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EX-31.1 - EXHIBIT 31.1 - Wellesley Bancorp, Inc.a50115403ex31_1.htm
EX-31.2 - EXHIBIT 31.2 - Wellesley Bancorp, Inc.a50115403ex31_2.htm
EX-32.0 - EXHIBIT 32.0 - Wellesley Bancorp, Inc.a50115403ex32_0.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 2011

OR

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

For the transition period from ______________ to _____________
 
Commission file number:  001-35352
 
WELLESLEY BANCORP, INC.
(Exact name of registrant as specified in its charter)

Maryland
 
45-3219901
(State or other jurisdiction of incorporation or
 
(I.R.S. Employer Identification No.)
organization)
   

40 Central Street, Wellesley, Massachusetts
 
02482
(Address of principal executive offices)
 
(Zip Code)
 
(781) 235-2550
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ___  No    X   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    X     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 definition of  “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 
Large accelerated filer  ___
Accelerated filer  ___
 
Non-accelerated filer  ___
Smaller reporting company     X   
 
(Do not check if a 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 ___  No    X   

As of December 16, 2011, there were no shares of the registrant’s common stock outstanding.
 
 
 

 
 
EXPLANATORY NOTE
 
Wellesley Bancorp, Inc. (the “Company”) filed a Registration Statement on Form S-1 (the “Form S-1”), as amended, with the U.S. Securities and Exchange Commission (the “SEC”), which the SEC declared effective on November 14, 2011.  The Form S-1 includes financial statements for the interim period ended June 30, 2011.  Therefore, the Company is filing this Form 10-Q pursuant to Rule 13a-13 of the Securities Exchange Act of 1934, as amended, in order to file financial statements for the first quarter subsequent to the quarter reported on the Form S-1.

The Company was incorporated in September 2011 by Wellesley Bank, Wellesley, Massachusetts (the “Bank”), to be the Bank’s holding company upon completion of the Bank’s conversion from the mutual to stock form of organization and the common stock offering of the Company.  As of September 30, 2011, the conversion had not been completed.  Upon completion of the conversion, the Company will own all of the Bank’s outstanding capital stock and will direct, plan and coordinate the Bank’s business activities.  The Company is not currently an operating company and, therefore, the information presented in this report is on a consolidated basis for the Bank.


 
 

 
 
WELLESLEY BANCORP, INC.

Table of Contents

   
Page
No.
Part I.   Financial Information
 
     
1
     
  1
     
  2
     
  3
     
  4
     
  5
     
22
     
34
     
35
     
Part II.   Other Information
 
     
36
     
36
     
36
     
36
     
36
     
36
     
36
     
37
 
 
 

 
 
PART I.  FINANCIAL INFORMATION


 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
(In thousands)
 
   
(Unaudited)
       
Assets
           
             
Cash and due from banks
  $ 3,731     $ 3,780  
Short-term investments
    20,607       14,617  
Total cash and cash equivalents
    24,338       18,397  
                 
Certificates of deposit
    100       3,433  
Securities available for sale, at fair value
    32,555       25,565  
Federal Home Loan Bank of Boston stock, at cost
    1,930       1,930  
                 
Loans
    209,596       206,807  
Less allowance for loan losses
    (3,245 )     (2,690 )
Loans, net
    206,351       204,117  
                 
Bank-owned life insurance
    4,171       4,062  
Premises and equipment, net
    847       786  
Accrued interest receivable
    893       865  
Net deferred tax asset
    1,198       1,168  
Prepaid FDIC assessment
    632       767  
Other assets
    1,345       912  
                 
Total assets
  $ 274,360     $ 262,002  
                 
Liabilities and Surplus
               
                 
Deposits:
               
Noninterest-bearing
  $ 28,066     $ 26,512  
Interest-bearing
    205,990       195,628  
      234,056       222,140  
Short-term borrowings
    7,902       5,804  
Long-term debt
    7,500       12,500  
Accrued expenses and other liabilities
    2,754       1,150  
Total liabilities
    252,212       241,594  
                 
Commitments and contingencies
               
                 
Surplus
    21,585       20,099  
Accumulated other comprehensive income
    563       309  
Total surplus
    22,148       20,408  
                 
Total liabilities and surplus
  $ 274,360     $ 262,002  
 
See accompanying notes to consolidated financial statements.
 
 
 
1

 
 
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(In thousands)
 
   
(Unaudited)
 
Interest and dividend income:
                       
Interest and fees on loans
  $ 2,986     $ 3,168     $ 9,001     $ 9,069  
Debt securities:
                               
Taxable
    151       204       435       659  
Tax-exempt
    69       42       178       123  
Interest on short-term investments and
                               
certificates of deposit
    12       35       50       123  
Dividends on FHLB stock
    1       -       4       -  
Total interest and dividend income
    3,219       3,449       9,668       9,974  
                                 
Interest expense:
                               
Deposits
    540       605       1,665       1,847  
Short-term borrowings
    22       24       62       64  
Long-term debt
    70       191       332       696  
Total interest expense
    632       820       2,059       2,607  
                                 
Net interest income
    2,587       2,629       7,609       7,367  
Provision for loan losses
    150       300       750       800  
                                 
Net interest income, after provision for loan losses
    2,437       2,329       6,859       6,567  
                                 
Noninterest income:
                               
Customer service fees
    36       38       115       118  
Income on bank-owned life insurance
    37       38       109       113  
Wealth management fees
    29       20       82       48  
Miscellaneous
    8       12       34       41  
Total noninterest income
    110       108       340       320  
                                 
Noninterest expenses:
                               
Salaries and employee benefits
    1,249       889       3,135       2,603  
Occupancy and equipment
    209       176       612       536  
Data processing
    114       90       303       272  
FDIC insurance
    (51 )     74       135       200  
Contributions
    1       2       15       11  
Foreclosed assets, net
    1       62       1       62  
Other general and administrative
    201       235       676       695  
Total noninterest expenses
    1,724       1,528       4,877       4,379  
                                 
Income before income taxes
    823       909       2,322       2,508  
                                 
Provision for income taxes
    295       333       836       922  
                                 
Net income
  $ 528     $ 576     $ 1,486     $ 1,586  
 
See accompanying notes to consolidated financial statements.
 
 
 
2

 
 
 
         
Accumulated
       
         
Other
       
         
Comprehensive
   
Total
 
   
Surplus
   
Income
   
Surplus
 
   
(In thousands)
 
    (Unaudited)  
                   
Balance at December 31, 2009
  $ 17,946     $ 357     $ 18,303  
                         
Comprehensive income:
                       
Net income
    1,586       -       1,586  
Net unrealized gain on securities available for sale, net of
                       
tax effects
    -       196       196  
Total comprehensive income
                    1,782  
                         
Balance at September 30, 2010
  $ 19,532     $ 553     $ 20,085  
                         
                         
Balance at December 31, 2010
  $ 20,099     $ 309     $ 20,408  
                         
Comprehensive income:
                       
Net income
    1,486       -       1,486  
Net unrealized gain on securities available for sale, net of
                       
tax effects
    -       254       254  
Total comprehensive income
                    1,740  
                         
Balance at September 30, 2011
  $ 21,585     $ 563     $ 22,148  
 
See accompanying notes to consolidated financial statements.
 
 
 
3

 
 
 
   
Nine Months Ended September 30,
 
   
2011
   
2010
 
   
(In thousands)
 
   
(Unaudited)
 
Cash flows from operating activities:
           
Net income
  $ 1,486     $ 1,586  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Provision for loan losses
    750       800  
Provision for losses on foreclosed assets
    -       60  
Depreciation and amortization
    154       127  
Net amortization of securities
    117       67  
Accretion of net deferred loan fees
    (248 )     (260 )
Income on bank-owned life insurance
    (109 )     (113 )
Deferred income tax provision (benefit)
    (189 )     1  
Net change in:
               
Accrued interest receivable
    (28 )     (21 )
Other assets
    (433 )     346  
Prepaid FDIC assessment
    135       292  
Accrued expenses and other liabilities
    1,604       (64 )
Net cash provided by operating activities
    3,239       2,821  
                 
Cash flows from investing activities:
               
Activity in certificates of deposit:
               
Maturities
    3,333       6,588  
Activity in securities available for sale:
               
Maturities, prepayments and calls
    3,697       7,859  
Purchases
    (10,391 )     (5,679 )
Loan originations, net of principal payments
    (2,736 )     (17,746 )
Additions to premises and equipment
    (215 )     (81 )
Proceeds from sale of fixed assets
    -       33  
Net cash used by investing activities
    (6,312 )     (9,026 )
                 
Cash flows from financing activities:
               
Net increase in deposits
    11,916       15,937  
Repayments of long-term debt
    (5,000 )     (8,000 )
Increase in short-term borrowings
    2,098       1,170  
Net cash provided by financing activities
    9,014       9,107  
                 
Net change in cash and cash equivalents
    5,941       2,902  
                 
Cash and cash equivalents at beginning period
    18,397       9,370  
                 
Cash and cash equivalents at end of period
  $ 24,338     $ 12,272  
                 
Supplementary information:
               
Interest paid
  $ 2,083     $ 2,561  
Income taxes paid
    1,019       303  
Transfer of loans to foreclosed real estate
    -       750  
 
See accompanying notes to consolidated financial statements.
 
 
 
4

 
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Three and Nine Month Periods Ended September 30, 2011 and 2010 (Unaudited)

 
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation and Consolidation
 
The accompanying unaudited interim consolidated financial statements include the accounts of Wellesley Bank (the “Bank”) and its wholly-owned subsidiaries; Wellesley Securities Corporation, which engages in the business of buying, selling and dealing in securities exclusively on its own behalf; Wellesley Investment Partners, LLC, formed for the purpose of providing investment management services for individuals, not-for-profit entities and businesses; and Central Linden, LLC, formed for the purpose of holding, managing and selling foreclosed real estate.  All significant intercompany balances and transactions have been eliminated in consolidation.  These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.  See Note 7 – Conversion.
 
In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.  The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Wellesley Bank’s filing on Form S-1 which included the years ended December 31, 2010 and 2009.  The results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
 
Loans and Allowance for Loan Losses
 
The loan portfolio consists of real estate, commercial and other loans to the Bank’s customers in Wellesley, Massachusetts and surrounding communities.  The ability of the Bank’s debtors to honor their contracts is dependent upon the economy in general and the real estate and construction economic sectors.
 
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred loan origination fees or costs.  Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.
 
Interest is not accrued on loans which are identified as impaired or loans which are ninety days or more past due.  Past due status is based on the contractual terms of the loan.  Interest income previously accrued on such loans is reversed against current period interest income.  Interest income on non-accrual loans is recognized only to the extent of interest payments received.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
 
Allowance for loan losses
 
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.  Loan losses are charged against the allowance when management believes the uncollectability of the loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.
 
 
5

 
 
The allowance for loan losses is evaluated on a regular basis by management.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance consists of general, allocated and unallocated components, as further described below.
 
General component
 
The general component is based on the following loan segments: residential real estate, commercial real estate, construction, commercial, home equity and consumer.  Management considers a rolling average of historical losses for each segment based on a time frame appropriate to capture relevant loss data for each loan segment, which generally ranges from 3-10 years.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume, concentrations and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions.  There were no significant changes to the Bank’s policies or methodology pertaining to the general component of the allowance during 2011 or 2010.
 
The qualitative factor adjustments are determined based on the various risk characteristics of each loan segment.  Risk characteristics relevant to each portfolio segment are as follows:
 
Residential real estate – The Bank generally does not originate loans with a loan-to-value ratio greater than 80 percent and does not originate subprime loans.  All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower.
 
Commercial real estate – Loans in this segment are primarily income-producing properties in Wellesley, Massachusetts and surrounding communities.  The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Management obtains rent rolls annually and continually monitors the cash flows of these loans.
 
Construction loans – Loans in this segment primarily include speculative real estate development loans for which payment is derived from sale of the property.  Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.   
 
Commercial loans – Loans in this segment are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.
 
Home equity lines of credit – Loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower.  The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.
 
Consumer loans – Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.
 
Allocated component
 
The allocated component relates to loans that are classified as impaired.  Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or, if the loan is collateral dependent, by the fair value of the collateral, less estimated costs to sell.  An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Bank does not separately identify performing individual consumer loans (residential, home equity lines of credit, personal and other consumer secured loans) for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.
 
 
6

 
 
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
 
The Bank periodically may agree to modify the contractual terms of loans.  When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring ("TDR").  All TDRs are initially classified as impaired.
 
Unallocated component
 
An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.
 
NOTE 2 – COMPREHENSIVE INCOME (LOSS)
 
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the surplus section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income.
 
The components of other comprehensive income (loss) and related tax effects are as follows:
 
   
Nine Months Ended September 30,
 
   
2011
   
2010
 
   
(In thousands)
 
             
Unrealized holding gains on
           
securities available for sale
  $ 413     $ 321  
Reclassification adjustment for losses
               
(gains) realized in income
    -       -  
                 
Net unrealized gains (losses)
    413       321  
Tax effects
    (159 )     (125 )
                 
Net-of-tax amount
  $ 254     $ 196  

 
7

 
 
The components of accumulated other comprehensive income and related tax effects are as follows:
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
(In thousands)
 
Net unrealized holding gains on
           
securities available for sale
  $ 928     $ 515  
Tax effect
    (365 )     (206 )
Net-of-tax amount
  $ 563     $ 309  
 
 
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
 
In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-20, Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  This ASU requires an entity to provide disclosures that facilitate a financial statement user’s evaluation of (1) the nature of credit risk inherent in the entity's loan portfolio, (2) how that risk is analyzed and assessed in arriving at the allowance for loan and lease losses, and (3) the changes and reasons for those changes in the allowance for loan and lease losses.  For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010.  The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.  The Bank has provided the disclosures required in Note 5.
 
In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310), A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.  This ASU provides additional guidance and clarification for determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring.  For public entities, this guidance is effective for interim and annual reporting periods beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption.  Adoption of this guidance did not have a material effect on the Bank’s consolidated financial statements.
 
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 IFRS.  This ASU clarifies and expands the disclosures pertaining to unobservable inputs used in Level 3 fair value measurements.  The guidance also requires, for public companies, disclosure of the level within the fair value hierarchy for assets and liabilities not measured at fair value in the statement of financial position but for which the fair value is disclosed.  The amendments in this ASU are to be applied prospectively.  For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011.  Management does not expect this guidance to have a material effect on the Bank’s consolidated financial statements.
 
In June 2011, the FASB issued ASU 2011-5, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This ASU provides an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in surplus.  For public entities, this guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted.
 
In September 2011, the FASB issued ASU 2011-09, Compensation – Retirement Benefits-Multiemployer Plans (Subtopic 715-80) Disclosures about an Employer’s Participation in a Multiemployer Plan.  This ASU amends the disclosure requirements for multiemployer pension plans and multiemployer other postretirement benefit plans.  This Update requires an employer to provide additional quantitative and qualitative disclosures to provide users with more detailed information about an employer’s involvement in multiemployer plans.  The amendments in this Update are effective for annual periods for fiscal years ending after December 15, 2011.  There will be no impact to the consolidated financial results as the amendments relate only to additional disclosures.
 
 
8

 
 
NOTE 4 – SECURITIES AVAILABLE FOR SALE
 
The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, follows:
 
   
September 30, 2011
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(In thousands)
 
                         
Residential mortgage-backed securities:
                       
Government National Mortgage
                       
Association
  $ 12,310     $ 288     $ (13 )   $ 12,585  
Government-sponsored enterprises
    7,401       220       (8 )     7,613  
SBA asset-backed securities
    2,507       84       (1 )     2,590  
State and municipal bonds
    8,023       359       -       8,382  
Government-sponsored
                               
enterprise obligations
    381       22       -       403  
Corporate bonds
    1,005       5       (28 )     982  
                                 
    $ 31,627     $ 978     $ (50 )   $ 32,555  
 
 
   
December 31, 2010
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(In thousands)
 
                         
Residential mortgage-backed securities:
                       
Government National Mortgage
                       
Association
  $ 11,418     $ 223     $ (27 )   $ 11,614  
Government-sponsored enterprises
    4,503       192       (24 )     4,671  
SBA asset-backed securities
    2,700       64       (53 )     2,711  
State and municipal bonds
    5,606       120       (13 )     5,713  
Government-sponsored
                               
enterprise obligations
    422       21       -       443  
Corporate bonds
    401       12       -       413  
                                 
    $ 25,050     $ 632     $ (117 )   $ 25,565  
 
 
9

 
 
At September 30, 2011 and December 31, 2010, government-sponsored enterprises consist of the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association.
 
The amortized cost and fair value of debt securities by contractual maturity at September 30, 2011 are as follows.  Expected maturities may differ from contractual maturities because the issuer, in certain instances, has the right to call or prepay obligations with or without call or prepayment penalties.
 
   
September 30, 2011
 
   
Amortized
   
Fair
 
   
Cost
   
Value
 
   
(In thousands)
 
             
Within 1 year
  $ 300     $ 301  
After 1 year to 5 years
    3,293       3,392  
After 5 years to 10 years
    1,671       1,707  
After 10 years
    4,145       4,367  
      9,409       9,767  
Mortgage- and asset-backed
               
securities
    22,218       22,788  
                 
    $ 31,627     $ 32,555  
 
Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
 
   
Less Than Twelve Months
   
Over Twelve Months
 
   
Gross
         
Gross
       
   
Unrealized
   
Fair
   
Unrealized
   
Fair
 
   
Losses
   
Value
   
Losses
   
Value
 
   
(In thousands)
 
September 30, 2011
                       
Residential mortgage-backed securities:
                       
Government National Mortgage
                       
Association
  $ 4     $ 527     $ 9     $ 124  
Government-sponsored enterprises
    8       311       -       -  
SBA asset-backed securities
    1       403       -       -  
Corporate bonds
    28       766       -       -  
                                 
    $ 41     $ 2,007     $ 9     $ 124  
                                 
December 31, 2010
                               
Residential mortgage-backed securities:
                               
Government National Mortgage
                               
Association
  $ 20     $ 2,732     $ 7     $ 96  
Government-sponsored enterprises
    24       483       -       -  
SBA asset-backed securities
    53       1,777       -       -  
State and municipal bonds
    13       1,080       -       -  
                                 
    $ 110     $ 6,072     $ 7     $ 96  
 
 
10

 
 
NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES
 
A summary of the balances of loans is as follows:
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
(In thousands)
 
             
Real estate loans:
           
Residential - fixed
  $ 15,443     $ 18,993  
Residential - variable
    58,425       53,897  
Commercial
    66,094       53,907  
Construction
    35,133       40,770  
      175,095       167,567  
                 
Commercial loans:
               
Secured
    13,570       14,413  
Unsecured
    325       492  
      13,895       14,905  
                 
Consumer loans:
               
Home equity lines of credit
    20,433       24,198  
Other
    563       503  
      20,996       24,701  
                 
Total loans
    209,986       207,173  
                 
Less:
               
Allowance for loan losses
    (3,245 )     (2,690 )
Net deferred origination fees
    (390 )     (366 )
                 
Loans, net
  $ 206,351     $ 204,117  
 
 
11

 
 
The following table summarizes the changes in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2011 and 2010:
 
   
Residential
    Commercial                
Home
   
Other
             
   
Real Estate
   
Real Estate
   
Construction
   
Commercial
   
Equity
   
Consumer
   
Unallocated
   
Total
 
   
(In thousands)
 
Three Months Ended September 30, 2011
                                               
                                                 
Allowance at June 30, 2011
  $ 500     $ 1,022     $ 824     $ 441     $ 113     $ 16     $ 313     $ 3,229  
                                                                 
Provision for loan losses
    224       14       (53 )     (35 )     (11 )     1       10       150  
Loans charged off
    (134 )     -       -       -       -       -       -       (134 )
                                                                 
Allowance at September 30, 2011
  $ 590     $ 1,036     $ 771     $ 406     $ 102     $ 17     $ 323     $ 3,245  
                                                                 
                                                                 
Nine Months Ended September 30, 2011
                                                               
                                                                 
Allowance at December 31, 2010
  $ 319     $ 356     $ 1,258     $ 384     $ 84     $ 16     $ 273     $ 2,690  
                                                                 
Provision for loan losses
    466       680       (487 )     22       18       1       50       750  
Loans charged off
    (195 )     -       -       -       -       -       -       (195 )
                                                                 
Allowance at September 30, 2011
  $ 590     $ 1,036     $ 771     $ 406     $ 102     $ 17     $ 323     $ 3,245  
 
 
 
12

 
 
Further information pertaining to the allowance for loan losses at September 30, 2011 and December 31, 2010 is as follows:
 
   
Residential
   
Commercial
               
Home
   
Other
             
   
Real Estate
   
Real Estate
   
Construction
   
Commercial
   
Equity
   
Consumer
   
Unallocated
   
Total
 
   
(In thousands)
 
September 30, 2011
                                               
Allowance related to loans
                                               
individually evaluated for
                                               
impairment
  $ -     $ 256     $ -     $ 43     $ -     $ -     $ -     $ 299  
                                                                 
Allowance related to loans
                                                               
collectively evaluated
                                                               
for impairment
    590       780       771       363       102       17       323     $ 2,946  
Total allowance
  $ 590     $ 1,036     $ 771     $ 406     $ 102     $ 17     $ 323     $ 3,245  
                                                                 
Impaired loan balances individually
                                                               
evaluated
  $ 1,231     $ 1,405     $ -     $ 87     $ 17     $ -     $ -     $ 2,740  
                                                                 
Loan balances collectively evaluated
                                                               
for impairment
    72,637       64,689       35,133       13,808       20,416       563             $ 207,246  
Total loans
  $ 73,868     $ 66,094     $ 35,133     $ 13,895     $ 20,433     $ 563     $ -     $ 209,986  
                                                                 
                                                                 
December 31, 2010
                                                               
Allowance related to loans
                                                               
individually evaluated for
                                                               
impairment
  $ 56     $ 188     $ -     $ 112     $ -     $ -     $ -     $ 356  
                                                                 
Allowance related to loans
                                                               
collectively evaluated
                                                               
for impairment
    263       168       1,258       272       84       16       273       2,334  
Total allowance
  $ 319     $ 356     $ 1,258     $ 384     $ 84     $ 16     $ 273     $ 2,690  
                                                                 
Impaired loan balances individually
                                                               
evaluated
  $ 1,876     $ 376     $ -     $ 225     $ -     $ -     $ -     $ 2,477  
                                                                 
Loan balances collectively
                                                               
evaluated for impairment
    71,014       53,531       40,770       14,680       24,198       503       -       204,696  
Total loans
  $ 72,890     $ 53,907     $ 40,770     $ 14,905     $ 24,198     $ 503     $ -     $ 207,173  

 
 
13

 

The following is a summary of past due and non-accrual loans at September 30, 2011 and December 31, 2010:
 
                           
Past Due 90
       
   
30-59 Days
   
60-89 Days
   
Past Due 90
   
Total
   
Days or More
   
Non-accrual
 
   
Past Due
   
Past Due
   
Days or More
   
Past Due
   
and Still Accruing
   
Loans
 
   
(In thousands)
 
September 30, 2011
                                   
                                     
Residential real estate
  $ 1,786     $ 2,037     $ -     $ 3,823     $ -     $ 1,231  
Commercial real estate
    -       -       -       -       -       1,405  
Construction
    910       -       -       910       -       -  
Commercial
    -       -       227       227       -       87  
Consumer:
                                               
Home equity lines of credit
    201       15       17       233       -       17  
Other
    -       -       -       -       -       -  
                                                 
Total
  $ 2,897     $ 2,052     $ 244     $ 5,193     $ -     $ 2,740  
 
 
                           
Past Due 90
       
   
30-59 Days
   
60-89 Days
   
Past Due 90
   
Total
   
Days or More
   
Non-accrual
 
   
Past Due
   
Past Due
   
Days or More
   
Past Due
   
and Still Accruing
   
Loans
 
   
(In thousands)
 
December 31, 2010
                                   
                                     
Residential real estate
  $ 394     $ 902     $ 2,008     $ 3,304     $ -     $ 2,008  
Commercial real estate
    1,176       -       -       1,176       -       -  
Construction
    -       -       -       -       -       -  
Commercial
    90       -