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EX-31.1 - EXHIBIT 31.1 - Wellesley Bancorp, Inc.a50973644_ex311.htm
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EX-31.2 - EXHIBIT 31.2 - Wellesley Bancorp, Inc.a50973644_ex312.htm
EX-32.0 - EXHIBIT 32.0 - Wellesley Bancorp, Inc.a50973644_ex320.htm
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
(Mark one)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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:  001-35352
 
 
WELLESLEY BANCORP, INC.
 
 
(Exact name of registrant as specified in its charter)
 
 
 
Maryland
 
45-3219901
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification No.)
 
 
 
40 Central Street, Wellesley, Massachusetts
 
02482
 
(Address of principal executive offices)
 
(Zip Code)
 
   
 
 
(781) 235-2550
 
 
(Registrant’s telephone number, including area code)
 
 
 
 
Not Applicable
 
 
(Former name, former address and former fiscal year, if changed since last report)
 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes X  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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes X  No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of  “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer  ____  Accelerated filer  ____ 
Non-accelerated filer    ____ 
(Do not check if a smaller reporting company)
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 October 31, 2014, there were 2,454,438 shares of the registrant’s common stock outstanding.
 
 
 

 
 
WELLESLEY BANCORP, INC.
 
Table of Contents
 
   
Page
No.
     
 
     
 
1
     
 
2
     
 
3
     
 
4
     
 
5
     
23
     
34
     
35
     
     
36
     
36
     
36
     
36
     
36
     
36
     
37
     
 
 
 
 

 
 
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

CONSOLIDATED BALANCE SHEETS
 
   
September 30, 2014
   
December 31, 2013
 
   
(Dollars in thousands)
 
Assets
           
             
Cash and due from banks
  $ 2,721     $ 2,685  
Short-term investments
    8,773       16,382  
Total cash and cash equivalents
    11,494       19,067  
                 
Certificates of deposit
    100       100  
Securities available for sale, at fair value
    42,233       36,672  
Federal Home Loan Bank of Boston stock, at cost
    3,660       3,176  
Loans held for sale
    944       825  
                 
Loans
    436,860       387,931  
Less allowance for loan losses
    (4,682 )     (4,213 )
Loans, net
    432,178       383,718  
                 
Bank-owned life insurance
    6,782       6,607  
Premises and equipment, net
    3,631       3,805  
Accrued interest receivable
    1,150       1,044  
Net deferred tax asset
    2,252       1,997  
Other assets
    1,213       1,509  
Total assets
  $ 505,637     $ 458,520  
                 
Liabilities and Stockholders’ Equity
               
                 
Deposits:
               
Noninterest-bearing
  $ 50,042     $ 44,864  
Interest-bearing
    339,364       312,654  
      389,406       357,518  
                 
Short-term borrowings
    2,000       9,000  
Long-term debt
    63,500       43,500  
Accrued expenses and other liabilities
    2,045       1,713  
Total liabilities
    456,951       411,731  
                 
Commitments and contingencies
               
                 
Stockholders’ equity:
               
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued
    --       --  
Common stock, $0.01 par value; 14,000,000 shares authorized,
2,447,802 shares issued and outstanding at September 30, 2014;
2,454,465 shares issued and outstanding at December 31,  2013
    24       24  
Additional paid-in capital
    23,286       22,845  
Retained earnings
    26,641       25,423  
Accumulated other comprehensive income
    308       166  
Unearned compensation – ESOP
    (1,573 )     (1,669 )
Total stockholders’ equity
    48,686       46,789  
                 
Total liabilities and stockholders’ equity
  $ 505,637     $ 458,520  

See accompanying notes to consolidated financial statements.
 
 
1

 
 
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME

   
Three Months
Ended September 30,
   
Nine Months
Ended September 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(Dollars in thousands, except per share data)
 
Interest and dividend income:
                       
Interest and fees on loans and loans held for sale
  $ 4,724     $ 4,085     $ 13,696     $ 11,600  
Debt securities:
                               
Taxable
    201       126       532       403  
Tax-exempt
    49       38       139       138  
Interest on short-term investments and certificates of deposit
    8       7       24       25  
Dividends on FHLB stock
    12       2       35       6  
Total interest and dividend income
    4,994       4,258       14,426       12,172  
Interest expense:
                               
Deposits
    703       569       2,066       1,647  
Short-term borrowings
    2       4       8       4  
Long-term debt
    173       124       451       380  
Total interest expense
    878       697       2,525       2,031  
                                 
Net interest income
    4,116       3,561       11,901       10,141  
Provision for loan losses
    180       150       580       350  
Net interest income, after provision for loan losses
    3,936       3,411       11,321       9,791  
                                 
Noninterest income:
                               
Customer service fees
    31       46       102       126  
Mortgage banking activities
    32       10       71       86  
Gain on sale of securities, net
    --       --       16       103  
Income on bank-owned life insurance
    58       59       175       161  
Wealth management fees
    117       101       353       282  
Loss on extinguishment of debt
    --       --       --       (93 )
Miscellaneous
    6       9       13       32  
Total noninterest income
    244       225       730       697  
Noninterest expense:
                               
Salaries and employee benefits
    2,017       1,553       5,881       4,505  
Occupancy and equipment
    530       354       1,513       1,050  
Data processing
    155       125       456       367  
FDIC insurance
    73       68       208       201  
Professional fees
    138       68       566       332  
Other general and administrative
    412       468       1,210       1,092  
Total noninterest expense
    3,325       2,636       9,834       7,547  
                                 
Income before income taxes
    855       1,000       2,217       2,941  
Provision for income taxes
    339       393       876       1,155  
                                 
Net income
    516       607       1,341       1,786  
                                 
Other comprehensive income (loss):
                               
Unrealized holding (losses) gains on available-for-sale securities
    (83 )     (94 )     249       (809 )
Reclassification adjustment for net securities gains realized in income
    --       --       (16 )     (103 )
Tax benefit (expense)
    33       34       (91 )     357  
                                 
Total other comprehensive (loss) income
    (50 )     (60 )     142       (555 )
                                 
Comprehensive income
  $ 466     $ 547     $ 1,483     $ 1,231  
Earnings per common share:
                               
Basic
  $ 0.23     $ 0.27     $ 0.59     $ 0.78  
Diluted
  $ 0.22     $ 0.27     $ 0.58     $ 0.78  
Weighted average shares outstanding:
                               
Basic
    2,291,824       2,288,752       2,290,510       2,290,402  
Diluted
    2,301,067       2,288,752       2,295,322       2,290,402  
 
See accompanying notes to consolidated financial statements.
 
 
2

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2014 and 2013
 
                            Accumulated              
                Additional           Other     Unearned    
Total 
 
   
Common Stock
    Paid-in    
Retained
   
Comprehensive
    Compensation-     Stockholders’  
   
Shares
   
Amount
    Capital     Earnings    
Income
   
ESOP
    Equity  
    (Dollars in thousands, except per share data)  
Balance at December 31, 2012
    2,480,610     $ 24     $ 22,751     $ 23,203     $ 790     $ (1,797 )   $ 44,971  
                                                         
Net income
    --       --       --       1,786       --       --       1,786  
Other comprehensive loss
    --       --       --       --       (555 )     --       (555 )
Purchase and retirement of
treasury shares
    (20,530 )     --       (321 )     --       --       --       (321 )
Share-based compensation-
equity incentive plan
    --       --       342       --       --       --       342  
ESOP shares committed to be
allocated  (9,629)
    --       --       63       --       --       96       159  
                                                         
Balance at September 30, 2013
    2,460,080     $ 24     $ 22,835     $ 24,989     $ 235     $ (1,701 )   $ 46,382  
                                                         
                                                         
Balance at December 31, 2013
    22,454,465     $ 24     $ 22,845     $ 25,423     $ 166     $ (1,669 )   $ 46,789  
                                                         
Net income
    --       --       --       1,341       --       --       1,341  
Other comprehensive income
    --       --       --       --       142       --       142  
Dividends paid to common
stockholders ($0.05 per share)
    --       --       --       (123 )     --       --       (123 )
Share-based compensation-
equity incentive plan
    --       --       351       --       --       --       351  
Issuance of stock under stock
option plan
    400       --       6       --       --       --       6  
Restricted stock forfeitures
    (7,063 )     --       --       --       --       --       --  
ESOP shares committed to be
allocated  (9,629)
    --       --       84       --       --       96       180  
                                                         
Balance at September 30, 2014
    2,447,802     $ 24     $ 23,286     $ 26,641     $ 308     $ (1,573 )   $ 48,686  
 
See accompanying notes to consolidated financial statements.
 
 
3

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Nine Months Ended September 30,
 
   
2014
   
2013
 
   
(In thousands)
 
Cash flows from operating activities:
           
Net  income
  $ 1,341     $ 1,786  
Adjustments to reconcile net income  to net cash provided by operating activities:
               
Provision for loan losses
    580       350  
Depreciation and amortization
    443       234  
Net amortization of securities
    108       187  
Gain on sale of securities, net
    (16 )     (103 )
Principal amount of loans sold
    13,323       28,505  
Loans originated for sale
    (13,513 )     (19,468 )
Accretion of net deferred loan fees
    (335 )     (391 )
Income on bank-owned life insurance
    (175 )     (161 )
Deferred income tax benefit
    (346 )     (91 )
ESOP expense
    180       159  
Share-based compensation
    351       342  
Net change in other assets and liabilities
    541       585  
Net cash provided by operating activities
    2,482       11,934  
                 
Cash flows from investing activities:
               
Maturities of certificates of deposit
    --       500  
Activity in securities available for sale:
               
Maturities, prepayments and calls
    8,118       6,662  
Purchases
    (14,441 )     (5,063 )
Sales
    903       1,429  
Purchase of Federal Home Loan Bank stock
    (484 )     (794 )
Loan originations, net of principal payments
    (48,634 )     (62,004 )
Additions to premises and equipment
    (288 )     (1,131 )
Net cash used by investing activities
    (54,826 )     (60,401 )
                 
Cash flows from financing activities:
               
Net increase in deposits
    31,888       29,389  
Proceeds from issuance of long-term debt
    26,000       22,500  
Repayments of long-term debt
    (6,000 )     (13,500 )
(Decrease) increase in short-term borrowings
    (7,000 )     5,000  
Issuance of stock under stock option plan
    6       --  
Purchase and retirement of treasury stock
    --       (321 )
Cash dividends paid on common stock
    (123 )     --  
Net cash provided by financing activities
    44,771       43,068  
                 
Net change in cash and cash equivalents
    (7,573 )     (5,399 )
                 
Cash and cash equivalents at beginning period
    19,067       18,218  
Cash and cash equivalents at end of period
  $ 11,494     $ 12,819  
                 
Supplementary information:
               
Interest paid
  $ 2,516     $ 2,025  
Income taxes paid
    853       1,852  
 
See accompanying notes to consolidated financial statements.
 
 
4

 
 
WELLESLEY BANCORP, INC. AND SUBSIDIARY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 – BASIS OF PRESENTATION AND CONSOLIDATION
 
The accompanying unaudited interim consolidated financial statements include the accounts of Wellesley Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Wellesley Bank (the “Bank”), the principal operating entity, and the Bank’s wholly-owned subsidiaries; Wellesley Securities Corporation, which engages in the business of buying, selling and dealing in securities exclusively on its own behalf; Wellesley Investment Partners, LLC, formed to provide investment management services for individuals, not-for-profit entities and businesses; and Central Linden, LLC, formed to hold, manage and sell foreclosed real estate.  All significant intercompany balances and transactions have been eliminated in consolidation.  These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.
 
In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.  The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2013 Annual Report on Form 10-K.  The results for the three or nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or for any other period.
 
NOTE 2 – LOAN POLICIES
 
The loan portfolio consists of real estate, commercial and other loans to the Company’s customers in our primary market areas in eastern Massachusetts.  The ability of the Company’s debtors to honor their contracts is dependent upon the economy in general and the real estate and construction sectors within our markets.
 
Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred loan origination fees or costs.  Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.
 
Interest is not accrued on loans when identified as impaired or loans which are ninety days or more past due.  Past due status is based on the contractual terms of the loan.  Interest income previously accrued on such loans is reversed against current period interest income.  Interest income on non-accrual loans is recognized only to the extent of interest payments received and is first applied to the outstanding principal balance when collectibility of principal is in doubt.  Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured through sustained payment performance for at least six months.

Allowance for loan losses
 
The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred.  Loan losses are charged against the allowance when management believes the uncollectibility of the loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.
 
The allowance for loan losses is evaluated on a regular basis by management.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance consists of general, allocated and unallocated components, as further described below.
 
 
5

 
 
General component
The general component is based on the following loan segments: residential real estate, commercial real estate, construction, commercial, home equity lines of credit and other consumer.  Management considers a rolling average of historical losses for each segment based on a time frame appropriate to capture relevant loss data for each loan segment, which generally ranges from 3-10 years.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume, concentrations and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions.  There were no significant changes to the Company’s policies or methodology pertaining to the general component of the allowance during 2014 or 2013.
 
The qualitative factor adjustments are determined based on the various risk characteristics of each loan segment.  Risk characteristics relevant to each portfolio segment are as follows:
 
Residential real estate – The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent and does not originate subprime loans.  Most loans in this segment are collateralized by one- to four-family residential real estate and repayment is dependent on the credit quality of the individual borrower.
 
Commercial real estate – Loans in this segment are primarily income-producing properties in the Company’s primary market areas in eastern Massachusetts.  The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Management obtains rent rolls annually and continually monitors the cash flows of these loans.
 
Construction – Loans in this segment include speculative construction loans for which payment is derived from sale of the property and construction loans on primary residences for which repayment is dependent on the credit quality of the residential borrower.  Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.
 
Commercial – Loans in this segment are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.
 
Home equity lines of credit – Loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower.  The Company generally does not hold a first mortgage position on homes that secure home equity lines of credit. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.
 
Other consumer – Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.
 
Allocated component
The allocated component relates to loans that are classified as impaired.  Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or, if the loan is collateral dependent, by the fair value of the collateral, less estimated costs to sell.  An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan.  Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify performing individual consumer loans (residential, home equity lines of credit, personal and other consumer secured loans) for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.
 
 
6

 
 
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
 
The Company periodically may agree to modify the contractual terms of loans.  When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”).  All TDRs are initially classified as impaired.
 
Unallocated component
An unallocated component is maintained to cover additional uncertainties in management’s estimation of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

NOTE 3 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, are reported as a separate component of the stockholders’ equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income/loss.

The components of accumulated other comprehensive income and related tax effects are as follows:

   
September 30,
   
December 31,
 
   
2014
   
2013
 
   
(In thousands)
 
       
Unrealized holding gains on securities available for sale
  $ 504     $ 271  
Tax effect
    (196 )     (105 )
Net-of tax amount
  $ 308     $ 166  

NOTE 4 RECENT ACCOUNTING AND REGULATORY PRONOUNCEMENTS
 
In July 2013, federal banking regulators approved minimum requirements for both the quantity and quality of capital held by community banking institutions. The rule includes a new minimum ratio of common equity Tier 1 capital to risk weighted assets of 4.5%, raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and includes a minimum leverage ratio of 4.0% for all banking organizations. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payments to executive officers. The Company must begin complying with the rule on January 1, 2015. The Company is currently evaluating the rule but believes that it will continue to exceed all the minimum capital ratio requirements.

 
7

 
 
NOTE 5 – SECURITIES AVAILABLE FOR SALE
 
The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, follows:

   
September 30, 2014
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
   
(In thousands)
 
                         
Residential mortgage-backed securities:
                       
Government National Mortgage Association
  $ 6,137     $ 163     $ (11 )   $ 6,289  
Government-sponsored enterprises
    9,674       178       (64 )     9,788  
SBA and other asset-backed securities
    9,800       89       (58 )     9,831  
State and municipal bonds
    5,708       186       (6 )     5,888  
Government-sponsored enterprise obligations
    4,000       6       (27 )     3,979  
Corporate bonds
    6,410       57       (9 )     6,458  
                                 
    $ 41,729     $ 679     $ (175 )   $ 42,233  

   
December 31, 2013
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
   
(In thousands)
 
                         
Residential mortgage-backed securities:
                       
Government National Mortgage Association
  $ 7,673     $ 191     $ (33 )   $ 7,831  
Government-sponsored enterprises
    9,622       153       (93 )     9,682  
SBA and other asset-backed securities
    5,089       15       (90 )     5,014  
State and municipal bonds
    4,025       101       (6 )     4,120  
Government-sponsored enterprise obligations
    2,060       4       (50 )     2,014  
Corporate bonds
    7,932       79       --       8,011  
                                 
    $ 36,401     $ 543     $ (272 )   $ 36,672  

The amortized cost and fair value of debt securities by contractual maturity at September 30, 2014 are listed below.  Expected maturities may differ from contractual maturities because the issuer, in certain instances, has the right to call or prepay obligations with or without call or prepayment penalties.
 
   
September 30, 2014
 
   
Amortized
Cost
   
Fair
Value
 
   
(In thousands)
 
Within 1 year
  $ 1,000     $ 1,001  
After 1 year to 5 years
    5,497       5,564  
After 5 years to 10 years
    5,975       6,051  
After 10 years
    3,646       3,709  
      16,118       16,325  
Mortgage- and asset-backed securities
    25,611       25,908  
                 
    $ 41,729     $ 42,233  
 
 
8

 

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
 
   
Less Than Twelve Months
   
Over Twelve Months
 
   
Gross
Unrealized
Losses
   
Fair
Value
   
Gross
Unrealized
Losses
   
Fair
Value
 
 
 
   
(In thousands)
 
September 30, 2014
                       
Residential mortgage-backed securities:
                       
Government National Mortgage Association
  $ (1 )   $ 870     $ (10 )   $ 527  
Government-sponsored enterprises
    (10 )     1,937       (54 )     811  
SBA and other asset-backed securities
    (6 )     2,008       (52 )     1,286  
State and municipal bonds
    (1 )     102       (5 )     546  
Government-sponsored enterprise obligations
    (20 )     1,981       (7 )     993  
Corporate bonds
    (9 )     986       --       --  
                                 
    $ (47 )   $ 7,884     $ (128 )   $ 4,163  
                                 
December 31, 2013
                               
Residential mortgage-backed securities:
                               
Government National Mortgage Association
  $ (33 )   $ 1,496     $ --     $ --  
Government-sponsored enterprises
    (93 )     4,864       --       --  
SBA and other asset-backed securities
    (90 )     2,164       --       --  
State and municipal bonds
    (2 )     251       (4 )     296  
Government-sponsored enterprise obligations
    (50 )     949       --       --  
                                 
    $ (268 )   $ 9,724     $ (4 )   $ 296  

There were no sales of available for sale securities in the three month period ending September 30, 2014 or September 30, 2013.
 
Proceeds from sales of available for sale securities amounted to $903 thousand and $1.4 million with gross realized gains of $16 thousand and $103 thousand for the nine months ended September 30, 2014 and 2013 respectively.  There were no realized losses for 2014 and 2013 during that same nine month period.
 
 
9

 
 
NOTE 6 – LOANS AND ALLOWANCE FOR LOAN LOSSES

A summary of the balances of loans is as follows:

   
September 30,
   
December 31,
 
   
2014
   
2013
 
   
(In thousands)
 
Real estate loans:
           
Residential – fixed
  $ 20,750     $ 21,101  
Residential – variable
    204,531       160,618  
Commercial
    82,350       82,367  
Construction
    83,303       80,103  
      390,934       344,189  
                 
Commercial loans:
               
Secured
    18,996       14,977  
Unsecured
    72       1,453  
      19,068       16,430  
                 
Consumer loans:
               
Home equity lines of credit
    26,683       27,092  
Other
    332       415  
      27,015       27,507  
                 
Total loans
    437,017       388,126  
                 
Less:
               
Allowance for loan losses
    (4,682 )     (4,213 )
Net deferred origination fees
    (157 )     (195 )
                 
Loans, net
  $ 432,178     $ 383,718  
 
 
10

 
 
The following table summarizes the changes in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2014 and 2013:

   
Residential
Real Estate
   
Commercial
Real Estate
   
Construction
   
Commercial
   
Home
Equity
   
Other
Consumer
   
Unallocated
   
Total
 
   
(In thousands)
 
Three Months Ended September 30, 2014
                                               
                                                 
Allowance at June 30, 2014
  $ 1,495     $ 1,001     $ 1,443     $ 351     $ 306     $ 4     $ 13     $ 4,613  
                                                                 
Provision (credit) for loan losses
    147       (63 )     (39 )     80       13       --       42       180  
Loans charged off
    --       --       --       (2 )     (109 )     --       --       (111 )
                                                                 
Allowance at September 30, 2014
  $ 1,642     $ 938     $ 1,404     $ 429     $ 210     $ 4     $ 55     $ 4,682  
                                                                 
Three Months Ended September 30, 2013
                                                               
                                                                 
Allowance at June 30, 2013
  $ 1,393     $ 930     $ 987     $ 447     $ 167     $ 7     $ 77     $ 4,008  
                                                                 
Provision (credit) for loan losses
    (65 )     (52 )     186       (53 )     155       1       (22 )     150  
                                                                 
Allowance at September 30, 2013
  $ 1,328     $ 878     $ 1,173     $ 394     $ 322     $ 8     $ 55     $ 4,158  
                                                                 
       
Nine Months Ended September 30, 2014
                                                               
                                                                 
Allowance at December 31, 2013
  $ 1,351     $ 887     $ 1,305     $ 426     $ 213     $ 7     $ 24     $ 4,213  
                                                                 
Provision (credit) for loan losses
    291       51       99       5       106       (3 )     31       580  
Loans charged off
    --       --       --       (2 )     (109 )     --       --       (111 )
                                                                 
Allowance at September 30, 2014
  $ 1,642     $ 938     $ 1,404     $ 429     $ 210     $ 4     $ 55     $ 4,682  
                                                                 
Nine Months Ended September 30, 2013
                                                               
                                                                 
Allowance at December 31, 2012
  $ 1,157     $ 1,041     $ 918     $ 456     $ 171     $ 11     $ 90     $ 3,844  
                                                                 
Provision (credit) for loan losses
    171       (163 )     255       (26 )     151       (3 )     (35 )     350  
Loans charged off
    --       ---       ---       (36 )     --       --       --       (36 )
                                                                 
Allowance at September 30, 2013
  $ 1,328     $ 878     $ 1,173     $ 394     $ 322     $ 8     $ 55     $ 4,158  
 
 
11

 
 
Additional information pertaining to the allowance for loan losses at September 30, 2014 and December 31, 2013 is as follows:

   
Residential
Real Estate
   
Commercial
Real Estate
   
Construction
   
Commercial
   
Home
Equity
   
Other
Consumer
   
Unallocated
   
Total
 
   
(In thousands)
 
September 30, 2014
                                               
                                                 
Allowance related to loans
individually evaluated and
deemed to be impaired
  $ --     $ 70     $ --     $ --     $ --     $ --     $ --     $ 70  
                                                                 
Allowance related to loans
individually evaluated and
not deemed impaired, and
those collectively evaluated
for impairment
    1,642       868       1,404       429       210       4       55       4,612  
                                                                 
Total allowance
  $ 1,642     $ 938     $ 1,404     $ 429     $ 210     $ 4     $ 55     $ 4,682  
                                                                 
Impaired loan balances
individually evaluated and
deemed to be impaired
  $ 1,411     $ 3,405     $ --     $ 26     $ 430     $ --     $ --     $ 5,272  
                                                                 
Loan balances individually
evaluated and not deemed
impaired, and those collectively
evaluated for impairment
    223,870       78,945       83,303       19,042       26,253       332       --       431,745  
                                                                 
Total loans
  $ 225,281     $ 82,350     $ 83,303     $ 19,068     $ 26,683     $ 332     $ --     $ 437,017  
                                                                 
                                                                 
December 31, 2013
                                                               
                                                                 
Allowance related to loans
individually evaluated and
deemed to be impaired
  $ --     $ --     $ --     $ --     $ --     $ --     $ --     $ --  
                                                                 
Allowance related to loans
individually evaluated and
not deemed impaired, and
those collectively evaluated
for impairment
    1,351       887       1,305       426       213       7       24       4,213  
                                                                 
Total allowance
  $ 1,351     $ 887     $ 1,305     $ 426     $ 213     $ 7     $ 24   <