savings is subject to tax in Ohio based upon its net worth. United Community and Home Savings also file state income tax returns in Pennsylvania, Indiana and Florida. United Community is no longer subject to examination by taxing authorities for
years prior to 2009.
88
15. SHAREHOLDERS EQUITY
Dividends
United Communitys source of funds for dividends to its shareholders is earnings on its investments and dividends from Home Savings. During the year ended December 31, 2012, United Community
paid no cash or stock dividends. While Home Savings primary regulator is the FDIC, the FRB has regulations that impose certain restrictions on payments of dividends to United Community as of December 31, 2012.
Home Savings must file an application with, and obtain approval from, the FRB if (i) the proposed distribution would cause total distributions for
the calendar year to exceed net income for that year-to-date plus retained net income (as defined) for the preceding two years; (ii) Home Savings would not be at least adequately capitalized following the capital distribution; or (iii) the
proposed distribution would violate a prohibition contained in any applicable statute, regulation or agreement between Home Savings and the FRB or the FDIC, or any condition imposed on Home Savings in an FRB-approved application or notice. If Home
Savings is not required to file an application, it must file a notice of the proposed capital distribution with the FRB. As of December 31, 2012, Home Savings had no retained earnings that could be distributed. Home Savings paid no dividends to
United Community during 2012. Under the Bank Order, Home Savings was not permitted to pay cash dividends to United Community without obtaining prior regulatory approval, and this prohibition continues under the MOU. Under the Holding Company Order,
United Community is not permitted to pay cash dividends to its shareholders without obtaining prior regulatory approval.
Other
Comprehensive Income
Other comprehensive income included in the consolidated statements of shareholders equity
consists of unrealized gains and losses on available for sale securities and changes in unrealized gains and losses on the postretirement liability. The change includes reclassification of gains or (losses) and impairment charges on sales of
securities of $6.3 million, $8.5 million and $8.7 million for the years ended December 31, 2012, 2011 and 2010.
Other
comprehensive income (loss) components and related tax effects are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Unrealized holding gain (loss) on securities available for sale
|
|
$
|
8,827
|
|
|
$
|
19,044
|
|
|
$
|
527
|
|
Reclassification adjustment for gains realized in income
|
|
|
(6,325
|
)
|
|
|
(8,633
|
)
|
|
|
(8,803
|
)
|
Reclassification adjustment for prior OTTI charges
|
|
|
13
|
|
|
|
89
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
|
2,515
|
|
|
|
10,500
|
|
|
|
(8,218
|
)
|
Tax effect (35%)
|
|
|
(880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net-of-tax amount
|
|
|
1,635
|
|
|
|
10,500
|
|
|
|
(8,218
|
)
|
Net loss (gain) on employee pension plan
|
|
|
(170
|
)
|
|
|
(79
|
)
|
|
|
(671
|
)
|
Prior service cost (credit)
|
|
|
193
|
|
|
|
(689
|
)
|
|
|
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
78
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
(690
|
)
|
|
|
(670
|
)
|
Tax effect
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax amount
|
|
|
15
|
|
|
|
(690
|
)
|
|
|
(670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,650
|
|
|
$
|
9,810
|
|
|
$
|
(8,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
The following is a summary of accumulated other comprehensive income (loss) balances, net of
tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2011
|
|
|
Current
Period
Change
|
|
|
Balance at
December 31,
2012
|
|
|
|
(Dollars in thousands)
|
|
Unrealized gains on securities available for sale
|
|
$
|
3,447
|
|
|
$
|
1,635
|
|
|
$
|
5,082
|
|
Unrealized gains on postretirement benefits
|
|
|
1,585
|
|
|
|
15
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,032
|
|
|
$
|
1,650
|
|
|
$
|
6,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation Account
At the time of the Conversion, Home Savings established a liquidation account, totaling $141.4 million, which was equal to its regulatory capital as of the latest practicable date prior to the Conversion.
In the event of a complete liquidation, each eligible depositor will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for the accounts then held.
16. REGULATORY CAPITAL REQUIREMENTS
Home Savings is subject to various regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on Home Savings and United Community. The regulations
require Home Savings to meet specific capital adequacy guidelines and the regulatory framework for prompt corrective action that involve quantitative measures of Home Savings assets, liabilities, and certain off balance sheet items as
calculated under regulatory accounting practices. Home Savings capital classification also is subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation for capital adequacy require Home Savings to maintain minimum amounts and ratios of Tier
1 (or Core) capital (as defined in the regulations) to average total assets (as defined) and of total risk-based capital (as defined) to risk-weighted assets (as defined). Actual and statutory required capital amounts and ratios for Home Savings are
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
Actual
|
|
|
Minimum Capital
Requirements Per Bank Order
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
Total risk-based capital to risk-weighted assets
|
|
$
|
174,139
|
|
|
|
16.21
|
%
|
|
$
|
128,948
|
|
|
|
12.00
|
%
|
Tier 1 capital to risk-weighted assets
|
|
|
160,612
|
|
|
|
14.95
|
%
|
|
|
*
|
|
|
|
*
|
|
Tier 1 capital to average total assets**
|
|
|
160,612
|
|
|
|
8.70
|
%
|
|
|
166,226
|
|
|
|
9.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
Minimum Capital
Requirements Per Regulation
|
|
|
To Be Well Capitalized Under
Prompt Corrective
Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
Total risk-based capital to risk-weighted assets
|
|
$
|
85,965
|
|
|
|
8.00
|
%
|
|
$
|
107,457
|
|
|
|
10.00
|
%
|
Tier 1 capital to risk-weighted assets*
|
|
|
*
|
|
|
|
*
|
|
|
|
64,474
|
|
|
|
6.00
|
%
|
Tier 1 capital to average total assets**
|
|
|
73,878
|
|
|
|
4.00
|
%
|
|
|
92,348
|
|
|
|
5.00
|
%
|
*
|
Ratio is not required under regulations
|
**
|
Tier 1 Leverage Capital Ratio
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
|
|
Actual
|
|
|
Minimum Capital
Requirements Per Bank Order
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
Total risk-based capital to risk-weighted assets
|
|
$
|
196,710
|
|
|
|
14.57
|
%
|
|
$
|
162,005
|
|
|
|
12.00
|
%
|
Tier 1 capital to risk-weighted assets
|
|
|
179,521
|
|
|
|
13.30
|
%
|
|
|
*
|
|
|
|
*
|
|
Tier 1 capital to average total assets**
|
|
|
179,521
|
|
|
|
8.61
|
%
|
|
|
166,856
|
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
|
|
Minimum Capital
Requirements Per Regulation
|
|
|
To Be Well Capitalized Under
Prompt Corrective
Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
Total risk-based capital to risk-weighted assets
|
|
$
|
108,003
|
|
|
|
8.00
|
%
|
|
$
|
135,004
|
|
|
|
10.00
|
%
|
Tier 1 capital to risk-weighted assets*
|
|
|
*
|
|
|
|
*
|
|
|
|
81,002
|
|
|
|
6.00
|
%
|
Tier 1 capital to average total assets**
|
|
|
83,428
|
|
|
|
4.00
|
%
|
|
|
104,285
|
|
|
|
5.00
|
%
|
*
|
Ratio is not required under regulations.
|
**
|
Tier 1 Leverage Capital Ratio
|
As of December 31, 2012 and 2011, the FDIC categorized Home Savings as adequately capitalized pursuant to the Bank
Order and the Consent Order respectively. However, because the Consent Order was terminated on January 31, 2013, Home Savings is now considered well capitalized.
Pursuant to the Consent Order issued by the FDIC and Ohio Division, Home Savings needed to maintain a Tier 1 Leverage Capital Ratio greater than 9.0% and a Total Risk Based Capital Ratio greater than
12.0% at the end of every quarter beginning with the quarter ending June 30, 2012. While the Consent Order was in effect, if either ratio had fallen below its limit at the end of any given quarter, then Home Savings would have had to have
restored its capital ratios to required levels within 90 days.
The Banks Tier 1 Leverage Capital Ratio is 8.70% at
December 31, 2012. While Home Savings was still operating under a Consent Order at December 31, 2012 requiring a minimum Tier 1 Leverage Capital Ratio of 9.0%, the Company worked closely with its regulators to keep them informed of the
bulk sale transaction and obtained their concurrence to complete the bulk sale along with the Banks commitment to meet the 9.0% requirement by March 31, 2013. Under the terms of the MOU entered into on January 31, 2013, Home Savings
is required to maintain a Tier 1 Leverage Capital Ratio of 8.50%.
Events beyond managements control, such as
fluctuations in interest rates or a downturn in the economy in areas in which Home Savings loans and securities are concentrated, could adversely affect future earnings and consequently Home Savings ability to meet its future capital
requirements. Refer to Note 3 for a complete discussion of the regulatory enforcement actions.
91
17. BENEFIT PLANS
Postretirement Benefit Plans
In addition to Home Savings retirement plans, Home Savings sponsors a defined benefit health care plan that was curtailed in 2000 to provide postretirement medical benefits only for these employees
who worked 20 years and attained a minimum age of 60 by September 1, 2000, while in service with Home Savings. The plan is unfunded and, as such, has no assets. Furthermore, the plan is contributory and contains minor cost-sharing features such
as deductibles and coinsurance. In addition, postretirement life insurance coverage is provided for employees who were participants prior to December 10, 1976. The life insurance plan is non-contributory. Home Savings policy is to pay
premiums monthly, with no pre-funding. The benefit obligation measurement date is December 31. Information about changes in obligations of the benefit plan follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,981
|
|
|
$
|
2,778
|
|
Service cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
(95
|
)
|
|
|
54
|
|
Actuarial gain
|
|
|
(23
|
)
|
|
|
(690
|
)
|
Benefits paid
|
|
|
(9
|
)
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of the year
|
|
$
|
1,854
|
|
|
$
|
1,981
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plan
|
|
$
|
(1,854
|
)
|
|
$
|
(1,981
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income, at December 31, 2012 and 2011 consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
The year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
Net actuarial gains
|
|
$
|
612
|
|
|
$
|
1,016
|
|
Prior service credit
|
|
|
1,117
|
|
|
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,729
|
|
|
$
|
1,706
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation was $1.9 million and $2.0 million at year-end 2012 and 2011, respectively.
Components of net periodic benefit cost/(gain) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
75
|
|
|
|
132
|
|
|
|
186
|
|
Expected return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization of prior service cost
|
|
|
(78
|
)
|
|
|
(78
|
)
|
|
|
(1
|
)
|
Amortization of net actuarial gain
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
(95
|
)
|
|
|
54
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
|
193
|
|
|
|
(79
|
)
|
|
|
(671
|
)
|
Prior service credit
|
|
|
|
|
|
|
(689
|
)
|
|
|
|
|
Amortization of prior service cost
|
|
|
(170
|
)
|
|
|
78
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
|
23
|
|
|
|
(690
|
)
|
|
|
(670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
|
$
|
(72
|
)
|
|
$
|
(636
|
)
|
|
$
|
(485
|
)
|
Assumptions used in the valuations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
3.00
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
92
The estimated net gain and prior service costs for the postretirement plan that will be
amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $111,000 and $136,000, respectively.
The weighted-average annual assumed rate of increase in the per capita cost of coverage benefits (i.e., health care cost trend rate) used in the 2012 valuation was 6.0% and was assumed to decrease to 4.5%
for the year 2017 and remain at that level thereafter. The weighted-average annual assumed rate of increase in the per capita cost of coverage benefits used in the 2011 valuation was 7.5% and was assumed to decrease to 4.5% for the year 2019 and
remain at that level thereafter. The weighted-average annual assumed rate of increase in the per capita cost of coverage benefits used in the 2010 valuation was 9.0% and was assumed to decrease to 5.0% for the year 2016 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage point change in assumed health care cost trend rates would have the following effects as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
1 Percentage
Point Increase
|
|
|
1 Percentage
Point Decrease
|
|
|
|
(Dollars in thousands)
|
|
Effect on total of service and interest cost components
|
|
$
|
5
|
|
|
$
|
(4
|
)
|
Effect on the postretirement benefit obligation
|
|
|
109
|
|
|
|
(98
|
)
|
United Community anticipates benefits payable over the next ten years as follows:
|
|
|
|
|
(Dollars in thousands)
|
|
2013
|
|
$
|
168
|
|
2014
|
|
|
166
|
|
2015
|
|
|
162
|
|
2016
|
|
|
157
|
|
2017
|
|
|
151
|
|
2018-2022
|
|
|
664
|
|
|
|
|
|
|
Total
|
|
$
|
1,468
|
|
|
|
|
|
|
Effective January 1, 2012, the benefit plan for eligible plan participants has changed. The participants are now
enrolled in a Medicare Advantage program. Medicare Advantage is another Medicare health plan choice provided as part of Medicare. The Medicare Advantage Plan is offered by a private company, which has been approved by Medicare. Medicare Advantage
plans are required to offer coverage that meets or exceeds the standards set by the original Medicare program.
401(k) Savings Plan
Home Savings sponsors a defined contribution 401(k) savings plan, which covers substantially all employees. Under the
provisions of the plan, Home Savings matching contribution is discretionary and may be changed from year to year. For 2012, Home Savings match was 25% of pre-tax contributions, up to a maximum of 6% of the employees base pay. For
2011, no matching contributions were made. For 2010, Home Savings match was 50% of pre-tax contributions, up to a maximum of 6% of the employees base pay. Participants become 100% vested in Home Savings contributions upon completion of
three years of service. For the years ended 2012, 2011 and 2010, the expense related to this plan was approximately $230,000, $0 and $476,000, respectively.
Employee Stock Ownership Plan
In conjunction with the Conversion, United
Community established an Employee Stock Ownership Plan (ESOP) for the benefit of the employees of United Community and Home Savings. All full-time employees who meet certain age and years of service criteria are eligible to participate in the ESOP.
The ESOP is a tax-qualified retirement plan designed to invest primarily in the stock of United Community. The ESOP borrowed $26.8 million from United Community to purchase 2,752,615 shares in conjunction with the Conversion. The term of the loan
was 15 years and was being repaid primarily with contributions from Home Savings to the ESOP. Additionally, 1,643,817 shares were purchased with the return of capital distribution in 1999. During 2008, 42,890 shares were added to the plan from the
stock dividend paid in the fourth quarter of that year.
The loan was collateralized by the common shares held by the ESOP. As
the note was repaid, shares were released from collateral based on the proportion of the payment in relation to total payments required to be made on the loan. The shares released from collateral were then allocated to participants on the basis of
compensation as described in the plan. Compensation expense is determined by multiplying the per share market price of United Communitys shares at the end of the period by the number of shares to be released. On June 29, 2010, the ESOP
paid in full the remaining balance of the loan and Home Savings recognized $1.3 million in additional compensation expense in the second quarter as shares were allocated to plan participants. Proceeds from the ESOP loan prepayment gave United
Community the opportunity to infuse approximately $9.0 million of capital into Home Savings, in addition to taking advantage of certain tax benefits available for these types of plans.
93
During the years ended December 31, 2012 and 2011, the only shares remaining for
allocation are those shares forfeited. During the year ended December 31, 2010, 631,946 shares were released or committed to be released for allocation.
Stock-based Compensation: Stock Options
On April 26, 2007,
shareholders approved the United Community Financial Corp. 2007 Long-Term Incentive Plan (as amended, the 2007 Plan). The purpose of the 2007 Plan is to promote and advance the interests of United Community and its shareholders by enabling United
Community to attract, retain and reward directors, directors emeritus, managerial and other key employees of United Community, including Home Savings, by facilitating their purchase of an ownership interest in United Community. The 2007 Plan
provides for the issuance of up to 2,000,000 shares that are to be used for awards of restricted stock, stock options, performance awards, stock appreciation rights (SARs), or other forms of stock-based incentive awards. There were 10,898 stock
options granted in 2012 and there were 25,710 stock options granted in 2011 under the 2007 Plan. The options must be exercised within 10 years from the date of grant.
On July 12, 1999, shareholders approved the United Community Financial Corp. 1999 Long-Term Incentive Plan (as amended, the 1999 Plan). The purpose of the 1999 Plan was the same as the 2007 Plan. The
1999 Plan terminated on May 20, 2009, although the 1999 Plan survives so long as options issued under the 1999 Plan remain outstanding and exercisable.
The 1999 Plan provided for the grant of either incentive or nonqualified stock options. Options were awarded at exercise prices that were not less than the fair market value of the share at the grant
date. The maximum number of common shares that could be issued under the 1999 Plan was 3,569,766. Because the 1999 Plan terminated, no additional options may be issued under it. All of the options awarded became exercisable on the date of grant
except that options granted in 2009 became exercisable over three years beginning on December 31, 2009. All options expire 10 years from the date of grant.
Expenses related to stock option grants are included with salaries and employee benefits. The Company recognized $17,701 in stock option expenses for the twelve months ended December 31, 2012. The
Company expects to recognize additional expense of $12,185 in 2013, and $4,686 in 2014.
A summary of activity in the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2012
|
|
|
|
Shares
|
|
|
Weighted
average
exercise price
|
|
|
Aggregate
intrinsic value
(Dollars
in
thousands)
|
|
Outstanding at beginning of year
|
|
|
1,991,532
|
|
|
$
|
6.63
|
|
|
|
|
|
Granted
|
|
|
10,898
|
|
|
|
2.12
|
|
|
|
|
|
Exercised
|
|
|
(31,000
|
)
|
|
|
1.91
|
|
|
|
|
|
Forfeited
|
|
|
(661,488
|
)
|
|
|
8.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
1,309,942
|
|
|
$
|
5.77
|
|
|
$
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
1,281,334
|
|
|
$
|
5.86
|
|
|
$
|
602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information related to the stock options granted under the 1999 Plan and the 2007 Plan during each year follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Intrinsic value of options exercised
|
|
$
|
31,000
|
|
|
$
|
|
|
|
$
|
|
|
Cash received from option exercises
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
Tax benefit realized from option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
|
1.38
|
|
|
|
0.87
|
|
|
|
1.33
|
|
As of December 31, 2012, there was approximately $17,000 of total unrecognized compensation cost related to
nonvested stock options granted under the 2007 Plan. The cost is expected to be recognized over a weighted-average period of 2.0 years.
94
The fair value of options granted in 2012 was determined using the following
weighted-average assumptions as of the grant date:
|
|
|
|
|
Risk-free interest rate
|
|
|
0.84
|
%
|
Expected term (years)
|
|
|
5
|
|
Expected stock volatility
|
|
|
64.17
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
Outstanding stock options have a weighted average remaining life of 4.40 years and may be exercised in the range of
$1.20 to $12.38.
Stock-based Compensation: Restricted Stock Awards
The 2007 Plan permits the issuance of restricted stock awards to employees and nonemployee directors. Nonvested shares at
December 31, 2012 aggregated 129,321, of which 28,026 will vest during 2013. The remaining 101,295 shares will vest evenly over the three years ended December 31, 2013, 2014 and 2015. Expenses related to restricted stock awards are charged
to salaries and employee benefits and are recognized over the vesting period of the awards based on the market value of the shares at the grant date. The Company recognized approximately $725,000 in restricted stock award expenses for the twelve
months ended December 31, 2012. The Company expects to recognize additional expenses of approximately $324,000 in 2013, $217,000 in 2014 and $83,000 in 2015.
A summary of changes in the Companys nonvested restricted shares for the year is as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
average grant
date fair value
|
|
Nonvested shares at January 1, 2012
|
|
|
59,019
|
|
|
$
|
1.32
|
|
Granted
|
|
|
399,124
|
|
|
|
1.82
|
|
Vested
|
|
|
(328,822
|
)
|
|
|
1.30
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at December 31, 2012
|
|
|
129,321
|
|
|
$
|
2.86
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
During 2005, United Community established an employee stock purchase plan (ESPP). Under this plan, United Community provides employees of Home Savings the opportunity to purchase United Community
Financial Corporations common shares through payroll deduction. Participation in the plan is voluntary and payroll deductions are made on an after-tax basis. The maximum amount an employee can have deducted is nine hundred dollars per biweekly
pay. Shares are purchased on the open market and administrative fees are paid by United Community. Expense related to this plan is a component of the Shareholder Dividend Reinvestment Plan and the expense recognized is not material.
18. FAIR VALUE
Fair value is the exchange price that would be received for an asset if paid to transfer a liability (exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of
the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entitys own beliefs about the assumptions that market participants would use in pricing an asset or liability.
95
United Community uses the following methods and significant assumptions to estimate the fair value of each
type of financial instrument:
Available for sale securities
: The fair values of securities available for sale are determined by
obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).
Impaired loans:
At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value
generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of
approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments
are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrowers financial statements, or aging
reports, adjusted or discounted based on managements historical knowledge, changes in market conditions from the time of the valuation, and managements expertise and knowledge of the client and clients business, resulting in a
Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Other real estate owned:
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when
acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single
valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and
income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned are individually evaluated at least annually for additional impairment and
adjusted accordingly.
Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general
appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by Home Savings. Once received, a member of the Special Assets Department
reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with the independent data sources such as recent market data or industry-wide statistics. On an annual basis, Home Savings
compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value. At the time a property is acquired and
classified as real estate owned, the fair value is determined utilizing the most appropriate method. A fair value in excess of $250,000 will be supported by an appraisal. After determination of fair value, each property will be recorded at the lower
of cost (i.e., recorded investment in the loan) or the estimated net realizable value on the date of transfer to real estate owned. In determining net realizable value, reductions to fair market value may be taken for estimated costs of sale,
conditions that must be remedied immediately upon acquisition, and other factors that negatively impact the marketability and prompt sale of the property.
Mortgage servicing rights:
On a quarterly basis, loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. If the carrying amount of
an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level, based on market prices for comparable mortgage servicing contracts
(Level 1), when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net
servicing income and that can be validated against available market data (Level 2).
Loans held for sale:
Loans held for sale are
carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable
market data, such as outstanding commitments from third party investors (Level 2).
Interest rate caps:
Home Savings uses an
independent third party that performs a market valuation analysis for interest rate caps. The methodology used consists of a discounted cash flow model, all future floating cash flows are projected and both floating and fixed cash flows are
discounted to the valuation date. The yield curve utilized for discounting and projecting is built by obtaining publicly available third party market quotes from Reuters, which handle up to 30-year swap maturities (Level 3).
96
Assets Measured on a Recurring Basis:
Assets measured at fair value on a recurring basis are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2012 Using:
|
|
|
|
December 31,
2012
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury and government sponsored entities securities
|
|
$
|
163,692
|
|
|
$
|
|
|
|
$
|
163,692
|
|
|
$
|
|
|
Equity securities
|
|
|
313
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
Mortgage-backed GSE securities: residential
|
|
|
410,557
|
|
|
|
|
|
|
|
410,557
|
|
|
|
|
|
Interest rate caps
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
436
|
|
Assumptions used in the valuation of interest rate caps are back-tested for reasonableness on a quarterly basis using
an independent source along with a third party service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2011
Using:
|
|
|
|
December 31,
2011
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury and government sponsored entities securities
|
|
$
|
50,800
|
|
|
$
|
|
|
|
$
|
50,800
|
|
|
$
|
|
|
Equity securities
|
|
|
263
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
Mortgage-backed GSE securities: residential
|
|
|
408,535
|
|
|
|
|
|
|
|
408,535
|
|
|
|
|
|
Interest rate caps
|
|
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
1,933
|
|
There were no transfers between level 1 and level 2 during 2012 and 2011.
97
The table below presents a reconciliation of all assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the years ended December 31, 2012 and 2011, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Caps
|
|
|
|
Twelve Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(Dollars in thousands)
|
|
Balance of recurring Level 3 assets at beginning of period
|
|
$
|
1,933
|
|
|
$
|
|
|
Total gains (losses) for the period
|
|
|
|
|
|
|
|
|
Included in other income
|
|
|
(979
|
)
|
|
|
(528
|
)
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
2,590
|
|
Amortization
|
|
|
(518
|
)
|
|
|
(129
|
)
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of recurring Level 3 assets at end of period
|
|
$
|
436
|
|
|
$
|
1,933
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 2 and Level 3 during 2012 or 2011.
The following table presents quantitative information about recurring Level 3 fair value measurements at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
Valuation
Technique(s)
|
|
Unobservable
Input(s)
|
|
Range
|
|
|
(Dollars in thousands)
|
Interest rate caps
|
|
$
|
436
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
0.47% - 1.5%
|
The significant unobservable inputs used in the fair value measurement of interest rate caps was determined using proprietary models
from third-party sources taking into account such factors as size of the transaction, the lack of a quoted market and the custom-tailored nature of the transaction. The fair value is inclusive of interest accruals, as applicable. Significant
increases/(decreases) in any of those inputs in isolation would result in a significantly lower/(higher) fair value measurement.
Assets
Measured on a Non-Recurring Basis
Assets measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2012 Using:
|
|
|
|
December 31,
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate loans
|
|
$
|
6,166
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,166
|
|
Construction loans
|
|
|
3,489
|
|
|
|
|
|
|
|
|
|
|
|
3,489
|
|
Commercial loans
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
257
|
|
Mortgage servicing assets
|
|
|
4,920
|
|
|
|
|
|
|
|
4,920
|
|
|
|
|
|
Other real estate owned, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate loans
|
|
|
3,172
|
|
|
|
|
|
|
|
|
|
|
|
3,172
|
|
Construction loans
|
|
|
6,918
|
|
|
|
|
|
|
|
|
|
|
|
6,918
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2011 Using:
|
|
|
|
December 31,
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate loans
|
|
$
|
38,627
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38,627
|
|
Construction loans
|
|
|
14,953
|
|
|
|
|
|
|
|
|
|
|
|
14,953
|
|
Consumer loans
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
282
|
|
Commercial loans
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
291
|
|
Mortgage servicing assets
|
|
|
3,921
|
|
|
|
|
|
|
|
3,921
|
|
|
|
|
|
Other real estate owned, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate loans
|
|
|
7,586
|
|
|
|
|
|
|
|
|
|
|
|
7,586
|
|
Construction loans
|
|
|
7,581
|
|
|
|
|
|
|
|
|
|
|
|
7,581
|
|
Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured
for impairment using the fair value of the collateral for collateral dependent loans, had a net carrying amount of $9.9 million at December 31, 2012, that includes a specific valuation allowance of $3.0 million. This resulted in an increase of
the provision for loan losses of $27,000 during the twelve months ended December 31, 2012. Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value
of the collateral for collateral dependent loans, had a net carrying amount of $54.2 million at December 31, 2011, that included a specific valuation allowance of $11.8 million, resulting in additional provision for loan losses of $30.8 million
during 2011.
The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral
dependent impaired loans included in the above table primarily relate to the adjustment between carrying value versus appraised value. During the reported periods, discounts applied to appraisals for estimated selling costs were 10%.
At December 31, 2012, mortgage servicing rights, carried at fair value, totaled $4.9 million, which is made up of the outstanding
balance of $5.6 million, net of a valuation allowance of $680,000, resulting in a net recovery of $1.1 million for the year ended December 31, 2012. At December 31, 2011, mortgage servicing rights, carried at fair value, totaled $4.6
million, which was made up of the outstanding balance of $6.4 million, net of a valuation allowance of $1.8 million, resulting in a net charge of $1.5 million for the year ended December 31, 2011. Mortgage servicing rights are valued by an
independent third party that is active in purchasing and selling these instruments. The value reflects the characteristics of the underlying loans discounted at a market multiple.
At December 31, 2012, other real estate owned, carried at fair value, which is measured for impairment using the fair value of the
property less estimated selling costs, had a net carrying amount of $10.1 million, with a valuation allowance of $6.8 million. This resulted in additional expenses of $2.2 million during the twelve months ended December 31, 2012. At
December 31, 2011, other real estate owned, measured at fair value less costs to sell, had a net carrying amount of $15.2 million, which is made up of the outstanding balance of $23.9 million net of a valuation allowance of $8.8 million
resulting in a write-down of $4.7 million for the year ended December 31, 2011.
99
The following table presents quantitative information about Level 3 fair value measurements for financial
instruments measured at fair value on a nonrecurring basis at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
Valuation Technique(s)
|
|
Unobservable Input(s)
|
|
Range (Average)
|
|
|
(Dollars in thousands)
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate loans
|
|
$
|
6,166
|
|
|
Sales comparison approach
|
|
Adjustment for differences between comparable sales
|
|
12.07%-45.44%
(28.75%)
|
|
|
|
|
|
|
Income approach
|
|
Adjustment for differences in net operating income
Capitalization rate
|
|
7.52%-10.73%
(9.49%)
|
Construction loans
|
|
|
3,489
|
|
|
Sales comparison approach
|
|
Adjustment for differences between comparable sales
|
|
0.00%-25.00%
(9.83%)
|
|
|
|
|
|
|
Income approach
|
|
Adjustment for differences in net operating income
Capitalization rate
|
|
10.00%
|
Commercial loans
|
|
|
257
|
|
|
Sales comparison approach
|
|
Adjustment for differences between comparable sales
|
|
1.6%-24.18%
(11.15%)
|
|
|
|
|
|
|
Income approach
|
|
Adjustment for differences in net operating income
Capitalization rate
|
|
8.5%-10%
(9.25%)
|
Foreclosed assets:
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate loans
|
|
|
3,172
|
|
|
Sales comparison approach
|
|
Adjustment for differences between comparable sales
|
|
3.60%-16.47%
(10.20%)
|
Construction loans
|
|
|
6,918
|
|
|
Sales comparison approach
|
|
Adjustment for differences between comparable sales
|
|
0.00%-47.24%
(17.63%)
|
100
In accordance with generally accepted accounting principles, the carrying value and estimated fair values of
financial instruments at December 31, 2012 and December 31, 2011, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
Carrying
|
|
|
Fair Value Measurements at December 31, 2012 Using:
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
42,613
|
|
|
$
|
42,613
|
|
|
$
|
|
|
|
$
|
|
|
Available for sale securities
|
|
|
574,562
|
|
|
|
313
|
|
|
|
574,249
|
|
|
|
|
|
Loans held for sale
|
|
|
13,031
|
|
|
|
|
|
|
|
13,428
|
|
|
|
|
|
Loans, net
|
|
|
1,066,240
|
|
|
|
|
|
|
|
|
|
|
|
1,087,205
|
|
FHLB stock
|
|
|
26,464
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Accrued interest receivable
|
|
|
6,238
|
|
|
|
|
|
|
|
2,380
|
|
|
|
3,858
|
|
Interest rate caps
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
436
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, savings and money market accounts
|
|
|
(902,776
|
)
|
|
|
(902,776
|
)
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
(559,298
|
)
|
|
|
|
|
|
|
(571,836
|
)
|
|
|
|
|
FHLB advances
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
(57,077
|
)
|
|
|
|
|
Repurchase agreements and other
|
|
|
(90,598
|
)
|
|
|
|
|
|
|
(102,086
|
)
|
|
|
|
|
Advance payments by borrowers for taxes and insurance
|
|
|
(23,590
|
)
|
|
|
|
|
|
|
(23,590
|
)
|
|
|
|
|
Accrued interest payable
|
|
|
(563
|
)
|
|
|
|
|
|
|
(563
|
)
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
54,136
|
|
|
$
|
54,136
|
|
Available for sale securities
|
|
|
459,598
|
|
|
|
459,598
|
|
Loans held for sale
|
|
|
12,727
|
|
|
|
13,098
|
|
Loans, net
|
|
|
1,379,276
|
|
|
|
1,402,452
|
|
Federal Home Loan Bank stock
|
|
|
26,464
|
|
|
|
n/a
|
|
Accrued interest receivable
|
|
|
6,741
|
|
|
|
6,741
|
|
Interest Rate Caps
|
|
|
1,933
|
|
|
|
1,933
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Checking, savings and money market accounts
|
|
|
(817,082
|
)
|
|
|
(817,082
|
)
|
Certificates of deposit
|
|
|
(771,415
|
)
|
|
|
(782,146
|
)
|
Federal Home Loan Bank advances
|
|
|
(128,155
|
)
|
|
|
(136,727
|
)
|
Repurchase agreements and other
|
|
|
(90,618
|
)
|
|
|
(103,719
|
)
|
Advance payments by borrowers for taxes and insurance
|
|
|
(23,282
|
)
|
|
|
(23,282
|
)
|
Accrued interest payable
|
|
|
(610
|
)
|
|
|
(610
|
)
|
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
(a) Cash and Cash Equivalents
The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
(b) FHLB Stock
It is not practical to determine the fair value of
FHLB stock due to restrictions placed on its transferability.
(c) Loans
Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not
necessarily represent an exit price.
The fair value of loans held for sale is estimated based upon binding contracts and
quotes from third party investors resulting in a Level 2 classification.
(d) Deposits
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable rate, fixed-term money market accounts approximate
their fair values at the reporting date resulting in a Level 1 classification. Fair values for fixed and variable rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered
on certificates of deposit to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.
102
(e) Short-term Borrowings
The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally
maturing within 90 days, approximate their fair values resulting in a Level 2 classification.
(f) Other Borrowings
The fair values of Home Savings long-term borrowings are estimated using discounted cash flow analyses based on the
current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.
(g) Accrued
Interest Receivable/Payable
The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or
Level 3 classification, depending on the classification of the underlying asset or liability.
(h) Off-balance Sheet
Instruments
Fair values for off-balance sheet, credit-related financial instruments are based on fees currently
charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing. The fair value of commitments is not material.
19. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
Supplemental disclosures of cash flow information are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (refunded) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits and borrowings
|
|
$
|
18,053
|
|
|
$
|
31,411
|
|
|
$
|
39,999
|
|
Income taxes (refunds)
|
|
|
|
|
|
|
(3,537
|
)
|
|
|
(4,480
|
)
|
Supplemental schedule of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to held for sale
|
|
|
1,214
|
|
|
|
95,194
|
|
|
|
|
|
Transfers from loans to real estate owned
|
|
|
7,181
|
|
|
|
19,178
|
|
|
|
33,936
|
|
Transfers from real estate owned to premises and equipment
|
|
|
1,746
|
|
|
|
|
|
|
|
|
|
Transfers from premises and equipment to assets held for sale
|
|
|
|
|
|
|
1,750
|
|
|
|
|
|
20. DERIVATIVES
Home Savings utilizes interest rate cap agreements as part of its asset/liability management strategy to help manage its interest rate
risk position. Home Savings entered into an interest rate cap agreement in October 2011 with an outside counterparty. Home Savings receives proceeds from the counterparty if interest rates exceed the cap rate computed based on the
underlying notional amounts. The notional amount of the interest rate caps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual
interest rate cap agreements. The interest rate caps are carried as freestanding derivatives, considered an economic hedge classified as an other asset with a carrying value of $436,000 with changes in fair value of approximately $1.5 million
reported in current earnings through other noninterest income.
103
Summary information about the interest rate caps not designated hedges as of December 31, 2012 and 2011
is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
|
|
(Dollars in thousands)
|
|
Notional amounts
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Weighted average strike rate, based on three-month LIBOR
|
|
|
1.50
|
%
|
|
|
1.50
|
%
|
Weighted average maturity
|
|
|
5.0 years
|
|
|
|
5.0 years
|
|
Fair value of combined interest rate caps
|
|
$
|
436
|
|
|
$
|
1,933
|
|
Home Savings had no interest rate caps as of December 31, 2010.
The following table presents net gains/(losses) recorded in noninterest income relating to instruments not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
|
|
(
Dollars in thousands
)
|
|
Interest rate caps
|
|
$
|
(1,497
|
)
|
|
$
|
(528
|
)
|
The following table reflects the fair value and location in the consolidated statement of financial condition of interest rate caps:
Included in other assets:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
|
|
(
Dollars in thousands
)
|
|
Freestanding derivative assets not designated as hedges:
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
$
|
436
|
|
|
$
|
1,933
|
|
Home Savings is subject to counterparty risk. Counterparty risk is the risk to Home Savings that the counterparty will not live up
to its contractual obligations. The ability of Home Savings to realize the benefit of the derivative contracts is dependent on the creditworthiness of the counterparty, which Home Savings expects will perform in accordance with the terms of the
contracts.
21. PARENT COMPANY FINANCIAL STATEMENTS
Condensed Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and deposits with banks
|
|
$
|
1,246
|
|
|
$
|
3,575
|
|
Federal funds sold and other
|
|
|
12
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
1,258
|
|
|
|
3,579
|
|
Securities:
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
313
|
|
|
|
263
|
|
Investment in subsidiary-Home Savings
|
|
|
167,424
|
|
|
|
184,833
|
|
Other assets
|
|
|
2,104
|
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
171,099
|
|
|
$
|
189,148
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
339
|
|
|
$
|
403
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
339
|
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
170,760
|
|
|
|
188,745
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
171,099
|
|
|
$
|
189,148
|
|
|
|
|
|
|
|
|
|
|
104
Condensed Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
7
|
|
|
$
|
5
|
|
|
$
|
349
|
|
Non-interest income (loss)
|
|
|
(13
|
)
|
|
|
(65
|
)
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss)
|
|
|
(6
|
)
|
|
|
(60
|
)
|
|
|
577
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
693
|
|
|
|
775
|
|
|
|
1,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
693
|
|
|
|
775
|
|
|
|
1,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(699
|
)
|
|
|
(835
|
)
|
|
|
(1,380
|
)
|
Income tax benefit
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in undistributed net earnings of subsidiaries
|
|
|
(677
|
)
|
|
|
(835
|
)
|
|
|
(1,380
|
)
|
Increase (decrease) in undistributed earnings of subsidiaries
|
|
|
(19,760
|
)
|
|
|
1,065
|
|
|
|
(35,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(20,437
|
)
|
|
$
|
230
|
|
|
$
|
(37,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Cash Flows from Operating Activities
|
|
|
|
|
Net income (loss)
|
|
$
|
(20,437
|
)
|
|
$
|
230
|
|
|
$
|
(37,273
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in undistributed earnings of the subsidiaries
|
|
|
19,760
|
|
|
|
(1,065
|
)
|
|
|
35,893
|
|
Gains on available for sale securities sold
|
|
|
|
|
|
|
|
|
|
|
(255
|
)
|
Security impairment charges on equity investments
|
|
|
13
|
|
|
|
89
|
|
|
|
58
|
|
(Increase) decrease in other assets
|
|
|
(1,556
|
)
|
|
|
(467
|
)
|
|
|
266
|
|
Stock based compensation
|
|
|
|
|
|
|
49
|
|
|
|
52
|
|
(Decrease) increase in other liabilities
|
|
|
(103
|
)
|
|
|
30
|
|
|
|
(662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
(2,323
|
)
|
|
|
(1,134
|
)
|
|
|
(1,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
33
|
|
|
|
359
|
|
Equity investment in Home Savings
|
|
|
|
|
|
|
|
|
|
|
(12,498
|
)
|
ESOP loan repayment
|
|
|
|
|
|
|
|
|
|
|
8,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
|
|
|
|
33
|
|
|
|
(3,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, net
|
|
|
|
|
|
|
2,059
|
|
|
|
|
|
Exercise of stock options
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
2
|
|
|
|
2,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(2,321
|
)
|
|
|
958
|
|
|
|
(5,403
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
3,579
|
|
|
|
2,621
|
|
|
|
8,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,258
|
|
|
$
|
3,579
|
|
|
$
|
2,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
22. SEGMENT INFORMATION
The Companys management monitors the revenue streams of the various Company products and services. The
identifiable segments are not material, operations are managed, and financial performance is evaluated on a Company-wide basis. All of Home Savings financial service operations are considered by management to be aggregated in one reportable
operating segment, which is banking services.
23. EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the
period. Diluted earnings per share is computed using the weighted average number of common shares determined for the basic computation plus the dilutive effect of potential common shares that could be issued under outstanding stock options. Stock
options for 618,551 shares were anti-dilutive for the year ended December 31, 2012. Stock options for 1,992,132 shares were anti-dilutive for the year ended December 31, 2011. Stock options for 2,207,827 shares were anti-dilutive for the
year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
Net (loss) income per consolidated statements of income
|
|
$
|
(20,437
|
)
|
|
$
|
230
|
|
|
$
|
(37,273
|
)
|
Net loss allocated to participating securities
|
|
|
(59
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income allocated to common stock
|
|
$
|
(20,378
|
)
|
|
$
|
230
|
|
|
$
|
(37,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings allocated to common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Undistributed (loss) earnings allocated to common stock
|
|
|
(20,378
|
)
|
|
|
230
|
|
|
|
(37,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings allocated to common stock
|
|
$
|
(20,378
|
)
|
|
$
|
230
|
|
|
$
|
(37,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, including shares considered participating securities
|
|
|
32,805
|
|
|
|
31,075
|
|
|
|
30,477
|
|
Less: Average participating securities
|
|
|
(94
|
)
|
|
|
(49
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
32,711
|
|
|
|
31,026
|
|
|
|
30,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(0.62
|
)
|
|
$
|
0.01
|
|
|
$
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings allocated to common stock
|
|
$
|
(20,378
|
)
|
|
$
|
230
|
|
|
$
|
(37,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic earnings per common share
|
|
|
32,711
|
|
|
|
31,026
|
|
|
|
30,457
|
|
Add: Dilutive effects of assumed exercises of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and dilutive potential common shares
|
|
|
32,711
|
|
|
|
31,026
|
|
|
|
30,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share
|
|
$
|
(0.62
|
)
|
|
$
|
0.01
|
|
|
$
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents summarized quarterly data for each of the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
2012:
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Interest income
|
|
$
|
21,562
|
|
|
$
|
20,894
|
|
|
$
|
18,191
|
|
|
$
|
17,797
|
|
|
$
|
78,444
|
|
Interest expense
|
|
|
5,683
|
|
|
|
4,474
|
|
|
|
4,063
|
|
|
|
3,786
|
|
|
|
18,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
15,879
|
|
|
|
16,420
|
|
|
|
14,128
|
|
|
|
14,011
|
|
|
|
60,438
|
|
Provision for loan losses
|
|
|
680
|
|
|
|
6,264
|
|
|
|
30,279
|
(1)
|
|
|
2,102
|
|
|
|
39,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
15,199
|
|
|
|
10,156
|
|
|
|
(16,151
|
)
|
|
|
11,909
|
|
|
|
21,113
|
|
Non-interest income
|
|
|
5,091
|
|
|
|
6,949
|
|
|
|
3,752
|
(2)
|
|
|
6,939
|
|
|
|
22,731
|
|
Non-interest expenses
|
|
|
16,494
|
|
|
|
17,043
|
|
|
|
17,330
|
|
|
|
14,302
|
|
|
|
65,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
3,796
|
|
|
|
62
|
|
|
|
(29,729
|
)
|
|
|
4,546
|
|
|
|
(21,325
|
)
|
Income tax expense (benefit)
(3)
|
|
|
|
|
|
|
|
|
|
|
(2,838
|
)
|
|
|
1,950
|
|
|
|
(888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,796
|
|
|
$
|
62
|
|
|
$
|
(26,891
|
)
|
|
$
|
2,596
|
|
|
$
|
(20,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
|
|
$
|
0.12
|
|
|
$
|
|
|
|
$
|
(0.82
|
)
|
|
$
|
0.08
|
|
|
$
|
(0.62
|
)
|
Diluted earnings (loss)
|
|
|
0.12
|
|
|
|
|
|
|
|
(0.82
|
)
|
|
|
0.08
|
|
|
|
(0.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
The increase in provision for loan losses in the third quarter was due primarily to a bulk sale of nonperforming assets.
|
2.
|
The decline in noninterest income in the third quarter was driven by lower gains recognized on a lower volume of sales of available for sale securities. Further
impacting the decline was the recognition in the third quarter of the valuation allowance on certain properties to absorb estimated closing costs at the time of disposal.
|
3.
|
The Company recognized a tax benefit of $888,000 for the year ended December 31, 2012, because it was both (i) in a pre-tax operating loss position, and
(ii) had unrealized gains on available for sale securities in its securities portfolio that were recorded in other comprehensive income. Beginning in the third quarter, the Company both recognized a pre-tax operating loss and at the same time,
had unrealized gains on available for sale securities recorded in other comprehensive income. As a result, the tax benefit recognized in the third quarter was equal to the current year-to-date change (through September) in other comprehensive income
multiplied by the Companys statutory tax rate of 35%. In the fourth quarter, the year-to-date change in other comprehensive income had compressed, causing a reduction in the benefit previously recognized, and resulting in income tax expense
for the quarter.
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
2011:
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Interest income
|
|
$
|
25,732
|
|
|
$
|
24,863
|
|
|
$
|
23,321
|
|
|
$
|
22,471
|
|
|
$
|
96,387
|
|
Interest expense
|
|
|
8,078
|
|
|
|
7,805
|
|
|
|
7,696
|
|
|
|
7,633
|
|
|
|
31,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
17,654
|
|
|
|
17,058
|
|
|
|
15,625
|
|
|
|
14,838
|
|
|
|
65,175
|
|
Provision for loan losses
|
|
|
2,192
|
|
|
|
8,244
|
|
|
|
11,836
|
|
|
|
2,386
|
|
|
|
24,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
15,462
|
|
|
|
8,814
|
|
|
|
3,789
|
|
|
|
12,452
|
|
|
|
40,517
|
|
Non-interest income
|
|
|
3,988
|
|
|
|
5,300
|
|
|
|
1,916
|
|
|
|
12,021
|
|
|
|
23,225
|
|
Non-interest expenses
|
|
|
16,488
|
|
|
|
15,910
|
|
|
|
14,569
|
|
|
|
16,545
|
|
|
|
63,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
2,962
|
|
|
|
(1,796
|
)
|
|
|
(8,864
|
)
|
|
|
7,928
|
|
|
|
230
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,962
|
|
|
$
|
(1,796
|
)
|
|
$
|
(8,864
|
)
|
|
$
|
7,928
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
|
|
$
|
0.10
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
0.25
|
|
|
$
|
0.01
|
|
Diluted earnings (loss)
|
|
|
0.10
|
|
|
|
(0.06
|
)
|
|
|
(0.29
|
)
|
|
|
0.25
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in noninterest income in the fourth quarter was due primarily to gains recognized of the sale of four
branches.
108
25. SUBSEQUENT EVENTS (UNAUDITED)
On January 11, 2013, United Community entered into securities purchase agreements with 28 accredited investors
(the Investors), pursuant to which the Investors will, in a private offering, invest an aggregate of approximately $39.9 million in United Community for 6,574,272 newly issued common shares of United Community, at a purchase price of $2.75 per
share, and 7,942 newly created and issued perpetual mandatorily convertible non-cumulative preferred shares of United Community, at a purchase price of $2,750 per share. Upon United Community shareholder approval, each of the preferred shares will
automatically convert into 1,000 United Community common shares. However, there can be no assurance that United Community will receive such shareholder approval. The preferred shares will initially not pay any dividends, but if they are not
converted into common shares prior to June 30, 2013, semi-annual non-cumulative cash dividends will take effect at an annual rate of 12.00%, payment of which is subject to regulatory approval. The preferred shares are redeemable by United
Community at any time upon prior receipt of applicable regulatory approvals. There can be no assurance that such an offering will be completed or that the Company will succeed in this endeavor.
The closing of the private offering is subject to certain customary conditions including any bank regulatory approvals and confirmations
for the transactions contemplated by the Purchase Agreements and absence of a material adverse change with respect to United Community or Home Savings. United Community has confirmed that no bank regulatory approvals are required. United Community
presently expects the private offering to close on March 22, 2013. In the private offering, the Investors as a group are expected to purchase shares equal to approximately 29.0% of United Communitys outstanding common shares following the
transactions (assuming the rights offering is fully subscribed), and upon United Community shareholder approval of the conversion of the preferred shares; however, none of these new investors will own more than 4.9% of United Communitys common
shares outstanding.
Also on January 11, 2013, United Community entered into subscription agreements with certain of
United Communitys directors, officers, consultants and their affiliates pursuant to which these insider investors will invest an aggregate of approximately $2.1 million in United Community for 755,820 newly issued common shares, at the same
purchase price of $2.75 per share. The issuance and sale of common shares to the insider investors, pursuant to the subscription agreements, is subject to United Community shareholder approval. Subsequent to January 11, 2013, Marty E. Adams
joined the United Community board. Accordingly, there are no consultants acquiring any shares.
The Company anticipates that
following such capital raise, it will give existing shareholders an opportunity to purchase $5.0 million of United Community common shares at $2.75 through a rights offering.
On January 31, 2013, the Consent Order issued to Home Savings by the FDIC and the Ohio Division on March 30, 2012 was terminated. On January 31, 2013, Home Savings entered into a MOU with
the FDIC and Ohio Division that requires Home Savings to submit certain plans and reports to the FDIC and the Ohio Division, to seek the FDICs and Ohio Divisions prior consent before issuing any dividends to United Community, and to
maintain its Tier 1 Leverage Capital Ratio at 8.50% and its Total Risk Based Capital Ratio at 12.0%.
109