Attached files
| file | filename |
|---|---|
| 8-K/A - HOME FEDERAL BANCORP, INC. FORM 8-K/A - Home Federal Bancorp, Inc. | k8a1023.htm |
| EX-23.1 - EXHIBIT 23.1 - Home Federal Bancorp, Inc. | ex2311023.htm |
EXHIBIT
99.2
INDEX
OF FINANCIAL STATEMENTS
| Description |
Reference
|
| Report of Independent Registered Public Accounting Firm |
F-2
|
| Statement of Assets Acquired and Liabilities Assumed at August 7, 2009 |
F-3
|
| Notes to Statement of Assets Acquired and Liabilities Assumed |
F-4
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Home
Federal Bancorp, Inc. and Subsidiary
Nampa,
Idaho
We have
audited the accompanying statement of assets acquired and liabilities assumed by
Home Federal Bank (a wholly owned subsidiary of Home Federal Bancorp, Inc.)
pursuant to the Purchase and Assumption Agreement dated August 7, 2009. This
financial statement is the responsibility of the Company’s management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. An audit also includes assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our
opinion, the accompanying statement of assets acquired and liabilities assumed
by Home Federal Bank pursuant to the Purchase and Assumption Agreement dated
August 7, 2009, is fairly presented, in all material respects, on the basis of
accounting described in Note 3.
/s/Moss Adams
LLP
Spokane,
Washington
October
23, 2009
F-2
Statement
of Assets Acquired and Liabilities Assumed
as
of August 7, 2009
(in
thousands)
|
Cash
|
$ | 8,146 | ||
|
Due
from banks
|
9,372 | |||
|
Federal
Funds Sold
|
4,560 | |||
|
Cash
and cash equivalents
|
22,078 | |||
|
Investment
securities
|
15,634 | |||
|
Loans
receivable, net of discount of $13,173, and allowance for loan
losses of $16,812
|
112,350 | |||
|
Real
estate and other repossessed assets
|
7,363 | |||
|
FDIC
indemnification asset
|
30,038 | |||
|
Federal
Home Loan Bank of Seattle stock
|
735 | |||
|
Accrued
interest receivable
|
947 | |||
|
Other
assets
|
659 | |||
|
Total
Assets Acquired
|
$ | 189,804 | ||
|
Deposits:
|
||||
|
Demand, money market and
savings deposit accounts
|
$ | 67,971 | ||
|
Certificates of
deposit
|
75,488 | |||
|
Total deposits
|
143,459 | |||
|
Advances
from Federal Home Loan Bank of Seattle and other
borrowings
|
19,228 | |||
|
Accrued
interest payable
|
243 | |||
|
Other
liabilities
|
1,827 | |||
|
Deferred
taxes
|
9,756 | |||
|
Total
Liabilities Assumed
|
174,513 | |||
|
Net
Assets Acquired
|
$ | 15,291 |
The
accompanying notes are an integral part of this financial
statement.
F-3
Notes
to Statement of Assets Acquired and Liabilities Assumed
Note
1 — FDIC-Assisted Acquisition of Certain Assets and Liabilities of Community
First Bank.
On August
7, 2009, Home Federal Bank (“Home Federal”), a wholly-owned subsidiary of Home
Federal Bancorp, Inc., (“The Company”), entered into a purchase and assumption
agreement with loss share with the Federal Deposit Insurance Corporation
(“FDIC”) to assume all of the deposits (excluding brokered deposits) and certain
assets of Community First Bank, a full service commercial bank headquartered in
Prineville, Oregon.
Community
First Bank operated eight locations in central Oregon. Home Federal
assumed approximately $142.8 million of the deposits of Community First
Bank. Additionally, Home Federal purchased approximately $142.3
million in loans and $12.9 million of real estate and other repossessed assets
(“OREO”). The loans and OREO purchased are covered by a loss share
agreement between the FDIC and Home Federal which affords Home Federal
significant protection. Under the loss sharing agreement, Home
Federal will share in the losses on assets covered under the agreement (referred
to as covered assets). The FDIC has agreed to reimburse Home Federal
for 80% of losses up to $34.0 million, and 95% of losses that exceed that
amount. In addition, Home Federal also purchased cash and cash
equivalents and investment securities of Community First Bank valued at $37.7
million, and assumed $18.3 million in Federal Home Loan Bank advances and other
borrowings.
The above
assets acquired and liabilities assumed are presented at a preliminary fair
value estimate on the date of acquisition, after adjustment for expected loss
recoveries under the loss sharing agreement described
below. Preliminary fair values for the categories of assets and
liabilities were determined as described in Note 3 to the Statement of Assets
Acquired and Liabilities Assumed.
Note
2 — Loss Sharing Agreement and FDIC Indemnification Asset
As part
of the Purchase and Assumption Agreement, Home Federal and the FDIC entered into
a loss sharing agreement. This agreement covers realized losses on
loans and foreclosed real estate. Under this agreement, the FDIC will
reimburse Home Federal for 80% of losses up to $34.0 million. The
FDIC will reimburse Home Federal 95% on realized losses that exceed
$34.0 million. Realized losses covered by the loss sharing
agreement include loan contractual balances (and related unfunded commitments
that were acquired), accrued interest on loans for up to 90 days, the book
value of foreclosed real estate acquired, and certain direct costs, less cash or
other consideration received by Home Federal. This agreement extends
for ten years for 1-4 family real estate loans and for five years for other
loans. The value of this loss sharing agreement was considered in
determining fair values of loans and foreclosed real estate acquired and is
detailed below.
F-4
|
Covered
Assets
|
||||
|
(In
Thousands)
|
||||
|
Initial
basis for loss sharing determination
|
$ | 155,197 | ||
|
Less
estimated fair value of covered assets (1)
|
(116,792 | ) | ||
|
Anticipated
realized loss
|
38,405 | |||
|
Assumed
loss sharing recovery percentage (2)
|
81.7 | % | ||
|
FDIC
Indemnification asset
|
31,385 | |||
|
Accretable
discount (3)
|
(1,347 | ) | ||
|
FDIC
indemnification asset
|
$ | 30,038 | ||
|
(1)
|
Preliminary
estimated fair value of covered assets excludes valuation adjustment of
$2.9 million for difference between prevailing interest rates and interest
rates on the acquired loan portfolio.
|
| (2) |
Under
the loss sharing agreement, FDIC will reimburse Home Federal for 80% of
losses up to $34.0 million and 95% of losses beyond that
amount.
|
| (3) |
Accretable
discount is a present value adjustment and will be accreted into income
based on the recovery of the indemnification
asset.
|
Note
3 — Basis of Presentation
Home
Federal has determined that the acquisition of the net assets of Community First
Bank does constitute a business acquisition as defined by Statement of Financial
Accounting Standards No. 141, Business Combinations (FAS
141). Accordingly, the assets acquired and liabilities assumed are
presented at their estimated fair values as required by that
statement. Fair values are determined based on the requirements
of Statement of
Financial Accounting Standards No. 157, Fair Value
Measurements. In many cases the determination of these fair
values requires management or others to make estimates about discount rates,
future cash flows, market conditions and other future events that are highly
subjective in nature and subject to change. Significant estimates
subject to future adjustment include the allowance for loan losses, the timing
and amount of expected losses on non-performing loans and foreclosed assets
acquired, and estimated lives of assets acquired. Following is a
description of the methods used to determine the fair values of significant
assets and liabilities.
Cash, due from banks and federal
funds sold.
These items are very liquid and short-term in nature. The
contractual amount of these assets approximates their fair values.
Investment securities. The fair values used by
Home Federal were based on prices quoted at the close of August 7 2009, as
published electronically by Bloomberg, L.P., or alternatively IDC/Financial
Times (FT) Interactive Data. The fair values of all investment securities were
determined using Level 2 inputs under SFAS No. 157, which are defined as quoted
prices for similar instruments in active markets, quoted prices for identical or
similar instruments in markets that are not active and model-derived valuations
whose inputs are observable or whose significant value drivers are
observable.
Loans receivable. AICPA Statement of Position
(“SOP”) 03-3, Accounting for
Certain Loans or Debt Securities Acquired in a Transfer, applies to a
loan with evidence of deterioration of credit
F-5
quality
since origination, acquired by completion of a transfer for which it is
probable, at acquisition, that the investor will be unable to collect all
contractually required payments receivable. For loans accounted for under SOP
03-3, management determined the value of the loan portfolio based on work
provided by a qualified appraiser. Factors considered in the
valuation were projected cash flows for the loans, type of loan and related
collateral, classification status and current discount rates. Loans
were grouped together according to similar characteristics and were treated in
the aggregate when applying various valuation techniques. Management
also estimated the amount of credit losses that were expected to be realized for
the loan portfolio primarily by estimating the liquidation value of collateral
securing loans on non-accrual status or classified as substandard or
doubtful.
An
allowance for loan losses was established for loans not accounted for under SOP
03-3. In developing this assessment, management must rely on estimates and
exercise judgment regarding matters where the ultimate outcome is unknown, such
as economic factors, developments affecting companies in specific industries and
issues with respect to single borrowers. The allowance for loan losses was
estimated at a level that management believes to be the best estimate of
probable incurred losses inherent in the loan portfolio on the acquisition date.
Depending on changes in circumstances, future assessments of credit risk may
yield materially different results, which may require an increase or a decrease
in the allowance for loan losses.
Management
also estimated the impact of interest rates on the fair value of loans
acquired. Fair values adjustments
for the impact of interest rates were estimated using a discounted cash flow
analysis, utilizing interest rates currently being offered.
FDIC indemnification
asset. This loss
sharing asset is measured separately from the loan portfolio because it is not
contractually embedded in the loans and is not transferable with the loans
should Home Federal choose to dispose of them. Fair value was
estimated using projected loss share cash flows. These cash flows
were discounted based on the expected timing of receipt of the loss share
reimbursements over the life of the agreement. This loss sharing
asset is also separately measured from the related foreclosed real
estate.
Real estate and other repossessed
asset. Real
estate and other repossessed assets is presented at the value management expects
to receive when the assets are sold, net of related costs of
disposal.
Federal Home Loan Bank of
Seattle stock. The FHLB requires member
banks to purchase its stock as a condition of membership and varies based on the
level of FHLB advances. This stock is generally redeemable and is
presented at the redemption value.
Deposit liabilities. The fair values disclosed
for demand and savings deposits are, by definition, equal to the amount payable
on demand at the reporting date. The fair values for certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on bullet advances from the FHLB to a
schedule of aggregated contractual maturities on such time
deposits.
Advances from the Federal Home Loan
Bank of Seattle. The fair values for FHLB
advances are estimated based on the prepayment penalty associated with unwinding
the options embedded in the advances assumed.
Deferred taxes. Deferred taxes relate to
the differences between the financial statement and tax bases of assets acquired
and liabilities assumed in this transaction. Deferred taxes are reported
based upon the principles in Statement of Financial Position No. 109, Accounting for Income
F-6
Taxes, and are calculated
based on the estimated federal and state income tax rates currently in effect
for Home Federal.
Note
4 — Facilities and Equipment
Home
Federal did not acquire the real estate, banking facilities, furniture or
equipment of Community First Bank as part of the Purchase and Assumption
Agreement. However, Home Federal has the option to purchase the real
estate and furniture and equipment from the FDIC. The term of this
option expires after 90 days, unless extended by the
FDIC. Acquisition costs of the real estate and furniture and
equipment will be based on current appraisals and determined at a later
date. Currently all banking facilities and equipment are leased from
the FDIC on a month-to-month basis. Home Federal anticipates buying
or assuming all primary banking center buildings available for purchase or lease
from the FDIC, except the Franklin Crossing Office in Bend, Oregon, which served
primarily as corporate offices for Community First Bank and was located on the
fourth floor of a mixed-use commercial and residential high-rise. Another full
service branch is located less than 2 miles from this office and very little
customer disruption is anticipated.
Note
5 — Investment Securities
The fair
value of securities acquired is as follows at August 7, 2009:
|
Fair
Value
(in
thousands)
|
Tax-
equivalent
yield
|
|||||||
|
U.S.
government sponsored enterprise debt obligations
|
$ | 1,066 | 4.23 | % | ||||
|
U.S.
government sponsored enterprise collateralized
mortgage obligations
|
3,716 | 2.89 | ||||||
|
U.S.
government sponsored enterprise mortgage-backed
securities
|
9,677 | 4.86 | ||||||
|
States
and political subdivisions
|
1,175 | 4.25 | ||||||
|
Total
|
$ | 15,634 | 4.31 | % | ||||
F-7
Advances
from the Federal Home Loan Bank of Seattle (“FHLB”) are secured in part by these
securities at August 7, 2009, (see “Note 8 — Advances from Federal Home Loan
Bank of Seattle”).
The
estimated fair value of debt securities at August 7, 2009 are shown below by
contractual maturity. 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. Mortgage-backed securities and collateralized mortgage
obligations are shown in the “securities not due on a single maturity date”
caption as they generally have monthly payments of principal and interest which
vary depending on the payments made on the underlying collateral for these
securities.
|
Fair
Value
(in
thousands)
|
||||
|
Due
within one year
|
$ | - | ||
|
Due
after one through five years
|
181 | |||
|
Due
after five through ten years
|
1,066 | |||
|
Due
after ten years
|
994 | |||
|
Securities
not due on a single maturity date
|
13,393 | |||
|
Total
|
$ | 15,634 | ||
Note
6 — Loans Receivable, Net
The
composition of loans receivable acquired, net, at August 7, 2009 is detailed in
the following table. All non-accrual loans have been excluded from
the calculation of “contractual interest rate” in the table.:
|
Acquired
Value
(in
thousands)
|
Contractual
Interest Rate
|
|||||||
|
Residential
mortgages
|
$ | 12,481 | 5.81 | % | ||||
|
Non-real
estate commercial loans
|
23,094 | 6.15 | ||||||
|
Commercial
real estate loans
|
73,427 | 6.77 | ||||||
|
Land
acquisition and development loans
|
23,129 | 5.70 | ||||||
|
Consumer
loans
|
10,204 | 5.11 | ||||||
|
Contractual
balance of loans acquired
|
142,335 | 6.38 | ||||||
|
Fair
value discount on loans purchased
|
(13,173 | ) | ||||||
|
Allowance
for loan losses, performing loans
|
(16,812 | ) | ||||||
|
Total
|
$ | 112,350 | ||||||
Of the
contractual balance of total loans acquired, approximately $40.4 million will be
accounted for under the provision of SOP 03-3.
F-8
Note
7 — Deposits
Deposit
liabilities assumed are composed of the following at August 7,
2009:
|
Acquired
Value
(in
thousands)
|
Contractual
Interest Rate
|
|||||||
|
Demand
deposit accounts
|
$ | 42,592 | 0.09 | % | ||||
|
Money
market and savings accounts
|
25,379 | 0.84 | ||||||
|
Certificates
of deposit
|
74,829 | 2.59 | ||||||
|
Acquired
balance of deposits
|
142,800 | 1.53 | % | |||||
|
Fair
value adjustment
|
659 | |||||||
|
Total
|
$ | 143,459 | ||||||
At August
7, 2009, scheduled maturities of certificates of deposit were as
follows:
|
Period
|
Fair
Value
(in
thousands)
|
||||
|
2009
|
$ | 36,309 | |||
|
2010
|
30,618 | ||||
|
2011
|
6,611 | ||||
|
2012
|
916 | ||||
|
2013
|
61 | ||||
|
Thereafter
|
314 | ||||
|
Total
|
$ | 74,829 | |||
Note
8 — Advances from Federal Home Loan Bank of Seattle and other
borrowings
As of
August 7, 2009, there were $18.0 million in borrowings outstanding from the
FHLB. The borrowings were secured by FHLB stock and a lien on
mortgages and securities equal to at least 150% of the total advances
outstanding. The advances mature in over one year and are at fixed interest
rates. The advances were recorded at their estimated fair value,
which was derived using the prepayment penalty associated with unwinding the
embedded option in the advances.
In
addition, as of the acquisition date, there was one outstanding repurchase
agreement for $296,565.
As of
August 7, 2009, the fair value of advances outstanding from the FHLB and other
borrowings was $19.2 million.
F-9
The
composition of FHLB advances and other borrowings assumed at August 7, 2009,
follows:
|
Acquired
Value
(in
thousands)
|
Contractual
Interest Rate
|
|||||||
|
Borrowings
due in:
|
||||||||
|
2009
|
$ | - | - | % | ||||
|
2010
|
296 | 4.96 | ||||||
|
2011
|
- | - | ||||||
|
2012
|
- | - | ||||||
|
2013
|
- | - | ||||||
|
Thereafter
|
18,000 | 4.20 | ||||||
|
Total
balances assumed
|
18,296 | 4.21 | ||||||
|
Fair
value adjustment
|
932 | |||||||
|
Total
FHLB advances and other
borrowings
|
$ | 19,228 | ||||||
Note
9 — Deferred Income Taxes
The
deferred tax liability of $9.7 million as of August 7, 2009, is solely related
to the differences between the financial statement and tax bases of assets
acquired and liabilities assumed in this transaction.
Note 10
— Net Assets Acquired
Under the
terms of the Purchase and Assumption Agreement, the FDIC agreed to transfer net
assets to Home Federal at a discount to compensate Home Federal for losses not
covered by the loss sharing agreement and troubled asset management
costs. Home Federal also agreed to pay a premium to the FDIC for the
deposits.
Details
related to the transfer at August 7, 2009, are as follows (in
thousands):
|
Net
assets per Purchase and Assumption Agreement
|
35,095 | |||
|
Purchase
accounting adjustments:
|
||||
|
Loans
|
(29,985 | ) | ||
|
Real
estate and other repossessed assets
|
(5,499 | ) | ||
|
FDIC
indemnification asset
|
30,038 | |||
|
Other
assets
|
(3,011 | ) | ||
|
Deposits
|
(659 | ) | ||
|
FHLB
advances
|
(932 | ) | ||
|
Deferred
taxes
|
(9,756 | ) | ||
|
Net
assets acquired
|
15,291 |
|
F-10
|