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Harvard Illinois Bancorp, Inc. (HARI) SEC Filing 10-Q Quarterly report for the period ending Sunday, June 30, 2013

Harvard Illinois Bancorp, Inc.

CIK: 1471266 Ticker: HARI
Document And Entity Information
6 Months Ended
Jun. 30, 2013
Aug. 14, 2013
Document and Entity Information [Abstract]    
Entity Registrant Name Harvard Illinois Bancorp, Inc.  
Document Type 10-Q  
Current Fiscal Year End Date --12-31  
Entity Common Stock, Shares Outstanding   829,850
Amendment Flag false  
Entity Central Index Key 0001471266  
Entity Current Reporting Status Yes  
Entity Voluntary Filers No  
Entity Filer Category Smaller Reporting Company  
Entity Well-known Seasoned Issuer No  
Document Period End Date Jun. 30, 2013  
Document Fiscal Year Focus 2013  
Document Fiscal Period Focus Q2  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

 

(Mark One)

 

(x)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

 

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

 

OR

 

( )

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

 

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period of _________ to _________

 

Commission File Number   000-53935

 

Harvard Illinois Bancorp, Inc.

 

 

 

(Exact name of Registrant as specified in its charter)

 

Maryland

27-2238553

(State or other jurisdiction of incorporation)

(I.R.S. Employer Identification Number)

 

 

58 N. Ayer Street

 

Harvard, IL

60033

(Address of principal executive office)

(Zip Code)

 

Registrant’s telephone number, including area code:  (815) 943-5261

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

(x)  Yes

( )  No

 

Indicate by check mark whether the Registrant has submitted electronic and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period the registrant was required to submit and post such filings).

 

(x) Yes

( )  No

 

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

 

( )  Large Accelerated Filer

( ) Accelerated Filer

 

( )  Non-Accelerated Filer

(x)  Smaller Reporting Company

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

( )  Yes

(x)  No

 

As of August 14, 2013, 829,850 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

 

 
1

 

 

HARVARD ILLINOIS BANCORP, INC.

 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED June 30, 2013

 

TABLE OF CONTENTS

 

 

Page

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets

3

 

 

 

 

Consolidated Statements of Income

4

     
 

Consolidated Statements of Comprehensive Income

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity

6

 

 

 

 

Consolidated Statements of Cash Flows

7

 

 

 

 

Notes to the Consolidated Financial Statements

8

 

 

 

Item 2.

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

42

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

61

 

 

 

Item 4.

Controls and Procedures

61

 

 

 

PART II

OTHER INFORMATION

62

 

 

 

Item 1.

Legal Proceedings

62

Item 1A.

Risk Factors

62

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3.

Defaults Upon Senior Securities

62

Item 4.

Mine Safety Disclosures

62

Item 5.

Other Information

62

Item 6.

Exhibits

62

 

 

 

 

Signatures

63

 

 

 

 

 
2

 

 

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

   

(Unaudited)

         
   

June 30,

2013

   

December 31,

2012

 

Assets

               

Cash and due from banks

  $ 1,237     $ 1,102  

Interest-bearing demand deposits in banks

    2,512       2,743  

Securities purchased under agreements to resell

    20,909       19,014  
                 

Cash and cash equivalents

    24,658       22,859  
                 

Interest-bearing deposits with other financial institutions

    8,126       9,126  

Available-for-sale securities

    6,119       7,879  

Held-to-maturity securities, at amortized cost (estimated fair value of $966 and $1,314 at June 30, 2013 and December 31, 2012, respectively)

    940       1,263  

Loans, net of allowance for loan losses $2,563 and $2,550 at June 30, 2013 and December 31, 2012, respectively

    115,950       114,976  

Premises and equipment, net

    3,319       3,395  

Federal Home Loan Bank stock, at cost

    870       1,404  

Foreclosed assets held for sale

    954       886  

Accrued interest receivable

    738       612  

Deferred income taxes

    1,994       1,859  

Bank-owned life insurance

    4,415       4,357  

Loan servicing rights

    529       412  

Other

    263       339  
                 

Total assets

  $ 168,875     $ 169,367  

Liabilities and Equity

               

Liabilities

               

Deposits

               

Demand

  $ 5,711     $ 6,278  

Savings, NOW and money market

    52,448       51,571  

Certificates of deposit

    73,327       76,136  
                 

Total deposits

    131,486       133,985  
                 

Federal Home Loan Bank advances

    12,890       12,357  

Advances from borrowers for taxes and insurance

    391       382  

Deferred compensation

    2,382       2,338  

Accrued interest payable

    27       29  

Other

    1,684       659  
                 

Total liabilities

    148,860       149,750  
                 

Commitments and Contingencies

           
                 

Stockholders’ Equity

               

Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued or outstanding

           

Common stock, $.01 par value, 30,000,000 shares authorized; 829,850 and 816,076 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively

    8       8  

Additional paid-in capital

    7,153       6,976  

Unearned ESOP shares, at cost

    (481 )     (502 )

Amount reclassified on ESOP shares

    (201 )     (163 )

Retained earnings

    13,562       13,291  

Accumulated other comprehensive income (loss), net of tax

    (26 )     7  
                 

Total stockholders’ equity

    20,015       19,617  
                 

Total liabilities and stockholders’ equity

  $ 168,875     $ 169,367  

 

See accompanying notes to the consolidated financial statements.

 

 
3

 

 

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME      

(Dollars in thousands)

 

   

(Unaudited)

Three Months Ended June 30,

   

(Unaudited)

Six Months Ended June 30,

 
   

2013

   

2012

   

2013

   

2012

 
                                 

Interest and Dividend Income

                               

Interest and fees on loans

  $ 1,491     $ 1,721     $ 3,036     $ 3,444  

Securities

                               

Taxable

    22       46       56       91  

Tax-exempt

    9       2       18       2  

Securities purchased under agreements to resell

    45       26       89       68  

Other

    20       25       41       50  
                                 

Total interest and dividend income

    1,587       1,820       3,240       3,655  
                                 

Interest Expense

                               

Deposits

    317       352       638       733  

Federal Home Loan Bank advances

    67       89       139       178  
                                 

Total interest expense

    384       441       777       911  
                                 

Net Interest Income

    1,203       1,379       2,463       2,744  
                                 

Provision for Loan Losses

    49       135       193       308  
                                 

Net Interest Income After Provision for Loan Losses

    1,154       1,244       2,270       2,436  
                                 

Noninterest Income

                               

Customer service fees

    73       62       147       131  

Brokerage commission income

          11       1       20  

Net realized gains (losses) on loan sales

    130       (25 )     222       91  

Losses on other than temporary impairment of equity securities

                      (1 )

Loan servicing fees

    56       51       105       104  

Bank-owned life insurance income, net

    29       30       57       62  

Other

    2       3       4       6  
                                 

Total noninterest income

    290       132       536       413  
                                 

Noninterest Expense

                               

Compensation and benefits

    626       627       1,266       1,303  

Occupancy

    124       121       251       244  

Data processing

    77       82       157       183  

Professional fees

    130       151       244       287  

Marketing

    22       14       52       28  

Office supplies

    8       14       18       27  

Federal deposit insurance

    43       37       76       74  

Indirect automobile loan servicing fee

    30       29       53       54  

Foreclosed assets, net

    25       52       84       171  

Other

    101       142       174       237  
                                 

Total noninterest expense

    1,186       1,269       2,375       2,608  
                                 

Income Before Income Taxes

    258       107       431       241  
                                 

Provision for Income Taxes

    64       22       78       5  
                                 

Net Income

  $ 194     $ 85     $ 353     $ 236  
                                 

Earnings Per Share

                               

Basic (Note 4)

  $ .25     $ .12     $ .45     $ .32  

Diluted

    .25       .11       .45       .32  

 

See accompanying notes to the consolidated financial statements.

 

 
4

 

 

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

 

   

(Unaudited)

Three Months Ended June 30,

   

(Unaudited)

Six Months Ended June 30,

 
   

2013

   

2012

   

2013

   

2012

 
                                 

Net Income

  $ 194     $ 85     $ 353     $ 236  
                                 

Other Comprehensive Income

                               

Unrealized depreciation on available-for-sale securities, net of taxes of $(14) and $(4) for the three months ended June 30, 2013 and 2012, respectively and $17 and $0 for the six months ended June 30, 2013 and 2012, respectively

    (27 )     (7 )     (33 )      

Less: reclassification adjustment for loss on other-than-temporary impairment of equity securities included in net income, net of taxes of $0 for the three and six months ended June 30, 2013 and 2012, respectively

                      (1 )
                                 

Comprehensive Income

  $ 167     $ 78     $ 320     $ 235  

 

See accompanying notes to the consolidated financial statements.

 

 
5

 

 

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

 

   

Common

Stock

   

Additional

Paid-in

Capital

   

Unearned

ESOP

Shares

   

Amount

Reclassified

On ESOP

Shares

   

Retained

Earnings

   

Accumulated

Other

Comprehensive

Income (Loss)

   

Total

 
                                                         

For the Six Months Ended
June 30, 2013 (unaudited)

                                                       

Balance, January 1, 2013

  $ 8     $ 6,976     $ (502 )   $ (163 )   $ 13,291     $ 7     $ 19,617  
                                                         

Net income

                            353             353  
                                                         

Other comprehensive loss

                                  (33 )     (33 )
                                                         

ESOP shares earned, 2,092 shares

          8       21                         29  
                                                         

Stock-based compensation expense

          57                               57  
                                                         

Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation

                      (38 )                 (38 )
                                                         

Exercise of stock options, 13,774 shares

          112                               112  
                                                         

Dividends on common stock, $.10 per share

                            (82 )           (82 )
                                                         

Balance, June 30, 2013

  $ 8     $ 7,153     $ (481 )   $ (201 )   $ 13,562     $ (26 )   $ 20,015  
                                                         

For the Six Months Ended
June 30, 2012 (unaudited)

                                                       
                                                         

Balance, January 1, 2012

  $ 8     $ 6,852     $ (544 )   $ (80 )   $ 12,403     $ 23     $ 18,662  
                                                         

Net income

                            236             236  
                                                         

Other comprehensive loss

                                  (1 )     (1 )
                                                         

ESOP shares earned, 2,092 shares

          2       21                         23  
                                                         

Stock-based compensation expense

          66                               66  
                                                         

Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation

                      (26 )                 (26 )
                                                         

Balance, June 30, 2012

  $ 8     $ 6,920     $ (523 )   $ (106 )   $ 12,639     $ 22     $ 18,960  

 

See accompanying notes to consolidated financial statements.

 

 
6

 

 

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 

   

(Unaudited)

Six Months Ended June 30,

 
   

2013

   

2012

 
                 

Operating Activities

               

Net income

  $ 353     $ 236  

Items not requiring (providing) cash

               

Depreciation

    101       102  

Provision for loan losses

    193       308  

Amortization (accretion) of premiums and discounts on securities

    13       (16 )

Deferred income taxes

    (118 )     (142 )

Net realized gains on loan sales

    (222 )     (91 )

Loss on other than temporary impairment of equity securities

          1  

Losses and write down on foreclosed assets held for sale

    79       171  

Bank-owned life insurance income, net

    (58 )     (64 )

Originations of loans held for sale

    (11,783 )     (6,999 )

Proceeds from sales of loans held for sale

    11,888       7,082  

ESOP compensation expense

    29       23  

Stock-based compensation expense

    57       66  

Changes in

               

Accrued interest receivable

    (126 )     105  

Other assets

    76       159  

Accrued interest payable

    (2 )     1  

Deferred compensation

    44       40  

Other liabilities

    987       354  

Net cash provided by operating activities

    1,511       1,336  
                 

Investing Activities

               

Net (increase) decrease in interest-bearing deposits

    1,000       (2,392 )

Purchases of available-for-sale securities

    (1,080 )     (6,367 )

Proceeds from maturities and pay-downs of available-for-sale securities

    2,764       2,007  

Proceeds from maturities and pay-downs of held-to-maturity securities

    336       308  

Net change in loans

    (1,443 )     (7,456 )

Purchase of premises and equipment

    (25 )     (34 )

Purchases of Federal Home Loan Bank stock

    (426 )      

Proceeds from redemption of Federal Home Loan Bank stock

    960       3,889  

Proceeds from sale of foreclosed assets

    129       160  

Net cash provided by (used in) investing activities

    2,215       (9,885 )
                 

Financing Activities

               

Net increase in demand deposits, money market, NOW and savings accounts

    310       993  

Net decrease in certificates of deposit, including brokered certificates

    (2,809 )     (4,274 )

Net increase in advances from borrowers for taxes and insurance

    9       37  

Proceeds from Federal Home Loan Bank advances

    9,500       7,000  

Repayments of Federal Home Loan Bank advances

    (8,967 )     (3,145 )

Dividends paid

    (82 )      

Stock options exercised

    112        

Net cash provided by (used in) financing activities

    (1,927 )     611  
                 

Net Increase (Decrease) in Cash and Cash Equivalents

    1,799       (7,938 )
                 

Cash and Cash Equivalents, Beginning of Period

    22,859       22,227  
                 

Cash and Cash Equivalents, End of Period

  $ 24,658     $ 14,289  
                 

Supplemental Cash Flows Information

               

Interest paid

  $ 779     $ 910  

Income taxes paid

    176       86  

Foreclosed assets acquired in settlement of loans

    267       125  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
7

 

 

HARVARD ILLINOIS BANCORP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (Dollar amounts in thousands)

 

Note 1:        Basis of Financial Statement Presentation

 

The consolidated financial statements include the accounts of Harvard Illinois Bancorp, Inc. (Company) and its wholly-owned subsidiary, Harvard Savings Bank (Bank). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and with instructions for Form 10–Q and Rule 10–01 of Regulation S–X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from these estimates. In the opinion of management, the preceding unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of June 30, 2013 and December 31, 2012, and the results of its operations for the three and six month periods ended June 30, 2013 and 2012. These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2012 included as part of Harvard Illinois Bancorp, Inc.’s Form 10-K (File No. 000-53935) (2012 Form 10-K) filed with the Securities and Exchange Commission on March 22, 2013.

 

The results of operations for the six month period ended June 30, 2013 are not necessarily indicative of the results that may be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes thereto included in the 2012 Form 10–K.

 

 

Note 2:        New Accounting Pronouncements

 

Recent and Future Accounting Requirements

 

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU improves the transparency of reporting of amounts reclassified out of accumulated other comprehensive income. The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements. The new amendments will require the Company to present (either on the face of the statements where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. It will also require a cross-reference to other disclosures currently required. For public entities, the amendments are effective for reporting periods beginning after December 15, 2012. The Company adopted the ASU during the first quarter of 2013.

 

 
8

 

 

Note 3:        Stock-based Compensation

 

In connection with the conversion to stock form, the Bank established an ESOP for the exclusive benefit of eligible employees (all salaried employees who have completed at least 1,000 hours of service in a twelve-month period and have attained the age of 18). The ESOP borrowed funds from the Company in an amount sufficient to purchase 62,775 shares (approximately 8% of the common stock issued in the stock offering). The loan is secured by the shares purchased and is being repaid by the ESOP with funds from contributions made by the Bank and dividends received by the ESOP, with funds from any contributions on ESOP assets. Contributions are being applied to repay interest on the loan first, then the remainder are being applied to principal. The loan is expected to be repaid over a period of up to 15 years. Shares purchased with the loan proceeds are being held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants vest 100% in their accrued benefits under the employee stock ownership plan after three vesting years, with no prorated vesting prior to reaching three vesting years. Vesting is accelerated upon retirement, death or disability of the participant or a change in control of the Bank. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Since the Bank’s annual contributions are discretionary, benefits payable under the ESOP cannot be estimated.

 

Participants receive the shares at the end of employment. Because the Company’s stock is not traded on an established market, as of June 30, 2013, it is required to provide the participants in the Plan with a put option to repurchase their shares. This repurchase obligation is reflected in the Company’s financial statements in other liabilities and reduces shareholders’ equity by the estimated fair value of the earned shares.

 

The Company is accounting for its ESOP in accordance with ASC Topic 718, Employers Accounting for Employee Stock Ownership Plans. Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per shares computations. Dividends, if any, on unallocated ESOP shares are recorded as a reduction of debt and accrued interest. ESOP compensation expense for the six months ended June 30, 2013 and 2012 was $29 and $23, respectively.

 

A summary of ESOP shares is as follows:

 

   

June 30,
2013

   

December 31,
2012

 
                 

Allocated shares

    12,556       8,370  

Shares released for allocation

    2,092       4,185  

Unearned shares

    48,127       50,220  
                 

Total ESOP shares

    62,775       62,775  
                 

Fair value of unearned ESOP shares

  $ 637     $ 452  

 

The Company is obligated at the option of each beneficiary to repurchase shares of the ESOP upon the beneficiary’s termination or after retirement. At June 30, 2013, the fair value of the 14,648 allocated shares held by the ESOP is $201. The fair value of all shares subject to the repurchase obligation is $201.

 

On May 26, 2011, the stockholders approved the Harvard Illinois Bancorp, Inc. 2011 Equity Incentive Plan (the “Equity Incentive Plan”) for employees and directors of the Company. The Equity Incentive Plan authorizes the issuance of up to 109,856 shares of the Company’s common stock, with no more than 31,387 of shares as restricted stock awards and 78,469 as stock options, either incentive stock options or non-qualified stock options. The exercise price of options granted under the Equity Incentive Plan may not be less than the fair market value on the date the stock option is granted. The compensation committee of the board of directors has sole discretion to determine the amount and to whom equity incentive awards are granted. Certain option awards provide for accelerated vesting if there is a change of control (as defined in the Equity Incentive Plan).

 

 
9

 

 

On June 23, 2011, the compensation committee of the board of directors approved the awards of 73,761 options to purchase Company stock and 31,387 shares of restricted stock. Of the 73,761 stock options granted, 63,167 were qualified stock options and 10,594 were nonqualified. The remaining 4,708 shares were awarded on November 29, 2012. Stock options and restricted stock vest over a five year period, and stock options expire ten years after issuance. Apart from the vesting schedule for both stock options and restricted stock, there are no performance-based conditions or any other material conditions applicable to the awards issued.

 

A summary of the option activity under the Equity Incentive Plan as of June 30, 2013, and changes for the six months then ended, is presented below:

 

   

June 30, 2013

 
   

Shares

   

Weighted-Average Exercise Price

   

Weighted-Average Remaining Contractual Term

   

Aggregate

Intrinsic Value

 
                                 

Outstanding, January 1, 2013

    78,469     $ 8.27                  

Granted

                           

Exercised

    (13,774 )     8.10                  

Forfeited or expired

                           
                                 

Outstanding, June 30, 2013

    64,695     $ 8.31       8.09     $ 352  
                                 

Exercisable, June 30, 2013

    15,730     $ 8.10       7.98     $ 89  

 

 

Stock-based compensation expense for stock options for the six month periods ended June 30, 2013 and 2012 was $33 and $30, respectively.

 

As of June 30, 2013, total unrecognized compensation costs related to nonvested stock options amounted to $205. That cost is expected to be recognized over a weighted-average period of 3.09 years.   

 

A summary of the status of the Company’s nonvested stock options as of June 30, 2013, and changes during the six month period then ended, is presented below:

 

   

Shares

   

Weighted-

Average

Grant-Date

 Fair Value

 
                 

Nonvested, January 1, 2013

    63,717     $ 4.20  

Granted

           

Vested

    14,752       4.11  

Forfeited

           
                 

Nonvested, June 30, 2013

    48,965     $ 4.23  

 

 

 

 
10

 

 

The following table summarizes the nonvested restricted stock activity for the six months ended June 30, 2013:

 

   

Shares

   

Weighted

Average

Grant-Date

Fair Value

 
                 

Nonvested at December 31, 2012

    23,854     $ 8.10  

Granted

           

Vested

    5,964       8.10  

Forfeited

           
                 

Nonvested at June 30, 2013

    17,890     $ 8.10  

 

 

The fair value of the restricted stock awards is amortized to compensation expense over the vesting period (five years) and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. At the date of grant the par value of the shares granted was recorded in equity as a credit to common stock and a debit to paid-in capital. Stock-based compensation expense for restricted stock for the six month periods ended June 30, 2013 and 2012 was $24 and $36, respectively. Unrecognized compensation expense for nonvested restricted stock awards was $145 at June 30, 2013 and is expected to be recognized over a weighted average period of 3.0 years.

 

Total compensation expense under the Equity Incentive Plan for the six month periods ended June 30, 2013 and 2012 was $57 and $66, respectively.

 

 

 

Note 4:

Earnings Per Common Share (“EPS”)

 

Basic and diluted earnings per common share are presented for the three-month and six-month periods ended June 30, 2013 and 2012. The factors used in the earnings per common share computation follow:

 

   

Three Months

Ended
June 30, 2013

   

Three Months

Ended
June 30, 2012

   

Six Months

Ended
June 30, 2013

   

Six Months

 Ended
June 30, 2012

 
                                 

Net income

  $ 194     $ 85     $ 353     $ 236  

Net income allocated to participating securities

    (4 )           (8 )      

Net income allocated to common stock

  $ 190     $ 85     $ 345     $ 236  

Basic weighted average shares outstanding

    811,035       790,966       806,443       790,966  

Less: Average unallocated ESOP shares

    (48,476 )     (52,661 )     (48,999 )     (53,184 )

Basic average shares outstanding

    762,559       738,305       757,444       737,782  

Diluted effect of stock options

    6,145             5,167        

Diluted effect of restricted stock awards

    2,569       4,533       2,654       3,689  
                                 

Diluted average shares outstanding

    771,273       742,838       765,265       741,471  
                                 

Basic earnings per share

  $ .25     $ .12     $ .45     $ .32  

Diluted earnings per share

  $ .25     $ .11     $ .45     $ .32  

 

 

Options to purchase 73,761 shares at a weighted-average exercise price of $8.10 were outstanding at June 30, 2012, but were not included in the computation of diluted earnings per share as the options were considered antidilutive for the periods ended June 30, 2012.

 

 
11

 

 

Note 5:         Securities Purchased Under Agreements to Resell

 

The Company enters into purchases of securities under agreements to resell. The amounts advanced under these agreements were $20,909 and $19,014 at June 30, 2013 and December 31, 2012, respectively, and represent short-term cash investment alternatives. These agreements are over-collateralized by 103% with collateral consisting of securities guaranteed by the “full faith and credit” of the United States government, typically SBA securities. During the period, the securities were delivered by appropriate entry into the third-party custodian’s account designated by the Company under a written custodial agreement that explicitly recognizes the Company’s interest in the securities. At June 30, 2013 and December 31, 2012, these agreements mature by notice by the Company or 30 days by the custodian.

 

At June 30, 2013 and December 31, 2012, agreements to resell securities purchased were outstanding with the following entities:

 

   

June 30,
2013

   

December 31,

2012

 
                 

BCM High Income Fund, LP

  $ 9,450     $ 8,053  

Coastal Securities

    5,898       10,508  

First Farmers Financial

    5,561        

HEC Opportunity Fund

          453  
                 

Total

  $ 20,909     $ 19,014  

 

 

 

Note 6:        Securities

 

The amortized cost and approximate fair value of securities, together with gross unrealized gains and losses, of securities are as follows:

 

   

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair Value

 

Available-for-sale Securities:

                               

June 30, 2013:

                               

U.S. government agencies

  $ 989     $     $ (14 )   $ 975  

State and political subdivisions

    4,019       1       (69 )     3,951  

Mortgage-backed:

                               

Government-sponsored enterprises (GSE) – residential

    699       17             716  

Equity securities

    452       25             477  
                                 
    $ 6,159     $ 43     $ (83 )   $ 6,119  
                                 

December 31, 2012:

                               

U.S. Government and federal agency

  $ 3,194     $ 5     $ (14 )   $ 3,185  

Mortgage-backed:

                               

Government-sponsored enterprises (GSE) – residential

    758       21             779  

State and political subdivisions

    3,467       5       (23 )     3,449  

Equity securities

    450       16             466  
                                 
    $ 7,869     $ 47     $ (37 )   $ 7,879  

 

 
12

 

 

   

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair Value

 

Held-to-maturity Securities:

                               

June 30, 2013:

                               

U.S. government agencies

  $ 500     $ 12     $     $ 512  

Mortgage-backed:

                               

Government-sponsored enterprises (GSE) – residential

    15                   15  

Private-label residential

    425       14             439  
                                 
    $ 940     $ 26     $     $ 966  
                                 

December 31, 2012:

                               

U.S. Government agencies

  $ 500     $ 21     $     $ 521  

Mortgage-backed:

                               

Government-sponsored enterprises (GSE) – residential

    17       1             18  

Private-label residential

    746       29             775  
                                 
    $ 1,263     $ 51     $     $ 1,314  

 

 

The Company held no securities of a single issuer at June 30, 2013 or December 31, 2012 with a book value that exceeded 10% of total equity, with the exception of obligations of U.S. Treasury and other U.S. government agencies and corporations.

 

Available for sale equity securities consist of shares in the Shay Asset Management mutual funds, shares of FHLMC common stock, and shares in other financial institutions. Other than temporary impairments recorded for the six month periods ended June 30, 2013 and 2012 totaled $0 and $1, respectively.

 

As of June 30, 2013 and December 31, 2012, the Company held investments in Shay Asset Management mutual funds with a fair value of $444 and $447. The investments in mutual funds are valued using available market prices. Management performed an analysis and deemed the remaining investment in the mutual funds was not other than temporarily impaired as of June 30, 2013 and December 31, 2012.

 

As of June 30, 2013 and December 31, 2012, the Company held investments in FHLMC common stock with a fair value of $10 and $2, respectively. The investments in FHLMC common stock is valued using available market prices. Management performed an analysis and deemed the remaining investment in FHLMC common stock was not other than temporarily impaired as of June 30, 2013 and December 31, 2012.

 

As of June 30, 2013 and December 31, 2012, the Company held investments in other equity securities with a fair value of $23 and $17, respectively. The Company recorded other-than-temporary impairments on other equity securities of $0 and $1 for the six month periods ended June 30, 2013 and 2012, respectively. Management performed an analysis and deemed the remaining investment in other equity securities was not other than temporarily impaired as of June 30, 2013 and December 31, 2012.

 

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes was $1,136 and $934 as of June 30, 2013 and December 31, 2012, respectively.

 

There were no sales of available-for-sale securities for the six months ended June 30, 2013 and 2012.

 

 
13

 

 

The amortized cost and fair value of available-for-sale securities and held-to-maturity securities at June 30, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

   

Available-for-sale

   

Held-to-maturity

 
   

Amortized
Cost

   

Fair
Value

   

Amortized
Cost

   

Fair
Value

 
                                 

Within one year

  $ 533     $ 533     $ 500     $ 512  

One to five years

    3,043       3,010              

Five to ten years

    1,432       1,383              

After ten years