Notes to Consolidated Financial Statements
(unaudited)
1.
|
Nature of Operations and Basis of Presentation
|
The consolidated financial statements include the accounts of ESSA Bancorp, Inc. (the Company), and its
wholly owned subsidiary, ESSA Bank & Trust (the Bank), and the Banks wholly owned subsidiaries, ESSACOR, Inc.; Pocono Investments Company; ESSA Advisory Services, LLC; Integrated Financial Corporation; Integrated Delaware,
Inc. and Integrated Abstract Incorporated, a wholly owned subsidiary of Integrated Financial Corporation. The primary purpose of the Company is to act as a holding company for the Bank. The Company is subject to regulation and supervision as a
savings and loan holding company by the Federal Reserve Board. The Bank is a Pennsylvania-chartered savings association located in Stroudsburg, Pennsylvania. The Banks primary business consists of the taking of deposits and granting of loans
to customers generally in Monroe, Northampton and Lehigh counties, Pennsylvania. The Bank is subject to regulation and supervision by the Pennsylvania Banking Department and the Federal Deposit Insurance Corporation. The investment in subsidiary on
the parent companys financial statements is carried at the parent companys equity in the underlying net assets.
ESSACOR, Inc. is a Pennsylvania corporation that has been used to purchase properties at tax sales that represent collateral for
delinquent loans of the Bank. Pocono Investment Company is a Delaware corporation formed as an investment company subsidiary to hold and manage certain investments, including certain intellectual property. ESSA Advisory Services, LLC is a
Pennsylvania limited liability company owned 100 percent by ESSA Bank & Trust. ESSA Advisory Services, LLC is a full-service insurance benefits consulting company offering group services such as health insurance, life insurance, short-term
and long-term disability, dental, vision, and 401(k) retirement planning as well as individual health products. Integrated Financial Corporation is a Pennsylvania Corporation that provided investment advisory services to the general public as a
former subsidiary of First Star Bank. The Company acquired First Star Bank in a transaction that closed on July 31, 2012. Integrated Financial Corporation is currently inactive. Integrated Delaware, Inc. is a Delaware Investment Corporation and
was previously owned by First Star Bank. Integrated Abstract Incorporated is a Pennsylvania Corporation that provides title insurance services. All significant intercompany accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements reflect all adjustments, which in the opinion of management, are necessary for a fair
presentation of the results of the interim periods and are of a normal and recurring nature. Operating results for the three month periods ended December 31, 2012 are not necessarily indicative of the results that may be expected for the year
ending September 30, 2013.
The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic
and diluted earnings per share computation for the three month period ended December 31, 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
Weighted-average common shares outstanding
|
|
|
18,133,095
|
|
|
|
16,980,900
|
|
Average treasury stock shares
|
|
|
(4,906,440
|
)
|
|
|
(4,871,278
|
)
|
Average unearned ESOP shares
|
|
|
(1,080,703
|
)
|
|
|
(1,125,979
|
)
|
Average unearned non-vested shares
|
|
|
(57,827
|
)
|
|
|
(176,045
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and common stock equivalents used to calculate basic earnings per share
|
|
|
12,088,125
|
|
|
|
10,807,598
|
|
|
|
|
|
|
|
|
|
|
Additional common stock equivalents (non-vested stock) used to calculate diluted earnings per share
|
|
|
|
|
|
|
|
|
Additional common stock equivalents (stock options) used to calculate diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share
|
|
|
12,088,125
|
|
|
|
10,807,598
|
|
|
|
|
|
|
|
|
|
|
6
At December 31, 2012 and 2011 there were options to purchase 1,458,379 shares of common
stock outstanding at a price of $12.35 per share that were not included in the computation of diluted EPS because to do so would have been anti-dilutive. At December 31, 2012 and 2011 there were 47,913 and 165,958 shares, respectively, of
nonvested stock outstanding at a price of $12.35 per share that were not included in the computation of diluted EPS because to do so would have been anti-dilutive.
3.
|
Use of Estimates in the Preparation of Financial Statements
|
The accounting principles followed by the Company and its subsidiaries and the methods of applying these principles
conform to U.S. generally accepted accounting principles (GAAP) and to general practice within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and related revenues and expenses for the period. Actual results could differ significantly from those estimates.
4.
|
Recent Accounting Pronouncements:
|
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.
The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently,
the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this Update are to be applied prospectively. For public
entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. Early application by
public entities is not permitted. The Company has provided the necessary disclosure in Note 11 of the Companys financial statements for the three months ended December 31, 2012.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220):
Presentation of Comprehensive Income.
The amendments in this Update improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To
increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the option to present components of other comprehensive income as part of the statement of changes in stockholders
equity was eliminated. The amendments require that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement
approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of
comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this Update. For public entities, the amendments are effective for fiscal years, and interim periods within
those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The amendments in this Update should be
applied retrospectively, and early adoption is permitted. The Company has provided the necessary disclosure in the Statement of Comprehensive Income.
In December 2011, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2011-10,
Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate a Scope Clarification.
The amendments in this Update affect entities that cease to have
a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiarys nonrecourse debt. Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling
financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiarys nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in
substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse
indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiarys operations
7
in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The amendments in this Update should be applied on a prospective basis to
deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, the
amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013,
and interim and annual periods thereafter. Early adoption is permitted. This ASU is not expected to have a significant impact on the Companys financial statements.
In December 2011, the FASB issued ASU 2011-11,
Balance Sheet (Topic
210): Disclosures about Offsetting Assets and Liabilities
. The amendments in this Update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either
Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information will
enable users of an entitys financial statements to evaluate the effect or potential effect of netting arrangements on an entitys financial position, including the effect or potential effect of rights of setoff associated with certain
financial instruments and derivative instruments in the scope of this Update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An
entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. This ASU is not expected to have a significant impact on the Companys financial statements.
In July, 2012, the FASB issued ASU 2012-02,
Intangibles Goodwill and
Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment
. ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination
that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is
impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of
that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 is effective
for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 (early adoption permitted). This ASU is not expected to have a significant impact on the Companys financial statements.
In October, 2012, the FASB issued ASU 2012-06,
Business Combinations (Topic 805)
Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
. ASU 2012-06 requires that when a reporting entity recognizes an
indemnification asset (in accordance with Subtopic 805-20) as a result of a government assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs (as a
result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in
the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the
indemnified assets). ASU 2012-06 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new
indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. This ASU is not expected to have a significant
impact on the Companys financial statements.
8
The amortized cost and fair value of investment securities available for sale are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
123,581
|
|
|
$
|
3,940
|
|
|
$
|
(23
|
)
|
|
$
|
127,498
|
|
Freddie Mac
|
|
|
49,088
|
|
|
|
1,618
|
|
|
|
(24
|
)
|
|
|
50,682
|
|
Governmental National Mortgage Association
|
|
|
46,555
|
|
|
|
740
|
|
|
|
(49
|
)
|
|
|
47,246
|
|
Other mortgage-backed securities
|
|
|
4,944
|
|
|
|
170
|
|
|
|
|
|
|
|
5,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
224,168
|
|
|
|
6,468
|
|
|
|
(96
|
)
|
|
|
230,540
|
|
Obligations of states and political subdivisions
|
|
|
24,336
|
|
|
|
955
|
|
|
|
(22
|
)
|
|
|
25,269
|
|
U.S. government agency securities
|
|
|
55,559
|
|
|
|
365
|
|
|
|
(1
|
)
|
|
|
55,923
|
|
Corporate obligations
|
|
|
10,476
|
|
|
|
193
|
|
|
|
(22
|
)
|
|
|
10,647
|
|
Trust-preferred securities
|
|
|
4,875
|
|
|
|
575
|
|
|
|
|
|
|
|
5,450
|
|
Other debt securities
|
|
|
1,476
|
|
|
|
36
|
|
|
|
|
|
|
|
1,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
320,890
|
|
|
|
8,592
|
|
|
|
(141
|
)
|
|
|
329,341
|
|
Equity securities - financial services
|
|
|
2,191
|
|
|
|
12
|
|
|
|
(19
|
)
|
|
|
2,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
323,081
|
|
|
$
|
8,604
|
|
|
$
|
(160
|
)
|
|
$
|
331,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
111,145
|
|
|
$
|
4,652
|
|
|
$
|
(3
|
)
|
|
$
|
115,794
|
|
Freddie Mac
|
|
|
48,913
|
|
|
|
1,952
|
|
|
|
(11
|
)
|
|
|
50,854
|
|
Governmental National Mortgage Association
|
|
|
43,164
|
|
|
|
803
|
|
|
|
(16
|
)
|
|
|
43,951
|
|
Other mortgage-backed securities
|
|
|
5,043
|
|
|
|
162
|
|
|
|
|
|
|
|
5,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
208,265
|
|
|
|
7,569
|
|
|
|
(30
|
)
|
|
|
215,804
|
|
Obligations of states and political subdivisions
|
|
|
18,611
|
|
|
|
906
|
|
|
|
|
|
|
|
19,517
|
|
U.S. government agency securities
|
|
|
74,106
|
|
|
|
379
|
|
|
|
(1
|
)
|
|
|
74,484
|
|
Corporate obligations
|
|
|
8,602
|
|
|
|
146
|
|
|
|
(91
|
)
|
|
|
8,657
|
|
Trust-preferred securities
|
|
|
5,852
|
|
|
|
382
|
|
|
|
(1
|
)
|
|
|
6,233
|
|
Other debt securities
|
|
|
1,476
|
|
|
|
36
|
|
|
|
|
|
|
|
1,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
316,912
|
|
|
|
9,418
|
|
|
|
(123
|
)
|
|
|
326,207
|
|
Equity securities - financial services
|
|
|
3,267
|
|
|
|
111
|
|
|
|
|
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
320,179
|
|
|
$
|
9,529
|
|
|
$
|
(123
|
)
|
|
$
|
329,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
The amortized cost and fair value of debt securities at December 31, 2012, by contractual
maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Available For Sale
|
|
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
2,233
|
|
|
$
|
2,253
|
|
Due after one year through five years
|
|
|
49,987
|
|
|
|
50,534
|
|
Due after five years through ten years
|
|
|
51,495
|
|
|
|
52,918
|
|
Due after ten years
|
|
|
217,175
|
|
|
|
223,636
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
320,890
|
|
|
$
|
329,341
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, 2012, the Company realized gross gains of $31,000 and gross losses of
$1,000 on proceeds from the sale of investment securities of $1.1 million. The Company had no sales of investment securities for the three months ended December 31, 2011.
6.
|
Unrealized Losses on Securities
|
The following table shows the Companys gross unrealized losses and fair value, aggregated by investment category
and length of time that the individual securities have been in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Number of
Securities
|
|
|
Less than Twelve
Months
|
|
|
Twelve Months or
Greater
|
|
|
Total
|
|
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
3
|
|
|
$
|
3,991
|
|
|
$
|
(22
|
)
|
|
$
|
1,345
|
|
|
$
|
(1
|
)
|
|
$
|
5,336
|
|
|
$
|
(23
|
)
|
Freddie Mac
|
|
|
3
|
|
|
|
5,998
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
5,998
|
|
|
|
(24
|
)
|
Governmental National Mortgage Association
|
|
|
5
|
|
|
|
9,087
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
9,087
|
|
|
|
(49
|
)
|
Obligations of states and political subdivisions
|
|
|
4
|
|
|
|
5,330
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
5,330
|
|
|
|
(22
|
)
|
U.S. government agency securities
|
|
|
3
|
|
|
|
2,905
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
2,905
|
|
|
|
(1
|
)
|
Corporate obligations
|
|
|
4
|
|
|
|
2,366
|
|
|
|
(15
|
)
|
|
|
993
|
|
|
|
(7
|
)
|
|
|
3,359
|
|
|
|
(22
|
)
|
Equity securities-financial services
|
|
|
1
|
|
|
|
2,041
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
2,041
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23
|
|
|
$
|
31,718
|
|
|
$
|
(152
|
)
|
|
$
|
2,338
|
|
|
$
|
(8
|
)
|
|
$
|
34,056
|
|
|
$
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Number of
Securities
|
|
|
Less than Twelve
Months
|
|
|
Twelve Months or
Greater
|
|
|
Total
|
|
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
3
|
|
|
$
|
4,083
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,083
|
|
|
$
|
(3
|
)
|
Freddie Mac
|
|
|
1
|
|
|
|
2,002
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
2,002
|
|
|
|
(11
|
)
|
Governmental National Mortgage Association
|
|
|
5
|
|
|
|
6,090
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
6,090
|
|
|
|
(16
|
)
|
U.S. government agency securities
|
|
|
1
|
|
|
|
999
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
999
|
|
|
|
(1
|
)
|
Corporate obligations
|
|
|
5
|
|
|
|
1,059
|
|
|
|
(25
|
)
|
|
|
1,434
|
|
|
|
(66
|
)
|
|
|
2,493
|
|
|
|
(91
|
)
|
Trust-preferred securities
|
|
|
1
|
|
|
|
998
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
998
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16
|
|
|
$
|
15,231
|
|
|
$
|
(57
|
)
|
|
$
|
1,434
|
|
|
$
|
(66
|
)
|
|
$
|
16,665
|
|
|
$
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys investment securities portfolio contains unrealized losses on securities, including mortgage-related
instruments issued or backed by the full faith and credit of the United States government, or generally viewed as having the implied guarantee of the U.S. government, debt obligations of a U.S. state or political subdivision and corporate debt
obligations.
10
The Company reviews its position quarterly and has asserted that at December 31, 2012,
the declines outlined in the above table represent temporary declines and the Company would not be required to sell the security before its anticipated recovery in market value.
The Company has concluded that any impairment of its investment securities portfolio is not other than temporary but is the result of
interest rate changes that are not expected to result in the non-collection of principal and interest during the period.
7.
|
Loans Receivable, Net and Allowance for Loan Losses
|
Loans receivable consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
September 30,
2012
|
|
Held for investment:
|
|
|
|
|
|
|
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
689,622
|
|
|
$
|
696,350
|
|
Construction
|
|
|
3,916
|
|
|
|
3,805
|
|
Commercial
|
|
|
160,059
|
|
|
|
160,192
|
|
Commercial
|
|
|
11,380
|
|
|
|
12,818
|
|
Obligations of states and political subdivisions
|
|
|
34,138
|
|
|
|
33,736
|
|
Home equity loans and lines of credit
|
|
|
46,389
|
|
|
|
47,925
|
|
Other
|
|
|
2,326
|
|
|
|
2,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
947,830
|
|
|
|
957,311
|
|
Less allowance for loan losses
|
|
|
7,555
|
|
|
|
7,302
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
940,275
|
|
|
$
|
950,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for sale:
|
|
|
|
|
|
|
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
2,096
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
Commercial
Loans
|
|
|
Obligations
of States
and Political
Subdivisions
|
|
|
Home
Equity and
Lines of
Credit
|
|
|
Other
Loans
|
|
|
Total
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
689,622
|
|
|
$
|
3,916
|
|
|
$
|
160,059
|
|
|
$
|
11,380
|
|
|
$
|
34,138
|
|
|
$
|
46,389
|
|
|
$
|
2,326
|
|
|
$
|
947,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
|
12,897
|
|
|
|
|
|
|
|
18,144
|
|
|
|
263
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
31,562
|
|
Loans acquired with deteriorated credit quality
|
|
|
341
|
|
|
|
|
|
|
|
6,160
|
|
|
|
533
|
|
|
|
|
|
|
|
44
|
|
|
|
17
|
|
|
|
7,095
|
|
Collectively evaluated for impairment
|
|
|
676,384
|
|
|
|
3,916
|
|
|
|
135,755
|
|
|
|
10,584
|
|
|
|
34,138
|
|
|
|
46,087
|
|
|
|
2,309
|
|
|
|
909,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
Commercial
Loans
|
|
|
Obligations
of States
and Political
Subdivisions
|
|
|
Home
Equity and
Lines of
Credit
|
|
|
Other
Loans
|
|
|
Total
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
696,350
|
|
|
$
|
3,805
|
|
|
$
|
160,192
|
|
|
$
|
12,818
|
|
|
$
|
33,736
|
|
|
$
|
47,925
|
|
|
$
|
2,485
|
|
|
$
|
957,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
|
7,942
|
|
|
|
|
|
|
|
17,415
|
|
|
|
423
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
25,971
|
|
Loans acquired with deteriorated credit quality
|
|
|
271
|
|
|
|
|
|
|
|
6,159
|
|
|
|
1,007
|
|
|
|
|
|
|
|
44
|
|
|
|
19
|
|
|
|
7,500
|
|
Collectively evaluated for impairment
|
|
|
688,137
|
|
|
|
3,805
|
|
|
|
136,618
|
|
|
|
11,388
|
|
|
|
33,736
|
|
|
|
47,690
|
|
|
|
2,466
|
|
|
|
923,840
|
|
11
We maintain a loan review system that allows for a periodic review of our loan portfolio and
the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific loan loss
allowances are established for identified losses based on a review of such information. A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all
amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. We do not aggregate such loans for evaluation purposes. Impairment is measured on a loan-by-loan basis for commercial
and construction loans by the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does
not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.
A loan is considered to be a troubled debt restructuring (TDR) loan when the Company grants a concession to the borrower
because of the borrowers financial condition that it would not otherwise consider. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the
current market rate for new obligations with similar risk. TDR loans that are in compliance with their modified terms and that yield a market rate may be removed from the TDR status after a period of performance.
12
The following table includes the recorded investment and unpaid principal balances for
impaired loans with the associated allowance amount, if applicable. Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans
were impaired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Associated
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
10,101
|
|
|
$
|
10,097
|
|
|
$
|
|
|
|
$
|
6,405
|
|
|
$
|
34
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
23,073
|
|
|
|
23,117
|
|
|
|
|
|
|
|
22,524
|
|
|
|
171
|
|
Commercial
|
|
|
752
|
|
|
|
750
|
|
|
|
|
|
|
|
1,115
|
|
|
|
2
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
293
|
|
|
|
293
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
Other
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
34,236
|
|
|
|
34,274
|
|
|
|
|
|
|
|
30,291
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
3,137
|
|
|
|
3,135
|
|
|
|
698
|
|
|
|
3,052
|
|
|
|
27
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,231
|
|
|
|
1,234
|
|
|
|
266
|
|
|
|
1,244
|
|
|
|
4
|
|
Commercial
|
|
|
44
|
|
|
|
42
|
|
|
|
11
|
|
|
|
43
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
9
|
|
|
|
9
|
|
|
|
2
|
|
|
|
9
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,421
|
|
|
|
4,420
|
|
|
|
977
|
|
|
|
4,348
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
13,238
|
|
|
|
13,232
|
|
|
|
698
|
|
|
|
9,457
|
|
|
|
61
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
24,304
|
|
|
|
24,351
|
|
|
|
266
|
|
|
|
23,768
|
|
|
|
175
|
|
Commercial
|
|
|
796
|
|
|
|
792
|
|
|
|
11
|
|
|
|
1,158
|
|
|
|
2
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
302
|
|
|
|
302
|
|
|
|
2
|
|
|
|
238
|
|
|
|
|
|
Other
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
38,657
|
|
|
$
|
38,694
|
|
|
$
|
977
|
|
|
$
|
34,639
|
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Associated
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
5,182
|
|
|
$
|
5,177
|
|
|
$
|
|
|
|
$
|
4,687
|
|
|
$
|
82
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
22,290
|
|
|
|
22,341
|
|
|
|
|
|
|
|
13,584
|
|
|
|
457
|
|
Commercial
|
|
|
1,386
|
|
|
|
1,385
|
|
|
|
|
|
|
|
581
|
|
|
|
28
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
226
|
|
|
|
226
|
|
|
|
|
|
|
|
238
|
|
|
|
|
|
Other
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29,103
|
|
|
|
29,148
|
|
|
|
|
|
|
|
19,115
|
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
3,031
|
|
|
|
3,030
|
|
|
|
661
|
|
|
|
1,892
|
|
|
|
68
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,284
|
|
|
|
1,286
|
|
|
|
270
|
|
|
|
1,326
|
|
|
|
13
|
|
Commercial
|
|
|
44
|
|
|
|
44
|
|
|
|
12
|
|
|
|
47
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
13
|
|
|
|
1
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,368
|
|
|
|
4,369
|
|
|
|
952
|
|
|
|
3,278
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
8,213
|
|
|
|
8,207
|
|
|
|
661
|
|
|
|
6,579
|
|
|
|
150
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
23,574
|
|
|
|
23,627
|
|
|
|
270
|
|
|
|
14,910
|
|
|
|
470
|
|
Commercial
|
|
|
1,430
|
|
|
|
1,429
|
|
|
|
12
|
|
|
|
628
|
|
|
|
28
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
235
|
|
|
|
235
|
|
|
|
9
|
|
|
|
251
|
|
|
|
1
|
|
Other
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
33,471
|
|
|
$
|
33,517
|
|
|
$
|
952
|
|
|
$
|
22,393
|
|
|
$
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio.
The first six categories are considered not criticized, and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets
that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that
jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. The portion of any loan that
represents a specific allocation of the allowance for loan losses is placed in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the
Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession,
or death occurs to raise awareness of a possible credit event. The Banks Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The
Banks Commercial Loan Officers perform an annual review of all commercial relationships $250,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Bank engages an external
consultant to conduct loan reviews on at least a semi-annual basis. Generally, the external consultant reviews commercial relationships greater than $500,000 and/or all criticized relationships. Detailed reviews, including plans for resolution,
are performed on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the
allowance.
14
The following tables present the classes of the loan portfolio summarized by the aggregate
Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of December 31, 2012 and September 30, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial real estate loans
|
|
$
|
132,220
|
|
|
$
|
3,900
|
|
|
$
|
23,939
|
|
|
$
|
|
|
|
$
|
160,059
|
|
Commercial
|
|
|
10,764
|
|
|
|
358
|
|
|
|
258
|
|
|
|
|
|
|
|
11,380
|
|
Obligations of states and political subdivisions
|
|
|
34,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
177,122
|
|
|
$
|
4,258
|
|
|
$
|
24,197
|
|
|
$
|
|
|
|
$
|
205,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial real estate loans
|
|
$
|
132,841
|
|
|
$
|
5,502
|
|
|
$
|
21,849
|
|
|
$
|
|
|
|
$
|
160,192
|
|
Commercial
|
|
|
12,035
|
|
|
|
360
|
|
|
|
423
|
|
|
|
|
|
|
|
12,818
|
|
Obligations of states and political subdivisions
|
|
|
33,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
178,612
|
|
|
$
|
5,862
|
|
|
$
|
22,272
|
|
|
$
|
|
|
|
$
|
206,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment
performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or non-performing. The following tables present the
risk ratings in the consumer categories of performing and non-performing loans at December 31, 2012 and September 30, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
|
Non-performing
|
|
|
Total
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
677,765
|
|
|
$
|
11,857
|
|
|
$
|
689,622
|
|
Construction
|
|
|
3,916
|
|
|
|
|
|
|
|
3,916
|
|
Home Equity loans and lines of credit
|
|
|
46,069
|
|
|
|
320
|
|
|
|
46,389
|
|
Other
|
|
|
2,309
|
|
|
|
17
|
|
|
|
2,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
730,059
|
|
|
$
|
12,194
|
|
|
$
|
742,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
|
Non-performing
|
|
|
Total
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
685,814
|
|
|
$
|
10,536
|
|
|
$
|
696,350
|
|
Construction
|
|
|
3,805
|
|
|
|
|
|
|
|
3,805
|
|
Home Equity loans and lines of credit
|
|
|
47,552
|
|
|
|
373
|
|
|
|
47,925
|
|
Other
|
|
|
2,466
|
|
|
|
19
|
|
|
|
2,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
739,637
|
|
|
$
|
10,928
|
|
|
$
|
750,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Management further monitors the performance and credit quality of the loan portfolio by
analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as
of December 31, 2012 and September 30, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
31-60 Days
Past
Due
|
|
|
61-90 Days
Past
Due
|
|
|
Greater than
90 Days
Past
Due and still
accruing
|
|
|
Non-Accrual
|
|
|
Total Past
Due
and
Non-
Accrual
|
|
|
Total
Loans
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
672,854
|
|
|
$
|
3,531
|
|
|
$
|
1,380
|
|
|
$
|
|
|
|
$
|
11,857
|
|
|
$
|
16,768
|
|
|
$
|
689,622
|
|
Construction
|
|
|
3,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,916
|
|
Commercial
|
|
|
146,902
|
|
|
|
1,142
|
|
|
|
58
|
|
|
|
|
|
|
|
11,957
|
|
|
|
13,157
|
|
|
|
160,059
|
|
Commercial
|
|
|
10,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,337
|
|
|
|
1,337
|
|
|
|
11,380
|
|
Obligations of states and political subdivisions
|
|
|
34,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,138
|
|
Home equity loans and lines of credit
|
|
|
45,795
|
|
|
|
245
|
|
|
|
29
|
|
|
|
|
|
|
|
320
|
|
|
|
594
|
|
|
|
46,389
|
|
Other
|
|
|
2,274
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
52
|
|
|
|
2,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
915,922
|
|
|
$
|
4,953
|
|
|
$
|
1,467
|
|
|
$
|
|
|
|
$
|
25,488
|
|
|
$
|
31,908
|
|
|
$
|
947,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
31-60 Days
Past
Due
|
|
|
61-90 Days
Past
Due
|
|
|
Greater than
90 Days
Past
Due and still
accruing
|
|
|
Non-Accrual
|
|
|
Total Past
Due
and
Non-
Accrual
|
|
|
Total
Loans
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
680,876
|
|
|
$
|
3,664
|
|
|
$
|
1,274
|
|
|
$
|
|
|
|
$
|
10,536
|
|
|
$
|
15,474
|
|
|
$
|
696,350
|
|
Construction
|
|
|
3,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,805
|
|
Commercial
|
|
|
142,277
|
|
|
|
3,658
|
|
|
|
3,348
|
|
|
|
|
|
|
|
10,909
|
|
|
|
17,915
|
|
|
|
160,192
|
|
Commercial
|
|
|
10,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,870
|
|
|
|
1,870
|
|
|
|
12,818
|
|
Obligations of states and political subdivisions
|
|
|
33,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,736
|
|
Home equity loans and lines of credit
|
|
|
46,967
|
|
|
|
447
|
|
|
|
138
|
|
|
|
|
|
|
|
373
|
|
|
|
958
|
|
|
|
47,925
|
|
Other
|
|
|
2,452
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
33
|
|
|
|
2,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
921,061
|
|
|
$
|
7,783
|
|
|
$
|
4,760
|
|
|
$
|
|
|
|
$
|
23,707
|
|
|
$
|
36,250
|
|
|
$
|
957,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and
reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market
conditions. Our allowance for loan losses consists of two elements: (1) an allocated allowance, which comprises allowances established on specific loans and class allowances based on historical loss experience and current trends, and
(2) an allocated allowance based on general economic conditions and other risk factors in our markets and portfolios. We maintain a loan review system, which allows for a periodic review of our loan portfolio and the early identification of
potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. General loan loss allowances are based upon a
combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, managements judgment and losses which are probable and reasonably estimable. The allowance is
increased through provisions charged against current earnings and recoveries of previously charged-off loans. Loans that are determined to be uncollectible are charged against the allowance. While management uses available information to recognize
probable and reasonably estimable loan losses, future loss provisions may be necessary, based on changing economic conditions. Payments received on impaired loans generally are either applied against principal or reported as interest income,
according to managements judgment as to the collectability of principal. The allowance for loan losses as of December 31, 2012 is maintained at a level that represents managements best estimate of losses inherent in the loan
portfolio, and such losses were both probable and reasonably estimable.
In addition, the FDIC and the Pennsylvania Department
of Banking, as an integral part of their examination process, have periodically reviewed our allowance for loan losses. The banking regulators may require that we recognize additions to the allowance based on its analysis and review of information
available to it at the time of its examination.
Management reviews the loan portfolio on a quarterly basis using a defined,
consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
16
The following table summarizes the primary segments of the ALL, segregated into the amount
required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
Commercial
Loans
|
|
|
Obligations of
States
and
Political
Subdivisions
|
|
|
Home
Equity
Loans and
Lines of
Credit
|
|
|
Other
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
ALL balance at September 30, 2012
|
|
$
|
5,401
|
|
|
$
|
29
|
|
|
$
|
699
|
|
|
$
|
474
|
|
|
$
|
127
|
|
|
$
|
499
|
|
|
$
|
22
|
|
|
$
|
51
|
|
|
$
|
7,302
|
|
Charge-offs
|
|
|
(645
|
)
|
|
|
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
(786
|
)
|
Recoveries
|
|
|
37
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
Provision
|
|
|
756
|
|
|
|
(21
|
)
|
|
|
190
|
|
|
|
(90
|
)
|
|
|
(11
|
)
|
|
|
(88
|
)
|
|
|
111
|
|
|
|
153
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL balance at December 31, 2012
|
|
$
|
5,549
|
|
|
$
|
8
|
|
|
$
|
784
|
|
|
$
|
384
|
|
|
$
|
116
|
|
|
$
|
377
|
|
|
$
|
133
|
|
|
$
|
204
|
|
|
$
|
7,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
Commercial
Loans
|
|
|
Obligations of
States
and
Political
Subdivisions
|
|
|
Home
Equity
Loans and
Lines of
Credit
|
|
|
Other
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
ALL balance at September 30, 2011
|
|
$
|
5,220
|
|
|
$
|
8
|
|
|
$
|
1,255
|
|
|
$
|
500
|
|
|
$
|
74
|
|
|
$
|
622
|
|
|
$
|
80
|
|
|
$
|
411
|
|
|
$
|
8,170
|
|
Charge-offs
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(297
|
)
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Provision
|
|
|
522
|
|
|
|
|
|
|
|
193
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
17
|
|
|
|
58
|
|
|
|
(277
|
)
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL balance at December 31, 2011
|
|
$
|
5,562
|
|
|
$
|
8
|
|
|
$
|
1,448
|
|
|
$
|
507
|
|
|
$
|
74
|
|
|
$
|
525
|
|
|
$
|
135
|
|
|
$
|
134
|
|
|
$
|
8,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
Commercial
Loans
|
|
|
Obligations of
States
and
Political
Subdivisions
|
|
|
Home
Equity
Loans and
Lines of
Credit
|
|
|
Other
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
698
|
|
|
$
|
|
|
|
$
|
266
|
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
977
|
|
Collectively evaluated for impairment
|
|
|
4,851
|
|
|
|
8
|
|
|
|
118
|
|
|
|
773
|
|
|
|
116
|
|
|
|
375
|
|
|
|
133
|
|
|
|
204
|
|
|
|
6,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL balance at December 31, 2012
|
|
$
|
5,549
|
|
|
$
|
8
|
|
|
$
|
384
|
|
|
$
|
784
|
|
|
$
|
116
|
|
|
$
|
377
|
|
|
$
|
133
|
|
|
$
|
204
|
|
|
$
|
7,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
Commercial
Loans
|
|
|
Obligations of
States
and
Political
Subdivisions
|
|
|
Home
Equity
Loans and
Lines of
Credit
|
|
|
Other
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
661
|
|
|
$
|
|
|
|
$
|
270
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
952
|
|
Collectively evaluated for impairment
|
|
|
4,740
|
|
|
|
29
|
|
|
|
429
|
|
|
|
462
|
|
|
|
127
|
|
|
|
490
|
|
|
|
22
|
|
|
|
51
|
|
|
|
6,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL balance at September 30, 2012
|
|
$
|
5,401
|
|
|
$
|
29
|
|
|
$
|
699
|
|
|
$
|
474
|
|
|
$
|
127
|
|
|
$
|
499
|
|
|
$
|
22
|
|
|
$
|
51
|
|
|
$
|
7,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance for loan losses is based on estimates, and actual losses will vary from current
estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is
representative of the risk found in the components of the portfolio at any given date. The Company allocated
17
increased provisions to the residential real estate, commercial real estate and other loan segments for the three month period ending December 31, 2012 due to increased charge off activity
and impairment evaluations in those segments. Despite the above allocations, the allowance for loan losses is general in nature and is available to absorb losses from any loan segment.
The following is a summary of troubled debt restructuring granted during the three months ended December 31, 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2012
|
|
|
|
Number of
Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1
|
|
|
$
|
130
|
|
|
$
|
130
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
130
|
|
|
$
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2011
|
|
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
|
Recorded
Investment
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1
|
|
|
$
|
320
|
|
|
$
|
320
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
5
|
|
|
|
1,614
|
|
|
|
1,614
|
|
Commercial
|
|
|
3
|
|
|
|
216
|
|
|
|
217
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9
|
|
|
$
|
2,150
|
|
|
$
|
2,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of troubled debt restructurings that have subsequently defaulted within one year of
modification.
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended December 31, 2012
|
|
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
|
|
|
$
|
|
|
Construction
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
18
Deposits consist of the following major classifications (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
September 30,
2012
|
|
Non-interest bearing demand accounts
|
|
$
|
46,971
|
|
|
$
|
41,767
|
|
NOW accounts
|
|
|
103,028
|
|
|
|
109,923
|
|
Money market accounts
|
|
|
149,658
|
|
|
|
155,666
|
|
Savings and club accounts
|
|
|
104,007
|
|
|
|
102,143
|
|
Certificates of deposit
|
|
|
564,228
|
|
|
|
586,135
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
967,892
|
|
|
$
|
995,634
|
|
|
|
|
|
|
|
|
|
|
9.
|
Net Periodic Benefit Cost-Defined Benefit Plan
|
For a detailed disclosure on the Banks pension and employee benefits plans, please refer to Note 13 of the
Companys Consolidated Financial Statements for the year ended September 30, 2012 included in the Companys Form 10-K.
The following table comprises the components of net periodic benefit cost for the periods ended (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Service Cost
|
|
$
|
176
|
|
|
$
|
149
|
|
Interest Cost
|
|
|
179
|
|
|
|
178
|
|
Expected return on plan assets
|
|
|
(258
|
)
|
|
|
(203
|
)
|
Amortization of unrecognized loss
|
|
|
97
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
194
|
|
|
$
|
243
|
|
|
|
|
|
|
|
|
|
|
The Bank plans to contribute $600,000 to its pension plan in May 2013.
10.
|
Equity Incentive Plan
|
The Company maintains the ESSA Bancorp, Inc. 2007 Equity Incentive Plan (the Plan). The Plan provides for a
total of 2,377,326 shares of common stock for issuance upon the grant or exercise of awards. Of the shares available under the Plan, 1,698,090 may be issued in connection with the exercise of stock options and 679,236 may be issued as restricted
stock. The Plan allows for the granting of non-qualified stock options (NSOs), incentive stock options (ISOs), and restricted stock. Options are granted at no less than the fair value of the Companys common stock on the
date of the grant.
Certain officers, employees and outside directors were granted in aggregate 1,140,469 NSOs; 317,910 ISOs;
and 590,320 shares of restricted stock. In accordance with generally accepted accounting principles for
Share-Based Payments,
the Company expenses the fair value of all share-based compensation grants over the requisite service periods.
The Company classifies share-based compensation for employees and outside directors within Compensation and employee
benefits in the consolidated statement of income to correspond with the same line item as compensation paid. Additionally, generally accepted accounting principles require the Company to report: (1) the expense associated with the grants
as an adjustment to operating cash flows and (2) any benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense as a financing cash flow.
Stock options vest over a five-year service period and expire ten years after grant date. The Company recognizes compensation expense for
the fair values of these awards, which vest on a straight-line basis over the requisite service period of the awards.
Restricted shares vest over a five-year service period. The product of the number of shares granted and the grant date market price of
the Companys common stock determines the fair value of restricted shares under the Companys restricted stock plan. The Company recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the
requisite service period for the entire award.
19
For the three months ended December 31, 2012 and 2011, the Company recorded $527,000
and $534,000 of share-based compensation expense, respectively, comprised of stock option expense of $172,000 and restricted stock expense of $356,000 for the December 31, 2012 period and stock option expense of $172,000 and restricted stock
expense of $362,000 for the December 31, 2011 period. Expected future expenses relating to the 288,675 non-vested options outstanding as of December 31, 2012, is $261,000 over the remaining vesting period of 0.42 years. Expected future
compensation expense relating to the 115,212 restricted shares at December 31, 2012, is $593,000 over the remaining vesting period of 0.42 years.
The following is a summary of the Companys stock option activity and related information for its option grants for the three month period ended December 31, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock
Options
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding, September 30, 2012
|
|
|
1,458,379
|
|
|
$
|
12.35
|
|
|
|
5.67
|
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2012
|
|
|
1,458,379
|
|
|
$
|
12.35
|
|
|
|
5.42
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2012
|
|
|
1,169,704
|
|
|
$
|
12.35
|
|
|
|
5.42
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of the Companys non-vested options as of December 31, 2012 and
2011 was $2.38.
The following is a summary of the status of the Companys restricted stock as of December 31, 2012,
and changes therein during the three month period then ended:
|
|
|
|
|
|
|
|
|
|
|
Number
of
Restricted Stock
|
|
|
Weighted-
average
Grant Date
Fair Value
|
|
Nonvested at September 30, 2012
|
|
|
115,212
|
|
|
$
|
12.35
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2012
|
|
|
115,212
|
|
|
$
|
12.35
|
|
|
|
|
|
|
|
|
|
|
11.
|
Fair Value Measurement
|
The following disclosures show the hierarchal disclosure framework associated within the level of pricing observations
utilized in measuring assets and liabilities at fair value. The definition of fair value maintains the exchange price notion in earlier definitions of fair value but focuses on the exit price of the asset or liability. The exit price is the price
that would be received to sell the asset or paid to transfer the liability adjusted for certain inherent risks and restrictions. Expanded disclosures are also required about the use of fair value to measure assets and liabilities.
20
The following table presents information about the Companys securities, other real
estate owned and impaired loans measured at fair value as of December 31, 2012 and September 30, 2012 and indicates the fair value hierarchy of the valuation techniques utilized by the Bank to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2012
|
|
Fair Value Measurements Utilized for the
Companys Financial Assets (in thousands):
|
|
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
Balances as of
December 31, 2012
|
|
Securities available-for-sale measured on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
|
|
|
$
|
230,540
|
|
|
$
|
|
|
|
$
|
230,540
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
25,269
|
|
|
|
|
|
|
|
25,269
|
|
U.S. government agencies
|
|
|
|
|
|
|
55,923
|
|
|
|
|
|
|
|
55,923
|
|
Corporate obligations
|
|
|
|
|
|
|
10,647
|
|
|
|
|
|
|
|
10,647
|
|
Trust-preferred securities
|
|
|
|
|
|
|
3,690
|
|
|
|
1,760
|
|
|
|
5,450
|
|
Other debt securities
|
|
|
|
|
|
|
1,512
|
|
|
|
|
|
|
|
1,512
|
|
Equity securities-financial services
|
|
|
2,184
|
|
|
|
|
|
|
|
|
|
|
|
2,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and equity securities
|
|
$
|
2,184
|
|
|
$
|
327,581
|
|
|
$
|
1,760
|
|
|
$
|
331,525
|
|
Foreclosed real estate owned measured on a non-recurring basis
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,503
|
|
|
$
|
2,503
|
|
Impaired loans measured on a non-recurring basis
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,680
|
|
|
$
|
37,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at September 30, 2012
|
|
Fair Value Measurements Utilized for the
Companys Financial Assets (in thousands):
|
|
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
Balances as of
September 30, 2012
|
|
Securities available-for-sale measured on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
|
|
|
$
|
215,804
|
|
|
$
|
|
|
|
$
|
215,804
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
19,517
|
|
|
|
|
|
|
|
19,517
|
|
U.S. government agencies
|
|
|
|
|
|
|
74,484
|
|
|
|
|
|
|
|
74,484
|
|
Corporate obligations
|
|
|
|
|
|
|
8,657
|
|
|
|
|
|
|
|
8,657
|
|
Trust-preferred securities
|
|
|
|
|
|
|
4,493
|
|
|
|
1,740
|
|
|
|
6,233
|
|
Other debt securities
|
|
|
|
|
|
|
1,512
|
|
|
|
|
|
|
|
1,512
|
|
Equity securities-financial services
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and equity securities
|
|
$
|
3,378
|
|
|
$
|
324,467
|
|
|
$
|
1,740
|
|
|
$
|
329,585
|
|
Foreclosed real estate owned measured on a non-recurring basis
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,998
|
|
|
$
|
2,998
|
|
Impaired loans measured on a non-recurring basis
|
|
$
|
|
|
|
$
|
|
|
|
$
|
32,520
|
|
|
$
|
32,520
|
|
The following table presents a summary of changes in the fair value of the Companys Level III investments for the
periods ended December 31, 2012 and September 30, 2012.
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using Significant Unobservable Inputs
(Level III)
|
|
|
|
December 31, 2012
|
|
|
September 30, 2012
|
|
Beginning balance
|
|
$
|
1,740
|
|
|
$
|
|
|
Purchases, sales, issuances, settlements, net
|
|
|
|
|
|
|
1,528
|
|
Total unrealized gain:
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
|
|
Included in other comprehensive income
|
|
|
20
|
|
|
|
212
|
|
Transfers in and/or out of Level III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,760
|
|
|
$
|
1,740
|
|
|
|
|
|
|
|
|
|
|
Each financial asset and liability is identified as having been valued according to a specified level of input, 1, 2 or
3. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Bank has the ability to access at the measurement date. Fair values determined by Level 2 inputs utilize inputs other than quoted prices
included in Level 1 that are observable for the asset, either directly or indirectly. Level 2 inputs include quoted prices for similar assets in active markets, and inputs other than quoted prices that are observable for the asset or
liability. Level 3 inputs are unobservable inputs for the asset, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, has been determined based on the lowest level input that is significant to the fair value
measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.
21
The measurement of fair value should be consistent with one of the following valuation
techniques: market approach, income approach, and/or cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). For
example, valuation techniques consistent with the market approach often use market multiples derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the
appropriate multiple falls requires judgment, considering factors specific to the measurement (qualitative and quantitative). Valuation techniques consistent with the market approach include matrix pricing. Matrix pricing is a mathematical technique
used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on a securitys relationship to other benchmark quoted securities. Most of the securities classified as
available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include
dealer quoted market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bonds terms and conditions, among other things. Securities
reported at fair value utilizing Level 1 inputs are limited to actively traded equity securities whose market price is readily available from the New York Stock Exchange or the NASDAQ exchange. Foreclosed real estate is measured at fair value, less
cost to sell at the date of foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation
allowance are included in the net expenses from foreclosed real estate. Impaired loans are reported at fair value utilizing level three inputs. For these loans, a review of the collateral is conducted and an appropriate allowance for loan losses is
allocated to the loan. At December 31, 2012, 220 impaired loans with a carrying value of $38.7 million were reduced by specific valuation allowance totaling $977,000 resulting in a net fair value of $37.7 million based on Level 3 inputs.
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis
and for which the Company has utilized Level 3 inputs to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value
Measurements
|
(unaudited, in thousands)
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable
Input
|
|
Range
|
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
37,680
|
|
|
Appraisal of
collateral (1)
|
|
Appraisal
adjustments (2)
|
|
0% to 30%
|
Foreclosed real estate owned
|
|
|
2,503
|
|
|
Appraisal of
collateral (1), (3)
|
|
Appraisal
adjustments (2)
|
|
0% to 30%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value
Measurements
|
(unaudited, in thousands)
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable
Input
|
|
Range
|
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
32,520
|
|
|
Appraisal of
collateral (1)
|
|
Appraisal
adjustments (2)
|
|
0% to 30%
|
Foreclosed real estate owned
|
|
|
2,998
|
|
|
Appraisal of
collateral (1), (3)
|
|
Appraisal
adjustments (2)
|
|
0% to 30%
|
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not
identifiable.
|
(2)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and
other appraisal adjustments are presented as a percent of the appraisal.
|
(3)
|
Includes qualitative adjustments by management and estimated liquidation expenses.
|
22
The fair values presented represent the Companys best estimate of fair value using the
methodologies discussed below.
Disclosures about Fair Value of Financial Instruments
The fair values presented represent the Companys best estimate of fair value using the methodologies discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total Fair
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,917
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,917
|
|
Investment and mortgage backed securities Available for sale
|
|
|
2,184
|
|
|
|
327,581
|
|
|
|
1,760
|
|
|
|
331,525
|
|
Loans receivable, held for sale, net
|
|
|
|
|
|
|
|
|
|
|
2,096
|
|
|
|
2,096
|
|
Loans receivable, net
|
|
|
|
|
|
|
|
|
|
|
978,499
|
|
|
|
978,499
|
|
Accrued interest receivable
|
|
|
4,569
|
|
|
|
|
|
|
|
|
|
|
|
4,569
|
|
FHLB stock
|
|
|
19,054
|
|
|
|
|
|
|
|
|
|
|
|
19,054
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
402
|
|
|
|
402
|
|
Bank owned life insurance
|
|
|
28,075
|
|
|
|
|
|
|
|
|
|
|
|
28,075
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
398,559
|
|
|
$
|
|
|
|
$
|
574,202
|
|
|
$
|
972,761
|
|
Short-term borrowings
|
|
|
84,500
|
|
|
|
|
|
|
|
|
|
|
|
84,500
|
|
Other borrowings
|
|
|
|
|
|
|
|
|
|
|
162,523
|
|
|
|
162,523
|
|
Advances by borrowers for taxes and insurance
|
|
|
6,943
|
|
|
|
|
|
|
|
|
|
|
|
6,943
|
|
Accrued interest payable
|
|
|
1,115
|
|
|
|
|
|
|
|
|
|
|
|
1,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total Fair
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,550
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,550
|
|
Investment and mortgage backed securities Available for sale
|
|
|
3,378
|
|
|
|
324,467
|
|
|
|
1,740
|
|
|
|
329,585
|
|
Loans receivable, held for sale, net
|
|
|
|
|
|
|
|
|
|
|
346
|
|
|
|
346
|
|
Loans receivable, net
|
|
|
|
|
|
|
|
|
|
|
997,685
|
|
|
|
997,685
|
|
Accrued interest receivable
|
|
|
4,929
|
|
|
|
|
|
|
|
|
|
|
|
4,929
|
|
FHLB stock
|
|
|
21,914
|
|
|
|
|
|
|
|
|
|
|
|
21,914
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
365
|
|
|
|
365
|
|
Bank owned life insurance
|
|
|
27,848
|
|
|
|
|
|
|
|
|
|
|
|
27,848
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
409,499
|
|
|
$
|
597,028
|
|
|
$
|
|
|
|
$
|
1,006,527
|
|
Short-term borrowings
|
|
|
43,281
|
|
|
|
|
|
|
|
|
|
|
|
43,281
|
|
Other borrowings
|
|
|
|
|
|
|
195,636
|
|
|
|
|
|
|
|
195,636
|
|
Advances by borrowers for taxes and insurance
|
|
|
3,432
|
|
|
|
|
|
|
|
|
|
|
|
3,432
|
|
Accrued interest payable
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
September 30, 2012
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,917
|
|
|
$
|
19,917
|
|
|
$
|
15,550
|
|
|
$
|
15,550
|
|
Investment securities available for sale
|
|
|
331,525
|
|
|
|
331,525
|
|
|
|
329,585
|
|
|
|
329,585
|
|
Loans receivable, held for sale, net
|
|
|
2,096
|
|
|
|
2,096
|
|
|
|
346
|
|
|
|
346
|
|
Loans receivable, net
|
|
|
940,275
|
|
|
|
978,499
|
|
|
|
950,009
|
|
|
|
997,339
|
|
Accrued interest receivable
|
|
|
4,569
|
|
|
|
4,569
|
|
|
|
4,929
|
|
|
|
4,929
|
|
FHLB stock
|
|
|
19,054
|
|
|
|
19,054
|
|
|
|
21,914
|
|
|
|
21,914
|
|
Mortgage servicing rights
|
|
|
402
|
|
|
|
402
|
|
|
|
365
|
|
|
|
365
|
|
Bank owned life insurance
|
|
|
28,075
|
|
|
|
28,075
|
|
|
|
27,848
|
|
|
|
27,848
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
967,892
|
|
|
$
|
972,761
|
|
|
$
|
995,634
|
|
|
$
|
1,006,527
|
|
Short-term borrowings
|
|
|
84,500
|
|
|
|
84,500
|
|
|
|
43,281
|
|
|
|
43,281
|
|
Other borrowings
|
|
|
159,460
|
|
|
|
162,523
|
|
|
|
191,460
|
|
|
|
195,636
|
|
Advances by borrowers for taxes and insurance
|
|
|
6,943
|
|
|
|
6,943
|
|
|
|
3,432
|
|
|
|
3,432
|
|
Accrued interest payable
|
|
|
1,115
|
|
|
|
1,115
|
|
|
|
1,128
|
|
|
|
1,128
|
|
23
Financial instruments are defined as cash, evidence of an ownership interest in an entity,
or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties
other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the fair value would be calculated based upon the market price per trading unit of the instrument.
If no readily available market exists, the fair value for financial instruments should be based upon managements judgment regarding
current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling.
As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting
values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the values are based may have a significant impact on the resulting estimated values.
As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements
of the Bank, are not considered financial instruments but have value, this fair value of financial instruments would not represent the full market value of the Company.
The Company employed simulation modeling in determining the fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:
Cash and Cash Equivalents, Accrued Interest Receivable, Short-Term Borrowings, Advances by Borrowers for Taxes and Insurance, and Accrued Interest
Payable
The fair value approximates the current book value.
Bank-Owned Life Insurance
The fair value is equal to the cash
surrender value of the Bank-owned life insurance.
Investment and Mortgage-Backed Securities Available for Sale and FHLB Stock
The fair value of investment and mortgage-backed securities available for sale is equal to the available quoted market
price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Since the FHLB stock is not actively traded on a secondary market and held exclusively by member financial institutions, the
fair market value approximates the carrying amount.
Loans Receivable
The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the
credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice
frequently and with no significant change in credit risk, fair values are based on carrying values.
Mortgage Servicing Rights
The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights. Fair value
for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.
Deposit Liabilities
The fair values disclosed for demand, savings,
and money market deposit accounts are valued at the amount payable on demand as of quarter-end. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the
existing portfolio to current market rates being offered for deposits of similar remaining maturities.
24
Other Borrowings
Fair values for other borrowings are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the existing portfolio to current market rates being
offered for other borrowings of similar remaining maturities.
Commitments to Extend Credit
These financial instruments are generally not subject to sale, and fair values are not readily available. The carrying value, represented
by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar
credit risk, are not considered material for disclosure.