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EX-32.2 - EX-32.2 - LAKE SHORE BANCORP, INC.lsbk-20170331xex32_2.htm
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EX-31.2 - EX-31.2 - LAKE SHORE BANCORP, INC.lsbk-20170331xex31_2.htm
EX-31.1 - EX-31.1 - LAKE SHORE BANCORP, INC.lsbk-20170331xex31_1.htm







United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017



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

Commission File No.:  000-51821





 

 

LAKE SHORE BANCORP, INC.

(Exact name of registrant as specified in its charter)



 

 

United States

 

20-4729288

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)



 

 

31 East Fourth Street, Dunkirk, New York

 

14048

(Address of principal executive offices)

 

(Zip code)



 

 

(716) 366-4070

(Registrant’s telephone number, including area code)



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,  and (2) has been subject to such filing requirements for the past 90 days.

Yes  [X]No  [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  [X]No  [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

Large accelerated filer

Accelerated filer

Non-accelerated filer (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



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



Yes  [  ]        No  [X]



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



There were 6,112,322 shares of the registrant’s common stock, $0.01 par value per share, outstanding at May 4, 2017.

 


 









 

 

 



 

TABLE OF CONTENTS

 



 

 

 

ITEM

 

PART I

PAGE



 

 

 

1

FINANCIAL STATEMENTS

 



-

Consolidated Statements of Financial Condition as of March 31, 2017 and December 31, 2016 (Unaudited)

1



-

Consolidated Statements of Income for the Three Months Ended March 31, 2017 and 2016 (Unaudited)

2



-

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016 (Unaudited)

3



-

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2017 and  2016 (Unaudited)

4



-

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and  2016 (Unaudited)

5



-

Notes to Unaudited Consolidated Financial Statements

6

2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

31

3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

42

4

CONTROLS AND PROCEDURES

43



 

 

 



 

PART II

 



 

 

 

1A

RISK FACTORS

43

2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

43

6

EXHIBITS 

44

SIGNATURES

 

 

44



 

 





 

 


 

PART I

Item 1. Financial Statements

Lake Shore Bancorp, Inc. and Subsidiary











 

 

 

 

 

 

Consolidated Statements of Financial Condition

 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2017

 

2016



 

(Unaudited)



 

(Dollars in thousands, except share data)



 

 

 

 

 

 

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

7,846 

 

$

8,089 

Interest earning deposits

 

 

9,890 

 

 

6,889 

Federal funds sold

 

 

16,149 

 

 

30,501 

Cash and Cash Equivalents

 

 

33,885 

 

 

45,479 

Securities available for sale

 

 

83,630 

 

 

86,335 

Federal Home Loan Bank stock, at cost

 

 

1,340 

 

 

1,340 

Loans receivable, net of allowance for loan losses 2017 $3,198; 2016 $2,882

 

 

345,032 

 

 

326,365 

Premises and equipment, net

 

 

8,625 

 

 

8,747 

Accrued interest receivable

 

 

1,800 

 

 

1,600 

Bank owned life insurance

 

 

17,806 

 

 

17,719 

Other assets

 

 

1,749 

 

 

1,589 

Total Assets

 

$

493,867 

 

$

489,174 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

              Interest bearing

 

$

338,120 

 

$

330,004 

              Non-interest bearing

 

 

52,690 

 

 

55,889 

Total Deposits

 

 

390,810 

 

 

385,893 

Long-term debt

 

 

18,950 

 

 

18,950 

Advances from borrowers for taxes and insurance

 

 

2,249 

 

 

3,183 

Other liabilities

 

 

5,257 

 

 

5,118 

Total Liabilities

 

$

417,266 

 

$

413,144 

Commitments and Contingencies

 

 

 -

 

 

 -

Stockholders' Equity

 

 

 

 

 

 

Common stock, $0.01 par value per share, 25,000,000 shares authorized; 6,827,236 shares issued and 6,115,822 shares outstanding at March 31, 2017 and 6,827,236 shares issued and 6,088,674 shares outstanding at December 31, 2016

 

$

68 

 

$

68 

Additional paid-in capital

 

 

30,571 

 

 

30,532 

Treasury stock, at cost (711,414 shares at March 31, 2017 and 738,562 shares at December 31, 2016)

 

 

(7,032)

 

 

(7,300)

Unearned shares held by ESOP

 

 

(1,599)

 

 

(1,620)

Unearned shares held by compensation plans

 

 

(783)

 

 

(578)

Retained earnings

 

 

54,076 

 

 

53,546 

Accumulated other comprehensive income

 

 

1,300 

 

 

1,382 

Total Stockholders' Equity

 

 

76,601 

 

 

76,030 

Total Liabilities and Stockholders' Equity

 

$

493,867 

 

$

489,174 



 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 



 









1


 

Lake Shore Bancorp, Inc. and Subsidiary



 

 

 

 

 

 

Consolidated Statements of Income

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2017

 

2016



 

(Unaudited)



 

(Dollars in thousands, except per share data)

Interest Income

 

 

 

 

 

 

   Loans, including fees

 

$

4,062 

 

$

3,514 

   Investment securities, taxable

 

 

210 

 

 

383 

   Investment securities, tax-exempt

 

 

448 

 

 

451 

   Other

 

 

38 

 

 

16 

         Total Interest Income

 

 

4,758 

 

 

4,364 

Interest Expense

 

 

 

 

 

 

   Deposits

 

 

477 

 

 

468 

   Long-term debt

 

 

92 

 

 

96 

   Other

 

 

21 

 

 

23 

         Total Interest Expense

 

 

590 

 

 

587 

         Net Interest Income

 

 

4,168 

 

 

3,777 

Provision for Loan Losses

 

 

350 

 

 

130 

         Net Interest Income after Provision for Loan Losses

 

 

3,818 

 

 

3,647 

Non-Interest Income

 

 

 

 

 

 

   Service charges and fees

 

 

447 

 

 

434 

   Earnings on bank owned life insurance

 

 

87 

 

 

67 

   Recovery on previously impaired investment securities

 

 

39 

 

 

35 

   Gain on sale of securities available for sale

 

 

25 

 

 

1,636 

   Net gain on sale of loans

 

 

 

 

15 

   Other

 

 

25 

 

 

23 

         Total Non-Interest Income

 

 

630 

 

 

2,210 

Non-Interest Expenses

 

 

 

 

 

 

   Salaries and employee benefits

 

 

1,890 

 

 

1,790 

   Occupancy and equipment

 

 

610 

 

 

581 

   Data processing

 

 

307 

 

 

265 

   Professional services

 

 

227 

 

 

270 

   Advertising

 

 

167 

 

 

113 

   Postage and supplies

 

 

63 

 

 

54 

   FDIC Insurance

 

 

36 

 

 

65 

   Other

 

 

277 

 

 

264 

         Total Non-Interest Expenses

 

 

3,577 

 

 

3,402 

         Income before Income Taxes

 

 

871 

 

 

2,455 

Income Tax Expense

 

 

155 

 

 

501 

         Net Income

 

$

716 

 

$

1,954 

Basic and diluted earnings per common share

 

$

0.12 

 

$

0.33 

Dividends declared per share

 

$

0.08 

 

$

0.07 



 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

















2


 

Lake Shore Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income









 

 

 

 

 

 

 



 

 

Three Months Ended March 31,



 

 

2017

 

2016



 

 

(Unaudited)



 

 

(Dollars in thousands)



 

 

 

 

 

 

 

Net Income

 

 

$

716 

 

$

1,954 



 

 

 

 

 

 

 

Other Comprehensive Loss, net of tax benefit:

 

 

 

 

 

 

 

Unrealized holding (losses) gains on securities available for sale, net of tax benefit (expense)

 

 

 

(40)

 

 

975 



 

 

 

 

 

 

 

Reclassification adjustments related to:

 

 

 

 

 

 

 

Recovery on  previously impaired investment securities included in net income, net of tax expense

 

 

 

(26)

 

 

(23)

Net gain on sale of securities included in net income, net of tax expense

 

 

 

(16)

 

 

(1,080)

Total Other Comprehensive Loss

 

 

 

(82)

 

 

(128)



 

 

 

 

 

 

 

Total Comprehensive Income

 

 

$

634 

 

$

1,826 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 





3


 

Lake Shore Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2017 and 2016 (Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Unearned

 

Unearned Shares

 

 

 

 

Accumulated

 

 

 



 

 

 

 

Additional

 

 

 

 

Shares

 

Held by

 

 

 

 

Other

 

 

 



 

Common

 

Paid-In

 

Treasury

 

Held by

 

Compensation

 

Retained

 

Comprehensive

 

 

 



 

Stock

 

Capital

 

Stock

 

ESOP

 

Plans

 

Earnings

 

Income

 

Total



 

(Dollars in thousands, except share and per share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2016

 

$

67 

 

$

29,359 

 

$

(7,026)

 

$

(1,706)

 

$

(580)

 

$

50,919 

 

$

2,843 

 

$

73,876 

Net income

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,954 

 

 

 -

 

 

1,954 

Other comprehensive loss, net of tax benefit of $65

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(128)

 

 

(128)

Stock options exercised (28,603 shares)

 

 

 

 

327 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

328 

ESOP shares earned (1,984 shares)

 

 

 -

 

 

 

 

 -

 

 

22 

 

 

 -

 

 

 -

 

 

 -

 

 

27 

Compensation plan shares granted (18,415 shares)

 

 

 -

 

 

 -

 

 

179 

 

 

 -

 

 

(179)

 

 

 -

 

 

 -

 

 

 -

Compensation plan shares earned (5,092 shares)

 

 

 -

 

 

10 

 

 

 -

 

 

 -

 

 

54 

 

 

 -

 

 

 -

 

 

64 

Purchase of treasury stock, at cost (10,000 shares)

 

 

 -

 

 

 -

 

 

(136)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(136)

Cash dividends declared ($0.07 per share)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(157)

 

 

 -

 

 

(157)

Balance - March 31, 2016

 

$

68 

 

$

29,701 

 

$

(6,983)

 

$

(1,684)

 

$

(705)

 

$

52,716 

 

$

2,715 

 

$

75,828 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2017

 

$

68 

 

$

30,532 

 

$

(7,300)

 

$

(1,620)

 

$

(578)

 

$

53,546 

 

$

1,382 

 

$

76,030 

Net income

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

716 

 

 

 -

 

 

716 

Other comprehensive loss, net of tax benefit of $42

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(82)

 

 

(82)

ESOP shares earned (1,984 shares)

 

 

 -

 

 

10 

 

 

 -

 

 

21 

 

 

 -

 

 

 -

 

 

 -

 

 

31 

Stock based compensation

 

 

 -

 

 

11 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

11 

Compensation plan shares granted (27,348 shares)

 

 

 -

 

 

 -

 

 

270 

 

 

 -

 

 

(270)

 

 

 -

 

 

 -

 

 

 -

Compensation plan shares forfeited (200 shares)

 

 

 -

 

 

 -

 

 

(2)

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

Compensation plan shares earned (5,862 shares)

 

 

 -

 

 

18 

 

 

 -

 

 

 -

 

 

63 

 

 

 -

 

 

 -

 

 

81 

Cash dividends declared ($0.08 per share)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(186)

 

 

 -

 

 

(186)

Balance - March 31, 2017

 

$

68 

 

$

30,571 

 

$

(7,032)

 

$

(1,599)

 

$

(783)

 

$

54,076 

 

$

1,300 

 

$

76,601 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 























4


 

Lake Shore Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2017

 

2016



 

(Unaudited)



 

(Dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

716 

 

$

1,954 

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

 

 

 

 

 

 

Net amortization of investment securities

 

 

34 

 

 

49 

Net amortization of deferred loan costs

 

 

125 

 

 

129 

Provision for loan losses

 

 

350 

 

 

130 

Recovery on previously impaired investment securities

 

 

(39)

 

 

(35)

Gain on sale of investment securities

 

 

(25)

 

 

(1,636)

Originations of loans held for sale

 

 

(451)

 

 

(1,296)

Proceeds from sales of loans held for sale

 

 

458 

 

 

1,311 

Gain on sale of loans

 

 

(7)

 

 

(15)

Depreciation and amortization

 

 

225 

 

 

216 

Increase in bank owned life insurance, net

 

 

(87)

 

 

(67)

ESOP shares committed to be released

 

 

31 

 

 

27 

Stock based compensation expense

 

 

92 

 

 

64 

Increase in accrued interest receivable

 

 

(200)

 

 

(73)

(Increase) decrease in other assets

 

 

(116)

 

 

41 

Increase in other liabilities

 

 

139 

 

 

81 

Net Cash Provided by Operating Activities

 

 

1,245 

 

 

880 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Activity in available for sale securities:

 

 

 

 

 

 

Sales

 

 

736 

 

 

14,406 

Maturities, prepayments and calls

 

 

2,274 

 

 

2,615 

Purchases

 

 

(399)

 

 

 -

Redemptions of Federal Home Loan Bank Stock

 

 

 -

 

 

99 

Loan origination and principal collections, net

 

 

(19,142)

 

 

(4,877)

Additions to premises and equipment

 

 

(105)

 

 

(91)

Net Cash (Used in) Provided by Investing Activities

 

 

(16,636)

 

 

12,152 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Net increase in deposits

 

 

4,917 

 

 

2,025 

Net decrease in advances from borrowers for taxes and insurance

 

 

(934)

 

 

(889)

Proceeds from issuance of long-term debt

 

 

700 

 

 

 -

Repayment of long-term debt

 

 

(700)

 

 

(2,200)

Proceeds from stock options exercised

 

 

 -

 

 

328 

Purchase of treasury stock

 

 

 -

 

 

(136)

Cash dividends paid

 

 

(186)

 

 

(157)

Net Cash Provided by (Used in) Financing Activities

 

 

3,797 

 

 

(1,029)

Net (Decrease) Increase in Cash and Cash Equivalents

 

 

(11,594)

 

 

12,003 

CASH AND CASH EQUIVALENTS - BEGINNING

 

 

45,479 

 

 

34,227 

CASH AND CASH EQUIVALENTS - ENDING

 

$

33,885 

 

$

46,230 

SUPPLEMENTARY CASH FLOWS INFORMATION

 

 

 

 

 

 

Interest paid

 

$

588 

 

$

592 

Income taxes paid

 

$

 -

 

$

 -



 

 

 

 

 

 

SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING ACTIVITIES

 

 

 

 

 

 

Foreclosed real estate acquired in settlement of loans

 

$

 -

 

$

32 



 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

5


 



Lake Shore Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)



Note 1 – Basis of Presentation



The interim consolidated financial statements include the accounts of Lake Shore Bancorp, Inc. (the “Company”, “us”, “our”, or “we”) and Lake Shore Savings Bank (the “Bank”), its wholly owned subsidiary.  All intercompany accounts and transactions of the consolidated subsidiary have been eliminated in consolidation.



The interim consolidated financial statements included herein as of March 31, 2017 and for the three months ended March 31, 2017 and 2016 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and therefore, do not include all information or footnotes necessary for a complete presentation of the consolidated statements of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  The consolidated statement of financial condition at December 31, 2016 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.  The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information and to make the financial statements not misleading.  These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.  The consolidated statements of income for the three months ended March 31, 2017 are not necessarily indicative of the results for any subsequent period or the entire year ending December 31, 2017.



To prepare these consolidated financial statements in conformity with GAAP, management of the Company made a number of estimates and assumptions relating to the reporting of assets and liabilities and the reporting of revenue and expenses.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, securities valuation estimates, evaluation of impairment of securities and income taxes.



The Company has evaluated events and transactions occurring subsequent to the statement of financial condition as of March 31, 2017 for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the date these consolidated financial statements were issued.



Note 2 – New Accounting Standards



The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2015-17, “Income Taxes (Topic 740):  Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 was issued to simplify the presentation of deferred income taxes. The amendments in ASU 2015-17 require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in ASU 2015- 17 apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in ASU 2015- 17. The adoption of ASU 2015-17 does not have an impact on the Company’s consolidated financial statements or results of operations.



The Company adopted FASB ASU 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”). ASU 2016-09 is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 also eliminates the guidance in FASB Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), “Share-Based Payment”. This should not result in a change in practice because the guidance that is being superseded

6


 

was never effective. The adoption of 2016-09 does not have a material impact on the Company’s consolidated financial statements or results of operations.

In March 2017, the FASB issued ASU 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20)” (“ASU 2017-08”). ASU 2017-08 will amend the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2018 for all public business entities. Early application is permitted for any interim period. Management does not expect the adoption of ASU 2017-08 to have a material impact on its consolidated financial statements and results of operations.



Note 3 – Investment Securities

The amortized cost and fair value of securities are as follows:



 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2017



 

 

 

 

Gross

 

Gross

 

 

 



 

Amortized

 

Unrealized

 

Unrealized

 

Fair



 

Cost

 

Gains

 

Losses

 

Value



 

 

(Dollars in thousands)

SECURITIES AVAILABLE FOR SALE:

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

48,548 

 

$

1,769 

 

$

(12)

 

$

50,305 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations-private label

 

 

36 

 

 

 -

 

 

 -

 

 

36 

Collateralized mortgage obligations-government sponsored entities

 

 

27,403 

 

 

79 

 

 

(420)

 

 

27,062 

Government National Mortgage Association

 

 

282 

 

 

20 

 

 

 -

 

 

302 

Federal National Mortgage Association

 

 

3,269 

 

 

117 

 

 

(14)

 

 

3,372 

Federal Home Loan Mortgage Corporation

 

 

1,745 

 

 

50 

 

 

 -

 

 

1,795 

Asset-backed securities-private label

 

 

289 

 

 

350 

 

 

(7)

 

 

632 

Asset-backed securities-government sponsored entities

 

 

66 

 

 

 

 

 -

 

 

71 

Equity securities

 

 

22 

 

 

33 

 

 

 -

 

 

55 



 

$

81,660 

 

$

2,423 

 

$

(453)

 

$

83,630 





7


 



 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2016



 

 

 

 

Gross

 

Gross

 

 

 



 

Amortized

 

Unrealized

 

Unrealized

 

Fair



 

Cost

 

Gains

 

Losses

 

Value



 

 

(Dollars in thousands)

SECURITIES AVAILABLE FOR SALE:

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

48,869 

 

$

1,847 

 

$

(18)

 

$

50,698 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations-private label

 

 

37 

 

 

 -

 

 

 -

 

 

37 

Collateralized mortgage obligations-government sponsored entities

 

 

29,170 

 

 

83 

 

 

(423)

 

 

28,830 

Government National Mortgage Association

 

 

306 

 

 

23 

 

 

 -

 

 

329 

Federal National Mortgage Association

 

 

3,457 

 

 

128 

 

 

(3)

 

 

3,582 

Federal Home Loan Mortgage Corporation

 

 

1,825 

 

 

42 

 

 

 -

 

 

1,867 

Asset-backed securities-private label

 

 

484 

 

 

362 

 

 

(14)

 

 

832 

Asset-backed securities-government sponsored entities

 

 

71 

 

 

 

 

 -

 

 

76 

Equity securities

 

 

22 

 

 

62 

 

 

 -

 

 

84 



 

$

84,241 

 

$

2,552 

 

$

(458)

 

$

86,335 



All of our collateralized mortgage obligations are backed by one- to four-family residential mortgages.

At March 31, 2017 and at December 31, 2016, equity securities consisted of 22,368 shares of Federal Home Loan Mortgage Corporation (“FHLMC”) common stock.

At March 31, 2017 and December 31, 2016, thirty-three municipal bonds and thirty-four municipal bonds, respectively, with a cost of $11.1 million and fair value of $11.5 million, were pledged under a collateral agreement with the Federal Reserve Bank (“FRB”) of New York for liquidity borrowing. In addition at March 31, 2017 and December 31, 2016 fourteen municipal bonds with a cost and fair value of $3.6 million and $3.7 million, respectively, were pledged as collateral for customer deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits.       

8


 

The following table sets forth the Company’s investment in securities available for sale with gross unrealized losses of less than twelve months and gross unrealized losses of twelve months or more and associated fair values as of the dates indicated:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Less than 12 months

 

12 months or more

 

Total



 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Gross



 

 

 

 

Unrealized

 

 

 

 

Unrealized

 

 

 

 

Unrealized



 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses



 

(Dollars In thousands)

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

1,223 

 

$

(12)

 

$

 -

 

$

 -

 

$

1,223 

 

$

(12)

Mortgage-backed securities

 

 

14,343 

 

 

(211)

 

 

8,506 

 

 

(223)

 

 

22,849 

 

 

(434)

Asset-backed securities -private label

 

 

282 

 

 

(7)

 

 

 -

 

 

 -

 

 

282 

 

 

(7)



 

$

15,848 

 

$

(230)

 

$

8,506 

 

$

(223)

 

$

24,354 

 

$

(453)











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

1,430 

 

$

(18)

 

$

 -

 

$

 -

 

$

1,430 

 

$

(18)

Mortgage-backed securities

 

 

13,902 

 

 

(197)

 

 

9,220 

 

 

(229)

 

 

23,122 

 

 

(426)

Asset-backed securities -private label

 

 

470 

 

 

(14)

 

 

 -

 

 

 -

 

 

470 

 

 

(14)



 

$

15,802 

 

$

(229)

 

$

9,220 

 

$

(229)

 

$

25,022 

 

$

(458)



The Company reviews investment securities on an ongoing basis for the presence of other-than-temporary impairment (“OTTI”) with formal reviews performed quarterly. 



At March 31, 2017, the Company’s investment portfolio included several securities, including two private label asset-backed securities, in the “unrealized losses less than twelve months” category. With the exception of the private label asset-backed securities, the securities were not evaluated further for OTTI as the unrealized losses on the individual securities were less than 20% of book value, which management deemed to be immaterial, and the securities were issued by government sponsored enterprises.



At March 31, 2017, the Company had several securities in the “unrealized losses twelve months or more” category. These securities were not evaluated further for OTTI, as the unrealized losses were less than 20% of book value. The temporary impairments were due to declines in fair value resulting from changes in interest rates and/or increased credit liquidity spreads since the securities were purchased.



The private label asset-backed securities were evaluated further for OTTI, as the probability of default is high and the Company’s analysis indicated a possible loss of principal. The following tables provide additional information relating to the two private label asset-backed securities as of March 31, 2017 and December 31, 2016 (dollars in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2017



 

 

 

 

 

 

 

 

 

 

Delinquent %

 

 

Security

 

 

Book Value

 

 

Fair Value

 

 

Unrealized Loss

Lowest Rating

Over 60 days

Over 90 days

Foreclosure%

OREO%

 

$

232 

 

$

225 

 

$

(7)

B-

15.40%

13.60%

6.50%

0.30%

 

 

57 

 

 

57 

 

 

-

B-

12.60%

11.10%

5.20%

0.80%

Total

 

$

289 

 

$

282 

 

$

(7)

 

 

 

 

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016



 

 

 

 

 

 

 

 

 

 

Delinquent %

 

 

Security

 

 

Book Value

 

 

Fair Value

 

 

Unrealized Loss

Lowest Rating

Over 60 days

Over 90 days

Foreclosure%

OREO%

 

$

355 

 

$

342 

 

$

(13)

B-

15.90%

14.90%

7.00%

0.30%

 

 

129 

 

 

128 

 

 

(1)

B-

12.70%

11.70%

4.50%

1.10%

Total

 

$

484 

 

$

470 

 

$

(14)

 

 

 

 

 

9


 



Management’s evaluation of the estimated discounted cash flows in comparison to the amortized book value for the securities listed above did not reflect the need to record an OTTI charge against earnings as of March 31, 2017. The estimated discounted cash flows for these securities did not show an additional principal loss under various prepayment and default rate scenarios.

Management also completed an OTTI analysis for two private label asset-backed securities, which did not have unrealized losses as of March 31, 2017. Management’s calculation of the estimated discounted cash flows did not show additional principal losses for these securities under various prepayment and default rate scenarios. As a result of the stress tests that were performed, management concluded that additional OTTI charges were not required as of March 31, 2017 on these securities.

The unrealized losses shown in the previous table, were recorded as a component of other comprehensive loss, net of tax on the Company’s Consolidated Statements of Stockholders’ Equity.

The following table presents a summary of the credit-related OTTI charges recognized as components of income:



 

 

 

 

 

 



 

For The Three Months Ended March 31,



 

2017

 

2016



 

(Dollars in thousands)

Beginning balance

 

$

554 

 

$

696 

Additions: