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EX-32 - EXHIBIT 32 - Sunnyside Bancorp, Inc.t1401488_ex32.htm
EX-31.1 - EXHIBIT 31.1 - Sunnyside Bancorp, Inc.t1401488_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Sunnyside Bancorp, Inc.t1401488_ex31-2.htm

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

xQuarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2014

 

OR

 

¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _______________ to _______________

 

Commission File No. 000-55005

 

Sunnyside Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland   46-3001280

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

     
56 Main Street, Irvington, New York   10533
(Address of Principal Executive Offices)   Zip Code

 

(914) 591-8000

(Registrant’s telephone number)

 

N/A

(Former name or former address, 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 requirements for the past 90 days.

YES ☒     NO ☐

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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. (Check one)

 

Large accelerated filer ¨   Accelerated filer ¨
Non-accelerated filer ¨   Smaller reporting company x
(Do not check if 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 August 8, 2014, 793,500 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

 

 

 

 
 

 

Sunnyside Bancorp, Inc.

Form 10-Q

 

Index

 

        Page
Part I. Financial Information
         
Item 1.   Condensed Consolidated Financial Statements    
         
   

Condensed Consolidated Statements of Financial Condition as of June 30, 2014 (unaudited) and December 31, 2013

  1
         
    Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)   2 - 3
         
    Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)   4 - 5
         
   

Condensed Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2014 (unaudited)

  6
         
    Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (unaudited)   7
         
    Notes to Condensed Consolidated Financial Statements (unaudited)   8 – 23
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   24 – 28
         
Item 3.   Quantitative and Qualitative Disclosures about Market Risk   28
         
Item 4.   Controls and Procedures   28
         
Part II. Other Information
         
Item 1.   Legal Proceedings   28
         
Item 1A.   Risk Factors   28
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   28
         
Item 3.   Defaults upon Senior Securities   29
         
Item 4.   Mine Safety Disclosures   29
         
Item 5.   Other Information   29
         
Item 6.   Exhibits   29
         
    Signature Page   30

 

 
 

 

Part I. – Financial Information

 

Item 1.Financial Statements

 

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Financial Condition

 

   June 30,   December 31, 
   2014   2013 
Assets          
           
Cash and cash equivalents  $8,931,707   $2,636,523 
Securities held to maturity, net   6,159,425    4,666,508 
Securities available for sale   34,781,055    38,240,458 
Loans receivable, net   40,418,720    40,040,109 
Premises and equipment, net   1,629,935    1,602,451 
Federal Home Loan Bank of New York and other stock, at cost   276,120    222,420 
Accrued interest receivable   264,256    267,796 
Cash surrender value of life insurance   2,041,489    2,008,494 
Deferred income taxes   739,002    1,046,964 
Other assets   682,849    519,277 
           
Total Assets  $95,924,558   $91,251,000 
           
Liabilities and Stockholders' Equity          
           
Liabilities:          
Deposits  $81,497,076   $78,024,604 
Advances from borrowers for taxes and insurance   540,336    693,183 
Borrowings   1,000,000    - 
Other liabilities   577,083    597,210 
           
Total Liabilities   83,614,495    79,314,997 
           
Commitments and contingencies   -    - 
           
Stockholders' equity:          
Serial prefered stock; par value $0.01, 1,000,000 shares authorized, no shares issued   -    - 
Common stock; par value $0.01, 30,000,000 shares authorized and 793,500 shares issued at June 30, 2014 and December 31, 2013, respectively   7,935    7,935 
Additional paid in capital   7,081,810    7,082,343 
Unallocated common stock held by the Employee Stock Ownership Plan   (522,124)   (533,229)
Retained earnings, substantially restricted   6,534,423    6,645,906 
Accumulated other comprehensive (loss), net of tax   (791,981)   (1,266,952)
           
Total Stockholders' Equity   12,310,063    11,936,003 
           
Total Liabilities and Stockholders' Equity  $95,924,558   $91,251,000 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1
 

  

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Operations

 

   Three Months Ended 
   June 30, 
   2014   2013 
         
Interest and dividend income:          
Loans  $451,312   $482,202 
Investment securities   45,140    32,311 
Mortgage-backed securities   168,962    133,471 
Federal funds sold and other earning assets   1,549    724 
           
Total interest and dividend income   666,963    648,708 
           
Interest expense on deposits   95,808    145,236 
Borrowings   247    - 
           
Total interest expense   96,055    145,236 
           
Net interest income   570,908    503,472 
           
Provision for loan losses   -    9,500 
           
Net interest income after provision for loan losses   570,908    493,972 
           
Non-interest income:          
Fees and service charges   23,072    29,839 
Net gain on sale of securities   -    88,058 
Income on bank owned life insurance   16,500    16,127 
           
Total non-interest income   39,572    134,024 
           
Non-Interest Expense:          
Compensation and benefits   328,817    296,423 
Occupancy and equipment, net   104,639    99,133 
Data processing service fees   46,450    39,331 
Professional fees   181,235    56,325 
Federal deposit insurance premiums   15,000    16,425 
Advertising and promotion   48,738    22,964 
Other   43,099    44,651 
           
Total non-interest expense   767,978    575,252 
           
Income (loss) before income taxes   (157,498)   52,744 
           
Income tax expense (benefit)   (82,173)   2,549 
           
Net income (loss)  $(75,325)  $50,195 
           
Basic income (loss) per share  $(0.10)   NM 
           
Weighted average shares outstanding, basic and diluted   741,101    NM 

 

(NM) Not meaningful or not applicable because the company went public on July 15, 2013.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2
 

  

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Operations

 

   Six Months Ended 
   June 30, 
   2014   2013 
         
Interest and dividend income:          
Loans  $921,666   $987,301 
Investment securities   74,279    66,074 
Mortgage-backed securities   354,067    275,906 
Federal funds sold and other earning assets   3,527    2,349 
           
Total interest and dividend income   1,353,539    1,331,630 
           
Interest expense on deposits   202,766    296,813 
Borrowings   281    35 
           
Total interest expense   203,047    296,848 
           
Net interest income   1,150,492    1,034,782 
           
Provision for loan losses   10,000    9,500 
           
Net interest income after provision for loan losses   1,140,492    1,025,282 
           
Non-interest income:          
Fees and service charges   42,948    52,072 
Net gain on sale of securities   18,078    92,645 
Income on bank owned life insurance   32,995    32,066 
           
Total non-interest income   94,021    176,783 
           
Non-Interest Expense:          
Compensation and benefits   670,570    639,633 
Occupancy and equipment, net   212,649    200,054 
Data processing service fees   103,261    79,629 
Professional fees   277,953    102,066 
Federal deposit insurance premiums   29,978    32,850 
Advertising and promotion   63,992    33,289 
Other   104,491    87,652 
           
Total non-interest expense   1,462,894    1,175,173 
           
Income (loss) before income taxes   (228,381)   26,892 
           
Income tax expense (benefit)   (116,898)   (4,900)
           
Net income (loss)  $(111,483)  $31,792 
           
Basic income (loss) per share  $(0.15)   NM 
           
Weighted average shares outstanding, basic and diluted   740,825    NM 

 

(NM) Not meaningful or not applicable because the company went public on July 15, 2013.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3
 

  

Sunnyside BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED Statements of Comprehensive Income (Loss)

  

   Three Months Ended 
   June 30, 
   2014   2013 
         
Net income (loss)  $(75,325)  $50,195 
           
Other comprehensive income (loss), before tax:          
Defined benefit pension plans   -    - 
           
Unrealized gains (losses) on securities available for sale:          
Unrealized holding gains (losses) arising during the period   496,529    (402,274)
Reclassification adjustment for (gains) losses included in operations   -    (468)
           
Other comprehensive income (loss), before tax   496,529    (402,742)
           
Income tax expense (benefit) related to items of other comprehensive income   194,272    (171,689)
           
Other comprehensive income (loss), net of tax   302,257    (231,053)
           
Comprehensive income (loss)  $226,932   $(180,858)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4
 

  

Sunnyside BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED Statements of Comprehensive Income (Loss)

 

   Six Months Ended 
   June 30, 
   2014   2013 
         
Net income (loss)  $(111,483)  $31,792 
           
Other comprehensive income (loss), before tax:          
Defined benefit pension plans   -    22,869 
           
Unrealized gains on securities available for sale:          
Unrealized holding gains (losses) arising during the period   796,587    (563,531)
Reclassification adjustment for (gains) losses included in operations   (13,653)   (5,054)
           
Other comprehensive income (loss), before tax   782,934    (545,716)
           
Income tax expense (benefit) related to items of other comprehensive income   307,963    (209,788)
           
Other comprehensive income (loss), net of tax   474,971    (335,928)
           
Comprehensive income (loss)  $363,488   $(304,136)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5
 

 

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

           Unallocated       Accumulated     
           Common Stock       Other     
   Common   Additional   Held By   Retained   Comprehensive   Total 
   Stock   Paid-in Capital   ESOP   Earnings   Income (Loss)   Equity 
                         
Balance at December 31, 2013  $7,935   $7,082,343   $(533,229)  $6,645,906   $(1,266,952)  $11,936,003 
                               
Net loss for the six months ended June 30, 2014   -    -    -    (111,483)   -    (111,483)
                               
Amortization of ESOP shares   -    (533)   11,105    -    -    10,572 
                               
Other comprehensive income, net of tax   -    -    -    -    474,971    474,971 
                               
Balance at June 30, 2014  $7,935   $7,081,810   $(522,124)  $6,534,423   $(791,981)  $12,310,063 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6
 

 

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed cONSOLIDATED StatementS of Cash Flows

 

   Six Months Ended 
   June 30, 
   2014   2013 
         
Cash flows from operating activities:          
Net income (loss)  $(111,483)  $31,792 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:          
Depreciation expense   74,854    65,402 
Amortization of premiums and accretion of discounts, net   102,447    179,138 
Amortization of deferred loan fees and costs, net   11,082    5,559 
Net gain on sales of securities   (18,078)   (92,645)
Provision for loan losses   10,000    9,500 
Decrease (increase) in accrued interest receivable   3,540    (22,855)
Increase in cash surrender value of life insurance   (32,995)   (32,066)
Amortization of ESOP Shares   10,572    - 
Net increase in other assets   (163,573)   (35,362)
Net increase (decrease) in other liabilities   (20,127)   12,184 
           
Net cash (used in) provided by operating activities   (133,761)   120,647 
           
Cash flows from investing activities:          
Purchases of securities available for sale   -    (13,720,570)
Purchases of securities held to maturity   (2,000,000)   - 
Repayments and maturities of securities held to maturity   280,361    1,391,892 
Repayments and maturities of securities available for sale   2,276,190    6,054,925 
Proceeds from sales of securities held to maturity   230,771    1,421,592 
Proceeds from sales of securities available for sale   1,877,729    2,266,198 
Loans purchased   -    (2,235,964)
Loan originations, net of principal repayments   (399,693)   2,632,344 
Purchases of bank premises and equiment   (102,338)   (9,572)
Purchase of FHLB stock   (53,700)   (21,300)
           
Net cash provided by (used in) investing activities   2,109,320    (2,220,455)
           
Cash flows from financing activities:          
Net increase (decrease) in deposits   3,472,472    (3,808,783)
Net decrease in advances from borrowers for taxes and insurance   (152,847)   (203,855)
Net increase in short term borrowings   1,000,000    - 
Net increase in escrow for stock conversion   -    10,586,207 
           
Net cash  provided by financing activities   4,319,625    6,573,569 
           
Net increase in cash and cash equivalents   6,295,184    4,473,761 
           
Cash and cash equivalents at beginning of year   2,636,523    5,434,472 
           
Cash and cash equivalents at end of year  $8,931,707   $9,908,233 
           
Supplemental Information:          
           
Cash paid for:          
Interest  $202,028   $293,686 
Income taxes (refunds received), net  $15,000   $- 

 

7
 

 

Sunnyside BANCORP, INC AND SUBSIDIARY

Form 10-Q

 

Notes to Condensed Consolidated Financial Statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The following is a description of the more significant policies used in the presentation of the accompanying consolidated financial statements of Sunnyside Bancorp, Inc. and Subsidiary, (collectively, the “Company”).

 

Principles of Consolidation

 

The consolidated financial statements are comprised of the accounts of Sunnyside Bancorp. Inc., and its wholly-owned subsidiary, Sunnyside Federal Savings and Loan Association of Irvington (“Sunnyside Federal” or the “Association”). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Business

 

Sunnyside Federal is a community-oriented savings institution whose primary business is accepting deposits from customers within its market area (Westchester County, New York) and investing those funds in mortgage loans secured by one-to-four family residences and in mortgage-backed and other securities. To a significantly lesser extent, funds are invested in multi-family and commercial mortgage loans, commercial loans, and consumer loans. Customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. As a federally-chartered savings association, Sunnyside Federal’s primary regulator is the Office of the Controller of the Currency (the “OCC”).

 

Basis of Financial Statement Presentation

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with instructions for Form 10-Q, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, such information presented reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of the Company’s management, necessary for a fair statement of results for the interim period.

 

The results of operations for the three and six months ended June 30, 2014, are not necessarily indicative of the results to be expected for the year ended December 31, 2014, or any other future interim period. The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s annual report on Form 10-K.

 

Cash and Cash Equivalents

 

For purposes of reporting cash flows, the Company considers all cash and amounts due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less to be cash equivalents.

 

Investment and Mortgage-Backed Securities

 

Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Securities classified as available-for-sale securities are reported at fair value, with unrealized holding gains or losses reported in a separate component of shareholders’ equity in accumulated other comprehensive income. As of June 30, 2014 and December 31, 2013, the Company had no securities classified as held for trading.

 

The Company conducts a periodic review and evaluation of the securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary. The evaluation of other-than-temporary impairment considers the duration and severity of the impairment, the Company’s intent and ability to hold the securities and assessments of the reason for the decline in value and the likelihood of a near-term recovery. If such a decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to income as a component of non-interest expense.

 

8
 

  

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Premiums and discounts on securities are amortized by use of the level-yield method, over the life of the individual securities. Gain or loss on sales of securities is based upon the specific identification method.

 

Loans Receivable

 

Loans receivable are stated at unpaid principal balances less the allowance for loan losses and net deferred loan fees.

 

Recognition of interest on the accrual method is generally discontinued when interest or principal payments are ninety days or more in arrears, or when other factors indicate that the collection of such amounts is doubtful. At that time, a loan is placed on a nonaccrual status, and all previously accrued and uncollected interest is reversed against interest income in the current period. Interest on such loans, if appropriate, is recognized as income when payments are received. A loan is returned to an accrual status when factors indicating doubtful collectability no longer exist.

 

Allowance for Loan Losses

 

An allowance for loan losses is maintained at a level, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate. Management of the Company, in determining the provision for loan losses considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Company utilizes a two tier approach: (1) identification of problem loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral, and financial condition of the borrowers. Specific loan losses are established for identified loans based on a review of such information and appraisals of the underlying collateral. General loan losses are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, and management's judgment. Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may be necessary.

 

A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. An insignificant payment delay, which is defined as up to ninety days by the Company, will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. The amount of loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.

 

Federal Home Loan Bank of New York stock

 

As a member of the Federal Home Loan Bank of New York (“FHLB”), the Company is required to acquire and hold shares of FHLB Class B stock. The holding requirement varies based on the Company’s activities, primarily its outstanding borrowings, with the FHLB. The investment in FHLB stock is carried at cost. The Company conducts a periodic review and evaluation of its FHLB stock to determine if any impairment exists.

 

Premises and Equipment

 

Premises and equipment are comprised of land, building, and furniture, fixtures, and equipment, at cost, less accumulated depreciation. Depreciation charges are computed on the straight-line method over the following estimated useful lives:

 

  Building and improvements 5 to 40 years
  Furniture, fixtures and equipment 2 to 10 years

 

9
 

  

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Bank-Owned Life Insurance

 

Bank-owned life insurance (“BOLI”) is accounted for in accordance with FASB guidance. The cash surrender value of BOLI is recorded on the consolidated statement of financial condition as an asset and the change in the cash surrender value is recorded as non-interest income. The amount by which any death benefits received exceeds a policy’s cash surrender value is recorded in non-interest income at the time of receipt. A liability is also recorded on the consolidated statement of financial condition for postretirement death benefits provided by the split-dollar endorsement policy. A corresponding expense is recorded in non-interest expense for the accrual of benefits over the period during which employees provide services to earn the benefits.

 

Income Taxes

 

Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the tax return differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted as deferred taxes applicable to future periods. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized.

 

Employee Benefits

 

Defined Benefit Plans:

 

The accounting guidance related to retirement benefits requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize, in comprehensive income, changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. The accounting guidance requires that plan assets and benefit obligations be measured as of the date of the employer’s fiscal year-end statement of financial condition.

 

401(K) Plan:

 

The Company has a 401(k) plan covering substantially all employees. The Company matches 50% of the first 6% contributed by participants and recognizes expense as its contributions are made.

 

Employee Stock Ownership Plan:

 

The employee stock ownership plan (ESOP) is accounted for in accordance with the provisions of ASC 718-40, “Employers’ Accounting for Employee Stock Ownership Plans.” The funds borrowed by the ESOP from the Company to purchase the Company’s common stock are being repaid from the Association’s contributions over a period of up to 25 years. The Company’s common stock not yet allocated to participants is recorded as a reduction of stockholders’ equity at cost. Compensation expense for the ESOP is based on the market price of the Company’s stock and is recognized as shares are committed to be released to participants.

 

Comprehensive Income

 

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, and the actuarial gains and losses of the pension plan, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

 

10
 

  

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Concentration of Credit Risk and Interest-Rate Risk

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and loans. Cash and cash equivalents include amounts placed with highly rated financial institutions. Investment securities include securities backed by the U.S. Government and other highly rated instruments. The Company’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New York. As a result, credit risk is broadly dependent on the real estate market and general economic conditions in the State.

 

The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to make loans primarily secured by real estate in the State of New York. The potential for interest-rate risk exists as a result of the shorter duration of the Company's interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Company's assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

 

Advertising Costs

 

It is the Company’s policy to expense advertising costs in the period in which they are incurred.

 

Earnings Per Share

 

Basic earnings per share is computed by dividing net income for the period by the weighted average number of shares of common stock outstanding adjusted for unearned shares of the Employee Stock Ownership Plan (“ESOP”).

 

Subsequent Events

 

The Company has evaluated all events subsequent to the balance sheet date of June 30, 2014 through the date of this report, and has determined that there are no subsequent events that require disclosure under FASB guidance.

 

2.   MUTUAL TO STOCK CONVERSION AND LIQUIDATION ACCOUNT

 

On July 15, 2013, the Association completed its mutual-to-stock conversion, and the Company consummated its initial stock offering. The Company sold 793,500 shares of its common stock, including 55,545 shares purchased by the Association’s ESOP, at a price of $10.00 per share, in a subscription offering, for gross offering proceeds of $7,935,000. The cost of conversion and the stock offering were deferred and deducted from the proceeds of the offering. Conversion costs incurred totaled $845,000 resulting in net proceeds of $6.5 million after also deducting the shares acquired by the ESOP.

 

In accordance with applicable federal conversion regulations, at the time of the completion of our mutual-to-stock conversion, the Company established a liquidation account in the Association in an amount equal to the Association’s total retained earnings as of the latest balance sheet date in the final prospectus used in the Conversion.  Each eligible account holder or supplemental account holder is entitled to a proportionate share of this liquidation account in the event of a complete liquidation of the Association, and only in such event.  This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record as of any December 31 and will cease to exist if the account is closed.  The liquidation account will never be increased despite any increase after conversion in the related deposit balance.

 

The Company may not declare, pay a dividend on, or repurchase any of its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements.

 

11
 

 

3.   SECURITIES

 

   June 30, 2014 
   Amortized   Gross Unrealized   Fair 
   Cost   Gains   Losses   Value 
                 
Securities held to maturity:                    
U.S.government and agency obligations  $2,000,000   $48,579   $-   $2,048,579 
State, county, and municipal obligations   489,583    12,785    -    502,368 
Mortgage-backed securities   3,669,842    117,527    -    3,787,369 
                     
   $6,159,425   $178,891   $-   $6,338,316 
                     
Securities available for sale:                    
U.S. government and agency obligations  $3,997,063   $3,344   $69,965   $3,930,442 
Mortgage-backed securities   30,897,093    238,774    285,254    30,850,613 
                     
   $34,894,156   $242,118   $355,219   $34,781,055 

 

   December 31, 2013 
   Amortized   Gross Unrealized   Fair 
   Cost   Gains   Losses   Value 
                 
Securities held to maturity:                    
State, county, and municipal obligations  $489,566   $17,035   $-   $506,601 
Mortgage-backed securities   4,176,942    125,291    -    4,302,233 
                     
   $4,666,508   $142,326   $-   $4,808,834 
                     
Securities available for sale:                    
U.S. government and agency obligations  $3,996,781   $-   $225,048   $3,771,733 
Mortgage-backed securities   35,139,713    100,428    771,416    34,468,725 
                     
   $39,136,494   $100,428   $996,464   $38,240,458 

 

At June 30, 2014 and December 31, 2013, securities with a carrying amount of $2.9 million and $0, respectively, were pledged as collateral to secure borrowings with the Federal Home Loan Bank of New York. (FHLBNY).

 

Mortgage-backed securities consist primarily of securities guaranteed by Ginnie Mae, Fannie Mae, Freddie Mac, and the Small Business Administration with amortized costs of $ 5.6 million, $15.2 million, $7.9 million, and $5.9 million, respectively, at June 30, 2014 ($6.3 million, $16.4 million, $9.1 million, and $7.5 million, respectively, at December 31, 2013).

 

Proceeds from the sale of securities held to maturity amounted to $0 and $1,421,592 for the three months ended June 30, 2014 and 2013, respectively. Net gains of $0 and $87,591 were recognized on those sales for the three months ended, June 30, 2014 and 2013, respectively. The sale of the securities occurred after the Association had already collected a substantial portion (at least 85%) of the principal outstanding due to prepayments on the debt securities.

 

Proceeds from the sale of securities available for sale amounted to $0 and $147,244 for the three months ended June 30, 2014 and 2013, respectively. Net gains of $ 0 and $468 were recognized on those sales for the three months ended June 30, 2014 and 2013, respectively.

 

12
 

  

3.   SECURITIES (Cont’d)

 

Proceeds from the sale of securities held to maturity amounted to $230,771 and $1,421,592 for the six months ended June 30, 2014 and 2013, respectively. Net gains of $4,425 and $87,591 were recognized on these sales during the six months ended June 30, 2014 and 2013, respectively. The sale of the securities occurred after the Association had already collected a substantial portion (at least 85%) of the principal outstanding due to prepayments on the debt securities.

 

Proceeds from the sale of securities available for sale amounted to $1,877,729 and $2,266,198 for the six months ended June 30, 2014 and 2013, respectively. Net gains of $13,653 and $5,054 were recognized on those sales for the six months ended, June 30, 2014 and 2013, respectively.

 

The following is a summary of the amortized cost and fair value of securities at June 30, 2014 and December 31, 2013, by remaining period to contractual maturity. Actual maturities may differ from these amounts because certain debt security issuers have the right to call or redeem their obligations prior to contractual maturity. In addition, mortgage backed securities that amortize monthly are listed in the period the security is legally set to pay off in full.

 

  

June 30, 2014

 
  

Held to Maturity

  

Available for Sale
 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
                     
Within one year  $-   $-   $-   $- 
After one to five years   110,069    115,077    -    - 
After five to ten years   379,514    387,291    11,607,793    11,635,961 
After ten years   5,669,842    5,835,948    23,286,363    23,145,094 
                     
   $6,159,425   $6,338,316   $34,894,156   $34,781,055 

 

   December 31, 2013 
  

Held to Maturity

  

Available for Sale
 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
                     
Within one year  $-   $-   $-   $- 
After one to five years   110,095    116,846    574,576    577,199 
After five to ten years   379,471    389,755    12,429,566    12,191,416 
After ten years   4,176,942    4,302,233    26,132,352    25,471,843 
                     
   $4,666,508   $4,808,834   $39,136,494   $38,240,458 

 

The following tables summarize the fair values and unrealized losses of securities with an unrealized loss at June 30, 2014 and December 31, 2013, segregated between securities that have been in an unrealized loss position for less than one year, or one year or longer, at the respective dates.

 

  

June 30, 2014

 
  

Under One Year

  

One Year or More

 
       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized 
   Value   Loss   Value   Loss 
                 
Securities available for sale:                    
U.S. government and agency obligations  $-   $-   $2,927,098   $69,965 
Mortgage-backed securities   3,896,101    7,046    9,067,319    278,208 
                     
   $3,896,101   $7,046   $11,994,417   $348,173 

 

13
 

 

3.   SECURITIES (Cont’d)

 

   December 31, 2013 
  

Under One Year

   One Year or More 
       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized 
   Value   Loss   Value   Loss 
                 
Securities available for sale:                    
U.S. government and agency obligations  $3,771,733   $225,048   $-   $- 
Mortgage-backed securities   20,801,105    447,844    3,941,749    323,572 
                     
   $24,572,838   $672,892   $3,941,749   $323,572 

 

The unrealized losses are primarily due to changes in market interest rates subsequent to purchase. At June 30, 2014, a total of 18 securities were in an unrealized loss position (33 at December 31, 2013). The Company generally purchases securities issued by Government Sponsored Enterprises (GSE). Accordingly, it is expected that the GSE securities would not be settled at a price less than the Company’s amortized cost basis. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2014 and December 31, 2013 since the decline in market value is attributable to changes in interest rates and not credit quality and the Company has the intent and ability to hold these investments until there is a full recovery of the unrealized loss, which may be at maturity.

 

4.   LOANS RECEIVABLE, NET

 

   June 30,   December 31, 
   2014   2013 
Mortgage loans:          
Residential 1-4 family  $34,123,317   $34,616,130 
Commercial and multi-family   4,369,203    4,458,768 
Home equity lines of credit   680,824    689,805 
           
    39,173,344    39,764,703 
           
Other loans:          
Commercial   1,498,438    500,000 
Secured by savings accounts   36,297    43,683 
           
    1,534,735    543,683 
           
Total loans   40,708,079    40,308,386 
           
Less:          
Deferred loan fees (costs), net   (60,786)   (71,868)
Allowance for loan losses   350,145    340,145 
           
    289,359    268,277 
           
   $40,418,720   $40,040,109 

 

In the ordinary course of business, the Company makes loans to its directors, executive officers, and their associates (related parties) on the same terms as those prevailing at the time of origination for comparable loans with other borrowers. The unpaid principal balances of related party loans were approximately $244,000 and $260,000 at June 30, 2014 and December 31, 2013, respectively.

 

14
 

 

4.   LOANS RECEIVABLE, NET (Cont’d)

 

Activity in the allowance for loan losses is summarized as follows:

 

   Three Months Ended 
   June 30, 
   2014   2013 
         
Balance at beginning of period  $350,145   $315,645 
Provision for loan losses   -    9,500 
Charge offs   -    - 
Recoveries   -    - 
           
Balance at end of period  $350,145   $325,145 

 

   Six Months Ended 
   June 30, 
   2014   2013 
         
Balance at beginning of period  $340,145   $314,490 
Provision for loan losses   10,000    9,500 
Charge offs   -    - 
Recoveries   -    1,155 
           
Balance at end of period  $350,145   $325,145 

 

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. There are no specific allowances as of June 30, 2014 and December 31, 2013. The general component covers pools of loans by loan class not considered impaired, as well as smaller balance homogeneous loans, such as one-to-four family real estate, home equity lines of credit and other consumer loans.  These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors.  These qualitative risk factors include:

 

1.Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

 

2.National, regional, and local economic and business conditions including the value of underlying collateral for collateral dependent loans.

 

3.Nature and volume of the portfolio and terms of loans.

 

4.Experience, ability, and depth of lending management and staff and the quality of the Company’s loan review system.

 

5.Volume and severity of past due, classified and nonaccrual loans.

 

6.Existence and effect of any concentrations of credit and changes in the level of such concentrations.

 

7.Effect of external factors, such as competition and legal and regulatory requirements. 

 

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

 

15
 

 

4.   LOANS RECEIVABLE, NET (Cont’d)

 

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 specific and general losses in the portfolio.

 

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss.

 

Loan classifications are defined as follows:

 

Pass — These loans are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

 

Special Mention — These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects.

 

Substandard — These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful — These loans have all the weaknesses inherent in a loan classified substandard with the added characteristic that the weaknesses make the full recovery of our principal balance highly questionable and improbable on the basis of currently known facts, conditions, and values. The likelihood of a loss on an asset or portion of an asset classified as doubtful is high. Its classification as Loss is not appropriate, however, because pending events are expected to materially affect the amount of loss.

 

Loss — These loans are considered uncollectible and of such little value that a charge-off is warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur.

 

One of the primary methods the Company uses as an indicator of the credit quality of their portfolio is the regulatory classification system. The following table reflects the credit quality indicators by portfolio segment and class, at the dates indicated:

 

  

 June 30, 2014

 
   Mortgage Loans         
       Commercial             
   Residential   and   Home Equity   Commercial     
   1-4 Family   Multi-Family   LOC   and other   Total 
  

 (In thousands)

 
                     
Pass  $33,625   $3,891   $483   $1,535   $39,534 
Special Mention   -    478    198    -    676 
Substandard   498    -    -    -    498 
                          
Total  $34,123   $4,369   $681   $1,535   $40,708 

 

16
 

4. LOANS RECEIVABLE, NET (Cont’d)

 

   December 31, 2013 
   Mortgage Loans         
       Commercial             
   Residential   and   Home Equity   Commercial     
   1-4 Family   Multi-Family   LOC   and other   Total 
  

 (In thousands)

 
                     
Pass  $34,109   $3,958   $690   $543   $39,300 
Special Mention   138    501    -    -    639 
Substandard   369    -    -    -    369 
                          
Total  $34,616   $4,459   $690   $543   $40,308 

  

The following table provides information about loan delinquencies at the dates indicated:

 

  

 June 30, 2014

 
                           90 Days 
           90 Days               or More 
   30-59 Days   60-89 Days   or More   Total   Current   Total   Past Due 
   Past Due   Past Due   Past Due   Past Due   Loans   Loans   and Accruing 
   (In Thousands)           (In Thousands)             
                             
Residential 1-4 family  $-   $10   $425   $435   $33,688   $34,123   $- 
Commercial and multi- family   -    -    -    -    4,369    4,369    - 
Home equity lines of credit   -    -    -    -    681    681    - 
Other loans   -    -    -    -    1,535    1,535    - 
                                    
   $-   $10   $425   $435   $40,273   $40,708   $- 

 

  

 December 31, 2013

 
                           90 Days 
           90 Days               or More 
   30-59 Days   60-89 Days   or More   Total   Current   Total   Past Due 
   Past Due   Past Due   Past Due   Past Due   Loans   Loans   and Accruing 
  

(In thousands)

 
                             
Residential 1-4 family  $138   $-   $369   $507   $34,109   $34,616   $- 
Commercial and multi- family   -    -    -    -    4,459    4,459      
Home equity lines of credit   -    198    -    198    492    690     - 
Other loans   -    -    -    -    543    543    - 
                                    
   $138   $198   $369   $705   $39,603   $40,308   $- 

 

There were no troubled debt restructured loans at June 30, 2014 or December 31, 2013.

 

17
 

 

4.   LOANS RECEIVABLE, NET (Cont’d)

 

The following is a summary of loans, by loan type, on which the accrual of income has been discontinued and loans that are contractually past due 90 days or more but have not been classified as non-accrual at the dates indicated:

 

   June 30,   December 31, 
   2014   2013 
  

(In thousands)

 
         
Residential 1-4 family  $498   $369 
Commercial and multi-family   -    - 
Home equity lines of credit   198    - 
Other Loans   -    - 
           
Total non-accrual loans   696    369 
           
Accruing loans delinquent 90 days or more   -    - 
           
Total non-performing loans  $696   $369 

 

The total amount of interest income on non-accrual loans that would have been recognized if interest on all such loans had been recorded based upon original contract terms amounted to approximately $9,000 and $8,000 for the three months ended June 30, 2014 and 2013, respectively. The total amount of interest income recognized on non-accrual loans amounted to approximately $5,000 and $0 during the three months ended June 30, 2014 and 2013, respectively.

 

For the six months ended June 30, 2014 and 2013, such interest income that would have been recognized on non-accrual loans totaled approximately $19,000 and $8,000, respectively. The total amount of interest income recognized on non-accrual loans amounted to approximately $14,000 and $0 during the six months ended June 30, 2014 and 2013, respectively.

 

The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:

 

  

 Three Months Ended

 
   June 30, 2014 
   Mortgage Loans             
       Commercial                 
   Residential   and   Home Equity             
   1-4 Family   Multi-Family   LOC   Other   Unallocated   Total 
   (In thousands) 
                         
Beginning balance  $295   $35   $7   $4   $9   $350 
Provision for loan losses   (15)   9    -    8    (2)   - 
Recoveries   -    -    -    -    -    - 
                               
Ending Balance  $280   $44   $7   $12   $7   $350 

 

18
 

 

4.   LOANS RECEIVABLE, NET (Cont’d)

 

   Three Months Ended 
   June 30, 2013 
   Mortgage Loans             
       Commercial                 
   Residential   and   Home Equity             
   1-4 Family   Multi-Family   LOC   Other   Unallocated   Total 
   (In thousands) 
                         
Beginning balance  $301   $8   $5   $2   $-   $316 
Provision for loan losses   (10)   16    1    2    -    9 
Recoveries   -    -    -    -    -    - 
                               
Ending Balance  $291   $24   $6   $4   $-   $325 

 

   Six Months Ended 
   June 30, 2014 
 Mortgage Loans             
       Commercial                 
   Residential   and   Home Equity             
   1-4 Family   Multi-Family   LOC   Other   Unallocated   Total 
   (In thousands) 
                         
Beginning balance  $295   $34   $6   $5   $-   $340 
Provision for loan losses   (15)   10    1    7    7    10 
Recoveries   -    -    -    -    -    - 
                               
Ending Balance  $280   $44   $7   $12   $7   $350 

 

   Six Months Ended 
   June 30, 2013 
   Mortgage Loans             
       Commercial                 
   Residential   and   Home Equity             
   1-4 Family   Multi-Family   LOC   Other   Unallocated   Total 
   (In thousands) 
                         
Beginning balance  $128   $59   $5   $4   $118   $314 
Provision for loan losses   163    (35)   1    (2)   (118)   9 
Recoveries   -    -    -    2    -    2 
                               
Ending Balance  $291   $24   $6   $4   $-   $325 

 

19
 

 

5.   ACCUMULATED OTHER COMPREHENSIVE LOSS

 

The components of accumulated other comprehensive loss included in equity are as follows:

 

   June 30,   December 31, 
   2014   2013 
         
Unrealized net loss on pension plan  $(1,204,899)  $(1,204,899)
Unrealized loss on securities available for sale   (113,101)   (896,035)
           
Accumulated other comprehensive loss before taxes   (1,318,000)   (2,100,934)
           
Tax effect   526,019    833,982 
           
Accumulated other comprehensive loss  $(791,981)  $(1,266,952)

  

6.   FAIR VALUE MEASUREMENTS AND DISCLOSURES

 

A.   Fair Value Measurements

 

The Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. ASC Topic 820 was issued to increase consistency and comparability in reporting fair values.

 

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured at fair value at June 30, 2014 and December 31, 2013. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as foreclosed real estate owned and certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

 

In accordance with ASC Topic 820, the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

 

Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

 

Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

 

Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

 

The Company bases its fair values on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ASC Topic 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

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6.   FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

 

A.   Fair Value Measurements (Cont’d)

 

Assets that are measured on a recurring basis are limited to the available-for-sale securities portfolio. The available-for-sale portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Substantially all of the available-for-sale portfolio consists of investment securities issued by government-sponsored enterprises. The fair values for substantially all of these securities are obtained from an independent securities broker. Based on the nature of the securities, the securities broker provides the Company with prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the portfolio.

 

The following table provides the level of valuation assumptions used to determine the carrying value of assets measured at fair value on a recurring basis at June 30, 2014 and December 31, 2013:

 

       Fair Value Measurements 
       Quoted Prices in Active   Significant Other   Significant 
   Carrying   Markets for Identical   Observable Inputs   Unobservable Inputs 
Description  Value   Assets (Level 1)   (Level 2)   (Level 3) 
                 
June 30, 2014:                    
Securities available for sale  $34,781,055   $-   $34,781,055   $- 
                     
December 31, 2013:                    
Securities available for sale  $38,240,458   $-   $38,240,458   $- 

 

There were no assets measured at fair value on a non-recurring basis at June 30, 2014 and December 31, 2013.

 

B.  Fair Value Disclosures

 

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein.

 

Cash and Cash Equivalents

 

For cash and due from banks and federal funds sold, the carrying amount approximates the fair value (Level 1).

 

Securities

 

The fair value of securities is estimated based on bid quotations received from securities dealers, if available (Level 1). If a quoted market price was not available, fair value was estimated using quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued (Level 2).

 

FHLB Stock

 

The fair value for FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock, and the Company is required to maintain a minimum balance based upon the unpaid principal of home mortgage loans and outstanding indebtedness with the FHLB (Level 2).

 

Loans Receivable

 

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage, commercial, and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories (Level 3).

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6.   FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

 

B.   Fair Value Disclosures (Cont’d)

 

Deposits

 

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and NOW and money market accounts, is equal to the amount payable on demand (Level 1). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with similar remaining maturities (Level 2).

 

Short-Term Borrowings

 

The carrying amounts of federal funds purchased, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 1).

 

Long-Term Borrowings

 

The fair value of long-term borrowings is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements (Level 2).

 

Off-Balance-Sheet Instruments

 

In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. Their fair value would approximate fees currently charged to enter into similar agreements.

 

The carrying values and estimated fair values of financial instruments are as follows (in thousands):

 

   June 30,   December 31, 
   2014   2013 
   Carrying   Estimated   Carrying   Estimated 
   Value   Fair Value   Value   Fair Value 
   (In Thousands) 
                 
Financial assets:                
Cash and cash equivalents  $8,932   $8,932   $2,637   $2,637 
Securities held to maturity   6,159    6,338    4,667    4,809 
Securities available for sale   34,781    34,781    38,240    38,240 
Loans receivable   40,419    40,805    40,040    40,180 
FHLB and other stock, at cost   276    276    222    222 
Accrued interest receivable   264    264    268    268 
                     
Financial liabilities:                    
Deposits   81,497    81,858    78,025    78,533 
Borrowings   1,000    1,000    -    - 

 

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.

 

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6.    FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

 

B.   Fair Value Disclosures (Cont’d)

 

In addition, the fair value estimates were based on existing on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses have a significant effect on fair value estimates and have not been considered in any of the estimates.

 

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. The lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

 

7.    RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers,” (Topic 606) (“ASU 2014-09”).  ASU 2014-09 impacts any entity that either enters into contracts with customers to transfer goods or services, or that enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (i.e. insurance contracts or lease contracts).  Under ASU 2014-09, an entity is required to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  ASU 2014-09 also requires disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, as well as qualitative and quantitative disclosure related to contracts with certain customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.  ASU 2014-09 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016.  Adoption of ASU 2014-09 is not expected to have a material impact upon the Company's consolidated financial position or results of operations.

 

ASU 2013-11, Income Taxes (Topic 740): “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists,” requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward. If a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets. This guidance is effective prospectively for fiscal years, and interim periods within those years beginning after December 15, 2014, with early adoption permitted. The Company is evaluating the effect the adoption of ASU 2013-11 on January 1, 2015 may have on the operating results or financial position of the Company. 

 

ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (a) the creditor obtaining legal title to residential real estate property upon completion of a foreclosure or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014, with early adoption permitted. The adoption of this guidance on January 1, 2015 is not expected to have a material effect on the operating results or financial position of the Company. 

 

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

General

 

Management’s discussion and analysis of the financial condition and results of operations at and for the three and six months ended June 30, 2014 and 2013 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

·statements of our goals, intentions and expectations;

 

·statements regarding our business plans, prospects, growth and operating strategies;

 

·statements regarding the quality of our loan and investment portfolios; and

 

·estimates of our risks and future costs and benefits.

 

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

 

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

·general economic conditions, either nationally or in our market areas, that are worse than expected;

 

·competition among depository and other financial institutions;

 

·inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

 

·adverse changes in the securities markets;

 

·changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

 

·our ability to enter new markets successfully and capitalize on growth opportunities;

 

·our ability to successfully integrate de novo or acquired branches, if any;

 

·our ability to execute on our business strategy to increase commercial real estate and multi-family lending and commercial lending, including implementing an SBA lending program;

 

·changes in consumer spending, borrowing and savings habits;

 

·changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

 

·changes in our organization, compensation and benefit plans; and

 

·changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

 

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Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

 

Critical Accounting Policies

 

There are no material changes to the critical accounting policies disclosed in the Company’s Form 10-K for the year ended December 31, 2013.

 

Comparison of Financial Condition at June 30, 2014 and December 31, 2013

 

Total assets increased $4.7 million, or 5.1%, to $95.9 million at June 30, 2014 from $91.3 million at December 31, 2013. The increase was primarily due to a $6.3 million increase in cash and cash equivalents and a $379,000 increase in total loans partly offset by a $2.0 million decrease in securities.

 

Cash and cash equivalents increased $6.3 million to $8.9 million at June 30, 2014 from $2.6 million at December 31, 2013 mainly due to an increase of $3.5 million in deposits and a $1 million increase in borrowings. Securities available for sale decreased $3.5 million, or 9%, to $34.8 million at June 30, 2014 from $38.2 million at December 31, 2013 reflecting maturities and repayments of $2.3 million and sales of $1.9 million partially offset by a decrease in the unrealized loss of $783,000. Securities held to maturity increased $1.5 million, or 32%, to $6.2 million at June 30, 2014 from $4.7 million at December 31, 2013 reflecting additional purchases which were partly offset by principal repayments and the sale of mortgage backed securities classified as held to maturity after collection of a substantial portion (at least 85%) of principal outstanding at acquisition.

 

Net loans receivable increased $379,000, or 1%, to $40.4 million at June 30, 2014 from $40.0 million at December 31, 2013. The increase in loans receivable was due primarily to new loan originations exceeding loan repayments.

 

At June 30, 2014, our investment in bank-owned life insurance increased $33,000 to $2.04 million from $2.00 million at December 31, 2013. We invest in bank-owned life insurance to provide us with a funding offset for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses, and we have not made any additional contributions to our bank-owned life insurance since 2002.

 

Other assets, consisting primarily of accrued interest receivable, refundable income taxes, an annuity contract for a former director, and deferred income taxes decreased $148,000 or 8.1% to $1.7 million at June 30, 2014 primarily due lower deferred income taxes as a result of lower unrealized losses in the investment securities available for sale portfolio.

 

Total deposits increased $3.5 million or 4.5%, to $81.5 million at June 30, 2014 from $78.0 million at December 31, 2013. The increase resulted primarily from increases in certificates of deposit of $1.6 million, or 5.0%, an increase of $1.0 million or 28.0% in non-interest bearing checking and an increase in NOW accounts of $939,000 or 9.8%. As part of our efforts to reduce reliance on higher costing certificates of deposit as well as for funding needs, we accepted $4 million in brokered certificates for two years at a rate of 65 basis points and allowed higher rate certificates to run-off totaling $2.4 million.

 

At June 30, 2014 and December 31, 2013, outstanding borrowings totaled $1 million and $0, respectively and represented a 30 day advance with the FHLB which was paid off in the third quarter of 2014. At June 30, 2014, we also had the ability to borrow up to 30 percent of the Association’s assets in FHLB advances and $1.0 million on a Fed Funds line of credit with Atlantic Central Bankers Bank.

 

Total equity increased to $12.3 million at June 30, 2014 from $11.9 million at December 31, 2013 primarily resulting from a decrease in accumulated other comprehensive loss of $475,000 partly offset by a net loss for the six months ended June 30, 2014 of $111,000.

 

Comparison of Results of Operations for the Quarters Ended June 30, 2014 and June 30, 2013

 

General. We had a net loss of $75,000 for the quarter ended June 30, 2014 compared to net income of $50,000 for the quarter ended June 30, 2013. Our net loss resulted primarily from increases in non-interest expense and lower security gains partly offset by an increase in net interest income and lower income taxes.

 

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Net Interest Income.   Net interest income increased $68,000 or 13.4%, to $571,000 for the quarter ended June 30, 2014 from $503,000 for the quarter ended June 30, 2013. Investment income increased $48,000 or 29.2% due to higher investment balances and portfolio yields partly offset by a decrease of $31,000 or 6.4% in interest income on loans due to lower market interest rates. Interest expense declined by $49,000 or 33.9% primarily due to lower balances on certificates of deposit. The average yield on our loans decreased 28 basis points, the average yield on our investment securities increased 132 basis points and the yield on average mortgage-backed securities increased 27 basis points during the quarter ended June 30, 2014 compared to the same quarter in 2013. Our net interest rate spread increased 32 basis points to 2.72% for the quarter ended June 30, 2014 from 2.40% for the quarter ended June 30, 2013 and our net interest margin increased 35 basis points to 2.78% for the 2014 quarter from 2.43% for the 2013 period. Average interest-earning assets decreased $924,000 or 1.1%, to $82.3 million for the quarter ended June 30, 2014 from $83.2 million for the second quarter of 2013.

 

Interest and Dividend Income.   Interest and dividend income increased $18,000 or 2.8% to $667,000 for the quarter ended June 30, 2014 from $649,000 for the quarter ended June 30, 2013. The increase resulted primarily from increases of $13,000 and $35,000 in interest income on investment securities and mortgage-backed securities, respectively, partially offset by decreases in interest income on loans of $31,000.

 

Interest income on loans decreased $31,000, or 6.4%, to $451,000 for the quarter ended June 30, 2014 from $482,000 for the quarter ended June 30, 2013. The decrease resulted primarily from a decrease of 28 basis points in the average yield on loans to 4.51% for the 2014 quarter from 4.79% for the 2013 quarter, reflecting lower market interest rates year to year. The average balance of loans outstanding decreased $255,000 or 0.6% to $40.1 million from $40.4 million for the quarter ended June 30, 2013.

 

Interest and dividend income on investment and mortgage-backed securities increased $48,000 to $214,000 for the quarter ended June 30, 2014 from $166,000 for the quarter ended June 30, 2013. Income on investment securities increased $13,000 or 39.7% compared to the quarter ended June 30, 2013 due to higher yields partly offset by lower average balances. The yield increased 132 basis points to 2.84% compared to 1.52% for the prior year’s quarter. This increase in yield was partly offset by lower average balances of $6.4 million compared to $8.5 million for the quarter ended June 30, 2013. Income on mortgage-backed securities increased $35,000 or 26.6% compared to the prior year’s quarter primarily due to higher balances and investment yields. The average balance in the mortgage-backed portfolio increased $2.9 million to $35.1 million from $32.2 million or 8.9% compared to the same period in 2013. The average yield increased 27 basis points to 1.93% for the quarter ended June 30, 2014 compared to 1.66% for the same period in 2013.

 

Interest Expense.   Interest expense, consisting primarily of the cost of interest-bearing deposits, decreased $49,000, or 33.9%, to $96,000 for the quarter ended June 30, 2014 from $145,000 for the quarter ended June 30, 2013.  The decrease in interest expense was due to a decrease of 20 basis points in the average cost of interest-bearing liabilities, primarily deposits, from 0.73% for the quarter ended June 30, 2013 to 0.53% for the quarter ended June 30, 2014.. The decrease in interest expense for deposits was mainly due to a 39 basis point reduction of interest cost on the certificate of deposit portfolio to 1.11% for the quarter ended June 30, 2014 from 1.50% for the 2013 period along with a reduction in the average balance of certificates of deposit. The average balance of the higher cost interest-bearing certificates of deposits decreased $4.9 million and the average balance of lower-cost NOW, money market and savings accounts decreased $2.7 million or 6.3% from the quarter ended June 30, 2013 compared to the quarter ended June 30, 2014.  

 

Provision for Loan Losses.   We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. A provision for loan losses of $0 and $9,500 was recorded for the quarter ended June 30, 2014 and June 30, 2013, respectively. Management of the Company determined that the allowance for loan losses was sufficient at June 30, 2014 and that a provision for loan losses was not necessary due to the low levels of non-performing loans and delinquencies for the quarter ended June 30, 2014. The allowance for loan losses was $350,000 at June 30, 2014 compared to $340,000 at December 31, 2013. There were no charge offs or recoveries during the quarters ended June 30, 2014 and June 30, 2013.

 

Noninterest Income.   Noninterest income decreased $94,000 to $40,000 for the quarter ended June 30, 2014 from $134,000 for the quarter ended June 30, 2013. The decrease was primarily due to a decrease in gain on the sale of securities to $0 for the 2014 quarter from $88,000 recognized for the 2013 period.

 

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Noninterest Expense.   Noninterest expense increased $193,000 or 33.5%, to $768,000 for the quarter ended June 30, 2014 from $575,000 for the quarter ended June 30, 2013. The increase was primarily due to increases in professional fees, salaries and benefits and advertising expense. Professional fees increased $125,000 due to higher consulting fees, legal fees and accounting fees due to the costs of compliance and being a newly formed public company as well as professional fees incurred to fill the interim CFO position. Salaries and benefits increased $32,000 or 10.9% mainly due to two open positions in 2013 that were filled in 2014. Advertising and promotion expense increased $26,000 due to initiatives the Company is under taking to acquire customer relationships and improve its product set.

 

Income Tax Expense (Benefit).   We recorded an $82,000 income tax benefit for the quarter ended June 30, 2014 compared to a $3,000 income tax expense for the quarter ended June 30, 2013. Income tax expense (benefit) is calculated based on pre-tax income or (loss) adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities and income on bank owned life insurance.

 

Comparison of Results of Operations for the six months ended June 30, 2014 and June 30, 2013

 

General.   We had a net loss of $111,000 for the six months ended June 30, 2014 compared to net income of $32,000 for the six months ended June 30, 2013. The decrease in net income for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 resulted primarily from an increase in non-interest expense and a decrease in non-interest income, partly offset by an increase in net interest income and an increase in the tax benefit.

 

Net Interest Income.   Net interest income increased $116,000 or 11.2 %, to $1.1 million for the six months ended June 30, 2014 from $1.0 million for the six months ended June 30, 2013. The increase resulted primarily from a $94,000 or 31.6% decrease in interest expense and a $22,000 or 1.6% increase in interest and dividend income. The increase in interest and dividend income was primarily driven by higher investment yields partly offset by lower average loan balances and yields. The average yield on our loans decreased 28 basis points, the average yield on our investment securities increased 122 basis points and the average yield on our mortgage-backed securities increased 29 basis points during the six months ended June 30, 2014 compared to the same period in 2013. Our net interest rate spread increased 30 basis points to 2.74% for the six months ended June 30, 2014 from 2.44% for the six months ended June 30, 2013 and our net interest margin increased 33 basis points to 2.80% for the 2014 period from 2.47% for the 2013 period. Average interest-earning assets decreased $1.6 million to $82.8 million for the six months ended June 30, 2014 from $84.4 million for the prior year period.

 

Interest and Dividend Income.   Interest and dividend income increased $22,000 to $1.4 million for the six months ended June 30, 2014 from $1.3 million for the six months ended June 30, 2013. The increase was primarily due to higher returns on investments and mortgage backed securities partly offset by a decrease on loan yields.

 

Interest income on loans decreased $66,000 or 6.6%, to $922,000 for the six months ended June 30, 2014 from $987,000 for the six months ended June 30, 2013. The decrease resulted primarily from a decrease of 28 basis points in the average yield on loans to 4.61% for the 2014 period from 4.89% for the 2013 period, reflecting lower market interest rates year to year.

 

Interest and dividend income on investment and mortgage-backed securities increased $86,000 to $428,000 for the six months ended June 30, 2014 from $342,000 for the six months ended June 30, 2013. Income on investment securities increased $8,000 or 12.4% compared to the six months ended June 30, 2013 due to higher yields partly offset by lower average balances. The yield increased 122 basis points to 2.70% compared to 1.48% for the prior year’s period. This increase in yield was partly offset by lower average balances of $5.5 million compared to $9.0 million for the six months ended June 30, 2013. Income on mortgage-backed securities increased $78,000 or 28.3% compared to the prior year’s period primarily due to higher balances and investment yields. The average balance in the mortgage-backed securities portfolio increased $3.2 million to $36.4 million from $33.3 million or 9.5% compared to the same period in 2013. The average yield increased 29 basis points to 1.96% for the six months ended June 30, 2014 compared to 1.67% for the same period in 2013.

 

Interest Expense.   Interest expense, consisting primarily of the cost of interest-bearing deposits, decreased $94,000 or 31.6%, to $203,000 for the six months ended June 30, 2014 from $297,000 for the six months ended June 30, 2013.  The decrease in interest expense was due to a decrease of 18 basis points in the cost of interest-bearing liabilities, primarily deposits to 0.56% for the six months ended June 30, 2014 from 0.74% for the six months ended June 30, 2013. This decrease was primarily due to lower market interest rates paid on certificates of deposit which decreased to 1.17% for the six months ended June 30, 2014 from 1.52% for the six months ended June 30, 2013 coupled with $5.0 million in lower average balances.  

 

 

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Provision for Loan Losses.   We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. There was a $10,000 provision for loan losses recorded for the six month period ended June 30, 2014 and a $9,500 provision for loan losses recorded for the six month period ended June 30, 2013. During the six months ended June 30, 2014, there were no recoveries and during the same period in 2013 there was a recovery of $1,000.

 

Noninterest Income.   Noninterest income decreased $83,000 to $94,000 for the six months ended June 30, 2014 from $177,000 for the six months ended June 30, 2013. The decrease was primarily due to a reduction in security gains of $75,000 recognized for the six months ended June 30, 2014 compared to the six months ended June 30, 2013.

 

Noninterest Expense.   Noninterest expense increased $288,000, or 24.5%, to $1.5 million for the six months ended June 30, 2014 from $1.2 million for the six months ended June 30, 2013. The increase was primarily due to increases in professional fees, salaries and benefits and advertising expense. Professional fees increased $176,000 due to higher consulting fees, legal fees and accounting fees incurred due to the higher costs of compliance and being a newly formed public company as well as professional fees incurred to fill the interim CFO position. Salaries and benefits increased $31,000, or 4.8%, mainly due to two open positions in 2013 that were filled in 2014. Advertising and promotion expense increased $31,000 due to initiatives the Company is under taking to acquire customer relationships and improve its product set.

 

Income Tax Expense (Benefit).   We recorded a $117,000 income tax benefit for the six months ended June 30, 2014 and a $5,000 income tax benefit for the six months ended June 30, 2013. Income tax expense (benefit) is calculated based on pre-tax income or (loss) adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities and income on bank owned life insurance.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable, as the Registrant is a smaller reporting company.

 

Item 4.Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2014. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

 

During the quarter ended June 30, 2014, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Part II – Other Information

 

Item 1.Legal Proceedings

 

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Association’s or the Company’s financial condition or results of operations.

 

Item 1A.Risk Factors

 

Not applicable, as the Registrant is a smaller reporting company.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)There were no sales of unregistered securities during the period covered by this Report.

 

(b)Not applicable.

 

(c)There were no issuer repurchases of securities during the period covered by this Report.

 

28
 

 

Item 3.Defaults Upon Senior Securities

 

None.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

Item 5.Other Information

 

None.

 

Item 6.Exhibits

 

  31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
  31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
  32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
  101.INS  XBRL Instance Document
     
    101.SCH  XBRL Taxonomy Extension Schema Document
     
    101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document
     
    101.DEF  XBRL Taxonomy Extension Definition Linkbase Document
     
    101.LAB  XBRL Taxonomy Extension Label Linkbase Document
     
  101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    SUNNYSIDE BANCORP, INC.
     
Date:  August 12, 2014   /s/ Timothy D. Sullivan
    Timothy D. Sullivan
  President and Chief Executive Officer
     
    /s/ Edward J. Lipkus
    Edward J. Lipkus
    Vice President, Chief Financial Officer, and
    Treasurer

 

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