Item 1.
|
Financial Statements
|
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(In thousands,
|
|
|
|
except share and per share data)
|
|
ASSETS
|
Cash and amounts due from depository institutions
|
|
$
|
2,774
|
|
|
$
|
3,794
|
|
Interest-bearing deposits
|
|
|
22,542
|
|
|
|
27,737
|
|
Cash and cash equivalents
|
|
|
25,316
|
|
|
|
31,531
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
2,142
|
|
|
|
2,142
|
|
Securities available-for-sale
|
|
|
107
|
|
|
|
113
|
|
Securities held-to-maturity (fair value of $8,243 and $8,739, respectively)
|
|
|
7,963
|
|
|
|
8,444
|
|
Loans receivable, net of allowance for loan losses of $4,205
|
|
|
382,362
|
|
|
|
367,825
|
|
and $4,015, respectively
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
12,102
|
|
|
|
12,234
|
|
Federal Home Loan Bank of New York stock, at cost
|
|
|
1,594
|
|
|
|
1,594
|
|
Bank owned life insurance
|
|
|
20,643
|
|
|
|
20,490
|
|
Accrued interest receivable
|
|
|
1,438
|
|
|
|
1,267
|
|
Goodwill
|
|
|
749
|
|
|
|
749
|
|
Intangible assets
|
|
|
329
|
|
|
|
345
|
|
Other real estate owned
|
|
|
3,996
|
|
|
|
3,985
|
|
Other assets
|
|
|
5,346
|
|
|
|
7,506
|
|
Total assets
|
|
$
|
464,087
|
|
|
$
|
458,225
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
22,083
|
|
|
$
|
28,310
|
|
Interest bearing
|
|
|
309,396
|
|
|
|
296,899
|
|
Total deposits
|
|
|
331,479
|
|
|
|
325,209
|
|
|
|
|
|
|
|
|
|
|
Advance payments by borrowers for taxes and insurance
|
|
|
4,471
|
|
|
|
3,987
|
|
Federal Home Loan Bank advances
|
|
|
21,000
|
|
|
|
21,000
|
|
Accounts payable and accrued expenses
|
|
|
3,674
|
|
|
|
3,861
|
|
Total liabilities
|
|
|
360,624
|
|
|
|
354,057
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.01 par value;
|
|
|
|
|
|
|
|
|
19,000,000 shares authorized; 13,225,000 shares issued;
|
|
|
|
|
|
|
|
|
outstanding: 12,452,552 and 12,566,952 shares, respectively
|
|
|
132
|
|
|
|
132
|
|
Additional paid-in capital
|
|
|
57,065
|
|
|
|
57,083
|
|
Unearned Employee Stock Ownership Plan (“ESOP”) shares
|
|
|
(3,046
|
)
|
|
|
(3,111
|
)
|
Retained earnings
|
|
|
54,497
|
|
|
|
54,428
|
|
Treasury stock – at cost, 772,448 and 658,048 shares, respectively
|
|
|
(5,124
|
)
|
|
|
(4,291
|
)
|
Accumulated other comprehensive loss
|
|
|
(61
|
)
|
|
|
(73
|
)
|
Total stockholders’ equity
|
|
|
103,463
|
|
|
|
104,168
|
|
Total liabilities and stockholders’ equity
|
|
$
|
464,087
|
|
|
$
|
458,225
|
|
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(In thousands,
|
|
|
|
except per share data)
|
|
INTEREST INCOME:
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
4,691
|
|
|
$
|
4,646
|
|
Interest-earning deposits
|
|
|
4
|
|
|
|
3
|
|
Securities – taxable
|
|
|
73
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income
|
|
|
4,768
|
|
|
|
4,748
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
754
|
|
|
|
728
|
|
Borrowings
|
|
|
65
|
|
|
|
101
|
|
Total Interest Expense
|
|
|
819
|
|
|
|
829
|
|
Net Interest Income
|
|
|
3,949
|
|
|
|
3,919
|
|
PROVISION FOR LOAN LOSSES
|
|
|
—
|
|
|
|
60
|
|
Net Interest Income after Provision
|
|
|
|
|
|
|
|
|
for Loan Losses
|
|
|
3,949
|
|
|
|
3,859
|
|
NON-INTEREST INCOME:
|
|
|
|
|
|
|
|
|
Other loan fees and service charges
|
|
|
106
|
|
|
|
219
|
|
Earnings on bank owned life insurance
|
|
|
153
|
|
|
|
157
|
|
Investment advisory fees
|
|
|
203
|
|
|
|
177
|
|
Other
|
|
|
5
|
|
|
|
5
|
|
Total Non-Interest Income
|
|
|
467
|
|
|
|
558
|
|
NON-INTEREST EXPENSES:
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
2,258
|
|
|
|
2,346
|
|
Occupancy expense
|
|
|
421
|
|
|
|
394
|
|
Equipment
|
|
|
159
|
|
|
|
181
|
|
Outside data processing
|
|
|
254
|
|
|
|
276
|
|
Advertising
|
|
|
11
|
|
|
|
10
|
|
Other real estate owned expense
|
|
|
75
|
|
|
|
86
|
|
FDIC insurance premiums
|
|
|
127
|
|
|
|
30
|
|
Other
|
|
|
839
|
|
|
|
868
|
|
Total Non-Interest Expenses
|
|
|
4,144
|
|
|
|
4,191
|
|
Income before Provision for Income Taxes
|
|
|
272
|
|
|
|
226
|
|
PROVISION FOR INCOME TAXES
|
|
|
57
|
|
|
|
19
|
|
Net Income
|
|
$
|
215
|
|
|
$
|
207
|
|
Net Income per Common Share - Basic
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
Weighted Average Number of Common
|
|
|
|
|
|
|
|
|
Shares Outstanding – Basic
|
|
|
12,197
|
|
|
|
12,311
|
|
Dividends Declared per Common Share
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
Net income
|
|
$
|
215
|
|
|
$
|
207
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Defined benefit pension:
|
|
|
|
|
|
|
|
|
Reclassification adjustments out of accumulated
|
|
|
|
|
|
|
|
|
other comprehensive loss:
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (1)
|
|
|
6
|
|
|
|
5
|
|
Amortization of actuarial (gain) loss (1)
|
|
|
(1
|
)
|
|
|
9
|
|
Actuarial gains arising during period
|
|
|
15
|
|
|
|
69
|
|
Total
|
|
|
20
|
|
|
|
83
|
|
Income tax effect (2)
|
|
|
(8
|
)
|
|
|
(33
|
)
|
Total other comprehensive income
|
|
|
12
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
227
|
|
|
$
|
257
|
|
|
(1)
|
Amounts are included in salaries and employees benefits in the unaudited consolidated statements of income as part of net periodic
pension cost. See note 10 for further information.
|
|
(2)
|
Amounts are included in provision for income taxes in the unaudited consolidated statements of income.
|
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Three Months Ended March 31, 2014 and 2013 (in thousands)
|
|
Common
Stock
|
|
|
Additional
Paid- in
Capital
|
|
|
Unearned
ESOP
Shares
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
Equity
|
|
Balance at December 31, 2012
|
|
$
|
132
|
|
|
$
|
57,178
|
|
|
$
|
(3,370
|
)
|
|
$
|
53,893
|
|
|
$
|
(3,712
|
)
|
|
$
|
(272
|
)
|
|
$
|
103,849
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
207
|
|
|
|
—
|
|
|
|
—
|
|
|
|
207
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
|
50
|
|
Cash dividend declared ($0.03 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(151
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(151
|
)
|
ESOP shares earned
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
65
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
Balance – March 31, 2013
|
|
$
|
132
|
|
|
$
|
57,148
|
|
|
$
|
(3,305
|
)
|
|
$
|
53,949
|
|
|
$
|
(3,712
|
)
|
|
$
|
(222
|
)
|
|
$
|
103,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
132
|
|
|
$
|
57,083
|
|
|
$
|
(3,111
|
)
|
|
$
|
54,428
|
|
|
$
|
(4,291
|
)
|
|
$
|
(73
|
)
|
|
$
|
104,168
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
215
|
|
|
|
—
|
|
|
|
—
|
|
|
|
215
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
12
|
|
Purchase of 114,400 shares of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(833
|
)
|
|
|
—
|
|
|
|
(833
|
)
|
Cash dividend declared ($0.03 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(146
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(146
|
)
|
ESOP shares earned
|
|
|
—
|
|
|
|
(18
|
)
|
|
|
65
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
Balance – March 31, 2014
|
|
$
|
132
|
|
|
$
|
57,065
|
|
|
$
|
(3,046
|
)
|
|
$
|
54,497
|
|
|
$
|
(5,124
|
)
|
|
$
|
(61
|
)
|
|
$
|
103,463
|
|
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(In thousands)
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
215
|
|
|
$
|
207
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Net amortization (accretion) of securities premiums (discounts)
|
|
|
(10
|
)
|
|
|
17
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
60
|
|
Depreciation and amortization
|
|
|
184
|
|
|
|
201
|
|
Net amortization of deferred loan fees and costs
|
|
|
46
|
|
|
|
46
|
|
Amortization of intangible assets
|
|
|
16
|
|
|
|
15
|
|
Deferred income tax expense (benefit)
|
|
|
(96
|
)
|
|
|
5
|
|
Earnings on bank owned life insurance
|
|
|
(153
|
)
|
|
|
(157
|
)
|
ESOP compensation expense
|
|
|
47
|
|
|
|
35
|
|
Increase in accrued interest receivable
|
|
|
(171
|
)
|
|
|
(53
|
)
|
(Increase) decrease in other assets
|
|
|
2,247
|
|
|
|
(100
|
)
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(165
|
)
|
|
|
94
|
|
Net Cash Provided by Operating Activities
|
|
|
2,160
|
|
|
|
370
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Net increase in loans
|
|
|
(14,581
|
)
|
|
|
(10,258
|
)
|
Principal repayments on securities available-for-sale
|
|
|
6
|
|
|
|
3
|
|
Principal repayments on securities held-to-maturity
|
|
|
491
|
|
|
|
901
|
|
Proceeds from maturities of certificates of deposit
|
|
|
—
|
|
|
|
249
|
|
Capitalized cost on real estate owned
|
|
|
(11
|
)
|
|
|
—
|
|
Redemption of Federal Home Loan Bank of New York stock
|
|
|
—
|
|
|
|
450
|
|
Purchases of premises and equipment
|
|
|
(52
|
)
|
|
|
(7
|
)
|
Net Cash Used In Investing Activities
|
|
|
(14,147
|
)
|
|
|
(8,662
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
6,270
|
|
|
|
(6,410
|
)
|
Proceeds from FHLB of NY advances
|
|
|
5,000
|
|
|
|
—
|
|
Repayment of FHLB of NY advances
|
|
|
(5,000
|
)
|
|
|
(10,000
|
)
|
Purchase of treasury stock
|
|
|
(833
|
)
|
|
|
—
|
|
Increase in advance payments by borrowers for taxes and insurance
|
|
|
484
|
|
|
|
592
|
|
Cash dividends paid
|
|
|
(149
|
)
|
|
|
(151
|
)
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
5,772
|
|
|
|
(15,969
|
)
|
Net Decrease in Cash and Cash Equivalents
|
|
|
(6,215
|
)
|
|
|
(24,261
|
)
|
Cash and Cash Equivalents - Beginning
|
|
|
31,531
|
|
|
|
49,242
|
|
Cash and Cash Equivalents - Ending
|
|
$
|
25,316
|
|
|
$
|
24,981
|
|
SUPPLEMENTARY CASH FLOWS INFORMATION
|
|
|
|
|
|
|
|
|
Income taxes paid (refunded)
|
|
$
|
(1,906
|
)
|
|
$
|
—
|
|
Interest paid
|
|
$
|
819
|
|
|
$
|
829
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Dividends declared and not paid
|
|
$
|
146
|
|
|
$
|
—
|
|
See Notes to Unaudited Consolidated Financial Statements
NORTHEAST COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
Northeast Community Bancorp,
Inc. (the “Company”) is a federally-chartered corporation organized as a mid-tier holding company for Northeast Community
Bank (the “Bank”), in conjunction with the Bank’s reorganization from a mutual savings bank to the mutual holding
company structure on July 5, 2006. The Bank is a New York State-chartered savings bank and completed its conversion from a federally-chartered
savings bank effective as of the close of business on June 29, 2012. The accompanying unaudited consolidated financial statements
include the accounts of the Company, the Bank and the Bank’s wholly owned subsidiaries, New England Commercial Properties,
LLC (“NECP”) and NECB Financial Services Group, LLC. NECB Financial Services Group was formed by the Bank in the second
quarter of 2012 as a complement to the Bank’s existing investment advisory and financial planning services division, Hayden
Wealth Management. As of the filing of this Form 10-Q, NECB Financial Services Group has not conducted any business. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited
consolidated financial statements were prepared in accordance with generally accepted accounting principles for interim financial
information as well as instructions for Form 10-Q. Accordingly, they do not include all of the information or footnotes necessary
for the presentation of financial position, results of operations, changes in stockholders’ equity and cash flows in conformity
with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial
statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month period ended March 31, 2014 are not necessarily indicative
of the results that may be expected for the full year or any other interim period. The December 31, 2013 consolidated statement
of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures required
by U.S. GAAP. That data, along with the interim financial information presented in the unaudited consolidated statements of financial
condition, income, comprehensive income, stockholders’ equity, and cash flows should be read in conjunction with the consolidated
financial statements and notes thereto, included in the Company’s annual report on Form 10-K for the year ended December
31, 2013.
The preparation of consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain recorded
amounts and disclosures. Accordingly, actual results could differ from those estimates. The most significant estimate pertains
to the allowance for loan losses. In preparing these consolidated financial statements, the Company evaluated the events that occurred
after March 31, 2014 and through the date these consolidated financial statements were issued.
Loans
Loans are stated at unpaid
principal balances plus net deferred loan origination costs less an allowance for loan losses. Interest on loans receivable is
recorded on the accrual basis. An allowance for uncollected interest is established on loans where management has determined that
the borrowers may be unable to meet contractual principal and/or interest obligations or where interest or principal is 90 days
or more past due, unless the loans are well secured and in the process of collection. When a loan is placed on nonaccrual, an allowance
for uncollected interest is established and charged against current income. Thereafter, interest income is not recognized unless
the financial condition and payment record of the borrower warrant the recognition of interest income. Generally, loans are restored
to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable
period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer
in doubt. Interest on loans that have been restructured is accrued according to the renegotiated terms, unless on non-accrual.
Net loan origination fees and costs are deferred and amortized into income over the contractual lives of the related loans by use
of the level yield method. Past due status of loans is based upon the contractual due date.
Allowance for Loan Losses
The allowance for loan
losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition
date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and
decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses,
and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are
charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly
unlikely.
The allowance for loan
losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs
a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated
value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors.
NOTE
1 – BASIS OF PRESENTATION (Continued)
Allowance for Loan Losses
(Continued)
This evaluation is inherently
subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
Risk characteristics associated
with the types of loans the Company underwrites are as follows:
Multi-family, Mixed-use
and Non-residential Real Estate Loans
. Loans secured by multi-family, mixed-use, and non-residential real estate generally
have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern
in multi-family, mixed-use and non-residential real estate lending is the current and potential cash flow of the property and the
borrower’s demonstrated ability to operate that type of property. Payments on loans secured by income properties often depend
on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent
than residential real estate loans to adverse conditions in the real estate market or the economy.
Commercial and Industrial
Loans
. Unlike residential mortgage loans, which are generally made on the basis of a borrower’s ability to make repayment
from the operation and cash flow from the real property whose value tends to be more ascertainable, commercial and industrial loans
are of higher risk and tend to be made on the basis of a borrower’s ability to make repayment from the cash flow of the borrower’s
business. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially
on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to
appraise and may fluctuate in value.
Construction Loans
.
Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved,
occupied real estate due to (1) the increased difficulty and costs of monitoring the loan; and (2) the increased difficulty of
working out loan problems. We have sought to minimize this risk by limiting the amount of construction loans outstanding at any
time and by spreading the loans among multi-family, mixed-use and non-residential projects.
Consumer Loans.
We offer personal loans, loans secured by passbook savings accounts, certificates of deposit accounts or statement savings accounts,
and overdraft protection for checking accounts. We do not believe these loans represent a significant risk of loss to the Company.
The allowance for loan
losses consists of specific and general reserves. The specific component relates to loans that are classified as impaired. For
loans that are classified as impaired, a specific allowance is established or a partial charge-off is taken 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.
Beginning in the fourth quarter of 2012, the Company discontinued the use of specific allowances. If an impairment is identified,
the Company now charges off the impaired portion immediately. A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding
the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment records,
and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis.
The Company does not evaluate
individual one-to-four family residential real estate and consumer loans for impairment, unless such loans are part of a larger
relationship that is impaired, or are classified as a troubled debt restructuring.
The estimated fair values
of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral
or discounted cash flows.
For loans secured by real
estate, estimated fair values are determined primarily through in-house or third-party appraisals. When a real estate secured loan
becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision
is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original
appraisal and the condition of the property. Appraised values might be discounted to arrive at the estimated selling price of the
collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
For loans secured by
non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based
on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or
invoices. Indications of value from these sources are generally discounted based on the age of the financial information or
the quality of the assets.
NOTE 1 – BASIS OF PRESENTATION (Continued)
Allowance for Loan Losses
(Continued)
The general component covers
pools of loans by loan class including loans not considered impaired, as well as smaller balance homogeneous loans, such as residential
real estate and consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates, adjusted
for qualitative factors. These qualitative risk factors include:
|
1.
|
Changes in policies and procedures in underwriting standards and collections.
|
|
2.
|
Changes in economic conditions.
|
|
3.
|
Changes in nature and volume of lending.
|
|
4.
|
Experience of origination team.
|
|
5.
|
Changes in past due loan volume and severity of classified assets.
|
|
6.
|
Quality of loan review system.
|
|
7.
|
Collateral values in general throughout lending territory.
|
|
8.
|
Concentrations of credit.
|
|
9.
|
Competition, legal and regulatory issues.
|
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.
The allowance for loan
losses 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 annually for commercial
loans or when credit deficiencies arise, such as delinquent loan payments, for commercial, residential and consumer loans. Credit
quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss. Loans criticized
as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses
may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses
that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth
and paying capacity of the obligor or of the collateral pledged, if any.
Loans classified doubtful
have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in
full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible
and are charged to the allowance for loan losses. Loans not classified are rated pass.
The allowance calculation
for each pool of loans is also based on the loss factors that reflect the Company’s historical charge-off experience adjusted
for current economic conditions applied to loan groups with similar characteristics or classifications in the current portfolio.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed,
the Company has a structured loan rating process which allows for a periodic review of its loan portfolio and the early identification
of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type
of collateral and financial condition of the borrowers. The Company’s Chief Executive Officer is ultimately responsible for
the timely and accurate risk rating of the loan portfolio.
Loans whose terms are modified
are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers
are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction
in interest rate or an extension of a loan’s stated maturity date. Adversely classified, non-accrual troubled debt restructurings
may be returned to accrued status if principal and interest payments, under the modified terms, are current for six consecutive
months after modification. All troubled debt restructured loans are classified as impaired.
In addition, banking regulatory
agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses
and may require the Company to recognize additions to the allowance based on their judgments about information available to them
at the time of their examination, which may not be currently available to management. Based on management’s comprehensive
analysis of the loan portfolio, management believes the allowance for loan losses is adequate as of March 31, 2014.
NOTE 1 – BASIS OF PRESENTATION (Continued)
Goodwill
Goodwill totaled $749,000
at March 31, 2014 and December 31, 2013 and consists of goodwill acquired in the business combination completed by the Company
in November 2007. The Company tests goodwill during the fourth quarter of each year for impairment, or more frequently if certain
indicators are present or changes in circumstances suggest that impairment may exist. The Company utilizes a two-step approach.
The first step requires a comparison of the carrying value of the reporting unit to the fair value of the unit. The Company estimates
the fair value of the reporting unit through internal analyses and external valuation, which utilizes an income approach based
on the present value of future cash flows. If the carrying value of the reporting unit exceeds its fair value, impairment exists
and the Company will perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any.
The second step of the goodwill impairment test, if necessary, compares the implied fair value of a reporting unit’s goodwill
with its carrying value.
The implied fair value
of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination is determined. The
Company allocates the fair value of the reporting unit to all of the assets and liabilities of that unit, including identifiable
intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the value of a reporting
unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. No impairment charges were
recorded for the quarters ended March 31, 2014 and March 31, 2013.
NOTE 2 – EARNINGS PER SHARE
Basic earnings per common
share is calculated by dividing the net income available to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per common share is computed in a manner similar to basic earnings per common share
except that the weighted average number of common shares outstanding is increased to include the incremental common shares (as
computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents
were issued during the period. Common stock equivalents may include restricted stock awards and stock options. Anti-dilutive shares
are common stock equivalents with weighted-average exercise prices in excess of the weighted-average market value for the periods
presented. The Company has not granted any restricted stock awards or stock options and, during the three-month periods ended March
31, 2014 and 2013, had no potentially dilutive common stock equivalents. Unallocated common shares held by the Employee Stock Ownership
Plan (“ESOP”) are not included in the weighted-average number of common shares outstanding for purposes of calculating
both basic and diluted earnings per common share until they are committed to be released.
NOTE 3 – EMPLOYEE STOCK OWNERSHIP
PLAN
As of December 31, 2013
and March 31, 2014, the ESOP trust held 518,420 shares of the Company’s common stock, which represents all allocated and
unallocated shares held by the plan. As of December 31, 2013, the Company had allocated 181,447 shares to participants, and an
additional 25,921 shares had been committed to be released. As of March 31, 2014, the Company had allocated 207,368 shares to participants,
and an additional 6,480 shares had been committed to be released.
The Company recognized
compensation expense of $47,000 and $35,000 during the three-month periods ended March 31, 2014 and 2013, respectively, which equals
the fair value of the ESOP shares when they became committed to be released.
NOTE 4 –
Outside
Director Retirement Plan (“DRP”)
Net periodic pension cost for the Company’s
DRP is as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
Service cost
|
|
$
|
18
|
|
|
$
|
18
|
|
Interest cost
|
|
|
10
|
|
|
|
11
|
|
Amortization of prior service cost
|
|
|
6
|
|
|
|
5
|
|
Amortization of actuarial (gain) loss
|
|
|
(1
|
)
|
|
|
9
|
|
Total
|
|
$
|
33
|
|
|
$
|
43
|
|
NOTE 4 –
OUTSIDE DIRECTOR RETIREMENT
PLAN (“DRP”) (Continued)
This plan is an unfunded,
non-contributory defined benefit pension plan covering all non-employee directors meeting eligibility requirements as specified
in the plan document. The amortization of prior service cost and actuarial loss in the three-month periods ended March 31, 2014
and 2013 is also reflected in other comprehensive income during those periods.
NOTE 5 – INVESTMENTS
The following table sets
forth the amortized cost and fair values of our securities portfolio at the dates indicated:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
|
$
|
57
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
59
|
|
Federal National Mortgage Association
|
|
|
46
|
|
|
|
2
|
|
|
|
—
|
|
|
|
48
|
|
Total
|
|
$
|
103
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
$
|
6,063
|
|
|
$
|
216
|
|
|
$
|
—
|
|
|
$
|
6,279
|
|
Federal Home Loan Mortgage Corporation
|
|
|
231
|
|
|
|
8
|
|
|
|
—
|
|
|
|
239
|
|
Federal National Mortgage Association
|
|
|
148
|
|
|
|
6
|
|
|
|
—
|
|
|
|
154
|
|
Collateralized mortgage obligations-GSE
|
|
|
1,520
|
|
|
|
50
|
|
|
|
—
|
|
|
|
1,570
|
|
Other
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Total
|
|
$
|
7,963
|
|
|
$
|
280
|
|
|
$
|
—
|
|
|
$
|
8,243
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
|
$
|
63
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
65
|
|
Federal National Mortgage Association
|
|
|
47
|
|
|
|
1
|
|
|
|
—
|
|
|
|
48
|
|
Total
|
|
$
|
110
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
$
|
6,426
|
|
|
$
|
215
|
|
|
$
|
—
|
|
|
$
|
6,641
|
|
Federal Home Loan Mortgage Corporation
|
|
|
238
|
|
|
|
7
|
|
|
|
—
|
|
|
|
245
|
|
Federal National Mortgage Association
|
|
|
155
|
|
|
|
6
|
|
|
|
—
|
|
|
|
161
|
|
Collateralized mortgage obligations-GSE
|
|
|
1,624
|
|
|
|
67
|
|
|
|
—
|
|
|
|
1,691
|
|
Other
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Total
|
|
$
|
8,444
|
|
|
$
|
295
|
|
|
$
|
—
|
|
|
$
|
8,739
|
|
NOTE 5 –
INVESTMENTS (Continued)
Contractual final maturities
of mortgage-backed securities available for sale were as follows:
|
|
March 31, 2014
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
Due after five but within ten years
|
|
$
|
19
|
|
|
$
|
19
|
|
Due after ten years
|
|
|
84
|
|
|
|
88
|
|
Total
|
|
$
|
103
|
|
|
$
|
107
|
|
Contractual
final maturities of mortgage-backed securities held to maturity were as follows:
|
|
March 31, 2014
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
Due after one but within five years
|
|
$
|
74
|
|
|
$
|
76
|
|
Due after five but within ten years
|
|
|
145
|
|
|
|
152
|
|
Due after ten years
|
|
|
7,744
|
|
|
|
8,015
|
|
Total
|
|
$
|
7,963
|
|
|
$
|
8,243
|
|
The maturities shown above
are based upon contractual final maturity. Actual maturities will differ from contractual maturities due to scheduled monthly repayments
and due to the underlying borrowers having the right to prepay their obligations.
NOTE 6 – FAIR VALUE DISCLOSURES
The Company uses fair value
measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company’s
securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required
to record at fair value other assets and liabilities on a non-recurring basis, such as impaired loans and other real estate owned.
U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
are as follows:
|
Level 1
:
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
Level 2:
|
Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
|
|
Level 3:
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
|
|
|
|
An asset’s or liability’s
level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
NOTE 6 –
Fair
Value DISCLOSURES
(Continued)
For financial assets measured
at fair value on a recurring and nonrecurring basis, the fair value measurements by level within the fair value hierarchy used
are as follows:
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
(Level 3)
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Significant
|
|
Description
|
|
Total
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Unobservable Inputs
|
|
March 31, 2014:
|
|
(In Thousands)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
59
|
|
|
$
|
—
|
|
Federal National Mortgage Association
|
|
|
48
|
|
|
|
—
|
|
|
|
48
|
|
|
|
—
|
|
Total
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
107
|
|
|
$
|
—
|
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,666
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
|
$
|
65
|
|
|
$
|
—
|
|
|
$
|
65
|
|
|
$
|
—
|
|
Federal National Mortgage Association
|
|
|
48
|
|
|
|
—
|
|
|
|
48
|
|
|
|
—
|
|
Total
|
|
$
|
113
|
|
|
$
|
—
|
|
|
$
|
113
|
|
|
$
|
—
|
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
789
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
789
|
|
The following table presents additional quantitative
information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to
determine fair value:
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable
|
|
(Weighted
Average Rate
|
(in thousands)
|
|
Estimate
|
|
|
Techniques
|
|
Input
|
|
Average Rate)
|
March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,666
|
|
|
Appraisal of collateral (1)
|
|
Appraisal adjustments (2)
|
|
0.00%
|
|
|
|
|
|
|
|
|
Liquidation expenses (2)
|
|
2.64%-3.52% (3.08%)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
789
|
|
|
Appraisal of collateral (1)
|
|
Appraisal adjustments (2)
|
|
0.00%
|
|
|
|
|
|
|
|
|
Liquidation expenses (2)
|
|
3.00% (3.00%)
|
|
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various
level 3 inputs which are not identifiable.
|
|
(2)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions and aged appraisals. The range
of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
|
NOTE 6 –
Fair
Value DISCLOSURES
(Continued)
The carrying amounts and fair values of the
Company’s financial instruments are summarized below:
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
(In thousands)
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,316
|
|
|
$
|
25,316
|
|
|
$
|
25,316
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Certificates of deposit
|
|
|
2,142
|
|
|
|
2,142
|
|
|
|
—
|
|
|
|
2,142
|
|
|
|
—
|
|
Securities available for sale
|
|
|
107
|
|
|
|
107
|
|
|
|
—
|
|
|
|
107
|
|
|
|
—
|
|
Securities held to maturity
|
|
|
7,963
|
|
|
|
8,243
|
|
|
|
—
|
|
|
|
8,243
|
|
|
|
—
|
|
Loans receivable
|
|
|
382,362
|
|
|
|
390,522
|
|
|
|
—
|
|
|
|
—
|
|
|
|
390,522
|
|
FHLB of New York stock
|
|
|
1,594
|
|
|
|
1,594
|
|
|
|
—
|
|
|
|
1,594
|
|
|
|
—
|
|
Accrued interest receivable
|
|
|
1,438
|
|
|
|
1,438
|
|
|
|
—
|
|
|
|
1,438
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
331,479
|
|
|
|
334,949
|
|
|
|
—
|
|
|
|
334,949
|
|
|
|
—
|
|
FHLB of New York advances
|
|
|
21,000
|
|
|
|
21,020
|
|
|
|
—
|
|
|
|
21,020
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
2
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
(In thousands)
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,531
|
|
|
$
|
31,531
|
|
|
$
|
31,531
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Certificates of deposit
|
|
|
2,142
|
|
|
|
2,142
|
|
|
|
—
|
|
|
|
2,142
|
|
|
|
—
|
|
Securities available for sale
|
|
|
113
|
|
|
|
113
|
|
|
|
—
|
|
|
|
113
|
|
|
|
—
|
|
Securities held to maturity
|
|
|
8,444
|
|
|
|
8,739
|
|
|
|
—
|
|
|
|
8,739
|
|
|
|
—
|
|
Loans receivable
|
|
|
367,825
|
|
|
|
374,820
|
|
|
|
—
|
|
|
|
—
|
|
|
|
374,820
|
|
FHLB of New York stock
|
|
|
1,594
|
|
|
|
1,594
|
|
|
|
—
|
|
|
|
1,594
|
|
|
|
—
|
|
Accrued interest receivable
|
|
|
1,267
|
|
|
|
1,267
|
|
|
|
—
|
|
|
|
1,267
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
325,209
|
|
|
|
328,654
|
|
|
|
—
|
|
|
|
328,654
|
|
|
|
—
|
|
FHLB of New York advances
|
|
|
21,000
|
|
|
|
21,016
|
|
|
|
—
|
|
|
|
21,016
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
2
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following methods
and assumptions were used to estimate the fair values of the Company’s financial instruments at March 31, 2014 and December
31, 2013:
NOTE 6 –
Fair
Value DISCLOSURES
(Continued)
Cash and Cash Equivalents, Certificates
of Deposit and Accrued Interest Receivable and Payable
For these short-term instruments,
the carrying amount is a reasonable estimate of fair value.
Securities
Fair values for securities
available-for-sale and held-to-maturity are determined utilizing Level 2 inputs. For these securities, the Company obtains fair
value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer
quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus
prepayments speeds, credit information and the security’s terms and conditions, among other things.
Loans
Fair values are estimated
for portfolios of loans with similar financial characteristics. The total loan portfolio is first divided into performing and non-performing
categories. Performing loans are then segregated into adjustable and fixed rate interest terms. Fixed rate loans are segmented
by type, such as construction, other loans secured by real estate, commercial and industrial loans, and consumer. Certain types,
such as commercial loans and consumer loans, are further segmented by maturity and type of collateral.
For performing loans, fair
value is calculated by discounting scheduled future cash flows through estimated maturity using a market rate that reflects the
credit and interest-rate risks inherent in the loans. The discounted value of the cash flows is reduced by a credit risk adjustment
based on internal loan classifications. For non-performing loans, fair value is calculated by discounting the estimated future
cash flows from the remaining carrying value at a market rate. For impaired loans which the Company has measured and recorded impairment
generally based on the fair value of the loan’s collateral, fair value is generally determined based upon independent third-party
appraisal of the properties, or discounted cash flows based upon the expected proceeds. These assets are typically included as
Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
FHLB of New York Stock
The carrying amount of
the FHLB of New York stock approximates its fair value, and considers the limited marketability of this security.
Deposit Liabilities
The fair value of deposits
with no stated maturity, such as non-interest-bearing demand deposits, money market accounts, interest checking accounts, and savings
accounts is equal to the amount payable on demand. Time deposits are segregated by type, size, and remaining maturity. The fair
value of time deposits is based on the discounted value of contractual cash flows. The discount rate is based on rates currently
offered in the market.
FHLB of New York Advances
The fair value of the FHLB
advances is estimated based on the discounted value of future contractual payments. The discount rate is equivalent to the estimated
rate at which the Company could currently obtain similar financing.
Off-Balance- Sheet Financial Instruments
The fair value of commitments
to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions,
considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers. At March 31, 2014 and
December 31, 2013, the estimated fair values of these off-balance-sheet financial instruments were immaterial.
Management uses its best
judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any
estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily
indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value
amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial
statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to
the respective reporting dates may be different than the amounts reported at each year-end.
NOTE 6 –
Fair
Value DISCLOSURES
(Continued)
The above information should not be
interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for
a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree
of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other
companies may not be meaningful.
NOTE 7 – LOANS RECEIVABLE
AND THE ALLOWANCE FOR LOAN LOSSES
The following is an analysis of the allowance
for loan losses and related information concerning loan balances:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(In Thousands)
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
12,266
|
|
|
$
|
11,752
|
|
Multi-family
|
|
|
195,864
|
|
|
|
188,923
|
|
Mixed use
|
|
|
52,509
|
|
|
|
50,467
|
|
Total residential real estate
|
|
|
260,639
|
|
|
|
251,142
|
|
Non-residential real estate
|
|
|
80,219
|
|
|
|
81,985
|
|
Construction
|
|
|
14,226
|
|
|
|
6,568
|
|
Commercial and Industrial
|
|
|
30,698
|
|
|
|
31,345
|
|
Consumer
|
|
|
153
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
385,935
|
|
|
|
371,201
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(4,205
|
)
|
|
|
(4,015
|
)
|
Deferred loan costs, net
|
|
|
632
|
|
|
|
639
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
382,362
|
|
|
$
|
367,825
|
|
At and for the Three Months Ended March 31,
2014 (in thousands)
|
|
Residential
Real
Estate
|
|
|
Non-
residential
Real
Estate
|
|
|
Construction
|
|
|
Commercial
and
Industrial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,556
|
|
|
$
|
896
|
|
|
$
|
97
|
|
|
$
|
456
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
4,015
|
|
Charge-offs
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34
|
)
|
Recoveries
|
|
|
—
|
|
|
|
224
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
224
|
|
Provision (reduction)
|
|
|
32
|
|
|
|
(74
|
)
|
|
|
38
|
|
|
|
(55
|
)
|
|
|
—
|
|
|
|
59
|
|
|
|
—
|
|
Ending balance
|
|
$
|
2,588
|
|
|
$
|
1,012
|
|
|
$
|
135
|
|
|
$
|
401
|
|
|
$
|
—
|
|
|
$
|
69
|
|
|
$
|
4,205
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
160
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
2,588
|
|
|
$
|
852
|
|
|
$
|
135
|
|
|
$
|
401
|
|
|
$
|
—
|
|
|
$
|
69
|
|
|
$
|
4,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
260,639
|
|
|
$
|
80,219
|
|
|
$
|
14,226
|
|
|
$
|
30,698
|
|
|
$
|
153
|
|
|
$
|
|
|
|
$
|
385,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment
|
|
$
|
8,649
|
|
|
$
|
11,587
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
|
|
|
$
|
20,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
251,990
|
|
|
$
|
68,632
|
|
|
$
|
14,226
|
|
|
$
|
30,698
|
|
|
$
|
153
|
|
|
$
|
|
|
|
$
|
365,699
|
|
NOTE 7 – LOANS RECEIVABLE
AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
For the Three Months Ended March 31, 2013
(in thousands)
|
|
Residential
Real
Estate
|
|
|
Non-
residential
Real
Estate
|
|
|
Construction
|
|
|
Commercial
and
Industrial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,216
|
|
|
$
|
996
|
|
|
$
|
—
|
|
|
$
|
434
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,646
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Provision (reduction)
|
|
|
45
|
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60
|
|
Ending balance
|
|
$
|
3,261
|
|
|
$
|
984
|
|
|
$
|
—
|
|
|
$
|
461
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,706
|
|
At and for the Year Ended December 31, 2013
(in thousands)
|
|
Residential
Real Estate
|
|
|
Non-
residential
Real Estate
|
|
|
Construction
|
|
|
Commercial
and
Industrial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,556
|
|
|
$
|
896
|
|
|
$
|
97
|
|
|
$
|
456
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
4,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
2,556
|
|
|
$
|
896
|
|
|
$
|
97
|
|
|
$
|
456
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
4,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
251,142
|
|
|
$
|
81,985
|
|
|
$
|
6,568
|
|
|
$
|
31,345
|
|
|
$
|
161
|
|
|
$
|
|
|
|
$
|
371,201
|
|
Ending balance: individually
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment
|
|
$
|
8,629
|
|
|
$
|
11,488
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
|
|
|
$
|
20,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
242,513
|
|
|
$
|
70,497
|
|
|
$
|
6,568
|
|
|
$
|
31,345
|
|
|
$
|
161
|
|
|
$
|
|
|
|
$
|
351,084
|
|
NOTE 7 – LOANS RECEIVABLE
AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following is a summary of impaired loans at
March 31, 2014 and December 31, 2013:
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
|
(In thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate-Multi-family
|
|
$
|
8,649
|
|
|
$
|
9,279
|
|
|
$
|
—
|
|
|
$
|
8,629
|
|
|
$
|
9,259
|
|
|
$
|
—
|
|
Non-residential real estate
|
|
|
9,536
|
|
|
|
12,748
|
|
|
|
—
|
|
|
|
11,488
|
|
|
|
14,739
|
|
|
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
$
|
18,185
|
|
|
$
|
22,027
|
|
|
$
|
—
|
|
|
$
|
20,117
|
|
|
$
|
23,998
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate-Multi-family
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-residential real estate
|
|
|
2,051
|
|
|
|
2,051
|
|
|
|
160
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
$
|
2,051
|
|
|
$
|
2,051
|
|
|
$
|
160
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate-Multi-family
|
|
$
|
8,649
|
|
|
$
|
9,279
|
|
|
$
|
—
|
|
|
$
|
8,629
|
|
|
$
|
9,259
|
|
|
$
|
—
|
|
Non-residential real estate
|
|
|
11,587
|
|
|
|
14,799
|
|
|
|
160
|
|
|
|
11,488
|
|
|
|
14,739
|
|
|
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
20,236
|
|
|
$
|
24,078
|
|
|
$
|
160
|
|
|
$
|
20,117
|
|
|
$
|
23,998
|
|
|
$
|
—
|
|
Further information pertaining to impaired loans follows:
|
|
Three Months Ended March 31, 2014
|
|
|
Three Months Ended March 31, 2013
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
Average
|
|
|
Interest
|
|
|
Income
|
|
|
Average
|
|
|
Interest
|
|
|
Income
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recognized
|
|
|
Recorded
|
|
|
Income
|
|
|
Recognized
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
on Cash Basis
|
|
|
Investment
|
|
|
Recognized
|
|
|
on Cash Basis
|
|
|
|
(In thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate-Multi-family
|
|
$
|
8,639
|
|
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
10,883
|
|
|
$
|
169
|
|
|
$
|
169
|
|
Non-residential real estate
|
|
|
9,498
|
|
|
|
10
|
|
|
|
10
|
|
|
|
9,902
|
|
|
|
15
|
|
|
|
15
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,001
|
|
|
|
29
|
|
|
|
29
|
|
Subtotal
|
|
$
|
18,137
|
|
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
22,786
|
|
|
$
|
213
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate-Multi-family
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-residential real estate
|
|
|
2,039
|
|
|
|
16
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
$
|
2,039
|
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate-Multi-family
|
|
$
|
8,639
|
|
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
10,883
|
|
|
$
|
169
|
|
|
$
|
169
|
|
Non-residential real estate
|
|
|
11,537
|
|
|
|
26
|
|
|
|
26
|
|
|
|
9,902
|
|
|
|
15
|
|
|
|
15
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,001
|
|
|
|
29
|
|
|
|
29
|
|
Total
|
|
$
|
20,176
|
|
|
$
|
74
|
|
|
$
|
74
|
|
|
$
|
22,786
|
|
|
$
|
213
|
|
|
$
|
213
|
|
NOTE 7 – LOANS RECEIVABLE
AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following table provides information about delinquencies in
our loan portfolio at the dates indicated.
Age Analysis of Past Due Loans as of March 31, 2014 (in Thousands)
|
|
30-59 Days
Past Due
|
|
|
60 – 89
Days Past
Due
|
|
|
Greater
Than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
Recorded
Investment
> 90 Days
and
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,266
|
|
|
$
|
12,266
|
|
|
$
|
—
|
|
Multi-family
|
|
|
2,166
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,166
|
|
|
|
193,698
|
|
|
|
195,864
|
|
|
|
—
|
|
Mixed-use
|
|
|
—
|
|
|
|
—
|
|
|
|
2,226
|
|
|
|
2,226
|
|
|
|
50,283
|
|
|
|
52,509
|
|
|
|
—
|
|
Non-residential real estate
|
|
|
191
|
|
|
|
—
|
|
|
|
2,418
|
|
|
|
2,609
|
|
|
|
77,610
|
|
|
|
80,219
|
|
|
|
—
|
|
Construction loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,226
|
|
|
|
14,226
|
|
|
|
—
|
|
Commercial and industrial loans
|
|
|
—
|
|
|
|
2,502
|
|
|
|
—
|
|
|
|
2,502
|
|
|
|
28,196
|
|
|
|
30,698
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
153
|
|
|
|
153
|
|
|
|
—
|
|
Total loans
|
|
$
|
2,357
|
|
|
$
|
2,502
|
|
|
$
|
4,644
|
|
|
$
|
9,503
|
|
|
$
|
376,432
|
|
|
$
|
385,935
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age Analysis of Past Due Loans as of December 31, 2013 (in Thousands)
|
|
30-59 Days
Past Due
|
|
|
60 – 89
Days Past
Due
|
|
|
Greater
Than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
Recorded
Investment
> 90 Days
and
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,752
|
|
|
$
|
11,752
|
|
|
$
|
—
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
188,923
|
|
|
|
188,923
|
|
|
|
—
|
|
Mixed-use
|
|
|
—
|
|
|
|
2,210
|
|
|
|
—
|
|
|
|
2,210
|
|
|
|
48,257
|
|
|
|
50,467
|
|
|
|
—
|
|
Non-residential real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
2,372
|
|
|
|
2,372
|
|
|
|
79,613
|
|
|
|
81,985
|
|
|
|
—
|
|
Construction loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,568
|
|
|
|
6,568
|
|
|
|
—
|
|
Commercial and industrial loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,345
|
|
|
|
31,345
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
161
|
|
|
|
161
|
|
|
|
—
|
|
Total loans
|
|
$
|
—
|
|
|
$
|
2,210
|
|
|
$
|
2,372
|
|
|
$
|
4,582
|
|
|
$
|
366,619
|
|
|
$
|
371,201
|
|
|
$
|
—
|
|
The following tables provide certain
information related to the credit quality of the loan portfolio.
Credit Risk Profile by Internally Assigned Grade at March 31,
2014 (in thousands)
|
|
Residential
Real Estate
|
|
|
Non-residential
Real Estate
|
|
|
Construction
|
|
|
Commercial
and Industrial
|
|
|
Consumer
|
|
|
Total
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
258,413
|
|
|
$
|
69,787
|
|
|
$
|
14,226
|
|
|
$
|
25,157
|
|
|
$
|
153
|
|
|
$
|
367,736
|
|
Special Mention
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,541
|
|
|
|
—
|
|
|
|
5,541
|
|
Substandard
|
|
|
2,226
|
|
|
|
10,432
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,658
|
|
Total
|
|
$
|
260,639
|
|
|
$
|
80,219
|
|
|
$
|
14,226
|
|
|
$
|
30,698
|
|
|
$
|
153
|
|
|
$
|
385,935
|
|
NOTE 7 – LOANS RECEIVABLE
AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
Credit Risk Profile by Internally Assigned Grade at December
31, 2013 (in thousands)
|
|
Residential
Real Estate
|
|
|
Non-residential
Real Estate
|
|
|
Construction
|
|
|
Commercial
and Industrial
|
|
|
Consumer
|
|
|
Total
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
248,932
|
|
|
$
|
71,659
|
|
|
$
|
6,568
|
|
|
$
|
25,733
|
|
|
$
|
161
|
|
|
$
|
353,053
|
|
Special Mention
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,612
|
|
|
|
—
|
|
|
|
5,612
|
|
Substandard
|
|
|
2,210
|
|
|
|
10,326
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,536
|
|
Total
|
|
$
|
251,142
|
|
|
$
|
81,985
|
|
|
$
|
6,568
|
|
|
$
|
31,345
|
|
|
$
|
161
|
|
|
$
|
371,201
|
|
The following table sets forth the composition of our nonaccrual
loans at the dates indicated.
Loans Receivable on Nonaccrual Status as of March 31, 2014 and
December 31, 2013 (in thousands)
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
2,226
|
|
|
$
|
2,210
|
|
Non-residential real estate
|
|
|
2,418
|
|
|
|
2,372
|
|
Commercial and industrial loans
|
|
|
81
|
|
|
|
84
|
|
Total
|
|
$
|
4,725
|
|
|
$
|
4,666
|
|
There were no loans modified that were deemed
troubled debt restructurings during the three months ended March 31, 2014 and March 31, 2013. As of March 31, 2014, none of the
loans that were modified during the previous twelve months had defaulted in the three month period ended March 31, 2014. As of
March 31, 2013, none of the loans that were modified during the previous twelve months had defaulted in the three month period
ended March 31, 2013.
NOTE 8 – EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In July 2013, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2013-11,
Presentation
of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,
which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL)
carryforward, a similar tax loss, or a tax credit carryforward exists The FASB’s objective in issuing this ASU is to eliminate
diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with
unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting
date. For public entities, the guidance is effective for fiscal years beginning after December 15, 2013 and interim periods within
those years. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In January 2014, FASB issued
ASU 2014-04,
Receivables – Troubled Debt Restructurings by Creditors,
which claries that an in substance repossession
or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing
a consumer mortgage loans, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion
of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy
that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments
require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor
and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process
of foreclosure according to local requirements of the applicable jurisdiction. For public entities, the guidance is effective for
annual periods, and interim periods within those annual periods, beginning after December 15, 2014. We do not expect the adoption
of this guidance to have a material impact on our consolidated financial statements.
NOTE 9 – DIVIDEND RESTRICTION
NorthEast Community Bancorp
MHC (the “MHC”) held 7,273,750 shares, or 58.4%, of the Company’s issued and outstanding common stock, and the
minority public shareholders held 41.6% of outstanding stock, at March 31, 2014. The MHC filed notice with, and received approval
from, the Federal Reserve Bank of Philadelphia to waive its right to receive cash dividends for the period from November 13, 2013
through November 12, 2014.
NOTE 9 – DIVIDEND RESTRICTION (Continued)
The MHC has waived receipt
of all past dividends paid by the Company through March 31, 2014, with the exception of the dividend for the quarter ended June
30, 2012. Because the MHC determined not to waive receipt of the dividend for the quarter ended June 30, 2012, the MHC received
$218,000 in dividends in August 2012. The dividends waived are considered as a restriction on the retained earnings of the Company.
As of March 31, 2014 and December 31, 2013, the aggregate retained earnings restricted for cash dividends waived were $5,455,000
and $5,237,000, respectively.
NOTE 10 – RECLASSIFICATION OUT OF
ACCUMULATED OTHER COMPREHENSIVE INCOME
Details about Accumulated Other Comprehensive
Income Components
|
|
Amount Reclassified from
Accumulated Other
Comprehensive Loss
|
|
|
|
Affected Line Item in the
Consolidated Statements of
Comprehensive Income (Loss)
|
|
|
March 31, 2014
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
Amortization of defined benefit pension items:
|
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
6
|
|
(1)
|
|
Salary and employee benefits
|
Actuarial loss
|
|
|
(1
|
)
|
(1)
|
|
Salary and employee benefits
|
|
|
|
5
|
|
|
|
Total before tax
|
|
|
|
(1
|
)
|
|
|
Income tax benefit
|
Total reclassifications for the period
|
|
$
|
4
|
|
|
|
Net of tax
|
|
(1)
|
These accumulated other comprehensive income components are included in the computation of net
periodic pension cost.
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
FORWARD-LOOKING STATEMENTS
This quarterly report contains
forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company.
These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,”
“anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to
predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material
adverse effect on the operations of the Company include, but are not limited to, changes in interest rates, national and regional
economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for
loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate
market values in the Company’s market area, and changes in relevant accounting principles and guidelines. Additional factors
that may affect the Company’s results are discussed in the Company’s Annual Report on Form 10-K under “Item 1A.
Risk Factors.” These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and
specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking
statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated
events.
CRITICAL ACCOUNTING POLICIES
We consider accounting
policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying
value of certain assets or on income to be critical accounting policies. We consider the allowance for loan losses to be a critical
accounting policy.
Allowance for Loan
Losses.
The allowance for loan losses is the amount estimated by management as necessary to cover probable credit losses
in the loan portfolio at the statement of financial condition date. The allowance is established through the provision for loan
losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree
of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing
of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements
of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on
a quarterly basis and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience,
current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we
use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary
if economic conditions differ substantially from the assumptions used in making the evaluation.
Due to the conversion of
the Bank to a New York State-chartered savings bank on June 29, 2012, the Federal Deposit Insurance Corporation (“FDIC”)
and the New York State Department of Financial Services (“NYS”) are now the Bank’s primary regulators. As such,
the FDIC and NYS, as an integral part of their examination process, periodically review our allowance for loan losses. The FDIC
and NYS could require us to recognize adjustments to the allowance based on their judgments about information available to them
at the time of their examinations. A large loss or a series of losses could deplete the allowance and require increased provisions
to replenish the allowance, which would negatively affect earnings. For additional discussion, see Note 1 to the consolidated financial
statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
Intangibles –
Goodwill and Other.
Accounting Standard Codification (ASC) Topic 350,
Intangibles – Goodwill and Other,
requires
that goodwill is not amortized to expense, but rather that it be assessed or tested for impairment at least annually. Impairment
write-downs are charged to results of operations in the period in which the impairment is determined. If certain events occur which
might indicate goodwill has been impaired, the goodwill is tested for impairment when such events occur. The Company recorded goodwill
of $1.3 million in connection with the Hayden Financial Group acquisition in 2007. Other acquired intangible assets with finite
lives, such as customer lists, are required to be amortized over the estimated lives. These intangibles are generally amortized
using the straight line method over the estimated useful lives of ten years.
No impairment charges were
recorded for the quarters ended March 31, 2014 and March 31, 2013.
First Quarter Performance Highlights
The Company’s earnings
for the quarter ended March 31, 2014 increased by $8,000 compared to the same period in 2013 primarily due to an increase in net
interest income and a decrease in non-interest expense, partially offset by a decrease in non-interest expense and an increase
in provision for income taxes. The Company had no provision for loan losses during the March 31, 2014 quarter compared to $60,000
in provision for loan losses during the March 31, 2013 quarter.
Non-performing loans
increased slightly by $59,000, or 1.3%, to $4.73 million as of March 31, 2014 from $4.67 million as of December 31, 2013. The
increase in non-performing loans was primarily due to real estate taxes and similar items paid by the Company to protect the
collateral position of the Company with respect to such loans. These expenditures for real estate taxes and similar items
typically resulted in either a decrease in the escrow balances or negative escrow balances for the borrowers. Because the
borrowers are obligated to pay for real estate taxes and similar items pursuant to the terms of the mortgage, the Company
deemed these expenditures as additional balances due from the borrowers.
Our interest rate spread
decreased to 3.59% for the three months ended March 31, 2014 from 3.72% for the three months ended March 31, 2013 and our net interest
margin decreased to 3.81% for the three months ended March 31, 2014 from 3.97% for the three months ended March 31, 2013.
Our loans receivable, net,
increased by $14.5 million, or 4.0%, to $382.4 million as of March 31, 2014 due primarily to increases of $7.7 million in construction
mortgage loans, $6.9 million in multi-family mortgage loans, and $2.0 million in mixed-use mortgage loans, offset by decreases
of $1.8 million in non-residential mortgage loans, $647,000 in commercial and industrial loans, and $8,000 in consumer loans.
Comparison of Financial Condition at March 31, 2014 and December
31, 2013
Total assets increased
by $5.9 million, or 1.3%, to $464.1 million at March 31, 2014 from $458.2 million at December 31, 2013. The increase in total assets
was due primarily to increases of $14.5 million in loans receivable, net, $171,000 in accrued interest receivable, and $153,000
in bank owned life insurance, offset by decreases of $6.2 million in cash and cash equivalents, $2.2 million in other assets, $481,000
in securities held-to-maturity, and $132,000 in premises and equipment. The increase in total assets was funded primarily from
increases of $6.3 million in deposits and $484,000 in advance payments by borrowers for taxes and insurance, partially offset by
a decrease of $187,000 in other liabilities.
Loans receivable, net,
increased by $14.5 million, or 4.0%, to $382.4 million at March 31, 2014 from $367.8 million at December 31, 2013 due primarily
to loan originations totaling $34.1 million which exceeded loan repayments and charge-offs totaling $19.6 million. The increase
in the mortgage loan portfolio was due to increases of $7.7 million, or 116.6%, in the construction mortgage loan portfolio to
$14.2 million at March 31, 2014 from $6.6 million at December 31, 2013, $6.9 million, or 3.7%, in the multi-family mortgage loan
portfolio to $195.9 million at March 31, 2014 from $188.9 million at December 31, 2013, and $2.0 million, or 4.0%, in the mixed-use
mortgage loan portfolio to $52.5 million at March 31, 2014 from $50.5 million at December 31, 2013, offset by decreases of $1.8
million, or 2.2%, in the non-residential mortgage loan portfolio to $80.2 million at March 31, 2014 from $82.0 million at December
31, 2013, $647,000, or 2.1%, in the commercial and industrial loan portfolio to $30.7 million at March 31, 2014 from $31.3 million
at December 31, 2013, and $8,000, or 5.0%, in the consumer loan portfolio to $153,000 at March 31, 2014 from $161,000 at December
31, 2013.
Accrued interest receivable
increased by $171,000, or 13.5%, to $1.44 million at March 31, 2014 from $1.27 million at December 31, 2013 due primarily to an
increase in the mortgage loan portfolio. Bank owned life insurance increased by $153,000, or 0.7%, to $20.6 million at March 31,
2014 from $20.5 million at December 31, 2013 due to accrued earnings during 2014.
Cash and cash equivalents
decreased by $6.2 million, or 19.7%, to $25.3 million at March 31, 2014 from $31.5 million at December 31, 2013 due primarily to
the above mentioned increase in loans receivable. Securities held-to-maturity decreased by $481,000, or 5.7%, to $8.0 million at
March 31, 2014 from $8.4 million at December 31, 2013 due primarily to repayments of $491,000.
Premises and equipment
decreased by $132,000, or 1.1%, to $12.1 million at March 31, 2014 from $12.2 million at December 31, 2013 due primarily to depreciation.
Other assets decreased by $2.2 million, or 28.8%, to $5.3 million at March 31, 2014 from $7.5 million at December 31, 2013 due
to a $1.9 million income tax refund from the Internal Revenue Service that reduced current tax assets.
Deposits increased by $6.3
million, or 1.9%, to $331.5 million at March 31, 2014 from $325.2 million at December 31, 2013. The increase in deposits was primarily
attributable to increases of $9.4 million in certificates of deposits, $1.8 million in NOW and money market accounts, and $1.3
million in regular savings accounts, partially offset by a decrease of $6.2 million in non-interest bearing accounts. The increase
in certificates of deposits was due to non-broker certificates of deposits gathered through a nationwide certificate of deposit
listing service from banks and credit unions in amounts greater than $75,000 and less than $250,000. In this regard, we obtained
$9.4 million in non-broker certificates of deposits since December 31, 2013. The increase in deposits was primarily attributable
to efforts by the Company to increase liquidity, fund loan originations, and increase reliance on long term certificates of deposits.
Advance payments by borrowers
for taxes and insurance increased by $484,000, or 12.1%, to $4.5 million at March 31, 2014 from $4.0 million at December 31, 2013
due primarily to an increase in the mortgage loan portfolio.
Stockholders’ equity
decreased by $705,000, or 0.7%, to $103.5 million at March 31, 2014, from $104.2 million at December 31, 2013. This decrease was
primarily the result of stock repurchases of $833,000 and cash dividends declared of $146,000, partially offset by comprehensive
income of $227,000 and the amortization of $47,000 for the ESOP for the period.
Comparison of Operating Results for the Three Months Ended March
31, 2014 and 2013
General.
Net income increased by $8,000, or 3.9%, to $215,000 for the quarter ended March 31, 2014 from net income
of $207,000 for the quarter ended March 31, 2013. The increase was primarily the result of an increase of $30,000 in net
interest income, no provision for loan losses during the 2014 period compared to a provision for loan losses of $60,000 for
the comparable 2013 period and a decrease of $47,000 in non-interest expenses, offset by a decrease of $91,000 in
non-interest income and an increase of $38,000 in income taxes.
Net
Interest Income.
Net interest income increased by $30,000, or 0.8%, to $3.95 million for the three months ended
March 31, 2014 from $3.92 million for the three months ended March 31, 2013. The increase in net interest income resulted primarily
from an increase of $20,000 in interest income coupled with a decrease of $10,000 in interest expense.
The net interest spread
decreased by 13 basis points to 3.59% for the three months ended March 31, 2014 from 3.72% for the three months ended March 31,
2013. The net interest margin decreased by 16 basis points between these periods from 3.97% for the quarter ended March 31, 2013
to 3.81% for the quarter ended March 31, 2014. The decrease in the interest rate spread and the net interest margin in the first
quarter of 2014 compared to the same period in 2013 was due to a decrease in the yield on our interest-earning assets, offset by
a decrease in the cost of our interest-bearing liabilities.
The average yield on our
interest-earning assets decreased by 21 basis points to 4.60% for the three months ended March 31, 2014 from 4.81% for the three
months ended March 31, 2013 and the cost of our interest-bearing liabilities decreased by 8 basis points to 1.01% for the three
months ended March 31, 2014 from 1.09% for the three months ended March 31, 2013. The decrease in the yield on our interest-earning
assets was due to decreases in the yield on loans receivable and securities, offset by an increase in the yield on other interest-earning
assets. The decrease in the cost of our interest-bearing liabilities was due to a decrease in the cost of borrowed money.
The following table summarizes
average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three months
ended March 31, 2014 and 2013.
|
|
Three Months Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Dividends
|
|
|
Cost
|
|
|
Balance
|
|
|
Dividends
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
377,558
|
|
|
$
|
4,691
|
|
|
|
4.97
|
%
|
|
$
|
344,597
|
|
|
$
|
4,646
|
|
|
|
5.39
|
%
|
Securities (including FHLB stock)
|
|
|
9,988
|
|
|
|
73
|
|
|
|
2.92
|
|
|
|
12,993
|
|
|
|
99
|
|
|
|
3.05
|
|
Other interest-earning assets
|
|
|
26,751
|
|
|
|
4
|
|
|
|
0.06
|
|
|
|
37,494
|
|
|
|
3
|
|
|
|
0.03
|
|
Total interest-earning assets
|
|
|
414,297
|
|
|
|
4,768
|
|
|
|
4.60
|
|
|
|
395,084
|
|
|
|
4,748
|
|
|
|
4.81
|
|
Allowance for loan losses
|
|
|
(4,129
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,323
|
)
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
49,363
|
|
|
|
|
|
|
|
|
|
|
|
49,922
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
459,531
|
|
|
|
|
|
|
|
|
|
|
$
|
440,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
|
|
$
|
63,210
|
|
|
$
|
55
|
|
|
|
0.35
|
%
|
|
$
|
61,857
|
|
|
$
|
50
|
|
|
|
0.32
|
%
|
Savings and club accounts
|
|
|
85,383
|
|
|
|
115
|
|
|
|
0.54
|
|
|
|
83,241
|
|
|
|
109
|
|
|
|
0.52
|
|
Certificates of deposit
|
|
|
155,010
|
|
|
|
584
|
|
|
|
1.51
|
|
|
|
148,011
|
|
|
|
569
|
|
|
|
1.54
|
|
Total interest-bearing deposits
|
|
|
303,603
|
|
|
|
754
|
|
|
|
0.99
|
|
|
|
293,109
|
|
|
|
728
|
|
|
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
21,000
|
|
|
|
65
|
|
|
|
1.24
|
|
|
|
11,278
|
|
|
|
101
|
|
|
|
3.58
|
|
Total interest-bearing liabilities
|
|
|
324,603
|
|
|
|
819
|
|
|
|
1.01
|
|
|
|
304,387
|
|
|
|
829
|
|
|
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand
|
|
|
23,262
|
|
|
|
|
|
|
|
|
|
|
|
23,667
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
7,742
|
|
|
|
|
|
|
|
|
|
|
|
7,132
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
355,607
|
|
|
|
|
|
|
|
|
|
|
|
335,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
103,924
|
|
|
|
|
|
|
|
|
|
|
|
105,497
|
|
|
|
|
|
|
|
|
|
Total liabilities and Stockholders' equity
|
|
$
|
459,531
|
|
|
|
|
|
|
|
|
|
|
$
|
440,683
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
3,949
|
|
|
|
|
|
|
|
|
|
|
$
|
3,919
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.59
|
%
|
|
|
|
|
|
|
|
|
|
|
3.72
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.81
|
%
|
|
|
|
|
|
|
|
|
|
|
3.97
|
%
|
Net interest-earning assets
|
|
$
|
89,694
|
|
|
|
|
|
|
|
|
|
|
$
|
90,697
|
|
|
|
|
|
|
|
|
|
Interest-earning assets to interest-bearing liabilities
|
|
|
127.63
|
%
|
|
|
|
|
|
|
|
|
|
|
129.80
|
%
|
|
|
|
|
|
|
|
|
Total interest income increased
by $20,000, or 0.4%, to $4.77 million for the three months ended March 31, 2014 from $4.75 million for the three months ended March
31, 2013. Interest income on loans increased by $45,000, or 1.0%, to $4.70 million for the three months ended March 31, 2014 from
$4.65 million for the three months ended March 31, 2013. The increase was primarily the result of an increase of $33.0 million,
or 9.6%, in the average balance of the loan portfolio to $377.6 million for the three months ended March 31, 2014 from $344.6 million
for the three months ended March 31, 2013 as originations outpaced repayments and charge-offs, net of recoveries. The increase
in the average balance of the loan portfolio was offset by a decrease of 42 basis points in the average yield on loans to 4.97%
for the three months ended March 31, 2014 from 5.39% for the three months ended March 31, 2013. The decrease in the average yield
on loans was due to the pay-off of numerous higher yielding mortgage loans and the refinancing and/or re-pricing to lower interest
rates of numerous mortgage loans in our loan portfolio.
Interest income on securities
decreased by $26,000, or 26.3%, to $73,000 for the three months ended March 31, 2014 from $99,000 for the three months ended March
31, 2013. The decrease was primarily due to a decrease of $3.0 million, or 23.1%, in the average balance of securities to $10.0
million for the three months ended March 31, 2014 from $13.0 million for the three months ended March 31, 2013. The decrease in
the average balance was due to the principal repayments on investment securities, offset by an increase in FHLB New York stock.
The decrease in interest income on securities was also due to a decrease of 13 basis points in the average yield on securities
to 2.92% for the three months ended March 31, 2014 from 3.05% for the three months ended March 31, 2013. The decline in the yield
was due to the re-pricing of the yield of our adjustable rate investment securities.
Interest income on other
interest-earning assets (consisting solely of interest-earning deposits) increased by $1,000, or 33.3% to $4,000 for the three
months ended March 31, 2014 from $3,000 for the three months ended March 31, 2013. The increase was primarily due to an increase
of 3 basis points in the average yield on other interest-earning assets to 0.06% for the three months ended March 31, 2014 from
0.03% for the three months ended March 31, 2013, offset by a decrease of $10.7 million, or 28.7%, in the average balance of interest-earning
assets to $26.8 million for the three months ended March 31, 2014 from $37.5 million for the three months ended March 31, 2013.
The increase in interest income on interest-earnings deposits was due to an increase in the average balance of higher yielding
certificates of deposits at other financial institutions, offset by a decrease in the average balance of interest-earning deposits
maintained at the FHLB and Federal Reserve Bank of New York.
Total interest expense
decreased by $10,000, or 1.2%, to $819,000 for the three months ended March 31, 2014 from $829,000 for the three months ended March
31, 2013. The average cost of interest-bearing deposits remained the same at 0.99% for the three months ended March 31, 2014 and
March 31, 2013.
Interest expense on deposits
increased by $26,000, or 3.6%, to $754,000 for the three months ended March 31, 2014 from $728,000 for the three months ended March
31, 2013. The increase in the interest expense on deposits was a result of an increase of $10.5 million, or 3.6%, in the average
balance of interest bearing deposits to $303.6 million for the three months ended March 31, 2014 from $293.1 million for the three
months ended March 31, 2013.
The interest expense of
our interest-bearing demand deposits increased by $5,000, or 10.0%, to $55,000 for the three months ended March 31, 2014 from $50,000
for the three months ended March 31, 2013. The increase in interest expense in our interest-bearing demand deposits was due to
an increase of $1.4 million, or 2.2%, in the average balance of our interest-bearing demand deposits to $63.2 million for the three
months ended March 31, 2014 from $61.9 million for the three months ended March 31, 2013. The increase in interest expense in our
interest-bearing demand deposits was also due to a 3 basis point increase in the average interest cost to 0.35% for the three months
ended March 31, 2014 from 0.32% for the three months ended March 31, 2013 as we offered competitive interest rates to generate
deposits.
The interest expense of
our interest-bearing savings and club deposits increased by $6,000, or 5.5%, to $115,000 for the three months ended March 31, 2014
from $109,000 for the three months ended March 31, 2013. The increase in interest expense in our interest-bearing savings and club
deposits was due to an increase of $2.1 million, or 2.6%, in the average balance of our interest-bearing savings and club deposits
to $85.4 million for the three months ended March 31, 2014 from $83.2 million for the three months ended March 31, 2013. The increase
in interest expense in our interest-bearing savings and club deposits was also due to a 2 basis point increase in the average interest
cost to 0.54% for the three months ended March 31, 2014 from 0.52% for the three months ended March 31, 2013 as we offered competitive
interest rates to generate deposits.
The interest expense
of our interest-bearing certificates of deposit increased by $15,000, or 2.6%, to $584,000 for the three months ended March
31, 2014 from $569,000 for the three months ended March 31, 2013. The increase in interest expense in our interest-bearing
certificates of deposit was due to an increase of $7.0 million, or 4.7%, in the average balance of our interest-bearing
certificates of deposit to $155.0 million for the three months ended March 31, 2014 from $148.0 million for the three months
ended March 31, 2013. The increase in our interest-bearing certificates was due to the offering of competitive interest rates
to generate deposits through a nationwide certificate of deposit listing service. The increase in interest expense of our
interest-bearing certificates of deposit was offset by a 3 basis point decrease in the average interest cost on such
certificates to 1.51% for the three months ended March 31, 2014 from 1.54% for the three months ended March 31, 2014. The
decrease in the average interest cost of our interest-bearing certificates of deposits was due to the re-pricing of maturing
certificates of deposits and the acquisition of competitively priced interest-bearing certificates of deposits through a
non-broker nationwide certificate of deposit listing service.
Interest expense on borrowings
decreased by $36,000, or 35.6%, to $65,000 for the three months ended March 31, 2014 from $101,000 for the three months ended
March 31, 2013. The decrease in interest expense on borrowings was due to a decrease of 234 basis points in the cost of borrowed
money to 1.24% for the three months ended March 31, 2014 from 3.58% for the three months ended March 31, 2013 due primarily to
the maturity and repayment of higher costing FHLB advances during the quarter ended March 31, 2013 and new borrowings during December
2013 at lower cost. The decrease in interest expense on borrowings was partially offset by an increase of $9.7 million, or 86.2%,
in the average balance of borrowed money to $21.0 million for the three months ended March 31, 2014 from $11.3 million for the
three months ended March 31, 2013.
Provision
for Loan Losses.
The following table summarizes the activity in the allowance for loan losses and provision for
loan losses for the three months ended March 31, 2014 and 2013.
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Allowance at beginning of period
|
|
$
|
4,015
|
|
|
$
|
4,646
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
60
|
|
Charge-offs
|
|
|
(34
|
)
|
|
|
—
|
|
Recoveries
|
|
|
224
|
|
|
|
—
|
|
Net charge-offs
|
|
|
190
|
|
|
|
—
|
|
Allowance at end of period
|
|
$
|
4,205
|
|
|
$
|
4,706
|
|
|
|
|
|
|
|
|
|
|
Allowance to non-performing loans
|
|
|
88.99
|
%
|
|
|
59.51
|
%
|
Allowance to total loans outstanding at the end of the period
|
|
|
1.09
|
%
|
|
|
1.35
|
%
|
Net charge-offs (recoveries) to average loans outstanding during the period
|
|
|
(0.05
|
)%
|
|
|
0.00
|
%
|
The allowance to non-performing
loans ratio increased to 88.99% at March 31, 2014 from 59.51% at March 31, 2013 due primarily to a decrease in non-performing loans
to $4.7 million at March 31, 2014 from $7.9 million at March 31, 2013. The decrease in non-performing loans was due to the identification,
monitoring and resolution of several non-performing loans that were paid-off or became performing as of, or prior to, March 31,
2014.
The allowance for loan
losses was $4.20 million at March 31, 2014, $4.02 million at December 31, 2013, and $4.71 million at March 31, 2013. The increase
in the allowance for loan losses was due to recoveries of $224,000, offset by charge-offs of $34,000 during the three months ended
March 31, 2014.
We had no provision
for loan losses for the three month period ended March 31, 2014 compared to a provision for loan losses of $60,000 for the
three month period ended March 31, 2013. The reduction in the provision for loan losses was due to improvements in the credit
quality of the Company’s loan portfolio and the Company’s assessment that the level of allowance for loan losses
was adequate due to improvements in the economy and the multi-family, mixed-use and non-residential real estate market.
We had charge-offs of $34,000
during the three months ended March 31, 2014 compared to no charge-offs during the three months ended March 31, 2013. We recorded
recoveries of $224,000 during the three months ended March 31, 2014 compared to no recoveries during the three months ended March
31, 2013.
Non-interest Income.
Non-interest income decreased by $91,000, or 16.3%, to $467,000 for the three months ended March 31, 2014 from $558,000 for the
three months ended March 31, 2013. The decrease was primarily due to decreases of $113,000 in other loan fees and service charges
and $4,000 in earnings on bank owned life insurance, offset by a $26,000 increase in fee income generated by our wealth management
division. The decrease in loan fees and service charges was primarily due to a decrease of $67,000 in mortgage broker fee income
and $51,000 in loan fees. The decrease in mortgage broker fee income was due to the elimination in January 2013 of the one-to-four
family residential mortgage loan brokerage department and the termination of the related staff. The decrease in loan fees was due
to a reduction in loan fee income on loans closed. The increase in fee income from our wealth management division was due to an
increase in assets under management.
Non-interest Expense.
Non-interest expense decreased by $47,000, or 1.1%, to $4.14 million for the three months ended March 31, 2014 from $4.19 million
for the three months ended March 31, 2013. The decrease resulted primarily from decreases of $88,000 in salaries and employee benefits,
$29,000 in other non-interest expense, $22,000 in equipment expense, $22,000 in outside data processing expense, and $11,000 in
real estate owned expenses, partially offset by increases of $97,000 in FDIC insurance expense and $27,000 in occupancy expense.
Salaries and employee benefits,
which represented 54.5% of the Company’s non-interest expense during the quarter ended March 31, 2014, decreased by $88,000,
or 3.8%, to $2.26 million in 2014 from $2.35 million in 2013 due to a decrease in the number of full time equivalent employees
to 102 at March 31, 2014 from 104 at March 31, 2013. The decrease in full time employees was due to the Company’s efforts
to control the increase in salaries and employee benefits by reducing staff in various departments, including the mortgage brokerage
department, the wealth management department, and branch operations from March 31, 2013 to March 31, 2014.
Other
non-interest expense decreased by $29,000, or 3.3%, to $839,000 in 2014 from $868,000 in 2013 due mainly to decreases of
$116,000 in legal fees, $14,000 in directors’ compensation, and $6,000 in directors, officers and employee expenses,
offset by increases of $37,000 in audit and accounting fees, $36,000 in telephone expenses, $19,000 in service contracts,
$10,000 in miscellaneous other non-interest expenses, and $7,000 in insurance expenses. The decrease in legal fees from the
quarter ended March 31, 2013 to the quarter ended March 31, 2014 was due primarily to the Company’s decision to
capitalize certain legal fees.
Equipment expense
decreased by $22,000, or 12.2%, to $159,000 in 2014 from $181,000 in 2013 due to decreases in the purchases of additional
equipment and continued efforts to contain expenses. Outside data processing expense decreased by $22,000, or 8.0%,
to $254,000 in 2014 from $276,000 in 2013 due to a reduction in one-time fees for new services from the Company’s
data processing vendors. Real estate owned expense decreased by $11,000 due to operating expenses related to one
foreclosed property totaling $4.0 million as of March 31, 2014 compared to two foreclosed properties totaling $4.3 million as
of March 31, 2013.
FDIC insurance expense
increased by $97,000, or 323.3%, to $127,000 in 2014 from $30,000 in 2013 due to an increase in the Company’s quarterly assessment
multiplier and a reduction in the FDIC insurance expense during the March 31, 2013 quarter due to an adjustment to the FDIC prepaid
assessment amount, offset by a decrease in the Company’s assessment base from 2013 to 2014. Occupancy expense increased by
$27,000, or 6.9%, to $421,000 in 2014 from $394,000 in 2013 due to the addition of the Rockland County, New York loan production
office in January 2014.
Income Taxes
.
Income tax expense increased by $38,000, or 200.0%, to $57,000 for the three months ended March 31, 2014 from $19,000 for the
three months ended March 31, 2013. The increase resulted primarily from a $46,000 increase in pre-tax income in 2014 compared to
2013. The effective tax rate was 21.0% for the three months ended March 31, 2014 and 8.4% for the three months ended March 31,
2013. The increase in the effective tax rate between periods was due to a higher percentage of our pre-tax income being tax-exempt,
specifically the earnings on bank-owned life insurance, in 2013 compared to 2014.
NON PERFORMING ASSETS
The following table provides information with
respect to our non-performing assets at the dates indicated.
|
|
At
|
|
|
At
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Non-accrual loans
|
|
$
|
4,725
|
|
|
$
|
4,666
|
|
Loans past due 90 days or more and accruing
|
|
|
—
|
|
|
|
—
|
|
Total non-performing loans
|
|
|
4,725
|
|
|
|
4,666
|
|
Real estate owned
|
|
|
3,996
|
|
|
|
3,985
|
|
Total non-performing assets
|
|
|
8,721
|
|
|
|
8,651
|
|
|
|
|
|
|
|
|
|
|
Accruing troubled debt restructurings
|
|
|
15,593
|
|
|
|
15,535
|
|
Nonaccrual troubled debt restructurings
|
|
|
1,306
|
|
|
|
1,269
|
|
Total troubled debt restructurings
|
|
|
16,899
|
|
|
|
16,804
|
|
Less nonaccrual troubled debt restructurings in total nonaccrual loans
|
|
|
1,306
|
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings and non-performing assets
|
|
$
|
24,314
|
|
|
$
|
24,186
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total loans
|
|
|
1.22
|
%
|
|
|
1.26
|
%
|
Total non-performing assets to total assets
|
|
|
1.88
|
%
|
|
|
1.89
|
%
|
Total non-performing assets and troubled debt restructuring to total assets
|
|
|
5.24
|
%
|
|
|
5.28
|
%
|
The non-accrual loans at
March 31, 2014 consisted of seven loans in the aggregate, comprised of one mixed-use mortgage loan, four non-residential mortgage
loans, and two commercial and industrial loans.
Non-performing loans increased
by $59,000, or 1.3%, to $4.73 million at March 31, 2014 from $4.67 million at December 31, 2013. The increase in non-performing
loans was due to real estate taxes and similar items paid to protect the collateral position of the Company, offset by a charge-off
of $34,000 for one non-residential mortgage loan. These expenditures for real estate taxes and similar items typically resulted
in either a decrease in the escrow balances or negative escrow balances for the borrowers. Because the borrowers are obligated
to pay for real estate taxes and similar items pursuant to the terms of the mortgage, the Company deemed these expenditures as
additional balances due from the borrowers.
The one non-accrual mixed-use
mortgage loan totaled $2.2 million at March 31, 2014, and was secured by three separate buildings with 25 apartment units
and office spaces. We classified this loan as substandard. The Court has appointed a receiver who is currently managing the property
and a forensic accountant who is reviewing the books and records of the borrowing entity and managing partner. The receiver is
currently marketing the property for sale.
The four non-accrual non-residential
mortgage loans totaled $2.4 million at March 31, 2014 and consisted primarily of the following mortgage loans:
|
(1)
|
An outstanding balance of $859,000, net of a charge-off of $371,000, secured by a gasoline service
station and car wash. We classified this loan as substandard. The Company has commenced a foreclosure action and has applied to
the Court to appoint a receiver. We are evaluating the options available to us with respect to this property.
|
|
(2)
|
An outstanding balance of $775,000, net of a charge-off of $269,000, secured by a medical office
building. We classified this loan as substandard. The Company has commenced a foreclosure action and the Court has appointed a
receiver who is collecting rent and managing the building. The property was subsequently sold in a referee sale to an investor
on May 2, 2014. The sale is scheduled to be consummated on June 2, 2014.
|
|
(3)
|
An outstanding balance of $448,000, net of charge-offs of $400,000, secured by a strip shopping
center and warehouse. We classified this loan as substandard. The property was severely damaged by fire and the Company and borrower
are currently suing the insurance company and the borrower’s insurance agent as part of the Company’s collection efforts.
The borrower is making monthly escrow payments.
|
|
(4)
|
An outstanding balance of $336,000, secured by a building housing auto repair and auto rental facilities.
We classified this loan as substandard. The Company has commenced a foreclosure action, but the borrower filed for bankruptcy protection
on March 18, 2014. We are evaluating the options currently available to us.
|
Based on current appraisals
and/or fair value analyses of these properties, the Company does not anticipate any losses beyond the amounts already charged off.
At March 31, 2014, we owned
one foreclosed property with a net balance of $4.0 million consisting of an office building located in New Jersey. The Company’s
managing agent is operating and marketing the building for additional tenants and sale.
TROUBLED DEBT RESTRUCTURED LOANS
There were no loans modified
that were deemed troubled debt restructurings during the three months ended March 31, 2014. As of March 31, 2014, none of the loans
that were modified during the previous twelve months had defaulted in the twelve month period ended March 31, 2014.
The following tables show the activity in troubled
debt restructured loans for the period indicated:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Nonresidential
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Industrial
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
6,419
|
|
|
$
|
10,385
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,804
|
|
Additions
|
|
|
11
|
|
|
|
61
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72
|
|
Repayments
|
|
|
(15
|
)
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21
|
)
|
Amortization of TDR reserves
|
|
|
7
|
|
|
|
37
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44
|
|
Balance - March 31, 2014
|
|
$
|
6,422
|
|
|
$
|
10,477
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,899
|
|
Related allowance
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
There were no charge-offs
of loans classified as troubled debt restructurings in the three months ended March 31, 2014. Additions for the period consist
of the aforementioned four mortgage loans that were modified, real estate taxes and similar items paid to protect the collateral
position of the Company.
There were no loans modified
that were deemed troubled debt restructurings during the three months ended March 31, 2013. As of March 31, 2013, none of the loans
that were modified during the previous twelve months had defaulted in the twelve month period ended March 31, 2013.
The following tables show the activity in troubled
debt restructured loans for the period indicated:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Nonresidential
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Industrial
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
6,444
|
|
|
$
|
6,989
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,433
|
|
Additions
|
|
|
4
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
Repayments
|
|
|
(27
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(32
|
)
|
Amortization of TDR reserves
|
|
|
14
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
Balance - March 31, 2013
|
|
$
|
6,435
|
|
|
$
|
7,055
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,490
|
|
Related allowance
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
There were no charge offs
against loans classified as troubled debt restructurings in the three months ended March 31, 2013. Additions for the period consist
of four non-residential mortgage loans and one residential mortgage loans that were modified, real estate taxes and similar items
paid to protect the collateral position of the Company.
Liquidity Management
.
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds
consist of deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the Federal Home Loan Bank
of New York. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows
and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.
We regularly adjust our
investments in liquid assets based upon our assessment of: (1) expected loan demands; (2) expected deposit flows; (3) yields available
on interest-earning deposits and securities; and (4) the objectives of our asset/liability management policy.
Our most liquid assets
are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending, and investing activities
during any given period. Cash and cash equivalents totaled $25.3 million at March 31, 2014 and consisted primarily of interest-bearing
deposits at other financial institutions and miscellaneous cash items. The Company can also borrow an additional $68.5 million
from the FHLB of New York to provide additional liquidity.
At March 31, 2014, we had
$78.1 million in loan commitments outstanding, consisting of $33.3 million in unused commercial and industrial loan lines of credit,
$23.2 million of real estate loan commitments, $15.8 million in unused loans in process, $4.4 million in unused real estate equity
lines of credit, $1.2 million in commercial and industrial loan commitments, and $132,000 in consumer lines of credit. Certificates
of deposit due within one year of March 31, 2014 totaled $64.1 million. This represented 39.9% of certificates of deposit at March
31, 2014. We believe a large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy
to invest their funds for long periods in the current interest rate environment. If these maturing deposits do not remain with
us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market
conditions, we may be required to pay higher rates on such deposits or other borrowings than we paid on the certificates of deposit
due on or before March 31, 2014. We believe, however, based on past experience, a significant portion of our certificates of deposit
will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Our primary investing activities
are the origination of loans and the purchase of securities. Our primary financing activities consist of deposit accounts and FHLB
advances. At March 31, 2014, we had the ability to borrow $68.5 million, net of $21.0 million in outstanding advances, from the
FHLB of New York. At March 31, 2014, we had no overnight advances outstanding. Deposit flows are affected by the overall level
of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage
the pricing of our deposits to be competitive and to maintain or increase our core deposit relationships depending on our level
of real estate loan commitments outstanding. Occasionally, we offer promotional rates on certain deposit products to attract deposits
or to lengthen repricing time frames.
The Company is a separate
legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible
for paying any dividends declared to its shareholders and for the repurchase, if any, of its shares of common stock. At March 31,
2014, the Company had liquid assets of $12.3 million.
Capital Management.
The Bank is subject to various regulatory capital requirements administered by the FDIC, including a risk-based capital
measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets
by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2014, the Bank exceeded all
regulatory capital requirements. The Bank is considered “well capitalized” under regulatory guidelines.
Off-Balance Sheet
Arrangements.
In the normal course of operations, we engage in a variety of financial transactions that, in accordance
with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to
varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’
requests for funding and take the form of loan commitments, letters of credit and lines of credit.
For the three months
ended March 31, 2014 and the year ended December 31, 2013, we engaged in no off-balance sheet transactions reasonably likely
to have a material effect on our financial condition, results of operations or cash flows.