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EX-31.1 - TF FINANCIAL CORP EXHIBIT 31.2 - TF FINANCIAL CORPex312.htm
EX-31.1 - TF FINANCIAL CORP EXHIBIT 31.1 - TF FINANCIAL CORPex311.htm
EX-32 - TF FINANCIAL CORP EXHIBIT 32 - TF FINANCIAL CORPex32.htm
EXCEL - IDEA: XBRL DOCUMENT - TF FINANCIAL CORPFinancial_Report.xls



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the period ended June 30, 2014
   
- 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:  1-35163

TF FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania
 
74-2705050
(State or Other Jurisdiction of Incorporation
 
(I.R.S. Employer Identification No.)
or Organization)
   

3 Penns Trail, Newtown, Pennsylvania
 
18940
(Address of Principal Executive Offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (215) 579-4000
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 x  NO o
 
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 xNO o

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 o
 
Accelerated filer o
     
Non-accelerated filer o
 
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 Exchange Act). YES   NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: August 14, 2014

Class
Outstanding
$.10 par value common stock
3,155,762 shares



 
 

 


PART I-CONSOLIDATED FINANCIAL INFORMATION
 
     
Item 1.
3
     
Item 2.
36
     
Item 3.
45
     
Item 4.
45
     
PART II-OTHER INFORMATION
 
     
Item 1.
46
     
Item 1A.
46
     
Item 2.
46
     
Item 3.
46
     
Item 4.
46
     
Item 5.
46
     
Item 6.
46
     
Signatures
 
     
Exhibits
   
     
31.1
 
     
31.2
 
     
32.
 
 
The following Exhibits are being furnished as part of this report:

101.INS
XBRL Instance Document
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
101.CAL 
XBRL Taxonomy Extension Calculation Linkbase Document
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
101.DEF
XBRL Taxonomy Definition Linkbase Document
 



TF FINANCIAL CORPORATION AND SUBSIDIARIES

PART I-CONSOLIDATED FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
At
 
   
June 30, 2014
   
December 31, 2013
 
   
(in thousands)
 
ASSETS
           
Cash and cash equivalents
  $ 48,291     $ 45,310  
Investment securities
               
Available for sale
    129,686       124,012  
Held to maturity (fair value of $1,515 and $1,680 as of
     June 30, 2014 and December 31, 2013, respectively)
    1,340       1,490  
Loans receivable, net
    610,097       614,168  
Loans receivable, held for sale
    129       349  
Federal Home Loan Bank ("FHLB") stock — at cost
    3,544       3,370  
Accrued interest receivable
    2,523       2,520  
Premises and equipment, net
    8,351       8,616  
Goodwill
    4,324       4,324  
Core deposit intangible
    453       503  
Bank owned life insurance
    18,851       18,586  
Other assets
    11,977       12,441  
TOTAL ASSETS
  $ 839,566     $ 835,689  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Liabilities
               
Deposits
  $ 685,988     $ 683,902  
Advances from the FHLB
    47,120       49,605  
Advances from borrowers for taxes and insurance
    3,284       3,228  
Accrued interest payable
    725       671  
Other liabilities
    4,274       3,408  
Total liabilities
    741,391       740,814  
                 
Stockholders’ equity
               
Preferred stock, no par value; 2,000,000 shares authorized at
     June 30, 2014 and December 31, 2013, none issued
           
Common stock, $0.10 par value; 10,000,000 shares authorized,
     5,290,000 shares issued, 3,151,562 and 3,149,239 shares
     outstanding at June 30, 2014 and December 31, 2013,
     respectively, net of shares in treasury of 2,138,438 and
     2,140,761, respectively.
    529       529  
Additional paid-in capital
    56,546       56,197  
Unearned ESOP shares
    (784 )     (846 )
Treasury stock — at cost
    (44,454 )     (44,502 )
Retained earnings
    85,907       84,675  
Accumulated other comprehensive income (loss)
    431       (1,178 )
Total stockholders’ equity
    98,175       94,875  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 839,566     $ 835,689  

The accompanying notes are an integral part of these statements
 
 
 
 
TF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

   
For the three months ended
June 30,
   
For the six months ended
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(in thousands, except share and per share data)
 
Interest income
                       
Loans, including fees
  $ 6,636     $ 5,963     $ 13,313     $ 12,029  
Investment securities
                               
  Fully taxable
    550       355       1,051       724  
  Exempt from federal taxes
    410       412       828       830  
Interest-bearing deposits and other
    4       14       7       18  
TOTAL INTEREST INCOME
    7,600       6,744       15,199       13,601  
Interest expense
                               
Deposits
    774       712       1,540       1,443  
Borrowings
    187       226       380       474  
TOTAL INTEREST EXPENSE
    961       938       1,920       1,917  
NET INTEREST INCOME
    6,639       5,806       13,279       11,684  
Provision for loan losses
    100       400       100       839  
NET INTEREST INCOME AFTER PROVISION
     FOR LOAN LOSSES
    6,539       5,406       13,179       10,845  
Noninterest income
                               
Service fees, charges and other operating income
    552       650       1,068       1,177  
Bank owned life insurance
    134       137       265       280  
Bank owned life insurance death benefit proceeds
          934             934  
Gain on sale of loans
    101       226       175       531  
Gain on sale of investment securities
    16             17        
Gain on disposition of premises and equipment
                      420  
TOTAL NONINTEREST INCOME
    803       1,947       1,525       3,342  
Noninterest expense
                               
Compensation and benefits
    3,206       2,842       6,589       5,659  
Occupancy and equipment
    829       709       1,736       1,406  
Federal deposit insurance premiums
    125       132       259       242  
Professional fees
    278       230       583       518  
Merger-related costs
    1,068       295       1,068       615  
Marketing and advertising
    76       132       220       171  
Foreclosed real estate expense
    35       235       48       459  
Core deposit intangible amortization
    25             50        
Other operating
    615       557       1,194       1,092  
TOTAL NONINTEREST EXPENSE
    6,257       5,132       11,747       10,162  
INCOME BEFORE INCOME TAXES
    1,085       2,221       2,957       4,025  
Income tax expense
    500       421       991       1,002  
NET INCOME
  $ 585     $ 1,800     $ 1,966     $ 3,023  
                                 
Earnings per share—basic
  $ 0.19     $ 0.66     $ 0.64     $ 1.10  
Earnings per share—diluted
  $ 0.19     $ 0.66     $ 0.63     $ 1.10  
Dividends paid per share
  $ 0.12     $ 0.05     $ 0.24     $ 0.10  
Weighted average shares outstanding:
                               
Basic
    3,066       2,743       3,064       2,741  
Diluted
    3,115       2,743       3,098       2,741  
 
The accompanying notes are an integral part of these statements


TF FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

   
For the three months ended
June 30,
   
For the six months ended
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(in thousands)
 
                         
Net income
  $ 585     $ 1,800     $ 1,966     $ 3,023  
Other comprehensive income (loss):
                               
Investment securities available for sale:
                               
Unrealized holding gains (losses)
    1,099       (2,845 )     2,330       (4,118 )
Tax effect
    (374 )     967       (793 )     1,400  
Reclassification adjustment for gains realized in net income
    (16 )           (17 )      
Tax effect
    6             6        
Net of tax amount
    715       (1,878 )     1,526       (2,718 )
Pension plan benefit adjustment:
                               
Related to actuarial losses and prior service cost
    61       66       123       132  
Tax effect
    (20 )     (22 )     (40 )     (45 )
Net of tax amount
    41       44       83       87  
Total other comprehensive income (loss)
    756       (1,834 )     1,609       (2,631 )
Comprehensive income (loss)
  $ 1,341     $ (34 )   $ 3,575     $ 392  
 
The accompanying notes are an integral part of these statements




TF FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
For the six months ended June 30,
 
   
2014
   
2013
 
   
(in thousands)
 
OPERATING ACTIVITIES
           
Net income
  $ 1,966     $ 3,023  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Amortization and impairment adjustment of mortgage loan servicing rights
    117       (77 )
Premiums and discounts on investment securities, net
    149       144  
Premiums and discounts on mortgage-backed securities, net
    195       208  
Accretion of premiums on certificates of deposit
    (111 )      
Deferred loan origination costs, net
    96       105  
Provision for loan losses
    100       839  
Amortization of core deposit intangible
    50        
Depreciation of premises and equipment
    337       334  
Increase in value of bank owned life insurance
    (265 )     (280 )
Income from life insurance death benefit
          (934 )
Stock-based compensation
    450       380  
Proceeds from sale of loans originated for sale
    10,890       21,088  
Origination of loans held for sale
    (10,618 )     (21,580 )
Loss on foreclosed real estate
    11       375  
Gain on:
               
Sale of loans
    (175 )     (531 )
Sale of investment securities
    (17 )      
Disposition of premises and equipment
          (420 )
(Increase) decrease in:
               
Accrued interest receivable                                                                                                     
    (3 )     38  
Other assets                                                                                                     
    703       (93 )
Increase in:
               
Accrued interest payable                                                                                                     
    54       71  
Other liabilities                                                                                                     
    39       157  
 NET CASH PROVIDED BY OPERATING ACTIVITIES
    3,968       2,847  
                 
INVESTING ACTIVITIES
               
Loan originations
    (33,512 )     (56,636 )
Loan principal payments
    36,825       59,116  
Proceeds from sale of foreclosed real estate
    441       987  
Proceeds from disposition of premises and equipment
          417  
Proceeds from maturities of investment securities available for sale
    4,795       2,545  
Proceeds from sale of investment securities available for sale
    6,728        
Proceeds from bank owned life insurance
          2,183  
Principal repayments on mortgage-backed securities held to maturity
    149       294  
Principal repayments on mortgage-backed securities available for sale
    4,740       10,889  
Purchase of investment securities available for sale
    (4,584 )     (10,902 )
Purchase of mortgage-backed securities available for sale
    (15,366 )     (1,867 )
Purchase of premises and equipment
    (72 )     (767 )
Redemption of FHLB stock
    56       1,585  
Purchase of FHLB stock
    (230 )      
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES
    (30 )     7,844  



TF FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
For the six months ended June 30,
 
   
2014
   
2013
 
   
(in thousands)
 
FINANCING ACTIVITIES
           
Net increase in customer deposits
    2,197       11,097  
Net decrease in short-term FHLB borrowings
    (2,485 )     (8,122 )
Net increase in advances from borrowers for taxes and insurance
    56       415  
Exercise of stock options
    8       13  
Tax benefit arising from exercise of stock options
    1       1  
Common stock dividends paid
    (734 )     (274 )
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES
    (957 )     3,130  
NET INCREASE IN CASH AND CASH EQUIVALENTS
    2,981       13,821  
Cash and cash equivalents at beginning of period
    45,310       31,137  
Cash and cash equivalents at end of period
  $ 48,291     $ 44,958  
Supplemental disclosure of cash flow information
               
    Cash paid for:
               
        Interest on deposits and borrowings
  $ 1,916     $ 1,846  
        Income taxes
  $ 750     $ 575  
     Noncash transactions:
               
        Capitalization of mortgage servicing rights
  $ 123     $ 220  
        Transfers from loans to foreclosed real estate
  $ 562     $ 257  

The accompanying notes are an integral part of these statements




TF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — PRINCIPLES OF CONSOLIDATION
 
The consolidated financial statements as of June 30, 2014 (unaudited) and December 31, 2013 and for the three and six-month periods ended June 30, 2014 and 2013 (unaudited) include the accounts of TF Financial Corporation (the “Company”) and its wholly owned subsidiaries: 3rd Fed Bank (the “Bank”) and Penns Trail Development Corporation. The accompanying consolidated balance sheet at December 31, 2013, has been derived from the audited consolidated balance sheet but does not include all of the information and notes required by accounting principles generally accepted in the United States of America (“US GAAP”) for complete financial statements. The Company’s business is conducted principally through the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

NOTE 2 — BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all of the disclosures or footnotes required by US GAAP. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for fair presentation of the consolidated financial statements have been included. The results of operations for the period ended June 30, 2014 are not necessarily indicative of the results which may be expected for the entire fiscal year or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

NOTE 3 — RECENT ACCOUNTING PRONOUNCEMENTS

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.  The amendments in this update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting.  For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.  The amendments also require enhanced disclosures.  The accounting changes in this update are effective for the first interim or annual period beginning after December 15, 2014.  An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited.  The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This update is not expected to have a significant impact on the Company’s financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period.  The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This update is not expected to have a significant impact on the Company’s financial statements.

NOTE 4 — CONTINGENCIES

The Company, from time to time, is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company’s consolidated financial position or results of operations.
 
 
 
 
NOTE 5 — ACQUISITION OF ROEBLING FINANCIAL CORP, INC.

On July 2, 2013, the Company closed on a merger transaction pursuant to which the Company acquired Roebling Financial Corp, Inc. (“Roebling”), the parent company of Roebling Bank, in a stock and cash transaction. 
 
Under the terms of the merger agreement, the Company acquired all of the outstanding shares of Roebling for a total purchase price of approximately $14.9 million.  As a result of the acquisition, the Company issued 306,873 common shares to former shareholders of Roebling.  Roebling was merged with and into the Company, and Roebling Bank was merged with and into the Bank.

The acquired assets and assumed liabilities were measured at estimated fair values. Management made certain estimates and exercised judgment in accounting for the acquisition. The following condensed statement reflects the values assigned to Roebling’s net assets as of the acquisition date:
 
   
At July 2, 2013
 
   
(in thousands)
 
             
Total purchase price
        $ 14,926  
               
Net assets acquired:
             
Cash
  $ 4,081          
Investment securities
    37,339          
Loans receivable
    102,026          
Premises and equipment
    2,154          
Core deposit intangible
    553          
Other assets
    2,531          
Time deposits
    (49,061 )        
Deposits other than time deposits
    (78,689 )        
Other liabilities
    (4,888 )        
              16,046  
Purchase gain on acquisition
          $ 1,120  
 
 

NOTE 6 — EARNINGS PER SHARE

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (dollars in thousands, except share and per share data):

   
For the three months ended June 30, 2014
 
   
Income (numerator)
 
Weighted average shares (denominator)
 
Per share Amount
 
Basic earnings per share
                 
Income available to common stockholders
  $ 585       3,066,399     $ 0.19  
Effect of dilutive securities
                       
Stock options and grants
          49,037        
                         
Diluted earnings per share
                       
Income available to common stockholders plus effect of dilutive securities
  $ 585       3,115,436     $ 0.19  
 
   
For the six months ended June 30, 2014
 
   
Income (numerator)
 
Weighted average shares (denominator)
 
Per share Amount
 
Basic earnings per share
                       
Income available to common stockholders
  $ 1,966       3,064,107     $ 0.64  
Effect of dilutive securities
                       
Stock options and grants
          34,036       (0.01  )
                         
Diluted earnings per share
                       
Income available to common stockholders plus effect of dilutive securities
  $ 1,966       3,098,143     $ 0.63  

There were no options outstanding during the three and six months ended June 30, 2014 to purchase shares of common stock excluded in the computation of diluted earnings per share as the options’ exercise prices were less than the average market price of the common shares.




   
For the three months ended June 30, 2013
 
   
Income (numerator)
 
Weighted average shares (denominator)
 
Per share Amount
 
Basic earnings per share
                 
Income available to common stockholders
  $ 1,800       2,743,427     $ 0.66  
Effect of dilutive securities
                       
Stock options and grants
                 
                         
Diluted earnings per share
                       
Income available to common stockholders plus effect of dilutive securities
  $ 1,800       2,743,427     $ 0.66  
 
   
For the six months ended June 30, 2013
 
   
Income (numerator)
 
Weighted average shares (denominator)
 
Per share Amount
 
Basic earnings per share
                       
Income available to common stockholders
  $ 3,023       2,740,915     $ 1.10  
Effect of dilutive securities
                       
Stock options and grants
                 
                         
Diluted earnings per share
                       
Income available to common stockholders plus effect of dilutive securities
  $ 3,023       2,740,915     $ 1.10  
 
There were 30,388 options to purchase shares of common stock at a price range of $25.71 to $32.51 per share which were outstanding during the three and six months ended June 30, 2013 that were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares.

 
 
NOTE 7 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The activity in accumulated other comprehensive income (loss) for the three months ended June 30, 2014 and 2013 is as follows:

   
Accumulated Other Comprehensive Income (Loss) (1), (2)
 
   
Unrealized gains (losses) on securities available for sale
   
Defined
 benefit
pension
plan
   
Total
 
   
(in thousands)
 
Balance at March 31, 2014
  $ 987     $ (1,312 )   $ (325 )
  Other comprehensive income before
     reclassifications
    725             725  
  Amounts reclassified from accumulated other
     comprehensive income (loss)
    (10 )     41       31  
Period change
    715       41       756  
Balance at June 30, 2014
  $ 1,702     $ (1,271 )   $ 431  
                         
                         
Balance at March 31, 2013
  $ 2,965     $ (2,792 )   $ 173  
  Other comprehensive loss before
     reclassifications
    (1,878 )           (1,878 )
  Amounts reclassified from accumulated other
     comprehensive income
          44       44  
Period change
    (1,878 )     44       (1,834 )
Balance at June 30, 2013
  $ 1,087     $ (2,748 )   $ (1,661 )
 
(1
)
All amounts are net of tax. Related income tax expense or benefit is calculated using a Federal income tax rate of 34%.
(2
)
Amounts in parentheses indicate debits.

 
 
   
Amount reclassified from accumulated other comprehensive income
For the three months ended June 30, (1)
 
Affected line item in the consolidated statements of net income
   
2014
   
2013
   
   
(in thousands)
   
Investment securities available for sale
             
Net securities gains reclassified into
     earnings
  $ 16     $  
 Gain on sale of investment
 securities
          Related income tax expense
    (6 )      
 Income tax expense
Net effect on accumulated other
     income for the period
    10        
 Net of tax
Defined benefit pension plan (2)
                 
     Amortization of net actuarial loss
  $ (61 )   $ (66 )
 Compensation and benefits
          Related income tax expense
    20       22  
 Income tax expense
Net effect on accumulated other
     comprehensive income for the
     period
    (41 )     (44 )
 Net of tax
Total reclassification for the period
  $ (31 )   $ (44 )
 Net income
 
(1
)
Amounts in parentheses indicate debits.
(2
)
Included in the computation of net periodic pension cost. See Note 12 – Employee Benefit Plans for additional detail.

 
The activity in accumulated other comprehensive income (loss) for the six months ended June 30, 2014 and 2013 is as follows:

   
Accumulated Other Comprehensive Income (Loss) (1), (2)
 
   
Unrealized gains (losses) on securities available for sale
   
Defined
benefit
pension
plan
   
Total
 
   
(in thousands)
 
Balance at December 31, 2013
  $ 176     $ (1,354 )   $ (1,178 )
  Other comprehensive income before
     reclassifications
    1,537             1,537  
  Amounts reclassified from accumulated other
     comprehensive income (loss)
    (11 )     83       72  
Period change
    1,526       83       1,609  
Balance at June 30, 2014
  $ 1,702     $ (1,271 )   $ 431  
                         
                         
Balance at December 31, 2012
  $ 3,805     $ (2,835 )   $ 970  
  Other comprehensive loss before
     reclassifications
    (2,718 )           (2,718 )
  Amounts reclassified from accumulated other
     comprehensive income
          87       87  
Period change
    (2,718 )     87       (2,631 )
Balance at June 30, 2013
  $ 1,087     $ (2,748 )   $ (1,661 )
 
(1
)
All amounts are net of tax. Related income tax expense or benefit is calculated using a Federal income tax rate of 34%.
(2
)
Amounts in parentheses indicate debits.

   
Amount reclassified from accumulated other comprehensive income
For the six months ended June 30, (1)
 
Affected line item in the consolidated statements of net income
   
2014
   
2013
   
   
(in thousands)
   
Investment securities available for sale
             
Net securities gains reclassified into
     earnings
  $ 17     $  
 Gain on sale of investment
 securities
          Related income tax expense
    (6 )      
 Income tax expense
Net effect on accumulated other
     income for the period
    11        
 Net of tax
Defined benefit pension plan (2)
                 
     Amortization of net actuarial loss
          and prior service cost
  $ (123 )   $ (132 )
 Compensation and benefits
          Related income tax expense
    40       45  
 Income tax expense
Net effect on accumulated other
     comprehensive income for the
     period
    (83 )     (87 )
 Net of tax
Total reclassification for the period
  $ (72 )   $ (87 )
 Net income

(1
)
Amounts in parentheses indicate debits.
(2
)
Included in the computation of net periodic pension cost. See Note 12 – Employee Benefit Plans for additional detail.

NOTE 8 — INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities are summarized as follows:

   
At June 30, 2014
 
   
Amortized
cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair
value
 
   
(in thousands)
 
Available for sale
                       
U.S. Government and federal agencies
  $ 11,884     $ 45     $ (168 )   $ 11,761  
State and political subdivisions
    59,775       2,179       (304 )     61,650  
Residential mortgage-backed securities
     issued by quasi-governmental agencies
    55,448       966       (139 )     56,275  
Total investment securities available for sale
    127,107       3,190       (611 )     129,686  
                                 
Held to maturity
                               
Residential mortgage-backed securities issued by
     quasi-governmental agencies
    1,340       176       (1 )     1,515  
Total investment securities
  $ 128,447     $ 3,366     $ (612 )   $ 131,201  
 
   
At December 31, 2013
 
   
Amortized
cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair
value
 
   
(in thousands)
 
Available for sale
                               
U.S. Government and federal agencies
  $ 18,572     $ 4     $ (513 )   $ 18,063  
State and political subdivisions
    60,159       1,526       (1,016 )     60,669  
Residential mortgage-backed securities
     issued by quasi-governmental agencies
    45,015       540       (275 )     45,280  
Total investment securities available for sale
    123,746       2,070       (1,804 )     124,012  
                                 
Held to maturity
                               
Residential mortgage-backed securities issued by
     quasi-governmental agencies
    1,490       191       (1 )     1,680  
Total investment securities
  $ 125,236     $ 2,261     $ (1,805 )   $ 125,692  
 
Gross realized gains were $22,000 from the sale proceeds of investment securities available for sale of $3.8 million for the three months ended June 30, 2014. Gross realized losses were $6,000 from the sale proceeds of investment securities available for sale of $948,000 for the three months ended June 30, 2014.

Gross realized gains were $27,000 from the sale proceeds of investment securities available for sale of $4.8 million for the six months ended June 30, 2014. Gross realized losses were $10,000 from the sale proceeds of investment securities available for sale of $1.9 million for the six months ended June 30, 2014.

There were no sales of investment securities during the three or six months ended June 30, 2013.



The amortized cost and fair value of investment and mortgage-backed securities, by contractual maturity, are shown below. 

   
At June 30, 2014
 
   
Available for sale
   
Held to maturity
 
   
Amortized cost
   
Fair value
   
Amortized cost
   
Fair value
 
   
(in thousands)
 
Investment securities
                       
Due in one year or less
  $ 400     $ 401     $     $  
Due after one year through five years
    18,541       18,818              
Due after five years through ten years
    31,733       32,241              
Due after ten years
    20,985       21,951              
      71,659       73,411              
                                 
Mortgage-backed securities
    55,448       56,275       1,340       1,515  
Total investment and mortgage-backed securities
  $ 127,107     $ 129,686     $ 1,340     $ 1,515  
 
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at June 30, 2014:

   
 
   
Less than
   
12 months
       
    Number    
12 months
   
or longer
    Total  
Description of Securities
 
of
Securities
 
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized Loss
   
Fair
Value
   
Unrealized
Loss
 
   
(dollars in thousands)
 
U.S. Government and federal agencies
    3     $ 949     $ (5 )   $ 6,837     $ (163 )   $ 7,786     $ (168 )
State and political subdivisions
    16       4,176       (37 )     8,726       (267 )     12,902       (304 )
Residential mortgage-backed
     securities issued by quasi-
     governmental agencies
    39       9,543       (140 )                 9,543       (140 )
Total temporarily impaired
     securities
    58     $ 14,668     $ (182 )   $ 15,563     $ (430 )   $ 30,231     $ (612 )
 
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2013:

   
 
   
Less than
   
12 months
   
 
       
    Number    
12 months
   
or longer
    Total  
 
 
of
   
Fair 
   
Unrealized
   
Fair 
   
Unrealized
   
Fair 
   
Unrealized
 
Description of Securities    Securities      Value     Loss      Value      Loss      Value      Loss  
   
(dollars in thousands)
 
U.S. Government and federal agencies
    13     $ 17,028     $ (513 )   $     $     $ 17,028     $ (513 )
State and political subdivisions
    24       19,646       (1,016 )                 19,646       (1,016 )
Residential mortgage-backed
     securities issued by quasi-
     governmental agencies
    65       24,508       (276 )                 24,508       (276 )
Total temporarily impaired
     securities
    102     $ 61,182     $ (1,805 )   $     $     $ 61,182     $ (1,805 )
 
 
 
On a quarterly basis, temporarily impaired securities are evaluated to determine whether such impairment is an other-than-temporary impairment (“OTTI”). The Company has performed this evaluation and has determined that the unrealized losses at
June 30, 2014 and December 31, 2013, respectively, are not considered other-than-temporary but are the result of changes in interest rates, and are therefore reflected in other comprehensive income (loss).

NOTE 9 — LOANS RECEIVABLE

Loans receivable are summarized as follows:
   
At
 
   
June 30, 2014
   
December 31, 2013
 
   
(in thousands)
 
Held for investment:
           
Residential
           
Residential mortgages
  $ 355,658     $ 371,961  
                 
Commercial
               
Real estate-commercial
    131,157       129,345  
Real estate-residential
    23,697       20,005  
Real estate-multi-family
    18,936       16,623  
Construction loans
    8,998       8,773  
Commercial and industrial loans
    8,965       6,849  
Total commercial loans
    191,753       181,595  
                 
Consumer
               
Home equity and second mortgage
    63,961       64,202  
Other consumer
    1,532       1,697  
Total consumer loans
    65,493       65,899  
                 
Total loans
    612,904       619,455  
Net deferred loan origination costs and unamortized premiums
    1,341       1,288  
Less allowance for loan losses
    (4,148 )     (6,575 )
Total loans receivable
  $ 610,097     $ 614,168  
                 
Held for sale:
               
Residential
               
Residential mortgages
  $ 129     $ 349  



The following tables present by credit quality indicators the composition of the commercial loan portfolio:

   
At June 30, 2014
 
         
Special
   
 
             
    Pass     mention     Substandard     Doubtful     Total  
   
(in thousands)
 
Real estate-commercial
  $ 119,552     $ 2,930     $ 8,675     $     $ 131,157  
Real estate-residential
    21,238       861       1,598             23,697  
Real estate-multi-family
    15,457             3,479             18,936  
Construction loans
    8,765             233             8,998  
Commercial and industrial loans
    8,936       29                   8,965  
  Total
  $ 173,948     $ 3,820     $ 13,985     $     $ 191,753  
 
   
At December 31, 2013
 
   
 
   
Special
   
 
         
 
 
      Pass     mention       Substandard       Doubtful       Total  
   
(in thousands)
 
Real estate-commercial
  $ 113,260     $ 7,142     $ 8,943     $     $ 129,345  
Real estate-residential
    17,182       487       2,336             20,005  
Real estate-multi-family
    13,114             3,509             16,623  
Construction loans
    5,596             3,177             8,773  
Commercial and industrial loans
    6,817       32                   6,849  
  Total
  $ 155,969     $ 7,661     $ 17,965     $     $ 181,595  

In order to assess and monitor the credit risk associated with commercial loans, the Company employs a risk rating methodology whereby each commercial loan is initially assigned a risk grade. At least annually, all risk ratings are reviewed in light of information received such as tax returns, rent rolls, cash flow statements, appraisals, and any other information which may affect the then-current risk rating, which is adjusted upward or downward as needed. At the end of each quarter the risk ratings are summarized and become a component of the evaluation of the allowance for loan losses. The Company’s risk rating definitions mirror those promulgated by banking regulators and are as follows:
 
Pass: A good quality loan characterized by satisfactory liquidity; reasonable debt capacity and coverage; acceptable management in all critical positions and normal operating results for its peer group. The Company has grades 1 through 6 within the Pass category which reflect the increasing amount of attention paid to the individual loan because of, among other things, trends in debt service coverage, management weaknesses, or collateral values.
 
Special mention: A loan that has potential weaknesses that deserves management’s close attention. Although the loan is currently protected, if left uncorrected, potential weaknesses may result in the deterioration of the loan’s repayment prospects or in the borrower’s future credit position. Potential weaknesses include: weakening financial condition; an unrealistic repayment program; inadequate sources of funds; lack of adequate collateral; credit information; or documentation. There is currently the capacity to meet interest and principal payments, but further adverse business, financial, or economic conditions may impair the borrower’s capacity or willingness to pay interest and repay principal.
 
Substandard: A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Although no loss of principal or interest is presently apparent, there is the distinct possibility that a partial loss of interest and/or principal will be sustained if the deficiencies are not corrected. There is a current identifiable vulnerability to default and the dependence upon favorable business, financial, or economic conditions to meet timely payment of interest and repayment of principal.

Doubtful: A loan which has all the weaknesses inherent in a substandard asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to strengthen the asset, classification as an estimated loss is deferred until a more exact status is determined. Pending factors include: proposed merger, acquisition, liquidation, capital injection, perfecting liens on additional collateral, and refinancing plans.
 
Loss: Loans which are considered uncollectible and have been charged off. The Company has charged-off all loans classified as loss.
 
Loans classified as special mention, substandard or doubtful are evaluated for potential impairment. All impaired loans are placed on nonaccrual status and are classified as substandard or doubtful.
 
The following tables present by credit quality indicator the composition of the residential mortgage and consumer loan portfolios:

   
At June 30, 2014
 
   
Performing
   
Nonperforming
   
Total
 
   
(in thousands)
 
Residential mortgages
  $ 354,502     $ 1,156     $ 355,658  
Home equity and second mortgage
    63,836       125       63,961  
Other consumer
    1,532             1,532  
  Total
  $ 419,870     $ 1,281     $ 421,151  
 
 
 
   
At December 31, 2013
 
   
Performing
   
Nonperforming
   
Total
 
   
(in thousands)
 
Residential mortgages
  $ 368,967     $ 2,994     $ 371,961  
Home equity and second mortgage
    63,902       300       64,202  
Other consumer
    1,697             1,697  
  Total
  $ 434,566     $ 3,294     $ 437,860  
 
In order to assess and monitor the credit risk associated with residential mortgage loans and consumer loans which include second mortgage loans and home equity secured lines of credit, the Company relies upon the payment status of the loan. Residential mortgage and other consumer loans 90 days or more past due are placed on nonaccrual status, classified as nonperforming, and evaluated for impairment.



The following table presents by class nonperforming loans including impaired loans and loan balances 90 days or more past due, for which the accrual of interest has been discontinued:

   
At
 
   
June 30, 2014
   
December 31, 2013
 
   
(in thousands)
 
Residential
           
Residential mortgages
  $ 1,156     $ 2,994  
Commercial
               
Real estate-commercial
    1,769       774  
Real estate-residential
    690       896  
Real estate-multi-family
    191       191  
Construction loans
    233       3,177  
Consumer
               
Home equity and second mortgage
    125       300  
Total nonperforming loans
  $ 4,164     $ 8,332  


The following tables present  loans individually evaluated for impairment by class:
   
At June 30, 2014
 
   
Recorded investment
 
Unpaid principal balance
 
Related allowance
 
Average recorded investment
 
Interest income recognized
 
   
(in thousands)
 
With an allowance recorded:
                             
Residential
                             
Residential mortgages
  $ 1,124     $ 1,124     $ 281     $ 1,129     $  
Commercial
                                       
Real estate-commercial
    132       132       64       44        
Real estate-residential
    496       496       200       569          
Construction loans
    233       233       21       1,215        
      1,985       1,985       566       2,957        
With no allowance recorded:
                                       
Residential
                                       
Residential mortgages
  $ 22     $ 33           $ 409     $  
Commercial
                                       
Real estate-commercial
    1,637       1,639             1,103        
Real estate-residential
    194       321             184        
Real estate-multi-family
    191       372             191        
Consumer
                                       
Home equity and second mortgage
    15       16             39        
      2,059       2,381             1,926        
Total
  $ 4,044     $ 4,366     $ 566     $ 4,883     $