UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedJune 30, 20132014
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to _____________
Commission file number:0-51852
Northeast Community Bancorp, Inc.
(Exact name of registrant as specified in its charter)
United States of America | 06-1786701 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
325 Hamilton Avenue, White Plains, New York | 10601 | |
(Address of principal executive offices) | (Zip Code) |
(914) 684-2500
(914) 684-2500 |
(Registrant’s telephone number, including area code) |
N/A
(Former name, former address and former fiscal year, if changed since last report)
N/A |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesýx Noo¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesýx Noo¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer | Accelerated Filer |
Non-accelerated Filer | Smaller Reporting Company |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso¨ Noýx
As of August 9, 2013,8, 2014, there were 12,644,75212,376,202 shares of the registrant’s common stock outstanding.
NORTHEAST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
June 30, 2013 | December 31, 2012 | |||||||
(In thousands, except share and per share data) | ||||||||
ASSETS | ||||||||
Cash and amounts due from depository institutions | $ | 4,281 | $ | 2,821 | ||||
Interest-bearing deposits | 34,845 | 46,421 | ||||||
Cash and cash equivalents | 39,126 | 49,242 | ||||||
Certificates of deposit | 150 | 399 | ||||||
Securities available-for-sale | 123 | 129 | ||||||
Securities held-to-maturity (fair value of $10,429 and $12,561, respectively) | 10,013 | 11,987 | ||||||
Loans receivable, net of allowance for loan losses of $4,205 and $4,646, respectively | 332,856 | 333,787 | ||||||
Premises and equipment, net | 12,531 | 12,898 | ||||||
Federal Home Loan Bank of New York stock, at cost | 874 | 1,355 | ||||||
Bank owned life insurance | 20,171 | 19,852 | ||||||
Accrued interest receivable | 1,064 | 976 | ||||||
Goodwill | 749 | 1,083 | ||||||
Intangible assets | 375 | 406 | ||||||
Real estate owned | 3,821 | 4,271 | ||||||
Other assets | 7,011 | 7,839 | ||||||
Total assets | $ | 428,864 | $ | 444,224 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 20,925 | $ | 22,932 | ||||
Interest bearing | 291,560 | 295,188 | ||||||
Total deposits | 312,485 | 318,120 | ||||||
Advance payments by borrowers for taxes and insurance | 2,590 | 3,516 | ||||||
Federal Home Loan Bank advances | 5,000 | 15,000 | ||||||
Accounts payable and accrued expenses | 4,480 | 3,739 | ||||||
Total liabilities | 324,555 | 340,375 | ||||||
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; 12,644,752 shares outstanding at June 30, 2013 and December 31, 2012 | 132 | 132 | ||||||
Additional paid-in capital | 57,123 | 57,178 | ||||||
Unearned Employee Stock Ownership Plan (“ESOP”) shares | (3,240 | ) | (3,370 | ) | ||||
Retained earnings | 54,179 | 53,893 | ||||||
Treasury stock – at cost, 580,248 shares | (3,712 | ) | (3,712 | ) | ||||
Accumulated comprehensive loss | (173 | ) | (272 | ) | ||||
Total stockholders’ equity | 104,309 | 103,849 | ||||||
Total liabilities and stockholders’ equity | $ | 428,864 | $ | 444,224 |
June 30, | December 31, | |||||||
2014 | 2013 | |||||||
(In thousands, | ||||||||
except share and per share data) | ||||||||
ASSETS | ||||||||
Cash and amounts due from depository institutions | $ | 4,805 | $ | 3,794 | ||||
Interest-bearing deposits | 32,842 | 27,737 | ||||||
Cash and cash equivalents | 37,647 | 31,531 | ||||||
Certificates of deposit | 2,142 | 2,142 | ||||||
Securities available-for-sale | 90 | 113 | ||||||
Securities held-to-maturity (fair value of $7,795 and $8,739, respectively) | 7,506 | 8,444 | ||||||
Loans receivable, net of allowance for loan losses of $3,930 | 382,042 | 367,825 | ||||||
and $4,015, respectively | ||||||||
Premises and equipment, net | 11,931 | 12,234 | ||||||
Federal Home Loan Bank of New York stock, at cost | 1,627 | 1,594 | ||||||
Bank owned life insurance | 20,799 | 20,490 | ||||||
Accrued interest receivable | 1,456 | 1,267 | ||||||
Goodwill | 749 | 749 | ||||||
Intangible assets | 314 | 345 | ||||||
Other real estate owned | 4,014 | 3,985 | ||||||
Other assets | 5,087 | 7,506 | ||||||
Total assets | $ | 475,404 | $ | 458,225 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 28,278 | $ | 28,310 | ||||
Interest bearing | 315,284 | 296,899 | ||||||
Total deposits | 343,562 | 325,209 | ||||||
Advance payments by borrowers for taxes and insurance | 3,201 | 3,987 | ||||||
Federal Home Loan Bank advances | 20,934 | 21,000 | ||||||
Accounts payable and accrued expenses | 4,431 | 3,861 | ||||||
Total liabilities | 372,128 | 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: 12,376,202 and 12,566,952 shares, respectively | 132 | 132 | ||||||
Additional paid-in capital | 57,047 | 57,083 | ||||||
Unearned Employee Stock Ownership Plan (“ESOP”) shares | (2,981 | ) | (3,111 | ) | ||||
Retained earnings | 54,810 | 54,428 | ||||||
Treasury stock – at cost, 848,798 and 658,048 shares, respectively | (5,681 | ) | (4,291 | ) | ||||
Accumulated other comprehensive loss | (51 | ) | (73 | ) | ||||
Total stockholders’ equity | 103,276 | 104,168 | ||||||
Total liabilities and stockholders’ equity | $ | 475,404 | $ | 458,225 |
See Notes to Unaudited Consolidated Financial Statements
1 |
CONSOLIDATEDSTATEMENTS OF INCOME (UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | June 30, | June 30, | |||||||||||||||||||||||||||
(In thousands, except per share data) | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||||||||||||||||||
INTEREST INCOME: | ||||||||||||||||||||||||||||||||
Loans | $ | 4,677 | $ | 4,969 | $ | 9,323 | $ | 9,861 | $ | 4,789 | $ | 4,677 | $ | 9,480 | $ | 9,323 | ||||||||||||||||
Interest-earning deposits | 2 | 9 | 6 | 21 | 5 | 2 | 9 | 6 | ||||||||||||||||||||||||
Securities – taxable | 84 | 126 | 183 | 264 | 74 | 84 | 147 | 183 | ||||||||||||||||||||||||
Total Interest Income | 4,763 | 5,104 | 9,512 | 10,146 | 4,868 | 4,763 | 9,636 | 9,512 | ||||||||||||||||||||||||
INTEREST EXPENSE: | ||||||||||||||||||||||||||||||||
Deposits | 730 | 785 | 1,458 | 1,817 | 812 | 730 | 1,566 | 1,458 | ||||||||||||||||||||||||
Borrowings | 45 | 137 | 146 | 280 | 33 | 45 | 98 | 146 | ||||||||||||||||||||||||
Total Interest Expense | 775 | 922 | 1,604 | 2,097 | 845 | 775 | 1,664 | 1,604 | ||||||||||||||||||||||||
Net Interest Income | 3,988 | 4,182 | 7,908 | 8,049 | 4,023 | 3,988 | 7,972 | 7,908 | ||||||||||||||||||||||||
PROVISION (CREDIT) FOR LOAN LOSSES | (423 | ) | 117 | (363 | ) | 117 | (217 | ) | (423 | ) | (217 | ) | (363 | ) | ||||||||||||||||||
Net Interest Income after Provision (Credit) for Loan Losses | 4,411 | 4,065 | 8,271 | 7,932 | ||||||||||||||||||||||||||||
Net Interest Income after Provision | ||||||||||||||||||||||||||||||||
(Credit) for Loan Losses | 4,240 | 4,411 | 8,189 | 8,271 | ||||||||||||||||||||||||||||
NON-INTEREST INCOME: | ||||||||||||||||||||||||||||||||
Other loan fees and service charges | 122 | 233 | 340 | 423 | 130 | 122 | 236 | 340 | ||||||||||||||||||||||||
Gain (loss) on disposition of equipment | — | 3 | — | (9 | ) | |||||||||||||||||||||||||||
Earnings on bank owned life insurance | 162 | 143 | 319 | 286 | 155 | 162 | 308 | 319 | ||||||||||||||||||||||||
Investment advisory fees | 176 | 233 | 354 | 439 | 196 | 176 | 399 | 354 | ||||||||||||||||||||||||
Other | 6 | 4 | 10 | 6 | 6 | 6 | 11 | 10 | ||||||||||||||||||||||||
Total Non-Interest Income | 466 | 616 | 1,023 | 1,145 | 487 | 466 | 954 | 1,023 | ||||||||||||||||||||||||
NON-INTEREST EXPENSES: | ||||||||||||||||||||||||||||||||
Salaries and employee benefits | 1,990 | 2,224 | 4,335 | 4,375 | 2,095 | 1,990 | 4,353 | 4,335 | ||||||||||||||||||||||||
Occupancy expense | 346 | 312 | 740 | 601 | 356 | 346 | 777 | 740 | ||||||||||||||||||||||||
Equipment | 150 | 212 | 331 | 358 | 136 | 150 | 296 | 331 | ||||||||||||||||||||||||
Outside data processing | 283 | 281 | 560 | 515 | 291 | 283 | 544 | 560 | ||||||||||||||||||||||||
Advertising | 20 | 55 | 30 | 113 | 10 | 20 | 21 | 30 | ||||||||||||||||||||||||
Impairment loss on goodwill | 334 | — | 334 | — | — | 334 | — | 334 | ||||||||||||||||||||||||
Real estate owned expense | 173 | — | 259 | — | ||||||||||||||||||||||||||||
Other real estate owned expense | 37 | 173 | 112 | 259 | ||||||||||||||||||||||||||||
FDIC insurance premiums | 83 | 98 | 113 | 191 | 121 | 83 | 248 | 113 | ||||||||||||||||||||||||
Other | 978 | 1,167 | 1,846 | 2,274 | 1,015 | 978 | 1,854 | 1,846 | ||||||||||||||||||||||||
Total Non-Interest Expenses | 4,357 | 4,349 | 8,548 | 8,427 | 4,061 | 4,357 | 8,205 | 8,548 | ||||||||||||||||||||||||
Income before Provision for Income Taxes | 520 | 332 | 746 | 650 | 666 | 520 | 938 | 746 | ||||||||||||||||||||||||
PROVISION FOR INCOME TAXES | 139 | 67 | 158 | 133 | 210 | 139 | 267 | 158 | ||||||||||||||||||||||||
Net Income | $ | 381 | $ | 265 | $ | 588 | $ | 517 | $ | 456 | $ | 381 | $ | 671 | $ | 588 | ||||||||||||||||
Net Income per Common Share – Basic | $ | 0.03 | $ | 0.02 | $ | 0.05 | $ | 0.04 | ||||||||||||||||||||||||
Weighted Average Number of Common Shares Outstanding – Basic | 12,318 | 12,292 | 12,314 | 12,288 | ||||||||||||||||||||||||||||
Net Income per Common Share - Basic | $ | 0.04 | $ | 0.03 | $ | 0.06 | $ | 0.05 | ||||||||||||||||||||||||
Weighted Average Number of Common | ||||||||||||||||||||||||||||||||
Shares Outstanding – Basic | 12,094 | 12,318 | 12,145 | 12,314 | ||||||||||||||||||||||||||||
Dividends Declared per Common Share | $ | 0.03 | $ | 0.03 | $ | 0.06 | $ | 0.06 | $ | 0.03 | $ | 0.03 | $ | 0.06 | $ | 0.06 |
See Notes to Unaudited Consolidated Financial Statements
2 |
CONSOLIDATEDSTATEMENTS OFCOMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(In thousands) | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net income | $ | 381 | $ | 265 | $ | 588 | $ | 517 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Defined benefit pension: | ||||||||||||||||
Reclassification adjustments: | ||||||||||||||||
Amortization of prior service cost (1) | 5 | 5 | 10 | 10 | ||||||||||||
Amortization of actuarial loss (1) | 9 | — | 18 | — | ||||||||||||
Actuarial gains (losses) arising during period | 69 | (46 | ) | 138 | (106 | ) | ||||||||||
Total | 83 | (41 | ) | 166 | (96 | ) | ||||||||||
Income tax effect | (34 | ) | 16 | (67 | ) | 33 | ||||||||||
Total other comprehensive income (loss) | 49 | (25 | ) | 99 | (63 | ) | ||||||||||
Total comprehensive income | $ | 430 | $ | 240 | $ | 687 | $ | 454 |
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
(In thousands) | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income | $ | 456 | $ | 381 | $ | 671 | $ | 588 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized loss on securities available-for-sale arising during the period | (2 | ) | — | (2 | ) | — | ||||||||||
Defined benefit pension: | ||||||||||||||||
Reclassification adjustments out of accumulated | ||||||||||||||||
other comprehensive loss: | ||||||||||||||||
Amortization of prior service cost (1) | 5 | 5 | 11 | 10 | ||||||||||||
Amortization of actuarial (gain) loss (1) | (1 | ) | 9 | (2 | ) | 18 | ||||||||||
Actuarial gains arising during period | 15 | 69 | 30 | 138 | ||||||||||||
Total | 17 | 83 | 37 | 166 | ||||||||||||
Income tax effect (2) | (7 | ) | (34 | ) | (15 | ) | (67 | ) | ||||||||
Total other comprehensive income | 10 | 49 | 22 | 99 | ||||||||||||
Total comprehensive income | $ | 466 | $ | 430 | $ | 693 | $ | 687 |
(1) | Amounts are included in salaries and employees benefits in the unaudited consolidated |
(2) | Amounts are included in provision for income taxes in the unaudited consolidated statements of income. |
See Notes to Unaudited Consolidated Financial Statements
3 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Six Months Ended June 30, 2014 and 2013 (in thousands, except share and 2012 (in thousands)per share data)
Common Stock | Additional Paid- in Capital | Unearned ESOP Shares | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Equity | ||||||||||||||||||||||
Balance at December 31, 2011 | $ | 132 | $ | 57,292 | $ | (3,629 | ) | $ | 57,076 | $ | (3,712 | ) | $ | (94 | ) | $ | 107,065 | |||||||||||
Net income | — | — | — | 517 | — | — | 517 | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (63 | ) | (63 | ) | |||||||||||||||||||
Cash dividend declared ($.06 per share) | — | — | — | (519 | ) | — | — | (519 | ) | |||||||||||||||||||
ESOP shares earned | — | (53 | ) | 130 | — | — | — | 77 | ||||||||||||||||||||
Balance – June 30, 2012 | $ | 132 | $ | 57,239 | $ | (3,499 | ) | $ | 57,074 | $ | (3,712 | ) | $ | (157 | ) | $ | 107,077 | |||||||||||
Balance at December 31, 2012 | $ | 132 | $ | 57,178 | $ | (3,370 | ) | $ | 53,893 | $ | (3,712 | ) | $ | (272 | ) | $ | 103,849 | |||||||||||
Net income | — | — | — | 588 | — | — | 588 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 99 | 99 | |||||||||||||||||||||
Cash dividend declared ($.06 per share) | — | — | — | (302 | ) | — | — | (302 | ) | |||||||||||||||||||
ESOP shares earned | — | (55 | ) | 130 | — | — | — | 75 | ||||||||||||||||||||
Balance – June 30, 2013 | $ | 132 | $ | 57,123 | $ | (3,240 | ) | $ | 54,179 | $ | (3,712 | ) | $ | (173 | ) | $ | 104,309 |
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 | — | — | — | 588 | — | — | 588 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 99 | 99 | |||||||||||||||||||||
Cash dividend declared ($0.06 per share) | — | — | — | (302 | ) | — | — | (302 | ) | |||||||||||||||||||
ESOP shares earned | — | (55 | ) | 130 | — | — | — | 75 | ||||||||||||||||||||
Balance – June 30, 2013 | $ | 132 | $ | 57,123 | $ | (3,240 | ) | $ | 54,179 | $ | (3,712 | ) | $ | (173 | ) | $ | 104,309 | |||||||||||
Balance at December 31, 2013 | $ | 132 | $ | 57,083 | $ | (3,111 | ) | $ | 54,428 | $ | (4,291 | ) | $ | (73 | ) | $ | 104,168 | |||||||||||
Net income | — | — | — | 671 | — | — | 671 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 22 | 22 | |||||||||||||||||||||
Purchase of 190,750 shares of treasury stock | — | — | — | — | (1,390 | ) | — | (1,390 | ) | |||||||||||||||||||
Cash dividend declared ($0.06 per share) | — | — | — | (289 | ) | — | — | (289 | ) | |||||||||||||||||||
ESOP shares earned | — | (36 | ) | 130 | — | — | — | 94 | ||||||||||||||||||||
Balance – June 30, 2014 | $ | 132 | $ | 57,047 | $ | (2,981 | ) | $ | 54,810 | $ | (5,681 | ) | $ | (51 | ) | $ | 103,276 |
See Notes to Unaudited Consolidated Financial Statements
4 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2014 | 2013 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net income | $ | 588 | $ | 517 | $ | 671 | $ | 588 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Net amortization of securities premiums and discounts, net | 37 | 27 | ||||||||||||||
Net amortization (accretion) of securities premiums and discounts, net | (18 | ) | 37 | |||||||||||||
Provision (credit) for loan losses | (363 | ) | 117 | (217 | ) | (363 | ) | |||||||||
Depreciation | 389 | 320 | 370 | 389 | ||||||||||||
Net amortization of deferred loan fees and costs | 73 | 98 | 75 | 73 | ||||||||||||
Amortization of intangible assets | 31 | 30 | 31 | 31 | ||||||||||||
Deferred income tax expense | 770 | 124 | (105 | ) | 770 | |||||||||||
Impairment loss on goodwill | 334 | — | — | 334 | ||||||||||||
Retirement plan expense | 149 | 135 | — | 149 | ||||||||||||
Loss on sale of real estate owned | 51 | — | ||||||||||||||
Loss on disposal of equipment | — | 9 | ||||||||||||||
Loss on sale of other real estate owned | — | 51 | ||||||||||||||
Earnings on bank owned life insurance | (319 | ) | (286 | ) | (308 | ) | (319 | ) | ||||||||
ESOP compensation expense | 75 | 77 | 94 | 75 | ||||||||||||
(Increase) decrease in accrued interest receivable | (88 | ) | 555 | |||||||||||||
Increase in other assets | (8 | ) | (143 | ) | ||||||||||||
(Decrease) increase in accounts payable and accrued expenses | 758 | (1,009 | ) | |||||||||||||
Increase in accrued interest receivable | (189 | ) | (88 | ) | ||||||||||||
(Increase) decrease in other assets | 2,504 | (8 | ) | |||||||||||||
Increase in accounts payable and accrued expenses | 613 | 758 | ||||||||||||||
Net Cash Provided by Operating Activities | 2,477 | 571 | 3,521 | 2,477 | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Net decrease in loans | 1,221 | 1,993 | ||||||||||||||
Proceeds from sale of real estate owned | 399 | — | ||||||||||||||
Net (increase) decrease in loans | (14,075 | ) | 1,221 | |||||||||||||
Proceeds from sale of other real estate owned | — | 399 | ||||||||||||||
Principal repayments on securities available-for-sale | 6 | 12 | 21 | 6 | ||||||||||||
Principal repayments on securities held-to-maturity | 1,937 | 2,055 | 956 | 1,937 | ||||||||||||
Proceeds from maturities of certificates of deposit | 249 | 1,245 | — | 249 | ||||||||||||
Redemption of Federal Home Loan Bank of New York stock | 481 | 278 | ||||||||||||||
Net purchase of FHLB of NY stock | (33 | ) | 481 | |||||||||||||
Capitalized cost of real estate owned | (29 | ) | — | |||||||||||||
Purchases of premises and equipment | (22 | ) | (830 | ) | (67 | ) | (22 | ) | ||||||||
Net Cash Provided by Investing Activities | 4,271 | 4,753 | ||||||||||||||
Net Cash (Used In) Provided by Investing Activities | (13,227 | ) | 4,271 | |||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||
Net decrease in deposits | (5,635 | ) | (29,641 | ) | ||||||||||||
Net increase (decrease) in deposits | 18,353 | (5,635 | ) | |||||||||||||
Proceeds from FHLB of NY advances | 12,934 | — | ||||||||||||||
Repayment of FHLB of NY advances | (10,000 | ) | (5,000 | ) | (13,000 | ) | (10,000 | ) | ||||||||
Decrease in advance payments by borrowers for taxes and insurance | (927 | ) | (424 | ) | ||||||||||||
Purchase of treasury stock | (1,390 | ) | — | |||||||||||||
Increase in advance payments by borrowers for taxes and insurance | (786 | ) | (927 | ) | ||||||||||||
Cash dividends paid | (302 | ) | (519 | ) | (289 | ) | (302 | ) | ||||||||
Net Cash Used in Financing Activities | (16,864 | ) | (35,584 | ) | ||||||||||||
Net Decrease in Cash and Cash Equivalents | (10,116 | ) | (30,260 | ) | ||||||||||||
Net Cash Provided by (Used in) Financing Activities | 15,822 | (16,864 | ) | |||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 6,116 | (10,116 | ) | |||||||||||||
Cash and Cash Equivalents - Beginning | 49,242 | 82,583 | 31,531 | 49,242 | ||||||||||||
Cash and Cash Equivalents - Ending | $ | 39,126 | $ | 52,323 | $ | 37,647 | $ | 39,126 | ||||||||
SUPPLEMENTARY CASH FLOWS INFORMATION | ||||||||||||||||
Income taxes paid | $ | 4 | $ | 2,375 | ||||||||||||
Income taxes paid (refunded) | $ | (1,806 | ) | $ | 4 | |||||||||||
Interest paid | $ | 1,604 | $ | 2,097 | $ | 1,664 | $ | 1,604 | ||||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES | ||||||||||||||||
Real estate owned transferred to premises and equipment | $ | — | $ | 620 | ||||||||||||
Dividends declared and not paid | $ | 144 | $ | 150 |
See Notes to Unaudited Consolidated Financial Statements
5 |
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 and Rule 10-01 of Regulation S-X.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 six-month period ended June 30, 20132014 are not necessarily indicative of the results that may be expected for the full year or any other interim period. The December 31, 20122013 consolidated statement of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles.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, 2012.2013.
The preparation of consolidated financial statements in conformity with generally accepted accounting principlesU.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 June 30, 20132014 and through the date these consolidated financial statements were issued.
Loans
Loans are stated at unpaid principal balances plus net deferred loan origination fees and 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 consecutive 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.
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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. To monitor cash flows on income producing properties, we require borrowers to provide annual financial statements for all multi-family, mixed-use and non-residential real estate loans. In reaching a decision on whether to make a multi-family, mixed-use or non-residential real estate loan, we consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. In addition, with respect to non-residential real estate properties, we also consider the term of the lease and the quality of the tenants. An appraisal of the real estate used as collateral for the real estate loan is also obtained as part of the underwriting process. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings after subtracting all operating expenses to debt service payments) of at least 1.25x. In underwriting these loans, we take into account projected increases in interest rates in determining whether a loan meets our debt service coverage ratios at the higher interest rate under the adjustable rate mortgage. Environmental surveys and property inspections are utilized for all loans.
Commercial and Industrial Loans. Unlike multi-family, mixed-use, and non-residentialresidential 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 affords us the opportunity to achieve higher interest rates and fees with shorter terms to maturity than does residential mortgage loans. However, construction financing is generally considered to involve a higher degree of risk of loss than long-term financing onloans secured by improved, occupied real estate due toto: (1) the increased difficulty at the time the loan is made of estimating the building costs and the selling price of the property to be built; (2) the increased difficulty and costs of monitoring the loan; (3) the higher degree of sensitivity to increases in market rates of interest; and (4) the increased difficulty of working out loan problems. We haveThe Company sought to minimize this riskthese risks by limiting the amount of construction loans outstanding at any time, by limiting our construction loans to borrowers who have in effect pre-sold their construction project, and by spreading the loans among multi-family, mixed-use and non-residential projects. In connection withlimiting our construction loans that convert to permanent loans with us, we underwrite these loans using the same underwriting standards as our multi-family mixed-use and non-residential real estate loans. If we do not offer permanent financing to the borrower, we minimize risks by requiring the borrower to obtain permanent financing from another financial institution.
Residential One-to-Four Family Loans.Residential one-to-foursingle family mortgage loans are secured by the borrower’s personal residence. These loans have varying loan rates, depending on the financial condition of the borrower and the loan to value ratio, and have amortizations up to 30 years. Such loans are considered to have a lower degree of risk when compared to our other loan types.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.
NOTE 1 – BASIS OF PRESENTATION (Continued)
Allowance for Loan Losses (Continued)
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 consumer orindividual one-to-four family residential one- to four-familyreal 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.restructuring (“TDR”).
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.
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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.
NOTE 1 – BASIS OF PRESENTATION (Continued)
Allowance for Loan Losses (Continued)
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 restructuringsTDRs if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuringTDR generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Adversely classified, non-accrual troubled debt restructuringsTDRs may be reclassifiedreturned to accrued status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. All TDR 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 June 30, 2013.2014.
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NOTE 1 – BASIS OF PRESENTATION (Continued)
Goodwill
Goodwill totaled $749,000 at June 30, 2014 and December 31, 2013 and consists of goodwill acquired in the business combination completed by the Company in November 2007. The Company recognizedtests goodwill in connection with the acquisition of its wealth management division in 2007. Induring the fourth quarter of 2012,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 Company performed an impairment test and determined thatcarrying value of the reporting unit to the fair value of this division was less thanthe 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 accordingly,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 an impairment charge of $227,000 in 2012.for the three- and six-month periods ended June 30, 2014. During the second quarter of 2013, the Company determined that an adjustment to the goodwill impairment previously recorded in 2012 was necessary. As a result, an additional impairment charge of $334,000 was recognized during the second quarter of 2013.
The impairment charge was the result of a reduction in expected cash flow from this division resulting from the departure of two employees, one of which had generated significant other commission income from sales of insurance and annuity products. We expect future commission income to decline 50% from prior levels. This decline resulted in a decrease in the value of this division.
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 had no potentially dilutive common stock equivalents during the six-month periods ended June 30, 20132014 and 2012, had no potentially dilutive common stock equivalents.2013. 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, 20122013 and June 30, 2013,2014, the ESOP trust held 518,420 shares of the Company’s common stock, which represents all allocated and unallocated shares held by the plan.ESOP. As of December 31, 2012,2013, the Company had allocated 155,526181,447 shares to participants, and an additional 25,921 shares had been committed to be released. As of June 30, 2013,2014, the Company had allocated 181,447207,368 shares to participants, and an additional 12,960 shares had been committed to be released.
The Company recognized compensation expense of $39,000$47,000 and $37,000$39,000 during the three-month periods ended June 30 20132014 and 2012,2013, respectively, and $75,000$94,000 and $77,000$75,000 during the six-month periods ended June 30, 20132014 and 2012,2013, respectively, which equals the fair value of the ESOP shares when they became committed to be released.
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NOTENote 4 –Outside Director Retirement Plandirector retirement plan (“DRP”drp”)
Periodic expensesNet periodic pension cost for the Company’s DRP wereis as follows:
Three Months | Six Months | |||||||||||||||||||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | (In thousands) | ||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||
Service cost | $ | 18 | $ | 11 | $ | 36 | $ | 21 | $ | 18 | $ | 18 | $ | 36 | $ | 36 | ||||||||||||||||
Interest cost | 11 | 15 | 21 | 30 | 10 | 11 | 20 | 21 | ||||||||||||||||||||||||
Amortization of prior service cost | 5 | 5 | 11 | 10 | 5 | 5 | 11 | 11 | ||||||||||||||||||||||||
Amortization of actuarial loss | 9 | — | 18 | — | ||||||||||||||||||||||||||||
Amortization of actuarial (gain) loss | (1 | ) | 9 | (2 | ) | 18 | ||||||||||||||||||||||||||
Total | $ | 43 | $ | 31 | $ | 86 | $ | 61 | $ | 32 | $ | 43 | $ | 65 | $ | 86 |
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 June 30, 2013 and 2012 and the six-month periods ended June 30, 2013 and 2012 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:
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Gross | Gross | |||||||||||||||||||||||||||
(In thousands) | Amortized | Unrealized | Unrealized | Fair | ||||||||||||||||||||||||||||
June 30, 2013 | ||||||||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
June 30, 2014 | ||||||||||||||||||||||||||||||||
Securities available-for-sale: | ||||||||||||||||||||||||||||||||
Mortgage-backed securities – residential: | ||||||||||||||||||||||||||||||||
Federal Home Loan Mortgage Corporation | $ | 71 | $ | 2 | $ | — | $ | 73 | $ | 44 | $ | 1 | $ | — | $ | 45 | ||||||||||||||||
Federal National Mortgage Association | 48 | 2 | — | 50 | 45 | — | — | 45 | ||||||||||||||||||||||||
Total | $ | 119 | $ | 4 | $ | — | $ | 123 | $ | 89 | $ | 1 | $ | — | $ | 90 | ||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||||||||||
Securities held-to-maturity: | ||||||||||||||||||||||||||||||||
Mortgage-backed securities – residential: | ||||||||||||||||||||||||||||||||
Government National Mortgage Association | $ | 7,667 | $ | 320 | $ | — | $ | 7,987 | $ | 5,727 | $ | 213 | $ | — | $ | 5,940 | ||||||||||||||||
Federal Home Loan Mortgage Corporation | 251 | 9 | — | 260 | 224 | 7 | — | 231 | ||||||||||||||||||||||||
Federal National Mortgage Association | 189 | 7 | — | 196 | 143 | 2 | — | 145 | ||||||||||||||||||||||||
Collateralized mortgage obligations-GSE | 1,905 | 80 | — | 1,985 | 1,412 | 67 | — | 1,479 | ||||||||||||||||||||||||
Other | 1 | — | — | 1 | ||||||||||||||||||||||||||||
Total | $ | 10,013 | $ | 416 | $ | — | $ | 10,429 | $ | 7,506 | $ | 289 | $ | — | $ | 7,795 |
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NOTE 5 –INVESTMENTS (Continued)
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Gross | Gross | |||||||||||||||||||||||||||
(In thousands) | Amortized | Unrealized | Unrealized | Fair | ||||||||||||||||||||||||||||
December 31, 2012 | ||||||||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
December 31, 2013 | ||||||||||||||||||||||||||||||||
Securities available-for-sale: | ||||||||||||||||||||||||||||||||
Mortgage-backed securities – residential: | ||||||||||||||||||||||||||||||||
Federal Home Loan Mortgage Corporation | $ | 76 | $ | 2 | $ | — | $ | 78 | $ | 63 | $ | 2 | $ | — | $ | 65 | ||||||||||||||||
Federal National Mortgage Association | 49 | 2 | — | 51 | 47 | 1 | — | 48 | ||||||||||||||||||||||||
Total | $ | 125 | $ | 4 | $ | — | $ | 129 | $ | 110 | $ | 3 | $ | — | $ | 113 | ||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||||||||||
Securities held-to-maturity: | ||||||||||||||||||||||||||||||||
Mortgage-backed securities – residential: | ||||||||||||||||||||||||||||||||
Government National Mortgage Association | $ | 9,044 | $ | 442 | $ | — | $ | 9,486 | $ | 6,426 | $ | 215 | $ | — | $ | 6,641 | ||||||||||||||||
Federal Home Loan Mortgage Corporation | 267 | 9 | — | 276 | 238 | 7 | — | 245 | ||||||||||||||||||||||||
Federal National Mortgage Association | 215 | 8 | — | 223 | 155 | 6 | — | 161 | ||||||||||||||||||||||||
Collateralized mortgage obligations-GSE | 2,460 | 115 | — | 2,575 | 1,624 | 67 | — | 1,691 | ||||||||||||||||||||||||
Other | 1 | — | — | 1 | 1 | — | — | 1 | ||||||||||||||||||||||||
Total | $ | 11,987 | $ | 574 | $ | — | $ | 12,561 | $ | 8,444 | $ | 295 | $ | — | $ | 8,739 |
Contractual final maturities of mortgage-backed securities available for saleavailable-for-sale were as follows:
June 30, 2013 | ||||||||
Amortized Cost | Fair Value | |||||||
(In Thousands) | ||||||||
Due after five but within ten years | $ | 26 | $ | 26 | ||||
Due after ten years | 93 | 97 | ||||||
$ | 119 | $ | 123 |
June 30, 2014 | ||||||||
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Due after five but within ten years | $ | 7 | $ | 7 | ||||
Due after ten years | 82 | 83 | ||||||
Total | $ | 89 | $ | 90 |
Contractual final maturities of mortgage-backed securities held to maturityheld-to-maturity were as follows:
June 30, 2013 | ||||||||
Amortized Cost | Fair Value | |||||||
(In Thousands) | ||||||||
Due after one but within five years | $ | 60 | $ | 62 | ||||
Due after five but within ten years | 147 | 153 | ||||||
Due after ten years | 9,806 | 10,214 | ||||||
$ | 10,013 | $ | 10,429 |
June 30, 2014 | ||||||||
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Due after one but within five years | $ | 77 | $ | 78 | ||||
Due after five but within ten years | 136 | 139 | ||||||
Due after ten years | 7,293 | 7,578 | ||||||
Total | $ | 7,506 | $ | 7,795 |
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 saleavailable-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:
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NOTE 6 –Fair Value FAIR VALUE DISCLOSURES(Continued)
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.
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:
Description | Total | (Level 1) Quoted Prices in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | ||||||||||||
June 30, 2013: | (In Thousands) | |||||||||||||||
Recurring: | ||||||||||||||||
Mortgage-backed securities - residential: | ||||||||||||||||
Federal Home Loan Mortgage Corporation | $ | 73 | $ | — | $ | 73 | $ | — | ||||||||
Federal National Mortgage Association | 50 | — | 50 | — | ||||||||||||
Total | $ | 123 | $ | — | $ | 123 | $ | — | ||||||||
Nonrecurring: | ||||||||||||||||
Impaired loans | $ | 16,296 | $ | — | $ | — | $ | 16,296 | ||||||||
Real estate owned | $ | 3,821 | $ | — | $ | — | $ | 3,821 | ||||||||
December 31, 2012: | ||||||||||||||||
Recurring: | ||||||||||||||||
Mortgage-backed securities - residential: | ||||||||||||||||
Federal Home Loan Mortgage Corporation | $ | 78 | $ | — | $ | 78 | $ | — | ||||||||
Federal National Mortgage Association | 51 | — | 51 | — | ||||||||||||
Total | $ | 129 | $ | — | $ | 129 | $ | — | ||||||||
Nonrecurring: | ||||||||||||||||
Impaired loans | $ | 10,515 | $ | — | $ | — | $ | 10,515 | ||||||||
Real estate owned | $ | 4,271 | $ | — | $ | — | $ | 4,271 |
NOTE 6 –Fair Value DISCLOSURES(Continued)
(Level 1) | (Level 2) | |||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | (Level 3) | ||||||||||||||
Markets for | Observable | Significant | ||||||||||||||
Description | Total | Identical Assets | Inputs | Unobservable Inputs | ||||||||||||
June 30, 2014: | (In thousands) | |||||||||||||||
Recurring: | ||||||||||||||||
Mortgage-backed securities - residential: | ||||||||||||||||
Federal Home Loan Mortgage Corporation | $ | 45 | $ | — | $ | 45 | $ | — | ||||||||
Federal National Mortgage Association | 45 | — | 45 | — | ||||||||||||
Total | $ | 90 | $ | — | $ | 90 | $ | — | ||||||||
Nonrecurring: | ||||||||||||||||
Impaired loans | $ | 4,026 | $ | — | $ | — | $ | 4,026 | ||||||||
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 | ||||||||||||||||||||||
Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||||||||||||
Unobservable | Fair Value Estimate | Valuation | Unobservable | Range | ||||||||||||||||||
(in thousands) | Fair Value Estimate | Valuation Techniques | Input | Range | Estimate | Techniques | Input | (Weighted Average Rate) | ||||||||||||||
June 30, 2013: | ||||||||||||||||||||||
June 30, 2014: | ||||||||||||||||||||||
Impaired loans | $ | 16,296 | Appraisal of collateral (1) | Appraisal adjustments (2) | 2% to 71% | $ | 4,026 | Appraisal of collateral (1) | Appraisal adjustments (2) | 9.22% | ||||||||||||
Real estate owned | $ | 3,821 | Appraisal of collateral (1) | Appraisal adjustments (2) | 7% to 50% | |||||||||||||||||
Liquidation expenses (2) | 0.52%-11.08% (3.38%) | |||||||||||||||||||||
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 |
(2) | Appraisals may be adjusted by management for qualitative factors such as economic conditions and |
Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||
Unobservable | ||||||||||||
(in thousands) | Fair Value Estimate | Valuation Techniques | Input | Range | ||||||||
December 31, 2012: | ||||||||||||
Impaired loans | $ | 10,515 | Appraisal of collateral (1) | Appraisal adjustments (2) | 6.4% to 63% | |||||||
Real estate owned | $ | 4,271 | Appraisal of collateral (1) | Appraisal adjustments (2) | 6.8% to 50% |
12 |
NOTE 6 – FAIR VALUE DISCLOSURES (Continued)
Management uses its best judgment in estimating theThe carrying amounts and fair valuevalues of the Company’s financial instruments; however, thereinstruments 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.summarized below:
Fair Value at | ||||||||||||||||||||
June 30, 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 | $ | 37,647 | $ | 37,647 | $ | 37,647 | $ | — | $ | — | ||||||||||
Certificates of deposit | 2,142 | 2,142 | — | 2,142 | — | |||||||||||||||
Securities available-for-sale | 90 | 90 | — | 90 | — | |||||||||||||||
Securities held-to-maturity | 7,506 | 7,795 | — | 7,795 | — | |||||||||||||||
Loans receivable | 382,042 | 389,439 | — | — | 389,439 | |||||||||||||||
FHLB of New York stock | 1,627 | 1,627 | — | 1,627 | — | |||||||||||||||
Accrued interest receivable | 1,456 | 1,456 | — | 1,456 | — | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Deposits | 343,562 | 347,233 | — | 347,233 | — | |||||||||||||||
FHLB of New York advances | 20,934 | 20,936 | — | 20,936 | — | |||||||||||||||
Accrued interest payable | 2 | 2 | — | 2 | — | |||||||||||||||
The following 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.
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 | — |
13 |
NOTE 6 – FAIR VALUE DISCLOSURES (Continued)
The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 20132014 and December 31, 2012:2013:
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 saleavailable-for-sale and held to maturityheld-to-maturity are determined utilizing Level 2 inputs. For these securities, the Companyobtains fair value measurements from an independent pricing service. The fair value measurements consider observable datadata 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.
NOTE 6 –Fair Value DISCLOSURES(Continued)
Loans Receivable
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, and land development, other loans secured by real estate, commercial and industrial loans, and loans to individuals.consumer. Certain types, such as commercial loans and consumer loans, to individuals, 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 current market rate.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 basedonbased on internal loan classifications.
classifications. For certain impairednon-performing loans, fair value is calculated by first reducing the carrying value by a credit risk adjustment based on internal loan classifications, and then discounting the estimated future cash flows from the remaining carrying value at a market rate.
For the remaining 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 appraisalsappraisal of the properties.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 is equal toapproximates its fair value, and considers the limited marketability of this security.
Deposit Liabilities
The fairvalue 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 June 30, 20132014 and December 31, 2012,2013, 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.
14 |
NOTE 6 –Fair Value FAIR VALUE DISCLOSURES(Continued)
Off-Balance- Sheet Financial Instruments (Continued)
The carrying amounts and estimatedabove information should not be interpreted as an estimate of the fair valuesvalue of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s financial instruments are summarized below: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.
Fair Value at June 30, 2013 | ||||||||||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||
(In thousands) | Carrying Amount | Fair Value Estimate | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 39,126 | $ | 39,126 | $ | 39,126 | $ | — | $ | — | ||||||||||
Certificates of deposit | 150 | 150 | — | 150 | — | |||||||||||||||
Securities available for sale | 123 | 123 | — | 123 | — | |||||||||||||||
Securities held to maturity | 10,013 | 10,429 | — | 10,429 | — | |||||||||||||||
Loans receivable | 332,856 | 343,944 | — | — | 343,944 | |||||||||||||||
FHLB of New York stock | 874 | 874 | — | 874 | — | |||||||||||||||
Accrued interest receivable | 1,064 | 1,064 | — | 1,064 | — | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Deposits, including accrued interest | 312,485 | 315,425 | — | 315,425 | — | |||||||||||||||
FHLB of New York advances | 5,000 | 5,122 | — | 5,122 | — |
Fair Value at December 31, 2012 | ||||||||||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||
(In thousands) | Carrying Amount | Fair Value Estimate | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 49,242 | $ | 49,242 | $ | 49,242 | $ | — | $ | — | ||||||||||
Certificates of deposit | 399 | 399 | — | 399 | — | |||||||||||||||
Securities available for sale | 129 | 129 | — | 129 | — | |||||||||||||||
Securities held to maturity | 11,987 | 12,561 | — | 12,561 | — | |||||||||||||||
Loans receivable | 333,787 | 350,420 | — | — | 350,420 | |||||||||||||||
FHLB of New York stock | 1,355 | 1,355 | — | 1,355 | — | |||||||||||||||
Accrued interest receivable | 976 | 976 | — | 976 | — | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Deposits, including accrued interest | 318,120 | 321,236 | — | 321,236 | — | |||||||||||||||
FHLB of New York advances | 15,000 | 15,256 | — | 15,256 | — |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES
June 30, 2013 | December 31, 2012 | |||||||
(In Thousands) | ||||||||
Residential real estate: | ||||||||
One-to-four family | $ | 7,982 | $ | 7,761 | ||||
Multi-family | 172,840 | 178,644 | ||||||
Mixed use | 43,965 | 41,895 | ||||||
Total residential real estate | 224,787 | 228,300 | ||||||
Non-residential real estate | 81,744 | 82,312 | ||||||
Construction | 2,526 | 841 | ||||||
Commercial and Industrial | 27,241 | 26,274 | ||||||
Consumer | 162 | 77 | ||||||
Total Loans | 336,460 | 337,804 | ||||||
Allowance for loan losses | (4,205 | ) | (4,646 | ) | ||||
Deferred loan costs, net | 601 | 629 | ||||||
Net Loans | $ | 332,856 | $ | 333,787 |
The following is an analysis of the allowance for loan losses:losses and related information concerning loan balances:
At and for the Six Months Ended June 30, 2013 (in thousands)
Residential Real Estate | Non- residential Real Estate | Construction | Commercial and Industrial | Consumer | Total | |||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Beginning balance | $ | 3,216 | $ | 996 | $ | — | $ | 434 | $ | — | $ | 4,646 | ||||||||||||
Charge-offs | — | (105 | ) | — | — | — | (105 | ) | ||||||||||||||||
Recoveries | 23 | 4 | — | — | — | 27 | ||||||||||||||||||
Provision | (435 | ) | (26 | ) | 75 | 23 | — | (363 | ) | |||||||||||||||
Ending balance | $ | 2,804 | $ | 869 | $ | 75 | $ | 457 | $ | — | $ | 4,205 | ||||||||||||
Ending balance: individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Ending balance: collectively evaluated for impairment | $ | 2,804 | $ | 869 | $ | 75 | $ | 457 | $ | — | $ | 4,205 | ||||||||||||
Loans receivable: | ||||||||||||||||||||||||
Ending balance | $ | 224,787 | $ | 81,744 | $ | 2,526 | $ | 27,241 | $ | 162 | $ | 336,460 | ||||||||||||
Ending balance: individually evaluated for impairment | $ | 10,414 | $ | 11,041 | $ | — | $ | 1,833 | $ | — | $ | 23,288 | ||||||||||||
Ending balance: collectively evaluated for impairment | $ | 214,373 | $ | 70,703 | $ | 2,526 | $ | 25,408 | $ | 162 | $ | 313,172 |
June 30, | December 31, | |||||||
2014 | 2013 | |||||||
(In thousands) | ||||||||
Residential real estate: | ||||||||
One-to-four family | $ | 12,100 | $ | 11,752 | ||||
Multi-family | 189,998 | 188,923 | ||||||
Mixed-use | 53,972 | 50,467 | ||||||
Total residential real estate | 256,070 | 251,142 | ||||||
Non-residential real estate | 78,186 | 81,985 | ||||||
Construction | 20,964 | 6,568 | ||||||
Commercial and industrial | 29,954 | 31,345 | ||||||
Consumer | 158 | 161 | ||||||
Total Loans | 385,332 | 371,201 | ||||||
Allowance for loan losses | (3,930 | ) | (4,015 | ) | ||||
Deferred loan costs, net | 640 | 639 | ||||||
Net Loans | $ | 382,042 | $ | 367,825 |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
At and for the Three Months Ended June 30, 2013 (in thousands)
Residential Real Estate | Non- residential Real Estate | Construction | Commercial | Consumer | Total | |||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Beginning balance | $ | 3,261 | $ | 984 | $ | — | $ | 461 | $ | — | $ | 4,706 | ||||||||||||
Charge-offs | — | (105 | ) | — | — | — | (105 | ) | ||||||||||||||||
Recoveries | 23 | 4 | — | — | — | 27 | ||||||||||||||||||
Provision | (480 | ) | (14 | ) | 75 | (4 | ) | — | (423 | ) | ||||||||||||||
Ending balance | $ | 2,804 | $ | 869 | $ | 75 | $ | 457 | $ | — | $ | 4,205 |
At and for the Six Months Ended June 30, 20122014 (in thousands)
Residential Real Estate | Non- residential Real Estate | Construction | Commercial and Industrial | Consumer | Total | Residential Real Estate | Non- residential Real Estate | Construction | Commercial and Industrial | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 3,781 | $ | 1,596 | $ | 1,724 | $ | 296 | $ | — | $ | 7,397 | $ | 2,556 | $ | 896 | $ | 97 | $ | 456 | $ | — | $ | 10 | $ | 4,015 | ||||||||||||||||||||||||||
Charge-offs | (1,173 | ) | (764 | ) | (1,715 | ) | — | — | (3,652 | ) | (392 | ) | (41 | ) | — | — | — | — | (433 | ) | ||||||||||||||||||||||||||||||||
Recoveries | 5 | — | — | — | — | 5 | — | 565 | — | — | — | — | 565 | |||||||||||||||||||||||||||||||||||||||
Provision | 68 | 65 | (9 | ) | (7 | ) | — | 117 | ||||||||||||||||||||||||||||||||||||||||||||
Provision (credit) | 459 | (632 | ) | 64 | (98 | ) | — | (10 | ) | (217 | ) | |||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 2,681 | $ | 897 | $ | — | $ | 289 | $ | — | $ | 3,867 | $ | 2,623 | $ | 788 | $ | 161 | $ | 358 | $ | — | $ | — | $ | 3,930 | ||||||||||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | — | $ | 160 | $ | — | $ | — | $ | — | $ | — | $ | 160 | ||||||||||||||||||||||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 2,623 | $ | 628 | $ | 161 | $ | 358 | $ | — | $ | — | $ | 3,770 | ||||||||||||||||||||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 256,070 | $ | 78,186 | $ | 20,964 | $ | 29,954 | $ | 158 | $ | — | $ | 385,332 | ||||||||||||||||||||||||||||||||||||||
Ending balance: individually | ||||||||||||||||||||||||||||||||||||||||||||||||||||
evaluated for impairment | $ | 9,256 | $ | 10,997 | $ | — | $ | 2,511 | $ | — | $ | — | $ | 22,764 | ||||||||||||||||||||||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 246,814 | $ | 67,189 | $ | 20,964 | $ | 27,443 | $ | 158 | $ | — | $ | 362,568 |
At and for
For the Three Months Ended June 30, 20122014 (in thousands)
Residential Real Estate | Non- residential Real Estate | Construction | Commercial | Consumer | Total | Residential Real Estate | Non- residential Real Estate | Construction | Commercial and Industrial | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 3,280 | $ | 1,855 | $ | 1,660 | $ | 291 | $ | — | $ | 7,086 | $ | 2,588 | $ | 1,012 | $ | 135 | $ | 401 | $ | — | $ | 69 | $ | 4,205 | ||||||||||||||||||||||||||
Charge-offs | (868 | ) | (764 | ) | (1,704 | ) | — | — | (3,336 | ) | (392 | ) | (6 | ) | — | — | — | — | (398 | ) | ||||||||||||||||||||||||||||||||
Recoveries | — | — | — | — | — | — | — | 340 | — | — | — | — | 340 | |||||||||||||||||||||||||||||||||||||||
Provision | 269 | (194 | ) | 44 | (2 | ) | — | 117 | ||||||||||||||||||||||||||||||||||||||||||||
Provision (credit) | 427 | (558 | ) | 26 | (43 | ) | — | (69 | ) | (217 | ) | |||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 2,681 | $ | 897 | $ | — | $ | 289 | $ | — | $ | 3,867 | $ | 2,623 | $ | 788 | $ | 161 | $ | 358 | $ | — | $ | — | $ | 3,930 |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
At and forFor the YearSix Months Ended December 31, 2012June 30, 2013 (in thousands)
Residential Real Estate | Non- residential Real Estate | Construction | Commercial and Industrial | Consumer | Total | Residential Real Estate | Non- residential Real Estate | Construction | Commercial and Industrial | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 3,781 | $ | 1,596 | $ | 1,724 | $ | 296 | $ | — | $ | 7,397 | $ | 3,216 | $ | 996 | $ | — | $ | 434 | $ | — | $ | — | $ | 4,646 | ||||||||||||||||||||||||||
Charge-offs | (4,372 | ) | (2,374 | ) | (1,715 | ) | (28 | ) | — | (8,489 | ) | — | (105 | ) | — | — | — | — | (105 | ) | ||||||||||||||||||||||||||||||||
Recoveries | 115 | — | — | — | — | 115 | 23 | 4 | — | — | — | — | 27 | |||||||||||||||||||||||||||||||||||||||
Provision | 3,692 | 1,774 | (9 | ) | 166 | — | 5,623 | (435 | ) | (26 | ) | 75 | 23 | — | — | (363 | ) | |||||||||||||||||||||||||||||||||||
Ending balance | $ | 3,216 | $ | 996 | $ | — | $ | 434 | $ | — | $ | 4,646 | $ | 2,804 | $ | 869 | $ | 75 | $ | 457 | $ | — | $ | — | $ | 4,205 | ||||||||||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 3,216 | $ | 996 | $ | — | $ | 434 | — | $ | 4,646 | |||||||||||||||||||||||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 228,300 | $ | 82,312 | $ | 841 | $ | 26,274 | $ | 77 | $ | 337,804 | ||||||||||||||||||||||||||||||||||||||||
Ending balance: individually evaluated for impairment | $ | 10,272 | $ | 8,272 | $ | — | $ | 2,152 | $ | — | $ | 20,696 | ||||||||||||||||||||||||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 218,028 | $ | 74,040 | $ | 841 | $ | 24,122 | $ | 77 | $ | 317,108 |
For the Three Months Ended June 30, 2013 (in thousands)
Residential Real Estate | Non- residential Real Estate | Construction | Commercial and Industrial | Consumer | Unallocated | Total | ||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 3,261 | $ | 984 | $ | — | $ | 461 | $ | — | $ | — | $ | 4,706 | ||||||||||||||
Charge-offs | — | (105 | ) | — | — | — | — | (105 | ) | |||||||||||||||||||
Recoveries | 23 | 4 | — | — | — | — | 27 | |||||||||||||||||||||
Provision | (480 | ) | (14 | ) | 75 | (4 | ) | — | — | (423 | ) | |||||||||||||||||
Ending balance | $ | 2,804 | $ | 869 | $ | 75 | $ | 457 | $ | — | $ | — | $ | 4,205 |
At 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 - Total | $ | 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 - Total | $ | 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 |
17 |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following is a summary of impaired loans at June 30, 20132014 and December 31, 2012:2013:
June 30, 2013 | December 31, 2012 | |||||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Impaired loans without a valuation allowance: | ||||||||||||||||||||||||
Residential real estate-Multi-family | $ | 10,414 | $ | 11,472 | $ | — | $ | 10,272 | $ | 11,742 | $ | — | ||||||||||||
Non-residential real estate | 11,041 | 14,293 | — | 8,272 | 11,345 | — | ||||||||||||||||||
Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial and Industrial | 1,833 | 1,833 | — | 2,152 | 2,179 | — | ||||||||||||||||||
Total | $ | 23,288 | $ | 27,598 | $ | — | $ | 20,696 | $ | 25,266 | $ | — | ||||||||||||
Impaired loans with a valuation allowance: | ||||||||||||||||||||||||
Residential real estate-Multi-family | — | — | — | — | — | — | ||||||||||||||||||
Non-residential real estate | — | — | — | — | — | — | ||||||||||||||||||
Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial and Industrial | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Total impaired loans | $ | 23,288 | $ | 27,598 | $ | — | $ | 20,696 | $ | 25,266 | $ | — | ||||||||||||
June 30, 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 | $ | 9,256 | $ | 10,271 | $ | — | $ | 8,629 | $ | 9,259 | $ | — | ||||||||||||
Non-residential real estate | 8,938 | 11,955 | — | 11,488 | 14,739 | — | ||||||||||||||||||
Commercial and industrial | 2,511 | 2,511 | — | — | — | — | ||||||||||||||||||
Subtotal | $ | 20,705 | $ | 24,737 | $ | — | $ | 20,117 | $ | 23,998 | $ | — | ||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Non-residential real estate | $ | 2,059 | $ | 2,059 | $ | 160 | $ | — | $ | — | $ | — | ||||||||||||
Subtotal | $ | 2,059 | $ | 2,059 | $ | 160 | $ | — | $ | — | $ | — | ||||||||||||
Total: | ||||||||||||||||||||||||
Residential real estate-Multi-family | $ | 9,256 | $ | 10,271 | $ | — | $ | 8,629 | $ | 9,259 | $ | — | ||||||||||||
Non-residential real estate | 10,997 | 14,014 | 160 | 11,488 | 14,739 | — | ||||||||||||||||||
Commercial and industrial | 2,511 | 2,511 | — | — | — | — | ||||||||||||||||||
Total | $ | 22,764 | $ | 26,796 | $ | 160 | $ | 20,117 | $ | 23,998 | $ | — |
Three Months | Six Months | |||||||||||||||
Ended June 30, 2014 | Ended June 30, 2014 | |||||||||||||||
Average | Interest | Average | Interest | |||||||||||||
Recorded | Income | Recorded | Income | |||||||||||||
Investment | Recognized | Investment | Recognized | |||||||||||||
(In thousands) | ||||||||||||||||
With no related allowance recorded: | ||||||||||||||||
Residential real estate-Multi-family | $ | 8,952 | $ | 46 | $ | 8,845 | $ | 94 | ||||||||
Non-residential real estate | 9,237 | 65 | 9,311 | 75 | ||||||||||||
Commercial and industrial | 1,256 | — | 837 | — | ||||||||||||
Subtotal | $ | 19,445 | $ | 111 | $ | 18,993 | $ | 169 | ||||||||
With an allowance recorded: | ||||||||||||||||
Non-residential real estate | $ | 2,055 | $ | 6 | $ | 2,046 | $ | 22 | ||||||||
Subtotal | $ | 2,055 | $ | 6 | $ | 2,046 | $ | 22 | ||||||||
Total: | ||||||||||||||||
Residential real estate-Multi-family | $ | 8,952 | $ | 46 | $ | 8,845 | $ | 94 | ||||||||
Non-residential real estate | 11,292 | 71 | 11,357 | 97 | ||||||||||||
Commercial and industrial | 1,256 | — | 837 | — | ||||||||||||
Total | $ | 21,500 | $ | 117 | $ | 21,039 | $ | 191 |
18 |
NOTE 7 – LOANS–LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
Further information pertaining to impaired loans follows:
Three Months | Six Months | |||||||||||||||
Ended June 30, 2013 | Ended June 30, 2013 | |||||||||||||||
Average | Interest | Average | Interest | |||||||||||||
Recorded | Income | Recorded | Income | |||||||||||||
Investment | Recognized | Investment | Recognized | |||||||||||||
(In thousands) | ||||||||||||||||
With no related allowance recorded (1): | ||||||||||||||||
Residential real estate-Multi-family | $ | 10,954 | $ | 96 | $ | 10,727 | $ | 260 | ||||||||
Non-residential real estate | 11,286 | 39 | 10,282 | 39 | ||||||||||||
Commercial and industrial | 1,842 | 20 | 1,945 | 49 | ||||||||||||
Total | $ | 24,082 | $ | 155 | $ | 22,954 | $ | 348 |
Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | |||||||||||||||||||||||
Average Recorded Investment | Interest Income Recognized | Interest Income Recognized on Cash Basis | Average Recorded Investment | Interest Income Recognized | Interest Income Recognized on Cash Basis | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Residential real estate-Multi-family | $ | 10,954 | $ | 96 | $ | 96 | $ | 10,727 | $ | 260 | $ | 260 | ||||||||||||
Non-residential real estate | 11,286 | 39 | 39 | 10,282 | 39 | 39 | ||||||||||||||||||
Commercial and Industrial | 1,842 | 20 | 20 | 1,945 | 49 | 49 | ||||||||||||||||||
Total | $ | 24,082 | $ | 155 | $ | 155 | $ | 22,954 | $ | 348 | $ | 348 |
Three Months Ended June 30, 2012 | Six Months Ended June 30, 2012 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
(In thousands) | ||||||||||||||||
Residential real estate-Multi-family | $ | 10,245 | $ | 74 | $ | 10,216 | $ | 148 | ||||||||
Non-residential real estate | 16,112 | 1,595 | 16,113 | 1,636 | ||||||||||||
Commercial and Industrial | 1,750 | 26 | 1,713 | 52 | ||||||||||||
Total | $ | 28,107 | $ | 1,695 | $ | 28,042 | $ | 1,836 |
(1) | There were no impaired loans with related allowance recorded outstanding at June 30, 2013 or December 31, 2012. |
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 June 30, 20132014 (in Thousands)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 | 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 | $ | — | $ | — | $ | — | $ | — | $ | 7,982 | $ | 7,982 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 12,100 | $ | 12,100 | $ | — | ||||||||||||||||||||||||||||
Multi-family | — | — | — | — | 172,840 | 172,840 | — | 695 | — | 2,387 | 3,082 | 186,916 | 189,998 | — | ||||||||||||||||||||||||||||||||||||||||||
Mixed-use | — | — | — | — | 43,965 | 43,965 | — | 226 | — | 1,928 | 2,154 | 51,818 | 53,972 | — | ||||||||||||||||||||||||||||||||||||||||||
Non-residential real estate | 303 | — | 1,957 | 2,260 | 79,484 | 81,744 | — | 8,034 | — | 984 | 9,018 | 69,168 | 78,186 | — | ||||||||||||||||||||||||||||||||||||||||||
Construction loans | — | — | — | — | 2,526 | 2,526 | — | — | — | — | — | 20,964 | 20,964 | — | ||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial loans | — | — | — | — | 27,241 | 27,241 | — | — | — | 2,511 | 2,511 | 27,443 | 29,954 | — | ||||||||||||||||||||||||||||||||||||||||||
Consumer | — | — | — | — | 162 | 162 | — | — | — | — | — | 158 | 158 | — | ||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 303 | $ | — | $ | 1,957 | $ | 2,260 | $ | 334,200 | $ | 336,460 | $ | — | $ | 8,955 | $ | — | $ | 7,810 | $ | 16,765 | $ | 368,567 | $ | 385,332 | $ | — |
19 |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
Age Analysis of Past Due Loans as of December 31, 20122013 (in Thousands)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 | 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 | $ | — | $ | — | $ | — | $ | — | $ | 7,761 | $ | 7,761 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 11,752 | $ | 11,752 | $ | — | ||||||||||||||||||||||||||||
Multi-family | — | 89 | 1,266 | 1,355 | 177,289 | 178,644 | — | — | — | — | — | 188,923 | 188,923 | — | ||||||||||||||||||||||||||||||||||||||||||
Mixed-use | — | — | — | — | 41,895 | 41,895 | — | — | 2,210 | — | 2,210 | 48,257 | 50,467 | — | ||||||||||||||||||||||||||||||||||||||||||
Non-residential real estate | 1,259 | — | 1,221 | 2,480 | 79,832 | 82,312 | — | — | — | 2,372 | 2,372 | 79,613 | 81,985 | — | ||||||||||||||||||||||||||||||||||||||||||
Construction loans | — | — | — | — | 841 | 841 | — | — | — | — | — | 6,568 | 6,568 | — | ||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial loans | — | — | — | — | 26,274 | 26,274 | — | — | — | — | — | 31,345 | 31,345 | — | ||||||||||||||||||||||||||||||||||||||||||
Consumer | — | — | — | — | 77 | 77 | — | — | — | — | — | 161 | 161 | — | ||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 1,259 | $ | 89 | $ | 2,487 | $ | 3,835 | $ | 333,969 | $ | 337,804 | $ | — | $ | — | $ | 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 June 30, 2014 (in thousands)
Residential Real Estate | Non-residential Real Estate | Construction | Commercial and Industrial | Consumer | Total | |||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 251,060 | $ | 68,339 | $ | 20,964 | $ | 26,864 | $ | 158 | $ | 367,385 | ||||||||||||
Special Mention | — | 829 | — | 579 | — | 1,408 | ||||||||||||||||||
Substandard | 5,010 | 9,018 | — | 2,511 | — | 16,539 | ||||||||||||||||||
Total | $ | 256,070 | $ | 78,186 | $ | 20,964 | $ | 29,954 | $ | 158 | $ | 385,332 |
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 June 30, 2014 and December 31, 2013 (in thousands)
2014 | 2013 | |||||||
Residential real estate | $ | 5,010 | $ | 2,210 | ||||
Non-residential real estate | 3,042 | 2,372 | ||||||
Commercial and industrial loans | 2,591 | 84 | ||||||
Total | $ | 10,643 | $ | 4,666 |
20 |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables provide certain information related toThere were no loans modified that were deemed TDRs during the credit quality of the loan portfolio.
Credit Quality Indicators as ofsix months ended June 30, 2013 (in thousands)2014.
Credit Risk Profile by Internally Assigned Grade
Residential Real Estate | Non- residential Real Estate | Construction | Commercial and Industrial | Consumer | Total | |||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 220,514 | $ | 70,703 | $ | 2,526 | $ | 25,408 | $ | 162 | $ | 319,313 | ||||||||||||
Special Mention | 2,565 | 3,219 | — | — | — | 5,784 | ||||||||||||||||||
Substandard | 1,708 | 7,822 | — | 1,833 | — | 11,363 | ||||||||||||||||||
Total | $ | 224,787 | $ | 81,744 | $ | 2,526 | $ | 27,241 | $ | 162 | $ | 336,460 |
Credit Quality Indicators as of December 31, 2012 (in thousands)
Credit Risk Profile by Internally Assigned Grade
Residential Real Estate | Non- residential Real Estate | Construction | Commercial and Industrial | Consumer | Total | |||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 221,794 | $ | 74,040 | $ | 841 | $ | 24,122 | $ | 77 | $ | 320,874 | ||||||||||||
Special Mention | 2,553 | 505 | — | — | — | 3,058 | ||||||||||||||||||
Substandard | 3,953 | 7,767 | — | 2,152 | — | 13,872 | ||||||||||||||||||
Total | $ | 228,300 | $ | 82,312 | $ | 841 | $ | 26,274 | $ | 77 | $ | 337,804 |
NOTE 7 - LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following table sets forth the composition of our nonaccrual loans at the dates indicated.
Loans Receivable on Nonaccrual Status as of June 30, 2013 and December 31, 2012 (in thousands)
2013 | 2012 | |||||||
Residential real estate-Multi-family | $ | 195 | $ | 1,477 | ||||
Non-residential real estate | 1,957 | 2,480 | ||||||
Construction loans | — | — | ||||||
Total | $ | 2,152 | $ | 3,957 |
The following table shows the breakdown of loans modified in TDRs for the periods indicated:
Three Months Ended June 30, | Six Months Ended June 30, | Three and Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
2013 | 2013 | 2013 | ||||||||||||||||||||||||||||||||||
Recorded | Recorded | Recorded | Recorded | Recorded | Recorded | |||||||||||||||||||||||||||||||
Investment | Investment | Investment | Investment | Investment | Investment | |||||||||||||||||||||||||||||||
Number of | Prior to | After | Number of | Prior to | After | Number of | Prior to | After | ||||||||||||||||||||||||||||
(dollars in thousands) | Modifications | Modification | Modification | Modifications | Modification | Modification | Modifications | Modification | Modification | |||||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||||||||||
Multi-family | 1 | $ | 307 | $ | 307 | 1 | $ | 307 | $ | 307 | 1 | $ | 307 | $ | 307 | |||||||||||||||||||||
Non-residential | 3 | 3,253 | 3,253 | 3 | 3,253 | 3,253 | 3 | 3,253 | 3,253 | |||||||||||||||||||||||||||
Total | 4 | $ | 3,560 | $ | 3,560 | 4 | $ | 3,560 | $ | 3,560 | 4 | $ | 3,560 | $ | 3,560 | |||||||||||||||||||||
The multi-family mortgage loan had an original interest rate of 6.75% with an amortization of 25 years. We reduced the interest rate and converted the monthly payments to interest only for twenty months and then amortizing for 30 years, with a balloon payment after approximately five and one-half years from the modification date.
Two non-residential mortgage loans had an original interest rate of 4.00%6.75% with an amortization of 25 years. We reduced the interest rate and converted the monthly payments to interest only for twenty months and then amortizing for 30 years, with a balloon payment after approximately five and one-half years from the modification date.
One non-residential mortgage loan had an original interest rate of 4.00%6.75% with an amortization of 30 years. We reduced the interest rate and converted the monthly payments to interest only for nineteen months and then amortizing for 30 years, with a balloon payment after two years from the modification date.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
2012 | 2012 | |||||||||||||||||||||||
Recorded | Recorded | Recorded | Recorded | |||||||||||||||||||||
Investment | Investment | Investment | Investment | |||||||||||||||||||||
Number of | Prior to | After | Number of | Prior to | After | |||||||||||||||||||
(dollars in thousands) | Modifications | Modification | Modification | Modifications | Modification | Modification | ||||||||||||||||||
Real estate: | ||||||||||||||||||||||||
Multi-family | — | $ | — | $ | — | 2 | $ | 1,900 | $ | 1,900 | ||||||||||||||
Non-residential | 4 | 10,500 | 10,500 | 4 | 10,500 | 10,500 | ||||||||||||||||||
Total | 4 | $ | 10,500 | $ | 10,500 | 6 | $ | 12,400 | $ | 12,400 | ||||||||||||||
There were no loans modified in troubled debt restructuring during the three and six months ended June 30, 2014. As of June 30, 2014, none of the loans that were modified during the previous twelve months had defaulted in the three and six month periods ended June 30, 2014. As of June 30, 2013, none of the loans that were modified during the previous twelve months had defaulted in the three and six month periods ended June 30, 2013.
NOTE 8 – EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In July 2012,2013, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting StandardsStandard Update (“ASU”) 2012-02,2013-11,Testing Indefinite-Lived Intangible Assets for Impairment.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 ASU 2011-08, Intangibles - Goodwill and Other (Topic 250) - Testing Goodwill for Impairment. ASU 2012-02 addresses the growing cost and complexityeliminate diversity in practice resulting from a lack of performing an analysis to evaluate indefinite-lived intangible assets (other than goodwill) for impairment.guidance on this topic in current U.S. GAAP. This ASU introduces qualitative factors which would simplify the analysis if facts and circumstances make it more-likely-than-not that impairment would not exist. Rather than requiring a purely quantitative impairment test, the ASU providesapplies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the option to first examine qualitative factors to make this determination. Factors to be considered would include, but are not limited to:
Entities are required bysame tax jurisdiction as of the reporting date. For public entities, the guidance to consider both positive and negative impacts of such factors before determining whether it is more-likely-than-not (i.e. greater than 50% probability) that the indefinite-lived intangible asset is impaired. It should be noted that the qualitative portion of the analysis is optional for all issuers.
This ASU is effective for impairment tests performed during fiscal years beginning after SeptemberDecember 15, 2012,2013 and may be early adopted if the entity’s financial statements for the most recent fiscal or interim period have not yet been issued.periods within those years. The Company adoptedadoption of this guidance in 2013. The adoption had nodid not have a material effectimpact on the Company’s consolidated financial statements.
In January 2014, the FASB issued ASU 2013-02:2014-04,Comprehensive Income (Topic 220)Receivables – ReportingTroubled Debt Restructurings by Creditors, which clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of Amounts Reclassified Outresidential 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 Accumulated Other Comprehensive Income.The objective of this ASU is to improvea foreclosure or (2) the reporting of reclassifications out of accumulated other comprehensive income. This ASU requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income, by component, on the respective line itemsborrower conveying all interest in the income statement ifresidential real estate property to the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP)creditor to be reclassifiedsatisfy that loan through completion of a deed in its entirety to net income. Reclassifications that are not required under U.S. GAAP to be reclassified in their entirety to net income inlieu of foreclosure or through a similar legal agreement. Additionally, the same reporting period are required to be cross-referenced to other U.S. GAAP disclosures that provide additional detail about those amounts. This is the case when a portionamendments require interim and annual disclosure of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account rather than directly to income or expense in the same reporting period. For example, some portion of net periodic pension cost is immediately reported in net income, but other portions may be capitalized to an asset balance such as fixed assets or inventory. An entity with significant defined benefit pension costs reclassified out of accumulated other comprehensive income but not to net income in its entirety in the same reporting period should identifyboth (1) the amount of each pension cost component reclassified outforeclosed 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 accumulated other comprehensive income and make referenceforeclosure according to the relevant pension cost disclosure that provides greater detail about these reclassifications.
The amendments do not change the currentlocal requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net incomeapplicable jurisdiction. For public entities, the guidance is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income.
The provisions of this ASU are effective for public entities prospectively for reportingannual periods, and interim periods within those annual periods, beginning after December 15, 2012.2014. The Company adopteddoes not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.
On May 28, 2014, the FASB and International Accounting Standards Board (“IASB”) issued ASU 2014-09,Revenue from Contracts with Customers. The standard outlines a single comprehensive model for entities to use in 2013.accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The adoption had noof this standard effective April 1, 2017 is not expected to have a material effectimpact on the Company’s consolidated financial statements.
NOTE 9 – DIVIDEND RESTRICTION
NorthEast Community Bancorp MHC (the “MHC”) held 7,273,750 shares, or 57.5%58.8%, of the Company’s issued and outstanding common stock, and the minority public shareholders held 42.5%41.2% of outstanding stock, at June 30, 2013.2014. 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 9, 201213, 2013 through November 9, 2013.12, 2014.
The MHC has waived receipt of all past dividends paid by the Company through June 30, 2013,2014, 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 June 30, 20132014 and December 31, 2012,2013, the aggregate retained earnings restricted for cash dividends waived were $4,801,000$5,674,000 and $4,364,000,$5,237,000, respectively.
NOTE 10 – RECLASSIFICATION OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME
Amounts reclassified from Accumulated Other Comprehensive Income are as follows:
Details about Accumulated Other Comprehensive Income Components | Three Months Ended June 30, 2014 | Six Months Ended June 30, 2014 | Affected Line Item in the Consolidated Statements of Comprehensive Income (Loss) | |||||||
(In thousands) | ||||||||||
Amortization of defined benefit pension items: | ||||||||||
Prior service costs | $ | 5 | (1) | $ | 11 | (1) | Salary and employee benefits | |||
Actuarial loss | (1 | ) | (1) | (2 | ) | (1) | Salary and employee benefits | |||
4 | 9 | Total before tax | ||||||||
(1 | ) | (2 | ) | Provision for income taxes | ||||||
Total reclassifications for the period | $ | 3 | $ | 7 | Net of taxes |
(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.
22 |
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 and valuation of goodwill to be a critical accounting policy. There have been no changes to our critical accounting policies and procedures during the six months ended June 30, 2014.
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, seeinformation on our critical accounting policies, please refer to Note 1 toof the consolidated financial statements included in the Company’sour 2013 Annual Report on Form 10-K for the year ended December 31, 2012.10-K.
Second Quarter Performance Highlights
The Company’s earnings for the quarter ended June 30, 20132014 increased by $116,000$75,000 compared to the same period in 20122013 primarily due to an increase in net interest income, an increase in non-interest income, and a decrease in non-interest expense, partially offset by a credit in provision for loan losses partially offset by a decreasethat was less than the same period in net interest income, a decrease in non-interest income, an increase in non-interest expenses,2013 and an increase in the provision for income taxes. The decreaseCompany had a credit of $217,000 in provision for loan losses was dueduring the June 30, 2014 quarter compared to a decreasecredit of $423,000 in theprovision for loan portfolio of $931,000, or 0.3%, to $332.9 million atlosses during the June 30, 2013 from $333.8 million at December 31, 2012 and a decrease in the balance of non-performing loans.quarter.
Non-performing loans decreasedincreased by $1.8$6.0 million, or 54.4%128.1%, to $2.2$10.6 million as of June 30, 20132014 from $4.0$4.7 million as of December 31, 2012. Furthermore, non-performing loans decreased by $5.9 million, or 73.4%, to $2.2 million as of June 30, 2013 from $8.1 million as of June 30, 2012.2013. The decreaseincrease in non-performing loans from June 30, 2012was primarily due to June 30, 2013 was due tothe addition of five non-performing mortgage loans totaling $5.3 million and two non-performing commercial and industrial loans totaling $2.5 million, partially offset by the conversion from non-performing to performing status of threeone mortgage loansloan totaling $4.6 million, the charge-off of two mortgage loans totaling $1.9 million, and$830,000, the satisfaction of twoone mortgage loansloan totaling $1.1 million, partially offset by$789,000, and the additionpartial charge-off of four$325,000 for one mortgage loans totaling $1.7 million. We will continue to monitor our loan portfolio closely and adjust the level of allowance for loan losses appropriately as updated information becomes available.loan.
Our interest rate spread improveddecreased to 3.55% for the three months ended June 30, 2014 from 3.92% for the three months ended June 30, 2013 from 3.41%and our net interest margin decreased to 3.77% for the three months ended June 30, 2012 and our net interest margin improved to2014 from 4.16% for the three months ended June 30, 2013 from 3.65% for the three months ended2013.
Our loans receivable, net, increased by $14.2 million, or 3.9%, to $382.0 million as of June 30, 2012.2014 from $367.8 million at December 31, 2013 due primarily to increases of $14.4 million in construction mortgage loans, $3.5 million in mixed-use mortgage loans, $1.1 million in multi-family mortgage loans, and $348,000 in one-to-four family mortgage loans, offset by decreases of $3.8 million in non-residential mortgage loans, $1.4 million in commercial and industrial loans, and $3,000 in consumer loans.
Comparison of Financial Condition at June 30, 20132014 and December 31, 20122013
Total assets decreasedincreased by $15.4$17.2 million, or 3.5%3.7%, to $428.9$475.4 million at June 30, 20132014 from $444.2$458.2 million at December 31, 2012.2013. The decreaseincrease in total assets was due primarily to decreasesincreases of $10.1$14.2 million in loans receivable, net, $6.1 million in cash and cash equivalents, $2.0 million in securities held-to-maturity, $931,000 in loans receivable, net, $828,000 in other assets, $481,000 in Federal Home Loan Bank of New York (“FHLB”) stock, $450,000 in real estate owned, $367,000 in premises and equipment, $334,000 in goodwill, and $249,000 in certificates of deposits at other financial institutions, partially offset by an increase of $319,000$309,000 in bank owned life insurance.insurance, and $189,000 in accrued interest receivable, offset by decreases of $2.4 million in other assets, $938,000 in securities held-to-maturity, and $303,000 in premises and equipment. The decreaseincrease in total assets was funded primarily resulted from decreasesincreases of $5.6$18.4 million in deposits $10.0 millionand $570,000 in FHLB advances,accounts payable and $926,000accrued expenses, partially offset by a decrease of $786,000 in advance payments by borrowers for taxes and insurance,insurance.
Loans receivable, net, increased by $14.2 million, or 3.9%, to $382.0 million at June 30, 2014 from $367.8 million at December 31, 2013 due primarily to loan originations totaling $66.1 million which exceeded loan repayments and charge-offs totaling $51.9 million. The increase in the mortgage loan portfolio was due to increases of $14.4 million, or 219.2%, in the construction mortgage loan portfolio to $21.0 million at June 30, 2014 from $6.6 million at December 31, 2013, $3.5 million, or 7.0%, in the mixed-use mortgage loan portfolio to $53.0 million at June 30, 2014 from $50.5 million at December 31, 2013, $1.1 million, or 0.6%, in the multi-family mortgage loan portfolio to $190.0 million at June 30, 2014 from $188.9 million at December 31, 2013, and $348,000, or 3.0%, in the one-to-four family mortgage loan portfolio to $12.1 million at June 30, 2014 from $11.8 million at December 31, 2013, partially offset by increasesdecreases of $741,000$3.8 million, or 4.6%, in accounts payablethe non-residential mortgage loan portfolio to $78.2 million at June 30, 2014 from $82.0 million at December 31, 2013, $1.4 million, or 4.4%, in the commercial and accrued expensesindustrial loan portfolio to $30.0 million at June 30, 2014 from $31.3 million at December 31, 2013, and $460,000$3,000, or 1.6%, in stockholders’ equity.the consumer loan portfolio to $158,000 at June 30, 2014 from $161,000 at December 31, 2013.
The increase in the construction mortgage loan portfolio was due to the Company’s entry in 2012 in the Massachusetts construction market through the origination of construction loans secured by the construction of multi-family and single family properties and the Company’s entry during the latter part of 2013 into the New York State construction market through the origination of construction loans secured by the construction of multi-family properties located in New York State.
Cash and cash equivalents decreasedincreased by $10.1$6.1 million, or 20.5%19.4%, to $39.1$37.6 million at June 30, 20132014 from $49.2$31.5 million at December 31, 20122013 due primarily to the above mentioned decreasesincreases in deposits, advance payments by borrowers for taxes and insurance, securities held-to-maturity, loans receivable, FHLB stock, and certificates of deposits at other financial institutions, and repayment of FHLB advances.
Securities held-to-maturity decreased by $2.0 million, or 16.5%, to $10.0 million at June 30, 2013 from $12.0 million at December 31, 2012 due primarily to repayments of $2.1 million. Certificates of deposits at other financial institutions decreased by $249,000, or 62.4%, to $150,000 at June 30, 2013 from $399,000 at December 31, 2012 due to the maturity and redemption of a certificate of deposit.
Loans receivable, net, decreased by $931,000, or 0.3%, to $332.9 million at June 30, 2013 from $333.8 million at December 31, 2012 due primarily to loan repayments and charge-offs totaling $26.1 million that exceeded loan originations totaling $25.1 million. FHLB stock decreased by $481,000, or 35.5%, to $874,000 at June 30, 2013 from $1.4 million at December 31, 2012 due primarily to a decrease in the amount of FHLB stock that we are required to hold as a result of decreases in FHLB advances and the mortgage loan portfolio.
deposits. Bank owned life insurance increased by $319,000,$309,000, or 1.6%1.5%, to $20.2$20.8 million at June 30, 20132014 from $19.9$20.5 million at December 31, 20122013 due to accrued earnings during 2013. Real estate owned decreased2014. Accrued interest receivable increased by $450,000,$189,000, or 10.5%14.9%, to $3.8$1.5 million at June 30, 20132014 from $4.3$1.3 million at December 31, 2012 due to the sale of a foreclosed property. Premises and equipment decreased by $367,000, or 2.8%, to $12.5 million at June 30, 2013 from $12.9 million at December 31, 2012 due primarily to depreciation. Other assets decreased by $828,000, or 10.6%, to $7.0 million at June 30, 2013 from $7.8 million at December 31, 2012 due to a refund ofan increase in the FDIC prepaid insurance and reductions in tax accruals and prepaid insurance.mortgage loan portfolio.
DepositsOther assets decreased by $5.6$2.4 million, or 1.8%32.2%, to $312.5$5.1 million at June 30, 20132014 from $318.1$7.5 million at December 31, 2012.2013 due to a $1.9 million income tax refund from the Internal Revenue Service that reduced current tax assets. Securities held-to-maturity decreased by $938,000, or 11.1%, to $7.5 million at June 30, 2014 from $8.4 million at December 31, 2013 due primarily to repayments of $956,000. Premises and equipment decreased by $303,000, or 2.5%, to $11.9 million at June 30, 2014 from $12.2 million at December 31, 2013 due primarily to depreciation.
Deposits increased by $18.4 million, or 5.6%, to $343.6 million at June 30, 2014 from $325.2 million at December 31, 2013. The decreaseincrease in deposits was primarily attributable to decreasesincreases of $2.0$17.8 million in non-interest bearing accounts, $1.6 millioncertificates of deposit and $733,000 in regular savings accounts, $1.1 million in certificatespartially offset by decreases of deposits, and $971,000$99,000 in NOW and money market accounts and $32,000 in non-interest bearing accounts. The increase in certificates of deposit was due to non-broker certificates of deposit 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 $17.1 million in non-broker certificates of deposit 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 deposit.
Advance payments by borrowers for taxes and insurance decreased by $926,000,$786,000, or 26.3%19.7%, to $2.6$3.2 million at June 30, 20132014 from $3.5$4.0 million at December 31, 20122013 due primarily to remittances of taxes for our borrowers.
FHLB advances decreased Accounts payable and accrued expenses increased by $10.0 million,$570,000, or 66.7%14.8%, to $5.0$4.4 million at June 30, 20132014 from $15.0$3.9 million at December 31, 20122013 due primarily to preparation of remittances of taxes for our borrowers through the maturity and repayment of certain FHLB advances.accounts payable process.
Stockholders’ equity increaseddecreased by $460,000$892,000, or 0.9%, to $104.3$103.3 million at June 30, 2013,2014, from $103.8$104.2 million at December 31, 2012.2013. This increasedecrease was primarily the result of stock repurchases of $1.4 million, and cash dividends declared and paid of $289,000, partially offset by comprehensive income of $687,000$693,000 and the amortization of $75,000$94,000 for the ESOP for the period, partially offset by cash dividends declared of $302,000.period.
Comparison of Operating Results for the Three Months Ended June 30, 20132014 and 20122013
General.Net income increased by $116,000,$75,000, or 43.8%19.7%, to $456,000 for the quarter ended June 30, 2014 from net income of $381,000 for the quarter ended June 30, 2013, from $265,000 for the quarter ended June 30, 2012.2013. The increase was primarily the result of an increase of $35,000 in net interest income, an increase of $21,000 in non-interest income, and a decrease of $541,000$296,000 in non-interest expenses, partially offset by a decrease of $206,000 in provision for loan losses offset by a decrease of $194,000 in net interest income, a decrease of $151,000 in non-interest income, an increase of $8,000 in non-interest expenses and an increase of $72,000$71,000 in the provision for income taxes.
Net Interest IncomeIncome.. Net interest income decreasedincreased by $194,000,$35,000, or 4.6%0.9%, to $4.0$4.02 million for the three months ended June 30, 20132014 from $4.2$3.99 million for the three months ended June 30, 2012.2013. The decreaseincrease in net interest income resulted primarily from a decreasean increase of $341,000$105,000 in interest income, that exceeded a decreasepartially offset by an increase of $147,000$70,000 in interest expense.
The net interest spread increaseddecreased by 5137 basis points to 3.55% for the three months ended June 30, 2014 from 3.92% for the three months ended June 30, 2013 from 3.41% for the three months ended June 30, 2012.2013. The net interest margin increaseddecreased by 5139 basis points between these periods from 3.65% for the quarter ended June 30, 2012 to 4.16% for the quarter ended June 30, 2013.2013 to 3.77% for the quarter ended June 30, 2014. The increasedecrease in the interest rate spread and the net interest margin in the second quarter of 20132014 compared to the same period in 20122013 was due to an increasea decrease of 40 basis points in the yield on our interest-earning assets that exceeded an increasea decrease of three basis points in the cost of our interest-bearing liabilities.
The average yield on our interest-earning assets increaseddecreased by 5240 basis points to 4.57% for the three months ended June 30, 2014 from 4.97% for the three months ended June 30, 2013 from 4.45%and the cost of our interest-bearing liabilities decreased by three basis points to 1.02% for the three months ended June 30, 2012 and the cost of our interest-bearing liabilities increased by 1 basis points to2014 from 1.05% for the three months ended June 30, 2013 from 1.04% for the three months ended June 30, 2012.2013. The increasedecrease in the yield on our interest-earning assets was due to a decrease in other interest-earning assets, resulting in a shift in the composition of interest-earning assets whereby higher yieldingyield on loans receivable, represented a larger percentage of total interest-earning assets in the June 30, 2013 quarter compared to the June 30, 2012 quarter. The increaseoffset by increases in the yield of ouron securities and other interest-earning assets was also due to aassets. The decrease in our non-performing assets by $6.4 million, or 78.8%, to $1.7 million as of June 30, 2013 from $8.1 million as of June 30, 2012. The increase in the cost of our interest-bearing liabilities was due to a decrease in the offeringcost of competitive interest rates to generate deposits in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012 and,borrowed money, offset by an increase in the Company’s decision to reduce our interest rates offered on our deposits during the second quartercost of 2013.interest-bearing deposits.
The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three months ended June 30, 20132014 and 2012.2013.
Three Months Ended June 30, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Average Balance | Interest and Dividends | Yield/ Cost | Average Balance | Interest and Dividends | Yield/ Cost | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | 343,487 | $ | 4,677 | 5.45 | % | $ | 356,024 | $ | 4,969 | 5.58 | % | ||||||||||||
Securities (including FHLB stock) | 11,720 | 84 | 2.87 | 16,187 | 126 | 3.11 | ||||||||||||||||||
Other interest-earning assets | 28,476 | 2 | 0.03 | 86,665 | 9 | 0.04 | ||||||||||||||||||
Total interest-earning assets | 383,683 | 4,763 | 4.97 | 458,876 | 5,104 | 4.45 | ||||||||||||||||||
Allowance for loan losses | (4,683 | ) | (6,667 | ) | ||||||||||||||||||||
Non-interest-earning assets | 50,110 | 38,696 | ||||||||||||||||||||||
Total assets | $ | 429,110 | $ | 490,905 | ||||||||||||||||||||
Liabilities and equity: | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand | $ | 61,107 | $ | 52 | 0.34 | % | $ | 112,014 | $ | 127 | 0.45 | % | ||||||||||||
Savings and club accounts | 82,049 | 110 | 0.54 | 91,808 | 131 | 0.57 | ||||||||||||||||||
Certificates of deposit | 147,395 | 568 | 1.54 | 137,369 | 527 | 1.53 | ||||||||||||||||||
Total interest-bearing deposits | 290,551 | 730 | 1.00 | 341,191 | 785 | 0.92 | ||||||||||||||||||
Borrowings | 5,000 | 45 | 3.60 | 15,000 | 137 | 3.65 | ||||||||||||||||||
Total interest-bearing liabilities | 295,551 | 775 | 1.05 | 356,191 | 922 | 1.04 | ||||||||||||||||||
Noninterest-bearing demand | 20,567 | 18,030 | ||||||||||||||||||||||
Other liabilities | 8,572 | 8,988 | ||||||||||||||||||||||
Total liabilities | 324,690 | 383,209 | ||||||||||||||||||||||
Stockholders’ equity | 104,420 | 107,696 | ||||||||||||||||||||||
Total liabilities and Stockholders’ equity | $ | 429,110 | $ | 490,905 | ||||||||||||||||||||
Net interest income | $ | 3,988 | $ | 4,182 | ||||||||||||||||||||
Interest rate spread | 3.92 | % | 3.41 | % | ||||||||||||||||||||
Net interest margin | 4.16 | % | 3.65 | % | ||||||||||||||||||||
Net interest-earning assets | $ | 88,132 | $ | 102,685 | ||||||||||||||||||||
Interest-earning assets to interest-bearing liabilities | 129.82 | % | 128.83 | % |
Three Months Ended June 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Average | and | Yield/ | Average | and | Yield/ | |||||||||||||||||||
Balance | Dividends | Cost | Balance | Dividends | Cost | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | 388,603 | $ | 4,789 | 4.93 | % | $ | 343,487 | $ | 4,677 | 5.45 | % | ||||||||||||
Securities (including FHLB stock) | 9,383 | 74 | 3.15 | 11,720 | 84 | 2.87 | ||||||||||||||||||
Other interest-earning assets | 28,351 | 5 | 0.07 | 28,476 | 2 | 0.03 | ||||||||||||||||||
Total interest-earning assets | 426,337 | 4,868 | 4.57 | 383,683 | 4,763 | 4.97 | ||||||||||||||||||
Allowance for loan losses | (4,200 | ) | (4,683 | ) | ||||||||||||||||||||
Non-interest-earning assets | 47,420 | 50,110 | ||||||||||||||||||||||
Total assets | $ | 469,557 | $ | 429,110 | ||||||||||||||||||||
Liabilities and equity: | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand | $ | 59,646 | $ | 54 | 0.36 | % | $ | 61,107 | $ | 52 | 0.34 | % | ||||||||||||
Savings and club accounts | 86,310 | 118 | 0.55 | 82,049 | 110 | 0.54 | ||||||||||||||||||
Certificates of deposit | 169,386 | 640 | 1.51 | 147,395 | 568 | 1.54 | ||||||||||||||||||
Total interest-bearing deposits | 315,342 | 812 | 1.03 | 290,551 | 730 | 1.00 | ||||||||||||||||||
Borrowings | 17,051 | 33 | 0.77 | 5,000 | 45 | 3.60 | ||||||||||||||||||
Total interest-bearing liabilities | 332,393 | 845 | 1.02 | 295,551 | 775 | 1.05 | ||||||||||||||||||
Noninterest-bearing demand | 24,638 | 20,567 | ||||||||||||||||||||||
Other liabilities | 9,144 | 8,572 | ||||||||||||||||||||||
Total liabilities | 366,175 | 324,690 | ||||||||||||||||||||||
Stockholders’ equity | 103,382 | 104,420 | ||||||||||||||||||||||
Total liabilities and | ||||||||||||||||||||||||
Stockholders’ equity | $ | 469,557 | $ | 429,110 | ||||||||||||||||||||
Net interest income | $ | 4,023 | $ | 3,988 | ||||||||||||||||||||
Interest rate spread | 3.55 | % | 3.92 | % | ||||||||||||||||||||
Net interest margin | 3.77 | % | 4.16 | % | ||||||||||||||||||||
Net interest-earning assets | $ | 93,944 | $ | 88,132 | ||||||||||||||||||||
Interest-earning assets to interest-bearing liabilities | 128.26 | % | 129.82 | % |
Total interest income decreasedincreased by $341,000,$105,000, or 6.7%2.2%, to $4.9 million for the three months ended June 30, 2014 from $4.8 million for the three months ended June 30, 2013. Interest income on loans increased by $112,000, or 2.4%, to $4.8 million for the three months ended June 30, 2013,2014 from $5.1 million for the three months ended June 30, 2012. Interest income on loans decreased by $292,000, or 5.9%, to $4.7 million for the three months ended June 30, 2013 from $5.02013. The increase was primarily the result of an increase of $45.1 million, or 13.1%, in the average balance of the loan portfolio to $388.6 million for the three months ended June 30, 2012.2014 from $343.5 million for the three months ended June 30, 2013 as originations outpaced repayments and charge-offs, net of recoveries. The decreaseincrease in the average balance of the loan portfolio was primarily the result ofoffset by a decrease of 1352 basis points in the average yield on loans to 4.93% for the three months ended June 30, 2014 from 5.45% for the three months ended June 30, 2013 from 5.58% for the three months ended June 30, 2012.2013. The decrease in interest income and the average yield on loans was also 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. The decrease in interest income was also due to a decrease of $12.5 million, or 3.5%, in the average balance of the loan portfolio to $343.5 million for the three months ended June 30, 2013 from $356.0 million for the three months ended June 30, 2012 as repayments outpaced originations and charge-offs, net of recoveries.
Interest income on securities decreased by $42,000,$10,000, or 33.3%11.9%, to $74,000 for the three months ended June 30, 2014 from $84,000 for the three months ended June 30, 2013 from $126,000 for the three months ended June 30, 2012.2013. The decrease was primarily due to a decrease of $4.5$2.3 million, or 27.6%19.9%, in the average balance of securities to $9.4 million for the three months ended June 30, 2014 from $11.7 million for the three months ended June 30, 2013, from $16.2 millionoffset by an increase of 28 basis points in the average yield on securities to 3.15% for the three months ended June 30, 2012.2014 from 2.87% for the three months ended June 30, 2013. The decrease in the average balance was due to the principal repayments on investment securities, and a decreaseoffset by an increase in FHLB New York stock. The decrease in interest income on securities was also due to a decrease of 24 basis points in the average yield on securities to 2.87% for the three months ended June 30, 2013 from 3.11% for the three months ended June 30, 2012. The declineincrease in the yield was also due to the re-pricing of the yield of our adjustable rate investment securitiesdividends from FHLB New York stock that yielded approximately 4.0% and a decreasean increase in FHLB New York stock yield from 4.5% at June 30, 2012 to 4.0% at June 30, 2013.as a percentage of total investment securities.
Interest income on other interest-earning assets (consisting solely of interest-earning deposits) decreasedincreased by $7,000,$3,000, or 77.8%150.0% to $5,000 for the three months ended June 30, 2014 from $2,000 for the three months ended June 30, 2013 from $9,0002013. The increase was primarily due to an increase of four basis points in the average yield on other interest-earning assets to 0.07% for the three months ended June 30, 2012. The decrease was primarily due to2014 from 0.03% for the three months ended June 30, 2013, offset by a decrease of $58.2 million,$125,000, or 67.1%0.4%, in the average balance of interest-earning assets to $28.4 million for the three months ended June 30, 2014 from $28.5 million for the three months ended June 30, 2013 from $86.7 million2013. The increase in interest income on interest-earnings deposits was due to an increase in the average balance of higher yielding certificates of deposit 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 increased by $70,000, or 9.0%, to $845,000 for the three months ended June 30, 2012. The decrease was also due to a decrease of 1 basis point in the average yield on other interest-earning assets to 0.03% for the three months ended June 30, 20132014 from 0.04% for the three months ended June 30, 2012.
The decrease in the average balance of other interest-earning assets was due to decreases in cash and cash equivalents and certificates of deposit at other financial institutions. The decline in the yield was due to the maturity of higher yielding certificates of deposits at other financial institutions.
Total interest expense decreased by $147,000, or 15.9%, to $775,000 for the three months ended June 30, 2013 from $922,0002013. Interest expense on deposits increased by $82,000, or 11.2%, to $812,000 for the three months ended June 30, 2012. Interest expense on deposits decreased by $55,000, or 7.0%, to2014 from $730,000 for the three months ended June 30, 2013 from $785,000 for the three months ended June 30, 2012.2013. The decreaseincrease in the interest expense on deposits was a result of our decision to reduce our interest rates offered on our interest-bearing demand deposits and interest-bearing savings and club deposits in order to improve our net interest spread and net interest margin toan increase profitability, offset by an increaseof $24.8 million, or 8.5%, in the average balance and averageof interest cost of our certificates of deposit as a result of offering competitive interest rates to generate deposits in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012. This resulted in an increase of 8 basis points in the average interest cost ofbearing deposits to 1.00%$315.3 million for the three months ended June 30, 20132014 from 0.92% for the three months ended June 30, 2012.
The decrease in interest expense on deposits was also due to a decrease of $50.6 million, or 14.8%, in the average balance of interest-bearing deposits to $290.6 million for the three months ended June 30, 2013 from $341.2 million2013. The increase in the interest expense on deposits was also a result of an increase of three basis points in the average cost of interest-bearing deposits to 1.03% for the three months ended June 30, 2012. The decrease in2014 from 1.00% for the average balance of interest-bearing deposits was due to decreases in the average balance of our interest-bearing demand deposits and interest-bearing savings and club accounts, offset by increases in the average balance of our interest-bearing certificates of deposits. The decrease in the average balances of our interest-bearing demand deposits and interest-bearing savings and club accounts was due to the Company’s decision to reduce our interest rates offered on our deposits. The increase in the average balance of our interest-bearing certificates of deposit was due to offering competitive interest rates in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012.three months ended June 30, 2013.
The interest expense of our interest-bearing demand deposits decreasedincreased by $75,000,$2,000, or 59.1%3.8%, to $54,000 for the three months ended June 30, 2014 from $52,000 for the three months ended June 30, 2013 from $127,000 for the three months ended June 30, 2012.2013. The decreaseincrease in interest expense in our interest-bearing demand deposits was due to our decision to reduce our interest rates in interest-bearing demand deposits that resulted in an 11increase of two basis point decreasepoints in the average interest cost to 0.36% for the three months ended June 30, 2014 from 0.34% for the three months ended June 30, 2013 from 0.45% for the three months ended June 30, 2012. The decrease inas we offered competitive interest expense on our interest-bearing demandrates to generate deposits, was also due tooffset by a decrease of $50.9$1.5 million, or 45.5%2.4%, in the average balance of our interest-bearing demand deposits to $59.6 million for the three months ended June 30, 2014 from $61.1 million for the three months ended June 30, 2013 from $112.0 million for the three months ended June 30, 2012.2013.
The interest expense of our interest-bearing savings and club deposits decreasedincreased by $21,000,$8,000, or 16.0%7.2%, to $118,000 for the three months ended June 30, 2014 from $110,000 for the three months ended June 30, 2013 from $131,000 for the three months ended June 30, 2012.2013. The decreaseincrease in interest expense in our interest-bearing savings and club deposits resulted from our decision to reduce our interest rates in interest-bearing savings and club deposits that resulted in a 3 basis point decrease in the average interest cost to 0.54% for the three months ended June 30, 2013 from 0.57% for the three months ended June 30, 2012. The decrease in interest expense on our interest-bearing savings and club deposits was also due to a decreasean increase of $9.8$4.3 million, or 10.6%5.2%, in the average balance of our interest-bearing savings and club deposits to $86.3 million for the three months ended June 30, 2014 from $82.0 million for the three months ended June 30, 2013 from $91.8 million2013. The increase in interest expense in our interest-bearing savings and club deposits was also due to a one basis point increase in the average interest cost to 0.55% for the three months ended June 30, 2012.2014 from 0.54% for the three months ended June 30, 2013 as we continued to offer competitive interest rates to generate deposits.
The interest expense of our interest-bearing certificates of deposit increased by $41,000,$72,000, or 7.8%12.7%, to $640,000 for the three months ended June 30, 2014 from $568,000 for the three months ended June 30, 2013 from $527,000 for the three months ended June 30, 2012.2013. The increase in interest expense in our interest-bearing certificates of deposit was due to offering competitive interest rates in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012. This resulted in an increase of $10.0$22.0 million, or 7.3%14.9%, in the average balance of our interest-bearing certificates of deposit to $169.4 million for the three months ended June 30, 2014 from $147.4 million for the three months ended June 30, 2013 from $137.4 million for the three months ended June 30, 2012.2013. The increase in our interest-bearing certificates was due to management’s decision to continue offering 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 also due tooffset by a 1three basis point increasedecrease in the average interest cost on such certificates to 1.51% for the three months ended June 30, 2014 from 1.54% for the three months ended June 30, 2013 from 1.53%2013. The decrease in the average interest cost of our interest-bearing certificates of deposit was due to the re-pricing of maturing certificates of deposit and the acquisition of competitively priced interest-bearing certificates of deposit through a non-broker nationwide certificate of deposit listing service.
Interest expense on borrowings decreased by $12,000, or 26.7%, to $33,000 for the three months ended June 30, 2012.
Interest expense on borrowings decreased by $92,000, or 67.2%, to2014 from $45,000 for the three months ended June 30, 2013 from $137,000 for the three months ended June 30, 2012. The decrease was primarily due to a decrease of $10.0 million, or 66.7%, in the average balance of borrowed money to $5.0 million for the three months ended June 30, 2013 from $15.0 million for the three months ended June 30, 2012.2013. The decrease in interest expense on borrowings was also due to a decrease of 5283 basis points in the cost of borrowed money to 0.77% for the three months ended June 30, 2014 from 3.60% for the three months ended June 30, 2013 from 3.65% for the three months ended June 30, 2012 due primarily to the maturity and repayment of higher costing FHLB advances during the quarter ended June 30, 2014 and new lower cost FHLB advances obtained during the first six months of 2014. The decrease in interest expense on borrowings was partially offset by an increase of $12.1 million, or 241.0%, in the average balance of borrowed money to $17.1 million for the three months ended June 30, 2014 from 2012 to$5.0 million for the three months ended June 30, 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 June 30, 20132014 and 2012.2013.
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Three Months | ||||||||||||||||
Ended June 30, | ||||||||||||||||
Three Months Ended June 30, | 2014 | 2013 | ||||||||||||||
2013 | 2012 | |||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
Allowance at beginning of period | $ | 4,706 | $ | 7,086 | $ | 4,205 | $ | 4,706 | ||||||||
Provision for loan losses | (423 | ) | 117 | |||||||||||||
Provision (credit) for loan losses | (217 | ) | (423 | ) | ||||||||||||
Charge-offs | 105 | 3,336 | (398 | ) | (105 | ) | ||||||||||
Recoveries | 27 | — | 340 | 27 | ||||||||||||
Net charge-offs | 78 | 3,336 | (58 | ) | (78 | ) | ||||||||||
Allowance at end of period | $ | 4,205 | $ | 3,867 | $ | 3,930 | $ | 4,205 | ||||||||
Allowance to nonperforming loans | 195.40 | % | 47.89 | % | ||||||||||||
Allowance to total loans outstanding at the end of the period | 1.25 | % | 1.10 | % | ||||||||||||
Net charge-offs (recoveries) to average loans outstanding during the period | 0.02 | % | 0.94 | % | ||||||||||||
End of period - Allowance to non-performing loans | 36.93 | % | 195.40 | % | ||||||||||||
End of period - Allowance to total loans outstanding | 1.02 | % | 1.25 | % | ||||||||||||
Net charge-offs to average loans outstanding during the period | 0.01 | % | 0.02 | % |
The allowance to non-performing loans ratio increaseddecreased to 36.93% at June 30, 2014 from 195.40% at June 30, 2013 from 47.89%due primarily to an increase in non-performing loans to $10.6 million at June 30, 2012 due primarily to the decrease in non-performing loans to2014 from $2.2 million at June 30, 2013 from $8.1 million at June 30, 2012 coupled with an increaseand a decrease in the allowance for loan losses. The decreaseincrease in non-performing loans was due to the identification, monitoringaddition of seven mortgage loans totaling $7.6 million and resolutionfour commercial and industrial loans totaling $2.5 million, partially offset by the conversion from non-performing to performing status of several non-performingthree mortgage loans that were paid-off or became performing astotaling $1.0 million and the satisfaction of June 30, 2013.one mortgage loan totaling $727,000.
The allowance for loan losses was $3.93 million at June 30, 2014, $4.02 million at December 31, 2013, and $4.21 million at June 30, 2013, $4.65 million at December 31, 2012, and $3.87 million at2013. We recorded a credit provision for loan losses of ($217,000) for the three months ended June 30, 2012. We recorded2014 compared to a credit provision for loan losses of ($423,000) for the three month period ended June 30, 2013 compared to provision for loan losses of $117,000 for the three month period ended June 30, 2012.2013. The reduction in the provisionallowance for loan losses was due to a decreasethe Company’s assessment that there are no losses anticipated in connection with the increase in non-performing loans beyond the amounts already charged-off, that there has been an improvement in the Company’s historical charge-offs, and that the level of allowance for loan portfolio of $931,000, or 0.3%,losses was adequate due to $332.9 million at June 30, 2013 from $333.8 million at December 31, 2012 and a decreaseimprovements in the amount of non-performing loans ineconomy and the loan portfolio.multi-family, mixed-use and non-residential real estate market.
We charged-off $105,000 against two non-performing non-residential mortgage loanshad charge-offs of $398,000 during the three months ended June 30, 20132014 compared to charge-offs of $3.3 million against four non-performing multi-family mortgage loans, four non-performing non-residential mortgage loans, and one non-performing construction mortgage loan$105,000 during the three months ended June 30, 2012.2013. We recorded recoveries of $340,000 during the three months ended June 30, 2014 compared to recoveries of $27,000 during the three months ended June 30, 2013 compared2013.
Non-interest Income. Non-interest income increased by $21,000, or 4.5%, to no recoveries during$487,000 for the three months ended June 30, 2012.
Non-interest Income. Non-interest income decreased by $150,000, or 24.4%, to2014 from $466,000 for the three months ended June 30, 2013 from $616,000 for the three months ended June 30, 2012.2013. The decreaseincrease was primarily due to a $111,000 decreaseincreases of $20,000 in other loan fees and service charges, primarily due to a decrease of $137,000 in mortgage broker fee income, and a $57,000 decrease inadvisory fee income generated by our wealth management division, partiallyand $8,000 in other loan fees and service charges, offset by a $19,000 increasedecrease of $7,000 in earnings on bank owned life insurance. The increase in advisory fee income from our wealth management division was due to an increase in assets under management. The increase in other loan fees and service charges was due to an increase in loan fees as our loan portfolio increased. The decrease in earnings on bank owned life insurance was due to a decrease in the effective yield of the underlying investments.
Non-interest Expense. Non-interest expense increaseddecreased by $8,000,$296,000, or 0.2%6.8%, to $4.36$4.1 million for the three months ended June 30, 20132014 from $4.35$4.4 million for the three months ended June 30, 2012.2013. The increasedecrease resulted primarily from increasesdecreases of $334,000 in impairment loss on goodwill, $171,000$136,000 in real estate owned expenses, $34,000$14,000 in occupancyequipment expense, and $2,000$10,000 in outside data processingadvertising expense, partially offset by decreasesincreases of $234,000$105,000 in salaries and employee benefits, $187,000$38,000 in FDIC insurance expense, $37,000 in other non-interest expense, $62,000$10,000 in equipment expense, $35,000 in advertisingoccupancy expense, and $15,000$8,000 in FDIC insuranceoutside data processing expense.
DuringThe Company did not have any impairment loss on goodwill in the quarter ended June 30, 2014 compared to a $334,000 impairment loss on goodwill recognized in the quarter ended June 30, 2013. The impairment loss on goodwill during the second quarter of 2013 was due to the Company determinedCompany’s determination that an adjustment to the goodwill impairment of $227,000 previously recorded in 2012 was necessary. As a result, an additional impairment charge of $334,000 was recognized during the second quarter of 2013. The goodwill was recorded in connection with the Hayden Financial Group acquisition in 2007. The impairment was caused primarily by the expected decrease in other revenue from this division resulting from a reduction in personnel. The Company did not have any impairment loss on goodwill in the quarter ended June 30, 2012.
Real estate owned expense increaseddecreased by $171,000$136,000, or 78.6%, to $37,000 in 2014 from $173,000 in 2013 due to operating expenses related to one foreclosed property during the quarter ended June 30, 2014 compared to two foreclosed properties during the quarter ended June 30, 2013 and a loss of $51,000 on the sale of a real estate owned andduring the addition of two foreclosed properties subsequent toquarter ended June 30, 2012 resulting in an increase in real estate owned to $3.8 million as of June 30, 2013 from no real estate owned as of June 30, 2012.2013.
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OccupancyEquipment expense increaseddecreased by $34,000,$14,000, or 10.9%9.3%, to $346,000$136,000 in 2014 from $150,000 in 2013 from $312,000 in 2012 due to decreases in the additionpurchases of the new Framinghamadditional equipment and Quincy, Massachusetts branch offices. Outside data processingcontinued efforts to contain expenses. Advertising expense increaseddecreased by $2,000,$10,000, or 0.7%50.0%, to $283,000$10,000 in 2014 from $20,000 in 2013 from $281,000 in 2012 due to nominal increases from the Company’s data processing vendors.continued efforts to contain expenses.
Salaries and employee benefits, which represented 45.7%51.6% of the Company’s non-interest expense during the quarter ended June 30, 2013, decreased2014, increased by $234,000,$105,000, or 10.5%5.3%, to $2.1 million in 2014 from $2.0 million in 2013 from $2.2 million in 2012 due to the staffing of the Rockland County, New York loan production office, offset by a decreasereduction in the number of full time equivalent employees to 99 at June 30, 2014 from 104 at June 30, 2013 from 114 at June 30, 2012.2013. The decreasereduction in full time employees was due to the Company’s efforts to control the increasestaff occurred in salaries and employee benefits by reducing staff in various departments, including the mortgage brokerage department, the wealth management department and branch operationsoperations.
FDIC insurance expense increased by $38,000, or 45.8%, to $121,000 in 2014 from June 30, 2012$83,000 in 2013 due to June 30, 2013.increases in the Company’s assessment base and quarterly assessment multiplier from 2013 to 2014.
Other non-interest expense decreasedincreased by $187,000,$37,000, or 16.1%3.8%, to $1.02 million in 2014 from $978,000 in 2013 from $1.2 million in 2012 due mainly to decreasesincreases of $103,000$85,000 in recruitmentmiscellaneous other non-interest expenses, related to the hiring of additional personnel$54,000 in the Company’s Headquartersaudit and Massachusetts locations, $91,000accounting fees, $29,000 in service contracts, $10,000 in directors, officers and employee expenses, $70,000and $9,000 in telephone expenses, offset by decreases of $113,000 in legal fees, $17,000$23,000 in service contracts,directors compensation, and $4,000$14,000 in office supplies and stationery. These decreases were partially offset by increases of $44,000The decrease in audit and accountinglegal fees $21,000 in director’s compensation, $17,000 in telephone expenses, $8,000 in consulting fees, and $4,000 in insurance expenses.from the quarter ended June 30, 2013 compared to the quarter ended June 30, 2014 was due primarily to the Company’s decision to capitalize certain legal fees.
EquipmentOccupancy expense decreasedincreased by $62,000,$10,000, or 29.2%2.9%, to $150,000$356,000 in 2014 from $346,000 in 2013 from $212,000 in 2012 and advertisingoutside data processing expense decreasedincreased by $35,000,$8,000, or 63.6%2.8%, to $20,000$291,000 in 2014 from $283,000 in 2013 from $55,000 in 2012 due to decreasesthe addition of the Rockland County, New York loan production office in the purchases of additional equipment and a decrease in marketing efforts in order to contain expenses. FDIC insurance expense decreased by $15,000, or 15.3%, to $83,000 in 2013 from $98,000 in 2012 due to a decrease in deposits.January 2014.
Income Taxes.Income tax expense increased by $72,000,$71,000, or 107.5%51.1%, to $210,000 for the three months ended June 30, 2014 from $139,000 for the three months ended June 30, 20132013. The increase resulted primarily from $67,000a $146,000 increase in pre-tax income in 2014 compared to 2013. The effective tax rate was 31.5% for the three months ended June 30, 2012. The increase resulted primarily from a $188,000 increase in pre-tax income in 2013 compared to 2012. The effective tax rate was2014 and 26.7% for the three months ended June 30, 2013 and 20.2% for the three months ended June 30, 2012.2013. The increase in the effective tax rate between periods was primarily due to the decreased portiona higher percentage of our pre-tax income during 2013 attributed tobeing tax-exempt, specifically the earnings on bank-owned life insurance.insurance, in 2013 compared to 2014.
Comparison of Operating Results For The Six Months Ended June 30, 20132014 and 20122013
General.Net income increased by $71,000,$83,000, or 13.7%14.1%, to $671,000 for the six months ended June 30, 2014 from $588,000 for the six months ended June 30, 2013 from $517,000 for the six months ended June 30, 2012.2013. The increase was primarily the result of an increase of $64,000 in net interest income and a decrease of $480,000$343,000 in provision for loan losses,non-interest expenses, offset by a decrease of $141,000$146,000 in net interest income,credit to the provision for loan losses, a decrease of $122,000$69,000 in non-interest income, an increase of $121,000 in non-interest expenses and an increase of $25,000$109,000 in the provision for income taxes.
Net Interest Income. Net interest income decreasedincreased by $141,000,$64,000, or 1.8%0.8%, to $7.9$7.97 million for the six months ended June 30, 20132014 from $8.0$7.91 million for the six months ended June 30, 2012. The decrease in net interest income resulted primarily from a decrease of $634,000 in interest income that exceeded a decrease of $493,000 in interest expense.
The net interest spread increased by 60 basis points to 3.82% for the six months ended June 30, 2013 from 3.22% for the six months ended June 30, 2012. The net interest margin increased by 59 basis points between these periods from 3.47% for the six months ended June 30, 2012 to 4.06% for the six months ended June 30, 2013. The increase in net interest income resulted primarily from an increase of $124,000 in interest income that exceeded an increase of $60,000 in interest expense.
The net interest spread decreased by 25 basis points to 3.57% for the six months ended June 30, 2014 from 3.82% for the six months ended June 30, 2013. The net interest margin decreased by 27 basis points between these periods from 4.06% for the six months ended June 30, 2013 to 3.79% for the six months ended June 30, 2014. The decrease in the interest rate spread and the net interest margin in the first half of 20132014 compared to the same period in 20122013 was due to an increasea decrease of 31 basis points in the yield on our interest-earning assets coupled withthat exceeded a decrease of six basis points in the cost of our interest-bearing liabilities.
The average yield on our interest-earning assets increaseddecreased by 5131 basis points to 4.58% for the six months ended June 30, 2014 from 4.89% for the six months ended June 30, 2013 from 4.38% for the six months ended June 30, 2012 and the cost of our interest-bearing liabilities decreased by 9six basis points to 1.01% for the six months ended June 30, 2014 from 1.07% for the six months ended June 30, 2013 from 1.16% for the six months ended June 30, 2012.2013. The increasedecrease in the yield on our interest-earning assets was due to a decrease in other interest-earning assets, resulting in a shift in the composition of interest-earning assets whereby higher yieldingyield on loans receivable, represented a larger percentage of total interest-earning assets for the six months ended June 30, 2013 quarter compared to the six months ended June 30, 2012. The increaseoffset by increases in the yield of ouron securities and other interest-earning assets was also due to a decrease in our non-performing assets by $6.4 million, or 78.8%, to $1.7 million as of June 30, 2013 from $8.1 million as of June 30, 2012.assets. The decrease in the cost of our interest-bearing liabilities was due to a decrease in the Company’s decision to reduce interest rates offered on ourcost of borrowed money, offset by an increase in the cost of interest-bearing deposits.
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The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the six months ended June 30, 20132014 and 2012.2013.
Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, | Average | and | Yield/ | Average | and | Yield/ | ||||||||||||||||||||||||||||||||||||||||||
2013 | 2012 | Balance | Dividends | Cost | Balance | Dividends | Cost | |||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest and Dividends | Yield/ Cost | Average Balance | Interest and Dividends | Yield/ Cost | |||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans | $ | 344,039 | $ | 9,323 | 5.42 | % | $ | 358,414 | $ | 9,861 | 5.50 | % | $ | 383,111 | $ | 9,480 | 4.95 | % | $ | 344,039 | $ | 9,323 | 5.42 | % | ||||||||||||||||||||||||
Securities | 12,353 | 183 | 2.96 | 16,837 | 264 | 3.14 | 9,684 | 147 | 3.04 | 12,353 | 183 | 2.96 | ||||||||||||||||||||||||||||||||||||
Other interest-earning assets | 32,960 | 6 | 0.04 | 88,091 | 21 | 0.05 | 27,556 | 9 | 0.07 | 32,960 | 6 | 0.04 | ||||||||||||||||||||||||||||||||||||
Total interest-earning assets | 389,352 | 9,512 | 4.89 | 463,342 | 10,146 | 4.38 | 420,351 | 9,636 | 4.58 | 389,352 | 9,512 | 4.89 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses | (4,504 | ) | (6,940 | ) | (4,165 | ) | (4,504 | ) | ||||||||||||||||||||||||||||||||||||||||
Non-interest-earning assets | 50,017 | 37,725 | 48,386 | 50,017 | ||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 434,865 | $ | 494,127 | $ | 464,572 | $ | 434,865 | ||||||||||||||||||||||||||||||||||||||||
Liabilities and equity: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing demand | $ | 61,480 | $ | 102 | 0.33 | % | $ | 115,640 | $ | 378 | 0.65 | % | $ | 61,418 | $ | 109 | 0.35 | % | $ | 61,480 | $ | 102 | 0.33 | % | ||||||||||||||||||||||||
Savings and club accounts | 82,642 | 219 | 0.53 | 89,706 | 329 | 0.73 | 85,849 | 233 | 0.54 | 82,642 | 219 | 0.53 | ||||||||||||||||||||||||||||||||||||
Certificates of deposit | 147,701 | 1,137 | 1.54 | 139,014 | 1,110 | 1.60 | 162,238 | 1,224 | 1.51 | 147,701 | 1,137 | 1.54 | ||||||||||||||||||||||||||||||||||||
Total interest-bearing deposits | 291,823 | 1,458 | 1.00 | 344,360 | 1,817 | 1.06 | 309,505 | 1,566 | 1.01 | 291,823 | 1,458 | 1.00 | ||||||||||||||||||||||||||||||||||||
Borrowings | 8,122 | 146 | 3.60 | 17,044 | 280 | 3.29 | 19,015 | 98 | 1.03 | 8,122 | 146 | 3.60 | ||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 299,945 | 1,604 | 1.07 | 361,404 | 2,097 | 1.16 | 328,520 | 1,664 | 1.01 | 299,945 | 1,604 | 1.07 | ||||||||||||||||||||||||||||||||||||
Noninterest-bearing demand | 22,108 | 17,268 | 23,954 | 22,108 | ||||||||||||||||||||||||||||||||||||||||||||
Other liabilities | 7,856 | 7,874 | 8,446 | 7,856 | ||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 329,909 | 386,546 | 360,920 | 329,909 | ||||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 104,956 | 107,581 | 103,652 | 104,956 | ||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and Stockholders’ equity | $ | 434,865 | $ | 494,127 | ||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and | ||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | $ | 464,572 | $ | 434,865 | ||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 7,908 | $ | 8,049 | $ | 7,972 | $ | 7,908 | ||||||||||||||||||||||||||||||||||||||||
Interest rate spread | 3.82 | % | 3.22 | % | 3.57 | % | 3.82 | % | ||||||||||||||||||||||||||||||||||||||||
Net interest margin | 4.06 | % | 3.47 | % | 3.79 | % | 4.06 | % | ||||||||||||||||||||||||||||||||||||||||
Net interest-earning assets | $ | 89,407 | $ | 101,938 | $ | 91,831 | $ | 89,407 | ||||||||||||||||||||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 129.81 | % | 128.21 | % | ||||||||||||||||||||||||||||||||||||||||||||
Average interest-earning assets to | ||||||||||||||||||||||||||||||||||||||||||||||||
average interest-bearing liabilities | 127.95 | % | 129.81 | % |
Total interest income decreasedincreased by $634,000,$124,000, or 6.2%1.3%, to $9.6 million for the six months ended June 30, 2014, from $9.5 million for the six months ended June 30, 2013. Interest income on loans increased by $157,000, or 1.7%, to $9.5 million for the six months ended June 30, 2013,2014 from $10.1 million for the six months ended June 30, 2012. Interest income on loans decreased by $538,000, or 5.5%, to $9.3 million for the six months ended June 30, 2013 from $9.9as a result of an increase of $39.1 million, or 11.4%, in the average balance of the loan portfolio to $383.1 million for the six months ended June 30, 20122014 from $344.0 million for the six months ended June 30, 2013 as a resultoriginations outpaced repayments. The increase in the average balance of the loan portfolio was offset by a decrease of 847 basis points in the average yield on loans to 4.95% for the six months ended June 30, 2014 from 5.42% for the six months ended June 30, 2013 from 5.50% for the six months ended June 30, 2012.2013. The decrease in interest income and the average yield on loans was due to the pay-off of higher yielding mortgage loans and the refinancing and/or re-pricing to lower interest rates of mortgage loans in our loan portfolio.
Interest income on securities decreased by $36,000, or 19.7%, to $147,000 for the six months ended June 30, 2014 from $183,000 for the six months ended June 30, 2013. The decrease in interest income was alsoprimarily due to a decrease of $14.4$2.7 million, or 4.0%21.6%, in the average balance of securities to $9.7 million for the loan portfolio to $344.0six months ended June 30, 2014 from $12.4 million for the six months ended June 30, 2013, from $358.4 millionoffset by an increase of eight basis points in the average yield on securities to 3.04% for the six months ended June 30, 20122014 from 2.96% for the six months ended June 30, 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 increase in the yield was due to dividends from FHLB New York stock that yielded approximately 4.0% and an increase in FHLB New York stock as repayments outpaced originations.a percentage of total investment securities.
Interest income on securities decreasedother interest-earning assets (consisting solely of interest-earning deposits) increased by $81,000,$3,000, or 30.7%50.0%, to $183,000$9,000 for the six months ended June 30, 2014 from $6,000 for the six months ended June 30, 2013. The increase was primarily due to an increase of three basis points in the average yield on other interest-earning assets to 0.07% for the six months ended June 30, 2014 from 0.04% for the six months ended June 30, 2013, from $264,000 for the six months ended June 30, 2012. The decrease was primarily due tooffset by a decrease of $4.5$5.4 million or 26.6%16.4%, in the average balance of securitiesinterest-earning assets to $12.4$27.6 million for the six months ended June 30, 20132014 from $16.8 million for the six months ended June 30, 2012. The decrease in the average balance was due to principal repayments on investment securities and a decrease in FHLB New York stock. The decrease in interest income on securities was also due to a decrease of 18 basis points in the average yield on securities to 2.96% for the six months ended June 30, 2013 from 3.14% for the six months ended June 30, 2012. The decline in the yield was due to the re-pricing of the yield of our adjustable rate investment securities and a decrease in FHLB stock yield from 4.5% at June 30, 2012 to 4.0% at June 30, 2013.
Interest income on other interest-earning assets (consisting solely of interest-earning deposits) decreased by $15,000, or 71.4%, to $6,000 for the six months ended June 30, 2013 from $21,000 for the six months ended June 30, 2012. The decrease was primarily the result of a decrease of $55.1 million, or 62.6%, in the average balance of other interest-earning assets to $33.0 million for the six months ended June 30, 2013 from $88.12013. The increase in interest income on interest-earnings deposits was due to an increase in the average balance of higher yielding certificates of deposit 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 increased by $60,000, or 3.7%, to $1.66 million for the six months ended June 30, 2012. The decrease in the average balance of other interest-earning assets was due to decreases in cash, cash equivalents, and certificates of deposit. The decrease in interest income on other interest-earning assets was also due to a decrease of 1 basis point in the yield to 0.04%2014 from $1.60 million for the six months ended June 30, 2013 from 0.05% for the six months ended June 30, 2012. The decline in the yield was due to the maturity of higher yielding certificates of2013. Interest expense on deposits at other financial institutions.
Total interest expense decreasedincreased by $493,000,$108,000, or 23.5%7.4%, to $1.6 million for the six months ended June 30, 20132014 from $2.1 million for the six months ended June 30, 2012. Interest expense on deposits decreased by $359,000, or 19.8%, to $1.5 million for the six months ended June 30, 2013 from $1.82013. The increase in the interest expense on deposits was a result of an increase of $17.7 million, or 6.1%, in the average balance of interest bearing deposits to $309.5 million for the six months ended June 30, 2012. During this same period, the average interest cost of deposits decreased by 6 basis points to 1.00% for the six months ended June 30, 20132014 from 1.06% for the six months ended June 30, 2012.
The decrease in interest expense on deposits was also due to a decrease of $52.5 million, or 15.3%, in the average balance of interest-bearing deposits to $291.8 million for the six months ended June 30, 2013 from $344.4 million2013. The increase in the interest expense on deposits was also a result of an increase of one basis point in the average cost of interest-bearing deposits to 1.01% for the six months ended June 30, 2012. The decrease in2014 from 1.00% for the average balance of interest-bearing deposits was due to decreases in the average balance of our interest-bearing demand deposits and interest-bearing savings and club accounts, offset by increases in the average balance of our interest-bearing certificates of deposits. The decrease in the average balances of our interest-bearing demand deposits and interest-bearing savings and club accounts was due to the Company’s decision to reduce our interest rates offered on our deposits. The increase in the average balance of our interest-bearing certificates of deposit was due to offering competitive interest rates in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012.six months ended June 30, 2013.
The interest expense of our interest-bearing demand deposits decreasedincreased by $276,000,$7,000, or 73.0%6.9%, to $109,000 for the six months ended June 30, 2014 from $102,000 for the six months ended June 30, 2013 from $378,000 for the six months ended June 30, 2012.2013. The decreaseincrease in interest expense in our interest-bearing demand deposits was due to our decision to reduce our interest rates in interest-bearing demand deposits that resulted in a 33an increase of two basis point decreasepoints in the average interest cost to 0.35% for the six months ended June 30, 2014 from 0.33% for the six months ended June 30, 2013 from 0.65% for the six months ended June 30, 2012. The decrease inas we continued to offer competitive interest expense on our interest-bearing demandrates to generate deposits, was also due tooffset by a decrease of $54.2 million,$62,000, or 46.8%0.1%, in the average balance of our interest-bearing demand deposits to $61.5$61.42 million for the six months ended June 30, 20132014 from $115.6$61.48 million for the six months ended June 30, 2012.2013.
The interest expense of our interest-bearing savings and club deposits decreasedincreased by $110,000,$14,000, or 33.4%6.4%, to $233,000 for the six months ended June 30, 2014 from $219,000 for the six months ended June 30, 2013 from $329,000 for the six months ended June 30, 2012.2013. The decreaseincrease in interest expense in our interest-bearing savings and club deposits resulted from our decision to reduce our interest rates in interest-bearing savings and club deposits that resulted in a 20 basis point decrease in the average interest cost to 0.53% for the six months ended June 30, 2013 from 0.73% for the six months ended June 30, 2012. The decrease in interest expense on our interest-bearing savings and club deposits was also due to a decreasean increase of $7.1$3.2 million, or 7.9%3.9%, in the average balance of our interest-bearing savings and club deposits to $85.8 million for the six months ended June 30, 2014 from $82.6 million for the six months ended June 30, 2013 from $89.7 million2013. The increase in interest expense in our interest-bearing savings and club deposits was also due to a 1 basis point increase in the average interest cost to 0.54% for the six months ended June 30, 2012.2014 from 0.53% for the six months ended June 30, 2013 as we offered competitive interest rates to generate deposits.
The interest expense of our interest-bearing certificates of deposit increased by $27,000,$87,000, or 2.4%7.7%, to $1.14$1.2 million for the six months ended June 30, 20132014 from $1.11$1.1 million for the six months ended June 30, 2012.2013. The increase in interest expense in our interest-bearing certificates of deposit was due to an increase of $8.7$14.5 million, or 6.3%9.8%, in the average balance of our interest-bearing certificates of deposit to $162.2 million for the six months ended June 30, 2014 from $147.7 million for the six months ended June 30, 2013 from $139.0 million for the six months ended June 30, 2012,2013. The increase in our interest-bearing certificates was due to management’s decision to continue offering 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 63 basis point decrease in the average interest cost on such certificates to 1.51% for the six months ended June 30, 2014 from 1.54% for the six months ended June 30, 2013 from 1.60% for the six months ended June 30, 2012.2014. The increasedecrease in the average balanceinterest cost of our interest-bearing certificates of deposit was due to offering competitive interest rates in connection with the openingre-pricing of two new branches in Framinghammaturing certificates of deposit and Quincy, Massachusetts during the latter partacquisition of competitively priced interest-bearing certificates of deposit through a non-broker nationwide certificate of deposit listing service.
Interest expense on borrowings decreased by $48,000, or 32.9%, to $98,000 for the third quarter of 2012.six months ended June 30, 2014 from $146,000 for the six months ended June 30, 2013. The decrease in the average interest costexpense on borrowings was due to our decisiona decrease of 257 basis points in the cost of borrowed money to reduce our1.03% for the six months ended June 30, 2014 from 3.60% for the six months ended June 30, 2013 due primarily to the maturity and repayment of higher costing FHLB advances in June 2014 and new lower costing FHLB advances obtained in December 2013 and the first six months of 2014. The decrease in interest ratesexpense on borrowings was partially offset by an increase of $10.9 million, or 134.1%, in interest-bearing certificatesthe average balance of deposit.
borrowed money to $19.0 million for the six months ended June 30, 2014 from $8.1 million for the six months ended June 30, 2013.
Interest expense on borrowings decreased by $134,000, or 47.9%, to $146,000 for the six months ended June 30, 2013 from $280,000 for the six months ended June 30, 2012. The decrease was primarily due to a decrease of $8.9 million, or 52.4%, in the average balance of borrowed money to $8.1 million for the six months ended June 30, 2013 from $17.0 million for the six months ended June 30, 2012. Offsetting the decrease in interest expense on borrowings was an increase of 31 basis points in the cost of borrowed money to 3.60% for the six months ended June 30, 2013 from 3.29% for the six months ended June 30, 2012 due primarily to the maturity and repayment of lower costing FHLB advances from 2012 to 2013.
Allowance for Loan Losses. The following table summarizes the activity in the allowance for loan losses for the six months ended June 30, 20132014 and 2012.2013.
Six Months | ||||||||||||||||
Six Months Ended June 30, | Ended June 30, | |||||||||||||||
2013 | 2012 | 2014 | 2013 | |||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
Allowance at beginning of period | $ | 4,646 | $ | 7,397 | $ | 4,015 | $ | 4,646 | ||||||||
Provision for loan losses | (363 | ) | 117 | |||||||||||||
Provision (credit) for loan losses | (217 | ) | (363 | ) | ||||||||||||
Charge-offs | 105 | 3,652 | (433 | ) | (105 | ) | ||||||||||
Recoveries | 27 | 5 | 565 | 27 | ||||||||||||
Net charge-offs | 78 | 3,647 | ||||||||||||||
Net recovery (charge-offs) | 132 | (78 | ) | |||||||||||||
Allowance at end of period | $ | 4,205 | $ | 3,867 | $ | 3,930 | $ | 4,205 |
We recorded provisions (credit) for loan losses of ($363,000)217,000) and $117,000($363,000) for the six-month periods ended June 30, 20132014 and 2012,2013, respectively. We charged-off $433,000 against two non-performing multi-family mortgage loans, one mixed-use mortgage loan, and one non-residential mortgage loan during the six months ended June 30, 2014 compared to charge-offs of $105,000 against two non-performing non-residential mortgage loans during the six months ended June 30, 2013 compared to charge-offs2013. We recorded recoveries of $3.7 million against six non-performing multi-family mortgage loans, four non-performing non-residential mortgage loans, and one non-performing construction mortgage loan$565,000 during the six months ended June 30, 2012. We recorded2014 compared to recoveries of $27,000 during the six months ended June 30, 2013 compared2013.
Non-interest Income. Non-interest income decreased by $69,000, or 6.7%, to recoveries of $5,000 during$954,000 for the six months ended June 30, 2012.
Non-interest Income. Non-interest income decreased by $122,000, or 10.7%, to2014 from $1.0 million for the six months ended June 30, 2013 from $1.1 million for the six months ended June 30, 2012.2013. The decrease was primarily due to an $85,000 decreasedecreases of $104,000 in other loan fees and service charges and $11,000 in earnings on bank owned life insurance, partially offset by increases of $45,000 in advisory fee income generated by our wealth management division an $83,000 decrease in other loan fees and service charges, partially offset by a $33,000 increase in earnings on bank owned life insurance and a $4,000 increase$1,000 in other non-interest income. The decrease in other loan fees and service charges was due to a decreasedecreases of $160,000$66,000 in mortgage broker fee income offset by increases ofand $40,000 in commercial and industrial loan fee income. The increase in advisory fee income $24,000from our wealth management division was due to an increase in deposit and ATM fees, and $14,000 in other loan fees.assets under management.
Non-interest Expense. Non-interest expense increaseddecreased by $121,000,$343,000, or 1.4%4.0%, to $8.2 million for the six months ended June 30, 2014 from $8.6 million for the six months ended June 30, 20132013. The decrease resulted primarily from $8.4 milliondecreases of $334,000 in impairment loss on goodwill, $147,000 in real estate owned expenses, $35,000 in equipment expenses, $16,000 in outside data processing expenses, and $9,000 in advertising expense, offset by increases of $135,000 in FDIC insurance expense, $37,000 in occupancy expense, $18,000 in salaries and employee benefits, and $8,000 in other non-interest expense.
The Company did not have any impairment loss on goodwill for the six months ended June 30, 2012. The increase resulted primarily from increases of $334,000 in impairment loss on goodwill, $251,000 in real estate owned expenses, $139,000 in occupancy expense, and $45,000 in outside data processing expense, offset by decreases of $420,000 in other non-interest expense, $83,000 in advertising expense, $78,000 in FDIC insurance expense, $40,000 in salaries and employee benefits, and $27,000 in equipment expense.
2014. During the second quarter of 2013, the Company determined that an adjustment to the goodwill impairment of $227,000 previously recorded in 2012 was necessary. As a result, an additional impairment charge of $334,000 was recognized for the six months ended June 30, 2013. The goodwill was recorded in connection with the Hayden Financial Group acquisition in 2007. The impairment was caused primarily by the expected decrease in other revenue from this division resulting from a reduction in personnel. The Company did not have any impairment loss on goodwill for
Real estate owned expense decreased by $147,000, or 56.8%, to $112,000 in 2014 from $259,000 in 2013 due to operating expenses related to one foreclosed property during the six months ended June 30, 2012.
Real estate owned expense increased by $251,000 due2014 compared to two foreclosed properties during the six months ended June 30, 2013 and a loss of $51,000 on the sale of a real estate owned andduring the addition of two foreclosed properties subsequent tosix months ended June 30, 2012 resulting2013. Equipment expense decreased by $35,000, or 10.6%, to $296,000 in an increase2014 from $331,000 in real estate owned2013 due to $3.8 million asdecreases in the purchases of June 30,additional equipment and continued efforts to contain expenses. Outside data processing expense decreased by $16,000, or 2.9%, to $544,000 in 2014 from $560,000 in 2013 and advertising expense decreased by $9,000, or 30.0%, to $21,000 in 2014 from no real estate owned as of June 30, 2012.$30,000 in 2013 due to continued efforts to contain expenses.
FDIC insurance expense increased by $135,000, or 119.5%, to $248,000 in 2014 from $113,000 in 2013 due to increases in the Company’s assessment base and quarterly assessment multiplier from 2013 to 2014. Occupancy expense increased by $139,000,$37,000, or 23.1%5.0%, to $777,000 in 2014 from $740,000 in 2013 from $601,000 in 2012 due to the addition of the new Framingham and Quincy, Massachusetts branch offices and payment of arrearage cooperative assessments for the 23rd Street,Rockland County, New York branch office. Outside data processing expense increased by $45,000, or 8.7%, to $560,000loan production office in 2013 from $515,000 in 2012 due to the addition of two new branch offices in the latter part of the third quarter of 2012 and additional services provided by the Company’s data processing vendors.
Other non-interest expense decreased by $420,000, or 18.5%, to $1.8 million in 2013 from $2.3 million in 2012 due mainly to decreases of $237,000 in directors, officers and employee expenses, $193,000 in recruitment expenses related to the hiring of additional personnel in the Company’s Headquarters and Massachusetts locations, $38,000 in regulatory assessments, $21,000 in donations, $17,000 in consulting fees, $14,000 in service contracts, and $7,000 in postage expenses, offset by increases of $74,000 in audit and accounting fees, $50,000 in director’s compensation, $29,000 in telephone expenses, and $5,000 in insurance expense.
FDIC insurance expense decreased by $78,000, or 40.8%, to $113,000 in 2013 from $191,000 in 2012 due to a decrease in deposits. Advertising expense decreased by $83,000, or 73.5%, to $30,000 in 2013 from $113,000 in 2012 and equipment expense decreased by $27,000, or 7.5%, to $331,000 in 2013 from $358,000 in 2012 due to efforts to contain cost that resulted in decreases in marketing efforts and decreases in the purchases of additional equipment.January 2014.
Salaries and employee benefits, which represented 50.7%53.1% of the Company’s non-interest expense during the six months ended June 30, 2013, decreased2014, increased by $40,000,$18,000, or 0.9%0.4%, to $4.34$4.35 million in 2014 from $4.33 million in 2013 from $4.38 million in 2012 due to the staffing of the Rockland County, New York loan production office, offset by a decreasereduction in the number of full time equivalent employees to 99 at June 30, 2014 from 104 at June 30, 2013 from 114 at June 30, 2012, offset by the staffing of the Framingham and Quincy, Massachusetts branch offices that opened during the latter part of the third quarter of 2012.2013. The decreasereduction in full time employees was due to the Company’s efforts to control the increasestaff occurred in salaries and employee benefits by reducing staff in various departments, including the mortgage brokerage department, the wealth management department and branch operationsoperations.
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Other non-interest expense increased by $8,000, or 0.4%, to $1.85 million in 2014 from June 30, 2012$1.85 million in 2013 due mainly to June 30, 2013.increases of $96,000 in miscellaneous other non-interest expenses, $91,000 in audit and accounting fees, $48,000 in service contracts, $45,000 in telephone expenses, $6,000 in insurance expenses, and $4,000 in directors, officers and employee expenses, offset by decreases of $230,000 in legal fees, $37,000 in directors compensation, and $15,000 in office supplies and stationery. The increase in miscellaneous other non-interest expenses was due primarily to an increase of $117,000 in personnel finder’s fees, offset by a decrease of $17,000 in consulting expenses. The increase in audit and accounting fees was due to an increase in services provided by our independent and contract internal auditors. The decrease in legal fees was due primarily to the Company’s decision to capitalize certain legal fees.
Income Taxes.Income tax expense increased by $25,000,$109,000, or 18.8%69.0%, to $267,000 for the six months ended June 30, 2014 from $158,000 for the six months ended June 30, 20132013. The increase resulted primarily from $133,000a $192,000 increase in pre-tax income in 2014 compared to 2013. The effective tax rate was 28.5% for the six months ended June 30, 2012. The increase resulted primarily from a $96,000 increase in pre-tax income in 20132014 compared to 2012. The effective tax rate was 21.2% for the six months ended June 30, 2013 and 20.5% for the six months ended June 30, 2012.2013. The increase in the effective tax rate was primarily due to the decreased portion of pre-tax income during 20132014 attributed to tax-exempt earnings on bank-owned life insurance.
NON PERFORMING ASSETS
The following table provides information with respect to our non-performing assets at the dates indicated.
At | At | |||||||||||||||
At June 30, 2013 | At December 31, 2012 | June 30, 2014 | December 31, 2013 | |||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
Non-accrual loans | $ | 2,152 | $ | 3,957 | $ | 10,643 | $ | 4,666 | ||||||||
Loans past due 90 days or more and accruing | — | — | — | — | ||||||||||||
Total nonaccrual and 90 days or more past due loans | 2,152 | 3,957 | ||||||||||||||
Other non-performing loans | — | — | ||||||||||||||
Total non-performing loans | 2,152 | 3,957 | 10,643 | 4,666 | ||||||||||||
Real estate owned | 3,821 | 4,271 | 4,014 | 3,985 | ||||||||||||
Total non-performing assets | 5,973 | 8,228 | 14,657 | 8,651 | ||||||||||||
Accruing troubled debt restructurings | 15,826 | 12,236 | 12,201 | 15,535 | ||||||||||||
Nonaccrual troubled debt restructurings | 1,230 | 1,197 | 4,693 | 1,269 | ||||||||||||
Total troubled debt restructurings | 17,056 | 13,433 | 16,894 | 16,804 | ||||||||||||
Less nonaccrual troubled debt restructurings in total nonaccrual loans | 1,230 | 1,197 | 4,693 | 1,269 | ||||||||||||
Total troubled debt restructurings and non-performing assets | $ | 21,799 | $ | 20,464 | $ | 26,858 | $ | 24,186 | ||||||||
Total non-performing loans to total loans | 0.64 | % | 1.17 | % | 2.76% | 1.26% | ||||||||||
Total non-performing assets to total assets | 1.39 | % | 1.85 | % | 3.08% | 1.89% | ||||||||||
Total non-performing assets and troubled debt restructurings to total assets | 4.99 | % | 4.61 | % | ||||||||||||
Total non-performing assets and troubled | ||||||||||||||||
debt restructurings to total assets | 5.65% | 5.28% |
The non-accrual loans at June 30, 20132014 consisted of five12 loans in the aggregate, – twocomprised of three multi-family mortgage loans, and threeone mixed-use mortgage loan, four non-residential mortgage loans, and four commercial and industrial loans.
Non-performing loans decreasedincreased by $1.8$6.0 million, or 45.6%128.1%, to $2.2$10.6 million at June 30, 20132014 from $4.0$4.7 million at December 31, 2012.2013. The decreaseincrease in non-performing loans was due to the satisfactionaddition of two non-accrualfive mortgage loans totaling $196,000$5.3 million and two commercial and industrial loans totaling $2.5 million, offset by the satisfaction of one mortgage loan totaling $789,000, the conversion from non-performing to performing status of fourone mortgage loansloan totaling $1.8 million, partially offset by$824,000, and the additioncharge-off of twoone mortgage loans totaling $195,000.loan of $325,000.
The three non-accrual non-residentialmulti-family mortgage loans net of charge-offs of $1.0 million, totaled $2.0$3.1 million at June 30, 20132014 and consisted primarily of the following mortgage loans:
(1) | An outstanding balance of |
(2) | An outstanding balance of |
32 |
(3) | An outstanding balance of $200,000 secured by a six unit apartment building. We classified this loan as substandard. The Company has commenced a foreclosure action. We are evaluating the options currently available to us. |
The one non-accrual mixed-use mortgage loan totaled $1.9 million, net of charge-off of $325,000, at June 30, 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. Upon the hiring of the forensic accountant, the borrower filed a chapter 7 bankruptcy petition. The receiver is currently marketing the property for sale.
The four non-accrual non-residential mortgage loans totaled $3.0 million at June 30, 2014 and consisted primarily of the following mortgage loans:
(1) | An outstanding balance of $2.1 million secured by an office building. We classified this loan as substandard. The borrowers have agreed to provide a deed-in-lieu of foreclosure. The Company has retained a property management company to operate the property and has exercised the right to collect rents from the tenants. Upon minor renovation and lease-up of the property, the Company will market the property for sale. We do not anticipate any loss due to the projected positive cash flow from the property. |
(2) | An outstanding balance of $448,000, net of charge-off 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 marketing the property for sale. |
(3) | 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. The Chapter 11 bankruptcy was dismissed and the foreclosure action is continuing. We are evaluating the options available and anticipate scheduling a foreclosure sale during the third quarter of 2014. |
(4) | An outstanding balance of $197,000, secured by a restaurant and seafood market. We classified this loan as substandard. The Company has commenced a foreclosure action. We are evaluating the options currently available to us. |
The four non-accrual commercial and industrial loans totaled $2.6 million at June 30, 2014 and consisted primarily of the following loans:
(1) | Two loans with an aggregate balance of $2.5 million, consisting of a line of credit with an outstanding balance of $1.4 million and remaining available line of credit of $76,000 and a term loan with an outstanding balance of $1.1 million. The loans are secured by the assets of a construction company. The Company is working with the borrower and the borrower’s surety bonding company to cure the delinquencies and/or satisfy the loans. |
(2) | Two loans with an aggregate balance of $79,000, consisting of a line of credit with an outstanding balance of $48,000 and a remaining available line of credit of $2,000 and a term loan with an outstanding balance of $31,000. The loans are secured by the assets of the business and a real estate property. 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 June 30, 2013,2014, we ownedone foreclosed property with a net balance of $3.8$4.0 million consisting of an office building located in New Jersey. The property was most recently appraised in November 2013 for $4.25 million. The Company plans to renovate the property shortly to attract more tenants. Upon completion of the renovation, the Company will order an updated appraisal. The Company’s managing agent is operating and marketing the building. for additional tenants and sale. The Company won a $1.7 million judgment in July 2014 against the former borrower whereby the judgment protects the Company in the event of a loss on the sale of the property.
TROUBLED DEBT RESTRUCTURED LOANS
There were no loans modified that were deemed to be TDRs during the three and six months ended June 30, 2014. As of June 30, 2014, none of the loans that were modified during the previous twelve months had defaulted in the three and six month period ended June 30, 2014.
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The following tables show the activity in TDR loans for the period indicated:
Commercial | ||||||||||||||||||||||||
Residential | Nonresidential | and | ||||||||||||||||||||||
Real Estate | Real Estate | Construction | Industrial | Consumer | Total | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Balance at December 31, 2013 | $ | 6,419 | $ | 10,385 | $ | — | $ | — | $ | — | $ | 16,804 | ||||||||||||
Additions | 34 | 62 | — | — | — | 96 | ||||||||||||||||||
Repayments | (31 | ) | (35 | ) | — | — | — | (66 | ) | |||||||||||||||
Amortization of TDR reserves | 11 | 49 | — | — | — | 60 | ||||||||||||||||||
Balance - June 30, 2014 | $ | 6,433 | $ | 10,461 | $ | — | $ | — | $ | — | $ | 16,894 | ||||||||||||
Related allowance | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
There were no charge-offs of loans classified as TDRs in the three and six months ended June 30, 2014. Additions for the period consist of real estate taxes and similar items paid to protect the collateral position of the Company.
There were four loans modified during the three and six months ended June 30, 2013.
TheOne multi-family mortgage loan had an original interest rate of 6.75% with an amortization of 25 years. We reduced the interest rate and converted the monthly payments to interest only for twenty months and then amortizing for 30 years, with a balloon payment after approximately five and one-half years from the modification date.
Two non-residential mortgage loans had an original interest rate of 4.00%6.75% with an amortization of 25 years. We reduced the interest rate and converted the monthly payments to interest only for twenty months and then amortizing for 30 years, with a balloon payment after approximately five and one-half years from the modification date.
One non-residential mortgage loan had an original interest rate of 4.00%6.75% with an amortization of 30 years. We reduced the interest rate and converted the monthly payments to interest only for nineteen months and then amortizing for 30 years, with a balloon payment after two years from the modification date.
As of June 30, 2013, none of the loans that were modified during the previous twelve months had defaulted in the three and six month periods ended June 30, 2013.
The following tables show the activity in troubled debt restructuredTDR loans for the period indicated:
Commercial | ||||||||||||||||||||||||||||||||||||||||||||||||
Residential | Nonresidential | and | ||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Construction | Industrial | Consumer | Total | |||||||||||||||||||||||||||||||||||||||||||
Residential Real Estate | Nonresidential Real Estate | Construction | Commercial and Industrial | Consumer | Total | (in thousands) | ||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2012 | $ | 6,444 | $ | 6,989 | $ | — | $ | — | $ | — | $ | 13,433 | $ | 6,444 | $ | 6,989 | $ | — | $ | — | $ | — | $ | 13,433 | ||||||||||||||||||||||||
Additions | 307 | 3,333 | — | — | — | 3,640 | 282 | 3,287 | — | — | — | 3,569 | ||||||||||||||||||||||||||||||||||||
Repayments | (17 | ) | — | — | — | — | (17 | ) | (19 | ) | (27 | ) | — | — | — | (46 | ) | |||||||||||||||||||||||||||||||
Amortization of TDR reserves | 27 | 73 | — | — | — | 100 | ||||||||||||||||||||||||||||||||||||||||||
Balance - June 30, 2013 | $ | 6,734 | $ | 10,322 | $ | — | $ | — | $ | — | $ | 17,056 | $ | 6,734 | $ | 10,322 | $ | — | $ | — | $ | — | $ | 17,056 | ||||||||||||||||||||||||
Related allowance | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
There were no charge offs ofagainst loans classified as troubled debt restructuringsTDRs in the three and six months ended June 30, 2013.
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.
The following tables show the activity in troubled debt restructured loans for the period indicated:
Residential Real Estate | Nonresidential Real Estate | Construction | Commercial and Industrial | Consumer | Total | |||||||||||||||||||
Balance at December 31, 2011 | $ | 9,886 | $ | 5,587 | $ | — | $ | — | $ | — | $ | 15,473 | ||||||||||||
Additions | 1,243 | 10,597 | — | — | — | 11,840 | ||||||||||||||||||
Repayments | (2,746 | ) | (4,637 | ) | — | — | — | (7,383 | ) | |||||||||||||||
Balance - June 30, 2012 | $ | 8,383 | $ | 11,547 | $ | — | $ | — | $ | — | $ | 19,930 | ||||||||||||
Related allowance | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
There were charge offs of $1.8 million against loans classified as troubled debt restructurings in the three and six months ended June 30, 2012.
Additions for the period consist of four non-residential mortgage loans and one residential mortgage loans that were modified and 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.
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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 $39.1$37.6 million at June 30, 20132014 and consistconsisted primarily of interest-bearing deposits at other financial institutions and miscellaneous cash items. The Company can alsoborrow anadditional $97.1 $80.8 million from the FHLB of New York to provide additional liquidity.
At June 30, 2013,2014, we had $49.0$97.3 million in loan commitments outstanding, consisting of $25.7$38.6 million of real estate loan commitments, $26.9 million in unused commercial and industrial loan lines of credit, $12.9$25.2 million of real estate loan commitments, $6.7in unused loans in process, $3.8 million in unused real estate equity lines of credit, $3.6$2.7 million in unused loans in process,commercial and $139,000industrial loan commitments, and $158,000 in consumer lines of credit. Certificates of deposit due within one year of June 30, 20132014 totaled $65.1$62.2 million. This represented 44.7%36.8% of certificates of deposit at June 30, 2013.2014. 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 June 30, 2013.2014. 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.advances. At June 30, 2013,2014, we had the ability to borrow $97.1$80.8 million, net of $5.0$20.9 million in outstanding advances, from the FHLB of New York. At June 30, 2013,2014, 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 June 30, 2013,2014, the Company had liquid assets of $13.9$11.7 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 June 30, 2013,2014, 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 and six months ended June 30, 20132014 and the year ended December 31, 2012,2013, 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.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Qualitative Aspects of Market Risk.The Company’s most significant form of market risk is interest rate risk. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread.
Our strategy for managing interest rate risk emphasizes: originating mortgage real estate loans that re-price to market interest rates in three to five years; purchasing securities that typically re-price within a three year time frame to limit exposure to market fluctuations; and, where appropriate, offering higher rates on long term certificates of deposit to lengthen the re-pricing time frame of our liabilities. We currently do not participate in hedging programs, interest rate swaps or other activities involving the use of derivative financial instruments.
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We have an Asset/Liability Committee, comprised of our Chief Executive Officer, Chief Operating Officer, Interim Chief Financial Officer, Chief Retail Banking Officer, and three Chief Lending Officer – New England Region, and Chief Lending Officer – Mid-Atlantic Region,Officers, whose function is to communicate, coordinate and control all aspects involving asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.
Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income and net income.
Quantitative Aspects of Market Risk. We use an interest rate sensitivity analysis prepared by an independent third party to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in the net portfolio value of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. These analyses assess the risk of loss in market risk-sensitive instruments in the event of a sudden and sustained 50100 to 300400 basis point increase or 50 and 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement.
The following table presents the change in our net portfolio value at June 30, 2013that2014 that would occur in the event of an immediate change in interest rates based on the independent third party assumptions, with no effect given to any steps that we might take to counteract that change.
Net Portfolio Value (Dollars in thousands) | Net Portfolio Value as % of Portfolio Value of Assets | Net Portfolio Value | |||||||||||||||||||||||||||||||||||||||
Basis Point (“bp”) Change in Rates | $ Amount | $ Change | % Change | NPV Ratio | Change | ||||||||||||||||||||||||||||||||||||
as % of | |||||||||||||||||||||||||||||||||||||||||
Net Portfolio Value | Portfolio Value of | ||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Assets | ||||||||||||||||||||||||||||||||||||||||
Basis Point (“bp”) | $ | $ | % | NPV | |||||||||||||||||||||||||||||||||||||
Change in Rates | Amount | Change | Change | Ratio | Change | ||||||||||||||||||||||||||||||||||||
400 | $ | 103,670 | $ | (12,318 | ) | (10.62 | )% | 23.23% | (63 | ) | bp | ||||||||||||||||||||||||||||||
300 | $ | 108,920 | $ | (12,065 | ) | (10.0 | )% | 26.09 | % | (119) bp | 106,392 | (9,596 | ) | (8.27 | )% | 23.38% | (48 | ) | bp | ||||||||||||||||||||||
200 | 112,791 | (8,194 | ) | (6.8 | )% | 26.53 | % | (75) bp | 110,725 | (5,263 | ) | (4.54 | )% | 23.83% | (3 | ) | bp | ||||||||||||||||||||||||
100 | 117,343 | (3,642 | ) | (3.0 | )% | 27.02 | % | (26) bp | 114,423 | (1,565 | ) | (1.35 | )% | 24.07% | 21 | bp | |||||||||||||||||||||||||
0 | 120,985 | — | 27.28 | % | 115,988 | 23.86% | |||||||||||||||||||||||||||||||||||
(100) | 125,272 | 4,287 | 3.5 | % | 27.73 | % | 45 bp | 122,875 | 6,887 | 5.94% | 24.64% | 78 | bp |
We use various assumptions in assessing interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analyses presented in the foregoing tables. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. Prepayment rates can have a significant impact on interest income. Because of the large percentage of loans we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe these assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future loan repayment activity.
Item 4. | Controls and Procedures |
The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
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There were no changes in the Company’s internal control over financial reporting during the three months ended June 30, 20132014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. | OTHER INFORMATION |
Item 1. | Legal Proceedings |
On October 31, 2011, a complaint was filed by Stilwell Value Partners IV, L.P. in the Supreme Court of New York, New York County (the “Court”), against the Company, the MHC and each of the directors of the Company and the MHC.MHC as defendants, and against the Company as a nominal defendant. The complaint alleged that the directors had breached their fiduciary duties by not expanding the Company board to allow for disinterested consideration of a “second-step” conversion of the MHC. As relief, the complaint requested, among other things, that the Company’s board of directors be increased by at least three new members, that such new members be given sole responsibility to determine whether the Company should engage in a second-step conversion and that the Court order the Company to engage in a second-step conversion. A motion to dismiss the Complaint was filed on December 14, 2011. On September 27, 2012, the Court granted the Company’s motion to dismiss and dismissed the complaint granting Stilwell leave to file an amended complaint within 20 days. On December 14, 2012 Stilwell filed an amended complaint, alleging that the directors had breached their fiduciary duties by not voting to authorize a second step conversion or permitting disinterested consideration by new, independent board members of a second step conversion. Stilwell asserted claims against the MHC, as majority shareholder of the Company, for breach of fiduciary duty and for aiding and abetting the directors’ alleged breach of fiduciary duty.
The defendants and the Company filed a motion to dismiss on February 1, 2013. Stilwell filed his opposition on March 8, 2013, and the defendants and the Company filed itstheir reply brief on March 29, 2013. The Court held a hearing on the motion on June 12, 2013. It is anticipated thatOn October 23, 2013, the Court will rule ondenied the motion to dismiss, holding the Court could not say that Stilwell had not alleged a viable claim, and thus the Court allowed the lawsuit against the Company’s directors and the MHC to proceed. The defendants and the Company appealed that decision to the Supreme Court of the State of New York’s Appellate Division, First Department, (“Appellate Division”) on November 27, 2013. The defendants and the Company filed their opening appeal brief on February 18, 2014. Stilwell filed his response brief on March 26, 2014. The defendants and the Company filed their reply brief on April 4, 2014. The Appellate Division heard oral argument on May 22, 2014. Additionally, on February 21, 2014, Stilwell moved to disqualify the Company’s counsel, which represents the Company, the individual directors, and MHC in this litigation. Stilwell argued that he was suing the directors and MHC on behalf of the Company and thus that there was a conflict of interest among the defendants that required the Company to have separate counsel. The defendants opposed the motion on March 7, 2014. Stilwell filed a reply on March 13, 2014. The Court held oral argument on April 9, 2014, and denied the disqualification motion. Plaintiff filed its opening brief on July 1, 2014. Defendant’s opposition was filed on August 6, 2014, and briefing of that appeal is on-going.
On July 3, 2014, Salvatore Randazzo, a former director of the MHC, the Company and the Bank, retained separate counsel to represent him in the next several months.litigation.
The parties are continuing to conduct discovery, including document production, depositions and third party discovery.
The Company and Bank are also subject to claims and litigation that arise primarily in the ordinary course of business. Based on information presently available and advice received from legal counsel representing the Company and Bank in connection with such claims and litigation, it is the opinion of management that the disposition or ultimate determination of such claims and litigation will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.
Item 1A. | Risk Factors |
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012,2013, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
NoneOn November 26, 2013, the Company announced that its Board of Directors approved the repurchase for up to 268,550 shares of the Company’s outstanding common stock held by persons other than the MHC. The following table presents information regarding the Company’s stock repurchases during the three months ended June 30, 2014.
Total Number of | Maximum Number | |||||||||||||||
Total | Shares Purchased | of Shares that May | ||||||||||||||
Number of | Average | as Part of Publicly | Yet Be Purchased | |||||||||||||
Shares | Price Paid | Announced Plans | Under the Plans or | |||||||||||||
Period | Purchased | per Share | or Program | Programs | ||||||||||||
April 1 to | ||||||||||||||||
April 30. | 47,900 | $ | 7.31 | 47,900 | 28,450 | |||||||||||
May 1 to | ||||||||||||||||
May 31. | 28,450 | 7.26 | 28,450 | — | ||||||||||||
June 1 to | ||||||||||||||||
June 30. | — | — | — | — | ||||||||||||
Total | 76,350 | $ | 7.29 | 76,350 | — |
Item 3. | Defaults Upon Senior Securities |
Not applicable
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None
Item 6. | Exhibits |
31.1 | CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | CFO certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
32.1 | CEO and CFO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, |
_____________________________
* Furnished, not filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Northeast Community Bancorp, Inc.
Date: August 14, | By: | /s/ Kenneth A. Martinek |
Kenneth A. Martinek | ||
Chief Executive Officer | ||
Date: August 14, | By: | /s/ Donald S. Hom |
Donald S. Hom | ||
Officer | ||