SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 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 No. 000-55005

 

Sunnyside Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland		46-3001280
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
56 Main Street, Irvington, New York		10533
(Address of Principal Executive Offices)		Zip Code

 

(914) 591-8000

(Registrant’s telephone number)

 

N/A

(Former name or former address, 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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES x     NO ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 smaller reporting company)

 

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

YES ¨     NO x

 

As of November 13, 2015, 793,500 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

 

 

 

Sunnyside Bancorp, Inc.

Form 10-Q

 

Index

 

		Page
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Statements of Financial Condition as of September 30, 2015 (unaudited) and December 31, 2014	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)	2 – 3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2015  and 2014 (unaudited)	4 – 5
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2015 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8 – 24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25 – 29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	29
Part II. Other Information
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
	Signature Page	31

 

 

Part I. – Financial Information

 

Item 1.                   Financial Statements

 

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Financial Condition

 

		September 30,				December 31,
		2015				2014
Assets
Cash and cash equivalents		$	2,615,763			$	3,719,882
Securities held to maturity, net; approximate fair value of $4,946,000  (September 30, 2015) and $6,378,000 (December 31, 2014)			4,805,582				6,154,237
Securities available for sale			30,841,971				34,511,669
Loans receivable, net			47,191,926				43,219,661
Premises and equipment, net			1,501,691				1,612,029
Federal Home Loan Bank of New York and other stock, at cost			204,120				207,820
Accrued interest receivable			297,069				275,571
Cash surrender value of life insurance			2,123,682				2,073,455
Deferred income taxes			863,074				929,235
Other assets			489,189				449,821
Total assets		$	90,934,067			$	93,153,380
Liabilities and Stockholders'  Equity
Liabilities:
Deposits		$	77,699,364			$	79,555,416
Advances from borrowers for taxes and insurance			316,065				731,757
Other liabilities			656,276				668,090
Total liabilities			78,671,705				80,955,263
Commitments and contingencies			-				-
Stockholders' equity:
Serial preferred stock; par value $.01, 1,000,000 shares authorized, no shares issued			-				-
Common stock; par value $.01, 30,000,000 shares authorized and 793,500 shares issued			7,935				7,935
Additional paid-in capital			7,087,421				7,081,577
Unallocated common stock held by the Employee Stock Ownership Plan			(494,371	)			(511,030	)
Retained earnings			6,389,279				6,435,539
Accumulated other comprehensive (loss)			(727,902	)			(815,904	)
Total stockholders' equity			12,262,362				12,198,117
Total liabilities and stockholders' equity		$	90,934,067			$	93,153,380

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Operations

 

		Three Months Ended
		September 30,
		2015				2014
Interest and dividend income:
Loans		$	506,222			$	447,471
Investment securities			43,983				44,259
Mortgage-backed securities			111,310				160,262
Federal funds sold and other earning assets			2,456				5,039
Total interest and dividend income			663,971				657,031
Interest expense on deposits
Deposits			87,867				99,654
Borrowings			-				73
Total interest expense			87,867				99,727
Net interest income			576,104				557,304
Provision for loan losses			22,000				-
Net interest income after provision for loan losses			554,104				557,304
Non-interest income:
Fees and service charges			27,936				29,388
Net gain on sale of securities			22,133				-
Income on bank owned life insurance			16,877				16,657
Total non-interest income			66,946				46,045
Non-Interest Expense:
Compensation and benefits			370,047				336,070
Occupancy and equipment, net			95,051				95,222
Data processing service fees			65,744				54,877
Professional fees			89,387				82,315
Federal deposit insurance premiums			15,380				15,500
Advertising and promotion			11,584				37,580
Other			56,099				69,022
Total non-interest expense			703,292				690,586
Income (loss) before income taxes			(82,242	)			(87,237	)
Income tax (benefit)			(47,799	)			(30,558	)
Net income (loss)		$	(34,443	)		$	(56,679	)
Basic income (loss) per share		$	(0.05	)		$	(0.08	)
Weighted average shares outstanding, basic and diluted			743,875				741,654

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Operations

 

		Nine Months Ended
		September 30,
		2015				2014
Interest and dividend income:
Loans		$	1,509,173			$	1,369,137
Investment securities			141,432				118,538
Mortgage-backed securities			350,765				514,329
Federal funds sold and other earning assets			7,246				8,566
Total interest and dividend income			2,008,616				2,010,570
Interest expense on deposits
Deposits			262,967				302,420
Borrowings			272				354
Total interest expense			263,239				302,774
Net interest income			1,745,377				1,707,796
Provision for loan losses			59,000				10,000
Net interest income after provision for loan losses			1,686,377				1,697,796
Non-interest income:
Fees and service charges			82,188				79,596
Net gain on sale of securities			121,159				18,078
Income on bank owned life insurance			50,227				49,652
Total non-interest income			253,574				147,326
Non-Interest Expense:
Compensation and benefits			1,081,465				1,006,640
Occupancy and equipment, net			278,576				307,871
Data processing service fees			191,766				172,104
Professional fees			254,551				360,268
Federal deposit insurance premiums			45,187				45,478
Advertising and promotion			31,301				94,866
Other			169,269				173,513
Total non-interest expense			2,052,115				2,160,740
(Loss) before income taxes			(112,164	)			(315,618	)
Income tax (benefit)			(65,904	)			(147,456	)
Net income (loss)		$	(46,260	)		$	(168,162	)
Basic income (loss) per share		$	(0.06	)		$	(0.23	)
Weighted average shares outstanding, basic and diluted			743,325				741,104

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Sunnyside BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED Statements of Comprehensive Income (Loss)

 

		Three Months Ended
		September 30,
		2015				2014
Net income (loss)		$	(34,443	)		$	(56,679	)
Other comprehensive income (loss), before tax:
Defined benefit pension plans
Amortization of loss included in net periodic plan cost			20,475				-
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period			204,685				(247,916	)
Other comprehensive income (loss), before tax			225,160				(247,916	)
Income tax expense (benefit) related to items of other comprehensive income			89,379				(90,908	)
Other comprehensive income (loss), net of tax			135,781				(157,008	)
Comprehensive income (loss)		$	101,338			$	(213,687	)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Sunnyside BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED Statements of Comprehensive Income (Loss)

 

		Nine Months Ended
		September 30,
		2015				2014
Net income (loss)		$	(46,260	)		$	(168,162	)
Other comprehensive income (loss), before tax:
Defined benefit pension plans
Amortization of loss included in net periodic plan cost			61,425				-
Unrealized gains on securities available for sale:
Unrealized holding gains (losses) arising during the period			183,523				548,671
Reclassification adjustment for (gains) losses included in operations			(99,026	)			(13,653	)
Other comprehensive income (loss), before tax			145,922				535,018
Income tax expense (benefit) related to items of other comprehensive income			57,920				217,055
Other comprehensive income (loss), net of tax			88,002				317,963
Comprehensive income (loss)		$	41,742			$	149,801

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

																		Accumulated
						Additional				Unallocated								Other
		Common				Paid-in				Common Stock				Retained				Comprehensive				Total
		Stock				Capital				Held by ESOP				Earnings				Income (Loss)				Equity
Balance at December 31, 2014		$	7,935			$	7,081,577			$	(511,030	)		$	6,435,539			$	(815,904	)		$	12,198,117
Net loss for the nine months ended September 30, 2015			-				-				-				(46,260	)			-				(46,260	)
ESOP shares allocated or committed to be released			-				332				16,659				-				-				16,991
Restricted Stock			-				5,512				-				-				-				5,512
Other comprehensive income, net of tax			-				-				-				-				88,002				88,002
Balance at September 30, 2015		$	7,935			$	7,087,421			$	(494,371	)		$	6,389,279			$	(727,902	)		$	12,262,362

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed cONSOLIDATED StatementS of Cash Flows

 

		Nine Months Ended
		September 30,
		2015				2014
Cash flows from operating activities:
Net income (loss)		$	(46,260	)		$	(168,162	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense			115,118				113,356
Amortization of premiums and accretion of discounts, net			118,201				153,311
Amortization of deferred loan fees and costs, net			(1,563	)			19,447
Net gain on sales of securities			(121,159	)			(18,078	)
Provision for loan losses			59,000				10,000
(Increase) decrease in accrued interest receivable			(21,498	)			15,499
Increase in cash surrender value of life insurance			(50,227	)			(49,652	)
Amortization of restricted stock			5,512				-
Amortization of ESOP Shares			16,991				16,125
Net increase in other assets			(31,127	)			(218,969	)
Net increase in other liabilities			49,611				41,425
Net cash provided by (used in) operating activities			92,599				(85,698	)
Cash flows from investing activities:
Purchases of securities available for sale			(7,967,208	)			(2,000,000	)
Purchases of securities held to maturity			-				(2,000,000	)
Repayments and maturities of securities held to maturity			386,963				510,459
Repayments and maturities of securities available for sale			3,096,873				3,465,098
Proceeds from sales/calls of securities held to maturity			982,705				455,771
Proceeds from sales of securities available for sale			8,606,475				1,877,729
Loans purchased			(6,010,668	)			-
Loan principal repayments, net of originations			1,980,966				243,140
Purchases of bank premises and equiment			(4,780	)			(125,060	)
(Purchase) redemption of FHLB stock			3,700				27,100
Net cash provided by investing activities			1,075,026				2,454,237
Cash flows from financing activities:
Net (decrease) increase in deposits			(1,856,052	)			3,366,669
Net decrease in advances from borrowers for taxes and insurance			(415,692	)			(320,423	)
Net cash  (used in) provided by financing activities			(2,271,744	)			3,046,246
Net (decrease) increase in cash and cash equivalents			(1,104,119	)			5,414,785
Cash and cash equivalents at beginning of year			3,719,882				2,636,523
Cash and cash equivalents at end of period		$	2,615,763			$	8,051,308
Supplemental Information:
Cash paid for:
Interest		$	262,541			$	302,674
Income taxes (refunds received), net		$	15,000			$	15,000

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Sunnyside BANCORP, INC AND SUBSIDIARY

Form 10-Q

 

Notes to Condensed Consolidated Financial Statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The following is a description of the more significant policies used in the presentation of the accompanying consolidated financial statements of Sunnyside Bancorp, Inc. and Subsidiary, (collectively, the “Company”).

 

Principles of Consolidation

 

The consolidated financial statements are comprised of the accounts of Sunnyside Bancorp. Inc., and its wholly-owned subsidiary, Sunnyside Federal Savings and Loan Association of Irvington (“Sunnyside Federal” or the “Association”). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Business

 

Sunnyside Federal is a community-oriented savings institution whose primary business is accepting deposits from customers within its market area (Westchester County, New York) and investing those funds in mortgage loans secured by one-to-four family residences and in mortgage-backed and other securities. To a significantly lesser extent, funds are invested in multi-family and commercial mortgage loans, commercial loans, and consumer loans. Customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. As a federally-chartered savings association, Sunnyside Federal’s primary regulator is the Office of the Controller of the Currency (the “OCC”).

 

Basis of Financial Statement Presentation

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with instructions for Form 10-Q, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, such information presented reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of the Company’s management, necessary for a fair statement of results for the interim period.

 

The results of operations for the three and nine months ended September 30, 2015, are not necessarily indicative of the results to be expected for the year ended December 31, 2015, or any other future interim period. The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2014 included in the Company’s annual report on Form 10-K.

 

Cash and Cash Equivalents

 

For purposes of reporting cash flows, the Company considers all cash and amounts due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less to be cash equivalents.

 

Investment and Mortgage-Backed Securities

 

Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Securities classified as available-for-sale securities are reported at fair value, with unrealized holding gains or losses reported in a separate component of retained earnings. As of September 30, 2015 and December 31, 2014, the Company had no securities classified as held for trading.

 

The Company conducts a periodic review and evaluation of the securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary. The evaluation of other-than-temporary impairment considers the duration and severity of the impairment, the Company’s intent and ability to hold the securities and assessments of the reason for the decline in value and the likelihood of a near-term recovery. If such a decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to income as a component of non-interest expense.

 

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Investment and Mortgage-Backed Securities (Cont’d)

 

Premiums and discounts on securities are amortized by use of the level-yield method, over the life of the individual securities. Gain or loss on sales of securities is based upon the specific identification method.

 

Loans Receivable

 

Loans receivable are stated at unpaid principal balances less the allowance for loan losses and net deferred loan fees.

 

Recognition of interest on the accrual method is generally discontinued when interest or principal payments are ninety days or more in arrears, or when other factors indicate that the collection of such amounts is doubtful. At that time, a loan is placed on a nonaccrual status, and all previously accrued and uncollected interest is reversed against interest income in the current period. Interest on such loans, if appropriate, is recognized as income when payments are received. A loan is returned to an accrual status when factors indicating doubtful collectibility no longer exist.

 

Allowance for Loan Losses

 

An allowance for loan losses is maintained at a level, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate. Management of the Company, in determining the provision for loan losses considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Company utilizes a two tier approach: (1) identification of problem loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral, and financial condition of the borrowers. Specific loan losses are established for identified loans based on a review of such information and appraisals of the underlying collateral. General loan losses are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, and management's judgment. Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may be necessary.

 

A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. An insignificant payment delay, which is defined as up to ninety days by the Company, will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. The amount of loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.

 

Federal Home Loan Bank of New York stock

 

As a member of the Federal Home Loan Bank of New York (“FHLB”), the Company is required to acquire and hold shares of FHLB Class B stock. The holding requirement varies based on the Company’s activities, primarily its outstanding borrowings, with the FHLB. The investment in FHLB stock is carried at cost. The Company conducts a periodic review and evaluation of its FHLB stock to determine if any impairment exists.

 

Premises and Equipment

 

Premises and equipment are comprised of land, building, and furniture, fixtures, and equipment, at cost, less accumulated depreciation. Depreciation charges are computed on the straight-line method over the following estimated useful lives:

 

Building and improvements	5 to 40 years
Furniture, fixtures and equipment	2 to 10 years

 

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Bank-Owned Life Insurance

 

Bank-owned life insurance (“BOLI”) is accounted for in accordance with FASB guidance. The cash surrender value of BOLI is recorded on the statement of financial condition as an asset and the change in the cash surrender value is recorded as non-interest income. The amount by which any death benefits received exceeds a policy’s cash surrender value is recorded in non-interest income at the time of receipt. A liability is also recorded on the statement of financial condition for postretirement death benefits provided by the split-dollar endorsement policy. A corresponding expense is recorded in non-interest expense for the accrual of benefits over the period during which employees provide services to earn the benefits.

 

Income Taxes

 

Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the tax return differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted as deferred taxes applicable to future periods. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized.

 

Employee Benefits

 

Defined Benefit Plans:

 

The accounting guidance related to retirement benefits requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize, in comprehensive income, changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. The accounting guidance requires that plan assets and benefit obligations be measured as of the date of the employer’s fiscal year-end statement of financial condition.

 

401(K) Plan:

 

The Company has a 401(k) plan covering substantially all employees. The Company matches 50% of the first 6% contributed by participants and recognizes expense as its contributions are made.

 

Employee Stock Ownership Plan:

 

The employee stock ownership plan (ESOP) is accounted for in accordance with the provisions of ASC 718-40, “Employers’ Accounting for Employee Stock Ownership Plans.” The funds borrowed by the ESOP from the Company to purchase the Company’s common stock are being repaid from the Association’s contributions over a period of up to 25 years. The Company’s common stock not yet allocated to participants is recorded as a reduction of stockholders’ equity at cost. Compensation expense for the ESOP is based on the market price of the Company’s stock and is recognized as shares are committed to be released to participants.

 

Equity Incentive Plan:

 

On July 17, 2014, the Board of Directors adopted the Sunnyside Bancorp, Inc. 2014 Equity Incentive Plan (the “Stock Incentive Plan”) which was approved by shareholders at the Company’s 2014 Annual Meeting of Shareholders held on September 16, 2014. Stock options and restricted stock may be granted to directors, officers and other employees of the Company. The maximum number of shares which may be issued upon exercise of the options under the plan cannot exceed 79,350 shares. The maximum number of shares of stock that may be issued as restricted stock awards cannot exceed 23,805.

 

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Employee Benefits (Cont’d)

 

Equity Incentive Plan (Cont’d):

 

The Stock Incentive Plan will remain in effect as long as any awards under it are outstanding; however, no awards may be granted under the Stock Incentive Plan on or after the 10-year anniversary of the effective date of the Stock Incentive Plan or July 17, 2024.

 

Under FASB ASC Topic 718, the Company will recognize compensation expense on its income statement over the requisite service period or performance period based on the grant date fair value of stock options and other equity-based compensation (such as restricted stock).

 

On June 16, 2015, the Company granted 10,500 shares of restricted stock to certain executive officers, with a grant date fair value of $10.50 per share. Expected future expense relating to these non-vested restricted shares at September 30, 2015 is $104,738 over a 4.75 year period. There were no stock options outstanding as of September 30, 2015.

 

Comprehensive Income

 

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, and the actuarial gains and losses of the pension plan, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

 

Concentration of Credit Risk and Interest-Rate Risk

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and loans. Cash and cash equivalents include amounts placed with highly rated financial institutions. Investment securities include securities backed by the U.S. Government and other highly rated instruments. The Company’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New York. As a result, credit risk is broadly dependent on the real estate market and general economic conditions in the State.

 

The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to make loans secured by real estate in the State of New York. The potential for interest-rate risk exists as a result of the shorter duration of the Company's interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Company's assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

 

Advertising Costs

 

It is the Company’s policy to expense advertising costs in the period in which they are incurred.

 

Earnings Per Share

 

Basic earnings per share is computed by dividing net income for the period by the weighted average number of shares of common stock outstanding adjusted for unearned shares of the Employee Stock Ownership Plan (“ESOP”). Diluted earnings per share is computed by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options and compensation grants, if dilutive, using the treasury stock method.

 

Recent Accounting Pronouncements

 

In January 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20). The ASU eliminated from GAAP the concept of extraordinary items. Under subtopic 225-20, entities were required to separately classify, present, and disclose extraordinary events and transactions that were both unusual in nature and infrequent in occurrence. This amendment will save time and reduce costs for preparers, as well as alleviate

 

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Recent Accounting Pronouncements (Cont’d)

 

uncertainty for auditors and regulators in evaluating potentially extraordinary items. The amendment is effective for fiscal years and interim reporting periods after December 15, 2015. It may be applied prospectively and retrospectively to all reporting periods presented in the financial statements. The adoption of ASU No. 2015-01 is not expected to have a material impact on the Company's consolidated financial statements.

 

In June 2015, the FASB issued ASU No. 2015-10, Technical Corrections and Improvements. The amendments in this update facilitate updates for technical corrections, clarifications, and improvements to the FASB Accounting Standards Codification. The amendments in this update fall into one of the following categories: amendments related to differences between original guidance and the codification, guidance clarification and reference corrections, simplification, and minor improvements. The amendments in this update requiring transition guidance are effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted. The adoption of ASU No. 2015-10 is not expected to have a material impact on the Company's consolidated financial statements.

 

Subsequent Events

 

The Company has evaluated all events subsequent to the balance sheet date of September 30, 2015 through the date of this report, and has determined that there are no subsequent events that require disclosure under FASB guidance.

 

2. MUTUAL TO STOCK CONVERSION AND LIQUIDATION ACCOUNT

 

On July 15, 2013, the Association completed its mutual-to-stock conversion, and the Company consummated its initial stock offering. The Company sold 793,500 shares of its common stock, including 55,545 shares purchased by the Association’s ESOP, at a price of $10.00 per share, in a subscription offering, for gross offering proceeds of $7,935,000. The cost of conversion and the stock offering were deferred and deducted from the proceeds of the offering. Conversion costs incurred totaled $845,000 resulting in net proceeds of $6.5 million after also deducting the shares acquired by the ESOP.

 

In accordance with applicable federal conversion regulations, at the time of the completion of our mutual-to-stock conversion, the Company established a liquidation account in the Association in an amount equal to the Association’s total retained earnings as of the latest balance sheet date in the final prospectus used in the Conversion.  Each eligible account holder or supplemental account holder is entitled to a proportionate share of this liquidation account in the event of a complete liquidation of the Association, and only in such event.  This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record as of any December 31 and will cease to exist if the account is closed.  The liquidation account will never be increased despite any increase after conversion in the related deposit balance.

 

The Company may not declare, pay a dividend on, or repurchase any of its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements.

 

 

3. SECURITIES

 

		September 30, 2015
		Amortized				Gross Unrealized								Fair
		Cost				Gains				Losses				Value
Securities held to maturity:
U.S. government and agency obligations		$	2,000,000			$	67,814			$	-			$	2,067,814
State, county, and municipal obligations			816,387				5,453				2,027				819,813
Mortgage-backed securities			1,989,195				69,557				-				2,058,752
		$	4,805,582			$	142,824			$	2,027			$	4,946,379
Securities available for sale:
U.S. government and agency obligations		$	4,197,494			$	7,320			$	641			$	4,204,173
Mortgage-backed securities			26,572,574				172,542				107,318				26,637,798
		$	30,770,068			$	179,862			$	107,959			$	30,841,971

 

		December 31, 2014
		Amortized				Gross Unrealized								Fair
		Cost				Gains				Losses				Value
Securities held to maturity:
U.S. government and agency obligations		$	2,000,000			$	76,654			$	-			$	2,076,654
State, county, and municipal obligations			817,280				10,234				2,423				825,091
Mortgage-backed securities			3,336,957				138,807				-				3,475,764
		$	6,154,237			$	225,695			$	2,423			$	6,377,509
Securities available for sale:
U.S. government and agency obligations		$	5,997,345			$	2,025			$	58,756			$	5,940,614
Mortgage-backed securities			28,526,918				229,096				184,959				28,571,055
		$	34,524,263			$	231,121			$	243,715			$	34,511,669

 

Mortgage-backed securities consist of securities guaranteed by Ginnie Mae, Fannie Mae, Freddie Mac, and the Small Business Administration with amortized costs of $2.3 million, $12.1 million, $10.4 million, and $3.7 million, respectively, at September 30, 2015 ($5.1 million, $14.0 million, $7.3 million, and $5.5 million, respectively, at December 31, 2014).

 

Proceeds from the sale of securities held to maturity amounted to $982,705 and $0 for the three months ended September 30, 2015 and 2014, respectively. Net gains of $22,133 and $0 were recognized on the sales for the three months ended, September 30, 2015 and 2014, respectively. The sale of the securities in 2015 occurred after the Company had already collected a substantial portion (at least 85%) of the principal outstanding due to prepayments on the debt securities.

 

There were no sales of securities available for sale for the three months ended September 30, 2015 and 2014.

 

Proceeds from the sale of securities held to maturity amounted to $982,705 and $455,771 for the nine months ended September 30, 2015 and 2014, respectively. Net gains of $22,133 and $4,425 were recognized on the sales during the nine months ended September 30, 2015 and 2014, respectively. The sale of the securities occurred after the Association had already collected a substantial portion (at least 85%) of the principal outstanding due to prepayments on the debt securities.

 

 

3. SECURITIES (Cont’d)

 

Proceeds from the sale of securities available for sale amounted to $8,606,475 and $1,877,729 for the nine months ended September 30, 2015 and 2014, respectively. Net gains of $99,026 and $13,653 were recognized on those sales for the nine months ended, September 30, 2015 and 2014, respectively.

 

The following is a summary of the amortized cost and fair value of securities at September 30, 2015 and December 31, 2014, by remaining period to contractual maturity. Actual maturities may differ from these amounts because certain debt security issuers have the right to call or redeem their obligations prior to contractual maturity. In addition, mortgage backed securities that amortize monthly are listed in the period the security is legally set to pay off in full.

 

		September 30, 2015
		Held to Maturity								Available for Sale
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Within one year		$	-			$	-			$	-			$	-
After one to five years			390,692				394,584				2,497,768				2,499,829
After five to ten years			79,851				81,412				6,062,771				6,078,588
After ten years			4,335,039				4,470,383				22,209,529				22,263,554
		$	4,805,582			$	4,946,379			$	30,770,068			$	30,841,971

 

		December 31, 2014
		Held to Maturity								Available for Sale
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Within one year		$	-			$	-			$	-			$	-
After one to five years			391,777				394,383				3,997,344				3,957,863
After five to ten years			79,829				82,066				8,769,676				8,803,062
After ten years			5,682,631				5,901,060				21,757,243				21,750,744
		$	6,154,237			$	6,377,509			$	34,524,263			$	34,511,669

 

The following tables summarize the fair values and unrealized losses of securities with an unrealized loss at September 30, 2015 and December 31, 2014, segregated between securities that have been in an unrealized loss position for less than one year, or one year or longer, at the respective dates.

 

		September 30, 2015
		Under One Year								One Year or More
						Gross								Gross
		Fair				Unrealized				Fair				Unrealized
		Value				Loss				Value				Loss
Securities held to maturity:
State, county, and municipal obligations			343,817			$	2,027			$	-			$	-
Securities available for sale:
U.S. government and agency obligations			-				-				998,484				641
Mortgage-backed securities			7,773,949				13,943				4,152,777				93,375
			7,773,949				13,943				5,151,261				94,016
Total		$	8,117,766			$	15,970			$	5,151,261			$	94,016

 

 

3. SECURITIES (Cont’d)

 

		December 31, 2014
		Under One Year								One Year or More
						Gross								Gross
		Fair				Unrealized				Fair				Unrealized
		Value				Loss				Value				Loss
Securities held to maturity:
State, county, and municipal obligations		$	204,584			$	2,423			$	-			$	-
Securities available for sale:
U.S. government and agency obligations			999,738				262				2,938,851				58,494
Mortgage-backed securities			5,573,324				21,827				6,116,841				163,131
			6,573,062				22,089				9,055,692				221,625
Total		$	6,777,646			$	24,512			$	9,055,692			$	221,625

 

The unrealized losses are primarily due to changes in market interest rates subsequent to purchase. At September 30, 2015, a total of 16 securities were in an unrealized loss position (19 at December 31, 2014). The Company generally purchases securities issued by Government Sponsored Enterprises (GSE). Accordingly, it is expected that the GSE securities would not be settled at a price less than the Company’s amortized cost basis. The Company does not consider these investments to be other-than-temporarily impaired at September 30, 2015 and December 31, 2014 since the decline in market value is attributable to changes in interest rates and not credit quality and the Company has the intent and ability to hold these investments until there is a full recovery of the unrealized loss, which may be at maturity.

 

4. LOANS RECEIVABLE, NET

 

		September 30,				December 31,
		2015				2014
Mortgage loans:
Residential 1-4 family		$	30,468,929			$	31,457,055
Commercial and multi-family			12,842,840				9,428,335
Home equity lines of credit			410,098				369,795
			43,721,867				41,255,185
Other loans:
Secured by savings accounts			20,455				32,371
Student			1,665,784				126,688
Commercial			2,179,246				2,155,951
			3,865,485				2,315,010
Total loans			47,587,352				43,570,195
Less:
Deferred loan fees (costs), net			(59,629	)			(45,521	)
Allowance for loan losses			455,055				396,055
			395,426				350,534
		$	47,191,926			$	43,219,661

 

 

4. LOANS RECEIVABLE, NET (CONT’D)

 

In the ordinary course of business, the Company makes loans to its directors, executive officers, and their associates (related parties) on the same terms as those prevailing at the time of origination for comparable loans with other borrowers. The unpaid principal balances of related party loans were approximately $171,000 and $228,000 at September 30, 2015 and December 31, 2014, respectively.

 

Activity in the allowance for loan losses is summarized as follows:

 

		Three Months Ended
		September 30,
		2015				2014
Balance at beginning of period		$	433,055			$	350,145
Provision for loan losses			22,000				-
Balance at end of period		$	455,055			$	350,145

 

		Nine Months Ended
		September 30,
		2015				2014
Balance at beginning of period		$	396,055			$	340,145
Provision for loan losses			59,000				10,000
Balance at end of period		$	455,055			$	350,145

 

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. There are no specific allowances as of September 30, 2015 and December 31, 2014. The general component covers pools of loans by loan class not considered impaired, as well as smaller balance homogeneous loans, such as one-to-four family real estate, home equity lines of credit and other consumer loans.  These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors.  These qualitative risk factors include:

 

1.

Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

 

2.

National, regional, and local economic and business conditions including the value of underlying collateral for collateral dependent loans.

 

3.

Nature and volume of the portfolio and terms of loans.

 

4.

Experience, ability, and depth of lending management and staff and the quality of the Company’s loan review system.

 

5.

Volume and severity of past due, classified and nonaccrual loans.

 

6.

Existence and effect of any concentrations of credit and changes in the level of such concentrations.

 

 

4. LOANS RECEIVABLE, NET (CONT’D)

 

7.

Effect of external factors, such as competition and legal and regulatory requirements.

 

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

 

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

 

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss.

 

Loan classifications are defined as follows:

 

•

Pass — These loans are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

 

•

Special Mention — These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects.

 

•

Substandard — These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

•

Doubtful — These loans have all the weaknesses inherent in a loan classified substandard with the added characteristic that the weaknesses make the full recovery of our principal balance highly questionable and improbable on the basis of currently known facts, conditions, and values. The likelihood of a loss on an asset or portion of an asset classified as doubtful is high. Its classification as Loss is not appropriate, however, because pending events are expected to materially affect the amount of loss.

 

•

Loss — These loans are considered uncollectible and of such little value that a charge-off is warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur.

 

One of the primary methods the Company uses as an indicator of the credit quality of their portfolio is the regulatory classification system. The following table reflects the credit quality indicators by portfolio segment and class, at the dates indicated:

 

		September 30, 2015
		Mortgage Loans
						Commercial								Commercial
		Residential				Real Estate and								and
		1-4 Family				Multi-Family				Home Equity				Other				Total
		(In thousands)
Pass		$	29,902			$	11,673			$	384			$	3,865			$	45,824
Special Mention			280				1,170				26				-				1,476
Substandard			287				-				-				-				287
Total		$	30,469			$	12,843			$	410			$	3,865			$	47,587

 

 

4. LOANS RECEIVABLE, NET (CONT’D)

 

		December 31, 2014
		Mortgage Loans
						Commercial								Commercial
		Residential				Real Estate and								and
		1-4 Family				Multi-Family				Home Equity				Other				Total
		(In thousands)
Pass		$	31,025			$	8,974			$	370			$	2,315			$	42,684
Special Mention			-				454				-				-				454
Substandard			432				-				-				-				432
Total		$	31,457			$	9,428			$	370			$	2,315			$	43,570

 

The following table provides information about loan delinquencies at the dates indicated:

 

		September 30, 2015
																										90 Days
																										or More
		30-59				60-89				90 Days																Past Due
		Days				Days				or More				Total				Current				Total				and
		Past Due				Past Due				Past Due				Past Due				Loans				Loans				Accruing
		(In thousands)
Residential 1-4 family		$	-			$	280			$	287			$	567			$	29,902			$	30,469			$	-
Commercial real estate and multi-family			-				754				-				754			$	12,089				12,843				-
Home equity lines of credit			-				26				-				26			$	384				410				-
Other loans			-				-				-				-			$	3,865				3,865				-
		$	-			$	1,060			$	287			$	1,347			$	46,240			$	47,587			$	-

 

		December 31, 2014
																										90 Days
																										or More
		30-59				60-89				90 Days																Past Due
		Days				Days				or More				Total				Current				Total				and
		Past Due				Past Due				Past Due				Past Due				Loans				Loans				Accruing
		(In thousands)
Residential 1-4 family		$	-			$	-			$	297			$	297			$	31,160			$	31,457			$	-
Commercial real estate and multi-family			-				-				-				-				9,428				9,428				-
Home equity lines of credit			-				-				-				-				370				370				-
Other loans			-				-				-				-				2,315				2,315				-
		$	-			$	-			$	297			$	297			$	43,273			$	43,570			$	-

 

There were no troubled debt restructured loans at September 30, 2015 or December 31, 2014.

 

The following is a summary of loans, by loan type, on which the accrual of income has been discontinued and loans that are contractually past due 90 days or more but have not been classified as non-accrual at the dates indicated:

 

 

4. LOANS RECEIVABLE, NET (CONT’D)

 

		September 30,				December 31,
		2015				2014
		(In thousands)
Residential 1-4 family		$	287			$	432
Commercial real estate and multi-family			-				-
Home equity lines of credit			-				-
Other loans			-				-
Total non-accrual loans			287				432
Accruing loans delinquent 90 days or more			-				-
Total non-performing loans		$	287			$	432

 

The total amount of interest income on non-accrual loans that would have been recognized if interest on all such loans had been recorded based upon original contract terms amounted to approximately $3,300 and $6,000 for the three months ended September 30, 2015 and 2014, respectively. The total amount of interest income recognized on non-accrual loans amounted to approximately $600 and $4,300 during the three months ended September 30, 2015 and 2014, respectively.

 

For the nine months ended September 30, 2015 and 2014, such interest income that would have been recognized on non-accrual loans totaled approximately $15,200 and $20,300, respectively. The total amount of interest income recognized on non-accrual loans amounted to approximately $4,900 and $7,100 during the nine months ended September 30, 2015 and 2014, respectively.

 

The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:

 

		Three Months Ended
		September 30, 2015
		Mortgage Loans
						Commercial
		Residential				and				Home Equity				Commercial
		1-4 Family				Multi-Family				LOC				and Other				Unallocated				Total
		(In thousands)
Beginning balance		$	287			$	111			$	3			$	26			$	6			$	433
Provision for loan losses			28				16				-				(20	)			(2	)			22
Ending Balance		$	315			$	127			$	3			$	6			$	4			$	455
		Three Months Ended
		September 30, 2014
		Mortgage Loans
						Commercial
		Residential				and				Home Equity				Commercial
		1-4 Family				Multi-Family				LOC				and Other				Unallocated				Total
		(In thousands)
Beginning balance		$	280			$	44			$	7			$	12			$	7			$	350
Provision for loan losses			(5	)			5				(4	)			1				3				-
Ending Balance		$	275			$	49			$	3			$	13			$	10			$	350

 

 

4. LOANS RECEIVABLE, NET (CONT’D)

 

		Nine Months Ended
		September 30, 2015
		Mortgage Loans
						Commercial
		Residential				and				Home Equity				Commercial
		1-4 Family				Multi-Family				LOC				and Other				Unallocated				Total
		(In thousands)
Beginning balance		$	258			$	91			$	3			$	32			$	12			$	396
Provision for loan losses			57				36				-				(26	)			(8	)			59
Ending Balance		$	315			$	127			$	3			$	6			$	4			$	455
		Nine Months Ended
		September 30, 2014
		Mortgage Loans
						Commercial
		Residential				and				Home Equity				Commercial
		1-4 Family				Multi-Family				LOC				and Other				Unallocated				Total
		(In thousands)
Beginning balance		$	295			$	34			$	6			$	5			$	-			$	340
Provision for loan losses			(20	)			15				(3	)			8				10				10
Ending Balance		$	275			$	49			$	3			$	13			$	10			$	350

 

5. ACCUMULATED OTHER COMPREHENSIVE LOSS

 

The components of accumulated other comprehensive loss included in equity are as follows:

 

		September 30,				December 31,
		2015				2014
Unrealized net loss on pension plan		$	(1,278,961	)		$	(1,340,386	)
Unrealized gain (loss) on securities available for sale			71,903				(12,594	)
Accumulated other comprehensive loss before taxes			(1,207,058	)			(1,352,980	)
Tax effect			479,156				537,076
Accumulated other comprehensive loss		$	(727,902	)		$	(815,904	)

 

6. REGULATORY CAPITAL

 

The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by regulators, that if undertaken could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of the Association’s assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

 

Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of tangible and core capital (as defined in the regulations) to total assets and of total risk-based capital (as defined) to risk-weighted assets (as defined). In July 2013, the Federal Reserve, the Federal

 

 

6. REGULATORY CAPITAL (Cont’d)

 

Deposit Insurance Corporation and the Office of the Comptroller of the Currency approved a final rule (“Final Rule”) to establish a new comprehensive regulatory capital framework with a phase-in period beginning on January 1, 2015 and ending on January 1, 2019. The Final Rule implements the third installment of the Basel Accords (“Basel III”) regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and substantially amends the regulatory risk-based capital rules applicable to the Company. To improve the quality of loss-absorbing capital, Basel III added a new component of Tier 1 capital called Common Equity Tier 1, which includes common equity and retained earnings and excludes preferred equity.

 

As of September 30, 2015 and December 31, 2014, the Association was well capitalized as defined in the regulatory framework for prompt corrective action. There were no conditions or events since September 30, 2015 that management believes have changed the Association’s capital ratings.

 

The following table presents a reconciliation of the Association’s capital per GAAP and regulatory capital at the dates indicated (in thousands):

 

		September 30,				December 31,
		2015				2014
GAAP capital		$	11,532			$	11,475
Add (subtract):    Disallowed deferred tax assets			(496	)			(207	)
Unrealized (gain) loss on securities available for sale			(43	)			8
Adjustment to record funded status of pension			771				808
Core and tangible capital			11,764				12,084
Add: Allowable allowance for loan losses			455				396
Total risk-based capital		$	12,219			$	12,480

 

The following is a summary of the Association’s actual capital amounts and ratios compared to the amounts and ratios required for minimum capital adequacy and for classification as a well-capitalized institution:

 

																		To be Well
																		Capitalized Under
										Minimum Capital								Prompt Corrective
		Actual								Requirements								Action Provisions
		Amount				Ratio				Amount				Ratio				Amount				Ratio
		(Dollars in Thousands)
September 30, 2015
Tangible Capital		$	11,764				12.76	%		$	1,383				1.50	%		$	N/A				-
Tier 1 (core) Capital			11,764				12.76	%			3,689				4.00	%			4,611				5.00	%
Risk-based Capital:
Common Equity Tier 1			11,764				28.30	%			1,871				4.50	%			2,702				6.50	%
Tier 1			11,764				28.30	%			2,494				6.00	%			3,326				8.00	%
Total			12,219				29.39	%			3,326				8.00	%			4,157				10.00	%
December 31, 2014
Tangible Capital		$	12,084				12.81	%		$	1,415				1.50	%		$	N/A				-
Tier 1 (core) Capital			12,084				12.81	%			3,774				4.00	%			4,718				5.00	%
Risk-based Capital:
Tier 1			12,084				30.50	%			1,585				4.00	%			2,378				6.00	%
Total			12,480				31.49	%			3,170				8.00	%			3,963				10.00	%

 

 

7. FAIR VALUE MEASUREMENTS AND DISCLOSURES

 

A. Fair Value Measurements

 

The Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. ASC Topic 820 was issued to increase consistency and comparability in reporting fair values.

 

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured at fair value at September 30, 2015 and December 31, 2014. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as foreclosed real estate owned and certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

 

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

 

•

Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

 

•

Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

 

•

Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

 

The Company bases its fair values on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ASC Topic 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

Assets that are measured on a recurring basis are limited to the available-for-sale securities portfolio. The available-for-sale portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Substantially all of the available-for-sale portfolio consists of investment securities issued by government-sponsored enterprises. The fair values for substantially all of these securities are obtained from an independent securities broker. Based on the nature of the securities, the securities broker provides the Company with prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the portfolio.

 

The following table provides the level of valuation assumptions used to determine the carrying value of assets measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014:

 

						Fair Value Measurements
						Quoted Prices in Active				Significant Other				Significant
		Carrying				Markets for Identical				Observable Inputs				Unobservable Inputs
Description		Value				(Level 1)				(Level 2)				(Level 3)
September 30, 2015:
Securities available for sale		$	30,841,971			$	-			$	30,841,971			$	-
December 31, 2014:
Securities available for sale		$	34,511,669			$	-			$	34,511,669			$	-

 

There were no assets measured at fair value on a non-recurring basis at September 30, 2015 and December 31, 2014.

 

 

7. FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

 

B. Fair Value Disclosures

 

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein.

 

Cash and Cash Equivalents

 

For cash and due from banks and federal funds sold, the carrying amount approximates the fair value (Level 1).

 

Securities

 

The fair value of securities is estimated based on bid quotations received from securities dealers, if available (Level 1). If a quoted market price was not available, fair value was estimated using quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued (Level 2).

 

FHLB Stock

 

The fair value for FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock, and the Company is required to maintain a minimum balance based upon the unpaid principal of home mortgage loans (Level 2).

 

Loans Receivable

 

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage, commercial, and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories (Level 3).

 

Deposits

 

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and NOW and money market accounts, is equal to the amount payable on demand (Level 1). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with similar remaining maturities (Level 2).

 

Short-Term Borrowings

 

The carrying amounts of federal funds purchased, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 1).

 

Long-Term Borrowings

 

The fair value of long-term borrowings is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements (Level 2).

 

Off-Balance-Sheet Instruments

 

In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. Their fair value would approximate fees currently charged to enter into similar agreements.

 

 

7. FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

 

The carrying values and estimated fair values of financial instruments are as follows (in thousands):

 

		September 30, 2015								December 31, 2014
		Carrying				Estimated				Carrying				Estimated
		Value				Fair Value				Value				Fair Value
		(In Thousands)
Financial assets:
Cash and cash equivalents		$	2,616			$	2,616			$	3,720			$	3,720
Securities held to maturity			4,806				4,946				6,154				6,378
Securities available for sale			30,842				30,842				34,512				34,512
Loans receivable			47,192				47,537				43,220				44,097
FHLB and other stock, at cost			204				204				208				208
Accrued interest receivable			297				297				276				276
Financial liabilities:
Deposits			77,699				77,892				79,555				79,851

 

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.

 

In addition, the fair value estimates were based on existing on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses have a significant effect on fair value estimates and have not been considered in any of the estimates.

 

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. The lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

 

 

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

 

General

 

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended September 30, 2015 and 2014 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

·

statements of our goals, intentions and expectations;

 

·

statements regarding our business plans, prospects, growth and operating strategies;

 

·

statements regarding the quality of our loan and investment portfolios; and

 

·

estimates of our risks and future costs and benefits.

 

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

 

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

·

general economic conditions, either nationally or in our market areas, that are worse than expected;

 

·

competition among depository and other financial institutions;

 

·

inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

 

·

adverse changes in the securities markets;

 

·

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

 

·

our ability to enter new markets successfully and capitalize on growth opportunities;

 

·

our ability to successfully integrate de novo or acquired branches, if any;

 

·

our ability to execute on our business strategy to increase commercial real estate and multi-family lending and commercial lending, including implementing an SBA lending program;

 

·

changes in consumer spending, borrowing and savings habits;

 

·

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

 

·

changes in our organization, compensation and benefit plans; and

 

·

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

 

 

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

 

Critical Accounting Policies

 

There are no material changes to the critical accounting policies disclosed in the Company’s Form 10-K for the year 2014.

 

Comparison of Financial Condition at September 30, 2015 and December 31, 2014

 

Total assets decreased $2.2 million, or, 2.4 %, to $90.9 million at September 30, 2015 from $93.2 million at December 31, 2014. The decrease was due primarily to lower investment securities and cash balances partly offset by increases in loans. Securities held to maturity and available for sale decreased $1.3 million and $3.7 million, respectively, and cash balances decreased $1.1 million. These decreases were partly offset by a $4.0 million increase in loans.

 

Cash and cash equivalents decreased $1.1 million, or 30.0%, to $2.6 million at September 30, 2015 from $3.7 million at December 31, 2014, as cash was used to fund the increase in loans. Securities available for sale decreased $3.7 million, or 10.6%, to $30.8 million at September 30, 2015 from $34.5 million at December 31, 2014, and securities held to maturity decreased $1.3 million, or 21.9%, to $4.8 million at September 30, 2015 from $6.2 million at December 31, 2014.

 

Net loans receivable increased $4.0 million, or 9.2%, to $47.2 million at September 30, 2015 from $43.2 million at December 31, 2014. The increase in loans receivable was primarily due to an increase in commercial real estate originations and the purchase of residential loans in the New York State area.

 

At September 30, 2015, our investment in bank-owned life insurance increased $50,000 to $2.12 million from $2.07 million at December 31, 2014. We invest in bank-owned life insurance to provide us with a funding offset for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses, and we have not made any additional contributions to our bank-owned life insurance since 2002.

 

Other assets, consisting primarily of prepaid FDIC insurance premiums, refundable income taxes and an annuity contract for a former director increased $39,000, or 8.8%, to $489,000 from $450,000 at December 31, 2014 primarily due to an increase in prepaid assets.

 

Total deposits decreased $1.9 million, or 2.3%, to $77.7 million at September 30, 2015 from $79.6 million at December 31, 2014. The decrease resulted primarily from decreases in non-interest bearing checking, NOW, money market accounts and certificates of deposit of $1.2 million, or 24.6%, $871,000, or 8.1%, $659,000 or 19.0% and $1.1 million or 3.4%, respectively. These decreases were partly offset by increases in savings and club accounts of 1.9 million or 6.6% compared to December 31, 2014.

 

We had no borrowings outstanding at September 30, 2015 or at December 31, 2014. At September 30, 2015, we had the ability to borrow up to $27.3 million or 30.0% percent of the Association’s assets in FHLB advances and $2.0 million on a Fed Funds line of credit with Atlantic Central Bankers Bank.

 

Total equity increased to $12.3 million at September 30, 2015 from $12.2 million at December 31, 2014 primarily due to a $88,000 decrease in other comprehensive loss and a $17,000 decrease in the unallocated common stock held by the Employee Stock Ownership Plan partly offset by the year to date loss of $46,000.

 

Comparison of Results of Operations for the Quarters Ended September 30, 2015 and September 30, 2014

 

General. We had a net loss of $34,000 for the quarter ended September 30, 2015 compared to a net loss of $57,000 for the quarter ended September 30, 2014. The decrease in our net loss resulted primarily from increases in net interest and non-interest income partly offset by an increase in non-interest expense and higher provision for loan losses. when comparing the 2015 quarter to the 2014 quarter.

 

Net Interest Income. Net interest income increased $19,000, or 3.4%, to $576,000 for the quarter ended September 30, 2015 from $557,000 for the quarter ended September 30, 2014. The increase resulted from a $7,000 or 1.1% increase in interest income and a $12,000 or 11.9% decrease in interest expense on deposits.

 

 

The increase in interest income was primarily due to an increase in loan balances partly offset by a decrease in investment income during the quarter ended September 30, 2015. Market rates continued to decline but the decrease in rates were offset by a higher volume of loan originations. . The average yield on our loans decreased 27 basis points while the average yield on our investment and mortgage-backed securities decreased 46 and 10 basis points, respectively, during the quarter ended September 30, 2015 compared to the 2014 quarter. Our net interest rate spread increased 20 basis points to 2.70% for the quarter ended September 30, 2015 from 2.50% for the quarter ended September 30, 2014 and our net interest margin increased 18 basis points to 2.74% for the 2015 quarter from 2.56% for the 2014 period. Average interest-earning assets decreased to $83.3 million for the quarter ended September 30, 2015 from $86.4 million for the prior year quarter.

 

Interest and Dividend Income. Interest and dividend income increased $7,000 to $664,000 for the quarter ended September 30, 2015 from $657,000 for the quarter ended September 30, 2014. The increase resulted primarily from a $59,000 increase in interest income on loans partly offset by a $49,000 decrease in interest income on mortgage-backed securities.

 

Interest income on loans increased $59,000 or 13.1%, to $506,000 for the quarter ended September 30, 2015 from $447,000 for the quarter ended September 30, 2014. The increase resulted primarily from an $8.2 million increase in average balances partly offset by a 27 basis point decrease in the average yield on loans to 4.18% for the 2015 quarter from 4.45% for the 2014 quarter, reflecting lower market interest rates.

 

Interest and dividend income on investment and mortgage-backed securities decreased $49,000 to $155,000 for the quarter ended September 30, 2015 from $205,000 for the quarter ended September 30, 2014 due to a $7.7 million decrease in average balances and a decrease of 12 basis points in the average yield on securities to 1.90% during the 2015 quarter from 2.02% during the 2014 quarter.

 

Interest Expense. Interest expense, primarily the cost of interest-bearing deposits, decreased $12,000, or 11.9%, to $88,000 for the quarter ended September 30, 2015 from $100,000 for the quarter ended September 30, 2014.  The decrease in interest expense was due to a decrease of 5 basis points in the cost of interest- bearing liabilities, primarily deposits, to 0.46% in the cost of interest-bearing deposits for the quarter ended September 30, 2015 from 0.51% for the quarter ended September 30, 2014, primarily due to lower interest paid on certificates of deposit reflecting lower market interest rates.  Average interest-bearing liabilities decreased to $75.6 million for the quarter ended September 30, 2015 from $77.2 million for the quarter ended September 30, 2014, as higher cost interest-bearing certificates of deposits decreased and lower-cost savings and money market accounts increased.  Lower rates on certificates of deposit as well as the change in the composition of our interest-bearing deposits helped reduce the cost of funds from 0.47% for the quarter ended September 30, 2014 to 0.43% for the quarter ended September 30, 2015.

 

Provision for Loan Losses. We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. There was a $22,000 provision for loan losses recorded for the quarter ended September 30, 2015 and $0 recorded for the quarter ended September 30, 2014. The allowance for loan losses was $455,000 at September 30, 2015 compared to $350,000 at September 30, 2014. Non-performing loans at September 30, 2015 totaled $287,000 and $422,000 at September 30, 2014. During the quarters ended September 30, 2015 and September 30, 2014 there were no loan charge-offs or recoveries.

 

Noninterest Income. Noninterest income increased $21,000 to $67,000 for the quarter ended September 30, 2015 from $46,000 for the quarter ended September 30, 2014. The increase was primarily due to an increase in security gains of $22,000 partly offset by a decrease in fees and service charges of $1,000.

 

Noninterest Expense. Noninterest expense increased $13,000 or 1.8% to $703,000 for the quarter ended September 30, 2015 from $691,000 for the quarter ended September 30, 2014. The increase was primarily due to higher compensation and benefits expense, data processing fees, professional fees partly offset by lower advertising and promotion expense and other expense. Compensation and benefits expense increased $34,000 or 10.1% primarily due to a $15,000 or 5.4% increase in compensation expense, a $6,000 increase due to restricted stock awards and a $9,000 increase in medical benefits. Restricted stock expense increased as a result of amortization of awards granted in the second quarter of 2015. Medical benefits increased due to more employees electing coverage and higher premiums paid. Data processing expenses increased $11,000 as a result of higher costs related to core processing and additional costs to support new products and initiatives. Advertising and promotion expense decreased $26,000 due to initiatives the Company undertook in 2014 that did not recur in 2015. Other expense decreased $13,000 primarily due to lower expenses related to the Company’s annual meeting and lower check fraud charge-offs.

 

 

Income Tax Expense (Benefit). We recorded a $48,000 income tax benefit for the quarter ended September 30, 2015 and a $31,000 income tax benefit for the quarter ended September 30, 2014. Income tax expense (benefit) is calculated based on pre-tax income or (loss) adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities and income on bank owned life insurance.

 

Comparison of Results of Operations for the nine months ended September 30, 2015 and September 30, 2014

 

General. We had a net loss of $46,000 for the nine months ended September 30, 2015 compared to a net loss of $168,000 for the nine months ended September 30, 2014. The decrease in net loss for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 resulted primarily from decreases in non-interest and interest expense in addition to an increase in non-interest income partly offset by an increase in the provision for loan losses and lower tax benefit.

 

Net Interest Income. Net interest income increased $38,000, or 2.2%, to $1.75 million for the nine months ended September 30, 2015 from $1.71 million for the nine months ended September 30, 2014. The increase was primarily due to a $40,000 decrease in interest expense on deposits. Interest and dividend income decreased $2,000 for the nine months ended September 30, 2015 compared to the same period in 2014. Loan interest income was $140,000 higher for the nine months ended September 30, 2015 compared to the same period in 2014 but was offset by a $141,000 decrease in interest income on investment and mortgage-backed securities. The increase in loan interest was primarily driven by loan growth partly offset by declining market interest rates during the nine months ended September 30, 2015. Investment income decreased due to lower portfolio balances and returns. The average yield on our loans decreased 28 basis points and the average yield on our investment and mortgage-backed securities decreased 11 basis points during the nine months ended September 30, 2015. Our net interest rate spread increased 8 basis points to 2.74% for the nine months ended September 30, 2015 from 2.66% for the nine months ended September 30, 2014 and our net interest margin increased 6 basis points to 2.78% for the 2015 period from 2.72% for the 2014 period. Average interest-earning assets decreased $219,000 to $83.8 million for the nine months ended September 30, 2015 from $84.0 million for the prior year period.

 

Interest and Dividend Income. Interest and dividend income decreased slightly by $2,000 for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.

 

Interest income on loans increased $140,000 or 10.2%, to $1.5 million for the nine months ended September 30, 2015 from $1.4 million for the nine months ended September 30, 2014. The increase resulted primarily from a $7.1 million increase in average loan balances partly offset by a decline of 28 basis points in the average yield on loans to 4.27% for the 2015 period from 4.55% for the 2014 period, reflecting lower market interest rates.

 

Interest and dividend income on investment and mortgage-backed securities decreased $141,000 to $492,000 for the nine months ended September 30, 2015 from $633,000 for the nine months ended September 30, 2014 primarily due to a decrease of $7.4 million in average balances and a decrease in the average yield on securities to1.93% during the 2015 period from 2.04% during the 2014 period.

 

Interest Expense. Interest expense, consisting primarily of the cost of interest-bearing liabilities, decreased $40,000 or 13.1%, to $263,000 for the nine months ended September 30, 2015 from $303,000 for the nine months ended September 30, 2014.  The decrease in the cost of interest-bearing liabilities, which are primarily deposits, was due to a decrease of 7 basis points in the average rate paid on interest-bearing deposits to 0.47% for the nine months ended September 30, 2015 from 0.54% for the nine months ended September 30, 2014. The decrease was primarily due to lower interest paid on certificates of deposit reflecting lower market interest rates.  Average interest-bearing liabilities increased $899,000 or 1.2% to $75.5 million for the nine months ended September 30, 2015 from $74.6 million for the nine months ended September 30, 2014. Average savings balances increased $2.2 million while higher cost interest-bearing certificates of deposit average balances decreased $858,000 and money market average balances declined by $397,000. The decrease in rates on certificates of deposit helped reduce the cost of funds from 0.50% for the nine months ended September 30, 2014 to 0.43% for the nine months ended September 30, 2015.

 

 

Provision for Loan Losses. We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. There was a $59,000 provision for loan losses recorded for the nine month period ended September 30, 2015 and a $10,000 provision for loan losses recorded for the nine month period ended September 30, 2014. There were no recoveries of previously charged-off loans during the nine months ended September 30, 2015 and 2014, respectively.

 

Noninterest Income. Noninterest income increased $106,000 or 72.1% to $254,000 for the nine months ended September 30, 2015 from $147,000 for the nine months ended September 30, 2014. The increase was primarily due to higher security gains of $103,000 recognized during the 2015 period compared to the 2014 period.

 

Noninterest Expense. Noninterest expense decreased $109,000 or 5.0%, to $2.1 million for the nine months ended September 30, 2015 from $2.2 million for the nine months ended September 30, 2014. The decrease was primarily due to lower professional fees, advertising and promotion expense and occupancy and equipment expense partly offset by increases in compensation and benefits expense and data processing expense. Professional fees decreased $106,000 or 29.3% due to lower consulting and legal fees. These expenses were incurred in 2014 due to the higher costs of compliance and being a newly formed public company as well as professional fees incurred to fill the interim CFO position that did not recur in 2015. Advertising and promotion expense decreased $64,000 or 67.0% due to initiatives the Company undertook in 2014 that did not recur in 2015. Occupancy and equipment expense decreased $29,000 or 9.5% primarily due to higher rental income received and lower network expenses.

 

Income Tax Expense (Benefit). We recorded a $66,000 income tax benefit for the nine months ended September 30, 2015 and a $147,000 income tax benefit for the nine months ended September 30, 2014. Income tax expense (benefit) is calculated based on pre-tax income or (loss) adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities and income on bank owned life insurance.

 

Item 3.                    Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable, as the Registrant is a smaller reporting company.

 

Item 4.                    Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2015. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

 

During the quarter ended September 30, 2015, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

Part II – Other Information

 

Item 1.                 Legal Proceedings

 

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.

 

Item 1A.              Risk Factors

 

Not applicable, as the Registrant is a smaller reporting company.

 

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

 

(a)

There were no sales of unregistered securities during the period covered by this Report.

 

(b)

Not applicable.

 

(c)

There were no issuer repurchases of securities during the period covered by this Report.

 

Item 3.                 Defaults Upon Senior Securities

 

None.

 

Item 4.                 Mine Safety Disclosures

 

Not applicable.

 

Item 5.                 Other Information

 

None.

 

Item 6.                 Exhibits

 

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS XBRL Instance Document

 

101.SCH XBRL Taxonomy Extension Schema Document

 

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date:  November 16, 2015		/s/ Timothy D. Sullivan
		Timothy D. Sullivan
		President and Chief Executive Officer
		/s/ Edward J. Lipkus
		Edward J. Lipkus
		Vice President, Chief Financial Officer, and
		Treasurer