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EX-32.2 - EXHIBIT 32.2 - SBT Bancorp, Inc.ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - SBT Bancorp, Inc.ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - SBT Bancorp, Inc.ex31-2.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 March 31, 2015

or

[   ]

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act OF 1934

 

For the transition period from _______ to __________

 

Commission File Number: 000-51832

 

 

 SBT Bancorp, Inc.

 (Exact Name of Registrant as Specified in Its Charter)

 

        Connecticut                                              

 

 

20-4346972

 

(State or Other Jurisdiction of

 

 

(I.R.S. Employer

 

Incorporation or Organization)

 

 

Identification No.)

 

         
86 Hopmeadow Street, P.O. Box 248, Simsbury, CT   06070  
(Address of Principal Executive Offices)   (Zip Code)  

  

(860) 408-5493

(Registrant's Telephone Number, Including Area Code)

 

 

(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 [ ]

 

 

 
- 1 -

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 Large accelerated filer [ ]

 

Accelerated filer [ ]

 

 

 

 

 

 Non-accelerated filer [ ]

 

Smaller reporting company [X]

 

 (Do not check if a smaller reporting company)

 

 

 

                     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ]     No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of April 30, 2015, the registrant had 905,936 shares of its Common Stock, no par value per share, outstanding.

 

 
- 2 -

 

 

table of contents

 

SBT Bancorp, Inc. and Subsidiary

 

Page No.

 

PART I - FINANCIAL INFORMATION
     

Item 1.

Financial Statements

 
     
 

Condensed Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014

4

     
 

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)

5

     
 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)

6

     
 

Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2015 and 2014 (unaudited)

7

     
 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (unaudited)

8

     
  Notes to Condensed Consolidated Financial Statements – (unaudited)    9 - 26
     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27-35

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

     

Item 4.

Controls and Procedures

35 

     

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

35

     

Item 1A.

Risk Factors

36

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

     

Item 3.

Defaults Upon Senior Securities

36

      

Item 4.

Mine Safety Disclosures

36

     

Item 5.

Other Information

36

     

Item 6.

Exhibits

36

     

SIGNATURES

    37

 

 
- 3 -

 

 

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

SBT BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except for share and per share amounts)

 

ASSETS

 

3/31/15

   

12/31/14

 
   

(Unaudited)

         

Cash and due from banks

  $ 9,934     $ 10,118  

Interest-bearing deposits with the Federal Reserve Bank and Federal Home Loan Bank

    4,016       9,696  

Money market mutual funds

    509       1  

Federal funds sold

    43       5  

Cash and cash equivalents

    14,502       19,820  
                 

Investments in available-for-sale securities (at fair value)

    81,332       83,805  

Federal Home Loan Bank stock, at cost

    1,881       1,801  

Loans held-for-sale

    4,531       5,374  
                 

Loans

    292,252       286,142  

Less allowance for loan losses

    2,799       2,761  

Loans, net

    289,453       283,381  
                 

Premises and equipment, net

    1,426       1,460  

Accrued interest receivable

    1,004       1,095  

Other real estate owned

    -       105  

Bank owned life insurance

    7,236       7,184  

Other assets

    4,477       4,815  

Total assets

  $ 405,842     $ 408,840  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Deposits:

               

Demand deposits

  $ 108,596     $ 117,261  

Savings and NOW deposits

    192,092       177,158  

Time deposits

    59,874       61,646  

Total deposits

    360,562       356,065  

Securities sold under agreements to repurchase

    3,078       3,921  

Federal Home Loan Bank advances

    10,500       17,500  

Other liabilities

    1,669       1,882  

Total liabilities

    375,809       379,368  
                 

Stockholders' equity:

               

Preferred stock, senior non-cumulative perpetual, Series C, no par; 9,000 shares issued and outstanding at March 31, 2015 and December 31, 2014; liquidation value of $1,000 per share

    8,991       8,988  

Common stock, no par value; authorized 2,000,000 shares; issued and outstanding 906,350 shares and 905,936 shares, respectively, as of March 31, 2015 and 898,105 shares and 897,691 shares, respectively, as of December 31, 2014

    10,313       10,127  

Retained earnings

    10,741       10,549  

Treasury stock, 414 shares

    (7 )     (7 )

Unearned compensation-restricted stock awards

    (375 )     (207 )

Accumulated other comprehensive income

    370       22  

Total stockholders' equity

    30,033       29,472  

Total liabilities and stockholders' equity

  $ 405,842     $ 408,840  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 
- 4 -

 

 

SBT BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except for share and per share amounts)

 

 

   

For the three months ended

 
   

3/31/2015

   

3/31/2014

 

Interest and dividend income:

               

Interest and fees on loans

  $ 2,641     $ 2,611  

Investment securities

    434       480  

Federal funds sold and overnight deposits

    7       11  

Total interest and dividend income

    3,082       3,102  

Interest expense:

               

Deposits

    185       212  

Federal Home Loan Bank advances

    8       2  

Repurchase agreements

    1       1  

Total interest expense

    194       215  
                 

Net interest and dividend income

    2,888       2,887  
                 

Provision for loan losses

    50       30  
                 

Net interest and dividend income after provision for loan losses

    2,838       2,857  

Noninterest income:

               

Service charges on deposit accounts

    104       118  

Gain on sales of available-for-sale securities, net

    43       -  

Other service charges and fees

    64       207  

Increase in cash surrender value of life insurance policies

    52       49  

Mortgage banking activities

    216       39  

Investment services fees and commissions

    34       61  

Other income

    17       38  

Total noninterest income

    530       512  

Noninterest expense:

               

Salaries and employee benefits

    1,580       1,973  

Occupancy expense

    377       347  

Equipment expense

    102       101  

Advertising and promotions

    105       103  

Forms and supplies

    32       35  

Professional fees

    105       77  

Directors’ fees

    51       67  

Correspondent charges

    29       80  

Postage

    1       22  

FDIC assessment

    78       103  

Data processing

    144       145  

Other expenses

    365       307  

Total noninterest expense

    2,969       3,360  

Income before income taxes

    399       9  

Income tax (benefit) provision

    56       (69 )

Net income

  $ 343     $ 78  

Net income available to common stockholders

  $ 317     $ 52  

Weighted average shares outstanding, basic

    887,891       880,075  

Earnings per common share, basic

  $ 0.36     $ 0.06  

Weighted average shares outstanding, assuming dilution

    888,988       887,004  

Earnings per common share, assuming dilution

  $ 0.36     $ 0.06  

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 
- 5 -

 

 

SBT BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 (Unaudited)

(Dollars in thousands)

 

 

 

   

Three Months Ended

 
   

March 31,

 
   

2015

   

2014

 
   

(unaudited)

 

Net income

  $ 343     $ 78  

Other comprehensive income, net of tax:

               

Net change in unrealized holding gain on securities available for sale

    568       1,050  

Reclassification adjustment for net realized gains in net income

    (43 )     -  

Other comprehensive income, before tax

    525       1,050  

Income tax expense related to items of other comprehensive income

    (177 )     (357 )

Other comprehensive income, net of tax

    348       693  

Comprehensive income

  $ 691     $ 771  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 
- 6 -

 

 

 SBT BANCORP, INC. AND SUBSIDIARY

 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands)

 

 

                                   

Unearned

   

Accumulated

         
   

Preferred

                           

Compensation-

   

Other

         
   

Stock

   

Common

   

Retained

   

Treasury

   

Restricted 

   

Comprehensive

         
   

Series C

   

Stock

   

Earnings

   

Stock

   

Stock Awards

   

Income (Loss)

   

Total

 

Balance, December 31, 2013

  $ 8,976     $ 10,136     $ 10,347     $ (7 )   $ (401 )   $ (1,655 )   $ 27,396  

Net income

    -       -       78       -       -       -       78  

Other comprehensive income, net of tax

    -       -       -       -       -       693       693  

Preferred stock dividend-SBLF

    -       -       (23 )     -       -       -       (23 )

Preferred stock amortization (accretion)

    3       -       (3 )     -       -       -       -  

Stock based compensation

    -       -       -       -       39       -       39  

Dividends declared common stock

    -       -       (122 )     -       -       -       (122 )

Forfeited restricted stock awards

    -       (90 )     -       -       90       -       -  

Restricted stock awards

    -       41       -       -       (41 )     -       -  

Common stock issued

    -       10       -       -       -       -       10  

Balance, March 31, 2014

  $ 8,979     $ 10,097     $ 10,277     $ (7 )   $ (313 )   $ (962 )   $ 28,071  
                                                         

Balance, December 31, 2014

  $ 8,988     $ 10,127     $ 10,549     $ (7 )   $ (207 )   $ 22     $ 29,472  

Net income

    -       -       343       -       -       -       343  

Other comprehensive income, net of tax

    -       -       -       -       -       348       348  

Preferred stock dividend-SBLF

    -       -       (23 )     -       -       -       (23 )

Preferred stock amortization (accretion)

    3       -       (3 )     -       -       -       -  

Stock based compensation

    -       -       -       -       9       -       9  

Dividends declared common stock

    -       -       (125 )     -       -       -       (125 )

Restricted stock awards

    -       177       -       -       (177 )     -       -  

Common stock issued

    -       9       -       -       -       -       9  

Balance, March 31, 2015

  $ 8,991     $ 10,313     $ 10,741     $ (7 )   $ (375 )   $ 370     $ 30,033  

 

  

See accompanying notes to the unaudited condensed consolidated financial statements

 

 
- 7 -

 

  

SBT BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands) 

 

 

    For the three months ended   
   

3/31/2015

   

3/31/2014

 

Cash flows from operating activities:

               

Net income

  $ 343     $ 78  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Amortization of securities, net

    99       98  

Amortization of mortgage servicing rights

    150       90  

Gain on sales of available-for-sale securities

    (43 )     -  

Change in deferred origination costs, net

    25       (12 )

Provision for loan losses

    50       30  

Loans originated for sale

    (15,017 )     (5,148 )

Proceeds from sales of loans

    16,076       5,050  

Gains on sales of loans

    (216 )     (30 )

Gain on sale of other real estate owned

    (9 )     -  

Depreciation and amortization

    111       96  

Accretion on impairment of operating lease

    (11 )     (11 )

Increase in other assets

    (56 )     (582 )

Decrease in interest receivable

    91       85  

Decrease (increase) in taxes receivable

    54       (69 )

Increase in cash surrender value of bank owned life insurance

    (52 )     (49 )

Stock-based compensation

    9       39  

(Decrease) increase in other liabilities

    (218 )     165  

Increase in interest payable

    16       8  

Net cash provided by (used in) operating activities

    1,402       (162 )
                 

Cash flows from investing activities:

               

Purchases of Federal Home Loan Bank stock

    (80 )     -  

Proceeds from maturities of available-for-sale securities

    2,354       1,707  

Proceeds from sales of available-for-sale securities

    588       -  

Loan originations and principal collections, net

    (4,045 )     1,156  

Loans purchased

    (2,103 )     -  

Recoveries of loans previously charged off

    1       10  

Proceeds from sale of other real estate owned

    114       -  

Capital expenditures

    (64 )     (120 )

Net cash (used in) provided by investing activities

    (3,235 )     2,753  
                 

Cash flows from financing activities:

               

Net increase in demand deposits, NOW and savings accounts

    6,269       13,562  

Decrease in time deposits

    (1,772 )     (472 )

Net decrease in securities sold under agreements to repurchase

    (843 )     (1,055 )

Paydown of Federal Home Loan Bank advances

    (7,000 )     (30,000 )

Proceeds from issuance of common stock

    9       10  

Dividends paid - preferred stock

    (23 )     (23 )

Dividends paid - common stock

    (125 )     (122 )
                 

Net cash used in financing activities

    (3,485 )     (18,100 )
                 

Net decrease in cash and cash equivalents

    (5,318 )     (15,509 )

Cash and cash equivalents at beginning of period

    19,820       38,590  

Cash and cash equivalents at end of period

  $ 14,502     $ 23,081  
                 

Supplemental disclosures:

               

Interest paid

  $ 178     $ 207  

Income taxes paid

    -       -  

Loan transferred to other real estate owned

    -       155  

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 
- 8 -

 

 

SBT BANCORP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

(Dollars in thousands)

 

NOTE 1 – BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and the instructions to Form 10-Q and, accordingly, do not include all of the information and footnotes required by generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all necessary adjustments, consisting of only normal recurring accruals, to present fairly the financial position, results of operations, cash flows and changes in stockholders’ equity of SBT Bancorp, Inc. (the “Company”) for the periods presented. The Company’s only business is its investment in The Simsbury Bank & Trust Company, Inc. (the “Bank”), which is a community-oriented financial institution providing a variety of banking and investment services. In preparing the interim financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods presented. Actual results could differ significantly from those estimates. The interim results of operations are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.

 

While management believes that the disclosures presented are adequate so as to not make the information misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes included in the Company’s Form 10-K for the year ended December 31, 2014.

 

NOTE 2 – STOCK-BASED COMPENSATION

 

At March 31, 2015, the Company maintained a stock-based employee compensation plan. The Company recognizes the cost resulting from all share-based payment transactions in the consolidated financial statements and establishes fair value as the measurement objective in accounting for share-based payment arrangements. During the three months ended March 31, 2015, the Company recognized $9 thousand in stock-based employee compensation expense. During the three months ended March 31, 2014, the Company recognized $39 thousand in stock-based employee compensation expense.

 

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-01, “Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects.” The amendments in this ASU apply to all reporting entities that invest in qualified affordable housing projects through limited liability entities that are flow-through entities for tax purposes as follows:

 

 

1.

For reporting entities that meet the conditions for and that elect to use the proportional amortization method to account for investments in qualified affordable housing projects, all amendments in this ASU apply.

 

 

2.

For reporting entities that do not meet the conditions for or that do not elect the proportional amortization method, only the amendments in this ASU that are related to disclosures apply.

 

The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment in accordance with Subtopic 970-323. The amendments in this ASU should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this ASU are effective for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

 

 
- 9 -

 

 

In January 2014, the FASB issued ASU 2014-04, “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The objective of the amendments in this ASU is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (i) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (ii) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (i) the amount of foreclosed residential real estate property held by the creditor and (ii) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company can elect to adopt the amendments in this ASU using either a modified retrospective transition method or a prospective transition method. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).” The objective of this ASU is to clarify principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently reviewing this ASU to determine if it will have an impact on its consolidated financial statements.

 

In June 2014, the FASB issued ASU 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” The amendments in this ASU require two accounting changes. First, the amendments in this ASU change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Second, 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. This ASU also includes new disclosure requirements. 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 adoption of this guidance did not have an impact on the Company's consolidated financial statements.

 

 
- 10 -

 

 

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 in this ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Earlier adoption is permitted. ASU 2014-12 may be adopted 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. The Company anticipates that the adoption of this guidance will not have a material impact on its consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-13, “Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity.” This ASU applies to entities that meet the following criteria:

 

 

1.

they are required to consolidate a collateralized entity under the Variable Interest Entities guidance;

 

 

2.

they measure all of the financial assets and the financial liabilities of that consolidated collateralized financing entity at fair value in the consolidated financial statements based on other FASB rules; and

 

 

3.

those changes in fair value are reflected in earnings.

 

Under ASU 2014-13, entities that meet these criteria are provided an alternative under which they can choose to eliminate the difference between the fair value of financial assets and financial liabilities of a consolidated collateralized financing entity. If that alternative is not elected, then ASU 2014-13 indicates that the fair value of the financial assets and the fair value of the financial liabilities of the consolidated collateralized financing entity should be measured in accordance with Accounting Standards Codification (ASC) 820, “Fair Value Measurement,” and differences between the fair value of the financial assets and the financial liabilities of that consolidated collateralized financing entity should be reflected in earnings and attributed to the reporting entity in the consolidated statement of income or loss. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have an impact on its consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-14, “Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government - Guaranteed Mortgage Loans upon Foreclosure.” The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:

 

 

1.

the loan has a government guarantee that is not separable from the loan before foreclosure;

 

 

2.

at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and

 

 

3.

at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.

 

Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this ASU did not have an impact on the Company's consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40).” The amendments in this ASU provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of this guidance is not expected to have an impact on the Company’s results of operations or financial position.

 

 

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” The amendments in this ASU affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

 

 
- 12 -

 

 

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The standard is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The guidance should be applied on a retrospective basis. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-05, “Intangibles – Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

 

 

NOTE 4 – FAIR VALUE MEASUREMENTS

 

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

 

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that are available at the measurement date.

 

Level 2 Inputs – Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

 

Level 3 Inputs – Unobservable inputs for determining the fair value of the assets or liabilities that are based on the entity’s own assumption about the assumptions that market participants would use to price the assets or liabilities.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company did not have any significant transfers of assets or liabilities to or from Levels 1 and 2 of the fair value hierarchy during the three months ended March 31, 2015.

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for March 31, 2015 and December 31, 2014.

 

The Company’s investment in obligations of states and municipalities, mortgage-backed securities and other debt securities available-for-sale are generally classified within Level 2 of the fair value hierarchy. For these securities, we obtain fair value measurements from independent pricing services. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information, and the instrument’s terms and conditions.

 

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions,valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

 

The Company’s impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs based upon appraisals of similar properties obtained from a third party. For Level 3 inputs, fair values are based on management estimates.

 

 
- 13 -

 

 

Other real estate owned values are estimated using Level 2 inputs based upon appraisals of similar properties obtained from a third party. For Level 3 inputs, fair values are based on management estimates.

 

The following summarizes assets measured at fair value at March 31, 2015 and December 31, 2014.

 

 

Assets Measured at Fair Value on a Recurring Basis

 

     

Fair Value Measurements at Reporting Date Using:

 
           

Quoted prices in

   

Significant

   

Significant

 
           

Active Markets for

   

Other Observable

   

Unobservable

 
           

Identical Assets

   

Inputs

   

Inputs

 
   

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(In Thousands)

 

March 31, 2015:

                               

Debt securities issued by U.S. government corporations and agencies

  $ 17,715     $ -     $ 17,715     $ -  

Obligations of states and municipalities

    16,032       -       16,032       -  

Mortgage-backed securities

    47,133       -       47,133       -  

SBA loan pools

    452       -       452       -  
    $ 81,332     $ -     $ 81,332     $ -  
                                 

December 31, 2014:

                               

Debt securities issued by U.S. government corporations and agencies

  $ 18,064     $ -     $ 18,064     $ -  

Obligations of states and municipalities

    16,599       -       16,599       -  

Mortgage-backed securities

    48,668       -       48,668       -  

SBA loan pools

    474       -       474       -  
    $ 83,805     $ -     $ 83,805     $ -  

 

 

Assets Measured at Fair Value on a Nonrecurring Basis

 

           

Fair Value Measurements at Reporting Date Using:

 
           

Quoted prices in

   

Significant

   

Significant

 
           

Active Markets for

   

Other Observable

   

Unobservable

 
           

Identical Assets

   

Inputs

   

Inputs

 
   

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(In Thousands)

 

March 31, 2015:

                               

Impaired loans

  $ 1,241                     $ 1,241  
    $ 1,241     $ -     $ -     $ 1,241  

 

           

Fair Value Measurements at Reporting Date Using:

 
           

Quoted prices in

   

Significant

   

Significant

 
           

Active Markets for

   

Other Observable

   

Unobservable

 
           

Identical Assets

   

Inputs

   

Inputs

 
   

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(In Thousands)

 

December 31, 2014:

                               

Impaired loans

  $ 433                     $ 433  

Other real estate owned

    105       -       -       105  
    $ 538     $ -     $ -     $ 538  

 

 
- 14 -

 

 

The estimated fair values of the Company’s financial instruments, all of which are held or issued for purposes other than trading, were as follows as of March 31, 2015 and December 31, 2014:

 

   

March 31, 2015

 
   

Carrying

   

Fair Value

 
   

Amount

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(In Thousands)

 

Financial assets:

                                       

Cash and cash equivalents

  $ 14,502     $ 14,502     $ -     $ -     $ 14,502  

Available-for-sale securities

    81,332       -       81,332       -       81,332  

Federal Home Loan Bank stock

    1,881       1,881       -       -       1,881  

Loans held-for-sale

    4,531                       4,494       4,494  

Loans, net

    289,453       -       -       292,713       292,713  

Accrued interest receivable

    1,004       1,004       -       -       1,004  
                                         

Financial liabilities:

                                       

Deposits

    360,562       -       355,486       -       355,486  

Securities sold under agreements to repurchase

    3,078       -       3,335       -       3,335  

Federal Home Loan Bank advances

    10,500       -       10,500       -       10,500  

 

 

   

December 31, 2014

 
   

Carrying

   

Fair Value

 
   

Amount

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(In Thousands)

 

Financial assets:

                                       

Cash and cash equivalents

  $ 19,820     $ 19,820     $ -     $ -     $ 19,820  

Available-for-sale securities

    83,805       -       83,805       -       83,805  

Federal Home Loan Bank stock

    1,801       1,801       -       -       1,801  

Loans held-for-sale

    5,374       -       -       5,499       5,499  

Loans, net

    283,381       -       -       285,439       285,439  

Accrued interest receivable

    1,095       1,095       -       -       1,095  
                                         

Financial liabilities:

                                       

Deposits

    356,065       -       356,353       -       356,353  

Securities sold under agreements to repurchase

    3,921       -       3,921       -       3,921  

Federal Home Loan Bank advances

    17,500       -       17,500       -       17,500  

 

 

 
- 15 -

 

 

 

NOTE 5 – EARNINGS PER COMMON SHARE

 

Basic earnings per common share (“EPS”) excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

 

The following information was used in the computation of EPS on both a basic and diluted basis for the three months ended March 31, 2015 and 2014:

 

   

For the three months ended

 
   

3/31/15

   

3/31/14

 
   

(In Thousands, Except Per Share Data)

 

Basic earnings per share computation:

               

Net income

  $ 343     $ 78  

Preferred stock net accretion

    (3 )     (3 )

Cumulative preferred stock dividends

    (23 )     (23 )

Net income available to common stockholders

  $ 317     $ 52  
                 

Weighted average shares outstanding, basic

    887,891       880,075  
                 

Basic earnings per share

  $ 0.36     $ 0.06  
                 

Diluted earnings per share computation:

               

Net income

  $ 343     $ 78  

Preferred stock net accretion

    (3 )     (3 )

Cumulative preferred stock dividends

    (23 )     (23 )

Net income available to common stockholders

  $ 317     $ 52  
                 

Weighted average shares outstanding, before dilution

    887,891       880,075  

Dilutive potential shares

    1,097       6,929  

Weighted average shares outstanding, assuming dilution

    888,988       887,004  

Diluted earnings per share

  $ 0.36     $ 0.06  

 

 

 
- 16 -

 

 

NOTE 6 – INVESTMENT SECURITIES

 

The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more, and are not other than temporarily impaired, were as follows:

 

   

Less than 12 Months

   

12 Months or Longer

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 
   

(In Thousands)

 

March 31, 2015:

                                               

Debt securities issued by U.S. government corporations and agencies

  $ 1,994     $ 6     $ 4,978     $ 20     $ 6,972     $ 26  

Obligations of states and municipalities

    917       13       1,472       29       2,389       42  

Mortgage-backed securities

    885       1       28,388       279       29,273       280  

Total temporarily impaired securities

  $ 3,796     $ 20     $ 34,838     $ 328     $ 38,634     $ 348  
                                                 
                                                 

Other-than-temporarily impaired securities

                                               

Mortgage-backed securities

    19       -       266       25     $ 285       25  

Total temporarily impaired and other- than-temporarily impaired securities

  $ 3,815     $ 20     $ 35,104     $ 353     $ 38,919     $ 373  
                                                 
                                                 

December 31, 2014:

                                               

Debt securities issued by U.S. Government corporations and agencies

  $ 4,486     $ 12       13,077     $ 127     $ 17,563     $ 139  

Obligations of states and municipalities

    526       12       1,772       40       2,298       52  

Mortgage-backed securities

    1,422       6       36,550       593       37,972       599  

Total temporarily impaired securities

    6,434       30       51,399       760       57,833       790  
                                                 

Other-than-temporarily impaired securities:

                                               

Mortgage-backed securities

    -       -       274       30       274       30  

Total temporarily impaired and other- than-temporarily impaired securities

  $ 6,434     $ 30       51,673     $ 790     $ 58,107     $ 820  

 

 

 

The investments in the Company’s investment portfolio that were temporarily impaired as of March 31, 2015 consisted of debt issued by states and municipalities and U.S. government agencies and sponsored enterprises. The Company’s management anticipates that the fair value of securities that are currently impaired will recover to cost basis. As the Company has the ability and intent to hold securities for the foreseeable future, no declines are deemed to be other than temporary, unless otherwise noted above.

 

 

 
- 17 -

 

 

The following tables summarize the amounts and distribution of the Company’s investment securities held as of March 31, 2015 and December 31, 2014:

 

 

   

INVESTMENT PORTFOLIO

 
   

(Dollars in thousands)

 
                                         
   

March 31, 2015

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

         
   

Cost

   

Gains

   

Loss

   

Value

   

Yield

 
                                         

AVAILABLE-FOR-SALE SECURITIES

                                       

U.S. government and agency securities

                                       

Due after one to five years

  $ 17,202     $ 30     $ 26     $ 17,206       1.24 %

Due after five to ten years

    500       9       -       509       2.00 %

Total U.S. government and agency securities

    17,702       39       26       17,715       1.26 %

State and municipal securities

                                       

Due after five to ten years

    4,844       176       21       4,999       3.59 %

Due after ten to fifteen years

    8,047       453       19       8,481       4.30 %

Due beyond fifteen years

    2,512       42       2       2,552       3.20 %

Total state and municipal securities

    15,403       671       42       16,032       3.88 %

Mortgage-backed securities

                                       

Due after one to five years

    520       11       -       531       2.86 %

Due after five to ten years

    1,697       41       1       1,737       2.20 %

Due after ten to fifteen years

    27,749       75       175       27,649       1.79 %

Due beyond fifteen years

    17,285       60       129       17,216       1.95 %

Total mortgage-backed securities

    47,251       187       305       47,133       1.98 %

SBA loan pool

                                       

Due after ten to fifteen years

    417       35       -       452       4.96 %

Total SBA loan pool

    417       35       -       452       4.96 %
                                         

Total available-for-sale securities

  $ 80,773     $ 932     $ 373     $ 81,332       2.33 %

 

   

INVESTMENT PORTFOLIO

 
   

(Dollars in thousands)

 
                                         
   

December 31,2014

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

         
   

Cost

   

Gains

   

Loss

   

Value

   

Yield

 
                                         

AVAILABLE-FOR-SALE SECURITIES

                                       

U.S. government and agency securities

                                       

Due after one to five years

  $ 16,702     $ 1     $ 135     $ 16,568       1.21 %

Due after five to ten years

    1,500       -       4       1,496       1.83 %

Total U.S. government and agency securities

    18,202       1       139       18,064       1.27 %

State and municipal securities

                                       

Due after one to five years

    559       24       -       583       2.26 %

Due after five to ten years

    4,835       184       31       4,988       3.22 %

Due after ten to fifteen years

    8,065       445       21       8,489       3.23 %

Due beyond fifteen years

    2,513       26