Oneida Financial Corp. - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Oneida Financial Corp.	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - Oneida Financial Corp.	exhibit3219-30x2014.htm
EX-31.1 - EXHIBIT 31.1 - Oneida Financial Corp.	exhibit3119-30x2014.htm
EX-31.2 - EXHIBIT 31.2 - Oneida Financial Corp.	exhibit3129-30x2014.htm

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

____________________________________________

FORM 10-Q

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

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

For the transition period from to

Securities Exchange Act Number 001-34813

ONEIDA FINANCIAL CORP.

(Exact name of registrant as specified in its charter)



Maryland	80-0632920
(State or other jurisdiction of	(IRS Employer)
incorporation or organization)	Identification Number)

182 Main Street, Oneida, New York 13421

(Address of Principal Executive Offices)

(315) 363-2000

Registrant’s telephone number, including area code

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated file, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” 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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: There were 7,022,444 shares of the Registrant’s common stock outstanding as of November 1, 2014.

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ONEIDA FINANCIAL CORP.

INDEX



		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Statements of Condition (unaudited) At September 30, 2014 and December 31, 2013	1

	Consolidated Statements of Operations (unaudited) For the three and nine months ended September 30, 2014 and 2013	2

	Consolidated Statements of Comprehensive Income (Loss) (unaudited) For the three and nine months ended September 30, 2014 and 2013	3

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) For the nine months ended September 30, 2014	4

	Consolidated Statements of Cash Flows (unaudited) For the nine months ended September 30, 2014 and 2013	5

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45

Item 4.	Controls and Procedures	46

PART II.	OTHER INFORMATION	47

Item 1.	Legal Proceedings	47

Item 1a.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	47

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PART I. FINANCIAL INFORMATION

Item I. Financial Statements

ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

At September 30, 2014 (unaudited) and December 31, 2013



	September 30, 2014			December 31, 2013
	(In thousands, except share data)
ASSETS
Cash and due from banks	$	27,014		$	27,940
Federal funds sold	17,327			14,243
TOTAL CASH AND CASH EQUIVALENTS	44,341			42,183
Trading securities	4,379			5,063
Securities, available-for-sale	163,583			131,069
Securities, held-to-maturity (fair value $133,870 and $135,468 respectively)	131,001			136,937

Mortgage loans held for sale	347			61
Loans receivable	357,555			337,785
Deferred fees	1,274			965
Allowance for loan losses	(3,491		)	(3,110		)
LOANS RECEIVABLE, NET	355,338			335,640
Federal Home Loan Bank stock	1,419			1,588
Bank premises and equipment, net	19,954			19,780
Assets held for sale	63			—
Accrued interest receivable	2,491			2,222
Bank owned life insurance	17,654			18,160
Other assets	19,838			23,199
Goodwill	25,480			25,480
Other intangible assets	880			1,102
TOTAL ASSETS	$	786,768		$	742,484
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Interest bearing deposits	$	586,191		$	551,603
Non-interest bearing deposits	93,077			85,647
Borrowings	—			1,000
Other liabilities	12,643			13,590
TOTAL LIABILITIES	691,911			651,840
Oneida Financial Corp. Stockholders’ equity:
Preferred stock, 10,000,000 shares authorized; 0 issued and outstanding	—			—
Common stock ($.01 par value; 30,000,000 shares authorized; 7,022,444 issued at September 30, 2014; 7,027,230 issued at December 31, 2013)	70			70
Additional paid-in capital	44,024			43,449
Retained earnings	54,725			52,411
Accumulated other comprehensive loss	(3,930		)	(5,142		)
Unallocated ESOP (18,023 and 18,023 shares)	(32		)	(144		)
TOTAL STOCKHOLDERS’ EQUITY	94,857			90,644
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	786,768		$	742,484

The accompanying notes are an integral part of the consolidated financial statements

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ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2014 (unaudited) and 2013 (unaudited)



	Three Months Ended					Nine Months Ended
	September 30, 2014			September 30, 2013		September 30, 2014			September 30, 2013
	(In thousands, except per share data)
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans	$	3,767		$	3,793	$	11,117		$	11,275
Interest on investment securities	1,886			1,781		5,624			5,276
Dividends on equity securities	23			23		71			69
Interest on federal funds sold and interest-earning deposits	4			1		16			11
Total interest and dividend income	5,680			5,598		16,828			16,631
INTEREST EXPENSE:
Core deposits	300			235		907			723
Time deposits	345			374		1,045			1,128
Borrowings	9			22		35			64
Note payable	1			5		8			19
Total interest expense	655			636		1,995			1,934
NET INTEREST INCOME	5,025			4,962		14,833			14,697
Less: Provision for loan losses	270			180		470			380
Net interest income after provision for loan losses	4,755			4,782		14,363			14,317
INVESTMENT GAINS:
Net gains on sales of securities	2,044			275		2,116			542
Changes in fair value of trading securities	(1,507		)	127		(684		)	1,251
Total investment gains	537			402		1,432			1,793
NON-INTEREST INCOME:
Commissions and fees on sales of non-banking products	6,375			5,866		19,766			17,834
Other operating income	1,183			1,249		4,126			3,747
Total non-interest income	7,558			7,115		23,892			21,581
NON-INTEREST EXPENSES:
Compensation and employee benefits	7,364			7,075		21,864			20,488
Occupancy expenses, net	1,364			1,296		4,094			3,918
Other operating expense	2,297			2,537		7,303			7,259
Total non-interest expenses	11,025			10,908		33,261			31,665
INCOME BEFORE INCOME TAXES	1,825			1,391		6,426			6,026
Provision for income taxes	365			370		1,593			1,562
NET INCOME	$	1,460		$	1,021	$	4,833		$	4,464
EARNINGS PER SHARE — BASIC	$	0.21		$	0.15	$	0.69		$	0.64
EARNINGS PER SHARE — DILUTED	$	0.21		$	0.15	$	0.69		$	0.64

The accompanying notes are an integral part of the consolidated financial statements

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ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three and Nine Months Ended September 30, 2014 (unaudited) and 2013 (unaudited)



	Three Months Ended						Nine Months Ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
	(In thousands)
Net income	$	1,460		$	1,021		$	4,833		$	4,464
Other comprehensive income (loss), net of tax:

Net change in unrealized gains (losses):
Securities transferred from available-for-sale to held-to-maturity:
Amortization of unrealized gains on securities arising during period	142			—			417			—
Reclassification adjustment for gains realized included in income	—			—			—			—
Net unrealized gains	142			—			417			—
Income tax effect	(57		)	—			(167		)	—
Net change in securities transferred to held-to-maturity	85			—			250			—
Securities available-for-sale:
Unrealized holding gains (losses) on securities arising during period	698			(3,108		)	3,697			(9,635		)
Reclassification adjustment for gains realized in income	(2,044		)	(275		)	(2,116		)	(542		)
Net unrealized (losses) gains	(1,346		)	(3,383		)	1,581			(10,177		)
Income tax effect	538			1,353			(633		)	4,071
Net change in securities available-for-sale	(808		)	(2,030		)	948			(6,106		)
Unrealized holding (losses) gains on securities, net of tax	(723		)	(2,030		)	1,198			(6,106		)

Defined benefit pension plans:
Change in unrealized loss on pension benefits	—			30			24			91
Income tax effect	—			(12		)	(10		)	(36		)
Net change in pension benefits	—			18			14			55
Other comprehensive (loss) income, net of tax	(723		)	(2,012		)	1,212			(6,051		)
Comprehensive income (loss)	$	737		$	(991	)	$	6,045		$	(1,587	)

The accompanying notes are an integral part of the consolidated financial statements

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ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2014 (unaudited)



	Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unallocated Employee Stock Ownership Plans			Total
	Common Stock
	Shares		Amount
	(In thousands, except number of shares)
Balance as of January 1, 2014	7,027,230		$	70	$	43,449		$	52,411		$	(5,142	)	$	(144	)	$	90,644
Net income	—		—		—			4,833			—			—			4,833
Other comprehensive income, net of tax	—		—		—			—			1,212			—			1,212
Common stock dividends: $0.36 per share	—		—		—			(2,519		)	—			—			(2,519		)
Tax benefit from stock plan	—		—		34			—			—			—			34
Shares repurchased and retired	(5,153	)	—		(70		)	—			—			—			(70		)
Shares issued under stock plan	18,367		—		103			—			—			—			103
Shares earned under stock plan	—		—		444			—			—			—			444
Shares canceled under stock plan	(18,000	)	—		—			—			—			—			—
Shares committed to be released under ESOP plan	—		—		64			—			—			112			176
Balance as of September 30, 2014	7,022,444		$	70	$	44,024		$	54,725		$	(3,930	)	$	(32	)	$	94,857

The accompanying notes are an integral part of the consolidated financial statements

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ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2014 (unaudited) and 2013 (unaudited)



	Nine Months Ended September 30,
	2014			2013
	(In thousands)
Operating Activities:
Net income	$	4,833		$	4,464
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,265			1,461
Amortization of premiums/discounts on securities, net	300			288
Net change in fair value of trading securities	684			(1,251		)
Provision for loan losses	470			380
ESOP shares earned	176			184
Stock compensation earned	444			449
Loss on write down or sale of foreclosed assets	17			46
Gain on securities, net	(2,116		)	(542		)
Gain on sale of loans, net	(137		)	(247		)
Income tax payable	1,590			(145		)
Accrued interest receivable	(269		)	(366		)
Other assets	1,790			998
Other liabilities	(1,529		)	381
Earnings on bank owned life insurance	(917		)	(421		)
Origination of loans held for sale	(5,522		)	(8,430		)
Proceeds from sales of loans	5,373			9,706
Proceeds on the sale of trading securities	—			2,502
Net cash provided by operating activities	6,452			9,457
Investing Activities:
Purchase of securities available-for-sale	(49,470		)	(68,301		)
Proceeds from sale of securities available-for-sale	5,600			47,854
Maturities and calls of securities available-for-sale	6,910			15,070
Principal collected on securities available-for-sale	7,992			16,113
Purchase of securities held-to-maturity	(2,357		)	(20,786		)
Maturities and call of securities held-to-maturity	1,379			292
Principal collected on securities held-to-maturity	7,182			5,951
Purchase of FHLB stock	(786		)	(4,039		)
Redemption of FHLB stock	955			4,359
Net increase in loans	(20,462		)	(23,997		)
Purchase of bank premises and equipment	(1,280		)	(415		)
Proceeds from the sale of foreclosed property	87			97
Settlement of bank owned life insurance	1,423			—
Purchase of insurance agency	—			(17		)
Net cash used in investing activities	(42,827		)	(27,819		)
Financing Activities:
Net increase in demand deposit, savings, money market, super now and escrow	41,792			37,066
Net increase in time deposits	226			3,273

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Repayment of borrowings	(1,000		)	(5,000		)
Shares issued under stock plan	103			36
Repurchase and retirement of common shares	(70		)	(40		)
Cash dividends	(2,518		)	(2,529		)
Net cash provided by financing activities	38,533			32,806
Increase in cash and cash equivalents	2,158			14,444
Cash and cash equivalents at beginning of period	42,183			19,803
Cash and cash equivalents at end of period	$	44,341		$	34,247
Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,998		$	1,975
Cash paid for income taxes	3			1,706
Supplemental noncash disclosures:
Transfer of loans to other real estate	294			229
Dividends declared and unpaid at period end	844			843

The accompanying notes are an integral part of the consolidated financial statements

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ONEIDA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

September 30, 2014

Note A — Basis of Presentation

The accompanying unaudited consolidated financial statements include Oneida Financial Corp. (the “Company”), a Maryland corporation, and its wholly owned subsidiary, Oneida Savings Bank (the “Bank”), as of September 30, 2014 and December 31, 2013 and for the three month and nine month periods ended September 30, 2014 and 2013. All inter-company accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available through the date of the filing of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses, the fair value of trading securities and investment securities and the evaluation of other-than-temporary impairment on securities whose fair value is less than amortized cost to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. Actual results could differ from those estimates. In the opinion of management, the unaudited consolidated financial statements include all necessary adjustments, consisting of normal recurring accruals, necessary for a fair presentation for the periods presented. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be achieved for the remainder of 2014.

The data in the consolidated statements of condition for December 31, 2013 was derived from the audited financial statements included in the Company’s 2013 Annual Report on Form 10-K. That data, along with the interim financial information presented in the consolidated statement of condition, statements of operations, comprehensive income, changes in stockholders’ equity and cash flows should be read in conjunction with the 2013 consolidated financial statements, including the notes thereto included in the Company’s Annual Report on Form 10-K.

Amounts in the prior period’s consolidated financial statements are reclassified when necessary to conform with the current period’s presentation. Reclassifications did not impact prior period’s net income or stockholders’ equity.

Note B — Earnings per Share

Basic earnings per share is net income available to common shareholders divided by the weighted average number of common shares outstanding during the period excluding participating securities. ESOP shares are considered outstanding for the calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock plans. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Company has determined that 78,000 of its 153,000 outstanding non-vested stock awards are participating securities. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

Earnings per common share have been computed based on the following for the three months and nine months ended September 30, 2014 and 2013:



	Three Months Ended						Nine Months Ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
	(In thousands, except share and per share data)
Net income	$	1,460		$	1,021		$	4,833		$	4,464
Net earnings allocated to participating securities	(16		)	(15		)	(60		)	(75		)
Net earnings allocated to common stock	$	1,444		$	1,006		$	4,773		$	4,389

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	Three Months Ended						Nine Months Ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Basic	(In thousands, except share and per share data)
Distributed earnings allocated to common stock	$	833		$	831		$	2,487		$	2,485
Undistributed earnings allocated to common stock	611			175			2,286			1,904
Net earnings allocated to common stock	$	1,444		$	1,006		$	4,773		$	4,389

Weighted average common shares outstanding including shares considered participating securities	6,997			6,969			6,987			6,962
Less: Average unallocated ESOP shares	(9		)	(35		)	(13		)	(40		)
Less: Average participating securities	(77		)	(103		)	(80		)	(110		)
Weighted average shares	6,911			6,831			6,894			6,812
Basic earnings per share	$	0.21		$	0.15		$	0.69		$	0.64

Diluted
Net earnings allocated to common stock	$	1,444		$	1,006		$	4,773		$	4,389

Weighted average common shares outstanding for basic earnings per common share	6,911			6,831			6,894			6,812
Add: Dilutive effects of assumed exercise of stock options and nonparticipating shares	76			68			67			53
Weighted average shares and dilutive potential common shares	6,987			6,899			6,961			6,865
Diluted earnings per common share	$	0.21		$	0.15		$	0.69		$	0.64

Stock options for 8,160 and 9,348 shares of common stock were not considered in computing diluted earnings per share for the three months and nine months ended September 30, 2014, respectively, because they were anti-dilutive. Stock options for 1,027 shares of common stock were not considered in computing diluted earnings per share for the three months and nine months ended September 30, 2013 because they were anti-dilutive.

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Note C — Investment Securities and Mortgage-Backed Securities

Investment securities and mortgage-backed securities classified as available-for-sale and held-to-maturity consist of the following at September 30, 2014 and December 31, 2013:



Available-for-sale portfolio:	September 30, 2014
	Amortized Cost		Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
	(In thousands)
Investment Securities
Debt securities:
U.S. Agencies	$	25,238	$	64	$	(534	)	$	24,768
Corporate	33,158		283		(1,654		)	31,787
Agency asset backed securities	8,876		145		(3		)	9,018
State and municipal	32,219		1,240		(7		)	33,452
Small Business Administration	7,007		101		—			7,108
	$	106,498	$	1,833	$	(2,198	)	$	106,133
Mortgage-Backed Securities
Fannie Mae	$	22,700	$	197	$	(61	)	$	22,836
Freddie Mac	21,600		94		(139		)	21,555
Government National Mortgage Assoc.	11,460		210		(64		)	11,606
Private placement mortgage obligation	1,424		29		—			1,453
	$	57,184	$	530	$	(264	)	$	57,450
Total available-for-sale	$	163,682	$	2,363	$	(2,462	)	$	163,583



Held-to-maturity portfolio:	September 30, 2014
	Amortized Cost		Unrecognized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
	(In thousands)
Investment Securities
Debt securities:
U.S. Agencies	$	41,573	$	1,451	$	—		$	43,024
State and municipal	26,929		1,271		(16		)	28,184
Small Business Administration	9,487		130		(3		)	9,614
	$	77,989	$	2,852	$	(19	)	$	80,822
Mortgage-Backed Securities
Fannie Mae	$	27,500	$	418	$	(452	)	$	27,466
Freddie Mac	15,890		188		(73		)	16,005
Government National Mortgage Assoc.	9,622		72		(117		)	9,577
	$	53,012	$	678	$	(642	)	$	53,048
Total held-to-maturity	$	131,001	$	3,530	$	(661	)	$	133,870

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Available-for-sale portfolio:	December 31, 2013
	Amortized Cost		Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
	(In thousands)
Investment Securities
Debt securities:
U.S. Agencies	$	19,284	$	21	$	(1,570	)	$	17,735
Corporate	31,136		99		(2,445		)	28,790
Agency asset backed securities	5,501		13		(112		)	5,402
Trust preferred securities	1,000		1,518		—			2,518
State and municipal	32,608		760		(60		)	33,308
Small Business Administration	3,349		10		—			3,359
	$	92,878	$	2,421	$	(4,187	)	$	91,112
Mortgage-Backed Securities
Fannie Mae	$	19,795	$	113	$	(222	)	$	19,686
Freddie Mac	6,790		64		(13		)	6,841
Government National Mortgage Assoc.	10,749		217		(89		)	10,877
Collateralized mortgage obligations	1,120		62		(3		)	1,179
Private placement mortgage obligation	1,416		—		(42		)	1,374
	$	39,870	$	456	$	(369	)	$	39,957
Total available-for-sale	$	132,748	$	2,877	$	(4,556	)	$	131,069



Held-to-maturity portfolio:	December 31, 2013
	Amortized Cost		Unrecognized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
	(In thousands)
Investment Securities
Debt securities:
U.S. Agencies	$	42,185	$	12	$	(761	)	$	41,436
State and municipal	25,584		549		(259		)	25,874
Small Business Administration	10,131		1		(100		)	10,032
	$	77,900	$	562	$	(1,120	)	$	77,342
Mortgage-Backed Securities
Fannie Mae	$	30,130	$	205	$	(828	)	$	29,507
Freddie Mac	17,729		60		(187		)	17,602
Government National Mortgage Assoc.	11,178		62		(223		)	11,017
	$	59,037	$	327	$	(1,238	)	$	58,126
Total held-to-maturity	$	136,937	$	889	$	(2,358	)	$	135,468

As of November 30, 2013, the Company transferred securities totaling $98.9 million with unrealized losses of $4.3 million from available-for-sale to the held-to-maturity portfolio. These securities were transferred to help mitigate interest rate risk on the most price sensitive securities. As a result, the securities are carried at fair value at the time of transfer, which established a new amortized cost basis for book, and the difference between par value of the securities and fair value at the date of transfer will be accreted as an adjustment of yield.

The amortized cost and fair value of the investment securities portfolio at September 30, 2014 are shown by contractual maturities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

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	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Within one year	$	2,218	$	2,240	$	1,607	$	1,610
After one year through five years	9,992		10,359		6,884		7,207
After five years through ten years	63,256		64,002		39,225		40,458
After ten years	31,032		29,532		30,273		31,547
Mortgage-backed securities	57,184		57,450		53,012		53,048
Total	$	163,682	$	163,583	$	131,001	$	133,870

Sales of available-for-sale securities were as follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014			2013
	(In thousands)
Proceeds	$	2,951	$	28,855		$	5,600		$	47,854
Gross gains	$	2,044	$	578		$	2,169		$	942
Gross losses	$	—	$	(303	)	$	(53	)	$	(400	)

Securities with unrealized losses at September 30, 2014 and December 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:



	Less than 12 Months					More than 12 Months					Total
September 30, 2014	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Available-for-sale	(In thousands)
U.S. Agencies	$	4,983	$	(22	)	$	13,487	$	(512	)	$	18,470	$	(534	)
Corporate	9,046		(61		)	11,431		(1,593		)	20,477		(1,654		)
Agency asset backed securities	953		(3		)	—		—			953		(3		)
State and municipal	560		(7		)	—		—			560		(7		)
Small Business Administration	—		—			4		—			4		—
Fannie Mae	7,250		(33		)	2,000		(28		)	9,250		(61		)
Freddie Mac	15,310		(139		)	—		—			15,310		(139		)
Government National Mortgage Assoc.	2,194		(10		)	3,471		(54		)	5,665		(64		)
Total securities available-for-sale in an unrealized loss position	$	40,296	$	(275	)	$	30,393	$	(2,187	)	$	70,689	$	(2,462	)
Held-to-maturity
State and municipal	$	392	$	—		$	1,211	$	(16	)	$	1,603	$	(16	)
Small Business Administration	—		—			1,166		(3		)	1,166		(3		)
Fannie Mae	315		(1		)	9,569		(451		)	9,884		(452		)
Freddie Mac	—		—			3,987		(73		)	3,987		(73		)
Government National Mortgage Assoc.	3,735		(117		)	—		—			3,735		(117		)
Total securities held-to-maturity in an unrecognized loss position	$	4,442	$	(118	)	$	15,933	$	(543	)	$	20,375	$	(661	)

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	Less than 12 Months					More than 12 Months					Total
December 31, 2013	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Available-for-sale	(In thousands)
U.S. Agencies	$	16,496	$	(1,502	)	$	932	$	(68	)	$	17,428	$	(1,570	)
Corporate	14,954		(707		)	9,100		(1,738		)	24,054		(2,445		)
Agency asset backed securities	3,836		(112		)	—		—			3,836		(112		)
State and municipal	4,233		(60		)	—		—			4,233		(60		)
Small Business Administration	725		—			4		—			729		—
Fannie Mae	10,624		(222		)	—		—			10,624		(222		)
Freddie Mac	4,636		(13		)	—		—			4,636		(13		)
Government National Mortgage Assoc.	1,913		(39		)	2,235		(50		)	4,148		(89		)
Collateralized mortgage obligations	335		(3		)	—		—			335		(3		)
Private placement mortgage obligation	1,375		(42		)	—		—			1,375		(42		)
Total securities available-for-sale in an unrealized loss position	$	59,127	$	(2,700	)	$	12,271	$	(1,856	)	$	71,398	$	(4,556	)
Held-to-maturity
U.S. Agencies	$	36,271	$	(706	)	$	4,153	$	(55	)	$	40,424	$	(761	)
State and municipal	16,895		(259		)	—		—			16,895		(259		)
Small Business Administration	9,738		(100		)	—		—			9,738		(100		)
Fannie Mae	23,041		(828		)	—		—			23,041		(828		)
Freddie Mac	15,534		(187		)	—		—			15,534		(187		)
Government National Mortgage Assoc.	8,401		(223		)	—		—			8,401		(223		)
Total securities held-to-maturity in an unrecognized loss position	$	109,880	$	(2,303	)	$	4,153	$	(55	)	$	114,033	$	(2,358	)

Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. The Company evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of the impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

As of September 30, 2014, the Company’s security portfolio consisted of 374 securities, 75 of which were in an unrealized loss position. The majority of the unrealized losses are related to the Company’s agency, mortgage-backed securities, state and municipal, and corporate securities as discussed below.

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U.S. Agency and Agency Mortgage-Backed Securities

Fannie Mae, Freddie Mac, Ginnie Mae and the Small Business Administration guarantee the contractual cash flows of our agency and mortgage-backed securities. Fannie Mae and Freddie Mac are institutions which the government has affirmed its commitment to support. Our Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. Government. All of the agency mortgage-backed securities are residential mortgage-backed securities. At September 30, 2014, of the 51 U.S. Government sponsored enterprise agency and mortgage-backed securities in an unrealized loss position, twenty-five were in a continuous unrealized loss position for 12 months or more. The unrealized losses at September 30, 2014 were primarily attributable to changes in interest rates and illiquidity, and not credit quality. The Company does not have the intent to sell these agency and mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Corporate Debt, Agency Asset Backed and Municipal Securities

At September 30, 2014, of the 24 corporate debt and municipal securities in an unrealized loss position, thirteen were in a continuous unrealized loss position of 12 months or more. We have assessed these securities and determined that the decline in fair value was temporary. In making this determination, we considered the period of time the securities were in a loss position, the percentage decline in comparison with the securities’ amortized cost, the financial condition of the issuer, and the delinquency or default rates based on the applicable bond ratings. In addition, we do not have the intent to sell these securities and it is likely that we will not be required to sell these securities before the recovery of their amortized cost basis, which may be at maturity. Included in the thirteen securities whose unrealized loss position exceeds 12 months was a $2.5 million Strats-Goldman Sachs Corporation obligation, maturing February 15, 2034 which is a variable rate note based on the 6 month libor. The current rate on the security is 1.33%. The unrealized loss was $1,041,000 and $1,116,000 at September 30, 2014 and December 31, 2013, respectively. In addition to the items noted above, we reviewed capital ratios, public filings of the issuer and related trust documents in the review of the unrealized loss. The Strats-Goldman Sachs Corporation obligation is paying as agreed. The other twelve securities in a continuous unrealized loss position were finance sector corporate debt securities and municipal securities all rated above investment grade at September 30, 2014, that have maturities ranging from 2021 to 2034. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Trust Preferred Securities

The Company had $1.0 million invested in two trust preferred securities which had unrealized gains of $1.9 million as of June 30, 2014. The two trust preferred securities ,which had a principal balance of $906,000 were sold and a gain of $2,043,000 was recorded during the three months ended September 30, 2014. The Company had no investments in trust preferred securities as of September 30, 2014. The Company had $1.0 million invested in two trust preferred securities as of December 31, 2013 which had unrealized gains of $1.5 million.

Payments received on these trust preferred securities totaling $147,000 and $1.4 million for the nine months ended September 30, 2014 and 2013 respectively, were applied to principal. The Company realized $158,000 and $273,000 of interest income on these securities for the nine months ended September 30, 2014 and 2013 respectively and realized a $2,043,000 gain on sale for the three and nine months ended September 30, 2014. The interest income realized was based on estimated cash flows. Both of the trust preferred securities were pooled issuances. Prior to December 2013, the company had owned nine trust preferred securities of which seven were sold/liquidated during the year resulting in a net gain of $92,000 on the sales. Six of the securities were considered nonaccrual during 2013.

The table below presents a roll-forward of the credit losses recognized in earnings for the nine months ended September 30, 2014 and 2013:



	September 30, 2014			September 30, 2013
	(In thousands)
Beginning balance	$	5,348		$	5,879
Reductions for previous credit losses realized on securities sold during the year	(2,043		)	(208		)
Reductions for previous credit losses due to an increase in cash flows expected to be collected	(158		)	(358		)
Ending balance	$	3,147		$	5,313

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Note D — Loans Receivable

The components of loans receivable at September 30, 2014 and December 31, 2013 are as follows:



	September 30, 2014			December 31, 2013
	(In thousands)
Commercial loans	$	55,374		$	50,877
Commercial real estate	90,923			90,251
Consumer loans	39,524			28,831
Home equity	51,904			49,424
Residential mortgages	119,830			118,402
	357,555			337,785
Deferred fees	1,274			965
Allowance for loan losses	(3,491		)	(3,110		)
Net loans	$	355,338		$	335,640

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

A loan is considered impaired, when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

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.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or the fair value of collateral if repayment is expected solely from collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net at the fair value of the collateral. For the troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent three years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: commercial loans, commercial real estate loans, consumer loans, home equity loans and residential mortgages.

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Commercial business lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and commercial real estate lending. Real estate lending is generally considered to be collateral based, with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial business loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.

Loans secured by commercial real estate and multi-family residential properties generally are larger than one-to-four family residential loans and involve a greater degree of risk. Commercial and multi-family residential mortgage loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on the results of operations and management of the properties or underlying businesses, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of commercial real estate loans makes them more difficult for management to monitor and evaluate.

Consumer loans generally have shorter terms and higher interest rates than one-to-four family mortgage loans. In addition, consumer loans expand the products and services we offer to meet the financial services needs of our customers. Consumer loans generally involve greater credit risk than residential mortgage loans because of the difference in the underlying collateral. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage to, loss of, or depreciation in the underlying collateral. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections depend on the borrower’s personal financial stability. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Home equity loans are secured by a borrower’s primary residence. Home equity loans are underwritten under the same criteria that we use to underwrite one-to-four family fixed-rate loans. Home equity loans may be underwritten with a loan to value ratio of 90% when combined with the principal balance of an existing mortgage loan. Home equity loans generally involve greater credit risk than the primary residential mortgage loans due to the potential of declines in collateral values, collectability as a result of foreclosure processes if the Bank is considered to be in a secondary position as well as the amount of expenses incurred during the process.

Residential real estate loans have as collateral a borrower’s primary residence. The risk of loss on these loans would be due to collateral deficiencies due to market deterioration or location and condition of the property. The foreclosure process of a primary residence is usually the final course of action on these types of loans. Given our underwriting criteria and the volume and balance of the loans as compared to collateral, the risk in this portfolio segment is lower than that of the other segments.

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net, due to immateriality.

The following table sets forth the activity in the allowance for loan losses by portfolio segment:



For the Three Months Ended	Commercial Loans		Commercial Real Estate		Consumer Loans			Home Equity			Residential Mortgages		Total
September 30, 2014	Commercial Loans		Commercial Real Estate		Consumer Loans			Home Equity			Residential Mortgages		Total
	(In thousands)
Allowance for loan losses:
Beginning balance	$	1,186	$	993	$	304		$	287		$	503	$	3,273
Charge-offs	—		—		(68		)	(21		)	—		(89		)
Recoveries	—		3		33			—			1		37
Provision for loan losses	82		62		114			12			—		270
Ending balance	$	1,268	$	1,058

Oneida Financial Corp. - FORM 10-Q - November 13, 2014

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