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EX-32.1 - EXHIBIT 32.1 - Oneida Financial Corp.exhibit32106302015.htm
EX-31.2 - EXHIBIT 31.2 - Oneida Financial Corp.exhibit31206302015.htm
EX-31.1 - EXHIBIT 31.1 - Oneida Financial Corp.exhibit31106302015.htm

 
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 June 30, 2015
 
OR
 
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES         EXCHANGE ACT OF 1934
 
For the transition period from                       to      
           
 Commission File Number 001-34813
 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 7,041,747 shares of the Registrant’s common stock outstanding as of August 1, 2015.
 





ONEIDA FINANCIAL CORP.
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. FINANCIAL INFORMATION
Item I. Financial Statements

1




ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
At June 30, 2015 (unaudited) and December 31, 2014
 
June 30,
2015
 
December 31,
2014
 
(In thousands, except share data)
ASSETS
 

 
 

Cash and due from banks
$
47,317

 
$
19,062

Federal funds sold
37,121

 
12,013

TOTAL CASH AND CASH EQUIVALENTS
84,438

 
31,075

Trading securities
3,922

 
3,900

Securities, available-for-sale
155,539

 
176,314

Securities, held-to-maturity (fair value $125,544 and $133,897 respectively)
122,384

 
129,415

 
 
 
 
Mortgage loans held for sale
75

 
839

Loans receivable
392,585

 
369,039

Deferred fees
1,818

 
1,483

Allowance for loan losses
(3,459
)
 
(3,502
)
LOANS RECEIVABLE, NET
390,944

 
367,020

Federal Home Loan Bank stock
1,440

 
1,391

Bank premises and equipment, net
22,178

 
20,382

Assets held for sale
63

 
63

Accrued interest receivable
2,206

 
2,342

Bank owned life insurance
18,073

 
17,842

Other assets
22,143

 
21,298

Goodwill
25,480

 
25,480

Other intangible assets
685

 
808

TOTAL ASSETS
$
849,570

 
$
798,169

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Liabilities:
 

 
 

Interest bearing deposits
$
645,415

 
$
603,482

Non-interest bearing deposits
95,983

 
85,688

Other liabilities
11,763

 
13,226

TOTAL LIABILITIES
753,161

 
702,396

Oneida Financial Corp. Stockholders’ equity:
 

 
 

Preferred stock, 10,000,000 shares authorized; 0 issued and outstanding

 

Common stock ($0.01 par value; 30,000,000 shares authorized; 7,041,747 issued at June 30, 2015; 7,025,444 issued at December 31, 2014)
70

 
70

Additional paid-in capital
44,442

 
44,121

Retained earnings
54,940

 
54,185

Accumulated other comprehensive loss
(3,043
)
 
(2,603
)
TOTAL STOCKHOLDERS’ EQUITY
96,409

 
95,773

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
849,570

 
$
798,169

 









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


2


ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2015 (unaudited) and 2014 (unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
2015
 
June 30,
2014
 
June 30,
2015
 
June 30,
2014
 
(In thousands, except per share data)
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Interest and fees on loans
$
3,967

 
$
3,693

 
$
7,798

 
$
7,350

Interest on investment securities
1,712

 
1,988

 
3,621

 
3,738

Dividends on equity securities
26

 
24

 
47

 
48

Interest on federal funds sold and interest-earning deposits
27

 
6

 
37

 
12

            Total interest and dividend income
5,732

 
5,711

 
11,503

 
11,148

INTEREST EXPENSE:
 

 
 

 
 

 
 

Core deposits
274

 
323

 
537

 
607

Time deposits
321

 
349

 
656

 
700

Borrowings

 
13

 
1

 
26

Note payable

 
3

 

 
7

Total interest expense
595

 
688

 
1,194

 
1,340

NET INTEREST INCOME
5,137

 
5,023

 
10,309

 
9,808

Less: Provision for loan losses

 
100

 

 
200

Net interest income after provision for loan losses
5,137

 
4,923

 
10,309

 
9,608

INVESTMENT GAINS:
 

 
 

 
 

 
 

        Net gains on sales of securities
76

 
27

 
222

 
73

        Changes in fair value of trading securities
(220
)
 
13

 
22

 
823

             Total investment (losses) gains
(144
)
 
40

 
244

 
896

NON-INTEREST INCOME:
 

 
 

 
 

 
 

Commissions and fees on sales of non-banking products
6,946

 
6,455

 
13,968

 
13,391

Other operating income
1,183

 
1,819

 
2,656

 
2,943

             Total non-interest income
8,129

 
8,274

 
16,624

 
16,334

NON-INTEREST EXPENSES:
 

 
 

 
 

 
 

Compensation and employee benefits
7,117

 
7,322

 
14,584

 
14,500

Occupancy expenses, net
1,210

 
1,329

 
2,609

 
2,729

 Merger related expenses
1,257

 

 
1,257

 

Other operating expense
2,767

 
2,649

 
5,322

 
5,008

            Total non-interest expenses
12,351

 
11,300

 
23,772

 
22,237

INCOME BEFORE INCOME TAXES
771

 
1,937

 
3,405

 
4,601

Provision for income taxes
298

 
508

 
961

 
1,228

NET INCOME
$
473

 
$
1,429

 
$
2,444

 
$
3,373

EARNINGS PER SHARE — BASIC
$
0.07

 
$
0.20

 
$
0.35

 
$
0.48

EARNINGS PER SHARE — DILUTED
$
0.07

 
$
0.20

 
$
0.34

 
$
0.48









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

3


ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three and Six Months Ended June 30, 2015 (unaudited) and 2014 (unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
2015
 
June 30,
2014
 
June 30,
2015
 
June 30,
2014
 
 
 
(In thousands)
 
Net income
$
473

 
$
1,429

 
$
2,444

 
$
3,373

 
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
181

 
132

 
320

 
274

 
Reclassification adjustment for gains realized included in income

 

 

 

 
Net unrealized gains
181

 
132

 
320

 
274

 
Income tax effect
(68
)
 
(53
)
 
(120
)
 
(110
)
 
Net change in securities transferred to held-to-maturity
113

 
79

 
200

 
164

 
Securities available-for-sale:
 

 
 

 
 

 
 

 
Unrealized holding (losses) gains on securities arising during period
(1,816
)
 
1,260

 
(806
)
 
2,999

 
Reclassification adjustment for gains realized in income
(76
)
 
(27
)
 
(222
)
 
(73
)
 
Net unrealized (losses) gains
(1,892
)
 
1,233

 
(1,028
)
 
2,926

 
Income tax effect
714

 
(493
)
 
388

 
(1,170
)
 
Net change in securities available-for-sale
(1,178
)
 
740

 
(640
)
 
1,756

 
Unrealized holding (losses) gains on securities, net of tax
(1,065
)
 
819

 
(440
)
 
1,920

 
 
 
 
 
 
 
 
 
 
Defined benefit pension plans:
 
 
 
 
 
 
 
 
Change in unrealized loss on pension benefits

 

 

 
24

 
Income tax effect

 

 

 
(10
)
 
Net change in pension benefits

 

 

 
14

 
Other comprehensive (loss) income, net of tax
(1,065
)
 
819

 
(440
)
 
1,934

 
Comprehensive (loss) income
$
(592
)
 
$
2,248

 
$
2,004

 
$
5,307

 
















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


4



ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 2015 (unaudited)
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
 
 
Shares
 
Amount
 
(In thousands, except number of shares)
Balance as of January 1, 2015
7,025,444

 
$
70

 
$
44,121

 
$
54,185

 
$
(2,603
)
 
$
95,773

Net income

 

 

 
2,444

 

 
2,444

Other comprehensive loss, net of tax

 

 

 

 
(440
)
 
(440
)
Common stock dividends: $0.24 per share

 

 

 
(1,689
)
 

 
(1,689
)
Shares issued under stock plan
16,303

 

 
169

 

 

 
169

Shares earned under stock plan

 

 
152

 

 

 
152

Balance as of June 30, 2015
7,041,747

 
$
70

 
$
44,442

 
$
54,940

 
$
(3,043
)
 
$
96,409

 

 


































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

5


ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2015 (unaudited) and 2014 (unaudited)
 
Six Months Ended June 30,
 
2015
 
2014
 
(In thousands)
Operating Activities:
 

 
 

Net income
$
2,444

 
$
3,373

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

 
 

Depreciation and amortization
869

 
850

Amortization of premiums/discounts on securities, net
361

 
175

Net change in fair value of trading securities
(22
)
 
(823
)
Provision for loan losses

 
200

ESOP shares earned

 
116

Stock compensation earned
152

 
286

Loss on sale of foreclosed assets
6

 
10

Gain on securities, net
(222
)
 
(73
)
Gain on sale of loans, net
(119
)
 
(83
)
Income tax payable
109

 
1,284

Accrued interest receivable
136

 
27

Other assets
(904
)
 
3,756

Other liabilities
(1,466
)
 
(3,101
)
Earnings on bank owned life insurance
(231
)
 
(826
)
Origination of loans held for sale
(3,810
)
 
(3,310
)
Proceeds from sales of loans
4,693

 
3,454

     Net cash provided by operating activities
1,996

 
5,315

Investing Activities:
 

 
 

Purchase of securities available-for-sale
(26,020
)
 
(47,674
)
Proceeds from sale of securities available-for-sale
23,368

 
2,649

Maturities and calls of securities available-for-sale
16,620

 
5,902

Principal collected on securities available-for-sale
5,741

 
5,647

Purchase of securities held-to-maturity
(426
)
 
(894
)
Maturities and call of securities held-to-maturity
2,456

 
1,386

Principal collected on securities held-to-maturity
5,221

 
4,522

Purchase of FHLB stock
(959
)
 
(93
)
Redemption of FHLB stock
910

 
79

Net increase in loans
(23,924
)
 
(8,592
)
Purchase of bank premises and equipment
(2,542
)
 
(1,065
)
Proceeds from the sale of foreclosed property
212

 
22

Settlement of bank owned life insurance

 
1,423

Net cash provided by (used in) investing activities
657

 
(36,688
)
Financing Activities:
 

 
 

Net increase in demand deposit, savings, money market, super now and escrow
59,493

 
32,247

Net (decrease) increase in time deposits
(7,265
)
 
1,709

Shares issued under stock plan
169

 
57

Cash dividends
(1,687
)
 
(1,677
)
Net cash provided by financing activities
50,710

 
32,336


6


Increase in cash and cash equivalents
53,363

 
963

Cash and cash equivalents at beginning of period
31,075

 
42,183

Cash and cash equivalents at end of period
$
84,438

 
$
43,146

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
1,196

 
$
1,340

Cash paid for income taxes
850

 

Supplemental noncash disclosures:
 

 
 

Transfer of loans to other real estate

 
81

Dividends declared and unpaid at period end
845

 
843

 










































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



7


ONEIDA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2015
 
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 June 30, 2015 and December 31, 2014 and for the three month and six month periods ended June 30, 2015 and 2014.  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.  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 months and six months ended June 30, 2015 are not necessarily indicative of the results to be achieved for the remainder of 2015
 
The data in the consolidated statements of condition for December 31, 2014 was derived from the audited financial statements included in the Company’s 2014 Annual Report on Form 10-K.  That data, along with the interim financial information presented in the consolidated statements of condition, statements of operations, comprehensive income, changes in stockholders’ equity and cash flows should be read in conjunction with the 2014 consolidated financial statements, including the notes thereto included in the Company’s Annual Report on Form 10-K.

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 six months ended June 30, 2015 and 2014:
 
Three Months Ended
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
 
(In thousands, except per share data)
Net income
$
473

 
$
1,429

 
$
2,444

 
$
3,373

Net earnings allocated to participating securities
(6
)
 
(19
)
 
(25
)
 
(44
)
Net earnings allocated to common stock
$
467

 
$
1,410

 
$
2,419

 
$
3,329

 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Distributed earnings allocated to common stock
$
836

 
$
830

 
$
1,670

 
$
1,653

Undistributed earnings allocated to common stock
(369
)
 
580

 
749

 
1,676

Net earnings allocated to common stock
$
467

 
$
1,410

 
$
2,419

 
$
3,329



8


 
Three Months Ended
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
 
(In thousands, except per share data)
Weighted average common shares outstanding including shares considered participating securities
7,012

 
6,986

 
7,006

 
6,982

Less: Average unallocated ESOP shares

 
(14
)
 

 
(16
)
Less: Average participating securities
(57
)
 
(78
)
 
(60
)
 
(83
)
Weighted average shares
6,955

 
6,894

 
6,946

 
6,883

Basic earnings per share
$
0.07

 
$
0.20

 
$
0.35

 
$
0.48

 
 
 
 
 
 
 
 
Diluted
 

 
 

 
 

 
 

Net earnings allocated to common stock
$
467

 
$
1,410

 
$
2,419

 
$
3,329

 
 
 
 
 
 
 
 
Weighted average common shares outstanding for basic earnings per common share
6,955

 
6,894

 
6,946

 
6,883

Add: Dilutive effects of assumed exercise of stock options and nonparticipating shares
105

 
65

 
99

 
62

Weighted average shares and dilutive potential common shares
7,060

 
6,959

 
7,045

 
6,945

Diluted earnings per common share
$
0.07

 
$
0.20

 
$
0.34

 
$
0.48


Stock options for 364 shares of common stock were not considered in computing diluted earnings per share for the three months and six months ended June 30, 2015 because they were anti-dilutive. Stock options for 8,215 shares of common stock were not considered in computing diluted earnings per share for the three months and six months ended June 30, 2014 because they were anti-dilutive.
 
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 June 30, 2015 and December 31, 2014:
Available-for-sale portfolio:
 
June 30, 2015
Amortized
 Cost
 
Unrealized
 
Fair
 Value
Gains
 
Losses
 
 
(In thousands)
Investment Securities
 
 

 
 

 
 

 
 

Debt securities:
 
 

 
 

 
 

 
 

U.S. Agencies
 
$
28,453

 
$
36

 
$
(214
)
 
$
28,275

U.S. Treasury
 
1,999

 

 
(5
)
 
1,994

Corporate
 
28,810

 
89

 
(1,494
)
 
27,405

State and municipal
 
31,823

 
843

 
(35
)
 
32,631

Small Business Administration
 
3,653

 
88

 

 
3,741

 
 
$
94,738

 
$
1,056

 
$
(1,748
)
 
$
94,046

Mortgage-Backed Securities
 
 

 
 

 
 

 
 

Fannie Mae
 
$
25,128

 
$
269

 
$
(79
)
 
$
25,318

Freddie Mac
 
25,708

 
160

 
(44
)
 
25,824

Government National Mortgage Assoc.
 
10,227

 
148

 
(24
)
 
10,351

 
 
$
61,063

 
$
577

 
$
(147
)
 
$
61,493

Total available-for-sale
 
$
155,801

 
$
1,633

 
$
(1,895
)
 
$
155,539



9


Held-to-maturity portfolio:
 
June 30, 2015
Amortized
 Cost
 
Unrecognized
 
Fair
 Value
Gains
 
Losses
 
 
(In thousands)
Investment Securities
 
 

 
 

 
 

 
 

Debt securities:
 
 

 
 

 
 

 
 

U.S. Agencies
 
$
40,008

 
$
1,818

 
$
(28
)
 
$
41,798

State and municipal
 
26,937

 
1,011

 
(84
)
 
27,864

Small Business Administration
 
8,743

 
210

 

 
8,953

 
 
$
75,688

 
$
3,039

 
$
(112
)
 
$
78,615

Mortgage-Backed Securities
 
 

 
 

 
 

 
 

Fannie Mae
 
$
24,766

 
$
424

 
$
(334
)
 
$
24,856

Freddie Mac
 
13,771

 
169

 
(36
)
 
13,904

Government National Mortgage Assoc.
 
8,159

 
81

 
(71
)
 
8,169

 
 
$
46,696

 
$
674

 
$
(441
)
 
$
46,929

Total held-to-maturity
 
$
122,384

 
$
3,713

 
$
(553
)
 
$
125,544

 
Available-for-sale portfolio:
 
December 31, 2014
Amortized
Cost
 
Unrealized
 
Fair
Value
Gains
 
Losses
 
 
(In thousands)
Investment Securities
 
 

 
 

 
 

 
 

Debt securities:
 
 

 
 

 
 

 
 

U.S. Agencies
 
$
27,255

 
$
120

 
$
(143
)
 
$
27,232

Corporate
 
35,345

 
260

 
(1,508
)
 
34,097

Agency asset backed securities
 
8,734

 
91

 
(35
)
 
8,790

State and municipal
 
33,004

 
1,215

 
(1
)
 
34,218

Small Business Administration
 
6,835

 
135

 

 
6,970

 
 
$
111,173

 
$
1,821

 
$
(1,687
)
 
$
111,307

Mortgage-Backed Securities
 
 

 


 
 

 
 

Fannie Mae
 
$
24,666

 
$
306

 
$
(39
)
 
$
24,933

Freddie Mac
 
25,659

 
207

 
(33
)
 
25,833

Government National Mortgage Assoc.
 
12,624

 
198

 
(58
)
 
12,764

Private placement mortgage obligation
 
1,426

 
51

 

 
1,477

 
 
$
64,375

 
$
762

 
$
(130
)
 
$
65,007

Total available-for-sale
 
$
175,548

 
$
2,583

 
$
(1,817
)
 
$
176,314



10


Held-to-maturity portfolio:
 
December 31, 2014
Amortized
Cost
 
Unrecognized
 
Fair
Value
Gains
 
Losses
 
 
(In thousands)
Investment Securities
 
 

 
 

 
 

 
 

Debt securities:
 
 

 
 

 
 

 
 

U.S. Agencies
 
$
41,703

 
$
2,274

 
$

 
$
43,977

State and municipal
 
27,506

 
1,504

 
(7
)
 
29,003

Small Business Administration
 
9,302

 
239

 

 
9,541

 
 
$
78,511

 
$
4,017

 
$
(7
)
 
$
82,521

Mortgage-Backed Securities
 
 

 
 

 
 

 
 

Fannie Mae
 
$
26,602

 
$
533

 
$
(271
)
 
$
26,864

Freddie Mac
 
15,192

 
257

 
(53
)
 
15,396

Government National Mortgage Assoc.
 
9,110

 
101

 
(95
)
 
9,116

 
 
$
50,904

 
$
891

 
$
(419
)
 
$
51,376

Total held-to-maturity
 
$
129,415

 
$
4,908

 
$
(426
)
 
$
133,897


The amortized cost and fair value of the investment securities portfolio at June 30, 2015 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.

 
 
Available-for-sale
 
Held-to-maturity
 
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
 
 
(In thousands)
 
Within one year
$
3,946

 
$
3,953

 
$
473

 
$
475

 
After one year through five years
24,181

 
24,507

 
12,765

 
13,175

 
After five years through ten years
51,619

 
51,748

 
35,910

 
37,245

 
After ten years
14,992

 
13,838

 
26,540

 
27,720

 
Mortgage-backed securities
61,063

 
61,493

 
46,696

 
46,929

 
Total
$
155,801

 
$
155,539

 
$
122,384

 
$
125,544


Sales of available-for-sale securities were as follows: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Proceeds
$
18,312

 
$
902

 
$
23,368

 
$
2,649

Gross gains
$
198

 
$
64

 
$
344

 
$
126

Gross losses
$
(122
)
 
$
(37
)
 
$
(122
)
 
$
(53
)
 
Securities with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:
 

11


 
 
Less than 12 Months
 
More than 12 Months
 
Total
June 30, 2015
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Description of Securities
Available-for-sale
 
(In thousands)
U.S. Agencies
 
$
16,063

 
$
(156
)
 
$
1,942

 
$
(58
)
 
$
18,005

 
$
(214
)
U.S. Treasury
 
1,994

 
(5
)
 

 

 
1,994

 
(5
)
Corporate
 
10,887

 
(236
)
 
10,907

 
(1,258
)
 
21,794

 
(1,494
)
State and municipal
 
1,807

 
(35
)
 

 

 
1,807

 
(35
)
Small Business Administration
 

 

 
4

 

 
4

 

Fannie Mae
 
6,017

 
(72
)
 
1,951

 
(7
)
 
7,968

 
(79
)
Freddie Mac
 
6,611

 
(23
)
 
1,703

 
(21
)
 
8,314

 
(44
)
Government National Mortgage Assoc.
 

 

 
3,608

 
(24
)
 
3,608

 
(24
)
Total securities available-for-sale in an unrealized loss position
 
$
43,379

 
$
(527
)
 
$
20,115

 
$
(1,368
)
 
$
63,494

 
$
(1,895
)
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Agencies
 
$
1,915

 
$
(28
)
 
$

 
$

 
$
1,915

 
$
(28
)
State and municipal
 
4,895

 
(84
)
 

 

 
4,895

 
(84
)
Fannie Mae
 
2,321

 
(11
)
 
8,689

 
(323
)
 
11,010

 
(334
)
Freddie Mac
 

 

 
2,030

 
(36
)
 
2,030

 
(36
)
Government National Mortgage Assoc.
 

 

 
3,407

 
(71
)
 
3,407

 
(71
)
Total securities held-to-maturity in an unrecognized loss position
 
$
9,131

 
$
(123
)
 
$
14,126

 
$
(430
)
 
$
23,257

 
$
(553
)
 
 
 
Less than 12 Months
 
More than 12 Months
 
Total
December 31, 2014
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Description of Securities
Available-for-sale
 
(In thousands)
U.S. Agencies
 
$
999

 
$
(1
)
 
$
6,858

 
$
(142
)
 
$
7,857

 
$
(143
)
Corporate
 
9,237

 
(49
)
 
10,552

 
(1,459
)
 
19,789

 
(1,508
)
Agency asset backed securities
 
3,789

 
(35
)
 

 

 
3,789

 
(35
)
State and municipal
 
563

 
(1
)
 

 

 
563

 
(1
)
Small Business Administration
 

 

 
4

 

 
4

 

Fannie Mae
 
5,393

 
(16
)
 
2,002

 
(23
)
 
7,395

 
(39
)
Freddie Mac
 
5,567

 
(33
)
 

 

 
5,567

 
(33
)
Government National Mortgage Assoc.
 
2,084

 
(11
)
 
3,028

 
(47
)
 
5,112

 
(58
)
Total securities available-for-sale in an unrealized loss position
 
$
27,632

 
$
(146
)
 
$
22,444

 
$
(1,671
)
 
$
50,076

 
$
(1,817
)
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal
 
2,285

 
(4
)
 
822

 
(3
)
 
3,107

 
(7
)
Fannie Mae
 
2,361

 
(23
)
 
9,459

 
(248
)
 
11,820

 
(271
)
Freddie Mac
 
734

 
(3
)
 
2,238

 
(50
)
 
2,972

 
(53
)
Government National Mortgage Assoc.
 
3,631

 
(95
)
 

 

 
3,631

 
(95
)
Total securities held-to-maturity in an unrecognized loss position
 
$
9,011

 
$
(125
)
 
$
12,519

 
$
(301
)
 
$
21,530

 
$
(426
)

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

12


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.
 
As of June 30, 2015, the Company’s security portfolio consisted of 357 securities, 83 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.

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 June 30, 2015, of the 43 U.S. Government sponsored enterprise agency and mortgage-backed securities in an unrealized loss position, eighteen were in a continuous unrealized loss position for 12 months or more.  The unrealized losses at June 30, 2015 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 June 30, 2015.
 
Corporate Debt and Municipal Securities
 
At June 30, 2015, of the 40 corporate debt and municipal securities in an unrealized loss position, eight 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 eight 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 1.44%.  The unrealized loss was $891,796 and $1,004,076 at June 30, 2015 and December 31, 2014, 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 seven securities in a continuous unrealized loss position were finance sector corporate debt securities and municipal securities all rated above investment grade at June 30, 2015, that have maturities ranging from 2021 to 2033.  The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2015.

Note D — Loans Receivable
 
The components of loans receivable at June 30, 2015 and December 31, 2014 are as follows:
 
June 30, 2015
 
December 31, 2014
 
(In thousands)
Commercial loans
$
57,045

 
$
53,669

Commercial real estate
95,959

 
93,427

Consumer loans
59,471

 
46,883

Home equity
53,496

 
53,150

Residential mortgages
126,614

 
121,910

 
392,585

 
369,039

Deferred fees
1,818

 
1,483

Allowance for loan losses
(3,459
)
 
(3,502
)
Net loans
$
390,944

 
$
367,020

 

13


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, 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 individually evaluated for impairment and included in the separately identified impairment disclosures. Troubled debt restructurings 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 troubled debt restructurings that subsequently default, the Company determines the amount of allowance on the loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired. The Company incorporates recent historical experience related to troubled debt restructurings that subsequently default into the calculation of the allowance by loan portfolio segment.
 
The general allowance 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 (including troubled debt restructurings); levels of and trends in charge-offs and recoveries; migration of loans to the classification of special mention, substandard, or doubtful; 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.
 
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.

14


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
June 30, 2015
 
 
(In thousands)
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
887

 
$
1,247

 
$
551

 
$
296

 
$
516

 
$
3,497

Charge-offs
 

 

 
(36
)
 
(19
)
 

 
(55
)
Recoveries
 

 

 
16

 

 
1

 
17

Provision for loan losses
 
65

 
(250
)
 
117

 
40

 
28

 

Ending balance
 
$
952

 
$
997

 
$
648

 
$
317

 
$
545

 
$
3,459

For the Six Months Ended
 
Commercial
Loans
 
Commercial
Real Estate
 
Consumer
Loans
 
Home
Equity
 
Residential
Mortgages
 
Total
June 30, 2015
 
 
(In thousands)
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
1,175

 
$
1,085

 
$
445

 
$
295

 
$
502

 
$
3,502

Charge-offs
 

 

 
(57
)
 
(19
)
 

 
(76
)
Recoveries
 

 

 
32

 

 
1

 
33

Provision for loan losses
 
(223
)
 
(88
)
 
228

 
41

 
42

 

Ending balance
 
$
952

 
$
997

 
$
648

 
$
317

 
$
545

 
$
3,459

For the Three Months Ended
 
Commercial
Loans
 
Commercial
Real Estate
 
Consumer
Loans
 
Home
Equity
 
Residential
Mortgages
 
Total
June 30, 2014
 
 
(In thousands)
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
954

 
$
993

 
$
264

 
$
302

 
$
678

 
$
3,191

Charge-offs
 

 

 
(16
)
 

 
(11
)
 
(27
)
Recoveries
 

 
1

 
7

 

 
1

 
9

Provision for loan losses
 
232

 
(1
)
 
49

 
(15
)
 
(165
)
 
100

Ending balance
 
$
1,186

 
$
993

 
$
304

 
$
287

 
$
503

 
$</